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On Deck Capital (ONDK) Q4 2019 Earnings Call Transcript

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ONDK earnings call for the period ending December 31, 2019.

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On Deck Capital (ONDK)
Q4 2019 Earnings Call
Feb 11, 2020, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to the On Deck's fourth-quarter and full-year 2019 earnings call. [Operator instructions] I would now like to hand the conference over to your speaker today, Steve Klimas, head of investor relations. Please go ahead, Mr. Klimas.

Steve Klimas

Thank you, Carol. Good morning, everyone, and welcome to On Deck's fourth-quarter earnings call. I'm here this morning with Noah Breslow, our chief executive officer; and Ken Brause, our chief financial officer. Our earnings release was issued earlier this morning and is available with our earnings presentation and financial supplement in the Investor Relations section of our website.

Certain statements, including those related to our 2020 financial guidance, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information, and we undertake no duty to update them, except as required by law. Today's discussion is also subject to the forward-looking statement limitations in the earnings release, and our actual results could differ materially and adversely from those anticipated.

During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the earnings release and the appendix of the earnings presentation posted on our website. Finally, in order to better align our income statement construct with finance industry standards, we changed the sequencing of certain line items. There were no changes to the composition of the line items or the calculation of key performance metrics, although certain subtotals, like net interest income, were added to facilitate your understanding and analysis of our results.

Today's earnings release and the financial data supplement posted on our website conform our historical figures to the current-period presentation. With that, I'll turn the call over to Noah.

Noah Breslow -- Chief Executive Officer

Thanks, Steve, and thank you all for joining us today. 2019 was an important year for On Deck, and we finished strong. Fundamentally, our core U.S. lending business is growing.

Financially, we had our second full year of profitability. And strategically, we are making significant progress positioning the company for improved performance and even greater long-term success. This morning, I will discuss some business highlights from the fourth quarter and full-year 2019 and outline our strategic priorities for 2020. Then Ken will provide some detail on the numbers, give an update on funding and capital, and review our 2020 guidance.

After that, we'll open the call for questions. We have a lot to be proud of in 2019. We grew the portfolio. We originated $2.5 billion of loans and finance receivables and grew the portfolio 8% to $1.3 billion.

Since our inception, we have now originated over $13 billion of loans, solidifying our position as the leading online lender to small businesses. We improved our funding profile. We executed nearly $900 million of financings in 2019 and significantly lowered our borrowing costs. Our annual cost of funds rate improved over 100 basis points from 2018 and was 4.8% in the fourth quarter.

We also continued to improve the terms and structures of our credit facilities while enhancing the breadth and composition of our funding providers, and we strengthened the core. Despite our credit pullback in early 2019 and no increase in marketing spend, applications grew approximately 20% year over year as we grew our partner network and improved the efficiency of our marketing spend. Our line of credit offering grew nearly 50% in 2019 as we further developed it to include new amortization options and more dynamic management of credit lines and pricing, and we nearly doubled the number of customers enrolled in our instant funding feature. As you may recall, instant funding delivers a best-in-class customer experience by using the debit card network to fund line of credit draws in midst.

Customers who have activated this feature have higher utilization than other line of credit customers. We expect to see continued expansion and profitability of lines of credit in 2020 as we broaden the origination channels through which lines of credit are offered and cross-sell it more to existing term loan customers. Also, our analytics capabilities improved in 2019 with advances in our fraud prevention capabilities yielding a 70% reduction in principal fraud losses year over year. And we rolled out better loan decisioning based on industry trends, allowing for more granular portfolio management.

We also made long-term investments in our next-generation technology infrastructure, which will allow us to bring new products and features to market faster in 2020 and beyond. And we continue to drive operating efficiency in the core U.S. lending business. In fact, even though our application volume increased significantly, our core U.S.

loan operations team stayed the same size in 2019 as we became more efficient. We also made significant progress on our strategic growth initiatives. ODX, our platform-as-a-service business, continued to grow and diversify its client base. PNC launched in the first half of the year, and Investors Bank signed and launched in the second half of 2019.

We have also signed agreements with a couple of other financial institutions and expect announcement of these launches in the coming months. The remaining ODX pipeline is strong, particularly with regional banks who typically have quicker decisioning and implementation time frames. Also, we are scaling our international operations toward profitability. We combined our Canadian business with Evolocity Financial Group in April, a transaction that significantly increased the breadth and depth of our Canadian operations.

