Lend Academy

Teaching the World About Peer to Peer Lending

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…]

My Quarterly Marketplace Lending Results – Q3 2017

My latest quarterly investment results show an overall 6.64% return for the year ending September 30, 2017

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Every quarter I share my marketplace lending investment returns with the world. I started doing this back in 2011 with just my LendingClub and Prosper accounts. Today, I share my returns from 14 different accounts across a variety of investment vehicles and platforms.

If you have been reading these posts in the past year or so you will have noticed a steady decline in my returns, primarily caused by underperformance in my LendingClub accounts. That trend has continued with my latest results with my worst performance ever since I started investing in LendingClub back in 2009.

From the beginning I have focused my investing primarily in the highest risk notes and this is the segment that has been hit hardest by defaults. Earlier this year I adjusted my strategy and started investing across the entire risk spectrum but it is a bit like steering a battleship. Given my many thousands of notes it takes a while for any changes to show up in my portfolio returns.

The only good news on this front is that recent vintages at LendingClub appear to be performing better so I am hopeful I can turn this battleship around in the next quarter or two.

Overall Marketplace Lending Return at 6.64%

My trailing 12 month returns for the year ended September 30, 2017 across all my accounts was 6.64%. This was my first quarter without the Direct Lending Investments (DLI) fund. As I mentioned in my last update I was redeemed from that fund on June 30. This has been my best performing investment of the last four years and it will be very difficult to replace it with investments of similar yield. This will also provide a drag on my returns going forward.

I have used the proceeds from DLI to increase my positions at a couple of platforms and have started deploying into new investments. With this edition I am sharing three platforms where I have made new investments: AlphaFlow, Money360 and Yieldstreet. You can read more information about these and all my other investments below.

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

[Read more…]

Prosper Shares Q3 2017 Results with $821 Million in Originations

Prosper has published their Q3 numbers which show gains in positive cash flow and originations up 164% year over year.

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There has been a shift in focus at the large online lending companies over the last year and a half in the US. Gone are the days of relentless growth and now we see a focus on cash generation and the bottom line. Companies have proved that they can use technology to better serve borrowers, but many investors are wondering if they can do it profitably. Last week we shared third quarter earnings releases from LendingClub and OnDeck and yesterday Prosper released their third quarter results.

Originations grew to $821 million in the quarter, up from $311 million in the same period last year and grew 6% from the previous quarter. The company also increased the fees it collected. Prosper reported a net loss of $26.9 million for the quarter, which was an increase of about $10 million from last year. According to the press release the amount, “included $28.1 million in 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.”

The consortium referenced was announced earlier this year and included loan purchases of up to $5 billion over two years. This is the reason you’ll notice an Adjusted EBITDA of about $7 million for the quarter in the table below. More importantly, you will see net cash flow in Q3 of $9.9 million up from $8.6 million in Q2 and -$4.2 million in the same period last year.

Other highlights for the quarter include a third securitization totaling approximately $500 million of notes. In total Prosper has closed three securitizations this year, totaling $1.5 billion.

David Kimball, CEO of Prosper stated in the press release:

We continued to see growth during the third quarter as people turned to Prosper’s personal loan product to refinance high-interest debt, pay for medical expenses, and finance home improvement projects. As we look to the end of the year and 2018, our ability to consistently generate positive operating cash flow along with the $50 million capital raise in the third quarter will help drive strategic investments in the company’s platform and products.

Conclusion

Clearly the consortium deal is having an effect on Prosper’s financial results, but as discussed previously this deal was critical to ensure the success of Prosper over the long run. Coming off from a significant decrease in originations in the second quarter of 2016, Prosper has steadily increased originations again. The company also closed their Series G round in September albeit at a much lower valuation than the round in April, 2015. Looking towards the future I expect the company will steadily grow the business while at the same time continuing to generate cash. What will be interesting, though, is what new projects they decide to invest in with the influx of cash.

The full 10-Q report for the third quarter is available on Prosper’s website.

Federal Reserve of Cleveland Makes Some Dubious Claims in a Report on P2P Lending

I question the data used in the recent report from the Cleveland Fed and express my doubt over the findings

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Last week the Federal Reserve of Cleveland released a report titled Three Myths About Peer-to-Peer Loans that had some pretty damning things to say about the P2P lending industry. They analyzed 90,000 P2P loans issued between 2007 and 2012 and compared these borrowers to similar people who did not take out a P2P loan. The biggest issues I had with the study was that I don’t trust the data set they used and they then made an inflammatory claim that P2P lending has predatory practices without backing up that claim with rigorous analysis.

