Live Oak Bancshares, Inc. · NYSE:LOB

Live Oak Bancshares — Q3 2022 Earnings Presentation

40 slides from Live Oak Bancshares's earnings presentation, Oct 27, 2022

  1. Slide 1: Third Quarter 2022

    THIRD QUARTER 2022 October 27, 2022 ©2022 Live Oak Bancshares. All rights reserved.

  2. Slide 2: Forward Looking Statements

    FORWARD LOOKING STATEMENTS 2 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 a

  3. Slide 3: Live Oak Bancshares Q3 GAAP Results

    LIVE OAK BANCSHARES Q3 GAAP RESULTS 3 Live Oak Bancshares, Inc. ($ in millions, except per share data) Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 a Net Interest Income $ 78 $ 78 $ 78 $ 80 $ 84 Provision for Loan and Lease Credit Losses 4 4 2 5 14 b Total Noninterest Income 25 34 33 129 58 a + b Total R

  4. Slide 4: Is the World Coming to an End?

    IS THE WORLD COMING TO AN END? 4 Source: Headlines from Oct. 18, 2022 and Oct. 19, 2022 articles in the Wall Street Journal and Fortune. ©2022 Live Oak Bancshares. All rights reserved.

  5. Slide 5: The World Is Not Coming to an End

    5 THE WORLD IS NOT COMING TO AN END If economic challenges arrive our view is that Capital is King. As stewards of your Capital, we believe that a properly and conservatively managed balance sheet leads to a Flight to Quality for customers, our folks and our shareholders. ©2022 Live Oak Bancshares.

  6. Slide 6: Recessions in Perspective

    RECESSIONS IN PERSPECTIVE 6 Time Since GDP Decline to Event Period Range Duration Peak Unemployment Previous Recession Trough November 1973 - 1973-1975 Recession 1 year, 4 months 3 years 9.0% (May 1975) -3.2% March 1975 January 1980 - 1980 Recession 6 months 4 years, 10 months 7.8% (July 1980) -2.2%

  7. Slide 7: Organic Equity Growth Accelerating

    ORGANIC EQUITY GROWTH ACCELERATING 7 Since IPO in 2015: Organically generated $490 million of capital Tangible book value per share has increased 211%, or 18% CAGR 1. Of the $75 million private placement in 2014, approximately $52 million was distributed to shareholders ©2022 Live Oak Bancshares. Al

  8. Slide 8: Outsized Ventures Returns Support Asset Growth

    OUTSIZED VENTURES RETURNS SUPPORT ASSET GROWTH 8 Cash Proceeds2 to Date $163 million Total Implied Value1 Q3 2022 $158 million 2022 Portfolio Exits Q2 Q3 Portfolio Companies Additions by Period 1. Estimated implied value based on most recent transaction data and not necessarily indicative of future

  9. Slide 9: Soundness, Profitability & Growth in That Order

    SOUNDNESS, PROFITABILITY & GROWTH IN THAT ORDER 9 Percent of Loan Portfolio that is • Since 2013, Live Oak has charged-off 0.3%5 of SBA loans Government Guaranteed vs. NIM originated compared to the SBA 7(a) program total charge-off rate of 4.0%6 43% 4 11x higher concentration • 4 43% of loan and le

  10. Slide 10: Strong Capital Positioning - The Mahan Ratio

    STRONG CAPITAL POSITIONING - THE MAHAN RATIO 10 $ in millions Capital Ratios Q3 2022 Total Assets $10,000 Common Equity Tier 1 13.2% $9,000 $456 Total Capital 14.4% $8,000 $1,413 Tier 1 Capital 13.2% $7,000 Tier 1 Leverage 9.5% $6,000 $3,215 $5,000 As of September 30, 2022 $4,000 Tier 1 Capital (a)

  11. Slide 11: The Continuum of a Cycle

    THE CONTINUUM OF A CYCLE 11 Banks like ours, with a national brand for small business, plus a Thinking of a Downturn Bank credit fortress-like recession? occurs officers react balance sheet, will find outsized No evidence yet Industry credit Underwriting opportunities to losses begin guidelines cont

  12. Slide 12: Quarter Highlights

    QUARTER HIGHLIGHTS ©2022 Live Oak Bancshares. All rights reserved.

  13. Slide 13: Live Oak Q3 Highlights

    LIVE OAK Q3 22 HIGHLIGHTS 13 Our Path to Becoming America’s Small Business Bank $0.96 12% 26% 3.84% 23% $1.0B 15% Diluted Adjusted Total Adjusted Net Interest Net Interest Loan Q3 Loan TBV1 EPS Revenue1 Growth YoY Income1 Growth YoY Margin Growth2 YoY Production Growth YoY VERTICALITY SCALABILITY OP

  14. Slide 14: Q3 Adjusted Earnings Highlights

    Q3 22 ADJUSTED EARNINGS HIGHLIGHTS 14 Balance Sheet and NII Growth Healthy Q3 2022 change vs. $ in millions Q3 2022 Q2 2022 Q3 2021 Q3 22 Adjustments Summary1 Net interest income1 $ 83 5% 26% Net Interest Income 1 Noninterest income 27 32% (17)% PPP-related impacts ($1.2 million) Total revenue1 110

