You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes, and other financial information included elsewhere in this report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Cautionary Note Regarding Forward-Looking Statements" below for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. 24
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, objectives, plans and current expectations. Forward-looking statements appear throughout this report including in Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to statements under the subheading "2020 Outlook" and Part II - Item 1A. Risk Factors. Forward-looking statements can generally be identified by words such as "will," "enables," "expects," "intends," "may," "allows," "plan," "continues," "believes," "anticipates," "estimates" or similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. They are based only on our current beliefs, expectations and assumptions regarding the future of our business, anticipated events and trends, the economy and other future conditions. As such, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and in many cases outside our control. Therefore, you should not rely on any of these forward-looking statements. Our expected results may not be achieved, and actual results may differ materially from our expectations. The impact of the novel strain of coronavirus SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 could cause or contribute to such differences. The COVID-19 health crisis is fast moving and complex, creating material risks and uncertainties that cannot be predicted with accuracy. Other important factors that could cause or contribute to such differences, include the following, many of which may be exacerbated due to the impact of COVID-19: (1) our ability to achieve consistent profitability in the future in light of our prior loss history and competition; (2) our growth strategies, including the introduction of new products or features, expanding our platform to other lenders through ODX, maintaining ODX's current clients or losing a significant ODX client, expansion into international markets, offering equipment financing and our ability to effectively manage and fund our growth; (3) possible future acquisitions of complementary assets, businesses, technologies or products with the goal of growing our business, and the integration of any such acquisitions; (4) any material reduction in our interest rate spread and our ability to successfully mitigate this risk through interest rate hedging or raising interest rates or other means; (5) worsening economic conditions that may result in decreased demand for our loans or services and increase our customers' delinquency and default rates; (6) supply and demand driven changes in credit and increases in the availability of capital for our competitors that negatively impacts our loan pricing; (7) our ability to accurately assess creditworthiness and forecast and provision for credit losses; (8) our ability to prevent or discover security breaches, disruptions in service and comparable events that could compromise confidential information held in our data systems or adversely impact our ability to service our loans; (9) incorrect or fraudulent information provided to us by customers causing us to misjudge their qualifications to receive a loan or other financing; (10) the effectiveness of our efforts to identify, manage and mitigate our credit, market, liquidity, operational and other risks associated with our business and strategic objectives; (11) our ability to continue to innovate or respond to evolving technological changes and protect our intellectual property; (12) our reputation and possible adverse publicity about us or our industry; (13) failure of operating controls, including customer or partner experience degradation, and related legal expenses, increased regulatory cost, significant fraud losses and vendor risk; (14) changes in federal or state laws or regulations, or judicial decisions involving licensing or supervision of commercial lenders, interest rate limitations, the enforceability of choice of law provisions in loan agreements, the validity of bank sponsor partnerships, the use of brokers or other significant changes; (15) risks associated with pursuing a bank charter, either de novo or in a transaction, and risks associated with either failing to obtain or obtaining a bank charter; and other risks, including those described in Part I - Item IA. Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , Part II - Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 , Part II - Item 1A. Risk Factors in this report, and other documents that we file with theSecurities and Exchange Commission , orSEC , from time to time which are or will be available on theSEC website at www.sec.gov. Except as required by law, we undertake no duty to update any forward-looking statements. Readers are also urged to carefully review and consider all of the information in this report, as well as the other documents we make available through theSEC's website.
;
In this report, when we use the terms "OnDeck," the "Company," "we," "us" or
"our," we are referring to
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Overview
We are a leading online small business lender. We make it efficient and convenient for small businesses to access financing. Enabled by our proprietary technology and analytics, we aggregate and analyze thousands of data points from dynamic, disparate data sources to assess the creditworthiness of small businesses rapidly and accurately. Small businesses can apply for financing on our website in minutes and, using our loan decision process, including our proprietary OnDeck Score®, we can make a funding decision immediately and, if approved, fund as fast as 24 hours. We have originated more than$13 billion of loans since we made our first loan in 2007. We have offered term loans since we made our first loan in 2007 and lines of credit since 2013. In 2019 we began offering equipment finance loans and, inCanada , merchant cash advances throughEvolocity Financial Group with whom we combined operations onApril 1, 2019 . Our term loans range from$5,000 to$500,000 , have maturities of 3 to 36 months and feature fixed dollar repayments. Our lines of credit range from$6,000 to$100,000 , and are generally repayable within 6 or 12 months of the date of the most recent draw. As ofApril 2020 , we decided to pause origination of equipment finance loans as part of our focus on preserving liquidity and capital resources. Qualified customers may have multiple financings with us concurrently, which we believe provides opportunities for repeat business, as well as increased value to our customers. We originate loans throughoutthe United States ,Canada andAustralia , although, to date, the majority of our revenue has been generated inthe United States . These loans are originated through our direct marketing channel, including direct mail, our outbound sales team, our social media and other online marketing channels; referrals from our strategic partner channel, including small business-focused service providers, payment processors, and other financial institutions; and through independent funding advisor program partners, or FAPs, who advise small businesses on available funding options. We generate the majority of our revenue through interest income and fees earned on the loans we make to our customers. We earn interest on the balance outstanding and lines of credit are subject to a monthly fee unless the customer makes a qualifying minimum draw, in which case the fee is waived for the first six months. The balance of our other revenue primarily comes from our servicing and other fee income, most of which consists of fees generated by ODX, monthly fees earned from lines of credit, and marketing fees from our issuing bank partner. We rely on a diversified set of funding sources for the loans we make to our customers. Our primary source of this financing has historically been debt facilities with various financial institutions and securitizations. We have also used proceeds from operating cash flow to fund loans in the past and continue to finance a portion of our outstanding loans with these funds. As ofJune 30, 2020 , we had$686.1 million of debt principal outstanding. Recent Developments We have changed our near-term priorities due to the COVID-19 crisis. We have begun to originate loans inJune 2020 , after a pause during the second quarter of 2020. We plan to prudently increase originations, focusing on industries and geographies that will remain resilient given the current and expected environment. We continue to manage our operating expenses. InJuly 2020 we implemented a workforce reduction as part of a cost rationalization program, in which approximately 20% of our US based headcount was eliminated. We are focusing on maintaining ample liquidity and protecting our financial resources. We have a strong and diverse group of lenders and are proactively working with them to modify our debt facilities. Our requested modifications are intended to enable us to remain in compliance with borrowing base, portfolio performance and other criteria for at least some period despite increased delinquency and other adverse dynamics resulting from COVID-impacted loans. While these events reduce our immediate borrowing capacity, we do not envision requiring incremental immediate liquidity given the significant reductions in our near-term originations. This dynamic operating environment is having a very direct negative impact on the small business lending landscape in which we operate. While it presents many immediate challenges, we believe it also provides long-term opportunities. OnJuly 28, 2020 we announced that we have entered into a definitive agreement with Enova, under which Enova will acquire all our shares outstanding in a cash and stock transaction valued at approximately$90 million . We expect to close the transaction later this year. 26
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Key Financial and Operating Metrics We regularly monitor a number of metrics in order to measure our current performance and project our future performance. These metrics aid us in developing and refining our growth strategies and making strategic decisions.
