Live Oak Bancshares, Inc. · NYSE:LOB
Live Oak Bancshares — Q3 2020 Earnings Presentation
40 slides from Live Oak Bancshares's earnings presentation, Oct 22, 2020
Slide 1: Third Quarter 2020
THIRD QUARTER 2020 October 22, 2020 ©2020 Live Oak Bancshares. All rights reserved.
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
Agenda It Starts and Ends with Safety and Soundness, like always Right Place, Right Time & Right Business Model Giant Leap Towards Sustained Profitability Technology Wins Continue ©2020 Live Oak Bancshares. All rights reserved. 3
Slide 4: Credit & Fair Value Metrics
CREDIT & FAIR VALUE METRICS Ratios1 12/31/2019 3/31/2020 06/30/2020 09/30/2020 Past Due > 30 Days2 0.44% 0.54% 0.00% 0.00% Watchlist Loans and Leases3 6.28% 6.45% 6.46% 7.97% Classified Assets4 1.85% 1.88% 1.66% 2.32% Non-Accruals5 0.86% 1.06% 1.00% 1.30% Net Charge Off (Annualized) 0.13% 0.58% 0.21
Slide 5: Active Portfolio Management
ACTIVE PORTFOLIO MANAGEMENT Servicing Status Definition High • Significant business disruption • 3-month deferral has been requested Medium • Business is open with limited to no constraints • Cash reserves are adequate for obligations (13- week projection) Low • Business operating as expected • Tren
Slide 6: Loan & Lease Portfolio Characteristics
LOAN & LEASE PORTFOLIO CHARACTERISTICS $ in millions % of Total HFS HFS & HFI and HFI 30-89 Past Due Criticized and Vertical Unguaranteed1 Unguaranteed and Accruing % Classified2 % Non-Accrual % Agriculture $274.8 11.5% 0.0% 3.4% 1.4% Exposures 5 Largest Healthcare 263.5 11.1% 0.0% 10.7% 2.1% Veteri
Slide 7: Credit Reserves & Fair Value Mark
CREDIT RESERVES & FAIR VALUE MARK Total ACL & FV $ in millions HFI Total ACL3 & Mark/Total HFI % on Payment % Receiving Vertical Unguaranteed1 FV Mark4 Unguaranteed1 Deferral5 Subsidy2,5 Agriculture $274.8 $5.7 2.1% 0.0% 77.8% Exposures 5 Largest Healthcare 263.5 4.9 1.9% 0.1% 80.1% Veterinary 177.0
Slide 8: Hotel Portfolio
HOTEL PORTFOLIO 39 $129 59% $116 $74 Properties million5 Occupancy ADR3 RevPAR4 1. Net investment is the sum of principal balance, accrued interest, and net deferred costs (fees) 2. At amortized cost 3. Average Daily Rate 4. Revenue per Available Room 5. Total HFS & HFI unguaranteed balance at amort
Slide 9: Diverse Credit Portfolio
DIVERSE CREDIT PORTFOLIO Average Loan Unguaranteed Exposure by State Total Unguaranteed Exposure Top 5 States CA $265 million TX $225 million NC $212 million FL $149 million NY $103 million ©2020 Live Oak Bancshares. All rights reserved. 9
Slide 10: Loan & Lease Originations
LOAN & LEASE ORIGINATIONS $ in millions 1. SBA 7(a) loans includes loans originated under the standard 7(a) program, SBA Express and SLA but excludes PPP loans ©2020 Live Oak Bancshares. All rights reserved. 10
Slide 11: Q3 Diversified Loan & Lease Originations
Q3 DIVERSIFIED LOAN & LEASE ORIGINATIONS Q3 Loan & Lease Originations: Total Unguaranteed Balance by State $447.9 million Total Unguaranteed Balance 46 States $790 thousand Average Unguaranteed Balance per Loan ©2020 Live Oak Bancshares. All rights reserved. 11
Slide 12: Q3 Diversified Loan & Lease Originations
Q3 DIVERSIFIED LOAN & LEASE ORIGINATIONS Loan & Lease Originations Loan & Lease Originations Vertical (in $millions) Total Guaranteed Unguaranteed Vertical (in $millions) Total Guaranteed Unguaranteed General Lending Solutions $163 $103 $60 Professional Services $20 $14 $6 Sponsor Finance 65 34 31 P
Slide 13: General Lending & Sponsor Franchise
GENERAL LENDING & SPONSOR FRANCHISE Q3 Portfolio HFS & HFI Portfolio HFS & HFI 19 17 Originations Unguaranteed Balance Guaranteed Balance Lenders Industries $228 $233 $221 million million million ©2020 Live Oak Bancshares. All rights reserved. 13
Slide 14: Right Place, Right Time, Right Model
