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Live Oak Bancshares, Inc. Reports Fourth Quarter 2020 Results

01/27/21

WILMINGTON, N.C., Jan. 27, 2021 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported fourth quarter 2020 net earnings available to common shareholders of $29.6 million, or $0.68 per diluted share, as the Company continues to execute on our strategic priorities that we believe will deliver long-term earnings for our shareholders. Net earnings for the year ended December 31, 2020, totaled $59.5 million, or $1.43 per diluted share.

“Our mission to be America’s small business bank has never been more important. The past year was incredibly challenging for our country’s entrepreneurs, and their drive and determination reinforce why we want to fundamentally shift the way banking is done,” said James S. Mahan, III, Chairman and Chief Executive Officer of Live Oak Bancshares. “As our efforts to drive rapid change in financial technology gained momentum in 2020, our teams continued their relentless focus on supporting customers in a time unequaled in recent history. In 2020, we grew assets by $3 billion by serving small businesses across the U.S. and significantly increased net income. Our balance sheet and funding model position us very well to serve America’s small businesses in the coming year. We will continue to drive the core earnings of the bank, while providing vital capital to small business owners who are the cornerstone of our country’s economy.”

Year over Year Highlights

(Dollars in thousands, except per share data)                   Increase (Decrease)  
    2020     2019     Dollars     Percent  
Net interest income and servicing revenues   $ 221,323     $ 168,116     $ 53,207       32 %
Net income     59,543       18,034       41,509       230  
Diluted earnings per share     1.43       0.44       0.99       225  
Non-GAAP net income (1)     60,507       18,220       42,287       232  
Non-GAAP diluted earnings per share (1)     1.45       0.45       1.00       222  
Loan and lease production:                                
Loans and leases originated   $ 4,450,198     $ 2,001,886     $ 2,448,312       122 %
% Fully funded     78.6 %     51.4 %   n/a     n/a  
Total loans and leases:   $ 6,320,552     $ 3,593,733     $ 2,726,819       76 %
Total assets:     7,872,303       4,812,828       3,059,475       64  
Total deposits:     5,712,828       4,226,980       1,485,848       35  

Fourth Quarter 2020 Key Measures

(Dollars in thousands, except per share data)                   Increase (Decrease)          
    Q4 2020     Q4 2019     Dollars     Percent     Q3 2020  
Net interest income and servicing revenues   $ 68,985     $ 44,741     $ 24,244       54 %   $ 58,166  
Net income     29,588       6,832       22,756       333       33,780  
Diluted earnings per share     0.68       0.17       0.51       300       0.81  
Non-GAAP net income (1)     29,778       6,832       22,946       336       34,554  
Non-GAAP diluted earnings per share (1)     0.69       0.17       0.52       303       0.83  
Loan and lease production:                                        
Loans and leases originated   $ 808,010     $ 523,688     $ 284,322       54 %   $ 966,499  
% Fully funded     55.6 %     49.0 %   n/a     n/a       72.9 %

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

Loans and Leases

At December 31, 2020, the total loan and lease portfolio increased to $6.32 billion, 75.9% above its level a year ago and 1.5% above its level at September 30, 2020. Compared to the third quarter of 2020, loans and leases held for investment increased $107.9 million, or 2.1%, to $5.15 billion while loans held for sale decreased $14.7 million, or 1.2%, to $1.18 billion. The total loan and lease portfolio at December 31, 2020, and September 30, 2020, of $6.32 billion and $6.23 billion, respectively, was comprised of 40.4% and 37.9% of unguaranteed loans and leases, respectively. Average loans and leases were $6.29 billion during the fourth quarter of 2020 compared to $5.87 billion during the third quarter of 2020.

The total loan and lease portfolio of $6.32 billion is comprised of $1.50 billion of Paycheck Protection Program (“PPP”) loans, net of deferred fees and costs, at December 31, 2020. PPP loans comprised $1.76 billion of the total loans and leases originated during the year ended December 31, 2020 and are carried at historical cost classified as held for investment.

