Live Oak: The Small Business Bank - [Business Breakdowns, EP.143]

26:48You can send a wire 23 hours a day, six days a week. And so those time limitations are actually imposed by the banks themselves because there's still so many manual processes and they need sign off and they need people to be in the office when they can improve wires. But if you abstract that all the way and automate it, wires can become this technology that's actually pretty powerful. But a FinTech who wants to offer wires to their customers or rely on their banking partner and all that legacy tech, where what William Hockey is trying to do at column because he has a direct line into the Fed is create low level infrastructure that other banks can tap into to do some of this in a much more efficient manner.

27:30And so that's the vision that Live Oak saw as well and the benefits of being a fully chartered national bank as opposed to a Neobank or FinTech. It's a great anecdote on the wiring system and what the actual bottleneck is when you You look at Live Oak and the different pieces. You reference at the very beginning SBA program and lending that occurs there, walked us through the unit economics. Then you have this other piece which is incubating, investing, creating this technology. When you put them together, what percentage of the business can be attributed to Wage? How do you think about that? Whether it's earnings profile, book value, any other way that you would account for it?

28:13how important is the tech side of things and how important is the traditional lending business. Historically, the tech piece was a great way for them to scale and build capital in a capital efficient non -delutive way. It started with Encino, which actually didn't add capital to the bank. They just spun that out. And so all of those gains that initial shareholders were rewarded with aren't included in historical financials. it's excluded. But if you look at aperture, I think this is a great example. So after and Sina was spun out, Neil Underwood and his team, they walk over to the other side of the balance sheet, they start writing code to improve the online banking experience.

28:53So remote deposit capture, bill pay, and other online banking services that you would use. And so he's doing this internally. He hires 40 plus engineers and they're now a publicly a 10 million plus expense bucket is a big drag on earnings and valuations. Probably something north of a hundred million dollars of equity value that this is weighing the company down by. This is another example where they're turning an expense bucket into a revenue driver. They come up with this unique JV where they partner with first data and they take first data's legacy online banking solution, which originated with the funds express acquisition in 2007.

29:35But that business had a few hundred banking customers, something like 60 million of revenue, maybe 18 million of free cash flow, and they slap it together with these 40 engineers at Live Oak to modernize that solution and put it on AWS, make it an API first point solution. So you have 10 million of expenses that now go into the JV and so they're offloaded, But their 50 % stake in the JV is valued at $68 million of Tier 1 capital. And so you've turned 100 million plus valuation drag into 68 million of book value, value that it multiples of book. But also their share of the losses that are flowing through to the income statement weren't 5 million of the 10 million of expenses because you're getting some of this revenue and earnings that the legacy business from first data is spitting off to absorb a lot of those incremental expenses.

30:33So there's one example of how they were able to build capital in an efficient way. And they did the same with Finzac. So they seeded the Sanchez brothers, as I said, to go build a modern core provider. They ultimately invested about $13 million into Finzac. That was sold in 2022 to FyServe for over $650 million. Live Oak gets a 10x return on their investment. And they put $120 million in their pockets to build capital. And so historically, That is where the technology came into play. I think building capital on the balance sheet. Today, from an earnings perspective, it's not going to impact earnings until they realize some of these exits.

31:13Almost all of their core earnings will be from the banking and the lending side of the institution. If you think about book value between aperture and live oak ventures and their investment and in Canopy, it's probably represents about 20 % of their current book value. And so it is still meaningful and you are exposed to a little bit of volatility there. But the Marks seem conservative in their track record has been tremendous in building value on the technology equity side. The example of being able to take that expense and flip it into a much lower expense potentially earning stream in addition to additional capital on the balance sheet that you can use for lending purposes is particularly interesting.

