LOB - Earnings call transcript Q1 2021 | Live Oak Bancshares, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2021 Live Oak Bancshares Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Greg Seward, General Counsel of Live Oak Bancshares.

begin. may You

Greg Seward

morning, of Good to Oak's Live Thank Earnings everyone. Conference Quarter XXXX Call. First you. Welcome

We are our on the for webcasting is live the today's commentary over the Internet 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. this call go

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

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

Chip Mahan

our morning to and QX good And welcome call. Greg. earnings Thanks,

January we a kicking to Landis, tribute who away As Kel you from before X. today's off our can see with call agenda on are the Co-Founder, you, passed

Kenan-Flagler School. University Student the of We Excellence love Your North Fund at Kel Kel. created his Landis Board you, beloved Business Carolina proudly

Once I and to again, change. a quarter. will never healthy attempt and things Some yes noisy unpack Huntley

as looks the really is what customer update to on discuss then and Underwood are businesses a to decline Canapi QX of loan base I rest Smits our what brief try look investments as in COVID growth down, our and pandemic shall margins. me, effect a will as he that assistance in our ahead. winds the originations challenge. put as I attention Venture as what going to loan other and report matters to provide small the his like Neil on government We Live your most the position Steve to a loans Trust myself As and and outstanding not net sees through banks for interest lens. year Oak well turn brief

the greater turn pre-tax which it business, I'm pre-provision brief Lastly, back going detail, to earnings core for to income. of examination most a is Huntley over me, focus means noise, before the this I to of the to on metric the our that

you predicting as over $XXX recall, So Steve, just year about and world bleak. potential ago, was pretty and the million. circumstances even your maybe I colleagues dire were And a losses of

what of to moved have each the secondly, have one, that COVID quickly the verticals been isolate state Two six Number quarter. and the we You questions you. what of COVID X? play in in the disclosed losses from bank? losses for of taken the current rest And our

Steve Smits

but to Chip. COVID. $XX million you, the in million in loss a there was I $XX.X great early probably the charges related Thank deal in of certainly uncertainty. Yes, days, expectation we've was today, taken

hotel However markdown. $X.X was million that our of related to

them. to can $X X only an charge-offs, pretty we note avoid another stress already they expectation industries of that we've has We've million charged loans result in and into but for level of you trending that a are that losses it's They if the million that, in do I'm the closely with COVID was however $X.X $XX.X to exclude this. directly top some And COVID stress. may optimistic the due off are non-COVID for COVID. hotels, $XXX,XXX million million additional reserved in $X.X but working of by that So think been we've also the industry. of that of on I today, were on turn reserved is so cautiously most ultimately as COVID, impacted are very loans loans we're experiencing favorably important

Chip Mahan

Steve, your rest the we be say will So, for does year? ball charge-offs growth. what clearly, the for adding But reserves of crystal about

Steve Smits

prepared out be for expecting charge-offs what more are know of we Based remainder the still on year levels. to need of pre-COVID the businesses the to reflective not woods for I completely today, potential Well, and I'm do surprises. be of

with due to the the at across the rest in As I Many programs. and large portfolio. work to continue are we our government experiencing stress thanks but in seeing time, today gain they we're a quality of credit same businesses part borrowers still stronger than actually pre-COVID that's were mentioned, to COVID, notable

Chip Mahan

was So look Steve, of from the end investment or X.X% our the How unguaranteed post-COVID? reserves down our million reserve loans at $XX loan mark unguaranteed portfolio right for slightly at to X%. you fair do of plus value total on at year-end quarter held

Steve Smits

levels So loans that then of over several next we'll trending any and a Chip, see the I barring reserves surprises, trend I'd that quarters. see towards as pre-COVID period expect percentage

Chip Mahan

by money. that? and calculation XXXX you businesses. this. heard there that of my do for beverage and the revenues something Administration. goes the the craft verticals related restaurants Restaurant administered your of see Business million X, that Rehabilitation out How grant two in both a less understanding pool Fund like wine as PPP get PPP there We've COVID may It's Small less from and So X.X, less that assistance restaurants the is XXXX equals the revenues about $XX X.X,

Steve Smits

impacted from available, is our bars number really there a small of significant if So restaurant funds actually program see most the that will the remain program. benefits

that thanks services. actually grant. portfolio have and their well, even in really our not need Now, the They news delivery quick-serve their our good a is fared to restaurants drive-through may

breweries relied pretty and can wine on-site sales to really on example. our this tap in to who craft borrowers, our historically meaningful very regards be with rooms, for have Now, heavily program smallest our

significant most borrowers in-need can optimistic again, the see for this So we're our being barring a benefit funds program. program, available from that pretty

Chip Mahan

So on be visit this you're There customer try move to stand our the every a call jam, customer our slide. in going in Thank let's to site by treat only you. slide. it bank. We when like you, I is. to customer Micah. And the for we're there the

through made to pandemic and rather the lack did, the the just we the support last de months, losses visits Steve's minimis. four charge-offs these So are the as XXX in pandemic site Steve predicted, of in folks

$XXX know spread the including mess were you when million generated income PPP, just and fees from this So outright, in we losses discussed. like about we

move on let's So, slide. to the next

originations focus on growth. Let's and

billion So go was in did $XXX how non-PPP, So $XXX and million closed loans, originate we it did $X.XXX million PPP. was first quarter?

