Q1 2025 Live Oak Bancshares Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Q1 2025 Live Oak Bancshares Earnings Call. At this time, all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, and if at any time during this call you require immediate assistance, please press star zero for the operator.
Good morning, ladies and gentlemen, and welcome to the Q1 2025 live Oak Bancshares earnings call. At this time all participant lines are in a listen only mode. Following the presentation. We will conduct a question and answer session and if at any time during this call you'll be quiet either assistance. Please press star zero.
Operator: Also note that this call is being recorded on Thursday, April 24, 2025.
Speaker Change: Oh for the operator also note that this call is being recorded on Thursday April 24, 2025, I would now like to turn the conference over to General Counsel and Chief risk Officer.
Gregory Seward: I would now like to turn the conference over to General Counsel and Chief Risk Officer Craig Seward. Please go ahead, sir. Thank you. Good morning, everyone.
Greg Seward: Greg Seward. Please go ahead Sir.
Speaker Change: Thank you and good morning, everyone. Welcome to live Oak's first quarter 2025 earnings Conference call. We are webcasting live over bare it out in 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> Bank Dot com.
Gregory Seward: Welcome to Live Oak's first quarter 2025 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.liveoakbank.com and go to the events and presentations tab for supporting material. Our first quarter earnings release is also available on our website.
Greg Seward: And go to the events and presentations tab for supporting adherence.
Greg Seward: Our first quarter earnings release is also available on our website.
Gregory Seward: Before we get started, I'd like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainty. Factors that may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call and in our SAC file. We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of today's call.
Greg Seward: 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 may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call and in our SEC filings.
Greg Seward: We do not undertake to update the forward looking statements to reflect the impact of circumstances or events that may arise. After the end of today's call.
Gregory Seward: Information about any non-GAAP financial measures referenced, including reconciliation of those measures to GAAP. can also be found in our SEC filings and in the presentations here.
Greg Seward: Information about any non-GAAP financial measures referenced including reconciliation of those measures to GAAP measures can also be found that our SEC filings and in the presentation materials.
James Mahan: I will now turn the call over to Chip Mahan, our Chairman and Chief Executive Officer. Thanks, Greg. And good morning.
Greg Seward: I will now turn the call over to chip Mahan, our chairman and Chief Executive Officer.
Speaker Change: Thanks, Greg and good morning, as well as our custom last time I'll be handing the mic over to B J Lo should all Pfizer for their prepared comments.
James Mahan: As was our custom last time, I'll be handing the mic over to B.J. Losch and Rolf Pfeiffer for their prepared comments. Chief Credit Officer Michael Carnes and I will be joining for the Q&A. Let's go, B.J.
Speaker Change: <unk> credit officer, Michael Karnes, and I will be joined for the Q&A, let's.
Speaker Change: Let's go to BJ, Thanks chip.
William Losch: Thanks, Jeff.
William Losch: Good morning, everyone. Thanks for joining the call. Let's get started on slide four. Strong momentum continued in the first quarter in many areas across Live Oak, as we continue to be proactive with credit reserving and navigate an uncertain environment. As you see on slide 5, our strong PP&R growth continues with excellent loan and deposit production leading to strong revenue growth well in excess of expenses, and I expect this to continue. Key growth initiatives such as Live Oak Express, which is our small-dollar SBA loan program, and acquiring and checking relationships are continuing to ramp. On slide 6, you see evidence of our focus on building full relationships with our customers through primary checking relationships.
Speaker Change: Good morning, everyone. Thanks for joining the call, let's get started on slide four.
Speaker Change: Strong momentum continued in the first quarter in many areas across live oak.
Speaker Change: As we continue to be proactive with credit reserving and navigate an uncertain environment.
Speaker Change: As you see on slide five our strong P. PNR growth continues with excellent loan and deposit production, leading to strong revenue growth well in excess of expenses and I expect this to continue.
Speaker Change: Key growth initiatives, such as live Oak Express, which is our small dollar SBA lending program and acquiring checking relationships are continuing to ramp on slide six you see evidence of our focus on building full relationships with our customers through primary checking relationships are checking balances stood at 200.
William Losch: Our checking balances stood at $279 million at quarter end, more than four times the levels of just one year ago. As you can see, we are adding incremental checking and savings accounts as we add loan customers, with the percentage of customers with full relationships, both a loan and a deposit, doubling from last Much more is to come on this front over the next several years, which will create deeper relationships, more stability for our cost of funds and NIM, and provide much greater real-time insight into our borrower's cash flow. We remain quite proud of the unique diversification of our lending portfolio, and as you see on slide 7, 33% of our loans are government-guaranteed, which provides significant comfort and quality of our risk profile, and in addition, our portfolio is well-diversified with low-average loan sizes.
Speaker Change: 79 million at quarter end more than four times the levels of just one year ago.
Speaker Change: Can see we are adding incremental checking and savings accounts as we added loan customers with the percentage of customers with full relationships both alone and in deposit doubling from last year much.
Speaker Change: Much more to come on this front over the next several years, which will create deeper relationships more stability for our cost of funds in them and provide much greater real time insight into our borrowers cash flows.
Speaker Change: We remain quite proud of the unique diversification of our lending portfolio and as you see on slide 733% of our loans are government guaranteed which provides significant comfort and quality of our risk profile and in addition, our portfolio is well diversified with a low average loan sizes.
William Losch: Nevertheless, elevated provision, as shown on slide eight, continues to weigh down our current profitability. As we've discussed before, with our loan growth continuing at a high double-digit pace, CECL requires us to book estimated life of loan provision on day one before we make a penny of income. Trying to look at this glass half full, we call this good provision. which usually makes up anywhere between 15% and 30% of our provision each quarter, which is not an insignificant amount. In addition, we continue building reserves as we work through a small business credit cycle we entered in the latter part of last year.
Speaker Change: Nevertheless, the elevated provision as shown on slide eight continues to weigh down our current profitability.
Speaker Change: As we've discussed before with our loan growth continuing at a high double digit pace CCL requires us to book estimated life of loan provision.
Speaker Change: Day, one before we make a penny event.
Speaker Change: Trying to look at this glass half full we call. This good provision, which usually makes up anywhere between 15 and 30% of our provision each quarter, which is not an insignificant amount.
Speaker Change: In addition, we continue building reserves as we worked through a small business credit cycle. We entered in the latter part of last year and as a result, you can see on our chart our provisioning in excess of charge offs has resulted in an increase to the allowance for credit losses of $51 million over the last.
William Losch: And as a result, you can see on our chart, our provisioning in excess of charge-offs has resulted in an increase to the allowance for credit losses of $51 million over the last five quarters. That feels quite healthy.
Speaker Change: Five quarters.
Speaker Change: It was quite healthy.
William Losch: We have started to see reasons for optimism in the first quarter, which Walt and Michael will discuss further, but the uncertainty in the current economic environment keeps us cautious and conservative in the near future. We take great pride in our credit quality focus and always strive to be better, but it is also important to have perspective beyond our four walls. And as you can see on slide nine, our default rates and track record on charge-offs relative to the SBA industry remain best in class.