31:56So I guess flipping to that traditional banking business itself, when you think about the growth streams, what does that look like from here? And I do want to flash back into the past a little bit, but just from a landscape and opportunity set, how do they think about the opportunity from here in terms of scaling? Is it ultimately to look more like traditional banks, dude, maybe just without the overhead? Is there anything else that they're doing that's creative in terms of growing that banking business. I'm an investor that hunts power laws and one of the ways to achieve that is to find companies that can grow above average rates for a very long period of time, decades.

32:35And to me, the formula to achieve that is low penetration paired with strengthening competitive advantages. And here you have that in space. And so from a penetration standpoint, there are something like close to 30 million small businesses in the country. But if you exclude all the solo, prer -nor businesses. You're still left with probably five or six million businesses that are sub -five million of revenue, maybe two to five hundred employees. The big banks aren't necessarily focused on this market. Live Oak has sub -10 ,000 lending customers. There's a massive penetration opportunity within small businesses and to become America's small business bank.

33:18Then we talked about the competitive advantages, whether it's no branches, whether it's technology, whether it's their theory of verticality. And so so much of successes, choosing the right game to play and choosing who you're competing against. And I think community banks in general would be a competitive set that I would relish competing against. I think there's a very long runway for growth. What are the specific areas or some of the strategies? Well, number one, it's just more SBA loans. So they're the leading SBA lender and they only have something like 7 % share. And so they're going to continue to make more SBA loans in the 35 industries that they currently serve.

33:54And then also continue to expand into other industries. I think the SBA allows you to lend to something like 1200 industries. They're in 35. So there's a penetration opportunity to expand there as well. And then there's an opportunity to do more conventional loans. So they are deep domain experts within the 35 industries they currently serve. And they have a very high MPS on the lending side. I think it's 67 for borrowers, but only 20 % of their borrowers are repeat borrowers. So historically, some of them have tended to graduate to bigger banks. But now, Live Oak is offering a full suite of loan options.

34:34And so there's an opportunity to retain those customer relationships for longer and do more conventional lending. And then the third piece is just more products. So right now, they are really innovating on the liability side of the balance sheet and building out a suite of checking account products and operating accounts to retain more customer deposits. So right now, only 3 % of their customers both have a lending relationship and a deposit relationship. But as of September, they launched their fully featured checking accounts. Every live oak loan is being funded into a live oak checking account.

35:10So now, there's still the challenge of making those active and not having customers just transfer the money out. But I think there's a big opportunity to build the depogate base amongst their customers, increase stickiness, reduce cost of funding to improve net interest margin along the way. And then the ultimate vision is embedded banking. And so embedded banking would be to offer live -oke banking services within a vertical market software practice management solution that these entrepreneurs are using on a day -to -day basis to run their business. So if you think about veterinarian, like what is the software they're using to manage their appointments and to order drugs from suppliers?

35:50Well, whatever that software is, LiveOak should be able to link in with an API, and it requires this modern suite that they've built and then offer their banking products right alongside that. So the customer doesn't have to log into a separate platform, and then also you're getting much more data to offer tailored products, whether that's working capital lines, etc. But that it creates much stickier relationships and just takes the competitive advantage versus your standard community bank to another level. Yeah, I even noticed it with our business where certain tools, because they become so easy to use and just even something with corporate cards now versus the old AMX where you had to literally take photo copies of your receipts.

36:32Now you could just do simple things like emailing receipts or taking a picture on your phone and sending it to an email. The friction of the incumbents versus the ease of use of technology makes a major difference for customers But it's an end of one but I see it myself. I want to flash back to a few of the things that have happened in the backing system recently Just understand how they've impacted live oak if at all the first thing is Where many people heard about the SBA program and that was through PPP loans So what did that look like for live oak was it a major tailwind through the COVID cycle and Has there been any legacy impact on the business besides that huge bump and massive exposure to the SBA program for all of the US?

