Live Oak Bancshares, Inc. · NYSE:LOB
Live Oak Bancshares — Q3 2021 Earnings Presentation
43 slides from Live Oak Bancshares's earnings presentation, Oct 28, 2021
Slide 1: Third Quarter 2021
THIRD QUARTER 2021 October 28, 2021 ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
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 3: Live Oak Bancshares Q3 GAAP Results
3 LIVE OAK BANCSHARES Q3 GAAP RESULTS ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 4: Agenda
4 AGENDA 1. Chairman & CEO Remarks 2. Q3 Highlights 3. Verticality – Our differentiated small business lending model 4. Scalability – Building the moat 5. Optionality – Value creation through industry disruption 6. Q&A ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing L
Slide 5: Chip's Kickoff Comments
5 CHIP’S KICKOFF COMMENTS Unforeseen Lending Growth Acceleration of Operating Leverage Community Bank of the Future Advantages of Branchless Banking ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 6: Pre-Tax, Pre-Provision, Pre-PPP
PRE-TAX, PRE-PROVISION, PRE-PPP 6 16.4% Average Quarterly Growth Rate Q1 2020 to Q3 2021 1. Adjusted Non-GAAP financial measures. See Appendix for reconciliation of non-GAAP items to reported balances. ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 7: Top SBA 7(a) Lenders
TOP SBA 7(a) LENDERS 7 Live Oak Percentage of Total Approvals 5.5% 5.0% 5.8% 6.6% 6.4% Source: SBA ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 8: Banking Industry Consolidation
8 BANKING INDUSTRY CONSOLIDATION Number of Banks Over Time Since 1990 15,216 Banks 16,000 in 1990 CAGR = 14,000 (3.6)% 12,000 Number of banks have declined 10,000 from +15k in 1990 to ~5k in 2020 8,000 6,000 5,004 Banks 2020 4,000 2,000 0 Number of Industry Bank Branches Post Global Financial Crisis
Slide 9: Mergers and Acquisitions
9 MERGERS AND ACQUISITIONS Announcement Buyer Assets Target Assets Buyer Name Target Name Date ($B) ($B) 1 1/28/19 TCF Financial Corporation Chemical Financial Corporation $23.7B $21.5B 2 2/7/19 BB&T Corporation SunTrust Banks, Inc. $225.7B $215.5B 3 3/15/19 Mechanics Bank Rabobank, National Associa
Slide 10: Live Oak Q3 Highlights
10 LIVE OAK Q3 HIGHLIGHTS Our Path to Becoming America’s Small Business Bank $0.76 17.5% 4.6% 19.7% 1.6% Diluted Adj PPNR1 growth TBV per share1 growth Return on Return on EPS linked quarter linked quarter Average Equity Average Assets VERTICALITY SCALABILITY OPTIONALITY Differentiated lending model
Slide 11: Q3 2021 Adjusted Earnings Highlights
11 Q3 2021 ADJUSTED EARNINGS HIGHLIGHTS 17.5% Adjusted PPNR Growth Linked Quarter Driven by 11% Adjusted Revenue Growth 63.5% Adjusted PPNR1 Growth YoY 44.9% Adjusted Revenue1 Growth YoY Key Q3 2021 Adjustments Summary1 Net Interest Income • PPP-related impacts Noninterest Income • Loan servicing as
Slide 12: Balance Sheet Strong and Growing
12 BALANCE SHEET STRONG AND GROWING 7% Loan Growth Excluding PPP Linked Quarter 32.3% Loan Growth YoY excluding PPP 4.6% Tangible Book Value Growth Per Share LQ 19.7% Return on Average Equity 1.6% Return on Average Assets 1. Adjusted Non-GAAP financial measures. See Appendix for reconciliation of no
Slide 13: High Performing Bank Metrics
13 HIGH PERFORMING BANK METRICS Live Oak Bank’s Q3 Performance as Compared with Industry Peers Peer Top Median Quartile 3.14 3.43 NIM 3.99% 55.6 48.7 Efficiency Ratio1 53.8% 1.34 1.49 ROA 1.6% 15.8 17.3 ROE 19.7% 12.3 13.9 CET1 Ratio 12.6% Total loan and lease portfolio, 2.3 8.2 32.3% excluding PPP2
Slide 14: Verticality
VERTICALITY OUR DIFFERENTIATED SMALL BUSINESS LENDING MODEL ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 15: Loan Originations
