Live Oak Bancshares stock falls on internal control concerns

On Thursday, shares of Live Oak Bancshares (NYSE:LOB) dropped approximately 5% during early morning trading. The decline followed the company’s 10-K filing, which revealed a material weakness in internal controls over its loan review process. Despite this setback, Keefe, Bruyette & Woods maintained a Market Perform rating and a $44.00 price target on the bank’s stock.

In the filing released on Wednesday, Live Oak Bancshares identified a material weakness specifically related to the internal controls of its loan review process. This process is considered a unique aspect of the company’s operations and is integral to its reputation for industry-leading credit performance. The news of the material weakness led to a notable decline in the stock’s value as the market responded. InvestingPro data reveals the company maintains a FAIR financial health score of 2.33, with particularly strong cash flow metrics. Subscribers can access 12 additional exclusive ProTips and comprehensive financial analysis for LOB.

However, the management of Live Oak Bancshares has addressed the issue, stating that the identified weakness does not reflect on or impact the actual loan review process, current credit gradings, the Allowance for Credit Losses (ACL), or the bank’s expense outlook. This clarification was emphasized by the analyst from Keefe, Bruyette & Woods in their commentary on the situation.

The bank’s loan review process has been a distinguishing feature, contributing to its strong performance in the industry. Despite the internal control concerns, the management’s reassurance may provide some level of confidence to investors regarding the bank’s operational integrity.

The price target set by Keefe, Bruyette & Woods suggests that the firm sees limited upside potential for the stock from its current levels. The Market Perform rating indicates that the analysts believe the stock will perform in line with the broader market or its sector peers over the near term.

In summary, Live Oak Bancshares has encountered a challenge with the disclosure of a material weakness in its internal controls. However, the company’s management has sought to reassure stakeholders that the core loan review process, which is critical to its business, remains unaffected. Keefe, Bruyette & Woods has reaffirmed its stance on the stock with a steady rating and price target amidst this development.

In other recent news, Live Oak Bancshares reported its Q3 2024 earnings, revealing a miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.22, falling short of the expected $0.5467, while revenue reached $128.07 million, below the anticipated $132.4 million. Despite these misses, Live Oak Bancshares demonstrated strong growth in its loan portfolio and deposits during the quarter. The firm’s net interest income and margin saw increases, with loan balances up 7% quarter-over-quarter and 16% year-over-year. Additionally, Live Oak Bancshares announced a cash dividend of $0.03 per share, payable on March 11, 2025, to shareholders of record as of February 25, 2025. The company also made changes to its executive compensation, awarding cash bonuses and restricted stock units to several key executives. Furthermore, Diane B. Glossman decided not to stand for re-election to the Board of Directors at the upcoming 2025 Annual Meeting of Shareholders. These developments reflect Live Oak Bancshares’ ongoing governance and financial strategies.

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