Speaker Change: We have started to see reasons for optimism in the first quarter, which Michael will discuss further but the uncertainty of the current economic environment keeps us cautious and conservative in the near term we.
Speaker Change: We take great pride in our credit quality focused and always strive to be better, but it's also important to have perspective beyond our four walls and as you can see on slide nine our default rates and track record on charge offs relative to the SBA industry remain best in class.
William Losch: On slide 10, I wanted to highlight the strength of our capital position because of the uniqueness of our balance. Starting with the fact that over 40% of our assets are cash or government guaranteed, far in excess of industry peers, SHIP has always reminded us to remain focused on the importance of understanding the true risk on the balance sheet, the unguaranteed loans, and what our reserve and capital coverage is relative to those loans. We affectionately call this the Mahan Ratio, and as you can see, at almost 17% it is quite strong in addition to our healthy regulatory ratios and gives us great confidence in any operating environment.
Speaker Change: On slide 10, I want to highlight the strength of our capital position because of the uniqueness of our balance sheet.
Speaker Change: Starting with the fact that over 40% of our assets or cash or government guaranteed.
Speaker Change: Far in excess of industry peers.
Speaker Change: There's always reminded us to remain focused on the importance of understanding understanding the true risk on the balance sheet, the UN guaranteed loans and what our reserve and capital coverage is relative to those loans, we affectionately call. This the <unk> ratio and as you can see at almost 17% is quite strong.
Speaker Change: In addition to our healthy regulatory ratios and gives us great companies in any operating environment.
William Losch: Finally, on slide 11, there's been a lot of news on government agencies lately, including the SBA. Here's what we know. A, the SBA is alive and well. We have not yet seen impacts from DOJ-related staffing changes at the SBA, though we have heard positive early feedback on the DOJ efforts related to future technology upgrades at the agency.
Speaker Change: Finally on slide 11.
Speaker Change: Been a lot of news on government agencies lately, including the SBA, Here's what we know.
Speaker Change: SBA is alive and well.
Speaker Change: We have not yet seen impacts from data related staffing changes at the SBA that we have very positive early feedback on the Doge efforts related to future technology upgrades at the agency.
William Losch: As expected, rule changes implemented during the prior administration will be rolled back. including reinstatement of small dollar borrower fees and several other changes, none of them are surprising or onerous to us. In fact, we believe that it may give us a competitive advantage given how we currently do business relative to other participants in the industry.
Speaker Change: And as expected rule changes implemented during the prior administration will be rolled back <unk>.
Speaker Change: Including reinstatement of small dollars borrower fees and several other changes none of them are surprising or on a risk to us in fact, we believe that it may give us a competitive advantage given how we currently do business relative to other participants in the industry.
Walter Phifer: With that, Walt, how about running through some of the financial highlights for the class? Thanks, PJ.
Speaker Change: With that well how about running through some of the financial highlights for the quarter. Thanks, Vijay and good morning, everyone.
Walter Phifer: Good morning, everyone. Let's get started on slide 14 with an overview of our Q1 performance. Our commentary and expectations we set forth in our last earnings call noted that we expected our top-line growth momentum to continue into 2025, driven by strong loan production and balance growth, margin expansion, and secondary market aided by our efforts to expand small loan SBA origination. This top line growth will continue to drive our favorable core operating leverage growth. As we have experienced in prior years, we expected our expenses to increase in Q1 compared to Q4 as annual salary adjustments took effect.
Speaker Change: Let's get started on slide 14, with an overview of our Q1 performance.
Speaker Change: Our commentary or expectations, we set forth at our last earnings call noted that we expected our top line growth momentum to continue into 2025.
Speaker Change: Driven by strong loan production and balance growth margin expansion and secondary market sales.
Speaker Change: It is by our efforts to expand small loans SBA originations.
Speaker Change: This top line growth will continue to drive our favorable core operating leverage growth.
Speaker Change: We have experienced in prior years, we expected our expenses to increase in Q1 compared to Q4 as annual salary adjustments adjustments took effect.
Walter Phifer: And we expect that our provision expense will remain elevated as we continue to work through the small business credit cycle. All of these expectations held true in the first quarter. Our earnings per share of $0.21 was similar to last quarter and was the result of a healthy PPNR and growth quarter offset by an elevated provision. As BJ noted, our core PNR of $50 million was up 27% year over year, driven primarily by an increasing net interest income, aided by strong balance a strong and consistent secondary market generating reoccurring gain on sale, and continued focus on expense.
Speaker Change: And we expect that our provision expense to remain elevated as we continue to work through the small business credit cycle. All of these expectations hold true in the first quarter.
Speaker Change: Our earnings per share of <unk> 21 was similar to last quarter and was the result of a healthy PNR in gross quarter offset by an elevated provision.
As BJ noted our core <unk> of $50 million was up 27% year over year, driven primarily by increasing net interest income aided by strong balance growth.
Speaker Change: Our strong and consistent secondary market generating reoccurring gain on sale and a continued focus on expenses.
Walter Phifer: As BJ just highlighted, we typically see our core PP&R step down from Q4 to Q1 each year before continuing on its up and to the right trajectory, and we expect 2025 to be no different. A few key highlights to note within our Q1 PP&R. Loan balance growth from strong production activity, coupled with better than expected margin expansion, enabled our net interest income to grow 3% in link order and 12% compared to Q1 of 2024. Our secondary market sales increased quarter over quarter in Q1 as our lending teams continue to demonstrate disciplined pricing while also focusing on small loan SBA origination.
Speaker Change: Jay just highlighted we typically see our core <unk> step down from Q4 Q1, each year before continuing on its up into the right trajectory and we expect 2025 to be no different.
Speaker Change: Few key highlights to note within our Q1 <unk>.
Speaker Change: Loan balance growth from strong production activity, coupled with better than expected margin expansion enabled our net interest income grew 3% linked quarter and 12% compared to Q1 of 2024.
Speaker Change: Our secondary market sales increased quarter over quarter in Q1, as our lending teams continue to demonstrate disciplined pricing, while also focusing on small loans SBA origination.
Walter Phifer: And our core operating expenses were up quarter over quarter, driven primarily by annual salary adjustments, seasonal taxes, as well as good costs related to incremental volume. Growth on both loan and deposit fronts remain strong. Q1 2025 loan originations of $1.4 billion was our largest Q1 of loan production in bank history. This resulted in a late quarter loan growth of just below $500 million, or approximately $500 million. and our pipeline remains healthy, indicating that despite the economic uncertainty, we have not yet seen a decline in potential borrowers applications. The first quarter has historically been a strong growth quarter for our customer deposits, and 2025 has continued this trend with our customer deposits growing approximately 8% in late quarters.
Speaker Change: In our core operating expenses were up quarter over quarter, driven primarily by annual salary adjustments seasonal taxes as well as good cost related to incremental volumes.
