Live Oak Bancshares, Inc. Reports Fourth Quarter 2019 Results
WILMINGTON, N.C., Jan. 22, 2020 (GLOBE NEWSWIRE) — Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported fourth quarter 2019 net earnings available to common shareholders of $6.8 million, or $0.17 per diluted share as the Company continues to execute on our strategic priorities that we believe will deliver long-term earnings for our shareholders. Net earnings for the year ended totaled $18.0 million, or $0.44 per diluted share.
“Live Oak’s performance in 2019 was highlighted by strong growth, recurring revenues and profitability since making a strategic pivot a year ago to hold more loans on our balance sheet. The fourth quarter showed strength across all key metrics, and we aim to continue that momentum in the quarters to come,” said James S. Mahan, III, Chief Executive Officer of Live Oak. “In 2019, total assets grew by more than $1 billion and our deposit model successfully fired on all cylinders. We believe in our model and will continue to embrace innovation in financial technology while demonstrating a relentless dedication to American entrepreneurs who support our economy.”
Year over Year Highlights
| (Dollars in thousands, except per share data) | Increase (Decrease) | ||||||||||||||
| 2019 | 2018 | Dollars | Percent | ||||||||||||
| Net interest income and servicing revenues | $ | 168,116 | $ | 137,164 | $ | 30,952 | 23 | % | |||||||
| Net income | 18,034 | 51,448 | (33,414 | ) | (65 | ) | |||||||||
| Diluted earnings per share | 0.44 | 1.24 | (0.80 | ) | (65 | ) | |||||||||
| Non-GAAP net income (1) | 19,306 | 54,571 | (35,265 | ) | (65 | ) | |||||||||
| Non-GAAP diluted earnings per share (1) | 0.47 | 1.32 | (0.85 | ) | (64 | ) | |||||||||
| Loan and lease production: | |||||||||||||||
| Loans and leases originated | $ | 2,001,886 | $ | 1,765,680 | $ | 236,206 | 13 | % | |||||||
| % Fully funded | 51.4 | % | 56.5 | % | n/a | n/a | |||||||||
| Total loans and leases: | $ | 3,613,746 | $ | 2,530,812 | 1,082,934 | 43 | % | ||||||||
| Total assets: | 4,814,970 | 3,670,449 | 1,144,521 | 31 | |||||||||||
| Total deposits: | 4,229,122 | 3,149,583 | 1,079,539 | 34 | |||||||||||
Fourth Quarter 2019 Key Measures
| (Dollars in thousands, except per share data) | Increase (Decrease) | ||||||||||||||||||
| Q4 2019 | Q4 2018 | Dollars | Percent | Q3 2019 | |||||||||||||||
| Net interest income and servicing revenues | $ | 44,741 | $ | 36,547 | $ | 8,194 | 22 | % | $ | 44,362 | |||||||||
| Net income | 6,832 | 10,490 | (3,658 | ) | (35 | ) | 3,895 | ||||||||||||
| Diluted earnings per share | 0.17 | 0.26 | (0.09 | ) | (35 | ) | 0.09 | ||||||||||||
| Non-GAAP net income (1) | 7,106 | 10,764 | (3,658 | ) | (34 | ) | 4,169 | ||||||||||||
| Non-GAAP diluted earnings per share (1) | 0.17 | 0.26 | (0.09 | ) | (35 | ) | 0.10 | ||||||||||||
| Loan and lease production: | |||||||||||||||||||
| Loans and leases originated | $ | 523,688 | $ | 498,987 | $ | 24,701 | 5 | % | $ | 562,259 | |||||||||
| % Fully funded | 49.0 | % | 49.8 | % | n/a | n/a | 51.3 | % | |||||||||||
(1) See accompanying GAAP to Non-GAAP Reconciliation.
Loans and Leases
At December 31, 2019, the total loan and lease portfolio increased to $3.61 billion, 42.8% above its level a year ago and 8.0% above its level at September 30, 2019. Compared to the third quarter of 2019, loans and leases held for investment increased $205.3 million, or 8.4%, to $2.65 billion while loans held for sale increased $63.4 million, or 7.0%, to $966.4 million. Loan and lease originations totaled $523.7 million during the fourth quarter of 2019, a decrease of $38.6 million, or 6.9%, from the third quarter of 2019. Originations for year ended December 31, 2019, increased by 13.4% to $2.00 billion compared to $1.77 billion for the year ended December 31, 2018. This continued growth in loan originations was across multiple legacy and new industry verticals as well as in our SBA generalist category. The total loan and lease portfolio at December 31, 2019, and September 30, 2019, of $3.61 billion and $3.35 billion, respectively, was comprised of approximately 54.4% and 54.7% of unguaranteed loans and leases, respectively.
Average loans and leases were $3.50 billion during the fourth quarter of 2019 compared to $3.22 billion during the third quarter of 2019.
Deposits
Total deposits increased by $209.9 million to $4.23 billion at December 31, 2019 from $4.02 billion at September 30, 2019, in support of the growing loan and lease portfolio. Average total interest-bearing deposits for the fourth quarter of 2019 increased $247.4 million, or 6.5%, to $4.08 billion, compared to $3.83 billion for the third quarter of 2019. The ratio of average total loans and leases to average interest-bearing deposits was 85.8% for the fourth quarter of 2019, compared to 83.1% for the third quarter of 2019.
