nCino, Inc. (NCNO) Q4 2022 Earnings Call Transcript
Live Oak Bancshares (LOB) Q2 2022 Earnings Call Transcript
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Live Oak Bancshares (LOB 1.31%)
Q2 2022 Earnings Call
Jul 28, 2022, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Live Oak Bancshares second quarter of 2022 earnings conference call. [Operator instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over your speaker today, Greg Seward, chief risk officer and general counsel of Live Oak Bancshares.

Please go ahead.

Greg SewardChief Risk Officer and General Counsel

Thank you and good morning, everyone. Welcome to Live Oak’s second quarter 2022 earnings conference call. We are webcasting live over the internet and this call is being recorded. To access the call over the internet and review the presentation materials that we will reference on the call, please visit our website at investor.liveoakbank.com and go to today’s call on our event calendar for supporting materials.

Our second quarter earnings release is also available on our website. Before we get started, I would like to caution you that we may make forward-looking statements during today’s call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from our expectations are detailed in the material, 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.

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

Chip MahanChairman and Chief Executive Officer

Thanks, Greg, and good morning to all. Let’s move to Slide 4 to kick things off. For today’s agenda, I’m going to kick things off with a few overarching comments before repeating our normal quarterly cadence of BJ reviewing our financial performance and Huntley highlighting our operational priorities. Let’s move to Slide 5.

Over the next few slides, we will discuss our mission to extend our nationwide government-guaranteed lending platform and how that effort has led to an all-time high pipeline. As always, we will discuss the quality of our loans and will reflect on this volatile rate environment and its effect on SBA loan premiums. Clearly, the most recent correction in the capital markets has led to deterioration in the valuation of nascent fintech companies. I am proud to report that Live Oak Ventures investments have continued to thrive and grow and seem to have dodged the downturn at least for now.

Huntley and BJ will have much to say about the Finxact sale to Fiserv. I am happy to learn from the Fiserv earnings call on Tuesday that the company for the second straight call puts Finxact’s next-gen core processing system at the center of their future strategic plans. Let’s move to Slide 6. This slide highlights the organic growth in our lending business over the past 5.5 years.

The bottom of this slide shows the growth in our vertical SBA lending units. In 2018, we added seven new industries. And so far this year, we’ve added 3, bringing us to 17 in total. On the lending side, we have added 10 new lenders this year that gives us a total of 30 generalists in 27 cities.

This is a new point of emphasis for us. Recently, we sent 700 emails to SBA lenders at 85 banks. We will approach SBA lenders at an additional 25 banks in the next two weeks. If you are an SBA lender, there is a 100% chance you’ve heard of us.

There is a reasonable chance you’ve heard good things. In the 700-week contact that we currently have a pipeline in various phases of 168 folks, many are happy at their existing bank, and we want to stay in touch. The point is we have built a culture and a technology platform that is scalable in an industry that views SBA lending somewhere in between the Porter let of the banking business to just a side car to their other small business initiatives. This is what we do.

We want the best lenders to know that we are coming to a town near you. Lastly, our pipeline for proposal to close has increased roughly up from $1.5 billion in May of 2020 to a little over $3.1 billion today, again, an all-time high. Slide 7. And now for some fun facts as we consistently and forever, concentrate on soundness, profitability and growth in that order.

In the late ’80s, one of our banks and another company I started, made their first SBA loan. We had to get five declination letters from other banks before we can qualify the loan. We had to prove we were the lender of last resort. Even today, the SBA has, you cannot find credit elsewhere tests.

As interest rates rise and beating drones of pending recession get louder, we often have to answer the question. Are you at the tip of the spear at Live Oak Bank, your customers have no capital, are you worried? Let me answer that. No. Here are the facts.

