Live Oak Bancshares, Inc. (LOB) stock intrinsic value fair value estimate & owner earnings analysis

Live Oak Bancshares is a nationwide, branchless bank that lends to small businesses in specialty industries, mostly under the SBA 7(a) program. It sells the government-guaranteed slice of many loans for a premium, keeps the rest on its books, and funds itself with online deposits. Earnings come from net interest income ($448M in 2025, up from $376M in 2024) and from loan-sale gains and servicing fees. How we measured earning power. We start from operating cash flow and remove stock compensation and maintenance capital spending. Two judgements matter. First, the loans the bank originates to sell are like inventory, so we strip the swings in that cycle from cash flow; otherwise cash flow is distorted by timing (the company revised its cash-flow presentation for these items in late 2025). Second, a lender's true recurring cost is loan principal it loses. Loan-loss provisions are non-cash and are added back, but the write-offs never appear in operating cash flow, so we deduct net charge-offs ($68.8M in 2025, $46.7M in 2024, $21.4M in 2023). On this basis owner earnings were about $2.62 per share in 2025, $1.72 in 2024 and $1.23 in 2023. Only these three years are on the revised, comparable basis; earlier years are not reliably comparable and 2022 was inflated by a one-time equity-investment gain. Base case (about $43 per share). We start at about $2.10 per share, above the three-year median of $1.72 because first-half 2026 results corroborate the improvement (net income of $66.8M versus $33.1M a year earlier, net interest income up about 17%). Year-one growth is set well below 2025's 52% jump in owner earnings. We credit only modest growth, 6% fading to 2%, well below the roughly 17% annual revenue growth of the past decade, because the bank has repeatedly grown its loan book each year, including through 2020, funded by deposits and retained earnings. We do not credit new verticals, share gains or margin expansion. After year ten we assume earning power holds flat at about 80% of the year-ten level with no growth. Bear case (about $14). Credit losses stay at the elevated 2025 level (0.63% of loans versus 0.28% in 2023, concentrated in loans already specifically reserved), earnings sit near the 2023 level of about $1.20, do not grow, and the franchise erodes to about half after year ten. The bank is highly dependent on SBA program rules and on gain-on-sale markets, which is a disclosed concentration. Bull case (about $62). The 2025-26 improvement holds at about $2.60 per share, with 8% growth fading to 4% as the loan book keeps compounding at its recent pace, and earning power persists after year ten. What would make this wrong: a credit cycle in small-business loans, a change in SBA guarantee or fee rules that cuts loan-sale premiums, or restated cash-flow figures that move again. The most recent revision to prior-year cash flow means our multi-year comparison rests on only three years.