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DATE

Thursday, April 23, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

  • Chairman and Chief Executive Officer — Chip Mahan
  • President — BJ Losch
  • Chief Financial Officer — Walter Phifer
  • Chief Credit Officer — Michael Cairns

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TAKEAWAYS

  • Reported EPS -- $0.60, representing nearly a threefold increase year over year, according to the CFO.
  • Adjusted EPS -- $0.70, up 8% quarter over quarter and 94% year over year.
  • Revenue Growth -- 18% year-over-year increase, with recurring net interest income cited as the main driver.
  • Expense Growth -- 6% year over year, with the CFO highlighting cost discipline as a priority.
  • Reported PPNR -- $60 million, a 43% increase year over year.
  • Adjusted PPNR -- $66 million, representing 30% year-over-year growth.
  • Loan Growth -- 2% quarter over quarter and 14% year over year, with ending loan balances at approximately $12.6 billion.
  • Deposit Growth -- 3% quarter over quarter and 13% year over year, ending at $9.9 billion.
  • Noninterest-Bearing Deposits -- Balances reached over $400 million, up 9% quarter over quarter and 47% year over year, now constituting 4% of total deposits.
  • Loan Originations -- $1.4 billion originated across 35 industries in the quarter.
  • Pipeline -- Current loan pipeline stands at an all-time high of about $4.5 billion, according to the CFO.
  • Loan Mix -- 64% small business lending, 36% commercial lending; 30% of all loans are government guaranteed.
  • Net Interest Income -- Approximately $119 million, up 19% year over year.
  • Net Interest Margin (NIM) -- 3.27%, a seven basis points year-over-year increase; the CFO attributes strength to pricing discipline.
  • Gain on Sale -- Up 25% quarter over quarter and steady year over year; gain on sale consistently accounts for 10%-13% of total revenue.
  • Total Noninterest Expense -- $85 million, down from $89 million quarter over quarter.
  • Efficiency Ratio -- 59%, an improvement of seven percentage points year over year.
  • Provision Expense -- Approximately $20 million, down from $22 million in the prior quarter and $29 million a year ago.
  • Nonaccrual Ratio -- 102 basis points, noted as a modest quarter-over-quarter increase, with 27% relating to exited verticals.
  • Over-30-Day Past Due Ratio -- Four basis points, below the customary 10 to 30 basis points range for the company.
  • Net Charge-Off Ratio -- 63 basis points for the quarter.
  • Unguaranteed ACL Ratio -- 2.14% of unguaranteed loans and leases held for investment.
  • Tier 1 Capital Ratio -- Quarter over quarter risk-based ratios improved by ten basis points; Tier 1 leverage ratio remains stable.
  • Maintenance Ratio -- Tier 1 capital plus ACL and fair value marks is 16.7% of unguaranteed loans and leases.
  • Small-Dollar SBA Loans (Live Oak Express) -- $140 million sold to date; targeted annual originations of at least $750 million.
  • Live Oak Express Loan Premiums -- Premiums range from 9% to 13% on secondary market sales.
  • Customer Relationship Expansion -- Percentage of customers with both a loan and deposit increased from 3% to 23% over the last four and a half years.
  • Checking Penetration Goal -- Management targets noninterest-bearing deposits reaching over 10% of total deposits within three years.
  • AI Initiatives -- Over 300 internal AI agents have been developed, according to the President, with an AI-native loan origination platform in pilot phase.
  • Efficiency Outlook -- The CFO said, "Coupled with revenue growth, we will see our efficiency ratio trade down to the low to mid-50s."
  • Long-Term Profitability Target -- President Losch stated, "Fifteen and fifteen. That is what we talk about all the time, David. A 15% return on equity with 15% earnings per share growth."
  • Portfolio Underwriting -- Over 85% of loans underwritten at or above current interest rates, mitigating rate risk, according to the Chief Credit Officer.

