Live Oak Bancshares, Inc. Reports Third Quarter 2020 Results

Live Oak Bancshares, Inc.
·25 min read

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 Companys 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 Reserves 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 Reserves 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 Companys investment in Greenlight Financial Technology, Inc. (Greenlight), arising from orderly transactions in Greenlights securities. Additionally, management fee income earned by Canapi Advisors, the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 managements 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 Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) and available at the SECs 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.