Speaker Change: Growth on both loan and deposit fronts remained strong Q1, 2020 fives loan originations of $1 4 billion.
Speaker Change: It was our largest Q1 of loan production in <unk> history.
Speaker Change: This resulted in a linked quarter loan growth of just below $500 million or.
Speaker Change: Approximately 5%.
Speaker Change: And our pipeline remains healthy.
Speaker Change: <unk> that despite the economic uncertainty, we have not yet seen a decline in potential borrowers appetite.
Speaker Change: The first quarter has historically been a strong growth quarter for our customer deposits. In 2025 is to continue this trend with our customer deposits growing approximately 8% linked quarter.
Walter Phifer: As BJ highlighted, we also continue to build momentum with our business checking product as these non-interest bearing balances have increased 31% in late quarters. The major themes influencing our provision expense in the first quarter are consistent with comments made by both Vijay and I on our last earnings. We are a growing bank, and as such, our group provision, as BJ just noted, will increase nationally with our group. And this is a difficult environment for small businesses. Even with the 150 points of best cuts in the second half of 2024, rates still remain elevated for many borrowers that originated their loans back in 2020 through 2022.
Speaker Change: BJ highlighted we also continue to build momentum with our business checking product as these non interest bearing balances have increased 31% linked quarter.
Speaker Change: The major themes influencing our provision expense in the first quarter are consistent with comments made by both P. J and I on our last earnings call. We are a growing bank and as such are good provision as BJ just noted increased naturally with our growth.
Speaker Change: And this is a difficult environment for small businesses.
Speaker Change: Even with the 100 basis points fed cuts in the second half of 2024 rates still remain elevated for many borrowers that originate those loans back in 2023 2022.
Walter Phifer: inflation levels have proven to be more stubborn than expected. COVID-era government stimulus benefits are dwindling, and now they face a potential new challenge with tariffs. We continue to work with our borrowing base to help them navigate this environment, while also ensuring that our reserves adequately consider the potential risks that can arise.
Speaker Change: Inflation levels that are proven to be more stubborn than expected.
Speaker Change: Moving to our government stimulus benefits between the twin lakes and now that they've had some new challenge with tariffs.
Speaker Change: We continue to work with our borrowing base to help them navigate this environment, while also ensuring that our reserved adequately consider the potential risk that can.
Walter Phifer: Now let's unpack the quarter performance a bit more on the following slide. Slide 15 highlights our loan originations by vertical and digital. As shown on the right-hand side of the... Our Q1 2025 loan origination totaled approximately $1.4 billion, relatively flat in Q4 of 2024, and 73% higher than Q1 of 2024. 60% of Q1's loan production came via our small business banking team, primarily in the form of SBA 7A loans, a 55% increase year-over-year. And 40% of our Q1 loan production came via our commercial lending team, a 110% increase compared to the prior year. You can see the year-over-year vertical view on the left-hand side of the page, with more than half of our verticals originating more production in Q1 of 2025 than they did in Q1 of 2024.
Speaker Change: Now, let's unpack the quarter performance a bit more on the following slides.
Speaker Change: Slide 15 highlights our loan originations by vertical business unit as shown on the right hand side of the page our.
Speaker Change: Our Q1 2025 loan originations totaled approximately $1 4 billion relative.
Speaker Change: Relatively flat to Q4, 2024, and 73% higher than Q1 of 2024.
Speaker Change: 60% in Q1 for loan production can be our small business banking team primarily in the form of SBA seven loans, a 55% increase year over year.
Speaker Change: And 40% of our Q1 slow production can be our commercial lending team of 110% increase compared to the prior year.
Speaker Change: You can see the year over year financial you can see the year over year vertical view on the left hand side of the page with more than half of our vehicles originated more production in Q1 of 2025 than they did in Q1 of 2024.
Walter Phifer: Slide 16 illustrates the quarter-over-quarter loan and deposit balance growth, highlighting the strong, consistent growth trends on both fronts. Loan balances were up 5% in the quarter and 20% compared to the prior year. Continuous, consistent loan growth. As I mentioned, we had a very strong Q1 in terms of customer deposit growth. The approximately 8% quarter-over-quarter growth was nearly double the Q1 growth we experienced in Q1 of 2024.
Speaker Change: Slide 16 illustrates the quarter over quarter loan and deposit balance growth highlighting the strong consistent growth trends on both fronts.
Speaker Change: Loan balances were up 5% linked quarter, and 20% compared to the prior year continuous consistent loan growth.
Speaker Change: As I mentioned, we had a very strong Q1 in terms of customer deposit growth the approximately 8% quarter over quarter growth was nearly double the Q1 growth we experienced in Q1 of 2024.
Walter Phifer: Net interest, income, and margin trends are highlighted on slide 17.
Speaker Change: Net interest income and margin trends are highlighted on slide 17 in.
Walter Phifer: In Q1 2025, we saw our quarterly net interest income eclipse $100 million for the first time in Bank with approximately $101 million of net interest income. Our net interest margin also expands five basis points to 3.20%. A few other highlights from the Consistent with the commentary from our last earnings call, in addition to Fed actions, our loan growth will continue to be the driving factor influencing our net interest income going forward. Our marketing continues to be supported by the great pricing discipline of our lending Our loan production yields of approximately 8.14%, noted in the second bullet on the top right, are approximately 80 basis points above our current portfolio yield of 7.35%, as shown in the top of the table in the middle.
Speaker Change: In Q1 2025, we saw our quarterly net interest income eclipsed $100 million for the first time in <unk> history with approximately $101 million.
Speaker Change: Net interest income.
Speaker Change: Our net interest margin also expanded five basis points to 320%.
Speaker Change: A few other highlights from the fees consistent with commentary from our last earnings call. In addition to fed actions our loan growth will continue to be the driving factor influencing our net interest income going forward.
Speaker Change: Our margin continues to be supported by the great pricing discipline of our lending teams are loan production yields of approximately $8. One 4% noted in the second bullet on the top right. Our approximately 80 basis points above our current portfolio yield of 735% as shown in the top of the table in the middle of the page.
Walter Phifer: There are two primary factors driving our cost of funds. First, our growth. We continue to put up strong loan growth results each quarter, and the pipeline is not slowing down. As such, we must position our products in the market to remain competitive to support our strong loan origination. Secondly, while we have seen more downward repricing activity in both the consumer and business savings markets. The funding market in general remains competitive, and there continues to be an influx of new market entrants. Our 20% downwards beta on consumer savings has been intentional, as that is where we are seeing the most robust growth thus far.
Speaker Change: There are two primary factors driving our cost of funds versus our group.
Speaker Change: We continue to put up strong loan growth results each quarter and the pipeline is not slowing down as such we must position our products in the market to remain competitive to support our strong loan origination.
Speaker Change: Secondly, while we have seen more downward repricing activity in both the consumer and business savings market.
Speaker Change: The funding market in general remains competitive and it continues to be an influx of new market entrants.
