LOB
$46.47
Live Oak Bancsh
$1.58
3.52%
Earnings Details
3rd Quarter September 2020
Wednesday, October 21, 2020 4:30:00 PM
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Summary

Live Oak Bancsh (LOB) Recent Earnings

Live Oak Bancsh (LOB) reported 3rd Quarter September 2020 earnings of $0.83 per share on revenue of $122.1 million. The consensus earnings estimate was $0.25 per share on revenue of $69.9 million. Revenue grew 53.2% on a year-over-year basis.

Results
Reported Earnings
$0.83
Earnings Whisper
-
Consensus Estimate
$0.25
Reported Revenue
$122.1 Mil
Revenue Estimate
$69.9 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Live Oak Bancshares, Inc. Reports Third Quarter 2020 Results

WILMINGTON, N.C., Oct. 21, 2020 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or the “Company”) today reported third quarter 2020 net income of $33.8 million, or $0.81 per diluted share, compared to net income of $3.9 million, or $0.09 per diluted share, for the third quarter of 2019. The third quarter of 2020 included non-cash gains of $15.2 million related to the Company’s financial technology investments.

“We understand what a challenging year this has been for everyone, and we are pleased to report that our performance during the third quarter of 2020 successfully displayed our ability to help American small business owners in a time of real need,” said James S. Mahan, III, Chairman and Chief Executive Officer of Live Oak. “We greatly exceeded our previous quarterly maximum for loan and lease origination at nearly $1 billion, excluding the work we accomplished for the Paycheck Protection Program. Our core business has shown scale and efficiency thanks to previous investments in infrastructure and talent, and our position as a financial technology change leader was further validated with the increased valuations on several of our investments. We believe our way of business is proving itself to be a bold and successful way of providing next-generation banking experiences to American small business owners.”

Third Quarter 2020 Key Measures

(Dollars in thousands, except per share data)         Increase (Decrease)     
  3Q 2020  3Q 2019  Dollars  Percent  2Q 2020 
Net interest income and servicing revenues $58,166  $44,362  $13,804   31% $47,589 
Net income  33,780   3,895   29,885   767   3,777 
Diluted earnings per share  0.81   0.09   0.72   800   0.09 
Non-GAAP net income (1)  34,554   3,895   30,659   787   3,777 
Non-GAAP diluted earnings per share (1)  0.83   0.09   0.74   822   0.09 
Loan and lease production:                    
Loans and leases originated $966,499  $562,259  $404,240   72% $2,175,055 
% Fully funded  72.9%  51.3% n/a  n/a   89.8%
Total loans and leases $6,227,399  $3,326,065  $2,901,334   87% $5,626,650 
Total assets  8,093,381   4,601,529   3,491,852   76   8,209,154 
Total deposits  5,706,044   4,017,099   1,688,945   42   5,873,292 

(1) See accompanying GAAP to Non-GAAP Reconciliation.

Loans and Leases

At September 30, 2020, the total loan and lease portfolio increased to $6.23 billion, 87.2% above its level a year ago and 10.7% above its level at June 30, 2020. Compared to the second quarter of 2020, loans and leases held for investment increased $387.3 million, or 8.3%, to $5.04 billion while loans held for sale increased $213.4 million, or 21.9%, to $1.19 billion. Loan and lease originations totaled $966.5 million during the third quarter of 2020, a decrease of $1.21 billion, or 55.6%, from the second quarter of 2020. The total loan and lease portfolio at September 30, 2020, and June 30, 2020, of $6.23 billion and $5.63 billion, respectively, consisted of approximately 37.9% and 38.7% of unguaranteed loans and leases, respectively.

Excluding loan originations as part of the Paycheck Protection Program (“PPP”), loan and lease originations totaled $948.8 million during the third quarter of 2020, an increase of $518.7 million, or 120.6%, from the second quarter of 2020. Average loans and leases were $5.87 billion during the third quarter of 2020 compared to $5.13 billion during the second quarter of 2020.

Loans and leases held for investment, loan and lease originations, and average loans and leases were impacted by PPP loans originated in the second and third quarters of 2020. The unguaranteed percentage of the total loan and lease portfolio for each of the second and third quarters of 2020 was significantly influenced by the addition of PPP loans carrying a 100% government guarantee. The total loan and lease portfolio at September 30, 2020, was comprised of $1.71 billion of PPP loans, net of deferred fees and costs. PPP loans comprised $17.7 million of the total loans and leases originated during the third quarter of 2020, compared to $1.74 billion of PPP loans originated in the second quarter of 2020, and are carried at historical cost classified as held for investment.

