Live Oak Bancshares (LOB) Q4 2021 earnings summary

Executive summary

• FY21 net income was $167.0M, or $3.71 diluted EPS, versus $59.5M and $1.43 in FY20; reported revenue rose 62.8% to $457.0M.

• Growth reflected higher net interest income, loan-sale gains and a $44.1M Greenlight investment gain; loan growth excluding PPP remained strong.

• Strategy emphasized recurring revenue, loan retention, new and expanded lending verticals, and embedded banking; Finxact core conversion and integration of 15 vendors were completed in Aug. 2021.

Financial highlights

• Net interest income increased 52.4% to $296.8M; total noninterest income rose 86.3% to $160.2M, including $44.1M from Greenlight.

• Net gains on loan sales increased 36.0% to $67.3M; loan originations were $4.48B, or $3.93B excluding PPP, up $1.25B YoY.

• Total assets were $8.21B, up 4.3%; loans held for sale and investment rose $317.4M, and deposits increased 24.5% to $7.11B.

• Noninterest expense rose 19.9% to $231.0M, including higher compensation, professional services and data processing costs, plus $3.2M renewable-energy tax-credit investment impairment.

Outlook and guidance

• Management expected held-for-sale and held-for-investment portfolios to grow, supported by healthy originations and greater retention, including conventional lending beyond government-guaranteed programs.

• Priorities included recurring revenue growth, technology innovation, expansion of selected verticals and entry into new verticals; first embedded-banking partnership was targeted to launch by year-end 2022.

• Most of the remaining $6.5M PPP deferred fees were expected to be recognized in 2022; gains on loan sales were expected to remain a meaningful revenue component.

• Fiserv’s announced proposed acquisition of Finxact could generate an estimated $115M pretax gain if completed; closing remained subject to customary approvals and conditions.