WILMINGTON, N.C., Oct. 23, 2019 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported third quarter net earnings available to common shareholders of $3.9 million, or $0.09 per diluted share, compared to $14.3 million, or $0.34 per diluted share, for the third quarter of 2018.
“We continued to build franchise value through our portfolio of earning assets and exited the third quarter of 2019 with recurring revenue growth of 26% compared to the prior year. Supporting this recurring revenue trend, our loan and lease originations totaled $562 million for the third quarter, a 49% increase from a year ago. In addition to our core banking activities, we maintained our focus on changing the infrastructure of the financial industry to deliver more compelling products and services through technological innovation,” said James S. Mahan, III, Chief Executive Officer of Live Oak.
Third Quarter 2019 Key Measures
| (Dollars in thousands, except per share data) | Increase (Decrease) | |||||||||||||||||||
| Q3 2019 | Q3 2018 | Dollars | Percent | Q2 2019 | ||||||||||||||||
| Net interest income and servicing revenues | $ | 44,362 | $ | 35,230 | $ | 9,132 | 26 | % | $ | 40,998 | ||||||||||
| Net income | 3,895 | 14,252 | (10,357 | ) | (73 | ) | 4,935 | |||||||||||||
| Diluted earnings per share | 0.09 | 0.34 | (0.25 | ) | (74 | ) | 0.12 | |||||||||||||
| Non-GAAP net income (1) | 4,169 | 16,562 | (12,393 | ) | (75 | ) | 5,664 | |||||||||||||
| Non-GAAP diluted earnings per share (1) | 0.10 | 0.40 | (0.30 | ) | (75 | ) | 0.14 | |||||||||||||
| Loan and lease production: | ||||||||||||||||||||
| Loans and leases originated | $ | 562,259 | $ | 377,337 | $ | 184,922 | 49 | % | $ | 525,088 | ||||||||||
| % Fully funded | 51.3 | % | 48.2 | % | n/a | n/a | 42.9 | % | ||||||||||||
| Total loans and leases | $ | 3,345,048 | $ | 2,277,812 | $ | 1,067,236 | 47 | % | $ | 3,083,310 | ||||||||||
| Total assets | 4,603,697 | 3,444,757 | 1,158,940 | 34 | 4,274,301 | |||||||||||||||
| Total deposits | 4,019,267 | 2,924,288 | 1,094,979 | 37 | 3,721,597 | |||||||||||||||
(1) See accompanying GAAP to Non-GAAP Reconciliation.
Loans and Leases
At September 30, 2019, the total loan and lease portfolio of $3.35 billion increased 46.9% from its level at the end of the third quarter of 2018 and 8.5% from its level at June 30, 2019. Compared to the second quarter of 2019, loans and leases held for investment increased $216.5 million, or 9.7%, to $2.44 billion while loans held for sale increased $45.3 million, or 5.3%, to $903.1 million. Loan and lease originations rose to $562.3 million during the third quarter of 2019, an increase of $37.2 million, or 7.1%, from the second quarter of 2019, due to increased production across multiple industry verticals. Origination volumes also benefited from the ongoing selective hiring of experienced SBA lending generalists along with the ongoing diversification of lending activities. For the first nine months of 2019, total loan and lease originations reached $1.48 billion. The total loan and lease portfolio at September 30, 2019, and June 30, 2019, of $3.35 billion and $3.08 billion, respectively, was comprised of approximately 54.7% and 57.0% of unguaranteed loans and leases, respectively.
Average loans and leases were $3.22 billion during the third quarter of 2019 compared to $2.93 billion during the second quarter of 2019.
Deposits
Total deposits increased by $297.7 million, or 8.0%, to $4.02 billion at September 30, 2019, from $3.72 billion at June 30, 2019, supporting the growing loan and lease portfolio. Average total interest-bearing deposits for the third quarter of 2019 increased $302.4 million, or 8.6%, to $3.83 billion, compared to $3.53 billion for the second quarter of 2019. The ratio of average total loans and leases to average deposits was 83.1% for the third quarter of 2019, compared to 81.8% for the second quarter of 2019.
Net Interest Income
Net interest income for the third quarter of 2019 rose to $37.5 million compared to $27.7 million for the third quarter of 2018 and $33.9 million for the second quarter of 2019. The increase from the prior year was driven by the significant growth in the combined held for sale and held for investment loan and lease portfolios reflecting the Company's ongoing initiative to grow recurring revenue sources. Another contributing factor was higher investment security holdings as the Company strives to strengthen its liquidity profile while improving the asset-liability repricing mix. The increase from the second quarter of 2019 arose from higher average balances in the loans and lease portfolio. The net interest margin for the third quarter of 2019 increased four basis points to 3.74% versus 3.70% in the second quarter of 2019 as the increasing yields on interest earning assets outpaced the increase in the average cost of interest bearing liabilities.