SUMMARY

Management described core earnings momentum as accelerating, emphasizing that new business drivers—particularly growth in checking relationships and the expansion of the Live Oak Express small-dollar SBA loan platform—are contributing directly to improved funding mix and fee revenue. Executives signaled their ability to scale technology, including rapid deployment of AI solutions, with the objective of deepening customer engagement and driving productivity gains. The growing presence of government-guaranteed loans and maintenance of high capital coverage were presented as key portfolio differentiators, underpinning a stable risk profile and enabling above-peer growth ambitions. Management offered specific efficiency and profitability targets for the bank, supporting visibility into multi-year operating strategy and capital allocation priorities.

  • The company aims for business checking to exceed 10% of total deposits by leveraging lender cross-sell, affinity partnerships, and new merchant services.
  • New customer acquisition strategies have raised dual-product penetration dramatically, which may enhance account stickiness and recurring revenue over time.
  • Management attributes improvement in the efficiency ratio to outpacing revenue growth versus expenses by a factor of three over the past year.
  • Executives noted the small uptick in nonaccruals is driven by a legacy whiskey distillery segment, which has already been exited and is tightly managed within reserves.
  • The company’s credit leaders stated that the majority of portfolio rate risk has been addressed through higher-coupon originations and continual early warning vertical reviews.
  • AI adoption is occurring across departments, not just within IT, through a decentralized agent-building approach that management believes will substantially accelerate operational innovation.
  • Gain-on-sale as a share of total revenue is forecast to remain consistently in the 10%-13% range, with Live Oak Express a primary contributor to incremental volume and premium improvement.
  • Leadership reaffirmed expectations for low to mid-teens loan growth, underpinned by the record loan pipeline and normalization of payoff activity.

INDUSTRY GLOSSARY

  • PPNR (Pre-Provision Net Revenue): A performance metric calculated as revenue minus noninterest expenses, before loan loss provisions, often used to evaluate core earnings power for banks.
  • ACL (Allowance for Credit Losses): The reserve set aside for potential future loan losses, assessed against current outstanding loans not covered by government guarantees.
  • Live Oak Express: The company's proprietary small-dollar SBA 7(a) loan origination program, enabling higher-volume, rapidly saleable government-guaranteed loans to small businesses.
  • NIB (Noninterest-Bearing Deposits): Deposit accounts that do not pay interest and typically contribute to lower average funding costs for banks.
  • Maintenance Ratio: Internal metric defined as Tier 1 capital plus allowance for credit losses and fair value marks divided by unguaranteed loans and leases, indicating risk-adjusted capital strength.
  • SOP (Standard Operating Procedure): SBA regulatory guidelines governing loan origination and servicing criteria, referenced as a key driver for changes in small-dollar lending activity.

Full Conference Call Transcript

Chip Mahan: Good morning, everyone. Team Live Oak is excited to tell you about our performance for the first quarter. Things are a little bit different today. Our President, BJ Losch, is a bit under the weather and, predictably, he is dialing in remotely. He will start us off with a few overarching comments, and we will hand it over to Walter Phifer, our CFO, for some numbers, and all of us, including Michael Cairns, our Chief Credit Officer, will be available for questions at the end. BJ, over to you.

BJ Losch: Great. Thanks, Chip. Good morning, everybody. Thanks for joining us. Let us get started on slide four. Our plan to create more sustainable earnings momentum is really working, as you can see in our earnings trends, with reported EPS of $0.60 for the quarter and even stronger performance from the core operations. Our lending businesses continue to put up strong numbers, our credit trends are stable to improving, and we are continuing to ramp up small-dollar SBA lending. Checking is having a meaningful impact on our results with far more to come. And as you would expect from Live Oak Bancshares, Inc., we are continuing to find ways to innovate and stay at the forefront of technological changes.

Turning to slide five, you see the earnings momentum continues. And as proud as I am of our loan production results, what matters most is how you translate that into profitable operating leverage and strong credit quality. As you can see on slide five, those results are outstanding, with adjusted PPNR up 30% over this time last year and adjusted EPS almost doubled from this time last year. On slide six, you can see our credit trends over ten years relative to all other SBA lenders, and while default rates have moved higher over the last two years, Live Oak Bancshares, Inc.'s performance has been modestly improving despite a difficult backdrop for small businesses.

