LOB - Earnings call transcript Q2 2018 | Live Oak Bancshares, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Live Oak Bancshares Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Greg Seward, General Counsel of Live Oak Bancshares. Sir, Please go ahead.

Greg Seward

morning, good and you, everyone. Thank Live Welcome Conference Quarter Earnings Second to the Call. XXXX Oak's

webcasting internet, our on the for We is over the today's commentary live are the call reference will investor.liveoakbank.com To the materials materials. on the supporting and that review to we being please and calendar access call at and our over visit Event internet call, presentation and website recorded. call this go

website. release is also Our second our on quarter earnings available

we or reconciliation would the statements call the that referenced, today's any to filings. SEC will reflect including of filings. date risks Before I impact be differ we our Officer. are may Mahan, may not call can I measures call update to do to materially the We our Executive found forward-looking you in today's started, to caution to expectations that detailed now also get Chip to non-GAAP like subject call. actual in of Factors and make during after our Chairman and over undertake statements that this about on and our results from accompanying cause the forward-looking uncertainties. are materials SEC of GAAP to Information Chief circumstances the may measures, turn arise measures those financial events

James Mahan

with highlights and few a some all, morning, off restricted to Brett's and stock on us Good awards. kick going comments

Steven Caines

my earnings have you seen release. of commentary with the most assume already I Chip. quarter, on Thanks, along the

As to earnings. dramatic quarter in last compared you year's a the see, increase fantastic can with pre-tax had we

rise turn, portfolio which, lease continued growth and in Our revenue. is steady driving the recurring substantial in loan it's

on products, our dependency our continue thereby also SBA to diversify loan We reducing origination.

of a QX liquidity the QX. in documents, a average we as see product posted of higher our result as was discussed continue the compared liquidity positive hold earnings to we profile in during the The ramp did in QX increased the strategic throughout quarter as plan, last referenced second we to the compression call. NIM As up

improved and our as next loan reprise see forward, growth within NIM our XX% continues of should robust portfolio Going year. we loan portfolio the will approximately

potential Finally, be $XX for item Related like million performance XX would interest. to per upon result to an of the the already reached an reaches for price may see retention stock this I XXXX, through been to that you days, we've the and Slide what the in our to of of expense noninterest now will event walk We awards that XXs as awhile a or record effect occurrence. remind share just such of you an mentioned period, and want beyond that $X.X you the incurred. $XX in referencing X. price and vest of in If on earlier has low issued for week $XX.XX. increase price trading consecutive reaches traded stock touch share

XX, As incur $XX of these to was June there stock million expense in awards. remaining roughly on

from you EPS the of turn stock materially not the However, due addition I'll derived Also, the the would the expense in over value coming incurred. X.X as the on would by fair awards, of share back the increase these quarterly share items, income impact of tax of call grants discontinuation the dilution. now impact these $X.X to the to tax Chip. count expense quarters the offset million shares compensation and impact after updated for Having consideration the of to million awarded these shares benefit of net the

Steven Caines

on that in rather the Brett, review to thanks for affectionately that minute. of those XXs. More what here complex we call a come

X. the on Slide moving So

comment of theory Our verticality, and just two. customary or a normal

see, billion compared We to can of year last are you million. from running behind, XXX X.XX as

year, billion on the tummy so X.X a And in the we're time, them us to in I hit XXX% would a million so moment bit, that tell this this we're SBA just year gaining you XXX wee of As financing last speak. gone. and is

in been the Help seller used healthcare now hurt have the rule. a could business, fundamentally of issue paid until You vet business. that and be SBA the a has paid cannot And equity loan interest the be has is two after right reduced the note interest that X% paid must and back way. has business to get off XX% XX% end that been years. to That and the equity chicken us on to the

ago, category, that you the If it that you bottom cut the SBA here. R&D a X,XXX in Anderson I year putting remind work will on lenders Kay do about we look at the slide, not of that loose

hunters Greg, could That's you $XX.X into that technology understanding $X The year average If that have lender X,XXX been our million per various million you paper. lending does are historical they culture. is fiscal not these: that XX, our been production It head of lenders under XX our X, bank but only average XX $XX.X years from last to SBA September run as the over And trained average facts see, an highly platform, she can victorious. year, did ending These to billion Xa production. from time-to-time. attracted, SBA we of million. has experience, have an you see Slide go of of banks for

of today. that contracting the We in theory expect business. of announce verticality. we're top to our on Proud to in we new So a that got kick vertical