Noninterest Income
Noninterest income for the third quarter of 2019 decreased by $5.7 million, or 23.4%, compared to the third quarter of 2018, and increased by $3.9 million, or 26.7%, compared to the second quarter of 2019. The Company’s strategic decision to retain a greater portion of its loans to improve interest income with the consequent reduction in the level of loan sales and related gains was a major factor in the decline from the third quarter of 2018.
The Company’s net gains on sales of loans decreased to $7.4 million in the third quarter of 2019 compared to $22.0 million in the third quarter of 2018 and increased from $6.0 million in the second quarter of 2019. The volume of guaranteed loan sales in the third quarter of 2019 declined to $100.5 million compared to $298.1 million in the third quarter of 2018 and increased from $71.9 million in the second quarter of 2019. As mentioned above, the decline in loan sale volumes from the prior year is consistent with the Company’s strategic decision to build its recurring revenue streams by holding substantially more of its production on balance sheet. The average net gain on guaranteed loan sales was $80.5 thousand per million sold in the third quarter of 2019, an increase from $71.8 thousand in the third quarter of 2018 and from $80.1 thousand in the second quarter of 2019. The average net gain on guaranteed loan sales for the third quarter of 2019 was influenced by $1.5 million in fair value net losses in exchange-traded interest rate lock commitments compared to $770 thousand in fair value net gains during the third quarter of 2018. Excluding fair value fluctuations in exchange-traded interest rate lock commitments, the average net gain on guaranteed loan sales was $95.0 thousand and $69.2 thousand per million sold in the third quarters of 2019 and 2018, respectively, and $93.7 thousand per million sold in the second quarter of 2019.
The net loss resulting from the revaluation of the servicing asset declined to $859 thousand for the third quarter of 2019, an improvement of $8.5 million compared to the third quarter of 2018 which was driven by improving market conditions, such as increased premiums, and increased by $456 thousand compared to the second quarter of 2019.
The flow-through loss from investments accounted for under the equity method totaled $2.4 million, $360 thousand, and $1.7 million for the quarters ended September 30, 2019, September 30, 2018, and June 30, 2019, respectively. These changes reflect the Company’s pro-rata portion of operating results for certain strategic start-up investments.
Equity security investment net gains totaled $3.3 million for the third quarter of 2019 compared to $39 thousand in the third quarter of 2018 and $32 thousand in the second quarter of 2019. The increase in the third quarter of 2019 was driven by observable fair market value changes in orderly transactions of underlying equity security instruments. The Company’s equity security portfolio is largely comprised of investments in strategic start-ups.
Noninterest Expense
Noninterest expense for the third quarter of 2019 was $42.7 million, an increase from $41.2 million for the third quarter of 2018 and from $39.6 million for the second quarter of 2019.
The $1.5 million, or 3.6% increase in noninterest expense from the third quarter of 2018 was primarily driven by increases in salaries and employee benefits, professional services expense, and loan related expenses. Salaries and employee benefits expenses increased by $2.2 million to $22.7 million for the third quarter of 2019 from $20.6 million for the third quarter of 2018 due to the expansion of the workforce to support a variety of initiatives by the Company. Professional services expenses increased by $845 thousand from the third quarter of 2018 to $2.1 million for the third quarter of 2019 principally due to expenses incurred in relation to the Company’s investment in Apiture and Canapi Advisors, LLC. Other loan origination and maintenance expenses increased by $1.8 million to $3.5 million for the third quarter of 2019 compared to $1.7 million for the third quarter of 2018 due principally to expenses associated with the repurchase of certain guaranteed loans in the portfolio during the third quarter of 2019 along with increases in the ongoing guarantee fees arising from holding a higher volume of loans on balance sheet. The increase in noninterest expense from the third quarter of 2018 was mitigated by decreases in FDIC insurance of $1.0 million due to lower required premiums combined with a one-time impairment expense in the third quarter of 2018 of $2.7 million on goodwill and other intangibles associated with the sale of Reltco, Inc.
Compared to the second quarter of 2019, the $3.2 million or 8.0% increase in noninterest expense was principally comprised of data processing expense which increased $1.1 million related largely to system development and other loan origination and maintenance expense which increased by $1.8 million as described above.
Asset Quality
Net charge-offs of $2.3 million in the third quarter of 2019 increased from $526 thousand in the second quarter of 2019 and decreased $46 thousand compared to the third quarter of 2018. Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarter ended September 30, 2019, was 0.39% compared to 0.10% for the second quarter of 2019 and 0.57% for the third quarter of 2018.
Total nonperforming loans and leases increased to $80.8 million in the third quarter of 2019 from $65.5 million at the end of the second quarter of 2019. The unguaranteed exposure of nonperforming loans and leases increased slightly to $19.8 million, or 0.81% of total loans and leases held for investment, at September 30, 2019, compared to $18.4 million, or 0.82%, at June 30, 2019. For the quarters ended September 30, 2019 and June 30, 2019, the percentage of unguaranteed criticized and classified loans and leases, comprised of risk grades 5 through 8, to unguaranteed held for investment loans and leases was 6.62% and 5.27%, respectively.
