OnDeck Reports First Quarter 2018 Financial Results

May 8, 2018

Originations growth of 8% and Gross revenue of $90 million
Net loss of $1.9 million; Adjusted Net income* of $6.4 million
Improvement in key credit metrics

NEW YORK, May 8, 2018 /PRNewswire/ -- OnDeck® (NYSE:ONDK), the leader in online lending for small business, today announced first quarter 2018 Gross revenue of $90 million, Net loss of $1.9 million, and Adjusted Net income of $6.4 million.

OnDeck Logo

"Our first quarter results reflect a strong start to 2018 as we continue to execute on our strategic priorities to position our business for future success," said Noah Breslow, chief executive officer, OnDeck. "We delivered 8% sequential loan growth while managing our sales and marketing costs, and had positive credit performance, as the 15+ Day Delinquency Ratio and Net Charge-off rate both improved significantly from a year ago. On the product front, in April we began our pilot of instant funding with positive reviews from our initial customers, and we are excited to expand our pilot in May. We also further reduced our occupancy costs, and, in April, closed two financing transactions with very favorable terms that will help our funding cost going forward."

Review of Financial Results for the First Quarter of 2018

The Net loss attributable to On Deck Capital, Inc. common stockholders was $1.9 million, or $0.03 per basic and diluted share, improved from the Net loss of $11.1 million, or $0.15 per basic and diluted share, in the year-ago period.

Adjusted Net income was $6.4 million, or $0.09 per basic and $0.08 per diluted share, compared to an Adjusted Net loss of $7.6 million, or $0.11 per basic and diluted share, in the year-ago period.

Originations were $591 million, up 8% from the prior quarter, which contributed to a 6% growth in Unpaid Principal Balance, to $993 million at March 31, 2018.

Gross revenue increased to $90.3 million, up 3% from the prior quarter, driven by higher interest income. Effective Interest Yield ("EIY") was 35.6%, up from 34.8% in the prior quarter, reflecting increases in average loan pricing and lower average delinquencies.

The Cost of Funds Rate was 6.8%, up 0.3% from the prior quarter, driven by higher market interest rates. In April, OnDeck closed two important financing transactions. The first, a $225 million securitization, has a weighted average fixed interest rate of 3.75% and the highest rating ever for an asset-backed securitization of small business loans in the online lending industry. The second, a new 4-year, $100 million asset-backed revolving credit facility, has a rate of 1-month LIBOR +2.00%, the lowest variable rate of any of OnDeck's funding facilities.

The Provision for loan losses was $36.3 million, up $1.9 million from the prior quarter primarily driven by Originations, and down $9.9 million from the year-ago period, driven primarily by credit improvements. The Loan Reserve Ratio was 12.0%, up from 11.6% in the prior quarter. The Provision Rate was 6.1%, which decreased from 6.4% in the prior quarter, primarily driven by the improved quality of our originations. The 15+ Day Delinquency Ratio was 6.7%, unchanged from the prior quarter reflecting our decision to retain more 90+ day delinquent loans for in-house collection in lieu of selling, but improved from 7.8% in the year-ago quarter. The Net Charge-off Rate was 10.9%, improved from 12.9% in the prior quarter and 14.9% in the year-ago quarter, driven by continued improvement in collections.

Net revenue was $42.2 million, essentially unchanged from the prior quarter, driven primarily by higher gross revenue offset by higher funding and provision costs.

Operating expense was $44.6 million and included $5 million of charges related to real estate lease dispositions and severance expenses. In the first quarter, the company terminated a portion of its New York and Denver office leases that resulted in a $4 million charge but is expected to result in savings of over $2 million annually over the next 8 years. The company also recorded approximately $1 million of severance related to the consolidation of the Operations function to the Denver office and executive transitions.

Total funding debt was $730 million at March 31, 2018, up 7% from December 31, 2017, in line with the increase in Unpaid Principal Balance.

Cash and cash equivalents were $70.4 million at March 31, 2018, essentially unchanged from $71.4 million in December 31, 2017.

