Fintech firm sale boosts Live Oak Bank

The income from the recent sale of its interest in financial technology firm Finxact presents a variety of opportunities for Live Oak Bancshares.


The company will realize about $120 million from Fiserv’s acquisition of all Finxact shares; it plans to leverage that capital in key areas, ranging from balance sheet enhancement to community support to strategic staffing.


“Unlocking $120 million of capital allows us the ability to do a few things,” Live Oak Bank President Huntley Garriott said during the company’s first quarter earnings call April 28. “First and foremost, it allows us to keep growing our balance sheet without having to raise dilutive equity, which is pretty unique among high-growth banks. The second thing is it allows us to accelerate some of our technology initiatives and redeploy some of the capital into [financial technology] investing.”


The third benefit Live Oak will realize from the capital is an ability to share some of it with employees and the greater community, Garriott said.


“As in the past, we’ve shared a portion of special gains, whether it’s from PPP or Greenlight [returns on an investment in that fintech venture] with our teammates; we intend to do that again,” Garriott continued. “And we also plan to give a portion of it back to our community to continue the work we’re doing to help support underserved small businesses and other community efforts.”


Earlier this year, Live Oak opened Channel, a small business center in downtown Wilmington whose primary aim is to provide help and resources to minority-owned ventures.


The sale proceeds, as Garriott suggested, give Live Oak a bit of breathing room in a market adjusting to higher interest rates and uncertain loan demand.


“With the Finxact gain of $120 million booked in the second quarter, we will take the opportunity to moderate our guaranteed sales in the second quarter and allow the markets to further digest the Fed’s rate moves,” Live Oak’s Chief Financial Officer William Losch said during the earnings call.


But that doesn’t mean Live Oak is going to slow down its pace of innovation, Garriott said.


“Ironically, the gain … will allow us to accelerate our development by continuing to hire world-class technology talent,” he said. “With this gain, we’re able to invest in incremental $10 million to $15 million per year in technology, some of which is already showing up in our first quarter numbers.”


What might those tech investments yield for Live Oak?


One focus, according to Garriott, will be enhancements to customer acquisition processes. “We already see the benefits of having easy account opening, where we’ve opened over 10,000 small business savings and CD accounts,” he said. “The growth in those balances is over 70% in the last year. Customer experience is another critical area, where the challenger banks have truly excelled and it’s critical for us, both offensively and defensively, to be best in class.”


Officials at Live Oak believe the banking industry is experiencing the early stages of what Garriott termed “tectonic shifts” in the way small businesses bank. The shift is on to embedding banking in small business software, and Live Oak wants to lead this shift.


“[Small businesses] access capital, they move money and they receive actionable information where they choose to bank – namely within the software they use to run their business,” he said.


To compete in this technology race, Live Oak will be looking for “the best and the brightest” new hires, according to Garriott. During the first quarter of 2022, Live Oak gained about 45 new employees, but many of those work in lending support functions, helping the lending teams catch up from the high level of activity in 2021. The bank will now look to beef up its tech sector staffing.


Live Oak is also deploying generalists around the country who work in a functional rather than industry segment: small business acquisitions.


“The demographic trends of the aging and retiring small business owners continue – the silver tsunami, they call it,” Garriott said. “We think we’re well positioned to support business owners in those change-of-control transactions.


“We’ve got 24 of those lenders currently year-to-date. We’ve hired seven folks in towns like Cincinnati and Minneapolis. And there’s a lot of great, great markets that we haven’t touched yet.”