Speaker Change: Our 20% downward speed of consumers saving has been intentional as that is where we're seeing the most robust growth thus far.
Walter Phifer: Meanwhile, we have been able to reprice our business savings deal over time, now at a 50% data, which is largely in line with a broader business savings market. We are continuing to focus on strategies to lower our savings rates faster while still achieving the growth goal. Lastly, on this page, the CD market continues to provide near-term tailwinds as our CDs have renewed into rates approximately 84 basis points below their maturing rates as highlighted in the middle of the page.
Speaker Change: Meanwhile, we have been able to reprice, our business savings down overtime now at a 50% beta which is largely in line with the broader business savings market betas.
Speaker Change: We're continuing to focus on strategies to lower savings rate faster, while still keeping the growth needed.
Speaker Change: Lastly on this page the CD market continues to provide near term tailwind as our Cds have renewed into rates approximately 84 basis points below their maturing grief as highlighted in the middle of the beach.
Walter Phifer: Guaranteed loan sale trends are shown on slide eight. 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: Guarantee loan sale trends are shown on slide 18.
Speaker Change: The demand for government guaranteed SBA loans in the secondary market remains strong providing consistent gain on sale revenue and recycling liquidity back into the bank with.
Walter Phifer: We sold $266 million of SBA loans in Q1 for a 7% average premium, generating approximately $19 million of gain on sale. We are also beginning to see the benefits of our focus on small loan SBA origination, as small loan SBA sales provide for approximately 18% of the loan sold and 22% of our Q1 gallon sales.
Speaker Change: We sold $266 million of SBA loans in Q1 for a 7% average premiums generating approximately $19 million of gain on sale.
Speaker Change: We are also beginning to see the benefits of our focus on small loans SBA origination a small loan SBA sales provides for approximately 18% of the loan sold and 22% over Q1 gain on sale.
Walter Phifer: Expense trends are detailed on slide 19. with expenses increased approximately 4% in late quarter, as expected.
Speaker Change: Expense trends are detailed on slide 19 with.
Speaker Change: With expenses <unk> expenses increased approximately 4% linked quarter as expected. This increase was due to the both annual salary adjustments taking effect typically the largest driver of increases from Q4 Q1, each year seasonal increase in FICA payroll taxes as well as good cost other growth driven.
Walter Phifer: This increase was due to the both annual salary adjustments taking effect, typically the largest driver of increases from Q4 to Q1 each year, seasonal increase in FICA payroll taxes, as well as good costs that are growth-driven. No change to our expense management strategy since our last earnings commentary. We are focused on achieving a positive annual operating leverage by aligning both current expenses with current revenue.
Speaker Change: No change to our expense management strategy since our last earnings commentary, we are focused on achieving a positive annual operating leverage by aligning both current expenses with current revenues.
Walter Phifer: Yeah, we are cognizant that we are a growth bank, and as such, we will continue to focus on good calls to support our lending and funding growth, invest in our back office to support our complexity, and involve our technology and product shed.
Speaker Change: Yes, we are cognizant that we are a growth bank and as such we will continue to focus on good cost to support our lending and funding growth invest in our bank back office to support our complexity and evolve our technology and product strategy.
Speaker Change: Yeah.
Michael Cairns: Credit quality trends are detailed on slide 20. Our current loan portfolio is split 65% and 35% in favor of small business banking over a commercial lending segment, with, as BJ noted, approximately one-third of the total portfolio government guaranteed. Despite the elevated provisioning expense for the quarter, and us still working through the small business credit cycle that we discussed on our last earnings call, we are starting to see some positive signs as we aggressively monitor our portfolio. Past dues remain low in Q1 of 2025 at $10 million or approximately nine basis points of our total held for investment loan portfolio.
Speaker Change: Credit quality trends are detailed on slide 20.
Speaker Change: Our current loan portfolio is split 65%, 35% compared with small business banking over our commercial lending segment with its BJ noted approximately one third of the total portfolio of government guarantee.
Speaker Change: Despite the elevated provision expense for the quarter and are still working through the small business credit cycle that we discussed on our last earnings call. We are starting to see some positive signs as we aggressively monitor our portfolio.
Speaker Change: Past dues remained low in Q1 of 2025 or $10 million or approximately nine basis points of our total held for investment loan portfolio that is the second consecutive quarter of loan past dues.
Michael Cairns: That is the second consecutive quarter of one past two.
Michael Cairns: of Lowe Patu's and is a good friend. Although non-accruing and classified loans increase quarter over quarter, the rate at which they have increased has slowed compared to the second half of 2024. Total classified loans increased five basis points quarter over quarter, much less than the increase in the second half of 2024. This is encouraging as we did not see a substantial deterioration in the portfolio and downgrade migration within the quarter. And while our net chargeoffs historically have been choppy, we continue to actively identify impairments and generally reserve for them ahead of chargeoffs. Said another way, you may see instances of larger net chargeoffs in future periods, yet generally the bulk of those chargeoffs have already been reserved for prior to the chargeoff event.
Speaker Change: Low past dues and has a good trend.
Speaker Change: Although non accruing classified loans increased quarter over quarter the rate at which they have increase has slowed compared to the second half of 2024.
Speaker Change: Total classified loans increased five basis points quarter over quarter much less than the increase in the second half of 2024. This is encouraging as we did not see a substantial deterioration in the portfolio and downgrade migration within the quarter.
Speaker Change: Meanwhile, our net charge offs historically have been choppy, we continue to actively identify impairments and generally reserved for them ahead of charge offs said another way you may see instances of larger net charge offs in future periods, yes, generally the bulk of those charge offs have already been reserved for prior to the charge off the bat.
Michael Cairns: We still have some road to cover within the current small business credit cycle and are monitoring the macroeconomic uncertainty and potential impacts, yet we believe that our current reserve levels are healthy and well-positioned given the risk within the portfolio.
Speaker Change: We saw some royalty covered within the current small business credit cycle and are monitoring the macroeconomic uncertainty and potential impacts yes, we believe that our current reserve levels are healthy and well positioned given the risk within the portfolio.
William Losch: Thank you all for your time, and with that, I will turn it back over to BJ for his closing comments before we head to Q&A. Good deal. Thanks, Walt. It's always a good time to focus on controlling what we can control, and that's exactly what we're doing. Great things are happening at Live Oak, and we will continue to help small businesses. manage, grow, and prosper.
Speaker Change: Thank you all for your time and with that I will turn it back over to BJ for his closing comments before we had a unit deal. Thanks, Paul So easy.
BJ: A good time to focus on controlling what we can control and that's exactly what we're doing great things are happening at live Oak and we will continue to help small businesses.
BJ: Manage grow and prosper so with a big thank you to all LIBOR occurs in our customers, let's take some questions.
Operator: So with a big thank you to all Live Oakers and our customers, let's take some questions. Thank you, sir.
BJ: Thank you, Sir ladies and gentlemen, if you do have any questions. Please press star followed by one on you touched on the phone.
