Analytics, Hotnews, p2p/online lending

OnDeck Releases Second Quarter 2017 Financial Results & Announces Extension of Existing Relationship With JPMorgan Chase

On Monday, online lender OnDeck released its second quarter 2017 financial results, which revealed a significant narrow quarterly loss along with providing an update regarding the lender’s ongoing $45 million cost rationalization plan, and reaffirmed it is on track to achieve GAAP profitability by the end of 2017.

While discussing the quarterly results, Noah Breslow, OnDeck’s CEO, stated:

“OnDeck’s second quarter 2017 results demonstrated solid progress toward achieving our strategic priorities. Our credit policy adjustments that began in the middle of the first quarter continue to yield benefits, with sequential improvements in both our Provision Rate and 15+ Day Delinquency Ratio.  We also further implemented our $45 million cost rationalization plan, lowering our annual operating expense run rate going forward to approximately $160 million.

 

“Reflecting these initiatives, the net loss applicable to OnDeck common stockholders, which included a $3.2 million severance charge, decreased to $1.5 million in the second quarter of 2017, an improvement of more than $16 million from the prior year quarter.  We are on track to return to sequential originations growth in Q3 and achieve GAAP profitability by year end, and we look forward to profitable growth off a lower expense base in 2018.”

Meanwhile, OnDeck also announced it has extended its partnership with JPMorgan Chase. The bank revealed with technology support from OnDeck, it launched the product in early 2016 to existing Chase Business Checking customers by invitation only. Chase plans to continue to refine the product, including expanding access and enhancing digital features in 2018. Julie Kimmerling, senior manager and head of the Chase Business Quick Capital product at Chase Business Banking, added:

“Over 18 months ago, we set out to simplify the conventional originations processes, which can take weeks to months – time that many small businesses don’t have. Today, our digital lending product allows us to provide superior client experience, and we’ve been pleased with customer feedback.”

See OnDeck’s quarterly results below.

On Deck Capital, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)

June 30, 2017

December 31, 2016

Assets

Cash and cash equivalents

$

77,936

$

79,554

Restricted cash

54,166

44,432

Loans held for investment

970,472

1,000,445

Less: Allowance for loan losses

(105,217)

(110,162)

Loans held for investment, net

865,255

890,283

Loans held for sale

—

373

Property, equipment and software, net

26,962

29,405

Other assets

19,119

20,044

Total assets

$

1,043,438

$

1,064,091

Liabilities and equity

Liabilities:

Accounts payable

$

5,569

$

5,271

Interest payable

2,406

2,122

Funding debt

719,091

726,639

Corporate debt

24,976

27,966

Accrued expenses and other liabilities

31,596

38,496

Total liabilities

783,638

800,494

Stockholders’ equity (deficit):

Common stock—$0.005 par value, 1,000,000,000 shares authorized and 76,384,797 and 74,801,825 shares issued and 73,057,122 and 71,605,708 outstanding at June 30, 2017 and December 31, 2016, respectively.

382

374

Treasury stock—at cost

(7,341)

(6,697)

Additional paid-in capital

485,631

477,526

Accumulated deficit

(223,869)

(211,299)

Accumulated other comprehensive loss

(139)

(379)

Total On Deck Capital, Inc. stockholders’ equity

254,664

259,525

Noncontrolling interest

5,136

4,072

Total equity

259,800

263,597

Total liabilities and equity

$

1,043,438

$

1,064,091

Memo:

Unpaid Principal Balance1

$

953,809

$

980,451

Interest Earning Assets2

$

953,809

$

980,821

Loans3

$

970,472

$

1,000,818

Loans Under Management4

$

1,110,655

$

1,202,791

On Deck Capital, Inc. and Subsidiaries

Consolidated Average Balance Sheets5

(in thousands, except share and per share data)

Average

Average

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Assets

Cash and cash equivalents

$

61,104

$

82,728

$

60,824

$

98,863

Restricted cash

68,530

35,193

58,956

34,678

Loans held for investment

1,003,103

746,683

1,020,727

685,433

Less: Allowance for loan losses

(110,542)

(68,589)

(112,355)

(62,447)

Loans held for investment, net

892,561

678,094

908,372

622,986

Loans held for sale

561

7,925

660

10,708

Property, equipment and software, net

27,776

30,569

28,298

29,353

Other assets

18,030

21,505

18,940

22,012

Total assets

$

1,068,562

$

856,014

$

1,076,050

$

818,600

Liabilities and equity

Liabilities:

