Live Oak Bancshares, Inc. Reports Third Quarter 2020 Results
10/21/2020 - 04:30 PM
WILMINGTON, N.C., Oct. 21, 2020 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or the “Company”) today reported third quarter 2020 net income of $33.8 million , or $0.81 per diluted share, compared to net income of $3.9 million , or $0.09 per diluted share, for the third quarter of 2019. The third quarter of 2020 included non-cash gains of $15.2 million related to the Company’s financial technology investments.
“We understand what a challenging year this has been for everyone, and we are pleased to report that our performance during the third quarter of 2020 successfully displayed our ability to help American small business owners in a time of real need,” said James S. Mahan, III, Chairman and Chief Executive Officer of Live Oak. “We greatly exceeded our previous quarterly maximum for loan and lease origination at nearly $1 billion , excluding the work we accomplished for the Paycheck Protection Program. Our core business has shown scale and efficiency thanks to previous investments in infrastructure and talent, and our position as a financial technology change leader was further validated with the increased valuations on several of our investments. We believe our way of business is proving itself to be a bold and successful way of providing next-generation banking experiences to American small business owners.”
Third Quarter 2020 Key Measures
(Dollars in thousands, except per share data) Increase (Decrease) 3Q 2020 3Q 2019 Dollars Percent 2Q 2020 Net interest income and servicing revenues $ 58,166 $ 44,362 $ 13,804 31 % $ 47,589 Net income 33,780 3,895 29,885 767 3,777 Diluted earnings per share 0.81 0.09 0.72 800 0.09 Non-GAAP net income (1) 34,554 3,895 30,659 787 3,777 Non-GAAP diluted earnings per share (1) 0.83 0.09 0.74 822 0.09 Loan and lease production: Loans and leases originated $ 966,499 $ 562,259 $ 404,240 72 % $ 2,175,055 % Fully funded 72.9 % 51.3 % n/a n/a 89.8 % Total loans and leases $ 6,227,399 $ 3,326,065 $ 2,901,334 87 % $ 5,626,650 Total assets 8,093,381 4,601,529 3,491,852 76 8,209,154 Total deposits 5,706,044 4,017,099 1,688,945 42 5,873,292
(1) See accompanying GAAP to Non-GAAP Reconciliation.
Loans and Leases
At September 30, 2020, the total loan and lease portfolio increased to $6.23 billion , 87.2% above its level a year ago and 10.7% above its level at June 30, 2020. Compared to the second quarter of 2020, loans and leases held for investment increased $387.3 million , or 8.3% , to $5.04 billion while loans held for sale increased $213.4 million , or 21.9% , to $1.19 billion . Loan and lease originations totaled $966.5 million during the third quarter of 2020, a decrease of $1.21 billion , or 55.6% , from the second quarter of 2020. The total loan and lease portfolio at September 30, 2020, and June 30, 2020, of $6.23 billion and $5.63 billion , respectively, consisted of approximately 37.9% and 38.7% of unguaranteed loans and leases, respectively.
Excluding loan originations as part of the Paycheck Protection Program (“PPP”), loan and lease originations totaled $948.8 million during the third quarter of 2020, an increase of $518.7 million , or 120.6% , from the second quarter of 2020. Average loans and leases were $5.87 billion during the third quarter of 2020 compared to $5.13 billion during the second quarter of 2020.
Loans and leases held for investment, loan and lease originations, and average loans and leases were impacted by PPP loans originated in the second and third quarters of 2020. The unguaranteed percentage of the total loan and lease portfolio for each of the second and third quarters of 2020 was significantly influenced by the addition of PPP loans carrying a 100% government guarantee. The total loan and lease portfolio at September 30, 2020, was comprised of $1.71 billion of PPP loans, net of deferred fees and costs. PPP loans comprised $17.7 million of the total loans and leases originated during the third quarter of 2020, compared to $1.74 billion of PPP loans originated in the second quarter of 2020, and are carried at historical cost classified as held for investment.
