Live Oak Bancshares, Inc. · NYSE:LOB
Live Oak Bancshares — Q4 2023 Earnings Presentation
33 slides from Live Oak Bancshares's earnings presentation, Jan 25, 2024
Slide 1: Fourth Quarter 2023
FOURTH QUARTER 2023 January 25, 2024 ©2024 Live Oak Bancshares. All rights reserved.
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
Slide 3: Live Oak Bancshares Q4 2023 GAAP Results
LIVE OAK BANCSHARES Q4 2023 GAAP RESULTS 3 LIVE OAK BANCSHARES, INC. ($ IN MILLIONS, EXCEPT PER SHARE DATA) Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2022 FY 2023 a Net Interest Income $ 85.9 $ 82.0 $ 84.3 $ 89.4 $ 89.6 $ 327.5 $ 345.3 Provision for Loan and Lease Credit Losses 19.7 19.0 13.0 10.3
Slide 4: Live Oak Positioning
LIVE OAK POSITIONING 4 As always, we shall lead with credit quality, and once again ... soundness, profitability and growth — In That Order! Let's talk loans and deposits ... Where are we? Where is the industry? What is the state of Self Service and Full Service? Is there a moat developing out there
Slide 5: Credit Performance in Line with Historical Trends
CREDIT PERFORMANCE IN LINE WITH HISTORICAL TRENDS 5 2 1 2 3 4 2, 5 5 ©2024 Live Oak Bancshares. All rights reserved. | View all disclosures at end of presentation
Slide 6: Regression to the Norm Continues
REGRESSION TO THE NORM CONTINUES 6 WE HAVE CONSISTENTLY BUILT RESERVES TO SUPPORT LOAN GROWTH AND CHANGES IN THE MACRO OUTLOOK Quarterly Provision and Net Charge-Offs ($ in millions) 6 Provision Net charge-offs Unguaranteed ACL / Unguaranteed loans and leases ~2x the median of industry reserves/loan
Slide 7: Organic Growth & Tech-Forward Platform Pave Way for the Future
ORGANIC GROWTH & TECH-FORWARD PLATFORM PAVE WAY FOR THE FUTURE 7 Average Total Cost of Funds on Deposits9 QoQ YoY Loan Customer Growth Q4 2022 Q3 2023 Q4 2023 Change Change LOB 2.31% 3.63% 3.78% 0.15% 1.47% 8 Regional Bank Average 0.64% 2.03% 2.21% 0.18% 1.57% 7,333 7,519 6,822 Select Regional Banks
Slide 8: Live Oak's Core Business Generating Improved Leverage
LIVE OAK'S CORE BUSINESS GENERATING IMPROVED LEVERAGE 8 Live Oak Core Operating Leverage Adjusted Total Revenue10 Adjusted Noninterest Expense10 $140 $ in millions We continue to reduce$120 $118 $120 reliance on gain on sale in favor of long-term, $109 $110 $107 recurring revenue $ in millions $100
Slide 9: Key SBA Changes in Play
KEY SBA CHANGES IN PLAY 9 • No SBA origination fees for loans under $1 million • For loans under $500K, updated rules for: ◦ Collateral ◦ Underwriting ◦ Equity injection ◦ Insurance requirements • Refinancing debt is now simpler ©2024 Live Oak Bancshares. All rights reserved. | View all disclosures
Slide 10: Financial Highlights
FINANCIAL HIGHLIGHTS ©2024 Live Oak Bancshares. All rights reserved.