We have now integrated the business, relaunched our Canada brand and are the second largest online small business lender in Canada, with a plan to become No. 1. In Australia, we grew our portfolio in 2019, and operating efficiency is improving with the larger asset base. Additionally, credit quality has remained generally stable, and we have very little direct exposure in the areas affected by the wildfires.

As we have mentioned in prior quarters, we still expect our international businesses to transition to profitability in 2020. And we continue to develop our equipment finance offering. In 2019, we built out our capabilities and expanded our distribution partners, which resulted in consistent growth within applications and originations. While a small part of our portfolio today, we remain confident in the opportunity to disrupt and grow in this market.

With respect to our fourth-quarter financial performance, we generated $112 million of gross revenue, $9 million of net income and $3 million of adjusted net income. Overall, the quarter was solid with good asset growth, generally stable credit and improved capital efficiency. However, we did have a few noteworthy items that impacted expenses and caused our adjusted net income to fall short of our guidance. Ken will walk you through the financials in more detail, but there are several trends I want to highlight that position On Deck well for 2020.

First, strong portfolio growth continues across the business. Total loans grew 3% sequentially in the fourth quarter to $1.3 billion, with growth in all areas: term loans, lines of credit, and other, which includes equipment finance and short-term financing in Canada. Growth in line-of-credit balances was particularly strong, up 9% sequentially and nearly 50% from a year ago. And that portfolio now accounts for 23% of total outstandings, compared to 16% a year ago.

Moreover, we achieved our growth while improving the profile of newly originated loans. While our On Deck score is our primary measure of creditworthiness, we also track borrower credit quality based on business owner FICO scores, which averaged 710 at year-end, our highest level to date and that positioned us well heading into 2020. Second, our net interest margin remains attractive. Our portfolio yield is being pressured a little by the lengthening of the term loan portfolio duration; mix shift, including a greater portion of lines of credit; and higher delinquency.

However, our pricing is essentially unchanged, and our cost of funds improvements have largely offset the yield compression. At roughly 29%, our net interest margin more than covers expected credit costs and can deliver attractive returns. Third, the changes we made to our collection strategies are starting to be reflected in our portfolio performance. Specifically, our recoveries in the fourth quarter were near the highest they have ever been and benefited our net charge-off rate approximately 200 basis points.

And finally, our balance sheet is becoming more efficient from both funding and capital perspectives. On the funding side, we have ample liquidity and reduced our cost of funds rate below 5%. On the capital side, we repurchased nearly $50 million of stock in less than nine months and have authorization to repurchase another $50 million. Even with the buyback, our capital ratios remained strong, bolstered by continued growth in retained earnings.

In summary, we exited 2019 a much stronger company. Our product offerings are more fulsome with expanded terms and features. Our distribution model remains diversified with three distinct origination channels across which we can allocate resources based on market dynamics. Our credit decisioning is more dynamic and targeted, allowing us to quickly respond to changes in the environment.

Our growth strategies are taking hold, both domestically and abroad. And our talent pool is deeper and stronger than ever, with seasoned industry professionals well equipped to lead On Deck into the future. I'd like to take a moment to highlight two recent leadership hires: Scott Totman as our chief product and technology officer and Linda Tan as our head of internal audit. Scott brings over 20 years of experience in large and small financial services and technology companies and, prior to On Deck, was the engineering leader responsible for building the digital bank experience at Capital One.

Linda comes to us from her prior role as the chief audit executive and managing director at Brown Brothers Harriman and brings over 25 years of financial industry experience to On Deck. Both Scott and Linda are seasoned professionals who bring key skills to On Deck as we move into 2020 and prepare the company for a bank charter. As we discussed previously, obtaining a bank charter will enable us to better serve the needs of small businesses and increase our resiliency to economic uncertainties as we strive to deliver greater value to our customers, our shareholders and our communities. We continue to make progress here.

We have been working with our advisors to define and execute a path forward. Concurrently, we have been building out our internal processes and enhancing capabilities in order to meet bank regulatory expectations. We understand that the hurdle is high, but I have every confidence that this objective is within our reach. We will provide updates on our progress as appropriate.

