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Live Oak Bancshares, Inc. Reports First Quarter 2016 Results

WILMINGTON, N.C., April 27, 2016 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq:LOB) (“Live Oak” or “the Company”) today reported first quarter net earnings available to common shareholders of $4.7 million, or $0.13 per diluted share, compared to $8.1 million, or $0.27 per diluted share, for the first quarter of 2015. The first quarter of 2015 included a pre-tax gain of $3.8 million, or $0.07 per diluted share, from the sale of its nCino, Inc. affiliate.

“We are pushing steadily forward with our growth mission. We continue to expand the number of industry verticals we serve and are hard at work on several initiatives to continue capitalizing on our competitive advantages. Our sustained loan generation efforts continue to propel core earnings. We typically witness a slowing of business activity in the first quarter of each year but we are pleased to have started out 2016 with our highest ever level of first quarter originations and core revenues. We remain confident in our ability to achieve targeted origination volumes for the full year,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

First Quarter 2016 Key Measures

(Dollars in thousands) Increase (Decrease)
Q1 2016 Q1 2015 Dollars Percent Q4 2015
Loan production:
Loans originated$284,530 $248,058 $36,472 15% $330,798
% Fully funded40.1% 42.7% n/a n/a 44.1%
Loan Sales:
Guaranteed loans sold$155,643 $137,047 $18,596 14% $219,328
Net gains on sales of loans16,425 15,461 964 6 20,781
Average net gain on sale of loans, per million sold105.53 112.82 (7.29) (6) 94.75
Net interest and servicing revenues13,493 8,648 4,845 56 12,874

Net Interest Income

Net interest income for the first quarter of 2016 increased to $8.7 million compared to $5.1 million for the first quarter of 2015. The increase was driven by ongoing growth in both the held for sale and held for investment loan portfolios attributable to steadily rising loan originations and longer retention periods for certain loan types. The growth in net interest income also reflected a higher net interest margin which rose from 2.97% to 3.52% over the past year and benefited from reduced levels of long term borrowings that were paid off during the third and fourth quarters of 2015. The decline from the fourth quarter 2015 margin of 3.66% was principally due to the large increase in interest-bearing deposits in the first quarter, following a successful deposit gathering campaign.

Noninterest Income

Noninterest income for the first quarter of 2016 totaled $22.4 million, compared to $24.1 million for the first quarter of 2015 which included recognition of a $3.8 million one-time gain on the sale of an investment in nCino, Inc. Excluding this gain, growth in noninterest income of $2.2 million was primarily attributable to higher net gains on loan sales due to a 13.6% increase in the sales volume along with higher levels of servicing revenue.

Noninterest Expense

Noninterest expense for the first quarter of 2016 was $21.7 million compared to $14.7 million for the first quarter of 2015. Salaries and employee benefits increased to $13.0 million from $8.4 million for the first quarter of 2015, as a result of increased staffing to support growing loan demand and multiple new initiatives of the Company. Occupancy expense increased $712 thousand compared to the first quarter of 2015, in line with the Company’s growth and expanded headquarters facilities.

Loans and Asset Quality

Net loans held for investment increased $32.5 million, or 11.9%, to $305.0 million at March 31, 2016, from $272.6 million at December 31, 2015. Loans held for sale also increased $56.7 million, or 11.8%, to $537.3 million at March 31, 2016, from $480.6 million at December 31, 2015. The increase in both portfolios is the result of strong growth in loan origination activities. The increase in held for sale loans is also largely influenced by multi-advancing loans that are expected to be sold in the secondary market when fully funded. The combined total loan portfolio of $850.9 million was 61.9% above its level a year ago. The combined total loan portfolio at March 31, 2016, and December 31, 2015, of $850.9 million and $760.6 million was 68.2% and 67.7% in unguaranteed loans, respectively.

Average loans were $825.7 million during the first quarter of 2016 compared to an average loan balance of $779.5 million during the fourth quarter of 2015.

