Lending Club – August 2013 Update

As part of my effort to catch up from my blogging hiatus this past summer I am going back and posting my monthly updates.

Peer to peer lending intrigued me from the moment I first heard about it, and Lending Club is where I first started investing back in 2009. Each month I plan on updating my Lending Club investments in both my taxable and Roth IRA accounts. Nothing is more exciting than watching my investments compound on a regular basis, and Lending Club gives met that compounding in spades! Now let’s take a look how August turned out.

Roth IRA Account:
Lending Club Roth IRA - Main Screen - August 2013

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As of the end of July, my Lending Club Roth IRA account had just under $600 in available cash. After getting back to investing after changing how I was physically selecting notes, August ended with less than $50 in available cash. Unfortunately, with a couple months of slow reinvestment, and additional default and charged off loans, my overall net interest for the month in this account was only slightly more than the previous month.

Absolutely expected given my risk tolerance, reflected by my current weighted-average of 18.00%, there will be more charged off and late loans to come. As of the end of August, there are two charged off loans, one in default, and eight in the pipeline as late. While disappointing for sure, this is part of the risk of investing in something with an average interest rate that high. There are many investors who take advantage of the secondary markets to recapture some of the potential losses from late loans. I do not pursue this strategy as I am attempting to make this as passive of an investment as possible.

As for my earnings, during August, I earned $124.92 of net interest in my Roth IRA account. My internal rate of return since opening the account, using Excel’s XIRR function, continued to increase as it went from 9.72% to 10.19%. As I mentioned last month, I would expect that at some point during 2014 this number will stabilize in the 12-13% range as my distance from the major cash drag I experienced opening the account increases and the while the corresponding late loans continue to offset my interest income.

Taxable Account:
Lending Club Taxable - Main Screen - August 2013

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August was a very unusual month for my taxable account with Lending Club. The normal activity resulted in a net loss of $4.93 as I had one note default. However, I ended up having a positive month in the account due to an unusual adjustment I found buried in my monthly statement (see below). Based on an internal audit done by Lending Club, there was an issue with how the NAR was calculating. In a preemptive move by Lending Club, they credited my account for what additional interest would have been earned would the NAR have been calculating correctly (this is my interpretation of their note in my statement).

Lending Club Taxable - Internal Audit Credit - August 2013

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Ultimately, this gave me a positive month in net interest with $10.52 in growth in the account. July showed two late notes in my account, which is still the case as of the end of August, even with the most recent default. The clock continues to tick as to when the more charge offs will potentially occur. Again, this is all part of the understood risk of peer to peer lending.

Even with August being an odd month overall with the credit and charged off loans, my overall internal rate of return since inception did not change from 10.52%. Likewise, and continuing with the unchanging theme, my weighted average interest rate for my taxable account remained the same at 15.05%.

Lending Club Summary:

All told, it was still a productive, albeit odd, month for my Lending Club accounts as they brought in a total of $135.44 in net interest. This was a very slight decrease of $1.24 over July’s $136.68 of net interest. Check out the chart below to see my net interest amounts received by month in 2013.

Lending Club - Net Interest by Month - August 2013

Isolating the month of August, my overall internal rate of return came out to be annualized 13.71%. Moving forward this monthly IRR number will vary as notes get charged off. My long-term return projections for my Lending Club investments is in the 12-14% range as defaults, late loans, and uninvested cash drag the returns from their weighted average.

I have updated my Lending Club page with this information. Please note when tracking my balance and return I do not include the accrued interest in the account, only the interest actually received net of fees, charge-offs, and defaults.

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