In addition to preparing to obtain a bank charter, our 2020 priorities are clear. First and foremost, enhancing and growing our core U.S. lending business. We are late in the lending cycle and competition remains elevated.

However, demand is strong as evidenced by a record level of applications in 2019, and we are working hard to improve conversion rates within our originations funnel. Our high-tech, high-touch customer service model, the flexibility of our multi-channel distribution network and our ability to mine the data from over $13 billion of originations are real competitive advantages that differentiate us in the market and will be a source of opportunity as the market evolves. We are also going to advance our ability to earn returns on our strategic investments. As I mentioned earlier, our international operations are on track to transition to profitability this year.

We are continuing to grow in equipment finance, and we are scaling ODX by launching and growing science customers and converting our pipeline, and we will continue to buy back shares to achieve our target capital ratios and further improve the efficiency of our balance sheet. Putting it all together, we expect to deliver solid top-line growth, a double-digit growth rate in adjusted net income and loans, and even greater growth in earnings per share. With that, I'll turn it over to Ken to walk through the 2019 financials and 2020 guidance in more detail.

Ken Brause -- Chief Financial Officer

Well, thank you, Noah, and good morning, everyone. 2019 was our second full year of profitability and it reflected several trends, including strong asset growth, lower funding costs, generally stable portfolio quality, continued investment for the future, as well as improved capital efficiency. Fourth-quarter net income was $9 million or $0.13 per diluted share, which brought full-year 2019 net income to $28 million or $0.36 per diluted share. Excluding stock-based compensation and discrete tax benefits, our adjusted net income was $3 million or $0.05 per diluted share in the fourth quarter and $26 million or $0.34 per diluted share for the full year.

While our fourth-quarter net income was above our guidance due to the tax benefit, our adjusted net income was below guidance largely due to some noteworthy items that elevated operating and income tax expenses. Net income was essentially flat year over year, while adjusted net income declined as the benefits from portfolio growth and improved funding costs were more than offset by a normalization in credit costs back to our target ranges and increased investment spend in our growth adjacencies and the fact that we began to accrue income tax expense. On a per-share basis, full-year earnings increased on both a reported and adjusted basis, and we grew book value per share 14% from $3.75 a year ago to $4.26 at year-end 2019. Focusing on the fourth-quarter results, gross revenue was $112 million, essentially unchanged from the third quarter as slightly higher interest income reflecting loan growth was offset by a decline in other revenue related to the wind-down of an ODX relationship.

Loans and finance receivables grew 3% sequentially to $1.3 billion on $618 million of volume, driven by growth in all products, particularly line of credit balances. Net interest income increased slightly from the prior quarter, driven by portfolio growth and lower interest expense. And net interest margin was essentially flat at just over 29% as the improvement in cost of funds rate offset the reduction in portfolio yield. Our portfolio yield declined 30 basis points sequentially to 34.8%, reflecting the increase of loans with longer durations, a greater proportion of line of credit balances, and higher delinquencies.

Funding costs improved, and interest expense declined slightly despite higher debt balances to fund growth and the share buyback. Our cost of funds rate declined 50 basis points sequentially and is now 4.8% as we benefited from both lowering our borrowing spreads, as well as the recent reduction in short-term rates as we remain liability-sensitive. For the year, we executed nearly $900 million in financings, including a $125 million securitization in the fourth quarter. That was the first with online small business loan collateral to receive a AAA rating.

In the quarter, we also paid off the high-cost mezzanine debt associated with Evolocity in Canada. Our upcoming debt maturity profile is light with only one small Canadian facility maturing this year and our 2018 securitization approaching the end of its revolving period. We will continue to look for opportunities to further improve our funding profile. Moving on to credit, provision expense and the corresponding provision rate increased slightly, with the dollars of expense consistent with growth in the portfolio and the increased rate largely a function of lower originations, which is the denominator for this metric.

Our net charge-off rate improved 20 basis points to 13.5%, reflecting increased recoveries as some of the changes in collection strategies we have discussed are taking hold. On the other hand, our 15 day-plus delinquency ratio increased 50 basis points to 9%, reflecting softness in certain industry sectors. The increased delinquency level had a relatively small impact on our required reserves as we were already holding a higher level of reserves against those loans. Our allowance for loan losses rose to $151 million at year-end, which was largely driven by loan growth, and our reserve ratio was unchanged at 12.2%.