Deposits
Total deposits decreased by $167.2 million to $5.71 billion at September 30, 2020, from $5.87 billion at June 30, 2020, as excess deposits began to runoff following the defensive strategy to build liquidity during the first quarter of 2020 due to the uncertainty of the effects of COVID-19. Average total interest-bearing deposits for the third quarter of 2020 increased $54.7 million , or 1.0% , to $5.69 billion , compared to $5.63 billion for the second quarter of 2020. The ratio of average total loans and leases to average interest-bearing deposits was 103.1% for the third quarter of 2020, compared to 91.1% for the second quarter of 2020. The ratio is influenced by average PPP loan volume and the use of the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) classified as long-term borrowings.
Borrowings
Borrowings totaled $1.75 billion at September 30, 2020. During the third quarter of 2020, the Company increased long-term borrowings by $26.1 million through the Federal Reserve’s PPPLF to $1.74 billion . The PPPLF has a 100% advance rate equal to the principal amount of PPP loans pledged as security and carries an interest rate of 0.35% and loans financed under the PPPLF have a neutral impact on regulatory leverage capital ratios.
Net Interest Income
Net interest income for the third quarter of 2020 rose to $51.4 million compared to $37.5 million for the third quarter of 2019 and $40.9 million for the second quarter of 2020. The increase from the prior year was driven by significant growth in the held for investment loan and lease portfolio reflecting the Company's ongoing initiative to grow recurring revenue sources and strengthen its liquidity profile. This increase over the prior year was further enhanced by the origination of $1.76 billion in PPP loans in the second and third quarters of 2020 and a year-to-date loan and lease originations for 2020 of $1.88 billion , excluding PPP loans.
The increase from the second quarter of 2020 arose principally from a higher average loan and lease portfolio balance enhanced by a 21-basis point improvement in the net interest margin from 2.56% to 2.77% . The decrease in interest earning asset yields of 14 basis points was outpaced by the 38-basis point reduction in the average cost of interest-bearing liabilities from 1.65% in the second quarter of 2020, to 1.27% in the third quarter of 2020. The reduction in the cost of interest bearing liabilities was a product of a lag in deposit repricing from the first quarter of 2020 cuts in fed funds rates combined with runoff of higher rate maturing deposits and the lower cost of PPPLF funds.
Noninterest Income
Noninterest income for the third quarter of 2020 increased to $47.0 million compared to $15.4 million for the third quarter of 2019 and $22.4 million for the second quarter of 2020.
Noninterest income increased $31.6 million , or 204.9% , compared to the third quarter of 2019. The net gains on sales of loans increased by $5.3 million as the average net gain on sale of guaranteed loans increased to $110.2 thousand per million sold for the third quarter of 2020 compared to $80.5 thousand per million sold during the third quarter of 2019. The volume of guaranteed loans sold increased to $114.7 million for the third quarter of 2020 from $100.5 million for the third quarter of 2019. The revaluation of the loan servicing asset resulted in a gain of $2.1 million for the third quarter of 2020, an increase of $7.2 million from the third quarter of 2019. The valuation adjustments related to loans measured at fair value resulted in a net gain of $3.4 million for the third quarter of 2020, a $2.3 million increase compared to the third quarter of 2019. The valuation of loans and loan servicing assets in the third quarter of 2020 was favorably impacted by greater stability and improvement of market conditions.
Net losses on equity method investments decreased to $1.2 million for the third quarter of 2020 compared to $2.4 million for the third quarter of 2019, partially due to a non-cash gain recognized in that portfolio. Equity security investments resulted in a gain of $14.7 million for the third quarter of 2020 compared to $3.3 million for the third quarter of 2019 and was primarily driven by a $13.7 million increase in the observable fair market value of the Company’s investment in Greenlight Financial Technology, Inc. (“Greenlight”), arising from orderly transactions in Greenlight’s securities. Additionally, management fee income earned by Canapi Advisors, the Company’s investment advisor subsidiary, increased by $1.2 million to $1.3 million for the third quarter of 2020 compared to $95 thousand for the third quarter of 2019.
