UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 30, 2017
or
☐ | |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from
to .Commission file number: 001-37497
LIVE OAK BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
North Carolina | 26-4596286 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1741 Tiburon Drive Wilmington, North Carolina | 28403 |
(Address of principal executive offices) | (Zip Code) |
(910) 790-5867
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Voting Common Stock, no par value per share | LOB | The NASDAQ Stock Market LLC |
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 4, 2017,August 2, 2022, there were 35,233,24143,873,173 shares of the registrant’s voting common stock outstanding and 4,643,530 shares of the registrant’s non-voting common stock outstanding.
Live Oak Bancshares, Inc. and Subsidiaries
Form 10-Q
For the Quarterly Period Ended SeptemberJune 30, 2017
TABLE OF CONTENTS
Page | |||||
PART I. FINANCIAL INFORMATION | |||||
Item 1. | 1 | ||||
Condensed Consolidated Balance Sheets as of | 1 | ||||
2 | |||||
3 | |||||
4 | |||||
6 | |||||
Notes to Unaudited Condensed Consolidated Financial Statements | 8 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35 | |||
Item 3. | 55 | ||||
Item 4. | 56 | ||||
PART II. OTHER INFORMATION | |||||
Item 1. | 57 | ||||
Item 1A. | 57 | ||||
Item 2. | 57 | ||||
Item 3. | 57 | ||||
Item 4. | 57 | ||||
Item 5. | 57 | ||||
Item 6. | 58 | ||||
58 | |||||
59 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Live Oak Bancshares, Inc.
Condensed Consolidated Balance Sheets
As of SeptemberJune 30, 20172022 (unaudited) and December 31, 2016*
(Dollars in thousands)
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 580,493 |
|
| $ | 187,203 |
|
Federal funds sold |
|
| 51,694 |
|
|
| 16,547 |
|
Certificates of deposit with other banks |
|
| 4,250 |
|
|
| 4,750 |
|
Investment securities available-for-sale |
|
| 927,968 |
|
|
| 906,052 |
|
Loans held for sale (includes $23,452 and $25,310 measured at fair value, respectively) |
|
| 1,199,734 |
|
|
| 1,116,519 |
|
Loans and leases held for investment (includes $530,644 and $645,201 measured at fair value, respectively) |
|
| 5,860,209 |
|
|
| 5,521,262 |
|
Allowance for credit losses on loans and leases |
|
| (65,863 | ) |
|
| (63,584 | ) |
Net loans and leases |
|
| 5,794,346 |
|
|
| 5,457,678 |
|
Premises and equipment, net |
|
| 257,926 |
|
|
| 240,196 |
|
Foreclosed assets |
|
| 191 |
|
|
| 620 |
|
Servicing assets |
|
| 28,661 |
|
|
| 33,574 |
|
Other assets |
|
| 275,634 |
|
|
| 250,254 |
|
Total assets |
| $ | 9,120,897 |
|
| $ | 8,213,393 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
| $ | 119,371 |
|
| $ | 89,279 |
|
Interest-bearing |
|
| 8,036,373 |
|
|
| 7,022,765 |
|
Total deposits |
|
| 8,155,744 |
|
|
| 7,112,044 |
|
Borrowings |
|
| 86,209 |
|
|
| 318,289 |
|
Other liabilities |
|
| 87,282 |
|
|
| 67,927 |
|
Total liabilities |
|
| 8,329,235 |
|
|
| 7,498,260 |
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value, 1,000,000 shares authorized, NaN issued or outstanding at June 30, 2022 and December 31, 2021 |
|
| — |
|
|
| — |
|
Class A common stock, no par value, 100,000,000 shares authorized, 43,854,011 and 43,494,046 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively |
|
| 320,924 |
|
|
| 310,970 |
|
Class B common stock, no par value, 10,000,000 shares authorized, NaN issued or outstanding at June 30, 2022 and 125,024 shares issued and outstanding at December 31, 2021 |
|
| — |
|
|
| 1,324 |
|
Retained earnings |
|
| 530,021 |
|
|
| 400,893 |
|
Accumulated other comprehensive (loss) income |
|
| (59,283 | ) |
|
| 1,946 |
|
Total shareholders’ equity |
|
| 791,662 |
|
|
| 715,133 |
|
Total liabilities and shareholders’ equity |
| $ | 9,120,897 |
|
| $ | 8,213,393 |
|
* | Derived from audited consolidated financial statements. |
September 30, 2017 | December 31, 2016* | ||||||
Assets | |||||||
Cash and due from banks | $ | 260,907 | $ | 238,008 | |||
Certificates of deposit with other banks | 3,250 | 7,250 | |||||
Investment securities available-for-sale | 76,575 | 71,056 | |||||
Loans held for sale | 692,586 | 394,278 | |||||
Loans and leases held for investment | 1,169,887 | 907,566 | |||||
Allowance for loan and lease losses | (21,027 | ) | (18,209 | ) | |||
Net loans and leases | 1,148,860 | 889,357 | |||||
Premises and equipment, net | 129,233 | 64,661 | |||||
Foreclosed assets | 2,231 | 1,648 | |||||
Servicing assets | 53,392 | 51,994 | |||||
Other assets | 65,155 | 37,009 | |||||
Total assets | $ | 2,432,189 | $ | 1,755,261 | |||
Liabilities and Shareholders’ Equity | |||||||
Liabilities | |||||||
Deposits: | |||||||
Noninterest-bearing | $ | 55,260 | $ | 27,990 | |||
Interest-bearing | 1,957,631 | 1,457,086 | |||||
Total deposits | 2,012,891 | 1,485,076 | |||||
Long term borrowings | 26,872 | 27,843 | |||||
Other liabilities | 27,835 | 19,495 | |||||
Total liabilities | 2,067,598 | 1,532,414 | |||||
Shareholders’ equity | |||||||
Preferred stock, no par value, 1,000,000 authorized, none issued or outstanding at September 30, 2017 and December 31, 2016 | — | — | |||||
Class A common stock, no par value, 100,000,000 shares authorized, 35,218,617 and 29,530,072 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 266,336 | 149,966 | |||||
Class B common stock, no par value, 10,000,000 shares authorized, 4,643,530 and 4,723,530 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 49,168 | 50,015 | |||||
Retained earnings | 49,707 | 23,518 | |||||
Accumulated other comprehensive loss | (620 | ) | (652 | ) | |||
Total equity | 364,591 | 222,847 | |||||
Total liabilities and shareholders’ equity | $ | 2,432,189 | $ | 1,755,261 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Live Oak Bancshares, Inc.
Condensed Consolidated Statements of Income
For the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 (unaudited)
(Dollars in thousands, except per share data)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and fees on loans |
| $ | 94,157 |
|
| $ | 84,780 |
|
| $ | 183,355 |
|
| $ | 169,773 |
|
Investment securities, taxable |
|
| 4,046 |
|
|
| 2,975 |
|
|
| 7,445 |
|
|
| 5,904 |
|
Other interest earning assets |
|
| 1,044 |
|
|
| 244 |
|
|
| 1,229 |
|
|
| 547 |
|
Total interest income |
|
| 99,247 |
|
|
| 87,999 |
|
|
| 192,029 |
|
|
| 176,224 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 18,777 |
|
|
| 14,820 |
|
|
| 33,125 |
|
|
| 31,764 |
|
Borrowings |
|
| 536 |
|
|
| 1,717 |
|
|
| 1,191 |
|
|
| 3,048 |
|
Total interest expense |
|
| 19,313 |
|
|
| 16,537 |
|
|
| 34,316 |
|
|
| 34,812 |
|
Net interest income |
|
| 79,934 |
|
|
| 71,462 |
|
|
| 157,713 |
|
|
| 141,412 |
|
Provision for loan and lease credit losses |
|
| 5,267 |
|
|
| 7,846 |
|
|
| 7,103 |
|
|
| 6,973 |
|
Net interest income after provision for loan and lease credit losses |
|
| 74,667 |
|
|
| 63,616 |
|
|
| 150,610 |
|
|
| 134,439 |
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
|
| 6,477 |
|
|
| 6,218 |
|
|
| 12,833 |
|
|
| 12,652 |
|
Loan servicing asset revaluation |
|
| (8,668 | ) |
|
| (3,181 | ) |
|
| (10,237 | ) |
|
| (1,688 | ) |
Net gains on sales of loans |
|
| 5,630 |
|
|
| 16,234 |
|
|
| 26,607 |
|
|
| 28,163 |
|
Net (loss) gain on loans accounted for under the fair value option |
|
| (4,461 | ) |
|
| 1,135 |
|
|
| (3,945 | ) |
|
| 5,353 |
|
Equity method investments income (loss) |
|
| 119,056 |
|
|
| (2,278 | ) |
|
| 116,932 |
|
|
| (3,435 | ) |
Equity security investments gains (losses), net |
|
| 1,655 |
|
|
| 44,253 |
|
|
| 1,611 |
|
|
| 44,358 |
|
Lease income |
|
| 2,510 |
|
|
| 2,616 |
|
|
| 5,013 |
|
|
| 5,215 |
|
Management fee income |
|
| 2,558 |
|
|
| 1,473 |
|
|
| 4,046 |
|
|
| 3,407 |
|
Other noninterest income |
|
| 3,772 |
|
|
| 3,641 |
|
|
| 8,337 |
|
|
| 7,143 |
|
Total noninterest income |
|
| 128,529 |
|
|
| 70,111 |
|
|
| 161,197 |
|
|
| 101,168 |
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 46,276 |
|
|
| 32,900 |
|
|
| 84,783 |
|
|
| 64,266 |
|
Travel expense |
|
| 2,358 |
|
|
| 1,549 |
|
|
| 4,255 |
|
|
| 2,208 |
|
Professional services expense |
|
| 3,988 |
|
|
| 3,329 |
|
|
| 6,779 |
|
|
| 7,160 |
|
Advertising and marketing expense |
|
| 2,301 |
|
|
| 875 |
|
|
| 4,030 |
|
|
| 1,527 |
|
Occupancy expense |
|
| 2,773 |
|
|
| 2,224 |
|
|
| 5,100 |
|
|
| 4,336 |
|
Technology expense |
|
| 5,762 |
|
|
| 5,131 |
|
|
| 11,815 |
|
|
| 10,009 |
|
Equipment expense |
|
| 3,784 |
|
|
| 3,721 |
|
|
| 7,600 |
|
|
| 7,422 |
|
Other loan origination and maintenance expense |
|
| 3,022 |
|
|
| 3,307 |
|
|
| 6,135 |
|
|
| 6,634 |
|
Renewable energy tax credit investment impairment |
|
| 50 |
|
|
| — |
|
|
| 50 |
|
|
| 3,127 |
|
FDIC insurance |
|
| 2,164 |
|
|
| 1,704 |
|
|
| 4,136 |
|
|
| 3,469 |
|
Contributions and donations |
|
| 5,515 |
|
|
| 686 |
|
|
| 6,238 |
|
|
| 1,480 |
|
Other expense |
|
| 2,886 |
|
|
| 2,132 |
|
|
| 5,672 |
|
|
| 4,192 |
|
Total noninterest expense |
|
| 80,879 |
|
|
| 57,558 |
|
|
| 146,593 |
|
|
| 115,830 |
|
Income before taxes |
|
| 122,317 |
|
|
| 76,169 |
|
|
| 165,214 |
|
|
| 119,777 |
|
Income tax expense |
|
| 25,278 |
|
|
| 12,587 |
|
|
| 33,666 |
|
|
| 16,768 |
|
Net income |
| $ | 97,039 |
|
| $ | 63,582 |
|
| $ | 131,548 |
|
| $ | 103,009 |
|
Basic earnings per share |
| $ | 2.22 |
|
| $ | 1.48 |
|
| $ | 3.01 |
|
| $ | 2.40 |
|
Diluted earnings per share |
| $ | 2.16 |
|
| $ | 1.41 |
|
| $ | 2.92 |
|
| $ | 2.29 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest income | |||||||||||||||
Loans and fees on loans | $ | 26,977 | $ | 14,961 | $ | 70,290 | $ | 38,868 | |||||||
Investment securities, taxable | 325 | 337 | 964 | 840 | |||||||||||
Other interest earning assets | 870 | 264 | 1,682 | 650 | |||||||||||
Total interest income | 28,172 | 15,562 | 72,936 | 40,358 | |||||||||||
Interest expense | |||||||||||||||
Deposits | 6,758 | 3,689 | 16,893 | 9,376 | |||||||||||
Borrowings | 389 | 242 | 985 | 725 | |||||||||||
Total interest expense | 7,147 | 3,931 | 17,878 | 10,101 | |||||||||||
Net interest income | 21,025 | 11,631 | 55,058 | 30,257 | |||||||||||
Provision for loan and lease losses | 2,426 | 3,806 | 5,481 | 8,692 | |||||||||||
Net interest income after provision for loan and lease losses | 18,599 | 7,825 | 49,577 | 21,565 | |||||||||||
Noninterest income | |||||||||||||||
Loan servicing revenue | 6,490 | 5,860 | 18,587 | 15,725 | |||||||||||
Loan servicing asset revaluation | (3,691 | ) | (3,421 | ) | (6,864 | ) | (5,051 | ) | |||||||
Net gains on sales of loans | 18,148 | 21,833 | 55,276 | 52,813 | |||||||||||
Gain on sale of investment securities available-for-sale | — | 1 | — | 1 | |||||||||||
Construction supervision fee income | 362 | 502 | 1,077 | 1,799 | |||||||||||
Title insurance income | 1,968 | — | 5,803 | — | |||||||||||
Other noninterest income | 1,783 | 657 | 3,601 | 1,925 | |||||||||||
Total noninterest income | 25,060 | 25,432 | 77,480 | 67,212 | |||||||||||
Noninterest expense | |||||||||||||||
Salaries and employee benefits | 19,037 | 17,471 | 55,687 | 45,875 | |||||||||||
Travel expense | 2,289 | 2,218 | 6,035 | 6,394 | |||||||||||
Professional services expense | 1,068 | 907 | 4,228 | 2,345 | |||||||||||
Advertising and marketing expense | 1,516 | 1,097 | 4,977 | 3,425 | |||||||||||
Occupancy expense | 1,473 | 1,058 | 4,018 | 3,306 | |||||||||||
Data processing expense | 1,982 | 1,252 | 5,536 | 3,864 | |||||||||||
Equipment expense | 2,228 | 611 | 5,005 | 1,696 | |||||||||||
Other loan origination and maintenance expense | 1,601 | 806 | 3,587 | 2,001 | |||||||||||
FDIC insurance | 858 | 210 | 2,308 | 507 | |||||||||||
Title insurance closing services expense | 687 | — | 1,877 | — | |||||||||||
Other expense | 3,117 | 1,588 | 8,883 | 4,648 | |||||||||||
Total noninterest expense | 35,856 | 27,218 | 102,141 | 74,061 | |||||||||||
Income before taxes | 7,803 | 6,039 | 24,916 | 14,716 | |||||||||||
Income tax (benefit) expense | (5,059 | ) | 2,561 | (3,853 | ) | 6,432 | |||||||||
Net income | 12,862 | 3,478 | 28,769 | 8,284 | |||||||||||
Net loss attributable to noncontrolling interest | — | 1 | — | 9 | |||||||||||
Net income attributable to Live Oak Bancshares, Inc. | $ | 12,862 | $ | 3,479 | $ | 28,769 | $ | 8,293 | |||||||
Basic earnings per share | $ | 0.34 | $ | 0.10 | $ | 0.81 | $ | 0.24 | |||||||
Diluted earnings per share | $ | 0.33 | $ | 0.10 | $ | 0.78 | $ | 0.24 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Live Oak Bancshares, Inc.
