About Net Annualized Return

Introduction

  • Net Annualized Return (NAR) is a measure of return on investment.
  • NAR includes borrower payments received each month, net of service fees, actual charge offs, and recoveries. 1
  • Adjusted Net Annualized Return (Adjusted NAR) is a measure of return on investment that allows investors to model the impact of potential losses on Notes in their portfolio.
  • Adjusted NAR is similar to unadjusted NAR but incorporates an estimate of future losses on any loans that are in "past due" status but have not been charged off. 1
  • Both NAR and Adjusted NAR only measure the return on invested cash. Both available cash and cash that is committed to loans that have not yet issued are excluded from the calculation of NAR.

Read below to learn more.

NAR is first calculated when an investor begins to receive borrower payments, usually within 45 days of an investors’ first investment in Notes. Until that time, NAR will display as "New" and no calculation will be available.

What is Net Annualized Return (NAR)?

Net Annualized Return (NAR) is an annualized measure of the rate of return on the principal invested over the life of an investment. NAR is based on actual Borrower payments received each month, net of service fees, actual charge offs, and recoveries. NAR is not a forward looking projection of the performance of any Note and reflects the full principal value of a Note until the corresponding loan is charged off, even if the loan is not current. 1

Additionally, as NAR only measures the rate of return on principal invested, it excludes from the calculation both available cash and cash that is committed to loans that are not yet issued.

To learn more about any loan status, click here .

What Impacts NAR?

When you start investing, your NAR will approximate the interest rate of the Notes in which you have invested, less any service fees. As the average age of Notes in your portfolio increases (i.e. as your existing Notes age and the percentage of your portfolio represented by new Notes decreases), your NAR will start to decrease as the loans associated with your Notes become late. 1 Please keep in mind that, as you reinvest loan proceeds or make additional Note purchases, such new investments will reduce the average age of the Notes in your portfolio, slowing the decline of your NAR by reducing the impact of maturing Notes. When a loan is charged off, the invested principal is written off and your NAR decreases.

The chart below provides an example of the effect of charge offs on the NAR of a hypothetical portfolio that makes a one-time investment in Notes each with a 36 month term and 12.80% effective interest rate, 2 holds those Notes through to their maturity, and makes no further investments.*

*Chart is shown for illustrative purposes only and does not represent the performance of any specific security or portfolio. It is designed to illustrate that NAR is likely to decline over time. 3


In the hypothetical portfolio illustrated above, after service fees are deducted, the initial NAR is 12.34% (#1). Please note that, due to amortization, the service fee may impact NAR by more or less than 1%.

As loans are charged off, NAR decreases from 12.34% to 9.11% by the 18th month following the date of the investment (#2). During the final 18 months of the term of the loans in the portfolio, additional charge offs reduce NAR from 9.11% down to a final NAR of 8.28% (#3). 1 Here’s the basic math as it applies to the hypothetical portfolio represented in the chart on the date falling 36 months after the date of investment: 1

To learn more about any loan status, click here .

What is Adjusted Net Annualized Return (Adjusted NAR)?

Adjusted NAR allows investors to model the impact of potential losses on Notes in their portfolio before the corresponding loan is charged off. Adjusted NAR is similar to unadjusted NAR but, unlike unadjusted NAR, it incorporates an estimate of future losses on any loans that are in "past due" status but have not been charged off. 1 Investors are able to customize the Adjusted NAR calculation to factor in their own assumptions about the future performance of their loans by logging into their account and clicking the " View/Customize Adjustments " link on their Account Summary page.

To estimate future losses on loans, we apply a loss rate estimate to the outstanding principal of loans that are past due but not charged off. The loss rate estimate is based on the historical charge off rate by loan status over a nine month period (you can see historical charge off information at the bottom of this page ).

To learn more about how we calculate estimated future losses, click here . To learn more about any loan status, click here .

How do Adjusted NAR and unadjusted NAR Compare?

