Live Oak Bancshares, Inc. · NYSE:LOB
Live Oak Bancshares — Q4 2020 Earnings Presentation
37 slides from Live Oak Bancshares's earnings presentation, Jan 28, 2021
Slide 1: Fourth Quarter 2020
FOURTH QUARTER 2020 January 28, 2021 ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS Information in this presentation may contain “forward-looking statements” within the Private Securities Litigation Reform Act of 1995. These statements generally relate to our financial condition, results of operations, plans, objectives, future performance or business and
Slide 3: Agenda
3 AGENDA 1. It Starts and Ends with Safety and Soundness Government assistance is working and more help is on the way. 2. A discussion of real core earnings growth 3. Technology Wins Continue 4. Bank performance ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 4: Credit & Fair Value Metrics
4 CREDIT & FAIR VALUE METRICS Ratios1 12/31/2019 3/31/2020 06/30/2020 09/30/2020 12/31/2020 Past Due > 30 Days2 0.44% 0.54% 0.00% 0.00% 0.05% Watchlist Loans and Leases3 6.28% 6.45% 6.46% 7.97% 9.61% Classified Assets4 1.85% 1.88% 1.66% 2.32% 2.18% Non-Accruals5 0.86% 1.06% 1.00% 1.30% 1.07% Net Cha
Slide 5: Loan & Lease Portfolio Characteristics
5 LOAN & LEASE PORTFOLIO CHARACTERISTICS % of Total HFS $ in millions HFS & HFI and HFI 30-89 Past Due Criticized and Vertical Unguaranteed1 Unguaranteed and Accruing % Classified2 % Non-Accrual % Healthcare $268.7 10.4% 0.0% 10.3% 1.8% Exposures 5 Largest Agriculture 265.0 10.3% 0.2% 3.7% 0.4% Vete
Slide 6: Credit Reserves & Fair Value Mark
6 CREDIT RESERVES & FAIR VALUE MARK Total ACL & FV % on $ on $ in millions HFI Total ACL3 & Mark/Total HFI Payment Payment % Receiving Vertical Unguaranteed1 FV Mark4 Unguaranteed1 Deferral1,5,6 Deferral1,5,6 Subsidy2,5 Top 5 Largest Healthcare $268.7 $6.0 2.2% 19.3% $129.7 23.4% Verticals by Exposu
Slide 7: Keeping Our Customers Close
7 KEEPING OUR CUSTOMERS CLOSE Customer Site Visits Q4 2020 HFS & HFI % of HFS & HFI Vertical Unguaranteed1 Unguaranteed Visited Hotels $134.8 46.0% Wine & Craft Beverage 104.1 25.5% Educational Services 94.2 1.6% Entertainment Centers 55.3 54.0% Fitness Centers 30.0 6.9% Quick Service Restaurants 20
Slide 8: FY 2020 Loan & Lease Originations
8 FY 2020 LOAN & LEASE ORIGINATIONS Growth & Diversification Loan & Lease Originations, excluding PPP ($ in millions) Average Quarterly Average Quarterly Originations Originations $879 million $489 million FY 2020 FY 2019 2.6% 34% Growth 8.8% 15.1% FY 2019 vs. FY 2020 34.6% 8.0% $2.00 billion to $2.