Condensed Consolidated Statements of Comprehensive Income
For the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 (unaudited)
(Dollars in thousands)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income |
| $ | 97,039 |
|
| $ | 63,582 |
|
| $ | 131,548 |
|
| $ | 103,009 |
|
Other comprehensive (loss) income before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain on investment securities arising during the period |
|
| (29,967 | ) |
|
| 5,257 |
|
|
| (80,561 | ) |
|
| (11,031 | ) |
Reclassification adjustment for gain on sale of securities available-for-sale included in net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other comprehensive (loss) income before tax |
|
| (29,967 | ) |
|
| 5,257 |
|
|
| (80,561 | ) |
|
| (11,031 | ) |
Income tax benefit (expense) |
|
| 7,190 |
|
|
| (1,262 | ) |
|
| 19,332 |
|
|
| 2,647 |
|
Other comprehensive (loss) income, net of tax |
|
| (22,777 | ) |
|
| 3,995 |
|
|
| (61,229 | ) |
|
| (8,384 | ) |
Total comprehensive income |
| $ | 74,262 |
|
| $ | 67,577 |
|
| $ | 70,319 |
|
| $ | 94,625 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 12,862 | $ | 3,478 | $ | 28,769 | $ | 8,284 | |||||||
Other comprehensive income before tax: | |||||||||||||||
Net unrealized (loss) gain on investment securities arising during the period | (168 | ) | (115 | ) | 52 | 525 | |||||||||
Reclassification adjustment for (gain) loss on sale of securities available-for-sale included in net income | — | (1 | ) | — | (1 | ) | |||||||||
Other comprehensive income before tax | (168 | ) | (116 | ) | 52 | 524 | |||||||||
Income tax benefit (expense) | 65 | 45 | (20 | ) | (202 | ) | |||||||||
Other comprehensive (loss) income, net of tax | (103 | ) | (71 | ) | 32 | 322 | |||||||||
Total comprehensive income | $ | 12,759 | $ | 3,407 | $ | 28,801 | $ | 8,606 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Changes in Shareholders’ Equity
For the ninethree and six months ended SeptemberJune 30, 20172022 and 20162021 (unaudited)
(Dollars in thousands)
|
| Three Months Ended |
| |||||||||||||||||||||
|
| Common stock |
|
|
|
|
|
| Accumulated other |
|
|
|
|
| ||||||||||
|
| Shares |
|
|
|
|
|
| Retained |
|
| comprehensive |
|
| Total |
| ||||||||
|
| Class A |
|
| Class B |
|
| Amount |
|
| earnings |
|
| income (loss) |
|
| equity |
| ||||||
Balance at March 31, 2022 |
|
| 43,787,660 |
|
|
| — |
|
| $ | 315,607 |
|
| $ | 434,226 |
|
| $ | (36,506 | ) |
| $ | 713,327 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 97,039 |
|
|
| — |
|
|
| 97,039 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,777 | ) |
|
| (22,777 | ) |
Issuance of restricted stock |
|
| 17,156 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax withholding related to vesting of restricted stock and other |
|
| — |
|
|
| — |
|
|
| (197 | ) |
|
| — |
|
|
| — |
|
|
| (197 | ) |
Stock option exercises |
|
| 49,195 |
|
|
| — |
|
|
| 434 |
|
|
| — |
|
|
| — |
|
|
| 434 |
|
Stock option compensation expense |
|
| — |
|
|
| — |
|
|
| 234 |
|
|
| — |
|
|
| — |
|
|
| 234 |
|
Restricted stock compensation expense |
|
| — |
|
|
| — |
|
|
| 4,846 |
|
|
| — |
|
|
| — |
|
|
| 4,846 |
|
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 71 |
|
|
| — |
|
|
| 71 |
|
Cash dividends ($0.03 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,315 | ) |
|
| — |
|
|
| (1,315 | ) |
Balance at June 30, 2022 |
|
| 43,854,011 |
|
|
| — |
|
| $ | 320,924 |
|
| $ | 530,021 |
|
| $ | (59,283 | ) |
| $ | 791,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021 |
|
| 42,259,091 |
|
|
| 692,253 |
|
| $ | 305,855 |
|
| $ | 275,377 |
|
| $ | 9,128 |
|
| $ | 590,360 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63,582 |
|
|
| — |
|
|
| 63,582 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,995 |
|
|
| 3,995 |
|
Issuance of restricted stock |
|
| 124,607 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax withholding related to vesting of restricted stock and other |
|
| — |
|
|
| — |
|
|
| (5,713 | ) |
|
| — |
|
|
| — |
|
|
| (5,713 | ) |
Stock option exercises |
|
| 188,509 |
|
|
| — |
|
|
| 951 |
|
|
| — |
|
|
| — |
|
|
| 951 |
|
Stock option compensation expense |
|
| — |
|
|
| — |
|
|
| 353 |
|
|
| — |
|
|
| — |
|
|
| 353 |
|
Restricted stock compensation expense |
|
| — |
|
|
| — |
|
|
| 3,767 |
|
|
| — |
|
|
| — |
|
|
| 3,767 |
|
Non-voting common stock converted to voting common stock in private sale |
|
| 181,926 |
|
|
| (181,926 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,349 |
|
|
| — |
|
|
| 1,349 |
|
Cash dividends ($0.03 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,297 | ) |
|
| — |
|
|
| (1,297 | ) |
Balance at June 30, 2021 |
|
| 42,754,133 |
|
|
| 510,327 |
|
| $ | 305,213 |
|
| $ | 339,011 |
|
| $ | 13,123 |
|
| $ | 657,347 |
|
Common stock | Retained earnings | Accumulated other comprehensive income (loss) | Non- controlling interest | Total equity | |||||||||||||||||||||
Shares | |||||||||||||||||||||||||
Class A | Class B | Amount | |||||||||||||||||||||||
Balance at December 31, 2015 | 29,449,369 | 4,723,530 | $ | 187,507 | $ | 12,140 | $ | (192 | ) | $ | 33 | $ | 199,488 | ||||||||||||
Net income (loss) | — | — | — | 8,293 | — | (9 | ) | 8,284 | |||||||||||||||||
Other comprehensive income | — | — | — | — | 322 | — | 322 | ||||||||||||||||||
Issuance of restricted stock | 16,745 | — | — | — | — | — | — | ||||||||||||||||||
Stock option exercises | 25,406 | — | 147 | — | — | — | 147 | ||||||||||||||||||
Stock option based compensation expense | — | — | 1,752 | — | — | — | 1,752 | ||||||||||||||||||
Restricted stock expense | — | — | 5,893 | — | — | — | 5,893 | ||||||||||||||||||
Acquisition of non-controlling interest | — | — | — | — | — | (24 | ) | (24 | ) | ||||||||||||||||
Dividends (distributions to shareholders) | — | — | — | (1,710 | ) | — | — | (1,710 | ) | ||||||||||||||||
Balance at September 30, 2016 | 29,491,520 | 4,723,530 | $ | 195,299 | $ | 18,723 | $ | 130 | $ | — | $ | 214,152 | |||||||||||||
Balance at December 31, 2016 | 29,530,072 | 4,723,530 | $ | 199,981 | $ | 23,518 | $ | (652 | ) | $ | — | $ | 222,847 | ||||||||||||
Net income | — | — | — | 28,769 | — | — | 28,769 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | 32 | — | 32 | ||||||||||||||||||
Issuance of restricted stock | 306,902 | — | — | — | — | — | — | ||||||||||||||||||
Withholding cash issued in lieu of restricted stock issuance | — | — | (4,891 | ) | — | — | — | (4,891 | ) | ||||||||||||||||
Employee stock purchase program | 22,634 | — | 445 | — | — | — | 445 | ||||||||||||||||||
Stock option exercises | 76,285 | — | 602 | — | — | — | 602 | ||||||||||||||||||
Stock option based compensation expense | — | — | 1,496 | — | — | — | 1,496 | ||||||||||||||||||
Restricted stock expense | — | — | 4,210 | — | — | — | 4,210 | ||||||||||||||||||
Stock issued in acquisition of Reltco, Inc. | 27,724 | — | 565 | — | — | — | 565 | ||||||||||||||||||
Non-voting common stock converted to voting common stock in private sale | 80,000 | (80,000 | ) | — | — | — | — | — | |||||||||||||||||
Issuance of common stock in connection with secondary offering, net of issue costs | 5,175,000 | — | 113,096 | — | — | — | 113,096 | ||||||||||||||||||
Dividends (distributions to shareholders) | — | — | — | (2,580 | ) | — | — | (2,580 | ) | ||||||||||||||||
Balance at September 30, 2017 | 35,218,617 | 4,643,530 | $ | 315,504 | $ | 49,707 | $ | (620 | ) | $ | — | $ | 364,591 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Live Oak Bancshares, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Continued)
For the three and six months ended June 30, 2022 and 2021 (unaudited)
(Dollars in thousands)
|
| Six Months Ended |
| |||||||||||||||||||||
|
| Common stock |
|
|
|
|
|
| Accumulated other |
|
|
|
|
| ||||||||||
|
| Shares |
|
|
|
|
|
| Retained |
|
| comprehensive |
|
| Total |
| ||||||||
|
| Class A |
|
| Class B |
|
| Amount |
|
| earnings |
|
| income (loss) |
|
| equity |
| ||||||
Balance at December 31, 2021 |
|
| 43,494,046 |
|
|
| 125,024 |
|
| $ | 312,294 |
|
| $ | 400,893 |
|
| $ | 1,946 |
|
| $ | 715,133 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 131,548 |
|
|
| — |
|
|
| 131,548 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (61,229 | ) |
|
| (61,229 | ) |
Issuance of restricted stock |
|
| 112,693 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax withholding related to vesting of restricted stock and other |
|
| — |
|
|
| — |
|
|
| (3,091 | ) |
|
| — |
|
|
| — |
|
|
| (3,091 | ) |
Employee stock purchase program |
|
| 11,119 |
|
|
| — |
|
|
| 534 |
|
|
| — |
|
|
| — |
|
|
| 534 |
|
Stock option exercises |
|
| 111,129 |
|
|
| — |
|
|
| 1,153 |
|
|
| — |
|
|
| — |
|
|
| 1,153 |
|
Stock option compensation expense |
|
| — |
|
|
| — |
|
|
| 625 |
|
|
| — |
|
|
| — |
|
|
| 625 |
|
Restricted stock compensation expense |
|
| — |
|
|
| — |
|
|
| 9,409 |
|
|
| — |
|
|
| — |
|
|
| 9,409 |
|
Non-voting common stock converted to voting common stock in private sale |
|
| 125,024 |
|
|
| (125,024 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 207 |
|
|
| — |
|
|
| 207 |
|
Cash dividends ($0.06 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,627 | ) |
|
| — |
|
|
| (2,627 | ) |
Balance at June 30, 2022 |
|
| 43,854,011 |
|
|
| — |
|
| $ | 320,924 |
|
| $ | 530,021 |
|
| $ | (59,283 | ) |
| $ | 791,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
|
| 41,344,689 |
|
|
| 1,107,757 |
|
| $ | 310,619 |
|
| $ | 235,724 |
|
| $ | 21,507 |
|
| $ | 567,850 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 103,009 |
|
|
| — |
|
|
| 103,009 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,384 | ) |
|
| (8,384 | ) |
Issuance of restricted stock |
|
| 416,823 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax withholding related to vesting of restricted stock and other |
|
| — |
|
|
| — |
|
|
| (17,000 | ) |
|
| — |
|
|
| — |
|
|
| (17,000 | ) |
Employee stock purchase program |
|
| 5,686 |
|
|
| — |
|
|
| 296 |
|
|
| — |
|
|
| — |
|
|
| 296 |
|
Stock option exercises |
|
| 389,505 |
|
|
| — |
|
|
| 2,164 |
|
|
| — |
|
|
| — |
|
|
| 2,164 |
|
Stock option compensation expense |
|
| — |
|
|
| — |
|
|
| 697 |
|
|
| — |
|
|
| — |
|
|
| 697 |
|
Restricted stock compensation expense |
|
| — |
|
|
| — |
|
|
| 8,437 |
|
|
| — |
|
|
| — |
|
|
| 8,437 |
|
Non-voting common stock converted to voting common stock in private sale |
|
| 597,430 |
|
|
| (597,430 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,857 |
|
|
| — |
|
|
| 2,857 |
|
Cash dividends ($0.06 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,579 | ) |
|
| — |
|
|
| (2,579 | ) |
Balance at June 30, 2021 |
|
| 42,754,133 |
|
|
| 510,327 |
|
| $ | 305,213 |
|
| $ | 339,011 |
|
| $ | 13,123 |
|
| $ | 657,347 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
Live Oak Bancshares, Inc.
