Live Oak Bancshares, Inc.

Good morning, ladies and gentlemen, and welcome to the Q1 2023 Live Oak Bank Shares earnings call. At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question and answer session If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, April 27th, 2023. I would now like to turn the conference over to Mr. Greg Seward, Chief Risk Officer and General Counsel. Please go ahead.

Thank you and good morning, everyone. Welcome to Vivo's first quarter 2023 earnings conference call. We are webcasting live over the internet and this call is being recorded. To access the call over the internet and review the presentation materials that we will reference on the call, please visit our website at investor.liveoakbank.com and go to the events and presentations tab for supporting materials. Our first quarter earnings release is also available on our website. Before we get started, I would like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call and in our SEC filings. We do not undertake to update the forelooking statements to reflect the impact of circumstances or events that may arise after the date of today's call. Information about any non-GAAP financial measures referenced, including reconciliation of those measures to GAAP measures, can also be found in our SEC filings and in the presentation materials. I will now turn the call over to Chip Mahan, our Chairman and Chief Executive Officer.

Thanks, Greg, and welcome to our Q1 earnings call. We are obviously not pleased with a penny a share, but let's look under the covers and see if there's more. Moving to slide four, I'll make a few comments relative to these questions. What do deposits look like? How liquid are you? How's credit? What happened with earnings this quarter? Are you on a path to grow? I will then turn the call over to Huntley and BJ to dig in. It is my belief that the events surrounding the closure of Silicon Valley Bank and Signature Bank will prove to be a seminal moment for this industry. It has been almost 28 years ago, October of 1995, that we launched the first pure internet bank in the United States. Since then, I have never seen the need for physical branches and the inherent cost to support that particular deposit franchise. Technology that affects bank infrastructure support has made exponential gains over the last several years. It almost feels like Moore's law is creating banking 2.0. Many will recall that Gordon Moore, the co-founder of Fairchild Semiconductor and the former CEO of Intel, predicted in 1965 that fundamentally computing power, or the number of components on an integrated circuit, would double every year. He revised that in 1975 to double every two years. He was right. It feels like this decade-long presence of cloud-native API-first solutions is finally creeping into the day-to-day operations of commercial banks. Four years ago, we spent a great deal of time perfecting online account opening at Live Oak Bank. Most banks can now do the same. Since it is so easy to move money digitally, why leave your money in a bank that offers less than market rates? As deposit betas increase, as rates continue to rise, we are thankful The potential repricing of an entire book of lower-cost deposits is not part of our business model. That trend has begun, and it is irreversible. The customer deserves and will find market rates for their savings and operating accounts. Inside our own Canopy initiative that has raised over $1.5 billion from 70 banks, we see it every day. Next-gen fintech companies are building software in a cloud-native, API-first environment. that can get to market very quickly and provide a wide range of solutions to everyday bank customers. Additionally, there is a massive amount of capital sitting on the sideline to reward the winners in this space. It is fun to have a front row seat. So yes, what do deposits look like and how liquid are you? After the SBB and signature event, it was published that the average bank in America had uninsured deposits of 44% of their total deposits. We were 18%. Many banks were scrambling to prepare for a run on their bank. In a matter of hours, we had between three and four times the amount of all uninsured live oak deposits in cash. Check that box. Relative to deposits in general, Huntley and BJ are going to describe our growth for the quarter and immediately thereafter. Check that box. Relative to credit quality and all metrics remain positive. Non-accruals of 65 BIPs and over 30-day past dues of only 13 BIPs, which in dollar amount is just under $7 million for a $10 million bank, not bad. Check that box. Lastly, on earnings and growth, I wish I had not taken accounting pass-fail in college. We had the best quarter ever for loan originations, which in large part cost another quarter with an outsized CECL provision. The last weeks of the quarter impacted fair value and servicing asset revaluations by $6.3 million. And whoops, here's another $3 million one-time increase in the reserve fund use lines of credit. Accounting black boxes and mumbo jumbo that translates into excuses. Tom Brown has a consulting firm and a hedge fund that issues weekly letter read by most of us on this call. Last week, he did a piece on my friend Terry Turner, co-founder of Pinnacle Bank in Nashville Brown points out that Pinnacle in its first decade provided the second best total return to shareholders of publicly traded banks. In Terry's first quarter call, he made the point that analysts go from one worry to another, while Pinnacle Bank keeps running the company with its core principles. It feels remarkably the same here. Here's what I can tell you. We have the most technologically advanced small business lending franchise in America. The platform for growth is prudent. The technology is proven. The results are proven. The culture is proven. As this next generation technology and our folks walk across the balance sheet to the liability slash deposit side, our future results will speak for themselves. Over to Huntley and BJ for more details.