The steady improvement in our provision, reserve coverage, and past dues reflects this. Over the last several quarters, we have been sharing with you progress on two key initiatives: checking and Live Oak Express, our small-dollar 7(a) program. 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. That sounds great, and it is. But why is it so important to us? Two big reasons. Number one, if we are going to be America's small business bank, we have got to offer all the primary products they need.

And number two, they are both highly accretive to our earnings profile and will provide a long-term tailwind to our earnings. We started with virtually no noninterest-bearing accounts two years ago. We now have over $400 million and growing. That means we do not have to raise $400 million of market-rate savings, CDs, or brokered deposits to fund our growth. If you do the math on that cost of funds impact, it is meaningful. And we are only at 4% of noninterest-bearing to total deposits. Our goal is over 10%. On a current $14 billion deposit base, that is a huge opportunity to be the primary bank for our customers and significantly improve our funding profile.

With Live Oak Express, we are serving more small businesses that need capital to grow, and these smaller loans are highly desirable on the secondary market, with premiums in the 9% to 13% range. As you can see on slide eight, we have sold $140 million of these so far. Our goal at cruise altitude is to produce at least $750 million of loan production in these small-dollar loans annually. Again, if you do the math on that kind of volume with those kinds of premiums, the earnings impact is substantial. I am very pleased with our results and momentum, and as always, a big thank you to all Live Oakers.

I could not be prouder of how our people are taking care of customers, making our operations better, and profitably growing our company. With that, Walt, how about running through some of the financial highlights?

Walter Phifer: Thanks, Vijay. Morning, everyone. Outlined on page 11, our first quarter continued to highlight the strength of our core earnings profile. Diluted EPS was $0.60 in Q1, approximately a 3x increase compared to the prior year, and adjusted EPS was $0.70, up 8% from Q4 and 94% from Q1 last year. Driving this EPS accretion was an outstanding 18% year-over-year growth in revenue, while expenses only grew 6%. As a result, our Q1 reported PPNR of $60 million was 43% higher than 2025, while adjusted PPNR was $66 million, up 30% year over year. On the balance sheet front, our loan book grew 2% quarter over quarter and was up 14% compared to March 2025.

Customer deposits grew 3% linked quarter and 13% year over year, and as Vijay mentioned, we continue to be proud of the growth in our noninterest-bearing checking balances, increasing 9% linked quarter and 47% year over year. Lastly, credit trends were stable with provision expense improving slightly to $20 million, better than market expectations. The key takeaways for the quarter are that core earnings were sharper, year-over-year revenue growth was fantastic and mostly driven by recurring net interest income, expenses were well controlled, credit trends remain stable, and our key growth initiatives—checking and small-dollar SBA lending—continue to move in the right direction. Now let us get into the details on the following pages.

Page 12 highlights another strong quarter of diversified loan originations with broad-based contribution across our lending teams. We originated approximately $1.4 billion of loans across 35 industries in Q1, which speaks to both the breadth of our platform and the consistency of the demand in the market. Our pipeline is currently at an all-time high, which continues to support our confidence in the forward growth outlook. While page 12 focused on loan production, page 13 illustrates the strong, durable growth on both sides of the balance sheet. Loans ended the quarter at approximately $12.6 billion, up 2% linked quarter and 14% year over year.

Our portfolio mix remained very consistent, with 64% of our loan book in our small business lending segment and 36% of our loan book in our commercial lending segment. As a reminder, 30% of our loan book is government guaranteed, a key differentiator of our balance sheet versus the industry. Customer deposits ended at approximately $9.9 billion, up 3% linked quarter, roughly in line with our loan growth. The reported loan growth rate was a little more muted than the underlying production would suggest and was primarily a timing function of elevated payoff activity during the quarter related to some larger loans across three verticals and was largely anticipated.

We view this level of paydowns as an outlier and not as something that should persist at the same rate going forward. Our net interest income and margin trends are detailed on page 14. In Q1, net interest income was approximately $119 million and our net interest margin was 3.27%. While we mentioned in our Q4 2025 earnings call that we expected our net interest income in March to step down following the 50 basis points of prime loans repricing on January 1, both our net interest income and margin outperformed expectations.

