Q1 2024 Live Oak Bancshares Inc Earnings Call

Participants

Gregory Seward; Chief Risk Officer, General Counsel; Live Oak Bancshares Inc

Chip Mahan; Chairman & Chief Executive Officer; Live Oak Bancshares Inc

Walter Phifer; Chief Financial Officer, Treasurer; Live Oak Bancshares Inc

Steven Smits; Chief Credit Officer; Live Oak Bancshares Inc

BJ Losch; President; Live Oak Bancshares Inc

Steven Alexopoulos; Analyst; JPMorgan Chase & Co.

Brandon King; Analyst; Truist

Tim Switzer; Analyst; SIKW

David Feaster; Analyst; Raymond James

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Q1 2024 Live Oak Bancshares earning call. At this time, all lines are in a listen only mode following the presentation we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Thursday, April 25, 2024.
And I would now like to turn the conference over to Greg Seward, General Counsel and Chief Risk Officer. Please go ahead.

Gregory Seward

Thank you and good morning, everyone. Welcome to Live Oak's First Quarter 2024 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 dot Live Oak Bank.com and go to the Events and Presentations tab for supporting materials. Our first 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 materials accompanying this call and in our SEC filings. We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of today's call. 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 I will now turn the call over to Chip Mahan, our Chairman and Chief Executive Officer.

Chip Mahan

Thanks, Greg, and good morning, fellow shareholders, and welcome to our Q1 call. I'm going to kick things off this morning and discuss several areas noted on slide 4. We will touch on first quarter loan originations and our pipeline of future loans to be generated. As always, we will present a credit quality update, along with a view of increased operating leverage based on investments we have made, then we will discuss growth drivers by way of adding the lending officers and a new way of underwriting small loans. Then we will wrap up with a few thoughts from our annual report as we look back these last 10 years.
Moving to slide 5, before we begin on asset quality award on originations in Q1. Originations for this quarter were 805 million, a $176 million decrease from Q4 of last year. And $226 million less than Q1 of 2023. That said, a number of larger loans slipped at the last minute. As of today, many of those have closed, we expect to catch up to our original budget by the end of this quarter. We expect a nice increase in originations over last year. Our overall pipeline is an all-time high, up 23% over last year.
Back to this slide, again, steady as she goes as it relates to the top portion of this slide, the bottom half requires further explanation. Steve and his credit team have quarterly watch list meetings with all 75 bankers. As you recall, these folks are recent college graduates responsible for gathering financial statements on all 6,000 customers every 90 days. This deep dive includes a healthy portion of all of our employees who touch the customer. He leaves no stone unturned as we examine our charge-offs as it relates to our provisioning on the next slide, Steve has a proven track record of conservatism. I will answer to credit quality exists on Slide 6. Let's begin on actuals. These last 13 quarters, our unguaranteed ACL reserves are almost 2.5% of unguaranteed loans and leases or twice industry norms as the nation's number one SBA lender we have also evolved as one of the nation's preeminent cash flow lenders with interest rates rising over 500 basis points in a very short period of time. Our approach seems prudent. We have added 101 million to our reserves these last seven quarters, while charging off just $27 million. This includes 7 million in a fraudulent national participation in Q three of last year. One needs to lead this a bit. Steve will be happy to answer any questions in our upcoming Q&A session. Walt will walk you through the nonoperating adjustments.
As we move to Slide 7. Needless to say, we're quite pleased to see a 26% increase in operating leverage from the first quarter of last year to Q1 of this year. This $8 million increase year over year should accelerate in the future. Our investments in machine technology allows us to better answer the question we constantly hear from our customers am I approve? And when I get to my our goal of never touching data twice is around the corner treating each customer like our only customer is how we are built, we are in constant search of ways to raise our NPS score, and we look forward to this year's results. As discussed on our last call, we are incredibly excited about changes made at the SBA that affect loans under 1 billion and particularly loans under $500,000. Our tech teams are working 24 seven to automate this process in a way, never before contemplated. Those loans will be sold in the secondary market as we scale those gain on sale dollars will have a positive effect on this ratio moving to Slide 8. In this year's annual report, we thought it would be informative to look back over the last 10 years. In 2013, we were a 400 million bank with $50 million in capital just after receiving our Charter may have delayed the FPSC restricted our growth to no more than 25% per year until 2015 we took the Company public two months later and 10 years, we have grown to an 11 billion bank with almost 1 billion of capital assets have grown 39% year over year. While capital has grown a compounded 34% in those 10 years, tangible book value has grown from $2.36 per share to $20.32 per share, a 10 times increase over the period. While we're not suggesting that the past as a proxy for the future, steady organic non-dilutive growth has been our mantra from inception. The rest of this slide shows how we got there about 0.5 billion of organic earnings growth since the last time we had to access the capital markets back to 2017, driven by our core business earnings, along with 207 million in gains from fintech activities related defense act GreenLight and pay rails.
Lastly, on Slide 9. Our increase in tangible book value compared to others in the KBWI. coverage universe is in a class by itself. We are up over 700% while the KBW coverage, median has grown a 10th of that.
And with that, I'll turn things over to Walt.