Foreclosed assets decreased $342 thousand to $5.7 million at September 30, 2019, from $6.0 million at June 30, 2019. The unguaranteed exposure of foreclosed assets decreased to $1.1 million at September 30, 2019, from $1.2 million at June 30, 2019.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the third quarter of 2019 totaled $7.2 million compared to a negative provision of $243 thousand for the third quarter of 2018 and provision expense of $3.5 million for the second quarter of 2019. The increase in provision expense was largely the result of continued significant portfolio growth combined with increases in net charge-offs and criticized and classified loans and leases for the third quarter of 2019.
The allowance for loan and lease losses totaled $42.9 million at September 30, 2019, compared to $38.0 million at June 30, 2019. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.76% and 1.71% at September 30, 2019, and June 30, 2019, respectively.
Income Tax
Income tax expense was $2.4 million in the third quarter of 2019 compared to an income tax benefit of $3.2 million in the third quarter of 2018 and income tax expense of $662 thousand in the second quarter of 2019. The Company’s effective tax rate is influenced by the leasing of renewable energy assets which generate investment tax credits. The significant increase in the effective tax rate for the third quarter of 2019 compared to the preceding quarter is the result of forecasted changes, largely comprised of a reduction in the targeted solar panel leasing activity for the remainder of the year.
Shareholders’ Equity
During the third quarter of 2019, 624,716 shares of Class B common stock (non-voting) were converted to Class A common stock (voting) under a private sale. The conversion decreased the value of Class B common stock (non-voting) and increased the value of Class A common stock (voting) by $6.6 million.
Conference Call
Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 24, 2019). 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 5573497. 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 October 31, 2019 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 | ||||||||||||||||||||
| 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 | 3Q 2018 | ||||||||||||||||
| Interest income | ||||||||||||||||||||
| Loans and fees on loans | $ | 55,939 | $ | 49,914 | $ | 44,966 | $ | 40,628 | $ | 37,724 | ||||||||||
| Investment securities, taxable | 4,001 | 4,116 | 3,317 | 2,558 | 2,528 | |||||||||||||||
| Other interest earning assets | 1,167 | 1,108 | 1,639 | 1,568 | 1,638 | |||||||||||||||
| Total interest income | 61,107 | 55,138 | 49,922 | 44,754 | 41,890 | |||||||||||||||
| Interest expense | ||||||||||||||||||||
| Deposits | 23,576 | 21,203 | 19,317 | 15,959 | 14,165 | |||||||||||||||
| Borrowings | — | — | — | — | 1 | |||||||||||||||
| Total interest expense | 23,576 | 21,203 | 19,317 | 15,959 | 14,166 | |||||||||||||||
| Net interest income | 37,531 | 33,935 | 30,605 | 28,795 | 27,724 | |||||||||||||||
| Provision for (recovery of) loan and leases losses | 7,160 | 3,463 | 2,742 | 6,822 | (243 | ) | ||||||||||||||
| Net interest income after provision for loan and lease losses | 30,371 | 30,472 | 27,863 | 21,973 | 27,967 | |||||||||||||||
| Noninterest income | ||||||||||||||||||||
| Loan servicing revenue | 6,831 | 7,063 | 7,410 | 7,752 | 7,506 | |||||||||||||||
| Loan servicing asset revaluation | (859 | ) | (403 | ) | (2,246 | ) | (627 | ) | (9,380 | ) | ||||||||||
| Net gains on sales of loans | 7,425 | 6,015 | 4,198 | 5,687 | 22,004 | |||||||||||||||
| Equity method investments income (loss) | (2,370 | ) | (1,736 | ) | (2,014 | ) | 1,011 | (360 | ) | |||||||||||
| Equity security investments gains (losses), net | 3,346 | 32 | 103 | 79 | 39 | |||||||||||||||
| Gain on sale of investment securities available-for-sale | 87 | — | 5 | — | — | |||||||||||||||
| Lease income | 2,361 | 2,369 | 2,325 | 2,244 | 2,194 | |||||||||||||||
| Construction supervision fee income | 360 | 386 | 779 | 323 | 578 | |||||||||||||||
