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Live Oak Bancshares, Inc. Reports Second Quarter 2021 Results

07/21/21

WILMINGTON, N.C., July 21, 2021 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported second quarter 2021 net earnings available to common shareholders of $63.6 million, or $1.41 per diluted share. The second quarter of 2021 included a pretax gain of $44.1 million related to an investment in Greenlight Financial Technologies, Inc. (“Greenlight”) accounted for as an equity security.

“The second quarter of 2021 showed strength across all of Live Oak’s key metrics. Our loan originations exceeded $1.0 billion, core revenues continued a strong growth trend, and our efforts in financial technology lifted earnings and capital,” said Live Oak Chairman and CEO James S. (Chip) Mahan, III. “We strongly believe in our model and will continue to focus on financial technology while serving the small business communities that are the backbone of the American economy. Our teams have an unwavering dedication to small business owners and the quarter reflects our commitment to fueling their growth.”

Second Quarter 2021 Key Measures

(Dollars in thousands, except per share data)                 Increase (Decrease)          
  2Q 2021     2Q 2020     Dollars     Percent     1Q 2021  
Net interest income and servicing revenues $ 77,680     $ 47,589     $ 30,091       63 %   $ 76,384  
Net income   63,582       3,777       59,805       1,583       39,427  
Diluted earnings per share   1.41       0.09       1.32       1,467       0.88  
Non-GAAP net income (1)   63,582       3,777       59,805       1,583       39,340  
Non-GAAP diluted earnings per share (1)   1.41       0.09       1.32       1,467       0.88  
Loan and lease production:                                      
Loans and leases originated $ 1,153,693     $ 2,175,055     $ (1,021,362 )     (47 )%   $ 1,180,219  
% Fully funded   58.6 %     89.8 %   n/a     n/a       77.7 %
Total loans and leases $ 6,506,334     $ 5,626,624     $ 879,710       16 %   $ 6,533,495  
Total assets   8,243,186       8,209,154       34,032       0       8,417,875  
Total deposits   6,520,833       5,873,292       647,541       11       6,316,004  

 

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

Loans and Leases

At June 30, 2021, the total loan and lease portfolio was $6.51 billion, 15.6% above its level a year ago and 0.4% below its level at March 31, 2021. Compared to the first quarter of 2021, loans and leases held for investment decreased $15.3 million, or 0.3%, to $5.44 billion while loans held for sale decreased $11.8 million, or 1.1%, to $1.06 billion. Average loans and leases were $6.58 billion during the second quarter of 2021 compared to $6.35 billion during the first quarter of 2021. Excluding PPP, the total loan and lease portfolio increased by $1.64 billion, or 41.7%, compared the second quarter of 2020 and $490.6 million, or 9.6% compared to the first quarter of 2021.

The total loan and lease portfolio of $6.51 billion is comprised of $927.3 million of Paycheck Protection Program (“PPP”) loans, net of deferred fees and costs, at June 30, 2021, which are carried at historical cost classified as held for investment. The unguaranteed percentage of the total loan and lease portfolio is significantly influenced by the inclusion of PPP loans carrying a 100% government guarantee. The total loan and lease portfolio at June 30, 2021, and March 31, 2021, of $6.51 billion and $6.53 billion, respectively, was comprised of 44.9% and 41.6% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $1.15 billion during the second quarter of 2021, a decrease of $26.5 million, or 2.2%, from the first quarter of 2021. Excluding PPP loans in each quarter, loan and lease originations totaled $1.11 billion for the second quarter of 2021, a 65.7% increase from the prior quarter and a 159.0% increase from the second quarter of 2020.

Deposits

Total deposits increased to $6.52 billion at June 30, 2021, an increase of $647.5 million compared to June 30, 2020, and an increase of $204.8 million compared to March 31, 2021.