Walter Phifer

Thank you, Chip, and good morning, everyone. I'll start today with a high-level review of Q1.
On slide 11, our core financial objectives remain consistent with what we have discussed over recent call. Protected credit Vault utilized pricing disciplines, expand our net interest income, net interest margin, moderate expense growth yet remain opportunistic to add good cost and grow the business. Top line figures show EPS of $0.36, a healthy net interest margin of 3.33%, a 42% quarter over quarter. Growth in reported PPNR, a 2% quarter over quarter loan growth and a 7% increase quarter over quarter in our business deposits portfolio. From a salvage perspective, our small business borrowers continued to be resilient and maintain the eye of the tiger mindset despite a challenging higher for longer rate environment. That's put pressure on some of the loans originated back in the lower rate years, 2020 and 2021.
Our credit performance continues to remain within our expectations, and we remain confident in our portfolio strength and proactive monitoring more on credit shortly.
Our liquidity profile remains robust with low uninsured deposits compared to the rest of the industry and 3-to-1 available liquidity capacity to those uninsured up. Our capital levels remain strong and have seen three consecutive quarters of capital ratio accretion.
From a profitability perspective, our core business continues to perform well as Jim mentioned, with a 26% year-over-year increase in core operating earnings. This growth reflects our focus initiatives to grow revenues at a faster pace than our expenses as we scale into the strategic hiring investments made over the past few years. Our 1% quarter over quarter increase in net interest income and one basis point quarter over quarter increase in net interest margin was in line with our expectations. We will speak more on them in the upcoming slides from a growth perspective.
On the lending front, we remain the nation's largest SBA lender in terms of balance volume thus far in SBA fiscal year, loan originations have a seasonal component with Q1, typically resulting in the lowest quarter of originations this year and as Chip mentioned, a good portion of the loans are pushed to the right have already closed thus far in Q2 of $3.2 billion. Pipeline remains at all-time highs. As our lenders continue to do a fantastic job at sourcing new opportunities in a very competitive environment. Our ability to calibrate deposit growth to support our loan growth remains a strength customer deposits grew 4% quarter over quarter, primarily in our business deposit sector. This allowed us to reduce our more expensive brokered funding by 7% quarter over quarter couple of quick notes on slides 12 and 13. Slide 12 highlights. Our roughly two thirds of our 805 million of loan origination in Q1 2024 was in our small business banking space, as you can see on the top right, the bulk of the difference versus Q1 2023 was in the specialty and energy and infrastructure business units we ultimately view this as a timing difference as these deals tend to be larger and more fluid in their estimated closing date and as such can easily push from one quarter to another quarter. We are also in the early days of our focus on small SBA seven a. loans. Thus far, we have generated 13 million of small loan SBA seven a. production year to date and continue to see that pipeline increase. I should mention as we work to automate the application documentation and decisioning process of our SBA origination platform, we are excited as to what possibilities that provides for small loan someday originations and the subsequent gain on sale income.
Slide 13 highlights the quarter over quarter loan growth by component. It's important to note that price or typical sales and participations activity, our loan portfolio growth was 5% quarter over quarter as new fully funded originations and construction loans continue to drive balanced growth. Our pipeline and portfolio activity suggests that a low double digit full year growth rate remains at reasonable loan growth expectations.
Our deposit trends are highlighted on Slide 14. I've long viewed our funding model off the strength of our branches. Funding platform is extremely efficient with a ratio of approximately 5,000 deposit accounts to one customer success representatives and expensive funds it typically ranges from 10 to 20 basis points. I would by the way, our customer calls are typically answered within a minute by live customer service team as a 93% plus first call resolution average, all while our competitive repositioning Sure, Sarkis customers are receiving market pricing regardless of the interest rate environment.
As evidence of this strength, our total deposits increased to roughly $10.5 billion in Q1 2020 for a $1 billion or 10% increase year over year. Customer deposit growth has been predominantly driven by our business deposits, both in savings and CDs, our overall customer deposits, funding mix of 63% savings, 34% CDs and 3% non-interest bearing has held constant over the past year as we have not yet seen the migration to term deposits that many in the industry have begun to experience. Given the uncertainty of the Fed outlook, we continue to like our funding portfolio, short term positioning our business second product launch in Q4 2023.
And while we are in the early days of rolling this product out, we have seen positive momentum thus far, our expectation was that this was going to be a crawl, walk, run sort of pace, and we are optimistic with regards to this product's trajectory and its potential impact on our profitability as it scales to a larger portion of our funding mix over time.
Slide 15 highlights our net interest income and yield trends. As mentioned earlier, our Q1 2024 net interest income was slightly up linked quarter and our net interest margin improved by one basis point to 3.33%. As mentioned in our last call, pressure on net interest income growth in Q1 was expected as we had a large CD maturity event with an average renewal rate increase of 61 basis points on the pricing front on lenders continuing to hold the line on spreads and the tougher higher for longer rate environment.
While many of our competitors are pricing well below prime our average yield on new production in Q1 was 9.12% for just above prime plus 60 basis points. Our average portfolio loan yield increased to 7.77% in Q1, up 16 basis points for Q4. As for deposit pricing, the average cost of funds increase over the last few quarters has largely been a result of our CD portfolio maturity and repricing. These maturity events have provided net interest income and net interest margin headwinds in Q4 2023 in Q1 2024. So they could ultimately provide future tailwinds at the Fed cuts later in 2024 or 2025. We have not raised our business savings rate since March of 2020 23 and have not raised our personal savings rate since November of 2023.
