Live Oak Bancshares (LOB) Q4 2017 earnings summary

Executive summary

• 2017 growth broadened the lending platform to 20 verticals after entering seven new markets; strategy emphasizes recurring revenue, disciplined expansion and financial technology.

• Reported net income rose to $100.5M from $13.8M, with major one-time contributions from the $68.0M Apiture gain and $18.9M tax benefit; adjusted net income was $47.2M.

Financial highlights

• Net interest income increased 83% YoY to $78.0M; net interest income plus loan servicing revenue rose 60.2% to $102.6M.

• Core revenue, defined as net interest income, servicing revenue and loan-sale gains, increased 30.0% to $181.2M.

• Q4 net income was $71.7M and diluted EPS $1.74, including $95.4M noninterest income and the Apiture gain.

• Loan and lease originations rose 25.8% to $1.93B; guaranteed loan sales increased 3.4% to $787.9M as more loans were retained for recurring revenue.

• Deposits grew 52.2% to $2.26B; total assets increased 57.2% to $2.76B.

Outlook and guidance

• Management expects held-for-sale and held-for-investment portfolios to grow with healthy originations, greater loan retention, construction lending and potential conventional lending beyond government-guaranteed programs.

• Strategic aim: establish at least four new verticals annually, while pacing growth to protect credit capacity; further product diversification is planned.

• 2018 effective tax rate was projected in the low-to-mid single digits, subject to income mix, investment tax credits, discrete tax effects and final Tax Act accounting.

• SBA equity eligibility procedure changes effective Jan. 1, 2018 were expected to adversely affect originations, particularly in Agriculture and other affected verticals.