The increase in total deposits from the prior quarter provides support for the growth in the loan and lease portfolio, excluding PPP loans, and origination activities during the second quarter of 2021. Average total interest-bearing deposits for the second quarter of 2021 increased $482 million, or 8.2%, to $6.35 billion, compared to $5.86 billion for the first quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 103.7% for the second quarter of 2021, compared to 108.2% for the first quarter of 2021. 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 $1.01 billion at June 30, 2021, compared to $1.72 billion and $1.47 billion at June 30, 2020, and March 31, 2021, respectively. During the second quarter of 2021, the Company decreased borrowings by $453.5 million primarily by reducing the outstanding balance in the Federal Reserve’s PPPLF to $961.0 million as of June 30, 2021, compared to $1.41 billion at March 31, 2021. 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 second quarter of 2021 increased to $71.5 million compared to $40.9 million for the second quarter of 2020 and $70.0 million for the first quarter of 2021.

The increase for the second quarter of 2021 compared to the second quarter of 2020 was driven by the significant growth in the total loan and lease portfolios. The increase in net interest income comparing these two periods was also driven by fees earned through the forgiveness of PPP loans and the reduction in the average rate on interest bearing liabilities from 1.65% for the second quarter of 2020 to 0.86% for the second quarter of 2021.

The net interest margin decreased from the first quarter of 2021 by 18 basis points, from 3.81% to 3.63%. The yield on interest earnings assets for the second quarter of 2021 decreased 34 basis points compared to the first quarter of 2021 and was primarily driven by a reduction in fees recognized on PPP loans. The reduction in asset yield was mitigated by the 16 basis point reduction in the average cost of interest-bearing liabilities from 1.02% for the quarter ended March 31, 2021, to 0.86% for the quarter ended June 30, 2021. The reduction in the cost of interest-bearing liabilities compared to the first quarter of 2021 was largely the result of the maturation and repricing of the certificates of deposit portfolio.

Noninterest Income

Noninterest income for the second quarter of 2021 increased to $70.1 million compared to $22.4 million for the second quarter of 2020 and $31.1 million for the first quarter of 2021. The primary drivers behind these increased levels of noninterest income are outlined below.

The largest driver of the increase in noninterest income for the second quarter of 2021 arose from equity security investment gains of $44.3 million, principally comprised of $44.1 million associated with the Company’s investment in Greenlight. This second quarter gain in Greenlight was the result of an increase in the observable fair market value of the Company’s investment through an arm’s length sale of a portion of the Company’s shares in the investee.  

The loan servicing asset revaluation resulted in a loss of $3.2 million for the second quarter of 2021 compared to a loss of $1.6 million for the second quarter of 2020 and a gain of $1.5 million for the first quarter of 2021. The decrease in the loan servicing asset valuation from the prior quarter was largely the result of amortization of the guaranteed serviced loan portfolio.

The Company’s net gains on sales of loans increased $4.3 million compared to the first quarter of 2021 and increased $5.5 million compared to the second quarter of 2020. The average net gain on guaranteed loan sales increased to $114.8 thousand per million sold for the second quarter of 2021 versus $83.9 thousand per million sold for the first quarter of 2021. The quarter over quarter increase in premiums is largely the result of stimulus associated with the SBA program which removes the ongoing guarantee fee, typically paid by the purchaser, on loans originated under the Economic Aid Act. The volume of guaranteed loans sold decreased to $130.9 million for the second quarter of 2021 compared to $136.7 million sold in the prior quarter. The average net gain on guaranteed loan sales was $66.8 thousand per million sold for the second quarter of 2020, largely influenced by pandemic influenced market conditions.

The net gain on loans accounted for under the fair value option totaled $1.1 million for the second quarter of 2021, a $2.2 million increase compared to the net loss for the second quarter of 2020 and a $3.1 million decrease compared to the net gain of $4.2 million for the first quarter of 2021. The increase in valuation of loans accounted for under the fair value option over the second quarter of 2020 was positively impacted by continued improvement in market conditions while the decrease over the first quarter was largely related to the amortization of the portfolio.