Guidance for Second Quarter 2018

OnDeck provided the following guidance for the three months ending June 30, 2018:

  • Gross revenue between $91 million and $95 million,
  • Net income (loss) attributable to OnDeck between $(3) million and $1 million, and
  • Adjusted Net income between $1 million and $5 million.

This outlook assumes approximately $42 million to $44 million of operating expense. OnDeck will also recognize a $1.3 million debt extinguishment charge for the voluntary repayment in full of our prior securitization facility in April 2018.

Guidance for Full Year 2018

OnDeck provided the following guidance for the full year ending December 31, 2018:

  • Gross revenue between $372 million and $382 million,
  • Net income attributable to OnDeck between $0 million and $10 million, and
  • Adjusted Net income between $18 million and $28 million.

This outlook assumes Unpaid Principal Balance growth between 10% and 15% and a full year Provision Rate between 6% and 7%, and includes first and second quarter real estate disposition, severance and debt extinguishment costs of approximately $6 million.

OnDeck also noted that it may terminate additional portions of its office leases during 2018, which would likely result in charges in the quarter the transaction(s) are booked. Any future real estate disposition charges are not included in guidance. Refer to the Non-GAAP Guidance Reconciliation section below for a reconciliation of Net income attributable to OnDeck guidance to Adjusted Net income guidance.

Conference Call
OnDeck will host a conference call to discuss first quarter 2018 financial results on May 8, 2018 at 8:00 AM ET. Hosting the call will be Noah Breslow, Chief Executive Officer, and Ken Brause, Chief Financial Officer. The conference call can be accessed toll free by dialing (866) 393-4306 for calls within the U.S., or by dialing (734) 385-2616 for international calls. The Conference ID is 9746769. A live webcast of the call will also be available at https://investors.ondeck.com under the Press & Events menu.

About OnDeck
OnDeck (NYSE: ONDK) is the leader in online small business lending. Since 2007, the company has powered Main Street's growth through advanced lending technology and a constant dedication to customer service. OnDeck's proprietary credit scoring system - the OnDeck Score® - leverages advanced analytics, enabling OnDeck to make real-time lending decisions and deliver capital to small businesses in as little as 24 hours. OnDeck offers business owners a complete financing solution, including the online lending industry's widest range of term loans and lines of credit. To date, the company has deployed over $8 billion to more than 80,000 customers in 700 different industries across the United States, Canada and Australia. OnDeck has an A+ rating with the Better Business Bureau and operates the educational small business financing website BusinessLoans.com. For more information, please visit www.ondeck.com.

About Credit Ratings
Credit ratings are opinions of the relevant rating agency. They are not facts and are not the opinion of OnDeck. They are not recommendations to purchase, sell or hold any securities and if issued can be changed or withdrawn at any time.

*About Non-GAAP Financial Measures
This press release and its attachments include historical and projected Adjusted Net income (loss), Adjusted Net income (loss) per share, and Net Interest Margin. These are financial measures not calculated or presented in accordance with United States generally accepted accounting principles, or GAAP, because they all exclude items required to be included in the most directly comparable measure calculated and presented in accordance with GAAP.  We believe these non-GAAP measures provide useful supplemental information for period-to-period comparisons of our business and can assist investors and others in understanding and evaluating our operating results. However, these non-GAAP measures should not be considered in isolation or as an alternative to any measures of financial performance calculated and presented in accordance with GAAP. Other companies may calculate these or similarly titled non-GAAP measures differently than we do. See "Non-GAAP Reconciliation" and "Non-GAAP Guidance Reconciliation" later in this press release for a description of these non-GAAP measures and a reconciliation to the most directly comparable financial measures prepared in accordance with GAAP.

