LOB - Earnings call transcript Q2 2024 | Live Oak Bancshares, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Q2 2024 Live Oak Bancshares Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, July 25, 2024. I would now like to turn the conference over to Greg Seward, General Counsel and Chief Risk Officer.

Gregory Seward

Thank you. Good morning, everyone. Welcome to Live Oak's second quarter 2024 earnings conference call.

over and live being call webcasting awarded. are the this Internet, is We call and please the materials access for to over To the Presentations and Internet at and will tab on the Events website materials. that reference review the our call, visit supporting investor.liveoakbank.com go we presentation the

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

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

James Mahan

tell Good performance. to everyone, morning, and second we're you quarter our about excited

deck; before will will on wrap things Firstly, President, be to lead-off our be BJ? Phifer, the be to use BJ a CFO, in Q&A. baseball today, will analogy, I'm batter more instituting hole Appropriately, Losch, even a line our up appropriately, the our of while and change. I

William C. (BJ) Losch III

everybody. morning, Good Thanks, Chip.

X start Let's together. and X on Slide

numerous we of company efforts look control. been business And credit showed PPNR healthy higher quality. Live loan and you've to activity here this a by and adjusted and on grow control continued strong quarter at, reported hope up several it everyone I are and production company. to able demonstrate the as minutes. Momentum of what the importantly, we'll and both results, over and growth, take building the deposit certainly very quarter profitably, next Oak can in our at across parts across That's EPS what basis a significant reflective in Second is

lending the both approvals sheet results and this well up of spreads time XX% bode in growth And healthy and exceptional growth. delivered quarter. balance our production the which On near are pipelines still and last teams highs, all-time front, yet, for continued from are year

As technology lenders, you growth, last good still the can expenses, adjusted of QX has on revenues on and on an while basics, year. in see faster revenue basis verticals, since in on investing products resulted exponential focus XX% new of growth as such X, than Slide XX% PPNR our growing costs up

a The levels reserve very credit building, charge-offs significant result, low hallmark. continues reserve X, Our and quality levels, to can Slide healthy of as is in on well excess see be you of charge-offs.

with Importantly, process, And credit with the to stress. in-depth changes for portfolio performance discussed of government in we and previously, guaranteed servicing in box, watch results ahead proactive understanding get warranted. growth, unmatched impairments deep when borrower we've an provisioning of ability and process list as and specific our are an loans of disciplined for lending for

occur. well charge-offs are reserved we So if

X. Slide to Turning

much million immaterial X more While in were ago, company, certainly this to as pleased build. which we're balances, $XXX continue growth results, headed. and with the I'm a about quarter quarter's I'm Checking excited months where crested

SBA up results effort over will new is to time. small quickly a lending dollar and contributor meaningful Our be our ramping

and flywheel opportunities small of retain at vast. quality innovative and the attract our we are America's Live more turning is and to to to ongoing invest continues highest reputation talent. and heavily Oak continue technology And through The in businesses the brand Our future partnerships. serve definitely

strong a all to you customers some for it over I'll more quarter, highlights. So with thank Walt big a Oakers turn Live for to our and

Walter Phifer

Thank Good everyone. you, morning, BJ.

few focusing context vertical high next expense provided spend I'll BJ our components our the the originations a XX level additional As business revenue growth, highlights loan of and on on overview credit. Slide and balance unit. trends by and sheet quarter, pages key just related to

As BJ in history. items loan closed. billion this is largest page. in a $X.X strong than is of with QX mentioned, approximately had of our loans second on we note to quarter quarter X higher and This XX% originations bank QX

verticals our year-to-date above prior on origination a The volume loan on at levels. first Approximately XX% the the year is left. bubble have chart of or had

QX The to in QX the our units XXXX. second is strong performance SBB's specialty XXXX business compared by

right-hand as respectively. for originations year-over-year XX% You on bottom the can see the page XXXX and Business up Banking Specialty XX% and Small side of this the QX are