Credit quality remained relatively stable as the unguaranteed exposure of nonperforming loans increased to $2.4 million at March 31, 2016, from $2.0 million at December 31, 2015. Total nonperforming loans increased to $14.8 million from $12.4 million at the end of the prior quarter.

Net charge-offs amounted to $232 thousand in the first quarter of 2016 compared to $205 thousand in the fourth quarter of 2015. Net charge-offs as a percentage of average loans held for investment on an annualized basis were unchanged from quarter to quarter at 0.30%. The provision for loan losses totaled $1.4 million during the first quarter of 2016.

Foreclosed assets increased $354 thousand to $3.0 million at March 31, 2016, from $2.7 million at December 31, 2015. Of this increase, $65 thousand was associated with foreclosed assets relating to portions of loans not guaranteed by the Small Business Administration.

Deposits

Total deposits increased sharply by $210.7 million, or 26.2%, to $1.02 billion at March 31, 2016, compared to $804.8 million at December 31, 2015, following a successful deposit gathering campaign. Average total deposits for the first quarter of 2016 increased $77.8 million, or 9.9%, to $860.2 million, compared to $782.3 million for the fourth quarter of 2015. The ratio of average loans to average deposits was 96.0% for the first quarter of 2016, compared to 99.6% for the fourth quarter of 2015.

Conference Call

Live Oak will host a conference call to discuss first quarter results at 9:00 a.m. ET tomorrow morning (April 28, 2016). Media representatives, analysts and the public are invited to listen to this discussion by calling (877) 787-4170 (domestic) or (530) 379-4723 (international) with conference ID 87617274. 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. After the conference call, a replay will be available until 5:00 p.m. ET May 26, 2016, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

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 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; 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 the parent company and registered bank holding company of Live Oak Banking Company, a national online platform for small business lending.

Live Oak Bancshares, Inc.
Quarterly Statements of Income (unaudited)
(Dollars in thousands, except per share data)

Three months ended
1Q 2016 4Q 2015 3Q 2015 2Q 2015 1Q 2015
Interest income
Loans and fees on loans$11,005 $10,474 $8,728 $7,408 $6,730
Investment securities, taxable251 224 211 200 176
Other interest earning assets138 80 84 70 66
Total interest income11,394 10,778 9,023 7,678 6,972
Interest expense
Deposits2,444 2,105 1,997 1,801 1,476
Borrowings241 203 395 444 441
Total interest expense2,685 2,308 2,392 2,245 1,917
Net interest income8,709 8,470 6,631 5,433 5,055
Provision for loan losses1,433 1,467 1,212 50 1,077
Net interest income after provision for loan losses7,276 7,003 5,419 5,383 3,978
Noninterest income
Loan servicing revenue and revaluation4,758 2,408 1,566 1,772 4,106
Net gains on sales of loans16,425 20,781 15,424 15,719 15,461
Equity in loss of non-consolidated affiliates (26)
Gain on sale of investment in non-consolidated affiliate 3,782
Gain on sale of securities available-for-sale 1 12
Construction supervision fee income630 745 344 317 216
Other noninterest income619 433 424 327 516
Total noninterest income22,432 24,368 17,770 18,135 24,055
Noninterest expense
Salaries and employee benefits12,993 12,700 9,949 9,319 8,355
Travel expense1,846 1,465 2,200 2,238 1,476
Professional services expense528 752 493 548 850
Advertising and marketing expense963 1,156 1,051 1,118 1,008
Occupancy expense1,193 1,555 703 736 481
Data processing expense1,208 1,195 773 722 893
Equipment expense551 646 642 388 443
Other loan origination and maintenance expense574 685 673 234 477
Other expense1,855 1,979 1,579 1,514 719
Total noninterest expense21,711 22,133 18,063 16,817 14,702
Income before taxes7,997 9,238 5,126 6,701 13,331
Income tax expense3,314 3,523 2,228 2,766 5,278
Net income4,683 5,715 2,898 3,935 8,053
Net loss attributable to noncontrolling interest8 1 3 20
Net income attributable to Live Oak Bancshares, Inc.$4,691 $5,716 $2,901 $3,935 $8,073
Earnings per share
Basic$0.14 $0.17 $0.09 $0.14 $0.28
Diluted$0.13 $0.16 $0.09 $0.13 $0.27
Weighted average shares outstanding
Basic34,176,753 34,169,855 32,824,587 28,636,182 28,620,120
Diluted34,954,592 35,079,486 33,917,282 29,498,399 29,361,841

