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Live Oak Bancshares, Inc. Reports Fourth Quarter 2020 Results

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Live Oak Bancshares, Inc.
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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.