Deposits

Total deposits decreased by $167.2 million to $5.71 billion at September 30, 2020, from $5.87 billion at June 30, 2020, as excess deposits began to runoff following the defensive strategy to build liquidity during the first quarter of 2020 due to the uncertainty of the effects of COVID-19. Average total interest-bearing deposits for the third quarter of 2020 increased $54.7 million, or 1.0%, to $5.69 billion, compared to $5.63 billion for the second quarter of 2020. The ratio of average total loans and leases to average interest-bearing deposits was 103.1% for the third quarter of 2020, compared to 91.1% for the second quarter of 2020. The ratio is influenced by average PPP loan volume and the use of the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) classified as long-term borrowings.

Borrowings

Borrowings totaled $1.75 billion at September 30, 2020. During the third quarter of 2020, the Company increased long-term borrowings by $26.1 million through the Federal Reserve’s PPPLF to $1.74 billion. The PPPLF has a 100% advance rate equal to the principal amount of PPP loans pledged as security and carries an interest rate of 0.35% and loans financed under the PPPLF have a neutral impact on regulatory leverage capital ratios.

Net Interest Income

Net interest income for the third quarter of 2020 rose to $51.4 million compared to $37.5 million for the third quarter of 2019 and $40.9 million for the second quarter of 2020. The increase from the prior year was driven by significant growth in the held for investment loan and lease portfolio reflecting the Company's ongoing initiative to grow recurring revenue sources and strengthen its liquidity profile. This increase over the prior year was further enhanced by the origination of $1.76 billion in PPP loans in the second and third quarters of 2020 and a year-to-date loan and lease originations for 2020 of $1.88 billion, excluding PPP loans.

The increase from the second quarter of 2020 arose principally from a higher average loan and lease portfolio balance enhanced by a 21-basis point improvement in the net interest margin from 2.56% to 2.77%. The decrease in interest earning asset yields of 14 basis points was outpaced by the 38-basis point reduction in the average cost of interest-bearing liabilities from 1.65% in the second quarter of 2020, to 1.27% in the third quarter of 2020. The reduction in the cost of interest bearing liabilities was a product of a lag in deposit repricing from the first quarter of 2020 cuts in fed funds rates combined with runoff of higher rate maturing deposits and the lower cost of PPPLF funds.

Noninterest Income

Noninterest income for the third quarter of 2020 increased to $47.0 million compared to $15.4 million for the third quarter of 2019 and $22.4 million for the second quarter of 2020.

Noninterest income increased $31.6 million, or 204.9%, compared to the third quarter of 2019. The net gains on sales of loans increased by $5.3 million as the average net gain on sale of guaranteed loans increased to $110.2 thousand per million sold for the third quarter of 2020 compared to $80.5 thousand per million sold during the third quarter of 2019. The volume of guaranteed loans sold increased to $114.7 million for the third quarter of 2020 from $100.5 million for the third quarter of 2019. The revaluation of the loan servicing asset resulted in a gain of $2.1 million for the third quarter of 2020, an increase of $7.2 million from the third quarter of 2019. The valuation adjustments related to loans measured at fair value resulted in a net gain of $3.4 million for the third quarter of 2020, a $2.3 million increase compared to the third quarter of 2019. The valuation of loans and loan servicing assets in the third quarter of 2020 was favorably impacted by greater stability and improvement of market conditions.

Net losses on equity method investments decreased to $1.2 million for the third quarter of 2020 compared to $2.4 million for the third quarter of 2019, partially due to a non-cash gain recognized in that portfolio. Equity security investments resulted in a gain of $14.7 million for the third quarter of 2020 compared to $3.3 million for the third quarter of 2019 and was primarily driven by a $13.7 million increase in the observable fair market value of the Company’s investment in Greenlight Financial Technology, Inc. (“Greenlight”), arising from orderly transactions in Greenlight’s securities. Additionally, management fee income earned by Canapi Advisors, the Company’s investment advisor subsidiary, increased by $1.2 million to $1.3 million for the third quarter of 2020 compared to $95 thousand for the third quarter of 2019.

