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Live Oak Bancshares, Inc. Reports Second Quarter 2020 Results

07/22/20

WILMINGTON, N.C., July 22, 2020 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or the “Company”) today reported second quarter 2020 net income of $3.8 million, or $0.09 per diluted share, compared to net income of $4.9 million, or $0.12 per diluted share, for the second quarter of 2019.  The second quarter of 2020 was largely impacted by continued risks and uncertainties related to the COVID-19 pandemic. 

“Live Oak leveraged the power of its people and technology platforms in the second quarter of 2020 to deliver in excess of $1.7 billion of loans through the Paycheck Protection Program.  We fully lived out our mission as we provided much needed capital to more than 10,000 small businesses across the U.S.,” said James S. Mahan, III, Chairman and Chief Executive Officer of Live Oak.  “We are honored and humbled by the spirit and fortitude of small businesses to persevere during this unprecedented time. We are more dedicated than ever to transforming financial service technology by providing exceptional customer service and next-generation digital experiences to American small business owners.”

Second Quarter 2020 Key Measures

 (Dollars in thousands, except per share data)                   Increase (Decrease)          
    2Q 2020     2Q 2019     Dollars     Percent     1Q 2020  
Net interest income and servicing revenues   $ 47,589     $ 40,998     $ 6,591       16 %   $ 46,583  
Net income (loss)     3,777       4,935       (1,158 )     (23 )     (7,602 )
Diluted earnings (loss) per share     0.09       0.12       (0.03 )     (25 )     (0.19 )
Non-GAAP net income (loss) (1)     3,777       5,393       (1,616 )     (30 )     (7,602 )
Non-GAAP diluted earnings (loss) per share (1)     0.09       0.13       (0.04 )     (31 )     (0.19 )
Loan and lease production:                                        
Loans and leases originated   $ 2,175,055     $ 525,088     $ 1,649,967       314 %   $ 500,634  
% Fully funded     89.8 %     42.9 %   n/a     n/a       57.6 %
Total loans and leases   $ 5,626,650     $ 3,066,103     $ 2,560,547       84 %   $ 3,813,541  
Total assets     8,209,154       4,271,473       3,937,681       92       5,273,569  
Total deposits     5,873,292       3,718,769       2,154,523       58       4,639,401  

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

Loans and Leases

At June 30, 2020, the total loan and lease portfolio increased to $5.63 billion, 83.5% above its level a year ago and 47.5% above its level at March 31, 2020.  Compared to the first quarter of 2020, loans and leases held for investment increased $1.83 billion, or 65.0%, to $4.65 billion while loans held for sale decreased $19.5 million, or 2.0%, to $976.6 million. Loan and lease originations totaled $2.18 billion during the second quarter of 2020, an increase of $1.67 billion, or 334.5%, from the first quarter of 2020.  The total loan and lease portfolio at June 30, 2020, and March 31, 2020, of $5.63 billion and $3.81 billion, respectively, consisted of approximately 38.7% and 54.8% of unguaranteed loans and leases, respectively.

Average loans and leases were $5.13 billion during the second quarter of 2020 compared to $3.77 billion during the first quarter of 2020.

Loans and leases held for investment, loan and lease originations, and average loans and leases were significantly influenced by the addition of loans originated through the Paycheck Protection Program (“PPP”).  PPP loans comprised $1.74 billion of the total loans and leases originated during the second quarter of 2020 and are carried at historical cost classified as held for investment at June 30, 2020.  Additionally, the unguaranteed percentage of the total loan and lease portfolio of 38.7% at June 30, 2020, is significantly influenced by the addition of PPP loans carrying a 100% government guarantee.

Deposits

Total deposits increased by $1.23 billion to $5.87 billion at June 30, 2020 from $4.64 billion at March 31, 2020, to support the planned origination of PPP loans and 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 second quarter of 2020 increased $1.27 billion, or 29.1%, to $5.63 billion, compared to $4.36 billion for the first quarter of 2020. The ratio of average total loans and leases to average interest-bearing deposits was 91.1% for the second quarter of 2020, compared to 86.3% for the first quarter of 2020.

Borrowings

During the second quarter of 2020, the Company increased long term borrowings by $1.72 billion through the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”).  These PPPLF borrowings were used to help fund PPP loans and complement the defensive strategy to build liquidity which commenced in the first quarter of 2020 due to the uncertainty of the effects of COVID-19.  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.  This increase in borrowings at favorable rates was offset by the repayment of $45.0 million of existing debt at the parent company during the quarter.

