OnDeck Reports Record Fourth Quarter and Full Year 2018 Financial Results

On Deck Capital, Inc.

Consolidated Statements of Operations

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

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

Revenue:

Interest income

$

105,363

$

83,621

$

383,579

$

334,575

Gain on sales of loans

—

595

—

2,485

Other revenue

4,116

3,525

14,797

13,890

Gross revenue

109,479

87,741

398,376

350,950

Cost of revenue:

Provision for loan losses

39,853

34,431

148,541

152,926

Interest expense

11,230

11,270

47,075

46,199

Total cost of revenue

51,083

45,701

195,616

199,125

Net revenue

58,396

42,040

202,760

151,825

Operating expense:

Sales and marketing

11,207

10,696

44,082

52,786

Technology and analytics

13,642

11,432

50,866

53,392

Processing and servicing

5,645

4,555

21,209

18,076

General and administrative

14,467

10,999

61,333

41,916

Total operating expense

44,961

37,682

177,490

166,170

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

13,435

4,358

25,270

(14,345)

Provision for income taxes

—

—

—

—

Net income (loss)

13,435

4,358

25,270

(14,345)

Less: Net income (loss) attributable to noncontrolling interest

(604)

(738)

(2,411)

(2,811)

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

$

14,039

$

5,096

$

27,681

$

(11,534)

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

Basic

$

0.19

$

0.07

$

0.37

$

Diluted

$

0.18

$

0.07

$

0.35

$

(0.16)

Weighted-average common shares outstanding:

Basic

75,504,595

73,708,613

74,561,019

72,890,313

Diluted

79,591,252

77,153,920

78,549,940

72,890,313

On Deck Capital, Inc.

Percentage of Average Interest Earning Assets

(unaudited, $ in thousands)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

Revenue:

Interest income

33.6

%

31.4

%

33.0

%

30.3

%

Gain on sales of loans

—

%

0.2

%

—

%

0.2

%

Other revenue

1.3

%

1.3

%

1.3

%

1.3

%

Gross revenue

34.9

%

33.0

%

34.3

%

31.8

%

Cost of revenue:

Provision for loan losses

12.7

%

12.9

%

12.8

%

13.9

%

Interest expense

3.6

%

4.2

%

4.1

%

4.2

%

Total cost of revenue

16.3

%

17.2

%

16.8

%

18.1

%

Net revenue

18.6

%

15.8

17.5

%

13.8

%

Operating expense:

Sales and marketing

3.6

%

4.0

%

3.8

%

4.8

%

Technology and analytics

4.4

%

4.3

%

4.4

%

4.8

%

Processing and servicing

1.8

%

1.7

%

1.8

%

1.6

%

General and administrative

4.6

%

4.1

%

5.3

%

3.8

%

Total operating expense

14.3

%

14.2

%

15.3

%

15.1

%

Income (loss) from operations

4.3

%

1.6

%

2.2

%

(1.3)

%

Net income (loss) before provision for income taxes

4.3

%

1.6

%

2.2

%

(1.3)

%

Provision for income taxes

—

%

—

%

—

%

—

%

Net income (loss)

4.3

%

1.6

%

2.2

%

(1.3)

%

Memo:

$1,245,057

$1,055,496

$1,161,608

$1,103,063

On Deck Capital, Inc. and Subsidiaries

Consolidated Balance Sheets

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

December 31, 2018

December 31, 2017

Assets

Cash and cash equivalents

$

59,859

$

71,362

Restricted cash

37,779

43,462

Loans held for investment

1,169,157

952,796

Less: Allowance for loan losses

(140,040)

(109,015)

Loans held for investment, net

1,029,117

843,781

Property, equipment and software, net

16,700

23,572

Other assets

18,115

13,867

Total assets

$

1,161,570

$

996,044

Liabilities and equity

Liabilities:

Accounts payable

$

4,011

$

2,674

Interest payable

2,385

2,330

Debt

816,231

692,254

Accrued expenses and other liabilities

34,654

32,730

Total liabilities

857,281

729,988

Stockholders' equity (deficit):

Common stock—$0.005 par value, 1,000,000,000 shares authorized and 79,135,510 and 77,284,266 shares issued and 75,375,341 and 73,822,001 outstanding at December 31, 2018 and 2017, respectively.