On roughly $7 billion in loans, we had $3.4 million of over 30-day past dues or just 9 bps. Moving on to worst loans, loans on non-accruals were $16.6 million or 43 bps. That said, of the 16.6% 8.6% or 53% of the total were paying as agreed. I am overwhelmingly proud of our lenders and credit folks who have chosen the right operators and entrepreneurs.

So back to Slide 7. In the past 10 years, we have averaged 30 bps of charge-offs, while all other SBA lenders report more than 10 times that at 4%. Almost half our loan portfolio is guaranteed at 44%, while the rest of the industry holds tight at a rounding error of 3%. The pricing of our loans were considerably better with a net interest margin of just shy of 4%, as you can see, while the rest of the industry was nearly 100 bps lower at just under 3%.

Since inception in ’08, we have originated $19 billion in loans, two-thirds of which were in the SBA 7(a) program. And as you can see, $14 billion or 74% of our $19 billion in originations were loans to small businesses. Let’s go to Slide 8. As mentioned a minute ago, the last 6 months in the capital markets has not been much fun.

We often say around here that capital is king and BJ will cover that shortly. He also likes to talk about optionality. I like to talk about different arrows in our quiver. This is the same slide we showed on our IPO road show exactly seven years ago this week.

Many investors were unaware of the tiny SBA loan sales market. As you can see, the pricing has been incredibly stable the last 22 years, saved the Great Recession, the pandemic and now. How fortuitous for us that at precisely this point in time, my friend, Frank Sanchez, decides to sell Finxact to Fiserv and become their Vice chairman. We have said to you many times, the 280 billion lines of code the industry runs on is going to get swapped out in the future to a next-gen cloud-native API-first solutions like Finxact.

The fact that he and extensively we will be partnering with a $67 billion market cap brand name is good for Live Oak Bank. Frank’s subsidiary will operate separately and be supplied the necessary capital to attack the broader market. Slide 9. How wonderful for us that the Finxact $120 million pre-tax gain mirrors the disruption of the 7(a) premiums decline.

The Finxact gain is 1.5x what we raised in our IPO and also exceeds our secondary offering in 2017. The Finxact profit equals all of our 7(a) loan sales for the last 14 quarters and exceeds all of our 7(a) and USDA loan sales over the last eight quarters. So what did we do or didn’t do. We did not sell and what historically seems to be a down market.

Bottom left to Slide 9 shows what we did in Q1. We sold $211 million in paper at a $110 handle generating $20 million gain on sale dollars. This quarter, we could not cherry pick enough to get to $110, but we did sell 50 of 108 generating $4 million in pre-tax earnings. Had we chosen to sell $2 million — $211 million of paper, the best we could have done would have been a $105 handle generating only $12 million earnings.

So let’s keep the loans at roughly a 4% spread and generated $7 million in recurring net interest income. We have a long runway to continue to do just this as we wait for the usually predictable 7(a) market to come back to historic norms. And I can’t stand it. Just before I turn it over to BJ and Huntley, I want to briefly mention my 14-year torturous relationship with the income statement line item servicing asset revaluation.

I often wonder who I love less, lawyers or accountants. So let me see if I got this right. The accountants tell you that your cost of service alone is 40 bps, then they tell you the average life of the loan is seven years, and you need to take the remaining 60 bps of servicing over the next seven years. And the net present value of that, we take that into income.

But we already got paid in cash for a loan yesterday. Then we go to the black box once a quarter and value the accumulation of all our loans added together. After we took the company public, this servicing asset reval number, over three consecutive quarters was one quarter up $5 million, the next quarter flat, down $9 million in the next quarter. We decided to sell less loans and reduce the volatility of reported earnings per share.

This quarter’s negative $9 million or $0.16 a share is in the appendix on Slide 40. Rest assured, we think the $7 million in servicing revenue we receive annually is worth far more than the $28.5 million the beloved accountants say it’s worth. BJ, over to you.

BJ LoschChief Financial Officer

All right. Thanks, Chip. I have a good set up. I don’t know if I’m going to be able to deliver the financials nearly as well as Chip has did, but good morning, everybody.

