OnDeck Reports First Quarter 2020 Financial Results

On Deck Capital, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited, $ in thousands, except share and per share data)

Three Months Ended,

March 31,
2020

December 31,
2019

March 31,
2019

Interest and finance income

$

106,935

$

108,772

$

105,799

Interest expense

11,569

10,693

11,332

Net interest income

95,366

$

98,079

94,467

Provision for credit losses

107,907

44,031

43,291

Net interest income (loss), after credit provision

(12,541)

54,048

51,176

Other revenue

3,620

2,943

4,176

Operating expense:

Sales and marketing

11,664

12,990

11,960

Technology and analytics

16,484

17,616

16,806

Processing and servicing

6,689

6,896

5,489

General and administrative

16,280

16,909

14,029

Total operating expense

51,117

54,411

48,284

Income (loss) from operations, before provision for income taxes

(60,038)

2,580

7,068

Provision for (Benefit from) income taxes

—

(5,417)

1,740

Net income (loss)

(60,038)

7,997

5,328

Less: Net income (loss) attributable to noncontrolling interest

(1,063)

(1,313)

(338)

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

$

(58,975)

$

9,310

$

5,666

Net income (loss) per share attributable to On Deck Capital, Inc. common stockholders:

Basic

$

$

0.13

$

0.08

Diluted

$

$

0.13

$

0.07

Weighted-average common shares outstanding:

Basic

62,534,517

69,450,995

75,539,535

Diluted

62,534,517

72,038,198

79,115,037

On Deck Capital, Inc. and Subsidiaries

Percentage of Average Interest Earning Assets

(unaudited, $ in thousands)

Three Months Ended,

March 31,
2020

December 31,
2019

March 31,
2019

Interest and finance income

31.3

%

32.3

%

33.0

%

Interest expense

3.4

%

3.2

%

3.5

%

Net interest income:

27.9

%

29.1

%

29.5

%

Provision for credit losses

31.6

%

13.1

%

13.6

%

Net interest income (loss), after credit provision:

(3.7)

%

16.0

%

15.9

%

Other revenue

1.1

%

0.9

%

1.3

%

Operating expense:

Sales and marketing

3.4

%

3.9

%

3.7

%

Technology and analytics

4.8

%

5.1

%

5.2

%

Processing and servicing

2.0

%

2.1

%

1.7

%

General and administrative

4.8

%

5.0

%

4.4

%

Total operating expense

15.0

%

16.1

%

15.0

%

Income (loss) from operations, before provision for income taxes

(17.6)

%

0.8

%

2.2

%

Provision for (Benefit from) income taxes

—

%

(1.5)

%

0.5

%

Net income (loss)

(17.6)

%

2.3

%

1.7

%

Memo:

$1,386,501

$1,337,646

$1,299,675

On Deck Capital, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited, $ in thousands, except share and per share data)

March 31,
2020

December 31,
2019

March 31,
2019

Assets

Cash and cash equivalents

$

121,148

$

56,344

$

60,085

Restricted cash

29,094

40,524

44,632

Loans and finance receivables

1,291,586

1,265,312

1,202,771

Less: Allowance for credit losses

(205,703)

(151,133)

(147,406)

Loans and finance receivables, net

1,085,883

1,114,179

1,055,365

Property, equipment and software, net

23,714

20,332

16,180

Other assets

77,339

73,204

48,636

Total assets

$

1,337,178

$

1,304,583

$

1,224,898

Liabilities, mezzanine equity and stockholders' equity

Liabilities:

Accounts payable

$

6,804

$

6,470

$

4,847

Interest payable

3,100

2,334

2,808

Debt

1,043,924

914,995

842,314

Accrued expenses and other liabilities

56,834

70,110

63,333

Total liabilities

1,110,662

993,909

913,302

Mezzanine equity:

Redeemable noncontrolling interest

13,112

14,428

—

Stockholders' equity:

Common stock—$0.005 par value, 1,000,000,000 shares authorized and 80,247,423, 80,095,061, and 78,944,343 shares issued and 58,419,304, 66,363,555, and 75,907,393 outstanding at March 31, 2020, December 31, 2019, and March 31, 2019, respectively.

