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    LOB
    Earnings call· Jun 2026(Q2 FY26)

    Live Oak Bancshares, Inc. LOB

    Jul 23, 2026 Source

    Executive summary

    Live Oak Bancshares Q2 FY26 — Strong Earnings Momentum and Operating Leverage

    Live Oak Bancshares delivered a strong Q2 FY26, marked by sustained earnings momentum and significant operating leverage. The company's strategic initiatives, Live Oak Express and business checking, continue to scale, contributing to robust loan and deposit growth. Management is aggressively pursuing AI integration to drive future efficiency and innovation, aiming to accelerate its existing strategy rather than solely focusing on cost reduction.

    Highlights

    7

    • Reported EPS of $0.74, up 45% YoY and 23% QoQ.

    • Adjusted EPS of $0.77, up 20% YoY.

    • Efficiency ratio improved 8 points YoY to 53% on an adjusted basis.

    • Loan originations of $1.5 billion across 33 industries.

    • Live Oak Express originations reached a record $82 million, up 63% YoY.

    • Business checking balances grew 63% YoY to $469 million, with total DDA balances at $744 million.

    • Core revenue grew 11% YoY while expenses grew just 3%.

    Concerns

    2

    • Provision expense of $26 million driven by strong loan growth and exited distillery portfolio.

    • Net charge-off increase driven by the exited distillery portfolio, accounting for approximately 50% of loan charge-offs in the quarter.

    Guidance & targets

    7
    CategoryTargetConfidence
    Live Oak Express annual production
    $750 million annually
    medium materiality
    High
    DDA balances as % of total deposits
    minimum of 10%
    medium materiality
    High
    Return on Equity (ROE)
    Sustainable 15% ROE
    high materiality
    High
    Annual EPS growth
    15% plus annual EPS growth
    high materiality
    High
    Net Interest Margin (NIM)
    remain generally stable
    high materiality
    Medium
    Expense growth
    low to mid single digits
    medium materiality
    Medium
    Provision expense
    $20 million to $25 million range
    medium materiality
    Medium

    Operational metrics

    52
    Adjusted EPS
    $0.77up 20% YoY
    Q2 FY26

    Adjusted EPS of 77 cents, up 20% from this time last year, normalized for a 24% tax rate.

    Adjusted PPNR
    $76 millionup 23% YoY
    Q2 FY26

    Adjusted PPNR of $76 million was up 23% year-over-year.

    Efficiency Ratio (Adjusted)
    53%improved 8 points from 61% last year
    Q2 FY26

    Efficiency ratio improved eight points from 61% last year to 53% on an adjusted basis.

    Efficiency Ratio (Reported)
    54%7 points better than a year ago
    Q2 FY26

    Reported efficiency ratio improved to 54% in Q2, seven points better than a year ago.

    Core Revenue Growth
    11%year over year
    Q2 FY26

    Core revenue grew 11% year over year, while expenses grew just three.

    Expense Growth
    3%year over year
    Q2 FY26

    Core revenue grew 11% year over year, while expenses grew just three.

    Loan Originations
    $1.5 billion
    Q2 FY26

    1.5 billion of loan originations across 33 industries this quarter.

    Live Oak Express Originations
    $82 millionup 63% YoY
    Q2 FY26

    Live Oak Express posted a record quarter of 82 million and originations up 63% from a year ago.

    Live Oak Express Gain on Sale
    $5 million
    Q2 FY26

    Live Oak Express had its highest quarterly gain on sale level to date of $5 million.

    Live Oak Express Total Gain on Sale
    $19 million
    Last 6 quarters

    Generated $19 million of gain on sale over the last six quarters, contributing about 30 cents of earnings accretion.

    Business Checking Balances
    $469 millionup 63% YoY
    Q2 FY26

    Checking balances are up 63% year-over-year to $469 million.

    Total Checking and Other DDA Balances
    $744 million
    Q2 FY26

    Total checking and other DDA balances are now at $744 million.

    Checking and Other DDA Balances as % of Total Deposits
    5%from 4% last quarter and virtually zero 2.5 years ago
    Q2 FY26

    Checking and other DDA balances now represent 5% of total deposits, up from 4% last quarter and virtually zero two and a half years ago.

    New Loan Customers Opening Checking Account
    over one-third
    Each quarter

    Over one-third of new loan customers each quarter open a checking account.

    Customers with Both Loan and Deposit Account
    25%up from 3% four years ago
    Q2 FY26

    25% of customers have both a loan and deposit account, up from only 3% four years ago.

    Annualized NII and Pre-tax Earnings Improvement from Checking
    $25 million
    Annualized

    Improved NII and pre-tax earnings by $25 million, or 40 cents of EPS, annualized and growing, due to checking.

    Deposit Base Growth Rate
    10 to 15%
    Annually

    The current $14.5 billion deposit base is growing 10 to 15% a year.

    10-year Net Charge-off Ratio (Live Oak)
    40 bpscompared to over 120 bps for industry
    10-year

    Live Oak's 10-year net charge-off ratio is 40 basis points, significantly outperforming the industry's over 120 basis points.