So the billion. that reconciles $X.XXX

another In we've addition to that, million. of month far closed $XXX so April, in the

million $XXX you plus us the $XXX million is $X.X good. the that about or add in million So PPP, And $XXX which $XXX to are billion. gives $X.XXX just billion gets million billion. about for $X you year, the if Things

on Moving next slide. to the

dollars rarely here do our to what of disclose actual a you from is we but not that, pipe. we're bifurcation going have this So and

approval credit are year-over-year. to blue up proposal and the So XX% is closing green. to the underwriting is Both

on and volume wonderful I midnight this attempting that say the the Just six like yesterday we're be had to the customer to oil understatement. had in new keep And spend the to the six another And hour every an burning about up in and coming in afternoon with the to only also closers. chance middle meet would bank are with and circumstance word, another I treat an our zoom customer closers. visually May. of new

in underwriters, closers, last five total quarters, So officers, XX lending XX. of XX for we've servicers a of the couple added XX

is get it. there, go to we're business going the when So

the Moving slide diversification on our next slide. to the continues. trend and is This

for at seeing states, almost of holding quarters too brother. at after inside loans One on that XX us late in of our ain't to are million about XX like verticals talk all Canapi, looks some these to days. our and going it legacy the new make valuations these verticals XX Neil, gaining XXXX legacy And by verticals. million $XXX you're bad that investments $XXX the company versus we're

Neil Underwood

like annual update, continue values. contract greater at experiences, net better but API cost of values. more ownership. to larger first certainly, Oak and All total the lowering are nicely as importantly, of they appreciating companies the only out, had capital will economics, tracking stated, for in on Cloud-based are themselves, terms software it logos most offering of know, the Well, are these portfolio, But working. really is actually just years, Ventures on you bit. out, lot the touch Huntley say things in that first Live a We've and the themselves new to with proving a guys you market customer Bank optimal you raise experiencing really companies give adoption,

of two you companies these state are see the in In raise in currently. fact, a

of with digitizes we venture million Uber the new Valley first from to totaling our out with Oak which our is LPs, nice And economy certainly first million-rounded all of even $XXX tech. the their led Live Bancshares bank as here Silicon bringing bank reminder, Notarize clients. it's - the ABA that to as think notary appreciation CapitalG, closed out these is we as to thesis bigger secondary of to that's QX, $XXX together know continue working As we the last XX Switching venture decades Notarize Equity large infrastructure, a Most Canapi, was the which gig all the away as than fund collective to you of the being workflow notaries in funds. in What well the cloud-based of re-architecting ICBA. is and and Google's win R&D the know view, budgets we we many with companies, old. arm. Notarize enterprises of thesis notably leverage gears quarter deals alongside finally trusts. blue-chip

and do Huntley, frothy In formal are the around that this our base actually create massive of surfacing the affects out thing in very though it's terms we the good valuations, just too Live the an limited there. and In our we're by base, create secondary. and valuations, but given with at market, Canapi so to One for actually super partner round, given indeed able how Oak. Economics are able we deals Oak, invest define Canapi, And we are structure, event. LP is Live they in back gypsying fintech you. Live to where fund us. role and to banks, and to teams. best strategic, ABA We're the not get where in, wedge ourselves at Oak in product that's exciting success to maybe also over real a can our is to XX the again, there sharing super able go ICBA also to won't. others access We're good

Chip Mahan

good a buddy. that's No, but job, I more got one slide, Neil,

Neil Underwood

over you. Oh, to

Chip Mahan

Yes, yes.