37:15Has there been any fallout or positive impact that took place after the PPP loan program? Yeah, so Live Oak definitely punched above their weight during PPP, and it makes sense if you want to be America's small business bank, you sure as hell better pee on your game when that legislation came out. So they originated something like $2 .3 billion dollars of PPP loans generated over 80 million of fees and net interest income, primarily in 2020 and 2021, which actually made up about a third of their income during that period. And so it was yet another example where they were able to opportunistically build capital in a non -delutive way.

37:54It was for sure a tailwind to their business. I mean, if you think about other banks, maybe PPP originations were 5 or 10 % of their originations during that period and Live Oak was something like 30%. That has obviously all run off. I think in terms of what it did was allowed them to build their brand and they were something like 11 ,000 customers took PPP funds from Live Oak. And so they had exposure to 11 ,000 customers, not all of which had a prior relationship with Live Oak. And so it just enhanced their brand and capital -based within the small banking community, but that has all run off at this point.

38:37Now, in terms of interest rates, we had this discussion on the first citizens episode where rising interest rates are one thing. The speed at which rates went up is another thing and banks being able to adjust their balance sheets and properly balance assets and liabilities around a new rate environment. How have higher rate impacted live oak? They've been impacted a little bit, but not nearly as much as other banks have. On the one hand, I said, that interest margin has been a little bit depressed this year as rates are rising, but that should bounce back. The vast majority of their loans are variable rate in nature.

39:17From a duration standpoint, they're protected there. And then from a liquidity standpoint, they have this secret weapon or this treasure chest in terms of the fact that 40 % of their loans are government guaranteed portion of loans. And so they can offload some of that to access liquidity whenever they need. And it also boosts their capital position as well compared to most banks. Looking at most banks, not all lending books are created equal. And that 40 % government guarantee provides them a lot of flexibility to access liquidity and just put up better credit metrics over time. And then last event, which I think you were alluding to in terms of what might happen, the Silicon Valley bank march.

40:05It feels like so long ago, while it was less than a year ago, how were they impacted with all the hysteria going on with SVB and the run on that bank. zero impact aside from just a sell down in the stock during the mania when people weren't sure of what was going on but they're uninsured deposits were much lower than the average bank. I think it was something like 18 % of their deposits were uninsured and they quickly increased liquidity to have three times that coverage amount. They didn't see any impact to deposits through the history and since then the stock has bounced back up. And so they managed leading up and through that crisis as well as you can expect.

40:51And it may make sense to talk about the deposit side actually for a little bit. And so when they started this and they were doing the originate and sell model, they were funding that with relatively high cost wholesale deposits. They just weren't focused on the deposit side because the lending side was so profitable. And then in 2014, 14, 15 right around the time of the IPO, they launched a high interest savings account. So I think something that would compete with Goldman Sachs, Marcus, or American Express personal savings. And so here you're really competing on price. Live Oak adds a service layer, which we can really get into that differentiates them, but you still have high cost deposits.

41:30And that's how they've funded the balance sheet for nearly the past decade. Now you're getting into that operating account side and attracting checking account customers with much lower cost of funding. And so there's an opportunity for them to bring their cost of funding down over time as non -interest bearing checking accounts increases as a percent of the total. Yeah, it's very interesting, particularly with something like SBB, where it was such a focus for that business to maintain customer funds whenever they did make a loan. But it was very much assumed or needed to be insured that if there was capital associated with something that SVB was attached to, a large portion of those dollars would stay within the SVB bank as a deposit.

42:19And you get some type of exponential growth from that where you can make loans, but you're also maintaining assets to then make more loans. I'm just curious with that strategy here and their hope to grow the deposit base over time, how has that looked and trended and are they seeing success and how important you think that is in terms of reaching that next level of success in terms of where they can beat. They've scaled to $11 billion of assets and $850 million of equity without that as any component of the business plan. So I don't think it's a necessary ingredient for success. If you want to continue to increase returns on equity, which I still think they could put up 15 % next year without this tailwind.