Safe Harbor Statement
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. Forward-looking statements can be identified by words such as "will," "enables," "targets," "expects," "intends, "may," "allows," "plan," "continues," "believes," "anticipates," "estimates" or similar expressions. These include statements regarding guidance on gross revenue, GAAP Net income (loss) attributable to OnDeck and Adjusted Net income for the second quarter and full year 2018, expected growth in Unpaid Principal Balance and originations, increased profits in 2018, expected levels of operating expense, the assumed full year Provision Rate and the amount and timing of possible additional real estate disposition, severance and debt extinguishment costs.  They are based only on our current beliefs, expectations and assumptions regarding the future of our business, anticipated events and trends, the economy and other future conditions. As such, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and in many cases outside our control. Therefore, you should not rely on any of these forward-looking statements.  Our expected results may not be achieved, and actual results may differ materially from our expectations.  Important factors that could cause or contribute to actual results to differing from our forward-looking statements include risks relating to: our ability to achieve consistent profitability in the future in light of our prior loss history;  the effectiveness of our risk management efforts; our ability to attract potential customers to our platform and broaden our distribution capabilities and offerings; the degree to which potential customers apply for loans are approved and borrow from us; anticipated trends, growth rates, loan originations, volume of loans sold and challenges in our business and in the markets in which we operate; the ability of our customers to repay loans and our ability to accurately assess creditworthiness; our ability to adequately forecast and reserve for loan losses; the impact of our decision to tighten our credit policies; our liquidity and working capital requirements, including the availability and pricing of new debt facilities, extensions and increases to existing debt facilities, increases in our corporate line of credit, securitizations and OnDeck Marketplace sales to fund our existing operations and planned growth, including the consequences of having inadequate resources to fund additional loans or draws on lines of credit; our ability to hire and retain necessary qualified employees, particularly following our workforce reductions announced in 2017; our reliance on our third-party service providers and the effect on our business of originating loans without third-party funding sources; the impact of increased utilization of cash or incurred debt to fund originations; the effect on our business of utilizing cash for voluntary loan purchases from third parties; the effect on our business of the current credit environment and increases in interest rate benchmarks; our continuing compliance measures related to our funding advisor channel and their impact; changes in our product distribution channel mix and/or funding mix; the impact of increases in interest rates and origination fees we charge on loans; the impact of competition in our industry; our anticipated and unanticipated growth and growth strategies, including the possible introduction of new products or features, expanding the availability of our platform to other lenders through OnDeck-as-a-Service and possible expansion in existing or new international markets, and our ability to effectively manage that growth; our reputation and possible adverse publicity about us or our industry; the availability and cost of our funding, including challenges in replacing existing facilities and arranging funding for new types of loans; the impact of funding loans from our cash reserves; the effect of potential selective pricing increases; our expected utilization of OnDeck Marketplace transactions and the available OnDeck Marketplace premiums; our failure to anticipate or adapt to future changes in our industry; the impact and effect of the Tax Cuts and Jobs Act of 2017 and any related Treasury regulations, rules or interpretations, if and when issued; our ability to offer loans to our small business customers that have terms that are competitive with alternative sources of capital;  the evolution of technology affecting our offerings and our markets; our compliance with applicable local, state and federal and non-U.S. laws, rules and regulations and their application and interpretation, whether existing, modified or new; our ability to adequately protect our intellectual property; the effect of litigation or other disputes to which we are or may be a party; the increased expenses and administrative workload associated with being a public company; the unenforceability of choice of law provisions in our loan agreements and any potential violation of state interest rate limit laws; our ability to successfully evaluate, consummate and integrate acquisitions;  failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; the estimates and estimate methodologies used in preparing our consolidated financial statements; the future trading prices of our common stock and the impact of securities analysts' reports and shares eligible for future sale on these prices; our ability to prevent or discover security breaches, disruption in service and comparable events that could compromise the personal and confidential information held in our data systems or adversely impact our ability to service our loans; the impact of our cost rationalization programs; and other risks, including those described in our Annual Report on Form 10-K for the year ended December 31, 2017 in other documents that we file with the Securities and Exchange Commission from time to time which are or will be available on the Commission's website at www.sec.gov. Except as required by law, we undertake no duty to update the information in this press release.

Investor Contact:
Scott Reynolds
646.668.3551
sreynolds@ondeck.com

Media Contact:
Jim Larkin
203.526.7457
jlarkin@ondeck.com

OnDeck, the OnDeck logo, OnDeck Score and OnDeck Marketplace are trademarks of On Deck Capital, Inc.