As required, we adopted the new CECL standard as of January 1, 2020, and the net impact was relatively small with a $10 million aggregate decrease to our allowance for credit losses and other liabilities and an equivalent increase to stockholders' equity. We expect the future P&L impact to the provision to be immaterial as our prior loss-emergence period encompassed the life of most of our loans. However, we do expect increased volatility in the provision and reserve measures as the new standard requires companies to incorporate the impact of economic forecasts into reserve requirements. Turning to operating expenses, the $54 million we reported this quarter was elevated due to some noteworthy items, including a $1.7 million write-off of capitalized software costs related to the termination of a vendor relationship, a $1 million increase in the reserve for unfunded commitments and $700,000 of severance costs in the sales and marketing line that resulted from a reorganization in the revenue team.

None of these items were added back as part of our adjusted net income calculation, but they did contribute to an increase in our fourth-quarter efficiency ratio, up to 48.7% and our adjusted efficiency ratio to 46.7%. Finally, on income taxes, we recorded a $5.4 million tax benefit in the fourth quarter that was driven by a $7.5 million release of the valuation allowance against our U.S. deferred tax assets. We previously indicated that we would evaluate releasing part of the valuation allowance at the end of 2019, and it was a positive development that we were able to do so.

Our ability to release the remaining $37 million valuation allowance will be driven by our continued U.S. profitability and earnings outlook. Excluding the roughly $10 million of tax-related benefits we had in 2019, our full-year effective tax rate was approximately 34%, an amount above U.S. statutory rates due to the losses from our international businesses.

The fourth-quarter core tax provision was higher than in previous quarters as it included about $1 million of true-up items to get us to the required annual amount. Turning to the balance sheet, liquidity remains strong as we had over $350 million of available borrowing capacity within our $1.3 billion of committed debt facilities and $56 million of cash and equivalents at year-end. We have made considerable progress optimizing our capital structure. We repurchased 7.5 million shares in the fourth quarter, bringing total 2019 repurchases to 10.7 million shares, at a cost of approximately $44 million or $4.11 per share.

And we repurchased another 1 million shares in January for roughly $4 million, which essentially completed our $50 million buyback authorization. Accordingly, the board has authorized an additional $50 million for share repurchase. As a result of this buyback, our leverage ratio increased to roughly 2.9 times at year-end but remains below our target ratio of roughly four times. And our diluted share count at year-end was approximately 69 million shares, down from 79 million before we commenced the repurchases last July.

As I mentioned, our average repurchase price has been around $4.11 per share, which is below our current book value per diluted share of $4.26, so the buybacks have been accretive to both EPS and book value per share. Turning to 2020, we expect many of the positive trends I just discussed to continue as we execute on the strategic priorities Noah highlighted, namely, growing our U.S. core lending franchise, scaling our international equipment finance and ODX adjacencies, further increasing our capital efficiency and advancing our bank strategy. The press release contains our detailed financial guidance for the first quarter and full year of 2020, along with commentary on the expected annual trends and certain key performance indicators and related drivers.

A few items to note. First, our full-year net income and adjusted net income guidance are the same at $25 million to $35 million. Usually, our adjusted net income is higher as we add back stock-based compensation. However, our guidance also assumes we released another $10 million of valuation allowance against our U.S.

DTA in the fourth quarter, and those two items largely offset in the adjusted net income guidance calculation. Second, the guidance also incorporates expected impact from our adoption of CECL and includes approximately $5 million of expenses related to our pursuit of a bank charter, which is up from about $3 million in 2019. And finally, the guidance assumes the macroeconomic, small business lending and capital market environments remain steady in 2020, with some softening in the U.S. economy beginning in 2021.

With that, let me turn the call back over to Carol, so we can begin our question-and-answer session.

Questions & Answers:


[Operator instructions] Our first question this morning comes from Steven Kwok from KBW. Please go ahead.

Steven Kwok -- KBW -- Analyst

Great. Thanks for taking my questions. I guess the first one I had was just around the loan growth in 2019. It came in a little bit below what our expectations were.

Can you just talk about the drivers of that and perhaps touch upon the competitive landscape as well?

