Performance Archives - Lend Academy

New LendingClub Account Performance – Q2 2019

Now over a year in, we share the returns of the new LendingClub account which was opened in 2018.

July 11, 2019 By Ryan Lichtenwald Leave a Comment

In April 2018, LendingClub provided us with $5,000 to open a brand new account. Since then we have been chronicling the status of the account on a quarterly basis. Below are links to the full series of blog posts in chronological order:

Every quarter I first like to take a look at any recent news from LendingClub. Last quarter we reported a pretty significant change as LendingClub ceased offering of E Grade loans.

In June, LendingClub shared a blog post titled, “Marketplace Loans in a Downturn: 5 Questions and Answers“. In it they shared that they are leaning a bit bearish citing a variety of factors. Despite this LendingClub believes that the coast is clear for the rest of 2019 with consumers being in a good position. They also discuss the advantages of investing in loans in a recession, how LendingClub loans may perform in a recession, what LendingClub will do from a servicing standpoint and how LendingClub’s approach will change in a downturn. From LendingClub’s blog post:

We found the biggest impact would occur if a recession started within two quarters of a loan’s origination date. Next, we looked at returns. There, our data suggest that loan performance would still compare favorably to what happened in equity markets during the last recession. In a severe recession we believe we could expect vintage level returns to fall into negative single digits.

LendingClub also shared updates regarding their credit policies. In it they discuss their early delinquency tool which uses customer risk signals and credit bureau data to flag higher risk borrowers. Nixing the riskier loan grades is one way that they have worked towards making returns more stable and focusing more on loan grades with higher demand. Grades A and B now make up 50% of LendingClub’s offering. Interest rates were also adjusted upwards in C grade loans in June 2019. You can view the full update on LendingClub’s blog.

LendingClub Account Performance

This LendingClub account was set to invest in all grades, which now includes loan grades A through D. Given the recent removal of E grade loans this has somewhat adjusted the current allocation versus target allocation chart as shown below. This is LendingClub’s suggested mix using their Automated Investing service. As of July 10, 2019 the stated average historical return is 5.70%. Over the next several months we will see more funds allocated to A grade loans as payments come into the account.

As we explain every quarter it’s important to understand the average age of the portfolio which now stands at 12 months. Accounts are considered seasoned around the 18 month mark. It is interesting to note that despite this account being on autopilot I am trending to the top end of returns for similar accounts.

Since we’re approaching the point at which an account is considered seasoned we can start to get an idea of the returns using the formula XIRR. Below is a snippet from a simple Google sheet I created. I am using June 30, 2018 as a starting point as all funds were allocated at that point. It is also beneficial to look at a rolling 12 month period. The account balances below were pulled from their respective statements. It is currently reporting a return of 8.45% which I expect will decrease over the next six months and eventually stabilize.

LendingClub New
6/30/2018	$5,145.62
6/30/2019	-$5,580.30
Formula: “=XIRR(E24:E25,D24:D25)”	8.45%

It has been quite the journey since I first began investing in Lending Club loans over 5 years ago. With this account it’s interesting to see what returns are possible today given that they have fallen significantly since I first invested. LendingClub has settled on the borrower segment they want to serve by removing E, F and G loans. While we no longer enjoy the double digit returns that were previously possible, investors are going to be better off if we were to enter a recession. As we continue to be in a low interest rate environment these returns could also be attractive for investors seeking income. For further reading Peter Renton, founder of Lend Academy and co-founder of LendIt, first got involved investing in 2009 and recently wrote a piece reflecting on his experience.

New LendingClub Account Performance – Q1 2019

We share the fourth update on a LendingClub account which was opened in 2018.

May 14, 2019 By Ryan Lichtenwald 4 Comments

No More E-Grade Loans at LendingClub

Before we get into the performance of the account I’d like to discuss a few changes that LendingClub has made since our last update. Probably the most significant news was that as of May 7, 2019 LendingClub stopped offering new grade E notes except those corresponding to certain previously qualified or approved loans. Beginning July 1, 2019 no grade E Notes will be available to investors. Long time readers will remember the days when E grade loans produced high returns, often over 10% annualized for investors. This changed in recent years as defaults increased, particularly around the higher grade loans. Most investors saw their returns begin to fall in mid-2016 or even before that.