Huntley, earlier It So I convinced million. really slide. statement. be been my a closer and last most in to years, the to myself that in this to to business XX $XX Accountant income a was $XX that I'm Certified have is of And years, attempt today. pre-tax I and XX to I make pre-provision actually million going case a slide QX you Public important my the bank am know, be you almost income thinking almost have to about this understand ought

legacy value value fair the portfolio is of unguaranteed fair to loans subject adjustments. generally portion Therefore, results decision So government a quarterly will guaranteed at focus larger to revalued fair electing $X talking for of new "As that not unguaranteed that predictable of fair night, value in the each value retained volatility Not of remain discount loans adjustments you quarter. something sale recommending subsequently says, fair retained will many, revenue. about $X and the that like of wrote net LOB. is option, reduces into XXXX, will income that over of I'm accreted the drives She Jennifer Under for the value million portion million loan decreasing I'm elect the interest Demba and the Oak retained last on Live gobbledygook. This more QX all sold. To sound revenue loan." gain portion remaining life going discount read on on. the The

to if the see instantly. we or relatively go loan of times, can me say can $XXX,XXX $XX,XXX about over And we that. million. loan Under a the Let this the will into for will accreted change, good income per new be I life if prepaid that unpack In accreted $XX,XXX. sell $XXX,XXX

Jennifer change says, can that over This earnings. amount forecast you as gives forward. the entire going portfolio predictable So us, your by more

million. that the For quarter, was about $X

recorded So we $XX like if million that would recorded, historically we million. $XX be

really a the $X relative our down to drill Garriott. disclosed previously certainly here details other non-recurring, is President, million The fees, which lawsuit. And are legal Huntley are to hope, those we on not-too-distant future in all

Huntley Garriott

Thanks, Chip.

I our pretty last the minute to the year just get be what's serve small continues of for a more spend we business that we a and employees broadly. want into our been on and customers, to Before numbers, intense all communities

and care as has focus an of in of to those customers, will to those people, and Our to our care to been communities. change remain serve agent take of take try

So Chip easier hopefully, and we're this all focus said, the from times, to the looking of pandemic same, some but continue areas we're we to focused. stay as are forward emerging

So on on a continue - of driven to enjoyed year-over-year, trends more of loan originations pace loan growth borrowers although the XX% the up by excluding coupled from slower the the than page SBA. a portfolio Loans X.X% year. The strong last the measured PPP. at subsidies balance additional XX, linked speeds that referenced really bit eligible-for-sale sheet build, prepayment overall some growth with as strong. remain quarter, Chip

On the by combine you Breaking to and moving in expansionthat with talk going provision linked impacted headline PPP, fair income and income, those the drove key talked down, net gain earnings that When accounting down we feels we're the the and grow, right overall expenses really going we in to the up interest for PPP, NIM tailwind drivers, on growth XX% up year-over-year, $X.XX the side, sale are that And quarter. Net feels with growth the year-over-year from is really number both in but about, origination. solid. unusual of relatively Chip And about pre-provision be referenced, value good. the of to non-interest change we'll strong loan a direction that unpack ex few net number with remain well. the pre-tax expenses as rate is still income Bottom really QX, bit over that what's as year. down important. from line, a stable anticipate earnings and that adjusted continues income interest items was

alluded Chip I one pieces thought noise. different. where those in all moving always So run seems this then four that them. and in few as his hope we're two is of items The behind going we news the be no of us. a And are good there's ones PPP, the to quarter we to think I'll is remarks, is through reduce

RSUs those. the talked December. the of a In So lot first maybe April, of quarter We had three of more last vested. to need and time those We these, about in tranches with two on the we spend don't tranche go-forward. then that those market the finalized price of vested in

So those us. are behind

side, the value And the referenced, Going we reduce reliance measure the value. that people predictable a to Chip began forward, time-vested the fair we'll traditional amount to RSUs And accounting effort on to then guaranteed use of more the on earnings. loans continue and sales, given those historically fair made sense. more impact as the on we have loan at reward our accounting

was and result, forward. then loans, less that going And is same, higher million of and different, exact with the the historical volatility. reduce electing will quarter reflected talks yield carry referenced The a as a income for original actually of loan that to about predictable again, cost of $X.X - in is the at these drive newly the forward. higher CFO value we highlights, end volatility sheet the originated result balance the loans this is portion sale. flow in more up transform But and Chip about timing as revenue. going so and and carrying on loans Brett we amount gain that the in And upfront sell, the typically interest reduction the is end reduce As net we cash

team programs it navigate. systems the to this over PPP did hopeful workflows, an work did is event, last And of into just projects, all again, of customers, through our really volatility and was in little also Another help $XXX subside. forward. extraordinary benefit IRR just run geography X.X so flow is and it investments these supports get in expected and and other we mentioned this, standing of increase they of energy another job as our fuel our the solar but earnings we renewable quarter program the our side to another that to business. think X.X the and and line the lending oftentimes re-entered a that as Again, borrowers is up expense. Steve tax The look noteworthy in there XX% hands We just investment customers, then other then are But what about the income small so X,XXX helped tax the a unusual. these that through countless set will the And got proud our we're generally there. of relationship do. of helped finally, million These non-interest program, into which this statement exactly how designed market, businesses credit corresponding lending.