Noninterest income increased $24.6 million , or 109.9% , compared to the second quarter of 2020. For the third quarter of 2020, fair value adjustments were impacted by the above-mentioned improved market conditions by recouping a portion of the losses recognized earlier in 2020 related to the COVID-19 pandemic. The valuation adjustment for loans measured at fair value for the third quarter of 2020 improved $4.5 million compared to the second quarter of 2020, while the loan servicing asset revaluation improved $3.6 million over the same period. The average net gain on guaranteed loan sales was $110.2 thousand per million sold in the third quarter of 2020 versus $66.8 thousand per million in the second quarter of 2020 also as a result of improving market conditions for the purchase of guaranteed loans and favorable fair value adjustments for exchange-traded interest rate futures contracts. The Company recorded $252 thousand in fair value net gains on exchange-traded interest rate futures contracts during the third quarter of 2020 compared to $127 thousand in fair value net gains during the second quarter of 2020. Excluding fair value gains on exchange-traded interest rate futures contracts, the average net gain on guaranteed loan sales was $108.0 thousand per million and $65.9 thousand per million sold in the third quarter of 2020 and the second quarter of 2020, respectively.
Equity security investments income increased by $14.5 million for the third quarter of 2020 compared to the prior quarter and was primarily driven by the aforementioned non-cash gain arising from the increase in the market value of the Company’s investment in Greenlight. Other noninterest income decreased by $2.4 million compared to the prior quarter primarily due to $2.5 million in revenue from co-developed technology recognized during the second quarter of 2020.
Noninterest Expense
Noninterest expense for the third quarter of 2020 totaled $42.7 million compared to $42.7 million for the third quarter of 2019 and $48.1 million for the second quarter of 2020.
Salaries and employee benefits for the third quarter of 2020 increased $1.5 million , or 6.5% , to $24.2 million compared to $22.7 million for the third quarter of 2019 and decreased $6.5 million , or 21.4% , from $30.8 million for the second quarter of 2020. The salaries and employee benefits increase over the third quarter of 2019 was attributable to the Company’s investment in its workforce to support growth and a variety of initiatives, offset by increased levels of deferred salary expense for the increased loan originations compared to the prior year. The decrease of $6.5 million for the third quarter of 2020 was driven primarily by $7.2 million in expense for a performance bonus pool that was available to all employees other than executive officers during the second quarter of 2020.
Operational adaptations due to the impact of the COVID-19 pandemic resulted in travel expense decreasing to $250 thousand for the third quarter of 2020 compared to $1.9 million for the third quarter of 2019 and $364 thousand for the second quarter of 2020. Similarly, advertising and marketing expense decreased to $552 thousand for the third quarter of 2020 compared to $1.3 million for the third quarter of 2019 and $624 thousand for the second quarter of 2020.
Compared to the third quarter of 2019, FDIC insurance increased $2.0 million for the third quarter of 2020.
Asset Quality
Net charge-offs for loans carried at historical cost increased to $10.1 million in the third quarter of 2020 compared to $1.8 million in the second quarter of 2020 and increased from $840 thousand in the third quarter of 2019. The increase in net charge-offs during the third quarter of 2020 was principally driven by the reclassification of fifteen hotel loans aggregating $81.2 million in net investment from held for investment to held for sale during the quarter. After charge-offs, discussed more fully below, ten of these loans were sold for the adjusted net investment of $45.7 million prior to quarter end. These loans were marked to the lower of cost or fair value upon reclassification with the write down of $9.8 million reflected in charge-offs. At September 30, 2020, the Company still held five of these loans for sale with an aggregate net investment balance of $25.7 million ; however, these unsold loans have been written down to an agreed upon price. Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended September 30, 2020 and 2019 and June 30, 2020, were 1.03% , 0.23% and 0.21% , respectively.
Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $7.5 million and $6.4 million accounted for under the fair value option at September 30, 2020 and June 30, 2020, respectively, and excluding one loan for $6.1 million included in the above hotel loans still held for sale as of September 30, 2020, increased to $20.2 million , or 0.48% of loans and leases held for investment which are carried at historical cost, at September 30, 2020, compared to $13.1 million , or 0.34% , at June 30, 2020. The increase in unguaranteed nonperforming loans and leases was primarily driven by loans in the entertainment center vertical.
The unguaranteed exposure of foreclosed assets decreased $557 thousand to $642 thousand at September 30, 2020, compared to June 30, 2020. Foreclosed assets decreased $2.4 million to $3.3 million at September 30, 2020, from $5.7 million at June 30, 2020.
