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Prosper Announces HELOCs, Releases Q3 2018 Earnings

Starting early 2019 Prosper will add to their loan offerings with the addition of HELOCs.

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Back in 2005, Prosper was the first peer to peer lender to launch in this country, offering online unsecured consumer loans. It was a sea change at the time when offering a loan online was a novel idea. Now 12 years later, the company is leaning on their experience in the personal loan space to enter a new product category: HELOCs, or home equity line of credit. Around the time Prosper first launched, HELOC lending was at all time highs. It subsequently fell during the financial crisis, but is now on the rise again.

Prosper noted that according to a 2017 TransUnion Study an estimated 10 million consumers will take out HELOCs between 2018 and 2022 which would be more than double the number originated from 2012-2016. Part of this trend is the increase of home values over the years with homeowners wanting to to unlock the equity in their homes.

The new HELOC product will launch officially in early 2019. We spoke to Prosper CEO David Kimball to learn more about the new offering. The press release noted that Prosper “will be partnering with banks to improve the application process and reduce the time from application to closing”. What’s most interesting is that the move represents a significant change compared to their personal loan business when it comes to business strategy. While HELOCs will be offered directly through Prosper.com, they are also providing the offering as a white-label service to banks. We don’t yet know which banks they will be working with initially, but this is a trend we’ve seen more and more with fintech players. There are very few fintech lenders with traction today that operate a monoline businesses, most have grown to have a separate business line, many with a private label type offering for banks similar to the one Prosper is going to offer.

The banks will benefit by offering a tech forward product that leverages Prosper’s customer base and all of the data that Prosper has collected over the years. Prosper will be paid a fee for the use of their technology engine. It will be the bank’s underwriting model and capital which means the terms will vary from bank to bank.

[Read more…]

My Quarterly Marketplace Lending Results – Q2 2018

My latest quarterly investment results show an overall 4.46% return for the year ending June 30, 2018

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I know I am very late with my update this quarter as many of you have pointed out in emails and comments. But rest assured I am still committed to sharing my results publicly and I apologize for the tardiness of this update.

I wish I had good news to share but alas the decline in my marketplace lending returns has continued unabated. The biggest culprit for my declining returns is my exposure to unsecured consumer credit. As I have written about many times in the past a decline in underwriting standards at the major consumer lending platforms in 2015 and 2016 led to a marked increase in defaults where returns for individual investors like myself were significantly below projections. Recent vintages indicate that this severe decline is being reversed but given the loans I am invested in are three and five years in duration the effects are still being felt inside my own portfolio and will be for some time.

Overall Marketplace Lending Return at 4.46%

In my report from one year ago my trailing twelve month (TTM) return stood at 7.28% and I wondered whether my returns were in a downward spiral. That has proven to be the case as I am down almost three full percentage points over the last year as my TTM returns as of June 30 stood at 4.46%.

About 18 months ago I moved to a more conservative approach in my investing, focusing primarily on the lower risk loans at Lending Club and Prosper. The average interest rate of my portfolios continues to drop steadily every quarter but given my sizable portfolios of thousands of loans it takes a while for these changes to fully take effect. Interestingly, the one account where I have taken a more conservative approach from day one, my Prosper New Roth IRA, is easily my best performing consumer lending account with a TTM return of 6.32%.

Now on to the numbers. Click the table below to see it at full size.

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Prosper Reports Q2 2018 Financials

The company increased originations from the previous quarter while their net loss rose slightly.

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Yesterday, Prosper reported their Q2 2018 results. The company facilitated $867 million in loans for the quarter, up 12% from the prior year period. Prosper reported a net loss of approximately 12.6 million. While this is significantly better than the prior year period of $41.4 million, their losses increased slightly from the first quarter ($11.4 million). Total net revenues for Q2 2018 were $31.7 million, up slightly from the prior year period.

Below is a summary of Prosper’s key operating and financial metrics:

With their recent quarter, Prosper crossed the 1 million loan mark and surpassed $13 billion in loans total. David Kimball, Prosper CEO provided his perspective on the company’s progress related to adjusted EBITDA as well as platform changes in a prepared statement included in the press release:

“For the fifth consecutive quarter we successfully balanced growth with generating positive Adjusted EBITDA…Maintaining a balanced marketplace that provides value to both borrowers and investors remains our highest priority. Throughout 2018, Prosper has been raising interest rates and significantly tightening credit in order to ensure that we continue to provide a fair price for borrowers and a solid risk-adjusted return for investors.”

