On Deck Capital, Inc.

Consolidated Statements of Operations

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

Three Months Ended

June 30,

Six Months Ended

June 30,

2018

2017

2018

2017

Revenue:

Interest income

$

92,371

$

83,721

$

178,740

$

170,832

Gain on sales of loans

—

260

—

1,744

Other revenue

3,247

2,670

7,158

6,967

Gross revenue

95,618

86,651

185,898

179,543

Cost of revenue:

Provision for loan losses

33,293

32,733

69,586

78,913

Funding costs

12,202

11,616

24,023

22,893

Total cost of revenue

45,495

44,349

93,609

101,806

Net revenue

50,123

42,302

92,289

77,737

Operating expense:

Sales and marketing

11,432

15,368

22,030

30,187

Technology and analytics

12,799

14,769

23,806

30,212

Processing and servicing

5,041

4,826

10,262

9,361

General and administrative

16,034

9,590

33,759

21,477

Total operating expense

45,306

44,553

89,857

91,237

Income (loss) from operations

4,817

(2,251)

2,432

(13,500)

Other expense:

Interest expense

43

318

94

671

Total other expense

43

318

94

671

Income (loss) before provision for income taxes

4,774

(2,569)

2,338

(14,171)

Provision for income taxes

—

—

—

—

Net income (loss)

4,774

(2,569)

2,338

(14,171)

Net income (loss) attributable to noncontrolling interest

(1,016)

(1,071)

(1,535)

(1,615)

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

$

5,790

$

(1,498)

$

3,873

$

(12,556)

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

Basic

$

0.08

$

(0.02)

$

0.05

$

(0.17)

Diluted

$

0.07

$

(0.02)

$

0.05

$

(0.17)

Weighted-average common shares outstanding:

Basic

74,385,446

72,688,815

74,182,929

72,276,734

Diluted

78,288,267

72,688,815

77,786,748

72,276,734

On Deck Capital, Inc.

Percentage of Average Interest Earning Assets¹

(unaudited, $ in thousands)

Three Months Ended

June 30,

Six Months Ended

June 30,

2018

2017

2018

2017

Revenue:

Interest income

36.8

%

34.1

%

36.6

%

34.4

%

Gain on sales of loans

—

%

0.1

%

—

%

0.4

%

Other revenue

1.3

%

1.1

%

1.5

%

1.4

%

Gross revenue

38.1

%

35.3

%

38.1

%

36.1

%

Cost of revenue:

Provision for loan losses

13.3

%

13.3

%

14.2

%

15.9

%

Funding costs

4.9

%

4.7

%

4.9

%

4.6

%

Total cost of revenue

18.1

%

18.1

%

19.2

%

20.5

%

Net revenue

20.0

%

17.2

%

18.9

%

15.7

%

Operating expense:

Sales and marketing

4.6

%

6.3

%

4.5

%

6.1

%

Technology and analytics

5.1

%

6.0

%

4.9

%

6.1

%

Processing and servicing

2.0

%

2.0

%

2.1

%

1.9

%

General and administrative

6.4

%

3.9

%

6.9

%

4.3

%

Total operating expense

18.1

%

18.1

%

18.4

%

18.4

%

Income (loss) from operations

1.9

%

(0.9)

%

0.5

%

(2.7)

%

Other expense:

Interest expense

—

%

0.1

%

—

%

0.1

%

Total other expense

—

%

0.1

%

—

%

0.1

%

Net income (loss) before provision for income taxes

1.9

%

(1.1)

%

0.5

%

(2.9)

%

Provision for income taxes

—

%

—

%

—

%

—

%

Net income (loss)

1.9

%

(1.1)

%

0.5

%

(2.9)

%

Net income (loss) attributable to noncontrolling interest

(0.4)

%

(0.4)

%

(0.3)

%

(0.3)

%

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

2.3

%

(0.6)

%

0.8

%

(2.5)

%

Memo:

Average Interest Earning Assets

$1,006,133

$985,370

$985,321

$1,001,887

On Deck Capital, Inc. and Subsidiaries

Consolidated Balance Sheets

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

June 30, 2018

December 31, 2017

Assets

Cash and cash equivalents

$

74,262

$

71,362

Restricted cash

44,189

43,462

Loans held for investment

1,046,588

952,796

Less: Allowance for loan losses

(124,058)

(109,015)

