Q4 2024 Live Oak Bancshares Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Q4 2024 Live Oak Bank Shares Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.
If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday.
Speaker Change: January 23rd, 2025. I would now like to turn the conference over to Claire Parker, Head of Investor Relations. Please go ahead.
Claire Parker: Thank you, and good morning, everyone. Welcome to Live Oak's fourth quarter 2024 Earnings Conference Call.
Claire Parker: 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 in the call, please visit our website at www.investor.liveoakbank.com and go to the events and presentations tab for supporting materials.
Claire Parker: Our fourth quarter earnings release is also available on our website.
Claire Parker: 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.
Claire Parker: Factors that may cause actual results to differ materially from our expectations are detailed and the materials accompanying this call and in our SEC filings.
Claire Parker: We do not undertake to update the forward-looking statements to reflect the impact of circumstances
Claire Parker: or events that may arise after the date of today's call. 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.
Claire Parker: I will now turn the call over to Chip Mahan, our Chairman and CEO. Good morning all. As always, we'll have B.J. lead off. On deck will be our CFO, Walt, and then I'll have a comment or two before we head to Q&A. B.J.?
B.J.: Thanks, Chip. Good morning, everybody. Happy New Year. If I haven't talked to you or seen you since then, let's get started on slide four and slide five.
YVOC enters 2025 with some really excellent business momentum.
We're seeing small business sentiment and activity on the rise.
Our loan pipelines are still near all-time highs.
B.J.: and our key growth initiatives such as Live Oak Express, which is our small dollar SBA 7A loan offering, and acquiring checking relationships are continuing to ramp. Our ability to grow the company was on full display in 2024.
B.J.: We deliver strong PPNR growth on both a reported and adjusted basis, excellent loan and deposit growth, record loan production,
B.J.: A great start to our quest for full relationships with checking account growth and well-controlled expenses even while continuing to invest in people and technology.
B.J.: The lone disappointment in 2024 was elevated provision in the second half of the year. More on that in a moment.
B.J.: Stepping back and looking at our performance over the last three years, we see some significant improvement in our ability to control what we can control and deliver top-line growth well in excess of expense growth.
B.J.: Starting with load production and pipelines on slide 6, you see the power of the LIBO blending engine.
B.J.: Not only did we have record loan production in 2024, but as you can see, pipelines have steadily increased as well.
B.J.: Meaning, as we have closed business, we've more than replenished the pipeline with new activity, which continues to support our optimistic outlook for balance sheet and revenue growth in 2025.
B.J.: As you see on slide 7, this has driven strong PPNR and top-line revenue growth, particularly over the last year, despite a headwind from NIM compression as rates have decreased and deposit rates have temporarily lagged asset repricing.
Turning to credit trends on slide 8 and 9.
While we had been monitoring rising industry default trends,
B.J.: we had not seen meaningful increases in our default activity until the middle to latter part of the fourth quarter. When we did experience this, we took action to appropriately move those through to either imprimatur or charge-off.
B.J.: While not ultimately surprising given the rapid rise in rates in 2022 and 2023, we had experienced relative stability in our overall portfolio through most of the year.
B.J.: So to see this kind of increase was disappointing. While our default rates remain well below industry trends, we always strive to be much better, and we will continue to do so.
B.J.: A bright spot this quarter was a meaningful reduction in past dues to just $15 million or 20 basis points with zero past dues in our entire commercial banking portfolio.
B.J.: One quarter does not a trend to make, but we are redoubling our efforts to identify emerging issues early and keep that front door closed as much as possible.
B.J.: Context is always important and there are two distinct advantages that Live Oak has.
B.J.: And second, while this quarter reminds us that we are obviously not fully immune to credit cycles for small business borrowers,
B.J.: You can see on slide 9 that both our current and historical performance relative to the SBA lender universe is unmatched.
B.J.: due to our deep knowledge and expertise in small business lending. We will continue to lean on and enhance our extensive servicing and watch list processes to assist borrowers where we can and work through problem credits efficiently.
B.J.: The overall portfolio across both small business and commercial banking remains well-managed, and I remain confident in our people and our credit approval and monitoring processes.
B.J.: To wrap up on slide 10, we know who we are and who we want to be, America's small business bank, and how we will get there.