    Provision Expense Attribution (Growth)
    45%
    Q2 FY26

    45% of Q2 provision expense was driven by strong loan growth.

    Provision Expense Attribution (Distillery Portfolio)
    40%
    Q2 FY26

    40% of Q2 provision expense was driven by the exited distillery portfolio.

    Provision Expense Attribution (Macro/Other)
    15%
    Q2 FY26

    15% of Q2 provision expense was driven by macro and other factors.

    Distillery Portfolio as % of Total Portfolio
    0.5%
    Q2 FY26

    The exited distillery portfolio represents only about one half of 1% of the total portfolio.

    Loan Portfolio Originated at Current/Higher Rates
    87%
    Q2 FY26

    Approximately 87% of the loan portfolio has been originated at current or higher interest rates.

    Employees with AI Native Tools Access
    100%
    Q2 FY26

    100% of employees now have access to AI native tools.

    Claude Super Users
    150roughly 15% of the company
    Q2 FY26

    150 Claude super users, or roughly 15% of the company, are actively experimenting with Claude for Enterprise.

    Groups Represented in AI Pilot
    90%
    Q2 FY26

    90% of the groups across the company are represented in the AI pilot.

    AI Agents and Skills Built
    640+
    Q2 FY26

    Teams have built more than 640 agents and skills across all AI platforms.

    Reported EPS
    $0.74up 23% QoQ and 45% YoY
    Q2 FY26

    Reported EPS in Q2 was 74 cents, up 23% in link quarter and 45% year-over-year. (Initial mention of '$72.2 billion' for EPS was an ASR error; the correct figure is 74 cents.)

    Reported PPNR
    $72 millionup 32%
    Q2 FY26

    Q2 reported PPNR of $72 million was up 32%.

    Reported Revenue Growth
    12%
    Year-over-year

    Reported revenue grew 12% year-over-year, while expenses declined 1%.

    Loan Book Growth
    4%
    QoQ

    Loan book grew 4% in link quarter.

    Loan Book Growth
    16%
    Year-over-year

    Loan book grew 16% year-over-year to approximately $13 billion.

    Deposit Portfolio Growth
    16%
    Year-over-year

    Deposit portfolio grew 16% year-over-year.

    Return on Average Common Equity Expansion
    251 bps
    Year-over-year

    Return on average common equity expanded 251 basis points from a year ago.

    Checking Balances Increase
    15%
    QoQ

    Checking balances increased 15% in link quarter.

    Provision Expense
    $26 million
    Q2 FY26

    Q2 provision expense of $26 million was driven by strong quarterly loan growth and the exited distillery portfolio.

    Unguaranteed ACL Coverage Ratio
    2.01%down 13 bps QoQ
    Q2 FY26

    Unguaranteed ACL coverage of 2.01%, down 13 basis points from last quarter.

    Effective Tax Rate
    19.9%
    Q2 FY26

    Effective tax rate was 19.9% this quarter, including $2.7 million benefit from purchase tax credits and other one-time tax adjustments.

    Net Interest Income
    $125 millionup 5% QoQ and 15% YoY
    Q2 FY26

    Net interest income in Q2 was $125 million, up 5% in the quarter and an impressive 15% year-over-year.

    Gain on Sale from Guaranteed Loans
    $17 millionup 13% QoQ and in line with prior year
    Q2 FY26

    Gain on sale from guaranteed loans was $17 million, up 13% in link quarter and in line with the prior year.

    Total Non-Interest Expense
    $85 milliondown 1% QoQ and YoY
    Q2 FY26

    Total non-interest expense was $85 million in Q2, down 1% compared to both link quarter and prior year quarter.

    Net Charge-off Increase (Distillery Portfolio Contribution)
    approximately 50%
    Q2 FY26

    The net charge-off increase was driven by the exited distillery portfolio, which accounted for approximately 50% of the loan charge-off in the quarter.

    Average Quarterly Expense
    $85 million
    Last 6 quarters

    Average quarterly expense over the last six quarters has been about $85 million.

    Total Revenue Growth (H1 FY25 vs H1 FY26)
    15%up from H1 FY25
    H1 FY26

    Total revenue for the first half of 2026 is up 15% compared to the first half of 2025.

    Expense Growth (H1 FY25 vs H1 FY26)
    2%up from H1 FY25
    H1 FY26

    Expenses for the first half of 2026 are up 2% compared to the first half of 2025, indicating strong operating leverage. (Speaker said 'up too', interpreted as 2% in context of low single digit expense growth.)

    Small Business Revenue Focus (Lower End)
    $500,000
    Ongoing

    The bank focuses on businesses with $500,000 revenue and above.

    Small Business Revenue Focus (Upper End)
    $5 million
    Ongoing

    The bank focuses on businesses up to $5 million revenue.

    Number of Small Businesses in Target Market
    3.5 million
    Current

    There are 3.5 million businesses in the country within the bank's target revenue focus.

    Company Age
    18 years
    Current

    The company has been operating for 18 years.