Loan and lease originations for the year ended December 31, 2020, increased by 122.3% to $4.45 billion compared to $2.00 billion for the year ended December 31, 2019. Excluding PPP loans, loan and lease originations totaled $2.69 billion for the year ended December 31, 2020, an increase of 34.3% compared to the prior year. Loan and lease originations totaled $808.0 million during the fourth quarter of 2020, a decrease of $158.5 million, or 16.4%, from the third 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, as previously mentioned, is significantly influenced by the addition of PPP loans carrying a 100% government guarantee.

Deposits

Total deposits increased to $5.71 billion at December 31, 2020, an increase of $1.49 billion compared to December 31, 2019, and an increase of $6.8 million compared to September 30, 2020.

The modest increase in total deposits from the prior quarter is the result of utilization of heightened liquidity levels on the balance sheet at the start of the quarter in response to COVID-19 uncertainties. Average total interest-bearing deposits for the fourth quarter of 2020 decreased $138.6 million, or 2.4%, to $5.55 billion, compared to $5.69 billion for the third quarter of 2020. The ratio of average total loans and leases to average interest-bearing deposits was 113.4% for the fourth quarter of 2020, compared to 103.1% for the third 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 $1.54 billion at December 31, 2020, compared to $14 thousand and $1.75 billion at December 31, 2019, and September 30, 2020, respectively. During the fourth quarter of 2020, the Company decreased borrowings by $205.0 million primarily by reducing the outstanding balance in the Federal Reserve’s PPPLF to $1.53 billion as of December 31, 2020. The PPPLF has a 100% advance rate equal to the principal amount of PPP loans pledged as security, 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 fourth quarter of 2020 rose to $62.3 million compared to $38.0 million for the fourth quarter of 2019 and $51.4 million for the third quarter of 2020. Net interest income for the year ended December 31, 2020 totaled $194.7 million, a $54.6 million increase from the prior year primarily due to the increases in the volume of interest earning assets.

The increase for the fourth quarter of 2020 compared to the fourth quarter of 2019 was driven by the significant growth in the total loan and lease portfolios reflecting the Company's ongoing initiative to grow recurring revenue sources and further enhanced by the origination of $1.76 billion in PPP loans in the second and third quarters of 2020.

The increase from the third quarter of 2020 arose principally from a higher average loan and lease portfolio balance enhanced by a 56-basis point improvement in the net interest margin from 2.77% to 3.33%. The increase in interest earning asset yields of 39 basis points was primarily driven by fees recognized on PPP loans originated in the second and third quarters of 2020. The asset yield was complimented by the 14-basis point reduction in the average cost of interest-bearing liabilities from 1.27% for the quarter ended September 30, 2020, to 1.13% for the quarter ended December 31, 2020. The reduction in the cost of interest-bearing liabilities over the third quarter was largely the result of a lag in deposit repricing from the first quarter of 2020 cuts in federal funds rates combined with runoff of higher rate maturing deposits.

Noninterest Income

Noninterest income for the fourth quarter of 2020 decreased to $10.8 million compared to $20.1 million for the fourth quarter of 2019 and $47.0 million for the third quarter of 2020.

The primary drivers of the decrease compared to the fourth quarter of 2019 and the third quarter of 2020 were net loss on loans accounted for under the fair value option and equity method investment losses. The net loss on loans accounted for under the fair value option totaled $4.8 million for the fourth quarter of 2020, a $6.2 million decrease compared to the net gain for the fourth quarter of 2019 and a $8.2 million decrease compared to the net gain for the third quarter of 2020. The valuation of loans was negatively impacted by market conditions arising from the impact of COVID-19 and model refinements in recognition of loss experience in non-mature verticals. Equity method investments loss totaled $8.7 million for the fourth quarter of 2020, a $7.0 million increase from the loss for the fourth quarter of 2019 and a $7.5 million increase from the loss for the third quarter of 2020. The higher loss for the fourth quarter of 2020 was largely a product of the Company’s pro rata portion of income tax expense arising from an investee’s conversion from a partnership to a corporation.

Additionally, the loan servicing asset revaluation resulted in a loss of $5.8 million for the fourth quarter of 2020 compared to a loss of $4.1 million for the fourth quarter of 2019 and a gain of $2.1 million for the third quarter of 2020. The increase in the negative loan servicing asset revaluation was largely the result of increased paydowns combined with the above mentioned COVID-19 impacted market conditions. Compared to the prior quarter, equity security investment gains decreased $14.6 million to $107 thousand for the fourth quarter of 2020 following the recognition of a $13.7 million non-cash gain during the third quarter of 2020 arising from the increase in the market value of the Company’s investment in Greenlight Financial Technology, Inc.