We’ll start with some highlights on Slide 11. Our earnings per share, as you saw, were $2.16 driven by both the previously announced Finxact gain and strong net interest income and loan growth, both linked quarter and year over year. Our net interest margin of 3.89% held up really well in Q2 during the beginning of the Fed’s rate increase cycle, loan production was solid at $960 million. And as Chip mentioned, pipelines are at all-time highs.

We continue to be a talent magnet, adding 13 net new lenders in the quarter. And our core business performance along with continued success with our Ventures investing continues to add significant tangible book value per share, resulting in a 19% increase from the second quarter of last year. As Chip mentioned, though, the current environment is not without its challenges, particularly as it relates to our secondary markets for guaranteed SBA sales, which shows up in two primary ways on our income statement. First impact is on our guaranteed sales and gain on sale income.

As we discussed during the first quarter call, we saw secondary market dynamics shifting rapidly. Therefore, we telegraphed that we would moderate sales in Q2 and we did. Our guaranteed sales in the quarter were 70% lower than Q1, with the resulting gain on sale income of around $5 million versus $20 million in the first quarter. And as Chip mentioned, it’s important to understand that this income is not permanently lost.

We are simply going to earn it over time in the form of net interest income, as Chip highlighted on Slide 9. Because of the flexibility we have from both the Finxact gain and the ability to hold and fund high-quality assets, we will continue to remain patient with secondary market activities until premiums start to normalize. Also related to secondary market dynamics, as Chip talked about, our servicing asset reval was very high this quarter at $8 million write-down versus $1.6 million in Q1, primarily due to the rapid decline in market premiums. Though our servicing asset is a non-cash item, and it’s insignificant from a balance sheet perspective at less than 4% of capital, fair value changes do flow through our income statement.

So from here, we expect more modest changes in that fair value for the servicing asset as premiums eventually normalize toward long-term averages. Turning to Slide 12. You’ll see adjusted PPNR was down two to that intentional reduction of guaranteed sales. Despite not a strong net interest income growth of 7% linked quarter and lower expense growth of 4% linked quarter, credit remains very healthy with provision up $3 million off a low base.

Breaking down the components of revenue on Slide 13, you’ll see total revenue growth still up 13% year over year despite this quarter’s lower gain on sale income, driven by strong loan growth and resulting net interest income, which was up 34% year over year. Balance sheet trends look good on Slide 14 and 15, with 5% loan growth linked quarter and 7% before loan sales. And as you can see on Slide 16, net interest margin held strong in Q2 at 3.89% with the decline from Q1 largely due to higher liquidity levels. We still expect some compression as the Fed continues to raise rates rapidly and funding costs move more quickly than loan pricing, but we are very encouraged by the resiliency of our margin.

Turning to expenses on Slide 17. We had another strong hiring quarter, adding 49 net new Live Oakers, majority of which were in our lending groups to support revenue growth. In addition, we continue to attract technology talent, which made up the majority of our hiring outside the lending groups, and Huntley will talk a little bit more about both of those in a few minutes. Credit trends on Slide 18 and 19 look great.

As Chip discussed at the beginning of the call, having 45% of your total loan portfolio government guaranteed is both a great comfort and a great responsibility that we take very seriously. Non-accruals and past dues remain at historic lows as do net charge-offs. On Slide 19, you see just how strong our credit performance is over time with cumulative, not annual cumulative charge-off rates of 29 basis points on small business loans originated since ’08, 18 bps and 48 bps on our specialty finance and E&I loans since 2016. On Slide 20, you’ll see in the upper right, our capital ratios are very strong, particularly with the addition of the Finxact proceeds.

Note the green 23% bubble we call out on the graph, which is the capital plus the reserve coverage of the unguaranteed portion of our loan portfolio, far higher than other banks. This, plus the $3 billion of highly liquid guaranteed loans on our books give us both balance sheet strength and flexibility new banks can match. To recap, pipelines are strong. We continue to attract talent.