Accounts payable

$

3,412

$

4,800

$

3,862

$

4,653

Interest payable

2,461

1,024

2,347

925

Funding debt

747,009

501,438

750,761

459,610

Corporate debt

24,723

2,698

26,114

2,697

Accrued expenses and other liabilities

31,347

32,242

34,336

32,209

Total liabilities

808,952

542,202

817,420

500,094

Total On Deck Capital, Inc. stockholders’ equity

253,260

308,074

253,271

312,513

Noncontrolling interest

6,350

5,738

5,359

5,993

Total equity

259,610

313,812

258,630

318,506

Total liabilities and equity

$

1,068,562

$

856,014

$

1,076,050

$

818,600

Memo:

Unpaid Principal Balance

$

984,812

$

733,526

$

1,001,231

$

673,519

Interest Earning Assets

$

985,370

$

741,226

$

1,001,887

$

683,907

Loans

$

1,003,664

$

754,608

$

1,021,387

$

696,141

Loans Under Management

$

1,161,590

$

1,020,752

$

1,192,488

$

980,076

On Deck Capital, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except share and per share data)

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Revenue:

Interest income

$

83,721

$

63,886

$

170,832

$

117,365

Gain on sales of loans

260

2,813

1,744

9,924

Other revenue

2,670

2,803

6,967

4,828

Gross revenue

86,651

69,502

179,543

132,117

Cost of revenue:

Provision for loan losses

32,733

32,271

78,913

57,708

Funding costs

11,616

8,374

22,893

14,096

Total cost of revenue

44,349

40,645

101,806

71,804

Net revenue

42,302

28,857

77,737

60,313

Operating expense:

Sales and marketing

15,368

16,757

30,187

33,305

Technology and analytics

14,769

13,757

30,212

27,844

Processing and servicing

4,826

4,865

9,361

9,080

General and administrative

9,590

12,149

21,477

21,858

Total operating expense

44,553

47,528

91,237

92,087

Loss from operations

(2,251)

(18,671)

(13,500)

(31,774)

Other expense:

Interest expense

(318)

(37)

(671)

(75)

Total other expense

(318)

(37)

(671)

(75)

Loss before provision for income taxes

(2,569)

(18,708)

(14,171)

(31,849)

Provision for income taxes

—

—

—

—

Net loss

(2,569)

(18,708)

(14,171)

(31,849)

Net loss attributable to noncontrolling interest

1,071

813

1,615

1,381

Net loss attributable to On Deck Capital, Inc. common stockholders

$

(1,498)

$

(17,895)

$

(12,556)

$

(30,468)

Net loss per share attributable to On Deck Capital, Inc. common shareholders:

Basic and diluted

$

(0.02)

$

(0.25)

$

(0.17)

$

(0.43)

Weighted-average common shares outstanding:

Basic and diluted

72,688,815

70,712,142

72,276,734

70,588,784

Supplemental Information

Key Performance Metrics

(in thousands, except percentage data)   

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Originations6

$

464,362

$

589,686

$

1,037,377

$

1,159,349

Effective Interest Yield7

32.8

%

33.3

%

33.5

%

33.7

%

Net Interest Margin8

28.8

%

29.5

%

29.5

%

30.2

%

Marketplace Gain on Sale Rate9

2.8

%

3.5

%

3.4

%

4.9

%

Cost of Funds Rate10

6.2

%

6.7

%

6.1

%

6.1

%

Provision Rate11

7.2

%

6.3

%

8.0

%

6.1

%

Reserve Ratio12

11.0

%

9.3

%

11.0

%

9.3

%

15+ Day Delinquency Ratio13

7.2

%

5.3

%

7.2

%

5.3

%

Net Charge-off Rate14

18.5

%

11.0

%

16.8

%

11.0

%

Net Interest Margin After Credit Losses (NIMAL)15

10.6

%

18.8

%

12.8

%

19.3

%

Adjusted Expense Ratio (AER)16

14.1

%

16.8

%

14.2

%

17.2

%

Adjusted Operating Yield (AOY)17

(3.5)

%

2.0

%

(1.4)

%

2.1

%

Marketplace Gain on Sale Rate9

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Gain on sales of loans(a)

$

260

$

2,813

$

1,744

$

9,924

Carrying value of loans sold

$

9,182

$

79,323

$

51,219

$

203,053

Marketplace Gain on Sale Rate(a)

2.8

%

3.5

%

3.4

%

4.9

%

(a) Three months ended March 31, 2016 and 2017 include amounts resulting from transfers of financial assets as shown in the following table.

