Key Points
- EPS of $0.59 significantly exceeds analyst consensus estimates.
- Q2 revenue growth was a healthy 15.7% year over year.
- An increase in credit charge-offs highlights risk concerns.
Live Oak Bancshares (LOB -0.80%), a specialized loan originator based out of Wilmington, N.C., released its second-quarter 2024 results on Wednesday that surpassed both earnings and revenue estimates.
However, despite strong revenue growth, increased credit charge-offs and a slight dip in net income signal ongoing operational challenges.
| Metric | 2Q 2024 | Analyst Estimates | 2Q 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $125.5 million | $122.3 million | $108.5 million | 15.7% |
| Net income | $27 million | N/A | $17.5 million | 53.7% |
| Earnings per share (EPS) | $0.59 | $0.47 | $0.39 | 51.3% |
| Total loans and leases | $9.54 billion | N/A | $8.36 billion | 14.1% |
| Net charge-offs | $8.3 million | N/A | $1.2 million | 591.7% |
Source: Live Oak Bancshares. Note: Analyst estimate provided by FactSet. YOY = Year over year.
Business Overview
Live Oak Bancshares focuses on originating loans that are partially guaranteed by the U.S. Small Business Administration (SBA) and the U.S. Department of Agriculture (USDA). This specialization in government-backed loans reduces credit risk, enhancing financial stability. Additionally, the institution leverages a technology-based platform, streamlining loan origination and improving customer experience across the U.S. The bank's recent focus includes growing loan origination volumes, especially SBA loans, and ongoing enhancement of its tech platform.
Notable Q2 Developments
Live Oak reported an 8.4% year-over-year increase in total deposits, reaching $10.7 billion compared to $9.9 billion in 2Q 2023. Loan and lease origination volumes also surged by 36% year over year to $1.17 billion, showcasing robust customer engagement and asset utilization strategies.
Revenue for the quarter grew 15.7% year over year to $125.5 million, driven by gains in both interest and noninterest income. Net interest income increased by 8.3% year over year to $91.3 million, while noninterest income saw a significant 41.7% improvement, reaching $34.2 million, reflecting higher loan sales.
Net income rose by 53.7% year over year to $27.0 million, although it was down 2.3% quarter over quarter. The dip in quarterly net income can be attributed to increased net charge-offs, which amounted to $8.3 million, substantially higher than $1.2 million in 2Q 2023 and $3.2 million in 1Q 2024. This surge in charge-offs indicates ongoing concerns about credit quality.
Live Oak also reduced its provision for credit losses to $11.8 million, down 28.1% from $16.4 million in the previous quarter and 9.7% from $13 million in 2Q 2023, reflecting careful management of credit risk. Moreover, the bank reported a Common Equity Tier 1 capital ratio of 11.85% and a Tier 1 leverage capital ratio of 8.71%, indicative of strong capital health.
The board maintained a quarterly dividend of $0.03 per share, consistent with previous quarters.
Looking Ahead
Management didn't provide specific guidance in its report and just provided only general statements on working toward continued growth fueled by a strong loan pipeline and advancements in technology. The focus remains on expanding SBA loan origination volumes and leveraging the tech platform for national reach. Effective risk management and maintaining robust capital ratios will be crucial for sustaining performance.
Investors should monitor future developments in credit quality and the impact of rising interest rates on loan performance. Any significant regulatory changes could also affect operational dynamics.
