# How We Measure Net Annualized Return

### What is Net Annualized Return?

Net Annualized Return (NAR or "unadjusted 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 off amounts, 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. As explained below, "charge off amounts" are equal to the outstanding principal amount of any Note for which the corresponding member loan is actually charged off.

### Why We Display Net Annualized Return

NAR reflects only actual Borrower payments received to date. Therefore, we believe it gives you a more accurate measure of the performance of your portfolio versus considering only the stated interest rate on the Notes you have purchased.* It is not a forward-looking projection of performance.

### How We Calculate Net Annualized Return

NAR is calculated using a formula where the numerator is equal to interest received, plus late fees received, minus the 1% service fee paid. If Borrower payments on a Note are not received, the interest, and late fees received and service fee paid in that period will be zero. If a corresponding loan is in "charge off" status, we subtract the entire outstanding principal amount of the Note from the numerator. If a portion of the charged off loan is recovered, we add the amount recovered, net of fees, to the numerator. Next, we divide the numerator by the outstanding principal amount of the Note for that monthly period. This yields a fraction for the monthly period.

This calculation is performed for each monthly period, taking into account all interest received, late fees received, service fees paid, and all charge offs and recoveries made relative to the principal outstanding in each monthly period. Doing the calculation in this way means that NAR accounts for performance on investments that begin in different periods, have different payment dates, and so forth. The final step in the calculation involves annualizing the result. To do this, we take the sum of (1 + the dollar-weighted average performance for all periods), raise it to the 12th power, and subtract 1. This result is NAR, which is expressed as a percentage.*

To be included in the NAR calculation, a Note must have been issued more than three (3) months prior to the calculation date.

### NAR formula

NAR can be expressed as this formula, for any period from month 1 to month N, where "i" is the recurring monthly period:

### What is 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, we make a deduction for estimated future losses on loans based on status ("Note status adjustment amount"). To calculate this deduction, we apply an estimated loss rate to the outstanding principal of a Note for which the corresponding member loan is past due but not charged off. The estimated loss rate 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).* Investors have the option to customize the estimated loss rate applied to their portfolio by logging into their account and clicking the "View/Customize Adjustments" link on their Account Summary page.

Adjusted NAR reflects actual Borrower payments received on a loan to date and a risk-adjusted view of the outstanding principal of that loan based on loan status. Adjusted NAR may be useful for investors who want to model possible future loan losses for each loan status.* Whether an investor uses Lending Club's estimated loss rate or their own, it is not a guarantee of future performance.

### How We Calculate Adjusted Net Annualized Return

For Adjusted NAR, we perform the same calculation that we do to determine unadjusted NAR, but we make an additional adjustment for estimated future losses on past due loans. To do this, we apply an estimated loss rate to the outstanding principal of any Note that is past due and subtract that amount from the numerator ("Note Status Adjustment Amount"). The Note Status Adjustment Amount is calculated by applying an estimated loss rate to the outstanding principal on any Notes for which the corresponding loan is past due but not charged off at the time of the calculation.

### Adjusted NAR Formula

Adjusted NAR can be expressed as this formula, for any period from month 1 to month N, where "i" is the recurring monthly period:

### What is Traded Note NAR?

To measure the return on a Note that was purchased or sold on the Folio Investing Note Trading Platform,** the unadjusted NAR calculation incorporates any markup or discount (relative to the outstanding principal value of the Note and any accrued interest at the time of purchase) paid for any Note purchased, and the gain or loss on any Note sold on the Note Trading Platform. It also incorporates the impact of the timing of the trade date within the payment cycle for a Note. The resulting "Traded Note NAR" is, like unadjusted NAR, based on actual Borrower payments received each month, net of service fees, actual charge offs, and recoveries.*

### How we Calculate Traded Note NAR

For a traded Note, we modify the NAR calculation to account for the price paid for the Note on the Note Trading Platform.

For a Note sold on the Note Trading Platform, we add the gain (or subtract the loss) on the sale to the numerator of the unadjusted NAR formula.

For Notes purchased on the Note Trading Platform, we calculate the Traded Note NAR by incorporating any discount or markup (compared to the outstanding principal and accrued interest at the time of the trade) paid for a Note, as well as expected income from the remaining payments due.* We do this by amortizing the markup or discount paid for the Note over the remaining life of the Note, and then adding the amortized amount to the interest portion of the formula. We also add the unamortized markup (or discount) to the principal portion of the formula.