43:02But if you want to get into the high are approaching 20 % threshold, then the increase of non -interest varying checking accounts will improve. And then also it'll just increase customer stickiness over time. If you have that deposit relationship and you're taking a conventional loan, you're just even less likely to graduate to one of the bigger banks. The metrics that you just referenced in terms of mid -teens are we and potentially even higher are quite impressive. Are there leveraged dynamics besides the core business model of what you mentioned in terms of the loan on origination and the unique dynamics with SBA and being able to sell those loans.

43:37Are there other things going on from a leverage perspective that are driving an ROE, which I would consider to be at the high end of the range for banks? There's a few components. I think they're just best in class. As you think about a bank and how they make money, they're best in class in all of the metrics. And we can walk through the unit economics. They've actually graduated from the originate and sell model. When they went public, as you would expect, investors didn't love that non -recurring aspect of revenue. And there was also some accounting noise with how they were valuing their servicing asset that they retained.

44:10And so it just created lumpiness. Investors were penalizing them for that. And so around like 2017, 18 timeframe, they started holding a lot more of the loans. They were originating, which is why now 40 % of their book is government guaranteed. but in terms of how they're putting up that 15 % number or how I'm trying, gliding around that. So it's an $11 billion bank, think $10 billion of interest -searning assets and $850 million of equity. So there's a lot of embedded leverage in there, but on the $10 billion of interest -searning assets, I think next year they could get back to a $375 net interest margin.

44:48So you have $375 million of net interest income, slap on another $125 million for non -interesting come things like gains on sale for the loans they are selling, things servicing revenue and the like. And so now you're at 500 million of revenue pre -provision. And so what efficiency ratio can they operate at? I mean, it's bounced around over time, but I think 60 % is been where it's bounced around and I think that's a good stake in the ground. Oh, in by the way, that actually has a lot of engineering talent that should be classified as a growth investment as they're building out this next gen technology architecture.

45:22But let's just say 60 % So you have 200 million of pre -pervision income, let's say provisions through cycle or something like 40 basis points given their theory of verticality, which has worked out amazingly well from a credit perspective. And then also that 40 % government guaranteed portion. So you're left with 160 million of pre -tax profits, something like 130 million post -tax. So on the 850 of equity, that's how you get to the ROE. there's upside on the 375 net interest margin as Their cost of funding starts to decline and then there's also upside on the efficiency ratio as they continue to scale This is the branchless model.

46:00They should be operating below that was a really helpful overview in terms of how They can achieve those numbers and just the moving pieces to it in terms of competition here What do you think the competitive threats are whether it's just directly competing in terms of the same type of strategy that live has executed on or as they are bigger, there's this idea of graduating which they have, but as you graduate you start to compete with some of the bigger players. So how do you think about competitive threats? I think for this sector banking in general is a sector that I would love to compete in.

46:34But let's go back to NeoBanks and FinTechs. So let's say column which is William Hockey's company is successful and you eliminate all of that regulatory barrier to entry and FinTechs can operate on a level playing field. To me, live oak is still going to win. There are two aspects to this. One, Silicon Valley back startups are not well suited to lend money. It's an industry that doesn't suit itself to moving fast and breaking things. So if I think about this, you're selling money. And it's something that has universal product market fit. And it ultimately comes down to pricing. I'm this introvert who likes to sit at home and read and listen to podcasts.

47:15And yet if you incentivize me to go out and sell dollars for dimes, I could build you a billion dollar book of business very quickly. And I think historically that's what FinTechs have done. They're just not good at underwriting loans. They're trying to grow at all costs or they're trying to grow at a much faster pace than banks should grow at. And we actually saw this with PPP. And so as you think about SBA lending and the competitive environment there, because the regulation actually has loosened a bit where now Neal banks can originate SBA loans, but within PPP, like so you saw cabbage and some others, really trying to move fast and just generate fees by originating as much as they could.

