Live Oak Bancshares: 3 Key Takeaways for Long-Term Investors

During its earnings call for the third quarter of 2026 on October 22, Live Oak Bancshares (NYSE:LOB) announced an earnings per share (EPS) of $0.52. The company reported a $17 million provision for credit losses related to its exited distillery portfolio during this quarter. However, the preprovision net revenue, which reflects profits before accounting for potential credit losses, increased by 33% year over year to reach $88 million. Management highlighted three key insights that illustrate the company's current position.

Firstly, the company made significant loan write-downs to alleviate the impact of bad loans on its portfolio. The $17 million set aside for loan loss provisions, primarily associated with the distillery portfolio, resulted in a reduction of earnings by $0.27 per share. Nevertheless, the robust preprovision net revenue enabled Live Oak Bancshares to absorb this financial hit without hindering its operations. "We have a saying at Live Oak that when you have to eat something unpleasant, you don't take small bites, and that's exactly what we've done here," stated BJ Losch, the company’s President.

Secondly, the bank's small-dollar loan division, Live Oak Express, has experienced remarkable growth in fee income. Year-over-year originations surged by 173%, reaching $107 million. The sale of guaranteed portions of these loans contributed $7 million in fee income during the quarter. Losch noted, "Gain on sale from Express was $7 million this quarter, up 250% year-over-year. We've now generated $18 million over the last five quarters, about $0.30 of earnings accretion and growing."

Lastly, the expansion of relationship checking accounts has contributed to a decrease in overall funding costs. Business checking balances surpassed $500 million, marking a 39% increase year over year. This growth has provided funding at a lower cost compared to retail certificates of deposit. Losch highlighted the importance of customer relationships, stating, "25% of our customers now have both a loan and deposit account, up from 20% a year ago, and four years ago, that number was only 3%."

Looking ahead, Live Oak Bancshares reported that loan originations totaled $2.1 billion across 34 different industries, indicating a sustained demand for borrowing among clients. The bank's scaling efforts in Small Business Administration (SBA) lending, alongside automated credit tools, are designed to maintain the quality of loans, while management remains vigilant regarding competition in deposit pricing. "Better portfolio management, better aggregated credit data, and faster credit work are exactly what help us see things earlier,” noted Losch.

Additionally, net interest income rose by 15% year over year to $133 million, with management anticipating that revenue growth will align with the overall expansion of the balance sheet. Walt Phifer, the Chief Financial Officer, commented, "Where I sit in my seat, my overall assumption is that the margin remains relatively stable, and our net interest income will continue to grow at the same pace as our balance sheet."