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 income^{16 (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.