Loans held for investment, net

922,530

843,781

Property, equipment and software, net

16,939

23,572

Other assets

14,264

13,867

Total assets

$

1,072,184

$

996,044

Liabilities and equity

Liabilities:

Accounts payable

$

4,087

$

2,674

Interest payable

2,574

2,330

Funding debt

755,720

684,269

Corporate debt

—

7,985

Accrued expenses and other liabilities

32,115

32,730

Total liabilities

794,496

729,988

Stockholders' equity (deficit):

Common stock—$0.005 par value, 1,000,000,000 shares authorized and 78,189,980 and 77,284,266 shares issued and 74,641,004 and 73,822,001 outstanding at June 30, 2018 and December 31, 2017, respectively.

391

386

Treasury stock—at cost

(8,406)

(7,965)

Additional paid-in capital

499,347

492,509

Accumulated deficit

(218,960)

(222,833)

Accumulated other comprehensive loss

(334)

(52)

Total On Deck Capital, Inc. stockholders' equity

272,038

262,045

Noncontrolling interest

5,650

4,011

Total equity

277,688

266,056

Total liabilities and equity

$

1,072,184

$

996,044

Memo:

Unpaid Principal Balance²

$

1,026,586

$

936,239

Interest Earning Assets¹

$

1,026,586

$

936,239

Loans³

$

1,046,588

$

952,796

Book Value Per Diluted Share

$

3.46

$

3.39

On Deck Capital, Inc. and Subsidiaries

Consolidated Average Balance Sheets⁴

(unaudited, $ in thousands)

Average

Average

Three Months Ended

June 30,

Six Months Ended

June 30,

2018

2017

2018

2017

Assets

Cash and cash equivalents

$

55,516

$

61,104

$

50,128

$

60,824

Restricted cash

54,859

68,530

55,251

58,956

Loans held for investment

1,025,143

1,003,103

1,003,655

1,020,727

Less: Allowance for loan losses

(121,899)

(110,542)

(118,290)

(112,355)

Loans held for investment, net

903,244

892,561

885,365

908,372

Loans held for sale

—

561

—

660

Property, equipment and software, net

17,182

27,776

19,248

28,298

Other assets

15,782

18,030

14,773

18,940

Total assets

$

1,046,583

$

1,068,562

$

1,024,765

$

1,076,050

Liabilities and equity

Liabilities:

Accounts payable

$

3,627

$

3,412

$

3,269

$

3,862

Interest payable

2,519

2,461

2,407

2,347

Funding debt

735,123

747,009

715,110

750,761

Corporate debt

1,976

24,723

2,552

26,114

Accrued expenses and other liabilities

29,856

31,347

30,795

34,336

Total liabilities

773,101

808,952

754,133

817,420

Total On Deck Capital, Inc. stockholders' equity

268,060

253,260

265,857

253,271

Noncontrolling interest

5,422

6,350

4,775

5,359

Total equity

273,482

259,610

270,632

258,630

Total liabilities and equity

$

1,046,583

$

1,068,562

$

1,024,765

$

1,076,050

Memo:

Unpaid Principal Balance

$

1,006,133

$

984,812

$

985,321

$

1,001,231

Interest Earning Assets

$

1,006,133

$

985,370

$

985,321

$

1,001,887

Loans

$

1,025,143

$

1,003,664

$

1,003,654

$

1,021,387

Supplemental Information

Key Performance Metrics

($ in thousands, except percentage data) 

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Originations⁵

$

586,728

$

464,362

$

1,177,313

$

1,037,377

Effective Interest Yield⁶

36.1

%

33.5

%

35.9

%

33.7

%

Cost of Funds Rate⁷

6.6

%

6.2

%

6.7

%

6.1

%

Net Interest Margin⁸

32.0

%

29.3

%

31.7

%

29.8

%

Marketplace Gain on Sale Rate⁹

N/A

2.8

%

N/A

3.4

%

Provision Rate¹⁰

5.7

%

7.2

%

5.9

%

8.0

%

Reserve Ratio¹¹

12.1

%

11.0

%

12.1

%

11.0

%

15+ Day Delinquency Ratio¹²

6.8

%

7.2

%

6.8

%

7.2

%

Net Charge-off Rate¹³

11.2

%

18.5

%

11.1

%

16.8

%

Three Months Ended June 30,

Six Months Ended June 30,

Activity in Loan Held for Investment Balances

2018

2017

2018

2017

Unpaid Principal Balance beginning of period

$

992,595

$

1,026,158

$

936,239

$

980,451

   + Total originations^(c)