As of or for the Three Months Ended
As of or for the Six Months Ended,
June 30, June 30, 2020 2019 2020 2019 (dollars in thousands) (dollars in thousands) Gross Revenue$ 80,525 $ 110,246 $ 191,080 $ 220,221 Originations 65,573 591,848 657,437 1,227,354 Portfolio Yield (a) 28.4 % 35.0 % 31.4 % 35.3 % Cost of Funds Rate 4.6 % 5.5 % 4.8 % 5.4 % Net Interest Margin (a) 21.5 % 29.0 % 25.0 % 29.3 % Reserve Ratio 19.6 % 12.3 % 19.6 % 12.3 % 15+ Day Delinquency Ratio 39.5 % 8.5 % 39.5 % 8.5 % Net Charge-off Rate 20.9 % 15.1 % 18.4 % 13.6 % Efficiency Ratio (a) 49.3 % 47.1 % 47.5 % 45.5 % Adjusted Efficiency Ratio* 43.0 % 44.2 % 44.1 % 42.6 % Return on Assets (a) 0.7 % 1.4 % (9.2 )% 1.6 % Adjusted Return On Assets* 4.6 % 2.2 % (7.1 )% 2.5 % Return on Equity (a) 4.1 % 5.5 % (46.4 )% 6.5 % Adjusted Return On Equity* 25.5 % 8.8 % (35.9 )% 9.8 % *Non-GAAP measure. Refer to "Non-GAAP Financial Measures" below for an explanation and reconciliation to GAAP. Gross Revenue Gross Revenue represents the sum of interest and finance income, gain on sales of loans and other revenue. Originations Originations represent the total principal amount of Loans made during the period plus the total amount advanced on other finance receivables. Many of our repeat term loan customers renew their term loans before their existing term loan is fully repaid. In accordance with industry practice, originations of such repeat term loans are presented as the full renewal loan principal, rather than the net funded amount, which would be the renewal term loan's principal net of the Unpaid Principal Balance on the existing term loan. Loans referred to, and funded by, our issuing bank partner and later purchased by us are included as part of our originations. Unpaid Principal Balance Unpaid Principal Balance represents the total amount of principal outstanding on Loans, plus outstanding advances relating to other finance receivables and the amortized cost of loans purchased from other than our issuing bank partner at the end of the period. It excludes net deferred origination costs, allowance for credit losses and any loans sold or held for sale at the end of the period. Portfolio Yield Portfolio Yield is the rate of return we achieve on Loans and finance receivables outstanding during a period. It is calculated as annualized Interest and finance income on Loans and finance receivables including amortization of net deferred origination costs divided by average loans and finance receivables. Annualization is based on 365 days per year and is calendar day-adjusted. Loans and finance receivables represents the sum of term loans, lines of credit, equipment finance loans and finance receivables. Net deferred origination costs in Loans and finance receivables held for investment and loans held for sale consist of deferred origination fees and costs. Deferred origination fees include fees paid up front to us by customers when Loans and finance receivables are originated and decrease the carrying value of Loans and finance receivables, thereby increasing Portfolio Yield. Deferred origination costs are limited to costs directly attributable to originating loans and finance receivables such as commissions, vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to originations and increase the carrying value of loans and finance receivables, thereby decreasing Portfolio Yield. 27
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Recent pricing trends are discussed under the subheading "Key Factors Affecting Our Performance - Pricing." Cost of Funds Rate Cost of Funds Rate is calculated as interest expense divided by average debt outstanding for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. Net Interest Margin Net Interest Margin is calculated as annualized net interest and finance income divided by average Interest Earning Assets. Net interest and finance income represents Interest and finance receivable income less Interest expense during the period. Annualization is based on 365 days per year and is calendar day-adjusted. Interest and finance receivable income is net of fees on loans held for investment and loans held for sale. Interest expense is the interest expense, fees, and amortization of deferred debt issuance costs we incur in connection with our debt facilities. Interest Earning Assets represents the sum of Loans and finance receivables plus Cash and cash equivalents plus Restricted cash. Reserve Ratio Reserve Ratio is our allowance for credit losses at the end of the period divided by the Unpaid Principal Balance at the end of the period. 15+ Day Delinquency Ratio 15+ Day Delinquency Ratio equals the aggregate Unpaid Principal Balance for our Loans that are 15 or more calendar days contractually past due and for our finance receivables that are 15 or more payments behind schedule, as a percentage of the Unpaid Principal Balance at the end of the period. The Unpaid Principal Balance for our loans and finance receivables that are 15 or more calendar days or payments past due includes Loans and finance receivables that are paying and non-paying. Because term and line of credit loans require daily and weekly repayments, excluding weekends and holidays, they may be deemed delinquent more quickly than loans from traditional lenders that require only monthly payments. 15+ Day Delinquency Ratio is not annualized, but reflects balances at the end of the period. Net Charge-off Rate Net Charge-off Rate is calculated as our annualized net charge-offs for the period divided by the average Unpaid Principal Balance outstanding during the period. Net charge-offs are charged-off loans and finance receivables in the period, net of recoveries of prior charged-off loans and finance receivables in the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. Efficiency Ratio Efficiency Ratio is a measure of operating efficiency and is calculated as Total operating expense for the period divided by Gross Revenue for the period. Adjusted Efficiency Ratio Adjusted Efficiency Ratio is non-GAAP measure calculated as total operating expense divided by Gross Revenue for the period, adjusted to exclude (a) stock-based compensation expense and (b) items management deems to be non-representative of operating results or trends, all as shown in the non-GAAP reconciliation presentation of this metric. We believe Adjusted Efficiency Ratio is useful because it provides investors and others with a supplemental operating efficiency metric to present our operating efficiency across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically. Our use of Adjusted Efficiency Ratio has limitations as an analytical tool and you should not consider it in isolation, as a substitute for or superior to our Efficiency Ratio, which is the most comparable GAAP metric. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation. Return on Assets Return on Assets is calculated as annualized net income (loss) attributable toOn Deck Capital, Inc. common stockholders for the period divided by average total assets for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. Adjusted Return on Assets Adjusted Return on Assets is a non-GAAP measure calculated as Adjusted Net Income (Loss) for the period divided by average total assets for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. We believe Adjusted Return on Assets is useful because it provides investors and 28
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others with a supplemental metric to assess our performance across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically, all as shown in the non-GAAP reconciliation presentation of this metric. Our use of Adjusted Return on Assets has limitations as an analytical tool and you should not consider it in isolation, as a substitute for or superior to Return on Assets, which is the most comparable GAAP metric. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation. Return on Equity Return on Equity is calculated as annualized net income (loss) attributable toOn Deck Capital, Inc. common stockholders for the period divided by average totalOn Deck Capital, Inc. stockholders' equity for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. Adjusted Return on Equity Adjusted Return on Equity is a non-GAAP measure calculated as Adjusted Net Income (Loss) attributable toOn Deck Capital, Inc. common stockholders for the period divided by average totalOn Deck Capital, Inc. stockholders' equity for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. We believe Adjusted Return on Equity is useful because it provides investors with a supplemental metric to assess our performance across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically, all as shown in the non-GAAP reconciliation presentation of this metric. Our use of Adjusted Return on Equity has limitations as an analytical tool and you should not consider it in isolation, as a substitute or superior to Return on Equity, which is the most comparable GAAP metric. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation of Adjusted Net Income (Loss) to net income (loss). 29
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Table of Contents On Deck Capital, Inc. and Subsidiaries Consolidated Average Balance Sheets (in thousands) Three Months Ended June 30, Six Months Ended, June 30, 2020 2019 2020 2019 Assets Cash and cash equivalents$ 101,836 $ 51,530 $ 77,597 $ 48,356 Restricted cash 65,305 45,677 54,993 47,258 Loans and finance receivables 1,104,690 1,206,503 1,180,482 1,205,250 Less: Allowance for credit losses (190,512 ) (146,612 ) (173,672 ) (146,002 ) Loans and finance receivables, net 914,178 1,059,891 1,006,810 1,059,248 Property, equipment and software, net 24,082 17,413 23,036 17,064 Other assets 75,287 58,022 74,038 48,404 Total assets$ 1,180,688 $ 1,232,533 $ 1,236,474 $ 1,220,330 Liabilities, mezzanine equity and stockholders' equity Liabilities: Accounts payable$ 6,683 $ 5,120 $ 6,827 $ 5,121 Interest payable 2,667 2,812 2,579 2,718 Debt 891,816 834,582 910,179 835,926 Accrued expenses and other liabilities 53,300 63,690 57,932 59,792 Total liabilities 954,466 906,204 977,517 903,557 Mezzanine equity: Redeemable noncontrolling interest 11,105 11,634 12,448 6,647 Stockholders' equity:Total On Deck Capital, Inc. stockholders' equity 213,852 310,858 244,908 305,990 Noncontrolling interest 1,265 3,837 1,602 4,136 Total stockholders' equity 215,117 314,695 246,510 310,126 Total liabilities, mezzanine equity$ 1,180,688 $ 1,232,533 $ 1,236,475 $ 1,220,330 and stockholders' equity
Memo:
Unpaid Principal Balance$ 1,081,946 $ 1,183,056 $ 1,155,733 $ 1,180,831 Interest Earning Assets$ 1,271,831 $ 1,303,709
Average Balance Sheet line items for the period represent the average of the balance at the beginning of the first month of the period and the end of each month in the period. Non-GAAP Financial Measures We believe that the non-GAAP metrics can provide useful supplemental measures for period-to-period comparisons of our core business and useful supplemental information to investors and others in understanding and evaluating our operating results. However, non-GAAP metrics are not calculated in accordance with GAAP and should not be considered an alternative to any measures of financial performance calculated and presented in accordance with GAAP. Other companies may calculate these non-GAAP metrics differently than we do. The reconciliations below reconcile each of our non-GAAP metrics to their most comparable respective GAAP metric. 30
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Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share Adjusted Net Income (Loss) represents net income (loss) attributable to OnDeck adjusted to exclude the items shown in the table below. Stock-based compensation includes employee compensation as well as compensation to third-party service providers. Adjusted Net Income (Loss) per Share is calculated by dividing Adjusted Net Income (Loss) by the weighted average common shares outstanding during the period. Our use of Adjusted Net Income (Loss) has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: • Adjusted Net Income (Loss) does not reflect the potentially dilutive
impact of stock-based compensation; and
• Adjusted Net Income (Loss) excludes charges we are required to incur in
connection with real estate dispositions, severance obligations, debt
extinguishment costs and sales tax refunds.