406

405

399

Treasury stock—at cost

(82,503)

(49,641)

(5,656)

Additional paid-in capital

514,785

513,571

506,159

Accumulated deficit

(217,509)

(169,002)

(191,293)

Accumulated other comprehensive loss

(2,923)

(1,333)

(2,234)

Total On Deck Capital, Inc. stockholders' equity

212,256

294,000

307,375

Noncontrolling interest

1,148

2,246

4,221

Total stockholders' equity

213,404

296,246

311,596

Total liabilities, mezzanine equity and stockholders' equity

$

1,337,178

$

1,304,583

$

1,224,898

Memo:

Unpaid Principal Balance¹

$

1,263,364

$

1,238,409

$

1,177,609

Loans and finance receivables²

$

1,291,586

$

1,265,312

$

1,202,771

Interest Earning Assets³

$

1,441,828

$

1,362,181

$

1,307,488

Book Value Per Diluted Share

$

3.49

$

4.26

$

3.87

On Deck Capital, Inc. and Subsidiaries

Consolidated Average Balance Sheets⁴

(unaudited, $ in thousands)

Three Months Ended,

March 31,
2020

December 31,
2019

March 31,
2019

Assets

Cash and cash equivalents

$

64,245

$

51,606

$

48,115

Restricted cash

38,206

48,022

48,182

Loans and finance receivables

1,284,050

1,238,019

1,203,378

Less: Allowance for credit losses

(164,840)

(149,054)

(145,742)

Loans and finance receivables, net

1,119,210

1,088,965

1,057,636

Property, equipment and software, net

22,159

19,699

16,494

Other assets

73,614

70,463

38,843

Total assets

$

1,317,434

$

1,278,755

$

1,209,270

Liabilities, mezzanine equity and stockholders' equity

Liabilities:

Accounts payable

$

6,965

$

4,571

$

5,053

Interest payable

2,621

2,518

2,646

Debt

961,977

884,238

838,867

Accrued expenses and other liabilities

62,287

67,238

56,780

Total liabilities

1,033,850

958,565

903,346

Mezzanine equity:

Redeemable noncontrolling interest

13,958

14,660

—

Stockholders' equity:

Total On Deck Capital, Inc. stockholders' equity

267,800

303,126

301,469

Noncontrolling interest

1,826

2,404

4,455

Total stockholders' equity

269,626

305,530

305,924

Total liabilities, mezzanine equity and stockholders' equity

$

1,317,434

$

1,278,755

$

1,209,270

Memo:

Unpaid Principal Balance

$

1,256,429

$

1,212,341

$

1,177,801

Loans and finance receivables

$

1,284,050

$

1,238,019

$

1,203,378

Interest Earning Assets

$

1,386,501

$

1,337,646

$

1,299,675

Supplemental Information

Key Performance Metrics

($ in thousands, except percentage data)

Three Months Ended,

March 31,
2020

December 31,
2019

March 31,
2019

Originations⁵

$

591,863

$

617,633

$

635,506

Gross Revenue⁶

110,555

111,715

109,975

Portfolio Yield⁷

33.3

%

34.8

%

35.6

%

Cost of Funds Rate⁸

4.8

%

4.8

%

5.4

%

Net Interest Margin⁹

27.6

%

29.1

%

29.5

%

Reserve Ratio¹⁰

16.3

%

12.2

%

12.5

%

15+ Day Delinquency Ratio¹¹

10.3

%

9.0

%

8.7

%

Net Charge-off Rate¹²

15.8

%

13.5

%

12.2

%

Efficiency Ratio¹³

46.2

%

48.7

%

43.9

%

Adjusted Efficiency Ratio^{14 (a)}

45.0

%

46.7

%

41.1

%

Return on Assets¹⁵

(17.9)

