Live Oak Bancshares (LOB) Q4 2019 earnings summary

Executive summary

• Record 2019 loan and lease production of $2.00B across 1,070 small businesses; held-for-sale and held-for-investment balances rose 42.8% to $3.61B.

• Strategic retention of eligible loans shifted earnings toward recurring net interest income, reducing loan-sale volume and near-term reported earnings.

• Technology investment advanced toward a cloud-native, API-first banking platform, with Finxact core testing underway and a 33-vertical lending footprint.

Financial highlights

• 2019 net income was $18.0M, or $0.44 diluted EPS, versus $51.4M and $1.24 in 2018; adjusted non-GAAP net income was $19.3M and adjusted diluted EPS was $0.47.

• Net interest income increased 29.7% to $140.1M; net interest margin rose to 3.65% from 3.62%.

• Noninterest income fell 34.6% to $67.9M, principally from a $46.2M decline in loan-sale gains as guaranteed loan sales dropped 64.0% to $340.4M.

• Total assets increased 31.2% to $4.81B; deposits rose 34.3% to $4.23B, supporting portfolio growth and balance-sheet management.

• Noninterest expense increased 8.0% to $164.9M; provision for loan and lease losses rose 49.9% to $19.6M.

Outlook and guidance

• Management expected continued growth in held-for-sale and held-for-investment portfolios from healthy originations and higher retention, with conventional lending beyond government-guaranteed programs as a growth opportunity.

• Near-term strategy focused on recurring revenue, new and expanded industry verticals, technology investment and expense discipline.

• A March 2020 shareholder letter identified COVID-19 as an unprecedented disruption; leadership emphasized prioritizing soundness, profitability and growth while supporting small businesses.