Q2 2022 Live Oak Bancshares Inc Earnings Call
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
[music].
Good day, and thank you for standing by and welcome to the live Oak Bancshares second quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Greg Seward, Chief Risk Officer, and General Counsel of live Oak Bancshares. Please go ahead.
Thank you and good morning, everyone and welcome to the <unk> second quarter 2022 earnings Conference call. We are webcasting live over the Internet and this call is being recorded to access the call over the Internet and review the presentation materials that we will reference on the call. Please visit our website at Investor <unk> Dot Com and go to today's call on our event calendar.
Or for supporting materials.
Our second quarter earnings release is also available on our website.
Before we get started I would like to caution you that we may make forward looking statements. During today's call that are subject to risks and uncertainties factors that may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call and in our SEC filings, we do not undertake to update forward looking statements to reflect the impact of circumstances or events that may arise. After the date of today's call.
<unk>.
Information about any non-GAAP financial measures referenced including reconciliation of those measures to GAAP measures can also be found in our SEC filings and in the presentation materials.
Now I'll turn the call over to chip Mahan, our chairman and Chief Executive Officer.
Thanks, Greg and good morning to all let's move to slide four to kick things off for.
For today's agenda, I'm going to kick things off with a few overarching comments before repeating our normal quarterly cadence of BJ reviewing our financial performance.
Huntley, highlighting our operational priorities.
Let's move to slide five.
Over the next few slides, we will discuss our mission to extend our nationwide government guaranteed lending platform and how that effort has led to an all time high pipeline.
As always we will discuss the quality of our loans and we will reflect on this volatile rate environment and its effect on SBA loan premiums clear.
Clearly the most recent correction in the capital markets has led to deterioration in the valuation of nascent fintech companies.
I am proud to report that live Oak ventures investments have continued to thrive and grow and seem to have dodged the downturn at least for now.
And Vijay will have much to say about the finfet sale to faster.
Happy to learn from the faster earnings call on Tuesday that the company for the second straight call puts <unk> next Gen core processing system at the center of their future strategic plans.
Let's move to slide six.
This slide highlights the organic growth in our lending business over the past five and a half years. The bottom of this slide shows the growth in our vertical SBA lending units.
In 2018, we added seven new industries and so far this year, we've added three bringing us to 17 in total on.
On the lending side, we have added 10, new lenders. This year that gives us a total of 30 generalists in 27 cities.
This is a new point of emphasis for us.
Recently, we set 700 E mails to SBA lenders at 85 banks, we will approach SBA lenders had an additional 25 banks in the next two weeks.
If you are an SBA lender there is a 100% chance you've heard of US there is a reasonable chance you've heard good things.
And the 700, we contact that we currently have a pipeline in various phases of 168 folks.
Many are happy at their existing bank and we want to stay in touch. The point is we have built a culture and a technology platform that is scalable in an industry that views SBA lending somewhere in between the port of led to the banking business.
Two just a sidecar to their other small business initiatives.
This is what we do.
We want the best lenders to know that we are coming to a town near you.
Lastly, our pipeline for proposal to close has increased roughly what from one 5 billion in may of 2022, a little over $3 1 billion today again, an all time high.
Slide seven.
And now for some fun facts, as we consistently and forever concentrate on soundness profitability and growth in that order.
In the late eighties, one of our banks and another company I started making their first SBA loan we had to get five declination letters from other banks before we can qualify it alone.
We had to prove we were the lender of last resort even today. The SBA has you cannot find credit elsewhere tests.
As interest rates rise and beating drums, a pending recession get louder, we often have to answer the question.
Are you at the tip of the spear at live Oak Bank. Your customers have no capital are you worried.
Let me answer that no.
Here are the facts on roughly $7 billion in loans, we had $3 4 million of over 30 day past dues are just nine bps moving onto worse loans loans on non accrual were $16 6 million or <unk> 43 bps that said of the 16 686 or 53% of the total were paying as agreed.
I am overwhelmingly proud of our lenders and credit folks who have chosen the right operators and entrepreneurs.
So back to slide seven.
