More annual reports from Live Oak Bancshares, Inc.:
2024 ReportPeers and competitors of Live Oak Bancshares, Inc.:
Chemung Financial Corporation2024 ANNUAL REPORT
Live Oak Bancshares
2024
$12.9
2023
$11.3
$9.9
2022
$8.2
2021
2020
$7.9
2019
$4.8
2018
$3.7
2017
$2.8
2016
$1.8
2015
$1.1
2014
$0.7
$0
$2.0B
$4.0B
$6.0B
$8.0B
$10.0B
$12.0B
$14.0B
Total Assets ($ in billions)
10-YEAR GROWTH
To Our Shareholders,
I am pleased to present our 2024 Annual Report, highlighting the state of our bank and exploring where
I think the puck is going.
In 2024, we delivered record loan production, excellent loan and deposit growth, strong pre-provision net
revenue (PPNR) growth, a solid start to our quest for full relationships with checking account growth, and
well-controlled expenses even while continuing to invest in people and technology. Offsetting this positive
momentum was an elevated loan loss provision. The ending result of all of this was a diluted earnings per
share of $1.69, 3% higher than 2023.
Let’s dig into each of those segments for a moment.
Momentum Continues to Build
Both our Small Business Banking and Commercial lending units had a tremendous year. We posted a
record year of $5.2 billion of loan production, and total assets grew by $1.7 billion, or ~15%, to $12.9 billion.
Our growth story remains remarkable. A 34% total assets CAGR in the banking industry over 10 years is
something to be proud of.
LETTER FROM
THE CHAIRMAN
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
0.0%
1.0%
3.0%
2.0%
4.0%
*Default is defined as 60 days past due or indication that the business has been shut down when less than 60 days past due. Denominator is total
active loans.
Source: Lumos Technologies, Inc., SBA 7(a) Program Data for fiscal years ending September 30
Live Oak
All Lenders
Annual SBA Loan Default Rates*
Our strong deposit platform continues to provide ample funding for our growth. Total deposits grew by
$1.5 billion in 2024. What I am extremely excited about is the momentum we are seeing in our business
checking product. Starting from practically zero 18 months ago to adding over $200 million of non-interest
checking balances is an outstanding result. A year ago, about 6% of Live Oak customers had both a loan
and deposit relationship with us. We have more than doubled that in 2024. We are already seeing the
benefits of these deposits in terms of broader relationships with our borrowers and through a lower cost
of funds on these relationships.
Growth, pricing discipline, and loan sales outmatched our net interest margin compression and provided
for a 9% increase year-over-year in revenue. Our focus on investing in “good costs” while identifying areas of
efficiency drove a 3% reduction in noninterest expenses. These two results generated a 38% growth in PPNR.
Provision expense for credit losses increased $45 million, or 88%, in 2024. We have a strong credit culture
at Live Oak, but we aren’t completely immune to credit cycles. While the table below shows that our historic
performance relative to the SBA lender universe is very favorable, 2024 revealed that some small businesses
were experiencing stress.
Small businesses are resilient. They are fighters. As we always have, we will continue to work with our
borrowers to help them navigate this uncertain time.
$5M
Private Placement
$75M
Private Placement
$113M
Secondary Offering
$87M
IPO
$13M
Initial Raise
2024
2022
2023
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
$—
$200
$600
$400
$1,000
$800
$18.32
$16.31
$13.28
$13.20
$12.29
$10.85
$6.51
$3.20
$5.84
$2.36
$1.57
$1.46
$1.10
$0.71
$0.62
$20.15
$22.05
The Future Is Now
Which brings me to the banking business today. Quite like small business, community banks face
uncertainty with increased competition and economic stresses.
How do you create an exciting future where a community bank can thrive? Two factors we know well —
embracing technology and creating a moat.
Before we dive in, one must reflect on whether the past is a proxy for the future. So, let’s ponder a bit three
inflection points that have — and will — reshape banking as we know it. The advent of the internet, the
cloud, and now artificial intelligence.
