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Live Oak Bancshares, Inc. (LOB)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered strong balance-sheet growth but softer profitability: net income $9.7M and diluted EPS $0.21; total revenue $126.1M, down 1.5% QoQ, while net interest income rose to $100.5M and NIM expanded 5 bps to 3.20% .
  • Loan originations were $1.40B (record Q1), deposits grew $635.5M (+5.4%), total assets +5.0% to $13.60B; noninterest-bearing deposits rose to $386.1M (+21% QoQ), supporting funding mix improvement .
  • Provision expense remained elevated at $29.0M, reflecting robust loan growth and a cautious stance amid small business credit cycle and macro uncertainty; pre-provision net revenue (PPNR) fell ~10% QoQ to $42.1M .
  • Versus S&P Global consensus, Q1 EPS missed ($0.21 vs $0.37*) and revenue missed ($126.1M vs $131.7M*); management reiterated “control what we can control” with margin trajectory “up and to the right” but refrained from formal guidance amid rate/macro uncertainty . Values marked with * retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Net interest income eclipsed $100M for the first time, aided by strong loan balance growth and disciplined pricing; NIM expanded to 3.20% (+5 bps QoQ) . “In Q1 2025, we saw our quarterly net interest income eclipse $100 million for the first time… our net interest margin also expanded 5 basis points to 3.20%.” — CFO Walter Phifer .
  • Record Q1 production and deposit growth, with two strategic initiatives gaining momentum: non-interest-bearing checking and small-dollar SBA; business checking balances reached $279M (~4x YoY) . “Our checking balances stood at $279 million at quarter end, more than 4x the levels of just 1 year ago.” — BJ Losch .
  • Secondary market remained robust: sold ~$266M SBA loans at ~7% average premium, recycling liquidity and supporting recurring gain-on-sale revenue; small-loan SBA sales contributed materially to gains .

What Went Wrong

  • Provision expense remained high ($29.0M), compressing earnings (EPS $0.21) despite healthy PPNR; management flagged ongoing small business credit cycle pressures (rates, inflation) and is building reserves conservatively .
  • Noninterest income declined QoQ (-16% to $25.6M), with loan servicing revaluation losses (-$4.7M) and lower other fee income; efficiency ratio deteriorated to 66.62% vs 63.45% in Q4 .
  • Asset quality metrics rose: total nonperforming loans and leases (historical cost) increased to $422.9M; allowance ratio stepped up to 1.83%; while net charge-offs normalized to $6.8M after a spike in Q4, the unguaranteed NPLs increased .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Total revenue ($USD Millions)$129.9 $128.1 $126.1
Net interest income ($USD Millions)$97.0 $97.5 $100.5
Noninterest income ($USD Millions)$32.9 $30.6 $25.6
Diluted EPS ($USD)$0.28 $0.22 $0.21
Net interest margin (%)3.33% 3.15% 3.20%
Efficiency ratio (%)59.72% 63.45% 66.62%
Provision for loan & lease credit losses ($USD Millions)$34.5 $33.6 $29.0
Net income attributable ($USD Millions)$13.0 $9.9 $9.7
Total deposits ($USD Millions)$11,400.5 $11,760.5 $12,395.9

Estimate comparison (S&P Global):

MetricConsensus (Q1 2025)Actual (Q1 2025)Result vs Consensus
EPS ($USD)$0.37*$0.21 MISS
Revenue ($USD Millions)$131.7*$126.1 MISS

Values marked with * retrieved from S&P Global.

Segment Mix – Loan Originations

Segment MixQ3 2024Q4 2024Q1 2025
Small Business Banking (SBA 7(a))46% 54% 60%
Commercial Lending54% 46% 40%

KPIs and Credit

KPIQ3 2024Q4 2024Q1 2025
Loan originations ($USD Millions)$1,757.9 $1,421.1 $1,396.2
SBA guaranteed loans sold ($USD Millions)$266.3; 7% premium $278.0; 7% premium ~$266.0; 7% premium
Business checking balances ($USD Millions)$145 $212 $279
Noninterest-bearing deposits ($USD Millions)$258.8 $318.9 $386.1
Net charge-offs ($USD Thousands)$1,710 $33,566 $6,774
Allowance for credit losses to HFI loans (%)1.78% 1.69% 1.83%
Total nonperforming loans & leases (historical cost) ($USD Thousands)$215,575 $304,297 $422,900

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin trajectoryFY 2025Management aspiration toward ~3.5% by end of 2025; could slip to early 2026 (Q4 call) No formal guidance; aspiration “up and to the right,” but difficult to guide given macro; asset-sensitive profile emphasized (Q1 call) Maintained aspirational (no formal quantitative guidance)
Loan growth / pipeline2025Record production in 2024; pipelines near highs (Q4 call) Pipeline remains healthy; Q1 originations $1.4B; expect strong production to continue (Q1 call) Maintained positive stance
Provision outlookNear-termElevated provision continuing as bank grows and works through small business credit cycle (Q4 call) Provision remained elevated in Q1; reserving proactively amid macro uncertainty and tariffs; reserves viewed as healthy (Q1 call) Maintained cautious stance
Operating leverage / PPNR2025Positive operating leverage targeted; core PPNR up YoY (Q4) Core PPNR up 27% YoY; expect trajectory to resume post typical Q1 step-down (Q1) Maintained positive operating leverage focus

No formal quantitative guidance (revenue, margins, OpEx, tax rate) was issued.