At the same time, we actually have been fortunate to begin lowering our CD rate offerings recently as the market has begun to reprice the CD rates downward as they tried to shorten their funding portfolio, discouraged funding migration to term deposits and push customers to the more variable nature deposit offerings make no mistake that the market remains highly competitive, but it continues to show signs of rational pricing, which is encouraging.
So we'll have a store funding cost if and when the Fed cuts rates. Many banks throughout the industry still expect rising funding costs, even if the Fed cuts rates as the current offerings are still well below market competitive. This is evidenced by the national average savings rate still remaining just shy of 50 basis points. While most digital banks have offerings north of 400 basis points, we will assess the drivers of the Fed cuts, the competitive market and our funding needs. You ultimately expect the digital deposit market to react fairly quickly in its downward repricing, and we'll do the same.
Lastly given the recent inflation and fed outlook Noos, let's quickly revisit our net interest income and margin expectations communicated by BJ and myself. Over the past few calls, we've communicated that our net interest income and margin are expected to migrate up to the right over 2024, albeit not in a linear fashion with more improvement in the back half of 2020 for this expectation included returning to a new range of 3.50% to 3.75% by the end of the year at a high single digit to low double digit growth in 2020 for net interest income relative to full year 2020 23, barring any unforeseen liquidity stress events, our guidance was based on three Fed cuts in the second half of 2020 for while we are optimistic that we will continue on up to the right journey with our margin over time, the slope of that up into the right trajectory for both net interest income and then they flattened with lesser rate cuts, driving us towards the lower end of the expected range by the end of the year.
Time will tell quarter over quarter fee income, as outlined on slide 16, we continue to be encouraged by improvement in the SBA secondary market. In Q1. There was a good amount of liquidity in the market and stabilization in February aided the improvement on our average premium to 5.7 points on loans sold. As you can see in the bottom table, our Q1 sales volume is typically lower than the rest of the year, followed by slight stair step up in Q2 through Q4, we expect 2024 to be no different gain on sale, providing for roughly 8% to 12% of quarterly total revenues continues to feel like the right range at this point in time. As I mentioned in our last call, we were able to sell our first USDA loans for the first time in over seven quarters as asset-sensitive bank begin to consider downward rate protection. We are excited about this development. But one quarter, it's not a trend and as the timing of our USDA originations can be choppy. So will our USDA sales activity.
Turning to expenses, on slide 17, our Q1 2024 expenses of 79 million were up 7% quarter over quarter, but were essentially flat to Q1 2020, 23 quarter over quarter growth was driven by incremental personnel costs such as 2024 hires, our annual salary merit adjustments, 2023 restricted stock unit awards and accruals related to our 2020 for employee bonus expectations as key growth for good cost with the addition of two senior loan officers, closings that focus on small SBA seven a. loans and servicing internal audit and risk personnel to support our growth and complexity.
We continue to operate as a growth organization and will remain focused on adding revenue generators and other good cost that needed if there are still opportunities to find efficiencies and scale in technology and support areas through automation and process improvements that will help manage expense growth going forward. Thus continuing to provide improvement in our operating leverage. Traditional credit trends are included on Slide 18 or $16 million provision was primarily attributed to portfolio macroeconomic changes, specifically the impact on customer cash flows from higher for longer rate environment, past-dues and not materially outlined with prior quarters.
And although nonaccruals are up as expected in the current environment, we still feel that these levels are manageable as Steve can expand on the Q&A, we continue to actively monitor the existing portfolio have yet to see any notable surprises outside of our expectations and do not currently see a significant weak spot. Our trademark proactive direct sourcing approach has and will continue to serve us well.
In Q1 2024 alone, we spent approximately 40 hours or seven business days reviewing almost 500 presentations from 100 of our relationship managers are more than 700 of our credits to understand their specific situations and staff. I continue to be impressed by our credit and servicing team's commitment to excellence and discipline in their respective areas are credible is in good hands, with 37% of our loan book government guaranteed a strong capital and liquidity profile. Our reserves to unguaranteed loans and leases ratio that is two times the industry median of predominantly owner-occupied CRE portfolio. That's 45% government guaranteed and our historical charge-off rate being a fraction of a group of our current allowance, we remain confident in our reserve and portfolio's credit strength.
Lastly, Slide 19 highlights our overall capital strength which remains robust, both in terms of regulatory ratios as well as from the unguaranteed loan perspective, what we affectionately call the back-end ratio, as you may have noticed in the earnings release, we did originate a 100 million term loan in Q1 2024 with a purpose of downstreaming, the funds to our bank subsidiary to position our bank level capital ratios for the anticipated growth to come. Our earnings over the last three quarters provides us with confidence in our ability to continue to support our growth through organic earnings as we have over the last six plus years, while positioning ourselves to be able to weather whatever storms lie ahead.
Thank you for joining us this morning. And with that, we're happy to take questions.