Live Oak Bancshares, Inc.
Quarterly Balance Sheets (unaudited)
(Dollars in thousands)

As of the quarter ended
1Q 2016 4Q 2015 3Q 2015 2Q 2015 1Q 2015
Assets
Cash and due from banks$226,556 $102,607 $129,881 $131,487 $47,564
Certificates of deposit with other banks9,000 10,250 10,000 10,000 10,000
Investment securities available-for-sale55,674 53,762 51,628 50,719 50,777
Loans held for sale537,293 480,619 443,871 356,481 305,079
Loans held for investment313,633 279,969 259,552 237,612 220,444
Allowance for loan losses(8,616) (7,415) (6,153) (5,183) (5,234)
Net loans305,017 272,554 253,399 232,429 215,210
Premises and equipment, net61,839 62,653 62,641 57,310 38,124
Foreclosed assets3,020 2,666 1,258 747 747
Servicing assets47,377 44,230 40,590 39,983 38,457
Other assets22,765 23,281 19,498 20,259 17,074
Total assets$1,268,541 $1,052,622 $1,012,766 $899,415 $723,032
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing$21,125 $21,502 $20,420 $15,756 $4,506
Interest-bearing994,340 783,286 742,208 711,590 551,577
Total deposits1,015,465 804,788 762,628 727,346 556,083
Long term borrowings28,271 28,375 42,079 54,490 50,210
Other liabilities20,372 19,971 13,963 14,198 16,571
Total liabilities1,064,108 853,134 818,670 796,034 622,864
Shareholders’ equity
Non-cumulative perpetual preferred stock (Series A), no shares authorized, issued or outstanding at March 31, 2016 and December 31, 2015, 6,800 shares authorized, issued and outstanding for other periods presented
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding
Class A common stock (voting)138,199 137,492 136,852 49,122 48,799
Class B common stock (non-voting)50,015 50,015 50,015 50,015 50,015
Retained earnings16,147 12,140 7,108 4,206 1,130
Accumulated other comprehensive income (loss)47 (192) 87 1 209
Total shareholders’ equity attributed to Live Oak Bancshares, Inc.204,408 199,455 194,062 103,344 100,153
Noncontrolling interest25 33 34 37 15
Total equity204,433 199,488 194,096 103,381 100,168
Total liabilities and shareholders’ equity$1,268,541 $1,052,622 $1,012,766 $899,415 $723,032


Live Oak Bancshares, Inc.

Quarterly Selected Financial Data
(Dollars in thousands, except per share data)