B.J.: As a growth company, I'm very excited about where we're headed.
Small business sentiment is on the rise.
B.J.: There's a lot of gas remaining in the lemon pipeline tank.
B.J.: We are extending our leadership in SBA. Our new small-dollar SBA lending effort is ramping up quickly and will be a meaningful contributor to our results over time. We went from virtually none to 125 million dollars of small-dollar loans.
B.J.: closed in 2024 and expect to do much more. Checking balances, which were immaterial a year ago, ended the year at about 215 million and continue to build as do full relationships with our customers.
B.J.: About 18 months ago, the percentage of customers with both a loan and deposit relationship with Live Oak was only around 5%.
B.J.: Today, it has almost tripled that percentage at 14% with 35% of our new loan relationships last year also having a checking account with us.
B.J.: We continue to add new avenues of revenue growth, with our commercial banking efforts being the most visible.
B.J.: Our brand and reputation continues to attract and retain the highest quality talent and customers.
B.J.: and we continue to heavily invest in the future, both in our people and our technology. And as our CIO, Renato Derrick says, the AI wave is here. We can either learn how to surf or drown, and we are confident we will successfully ride the wave.
Speaker Change: With a big thank you to all of our LiveOakers and our customers. Walt, how about running through some of the financial highlights?
Walt: Thanks, BJ. Let's get started on slide 13 with an overview of our Q4 program.
Walt: Earnings per share of 0.2 cents was the result of a healthy PPNR offset by an elevated provision.
Walt: Our core PPNR remained flat to the third quarter and up 15% compared to the fourth quarter of 2023, driven by our strong loan production and revenue growth. A few key highlights within our Q4 PPNR figure include
Walt: Low and balanced growth from a strong production activity offset expected margin compression following the Fed's late September rate cut, enabling our net interest income to stay flat to Q3 of 2024. More on this point in a few slides.
Walt: Our secondary market sales increased in Q4, aided by our small loan production efforts.
Walt: And our core operating expenses were slightly up quarter over quarter, driven primarily by growth-driven variable costs, such as FDIC insurance expense and loan-related expenses.
Speaker Change: The momentum that BJ just spoke to continued in Q4, with strong loan originations of $1.4 billion, our second-largest quarter of loan production in bank history.
Walt: This resulted in a late quarter loan growth of 4% net of loan sales, consistently outstanding growth that sets us apart from industry trends.
Walt: Our customer deposit engine continues to grow, even through a typically weaker quarter of the annual cycle. We are also excited to see our checking balance has increased 46% in link quarter as we continue to penetrate our existing borrower base, while also adding checking accounts from new customers.
Walt: The major themes influencing our provision expense in the fourth quarter are consistent with the comments BJ just made.
Speaker Change: We are a growing bank, and as such, our good provision will increase naturally with our growth. And it's not unexpected that variable rate borrowers from years preceding the rate hike cycle would feel the impact of 500 basis points of rate increases and prolonged elevated levels of inflation.
Speaker Change: Improving inflation levels, 100 basis points of recent rate cuts will certainly help, but these benefits need time to take effect. In fact, these borrowers have only seen 50 basis points of rate relief in the fourth quarter. The remaining 50 basis points from the November and December Fed cuts took effect on January 1st.
Speaker Change: Now let's unpack the quarter performance a bit more on the following slides.
Speaker Change: Slide 14 highlights our loan originations by vertical and business unit. As shown on the right-hand side of the page, our Q4 2024 loan origination totaled approximately $1.4 billion, a 45% increase in loan originations compared to Q4 2023.
Speaker Change: 54% of Q4's loan production came via our small business banking team, primarily in the form of SBA 7A loans, a 35% increase year-over-year. And 46% of Q4's loan production came via our commercial lending team, a 58% increase compared to the prior year.
Speaker Change: As BJ mentioned, we had a record year of loan origination in 2024 with a total of $5.2 billion, a 33% increase compared to 2023. And yet over the same time comparison, our loan pipeline has increased 24% to $3.6 billion.
Speaker Change: You can see the year-over-year momentum across our verticals on the left-hand side of the page, with approximately 70% of our verticals originating more production in 2024 than they did in 2023.