Partially offsetting the decrease in noninterest income, the Company’s net gains on sales of loans increased $3.6 million to $15.0 million in the fourth quarter of 2020 compared to $11.4 million in the fourth quarter of 2019 and increased $2.3 million compared to $12.7 million in the third quarter of 2020. The volume of guaranteed loan sales in the fourth quarter of 2020 remained relatively flat at $110.6 million compared to $105.0 million in the fourth quarter of 2019 and $114.7 million in the third quarter of 2020.

The average net gain on guaranteed loan sales increased to $115.9 thousand per million sold in the fourth quarter of 2020 versus $106.2 thousand in the fourth quarter of 2019 and $110.2 thousand in the third quarter of 2020. The increase in average guaranteed loan sale pricing from the fourth quarter of 2019 was driven by the mix of loans sold by the Company and market conditions for the purchase of guaranteed loans.

Noninterest Expense

Noninterest expense for the fourth quarter of 2020 increased to $52.4 million compared to $44.4 million for the fourth quarter of 2019 and $42.7 million for the third quarter of 2020.

Salaries and employee benefits for the fourth quarter of 2020 increased to $29.5 million compared to $24.1 million for the fourth quarter of 2019 and $24.2 million for the third quarter of 2020. The increase in salaries and benefits of $5.4 million compared to the fourth quarter of 2019 and $5.3 million compared to the third quarter of 2020 was largely driven by the vesting of approximately 2.5 million restricted stock unit awards with market price conditions that impacted both compensation expense and payroll tax expense by a combined $4.1 million.

Also contributing to the increase in noninterest expense was other expense of $4.2 million for the fourth quarter of 2020, an increase of $1.9 million compared to the fourth quarter of 2019 and $2.1 million from the third quarter of 2020. The increase in other expense for the fourth quarter of 2020 compared to the fourth quarter of 2019 and third quarter of 2020 was largely comprised of increased franchise tax accruals and other operational expenses. Also influencing the quarter over quarter increase in other expense was a third quarter recovery from a previously recognized asset impairment.

The increase in noninterest expense for the fourth quarter of 2020 compared to the fourth quarter of 2019 was mitigated in part by a decrease in travel expense of $1.2 million.

Asset Quality

Net charge-offs for loans carried at historical cost were $537 thousand in the fourth quarter of 2020 compared to $10.1 million in the third quarter of 2020 and $536 thousand in the fourth quarter of 2019. Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended December 31, 2020 and 2019, was 0.05% and 0.13%, respectively. Net charge-offs for loans carried at historical cost for the year ended December 31, 2020, totaled $15.3 million compared to $1.4 million for the year ended December 31, 2019. The increase in net charge-offs for the year ended December 31, 2020, was principally driven by the third quarter reclassification of fifteen hotel loans from held for investment to held for sale totaling $81.2 million in net investment. The reclassification to held for sale resulted in a write down reflected in charge-offs of $9.8 million. Net charge-offs as a percentage of total average held for investment loans and leases carried at historical cost for the years ended December 31, 2020 and 2019, were 0.45% and 0.10%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $5.4 million and $7.5 million accounted for under the fair value option at December 31, 2020, and September 30, 2020, respectively, decreased to $20.1 million, or 0.46% of loans and leases held for investment which are carried at historical cost, at December 31, 2020, compared to $20.2 million, or 0.48%, at September 30, 2020.

The unguaranteed exposure of foreclosed assets increased $293 thousand to $935 thousand at December 31, 2020, compared to September 30, 2020. Foreclosed assets increased $891 thousand to $4.2 million at December 31, 2020, from $3.3 million at September 30, 2020.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the fourth quarter of 2020 totaled $8.6 million compared to $10.3 million for the third quarter of 2020 and $4.8 million for the fourth quarter of 2019. 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 and changing economic forecasts related to the COVID-19 pandemic significantly influences the Company’s allowance for credit losses on loans and leases. This, combined with the growing loan and lease portfolio and model refinements in recognition of loss experience in non-mature verticals, resulted in $40.7 million of provision for loan and lease credit losses for the year ended December 31, 2020, compared to $15.2 million for the year ended December 31, 2019.