Prosper also highlighted that they have upsized their committed revolving warehouse facility to $200 million to continue to participate alongside their investors. We’ve seen this elsewhere in the marketplace lending space with LendingClub holding more loans on balance sheet for the purposes of selling these loans to investors at a future date. As of June 30, 2018 Prosper had $116.8 million of loans on their balance sheet held for sale.

You can view Prosper’s full 10-Q report on the SEC website.

My Quarterly Marketplace Lending Results – Q1 2018

My latest quarterly investment results show an overall 4.70% return* for the year ending March 31, 2018

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It is that time again when I share my quarterly investment returns. This is something I have been doing for many years now and I know it is one of the most popular features on Lend Academy. I started out investing in marketplace lending many years ago with just Lending Club and Prosper but slowly have added new investments over the years. I share all the details in this post.

Before I get started I do need to provide one caveat with this quarter’s returns. I do not have final numbers for our own Lend Academy P2P fund yet. We are reviewing valuation methodologies and we have several service providers working with us on that possible change. This process is taking quite a bit longer than we expected. I know my quarterly returns are keenly anticipated by many of you and I like to publish them around this time. So rather than wait until the valuation is final I decided to publish my quarterly report now and I will adjust when we get final numbers. In the meantime I have used the December 31 numbers, assuming a flat Q1, to provide a returns estimate.

I have one new addition this quarter, Fundrise, they are a real estate platform that is open to non-accredited investors. While I had invested a very small amount with them several years ago I added to it substantially last year and so I am including it in my returns update now. You can find out more by listening to my podcast with the CEO, Ben Miller, from last year.

Overall Marketplace Lending Return at 4.70%*

After a downward trend that has continued for many years I am wondering when I will reach a bottom. My preliminary return of 4.70% is close to where it was last quarter but still down. I don’t expect my final Lend Academy P2P Fund return to increase this number so I am still stuck in the downward trend of returns.

My six original accounts at Lending Club and Prosper have all been open for at least six years so they are very mature accounts that have experienced several turns of capital as I have kept reinvesting over the years. I separate these out because these were the accounts I had when I first started doing these reports so readers can go back and see how they have trended over time. The returns for the past year are still bad at 2.34% as I continue to pay for poor underwriting performance in 2015 and 2016 at both companies. When you see today that you can get 3% on a 10-year Treasury Note a sub 3% return is just not acceptable for an unsecured consumer loan.

While I continue to reinvest the principal and interest earned in my LendingClub and Prosper accounts in the hope and expectation of a rebound I am committing new capital elsewhere. I like real estate where you can still get mid to high single digit returns with the added security of an asset backing the loan. That is why I have added new money in the last 12 months to companies like Peerstreet, Alphaflow, Money360 and Fundrise. All are detailed here.

Now on to the numbers. Click the table below to see it at full size.

[Read more…]

Prosper Reports Q1 2018 Financials

Prosper narrowed their losses for the quarter and reported significant growth in originations.

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It was only a couple of months ago that we wrote about Prosper’s 2017 results. The major highlights were growing originations to $2.9 billion and the consortium deal that closed at the beginning of the year. Yesterday Prosper shared their Q1 2018 results.

The company continued its growth in originations which totaled $744 million in Q1 2018. Remember, as discussed last week in LendingClub’s earnings that Q1 is typically a lighter quarter for originations.

Prosper’s originations were up 27% from the prior year period. For comparison purposes, LendingClub increased originations 18% over the same period although it’s worth mentioning that LendingClub originated about three times as many loans in the first quarter.

Prosper also made progress in improving their financials, producing a net loss of $11.4 million compared to a net loss of $24 million in Q1 2017. The company produced a net loss of 22.7 million in Q4 2017. Total net revenue was approximately flat year over year coming in at $30.5 million in Q1 2018. Prosper highlighted in their press release that this includes the non-cash impact related to warrants to purchase preferred stock. Excluding these warrants, Prosper reported that core revenue increased to $45.7 million, up 34% from the prior year period.

Prosper included their fourth and largest securitization as a milestone for the company which closed in the first quarter. It was a $650 million transaction which put the company over the $2 billion mark in securitizations. Prosper also closed their first $100 million revolving warehouse facility to participate in loans originated by the platform.

