10Q Defaults Dec. 31

Feb 23, ’12 12:39 PM

Last month, I took a look at Lending Club’s default rate. With the help of a couple comments from Peter and Dan, I found myself with an “average” idea of what completely indiscriminate investing can get you.

Here, I’m going to apply the same concept to the newest 10Q report. I will be adding collection fees to the data. I did not do this for last quarter’s report, so they cannot be compared. Instead, I’ll put the updated numbers side by side the current numbers.

Peter Renton also delved into the 10Q report on his site, check it out here. He looks at the companies financials. It’s an important read.

Again, past results are no indication of future returns. And the sample size is small.

To summarize:

In September 2011, with a hypothetical hundred dollar bill, $87.46 would net you 13.66% interest. $5.37 would pay .30 cents on the dollar and, $7.17 would pay .015 cents on the dollar. You would walk away with $101.13

In December 2011, a hypothetical hundred would get you $87.18 at 13.82% interest. $5.51 would earn you .30 cents on the dollar and $7.29 would get you .014 cents on the dollar. You would walk away with $101.01

My insistence on using averages, combined with the small sample size makes the difference in these two numbers negligible. What we will hope to see in coming quarters is a slow trend upward.

All the information below is taken from Lending Club’s 10Q report, unless I marked it with an asterisk. If the formatting doesn’t work, you can find more information here. If you have any questions, or more suggestions for improvement, let me know.

                               September 2011                                 December 2011

Completed Loans                6730                                                                  8317

# Paid in Full (%)                  4537  (67.41%)                          5624 (67.62%)

Average Rate                        14.26%                                                             14.42%

Less Lender Fee*                13.66%                                                             13.82%

Average Origination             $10,528                                                          $10,959

# to Collections (%)            1439  (21.38%)                                       1705 (20.50%)

Total Originated**                $13,427,263                                              $15,298,483

$ to Collections                    $3,368,839                                                $4,114,710

% “Bad Debt”                        25.10%                                                           26.90%

$ Collected                            $1,476,279                                                $1,834,165

Collection Fees*                   $472,409                                                   $586,932

Per Dollar Recoup                $0.298                                                           $0.303

# Charged Off                        754   (11.20%)                                    988 (11.87%)

Total Originated**                $7,938,112                                                 $10,827,492

$ Charged Off                      $5,098,623                                                 $6,657,041

% Bad Debt                           64.22%                                                           61.48%

$ Collected                          $116,339                                                      $134,548

Collection Fees*                $37,228                                                         $43,055

Per Dollar Recoup            $0.015                                                            $0.014

* I looked at “fees” in a previous post. I chose 32% as my average fee number because the range is between 30-35%, and there are more ways to get a 30% collection fee than a 35% one. There was no science involved.

** On late notes, Lending Club’s 10Q reports there is no divison between the origination amount for notes in collection and notes defaulted. To get my numbers, I multiplied the average loan amount by the number of loans that were charged off. I subtracted that number from the “total origination amount” (p.42 on the 10Q)  to get the origination amount for loans in collection that have not been charged off.

Comments (0)

Lending Club Fees

Feb 15, ’12 2:48 PM

P2P Lenders are similar to airlines. They offer their “big service” at a net loss and they seek to recoup profit via the assessment of fees. Fortunately for Lending Club and other P2P Lender’s these fees are tougher to spot than $5.00 headphones.

The most common fee is the 1.00% service charge.  Lenders get charged 1% “of the principal, interest, and late fees”. To me, that’s understandable. P2P Lenders are middlemen, and everyone standing in the middle gets to take a reward for passing the service along.

There are other fee’s and Lending Club’s handling of these fees is intriguing.

For example, there is the “Member Loan Collection Fee”. Of the loans that go to collection, Lending Club charges 30-35% of the amount collected as a collection fee. I say Lending Club initiates the charge because, “We [Lending Club] generally use our  in-house collections collections department…” and only in the event they are unable to collect do they engage a 3rd party debt collector. Right now, up to 27% of Lending Club’s staff can serve as a debt collector. (Pg. 31 Yearly Report)

There is a “Member Loan Late Fee”. This fee is a 5.00% or $15,00 of the unpaid installment amount. This fee is assessed at Lending Club’s discretion, in fact, “We (Lending Club) often choose not to assess a late payment fee when a borrower promises to return a delinquent loan to current status…” Favorable treatment towards borrowers suggests the origination fees are the big money makers for Lending Club, if one ascribes to the theory the customer is always right.

And each time a borrower doesn’t make a payment, Lending Club adds a $15.00 dollar unsuccessful payment fee. Lending Club holds 100% of the costs incurred because of denial of payment. I am unsure what costs are incurred when a payment is failed and assume this fee serves only as a warning to the borrower.

And finally, there is a $15.00 check fee for borrowers. If you pay with a check Lending Club will charge you a fee. Maybe I’m wrong, but I don’t assume there are many checks sent to Lending Club.

In general, because the additional fees are more lax towards borrowers and more rigid for investors, I am led to believe that Lending Club’s goal is to attract borrowers rather than Lenders. To me, this implies borrowers are the big source of income, whereas investors are supplemental. Anecdotally speaking, Lending Club didn’t spend the month of January waiving origination fees.

Most of these fees are understandable, if not somewhat ingenious. The in-house collections department is a great idea. Check them out on pages of 13-15 of the yearly report.

Comments (9)