Question and Answer Session

Operator

(Operator Instructions) Steven Alexopoulos, JPMorgan.

Steven Alexopoulos

Hi, good morning. This is Alex Lel on for Steve. Good morning, Alex or else.
My first question is on credit. Can you share some color on the loans that you built specific reserves for in the quarter? And what is your outlook for the health of these credits and the related industries?

Steven Smits

Yes, this is Steve Smits. I'll take that one. So these are from dominantly Main Street SBA borrowers that are struggling with the higher rate environment and the impact to their overall debt obligations. So we've put impairments on these loans as we navigate.
But as Walt had mentioned, we continue to stay very focused and close to them that are servicing and done. We will continue to work through them. But with the and the uncertainties in the economic outlook going forward, our rates will remain high, prudent steps to put the reserves today and continue to work with them to rehabilitate and work through these challenges. What gives me some comfort is that these really were not surprises. So these were borrowers that we were aware, we're experiencing challenges and struggles. So that bodes well to our servicing and being on top of understanding the challenges our borrowers are working through. So no huge surprises, but we'll continue to work through that.

Steven Alexopoulos

Thank you. And I wanted to ask about expenses. So what is your expense outlook range for 2020 for considering a baseline growth rate? And if there are opportunities to add more revenue producers where we that revenue expense range B? Thank you.