396

386

Treasury stock—at cost

(9,822)

(7,965)

Additional paid-in capital

506,169

492,509

Accumulated deficit

(195,155)

(222,833)

Accumulated other comprehensive loss

(1,832)

(52)

Total On Deck Capital, Inc. stockholders' equity

299,756

262,045

Noncontrolling interest

4,533

4,011

Total equity

304,289

266,056

Total liabilities and equity

$

1,161,570

$

996,044

Memo:

Unpaid Principal Balance¹

$

1,144,954

$

936,239

Loans²

$

1,169,157

$

952,796

Interest Earning Assets³

$

1,266,795

$

1,067,619

Book Value Per Diluted Share

$

3.77

$

3.39

On Deck Capital, Inc. and Subsidiaries

Consolidated Average Balance Sheets⁴

(unaudited, $ in thousands)

Average Three Months
Ended December 31,

Average Twelve Months
Ended December 31,

2018

2017

2018

2017

Assets

Cash and cash equivalents

$

51,523

$

50,692

$

48,833

$

55,725

Restricted cash

52,133

51,312

54,944

57,053

Loans held for investment

1,141,401

953,492

1,057,831

990,285

Less: Allowance for loan losses

(137,960)

(106,199)

(126,260)

(108,821)

Loans held for investment, net

1,003,441

847,293

931,571

881,464

Loans held for sale

—

—

—

355

Property, equipment and software, net

16,364

24,110

17,949

26,636

Other assets

17,423

15,775

15,651

17,759

Total assets

$

1,140,884

$

989,182

$

1,068,948

$

1,038,992

Liabilities and equity

Liabilities:

Accounts payable

$

4,475

$

2,961

$

3,717

$

3,284

Interest payable

2,337

2,226

2,392

2,301

Debt

805,527

691,476

751,040

740,500

Accrued expenses and other liabilities

31,768

31,392

31,355

33,265

Total liabilities

844,107

728,055

788,504

779,350

Total On Deck Capital, Inc. stockholders' equity

291,893

256,848

275,525

254,641

Noncontrolling interest

4,884

4,279

4,919

5,001

Total equity

296,777

261,127

280,444

259,642

Total liabilities and equity

$

1,140,884

$

989,182

$

1,068,948

$

1,038,992

Memo:

Unpaid Principal Balance

$

1,118,140

$

937,021

$

1,037,563

$

972,269

Loans

$

1,141,401

$

953,492

$

1,057,831

$

990,642

Interest Earning Assets

$

1,245,057

$

1,055,496

$

1,161,608

$

1,103,063

Supplemental Information

Key Performance Metrics

($ in thousands, except percentage data)      

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

Originations⁵

$

658,487

$

546,360

$

2,483,596

$

2,114,663

Loan Yield⁶

36.6

%

34.8

%

36.2

%

33.8

%

Cost of Funds Rate⁷

5.6

%

6.5

%

6.3

%

6.2

%

Net Interest Margin⁸

30.0

%

27.2

%

29.0

%

26.1

%

Provision Rate⁹

6.0

%

6.4

%

6.0

%

7.5

%

Reserve Ratio¹⁰

12.2

%

11.6

%

12.2

%

11.6

%

15+ Day Delinquency Ratio¹¹

7.5

%

6.7

%

7.5

%

6.7

%

Net Charge-off Rate¹²

12.0

%

12.9

%

11.3

%

15.8

%

Efficiency Ratio¹³

41.1

%

42.9

%

44.6

%

47.3

%

Adjusted Efficiency Ratio^{14 (a)}

39.4

%

39.5

%

40.1

%

42.9

%

Return on Assets¹⁵

4.9

%

2.1

%

2.6

%

(1.1)

%

Adjusted Return on Assets^{16 (a)}

5.6

%

3.3

%

4.3

%

0.4

%

Return on Equity¹⁷

19.2

%

7.9

%

10.0

%

(4.5)

%

Adjusted Return on Equity^{18 (a)}

21.8

%

12.6

%

16.5

%

1.6

%

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

Activity in the Allowance for Loan Losses

Allowance for loan losses beginning of period

$133,644

$104,872

$109,015

$110,162

   + Provision for loan losses

39,853

34,431

148,541

152,926

   - Gross charge-offs

(36,779)

