Please see pages 7 and 8 of this publication for important certification and disclosure information.

Transcription

1 Industry: Financial Services GICS Sector/ Sub code: Financials Sector / Banks (GIC Code: 40 / Sub code: 4010) Company Summary: On Deck Capital ( ONDK, or the Company) is an online alternative small business ( SB ) lender. The demand for SB term loans and lines of credit by small businesses is largely unmet according to several studies detailed within this report. Total SB loans outstanding comprise 21.1% of $2.73 trillion in total business loans in the U.S. According to FDIC data, as of Q2 2014, there was $589.7 billion in total SB loans outstanding at the nation s banks, comprised of $291.8 billion in Commercial Real Estate (CRE) loans, and $297.9 billion in Commercial and Industrial (C&I) loans. According to a recent Federal Reserve study, in 2013, 21% of the 28.4 million small businesses in the U.S. explored new financing venues to improve their ability to obtain financing. Since it began lending in 2007, ONDK has originated approx. $1.9 billion in loans, using a proprietary big data analytics engine that supported $370 million of new loans in Q4 2014, up 118% y-o-y. With its recent IPO, ONDK has secured, we estimate, enough funds to finance significant growth over the next several years. Analyst Notes: Analysis by Bruce Roberts (917) & Allen Gillespie, CFA (864) ONDK reported robust 4Q 2014 and full-year 2104 results recently. 4 th -quarter and full-year gross revenues climbed 118% and 142% y-o-y, respectively. The key takeaway from the quarter is that ONDK is successfully executing its business plan. That includes delivering results on its core term loan lending activity, as well as exploring and successfully adding new loan products and funding mechanisms. Respectively, these include a new Line of Credit product and P2P funding activity (the On Deck Marketplace), reducing balance sheet risk. We continue to rate the shares BUY for high-risk tolerant investors and are raising our target price to $24, from $22, representing 23.1% upside. We were anticipating Gross revenues, Net Interest Income (Interest Income less Funding Costs), and EBIT of $50.8 million, $42.4 million, and $459K for the Q period. Actual results were $50.5 million, $40.7 million, and -$2.1 million. While we were anticipating $47.6 million in Interest Income, that figure was $45.4 million, driven principally by a sharp y-o-y drop in Effective Interest Yield, to 38.7% (versus our target of 41.6%). EIY is equal to annualized interest income / avg. loans. The drop, while disappointing, was driven by a shift in distribution channel usage to Direct and Strategic Partner, and an increase in average term length. In addition, Operating expenses were higher than we anticipated, at $27.5 million versus our expectation of $25.0 million; SG&A in particular exceeded our outlook. ONDK originated $369.5 million in loans, a y-o-y rate of growth of 118%, versus our expectation of $375.4 million (124%). However, loan term lengthened such that average loans outstanding came to $468.7 million, slightly above our $457.8 million expectation. Risks include, but are not limited to (1) an evolving regulatory and competitive environment (2) uncertainty involved in the introduction of new products and entry into new geographies (3) the challenge to effectively scale the Company s digital platform and credit scoring analytics and (4) increasing its base of borrowers and revenues in the face of vigorous online banking services competition from both new entrants (who may already offer Internet-based services to large existing customer bases) and from traditional banking entities. Fintrust Recommendation Fintrust Rating: BUY Target Price: $24.00 Current Share Price $19.49 Expected Return 23.1% 52 Week Price Range $ $14.52 Fintrust Brokerage Services, LLC rates companies a BUY, HOLD, SELL, or SHORT. A BUY rating is given when the security is expected to outperform the broad equity market as measured by the S&P 500 on a risk adjusted basis over the next year. A HOLD rating is given when the security is expected to perform in line with the broad equity market as measured by the S&P 500 on a risk adjusted basis over the next year. A SELL rating is given when the security is expected to perform below the broad equity market as measured by the S&P 500 on a risk adjusted basis over the next year. A SELL SHORT is given when the security is expected to decline in value over the next year. The distribution of ratings across Fintrust s entire company universe is 53.8% Buy, 38.5% Hold, 7.7%Sell, and 0% Short Key Figures Key figures pricing data reflects previous trading day s closing price. Other applicable data are trailing 12-months unless otherwise specified. ROE 3.5% ROA 1.2% Loans / Assets 62.3% Payout Ratio NA Revenue (000 s) $251,400 Net Income (000 s) ($14,097) Outstanding (mi) 57.6 Shares Short (mil) NA Market Capitalization ($ mil) $1,123 Gross Loans ($ mil) $504 Beta NA Valuation Sales (14E) $158,064 Sales (15E) $251,451 Sales (16E) $356,546 P/S (14) 7.1x P/S (15) 4.5x P/S (16) 3.1x Est Growth 40.1% Please see pages 7 and 8 of this publication for important certification and disclosure information. 1 Fintrust Brokerage Services Verdae Blvd, Ste. #504

2 Strategic Business Review In many respect, ONDK had a successful Q and full-year With just 1% penetration (30K customers) of the 3 4 million U.S. small businesses the lender indicates are viable, potential customers, the Company has the potential to continue to robustly expand for some time to come. A key risk, competition, remains, to date, essentially dormant. On the analyst conference call, the CEO mentioned that the lender s booking rates (loan approvals / loans accepted) has remained constant y-o-y, suggesting that potential competitors, including (1) short term triple-digit APR lenders and (2) traditional banks, haven t made inroads as of yet. Another aspect of the lender s business cost leveraging is fully on track. This is a key part of the ONDK investment theme: that is, the Company seeks to expand its business in part by continuously lowering its fees and interest rates to customers, by passing along its cost reductions to customers. That is, the 520 basis point y-o-y drop in the lender s Effective Interest Yield, to 38.7%, was driven substantially by lower costs, for example: 1. By securitizing debt, opening it s funding to institutional investors (the On Deck Marketplace accounted for ~ $64 million of originations in the latest quarter, or 18%, up from 8% in the prior year) and enlarging its loan portfolio, while maintaining asset quality, ONDK has sharply lowered its cost of funds to 5.1% in Q4 2014, from 9.9% last year. 2. By expanding the proportion of originations made by lower-cost Direct (in-house) and Strategic Partner sales channels. In Q4 2014, combined Direct and Strategic Partner channel originations grew to 59% of total origination volume, up from 44% in the prior year quarter. On a y-o-y basis, originations through these channels grew ~ 220%. 