Live Oak Bank’s first quarterly report since going public in July of this year shows the bank is growing, despite a dip in the quarter's net income.

The report, released Wednesday, showed net income for the third quarter was slightly lower than that of the second quarter and cited the cause as negative valuation adjustments to the servicing assets of $3 million combined with fewer loans sold in some of Live Oak’s new lending niches.  

Wilmington-based Live Oak Bancshares Inc. [LOB] reported third quarter net income of $2.9 million, or $.09 per diluted share, compared to $3.9 million for the second quarter of 2015. The numbers were up sharply, however, compared with those of the third quarter of 2014, when net income totaled $641,000.

"LOB reported a $0.05 miss versus the Street in its first quarter as a public company, but we see the miss as more of a timing issue versus any change of earnings power or growth outlook," Keefe, Bruyette & Woods analyst Jefferson Harralson wrote Thursday.

Loan production, according to the bank's report, totaled nearly $303 million during the third quarter of 2015 compared to about $277 million in the second quarter 2015. Year-to-date loan production was $828 million, compared to $584 million for the first three quarters of 2014.

"We are on track to originate $1.1 billion this [calendar] year,” CEO and chairman Chip Mahan said in the bank’s news release, commenting on the year-to-date loan production. “The year-to-date origination volume represents approximately a 40% growth over the same three-quarter period of 2014. This has been the result of growth in our legacy verticals as well as new verticals added in 2015.”

The nearly $303 million of originations this quarter was better than Keefe Bruyette had estimated, according to Harralson, who noted in his analysis his firm had anticipated Live Oak would originate about $288 million in loans in the third quarter. This volume puts the company "ahead of pace" for the $1.1 billion in 2015 estimated originations, he wrote.

Harralson referred to the fact that Live Oak had sold fewer guaranteed loans than expected, and saw this as one factor accounting for the "miss."

"Specifically, LOB sold 49% of its originations, or $147 million, versus our 53% estimate (or $153 million of loans), a $6 million difference. This equated to a $0.01 miss versus our estimate," he wrote. "LOB cites longer retention periods and changing market conditions for the lower gain on sale."

In an analysis issued later Thursday after a morning conference call regarding the bank's earnings report, Harralson said that many of Live Oak's new loans are construction loans and that "existing construction loans are experiencing construction delays." A project expected to take nine months is now taking 12 to 15 months, he said.

"This reduces the near term gain on sale, but the earnings power is unchanged over time and these loans will eventually sell and the origination ramp is strong and in line with expectations," Harralson wrote.

Thursday afternoon, Live Oak shares on the Nasdaq exchange were at $15.87, down slightly from Wednesday's closing price of $16.91.

The bank is the nation’s second-largest SBA lender in terms of dollars, according to the SBA. In the 2014-15 federal fiscal year ended Sept. 30, Live Oak Bank made 966 SBA loans for a total of about $1.15 billion. It lends to small businesses in selected industries. Currently, those targed industries are veterinary, medical and dental, pharmacy, funeral homes, family entertainment centers, hotels, insurance, agriculture, wine and craft beverage, self storage and investment advisory.  

Live Oak expects to keep expanding its lending reach, according to Mahan.

“We are focused not only on building out our existing verticals but incrementally adding new verticals to our lending portfolio," he said in the release.

In September, the bank also launched a new eLending platform, which offers loans of $25,000 to $350,000 that can be used for renovations, remodels and acquisitions as well as for purchases of equipment and merchandise, according to the Live Oak Bank website. With the process conducted online, this program “offers approvals within 48 hours of receiving documents, little to no equity requirements, fast closings (generally within 30 days), no prepayment penalties, 10-year terms (fully amortizing, no balloons), capped closing costs and low rates,” the website states.