RIGHT PLACE, RIGHT TIME, RIGHT MODEL SBA 7(a) Program Top 10 Lenders1 $25.37 billion $23.18 billion $22.55 billion FY 2018 Gross Approvals FY 2019 Gross Approvals FY 2020 Gross Approvals ($ in billions) Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 1 SBA 7(a) Program Gross Loan Approvals $6.17 $5.50 $4.59
Slide 15: Growth in Earnings & Assets
GROWTH IN EARNINGS & ASSETS 1 2 42% 36% YoY YoY growth growth 1 76% YoY growth 1. See Appendix for reconciliation to items excluding PPP activities 2. See slide entitled Non-GAAP Pre-Tax Pre-Provision Income ©2020 Live Oak Bancshares. All rights reserved. 15
Slide 16: Q3 Technology Investing Activity
Q3 TECHNOLOGY INVESTING ACTIVITY Series C investment results in $13.7 million gain for Live Oak Bancshares Series B investment results in $862 thousand gain for Live Oak Bancshares Investment results in $621 thousand gain for Live Oak Bancshares Q3 2020 Investments Alloy Leading $40M Series B Invest
Slide 17: Technology Investments
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 $2.2 $0.0 $2.9 $1.5 $22.4 $61.2 Value million million million million million million Estimated Implied $28.9 $13.9 $4.4 $1.4 $38.2 $68.1 Value of Shares m
Slide 18: Performance
PERFORMANCE ©2020 Live Oak Bancshares. All rights reserved.
Slide 19: Our Focus
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 PPP Forgiveness Continued Outreach to small business owners Continues Ongoing Credit Assessment H
Slide 20: Q3 Balance Sheet Highlights
Q3 BALANCE SHEET HIGHLIGHTS Q3 Q2 Q3 Change from Q3 2020 Notes $ in billions unless otherwise indicated 2019 2020 2020 Prior Quarter Loan growth driven by diverse Total Loans and Leases $3.33 $3.94 $4.52 15% origination and slower Excluding PPP Activities1 prepayment speeds Total assets, as reported
Slide 21: Q3 Income Statement Highlights
Q3 INCOME STATEMENT HIGHLIGHTS Q3 Q2 Q3 Change from Q3 2020 Notes $ in millions 2019 2020 2020 Prior Quarter Net Interest Income & Loan growth and deposit repricing Servicing Revenue, as $44.4 $38.9 $44.6 15% drove NII growth and margin adjusted for PPP Activities1 expansion Net Gain on Sales of $7.
Slide 22: PPP Impact
PPP IMPACT ($ in millions) Q2 2020 Q3 2020 Total Assets, as reported $8,209.2 $8,093.4 Total Adjustments for PPP Activities1 2,625.5 2,218.8 Total Assets, as adjusted to exclude PPP Activities 5,583.6 5,874.6 $42.9 million net deferred fees on balance sheet at September 30, 2020 ($ in millions) Q2 2
Slide 23: Non-GAAP Pre-Tax Pre-Provision Income
NON-GAAP PRE-TAX PRE-PROVISION INCOME ($ in thousands) Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 (1) Income (loss) before taxes $ 6,262 $ 8,917 $ (15,380) $ 5,251 $ 45,483 Add: Provision for loan and lease credit losses (1) 3,960 4,809 11,792 9,958 10,274 Fair value adjustments Loan servicing asset re
Slide 24: Franchise Fundamentals
FRANCHISE FUNDAMENTALS 25.6% Net Interest Income Q2 2020 vs Q3 2020 11.3% million Noninterest Expense Q2 2020 vs Q3 2020 2.1x Guaranteed Loans Eligible for Sale Q3 2020 vs. Q3 2019 $949 million Loan & Lease Originations Q3 2020 Excluding PPP ©2020 Live Oak Bancshares. All rights reserved. 24
Slide 25: Q3 Loan & Lease Originations
Q3 LOAN & LEASE ORIGINATIONS Originations by Year Vertical Started ($ in millions) 2008 – 2014 $199.7 2015 – 2016 $183.3 2017 – 2020 $583.5 At Risk Vertical Originations ($ in millions) Entertainment Centers $0.2 Hotels $3.6 Fitness Centers $11.4 Wine & Craft Beverage $12.7 Quick Service Restaurants
Slide 26: Guaranteed Loan Sales
GUARANTEED LOAN SALES For the nine months ended September 30, 2020 $432.0 million Guaranteed Loans Sold $1.33 billion Guaranteed Loans Became Eligible for Sale 67.5% Retention ©2020 Live Oak Bancshares. All rights reserved. 26
Slide 27: Expense Discipline
