On Deck Capital, Inc.

Consolidated Statements of Operations

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Revenue:

Interest income

$

99,476

$

80,122

$

278,216

$

250,954

Gain on sales of loans

—

146

—

1,890

Other revenue

3,523

3,398

10,681

10,365

Gross revenue

102,999

83,666

288,897

263,209

Cost of revenue:

Provision for loan losses

39,102

39,582

108,688

118,495

Funding costs

11,665

11,330

35,688

34,223

Total cost of revenue

50,767

50,912

144,376

152,718

Net revenue

52,232

32,754

144,521

110,491

Operating expense:

Sales and marketing

10,845

11,903

32,875

42,090

Technology and analytics

13,418

11,748

37,224

41,960

Processing and servicing

5,302

4,160

15,564

13,521

General and administrative

13,107

9,440

46,866

30,917

Total operating expense

42,672

37,251

132,529

128,488

Income (loss) from operations

9,560

(4,497)

11,992

(17,997)

Other expense:

Interest expense

63

35

157

706

Total other expense

63

35

157

706

Income (loss) before provision for income taxes

9,497

(4,532)

11,835

(18,703)

Provision for income taxes

—

—

—

—

Net income (loss)

9,497

(4,532)

11,835

(18,703)

Net income (loss) attributable to noncontrolling interest

(272)

(458)

(1,807)

(2,073)

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

$

9,769

$

(4,074)

$

13,642

$

(16,630)

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

Basic

$

0.13

$

(0.06)

$

0.18

$

(0.23)

Diluted

$

0.12

$

(0.06)

$

0.17

$

(0.23)

Weighted-average common shares outstanding:

Basic

74,715,592

73,272,085

74,362,211

72,613,221

Diluted

79,372,491

73,272,085

78,314,719

72,613,221

On Deck Capital, Inc.

Percentage of Average Interest Earning Assets1

(unaudited, $ in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Revenue:

Interest income

37.2

%

33.7

%

36.8

%

34.1

%

Gain on sales of loans

—

%

0.1

%

—

%

0.3

%

Other revenue

1.3

%

1.4

%

1.4

%

1.4

%

Gross revenue

38.5

%

35.2

%

38.2

%

35.8

%

Cost of revenue:

Provision for loan losses

14.6

%

16.6

%

14.4

%

16.1

%

Funding costs

4.4

%

4.8

%

4.7

%

4.7

%

Total cost of revenue

19.0

%

21.4

%

19.1

%

20.8

%

Net revenue

19.6

%

13.8

%

19.1

%

15.0

%

Operating expense:

Sales and marketing

4.1

%

5.0

%

4.4

%

5.7

%

Technology and analytics

5.0

%

4.9

%

4.9

%

5.7

%

Processing and servicing

2.0

%

1.8

%

2.1

%

1.8

%

General and administrative

4.9

%

4.0

%

6.2

%

4.2

%

Total operating expense

16.0

%

15.7

%

17.5

%

17.5

%

Income (loss) from operations

3.6

%

(1.9)

%

1.6

%

(2.5)

%

Other expense:

Interest expense

—

%

—

%

—

%

0.1

%

Total other expense

—

%

—

%

—

%

0.1

%

Net income (loss) before provision for income taxes

3.6

%

(1.9)

%

1.6

%

(2.5)

%

Provision for income taxes

—

%

—

%

—

%

—

%

Net income (loss)

3.6

%

(1.9)

%

1.6

%

(2.5)

%

Net income (loss) attributable to noncontrolling interest

(0.1)

%

(0.2)

%

(0.2)

%

(0.3)

%

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

3.7

%

(1.7)

%

1.8

%

(2.3)

%

Memo:

Average Interest Earning Assets

$1,060,222

$944,372

$1,011,155

$983,689

On Deck Capital, Inc. and Subsidiaries

Consolidated Balance Sheets

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

September 30, 2018

December 31, 2017

Assets

Cash and cash equivalents

$

71,304

$

71,362

Restricted cash

48,919

43,462

Loans held for investment

1,117,828

952,796

Less: Allowance for loan losses

(133,644)

(109,015)

Loans held for investment, net

984,184

843,781

Property, equipment and software, net

16,286

23,572

Other assets

19,240

13,867

Total assets

$

1,139,933

$

996,044

Liabilities and equity

Liabilities:

Accounts payable

$

5,651

$

2,674

Interest payable

2,132

2,330

Funding debt

812,428

684,269

Corporate debt

—

7,985

Accrued expenses and other liabilities

29,500

32,730

Total liabilities

849,711

729,988

Stockholders' equity (deficit):

Common stock—$0.005 par value, 1,000,000,000 shares authorized and 78,631,018 and 77,284,266 shares issued and 75,029,010 and 73,822,001 outstanding at September 30, 2018 and December 31, 2017, respectively.