Noah Breslow -- Chief Executive Officer

Yes, sure. Happy to, Steve. So, this is Noah. So, as we mentioned in the prepared remarks, our application growth was actually quite strong in 2019.

But, as you know, we did do a credit pullback, which brought down our conversion rates through most of the year. So, I think what you saw in the fourth quarter was really just a continuation of that trend. Our approval rates were a little bit lower in the fourth quarter, which, as you know, the credit policy doing its job, and the competitive environment remained similar to the past couple of quarters, remained elevated. So, the other dynamic that may be a little bit unique to the fourth quarter is having to do with our offer of quality initiatives.

So, we actually have extended loan terms starting around June of last year, and so what that does is it pushes out the time frame for certain customers to take renewal loans a few months later. And so, that just pushed volume back, but we don't think necessarily brought volume away. But the loan book did grow 3% in the fourth quarter. And if you look at the guide for this year, we're really talking about reramping the growth rate a bit here in 2020, so looking at kind of that low double-digit level versus kind of a high single-digit level we achieved in 2019.

So, we feel good about the growth prospects. The 2020 year is off to a good start.

Steven Kwok -- KBW -- Analyst

Got it. And just if you could just touch upon -- like is it just because you're reaccelerating the funnel, and that's going to help drive you to get to that low-teens growth in 2020? Is that how we should think about it?

Noah Breslow -- Chief Executive Officer

Yes. There's a couple of drivers that I think are worth calling out. So, one is around the funnel. Yes, we definitely see a bunch of opportunities to improve conversion rates.

The second is really around the line of credit product. It's sort of come of age now. We've been offering this product now for five or six years, but it's becoming a bigger and bigger part of our loan book. We're finding that in certain segments, we actually think it's more profitable to sell a customer a line of credit than a term loan.

We're actually doing a fair amount of work on the pricing and optimizing the pricing of that product, so that growth rate last year was, I think, near 50%. So, as that becomes a bigger part of our mix, you are going to see that drive some incremental growth. And then finally, we do have a number of kind of strategic partnerships we're working on. And we saw nice growth in 2019 in our platform kind of channel, strategic partner channel, and I do think we're going to see that continue to be a driver of growth in 2020.

Steven Kwok -- KBW -- Analyst

Got it. And just one last follow-up is. Just if, let's say, growth were to come in around this year's level of high single digits, is the net adjusted net income that you guys forecast, is that still achievable on if you have, like, expense leverages to get you back to there? Thanks.

Ken Brause -- Chief Financial Officer

So, obviously, our guidance is predicated on an assumed asset growth rate. But the way, as you know, our P&L works, less new originations also mean less provision dollars, so there would be offsets, as well as some of the variable costs that wouldn't be there.

Noah Breslow -- Chief Executive Officer

Yes. So I think plus or minus a few percentage points, you see that flex in the provision rate kind of offsetting to the positive to allow us to get to the adjusted net income guidance. So, we feel good about the guide and also feel good about the growth.

Steven Kwok -- KBW -- Analyst

Great. Thanks again.

Ken Brause -- Chief Financial Officer

Thanks, Steven.


Our next question comes from James Faucette from Morgan Stanley. Please go ahead.

Steven Wald -- Morgan Stanley -- Analyst

Yes, good morning. It's Steven Wald on for James. Just following up on one of the questions around accelerating the funnel you guys mentioned, and your outlook and comments on the slight softness in some pockets of the economy. Just to be clear, we're not talking about a reopening of the credit box, right? Could you just walk us through how you're thinking about the improved conversion rates and the quality of that and how that plays into your comments for flat to, I guess, mid-down softness in terms of the next couple of years?

Noah Breslow -- Chief Executive Officer

Yes. So, part of the comments about future softness relate to CECL, where you have to explicitly incorporate an economic assumption in your guidance. So, we do feel good about the economic outlook broadly for 2020. The segments that we see right now that are underperforming are wholesale trade, manufacturing and transportation, and we think we can be somewhat surgical, as we mentioned in the prepared remarks, about doing a little bit of pulling back there.