Last year, LendingClub decided to stop offering F & G grade loans to investors so it is no surprise that they continue to focus on more prime consumers, especially when you consider that banks make up a majority of their investor base. LendingClub also included this statement in a recent blog post:

We view this change as a natural evolution of our dynamic platform that seeks to match consumer demand with investor risk appetite. Grade E loans have historically accounted for a small percentage of volume on the platform.

What’s also interesting is that last week during LendingClub’s Q1 2019 earnings call which we covered here, CEO Scott Sanborn discussed the possibility of partnering with institutional investors on expanding the credit box to riskier borrowers. The way this might work is that LendingClub would host an alternative credit model instead of their own, for instance a model targeting thin file borrowers. Then investors could invest in loans originated by this third party with LendingClub only facilitating these transactions. But that is probably some time away from happening.

In LendingClub’s Q1 2019 platform update published to their blog, they discussed that lenders as a group continue to tighten credit. They also shared news about new tools they are testing such as the ability to detect borrowers who are more likely to default earlier in the loan cycle. LendingClub made no interest rate changes in the quarter, but are continuing to selectively tighten certain higher risk segments, while simultaneously growing lower risk segments.

Update on New LendingClub Account

Digging into the account’s performance it is worth reiterating that investors don’t have a clear picture of returns until the account is seasoned, which is about 18 months weighted average age. This is demonstrated in the image below as stated returns continue to decrease with age and stabilize around the 18 month mark.

The capital in my account had not been fully deployed at the end of the first quarter of 2018. In our next quarterly report we will share returns using XIRR which will start to give us an idea of where returns will fall.

As of May 14, 2019

When I first created this account I used LendingClub’s Automated Investing which suggested the allocation below. You’ll note the small allocation to E grade loans which will eventually fall to 0% as loans start getting paid off.

As of May 14, 2019

Conclusion

It will be interesting to see where the returns on this account end up falling. With little changes to interest rates recently, LendingClub is still an attractive investment in my opinion with returns around 6-7%. For comparison, interest rates on 5 year CDs are now around 3%. One thing that surely attracted investors who found LendingClub before 2015 was the potential to earn 10%. With the removal of E, F and G grade loans this is something that would be nearly impossible to achieve today. Clearly LendingClub has made it clear the types of borrowers they want to focus on.

New LendingClub Account Performance – Q4 2018

We share the third update on a LendingClub account which was opened in 2018.

January 23, 2019 By Ryan Lichtenwald 3 Comments

One of the things required for investing in marketplace lending is patience. Even though our new LendingClub account has been open around 9 months we still won’t have a full grasp on returns until around the 18 month mark. For now we can continue to look at the trends we’re seeing in the account.

What’s interesting is that my adjusted net annualized return is now 9.56% as of January 23 2019, significantly higher than last time I checked in at 7.81%. This is largely due to an improvement of the amount of loans that were in the buckets between late through charged off. It is a good example of how any numbers displayed early on in an account’s history should be taken with a grain of salt.

My portfolio now has a weighted average age 8.5 months and judging by the chart below I am currently trending above accounts that have a similar average interest rate.

Remember that for this account we have left the loan selection completely up to LendingClub’s Automated Investing service. As of today my account shows that I am currently overweight in my allocation to C grade notes and underweight in A grades.

Finally, it’s worth taking stock of the total interest earned for the year. Below is the screenshot from my December 2018 statement outlining my total interest earned for the year of $425.39.

Every quarter I like to look at any changes or communications related to LendingClub’s platform. LendingClub shared their Q3 2018 platform update which provides their thoughts on the economic backdrop, credit environment and interest rates. The company made changes to grades A and B loans which was the fourth increase in rates for 2018 at the time of the update. Interest rates rose between 49-114 basis points depending on the grade and sub grade. In addition to the platform update, the company released a Marketplace Insights report which specifically addressed marketplace lending in a rising rate environment. This report went in depth on this rate cycle, how marketplace lending has performed compared to other assets, changes to their platform over their history and the impact of other macroeconomic measures. You view their report for free here.

New LendingClub Account Performance – Q3 2018

We share the second update on a LendingClub account which was opened in 2018.