Credit quality is excellent. The balance sheet is profitable and growing. Expense growth continues, but at a more moderate pace. Secondary markets remain in flux and gain on sales, premiums are depressed, and our Ventures investments continue to provide us with organic capital and optionality.

With that, I’ll turn it over to Huntley to give more color on where we are growing and investing. HG?

Huntley GarriottPresident, Live Oak Bank

Thanks, BJ. I’ll pick up with some highlights on Page 22 and turn out to be repetitive. Again, a really solid quarter, especially in light of everything going on in the markets and the macro environment. The quarter highlighted with nearly $1 billion of diversified loan origination.

We just continue to find great opportunities to provide capital to small businesses, 5% linked quarter loan growth, 25% year over year. Equally as exciting on the deposit side, we saw really strong growth in our business savings product with 18% linked quarter growth over $1.3 billion of business savings accounts. Now that product continues to resonate with our small business customers. We also launched our first deposit vertical serving the 1031 exchange market and already have $30 million of deposits there, excited about where that can take us and the ability to expand into other verticals as well.

We’ve been really cautious in launching our small business checking product. As Chip mentioned, this journey with Finxact, we want to make sure that this platform is hardened and ready to take on scale. We’ve got 500 customers on there now, and we’re ready to step on the gas. Looking forward, we’re excited to continue to enhance and grow that small business deposit product, launch our working capital product here in August, expand our embedded banking offering, where we recently went live with our first customer and upgrade our loan origination platform.

So as always, a lot going on around the bank. On Page 23, you can see an overview of our loan origination platform. Again, great quarter of origination. And as Chip and BJ mentioned, even more encouraging is that our pipelines have returned to all-time highs after a bit of a slowdown in the first part of the year.

From a mix perspective, on the right-hand side of the page, you’ll notice a bit lower proportion of USDA lending in the quarter, which is a function of reduced bioenergy production and some funding shortfalls at the USDA. But despite our overall pretty cautious outlook on the economy, we remain really optimistic about the second half of the year and beyond. As you’ve heard Chip and BJ mentioned, we’ll remain vigilant in maintaining our credit quality, but small businesses are proving themselves to be unbelievably resilient. And the overall themes we’ve highlighted of business transitions and the prudent expansion of great small business operators continues to prove themselves out.

Page 24 has the granularity of the loan portfolio and really shows the power of our diversified platform. Highlights for the quarter include many of our flagship small business industry verticals like healthcare, veterinarians and investment advisors, along with strength in our middle market lending and the conventional side and our general SBA lending team that Chip mentioned, which continue to source attractive opportunities across the nation, across a variety of industries. We also continue to find interesting new verticals and are excited about exploring with efforts underway in our departs, managed service providers, law firms and pest control to name a few. As I mentioned, one area we saw muted activity was in our bioenergy group where the combination of rising interest rates, supply chain delays, construction costs, also met specific declines in carbon credit markets.

But the tailwinds in renewable energy overall remain extraordinary, and we still see tremendous opportunity in that space for us. Flip to Page 25 and a little more information, as Chip mentioned, on our SBA general lenders, where we hired nine folks in the first half of the year and a couple more in the pipeline and that momentum seems to continue. What we see is that the platform that we’ve built is really paying dividends. And from an investment perspective, even when we hold loans on balance sheet, on the outside, this is about an 18-month payback for each of these new lenders, but typically much quicker than that.

Flipping to 26, a few thoughts on the Finxact gain. On the one hand, this gain was a culmination of a bunch of hard work of our teammates and our partners to build this company to where it was and got to. It also provided a non-dilutive capital raise for us that allows us to manage our balance sheet, invest in our team, our community and our technology. But on the other hand, we’re just beginning to unlock the value this platform will provide for us and we’re as excited as ever about the future.

