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Live Oak Bancshares (LOB -3.40%)
Q1 2020 Earnings Call
Apr 23, 2020, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to the first-quarter 2020 Live Oak Bancshares, Inc. earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Greg Seward, general counsel for Live Oak Bancshares.

Thank you, and please go ahead, sir.

Greg Seward -- General Counsel

Thank you, and good morning, everyone. Welcome to Live Oak's first-quarter 2020 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 and commentary that we will reference on the call, please visit our website at investor.liveoakbank.com and go to today's call on our Event Calendar for supporting materials.

Our first-quarter earnings release is also available on our website. Before we get started, I'd 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 forward-looking statements to reflect the impact of circumstances or events that may arise after the date of today's call.

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Information about any non-GAAP financial measures referenced, including reconciliation of those measures to GAAP measures, can also be found in our SEC filings. I will now turn the call over to Chip Mahan, our chairman and chief executive officer.

Chip Mahan -- Chairman and Chief Executive Officer

Greg, good morning, and thanks. In these trying times, you find out what you're made of. What do we, Live Oak as an institution, stand for? Are we just a bank? Yesterday, a top four bank account officer told their customer, we don't know anything about the PPP program. Call the Home Office.

What do each of our folks stand for? Well, we found out. We reverted to our original guiding principles, and we stood tall. We have always thought of the three-legged stool to business, our folks, our customers and our shareholders. With this thesis that if you do everything humanly possible for your folks and hire the right folks, and you tell them they have one job and one job only, treat every single customer like the only customer in the bank.

And simultaneously, you tell your very talented credit folks that rule No. 1 is soundness, rule No. 2 is profitability and rule No. 3 is growth.

Then all three groups will win. Shareholders will win. I cannot begin to tell you what all 600 of our folks have done. All 600 have been going at it 24/7 since the situation began.

Here are some responses from the field customer. What we're facing right now might be characterized as an economic meltdown. We have prided ourselves in never laying anyone off due to lack of work in 30 years in business until we were forced to curtail operations this March. We can't tell you how thankful we were to see that loan amount in our business checking account this morning.

Today, we spent hours planning on how we will bring our employees back and resume our full operations as soon as it is acceptable to do so. No. 2, wow!! I just logged into my bank account and the money is their!!! I feel like crying. I am so happy!!! Payroll is Thursday, and everyone will get 40 hours!!!!!! No.

3 and lastly. Live Oak took it upon themselves to try to save the lives of over a dozen restaurants in Wilmington. I mean emails at 3 a.m. kind of attempts to help keep these family businesses afloat.

You know the military gives medals for this sort of service. I cannot say enough. Now let's take a step back before the virus. We were on our way to achieve what we said on the last call.

We were highly confident we were going to exceed and maybe substantially exceed 2 billion in originations. On the liability side, we were moving all of our savings and CD customers to Finxact on the 13th of April. The loan portfolio was growing. Next-gen deposit platforms were being delivered.

Credit quality was excellent. Then boom, the virus. Who could have predicted that the United States government would choose the SBA platform to distribute what might be $1 trillion in capital to American small business. So now it's game time, and we lept into action.

How can America's No. 1 SBA lender help? First of all, I'll get the rules right. As everyone knows, the SBA has lots of rules, rules for the Express program, rules for 7a, rules for 504. Migrations, the book is 550 pages long.

But that was not the object of the exercise. How can treasury and the SBA stand up a product overnight to be distributed by banks, in fintechs alike, to literally millions of small businesses. I will remind you that in a normal year, about 3,000 banks make about 25 billion in SBA loans. The first 350 went in 13 days.

Your team here and other experienced SBA lenders had a lot of input into that product. That was launched at 12:01 a.m. on the 3rd of April. Now the absolute key to this strip down SBA loan is to get a loan authorization number.

This platform is called E-Tran. Well, E-Tran is kind of like my grandfather's jalopy. Sometimes you just have to whack old Betsy with a hammer. Well, we know SBA's Betsy better than anyone.

