Live Oak Bancshares (LOB -0.80%), which specializes in small-business lending, released its third-quarter 2024 earnings on Oct. 23. The results showcased a dynamic quarter with strong loan production and deposit growth, though earnings missed expectations. The company reported earnings per share (EPS) of $0.28, falling short of the estimated $0.55, a noticeable 49% miss. In contrast, total revenue exceeded expectations, reaching $129.93 million compared to the expected $127.83 million.
| Metric | 3Q 2024 | Estimate | 3Q 2023 | % Change |
|---|---|---|---|---|
| Total Revenue | $129.93M | $127.83M | $127.30M | 2.1% |
| EPS (Diluted) | $0.28 | $0.55 | $0.88 | -68.2% |
| Net Income | $13.0M | N/A | $39.8M | -67.4% |
| Loan and Lease Originations | $1.76B | N/A | $1.07B | 64.5% |
| Total Deposits | $11.40B | N/A | $10.00B | 14.0% |
Source: Analyst estimates for the quarter provided by FactSet.
Overview of Live Oak Bancshares' Business
Live Oak Bancshares primarily provides loans to small businesses, often with partial guarantees from the U.S. Small Business Administration (SBA) and other government entities like the USDA. This lending model lowers risk by securing loans with government backing, making it a key driver of the company's operations. The company utilizes a technology-based platform to deliver these services nationally, eradicating the need for physical branches and thus reducing overhead costs. This tech-forward approach allows efficient customer service, nationwide reach, and supports lending and deposit-gathering activities.
Recently, Live Oak Bancshares has focused on expanding its loan origination activities and enhancing its core services. Its strategic focus on specific industry verticals allows it to provide customized financial solutions, a competitive advantage in an often crowded market. The company's personnel, enriched with industry-specific knowledge, contribute to a deeper understanding and better risk assessment of client needs, crucial for its success.
Quarterly Performance Insights
During the third quarter, Live Oak Bancshares "delivered historic production levels," with originations of $1.76 billion marking a 50.1% increase from the prior quarter and demonstrating strong lending demand. This growth was complemented by a 6.5% increase in total deposits, rising to $11.4 billion. These trends underline a growing appetite for the company’s loan products, driven by an expanding loan pipeline and improved deposit-gathering capabilities.
However, net income fell to $13 million from $27 million in the previous quarter, reflecting a notable 67.3% decrease from the same period last year. This decline was primarily driven by increased provisions for credit losses, which surged to $34.5 million in response to expectations of rising credit risk. The bottom line was further impacted by a $4.2 million loss due to loan servicing asset revaluation.
The company's efficiency ratio improved to 59.72% from 61.89% in the last quarter, indicating better cost management, although net interest margin experienced a slight increase to 3.33%. The company noted that "during the third quarter of 2024, the average cost of interest-bearing liabilities increased by two basis points, while the average yield on interest-earning assets increased by six basis points."
Despite the margin challenges, net interest income increased to $97 million, up from $91.3 million in the previous quarter. Notable was the structured approach to provisioning and asset quality, with net charge-offs reduced to $1.7 million, signifying efforts to strengthen financial health amid credit risks.
The dividend remained constant at $0.03 per share, indicating stable return policies, although potential adjustments could follow depending on future earnings stability and asset performance.
