3Q 2017
Investor
Presentation
This presentation, including the accompanying oral presentation (collectively, this “presentation”), does not constitute an offer to sell or the solicitation of an offer to buy any
securities. This presentation is provided by On Deck Capital, Inc. (“OnDeck”) for informational purposes only. No representations express or implied are being made by OnDeck or
any other person as to the accuracy or completeness of the information contained herein.
This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. Forward-looking
statements include statements about scalability, growing distribution channels, credit predictability and information concerning our future financial performance, business plans and
objectives, potential growth opportunities, financing plans, competitive position, industry environment and potential market opportunities. Forward-looking statements can also be
identified by words such as "will," "enables," "expects”, “may,” "allows," "continues," "believes,” “intends,” "anticipates," "estimates" or similar expressions. Forward-looking
statements are neither historical facts nor assurances of future performance. They are 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. Moreover, we do not assume responsibility for the accuracy and completeness of forward-looking
statements. As such, they are subject to inherent uncertainties, changes in circumstances, known and unknown risks and other factors that are difficult to predict and in many cases
outside our control.
As a result, you should not rely on any forward-looking statements. Our expected results may not be achieved, and actual results may differ materially from our expectations.
Important factors that could cause actual results to differ from our forward-looking statements are the risks that we may not be able to manage our anticipated or actual growth
effectively, that our credit models do not adequately identify potential risks, the timing and amount of expected savings from cost rationalization programs and other risks, including
those under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, our Quarterly Report on Form 10Q for the quarter ended June
30, 2017, and in other documents that we file with the Securities and Exchange Commission, or SEC, from time to time which are available on the SEC website at www.sec.gov. We
undertake no obligation to publicly update any forward-looking statements for any reason after the date of this presentation to conform these statements to actual results or to
changes in our expectations, except as required by law.
In addition to U.S. GAAP financial information, this presentation includes certain non-GAAP financial measures. We believe that non-GAAP measures can provide useful
supplemental information for period-to-period comparisons of our core business and are useful to investors and others in understanding and evaluating our operating results. These
non-GAAP measures have not been calculated in accordance with U.S. GAAP. You should not consider them in isolation or as a substitute for an analysis of our results under U.S.
GAAP. There are a number of limitations related to the use of these non-GAAP measures compared to their nearest U.S. GAAP equivalents. In addition, other companies may
calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial
measures as tools for comparison. The non-GAAP measures contained in this presentation include Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Expense Ratio,, all of
which exclude stock-based compensation, as well as Net Interest Margin After Credit Losses. Please refer to pages 36 through 41 in the Appendix of this presentation for a
description of these non-GAAP measures, their respective limitations and reconciliations to U.S. GAAP.
Forward-Looking Statements
2
ORIGINATIONS$MM
$1,772$1,568
$613 $531
9M '16 9M '17 3Q '16 3Q '17
• $7 Billion+ total originations
• 70,000+ small businesses served
• Global in United States, Canada, and Australia
• 5th Generation proprietary credit scoring model
• 76 net promoter score1
• Leading Partnerships JP Morgan Chase & Intuit
• Scalable financial model
The Leading Online Platform for Small
Business Lending
1. Based on all OnDeck’s distribution channels for the quarter ended September 30, 2017.
2. Inclusive of the $3.5M provision expense related to Hurricanes Harvey and Irma.3
($31)
($1)
($11)
$1
9M '16 9M '17 3Q '16 3Q '17
ADJ. EBITDA$MM
GROSS REVENUE$MM
$209$263
$77 $84
9M '16 9M '17 3Q '16 3Q '17
2
4
Investment Highlights
• Massive and underserved market
• Diversified acquisition channels
• Small business tailored product set
• Proprietary analytics and scoring models
• Improving operating leverage
• Strengthening credit
• Execution on strategic priorities
• Driving toward near term profitability goals
Small Business Lending Market is Massive
and Underserved
Sources: U.S. SBA, FDIC 06/30/17, Oliver Wyman, “Financing Small Business”
1. As of September 30, 2017; Loans under management represents the Unpaid Principal Balance plus the amount of principal outstanding for loans held for sale, excluding net deferred origination costs, plus the amount of principal
outstanding of term loans the company serviced for others, each at the end of the period.