The following tables present reconciliations of net income (loss) to Adjusted Net Income (Loss) and net income (loss) per share to Adjusted Net Income (Loss) per Share for each of the periods indicated: Three Months Ended June 30, Six Months Ended, June 30, 2020 2019 2020 2019 (in thousands, except shares and (in thousands, except shares and per per share data) share data) Reconciliation of Net Income (Loss) Attributable to OnDeck to Adjusted Net Income (Loss) Net income (loss) attributable to On Deck Capital, Inc. common stockholders$ 2,170 $ 4,295 $ (56,805 ) $ 9,961 Adjustments (after tax): Stock-based compensation expense 2,247 2,581 3,663 5,017 Restructuring Costs 2,802 - 2,802 - Goodwill Impairment(a) 6,412 - 6,412 - Adjusted Net Income (Loss)$ 13,631 $ 6,876
Adjusted Net Income (Loss) per share: Basic$ 0.23 $ 0.09 $ (0.72 ) $ 0.20 Diluted$ 0.23 $ 0.09 $ (0.72 ) $ 0.19 Weighted-average common shares outstanding: Basic 58,741,590 76,137,751 60,625,795 75,840,604 Diluted 59,946,591 78,901,601 60,625,795 79,013,757
(a) Net of
Below are reconciliations of the Adjusted Net Income (Loss) per Basic and Diluted Share to the most directly comparable measures calculated in accordance with GAAP.
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Table of Contents Three Months Ended June 30, Six Months Ended, June 30, 2020 2019 2020 2019 (per share) (per share) Reconciliation of Net Income (Loss) per Basic Share to Adjusted Net Income (Loss) per Basic Share Net income (loss) per basic share attributable toOn Deck Capital, Inc. common stockholders $ 0.04$ 0.06 $ (0.94 ) $ 0.13 Add / (Subtract): Stock-based compensation expense 0.04 0.03 0.06 0.07 Restructuring Costs 0.04 - 0.05 - Goodwill Impairment $ 0.11 $ -$ 0.11 $ - Adjusted Net Income (Loss) per Basic Share $ 0.23$ 0.09 $ (0.72 ) $ 0.20 Three Months Ended June 30, Six Months Ended, June 30, 2020 2019 2020 2019 (per share) (per share) Reconciliation of Net Income (Loss) per Diluted Share to Adjusted Net Income (Loss) per Diluted Share Net income (loss) per diluted share attributable toOn Deck Capital, Inc. common stockholders $ 0.04$ 0.05 $ (0.94 ) $ 0.13 Add / (Subtract): Stock-based compensation expense 0.04 0.04 0.06 0.06 Restructuring Costs 0.04 - 0.05 - Goodwill Impairment $ 0.11 $ -$ 0.11 $ - Adjusted Net Income (Loss) per Diluted Share $ 0.23$ 0.09 $ (0.72 ) $ 0.19
Adjusted Efficiency Ratio Adjusted Efficiency Ratio is non-GAAP measure calculated as total operating expense divided by gross revenue for the period, adjusted to exclude (a) stock-based compensation expense and (b) items management deems to be non-representative of operating results or trends.
Three Months Ended June 30, Six Months Ended, June 30, 2020 2019 2020 2019 (in thousands) (in thousands) Reconciliation of Efficiency Ratio to Adjusted Efficiency Ratio Total operating expense$ 39,677 $ 51,950 $ 90,794 $ 100,234 Gross revenue$ 80,525 $ 110,246 $ 191,080 $ 220,221 Efficiency Ratio 49.3 % 47.1 % 47.5 % 45.5 % Adjustments (pre-tax): Stock-based compensation expense$ 2,247 $ 3,249 $ 3,663 $ 6,331 Restructuring Costs 2,802 - 2,802 -
Operating expenses less adjustments
$ 84,329 $ 93,903 Gross revenue$ 80,525 $ 110,246 $ 191,080 $ 220,221 Adjusted Efficiency Ratio 43.0 % 44.2 % 44.1 % 42.6 % Adjusted Return on Assets 32
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Adjusted Return on Assets represents net income (loss) attributable to OnDeck adjusted to exclude the items shown in the table below divided by average total assets. Three Months Ended June 30, Six Months Ended, June 30, 2020 2019 2020 2019 (in thousands) (in thousands) Reconciliation of Return on Assets to Adjusted Return on Assets Net income (loss) attributable to On Deck Capital, Inc. common stockholders$ 2,170 $ 4,295 $ (56,805 ) $ 9,961 Average total assets$ 1,180,688 $ 1,232,533 $ 1,236,474 $ 1,220,330 Return on Assets 0.7 % 1.4 % (9.2 )% 1.6 % Adjustments (after tax): Stock-based compensation expense$ 2,247 $ 2,581 $ 3,663 $ 5,017 Restructuring Costs 2,802 - 2,802 - Goodwill Impairment(a) 6,412 - 6,412 - Adjusted Net Income (Loss)$ 13,631 $ 6,876 $ (43,928 ) $ 14,978 Average total assets$ 1,180,688 $ 1,232,533 $ 1,236,474 $ 1,220,330 Adjusted Return on Assets 4.6 % 2.2 % (7.1 )% 2.5 %
(a) Net of
Adjusted Return on Equity Adjusted Return on Equity represents net income (loss) attributable to OnDeck adjusted to exclude the items shown in the table below divided by average totalOn Deck Capital, Inc. stockholders' equity. Three Months Ended June 30, Six Months Ended, June 30, 2020 2019 2020 2019 (in thousands) (in thousands) Reconciliation of Return on Equity to Adjusted Return on Equity Net income (loss) attributable to On Deck Capital, Inc. common stockholders$ 2,170 $ 4,295 $ (56,805 ) $ 9,961 Average OnDeck stockholders' equity$ 213,852 $ 310,858 $ 244,908 $ 305,990 Return on Equity 4.1 % 5.5 % (46.4 )% 6.5 % Adjustments (after tax): Stock-based compensation expense$ 2,247 $ 2,581 $ 3,663 $ 5,017 Restructuring Costs 2,802 - 2,802 - Goodwill Impairment(a) 6,412 - 6,412 - Adjusted Net Income (Loss)$ 13,631 $ 6,876 $ (43,928 ) $ 14,978 Average totalOn Deck Capital, Inc. stockholders' equity$ 213,852 $ 310,858 $ 244,908 $ 305,990 Adjusted Return on Equity 25.5 % 8.8 % (35.9 )% 9.8 %
(a) Net of
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Key Factors Affecting Our Performance 2020 Strategic Priorities Our second half 2020 priorities are focused on near-term sustainability and positioning the company for a return to portfolio growth in 2021. Our near-term priorities are: • Focus on growingU.S. Term and Line of Credit originations;
• Prudent portfolio management;
• Automation and improving operating efficiencies; and
• Enhancing liquidity by proactively seeking to amend our debt facilities, and protecting our financial resources. While the current environment is having a significant negative impact on small business lending, we believe it may also create future opportunities including potential consolidation within our industry. Originations [[Image Removed: chart-e06210ee0a005a03bdb.jpg]] During the three months endedJune 30, 2020 and 2019, we originated$66 million and$592 million of loans, respectively. The decrease in originations in the three months endedJune 30, 2020 relative to the same period in 2019 was driven by our decision to pull back on originations in the second quarter of 2020 in response to the COVID-19 pandemic. For the three months endedJune 30, 2020 andJune 30, 2019 we funded$33 million and$135 million through lines of credit, respectively. The average term loan size originated for the three months endedJune 30, 2020 andJune 30, 2019 was$46 thousand and$53 thousand , respectively. We expect to prudently originate loans in the second half of the year due to the continued economic uncertainties surrounding the COVID-19 pandemic. We anticipate that the timing and rate of our future growth will depend on the length and depth of the COVID-19 pandemic and the related economic impacts on our existing and prospective small business customers. Our growth prospects will continue to depend on economic conditions, repeat loans with prior customers and on attracting new customers. As we continue to aggregate data on existing customers and prospective customers, we seek to use that data to optimize our marketing spending and business development efforts to retain existing customers as well as to identify and attract prospective customers. We plan to continue the reduction of our marketing spend for the remainder of the year as we concentrate on expense reductions. 34
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The following table summarizes the percentage of loans and finance receivables made to all customers originated by our three distribution channels for the periods indicated. We have historically relied on all three of our channels for customer acquisition. From time to time management may proactively adjust our originations channel mix based on market conditions. Our direct channel remains our largest channel as a percentage of origination dollars. Three Months EndedJune 30 ,
Six Months Ended,
Percentage of Originations (Dollars) 2020 2019 2020 2019 Direct 50 % 43 % 39 % 43 % Strategic Partner 31 % 31 % 34 % 30 % Funding Advisor 19 % 26 % 27 % 27 % We originate term loans and lines of credit to customers who are new to OnDeck as well as to existing customers. New originations are defined as new term loan originations plus all line of credit draws in the period, including subsequent draws on existing lines of credit. Renewal originations include term loans only. We believe our ability to increase adoption of our loans within our existing customer base will be important to our future growth. A component of our future growth will include increasing the length of our customer life cycle by expanding our loan offerings and features. In the three months endedJune 30, 2020 and 2019 originations from our repeat customers were 35.6% and 53.4% respectively, of total originations to all customers. In the second quarter of 2020 we pulled back on originations, however, we allowed a number of lines of credit customers to continue to draw during this time. Subsequent draws on existing lines are considered new originations, which drove the new percentage of originations for the three months endedJune 30, 2020 . We believe our historically significant number of repeat customers is primarily due to our high levels of customer service and continued improvement in our loan features and services. Repeat customers generally show improvements in several key metrics. In the three months endedJune 30, 2020 , 28.4% of our origination volume from repeat customers was due to unpaid principal balance rolled from existing loans directly into such repeat originations. In most cases, in order for a current customer to qualify for a renewal term loan while a term loan payment obligation remains outstanding, the customer must pass the following standards: • the business must be approximately 50% paid down on its existing loan; • the business must be current on its outstanding OnDeck loan with no material delinquency history; and
• the business must be fully re-underwritten and determined to be of adequate
credit quality.
