Live Oak Bancshares (NYSE:LOB) Q3 2025 Earnings Call October 23, 2025 09:00 AM ET Company ParticipantsMichael Cairns - CCOWalter Phifer - CFOWilliam Losch III - President and COOGreg Seward - General Counsel and Chief Risk OfficerChip Mahan - Chairman and CEOConference Call ParticipantsDavid Rochester - Managing Director and Senior Banks AnalystBill Young - AnalystTim Switzer - VP and Equity Research AnalystDavid Feaster - AnalystOperatorGood morning, ladies and gentlemen, and welcome to the Live Oak Bancsh ...

Live Oak Bancshares (NYSE:LOB) Q3 2025 Earnings Call October 23, 2025 09:00 AM ET Company ParticipantsMichael Cairns - CCOWalter Phifer - CFOWilliam Losch III - President and COOGreg Seward - General Counsel and Chief Risk OfficerChip Mahan - Chairman and CEOConference Call ParticipantsDavid Rochester - Managing Director and Senior Banks AnalystBill Young - AnalystTim Switzer - VP and Equity Research AnalystDavid Feaster - AnalystOperatorGood morning, ladies and gentlemen, and welcome to the Live Oak Bancsh ...

Financial Data and Key Metrics Changes - Q3 earnings per share reached $0.55, an 8% increase linked quarter and nearly doubled compared to 2024, driven by a 7% linked quarter increase in core operating leverage and lower provision expense [10][11][12] - Total loan portfolio grew approximately 5% linked quarter and 17% year over year, indicating strong growth in a competitive industry [14][15] - Customer deposits increased by 3% linked quarter and 20% year over year, showcasing robust deposit growth [15] Business Line Data and Key Metrics Changes - Loan production increased by 22%, with loan outstandings growing by 17% and customer deposit growth at 20% [6][10] - Q3 loan originations totaled approximately $1,650,000,000, an 8% increase linked quarter, primarily driven by the Commercial Banking segment [13] - Checking balances reached $363,000,000, up from 2% to 4% of total deposits year over year, reflecting a significant increase in customer relationships [7][15] Market Data and Key Metrics Changes - Market share in SBA lending increased from 6.4% to 7.7%, with over $2,800,000,000 in loans provided to small businesses, a 44% increase over last year [5][6] - The company remains focused on growing non-interest bearing business checking balances and originating small dollar SBA loans, which are expected to enhance profitability [11][15] Company Strategy and Development Direction - The company is extending customer product offerings by adding checking and small dollar SBA loan capabilities, aiming for sustainable growth [6][7] - AI-enabled loan origination solutions are being piloted to improve efficiency and speed in processing loans, indicating a strong focus on technology integration [9][45] - The company is committed to maintaining strong underwriting standards while adapting to market conditions, ensuring resilience in credit performance [68] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating economic uncertainties, emphasizing sound underwriting practices and proactive credit management [32][34] - The company anticipates that the Federal Reserve will implement further rate cuts, which could impact net interest income and margin, but expects a quick recovery due to its asset-sensitive balance sheet [17][51] - Management remains optimistic about maintaining a sustainable growth trajectory and achieving consistent returns on equity [90][91] Other Important Information - The company successfully raised $100,000,000 through a preferred offering, enhancing its capital position [11][23] - Non-accrual loans increased to $85,000,000, but management remains confident in the overall credit quality and reserve levels [22][32] Q&A Session Summary Question: Can you provide more color around the increase in NPAs this quarter? - Management noted that the increase in non-accrual balances was manageable and related to loans tracked over time, with a focus on sound underwriting and servicing [30][32] Question: How do you think about the potential for an extended government shutdown? - Management has a playbook for government shutdowns and has already pooled significant SBA loans to mitigate impacts on loan growth [36][38] Question: Can you quantify the benefits of AI enhancements? - Management believes AI could significantly improve productivity and reduce the need for a larger employee base, enhancing customer experience and operational efficiency [42][45] Question: What is the trajectory for the margin with upcoming rate cuts? - Management expects margin variation but believes that net interest income will continue to grow despite fluctuations in margin [51][52] Question: Have you seen easing competition in the SBA space? - Management indicated that they have a strong understanding of the SBA market and continue to grow despite competition, focusing on improving their offerings [56][57] Question: Are there any industries struggling more than others? - Management noted that stress is observed in industries with less pricing power, but overall performance remains in line with expectations [60][61] Question: What is the sustainable path for returns on equity? - Management aims for a consistent 15% return on equity with a focus on growth initiatives and expense discipline [90][91]

Live Oak Bancshares (NYSE:LOB) Q3 2025 Earnings Call October 23, 2025 09:00 AM ET Speaker1Good morning, ladies and gentlemen, and welcome to the Live Oak Bancshares third quarter 2025 earnings conference call. At this time, all lines are in a 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. I would now like to turn the conference call over to Greg Seward, Gen ...