In the past 10 years, we have averaged 30 bps of charge offs, while all other SBA lenders report more than 10 times that at 4%.
Almost half of our loan portfolio is guaranteed a 44% while the rest of the industry holds tight at a rounding error of 3% the pricing of our loans were considerably better with a net interest margin of just shy of 4% as you can see while the rest of the industry was nearly 100 bps lower at just under 3%.
Since inception and over eight we've originated $19 billion in loans, two thirds of which were in the SBA seven program and as you can see $14 billion or 74% of our 19 billion in originations where loans to small businesses.
Let's go to slide eight.
As mentioned a minute ago over the last six months in the capital markets has not been much fun.
We often say around here that capital is king and BJ will cover that shortly.
He also likes to talk about Optionality.
Like to talk about different arrows in our quiver. This.
This is the same slide we showed on our IPO roadshow exactly seven years ago. This week.
Many investors were unaware of the tiny SBA loan sales market as you can see the pricing has been incredibly safe stable. The last 22 years save the great recession.
<unk> and know how fortuitous for us that are precisely at this point in time my friend, Frank Sanchez decides to sell <unk> faster and become their vice chairman.
We have said to you many times the 280 billion lines of code. The industry runs on is going to get swapped out in the future to a nexgen cloud native API first solutions like Vince Act. The fact that he and ostensibly we will be partnering with a $67 billion market cap brand name.
Tim is good for a lot of back.
Frank subsidiary will operate separately and be supplied the necessary capital to attack the broader markets.
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How wonderful for us that the <unk> $120 million pre tax gain mirrors, the disruption of the 708 premiums decline.
Fins that gain is one five times, what we raised in our IPO and also exceeds our secondary offering in 2017.
<unk> profit equals all of our 708 loan sales for the last 14 quarters and exceeds all of our 708 and USDA loan sales over the last eight quarters.
So what did we do or didn't do.
We did not sell in what historically seems to be a down market bottom left of slide nine shows what we did in Q1, we sold $211 million in paper at a 110 handle generating $20 million gain on sale dollars.
This quarter, we could not cherry picking up to get the 110, but we did sell 50 or 108 generating $4 million in pre tax earnings had we chosen to sell $2 million and $211 million of paper as best we could have done would have been a 105 handle generating only 12 million in earnings.
So, let's keep the loans at roughly a 4% spread and generate $7 million in recurring net interest income.
We have a long runway to continue to do just this as we wait for the usually predictable 70 markets to come back to historic norms.
And I can't stand it just before I turn it over to BJ inherently I want to briefly mentioned my 14 year torturous relationship where the income statement line item servicing asset revaluation.
I, often wonder who I love less lawyers or accountants.
So let me see if I got this right. The accountants tell you that your cost of service alone is 40 bps. Then they tell you the average life of a loan to seven years and you need to take the remaining 60 bps of servicing over the next seven years and the net present value of that Jack that into income, but we already got paid in cash alone yesterday.
Then we go to the black box once a quarter and value the accumulation of all of our loans added together.
After we took the company public the servicing asset rebuild number over three consecutive quarters was one quarter up $5 million. The next quarter flat down <unk> 9 million in the next quarter, we decided to sell less loans and reduce the volatility of reported earnings per share. This quarter's negative 9 million bucks or 16th century share is in the appeal.
<unk> on slide 40.
Rest assured we think the $7 million in servicing revenue we receive annually is worth far more than the $28 5 million the beloved accountants say it's worth.
BJ over to you.
Alright, Thanks chip as good.
Don't know, if I'm going to be able to deliver the.
Financials, nearly as well it has shifted but good morning, everybody, we'll start with some highlights on slide 11.
Our earnings per share as you saw over 2016 was driven by both the previously announced fins that gain and strong net interest income and loan growth both linked quarter and year over year. Our net interest margin of 389 held up really well in Q2 during the beginning of the feds.
Rate increase cycle loan production.
With solid at 960 million as chip mentioned pipelines are at all time highs, we continue to be a talent magnet, adding 13 net new lenders in the quarter.
In our core business performance, along with continued success with our ventures investing.
<unk> to add significant tangible book value per share.
