OnDeck (NYSE:ONDK), the leader in online lending for small business, today announced second quarter 2018 Net income of $5.8 million, Adjusted Net income of $10.0 million and Gross revenue of $95.6 million.
"We are pleased with our second quarter results that reflect continued execution of our strategy," said Noah Breslow, chief executive officer, OnDeck. "We delivered record net income driven by asset growth and margin expansion, and our investments in risk management continue to pay off as credit metrics remained strong. We also achieved key milestones on our second On-Deck-as-a-Service bank partnership, grew our international business, strengthened our funding profile by closing four significant financing facilities, and advanced the development of our next major lending product - all which position us well for the second half of the year and beyond."
Review of Financial Results for the Second Quarter of 2018
Net income was $5.8 million, or $0.07 per diluted share, improved from the Net loss of $1.5 million, or $0.02 per diluted share, in the year-ago period.
Adjusted Net income was $10.0 million, or $0.13 per diluted share, compared to Adjusted Net income of $4.7 million, or $0.06 per diluted share, in the year-ago period.
Unpaid Principal Balance grew 3% sequentially and 8% from a year ago to $1,027 million. Originations of $587 million were consistent with the prior quarter reflecting an increase in the number of loans funded and decrease in the average loan size. Originations increased 26% from a year ago with growth in both term loans and lines of credit.
Gross revenue increased to $95.6 million, up 6% from the prior quarter and 10% from the year-ago quarter, driven by higher Interest income. The Effective Interest Yield was 36.1%, up from 35.6% in the prior quarter and 33.5% in the year-ago quarter, primarily reflecting increases in average loan pricing.
Funding costs of $12.2 million increased from the prior quarter due to higher debt balances, and from the year-ago quarter due to higher market interest rates. The Cost of Funds Rate was 6.6%, down from 6.8% the prior quarter reflecting favorable refinancing rates on the $225 million securitization and new $100 million revolving credit facility that closed in April. The Cost of Funds Rate increased from a year ago reflecting the higher interest rate environment.
Net Interest Margin increased to 32.0% from 31.3% in the prior quarter and 29.3% in the year-ago quarter reflecting the improvements in portfolio yield and sequential decrease in the Cost of Funds Rate.
Credit quality remained strong reflecting our enhancements in underwriting and collections, and the favorable small business lending environment. Provision for loan losses was $33.3 million down $3.0 million sequentially and up slightly from a year ago while the Provision Rate of 5.7% decreased from both periods. The 15+ Day Delinquency Ratio of 6.8% and Net Charge-off Rate of 11.2% were essentially flat sequentially and improved from a year ago. The Reserve Ratio of 12.1% was also essentially flat sequentially.
Operating expense was $45.3 million and included $1.4 million of debt extinguishment charges related to the voluntary prepayment in full of our securitization.
Total assets increased 3% sequentially and from a year ago to $1,072 million driven by loan growth. Cash and cash equivalents of $74 million was comparable with balances of $70 million the prior quarter and $78 million a year ago. Funding debt of $756 million increased at a rate commensurate with the growth in loans over both periods.
Total OnDeck stockholders' equity of $272 million increased 3% from the prior quarter and 7% from a year ago and book value per diluted common share outstanding of $3.46 increased from $3.40 the prior quarter and $3.33 a year ago.
Guidance for Third Quarter 2018
OnDeck provided the following guidance for the three months ending September 30, 2018:
Gross revenue between $95 million and $100 million,
Net income between $2 million and $6 million, and
Adjusted Net income between $6 million and $10 million.
This outlook assumes $44 million to $46 million of operating expense.
Guidance for Full Year 2018
OnDeck increased its guidance for the full year ending December 31, 2018:
Gross revenue between $380 million and $386 million, up from between $372 million and $382 million,
Net income between $10 million and $16 million, up from between $0 and $10 million, and
Adjusted Net income between $30 million and $36 million, up from between $18 million and $28 million.
This outlook assumes Unpaid Principal Balance growth between 10% and 15% and a full year Provision Rate near the low end of our 2018 guidance of between 6% and 7%, and includes approximately $7 million of real estate disposition, severance and debt extinguishment costs.
OnDeck also may terminate additional portions of its office leases, which would likely result in charges in the quarter in which the transaction(s) occur. Any future real estate disposition charges are not included in third quarter or full year guidance. Refer to the Non-GAAP Guidance Reconciliation section below for a reconciliation of Net income attributable to OnDeck guidance to Adjusted Net income guidance.
* Net income (loss) as used in the narrative of this release is Net income (loss) attributable to On Deck Capital, Inc. common shareholders in the accompanying tables. Adjusted Net income (loss) is a Non-GAAP financial measure based on Net income (loss) attributable to On Deck Capital, Inc. common shareholders. See "About Non-GAAP Financial Measures."