Operator: Ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touchtone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by 2.
BJ: You will then hear a prompt that Youre Han has been raised and should you wish to decline from the polling process. Please press star followed by two.
Operator: And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star 1 now if you have any questions.
BJ: Speaker phone you will need to lift the handset first before.
BJ: Before pressing any keys. Please go ahead and Bristow are now if you have any questions.
Crispin Love: First, we will hear from Crispin Love at Piper Sandler. Please go ahead. Thank you, and good morning everyone. First, can you just give us your latest thoughts on the margin and NII trajectory? Margin expanded in the quarter, and in the past you've talked about getting to around a 350 margin by the end of the year, early next. So, curious on any update there, and how you'd expect the cadence of the margin to be in this environment, which I understand is uncertain throughout the rest of the year. Thanks.
Speaker Change: First we will hear from Kristen <unk> Piper Sandler. Please go ahead.
Speaker Change: Thank you and good morning, everyone. First can you just give us your latest thoughts on the margin and NII trajectory margin expanded in the quarter in the past you've talked about getting to around 350 margin by the end of the year. Early next I was curious on any update there and how you would expect the cadence of the margin to be in this <unk>.
Speaker Change: Environment, which I understand is I'm sorry on it throughout the rest of the year. Thanks.
Walter Phifer: Hey, Crispin, this is Walt. Thanks for the question. Yeah, I think you hit on the last part of that. This is an extremely difficult environment right now to give any kind of forward-looking guidance when it comes to the margin. I think the best approach right now is just to kind of take a step back and generally look at our interest rate risk position and our profile. We're an asset-sensitive bank with both our lending and our funding primarily tied to the short end of the perspective and apply whatever economic forecast you think may make sense. Our aspiration has always been up and to the right, and that continues.
Speaker Change: Hey, Kristen this is Paul Thanks for the question, Yes, I think you hit on it the last part of that this is a extremely difficult environment right now, but any kind of forward looking guidance. When it comes to the margin I think the best approach right now.
Speaker Change: Take a step back generally look at our interest rate risk position at our profile.
Speaker Change: We are an asset sensitive bank with both our lending and our funding primarily tied to the short end of the curve. So as you think kind of going forward I think the best approach is to take that knowledge and that perspective ray imply kind of whatever.
Speaker Change: Im forecast you've taken maybe makes sense.
Speaker Change: Our aspiration has always been up into the right and that continues.
Walter Phifer: But I think right now with the market and the way it is, you've essentially got to control what you can control, as BJ noted, and kind of go from there.
Speaker Change: I think right now with the market and the way it is.
Speaker Change: Essentially got to control what can you control as BJ noted and kind of go from there.
Speaker Change: Okay.
Crispin Love: Thanks, Walt. I appreciate that.
Speaker Change: Thanks, Paul I appreciate that and then just one last question for me on loan growth and your pipeline you've continued to put up solid growth in loans and originations and I know you're a growth bank, but do you believe that now is the right time to be growing meaningfully just considering the uncertain macro where an <unk>.
William Losch: And then just one last question for me on loan growth and your pipelines. You continue to put up solid growth in loans and originations, and I know you're a growth bank, but do you believe that now is the right time to be growing meaningfully, just considering the uncertain macro we're in and the small business credit cycle you've mentioned last quarter, this quarter, and that you're going through? Yeah, great question, Crispin. You know, we are constantly looking at the quality of the production that we're seeing, and we're still very comfortable with the activity on both the small business side and the commercial side.
Speaker Change: The small business credit cycle, you've mentioned last quarter this quarter and that you are going through.
Speaker Change: Yes, great question.
Speaker Change: This spin we are constantly looking at the quality of the production that we're seeing in.
Speaker Change: We're still very comfortable with the activity on both.
Speaker Change: Small business side and the commercial side, we are very active in terms of understanding the credit box being disciplined around.
William Losch: We are very active in terms of understanding the credit box, being disciplined around what we will approve and what we won't approve. And so we continue to constantly monitor that, but we continue to feel comfortable with the activity and the growth that we're seeing.
Speaker Change: What we.
Speaker Change: What will approve and what we want improve.
Speaker Change: And so we continue to constantly monitor that but we continue to feel comfortable with the activity and the and the growth that we're seeing.
Crispin Love: Thanks, BJ. I appreciate you both taking my questions. Thanks, Crispin.
PJ: Thanks, PJ I appreciate you taking my questions.
PJ: Thanks, Chris.
Timothy Switzer: Next question will be from Tim Switzer at KBW. Please go ahead. Hey, good morning, guys. Thank you for taking my question. It should be clear.
Next question will be from Tim Switzer K BW. Please go ahead.
Tim Switzer: Hey, good morning, guys. Thank you for taking my questions.
PJ: Okay.
William Losch: I wanted to ask a few about some of the recent changes made at the SBA, my first one being about the impact of the return of the 55 basis points on the lender's annual service fee. Can you walk us through on, does that impact loans that have already been originated? And how is that fee paid? Is that paid by you guys now, or are you able to pass that on to people who have purchased the loan, meaning that can maybe result in an increase in expenses for you? Yeah, so it doesn't impact existing loans. And so small dollar borrower fees that are being reinstituted are paid by the borrower.
PJ: I wanted to ask if to you about some of the recent changes made at the SBA.
PJ: My first one being about the impact of the return to the 55 basis points on the lenders annual service fee.
PJ: Can you walk us through on does that impact loans that have already been originated.
PJ: And how is that fee paid is that paid by you guys. Now are you able to pass that on to people who have purchased alone.
PJ: Meaning that can maybe result in a increase in expenses for you.
PJ: Yes, so it doesn't impact.
PJ: Existing.
PJ: Loans and so.
PJ: Small dollar borrower fees that are being oriented instituted are paid by the borrower.
William Losch: as part of the loan. They're still relatively small. They've got a gradation that essentially starts with a lower percentage for small-dollar loans and goes higher as the loan is larger. We don't see a material impact on this as it becomes just part of the lending closing package. It's essentially a rollback to what the Trump administration had prior to the Biden administration. And so that's kind of how we all normally operated before. And so as long as that's very clear to borrowers, we don't see that as a particular issue. We do think that on balance, this is actually going to be better for us than other participants in the industry.
PJ: As part of the alone they are still relatively small.
PJ: They've got a gradation that essentially starts with a lower percentage for small dollar loans and goes.
PJ: Higher as the loan is larger we don't see a material impact on this as it becomes just just part of the.
PJ: The lending.
PJ: Closing package.
PJ: It's essentially a rollback to what.
PJ: The Trump administration had prior to that.
PJ: By the administration and so that's that's kind of how we are normally operated before and so as long as that is very clear to borrowers we don't see that as a particular issue we do think that.
PJ: On balance this is actually going to be better for us than other participants in the industry as a matter of fact, we've already seen some smaller dollar lenders, particularly fintech oriented lenders or those that are heavily reliant on simply doing small dollar loans very quick.