Last quarter, we shared some plans for the proceeds, employee bonus of $7.5 million, a charitable donation into a foundation of $5 million. And we said that our goal was to reinvest in the technology about $10 million to $15 million. We’re doing that primarily through hiring where we’ve hired about 20 new folks in our technology team year-to-date, which accounted for almost half of our increase in the adjusted earnings quarter over quarter. And we plan to hire about 25 more people to complete the build-out that we referenced of this technology team.

When you include all these people and a little bit of professional services, that will add about $7 million to $8 million annually run rate to our expense base. And the way we look at this is it Finxact gain allowed us to pull forward this hiring by about two years to accelerate the delivery of our road map. All in all, our technology spend in the quarter was about 14% of our adjusted non-interest expense, which for a bank without branch distribution network, feels pretty reasonable. So importantly, what are we building with all this technology and the platform.

On the lending side, we’re enhancing our loan origination platform to better serve our customers, to increase our speed to close and to allow us to make smaller balance loans more efficiently. But the majority of our efforts remain focused on building primary operating relationships with small businesses to generate low cost deposits. While our consumer and small business savings products continue to be well received, we know the importance of driving down our funding costs through non-interest-bearing deposits. After a long journey, our small business checking account is finally ready for the mass market.

And by the end of the year, we’ll have an enhanced operating account with treasury management features for our larger clients, a working capital loan product, additional deposit verticals and additional embedded banking partnerships. And for many of you, this will be unpopular that’s taken this long, and we’ve been talking about this, but we remain committed to building out this technology stack the right way and to do that has been a journey and that’s taken time. We really believe that we’re setting ourselves up for a massive increase in velocity and a future proof of this company for the next decade of technology innovation. So in addition to the Finxact gain, you can look at our Ventures activities on Page 27.

We followed on investing in Apiture and DefenseStorm along with two exciting new opportunities that we invested in, which are both great stand-alone investments but also provide us opportunities in the embedded banking space. As Chip mentioned, it’s not lost on us that valuations have reset in the technology market broadly and in fintech. We feel really comfortable with the strength of our portfolio. Likewise, the Canapi portfolio, which we included in the appendix on Page 39, continues to perform well.

And with that second fund coming online, we’re excited about the opportunity to invest there at more reasonable valuations. The flip side of the fintech market reset is that many of our challenger banks that we’ve been competing with lately have witnessed increasing the cost of capital, availability of capital and need to demonstrate their profitability, which has forced them to adjust their business models. For us, with a rock solid balance sheet, profitable core business, we can remain consistent in our mission and our technology road map. Four years ago, we made the decision to begin to hold more loans on balance sheet, a move that insulated us from the capital markets dislocation like we saw during the pandemic and that we’re seeing now.

And we know that shift to hold more loans adjust the trajectory of our reported EPS, but we feel it’s absolutely the right decision for us and for our shareholders. And we also know we have other elements of volatility in our earnings, as Chip mentioned, servicing assets and our technology investing. But those we accept as well in our effort to build this uniquely differentiated model and one that has and will continue to deliver exceptional returns for shareholders. The model and the Finxact gain has allowed us to generate earnings and capital to grow our business in a non-dilutive way and sets us up for continued growth and profitability.

Despite these moving pieces in the quarter, our mission remains unchanged to be America Small Business Bank. To do that, we have to continue to assemble the best folks across banking and technology who are dedicated to treating every customer like the only customer. We’ll leverage our next-generation technology stack to create products and solutions that better serve these customers, which in turn helps attract and retain and motivate our folks. And at the end of the day, it all comes down to serving our small business customers and the dedication of our folks to do that.

So with that, Chip, any words or we’ll open up the questions.

Chip MahanChairman and Chief Executive Officer

Let’s go to Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Steven Alexopoulos from J.P. Morgan. Your line is now open.

Steve AlexopoulosJ.P. Morgan — Analyst

Hey. Good morning, everyone. 