The allowance for credit losses on loans and leases totaled $52.3 million at December 31, 2020, compared to $44.2 million at September 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 1.21% and 1.05% at December 31, 2020, and September 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 is heavily influenced by the 100% guaranteed PPP loans.

Income Tax

Income tax benefit in the fourth quarter of 2020 was $17.6 million compared to a net income tax expense in the fourth quarter of 2019 of $2.1 million and an income tax expense of $11.7 million in the third quarter of 2020. The income tax benefit for the fourth quarter of 2020 was principally the product of the previously mentioned vesting of restricted stock unit awards with market price conditions during the fourth quarter. Upon vesting, the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes, which resulted in the recognition of a tax benefit of $22.1 million. For the year ended December 31, 2020, there was a total income tax benefit of $12.2 million largely driven by the vesting of restricted stock awards in the fourth quarter in addition to a tax benefit of $3.7 million due to the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020, which allows the carryback of certain net operating losses to each of the five taxable years preceding the taxable year of such losses.

Shareholders’ Equity

Total shareholders’ equity decreased by $16.3 million, or 2.8%, during the fourth quarter of 2020. This decrease was principally due to cash paid for employee tax obligations in lieu of stock for settlement of vested restricted stock unit awards discussed above. Total cash paid in lieu of stock during the fourth quarter was $49.0 million.

During 2020, 1,807,774 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 $19.1 million.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (January 28, 2021). 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 9778804. 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 conference call will also be available until February 4, 2021 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

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, Inc.

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 Corporate Communications | Media Relations | 910.597.1592


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

    Three months ended  
    4Q 2020     3Q 2020     2Q 2020     1Q 2020     4Q 2019  
Interest income                                        
Loans and fees on loans   $ 79,166     $ 70,621     $ 62,022     $ 58,961     $ 57,017  
Investment securities, taxable     3,345       4,123       3,786       3,762       3,911  
Other interest earning assets     529       334       1,009       750       885  
Total interest income     83,040       75,078       66,817       63,473       61,813  
Interest expense                                        
Deposits     19,195       22,155       25,121       23,255       23,801  
Borrowings     1,544       1,560       798       57       1  
Total interest expense     20,739       23,715       25,919       23,312       23,802  
Net interest income     62,301       51,363       40,898       40,161       38,011  
Provision for loan and lease credit losses     8,634       10,274       9,958       11,792       4,809  
Net interest income after provision for loan and lease credit losses     53,667       41,089       30,940       28,369       33,202  
Noninterest income                                        
Loan servicing revenue     6,684       6,803       6,691       6,422       6,730  
Loan servicing asset revaluation     (5,756 )     2,061       (1,571 )     (4,692 )     (4,135 )
Net gains on sales of loans     14,976       12,690       10,695       11,112       11,364  
Net (loss) gain on loans accounted for under the fair value option     (4,759 )     3,403       (1,089 )     (10,638 )     1,432  
Equity method investments income (loss)     (8,739 )     (1,231 )     (2,243 )     (2,478 )     (1,769 )
Equity security investments gains (losses), net     107       14,705       161       (64 )     54  
Gain (loss) on sale of investment securities available-for-sale, net           1,225       734       (79 )     528  
Lease income     2,615       2,634       2,635       2,624       2,600  
Management fee income     2,206       1,296       1,206       1,644       1,556  
Other noninterest income     3,469       3,458       5,192       1,891       1,765  
Total noninterest income     10,803       47,044       22,411       5,742       20,125  
Noninterest expense                                        
Salaries and employee benefits     29,477       24,203       30,782       28,063       24,072  
Travel expense     1,056       250       364       1,781       2,246  
Professional services expense     1,691       1,346       1,385       1,937       983  
Advertising and marketing expense     973       552       624       1,361       1,630  
Occupancy expense     2,302       2,079       1,955       2,421       2,528  
Data processing expense     3,414       3,009       2,764       3,157       1,847  
Equipment expense     4,002       4,314       4,652       4,635       4,402  
Other loan origination and maintenance expense     3,173       2,669       2,492       2,456       2,390  
FDIC insurance     2,147       2,095       1,721       1,510       2,012  
Other expense     4,200       2,133       1,361       2,170       2,300  
Total noninterest expense     52,435       42,650       48,100       49,491       44,410  
Income (loss) before taxes     12,035       45,483       5,251       (15,380 )     8,917  
Income tax (benefit) expense     (17,553 )     11,703       1,474       (7,778 )     2,085  
Net income (loss)   $ 29,588     $ 33,780     $ 3,777     $ (7,602 )   $ 6,832  
Earnings (loss) per share                                        
Basic   $ 0.72     $ 0.83     $ 0.09     $ (0.19 )   $ 0.17  
Diluted   $ 0.68     $ 0.81     $ 0.09     $ (0.19 )   $ 0.17  
Weighted average shares outstanding                                        
Basic     41,320,851       40,542,696       40,506,671       40,334,179       40,291,867  
Diluted     43,333,707       41,549,632       41,122,025       41,074,049       41,178,472  



