Live Oak Bank is well-known in the small business loan industry. It was founded in 2008 and quickly rose to become the country’s top SBA 7a lender, a position it still holds by a significant margin today.
That accomplishment alone is notable. But for the Wilmington, N.C.-based bank with one branch and total assets of $8.6 billion, it’s just a prelude to becoming “America’s Small Business Bank,” its anticipatory tagline.
You cannot become a small firm’s central bank only by lending. The majority of Live Oak’s 6,000 clients have a credit-based relationship. It is a relationship built on a high level of human touch, which is uncommon in small company loans. Live Oak possesses three business jets, which it employs to fly roughly 60 bankers throughout the country to sell, check up on, and reassure clients. According to Mahan, having planes is significantly cheaper than owning branches.
However, the bank has been attempting to solve the deposit side of the issue for some years. With only one branch, the majority of deposits are made online. Despite the greater cost of financing associated with that structure, the bank operates admirably. In the first quarter of 2022, the company’s net interest margin was 4.02 percent, its ROA was 1.5 percent, and its ROE was 18.9 percent. The quarter was, in fact, the company’s greatest ever.
“We pay market rates on deposits, much as Ally Bank or Marcus,” says the CEO. “However, our internal cost of raising deposits is around seven basis points.” Even if you add seven basis points to the bank’s 1% money market rate, he adds, it still outperforms the rest of the sector.
But Mahan wants to improve the model, which he feels will happen “when we become the Stripe of the non-interest-bearing deposit sector,” as he tells The Financial Brand.