XX & of our $XX over million Energy and of loans X the strength Infrastructure slow timeline, a balance due illustrates business start Our in had QX and remains loan approximately has consistency team delays pipeline XXXX first the closing quarters. that to unit past half of far sheet has the strong. Slide yet in closed group the in thus

are industry loan linked banks story many yield XX, compared continue deposit growth interest an deposit loan many our to on from little year were The page key growth, quarter to the any, grow quarter is market that non-interest-bearing component. takeaway customer income, X% how loan if their customer year. quarter-over-quarter our typical to prior X%. right, untaxed outstanding NIM as business across industry originations their balances even fully by While is up growth. Slide gives linked minimal, was prior activity. net Deposit growth linked and activity, today X%, XX% growth this and growth given sales our participations and across fueled especially participations banks to this detail our new a seeing net X% the loan quarter our funding prior or of and competitive is the and and specifically are to portfolio That's XX sales our the and which loan our balance trends. and up loans struggling platform, deposit drive compared XX% is maintain base, construction is more This by deposits, deposits. Slide with

XX% X% loan increased quarter and QX linked income primarily interest This net is compared by XXXX. growth. is up Our our driven to

interest the points added of a net borrowing, this net a due great margin Our of $XXX capital loan quarter to been interest end have at compressed quarter-over-quarter quarter-over-quarter. million bank. full term expense flat outcome. interest to Absent QX margin X basis the related That's for of growth our would

things there Now can and that control. can't we things we are control

things control Some or will when reduce Fed competitiveness market political other [indiscernible] or impact. the the macroeconomic can't rates deposit of the are we

on of NIM really our our control, will about type these which the an going trajectory, forward. help will we the feel of yet things Now certainly performance slope we good can things impact of NIM have all

loan our pipeline be essential and Growth component As growth momentum an I remains our net of expansion. will NIM just robust. and interest mentioned, income

XX pricing on our X.X% accretive priced prime demonstrate averages originations, since higher yield, X.XX%. a which of points loan plus basis continue We offering. largely QX, loan good in has increase QX thus in remaining cost into renewing And by maturing currently new CDs driven funds discipline averaging to or to our portfolio been XXXX

XXXX important have middle is this headwinds volume as premium on is this X maintain Fed deposits. once tailwinds XXXX. that $X the rates. Quarter-over-quarter in our substantial small over in we repricing portfolio million a an provide level SBA of and QX generated the been outlined X%, page in and XXXX repricing The of our line of in $XXX note sold These has our average to in million income see increases an headwinds of We to QX in of time approximately only outcome. on reduces Slide the have average with fact X volume. XX% able the things that sales for can loans our fee portfolio sold our those largely We to we sold batch with X(a) is significant premium CD to margin great slowed XX. over QX XX%. first the as last quarters expect of XXXX XXXX You loan QX for

to on be profitability We about continue front. excited loan small opportunity the

that the quarter. given the market The $XX great in outcome improvement able seasoned approximately in another loans secondary sell previously water, the other general, note to million were of were we items to also for is under

Turning to XX. Slide expenses on

$XX XXXX to linked flat X% Our QX expenses million were compared XXXX. quarter and increased of QX

expense verticals, X over lending Our in the teams initiative treasury FTEs year, and in shown of last great house. have even growth-oriented department in the our FTEs discipline to continuing invest our the management business while side XX checking adding technology to our support

credit over been positive expense continue last we just so spoke focused good costs PPNR on have the remain trends where As to identify included XX. needed, while on the BJ we Slide can of. Key continuing possible, quarters, where are X that efficiencies trends we adding

the been performance with challenging what pleased a portfolio We environment. our continue be and to of has credit

due to our primarily we QX with ratio loan Our as was $XX credit non-accruals generally are linked quarter to downwards. favorable trends is growth, provision asset what and good classified trending And million provision. refer

see the a a of with This were million quarter. X total was you largely of over linked As $XX up in days past left graph, top can our XX unguaranteed loans dues result of balances.

time. currently of about loans are at this unconcerned those further We deterioration

credit Given our reserve remain we and and characteristics call, outlined portfolio's credit activity, in our significant our portfolio confident strength. monitoring last attractive the as our highly in