Condensed Consolidated Statements of Cash Flows
For the ninesix months ended SeptemberJune 30, 20172022 and 20162021 (unaudited)
(Dollars in thousands)
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 131,548 |
|
| $ | 103,009 |
|
Adjustments to reconcile net income to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 10,553 |
|
|
| 10,566 |
|
Provision for loan and lease credit losses |
|
| 7,103 |
|
|
| 6,973 |
|
Amortization of premium on securities, net of accretion |
|
| 2,378 |
|
|
| 3,489 |
|
Deferred tax expense |
|
| 17,439 |
|
|
| 6,481 |
|
Originations of loans held for sale |
|
| (495,699 | ) |
|
| (654,707 | ) |
Proceeds from sales of loans held for sale |
|
| 529,989 |
|
|
| 456,873 |
|
Net gains on sale of loans held for sale |
|
| (26,607 | ) |
|
| (28,163 | ) |
Net loss (gain) on sale of foreclosed assets |
|
| 41 |
|
|
| (100 | ) |
Net loss (gain) on loans accounted for under fair value option |
|
| 3,945 |
|
|
| (5,353 | ) |
Net decrease (increase) in servicing assets |
|
| 4,913 |
|
|
| (3,048 | ) |
Net gain on disposal of long-lived asset |
|
| — |
|
|
| (114 | ) |
Net loss (gain) on disposal of property and equipment |
|
| 22 |
|
|
| (48 | ) |
Impairment on premises and equipment, net |
|
| — |
|
|
| 904 |
|
Equity method investments (income) loss |
|
| (116,932 | ) |
|
| 3,435 |
|
Equity security investments (gains) losses, net |
|
| (1,611 | ) |
|
| (44,358 | ) |
Renewable energy tax credit investment impairment |
|
| 50 |
|
|
| 3,127 |
|
Stock option compensation expense |
|
| 625 |
|
|
| 697 |
|
Restricted stock compensation expense |
|
| 9,409 |
|
|
| 8,437 |
|
Stock based compensation excess tax benefit |
|
| 1,106 |
|
|
| 8,430 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Lease right-of-use assets and liabilities, net |
|
| 569 |
|
|
| (2 | ) |
Other assets |
|
| (11,017 | ) |
|
| 4,626 |
|
Other liabilities |
|
| 9,847 |
|
|
| (185 | ) |
Net cash provided (used) by operating activities |
|
| 77,671 |
|
|
| (119,031 | ) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of securities available-for-sale |
|
| (200,285 | ) |
|
| (212,935 | ) |
Proceeds from sales, maturities, calls, and principal paydown of securities available-for-sale |
|
| 95,429 |
|
|
| 130,617 |
|
Proceeds from SBA reimbursement/sale of foreclosed assets, net |
|
| 333 |
|
|
| 3,141 |
|
Maturities of certificates of deposits with other banks |
|
| 500 |
|
|
| 500 |
|
Loan and lease originations and principal collections, net |
|
| (449,892 | ) |
|
| 38,141 |
|
Proceeds from sale of long-lived asset |
|
| — |
|
|
| 8,988 |
|
Proceeds from sale of equity security investment |
|
| — |
|
|
| 15,000 |
|
Proceeds from sale of equity method investment |
|
| 125,321 |
|
|
| — |
|
Proceeds from sale of premises and equipment |
|
| 2 |
|
|
| 84 |
|
Purchases of premises and equipment, net |
|
| (28,231 | ) |
|
| (1,232 | ) |
Net cash used by investing activities |
|
| (456,823 | ) |
|
| (17,696 | ) |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 28,769 | $ | 8,284 | |||
Adjustments to reconcile net income to net cash used by operating activities: | |||||||
Depreciation and amortization | 7,020 | 3,201 | |||||
Provision for loan losses | 5,481 | 8,692 | |||||
Amortization of premium on securities, net of accretion | 355 | 135 | |||||
Amortization of discount on unguaranteed loans, net | 1,263 | 773 | |||||
Deferred tax expense (benefit) | 413 | (510 | ) | ||||
Originations of loans held for sale | (884,741 | ) | (701,415 | ) | |||
Proceeds from sales of loans held for sale | 648,300 | 555,192 | |||||
Net gains on sale of loans held for sale | (55,276 | ) | (52,813 | ) | |||
Net loss on sale of foreclosed assets | 30 | 61 | |||||
Net increase in servicing assets | (1,398 | ) | (5,499 | ) | |||
Gain on sale of securities available-for-sale | — | (1 | ) | ||||
Net loss on disposal of premises and equipment | 213 | — | |||||
Stock option based compensation expense | 1,496 | 1,752 | |||||
Restricted stock expense | 4,210 | 5,893 | |||||
Stock based compensation expense excess tax benefits | 1,073 | — | |||||
Business combination contingent consideration fair value adjustment | 350 | — | |||||
Changes in assets and liabilities: | |||||||
Other assets | (17,661 | ) | (858 | ) | |||
Other liabilities | 3,875 | 2,652 | |||||
Net cash used by operating activities | (256,228 | ) | (174,461 | ) | |||
Cash flows from investing activities | |||||||
Purchases of securities available-for-sale | (13,009 | ) | (24,946 | ) | |||
Proceeds from sales, maturities, calls, and principal paydowns of securities available-for-sale | 7,187 | 8,764 | |||||
Proceeds from sale/collection of foreclosed assets | 50 | 680 | |||||
Business combination, net of cash acquired | (7,696 | ) | — | ||||
Maturities of certificates of deposit with other banks | 4,000 | 2,750 | |||||
Loan and lease originations and principal collections, net | (273,501 | ) | (154,738 | ) | |||
Purchases of premises and equipment, net | (71,420 | ) | (1,194 | ) | |||
Net cash used in investing activities | (354,389 | ) | (168,684 | ) |
See Notes to Unaudited Condensed Consolidated Financial Statements
Live Oak Bancshares, Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
For the ninesix months ended SeptemberJune 30, 20172022 and 20162021 (unaudited)
(Dollars in thousands)
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net increase in deposits |
| $ | 1,043,700 |
|
| $ | 808,005 |
|
Proceeds from borrowings |
|
| 12,051 |
|
|
| 594,791 |
|
Repayment of borrowings |
|
| (244,131 | ) |
|
| (1,128,446 | ) |
Stock option exercises |
|
| 1,153 |
|
|
| 2,164 |
|
Employee stock purchase program |
|
| 534 |
|
|
| 296 |
|
Withholding cash issued in lieu of restricted stock and other |
|
| (3,091 | ) |
|
| (17,000 | ) |
Shareholder dividend distributions |
|
| (2,627 | ) |
|
| (2,579 | ) |
Net cash provided by financing activities |
|
| 807,589 |
|
|
| 257,231 |
|
Net increase in cash and cash equivalents |
|
| 428,437 |
|
|
| 120,504 |
|
Cash and cash equivalents, beginning |
|
| 203,750 |
|
|
| 318,320 |
|
Cash and cash equivalents, ending |
| $ | 632,187 |
|
| $ | 438,824 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 34,850 |
|
| $ | 35,687 |
|
Income tax paid, net |
|
| 6,778 |
|
|
| 9,043 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash operating, investing, and financing activities |
|
|
|
|
|
|
|
|
Unrealized holding losses on available-for-sale securities, net of taxes |
| $ | (61,229 | ) |
| $ | (8,384 | ) |
Transfers from loans and leases to foreclosed real estate and other repossessions or SBA receivable |
|
| 11,278 |
|
|
| 9,837 |
|
Net transfers between foreclosed real estate and SBA receivable |
|
| 55 |
|
|
| 150 |
|
Transfer of loans held for sale to loans and leases held for investment |
|
| 88,915 |
|
|
| 434,322 |
|
Transfer of loans and leases held for investment to loans held for sale |
|
| 227,705 |
|
|
| 156,698 |
|
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense |
|
| 207 |
|
|
| 2,857 |
|
Recording of secured borrowing |
|
| — |
|
|
| 3,993 |
|
Equity method investment commitments |
|
| 10,566 |
|
|
| — |
|
Equity security investment commitments |
|
| 415 |
|
|
| 2,250 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from financing activities | |||||||
Net increase in deposits | 527,815 | 598,229 | |||||
Proceeds from long term borrowings | 16,900 | — | |||||
Repayment of long term borrowings | (25,971 | ) | (301 | ) | |||
Proceeds from short term borrowings | 23,100 | — | |||||
Repayment of short term borrowings | (15,000 | ) | — | ||||
Stock option exercises | 602 | 147 | |||||
Employee stock purchase program | 445 | — | |||||
Withholding cash issued in lieu of restricted stock | (4,891 | ) | — | ||||
Sale of common stock, net of issuance costs | 113,096 | — | |||||
Shareholder dividend distributions | (2,580 | ) | (2,052 | ) | |||
Net cash provided by financing activities | 633,516 | 596,023 | |||||
Net increase in cash and cash equivalents | 22,899 | 252,878 | |||||
Cash and cash equivalents, beginning | 238,008 | 102,607 | |||||
Cash and cash equivalents, ending | $ | 260,907 | $ | 355,485 | |||
Supplemental disclosure of cash flow information | |||||||
Interest paid | $ | 17,927 | $ | 10,120 | |||
Income tax | 7,094 | 5,739 | |||||
Supplemental disclosures of noncash operating, investing, and financing activities | |||||||
Unrealized holding gains on available-for-sale securities, net of taxes | $ | 32 | $ | 322 | |||
Transfers from loans to foreclosed real estate and other repossessions | 663 | 406 | |||||
Transfers from foreclosed real estate to SBA receivable | — | 96 | |||||
Transfer of loans held for sale to loans held for investment | 5,713 | 339,322 | |||||
Transfer of loans held for investment to loans held for sale | 18,990 | 2,296 | |||||
Contingent consideration in acquisition of controlling interest in equity method investment | — | 24 | |||||
Transfers from short term borrowings to long term borrowings | 8,100 | — | |||||
Business combination: | |||||||
Assets acquired (excluding goodwill) | 5,766 | — | |||||
Liabilities assumed | 4,681 | — | |||||
Purchase price | 8,363 | — | |||||
Goodwill recorded | 7,278 | — |
See Notes to Unaudited Condensed Consolidated Financial Statements
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
Nature of Operations
Live Oak Bancshares, Inc. (the(collectively with its subsidiaries including Live Oak Banking Company, the “Company” or “LOB”) is a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of the State of North Carolina in December 2008. The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the “Bank”). The Bank was organized and incorporated under the laws of the State of North Carolina on February 25, 2008 and commenced operations on May 12, 2008. The Bank specializes in providing lending and deposit related services to small businesses nationwide in targeted industries, which we refer to as verticals.nationwide. The Bank identifies and growsextends lending to credit-worthy borrowers both within credit-worthyspecific industries, also called verticals, through expertise within those industries, and more broadly to select borrowers outside of those industries. A significant portion of the loans originated by the Bank are guaranteed by the Small Business Administration (“SBA”) under the 7(a) Loan Program and to a lesser extent by the U.S. Department of AgricultureAgriculture’s ("USDA") Rural Energy for America Program ("REAP"), Water and Environmental Program (“WEP”) and Business & Industry ("B&I") loan programs. On July 28, 2015
The Company’s wholly owned subsidiaries include the Company completed its initial public offering with a secondary offering completed in August of 2017. In 2010, the Bank, formed Live Oak Number One, Inc., a wholly-owned subsidiary, to hold properties foreclosed on by the Bank.
The Bank’s wholly owned subsidiaries are Live Oak Number One, Inc., Live Oak Clean Energy Financing LLC (“LOCEF”), and Live Oak Private Wealth, LLC (“Live Oak Private Wealth”). Live Oak Number One, Inc. holds properties foreclosed on by the Bank. LOCEF provides financing to entities for renewable energy applications. Live Oak Private Wealth provides high-net-worth individuals and families with strategic wealth and investment management services. During the first quarter of 2022, Jolley Asset Management, LLC (“JAM”) was merged into Live Oak Private Wealth. JAM was previously a wholly owned subsidiary of Live Oak Private Wealth.
GLS is a management and technology consulting firm that specializesadvises and offers solutions and services to participants in the government guaranteed lending sector. GLS primarily provides services in connection with the settlement, accounting, and securitization processes for government guaranteed loans, including loans originated under the SBA 7(a) loan programprograms and USDA-guaranteed loans;USDA guaranteed loans. The Grove provides Company employees and 504 Fund Advisors, LLC (“504FA”), formed to serve as the investment adviser to the 504 Fund, a closed-end mutual fund organized to invest in SBA section 504 loans.
The Company earnsgenerates revenue primarily from net interest income and secondarily through the origination and sale of SBA and USDA-guaranteedgovernment guaranteed loans. Income from the retention of loans and netis comprised of interest income. Income from the sale of loans is comprised of net gains on the salesales of loans revenues on the servicing of sold loans and valuation ofalong with loan servicing rights.revenue and revaluation of related servicing assets. Offsetting these revenues are the cost of funding sources, provision for loan and lease credit losses, any costs related to foreclosed assets and other operating costs such as salaries and employee benefits, travel, professional services, advertising and marketing and tax expense.
General
In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included, and all intercompany transactions have been eliminated in consolidation. Results of operations for the ninethree and six months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2017.2022. The consolidated balance sheetUnaudited Condensed Consolidated Balance Sheet as of December 31, 20162021 has been derived from the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, filed with the Securities Exchange Commission on March 9, 2017February 24, 2022 (SEC File No. 001-37497) (the "2016 Annual Report""2021 Form 10-K"). A summary description of the significant accounting policies followed by the Company is set forth in Note 1 of the Notes to Consolidated Financial Statements in the Company’s 2016 Annual Report.2021 Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes in the Company's 2016 Annual Report.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The preparation of financial statements in conformity with United States generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
Amounts in all tables in the Notes to Unaudited Condensed Consolidated Financial Statements have been presented in thousands, except percentage, time period, stock option, share and per share data or where otherwise indicated.
Business Segments
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Management has determined that the Company has one significanttwo reportable operating segment, which is providing a lending platform for small businesses nationwide.segments: Banking and Fintech, as discussed more fully in Note 11. Segments. In determining the appropriateness of a segment definition, the Company considers the materialitycriteria of a potential segment, the components of the business about which financial information is available, and components for which management regularly evaluates relative to resource allocation and performance assessment.
As of September 30, 2017 | Amount | |||
2017 | $ | 463 | ||
2018 | 3,204 | |||
2019 | 3,214 | |||
2020 | 3,233 | |||
2021 | 3,254 | |||
Thereafter | 19,625 | |||
Total | $ | 32,993 |
Three months ended September 30, 2017 | Nine months ended September 30, 2017 | |||||||
Decrease in: | ||||||||
Net income | $ | 202 | $ | 692 | ||||
Basic EPS | $ | 0.01 | $ | 0.02 | ||||
Diluted EPS | $ | 0.01 | $ | 0.02 |
Reclassifications
Certain reclassifications have been made to the prior period’s unaudited condensed consolidated financial statements to place them on a comparable basis with the current year. Net income and shareholders’ equity previously reported were not affected by these reclassifications.
Note 2. Recent Accounting Pronouncements
In May 2014,March 2020, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers2020-04 “Reference Rate Reform (Topic 606)”848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2014-09”2020-04”). This standard is intendedASU 2020-04 provides optional guidance for a limited period of time to clarifyease the principlespotential burden in accounting for (or recognizing revenue and to develop a common revenue standard for GAAP. The Company's revenue is comprised of loan servicing revenue, net gains on sales of loans and net interest incomethe effects of) reference rate reform on financial assetsreporting. The amendments are effective for and financial liabilities, allcan be adopted by the Company as of which are explicitly excluded from the scope of ASU 2014-09, and non-interest income. The Company's revenue streams included in non-interest income that are within the scope of the guidance are primarily related to sales of foreclosed assets, construction supervision fees, title insurance income and trust fiduciary fees.March 12, 2020, through December 31, 2022. The Company does not expect the adoption of ASU 2014-09 tothis standard will have a material effectimpact on theits consolidated financial statements.To address the discontinuance of LIBOR, the Company has stopped originating variable LIBOR-based loans effective December 31, 2021 and has started to negotiate loans using the preferred replacement index, the Secured Overnight Financing Rate (“SOFR”) or a relevant duration U.S. Treasury rate. For currently outstanding LIBOR-based loans, the timing and manner in which each customer’s contract transitions from LIBOR to another rate will vary on a case-by-case basis. The Company expects to adoptcomplete all transitions by the standard in the firstsecond quarter of 2018 with a cumulative effect adjustment to opening retained earnings,2023 or at the next repricing date if such adjustment is deemed to be significant.