Noninterest income increased $24.6 million, or 109.9%, compared to the second quarter of 2020. For the third quarter of 2020, fair value adjustments were impacted by the above-mentioned improved market conditions by recouping a portion of the losses recognized earlier in 2020 related to the COVID-19 pandemic. The valuation adjustment for loans measured at fair value for the third quarter of 2020 improved $4.5 million compared to the second quarter of 2020, while the loan servicing asset revaluation improved $3.6 million over the same period. The average net gain on guaranteed loan sales was $110.2 thousand per million sold in the third quarter of 2020 versus $66.8 thousand per million in the second quarter of 2020 also as a result of improving market conditions for the purchase of guaranteed loans and favorable fair value adjustments for exchange-traded interest rate futures contracts. The Company recorded $252 thousand in fair value net gains on exchange-traded interest rate futures contracts during the third quarter of 2020 compared to $127 thousand in fair value net gains during the second quarter of 2020. Excluding fair value gains on exchange-traded interest rate futures contracts, the average net gain on guaranteed loan sales was $108.0 thousand per million and $65.9 thousand per million sold in the third quarter of 2020 and the second quarter of 2020, respectively.

Equity security investments income increased by $14.5 million for the third quarter of 2020 compared to the prior quarter and was primarily driven by the aforementioned non-cash gain arising from the increase in the market value of the Company’s investment in Greenlight. Other noninterest income decreased by $2.4 million compared to the prior quarter primarily due to $2.5 million in revenue from co-developed technology recognized during the second quarter of 2020.

Noninterest Expense

Noninterest expense for the third quarter of 2020 totaled $42.7 million compared to $42.7 million for the third quarter of 2019 and $48.1 million for the second quarter of 2020.

Salaries and employee benefits for the third quarter of 2020 increased $1.5 million, or 6.5%, to $24.2 million compared to $22.7 million for the third quarter of 2019 and decreased $6.5 million, or 21.4%, from $30.8 million for the second quarter of 2020. The salaries and employee benefits increase over the third quarter of 2019 was attributable to the Company’s investment in its workforce to support growth and a variety of initiatives, offset by increased levels of deferred salary expense for the increased loan originations compared to the prior year. The decrease of $6.5 million for the third quarter of 2020 was driven primarily by $7.2 million in expense for a performance bonus pool that was available to all employees other than executive officers during the second quarter of 2020.

Operational adaptations due to the impact of the COVID-19 pandemic resulted in travel expense decreasing to $250 thousand for the third quarter of 2020 compared to $1.9 million for the third quarter of 2019 and $364 thousand for the second quarter of 2020. Similarly, advertising and marketing expense decreased to $552 thousand for the third quarter of 2020 compared to $1.3 million for the third quarter of 2019 and $624 thousand for the second quarter of 2020.

Compared to the third quarter of 2019, FDIC insurance increased $2.0 million for the third quarter of 2020.

Asset Quality

Net charge-offs for loans carried at historical cost increased to $10.1 million in the third quarter of 2020 compared to $1.8 million in the second quarter of 2020 and increased from $840 thousand in the third quarter of 2019. The increase in net charge-offs during the third quarter of 2020 was principally driven by the reclassification of fifteen hotel loans aggregating $81.2 million in net investment from held for investment to held for sale during the quarter. After charge-offs, discussed more fully below, ten of these loans were sold for the adjusted net investment of $45.7 million prior to quarter end. These loans were marked to the lower of cost or fair value upon reclassification with the write down of $9.8 million reflected in charge-offs. At September 30, 2020, the Company still held five of these loans for sale with an aggregate net investment balance of $25.7 million; however, these unsold loans have been written down to an agreed upon price. Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended September 30, 2020 and 2019 and June 30, 2020, were 1.03%, 0.23% and 0.21%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $7.5 million and $6.4 million accounted for under the fair value option at September 30, 2020 and June 30, 2020, respectively, and excluding one loan for $6.1 million included in the above hotel loans still held for sale as of September 30, 2020, increased to $20.2 million, or 0.48% of loans and leases held for investment which are carried at historical cost, at September 30, 2020, compared to $13.1 million, or 0.34%, at June 30, 2020. The increase in unguaranteed nonperforming loans and leases was primarily driven by loans in the entertainment center vertical.

The unguaranteed exposure of foreclosed assets decreased $557 thousand to $642 thousand at September 30, 2020, compared to June 30, 2020. Foreclosed assets decreased $2.4 million to $3.3 million at September 30, 2020, from $5.7 million at June 30, 2020.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the third quarter of 2020 totaled $10.3 million compared to $4.0 million for the third quarter of 2019 and $10.0 million for the second quarter of 2020. The Company adopted the new current expected credit losses (“CECL”) standard effective January 1, 2020, and accordingly determined to use forecasted levels of unemployment as a primary economic variable in forecasting future expected losses. Ongoing developments including charge-offs and changing economic forecasts related to the COVID-19 pandemic significantly influences the Company’s allowance for credit losses on loans and leases.