But we see that being more than offset by almost a natural growth rate in line of credit, right? We've been working with many line=of=credit customers for a while. Over time, as they prove themselves, they get slightly higher credit lines. We also haven't been selling the line-of-credit products in certain distribution channels like our partner network, and we're rolling that out quite a bit this year. So, also, on the conversion funnel, we've identified a number of kind of internal process opportunities to improve our customer experience that we believe very strongly will have positive impacts on conversion rates.

So, I think when I look at the way we're going to grow this year, it isn't really through a wholesale opening up of credit. Quite the opposite, I think it's more about tuning our customer experience, making sure we continue to be the fastest or near the fastest customer experience player in the market. And then growth in our partner channels, growth in our line of credit products and even also growth in international and equipment finance, too, which should have very nice growth rates this year, growing faster than the core business.

Steven Wald -- Morgan Stanley -- Analyst

Got it. And then maybe just turning to the expenses and efficiency. I know, Ken, you talked about some of the pieces that drove the higher expense this quarter. If we think about the run rate, you guys are running around 40% adjusted efficiency in 2018.

With all the confluence of events, right, these expenses coming out, international becoming profitable, is it reasonable to expect you to get down toward the low 40s or even 40% next year? Or what sort of paths should we think about for the efficiency?

Ken Brause -- Chief Financial Officer

So, if you go back to our long-term targets, that actually has an efficiency ratio a little bit north of 40% in there, so I wouldn't think it's realistic to expect we'd be there in 2020. But I think if you looked at the exit run rate for the fourth quarter, adjusted for the items that I called out and then you build in some inflation and nominal growth just related to growth in the business and then I did call out about $2 million extra spend related to our pursuit of the bank charter, I think you get to what would be a reasonable level to assume for opex. But we do expect this year to be a year of operating leverage.

Steven Wald -- Morgan Stanley -- Analyst

Got it. And if I could just squeeze one more...

Ken Brause -- Chief Financial Officer

Not to 40%. I won't take that leap.

Steven Wald -- Morgan Stanley -- Analyst

Got it. Totally understood. If I could just...

Ken Brause -- Chief Financial Officer


Steven Wald -- Morgan Stanley -- Analyst

OK. So, if I could just squeeze one in on that bank charter piece. I saw you guys put in the goal for 2020 to submit an application. We just saw one of your private peers, I guess, so to speak, in the space get approved in one way or the other for some FDIC insurance, but that's still ongoing for them.

It sounds like this could take -- if you're submitting this upcoming year, go through it the following year, are we sort of looking at 2022 and outward in terms of where you could implement a more bank charter-focused strategy? And what does that mean for the strategy from here to there?

Noah Breslow -- Chief Executive Officer

Yes. That's a great question. I mean, first, we were pleased to see the development yesterday where Varo Money received the FDIC approval. That was a lot of hard work that they put in to get there.

But I would say that the situation On Deck is in is quite different than Varo in the sense that they were building a company essentially from scratch, whereas On Deck is profitable, public, has been operating for over a decade. And so, a lot of the infrastructure that you need and the capabilities builds you need to pass regulatory approval are many of the things we've already built into the business. So, I wouldn't say 2022. That feels kind of aggressive.

I think 2021 is more realistic, but we can't speak to the exact timing. And certainly, as we said in the prepared remarks, yes, we will provide more details on our progress and strategy here. But this is informed by interactions we've had with regulators and our advisors over the past kind of six to nine months.

Steven Wald -- Morgan Stanley -- Analyst

Great. Thanks.


[Operator instructions] Our next question comes from Melissa Wedel from JP Morgan. Please go ahead.

Melissa Wedel -- J.P. Morgan -- Analyst

Thank you. Good morning, guys. Thanks for taking my questions. I was hoping if you could touch on the tech spend line item.

I'm wondering, there seems to be quite a bit of increase in tech and analytics spending in 2019. Obviously, I understand that's a big part of your platform and your model. But wondering how you're thinking about tech spend year over year into 2020.

Ken Brause -- Chief Financial Officer

Sure, Melissa. It's Ken. I think one of the most notable things to remember, as I called out, in this quarter, there was a $1.7 million impairment charge in that second analytics fund, so that's certainly not a run-rate item. And if you may recall, we also talked earlier in the year about some incremental spend this year related to both enhancing the technology platform at ODX, as well as making some investments in the core processing engine at online lender.