In February 2016,March 2022, the FASB issued ASU No. 2016-02, “Leases2022-02 “Financial Instruments – Credit Losses (Topic 842)”326): Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures” (“ASU 2016-02”2022-02”). The FASB issued this ASU to increase transparency2022-02 eliminates the accounting guidance for TDRs by creditors in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and comparability among organizationsrestructurings when a borrower is experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross write-offs by recognizing lease assetsyear of origination for financing receivables and lease liabilities onnet investments in leases within the balance sheet by lessees for those leases classified as operating leases under current GAAP and disclosing key information about leasing arrangements.scope of ASC 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. The amendments in this ASU are effective for the Company on January 1, 2019. The impact of this standard will depend on the Company's lease portfolio at the time of the adoption and the Company is currently assessing the effect that the adoption of this standard will have on the consolidated financial statements.
In that regard, a cross-functional working group has been formed, under the direction of the Company's Chief Financial Officer and Chief Credit Officer. The working group is comprised of individuals from various functional areas including credit, risk management, finance and information technology, among others. The Company is currently developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. The Company is also currently evaluating selected third-party vendor solutions to assist in the application of the ASU 2016-13. While the Company is currently unable to reasonably estimate the impact of adopting ASU 2016-13, the impact of adoption is expected to be significantly influenced by the composition, characteristics and quality of loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3. Earnings Per Share
Basic and diluted earnings per share are computed based on the weighted averageweighted-average number of shares outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur upon the exercise of stock options or upon the vesting of restricted stock grants, any of which would result in the issuance of common stock that would then be sharedshare in the net income of the Company.
|
| Three Months Ended June 30, |
|
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
|
| 2022 |
|
| 2021 |
| ||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 97,039 |
|
| $ | 63,582 |
|
|
| $ | 131,548 |
|
| $ | 103,009 |
|
Weighted-average basic shares outstanding |
|
| 43,824,707 |
|
|
| 43,173,312 |
|
|
|
| 43,763,681 |
|
|
| 42,924,844 |
|
Basic earnings per share |
| $ | 2.22 |
|
| $ | 1.48 |
|
|
| $ | 3.01 |
|
| $ | 2.40 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, for diluted earnings per share |
| $ | 97,039 |
|
| $ | 63,582 |
|
|
| $ | 131,548 |
|
| $ | 103,009 |
|
Total weighted-average basic shares outstanding |
|
| 43,824,707 |
|
|
| 43,173,312 |
|
|
|
| 43,763,681 |
|
|
| 42,924,844 |
|
Add effect of dilutive stock options and restricted stock grants |
|
| 978,571 |
|
|
| 1,889,080 |
|
|
|
| 1,252,082 |
|
|
| 1,956,158 |
|
Total weighted-average diluted shares outstanding |
|
| 44,803,278 |
|
|
| 45,062,392 |
|
|
|
| 45,015,763 |
|
|
| 44,881,002 |
|
Diluted earnings per share |
| $ | 2.16 |
|
| $ | 1.41 |
|
|
| $ | 2.92 |
|
| $ | 2.29 |
|
Anti-dilutive shares |
|
| 869,753 |
|
|
| 9,319 |
|
|
|
| 869,753 |
|
|
| 9,319 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Basic earnings per share: | |||||||||||||||
Net income available to common shareholders | $ | 12,862 | $ | 3,479 | $ | 28,769 | $ | 8,293 | |||||||
Weighted-average basic shares outstanding | 37,366,041 | 34,206,943 | 35,485,371 | 34,191,014 | |||||||||||
Basic earnings per share | $ | 0.34 | $ | 0.10 | $ | 0.81 | $ | 0.24 | |||||||
Diluted earnings per share: | |||||||||||||||
Net income available to common shareholders, for diluted earnings per share | $ | 12,862 | $ | 3,479 | $ | 28,769 | $ | 8,293 | |||||||
Total weighted-average basic shares outstanding | 37,366,041 | 34,206,943 | 35,485,371 | 34,191,014 | |||||||||||
Add effect of dilutive stock options and restricted stock grants | 1,278,636 | 794,874 | 1,244,683 | 812,408 | |||||||||||
Total weighted-average diluted shares outstanding | 38,644,677 | 35,001,817 | 36,730,054 | 35,003,422 | |||||||||||
Diluted earnings per share | $ | 0.33 | $ | 0.10 | $ | 0.78 | $ | 0.24 | |||||||
Anti-dilutive shares | 243,199 | 1,778,995 | 250,698 | 1,778,995 |
Note 4. Business Combination
Fair value of assets acquired | |||
Cash | $ | 102 | |
Accounts receivable | 159 | ||
Intangible assets | 5,505 | ||
Total assets acquired | 5,766 | ||
Fair value of liabilities assumed | |||
Contingent consideration | 4,300 | ||
Accounts payable and other liabilities | 381 | ||
Total liabilities assumed | 4,681 | ||
Net assets acquired | $ | 1,085 | |
Purchase price | |||
Common shares issued | 27,724 | ||
Purchase price per share of the Company’s common stock | $ | 20.38 | |
Company common stock issued | 565 | ||
Cash | 7,798 | ||
Total purchase price | 8,363 | ||
Goodwill | $ | 7,278 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue (net interest income and noninterest income) | $ | 46,085 | $ | 40,627 | $ | 133,306 | $ | 106,960 | |||||||
Net income available to common stockholders | 12,862 | 4,183 | 28,807 | 9,952 | |||||||||||
Basic earnings per share | 0.34 | 0.12 | 0.81 | 0.29 | |||||||||||
Diluted earnings per share | 0.33 | 0.12 | 0.78 | 0.28 |
Available-for-Sale
The carrying amount of investment securities and their approximate fair values are reflected in the following table:
June 30, 2022 |
| Amortized Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Fair Value |
| ||||
US government agencies |
| $ | 17,446 |
|
| $ | 12 |
|
| $ | 71 |
|
| $ | 17,387 |
|
Mortgage-backed securities |
|
| 982,788 |
|
|
| 503 |
|
|
| 78,365 |
|
|
| 904,926 |
|
Municipal bonds |
|
| 3,235 |
|
|
| — |
|
|
| 70 |
|
|
| 3,165 |
|
Other debt securities |
|
| 2,500 |
|
|
| — |
|
|
| 10 |
|
|
| 2,490 |
|
Total |
| $ | 1,005,969 |
|
| $ | 515 |
|
| $ | 78,516 |
|
| $ | 927,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agencies |
| $ | 10,444 |
|
| $ | 193 |
|
| $ | — |
|
| $ | 10,637 |
|
Mortgage-backed securities |
|
| 887,302 |
|
|
| 14,246 |
|
|
| 12,209 |
|
|
| 889,339 |
|
Municipal bonds |
|
| 3,246 |
|
|
| 333 |
|
|
| 3 |
|
|
| 3,576 |
|
Other debt securities |
|
| 2,500 |
|
|
| — |
|
|
| — |
|
|
| 2,500 |
|
Total |
| $ | 903,492 |
|
| $ | 14,772 |
|
| $ | 12,212 |
|
| $ | 906,052 |
|
During the three months ended June 30, 2022, 9 mortgage-backed securities totaling $18.8 million were settled. During the three months ended June 30, 2021, 1 US government agency matured at $5.0 million and 4 mortgage-backed securities totaling $10.4 million were settled.
During the six months ended June 30, 2022, 18 mortgage-backed securities totaling $32.7 million were settled. During the six months ended June 30, 2021, 1 US government agency matured at $5.0 million and 6 mortgage-backed securities totaling $16.9 million were settled.
Accrued interest receivable on available-for-sale securities totaled $2.3 million and $1.9 million at June 30, 2022 and December 31, 2021, respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
September 30, 2017 | |||||||||||||||
US government agencies | $ | 17,829 | $ | 11 | $ | 35 | $ | 17,805 | |||||||
Residential mortgage-backed securities | 57,685 | — | 936 | 56,749 | |||||||||||
Mutual fund | 2,070 | — | 49 | 2,021 | |||||||||||
Total | $ | 77,584 | $ | 11 | $ | 1,020 | $ | 76,575 | |||||||
December 31, 2016 | |||||||||||||||
US government agencies | $ | 17,803 | $ | 52 | $ | 32 | $ | 17,823 | |||||||
Residential mortgage-backed securities | 52,301 | 3 | 1,031 | 51,273 | |||||||||||
Mutual fund | 2,012 | — | 52 | 1,960 | |||||||||||
Total | $ | 72,116 | $ | 55 | $ | 1,115 | $ | 71,056 |
The following tables show grossdebt securities available-for-sale in an unrealized loss position for which an allowance for credit losses and fair value,has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
|
| Less Than 12 Months |
|
| 12 Months or More |
|
| Total |
| |||||||||||||||
June 30, 2022 |
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||
US government agencies |
| $ | 9,375 |
|
| $ | 71 |
|
| $ | — |
|
| $ | — |
|
| $ | 9,375 |
|
| $ | 71 |
|
Mortgage-backed securities |
|
| 637,947 |
|
|
| 44,226 |
|
|
| 216,231 |
|
|
| 34,139 |
|
|
| 854,178 |
|
|
| 78,365 |
|
Municipal bonds |
|
| 3,072 |
|
|
| 64 |
|
|
| 93 |
|
|
| 6 |
|
|
| 3,165 |
|
|
| 70 |
|
Other debt securities |
|
| 490 |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 490 |
|
|
| 10 |
|
Total |
| $ | 650,884 |
|
| $ | 44,371 |
|
| $ | 216,324 |
|
| $ | 34,145 |
|
| $ | 867,208 |
|
| $ | 78,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less Than 12 Months |
|
| 12 Months or More |
|
| Total |
| |||||||||||||||
December 31, 2021 |
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||
Mortgage-backed securities |
| $ | 479,322 |
|
| $ | 8,503 |
|
| $ | 110,633 |
|
| $ | 3,706 |
|
| $ | 589,955 |
|
| $ | 12,209 |
|
Municipal bonds |
|
| — |
|
|
| — |
|
|
| 96 |
|
|
| 3 |
|
|
| 96 |
|
|
| 3 |
|
Total |
| $ | 479,322 |
|
| $ | 8,503 |
|
| $ | 110,729 |
|
| $ | 3,709 |
|
| $ | 590,051 |
|
| $ | 12,212 |
|
Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
September 30, 2017 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||
US government agencies | $ | 4,996 | $ | 16 | $ | 1,496 | $ | 19 | $ | 6,492 | $ | 35 | |||||||||||
Residential mortgage-backed securities | 28,397 | 461 | 21,767 | 475 | 50,164 | 936 | |||||||||||||||||
Mutual fund | 2,021 | 49 | — | — | 2,021 | 49 | |||||||||||||||||
Total | $ | 35,414 | $ | 526 | $ | 23,263 | $ | 494 | $ | 58,677 | $ | 1,020 | |||||||||||
Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
December 31, 2016 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||
US government agencies | $ | 6,508 | $ | 32 | $ | — | $ | — | $ | 6,508 | $ | 32 | |||||||||||
Residential mortgage-backed securities | 49,109 | 1,017 | 1,635 | 14 | 50,744 | 1,031 | |||||||||||||||||
Mutual fund | 1,960 | 52 | — | — | 1,960 | 52 | |||||||||||||||||
Total | $ | 57,577 | $ | 1,101 | $ | 1,635 | $ | 14 | $ | 59,212 | $ | 1,115 |
Management evaluates available-for-sale debt securities to determine whether the unrealized loss is due to credit-related factors or non-credit-related factors. The evaluation considers the extent to which the security’s fair value is less than cost, the financial condition and near-term prospects of the issuer, and intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.
At SeptemberJune 30, 2017,2022, there were twelve residentialNaN mortgage-backed securities and one1 municipal bond in unrealized loss positions for greater than 12 months. There were 3 US government agency securities, NaN mortgage-backed securities, 1 municipal bond, and 1 other debt security in unrealized loss positions for less than 12 months. Unrealized losses at December 31, 2021 were comprised of NaN mortgage-backed securities and 1 municipal bond in unrealized loss positions for greater than 12 months, and fourteen residential mortgage-backed securities, two US government agency securities and the 504 Fund mutual fund investment in an unrealized loss position for less than 12 months. Unrealized losses at December 31, 2016 were comprised of two residentialNaN mortgage-backed securities in unrealized loss positions for greater than 12 months and three US government agency securities, twenty-two residential mortgage-backed securities and the 504 Fund mutual fund investment in an unrealized loss position for less than 12 months.
These unrealized losses are primarily the result of non-credit-related volatility in the market and are related to market interest rates. Since none of the unrealized losses relate to marketability of the securities or the issuer’s ability to honor redemption obligations and the Company has the intent and ability to hold the securities for a sufficient period of time to recover unrealized losses, noneNaN of the securities are deemed to be other than temporarily impaired.
All residential mortgage-backed securities in the Company’s portfolio at SeptemberJune 30, 20172022 and December 31, 20162021 were backed by USU.S. government sponsored enterprises (“GSEs”).
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The following is a summary of investment securities by maturity:
|
| June 30, 2022 |
| |||||
|
| Available-for-Sale |
| |||||
|
| Amortized cost |
|
| Fair value |
| ||
US government agencies |
|
|
|
|
|
|
|
|
Within one year |
| $ | 7,503 |
|
| $ | 7,502 |
|
One to five years |
|
| 9,943 |
|
|
| 9,885 |
|
Total |
|
| 17,446 |
|
|
| 17,387 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
One to five years |
|
| 121,946 |
|
|
| 117,826 |
|
Five to ten years |
|
| 224,820 |
|
|
| 206,806 |
|
After 10 years |
|
| 636,022 |
|
|
| 580,294 |
|
Total |
|
| 982,788 |
|
|
| 904,926 |
|
Municipal bonds |
|
|
|
|
|
|
|
|
Five to ten years |
|
| 3,136 |
|
|
| 3,072 |
|
After 10 years |
|
| 99 |
|
|
| 93 |
|
Total |
|
| 3,235 |
|
|
| 3,165 |
|
Other debt securities |
|
|
|
|
|
|
|
|
Within one year |
|
| 500 |
|
|
| 490 |
|
One to five years |
|
| 2,000 |
|
|
| 2,000 |
|
Total |
|
| 2,500 |
|
|
| 2,490 |
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 1,005,969 |
|
| $ | 927,968 |
|
September 30, 2017 | |||||||
Available-for-Sale | |||||||
Amortized cost | Fair value | ||||||
US government agencies | |||||||
Within one year | $ | 11,302 | $ | 11,312 | |||
One to five years | 6,527 | 6,492 | |||||
Total | 17,829 | 17,804 | |||||
Residential mortgage-backed securities | |||||||
Five to ten years | 7,264 | 7,200 | |||||
After 10 years | 50,421 | 49,550 | |||||
Total | 57,685 | 56,750 | |||||
Total | $ | 75,514 | $ | 74,554 |
Mortgage-backed securities are included in maturity categories based on their contractual maturities.maturity date. Actual results willmaturities may differ asfrom contractual maturities because issuers may have the loans underlying the mortgage-backedright to call or prepay obligations.