In the 90s the world’s first web browser was created. This next generation technology called the internet
allowed incredible innovations transforming our everyday lives. Hard to imagine the days when getting
paper statements in the mail was the only way to see your financials.
Fast forward to the early 2000s, and a second monumental transformation arrived with the advent
of cloud computing. The cloud allowed programmers to use massive data centers to create magic in
banking functionality.
What is coming next will exceed these two.
Artificial intelligence.
The ability for large language models to fundamentally get better every minute of every day will change
the banking business from the ground up.
Tangible Book Value Per Share
Core Business Retained Earnings
Fintech Investment Generated
Capital Markets
Equity Growth Momentum Since Inception ($ in millions)
As I mentioned in last year’s letter to you, the bottom line is this: organic growth in the banking business is
difficult, and I like the hand we are playing. Our tangible book value grew 9% in 2024, and we’ve delivered a
21% CAGR over the last 10 years. That is a clear win for shareholders.
The AI wave is coming, and banks have to learn to surf, or they will drown. Here is how Live Oak will ride
the wave.
Today, when we make a small business loan, we ask the applicant to go to the web, log into a portal, and
upload documents. We then take those documents, complete required forms from the SBA, send them to
the agency, and then embark on a very hands-on approach to assessing the health of the applicant.
Our folks look through volumes of tax returns, budgets, and financial statements, trying to determine
whether there’s a sufficient cushion between what they might owe us and what the business earns. It takes
us weeks and weeks to go through that to make a loan.
Enter AI. With artificial intelligence and next generation technology such as optical character recognition
(OCR), this will be done in a matter of minutes or seconds.
These machines do not take vacation, nor do they sleep. And they have access to a vast array of knowledge
— instantly — that could not possibly be gathered by one human over a lifetime.
Here’s an example of what we are working to develop. Let’s take an entrepreneur who owns an HVAC
company and wants working capital to hire technicians and secure accounts receivable at a discount. With
the help of AI, we could interview him in a 15-minute phone call and analyze every word in that conversation
while simultaneously gathering and analyzing the business tax returns to identify the cash flow repayment.
Why? So we could answer his two questions — can I get a loan and when do I get my money?
We have tested this process in a proof-of-concept pilot.
The process is reminiscent of how we started this company lending money to veterinarians. What we did
back then was hire an industry expert, a veterinarian, and pair her with a lender. Together they were able to
assess the cash flow of the business and create a conservative approach to credit that was beneficial for
both the borrower and the bank.
So, if we lend capital to the HVAC entrepreneur I mentioned earlier, get him the money quickly so he can
ramp his business and see significant growth, then we’ve actually done something impactful.
This is not just going to be for loan origination, folks.
This could be in every single part of the bank. It’s game, set, match. Think of the improvements the industry
has already seen with the advent of open-source code paramount in AI. Death by excel spreadsheets
should vanish. Pounding through thousands of pages of tax returns only to fat-finger a debt service
coverage ratio in a spreadsheet should be eliminated by OCR technology that is more than 99% accurate.
Lenders, underwriters, and closers will be 10x more efficient. You could surmise they will be 10x happier.
The mundane nature of their job will disappear and could be replaced with the opportunity to spend much
more meaningful time understanding the business itself and the entrepreneurs who run it. Given this
massive gain in efficiency, early adopters will gain market share!
And really, it’s all about offering two paths for our customers — full-service and self-service.
James S. “Chip” Mahan III
Chairman and Chief Executive Officer
Self-service is the ability to have a seamless digital experience, end-to-end.
Full-service is having our people, based right here in Wilmington, answer the phone in under a minute. Or
our lenders and servicing people visit a customer at their place of business to help with anything they need.
Do you need to physically go into a branch? I haven’t believed that since 1994.
I firmly believe you’ll never lose the power of human connection. But I do think the future is the combination
of the two.
We are on our way. Glad you are on the journey with us.
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