The extent to which we generate repeat business from our customers will be an important factor in our continued revenue growth and our visibility into future revenue. In conjunction with repeat borrowing activity, historically, many of our customers also tended to increase their subsequent loan size compared to their initial loan size, although this may not hold true in the current COVID-19 impacted environment due to tighter underwriting. Additionally, due to our decline in originations in the second quarter of 2020 we expect that there will be significantly less loans eligible for renewals in future quarters. The following table summarizes the percentage of loans originated by new and repeat customers. Loans from cross-selling efforts are classified in the table as repeat loans. Three Months EndedJune 30 ,
Six Months Ended,
Percentage of Originations (Dollars) 2020 2019 2020 2019 New 64 % 47 % 52 % 48 % Repeat 36 % 53 % 48 % 52 % 35
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Loans
[[Image Removed: chart-031c4ff6b87b5821a0c.jpg]] Loans and finance receivables consist of term loans, lines of credit, variable pay product and secured equipment finance loans that require daily, weekly or monthly repayments. We have both the ability and intent to hold these loans to maturity. Loans and finance receivables held for investment are carried at amortized cost. The amortized cost of a loan and finance receivable is the unpaid principal balance plus net deferred origination costs. Net deferred origination costs are comprised of certain direct origination costs, net of all loan origination fees received. Loan and finance receivable origination fees include fees charged to the borrower related to origination that increase the loan yield. Loan origination costs are limited to direct costs attributable to originating a loan, including commissions and personnel costs directly related to the time spent by those individuals performing activities related to origination. Direct origination costs in excess of origination fees received are included in the loan and finance receivable balance and for term loans and finance receivables are amortized over the life of the term loan using the effective interest method, while for lines of credit principal amounts drawn are amortized using the straight line method over 12 months. Loans and finance receivables held for investment decreased to$901.1 million atJune 30, 2020 from$1.2 billion atJune 30, 2019 , reflecting strong portfolio collections, including accelerated prepayments, and a pullback in new business volume during the second quarter of 2020. We expect our loans and finance receivables balances to continue to decrease in the near-term as we prudently begin to grow our originations in the near term. Pricing Customer pricing is determined primarily based on credit risk assessment generated by our proprietary data and analytics engine. Our decision structure also considers the OnDeck Score, FICO® Score, loan type (term loan or line of credit), term loan duration, customer type (new or repeat) and origination channel. OnDeck assesses credit risk across several dimensions, including assessing the stability and credit worthiness of both the business and the personal guarantor and of the borrower's industry. Some of the most important factors assessed relate to the borrower's ability to pay, overall levels of indebtedness, cash flow and business outlook, and their personal and commercial credit history. These factors are assessed against certain minimum requirements in our underwriting standards, as well as through multivariate regressions and statistical models. In addition, general market conditions may broadly influence pricing industry-wide. Loans originated through the direct and strategic partner channels are generally priced lower than loans originated through the funding advisor channel due to the commission structure of the FAP program as well as the relative higher risk profile of the borrowers in the FAP channel. As of the three months endedJune 30, 2020 , our customers pay between 0.008 and0.102 cents per month in interest for every dollar they borrow under one of our term loans. Our term loans have been primarily quoted in Cents on Dollar, or COD, which reflects the monthly interest paid by a customer to us per dollar borrowed for a loan. Lines of credit have been quoted in APR. As of the three months endedJune 30, 2020 , the APRs of our term loans outstanding ranged from 16.9% to 99.4% and the APRs of our lines of credit outstanding ranged from 23.9% to 56.9%. 36
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We believe that our product pricing has historically fallen between traditional bank loans to small businesses and certain non-bank small business financing alternatives such as merchant cash advances. For the Year For the Quarter 2017 2018 2019 Q1 2019 Q2 2019 Q3 Q4 2019 2019 Q1 2020 Q2 2020 Weighted Average Term Loan "Cents on Dollar" Borrowed, 1.95¢ 2.14¢ 2.12¢ 2.19¢ 2.12¢ 2.08¢ 2.08¢ 2.08¢ 2.23¢ per Month Weighted Average APR - Term 45.2% 49.2% 48.3% 50.2% 48.4% 47.4% 47.2% 47.3% 49.6% Loans Weighted Average APR - Lines 32.3% 32.6% 34.5% 33.7% 34.4% 34.6% 35.2% 35.6% 35.3% of Credit The decrease in COD and APR in 2019 reflect market dynamics and our shift in strategy to offer longer term loans at lower yields to convert more customers with higher credit scores. The increase in the second quarter of 2020 reflects our decision to offer term loans at higher yields and shorter duration for a much smaller origination volume compared to previous quarters to reflect both customer demand and uncertainties of the current environment. Portfolio Yield is the rate of return we earn on loans and finance receivables outstanding during a period. Our Portfolio Yield differs from APR in that it takes into account deferred origination fees and deferred origination costs. Deferred origination fees include fees paid up front to us by customers when loans are originated and decrease the carrying value of loans, thereby increasing the Portfolio Yield. Deferred origination costs are limited to costs directly attributable to originating loans and finance receivables such as commissions, vendor costs and personnel costs directly related to the time spent performing activities related to originations and increase the carrying value of loans and finance receivables, thereby decreasing the Portfolio Yield. The increase of delinquent loans due to the current COVID-19 pandemic is a leading driver for the decrease in Portfolio Yield for the second quarter of 2020. Portfolio Yield For the Year For the Quarter 2017 2018 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 33.7% 36.2% 35.1% 35.6% 35.0% 35.1% 34.8% 33.3% 28.4%
In addition to individual loan pricing, and the number of days in a period, there are many other factors that can affect Portfolio Yield, including: • Channel Mix - In general, loans originated from the strategic partner
channel have lower Portfolio Yields than loans from the direct and funding
advisor channel. This is primarily due to the strategic partner channel's
higher commissions as compared to the direct channel, and lower pricing as
compared to the funding advisor channel. • Term Mix - In general, term loans with longer durations have lower annualized interest rates. Despite lower yields, total revenues from
customers with longer loan durations are typically higher than the revenue
of customers with shorter-term, higher Portfolio Yield loans because total
payback is typically higher compared to a shorter length term for the same
principal loan amount. For the three months endedJune 30, 2020 , the average length of new term loan originations was 11.5 months which decreased from 13.8 months for the three months endedMarch 31, 2020 and 12.3 months for the three months endedJune 30, 2019 . The decrease in average term length reflects the shift of our strategy from booking
longer-term loans with larger balances of higher credit quality to shorter
term loans in the current COVID-19 credit environment.