Equity method investments loss arising from losses experienced by several of the Company’s financial technology investees totaled $2.3 million for the second quarter of 2021 compared to a loss of $1.2 million for the first quarter of 2021. Compared to the second quarter of 2020 the loss was largely unchanged.

Noninterest Expense

Noninterest expense for the second quarter of 2021 totaled $57.6 million compared to $48.1 million for the second quarter of 2020 and $58.3 million for the first quarter of 2021.Salaries and employee benefits for the second quarter of 2021 increased to $32.9 million compared to $30.8 million for the second quarter of 2020 and $31.4 million for the first quarter of 2021. The increase in salaries and employee benefits for both periods was principally related to continued investment in human resources to support strategic and growth initiatives.  

Primary components of the change in salaries and employee benefits as compared to the second quarter of 2020 were $3.2 million in increased salaries and benefits combined with the vesting of 178 thousand restricted stock unit awards during the second quarter of 2021 with market price conditions that accelerated recognition of both stock compensation expense and payroll tax expense by a combined $1.8 million, partially offset by a decrease of $3.0 million largely related to the 2020 performance bonus pool that was available to all employees other than executive officers.  

Primary components of the change in salaries and employee benefits as compared to the first quarter of 2021 was an additional bonus accrual of $4.0 million for all employees other than executive officers and executive management arising from the earnings associated with gains from the Company’s investment in Greenlight, partially offset by a decrease in payroll taxes and stock expense of $2.2 million largely related to vesting of approximately 398 thousand restricted stock unit awards that vested in the first quarter of 2021.

Travel expense for the second quarter of 2021 totaled $1.5 million compared to $364 thousand for the second quarter of 2020 and $659 thousand for the first quarter of 2021. Travel expenses increased to support the growth in loan origination volume and customer base as travel restrictions have lessened in recent months.

Professional services expense increased to $3.3 million for the second quarter of 2021 compared to $1.4 million for the second quarter of 2020 and decreased from $3.8 million for the first quarter of 2021. The increase for the second quarter of 2021 compared to the prior year was largely driven by an increase in legal fees.

Data processing expense for the second quarter of 2021 totaled $4.2 million compared to $2.8 million for the second quarter of 2020 and $3.9 million for the first quarter of 2021. The $1.5 million increase over the second quarter of 2020 was principally due to enhanced investments in the Company’s internal software technology resources.

The decrease in noninterest expense for the second quarter of 2021 compared to the first quarter of 2021 was also the result of impairment charges of $3.1 million related to renewable energy tax credit investments of $3.9 million in the first quarter of 2021.  As mentioned in the prior quarter, investments of this type generate a return primarily through the realization of income tax credits and other benefits; accordingly, impairment of the investment amount is recognized in conjunction with the realization of related tax benefits. This investment generated a federal investment tax credit of $3.4 million which is included in the Company’s estimated annual effective tax rate. Investments of this nature are part of the Company’s ongoing initiative to promote renewable energy sources.

Asset Quality

During the second quarter of 2021, the Company recognized net charge-offs for loans carried at historical cost of $2.4 million compared to net recoveries of $984 thousand in the first quarter of 2021 and net charge-offs $1.8 million in the second quarter of 2020. Net charge-offs (recoveries) as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended June 30, 2021 and March 31, 2021, was 0.21% and (0.09)%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $5.5 million and $5.8 million accounted for under the fair value option at June 30, 2021, and March 31, 2021, respectively, decreased to $22.5 million, or 0.48% of loans and leases held for investment which are carried at historical cost, at June 30, 2021, compared to $24.7 million, or 0.53%, at March 31, 2021.

The unguaranteed exposure of foreclosed assets decreased $486 thousand to $455 thousand at June 30, 2021, compared to March 31, 2021. Foreclosed assets decreased $2.4 million to $1.8 million at June 30, 2021, compared to March 31, 2021.

Provision for (Recovery of) Loan and Lease Credit Losses

The provision for loan and lease credit losses for the second quarter of 2021 totaled $7.8 million compared to a provision of $10.0 million for the second quarter of 2020 and a recovery of $873 thousand for the first quarter of 2021. The provision expense in the second quarter was primarily the result of the growing portfolio of loans and leases and the influence of current credit performance.