Slide 9: Q4 Diversified Loan & Lease Originations
9 Q4 DIVERSIFIED LOAN & LEASE ORIGINATIONS Growth & Diversification Q4 Originations $808.0 million $553.9 45 $1.4 Q4 2020 Originations by Year Vertical Started ($ in millions) million States & million 2008 – 2016 $331.8 Total Unguaranteed Territories Average Unguaranteed 2017 – 2020 $476.2 Balance B
Slide 10: Growth in Earnings & Assets
10 GROWTH IN EARNINGS & ASSETS Non-GAAP pre-tax pre-provision income, as adjusted for PPP activities1 ($ in thousands) ($ in millions) Total loan and lease portfolio, excluding PPP1 $27,786 25,000 $26,598 5,000 $4,822 $4,514 20,000 4,000 $3,939 $3,814 $3,594 $17,230 $17,497 15,000 3,000 $13,407 10,0
Slide 11: Technology Investments
11 TECHNOLOGY INVESTMENTS Live Oak Cash $7.8 $2.1 $2.2 $1.5 $5.0 $0.0 Investment1 million million million million million million Live Oak Carrying $1.4 $0.0 $2.9 $1.5 $22.4 $53.3 Value million million million million million million Estimated Implied $28.9 $13.9 $4.4 $1.4 $38.2 $68.3 Value of Share
Slide 12: Performance
PERFORMANCE ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary
Slide 13: Our Focus
13 OUR FOCUS KEEPING OUR SAFETY & WELL-BEING SUPPORTING SMALL DELIVERING CUSTOMERS CLOSE OF OUR EMPLOYEES & BUSINESSES TECHNOLOGY & PRODUCTS COMMUNITIES Hybrid remote work model Continue to provide capital Business Savings and Continued Outreach & CDs Launch to small business owners Engagement Healt
Slide 14: Q4 Balance Sheet Highlights
14 Q4 BALANCE SHEET HIGHLIGHTS Q4 Q3 Q4 Change from Q4 2020 Notes $ in billions unless otherwise indicated 2019 2020 2020 Prior Quarter Total Loans and Leases Loan growth driven by strong and $3.59 $4.51 $4.82 7% Excluding PPP1 diverse origination and slower prepayment speeds Managed Portfolio $6.56
Slide 15: Q4 Income Statement Highlights
15 Q4 INCOME STATEMENT HIGHLIGHTS Q4 Q3 Q4 Change from Q4 2020 Notes $ in millions 2019 2020 2020 Prior Quarter Loan & Lease Originations, $524 $949 $808 15% Loan growth and deposit repricing excluding PPP drove NII growth and margin expansion Net Interest Income , as adjusted for PPP Activities1 $4
Slide 16: Notable Events – Q4
16 NOTABLE EVENTS – Q4 Event Comments Financial Impact 2.5 million RSUs with price conditions between $34 - $40 vested in Q4 Market Priced RSU Non-interest expense: $4.1 million 2020 Tax benefit: $22.1 million Vesting Additional 201 thousand with $45 price condition vested in Q1 2021 Equity Impact:
Slide 17: Market Price RSUs Impact
17 MARKET PRICE RSUS IMPACT Vested in Q4 2020 Vested Since Dec. 31, 2020 Remaining (Unvested) 2.5 million 201 thousand 383 thousand Restricted Stock Unit Awards $34 to $40 per share $45 per share $48 to $55 per share Market Price Condition Market Price Condition Market Price Condition ~200 - 225 tho
Slide 18: PPP Impact
18 PPP IMPACT ($ in millions) Q2 2020 Q3 2020 Q4 2020 Total Assets, as reported $8,209.2 $8,093.4 $7,872.3 Total Adjustments for PPP Activities1 2,625.5 2,218.8 1,510.2 Total Assets, as adjusted to exclude PPP Activities 5,583.6 5,874.6 6,362.1 $29.6 million net deferred fees on balance sheet at Dec
Slide 19: Pivoting to SBA Program Enhancements
19 PIVOTING TO SBA PROGRAM ENHANCEMENTS • Economic Aid Act enacted December 27, 2020 • Specific guidance began January 19, 2021, and continues for the implementation of all enhancements • Additional clarification regarding PPP lending is still being issued SBA Flagship Program PPP Program • SBA 7a p
Slide 20: Non-GAAP Pre-Tax Pre-Provision Income
20 NON-GAAP PRE-TAX PRE-PROVISION INCOME ($ in thousands) Q4 2019 Q3 2020 Q4 2020 FY 2019 FY 2020 Net interest income, as reported 38,011 51,363 62,301 140,082 194,723 Less PPP loan interest income - 4,403 4,269 - 11,989 Less loan deferred fees & costs amortized into interest income, net - 9,183 13,
Slide 21: Franchise Fundamentals
21 FRANCHISE FUNDAMENTALS 1 34% Q4 2020 vs Q4 2019 Total Loan and Lease Portfolio, excluding PPP 7% Q4 2020 vs Q3 2020 Total Loan and Lease Portfolio, excluding PPP $1.7 billion Guaranteed Loans Eligible for Sale 1.) See Appendix for Reconciliation of non-GAAP items to reported balances ©2021 Live O
Slide 22: Guaranteed Loan Sales
22 GUARANTEED LOAN SALES For the year ended December 31, 2020 SBA Guaranteed Loans $431.4 million sold $1.40 billion became eligible for sale 69.2% Retention USDA Guaranteed Loans $111.2 million sold $136.9 million became eligible for sale 18.8% Retention ©2021 Live Oak Banking Company. All rights r