586,728

464,362

1,177,313

1,037,377

   - Marketplace originations

—

(8,379)

—

(50,625)

   - Sales of other loans^(d)

—

—

—

(500)

   + Purchase of Loans

801

212

801

13,730

   - Net charge-offs

(28,156)

(45,591)

(54,543)

(83,858)

   - Principal paid down^(c)(e)

(525,382)

(482,953)

(1,033,224)

(942,766)

Unpaid Principal Balance end of period

1,026,586

953,809

1,026,586

953,809

   + Net deferred origination costs

20,002

16,663

20,002

16,663

Loans held for investment

1,046,588

970,472

1,046,588

970,472

   - Allowance for loan losses

(124,058)

(105,217)

(124,058)

(105,217)

Loans held for investment, net

$

922,530

$

865,255

$

922,530

$

865,255

^(c) Includes Unpaid Principal Balance of term loans rolled into new originations of $76.9 million and $68.1 million in the three months ended and $167.7 million and $138.1 million June 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 June 30, 2018 and 2017 and $0.0 and $0.2 million in the six months ended June 30, 2018 and 2017, respectively.

Three Months Ended June 30,

Six Months Ended June 30,

Activity in the Allowance for Loan Losses

2018

2017

2018

2017

Allowance for loan losses beginning of period

$

118,921

$

118,075

$

109,015

$

110,162

  + Provision for loan losses^(f)

33,293

32,733

69,586

78,913

   - Gross charge-offs

(31,362)

(49,817)

(61,094)

(90,701)

   + Recoveries

3,206

4,226

6,551

6,843

Allowance for loan losses end of period

$

124,058

$

105,217

$

124,058

$

105,217

^(f) Excludes a provision expense of $0.5 million and $0.2 million for the three months ended June 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 June 30,

Six Months Ended June 30,

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

2018

2017

2018

2017

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

$

5,790

$

(1,498)

$

3,873

$

(12,556)

Adjustments:

Stock-based compensation expense

2,794

2,974

6,004

6,465

Real estate disposition charges

—

—

4,187

—

Severance and executive transition expenses

—

3,183

911

3,183

Debt Extinguishment Costs

1,384

—

1,384

—

Adjusted Net income (loss)¹⁴

$

9,968

$

4,659

$

16,359

$

(2,908)

Adjusted Net income (loss) per share¹⁵:

Basic

$

0.13

$

0.06

$

0.22

$

(0.04)

Diluted

$

0.13

$

0.06

$

0.21

$

(0.04)

Weighted-average common shares outstanding:

Basic

74,385,446

72,688,815

74,182,929

72,276,734

Diluted

78,288,267

72,688,815

77,786,748

72,276,734

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

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

Interest income

$

92,371

$

83,721

$

178,740

$

170,832

Less: Funding costs

(12,202)

(11,616)

(24,023)

(22,893)

Net interest income

80,169

72,105

154,717

147,939

Divided by: calendar days in period

91

91

181

181

Net interest income per calendar day

881

792

855

817

Multiplied by: calendar days per year

365

365

365

365

Annualized net interest income

321,565

289,080

312,075

298,205

Divided by: Average Interest Earning Assets

$

1,006,133

$

985,370

$

985,321

$

1,001,887

Net Interest Margin (NIM)

32.0

%

29.3

%

31.7

29.8

%

Non-GAAP Guidance Reconciliation

(in millions)

Three Months Ending

September 30,

Twelve Months Ending

December 31,

2018

2018

Low

High

Low

High

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

$

2

$

6

$

10

$

16

Adjustments:

Debt Extinguishment Costs

1

1

2

2

Real estate disposition charges

—

—

4

4

Severance and executive transition expenses

—

—

1

1

Stock-based compensation expense

3

3

13

13

Adjusted Net income^{16 (g)}

$

6

$

10

$

30

$

36

^(g) May not sum due to rounding.

Supplemental Channel Information

Quarterly Origination Channel Distribution

Three Months Ended

June 30,

Six Months Ended

June 30,

2018

2017

2018

2017

Percentage of originations (dollars)

Direct & Strategic Partner

71

%

76

%

71

%

73

%

Funding Advisor

29

%

24

%

29

%

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 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 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, 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 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⁾ 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.