OnDeck Capital reduced its revenue expectations Thursday after a quarter in which credit quality worsened and the firm tightened its lending criteria.
The New York-based online lender has grown
OnDeck’s shares were down by nearly 13% in midday trading to $4.93.
During the first quarter, OnDeck’s net charge-off rate climbed to 12.2%, up from 10.9% a year earlier. The percentage of loans that were at least 15 days past due rose to 8.7%, an increase from 6.7% in the year-ago period. The firm’s allowance for loan losses rose 24% to $147 million.
OnDeck charges much higher interest rates than banks, which helps compensate for the higher risk in its portfolio. The weighted average annual percentage rate on its term loans and lines of credit in 2018 was 46.9%, according to the company’s most recent annual report.
CEO Noah Breslow said Thursday that OnDeck tightened its underwriting criteria during the first quarter in light of its view of the small-business lending environment He noted that small-business owners are less optimistic than they were previously, though their optimism remains high relative to historical levels.
“At this point in the cycle, we think a slight shift in origination strategy to favor loans at the higher end of our target demographic is prudent,” Breslow said during the company’s quarterly earnings call.
Breslow also said that the tighter underwriting criteria will impact the company’s revenue growth in 2019.
Three months earlier, OnDeck projected that it would generate gross revenue this year of between $445 million and $465 million. The company reduced that range Thursday to between $435 million and $455 million.
OnDeck’s loan originations in the first quarter totaled $636 million, up 8% from the same period a year earlier. Breslow said that he expects originations to be flat or slightly down in the second quarter before rising in the second half of the year.
However, the company maintained its previous estimate that it will generate net income of $20 million to $30 million this year.
OnDeck reported net income of $5.5 million for the first three months of the year, after reporting a $2.4 million loss in the first quarter of 2018.
