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]