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Banking & Finance

Live Oak Q1 Report Shows Bright Spots, Exceeds Analyst EPS Expectations

By Jenny Callison, posted Apr 25, 2019
In its first-quarter earnings report Wednesday, Live Oak Bancshares announced net earnings for the quarter of nearly $2.4 million, or 6 cents per diluted share. Those amounts were down significantly from the first quarter of 2018, when the bank holding company reported net earnings of $12.5 million or 30 cents per diluted share.

Prior to the report, however, analysts had anticipated Live Oak earnings per share of no more than 2 cents.

Other Q1 key measures were net interest income and servicing revenues, which totaled just over $38 million, up from both the first quarter of 2018 ($31.4 million) and the fourth quarter of 2018 ($36.5 million). The company’s total assets rose 17% year over year, from nearly $3.5 billion in Q1 2018 to more than $4 billion in Q1 2019.

Part of that rise results from continued  growth of deposits, from roughly $3 billion a year ago to $3.5 billion at March 31 of this year, a 19% increase.

In prefacing the financial report, CEO James (Chip) Mahan wrote, “Live Oak diligently worked to execute our long-term strategic goals during the first quarter, evidenced by strong originations combined with significantly more guaranteed loans held compared to the first quarter 2018. 

“As a result of this and other efforts to continually fortify our balance sheet for maximum stability and growth, total loans and leases and investments grew $805 million, or 32%, over a year ago,” he continued. “We expect that these investments will enhance long-term profitability and allow us to better serve the needs of small businesses while also empowering our efforts to revolutionize the financial services industry.”

In a conference call Thursday morning expanding on the quarterly earnings report, Live Oak officials said that Q1 loans and leases held for sale or held for investment rose 28% year over year to $2.77 billion. They spoke again of their new practice of holding more government-guaranteed loans. Because the company is selling fewer of these loans, there is less revenue from sales.

Wilmington-based Live Oak Bank is the No. 1 SBA lender in the U.S. During the first quarter of 2019, SBA-backed 7(a) loans made up 74% of the bank’s lending portfolio, with USDA loans at 8% and conventional loans at 18%.

New business prospects are bright, according to Live Oak Bank President Huntley Garriott.

“Our pipeline is at all-time highs,” he said.

During the conference call, officials emphasized Live Oak’s fiscal soundness and careful management. Mahan cited the high level of stock ownership from inside the company as a positive indicator of confidence.

“They want to be extremely conservative,” he said of the inside stockholders.

As they spoke of the company’s solid asset quality and good management, officials said they are also focusing on minimizing expenses.

“The first quarter reflects a lot of hard work,” Mahan said. “Everybody is digging in and being good stewards. We’re very expense-minded. And we continue to see good growth opportunities.”

Mahan said that Garriott has been tasked with expense management for the bank. In his comments during the conference call, Garriott echoed that responsibility.

“This is a transitional year for us,” he said. “We’re working hard to keep expenses flat, increase our recurring revenues and reduce our dependency on volatile earnings.”

Live Oak has been more aggressive in the past two years in adding new verticals to its lending portfolio. Between 2008, when the bank was founded, to the end of 2016, it grew its lending network to 13 industries. Since the beginning of 2017, it added 14 verticals.

This version of the story corrects several figures stated in the earlier version, as a result of rounding errors. 
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