Speaker Change: Overall, 2024 was an outstanding effort by our lending, funding, and operational teams, and we are excited to see their success continue into 2025.
Speaker Change: Slide 15 illustrates the quarter-over-quarter loan and deposit balance growth, highlighting strong, consistent growth trends throughout 2024 on both fronts.
Speaker Change: Loan balances were up 4% in the quarter and 17% compared to the prior year. Tremendous growth over a year that saw muted loan growth across the industry.
Speaker Change: Our customer deposit balances grew 1% in late quarter, impressive considering the strong competition we are seeing across the deposit market and the fact that Q4 is typically a difficult time of the year to grow deposits.
Speaker Change: We highlighted slide 16 in our last quarterly call and are extremely excited about the continued momentum that we are seeing in building fuller relationships with both our loan and business deposit customers.
Speaker Change: We now have approximately 3,000 business checking counts on our platform and our business checking balances increased 46% in the quarter to $212 million. That is approximately five times or $173 million dollars above where our business checking balances were just one year ago.
Speaker Change: The percentage of customers with both a loan and deposit account increased for the fourth consecutive quarter to approximately 14%, more than two times what it was at the end of 2023.
Speaker Change: and more than one-third of our new loan customers also have opened a check-in account in Q4, a trend that has increased throughout 2024.
Speaker Change: Lastly, the savings and CD balances related to businesses with a checking count LIBO have also increased 44% to $334 million dollars.
Speaker Change: The result of all this expanding our business relationships with our customers is stickier deposits with an average blending cost of funds in Q4 2024 of 2.47%.
Speaker Change: Approximately a hundred and sixty basis points or forty percent less than our total bank blended cost of funds.
Speaker Change: Net interest income and margin trends are highlighted on slide 17. As I mentioned on our last call, we expected our margin to compress in this quarter after the Fed cut 50 basis points late in September, and our expectation that the deposit market would be initially slow to react given the competitive arena.
Speaker Change: That being said, despite the near-term margin compression, we expect to maintain our net interest income given our strong growth outlook.
Speaker Change: As you can see in the top graph, both expectations held true.
Speaker Change: Our net interest income remained flat to Q3 2024 and 9% above the prior year, despite the 18 basis points of NIM compression in the fourth quarter.
A few other key highlights from this page.
Speaker Change: As I mentioned, our loan growth momentum in the pipeline remains robust, which will continue to drive our net interest income going forward.
Speaker Change: Our margin has been influenced by timing of rate cuts over the past few quarters, with another 50 basis points of reduction to our variable rate loans taking effect January 1st. Yet our margin continues to be supported by the great pricing discipline of our lending teams.
Speaker Change: Our loan production yields of approximately 8.5% noted in the second bullet on the top right are 100 basis points above our current portfolio yield of approximately 7.5%, as shown in the top of the table in the middle of the page.
There are two primary factors driving our savings rates.
Both are great.
Speaker Change: We just had three of the largest quarters of loan origination and balance sheet growth in bank history, and the pipeline is not slowing down.
Speaker Change: We continue to position our product in the market to remain competitive to support our strong loan origination.
Speaker Change: Secondly, the funding market remains highly competitive. We are seeing downward repricing amongst competitors, but at a cautious pace, especially in the consumer and business savings markets.
Speaker Change: Our 20% beta on consumer savings and 30% beta on business savings thus far has been intentionally conservative and less in the market as we support our growth.
Speaker Change: Fortunately, the CD market repricing has been quick to react to Fed changes.
Speaker Change: Even with a marking competitive position, we expect to continue to see near-term tailwinds from RCDs renewing into rates approximately 100 basis points below the maturing rates, as highlighted in the middle of the page.
Speaker Change: And lastly, the individual drivers of net interest income and net interest margin movement are detailed on the bottom right of the page.
Speaker Change: One item to note here was the impact that the quarter's elevated non-apparals had on both net interest income and margin.
Speaker Change: Two forward non-accrual levels caused a drag on the interest income of approximately $3 million and compressed our margin by 11 basis points.
Speaker Change: Said another way, absent the non-accrual impact, our net interest income would have increased 3% quarter over quarter and our margin compression would have been limited to 7 basis points.
