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Date

Thursday, Jan. 22, 2026 at 9:00 a.m. ET

Call participants

  • Executive Chairman — Chip Mahan
  • Chief Executive Officer — Vijay Moesch
  • Chief Financial Officer — Walt Phifer
  • Chief Credit Officer — Michael Cairns

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Takeaways

  • Net income -- $44 million in the quarter, about three times the prior year period, reflecting significant year-over-year profitability improvement.
  • Earnings per share (EPS) -- $0.95 for the quarter, also approximately tripling the prior year, driven by strong operating performance.
  • Loan growth -- 17% annual growth in total loan balances, supported by $6.2 billion in full-year loan production and $1.6 billion in fourth-quarter originations.
  • Revenue growth -- 17% increase, highlighting momentum in business lines.
  • Adjusted pre-provision net revenue (PPNR) -- 27% full-year growth and 21% quarter over quarter, indicating substantial operating leverage gains.
  • Adjusted EPS growth -- 49% on a full-year basis, evidencing pronounced bottom-line improvement.
  • Tangible book value -- 13% annual increase, reflecting accumulation of equity.
  • Business checking deposits -- $377 million at quarter-end, doubling year over year and growing 4% sequentially.
  • Deposit growth -- 18% year over year, despite a sequential quarterly decrease due to typical fourth-quarter seasonality.
  • Customers with both loan and deposit accounts -- 22% at quarter-end, up from roughly 6% the prior year, demonstrating deepened relationships.
  • Low-cost deposits -- Approximately 4% of total deposit base, doubling over the past year and materially accretive to earnings.
  • Gain on sale from Live Oak Express -- $12 million contribution in 2025, representing 20% of gain on sale revenue and doubling the prior-year figure.
  • Investments portfolio gains -- $28 million net gain in the quarter, including a $24 million gain from the Aperture sale.
  • Provision expense -- Fourth consecutive quarter of lower or stable levels, aligning with generally improving credit trends.
  • Loans held for sale -- Increased by approximately $60 million sequentially, as the company delayed some loan sales to maximize near-term net interest income.
  • Nonaccrual loans -- $110 million at period-end (91 basis points of unguaranteed held-for-investment portfolio), with the increase driven by SBA credit trends consistent with industry dynamics.
  • Past dues -- Over 30 days past due remained low for the fifth consecutive quarter at $10 million (nine basis points of held-for-investment loans).
  • Net interest income -- Increased $8 million (7%) quarter over quarter and $26 million (26%) year over year, reflecting volume growth and margin expansion.
  • Net interest margin (NIM) -- Expanded by five basis points sequentially, supported by lower deposit costs after 50 basis points of Fed cuts.
  • One-time expenses -- Q3 noninterest expense included approximately $6.6 million of one-time expenses.
  • Capital levels -- Remained healthy and flat sequentially, keeping pace with asset growth.

Summary

Live Oak Bancshares (LOB +8.10%) delivered record loan production and core profitability in the quarter, with both net income and EPS approximately tripling the prior-year period. Management highlighted the success of strategic initiatives, particularly in business checking and Live Oak Express, which have doubled their respective metrics year over year, while deepening customer relationships as the percentage of clients with both loan and deposit accounts rose to 22%. The investment portfolio contributed a notable $28 million net gain, providing flexibility to defer loan sales and optimize net interest income. Expense growth moderation and ongoing technology investments, including AI initiatives, may support further improvement in operating leverage and efficiency.

  • The company’s outlook anticipates stable or declining rate environments and continued loan growth as favorable for margins and credit trends.
  • Live Oak Express originations, although not expected to double in the next year, have a longer-term aspirational production goal of $1 billion annually.
  • The Q4 uptick in nonaccrual loans is described as manageable due to proactive reserving within the classified loan portfolio.
  • Expense growth in coming periods is projected to moderate to the single digits, as management reallocates investment toward the highest-return opportunities.
  • AI adoption is expanding within development, operations, and customer analytics, with long-term plans for an “AI-native bank” and further operational improvements.
  • Management expects a step down in NIM at the start of the year, with expansion likely resuming as deposit repricing catches up to lower rates and loan growth remains strong.
  • Approximately $60 million in loans held for sale provides a pipeline for first-quarter gain on sale revenue and positions the company for flexibility in loan sales timing.