  15. Slide 15: Total Revenue Trends

    TOTAL REVENUE TRENDS 15 Strong Net Interest Income Growth on 5% LQ Loan Growth $ in millions Adjusted net interest income¹ Net gains on sales of loans Adjusted other noninterest income¹ Adjusted Total Revenue1 Up 11% linked quarter, 12% year-over-year $15 $18 $16 $14 $15 $21 $9 $6 $19 $20 $83 Adjust

  16. Slide 16: Diversification Across the Platform

    DIVERSIFICATION ACROSS THE PLATFORM 16 Sponsor Finance - Middle Market 2022 Production Mix by Business Unit (%) Lending 68% 28% 4% Q3 2022 Q3 Loans Q3 2022 Origination $ in millions Outstanding2 Origination ($) Growth YoY Veterinary Education SBA General Small Business Banking $5,363 $685 (2)% Servi

  17. Slide 17: Production Engine Leads to Net Asset Growth

    PRODUCTION ENGINE LEADS TO NET ASSET GROWTH 17 5% Loan Growth LQ; 8% Total Net Growth LQ Before Loan Sales Period End ($ in millions) Increase Decrease Up 14% QoQ, Total 5% YoY $532 $543 $7,391 $7,060 $(450) $(37) $(148) $(109) Q2 2022 Full Funded Other Loan Prepayment Net Change in Guaranteed Ungua

  18. Slide 18: Strong Balance Sheet Trends

    STRONG BALANCE SHEET TRENDS 18 Q3 2022 change vs. Period End ($ in millions) Q3 2022 Q2 2022 Q3 2021 Total loans and leases $ 7,391 5% 14% 23% Total loan and lease portfolio, excluding PPP1 7,367 5% 23% Loan Growth1 YoY excluding PPP Investment securities 1,005 8% 17% Total deposits 8,405 3% 23% Bor

  19. Slide 19: Net Interest Margin Trends

    NET INTEREST MARGIN TRENDS 19 Margin Held Strong in Early Fed Tightening Cycle Average Loans and Deposits Avg Deposits Avg Loans¹ Avg PPP Loans NIM Balance Sheet Highlights YoY avg loan growth1 of 25% (~5% QoQ) $8.1 $7.7 $0.1 Average Balances, $ in billions $7.2 $0.2 $7.2 $6.9 $0.4 $6.8 $6.6 $0.7 $6

  20. Slide 20: Investing in Scalable Growth

    INVESTING IN SCALABLE GROWTH 20 Growth Trajectory for Talent and Technology Spend Moderating $ in millions Adjusted noninterest expense¹ Adjusted efficiency ratio¹ • Technology team investments are largely complete $72 $68 $66 • Continue to be opportunistic $60 $55 adding lenders to our platform 68.

  21. Slide 21: Credit Metrics Healthy

    CREDIT METRICS HEALTHY 21 Trends and Borrower Behavior Remain Stable and Solid; Not Taking Our Eyes off the Ball $ in millions Past Due >30 Days1 • Increase in provision compared to last quarter $10 1.00% is driven by strong loan growth, portfolio and $9 $8 0.80% macroeconomic changes $7 $7.5 • Cont

  22. Slide 22: Keeping the Pulse on Small Business

    KEEPING THE PULSE ON SMALL BUSINESS ©2022 Live Oak Bancshares. All rights reserved.

  23. Slide 23: Small Business Pulse

    SMALL BUSINESS PULSE 23 Small Business Expectations About Their Overall Financial Condition & Outlook Small Business Credit Application Outcomes Small Business Ownership Transitions Q: During the next 12 months, do you expect your company's overall financial condition to … Source: Q3 2022 Live Oak B

  24. Slide 24: Small Business Opportunity

    SMALL BUSINESS OPPORTUNITY 24 Live Oak Market Share All Small Business 1/20th of 1% Small Business with 2-499 Employees 1/4 of 1% Live Oak Customers With Both Loan & Deposit Account ~3% Repeat Loan Customers ~20% With a Checking Account Elsewhere ~100% ©2021 Live Oak Banking Company. All rights rese

  25. Slide 25: Milestone Updates

    MILESTONE UPDATES 25 Leveraging the Platform LENDING BUSINESS CHECKING • Continue to see strong lending opportunities • Tidal small business checking fully in market • $1 billion in Q3 production • ~775 customers end of Q3 / ~1,300 currently • Pipeline remains solid • Serves small end of small busin

  26. Slide 26: State of the Business

    STATE OF THE BUSINESS 26 1. Live Oak's lending activity remains healthy 2. Credit quality strong, but monitoring closely 3. Secondary markets still in flux, but modest signs of improvement 4. Live Oak platform continues to attract exceptional talent 5. Attractive ventures activity, but valuations sh

  27. Slide 27: ©2022 Live Oak Bancshares. All rights reserved.

    27 ©2022 Live Oak Bancshares. All rights reserved.

