Lending Club Q2 2012 Update - Credit Grade, Days to Issue, and Funded Amount

Following is the last of two updates on the second quarter data for Lending Club. The first one covered Loan Volume, Term and Interest Rate. This one covers Credit Grade, Days between Listing and Issued Dates, and Loan Amount.

Credit Grade

The chart below shows the number of loans issued quarterly by credit grade for past three years. The colored bars represent the loan volume with actual value listed just below the end of the bar and axis at the bottom. The colored stars represent the percentage of loans in the quarter of specific credit grade and axis at the top. I made the following observations:

• The listing of grade A loans declined 14.3% in the second quarter compared to the first quarter of 2012. The listing of grade A loans grew 22.7% and 39.8% for the same quarter of 2011 and 2010 respectively. The listing of grade G loans declined 8.7% for the second quarter compared to the first quarter of 2012. The listings of grade G loans also declined 19.4% for the same quarter of 2011. The drop in number of grade A loans is surprising. It may be the result from a combination of lower demand for low interest rate loans and improved accessibility to low interest rate loans through traditional banks for borrowers with better credit rating. 
• The listings of grade B, C, D, E, and F loans grew between 17.4% (grade B) and 42.1% (grade C) in the second quarter compared to the first quarter of 2012.
• The grade mix of loans listed in the second quarter continues to be similar to those of previous quarters. Over the years, more than half of the loans listed on Lending Club have been of high quality (grade A and B).

Days between Listing and Issued Dates

The chart and table below show the percentage of total loans issued in a quarter with days between Listing and Issue of Loan. I made the following observations:

• During the second quarter of 2012, about 70% of loans with 36 month term (Blue) and about 67% of loans with 60 month term (Orange) were issued within 10 days of listing date.
• In the second quarter of 2012, 60 month loans are taking about the same time as 36 month loans to be funded and issued after being listed. In prior years, the 60 month loans always took longer to be funded and issued. The closing gap in issuance after listing between 36 month and 60 month loans is puzzling considering, with 60 month loans, the uncertainty of default risk due to limited history, larger loan amount, and longer repayment period when things could go wrong for borrowers of 60 month loans.

Loan Amount

The chart below shows the total loan amount funded by loan length during the past three years. I made the following observations:

• The total loan amount funded for 36 month loans grew 7.9% in the second quarter compared to the first quarter of 2012. The second quarter growth over the first quarter was 16.7% in 2011. In 2010, there was decline of 9.2% in the second quarter primarily due to introduction of 60 month loans. The total loan amount funded for 60 month loans grew 20.1% in the second quarter compared to the first quarter of 2012. The second quarter growth over the first quarter was 35.1% in 2011. The total loan amount funded for all term loans grew 11.3% in the second quarter compared to the first quarter of 2012. The second quarter growth over the first quarter was 25.4% in 2011 and 22.7% in 2010.
• Only 29.9% of loan amount funded during the second quarter of 2012 had 60 month term compared to 51.1% during the same quarter of 2011.
• During the first six months of 2012, the loan amount funded has reached 88% of the loan amount funded for the full year 2011. Though impressive, Lending Club most probably will fall short of 226% growth in total loan amount funded in 2011 over 2010.

Key Takeaways

• Lending Club continues to enjoy healthy growth in total loan amount funded, similar to growth in loan volume mentioned in previous post Lending Club Q2 2012 Update - Loan Volume, Term and Interest Rate, though growth is slowing.
• Lending Club continues to manage credit grade mix of loans and focus on listing high quality loans on its platform.
• The recent trend of 60 month loans taking about the same time to be issued after listing as 36 month loans seems very peculiar and reasons unexplained.

Recently, Lending Club CEO Renaud Leplanche interviewed with Zack Miller at Tradestreaming. Thomas DeLong wrote an excellent recap of interview in his post Lending Club's data about their borrowers could help them more efficiently price risk in future P2P lending markets. It seems Lending Club is aspiring to become financial social network. Check out the article and interview. One of my friend was disappointed to read that Lending Club is already working on incorporating social information into the risk pricing metrics as he has been working on offering similar service.

Interested in learning to invest in stocks by reading and analyzing financial statements, check out Fundamental Analysis: A Back-to-the-Basics Investment Guide to Selecting Quality Stocks and other suggestions in Random Thoughts Reading List.