Industry glossary

  • Live Oak Express: The company’s program for originating and selling small-dollar SBA 7(a) loans, focusing on efficiency and scalable production.
  • Gain on sale: The profit recognized when loans are sold at prices higher than their carrying value, often realized in conjunction with SBA loan sales.
  • Nonaccrual loans: Loans where interest accruals are suspended due to doubts over collection, typically as a result of payment default or borrower distress.
  • Classified assets: Loans identified by management as displaying elevated credit risk, which are closely monitored for potential loss.
  • PPNR (pre-provision net revenue): Earnings before accounting for credit loss provisions, reflecting the core profitability of a bank’s operations.
  • SOP (standard operating procedure): Regulatory guidelines issued by the SBA governing eligibility, underwriting, and servicing for SBA loan programs.

Full Conference Call Transcript

Vijay Moesch: Great. Thanks, Greg. Good morning, everybody. Thanks for joining us. Let's get started on slide four. 2025 was quite an interesting year. And here at Live Oak, I'm really, really proud of the way we navigated through those interesting times. Macro uncertainty persisted throughout the year. Whether it was Doge or tariffs or uncertain economy and ultimately three rate decreases from the Fed late in the year. We continue to navigate through a small business credit cycle and our loan portfolio showed continued credit stabilization over the course of the year. We significantly improved our operating processes and controls. We successfully executed on our first preferred offering.

And we finished the year nicely with some outside venture gains from our ventures portfolio. And yet even with that busy and potentially distracting backdrop, we produced some excellent results as you can see on slide five. A few of the biggest highlights were record loan production, 17% loan growth, 27% core PPNR growth, 17% revenue growth, and 13% tangible book value growth, in addition to accelerating our momentum in our key growth initiatives of Live Oak Express and checking. I'm particularly proud of this two-year view of our production on slide six. 57% growth in loan production across both our small business and commercial groups and importantly, strong pipelines heading into 2026.

And as proud as I am of those production results, what matters most is how you translate that into profitable operating leverage. And you can see on slide seven that those results are simply outstanding. With adjusted PPNR of 27% over 2024 and adjusted EPS up 49%. New customer acquisition and growth like this doesn't just happen by accident. Our people and how we deliver excellent customer service make the difference. Our goal is to continue this momentum and deliver earnings outcomes that are more consistent and sustainable over time. While credit has been top of mind for us and for investors over the past year, perspective is always important.

And on slide eight, you can see our credit trends over ten years relative to all other SBA lenders. And while default rates had moved higher over the last two years, as PPP and stimulus tailwinds have burned off, and rates rose rapidly, Live Oak's performance has consistently been well ahead of peers. Thankfully, we know small businesses and are great credit managers. We're hopeful that these trends start to moderate back towards the long-term trend lines sooner rather than later. Finally, we continue extending our customer product offerings with checking and small dollar SBA loan capabilities. Both of these efforts launched in early 2024.

And in just 24 months, our teams have made significant gains in winning customer checking relationships and serving more small business borrowers. At the end of 2024, only roughly 6% of our customers had both a loan and deposit relationship with us. Today, that percentage is 22%. And we've got a lot more runway to travel. On the small dollar 7(a) front, what we call Live Oak Express, production is ramping up meaningfully and will continue to do so. These loans are also very desirable on the secondary market. That are leading to nice gain on sale increases. There's a lot more upside to this business as well. We're just starting.

I couldn't be prouder of how our people are taking care of customers making our operations better and profitably growing our company. Thank you to all Live Oakers for the momentum that they have built heading into 2026. And with that, Walt, how about running through some of the financial highlights for the quarter?

Walt Phifer: Thanks, Vijay. Good morning, everyone. As outlined on Page 11, we had an outstanding end to our 2025 campaign. With Q4 producing $44 million of net income and $0.95 of earnings per share, both of which were approximately three times 2024. Our strong performance was aided by excellent growth in core profitability trends, as seen in both our reported and adjusted PPNR improvement year over year. Generally improving credit trends and our fourth consecutive quarter of lower to stable provision expense and $28 million of net gains in our ventures investment portfolio primarily driven by the $24 million gain from the Aperture sale. Growth remains excellent.

As Q4's loan production of $1.6 billion capped off our highest year of loan production in company history with $6.2 billion driving the 17% annual loan balance growth. Outstanding loan origination that you just won't see replicated broadly across the industry. And we love to see the progress across our two initiatives of growing business checking and originating Live Oak Express loan. Business checking balances of $377 million doubled year over year, materially benefiting our interest expense line, while Live Oak Express contributed $12 million towards our gain on sale totals in 2025. Let's get into the details on the following pages. Page 12 provides a financial snapshot of our Q4 earnings results.