  28. Slide 28: Appendix

    APPENDIX ©2022 Live Oak Bancshares. All rights reserved.

  29. Slide 29: Forward Looking Statements

    FORWARD LOOKING STATEMENTS 29 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

  30. Slide 30: Appendix: Reconciliation

    APPENDIX: RECONCILIATION 30 Fintech Activities Impact on Consolidated Financials ($ in millions) Banking Live Oak Canapi Fintech Consolidated, as Actuals for the quarter ended September 30, 2022 Activities Apiture Ventures Advisors Activities Other reported Net interest income $ 84.2 $ — $ — $ — $ 0

  31. Slide 31: Appendix: Reconciliation

    APPENDIX: RECONCILIATION 31 Reconciliation to reported balances ($ in millions) Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Loans held for sale, as reported $ 1,042.8 $ 1,116.5 $ 1,028.6 $ 1,199.7 $ 537.6 Loans and leases held for investment, as reported 5,418.6 5,521.3 5,738.2 5,860.2 6,853.4 Less PPP

  32. Slide 32: Appendix: Reconciliation

    APPENDIX: RECONCILIATION 32 Reconciliation of non-GAAP items to reported balances ($ in millions) Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Net interest income, as reported $ 77.7 $ 77.6 $ 77.8 $ 79.9 $ 83.9 Less PPP loan interest income 1.8 0.8 0.5 0.2 0.1 Less PPP loan deferred fees & costs amortize

  33. Slide 33: Appendix: Reconciliation

    APPENDIX: RECONCILIATION 33 ($ in millions) Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Total shareholders' equity $ 689.4 $ 715.1 $ 713.3 $ 791.7 $ 802.2 Less: Goodwill 1.8 1.8 1.8 1.8 1.8 Other intangible assets 2.1 2.0 2.0 2.0 1.9 a Tangible shareholders' equity 685.6 711.3 709.5 787.9 798.5 b Shares

  34. Slide 34: Appendix: Q3 Loan Originations

    APPENDIX: Q3 LOAN ORIGINATIONS1 34 3.6% 3.3% Originations Portion of Originations comprised of government guaranteed loans (%) Q3 Originations1 (in millions) $1,114 $1,084 2018 $377 36.1% Q3 2021 $1,063 56.9% $960 2019 $562 $865 2020 $949 2021 $1,063 2022 $1,005 SBA 7(a) Conventional USDA Other Prod

  35. Slide 35: Appendix: SBA Secondary Market

    APPENDIX: SBA SECONDARY MARKET 35 Positive momentum for variable rate loan premiums. Current premiums have improved in Q3 2022, level with historical averages… • P+2.75% 10-year quarterly adjust current premium of 10%, slightly below historical average of 11% • P+2.75% 25-year quarterly adjust curre

  36. Slide 36: Appendix: Deposit Platform

    APPENDIX: DEPOSIT PLATFORM 36 Low Delivery Costs, Healthy Retention & Continued Growth Total Deposits Growth1 Retail Savings Retail CDs Business Savings and CDs $7,000 $1.8B Balances ($ in millions) $6,000 $5,000 Business Savings & CDs $4,000 up 44% YOY $3,000 $2,000 $1,000 $0 Q3 2021 Q4 2021 Q1 202

  37. Slide 37: Appendix: Talent

    APPENDIX: TALENT 37 Adding Revenue-Generating Lenders to the Team 2018-2022 Total Lenders 172 141 118 108 103 80 Lenders added from Highlighted Hires Highlighted Hires Highlighted Hires Highlighted Hires 3 - Venture banking 1 - General SBA 2 - Franchise 2 - Healthcare 2018-Present 11 - General SBA 1

  38. Slide 38: Appendix: PPP

    APPENDIX: PPP 38 On the other side of PPP | Processed nearly 15,000 PPP loans $2.3 $80.3 billion million $ in millions PPP Net Interest Income Impact PPP Loans Net Deferred Fees at $16 Originated Origination $14 $12 $2.3 $79.8 $10 $8 $6 $4 billion million $2 PPP Loans Forgiven/ Net Deferred Fees $0

  39. Slide 39: Appendix: Evolution of Fintech Investing

    APPENDIX: EVOLUTION OF FINTECH INVESTING 39 From Live Oak Ventures to Canapi, How LOB uses Fintech to Enhance the Banking Experience LIVE OAK VENTURES CANAPI CANAPI CONTINUED Direct Investment Advisor and LP Investor in Fund I Fund II Nova Orum* Greenlight Codat Apiture1* Asset Class Co-led Series B

  40. Slide 40: Live Oak Bank

    LIVE OAK BANK 40 Our Path to Becoming America’s Small Business Bank VERTICALITY SCALABILITY OPTIONALITY Differentiated lending model Building the moat Value creation through industry disruption dedicated to small businesses • 30+ lending verticals with deep industry expertise • Growing and investing

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