There were 0 securities may repay sooner than scheduled. This table excludes the 504 Fund mutual fund investment.
Other
Other investments, largely comprised of non-marketable equity investments, are generally accounted for under the equity method or equity security accounting and are included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. The below tables provide additional information related to investments accounted for under these two methods.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Equity Method Accounting
The carrying amount and ownership percentage of each equity investment securityover which the Company has significant influence at June 30, 2022 and December 31, 2021 is reflected in the following table:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Amount |
|
| Ownership % |
|
| Amount |
|
| Ownership % |
| ||||
Apiture, Inc. |
| $ | 63,402 |
|
|
| 40.3 | % |
| $ | 52,323 |
|
|
| 39.1 | % |
Canapi Ventures SBIC Fund, LP (1) (4) |
|
| 19,435 |
|
|
| 2.9 | % |
|
| 19,431 |
|
|
| 2.9 | % |
Canapi Ventures Fund, LP (2) (4) |
|
| 2,407 |
|
|
| 1.5 | % |
|
| 2,402 |
|
|
| 1.5 | % |
Canapi Ventures Fund II, LP (3) (4) |
|
| 7,500 |
|
|
| 1.7 | % |
|
| — |
|
| N/A |
| |
Other fintech investments in private companies (5) |
|
| 248 |
|
| Various |
|
|
| 5,330 |
|
| Various |
| ||
Other (6) |
|
| 12,284 |
|
| Various |
|
|
| 4,664 |
|
| Various |
| ||
Total |
| $ | 105,276 |
|
|
|
|
|
| $ | 84,150 |
|
|
|
|
|
(1) | Includes unfunded commitments of $5.8 million and $6.8 million as of June 30, 2022 and December 31, 2021, respectively. |
(2) | Includes unfunded commitments of $652 thousand and $770 thousand as of June 30, 2022 and December 31, 2021, respectively. |
(3) | Includes unfunded commitments of $7.1 million as of June 30, 2022. There were 0 unfunded commitments as of December 31, 2021. |
(4) | Investee is accounted for under equity method due to the Company's participation as an investment advisor. |
(5) | As of June 30, 2022, other fintech investments include Payrailz, LLC and Kwipped, Inc. As of December 31, 2021, other fintech investments include Finxact, Inc., Payrailz, LLC and Kwipped, Inc. On April 1, 2022, the Company sold its investment in Finxact, Inc. resulting in a pre-tax gain of $120.5 million. Investees are accounted for under equity method due to the Company's ability to exercise significant influence through executive management's board involvement. |
(6) | Other includes affordable housing and solar income tax credit projects. Includes unfunded commitments of $3.5 million as of June 30, 2022. There were 0 unfunded commitments as of December 31, 2021. |
Equity Security Accounting
The carrying amount of the Company’s investments in non-marketable equity securities with no readily determinable fair value and amounts recognized in earnings on a fair market valuecumulative basis as of June 30, 2022 and as of and for the six months ended June 30, 2022 and 2021 is reflected in the following table:
|
|
|
|
|
| As of and for the six month period ended |
| |||||
|
| Cumulative Adjustments |
|
| June 30, 2022 |
|
| June 30, 2021 |
| |||
Carrying value (1) |
|
|
|
|
| $ | 72,760 |
|
| $ | 62,341 |
|
Carrying value adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment |
| $ | — |
|
|
| — |
|
|
| — |
|
Upward changes for observable prices (2) |
|
| 49,961 |
|
|
| 1,492 |
|
|
| 30,197 |
|
Downward changes for observable prices |
|
| (86 | ) |
|
| — |
|
|
| — |
|
Net upward change |
| $ | 49,875 |
|
| $ | 1,492 |
|
| $ | 30,197 |
|
(1) | Includes $3.2 million and $2.1 million in unfunded commitments as of June 30, 2022, and June 30, 2021, respectively. |
(2) | Excludes $13.9 million in realized cash gains for the sale of an investment in the second quarter of 2021. |
For the three and six months ended June 30, 2022, the Company recognized unrealized gains on all equity securities held at the reporting date of $1.5 million was pledgedand $1.4 million, respectively. For the three and six months ended June 30, 2021, the Company recognized unrealized gains on all equity securities held at the reporting date of $30.2 million.
Live Oak Bancshares, Inc.
Notes to secure a line of credit with the Company’s correspondent bank. At September 30, 2017, the security pledged to secure a line of credit with the Company's correspondent bank was released. At September 30, 2017 and December 31, 2016, an investment security with a fair market value of $100 thousand was pledged to the Ohio State Treasurer to allow the Company's trust department to conduct business in the state of Ohio and investment securities with a fair market value of $2.5 million and $1.2 million, respectively, were pledged to the Company's trust department for uninsured trust assets held by the trust department.
Note 6.5. Loans and Leases Held for Investment and Allowance for Loan and Lease Losses
The following describes the risk characteristics relevant to each of the portfolio segments. Each loan and lease category is assigned a risk grade during the origination and closing process based on criteria described later in this section.
September 30, 2017 | December 31, 2016 | ||||||
Commercial & Industrial | |||||||
Agriculture | $ | 2,698 | $ | 1,714 | |||
Death Care Management | 12,101 | 9,684 | |||||
Healthcare | 41,454 | 37,270 | |||||
Independent Pharmacies | 97,171 | 83,677 | |||||
Registered Investment Advisors | 91,241 | 68,335 | |||||
Veterinary Industry | 45,570 | 38,930 | |||||
Other Industries | 142,115 | 94,836 | |||||
Total | 432,350 | 334,446 | |||||
Construction & Development | |||||||
Agriculture | 34,636 | 32,372 | |||||
Death Care Management | 4,744 | 3,956 | |||||
Healthcare | 46,814 | 30,467 | |||||
Independent Pharmacies | 1,696 | 2,013 | |||||
Registered Investment Advisors | 329 | 294 | |||||
Veterinary Industry | 13,265 | 11,514 | |||||
Other Industries | 45,052 | 31,715 | |||||
Total | 146,536 | 112,331 | |||||
Commercial Real Estate | |||||||
Agriculture | 14,689 | 5,591 | |||||
Death Care Management | 61,462 | 52,510 | |||||
Healthcare | 121,331 | 114,281 | |||||
Independent Pharmacies | 18,508 | 15,151 | |||||
Registered Investment Advisors | 13,550 | 11,462 | |||||
Veterinary Industry | 110,028 | 102,906 | |||||
Other Industries | 106,418 | 46,245 | |||||
Total | 445,986 | 348,146 | |||||
Commercial Land | |||||||
Agriculture | 146,814 | 113,569 | |||||
Total | 146,814 | 113,569 | |||||
Total Loans and Leases1 | 1,171,686 | 908,492 | |||||
Net Deferred Costs | 8,038 | 7,648 | |||||
Discount on SBA 7(a) and USDA Unguaranteed2 | (9,837 | ) | (8,574 | ) | |||
Loans and Leases, Net of Unearned | $ | 1,169,887 | $ | 907,566 |
Risk Grades 1 - 4 | Risk Grade 5 | Risk Grades 6 - 8 | Total | ||||||||||||
September 30, 2017 | |||||||||||||||
Commercial & Industrial | |||||||||||||||
Agriculture | $ | 2,470 | $ | 228 | $ | — | $ | 2,698 | |||||||
Death Care Management | 11,976 | 118 | 7 | 12,101 | |||||||||||
Healthcare | 32,350 | 1,716 | 7,388 | 41,454 | |||||||||||
Independent Pharmacies | 87,173 | 6,523 | 3,475 | 97,171 | |||||||||||
Registered Investment Advisors | 87,940 | 2,566 | 735 | 91,241 | |||||||||||
Veterinary Industry | 41,738 | 1,833 | 1,999 | 45,570 | |||||||||||
Other Industries | 142,096 | 19 | — | 142,115 | |||||||||||
Total | 405,743 | 13,003 | 13,604 | 432,350 | |||||||||||
Construction & Development | |||||||||||||||
Agriculture | 34,636 | — | — | 34,636 | |||||||||||
Death Care Management | 4,744 | — | — | 4,744 | |||||||||||
Healthcare | 44,937 | 704 | 1,173 | 46,814 | |||||||||||
Independent Pharmacies | 1,696 | — | — | 1,696 | |||||||||||
Registered Investment Advisors | 329 | — | — | 329 | |||||||||||
Veterinary Industry | 13,265 | — | — | 13,265 | |||||||||||
Other Industries | 45,052 | — | — | 45,052 | |||||||||||
Total | 144,659 | 704 | 1,173 | 146,536 | |||||||||||
Commercial Real Estate | |||||||||||||||
Agriculture | 14,689 | — | — | 14,689 | |||||||||||
Death Care Management | 54,684 | 4,288 | 2,490 | 61,462 | |||||||||||
Healthcare | 111,943 | 5,050 | 4,338 | 121,331 | |||||||||||
Independent Pharmacies | 15,043 | 1,843 | 1,622 | 18,508 | |||||||||||
Registered Investment Advisors | 13,406 | 144 | — | 13,550 | |||||||||||
Veterinary Industry | 95,055 | 2,680 | 12,293 | 110,028 | |||||||||||
Other Industries | 105,738 | 680 | — | 106,418 | |||||||||||
Total | 410,558 | 14,685 | 20,743 | 445,986 | |||||||||||
Commercial Land | |||||||||||||||
Agriculture | 144,687 | 2,104 | 23 | 146,814 | |||||||||||
Total | 144,687 | 2,104 | 23 | 146,814 | |||||||||||
Total1 | $ | 1,105,647 | $ | 30,496 | $ | 35,543 | $ | 1,171,686 |
Risk Grades 1 - 4 | Risk Grade 5 | Risk Grades 6 - 8 | Total | ||||||||||||
December 31, 2016 | |||||||||||||||
Commercial & Industrial | |||||||||||||||
Agriculture | $ | 1,656 | $ | 58 | $ | — | $ | 1,714 | |||||||
Death Care Management | 9,452 | 121 | 111 | 9,684 | |||||||||||
Healthcare | 28,723 | 681 | 7,866 | 37,270 | |||||||||||
Independent Pharmacies | 73,948 | 6,542 | 3,187 | 83,677 | |||||||||||
Registered Investment Advisors | 65,297 | 2,246 | 792 | 68,335 | |||||||||||
Veterinary Industry | 34,407 | 1,967 | 2,556 | 38,930 | |||||||||||
Other Industries | 94,736 | 100 | — | 94,836 | |||||||||||
Total | 308,219 | 11,715 | 14,512 | 334,446 | |||||||||||
Construction & Development | |||||||||||||||
Agriculture | 32,061 | — | 311 | 32,372 | |||||||||||
Death Care Management | 3,956 | — | — | 3,956 | |||||||||||
Healthcare | 30,467 | — | — | 30,467 | |||||||||||
Independent Pharmacies | 2,013 | — | — | 2,013 | |||||||||||
Registered Investment Advisors | 294 | — | — | 294 | |||||||||||
Veterinary Industry | 9,725 | 1,789 | — | 11,514 | |||||||||||
Other Industries | 31,715 | — | — | 31,715 | |||||||||||
Total | 110,231 | 1,789 | 311 | 112,331 | |||||||||||
Commercial Real Estate | |||||||||||||||
Agriculture | 5,591 | — | — | 5,591 | |||||||||||
Death Care Management | 46,427 | 4,314 | 1,769 | 52,510 | |||||||||||
Healthcare | 103,097 | 7,142 | 4,042 | 114,281 | |||||||||||
Independent Pharmacies | 12,654 | 1,968 | 529 | 15,151 | |||||||||||
Registered Investment Advisors | 11,462 | — | — | 11,462 | |||||||||||
Veterinary Industry | 88,168 | 3,995 | 10,743 | 102,906 | |||||||||||
Other Industries | 46,245 | — | — | 46,245 | |||||||||||
Total | 313,644 | 17,419 | 17,083 | 348,146 | |||||||||||
Commercial Land | |||||||||||||||
Agriculture | 112,333 | 1,138 | 98 | 113,569 | |||||||||||
Total | 112,333 | 1,138 | 98 | 113,569 | |||||||||||
Total1 | $ | 844,427 | $ | 32,061 | $ | 32,004 | $ | 908,492 |
|
| Current or Less than 30 Days Past Due |
|
| 30-89 Days Past Due |
|
| 90 Days or More Past Due |
|
| Total Past Due |
|
| Total Carried at Amortized Cost |
|
| Loans Accounted for Under the Fair Value Option1 |
|
| Total Loans and Leases |
| |||||||
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
| $ | 1,232,869 |
|
| $ | 5,399 |
|
| $ | 13,240 |
|
| $ | 18,639 |
|
| $ | 1,251,508 |
|
| $ | 210,986 |
|
| $ | 1,462,494 |
|
Specialty Lending |
|
| 1,122,411 |
|
|
| 554 |
|
|
| 166 |