On Deck Capital, Inc. and Subsidiaries

Consolidated Balance Sheets

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





March 31, 2018


December 31, 2017

Assets




Cash and cash equivalents

$

70,415



$

71,362


Restricted cash

44,709



43,462


Loans held for investment

1,010,944



952,796


Less: Allowance for loan losses

(118,921)



(109,015)


Loans held for investment, net

892,023



843,781


Property, equipment and software, net

17,455



23,572


Other assets

15,824



13,867


Total assets

$

1,040,426



$

996,044


Liabilities and equity




Liabilities:




Accounts payable

$

3,038



$

2,674


Interest payable

2,429



2,330


Funding debt

730,024



684,269


Corporate debt

7,969



7,985


Accrued expenses and other liabilities

29,499



32,730


Total liabilities

772,959



729,988


Stockholders' equity (deficit):




Common stock—$0.005 par value, 1,000,000,000 shares authorized and 77,752,143 and 77,284,266 shares issued and 74,264,491 and 73,822,001 outstanding at March 31, 2018 and December 31, 2017, respectively.

389



386


Treasury stock—at cost

(8,083)



(7,965)


Additional paid-in capital

496,588



492,509


Accumulated deficit

(224,752)



(222,833)


Accumulated other comprehensive loss

(118)



(52)


Total On Deck Capital, Inc. stockholders' equity

264,024



262,045


Noncontrolling interest

3,443



4,011


Total equity

267,467



266,056


Total liabilities and equity

$

1,040,426



$

996,044






Memo:




Unpaid Principal Balance1

$

992,595



$

936,239


Interest Earning Assets2

$

992,595



$

936,239


Loans3

$

1,010,944



$

952,796


 

On Deck Capital, Inc. and Subsidiaries

Consolidated Average Balance Sheets4

(unaudited, $ in thousands)



 Average Three Months
Ended March 31,

2018


2017

Assets




Cash and cash equivalents

$

49,812



$

63,588


Restricted cash

53,007



50,811


Loans held for investment

983,988



1,044,815


Less: Allowance for loan losses

(114,839)



(115,597)


Loans held for investment, net

869,149



929,218


Loans held for sale



856


Property, equipment and software, net

20,866



28,812


Other assets

14,026



19,717


Total assets

$

1,006,860



$

1,093,002


Liabilities and equity




Liabilities:




Accounts payable

$

2,853



$

4,356


Interest payable

2,300



2,298


Funding debt

698,825



763,833


Corporate debt

4,482



27,969


Accrued expenses and other liabilities

31,410



36,385


Total liabilities

739,870



834,841






Total On Deck Capital, Inc. stockholders' equity

263,195



253,345


Noncontrolling interest

3,795



4,816


Total equity

266,990



258,161


Total liabilities and equity

$

1,006,860



$

1,093,002






Memo:




Unpaid Principal Balance

$

966,327



$

1,023,882


Interest Earning Assets

$

966,327



$

1,024,731


Loans

$

983,988



$

1,045,671


 

On Deck Capital, Inc.

Consolidated Statements of Operations

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



Three Months Ended
March 31,




2018


2017


Revenue:





Interest income

$

86,369


$

87,111


Gain on sales of loans


1,484


Other revenue

3,911


4,297


Gross revenue

90,280


92,892


Cost of revenue:





Provision for loan losses

36,293


46,180


Funding costs

11,821


11,277


Total cost of revenue

48,114


57,457


Net revenue

42,166


35,435


Operating expense:





Sales and marketing

10,598


14,819


Technology and analytics

11,007


15,443


Processing and servicing

5,221


4,535


General and administrative

17,725


11,887


Total operating expense

44,551


46,684


Income (loss) from operations

(2,385)


(11,249)


Other expense:





Interest expense

(51)


(353)


Total other expense

(51)


(353)


Loss before provision for income taxes

(2,436)


(11,602)


Provision for income taxes



Net income (loss)

(2,436)


(11,602)


Net loss attributable to noncontrolling interest

518


544


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

$

(1,918)


$

(11,058)


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





Basic and diluted

$

(0.03)


$

(0.15)


Weighted-average common shares outstanding:





Basic and diluted

73,977,241


71,854,287







 

On Deck Capital, Inc.