Chip MahanChairman and Chief Executive Officer

Good morning, Steve.

BJ LoschChief Financial Officer

Hi, Steve.

Steve AlexopoulosJ.P. Morgan — Analyst

I wanted to start on the deposit side, I saw online, you guys are offering a pretty wide range in terms of rates, one and a half to three on CDs, 1.4 on business savings. What’s the blended spot rate on new deposit dollars coming in today? And how quick could your current deposit costs reset to market rates?

BJ LoschChief Financial Officer

Yeah, I’m happy to start. The bulk of our activity is in savings and on the shorter end of the CD curve. There really is not a lot of activity, the sort of the longer duration CDs that are more in that high 2%, 3%. Really, there’s just not a lot of activity.

So you should think of the bulk of our money coming in today in that 1.4 and then some of the CDs in the high one sort of rate, and that’s really where the bulk of our growth is coming from in terms of the market-based products that we’re growing with.

Huntley GarriottPresident, Live Oak Bank

Steve, that will continue to increase, obviously, right? So our savings beta, you can assume is more in the $70 range with each move. So we’ll continue to be competitive from that perspective and it will continue to go up. But on the flip side, we’ve got 5% of our loans variable rate quarterly adjusting. So as prime continues to go up, we will benefit from that as well.

So there’s a little bit of a timing issue as we manage our margin. But with the 3.89% this quarter, that held up pretty well and we’re pretty encouraged by that.

Steve AlexopoulosJ.P. Morgan — Analyst

OK. So BJ, if we follow that through. Previously, you talked about a NIM in the 3.50%, 3.75% range, I think you pointed to the lower end. Is that still — is that guidance still intact? And I think that was by the fourth quarter?

BJ LoschChief Financial Officer

Yes. I think I’ll stick to that. But I am more optimistic that we’ll be toward the higher end than the lower end now that we’ve seen in the second quarter.

Steve AlexopoulosJ.P. Morgan — Analyst

Got you. OK, that’s helpful. And then shifting to the loan side. So over the last two quarters, average loans held for investment have increased about a mid-teens annualized pace.

Is this what we should expect is reasonable for the next few quarters?

BJ LoschChief Financial Officer

Yeah, at least in the near term, Steve, and it’s related to us intentionally holding more on the balance sheet. So even though those — we’re holding those guaranteed loan sales, we’re going to held them — hold them, excuse me, for sale in case the market does come back, and we decide to sell into the secondary market.

Steve AlexopoulosJ.P. Morgan — Analyst

OK. And then final question. In terms of the secondary market for SBA, what’s the backdrop where the secondary market should resume more normal operations? Thanks.

Huntley GarriottPresident, Live Oak Bank

Yeah, so there’s a couple of different dynamics going on right now, right? One is, obviously, there’s very little fixed — adjusting or fixed demand out in the marketplace for various reasons because of how quickly funding costs are going up relative to yields. There are less buyers in the marketplace for fixed rate or fixed adjusting product. And there are some other alternative investments that have similar terms that are more attractive right now because of secondary market dislocation, things like agencies or treasuries, etc., that normally don’t compete very well from a yield perspective with SBA. So as that kind of washes through, we think that, as Chip highlighted at the beginning, we’ve historically seen dislocations anywhere from two months to nine months.

And we’ve got the balance sheet and the liquidity to weight it out. So we’ll just — we’ll do that and resume our sales when appropriate and when we think we get paid for it.

Steve AlexopoulosJ.P. Morgan — Analyst

Got you. OK, thanks for taking all my questions.

Operator

And your next question comes from the line of Crispin Love from Piper Sandler. Your line is now open.

Crispin LovePiper Sandler — Analyst

Thank you. Good morning. And I actually have a follow-up on the loan sales, kind of similar to the previous question. But the way that kind of thinking about it for the third quarter, I guess if I’m looking at the second quarter loan sales, the guaranteed volume sold as a percent of total originations was around 7%.