Activity in Servicing Rights

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Fair value at the beginning of period

$

860

$

2,647

$

1,131

$

3,489

Addition:

Servicing resulting from transfers of financial assets

233

626

663

1,574

Changes in fair value:

Change in inputs or assumptions used in the valuation model

—

—

—

—

Other changes in fair value(b)

(392)

(1,284)

(1,093)

(3,074)

Fair value at the end of period

$

701

$

1,989

$

701

$

1,989

(b) Represents changes due to collection of expected cash flows through June 30, 2017 and 2016.

Marketplace Originations as Percent of Term Loan Originations

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Marketplace originations

$

8,379

$

78,752

$

50,625

$

206,994

Origination of term loans

$

362,219

$

506,097

$

832,142

$

1,002,053

Marketplace originations as percent of term loan originations

2.3

%

15.6

%

6.1

%

20.7

%

Activity in Loan Held for Investment Balances

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Unpaid Principal Balance beginning of period

$

1,026,158

$

651,970

$

980,451

$

543,790

   + Total Originations(c)

464,362

589,686

1,037,377

1,159,349

   +  Loans transferred from loans held for sale to loans held for investment and loan purchases

—

738

—

939

   – Marketplace originations

(8,379)

(78,752)

(50,625)

(206,994)

   – Sales of other loans(d)

—

(242)

(500)

(242)

   + Purchase of Loans

212

6,672

13,730

6,672

   – Net charge-offs

(45,591)

(20,129)

(83,858)

(37,170)

   – Principal paid down(c)(e)

(482,953)

(359,522)

(942,766)

(675,923)

Unpaid Principal Balance end of period

953,809

790,421

953,809

790,421

   + Net deferred origination costs

16,663

13,977

16,663

13,977

Loans held for investment

970,472

804,398

970,472

804,398

   – Allowance for loan losses

(105,217)

(73,849)

(105,217)

(73,849)

Loans held for investment, net

$

865,255

$

730,549

$

865,255

$

730,549

(c) Includes Unpaid Principal Balance of term loans rolled into new originations of $144.7 million and $62.1 million in the three months ended and $74.7 million and $129.7 million for the six month period ended June 30, 2017 and 2016, respectively.

(d) Includes loans sold that were previously designated as held for investment in at least one fiscal quarter prior to the quarter in which they were sold.

(e) Excludes principal that was paid down related to renewed loans sold in the period which were designated as held for investment in the amount of $0 and $0.6 million, in the three months ended June 30, 2017 and 2016 and $0.2 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively

Activity in the Allowance for Loan Losses

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Allowance for loan losses beginning of period

$

118,075

$

61,707

$

110,162

$

53,311

  + Provision for loan losses(f)

32,733

32,271

78,913

57,708

   – Net charge-offs

(45,591)

(20,129)

(83,858)

(37,170)

Allowance for loan losses end of period

$

105,217

$

73,849

$

105,217

$

73,849

(f) Excludes provision expense for unfunded loan commitments of $0.2 million and provision release of $0.4 million for the three months ended June 30, 2017 and 2016, respectively. The provision for unfunded loan commitments is included in general and administrative expense.

Supplemental Information

Non-GAAP Reconciliation18

(in thousands, except share and per share data)

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Net income (loss)

$

(2,569)

$

(18,708)

$

(14,171)

$

(31,849)

Interest expense

318

37

671

75

Income tax expense

—

—

—

—

Depreciation and amortization

2,576

2,357

5,172

4,435

Stock-based compensation

2,974

3,910

6,465

7,662

Adjusted EBITDA19

$

3,299

$

(12,404)

$

(1,863)

$

(19,677)

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Net income (loss)

$

(2,569)

$

(18,708)

$

(14,171)

$

(31,849)

Net loss attributable to noncontrolling interest

1,071

813

1,615

1,381

Stock-based compensation

2,974

3,910

6,465

7,662

Adjusted Net Income (Loss)20

$

1,476

$

(13,985)

$

(6,091)

$

(22,806)

Adjusted Net Income (Loss) per share21:

Basic

$

0.02

$

(0.20)

$

(0.08)