Net Interest Income
Net interest income for the fourth quarter of 2019 rose to $38.0 million compared to $28.8 million for the fourth quarter of 2018 and $37.5 million for the third quarter of 2019. The increase from the prior year was driven by the significant growth in the total loan and lease portfolios along with higher investment security holdings reflecting the Company’s ongoing initiative to grow recurring revenue sources and strengthen its liquidity profile. The slight increase from the third quarter of 2019 arose from a higher average loan and lease portfolio balance that was mitigated by a nineteen basis point decline in the net interest margin to 3.55%. The margin decline reflected the cumulative impact of recent Fed rate cuts that put pressure on earning asset yields coupled with the timing of repricing the Company’s variable rate loans. The decrease in earning asset yields outpaced the reduction in the average cost of interest-bearing liabilities.
Net interest income for the year ending December 31, 2019 totaled $140.1 million, a $32.0 million increase from the prior year due to the increases in the volume of interest earning assets.
Noninterest Income
Noninterest income for the fourth quarter of 2019 increased to $21.5 million compared to $18.1 million for the fourth quarter of 2018 and $18.6 million for the third quarter of 2019. The primary driver of the increase compared to the fourth quarter of 2018 was higher revenue from the net gains on sales of loans. The Company’s net gains on sales of loans increased $5.7 million to $11.4 million in the fourth quarter of 2019 compared to $5.7 million in the fourth quarter of 2018 and increased $3.9 million compared to $7.4 million in the third quarter of 2019. The volume of guaranteed loan sales in the fourth quarter of 2019 remained relatively flat at $105.0 million compared to $104.6 million in the fourth quarter of 2018 and $100.5 million in the third quarter of 2019.
The average net gain on guaranteed loan sales increased to $106.2 thousand per million sold in the fourth quarter of 2019 versus $59.8 thousand in the fourth quarter of 2018 and $80.5 thousand in the third quarter of 2019. The increase in average loan sale pricing from the fourth quarter of 2018 was driven by the mix of loans sold by the Company, continued strength of market conditions for the purchase of guaranteed loans, and favorable fair value adjustments for exchange-traded interest rate lock commitments. The Company recorded $1.2 million in fair value net gains in exchange-traded interest rate lock commitments during the fourth quarter of 2019 compared to $1.5 million in fair value net losses during the third quarter of 2019. Excluding fair value fluctuations in exchange-traded interest rate lock commitments, the average net gain on guaranteed loan sales was $94.9 thousand and $77.4 thousand per million sold in the fourth quarters of 2019 and 2018, respectively, and $95.0 thousand per million sold in the third quarter of 2019.
Partially offsetting the increase in noninterest income compared to the fourth quarter of 2018 were decreased levels of loan servicing revenue and increased flow-through losses from investments accounted for under the equity method. Loan servicing revenues of $6.7 million in the fourth quarter of 2019 decreased $1.0 million from the fourth quarter of 2018 as the outstanding balance of sold loans serviced has declined with the Company’s strategic shift to hold more guaranteed loans on balance sheet. Flow-through losses from investments accounted for under the equity method of $1.8 million in the fourth quarter of 2019 increased $2.8 million from income of $1.0 million in the fourth quarter of 2018.
Partially offsetting the increase in noninterest income compared to the third quarter of 2019 was a decline in revenue from equity security investments following a $3.3 million gain in the prior quarter. This gain was driven by observable fair market value changes in orderly transactions of underlying equity security investments.
The Company’s equity method and equity security portfolio is largely comprised of investments in strategic financial technology start-ups.
Noninterest Expense
Noninterest expense for the fourth quarter of 2019 increased to $44.4 million compared to $32.6 million for the fourth quarter of 2018 and $42.7 million for the third quarter of 2019.
Salaries and employee benefits for the fourth quarter of 2019 increased to $24.1 million compared to $14.5 million for the fourth quarter of 2018 and $22.7 million for the third quarter of 2019 as the Company invested in its workforce to support growth and a variety of initiatives. The increase in salaries and benefits of $9.6 million compared to the fourth quarter of 2018 was largely influenced by the Company’s reversal of accrued incentive compensation in the fourth quarter of 2018 due to not meeting internal performance metrics for that year.
Also largely contributing to the increase in noninterest expense was FDIC insurance expense of $2.0 million for the fourth quarter of 2019, an increase of $1.5 million compared to the fourth quarter of 2018 and $1.9 million from the third quarter of 2019. The year over year increase in FDIC insurance was related to increased premiums while the increase over the third quarter of 2019 was related to a large credit received in that quarter.
The increase in noninterest expense for the fourth quarter of 2019 compared to the fourth quarter of 2018 was mitigated in part by a decrease in travel expense of $1.0 million.
Partially offsetting the increase in noninterest expense for the fourth quarter of 2019 compared to the third quarter of 2019 were decreases in professional services, data processing, and loan related expenses of $1.1 million, $1.2 million, and $1.1 million, respectively.
Asset Quality
Net charge-offs decreased to $905 thousand in the fourth quarter of 2019 compared to $2.3 million in the third quarter of 2019 and $1.2 million in the fourth quarter of 2018. Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarters ended December 31, 2019 and 2018, was 0.14% and 0.28%, respectively. Net charge-offs for the year ended December 31, 2019 totaled $3.8 million compared to $4.8 million for the year ended December 31, 2018. Net charge-offs as a percentage of total average held for investment loans and leases for the years ended December 31, 2019 and 2018 were 0.17% and 0.31%, respectively.
