Live Oak Bancshares, Inc. · NYSE:LOB
Live Oak Bancshares — Q1 2021 Earnings Presentation
40 slides from Live Oak Bancshares's earnings presentation, Apr 22, 2021
Slide 1: First Quarter 2021
FIRST QUARTER 2021 April 22, 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. Kel Landis 2. Safety and Soundness 3. Earnings & Growth 4. Technology Investments and Canapi Progress 5. Bank Performance 6. ESG Update ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary
Slide 4: Q1 2021 Performance
4 Q1 2021 PERFORMANCE As reported Live Oak Bancshares, Inc. ($ in thousands, except per share data) Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Net Interest Income $ 40,161 $ 40,898 $ 51,363 $ 62,301 $ 69,950 Provision for (Recovery of) Loan and Lease Credit Losses 11,792 9,958 10,274 8,634 (873) Nonint
Slide 5: Site Visits
5 SITE VISITS $ in millions No. of Site Site Visits No. of Site Visits Site Visits Q4 Visits YTD YTD April % Visited Q4 2020 + YTD 2020 + YTD % Visited Vertical HFI Unguaranteed1 April 2021 2021 (by $) April 2021 April 2021 (by $) Hotel $112.9 16 $63.1 55.9% 25 $107.7 95.4% WCB 112.2 20 29.9 26.6% 3
Slide 6: First Quarter Comparisons
6 FIRST QUARTER COMPARISONS Growth & Diversification 34% Growth ~$280 Q1 2020 to Q1 2021 million $500.6 million to $672.4 million Month-to-Date April 21, 2021 Originations excluding PPP Originations excluding PPP ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 7: Robust Pipeline Growth
7 ROBUST PIPELINE GROWTH 1 Lending Pipeline ($) 60% March 2021 vs March 2020 Pipeline from Proposal Stage through Underwriting Stage 65% March 2021 vs March 2020 Pipeline from Credit Stage through Closing Stage 1.) Graph is a proportional illustration of total pipeline as of the end of each period p
Slide 8: Q1 Diversified Loan & Lease Originations
8 Q1 DIVERSIFIED LOAN & LEASE ORIGINATIONS Growth & Diversification Q1 2021 Originations by Year Vertical Started ($ in millions) 2008 – 2017 $392.2 After 2017 $280.2 45 States & Territories $672.4 $362.1 $1.0 million million million Loan & Lease Originations Total Unguaranteed Balance Average Ungua
Slide 9: Technology Investments
9 TECHNOLOGY INVESTMENTS $ in millions Live Oak Cash $13.4 $2.1 $2.2 $1.5 $5.0 $0.0 Investment Live Oak Carrying $6.0 $0.0 $2.9 $1.5 $22.4 $53.9 Value Estimated Implied $41.8 $13.9 $4.4 $1.4 $38.2 $68.3 Value1 of Shares Owned by Live Oak vs. Q4 2020 $28.9 $13.9 $4.4 $1.4 $38.2 $68.3 $24.2 $86.7 $168
Slide 10: Non-GAAP Pre-Tax Pre-Provision Income
10 NON-GAAP PRE-TAX PRE-PROVISION INCOME 1 1 152.0% Q1 2021 vs Q1 2020 Non-GAAP pre-tax pre- provision income 36.4% Q1 2021 vs Q1 2020 Non-GAAP pre-tax pre- provision income, as adjusted for PPP activities 1.) See Appendix for reconciliation of reported balances to non-GAAP items ©2021 Live Oak Bank
Slide 11: Performance
PERFORMANCE ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary
Slide 12: Our Focus Remains Consistent
12 OUR FOCUS REMAINS CONSISTENT KEEPING OUR SAFETY & WELL-BEING SUPPORTING SMALL DELIVERING CUSTOMERS CLOSE OF OUR EMPLOYEES & BUSINESSES TECHNOLOGY & PRODUCTS COMMUNITIES Hybrid Remote Work Model Dedicated to Providing Business Savings and Continued Outreach & CDs Launch Capital to Small business E
Slide 13: Q1 Balance Sheet Highlights
13 Q1 BALANCE SHEET HIGHLIGHTS Q1 Q4 Q1 Change from Change from $ in billions unless otherwise indicated 2020 2020 2021 Prior Quarter Prior Year Total Loans and Leases $3.81 $4.82 $5.09 5.5% 33.4% Excluding PPP1 Managed Portfolio $6.80 $8.03 $8.31 3.5% 22.2% Excluding PPP2,1 Eligible for Sale $0.93
Slide 14: Q1 Income Statement Highlights
14 Q1 INCOME STATEMENT HIGHLIGHTS Q1 Q4 Q1 Change from Change from $ in millions 2020 2020 2021 Prior Quarter Prior Year Loan & Lease Originations, $501 $808 $672 16.8% 34.3% excluding PPP Net Interest Income , as adjusted for PPP Activities1 $46.6 $53.8 $57.5 7.0% 23.5% + Servicing Revenue Net Gain
Slide 15: Notable Events – Q1