With quarter over quarter demonstrated improvement across all major profitability and growth metrics. On the bottom right of the page, you will see several notable items, included within our reported results. Headlined by the $28 million net investment gains from our Live Oak Ventures investment portfolio, In addition, we had approximately $11 million of offsets from warrant losses, capitalized software accelerated depreciation, severance, and allocation of funding to our donor advised fund. Continue to be very excited about our operating leverage trends highlighted on slide 13 as was BJ's. Q4's adjusted PPNR of $64 million as detailed in Slide 28 is 21% higher than 2024. While our adjusted EPS has doubled over the same time period.

That doesn't tell the full story. It includes approximately $5 million of accelerated depreciation of capitalized software and severance expenses. As well as an intentional decision to delay some loan sales until 2026 which we'll touch on more shortly. Due to the large aforementioned investment gains. Slide 14 breaks down the $1.6 billion of loan originations by vertical and business unit. A few quick things that hit on here. Approximately 70% of our verticals originate more production in 2025 than they did in 2024. And both small business and commercial lending teams delivered double-digit year over year balance sheet growth rates. Slide 15 illustrates our loan and deposit balance growth. Highlighting the strong, consistent trends on both fronts.

Our total loan portfolio grew approximately 4% linked quarter with year over year loan balances increasing approximately 17%. That's just outstanding durable growth. Q4 customer deposit growth was slightly down linked quarter, as was expected due to typical Q4 seasonality. Yet our year over year customer deposit growth rate was 18%. Which is fantastic growth in a very, very competitive market. As I mentioned earlier, we continue to be very excited about the momentum we are seeing in business checking, as highlighted on page 16. We saw our fourth consecutive quarter of growth with checking balances increasing 4% linked quarter to $377 million and are highly encouraged by our progress in deepening customer relationships.

As BJ noted, 22% of our customers now have both a loan and a deposit account with us. Our total low-cost deposits and 37% of new loan customers also open a checking account in Q4. including noninterest bearing checking balances, low-cost collateral construction, and loan reserve accounts, now totals approximately 4% of our total deposit base. A two x increase year over year. And tremendously accretive to our earnings profile. Our net interest income and margin trends are detailed on slide 17. In 2025, we saw our quarterly net interest income increase $8 million or 7% linked quarter. And $26 million or 26% compared to 2024.

Driving the Q4 increase in net interest income were both our continued outstanding growth as well as our net interest margin expansion of five basis points quarter over quarter, aided by our deposit portfolio repricing downwards in response to the 50 basis points of Fed cuts in Q4. While our variable quarterly adjusted loan portfolio did not reprice until January. As in the past, when we have seen large Fed moves downward of 50 basis points in the quarter, will see near-term compression as our deposit pricing and strong volume catch up. And we continue our upward trajectory on net interest income. Historically, our model operates well in a lower interest rate environment.

Once we navigate the journey down as our deposit pricing adjusts. Currently, our base outlook for the Fed consists of three Fed cuts in March, June, and September 2026. Any less cuts or cuts later in the year will provide an earnings opportunity for the bank. Moving to guaranteed loan sale trends on Slide 18. Gain on sale was intentionally down this quarter as our large investment gains provided loan sale flexibility. Essentially allowing us to delay sales into a future quarter while increasing our loans held for sale by approximately $60 million quarter over quarter to maximize net interest income for a few additional months.

This is a similar tactic that we have deployed in the past when we have large investment gains. Looking back to 2025, we are more than pleased the momentum that we are seeing in our Live Oak Express product. And the immediate impact it has had on our providing for a meaningful 20% of our gain on sale for $12 million a two x what it contributed in 2024. We remain very focused on ramping our Live Oak Express originations. As that will continue to be the primary driver of our gain on sale growth going forward. Expense and efficiency trends are detailed on slide 19.

Q3 reported noninterest expense of $89 million included approximately $6.6 million of one-time expenses detailed within a notable item section back on slide 12. We remain heavily focused on improving both our customer and our employee experiences. And implementing technology and operational improvements across our entire business. All with the goal of creating raving fans moderating expense growth and thus improving efficiency, and providing a solid, mature foundation to support our growth. Taking a look at credit on slide 20, Over thirty days past due remained low for the fifth consecutive quarter with $10 million or nine basis points of our held for investment loan portfolio past due as of December 31.