More importantly, from a year-over-year perspective, net interest income is up 19%, while net interest margin is up seven basis points, illustrating strong recurring revenue growth and improved pricing discipline. As detailed on the roll-forward on the bottom right of the page, the linked-quarter move was really a function of several offsetting items. One item to note here is the negative $2.5 million impact from day count in Q1, which is just a product of seasonality. Normalizing the number of days between 2025 and 2026, the extent of compression would have been muted. Ultimately, I think our net interest income profile remains very healthy and year-over-year growth is strong.

If the forward curve holds true, a flat interest rate environment should be a good backdrop for our net interest income and NIM profile in 2026. Moving over to guaranteed loan sale trends on page 15, from an absolute performance standpoint, this was a good quarter. Gain on sale was up 25% linked quarter and in line with 2025, as we guided in Q&A during our last earnings call. SBA premiums remain steady, and Live Oak Express continued to be a meaningful contributor. Our gain on sale has remained between 10% to 13% of our total revenue over the last 12 quarters, generally with a slight stair-step upward trajectory throughout the year. We expect 2026 to be no different.

Bottom line, gain on sale was up linked quarter, in line with Q1 of last year as we guided, we expect a slight stair-step up each quarter as the year progresses, and we continue to see strong contribution from Live Oak Express. Expense and efficiency trends are detailed on page 16. Total noninterest expense was approximately $85 million in Q1, down from $89 million in Q4, while our Q1 efficiency ratio was 59%, which is about seven points better than Q1 of last year. Our focus on operating leverage continues to be the primary driver of our efficiency improvement year over year. Since Q1 of last year, revenue growth has outpaced expense growth by about 3x.

That is exactly the trend line that we want to see. We are continuing to invest in growth, technology, and innovation opportunities across the business, but we are doing so in a way that is driving better scale, better efficiency, and a stronger earnings profile over time. Turning to credit on page 17, the key message on this page is that we view our credit trends as stable and our reserve position remains healthy. As you see highlighted at the top of the page, our unguaranteed allowance for credit losses to unguaranteed loans and leases held for investment ratio is 2.14%.

Provision also moved down to approximately $20 million compared to approximately $22 million in Q4 and $29 million in 2025. From an underlying credit trends perspective, the over-30-day past due ratio improved to four basis points, which is an excellent result and below our typical assumed range of 10 to 30 basis points. The nonaccrual ratio was 102 basis points, up modestly quarter over quarter, with 27% of the nonaccruals being derived from verticals that we have since exited over time. Lastly, the net charge-off ratio was 63 basis points for the quarter.

While the underlying credit trends are important leading indicators, they do not quite illustrate the true risk as things like collateral and already established reserve coverage on the underlying loans are not reflected within these ratios. However, all of these metrics and underlying factors are considered collectively within our ACL coverage, and the fact that our coverage ratio along with our provision expense trends have been relatively stable to improving over the last five quarters supports our portfolio stability sentiment. We are, of course, monitoring macro developments closely, but sitting here today, we feel good about the health of our portfolio, the low level of delinquencies, and the reserve position we have built.

Capital levels remain healthy and robust as shown on page 18, with quarter-over-quarter risk-based capital ratios improving approximately 10 basis points while our Tier 1 leverage ratio remains stable. As highlighted on the left side of this page, we also continue to think the maintenance ratio is a very helpful way to frame the strength of our differentiated balance sheet, as approximately 40% of our assets are in cash, government-guaranteed investments, or government-guaranteed loans. In Q1, our Tier 1 capital plus allowance for credit losses and fair value marks—our maintenance ratio—totaled 16.7% of unguaranteed loans and leases. That is strong capital coverage against the true risk on our balance sheet.

Just to recap the quarter, we view Q1 as another step forward in building sustainable earnings momentum. The core performance of the quarter was strong, our key growth drivers continue to build, credit and capital remained stable to improving, and we remain very focused on executing against the opportunities in front of us. Thank you to the Live Oak team for another strong quarter. With that, I will turn it back over to BJ.