I about attraction wee just electrical I that and cash in dream recurring would the thinking just, the guess, and And American profitability our XX flow. guess, and agreements in verticals thing this in free both there's always and service the customers mainly, plumbers, the to that thinking revenue So installation and growth now HVAC and about departure the now, me bank soundness, order. and be a space. no only is a, banker our And is that commercial matters

depreciation, cash I'll which of on get the back flow. in adding Adding stock the back, I you at terms option I'd provision, free our to look slide as in and the see So Reltco. thought pre expense, next subsidiary, business appendix,

add XX in Trailing will Cumulative to our pre million charge as chest, originated million; offs, the reserve you, these is that remind Average loans, provision. that of XX ratio would billion And our $X case million. our is unguaranteed per little business I'll holding at charge It's you to that's of years, remind debt reserve portfolios loan paper. capital. and million, since net loss $XX is XX in to a paper to over a that we've show look that. offs, XX which under I capital; always, the Texas $XX of capital, X%. ratio back of twice year to add of bps. another average has that. excess loan X so XX%, company customer So interesting you note last $XXX generate FICO, if so on soundness unguaranteed that's million is $XXX billion, billion right making so X:X. that XXX,XXX. at $X.X service exposure inception of loss coverage $XX math today million And months XX do XXX. of On that's the a treasure the

to go slide, So Slide the if next X. you

understand long customers, cash. I it But at and like at look ourselves, clearly the we again, we we we'd our stay within I can this issue we not if were a as raise You'll think see, kind rules, if as withstanding look bank, way. we're of deposits

million earnings is of a XX% what backs you to we earnings $XX from 'XX. business? is adjusted $XX half compounded the mentioned see year-over-year this pre-tax from So power add if or do ago, you non-GAAP that So half growth can of those million to of I first and XX% 'XX the of versus first 'XX 'XX, minute that jumped

have very you talk profitable are more reason business is, Well, to we of I the do a going And that's why it? So same. see the about growing.

'XX. to yes, years almost we shortly. equal you outstanding about based stock these common X going stock company X that a SaaS can are on in took grants stock X or awards at about to as public XX% average percent last exactly years, kick these as XX Slide And of And So companies. our these his see ago

the about customary are bank? we a company? that. that see a So And that we are of all time. asks tenth Everybody can normal banks a Are technology you

we bank than culture can and you certainly and excited these the then, the the this that. much XXs, why called so And the as you not extend about and bank certainly Huntley little higher technology this and as talk continue arrival of and fall we Scott, back Neil, go platform home about Garriott, talk certainly piece. to more but bit of the XX, with and about So us see take a technology, the don't you'll

Scott Custer

well, it if quarter you second have I unique Brett across it hard the is really Chip. alive of business exceptionally one not as on, Thanks, think, strong look alone of and an model And and morning. compare really terms bank Good the business and Sure. to our just is and to already the it's a industry model anybody. and that, in had stands touched level Chip

really those flattened of occur. verticals think But in sheet, really it, doing that's but to a productions shows not we've as base in revenue I ourselves. out. that fix XX mature of verticals, about has past, verticals. the talked -- what's holding inside some as those has past. about all and we're look is production on there, as and And revenue it the paper even production. and And to that Loan servicing We're continues cost the leverage touched exists. think So how more already you and Chip a model, the continues in revenue we In we expense really on business grow mature inside occurring flattened Slide more slide out, see on balance growth shown sort operating we've our the