(35,314)

(130,695)

(171,272)

   + Recoveries

3,322

5,026

13,179

17,199

Allowance for loan losses end of period

$140,040

$109,015

$140,040

$109,015

Activity in Loan Held for Investment Balances

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

Unpaid Principal Balance beginning of period

$

1,095,792

$

940,881

$

936,239

$

980,451

   + Total originations^(b)

658,487

546,360

2,483,596

2,114,663

   - Marketplace originations

—

(7,100)

—

(63,065)

   - Sales of other loans^(c)

—

(9,998)

—

(10,498)

   + Purchase of Loans

—

111

801

13,841

   - Net charge-offs

(33,457)

(30,288)

(117,516)

(154,073)

   - Principal paid down^(d)

(575,868)

(503,727)

(2,158,166)

(1,945,080)

Unpaid Principal Balance end of period

1,144,954

936,239

1,144,954

936,239

   + Net deferred origination costs

24,203

16,557

24,203

16,557

Loans held for investment

1,169,157

952,796

1,169,157

952,796

   - Allowance for loan losses

(140,040)

(109,015)

(140,040)

(109,015)

Loans held for investment, net

$

1,029,117

$

843,781

$

1,029,117

$

843,781

^(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 $110.2 million and $85.3 million in the three months ended December 31, 2018 and 2017, respectively, and $368.4 million and $306.2 million for the twelve months ended December 31, 2018 and 2017, respectively.

^(c) 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.

^(d) 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 million in the three months ended December 31, 2018 and 2017, respectively, and $0 million and $0.2 million for the twelve months ended December 31, 2018 and 2017, respectively.

Supplemental Information

Non-GAAP Reconciliations

(in thousands, except share and per share data)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

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

$

14,039

$

5,096

$

27,681

$

(11,534)

Stock-based compensation expense

2,967

2,994

11,819

12,515

Real estate disposition charges

—

—

4,187

—

Severance and executive transition expenses

—

—

911

3,183

Debt Extinguishment Costs

—

—

1,935

—

Sales Tax Refund

(1,097)

—

(1,097)

—

Adjusted Net income (loss)¹⁹

$

15,909

$

8,090

$

45,436

$

4,164

Adjusted Net income (loss) per share²⁰:

Basic

$

0.21

$

0.11

$

0.61

$

0.06

Diluted

$

0.20

$

0.10

$

0.58

$

0.06

Weighted-average common shares outstanding:

Basic

75,504,595

73,708,613

74,561,019

72,890,313

Diluted

79,591,252

77,153,920

78,549,940

72,890,313

Three Months Ended
December 31,

Twelve Months Ended
December 31,

Reconciliation of Return on Assets to Adjusted Return on Assets

2018

2017

2018

2017

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

14,039

5,096

27,681

(11,534)

Average Total Assets

$

1,140,884

$

989,182

$

1,068,948

$

1,038,992

Return on Assets

4.9

%

2.1

%

2.6

%

(1.1)

%

Adjustments:

Stock-based compensation expense

2,967

2,994

11,819

12,515

Real estate disposition charges

—

—

4,187

—

Severance and executive transition expenses

—

—

911

3,183

Debt Extinguishment Costs

—

—

1,935

—

Sales Tax Refund

(1,097)

—

(1,097)

—

Adjusted Net income (loss)

15,909

8,090

45,436

4,164

Average Total Assets

$

1,140,884

$

989,182

$

1,068,948

$

1,038,992

Adjusted Return on Assets

5.6

%

3.3

%

4.3

%

0.4

%

Three Months Ended
December 31,

Twelve Months Ended
December 31,

Reconciliation of Return on Equity to Adjusted Return on Equity

2018

2017

2018

2017

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

14,039

5,096

27,681

(11,534)

Average OnDeck Stockholders' Equity

$

291,893

$

256,848

$

275,525

$

254,641

Return on Equity

19.2

%

7.9

%

10.0

%

(4.5)

%

Adjustments:

Stock-based compensation expense

2,967

2,994

11,819

12,515

Real estate disposition charges

—

—

4,187

—

Severance and executive transition expenses

—

—

911

3,183

Debt Extinguishment Costs

—

—

1,935

—

Sales Tax Refund

(1,097)