Net Interest Income

Net interest income for the second quarter of 2020 rose to $40.9 million compared to $33.9 million for the second quarter of 2019 and $40.2 million for the first quarter of 2020. The increase from the prior year was driven by significant growth in the total loan and lease portfolios 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 aforementioned origination of $1.74 billion in PPP loans in the second quarter of 2020.  The increase from the first quarter of 2020 arose from a higher average loan and lease portfolio balance offset with a 99-basis point decline in the net interest margin from 3.55% to 2.56%.  The decrease in interest earning asset yields outpaced the reduction in the average cost of interest-bearing liabilities with the repricing of the loan portfolio on April 1, 2020, following 150 basis points of cuts to the federal funds rate during the first quarter of 2020. Increased liquidity levels for anticipated PPP lending and the resulting PPPLF also depressed the net interest margin during the second quarter of 2020.

Noninterest Income

Noninterest income for the second quarter of 2020 increased to $22.4 million compared to $14.7 million for the second quarter of 2019 and $5.7 million for the first quarter of 2020.  The increase from the prior year was largely driven by a $4.7 million increase in the net gains on sales of loans with the volume of guaranteed loans sold increasing to $155.0 million for the second quarter of 2020 from $71.9 million for the second quarter of 2019. Other noninterest income increased $3.6 million for the second quarter of 2020 compared to the prior year primarily as the result of $2.5 million in revenue resulting from the sale of services from co-developed technology for processing PPP loans. The net loss on the loan servicing asset revaluation totaled $1.6 million for the second quarter of 2020, a decrease from $3.2 million for the second quarter of 2019. Additionally, management fee income earned by Canapi Advisors, the Company’s investment advisor subsidiary, increased by $1.1 million to $1.2 million for the second quarter of 2020 compared to $91 thousand for the second quarter of 2019. Offsetting the increases in noninterest income for the second quarter of 2020, the valuation adjustments related to loans measured at fair value decreased $3.9 million compared to the second quarter of 2019.

Noninterest income increased $16.7 million for the second quarter of 2020 compared to the prior quarter.  For the second quarter of 2020, fair value adjustments continued to be negatively impacted by uncertainty and changing conditions related to the COVID-19 pandemic.  The negative valuation adjustment for loans measured at fair value was $1.1 million for the second quarter of 2020, or a decrease of $9.5 million compared to the prior quarter, while the net loss on the loan servicing asset revaluation was $1.6 million over the same period, or a decrease of $3.1 million compared to the prior quarter. The magnitude of COVID-19 related impacts on loan fair value adjustments in the second quarter was dampened by improving market conditions for unguaranteed loans. Additionally, other noninterest income increased $3.0 million from the prior quarter primarily due to the previously discussed $2.5 million in revenue from co-developed technology.

The average net gain on guaranteed loan sales was $66.8 thousand per million sold in the second quarter of 2020 versus $80.1 thousand per million in the second quarter of 2019 and $63.7 thousand per million in the first quarter of 2020.  The decrease in average loan sale pricing from 2019 was driven by the same factors observed in the prior quarter, including the mix of loans sold by the Company, weakening of market conditions for the purchase of guaranteed loans and less favorable fair value adjustments for exchange-traded interest rate futures contracts. The Company recorded $127 thousand in fair value net gains on exchange-traded interest rate futures contracts during the second quarter of 2020 compared to $3.2 million in fair value net losses during the first quarter of 2020.  The decrease in volatility of exchange-traded interest rate futures contracts was the product of the Company preemptively exiting many such contracts in the first quarter.  Excluding fair value gains and losses on exchange-traded interest rate futures contracts, the average net gain on guaranteed loan sales was $65.9 thousand and $93.7 thousand per million sold in the second quarters of 2020 and 2019, respectively, and $83.5 thousand per million sold in the first quarter of 2020.

Noninterest Expense

Noninterest expense for the second quarter of 2020 increased to $48.1 million compared to $39.6 million for the second quarter of 2019 and decreased from $49.5 million for the first quarter of 2020.