Financial Performance - Net income available to common shareholders reached $26 million, a 96% increase year-over-year (YoY) and a 9% increase compared to the previous quarter[8],[23] - Diluted earnings per share (EPS) were $0.55, up 96% YoY and 8% quarter-over-quarter (QoQ)[8],[22],[23] - Adjusted Pre-Provision Net Revenue (PPNR) was $66 million, a 24% increase YoY and 7% QoQ[14],[16],[17],[18],[22] - Net interest income was $115 million, up 19% YoY and 6% QoQ[8],[22],[23] - Net interest margin was 333%, flat YoY and up 5 basis points QoQ[8],[22],[23] Loan and Deposit Growth - Total loans and leases reached $11916 million, a 17% increase YoY and 5% QoQ[8],[23] - Total deposits reached $13291 million, a 17% increase YoY and 6% QoQ[8],[23] - Business checking balances grew to $363 million, a 150% increase YoY and 26% QoQ[14],[22] Loan Origination and Sales - Loan and lease originations totaled $1649 million, a 6% decrease YoY and 8% increase QoQ[23],[26] - The company generated $12 million in year-to-date (YTD) gain on sales from Live Oak Express, a 4x increase compared to YTD 2024[14],[40] Credit Quality - Provision for credit losses was $22 million, a 36% decrease YoY and 4% decrease QoQ[8],[22],[23] - Unguaranteed Allowance for Credit Losses (ACL) to unguaranteed loans and leases was 222%[24],[44] Capital and Other Items - The company raised $963 million in net proceeds from a preferred stock offering[22],[24],[52] - The sale of Apiture settled in October, providing an estimated $24 million pre-tax gain in Q4[22],[52]

Financial Data and Key Metrics Changes - The company reported Q2 earnings per share of $0.51, significantly better than the prior quarter, driven by a 22% linked quarter increase in core operating leverage and a lower quarterly provision expense [9][10] - Top line revenue growth was 10% linked quarter and 20% year over year, showcasing strong earnings power [6][10] - Quarterly net interest income increased by $9 million or 9% linked quarter, with net interest margin expanding by eight basis points for the third consecutive quarter [13][14] Business Line Data and Key Metrics Changes - Q2 loan originations totaled approximately $1.5 billion, a 9% increase linked quarter and a 30% increase compared to Q2 2024, with strong contributions from small business banking and commercial lending segments [12][10] - The Live Oak Express small dollar loan program grew from essentially zero in 2023 to over $300 million in 2024, indicating a long runway for growth [7] - Business checking product balances increased by 36% year to date, contributing to an incremental $500 million of interest-bearing deposits [11][8] Market Data and Key Metrics Changes - Customer deposits grew approximately 6% linked quarter, with balances now about 20% higher than June 30, 2024 [10][11] - The company has seen a significant increase in the percentage of LIBOR customers with both loan and deposit relationships, rising from 3% in 2021 to 18% [8] Company Strategy and Development Direction - The company is focused on modernizing operations to improve efficiency and customer experience, particularly through AI-driven initiatives [17][21] - Key initiatives include relationship building through checking accounts and targeted revenue-generating investments to enhance profitability and growth sustainability [5][6] - The company aims to maintain strong loan growth while managing deposit costs and pricing effectively [33][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the end of the current small business credit cycle is near, supported by improving credit indicators [6][35] - The company has proactively managed problem loans and improved monitoring processes, leading to a decline in defaults and non-accrual loans [18][19] - Management highlighted the importance of maintaining high underwriting standards to ensure credit quality and borrower performance [39] Other Important Information - The company sold $322 million of guaranteed loans in Q2 for a 7% average premium, generating approximately $22 million in gain on sale [15] - The balance sheet consists of 41% of assets in cash or government guaranteed investments, which is favorable compared to industry standards [20] Q&A Session Summary Question: Growth outlook and impact of payoffs and paydowns - Management noted that paydowns were about $100 million higher than average due to various reasons, but they do not expect this trend to continue [24][25] - The company anticipates loan growth to remain strong, with a pipeline of approximately $3.8 billion [27] Question: Competition and deposit pricing - Management indicated that the market remains competitive, but they see opportunities to continue lowering deposit pricing while supporting growth [33][34] Question: Confidence in the end of the small business credit cycle - Management cited improving credit metrics, declining defaults, and strong borrower performance as reasons for their confidence [35][36] Question: USDA loan sales and market activity - Management explained that the USDA market is reopening due to investor demand for fixed-rate loans with prepayment penalties, but consistency in sales is still desired [46] Question: SBA demand and competition - Management confirmed that demand for SBA loans remains strong, with consistent historical performance despite industry disruptions [48][52]