—

(1,097)

—

Adjusted Net income (loss)

15,909

8,090

45,436

4,164

Average OnDeck Stockholders' Equity

$

291,893

$

256,848

$

275,525

$

254,641

Adjusted Return on Equity

21.8

%

12.6

%

16.5

%

1.6

%

Three Months Ended
December 31,

Twelve Months Ended
December 31,

Reconciliation of Efficiency Ratio to Adjusted Efficiency Ratio

2018

2017

2018

2017

Total operating expense

44,961

37,682

177,490

166,170

Gross revenue

$

109,479

$

87,741

$

398,376

$

350,950

Efficiency Ratio

41.1

%

42.9

%

44.6

%

47.3

%

Adjustments:

Stock-based compensation expense

2,967

2,994

11,819

12,515

Real estate disposition charges

—

—

4,187

—

Severance and executive transition expenses

—

—

911

3,183

Debt Extinguishment Costs

—

—

1,935

—

Sales Tax Refund

(1,097)

—

(1,097)

—

Operating Expenses Less Noteworthy Items

43,091

34,688

159,735

150,472

Gross revenue

$

109,479

$

87,741

$

398,376

$

350,950

Adjusted Efficiency Ratio

39.4

%

39.5

%

40.1

%

42.9

%

Non-GAAP Guidance Reconciliation

(in millions)

Three Months Ending
March 31,

Twelve Months Ending
December 31,

2019

2019

Low

High

Low

High

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

$

2

$

6

$

20

$

30

Stock-based compensation (after tax)

3

3

10

10

Adjusted Net income

$

5

$

9

$

30

$

40

Supplemental Channel Information

Quarterly Origination Channel Distribution

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

Percentage of originations (dollars)

Direct

45

%

50

%

46

%

52

%

Strategic Partner

27

%

22

%

25

%

21

%

Funding Advisor

28

%

28

%

29

%

27

%

Notes:

⁽¹⁾ Unpaid Principal Balance represents the total amount of principal outstanding of term loans held for investment, amounts outstanding under lines of credit and the amortized cost of loans purchased from other than issuing bank partners at the end of the period. It excludes net deferred origination costs, allowance for loan losses and any loans sold or held for sale at the end of the period.

⁽²⁾ Loans represents the sum of Loans held for investment and Loans held for sale at end of the period.

⁽³⁾ Interest Earning Assets represents the sum of Loans plus Cash and Cash Equivalents plus Restricted Cash. Average Interest Earnings Assets is calculated as the average of Interest Earnings Assets at the beginning of the period and the end of each month in the period.

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

⁽⁵⁾ Originations represent the total principal amount of the term loans we made during the period, plus the total amount drawn on lines of credit during the period. 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 partners and later purchased by us are included as part of our originations.

⁽⁶⁾ Loan Yield is the rate of return we achieve on loans outstanding during a period. It is calculated as annualized Net Interest income on Loans including Amortization of net deferred origination costs divided by average Loans.  Annualization is based on 365 days per year and is calendar day-adjusted.

⁽⁷⁾ 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.

⁽⁸⁾ Net Interest Margin is calculated as annualized Net Interest income divided by average Interest Earning Assets. Net Interest income represents Interest income less Interest expense during the period.  Annualization is based on 365 days per year and is calendar day-adjusted.

⁽⁹⁾ Provision Rate equals the Provision for loan losses for the period divided by Originations of Loans held for investment for the period. Because we reserve for probable credit losses inherent in the portfolio upon origination, this rate is significantly impacted by the expectation of credit losses for the period's originations volume. This rate may also be impacted by changes in loss expectations for loans originated prior to the commencement of the period.

⁽¹⁰⁾ Reserve Ratio is our Allowance for loan losses as of the end of the period divided by the Unpaid Principal Balance as of 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 past due as of the end of the period as a percentage of the Unpaid Principal Balance at the end of the period. The Unpaid Principal Balance for our loans that are 15 or more calendar days past due includes loans that are paying and non-paying. Because our loans require daily and weekly repayments, excluding weekends and holidays, they may be deemed delinquent more quickly than loans from traditional lenders that require only monthly payments.

⁽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 in the period, net of recoveries of prior charged-off loans 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 a 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 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 a 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.