The unguaranteed exposure of nonperforming (nonaccrual) loans decreased to $17.9 million, or 0.68% of loans and leases held for investment, at December 31, 2019, compared to $19.8 million, or 0.81%, at September 30, 2019. Total nonperforming loans decreased to $76.3 million in the fourth quarter of 2019 from $80.8 million at the end of the prior quarter.
The unguaranteed exposure of foreclosed assets decreased $22 thousand to $1.1 million at December 31, 2019 compared to September 31, 2019. Foreclosed assets decreased $90 thousand to $5.6 million at December 31, 2019, from $5.7 million at September 30, 2019.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the fourth quarter of 2019 totaled $6.2 million compared to $7.2 million for the third quarter of 2019 and $6.8 million for the fourth quarter of 2018. The provision expense is driven by growth in the loan and lease portfolio combined with ongoing changes in net charge-offs and criticized and classified loans and leases.
The allowance for loan and lease losses totaled $48.2 million at December 31, 2019, compared to $42.9 million at September 30, 2019. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.82% and 1.76% at December 31, 2019, and September 30, 2019, respectively.
Income Tax
Income tax expense was $2.1 million in the fourth quarter of 2019 compared to a net income tax benefit in the fourth quarter of 2018 of $3.0 million and an income tax expense of $2.4 million in the third quarter of 2019. During the year ended December 31, 2018, the Company’s effective tax rate was predominantly driven by the leasing of renewable energy assets which generated investment tax credits. For the year ended December 31, 2019, investment tax credits were less of a driver of the Company’s effective tax rate.
Shareholders’ Equity
During the fourth quarter of 2019, 900,000 shares of Class B common stock (non-voting) were converted to Class A common stock (voting) in connection with private sales. The conversion decreased the value of Class B common stock (non-voting) and increased the value of Class A common stock (voting) by $9.5 million.
Conference Call
Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (January 23, 2020). Media representatives, analysts and the public are invited to listen to this discussion by calling (844) 743-2494 (domestic) or (661) 378-9528 (international) with conference ID 9470049. A live webcast of the conference call along with presentation materials referenced during the conference call will be available on the Investor Relations page of the Company’s website at http://investor.liveoakbank.com. A replay of the webcast will be archived on the Company’s website for one year. A replay of the conference call will also be available until 5:00 p.m. ET January 30, 2020 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).
CFO Commentary
Additional commentary on the quarter by Brett Caines, Chief Financial Officer of the Company, is available at http://investor.liveoakbank.com in the supporting materials for the conference call.
Important Note Regarding Forward-Looking Statements
Statements in this press release that are based on other than historical data or that express the Company’s plans or expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements based on historical data are not intended and should not be understood to indicate the Company’s expectations regarding future events. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance or determinations, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this press release. Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include changes in Small Business Administration (“SBA”) rules, regulations or loan products, including the Section 7(a) program, changes in SBA standard operating procedures or changes in Live Oak Banking Company’s status as an SBA Preferred Lender; changes in rules, regulations or procedures for other government loan programs, including those of the United States Department of Agriculture; a reduction in or the termination of the Company’s ability to use the technology-based platform that is critical to the success of its business model, including a failure in or a breach of operational or security systems; competition from other lenders; the Company’s ability to attract and retain key personnel; market and economic conditions and the associated impact on the Company; operational, liquidity and credit risks associated with the Company’s business; the impact of heightened regulatory scrutiny of financial products and services and the Company’s ability to comply with regulatory requirements and expectations; and the other factors discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov). Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.
About Live Oak Bancshares, Inc.
Live Oak Bancshares, Inc. (Nasdaq: LOB) is a financial holding company and the parent company of Live Oak Banking Company. Live Oak Bancshares and its subsidiaries partner with businesses that have a common focus of changing the banking industry by bringing efficiency and excellence to customers using technology and innovation.
Contacts:
Brett Caines | CFO | Investor Relations | 910.796.1645 & Micah Davis | CMO | Media Relations | 910.550.2255
Live Oak Bancshares, Inc.
