Layoffs, Big Losses for OnDeck in Q4February 16, 2017 | By: Sean Murray
OnDeck weathered a brutal fourth quarter driven largely by an increase in provision for loan losses which increased to $55.7 million, up from $20.0 million in the comparable prior year period. $18.7 million of this can be attributed to loans with original maturities of 15 months or longer whose performance has deviated or is expected to deviate, the company said. “As a result, the Provision Rate in the fourth quarter of 2016 was 10.2% compared to 5.6% in the comparable prior year period,” the company reported. For the full year of 2016, the Provision Rate was 7.4%, compared to 5.8% in 2015. CFO Howard Katzenberg said on the earnings call that it will likely continue to hover at around the 7% level.
The company lost $36.5 million in Q4 and $86.5 million for the year.
To try and turn things around, OnDeck is laying off up to 11% of their staff as part of a “cost rationalization plan.”
James Hobson, their COO, recently announced his resignation and March 15th is his last official day.
On the earnings call, Katzenberg wouldn’t say how many loans in their portfolio were 15 months or longer, but did say that it’s more than a third of their book. This is notable given that this segment is the one in which performance isn’t matching their models and led to the recalibration of loss expectations.
Meanwhile CEO Noah Breslow explained that losses did not stem from their partnership with Chase since Chase held all those loans on their own balance sheet. Breslow said their role in that relationship is servicing.
No origination channel was directly responsible for the loss provision increase. One analyst surmised if perhaps third party brokers or funding advisors, as OnDeck calls them, might be responsible, but the company said that origination channel wasn’t a factor.
Despite the fact that OnDeck is now using the 5th generation of their proprietary OnDeck Score, they were unable to predict performance on loans that now make up more than a third of their portfolio, yet the company said they remain very confident in their scoring model.
“Loans sold or designated as held for sale through OnDeck Marketplace represented 15.8% of term loan originations in the fourth quarter of 2016 compared to 39.8% of term loan originations in the comparable prior year period,” the company reported.Last modified: February 16, 2017
Sean Murray is the founder of deBanked, an 11-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper note investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.