5
28MMU.S. Small Businesses
OnDeck Unique US Small
Businesses Served
70K+
$80-120BnUnmet
Demand for Small
Business Lines
of Credit
$207BnBusiness Loan
Balances Under
$250,000 in
the U.S.
in 2Q ꞌ17
$1.1Bn
OnDeck Loans Under
Management1
Diversity of Small Businesses
Creates Challenges for Traditional
Lenders…
• Diverse businesses require manual underwriting
• Technology and data limitations
• Lack of standardized small business credit score
6
Credit Card Rev. Cash Rev. Monthly Exp. Inventory & Payroll
Landscaping Rev. Snow Removal Rev. Monthly Exp. Fuel & Payroll
Repair Rev. Subcontractor Rev. Monthly Exp. Supplies & Payroll
CASH FLOW PROFILE
Restaurant
Landscaping Company
Plumbing Company
1Q 2Q 3Q 4Q
…Leading to a Frustrating
Borrowing Experience for Small
Businesses
• Time consuming offline process
• Non-tailored credit assessment
• Product mismatch
• Rigid collateral requirements
Manual ReviewWeeks or Months
Offline33 Hours2
OnDeck Solution for Small Business Lending
1. Application time depends on customer having the required documentation available.
2. Source: Small business survey conducted by the Federal Reserve Bank of New York, Spring 2014.
7
APPLY
TRADITIONAL LENDING
Several Days
OnlineMinutes1
Automated ReviewAs Fast as Immediately
As Fast As Same Day
APPROVE FUND
TERM LOAN
(Launched in 2007)
LINE OF CREDIT
(Launched in 2013)
Use Case
Size $5,000 – $500,000 $5,000 – $100,000
Term 3 – 36 months 6 months3
Pricing4,5 Annual Interest Rate as low as 9.99%1
Weighted Average APR 45.2%2
Annual Interest Rate as low as 13.99%1
Weighted Average APR 32.2%2
Payment Automated daily or weekly payments Automated weekly payments
Availability Renewal opportunity at ~50% paid down Draw on-demand
Tailored Products for Small Businesses
1. For select customers.
2. Weighted average. Based on 3Q ꞌ17 Originations.
3. 6 month reset upon each draw.
4. Pricing available through certain OnDeck strategic partners or channels may vary.
5. The blended weighted average APR for term loans and lines of credit was 43.8% for 3Q ‘17 originations
HiringNewStaff
Buying Inventory
Marketing Managing Cash Flow
8
70,000+Small Businesses Served
8 YearsMedian Time in Business1
Established and Diverse Customer Base
1. Based on 3Q ꞌ17 Originations
$675,000Median Annual Revenue1
700+Industries
9
• 5th Generationproprietary credit scoring model
• 100+ external data sources
• 10 Million+ small businesses in proprietary database
• 2,000+ data points per application
The OnDeck Score®
Proprietary and Purpose Built for Small Business
10
Score
• Probabilistic record linkage
• Dimensionality reduction
• Ensemble learning
• Exhaustive cross validation
• Feature engineering
• Adaptive learning
Proprietary Data
Analysis Platform
Public
RecordsCredit
Data
Social
Data
Proprietary
Data
Transactional
Data
Accounting
Data
We Rely on the OnDeck Score for Greater
Accuracy, Predictability and Access
1. Analysis on OnDeck Score v5 using actual OnDeck loan performance data.11
10
20
40
Random Personal Credit Score OnDeck Score
More Accurate than the Personal Credit Score
at Predicting Bad Credit Risk1…Resulting in Funding Significantly More
Loans for the Same Risk…
ACCEPTANCE RATE (%)
The OnDeck Score Personal Credit Score Random
90%
100%
0%
100% 40% 20% 10% 0%
% O
F D
EF
AU
LT
S E
LIM
INA
TE
D
10%
Score
Online Customer
Experience
Integrated and Scalable Technology Platform
1 Million+Total Applications
Data Aggregation, Analytics &
Scoring
16 Million+Customer Payments
Technology Powered
Servicing & Collections
12
$7 Billion+Total Originations
Diversified and Growing Distribution Channels
OnDeck originates through three scaled channels
1. Represents 3Q ’17 Origination units
2. Based on 2015 and 2016 customer cohorts through September 30, 2017.
3. “LTV” is Lifetime Value expressed in dollars and equals interest income and fees collected over customer lifetime less acquisition costs for repeat loans, less estimated third party processing and servicing expenses, estimated funding costs
(excluding any cost of equity capital), and net charge-offs. “CAC” is Customer Acquisition Cost expressed in dollars and includes upfront internal and external commissions as well as direct marketing expense. “Total” equals LTV minus CAC.
All estimates may be adjusted in subsequent periods to reflect updated information.
