Live Oak(US:LOB)2022-10-30 13:22Financial Data and Key Metrics Changes - Earnings per share for Q3 2022 were $0.96, driven by strong net interest income and loan growth, with net interest margin at $3.84, declining just 5 basis points from the previous quarter despite 150 basis points of rate hikes [15][20] - Net interest income grew 26% year-over-year, with loan growth at 23%, and total revenue increased by 12% year-over-year [16][20] - Adjusted PPNR was up 21% due to strong net interest income growth and higher fee income [18] Business Line Data and Key Metrics Changes - Loan production reached $1 billion, with pipelines near all-time highs and credit quality remaining strong [16][20] - The average charge-off ratio for the company is significantly lower than the industry average, with 66% of loans originated under the SBA 7(a) program [12] - The company has seen diverse loan originations across various verticals, particularly in established sectors like agriculture and newer sectors like SBA General Lending [22] Market Data and Key Metrics Changes - The company reported that 43% of its total loan portfolio is government guaranteed, contributing to low nonaccruals and past dues [25] - The sentiment among small businesses has deteriorated, with many expecting a slowdown, yet the company's current credit performance remains strong [28][30] Company Strategy and Development Direction - The company emphasizes the importance of capital management in a potentially declining economy, focusing on maintaining a strong balance sheet [5][6] - Plans to enhance the lending platform and technology infrastructure, including a new loan origination platform to improve efficiency [34][37] - The company aims to expand its addressable market by offering working capital products and deposits to small businesses [29][31] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the uncertainty in the economic environment but expresses confidence in the company's ability to navigate challenges and capitalize on opportunities [6][13] - The company anticipates that as the Fed's rate hikes stabilize, net interest margins will also stabilize and potentially improve [45][46] - Management remains vigilant regarding credit quality and is proactively engaging with existing customers to mitigate risks [25] Other Important Information - The company has invested $52 million in fintech companies since 2015, yielding significant returns and contributing to non-dilutive capital generation [11] - The company is excited about the recent launch of its checking account product, which has seen rapid customer acquisition [35] Q&A Session Summary Question: Cost of deposits and funding sources - Management indicated that deposit costs are expected to rise as the Fed continues its tightening cycle, with a mix of funding coming from both online savings and CDs [41][44] Question: Expectations for net interest margin (NIM) - Management expects NIM to stabilize at the higher end of the previously discussed range, with potential for modest increases in 2023 [45][46] Question: Venture portfolio valuations - Management expressed confidence in the current valuations of their venture portfolio, citing strong investor support and the quality of the companies involved [48][49] Question: Business checking account growth - The company reported an average balance of $5,000 to $10,000 across its new checking accounts, with plans to target larger businesses with treasury management capabilities in the future [54][56] Question: Noninterest-bearing deposit mix - Management anticipates a modest increase in the noninterest-bearing deposit mix, with significant growth expected over the next five years [59][60]