• Customer Type Mix - In general, loans originated from repeat customers
historically have had lower Portfolio Yields than loans from new
customers. This is primarily because repeat customers typically have a
higher OnDeck Score and are therefore deemed to be lower risk. In
addition, repeat customers are more likely to be approved for longer terms
than new customers given their established payment history and lower risk
profiles. Finally, origination fees can be reduced or waived for repeat
customers, contributing to lower Portfolio Yields. • Loan Mix - In general, lines of credit have lower Portfolio Yields than
term loans. For the three months ended
line of credit APR was 35.3%, compared to 49.6% for term loans. Draws by
line of credit customers increased to 50.2% of total originations for the
three months ended
2019. due to the pullback of new originations during the second quarter of
2020. 37
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Interest Expense We obtain financing principally through debt facilities and securitizations with a diverse group of banks, insurance companies and other institutional lenders and investors. Interest expense consists of the interest expense we incur on our debt, certain fees and the amortization of deferred debt issuance costs incurred in connection with obtaining this debt, such as banker fees, origination fees and legal fees and certain costs associated with our interest rate hedging activity. Cost of Funds Rate is calculated as interest expense divided by average debt outstanding for the period. Our Cost of Funds Rate decreased to 4.6% for the three months endedJune 30, 2020 as compared to 5.5% for the three months endedJune 30, 2019 . The decrease in our Cost of Funds Rate was mostly driven by the decrease in the reference interest rate for our floating rate debt. Credit Performance Credit performance refers to how credit losses on a portfolio of loans and finance receivables perform relative to expectations. Generally speaking, perfect credit performance is a loan that is repaid in full and in accordance with the terms of the agreement, meaning that all amounts due were repaid in full and on time. However, no portfolio is without risk and a certain amount of losses are expected. In this respect, credit performance must be assessed relative to pricing and expectations. Because a certain degree of losses are expected, pricing will be determined with the goal of allowing for estimated losses while still generating the desired rate of return after taking into account those estimated losses. When a portfolio has higher than estimated losses, the desired rate of return may not be achieved, and that portfolio would be considered to have underperformed. Conversely, if the portfolio incurred lower than estimated losses, resulting in a higher than expected rate of return, the portfolio would be considered to have overperformed. We originate and price our loans and finance receivables expecting that we will incur a degree of losses. When we originate our loans and finance receivables, we record a provision for estimated credit losses. As we gather more data as the portfolio performs, we may increase or decrease that reserve as deemed necessary to reflect our latest loss estimate. Some portions of our portfolio may be performing better than expected while other portions may perform below expectations. The net result of the underperforming and overperforming portfolio segments determines if we require an overall increase or decrease to our reserve related to the existing portfolio. A net decrease to the reserve related to the existing portfolio reduces provision expense, while a net increase to the loan reserve increases provision expense. Additionally, macroeconomic conditions that existed to date are included in our credit loss model. In accordance with our strategy to expand the range of our loan offerings, over time, in the past quarters we have expanded the offerings of our term loans by making available longer terms and larger amounts. When we begin to offer a new type of loan, we typically extrapolate our existing data to create an initial version of a credit model to permit us to underwrite and price the new type of loan. Thereafter, we begin to collect actual performance data on these new loans which allows us to refine our credit model based on actual data as opposed to extrapolated data. It often takes several quarters after we begin offering a new type of loan for that loan to be originated in sufficient volume to generate a critical mass of performance data. In addition, for loans with longer terms, it takes longer to acquire significant amounts of data because the loans take longer to season. The COVID-19 pandemic has created strains on our ability to collect contractual principal and interest amounts on their original payment schedule as small businesses are having cash flow uncertainties in these unprecedented economic conditions. During the second quarter of 2020 we have experienced a historical high balance of delinquencies in all past due buckets as our customers are experiencing strains on their businesses during the pandemic. Approximately 60% of the unpaid principal balance are making payments and we have put in place strategies to ensure we continue to collect on our existing loans. Each loan cohort is unique. A loan cohort refers to loans originated in the same specified time period. For a variety of reasons, one cohort may exhibit different performance characteristics over time compared to other cohorts at similar months of seasoning. We evaluate and track portfolio credit performance primarily through three key financial metrics: Reserve Ratio; 15+ Day Delinquency Ratio; and Net Charge-off Rate. We are no longer be presenting Provision Rate starting in the first quarter of 2020, which was a key financial metric as ofDecember 31, 2019 . 38
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Reserve Ratio
[[Image Removed: chart-8d1b79d2657e522b9b2.jpg]] The Reserve Ratio, which is the allowance for credit losses divided by the Unpaid Principal Balance as of a specific date, is a comprehensive measurement of our allowance for credit losses because it presents, as a percentage, the portion of the total Unpaid Principal Balance for which an allowance has been recorded. We adopted the Current Expected Credit Loss, CECL, accounting standard for measuring credit losses onJanuary 1, 2020 . The transition adjustment of$3 million atJanuary 1, 2020 was not material to the overall allowance for credit losses. Our Reserve Ratio increased from 12.3% atJune 30, 2019 , to 19.6% atJune 30, 2020 driven by the higher expected losses related to the COVID-19 pandemic. 15+ Day Delinquency Ratio [[Image Removed: chart-37032e4a70635872ab7.jpg]] 39
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The 15+ Day Delinquency Ratio is the aggregate Unpaid Principal Balance for our portfolio that is 15 or more calendar days past due as of the end of the period as a percentage of the Unpaid Principal Balance. The 15+ Day Delinquency ratio increased from 8.5% atJune 30, 2019 to 39.5% atJune 30, 2020 driven by the decline in portfolio collections sincemid-March 2020 as our customers have become directly or indirectly affected by the COVID-19 pandemic, including mandatory or recommended closure of so-called "non-essential businesses" and reduced customer demand. Delinquencies are expected to further increase as our customers continue to face economic hardships from the COVID-19 pandemic. We are actively working with our customers to help them manage through these unprecedented times by providing work out programs. During the second quarter of 2020, we saw a peak in delinquencies for the unpaid principal balance of ourU.S. portfolio hit 47%, which subsequently improved to 43% atJune 30, 2020 . The proportion ofU.S. delinquent loans making a payment in the last seven days increased from approximately 30% atMarch 31, 2020 to approximately 60% atJune 30, 2020 . TotalU.S. customers in a paying relationship increased form a historical low atMarch 31, 2020 of 75% to 85% atJune 30, 2020 . Our 15+ Day Delinquency ratio has historically been higher for our term loans than our lines of credit. For the three months endedJune 30, 2020 the 15+ Day Delinquency ratio for term loans and line of credit was 42.6% and 29.2%, respectively, which increased as compared to 9.2% and 5.6%, respectively, atJune 30, 2019 . Net Charge-off Rate [[Image Removed: chart-2448a8c3f7435793a1c.jpg]] Our Net Charge-off Rate, which is calculated as our annualized net charge-offs for the period divided by the average Unpaid Principal Balance outstanding, increased from 15.1% in three months endedJune 30, 2019 to 20.9% in three months endedJune 30, 2020 , reflecting higher gross charge-offs and reduced recoveries as delinquency on the earliest COVID-impacted loans in our portfolio seasoned and were charged off. Our term loans had a Net Charge-off Rate of 23.1% for the three months endedJune 30, 2020 compared to 14.1% for our lines of credit. We expect that our Net Charge-off Rate may increase in the future as we charge off more loans due to the COVID-19 related economic deterioration across many industries and geographies. Historical Charge-Offs We illustrate below our historical loan losses by providing information regarding our net lifetime charge-off ratios by cohort. Net lifetime charge-offs are the unpaid principal balance charged off less recoveries of loans previously charged off. A given cohort's net lifetime charge-off ratio is the cohort's net lifetime charge-offs throughJune 30, 2020 divided by the cohort's total original loan volume. Repeat loans in the denominator include the full renewal loan principal, rather than the net funded amount, which is the renewal loan's principal net of the unpaid principal balance on the existing loan. Loans are typically charged off after 90 days of nonpayment and 30 days of inactivity. The chart immediately below includes all term loan originations, including, if applicable, loans sold throughOnDeck Marketplace or held for sale on our balance sheet. 40
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Table of Contents Net Charge-off Ratios by Cohort Through June 30, 2020 [[Image Removed: chart-371f118c5be05059ace.jpg]] For the Year For the Quarter 2016 2017 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Principal Outstanding as of June 30, 2020 by Period of -% -% 0.2% 1.3% 6.5% 21.0% 42.6% 66.4% 83.0% Origination The following chart displays the historical lifetime cumulative net charge-off ratio by cohort for the origination periods shown. The chart reflects all term loan originations, including, if applicable, loans sold throughOnDeck Marketplace or held for sale on our balance sheet. The data is shown as a static pool for each cohort, illustrating how the cohort has performed given equivalent months of seasoning. Given that the originations in the first quarter and second quarter 2020 cohorts are relatively unseasoned as ofJune 30, 2020 , these cohorts reflect low lifetime charge-off ratios in the total loans chart below. Further, given our loans are typically charged off after 90 days of nonpayment and 30 days of inactivity, all cohorts reflect minimal charge offs for the first three months in the chart below. 41