Direct Mail
Online Marketing
Radio/TV
Loan Brokers
ISOs
Equipment Leasing
DIRECT STRATEGIC PARTNER FUNDING ADVISOR
55%1
of total units22%1
of total units 23%1
of total units
13
OnDeck as a Service (ODaaS)
14
• Customized offers based on bank data
• Real-time approvals
• Same or next-day funding
Deposit customers
Marketing
Credit policy
Tech platform
OnDeck Score®
Customer Service
Back-End: Integration Front-End: Funding in a Few Clicks
15
Strategic Priorities
Achieve GAAP profitability by YE 2017 and profitable growth in 2018 by:
• Growing responsibly
• Strengthening credit
• Improving operating leverage
• Diversifying funding
• Broadening product reach
$652
$790
$889
$980$1,026
$954 $941
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
3/31/16 6/30/16 9/30/16 12/31/16 3/31/17 6/30/17 9/30/17
Strategic Priority: Growing Responsibly
Maintaining credit discipline while expanding the portfolio
16
UNPAID PRINCIPAL BALANCE
($MM)
Key Drivers
• 1H ‘17 pullback to control credit
• Returning to growth in 2H ‘17
• Longer-term growth initiatives
– Direct and Strategic Platform channel growth
– Repeat loan and Line of Credit cross-sell growth
– New lending products to increase wallet share
– Increasing flexibility and utilization of term loan and LOC
products
– Credit policy and scoring enhancements
17
Key Drivers
• Improving loan application quality
• Pricing optimization initiatives
• Shortening portfolio duration
3Q ‘16 4Q ‘16 1Q ‘17 2Q ‘17 3Q ‘17
Wtd Avg FICO® 1 694 695 698 699 698
Wtd Avg Term (Months) 2 13.1 12.8 12.3 11.8 12.1
Wtd Avg Remaining
Term (Months) 311.6 11.2 10.4 9.7 9.6
15+ Delinquency Ratio 6.2% 6.6% 7.8% 7.2% 7.5%4
Reserve Ratio 9.8% 11.2% 11.5% 11.0% 11.1%
Provision Rate 6.9% 10.2% 8.7% 7.2% 7.5%5
1. Portfolio average as of period end. FICO is a registered trademark of Fair Issac Corporation.
2. For loans originated in period. Term loans only.
3. Portfolio average as of period end. Term loans only.
4. Includes loans impacted by Hurricanes Harvey and Irma granted temporary payment relief. Excluding impacted areas, the 15+ Delinquency Ratio in 3Q ’17 was 6.6%.
5. Provision in 3Q ’17 include a $3.5 million charge related to Hurricanes Harvey and Irma. Without that $3.5 million charge, the Provision Rate would have been between 6.8% and 6.9% in 3Q 17.
Strategic Priority: Strengthening Credit
$49.4$52.5
$46.7$44.6
$37.3
3Q '16 4Q '16 1Q '17 2Q '17 3Q '17
S&M T&A P&S G&A AER
($MM)
Strategic Priority: Improving Operating
Leverage
18
ADJUSTED EXPENSE RATIO &
OPERATING EXPENSE
1. Inclusive of $3.2 million severance charge.
16.5% 17.2%
14.3% 14.1%12.6%
1
Future Opportunities
• Continue improving economies of scale while
maintaining cost discipline and scaling loans
under management
• Continuing optimization to drive marketing
efficiencies
• Sub-leasing and office location hiring
strategies
• Vendor negotiations for contracts renewing in
2018
12/31/14 12/31/15 12/31/16 6/30/17 9/30/17
Warehouse Securitization 100% Equity Funded Off-Balance Sheet
$1,082
$388 $380
$733 $726 $709
$100
$265
$186$256 $274
12/31/14 12/31/15 12/31/16 6/30/17 9/30/17
Funding Debt Excess Capacity
$983
Serviced for
Third Parties1
Balance
Sheet Model
Strategic Priority: Diversifying Funding
Diversity and stability have enabled us to navigate varying market conditions
19
LOANS UNDER MANAGEMENT BY FUNDING SOURCE TOTAL FUNDING DEBT BORROWING CAPACITY2,3
$572
$890
$1,203
$1,111
1. Includes OnDeck as a Service and Marketplace portfolios, as well as any other loans serviced for third parties, as of period end.
2. Funding Debt Principal excluding the impact of differed debt issuance costs.
3. Subject to borrowing conditions.
$488
$645
$919
$982
($MM)
($MM)
Enhanced Flexibility & Utility
Strategic partnerships
Data and analytics
New Products
Loyalty Benefits
International expansion
20
Strategic Priority: Broadening Product Reach
• Improving bottom line performance
• Attractive loan portfolio characteristics
• Compelling customer lifetime value
• Improving credit performance
• Substantial lending spreads
• GAAP profitable by end of year 2017
21
Financial Highlights
22
Improving Bottom Line Performance
Key Drivers
• Strong sequential originations growth in
3Q ’17
• Price increases leading to higher Effective
Interest Yields
• Cost reduction program driving significant
operating leverage
• Significant Y/Y improvement in bottom line
performance
($MM)
3Q ‘16 2Q ‘17 3Q ‘173Q ’17
Q/Q
3Q ’17
Y/Y
Originations $613 $464 $531 14% (13%)
UPB $889 $954 $941 (1%) 6%
Revenue $77.4 $86.7 $83.7 (3%) 8%
Net Revenue $32.3 $42.3 $32.8 (23%) 1%
Operating
Expenses$49.4 $44.6 $37.3 (16%) (25%)
Net Loss $(16.6) $(1.5) $(4.1) $(2.6) $12.6
Adjusted EBITDA*1 $(10.8) $3.3 $1.0 $(2.3) $11.9
*Note: See appendix for definitions of non-GAAP measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics.