3. The CFO indicated that marketing efficiency essentially doubled in 2014; defined as sales & marketing expense / originations. Driving this efficiency included (1) the Company has improved internal marketing productivity and (2) repeat customers originations are less costly. In addition, with Line of Credit (which carry rates in the mid 30s ) originations now equal to 7% of total originations, 2 less business days in the quarter compared to the prior year (accounting for ~ 125 basis points of the 550 basis point drop), and lengthening loan terms (from 10.5 months in 2013, to 11.5 months in Q4 2014), there is exogenous pressure on loan yield. Nonetheless, despite the drop in yield, the Company estimates that returns, as defined as Interest Income less charge offs less funding costs / loans has remained constant y-o-y. ($ mms) Q Q Change Originations % Gross Revenues % Provision Loan Losses % Operating Expenses (% of 27.5 (54.4%) 12.0 (52.0%) 129% gross sales) EBIT (2.1) (3.2) nmf Net Loss (7.4) (7.6) nmf EPS - GAAP ($0.13) ($1.78) nmf Loans, net % Loans under management % Reserve Ratio 10.2% 9.0% 120 b.p. Effective Interest Yield 38.7% 43.9% 520 b.p. Cost of Funds Rate 5.1% 9.9% 480 b.p. Source: Company Press release 2 Fintrust Brokerage Services Verdae Blvd, Ste. #504

3 While the annualized Net C/O ratio declined sharply to 8.8% from 11.2% in the prior year, the Company increased its allowance for loan losses / unpaid principal balance ratio (Reserve Ratio), to 10.2% from 9.0% y-o-y. That is, the allowance grew 156% y-o-y, while the UPB advanced 127% due to (1) seasonal patterns of delinquency (higher in Q4), and (2) an increase in the ratio of originations of loans held for sale as a percentage of total originations. Company Guidance / Valuation ONDK offered revenue and EBITDA guidance for Q and full-year While we were expecting full-year 2015 revenues of $247 million, ONDK guided for $254 to $258 million in sales. While we were expecting the Company to generate positive 2015 EBITDA, management is indicating a loss of ~ $3 million. The message in ONDK s guidance is that the Company will continue to heavily invest for growth at high levels for the next year or two. We tweaked our model specifically to reflect better-than expected asset quality and lower funding cost rates. Consequently, we are raising our target price to $24, from $22, and continue to rate the shares BUY for risk tolerant investors seeking to invest in a potentially disruptive force in the small business banking arena. Comparative Analysis (Sources: FinTrust estimates and Yahoo Finance) Sales Sales Sales EV/Sales EV/Sales Company Ticker FinTrust Rating Share Price EV 2015E 2016E Growth 2015E 2016E Alliance Data Systems ADS NR $ $30,440 $6,530 $7, % 4.7x 4.2x Envestnet ENV NR $55.52 $1,780 $348 $ % 5.1x 4.1x FleetCor Technologies FLT NR $ $16,900 $1,650 $1, % 10.2x 8.8x Xoom Corp. XOOM NR $16.20 $457 $194 $ % 2.4x 2.x Financial Engines, Inc. FNGN NR $41.07 $1,770 $320 $ % 5.5x 4.8x LendingClub LC HOLD $23.65 $10,450 $374 $ % 27.9x 17.5x Mean----> $10,300 $1,569 $1, % 9.31x 6.9x OnDeck Capital, Inc. ONDK BUY $19.89 $1,146 $251 $ % 4.6x 3.2x Based on a sales growth v. EV / Sales comparison, the shares look extremely inexpensive as the preceding table