Live Oak Bancshares, Inc. · NYSE:LOB
Live Oak Bancshares — Q3 2023 Earnings Presentation
37 slides from Live Oak Bancshares's earnings presentation, Oct 26, 2023
Slide 1: Third Quarter 2023
THIRD QUARTER 2023 October 26, 2023 ©2023 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 Q3 GAAP Results
LIVE OAK BANCSHARES Q3 GAAP RESULTS 3 LIVE OAK BANCSHARES, INC. ($ IN MILLIONS, EXCEPT PER SHARE DATA) Q3 2023 Q2 2023 Q1 2023 Q4 2022 Q3 2022 a Net Interest Income $ 89.4 $ 84.3 $ 82.0 $ 85.9 $ 83.9 Provision for Loan and Lease Credit Losses 10.3 13.0 19.0 19.7 14.2 b Total Noninterest Income 37.9
Slide 4: Live Oak Positioning - I Like Where We Are!
LIVE OAK POSITIONING - I LIKE WHERE WE ARE! 4 Soundness, profitability and growth — credit metrics galore We have a secret weapon What has happened to our industry after "March Madness" and does that play into our hand? As others pull back, we will aggressively pursue high-quality revenue producers
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 ©2023 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: Serving Small Business - Business Analyst Team
SERVING SMALL BUSINESS - BUSINESS ANALYST TEAM 7 + more ©2023 Live Oak Bancshares. All rights reserved. | View all disclosures at end of presentation
Slide 8: Deposits Are Migrating Away from Non-Interest-Bearing Products
DEPOSITS ARE MIGRATING AWAY FROM NON-INTEREST-BEARING PRODUCTS 8 INCREASED PRICING IN THE INDUSTRY WILL CURTAIL GROWTH, PROVIDING WELL-POSITIONED BANKS WITH AN OPPORTUNITY 8 9 9 Net 2.58% 2.77% 2.79% 2.69% 2.69% Interest 3.84% 3.76% 3.46% 3.29% 3.37% Margin ©2023 Live Oak Bancshares. All rights rese
Slide 9: Industry Disruption
INDUSTRY DISRUPTION 9 ©2023 Live Oak Bancshares. All rights reserved. | View all disclosures at end of presentation
Slide 10: Our Sales Team Continues to Generate Strong Quarterly Production
OUR SALES TEAM CONTINUES TO GENERATE STRONG QUARTERLY PRODUCTION 10 WE REMAIN COMMITTED TO BROADENING OUR SALES TEAM TO CONTINUE ON OUR MISSION OF BEING AMERICA'S #1 SBA LENDER $ in millions Number of 121 126 135 140 148 155 153 149 Lenders ©2023 Live Oak Bancshares. All rights reserved. | View all
Slide 11: $275 Million Pre-Tax Ventures Gains Have Enabled Technology Investment
$275 MILLION PRE-TAX VENTURES GAINS HAVE ENABLED TECHNOLOGY INVESTMENT 11 RAMP IN TECHNOLOGY STAFF IN 2022 WILL HASTEN ABILITY TO DELIVER FUTURE-STATE ASPIRATIONS Ventures Gains Technology Staff Over Time $ in millions Employee Bonus & Year Investment Gross Gain Charitable Net Gain Contributions 201
Slide 12: Live Oak's Core Business Generating Improved Leverage
LIVE OAK'S CORE BUSINESS GENERATING IMPROVED LEVERAGE 12 Live Oak Core Operating Leverage 10 10 Adjusted Total Revenue Adjusted Noninterest Expense $ in millions $120.0 $118 We continue to reduce $110 $110 $109 $110 $106 $107 reliance on gain on sale in favor of long-term, $100.0 $99 recurring reven
Slide 13: Quarter Highlights
QUARTER HIGHLIGHTS ©2023 Live Oak Bancshares. All rights reserved.