The amount of nonaccrual loans increased to $110 million or 91 basis points of our unguaranteed held for investment loan portfolio in Q4, The linked quarter increase in here was primarily driven by SBA credit, and it's consistent with the broader SBA industry trends. Which LIBOR continues to outperform. Our reserve levels declined modestly in line with the improving trends in past dues, classified assets and net charge offs. Altogether, improvements across these metrics show that the uptick in nonaccruals is manageable. Capital levels remain healthy and robust as shown on page 21. Q4 strong results matched our asset growth. Keeping our capital levels relatively flat linked quarter. A few thoughts on the forward outlook.

We are very optimistic about the opportunity in front of us in 2026 and beyond. On the revenue front, we generally see a stable or low rate environment coupled with continued strong loan growth as a favorable backdrop for our bank's growth, margin, and credit outlook. Our two strategic initiatives in business checking and Live Oak Express are nicely with plenty of runway to continue to drive deeper relationships. Increased fee revenue, and lower funding cost. We have refocused our expense base. And investments on the best opportunities. Which will moderate the growth rate while better supporting strong revenue growth. The possibilities that AI and tech innovation provides across the bank are enticing.

And will enhance our customer service and efficiency with active efforts ongoing. And above all else, we have an amazing culture, team, and brand here at Live Oak Bank that is irrevocable. With that being said, thank you again for joining this morning. Vijay, back to you for closing comments before we hit the queue for Q&A.

Vijay Moesch: Excellent. Thanks, Walt. Let's just take some questions.

Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any case. Once again, it is star one should you wish to ask a question. Your first question is from Crispin Love from Piper Sandler. Your line is now open.

Crispin Love: Thank you. Good morning, everyone. Just first, NII and the NIM, very strong in the quarter. Nice expansion there. But can you just talk about some of the dynamics into the first quarter, the impact of the last two cuts, the impact of loan yields that there's likely some lag, also deposit costs, then just consequently, NII and the NIM in the first quarter relative to the fourth. Well, I believe you mentioned some compression in the NIM, but higher NI, but if you just flesh that out a little bit, that'd be great.

Walt Phifer: Yeah. Hey, Chris. It's Paul. Thanks for the question. I think you hit the nail on the head and kinda go back to some of the comments I made. In the prepared remarks. Typically, anytime you see 50 basis points of Fed cuts in the quarter or the following quarter, As you know, we have a large variable quarterly adjust loan portfolio that reprices on the first business day. So that'll drive both NIM and net interest income compression in the near term.

The good news, which essentially, the beauty of Live Oak and our growth engine, is that as the deposit pricing, deposit price continues to adjust, growth really pushes us back to that up into the right migration and both the interest in coming in fairly quickly. Really, and the seedness of that flow on the up and to the right migration is largely gonna depend on know, what your whatever fed outlook or forward curve you're thinking or taking a look at.

But I think, you know, a good proxy if you kinda, you know, kinda looking for a guide for what Q1 could look like in terms of NIM Back in '24, we had 50 base points of Fed compression or of Fed rate cuts right at the end of right at September. And you can see kind of the quarter over quarter change, Q4 twenty four as a result of that.

Crispin Love: Okay. Great. Helpful color there. And then just on gain on sale income, down materially in the fourth, not a major surprise. At least directionally, because of the shutdown. And then you also mentioned the aperture gain. Drove some of that decision to hold more. I think you typically sell more in the back half of quarters. But, is that changing in the first quarter because of the shutdown? Have you been active selling in early twenty six?

And then just when you look at the first quarter, how would you think gain on sale income should trend just as you look at more normalized quarters like the 2025, my I would expect that it would be kind of higher than that just when you look at the fourth, but I just wanna kinda check to see what you're thinking there.

Walt Phifer: Yeah. Thanks, Chris. It's Walt again. You know, I think the government shutdown really did impact us much in Q4. I think we saw a little bit of a timing delay in certain loans, but you saw that, you know, strong s b, SBA production in the quarter You know, so we're able to get, you know, kind of all our loans as we talked about in the last 30 earnings call, you know, kind of position to close once the government opened up, and that's, like, exactly what we did You know, as you think about gain on sale trajectories, I don't think anything will change between when we sell loans versus, you know, January versus February or March.

I think it'll still be much you know, more to the mid to the back end of the quarter. That's our typical approach. I think Q1 historically, for us is our lowest quarter of the year. I know 2020, '5 was a little bit different because of the fintech gains, but I would expect our Q1 to be much more in line with you know, the 2025. And then that's when we start our up into the right stair step. Momentum within the gate on field line.