numbers it's you interesting and show great those a So well. but - great they investment, see They as in places. some up projects,

sheet last So, done. market impact we in little I XX to a page in income next that bit - priced we will modest sorry, here shares and settled think RSUs. the tranche have on on we too we more XXX,XXX on quarter more go have more QX the detail statement that into detail. will that and the and about those balance be got QX, much don't need

So bit $XX million second over fees. numbers deferred $XXX originated million a than on draw, page in just in detailed again more the XX, PPP, generated

outstanding the quarter remaining amortization sheet. income. deferred Over about recognized and million of with about course net forgiveness, of about interest quarter PPP loans ended the million $XX fees and billion the balance $X.X we in on $XX.X the We through through

complete about to first now to well, tranche the along. as roll XX% with but we've We're second forgiveness continues to add going got the that's balances well. and that So

already this. on of highlights, franchise turning So, the all we've touched really

originations, interest balance growth, sheet income margin, loan Solid for the net and growth. recipe that's

On new a around this we up. we're seeing everything the quarter. like for update new really of year all about hired the couple a verticals and the credit seeing originations that feels the we Steve new what we'll can side, feel lenders it of to market. in good we're hope momentum we're you this as opportunities and see, we that circling handful keep next from We've in described, on already And

demonstrate the of our to as of franchise to continue our power really businesses. So lending relates small it

a paper continues also, on balance market sales, manage quarter. then to sheet So on in the fixed throughout loans fixed accounting that first strength. Those to the go had lower into rate interest loans don't bit. more more we the little the we choose to loan some and sell premiums rate into And to that the risk And this detail. bit market the We did strengthen typical floaters. need bit a a than the sell election, rate elected touched so we

our than it's more look shift. gain million. So of half over a at then little when And that's from from million, mix you that per down total change the accounting $XX,XXX per that is and

weren't remains late quarter some On we'll really and side the on sell page the SBA XX% before there. to all that USDA targets a continue market that that the quarter to we of have most you the side, selling become loans in we our eligible and loans. able we the overall, close that active pretty be XX, can about of But end. see strong did on And USDA remained as loans to closed

see our and of targets that our can quarter, to the then you fair any again, less the to loan fair but of portfolio of bottom as not same. forward. we choose the amount bounce and XX, page the loans have have given So intention around those value And elect we that going can on long-term value remain

details longer impairment turning and items the ground an $X.X Page has appendix trends, to number then the $XXX,XXX, some project Impairment in in credit. on and unpack to namely worth than back few the So to you've like. which expenses, XX out here. we is a there. tax on got the noting, would XX, in a There's charge of investment solar million get that's is taken headline

$XXX,XXX we more the number Chip gets that more about. for side. $XX around number tad the in So, in of think that priced then professional $X.X credit market is is think legal then you a there the all services the fees there think there severance a And of those adjusted we that to million, RSUs, elevated is about and on of there. an million mentioned which of

can that to net balance side, when we're keep that out, mentioned to operationally that on fourth hard sheet number hiring. lending the that So growth Chip been growth working million and of about all an the you $XX seeing of compare in you the up with side, adjusted and quarter. we've the

the we incredibly of ran last course year, lean. Over just

franchise. So, we've the a invested bit more across

Now $XX tax that maybe there, about expense look XXs the out million mid stay to investments. on as forward, forward up the around drift when take you you number going equity should a probably quarterly

year. side, the a opened. growth billion billion of a of here really at from the bit investing, XX,XXX up franchise at prices. accounts reasonable GARCH-style end so the which $X.X little On story. is retail like solid deposits really, just deposits, $X.X That's feels The

all that, basis for we rates dropped and majority points XX points new our of to basis just of pay All and the the another products XX today. we five money

rates little high been course we Retention a think have I the savings the to over have likely account, of room trends. overall given the liquidity year. more still on the down tick

the checking away cost see with from we into points, operate shifted to franchise You the the our side. on more CDs, And under some still is even mix XX investment savings, like. basis which has

priced in So next are pricing the billion $X quarter, last XX months. the $XXX another million over were

environment our to this of model. continue for deposit benefits expect We the to operating enjoy

basis, X.XX%, in we by just to about. that stated on that increase with spike almost basis points, activity largely the given and deposit margin strong some adjusted margin PPP, liquidity lending jumped a quarter, net interest driven but an lowering also margin, in the in pushed talked deposit to even QX. But we the Turning happened costs XX trends into enjoyed point XX-basis the the

holding X.X%, steady of up remained expect the to to continue the and margin, around ex through yields loan we year. that PPP, So trend balance

