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Banking & Finance

Live Oak Earnings Soared In 2017

By Jenny Callison, posted Jan 26, 2018
Live Oak Bancshares Inc. earnings for 2017 took a significant leap over those of 2016, according to the Wilmington-based company’s most recent financial report.

Net earnings for the year ended Dec. 31 totaled $100.5 million, or $2.65 per diluted share, compared to $13.8 million, or $0.39 per diluted share, for the year ended Dec. 31, 2016, the company (Nasdaq: LOB) reported in a news release Wednesday.

Fourth quarter earnings were similarly strong. The release reported net earnings available to common shareholders of $71.7 million, or $1.74 per diluted share, compared with $5.5 million, or $0.16 per diluted share, for the fourth quarter of 2016.  The fourth quarter of 2017 included a pretax gain of $68 million related to Live Oak’s equity method investment in Apiture, its new financial technology joint venture with First Data Corp. Apiture officials said last year that the company would be headquartered in downtown Wilmington. 

The fourth quarter also saw an $18.9 million revaluation of the company's net deferred tax liability and several other smaller non-routine costs, according to the release. 

Last year "was a phenomenal year for Live Oak in many ways,” CEO James “Chip” Mahan III said in the release. “We enjoyed record earnings per share of $2.65 while experiencing terrific growth in recurring revenue sources that exceeded $100 million. We continued our mission to serve small businesses with record-setting loan originations in excess of $1.9 billion while steadily expanding the roster of industry sectors we focus on.”
Mahan noted that his company – parent to Live Oak Bank – conducted a “highly successful” capital raise in 2017 and added, “while recent changes in the tax code further bolstered our capital account, affording us additional opportunities to invest in our growth, our employees, our customers, and our community.”

While lending-related income provided the largest share of Live Oak Bancshares’ revenues in 2017, the company also logged increased revenue from deposit activity – a major initiative for Live Oak Bank.
 
Total deposits as of Dec. 31 were at $2.26 billion, compared with $2.01 at the end of the third quarter of 2017 – an increase of $247.4 or 12.3 percent, according to the report.
 
Other highlights mentioned in Thursday’s earnings conference call included:
  • Year-over-year loan originations were up 26 percent in 2017, from $1.54 billion in 2016 to $1.93 billion in 2017;
  • Over the past four years, recurring revenue has grown 55 percent, from about $27.5 million in 2014 to $102.6 million in 2017.
  • Since 2014, Live Oak’s lending portfolio has grown 59 percent, from $499 million in loans and leases in 2014 to just over $2 billion in 2017.
Speaking about the growth in recurring revenue, Mahan said in the call, “It's shocking and exciting that just three years ago today we generated $27 million of recurring revenue -- that being defined as net interest income plus loan servicing revenue. And we have quadrupled that this year to over $100 million. So our recurring revenue as a percent of total revenue has increased from 37 percent to 56 percent, because the loan portfolio quadrupled as well from $499 million to over $2 billion.”
 
Earnings call comments from Live Oak Bancshares officials emphasized the sustainability of the company’s model. Scott Custer, president of Live Oak Bank, referred to a chart showing the revenues generated in 2017 from the company’s three groupings of loan verticals – classed by the year(s) they were launched: Live Oak 1.0 (2008-2014), 2.0 (2015-2016) and 3.0 (2017).
 
Live Oak 3.0 started in 2017 "and you see the early returns there are exceptional and we believe look very good for 2018, based on current pipeline,” he said.
 
Speaking of continuous growth within industries, or verticals, to which Live Oak lends, Custer said, “ ... once we get a vertical up and running, once it catches its momentum, you see the healthy growth characteristics that are there with a year-over-year growth from $441 million to $805 million.”
 
There are seven verticals in the Live Oak 3.0 group. In the earnings call, Mahan was optimistic about the company’s ability to keep adding new industries to its lending portfolio, saying “I think we can continue to grow that business four verticals a year-ish.”

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