Financial Data and Key Metrics Changes - The company reported earnings per share of 21 cents, consistent with the previous quarter, driven by healthy PPNR and growth offset by elevated provisions [23][24] - Core PPNR increased by 27% year-over-year to $50 million, primarily due to rising net interest income and strong balance growth [23][24] - Net interest income reached $101 million for the first time, with a net interest margin expansion of five basis points to 3.2% [33] Business Line Data and Key Metrics Changes - Q1 2025 loan originations totaled approximately $1.4 billion, marking a 73% increase year-over-year and the largest Q1 loan production in bank history [30] - 60% of loan production came from the small business banking team, primarily through SBA 7(a) loans, reflecting a 55% year-over-year increase [31] - Commercial lending team contributed 40% of loan production, showing a 110% increase compared to the prior year [31] Market Data and Key Metrics Changes - Customer deposits grew by 8% linked quarter, continuing a historical trend of strong growth in Q1 [26] - Noninterest-bearing checking balances increased by 31% linked quarter, indicating momentum in the business checking product [27] - The company maintained a healthy loan pipeline despite economic uncertainties, with no decline in potential borrowers' appetite [26] Company Strategy and Development Direction - The company is focused on building full relationships with customers through primary checking relationships, which have quadrupled over the past year [11] - Continued emphasis on small dollar SBA loan programs and acquiring checking relationships is expected to enhance stability and provide insights into borrowers' cash flows [11][12] - The company is well-positioned to benefit from changes in SBA regulations, which may provide a competitive advantage [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the economic environment while acknowledging the challenges posed by inflation and rising interest rates [15][29] - The company is proactively building reserves and monitoring credit quality, with a focus on maintaining a healthy risk profile [44][45] - Management remains committed to supporting small business borrowers through the current credit cycle, emphasizing a proactive approach to credit management [86][88] Other Important Information - The company reported that over 40% of its assets are cash or government guaranteed, providing a strong capital position [16] - The company has seen a consistent demand for government-guaranteed SBA loans in the secondary market, generating significant gain on sale revenue [40] - The company is investing in technology to enhance efficiency in loan processing, particularly for small dollar loans [70][103] Q&A Session Summary Question: Thoughts on margin and NII trajectory - Management acknowledged the difficulty in providing forward-looking guidance on margin due to the current economic environment but remains focused on controlling what can be controlled [51][52] Question: Loan growth and pipeline in the current macro environment - Management expressed comfort with the quality of loan production and remains active in monitoring credit approvals [55] Question: Impact of SBA changes on existing loans and fees - Management clarified that reinstated fees do not impact existing loans and are paid by borrowers as part of the loan package [60][62] Question: Profitability of Live Oak Express with new underwriting requirements - Management believes profitability will remain stable due to ongoing technology improvements, despite longer closing times [70][72] Question: Focus areas amid economic uncertainty - Management is closely monitoring the SBA portfolio and commercial lending, with a holistic approach to managing risks [82][84]

Financial Data and Key Metrics Changes - The company reported earnings per share of $0.21, consistent with the previous quarter, driven by strong PPNR and growth offset by elevated provisions [13][16] - Core PPNR increased by 27% year over year to $50 million, primarily due to rising net interest income and strong balance growth [13][20] - Net interest income surpassed $100 million for the first time, reaching approximately $101 million, with a net interest margin expansion of five basis points to 3.2% [20][21] Business Line Data and Key Metrics Changes - Loan originations reached $1.4 billion, marking the largest Q1 loan production in the bank's history, with a linked quarter growth of approximately 5% [16][19] - The small business banking team contributed 60% of Q1 loan production, primarily through SBA 7 loans, reflecting a 55% year-over-year increase [19] - Commercial lending team accounted for 40% of Q1 loan production, showing a 110% increase compared to the prior year [19] Market Data and Key Metrics Changes - Customer deposits grew approximately 8% linked quarter, nearly double the growth experienced in Q1 of the previous year [16][20] - Non-interest bearing checking balances increased by 31% linked quarter, indicating strong momentum in the business checking product [16] Company Strategy and Development Direction - The company continues to focus on building full relationships with customers through primary checking relationships, with checking balances increasing to $279 million, more than four times the levels from a year ago [7][8] - The company is optimistic about the potential competitive advantage from recent SBA rule changes, which may benefit its business model compared to other industry participants [11][44] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the economic environment, noting that while there are uncertainties, the company is well-positioned with a strong capital position and healthy reserves [10][62] - The company is actively monitoring its portfolio and has been proactive in building reserves, indicating a commitment to maintaining credit quality [62][63] Other Important Information - The company has seen a significant increase in its allowance for credit losses, with a $51 million increase over the last five quarters, reflecting a proactive approach to credit risk management [9][28] - The company is focused on innovation and long-term growth strategies, including the development of new technology platforms and initiatives like Simply Investment and embedded finance [72][75] Q&A Session Summary Question: Thoughts on margin and NII trajectory - Management acknowledged the difficulty in providing forward-looking guidance on margin due to the current economic environment but remains focused on controlling what they can [31][34] Question: Is now the right time for meaningful loan growth? - Management expressed confidence in the quality of loan production and remains comfortable with growth activity, emphasizing disciplined credit approval processes [35][36] Question: Impact of recent SBA changes on loans - Management clarified that the reinstated small dollar borrower fees do not impact existing loans and are paid by borrowers as part of the loan closing package [42][43] Question: Focus areas amid market uncertainty - Management highlighted a proactive approach to monitoring the portfolio, particularly in sectors affected by economic challenges, and expressed cautious optimism about credit quality [57][62] Question: Update on verticality and risk management - Management discussed leveraging vertical expertise to navigate uncertainties related to tariffs and government actions, emphasizing the importance of education and communication with borrowers [68][70]