47:57Well, there was a rampant fraud on their platform. They didn't have the appropriate procedures in place to catch some of the stuff that should have been obvious. And yet live oak as a subscale bank is originating over $2 billion and there's no issues. I mean, so just one for like a culture and an underwriting standard perspective, safety and sound has to be first. And culture is the other piece of it. It actually I loved the monger interview with John Collison that you guys ran on invest like the best. One of my favorite aspects of that when he was talking about netchets. The differentiator is culture.

48:30It's like, okay, safety first, customer service second and then we'll worry about the capitalists that own the company. And Live Oak is run the exact same way. And so I want to talk about actually culture and how it differentiates. I mean, if you think about most Neobanks or most branchless bangs, customer service is lacking. If you think about a high interest savings account, you don't generally have a great experience, but you're earning more money on your capital. Live Oak takes a very high touch approach. So every borrower they actually will fly to and meet face to face belly to belly and like look at them Go over the business plan see if they have the eye of the tiger and a plan for success and then on the deposit side They have this well -trained and well -staffed call center and so a few months ago I actually was expecting a wire into my live -oak account and I was traveling that day and the wire hadn't hit Even though the sender said it had sent and so now I'm going through all of the anxiety and early afternoon I call live oak.

49:27Within 10 seconds, I get a gentleman named Ryan on the phone. So I explained to Ryan what happened and he said that's interesting. How much was the wire for and I told him I said, who is the sending institution hang tight. I'll be back in a few minutes. So then two minutes later he gets on the line and he says, look, I just worked with my wire staff to go through every single transaction that hit the bank today and nothing was for that amount. Do you mind reaching back out to the sender and just making sure that it went through? So I do that. And of course it turns out that the sending institution, even though they said it was confirmed, they flagged it at the last minute because that account had never sent money to this account.

50:04And so then all is resolved. But then a few hours later, right before five o 'clock, I get a call back from Ryan. And he said, Hey, Mr. Bafier, I know you're traveling today. I didn't want this to hang over your head overnight. And so I just wanted to give you an update that the funds have hit your account. They're readily available. And is there anything else I can help you with today? And I said, no. But that is an amazing customer experience. By the way, there's no incoming wire fees on live oak. They're paying me 4 .4 % for the privilege of that customer service. And it creates this emotional attachment and this word of mouth experience with their customers.

50:40I'll share one more quick story on the lending side. I mean, so here in Wilmington, North Carolina, we have this homegrown celebrity named Bevin Prince. Bevin was at film school at UNC Wilmington while one tree hill was being filmed here. And so then she becomes an extra onset and then she becomes a regular extra standing in on most filming days. And then one day, they write a line for Bevin. And then before you realize it, she becomes a star of the show, playing a character under her own name, Bevin. So then after One Tree Hill wraps, I mean, she moves to New York City to continue to pursue acting.

51:15In between auditions, she starts teaching at Soul Cycle. And here she really finds her passion and she grows up with the company as Soul Cycle is experiencing explosive growth. She's one of their best instructors, the pandemic hits. So her and her husband need to escape New York City. They go to Ritesville Beach, North Carolina, which is one of our premier beaches here in Wilmington. And like me and like so many others, they just fall in love with the lifestyle. And so now she has the entrepreneurial edge. She wants to start her own cycling studio called Recess with Bevan. It's the middle of the pandemic.

51:50And so her business plan is, let me get some space in a parking lot. I'll set up a tent. I'll have a storage unit. And I'll roll the bikes out each morning. And I'll set up an outdoor cycling studio. No vendor would originate. this loan. And Live Oak did partially because maybe she's based in Wilmington partially because they specialized in that sector of fitness facilities. It goes back to this eye of the tiger. They saw something in Bevin that she would just not quit. And we've seen that manifest. So a few months after she starts recessed by Bevin, her tent gets blown away by her hurricane. She rebuilds continues on.