Many knew that and asked for our help and we gave it to a top four bank, to several top 10 banks, to Canopy banks and to some of the largest systems integration firms on the planet, so everyone could win, so small business could go in, so America could win. So what has happened here at the bank to level set? We have 4,400 customers. We service 5,600 loans. Before the CARES Act, 1,128 customers asked for a 90-day deferral of principal and interest, and it was granted.

In the CARES Act, the U.S. Government will pay all principal and interest for six months to 100% of SBA borrowers. This should give our customers some breathing room. This is highly fortunate for Live Oak Bank.

After the launch of PPP, we had the following goals: get cash in the hands of 100% of our borrowers that needed it, help small businesses in the communities that we operate and [indiscernible] partners in our verticals. That has happened. As of this moment, we have close funded 4,826 loans, totaling $953 million. We have E-Tran numbers for an additional 131 businesses, totaling $28 million.

And 116,000 jobs were saved by these 4,960 business. As we await the starting gun on round two, our pipeline to help others is substantial. Lastly, it is our belief that help is on the way on the other side. The Express program has been temporarily increased from $350,000 to 1 million.

It is our understanding that the house version of Phase 4 of the CARES Act includes an increase of the guarantee percentages from 50% in the Express program to 90% and an increase in the 7a program from 75% to 90. Both increases would be temporary, and there is absolutely no certainty that this would happen. It would be good for our customers and good for America. As always, my opening comments discuss credit quality, historically, everybody listens.

This time, I think you'll listen. So I'm moving to Slide 5 -- 4, Slide 4. I don't think there's a banker in the land or a board that wouldn't be pleased with the ratios noted above. And as always, we like to note our effective capital ratio.

500 million in capital at the bank level, 61 million before the accounts mess with a loan loss reserve that Huntley is going to tell you about, about $2 billion of unguaranteed paper for an adjusted capital ratio of about 26%. And on top of that, almost $1 billion of SBA guaranteed loans, which if you slap whatever premium won on that is substantial additional capital. In addition to that, we have about $1 billion prepared on the balance sheet before the Fed allowed us to finance these loans differently. We took down $50 million in a credit facility at the holding company, bringing the holding company's cash position to about $60 million in cash to begin to attack this challenge.

Huntley, over to you.

Huntley Garriott -- President

Thanks, Chip. To follow up on his comments, in times of stress, banking fundamentals always seem to come back to liquidity, capital and credit quality. And we believe we've always run a conservative balance sheet. But as the quarter unfolded, we took some precautionary steps to strengthen that even further.

As Chip mentioned, $1 billion of liquidity on our balance sheet. That increased by almost 25% over the quarter. We also sold an incremental about $50 million of 7a loans to shore up a little more capital here at the end of the quarter. Our risk capital stands at a healthy almost 15%, and in times like this, it's also nice to have $1.7 billion worth of -- or nearly half of our loan portfolio guaranteed by the government.

You might have seen in March, we authorized a small share repurchase program to better position ourselves when we get to the other side of this. We have not repurchased any shares, and we don't anticipate doing so until the world settles down. Our dividend is reasonably small at just $0.03 a share, and we plan to maintain that unless things get really rough. Chip talked about credit quality.

I'll cover it in more detail, but we've always followed the guiding principle that safety and soundness comes first, and we believe we've been prudent in our credit decisioning. But you only can really tell that prudence in time of stress when you see how well your customers with the help of their bank are able to navigate a crisis. As a small business bank, we find ourselves in the last few months squarely in the eye of the storm. From the time the pandemic started, we've been in touch with 100% of our over 4,000 borrowing customers.

As Chip mentioned, we've processed deferrals for over a quarter of them, and we're able to secure payroll loans for all of them who needed it. Once we secured SBA authorizations for our existing customers, we reached out into our community and the industry verticals we serve. And as Chip mentioned, we originated nearly 5,000 loans and nearly $1 billion of payroll loans. We're also proud to report, as Chip mentioned, that as of this morning, 100% of those customers have loan docs in their hand, and we funded over 97% of them, which is, as Chip mentioned, over 115,000 jobs.