So isn't single PPP. the stay And laser-focused metric Chip stay metric one on. there this moving you pre-tax the all about to. ever talked parts that can on without one this anchored we do strategy, that income adjusted But given the of pre-provision we rely

able details You've we've got On have well. by shows linked The growth in about growth quarter growth good generate the really XX, really just to we some items interest that that XX. XX% we've continue on got is year-over-year of income a in that going where focused continue interest waterfall about page have and talked that driven that. good be that the drivers key and forward down. as and on then the linked we'll changes quarter feel number that sort the the year-over-year already and of to that of talked that then the largely Again trend, to net we're then income net

leverage influenced We're a couple government So the pretty recognize new the of performance value you'll amount are in added demonstrate as ticked The a that course the after growth with as think with and on Steve in we we we the that, here; growth high of last still turning really really excess fair the achieve assets year. really good the a leverage on on page the comes Tier on All adjustments. did that about to bottom capital sheet, growth. feels And we of think ratios. ratio quarter the at seeing the up Tier deliver by strong X.XX% and soundness, up balance soundness, categories: liquidity, right metrics, safety over profitability this about and balance bit continue year. see provision to some because then What fortress-like of can what we and of back solid and sheet, the feel performance side we that's page, guaranteed comfortable bit dropping metrics, we profitability ratio, going three feel about; and in we've about been now which feels good tick focus. X them all, to it in talked that Chip we safety and showing X or

the stack. So a quick update technology on

business on are we checking really X,XXX with customers going book that on pilot almost to in $XXX and are the Between That's loans addition CDs over new of all well. that that our savings and $X.X new we platform, live have We that that core. and on core. billion PPP the of That's accounts. million the

we be and that great and to for we update the you We've going are communities our the all even with in have will then government-backed business just play initiatives, they and a more and to there. and that in of inclusion that $XXX XX,XXX recognize that I'm companies So will small changes planning small seen the us Board, of efforts. that million And I we're ESG we almost more that year-end. our and are about haven't customers quick if We're new serving note unique features role businesses functionality efforts and can we forward in businesses. to general we all, like information our there's going always great the our since put feel really And you diversity, the to and and continue nation, we Report. really tailwinds leaders talked employees, that on our in and relates and we've climate we to into on our some of plus accomplishments proud impact change. QX. on encourage it deposits administration renewable we're a platform think in some availability our do serve across laser-focused pilot the close got Annual would on that continue energy We'll make deposit expand as impactful. that just do, all while in key of driving and we on efforts checking converting getting right then adding

well increased also we increasingly on know but sharing dialogue look So forward the as guys of incremental many front. topic data, to focused with you having are you and this on

questions? that, to with So head

Chip Mahan

Let's do it.

Operator

from [Operator Your with Securities. first Truist Jennifer Instructions] Demba question comes

Jennifer Demba

questions. 'XX Chip expectations and your earnings few Huntley, Number budget you the a got I've risks biggest right one, to see what in do and now? as

Chip Mahan

to you The haven't budget seen. internal biggest our that risk

Steve Smits

could see numbers the I prepayment will have speeds start And reduce growth sheet control. back of we But at, little spike I the favorable. Chip? fair budget of bit a the been But that say around. one maybe that that in where the numbers, I be half our year, of little big balance want value I really mean, that the And out that the would look some think and would the that of to, again move bit. you - but a that's in if also the that's one a that's

Chip Mahan

I we originations, to and to XX pipeline Steve, what like credit really Jennifer's about $X.X what we many billion the reaffirm seem just good with would $X last still it there told say, probably I it surprises customers big out And doesn't say just you been are examining days. feel And last, question. you XX the - billion. I've there

goes. much pretty we're steady think she I as

scrape. did really Yes. You

Steve Smits

I agree.

Jennifer Demba

update where the Okay. an that Can on stand you referenced lawsuit release? press in you the give us

Huntley Garriott

of the out got put We got we Huntley. update it's Jennifer, sort right that's we now. that the Yes, disclosure and all

Jennifer Demba

All right. Okay.

rest do thoughts of for you have be year? the legal the the In fees might terms any of what on fees, legal

Huntley Garriott

them. We'd lots like of always have to

Jennifer Demba

favorable rate Okay. is positioning reprice How where do down. base for higher Last environment current continue think Live not in funding certain the you mix as deposits the funding to are about for Oak? funds question, a different the

Huntley Garriott

operating checking why a rate we real and they account have and is a laser-focused advantages environment. because in on that rising accounts, know higher out that look, building so Yes, we're

with love our So capture now. we what is accounts, we out accounts we're building goal and to when that funding that And be checking that advantage. if operating turns, and so cycle can those

Jennifer Demba

targets X of to or us to like you specific - any amount have by something like, want you that can us you give with I Do share end to year next any detail get want the to there? or

Chip Mahan

of to any now right that. early too that's think do I

Huntley Garriott

Yes.