Quarterly Statements of Income (unaudited)
(Dollars in thousands, except per share data)
| Three months ended | ||||||||||||||||||||||
| 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 | ||||||||||||||||||
| Interest income | ||||||||||||||||||||||
| Loans and fees on loans | $ | 57,017 | $ | 55,939 | $ | 49,914 | $ | 44,966 | $ | 40,628 | ||||||||||||
| Investment securities, taxable | 3,911 | 4,001 | 4,116 | 3,317 | 2,558 | |||||||||||||||||
| Other interest earning assets | 885 | 1,167 | 1,108 | 1,639 | 1,568 | |||||||||||||||||
| Total interest income | 61,813 | 61,107 | 55,138 | 49,922 | 44,754 | |||||||||||||||||
| Interest expense | ||||||||||||||||||||||
| Deposits | 23,801 | 23,576 | 21,203 | 19,317 | 15,959 | |||||||||||||||||
| Borrowings | 1 | — | — | — | — | |||||||||||||||||
| Total interest expense | 23,802 | 23,576 | 21,203 | 19,317 | 15,959 | |||||||||||||||||
| Net interest income | 38,011 | 37,531 | 33,935 | 30,605 | 28,795 | |||||||||||||||||
| Provision for loan and leases losses | 6,208 | 7,160 | 3,463 | 2,742 | 6,822 | |||||||||||||||||
| Net interest income after provision for loan and lease losses | 31,803 | 30,371 | 30,472 | 27,863 | 21,973 | |||||||||||||||||
| Noninterest income | ||||||||||||||||||||||
| Loan servicing revenue | 6,730 | 6,831 | 7,063 | 7,410 | 7,752 | |||||||||||||||||
| Loan servicing asset revaluation | (1,304 | ) | (859 | ) | (403 | ) | (2,246 | ) | (627 | ) | ||||||||||||
| Net gains on sales of loans | 11,364 | 7,425 | 6,015 | 4,198 | 5,687 | |||||||||||||||||
| Equity method investments income (loss) | (1,769 | ) | (2,370 | ) | (1,736 | ) | (2,014 | ) | 1,011 | |||||||||||||
| Equity security investments gains (losses), net | 54 | 3,343 | 32 | 103 | 79 | |||||||||||||||||
| Gain on sale of investment securities available-for-sale | 528 | 87 | — | 5 | — | |||||||||||||||||
| Lease income | 2,600 | 2,361 | 2,369 | 2,325 | 2,244 | |||||||||||||||||
| Construction supervision fee income | 240 | 360 | 386 | 779 | 323 | |||||||||||||||||
| Other noninterest income | 3,081 | 1,450 | 975 | 2,467 | 1,596 | |||||||||||||||||
| Total noninterest income | 21,524 | 18,628 | 14,701 | 13,027 | 18,065 | |||||||||||||||||
| Noninterest expense | ||||||||||||||||||||||
| Salaries and employee benefits | 24,072 | 22,717 | 21,990 | 21,855 | 14,503 | |||||||||||||||||
| Travel expense | 2,246 | 1,934 | 1,541 | 1,200 | 3,269 | |||||||||||||||||
| Professional services expense | 983 | 2,073 | 1,621 | 2,182 | 1,233 | |||||||||||||||||
| Advertising and marketing expense | 1,630 | 1,277 | 1,665 | 1,364 | 1,023 | |||||||||||||||||
| Occupancy expense | 2,528 | 2,131 | 1,848 | 1,609 | 1,738 | |||||||||||||||||
| Data processing expense | 1,847 | 3,072 | 1,947 | 2,399 | 2,606 | |||||||||||||||||
| Equipment expense | 4,402 | 4,361 | 4,239 | 3,325 | 3,630 | |||||||||||||||||
| Other loan origination and maintenance expense | 2,390 | 3,535 | 1,708 | 1,639 | 1,482 | |||||||||||||||||
| Renewable energy tax credit investment impairment | — | — | 602 | — | — | |||||||||||||||||
| FDIC insurance | 2,012 | 101 | 699 | 635 | 547 | |||||||||||||||||
| Other expense | 2,300 | 1,536 | 1,716 | 1,993 | 2,527 | |||||||||||||||||
| Total noninterest expense | 44,410 | 42,737 | 39,576 | 38,201 | 32,558 | |||||||||||||||||
| Income before taxes | 8,917 | 6,262 | 5,597 | 2,689 | 7,480 | |||||||||||||||||
| Income tax expense (benefit) | 2,085 | 2,367 | 662 | 317 | (3,010 | ) | ||||||||||||||||
| Net income | $ | 6,832 | $ | 3,895 | $ | 4,935 | $ | 2,372 | $ | 10,490 | ||||||||||||
| Earnings per share | ||||||||||||||||||||||
| Basic | $ | 0.17 | $ | 0.10 | $ | 0.12 | $ | 0.06 | $ | 0.26 | ||||||||||||
| Diluted | $ | 0.17 | $ | 0.09 | $ | 0.12 | $ | 0.06 | $ | 0.26 | ||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||
| Basic | 40,291,867 | 40,240,740 | 40,196,662 | 40,160,118 | 40,148,115 | |||||||||||||||||
| Diluted | 41,178,472 | 41,113,575 | 40,998,541 | 40,921,823 | 41,075,864 | |||||||||||||||||
Live Oak Bancshares, Inc.