When you turn to the results of the quarter, though, admittedly, there's a lot going on in the numbers. Our lending franchise started the year off strong, the deposit franchise was operating extremely efficiently, and we were continuing to build recurring revenue. Secondary markets for 7a loans were robust, and our loan pipeline was at an all-time high. All that feels like a lifetime ago.

As the virus spread and the nationwide lockdown set in, our deal pipeline slowed dramatically. And while we continue to see some activity in selected areas, like renewable energy and agriculture, primarily, most of the new business activity has been put on hold. Small businesses across the country were facing significant revenue challenges seemingly overnight. After we mobilized the deferrals on our portfolio, we turned 100% of our attention to these payroll protection loans.

Now as we close the books on Q1, the obvious item that was most impacted was our loan loss provision. And as luck would have it, the industry also faced the implementation of CECL this quarter, and we elected to adopt the new standard starting July 1st. Also, of note, in conjunction with implementing CECL, we reclassified a portion of our loan loss reserve into a fair value adjustment for loans accounted for a fair value in accordance with the disclosure requirements for those loans. A bit of balance sheet geography shift that I'll talk about in a minute that add to a bit of the noise.

But all in all, we increased our total allowance by about $13 million, largely as a result of the deteriorating macro environment. Given the significant sell-off of risk assets across pretty much all markets into the end of the first quarter, we also saw some volatility in our mark-to-market assets on our balance sheet despite the work we've done over the past 18 months to reduce those impacts. Secondary markets for SBA loans declined by as much as four points into the end of the quarter. Interest rates dropped precipitously and other market indicators decreased across the board.

These market changes impacted our gain-on-sale revenues, the fair value of our hedges, our servicing asset revaluation, as well as the loans we carry at fair value. If you look at the highlights on Page 7, for the quarter, our balance sheet and recurring revenues continue to grow nicely year over year and quarter over quarter. All the metrics are largely on track. Although expenses were up as we hired into the end of the year, as Chip mentioned, our lending franchise, and we continue to invest in our next-generation technology initiatives.

Fundamentally though, many of the same trends that we've discussed with you over the past year continued during the first quarter. Given the moving pieces in the quarter, we thought it might be helpful to outline the various adjustments on our income statement and try to take a closer look at the core earnings power of the bank, which we lay out on Page 9. Overall Q1 bank core earnings were pretty consistent from Q4, but there was an awful lot going on in between. So a little more detail on that.

The total credit-related expenses that would have previously been in the provision line was $18 million, which comprises $11.8 million addition to the provision and $6 million that is included in the fair value adjustment on loans. The mark on our USDA lending hedges drove a $4 million swing as loan interest rates dropped 125 basis points in the quarter. The fair value losses on the loans accounted for under fair value was $10 million, and as I mentioned, over half of that was related to credit. Our servicing asset continued to mark down despite the significant slowdown in prepayment speeds.

And with the SBA paying six months of principal and interest on the entire servicing portfolio, it's actually a pretty solid asset right now. And lastly, our fintech losses ran a little higher than the fourth quarter. So all in all, there were a bunch of headwinds on the income statement that masked what was a pretty solid quarter as it relates to the earnings power of the franchise. Chip covered the credit stats in the quarter, so I won't go back through them again, and the forward is obviously more important than the stats, but I do think it's worth mentioning that our portfolio was really healthy heading into this crisis.

As a reminder, over $1.7 billion of our loan portfolio is guaranteed by the government, 1.6 billion of SBA and 100 million of USDA and a total of $3 billion of the loans on our balance sheet are SBA loans, including both guaranteed and unguaranteed. And as Chip mentioned, the SBA will be making six months of principal and interest payments on all of those loans and that's on top of the deferrals that we processed before the CARES Act took place. You combine that with securing payroll loans for our customers, and we believe that our borrowers have a few unique aspects that will better help them weather the storm. I'll also point out, as I have on prior calls, the diversity of our loan portfolio.

