OnDeck Tightens Credit Standards As Charge-offs Rise

OnDeck Capital’s shares skidded into the close of a trading day that saw shares down as much as 16 percent, tumbling in the wake of guidance reflecting tighter lending standards amid worsening credit metrics.

Chargeoffs were 12.2 percent in the quarter, which was up from a 10.9 percent rate last year. The provision for loan losses was $147 million, up by about 24 percent.

Credit quality worsened, too, as the percentage of loans that were past due by at least 15 days was 8.7 percent, up from 6.7 percent last year. Supplemental materials provided by the company show that loans ranging from 15 to as many as 89 days past due were $63.3 million, up from $45.5 million last year. The percentage of the unpaid principal balance that was 90 days past due or more was 3.3 percent, up from 2.2 percent last year.

Drilling down into the quarterly results, loan originations were up 8 percent from last year and totaled $636 million (up from $591 million last year) – and the firm has projected that such activity may be flat to perhaps down in the current quarter, with at least some rebound later in the year. But that means loan growth should be in the high single digits; the company had seen low double-digit growth in guidance issued as recently as the last earnings report in February.

In the latest quarter, adjusted earnings of a dime per share was up two pennies from last year, and revenues of $110.2 million were in line with expectations. Loan yields were down a full 100 basis points to 35.6 percent.

Management said on the call that underwriting standards would tighten, which, as CEO Noah Breslow said in remarks on the conference call with analysts, reflects the current stage of the lending cycle. Thus there will be a “slight shift” in originations toward the higher end of its small business lending profiles. Breslow noted there had been some softening in metrics tied to 2018 vintage lending to small businesses. The supplementals show, in a bit of granular detail on the loan book, that term loans, which represent 82 percent of the unpaid principal balance, had a past due rate of at least 15 days at 9.4 percent, up from 7.1 percent last year.

As a result, guidance is lighter than the Street had projected. Where once revenue targets had been a range from $445 million to $465 million, now the range is $435 million to $455 million.