Slide 14: Q3 Earnings Summary
Q3 EARNINGS SUMMARY 14 • PPNR of $53.0 million, up 66% LQ Diluted EPS of $0.88 • 2% TBV10 growth LQ, 5% YoY • One-time impact of $15.0 million from fair value estimate adjustment • $1.1 billion of loan production, up 7% from Q3 2022 Loan balance and production growth healthy • Loan growth up 5% QoQ,
Slide 15: Q3 Key Highlights
Q3 KEY HIGHLIGHTS 15 Q3 2023 CHANGE VS. $ IN MILLIONS Q3 2023 Q2 2023 Q3 2022 Q3 Notable Items Net interest income $ 89 6% 7% Noninterest income 38 57% (34)% Noninterest Income a Total revenue 127 17% (10)% One-time impact from change in estimate: b Noninterest expense 74 (3)% (11)% • Loan servicing
Slide 16: Net Interest Margin and Net Interest Income Trends
NET INTEREST MARGIN AND NET INTEREST INCOME TRENDS 16 NET INTEREST INCOME AND MARGIN EXPANSION IN Q3 2023 DRIVEN BY STRONG LOAN PRICING AND GROWTH 3.84% $89 Key Highlights 3.76% Net Interest Income +6% QoQ, with $ in millions 8bps margin expansion. $86 Net Interest Income Q3 2023 loan production ave
Slide 17: Lending Diversification Across the Platform
LENDING DIVERSIFICATION ACROSS THE PLATFORM 17 YTD YOY Origination Growth by Vertical YTD 2023 Production Mix by Business Unit (%) Size represents each vertical's outstanding balance as a proportion of the bank's total outstanding balance 56% 28% 16% 2023 YTD ORIGINATIONS Solar Q3 LOANS $ IN MILLION
Slide 18: Customer Deposits
CUSTOMER DEPOSIT GROWTH CONTINUES, PORTFOLIO DIVERSIFIED & BALANCED 18 • YTD total deposit growth of +12.6% while banking industry remained essentially flat • Deposit growth moderated in Q3 2023 (+1.3% QoQ) as liquidity levels normalize post H1 2023 stress events • YoY Deposit Growth: ◦ Live Oak: +1
Slide 19: Noninterest Income Trends
NONINTEREST INCOME TRENDS 19 Key Highlights $ IN MILLIONS Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Net gains on sales of loans $9 $7 $10 $11 $13 Net gains on sales of loans in Loan servicing revenue 6 6 6 7 7 Q3 Loan servicing asset revaluation (1) (5) — (3) 11 • Secondary market premiums Net gain (l
Slide 20: Moderating Expense Growth
MODERATING EXPENSE GROWTH 20 Key Highlights $ in millions Salaries Total noninterest expense % technology related expense to total noninterest expense14 $85 Expenses down 3% LQ, 11% YoY $83 $79 $76 $74 • Q3 2022 includes a $3 million bonus related to fintech investment gains and a $7.7 million renew
Slide 21: Credit Metrics Healthy
CREDIT METRICS HEALTHY 21 $10 million Q3 provision breakdown: Q3 HFI • ~ 70% related to loan growth $ in millions UNGUARANTEED PAST DUE >30 NON- DAYS1, 2 ACCRUALS2, 3 BALANCE $9 million of net charge offs in the quarter Small Business Banking $3,135 0.25% 0.69% • $8 million from a previously impaire
Slide 22: Strong Capital Positioning - The Mahan Ratio
STRONG CAPITAL POSITIONING - THE MAHAN RATIO 22 $ in millions Total Assets CAPITAL RATIOS Q3 2023 $11,000 Common Equity Tier 1 Capital 11.6% $504 $10,000 Total Capital 12.9% $1,638 $9,000 Tier 1 Capital 11.6% $8,000 $7,000 $3,420 Tier 1 Leverage 8.6% $6,000 $5,000 As of September 30, 2023 $4,000 Tie
Slide 23: Live Oak Focus – Soundness | Profitability | Growth
LIVE OAK FOCUS – SOUNDNESS | PROFITABILITY | GROWTH 23 Strong loan growth Operating account acquisition Investing in "good" costs Consistent pre-provision net revenue improvement Proving out credit quality ©2023 Live Oak Bancshares. All rights reserved. | View all disclosures at end of presentation
Slide 24: ©2023 Live Oak Bancshares. All rights reserved.
24 ©2023 Live Oak Bancshares. All rights reserved.
Slide 25: Appendix
APPENDIX ©2023 Live Oak Bancshares. All rights reserved.