|
|
| 720 |
|
|
| 1,123,131 |
|
|
| 56,441 |
|
|
| 1,179,572 |
|
Paycheck Protection Program |
|
| 63,851 |
|
|
| 14 |
|
|
| 10 |
|
|
| 24 |
|
|
| 63,875 |
|
|
| — |
|
|
| 63,875 |
|
Total |
|
| 2,419,131 |
|
|
| 5,967 |
|
|
| 13,416 |
|
|
| 19,383 |
|
|
| 2,438,514 |
|
|
| 267,427 |
|
|
| 2,705,941 |
|
Construction & Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 323,530 |
|
|
| — |
|
|
| 1,366 |
|
|
| 1,366 |
|
|
| 324,896 |
|
|
| — |
|
|
| 324,896 |
|
Specialty Lending |
|
| 98,298 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 98,298 |
|
|
| — |
|
|
| 98,298 |
|
Total |
|
| 421,828 |
|
|
| — |
|
|
| 1,366 |
|
|
| 1,366 |
|
|
| 423,194 |
|
|
| — |
|
|
| 423,194 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 1,722,856 |
|
|
| 7,609 |
|
|
| 1,204 |
|
|
| 8,813 |
|
|
| 1,731,669 |
|
|
| 199,197 |
|
|
| 1,930,866 |
|
Specialty Lending |
|
| 365,214 |
|
|
| — |
|
|
| 1,631 |
|
|
| 1,631 |
|
|
| 366,845 |
|
|
| 19,879 |
|
|
| 386,724 |
|
Total |
|
| 2,088,070 |
|
|
| 7,609 |
|
|
| 2,835 |
|
|
| 10,444 |
|
|
| 2,098,514 |
|
|
| 219,076 |
|
|
| 2,317,590 |
|
Commercial Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 371,299 |
|
|
| — |
|
|
| 1,917 |
|
|
| 1,917 |
|
|
| 373,216 |
|
|
| 44,141 |
|
|
| 417,357 |
|
Total |
|
| 371,299 |
|
|
| — |
|
|
| 1,917 |
|
|
| 1,917 |
|
|
| 373,216 |
|
|
| 44,141 |
|
|
| 417,357 |
|
Total |
| $ | 5,300,328 |
|
| $ | 13,576 |
|
| $ | 19,534 |
|
| $ | 33,110 |
|
| $ | 5,333,438 |
|
| $ | 530,644 |
|
| $ | 5,864,082 |
|
Net deferred fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,873 | ) |
Loans and Leases, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 5,860,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Balance |
| $ | 1,903,647 |
|
| $ | 11,105 |
|
| $ | 14,428 |
|
| $ | 25,533 |
|
| $ | 1,929,180 |
|
| $ | 58,045 |
|
| $ | 1,987,225 |
|
% Guaranteed |
|
| 35.9 | % |
|
| 81.8 | % |
|
| 73.9 | % |
|
| 77.1 | % |
|
| 36.2 | % |
|
| 10.9 | % |
|
| 33.9 | % |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
| Current or Less than 30 Days Past Due |
|
| 30-89 Days Past Due |
|
| 90 Days or More Past Due |
|
| Total Past Due |
|
| Total Carried at Amortized Cost |
|
| Loans Accounted for Under the Fair Value Option1 |
|
| Total Loans and Leases |
| |||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
| $ | 1,103,915 |
|
| $ | 13,171 |
|
| $ | 7,320 |
|
| $ | 20,491 |
|
| $ | 1,124,406 |
|
| $ | 248,806 |
|
| $ | 1,373,212 |
|
Specialty Lending |
|
| 875,367 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 875,367 |
|
|
| 64,525 |
|
|
| 939,892 |
|
Paycheck Protection Program |
|
| 266,893 |
|
|
| 68 |
|
|
| 1,414 |
|
|
| 1,482 |
|
|
| 268,375 |
|
|
| — |
|
|
| 268,375 |
|
Total |
|
| 2,246,175 |
|
|
| 13,239 |
|
|
| 8,734 |
|
|
| 21,973 |
|
|
| 2,268,148 |
|
|
| 313,331 |
|
|
| 2,581,479 |
|
Construction & Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 275,786 |
|
|
| — |
|
|
| 1,366 |
|
|
| 1,366 |
|
|
| 277,152 |
|
|
| — |
|
|
| 277,152 |
|
Specialty Lending |
|
| 82,014 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 82,014 |
|
|
| — |
|
|
| 82,014 |
|
Total |
|
| 357,800 |
|
|
| — |
|
|
| 1,366 |
|
|
| 1,366 |
|
|
| 359,166 |
|
|
| — |
|
|
| 359,166 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 1,577,765 |
|
|
| 5,802 |
|
|
| 10,761 |
|
|
| 16,563 |
|
|
| 1,594,328 |
|
|
| 250,856 |
|
|
| 1,845,184 |
|
Specialty Lending |
|
| 285,373 |
|
|
| — |
|
|
| 2,315 |
|
|
| 2,315 |
|
|
| 287,688 |
|
|
| 19,481 |
|
|
| 307,169 |
|
Total |
|
| 1,863,138 |
|
|
| 5,802 |
|
|
| 13,076 |
|
|
| 18,878 |
|
|
| 1,882,016 |
|
|
| 270,337 |
|
|
| 2,152,353 |
|
Commercial Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 362,881 |
|
|
| 7,399 |
|
|
| 2,055 |
|
|
| 9,454 |
|
|
| 372,335 |
|
|
| 61,533 |
|
|
| 433,868 |
|
Total |
|
| 362,881 |
|
|
| 7,399 |
|
|
| 2,055 |
|
|
| 9,454 |
|
|
| 372,335 |
|
|
| 61,533 |
|
|
| 433,868 |
|
Total |
| $ | 4,829,994 |
|
| $ | 26,440 |
|
| $ | 25,231 |
|
| $ | 51,671 |
|
| $ | 4,881,665 |
|
| $ | 645,201 |
|
| $ | 5,526,866 |
|
Net deferred fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,604 | ) |
Loans and Leases, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 5,521,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Balance |
| $ | 2,037,509 |
|
| $ | 18,421 |
|
| $ | 16,440 |
|
| $ | 34,861 |
|
| $ | 2,072,370 |
|
| $ | 77,722 |
|
| $ | 2,150,092 |
|
% Guaranteed |
|
| 42.2 | % |
|
| 69.7 | % |
|
| 65.2 | % |
|
| 67.5 | % |
|
| 42.5 | % |
|
| 12.0 | % |
|
| 38.9 | % |
(1) | The Company measures the carrying value of the retained portion of certain loans sold at fair value under FASB ASC Subtopic 825-10, Financial Instruments: Overall. See Note 9. Fair Value of Financial Instruments for additional information. |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Credit Quality Indicators
The following tables present asset quality indicators by portfolio class and origination year. See Note 3. Loans and leases lessLeases Held for Investment and Credit Quality in the Company’s 2021 Form 10-K for additional discussion around the asset quality indicators that the Company uses to manage and monitor credit risk.
|
| Term Loans and Leases Amortized Cost Basis by Origination Year |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| Prior |
|
| Revolving Loans Amortized Cost Basis |
|
| Revolving Loans Converted to Term |
|
| Total1 |
| |||||||||
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Grades 1 - 4 |
| $ | 518,034 |
|
| $ | 1,108,441 |
|
| $ | 754,628 |
|
| $ | 486,036 |
|
| $ | 237,809 |
|
| $ | 245,570 |
|
| $ | 59,148 |
|
| $ | 373 |
|
| $ | 3,410,039 |
|
Risk Grade 5 |
|
| 3,925 |
|
|
| 8,839 |
|
|
| 39,239 |
|
|
| 44,173 |
|
|
| 41,524 |
|
|
| 46,087 |
|
|
| 2,755 |
|
|
| — |
|
|
| 186,542 |
|
Risk Grades 6 - 8 |
|
| 1,055 |
|
|
| 2,147 |
|
|
| 12,473 |
|
|
| 23,155 |
|
|
| 13,046 |
|
|
| 30,637 |
|
|
| 2,021 |
|
|
| 174 |
|
|
| 84,708 |
|
Total |
|
| 523,014 |
|
|
| 1,119,427 |
|
|
| 806,340 |
|
|
| 553,364 |
|
|
| 292,379 |
|
|
| 322,294 |
|
|
| 63,924 |
|
|
| 547 |
|
|
| 3,681,289 |
|
Specialty Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Grades 1 - 4 |
|
| 318,872 |
|
|
| 626,731 |
|
|
| 228,784 |
|
|
| 66,903 |
|
|
| 32,854 |
|
|
| 26,602 |
|
|
| 157,375 |
|
|
| 5,279 |
|
|
| 1,463,400 |
|
Risk Grade 5 |
|
| — |
|
|
| 23,832 |
|
|
| 31,290 |
|
|
| 21,965 |
|
|
| 9,830 |
|
|
| 10,817 |
|
|
| 9,348 |
|
|
| — |
|
|
| 107,082 |
|
Risk Grades 6 - 8 |
|
| — |
|
|
| 4,398 |
|
|
| 17 |
|
|
| 2,993 |
|
|
| 8,728 |
|
|
| 1,631 |
|
|
| 25 |
|
|
| — |
|
|
| 17,792 |
|
Total |
|
| 318,872 |
|
|
| 654,961 |
|
|
| 260,091 |
|
|
| 91,861 |
|
|
| 51,412 |
|
|
| 39,050 |
|
|
| 166,748 |
|
|
| 5,279 |
|
|
| 1,588,274 |
|
Paycheck Protection Program |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Grades 1 - 4 |
|
| — |
|
|
| 51,883 |
|
|
| 11,992 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63,875 |
|
Risk Grade 5 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Risk Grades 6 - 8 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| — |
|
|
| 51,883 |
|
|
| 11,992 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63,875 |
|
Total |
| $ | 841,886 |
|
| $ | 1,826,271 |
|
| $ | 1,078,423 |
|
| $ | 645,225 |
|
| $ | 343,791 |
|
| $ | 361,344 |
|
| $ | 230,672 |
|
| $ | 5,826 |
|
| $ | 5,333,438 |
|
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| Prior |
|
| Revolving Loans Amortized Cost Basis |
|
| Revolving Loans Converted to Term |
|
| Total1 |
| |||||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Grades 1 - 4 |
| $ | 1,051,775 |
|
| $ | 853,250 |
|
| $ | 522,407 |
|
| $ | 285,397 |
|
| $ | 188,858 |
|
| $ | 116,645 |
|
| $ | 46,356 |
|
| $ | 1,771 |
|
| $ | 3,066,459 |
|
Risk Grade 5 |
|
| 7,838 |
|
|
| 19,651 |
|
|
| 65,715 |
|
|
| 60,615 |
|
|
| 37,661 |
|
|
| 13,933 |
|
|
| 5,066 |
|
|
| 195 |
|
|
| 210,674 |
|
Risk Grades 6 - 8 |
|
| 2,517 |
|
|
| 8,667 |
|
|
| 27,696 |
|
|
| 14,545 |
|
|
| 14,193 |
|
|
| 21,239 |
|
|
| 1,457 |
|
|
| 774 |
|
|
| 91,088 |
|
Total |
|
| 1,062,130 |
|
|
| 881,568 |
|
|
| 615,818 |
|
|
| 360,557 |
|
|
| 240,712 |
|
|
| 151,817 |
|
|
| 52,879 |
|
|
| 2,740 |
|
|
| 3,368,221 |
|
Specialty Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Grades 1 - 4 |
|
| 644,851 |
|
|
| 238,409 |
|
|
| 73,978 |
|
|
| 42,452 |
|
|
| 38,703 |
|
|
| — |
|
|
| 133,889 |
|
|
| 1,816 |
|
|
| 1,174,098 |
|
Risk Grade 5 |
|
| 2,250 |
|
|
| 17,677 |
|
|
| 5,497 |
|
|
| 10,415 |
|
|
| 17,104 |
|
|
| — |
|
|
| 2,953 |
|
|
| 848 |
|
|
| 56,744 |
|
Risk Grades 6 - 8 |
|
| — |
|
|
| 17 |
|
|
| 3,166 |
|
|
| 8,654 |
|
|
| — |
|
|
| 2,315 |
|
|
| 75 |
|
|
|
|
|
|
| 14,227 |
|
Total |
|
| 647,101 |
|
|
| 256,103 |
|
|
| 82,641 |
|
|
| 61,521 |
|
|
| 55,807 |
|
|
| 2,315 |
|
|
| 136,917 |
|
|
| 2,664 |
|
|
| 1,245,069 |
|
Paycheck Protection Program |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Grades 1 - 4 |
|
| 204,803 |
|
|
| 63,572 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 268,375 |
|
Risk Grade 5 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Risk Grades 6 - 8 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 204,803 |
|
|
| 63,572 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 268,375 |
|
Total |
| $ | 1,914,034 |
|
| $ | 1,201,243 |
|
| $ | 698,459 |
|
| $ | 422,078 |
|
| $ | 296,519 |
|
| $ | 154,132 |
|
| $ | 189,796 |
|
| $ | 5,404 |
|
| $ | 4,881,665 |
|
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(1) | Excludes $530.6 million and $645.2 million of loans accounted for under the fair value option as of June 30, 2022 and December 31, 2021, respectively. |
The following tables present guaranteed and unguaranteed loan and lease balances by asset quality indicator:
June 30, 2022 |
| Loan and Lease Balance1 |
|
| Guaranteed Balance |
|
| Unguaranteed Balance |
|
| % Guaranteed |
| ||||
Risk Grades 1 - 4 |
| $ | 4,937,314 |
|
| $ | 1,732,613 |
|
| $ | 3,204,701 |
|
|
| 35.1 | % |
Risk Grade 5 |
|
| 293,624 |
|
|
| 127,695 |
|
|
| 165,929 |
|
|
| 43.5 |
|
Risk Grades 6 - 8 |
|
| 102,500 |
|
|
| 68,872 |
|
|
| 33,628 |
|
|
| 67.2 |
|
Total |
| $ | 5,333,438 |
|
| $ | 1,929,180 |
|
| $ | 3,404,258 |
|
|
| 36.2 | % |
December 31, 2021 |
| Loan and Lease Balance1 |
|
| Guaranteed Balance |
|
| Unguaranteed Balance |
|
| % Guaranteed |
| ||||
Risk Grades 1 - 4 |
| $ | 4,508,932 |
|
| $ | 1,875,152 |
|
| $ | 2,633,780 |
|
|
| 41.6 | % |
Risk Grade 5 |
|
| 267,418 |
|
|
| 134,221 |
|
|
| 133,197 |
|
|
| 50.2 |
|
Risk Grades 6 - 8 |
|
| 105,315 |
|
|
| 62,997 |
|
|
| 42,318 |
|
|
| 59.8 |
|
Total |
| $ | 4,881,665 |
|
| $ | 2,072,370 |
|
| $ | 2,809,295 |
|
|
| 42.5 | % |
(1) | Excludes $530.6 million and $645.2 million of loans accounted for under the fair value option as of June 30, 2022 and December 31, 2021, respectively. |
Nonaccrual Loans and Leases
As of June 30, 2022 and December 31, 2021 there were 0 loans greater than 3090 days past due and accruing are included within current loans and leases shown below. The following tables show an age analysis of past due loans and leases as of the dates presented.