BJ Losch: Great. Thanks, Walt. Let us go to the questions.

Operator: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star 1 now if you have any questions. Thank you. First will be Eric Spector at Cantor Fitzgerald. Please go ahead, Eric.

Eric Spector: Hey, good morning, guys. This is Eric dialing in for Dave. Thank you for taking the questions. Maybe just starting off on the NIM. With the Fed on hold, could you walk us through the key drivers of what would allow NIM to stabilize near term and then improve later in the year? And then just talk us through the dynamics of specifically how much is coming from growth, wider loan spreads, or funding mix improvement.

Walter Phifer: Great question. Hey, Eric, this is Walt. A flat Fed environment helps stabilize our NIM and net interest income and ultimately benefits our profile, as it allows loan growth to become the primary driver, not Fed action. To put that in context for 2026, keeping consistent with commentary from our last call, assuming those flat rates, we would expect margin to stabilize here in the near term and then allow the loan growth levels to influence the level of expansion as the year progresses.

If you think through the different factors, with a flat rate environment, loan yields can stabilize because you are not getting that downward repricing pressure that we saw in Q1 and at the end of last year. The deposit market is competitive. That is an area that we spend quite a bit of time monitoring and making sure that our flows make sense and are supporting our growth, but we feel really good about our positioning in that space as well. From a growth perspective, the vast majority of any expansion in NIM going forward will be highly growth-driven.

If you have followed our story, growth for us is pretty impactful from a margin standpoint, and we expect that to continue. You can look at prior years’ flat interest rate environments to get a sense of what the impact would be.

Eric Spector: Great, that is helpful. And then maybe switching gears to loans. I know you mentioned pipeline levels are at all-time highs, and it remains strong and diversified. Can you help us think through how much of the pipeline strength is translating into near-term production, and do we see enough visibility to support low to mid-teens growth in a stable rate environment? And then maybe help us think through the cadence of growth throughout the year.

Walter Phifer: I will start. Again, Eric, this is Walt. Our pipeline today is about $4.5 billion. With that equation from a production standpoint, they have to move through and then they have their expected closing timelines. I would expect our production to be very in line with, or better than, Q2 of last year here in the near term. Some things will push to the right, some things will come in a quarter earlier than we anticipated. In the last earnings call, we talked about low to mid double-digit loan growth year over year.

I still think that holds true, given what we are seeing in the pipeline and how those deals are coming through, so I would not move off of that.

Eric Spector: Okay, that is great. And then maybe on deposits, you highlighted the continued momentum in business checking and the longer-term goal of getting the NIB over 10% of deposits. Can you talk us through the progress you expect over the next few quarters and where you are driving success?

Walter Phifer: Yeah, I will start—oh, go ahead, Vijay, you start.

BJ Losch: I will take that one. I am excited about this. We are building a lot of customer relationships. When I got to Live Oak Bancshares, Inc. about four and a half years ago, only 3% of our customers had both a loan and a deposit account. Today, that is 23%. Over the last two years, we have been anchoring that with checking accounts, and now when we open a loan account, one out of every three of those has a checking account. I am incredibly excited about what we can do to build customer relationships that are stickier over time.

Over the last couple of years, we have been getting our lenders more comfortable with the notion of selling deposits, because we had not done that for the first 15 years of our existence. Our lenders are doing an excellent job, and our treasury management team and our deposits team are doing a fantastic job taking those leads and moving those into actual active accounts. Over the next three years, I would expect us to be in the 10%+ range simply by doing more of what we are doing today—selling checking accounts with the new loans that we are opening. We are looking at different partnerships with affinity groups.

We are introducing merchant services, which is obviously very important to many small businesses and commercial customers. That is in launch now, and it is going to accelerate our ability to build our checking deposits. A 10% target is not really heroic. If you look at the industry, it is at 20% to 25%. For us to get to 10% or more is very achievable, and it is going to have a meaningful impact on the stickiness of our relationships and our funding profile.