$

(0.32)

Diluted

$

0.02

$

(0.20)

$

(0.08)

$

(0.32)

Weighted-average common shares outstanding:

Basic

72,688,815

70,712,142

72,276,734

70,588,784

Diluted

72,688,815

70,712,142

72,276,734

70,588,784

Net Interest Margin (NIM) Reconciliation and Calculation8

(in thousands)

Three Months Ended
March 31,

Six Months Ended
June 30,

2017

2016

2017

2016

Interest income

$

83,721

$

63,886

$

170,832

$

117,365

Less: Funding costs

(11,616)

(8,374)

(22,893)

(14,096)

Net interest margin (NIM)

72,105

55,512

147,939

103,269

Divided by: business days in period

64

64

126

126

Net interest income per business day

1,127

867

1,174

820

Multiplied by: average business days per year

252

252

252

252

Annualized net interest income

284,004

218,484

295,848

206,640

Divided by: average Interest Earning Assets

$

985,370

$

741,226

$

1,001,887

$

683,907

Net Interest Margin (NIM)

28.8

%

29.5

%

29.5

%

30.2

%

Net Interest Margin After Credit Losses (NIMAL) Reconciliation and Calculation15

(in thousands)

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Interest income

$

83,721

$

63,886

$

170,832

$

117,365

Less: Funding costs

(11,616)

(8,374)

(22,893)

(14,096)

Net interest margin (NIM)

72,105

55,512

147,939

103,269

Less: Net charge-offs

(45,591)

(20,129)

(83,858)

(37,170)

Net interest income after credit losses

26,514

35,383

64,081

66,099

Divided by: business days in period

64

64

126

126

Net interest income after credit losses per business day

414

553

509

525

Multiplied by: average business days per year

252

252

252

252

Annualized net interest income after credit losses

104,328

139,356

128,268

132,300

Divided by: average Interest Earning Assets

$

985,370

$

741,226

$

1,001,887

$

683,907

Net Interest Margin After Credit Losses (NIMAL)

10.6

%

18.8

%

12.8

%

19.3

%

Adjusted Expense Ratio (AER) Reconciliation and Calculation16

(in thousands)

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Operating expense

$

44,553

$

47,528

$

91,237

$

92,087

Less: stock based compensation

(2,974)

(3,910)

(6,465)

(7,662)

Operating expense (Ex. SBC)

41,579

43,618

84,772

84,425

Divided by: business days in period

64

64

126

126

Operating expense (Ex. SBC) per business day

650

682

673

670

Multiplied by: average business days per year

252

252

252

252

Operating expense (Ex. SBC)

163,800

171,864

169,596

168,840

Divided by: average Loans Under Management

$

1,161,590

$

1,020,752

$

1,192,488

$

980,076

Adjusted Expense Ratio (AER)

14.1

%

16.8

%

14.2

%

17.2

%

Adjusted Operating Yield (AOY) Reconciliation and Calculation17

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Net Interest Margin After Losses (NIMAL)

10.6

%

18.8

%

12.8

%

19.3

%

Less: Adjusted expense ratio (AER)

14.1

%

16.8

%

14.2

%

17.2

%

Adjusted Operating Yield (AOY)

(3.5)

%

2.0

%

(1.4)

%

2.1

%

Stock-based Compensation (in thousands)

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Sales and marketing

$

521

$

941

$

1,292

$

1,829

Technology and analytics

542

887

1,325

1,644

Processing and servicing

157

211

330

554

General and administrative

1,754

1,871

3,518

3,635

Total stock-based compensation

$

2,974

$

3,910

$

6,465

$

7,662

Severance Charges (in thousands)

Three Months Ended
June 30,

2017

Sales and marketing

$

1,380

Technology and analytics

1,207

Processing and servicing

443

General and administrative

154

Total severance charges

$

3,184

Supplemental Channel Information

Quarterly Origination Channel Distribution

Three Months Ended
June 30,

Six Months Ended
June 30,

Percentage of originations (number of loans22)

2017

2016

2017

2016

Direct & Strategic Partner

78.9

%

81.1

%

78.0

%

80.5

%

Funding Advisor

21.1

%

18.9

%

22.0

%

19.5

%

Percentage of originations (dollars)

Direct & Strategic Partner

75.7

%

73.7

%

73.4

%

73.1

%

Funding Advisor

24.3

%

26.3

%

26.6

%

26.9

%

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