Slide 26: Appendix: Presentation Footnotes
APPENDIX: PRESENTATION FOOTNOTES 26 1. Past due loans and leases include HFI unguaranteed loans and leases on accrual status at amortized cost (inclusive of loans and leases at fair value and historical cost). 2. Ratio uses total HFI unguaranteed loans and leases at amortized cost (inclusive of loan
Slide 27: Forward Looking Statements
FORWARD LOOKING STATEMENTS 27 Information in this presentation may contain “forward-looking statements” within the Private Securities Litigation Reform Act of 1995. These statements generally relate to our financial condition, results of operations, plans, objectives, future performance or business
Slide 28: Appendix: Reconciliation
APPENDIX: RECONCILIATION 28 Fintech Activities Impact on Consolidated Financials ($ in millions) Banking Activities Apiture Live Oak Ventures Canapi Advisors Fintech Activities Other Consolidated, as reported Actuals for the quarter ended September 30, 2023 Net interest income $ 89.5 $ — $ — $ — $ —
Slide 29: Appendix: Reconciliation
APPENDIX: RECONCILIATION 29 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 June 30, 2022 Net interest income $ 80.4 $ — $ — $ — $ — $ (0
Slide 30: Appendix: Reconciliation
APPENDIX: RECONCILIATION 30 Reconciliation of non-GAAP items to reported balances ($ in millions) Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 a Net interest income, as reported $ 83.9 $ 85.9 $ 82.0 $ 84.3 $ 89.4 Less PPP loan interest income 0.1 — — — — Less PPP loan deferred fees & costs amortized into
Slide 31: Appendix: Reconciliation
APPENDIX: RECONCILIATION 31 Reconciliation of non-GAAP items to reported balances ($ in millions) Q4 2021 Q1 2022 Q2 2022 a Net interest income, as reported $ 77.6 $ 77.8 $ 79.9 Less PPP loan interest income 0.8 0.5 0.2 Less PPP loan deferred fees & costs amortized into interest income, net 6.7 3.8
Slide 32: Appendix: Reconciliation
APPENDIX: RECONCILIATION 32 ($ in millions) Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Total shareholders' equity $ 802.2 $ 811.0 $ 822.8 $ 832.5 $ 850.4 Less: Goodwill 1.8 1.8 1.8 1.8 1.8 Other intangible assets 1.9 1.9 1.8 1.8 1.8 a Tangible shareholders' equity 798.5 807.4 819.2 828.9 846.8 b Shares
Slide 33: Appendix: Production and Net Loan Growth
APPENDIX: PRODUCTION AND NET LOAN GROWTH 33 5% PERIOD-END LOAN GROWTH LQ; 9% TOTAL NET GROWTH LQ BEFORE LOAN SALES Period End ($ in millions) Up 38% QoQ, Increase 4% YoY Decrease Total $561 $561 $(383) $8,775 $(226) $(98) $8,360 Q2 2023 Full Funded Other Loan Prepayment Guaranteed Unguaranteed Q3 20
Slide 34: Appendix: Strong Liquidity Profile
APPENDIX: STRONG LIQUIDITY PROFILE 34 Insured Deposits / Total Deposits Cash and Un-Pledged Securities / Cash + Securities + Guaranteed Uninsured Deposits Loans / Total Assets 85% 111% 46% 63% 83% 23% Live Oak US Banking Industry* Live Oak US Banking Industry* Live Oak US Banking Industry* AFS Secur
Slide 35: Appendix: Evolution of Fintech Investing
APPENDIX: EVOLUTION OF FINTECH INVESTING 35 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 Blooma Blend Codat Apiture1* Asset Class Co-led Series B Led
Slide 36: Appendix: Live Oak Ventures
APPENDIX: LIVE OAK VENTURES 36 A B Book Value Cash Invested Implied Value Cash Proceeds $350 $330 $321 $300 $250 Cash ProceedsB to Date $198 $170 million $200 $154 $155 $150 $129 $131 Total Implied ValueA $128 $117 Q3 2023 $100 $80 $82 $80 $82 $160 million $52 $54 $50 $29 $15 $17 $19 $1 $4 $6 $— 201
Slide 37: Live Oak Bank
LIVE OAK BANK 37 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