November 1, 2018 By Ryan Lichtenwald Leave a Comment

Last quarter we discussed that any reported returns from screenshots of the account should be taken with a grain of salt. Once this account becomes seasoned around the 18 month mark we will begin to provide returns using the XIRR calculation.

Note that the account currently has a weighted average age of 6.5 months. The below chart depicts a gradual decrease of adjusted annualized return until returns finally settle. With this account I took a balanced allocation to loan grades which has resulted in a weighted average interest rate of 12.76%. All notes are purchased through LendingClub’s automated investment feature. Returns are likely to fall in the middle of the road as you can see other investors have experienced as evidenced by the red dots below.

[Read more…]

New LendingClub Account Performance – Q2 2018

We share the first update on a LendingClub account which was opened in 2018.

July 12, 2018 By Ryan Lichtenwald 10 Comments

Back in April 2018 we shared that LendingClub had provided us with $5,000 to start a brand new LendingClub account. We wanted to both report on the new investor experience and also share the performance of the account over time. In the last blog post I included a video which went through LendingClub’s automated investing tool. Before we get into the details of the account I also want to mention any changes that happened within the quarter that LendingClub investors should be aware of. On May 8th, 2018 LendingClub announced interest rate changes:

Effective May 8, 2018, interest rates on the LendingClub Corporation (“LendingClub”) platform have been updated. The changes are an increase of 0.12% for loan grades A2-A5, 0.15% for loan grades B1-B5, and 0.45% for loan grades C1-C5.

As a reminder, this account was setup to invest in LendingClub’s suggested ‘All Grades’ automated investing strategy. Below is a screenshot of my target allocation shortly after account setup with about half of my capital allocated to LendingClub notes.

Below is a screenshot as of today with all $5,000 invested which now closely resembles my target allocation.

You’ll notice that investing across LendingClub’s All Grades is skewed towards being conservative as opposed to allocating the same percentage across loan grades. Nearly 80% of my loans in this account are A, B or C grade loans.

At time of account opening, LendingClub noted historical returns range from 2.94% – 6.98%. This has decreased slightly based on the most up to date historical returns. Below is a snapshot of my LendingClub Summary. It’s important to note that Adjusted Net Annualized Return is not a good metric until the loans have seasoned. As we move further along in this experiment we will start to get a better idea of where returns are trending and will begin to include return calculations using XIRR.

Conclusion

The current status of my LendingClub account is very typical for new investors. A handful of loans have been paid in full while just a couple have entered either grace period or the late 31-120 days stage. A majority of the loans are issued and current. As loans begin to season we will see more enter grace period at which point some borrowers will catch up on their payments and some will ultimately become late and eventually charge off. We’ll publish our next update in early October to provide a full update on the third quarter.

Lending Club Publishes Vintage Performance Data

Lending Club has filed information with the SEC which provides new data and charts as of March 31, 2017.

May 23, 2017 By Ryan Lichtenwald 2 Comments

Yesterday Lending Club filed a S-3ASR with the SEC which provides comprehensive and updated information on the business. For those who are interested in the inner workings of Lending Club’s business the document is a great resource to get your questions answered. While much of the information seemed to remain the same or similar, a portion of the filing was dedicated to loan originations and performance. Below we’ve taken out some charts which may be interesting to Lend Academy readers which includes data through the first quarter of 2017.

Our previous analysis on recent performance trends is located here and only included data through Q3 2016.

Visualizing Interest Rate Changes

Below is a chart of interest rates over time for grades A-G. While investors who track Lending Club changes closely won’t be surprised to see the increased interest rates since 2015 it shows how significant the changes have been, particularly in grades E-G. For many grades you can see a ‘V’ shape as interest rates decreased from around 2013 until 2015 when they started to increase. Hopefully the increased rates with current vintages will begin to shift the downward trend of returns most investors are now experiencing from loans originated in 2015 and 2016.

Platform Cumulative Charge-offs Are More Stable

The below charts show net cumulative lifetime charge-offs on all loans for 36 and 60 month loans respectively. It’s important to stress that this is across all loan grades for a particular year meaning that it is skewed towards less risky loans (loan originations by grade are outlined in detail in the S-3ASR). If you invested across the platform in 2015 your performance remains in line with 2012 vintage although your charge-offs are still elevated from some of Lending Club’s best vintages. Looking at this chart alone it’s hard to point to 2015 being a problem year for investors which was amplified in the the higher risk notes (outlined later). 2015 charge off rates at month 19 are 40 bps above 2014, 80 bps above 2013 and 130 bps above 2011 (the best performing vintage of 36 month loans).