Live Oak Bancshares, Inc.
Quarterly Balance Sheets (unaudited)
(Dollars in thousands)

    As of the quarter ended  
    4Q 2020     3Q 2020     2Q 2020     1Q 2020     4Q 2019  
Assets                                        
Cash and due from banks   $ 297,167     $ 608,826     $ 1,256,958     $ 254,077     $ 124,610  
Federal funds sold     21,153       25,924       91,188       158,226       96,787  
Certificates of deposit with other banks     6,500       7,250       7,250       7,250       7,250  
Investment securities available-for-sale     750,098       765,777       779,794       574,168       540,045  
Loans held for sale (1)     1,175,470       1,190,200       976,594       996,050       966,447  
Loans and leases held for investment (2)     5,145,082       5,037,199       4,650,056       2,817,491       2,627,286  
Allowance for credit losses on loans and leases     (52,306 )     (44,210 )     (44,083 )     (35,906 )     (28,234 )
Net loans and leases     5,092,776       4,992,989       4,605,973       2,781,585       2,599,052  
Premises and equipment, net     259,267       253,737       269,063       274,177       279,099  
Foreclosed assets     4,155       3,264       5,660       6,744       5,612  
Servicing assets     33,918       37,831       33,834       33,532       35,365  
Other assets     231,799       207,583       182,840       187,760       158,561  
Total assets   $ 7,872,303     $ 8,093,381     $ 8,209,154     $ 5,273,569     $ 4,812,828  
Liabilities and Shareholders’ Equity                                        
Liabilities                                        
Deposits:                                        
Noninterest-bearing   $ 75,287     $ 58,771     $ 53,938     $ 51,275     $ 51,965  
Interest-bearing     5,637,541       5,647,273       5,819,354       4,588,126       4,175,015  
Total deposits     5,712,828       5,706,044       5,873,292       4,639,401       4,226,980  
Borrowings     1,542,093       1,747,083       1,721,029       50,012       14  
Other liabilities     49,532       56,090       66,398       50,384       53,448  
Total liabilities     7,304,453       7,509,217       7,660,719       4,739,797       4,280,442  
Shareholders’ equity                                        
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                              
Class A common stock (voting)     298,890       325,753       319,542       314,994       309,526  
Class B common stock (non-voting)     11,729       26,106       28,753       28,753       30,871  
Retained earnings     235,724       207,400       174,837       172,276       180,265  
Accumulated other comprehensive income     21,507       24,905       25,303       17,749       11,724  
Total equity     567,850       584,164       548,435       533,772       532,386  
Total liabilities and shareholders’ equity   $ 7,872,303     $ 8,093,381     $ 8,209,154     $ 5,273,569     $ 4,812,828  


(1) Includes $36.1 million, $30.4 million, $32.1 million, $19.2 million and $16.2 million measured at fair value for the quarters ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020 and December 31, 2019, respectively.
(2) Includes $815.4 million, $845.7 million, $834.6 million, $831.4 million and $824.5 million measured at fair value for the quarters ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020 and December 31, 2019, respectively.