BJ was going our forward. a quarter. our strength, it highlights capital growth which remains fantastic well XX Slide positioned Lastly, to as support Overall, said,

we and looking forward turn We the comments Chip are his it Q&A. the before pleased outcome momentum. I final to now are to will add to very with continued over

James Mahan

on XXX our constantly $X back, hold got we $XX We a about We yes, to invested Yes, We beef BJ. and cyber. million. products, Yes, $XXX the Thanks, accountable, we've million we million today that Payrails up of Walt. needed income. invested moat, that back then us $XX $X reflecting fee reference up $XX I behind. we Renato several and and money. Express in PPP the last is to Thanks, million needed and And million bit as sold invested to about Fiserv. there. we come been more How to data. beef Finxact folks. million And do I've years. right? extending interesting, look to has got business back thinking He generated you about in to were the

do you hold us in accountable? does us? leave how mumbo-jumbo. how should -- of lot accountants And Bank where a judgment my So you actually create that

$X from sales, and venture gains any losses from losses million valuations and like servicing for accounted and had in an PPP-related million. to funds. from sold list this investments of fair one-time any and impacts, typical of revenues, of fixed asset quarter gain instance, activities, impacts, gains from under sale volumes Any gains fintech revals, or sales, non-cash investment realized a value airplane $X investment gains adjustments option portfolio we For assets,

from losses assets, Now to Non-routine impairments the settlement employee expense wrapping tax with credit and side. let's or energy to of related fintech long-term up bonuses sales fixed impairments move gains, litigation expenses. renewable

noise doing. You need business see take to all to is out that this how

interesting I go So months. to XX be back would thought it

quarter billion. exciting lastly, X/XX/XXXX, me what out, So which increases most Today, BJ to X/XX/XXXX, to pipeline origination billion. from QX previous $X.X previous with a had, were any the operating that we $XXX our XX X/XX/XXXX the $XXX year-over-year. And it with that I of know of operating matched of to noise alluded XXXX X/XX/XXXX to We was million. $X.X other left What million. thing, XX% which was that don't bank of this XXXX. QX earnings and it's the high, months, the all earnings business wonderful

the producers revenue quality Live generating to those and have that, be that costs learned we Oak happy way will with good there high are questions. finally entertain those loans. And out So

Operator

first Your Instructions] question [Operator with David James. Feaster Raymond comes from

David Feaster

kind composition strength Could your seeing line. following origination maybe improving on from Chip, share and Maybe of line of, how just the commentary, most the the kind you the last the demand here And much that gains? you just the you're talking of on opportunities versus just are talk up seeing today? strength where about is about of

William C. (BJ) Losch III

Yes.

really, good. start, I'll David, across really the board, feels which We're it's So BJ. seeing it

through as didn't the quarter. we than what about, and in the but did still Not we have first though are pipelines a the that significant importantly, lighter pipelines we pull Even healthy. quarter were wanted talked in talked had most that approvals bit second, were First only going wanted. come see I about, through was forward, significant, as would little Chip

activities a it's few a at lenders to things. They're want do. is, to talking our want business their do do and are excellent they And combination I customers, they So to constantly sources, what referral they certainly, for One more and our loans think customers. of more win.

priority So obviously, that is #X.

that of and different more making about at sure Fed being rates and more sellers deals think verticals get to is, and sooner the our more willing rather more are kind later, coming together I activity with to across than done. and think more #X see starting more I and such inevitably noise activities their though peak for -- come we're optimism buyers down

really on hit more Walt, So thing it pleased about I'll we're maybe that. One little I think bit. mention, a

verticals was They million lighter Banking our Business half year. well, down and business Specialty great and month had significant of is closed a business quarter. Small and pipeline Our as a a almost quarter. Finance And their Infrastructure had but Energy first first & last this have quarter from $XXX our in the they

pipeline the the growing. So pipeline is is there,

good really great the where of we get really our E&I we performance it when back with outlook. So X along businesses, we're feeling know the -- other about be, can