EXPENSE DISCIPLINE 1 1. See Appendix for Total Assets, as adjusted to exclude PPP activities ©2020 Live Oak Bancshares. All rights reserved. 27
Slide 28: Highly Efficient Retail Online Deposit Model
HIGHLY EFFICIENT RETAIL ONLINE DEPOSIT MODEL $4.04 60.1 billion thousand Retail Deposits Open Accounts As of September 30, 2020 As of September 30, 2020 6 96.1% Basis points Savings Noninterest Cost of Retention2 Funds1 YTD 2020 Q3 2020 54% 60% Business Savings CD Retention3 Balance Growth YTD 2020
Slide 29: Deposit Rates & Maturities
DEPOSIT RATES & MATURITIES Last 9 months: Deposit Repricing • Consumer Savings rate reduced by 115bps to 0.70%1 2 • 12-month CD (comprising 60% of the Retail CD portfolio balance) rate offering reduced by 155bps to 0.60%1 Through Q3 2021: Deposit Maturities ($ in millions) • Retail CD Portfolio: $1,
Slide 30: NIM Expansion & Liquidity Deployment
NIM EXPANSION & LIQUIDITY DEPLOYMENT 1 1 2,3 1. Q2 2020 and Q3 2020 Core NIM and Adjusted Average Quarterly Liquidity Ratio removes $1.7 billion PPP/PPPLF impacts. Adjusted Average Quarterly Liquidity is assumed to hold constant to Q1 2020 2. Net spread for Q2 2020 and Q3 2020 excludes $1.7 billion
Slide 31: Capital & Liquidity
CAPITAL & LIQUIDITY $1.41 $2.13 $1.71 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 $2,819 2 55.5% 13.1% 24.7% Cash,
Slide 32: Portfolio Diversification
PORTFOLIO DIVERSIFICATION $6.28 billion Portfolio Balance1 Growth through Diversification 62.0% Guaranteed Portfolio Percentage3 $3.89 billion2 $5.36 billion SBA Guaranteed2 & Unguaranteed4 SBA 504 - $103M5 USDA - $213M6 Leases - $11M OTHER - $598M 1. Total Loans and Leases at amortized cost (inclus
Slide 33: Tier Leverage Improvement
TIER 1 LEVERAGE IMPROVEMENT (171) 69 basis points basis points Estimated Negative Impact of PPP Loans Estimated benefit of PPP loans exclusion (capital exclusion limited to average from capital ratios provided by PPPLF balance of PPPLF1) & Excess Liquidity pledging activity1, offset by increased ave
Slide 34: High Performing Bank Metrics
HIGH PERFORMING BANK METRICS Q2 2020 Trend Asset Size - $ 8.0 $ 7.0 $8.09 $8.21B ($ in billion) + 3.75% 3.50% NIM 2.77% 2.56% Noninterest Income - 25% 30% 47.8% 35.4% to Total Income + 60% Efficiency Ratio1 43.9% 76.9% + 1.75% 1.25% ROA 1.67% 0.22% + 15% 20% ROE 23.6% 2.68% + 8.5% 10% Tier 1 Leverag
Slide 35: New Deposit Platform Update
NEW DEPOSIT PLATFORM UPDATE 182 $12.1 Small Business million Savings & CDs Account Balance Customers1 1. Finxact deposit information as of October 16, 2020 ©2020 Live Oak Bancshares. All rights reserved. 35
Slide 36: ©2020 Live Oak Bancshares. All rights reserved.
©2020 Live Oak Bancshares. All rights reserved.
Slide 37: Appendix: FinTech Activities Impact on Consolidated Financials
APPENDIX FinTech Activities Impact on Consolidated Financials ($ in thousands) Banking Live Oak Canapi FinTech Consolidated, Activities Apiture Ventures Advisors Activities as reported Actuals for the quarter ended September 30, 2020 Net interest income $ 51,363 $ - $ - $ - $ - $ 51,363 Provision fo
Slide 38: Appendix
APPENDIX For three months ended ($ in thousands) Jun 30, 2020 Sep 30, 2020 Total Assets, as reported $ 8,209,154 $ 8,093,381 PPP-related activities Cash and cash receivable for origination fees 61,492 - Loans, net of unearned 1,688,104 1,713,695 Allowance for credit losses (1,565) (2,636) Accrued in
Slide 39: Appendix: Reconciliation to items excluding PPP activities
APPENDIX Reconciliation to items excluding PPP activities ($ in thousands) Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 (1) Loans held for sale $ 903,095 $ 966,447 $ 996,050 $ 976,594 $ 1,190,200 Loans and leases held for investment(1) 2,422,970 2,627,286 2,817,491 4,650,056 5,037,199 Less PPP loans - -
Slide 40: Appendix
APPENDIX ($ in thousands) ©2020 Live Oak Bancshares. All rights reserved. 40