Speaker Change: Moving on to a view of our Guaranteed Loan Sale Trends on slide 18.
Speaker Change: The demand for government-guaranteed SBA loans on the secondary market remains strong, providing consistent gain-on-sale revenue and recycling liquidity back into the bank.
Speaker Change: Our loan sales typically scale upwards each quarter throughout the year, and 2024's trajectory has been no different, with $278 million sold in Q4 2024 for an average premium of 7%.
Expense trends are detailed on slide 19.
Speaker Change: Our Q4 2024 expenses of $81 million included $1.1 million of a residual investment tax credit impairment from an investment we made in Q4 of 2023, which also provided a tax benefit both in 2023 and in Q1 of 2024.
Speaker Change: The remaining quarter-over-quarter growth in non-personnel calls were largely variable-based calls driven by our balance sheet group.
Speaker Change: Our teams have shown great expense discipline over the last year, even while adding 62 FTEs.
Speaker Change: Primarily within growth-oriented sectors focus on revenue generation and funding growth, as well as investing in a risk and technology groups within the bank.
Speaker Change: We will continue to invest in our people and technology to support our growth aspirations, yet remain focused on maintaining positive operating leverage as we have shown in 2024.
Speaker Change: Slide 20 illustrates a five-quarter trend of our provision expense, net charge-offs, and our reserve coverage relative to our unguaranteed loan portfolio. It is important to remember that approximately $3.5 billion, or about 34% of our total loan portfolio, is excluded from this view, as it is fully government guaranteed.
Speaker Change: While our reserves to our unguaranteed loan portfolio ratio have remained relatively steady over the past five quarters, we have seen an increase in our second-half provision expense, partly due to the approximately $1 billion of loan balance growth in the last two quarters.
Speaker Change: as well as the increase in classified assets and nonaccrual trends that BJ just spoke on.
Speaker Change: We strive to be proactive, identifying impairments and reserving for them ahead of charge-offs. In the fourth quarter, we took action to quickly move small bits of defaults through either impairment or charge-off.
Speaker Change: This coupled with charge-offs associated with previous large Q3 impairments resulted in a high level of Q4 charge-offs.
Speaker Change: We have been, and will continue to be, proactive with provisioning for growth, changes in portfolio performance, and impairments or chargeoffs of specific loans when warranted.
Our reserve levels remain very healthy.
Lastly, slide 21 highlights our capital profile.
Speaker Change: We remain well above regulatory capital minimums and will continue to ensure that capital levels remain appropriate for our robust growth trajectory.
Speaker Change: To wrap up, we are happy with our strong PPNR performance and growth trends. We will continue to enhance our credit quality and processes.
Speaker Change: and we are excited about our momentum as we head into 2025.
Speaker Change: I will now turn it over to Chip for his final comments. Thanks, Walt. Before we move to Q&A, just a word on credit quality.
Speaker Change: When we started this business 17 years ago, we sought to put capital in the hands of American small business folks using a government program that has been around since the Eisenhower administration.
Speaker Change: The nuances of that program are complex on one hand and create somewhat of a barrier to entry on the other.
Speaker Change: BJ's slide shows how we perform compared to all other banks relative to defaults. We stand on that record.
Speaker Change: That said, we can do better. Over the last 36 months, we have originated over $13 billion in loans. We pride ourselves in treating every customer like the only customer and collecting financial statements every 90 days to determine if there is any stress out there.
Speaker Change: Helping a small business with challenges is more of an art than a science.
Speaker Change: Beside us is a borrower-friendly agency, and yes, we could have been more creative in helping these folks that have the eye of the tiger, and we will.
Clare, let's go to Q&A.
Thank you. Bye.
Thank you. Bye-bye.
Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys.
One moment, please, for your first question.
Speaker Change: Your first question comes from Crispin Love with Piper Sandler. Your line is now open.
Crispin Love: Thanks. Good morning, everyone. My first question is just on the provision and, Walt, I heard some of your comments related to growth and rates, and Chip, really appreciate that credit quality commentary at the end. But
Crispin Love: Are you able to share how much of the elevated provision is related to growth versus specific relationships that are worth calling out? And then do you have a new normal for the provision run rate to support the growth that you've been putting out? I'm just curious if there's any thoughts that you can put around that or any guardrails. Thank you.