The allowance for credit losses on loans and leases totaled $44.2 million at September 30, 2020, compared to $44.1 million at June 30, 2020. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost was 1.05% and 1.16% at September 30, 2020, and June 30, 2020, respectively. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost during the third quarter is heavily influenced by the PPP loans.

Income Tax

Income tax expense was $11.7 million in the third quarter of 2020 compared to an income tax expense of $2.4 million in the third quarter of 2019 and $1.5 million in the second quarter of 2020. The increase in the third quarter of 2020 over the third quarter of 2019 and second quarter of 2020 is primarily due to a significant increase in income before taxes. Also influencing the increase over the third quarter of 2019 is the absence of expected tax credits during 2020.

Shareholders’ Equity

During the first nine months of 2020, 450,000 shares of Class B common stock (non-voting) were converted to Class A common stock (voting) in connection with private sales. The conversion decreased the value of Class B common stock (non-voting) and increased the value of Class A common stock (voting) by $4.8 million.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 22, 2020). Media representatives, analysts and the public are invited to listen to this discussion by calling (844) 743-2494 (domestic) or (661) 378-9528 (international) with conference ID 4575196. A live webcast of the conference call along with presentation materials referenced during the conference call will be available on the Investor Relations page of the Company’s website at http://investor.liveoakbank.com. A replay of the webcast will be archived on the Company's website for one year. A replay of the conference call will also be available until October 29, 2020 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID 4575196.

CFO Commentary

Additional commentary on the quarter by Brett Caines, Chief Financial Officer of the Company, is available at http://investor.liveoakbank.com in the supporting materials for the conference call.

Important Note Regarding Forward-Looking Statements

Statements in this press release that are based on other than historical data or that express the Company’s plans or expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements based on historical data are not intended and should not be understood to indicate the Company’s expectations regarding future events. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance or determinations, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this press release. Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include changes in Small Business Administration (“SBA”) rules, regulations or loan products, including the Section 7(a) program, changes in SBA standard operating procedures or changes in Live Oak Banking Company's status as an SBA Preferred Lender; changes in rules, regulations or procedures for other government loan programs, including those of the United States Department of Agriculture; the potential impacts of the Coronavirus Disease 2019 (COVID-19) pandemic on trade (including supply chains and export levels), travel, employee productivity and other economic activities that may have a destabilizing and negative effect on financial markets, economic activity and customer behavior; a reduction in or the termination of the Company's ability to use the technology-based platform that is critical to the success of its business model, including a failure in or a breach of operational or security systems; competition from other lenders; the Company's ability to attract and retain key personnel; market and economic conditions and the associated impact on the Company; operational, liquidity and credit risks associated with the Company's business; the impact of heightened regulatory scrutiny of financial products and services and the Company's ability to comply with regulatory requirements and expectations; and the other factors discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov). Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

About Live Oak Bancshares

Live Oak Bancshares, Inc. (Nasdaq: LOB) is a financial holding company and the parent company of Live Oak Bank. Live Oak Bancshares and its subsidiaries partner with businesses that share a groundbreaking focus on service and technology to redefine banking. To learn more, visit www.liveoakbank.com.

Contacts:

Brett Caines | CFO | Investor Relations | 910.796.1645 & Claire Parker | SVP | Media Relations | 910.550.2255



Live Oak Bancshares, Inc.
Quarterly Statements of Income (unaudited)
(Dollars in thousands, except per share data)