1. Inclusive of the $3.5M provision expense related to Hurricanes Harvey and Irma.
Attractive Loan Portfolio Characteristics
LOAN BALANCE BY INDUSTRY1
LOAN BALANCE BY AVG. BUSINESS OWNER’S FICO® 1,2
Key Drivers
• Highly diversified portfolio across industry and
geography
• More than 75% of the loan book with FICO
650+
• Short average remaining term of 9.6 months
• High net interest margins
• Improving credit metrics>650
<650
Retail
Construction
Accommodation & Food Services
Wholesale Trade
Manufacturing
Healthcare Services
Professional and Tech Services
Other Services
Transportation
Other
1. As of September 30, 2017, all Loans Under Management, excluding international.
2. FICO is a registered trademark of Fair Issac Corporation.. 23
Compelling Customer Lifetime Value
1. Includes upfront internal and external commissions as well as direct marketing expenses.
2. Contribution is defined to include interest income and fees collected on all loans including new, repeat and line of credit loans, less acquisition costs for repeat loans, less the following items for all loan types: estimated third party
processing and servicing expenses, estimated funding costs (excluding any cost of equity capital) and net charge-offs. For this purpose, processing and servicing expenses are estimated based on the mix of loan originations and
outstanding principal balances. Includes all loans originated in the period. Funding cost for new and repeat loans sold is estimated based on the average on-balance sheet cost of funds rate in the period. All estimates may be
adjusted in subsequent periods to reflect updated information.
3. Return on Investment (ROI) is contribution divided by initial acquisition cost. Acquisition costs include upfront internal and external commissions as well as direct marketing expenses.
4. Figures may not foot due to rounding.24
ALL TERM LOAN CUSTOMERS ACQUIRED IN 2015
• Average 2.0 loans per customer through 11 quarters
Or
$160Return3
after 11 quarters
$60Investment
2.6x+ROI
($MM)
2015
$60
$37
$25
Acquisition
Cost1Contribution2 +Q1 +Q2
$46
Through September 30, 2017
$16
+Q3
$14
+Q4
$10
+Q5
$7
+Q6
$7
+Q7
6.6%5.8% 5.8%
6.3% 6.9%
10.2%
8.7%
7.2% 7.5%
2014 2015 1Q '16 2Q '16 3Q '16 4Q '16 1Q '17 2Q '17 3Q '17
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Months of Seasoning
2014
2015
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
Credit Performance
Improving credit performance following 2016 loss reserve builds
25
1. As of September 30, 2017. Net cumulative charge-off as a percentage of original loan amount for all term loan originations, regardless of funding source, including loans sold through OnDeck Marketplace or held for sale on our balance sheet.
Given our loans are typically charged off after 90 days of nonpayment, all cohorts reflect approximately 0% for the first three months in this chart.
NET CUMULATIVE LIFETIME CHARGE-OFF RATIOS – ALL LOANS 1
Key Drivers
• 1Q ’17 credit changes resulting in
improving metrics
• Charge-off trajectory inline with
expectations
• Recent vintages showing improvement PROVISION RATE
Hurricanes’ Impact on Portfolio
Flexibility of proprietary model should mitigate impact
26
• Cross-functional coordination effort to support our customers and reinforce portfolio performance
– Our model is designed to be nimble and flexible
– Proactively engaged with our customers in affected communities
– Offered payment relief programs to those who indicated payment stress
– Required manual underwriting for new applicants from impacted areas
• Impact on 3Q ’17 performance
– Reduced interest income several hundred thousand dollars
– Recorded $3.5 million loan loss build to 3Q’ 17 provision
(65 basis points of 3Q ’17 Provision Rate)
– Near-term uptick in delinquencies due to temporary payment relief proactively provided
1. OnDeck provides no assurance that additional hurricane related provision will not be required.
15+ Day Delinquency Ratio 6/30/2017 9/30/2017
FEMA-designated disaster areas 7.3% 14.5%
Non-FEMA-designated disaster areas 7.2% 6.6%
Total Portfolio 7.2% 7.5%
27
19%
15% 15%
11%
12%
33% 33% 34%33% 33%
42% 43% 44% 43% 44%
29% 29% 30%29% 29%
--
0.1%
0.1%
0.2%
0.2%
0.3%
0.3%
0.4%
0.4%
0.5%
0.05
0.1
0.15
0.2
0.25
0.3
3Q '16 4Q '16 1Q '17 2Q '17 3Q '17
Net Interest Margin After Losses Effective Interest Yield
Weighted Average APR Net Interest Margin
Substantial Lending Spreads
Focus on improving losses and optimizing pricing
Key Drivers
• Pricing optimization underway to increase NIM
• Recent elevated charge-offs impacting results
• Declining charge-offs to drive NIMAL
improvements
• Continued investment in pre and post origination
risk management capabilities
NET INTEREST MARGIN AFTER CREDIT LOSSES
Note: See appendix for definitions of non-GAAP measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics.
