Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Live Oak Bancshares Inc (LOB, Financial) reported strong EPS and PPNR on both a reported and adjusted basis.
- The company experienced healthy loan and deposit growth, with loan originations up 45% from Q1 and 14% year-over-year.
- Credit quality remains strong with low levels of charge-offs and significant reserve building.
- The company's small business banking and specialty finance units showed impressive growth, with originations up 30% and 88% year-over-year, respectively.
- Live Oak Bancshares Inc (LOB) continues to attract and retain high-quality talent and invest in innovative technology and partnerships.
Negative Points
- Net interest margin compressed by 5 basis points quarter-over-quarter due to increased interest expense.
- The energy and infrastructure business unit had a slow start in the first half of 2024 due to delays in loan closing timelines.
- The competitive deposit market remains challenging, impacting the ability to grow or maintain the deposit base.
- The company faces uncertainties related to macroeconomic and political impacts, including Federal Reserve rate decisions.
- Expense growth remains a concern, with the need to balance investment in growth initiatives and maintaining expense discipline.
Q & A Highlights
Q: Could you talk about how much of the strength that you're seeing is from maybe improving demand versus share gains and just kind of the composition of the line and where you're seeing the most opportunities today?
A: We're seeing it across the board, which feels really, really good. Our lenders are excellent at what they do, constantly talking to customers and referral sources. With the Fed making more noise about rates being at their peak, we're seeing more optimism and activity across our verticals. Our small business banking and specialty finance businesses had a great quarter, and our energy and infrastructure business, which had a slow start, is now showing significant pipeline growth.
Q: Could you touch on what you guys are seeing on the expense side? Are we just being a bit more discerning with growth projects, or are we at the point where we can just scale up and leverage the existing infrastructure?
A: We've put a significant amount of expenses ahead of revenue over the last 24 months. Now, we've got the expense infrastructure in place across our businesses that we need to grow. We're adding revenue-producing spots in our organization, and we have good infrastructure and support to scale the business, providing much more operating leverage on that expense base than previously.
Q: Would you expect the funding cost to start to decline? How quickly do you expect to be able to reprice those business clients in a potential downgrade scenario?
A: We have a good problem right now, which is growth. We're going to price accordingly and see what the competitive market does. Our net interest margin feels pretty good, and we think we can maintain that going forward. About half of our loan portfolio is variable rate, but almost three-quarters of our deposit portfolio will reprice in less than a year, which will help us see NIM expansion over time.
Q: Could you just talk about the secondary market demand in the SBA space? Is it improving, and are you seeing any more competition from other banks in SBA?
A: The secondary market demand has improved with the outlook that Fed rate cuts will slow prepayment rates. Our spreads continue to be competitive, especially on the small loans front. As for competition, it remains pretty much the same across the spectrum, with no significant increase in competition from other banks.
Q: Have you changed your expectations for your full-year expense growth outlook from the high single-digit to low double-digit range?
A: We continue to balance funding expense efficiencies while investing in growth. Our expenses will inherently grow, but we are optimistic about being better than our previously discussed expense growth for the year.
Q: Are you expecting to maintain the net interest margin in the 330s range for the rest of the year?
A: Our target range remains 350-plus, but the timing depends on factors we can't control, like the Fed and competitive deposit pricing. We expect to navigate our way back to that range, likely into 2025.
Q: Do you expect loans on balance sheet growth for the year to be in the low double-digit range, or is there potential upside given the strong pipeline?
A: The low double-digit range feels right, but there is potential upside depending on Q3 and Q4 performance. We have the pipeline and production to have a strong second half.
Q: How much of the CD book is repricing in the third quarter, and what are the rates of CDs rolling off and being replaced at?
A: In Q3, roughly 15% to 20% of our customer CD portfolio will reprice. The current offerings are about 5%, rolling off from 5.20% to 5.25%. The rate depends on our growth and funding needs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