Below is a table which summarizes their financials for the quarter:

Prosper’s 10-Q is available in its entirety on the SEC’s Edgar website. While there are plenty of details about Prosper’s business there, I’ve taken our a snippet below which discusses Prosper’s investor concentration. There are two takeaways here. One is that Prosper is relying significantly on one whole loan buyer. The second is that the retail channel continues to shrink. Only 7% of loans are funded through the fractional marketplace, down 3% from the prior quarter.

Prosper is dependent on third party funding sources such as banks, assets managers and investment funds to provide the funds to allow WebBank to originate Borrower Loans that the third party funding sources will later purchase. Of all Borrower Loans originated in the quarter ended March 31, 2018, the largest party purchased a total of 45% of those loans. This compares to 33%, 24% and 12% for the three largest parties for the three months ended March 31, 2017.  The party purchasing 24% for the three months ended March 31, 2017 is a member of the Consortium and purchased these loans prior to the closing of the Consortium Agreement on February 27, 2017. Further, a significant portion of our business is dependent on funding through the Whole Loan Channel, for which 93% and 90% of Borrower Loans were originated through the Whole Loan Channel in the three months ended March 31, 2018 and March 31, 2017, respectively.

One piece not explicit in Prosper’s press release is loan performance. One of the other resources I get value out of is Prosper’s monthly performance updates which they post to their blog. The latest post highlights takeaways from March. These are a great way to better understand how loans are performing, how loan grades are shifting and what Prosper is seeing overall from their borrowers without having to dig deep into their 10-Q.

Conclusion

Prosper has made significant progress over the last year. While it is apparent that the consortium has had an effect on their net revenue it also has allowed the business to grow over the same time period. It’s going to be interesting to see whether we continue to see significant origination growth over the coming quarters and how that effects the company’s bottom line.

Chris Larsen: From Marketplace Lending Pioneer to Creating the New Internet of Value

The co-founder and former CEO of Prosper is now trying to solve a massive multi trillion dollar challenge: enabling instant global payments

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Back in 2010 in my first month at Lend Academy one of the first people I reached out to was Chris Larsen, then CEO of Prosper. I was writing a story on some changes at Prosper back then and Chris was gracious enough to respond to this new and unknown blogger. Over the next couple of years I met Chris in person several times and got to know him reasonably well as I continued to cover Prosper and marketplace lending more broadly.

I was very disappointed when in 2012 Chris announced he was stepping down as CEO of Prosper. He was the founding CEO and at the time I wondered what could be more important than helping to drive Prosper forward. But Chris had an itch to start a new company, one that was based on this emerging blockchain technology.

Of course, this move proved to be prescient and his new company, which eventually became known at Ripple, has the potential to completely rewrite the rules of global commerce. In 2013 they introduced the XRP token as the vehicle to help them achieve this goal. XRP (as of this writing) is the third most valuable token with market cap of $32 billion. This is down considerably from its high in January when its market cap reached around $150 billion and briefly made Chris Larsen one of the wealthiest people in the world.

Chris had never spoken at LendIt before given that his time at Prosper was over before we launched our event. But he agreed to speak on our keynote stage last month and it was standing room only for this fintech pioneer. You can watch the video below or go to this link. It has become the most downloaded session out of all the keynote videos. [Read more…]

Prosper Reports Full Year 2017 Results

Prosper originated $2.9 billion in 2017 and now has surpassed $11 billion in total loans.

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Today, Prosper reported their full year results for 2017. Prosper is still a private company, but is regulated by the SEC which requires them to provide quarterly and year end results. Prosper’s full 10-K which includes all of the details about their business is available using EDGAR on the SEC website.

The company originated nearly $2.9 billion in loans, up from approximately $2.2 billion in 2016. From our perspective there were two major milestones for the company in 2017. One was the $5 billion consortium deal announced at the beginning of 2017 which was a commitment from investors to purchase loans over a two year time period. The company also successfully raised their Series G funding in September, 2017. As noted in our piece on the announcement this was a significant down round from their previous fundraise in 2015 but it reflected the reset expectations when it comes to valuations.

While the company had a net loss for the year of $115 million, this was largely due to the consortium of investors as noted in the press release: “Net loss of $115 million included $89 million of non-cash charges related to warrants to purchase preferred stock that were issued to a consortium of investors and a third party in connection with a settlement agreement.”

Adjusted EBITDA was $5 million, up $43 million from the year before and more importantly Prosper was cash flow positive for the year, generating just over $1 million in cash. Other financial metrics are shared below:

Prosper’s accomplishments in 2017 were critical to their success going forward. While there are no longer headlines touting massive growth at Prosper, they still are originating a significant amount of consumer loans and they are doing so profitably. The consortium secured investors for a 2-year period and they now have cash to invest in new projects. It’s going to be interesting to see what innovations come to bear in what seems like an ever increasingly competitive consumer loan market.