best verticals. so operating mature see to still X.X, come as verticals and And across leverage is then X.X for move page, are that the you tells the X.X, yet And really which you is and beyond. verticals. the you our what

begin you'll really the consistent type that. more where growth revenue creating -- company the that we significant. of growth, is earnings in business the those The And this referenced in And balance have. at begin the sheet Slide to more sheet, from to stream to come Chip revenue. same a year-over-year, we're hold recurring that will see revenue shows enhanced ones, the just our as XX% ability they creating position XX% effect with now capital as as mature, leverage see so we growing going a clip. and on verticals balance as core XX The in mature

capital our So in of deposit an as we the to probably exceptionally and platform margin quarter, quarter we see Slide grow occurring great on really that we about into it XX. origination standpoint. some company the was from talked Slide more quarter When of you bit We had and can power a was XX. last such strong, nicely, of we that a about the continue that liquidity that felt intentional. this talked the

a quarter really bit often that This page $XXX more like tightly. we're that times, is pricing call all would that's on might well, you're at bank of rate. case. not price. originations the that Still is I fact managing to CDs $XXX your argue us, I attention doing say, when renewal competing maturing What almost a look an CD, on in you were new the And this million. a XX% million you were worth about When

savings XX% just happen price. doesn't because retention have an attractive has you consumer almost got rate. a That Our

our others, look at The almost we're that we're deposits, we'll deposit customers as over just here is a exceptional. In you, as Neil. rate price our accounts. going that our the have think experience customers take to to for new well how our experience With that, funding and well and And I down savings able of our that, that fact, Yet, for forward. those retaining manage the the loan know cost compared is. you bodes experience our you XXX% -- growth list. to if be

Neil Underwood

we Scott. of with beta Bank and Thanks, is in the like first on production, in are and cost to driving and and from that gen that core, native. slide bucket cloud falls Live deposits announce I first pulled completely this into low things API proud call, deposit the actually live next last earnings build the low this next world, Oak bank scale, the

at an cost. given operational the Really allow can a flexibility it's of Scale at will scale on terms integrate speed of those X low to very on very mean things allow being So speed open breed that two up, scale, API millions and us just market, to flexibility, the last of the a party but third and rapid time systems. HX. accounts of we millions not us best will innovate to model, And of to XXs pace. accounts

to digital with of platform will low goal allowing funds So again, when ultimate with use them complete, with Oak scale. cost the accessing fintechs, betas, partner at Live low of our deposit

with Just next out the smaller are year. we though, to year deposit continue us it's to will seek we'll masse. think a incremental friends a note, en and so these to and launch live set lead partners to I accounts channel these And family able relative this throughout fintechs and be of position

other you they and come, two updates implementing, systems, by are are the The Payrailz. that give we Apiture on as way, those I'll

the people these partners we singularly hope, cost Oak So banking again, back you. at platform Chip, digital market to in deposit scale. will the position our offer Live fintech and to

James Mahan

questions. will certainly Greg Miko, Thanks, Neil. entertain

Operator

the line Aaron Deer O'Neill. question Our from Sandler Instructions] of [Operator is with be to going first

Aaron Deer

had nice quarter, the or pretty the outlook billion target? you rebound in of minus on kind quarter Is like that volumes year X% and plus seems kind of the still sound production of there. Last full it good production. a a you $X past optimistic Chip, suggested this you for

James Mahan

he's Scott, with I'm his Yes, good that. and head. nodding Yes. at looking we're

Aaron Deer

production what guaranteed the of quarter, kind guaranteed the was origination? was or size what maybe -- of and percentage average this that what And with the of what in dollar And nongovernment verticals Okay. of paper? past not that then amount government

Steven Caines

this is Yes. Aaron, Brett.

a program. over I X/X the So bulk QX OTA was -- was or XX% our between and USDA via XX% the under was that guess, XX% non-SBA. in program. loan little Roughly of origination The roughly, via just were of non-SBA,

