OnDeck online lender tops profit estimates, shares soar

(Reuters) - Shares of OnDeck Capital Inc ONDK.N soared on Tuesday after the online lender reported second-quarter profit that topped estimates and it raised its full-year guidance.

OnDeck shares were up 20 percent at $8.16 in early morning trading on the New York Stock Exchange.

The company said it expects a full-year 2018 profit of between $10 million and $16 million, from its previous forecast of up to $10 million.

OnDeck said its higher profit came from a greater number of loans and higher interest rates.

On an adjusted basis, the company earned 13 cents per share in the second quarter, blowing past the average analysts’ estimate of 5 cents, according to Thomson Reuters I/B/E/S.

“Our financial results were strong and reflect continued progress on our operating and strategic initiatives,” OnDeck Chief Financial Officer Kenneth Brause said on a call with analysts.

“We had a record quarter driven by portfolio growth, margin expansion and improved credit cost,” he said.

New York-based OnDeck lends money to small businesses through its website and then sells the loans to financial institutions such as banks.

Like other online lenders it has faced concerns in the past about its ability to grow while keeping default rates in check.

In a bid to assuage these concerns, OnDeck a year ago started tightening credit requirements, investing in its risk management and slashing costs.

“Our second-quarter results reflect continued execution of our 2018 strategic priorities,” Chief Executive Noah Breslow said on the analyst call. “As a reminder, these priorities are to grow responsibly, strengthen credit management, invest in our high-growth areas, enhance our product offerings and drive operating leverage.”

Interest income rose 10 percent to $92.4 million in the quarter ended June 30, due to higher interest rates. The U.S. Federal Reserve has raised rates seven times since December 2015.

Loan originations rose 26 percent to $586.7 million.

OnDeck said the number of loans closed in the quarter grew, while size of loans dipped, largely due to an increase in new customers.

Other than lending, OnDeck makes money by providing its technology to banks such as JPMorgan Chase & Co JPM.N, looking to lend to small businesses.

Breslow said the company was on track to announce a new bank partnership later this year and had a growing pipeline of potential partners.

OnDeck also plans to launch a new lending product this year, Breslow added. He did not give details.

Operating expense rose 1.7 percent to $45.3 million during the quarter, and included a $1.4 million charge, the company said.

New York-based OnDeck posted net income attributable to common shareholders of $5.8 million, or 7 cents per share, compared with a loss of $1.5 million, or 2 cents per share, a year earlier.

Net revenue rose 18.5 percent to $50.1 million.

Reporting by Anna Irrera in New York and Nikhil Subba in Bengaluru; Editing by Shailesh Kuber and Jonathan Oatis