illustrates. Insofar as the lender takes on balance sheet risk (Lending Club (LC, HOLD $20.0), for example, is strictly a P2P lender) we think some relatively discount is appropriate. Our Dividend Discount model suggests the following valuation matrix for ONDK. AT $24, the shares would trade for 5.5X 2015E sales. Cost of Equity Perpetual EPS Growth Rate % 10.00% 10.50% 11.00% 11.50% 12.00% 12.50% 5.50% $ 21.4 $ 19.6 $ 18.0 $ 16.8 $ 15.7 $ % $ 23.7 $ 21.4 $ 19.6 $ 18.0 $ 16.8 $ % $ 26.7 $ 23.7 $ 21.4 $ 19.6 $ 18.0 $ % $ 30.7 $ 26.7 $ 23.7 $ 21.4 $ 19.6 $ % $ 36.2 $ 30.7 $ 26.7 $ 23.7 $ 21.4 $ % $ 44.5 $ 36.2 $ 30.7 $ 26.7 $ 23.7 $ % $ 58.4 $ 44.5 $ 36.2 $ 30.7 $ 26.7 $ 23.7 Source: 3 Fintrust Brokerage Services Verdae Blvd, Ste. #504

4 OnDeck Capital, Inc. Income Statement FY Ended December 31 ($ in thousands) 4Q 2014 FY2014 % of Total 1Q Q Q Q 2015 FY2015E % of Total Interest Income 45, , % 48,784 51,527 56,357 62, , % Gain on Sale of Loans 4,254 8, % 3,879 5,670 8,038 11,141 28, % Other Revenues (loan servicing, etc.) 835 3, % ,008 3, % Gross Revenues 50, , % 53,534 58,111 65,356 74, , % Funding Costs 4,669 17, % 5,093 5,466 6,045 6,761 23, % Net Interest Income 45, , % 48,441 52,645 59,311 67, , % Provision for Loan Losses - PLL 20,421 67, % 20,792 22,751 24,836 27,041 95, % Net Revenues after PLL 25,401 73, % 27,648 29,894 34,475 40, , % Operating Expenses: Sales and Marketing 11,401 33, % 12,623 13,703 15,411 17,555 59, % Technology and Analytics 6,042 17, % 6,941 7,535 8,474 9,653 32, % Processing and Servicing 2,297 8, % 2,971 3,225 3,627 4,132 13, % General & Administrative 7,710 21, % 8,710 9,455 10,633 12,113 40, % Total Operating expenses 27,450 80, % 31,246 33,917 38,145 43, , % EBIT (2,049) (7,070) -4.5% (3,597) (4,023) (3,670) (2,806) (14,097) -5.6% Other Expence (income) 2,234 11, % % EBT (4,283) (18,700) -11.8% (3,597) (4,023) (3,670) (2,806) (14,097) -5.6% Income Tax Expense % % Net income (4,283) (18,700) -11.8% (3,597) (4,023) (3,670) (2,806) (14,097) -5.6% Accretion of dividends on red. Conv. Pref. stock (3,057) (12,884) -8.2% % Net Income to Shareholders (7,340) (31,584) -20.0% (3,597) (4,023) (3,670) (2,806) (14,097) -5.6% Net income per common share: Basic ($0.13) ($0.60) ($0.06) ($0.07) ($0.06) ($0.05) ($0.24) Diluted ($0.13) ($0.60) ($0.06) ($0.07) ($0.06) ($0.05) ($0.24) Adjusted EBITDA / Share $0.01 ($0.00) ($0.01) ($0.02) ($0.01) $0.01 ($0.04) Weighted average shares outstanding: Basic 57,417,188 52,556,998 57,617,188 57,617,188 57,617,188 57,617,188 57,617,188 Diluted 57,417,188 52,556,998 57,617,188 57,617,188 57,617,188 57,617,188 57,617,188 Returns ROA ROE 4Q 2014 FY2014 1Q Q Q Q 2015 FY2015E Gross Loans UPB 490, , , , , ,824 + Deferred origination Costs 13,544 4,267 4,950 5,742 6,660 21,619 as a % of originations 3.7% 3.5% 3.5% 3.5% 3.5% = Gross loans 504, , , , , ,484 52% Average Balance Sheet Average Gross Loans $468,698 $358,725 $517,599 $561,604 $631,449 $718,158 $607,202 Y/Y Growth 135% 147% 102% 76% 61% 53% 69% Average Unpaid Balance 456, , , , , ,957 Y/Y Growth Average Funding Debt Outstanding $367,602 $277,115 $399,479 $432,989 $483,567 $546,309 $465,586 Y/Y Growth 126% - 100% 83% 59% 49% - Q/Q Growth 21% - 9% 8% 12% 13% - Ending Balances Loan Originations $369,444 $1,157,750 $387,916 $449,982 $521,980 $605,496 $1,965,374 Y/Y Growth 120% 152% 71% 81% 67% 64% 70% Q/Q Growth 18% - 5% 16% 16% 16% - Loan Originations Kept 305,899 $1,015, , , , ,232 $1,539, % 