Crispin Love: Alright. So if I'm looking at one q twenty five, so even if even though that there was a little bit of lag there, it could be below that kinda two Q3 q level.

Walt Phifer: I think it'll be closer to what you're seeing in 2025. Yeah. So our 2026 will be closer to what you see in 01/2025, so it'll be a step up versus what you saw in Q4. And then that gets us back into you know, that's I think Q1 twenty five was in the $15 million reach of total gain on sale. That feels you know, that feels appropriate.

Crispin Love: Alright. Thank you. Appreciate it, Walt.

Walt Phifer: Sure.

Operator: Thank you. Your next question is from David Feaster from Raymond James. Your line is now open.

David Feaster: Good morning, everybody.

Walt Phifer: Hey, David.

David Feaster: I wanted to not to beat a dead horse on the margin outlook, but I just wanted to maybe get some thoughts on the trajectory. I appreciate the commentary on the first quarter. You've got three cuts embedded in your guidance. Obviously, there's some you there's just gonna be a lot of moving parts. Right? You got the tailwinds from the reprep deposit repricing in the prior cuts. The headwinds on the assets repricing lower on the rate sensitive stuff. I just was curious if you could help us think through with the three cuts that you've got embedded, how do you think about the margin trajectory over the course of the year?

Do you think we can given the tailwind from the prior cuts, we can actually see some expansion and kinda just us think through that trajectory over the course of the year.

Walt Phifer: Yeah. I think, you know, David this is Walt again. You know, really you know, thing that we think about is not only what the Fed cuts gonna do, it's the it's it's the timing and severity of those cuts. You know, stable environments work really well for us. So if you saw, you know, 2024, we saw compression And then with a stable environment, we saw a nice NIM expansion throughout the year. With 25 basis points of, you know, of Fed cut assumptions, that allows our deposit pricing to catch up relatively quickly.

Ultimately, we're you know, we'll expect that step down here in Q1, and then you know, our expectation is to go back on that, you know, start seeing the up and right trajectory or NIM expansion, you know, as we move through the year. It's gonna be driven by growth Now, obviously, you know, positive market is very competitive and what kind of you know we have to do what we need to do to continue to fund our outstanding growth. And, you know, David, like we talked about in the past, we at Live Oak, I mean, even with a you know, a three you call it anywhere from a three fifteen to a three fifty NIM.

You know, we think that's really attractive. We focus a lot on net interest income. That's the beauty of kind of the Live Oak model, right, where you can have double digit net interest income growth year over year. Even with some variations, you know, from your margin trajectory? Absolutely.

David Feaster: Terrific. That's helpful. And then, you know, obviously, there was a lot of noise on the expense side this quarter. You alluded to some of the things. Just was hoping you could give us some puts and takes on expenses. You know, you've got a lot of investments on the horizon. We talked about, you know, the Live Oak Express ramping up. We talked about embedded finance. Could you just help us think through a good core expense run rate from here? What's your investing in and how you think about funding those investments just as I know you've really been focused on expense management.

Walt Phifer: David. This is Walter again. Thanks. Great question. You know, we're we're really trying to do our best to make sure that we're balancing both revenue and expense growth. You know, we've as BJ mentioned and I mentioned, kind of looking at the operating leverage slide, we've done a really good job of that, especially over the last few years. They even have extended past, you know, five years with our PPNR or p PPNR trajectory. You know, I think from, you know, where we're investing, you know, the two strategic priorities for us of both business checking and lab express and Live Oak Express are, you know, heavy focal points.

You know, the areas with AI and application and kind of across our operational areas of the bank, it's and our loan, loan origination platform is really exciting. Know, I think from you know, expense growth rate, You know, we typically you we mentioned that in our prepared remarks, we expect that to moderate quite a bit. You know, that's something probably likely in the in the single digits year over year as we think through, you know, it's just making sure that we're, you know, reporting our money strategically in the right places.

David Feaster: Okay. That's helpful. And then just quickly touching on credit. You know, there's there's mixed trends there. Just wanted to get your color on what are you hearing from your clients? Where are some of the pressure points that you're seeing as you as you look into the portfolio? Are there any segments that there's more pressure? And what drove that increase in nonaccruals? And just how do you think about credit how do you think credit trends near term, and any color on the classified assets trends specifically would be helpful as well.