  Three months ended 
  3Q 2020  2Q 2020  1Q 2020  4Q 2019  3Q 2019 
Interest income                    
Loans and fees on loans $70,621  $62,022  $58,961  $57,017  $55,939 
Investment securities, taxable  4,123   3,786   3,762   3,911   4,001 
Other interest earning assets  334   1,009   750   885   1,167 
Total interest income  75,078   66,817   63,473   61,813   61,107 
Interest expense                    
Deposits  22,155   25,121   23,255   23,801   23,576 
Borrowings  1,560   798   57   1    
Total interest expense  23,715   25,919   23,312   23,802   23,576 
Net interest income  51,363   40,898   40,161   38,011   37,531 
Provision for loan and lease credit losses  10,274   9,958   11,792   4,809   3,960 
Net interest income after provision for loan and
   lease credit losses
  41,089   30,940   28,369   33,202   33,571 
Noninterest income                    
Loan servicing revenue  6,803   6,691   6,422   6,730   6,831 
Loan servicing asset revaluation  2,061   (1,571)  (4,692)  (4,135)  (5,161)
Net gains on sales of loans  12,690   10,695   11,112   11,364   7,425 
Net gain (loss) on loans accounted for under the fair
   value option
  3,403   (1,089)  (10,638)  1,432   1,102 
Equity method investments income (loss)  (1,231)  (2,243)  (2,478)  (1,769)  (2,370)
Equity security investments gains (losses), net  14,705   161   (64)  54   3,343 
Gain (loss) on sale of investment securities
   available-for-sale, net
  1,225   734   (79)  528   87 
Lease income  2,634   2,635   2,624   2,600   2,361 
Management fee income  1,296   1,206   1,644   1,556   95 
Construction supervision fee income  1,365   684   390   240   360 
Other noninterest income  2,093   4,508   1,501   1,525   1,355 
Total noninterest income  47,044   22,411   5,742   20,125   15,428 
Noninterest expense                    
Salaries and employee benefits  24,203   30,782   28,063   24,072   22,717 
Travel expense  250   364   1,781   2,246   1,934 
Professional services expense  1,346   1,385   1,937   983   2,073 
Advertising and marketing expense  552   624   1,361   1,630   1,277 
Occupancy expense  2,079   1,955   2,421   2,528   2,131 
Data processing expense  3,009   2,764   3,157   1,847   3,072 
Equipment expense  4,314   4,652   4,635   4,402   4,361 
Other loan origination and maintenance expense  2,669   2,492   2,456   2,390   3,535 
FDIC insurance  2,095   1,721   1,510   2,012   101 
Other expense  2,133   1,361   2,170   2,300   1,536 
Total noninterest expense  42,650   48,100   49,491   44,410   42,737 
Income (loss) before taxes  45,483   5,251   (15,380)  8,917   6,262 
Income tax expense (benefit)  11,703   1,474   (7,778)  2,085   2,367 
Net income (loss) $33,780  $3,777  $(7,602) $6,832  $3,895 
Earnings (loss) per share                    
Basic $0.83  $0.09  $(0.19) $0.17  $0.10 
Diluted $0.81  $0.09  $(0.19) $0.17  $0.09 
Weighted average shares outstanding                    
Basic  40,542,696   40,506,671   40,334,179   40,291,867   40,240,740 
Diluted  41,549,632   41,122,025   41,074,049   41,178,472   41,113,575 



Live Oak Bancshares, Inc.

Quarterly Balance Sheets (unaudited)
(Dollars in thousands)

  As of the quarter ended 
  3Q 2020  2Q 2020  1Q 2020  4Q 2019  3Q 2019 
Assets                    
Cash and due from banks $608,826  $1,256,958  $254,077  $124,610  $157,359 
Federal funds sold  25,924   91,188   158,226   96,787   88,919 
Certificates of deposit with other banks  7,250   7,250   7,250   7,250   7,250 
Investment securities available-for-sale  765,777   779,794   574,168   540,045   570,795 
Loans held for sale (1)  1,190,200   976,594   996,050   966,447   903,095 
Loans and leases held for investment (2)  5,037,199   4,650,056   2,817,491   2,627,286   2,422,970 
Allowance for credit losses on loans and leases  (44,210)  (44,083)  (35,906)  (28,234)  (23,961)
Net loans and leases  4,992,989   4,605,973   2,781,585   2,599,052   2,399,009 
Premises and equipment, net  253,737   269,063   274,177   279,099   280,942 
Foreclosed assets  3,264   5,660   6,744   5,612   5,702 
Servicing assets  37,831   33,834   33,532   35,365   37,583 
Operating lease right-of-use assets  2,697   2,886   2,236   2,427   1,890 
Other assets  204,886   179,954   185,524   156,134   148,985 
Total assets $8,093,381  $8,209,154  $5,273,569  $4,812,828  $4,601,529 
Liabilities and Shareholders Equity                    
Liabilities                    
Deposits:                    
Noninterest-bearing $58,771  $53,938  $51,275  $51,965  $54,205 
Interest-bearing  5,647,273   5,819,354   4,588,126   4,175,015   3,962,894 
Total deposits  5,706,044   5,873,292   4,639,401   4,226,980   4,017,099 
Borrowings  1,747,083   1,721,029   50,012   14   1,310 
Operating lease liabilities  2,931   3,079   2,416   2,619   2,041 
Other liabilities  53,159   63,319   47,968   50,829   52,860 
Total liabilities  7,509,217   7,660,719   4,739,797   4,280,442   4,073,310 
Shareholders equity                    
Preferred stock, no par value, 1,000,000 shares
   authorized, none issued or outstanding
               
Class A common stock (voting)  325,753   319,542   314,994   309,526   296,925 
Class B common stock (non-voting)  26,106   28,753   28,753   30,871   40,401 
Retained earnings  207,400   174,837   172,276   180,265   174,641 
Accumulated other comprehensive income  24,905   25,303   17,749   11,724   16,252 
Total shareholders' equity  584,164   548,435   533,772   532,386   528,219 
Total liabilities and shareholders equity $8,093,381  $8,209,154  $5,273,569  $4,812,828  $4,601,529 


(1)Includes $30.4 million, $32.1 million, $19.2 million, $16.2 million and $14.7 million measured at fair value for the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, respectively.
(2)Includes $845.7 million, $834.6 million, $831.4 million, $824.5 million and $831.3 million measured at fair value for the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, respectively.