Percentage of Average Interest Earning Assets2

(unaudited, $ in thousands)



Three Months Ended
March 31,




2018


2017


Revenue:





Interest income

36.3

%


34.5

%


Gain on sales of loans

%


0.6

%


Other revenue

1.6

%


1.7

%


Gross revenue

37.9

%


36.8

%


Cost of revenue:





Provision for loan losses

15.2

%


18.3

%


Funding costs

5.0

%


4.5

%


Total cost of revenue

20.2

%


22.7

%


Net revenue

17.7

%


14.0

%


Operating expense:





Sales and marketing

4.5

%


5.9

%


Technology and analytics

4.6

%


6.1

%


Processing and servicing

2.2

%


1.8

%


General and administrative

7.4

%


4.7

%


Total operating expense

18.7

%


18.5

%


Income (loss) from operations

(1.0)

%


(4.5)

%


Other expense:





Interest expense

%


(0.1)

%


Total other expense

%


(0.1)

%


Net income (loss) before provision for income taxes

(1.0)

%


(4.6)

%


Provision for income taxes

%


%


Net income (loss)

(1.0)

%


(4.6)

%







Memo:





Average Interest Earning Assets

$966,327


$1,024,731


 

Supplemental Information

 

Key Performance Metrics

($ in thousands, except percentage data)      


Three Months Ended March 31,



2018


2017

Originations5

$

590,585



$

573,015


Effective Interest Yield6

35.6

%


33.8

%

Cost of Funds Rate7

6.8

%


5.9

%

Net Interest Margin8

31.3

%


30.0

%

Marketplace Gain on Sale Rate9

N/A



3.5

%

Provision Rate10

6.1

%


8.7

%

Loan Reserve Ratio11

12.0

%


11.5

%

15+ Day Delinquency Ratio12

6.7

%


7.8

%

Net Charge-off Rate13

10.9

%


14.9

%



Marketplace Gain on Sale Rate9

Three Months Ended March 31,


2018


2017

Gain on sales of loans(a)

$



$

1,484


Carrying value of loans sold

$



$

42,038


Marketplace Gain on Sale Rate(a)

%


3.5

%

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



Marketplace Originations as Percent of Term Loan Originations

Three Months Ended March 31,

2018


2017

Marketplace originations(b)

$



$

42,246


Origination of term loans

$

469,393



$

469,924


Marketplace originations as percent of term loan originations

%


9.0

%

(b) 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.



Activity in Loan Held for Investment Balances

Three Months Ended March 31,

2018


2017

Unpaid Principal Balance beginning of period

$

936,239



$

980,451


   + Total originations(c)

590,585



573,015


   - Marketplace originations



(42,246)


   - Sales of other loans(d)



(500)


   + Purchase of Loans



13,518


   - Net charge-offs

(26,387)



(38,267)


   - Principal paid down(c)(e)

(507,842)



(459,813)


Unpaid Principal Balance end of period

992,595



1,026,158


   + Net deferred origination costs

18,349



20,426


Loans held for investment

1,010,944



1,046,584


   - Allowance for loan losses

(118,921)



(118,075)


Loans held for investment, net

$

892,023



$

928,509


(c) Includes Unpaid Principal Balance of term loans rolled into new originations of $90.8 million and $70.1 million in the three months ended March 31, 2018 and 2017, 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 $0.0 and $0.2 million in the three months ended March 31, 2018 and 2017, respectively.



Activity in the Allowance for Loan Losses

Three Months Ended March 31,

2018


2017

Allowance for loan losses beginning of period

$

109,015



$

110,162


  + Provision for loan losses(f)

36,293



46,180


   - Gross charge-offs

(29,732)



(40,884)


   + Recoveries

3,345



2,617


Allowance for loan losses end of period

$

118,921



$

118,075


(f) Excludes a provision release of $0.1 million and a provision expense of $0.1 million for the three months ended March 31, 2018 and 2017, respectively, for unfunded loan commitments. The provision for unfunded loan commitments is included in general and administrative expense.