Eric Spector: Great, that is helpful color. I will step back. Thanks for taking the questions, and congrats on a good quarter.

BJ Losch: Thanks.

Operator: Next question will be from Janet Lee at TD Cowen. Please go ahead, Janet. Janet, can you please unmute your line? Getting no response, we will move to Timothy Switzer at KBW. Please go ahead, Tim.

Timothy Switzer: Hey, good morning. Thanks for taking my question. The first one I have is the trajectory of SBA loan sale volume over the rest of the year. Was there any holdback at all this quarter? It is still up year over year, but did you intentionally retain some loans again this quarter? Held-for-sale loans went up, and I am just trying to get an idea of what the pace of loan selling could look like over the rest of 2026.

Walter Phifer: Great question. Hey, Tim, this is Walt. We did not intentionally hold back. What we did see was quite a bit of production come through in the last week and a half to two weeks of the quarter. Typically, anything that comes through at that point in time, you cannot sell and settle within the current quarter, so it gives you a nice head start as we go into the next quarter. I think that is what you are seeing in the held-for-sale loan volume. As far as the trajectory, I mentioned it in my prepared remarks.

We have shown this over the years where Q1 is our lowest, and then we have a slight stair-step in Q2 and Q3 and Q4, and then we normalize again in Q1 and start that stair-step again. If you look back at prior years, that will give you a sense of what that stair-step could look like.

Timothy Switzer: Okay, interesting. Any color you can provide on what drove the 1% increase in the gain-on-sale premium?

Walter Phifer: This is Walt again. It is really a function of mix. We did see a little bit higher Live Oak Express origination in Q1, as you saw in the deck. As BJ mentioned, Live Oak Express gets 9% to 13% premiums—that helps. USDA loans, the guaranteed portion, we were able to sell quite a few more of those again in Q1. They have been getting a nice premium as investors buying those loans start to think of potential downward rate protection, so there is a little bit more demand for that paper right now as well.

Broadly, that 106% to 107% range from a premium standpoint, as we have averaged over the last five quarters, I will maintain that going forward.

Timothy Switzer: Got it. And then the last one for me—how has Live Oak Express been trending versus your expectations? You talked about the $750 million annual target. Previously, you mentioned $1 billion as kind of an aspirational goal. Has that changed, or is it more just the timeline to achieve these?

BJ Losch: I think we are just being conservative, Tim. I do expect to go past the $750 million production.

Timothy Switzer: Got it. So you are seeing the demand that you were expecting so far.

BJ Losch: Yes, for sure. If you look at the slide, the SBA changed the SOP back in 2025, which essentially went back to what the rules had been before. They had loosened the rules for smaller-dollar loans, then tightened them back up, which caused a little bit of a backup in our ability to generate those loans efficiently. As you can see, we are on the rise again. I feel highly confident in our ability to generate that kind of volume. We are now in pilot with an AI-native loan origination platform, which is huge.

Once that is fully rolled out, it is going to make it simpler, easier, faster, and more efficient for our people to serve our customers and for our customers to get the capital that they need. With the changes in the SOP and competitors dropping out of the market, particularly on the lower end because of credit quality issues, we are finding more opportunities to do more business in the $500 thousand and below. I think that number is going to reaccelerate sooner rather than later.

Timothy Switzer: Great. That is good to hear. Thanks for all the color.

Operator: Ladies and gentlemen, a reminder to please press star 1 if you have any questions. Thank you. Next, we will hear from David Feaster at Raymond James. Please go ahead, David.

David Feaster: Hey, good morning, everybody. I wanted to go back to the credit side for just a second. You talked about how over a quarter of the nonaccruals are in verticals that you have exited. What verticals are those? How much remaining balance do you have in those verticals? And what led you to exit those? Is it risk that is structurally too high in those segments, we did not have the right team—just curious if you could touch on that.

Michael Cairns: Good morning. Michael Cairns here. Happy to talk about that. One of the advantages of being in different specific verticals and having industry expertise is that we have insights to headwinds—we see things coming early. That is a big part of what my job and our credit team is focused on: working with the servicing team, working with the lenders out in those industries, and assessing what is going on. That is an ongoing process for us. Over the years, we have made the decision to exit several verticals, adjusted verticals, and added new verticals—that is an ongoing process.