Although the structure of the Note does not change when it is bought or sold, by amortizing the markup or discount paid for the Note over the remaining life of the Note, the traded Note NAR effectively treats each Traded Note as a new Note with its own purchase price and particular schedule of future payments. This approach is known as "level yield," where the Traded Note NAR is roughly equivalent to the Yield to Maturity of the Note at the time of purchase on the Note Trading Platform.*

*Special Cases*

There will be cases when a Borrower does not make all loan payments as scheduled. In these instances, we do not re-amortize the markup or discount paid for the Note on the Note Trading Platform. If the Borrower pays less than the scheduled payment amount (e.g. makes a partial payment, moves to a payment plan, or misses a payment all together), we adjust the amortization so that it would be evenly distributed across the number of remaining regular payments required to completely payoff the Note.

Similarly, there will be cases when a Borrower pays more that the scheduled payment. For example, a Borrower might make an extra payment or a full payoff of their loan. If a Borrower pays more than the scheduled payment amount, we adjust the amortization based on the excess principal repaid as a proportion of the principal outstanding.

### Traded Note NAR Formula

Traded Note NAR can be expressed as this formula, for any period from month 1 to month N, where "i" is the recurring monthly period:

### What is Traded Note Adjusted NAR?

Traded Note Adjusted NAR allows investors to model the impact of potential losses on Notes in their portfolio before the corresponding loan is charged off. To calculate the Traded Note Adjusted NAR, Lending Club makes a deduction for estimated future losses on loans based on loan status and incorporates any markup or discount paid or received at the time of the relevant transaction ("Note Status Adjustment Amount"). The Note Status Adjustment Amount is calculated by 1) applying an estimated loss rate to the outstanding principal of any Notes for which the corresponding loan is past due but not charged off at the time of the calculation (the "Outstanding Principal Adjustment Amount"), and 2) increasing or decreasing the Outstanding Principal Adjustment Amount by the unamortized markup or discount paid for the Note, if applicable.*

If the Note was bought at a markup, the Note Status Adjustment Amount is equal to the Outstanding Principal Adjustment Amount increased by the unamortized markup paid for the Note. As a result, the Note Status Adjustment Amount for a Note purchased at a markup on the Note Trading Platform will be larger than it would have been if the Note had been bought at par. If the Note was bought at a discount, the Note Status Adjustment Amount is equal to the Outstanding Principal Adjustment Amount decreased by the unamortized discount paid for the Note. As a result, the Note Status Adjustment Amount for a Note purchased at a discount on the Note Trading Platform will be less than it would have been if the Note had been purchased at par. In the event that the Outstanding Principal Adjustment Amount is less than or equal to the unamortized discount paid, the Note Status Adjustment Amount will be zero. Please see the Traded Note Adjusted NAR Formula below for more information about how this adjustment is applied in cases where the Note was bought at a markup or discount.

### Traded Note Adjusted NAR Formula

Traded Note Adjusted NAR can be expressed as this formula, for any period from month 1 to month N, where "i" is the recurring monthly period:

### The Limitations of Return Calculations

Adjusted NAR, NAR, Traded Note NAR, Traded Note Adjusted NAR are just possible ways to calculate the return on funds invested through the Lending Club platform.* There are other methods for evaluating the historical and potential investment returns on fixed-income securities that you could choose to use instead, and you may want to consider such methods as well. You should consult your financial advisor if you have any questions or need additional information.

Lending Club Notes are only offered by Prospectus.

* Adjusted NAR, NAR, Traded Note NAR, Traded Note Adjusted 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.

** FOLIO*fn* Investments, Inc. ("Folio Investing") is a registered broker-dealer and member of FINRA and SIPC. Folio Investing is based in Vienna, VA and is not affiliated with LendingClub Corporation. Folio Investing operates the Note Trading Platform as an SEC approved alternative trading system (ATS). More information about Folio Investing is available at www.folioinvesting.com. Folio Investing has no role in the original issuance of the Notes and is not responsible for and does not approve, endorse, review, recommend or guarantee the Notes or the accuracy, reliability, or completeness of any data or information about the Notes.