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Net Cumulative Lifetime Charge-off Ratios All Loans [[Image Removed: chart-d30249c09f7653eca52.jpg]] For the Year For the Quarter Originations 2016 2017 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 All term loans$ 2,052 $ 1,697 $ 1,972 $ 486 $ 452 $ 492 $ 467 $ 432 $ 32 (in millions) Weighted average term 13.2 12.1 11.8 11.7 12.2 13.5 13.2 13.3 11.1 (months) at origination Loans we originated in 2016 demonstrated higher than historical net cumulative lifetime charge-off ratios, which were primarily related to lower credit quality loans of longer terms and larger sizes. In response and as part of our focus on achieving profitability, during the first and second quarters of 2017 we broadly tightened our credit policies to eliminate originations of loans with expected negative unit economics and to reduce those with expected marginal unit economics. By design, the broad credit tightening resulted in a significant decline in originations for the second quarter of 2017 and a significant decline in the net cumulative lifetime charge-off ratios for loans originated in that quarter. Subsequent cohorts have incorporated measured and targeted credit optimization designed to bring our net cumulative charge-off ratios in line with business model objectives. We are also seeing a higher than historical net cumulative lifetime charge-off ratios for those loans that we originated in the second and third quarter of 2019, which were mostly driven by the economic constraints created by the COVID-19 pandemic. 42
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Generally, historical net cumulative lifetime charge-off ratios are higher in new loans than in repeat loans as repeat customers generally demonstrate better credit qualities. Customer Acquisition Costs Our customer acquisition costs, or CACs, differ depending upon the acquisition channel. CACs in our direct channel include the commissions paid to our internal sales force and expenses associated with items such as direct mail, and online marketing activities. CACs in our strategic partner channel and FAP channel include commissions paid. CACs in all channels include new originations. For ourUnited States portfolio, the FAP channel had the highest CAC per unit and our strategic partner channel had the lowest CAC per unit for both the three months endedJune 30, 2020 andJune 30, 2019 . The total amount ofU.S. CACs decreased both in aggregate and for each of the three individual acquisition channels for the three months endedJune 30, 2020 as compared to the three months endedJune 30, 2019 . The decrease in absolute dollars spent was primarily attributable to a decrease in origination volume in the second quarter of 2020 due to our pullback of originations during COVID-19 pandemic. We expect our CACs to decrease in absolute dollars as we significantly decrease originations and direct marketing spend in the near-term future. Customer Lifetime Value The ongoing lifetime value of our customers will be an important component of our future performance. We analyze customer lifetime value not only by tracking the "contribution" of customers over their lifetime with us, but also by comparing this contribution to the acquisition costs incurred in connection with originating such customers' initial loans, whether term loan, lines of credit or both. Components of Our Results of Operations Interest and Finance Income. We generate revenue primarily through interest and origination fees earned on the term loans and lines of credit we originate. Interest income also includes interest earned on invested cash. We also generate revenue through finance income on our variable pay product inCanada . Our interest and origination fee revenue is amortized over the term of the loan or finance receivable using the effective interest method. Origination fees collected but not yet recognized as revenue are netted with direct origination costs and recorded as a component of loans and finance receivables held for investment or loans held for sale, as appropriate, on our consolidated balance sheets and recognized over the term of the loan or finance receivable. Direct origination costs include costs directly attributable to originating a loan or finance receivable, including commissions, vendor costs and personnel costs directly related to the time spent by those individuals performing activities related to loan origination. Interest Expense. Interest expense consists of the interest expense we incur on our debt, certain fees and the amortization of deferred debt issuance costs incurred in connection with obtaining this debt, such as banker fees, origination fees and legal fees and, in applicable periods, certain costs associated with our interest rate hedging activity. Our interest expense and Cost of Funds Rate will vary based on a variety of external factors, such as credit market conditions, general interest rate levels and spreads, as well as OnDeck-specific factors, such as origination volume and credit quality. Provision for Credit Losses. Provision for credit losses consists of amounts charged to income during the period to maintain an allowance for credit losses, or ALLL, estimated and recognized upon origination, based on expected credit losses for the life of the balance as of the period end date. Our ALLL represents our estimate of the credit losses inherent in our portfolio of loans and finance receivables and is based on a variety of factors, including the composition and quality of the portfolio, loan specific information gathered through our collection efforts, delinquency levels, our historical charge-off and loss experience and general economic and future macroeconomic conditions and forecasts. Under normal circumstances our aggregate provision for credit losses increases in absolute dollars as the amount of loans and finance receivables we originate and hold for investment increase. Other Revenue. Other revenue includes fees generated by ODX, monthly fees charged to customers for our line of credit, referral fees from other lenders, marketing fees earned from our issuing bank partner and other fees. Operating Expense Operating expense consists of sales and marketing, technology and analytics, processing and servicing, and general and administrative expenses. Salaries and personnel-related costs, including benefits, bonuses, stock-based compensation expense and occupancy, comprise a significant component of each of these expense categories. All operating expense categories also include an allocation of overhead, such as rent and other overhead, which is based on employee headcount. We believe that continuing to invest in our business is essential to growing the business and maintaining our competitive position. Due to the recent COVID-19 pandemic, we took temporary actions to decrease operating expenses for the second quarter, and permanent actions inJuly 2020 . 43
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Sales and Marketing. Sales and marketing expense consists of salaries and personnel-related costs of our sales and marketing and business development employees, as well as direct marketing and advertising costs, online and offline CACs (such as direct mail, paid search and search engine optimization costs), public relations, promotional event programs and sponsorships, corporate communications and allocated overhead. Technology and Analytics. Technology and analytics expense consists primarily of the salaries and personnel-related costs of our engineering and product employees as well as our credit and analytics employees who develop our proprietary credit-scoring models. Additional expenses include third-party data acquisition expenses, professional services, consulting costs, expenses related to the development of new types of loans and technologies and maintenance of existing technology assets, amortization of capitalized internal-use software costs related to our technology platform and allocated overhead. Processing and Servicing. Processing and servicing expense consists primarily of salaries and personnel related costs of our credit analysis, underwriting, funding, fraud detection, customer service and collections employees. Additional expenses include vendor costs associated with third-party credit checks, lien filing fees and other costs to evaluate, close and fund loans and overhead costs. General and Administrative. General and administrative expense consists primarily of salary and personnel-related costs for our executive, finance and accounting, legal and people operations employees. Additional expenses include consulting and professional fees, insurance, legal, travel, gain or loss on foreign exchange, allocated overhead, and other corporate expenses. These expenses also include costs associated with compliance with the Sarbanes-Oxley Act and other regulations governing public companies, and directors' and officers' liability insurance. Provision for Income Taxes Our provision for income taxes includes tax expense for our consolidated operations, including the tax expense incurred by our non-U.S. entities. Our annual effective tax rate is an estimated, blended rate of all tax jurisdictions including federal, state and foreign. Results of Operations The following table sets forth our consolidated statements of operations data for each of the periods indicated. Comparison of the three months endedJune 30, 2020 and 2019 Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Interest and finance income 78,308 105,641 (25.9 )% Interest expense 10,291 11,381 (9.6 )% Net interest income 68,017 94,260 (27.8 )% Provision for credit losses 23,720 42,951 (44.8 )% Net interest income (loss), after credit provision 44,297 51,309 (13.7 )% Other revenue 2,217 4,605 (51.9 )% Operating expense: Sales and marketing 5,473 13,307 (58.9 )% Technology and analytics 15,088 16,681 (9.5 )% Processing and servicing 5,452 5,609 (2.8 )% General and administrative 13,664 16,353 (16.4 )% Total operating expense 39,677 51,950 (23.6 )% Goodwill Impairment 10,960 - - % Income (loss) from operations, before provision for income taxes (4,123 ) 3,964 (204.0 )% Provision for (Benefit from) income taxes - 1,796 (100.0 )% Net income (loss) (4,123 ) 2,168 (290.2 )% 44