[Side note: This report seems to be using P2P lending to mean the broader online lending industry beyond just Lending Club and Prosper so keep that in mind when you see me using the P2P lending term in this article].

I was surprised by the outcomes of this report because it contradicted a report from July by researchers at the Philadelphia and Chicago Federal Reserve Banks. That report was based on an analysis of Lending Club data and found that borrowers were getting lower priced credit and that Lending Club was expanding access to credit in underserved areas. The Cleveland Fed report said the opposite.

One of the things I disliked most about this new report was the how opaque their analysis was. They just said they used data provided by TransUnion “in which we observe about 90,000 distinct individuals who received their first P2P loan between 2007 and 2012.”. They provide no indication as to which platforms this data is based upon and then we see this very strange chart below showing supposed delinquency rates by year. This is where they lost me.

[Read more…]

Lending Club and Prosper Data: 10 Years In

We look back at Lending Club and Prosper's returns over the past 10 years

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Lending Club and Prosper have both been around over 10 years now. A lot has changed since both companies were founded, including the performance of the loans. In this blog post we’ll share the performance of each platform over the last 10 years. The fact that we have access to this data set is one of the things that makes marketplace lending unique. The screenshots from this post are taken from NSR Invest, a marketplace lending robo advisor that is also a sister company to Lend Academy.

In the early days of this industry, it was relatively easy to earn outsized returns. The early adopters, including Peter Renton, founder of Lend Academy, commonly touted double digit returns with a few simple filters. This was before both Lending Club and Prosper began to really scale with the arrival of institutional investors.

Lending Club Data

For Lending Club investors, most loan grade returns peaked in 2013. Below is a screenshot of platform performance for all loan grades across 36 and 60 month loans. As you look at this chart it is worth noting that the 2017 numbers are somewhat meaningless because the loans there have not seasoned yet. Also, it should be note that these numbers are only for Lending Club’s standard personal loan program, that which is available to individual investors (it does not include auto, small business or other special loan programs).

Lending Club – All Grades

Looking at the above chart we see that 2013 was the high water mark for returns at Lending Club with 8.24%. While that is impressive, D grade loans performed even better returning 9% to investors that year.  The below screenshot shows performance across D grade loans over the years.

Lending Club – D Grade

Generally speaking, Lending Club investors earned healthy returns if they began investing from 2010 onwards. These solid returns lasted until around the fourth quarter of 2015 when loan performance began to degrade, particularly with the high interest loans. The decreasing returns affected both Lending Club and Prosper and is a topic we have covered extensively. Perhaps the best way to show where investors currently stand is with the below chart taken directly from Lending Club’s statistics page.

Highlighted in red is the filtered selection including those investors with 500 or more notes where the maximum note size is less than 0.5% of the portfolio value. Each dot represents an individual investor. The highlighted range is where portfolios are considered seasoned. As you can see the overall return today for the typical investor is far less than it was back in 2013.

[Read more…]

Marketplace Lenders Lending Club and Prosper Respond to Hurricane Harvey

Lending Club and Prosper announce changes to help borrowers affected by the storm.

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Hurricane Harvey has already had a tremendous impact on Texas. Part of the impact is the financial stress it has put on families as businesses struggle to restore normalcy. During these difficult times many companies are stepping up to serve customers in this time of need.

To ease the financial burden on borrowers, Lending Club and Prosper have announced special programs to help those affected. Lending Club stated in the below email that approximately 30,000 of their borrowers reside in affected areas. Here is the email that Lending Club investors received on Friday:

Hurricane Harvey is an unprecedented tragedy and our hearts go out to those whose lives have been turned upside down. We wanted to provide you with an estimate on how many LendingClub borrowers could be impacted and let you know what we’re doing to provide relief for them.

Estimated Scope of Impact
We estimate approximately 30,000 LendingClub borrowers are potentially affected by Harvey (based on zip codes identified by FEMA and on the counties declared as in a state of emergency by respective state governors as of August 31, 2017), which amounts to about 2% of LendingClub’s total borrower population. Of potentially affected borrowers, about 2,000 are currently delinquent as of August 31, 2017.

For the vast majority of investors who have diversified portfolios, we expect little to no impact to returns. The affected population is a small portion of our total borrower base of 1.5 million, and we’re committed to keeping borrowers on track.