Provision for Loan and Lease Credit Losses
The provision for loan and lease credit losses for the third quarter of 2020 totaled $10.3 million compared to $4.0 million for the third quarter of 2019 and $10.0 million for the second quarter of 2020. The Company adopted the new current expected credit losses (“CECL”) standard effective January 1, 2020, and accordingly determined to use forecasted levels of unemployment as a primary economic variable in forecasting future expected losses. Ongoing developments including charge-offs and changing economic forecasts related to the COVID-19 pandemic significantly influences the Company’s allowance for credit losses on loans and leases.
The allowance for credit losses on loans and leases totaled $44.2 million at September 30, 2020, compared to $44.1 million at June 30, 2020. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost was 1.05% and 1.16% at September 30, 2020, and June 30, 2020, respectively. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost during the third quarter is heavily influenced by the PPP loans.
Income Tax
Income tax expense was $11.7 million in the third quarter of 2020 compared to an income tax expense of $2.4 million in the third quarter of 2019 and $1.5 million in the second quarter of 2020. The increase in the third quarter of 2020 over the third quarter of 2019 and second quarter of 2020 is primarily due to a significant increase in income before taxes. Also influencing the increase over the third quarter of 2019 is the absence of expected tax credits during 2020.
Shareholders’ Equity
During the first nine months of 2020, 450,000 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 $4.8 million .
Conference Call
Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 22, 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 4575196. 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 October 29, 2020 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID 4575196.
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; the potential impacts of the Coronavirus Disease 2019 (COVID-19) pandemic on trade (including supply chains and export levels), travel, employee productivity and other economic activities that may have a destabilizing and negative effect on financial markets, economic activity and customer behavior; 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
Live Oak Bancshares, Inc. (Nasdaq: LOB) is a financial holding company and the parent company of Live Oak Bank. Live Oak Bancshares and its subsidiaries partner with businesses that share a groundbreaking focus on service and technology to redefine banking. To learn more, visit www.liveoakbank.com.
Contacts:
Brett Caines | CFO | Investor Relations | 910.796.1645 & Claire Parker | SVP | Media Relations | 910.550.2255
Live Oak Bancshares, Inc. Quarterly Statements of Income (unaudited) (Dollars in thousands, except per share data)
Three months ended 3Q 2020 2Q 2020 1Q 2020 4Q 2019 3Q 2019 Interest income Loans and fees on loans $ 70,621 $ 62,022 $ 58,961 $ 57,017 $ 55,939 Investment securities, taxable 4,123 3,786 3,762 3,911 4,001 Other interest earning assets 334 1,009 750 885 1,167 Total interest income 75,078 66,817 63,473 61,813 61,107 Interest expense Deposits 22,155 25,121 23,255 23,801 23,576 Borrowings 1,560 798 57 1 — Total interest expense 23,715 25,919 23,312 23,802 23,576 Net interest income 51,363 40,898 40,161 38,011 37,531 Provision for loan and lease credit losses 10,274 9,958 11,792 4,809 3,960 Net interest income after provision for loan and lease credit losses 41,089 30,940 28,369 33,202 33,571 Noninterest income Loan servicing revenue 6,803 6,691 6,422 6,730 6,831 Loan servicing asset revaluation 2,061 (1,571 ) (4,692 ) (4,135 ) (5,161 ) Net gains on sales of loans 12,690 10,695 11,112 11,364 7,425 Net gain (loss) on loans accounted for under the fair value option 3,403 (1,089 ) (10,638 ) 1,432 1,102 Equity method investments income (loss) (1,231 ) (2,243 ) (2,478 ) (1,769 ) (2,370 ) Equity security