Salaries and employee benefits for the second quarter of 2020 increased to $30.8 million compared to $22.0 million for the second quarter of 2019 and $28.1 million for the first quarter of 2020.  The salaries and employee benefits increase over the second quarter of 2019 and first quarter of 2020 was attributable to the Company’s investment in its workforce to support growth and a variety of initiatives including $7.2 million in expense for a performance bonus pool that was available to all employees other than executive officers.  This expense was mitigated by $4.2 million of deferred salary expense for the origination of PPP loans during the second quarter of 2020.

Related to the ongoing effects of the COVID-19 pandemic, travel expense decreased to $364 thousand for the second quarter of 2020 compared to $1.5 million for the second quarter of 2019 and $1.8 million for the first quarter of 2020.  Similarly, advertising and marketing expense decreased to $624 thousand for the second quarter of 2020 compared to $1.7 million for the second quarter of 2019 and $1.4 million for the first quarter of 2020.

Asset Quality

Net charge-offs for loans carried at historical cost decreased to $1.8 million in the second quarter of 2020 compared to $2.8 million in the first quarter of 2020 and increased from $121 thousand in the second 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 June 30, 2020 and 2019 and March 31, 2020, were 0.21%, 0.04% and 0.58%, respectively.  The decline in net charge-offs as a percentage of average held for investment loans and leases was also impacted by the significant addition of PPP loans in the second quarter of 2020.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $6.4 million and $8.2 million accounted for under the fair value option at June 30, 2020 and March 31, 2020, respectively, increased to $13.1 million, or 0.34% of loans and leases held for investment which are carried at historical cost, at June 30, 2020, compared to $9.6 million, or 0.48%, at March 31, 2020

The unguaranteed exposure of foreclosed assets decreased $279 thousand to $1.2 million at June 30, 2020, compared to March 31, 2020.  Foreclosed assets decreased $1.1 million to $5.7 million at June 30, 2020, from $6.7 million at March 31, 2020.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the second quarter of 2020 totaled $10.0 million compared to $11.8 million for the first quarter of 2020 and $3.4 million for the second 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.  Based upon the severity of ongoing developments resulting from the COVID-19 pandemic, the Company’s allowance for credit losses on loans and leases has continued to significantly increase.    

The allowance for credit losses on loans and leases totaled $44.1 million at June 30, 2020, compared to $35.9 million at March 31, 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 1.16% and 1.81% at June 30, 2020, and March 31, 2020, respectively.  The decline in 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 second quarter was due to the addition of 100% guaranteed PPP loans.

Income Tax

Income tax expense was $1.5 million in the second quarter of 2020 compared to an income tax expense of $662 thousand in the second quarter of 2019 and an income tax benefit of $7.8 million in the first quarter of 2020. The increase in the second quarter of 2020 over the second quarter of 2019 is primarily due to the absence of expected tax credits during 2020.  The increase in income tax expense in the second quarter of 2020 compared to the first quarter of 2020 is due to a net pre-tax loss for the first quarter of 2020 combined with a tax benefit of $3.7 million in the first quarter of 2020 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.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (July 23, 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 3174517. 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 5:00 p.m. ET July 30, 2020 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 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 BankLive 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 & Micah Davis | CMO | Media Relations | 910.550.2255