| Title insurance income | — | — | — | — | 479 | |||||||||||||||
| Other noninterest income | 1,447 | 975 | 2,467 | 1,596 | 1,271 | |||||||||||||||
| Total noninterest income | 18,628 | 14,701 | 13,027 | 18,065 | 24,331 | |||||||||||||||
| Noninterest expense | ||||||||||||||||||||
| Salaries and employee benefits | 22,717 | 21,990 | 21,855 | 14,503 | 20,553 | |||||||||||||||
| Travel expense | 1,934 | 1,541 | 1,200 | 3,269 | 2,003 | |||||||||||||||
| Professional services expense | 2,073 | 1,621 | 2,182 | 1,233 | 1,228 | |||||||||||||||
| Advertising and marketing expense | 1,277 | 1,665 | 1,364 | 1,023 | 1,462 | |||||||||||||||
| Occupancy expense | 2,131 | 1,848 | 1,609 | 1,738 | 1,588 | |||||||||||||||
| Data processing expense | 3,072 | 1,947 | 2,399 | 2,606 | 3,661 | |||||||||||||||
| Equipment expense | 4,361 | 4,239 | 3,325 | 3,630 | 3,649 | |||||||||||||||
| Other loan origination and maintenance expense | 3,535 | 1,708 | 1,639 | 1,482 | 1,742 | |||||||||||||||
| Renewable energy tax credit investment impairment | — | 602 | — | — | — | |||||||||||||||
| FDIC insurance | 101 | 699 | 635 | 547 | 1,105 | |||||||||||||||
| Title insurance closing services expense | — | — | — | — | 114 | |||||||||||||||
| Impairment expense on goodwill and other intangibles, net | — | — | — | — | 2,680 | |||||||||||||||
| Other expense | 1,536 | 1,716 | 1,993 | 2,527 | 1,459 | |||||||||||||||
| Total noninterest expense | 42,737 | 39,576 | 38,201 | 32,558 | 41,244 | |||||||||||||||
| Income before taxes | 6,262 | 5,597 | 2,689 | 7,480 | 11,054 | |||||||||||||||
| Income tax expense (benefit) | 2,367 | 662 | 317 | (3,010 | ) | (3,198 | ) | |||||||||||||
| Net income | $ | 3,895 | $ | 4,935 | $ | 2,372 | $ | 10,490 | $ | 14,252 | ||||||||||
| Earnings per share | ||||||||||||||||||||
| Basic | $ | 0.10 | $ | 0.12 | $ | 0.06 | $ | 0.26 | $ | 0.36 | ||||||||||
| Diluted | $ | 0.09 | $ | 0.12 | $ | 0.06 | $ | 0.26 | $ | 0.34 | ||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||
| Basic | 40,240,740 | 40,196,662 | 40,160,118 | 40,148,115 | 40,119,561 | |||||||||||||||
| Diluted | 41,113,575 | 40,998,541 | 40,921,823 | 41,075,864 | 41,688,430 | |||||||||||||||
Live Oak Bancshares, Inc.
Quarterly Balance Sheets (unaudited)
(Dollars in thousands)
| As of the quarter ended | ||||||||||||||||||||
| 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 | 3Q 2018 | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and due from banks | $ | 159,527 | $ | 115,292 | $ | 221,159 | $ | 316,823 | $ | 368,565 | ||||||||||
| Federal funds sold | 88,919 | 68,153 | 64,708 | — | — | |||||||||||||||
| Certificates of deposit with other banks | 7,250 | 7,250 | 7,250 | 7,250 | 750 | |||||||||||||||
| Investment securities available-for-sale | 570,795 | 576,275 | 569,739 | 380,490 | 374,284 | |||||||||||||||
| Loans held for sale | 903,095 | 857,837 | 772,481 | 687,393 | 646,475 | |||||||||||||||
| Loans and leases held for investment | 2,441,953 | 2,225,473 | 2,002,124 | 1,843,419 | 1,631,337 | |||||||||||||||
| Allowance for loan and lease losses | (42,944 | ) | (38,048 | ) | (35,111 | ) | (32,434 | ) | (26,797 | ) | ||||||||||
| Net loans and leases | 2,399,009 | 2,187,425 | 1,967,013 | 1,810,985 | 1,604,540 | |||||||||||||||
| Premises and equipment, net | 280,942 | 281,126 | 271,810 | 262,524 | 263,861 | |||||||||||||||
| Foreclosed assets | 5,702 | 6,044 | 1,374 | 1,094 | 1,429 | |||||||||||||||
| Servicing assets | 37,583 | 41,687 | 44,324 | 47,641 | 49,261 | |||||||||||||||
| Operating lease right-of-use assets | 1,890 | 1,996 | 2,136 | — | — | |||||||||||||||
| Other assets | 148,985 | 131,216 | 136,053 | 156,249 | 135,592 | |||||||||||||||
| Total assets | $ | 4,603,697 | $ | 4,274,301 | $ | 4,058,047 | $ | 3,670,449 | $ | 3,444,757 | ||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Noninterest-bearing | $ | 56,373 | $ | 55,416 | $ | 53,843 | $ | 53,993 | $ | 48,622 | ||||||||||
| Interest-bearing | 3,962,894 | 3,666,181 | 3,474,562 | 3,095,590 | 2,875,666 | |||||||||||||||