Michael Cairns: Yeah. Good morning. Michael Cairns here. I'm happy to talk about credit a little bit here. And my view on this quarter was it was a fairly uneventful and stable quarter when you compare it to where we were last quarter. The past dues are low, And to your point or your question, classified loans are flat to slightly improving over the quarter. And when you think about nonaccrual, loans, those live within our classified loan portfolio. And so when we determine that they're a classified loan, at that point, we're assessing the reserve of potential losses against that those loans.

And natural progression of a classified loan or the reason we identify as a potential problem loan is because payment defaults could happen. So you're seeing that in the nonaccrual balances, but you're not seeing a spike in reserve or provision expense because we've already assessed the potential losses within that pool. And then when you look at and I and I know Walt touched on this already, but when you look at the SBA data, you know, 2025, we still saw higher industry defaults. Live Oak wasn't immune. To that, but we also fared significantly better than the industry.

And when I think about that, I think about the fact that we have always maintained our credit culture don't stress on underwriting standards. And a lot of credit really to our lending staff who are out there historically and today finding loan growth without sacrificing credit quality. And I think that's what has set us up to be a favorable position to the industry and also what will pay dividends for us in the future. And then to when you also think about the interest rate cuts that happened in the 2025, Our borrowers haven't felt the benefit of that quite yet, but they should in 2026.

So I expect some relief there, especially if we see some additional cuts And, again, I don't know if I touched on this or not, but the SBA the SBA portfolios that makes up the chunk of the nonaccrual balances and the classifieds. So with all that, I felt like it was a pretty stable quarter.

David Feaster: That's great color. Thanks.

Operator: Thank you. Your next question is from David from Cantor. Line is now open.

David: Hey. Good morning, guys.

Walt Phifer: Good morning, Dave.

David: Hey, Walter. I just wanna go back to your comments on the margin. You mentioned down similar to that trend in 4Q 'twenty four, I believe. And so it looked like that was down about 18 basis points that quarter. So just wanted to make sure that, that was sort of the magnitude that you were thinking about. And then on slide 17, you guys included a newer line in that some income from a it was other loan income. It was about six basis points on the margin. For the quarter. I was just wondering what that was exactly, and is that something that's going to reverse as that rolls, you know, off of one queue?

Or does that stay in the margin trying to figure out if that's incremental to what you guys saw in terms of the trend in 04/2024. Thanks.

Walt Phifer: Sure. Hey, Dave. This is Walt. Thanks for that, you know, for the question. On the other loan income, I'll start there. So that line, it was inflated more than we typically see in any given quarter. This really, relates to few large solar and senior housing loans that paid off that had pretty high prepayment penalty. So that's something that, you know, we don't expect to see the run rate you know, you know, moving forward and especially not to that degree. And then, you know, as you think about the trajectory you know, back in Q4, you know, after the 50 basis points of cuts, Yeah.

I think that's, you know, that's in a reasonable range think the one thing that's helping us this year is that we were able to get out front of the variable loan portfolio, repricing on January 1. With some deposit, rate reductions there at the end of, of Q4. And, also, we're able to already to reduce the pricing again here in Q1. So we're doing what we can to mitigate it. You know, but I think the other factor there is, you know, our pipeline has been really slowed down at all. So, you know, we're expecting a pretty strong Q1 in terms of growth.

That's gonna, you know, hopefully help you know, you know, manage that NIM compression that they're taking a look at.

David: Great. Appreciate that. And then just, on expenses, just wanna make sure I heard you right. Were you saying mid single digit growth for expenses next year?

Walt Phifer: Slower than what we saw this year?

David: Okay. Yeah. Great. And then just on Live Oak Express, it was good detail you had in here on the 12,000,000 of gain on sale. For 25. Are you thinking I guess, bigger picture, what are thinking for the trajectory there? Is that something that I could double in '26? Could it could it go even higher than that? What are your thoughts there?

Walt Phifer: Yeah, Dave. This is Walt again. I'll start and then Peter, you wanna add into you know, from the Live Oak Express efforts. Know, I think we're doing what we can to really make sure we're we're building top of the funnel in that space. We saw you know, we did see a slowdown in our Live Oak Express origination back 2024 the SBA SOP changes in June. You know, that you know, we had to essentially reset kind of know, our expectations to make sure that we're to build rebuild that pipeline with borrowers or rebuild the pipeline with borrowers after know, just essentially updating them, educating them on what those SOP changes were.

Know, look, I think doubling is very aspirational. I think it'll be something less than that. I'll let Vijay talk and add in if he has any comments.