Quarterly Balance Sheets (unaudited)
(Dollars in thousands)
| As of the quarter ended | ||||||||||||||||||||
| 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and due from banks | $ | 126,752 | $ | 159,527 | $ | 115,292 | $ | 221,159 | $ | 316,823 | ||||||||||
| Federal funds sold | 96,787 | 88,919 | 68,153 | 64,708 | — | |||||||||||||||
| Certificates of deposit with other banks | 7,250 | 7,250 | 7,250 | 7,250 | 7,250 | |||||||||||||||
| Investment securities available-for-sale | 540,045 | 570,795 | 576,275 | 569,739 | 380,490 | |||||||||||||||
| Loans held for sale | 966,447 | 903,095 | 857,837 | 772,481 | 687,393 | |||||||||||||||
| Loans and leases held for investment | 2,647,299 | 2,441,953 | 2,225,473 | 2,002,124 | 1,843,419 | |||||||||||||||
| Allowance for loan and lease losses | (48,247 | ) | (42,944 | ) | (38,048 | ) | (35,111 | ) | (32,434 | ) | ||||||||||
| Net loans and leases | 2,599,052 | 2,399,009 | 2,187,425 | 1,967,013 | 1,810,985 | |||||||||||||||
| Premises and equipment, net | 279,099 | 280,942 | 281,126 | 271,810 | 262,524 | |||||||||||||||
| Foreclosed assets | 5,612 | 5,702 | 6,044 | 1,374 | 1,094 | |||||||||||||||
| Servicing assets | 35,365 | 37,583 | 41,687 | 44,324 | 47,641 | |||||||||||||||
| Operating lease right-of-use assets | 2,427 | 1,890 | 1,996 | 2,136 | — | |||||||||||||||
| Other assets | 156,134 | 148,985 | 131,216 | 136,053 | 156,249 | |||||||||||||||
| Total assets | $ | 4,814,970 | $ | 4,603,697 | $ | 4,274,301 | $ | 4,058,047 | $ | 3,670,449 | ||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Noninterest-bearing | $ | 54,107 | $ | 56,373 | $ | 55,416 | $ | 53,843 | $ | 53,993 | ||||||||||
| Interest-bearing | 4,175,015 | 3,962,894 | 3,666,181 | 3,474,562 | 3,095,590 | |||||||||||||||
| Total deposits | 4,229,122 | 4,019,267 | 3,721,597 | 3,528,405 | 3,149,583 | |||||||||||||||
| Borrowings | 14 | 1,310 | 1,361 | 1,410 | 1,457 | |||||||||||||||
| Operating lease liabilities | 2,619 | 2,041 | 2,162 | 2,314 | — | |||||||||||||||
| Other liabilities | 50,829 | 52,860 | 30,195 | 25,538 | 25,849 | |||||||||||||||
| Total liabilities | 4,282,584 | 4,075,478 | 3,755,315 | 3,557,667 | 3,176,889 | |||||||||||||||
| Shareholders’ equity | ||||||||||||||||||||
| Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding | — | — | — | — | — | |||||||||||||||
| Class A common stock (voting) | 309,526 | 296,925 | 284,987 | 281,994 | 278,945 | |||||||||||||||
| Class B common stock (non-voting) | 30,871 | 40,401 | 49,168 | 49,168 | 49,168 | |||||||||||||||
| Retained earnings | 180,265 | 174,641 | 171,954 | 168,225 | 167,124 | |||||||||||||||
| Accumulated other comprehensive income (loss) | 11,724 | 16,252 | 12,877 | 993 | (1,677 | ) | ||||||||||||||
| Total equity | 532,386 | 528,219 | 518,986 | 500,380 | 493,560 | |||||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,814,970 | $ | 4,603,697 | $ | 4,274,301 | $ | 4,058,047 | $ | 3,670,449 | ||||||||||
Live Oak Bancshares, Inc.
Statements of Income (unaudited)
(Dollars in thousands, except per share data)
| Twelve months ended | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Interest income | ||||||||
| Loans and fees on loans | $ | 207,836 | $ | 147,310 | ||||
| Investment securities, taxable | 15,345 | 8,733 | ||||||
| Other interest earning assets | 4,799 | 6,600 | ||||||
| Total interest income | 227,980 | 162,643 | ||||||
| Interest expense | ||||||||
| Deposits | 87,897 | 54,469 | ||||||
| Borrowings | 1 | 131 | ||||||
| Total interest expense | 87,898 | 54,600 | ||||||
| Net interest income | 140,082 | 108,043 | ||||||
| Provision for loan and lease losses | 19,573 | 13,058 | ||||||
| Net interest income after provision for loan and lease losses | 120,509 | 94,985 | ||||||
| Noninterest income | ||||||||
| Loan servicing revenue | 28,034 | 29,121 | ||||||
| Loan servicing asset revaluation | (4,812 | ) | (18,765 | ) | ||||
| Net gains on sales of loans | 29,002 | 75,170 | ||||||
| Equity method investments income (loss) | (7,889 | ) | (386 | ) | ||||
| Equity security investments gains (losses), net | 3,532 | 213 | ||||||
| Gain on sale of investment securities available-for-sale | 620 | — | ||||||
| Lease income | 9,655 | 7,966 | ||||||
| Construction supervision fee income | 1,765 | 2,277 | ||||||
| Title insurance income | — | 2,775 | ||||||
| Other noninterest income | 7,973 | 5,394 | ||||||
| Total noninterest income | 67,880 | 103,765 | ||||||
| Noninterest expense | ||||||||
| Salaries and employee benefits | 90,634 | 77,411 | ||||||
| Travel expense | 6,921 | 9,156 | ||||||
| Professional services expense | 6,859 | 4,878 | ||||||
| Advertising and marketing expense | 5,936 | 6,015 | ||||||
| Occupancy expense | 8,116 | 7,065 | ||||||
| Data processing expense | 9,265 | 12,010 | ||||||
| Equipment expense | 16,327 | 13,724 | ||||||
| Other loan origination and maintenance expense | 9,272 | 5,967 | ||||||
| Renewable energy tax credit investment impairment | 602 | — | ||||||
| FDIC insurance | 3,447 | 3,234 | ||||||
| Title insurance closing services expense | — | 912 | ||||||
| Impairment expense on goodwill and other intangibles, net | — | 2,680 | ||||||
| Other expense | 7,545 | 9,652 | ||||||
| Total noninterest expense | 164,924 | 152,704 | ||||||
| Income before taxes | 23,465 | 46,046 | ||||||
| Income tax expense (benefit) | 5,431 | (5,402 | ) | |||||
| Net income | $ | 18,034 | $ | 51,448 | ||||
| Earnings per share | ||||||||
| Basic | $ | 0.45 | $ | 1.28 | ||||
| Diluted | $ | 0.44 | $ | 1.24 | ||||
| Weighted average shares outstanding | ||||||||
| Basic | 40,222,758 | 40,056,230 | ||||||
| Diluted | 41,053,514 | 41,446,750 | ||||||
Live Oak Bancshares, Inc.
