February 16, 2017 / 12:40 PM / 6 months ago

UPDATE 2-OnDeck Capital shares plunge on downbeat outlook

(Adds details on earnings call, share fall)

By Anna Irrera and Nikhil Subba

Feb 16 (Reuters) - OnDeck Capital Inc shares fell as much as 24 percent on Thursday after the online lender posted its fifth straight quarterly loss and set aside more money for future losses after determining its calculations were askew.

Like its digital lending peers, OnDeck has been struggling with investor' concerns over the quality of its underwriting and ability to maintain a rapid pace of growth.

Chief Executive Officer Noah Breslow said the company had changed the way it sets aside buffers for future losses after finding it was losing more than internal models predicted.

As a result, OnDeck's provision for loan losses more than doubled during the fourth quarter, to $55.7 million.

The company is also expecting slower growth in the first half of this year, after it took steps to tighten risk management.

"We're proactively raising standards," Breslow said on a conference call with analysts.

BTIG analyst Mark Palmer said the tightening of underwriting was "prudent," but he added: "The challenge is to continue to drive very high rate of loan growth while doing so."

OnDeck shares were down 15.5 percent at $4.75 in late-morning trading after falling as low as $4.26.

Unlike traditional banks that fund loans from a variety of sources, including deposits, digital lenders like OnDeck, LendingClub Corp and Prosper Marketplace Inc rely primarily on outside investors to provide capital.

Because they are less familiar than big banks with branches across the United States, they usually have to spend more to get new customers.

On Tuesday, LendingClub also issued a weaker-than-expected outlook, due in part to its own recovery efforts in the aftermath of a scandal involving sales and underwriting practices.

One of the largest companies originally known as peer-to-peer lenders, OnDeck runs a website where small businesses can apply for loans.

While some loans are funded by individuals or institutions like banks, OnDeck last year began shifting toward funding more loans itself.

Amid all the changes, OnDeck's originations of $2.4 billion in 2016 were up 26 percent from the prior year, less than half the pace of growth it posted in 2015.

The company is taking several steps to slash costs by $20 million a year, including cutting 11 percent of its staff and reducing marketing and technology expenses, Breslow said.

OnDeck expects to generate net revenue of $377 million to $387 million this year. The analysts' average forecast is within that range, according to Thomson Reuters I/B/E/S.

In the fourth quarter, OnDeck's net loss attributable to shareholders widened to $35.9 million from $4.6 million a year earlier.

Excluding special items, the loss was 44 cents per share, bigger than analysts' expectations of 17 cents, according to Thomson Reuters I/B/E/S.

Net revenue fell 61.6 percent to $16.26 million. (Additional reporting by Sruthi Shankar in Bengaluru; Writing by Lauren Tara LaCapra; Editing by Lisa Von Ahn)

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