And while we certainly do have some exposure to some of the higher-impacted areas, like hotels, fitness centers and day care centers, we also have some areas, like renewable energy, chicken farms, self-storage and government contracting, that are much less impacted by the current events. In terms of our go-forward thoughts on credit, it's honestly too early to predict the depth of these impacts and the effects the government intervention will have to mitigate challenges that our customers face. But we're actively engaged with our entire portfolio, especially those most impacted. We're staying very close to our customers, having reached out to 100% of them.

We're monitoring their liquidity real time, helping them manage their fixed expenses, working through options around rent and franchise relief and trying to ascertain as best we can when revenues will return to some semblance of normalcy. The initial tools at our disposal, deferrals, payroll loans and P&I support from the SBA, have provided critical breathing room and capital to a large portion of our portfolio. As we progress, we're confident we have the capital liquidity we need to provide working capital to our customers that need it to help them through this. As we indicated in prior calls, we did not expect the day one impact of CECL to be material to our loan loss reserve, although the changes in the forecasted macro event were significant.

The day one impact ended up being a $1.3 million decrease to our allowance. And as we closed the books on the quarter, like most other banks, we evaluated which macroeconomic scenarios to use to calibrate the lifetime loss model in CECL. We settled on the RNA pandemic scenario, which contemplates sustained high unemployment that escalate throughout the year and ends in double digits. On Page 12, you can see the impact of the reclassification to our loan loss reserve that we mentioned earlier, basically requiring us to separate our loan portfolio into those loans held at historical cost and those loans held at fair value, and reallocate our existing loan loss reserve into those two buckets.

As you can see, it really is just balance sheet geography. All in all, our modeling for the quarter generated an additional 13 million in credit reserves previously classified as allowances, which comprised of about 7.6 million in the allowance and a 5.4 million increase in the credit component in those fair value loans. If you look on the far right of Page 12, you can see the total of about $61 million of reserves across those two categories. And if you look at that on a really simplistic basis, we have a little over $2 billion of unguaranteed loans or about a 3% protection on those loans.

Given the uncertainty of the ultimate outcome and timing and shape of any recovery, we're going to remain conservative as it relates to forecasting and spend all our energy supporting our customers. On the funding side, our deposit platform remained really efficient. And in a lot of ways, the events in the last six weeks have reinforced the importance of digital banking offerings. Given the overall stress in funding markets, however, liquidity remained paramount, and our deposit portfolio has not repriced downward quite as quickly as we might have imagined given the Fed's actions.

We've seen some pretty rational downward pricing recently, though, and think the opportunity for us to gain some ground here in the near future. If you look at the blended cost, though, it's still a really great source of funding with minimal overheads. We remain really excited about our operating accounts that Chip mentioned and building out checking accounts and launching that. And in a near zero interest rate environment, we find ourselves -- the gap between those two costs on a fully loaded basis actually is pretty compressed versus the savings products that we have now.

In terms of our net interest margin, our recurring revenue growth was solid and margin was stable in the first quarter. That said, the Fed action in terms of timing came at a pretty bad time for us as our -- 55% of our loan portfolio will reprice with 150 basis points of Fed action here at the beginning of Q2, and we were just at the tail end of a lot of our Q1 CD repricing. So we expect our margin to take a hit in Q2, but to recover in the back half of the year as the deposits reprice. We also had warehouse significant liquidity, as Chip mentioned, in anticipation of the PPP program and with the introduction of the Fed facility funding 100% of those loans at a 35 basis point cost of funds, we find ourselves an extremely liquid balance sheet, which is great from a risk perspective but will also compress NIM in the near term.