The allowance for credit losses on loans and leases totaled $57.8 million at June 30, 2021, compared to $52.4 million at March 31, 2021. 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 1.23% and 1.12% at June 30, 2021, and March 31, 2021, 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 continues to be heavily influenced by the 100% guaranteed PPP loans.

Income Tax

Income tax expense in the second quarter of 2021 was $12.6 million compared to an income tax expense in the second quarter of 2020 of $1.5 million and $4.2 million in the first quarter of 2021. The effective tax rate for the second quarter of 2021 of 16.5% is principally the result of the above renewable energy tax credit investments and an income tax benefits arising from the vesting of stock unit awards, as the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes.

The increase in the income tax expense for the second quarter of 2021 compared to the income tax expense for the first quarter of 2021 was primarily the product of an increase of $32.6 million in income before taxes.

Shareholders’ Equity

Total shareholders’ equity increased by $67.0 million, or 11.3%, during the second quarter of 2021. This increase was primarily due to net income, partially offset by 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 second quarter was $5.7 million.

During the second quarter of 2021, 181,926 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 $1.9 million.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (July 22, 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 5508559. 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 August 5, 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  
  2Q 2021     1Q 2021     4Q 2020     3Q 2020     2Q 2020  
Interest income                                      
Loans and fees on loans $ 84,780     $ 84,993     $ 79,166     $ 70,621     $ 62,022  
Investment securities, taxable   2,975       2,929       3,345       4,123       3,786  
Other interest earning assets   244       303       529       334       1,009  
Total interest income   87,999       88,225       83,040       75,078       66,817  
Interest expense                                      
Deposits   14,820       16,944       19,195       22,155       25,121  
Borrowings   1,717       1,331       1,544       1,560       798  
Total interest expense   16,537       18,275       20,739       23,715       25,919  
Net interest income   71,462       69,950       62,301       51,363       40,898  
Provision for (recovery of) loan and lease credit losses   7,846       (873 )     8,634       10,274       9,958  
Net interest income after provision for (recovery of) loan and lease credit losses   63,616       70,823       53,667       41,089       30,940  
Noninterest income                                      
Loan servicing revenue   6,218       6,434       6,684       6,803       6,691  
Loan servicing asset revaluation   (3,181 )     1,493       (5,756 )     2,061       (1,571 )
Net gains on sales of loans   16,234       11,929       14,976       12,690       10,695  
Net gain (loss) on loans accounted for under the fair value option   1,135       4,218       (4,759 )     3,403       (1,089 )
Equity method investments income (loss)   (2,278 )     (1,157 )     (8,739 )     (1,231 )     (2,243 )
Equity security investments gains (losses), net   44,253       105       107       14,705       161  
Gain on sale of investment securities available-for-sale, net                     1,225       734  
Lease income   2,616       2,599       2,615       2,634       2,635  
Management fee income   1,473       1,934       2,206       1,296       1,206  
Other noninterest income   3,641       3,502       3,469       3,458       5,192  
Total noninterest income   70,111       31,057       10,803       47,044       22,411  
Noninterest expense                                      
Salaries and employee benefits   32,900       31,366       29,477       24,203       30,782  
Travel expense   1,549       659       1,056       250       364  
Professional services expense   3,329       3,831       1,691       1,346       1,385  
Advertising and marketing expense   875       652       973       552       624  
Occupancy expense   2,224       2,112       2,302       2,079       1,955  
Data processing expense   4,234       3,894       3,414       3,009       2,764  
Equipment expense   4,385       4,354       4,002       4,314       4,652  
Other loan origination and maintenance expense   3,307       3,327       3,173       2,669       2,492  
Renewable energy tax credit investment impairment         3,127                    
FDIC insurance   1,704       1,765       2,147       2,095       1,721  
Other expense   3,051       3,185       4,200       2,133       1,361  
Total noninterest expense   57,558       58,272       52,435       42,650       48,100  
Income before taxes   76,169       43,608       12,035       45,483       5,251  
Income tax expense (benefit)   12,587       4,181       (17,553 )     11,703       1,474  
Net income $ 63,582     $ 39,427     $ 29,588     $ 33,780     $ 3,777  
Earnings per share                                      
Basic $ 1.48     $ 0.92     $ 0.72     $ 0.83     $ 0.09  
Diluted $ 1.41     $ 0.88     $ 0.68     $ 0.81     $ 0.09  
Weighted average shares outstanding                                      
Basic   43,173,312       42,673,615       41,320,851       40,542,696       40,506,671  
Diluted   45,062,392       44,696,850       43,333,707       41,549,632       41,122,025  
                                       

