OnDeck Capital reported its fourth consecutive quarterly loss on Thursday as investors bought fewer loans and the firm was forced to make costly adjustments to its business.
New York-based OnDeck, an online lender that provides credit to U.S. small businesses, lost $17.2 million during the third quarter. That brought the company's losses to more than $54 million over the last four quarters. For the third quarter of 2015, OnDeck recorded net income of $3.5 million.
The mounting losses are largely attributable to shifts in the preferences of institutional investors who buy loans from OnDeck and other online lenders, and have been demanding better prices this year amid concerns about deteriorating credit quality.
As loan buyers have become less forgiving, OnDeck has chosen to keep more loans on its own balance sheet. At the end of the third quarter, 79% of OnDeck's loans under management were on the company's balance sheet, up from 65% a year earlier.
The shifting mix of loans hurt OnDeck's bottom line in two key ways. First, OnDeck's gain on sale of loans fell to $2.7 million during the third quarter, down from $16.8 million a year earlier.
Second, the company set aside a $36.6 million provision for loan losses during the quarter, up from $16.2 million during the third quarter of 2015, as OnDeck's bulging balance sheet required larger set-asides for future losses.
Interest income rose to $71.4 million, up from $48.6 million, as loan originations grew by 27% during the third quarter. But those gains were not enough to put OnDeck into the black.
OnDeck also reported a 15-plus-day delinquency ratio of 6.2% -- down from 7.5% during the third quarter of last year, but up from 5.3% during the second quarter of 2016.
The company said that it has taken action to tighten its underwriting standards and is adding to its team of employees who collect debt.
At the same time, OnDeck said that it is not changing its full-year 2016 guidance to investors. OnDeck has previously stated that its decision to keep more loans on its own balance sheet, while harmful to earnings in the short term, makes sense over the long run.
During a conference call with analysts, Chief Executive Noah Breslow said that this year has been "challenging" for the online lending industry.
He added, "We believe that we have positioned OnDeck well to achieve our long-term goals."