88% 80% 79% 78% 77% 78% Loan Originations Held 63, ,375 77,583 94, , , , % 12.3% 20.0% 21.0% 22.0% 23.0% 21.7% Funding Debt Outstanding $387,996 $387,996 $410,962 $455,016 $512,119 $580,500 $580,500 Ending UPB 490,513 $382, , , , ,824 $634,476 Funding Debt / UPB 79% 101% 78% 78% 77% 77% - Unpaid Principal Balance Calc Unpaid Principal Balance - Beg 422, , , , ,089 $665,089 + Loan Originations Kept 305, , , , ,232 $466,232 - Net Charge Offs 10,373-14,000 16,000 18,000 20,000 $68,000 - Principal Paid Down 227, , , , ,497 $352,497 = Ending UPB 490,513 $382, , , , ,824 $758,824 Y/Y Growth 55% Adjusted EBITDA $569 ($157) ($848) ($1,137) ($640) $376 ($2,249) Y/Y Growth Adjusted EBITDA Margin 1.1% -0.1% -1.6% -2.0% -1.0% 0.5% -0.9% Yield Analysis on Average Balances Annualized Interest Exp/Avg Loans 38.70% $ % 36.70% 35.70% 34.70% 36.2% Annualized Cost of Funds / Avg Funding Debt 5.10% % 5.05% 5.00% 4.95% - Asset Quality Measures Provision Rate (PLL / loan origination) 6.70% % 6.40% 6.10% 5.80% - PLL / Revenues 44.57% % 43.22% 41.87% 39.95% - Reserve Ratio (ALL / ending UPB) 10.15% 10.2% 10.74% 10.79% 10.55% 10.18% 10.2% NCO / Average UPB 9.1% 9.1% 11.0% 11.5% 11.5% 11.2% 11.2% Loan Reserves - ALL Beginning 39,756-49,804 56,596 63,347 70, PLL 20,421-20,792 22,751 24,836 27, NCO 10,373-14,000 16,000 18,000 20,000 - = Ending ALL 49,804-56,596 63,347 70,183 77,225 $77,225 Key Income Statement Assumptions Gross Margin (net rev after PLL/gross Rev) 50.3% 46.5% 51.6% 51.4% 52.8% 54.6% 52.8% Sales & Marketing / Gross Revenues 22.58% 21.00% 23.58% 23.58% 23.58% 23.58% 23.58% Technology and Analytics / Gross Revenues 11.97% 11.01% 12.97% 12.97% 12.97% 12.97% 12.97% Processing and Servicing Gross Revenues 4.55% 5.20% 5.55% 5.55% 5.55% 5.55% 5.55% G&A / Gross Revenues 15.27% 13.71% 16.27% 16.27% 16.27% 16.27% 16.27% OPeX / Gross Reevenues 54.37% 50.93% 58.37% 58.37% 58.37% 58.37% 58.37% EBIT / Gross Revenues -4.06% -4.47% -6.72% -6.92% -5.62% -3.77% -5.61% Net Inc / Gross Revenues -8.48% % -6.72% -6.92% -5.62% -3.77% -5.61% Tax Rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Adj EBITDA / Gross revenues 1.13% -0.10% -1.58% -1.96% -0.98% 0.51% -0.89% Stock Based Compensation / Revenues Y-o-Y Change 4Q 2014 FY2014 1Q Q Q Q 2015 FY2015E Interest Income 107.6% 130.8% 85.2% 56.8% 38.6% 37.2% 50.7% Gain on Sale of Loans 439.8% % % 225.6% Other Revenues (loan servicing, etc.) 61.8% 160.9% 0.0% -13.2% -20.4% 20.8% -5.3% Gross Revenues 117.9% 142.2% 87.4% 63.7% 50.2% 47.5% 59.1% Funding Costs 16.2% 28.2% 9.8% 43.8% 47.8% 44.8% 35.8% Net Interest Income 139.2% 171.8% 102.5% 66.1% 50.5% 47.7% 61.9% Provision for Loan Losses - PLL 98.8% 153.8% 25.4% 74.0% 43.1% 32.4% 41.5% Net Revenues after PLL 186.0% 190.7% 276.5% 60.5% 56.3% 60.0% 80.7% Operating Expenses: Sales and Marketing 151.7% 83.5% 98.4% 92.6% 85.1% 54.0% 78.6% Technology and Analytics 126.3% 98.6% 138.6% 98.3% 82.3% 59.8% 87.4% Processing and Servicing 25.5% 47.5% 84.7% 54.8% 62.3% 79.9% 69.7% General & Administrative 156.1% 78.1% 156.8% 113.2% 73.1% 57.1% 88.7% Total Operating expenses 128.0% 80.5% 118.9% 94.6% 78.7% 58.3% 82.3% Net income -23.6% -23.2% -73.8% 281.7% % -34.5% -24.6% 4 Fintrust Brokerage Services Verdae Blvd, Ste. #504