1. Weighted average APR based on total originations in the period, not on average interest earnings assets.
1
Adj. EBITDA & Net Loss
See appendix for definitions of non-GAAP measures, their limitations, and reconciliation to GAAP.
1. Inclusive of the $3.5M provision expense related to Hurricanes Harvey and Irma.
($10.8)
($29.2)
($5.2)
$3.3 $1.0
3Q '16 4Q '16 1Q '17 2Q '17 3Q '17
($MM)
($16.6)
($35.9)
($11.1)
($1.5)
($4.1)
3Q '16 4Q '16 1Q '17 2Q '17 3Q '17
ADJUSTED EBITDA NET LOSS
28
1 1
2017 Financial Guidance
• Full Year 2017
– Gross revenue between $342 million and $352 million
– Adjusted EBITDA between $5 million and $15 million
• Additional 2017 Guidance
– On track to achieve GAAP profitability in 4Q ‘17
Note: See appendix for definitions of non-GAAP measures, their limitations and reconciliations to GAAP. Reconciliation not available for forward looking metrics.
29
Appendix
30
5.5%
9.0%
6.4%
4.4%
5.5%
6.8% 6.9% 7.1%6.8%
7.4%
8.9%
7.9%
6.6%
4.2%
0.9%
0.1%
2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q '16 2Q '16 3Q '16 4Q '16 1Q '17 2Q '17 3Q '17
Consistent Portfolio Performance Over Time
1. Represents net lifetime charge-offs of the unpaid principal balances charged off less recoveries of loans previously charged off. A given cohort’s net lifetime charge-off ratio equals the cohort’s net lifetime charge-offs through
September 30, 2017 divided by the cohort’s total original loan volume. Repeat loans in the denominator include the full renewal loan principal amount. The chart includes term loan originations, regardless of funding source,
including loans sold through our OnDeck Marketplace or held for sale on our balance sheet and excluding ODaaS related loans.
2. As of September 30, 2017, principal balance of term loans including loans sold through our OnDeck Marketplace or held for sale on our balance sheet still outstanding was 0% for all cohorts except the 2015, 1Q ’16, 2Q ’16, 3Q
’16, 4Q ’16, 1Q ’17, 2Q ’17 and 3Q ‘17 cohorts, which had principal outstanding of 0.2%, 1.4%, 3.4%, 6.1%, 14.2%, 27.2%, 57.2% and 88.3%, respectively.
3. Represents the initial contractual term at origination.
NET CHARGE-OFFS BY COHORT 1
9.6 11.1 8.8 7.5 8.7 9.2 10.0 11.2 12.4 13.2 13.7 13.1 12.8 12.3 11.8 12.1Avg. Term
(months)3
2
0.6% 0.8% 0.7% 0.6% 0.6% 0.7% 0.7% 0.6% 0.5% 0.6% 0.6% 0.6% 0.5% 0.3% 0.1% 0.0%NCOs/Avg.
Term
31
2 2 2 2 2 2 2
Current Debt Facilities
1. The period during which remaining cash flow can be used to purchase additional loans expires April 2018.
2. The period during which new borrowings may be made under this facility expires in February 2019.
3. Lenders obligation consists of a commitment to make loans in amount of up to $125 million on a revolving basis.
Lenders may also, in their sole discretion and on an uncommitted basis, make additional loans in amount of up to $75 million on a revolving basis.
4. Maturity dates range from October 2017 through December 2018.
Borrower Maturity Date WA Interest Rate Principal Outstanding Borrowing Capacity
Funding Debt (1)
OnDeck Asset Securitization Trust II LLC May-20 (1) 4.7% $250.0 $250.0
OnDeck Account Receivables Trust 2013-1 LLC Mar-19 3.9% 123.5 214.1
Receivable Assets of OnDeck, LLC Nov-18 3.7% 71.1 100.0
OnDeck Asset Funding I, LLC Feb-20 (2) 8.5% 81.6 150.0
On Deck Asset Company, LLC May-19 8.5% 76.3 100.0
Prime OnDeck Receivable Trust II, LLC Dec-18 3.7% 67.3 125.0 (3)
Other Agreements Various (4) Various 39.4 44.0 (4)
Total Funding Debt $709.2 $983.1
Corporate Debt (1)