Slide 11: 2023 in Review
2023 IN REVIEW 11 $1.64 +6% 5% 3.35% ~$4 billion +14% 56% +10% 10 FY 2023 Adjusted PPNR Net Interest Income Net Interest FY 2023 Loan Loan Growth Business Deposit TBV10 Diluted EPS Growth YoY Growth YoY Margin Production YoY Growth YoY Growth YoY Soundness Profitability Growth • Healthy credit quali
Slide 12: Q4 Key Highlights
Q4 KEY HIGHLIGHTS 12 Q4 2023 CHANGE VS. $ IN MILLIONS Q4 2023 Q3 2023 Q4 2022 Notable Items Net interest income $ 90 —% 4% Line Item Q4 2023 Q3 2023 Noninterest income $ 30 (21)% 58% a Total revenue $ 120 (6)% 14% $13.7 million loan b Noninterest expense $ 93 26% 10% $4.4 million fixed servicing ass
Slide 13: Net Interest Margin and Net Interest Income Trends
NET INTEREST MARGIN AND NET INTEREST INCOME TRENDS 13 Key Highlights $90 • Q4 2023 Net Interest Income +4% YoY $89 • Q4 2023 loan production average $ in millions $86 yield @ 9.23% $84 Net Interest Income $82 • ~49% of loans are variable12, primarily 3.76% Net Interest Margin Prime-based 3.46% 3.37%
Slide 14: Lending Diversification Across the Platform
LENDING DIVERSIFICATION ACROSS THE PLATFORM 14 YOY Origination Growth by Vertical 2023 Production Mix by Business Unit (%) Size represents each vertical's outstanding balance as a proportion of the bank's total outstanding balance 56% 27% 17% 2023 ORIGINATIONS Solar Q4 LOANS $ IN MILLIONS $ YoY % CH
Slide 15: Strong Deposit Growth in 2023
STRONG DEPOSIT GROWTH IN 2023 15 • +16% YoY deposit growth while banking industry remained essentially flat • Deposit growth moderated in H2 2023 to normalize liquidity levels post H1 2023 stress events • +56% YoY growth rate in business deposits • Customer deposits total average balance of $64k 0%
Slide 16: Noninterest Income Trends
NONINTEREST INCOME TRENDS 16 Key Highlights $ IN MILLIONS Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Net gains on sales of loans $7 $10 $11 $13 $13 Net gains on Q4 loan sales Loan servicing revenue 6 6 7 7 7 • Secondary market premiums Loan servicing asset revaluation (5) — (3) 11 (4) stable after mid-
Slide 17: Moderating Expense Growth
MODERATING EXPENSE GROWTH 17 $ in millions Key Highlights Salaries Total noninterest expense 10 Adjusted noninterest expense % technology related expense to total noninterest expense14 $93 • Adjusted expenses10 were $85 $74 million in Q4 2023, flat LQ $79 $76 $74 $76 $77 $74 • Reported Q4 2023 inclu
Slide 18: Credit Metrics Healthy
CREDIT METRICS HEALTHY 18 $9 million Q4 provision breakdown: Q4 HFI • ~60% related to loan growth $ in millions UNGUARANTEED PAST DUE >30 NON- DAYS1, 2 ACCRUALS2, 3 BALANCE $4 million of net charge offs in the quarter Small Business Banking $3,194 0.19% 0.89% • Largely related to four loans spread a
Slide 19: Strong Capital Positioning - The Mahan Ratio
STRONG CAPITAL POSITIONING - THE MAHAN RATIO 19 $ in millions Total Assets CAPITAL RATIOS Q4 2023 $11,000 Common Equity Tier 1 Capital 11.7% $503 $10,000 $1,709 Total Capital 13.0% $9,000 Tier 1 Capital 11.7% $8,000 $3,417 Tier 1 Leverage 8.6% $7,000 $6,000 $5,000 As of December 31, 2023 $4,000 Tier
Slide 20: Live Oak Focus – Soundness | Profitability | Growth
LIVE OAK FOCUS – SOUNDNESS | PROFITABILITY | GROWTH 20 Strong loan growth Operating account acquisition Investing in "good" costs Consistent pre-provision net revenue improvement Proving out credit quality ©2024 Live Oak Bancshares. All rights reserved. | View all disclosures at end of presentation
Slide 21: ©2024 Live Oak Bancshares. All rights reserved.
21 ©2024 Live Oak Bancshares. All rights reserved.
Slide 22: Appendix
APPENDIX ©2024 Live Oak Bancshares. All rights reserved.