15 LOAN ORIGINATIONS1 Greater than One Billion in Lending Production for 2nd Consecutive Quarter Portion of Originations comprised of government guaranteed loans (%) Percent Fully Funded 90% 73% 56% 78% 55% 1. Loan & Lease Originations, excluding PPP (in millions of dollars) ©2021 Live Oak Banking C
Slide 16: Loan Originations: Broad-based Growth Across the Platform
LOAN ORIGINATIONS 16 Broad-based Growth Across the Platform 52% YTD Total Origination1 Growth vs 2020 1 1 Size of bubble represents each vertical's outstanding balance as a proportion of the Bank's total outstanding balance 1. Loan and Lease Originations, excluding PPP ©2021 Live Oak Banking Company
Slide 17: Strong Production Offsetting PPP Runoff
17 STRONG PRODUCTION OFFSETTING PPP RUNOFF 7% Loan Growth LQ, Excluding PPP; 4.2% Total Net Growth LQ Before Loan Sales in millions Increase Decrease Total Q2 2021 Fully Other Loan Prepayment Net Change in Guaranteed Unguaranteed Q3 2021 Total Loan Funded Disbursements1 and PPP Balance Sold Sold Tot
Slide 18: Efficient Deposit Funding Platform
18 EFFICIENT DEPOSIT FUNDING PLATFORM Low Delivery Costs, Healthy Retention & Continued Growth $1.3B Business Savings & CDs 12bps up 104% YOY Noninterest Expense $1.5B of Deposits2 Retail CDs down 21% YOY Q3 2021 $2.5B Retail Savings up 69% YOY Savings Account Retention Remains Strong 1. Excludes br
Slide 19: Balance Sheet Growth Momentum
19 BALANCE SHEET GROWTH MOMENTUM 36% Loan Growth YoY, Excluding PPP, and Significant NIM Expansion Avg PPP Loans Avg Loan & Lease Portfolio, excluding PPP Avg Deposits NIM, As Adjusted1 Core Loan Yield 5.44% 5.27% 5.30% 5.26% 5.29% Deposit Cost 1.55% 1.37% 1.17% 0.94% 0.85% Reported NIM 2.77% 3.33%
Slide 20: Revenue Driven by Strong NII Growth
20 REVENUE DRIVEN BY STRONG NII GROWTH $ in millions $100.0 $14.5 Adjusted Total Revenue1 $14.0 $80.0 $18.9 • Up 11% linked quarter, 45% year over year $13.8 $13.9 $16.2 $60.0 $15.0 $65.6 $15.0 $11.9 $58.6 $12.7 $51.1 Adjusted Net Interest Income1 $40.0 $47.1 $40.6 • Up 12% linked quarter, 62% year
Slide 21: Investing in Growth
21 INVESTING IN GROWTH Continuing to Add People & Technology to Expand Platform 1 1 • Positive operating leverage driving continued improvement in efficiency ratio • Adjusted expenses up 7% LQ, 33% vs Q3 2020 • 54 net new FTEs in Q3 2021, up 127 since Q3 2020 • ~70% of new hires YTD are lenders or l
Slide 22: Credit Metrics Healthy
22 CREDIT METRICS HEALTHY Identifying Challenges Early in the Pandemic Supports Strong Credits $ in millions • Past dues are at historically low levels • Charge-offs and non-accruals are stable • Most borrowers are off government subsidies, making payments, and have strong cash reserves • Servicing
Slide 23: Credit Reserves and Capital
23 CREDIT RESERVES AND CAPITAL Favorable Loan Mix, Reserves & Capital Provide Balance Sheet Strength Capital Ratios Q3 2021 $ in millions Common Equity Tier 1 12.6% Total Capital 13.7% Tier 1 Capital 12.6% Tier 1 Leverage 8.8% As of September 30, 2021 ($ in millions) Tier 1 Capital (a) $657 Tier 1 C
Slide 24: Scalability
24 SCALABILITY BUILDING THE MOAT TO DEEPEN CUSTOMER RELATIONSHIPS ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 25: Milestone Updates
25 MILESTONE UPDATES Leveraging the Platform 3Q WINS UPCOMING - Continued momentum of core platform Q4 - 300 new loan customers - Checking launch - #1 SBA Lender by Dollar Volume (4th - Loan servicing enhancements consecutive year) 2022 - Continued trend of talent acquisition - Continued expansion o
Slide 26: High Tech / High Touch Platform Flywheel
