Live Oak Bancshares, Inc. · NYSE:LOB

Live Oak Bancshares — Q2 2022 Earnings Presentation

41 slides from Live Oak Bancshares's earnings presentation, Jul 28, 2022

Slide 2: Forward Looking Statements
2 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 a
Slide 4: Agenda
4 AGENDA 1. Chairman & CEO Remarks 2. Q2 Highlights 3. Verticality – Our differentiated small business lending model 4. Scalability – Building the moat 5. Optionality – Value creation through industry disruption 6. Q&A ©2022 Live Oak Bancshares. All rights reserved.
Slide 5: State of the Business
5 STATE OF THE BUSINESS 1. The Live Oak platform is a talent magnet 2. Pipelines and production healthy 3. Credit quality strong 4. Rate environment driving preference for fixed rates 5. Secondary markets in flux; gain on sale premiums dislocated 6. Technology investments; fintech valuations shiftin
Slide 6: Live Oak Is a Talent Magnet
LIVE OAK IS A TALENT MAGNET 6 Adding Revenue-Generating Lenders to the Team 2018-2022 Total Lenders 85 Highlighted Hires Highlighted Hires Highlighted Hires Highlighted Hires Lenders added from 3 - Venture banking 11 - General SBA 1 - General SBA 1 - Quick Serve 2 - Franchise 7 - General SBA 2 - Hea
Slide 7: Focus on Soundness, Profitability & Growth in That Order
FOCUS ON SOUNDNESS, PROFITABILITY & GROWTH IN THAT ORDER 7 • Since 2013, Live Oak has charged-off 0.3% of SBA loans originated compared to the SBA 7(a) Program total charge-off Despite 13x higher 4 rate of 4.0%5 44% concentration of guaranteed loans on • 44%4 of loan and lease portfolio is governmen
Slide 8: SBA Secondary Market Historically Resilient
SBA SECONDARY MARKET HISTORICALLY RESILIENT 8 Current market premiums below historical averages… • P+2.75% 10-year quarterly adjust current premium of 8%, 300bps below historical average of 11% • P+2.75% 25-year quarterly adjust current premium of 13%, 100bps below historical average of 14% Like 200
Slide 9: Finxact Gain Provides Loan Sale Flexibility
FINXACT GAIN PROVIDES LOAN SALE FLEXIBILITY 9 $120 million Finxact gain is… • Greater than net gain on sale from SBA guaranteed loan sales over approximately last 12 quarters Large decline in Fixed Adjusting • Greater than net gain on sale from SBA and USDA guaranteed loan premiums in 2022 sales ove
Slide 11: Live Oak Q2 Highlights
11 LIVE OAK Q2 22 HIGHLIGHTS Our Path to Becoming America’s Small Business Bank $2.16 13% 34% 3.89% 25% $960MM 19% Diluted Adjusted Total Adjusted Net Interest Net Interest Loan Q2 Loan TBV EPS Revenue1 Growth YoY Income1 Growth YoY Margin Growth3 YoY Production Growth YoY VERTICALITY SCALABILITY OP
Slide 12: Q2 22 Adjusted Earnings Highlights
12 Q2 22 ADJUSTED EARNINGS HIGHLIGHTS Balance Sheet and NII Growth Healthy Q2 22 Adjustments Summary1 Net Interest Income PPP-related impacts Noninterest Income Loan servicing asset revaluation Other fair value adjustments Noncash net losses from investments in venture funds Gains/losses from fintec
Slide 13: Total Revenue Trends
13 TOTAL REVENUE TRENDS Strong Net Interest Income Growth on 5% LQ Loan Growth; Gain on Sale Market Dislocation 1 Adjusted Total Revenue1 1 $ in millions Down 9% linked quarter, up 13% year-over-year Adjusted Net Interest Income1 Up 7% linked quarter, 34% year-over-year • Slight increase in loan yie
Slide 14: Strong Balance Sheet Trends
14 STRONG BALANCE SHEET TRENDS 25% Loan Growth YoY excluding PPP 19% Tangible Book Value Growth Per Share YoY 1. See Appendix for reconciliation of reported balances to non-GAAP items. ©2022 Live Oak Bancshares. All rights reserved.
Slide 15: Production Engine Leads to Net Asset Growth
15 PRODUCTION ENGINE LEADS TO NET ASSET GROWTH 5% Loan Growth LQ; 7% Total Net Growth LQ Before Loan Sales Period End ($ in millions) Increase Decrease Total Q1 2022 Fully Funded Other Loan Prepayment Net Change in Guaranteed Unguaranteed Q2 2022 Total Loan Originations Disbursements 1 and PPP Balan
Slide 16: Net Interest Margin Trends
16 NET INTEREST MARGIN TRENDS Margin Held Strong in Early Fed Tightening Cycle Balance Sheet Highlights 1 YoY avg loan growth1 of 27% (~5% QoQ) ~43% of loans1 are variable, primarily Prime. Increased 125bps on July 1 ~32% of funding in retail savings Loan Yield1 5.26% 5.29% 5.27% 5.28% 5.46% Deposit
Slide 17: Investing in Scalable Growth
17 INVESTING IN SCALABLE GROWTH Continuing to Add People & Technology to Expand Platform $ in millions 2018-2022 Total Full Time Employees 1 1 49 59% Net New FTEs of Q2 Hires in Hired in Q2 Lending Groups • Adjusted expenses up 4% LQ, 32% vs Q2 2021 • FTEs up 6% since Q1 2022 and 27% since Q2 2021 1
Slide 18: Credit Metrics Healthy
18 CREDIT METRICS HEALTHY Trends and Borrower Behavior Favorable; Frequent Monitoring Continues $ in millions • Past dues and non-accruals continue to remain at historic lows • Half of non-accruals are paying as agreed • Legacy verticals impacted by Covid continue to trend back to pre-pandemic level
Slide 19: Credit Quality of Portfolio
