While several aspects of Live Oak Bank’s fourth-quarter performance showed evidence of continued growth, its net earnings missed expectations.

On the plus side, FY 2021 fourth-quarter revenue of $111.4 million exceeded that of third-quarter revenue by more than $8 million. Loan and lease originations were also up quarter-over-quarter by about $20 million: $1.08 billion compared with $1.06 billion.

Net income for the quarter ended Dec. 31, 2021 was nearly $30.2 million, down from that of $33.8 million for the third quarter of FY21. Diluted earnings per share (EPS) for Q4 were $0.66 compared to those for Q3 of $0.76. During the company’s earnings conference call Wednesday morning, officials addressed the matter.

“Reported EPS was $0.66 in the quarter on 11% growth in pretax income and 8% growth in adjusted PPNR,” said Chief Financial Officer William Losch, guiding call participants through the company’s report. “You may have noted that both net income and EPS for the quarter were impacted by a much higher-than-normal effective tax rate of 37% versus a full-year effective tax rate of 21%.

“This was roughly a $0.06 impact to EPS in Q4,” Losch continued. “Investment tax credits associated with renewable energy investments that were anticipated to close in 2021 and reflected in our tax rates reported in the first three quarters were delayed by supply chain issues related to the pandemic.
“Therefore, the Q4 effective tax rate was adjusted for this full-year impact. These credits are expected to close in the first half of 2022.”

Discussing what Live Oak Bancorp Chairman and CEO James “Chip” Mahan called “our best quarter and best year since inception,” Losch pointed to several positive indicators from the fourth quarter.

“We experienced our third consecutive $1 billion loan origination quarter, resulting in 7% loan growth, excluding PPP [Paycheck Protection Program loans],” he said.

“Credit quality continues to be very healthy with virtually no net charge-offs in the quarter and a reduction in nonaccruals. We continue to attract talent, particularly in our lending and technology groups. We introduced our operating account called Title and made loan servicing enhancements that continue to improve our customer experience, all moving us towards our goal of building the community bank of the future.”

Officials spent considerable time talking about 2021 as a whole.

“It really was a phenomenal year, and we think it sets us up incredibly well the future,” said Live Oak Bank President Huntley Garriott. “Core revenue growth of 37% [and] expense growth of 20% drove a 75% increase in PPNR [pre-provision net revenue]. It’s a pretty amazing operating leverage.”

Live Oak's total revenue was up year-over-year more than $176 million, from $208.7 million in 2020 to nearly $457 million in 2021, the company reported. Net income in 2021 was nearly $167 million, up significantly from $59.5 million in 2020. Loan and lease originations were up slightly year-over-year.
Total deposits grew about $1.4 million from 2020 to 2021, equaling more than $7.1 million at the end of December 2021.

“Small business lending continues to be the major driver of growth and profitability for us and that success has allowed us . . . to invest heavily into developing our next-generation technology platform,” Garriott said. “From our roots as an SBA 7(a) lender across just a handful of industry verticals, we’ve diversified into over 35 verticals that you can see on the left-hand side across three distinct business segments: small business, specialty finance and energy and infrastructure.”

Live Oak, originally envisioned as an SBA lender to carefully selected industries, is expanding its portfolio, adding more verticals and also adding product and service depth within existing verticals, Garriott noted.

“Over half of our origination volume in 2021 still comes from that traditional SBA customers,” he said. “But increasingly, we’re serving a broader mix of customers with a broader suite of lending products. As we’ve grown as a company, we’ve also grown with our customers, increasingly following them up market and into covering the institutional capital providers that serve them.”