OnDeck Capital reported second quarter results that showed continued growth in loan originations and improved credit quality metrics. Management stated on a conference call with analysts that the gains in those areas – which in turn boosted top and bottom lines that exceeded Wall Street expectations – came against a backdrop where the firm has been gaining new customers and credit quality has been aided by analytics.
The headline numbers: The company reported earnings of $0.13 a share, eight pennies better than consensus, and revenues were $95.6 million, better than the $92 million the Street had expected.
That performance came as the company said that its overall loan originations for the quarter stood at $587 million from last year’s $464 million. On the conference call, management noted the strength of small business lending that has continued against a sanguine macroeconomic environment.
The company, said CEO Noah Breslow, has delivered $9 billion in loans to that vertical and is on track to mark $10 billion by the fall of this year. The average loan size dipped a bit in the quarter, said Breslow, as relatively more new customers came on board than had been seen before. The effective interest yield came in north of 36 percent, which compares favorably with last year's 33.5 percent.
Of particular note was an improvement in the provision rate, at 5.7 percent versus 7.2 percent in the year ago period, while net charge-off rates have also been better, at 11.2 percent versus 18.6 percent last year. Breslow said that credit quality has remained strong across the lending portfolio and that analytics have helped keep that strength in place. Supplemental materials provided by the company show that the 15-day delinquency ratio was 6.8 percent, where last year it was 7.2 percent.
Breslow also noted that the company was “very active in the capital markets” and raised $400 million in committed funding.
He said, too, that volume in international markets gained 60 percent year on year.
OnDeck remains “on track” for its second service as a bank product. Customers have been taking advantage of instant funding options that come through debit card networks, Breslow noted during remarks to analysts.
Looking toward the current quarter, the firm has raised its guidance, with expectations of unpaid principal balance growth of 10 percent to 15 percent year on year, and a provision rate that comes in at the low end of the 6 percent to 7 percent range. Asked on the call as to why that provision rate might not have been guided lower in light of the second quarter results, management noted the slight risk increase that comes with newer customers, while pointing out, too, that new projects in the pipeline (including the aforementioned second service) have moved past the conceptual stage and into RFP activity.
Taking note of collections activity, Breslow stated that “we are seeing strong results,” and that there have been improvements in recovery rates and in tamping down fraudulent activity.
With a nod toward FinTech’s landscape in general, and news of Treasury and OCC recommendations for national charters for these tech upstarts, he said “while it is still early,” the prospect of such charters remains exciting, and would be a concept that OnDeck would study moving forward.
OnDeck now sees the current quarter top line at $95 million to $100 million, where consensus coming into the call was $96 million.