Live Oak Bancshares, Inc. Q1 FY2026 earnings call

· Core earnings momentum working: reported EPS $0.60 for quarter, adjusted PPNR up 30% year over year, adjusted EPS almost doubled. · Diversified loan originations: originated ~$1.4 billion of loans across 35 industries in Q1, pipeline at all-time high. · Credit trends: stable, unguaranteed allowance for credit losses to unguaranteed loans and leases held for investment ratio 2.14%, provision expense improved, past due ratio improved, nonaccrual ratio up modestly, net charge-off ratio 63 basis points. · Growth initiatives: checking accounts grew from virtually no noninterest-bearing accounts to over $400 million, Live Oak Express small-dollar SBA lending has sold $140 million and goal is over $750 million annual production.

Loan book: grew 2% quarter over quarter and 14% year over year. Portfolio mix: 64% in small business lending segment, 36% in commercial lending segment. 30% of loan book is government guaranteed. Customer deposits: grew 3% linked quarter and 13% year over year. Noninterest-bearing checking balances increased 9% linked quarter and 47% year over year, with goal to get over 10% of total deposits. SBA small-dollar lending: sold $140 million so far, goal is at least $750 million of loan production annually.

· Net interest margin: flat Fed environment helps stabilize near term, then loan growth levels influence expansion as year progresses, vast majority of NIM expansion going forward highly growth-driven. · Loans: pipeline at all-time high, production expected to be in line with or better than Q2 last year, low to mid-teens loan growth year over year holds true. · Deposits: expected progress over next few quarters to get noninterest-bearing deposits over 10% of total deposits. · SBA small-dollar lending: expects to produce over $750 million annually in loan production, with AI-native loan origination platform to aid in generating volume.

· Macro developments monitoring: economic uncertainty impacting small businesses, need to watch fuel costs impact on customers. · Interest rate波动 risks: potential impact on loan yields and deposit market. · Specific vertical risks: legacy loans from exited verticals like whiskey distillery segment causing slight uptick in nonaccrual ratio.

Q: How to stabilize and improve NIM with Fed on hold?

A: Flat Fed environment helps, loan growth to be primary driver, loan yields stabilize, deposit market monitored.

Q: How much pipeline strength translates to near-term production?

A: Pipeline ~$4.5 billion, production expected to be in line with or better than Q2 last year, low to mid-teens loan growth year over year holds.

Q: Progress on noninterest-bearing checking accounts?

A: Goal to get over 10% of total deposits, currently at 4% with progress in customer relationships and partnerships.

Q: Trajectory of SBA loan sale volume?

A: Q1 held-for-sale loans up due to late quarter production, stair-step pattern expected in sales.

Q: Driver of gain-on-sale premium increase?

A: Mix, more Live Oak Express origination and USDA loan sales with good premiums.

Q: Live Oak Express trend?

A: Expected to go past $750 million annual production, AI-native loan origination platform aiding.

Q: Credit verticals exited?

A: Whiskey distillery segment in former wine and craft beverage group, exited due to consumer preference and oversupply.

Q: AI application?

A: Bottoms-up approach with over 300 AI agents built by employees, aim to be AI-native bank for better customer experience.

Q: Long-term profitability target?

A: 15% return on equity with 15% earnings per share growth.

Q: Small business credit cycle?

A: Interest rate risk largely behind us, 85%+ of portfolio underwritten at favorable rates, monitoring economic uncertainty.

Q: Expense trajectory?

A: Expenses stay around $85 million run rate, efficiency ratio to trade down to low to mid-50s with revenue growth.