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

    Three months ended  
    2Q 2020     1Q 2020     4Q 2019     3Q 2019     2Q 2019  
Interest income                                        
Loans and fees on loans   $ 62,022     $ 58,961     $ 57,017     $ 55,939     $ 49,914  
Investment securities, taxable     3,786       3,762       3,911       4,001       4,116  
Other interest earning assets     1,009       750       885       1,167       1,108  
Total interest income     66,817       63,473       61,813       61,107       55,138  
Interest expense                                        
Deposits     25,121       23,255       23,801       23,576       21,203  
Borrowings     798       57       1              
Total interest expense     25,919       23,312       23,802       23,576       21,203  
Net interest income     40,898       40,161       38,011       37,531       33,935  
Provision for loan and lease credit losses     9,958       11,792       4,809       3,960       3,412  
Net interest income after provision for loan and lease credit losses     30,940       28,369       33,202       33,571       30,523  
Noninterest income                                        
Loan servicing revenue     6,691       6,422       6,730       6,831       7,063  
Loan servicing asset revaluation     (1,571 )     (4,692 )     (4,135 )     (5,161 )     (3,245 )
Net gains on sales of loans     10,695       11,112       11,364       7,425       6,015  
Net (loss) gain on loans accounted for under the fair value option     (1,089 )     (10,638 )     1,432       1,102       2,791  
Equity method investments income (loss)     (2,243 )     (2,478 )     (1,769 )     (2,370 )     (1,736 )
Equity security investments gains (losses), net     161       (64 )     54       3,343       32  
Gain (loss) on sale of investment securities available-for-sale     734       (79 )     528       87        
Lease income     2,635       2,624       2,600       2,361       2,369  
Management fee income     1,206       1,644       1,556       95       91  
Construction supervision fee income     684       390       240       360       386  
Other noninterest income     4,508       1,501       1,525       1,355       884  
Total noninterest income     22,411       5,742       20,125       15,428       14,650  
Noninterest expense                                        
Salaries and employee benefits     30,782       28,063       24,072       22,717       21,990  
Travel expense     364       1,781       2,246       1,934       1,541  
Professional services expense     1,385       1,937       983       2,073       1,621  
Advertising and marketing expense     624       1,361       1,630       1,277       1,665  
Occupancy expense     1,955       2,421       2,528       2,131       1,848  
Data processing expense     2,764       3,157       1,847       3,072       1,947  
Equipment expense     4,652       4,635       4,402       4,361       4,239  
Other loan origination and maintenance expense     2,492       2,456       2,390       3,535       1,708  
Renewable energy tax credit investment impairment                             602  
FDIC insurance     1,721       1,510       2,012       101       699  
Other expense     1,361       2,170       2,300       1,536       1,716  
Total noninterest expense     48,100       49,491       44,410       42,737       39,576  
Income (loss) before taxes     5,251       (15,380 )     8,917       6,262       5,597  
Income tax expense (benefit)     1,474       (7,778 )     2,085       2,367       662  
Net income (loss)   $ 3,777     $ (7,602 )   $ 6,832     $ 3,895     $ 4,935  
Earnings (loss) per share                                        
Basic   $ 0.09     $ (0.19 )   $ 0.17     $ 0.10     $ 0.12  
Diluted   $ 0.09     $ (0.19 )   $ 0.17     $ 0.09     $ 0.12  
Weighted average shares outstanding                                        
Basic     40,506,671       40,334,179       40,291,867       40,240,740       40,196,662  
Diluted     41,122,025       41,074,049       41,178,472       41,113,575       40,998,541  
                                         


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

    As of the quarter ended  
    2Q 2020     1Q 2020     4Q 2019     3Q 2019     2Q 2019  
Assets                                        
Cash and due from banks   $ 1,256,958     $ 254,077     $ 124,610     $ 157,359     $ 112,464  
Federal funds sold     91,188       158,226       96,787       88,919       68,153  
Certificates of deposit with other banks     7,250       7,250       7,250       7,250       7,250  
Investment securities available-for-sale     779,794       574,168       540,045       570,795       576,275  
Loans held for sale (1)     976,594       996,050       966,447       903,095       857,837  
Loans and leases held for investment (2)     4,650,056       2,817,491       2,627,286       2,422,970       2,208,266  
Allowance for credit losses on loans and leases     (44,083 )     (35,906 )     (28,234 )     (23,961 )     (20,841 )
Net loans and leases     4,605,973       2,781,585       2,599,052       2,399,009       2,187,425  
Premises and equipment, net     269,063       274,177       279,099       280,942       281,126  
Foreclosed assets     5,660       6,744       5,612       5,702       6,044  
Servicing assets     33,834       33,532       35,365       37,583       41,687  
Operating lease right-of-use assets     2,886       2,236       2,427       1,890       1,996  
Other assets     179,954       185,524       156,134       148,985       131,216  
Total assets   $ 8,209,154     $ 5,273,569     $ 4,812,828     $ 4,601,529     $ 4,271,473  
Liabilities and Shareholders Equity                                        
Liabilities                                        
Deposits:                                        
Noninterest-bearing   $ 53,938     $ 51,275     $ 51,965     $ 54,205     $ 52,588  
Interest-bearing     5,819,354       4,588,126       4,175,015       3,962,894       3,666,181  
Total deposits     5,873,292       4,639,401       4,226,980       4,017,099       3,718,769  
Borrowings     1,721,029       50,012       14       1,310       1,361  
Operating lease liabilities     3,079       2,416       2,619       2,041       2,162  
Other liabilities     63,319       47,968       50,829       52,860       30,195  
Total liabilities     7,660,719       4,739,797       4,280,442       4,073,310       3,752,487  
Shareholders equity                                        
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                              
Class A common stock (voting)     319,542       314,994       309,526       296,925       284,987  
Class B common stock (non-voting)     28,753       28,753       30,871       40,401       49,168  
Retained earnings     174,837       172,276       180,265       174,641       171,954  
Accumulated other comprehensive income     25,303       17,749       11,724       16,252       12,877  
Total equity     548,435       533,772       532,386       528,219       518,986  
Total liabilities and shareholders equity   $ 8,209,154     $ 5,273,569     $ 4,812,828     $ 4,601,529     $ 4,271,473  