Walter Phifer

Yes, good question off this wall. So from expectation for 2020 for baseline, we think a high single digits is reasonable, given that we still remain that growth organization to the extent that we can hire revenue generators, what does that become? Does it move to low single digits? Perhaps? Ray, I think there's still some efficiencies that we can look at. So and that obviously depends on how many revenue generators we can add. So to the extent that that goes into low single digits, mid 10s, I personally don't see it as a problem with it's all revenue generators because it's going to generate revenue and help with us.

Steven Alexopoulos

On the operating leverage side, you want to give me for answering my question, correct.

Operator

Brandon King, Truist.

Brandon King

Hey, good morning, Fabienne. So could you square away the commentary around the pipeline being stronger than ever, but we hear more and more how these higher rates are impacting just smaller business demand. So could you talk about what you're seeing within your customer base what's driving these strong pipelines is relative to these higher rates potentially impacting demand? And obviously, credit is well.

BJ Losch

Yes, hey, Brandon, it's BJ. So I think what we're seeing is an expectation level setting or a kind of a realization, if you will, of buyers and sellers, particularly in the SPAC space, kind of getting on common ground on what valuation should be given the rapid increase in rates that happened over the last 18 months or so. So last year was kind of an interesting one in terms of sellers having expectations, but valuations are pretty increase in rates and buyers looking at there, our borrower base and what they could actually afford to pay. And so there were some disconnect there that would continue to be high activity. But a lot of what we saw coming through for our pipelines actually fell out of closing because buyers and sellers could and couldn't come to terms. We're seeing that true up a little bit more now. So rates are generally steady. Borrowers, understand what their cash flow coverage is going to be. And Tim can forecast that a little bit better. And so we're seeing much better pull through activity as we look at the pipeline.
Now how what Walt said is true is in the first quarter, you'll see that our originations were largely flat quarter over quarter, year over year. In SBA, they were down meaningfully in specialty finance and E&I, which we've already seen come back here in the second quarter. We do expect stronger SBA small business volume in the second quarter in addition to that, specialty and E. and I. So we're we're pretty pretty excited about what we're seeing going forward, and we expect to continue to see more more growth with the existing business that we've got.
As Walt talked about, we are always always always in the market for high-quality revenue producers for a growing company. We'd love to see more lenders come to come onto our platform and we're actively looking for those. So you're getting continued to see us invest there.

Gregory Seward

Just one other thing on that, Brent and I have always felt in our business, the banking business, the banks are sold and not bought by Board Chair of a certain expectation under Selma bank for 2.5 times book and markets. Is there an actual sale of the bank? And I think that's what has happened, particularly in the M&A business center space that the silver tsunami is expecting a certain price numbers don't pencil silver tsunamis running out of runway. Seating is one of those silver tsunami has, and that could come realization that I'm not going to get to and I have to ask, but I'm going to get two times book and I better take it now. So I think our guys are saying and the phones are ringing and the phones are ringing. And that's the reason that the pipe is up 26%, 23 or whatever it was.

Brandon King

Okay, that makes sense. Then as far as the new commentary, it sounds like if we are in kind of at least stable rate environment, you're going to reach the low end of that three, 53 70 raised by 4Q, but what is implied in your outlook for deposit costs within that guidance?
Are you expecting deposit cost to be potentially stable from here or what sort of creep are you expecting on deposit costs?
Hey, Brian, as well. So from a savings perspective, we expected essentially to stabilize both on the personal and the business side. From you in that guidance that gets us back towards that three, 53, 75 range towards Q4. We still have two unexpected Fed cuts, which obviously are savings will respond accordingly on those costs, I believe our September and November in our current models.
And then just from a CD front, like I mentioned in the call, we've been able to reduce our CD rates thus far?

Tim Switzer

Yes.

Brandon King

No, I think it largely will depend how the market moves on digital market. Typically, LTD pricing will reprice ahead of Fed expectations and then the gap between our renewal of our maturing CD rates and our renewal rates. It's much less as we get further through the year, just given we were pricing our 12 month, which is our our large CD offering in Q3 and Q4 last year. It's a five 25 30 mark, but.

Tim Switzer

Okay.

Steven Alexopoulos

So sounds like interest bearing checking and savings money market is kind of at least stable from here until Fed rate cuts and then cities are marching towards that five, 20 would be the best way to frame it?

Brandon King

Yes, I think I would Furthermore, they're Yes, they're marching towards our current rate offerings today.