Crispin Love: Yeah, so this is Michael Carnes, Chief Credit Officer. So I will say that the majority of the provision expense is related to loans within our SBA portfolio. Our commercial portfolio has held up really well.
Crispin Love: outside of those three credits we talked about last quarter and so
Crispin Love: The SBA industry is showing some signs of weakness, and we have seen a little bit of that in our portfolio as well, but we're focused on servicing.
Crispin Love: And we'll continue to work with all of our customers as Chip and BJ both alluded to. And I'll remind everyone, too, that we do have...
Speaker Change: very seasoned lenders and credit officers at this bank that have been through challenges in the past and we are adding experience and expertise to both our special assets team.
Speaker Change: and our servicing team so that we can be creative and work through challenges with our customers as Chip alluded to.
and James Mahan. Thank you. Thank you.
and James Mahan.
Speaker Change: Great, I appreciate that. So you would say that the provision driven more broadly rather than specific relationships, is that fair?
Speaker Change: Yeah, and we talked about this a little bit on the last call and we have today as well. Our SBA borrowers, small businesses across the country have had to navigate pretty significant challenges.
over the last few years, especially related to rape.
Speaker Change: and labor and other economic challenges and inflation. So we expect to continue to work with all of our customers on that end.
and James Mahan. Thank you. Thank you.
Speaker Change: Great, thank you. And then last question for me, just on the debt interest margin, you had the headwind in the fourth quarter, which you detailed from the 50 basis point cut in September, which hurt you timing-wise.
Speaker Change: Well, can you discuss the forward outlook a little bit, views on the margin in the first quarter relative to the fourth from your seat, and then just confidence in hitting
Speaker Change: or getting close to that 350 margin target that you've talked about in the past, in 2025 or towards the end of 2025. Thank you.
Speaker Change: Yeah, thanks Crispin. Yeah, I think from Q1 standpoint, we'll have another 50 bips of cuts on our variable loan portfolio that took effect on January 1st.
Speaker Change: I think you'll see a similar margin here in the near term, really just giving our funding portfolio time to reprice. Fortunately, we have a pretty large CD maturity event in Q1 every year.
Speaker Change: And the gap between the maturing and renewing rate is pretty large, so that's going to help out. And we're still seeing the market, both on business and consumer savings, reprice over time.
Speaker Change: which will obviously address our funding needs and our market position and move accordingly. I think as you kind of get through further in the year, I mean, there's a lot to be...
Speaker Change: you know, essentially determine at this point from, you know, what the Fed decides to do.
Speaker Change: You know, I think that 350 target or that objective for margin that we talked to in the last poll being more towards the end of 2025, still in play, you know, could it go into early 2026? Potentially, I think it just really depends on what the Fed does and then how the deposit market reacts.
Thanks Walt, I appreciate you all taking my questions.
Thanks, Chris.
Speaker Change: Your next question comes from Tim Switzer with KBW. Your line is now open.
questions
Speaker Change: It might be a little early for this, but with the change in administration occurring yesterday, there's a lot of different puts and takes on
kind of the macro outlook.
and the impact of terrorism, where rates will go.
Speaker Change: all of which I know impacts small businesses quite a bit. Are you seeing that result in any caution from some of your borrowers at all? Or maybe even in the other direction from certain industries where they're a little bit more bullish and has that impacted your loan pipeline in any way?
Thank you. Thank you. Thank you.
Hey, Tim. Good morning. It's BJ.
Speaker Change: First, I would say it's way too early to actually know what is going to happen relative to the new administration. What I would tell you, though, is two things.
Speaker Change: We do a quarterly pulse survey with small businesses, not just our customers, but across the country. We did one of those in mid-October.
Speaker Change: and the sentiment was significantly higher. So that was pre-election. Then you've seen some of the government small business sentiment results come out, and they have been through the roof as well.
Speaker Change: And we're seeing that in our pipelines, in our activity. As I talked about at the beginning, those pipelines are still at all-time or near all-time high. So we are seeing sentiment getting better.