(1)  Includes $32.1 million, $19.2 million, $16.2 million, $14.7 million and $26.6 million measured at fair value for the quarters ended June 30, 2020, March 31,2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively.

(2)  Includes $834.6 million, $831.4 million, $824.5 million, $831.3 million and $839.1 million measured at fair value for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively.


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

    Six months ended  
    June 30, 2020     June 30, 2019  
Interest income                
Loans and fees on loans   $ 120,983     $ 94,880  
Investment securities, taxable     7,548       7,433  
Other interest earning assets     1,759       2,747  
Total interest income     130,290       105,060  
Interest expense                
Deposits     48,376       40,520  
Borrowings     855        
Total interest expense     49,231       40,520  
Net interest income     81,059       64,540  
Provision for loan and lease credit losses     21,750       6,443  
Net interest income after provision for loan and lease credit losses     59,309       58,097  
Noninterest income                
Loan servicing revenue     13,113       14,473  
Loan servicing asset revaluation     (6,263 )     (7,285 )
Net gains on sales of loans     21,807       10,213  
Net (loss) gain on loans accounted for under the fair value option     (11,727 )     4,874  
Equity method investments income (loss)     (4,721 )     (3,750 )
Equity security investments gains (losses), net     97       135  
Gain on sale of investment securities available-for-sale     655       5  
Lease income     5,259       4,694  
Management fee income     2,850       91  
Construction supervision fee income     1,074       1,165  
Other noninterest income     6,009       3,351  
Total noninterest income     28,153       27,966  
Noninterest expense                
Salaries and employee benefits     58,845       43,845  
Travel expense     2,145       2,741  
Professional services expense     3,322       3,803  
Advertising and marketing expense     1,985       3,029  
Occupancy expense     4,376       3,457  
Data processing expense     5,921       4,346  
Equipment expense     9,287       7,564  
Other loan origination and maintenance expense     4,948       3,347  
Renewable energy tax credit investment impairment           602  
FDIC insurance     3,231       1,334  
Other expense     3,531       3,709  
Total noninterest expense     97,591       77,777  
(Loss) income before taxes     (10,129 )     8,286  
Income tax (benefit) expense     (6,304 )     979  
Net (loss) income   $ (3,825 )   $ 7,307  
(Loss) earnings per share                
Basic   $ (0.10 )   $ 0.18  
Diluted   $ (0.10 )   $ 0.18  
Weighted average shares outstanding                
Basic     40,420,425       40,178,491  
Diluted     41,098,037       40,960,283  
                 