investments gains (losses), net 14,705 161 (64 ) 54 3,343 Gain (loss) on sale of investment securities available-for-sale, net 1,225 734 (79 ) 528 87 Lease income 2,634 2,635 2,624 2,600 2,361 Management fee income 1,296 1,206 1,644 1,556 95 Construction supervision fee income 1,365 684 390 240 360 Other noninterest income 2,093 4,508 1,501 1,525 1,355 Total noninterest income 47,044 22,411 5,742 20,125 15,428 Noninterest expense Salaries and employee benefits 24,203 30,782 28,063 24,072 22,717 Travel expense 250 364 1,781 2,246 1,934 Professional services expense 1,346 1,385 1,937 983 2,073 Advertising and marketing expense 552 624 1,361 1,630 1,277 Occupancy expense 2,079 1,955 2,421 2,528 2,131 Data processing expense 3,009 2,764 3,157 1,847 3,072 Equipment expense 4,314 4,652 4,635 4,402 4,361 Other loan origination and maintenance expense 2,669 2,492 2,456 2,390 3,535 FDIC insurance 2,095 1,721 1,510 2,012 101 Other expense 2,133 1,361 2,170 2,300 1,536 Total noninterest expense 42,650 48,100 49,491 44,410 42,737 Income (loss) before taxes 45,483 5,251 (15,380 ) 8,917 6,262 Income tax expense (benefit) 11,703 1,474 (7,778 ) 2,085 2,367 Net income (loss) $ 33,780 $ 3,777 $ (7,602 ) $ 6,832 $ 3,895 Earnings (loss) per share Basic $ 0.83 $ 0.09 $ (0.19 ) $ 0.17 $ 0.10 Diluted $ 0.81 $ 0.09 $ (0.19 ) $ 0.17 $ 0.09 Weighted average shares outstanding Basic 40,542,696 40,506,671 40,334,179 40,291,867 40,240,740 Diluted 41,549,632 41,122,025 41,074,049 41,178,472 41,113,575
Live Oak Bancshares, Inc.Quarterly Balance Sheets (unaudited) (Dollars in thousands)
As of the quarter ended 3Q 2020 2Q 2020 1Q 2020 4Q 2019 3Q 2019 Assets Cash and due from banks $ 608,826 $ 1,256,958 $ 254,077 $ 124,610 $ 157,359 Federal funds sold 25,924 91,188 158,226 96,787 88,919 Certificates of deposit with other banks 7,250 7,250 7,250 7,250 7,250 Investment securities available-for-sale 765,777 779,794 574,168 540,045 570,795 Loans held for sale (1) 1,190,200 976,594 996,050 966,447 903,095 Loans and leases held for investment (2) 5,037,199 4,650,056 2,817,491 2,627,286 2,422,970 Allowance for credit losses on loans and leases (44,210 ) (44,083 ) (35,906 ) (28,234 ) (23,961 ) Net loans and leases 4,992,989 4,605,973 2,781,585 2,599,052 2,399,009 Premises and equipment, net 253,737 269,063 274,177 279,099 280,942 Foreclosed assets 3,264 5,660 6,744 5,612 5,702 Servicing assets 37,831 33,834 33,532 35,365 37,583 Operating lease right-of-use assets 2,697 2,886 2,236 2,427 1,890 Other assets 204,886 179,954 185,524 156,134 148,985 Total assets $ 8,093,381 $ 8,209,154 $ 5,273,569 $ 4,812,828 $ 4,601,529 Liabilities and Shareholders ’ Equity Liabilities Deposits: Noninterest-bearing $ 58,771 $ 53,938 $ 51,275 $ 51,965 $ 54,205 Interest-bearing 5,647,273 5,819,354 4,588,126 4,175,015 3,962,894 Total deposits 5,706,044 5,873,292 4,639,401 4,226,980 4,017,099 Borrowings 1,747,083 1,721,029 50,012 14 1,310 Operating lease liabilities 2,931 3,079 2,416 2,619 2,041 Other liabilities 53,159 63,319 47,968 50,829 52,860 Total liabilities 7,509,217 7,660,719 4,739,797 4,280,442 4,073,310 Shareholders ’ equity Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding — — — — — Class A common stock (voting) 325,753 319,542 314,994 309,526 296,925 Class B common stock (non-voting) 26,106 28,753 28,753 30,871 40,401 Retained earnings 207,400 174,837 172,276 180,265 174,641 Accumulated other comprehensive income 24,905 25,303 17,749 11,724 16,252 Total shareholders' equity 584,164 548,435 533,772 532,386 528,219 Total liabilities and shareholders ’ equity $ 8,093,381 $ 8,209,154 $ 5,273,569 $ 4,812,828 $ 4,601,529
(1) Includes $30.4 million , $32.1 million , $19.2 million , $16.2 million and $14.7 million measured at fair value for the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, respectively. (2) Includes $845.7 million , $834.6 million , $831.4 million , $824.5 million and $831.3 million measured at fair value for the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, respectively.