William Losch: As a matter of fact, we've already seen some smaller dollar lenders, particularly fintech oriented lenders or those that are heavily reliant on simply doing small dollar loans very quickly without a lot of oversight or documentation already backing away because of the changes in the SOP. because we have always done SBA lending from a full underwrite perspective. We know exactly how to do that, and we're building technology to do it more efficiently and in an automated fashion.
PJ: <unk> without a lot of oversight of documentation already backing away because of the changes in the S&P <unk>.
PJ: Because we have always done.
PJ: Lending.
PJ: From a full underwrite perspective, we know exactly how to do that and we are building technology to do it more efficiently and in an automated fashion.
William Losch: So we think we're gonna be incredibly well-positioned to take advantage of disruption that might be caused by SOP change.
PJ: So we think we're going to be incredibly well positioned to take advantage of this.
PJ: Disruption that might be caused by S&P changes.
Timothy Switzer: Okay. I have a follow-up on those underwriting requirements you referenced, but I want to be clear on that lender's annual service fee. From my understanding, the SBA says that that cannot be passed on to the borrower.
PJ: Okay I have a follow up on those.
PJ: Underwriting requirements, you referenced but I wanted to be clear on that lenders annual service fee from my understanding the SBA says that that cannot be passed on to the borrower.
William Losch: So that 55 basis points that's paid each year that got re-implaced, can you just explain, I guess, who exactly is paying that to the SBA? And then if you have any ability to pass that on to anyone else? That's been going on for years. The 55 basis point trail is that and the origination fees from the program.
PJ: So that 55 basis points, that's paid each year that got re re in place can you can you just explain I guess, who exactly is pain that to the SBA and then if you have any ability to pass that on to anyone else.
PJ: Okay.
PJ: That's been going on for years, So 55 basis points <unk> that in the.
PJ: Origination fees from the program.
William Losch: You know, it was unprecedented on October 31st of 2023 when the Biden administration basically came in and said every loan under a million dollars, no more origination fee, every loan under $500,000, you do not have to take all available collateral, and we're just going right back the way it's been for 70 years, right back the way it was in the first Trump administration. We did not make those changes, particularly under loans under $500,000, where we did what we always do, which is take a general security interest in all the collateral of the business as opposed to eliminating that way some of these charlatan lenders have done.
Speaker Change: It was unprecedented on October 31, 2023, with a bias administration basically jaimie and it says every loan under $1 million no more origination fee everyone. Another 500000, you may not have to take all available collateral and we're just going to write back the way it's been for 70 years right back the way it was the first drug administration.
Speaker Change: Did not make those changes, particularly under loans under $500.
Speaker Change: Where we did what we always do which is take a jingle security interest in all of the collateral of the business as opposed to <unk>.
Speaker Change: Eliminating that way some of these Charlotte the lenders have done.
Timothy Switzer: And as BJ said, it looks like some of those folks have lost their funds. Okay, got it. Thank you.
Speaker Change: As BJ said it looks like some of those folks have lost or funding.
Speaker Change: Okay got it thank you and on the change in the underway underwriting requirements.
William Losch: And on the change in the underwriting requirement. I know that the rollback of that was, or I guess the lower underwriting requirements was one of the main reasons Live Oak decided to get in to start Live Oak Express and get in the small dollar space because it would be a lot more efficient. How does this change the profitability of those loans for you?
Speaker Change: No that the rollback of that was I guess, the lower underwriting requirements as one of the main reasons Flybook decided to get in to start live oak expressing it in the small dollar space because it would be a lot more efficient.
Speaker Change: How does this change the profitability of those loans for you I know you get a better gain on sale margin, but now that you have to do the full underwriting.
William Losch: I know you get a better gain on sale margin, but now that you have to do the full underwriting, obviously this is your bread and butter, but can you talk about how that kind of changes the profitability of Live Oak Express relative to before? Yeah, so this is BJ. I really don't think it's going to change the profitability because I think as we've talked about several times, we're building technology to make it simpler, easier, faster, more efficient to do these loans and actually our larger dollar loans over time. I think what it's going to do, though, Tim, is instead of being able to close in a handful of days, which was our target because of, you know, easing of documentation and tax doc requirements and, you know, equity injections and those types of things on the smaller end, we're going to have to require those.
Speaker Change: This is your bread and butter.
Speaker Change: Can you talk about how that kind of change the profitability of live Oak express relative to before.
Speaker Change: Yes. So this is BJ I really don't think it's going to change the profitability because I think of as we've talked about several times, we're building technology to make it simpler easier faster more efficient to do these loans and actually are larger dollar loans over time.
Speaker Change: I think what it's going to do there Tim is.
Speaker Change: Instead of being able to close in a handful of days, which was our target because of.
Speaker Change: No.
Speaker Change: Easing documentation and tax tax stock requirements and.
Speaker Change: Equity injections and those types of things on the smaller end, we're going to have to require those so it's going to take a little bit more time to close these loans, but I don't think it's going to impact the profitability because of the automation that we are we are building.
William Losch: So it's going to take a little bit more time to close these loans, but I don't think it's going to impact the profitability because of the automation that we are building. I do think it's going to impact the profitability of those lenders that solely focused on small-dollar loans and built their platforms around just taking in applications and sending them through without a lot of oversight. We were doing a lot of this stuff already, even on the small-dollar loans. So again, I don't think it's going to impact our profitability. It might impact a little bit over the time to close.
Speaker Change: Do you think it's going to impact.
Speaker Change: The profitability of those lenders that solely focused on small dollar loans and built there.
Speaker Change: Platforms around just taking in applications and sending them through without a lot of oversight. We were doing a lot of this stuff already even on the small dollar loans. So again I don't think it's going to impact our profitability might impact a little bit of the time to close.
Timothy Switzer: Got it. Makes a lot of sense. Thank you for all the color. Thanks, Jim.
Speaker Change: Got it it makes a lot of sense. Thank you for all the color.
Tim Switzer: Thanks, Tim.
David Feaster: Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. Next, we will hear from David Feaster at Raymond James. Please go ahead. All right, good morning, everybody. David, you touched a lot, and we've touched on it a bit. You guys have been very proactive with credit. There's a lot of uncertainty and volatility in the market. I'm just curious, as you dig into this, where are you focused on? What are you watching more closely? Are there any segments where you're seeing more pressure, just high-level? How do you think about what segments may be more impacted from the trade wars and tariffs or even doge?
Speaker Change: Once again, ladies and gentlemen, if you do have any questions. Please press star followed by one on you touched on.
Speaker Change: Next we will hear from David Feaster Raymond James. Please go ahead.
David Feaster: Hi, good morning, everybody.
Speaker Change: Hey, David.
Speaker Change: You touched a lot and we've touched on it a bit in you guys have been very proactive with credit there is a lot of uncertainty and volatility in the markets I'm. Just curious as you dig into this where are you focused on what are you watching more closely and maybe where you are there any segments, where you're seeing more.