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

    Twelve months ended  
    December 31, 2020     December 31, 2019  
Interest income                
Loans and fees on loans   $ 270,770     $ 207,836  
Investment securities, taxable     15,016       15,345  
Other interest earning assets     2,622       4,799  
Total interest income     288,408       227,980  
Interest expense                
Deposits     89,726       87,897  
Borrowings     3,959       1  
Total interest expense     93,685       87,898  
Net interest income     194,723       140,082  
Provision for loan and lease credit losses     40,658       15,212  
Net interest income after provision for loan and lease credit losses     154,065       124,870  
Noninterest income                
Loan servicing revenue     26,600       28,034  
Loan servicing asset revaluation     (9,958 )     (16,581 )
Net gains on sales of loans     49,473       29,002  
Net (loss) gain on loans accounted for under the fair value option     (13,083 )     7,408  
Equity method investments income (loss)     (14,691 )     (7,889 )
Equity security investments gains (losses), net     14,909       3,532  
Gain on sale of investment securities available-for-sale, net     1,880       620  
Lease income     10,508       9,655  
Management fee income     6,352       1,742  
Other noninterest income     14,010       7,996  
Total noninterest income     86,000       63,519  
Noninterest expense                
Salaries and employee benefits     112,525       90,634  
Travel expense     3,451       6,921  
Professional services expense     6,359       6,859  
Advertising and marketing expense     3,510       5,936  
Occupancy expense     8,757       8,116  
Data processing expense     12,344       9,265  
Equipment expense     17,603       16,327  
Other loan origination and maintenance expense     10,790       9,272  
Renewable energy tax credit investment impairment           602  
FDIC insurance     7,473       3,447  
Other expense     9,864       7,545  
Total noninterest expense     192,676       164,924  
Income before taxes     47,389       23,465  
Income tax (benefit) expense     (12,154 )     5,431  
Net income   $ 59,543     $ 18,034  
Earnings per share                
Basic   $ 1.46     $ 0.45  
Diluted   $ 1.43     $ 0.44  
Weighted average shares outstanding                
Basic     40,677,496       40,222,758  
Diluted     41,771,250       41,053,514  



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

    As of and for the three months ended  
    4Q 2020     3Q 2020     2Q 2020     1Q 2020     4Q 2019  
Income Statement Data                                        
Net income (loss)   $ 29,588     $ 33,780     $ 3,777     $ (7,602 )   $ 6,832  
Per Common Share                                        
Net income (loss), basic   $ 0.72     $ 0.83     $ 0.09     $ (0.19 )   $ 0.17  
Net income (loss), diluted     0.68       0.81       0.09       (0.19 )     0.17  
Dividends declared     0.03       0.03       0.03       0.03       0.03  
Book value     13.38       14.69       13.53       13.22       13.20  
Tangible book value (1)     13.28       14.30       13.43       13.22       13.20  
Performance Ratios                                        
Return on average assets (annualized)     1.49 %     1.67 %     0.22 %     (0.61 )%     0.58 %
Return on average equity (annualized)     19.86       23.64       2.68       (5.64 )     5.06  
Net interest margin     3.33       2.77       2.56       3.55       3.57  
Efficiency ratio (1)     71.73       43.89       76.87       107.63       77.09  
Noninterest income to total revenue     14.78       47.15       34.64       12.66       34.02  
Selected Loan Metrics                                        
Loans and leases originated   $ 808,010     $ 966,499     $ 2,175,055     $ 500,634     $ 523,688  
Guaranteed loans sold     110,588       114,731       154,980       162,297       105,002  
Average net gain on sale of guaranteed loans     115.94       110.19       66.76       63.71       106.16  
Adjusted average net gain on sale of guaranteed loans (2)     114.07       107.99       65.94       83.48       94.86  
Outstanding balance of sold loans serviced:                                        
Guaranteed     2,819,625       2,878,664       2,840,429       2,761,015       2,746,480  
Unguaranteed     385,998       264,829       231,602       223,587       224,127  
Total     3,205,623       3,143,493       3,072,031       2,984,602       2,970,607  
Asset Quality Ratios                                        
Allowance for credit losses to loans and leases held for investment (4)     1.21 %     1.05 %     1.16 %     1.81 %     1.57 %
Net charge-offs (4)   $ 537     $ 10,147     $ 1,781     $ 2,799     $ 536  
Net charge-offs to average loans and leases held for investment (3) (4)     0.05 %     1.03 %     0.21 %     0.58 %     0.13 %
Nonperforming loans and leases (4) (5)   $ 46,110     $ 46,749     $ 40,275     $ 34,088     $ 21,937  
Foreclosed assets     4,155       3,264       5,660       6,744       5,612  
Nonperforming loans and leases (unguaranteed exposure) (4) (5)     20,078       20,153       13,122       9,623       7,224  
Foreclosed assets (unguaranteed exposure)     935       642       1,199       1,478       1,120  
Nonperforming loans and leases not guaranteed by the SBA and foreclosures (4) (5)   $ 21,013     $ 20,795     $ 14,321     $ 11,101     $ 8,344  
Nonperforming loans, leases and foreclosures, not guaranteed by the SBA, to total assets (4) (5)     0.30 %     0.29 %     0.20 %     0.25 %     0.21 %
Nonperforming loans accounted for under the fair value option   $ 35,499     $ 47,434     $ 46,221     $ 60,558     $ 49,739  
Nonperforming loans accounted for under the fair value option (unguaranteed exposure)     5,387       7,495       6,352       8,193       6,700  
Capital Ratios                                        
Common equity tier 1 capital (to risk-weighted assets)     12.21 %     13.09 %     12.84 %     13.81 %     14.90 %
Total capital (to risk-weighted assets)     13.45       14.19       13.99       14.83       15.74  
Tier 1 risk based capital (to risk-weighted assets)     12.21       13.09       12.84       13.81       14.90  
Tier 1 leverage capital (to average assets)     8.40       8.44       7.96       9.94       10.65  