 


Supplemental Information


Non-GAAP Reconciliation

(in thousands, except share and per share data)



Three Months Ended March 31,

Reconciliation of Adjusted Net income (loss)

2018


2017

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

$

(1,918)



$

(11,058)


Stock-based compensation

3,210



3,491


Real estate disposition charges

$

4,187




Severance expenses

911




Adjusted Net income (loss)14

$

6,390



$

(7,567)


Adjusted Net income (loss) per share15:




Basic

$

0.09



$

(0.11)


Diluted

$

0.08



$

(0.11)


Weighted-average common shares outstanding:




Basic

73,977,241



71,854,287


Diluted

77,352,294



71,854,287







Three Months Ended March 31,


2018


2017

Reconciliation of Interest Income to Net Interest Margin (NIM)8




Interest income

$

86,369



$

87,111


Less: Funding costs

(11,821)



(11,277)


Net interest income

74,548



75,834


Divided by: calendar days in period

90



90


Net interest income per calendar day

828



843


Multiplied by: calendar days per year

365



365


Annualized net interest income

302,220



307,695


Divided by: Average Interest Earning Assets

$

966,327



$

1,024,731


Net Interest Margin (NIM)

31.3

%


30.0

%



Stock-based Compensation (in thousands)

Three Months Ended March 31,

2018


2017

Sales and marketing

$

535



$

771


Technology and analytics

597



783


Processing and servicing

105



173


General and administrative

1,973



1,764


Total stock-based compensation

$

3,210



$

3,491


 

Non-GAAP Guidance Reconciliation

(in millions)



Three Months Ending
June 30,


Twelve Months Ending
December 31,





2018


2018



Low


High


Low


High


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

$

(3)



$

1



$

0



$

10



Loss from early extinguishment of debt

1



1



1



1



Real estate disposition charges





4



4



Severance expenses





1



1



Stock-based compensation

3



3



13



13



Adjusted Net income16 (g)

$

1



$

5



$

18



$

28





(g) May not sum due to rounding.


 

Supplemental Channel Information


Quarterly Origination Channel Distribution



Three Months Ended March 31,


2018


2017

Percentage of originations (dollars)




Direct & Strategic Partner

71

%


72

%

Funding Advisor

29

%


28

%

 

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) Interest Earning Assets represents the sum of Unpaid Principal Balance plus the amount of principal outstanding of loans held for sale in the period. It excludes net deferred origination costs and allowance for loan losses. 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.

(3) Loans represents the sum of loans held for investment and loans held for sale during the period.

(4) Average Balance Sheet Items for the period represent the average as of the beginning of the month in the period and as of the end of each month in 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) Effective Interest Yield is the rate of interest we achieve on loans outstanding during a period. It is calculated as our calendar day-adjusted annualized interest income divided by average Loans.  Prior to the first quarter of 2018, annualization was based on 252 business days per year. Beginning with the three months ended March 31, 2018, annualization is based on 365 days per year and is calendar day-adjusted.  All revisions have been applied retrospectively.  Net deferred origination costs in loans held for investment and loans held for sale consist of deferred origination fees and costs. Deferred origination costs are limited to costs directly attributable to originating loans such as commissions, vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to loan origination and increase the carrying value of loans, thereby decreasing the Effective Interest Yield earned.

(7) Cost of Funds Rate is the interest expense, fees and amortization of deferred debt issuance costs we incur in connection with our lending activities across all of our debt facilities. For full years, it is calculated as our funding cost divided by average funding debt outstanding and for interim periods it is calculated as our annualized funding cost for the period divided by average funding debt outstanding. Annualization is based on four quarters per year and is not business or calendar day-adjusted.