On Deck Capital, Inc. Oct-18 5.5% $17.2 $30.0
32
($MM)
Supplemental Credit Information
33
1Q ’15 2Q ’15 3Q ’15 4Q ‘15 1Q ‘16 2Q ‘16 3Q ‘16 4Q ‘16 1Q ‘17 2Q ‘17 3Q ‘17
% of UPB Term Loans 94% 92% 90% 89% 88% 88% 88% 88% 88% 87% 87%
Line of Credit 6% 8% 10% 11% 12% 12% 12% 12% 12% 13% 13%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
15+ Day Past Due Rate Term Loans 8.5% 8.2% 7.6% 6.6% 5.7% 5.5% 6.4% 6.7% 8.0% 7.6% 7.8%
Line of Credit 6.9% 6.0% 6.4% 6.0% 5.7% 3.6% 4.7% 5.1% 6.4% 4.7% 5.6%
Total 8.4% 8.0% 7.5% 6.6% 5.7% 5.3% 6.2% 6.6% 7.8% 7.2% 7.5%
Reserve Ratio Term Loans 10.2% 10.3% 10.2% 9.1% 9.2% 9.2% 9.7% 11.3% 11.6% 11.2% 11.2%
Line of Credit 14.0% 13.2% 12.2% 15.5% 11.6% 10.4% 10.5% 10.7% 11.0% 9.6% 10.7%
Total Portfolio 10.5% 10.5% 10.4% 9.8% 9.5% 9.3% 9.8% 11.2% 11.5% 11.0% 11.1%
Net Charge-off Rate Term Loans 12.5% 14.6% 13.4% 14.7% 11.1% 10.5% 11.1% 14.3% 15.0% 18.4% 17.3%
Line of Credit 12.4% 13.1% 11.1% 13.7% 12.3% 14.6% 10.2% 12.8% 14.8% 19.4% 14.3%
Total Portfolio 12.5% 14.5% 13.2% 14.6% 11.2% 11.0% 11.0% 14.2% 14.9% 18.5% 16.9%
Portfolio Averages Weighted Average Loan Age (Term Loans) 3.6 3.7 3.6 3.4 3.3 3.5 3.7 3.9 4.5 4.9 4.5
Weighted Average Remaining Term (Term Loans) 9.6 9.4 9.5 10.3 10.9 11.5 11.6 11.2 10.4 9.7 9.6
Weighted Average FICO Score 683 685 689 691 692 694 694 695 698 699 698
Total Originations in
the Period
Originations Volume ($) $416.0 $419.0 $482.7 $556.8 $569.7 $589.7 $612.6 $631.9 $573.0 $464.4 $530.9
% Line of Credit Draws 8% 9% 9% 10% 13% 14% 15% 16% 18% 22% 20%
% Direct and Strategic Partners 68% 72% 76% 72% 73% 74% 73% 72% 72% 76% 73%
Average APR 49.3% 46.5% 42.7% 41.4% 40.6% 40.2% 42.1% 42.9% 44.0% 43.2% 43.8%
Average Maturity (Term Loans) 11.9 11.9 12.3 13.2 13.2 13.7 13.1 12.8 12.3 11.8 12.1
Cumulative Lifetime Net Charge-off Ratios
All Term Loans
As of September 30, 2017. Net cumulative charge-off as a percentage of original loan amount for all term loan originations, regardless of funding source, including loans sold through OnDeck Marketplace or held for sale on our balance sheet.
Given our loans are typically charged off after 90 days of nonpayment, all cohorts reflect approximately 0% for the first three months in this chart.34
2014 2015 1Q ‘16 2Q ‘16 3Q ‘16 4Q ‘16 1Q ‘17 2Q ‘17 3Q ‘17
Initial Loan Amount $1,101.0 $1,703.6 $496.0 $506.1 $518.5 $531.3 $469.9 $362.2 $427.1
Months Since Origination
0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
1 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
2 0.0% 0.1% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0%
3 0.2% 0.2% 0.3% 0.2% 0.2% 0.1% 0.3% 0.2%
4 0.8% 0.8% 0.8% 0.7% 0.9% 0.8% 1.0%
5 1.9% 1.5% 1.8% 1.9% 1.8% 1.9% 2.2%
6 3.0% 2.4% 2.5% 3.0% 2.9% 3.3% 3.1%
7 4.0% 3.3% 3.6% 4.3% 4.2% 4.5%
8 4.6% 4.0% 4.3% 5.5% 5.2% 5.5%
9 5.3% 4.7% 5.0% 6.3% 6.3% 6.1%
10 5.7% 5.3% 5.6% 6.9% 6.8%
11 5.9% 5.7% 6.1% 7.4% 7.2%
12 6.2% 6.0% 6.5% 7.9% 7.6%
13 6.3% 6.3% 6.8% 8.3%
14 6.6% 6.4% 7.0% 8.6%
15 6.7% 6.6% 7.1% 8.7%
16 6.8% 6.6% 7.2%
17 6.9% 6.7% 7.3%
18 7.0% 6.8% 7.3%
19 7.0% 6.8%
20 7.0% 6.8%
21 7.0% 6.8%
22 7.0%
23 7.1%
24 7.1%
25 7.1%
Cumulative Lifetime Net Charge-off Ratios
Term Loans on Balance Sheet
35
As of September 30, 2017. Net cumulative charge-off as a percentage of original loan amount for all on Balance Sheet term loan originations, designated as Held for Investment.
Given our loans are typically charged off after 90 days of nonpayment, all cohorts reflect approximately 0% for the first three months in this chart.