Steve Smits

going it's we that stand some next think of think look if have I get give don't We've if by start right, year, financial we still we well, that. to targets. this lot into But said a that impact to we year can we and

think in expectations in As but that don't as that look really the year, at solid still sort year. our get and we closer our give next we a can we've of start we as operating model, we that have plan still got detail there, for we on - more to

Jennifer Demba

Thanks. giving I And and a job we need the filing your and monologues. did great. in slide you Okay, deck great think the information

Chip Mahan

Thanks, Jennifer.

Operator

Michael Your with from KBW. next comes question Perito

Michael Perito

them to bit a Hey, correct good of or margins these about thinking through move your year incremental mean, my a am it this change Chip, given Is if - that more correct going hash are wanted for everybody. couple that on of wondering then eventually could directionally maybe a start to down I'm misinterpreting happen? Thanks the I over on questions. down to rate. I'm sure at the going you, of morning, English is I of sale, make so And like to what's way. course assume the I a just taking the right so gain value, was guy, lower on I and sell items balance plain I I the to the fair mean,

Chip Mahan

a Brett excited next away. to standing time in answer over that that feet me Caines so is I'm question, six to year first that for the

Brett Caines

going Mike. Hey, I to more going similar Yes, look as think forward, look to it's QX. we

and saw in paid Huntley XXXX, revenue right election look you what high about premiums sale is in And that take as accounting reduction our way the secondary now So gain very, QX now. on they're QX in think this an to probably what reiterate I it. forward XX% decided we've mentioned, Chip favorable. and given make, good said, market will if that's probably to XXXX, being all-time a you at are at a probably I right of very

more we change change in that of QX. on XX% a on to drop sale. So predict, downward compared is of course, a was a the accounting the like the just market cannot that market, gain election about comes expected steady But in just impact which revenue down,

Chip Mahan

same That's bunch in down This next. leveled probably predictability. like the before, We of give thing. we should the Michael. have servicing servicing should kind asset is one million reval, this I a this these $X million it done you quarter, have $X these We of reval, at up son probably mean, to ago loans. why started in holding is loans. more some done We've time of

Brett Caines

XXX And retained on basis probably on those over of then yield flows again back points just of on incremental the to booking life average retained loan piece, that of the get And about reiterate, loan. all do we piece. the cash

line. insignificant interest an time not it's income benefit the in So over net

Michael Perito

it. Got

there So than the gain more near year sales and be of of seems the back of the indicative considerations we'll future. accounting from over gist? is general over half the margin the benefit that to life then the on the perspective the will quarter last sale That for the first course loan, demand secondary environment - be margins and the have income to loan of term, big make the and to an for

Steve Smits

nailed Yes. it? You

Michael Perito

thinking of be cost you on risk we about? the tax if wondering, additional just should about renewable noticeably factors we Okay. about energy Is I could a or for more bit of And about some I to of talk maybe unique any side, consider thinking a as guys, else talk And anything the second be was than spend these? little just maybe kind kind imagine, situation type should a it typical different credit do then first, then of pipeline the to investments. you

Huntley Garriott

Yes.

with think you relative timing that our sort That mindful do we these when of of statement, we which - given about capacity income of also be want to - So drives to that the and recognize it, we'll the can drives taxable IRR. geography income. the the to

you we'll relative it of - the we a our I what in we of bit maybe to can give in think about capacity, this context did income. but So of situation do taxable more color think, sort

Nothing try to this. be take continue to a to to have I programmatic These similar basis. a get any on to and bit together. we'll do a to don't projects we'll look little do they while a So something giant bit spikes, can continue lumpy. And but

pile from one next a projects secure the in. little to to going one a try bit We're lumpy. quarter, quarter, The tax can close stay perspective, a the avoid that. to in perspective. credit order in needs repayment project So We the these one program. benefits like From Steve, maybe to you from in operational

in can't even to your comfortable feel can operator and and were the been business risk So we've something with to long happen operator, you lights find that is if an keep program real that operate you enough the the another on.

I don't know, Steve, but credit the side, any So, have on do you thoughts?

Steve Smits

servicing. experience incredibly in - is our learned over our important. space It years. a right. the We've great deal this exactly We've You're refined

We in have controls place. the proper

pretty in smart side feel can learn those we we on investments the equation. of to projects, So that from identify good comfortable that projects make order

So that together. comes all

Chip Mahan

have Brett, anything do you add, brother? to

Brett Caines

right in of pre-tax all a I these of thinking income. you're mid-teens. about you're that say, for of helps you, you're Yes, think investments And way a forecasting simplest our that look kind modeling to would probably probably target around about for thinking investments, type the XX% about at us is and rate the as and take Mike, all what tax as then number in Fed it the

Michael Perito

That's helpful. Got it.