Resulting in 19% increase from the second quarter of last year.
As chip mentioned out of the current environment is not without its challenges, particularly as it relates to our secondary markets for guaranteed SBA sales, which shows up in two primary ways on our income statement.
First impact is on our guaranteed sales and gain on sale income.
As we discussed during the first quarter call. We saw a secondary market dynamic shifting rapidly. Therefore, we telegraphed that we would moderate sales in Q2, and we did our guaranteed sales in the quarter were 70% lower than Q1 with the resulting gain on sale income.
Around $5 million versus $20 million in the first quarter.
And as chip mentioned, it's important to understand that this income is not permanently lost we're simply going to earn it over time in the form of net interest income.
Kipp highlighted on slide nine.
Because of the flexibility we have from both the things that gain and the ability to hold and find high quality assets. We will continue to remain patient with secondary market activities until premiums start to normalize.
Also related to the secondary market dynamics as chip talked about our servicing asset reevaluate as very high this quarter at $8 million write down versus one six in Q1.
Primarily due to the rapid decline in market premiums.
Though our servicing asset as a noncash item.
And it's significant from a balance sheet perspective at less than 4% of capital fair value changes do flow through our income statement. So from here, we expect more modest changes in that fair value for the servicing asset as premiums eventually normalize towards long term average.
Yes.
Turning to slide 12, Youll see adjusted <unk> was down two to that intentional reduction of guaranteed sales.
Despite strong net interest income growth of 7% linked quarter.
And lower expense growth of 4% linked quarter credit remains very healthy lift provision up $3 million off a low base.
Breaking down the components of revenue on slide 13, you'll see total revenue growth still up 13% year over year. Despite this quarter to our gain on sale income driven by strong loan growth and resulting net interest income, which was up 34% year over year.
Balance sheet trends look good on slides 14, and 15 with 5% loan growth linked quarter and 7% before loan sales.
As you can see on slide 16.
Net interest margin held strong in Q2 at 389 with the decline from Q1, largely due to higher liquidity levels. We still expect some compression as the fed continues to raise rates rapidly and funding costs move more quickly than loan pricing, but we are very encouraged by the resiliency.
Of our margin.
Turning to expenses on slide 17, we had another strong hiring quarter, adding 49 net new lives <unk> majority of which were in our lending groups to support revenue growth.
In addition, we continue to attract technology talent, which made up the majority of our hiring outside the lending groups and Huntley I'll talk a little bit more about both of those in a few minutes.
Credit trends on slide 18, and 19 look great.
<unk> discussed at the beginning of the call having 45% of your total loan portfolio of government guaranteed is both a great comfort and a great responsibility that we take very seriously non.
Non accruals and past dues remain at historic lows as do net charge offs.
On slide 19.
See just how strong our credit performance is over time with cumulative not annual cumulative charge off rate of 29 basis points on small business loans originated since the late 18 bps and 48 bps on our specialty finance and Eni loans since 2006.
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On Slide 20, you will see in the upper right. Our capital ratios are very strong, particularly with the addition of the Fintech proceeds note the green, 23% bubble, we call out on the graph, which is the capital plus the reserve coverage of the guaranteed portion of our loan portfolio are higher than other banks.
This plus the $3 billion of highly liquid guaranteed loans on our books give us both balance sheet strength and flexibility to your banks can match.
To recap piping.
Pipelines are strong.
We continue to attract talent credit quality is excellent the balance sheets profitable and growing expense growth continues but at a more moderate pace.
Secondary markets remain in flux and gain on sale premiums are depressed.
In our ventures investments continue to provide us with organic capital and Optionality with that I'll turn it over to Huntley to give more color on where we are growing and investing HG. Thanks P. J I'll pick up with some highlights on page 22, and try not to be repetitive.
Again, really solid quarter, especially in light of everything going on in the markets and the macro environment.
Order highlighted with nearly $1 billion of diversified loan origination.
Just continue to find great opportunities to provide capital to small businesses.
The 5% linked quarter loan growth, 25% year over year.