Live Oak Bancshares, Inc.Statements of Income (unaudited) (Dollars in thousands, except per share data)
Nine months ended September 30, 2020 September 30, 2019 Interest income Loans and fees on loans $ 191,604 $ 150,819 Investment securities, taxable 11,671 11,434 Other interest earning assets 2,093 3,914 Total interest income 205,368 166,167 Interest expense Deposits 70,531 64,096 Borrowings 2,415 — Total interest expense 72,946 64,096 Net interest income 132,422 102,071 Provision for loan and lease credit losses 32,024 10,403 Net interest income after provision for loan and lease credit losses 100,398 91,668 Noninterest income Loan servicing revenue 19,916 21,304 Loan servicing asset revaluation (4,202 ) (12,446 ) Net gains on sales of loans 34,497 17,638 Net (loss) gain on loans accounted for under the fair value option (8,324 ) 5,976 Equity method investments income (loss) (5,952 ) (6,120 ) Equity security investments gains (losses), net 14,802 3,478 Gain on sale of investment securities available-for-sale, net 1,880 92 Lease income 7,893 7,055 Management fee income 4,146 186 Construction supervision fee income 2,439 1,525 Other noninterest income 8,102 4,706 Total noninterest income 75,197 43,394 Noninterest expense Salaries and employee benefits 83,048 66,562 Travel expense 2,395 4,675 Professional services expense 4,668 5,876 Advertising and marketing expense 2,537 4,306 Occupancy expense 6,455 5,588 Data processing expense 8,930 7,418 Equipment expense 13,601 11,925 Other loan origination and maintenance expense 7,617 6,882 Renewable energy tax credit investment impairment — 602 FDIC insurance 5,326 1,435 Other expense 5,664 5,245 Total noninterest expense 140,241 120,514 Income before taxes 35,354 14,548 Income tax expense 5,399 3,346 Net income $ 29,955 $ 11,202 Earnings per share Basic $ 0.74 $ 0.28 Diluted $ 0.73 $ 0.27 Weighted average shares outstanding Basic 40,461,479 40,199,468 Diluted 41,248,866 41,011,608
Live Oak Bancshares, Inc. Quarterly Selected Financial Data (unaudited) (Dollars in thousands, except per share data)
As of and for the three months ended 3Q 2020 2Q 2020 1Q 2020 4Q 2019 3Q 2019 Income Statement Data Net income (loss) $ 33,780 $ 3,777 $ (7,602 ) $ 6,832 $ 3,895 Per Common Share Net income (loss), basic $ 0.83 $ 0.09 $ (0.19 ) $ 0.17 $ 0.10 Net income (loss), diluted 0.81 0.09 (0.19 ) 0.17 0.09 Dividends declared 0.03 0.03 0.03 0.03 0.03 Book value 14.69 13.53 13.22 13.20 13.12 Tangible book value (1) 14.30 13.43 13.22 13.20 13.12 Performance Ratios Return on average assets (annualized) 1.67 % 0.22 % (0.61 )% 0.58 % 0.35 % Return on average equity (annualized) 23.64 2.68 (5.64 ) 5.06 2.94 Net interest margin 2.77 2.56 3.55 3.57 3.75 Efficiency ratio (1) 43.89 76.87 107.63 77.09 80.83 Noninterest income to total revenue 47.15 34.64 12.66 34.02 29.02 Selected Loan Metrics Loans and leases originated $ 966,499 $ 2,175,055 $ 500,634 $ 523,688 $ 562,259 Guaranteed loans sold 114,731 154,980 162,297 105,002 100,498 Average net gain on sale of guaranteed loans 110.19 66.76 63.71 106.16 80.51 Adjusted average net gain on sale of guaranteed loans (2) 107.99 65.94 83.48 94.86 94.98 Outstanding balance of sold loans serviced: Guaranteed 2,878,664 2,840,429 2,761,015 2,746,480 2,802,073 Unguaranteed 264,829 231,602 223,587 224,127 211,095 Total 3,143,493 3,072,031 2,984,602 2,970,607 3,013,168 Asset Quality Ratios Allowance