OnDeck swings to profit, eyes second bank partnership

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Improved repayment rates at OnDeck Capital helped the digital lender post a fourth-quarter profit, its first quarterly profit in two years.

The New York-based small-business lender recorded net income of $5.1 million in the quarter that ended Dec. 31, which compared with a $35.9 million loss in the fourth quarter of 2016.

OnDeck, which has recorded $94.5 million losses over the last two years, is cutting costs in an effort to achieve profitability. The publicly traded company specializes in lending to businesses that often cannot qualify for lower-priced credit from banks.

OnDeck’s operating expenses totaled $37.7 million in the fourth quarter, down from $52.5 million in the year-earlier period, with reduced sales and marketing expenses accounting for more than a third of the decline.

Still, the 12-year-old online lender managed to increase its gross revenue by 7% to $87.7 million, as it charged higher prices for its loans. Fourth-quarter results were further aided by a decline in chargeoffs and a $21.2 million reduction in the provision for loan losses.

OnDeck Chief Financial Officer Howard Katzenberg attributed the improved credit performance to the company’s decision to raise its underwriting standards in early 2017. “I think the good news is, we see continued opportunity to drive even more upside in the credit side,” he said Tuesday during a call with analysts.

In addition to its own lending business, OnDeck partners with JPMorgan Chase to offer digital loans to the megabank’s small-business customers. OnDeck said Tuesday that it is on track to announce a second major bank partnership later this year.

“I think this digital originations trend among banks is just gaining steam,” said OnDeck CEO Noah Breslow.

OnDeck is projecting that its loan portfolio will grow by 10% to 15% in 2018, in addition to a likely modest profit of up to $10 million for the year.

Shares in OnDeck, which debuted at $20 in 2014 and have since declined to around $5, climbed by 11.6% in midday trading Tuesday.

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