5 OnDeck Capital, Inc. Income Statement FY Ended December 31 ($ in thousands) FY2014 Total FY2018E % % of Total FY2015E % of Total FY2016E % of Total FY2017E % of of Total FY2019E % of Total FY2020E % of Total CAGR Interest Income 145, % 218, % 316, % 421, % 520, % 589, % 644, % 24.1% Gain on Sale of Loans 8, % 28, % 35, % 53, % 75, % 96, % 118, % 32.8% Other Revenues (loan servicing, etc.) 3, % 3, % 4, % 6, % 7, % 9, % 10, % 21.8% Gross Revenues 158, % 251, % 356, % 481, % 602, % 695, % 773, % 25.2% Funding Costs 17, % 23, % 35, % 49, % 64, % 76, % 87, % 30.2% Net Interest Income 140, % 228, % 320, % 431, % 538, % 618, % 685, % 24.6% Provision for Loan Losses - PLL 67, % 95, % 118, % 158, % 197, % 225, % 246, % 20.9% Net Revenues after PLL 73, % 132, % 202, % 273, % 341, % 393, % 439, % 27.0% Operating Expenses: Sales and Marketing 33, % 59, % 81, % 106, % 128, % 143, % 153, % 20.9% Technology and Analytics 17, % 32, % 43, % 55, % 64, % 69, % 71, % 16.9% Processing and Servicing 8, % 13, % 17, % 19, % 19, % 17, % 13, % -0.1% General & Administrative 21, % 40, % 55, % 71, % 84, % 92, % 96, % 18.8% Total Operating expenses 80, % 146, % 197, % 252, % 297, % 322, % 335, % 18.0% EBIT (7,070) -4.5% (14,097) -5.6% 4, % 20, % 43, % 70, % 103, % Other Expence (income) 11, % 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% EBT (18,700) -11.8% (14,097) -5.6% 4, % 20, % 43, % 70, % 103, % Income Tax Expense 0 0.0% 0 0.0% 1, % 5, % 10, % 17, % 25, % Net income (18,700) -11.8% (14,097) -5.6% 3, % 15, % 32, % 53, % 77, % Accretion of dividends on red. Conv. Pref. stock (12,884) -8.2% 0 0.0% Net Income to Shareholders (31,584) -20.0% (14,097) -5.6% 3,453 15,539 32,736 53,142 77,891 Net income per common share: Basic ($0.60) ($0.24) $0.06 $0.25 $0.51 $0.81 $1.15 Diluted ($0.60) ($0.24) $0.06 $0.25 $0.51 $0.81 $1.15 Adjusted EBITDA / Share ($0.00) ($0.04) $0.30 $0.53 $0.84 $1.18 $1.59 Weighted average shares outstanding: Basic 52,556,998 57,617,188 59,617,188 61,617,188 63,617,188 65,617,188 67,617, % Diluted 52,556,998 57,617,188 59,617,188 61,617,188 63,617,188 65,617,188 67,617, % FY2014 FY2015E FY2016E FY2017E FY2018E FY2019E FY2020E Returns ROA 0.3% 1.0% 1.8% 2.8% 3.6% ROE 1.2% 4.9% 9.4% 13.2% 16.3% Gross Loans UPB 758,824 1,079,173 1,403,349 1,723,450 1,894,166 2,153, % + Deferred origination Costs 21,619 32,429 45,400 59,020 70,824 81, % as a % of originations 3.5% 3.5% 3.5% 3.5% 3.5% = Gross loans 765,484 1,111,602 1,448,750 1,782,471 1,964,990 2,234, % 45.2% 30.3% 23.0% 10.2% 13.7% Average Balance Sheet Average Gross Loans $358,725 $607,202 $938,543 $1,280,176 $1,615,610 $1,873,730 $2,099, % Y/Y Growth 147% 69% 55% 36% 26% 16% 12% Average Unpaid Balance 456, ,998 1,241,261 1,563,400 1,808,808 2,023,646 Y/Y Growth 29% 35% 26% 16% 12% Average Funding Debt Outstanding $277,115 $465,586 $694,940 $916,912 $1,124,047 $1,265,312 $1,374, % Y/Y Growth % 32% 23% 13% 9% Q/Q Growth - - Ending Balances Loan Originations $1,157,750 $1,965,374 $2,948,061 $4,127,286 $5,365,472 $6,438,566 $7,404, % Y/Y Growth 152% 70% 50% 40% 30% 20% 15% -26.5% Q/Q Growth - - Loan Originations Kept $1,015,375 $1,539,195 2,240,527 3,054,192 3,863,140 4,506,996 5,034, % 88% 78% 76% 74% 72% 70% 68% -2.8% Loan Originations Held 142, , ,535 1,073,094 1,502,332 1,931,570 2,369, % 12.3% 21.7% 24% % Funding Debt Outstanding $387,996 $580,500 $809,380 $1,024,445 $1,223,650 $1,306,974 $1,442, % Ending UPB $382,874 $634,476 1,079,173 1,403,349 1,723,450 1,894,166 2,153, % Funding Debt / UPB 101% - 75% 73% 71% 69% 67% Unpaid Principal Balance Calc Unpaid Principal Balance - Beg - $665, ,824 1,079,173 1,403,349 1,723,450 1,894, % + Loan Originations Kept - $466,232 