393

386

Treasury stock—at cost

(8,766)

(7,965)

Additional paid-in capital

503,049

492,509

Accumulated deficit

(209,191)

(222,833)

Accumulated other comprehensive loss

(503)

(52)

Total On Deck Capital, Inc. stockholders' equity

284,982

262,045

Noncontrolling interest

5,240

4,011

Total equity

290,222

266,056

Total liabilities and equity

$

1,139,933

$

996,044

Memo:

Unpaid Principal Balance2

$

1,095,792

$

936,239

Interest Earning Assets1

$

1,095,792

$

936,239

Loans3

$

1,117,828

$

952,796

Book Value Per Diluted Share

$

3.58

$

3.39

On Deck Capital, Inc. and Subsidiaries

Consolidated Average Balance Sheets4

(unaudited, $ in thousands)

Average

Average

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Assets

Cash and cash equivalents

$

55,851

$

59,530

$

50,004

$

58,595

Restricted cash

53,024

58,659

55,466

59,316

Loans held for investment

1,081,259

960,587

1,030,403

1,001,697

Less: Allowance for loan losses

(129,804)

(103,397)

(122,319)

(109,486)

Loans held for investment, net

951,455

857,190

908,084

892,211

Loans held for sale

—

—

—

462

Property, equipment and software, net

16,591

25,919

18,416

27,480

Other assets

15,967

17,843

15,302

18,483

Total assets

$

1,092,888

$

1,019,141

$

1,047,272

$

1,056,547

Liabilities and equity

Liabilities:

Accounts payable

$

4,318

$

3,077

$

3,607

$

3,377

Interest payable

2,402

2,300

2,388

2,322

Funding debt

771,483

710,601

733,601

737,864

Corporate debt

—

11,078

1,783

20,213

Accrued expenses and other liabilities

31,645

32,277

31,004

33,786

Total liabilities

809,848

759,333

772,383

797,562

Total On Deck Capital, Inc. stockholders' equity

277,570

254,731

269,924

253,716

Noncontrolling interest

5,470

5,077

4,965

5,269

Total equity

283,040

259,808

274,889

258,985

Total liabilities and equity

$

1,092,888

$

1,019,141

$

1,047,272

$

1,056,547

Memo:

Unpaid Principal Balance

$

1,060,222

$

944,372

$

1,011,155

$

983,230

Interest Earning Assets

$

1,060,222

$

944,372

$

1,011,155

$

983,689

Loans

$

1,081,259

$

960,587

$

1,030,403

$

1,002,159

Supplemental Information

Key Performance Metrics

($ in thousands, except percentage data)   

Three Months Ended

Nine Months Ended

September 30,

September 30,

2018

2017

2018

2017

Originations5

$

647,796

$

530,926

$

1,825,109

$

1,568,303

Effective Interest Yield6

36.5

%

33.1

%

36.1

%

33.5

%

Cost of Funds Rate7

6.0

%

6.4

%

6.5

%

6.2

%

Net Interest Margin8

32.9

%

28.9

%

32.1

%

29.5

%

Marketplace Gain on Sale Rate9

N/A

2.7

%

N/A

3.3

%

Provision Rate10

6.0

%

7.5

%

6.0

%

7.8

%

Reserve Ratio11

12.2

%

11.1

%

12.2

%

11.1

%

15+ Day Delinquency Ratio12

6.4

%

7.5

%

6.4

%

7.5

%

Net Charge-off Rate13

11.1

%

16.9

%

11.1

%

16.8

%

Three Months Ended
September 30,

Nine Months Ended
September 30,

Activity in Loan Held for Investment Balances

2018

2017

2018

2017

Unpaid Principal Balance beginning of period

$

1,026,586

$

953,809

$

936,239

$

980,451

   + Total originations(c)

647,796

530,926

1,825,109

1,568,303

   - Marketplace originations

—

(5,340)

—

(55,965)

   - Sales of other loans(d)

—

—

—

(500)

   + Purchase of Loans

—

—

801

13,730

   - Net charge-offs

(29,516)

(39,927)

(84,059)

(123,785)

   - Principal paid down(c)(e)

(549,074)

(498,588)

(1,582,298)

(1,441,354)

Unpaid Principal Balance end of period

1,095,792

940,880

1,095,792

940,880

   + Net deferred origination costs

22,036

16,323

22,036

16,323

Loans held for investment

1,117,828

957,203

1,117,828

957,203

   - Allowance for loan losses

(133,644)

(104,872)

(133,644)

(104,872)

Loans held for investment, net

$

984,184

$

852,331

$

984,184

$

852,331

(c) Includes Unpaid Principal Balance of term loans rolled into new originations of $90.5 million and $82.8 million in the three months ended and $258.2 million and $220.9 million in the nine months ended September 30, 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 in the three months ended September 30, 2018 and 2017 and $0.0 and $0.2 million in the nine months ended September 30, 2018 and 2017, respectively.