What We’re Doing for Borrowers
LendingClub believes in doing the right thing for both borrowers and investors. Given the scope of the disaster, we’ve taken several steps in line with guidance from the FDIC to treat borrowers with respect, provide resources, and help them stay on track:

  1. Collections call adjustments. Starting on August 26 and through September 5, internal and agency collections teams stopped making calls to delinquent borrowers in Texas and Louisiana (approximately 6,000 borrowers) as the storm made its way through the area. We will resume calling delinquent borrowers who live outside of affected zip codes in Texas and Louisiana on September 5. We will not resume calling borrowers who live in affected zip codes until September 15. Likewise, we are suppressing direct mail and email collections communications to those same borrowers until September 30.
  2. Late fees. We are not charging late fees for borrowers in affected zip codes starting on August 23 through September 30.
  3. Credit bureau reporting. For borrowers who live in affected zip codes and who become delinquent, we will append a note to our report to credit bureaus that they have been affected by a natural disaster.
  4. Hardship plans. We typically offer hardship plans (where borrowers are allowed to temporarily make interest-only payments to accommodate an unexpected life event) to borrowers when they meet certain eligibility criteria. In response to Harvey, we are relaxing our eligibility criteria for borrowers in affected zip codes. Hardship plans work to protect investor returns as borrowers whose loans may otherwise progress to charge-off status have the opportunity to make interim payments and some portion may revert to current status. Importantly, our teams will follow our standard process, where we offer progressively more relief to borrowers who ask for help, with hardship plans made available only after other options are exhausted.

This is a difficult time for many Americans, and we’re committed to doing what’s necessary to help our customers stay on track while protecting investor returns.

If you have any questions or concerns, feel free to reach out to us at 888-596-3159, Monday through Friday 7 a.m. through 5 p.m. PT, or investing@lendingclub.com.

Prosper, like Lending Club, have also been communicating with investors and are including some similar help for borrowers impacted by Hurricane Harvey. They are waiving late fees and NSF fees including unpaid fees that may have already been applied. They are adjusting payment schedules so borrowers don’t accrue late fees for one month.

Prosper noted that the programs they are putting in place will not have any effect on the total principal and interest payments due to investors, but payments may be delayed. Their team is still monitoring the scope of the impact and will make any necessary changes to the scope and duration of the programs they have put in place.

Conclusion

It’s great to see both Lending Club and Prosper step up to support their borrowers during this difficult time. They have struck a good balance between supporting borrowers and protecting investors. The dedication to better serve their customers will ultimately lead to better customer satisfaction and better payment outcomes for the investors.

My Quarterly Marketplace Lending Results – Q2 2017

My latest quarterly investment results show an overall 7.28% return for the year ending June 30, 2017

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Every quarter around this time I get emails from readers asking when I will be publishing my quarterly returns post. For many years now it has been one of the most popular features on Lend Academy. People like to know how others are doing so I have been sharing my returns here every quarter since Q4 2011. Over the years I have diversified beyond my initial investments in Lending Club and Prosper into the three major asset classes within marketplace lending: consumer, small business and real estate.

Overall Marketplace Lending Return at 7.28%

One could almost say my returns are in a downward spiral. Since peaking in Q1 2014 at 12.44% my returns have decreased pretty much every quarter and for the last two years that decrease has averaged around 0.5% per quarter. Two years ago I stood at 11.3% and my weakest Lending Club account earned a respectable 8.19% and the average return of my original six accounts was 9.51%. Times have indeed changed since then.

This past quarter my overall returns stood at 7.28% and the returns for my original six accounts were 5.07%. My worst Lending Club account was my original account there and it came in at 1.95% for the year. The only good news, if there was any, was that I did not have a negative quarter in any of my accounts this quarter unlike in Q1.

For those readers who may be new to my quarterly returns post the reason for the drop in my returns are issues, primarily at Lending Club, in the D and E grade loans issued in late 2015 and early 2016. These have underperformed significantly, particular the 36-month loans, and these are the loans I have made the bulk of my portfolio. Now, I made some adjustments at the start of this year but these loans are still defaulting at higher than expected rate and it will be the end of the year I expect before I will see things begin to improve.

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

As you look at the above table you should take note of the following points:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The Average Rate column shows the weighted average interest rate taken directly from Lending Club or Prosper.
  4. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way for individual investors to determine their actual return.
  5. The six older accounts have been separated out to provide a level of continuity with my earlier updates.
  6. I do not take into account the impact of taxes.

Now, I will break down each of my investments from the above table grouped by company. [Read more…]

About Lend Academy

Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.

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