2,240,527 3,054,192 3,863,140 4,506,996 5,034, % - Net Charge Offs - $68,000 99, , , , , % - Principal Paid Down $352,497 1,821,178 2,590,015 3,368,038 4,136,281 4,545, % = Ending UPB $382,874 $758,824 1,079,173 1,403,349 1,723,450 1,894,166 2,153, % Y/Y Growth 42% 30% 23% 10% 14% Adjusted EBITDA ($157) ($2,249) $17,670 $32,601 $53,210 $77,711 $107, % Y/Y Growth 84% 63% 46% 38% Adjusted EBITDA Margin -0.1% -0.9% 5.0% 6.8% 8.8% 11.2% 13.9% % Yield Analysis on Average Balances Annualized Interest Exp/Avg Loans $0 36.2% 33.70% 32.95% 32.20% 31.45% 30.70% -3.2% Annualized Cost of Funds / Avg Funding Debt % 5.45% 5.75% 6.05% 6.35% Asset Quality Measures Provision Rate (PLL / loan origination) % 5.20% 5.10% 5.00% 4.90% PLL / Revenues % 36.78% 36.60% 36.44% 35.97% Reserve Ratio (ALL / ending UPB) 10.2% 10.2% 8.99% 8.25% 8.00% 8.61% 8.35% -3.9% NCO / Average UPB 9.1% 11.2% 10.8% 11.3% 11.2% 11.1% 11.4% 0.2% Loan Reserves - ALL Beginning ,225 96, , , ,160 + PLL , , , , ,713 - NCO , , , , ,000 = Ending ALL - $77,225 96, , , , , % 5 Fintrust Brokerage Services Verdae Blvd, Ste. #504

6 OnDeck Capital, Inc. Commom Sized Balance Sheet ($ in thousands) 2014A % of Total 1Q Q Q Q E % of Total 2016E % of Total 2017E % of Total 2018E % of Total 2019E % of Total 2020E % of Total ASSETS Cash and cash equivalents $220, % $225,197 $214,799 $202,195 $187,626 $187, % $152, % $105, % $61, % $44, % $23, % Restricted Cash $29, % 29,448 29,448 29,448 29,448 $29, % 29, % 29, % 29, % 29, % 29, % Gross Loans $504, % 531, , , ,484 $765, % 1,111, % 1,448, % 1,782, % 1,964, % 2,234, % ALL (49,804) -6.8% (56,596) (63,347) (70,183) (77,225) (77,225) -8.2% (96,973) -7.9% (115,791) -7.7% (137,811) -7.7% (163,160) -8.4% (179,873) -8.3% Loans, Net $454, % 474, , , ,260 $688, % 1,014, % 1,332, % 1,644, % 1,801, % 2,054, % Loans Held for Sale $1, % 1,828 2,193 2,632 3,158 $3, % 4, % 5, % 7, % 8, % 9, % Deferred Debt Issuance Costs $5, % 5,374 5,374 5,374 5,374 $5, % 5, % 5, % 5, % 5, % 5, % PP&E $13, % 14,929 15,929 16,929 17,929 $17, % 22, % 27, % 32, % 37, % 42, % Other Assets 4, % 4,622 4,622 4,622 4,622 4, % 4, % 4, % 4, % 4, % 4, % Total assets 729, % 755, , , , , % 1,234, % 1,512, % 1,785, % 1,932, % 2,169, % 0 (0) (0) (0) (0) (0) (0) (0) LIABILITIES & SHAREHOLDERS' EQUITY A/P 4, % 4,578 4,807 5,047 5,300 5, % 6, % 8, % 10, % 12, % 16, % Interest Payable % % 1, % 1, % 1, % 2, % 3, % Funding Debt 387, % 416, , , , , % 887, % 1,139, % 1,366, % 1,443, % 1,583, % Corporate Debt 12, % 12,600 13,230 13,892 14,586 14, % 17, % 21, % 25, % 30, % 36, % Accrued Expenses and Other Liabilities 13, % 14,616 15,347 16,114 16,920 16, % 21, % 26, % 33, % 41, % 51, % Total Liabilities 419, % 448, , , , , % 934, % 1,196, % 1,437, % 1,530, % 1,690, % Shareholders' equity: Common Stock % % % % % % % Add'l Paid in Capital 442, % 442, , , , , % 442, % 442, % 442, % 442, % 442, % Treasury Stock (5,656) -0.8% (5,656) (5,656) (5,656) (5,656) (5,656) -0.6% (5,656) -0.5% (5,656) -0.4% (5,656) -0.3% (5,656) -0.3% (5,656) -0.3% Retained Earnings (Accumulated deficit) (127,068) -17.4% (130,665) (134,689) (138,359) (141,165) (141,165) -15.1% (137,712) -11.2% (122,173) -8.1% (89,437) -5.0% (36,294) -1.9% 41, % Total shareholders' equity 310, % 307, , , , , % 299, % 315, % 348, % 401, % 479, % Total liabilities and shareholders' equity $729, % $755,943 $801,084 $861,847 $936,417 $936, % $1,234, % $1,512, % $1,785, % $1,932, % $2,169, % Other 2014E 1Q Q Q Q E 2016E 2017E 