Quarterly Selected Financial Data
(Dollars in thousands, except per share data)
| As of and for the three months ended | ||||||||||||||||||||
| 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 | ||||||||||||||||
| Income Statement Data | ||||||||||||||||||||
| Net income | $ | 6,832 | $ | 3,895 | $ | 4,935 | $ | 2,372 | $ | 10,490 | ||||||||||
| Per Common Share | ||||||||||||||||||||
| Net income, basic | $ | 0.17 | $ | 0.10 | $ | 0.12 | $ | 0.06 | $ | 0.26 | ||||||||||
| Net income, diluted | 0.17 | 0.09 | 0.12 | 0.06 | 0.26 | |||||||||||||||
| Dividends declared | 0.03 | 0.03 | 0.03 | 0.03 | 0.03 | |||||||||||||||
| Book value | 13.20 | 13.12 | 12.90 | 12.45 | 12.29 | |||||||||||||||
| Tangible book value (1) | 13.20 | 13.12 | 12.90 | 12.45 | 12.29 | |||||||||||||||
| Performance Ratios | ||||||||||||||||||||
| Return on average assets (annualized) | 0.58 | % | 0.35 | % | 0.48 | % | 0.25 | % | 1.20 | % | ||||||||||
| Return on average equity (annualized) | 5.06 | 2.94 | 3.85 | 1.88 | 8.64 | |||||||||||||||
| Net interest margin | 3.55 | 3.74 | 3.70 | 3.63 | 3.72 | |||||||||||||||
| Efficiency ratio (1) | 75.26 | 76.22 | 81.37 | 87.56 | 69.48 | |||||||||||||||
| Noninterest income to total revenue | 35.58 | 33.07 | 30.23 | 29.85 | 38.55 | |||||||||||||||
| Selected Loan Metrics | ||||||||||||||||||||
| Loans and leases originated | $ | 523,688 | $ | 562,259 | $ | 525,088 | $ | 390,851 | $ | 498,987 | ||||||||||
| Guaranteed loans sold | 105,002 | 100,498 | 71,934 | 62,940 | 104,646 | |||||||||||||||
| Average net gain on sale of guaranteed loans | 106.16 | 80.51 | 80.12 | 61.30 | 59.83 | |||||||||||||||
| Adjusted average net gain on sale of guaranteed loans (2) | 94.86 | 94.98 | 93.74 | 89.04 | 77.42 | |||||||||||||||
| Outstanding balance of sold loans serviced: | ||||||||||||||||||||
| Guaranteed | 2,746,480 | 2,802,073 | 2,870,108 | 2,952,774 | 3,045,460 | |||||||||||||||
| Unguaranteed | 224,127 | 211,095 | 183,991 | 179,307 | 174,066 | |||||||||||||||
| Total | 2,970,607 | 3,013,168 | 3,054,099 | 3,132,081 | 3,219,526 | |||||||||||||||
| Asset Quality Ratios | ||||||||||||||||||||
| Allowance for loan losses to loans and leases held for investment | 1.82 | % | 1.76 | % | 1.71 | % | 1.75 | % | 1.76 | % | ||||||||||
| Net charge-offs | $ | 905 | $ | 2,264 | $ | 526 | $ | 65 | $ | 1,185 | ||||||||||
| Net charge-offs to average loans and leases held for investment (3) | 0.14 | % | 0.39 | % | 0.10 | % | 0.01 | % | 0.28 | % | ||||||||||
| Nonperforming loans | $ | 76,307 | $ | 80,757 | $ | 65,473 | $ | 70,692 | $ | 57,690 | ||||||||||
| Foreclosed assets | 5,612 | 5,702 | 6,044 | 1,374 | 1,094 | |||||||||||||||
| Nonperforming loans (unguaranteed exposure) | 17,908 | 19,817 | 18,352 | 20,186 | 14,488 | |||||||||||||||
| Foreclosed assets (unguaranteed exposure) | 1,120 | 1,142 | 1,228 | 170 | 148 | |||||||||||||||
| Nonperforming loans not guaranteed by the SBA and foreclosures | $ | 19,028 | $ | 20,959 | $ | 19,580 | $ | 20,356 | $ | 14,636 | ||||||||||
| Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets | 0.40 | % | 0.46 | % | 0.46 | % | 0.50 | % | 0.40 | % | ||||||||||
| Capital Ratios | ||||||||||||||||||||
| Common equity tier 1 capital (to risk-weighted assets) | 14.85 | % | 15.22 | % | 15.94 | % | 16.68 | % | 17.10 | % | ||||||||||
| Total capital (to risk-weighted assets) | 16.10 | 16.47 | 17.19 | 17.92 | 18.28 | |||||||||||||||
| Tier 1 risk based capital (to risk-weighted assets) | 14.85 | 15.22 | 15.94 | 16.68 | 17.10 | |||||||||||||||
| Tier 1 leverage capital (to average assets) | 10.65 | 11.12 | 11.77 | 12.34 | 13.40 | |||||||||||||||
Notes to Quarterly Selected Financial Data
(1) See accompanying GAAP to Non-GAAP Reconciliation.