Chip Mahan

Okay.

Tim Switzer

Okay.

Gregory Seward

Got it.

Steven Alexopoulos

I'll explain it's my question.

Gregory Seward

I'll hop back in queue.

Chip Mahan

Thank you.

Operator

Tim Switzer, SIKW.

Gregory Seward

Hey, good morning.

Tim Switzer

Thank you for taking my questions. Tom, I had a quick follow up on your commentary on the NIM. and deposits, what's kind of the deposit beta you guys are assuming on the initial rate cuts, say we get one or two cuts in the back half of 24, what's your initial expectation there?

Steven Alexopoulos

And then how could the beta will possibly accelerate as we move through the cycle if we get a series of cuts?

Brandon King

Yes, great. Question on from a beta perspective, the bank here, it's about 15 years old, so we haven't seen a lot of robust downward cycles on the last time. The rates came down or deposit pricing. Digital market acted pretty rational from a beta perspective. Early on, you'll probably be somewhere in the 50% to 70% range on it could be a possible potential lag on whether it's one month or so on the CD side, that's a typically 80% beta or so. And that will come where we're pretty confident that will hold up given the way City market typically is very reactive on your as you kind of move forward, as you as you saw, kind of rates came down or absorbing rates were rising the cumulative betas Rose. We think our cumulative betas will also increase in the savings side as well. But largely it will depend on how essentially the overall market rate.

Tim Switzer

Okay.

Chip Mahan

Got it.

Gregory Seward

And then I also wanted to ask about your expectations around SBA margins and secondary market demand.

Chip Mahan

Kind of, you know, a good lift in the premiums this quarter, but now with rate cuts being pushed a little bit further out interest rates moving higher. Has that kind of moderated demand or the premiums for you?

Brandon King

And what are your expectations once you get either stabilization or cut in rates in the secondary market, you had tend to look at the forward curve. So the 1.5 to the 1.7 improvement that we saw here in Q1. I think we'll stay in that range, especially now given with potentially later Fed cuts. So think of it a lot, six quarters or so and say that's probably a reasonable expectation for right now.
As far as demand demand, strong liquidity, strong in the markets that we're not having issues as far as selling and executing those sales I think as rates come down, we typically will see an improvement on hard to say right now, that improvement very drastic. But I think from a reasonable expectation is taking that 1.5 to 1.7 range, at least through the next few quarters.

Chip Mahan

Feels right.

Gregory Seward

Okay, great.

Chip Mahan

That's all for me. Thank you.

Operator

(Operator Instructions) David Feaster, Raymond James.

David Feaster

Hey, good morning, everybody. Wondering, Derek, where they may be just I'd like to touch on the small loan automation. You guys touched a bit about it in your prepared remarks. I'm just curious where where are we in that build-out and what's left there in? I mean, are there any other investments or back office build-out that we need? And when do you maybe fact that we could start beta testing that or rolling it out more broadly?

BJ Losch

Hey, good morning, PJ. So we have already started originating small dollars SBA loans right now. It's mainly through a small team that we put together. So I think we've got 12 or 13 main book to another pipeline about that size. So good start. We had not opened it up to all of our lenders yet. We were getting ready to do that. But we've got two major technologies flash credit enhancements that we were looking at before. We really opened up the floodgates what is a digital application, which we're expecting that have later in the second quarter, early third quarter. So that will be a big deal because that will automate the front end to make it very easy for our borrowers of referral sources or lenders to put small-dollar loans through our pipeline and will be very helpful.
The second is automated credit scoring. We will not go 100% automated credit scoring, but we are looking at and streamlining the process for these small dollar loans to be get to be able to get more through our system. So we're really excited about this. This is always been something that was available that that other SBA lenders do, but we have tended to do larger dollars credits. We were very happy to provide access to capital for smaller small business owners. And that's very much aligned with what the SPA and the current administration are looking for from us in the industry. So we're excited about that. And it just adds to our ability to serve more and more small business customers. So more to come on this, but we expect it to really start to ramp towards the back half of the year.

