Like its leafy namesake, Live Oak Bank continues to expand its reach while sinking its roots deeper in home soil.

Extending the canopy

In operational terms, extending the bank’s reach means adding more clients within the professions it serves, and growing horizontally by adding new categories of clients.

From its beginnings in May 2007, the bank has adhered to an unusual business model. It makes SBA loans to professions whose practitioners typically have high profits and stellar loan repayment histories. In its sapling days, Live Oak made those loans to veterinarians who wished to purchase, expand, remodel or refinance an existing practice. When that concept proved successful, Live Oak expanded its clientele to dentists, and then to independent pharmacists.

While their target professionals have proven to be excellent borrowers, traditional commercial lenders don’t see it that way, said Live Oak chairman Chip Mahan, in a May 30 interview with Fox Business.

Mahan used the theoretical example of a recent veterinary school graduate who goes into practice with a vet nearing retirement. After a few years of experience, the young vet wants to purchase the practice, but with relatively small savings, and substantial student debt, the loan applicant is not attractive to a traditional lender.

Live Oak, Mahan said, views the situation differently, looking at the practice’s cash flow, the young veterinarian’s prospects as head of the practice, and the loan repayment record of vets in general.

“We ask [the applicant] to bring us a plan for success,” Mahan said. “And we can usually have an answer to them in 48 hours,” he said.

Mahan added that, after five years of making SBA loans to its target professionals, Live Oak Bank has a 1.5-2 percent charge-off rate, which is the same as that of a traditional lender. It has also become the second- or third-largest SBA lender in the nation, behind Wells Fargo and, possibly, JP Morgan Chase. Mahan said, in the interview, that Live Oak expects to lend between $350 million and $400 million in 2012.

Most recently, Live Oak has begun making loans to funeral directors.

“Funeral home directors are at top of the SBA list,” said Live Oak Bank vice chairman Lee Williams, in an interview last fall. “It doesn’t take a rocket scientist to figure out that we should be lending to them. While they are fairly well served by banks, there are some SBA products that fit well into their capital needs.”

Research is at the heart of Live Oak’s success. Williams explained that each fiscal year, the SBA publishes a list of business categories that have the best repayment histories. Live Oak’s executives have expanded their lending based on that list, researching the target profession thoroughly and inviting one or more members of that profession to join its board. Then it tackles that market nationally.

The profitability of the bank’s lending business has resulted in retail offerings with attractive rates of return. Using its online banking expertise, Live Oak has attracted brokered deposits, money market accounts and certificates of deposit via Internet. Wilmington area residents can also bank in person.

Sinking its roots

Increasing its advertising of retail services is one way that Live Oak is signaling a larger presence in its home community. The bank is also sponsoring events and outreach efforts in the business community and beyond.

Perhaps the most visible symbol that Live Oak is sinking roots in Wilmington is rising on Tiburon Drive: the bank’s new eco-friendly headquarters, which will be complete at the end of 2012. In its 39,000-square-foot quarters, nestled in a stand of long-leaf pine, Live Oak will run a paperless operation, thanks to its software platform, nCino (see related story) and will serve walk-in retail customers as well as continue expanding its niche lending model.