# Calculating Net Annualized Return on LendingClub historical data

I am interested in the formula LendingClub provides as their measure of "Net Annualized Return":

$\big(1 + \frac{\sum_{i=1}^N{((I_i + L_i - S_i - C_i + R_i) / P_i) P_i}}{\sum_{i=1}^N{P_i}}\big)^{12}-1$

where the variables $I,L,S,C,R,$ and $P$ denote interest, late charges, service charges, charge offs, collections recoveries, and principal remaining, and $i=1...N$ parametrizes months in the portfolio. For example, if we have one loan that matured over Jan 2008 - Jan 2011 and another that matured over Feb 2009 - Feb 2014, $i = 1...N$ would index over all the months from Jan 2008 to Feb 2014.

First, I would like to confirm that in the numerator, the $P_i$ are indeed supposed to cancel, and LendingClub is merely trying to illustrate that they are taking a "fraction of principal" explicitly. The variables are all available in the full historical payment data (see All payments at the bottom of the link) LendingClub provides. However, I am having some trouble applying the definition.

Taking the conservative estimate and assigning all loans that are Charged Off, Default, Late (31 - 120 days), Late (16 - 30 days), and In Grace Period as defaulted and incorporated into the $C_i$ charge-off term, I still get a 10.9% portfolio-wide NAR. This seems high, since LendingClub advertises historical returns of ~6%.

It should be noted that LendingClub does not provide this information on an installment-by-installment basis except principal remaining, $P_i$, so I simply took total interest received, late fees received, etc. over the lifetime of the loan. I believe this substitution is acceptable because the sum ranges over all non-censored installments, so after collapsing sums it should produce the same result regardless of whether the loan yet reached maturity.