As you’re looking at the third quarter, would you think that should be somewhere in the 7% to 10% range compared to kind of recent levels, it kind of historically in kind of the mid to high teens. I’m just trying to get a little bit of a finer point of how you’re thinking about loan sales in the third quarter.

BJ LoschChief Financial Officer

Hey, Crispin. It’s BJ. So short answer is, again, it’s hard to say. We’ve said a couple of different ways that we’re going to be patient that we’re not going to just sell into a core market and take a discount on paper that we think is much more valuable to carry.

With that said, we’re hopeful that premiums are bouncing around the bottom here, particularly on variable rate product. Fixed is a little bit more finicky for the reasons that I just talked through. But we’re optimistic that whether it’s next quarter or whether it’s fourth quarter, we start to see a little bit of normalization back toward acceptable premiums, in which case we’ll again get more active.

Crispin LovePiper Sandler — Analyst

All right. Thank you, guys. That’s helpful color there. And then just one on the pipeline, it seems like the pipeline is very strong based on your commentary during the prepared remarks in the call.

I appreciate if you could just provide a little bit more detail there. Like where do you see the majority of the activity coming from to kind of drive those really strong pipelines? And then relatedly, do you still feel confident in that $4 billion plus origination target for the full year?

Huntley GarriottPresident, Live Oak Bank

Sure, Crispin. It’s Huntley. And I’ll kick off. It’s pretty broad, I would say, the small business pipelines have been pretty consistent dipped a little in the beginning of the year, starting to see more in the way of business acquisitions where I think when capital markets sort of earlier in the year really started to move, rates started to move, buyers and sellers had a hard time figuring out pricing.

And so they took a pause and we saw that through the first part of the year. And we’re starting to see a bit more transactions finding the mark there. So really starting to see that. Across our specialty finance, the middle market or the lower end of the middle market companies to $8 million or $10 million of EBITDA with some institutional capital behind them.

Just some really interesting opportunities there, reasonably low leverage. It feels like a space that we’ve got a lot of opportunity. So those are probably the areas where the pipeline is most active, but it’s pretty widespread. I mean I think the business activity still, despite all the headlines, feels pretty good on our end.

In terms of the — that $4 billion number, I think the back half of the year looks pretty solid. If we continue at this pace, we should be wrapped around that number, plus or minus a little bit from what we see right now.

Chip MahanChairman and Chief Executive Officer

I’d just add to that, as I’m looking at whatever slide Micah has got up here different verticals that we’re in, it’s very flattering to us that when we publish things like this on a call, it just seems that other banks show up at the verticals that we just attacked. So that’s all kind of fine. That said, last week, we had an all-hands meeting. So we have 700-plus people here in Wilmington, and I had the glorious time to spend with what we call our generals, those 30 lenders in 27 cities.

And to say that maybe some of this going on has affected Silver Tsunami is probably accurate. Those guys in Galls basically said in the last couple of months of the last 6 weeks or so, the phone seem to be ringing off the hook. And again, those are mainly business acquisitions and their referral sources. So I agree with Huntley said.

I mean I think that the second half will be pretty good. Remember, too, that relative you’re comparing originations year over year that we lost the subsidies last September, right, BJ?

BJ LoschChief Financial Officer

September 30.

Chip MahanChairman and Chief Executive Officer

So a lot of that growth last year through September was due to the SBA subsidy. So trying to match that year over year. It’s been somewhat difficult, but we’re on a roll.

Crispin LovePiper Sandler — Analyst

Great. Thank you for answering my questions.

Operator

[Operator instructions] Your next question comes from the line of Jennifer Demba with Truist. Your line is now open.

Jennifer DembaTruist Securities — Analyst

Good morning.

Chip MahanChairman and Chief Executive Officer

Good morning, Jennifer.

BJ LoschChief Financial Officer

Hey, Jennifer.