| Total deposits | 4,019,267 | 3,721,597 | 3,528,405 | 3,149,583 | 2,924,288 | |||||||||||||||
| Short term borrowings | 1,295 | 1,345 | 1,393 | 1,441 | — | |||||||||||||||
| Long term borrowings | 15 | 16 | 17 | 16 | 1,506 | |||||||||||||||
| Operating lease liabilities | 2,041 | 2,162 | 2,314 | — | — | |||||||||||||||
| Other liabilities | 52,860 | 30,195 | 25,538 | 25,849 | 41,733 | |||||||||||||||
| Total liabilities | 4,075,478 | 3,755,315 | 3,557,667 | 3,176,889 | 2,967,527 | |||||||||||||||
| Shareholders’ equity | ||||||||||||||||||||
| Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding | — | — | — | — | — | |||||||||||||||
| Class A common stock (voting) | 294,773 | 284,987 | 281,994 | 278,945 | 276,831 | |||||||||||||||
| Class B common stock (non-voting) | 42,553 | 49,168 | 49,168 | 49,168 | 49,168 | |||||||||||||||
| Retained earnings | 174,641 | 171,954 | 168,225 | 167,124 | 157,839 | |||||||||||||||
| Accumulated other comprehensive income (loss) | 16,252 | 12,877 | 993 | (1,677 | ) | (6,608 | ) | |||||||||||||
| Total equity | 528,219 | 518,986 | 500,380 | 493,560 | 477,230 | |||||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,603,697 | $ | 4,274,301 | $ | 4,058,047 | $ | 3,670,449 | $ | 3,444,757 | ||||||||||
Live Oak Bancshares, Inc.
Statements of Income (unaudited)
(Dollars in thousands, except per share data)
| Nine Months Ended | ||||||||
| September 30, 2019 | September 30, 2018 | |||||||
| Interest income | ||||||||
| Loans and fees on loans | $ | 150,819 | $ | 106,682 | ||||
| Investment securities, taxable | 11,434 | 6,175 | ||||||
| Other interest earning assets | 3,914 | 5,032 | ||||||
| Total interest income | 166,167 | 117,889 | ||||||
| Interest expense | ||||||||
| Deposits | 64,096 | 38,510 | ||||||
| Borrowings | — | 131 | ||||||
| Total interest expense | 64,096 | 38,641 | ||||||
| Net interest income | 102,071 | 79,248 | ||||||
| Provision for loan and lease losses | 13,365 | 6,236 | ||||||
| Net interest income after provision for loan and lease losses | 88,706 | 73,012 | ||||||
| Noninterest income | ||||||||
| Loan servicing revenue | 21,304 | 21,369 | ||||||
| Loan servicing asset revaluation | (3,508 | ) | (18,138 | ) | ||||
| Net gains on sales of loans | 17,638 | 69,483 | ||||||
| Equity method investments income (loss) | (6,120 | ) | (1,397 | ) | ||||
| Equity security investments gains (losses), net | 3,481 | 134 | ||||||
| Gain on sale of investment securities available-for-sale | 92 | — | ||||||
| Lease income | 7,055 | 5,722 | ||||||
| Construction supervision fee income | 1,525 | 1,954 | ||||||
| Title insurance income | — | 2,775 | ||||||
| Other noninterest income | 4,889 | 3,798 | ||||||
| Total noninterest income | 46,356 | 85,700 | ||||||
| Noninterest expense | ||||||||
| Salaries and employee benefits | 66,562 | 62,908 | ||||||
| Travel expense | 4,675 | 5,887 | ||||||
| Professional services expense | 5,876 | 3,645 | ||||||
| Advertising and marketing expense | 4,306 | 4,992 | ||||||
| Occupancy expense | 5,588 | 5,327 | ||||||
| Data processing expense | 7,418 | 9,404 | ||||||
| Equipment expense | 11,925 | 10,094 | ||||||
| Other loan origination and maintenance expense | 6,882 | 4,485 | ||||||
| Renewable energy tax credit investment impairment | 602 | — | ||||||
| FDIC insurance | 1,435 | 2,687 | ||||||
| Title insurance closing services expense | — | 912 | ||||||
| Impairment expense on goodwill and other intangibles, net | — | 2,680 | ||||||
| Other expense | 5,245 | 7,125 | ||||||
| Total noninterest expense | 120,514 | 120,146 | ||||||
| Income before taxes | 14,548 | 38,566 | ||||||
| Income tax expense (benefit) | 3,346 | (2,392 | ) | |||||
| Net income | $ | 11,202 | $ | 40,958 | ||||
| Earnings per share | ||||||||
| Basic | $ | 0.28 | $ | 1.02 | ||||
| Diluted | $ | 0.27 | $ | 0.98 | ||||
| Weighted average shares outstanding | ||||||||
| Basic | 40,199,468 | 40,025,265 | ||||||
| Diluted | 41,011,608 | 41,586,987 | ||||||
Live Oak Bancshares, Inc.