<unk> is exciting on the deposit side, we saw really strong growth in our business savings product with 18% linked quarter growth over $1 three.
<unk> savings accounts now that product continues to resonate with our small business customers.
We launched our first deposit vertical serving the 10 31 exchange market and already have $30 million of deposits Theyre excited about where that can take us and the ability to expand into other verticals as well.
We've been really cautious and launching our small business checking product is as chip mentioned this journey with things that we want to make sure that this platform is hardened and ready to take on scale, but we've got 500 customers on there now and we're ready to step on the gas looking forward. We're excited to continue enhancing grow that small business deposit product.
Launch our working capital product here in August .
Expand our embedded banking offering where we recently went live with our first customer and upgrade our loan origination platform. So as always a lot going on around the bank.
On page 23, you can see an overview of our loan origination platform.
Again, great quarter origination.
As chip and BJ mentioned, even more encouraging is that our pipelines have returned to all time highs after a bit of a slowdown in the first part of the year from a mix perspective on the right hand side of the page you will notice.
That lower proportion of USDA lending in the quarter, which is a function of reduced bioenergy production and some funding shortfalls at the USDA.
But despite our overall pretty cautious outlook on the economy, we remain really optimistic about the second half of the year and beyond.
As you've heard chip and BJ mentioned, we will remain vigilant in maintaining our credit quality, but small businesses are proving themselves to be unbelievably resilient and the overall themes, we've highlighted the business transitions and the prudent expansion of our great small business operators continues to prove themselves out.
Page 24 has some granularity of our loan portfolio and really shows the power of our diversified platform highlights for the quarter include many of our flagship small business industry verticals like healthcare veterinarians and investment advisors, along with strength in our middle market lending and the conventional side and our general SBA lending team that chip.
Mentioned, which continue to source attractive opportunities across the nation across a variety of industries.
We also continue to find interesting new verticals and are excited about exploring with efforts underway in RV parks managed service providers law firms in pest control to name a few.
As I mentioned one area, we saw muted activity was in our bioenergy grip, where the combination of rising interest rates supply chain delays construction costs also Matt specific declines in carbon credit markets.
The tailwind in renewable energy overall remain extraordinary and we still see tremendous opportunity in that space for us.
Flip to page 25, and a little more information as chip mentioned on our SBA General lenders, where we hired nine folks in the first half of the year a couple more in the pipeline and that momentum seems to continue.
What we see is that the platform that we've built is really paying dividends and from an investment perspective, even when we hold loans on balance sheet on the outside this is about an 18 month payback for each of these new lenders, but typically much quicker than that.
Yes.
Flipping to <unk> 26, a few thoughts on the things that game.
On the one hand this gain was the culmination of a bunch of hard work of our teammates and our partners to build this company to where it was and got you.
It also provided a non dilutive capital raise for us that allows us to manage our balance sheet invest in our team our community and our technology, but on the other hand, we're just beginning to unlock the value.
Platform will provide for us and we're as excited as ever about the future.
Last quarter, we shared some plans for the proceeds.
<unk> bonus of $75 million charitable donation to the foundation of $5 million.
And we said that our goal was to reinvest in the technology about $10 million to $15 million, we're doing that primarily through higher end, where we've hired about 20, new folks and our technology team year to date, which accounted for almost half of our increase in the adjusted earnings quarter over quarter.
And we plan to hire about 25 more people to complete to build out that we referenced up this technology team. When you include all of these people and a little bit of professional services that'll add about $7 million to $8 million annually run rate to our expense base and the way we look at this as things that gain allowed us to pull forward. This hiring by about two years to accelerate.
The delivery of our road map.
All in all our technology spend in the quarter was about 14% of our adjusted noninterest expense, which for a bank with our branch distribution network feels pretty reasonable. So importantly, what are we building with all this technology and the platform on the lending side, we're enhancing our loan origination platform to better serve our customers to increase our speed.
To close and to allow us to make smaller balance loans more efficiently.
But the majority of our efforts remain focused on building primary operating relationships with small businesses to generate low cost deposits, while our cost consumer and small business savings products continue to be well received we know the importance of driving down our funding costs through noninterest bearing deposits.