%

2.9

%

1.9

%

Adjusted Return on Assets^{16 (a)}

(17.5)

%

1.0

%

2.7

%

Return on Equity¹⁷

(88.1)

%

12.3

%

7.5

%

Adjusted Return on Equity^{18 (a)}

(86.0)

%

4.3

%

10.8

%

Three Months Ended,

March 31,
2020

December 31,
2019

March 31,
2019

Activity in the Allowance for Credit Losses

Allowance for loan losses beginning of period

$

151,133

$

148,045

$

140,040

   + Provision for credit losses

107,907

44,031

43,291

   - Gross charge-offs

(55,228)

(46,774)

(39,839)

   + Recoveries

5,597

5,831

3,914

   - Transition to CECL Adjustment

(3,304)

—

—

   - Foreign Currency Translation

(402)

—

—

Allowance for credit losses end of period

$

205,703

$

151,133

$

147,406

Activity in Loans and Finance Receivables Held for Investment Balances

Three Months Ended,

March 31,
2020

December 31,
2019

March 31,
2019

Unpaid Principal Balance beginning of period

$

1,238,409

$

1,203,322

$

1,144,954

   + Total originations^(b)

591,863

617,633

635,506

   - Net charge-offs

(49,631)

(40,943)

(35,925)

   - Principal paid down

(517,277)

(541,602)

(566,926)

Unpaid Principal Balance end of period

1,263,364

1,238,409

1,177,609

   + Net deferred origination costs

28,222

26,903

25,162

Loans and finance receivables held for investment

1,291,586

1,265,312

1,202,771

   - Allowance for credit losses

(205,703)

(151,133)

(147,406)

Loans and finance receivables held for investment, net

$

1,085,883

$

1,114,179

$

1,055,365

^(a) Non-GAAP measure. See "About Non-GAAP Financial Measures," and "Non-GAAP Reconciliations" and related footnotes elsewhere in this press release.

^(b) Includes Unpaid Principal Balance of term loans rolled into new originations of $79.7 million, $95.3 million, $98.5 million in the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively.

Supplemental Information

Non-GAAP Reconciliations

(in thousands, except share and per share data)

Three Months Ended,

Reconciliation of Net Income to Adjusted Net Income

March 31,
2020

December 31,
2019

March 31,
2019

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

$

(58,975)

$

9,310

$

5,666

Adjustments (after-tax):

Stock-based compensation expense

1,416

1,449

2,436

Discrete Tax Benefit

—

(7,500)

—

Adjusted Net Income (Loss)¹⁹

$

(57,559)

$

3,259

$

8,102

Adjusted Net Income (Loss) per Share²⁰:

Basic

$

(0.92)

$

0.05

$

0.11

Diluted

$

(0.92)

$

0.05

$

0.10

Weighted-average common shares outstanding:

Basic

62,534,517

69,450,995

75,539,535

Diluted

62,534,517

72,038,198

79,115,037

Three Months Ended,

Reconciliation of Return on Assets to Adjusted Return on Assets

March 31,
2020

December 31,
2019

March 31,
2019

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

$

(58,975)

$

9,310

$

5,666

Average Total Assets

1,317,434

1,278,755

1,209,270

Return on Assets

(17.9)

%

2.9

%

1.9

%

Adjustments (after-tax):

Stock-based compensation expense

1,416

1,449

2,436

Discrete Tax Benefit

—

(7,500)

—

Adjusted Net Income (Loss)

$

(57,559)

$

3,259

$

8,102

Average Total Assets

1,317,434

1,278,755

1,209,270

Adjusted Return on Assets

(17.5)

1.0

%

2.7

%

Three Months Ended,

Reconciliation of Return on Equity to Adjusted Return on Equity

March 31,
2020

December 31,
2019

March 31,
2019

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

$

(58,975)

$

9,310

$

5,666

Average OnDeck Stockholders' Equity

267,800

303,126

301,469

Return on Equity

(88.1)