Three Months Ended
September 30,

Nine Months Ended
September 30,

Activity in the Allowance for Loan Losses

2018

2017

2018

2017

Allowance for loan losses beginning of period

$

124,058

$

105,217

$

109,015

$

110,162

  + Provision for loan losses(f)

39,102

39,582

108,688

118,495

   - Gross charge-offs

(32,822)

(45,257)

(93,916)

(135,958)

   + Recoveries

3,306

5,330

9,857

12,173

Allowance for loan losses end of period

$

133,644

$

104,872

$

133,644

$

104,872

(f) Excludes a provision expense of $0.2 million and an immaterial provision expense for the three months ended September 30, 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
September 30,

Nine Months Ended
September 30,

Reconciliation of Net Income (Loss) Attributable to OnDeck to Adjusted Net Income (Loss)

2018

2017

2018

2017

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

$

9,769

$

(4,074)

$

13,642

$

(16,630)

Adjustments:

Stock-based compensation expense

2,848

3,056

8,852

9,521

Real estate disposition charges

—

—

4,187

—

Severance and executive transition expenses

—

—

911

3,183

Debt Extinguishment Costs

550

—

1,935

—

Adjusted Net income (loss)14

$

13,167

$

(1,018)

$

29,527

$

(3,926)

Adjusted Net income (loss) per share15:

Basic

$

0.18

$

(0.01)

$

0.40

$

(0.05)

Diluted

$

0.17

$

(0.01)

$

0.38

$

(0.05)

Weighted-average common shares outstanding:

Basic

74,715,592

73,272,085

74,362,211

72,613,221

Diluted

79,372,491

73,272,085

78,314,719

72,613,221

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

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

Interest income

$

99,476

$

80,122

$

278,216

$

250,954

Less: Funding costs

(11,665)

(11,330)

(35,688)

(34,223)

Net interest income

87,811

68,792

242,528

216,731

Divided by: calendar days in period

92

92

273

273

Net interest income per calendar day

955

748

888

794

Multiplied by: calendar days per year

365

365

365

365

Annualized net interest income

348,575

273,020

324,120

289,810

Divided by: Average Interest Earning Assets

$

1,060,222

$

944,372

$

1,011,155

$

983,689

Net Interest Margin (NIM)

32.9

%

28.9

%

32.1

%

29.5

%

Non-GAAP Guidance Reconciliation

(in millions)

Twelve Months Ending
December 31,

Reconciliation of Net Income Attributable to OnDeck Guidance

2018

Low

High

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

$

20

$

24

Adjustments:

Debt Extinguishment Costs

2

2

Real estate disposition charges

4

4

Severance and executive transition expenses

1

1

Stock-based compensation expense

13

13

Adjusted Net income16 (g)

$

40

$

44

(g) May not sum due to rounding.

Supplemental Channel Information

Quarterly Origination Channel Distribution

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Percentage of originations (dollars)

Direct & Strategic Partner

69

%

73

%

70

%

73

%

Funding Advisor

31

%

27

%

30

%

27

%

Notes:

(1) 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 Earning Assets is calculated as the average of Interest Earning Assets at the beginning of the period and the end of each month in the period.

(2) 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.

(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 monthly averages based on the beginning and the ending period balances.

(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 costs during the period. 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. Limitations include: (1) Net Interest Margin is the rate of net return we achieve on our Average Interest Earning Assets outstanding during a period. It only includes interest income and funding costs and excludes all other revenues and operating expenses.  As a result, it does not represent our overall financial results or profitability, and (2) 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 any loans sold through OnDeck Marketplace may be loans which were initially designated as held for investment upon origination. The portion of such loans sold, if any, 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) 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 and 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 loss from early extinguishment of debt, 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 loss from early extinguishment of debt, 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) Adjusted Net income guidance, a non-GAAP measure, represents our Net income attributable On Deck Capital, Inc. common stockholders guidance 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, Adjusted Net income 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.