The vertical, or segment of a vertical, that we are really highlighting in the increased small uptick in nonaccrual percentage for the quarter is the whiskey distillery segment, which is a niche component of our former wine and craft beverage lending group. It is a really small segment of our balance sheet, but it is disproportionately impacting the nonaccrual percentage this quarter, and that was the big mover. That is not a vertical that we decided to exit this quarter; we exited some time ago when we saw the issues there—the primary driver being a consumer preference change and demand for whiskey and an oversupply in that product coming out of COVID. We saw that coming and made the adjustment.

This quarter, we had to move some of those loans to nonaccrual as we are working through our workout strategy. Our special assets team has been all over this for some time, as has our servicing team. Again, it is a small component of what we do and something we are working through. On nonaccruals as a whole, those loans are individually assessed by our special assets team and our credit team on an ongoing basis. Once you are classified as nonaccrual, we are pegging a potential loss there, and that is built into our reserve coverage.

You can look at components like nonaccruals and past dues, but when you look at the larger picture and you want to know how management and credit feel about the portfolio going forward, the ACL coverage is a pretty good indication of how we feel, and we feel good. Our portfolio is very stable at this point.

David Feaster: That is helpful. You talked about an AI origination platform. I know you have a lot of investments ongoing, through Canopy and other things you are developing. You are always early to leverage new technologies, and importantly, you have the culture and expertise to do so. Where else are you seeing opportunities to utilize AI? We have talked about embedded finance. What are some of the exciting things on the horizon in both of those areas?

BJ Losch: Hey, David. It is BJ. Our biggest platform is lending, and a year and a half ago, we started on this journey to get on an AI-native platform because we saw the future coming. I feel like we are going to be quite a bit ahead of others by moving quickly. Having our most important platform in an AI-native world is going to be really good. The way we are approaching AI may be different—it is how we are doing it. We wanted to start with a bottoms-up way of introducing AI to our people.

We made AI capabilities and tools available to all 1 thousand of our employees right away and asked them—Chip charged them in our town hall—to start iterating, start playing with AI, start doing it in your individual work and in your teams to make it better. Today, we have over 300 AI agents that have been built by our people, not necessarily by our technology team, but by our people themselves, because they are curious. Starting with a bottoms-up approach to make it accessible and not just some scary thing has been a big deal. Ultimately, we are going to be an AI-native bank. We are going to put everything we can on an AI platform in our operations.

Over time, everybody is going to do that. Our end goal is not just to be AI-native. Our end goal is to make it better for the customer and create a customer experience using AI—partnered with our people—that nobody else can match, and to have an engine in our back office that is streamlined in the most effective and efficient way possible with AI. There is a lot going on—use cases like everybody else—but we are going department by department to create the most unique customer experience we possibly can while building an AI-native franchise.

David Feaster: Maybe last one for me, another high-level one. You have a lot going on. This is all going to support growth, operating leverage, and profitability. How do you think about a longer-term profitability target for the bank, assuming we get a larger NIB contribution and more checking account growth, Live Oak Express does $750 million plus in production, growth remains low to mid-teens, rates stabilize, and AI starts to really materialize? How do you think about the profitability profile of Live Oak as this all starts to hit stride?

BJ Losch: Fifteen and fifteen. That is what we talk about all the time, David. A 15% return on equity with 15% earnings per share growth. I think we are on the precipice of being able to do that. Our credit quality is getting better. Our key initiatives are accelerating. Our lending engine continues to be one of the strongest in the industry. Our expenses are well controlled. I feel like we are about to hit our stride, and the plans we put in place over two years ago to make that happen are starting to happen. Hitting a 15% return is one thing. Having 15% earnings growth in one year is one thing.