Speaker Change: Pressure just high level kind of how do you think about the impacts or what segments may may be more impacted from the trade wars and tariffs or even does in just your approach to managing those.
Speaker Change: Okay.
Michael Cairns: Yeah, good morning, David.
Speaker Change: Yeah, Good morning, David Michael currency Pet officer, Thanks for the question.
Michael Cairns: It's Michael Cairns, Chief Crime Officer. Thanks for the question. So yeah, we, I guess just to kind of give you some insight into what's been happening here at Live Oak over the last quarter, and what you can't see necessarily in the numbers yet today is our servicing team is super dedicated to understanding the portfolio, particularly on the SBA side of the equation, our small business borrowers, which is what has been impacted. And things haven't, there hasn't been additional stress or pressure. We're still navigating all of those things we talked about last quarter with economic challenges over the last few years and interest rates rapidly rising.
Speaker Change: So yes, I guess just to kind of give you some insight into what's been happening here at <unk> over the last quarter.
Speaker Change: And what you can't see necessarily in the numbers yet today.
Speaker Change: As.
Speaker Change: Our servicing team is super dedicated to.
Speaker Change: Understanding the portfolio, particularly on.
Speaker Change: On the SBA side of the equation, our small business borrowers, which is what has been impacted.
Speaker Change: Things happen.
Speaker Change: There hasnt been additional stress or pressure, we're still navigating all of those things we talked about last quarter with economic challenges over the last few years and interest rates rapidly rising and our teams are dialed in we're looking across the entire SBB portfolio and our commercial portfolio.
Michael Cairns: And our teams are dialed in. We're looking across the entire SBB portfolio and our commercial portfolio. We have a holistic approach. So there are industries, think about auto dealerships, government contracting, where we are skeptical of new transactions. given the uncertainties related to government action, but overall, our servicing team is all over the portfolio. And additionally, I'm inspired every day by the leadership of our servicing team. We have very customer focused leaders, but also credit minded. And so I'm cautiously optimistic about where we're headed from our portfolio standpoint. And the other things that give me confidence.
Speaker Change: So we have a holistic approach so.
Speaker Change: There are industries think about auto dealerships government contracting where we are skeptical of new transactions given the uncertainties related to government action.
Speaker Change: But overall, our servicing team is all over the portfolio. Additionally.
Speaker Change: I'm inspired every day by the leadership of our servicing team.
Speaker Change: Have very customer focused leaders, but also credit minded and so.
Speaker Change: I am cautiously optimistic about.
Speaker Change: Where we are headed.
Speaker Change: From a portfolio standpoint.
Speaker Change: And the other things that give me confidence as things.
William Losch: things that BJ and Walt have already identified, which is really having consecutive quarters of low past dues is an encouraging sign. And the classified loan pool and lack of growth there is also very encouraging for me. So I don't think we're out of the woods, but cautiously optimistic about where we're headed. Yeah, I'll just add a little bit, David, just overall, you know, in my opening comments, I talked about, you know, if you're a believer in Cecil, We are proactively building reserves and have well in excess of our charge-offs over the last several quarters. We, you can tell by how we are moving through the portfolio, whether it's looking at classified, whether it's looking at non-accruals, whether it's looking at how we're reserving, how we're tightening down on past dues, we are not kicking the can down the road.
Speaker Change: BJ and won't have already identified which is really havent consecutive quarters of low past dues.
Speaker Change: It's an encouraging sign.
Speaker Change: The flat classified loan pool.
Speaker Change: Lack of growth. There is also very encouraging for me. So I don't think rod of the woods.
Speaker Change: But.
Cautiously optimistic about where we're headed.
Speaker Change: Yes.
Speaker Change: A little bit David.
Speaker Change: Just overall in my opening comments I talked about.
Speaker Change: If you are a believer in seasonal.
Speaker Change: Where we are proactively building reserves and have well in excess of our charge offs over the last several quarters.
Speaker Change: Dan.
Dan: We you can tell by how we are moving through the portfolio, whether it's looking at classified whether it's looking at non accruals, whether it's looking at our reserving.
Dan: How we're tightening down on past dues, we are not kicking the can down the road, we are aggressively getting in front of any of our borrowers that we think may have an issue and helping them through this time and if we can't we are moving through.
William Losch: We are aggressively getting in front of any of our borrowers that we think may have an issue and helping them through this time. And if we can't, we are moving them through our risk rating system to classified, criticized, and to loss if we need to. So, we're not waiting around and hoping things get better. To Michael's point, absent what's going on in the environment with tariffs and inflation uncertainty and everything going on in D.C., I would have said we were in the latter half of the inning. as it relates to getting through the small business credit cycle that we've been in the last two quarters.
Speaker Change: Our risk rating system to classified criticized and intuitive loss, if we need to so we're not we're not waiting around and hoping things get better to Michael's point.
Speaker Change: Absent, what's going on in the environment with tariffs and inflation uncertainty and everything going on in D. C. I would have said we were in the latter half.
Speaker Change: The earnings.
Speaker Change: As it relates to getting through the small business credit cycle that we've been in the last two quarters.
William Losch: Uncertainty in the environment now, who knows? But again, I point to how proactive we've been getting things through our pipeline, what the front end, the past dues look like now, and how healthy our reserves are. So I'm incredibly proud, like Michael is, of the entire team. We take credit incredibly seriously here, and it shows with how we are making sure that this place stays as safe and sound as it possibly can, and we help small business borrowers exactly when they need us to help.
Speaker Change: Uncertainty in the environment now.
Speaker Change: Who knows but again I point to how proactive we've been getting things through our pipeline what the front end in the past dues look like now and how healthy.
Speaker Change: Our reserves are so.
Speaker Change: Im incredibly proud like Michael is of the entire team, we take credit incredibly seriously here and it shows with how we are.
King: King share that this place stays at safe and sound as it possibly can and we help small business borrowers exactly when they need us to help them.
Michael Cairns: And maybe, yeah, sure, go ahead. Sorry, and BJ, I think that if you look back a year ago, we've tightened the credit scripts here a little bit. We are not doing some things that we did a year ago, but the pipeline still continues to fill each quarter with a more discerning situation from the credit department. I'm 100%.
Speaker Change: And maybe.
Speaker Change: Yes, I'm sorry go ahead.
Speaker Change: And Vijay I think that if you look back a year ago.
Speaker Change: We've tightened the credit Suisse here, a little bit we are doing things that we did a year ago.
Speaker Change: The pipeline still continues to feel each quarter with a more discerning situation from our credit Department.
Speaker Change: 100%.
Speaker Change: Okay great.
Michael Cairns: And maybe just digging into that, you know, one of the things we've spent a lot of time over the past couple of years touching on credit and what makes y'all different. And one of the things that I think is really important is kind of that we've talked about is the verticality of your business and how that gives you not only opportunities for growth but also helps on the credit side. You know, basically as your bankers or sometimes consultants, right? Could you talk about how that's playing out today? Where is that verticality, you know, where are you seeing the most benefit of that verticality to manage risk and is that playing out kind of how you expected?
