Live Oak Bancshares, Inc. (LOB): what the price assumes

In the published model solve dated 2026-Q2, anchored at $42.85, Live Oak Bancshares, Inc. (LOB) is priced for 17.7% return on equity. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-27.

Generated: 2026-07-29 · Exported: 2026-08-01 · Source: https://boothcheck.com/report/LOB

Headline

FieldValue
TickerLOB
CompanyLive Oak Bancshares, Inc.
Current price$42.85/sh

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basisfinancials
Price-to-book1.55x
Return on equity now8.2%

The implied return on book is non-physical at this price-to-book and is suppressed as misleading. The price sits beyond a 11.7% return on equity sustained for 40 years and is not resolvable as a sustainable-ROE point. The rarity read below is the honest signal.

Solve inputs: computed at a 12.8% cost of equity; ROE searched up to the 11.7% ROE ceiling.

Reconcile: at the x-ray's 9.3% required return this reads ~12.2%; the models below use their own rates.

How unusual the bet is: extreme

ReferenceValue
vs own history+0.69σ
cohort percentile (of 163 peers)71
sustained it ~10 years at this level54%
implied end-window share0%

Valuation X-Ray

The price is supported by earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset1.41x3expensive
Earnings1.01x2expensive
Relative1.12x3expensive
Growth0.87x1justifies

Families that justify the price: Earnings, Relative, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 4.8%); the inversion above states its own rate.

Per-Model Detail (n=9)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth——no—
Bank Fair Value (P/TBV)—$28.111.52xyesTBVPS $27.47 × 1.02x (ROE (TTM) 9.9% / CoE 9.3%, g=5.0% (sustainable: 65% retention × ROE, 5% cap; not the terminal-growth assumption), credit 1.62% allowance/loans → ×0.97, NPL 3.71% → ×0.92)
Relative ValuationRelative$38.271.12xyesP/E 11.74x (blended: static sector reference 10x + trailing (TTM) 16x), scenarios: 9.6x / 11.7x / 13.9x (bear / base = reference held flat / bull), EV/EBITDA N/Ax
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$29.331.46xyesBV/sh $27.47, ROE (TTM) 9.9%, ke 9.3%
Two-Stage Excess ReturnAsset$30.291.41xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$49.400.87xyesRev $0.5B, growth 21% (input: historical growth; tapered), Terminal P/S: 3.5x / 4.3x / 5.1x (bear / base = today's held flat / bull, cap 12x)
Peter Lynch Fair ValueRelative$31.441.36xyesEPS $2.62, growth 2% (input: historical EPS growth), PEG=10.44 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings——no—
Residual IncomeAsset——no—
Graham NumberAsset$40.241.06xyes√(22.5 × EPS $2.62 × BVPS $27.47) — Graham's conservative floor
EV/EBITDA RelativeRelative——no—
FCF YieldEarnings——no—
SBC-Adj FCF YieldEarnings——no—
Ben Graham FormulaEarnings$84.540.51xyesEPS $2.62 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset——no—
P/Sales SectorRelative——no—
PEG Fair ValueRelative$98.250.44xyesEPS $2.62 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings YieldEarnings$28.321.51xyesEPS $2.62 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Share count CAGR (dilution)0.7%

Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).

Bullet Takeaways

Bull Case

Live Oak is best understood as a growth-stage bank, and that framing changes how its numbers should be read. It is not a mature community bank optimizing a steady book; it is a national small-business lender still compounding its balance sheet, with total loans and leases reaching $12.59 billion and deposits growing 11.6% year over year to $13.84 billion. A bank growing deposits at double digits without branches is doing something structurally different from its peers, and the recent results show the model maturing into profitability: net income tripled to $29.9 million and diluted EPS rose to $0.60 from $0.21 a year earlier, as net interest income grew to $119.4 million. The earnings inflection is the signal that the years of investment in the digital platform are converting into operating leverage.

The competitive position is genuinely differentiated. Live Oak is an SBA Preferred Lender, and the 10-K describes the advantage plainly: the status lets the bank "enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders". Speed and specialization in small-business lending are a real moat, because most banks find SBA lending too operationally complex to do well, and Live Oak has built its entire platform around it. The government guarantee on much of each loan is a structural credit enhancer: the bank can sell the guaranteed portion for a gain and retain the higher-yielding unguaranteed slice, a model that generates fee income on top of net interest income.

The valuation support is broad for a bank at this stage. At roughly 1.4 times book, Live Oak trades at a premium to the typical community bank, but that premium is consistent with a bank growing its loan book and deposits at double digits while turning the corner on profitability. The branchless model also carries a lower long-run cost structure than a branch-heavy peer, which is the operating advantage that should let the return on equity climb as the platform scales. The bull case is a digital small-business bank early in its earnings ramp, with a defensible SBA franchise and a structurally lower cost base.

Bear Case

The variable with the most leverage on Live Oak is one it does not control: the health of the small-business economy and the SBA program that underpins its franchise. This is a bank concentrated in small-business lending, which is among the most cyclically sensitive forms of credit, because small businesses fail first and hardest in a downturn. The strain is already visible in the credit metrics: nonperforming loans run at roughly 3.7% of loans, elevated for any bank and a reminder that the small-business book carries real default risk even in a relatively benign environment. A genuine recession would push that figure higher and force larger provisions, which flow straight out of the earnings the price capitalizes, and the bank is earning a return on equity around 8% to 10% today, below the level the premium price assumes it can sustain.