Jennifer DembaTruist Securities — Analyst

I can’t believe it it’s been seven years since the IPO. Wow, time really flew.

Chip MahanChairman and Chief Executive Officer

Time flies.

Jennifer DembaTruist Securities — Analyst

So question on expenses. Huntley, you said you’re looking at $7 million to $8 million more in expenses from 25 more tech hires you’re going to make this year. Can you give us a little bit more detail on where you think expenses could go in the second half of the year when you incorporate whatever lending and support hires you might make?

Huntley GarriottPresident, Live Oak Bank

Yeah, I will say, Jennifer, just that number. There’s about $600,000 in the quarter, so call it $2.5 million of run rate of that $7 million to $8 million is already in the numbers you see now. So the incremental from there is more like four and a half or five. So just to give you of the incremental technology that we’re thinking.

I don’t know, BJ, do you want to talk about sort of the broader in terms of people. I mean, really, we’ll continue to add lenders and technology in the numbers that were talked about, but I think the headcount growth will really start to flatten from here outside of that. Those are the two areas. If we find great lenders with a short payback put them on the field.

Yes, they are support to that in terms of underwriting, closing, etc. The technology squads that are going to be hands on keyboards, delivering products and features that have real returns in the market. And then I think the overall headcount is going to slow down the growth outside of that pretty dramatically from here.

BJ LoschChief Financial Officer

Yeah. And I would just add that if you look at Slide 17, it really is helpful to look at the adjusted expenses linked quarter, up 4%, but up 32% from last year. So what does that mean? It means that our expense growth trajectory is moderating. And that is in line with what we’ve been talking about the last couple of quarters.

We said that the end of 2021, we were playing catch-up, particularly as it related to lender and lender support, underwriters, closers, servicing in our business analyst group, etc., to keep up with the big step up in our production. And then we shifted a little bit more of our focus this year toward, again, lender expansion as well as pulling up that technology investment that Huntley talked about. So we kind of went through a bubble in the second half of last year and the first half of this year. So I do expect that our expense growth will moderate from what you’ve seen over the last year.

And over time, we’re just not investing in technology talent to invest in technology. Those investments are going to have a significant return for us over time as we build out our title operating account, our cash management and treasury management capabilities for the larger end of our customer set for our embedded banking and they have multiple partnerships that are coming online toward the end of this year and into next. So there’s a lot more revenue coming behind that technology investment that we’ll start to see in 2023 and beyond.

Jennifer DembaTruist Securities — Analyst

Great. Question on the business checking. You said it’s ready for prime time now. So can you talk about how you’re marketing that product? How you incent the employees to sell it?

BJ LoschChief Financial Officer

Sure. We’ve got Micah Davis, our chief marketing officer here, who can jump in and start on that one. 

Micah DavisChief Marketing and Communications Officer

Yes. Thanks for the question, Jennifer. So we’re right now just starting very small. We’ve been primarily focused in the Carolinas, and we’re expanding across the country in various specific markets that coincide with where our general teams are and where we have strong presence in some of our verticals.

So relative to our teams, sellers and our lenders talking about title checking, that will happen over the next, call it, 6 months. And then we will be significantly investing in the digital marketing side to expand our presence there.

Jennifer DembaTruist Securities — Analyst

Thanks so much.

Operator

And I see no further questions at this time. I would now like to turn the conference back to Chip Mahan for closing remarks.

Chip MahanChairman and Chief Executive Officer

We thank everyone attending this quarterly call, and we look forward to seeing you in 90 days.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Greg SewardChief Risk Officer and General Counsel

Chip MahanChairman and Chief Executive Officer

BJ LoschChief Financial Officer

Huntley GarriottPresident, Live Oak Bank

Steve AlexopoulosJ.P. Morgan — Analyst

Crispin LovePiper Sandler — Analyst

Jennifer DembaTruist Securities — Analyst

Micah DavisChief Marketing and Communications Officer

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