On Wednesday, Live Oak Bancshares reported a strong third quarter, beating analysts’ expectations in both earnings and revenue.

The company announced $127 million in revenue during the quarter, beating expectations by $11 million, according to Seeking Alpha.

Earnings per share increased by $0.49 quarter over quarter, with third-quarter earnings of $0.88 earnings per share. Nasdaq reported the average estimated earnings for the third quarter were $0.49 based on analysts from Zacks Investment Group.

“The success of our quarter shows that Live Oak Bank remains on a path of sustainable and sound growth to fulfill our mission to be America’s small business bank,” said Live Oak CEO Chip Mahan in the earnings release.

Live Oak Bancshares' (NYSE: LOB) stock price rose 7.42% as of Thursday afternoon and sat at about $29.04 at press time.

Live Oak’s earnings are up from last quarter but continue to lag in year-over-year calculations. This quarter’s revenue is down about 10% year over year, and earnings per share is down about 8% year over year. 

The company followed its report late afternoon Wednesday with a call to shareholders Thursday morning.

Mahan called this a “very fine quarter” and pointed to four factors leading the bank’s continued climb out of the market turbulence that shot down its earnings at the beginning of the year.

The CEO credited Live Oak’s staff of business analysts for its earnings, calling the team its “secret weapon.” He went on to credit the company’s plans to hire “high-quality revenue producers,” its ability to avoid fixed costs and its operating earnings and leverage for its performance.

He also explained how the company plans on paying for its continued expansion.

“The building out of our community bank of the future has predictively taken longer and been more costly than we thought,” Mahan said.

A recurring theme on the call was predicting that margins will steer “up and to the right,” but “they may not be linear,” President and CFO William (BJ) Losch said.

Losch and Mahan spoke about new initiatives around checking accounts and embedded banking, as well as forecasts for 2024.

“We're in the very early innings of attracting checking accounts, which will be a tailwind to building longer-term customer relationships and lowering funding costs for years to come,” Losch said.

The bank has about 200 operating checking accounts since the launch of the program Sept. 1. To speed along the launch of the program, Live Oak now requires new loans to be funded into a Live Oak checking account, Losch said.

Embedded banking, or branded financial services, is a project not yet launched by Live Oak but will roll out early next year, Losch said.

“We are building our capabilities and, candidly, learning a lot from each other in this partnership, to then expand to further partnerships over the course of 2024 into 2025,” he said.

Losch said the company’s expenses are currently down 3% quarter over quarter and 11% year over year, but both Losch and Mahan mentioned investing in “good costs” to grow the company in future quarters.

“While our expenses will grow commensurate with a growing company that is adding what I call, ‘good costs’ such as new lenders, they should increase as we grow over the next several years,” Losch said.

Two sectors discussed on the call were solar and breweries.

Losch said the solar industry is having a big year, in part due to the Inflation Reduction Act and government incentives. This quarter’s earnings presentation included a graph demonstrating energy and infrastructure making up 16% of the bank’s production mix in 2023 so far.

Adversely, when asked which industry segments were showing weakness, Losch pointed to small breweries.

Live Oak has $20 million in total exposure in small breweries, Losch said, the breweries continue to navigate challenges from the rate environment, industry shifts like changes in customer behavior and brand oversaturation, he said. Many small breweries planned to distribute but had to pivot when distribution proved to be a difficult business model. Many of them are also still recovering from the pandemic, he said.

“We feel very confident, and they're fighters,” Losch said. “They're very communicative, working really hard. Some will navigate perfectly fine, others will continue to have some challenges.”

Workforce challenges plague every industry, Mahan said, something the Wilmington chamber is working to bolster in New Hanover and surrounding counties through recent initiatives.

Correction: This version has been updated to correct that Live Oak Bank has not yet launched its embedded banking project.