Quarterly Selected Financial Data
(Dollars in thousands, except per share data)
| As of and for the three months ended | ||||||||||||||||||||
| 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 | 3Q 2018 | ||||||||||||||||
| Income Statement Data | ||||||||||||||||||||
| Net income | $ | 3,895 | $ | 4,935 | $ | 2,372 | $ | 10,490 | $ | 14,252 | ||||||||||
| Per Common Share | ||||||||||||||||||||
| Net income, basic | $ | 0.10 | $ | 0.12 | $ | 0.06 | $ | 0.26 | $ | 0.36 | ||||||||||
| Net income, diluted | 0.09 | 0.12 | 0.06 | 0.26 | 0.34 | |||||||||||||||
| Dividends declared | 0.03 | 0.03 | 0.03 | 0.03 | 0.03 | |||||||||||||||
| Book value | 13.12 | 12.90 | 12.45 | 12.29 | 11.89 | |||||||||||||||
| Tangible book value (1) | 13.12 | 12.90 | 12.45 | 12.29 | 11.89 | |||||||||||||||
| Performance Ratios | ||||||||||||||||||||
| Return on average assets (annualized) | 0.35 | % | 0.48 | % | 0.25 | % | 1.20 | % | 1.65 | % | ||||||||||
| Return on average equity (annualized) | 2.94 | 3.85 | 1.88 | 8.64 | 12.08 | |||||||||||||||
| Net interest margin | 3.74 | 3.70 | 3.63 | 3.72 | 3.61 | |||||||||||||||
| Efficiency ratio (1) | 76.22 | 81.37 | 87.56 | 69.48 | 79.23 | |||||||||||||||
| Noninterest income to total revenue | 33.07 | 30.23 | 29.85 | 38.55 | 46.74 | |||||||||||||||
| Selected Loan Metrics | ||||||||||||||||||||
| Loans and leases originated | $ | 562,259 | $ | 525,088 | $ | 390,851 | $ | 498,987 | $ | 377,337 | ||||||||||
| Guaranteed loans sold | 100,498 | 71,934 | 62,940 | 104,646 | 298,073 | |||||||||||||||
| Average net gain on sale of guaranteed loans | 80.51 | 80.12 | 61.30 | 59.83 | 71.81 | |||||||||||||||
| Adjusted average net gain on sale of guaranteed loans (2) | 94.98 | 93.74 | 89.04 | 77.42 | 69.23 | |||||||||||||||
| Outstanding balance of sold loans serviced: | ||||||||||||||||||||
| Guaranteed | 2,802,073 | 2,870,108 | 2,952,774 | 3,045,460 | 3,102,820 | |||||||||||||||
| Unguaranteed | 211,095 | 183,991 | 179,307 | 174,066 | 170,784 | |||||||||||||||
| Total | 3,013,168 | 3,054,099 | 3,132,081 | 3,219,526 | 3,273,604 | |||||||||||||||
| Asset Quality Ratios | ||||||||||||||||||||
| Allowance for loan losses to loans and leases held for investment | 1.76 | % | 1.71 | % | 1.75 | % | 1.76 | % | 1.64 | % | ||||||||||
| Net charge-offs | $ | 2,264 | $ | 526 | $ | 65 | $ | 1,185 | $ | 2,310 | ||||||||||
| Net charge-offs to average loans and leases held for investment (3) | 0.39 | % | 0.10 | % | 0.01 | % | 0.28 | % | 0.57 | % | ||||||||||
| Nonperforming loans and leases | $ | 80,757 | $ | 65,473 | $ | 70,692 | $ | 57,690 | $ | 52,709 | ||||||||||
| Foreclosed assets | 5,702 | 6,044 | 1,374 | 1,094 | 1,429 | |||||||||||||||
| Nonperforming loans and leases (unguaranteed exposure) | 19,817 | 18,352 | 20,186 | 14,488 | 12,897 | |||||||||||||||
| Foreclosed assets (unguaranteed exposure) | 1,142 | 1,228 | 170 | 148 | 158 | |||||||||||||||
| Nonperforming loans and leases not guaranteed by the SBA and foreclosures | $ | 20,959 | $ | 19,580 | $ | 20,356 | $ | 14,636 | $ | 13,055 | ||||||||||
| Nonperforming loans and leases and foreclosures, not guaranteed by the SBA, to total assets | 0.46 | % | 0.46 | % | 0.50 | % | 0.40 | % | 0.38 | % | ||||||||||
| Capital Ratios | ||||||||||||||||||||
| Common equity tier 1 capital (to risk-weighted assets) | 15.22 | % | 15.94 | % | 16.68 | % | 17.10 | % | 17.88 | % | ||||||||||
| Total capital (to risk-weighted assets) | 16.47 | 17.19 | 17.92 | 18.28 | 18.93 | |||||||||||||||
| Tier 1 risk based capital (to risk-weighted assets) | 15.22 | 15.94 | 16.68 | 17.10 | 17.88 | |||||||||||||||
| Tier 1 leverage capital (to average assets) | 11.12 | 11.77 | 12.34 | 13.40 | 13.21 | |||||||||||||||