On the expense side, as I mentioned earlier, we hired into the end of last year, anticipating a banner year of small business lending and technology deployment. The silver lining to that is we found ourselves fortunate to have 600 incredibly talented, incredibly dedicated teammates who rolled up their sleeves and have been collectively working around the clock throughout the PPP program helping small businesses across the country. We repositioned over 200 people into new roles and processed 5,000 loans in two weeks. For context, that's four times more loans than we made in all of 2019 in two weeks.

And we're back to work at that as we speak, committing to getting more funds into the hands of small businesses to help preserve jobs and keep them going through this. So our expense line looks high, largely a result of our team, and we don't plan to change that. One thing to note, as you triangulate expenses and capital, almost $3 million a quarter of our compensation expense is stock-based comp, which help us from a capital perspective. Our team is rock solid, and while the long-term path to sustained profitability may be pushed back a little bit, we're more confident than ever in our model of service to small businesses.

Aside from salaries and benefits, we had a couple of million dollars in increased expenses related to our technology initiatives as we continue to build what we believe to be the next-gen platform for the future of small business banking. It really feels like our thesis related to technology and banking has only been reinforced by recent events. Given some of our experience with hurricanes, distributing 600 people remotely and working in cloud-based technology has become pretty ordinary course for us. And over the last six weeks, we really haven't missed a beat.

In some ways, you can argue that we've collaborated even better with Zoom and Teams, and our entire company rallying around a common mission. Generating these PPP loans at scale requires flexible architecture and great technology platforms. With the help of our partners, we stood up our PPP lending platform quickly. We funded loans on the first day of the program, and we booked loans onto a purpose-built Finxact platform, which we believe will dramatically increase our efficiency in the forgiveness process.

In our experience, the importance of robust digital banking offerings, coupled with great customer service, wins the day. We spoke directly to every single one of the 5,000 small businesses that we funded PPP loans for. And while there may be some fully automated solutions out there, the feedback we got from our existing and our prospective customers was extraordinarily positive. We believe the marriage of great people and great technology truly is the winning model.

As Chip mentioned, we haven't lost sight of our broader technology initiatives, namely replatforming our entire company on the next-gen platforms, like Finxact and Aperture, and launching our digital small business checking account. We still believe as strongly as ever in our model bank initiatives, but we paused them for a bit as we turned our attention fully to the PPP program. We're still on track for deployment of our model bank this year, savings in CDs, launching on Aperture and Finxact in the near-term and a checking account close behind. In the payroll loan program, we've proven that we can pivot quickly and redeploy people on the fly.

As we look to launch these new deposit products, our team is energized and excited to focus on the new opportunity in what looks to be a slower lending environment in the near term. Meanwhile, our portfolio of companies within Live Oak Ventures continue to perform well, Aperture, Finxact, Payrailz and others. Canopy is sitting on roughly $500 million of dry powder to make financial technology investments, and the banking industry now appreciates more than ever the need for next-generation platforms to deliver digital banking services. So how do you wrap all this up? Do we go back to the long-term goal slide that we've shown in previous quarters? Clearly, we didn't move the needle forward on the profitability side this quarter.

And with new business activity slowing and the need to help our existing customers, our priorities have obviously shifted a bit. But we firmly believe the goalposts remain the same even if it takes us a little longer to get there. Sustainable revenues -- sustainable returns will still require additional scale on our balance sheet in a more normalized lending environment. But if the past is any predictor of the future, we expect to see great opportunities to help provide capital to small businesses on the other side of this.

Away from the Payroll Protection Program, SBA loans have always been critical components of economic recoveries. And we believe we're well positioned to provide working capital to recapitalize small businesses and help them recover from the impacts of this crisis. Our long-term mission remains unchanged to become the nation's best small business bank. Our current mission and our obsession lies with helping small businesses across the nation through this crisis.

As a company, we focused heavily on the safety and well-being of our people. And our people, in turn, are dedicating all of their energy focusing on the safety of our customers, offering them advice, loan deferrals and payroll loans. We quickly expanded our attention beyond just our existing customers to help small businesses in our communities, both local and within our industry verticals, to help administer payroll loans, to provide critical funds to small businesses. That mission is still under way.