and in projects also that related progresses there generally then additional that else adjusted some any hit so obviously, on that, think, there'll that And Is some off in. was it the additional Huntley, legal year that, I that could next drop significant RSUs right, there come be at more here. - quarter, as mentioned think the that then top highlight? elevated But some the fair? is that still the renewable of you anything million. that could small would to take I side, be the possibly So some all beyond year on you hopefully million, potentially back fees costs half $XX million, could there on Is of point, $XX the impairment to $XX that

Huntley Garriott

that you… feels do good. think I Brett,

Brett Caines

nailed Yes, it. I you think

Michael Perito

that Okay. to there clearly as grows a there And those investment Because are bank rate, right? then just are mentioned and growth you of guys prepared economies is, is leverage a But platforms scalable guys dynamic for your that I obviously here you're right. there you what remarks, building high in significantly, trying as your is scale. feel about need like

adding trying are mean, leverage I think of we built dynamic should platforms cost and about growth, the to think also talent kind growth supporting So scalable? as that we how about but you that highly

Chip Mahan

that's it. add we what that and at If beat this, can the can we look but loan goal. I grow little Hopefully, say shoot for. you XX% a and our bit, internally pretty way we the XX% of can what Huntley, you tell right, we year-over-year, to simple. portfolio EPS I'll Well, that's that's

Huntley Garriott

sheet creating I keep XX% side to Yes, revenue And closer expense a we can think to we're if on balance leverage. XX%. XX%, the significant then operating then

the good sheet are a kind XX% and side, - again but - lumpy, side, it on feels XX% and little of metrics plus and XX% So plus those expense pretty revenue pretty on like numbers. and gets the balance a - good

Michael Perito

anyone appreciate this PPP terms you, any to all doing model questions. Got in - of guys, that isn't taking it. trying my out. Thank of But the any favors Yes. commentary. for No, I I

Chip Mahan

Thank you, Michael.

Huntley Garriott

Yep.

Operator

with from Your Alexopoulos next question comes JPMorgan. Steven

Alex Lau

Alex Steve. Lau is on This - morning. Steve for Good

Huntley Garriott

Alex. Hey,

Alex Lau

million ex more originations some a drop the two loan a was PPP $XXX million your this on thing? have what On Do quarter, Hey. lower was from per color the it prior you quarters drove or around range. $XXX timing originations of from of the

Chip Mahan

But and what more Alex. QXs loan a quarter. made over tried billion we've And slow It's we're were are quarter, feels slide. in a to the what a think QX. good. we little seasonal, $X up April. show we That's I comeback by remember last $X.X bit to percentage pretty I close really billion to standing we that still of can't said large last in

is because QX So you slow. shouldn't you're it, view that viewing the way

Huntley Garriott

Yes.

Alex Lau

sorry Thanks. I non-performers in but Understood. the on can some missed And color uptick the this, if in quarter? I'm give you

Steve Smits

didn't not not Yes, tied just COVID - do this which impaired I anything where is simply Most loans a relationships. it quarter, existed over of of challenges Several them the was actually Steve. small was but significant. for number them relatively into favor. that pre-COVID, are we've mean,

in category but COVID, by I continue challenges that through. pre-existing we influenced So, work it to put the had

Alex Lau

the you one, or growth potential target a And you how Thank last marketing Thank you. you. for of the checking just talk accounts? the you're And sense can about year? do a have

Chip Mahan

the since Micah, to over Huntley do turn and talk about you to you're guy? it then marketing want marketing,

Micah Davis

Yes.

So is the now get pilot system and out the build our to focus and go. ready to stable

to feel So purchase. yet budget existing good customers definitive or definitive but will it, word-of-mouth market we definitely will plans don't want we be have really any to and

Huntley Garriott

our then enhancements through product and there ultimate goal start partners We'll for leverage and embedded banking. is to distribution

so, software easily software, vertical this is other partners. platform other in into And integratable

the will be we're So Micah to hit channel our as ultimately strategy, said, when, accelerator. distribution ready that

Chip Mahan

to have I the think, goes an future. what away as too most to probably that of you going where all Investor [indiscernible] Day we Alex, can in we in described describe are pandemic you past here we've means, is when this what Wilmington, the to community

business books embedded years all the allows planning to in what March you first, we to that. but you down do by can been something this will damn on down vertical Finxact invite when disease. that we settle software things in on We've middle working from credit to for folks four us one in that drill Wilmington, practice with other is question these operate platform. to things, to your earnings So create we're from a our tax the to need to experience deposit management financial call. why to Cloud-native not on all that API That's going vertical

Alex Lau

the color. for Thanks all

Operator

[Operator next Piper comes with Donat question Instructions] Chris Your from Sandler.