2014 2015 1Q ‘16 2Q ‘16 3Q ‘16 4Q ‘16 1Q ‘17 2Q ‘17 3Q ‘17
Initial Loan Amount $953.1 $1,237.0 $370.2 $427.8 $432.4 $446.8 $427.8 $353.8 $421.7
Months Since Origination
0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
1 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
2 0.0% 0.0% 0.0% 0.1% 0.1% 0.0% 0.0% 0.0%
3 0.2% 0.2% 0.3% 0.2% 0.2% 0.1% 0.3% 0.2%
4 0.7% 0.8% 0.9% 0.8% 0.9% 0.8% 1.0%
5 1.7% 1.4% 1.8% 2.0% 1.9% 1.9% 2.2%
6 2.6% 2.1% 2.6% 3.2% 3.1% 3.3% 3.1%
7 3.5% 2.9% 3.5% 4.5% 4.3% 4.6%
8 4.1% 3.5% 4.3% 5.5% 5.4% 5.6%
9 4.7% 4.1% 5.0% 6.3% 6.5% 6.3%
10 5.1% 4.6% 5.5% 6.9% 7.0%
11 5.3% 4.8% 5.9% 7.3% 7.5%
12 5.6% 5.1% 6.2% 7.9% 7.9%
13 5.7% 5.4% 6.5% 8.2%
14 5.9% 5.6% 6.7% 8.5%
15 6.1% 5.7% 6.8% 8.6%
16 6.2% 5.8% 6.8%
17 6.3% 5.9% 6.8%
18 6.3% 5.9% 6.9%
19 6.4% 6.0%
20 6.4% 6.0%
21 6.4% 6.0%
22 6.4%
23 6.4%
24 6.4%
25 6.4%
Adjusted EBITDA
(000s) 3Q ‘16 4Q ‘16 1Q ‘17 2Q ‘17 3Q ‘17
Net Income (Loss) ($17,173) ($36,460) ($11,602) ($2,569) ($4,532)
Adjustments:
Corporate Interest Expense 111 228 353 318 35
Income Tax Expense - - - - -
Depreciation and Amortization 2,452 2,575 2,596 2,576 2,451
Stock-Based Compensation Expense 3,761 4,492 3,491 2,974 3,056
Adjusted EBITDA ($10,849) ($29,165) ($5,162) $3,299 $1,010
Non-GAAP Adjusted EBITDA Reconciliation
Adjusted EBITDA represents our net income (loss), adjusted to exclude interest expense associated with debt used for corporate purposes (rather than funding costs associated with lending activities), income tax expense,
depreciation and amortization and stock-based compensation expense. 36
Adjusted Net Income (Loss)
(000s) 3Q ‘16 4Q ‘16 1Q ‘17 2Q ‘17 3Q ‘17
Net Income (Loss) ($17,173) ($36,460) ($11,602) ($2,569) ($4,532)
Adjustments:
Net Loss Attributable to Noncontrolling Interest 539 603 544 1,071 458
Stock-Based Compensation Expense 3,761 4,492 3,491 2,974 3,056
Adjusted Net Income (Loss) (12,873) ($31,365) ($7,567) $1,476 ($1,018)
Non-GAAP Adjusted Net Income (Loss)
Reconciliation
Adjusted Net Income (Loss) per share represents our net income (loss) adjusted to exclude net loss attributable to noncontrolling interest and stock-based compensation expense.37
Non-GAAP Net Interest Margin After Credit
Losses Calculation and Reconciliation
Note: See following slide for further definition, uses and limitations of this non-GAAP metric.
1. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.38
$000s 2014 2015 2016 3Q ‘16 4Q ‘16 1Q ‘17 2Q ‘17 3Q ‘17
Net Interest Margin After Credit Losses Reconciliation
Interest Income $145,275 $195,048 $264,844 $71,361 $76,118 $87,111 $83,721 $80,122
Funding Costs (17,200) (20,244) (32,448) (8,452) (9,900) (11,277) (11,616) (11,330)
Net Charge-offs (37,071) (71,356) (93,112) (23,067) (32,875) (38,267) (45,591) (39,927)
Net Interest Income After Credit Losses $91,004 $103,448 $139,284 $39,842 $33,343 $37,567 $26,514 $28,865
Divided By: Business Days in Period 252 252 251 64 61 62 64 63
Net Interest Income After Credit Losses Per Business Day $361 $411 $555 $623 $547 $606 $414 $458
Multiplied By: Average Business Days Per Year 1 252 252 252 252 252 252 252 252
Annualized Net Interest Income After Credit Losses $91,004 $103,448 $139,860 $156,996 $137,844 $152,712 $104,328 $115,416
Divided By: Average Interest Earning Assets $349,844 $539,096 $783,762 $841,270 $930,238 $1,024,731 $985,370 $944,372
Net Interest Margin After Credit Losses 26.0% 19.2% 17.8% 18.7% 14.8% 14.9% 10.6% 12.2%
Net Interest Margin After Credit Losses, or NIM After Credit Losses, is calculated as our business day adjusted annualized Net Interest Income After Credit Losses divided by Average Interest Earning Assets.