We've been inspired by the tenacity of our customers and by the small business owners across this country. They truly are and will continue to be the American dream. Roll the questions.

Chip Mahan -- Chairman and Chief Executive Officer

Ready for questions.

Questions & Answers:


[Operator instructions] Our first question comes from the line of Jennifer Demba with SunTrust. Your line is now open.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Thank you, good morning. I hope everyone's doing well. So many questions. So just starting with credit, you guys do have only about two dozen or so verticals that you work with.

Just curious as to what you feel like the most vulnerable industries are that you're talking to right now. I know you're -- you've got a unique borrower base with the SBA guarantees and what they're going to do above and beyond right now. But who do you feel like is the most vulnerable right now?

Steve Smits -- Chief Credit Officer

So Jennifer, this is Steve Smits. Thank you. So yes, we've identified what we would call our most impacted industries, as you can imagine, dentists, family entertainment centers, early childhood education, wine and craft, fitness centers. That makes up just north of 20% of our portfolio.

Now what we've done with them is, first and foremost, where it's come in handy is that we've been very diligent about collecting quarterly financials. So the first thing we do is we look at the most recent precrisis financials that we have in each of these businesses and take a look at their balance sheet, see what their fallback position, their liquidity positions look like. We map that against their income statements and their historical fixed cost overhead, and we've run analysis on how many months can they sustain based on a pretty material impact to their top line revenue. And then as the government programs and interventions kick in, we map against the impact that they will have.

So we did reach out, first and foremost, besides just these most impacted businesses, to Chip's point, 100% of every small business borrower of Live Oak Bank on a phone call. We had a very detailed, spent a good bit of time talking to them, assessing how they felt. We immediately reacted with the deferrals. About 19% of our clients expressed the need for deferral.

And then we -- as the government started kicking in with these programs, we saw that flatline and even go down and some of them opting to hold off on the deferral, not the least of which the impact is the six months of payments by the SBA. So 76% of our portfolio are SBA 7a loans that will have the full P&I payments made on -- for them on behalf of the U.S. Government. So that's created some confidence among these folks.

PPP, every small business borrower of Live Oak Bank that expressed a need and a desire for a PPP loan received one. So that also then created some confidence in this group as well. So we continue to map what their liquidity positions look like, how impacted their revenues are and then try to assess the impact of these enhanced programs that are coming out from the government to monitor them very closely.

Chip Mahan -- Chairman and Chief Executive Officer

And Jennifer, so I would look at that in kind of four tranches. No. 1 would be payment deferral. No.

2 would be PPP. No. 3 would be, as Steve mentioned, the government making payments on their behalf. And then No.

4, we do feel like there's a good shot of more money coming at a 90% guarantee. So our average loan is about 1.3 million. So 25% would be either guarantee percentage toward a 3.750 million bucket. So having additional financing capabilities with a 90% guarantee for working capital to take them beyond this challenge, I think, would be in order.

But we'll see.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Can you elaborate on the economic scenario that was factored into your provision? You mentioned it very quickly, Huntley, but could you say that again and just give a little more color?

Steve Smits -- Chief Credit Officer

Yes, Jennifer, this is Steve Smits again. So clearly, the most impactful was because it is a factor that we used for unemployment. So we assumed an immediate impact to an increase in unemployment right off the bat and then sustained and increased unemployment throughout the year. So that was pretty impactful.

That was probably just shy of an $8 million impact to the provision just by making that assumption. Time will tell. But right now -- and because CECL looks at lifetime loss scenarios, that had a pretty meaningful impact to the provisions.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

How much participation do you expect to have in the second round of PPP? Will you go beyond your current client base? Or what are you expecting there?