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 September 30, 2019 | Three months ended June 30, 2019 | |||||||||||||||||||||||
| 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 | $ | 205,342 | $ | 1,167 | 2.25 | % | $ | 184,986 | $ | 1,108 | 2.40 | % | ||||||||||||
| Investment securities | 554,871 | 4,001 | 2.86 | 566,159 | 4,116 | 2.92 | ||||||||||||||||||
| Loans held for sale | 910,837 | 15,982 | 6.96 | 839,724 | 14,333 | 6.85 | ||||||||||||||||||
| Loans and leases held for investment (1) | 2,313,615 | 39,957 | 6.85 | 2,089,225 | 35,581 | 6.83 | ||||||||||||||||||
| Total interest earning assets | 3,984,665 | 61,107 | 6.08 | 3,680,094 | 55,138 | 6.01 | ||||||||||||||||||
| Less: allowance for loan and lease losses | (37,995 | ) | (35,124 | ) | ||||||||||||||||||||
| Non-interest earning assets | 501,369 | 474,706 | ||||||||||||||||||||||
| Total assets | $ | 4,448,039 | $ | 4,119,676 | ||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||
| Interest bearing checking | $ | — | $ | — | — | % | $ | — | $ | — | — | % | ||||||||||||
| Savings | 1,036,858 | 5,501 | 2.10 | 989,512 | 5,235 | 2.12 | ||||||||||||||||||
| Money market accounts | 91,813 | 179 | 0.77 | 85,982 | 161 | 0.75 | ||||||||||||||||||
| Certificates of deposit | 2,701,350 | 17,896 | 2.63 | 2,452,159 | 15,807 | 2.59 | ||||||||||||||||||
| Total interest bearing deposits | 3,830,021 | 23,576 | 2.44 | 3,527,653 | 21,203 | 2.41 | ||||||||||||||||||
| Other borrowings | 1,359 | — | — | 1,409 | — | — | ||||||||||||||||||
| Total interest bearing liabilities | 3,831,380 | 23,576 | 2.44 | 3,529,062 | 21,203 | 2.41 | ||||||||||||||||||
| Non-interest bearing deposits | 51,781 | 51,643 | ||||||||||||||||||||||
| Non-interest bearing liabilities | 35,654 | 26,580 | ||||||||||||||||||||||
| Shareholders' equity | 529,224 | 512,391 | ||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 4,448,039 | $ | 4,119,676 | ||||||||||||||||||||
| Net interest income and interest rate spread | $ | 37,531 | 3.64 | % | $ | 33,935 | 3.60 | % | ||||||||||||||||
| Net interest margin | 3.74 | 3.70 | ||||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 104.00 | % | 104.28 | % | ||||||||||||||||||||
(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 | ||||||||||||||||||||
| 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 | 3Q 2018 | ||||||||||||||||
| Total shareholders’ equity | $ | 528,219 | $ | 518,986 | $ | 500,380 | $ | 493,560 | $ | 477,230 | ||||||||||
| Less: | ||||||||||||||||||||
| Goodwill | — | — | — | — | — | |||||||||||||||
| Other intangible assets | — | — | — | — | — | |||||||||||||||
| Tangible shareholders’ equity (a) | $ | 528,219 | $ | 518,986 | $ | 500,380 | $ | 493,560 | $ | 477,230 | ||||||||||
| Shares outstanding (c) | 40,272,908 | 40,220,916 | 40,175,079 | 40,155,792 | 40,140,417 | |||||||||||||||
| Total assets | $ | 4,603,697 | $ | 4,274,301 | $ | 4,058,047 | $ | 3,670,449 | $ | 3,444,757 | ||||||||||
| Less: | ||||||||||||||||||||
| Goodwill | — | — | — | — | — | |||||||||||||||
| Other intangible assets | — | — | — | — | — | |||||||||||||||
| Tangible assets (b) | $ | 4,603,697 | $ | 4,274,301 | $ | 4,058,047 | $ | 3,670,449 | $ | 3,444,757 | ||||||||||
| Tangible shareholders’ equity to tangible assets (a/b) | 11.47 | % | 12.14 | % | 12.33 | % | 13.45 | % | 13.85 | % | ||||||||||
| Tangible book value per share (a/c) | $ | 13.12 | $ | 12.90 | $ | 12.45 | $ | 12.29 | $ | 11.89 | ||||||||||
| Efficiency ratio: | ||||||||||||||||||||
| Noninterest expense (d) | $ | 42,737 | $ | 39,576 | $ | 38,201 | $ | 32,558 | $ | 41,244 | ||||||||||
| Net interest income | 37,531 | 33,935 | 30,605 | 28,795 | 27,724 | |||||||||||||||