Less Than 30 Days Past Due & Not Accruing | 30-89 Days Past Due & Accruing | 30-89 Days Past Due & Not Accruing | Greater Than 90 Days Past Due | Total Not Accruing & Past Due | Current | Total Loans and Leases | 90 Days or More Past Due & Still Accruing | ||||||||||||||||||||||||
September 30, 2017 | |||||||||||||||||||||||||||||||
Commercial & Industrial | |||||||||||||||||||||||||||||||
Agriculture | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 2,698 | $ | 2,698 | $ | — | |||||||||||||||
Death Care Management | — | — | — | — | — | 12,101 | 12,101 | — | |||||||||||||||||||||||
Healthcare | 535 | 76 | 16 | 6,152 | 6,779 | 34,675 | 41,454 | — | |||||||||||||||||||||||
Independent Pharmacies | 331 | 44 | — | 2,274 | 2,649 | 94,522 | 97,171 | — | |||||||||||||||||||||||
Registered Investment Advisors | — | — | — | — | — | 91,241 | 91,241 | — | |||||||||||||||||||||||
Veterinary Industry | 224 | 29 | 536 | 796 | 1,585 | 43,985 | 45,570 | — | |||||||||||||||||||||||
Other Industries | — | — | — | — | — | 142,115 | 142,115 | — | |||||||||||||||||||||||
Total | 1,090 | 149 | 552 | 9,222 | 11,013 | 421,337 | 432,350 | — | |||||||||||||||||||||||
Construction & Development | |||||||||||||||||||||||||||||||
Agriculture | — | — | — | — | — | 34,636 | 34,636 | — | |||||||||||||||||||||||
Death Care Management | — | — | — | — | — | 4,744 | 4,744 | — | |||||||||||||||||||||||
Healthcare | — | — | — | — | — | 46,814 | 46,814 | — | |||||||||||||||||||||||
Independent Pharmacies | — | — | — | — | — | 1,696 | 1,696 | — | |||||||||||||||||||||||
Registered Investment Advisors | — | — | — | — | — | 329 | 329 | — | |||||||||||||||||||||||
Veterinary Industry | — | — | — | — | — | 13,265 | 13,265 | — | |||||||||||||||||||||||
Other Industries | — | — | — | — | — | 45,052 | 45,052 | — | |||||||||||||||||||||||
Total | — | — | — | — | — | 146,536 | 146,536 | — | |||||||||||||||||||||||
Commercial Real Estate | |||||||||||||||||||||||||||||||
Agriculture | — | — | — | — | — | 14,689 | 14,689 | — | |||||||||||||||||||||||
Death Care Management | — | 298 | 174 | 1,402 | 1,874 | 59,588 | 61,462 | — | |||||||||||||||||||||||
Healthcare | 40 | — | 2,679 | 829 | 3,548 | 117,783 | 121,331 | — | |||||||||||||||||||||||
Independent Pharmacies | — | — | — | 1,622 | 1,622 | 16,886 | 18,508 | — | |||||||||||||||||||||||
Registered Investment Advisors | — | — | — | — | — | 13,550 | 13,550 | — | |||||||||||||||||||||||
Veterinary Industry | 1,906 | 3,915 | 132 | 2,749 | 8,702 | 101,326 | 110,028 | — | |||||||||||||||||||||||
Other Industries | — | 7,750 | — | — | 7,750 | 98,668 | 106,418 | — | |||||||||||||||||||||||
Total | 1,946 | 11,963 | 2,985 | 6,602 | 23,496 | 422,490 | 445,986 | — | |||||||||||||||||||||||
Commercial Land | |||||||||||||||||||||||||||||||
Agriculture | 23 | — | — | — | 23 | 146,791 | 146,814 | — | |||||||||||||||||||||||
Total | 23 | — | — | — | 23 | 146,791 | 146,814 | — | |||||||||||||||||||||||
Total1 | $ | 3,059 | $ | 12,112 | $ | 3,537 | $ | 15,824 | $ | 34,532 | $ | 1,137,154 | $ | 1,171,686 | $ | — |
Less Than 30 Days Past Due & Not Accruing | 30-89 Days Past Due & Accruing | 30-89 Days Past Due & Not Accruing | Greater Than 90 Days Past Due | Total Not Accruing & Past Due | Current | Total Loans and Leases | 90 Days or More Past Due & Still Accruing | ||||||||||||||||||||||||
December 31, 2016 | |||||||||||||||||||||||||||||||
Commercial & Industrial | |||||||||||||||||||||||||||||||
Agriculture | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,714 | $ | 1,714 | $ | — | |||||||||||||||
Death Care Management | — | — | — | — | — | 9,684 | 9,684 | — | |||||||||||||||||||||||
Healthcare | — | 272 | 496 | 5,920 | 6,688 | 30,582 | 37,270 | — | |||||||||||||||||||||||
Independent Pharmacies | 42 | 293 | 408 | 2,349 | 3,092 | 80,585 | 83,677 | — | |||||||||||||||||||||||
Registered Investment Advisors | — | — | — | — | — | 68,335 | 68,335 | — | |||||||||||||||||||||||
Veterinary Industry | 32 | 151 | 646 | 1,441 | 2,270 | 36,660 | 38,930 | — | |||||||||||||||||||||||
Other Industries | — | — | — | — | — | 94,836 | 94,836 | — | |||||||||||||||||||||||
Total | 74 | 716 | 1,550 | 9,710 | 12,050 | 322,396 | 334,446 | — | |||||||||||||||||||||||
Construction & Development | |||||||||||||||||||||||||||||||
Agriculture | 231 | 80 | — | — | 311 | 32,061 | 32,372 | — | |||||||||||||||||||||||
Death Care Management | — | — | — | — | — | 3,956 | 3,956 | — | |||||||||||||||||||||||
Healthcare | — | — | — | — | — | 30,467 | 30,467 | — | |||||||||||||||||||||||
Independent Pharmacies | — | — | — | — | — | 2,013 | 2,013 | — | |||||||||||||||||||||||
Registered Investment Advisors | — | — | — | — | — | 294 | 294 | — | |||||||||||||||||||||||
Veterinary Industry | — | — | — | — | — | 11,514 | 11,514 | — | |||||||||||||||||||||||
Other Industries | — | — | — | — | — | 31,715 | 31,715 | — | |||||||||||||||||||||||
Total | 231 | 80 | — | — | 311 | 112,020 | 112,331 | — | |||||||||||||||||||||||
Commercial Real Estate | |||||||||||||||||||||||||||||||
Agriculture | — | — | — | — | — | 5,591 | 5,591 | — | |||||||||||||||||||||||
Death Care Management | — | — | 188 | 1,423 | 1,611 | 50,899 | 52,510 | — | |||||||||||||||||||||||
Healthcare | — | — | 3,180 | 45 | 3,225 | 111,056 | 114,281 | — | |||||||||||||||||||||||
Independent Pharmacies | — | — | — | 529 | 529 | 14,622 | 15,151 | — | |||||||||||||||||||||||
Registered Investment Advisors | — | — | — | — | — | 11,462 | 11,462 | — | |||||||||||||||||||||||
Veterinary Industry | 898 | 3,981 | 737 | 5,158 | 10,774 | 92,132 | 102,906 | — | |||||||||||||||||||||||
Other Industries | — | — | — | — | — | 46,245 | 46,245 | — | |||||||||||||||||||||||
Total | 898 | 3,981 | 4,105 | 7,155 | 16,139 | 332,007 | 348,146 | — | |||||||||||||||||||||||
Commercial Land | |||||||||||||||||||||||||||||||
Agriculture | 58 | 40 | — | — | 98 | 113,471 | 113,569 | — | |||||||||||||||||||||||
Total | 58 | 40 | — | — | 98 | 113,471 | 113,569 | — | |||||||||||||||||||||||
Total1 | $ | 1,261 | $ | 4,817 | $ | 5,655 | $ | 16,865 | $ | 28,598 | $ | 879,894 | $ | 908,492 | $ | — |
Nonaccrual loans and leases held for investment as of SeptemberJune 30, 20172022 and December 31, 20162021 are as follows:
June 30, 2022 |
| Loan and Lease Balance1 |
|
| Guaranteed Balance |
|
| Unguaranteed Balance |
|
| Unguaranteed Exposure with No ACL |
| ||||
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
| $ | 19,763 |
|
| $ | 16,542 |
|
| $ | 3,221 |
|
| $ | 407 |
|
Specialty Lending |
|
| 166 |
|
|
| 166 |
|
|
| — |
|
|
| — |
|
Payroll Protection Program |
|
| 24 |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
Total |
|
| 19,953 |
|
|
| 16,732 |
|
|
| 3,221 |
|
|
| 407 |
|
Construction & Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 1,366 |
|
|
| 1,201 |
|
|
| 165 |
|
|
| — |
|
Total |
|
| 1,366 |
|
|
| 1,201 |
|
|
| 165 |
|
|
| — |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 17,708 |
|
|
| 11,925 |
|
|
| 5,783 |
|
|
| 3,519 |
|
Specialty Lending |
|
| 1,631 |
|
|
| — |
|
|
| 1,631 |
|
|
| 1,631 |
|
Total |
|
| 19,339 |
|
|
| 11,925 |
|
|
| 7,414 |
|
|
| 5,150 |
|
Commercial Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 5,110 |
|
|
| 3,936 |
|
|
| 1,174 |
|
|
| 196 |
|
Total |
|
| 5,110 |
|
|
| 3,936 |
|
|
| 1,174 |
|
|
| 196 |
|
Total |
| $ | 45,768 |
|
| $ | 33,794 |
|
| $ | 11,974 |
|
| $ | 5,753 |
|
September 30, 2017 | Loan and Lease Balance | Guaranteed Balance | Unguaranteed Exposure | ||||||||
Commercial & Industrial | |||||||||||
Healthcare | $ | 6,703 | $ | 5,712 | $ | 991 | |||||
Independent Pharmacies | 2,605 | 2,253 | 352 | ||||||||
Registered Investment Advisors | — | — | — | ||||||||
Veterinary Industry | 1,556 | 1,517 | 39 | ||||||||
Total | 10,864 | 9,482 | 1,382 | ||||||||
Commercial Real Estate | |||||||||||
Death Care Management | 1,576 | 1,246 | 330 | ||||||||
Healthcare | 3,548 | 2,749 | 799 | ||||||||
Independent Pharmacies | 1,622 | 1,622 | — | ||||||||
Veterinary Industry | 4,787 | 3,999 | 788 | ||||||||
Total | 11,533 | 9,616 | 1,917 | ||||||||
Commercial Land | |||||||||||
Agriculture | 23 | 23 | — | ||||||||
Total | 23 | 23 | — | ||||||||
Total | $ | 22,420 | $ | 19,121 | $ | 3,299 |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
December 31, 2021 |
| Loan and Lease Balance1 |
|
| Guaranteed Balance |
|
| Unguaranteed Balance |
|
| Unguaranteed Exposure with No ACL |
| ||||
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
| $ | 16,911 |
|
| $ | 13,981 |
|
| $ | 2,930 |
|
| $ | — |
|
Payroll Protection Program |
|
| 1,482 |
|
|
| 1,482 |
|
|
| — |
|
|
| — |
|
Total |
|
| 18,393 |
|
|
| 15,463 |
|
|
| 2,930 |
|
|
| — |
|
Construction & Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 3,884 |
|
|
| 1,201 |
|
|
| 2,683 |
|
|
| — |
|
Total |
|
| 3,884 |
|
|
| 1,201 |
|
|
| 2,683 |
|
|
| — |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 12,410 |
|
|
| 5,226 |
|
|
| 7,184 |
|
|
| 5,169 |
|
Specialty Lending |
|
| 2,315 |
|
|
| 507 |
|
|
| 1,808 |
|
|
| 1,808 |
|
Total |
|
| 14,725 |
|
|
| 5,733 |
|
|
| 8,992 |
|
|
| 6,977 |
|
Commercial Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 5,531 |
|
|
| 4,148 |
|
|
| 1,383 |
|
|
| — |
|
Total |
|
| 5,531 |
|
|
| 4,148 |
|
|
| 1,383 |
|
|
| — |
|
Total |
| $ | 42,533 |
|
| $ | 26,545 |
|
| $ | 15,988 |
|
| $ | 6,977 |
|
(1) | Excludes nonaccrual loans accounted for under the fair value option. See Note 9. Fair Value of Financial Instruments for additional information. |
The following table presents the amortized cost basis of collateral-dependent loans and leases, which are individually evaluated to determine expected credit losses, as of June 30, 2022 and December 31, 2021:
|
| Total Collateral Dependent Loans |
|
| Unguaranteed Portion |
| ||||||||||||||||||||||
June 30, 2022 |
| Real Estate |
|
| Business Assets |
|
| Other |
|
| Real Estate |
|
| Business Assets |
|
| Other |
|
| Allowance for Credit Losses |
| |||||||
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
| $ | 2,730 |
|
| $ | 9,770 |
|
| $ | 25 |
|
| $ | 414 |
|
| $ | 2,061 |
|
| $ | 25 |
|
| $ | 1,631 |
|
Total |
|
| 2,730 |
|
|
| 9,770 |
|
|
| 25 |
|
|
| 414 |
|
|
| 2,061 |
|
|
| 25 |
|
|
| 1,631 |
|
Construction & Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 1,354 |
|
|
| — |
|
|
| — |
|
|
| 153 |
|
|
| — |
|
|
| — |
|
|
| 56 |
|
Total |
|
| 1,354 |
|
|
| — |
|
|
| — |
|
|
| 153 |
|
|
| — |
|
|
| — |
|
|
| 56 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 836 |
|
|
| 1,192 |
|
|
| 39 |
|
|
| 194 |
|
|
| 18 |
|
|
| 9 |
|
|
| 73 |
|
Total |
|
| 836 |
|
|
| 1,192 |
|
|
| 39 |
|
|
| 194 |
|
|
| 18 |
|
|
| 9 |
|
|
| 73 |
|
Commercial Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 1,922 |
|
|
| — |
|
|
| — |
|
|
| 382 |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
Total |
|
| 1,922 |
|
|
| — |
|
|
| — |
|
|
| 382 |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
Total |
| $ | 6,842 |
|
| $ | 10,962 |
|
| $ | 64 |
|
| $ | 1,143 |
|
| $ | 2,079 |
|
| $ | 34 |
|
| $ | 1,821 |
|
December 31, 2016 | Loan and Lease Balance | Guaranteed Balance | Unguaranteed Exposure | ||||||||
Commercial & Industrial | |||||||||||
Healthcare | $ | 6,416 | $ | 5,152 | $ | 1,264 | |||||
Independent Pharmacies | 2,799 | 2,204 | 595 | ||||||||
Veterinary Industry | 2,119 | 2,079 | 40 | ||||||||
Total | 11,334 | 9,435 | 1,899 | ||||||||
Construction & Development | |||||||||||
Agriculture | 231 | 173 | 58 | ||||||||
Total | 231 | 173 | 58 | ||||||||
Commercial Real Estate | |||||||||||
Death Care Management | 1,611 | 1,263 | 348 | ||||||||
Healthcare | 3,225 | 2,731 | 494 | ||||||||
Independent Pharmacies | 529 | — | 529 | ||||||||
Veterinary Industry | 6,793 | 5,395 | 1,398 | ||||||||
Total | 12,158 | 9,389 | 2,769 | ||||||||
Commercial Land | |||||||||||
Agriculture | 58 | — | 58 | ||||||||
Total | 58 | — | 58 | ||||||||
Total | $ | 23,781 | $ | 18,997 | $ | 4,784 |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
| Total Collateral Dependent Loans |
|
| Unguaranteed Portion |
| ||||||||||||||||||||||
December 31, 2021 |
| Real Estate |
|
| Business Assets |
|
| Other |
|
| Real Estate |
|
| Business Assets |
|
| Other |
|
| Allowance for Credit Losses |
| |||||||
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
| $ | 698 |
|
| $ | 7,475 |
|
| $ | — |
|
| $ | 152 |
|
| $ | 449 |
|
| $ | — |
|
| $ | 235 |
|
Total |
|
| 698 |
|
|
| 7,475 |
|
|
| — |
|
|
| 152 |
|
|
| 449 |
|
|
| — |
|
|
| 235 |
|
Construction & Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Lending |
|
| 3,858 |
|
|
| — |
|
|
| — |
|
|
| 2,657 |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
Total |
|
| 3,858 |