Chip Mahan -- Chairman and Chief Executive Officer

Well, Jennifer, we're going to go like a bat out of hell. So we have partners that we're working with, some substantial partners, and we're trying to predict [Inaudible] a bit more technology. Round one was kind of the concierge, brute force, get it done for our customers tranche. Who knows when they're going to hit the starting gun, maybe some have said at 12:01 a.m.

tomorrow. But we're ready, and we're going to go as fast and hard as we can.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

And what kind of -- Huntley, you mentioned that some of the hiring that you've done late in the year obviously came through in the first-quarter expenses. So do you feel like first-quarter expenses are a good run rate going forward? What kind of expense control will there be to put in place to kind of offset some of your provision needs?

Huntley Garriott -- President

Yes. It's a great question, Jennifer. I think obviously, things are a little hard to predict right now. Clearly, things like travel expenses are going to be down for the near future.

Our team is in place. We don't expect that to grow at all, but it will stay what it is, and we're going to be redeploying folks. We might have folks going out and finding new checking account customers here before along with folks who historically have been in some other roles. Clearly, some of those folks are going to shift into more portfolio management work.

And I think, my gut tells me there was a little bit of noise on the expense side this quarter, but we always have a few puts and takes. So I don't want to say it's thing dramatically lower. But I don't think you should expect it to increase much through the course of the year.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Right. And what about future loan sales? What does the market look like right now? Is there any market for SBA 7a loan?

Chip Mahan -- Chairman and Chief Executive Officer


Brett Caines -- Chief Financial Officer

Yes. This is Brett. Right now, the secondary market is a little bit tough. The buyers that are out there are typically just the buyers that want to buy in portfolio government guaranteed loans.

There's a bit of a, I'd say, slowdown with any buyers who are pooling loans. And that's just sort of during this time difficult to getting a pooling certificate. So there is activity. Loans are moving, but given the reduced number of players in the market, premiums are compressed a bit, as Huntley mentioned, referencing the roughly four percentage point drop on average for loans that are being sold right now.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

My last question is for Chip. Chip, what do you think the long-term implications of all this are for your company and for the banks, in general? You just already talked about you think this certainly underscores the need for more technology. But any other implications you see?

Chip Mahan -- Chairman and Chief Executive Officer

Jennifer, when I put my head on the pillow at night, I just think about our customers. And as you know, we go see 100% of our customers before we make them along to try to determine if they have the eye of the tiger. And so now we're going to find out because they didn't ask for this, we didn't ask for this. But we're going to swarm them after this PPP thing is over.

And who knows where all that's going to end. But we have a geographic dispersed portfolio. We're in 33 separate industries. The -- I actually think we're in the best position of any bank in the country because of the nature of the SBA program and everything that we've talked about previously.

And I think we'll be better on the other side. We have spent the latter part -- best part of the last three years working on these next-gen technology platforms. We were right on the precipice of launching Finxact. We're booking loans on a Finxact core today in the PPP program.

So America will be back. Our customers will be back. Live Oak is not going anywhere.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Thanks so much.


And our last question comes from the line of Chris Donat with Piper Sandler. Your line is now open.

Chris Donat -- Piper Sandler -- Analyst

Hey, good morning gentlemen. Thanks for taking my question. So with all the other changes going on in the world, I'm making a small change to trying to fill the seat that Aaron Deer has vacated as he takes the CFO position. What I wanted to have is someone who's new in looking at the story, when I look at your dominant position in the SBA market, the 1 billion of loans disbursed under PPP seems sort of small, but can you help me understand that? Is it just because you focused on the -- on your existing customers that that limited how large it would be in PPP? I just want to kind of understand the scope of PPP for you, the first round at least.

Huntley Garriott -- President

Yes. So look, I mean, the existing customers most of the banking industry was servicing their existing customers, which is more streamlined from a KYC perspective, you go outside of that and you go into new customers [indiscernible] at scale you got to make sure you're comfortable with fraud, you're comfortable with your KYC criteria or customer -- you're comfortable with eligibility. And we took a bit of a more manual approach in terms of reaching out and talking to people. And so we went through all of our customers over the course of a couple of days.