LendingClub and Prosper Tax Information for 2018

We share information related to filing your taxes with LendingClub and Prosper for the 2017 tax year.

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[Disclaimer: I am not an accountant nor am I qualified to provide tax advice. You should seek professional advice before taking action on any of the ideas presented here.]

For new investors in LendingClub or Prosper, it’s important to understand the documents you receive come tax time. For existing investors it’s important to be aware of any changes LendingClub and Prosper have made in their documents or the way the information is reported. Over time the documents have evolved, with both companies now providing a tax guide for their investors.

Note that investors who invest through a retirement account do not have to worry about tax reporting. Here at Lend Academy we believe there is a strong case for investing in marketplace lending through a product like an IRA. Here is our 2018 post on that topic if you’re interested in learning more about taxes and marketplace lending.

As you’re looking at the documents provided by LendingClub and Prosper you should understand at a basic level how profits and losses are reported. The interest or income from loan payments is taxed as ordinary income. Losses are either short or long term capital losses. Copied below is how LendingClub summarizes the tax treatment of investing in loans on the platform:

Generally, gains and losses from recoveries, sales or charge-offs related to LendingClub Notes are reported for tax purposes as capital gains or losses, rather than ordinary gains or losses. Generally, LendingClub Notes are considered capital assets because they are owned for the purposes of investment (similar to a stock or a bond). Generally, realized capital losses are first offset against realized capital gains. For individuals, any excess capital losses can be deducted against ordinary income up to $3,000 ($1,500 if married filing separately). Capital losses in excess of this limit may be carried forward to later years to reduce capital gains or ordinary income until the capital losses are fully utilized.

Now that you have some background on the tax treatment, we can move into the details on how profits and losses get reported at LendingClub and Prosper.

Filing Taxes for a LendingClub Account

Note: If you plan to use TurboTax to file your taxes, LendingClub has a step-by-step guide on importing your forms here.

First you’ll want to navigate to “Statements” after logging into your LendingClub account. This can be done by clicking your name in the top right of the landing page once you login. On the next screen you will see a menu bar item titled “Tax Forms”. Clicking on the link will take you to another page which will include a link to your 2017 – 1099 Consolidated Package. Linked below your tax document you’ll find LendingClub’s provided 2017 Tax Form Guide. The guide does a great job of outlining which forms you will receive and where you should report this information when filing your taxes. The below table taken from the tax guide shares which forms you will receive. [Read more…]

My Quarterly Marketplace Lending Results – Q4 2017

My latest quarterly investment results show an overall 5.01% return for the 2017 calendar year

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Time for my regular quarterly returns post, one of the most popular features here on Lend Academy. I have been sharing my detailed quarterly returns with readers since 2011 and I will continue to do so for the foreseeable future. I know investors are most interested in returns, in particular how they have been trending over time. You can go back and look at the breakdown of my investments every quarter for the past six years.

If you do look at my historic returns you will see they have been moving steadily in a downward trajectory since the beginning of 2014 when my trailing twelve month (TTM) return was 12.44%. I look back on those returns wistfully now, when my accounts were firing on all cylinders and in reality we were being overly rewarded for the risk we were taking. Today, the pendulum has swung too far the other way and I think the return is too low for the risk.

Overall Marketplace Lending Return at 5.01%

The long decline in my returns has continued with 2017 by far my worst year since I began investing with LendingClub back in 2009. My overall TTM return  in Q4 2017 was 5.01% compared to 6.64% in Q3 2017 and 8.07% one year ago.

I used to proudly say I had never had a down month in my LendingClub or Prosper investments. Now, I have not just had down months but down quarters as well. And I came perilously close to having a down year in my main LendingClub with my return coming in at 0.01%.

[Read more…]

Two Big Banks Set to Launch Their Own Online Lending Platforms

Traditional banks have moved into the online consumer lending space, making a crowded market more competitive.

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A little over a year ago Goldman Sachs launched their consumer lending platform Marcus as part of a digital strategy to move into the retail banking segment. They have since grown faster than any online lending platform with originations approaching $2 billion. Goldman Sachs now believes revenues from online loans will equal that of trading in the near future.

Seeing this success more traditional banks have started to move into the online consumer lending space. In this article we will focus on two recent entrants: PNC Bank and Barclays.

[Read more…]

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