The SBA dependence is a regulatory single point of failure. The bank's edge comes from the government guarantee, but that guarantee is conditional, and the 10-K spells out the catch: if the SBA determines a loss is "attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced," the agency "may seek recovery of the principal loss" from the bank. In other words, the guarantee the bull leans on can be clawed back if the SBA faults Live Oak's process, which converts a credit enhancer into an operational and compliance risk. Beyond that, the entire SBA 7(a) program is a creature of federal policy: changes to program rules, fee structures, or funding levels, all set by Congress and the agency, can reshape the economics of the bank's core product overnight, and the price gives no weight to that policy risk.

The valuation, while broadly supported, still embeds an optimistic return. At roughly 1.4 times book, the price prices a return on equity beyond the elite tier sustainable over decades, against a bank recently earning around 8.2%. That is a wide gap to close, and it has to be closed while the bank navigates a credit cycle in its most cyclically exposed loan category. The bank fair-value model, anchored on the bank's actual return relative to its cost of equity, lands near book value, well below the 1.4-times multiple, which says the demonstrated profitability supports roughly book, and the premium is paying for the return to climb. A bank funding rapid loan growth needs continuous access to deposits and capital, and a digital deposit base, while cheap to gather, can be more rate-sensitive and flightier than a branch-based one. The bear case is not that Live Oak is a bad bank. It is that a premium multiple on a cyclically exposed, SBA-dependent lender earning a below-elite return prices in a benign credit environment and a return expansion that a small-business downturn would directly undercut.

Valuation

A bank is worth the return it earns on its capital, so the lens is price-to-book, and Live Oak trades at roughly 1.4 times book. At that price the market is pricing a return on equity beyond the elite tier sustainable over decades, against a bank recently earning about 8.2%. This is a bound, not a solved point: the assumed return is within reach of what Live Oak has earned in stronger periods, but it requires the return to climb meaningfully from the current level and to hold there, and the price-to-book already sits in the upper half of the peer group.

The method agreement is favorable but not unanimous in degree. That last figure is the key tell. The bank fair-value model sits well below the 1.4-times market multiple precisely because the current return on equity, near 9.9% on a trailing basis, generates only a modest premium over book in that frame. The honest read is that the demonstrated economics support roughly book to a slight premium, and the market is paying up for the growth and the expected return expansion the static frame does not yet credit.

The cohort comparison frames the premium. The peer set is southeastern and growth-oriented community banks, United Community, Glacier Bancorp, SouthState, Renasant, and NBT Bancorp, and Live Oak trades in the upper half of that group on price-to-book, reflecting its faster loan and deposit growth and its differentiated SBA franchise. The solvency frame for a bank is regulatory capital and credit quality rather than corporate leverage, and here the picture is mixed: capital supports the growth, but the elevated nonperforming-loan ratio near 3.7% and the allowance at 1.62% of loans flag the credit risk in the small-business book. The decisive question is whether the return on equity climbs to validate the premium. The buyer at this price is underwriting that Live Oak's digital, low-cost model lifts its return toward the elite tier while it navigates a cyclically sensitive loan book and a regulatory dependence on the SBA program, and the bank fair-value model's proximity to book is the reminder of how much of that improvement the price already assumes.

Catalysts

The Q1 2026 print showed the earnings inflection clearly. Net income tripled to $29.9 million from $9.7 million a year earlier, diluted EPS rose to $0.60 from $0.21, and net interest income grew to $119.4 million from $100.5 million as loan interest outpaced funding costs, with net interest margin at 3.27%. Loan and lease production reached $1.37 billion, total loans and leases stood at $12.59 billion, and deposits grew 11.6% to $13.84 billion, the balance-sheet growth that drives a growth-stage bank's earnings.

The credit trend is the catalyst that matters most for a small-business lender. The provision for credit losses was $20.1 million in the quarter and the allowance for credit losses stood at $193.3 million. With nonperforming loans elevated relative to peers, the trajectory of the provision and of net charge-offs is the leading indicator of whether the small-business book is holding up, and it is the single variable that would most directly validate or undercut the earnings ramp. A rising provision would signal the credit cycle turning against the bank's most cyclical exposure; a stable one would support the case that the elevated nonperformers are contained.

The watch items are concrete. Track loan and lease production and deposit growth, the engines of the balance-sheet expansion, and watch net interest margin as funding costs evolve. Track the credit metrics, provision, charge-offs, and the nonperforming-loan ratio, since small-business credit is the bank's defining risk. And watch the SBA policy backdrop, including any changes to program rules or fee structures, since the franchise depends on the federal guarantee program remaining favorable. For a growth-stage bank priced for a return expansion, the catalyst that matters most is the quarterly return on equity itself, because that is the figure the premium-to-book multiple is staking its case on.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Q1 FY2026 earnings release · FY2024 10-K

View the full interactive LOB report on boothcheck