Speaker Change: Theories around that include less regulation, inflation coming down, more growth opportunity, more capital investment, etc.
But it remains to be seen.
Speaker Change: a favorable environment for small businesses, and that's what we're seeing from our customers and our pipelines right now.
Okay, then I'll go next.
Speaker Change: Sorry, go ahead. I would also say that the Trump administration has put someone that we're quite familiar with in the Office of Capital Access that is a real pro and knows the industry and the SBA quite well.
Speaker Change: Okay, that's helpful. And, you know, as far as the rate outlook goes...
Speaker Change: Rates have moved up a little bit since the end of the quarter. You know, has that impacted, do you think it'll impact SBA margins or secondary market demand at all? Has that created any issues from some of your typical purchasers?
and James Mahan.
Speaker Change: It's in the swap. No, it hasn't. You know, I think most of the time secular market will price in and assumed, you know, they largely kind of aligned with the forward curve. We have not seen any change in our demand. In fact, I think our demand has been stronger here in the last second half of the year with premiums taking up to that 107 range.
Speaker Change: Pricing on small loans, which obviously we've been focused on recently, still continues to be strong, too. Premiums on that are typically north of $110,000, and that's maintained regardless of the recent changes that you've seen.
Speaker Change: And Walt, haven't you seen more activity, more pool assemblers? We have seen more pool assemblers. There's another few kind of in the pipeline that are working through. So, you know, that's always going to create more demand because basically more mouths to feed. Yeah, so the secondary market, you know, feels like it's in a really good spot right now.
Great, it's good to hear. Thank you.
and many more. Thank you. Thank you.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question please press star 1. Your next question comes from David Pfister with Raymond James. Your line is now open.
David Pfister: Chip, I just wanted to follow up on your closing commentary. You talked about being more creative to help your borrowers. I'm curious if you could expound on that a bit. Is there any new initiatives you're expecting to put into underwriting or the way that you approach work out? I was just curious, what opportunities do you see?
Yeah, I rather expected that from you, David. Thank you.
David Pfister: I'll give you an example. I think that we have a lot of young people. As you know, we have 72 22-year-olds that examine financial statements every quarter on most of our borrowers where we can collect them.
David Pfister: So, we had a self-service storage customer that was having some challenges, and then we kind of looked into that later after the fact and said, well, you know, you haven't had a price increase in 10 years.
David Pfister: So a guy named Terry Campbell helped us start that business 10 or 12 years ago, left to do something on his own. So we asked Terry to go visit with that customer.
David Pfister: to walk them through how to do a price increase after 10 years and lo and behold, they're back in the game. So it's just things like that, it's like just common sense.
Speaker Change: and Michael Carnes alluded to that as well, and we're going to put some more experienced people with a little wood behind the era in that area. That's all I meant by that comment.
Okay.
Speaker Change: And to that point, I mean, I guess, how do you look at hiring? I mean, you know, you're seeing the pipeline at
Speaker Change: you know, near all-time highs like you talked about, production set to improve. Where do you think you need people or teams to support this level of growth and sustain that pace of growth? And where are you looking to potentially add talent?
Yes.
Speaker Change: Hey David, it's BJF. We are always looking to add revenue generating talent so we're continuing to hire lenders both in our general lending group and in verticals.
where we see opportunities, so that's kind of one.
Speaker Change: Number two is we are beefing up our treasury management groups and our
Speaker Change: and our deposit groups as we are growing check-in accounts, which is particularly exciting to us.
Speaker Change: But I think what we're really focused on in terms of scalability from this activity and things we're really excited about is what I alluded to at the end of my comments.
The Effective AI
Speaker Change: on what we're going to see throughout, not just our industry, but across the country. Neil Underwood, one of our founders.
Speaker Change: has been around a long time in technology, and he would say this is the third major wave that he's seen beyond internet, cloud computing, and now AI.
Speaker Change: And we are working with some really interesting companies and software that are doing really amazing things to allow us
Speaker Change: to take a lot of manual processes and data entry and document collection and tax return collection and, you know, bank statement collection, all those types of things out of the grind.
Speaker Change: of what currently happens between a potential borrower and our lenders and underwriters and closers.
and people in loan operations.