%

12.3

%

7.5

%

Adjustments (after-tax):

Stock-based compensation expense

1,416

1,449

2,436

Discrete Tax Benefit

—

(7,500)

—

Adjusted Net Income (Loss)

$

(57,559)

$

3,259

$

8,102

Average OnDeck Stockholders' Equity

267,800

303,126

301,469

Adjusted Return on Equity

(86.0)

%

4.3

%

10.8

%

Three Months Ended,

Reconciliation of Efficiency Ratio to Adjusted Efficiency Ratio

March 31,
2020

December 31,
2019

March 31,
2019

Total operating expense

$

51,117

$

54,411

$

48,284

Gross revenue

110,555

111,715

109,975

Efficiency Ratio

46.2

%

48.7

%

43.9

%

Adjustments (pre-tax):

Stock-based compensation expense

1,416

2,273

3,083

Operating Expenses Less Noteworthy Items

$

49,701

$

52,138

$

45,201

Gross revenue

110,555

111,715

109,975

Adjusted Efficiency Ratio

45.0

%

46.7

%

41.1

%

Supplemental Channel Information

Quarterly Origination Channel Distribution

Three Months Ended,

March 31,
2020

December 31,
2019

March 31,
2019

Percentage of originations (dollars)

Direct

38

%

38

%

42

%

Strategic Partner

34

%

33

%

31

%

Funding Advisor

28

%

29

%

27

%

Notes:

⁽¹⁾Unpaid Principal Balance represents the total amount of principal outstanding on Loans, plus outstanding advances relating to other finance receivables and the amortized cost of loans purchased from other than our issuing bank partner at the end of the period. It excludes net deferred origination costs, allowance for credit losses and any loans sold or held for sale at the end of the period.

⁽²⁾Loans and finance receivables represents the sum of term loans, lines of credit, equipment finance loans and finance receivables.

⁽³⁾Interest Earning Assets represents the sum of Loans and finance receivables plus Cash and cash equivalents plus Restricted cash.

⁽⁴⁾Average Balance Sheet line items for the period represent the average of the balance at the beginning of the first month of the period and the end of each month in the period.

⁽⁵⁾Originations represent the total principal amount of Loans made during the period plus the total amount advanced on other finance receivables.  Many of our repeat term loan customers renew their term loans before their existing term loan is fully repaid. In accordance with industry practice, originations of such repeat term loans are presented as the full renewal loan principal, rather than the net funded amount, which would be the renewal term loan's principal net of the Unpaid Principal Balance on the existing term loan. Loans referred to, and funded by, our issuing bank partner and later purchased by us are included as part of our originations.

⁽⁶⁾Gross Revenue represents the sum of interest and finance income, gain on sales of loans and other revenue.

⁽⁷⁾Portfolio Yield is the rate of return we achieve on Loans and finance receivables outstanding during a period. It is calculated as annualized Interest and finance income on Loans and finance receivables including amortization of net deferred origination costs divided by average loans and finance receivables. Annualization is based on 365 days per year and is calendar day-adjusted.

⁽⁸⁾Cost of Funds Rate is calculated as interest expense divided by average debt outstanding for the period.  For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted.

⁽⁹⁾Net Interest Margin is calculated as annualized net interest and finance income divided by average Interest Earning Assets. Net interest and finance income represents Interest and finance receivable income less Interest expense during the period. Annualization is based on 365 days per year and is calendar day-adjusted.

⁽¹⁰⁾Reserve Ratio is our allowance for credit losses at the end of the period divided by the Unpaid Principal Balance at the end of the period.

⁽¹¹⁾15+ Day Delinquency Ratio equals the aggregate Unpaid Principal Balance for our Loans that are 15 or more calendar days contractually past due and for our finance receivables that are 15 or more payments behind schedule, as a percentage of the Unpaid Principal Balance at the end of the period. The Unpaid Principal Balance for our loans and finance receivables that are 15 or more calendar days or payments past due includes Loans and finance receivables that are paying and non-paying.