19 CREDIT QUALITY OF PORTFOLIO Diversified Small Business Banking Portfolio; 54% Guaranteed1; Low Historical Charge-Off Rates $ in millions 0.18% cumulative charge-off rate $5.1B $ in millions $ in millions 0.29% 0.48% cumulative cumulative charge-off charge-off rate rate 1.) Percentage of total hel
Slide 20: Strong Capital Positioning
20 STRONG CAPITAL POSITIONING Capital Ratios Q2 2022 Common Equity Tier 1 13.1% $ in millions Total Capital 14.2% Tier 1 Capital 13.1% Tier 1 Leverage 9.4% As of June 30, 2022 ($ in millions) Tier 1 Capital (a) $829 Tier 1 Capital + ACL & FV Mark ACL and FV Mark on Unguaranteed Unguaranteed Loans &
Slide 22: Milestone Updates
22 MILESTONE UPDATES Leveraging the Platform Q2 WINS UPCOMING 2H 2022 - Continued momentum of core platform - Business operating account enhancements and broad market launch - ~$1bn of diversified loan originations - Working capital solutions for small - 18% Q2 growth in business savings business cu
Slide 23: Q2 Loan Originations
23 Q2 LOAN ORIGINATIONS1 Q2 Originations1 (in millions) 2018 $492 2019 $525 2020 $430 2021 $1,114 2022 $960 18% CAGR Q2 2018 78% 55% 54% 56% 59% to Q2 2022 Percent Fully Funded 1. Loan & Lease Originations, excluding PPP (in millions of dollars). ©2022 Live Oak Bancshares. All rights reserved.
Slide 24: Diversification Across the Platform
DIVERSIFICATION ACROSS THE PLATFORM 24 Sponsor Finance - 2022 Production Mix by Business Unit (%) MML 61% 14% 25% Investment Advisors Veterinary Healthcare SBA General Lending Lending Across 30+ Verticals Senior Housing Accounting & Tax Government Contracting Restoration, Remediation Agriculture Har
Slide 25: SBA General Lenders Help Fuel Organic Growth
25 SBA GENERAL LENDERS HELP FUEL ORGANIC GROWTH Putting Capital into the Hands of Small Business Owners Across the Country 9 General SBA Lenders Hired in 1H 2022 30 Total General SBA Lenders 8 Markets added or expanded in AL, AZ, CA, MN, NJ, OH, TX, WA ~$1.5bn Total Production Since 20171 1. Include
Slide 26: Finxact Sale Finalized
26 FINXACT SALE FINALIZED Use of Proceeds to Support Continued Growth Fiserv’s acquisition P&L Impact of Finxact $ in millions closed April 1, 2022 Gain on sale of investment $ 120.5 Special employee bonus (7.5) Live Oak Ventures Charitable donation (5.0) Net pre-tax impact $ 108.0 $13 million cash
Slide 27: Live Oak Ventures Remains Active
27 LIVE OAK VENTURES REMAINS ACTIVE Venture Investments Help Propel Live Oak’s Mission to be America's Small Business Bank Apiture1 DefenseStorm AgencyKPI Asset Class FOLLOW-ONS NET NEW INVESTMENTS NEW BANK EXISTING PORTFOLIO PARTNERSHIPS INCUBATION STUDIO INFRASTRUCTURE Supporting future rounds of
Slide 28: Live Oak Business Model
28 LIVE OAK BUSINESS MODEL Drives Continued Success Attract & Retain Top Talent Invest and Build in Banking and Tech Next-Gen Tech Stack HIGH TECH & HIGH TOUCH PLATFORM Ability to Better Serve Deliver Innovative Customers Products & Services ©2022 Live Oak Bancshares. All rights reserved.
Slide 31: Forward Looking Statements
31 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
Slide 34: Reconciliation
34 RECONCILIATION 1.Includes valuation adjustments related to equity security investments, equity warrant assets, and foreclosed assets | 2.See Appendix "FinTech Activities Impact on Consolidated Financials.” | 3. Amount reflects accelerated stock compensation expense and related employer payroll ta
Slide 36: Efficient Deposit Funding Platform
36 EFFICIENT DEPOSIT FUNDING PLATFORM Low Delivery Costs, Healthy Retention & Continued Growth 1 $1.6B Business Savings & CDs up 46% YOY $1.8B Retail CDs up 16% YOY $2.7B Retail Savings up 9% YOY Savings Account Retention Remains Strong 1. Excludes brokered CDs and CDARs. 2. See Appendix for noninte
Slide 37: Servicing Asset
37 APPENDIX Servicing Asset $ in millions $ in millions Revaluation gain/losses heavily influenced by market conditions, industry prepayment speeds, and serviced loan payoffs ©2022 Live Oak Bancshares. All rights reserved.
Slide 38: On the Other Side of PPP
38 APPENDIX On the other side of PPP | Processed nearly 15,000 PPP loans $2.3 $80.3 billion million $ in millions PPP Loans Net Deferred Fees at Originated Origination $2.2 $78.7 billion million PPP Loans Net Deferred Fees Forgiven/Paid Down Recognized $63.9 $1.6 million million $10.5 million net in
Slide 39: Evolution of Fintech Investing at LOB
39 EVOLUTION OF FINTECH INVESTING AT LOB 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 Apiture1* Asset Class Co-led Series B Co-Led S
Slide 40: Direct Fintech Investments
40 DIRECT FINTECH INVESTMENTS Low Cash Investment, Significant Current Valuation 1 Finxact sale 4/1/2022 Portfolio 1 2 4 5 6 7 7 8 8 9 10 11 Companies 1. Estimated implied value based on most recent transaction data and not necessarily indicative of current or future value. ©2022 Live Oak Bancshares
Slide 41: Live Oak Bank
41 LIVE OAK BANK 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