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 quarters ended December 31, 2020 and September 30, 2020 exclude 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
December 31, 2020
    Three months ended
September 30, 2020
 
    Average Balance     Interest     Average Yield/Rate     Average Balance     Interest     Average Yield/Rate  
Interest earning assets:                                                
Interest earning balances in other banks   $ 384,811     $ 524       0.54 %   $ 681,408     $ 320       0.18 %
Federal funds sold     24,420       5       0.08       54,979       14       0.10  
Investment securities     722,353       3,345       1.84       755,412       4,123       2.17  
Loans held for sale     1,179,502       15,414       5.18       1,084,024       14,399       5.27  
Loans and leases held for investment (1)     5,114,069       63,752       4.95       4,782,075       56,222       4.66  
Total interest earning assets     7,425,155       83,040       4.44       7,357,898       75,078       4.05  
Less: allowance for credit losses on loans and leases     (44,286 )                     (44,054 )                
Non-interest earning assets     581,882                       778,826                  
Total assets   $ 7,962,751                     $ 8,092,670                  
Interest bearing liabilities:                                                
Interest bearing checking   $ 309,787     $ 460       0.59 %   $ 500,007     $ 747       0.59 %
Savings     1,929,378       3,226       0.66       1,669,199       3,674       0.87  
Money market accounts     92,372       73       0.31       95,151       83       0.35  
Certificates of deposit     3,217,854       15,436       1.90       3,423,643       17,651       2.05  
Total interest bearing deposits     5,549,391       19,195       1.37       5,688,000       22,155       1.55  
Borrowings     1,702,129       1,544       0.36       1,733,805       1,560       0.36  
Total interest bearing liabilities     7,251,520       20,739       1.13       7,421,805       23,715       1.27  
Non-interest bearing deposits     56,427                       43,993                  
Non-interest bearing liabilities     58,955                       55,353                  
Shareholders' equity     595,849                       571,519                  
Total liabilities and shareholders' equity   $ 7,962,751                     $ 8,092,670                  
Net interest income and interest rate spread           $ 62,301       3.31 %           $ 51,363       2.78 %
Net interest margin                     3.33                       2.77  
Ratio of average interest-earning assets to average interest-bearing liabilities                     102.39 %                     99.14 %