26 HIGH TECH / HIGH TOUCH PLATFORM FLYWHEEL A Model to Drive Continued Scalability Attract & Retain Top Talent Invest and Build in Banking and Tech Next-Gen Tech Stack HIGH TECH & HIGH TOUCH PLATFORM Ability to Better Deliver Innovative Serve Customers Products & Services ©2021 Live Oak Banking Comp
Slide 27: Next-Gen Ecosystem
27 NEXT-GEN ECOSYSTEM Live Oak Bank Tech Stack PAYMENTS USER EXPERIENCE COMMUNICATIONS TRANSFERS Real Multi Time Position RISK BACK OFFICE MANAGEMENT System of Record API Cloud First Native FINANCIAL DATA REPORTING ANALYTICS Bank Employees Bank Customers ©2021 Live Oak Banking Company. All rights re
Slide 28: Successful Deposits Conversion to Finxact
28 SUCCESSFUL DEPOSITS CONVERSION TO FINXACT A Significant Step Forward on Product & Service Innovation Journey ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 29: The Power of the Platform
29 THE POWER OF THE PLATFORM Better Ways Easier to Move Access Money to Capital Current Use Cases Future Use Cases • PPP Loan Originations • Business Banking • Consumer & Business Information for • Product Factory Savings & CDs the Business Consolidated • Bespoke Banking Owner, not the Management Ac
Slide 30: Optionality
30 OPTIONALITY VALUE CREATION THROUGH INDUSTRY DISRUPTION ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 31: View of the Fintech Investing Environment
31 VIEW OF THE FINTECH INVESTING ENVIRONMENT $55.0M US Fintech Venture Funding $50.0M $20.46B • Venture funding more than $17.64B $17.12B $30.0M 2x 2020 volume through three quarters of 2021 $18.0M $18.0M $25.9M $15.0M • Median pre-money valuation $8.15B up 3.3x YoY on the back on $4.90B $6.08B $6.4
Slide 32: Evolution of Fintech Investing at LOB
32 EVOLUTION OF FINTECH INVESTING AT LOB From Live Oak Ventures to Canapi, how LOB uses Fintech to Enhance the Banking Experience 2009 2019 2022 LIVE OAK VENTURES CANAPI CANAPI CONTINUED Direct Investment Advisor and LP Investor in Fund I Fund II TBD - Finxact* - Nova - Greenlight - Lending - Invest
Slide 33: Direct Fintech Investments
33 DIRECT FINTECH INVESTMENTS Low Cash Investment, Significant Current Valuation 1 Number of Portfolio Companies 1 2 4 5 6 7 7 8 8 1. Estimated implied value based on most recent transaction data and not necessarily indicative of current or future value. ©2021 Live Oak Banking Company. All rights re
Slide 34: Live Oak Bank
34 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 solely to small businesses • 30+ lending verticals with deep industry expertise • Building on ne
Slide 35: Q&A
Q&A ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender. Confidential & Proprietary 35
Slide 36: ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
36 ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 37: Forward Looking Statements
37 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 38: Appendix
38 APPENDIX ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 39: Total Assets, Reconciliation Non-GAAP Items to Reported Balances
39 APPENDIX Total Assets, Reconciliation Non-GAAP Items to Reported Balances ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 40: Appendix
40 APPENDIX ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 41: Appendix
41 APPENDIX ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 42: Noninterest expense of deposits
42 APPENDIX Noninterest expense of deposits ©2021 Live Oak Banking Company. All rights reserved. Member FDIC. Equal Housing Lender.
Slide 43: On the other side of PPP
43 APPENDIX On the other side of PPP | Processed nearly 15,000 PPP loans $2.3 $80.3 billion million PPP Loans Net Deferred Fees Originated at Origination $1.8 $67.1 billion million PPP Loans Net Deferred Fees Forgiven/Paid Down Recognized $503 $13.2 $9.6 million net interest income earned since Apri