Brandon King

Is the plan still to sell all of that production and where our gain on sale of smaller dollar relative to what you typically sell Yes, hey, Dave, this wall of yes, pain is 100% sale model releases, small loan SBA premiums there range typically anywhere from one-tenth of 14th, depending on your spreads of what historically those have held true on the secondary market views those loans, that's kind of the Cramo credit because you can essentially create larger pools with more to more diversification so high demand of good premiums that historically and we expect those that or expect that to continue going forward.

David Feaster

Got it. And then maybe switching gears back to the business deposit growth. I mean, first off, I guess could you remind us where pricing is on those products? And then where where would you characterize?
We are at this point, you know, we've seen, obviously nice growth, but are we still crawling from your perspective? And maybe when do you think that will ship excuse me, ship-to walking or even start running?

Brandon King

I'll start with Yes, Dave, this wall on. So our business price, our business deposit pricing, our savings is a 4% are CDs or the same as our personal CD rate offerings. And then you have a non-interest-bearing checking on as far as the kind of where we are in the crawl walk run, I'd say we're very much in the crawl stage. I think we are working on now as aggressively as we can sell those to our existing customers as well to the new customers. I think it will take time to ramp you on the checking side on just where we are the market right now where you're essentially depositors can get a very nice rate on the interest bearing side.

David Feaster

Yes, I think it should have clarified around the crawl as it relates to checking Yakima and there's a long runway there. We are absolutely sprinting impact on business deposits. You know, we've got a very strong offering there. We've got a great brand reputation. The growth in business deposits is incredibly strong. So we expect that to continue.

Gregory Seward

Yes, we kind of set that up, David, this chip. So I would just add this right that we have been a primarily a lending company for 15 years and a lot of our SBA, particularly the generalists have been SBA commissioned loan producers and now that we have a checking account product that is second to none in the industry, it's been a bit of a educational process, particularly for instance, if we we're funding an acquisition and the money goes to the seller. We need to convince our customer who is the buyer to bank with us that we are a bank that the staff are not just a lending company and there is a that piece in that education is in the educational area and early days. And I would still put that piece of the call area, we can get better there and we will get that.

David Feaster

That makes sense. And honestly, that might play into as you do more conventional lending play into more of that that growth.
And so maybe touch on the conventional lending side. You know, looking at one of your charts, it looks like you've seen a decent amount of growth on that front. There's obviously a hyper focus on the CRE front. I'm just curious, what are you targeting on the conventional side at this point? How's that going? And then how do you just think about growth of conventional production and shifting underwriting standards and credit quality.

BJ Losch

We're really excited about what we're doing on the conventional lending side. We've transported our theory of verticality from the SBA side over to the specialty side, which we think is incredibly important to be very expert in the verticals that we go after so that we can add value as an $11 billion bank of larger credits relative to just being a bank. That's a generalist type calling effort. And I think we've been incredibly successful there so far, we've got an excellent sponsor finance business. We have a venture banking vertical, which makes sense with our organization, seniors' housing and commercial real estate, specialty health care. So we're trying to be very niche oriented in how we grow that. And over the last five years, we have grown our specialty finance business tenfold in terms of outstandings.
And what that's also allowed us to do is have credit be comfortable with the credits that we're doing in those verticals because we're buying large, seeing the same types of deals as opposed to, again having a generalist calling effort on the conventional side, which can be more difficult to underwrite and approve. So we're pretty bullish on what we can do to grow that responsibly. And in addition, to that talking going back to the deposit side and the checking side, it is very common to do a conventional loan deal and ask for the deposits. And so from that perspective, we are having great success starting to build out our deposit or checking platform on the specialty conventional side because our borrowers are used to being asked for deposits. So yes, we're going to build our book there, probably quicker, frankly, then we're going to build it on the small business side, and we're starting to see the fruits of that labor just one addition to that, this chip is it is been really, really fun from my co-founder, Steve, I'd love to be way into that.
We kind of view this from our perspective is regression to the norm. We came up with this idea to create a bank that supported a lot of the banking business and the SBA area. All of a sudden we get to use our 50 years' experience of being actually C&I lenders ourselves. So this is a bit, again, regression to the norm for us getting back to your roots.

David Feaster

That's great. I appreciate all the color. Thanks, everybody.

Operator

Thank you. We have no further questions. I will turn the call back over.

Chip Mahan

Yes. As always, we appreciate your attention today and look forward to seeing you again in 90 days.
Thanks, Rick.

Operator

Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your line.