15 NOTABLE EVENTS – Q1 Event Comments Q1 Financial Impact The End of Market Price Non-interest expense: $2.6 million 398 thousand RSUs vested RSUs Final 178 thousand RSUs vested in Q2 2021 Tax benefit: $4.3 million Equity Impact: $(9.7) million Reduces net gain on sale by approximately Discontinued
Slide 16: Market Price RSUs Impact
16 MARKET PRICE RSUS IMPACT Vested in Q4 2020 Vested in Q1 2021 Vested in April 2021 2.5 million 398 thousand 178 thousand Restricted Stock Unit Awards $34 to $40 per share $45 to $50 per share $55 per share Market Price Condition Market Price Condition Market Price Condition Net Settlement 1.4 mill
Slide 17: PPP Impact
17 PPP IMPACT ($ in millions) Q2 2020 Q3 2020 Q4 2020 Q1 2021 Total Assets, as reported $8,209.2 $8,093.4 $7,872.3 $8,417.9 Total Adjustments for PPP Activities1 2,625.5 2,218.8 1,510.2 1,475.1 Total Assets, as adjusted to exclude PPP Activities 5,583.6 5,874.6 6,362.1 6,942.8 $33.7 million net defe
Slide 18: Franchise Fundamentals
18 FRANCHISE FUNDAMENTALS 1 27% Q1 2021 vs Q1 2020 Net Interest Income, as adjusted for PPP activities 8% Q1 2021 vs Q4 2020 Net Interest Income, as adjusted for PPP activities 33% Q1 2021 vs Q1 2020 Total Loan and Lease Portfolio, excluding PPP 6% Q1 2021 vs Q4 2020 Total Loan and Lease Portfolio,
Slide 19: Guaranteed Loan Sales
19 GUARANTEED LOAN SALES • The secondary market for SBA and USDA loans remains strong • Discontinuing fair value election for guaranteed loans sold contributed to the gain on sale decline from the prior quarter • Sale of fixed rate loans in the quarter to manage interest rate risk drove down gain pe
Slide 20: Guaranteed Loan Sales
20 GUARANTEED LOAN SALES Secondary Market Remains Strong Long Term Sale Targets Remain Consistent 125 10 year 25 year % Sold Q1 2021 Last 5 Quarters Target 120 SBA 46% 33% 35% 115 USDA 69% 78% 100% 110 105 Dec Ma r Loan Portfolio The fair value accounting change reduced gain on sale by ~$2.7 million
Slide 21: Investing in Growth
21 INVESTING IN GROWTH 1 $53.0 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 ©
Slide 22: Funding Model Excels in Current Environment
22 FUNDING MODEL EXCELS IN CURRENT ENVIRONMENT $4.80 64.2 billion thousand Retail Deposits Open Accounts As of March 31, 2021 As of March 31, 2021 9 108% Basis points Retail Deposits Noninterest Cost of Growth Funds1 Since Q4 2018 Q1 2021 Retail Savings 1.66% 1.12% 0.71% 0.61% 0.60% Cost of Funds Re
Slide 23: Deposit Repricing Continues
23 DEPOSIT REPRICING CONTINUES Since December 31, 2019: Deposit Repricing • Consumer Savings rate reduced by 125bps to 0.60%1 2 • 12-month CD (comprising 59% of the Retail CD portfolio balance) rate offering reduced by 150bps to 0.65%1 Next 12 Months: Deposit Maturities ($ in millions) • Retail CD P
Slide 24: NIM Expansion & Liquidity Deployment
24 NIM EXPANSION & LIQUIDITY DEPLOYMENT • Reported and Adjusted NIM expansion driven by: • PPP forgiveness and fee recognition • Average liquidity continues to trend towards pre- • Deposit rate reductions through Q1 2021 CD PPP levels as excess is deployed into lending maturity event opportunities •
Slide 25: Non-GAAP Pre-Tax Pre-Provision Income
25 NON-GAAP PRE-TAX PRE-PROVISION INCOME ($ in thousands) Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Net interest income, as reported 40,161 40,898 51,363 62,301 69,950 Less PPP loan interest income - 3,317 4,403 4,269 3,567 Less loan deferred fees & costs amortized into interest income, net - 5,380 9,
Slide 26: Adjusted Pre-Tax, Pre-Provision, Excluding PPP Activities
26 ADJUSTED PRE-TAX, PRE-PROVISION, EXCLUDING PPP ACTIVITIES1 1 • 27.2% YoY Q1 Net Interest Income Growth • 36.4% YoY growth in Q1 Non-GAAP pre-tax pre- provision income, as adjusted for PPP activities1 1 • 8.5% QoQ Net Interest Income Growth • -14.1% QoQ decline in Non-GAAP pre-tax pre- provision i
Slide 27: Capital & Liquidity
27 CAPITAL & LIQUIDITY $1.42 $2.37 $1.75 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 54.3% 12.2% 22.4% Cash, Inv