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

  As of the quarter ended  
  2Q 2021     1Q 2021     4Q 2020     3Q 2020     2Q 2020  
Assets                                      
Cash and due from banks $ 428,907     $ 630,081     $ 297,167     $ 608,826     $ 1,256,958  
Federal funds sold   9,917       5,461       21,153       25,924       91,188  
Certificates of deposit with other banks   6,000       6,500       6,500       7,250       7,250  
Investment securities available-for-sale   817,896       775,177       750,098       765,777       779,794  
Loans held for sale (1)   1,064,911       1,076,741       1,175,470       1,190,200       976,594  
Loans and leases held for investment (2)   5,441,423       5,456,754       5,144,930       5,037,094       4,650,030  
Allowance for credit losses on loans and leases   (57,848 )     (52,417 )     (52,306 )     (44,210 )     (44,083 )
Net loans and leases   5,383,575       5,404,337       5,092,624       4,992,884       4,605,947  
Premises and equipment, net   249,069       253,774       259,267       253,737       269,063  
Foreclosed assets   1,793       4,185       4,155       3,264       5,660  
Servicing assets   36,966       37,744       33,918       37,831       33,834  
Other assets   244,152       223,875       231,951       207,688       182,866  
Total assets $ 8,243,186     $ 8,417,875     $ 7,872,303     $ 8,093,381     $ 8,209,154  
Liabilities and Shareholders’ Equity                                      
Liabilities                                      
Deposits:                                      
Noninterest-bearing $ 89,768     $ 75,794     $ 75,287     $ 58,771     $ 53,938  
Interest-bearing   6,431,065       6,240,210       5,637,541       5,647,273       5,819,354  
Total deposits   6,520,833       6,316,004       5,712,828       5,706,044       5,873,292  
Borrowings   1,012,431       1,465,961       1,542,093       1,747,083       1,721,029  
Other liabilities   52,575       45,550       49,532       56,090       66,398  
Total liabilities   7,585,839       7,827,515       7,304,453       7,509,217       7,660,719  
Shareholders’ equity                                      
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                            
Class A common stock (voting)   299,809       298,525       298,890       325,753       319,542  
Class B common stock (non-voting)   5,404       7,330       11,729       26,106       28,753  
Retained earnings   339,011       275,377       235,724       207,400       174,837  
Accumulated other comprehensive income   13,123       9,128       21,507       24,905       25,303  
Total shareholders' equity   657,347       590,360       567,850       584,164       548,435  
Total liabilities and shareholders’ equity $ 8,243,186     $ 8,417,875     $ 7,872,303     $ 8,093,381     $ 8,209,154  

 

(1) Includes $29.0 million, $35.9 million, $36.1 million, $30.4 million and $32.1 million measured at fair value for the quarters ended June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020, respectively.
   
(2) Includes $743.2 million, $790.8 million, $815.4 million, $845.7 million and $834.6 million measured at fair value for the quarters ended June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020, respectively.
   