After a long journey, our small business checking account is finally ready for the mass market.
And by the end of the year, we will have an enhanced operating account with Treasury management features for our larger clients, our working capital loan product additional deposit verticals and additional embedded banking partnerships.
And for many of you this will be unpopular thats taken this long.
And we've been talking about this but we remain committed to building out this technology at the right way and to do that has been a journey that's taken time.
We really believe that we're setting ourselves up for for massive increase in velocity and a future proof. This company for the next decade of technology innovation.
So in addition to the things that gain you can look at our ventures activities on page 27.
Followed on investing an aperture and defense storm, along with two exciting new opportunities that we invested in which are both great standalone investments, but also provide us opportunities in the embedded banking space.
As chip mentioned, it's not lost on us that valuations have reset in the technology market broadly and in Fintech, we feel really comfortable with the strength of our portfolio. Likewise, the canopy portfolio, which we included in the appendix on page 39 continues to perform well and with that second fund coming online we're excited.
The opportunities to invest there at more reasonable valuations.
The flip side of the Fintech market reset is that many of our challenger banks that we've been competing with lately.
<unk> witnessed increasing our cost of capital availability of capital and need to demonstrate their profitability, which has forced them to adjust their business models.
For us with a rock solid balance sheet profitable core business, we can remain consistent in our mission and our.
Our technology roadmap.
Four years ago, we made the decision to begin to hold more loans on balance sheet, a move that insulated us from the capital market dislocations like we saw during the pandemic and that we're seeing now.
And we know that shift to hold more loans adjust the trajectory of our reported EPS, but we feel it's absolutely the right decision for us and for our shareholders.
And we also know we have other elements of volatility in our earnings as chip mentioned servicing assets and our technology investing.
But those we accept as well in our effort to build this uniquely differentiated model and one that has and will continue to deliver exceptional returns for shareholders.
The model and the same is that gain was allowed us to generate earnings and capital to grow our business in a non dilutive way and sets us up for continued growth and profitability.
Despite these moving pieces in the quarter. Our mission remains unchanged to be America small business bank to do that we have to continue to assemble the best folks across banking and technology, who are dedicated to treating every customer like the only customer.
We will leverage our next generation technology stack to create products and solutions that better serve these customers.
Which in turn helps drive and attract and retain and motivate our folks.
At the end of day it all comes down to serving our small business customers and the dedication of our folks to do that so with that.
Chip any worse or will open up the questions, let's go to Q&A.
As a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
Yes.
Our first question comes from the line of Steven Alexopoulos from Jpmorgan. Your line is now open.
Hey, good morning, everyone.
Morning, Steve.
I wanted to start just on the deposit side I saw online you guys are offering pretty wide range in terms of rates, one 5% to 3% on Cds, one four on business savings.
What's the blended spot rate on new deposit dollars coming in today and how quick could you current deposit cost reset to market rates.
Yes, I'm happy to start the bulk of our activity is in savings and on the shorter end of the CD curve. There really is not a lot of activity.
Sort of the longer duration Cds that are more in that high teens to 30% really theres just not a lot of activity. So you should think of the bulk of our money coming in today.
That one four and then some of the Cds in the high one sort of rate and Thats really where the bulk of our of our growth is coming from in terms of the market based products that were that were growing with.
And then Steve that'll continue to increase obviously right. So our savings beta you can assume it's more in the 70.
Range.
With each move so.
We will continue to be competitive from that perspective continue to go up but on the flip side.
We've got 45% of our loans variable rate quarterly adjusting so as prime continues to go up we will benefit from that as well so.
There's a little bit of a timing issue as we manage our margin.
But with a 389 this quarter.
That that held up pretty well and we're pretty encouraged by that.
Okay. So Vijay if we follow that through previously you had talked about a NIM in the $3 $53 75 range I think you pointed to the lower end.
Is that still is that guidance still intact and I think that was by the fourth quarter.
Yes, I think I'll stick to that but I am more optimistic that will be towards the higher end than the lower end now that we've seen in the second quarter.
Got you Okay. That's helpful.
