OnDeck reports record profit in 2Q, eyes second bank partnership

Bolstered by loan growth, wider margins and stable credit trends, OnDeck Capital enjoyed its most profitable quarter since going public nearly four years ago.

The online small-business lender reported net income of $5.8 million in the second quarter, versus a net loss of $1.5 million during the same period a year earlier.

Shares in the New York-based company, which lost money in eight consecutive quarters between 2015 and 2017, rose by 25% in midday trading Tuesday. OnDeck’s stock was trading at $8.50, its highest level in more than two years.

During the second quarter, OnDeck originated $587 million in loans, up 26% from the same period a year earlier.

OnDeck does much of its business with small companies that would not qualify for bank loans, and its interest rates are comparatively high. The average annual percentage rate on OnDeck loans was 47.1% in the second quarter, up from 43.2% in the same period last year.

It also has a partnership with JPMorgan Chase under which the bank uses OnDeck's technology to offer digital loans to its small-business clients. During a conference call with analysts Tuesday, OnDeck CEO Noah Breslow said that he expects to announce another partnership with a bank later this year.

OnDeck’s effective interest yield, a measure of the difference between the lender’s cost of funds and the rates that it charges borrowers, has also been rising. It climbed to 36.1% during the second quarter, up from 33.5% a year earlier.

During the second quarter, the percentage of OnDeck’s loans that were at least 15 days delinquent fell to 6.8%, down from 7.2% in the second quarter of 2017. The company set aside $33 million for loan losses, unchanged from a year earlier.

OnDeck also raised its earnings guidance for this year. The firm now expects to record net income of between $10 million and $16 million during 2018, up from an earlier range of $0 to $10 million.

On the earnings call, Breslow said that the company plans to study the so-called fintech charter that the Office of the Comptroller of the Currency recently unveiled. The federal charter offers a new regulatory option for online lenders that in the past have either gotten state lending licenses or partnered with banks to originate loans.

“We are excited about the OCC’s move here,” Breslow said. “We have a regulatory framework that has worked very well for us for 11 years, and so I don’t want to sort of detract from any of that. But I think having this fintech charter available is an interesting option."