Live Oak Bancshares — Q2 2022 Earnings Presentation on 6ix

Live Oak Bancshares — Q2 2022 Earnings Presentation

Slide 1: Second Quarter 2022

Slide 2: Forward Looking Statements

Slide 3: Live Oak Bancshares Q2 GAAP Results

Slide 4: Agenda

Slide 5: State of the Business

Slide 6: Live Oak Is a Talent Magnet

Slide 7: Focus on Soundness, Profitability & Growth in That Order

Slide 8: SBA Secondary Market Historically Resilient

Slide 9: Finxact Gain Provides Loan Sale Flexibility

Slide 10: Quarter Highlights

Slide 11: Live Oak Q2 Highlights

Slide 12: Q2 22 Adjusted Earnings Highlights

Slide 13: Total Revenue Trends

Slide 14: Strong Balance Sheet Trends

Slide 15: Production Engine Leads to Net Asset Growth

Slide 16: Net Interest Margin Trends

Slide 17: Investing in Scalable Growth

Slide 18: Credit Metrics Healthy

Slide 19: Credit Quality of Portfolio

Slide 20: Strong Capital Positioning

Slide 21: Verticality | Scalability | Optionality

Slide 22: Milestone Updates

Slide 23: Q2 Loan Originations

Slide 24: Diversification Across the Platform

Slide 25: SBA General Lenders Help Fuel Organic Growth

Slide 26: Finxact Sale Finalized

Slide 27: Live Oak Ventures Remains Active

Slide 28: Live Oak Business Model

Slide 29: ©2022 Live Oak Bancshares. All rights reserved.

Slide 30: Appendix

Slide 31: Forward Looking Statements

Slide 32: Reconciliation

Slide 33: Reconciliation

Slide 34: Reconciliation

Slide 35: Reconciliation

Slide 36: Efficient Deposit Funding Platform

Slide 37: Servicing Asset

Slide 38: On the Other Side of PPP

Slide 39: Evolution of Fintech Investing at LOB

Slide 40: Direct Fintech Investments

Slide 41: Live Oak Bank