Slide 23: Expense Discipline
23 EXPENSE DISCIPLINE 1 $48.0 million Non-GAAP noninterest expense, as adjusted for PPP activities1 0.76% Non-GAAP noninterest expense, as adjusted for PPP activities to Total assets, as adjusted to exclude PPP activities1 1.) See Appendix for reconciliation of non-GAAP items to reported balances ©2
Slide 24: Funding Model Excels in Current Environment
24 FUNDING MODEL EXCELS IN CURRENT ENVIRONMENT $4.34 62.1 billion thousand Retail Deposits Open Accounts As of December 31, 2020 As of December 31, 2020 7 95.0% Basis points Savings Account Noninterest Cost of Retention Funds1 YTD 2020 Q4 2020 89% 57% Retail Deposits Maturing CD Growth Balance Reten
Slide 25: Deposit Repricing Continues
25 DEPOSIT REPRICING CONTINUES Last 12 months: Deposit Repricing • Consumer Savings rate reduced by 125bps to 0.60%1 2 • 12-month CD (comprising 59% of the Retail CD portfolio balance) rate offering reduced by 150bps to 0.65%1 Through Q4 2021: Deposit Maturities ($ in millions) • Retail CD Portfolio
Slide 26: NIM Expansion & Liquidity Deployment
26 NIM EXPANSION & LIQUIDITY DEPLOYMENT • NIM expansion driven by: • Liquidity, as reported, returned to pre-PPP levels • Continued excess liquidity deployment driven by strong H2 2020 loan production • PPP forgiveness and fee recognition • Deposit rate reductions 1 1 2 1.) Estimated Core NIM and Ad
Slide 27: Capital & Liquidity
27 CAPITAL & LIQUIDITY $1.07 $2.27 $1.68 Government Guaranteed2 vs. Non-Government Guaranteed Assets (as adjusted to exclude PPP activities) billion billion billion Cash & Investments Government Eligible for Sale Guaranteed Loans Government (excl. PPP)1 Guaranteed Loans 2 52.6% 12.2% 18.8% Cash, Inv
Slide 28: Tier Leverage Impacts
28 TIER 1 LEVERAGE IMPACTS 1 2 1 2 1 2 1.) Average PPP loan balance exclusion from capital ratios dependent on average balance pledged to Federal Reserve’s Payroll Protection Program Liquidity Facility. The Bank’s average PPPLF balance in Q2 2020 was $644 million, in Q3 2020 was $1.73 billion, and i
Slide 29: High Performing Bank Metrics
29 HIGH PERFORMING BANK METRICS Q3 2020 Trend Asset Size - $ 8.0 $ 7.0 $7.87 $8.09B ($ in billion) + 3.75% 3.50% NIM 3.33% 2.77% Noninterest Income + 25% 30% 14.8% 47.8% to Total Income 1 - 60% Efficiency Ratio1 71.7% 63.4% 43.9% - 1.75% 1.25% ROA 1.49% 1.67% - 15% 20% ROE 19.9% 23.6% - 8.5% 10% Tie
Slide 30: New Deposit Platform Update
30 NEW DEPOSIT PLATFORM UPDATE For the quarter ended Sep 30, 2020 Dec 31, 2020 Small Business Savings & CDs Customers 182 740 Account Balance $12.1 $61.6 million million ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary
Slide 31: Platform for Growth in Small Business Banking
31 PLATFORM FOR GROWTH IN SMALL BUSINESS BANKING TODAY Better Ways to Move Easier Access TOMORROW • Extensive small business Money to Capital • Small dollar lending expertise • Channel partnerships • Vertical knowledge • Payments • Experience with most Information for • Data / Actionable Insights th
Slide 32: ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential
32 ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary
Slide 33: Appendix
33 APPENDIX ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary
Slide 34: Appendix
34 APPENDIX Total Assets, as adjusted to exclude PPP activities Reconciliation of reported balances to exclude PPP activities ($ in thousands) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Loans held for sale, as reported 966,447 996,050 976,594 1,190,200 1,175,470 Loans and leases held for investment, as
Slide 35: Appendix
Reconciliation of reported balances to non-GAAP items 35 APPENDIX ($ in thousands) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2019 FY 2020 Net interest income, as reported 38,011 40,161 40,898 51,363 62,301 140,082 194,723 Less PPP loan interest income - - 3,317 4,403 4,269 - 11,989 Less loan deferr
Slide 36: Appendix
36 APPENDIX ($ in thousands) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Efficiency Ratio Noninterest Expense 44,410 49,491 48,100 42,650 52,435 Net Interest Income 38,011 40,161 40,898 51,363 62,301 Noninterest Income 20,125 5,742 22,411 47,044 10,803 Less: gain (loss) on sale of securities 528 (79) 73
Slide 37: Deposits COF Breakdown
37 DEPOSITS COF BREAKDOWN ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary