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Banking & Finance

Live Oak Bancshares Reports Increase In EPS, Bump In Lending Activity

By Jenny Callison, posted Jan 28, 2021
Live Oak Bancshares late Wednesday reported fourth-quarter earnings that beat analyst expectations.
 
The company, the parent of Wilmington-based Live Oak Bank, posted quarterly net income of nearly $29.6 million, which translates to earnings per share of $0.68. The Zacks Consensus Estimate for EPS was $0.52 per share.
 
Net income for the quarter was below expectations, however, falling roughly $4.2 million below that of the third quarter of 2020.
 
Net earnings for the company’s fiscal year that ended Dec. 31, totaled $59.5 million, or $1.43 per diluted share, up 32% from those of the previous fiscal year.

Comments from officials focused on the company’s strengths, its service to small businesses in 2020, and an upbeat assessment of what Live Oak Bank President Huntley Garriott called "the convergence of banking and fintech."
 
“Our mission to be America’s small business bank has never been more important. The past year was incredibly challenging for our country’s entrepreneurs, and their drive and determination reinforce why we want to fundamentally shift the way banking is done,” company Chairman and CEO James "Chip" Mahan said in the news release. “As our efforts to drive rapid change in financial technology gained momentum in 2020, our teams continued their relentless focus on supporting customers in a time unequaled in recent history.

“In 2020, we grew assets by $3 billion by serving small businesses across the U.S. and significantly increased net income,” his statement continued. “Our balance sheet and funding model position us very well to serve America’s small businesses in the coming year. We will continue to drive the core earnings of the bank while providing vital capital to small business owners who are the cornerstone of our country’s economy.”

During Thursday morning's earnings conference call, Mahan and other officials stressed the 76% year-over-year increase in loan and lease production, from $3.6 billion in 2019 to $6.3 billion at the end of 2020. Paycheck Protection Program lending contributed to this past year’s numbers.

“The total loan and lease portfolio of $6.32 billion is comprised of $1.50 billion of Paycheck Protection Program (“PPP”) loans, net of deferred fees and costs, at December 31, 2020,” the company’s release stated.

Total deposits increased to $5.7 billion at the end of 2020, a year-over-year increase of $1.49 billion (32%) and an increase of $6.8 million compared to deposits as of the end of Q3 2020.

“The modest increase in total deposits from the prior quarter is the result of utilization of heightened liquidity levels on the balance sheet at the start of the quarter in response to COVID-19 uncertainties,” officials stated in the release. “Average total interest-bearing deposits for the fourth quarter of 2020 decreased $138.6 million, or 2.4%, to $5.55 billion, compared to $5.69 billion for the third quarter of 2020.”

A key aspect of the earnings call Thursday morning was a discussion of Live Oak Bank’s role in connecting small businesses with available federal COVID-19 relief, especially PPP financing.

Mahan used the example of one borrower, a bowling alley, that was completely shuttered for many weeks but, thanks to PPP and other SBA loan programs such as Economy Injury Disaster Loans (EIDL), now has enough cash to see it through another 12 months of coronavirus restrictions, should restrictions continue that long.

Family entertainment businesses, such as the bowling alley, are one of six verticals that have been most affected by the pandemic. Mahan said he had asked the bank’s business development officer Kay Anderson to “dedicate her life” to what he calls the “Covid 6,” monitoring their status and offering help.

Anderson spoke of her largely successful efforts to improve the financial picture for borrowers in those six industries: entertainment centers, hotels, wine and craft beverages, educational services, fitness centers and quick-service restaurants.

“We have been examining the characteristics of these borrowers, which make up 17% of our borrowers,” she said. “It’s noteworthy that their classified assets have pretty much stabilized.”

As of 3:45 p.m. Thursday, Live Oak's shares were trading at just above $40 per share on the Nasdaq exchange. The company's stock has risen over the past six months from a price of about $17 per share in late July.

Learn more about Live Oak Bank's COVID-related lending, tech investments and workforce prospects in the Greater Wilmington Business Journal's Feb. 5 Banking & Finance column.
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