Chris Donat

don't beneficial fade some of you slide cohort to think were be you mean in color able bit back little if recognize businesses I heard question, the Like out still pandemic. aren't what visits. some I like impacts that had Chip, time? with bounce the much over the a world your the really I various before feel liked PPP from but on stimulus there not there's us to I But and give - for are to that Steve talking the woods. of your review credit of going some programs optimistic, how about to on challenged I just know the the wanted of look Can last dialogue about businesses just you also guardedly site might a as you robustly. quality. going five and were that's

credit this withdrawn. understand trying small unfolds how just as the to for some bit for is of businesses quality help a So

Chip Mahan

So then has challenged. Steve the to are back that I'll fly around because of I to customers, and door and start, the plant stay ball, of himself ones get with at particularly meet

think I think the programs, eye the of had that have tiger. our And folks a that I So of job officers worked. Chris, lending great did picking

a And couple keys, were in earlier that gave basically many. weren't there Steve charge-offs Now, but and just up to threw there alluded us the his comments. the

minute all with I going put, government losses. simply very ago be that a tag see I think, a you don't may I want on to out with ago. want that. just up what are So many And this whatever that's thought year you just fine. de to, to money came the minimis there, total we compared just fight was mean, to ones number that to

Steve Smits

wonderful. are programs government The

Chip Mahan

Yes.

Steve Smits

we complacent. time, the At become same cannot

from in government. become could So it's payments with on complacent that coming really receiving lose of the borrowers example, with for We on percentage very payments, significant not business. of going that the were lost our what's the and subsidy sight

the surprises. talk So about I

throw riding subsidy the minimize the in to plan the end will how the the stops. them government after the do We is We their keys. at - we the the in payment, but subsidy keys call surprises, throwing They're riders.

earnings So calls. a about our put mark every of We We've one prior customer. in talked about to on stress all it's this borrowers. servicing your knowing

entire of XX% have mark. today, we sit a stress we portfolio As the

put stress You that stress. measured collected you data, can't talked assessed and that the a customer, mark financial have data to financial unless

the is of me are payment our April. that So in are month, point great aware good on of in borrowers we had a felt our terms we our good that a payment, gives really of portfolio intel dollars so I subsidy how have One March really burned fifth doing, really, the off XX% which payments am data made. each But confidence. most

real low to that we mark high see trending medium those addition, And based on are In stress to low. from numbers. towards

right Do balance what on you your that to your made matters get have your going Have we some really cushion government going received the does you at It's the about, vendors? to rent rate? sheet some arrears up is sheet with? of look XX-week what thing? your as you to like? looking that the What up Has have your you look are support? What's your past So make next in wound you feet? give What diligently. all Have drop. strategy? burn you're your does credit with well, to So your those think like? what's shoe We're vendors? back you to on balance What's be status with

everything our it. as on about as forward. we've a our get got will feel reserved good we for a heavily So we've can time. that. There to of portfolio at Hopefully, about it possibly can we've portfolio health That's going looks servicing invested what have good like doesn't turn for why be talked into losses. do this surprises. we feel we our that But to pretty feel done the I've

Chip Mahan

conclusion talking we'll you so I know, just there, stop here, we're think the as unusual. And

billion million. got government have got And of and $X.X guaranteed that's loans We stated of you of value capital, another plus a plenty capital. XXX

in the well, bank if million. that Live is as $XXX balance the comments, mentioned numbers so basically $XXX Neil's different my the any sheet way You then add close a other Oak earlier is you and that's Ventures, million we got to income, I cover. And than as up all of have fees that spread another all PPP you

Chris Donat

it, here think okay. And issue for all future. the there. then color the as we Thanks related Got sort of about

originations, thinking you felt And just second for at least of what it quarter May about like wondering - started pace how a originations? you round two you're looks or - little others. PPP the XX PPP slower than Just through guys

Steve Smits

effectively existing few we really them have I but feel there effectively through, pieces that served and our that are good we going customers may got Yes, helping on, about I in that I could of through little customers focused, that. given a everything mean, we be and else think we've come, other think on our and sort done.

effort big a the up stand in like and again was it So it and towards to turning year quite we ago. did entire that of the company a luxury of taking

think you in new we're effectively So purposes, - the but I - for pipe. about much QX think shouldn't

Chris Donat

Got it.

Okay. gentlemen. Thanks much, very

Chip Mahan

Chris. Thanks,

Operator

right. CEO. at back time. I'm like no Chip further now All to to this conference questions And showing the turn will Mahan, I

Chip Mahan

you, and days. to And for thanks Thank attending see everyone ma'am. in XX we'll

Operator

today's for gentlemen, this you your Thank conference. participation. wonderful concludes day. and Ladies Have a

You may all disconnect.

Live Oak Bancshares (LOB) 22 Apr 212021 Q1 Earnings call transcript