While still early, 60 month loans originated in 2015 are performing in line with the 2011 vintage. 2015 charge-offs at month 19 are 100 bps higher than 2013 and 80 bps higher than 2014.

[Read more…]

Recap of Recent Performance Trends with Lending Club and Prosper – Part #2

In the second post in this series we look at the performance of loans at Lending Club and Prosper.

January 18, 2017 By Ryan Lichtenwald 11 Comments

In part one of this series we explored the interest rate movements at Lending Club over the past year. In this post we’ll review the actual performance of loans to get an idea on how the recent vintages are trending since the first quarter of 2014.

Delinquency Rates with Lending Club

To begin with we’ll take a broad look at the vintages using delinquency rates which helps paint a picture of what’s going on with all loans originated by Lending Club. Lending Club club shares delinquency rates on their additional statistics page. The below charts are courtesy of NSR Invest and include the most recent data from Lending Club as of Q3 2016.

36 month Delinquency rates from Q3 2013 are shown below. The light blue shaded area represents Q3 2013 36 month loans which are now fully mature. Vintages through Q2 2014 remained pretty stable, but you can start seeing noticeable increases in delinquencies in notes originated in Q3 2014 and Q4 2014. Starting in 2015, delinquencies had a much steeper slope which has continued into the 2016 vintages. Delinquency rates break 2% for many vintages compared to the peak of 1.5% for Q3 2013. What will be interesting to see is how Q3 2016 delinquencies trend once we receive 3 more months of Lending Club data on February 14, 2017 when Lending Club announces their Q4 earnings.

Click to enlarge.

The chart below also tracks delinquency rates, but only includes 2015 and 2016 vintages. It is also easier to compare the vintages with the line chart. It’s clear that early delinquency rates have been increasing in recent quarters.

Click to enlarge.

[Read more…]

Recap of Recent Performance Trends with Lending Club and Prosper – Part #1

In the first post in this series we look at the interest rate movements at Lending Club over the past year.

January 4, 2017 By Ryan Lichtenwald 3 Comments

We often get emails from readers asking about the current state of investing with Lending Club or Prosper. Many investors ask about current performance trends and whether it is a good time to invest. While there has been some news of underperformance recently, many generalizations are made and news stories often lack data points to back up claims. This has left many investors wondering what is really going on with this asset class.

For new investors, they lack the historical perspective of what has happened since the early days of the industry. Not only that, but before looking at performance for 2015 vintages it is useful to know what has changed in the meantime. In this post we’ll provide a timeline of recent events related to interest rate changes at Lending Club (Prosper doesn’t share as much detail here) and then dig into the most recent loan data available at Lending Club and Prosper in part two of this series.

Timeline of Interest Rate Changes and Trends Since 2010

2010 – 2014: From 2010-2014 returns had been relatively stable at both Lending Club and Prosper. Some investors were able to achieve returns in the double digits. For a first hand look at what a typical investor could expect since Q4 2011 you can read Peter Renton’s returns. Up until 2015, Lending Club decreased interest rates to balance the supply and demand of the marketplace. Well into 2015, investor demand was very strong for this asset class.

2015: Coupled with previous decreases in interest rates, Lending Club and Prosper expanded their underwriting to match loan supply with investor demand. Some people would say they go ahead of themselves here and expanded too much but more on that in part 2 of this series. At the end of 2015, we experienced our first fed rate increase in many years. Almost immediately after the fed rate increase, Lending Club announced they were too increasing interest rates on December 22, 2015. The increase of rates was most apparent in the higher risk loans.

Q1 2016: While some investors saw early signs of lackluster performance and scaled back investments late in 2015, the shift in capital markets was most apparent in the first quarter of 2016. Lending Club subsequently changed rates again on January 28, 2016. Again, the rate increases were seen mostly in the higher risk loans (Grades C3 and above).