(8) Net Interest Margin, a non-GAAP measure, is calculated as annualized Net Interest Income divided by Average Interest Earning Assets. Net Interest Income represents interest income less funding cost during the period. Interest income is net of fees on loans held for investment and held for sale. Net deferred origination costs in loans held for investment and loans held for sale consist of deferred origination costs as offset by corresponding deferred origination fees. Deferred origination fees include fees paid up front to us by customers when loans are funded. Deferred origination costs are limited to costs directly attributable to originating loans such as commissions, vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to loan origination. Funding costs are the interest expense, fees, and amortization of deferred debt issuance costs we incur in connection with our lending activities across all of our debt facilities. Annualization is based on 365 days per year and is calendar day-adjusted. Our use of Net Interest Margin has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: Net Interest Margin is the rate of net return we achieve on our Average Interest Earning Assets outstanding during a period. It does not reflect the return from loans sold through OnDeck Marketplace, specifically our gain on sale revenue. Similarly, Average Interest Earning Assets does not include the unpaid principal balance of loans sold through OnDeck Marketplace. Further, Net Interest Margin does not include servicing revenue related to loans previously sold, fair value adjustments to servicing rights, monthly fees charged to customers for our line of credit, and marketing fees earned from our issuing bank partners, which are recognized as the related services are provided. Funding costs do not reflect interest associated with debt used for corporate purposes.

(9) Marketplace Gain on Sale Rate equals our gain on sale revenue from loans sold through OnDeck Marketplace divided by the carrying value of loans sold, which includes both unpaid principal balance sold and the remaining carrying value of the net deferred origination costs. A portion of loans regularly sold through OnDeck Marketplace are or may be loans which were initially designated as held for investment upon origination. The portion of such loans sold in a given period may vary materially depending upon market conditions and other circumstances.

(10) Provision Rate equals the provision for loan losses divided by the new originations volume of loans held for investment, net of originations of sales of such loans within 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. The denominator of the Provision Rate formula includes the full amount of originations in a period.

(11) Loan 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.

(12) 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 for such 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 weekly and daily repayments, excluding weekends and holidays, they may be deemed delinquent more quickly than loans from traditional lenders that require only monthly payments. 15+ Day Delinquency Ratio is not annualized, but reflects balances as of the end of the period.

(13) Net Charge-off Rate is calculated as our annualized net charge-offs for the period divided by the average Unpaid Principal Balance outstanding.  Annualization is based on four quarters per year and is not business or calendar day-adjusted.  Net charge-offs are charged-off loans in the period, net of recoveries. 

(14) Adjusted Net income (loss), a non-GAAP measure, represents Net income (loss) attributable to On Deck Capital, Inc. common stockholders adjusted to exclude stock-based compensation expense, real estate disposition charges, severance and executive transition expenses. Stock-based compensation includes employee compensation as well as compensation to third-party service providers. Our use of Adjusted Net income (loss) has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted Net income (loss) does not reflect the potentially dilutive impact of stock-based compensation and does not reflect expenses incurred in connection with real estate dispositions and severance.

(15) Adjusted Net income (loss) per share represents Net income (loss) attributable to On Deck Capital, Inc. common stockholders adjusted to exclude stock-based compensation expense, real estate disposition charges, severance and executive transition expenses, each on the same basis and with the same limitations as described above for Adjusted Net income (loss), divided by the weighted average common shares outstanding during the period.

(16) Forward looking Adjusted Net income guidance is a non-GAAP measure and represents our Net income (loss) attributable On Deck Capital, Inc. common stockholders adjusted to exclude loss from early extinguishment of debt, real estate disposition charges and stock-based compensation expense, each on the same basis and with the same limitations as described above for Adjusted Net income (loss), and in addition that it does not reflect the cost of the early extinguishment of debt. As a result, our GAAP Net income (loss) for these future periods will be less favorable than our Adjusted Net income for the corresponding periods.  In addition, forward looking Adjusted Net income (loss) guidance is neither historical fact nor an assurance of future performance. It is based only on our current beliefs, expectations and assumptions regarding the future of our business, anticipated events and trends, the economy and other future conditions. As such, it is subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and in many cases outside our control. Therefore, you should not rely on this guidance.

 

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SOURCE On Deck Capital, Inc.

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