| Noninterest income | 18,628 | 14,701 | 13,027 | 18,065 | 24,331 | |||||||||||||||
| Less: gain on sale of securities | 87 | — | 5 | — | — | |||||||||||||||
| Adjusted operating revenue (e) | $ | 56,072 | $ | 48,636 | $ | 43,627 | $ | 46,860 | $ | 52,055 | ||||||||||
| Efficiency ratio (d/e) | 76.22 | % | 81.37 | % | 87.56 | % | 69.48 | % | 79.23 | % | ||||||||||
Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation (Continued)
(Dollars in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| 3Q 2019 | 2Q 2019 | 3Q 2018 | 3Q 2019 | 3Q 2018 | ||||||||||||||||
| Reconciliation of net income to non-GAAP net income for non-routine income and expenses: | ||||||||||||||||||||
| Net income | $ | 3,895 | $ | 4,935 | $ | 14,252 | $ | 11,202 | $ | 40,958 | ||||||||||
| 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 | 357 | 360 | 1,069 | 1,069 | |||||||||||||||
| Impairment expense on goodwill and other intangibles, net | — | — | 2,680 | — | 2,680 | |||||||||||||||
| Renewable energy tax credit investment impairment | — | 602 | — | 602 | — | |||||||||||||||
| Income tax effects and adjustments for non-GAAP items* | (86 | ) | (230 | ) | (730 | ) | (315 | ) | (900 | ) | ||||||||||
| Non-GAAP net income | $ | 4,169 | $ | 5,664 | $ | 16,562 | $ | 12,201 | $ | 43,807 | ||||||||||
| * Estimated at 24.0% | ||||||||||||||||||||
| Non-GAAP earnings per share: | ||||||||||||||||||||
| Basic | $ | 0.10 | $ | 0.14 | $ | 0.41 | $ | 0.30 | $ | 1.09 | ||||||||||
| Diluted | $ | 0.10 | $ | 0.14 | $ | 0.40 | $ | 0.30 | $ | 1.05 | ||||||||||
| Weighted-average shares outstanding: | ||||||||||||||||||||
| Basic | 40,240,740 | 40,196,662 | 40,119,561 | 40,199,468 | 40,025,265 | |||||||||||||||
| Diluted | 41,113,575 | 40,998,541 | 41,688,430 | 41,011,608 | 41,586,987 | |||||||||||||||
| Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses: | ||||||||||||||||||||
| Noninterest income, as reported | $ | 18,628 | $ | 14,701 | $ | 24,331 | $ | 46,356 | $ | 85,700 | ||||||||||
| Gain on sale of aircraft | — | — | — | (357 | ) | — | ||||||||||||||
| Noninterest income, as adjusted | $ | 18,628 | $ | 14,701 | $ | 24,331 | $ | 45,999 | $ | 85,700 | ||||||||||
| Noninterest expense, as reported | $ | 42,737 | $ | 39,576 | $ | 41,244 | $ | 120,514 | $ | 120,146 | ||||||||||
| Stock based compensation expense | (360 | ) | (357 | ) | (360 | ) | (1,069 | ) | (1,069 | ) | ||||||||||
| Impairment expense on goodwill and other intangibles, net | — | — | (2,680 | ) | — | (2,680 | ) | |||||||||||||
| Renewable energy tax credit investment impairment | — | (602 | ) | — | (602 | ) | — | |||||||||||||
| Noninterest expense, as adjusted | $ | 42,377 | $ | 38,617 | $ | 38,204 | $ | 118,843 | $ | 116,397 | ||||||||||
| Income before taxes, as reported | $ | 6,262 | $ | 5,597 | $ | 11,054 | $ | 14,548 | $ | 38,566 | ||||||||||
| Gain on sale of aircraft | — | — | — | (357 | ) | — | ||||||||||||||
| Stock based compensation expense | 360 | 357 | 360 | 1,069 | 1,069 | |||||||||||||||
| Impairment expense on goodwill and other intangibles, net | — | — | 2,680 | — | 2,680 | |||||||||||||||
| Renewable energy tax credit investment impairment | — | 602 | — | 602 | — | |||||||||||||||
| Income before taxes, as adjusted | $ | 6,622 | $ | 6,556 | $ | 14,094 | $ | 15,862 | $ | 42,315 | ||||||||||
| Income tax expense, as reported | $ | 2,367 | $ | 662 | $ | (3,198 | ) | $ | 3,346 | $ | (2,392 | ) | ||||||||
| Income tax effects and adjustments for non-recurring income and expenses | 86 | 230 | 730 | 315 | 900 | |||||||||||||||
| Income tax expense, as adjusted | $ | 2,453 | $ | 892 | $ | (2,468 | ) | $ | 3,661 | $ | (1,492 | ) | ||||||||
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.