And to keep growing, Live Oak will need deposits. Where once it sold the bulk of its loans to other investors, it now keeps most on its balance sheet, and increasingly makes conventional, non-guaranteed loans too. Since 2016 the bank has quadrupled the number of industries it lends to under the SBA’s classification, including some sectors like self-storage that have experienced rapid, sometimes-speculative growth. That more earthly valuation might reflect Live Oak’s biggest risk: that it starts to look more like the rest of the pack. The focus on small businesses may not be so great in a recession – analysts at Truist expect its bad-loan loss rate could look worse than its community-and-regional-bank peers’ next year.
Where it once traded at 5 times book value, it’s now closer to 1.5 times, according to Refinitiv. Rising interest rates have taken the shine off the bank’s valuation too. But even then, it would only be the country’s 85th biggest lender, based on Federal Reserve data. At that rate, Live Oak could double its balance sheet in five years. Huntley Garriott, the ex-Goldman Sachs (GS.N) banker who runs it, reckons he can grow assets by 15% a year, and command a 15% return on equity – comparable with JPMorgan’s (JPM.N) targeted returns.
The question is whether Live Oak, for all its advantages, is doomed to relative smallness. Gains from venture-style investments have produced a quarter of the bank’s pre-tax profit since it went public in 2016, according to Refinitiv data.
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The company spun out its cloud-based banking software division nCino (NCNO.O) in 2014 that firm is now worth $2.8 billion, more than twice Live Oak’s value. Mahan’s bank has no traditional branches, instead gathering deposits online. Because of the way that programme is structured, around 40% of Live Oak’s lending carries a government guarantee.ĭespite its low-tech clientele, Live Oak most punches above its weight in digital innovation. Think dentists, veterinarians and chicken farms – industries with historically low levels of default. government’s Small Business Administration (SBA). Live Oak has spent the last 15 years cornering the market in small-ticket lending backed by the U.S. Mahan’s assets, by contrast, are positively prosaic. regional banks have zoomed in on risky real-estate lending, sagging bond portfolios and exposure to struggling tech firms. In lending and investing, too, Live Oak has zigged where others zagged. That makes the North Carolina-based firm about as run-proof as a small bank can be. And those potentially flighty funds are more than three times covered by cash and rapidly available credit lines. At Live Oak, by contrast, just 15% of deposits are above the government guarantee limit, based on its latest regulatory filing. At the end of 2022, around 90% of SVB’s customer savings were uninsured. SVB and Silvergate loaded up on large, uninsured deposits to fuel their expansion, leaving them vulnerable to bank runs. The next on the list, crypto-specialist Silvergate Capital (SICP.PK), flamed out one day before SVB.īut if those failures demonstrated that rapid growth brings escalating risk, Live Oak is a counterexample. Regional Banks index (.SPSIRBK), Live Oak was the most richly priced at its 2021 peak, at more than 5 times book value. Of the over-140 lenders that make up the S&P U.S. While SVB was much bigger, both were niche groups that grew rapidly: between 20, each quintupled its assets, with Mahan’s bank recently hitting $10 billion. bank.įounded in 2008 by former Wachovia banker Chip Mahan, Live Oak was until recently spoken of in the same sentence as Silicon Valley Bank – the lender that rocketed to greatness and then imploded in March. One example is $1 billion Live Oak Bancshares (LOB.N), which flouts many preconceptions about what it means to be a tiny U.S. But while the latest count of nearly 4,100 institutions may be excessive, it’s not always true that bigger is better. NEW YORK, June 8 (Reuters Breakingviews) - It’s a truism that the United States has too many banks, and even after the collapse of four lenders this year the country could stand to lose a few more.
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