Banking & Finance

Live Oak Q2 Earnings Show Strength But Reflect Some Industry Challenges

By Jenny Callison, posted Jul 26, 2023
On Tuesday, Live Oak Bancshares reported second-quarter earnings that beat analyst expectations.

Posted revenue of more than $108 million exceeded industry predictions by nearly $1.5 million, according to Seeking Alpha, a web-based source of financial news. Seeking Alpha also noted that Live Oak’s earnings per share – at $0.39 – were $0.08 over analyst expectations.
In the company’s news release, Chairman and CEO James “Chip” Mahan pointed to the challenging environment that banks faced during the quarter ending June 30.

“This is a seminal moment in Live Oak’s history,” he said in the statement. “The last few months put mounting pressure on many financial institutions. While Live Oak sits in a unique and strong position, others across the industry still see headwinds as credit continues to tighten, the branch model remains costly, and customers demand higher deposit rates. This quarter demonstrated the strength of our digital lending and deposit franchise as we drive value and innovation for our small business customers who continue to seek a bank dedicated to their needs.”

The quarter’s results did reflect some of those headwinds in both revenue and loan and lease originations. While Q2 2023 revenue of about $108.5 million was higher than Live Oak's revenue of $101.6 million in the previous, admittedly turbulent, quarter, it was down roughly $100 million year over year.

Loan and lease originations also were down this past quarter compared with those of both the first quarter of FY 2023 and the second quarter of FY 2022. Q2 originations totaled $861.0 million, a decrease of $169.8 million, or 16.5%, from the first quarter of 2023 and a year-over-year decrease of $98.6 million, or 10.3%.

Despite a lower origination volume during the recent quarter, the entire loan and lease portfolio value grew. As of June 30, 2023, that value was $8.36 billion, 1.7% above its level as of March 31, 2023 and 18.4% above its level a year ago, according to the Q2 report.

On the positive side, total deposits increased to $9.88 billion as of June 30, up $457.1 million compared to those of March 31, 2023, and an increase of $1.72 billion compared to total deposits as of June 30, 2022. Also worth noting is that Live Oak borrowed less during the quarter that just ended than in previous quarters.

“Borrowings totaled $28.3 million at June 30, 2023 compared to $30.8 million and $86.2 million at March 31, 2023, and June 30, 2022, respectively,” the release stated. “During the second quarter of 2023, the Company decreased borrowings by $2.5 million and $57.9 million as compared to March 31, 2023, and June 30, 2022, respectively.”

The substantial year-over-year decrease in borrowings was primarily the result of paying off – in September 2022 – the outstanding balance of the Federal Reserve’s Paycheck Protection Program Liquidity Facility, the release stated.
Another bright spot: The company’s release noted Live Oak’s improved asset quality, stating, “During the second quarter of 2023, the Company recognized net charge-offs for loans carried at [a] historical cost of $1.2 million, compared to $6.7 million in the first quarter of 2023 and $2.5 million in the second quarter of 2022.”
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