Live Oak Bancshares achieved what Chairman and CEO Chip Mahon termed "record production" for the quarter ended Sept. 30, reporting big increases in loans, deposits and net interest income. However, a similarly substantial increase in the provision for credit losses cut into profits.
The Wilmington, North Carolina, company reported third-quarter profits totaling $13 million, down 67% from the same period in 2023. Commenting in a press release, Mahon made it clear he believes growth is the more important trend. "Our teams continued to put capital in the hands of business owners across the country," Mahon said. "We believe our business momentum is in an exciting place and our conservative approach to growth is driving positive operating leverage, revenue, and deeper customer relationships."
Though net charge-offs were down sharply, problems with three loan relationships pushed unguaranteed nonperforming loans and leases to $49.4 million on Sept. 30, a 49% increase from the same time last year. Live Oak recorded a $34.5 million provision for credit losses for the third quarter, compared with $10.3 million following the third quarter of 2023 and $11.8 million for the quarter ended June 30.
The $12.6 billion-asset bank ranks among the nation's most active Small Business Administration loan producers, so a significant portion of its loan portfolio consists of 7(a) loans guaranteed up to 85% by the federal government.
Live Oak's credit issues offset what it said was an exceptionally strong performance by its lenders. Third-quarter originations totaled $1.8 billion, up 64% year over year. It was the highest quarterly loan production in company history, excepting the second quarter in 2020, when originations spiked to $2.18 billion due to Paycheck Protection Program lending.
The added loans drove third-quarter revenues, which totaled $129.9 million, about 2% higher than a year ago. The loan portfolio totaled $10.2 billion on Sept. 30, up 15% from the same time last year. At $3.5 billion, the loan pipeline hit an all-time high, the company said.
At $11.4 billion on Sept. 30, deposits were up 14% year over year, with the recently launched business checking initiative accounting for much of the increase. Live Oak formally introduced business checking accounts in the first quarter, following a soft launch in fall 2023. Business checking balances totaled $145.1 million on Sept. 30, up from $23.2 million a year earlier.
Noninterest expense totaled $77.6 million, up 4.4% over the third quarter of 2023.
Live Oak originated 1,440 7(a) loans for $1.98 billion during SBA's 2024 fiscal year, making it the nation's second largest 7(a) lender by dollar volume. So far in fiscal 2025, which began Oct. 1, Live Oak's 7(a) originations total $118.4 million. The company sold $255 million of SBA loans in the quarter ended Sept. 30, generating a gain on sale of $17 million. Those totals were up from $226 million and $13 million a year ago.