Like unadjusted NAR, your Adjusted NAR will initially approximate the interest rate of the Notes in which you have invested, less any service fees. As the average age of Notes in your portfolio increases (i.e. as your existing Notes age and the percentage of your portfolio represented by new Notes decreases), your Adjusted NAR will start to decrease as the loans associated with your Notes enter "grace period" status and further decline (e.g. move from a status of "Late 16-30" to "Late 31-120"). When a loan is charged off, the invested principal is written off and your NAR will further decrease. 1

The chart below shows an example of the effect of charge offs and past due loans on Adjusted NAR and unadjusted NAR for a hypothetical portfolio holding Notes each with a 36 month term.**

**Chart is shown for illustrative purposes only and does not represent the performance of any specific security or portfolio. The chart assumes a hypothetical portfolio that makes a one-time purchase of Notes each with a 36 month term and 12.80% effective interest rate, 2 holds those Notes through to their maturity, and makes no further investments. Please note that, due to amortization, the service fee may impact NAR by more or less than 1%. The chart is designed to illustrate that NAR is likely to decline over time. 3


As you can see, Adjusted NAR and unadjusted NAR result in the same final net annualized return at the end of the life of the loans in the hypothetical portfolio. Adjusted NAR is designed to accelerate the impact of potential future losses by using the loan status as an indicator of such potential future losses. As a result, Adjusted NAR will always be less than or equal to unadjusted NAR of any given portfolio. 1

To learn more about any loan status, click here .

Details of the Example Comparing Adjusted NAR vs. unadjusted NAR

The chart above assumes a hypothetical portfolio that makes a one-time purchase of Notes each with a 36 month term and 12.80% effective interest rate, 2 holds those Notes through to their maturity, and makes no further investments. After service fees are deducted, the initial unadjusted NAR is 12.34% and the initial Adjusted NAR, incorporating estimated future losses, is lower at 10.56% (#1). Please note that, due to amortization, the service fee may impact NAR by more or less than 1%.

As loans charge off, the unadjusted NAR decreases from 12.34% to 9.11% by the 18th month following the date of the investment, while Adjusted NAR decreases even further to 8.78% as the result of its inclusion of estimated future losses (#2). During the final 18 months of the term of the loans in the portfolio, additional charge offs cause the unadjusted and Adjusted NAR to be equal to one another at 8.28%. Adjusted NAR and unadjusted NAR metrics will always result in the same final net annualized return at the end of the life of the loans in a portfolio. 1

Here is the basic math as it applies to the hypothetical portfolio represented in the example above on the date falling 18 months after the date of investment: ***

18 th Month Unadjusted NAR 18 th Month Adjusted NAR
Realized Interest Rate 12.80% Realized Interest Rate 12.80%
Impact of 1% Service Fees -0.55% Impact of 1% Service Fees -0.55%
Annual Charge Offs -3.14% Annual Charge Offs -3.14%
9-Month Loss Estimate NA 9-Month Loss Estimate -0.33%
Unadjusted NAR 9.11% Adjusted NAR 8.78%

***This example is provided for illustrative purposes only and does not represent the performance of any specific security or portfolio. Adjusted NAR and historical performance are not a guarantee of future results. Lending Club Notes are not guaranteed or insured, and investors may lose some or all of the principal invested.


To learn more about how we calculate estimated future losses, click here . To learn more about any loan status, click here .

Diversification and Other Considerations

We believe that broad diversification tends to make any NAR less volatile. Accounts that are concentrated in Notes associated with any single loan or loans or single Borrower or Borrowers may have results that vary significantly from estimated returns. Broadly diversifying investments across hundreds of similarly sized Notes and Borrowers tends to decrease NAR volatility by minimizing the impact of any single charge off. 3 Please keep in mind that, as you reinvest loan proceeds or make additional Note purchases, such new investments will reduce the average age of the Notes in your portfolio, slowing the decline of your NAR by reducing the impact of maturing Notes.

Adjusted NAR is just one way to calculate the return on funds you have invested through Lending Club. There are other methods for evaluating the return on fixed-income securities that you could consider. 1

How are Net Annualized Returns calculated?
  • 1 Adjusted NAR, NAR, and all models and estimates are not guaranteed to be accurate and may differ materially from actual results. Historical performance is not a guarantee of future results. Lending Club Notes are not guaranteed or insured, and investors may lose some or all of the principal invested.

  • 2 "Effective interest rate" is equal to the borrower interest rate, reduced by Lending Club's estimate of the impact of uncollected interest prior to charge off. The estimate for uncollected interest prior to charge off is based on expected charge off rates and the typical time period prior to charge off when a borrower is not making interest and principal payments. Effective interest and charge off rates are subject to change. Expected charge off rates may not reflect actual charge off rates and individual results are likely to vary. This information is not intended to be investment advice or a promise of future results.

  • 3 This information is not intended as investment advice. You should consult your financial advisor if you have any questions or need additional information.

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