And then shifting to the loan side. So over the last two quarters average loans held for investment have increased about a mid teens annualized pace is this what we should expect is reasonable for the next few quarters.
Yes at least in the near term Steve.
It's related to us intentionally holding more on the balance sheet. So given that we're holding those guaranteed loan sales, where we're going to help them.
Hold them excuse me.
Four.
For sale in case, the market does come back and we decide to.
To sell into the secondary market.
Okay, and then final question in terms of the secondary market for SBA whats the backdrop, where the secondary market should resume more normal operations.
<unk>.
Yes.
Theres a couple of different dynamics going on right now right. One is obviously.
Theres very little fixed adjusting or fixed.
Demand out in the marketplace for for various reasons because of.
How quickly funding costs are going up relative to yields.
There are less buyers in the marketplace for fixed rate or fixed suggesting product.
And there are some other alternative investments that have similar terms that are more attractive right now because of secondary market dislocation things like agencies are treasuries et cetera that normally don't compete very well from a yield perspective with SBA.
So.
Sure.
Is that kind of washes through we think that as chip highlighted at the beginning we've historically seen dislocations anywhere from two months to nine months.
And we've got the balance sheet and the liquidity to wait it out so we will just.
We will do that and resume our sales when appropriate and when we think we get paid for.
Okay. Okay.
Okay. Thanks for taking all my questions.
Yeah.
And your next question comes from the line of Christian <unk> from Piper Sandler. Your line is now open.
Thank you good morning, I actually have a follow up on the on the loan sale kind of similar to the previous question.
The way that kind of thinking about it for the.
Third quarter, I guess, what I'm looking at the second quarter loan sales.
The guaranteed volume sold as a percent of total originations or is around 7% as youre looking at the third quarter would you think that should be somewhere in that 7%, 10% range compared to kind of recent levels that kind of historically and kind of the mid to high teens, just I'm just trying to get a little bit of a finer point of how youre thinking about.
Net sales in the third quarter.
Hey, Chris it's BJ so.
Short answer is again, it's hard to say, we've said a couple of different ways that we're going to be patient there, we're not going to just sell into a poor market.
And take a discount on paper that we think is much more valuable to carry with that said, we're hopeful that premiums are bouncing around the bottom here.
Sure.
Particularly on variable rate product.
Fixed a little bit more finicky for the reasons I just just talked through.
But we're optimistic that whether its next quarter, whether fourth quarter, we start to see a little bit of normalization back towards <unk>.
Acceptable premiums in which case, we'll will again get more active.
Alright. Thank you that's helpful color there and then.
Just one on the pipeline.
Seems like the pipeline is very strong based on your commentary during the prepared remarks and the call.
I'd appreciate if you could just provide a little bit more detail there like where do you see that the majority of the activity coming from that kind of drive those.
Really strong pipelines and then.
<unk> do you still feel confident in that $4 billion plus origination target for the full year.
Sure, Chris, it's hotly and I'll kick off.
It's pretty broad I would say.
The small business pipelines has been pretty consistent gift.
Dipped a little in the beginning of the year.
Starting to see more in the way of business acquisitions, where I think when capital markets sort of earlier in the year really starting to move rates started to move up buyers and sellers had a hard time figuring out pricing and so they took a pause and we saw that through the first part of the year and we're starting to see a bit more.
Transactions, finding finding the mark there so really starting to see that.
Across our specialty finance, the middle market or the <unk>.
Lower end of the middle market companies, two to eight or $10 million of EBIT.
With some institutional capital behind them just some really.
Interesting opportunities there reasonably low leverage.
Like a space that we've got a lot of opportunity.
So those are probably the areas where the pipeline.
As most active but but it's pretty widespread and I think the business activity still despite all the headlines feels feels pretty good on our end.
In terms of the $4 billion number and I think the back half of the year looks pretty solid if we continue at this pace, we should be wrapped around that number plus or minus a little bit as for what we see probably see right now.
I'd just add to that is I'm looking at whatever slide Mike has got up here 24 <unk>.
Different verticals that we're in is very flattering duston, when we publish things like this on a call. It just seems that other banks show up at the verticals that we just attack.