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



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

    As of and for the three months ended  
    4Q 2020     3Q 2020     2Q 2020     1Q 2020     4Q 2019  
Total shareholders’ equity   $ 567,850     $ 584,164     $ 548,435     $ 533,772     $ 532,386  
Less:                                        
Goodwill     1,797       1,797       1,797              
Other intangible assets     2,179       2,218       2,294              
Tangible shareholders’ equity (a)   $ 563,874     $ 580,149     $ 544,344     $ 533,772     $ 532,386  
Shares outstanding (c)     42,452,446       40,575,982       40,525,632       40,380,201       40,316,974  
Total assets   $ 7,872,303     $ 8,093,381     $ 8,209,154     $ 5,273,569     $ 4,812,828  
Less:                                        
Goodwill     1,797       1,797       1,797              
Other intangible assets     2,179       2,218       2,294              
Tangible assets (b)   $ 7,868,327     $ 8,089,366     $ 8,205,063     $ 5,273,569     $ 4,812,828  
Tangible shareholders’ equity to tangible assets (a/b)     7.17 %     7.17 %     6.63 %     10.12 %     11.06 %
Tangible book value per share (a/c)   $ 13.28     $ 14.30     $ 13.43     $ 13.22     $ 13.20  
Efficiency ratio:                                        
Noninterest expense (d)   $ 52,435     $ 42,650     $ 48,100     $ 49,491     $ 44,410  
Net interest income     62,301       51,363       40,898       40,161       38,011  
Noninterest income     10,803       47,044       22,411       5,742       20,125  
Less: gain (loss) on sale of securities           1,225       734       (79 )     528  
Adjusted operating revenue (e)   $ 73,104     $ 97,182     $ 62,575     $ 45,982     $ 57,608  
Efficiency ratio (d/e)     71.73 %     43.89 %     76.87 %     107.63 %     77.09 %



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

    Three months ended     Twelve months ended  
    4Q 2020     3Q 2020     4Q 2019     4Q 2020     4Q 2019  
Reconciliation of net income to non-GAAP net income:                                        
Net income   $ 29,588     $ 33,780     $ 6,832     $ 59,543     $ 18,034  
Loss (gain) on sale of aircraft     6                   6       (357 )
Impairment on aircraft held for sale     244       1,019             1,263        
Renewable energy tax credit investment impairment                             602  
Income tax effects and adjustments for non-GAAP items *     (60 )     (245 )           (305 )     (59 )
Non-GAAP net income   $ 29,778     $ 34,554     $ 6,832     $ 60,507     $ 18,220  
* Estimated at 24.0%                                        
Non-GAAP earnings per share:                                        
Basic   $ 0.72     $ 0.85     $ 0.17     $ 1.49     $ 0.45  
Diluted   $ 0.69     $ 0.83     $ 0.17     $ 1.45     $ 0.44  
Weighted-average shares outstanding:                                        
Basic     41,320,851       40,542,696       40,291,867       40,677,496       40,222,758  
Diluted     43,333,707       41,549,632       41,178,472       41,771,250       41,053,514  
Reconciliation of financial statement line items as reported to non-GAAP:                                        
Noninterest income, as reported   $ 10,803     $ 47,044     $ 20,125     $ 86,000     $ 63,519  
Gain on sale of aircraft                             (357 )
Noninterest income, non-GAAP   $ 10,803     $ 47,044     $ 20,125     $ 86,000     $ 63,162  
Noninterest expense, as reported   $ 52,435     $ 42,650     $ 44,410     $ 192,676     $ 164,924  
Loss on sale of aircraft     (6 )                 (6 )      
Impairment on aircraft held for sale     (244 )     (1,019 )           (1,263 )      
Renewable energy tax credit investment impairment                             (602 )
Noninterest expense, non-GAAP   $ 52,185     $ 41,631     $ 44,410     $ 191,407     $ 164,322  
Income before taxes, as reported   $ 12,035     $ 45,483     $ 8,917     $ 47,389     $ 23,465  
Loss (gain) on sale of aircraft     6                   6       (357 )
Impairment on aircraft held for sale     244       1,019             1,263        
Renewable energy tax credit investment impairment                             602  
Income before taxes, non-GAAP   $ 12,285     $ 46,502     $ 8,917     $ 48,658     $ 23,710  
Income tax (benefit) expense, as reported   $ (17,553 )   $ 11,703     $ 2,085     $ (12,154 )   $ 5,431  
Income tax effects and adjustments for non-GAAP items     60       245             305       59  
Income tax (benefit) expense, non-GAAP   $ (17,493 )   $ 11,948     $ 2,085     $ (11,849 )   $ 5,490  

This press release presents the non-GAAP financial measures. 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.