    Number of Customers
    10,000
    Current

    The bank has about 10,000 customers.

    Employee AI Curiosity
    1,000%
    Current

    Management is 1,000% convinced that all 1,000 employees are very curious about artificial intelligence.

    Total Employees
    1,000
    Current

    The company has 1,000 employees.

    Industry KPIs

    11
    MetricValueDetails
    Loans$13 billionUSD
    Deposits—
    Rotce ROE15%%
    Fee income lines$17 millionUSD
    Allowance reserves2.01%%
    Net interest income$125 millionUSD
    Net interest margin3.33%%
    Net charge offs npls40 bpsbps
    Total operating expenses$85 millionUSD
    Provision for credit losses$26 millionUSD
    Efficiency ratio operating leverage54%%

    Product announcements

    2
    ProductTypeDetails
    Merchant Serviceslaunch
    CASCA Loan Origination Platformmilestone

    Risks & headwinds

    4
    Intense deposit competitionNear term

    Seen in cash promotions and exception-based pricing from competitors.

    Mitigation: Diversified deposit strategy, focus on business checking growth and merchant services.

    Specific impairments related to exited distillery portfolioQ2 FY26

    Accounted for 40% of Q2 provision expense and approximately 50% of net charge-off increase. Represents 0.5% of total portfolio.

    Mitigation: Proactively identified and exited the portfolio.

    CECL accounting rules penalize growing companies with higher provision expense for new loansOngoing

    45% of Q2 provision expense ($12 million) was from new loans.

    Mitigation: Management views this as a positive indicator of future revenue and earnings power, prioritizing growth.

    Broader macroeconomic risksOngoing

    Qualitatively discussed concerns about interest rates, supply chain, tariffs, fuel costs, inflation, and consumer discretionary spending.

    Mitigation: Underwriting anticipates rising rates; active monitoring of segments related to consumer discretionary spending; portfolio resilience.

    What to watch in Q3 FY26

    5

    Live Oak Express Annual Production

    Next year (going into next year)
    Current~$300 million (expected for current year)
    TargetStep change pickup towards $750 million annually

    Why it matters

    Live Oak Express is a key strategic initiative for earnings accretion and gain-on-sale contribution.

    Hey, it's BJ. That'll be a multi-year trajectory for us. Um, so to go, you know, from nothing two years ago to, you know, we'll probably end the year at 300 million production or so, um, That's that's pretty good start over two years. We do think our new loan origination platform is going to help us... So, you know, those two things will will be in by the end of this year. And so, you know, hopefully💬 we start to see a step change pickup going into next year, but it'll take a couple years for us to get that at to that cruise altitude.

    Q&A highlights

    5

    Clarification on the "relatively stable NIM outlook" given prior expectations of low to mid-330s, and if it will remain in this range for the back half of the year.

    Walt Phifer confirmed the expectation for NIM to remain generally stable, around the 330-335 bps range, citing heavy loan growth helping expansion and intense deposit competition causing compression.

    “growth will help expand NIM, deposit competition helps compress NIM. I think largely, you know, given where we've been and given where we've been over the last, say, two to three years, with an average NIM, let's call it 330 to 335. That feels that feels appropriate given where we're at today.”

    asked by Bill Young · answered by Walter Phifer

    1 min read5 chapters

    Detailed Narrative

    01

    Sustained Earnings Momentum and Operating Leverage

    Live Oak continues its multi-quarter trend of strong financial performance, with reported EPS up 45% year-over-year and adjusted EPS up 20%. This growth is underpinned by improved operating leverage, as core revenue expanded 11% while expenses grew only 3%, leading to an 8-point improvement in the adjusted efficiency ratio to 53%.

    02

    Strategic Initiatives Scaling

    Live Oak Express, the small dollar 7A program, achieved a record quarter with $82 million in originations, contributing $5 million in gain-on-sale. Business checking balances surged 63% year-over-year to $469 million, with total DDA balances reaching $744 million, now representing 5% of total deposits, up from virtually zero two and a half years ago.

    03

    Robust Loan and Deposit Growth

    The bank's loan book expanded 16% year-over-year to approximately $13 billion, supported by a record high loan pipeline of $4.6 billion. Deposits also grew 16% year-over-year, demonstrating the bank's ability to fund its growth in a competitive market.

    04

    Proactive AI Integration

    Live Oak is aggressively adopting AI, with 100% of employees having access to AI native tools and 150 "Claude super users" actively experimenting. The company views AI as an accelerant to its strategy, focusing on new capabilities, products, customer acquisition, and distribution, rather than solely efficiency gains.

    05

    Credit Quality and Provision Dynamics

    While the Q2 provision expense of $26 million was influenced by strong loan growth (45%) and the exited distillery portfolio (40%), broader credit trends are stable to improving. The unguaranteed ACL coverage ratio declined 13 basis points to 2.01%, reflecting proactive credit management and high-quality growth. The distillery portfolio, representing only 0.5% of the total portfolio, drove the net charge-off increase.

    AI-generated summary of the company’s earnings call. Not investment advice.