Live Oak Bancshares NYSE: LOB reported first-quarter 2026 results that executives said show “sustainable earnings momentum,” driven by revenue growth, controlled expenses, stable credit performance, and continued progress in two strategic initiatives: expanding business checking relationships and scaling its small-dollar SBA 7(a) program, Live Oak Express.
Earnings and operating leverage
President BJ Losch said the company’s plan to build more durable earnings momentum “is really working,” pointing to reported earnings per share of $0.60 for the quarter and what he described as even stronger core operating performance.
Chief Financial Officer Walt Phifer reported that diluted EPS was $0.60 in Q1, which he said represented “approximately a 3x increase compared to prior year.” Adjusted EPS was $0.70, Phifer said, up 8% from Q4 and 94% from the first quarter of last year.
Phifer attributed the quarter’s earnings accretion to revenue growing faster than expenses. He said revenue increased 18% year over year while expenses rose 6%. Reported pre-provision net revenue (PPNR) was $60 million, up 43% versus Q1 2025, while adjusted PPNR was $66 million, up 30% year over year.
Loan production, pipeline, and balance sheet growth
Phifer said Live Oak originated about $1.4 billion of loans across 35 industries during the quarter, describing production as “diversified” and “broad-based.” He also said the company’s loan pipeline was at an all-time high, which management said supports its forward outlook.
On the balance sheet, Phifer said loans ended the quarter at roughly $12.6 billion, up 2% quarter over quarter and 14% year over year. He said customer deposits totaled about $9.9 billion, rising 3% from the prior quarter and 13% year over year.
Phifer noted that reported loan growth was “a little more muted than the underlying production would suggest,” citing elevated payoff activity tied to some larger loans across three verticals. He said management viewed the level of paydowns as an outlier that was “largely anticipated” and not expected to persist at the same pace.
In response to a question from Cantor Fitzgerald’s Eric Spector about growth visibility, Phifer said the pipeline was about $4.5 billion. He added that production should be “very in line or better than Q2 of last year” in the near term and reiterated that the company’s prior outlook for “low- to mid-double-digit loan growth year-over-year” still held, based on pipeline activity.
Net interest margin, funding mix, and deposit initiatives
Phifer reported first-quarter net interest income of approximately $119 million and a net interest margin (NIM) of 3.27%. He said the company had anticipated a step-down in net interest income and NIM following a January 1 repricing of prime-based loans, but both measures “outperformed expectations.”
Year over year, Phifer said net interest income increased 19% and NIM rose seven basis points, which he said reflected recurring revenue growth and improved pricing discipline. He also pointed to a $2.5 million negative impact from day count in Q1 due to seasonality.
Looking ahead, Phifer told analysts that a flat interest-rate environment would help stabilize NIM and net interest income and allow loan growth to become “the primary driver.” In that scenario, he said management would expect margin to stabilize in the near term, with expansion influenced more by growth as the year progresses.
Losch emphasized the importance of building business checking and non-interest-bearing deposits, calling it critical both to being “America’s small business bank” and to improving the earnings profile. He said the company started with “virtually no non-interest-bearing accounts” two years ago and now has “over $400 million and growing.” He added that non-interest-bearing deposits were about 4% of total deposits, with a goal of exceeding 10%.
Phifer reported that non-interest-bearing checking balances rose 9% from the prior quarter and 47% year over year. In Q&A, Losch said that when he joined the company about 4.5 years ago, only 3% of customers had both a loan and deposit account; he said that figure is now 23%. He added that currently “one out of every three” new loan relationships includes a checking account.
Losch said the company expects to reach a “10-plus%” non-interest-bearing deposit mix over the next three years by continuing to pair checking with new loans, expanding partnerships with affinity groups, and launching merchant services, which he said was “in launch right now.” He also noted that industry non-interest-bearing deposit mix is typically 20% to 25%, calling Live Oak’s 10% target “very achievable.”
Guaranteed loan sales and Live Oak Express
Phifer said gain-on-sale income increased 25% from Q4 and was in line with the first quarter of last year, consistent with what management discussed previously. He said SBA premiums remained steady and Live Oak Express was a “meaningful contributor.” He added that gain on sale has represented 10% to 13% of total revenue over the last 12 quarters, and management expects a “slight stairstep up each quarter as the year progresses” in 2026 as it has in prior years.