Q2 2016: Lending Club changed rates on April 20, 2016. With this increase, loan grades D5 and above were most affected. Then we had big news that had far reaching impact across the online industry with the unexpected resignation of former Lending Club CEO Renaud Laplanche. Although the capital markets had tightened in Q1 2016, this news had many more investors pulling out or pausing investments. In Lending Club’s Q2 earnings report, they cite actions taken to “improve future returns driven by macro uncertainty and pockets of underperformance”. Below are the actions taken directly from their slide deck:

(April): Tightened approvals based on DTI and higher propensity to take on additional debt
(June): DTI max criteria lowered from 40% to 35%
Reduced approval rates to eliminate roughly 9% of the higher risk personal loan population

You can dig into additional details in our Q2 review of Lending Club’s quarterly results. In order to help bring investors back, Lending Club introduces investor incentives.

Q3 2016: Rates were again changed on June 7, 2016 with increases in rates from grades A2 through E5. In Q3, Lending Club provided an update on their incentive program which came to an end and announced a new bank funding partner. On the retail side we continue to see incentives with Lending Club’s partnership with United to award miles that ends in January, 2016. Similar to previous years, Lending Club is also now offering a bonus of up to 3% for new and existing IRA accounts.

Q4 2016: The last interest rate changes occurred on October 14, 2016. Some loan grades received interest decreases but there were significant increases again in the lower loan grades.

Conclusion

In total Lending Club made interest rate changes 5 times since December, 2015. Generally these were all interest rate increases to help offset the degradation in recent loan vintages. The question now is whether these interest rate increases will be enough to increase performance in more recent vintages. In our second post in this series we’ll share performance from 2015 as well as share how 2016 vintages are trending.

Today is The One Year Anniversary Of Lending Club’s IPO

We look back on the first year that Lending Club has been a public company.

December 11, 2015 By Ryan Lichtenwald Leave a Comment

Today marks the one year anniversary of Lending Club’s IPO. It was on December 11, 2014 that Lending Club went public in one of the most significant events ever for this industry. This IPO increased the profile for not just Lending Club but for all of marketplace lending and the industry has surged forward in 2015 partly as a result of this increased profile.

But it hasn’t all been smooth sailing for Lending Club in the past year. The actual stock performance hasn’t been good at all for equity investors. Lending Club’s stock still trades below the initial public offering price of $15 per share. Over the last year it has fallen to a low of $10.28 over the summer but has rebounded somewhat since then and currently trades at $13.74 as of writing.

Lending Club stock has fallen 41.49% in the last year. Source: Google Finance

Lending Club continues to focus on growth and recorded $2.2 billion of originations in the third quarter of 2015 as we outline in our Lending Club Q3 2015 earnings report. Our reports for the first and second quarter of 2015 can be found here and here respectively. In 2014, Lending Club originated nearly $4.4 billion total in loans in 2014 and we should see them surpass $8 billion for 2015. [Read more…]

New LendingClub Account Performance – Q2 2019

Now over a year in, we share the returns of the new LendingClub account which was opened in 2018.

LendingClub Account Performance

New LendingClub Account Performance – Q1 2019

We share the fourth update on a LendingClub account which was opened in 2018.

No More E-Grade Loans at LendingClub

Update on New LendingClub Account

Conclusion

New LendingClub Account Performance – Q4 2018

We share the third update on a LendingClub account which was opened in 2018.

New LendingClub Account Performance – Q3 2018

We share the second update on a LendingClub account which was opened in 2018.

New LendingClub Account Performance – Q2 2018

We share the first update on a LendingClub account which was opened in 2018.

Conclusion

Lending Club Publishes Vintage Performance Data

Lending Club has filed information with the SEC which provides new data and charts as of March 31, 2017.

Visualizing Interest Rate Changes

Platform Cumulative Charge-offs Are More Stable

Recap of Recent Performance Trends with Lending Club and Prosper – Part #2

In the second post in this series we look at the performance of loans at Lending Club and Prosper.

Delinquency Rates with Lending Club

Recap of Recent Performance Trends with Lending Club and Prosper – Part #1

In the first post in this series we look at the interest rate movements at Lending Club over the past year.

Timeline of Interest Rate Changes and Trends Since 2010

Conclusion

Today is The One Year Anniversary Of Lending Club’s IPO

We look back on the first year that Lending Club has been a public company.

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