for credit losses to loans and leases held for investment (4) 1.05 % 1.16 % 1.81 % 1.57 % 1.51 % Net charge-offs (4) $ 10,147 $ 1,781 $ 2,799 $ 536 $ 840 Net charge-offs to average loans and leases held for investment (3) (4) 1.03 % 0.21 % 0.58 % 0.13 % 0.23 % Nonperforming loans and leases (4) (5) $ 46,749 $ 40,275 $ 34,088 $ 21,937 $ 22,300 Foreclosed assets 3,264 5,660 6,744 5,612 5,702 Nonperforming loans and leases (unguaranteed exposure) (4) (5) 20,153 13,122 9,623 7,224 7,842 Foreclosed assets (unguaranteed exposure) 642 1,199 1,478 1,120 1,142 Nonperforming loans and leases not guaranteed by the SBA and foreclosures (4) (5) $ 20,795 $ 14,321 $ 11,101 $ 8,344 $ 8,984 Nonperforming loans, leases and foreclosures, not guaranteed by the SBA, to total assets (4) (5) 0.29 % 0.20 % 0.25 % 0.21 % 0.24 % Nonperforming loans accounted for under the fair value option $ 47,434 $ 46,221 $ 60,558 $ 49,739 $ 54,024 Nonperforming loans accounted for under the fair value option (unguaranteed exposure) 7,495 6,352 8,193 6,700 8,214 Capital Ratios Common equity tier 1 capital (to risk-weighted assets) 13.09 % 12.84 % 13.81 % 14.90 % 15.28 % Total capital (to risk-weighted assets) 14.19 13.99 14.83 15.74 16.03 Tier 1 risk based capital (to risk-weighted assets) 13.09 12.84 13.81 14.90 15.28 Tier 1 leverage capital (to average assets) 8.47 7.96 9.94 10.65 11.12
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 futures contracts. (3) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized. (4) Excludes loans measured at fair value. (5) The quarter ended September 30, 2020 excludes one $6.1 million hotel loan classified as held for sale.
Live Oak Bancshares, Inc. Quarterly Average Balances and Net Interest Margin (Dollars in thousands)
Three Months Ended September 30, 2020 Three Months Ended June 30, 2020 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Interest earning assets: Federal funds sold and interest earning balances in other banks $ 736,387 $ 334 0.18 % $ 711,916 $ 1,009 0.57 % Investment securities 755,412 4,123 2.17 556,014 3,786 2.73 Loans held for sale 1,084,024 14,399 5.27 921,956 13,115 5.71 Loans and leases held for investment (1) 4,782,075 56,222 4.66 4,208,109 48,907 4.66 Total interest earning assets 7,357,898 75,078 4.05 6,397,995 66,817 4.19 Less: allowance for credit losses on loans and leases (44,054 ) (35,875 ) Non-interest earning assets 778,826 603,610 Total assets $ 8,092,670 $ 6,965,730 Interest bearing liabilities: Interest bearing checking $ 500,007 $ 747 0.59 % $ 462,977 $ 646 0.56 % Savings 1,669,199 3,674 0.87 1,398,378 4,814 1.38 Money market accounts 95,151 83 0.35 82,908 89 0.43 Certificates of deposit 3,423,643 17,651 2.05 3,689,041 19,572 2.13 Total interest bearing deposits 5,688,000 22,155 1.55 5,633,304 25,121 1.79 Borrowings 1,733,805 1,560 0.36 676,849 798 0.47 Total interest bearing liabilities 7,421,805 23,715 1.27 6,310,153 25,919 1.65 Non-interest bearing deposits 43,993 41,218 Non-interest bearing liabilities 55,353 50,554 Shareholders' equity 571,519 563,805 Total liabilities and shareholders' equity $ 8,092,670 $ 6,965,730 Net interest income and interest rate spread $ 51,363 2.78 % $ 40,898 2.54 % Net interest margin 2.77 2.56 Ratio of average interest-earning assets to average interest-bearing liabilities 99.14 % 101.39 %
(1) Average loan and lease balances include non-accruing loans and leases.