So, I think you've seen all those investments flow through that line this year, but probably the most notable in this quarter is that additional $1.7 million of impairment that should not repeat itself.

Melissa Wedel -- J.P. Morgan -- Analyst

OK. And then as we think about sort of the incremental repurchase authorization, when you think about how to deploy that or pace that, how are you framing that decision?

Ken Brause -- Chief Financial Officer

So, we made the commentary about the expectation of repurchasing approximately $30 million over the course of 2020, and I think it would be appropriate to assume that that gets done evenly over the course of the year. As we've said, we're not traders. We're not market timers here. That said, we will be opportunistic if good situations present themselves, but I think our expectation is to just do it ratably over the year.

Melissa Wedel -- J.P. Morgan -- Analyst

OK, great. If I could throw in one more question here. Lastly, I wanted to touch on some of the change in FICO scoring methodology. I'm wondering if that impacts your underwriting process at all.

Thanks very much.

Ken Brause -- Chief Financial Officer

Melissa, you're talking about the newly announced changes to the scores?

Melissa Wedel -- J.P. Morgan -- Analyst

That's right.

Noah Breslow -- Chief Executive Officer

Yes. So, Melissa, I can take that one. We will assess, basically, the impact of the new FICO score, refit our models and strategies as appropriate, but I would say that FICO is just one input to many things we use in our decisioning. So, it's a holistic evaluation of a business and an owner.

The On Deck score is really the primary measure of creditworthiness that we use, so we don't see it dramatically impacting the portfolio. And frankly, we did do some analysis of the new FICO score changes. We don't think it's going to move metrics in a material way at the portfolio level.

Melissa Wedel -- J.P. Morgan -- Analyst

Thanks, guys.

Ken Brause -- Chief Financial Officer

Thanks, Melissa.


Our next question comes from Scott Buck from B. Riley FBR. Please go ahead.

Scott Buck -- B. Riley FBR -- Analyst

Hey, good morning, guys. Just curious where you see the incremental loan growth coming from in 2020. I mean, is it industry-specific or geographic or just a little bit of both?

Noah Breslow -- Chief Executive Officer

No, a little bit more channel-driven and product-driven. So, I think we see a lot of growth this year coming from our strategic partners, both kind of existing partners that we're deepening relationships with, as well as new partners we have in the pipeline. We see a lot of growth this year coming from line of credit. So, as line of credit comes of age, it has sort of a natural growth rate.

As customers get more time with us, improve their creditworthiness, we offer them slightly better credit lines or slightly better terms, and that in turn increases draw volumes. Instant funding also increases draw volumes. So, we're seeing lots of, like, what I would call natural and very highly efficient growth, I would say, in that product right now. And then finally, international and equipment finance also have growth rates that are going to be much higher than the core U.S.

business. So, really, those things coming together more so than any particular industry or geography.

Scott Buck -- B. Riley FBR -- Analyst

Perfect. And any plans for additional product launches in 2020, or are we just watching a maturation of the current product lineup?

Noah Breslow -- Chief Executive Officer

Yes. I think we feel that we have a much more opportunity right now on maturing line of credit and, particularly, equipment finance as well, which is going to ramp quite a bit by the end of the year. Again, not as a huge part of our overall portfolio, but really, we're starting to get some nice momentum there. So I think we're focused really on those kinds of three core offerings for our customers right now, scaling those.

And I should mention here the term loan book we expect to grow as well because of the maturity lengthening that we did in 2019. So, really, the core three products have a lot of growth in front of them. We have said in the past that over the long term, there is a number of other products that small business owners use whether it's small business administration loans, invoice factoring, small business credit card, those are some of the ones that we think about in the longer term. But for this year, we're focused on those three offerings.

Scott Buck -- B. Riley FBR -- Analyst

OK. Perfect. Thank you, guys.


[Operator instructions] And we have no one else in queue at this time. [Operator signoff]

Duration: 38 minutes

Call participants:

Steve Klimas

Noah Breslow -- Chief Executive Officer

Ken Brause -- Chief Financial Officer

Steven Kwok -- KBW -- Analyst

Steven Wald -- Morgan Stanley -- Analyst

Melissa Wedel -- J.P. Morgan -- Analyst

Scott Buck -- B. Riley FBR -- Analyst

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