As of and for the three months ended
1Q 2016 4Q 2015 3Q 2015 2Q 2015 1Q 2015
Income Statement Data
Net income attributable to Live Oak Bancshares, Inc.$4,691 $5,716 $2,901 $3,935 $8,073
Per Common Share
Net income, basic$0.14 $0.17 $0.09 $0.14 $0.28
Net income, diluted0.13 0.16 0.09 0.13 0.27
Dividends declared0.02 0.01 0.01 0.03 0.05
Book value5.98 5.84 5.68 3.61 3.50
Tangible book value5.98 5.84 5.68 3.60 3.50
Performance Ratios
Return on average assets1.67% 2.18% 1.19% 1.87% 4.20%
Return on average equity9.38 11.60 7.15 16.54 35.86
Net interest margin3.52 3.66 3.11 2.94 2.97
Efficiency ratio69.72 67.40 74.06 71.36 50.50
Noninterest income to total revenue72.03 74.21 72.81 76.95 82.63
Selected Loan Metrics
Loans originated$284,530 $330,798 $302,962 $276,822 $248,058
Guaranteed Loans Sold155,643 219,328 147,377 137,134 137,047
Average net gain on sale of loans105.53 94.75 104.66 114.63 112.82
Held for sale guaranteed loans (note amount) (1)541,595 497,875 499,303 431,232 369,214
Quarterly increase (decrease) in note amount of held for sale guaranteed loans43,720 (1,428) 68,071 62,018 42,491
Estimated net gain to be recognized on quarterly increase in guaranteed loans held for sale (2)4,614 N/A 7,124 7,109 4,794
Asset Quality Ratios
Allowance for loan losses to loans held for investment2.75% 2.65% 2.37% 2.18% 2.37%
Net charge-offs to average loans held for investment0.30 0.30 0.40 0.17 0.47
Nonperforming loans$14,829 $12,367 $18,384 $19,662 $18,898
Foreclosed assets3,020 2,666 1,258 747 747
Nonperforming loans (unguaranteed exposure)2,421 2,037 2,562 3,089 2,934
Foreclosed assets (unguaranteed exposure)438 373 48 34 34
Nonperforming loans not guaranteed by the SBA and foreclosures2,859 2,410 2,610 3,123 2,968
Nonperforming loans not guaranteed by the SBA and foreclosures to total assets0.23% 0.23% 0.26% 0.35% 0.41%
Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)20.61% 23.22% 24.40% 13.94% 15.90%
Total capital (to risk-weighted assets)21.54 24.12 25.21 14.73 16.85
Tier 1 risk based capital (to risk-weighted assets)20.61 23.22 24.40 13.94 15.90
Tier 1 leverage capital (to average assets)17.09 18.36 19.07 10.96 11.38

Notes to Quarterly Selected Financial Data

(1) Includes the entire note amount, including undisbursed funds for the multi-advance loans.

(2) The estimated revenue from the sale of the quarterly increase in guaranteed loans is based on the average net gain on sale of loans for that quarter.


Live Oak Bancshares, Inc.

GAAP to Non-GAAP Reconciliation
(Dollars in thousands)

As of and for the three months ended
1Q 2016 4Q 2015 3Q 2015 2Q 2015 1Q 2015
Total shareholders’ equity$204,433 $199,488 $194,096 $103,381 $100,168
Less:
Goodwill
Other intangible assets 103 103 103
Tangible shareholders’ equity (a)$204,433 $199,488 $193,993 $103,278 $100,065
Shares outstanding (c)34,183,878 34,172,899 34,167,500 28,654,860 28,623,609
Total assets$1,268,541 $1,052,622 $1,012,766 $899,415 $723,032
Less:
Goodwill
Other intangible assets 103 103 103
Tangible assets (b)$1,268,541 $1,052,622 $1,012,663 $899,312 $722,929
Tangible shareholders’ equity to tangible assets (a/b)16.12% 18.95% 19.16% 11.48% 13.84%
Tangible book value per share (a/c)$5.98 $5.84 $5.68 $3.60 $3.50
Efficiency ratio:
Noninterest expense (d)$21,711 $22,133 $18,063 $16,817 $14,702
Net interest income8,709 8,470 6,631 5,433 5,055
Noninterest income22,432 24,368 17,770 18,135 24,055
Less: gain (loss) on sale of securities 1 12
Adjusted operating revenue (e)$31,141 $32,837 $24,389 $23,568 $29,110
Efficiency ratio (d/e)69.72% 67.40% 74.06% 71.36% 50.50%

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.

Contacts: Brett Caines | CFO Investor Relations | 910.796.1645 Micah Davis | Marketing Director Media Relations | 910.550.2255

Source:Live Oak Bancshares