Live Oak Bancshares, Inc.

Statements of Income (unaudited)
(Dollars in thousands, except per share data)

  Nine months ended 
  September 30, 2020  September 30, 2019 
Interest income        
Loans and fees on loans $191,604  $150,819 
Investment securities, taxable  11,671   11,434 
Other interest earning assets  2,093   3,914 
Total interest income  205,368   166,167 
Interest expense        
Deposits  70,531   64,096 
Borrowings  2,415    
Total interest expense  72,946   64,096 
Net interest income  132,422   102,071 
Provision for loan and lease credit losses  32,024   10,403 
Net interest income after provision for loan and lease credit losses  100,398   91,668 
Noninterest income        
Loan servicing revenue  19,916   21,304 
Loan servicing asset revaluation  (4,202)  (12,446)
Net gains on sales of loans  34,497   17,638 
Net (loss) gain on loans accounted for under the fair value option  (8,324)  5,976 
Equity method investments income (loss)  (5,952)  (6,120)
Equity security investments gains (losses), net  14,802   3,478 
Gain on sale of investment securities available-for-sale, net  1,880   92 
Lease income  7,893   7,055 
Management fee income  4,146   186 
Construction supervision fee income  2,439   1,525 
Other noninterest income  8,102   4,706 
Total noninterest income  75,197   43,394 
Noninterest expense        
Salaries and employee benefits  83,048   66,562 
Travel expense  2,395   4,675 
Professional services expense  4,668   5,876 
Advertising and marketing expense  2,537   4,306 
Occupancy expense  6,455   5,588 
Data processing expense  8,930   7,418 
Equipment expense  13,601   11,925 
Other loan origination and maintenance expense  7,617   6,882 
Renewable energy tax credit investment impairment     602 
FDIC insurance  5,326   1,435 
Other expense  5,664   5,245 
Total noninterest expense  140,241   120,514 
Income before taxes  35,354   14,548 
Income tax expense  5,399   3,346 
Net income $29,955  $11,202 
Earnings per share        
Basic $0.74  $0.28 
Diluted $0.73  $0.27 
Weighted average shares outstanding        
Basic  40,461,479   40,199,468 
Diluted  41,248,866   41,011,608 



Live Oak Bancshares, Inc.
Quarterly Selected Financial Data (unaudited)
(Dollars in thousands, except per share data)