Slide 23: Appendix: Presentation Footnotes
APPENDIX: PRESENTATION FOOTNOTES 23 1. Past due loans and leases include HFI unguaranteed loans and leases on accrual status at amortized cost (inclusive of loans and leases at fair value and historical cost). 2. Ratio uses total HFI unguaranteed loans and leases at amortized cost (inclusive of loan
Slide 24: Forward Looking Statements
FORWARD LOOKING STATEMENTS 24 Information in this presentation may contain “forward-looking statements” within the Private Securities Litigation Reform Act of 1995. These statements generally relate to our financial condition, results of operations, plans, objectives, future performance or business
Slide 25: Appendix: Reconciliation
APPENDIX: RECONCILIATION 25 Fintech Activities Impact on Consolidated Financials ($ in millions) Banking Activities Apiture Live Oak Ventures Canapi Advisors Fintech Activities Other Consolidated, as reported Actuals for the quarter ended December 31, 2022 Net interest income $ 86.2 $ — $ — $ — $ —
Slide 26: Appendix: Reconciliation
APPENDIX: RECONCILIATION 26 Fintech Activities Impact on Consolidated Financials ($ in millions) Banking Activities Apiture Live Oak Ventures Canapi Advisors Fintech Activities Other Consolidated, as reported Actuals for the year ended December 31, 2022 Net interest income $ 329.0 $ — $ 0.1 $ — $ 0.
Slide 27: Appendix: Reconciliation
APPENDIX: RECONCILIATION 27 Reconciliation of non-GAAP items to reported balances ($ in millions) Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 a Net interest income, as reported $ 85.9 $ 82.0 $ 84.3 $ 89.4 $ 89.6 Less PPP loan interest income — — — — — Less PPP loan deferred fees & costs amortized into i
Slide 28: Appendix: Reconciliation
APPENDIX: RECONCILIATION 28 Reconciliation of non-GAAP items to reported balances ($ in millions) FY 2022 FY 2023 a Net interest income, as reported $ 327.5 $ 345.3 Less PPP loan interest income 0.7 0.1 Less PPP loan deferred fees & costs amortized into interest income, net 6.3 0.1 Add estimated int
Slide 29: Appendix: Reconciliation
APPENDIX: RECONCILIATION 29 ($ in millions) Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Total shareholders' equity $ 811.0 $ 822.8 $ 832.5 $ 850.4 $ 902.7 Less: Goodwill 1.8 1.8 1.8 1.8 1.8 Other intangible assets 1.9 1.8 1.8 1.8 1.7 a Tangible shareholders' equity 807.4 819.2 828.9 846.8 899.1 b Shares
Slide 30: Appendix: Production and Net Loan Growth
APPENDIX: PRODUCTION AND NET LOAN GROWTH 30 3% PERIOD-END LOAN GROWTH LQ; 7% TOTAL NET GROWTH LQ BEFORE LOAN SALES Period End ($ in millions) Increase Decrease $467 Total $481 $(337) $9,021 $8,775 $(239) $(126) Q3 2023 Full Funded Other Loan Prepayment Guaranteed Unguaranteed Q4 2023 Total Loan Orig
Slide 31: Appendix: Strong Liquidity Profile
APPENDIX: STRONG LIQUIDITY PROFILE 31 Insured Deposits / Total Deposits Cash and Un-Pledged Securities / Cash + Securities + Guaranteed Uninsured Deposits Loans / Total Assets 86% 117% 62% 45% 82% 23% Live Oak US Banking Industry* Live Oak US Banking Industry* Live Oak US Banking Industry* AFS Secur
Slide 32: Appendix: Live Oak Ventures
APPENDIX: LIVE OAK VENTURES 32 A B Book Value Cash Invested Implied Value Cash Proceeds $350 $333 $321 $300 Follow On Round: $250 $198 $200 $154 $155 $150 $129 $131 $132 Cash ProceedsB to Date $117 $170 million $100 $80 $82 $80 $82 $52 $59 Total Implied ValueA $50 $15 $17 $19 $29 Q4 2023 $4 $6 $1 $1
Slide 33: Live Oak Bank: Our Path to Becoming America's Small Business Bank
LIVE OAK BANK 33 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 • Growing and investing in the lending • L