2018E 2019E 2020E Book Value per Share $5.41 $5.33 $5.26 $5.19 $5.15 $5.03 $5.12 $5.47 $6.12 $7.09 Net Loans / Assets 62.3% 62.8% 66.0% 69.7% 73.5% 82.2% 88.1% 92.1% 93.3% 94.7% Equity / Assets 42.57% 40.61% 37.82% 34.73% 31.66% 24.31% 20.86% 19.50% 20.77% 22.09% Year-on-Year Growth 2015A 2016E 2017E 2018E 2019E 2020E Gross Loans 51.8% 45.2% 30.3% 23.0% 10.2% 13.7% Funding Debt 55.2% 47.4% 28.4% 20.0% 5.6% 9.7% Shareholders Equity -4.5% 1.2% 5.2% 10.4% 15.3% 19.4% Total Assets 28.3% 31.8% 22.5% 18.1% 8.2% 12.3% 6 Fintrust Brokerage Services Verdae Blvd, Ste. #504

7 Important Disclosures: Analyst Certification: We hereby certify that the views expressed in this research report accurately reflect our personal views about the subject company and its securities. We also certify that we have not, will not, nor are presently receiving direct and/or indirect compensation in exchange for any specific recommendation in this report. In addition, said analysts have not received compensation from any subject company in the last 12 months. Ownership and Material Conflicts of Interest: An analyst or a member of his household may not purchase the securities of a subject company 30 days before or 5 days after the issuance of the research analyst s report or a change in ratings or price targets, trade inconsistent with the views expressed by the research analyst, and all transactions in the subject company (ies) securities for the research analyst s personal trading account must be approved. The research analyst nor a member of his household own any of the securities of the subject company including any options, rights, warrants, futures or long or short positions. Neither the research analyst nor a member of his household own 1% or more of any of the securities of the subject company based upon the same standards used to compute beneficial ownership for the purpose of reporting requirements under 13(d) of the Securities Act of 1934, as amended. The research analyst or household member is not an officer, director, or advisory board member of the subject company. The research analyst has not made a public appearance in front of more than 15 person to discuss the subject company and does not know or have reason to know at the time of this publication of any other material conflict of interest. The firm has no knowledge of any material conflict of interest involving the company mentioned in this report. Receipt of Compensation: The firm does not engage in investment banking activities. The subject company (ies) has not been a client in the past 12 months preceding the date of distribution of this research report and is not currently a client. The firm has not received non-investment banking compensation for products or services or other nonsecurities services from the subject company or any affiliated company. The research analysts at the firm do not receive any compensation based on investment banking revenues and may be paid a bonus based upon the overall profitability of the firm. Investment Banking Relationships: The firm has not managed or co-managed a public offering or received investment banking compensation in the past 12 months regarding the subject company (ies). The firm does not expect to receive or intend to seek investment banking compensation in the next 3 months from the subject company (ies). 7 Fintrust Brokerage Services Verdae Blvd, Ste. #504

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