  As of and for the three months ended 
  3Q 2020  2Q 2020  1Q 2020  4Q 2019  3Q 2019 
Income Statement Data                    
Net income (loss) $33,780  $3,777  $(7,602) $6,832  $3,895 
Per Common Share                    
Net income (loss), basic $0.83  $0.09  $(0.19) $0.17  $0.10 
Net income (loss), diluted  0.81   0.09   (0.19)  0.17   0.09 
Dividends declared  0.03   0.03   0.03   0.03   0.03 
Book value  14.69   13.53   13.22   13.20   13.12 
Tangible book value (1)  14.30   13.43   13.22   13.20   13.12 
Performance Ratios                    
Return on average assets (annualized)  1.67%  0.22%  (0.61)%  0.58%  0.35%
Return on average equity (annualized)  23.64   2.68   (5.64)  5.06   2.94 
Net interest margin  2.77   2.56   3.55   3.57   3.75 
Efficiency ratio (1)  43.89   76.87   107.63   77.09   80.83 
Noninterest income to total revenue  47.15   34.64   12.66   34.02   29.02 
Selected Loan Metrics                    
Loans and leases originated $966,499  $2,175,055  $500,634  $523,688  $562,259 
Guaranteed loans sold  114,731   154,980   162,297   105,002   100,498 
Average net gain on sale of guaranteed loans  110.19   66.76   63.71   106.16   80.51 
Adjusted average net gain on sale of guaranteed loans (2)  107.99   65.94   83.48   94.86   94.98 
Outstanding balance of sold loans serviced:                    
Guaranteed  2,878,664   2,840,429   2,761,015   2,746,480   2,802,073 
Unguaranteed  264,829   231,602   223,587   224,127   211,095 
Total  3,143,493   3,072,031   2,984,602   2,970,607   3,013,168 
Asset Quality Ratios                    
Allowance for credit losses to loans and leases held for
   investment (4)
  1.05%  1.16%  1.81%  1.57%  1.51%
Net charge-offs (4) $10,147  $1,781  $2,799  $536  $840 
Net charge-offs to average loans and leases held for
   investment (3) (4)
  1.03%  0.21%  0.58%  0.13%  0.23%
Nonperforming loans and leases (4) (5) $46,749  $40,275  $34,088  $21,937  $22,300 
Foreclosed assets  3,264   5,660   6,744   5,612   5,702 
Nonperforming loans and leases (unguaranteed
   exposure) (4) (5)
  20,153   13,122   9,623   7,224   7,842 
Foreclosed assets (unguaranteed exposure)  642   1,199   1,478   1,120   1,142 
Nonperforming loans and leases not guaranteed by the
   SBA and foreclosures (4) (5)
 $20,795  $14,321  $11,101  $8,344  $8,984 
Nonperforming loans, leases and foreclosures, not
   guaranteed by the SBA, to total assets (4) (5)
  0.29%  0.20%  0.25%  0.21%  0.24%
Nonperforming loans accounted for under the fair value
   option
 $47,434  $46,221  $60,558  $49,739  $54,024 
Nonperforming loans accounted for under the fair
   value option (unguaranteed exposure)
  7,495   6,352   8,193   6,700   8,214 
Capital Ratios                    
Common equity tier 1 capital (to risk-weighted assets)  13.09%  12.84%  13.81%  14.90%  15.28%
Total capital (to risk-weighted assets)  14.19   13.99   14.83   15.74   16.03 
Tier 1 risk based capital (to risk-weighted assets)  13.09   12.84   13.81   14.90   15.28 
Tier 1 leverage capital (to average assets)  8.47   7.96   9.94   10.65   11.12 

Notes to Quarterly Selected Financial Data

(1) See accompanying GAAP to Non-GAAP Reconciliation.
(2) Excludes fair value gain/loss on exchange-traded interest rate futures contracts.
(3) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.
(4) Excludes loans measured at fair value.
(5) The quarter ended September 30, 2020 excludes one $6.1 million hotel loan classified as held for sale.



Live Oak Bancshares, Inc.
Quarterly Average Balances and Net Interest Margin
(Dollars in thousands)

  Three Months Ended
September 30, 2020
  Three Months Ended
June 30, 2020
 
  Average Balance  Interest  Average Yield/Rate  Average Balance  Interest  Average Yield/Rate 
Interest earning assets:                        
Federal funds sold and interest earning
   balances in other banks
 $736,387  $334   0.18% $711,916  $1,009   0.57%
Investment securities  755,412   4,123   2.17   556,014   3,786   2.73 
Loans held for sale  1,084,024   14,399   5.27   921,956   13,115   5.71 
Loans and leases held for investment (1)  4,782,075   56,222   4.66   4,208,109   48,907   4.66 
Total interest earning assets  7,357,898   75,078   4.05   6,397,995   66,817   4.19 
Less: allowance for credit losses on loans and
   leases
  (44,054)          (35,875)        
Non-interest earning assets  778,826           603,610         
Total assets $8,092,670          $6,965,730         
Interest bearing liabilities:                        
Interest bearing checking $500,007  $747   0.59% $462,977  $646   0.56%
Savings  1,669,199   3,674   0.87   1,398,378   4,814   1.38 
Money market accounts  95,151   83   0.35   82,908   89   0.43 
Certificates of deposit  3,423,643   17,651   2.05   3,689,041   19,572   2.13 
Total interest bearing deposits  5,688,000   22,155   1.55   5,633,304   25,121   1.79 
Borrowings  1,733,805   1,560   0.36   676,849   798   0.47 
Total interest bearing liabilities  7,421,805   23,715   1.27   6,310,153   25,919   1.65 
Non-interest bearing deposits  43,993           41,218         
Non-interest bearing liabilities  55,353           50,554         
Shareholders' equity  571,519           563,805         
Total liabilities and shareholders' equity $8,092,670          $6,965,730         
Net interest income and interest rate spread     $51,363   2.78%     $40,898   2.54%
Net interest margin          2.77           2.56 
Ratio of average interest-earning assets to average
   interest-bearing liabilities
          99.14%          101.39%

(1)   Average loan and lease balances include non-accruing loans and leases.



Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation
(Dollars in thousands)

  As of and for the three months ended 
  3Q 2020  2Q 2020  1Q 2020  4Q 2019  3Q 2019 
Total shareholders’ equity $584,164  $548,435  $533,772  $532,386  $528,219 
Less:                    
Goodwill  1,797   1,797          
Other intangible assets  2,218   2,294          
Tangible shareholders’ equity (a) $580,149  $544,344  $533,772  $532,386  $528,219 
Shares outstanding (c)  40,575,982   40,525,632   40,380,201   40,316,974   40,272,908 
Total assets $8,093,381  $8,209,154  $5,273,569  $4,812,828  $4,601,529 
Less:                    
Goodwill  1,797   1,797          
Other intangible assets  2,218   2,294          
Tangible assets (b) $8,089,366  $8,205,063  $5,273,569  $4,812,828  $4,601,529 
Tangible shareholders’ equity to tangible assets (a/b)  7.17%  6.63%  10.12%  11.06%  11.48%
Tangible book value per share (a/c) $14.30  $13.43  $13.22  $13.20  $13.12 
Efficiency ratio:                    
Noninterest expense (d) $42,650  $48,100  $49,491  $44,410  $42,737 
Net interest income  51,363   40,898   40,161   38,011   37,531 
Noninterest income  47,044   22,411   5,742   20,125   15,428 
Less: gain (loss) on sale of securities  1,225   734   (79)  528   87 
Adjusted operating revenue (e) $97,182  $62,575  $45,982  $57,608  $52,872 
Efficiency ratio (d/e)  43.89%  76.87%  107.63%  77.09%  80.83%



Live Oak Bancshares, Inc.

GAAP to Non-GAAP Reconciliation (Continued)
(Dollars in thousands, except per share data)

  Three Months Ended  Nine Months Ended 
  3Q 2020  2Q 2020  3Q 2019  3Q 2020  3Q 2019 
Reconciliation of net income to non-GAAP net income:                    
Net income $33,780  $3,777  $3,895  $29,955  $11,202 
Gain on sale of aircraft              (357)
Impairment on aircraft held for sale  1,019         1,019    
Renewable energy tax credit investment impairment              602 
Income tax effects and adjustments for non-GAAP
   items *
  (245)        (245)  (58)
Non-GAAP net income $34,554  $3,777  $3,895  $30,729  $11,389 
* Estimated at 24.0%                    
Non-GAAP earnings per share:                    
Basic $0.85  $0.09  $0.10  $0.76  $0.28 
Diluted $0.83  $0.09  $0.09  $0.74  $0.28 
Weighted-average shares outstanding:                    
Basic  40,542,696   40,506,671   40,240,740   40,461,479   40,199,468 
Diluted  41,549,632   41,122,025   41,113,575   41,248,866   41,011,608 
Reconciliation of financial statement line items as reported
   to non-GAAP:
                    
Noninterest income, as reported $47,044  $22,411  $15,428  $75,197  $43,394 
Gain on sale of aircraft              (357)
Noninterest income, non-GAAP $47,044  $22,411  $15,428  $75,197  $43,037 
Noninterest expense, as reported $42,650  $48,100  $42,737  $140,241  $120,514 
Impairment on aircraft held for sale  (1,019)        (1,019)   
Renewable energy tax credit investment impairment              (602)
Noninterest expense, non-GAAP $41,631  $48,100  $42,737  $139,222  $119,912 
Income before taxes, as reported $45,483  $5,251  $6,262  $35,354  $14,548 
Gain on sale of aircraft              (357)
Impairment on aircraft held for sale  1,019         1,019    
Renewable energy tax credit investment impairment              602 
Income before taxes, non-GAAP $46,502  $5,251  $6,262  $36,373  $14,793 
Income tax expense, as reported $11,703  $1,474  $2,367  $5,399  $3,346 
Income tax effects and adjustments for non-GAAP
  items
  245         245   58 
Income tax expense, non-GAAP $11,948  $1,474  $2,367  $5,644  $3,404 


This press release presents the non-GAAP financial measures previously shown. The adjustments to reconcile from the applicable GAAP financial measure to the non-GAAP financial measures are included where applicable in financial results presented in accordance with GAAP. The Company considers these adjustments to be relevant to ongoing operating results. The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period comparisons, which will assist regulators, investors, and analysts in analyzing the operating results or financial position of the Company. The non-GAAP financial measures are used by management to assess the performance of the Company’s business for presentations of Company performance to investors, and for other reasons as may be requested by investors and analysts. The Company further believes that presenting the non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although non-GAAP financial measures are frequently used by shareholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.


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Source: Live Oak Bancshares, Inc.