Why Live Oak Stock Grew Taller in July

What happened

The failure of Silicon Valley Bank earlier this year sent a shockwave through the financial sector, and Live Oak Bancshares (NYSE:LOB) was not spared during the ensuing panic. But in July, Live Oak reported results that indicated it was on stable footing. Investors were reassured, sending its shares up by 44% for the month, according to data provided by S&P Global Market Intelligence.

So what

Live Oak, like many bank stocks, lost about half of its value during this spring's panic over regional banks. But the company, a small business specialist with close ties to its core markets, has a very different risk profile than the institutions that got in trouble.

The company's second-quarter earnings went a long way toward reassuring investors. Live Oak earned $0.39 per share on revenue of $108.46 million, topping the consensus estimates of $0.31 per share in earnings on revenue of $104.57 million.

In an environment where investors were worried about deposit flight, Live Oak grew total deposits by 5% to $9.88 billion. That extra funding allowed Live Oak to grow its loan portfolio by 1.7% sequentially and 18.4% year over year.

"This is a seminal moment in Live Oak's history," CEO James S. "Chip" Mahan III said in a statement. "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."

Asset quality seems to be holding up well. During the quarter, Live Oak charged off $1.2 million worth of loans. That was down from $6.7 million worth in Q1 2023 and $2.5 million in Q2 2022.

Now what

Live Oak shares are now up a solid 23% for the year. But the stock is still more than 60% below the peak it hit in late 2021 before the Fed began to hike interest rates.

Arguably, the stock was overvalued at its highs, or at the very least, caught up in the euphoria of the moment. But this is a well-run bank with a strong track record of growth and a proven formula for courting, and keeping, small business customers. Even after its recent run-up, Live Oak remains an attractive stock for long-term-focused investors.

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Lou Whiteman has positions in Live Oak Bancshares. The Motley Fool has positions in and recommends Live Oak Bancshares. The Motley Fool has a disclosure policy.