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

    As of and for the three months ended  
    2Q 2020     1Q 2020     4Q 2019     3Q 2019     2Q 2019  
Income Statement Data                                        
Net income (loss)   $ 3,777     $ (7,602 )   $ 6,832     $ 3,895     $ 4,935  
Per Common Share                                        
Net income (loss), basic   $ 0.09     $ (0.19 )   $ 0.17     $ 0.10     $ 0.12  
Net income (loss), diluted     0.09       (0.19 )     0.17       0.09       0.12  
Dividends declared     0.03       0.03       0.03       0.03       0.03  
Book value     13.53       13.22       13.20       13.12       12.90  
Tangible book value (1)     13.43       13.22       13.20       13.12       12.90  
Performance Ratios                                        
Return on average assets (annualized)     0.22 %     (0.61 )%     0.58 %     0.35 %     0.48 %
Return on average equity (annualized)     2.68       (5.64 )     5.06       2.94       3.85  
Net interest margin     2.56       3.55       3.57       3.75       3.71  
Efficiency ratio (1)     76.87       107.63       77.09       80.83       81.46  
Noninterest income to total revenue     34.64       12.66       34.02       29.02       30.15  
Selected Loan Metrics                                        
Loans and leases originated   $ 2,175,055     $ 500,634     $ 523,688     $ 562,259     $ 525,088  
Guaranteed loans sold     154,980       162,297       105,002       100,498       71,934  
Average net gain on sale of guaranteed loans     66.76       63.71       106.16       80.51       80.12  
Adjusted average net gain on sale of guaranteed loans (2)     65.94       83.48       94.86       94.98       93.74  
Outstanding balance of sold loans serviced:                                        
Guaranteed     2,840,429       2,761,015       2,746,480       2,802,073       2,870,108  
Unguaranteed     231,602       223,587       224,127       211,095       183,991  
Total     3,072,031       2,984,602       2,970,607       3,013,168       3,054,099  
Asset Quality Ratios                                        
Allowance for credit losses to loans and leases held for investment (4)     1.16 %     1.81 %     1.57 %     1.51 %     1.52 %
Net charge-offs (4)   $ 1,781     $ 2,799     $ 536     $ 840     $ 121  
Net charge-offs to average loans and leases held for investment (3) (4)     0.21 %     0.58 %     0.13 %     0.23 %     0.04 %
Nonperforming loans and leases (4)   $ 40,275     $ 34,088     $ 21,937     $ 22,300     $ 18,835  
Foreclosed assets     5,660       6,744       5,612       5,702       6,044  
Nonperforming loans and leases (unguaranteed exposure) (4)     13,122       9,623       7,224       7,842       6,533  
Foreclosed assets (unguaranteed exposure)     1,199       1,478       1,120       1,142       1,228  
Nonperforming loans and leases not guaranteed by the SBA and foreclosures (4)   $ 14,321     $ 11,101     $ 8,344     $ 8,984     $ 7,761  
Nonperforming loans, leases and foreclosures, not guaranteed by the SBA, to total assets (4)     0.20 %     0.25 %     0.21 %     0.24 %     0.23 %
Nonperforming loans accounted for under the fair value option   $ 46,221     $ 60,558     $ 49,739     $ 54,024     $ 42,011  
Nonperforming loans accounted for under the fair value option (unguaranteed exposure)     6,352       8,193       6,700       8,214       7,726  
Capital Ratios                                        
Common equity tier 1 capital (to risk-weighted assets)     12.85 %     13.81 %     14.90 %     15.28 %     16.08 %
Total capital (to risk-weighted assets)     14.00       14.83       15.74       16.03       16.78  
Tier 1 risk based capital (to risk-weighted assets)     12.85       13.81       14.90       15.28       16.08  
Tier 1 leverage capital (to average assets)     7.96       9.94       10.65       11.12       11.77  

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.


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

    Three Months Ended June 30, 2020     Three months ended March 31, 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   $ 711,916     $ 1,009       0.57 %   $ 229,886     $ 750       1.31 %
Investment securities     556,014       3,786       2.73       536,206       3,762       2.81  
Loans held for sale     921,956       13,115       5.71       1,016,572       15,865       6.26  
Loans and leases held for investment (1)     4,208,109       48,907       4.66       2,750,351       43,096       6.28  
Total interest earning assets     6,397,995       66,817       4.19       4,533,015       63,473       5.62  
Less: allowance for credit losses on loans and leases     (35,875 )                     (27,003 )                
Non-interest earning assets     603,610                       507,328                  
Total assets   $ 6,965,730                     $ 5,013,340                  
Interest bearing liabilities:                                                
Interest bearing checking   $ 462,977     $ 646       0.56 %   $     $       %
Savings     1,398,378       4,814       1.38       1,123,882       4,844       1.73  
Money market accounts     82,908       89       0.43       77,622       100       0.52  
Certificates of deposit     3,689,041       19,572       2.13       3,162,660       18,311       2.32  
Total interest bearing deposits     5,633,304       25,121       1.79       4,364,164       23,255       2.14  
Borrowings     676,849       798       0.47       7,156       57       3.19  
Total interest bearing liabilities     6,310,153       25,919       1.65       4,371,320       23,312       2.14  
Non-interest bearing deposits     41,218                       48,925                  
Non-interest bearing liabilities     50,554                       53,494                  
Shareholders' equity     563,805                       539,601                  
Total liabilities and shareholders' equity   $ 6,965,730                     $ 5,013,340                  
Net interest income and interest rate spread           $ 40,898       2.54 %           $ 40,161       3.48 %
Net interest margin                     2.56                       3.55  
Ratio of average interest-earning assets to average interest-bearing liabilities                     101.39 %                     103.70 %