Vijay Moesch: Yeah. I think at cruise altitude, I think, you know, we're our aspirational goals are a billion dollars a year of production. At cruise altitude. That's not next year. That's over time. When we started down the road of building out a Live Oak Express product, it was really by brute force. I think we've talked about it before that, you know, we just never really focused on the small dollar loans, you know, that we our average loans size was more in the 1.2 or $1,300,000 average loan size range.

And so know, we started just kind of trying to see how we could do it What we're doing now is intentionally building capabilities so that we can fill you know, the top of funnel, so to speak, and get a lot more leads that we can then work in a much more efficient manner. So for instance, we are, you know, building and co developing a next generation loan origination platform, which will make it simpler, easier, faster, and more efficient for our people to serve our customers much more quickly and get to decisions and funding a lot faster. We have engaged outside expertise in our marketing group.

That are expert in performance marketing to find ways to better target customers. That are out there searching for loans that we can that we can do through our Live Oak Express product. And we are making sure that our lenders, have been carrying the bulk of the water, up to now in terms of referrals, can even find more avenues for those referrals and we're encouraging them to do that both through how we how we provide them resources, but then also making it part of the you know, incentive plans that we have for them to grow the business. So we've kinda got a multifaceted way of going after this. Intentionally.

So we think that we'll continue to see growth over the next several years towards that aspirational target of 1,000,000,000 a year.

David: Alright. Great. Thanks, guys.

Operator: Your next question is from Tim from KBW. Your line is now open.

Tim: Hey. Good morning. Thanks taking my questions. My first one is kind of a follow-up on this discussion on Live Oak Express, and you know, we're more than six months now into these SOP changes regarding the smaller dollar loans. Which I think we're now starting to see how that has pressured volume on maybe some of your competitors. So is there any way you're able to maybe not quantify, but you know, characterize the impact that has had on your competitors. And, you know, is that made it a little bit easier for you to win some market share in the smaller dollar space? And, also, like, has that impacted pricing, yields, anything like that?

Vijay Moesch: On the latter, I don't think that we've seen an impact on pricing or yields quite yet. On the former, I think we started to see that. You know, we've started to see some lenders back away first the nonbank lenders, because they were seeing a lot of the biggest credit pressures And, you know, we're we're starting to see bank lenders be a little more choosy on what they do, which makes a lot of sense. We want a healthy SBA seven a industry. And we have always been very intentional from the outset on our small dollar lending products. We don't play at the highest, highest end of the pricing game. We don't chase you know, spotty credit.

We want businesses, small businesses to succeed. And so you know, our total addressable market, so to speak, on the smaller side, is going to be reduced somewhat because we're gonna be cheesier about who we do business with. But on the flip side, we're gonna make it so easy for customers to do business with us.

And we're going to target people that have a propensity to do business with us, like they want to, and they are going to get the full power of our brand and our people and our tech over time such that we think that's going to be a huge differentiator between what they currently get today, particularly on the small dollar side, and what Live Oak is gonna deliver. So really excited about how we're actually thoughtfully building out this business, and I think it'll be quite substantial and a huge part of what we do on the SBA side. For years to come.

Tim: Interesting. That was a great color. Thank you. I was also wondering, like, on the on the flip side of this, if since everyone is not required to do basically full underwriting and you know, the upfront guarantee fees and everything, is essentially equal for the larger loans. Are you seeing some of your competitors kind of move back to Live Oak's more traditional loan size at all.

Vijay Moesch: Not necessarily. Not that not that we can discern. You know, we haven't seen much change from that perspective, Tim.

Tim: Okay. And then I was also looking for maybe an update on the opportunities and internal development you guys are doing with regards to AI has brought this up a few times on conference calls. I was looking for an update there. What are kind of the tangible use cases you're exploring and you know, what are the benefits it can provide you whether that's you know, internal efficiency efforts or you know, creating a better experience for customers.

Vijay Moesch: Sure. I'll just give a quick update on that. I think starting with our technology and our labs teams, all of our developers are using cursor next generation AI based developing software. And I'm not sure that's going on across the rest of the industry, but having all of our people well versed in that, we made that pivot very quickly. So that's that's number one, and that's helpful. We are intentionally and introducing our people to AI first with things like Copilot, but then also things like you know, putting our information into proprietary large language models that they can then query and use for analytics specifically related to our customer information, our portfolios, our business.