Slide 28: Tier Leverage Impacts
28 TIER 1 LEVERAGE IMPACTS 1 1 2 2 1.) Direct impact to earnings from PPP loan fee recognition and interest income. 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
Slide 29: High Performing Bank Metrics
29 HIGH PERFORMING BANK METRICS Q4 2020 Trend Asset Size + $ 8.0 3.50% $ 7.0 $8.42 $7.87B ($ in billion) + 3.75% NIM 3.81% 3.33% Efficiency Ratio1 + 60% 57.7% 71.7% 1.75% + 1.25% ROA 1.98% 1.49% + 20% ROE 15% 26.9% 19.9% + 10% Tier 1 Leverage 8.50% 8.40% Total loan and lease portfolio, 20% 15% exclu
Slide 30: New Deposit Platform Update
30 NEW DEPOSIT PLATFORM UPDATE For the quarter ended 1 Sep 30, 2020 Dec 31, 2020 Mar 31, 2021 Accounts 182 740 1,905 Account Balance $12.1 $61.6 $156.1 million million million 1.) Includes 228 Friends and Family Pilot Checking Accounts with Balances totaling $0.2 million as of March 31, 2021 ©2021 L
Slide 31: ESG Efforts
31 ESG EFFORTS Inaugural Environmental, Social & Governance Report Employees Customers Sustainability Commitment to HBCU Serving underserved borrowers Bioenergy and solar lending to recruitment and affinity across the country support the grid groups Community Governance Driving equitable systemic Ad
Slide 32: ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential
32 ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary
Slide 33: Appendix: FinTech Activities Impact on Consolidated Financials
FinTech Activities Impact on Consolidated Financials 33 APPENDIX ($ in thousands) Banking Live Oak Canapi FinTech Consolidated, Actuals for the quarter ended March 31, 2021 Activities Apiture Ventures Advisors Activities Other as reported Net interest income $ 69,934 $ - $ - $ 122 $ 122 $ (106) $ 69
Slide 34: Appendix: Total Assets, as adjusted to exclude PPP activities
34 APPENDIX Total Assets, as adjusted to exclude PPP activities Reconciliation of reported balances to exclude PPP activities ($ in thousands) Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Loans held for sale, as reported 996,050 976,594 1,190,200 1,175,470 1,076,741 Loans and leases held for investment,
Slide 35: Appendix: Reconciliation of reported balances to non-GAAP items
Reconciliation of reported balances to non-GAAP items 35 APPENDIX ($ in thousands) Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Net interest income, as reported 40,161 40,898 51,363 62,301 69,950 Less PPP loan interest income - 3,317 4,403 4,269 3,567 Less loan deferred fees & costs amortized into intere
Slide 36: Appendix: Efficiency Ratio
36 APPENDIX ($ in thousands) Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Efficiency Ratio Noninterest Expense 49,491 48,100 42,650 52,435 58,272 Net Interest Income 40,161 40,898 51,363 62,301 69,950 Noninterest Income 5,742 22,411 47,044 10,803 31,057 Less: gain (loss) on sale of securities (79) 734 1,
Slide 37: Deposits COF Breakdown
DEPOSITS COF BREAKDOWN 37 Three months ended March 31, 2021 ($ in Thousands) Interest $ 16,944 Personnel 824 Travel & Entertainment - Fraud Expense - Marketing Expense 4 Technology Expense 469 Other Expense 53 Total Direct Deposit Expenses $ 18,294 Average Deposit Balances $ 5,863,931 Annualized Cos
Slide 38: Credit & Fair Value Metrics
38 CREDIT & FAIR VALUE METRICS Ratios1 3/31/2020 06/30/2020 09/30/2020 12/31/2020 03/31/2021 Past Due > 30 Days2 0.54% 0.00% 0.00% 0.05% 0.12% Watchlist Loans and Leases3 6.45% 6.46% 7.97% 9.61% 9.45% Classified Assets4 1.88% 1.66% 2.32% 2.18% 2.23% Non-Accruals5 1.06% 1.00% 1.30% 1.07% 1.20% Net Ch
Slide 39: Loan & Lease Portfolio Characteristics
39 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 $271.5 9.9% 0.0% 10.0% 1.6% Exposures 5 Largest Agriculture 264.3 9.6% 0.9% 3.8% 0.5% Gener
Slide 40: Credit Reserves & Fair Value Mark
40 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 Healthcare $271.5 $4.7 1.7% 0.1% $0.3 72.6% Exposures 5 Largest Agriculture 264