52:23And then there was just a tragedy a couple years ago where her husband, it was on a boat on 4th of July and gets struck by lightning and dies. Most entrepreneurs would close -up shop. And yet now her ambition is bigger than ever. She's playing a bigger game. And she wants to expand into more cities, more studios, and continue to build the vision she had. So you hear her talk about her origin story. And Live Oak becomes this emotional experience, the way they made the lending experience seamless and the way they helped her build out the facility and the business plan. And so it's pretty special and that word of mouth verality is more valuable than any paid advertising they can do.

53:04Yeah, that's incredible. On both sides of it, I mean, a personal anecdote and then something that's third party, but big and to your point, there's a reason why there's influencer marketing and people pay so much for it is because people can be the strongest driver of growth for businesses if they've had good personal experiences with those businesses.

53:26It's I think it's a super, super, super interesting point there. On the culture side of things, it feels like Chip Mayhan is very important to this overall organization. He is somebody where, after hearing this story, his story, feel like there should be more about him and maybe there is out there on the internet. How important is he in terms of driving this machine and being the visionary behind everything they're doing? How do you think about him as a piece of this and what his outlook looks like over the next few years and next 10 years, whatever it might be. Huge. I mean, he has been the driving force of success here.

54:06As you said, they got started in 2007. They officially got their charter, I think in May of 2008, the last bank to do so before the global financial crisis. So they get their charter and then the world comes crashing down. It's interesting. The FDIC hated them. I think Sheila Baer actually named them the Doggy Bank because they're lending to veterinarians. So they're based in Wilmington, North Carolina with no branches lending to one industry with one product. So actually when the world was falling apart, the FDIC called Chip Mayhan and Neil Underwood into their offices and they said, look, I want you to liquidate or sell this bank.

54:46This is less than a year after they got their charter. And he looked them dead in the eye and he said, No, man, I can't do it. I have 40 million of loans to female veterinarians. I need to take care of my customers. You need to do what you need to do. And ultimately, they backed down. They were on the brink of existence. And there's an example where it takes a special founder to operate through that. And so yes, he has been the driving force, Neil Underwood, who we've talked about, he was the architect of the technology strategy. But succession is definitely a risk here. I mean, Chip is 72 and he's still going strong.

55:24I mean, I hope he has another 10 or 20 years left in him. A few years ago, I would have said Neal Underwood, he's president of the bank holding company. He would be the perfect successor here. He's been at the bank since 2011. He is a large equity owner. He definitely will have the requisite founder mentality to make hard decisions and continue to invest for the long term. Well, recently Neal has stepped back from his operating role. He's still on the board, but now he's focused on canopy, which is the Fintech Venture investing garm. And so I think the most obvious successor would be the new president who has been CFO of LiveOaks since 2021, but he was promoted to president recently, BJ Loach.

56:05And so BJ comes from first horizon. He seems very capable. And I think where he really gets it is the financial acumen of how do you put up 15 % plus returns on equity within a bank holding company, mixed with that culture of customer service and treating every customer like the only customer in the bank. However, he's only been with the bank for two years. Will he have that organizational goodwill to really make hard decisions if and when chip is no longer here? So that's definitely an open question. Very interesting. Are there any other risks that exist? I think we've talked through the various risks.

56:42There's obvious risks to banks. But anything else we haven't discussed that you would think about. So most banking analysts, they think about credit, liquidity, and duration. And I think we've talked about that. I mean, credit history through the theory of verticality has been exceptional. Something like 30 basis points of charge -offs for the past decade, compared with most SBA loans, which is something like 10 times that liquidity that could tap into their 40 % of government -carontane loans and then duration. Most of their loans are variable rate in nature. I think succession is one risk I would focus on.

57:15We talked about how 20 % of book value is tied up in aperture, live oak ventures and canopies. So that would be another, you have potential volatility there. And then the third would be their reliance on Fins Act. So Fins Act is their next gen modern core provider. And it got acquired, as I said, by FI serve about 18 months ago. Whenever you have this disruptive technology company swallowed up by an incumbent, you have some risk where innovation just stalls and fades out into the sunset. And this is the partner that YVoke is relying on to build out embedded banking and a lot of their technology vision.

57:54So far, the integration looks to be going well. Everything I've heard, it seems to be going well, but that would be another risk that I would focus on and continue to follow. And, boom, a valuation perspective, I know you're not a traditional banking analyst. We've heard different frameworks, something along the lines of, you think about book value and something to earn an ROE of 15%, 1 .5 times book, and you slide it, a 10 % ROE, maybe one times book. How do you think about just the valuation of this business, if there's any framework or methodology that you use, just generally how investors perceive it, because it's It does sound like it's slightly different than what you see with most banks and that 20 % piece of the asset portfolio looks a little bit different.

58:41It's traded up over the past few weeks. It's trading just under two times book value today. And so if they are in that 15 % return on equity next year, something like a 13 times earnings multiple, plus you're not giving any credit for their tech investments. And so over time, maybe that adds another few hundred basis points of tailwind and you get a through cycle ROE in the high teams because of that. So I think the multiple is reasonable. Maybe there's some upside, maybe not, but to me it doesn't really matter. I mean, I think if this is going to be earning 15 % year in, year out and then able to organically grow the business at the same rate in a non -delutive way, I think investors will compound at that rate of growth.

59:24I think if they execute investors will compound in that 15 to 20 % range for a very long period of time. It's a little bit cleaner to think about that framework when it comes to a bank just because of the dynamics of how that business works. As we start to wind down the conversation, one of the things that we always close out with is the lessons that you can take from looking at this business and try to apply it elsewhere from an investment perspective. You think there's any major lessons that stand out here as it relates to live oak or whether it's chip or anything else as part of the story that you think are major lessons.

1:00:00Yeah, I think there's a few. So number one, the whole through line of this conversation has been the importance of founder mentality and how ship may hand has been the driving force. So Sam Hinky on invest like the best, he said that people are power laws and the best ones change everything. Well, chip may hand is the quintessential example of that or one of the best examples of that. And so to me, this is a reminder that as a long term concentrated investor, I can run away from the casuals and run away from the folks with minimal skin in the game or the people that are playing the quarterly earning Shari.

1:00:34And instead, I want to search for people who are like Chip who are disrupting industries by doing things that are different and different by design. And he is just passionate and persuasive. He's a storyteller and a slogan here. and I think there's so much of investing just comes down to people and it's something that can't be measured. So that's one and then two, I think it's the old trope that there are riches and niches. Live Oak leveraged the SBA 7A program to scale in a profitable and efficient manner. And it's that 75 % government guarantee that allowed them to really self -ungrowth. And so this was an afterthought for most banks as we talked about.

1:01:14And yet Live Oak, through an innovative business plan, was able to become the at -scale lender in sub -scale markets. And in some reminder to me, that small things can become really big over time. The third one that I would say is to search for end companies, you don't have to settle. So Live Oak is profitable and growing at healthy organic rates. Chitmehann is an incredible operator within banking, and he's a phenomenal capital allocator. And then Live Oak offers the best business savings rate out there at 4 % and they're offering the best customer service. Again, as a concentrated investor, I'm looking for those companies that do it all.

1:02:00Focusing again on number two, it really is a fascinating case study in terms of taking something that's very niche and using that as the angle to break into this huge industry with a lot of legacy players. The whole mindset of too big to fail. There's a too big categorization there in terms of the bigger banks, but they've pulled this off over the past 15 years in such an interesting way. So we really appreciate you coming on and breaking this name down. Thanks for letting me share the live -book story. To find more episodes of breakdowns ranging from Costco to Visa to Moderna, Or to sign up for our weekly summary, check out joinkolasis .com.

1:02:38That's J -O -I -N -C -O -L -O -S -S -U -S .com.