David Feaster

side. the great. expense maybe That's touching And on

job to where you you're I but about we have scale-up are growth [indiscernible] just continually play It -- touch built? at with or as being that on done and how of go leverage curious, what kind great just it like into how that guys think be discerning Could just expenses. forward? expense growth know you've are point kind we existing investing, should I'm the projects a guys slowing. already bit are we more sounds infrastructure you a the seeing? You we just of does can controlling the

William C. (BJ) Losch III

color Yes, in Walt I'll jump as can David, well. some add then and

a that the accelerate growth et first bit from needed had. things, be. We our recall, growth, over Finxact to to We on talked lender cetera. our of gains and coming servicers, last of different it may to little again catch-up then technology where that. half closers, couple pandemic underwriters, support did We we try alluded in but in 'XX You we to out accelerated investments would 'XX growth, the of accelerated the the years, about production Chip

say. So we last the XX put a I'd amount revenue over expenses months, of significant ahead of

Here, we've just need place got We've seeing. kind in where of put we've we revenue on that across infrastructure gotten to what exactly apparatus it, that's the grow. you're expense and the our businesses got to point to the

on XX growth. we're over organization adjusted months spots revenue-producing or are Our we expense last in Chip basis, only is revenue X% the to continue. in up people XX%-ish as adding that the on our want so and showed About now incremental an of X% right that

the able We months. have really over good now business work the to last infrastructure and support hard scale of people this to of because be XX

we're expense had And to that so much now in able on a provide leverage more than we been position to base be previously. operating

Walter Phifer

add And just what Dave, BJ I'll mentioned. just on quickly to

really well. opportunities we BJ organization efficiencies growth we're look across other But of Now a because all there just we've you have our your expenses And the we're the about, about supplying where that's embraced that as are expenses can there growth we company and in what our reasons for fortunate challenge company mentioned. grow how we'll expenses. and definitely has think been this inherently can

and a on we or the I any between So really X, balance technology slowing thus growing we're nice say, wouldn't down investing. found in initiative growth far, whatsoever. XXXX,

over good, opposite. it's that's to find when healthy anything, if as as continue ways as business for months. progress lines, that our think we And to But demonstrated trying quickly discipline -- a look the the we reductions really to XX across well. units can. we across can our we I expense other to We're expense last

David Feaster

then for That's me. last great. And one

expect maybe business I'm even able funding costs a to success downrate can repricing clients you commentary would you're approaching I It customers. and decline, scenario? you with core point from on to opportunity front business to -- this could see of potential clients do seeing be behind great inflection the and is you guess, business a the start like lot if those set-up And the the to starting sounds of in Just success for pretty be material some deposit a reprice curious, continue margin? just costs deposit quickly kind in to the expect of the how we kind hear on the CD we're to stabilizing. to us

Walter Phifer

Yes, I'll we're that. we're ultimately, I jump good now BJ And smile problem then think other start we think a something question, can are control in. that I what really Great and Look, say I seeing. appreciate growing. right? We and I'd control, problem right could to David. have going a problem with not is banks that's because many

of competitive we that what a forward, really the what know price forward. There going here months they're going feels margin pretty if to like to think So I going XXX just do. going be the that We mentioned I and ultimately, level Well, maintain does XX to accordingly are high. good. over to don't can't see can I'd we're last going things like And control. our with market growth we'll say, we we're

William C. (BJ) Losch III

our I verticals, Just sorry in me one least probably BJ, when is, what X the up. question kind customers. at to or a of job operating to days I in the XXX. and our the business, spend lending such banking thing, on does it's officers David, X a on designs with approved your XX get bank to to first and when tells back road this wonderful BJ And credit Steve money. box the credit going give SBA you are the certainly, Am and box week

officers to lending exactly know borrowers. these say what to these So

side, management had $X that a our lot the firm a assets for Northeast, brand it's business business to about other firms. has under and sponsor does yesterday of got a I the with in banks, chance On in visit the in billion

the about back loan never are and forth. going So have have worry We to difficult. committee. about worry you never to guys We

with and it's answer book and our along You customer guys the get direct we always an to deal. and move give us

banking it's David. think I like So XXX,

Walter Phifer

I'll add than on back portfolio and deposit About David, will is quick reprice a Walt thing that insightful. more half less the to think almost variable There's pretty I it's X/X deposit his loan our just year. deposit one of in dynamics. important going that portfolio our has slide rate, something but of