Being able to do it over a sustained period is something pretty unique, and that is exactly what we are trying to build. We are constantly looking for things that will augment our core lending engine and add on to it so that over time, we always have something next to drive the next generation of our growth. I firmly believe we have it right now with checking and Live Oak Express carrying us over the next several years. We are still working on embedded banking, which we are very excited about, and we have endless possibilities with AI. Live Oak Bancshares, Inc. is better positioned than we have been in years to generate top-tier returns.

David Feaster: That is pretty exciting. Thanks, everybody.

Operator: Next question will be from Janet Lee at TD Cowen.

Janet Lee: Morning. Could you talk to us a little bit more about where you think we are in the small business credit cycle? It looks like you are pointing to some improving and stable small business default trends. The non-guaranteed NPAs ticked up a little bit—maybe a lot of that is driven by the verticals that you exited. Where do you think we are in the process? Is it getting better, or because of the macro uncertainty we are in, are you seeing a little bit more pressure, if at all?

Michael Cairns: Michael again here to take that question. I will go back to the slide that BJ walked us through where you can see the industry trends. The industry is still grappling with some headwinds, whereas we have been flat for some time. I credit that to being proactive in addressing and recognizing the environment we were in. The driver of that credit cycle was really about rapidly rising interest rates on our customer base. We underwrote loans in record low interest rates and then experienced really high interest rates. For Live Oak Bancshares, Inc., that component of this cycle is largely behind us.

Eighty-five percent or more of our portfolio was underwritten at interest rates that are higher or at least on par with where we are today. We have gotten past that interest rate risk that was a big component of the cycle. On economic uncertainty, every morning there is a different headline. We are having conversations with our customers on the front end and in our portfolio about fuel costs and how that can impact their business. If this is prolonged, it will impact the small business community across operating expenses. We do not have verticals that are focused in industries heavily dependent on fuel costs as a big component of their operating expenses, so it will be an indirect impact.

We underwrite to higher debt service coverage covenants and build in that cushion because we know inflationary events will happen—that is a big part of what our underwriting and credit team do. I am watching it closely, we are talking about it a lot, but I feel pretty good about where we sit now.

Chip Mahan: Michael, you will remember, if you look at slide six, that in the previous administration the SBA loosened the rules. There were a lot of lenders that took advantage of that and the gain-on-sale dollars. We stuck, as always, to our guiding principles of soundness, profitability, and growth. That is part of the reason for that slide being there.

Janet Lee: Got it. Thanks for all the color. For the first quarter, expenses came in much better than where the street was, despite some typical seasonal headwinds. You are also investing into your franchise, and you talked about the AI initiatives. Can you speak to any updated thoughts on your expenses, how the expense trajectory should look for the rest of 2026, or whether there is an efficiency ratio target? How should we think about that aspect?

Walter Phifer: Hi, Janet. This is Walt. I think you hit the nail on the head. In Q1 expenses, we had some things internally that we were working through at the end of last year that helped bring that down here in Q1. If they average over the last five quarters, it has been just above $85 million. That is kind of in line with what you see here in Q1 as well. That is a good run rate moving forward for us, with maybe slight upticks here and there as we think about potential areas where we can invest. There is always a balance.

We are an innovative, high-growth company, so we want to make sure that we are supporting growth across our key initiatives, especially Live Oak Express and business checking. The way we evaluate potential investment in that space is, what can we do to accelerate that, because, as Vijay mentioned, there is quite a bit of earnings accretion that those two initiatives specifically can drive. As we invest in that space, there are always opportunities to get more efficient in other spaces, and that is where AI comes into play. Largely through 2026, I think that balances out. Expenses kind of stay where they are now, plus or minus, on a quarterly basis through the rest of the year.

Coupled with revenue growth, we will see our efficiency ratio trade down to the low to mid-50s. That is exactly the trend we have been positioning ourselves to achieve, and hopefully we continue that past 2026 and into 2027 and beyond.

Janet Lee: Got it. Thank you.

Operator: At this time, we have no other questions registered. I would like to turn the call over to Chairman and CEO, Chip Mahan.

Chip Mahan: That is a wrap, guys. We enjoyed it. See you next quarter.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time we ask that you please disconnect your lines. Enjoy the rest of your day.