(2) Excludes fair value gain/loss on exchange-traded interest rate lock commitments.
(3) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.
Live Oak Bancshares, Inc.
Quarterly Average Balances and Net Interest Margin
(Dollars in thousands)
| Three months ended December 31, 2019 | Three months ended September 30, 2019 | |||||||||||||||||||||||
| Average Balance | Interest | Average Yield/Rate | Average Balance | Interest | Average Yield/Rate | |||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||
| Interest earning balances in other banks | $ | 196,717 | $ | 885 | 1.78 | % | $ | 205,342 | $ | 1,167 | 2.25 | % | ||||||||||||
| Investment securities | 549,879 | 3,911 | 2.82 | 554,871 | 4,001 | 2.86 | ||||||||||||||||||
| Loans held for sale | 954,396 | 15,539 | 6.46 | 910,837 | 15,982 | 6.96 | ||||||||||||||||||
| Loans and leases held for investment (1) | 2,545,624 | 41,478 | 6.46 | 2,313,615 | 39,957 | 6.85 | ||||||||||||||||||
| Total interest earning assets | 4,246,616 | 61,813 | 5.77 | 3,984,665 | 61,107 | 6.08 | ||||||||||||||||||
| Less: allowance for loan and lease losses | (42,982 | ) | (37,995 | ) | ||||||||||||||||||||
| Non-interest earning assets | 527,280 | 501,369 | ||||||||||||||||||||||
| Total assets | $ | 4,730,914 | $ | 4,448,039 | ||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||
| Savings | $ | 1,096,640 | $ | 5,077 | 1.84 | % | $ | 1,036,858 | $ | 5,501 | 2.10 | % | ||||||||||||
| Money market accounts | 83,540 | 112 | 0.53 | 91,813 | 179 | 0.77 | ||||||||||||||||||
| Certificates of deposit | 2,897,225 | 18,612 | 2.55 | 2,701,350 | 17,896 | 2.63 | ||||||||||||||||||
| Total interest bearing deposits | 4,077,405 | 23,801 | 2.32 | 3,830,021 | 23,576 | 2.44 | ||||||||||||||||||
| Other borrowings | 557 | 1 | 0.71 | 1,359 | — | — | ||||||||||||||||||
| Total interest bearing liabilities | 4,077,962 | 23,802 | 2.32 | 3,831,380 | 23,576 | 2.44 | ||||||||||||||||||
| Non-interest bearing deposits | 56,444 | 51,781 | ||||||||||||||||||||||
| Non-interest bearing liabilities | 56,754 | 35,654 | ||||||||||||||||||||||
| Shareholders’ equity | 539,754 | 529,224 | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,730,914 | $ | 4,448,039 | ||||||||||||||||||||
| Net interest income and interest rate spread | $ | 38,011 | 3.45 | $ | 37,531 | 3.64 | ||||||||||||||||||
| Net interest margin | 3.55 | 3.74 | ||||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 104.14 | % | 104.00 | % | ||||||||||||||||||||
(1) Average loan and lease balances include non-accruing loans.
Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation
(Dollars in thousands)
| As of and for the three months ended | ||||||||||||||||||||
| 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 | ||||||||||||||||
| Total shareholders’ equity | $ | 532,386 | $ | 528,219 | $ | 518,986 | $ | 500,380 | $ | 493,560 | ||||||||||
| Less: | ||||||||||||||||||||
| Goodwill | — | — | — | — | — | |||||||||||||||
| Other intangible assets | — | — | — | — | — | |||||||||||||||
| Tangible shareholders’ equity (a) | $ | 532,386 | $ | 528,219 | $ | 518,986 | $ | 500,380 | $ | 493,560 | ||||||||||
| Shares outstanding (c) | 40,316,974 | 40,272,908 | 40,220,916 | 40,175,079 | 40,155,792 | |||||||||||||||
| Total assets | $ | 4,814,970 | $ | 4,603,697 | $ | 4,274,301 | $ | 4,058,047 | $ | 3,670,449 | ||||||||||
| Less: | ||||||||||||||||||||
| Goodwill | — | — | — | — | — | |||||||||||||||
| Other intangible assets | — | — | — | — | — | |||||||||||||||
| Tangible assets (b) | $ | 4,814,970 | $ | 4,603,697 | $ | 4,274,301 | $ | 4,058,047 | $ | 3,670,449 | ||||||||||
| Tangible shareholders’ equity to tangible assets (a/b) | 11.06 | % | 11.47 | % | 12.14 | % | 12.33 | % | 13.45 | % | ||||||||||
| Tangible book value per share (a/c) | $ | 13.21 | $ | 13.12 | $ | 12.90 | $ | 12.45 | $ | 12.29 | ||||||||||
| Efficiency ratio: | ||||||||||||||||||||
| Noninterest expense (d) | $ | 44,410 | $ | 42,737 | $ | 39,576 | $ | 38,201 | $ | 32,558 | ||||||||||
| Net interest income | 38,011 | 37,531 | 33,935 | 30,605 | 28,795 | |||||||||||||||
| Noninterest income | 21,524 | 18,628 | 14,701 | 13,027 | 18,065 | |||||||||||||||
| Less: gain on sale of securities | 528 | 87 | — | 5 | — | |||||||||||||||
| Adjusted operating revenue (e) | $ | 59,007 | $ | 56,072 | $ | 48,636 | $ | 43,627 | $ | 46,860 | ||||||||||
| Efficiency ratio (d/e) | 75.26 | % | 76.22 | % | 81.37 | % | 87.56 | % | 69.48 | % | ||||||||||
Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation (Continued)
(Dollars in thousands)
| Three months ended | Twelve months ended | |||||||||||||||||||
| 4Q 2019 | 3Q 2019 | 4Q 2018 | 4Q 2019 | 4Q 2018 | ||||||||||||||||
| Reconciliation of net income to non-GAAP net income for non-routine income and expenses: | ||||||||||||||||||||
| Net income | $ | 6,832 | $ | 3,895 | $ | 10,490 | $ | 18,034 | $ | 51,448 | ||||||||||
| Gain on sale of aircraft | — | — | — | (357 | ) | — | ||||||||||||||
| Stock based compensation expense for restricted stock awards with an effective grant date of May 24, 2016, as discussed in Note 10 of our March 31, 2016 Form 10-Q |
360 | 360 | 360 | 1,429 | 1,429 | |||||||||||||||
| Impairment expense on goodwill and other intangibles, net | — | — | — | — | 2,680 | |||||||||||||||
| Renewable energy tax credit investment, impairment | — | — | — | 602 | — | |||||||||||||||
| Income tax effects and adjustments for non-GAAP items * | (86 | ) | (86 | ) | (86 | ) | (402 | ) | (986 | ) | ||||||||||
| Non-GAAP net income | $ | 7,106 | $ | 4,169 | $ | 10,764 | $ | 19,306 | $ | 54,571 | ||||||||||
| * Estimated at 24.0% | ||||||||||||||||||||
| Non-GAAP earnings per share: | ||||||||||||||||||||
| Basic | $ | 0.18 | $ | 0.10 | $ | 0.27 | $ | 0.48 | $ | 1.36 | ||||||||||
| Diluted | $ | 0.17 | $ | 0.10 | $ | 0.26 | $ | 0.47 | $ | 1.32 | ||||||||||
| Weighted-average shares outstanding: | ||||||||||||||||||||
| Basic | 40,291,867 | 40,240,740 | 40,148,115 | 40,222,758 | 40,056,230 | |||||||||||||||
| Diluted | 41,178,472 | 41,113,575 | 41,075,864 | 41,053,514 | 41,446,750 | |||||||||||||||
| Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses: | ||||||||||||||||||||
| Noninterest income, as reported | $ | 21,524 | $ | 18,628 | $ | 18,065 | $ | 67,880 | $ | 103,765 | ||||||||||
| Gain on sale of aircraft | — | — | — | (357 | ) | — | ||||||||||||||
| Noninterest income, as adjusted | $ | 21,524 | $ | 18,628 | $ | 18,065 | $ | 67,523 | $ | 103,765 | ||||||||||
| Noninterest expense, as reported | $ | 44,410 | $ | 42,737 | $ | 32,558 | $ | 164,924 | $ | 152,704 | ||||||||||
| Stock based compensation expense | (360 | ) | (360 | ) | (360 | ) | (1,429 | ) | (1,429 | ) | ||||||||||
| Impairment expense on goodwill and other intangibles, net | — | — | — | — | (2,680 | ) | ||||||||||||||
| Renewable energy tax credit investment, impairment | — | — | — | (602 | ) | — | ||||||||||||||
| Noninterest expense, as adjusted | $ | 44,050 | $ | 42,377 | $ | 32,198 | $ | 162,893 | $ | 148,595 | ||||||||||
| Income before taxes, as reported | $ | 8,917 | $ | 6,262 | $ | 7,480 | $ | 23,465 | $ | 46,046 | ||||||||||
| Gain on sale of aircraft | — | — | — | (357 | ) | — | ||||||||||||||
| Stock based compensation expense | 360 | 360 | 360 | 1,429 | 1,429 | |||||||||||||||
| Impairment expense on goodwill and other intangibles, net | — | — | — | — | 2,680 | |||||||||||||||
| Renewable energy tax credit investment impairment and loss | — | — | — | 602 | — | |||||||||||||||
| Income before taxes, as adjusted | $ | 9,277 | $ | 6,622 | $ | 7,840 | $ | 25,139 | $ | 50,155 | ||||||||||
| Income tax expense (benefit), as reported | $ | 2,085 | $ | 2,367 | $ | (3,010 | ) | $ | 5,431 | $ | (5,402 | ) | ||||||||
| Income tax effects and adjustments for non-recurring income and expenses | 86 | 86 | 86 | 402 | 986 | |||||||||||||||
| Income tax expense (benefit), as adjusted | $ | 2,171 | $ | 2,453 | $ | (2,924 | ) | $ | 5,833 | $ | (4,416 | ) | ||||||||
This press release presents the non-GAAP financial measures previously shown. The adjustments to reconcile from the applicable GAAP financial measure to the non-GAAP financial measures are included where applicable in financial results presented in accordance with GAAP. The Company considers these adjustments to be relevant to ongoing operating results. The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period comparisons, which will assist regulators, investors, and analysts in analyzing the operating results or financial position of the Company. The non-GAAP financial measures are used by management to assess the performance of the Company’s business for presentations of Company performance to investors, and for other reasons as may be requested by investors and analysts. The Company further believes that presenting the non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although non-GAAP financial measures are frequently used by shareholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.