Speaker Change: to streamline those things very efficiently so that we can actually do what Chip just talked about, which is be thinking about how to help customers succeed as opposed to doing a lot of data entry.
Speaker Change: You know, we are very, very bullish on what we can do with AI, as you well know. We are never afraid to experiment with technology, look at new and innovative things.
Speaker Change: that will help us grow. And so we've got a lot of people across our company looking at different types of ways to be able to do that.
Okay, that's that's great color. Pretty exciting to...
Speaker Change: to see what's on the horizon. You know, touching on the business checking balances, we've seen kind of an acceleration in growth.
Speaker Change: We're still in the early innings there. First, I guess, how's reception been? And then you talked about 35% of new relationships now have a deposit relationship, too. Is that a realistic target for that book over time, or do you think you can actually do better than that?
Speaker Change: Well, I'll start with the latter, David. I think we can do far better than that.
Speaker Change: You know, there's, there's, uh, your typical bank would do at least...
twice that, if not more, with a mature checking account.
offering.
Speaker Change: Well, we launched it really in full at the beginning of this year. We had a very strong offering
Speaker Change: but not a completely full offering. I'd say we're at about 95 percent, 90-95 percent of the feature functionality now that we wanted to have.
Speaker Change: It's a new muscle for a lending organization to then ask for deposits. And so we started slow. We started with education of our people.
Speaker Change: We then would educate our customers and we've started to see that ramp if you look at Walt's five-quarter trend.
Speaker Change: started at about 20% of customers. Now, it's up to 35 and we continue to see that growing every month and every quarter.
It's hard to move a checking account.
Speaker Change: That's why we're most focused, not completely, but most focused on new customers. Because at that moment of transition, at that moment when we are putting capital in their hands,
Speaker Change: to grow business is the best time for us to be able to ask.
Speaker Change: for the opportunity for a full relationship with them, and we're starting to see really, really good success. So, we've talked about before that there's no reason over the next several years we shouldn't have 10 to 15 percent.
Speaker Change: of our customer deposit mix and checking accounts. That's our goal.
Speaker Change: It takes a while to ramp that up, but going from virtually nothing to 215 million in balance is a pretty good start, so we're excited about where we can take it. And BJ, I think we have a secret weapon, too.
Speaker Change: Wilmington, North Carolina. Southeastern North Carolina has 350,000 folks and last week we hired three experienced bankers to attack small business Wilmington and others.
Speaker Change: I have been told, I'm not sure if it's true or not, that the big guys like V of A and Wells do not have any small business lending officers in our market area and we're going to go like hell to see if we can promote ourselves as the only hometown bank where we live.
[inaudible]
That's great.
Speaker Change: If I could squeeze one more in, I wanted to touch on the small-dollar SBA. Obviously, we're still in the early innings here. I'm curious what you're seeing, how it's performed relative to expectations, any tweaks you need to put in into the process and the model, and just, you know, I think you did $125 million this year. What do you think we can do in 2025?
[inaudible]
David Pfister: So, David, I'll start. We did $125 million of small-dollar loans after doing virtually
None last year.
and quite candidly with
Not a lot of technology.
David Pfister: Our technology teams were ramping up as quickly as they could.
David Pfister: to help assist in our processes, and they put some things in place.
But most of that $125 million was
David Pfister: sheer grit and grind from our people getting out there, talking to customers, getting web leads, following up on those leads, and trying to create as quick and efficient and safe a process as we possibly could to stand up this business.
Now, we've got fantastic technology.
David Pfister: from origination all the way through servicing in our Live Oak Express.
David Pfister: and Enable are people that have been doing a lot of everything from the beginning of the process to the end.
David Pfister: to actually spend a lot more time on prospecting and underwriting to get more through the pipeline. So all of that to say, if we did 125 this year,
David Pfister: would be disappointed if we didn't do more than double that.
in 2025.
and we'll continue to, and we'll continue to ramp.
Terrific. Thanks, everybody.
Thanks David. Thanks everybody.
David Pfister: There are no further questions at this time. I will now turn the call over to Chip Mahan for closing remarks.
David Pfister: Well, we thank everyone for dialing in today, and we look forward to seeing you in April.
Good day.
David Pfister: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.