Live Oak Bancshares, Inc. GAAP to Non-GAAP Reconciliation (Dollars in thousands)
As of and for the three months ended 3Q 2020 2Q 2020 1Q 2020 4Q 2019 3Q 2019 Total shareholders’ equity $ 584,164 $ 548,435 $ 533,772 $ 532,386 $ 528,219 Less: Goodwill 1,797 1,797 — — — Other intangible assets 2,218 2,294 — — — Tangible shareholders’ equity (a) $ 580,149 $ 544,344 $ 533,772 $ 532,386 $ 528,219 Shares outstanding (c) 40,575,982 40,525,632 40,380,201 40,316,974 40,272,908 Total assets $ 8,093,381 $ 8,209,154 $ 5,273,569 $ 4,812,828 $ 4,601,529 Less: Goodwill 1,797 1,797 — — — Other intangible assets 2,218 2,294 — — — Tangible assets (b) $ 8,089,366 $ 8,205,063 $ 5,273,569 $ 4,812,828 $ 4,601,529 Tangible shareholders’ equity to tangible assets (a/b) 7.17 % 6.63 % 10.12 % 11.06 % 11.48 % Tangible book value per share (a/c) $ 14.30 $ 13.43 $ 13.22 $ 13.20 $ 13.12 Efficiency ratio: Noninterest expense (d) $ 42,650 $ 48,100 $ 49,491 $ 44,410 $ 42,737 Net interest income 51,363 40,898 40,161 38,011 37,531 Noninterest income 47,044 22,411 5,742 20,125 15,428 Less: gain (loss) on sale of securities 1,225 734 (79 ) 528 87 Adjusted operating revenue (e) $ 97,182 $ 62,575 $ 45,982 $ 57,608 $ 52,872 Efficiency ratio (d/e) 43.89 % 76.87 % 107.63 % 77.09 % 80.83 %
Live Oak Bancshares, Inc.GAAP to Non-GAAP Reconciliation (Continued) (Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended 3Q 2020 2Q 2020 3Q 2019 3Q 2020 3Q 2019 Reconciliation of net income to non-GAAP net income: Net income $ 33,780 $ 3,777 $ 3,895 $ 29,955 $ 11,202 Gain on sale of aircraft — — — — (357 ) Impairment on aircraft held for sale 1,019 — — 1,019 — Renewable energy tax credit investment impairment — — — — 602 Income tax effects and adjustments for non-GAAP items * (245 ) — — (245 ) (58 ) Non-GAAP net income $ 34,554 $ 3,777 $ 3,895 $ 30,729 $ 11,389 * Estimated at 24.0% Non-GAAP earnings per share: Basic $ 0.85 $ 0.09 $ 0.10 $ 0.76 $ 0.28 Diluted $ 0.83 $ 0.09 $ 0.09 $ 0.74 $ 0.28 Weighted-average shares outstanding: Basic 40,542,696 40,506,671 40,240,740 40,461,479 40,199,468 Diluted 41,549,632 41,122,025 41,113,575 41,248,866 41,011,608 Reconciliation of financial statement line items as reported to non-GAAP: Noninterest income, as reported $ 47,044 $ 22,411 $ 15,428 $ 75,197 $ 43,394 Gain on sale of aircraft — — — — (357 ) Noninterest income, non-GAAP $ 47,044 $ 22,411 $ 15,428 $ 75,197 $ 43,037 Noninterest expense, as reported $ 42,650 $ 48,100 $ 42,737 $ 140,241 $ 120,514 Impairment on aircraft held for sale (1,019 ) — — (1,019 ) — Renewable energy tax credit investment impairment — — — — (602 ) Noninterest expense, non-GAAP $ 41,631 $ 48,100 $ 42,737 $ 139,222 $ 119,912 Income before taxes, as reported $ 45,483 $ 5,251 $ 6,262 $ 35,354 $ 14,548 Gain on sale of aircraft — — — — (357 ) Impairment on aircraft held for sale 1,019 — — 1,019 — Renewable energy tax credit investment impairment — — — — 602 Income before taxes, non-GAAP $ 46,502 $ 5,251 $ 6,262 $ 36,373 $ 14,793 Income tax expense, as reported $ 11,703 $ 1,474 $ 2,367 $ 5,399 $ 3,346 Income tax effects and adjustments for non-GAAP items 245 — — 245 58 Income tax expense, non-GAAP $ 11,948 $ 1,474 $ 2,367 $ 5,644 $ 3,404
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.