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Net income (loss) For the three months endedJune 30, 2020 , net income decreased to a net loss of$4.1 million compared to net income of$2.2 million for the three months endedJune 30, 2019 while adjusted net income (loss), a non-GAAP measure, increased to$13.6 million compared to income of$6.9 million in the same comparable period. These increases were primarily attributable a 25.9% decrease in interest and finance income, and a decrease of other revenue. This was offset by a decrease of provision for credit losses for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 , driven by the fact that we pulled back on our originations in the second quarter of 2020. We recorded an income tax expense in the three months endedJune 30, 2019 but recorded no tax expense in the three months endedJune 30, 2020 due to the uncertainty of the ability to utilize the deferred tax assets to accrue for the year 2020. Basic earnings per share decreased from$0.06 per share to$0.04 per share. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation of Non-GAAP measures. Net Interest Income Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Interest and finance income$ 78,308 $ 105,641 (25.9 )% Interest expense 10,291 11,381 (9.6 )% Net interest income$ 68,017 $ 94,260 (27.8 )% Net interest income decreased by$26.2 million , or 27.8%, from$94.3 million to$68.0 million . This decrease was mainly attributable to a$27.3 million , or 25.9%, decrease in interest and finance income, which was primarily driven by a lower portfolio balance as evidenced by an 8.4% decrease in Average Loans and Finance Receivables. The decrease was also attributable to a 660 basis point decrease in Portfolio Yield from the second quarter of 2019 compared to the second quarter of 2020 driven by COVID-19 related impacts. Interest expense decreased by$1.1 million , or 9.6%, from$11.4 million to$10.3 million . The decrease in interest expense was primarily attributable to decreases in the reference interest rate for our floating rate debt during the three months endedJune 30, 2020 . This was partially offset by increases in deferred debt issuance expense, and Average Debt outstanding, as we have increased our utilization of our corporate debt to increase liquidity duringMarch 2020 and throughout the second quarter of 2020. The Average Debt Outstanding during the second quarter of 2020 was$891.8 million , up 6.9%, from$834.6 million during the second quarter of 2019, while our Cost of Funds Rate decreased from 5.5% to 4.6%. Provision for Credit Losses Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Provision for credit losses$ 23,720 $ 42,951 (44.8 )% Provision for credit losses decreased by$19.2 million , or 44.8%, from$43.0 million to$23.7 million . The decrease in Provision for credit losses for three months endedJune 30, 2020 was due to the sharp decrease in originations during the same period, reflecting our decision to suspend originations during the uncertainties of the COVID-19 pandemic. In accordance with GAAP, we recognize revenue on loans and finance receivables over their term but provide for probable credit losses on the loans and finance receivables at the time they are originated. We then periodically adjust our estimate of those probable credit losses based on actual performance and changes in loss estimates. 45
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Non-interest Income
Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Other revenue 2,217 4,605 (51.9 )% Other revenue decreased by$2.4 million , or 51.9%, primarily attributable to a decrease in revenue related to reduced business activity, partially mitigated by fees earned from facilitating Paycheck Protection Program loans. Operating Expense Total operating expense decreased by$12.3 million , or 23.6%, from$52.0 million to$39.7 million as we took early action inApril 2020 to significantly reduce expenses in response to COVID-19 uncertainties. During the second quarter of 2020 we reduced our personnel expenses by placing approximately 30% of our employees on part-time or furlough status, and a 15% salary reduction for those remaining full-time for a 90 day period. The second quarter expense includes a$2.8 million restructuring charge related to the reduction of approximately 20% ofU.S. staff in July, with an expected payback period of approximately one quarter. AtJune 30, 2020 , we had 746 employees compared to 726 atJune 30, 2019 . We evaluate trends in our efficiency ratio as a key measure of our progress. Our efficiency ratio for the quarter endedJune 30, 2020 was 49.3% which increased from 47.1% for the quarter endedJune 30, 2019 . Our focus on executing on operating expense reductions contributed to an overall decrease in total operating expense during the current quarter. However, gross revenue decreased when compared to the three months endedJune 30, 2019 . Our Adjusted Efficiency Ratio, a non-GAAP measure, decreased from 44.2% for the quarter endedJune 30, 2019 to 43.0% for the quarter endedJune 30, 2020 . Sales and Marketing Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Sales and marketing$ 5,473 $ 13,307 (58.9 )% Sales and marketing expense decreased by$7.8 million , or 58.9%, from$13.3 million to$5.5 million . The decrease was partially driven by the reduction of our non-commission acquisition costs and general marketing expense by$4.9 million during the three months endedJune 30, 2020 , as we suspended most of our direct-mail, digital marketing, brand, and marketing consultant spend amongst many of our third-party vendors. The decrease was also partially driven by a$2.9 million decrease in our personnel-related costs. Technology and Analytics Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Technology and analytics$ 15,088 $ 16,681 (9.5 )% Technology and analytics expense decreased by$1.6 million , or 9.5%, from$16.7 million to$15.1 million . The decrease was mainly driven by a$1.6 million decrease in our personnel-related cost. During the three months endedJune 30, 2019 we recognized an impairment of our capitalized software assets of$0.9 million and had no such charge during the current period. This decrease in expense was offset by a$0.7 million increase in software licenses during the three months endedJune 30, 2020 . 46
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Table of Contents Processing and Servicing Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Processing and servicing $ 5,452$ 5,609 (2.8 )% Processing and servicing expense decreased by$0.2 million , or 2.8%, from$5.6 million to$5.5 million . This was driven by a decrease in personnel-related expenses of$0.2 million . General and Administrative Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) General and administrative$ 13,664 $ 16,353 (16.4 )% General and administrative expense decreased by$2.7 million , or 16.4%, from$16.4 million to$13.7 million . The decrease was partially attributable to by a$2.4 million decrease in our personnel-related costs. This was offset by a$2.8 million company-wide restructuring charge recorded during the three months endedJune 30, 2020 . We recognized a$0.9 million gain during the three months endedJune 30, 2020 due to the impact of fluctuations in foreign exchange rates on intercompany transactions. Additionally, travel expenses decreased by$0.8 million and recruiting expenses decreased by$0.6 million for the three months endedJune 30, 2020 , primarily to due to a slowdown in spending caused by the COVID-19 pandemic. Goodwill Impairment Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Goodwill Impairment$ 10,960 $ - - %
During the three months ended
Provision for Income Taxes Three Months Ended June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Provision for Income Taxes $ -$ 1,796 (100.0 )% During the three months endedJune 30, 2020 we did not record a provision for income taxes. We recorded a provision for income taxes during the three months endedJune 30, 2019 at a quarterly effective income tax rate of 45.3%. 47
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Comparison of the six months ended
Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Interest and finance income 185,243 211,440 (12.4 )% Interest expense 21,860 22,713 (3.8 )% Net interest income 163,383 188,727 (13.4 )% Provision for credit losses 131,627 86,242 52.6 % Net interest income (loss), after credit provision 31,756 102,485 (69.0 )% Other revenue 5,837 8,781 (33.5 )% Operating expense: Sales and marketing 17,137 25,267 (32.2 )% Technology and analytics 31,572 33,487 (5.7 )% Processing and servicing 12,141 11,098 9.4 % General and administrative 29,944 30,382 (1.4 )% Total operating expense 90,794 100,234 (9.4 )% Goodwill Impairment 10,960 - - % Income (loss) from operations, before provision for income taxes (64,161 ) 11,032 (681.6 )% Provision for (Benefit from) income taxes - 3,536 (100.0 )% Net income (loss)$ (64,161 ) $ 7,496 (955.9 )% Net income (loss) For the six months endedJune 30, 2020 , net income (loss) decreased to a loss of$64.2 million from net income of$7.5 million for the six months endedJune 30, 2019 , while adjusted net income (loss), a non-GAAP measure, decreased to a loss of$43.9 million from income of$15.0 million over the current period. These decreases were primarily attributable to a large increase in Provision for credit losses, in response to higher anticipated losses due to the COVID-19 pandemic. Additionally, for the six months endedJune 30, 2019 we recorded a provision for income taxes of$3.5 million , while we were not required to pay any material taxes in 2020. Basic earnings (loss) per share decreased from$0.13 per share for the six months endedJune 30, 2020 to$(0.94) per share for the current period. Similarly, our Return on Assets decreased to (9.2)% from 1.6% while our Return on Equity decreased to (46.4)% from 6.5%. Our Adjusted Return on Assets, a non-GAAP measure, decreased to (7.1)% from 2.5% while our Adjusted Return on Equity, a non-GAAP measure, decreased to (35.9)% from 9.8%. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation of Non-GAAP measures. Net Interest Income Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Interest and finance income$ 185,243 $ 211,440 (12.4 )% Interest expense 21,860 22,713 (3.8 )% Net interest income$ 163,383 $ 188,727 (13.4 )% Net interest income decreased by$25.3 million , or 13.4%, from$188.7 million to$163.4 million . The overall decrease was attributable to an$26.2 million , or 12.4%, decrease in interest and finance income, which was primarily driven by a lower portfolio balance as evidenced by an 2.1% decrease in Average Loans and Finance Receivables. Additionally, Portfolio Yield decreased by 390 basis points from the six months endedJune 30, 2019 compared to the six months endedJune 30, 2020 . 48
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Interest expense decreased by$0.9 million , or 3.8%, from$22.7 million to$21.9 million . The decrease in interest expense was primarily attributable to the decreases in the reference interest rates for our floating rate debt during the six months endedJune 30, 2020 . This was partially offset due to increases in Average Debt outstanding, as we have utilized our facilities and our corporate debt to increase liquidity throughout 2020. The Average Debt Outstanding during the six months endedJune 30, 2020 was$910.2 million , up 8.9%, from$835.9 million during the six months endedJune 30, 2019 , while our Cost of Funds Rate decreased from 5.4% to 4.8%.