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

  Six months ended  
  June 30, 2021     June 30, 2020  
Interest income              
Loans and fees on loans $ 169,773     $ 120,983  
Investment securities, taxable   5,904       7,548  
Other interest earning assets   547       1,759  
Total interest income   176,224       130,290  
Interest expense              
Deposits   31,764       48,376  
Borrowings   3,048       855  
Total interest expense   34,812       49,231  
Net interest income   141,412       81,059  
Provision for loan and lease credit losses   6,973       21,750  
Net interest income after provision for loan and lease credit losses   134,439       59,309  
Noninterest income              
Loan servicing revenue   12,652       13,113  
Loan servicing asset revaluation   (1,688 )     (6,263 )
Net gains on sales of loans   28,163       21,807  
Net gain (loss) on loans accounted for under the fair value option   5,353       (11,727 )
Equity method investments income (loss)   (3,435 )     (4,721 )
Equity security investments gains (losses), net   44,358       97  
Gain on sale of investment securities available-for-sale, net         655  
Lease income   5,215       5,259  
Management fee income   3,407       2,850  
Other noninterest income   7,143       7,083  
Total noninterest income   101,168       28,153  
Noninterest expense              
Salaries and employee benefits   64,266       58,845  
Travel expense   2,208       2,145  
Professional services expense   7,160       3,322  
Advertising and marketing expense   1,527       1,985  
Occupancy expense   4,336       4,376  
Data processing expense   8,128       5,921  
Equipment expense   8,739       9,287  
Other loan origination and maintenance expense   6,634       4,948  
Renewable energy tax credit investment impairment   3,127        
FDIC insurance   3,469       3,231  
Other expense   6,236       3,531  
Total noninterest expense   115,830       97,591  
Income (loss) before taxes   119,777       (10,129 )
Income tax expense (benefit)   16,768       (6,304 )
Net income (loss) $ 103,009     $ (3,825 )
Earnings (loss) per share              
Basic $ 2.40     $ (0.10 )
Diluted $ 2.29     $ (0.10 )
Weighted average shares outstanding              
Basic   42,924,844       40,420,425  
Diluted   44,881,002       41,098,037  
               

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

  As of and for the three months ended  
  2Q 2021     1Q 2021     4Q 2020     3Q 2020     2Q 2020  
Income Statement Data                                      
Net income $ 63,582     $ 39,427     $ 29,588     $ 33,780     $ 3,777  
Per Common Share                                      
Net income, basic $ 1.48     $ 0.92     $ 0.72     $ 0.83     $ 0.09  
Net income, diluted   1.41       0.88       0.68       0.81       0.09  
Dividends declared   0.03       0.03       0.03       0.03       0.03  
Book value   15.19       13.74       13.38       14.69       13.53  
Tangible book value (1)   15.10       13.65       13.28       14.30       13.43  
Performance Ratios                                      
Return on average assets (annualized)   3.01 %     1.98 %     1.49 %     1.67 %     0.22 %
Return on average equity (annualized)   41.30       26.89       19.86       23.64       2.68  
Net interest margin   3.63       3.81       3.33       2.77       2.56  
Efficiency ratio (1)   40.66       57.69       71.73       43.89       76.87  
Noninterest income to total revenue   49.52       30.75       14.78       47.15       34.64  
Selected Loan Metrics                                      
Loans and leases originated $ 1,153,693     $ 1,180,219     $ 808,010     $ 966,499     $ 2,175,055  
Guaranteed loans sold   130,858       136,747       110,588       114,731       154,980  
Average net gain on sale of guaranteed loans   114.77       83.92       115.94       110.19       66.76  
Adjusted average net gain on sale of guaranteed loans (2)   114.77       83.92       114.07       107.99       65.94  
Outstanding balance of sold loans serviced:                                      
Guaranteed   2,694,931       2,843,963       2,819,625       2,878,664       2,840,429  
Unguaranteed   439,137       372,764       385,998       264,829       231,602  
Total   3,134,068       3,216,727       3,205,623       3,143,493       3,072,031  
Asset Quality Ratios                                      
Allowance for credit losses to loans and leases held for investment (4)   1.23 %     1.12 %     1.21 %     1.05 %     1.16 %
Net charge-offs (recoveries) (4) $ 2,417     $ (984 )   $ 537     $ 10,147     $ 1,781  
Net charge-offs (recoveries) to average loans and leases held for investment (3) (4)   0.21 %     (0.09 )%     0.05 %     1.03 %     0.21 %
Nonperforming loans and leases (4) (5) $ 48,009     $ 57,371     $ 46,110     $ 46,749     $ 40,275  
Foreclosed assets   1,793       4,185       4,155       3,264       5,660  
Nonperforming loans and leases (unguaranteed exposure) (4) (5)   22,458       24,738       20,078       20,153       13,122  
Foreclosed assets (unguaranteed exposure)   455       941       935       642       1,199  
Nonperforming loans and leases not guaranteed by the SBA and foreclosures (4) (5) $ 22,913     $ 25,679     $ 21,013     $ 20,795     $ 14,321  
Nonperforming loans, leases and foreclosures, not guaranteed by the SBA, to total assets (4) (5)   0.31 %     0.34 %     0.30 %     0.29 %     0.20 %
Nonperforming loans accounted for under the fair value option $ 39,826     $ 40,234     $ 35,499     $ 47,434     $ 46,221  
Nonperforming loans accounted for under the fair value option (unguaranteed exposure)   5,503       5,838       5,387       7,495       6,352  
Capital Ratios                                      
Common equity tier 1 capital (to risk-weighted assets)   12.45 %     12.16 %     12.15 %     13.09 %     12.84 %
Total capital (to risk-weighted assets)   13.63       13.32       13.39       14.19       13.99  
Tier 1 risk based capital (to risk-weighted assets)   12.45       12.16       12.15       13.09       12.84  
Tier 1 leverage capital (to average assets)   8.70       8.50       8.40       8.44       7.96  