Aaron Deer

traditional Okay. It's is? that's largely as stuff gather then? ag solar -- that I that the well? mostly is what then USDA Is it Or

Steven Caines

the percent XX-plus is is the vast It No. vertical. renewable up for lending majority, energy

Aaron Deer

Brett, Okay. maybe X. And then,

on the given and that had couple that's excess quarters. the past the margin liquidity over impact Just the

the dynamic quarters? deployed And that do by obviously, that back the how repricing have margin As pretty see over quarter? you you get next the loan look some of rising substantial the and, costs get on might fourth to also deposit the added couple of see where but here to we behaving book,

Steven Caines

Yes.

improving beginning the certainly quarter. the remainder we So NIM see of next year, throughout

earlier, combined XX% re-priced. actually reprise June, the roughly July, referenced our of re-pricing Then balance as we well As will liability -- XX% And side of after portfolio increase of the next trending in the our XX side on XX% in of been -- so XX% around portfolio Fed within sort you have have with the -- the at beginning the sheet, loan year. that that between and of mark. and July X significant the our portfolio the deposit betas

obviously nice. that So

improving growing So things X.X%, We QX the above certainly I those year on, as there. do the from see maybe think, and NIM are combined. favorably for would goes

Aaron Deer

then And on lastly, sale. on the gain

what and you to million? As kind loans out do that what expect of think to is, XX,XXX stay and sale back we you're next you kind what kind to market you do at the given pricing the are kind secondary market we to of there? over or the get Or of volumes of probably couple take to of quarters volumes XX,XXX be XXX,XXX to mix closer down anticipate the that get ready the here mix? to looking Do are can going per you going of the

Steven Caines

think XXX,XXX. necessarily up we're don't going around Given I the mix, back be

buying a from definitely see level QX. question, Our we've in record anticipated another see We did in QX. your the in and down That QX, said, I part the of it don't take it QX in a QX. saw other QX. have record sold of volume mix terms I'd will for setting I being likely touch think so above

Operator

from next Jennifer SunTrust. question our with And of line comes Demba the

Please line go Your is open. ahead.

Jennifer Demba

Question low on if on discernible increase but my I question the nonperforming wondering this levels, in any at loans. And quarter? was just capital. realize still then trend they're there second is

think any XX needs the you XX Just capital levels? how And capital months? about you you have over might are to feeling next

James Mahan

-- was first the I didn't the What question. catch

Steven Caines

trend. Nonperforming loan

James Mahan

Steve, to want on you comment that?

Steven Smits

This Credit Officer. is Steve Yes, certainly. Smits, Chief

point in concerning group turkey into nonaccruals they stories. through the only change a So that has have farms More in did integrator. farms, ago, quarter, loans. our this will portfolio. farms Those of several the years a trends. we turkey feed planted, that I out in we no that gone More

integrator model, will future, the a have revenues. which birds new So means the least at dense, foreseeable for is less means that less less

that on if So looks to pay today, It'll most we have work farmers through we're revenues placed going It back the nonaccrual. be likely. be based those to loans now. a help process they're for right debt probably we'll restructure the like able debt of to the the going to

be a and restructure. So with stop see debt but nonaccrual. million farmers GAAP notable may then to portion, have you interest that's some of to the restructuring work of there on they stop what $X debt Basically approximately in those the

James Mahan

I Steve, note. it's think worthy to

we back situation, are So on to Jenny. that who particular

So He for as Jackson joined bought former of He joined personal of the business work Pilgrim's in six bank. substantial him. run invested It someone four, so five our recall, by his California our happens integrator this ago used the board. to that a that ago CEO in years Pride. years you Don amount that is is just capital

the to deploying loans helpful been owner, bump things we highly as confident he your like looking million action. go from jumped what would though board, that capital. plenty understand on mentioned. and to forward capital, -- deeply capital. as being We able depending an our industry of perspective, this I Relative night. instantly excess he retired to have the $XXX are Steve has do in when But we And most of is the that night, we in a even with So be paid as into say new will met these reasonably bump