Losch said Live Oak Express focuses on small-dollar SBA 7(a) loans that are “highly desirable” in the secondary market with premiums in the 9% to 13% range. He said the company has sold $140 million of these loans so far and that the goal at “Cruise Altitude” is to produce at least $750 million annually in small-dollar loans.
KBW’s Tim Switzer asked whether the company intentionally held back loan sale volume in the quarter. Phifer said it did not, attributing higher held-for-sale balances to production that came in during the last week and a half to two weeks of the quarter, which typically cannot be sold and settled before quarter-end.
On gain-on-sale premium changes, Phifer said the improvement was driven by mix, including higher Live Oak Express production and increased USDA guaranteed loan sales. He said investors have shown more demand for USDA guaranteed portions as they think about “potential downward rate protection.” Phifer said he would “maintain” a premium range around 106% to 107% going forward based on the average of the last five quarters.
Chief Credit Officer Michael Cairns said management was being “conservative” with the $750 million Live Oak Express annual production goal and that he expects production to exceed that level. He also discussed operational impacts from a mid-2025 SBA SOP change that tightened rules for smaller-dollar loans after a period of looser standards, which he said created a temporary backup in originating those loans efficiently. Cairns said volumes are “on the rise again.” He also said the company is piloting an “AI-native loan origination platform,” which he expects to make the process “simpler, easier, faster, and more efficient.”
Credit performance, expenses, and longer-term targets
On credit, Phifer said provision expense improved to about $20 million, down from roughly $22 million in Q4 and $29 million in Q1 2025. He said the unguaranteed allowance for credit losses to unguaranteed loans and leases held for investment was 2.14%.
Phifer said the 30+ day past due ratio improved to 4 basis points, which he called “an excellent result,” while the non-accrual ratio was 102 basis points, up modestly quarter over quarter. He noted that 27% of non-accruals came from verticals the bank has exited over time. Net charge-offs were 63 basis points for the quarter.
Asked by Raymond James’ David Feaster about those exited verticals, Cairns pointed to a “whiskey distillery segment,” described as a niche within the former wine and craft beverage lending group. He said the company exited that segment previously after seeing headwinds from changing consumer preferences and oversupply following COVID. Cairns said some loans moved to non-accrual during the quarter as the company worked through workout strategies, and emphasized that reserve coverage reflects management’s assessment of potential loss content. “I feel good, and I feel like our portfolio is very stable at this point,” he said.
Regarding the small business credit cycle, Cairns said the stress that resulted from rapid rate increases is “largely behind us” at Live Oak, stating that 85% or more of the portfolio was underwritten at interest rates “higher or at least on par with where we are today.” He said management is monitoring macro uncertainty, including potential impacts from fuel costs, and that Live Oak underwrites to higher debt service coverage to build cushion.
On expenses and efficiency, Phifer said non-interest expense was about $85 million in Q1, down from $89 million in Q4, and the efficiency ratio was 59%, about seven points better than a year earlier. He said expenses have run “just above $85 million” on average over the last five quarters and described that as a reasonable run rate for 2026, with “slight upticks” depending on investment needs. He added that, coupled with revenue growth, management expects the efficiency ratio to trend down into the “low- to mid-50s” during 2026.
Capital levels were described as “healthy and robust,” with risk-based capital ratios improving about 10 basis points quarter over quarter, while the Tier 1 leverage ratio remained stable. Phifer also referenced the company’s “Mahan Ratio,” saying that roughly 40% of assets are in cash, government-guaranteed investments, or government-guaranteed loans, and that the ratio totaled 16.7% of unguaranteed loans and leases when including Tier 1 capital, ACL, and fair value marks.
In discussing longer-term profitability, Losch told Feaster that management’s focus remains “15 and 15”—a 15% return on equity and 15% earnings per share growth—adding that the company believes it is “on the precipice” of achieving those goals on a sustained basis as credit improves and initiatives such as checking and Live Oak Express scale.
About Live Oak Bancshares NYSE: LOB
Live Oak Bancshares, Inc is a bank holding company headquartered in Wilmington, North Carolina, and operates through its subsidiary Live Oak Banking Company. Founded in 2008, the company leverages a branchless, technology-driven platform to deliver specialty lending and deposit products across the United States. Live Oak Bancshares completed its initial public offering in February 2018 and trades on the NYSE under the ticker symbol LOB.
The company's primary focus is on originating and servicing commercial loans for small businesses in select industry verticals.
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