⁽¹²⁾Net Charge-off Rate is calculated as our annualized net charge-offs for the period divided by the average Unpaid Principal Balance outstanding during the period. Net charge-offs are charged-off loans and finance receivables in the period, net of recoveries of prior charged-off loans and finance receivables in the period.  For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted.

⁽¹³⁾Efficiency Ratio is a measure of operating efficiency and is calculated as Total operating expense for the period divided by Gross Revenue for the period. 

⁽¹⁴⁾Adjusted Efficiency Ratio is non-GAAP measure calculated as total operating expense divided by Gross Revenue for the period, adjusted to exclude (a) stock-based compensation expense and (b) items management deems to be non-representative of operating results or trends, all as shown in the non-GAAP reconciliation presentation of this metric. We believe Adjusted Efficiency Ratio is useful because it provides investors and others with a supplemental operating efficiency metric to present our operating efficiency across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically. Our use of Adjusted Efficiency Ratio has limitations as an analytical tool and you should not consider it in isolation, as a substitute for or superior to our Efficiency Ratio, which is the most comparable GAAP metric.

⁽¹⁵⁾Return on Assets is calculated as annualized net income (loss) attributable to On Deck Capital, Inc. common stockholders for the period divided by average total assets for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted.

⁽¹⁶⁾Adjusted Return on Assets is a non-GAAP measure calculated as Adjusted Net Income (Loss) for the period divided by average total assets for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. We believe Adjusted Return on Assets is useful because it provides investors and others with a supplemental metric to assess our performance across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically, all as shown in the non-GAAP reconciliation presentation of this metric. Our use of Adjusted Return on Assets has limitations as an analytical tool and you should not consider it in isolation, as a substitute for or superior to Return on Assets, which is the most comparable GAAP metric.

⁽¹⁷⁾Return on Equity is calculated as annualized net income (loss) attributable to On Deck Capital, Inc. common stockholders for the period divided by average total On Deck Capital, Inc. stockholders' equity for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted.

⁽¹⁸⁾Adjusted Return on Equity is a non-GAAP measure calculated as Adjusted Net Income (Loss) attributable to On Deck Capital, Inc. common stockholders for the period divided by average total On Deck Capital, Inc. stockholders' equity for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. We believe Adjusted Return on Equity is useful because it provides investors with a supplemental metric to assess our performance across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically, all as shown in the non-GAAP reconciliation presentation of this metric. Our use of Adjusted Return on Equity has limitations as an analytical tool and you should not consider it in isolation, as a substitute or superior to Return on Equity, which is the most comparable GAAP metric.

⁽¹⁹⁾Adjusted Net Income (Loss) is a non-GAAP measure calculated as net income (loss) attributable to On Deck Capital, Inc. common stockholders adjusted to exclude from net income (loss) attributable to On Deck Capital, Inc. common stockholders (a) stock-based compensation expense and (b) items management deems to be non-representative of operating results or trends, all as shown in the non-GAAP reconciliation presentation of this metric. We believe Adjusted Net Income (Loss) is useful because it provides investors and others with a supplemental profitability metric to present our performance across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically. Our use of Adjusted Net Income (Loss) has limitations as an analytical tool and you should not consider it in isolation, as a substitute for or superior to net income (loss) attributable to On Deck Capital, Inc. common stockholders, which is the most comparable GAAP metric.

⁽²⁰⁾Adjusted Net Income (Loss) per Share is a non-GAAP measure calculated as Adjusted Net Income (Loss) divided by the weighted average common shares outstanding during the period. We believe Adjusted Net Income (Loss) per Share is useful because it provides investors and others with a supplemental profitability metric to present our performance across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically. Our use of Adjusted Net Income (Loss) per Share has limitations as an analytical tool and you should not consider it in isolation, as a substitute for or superior to net income (loss) attributable to On Deck Capital, Inc. common stockholders per share, which is the most comparable GAAP metric.