Provision for Credit Losses
Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands)
Provision for credit losses
52.6 % Provision for credit losses increased by$45.4 million , or 52.6%, from$86.2 million to$131.6 million . Our increase in Provision for credit losses for six months endedJune 30, 2020 was in response to higher anticipated losses due to the COVID-19 pandemic. In accordance with GAAP, we recognize revenue on loans and finance receivables over their term but provide for probable credit losses on the loans and finance receivables at the time they are originated. We then periodically adjust our estimate of those probable credit losses based on actual performance and changes in loss estimates. Non-interest Income Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Other revenue 5,837 8,781 (33.5 )% Other revenue decreased by$2.9 million , or 33.5%, primarily attributable to a decrease in revenue related to reduced business activity, partially mitigated by fees earned from facilitating Paycheck Protection Program loans. Operating Expense Total operating expense decreased by$9.4 million , or 9.4%, from$100.2 million to$90.8 million driven by our initiatives to significantly reduce expenses in response to COVID uncertainties. During the second quarter of 2020 we reduced our personnel expenses by placing approximately 30% of our employees on part-time or furlough status, and a 15% salary reduction for those remaining full-time for a 90 day period. The second quarter expense includes a$2.8 million restructuring charge related to the reduction of approximately 20% ofU.S. staff in July, with an expected payback period of approximately one quarter. AtJune 30, 2020 , we had 746 employees compared to 742 atDecember 31, 2019 . We evaluate trends in our efficiency ratio as a key measure of our progress. Our efficiency ratio for the six months endedJune 30, 2020 increased to 47.5% from 45.5% for the six months endedJune 30, 2019 . Our Adjusted Efficiency Ratio, a non-GAAP measure, increased from 42.6% for the six months endedJune 30, 2019 to 44.1% for the six months endedJune 30, 2020 . See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation of Adjusted Efficiency Ratio. Sales and Marketing Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Sales and marketing$ 17,137 $ 25,267 (32.2 )% Sales and marketing expense decreased by$8.1 million , or 32.2%, from$25.3 million to$17.1 million . The decrease was driven by a decrease of non-commission acquisition costs by$4.5 million during the six months endedJune 30, 2020 , as we suspended most of our direct-mail and digital marketing spend in the second quarter of 2020. Additionally, there was a$3.8 million decrease in personnel-related costs during the six months endedJune 30, 2020 . 49
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Table of Contents Technology and Analytics Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Technology and analytics$ 31,572 $ 33,487 (5.7 )% Technology and analytics expense decreased by$1.9 million , or 5.7%, from$33.5 million to$31.6 million . The decrease was mainly driven by a$1.7 million decrease in our personnel-related costs. During the six months endedJune 30, 2019 we recognized impairments of our capitalized software assets totaling$1.5 million and had no such charge during the current period. This decrease in expense was offset by a$1.3 million increase in software licenses during the six months endedJune 30, 2020 . Processing and Servicing Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Processing and servicing$ 12,141 $ 11,098 9.4 %
Processing and servicing expense increased by
General and Administrative Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) General and administrative$ 29,944 $ 30,382 (1.4 )% General and administrative expense decreased by$0.4 million , or 1.4%, from$30.4 million to$29.9 million . The decrease was partially attributable to by a$3.0 million decrease in our personnel-related costs. This was offset by a$2.8 million company-wide restructuring charge recorded during the six months endedJune 30, 2020 . In addition, our professional fees increased$1.1 million during the six months endedJune 30, 2020 due to legal fees related to our previous pursuit of a bank charter, which has since been halted. Further, during the six months endedJune 30, 2020 there was a$1.2 million decrease in travel expenses and a$0.9 million decrease in recruiting expenses. Goodwill Impairment Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Goodwill Impairment $ 10,960 $ - - %
During the six months ended
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Table of Contents Provision for Income Taxes Six Months Ended, June 30, Year-over-Year Change 2020 2019 2020 vs 2019 (dollars in thousands) Provision for Income Taxes $ -$ 3,536 (100.0 )% During the six months endedJune 30, 2020 we did not record a provision for income taxes. We recorded a provision for income taxes during the six months endedJune 30, 2019 at an effective income tax rate of 32.1%. Liquidity and Capital Resources Capital Our Total stockholders' equity decreased by$99 million to$219 million atJune 30, 2020 from$318 million atJune 30, 2019 . The decrease of stockholders' equity was driven primarily by the net losses for the year -to-date period and the repurchase of shares during the first quarter of 2020. Our book value per diluted share decreased to$3.62 atJune 30, 2020 from$3.98 atJune 30, 2019 , which was primarily driven by our net loss for the year. OnJuly 29, 2019 , our Board of Directors authorized the repurchase of up to$50 million of common stock with the repurchased shares to be retained as treasury stock and available for possible reissuance. Any share repurchases under the program will be made from time to time in the open market, in privately negotiated transactions or otherwise. The timing and amount of any share repurchases will be subject to market conditions and other factors as we may determine. We fully utilized the authorization of$50 million shares. OnFebruary 11, 2020 , we announced that our Board of Directors had authorized up to$50 million of additional repurchases of common stock. This authorization does not have a scheduled expiration date. In lateFebruary 2020 , we suspended repurchase activity under our program and will continue to suspend activity as part of our focus on liquidity and capital preservation. Cash AtJune 30, 2020 , we had approximately$72 million of available cash to fund our future operations compared to approximately$121 million atMarch 31, 2020 . We drew on our corporate line of credit in the first quarter 2020 to help ensure we had liquidity immediately available. We partially paid down our corporate line in the second quarter of 2020. Our cash and cash equivalents atJune 30, 2020 were held primarily for working capital purposes and were used to fund a portion of our lending activities. We may, from time to time, use excess cash and cash equivalents to fund our lending activities. We do not enter into investments for trading or speculative purposes. Our policy is to invest cash in excess of our immediate working capital requirements in short-term investments, deposit accounts or other arrangements designed to preserve the principal balance and maintain adequate liquidity. Our excess cash may be invested primarily in overnight sweep accounts, money market instruments or similar arrangements that provide competitive returns consistent with our polices and market conditions. Our restricted cash represents funds held in accounts as reserves on certain debt facilities and as collateral for issuing bank partner transactions. We have no ability to draw on such funds as long as they remain restricted under the applicable arrangements but have the ability to use these funds to finance loan originations, subject to meeting borrowing base requirements. Our policy is to invest restricted cash held in debt facility related accounts in investments designed to preserve the principal balance and provide liquidity. Accordingly, such cash is invested primarily in money market instruments that offer daily purchase and redemption and provide competitive returns consistent with our policies and market conditions. Our restricted cash balance increased from bothMarch 31, 2020 andDecember 31, 2019 driven by our early repayments on our securitizations and certain debt facilities during the second quarter of 2020. 51
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Current Debt Facilities The following table summarizes our debt facilities as ofJune 30, 2020 . Weighted Maturity Average Borrowing Principal Date Interest Rate Commitments Outstanding (in millions) Debt:OnDeck Asset Securitization Trust II LLC 2018-1 April 2022 (1) 3.9%$ 159.2 $ 159.2 OnDeck Asset Securitization Trust II LLC 2019-1 November 2024 (2) 3.1% 101.7 101.7OnDeck Account Receivables Trust 2013-1 LLC March 2022 (3) 1.9% 125.0 80.3 Receivable Assets of OnDeck, LLC September 2021 (4) 1.8% 100.0 61.8 OnDeck Asset Funding II LLC August 2022 (5) 3.2% 175.0 89.8 Prime OnDeck Receivable Trust II, LLC March 2022 (6) 1.8% 75.0 - Loan Assets of OnDeck, LLC October 2022 (7) 1.9% 150.0 65.2 Corporate line of credit January 2021 (8) 3.2% 86.9 86.9 International and other agreements Various (9) 3.6% 132.0 41.2 Total Debt 3.0%$ 1,104.8 $ 686.1 (1) The period during which new loans may be purchased under this securitization transaction expires inMarch 2020 . (2) The period during which new loans may be purchased under this securitization transaction expired inMay 2020 .
(3) The period during which new borrowings may be made under this facility
expires inMarch 2021 . Amendments were made to this facility onMay 20, 2020 and August [_], 2020, which are described in Note 5 and 13. (4) The period during which new borrowings of Class A revolving loans may be made under this debt facility expires inDecember 2020 . An amendment was
made to this facility on
(5) The period during which new borrowings may be made under this facility
expires inAugust 2021 . An amendment was made to this facility onMay 19, 2020 , which is described in Note 5 and 13.
(6) The period during which new borrowings may be made under this facility
expires in
(7) The period during which new borrowings may be made under this debt facility
expires inApril 2022 . Amendments were made to the facility onApril 27, 2020 andJuly 15, 2020 , which are described in Note 5 and 13..
(8) The period during which new borrowings may be made under this facility
expired
(9) Other Agreements include, among others, our local currency debt facilities
in
made under the various agreements expire between
Maturity dates range from
Our liquidity and our ability to utilize our debt facilities are being significantly negatively impacted by the COVID-19 crisis. See "Part II, Item 1A. Risk Factors" and Note 13 of Notes to Unaudited Condensed Consolidated Financial Statements. Our ability to fully utilize the available capacity of our debt facilities may also be impacted by provisions that limit concentration risk and eligibility. Cash Flows The following table summarizes our cash flows activities from our Consolidated Statements of Cash Flows:
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