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     Three Months Ended  
  June 30, 2021     March 31, 2021  
  Average Balance     Interest     Average Yield/Rate     Average Balance     Interest     Average Yield/Rate  
Interest earning assets:                                              
Interest earning balances in other banks $ 514,232     $ 234       0.18 %   $ 331,260     $ 297       0.36 %
Federal funds sold   29,199       10       0.14       28,202       6       0.09  
Investment securities   764,017       2,975       1.56       736,158       2,929       1.61  
Loans held for sale   1,134,259       15,216       5.38       1,158,844       15,077       5.28  
Loans and leases held for investment (1)   5,447,839       69,564       5.12       5,186,963       69,916       5.47  
Total interest earning assets   7,889,546       87,999       4.47       7,441,427       88,225       4.81  
Less: allowance for credit losses on loans and
leases
  (51,994 )                     (52,317 )                
Non-interest earning assets   623,895                       593,573                  
Total assets $ 8,461,447                     $ 7,982,683                  
Interest bearing liabilities:                                              
Interest bearing checking $ 60,439     $ 86       0.57 %   $ 250,005     $ 356       0.58 %
Savings   3,101,733       4,309       0.56       2,356,598       3,512       0.60  
Money market accounts   104,826       82       0.31       105,753       83       0.32  
Certificates of deposit   3,078,789       10,343       1.35       3,151,575       12,993       1.67  
Total interest bearing deposits   6,345,787       14,820       0.94       5,863,931       16,944       1.17  
Borrowings   1,368,742       1,717       0.50       1,429,177       1,331       0.38  
Total interest bearing liabilities   7,714,529       16,537       0.86       7,293,108       18,275       1.02  
Non-interest bearing deposits   85,824                       63,917                  
Non-interest bearing liabilities   45,309                       39,155                  
Shareholders' equity   615,785                       586,503                  
Total liabilities and shareholders' equity $ 8,461,447                     $ 7,982,683                  
Net interest income and interest rate spread         $ 71,462       3.61 %           $ 69,950       3.79 %
Net interest margin                   3.63                       3.81  
Ratio of average interest-earning assets to average interest-bearing liabilities                   102.27 %                     102.03 %

 