Speaker Change: And maybe just digging into that one of the things. We've spent a lot of time over the past couple of years touching on credit in and what makes you all different one of the things that I think is really important is kind of that that we've talked about is the verdict gallery of your business and how that gives you not only opportunities for growth, but also helps on the credit side.
Speaker Change: Basically as you as your bankers are sometimes consultants right could you talk about how thats playing out today, where is it where is that verdict <unk>.
Speaker Change: Where are you seeing the most benefit of that vertical Audi to manage risk and is that playing out kind of how you expected.
Speaker Change: Okay.
Speaker Change: Okay.
Michael Cairns: Go ahead, Michael. Yeah. I mean, well, one area where we have really leaned in to our vertical experts is with the uncertainties related to tariffs, right? So we take the lead from our lenders who know those industries inside and out as to where the pitfalls could be based on government action or changes in administration's decisions. And so we, in credit, take their lead and provide that data and insight to our portfolio managers and servicing people. And that has made a big difference in just being educated and being able to educate our borrowers as well. Well, I think an example to their Mike and BJ would be we had our broadband people present to the board.
Speaker Change: Go ahead, Michael Yes, I mean, well one area, where we have really leaned in to our vertical experts is with the uncertainties related to tariffs right. So are we take the lead from.
Speaker Change: Card lenders, who know those industries inside and out as to where the pitfalls could be based on government action or changes in administrations decisions and so we and credit sake, there Lee to provide that data and insight to our portfolio managers of servicing people.
Speaker Change: And that has made a big difference just be educated and being able to educate our borrowers as well.
Speaker Change: Well and I think an example, too there Mike and BJ would be.
Speaker Change: Our broadband people presented to the board the other day and four or five years ago. We had an expert that came out of our payroll to help us understand how we could make SBA loans to rural broadband broadband providers.
William Losch: And four or five years ago, we had an expert that came on our payroll to help us understand how we could make SBA loans to rural broadband providers. And now, our own Pierce Furchick knows more about that business than just about anybody on the planet. And we're moving away from SBA loans to conventional loans. So it's the progression and the maturity of the theory of verticality. That's great.
Speaker Change: We have now.
Speaker Change: Our own peers for Jack knows more about that business than just about anybody on the planet and we're moving away from SBA loans to conventional loans, obviously, it's the progression and the maturity of the theory of Verticality.
Speaker Change: Okay, that's great.
William Losch: And then just maybe last one, you know, two initiatives that that we've been focused on, you know, one was the the syndication side that was supported by the simply investment, and then embedded finance. And we've talked about those a bit.
Speaker Change: And then just maybe last one two initiatives that we've been focused on.
Speaker Change: One was the syndication side that was supported by the simply investment and then embedded financing we've talked about those a bit but in the past I was just hoping you could give us an update on those two initiatives and maybe some some other things on the horizon that youre working on and excited about.
William Losch: But, you know, in the past, I was just hoping you could give us an update on those two initiatives. And maybe some some, you know, other things on the horizon that that you're working on and excited about. Yeah, you know, we talk about a couple things here. One is, you know, particularly in this environment, I've said multiple times to our people, let's keep the main thing, the main thing right now, which is, you know, being a great lender and building out our deposit platform, particularly checking. At the very same time, we have this spirit of innovation from the founders that we're constantly looking for new ideas and things that are going to help us grow and pay off in the next 3, 5, 7, 10 years.
Speaker Change: Yes.
Speaker Change: We talk about a couple of things here one is.
Speaker Change: Particularly in this environment I've said multiple times to our people, let's keep the main thing the main thing right now which is.
Speaker Change: Being a great lender and building out our deposit platform, particularly checking.
Speaker Change: At the very same time, we have this spirit of innovation from our founders that we're constantly looking for new ideas and things that are going to going to help us grow and pay off in the next 357 10 years incubation of simply like you like.
William Losch: Incubation of Simply, like you mentioned, is a great, great example. We had one of our developers that had this idea, he was working closely with our head of syndications at the time. They felt like there was a better way. They came to us. We incubated it internally for a year, and then once it was ready for prime time, we then raised some seed money from some outside investors and spun that out. Whether it's that or whether it was some of the embedded banking work or some of the other things that we're doing around Live Oak Express and building a brand new technology platform with a very next-generation AI-driven partner.
Speaker Change: Mentioned is a great. Great example, we had.
Speaker Change: One of our developers.
That had this idea that he was working closely with our head of syndications at the time.
I felt like there was a better way they came to us we incubated it internally for a year and then once it was ready for Prime time, we then.
Speaker Change: Race in seed money.
Speaker Change: From some outside investors and spun that out.
Speaker Change: And thats that whether it's that or whether it was some of the embedded banking work or.
Speaker Change: Some of the other things that we're doing around live Oak Express in building <unk>.
Speaker Change: Brand, New technology platform with a very very next generation.
Speaker Change: AI driven and.
Speaker Change: Partner, we're doing a lot of different things to try to build the business for the long term.
William Losch: We're doing a lot of different things to try to build the business for the long-term.
William Losch: But I also say, David, it's like a tale of two cities right now. We've got so much momentum from loan production, deposit production, checkings ramping, small-dollar loans are ramping, our revenue is expanding, our expenses are well-controlled. Yet, the other city is we're helping small business borrowers work through a credit cycle. We've just got a lot going on, but we've got to make sure that we're just controlling what we can control right now. get through the environment. And I think once these clouds clear on credit, I think people are going to refocus on the strength and power of the business model that we're continuing to build.
David Feaster: I'll also say, David it's like a tale of two cities right now we have got so much momentum.
David Feaster: Loan production and deposit production Checkings ramping small small dollar loans are ramping our revenue is expanding our expenses are well controlled yet the other city is we're helping small business borrowers worked through a credit cycle and so we've just.
David Feaster: Got a lot going on but we've got to make sure that we're just controlling what we can control right now.
Through the environment and I think once the clouds clear on on credit.
David Feaster: I think people are going to refocus on the strength and power of the.
David Feaster: The business model that we're continuing to build.
David Feaster: That's great. Extremely helpful.
David Feaster: That's great extremely helpful. Thanks, everybody. Thanks.
Operator: Thanks, everybody.
Operator: Thanks, David. Thank you.
Speaker Change: Thanks, David.
Speaker Change: Thank you and at this time, we have no other questions registered so I'll turn the call over to chairman and CEO Chip man for final comments.
Operator: And at this time, we have no other questions registered.
James Mahan: So I'll turn the call over to Chairman and CEO Chip Mahan for final comments. Thank you, everyone, for attending our Q1 call, and we shall see you another day. Thank you, sir.
Speaker Change: Thank you everyone for attending our Q1 call and we shall see you in 90 days.
Speaker Change: Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we ask that you. Please disconnect your lines.
Operator: Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your lines.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Sure.