That went really efficiently and then we wanted to actually see where we could have an impact. So we did -- again, we did four times more units than we did all of last year in the course of two weeks, right? So I think we turned the crank pretty hard there were some fully automated solutions, and I think some folks used to turn massive volume. And we'll see if when the dust settles, if they did a good job knowing the customer, knowing the eligibility, making good loans, being able to get the forgiveness, done the right way and ultimately being able to effect the guarantee when some of these loans go bad. We think about all of those things having been in the SBA business for as long as we have.

There are banks that are much, much larger than us that did about the same amount or even just a little bit bigger than us that had 10x more people filling out forms all day long. So we're really proud of what we did.

Chip Mahan -- Chairman and Chief Executive Officer

And Chris, just -- I would remind you that our chief credit officer, Steve Smits, used to run the office of capitalize assets at the SBA. So kind of the No. 2 guy at the SBA in the last crisis. No one knows more about is that 100% guarantee or not than Steve and his team.

So maybe we were a little conservative early and relative to other banks, I just say, well, just let's fly on this because it's guaranteed by the government. Maybe, maybe it is and maybe it didn't. We are highly confident that every PPP loan we made is 100% guaranteed by the United States Government.

Chris Donat -- Piper Sandler -- Analyst

Got it. Appreciate that. And then one of the challenges of this environment is the social distancing. And Chip, you talked about how you still meet with your clients and look in their eyes and see if they got the eye of the tiger, how are you handling one-on-one meetings or on-site meetings in a social distancing environment? Are you capable of doing those meetings to resume in document exchanges or data rooms or something? Or just help us understand how the world shifted for in the last month.

Chip Mahan -- Chairman and Chief Executive Officer

Steve, why don't you take that one relative to?

Steve Smits -- Chief Credit Officer

I'll start, and I'll let Huntley add to it. We've -- I've been one that is not real tech-savvy and a wizz at Zoom. So out of adversity comes opportunity, right? For me, I've embraced technology and found the wonders of other means of communication that can be as effective and meaningful. So being able to Zoom in, have conversations, I would think that actually what we've given up as far as face-to-face walking in the front door, we've gained in exponentially more conversations with our borrowers than we ever have in the past.

And we're already pretty good at it.

Huntley Garriott -- President

Yes. I also think technology has arrived just at the right time in this. We have construction portfolio, right? And so they're managing draws and site visits and inspections, and those are happening virtually, right? And we're seeing collaboration happening in that way. We are, as Steve said, incredibly plugged in and in communication with our customers.

Would we like to be doing that and also going and shaking their hands? Absolutely. For our existing customers, that's actually not really that much requirement. We've met them in person. We've shaken their hands.

Now our relationship can be totally virtual for. Net new customers, look, as the world evolves, we will be back to face-to-face. We think that's important, too. But we're awfully connected right now.

There's no question about that.

Chris Donat -- Piper Sandler -- Analyst

Got it. And then just last one for me on the economic forecast you're using that Huntley talked about. I just want to make sure I got it right. It ends in double-digit unemployment.

Huntley, did you give us a time frame for that? I was scribbling.

Huntley Garriott -- President

So through the end of the year, we'll be -- we'll still be double digits through the end of the year in this forecast and then start the -- some slow recovery after that.

Chris Donat -- Piper Sandler -- Analyst

Got it. Understood. All right, thanks very much.


And this does conclude today's question-and-answer session. I would now like to turn the call back to Chip Mahan, CEO, for any closing remarks.

Chip Mahan -- Chairman and Chief Executive Officer

Well, we just appreciate everyone attending today, and we look forward to progress in the PPP program and see you on the other side.


[Operator signoff]

Duration: 44 minutes

Call participants:

Greg Seward -- General Counsel

Chip Mahan -- Chairman and Chief Executive Officer

Huntley Garriott -- President

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Steve Smits -- Chief Credit Officer

Brett Caines -- Chief Financial Officer

Chris Donat -- Piper Sandler -- Analyst

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