So that's that's kinda fundamental, and maybe a lot of people are doing that. But then what we're looking at is a multi pronged approach on how we how we go after this. I think if you just look at modernizing what you do in technology or in operations or revenue generating parts of an organization? Just simply say, we wanna put in AI. AI is gonna solve everything. It's not. What we're looking at is a way to say how do we go to major parts of the organization understand what the pain points are that don't make it easy or simple or fast or efficient for our people and our customers.

And to fix those, sometimes with just better process, sometimes with eliminating manual process. And then more and more with AI. And it's a combination of being intelligent around that. So we're going to major departments and groups like loan operations and you know, secondary markets and deposit operations and those areas to modernize those using AI and other tactics. We're also asking everybody in our organization to be knowledgeable about just doing things better and more efficient whether it's using AI or you know, not using AI. And then thirdly, you know, we're going to create a dedicated team that is thinking about how over the next three to five years we create an AI native bank.

What does that mean? What does that look like? We have the innovative history here. And technology that was born out of our founders. And we're constantly thinking about how to do that better. And so you'll see more and more use cases, tangible use cases from us over time as we start to build out what that means to be an AI native bank.

Tim: Got it. That was great. Thank you. If I get one more question, kind of a follow-up on the credit discussion. I think Michael mentioned you know, we're not seeing any kind of spikes in the provision expense Is that you know, what should we expect going forward in terms of provision if credit continues to gradually improve over the course of the year like it has over the last few months? Should provision be stable? Can it moderate a little bit further, or is this kind of where it's gonna stay?

Walt Phifer: I'll start. Hey. Hey, Tim. It's Walt. I'll jump in too, and then you might can add on. I think if you think about stabilizing credit trends, I think one thing you have to remember with us was being a high growth bank. You know, that growth and CECL typically don't get along real well. So, you know, growth will continue to drive our provision expense along with our portfolio trends as well.

But I think, you know, kind of what you've seen over the last three quarters is a really good view of kind of, like, stabilizing, you know or kind of stabilizing portfolio with stabilizing credit trends, and that should give you kind of a broad view of what you could expect kinda going forward, you know, assuming the same level of growth.

Tim: Yeah. That's fair point of provision. So I guess we should think about maybe the reserve percentage staying about level.

Walt Phifer: Yeah. That's that's that's about right.

Tim: Got it. Alright. Well, thank you.

Operator: Your next question is from Billy Young from TD Cowen. Line is now open.

Billy Young: Good morning, guys. How are you?

Walt Phifer: Morning, Billy.

Billy Young: Just a question on your business checking initiatives. Given the strong momentum in your comments and the strong performance you had over the past year. Do you have any updated thoughts about how we should think about the funding mix looking out over the next year or two given, you know, the increased growth in NIB?

Walt Phifer: Yes. I'll start there, Billy. I think the you know, we've been able to get to about 4% of our noninterest bearing deposits as I mentioned earlier. You know, ultimately, our aspirational goal over just like kind of, you know, BJ mentioned with Live Oak Express is over time to get up towards in that 15% of our deposit base, like, again, that's not gonna happen next year. I think we saw 2% of non interest bearing a year ago, 4% this year. I think that trajectory makes sense. You know, as we kinda move into, into 2026. If you just think about know, leveraging that, you know, that growth rate?

Billy Young: Got it. Thank you. That's helpful. And then just a couple of housekeeping items on the decision to hold on to more of your gain on sale loans. Just did you size up how much the benefit was to the margin or NII from holding on to the higher held for sale loans this quarter? And then also, did you use this opportunity to maybe portfolio some more in production? In 4Q?

Walt Phifer: Yeah. I'll jump in on that, Billy. The benefit for NII of about $60 million of HFS given our spreads and our margins is you know, likely in the call it, 1.8 to $2.5 million range. A year. Sorry. Yeah. That's correct. Divide that by four, that kinda gives you so not overly material for Q4 itself. You know, as far as portfolioing, I don't think that's what we'll likely do. I mean, I've always you know, kind of aspire to get to the point where we're building any kind of we used to call a treasure chest, but essentially, it's a it's a portfolio of held for sale.

We are loans that we can sell at any given point, gives us some good momentum going into Q1. So we'll likely monetize you know, that additional $60 million here in Q1, and then that gives us some flexibility for reloads that we originate in Q1. To then kinda get a give us a headstart into Q2 and so forth.

Billy Young: Got it. Thank you for taking my questions.

Operator: Sure. Thanks, Billy.

Operator: Thank you. There are no further questions at this time. I will now hand the callback over to Chip Mahan. Chairman and CEO. The closing remarks.

Chip Mahan: See you next quarter. Thanks.

Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.