So deposit when is because bit rates, start the Fed loan get treading coming to portfolio. be first start of than down over will a to down expansion NIM reduce coming But quarter little a of does to or that this our be quicker that quickly costs deposit we the to model. water time our we'll believe and can we majority the start probably see little expect our will two, -- from once deposits portfolio levels will bit generate we the past there we more business

Operator

at Next Switzer KBW. question from Tim comes

Timothy Switzer

ask real quarter? you your a quick I quick. or year within Can XX% Did reprice of a clarification say deposits

Walter Phifer

the over So -- have months, it's about next roughly XX%. we'll XX

schedule, portfolio quarter our you city XX that of you've So you just and have over savings seen it's about as maturity through that the time of our have months. matures X/X to portfolio over months, the liquid XX maturity. roughly next CD that the portfolio takes then last migrate CD X/X each

William C. (BJ) Losch III

Well, we end through middle still initial XXX of basis Walt's in maturities. held by comments, beginning, how and XXX year year-over-year. X% the of about net you the margins income -- interest over points flat higher portfolio of our our held we the grew CD to we and last repriced to points Almost talking were I entire add because think, basis Tim, to at deposit of XX%

our that margins. have So that to the our and and lenders our just growth deposits maintain that incredibly the manage discipline had and team I large still think they've discipline our we're activity to repricing pricing continue that generated had loan has with the pleased

Timothy Switzer

Is then from think the Okay, going SBA rates all? the market forward? see their competition in you the who kind you about -- at some could other generally rising diversify banks exposures? do help rate improve are have SBA trying that's started help to secondary And will to And loan in And of movement lower space? helpful. did it demand talk guys you

Walter Phifer

rates, we're at start to starting cut helped if Fed prepayment has both Walt. in cutting Really, slow, will Tim, the rates, see or is outlook depending disciplined assumption you fashion. they that what I'll when the a voluntary obviously, The on the least market. involuntary is helped. why rates fiscal and do the what the this and there is with Fed it secondary of rates do

loans plus definitely has helped especially as as So to to from be the be that X X could ranges probably plus spreads continue well our anywhere on X.X X. small competitive,

continued SBA expectations helped. those investors Fed high speaking, broadly for that curve alternatives down protection And has coming they So have the from just to treasury and start The rate helped. downward cash. taking pools demand then for

one. And with start sorry, was... I'll second then, I'm that question So the

Timothy Switzer

you any the in Are more seeing other competition from banks SBA?

Walter Phifer

Yes.

the pressures. is has I So think own much every think industry side, every on competition same, right? it's different the I industry and pretty competitive very their

actually what we be looking But It so this say the players. at. And in much migration or my any the more are out what competition spectrum. we've question seeing always seems a market? across to And you're is the we banks really, any get same wouldn't of answer lot seen I industry no, pretty

William C. (BJ) Losch III

-- than previous it we was anywhere X of was in hold XX% it last makes producing guaranteed quarters, like the the Tim, to SBA over one of to thing production guaranteed what I'm generating does was particularly of a the because over this those XXX and generally to and to XX% of we than balance secondary greater. lenders by doing mention levels. And loans on for to SBA sell This works yield the that large, to our it premium pricing. were -- disciplined because XXX proud more and don't XX%. on were speaks a are any customer going sense sell right doing to growth We those production less for we what those thing it at or are think being what markets. I'll between more terms

profitability or in give to to whatever sell So on metrics. attractive addition dynamics us pricing loans going that very the in marketplace, are our are keep producing either the for the optionality people

us kind really much lenders I'm to of how So really Cube as how as are business and give over to optionality our can. turning our we at Rubik's pleased

James Mahan

small And BJ, seeing situation take dollar I in pricing many all we loans the in way and times area having collateral, of... more quickly that the where Express these in to can close we're think and the we're not much

William C. (BJ) Losch III

from ranges X.XX X.XX. It to

James Mahan

Yes. to dramatically pick-up And that's sure. going for to going help because that's too

Operator

from Next JPMorgan. question at Lau comes Instructions] Alex [Operator

Alex Lau

I had follow-up on a the expenses.