Earnings Call Themes & Trends

TopicQ3 2024 (Prev-2)Q4 2024 (Prev-1)Q1 2025 (Current)Trend
AI/technology enablementBuilding APIs/embedded banking chassis; early partnerships (Anatomy Financial) “AI wave is here”; streamlining manual processes via AI to scale underwriting/operations Automating small-dollar SBA underwriting; next-gen AI partner to preserve profitability even with full underwriting Strengthening execution and scope
Macro rates/NIMNIM expanded 5 bps; timing of Fed cuts can compress near-term margin Expected Q4 margin compression after late-Sept cut; still net interest income maintained NIM +5 bps QoQ to 3.20%; management avoids quantitative NIM guidance amid uncertainty Cautious near-term; gradual improvement
Tariffs/macro headwindsMonitoring borrower stress from high rates/inflation Sentiment improving; pipelines strong; still uncertainty post administration change Inflation remains stubborn; tariffs potential new challenge; proactive servicing across segments Persistent caution
SBA program changes——Rollback of prior rule changes: reinstated small-dollar borrower fees and underwriting requirements; LOB sees competitive advantage vs “fast” fintech lenders Tailwind to LOB positioning
Product performance: small-dollar SBAInitiated ramp; ~$100M YTD by late Q3 $125M in 2024 with limited tech; targeted >2x in 2025 Continued ramp; sales driving gain-on-sale mix; full underwriting via automation Accelerating
Deposits/checkingOperating accounts launched; balances $145M; blended CoF ~2.45% Checking $212M; >35% of new loan customers also open checking Checking $279M; noninterest-bearing balances +31% QoQ; deepening relationships Strong ramp
Secondary market demandSBA premiums ~7%; sold $267M Premiums ~107% (SBA pools), strong demand Sold ~$266M at 7% premium; more pool assemblers emerging Healthy demand persists
Credit cycle/reservesElevated provision (3 idiosyncratic commercial credits); reserves healthy Elevated provision; past dues improved; reserves proactive Elevated provision continues; low past dues; allowance ratio 1.83% Conservative reserving sustained

Management Commentary

  • “Live Oak Bank demonstrated strong growth across our lending and deposit franchises in the first quarter, all while navigating the current small business credit cycle and a backdrop of economic uncertainty.” — Chairman & CEO James S. (Chip) Mahan III .
  • “Our checking balances stood at $279 million at quarter end, more than 4x the levels of just 1 year ago… building full relationships… will create deeper relationships, more stability for our cost of funds and NIM.” — BJ Losch .
  • “In Q1 2025, we saw our quarterly net interest income eclipse $100 million for the first time… our net interest margin also expanded 5 basis points to 3.20%.” — CFO Walter Phifer .
  • “Rule changes implemented during the prior administration will be rolled back… we believe that it may give us a competitive advantage given how we currently do business… building technology to do it more efficiently and in an automated fashion.” — BJ Losch .

Q&A Highlights

  • Margin/NII trajectory: management emphasized asset sensitivity and uncertainty; aspirational NIM “up and to the right” but no formal guidance given current environment .
  • Loan growth/pipeline: production quality and credit discipline remain focal; comfortable continuing to grow in both small business and commercial segments .
  • SBA changes: reinstated fees and underwriting do not affect existing loans; LOB expects advantage vs fintech small-loan competitors; profitability preserved via automation, though time-to-close may lengthen modestly .
  • Credit outlook: proactive servicing and reserves; low past dues for second consecutive quarter; focused monitoring of segments (e.g., auto dealers, government contracting) with skepticism where policy risk is high .
  • Secondary market: demand remains strong; premiums ~107% for SBA pools; more pool assemblers emerging, supporting liquidity and gain-on-sale economics .

Estimates Context

  • Q1 2025 EPS missed consensus: $0.21 reported vs $0.37*; revenue missed consensus: $126.1M reported vs $131.7M* . Values marked with * retrieved from S&P Global.
  • Updates likely: Street may temper near-term EPS/NIM paths given sustained provision and softer fee income; longer-term estimates could reflect deposit mix improvement (noninterest-bearing growth) and continued originations momentum .

Key Takeaways for Investors

  • Growth engine intact: robust originations ($1.40B) and deposit inflows (+$635M) underpin NII/asset growth despite macro noise .
  • Funding mix improving: noninterest-bearing deposits and business checking ramp (to $279M) support lower blended cost-of-funds over time; tailwind to NIM .
  • Conservative credit posture: elevated provisions persist as LOB reserves ahead of charge-offs; allowance ratio up to 1.83% with low past-due trends — risk managed proactively .
  • Secondary market remains a lever: consistent SBA sale premiums (~7%) provide recurring gain-on-sale and balance sheet flexibility; small-loan SBA rising share helps margins .
  • Regulatory backdrop turning favorable: SBA SOP rollback (fees/underwriting) should advantage LOB’s full-underwrite, technology-enabled approach vs quick-turn fintech lenders .
  • Near-term EPS/NIM compression risk remains tied to rate path and timing; management refrains from formal margin guidance but reiterates directional improvement aspiration .
  • Medium-term thesis: deepening customer relationships (checking + savings), AI-enabled underwriting and scalable operations can expand PPNR and NIM as macro normalizes; SBA leadership sustained by diversified verticals and government guarantees (≈1/3 of portfolio) .