Live Oak Bancshares is taking an important step to becoming a full-service small-business bank: It will soon fully launch a business checking account.
Up until now, the $10.8 billion-asset Live Oak has limited its deposit products to business and consumer savings accounts with upper-tier rates offered on the business accounts. This strategy has worked to its advantage as depositors sought out higher yields and a safe haven in response to market turmoil earlier this year, Live Oak Bank President Huntley Garriott said Wednesday on a conference call with analysts to discuss second-quarter earnings.
"I think, especially for business customers, there's been a great awakening over the last six months about is my money safe and what is my money earning," Garriott said. "I think there's been a flow of business owners and financial folks who are realizing they can earn on business savings, which hasn't really been in the dialogue for a while. We're a beneficiary of that macro flow."
Still, management decided to introduce Live Oak Business Checking in the first quarter. The product will allow the company to better serve the small businesses it already works with. Live Oak has built a reputation as a prolific small-business lender, especially through the Small Business Administration's 7(a) loan guarantee program.
About 50 customers are currently using Live Oak Business Checking, but that number should swell next week, as Live Oak begins integrating the account more tightly into its lending operation.
"As of next week, we're going to deposit [borrowers'] loan amounts into a Live Oak checking account, which we've never done," Chairman and CEO Chip Mahan said on the conference call.
Live Oak's branchless, tech-enabled business model will drive results that beat those of traditional banks, according to Mahan. "We are marching to the deposit side at precisely the right moment in time," Mahan said. "Our competition cannot reprice their entire book of savings and money market accounts. We shall nip at their edges as their customers feel less appreciated."
The wider introduction of business checking should further accelerate the bank's already strong deposit growth. The Wilmington, North Carolina-based Live Oak reported second-quarter deposits totaling $9.9 billion, up 21% from the same period a year earlier. Deposit growth was 5% on a linked-quarter basis.
Live Oak's encouraging results come as
Despite challenging conditions, Live Oak's bottom line results exceeded analysts' expectations both for net income, which totaled $17.5 million, or $0.39 per share, and revenue, which totaled $108.5 million. Expectations were closer to $0.32 and $106 million respectively. Live Oak earned $97 million in the second quarter of 2022, benefiting from a $120.5 million pretax gain on the sale of its investment in Finxact, a core banking software provider.
Live Oak saw unguaranteed nonperforming loans jump 30% linked-quarter, to $111.2 million, or 0.61% of total loans and leases held for investment on June 30. However, net charge-offs remained low, totaling $1.2 million, or 0.06% of loans and leases held for investment.
