Banking & Finance

Report: Live Oak's Earnings Dropped Significantly In Last Months Of 2018

By Jenny Callison, posted Jan 24, 2019
Live Oak Bancshares' reported earnings for the fourth quarter of 2018 were down significantly from those of the same period in 2017, according to the company's announcement Wednesday.
Fourth quarter net earnings available to common shareholders were $10.5 million, or $0.26 per diluted share, compared to $71.7 million, or $1.74 per diluted share, for the fourth quarter of 2017, Live Oak's news release stated. The announcement did explain, however, that revenues in Q4 2017 were boosted as a result of several one-time events.

"The fourth quarter of 2017 included a one-time pretax gain of $68.0 million related to an equity method investment in Apiture, LLC ("Apiture"), an $18.9 million revaluation of the Company's net deferred tax liability, and several other smaller non-routine costs," the release stated.
For the entire year ended Dec. 31, net earnings totaled $51.4 million ($1.24 per diluted share), compared to $100.5 million ($2.65 per diluted share) for the previous year.

At Wednesday's close, Live Oak's (LOB) stock price on Nasdaq was at $15.41 per share. As of noon Thursday, shares were trading at $13.94. The company's asset size is $3.67 billion.

"During the fourth quarter of 2018, the Company implemented a strategic decision to retain a larger portion of its loans eligible for sale on balance sheet in order to reduce earnings volatility and maximize long-term profitability with what the Company believes is a more predictable earnings model," according to the release.

In its earnings conference call Thursday morning, bank officials said that Live Oak's enduring goals are soundness, profitability and growth. Over time, officials added, they are changing the LOB model to provide more "consistency, certainty and predictability."

Bright spots for the fourth quarter include an uptick in net interest income and servicing revenues: $36,547,000 for the last quarter of 2018 as compared with $28,977,000 for the final quarter of 2017.

"The increase from the prior year was driven by the significant growth in the combined held for sale and held for investment loan and lease portfolios, along with higher investment security holdings reflecting the Company's ongoing initiative to grow recurring revenue sources," the release stated.  

Loans and leases originated in Q4 2018 also showed improvement, totaling nearly $499 million, compared with about $377 million in Q3 2018 and $483.5 million in Q4 2017. At year's end, this portfolio was worth more than $2 billion.

"At December 31, 2018, the total loan and lease portfolio of $2.53 billion increased 25.0% from its level a year ago and 11.1% from its level at September 30, 2018," the release stated. "Compared to the third quarter of 2018, loans and leases held for investment increased $212.1 million, or 13.0%, to $1.84 billion while loans held for sale increased $40.9 million, or 6.3%, to $687.4 million."  

The company's deposits have grown steadily as Live Oak has sought to build that side of its business.

Total deposits, according to the release, increased by $225.3 million, or 7.7 percent, to just over $3 billion as of December 31, 2018, up from $2.9 billion at the end of Q3.

"On the deposit side, we continue to have success growing our online savings and CD portfolios with balances up over 50 percent year-over-year,” said Live Oak Bank President Huntley Garriott in Thursday’s earnings conference call. 

"The market remains competitive as we've seen in the roughly 70-basis-point increase in our cost of retail deposits over the year, but the business remains extremely efficient with only 13 basis points of direct expenses to run the entire platform,” he continued. "We're confident that in 2019 the technology investments we've made over the last several years will allow us to introduce new deposit products, including checking accounts, and deliver them across multiple channels, including to our small business customers and through banking as a service partnership."

More recently, during the partial federal government shutdown, Live Oak officials have been keeping an eye on the impact the shutdown has had on USDA and SBA loans.
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