(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  
  2Q 2021     1Q 2021     4Q 2020     3Q 2020     2Q 2020  
Total shareholders’ equity $ 657,347     $ 590,360     $ 567,850     $ 584,164     $ 548,435  
Less:                                      
Goodwill   1,797       1,797       1,797       1,797       1,797  
Other intangible assets   2,103       2,141       2,179       2,218       2,294  
Tangible shareholders’ equity (a) $ 653,447     $ 586,422     $ 563,874     $ 580,149     $ 544,344  
Shares outstanding (c)   43,264,460       42,951,344       42,452,446       40,575,982       40,525,632  
Total assets $ 8,243,186     $ 8,417,875     $ 7,872,303     $ 8,093,381     $ 8,209,154  
Less:                                      
Goodwill   1,797       1,797       1,797       1,797       1,797  
Other intangible assets   2,103       2,141       2,179       2,218       2,294  
Tangible assets (b) $ 8,239,286     $ 8,413,937     $ 7,868,327     $ 8,089,366     $ 8,205,063  
Tangible shareholders’ equity to tangible assets (a/b)   7.93 %     6.97 %     7.17 %     7.17 %     6.63 %
Tangible book value per share (a/c) $ 15.10     $ 13.65     $ 13.28     $ 14.30     $ 13.43  
Efficiency ratio:                                      
Noninterest expense (d) $ 57,558     $ 58,272     $ 52,435     $ 42,650     $ 48,100  
Net interest income   71,462       69,950       62,301       51,363       40,898  
Noninterest income   70,111       31,057       10,803       47,044       22,411  
Less: gain (loss) on sale of securities                     1,225       734  
Adjusted operating revenue (e) $ 141,573     $ 101,007     $ 73,104     $ 97,182     $ 62,575  
Efficiency ratio (d/e)   40.66 %     57.69 %     71.73 %     43.89 %     76.87 %
                                       

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

  Three Months Ended     Six Months Ended  
  2Q 2021     1Q 2021     2Q 2020     2Q 2021     2Q 2020  
Reconciliation of net income (loss) to non-GAAP net income (loss):                                      
Net income (loss) $ 63,582     $ 39,427     $ 3,777     $ 103,009     $ (3,825 )
Gain on sale of aircraft         (114 )           (114 )      
Income tax effects and adjustments for non-GAAP items *         27             27        
Non-GAAP net income (loss) $ 63,582     $ 39,340     $ 3,777     $ 102,922     $ (3,825 )
* Estimated at 24.0%                                      
Non-GAAP earnings (loss) per share:                                      
Basic $ 1.48     $ 0.92     $ 0.09     $ 2.40     $ (0.10 )
Diluted $ 1.41     $ 0.88     $ 0.09     $ 2.29     $ (0.10 )
Weighted-average shares outstanding:                                      
Basic   43,173,312       42,673,615       40,506,671       42,924,844       40,420,425  
Diluted   45,062,392       44,696,850       41,122,025       44,881,002       41,098,037  
Reconciliation of financial statement line items as reported to non-GAAP:                                      
Noninterest income, as reported $ 70,111     $ 31,057     $ 22,411     $ 101,168     $ 28,153  
Gain on sale of aircraft         (114 )           (114 )      
Noninterest income, non-GAAP $ 70,111     $ 30,943     $ 22,411     $ 101,054     $ 28,153  
Income (loss) before taxes, as reported $ 76,169     $ 43,608     $ 5,251     $ 119,777     $ (10,129 )
Gain on sale of aircraft         (114 )           (114 )      
Income (loss) before taxes, non-GAAP $ 76,169     $ 43,494     $ 5,251     $ 119,663     $ (10,129 )
Income tax expense (benefit), as reported $ 12,587     $ 4,181     $ 1,474     $ 16,768     $ (6,304 )
Income tax effects and adjustments for non-GAAP items         (27 )           (27 )      
Income tax expense (benefit), non-GAAP $ 12,587     $ 4,154     $ 1,474     $ 16,741     $ (6,304 )
                                       

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.