That's all kind of fun that said last week, we had an all hands meeting. So we had 700 plus people here in Wilmington.
The glorious time to spend with the what we call our generals those 30 lenders in 27 cities.
To say that maybe some of this going on as effective silver tsunami.
Is probably accurate those guys and gals basically said the last couple of months of the last six weeks or so the phone seemed to be ringing off the hook and again those are mainly business acquisitions and the referral sources. So.
<unk> with <unk>.
I think the second half of it will be pretty good remember too that relative youre comparing originations year over year that we lost the subsidies last September right. Vijay September 30, so a lot of that growth last year through September was due to the SBA subsidy, so trying to match that year over.
For years, but somewhat difficult.
We're on a roll.
Yes.
Great. Thank you for answering my questions.
Again to ask a question you will need to press star one on your telephone keypad.
Your next question comes from the line.
Jamie for Denver with Jefferies. Your line is now open.
Okay.
Good morning.
Good morning, Jim Denver.
I can't believe it's been seven years since the IPO Wow I'm really slow.
Our comp plan.
So question on expenses.
You said youre looking at.
$7 million to $8 million more in.
The expenses from 25 more tech hires you're going to make this year.
Can you give us a little bit more detail on where you think expenses could go in the second half of the year.
When you incorporate.
Whatever lending and support hires you might make.
And I'll say generally just that number.
There's about $600000.
In the quarter, so call it $2 $5 million of run rate of that $7 million to $8 million is already in the number you see now.
Incremental.
From there as more like four five or five so just to give you.
Incremental technology.
That we're thinking.
P. J you want to talk about sort of the broader in terms of.
People I mean really will continue to add lenders and technology and the numbers that we're talking about but I think that the head count growth will really start to flatten from here outside of that those are the two areas that we if we find great lenders with a short payback put them on the field, yes their support to that in terms of underwriting closing et cetera.
The technology squad that are going to be hands on keyboards, delivering product and features that have real returns.
Now in the market.
And.
And then I think the overall head count is going to slow down the growth outside of that pretty dramatically from here.
Yes.
Add that if you look at slide 17, it really is helpful to look at the adjusted expenses linked quarter up 4%.
But up 32% from last year. So what does that mean it means that our expense growth trajectory is moderating.
And that.
Is in line with what we've been talking about the last couple of quarters, We said that the end of 2021.
We were playing catch up, particularly as it related to lender and lender support underwriters closers.
Servicing.
Our business analysts group et cetera to keep up with the big step up in our production and then we shifted a little bit more of our focus this year towards again lender expansion as well as pulling.
Pulling up that technology investment.
Debt that Huntley talked about so we kind of went through a bubble in the second half of last year in the first half of this year. So I do expect that our expense growth will moderate from what you've seen over the last year.
And.
Over time.
We're just not investing in technology talent to invest in technology.
Those.
Investments are going to have a significant return for us over time as we build out our title operating account.
Our cash management and Treasury management capabilities for the larger end of our customers set for our embedded banking and multiple partnerships that are coming online towards the end of this year and into next so there's a lot more revenue coming behind that technology.
Investments that will start to see in 2023 and beyond.
Okay.
Great.
On the business checking you said, it's ready for Prime time now so can you talk about how you're marketing that product.
How you incent employees to sell it.
<unk>.
Sure.
And we've got Mike Davis, our Chief Marketing Officer here, who can who can jump in and start on that one yes. Thanks for the question Jennifer So.
Right now just starting it's starting very small we've been primarily focused in the Carolinas and we're expanding across the country in various specific markets that coincide with where our generals teams are and where we have strong presence in some of our verticals so relative to our teams selling any of our lenders talk.
In about title checking that will happen over the next call. It six months and then we will be significantly investing in the digital marketing side to expand our presence there.
Thanks, so much.
And I see no further questions at this time I would now like to turn the conference back to Keith Man for closing remarks.
We thank everyone for attending this quarterly call and we look forward to see Union 90 days.
This concludes today's conference call. Thank you for your participation you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Uh huh.
Okay.
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Yes.
Okay.
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