Live Oak(US:LOB)2021-04-22 19:55Financial Data and Key Metrics Changes - The company reported a pre-tax pre-provision income of $24 million for Q1 2021, which could be closer to $30 million if accounting adjustments were considered [28][29] - The headline earnings number was $0.88, reflecting strong growth in net interest income and a decrease in provisions [36][37] - Loan growth was up 33% year-over-year, excluding PPP loans, and 5.5% linked quarter [35] Business Line Data and Key Metrics Changes - The company originated and closed $1.180 billion in loans during Q1 2021, with $672 million being non-PPP loans and $508 million in PPP loans [16] - The adjusted pre-tax pre-provision earnings number, excluding PPP, was up over 35% year-over-year [37] - The net interest margin increased by 13 basis points to 3.46%, driven by PPP and lower deposit costs [52] Market Data and Key Metrics Changes - The company reported strong loan originations and balance sheet growth, with a solid performance in the USDA loan market [46] - The company opened 64,000 accounts, resulting in $4.8 billion of retail deposits, up from $4.3 billion at the end of the previous year [50] - The Tier 1 leverage ratio was approximately 8.50%, indicating a strong capital position [56] Company Strategy and Development Direction - The company aims to build out checking and operating accounts to better position itself for a rising rate environment [71] - The focus remains on supporting small business customers and leveraging technology to enhance service delivery [33][59] - The company is optimistic about the potential benefits from the Restaurant Rehabilitation Fund for impacted borrowers [14] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding credit quality, noting that many businesses are stronger today than pre-COVID due to government programs [11][12] - The company anticipates charge-offs for the remainder of the year to reflect pre-COVID levels, with a focus on maintaining strong credit quality [11][12] - Management highlighted the importance of adapting to changes in the operating environment as government assistance winds down [7][41] Other Important Information - The company has re-entered the investment tax credit market, supporting renewable energy lending with expected IRR of about 20% [42] - The company is focused on reducing the amount of loans measured at fair value to drive more predictable revenue [39][40] - The company has added significant personnel to support growth, including five lending officers and 25 closers [18] Q&A Session Summary Question: What are the biggest risks to budget and earnings expectations in 2021? - Management identified prepayment speeds as a potential risk that could affect fair value numbers and balance sheet growth [66][67] Question: Update on the lawsuit referenced in the press release? - Management stated that there is no new update beyond what was disclosed previously [69] Question: Thoughts on legal fees for the rest of the year? - Management expressed hope for reduced legal fees moving forward [70] Question: How to position the funding base for a different rate environment? - Management emphasized the importance of building checking accounts to capture advantages in a rising rate environment [71] Question: Update on loan originations and non-performers? - Management noted that Q1 is typically a slower quarter for loan originations and that the uptick in non-performers was tied to pre-existing challenges exacerbated by COVID [103][106] Question: Marketing strategy for checking accounts? - Management indicated that initial focus is on stabilizing the system, with plans to leverage word-of-mouth and partnerships for distribution in the future [108][110]