So first flat with have low-double-digit when from expenses your you full changed year growth for you the year-over-year, in compare expense high-single-digit range? of half the expectations outlook your to the year

Walter Phifer

Alex, what like to Look, balancing, this finding side. mentioned, I in can organization is revenue think on efficiencies, front, especially you we our Walter. the -- I expense do on while do invest generator we continue to that continue and growth

will expectation you think our grow, you'll top on of get lenders pretty last hiring I continue a I just and of inherently of add a think to the full in think year. I the year, last for those quarters that right? expectation complexity, the you good -- couple personnel on And growth new rate and aid take given run terms expenses our focus to other versus support if proactively

William C. (BJ) Losch III

continue I Yes. we're just to lenders, to business. in look our invest that new add, technology, build would for going Alex,

not would being talked optimistic going or expense revenues on to the for how add quarter-to-quarter with we're be what that expense if that, us said, about betting I we're concerned I year. about So But have ahead of we better much than on growth. really were expenses

Alex Lau

the there X.XX% range prior of in earlier interest rest NIM to the X.XX%s you are the comment your to outlook the net change any maintain the for X.XX% on the just to the margin, for to year Walt, NIM range year-end? in confirm or expecting was And

Walter Phifer

growth, outline control, applies. if can deposit the the we Yes. pricing on focus trajectory up No, too, on think the discipline into that I right we side I our pricing our think discipline, things which -- our the still

of slope that can't depend and the deposits trajectory control, I That's the Fed. competitiveness on we think some will really right? the of the things the of

of there. I really remains X.XX%-plus depends way think our So those still timing control. things our The And can't we'll that back that on think target, we navigate range I right?

William C. (BJ) Losch III

probably 'XX, Alex, into 'XX. It's not it's in probably

forward time model the is moving Just some next curve, getting year. into probably us ranges the is into thinking the business about our but what right, up X.XX%-plus generating

Alex Lau

And is for year? of it. assuming cuts Got the that the rate rest also

Walter Phifer

into the migrate year X year forward similar level, in this into we curve. or what cuts X or going cuts you To expect X would then to X that and going Yes. to see next

Alex Lau

and on do then there loan that all-time pipeline? the given low-double-digit for you production be to the strong balance quarter, stronger is to the And second your upside loans or highs pipeline a in in just expect year growth potential the range that on sheet

Walter Phifer

Yes.

feels range low-double-digit that think right I on. early

there second depends upside really think the to think just the production I and really QX pipeline on have QX. strong We the and have we a half.

kind expectation think right that of now. I still applies So

Alex Lau

And what the CDs just CD book follow-up the the quarter? the And are it. Got one on is repricing rates and replaced of on in CD comment tailwinds the third being rolling of at? on the off portfolio. much How

Walter Phifer

question. great Yes,

QX terms the X in is quarters in are actually So of CD QX, of maturities. the lightest

reprice to our is be XX% of customers' roughly between will you'll as as somewhere large quarter a in XX% So QX. portfolio QX. QX well CD

it's that uncertainty about all the there. that off the would now one Again, into on so going given the you on depends that -- our our current rolling of be X%, X.XX% we half. CDs rolling think are a second offering see our and is X.XX%, that the to funding primary Fed right rate tactics I especially short-term slight growth pick-up use needs, off

Operator

for turn comments. Chip the over Mahan back to I We will have questions. further call closing no

James Mahan

morning, in being enjoyed you and you this forward we attending. we with the to look Well, seeing for fall. Thanks

Operator

you disconnect please your today. for this ask for your concludes we lines. you participating. We and Ladies gentlemen, thank And that conference

Live Oak Bancshares (LOB) 25 Jul 242024 Q2 Earnings call transcript