Net Interest Income After Credit Losses represents interest income less funding cost and net charge-offs. Interest income is net of deferred costs and 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 cost 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. Net charge-offs are charged-off loans in the period, net of recoveries. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.
Management believes that using Net Interest Margin After Credit Losses is useful to analyze the lending operating performance of the business unaffected by the provision for loan losses impact of the growth in originations. In accordance with GAAP, we recognize revenue on loans over their term, but provide for probable credit losses on the loans at the time they are originated. With respect to the forward-looking guidance of this metric, OnDeck is not able to provide a reconciliation of this non-GAAP measure to GAAP. Certain items that impact these measures have not yet occurred, are out of OnDeck’s control and/or cannot be reasonably predicted, and as a result, reconciliation of the forward-looking non-GAAP guidance measures to GAAP is not available without unreasonable effort.
Our use of Net Interest Margin After Credit Losses 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 After Credit Losses 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 Marketplace. Further, Net Interest Margin After Credit Losses 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.
• Net Interest Margin After Credit Losses reflects net charge-offs in the period rather than provision for loan losses. To the extent that originations continue to grow significantly, our charge-offs will likely be lower than the probable credit losses inherent in the portfolio upon origination. Furthermore, provision for loan losses consists of amounts charged to income during the period to maintain an allowance for loan losses, or ALLL. In addition to net charge-offs, our ALLL represents our estimate of the expected credit losses inherent in our portfolio of term loans and lines of credit and is based on a variety of factors, including the composition and quality of the portfolio, loan specific information gathered through our collection efforts, delinquency levels, our historical loss experience and general economic conditions.
• Funding cost does not reflect interest associated with debt used for corporate purposes.
Net Interest Margin After Credit Losses
39
$000s 2014 2015 2016 3Q ‘16 4Q ‘16 1Q ‘17 2Q ‘17 3Q ‘17
Adjusted Expense Ratio Reconciliation
Operating Expense $80,510 $161,585 $193,974 $49,395 $52,492 $46,684 $44,553 $37,251
Less: Stock-Based Compensation (2,842) (11,582) (15,915) (3,761) (4,492) (3,491) (2,974) (3,056)
Operating Expense (Ex. SBC) $77,668 $150,003 $178,059 $45,634 $48,000 $43,193 $41,579 $34,195
Divided By: Business Days in Period 252 252 251 64 61 62 64 63
Operating Expense (Ex. SBC) Per Business Day $308 $595 $709 $713 $787 $697 $650 $543
Multiplied By: Average Business Days Per Year 1 252 252 252 252 252 252 252 252
Operating Expense (Ex. SBC) $77,616 $150,003 $178,668 $179,676 $198,324 $175,644 $163,800 $136,836
Divided By: Average LUM $392,486 $726,215 $1,050,504 $1,087,641 $1,155,687 $1,231,104 $1,161,590 $1,089,406
Adjusted Expense Ratio 19.8% 20.7% 17.0% 16.5% 17.2% 14.3% 14.1% 12.6%
Non-GAAP Adjusted Expense Ratio
Calculation and Reconciliation
Note: See following page for further definition, uses and limitations of this non-GAAP metric.
1. Annualization is based on business days assuming 252 business days per year, which is typical weekdays per year less U.S. Federal Reserve Bank holidays.40
Adjusted Expense Ratio represents our annualized operating expense, adjusted to exclude the impact of stock-based compensation, divided
by Average Loans Under Management, or Average LUM. Loans Under Management represents the Unpaid Principal Balance plus the amount
of principal outstanding of loans held for sale, excluding net deferred origination costs, plus the amount of principal outstanding of term loans
we serviced for others at the end of the period. Average LUM is calculated as the average of Loans Under Management at the beginning of
the period and the end of each month in the period. Annualization is based on business days assuming 252 business days per year, which is
typical weekdays per year less U.S. Federal Reserve Bank holidays.
Management believes that using the Adjusted Expense Ratio is a useful to analyze the level of operating expenses incurred by the business
compared to the level outstanding principal of loans, regardless of the funding source deployed to fund the loan. With respect to the forward-
looking guidance of this metric, OnDeck is not able to provide a reconciliation of this non-GAAP measure to GAAP. Certain items that impact
these measures have not yet occurred, are out of OnDeck’s control and/or cannot be reasonably predicted, and as a result, reconciliation of
the forward-looking non-GAAP guidance measures to GAAP is not available without unreasonable effort.
Our use of Adjusted Expense Ratio 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:
• Adjusted Expense Ratio does not reflect the potentially dilutive impact of equity-based compensation.
• Adjusted Expense Ratio is based on the unpaid principal balance of loans outstanding, regardless of funding source, and does not take into
account the revenue earned in the period and may not correspond with the timing of the expenses incurred to originate new loans.
Adjusted Expense Ratio
41