Jennifer Demba

you feel to How are lending seeing thus the your competition on about you portfolio the -- above you below away And plan, plan? loan from last degree? in intensified banks of have some has SBA do the now Are how far that diversify quarters. -- lot to few efforts track, a

there? are thoughts your So what

James Mahan

per And we've at can Scott years, bank average that's this, Yes. exactly is weigh Xa Look, for on it with and too. SBA today. XX XXX,XXX been exposure an in yes, what so customer,

loans lenders our as so think industry Probably. in X%? of all of challenge you're what say, percent Less like, day SBA we everyday are? So you to a X/XX verticals, than XX do in loans Xa that all the

know there about think Scott limit right? are to point bit at year looking everything to this want $X may fixed other more, at this. interested mind interesting million you I or you But show that. thoughts competition any this the the in if We're with X.X% know So of $XX industry, So deals. million to look is like making to or $XX the Certainly XX at of rate We're to I not matter. a cycle, like million an are you us on other and million talk and have happy -- about legal initiative credits. Scott, ABL And we the differing loans crazy not on veterinarians dentists. in little $XX

Scott Custer

I think don't I do don't right. price. on is we you're thing mean, compete Well, we one

just deals others to should and have game we're we're doing get in where below be. So priced. they going that -- are Way not just chasing into things that gotten the about

as find industries and business compete existing with very and model, with. using using companies said, Chip new money our have ways to this are to the comfortable different lend in expertise we to we're -- going We the

and different loan it's and were into another a also that. And of Brett, while very -- in a real USDA doing. sorry, book, conventional trying now And easing the some way way the than relates we're to some not what product. referenced we're doing the doing it's government lending business, guaranteed SBA. a it there lending part but to big important doing commercial loan you base We're conventional estate the that. asset As We're our active of -- very we're that's diversify program, and

a see So XX% loans statistic. that not And diversification. SBA I telling you'll loans that think is almost continue the to fact our were of

Jennifer Demba

My comp trends of thanks for we that couple Any last Brett, the the is expenses. stock next question on on of over expenses the other are discernible in expense. might guidance be note?

Steven Caines

it would an of nothing to take for probably in release. it's expense back table good at I know earnings I by does non-GAAP to one guys you at think expense encourage encourage side another of really get -- that's a idea the to only And identifying reconciliation Probably timers. of note. base. look look not the GAAP to a of you but sort the, our I modeling would provide the I guys base

Operator

with have line we the Sandler of Aaron question And Deer O'Neill. from a follow-up

Your now go Please open. line ahead. is

Aaron Deer

tax the follow that some to to half side the energy the you your tax back I'm wanted kind you in gave might remain active just of having or for -- business. what guidance expect Brett, how of as you this year. in was curious result on that to next of I just up business good a XXXX, to impact you the out tax. terms in intend on as expectation that's year? for go look and And rate I leasing the to

Steven Caines

Oak. make dissimilar or tax you'll We And in from Yes. the because see program sense -- an solar XXXX. of Live not that, for credit resulting still leasing type panel for that XXXX, rate and good we investment think think affected the

we For into that like we being, might XXXX, can rate the to and XXXX. will But that that it's leasing we've through an affect feel XXXX ballpark. just in point but tax effort said, do trust mid-single-digit continue be

Operator

showing further turn like over closing this no to I'd time. for to back conference I'm the questions remarks. And Chip Mahan And at

James Mahan

next quarter. you everyone you, we'll call. Thank Thanks ma'am. the And for attending see

Operator

thank day. This have conclude gentlemen, the may conference. you Everyone, disconnect. in Ladies great program. you does all participating And today's and for a

Live Oak Bancshares (LOB) 28 Jul 182018 Q2 Earnings call transcript