Live Oak Bancshares (LOB) Q4 2016 earnings summary

Executive summary

• Assets grew 66.8% YoY to $1.76B; 2016 originations reached $1.54B, up 32.7%, as lending expanded to 13 industry verticals. Soundness remained the stated priority.

• Held-for-investment loans rose 224.2% to $907.6M, including a $318.8M transfer of unguaranteed SBA loans from held for sale to held for investment to build recurring revenue.

• Reported net income fell 33.2% to $13.8M, while adjusted non-GAAP net income increased 9.8% to $20.1M, reflecting growth alongside investment and one-time items.

Financial highlights

• Net interest income increased 66.7% to $42.6M; total noninterest income rose 10.9% to $93.5M, and core revenue from NII, servicing and loan-sale gains reached $139.4M, up 27.8%.

• Net income attributable to common shareholders was $13.8M, or $0.39 diluted EPS, versus $20.6M, or $0.65, in 2015; adjusted non-GAAP EPS was $0.57 versus $0.57.

• Loan originations totaled $1.537B; guaranteed loan sales were $761.9M, up 18.9%, and net gains on loan sales increased 11.8% to $75.3M.

• Q4 net income to common shareholders was $5.48M, or $0.16 diluted EPS; a $2.99M income tax benefit contributed to the quarter's result.

• Deposits increased 84.5% to $1.49B; total assets rose 66.8% to $1.76B, while shareholders’ equity reached $222.8M from $199.5M.

Outlook and guidance

• 2017 loan origination guidance was $1.80B–$1.90B, with continued expansion of current verticals and incremental additions of new verticals.

• Strategy called for entering two to four new verticals annually and targeting 15% YoY companywide origination growth, while maintaining a strong credit culture.

• Management anticipated further growth in held-for-sale and held-for-investment loans, including construction lending and potential conventional lending outside government-guaranteed programs.

• Digital deposit products were planned to combine checking, merchant services, bill pay, remote deposit, account aggregation and industry-specific financial forecasting.