(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  
    2Q 2020     1Q 2020     4Q 2019     3Q 2019     2Q 2019  
Total shareholders’ equity   $ 548,435     $ 533,772     $ 532,386     $ 528,219     $ 518,986  
Less:                                        
Goodwill     1,797                          
Other intangible assets     2,294                          
Tangible shareholders’ equity (a)   $ 544,344     $ 533,772     $ 532,386     $ 528,219     $ 518,986  
Shares outstanding (c)     40,525,632       40,380,201       40,316,974       40,272,908       40,220,916  
Total assets   $ 8,209,154     $ 5,273,569     $ 4,812,828     $ 4,601,529     $ 4,271,473  
Less:                                        
Goodwill     1,797                          
Other intangible assets     2,294                          
Tangible assets (b)   $ 8,205,063     $ 5,273,569     $ 4,812,828     $ 4,601,529     $ 4,271,473  
Tangible shareholders’ equity to tangible assets (a/b)     6.63 %     10.12 %     11.06 %     11.48 %     12.15 %
Tangible book value per share (a/c)   $ 13.43     $ 13.22     $ 13.20     $ 13.12     $ 12.90  
Efficiency ratio:                                        
Noninterest expense (d)   $ 48,100     $ 49,491     $ 44,410     $ 42,737     $ 39,576  
Net interest income     40,898       40,161       38,011       37,531       33,935  
Noninterest income     22,411       5,742       20,125       15,428       14,650  
Less: gain on sale of securities     734       (79 )     528       87        
Adjusted operating revenue (e)   $ 62,575     $ 45,982     $ 57,608     $ 52,872     $ 48,585  
Efficiency ratio (d/e)     76.87 %     107.63 %     77.09 %     80.83 %     81.46 %
                                         


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

    Three Months Ended     Six Months Ended  
    2Q 2020     1Q 2020     2Q 2019     2Q 2020     2Q 2019  
Reconciliation of net income (loss) to non-GAAP net income (loss) for non-routine income and expenses:                                        
Net income (loss)   $ 3,777     $ (7,602 )   $ 4,935     $ (3,825 )   $ 7,307  
Gain on sale of aircraft                             (357 )
Renewable energy tax credit investment impairment                 602             602  
Income tax effects and adjustments for non-GAAP items *                 (144 )           (58 )
Non-GAAP net income (loss)   $ 3,777     $ (7,602 )   $ 5,393     $ (3,825 )   $ 7,494  
* Estimated at 24.0%                                        
Non-GAAP earnings (loss) per share:                                        
Basic   $ 0.09     $ (0.19 )   $ 0.13     $ (0.10 )   $ 0.19  
Diluted   $ 0.09     $ (0.19 )   $ 0.13     $ (0.10 )   $ 0.18  
Weighted-average shares outstanding:                                        
Basic     40,506,671       40,334,179       40,196,662       40,420,425       40,178,491  
Diluted     41,122,025       41,074,049       40,998,541       41,098,037       40,960,283  
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:                                        
Noninterest income, as reported   $ 22,411     $ 5,742     $ 14,650     $ 28,153     $ 27,966  
Gain on sale of aircraft                             (357 )
Noninterest income, as adjusted   $ 22,411     $ 5,742     $ 14,650     $ 28,153     $ 27,609  
Noninterest expense, as reported   $ 48,100     $ 49,491     $ 39,576     $ 97,591     $ 77,777  
Renewable energy tax credit investment impairment                 (602 )           (602 )
Noninterest expense, as adjusted   $ 48,100     $ 49,491     $ 38,974     $ 97,591     $ 77,175  
Income (loss) before taxes, as reported   $ 5,251     $ (15,380 )   $ 5,597     $ (10,129 )   $ 8,286  
Gain on sale of aircraft                             (357 )
Renewable energy tax credit investment impairment                 602             602  
Income (loss) before taxes, as adjusted   $ 5,251     $ (15,380 )   $ 6,199     $ (10,129 )   $ 8,531  
Income tax expense (benefit), as reported   $ 1,474     $ (7,778 )   $ 662     $ (6,304 )   $ 979  
Income tax effects and adjustments for non-recurring income and expenses                 144             58  
Income tax expense (benefit), as adjusted   $ 1,474     $ (7,778 )   $ 806     $ (6,304 )   $ 1,037  
                                         

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.