|
|
| — |
|
|
| — |
|
|
| 2,657 |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 5,172 |
|
|
| 700 |
|
|
| 64 |
|
|
| 4,038 |
|
|
| 14 |
|
|
| 13 |
|
|
| 65 |
|
Specialty Lending |
|
| 512 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 5,684 |
|
|
| 700 |
|
|
| 64 |
|
|
| 4,044 |
|
|
| 14 |
|
|
| 13 |
|
|
| 65 |
|
Commercial Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| 5,541 |
|
|
| — |
|
|
| — |
|
|
| 1,393 |
|
|
| — |
|
|
| — |
|
|
| 601 |
|
Total |
|
| 5,541 |
|
|
| — |
|
|
| — |
|
|
| 1,393 |
|
|
| — |
|
|
| — |
|
|
| 601 |
|
Total |
| $ | 15,781 |
|
| $ | 8,175 |
|
| $ | 64 |
|
| $ | 8,246 |
|
| $ | 463 |
|
| $ | 13 |
|
| $ | 958 |
|
Allowance for LoanCredit Losses - Loans and Lease Loss Methodology
See Note 1. Organization and the estimation process for calculating the Allowance for Loan and Lease Losses (“ALLL”) is described below:
The following table details activity in the allowance for loan and lease lossesACL by portfolio segment allowance for the periods presented:
Three months ended | Construction & Development | Commercial Real Estate | Commercial & Industrial | Commercial Land | Total | ||||||||||||||
September 30, 2017 | |||||||||||||||||||
Beginning Balance | $ | 1,603 | $ | 7,494 | $ | 8,351 | $ | 2,112 | $ | 19,560 | |||||||||
Charge offs | — | (665 | ) | (343 | ) | — | (1,008 | ) | |||||||||||
Recoveries | — | 4 | 39 | 6 | 49 | ||||||||||||||
Provision | 36 | 1,565 | 827 | (2 | ) | 2,426 | |||||||||||||
Ending Balance | $ | 1,639 | $ | 8,398 | $ | 8,874 | $ | 2,116 | $ | 21,027 | |||||||||
September 30, 2016 | |||||||||||||||||||
Beginning Balance | $ | 1,208 | $ | 4,079 | $ | 5,601 | $ | 1,421 | $ | 12,309 | |||||||||
Charge offs | — | — | (939 | ) | — | (939 | ) | ||||||||||||
Recoveries | — | 1 | 1 | — | 2 | ||||||||||||||
Provision | 225 | 261 | 2,907 | 413 | 3,806 | ||||||||||||||
Ending Balance | $ | 1,433 | $ | 4,341 | $ | 7,570 | $ | 1,834 | $ | 15,178 |
Nine months ended | Construction & Development | Commercial Real Estate | Commercial & Industrial | Commercial Land | Total | ||||||||||||||
September 30, 2017 | |||||||||||||||||||
Beginning Balance | $ | 1,693 | $ | 5,897 | $ | 8,413 | $ | 2,206 | $ | 18,209 | |||||||||
Charge offs | — | (952 | ) | (1,754 | ) | (35 | ) | (2,741 | ) | ||||||||||
Recoveries | — | 17 | 55 | 6 | 78 | ||||||||||||||
Provision | (54 | ) | 3,436 | 2,160 | (61 | ) | 5,481 | ||||||||||||
Ending Balance | $ | 1,639 | $ | 8,398 | $ | 8,874 | $ | 2,116 | $ | 21,027 | |||||||||
September 30, 2016 | |||||||||||||||||||
Beginning Balance | $ | 1,064 | $ | 2,486 | $ | 2,766 | $ | 1,099 | $ | 7,415 | |||||||||
Charge offs | — | (7 | ) | (1,307 | ) | (63 | ) | (1,377 | ) | ||||||||||
Recoveries | — | 4 | 444 | — | 448 | ||||||||||||||
Provision | 369 | 1,858 | 5,667 | 798 | 8,692 | ||||||||||||||
Ending Balance | $ | 1,433 | $ | 4,341 | $ | 7,570 | $ | 1,834 | $ | 15,178 |
September 30, 2017 | Construction & Development | Commercial Real Estate | Commercial & Industrial | Commercial Land | Total | ||||||||||||||
Allowance for Loan and Lease Losses: | |||||||||||||||||||
Loans and leases individually evaluated for impairment | $ | 53 | $ | 1,610 | $ | 1,290 | $ | — | $ | 2,953 | |||||||||
Loans and leases collectively evaluated for impairment2 | 1,586 | 6,788 | 7,584 | 2,116 | 18,074 | ||||||||||||||
Total allowance for loan and lease losses | $ | 1,639 | $ | 8,398 | $ | 8,874 | $ | 2,116 | $ | 21,027 | |||||||||
Loans and leases receivable1: | |||||||||||||||||||
Loans and leases individually evaluated for impairment | $ | 1,151 | $ | 16,231 | $ | 7,321 | $ | — | $ | 24,703 | |||||||||
Loans and leases collectively evaluated for impairment2 | 145,385 | 429,755 | 425,029 | 146,814 | 1,146,983 | ||||||||||||||
Total loans and leases receivable | $ | 146,536 | $ | 445,986 | $ | 432,350 | $ | 146,814 | $ | 1,171,686 |
Three Months Ended |
| Commercial & Industrial |
|
| Construction & Development |
|
| Commercial Real Estate |
|
| Commercial Land |
|
| Total |
| |||||
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 34,162 |
|
| $ | 4,102 |
|
| $ | 21,614 |
|
| $ | 3,180 |
|
| $ | 63,058 |
|
Charge offs |
|
| (1,812 | ) |
|
| — |
|
|
| (433 | ) |
|
| (318 | ) |
|
| (2,563 | ) |
Recoveries |
|
| 35 |
|
|
| — |
|
|
| 66 |
|
|
| — |
|
|
| 101 |
|
Provision |
|
| 8,793 |
|
|
| (598 | ) |
|
| (3,407 | ) |
|
| 479 |
|
|
| 5,267 |
|
Ending Balance |
| $ | 41,178 |
|
| $ | 3,504 |
|
| $ | 17,840 |
|
| $ | 3,341 |
|
| $ | 65,863 |
|
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 26,577 |
|
| $ | 5,887 |
|
| $ | 18,646 |
|
| $ | 1,307 |
|
| $ | 52,417 |
|
Charge offs |
|
| (225 | ) |
|
| (262 | ) |
|
| (2,173 | ) |
|
| — |
|
|
| (2,660 | ) |
Recoveries |
|
| 137 |
|
|
| — |
|
|
| 108 |
|
|
| — |
|
|
| 245 |
|
Provision |
|
| 950 |
|
|
| 607 |
|
|
| 5,582 |
|
|
| 707 |
|
|
| 7,846 |
|
Ending Balance |
| $ | 27,439 |
|
| $ | 6,232 |
|
| $ | 22,163 |
|
| $ | 2,014 |
|
| $ | 57,848 |
|
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Six Months Ended |
| Commercial & Industrial |
|
| Construction & Development |
|
| Commercial Real Estate |
|
| Commercial Land |
|
| Total |
| |||||
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 37,770 |
|
| $ | 3,435 |
|
| $ | 19,068 |
|
| $ | 3,311 |
|
| $ | 63,584 |
|
Charge offs |
|
| (4,635 | ) |
|
| — |
|
|
| (433 | ) |
|
| (652 | ) |
|
| (5,720 | ) |
Recoveries |
|
| 180 |
|
|
| — |
|
|
| 716 |
|
|
| — |
|
|
| 896 |
|
Provision |
|
| 7,863 |
|
|
| 69 |
|
|
| (1,511 | ) |
|
| 682 |
|
|
| 7,103 |
|
Ending Balance |
| $ | 41,178 |
|
| $ | 3,504 |
|
| $ | 17,840 |
|
| $ | 3,341 |
|
| $ | 65,863 |
|
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 26,941 |
|
| $ | 5,663 |
|
| $ | 18,148 |
|
| $ | 1,554 |
|
| $ | 52,306 |
|
Charge offs |
|
| (377 | ) |
|
| (262 | ) |
|
| (2,690 | ) |
|
| (12 | ) |
|
| (3,341 | ) |
Recoveries |
|
| 146 |
|
|
| — |
|
|
| 1,764 |
|
|
| — |
|
|
| 1,910 |
|
Provision |
|
| 729 |
|
|
| 831 |
|
|
| 4,941 |
|
|
| 472 |
|
|
| 6,973 |
|
Ending Balance |
| $ | 27,439 |
|
| $ | 6,232 |
|
| $ | 22,163 |
|
| $ | 2,014 |
|
| $ | 57,848 |
|
During the three and six months ended June 30, 2022, the ACL increased primarily as a result of charge-offs that contributed to increased loss given default rates. Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period.
During the three and six month periods ended June 30, 2021, increases to the ACL were primarily related to the severity of forecasted unemployment rates and ongoing developments as a result of the COVID-19 pandemic. Additionally, the provision expense was impacted by loan and lease growth and net charge-offs during the period. Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period.
The following tables represent the types of loans modified as troubled debt restructurings (“TDRs”) during the periods presented:
|
| Three Months Ended June 30, 2022 |
| |||||||||||||||||||||||||||||||||||||
|
| Interest Only |
|
| Payment Deferral |
|
| Extend Amortization |
|
| Other |
|
| Total TDRs(1) |
| |||||||||||||||||||||||||
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
| ||||||||||
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Lending |
|
| — |
|
| $ | — |
|
|
| 1 |
|
| $ | 734 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| 1 |
|
| $ | 734 |
|
Total |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 734 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 734 |
|
Total |
|
| — |
|
| $ | — |
|
|
| 1 |
|
| $ | 734 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| 1 |
|
| $ | 734 |
|
(1) | Excludes loans accounted for under the fair value option. See Note 9. Fair Value of Financial Instruments for additional information. |
|
| Six Months Ended June 30, 2022 |
| |||||||||||||||||||||||||||||||||||||||
|
| Interest Only |
|
| Payment Deferral |
|
|
|
| Extend Amortization |
|
| Other(1) |
|
| Total TDRs(2) |
| |||||||||||||||||||||||||
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
|
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
| ||||||||||
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| — |
|
| $ | — |
|
|
| 3 |
|
| $ | 3,119 |
|
|
|
|
| 2 |
|
| $ | 1,528 |
|
|
| 1 |
|
| $ | 527 |
|
|
| 6 |
|
| $ | 5,174 |
|
Specialty Lending |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 734 |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 734 |
|
Total |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 3,853 |
|
|
|
|
| 2 |
|
|
| 1,528 |
|
|
| 1 |
|
|
| 527 |
|
|
| 7 |
|
|
| 5,908 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| 1 |
|
|
| 4,847 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 4,847 |
|
Total |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| 1 |
|
|
| 4,847 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 4,847 |
|
Total |
|
| — |
|
| $ | — |
|
|
| 4 |
|
| $ | 3,853 |
|
|
|
|
| 3 |
|
| $ | 6,375 |
|
|
| 1 |
|
| $ | 527 |
|
|
| 8 |
|
| $ | 10,755 |
|
(1) | Includes one small business banking loan with extend amortization and a rate concession TDR. |
December 31, 2016 | Construction & Development | Commercial Real Estate | Commercial & Industrial | Commercial Land | Total | ||||||||||||||
Allowance for Loan and Lease Losses: | |||||||||||||||||||
Loans and leases individually evaluated for impairment | $ | — | $ | 1,496 | $ | 1,458 | $ | — | $ | 2,954 | |||||||||
Loans and leases collectively evaluated for impairment2 | 1,693 | 4,401 | 6,955 | 2,206 | 15,255 | ||||||||||||||
Total allowance for loan and lease losses | $ | 1,693 | $ | 5,897 | $ | 8,413 | $ | 2,206 | $ | 18,209 | |||||||||
Loans and leases receivable1: | |||||||||||||||||||
Loans and leases individually evaluated for impairment | $ | — | $ | 16,359 | $ | 6,884 | $ | — | $ | 23,243 | |||||||||
Loans and leases collectively evaluated for impairment2 | 112,331 | 331,787 | 327,562 | 113,569 | 885,249 | ||||||||||||||
Total loans and leases receivable | $ | 112,331 | $ | 348,146 | $ | 334,446 | $ | 113,569 | $ | 908,492 |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(2) | Excludes loans accounted for under the fair value option. See Note 9. Fair Value of Financial Instruments for additional information. |
|
| Three Months Ended June 30, 2021 |
| |||||||||||||||||||||||||||||||||||||
|
| Interest Only |
|
| Payment Deferral |
|
| Extend Amortization |
|
| Other |
|
| Total TDRs(1) |
| |||||||||||||||||||||||||
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
| ||||||||||
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| — |
|
| $ | — |
|
|
| 2 |
|
| $ | 2,887 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| 2 |
|
| $ | 2,887 |
|
Total |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2,887 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2,887 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3,732 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3,732 |
|
Total |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3,732 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3,732 |
|
Total |
|
| — |
|
| $ | — |
|
|
| 5 |
|
| $ | 6,619 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| 5 |
|
| $ | 6,619 |
|
(1) | Excludes loans accounted for under the fair value option. See Note 9. Fair Value of Financial Instruments for additional information. |
|
| Six Months Ended June 30, 2021 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Interest Only |
|
|
|
| Payment Deferral |
|
| Extend Amortization |
|
|
|
| Other(1) |
|
|
|
| Total TDRs(2) |
| |||||||||||||||||||||||||||||||||
|
| Number of Loans |
|
|
|
| Recorded investment at period end |
|
|
|
| Number of Loans |
|
|
|
| Recorded investment at period end |
|
| Number of Loans |
|
| Recorded investment at period end |
|
|
|
| Number of Loans |
|
|
|
| Recorded investment at period end |
|
|
|
| Number of Loans |
|
|
|
| Recorded investment at period end |
| ||||||||||
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| — |
|
|
|
| $ | — |
|
|
|
|
| 3 |
|
|
|
| $ | 6,097 |
|
|
| — |
|
| $ | — |
|
|
|
|
| — |
|
|
|
| $ | — |
|
|
|
|
| 3 |
|
|
|
| $ | 6,097 |
|
Total |
|
| — |
|
|
|
|
| — |
|
|
|
|
| 3 |
|
|
|
|
| 6,097 |
|
|
| — |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 3 |
|
|
|
|
| 6,097 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business Banking |
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4 |
|
|
|
|
| 3,782 |
|
|
| — |
|
|
| — |
|
|
|
|
| 1 |
|
|
|
|
| 3,124 |
|
|
|
|
| 5 |
|
|
|
|
| 6,906 |
|
Total |
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4 |
|
|
|
|
| 3,782 |
|
|
| — |
|
|
| — |
|
|
|
|
| 1 |
|
|
|
|
| 3,124 |
|
|
|
|
| 5 |
|
|
|
|
| 6,906 |
|
Total |
|
| — |
|
|
|
| $ | — |
|
|
|
|
| 7 |
|
|
|
| $ | 9,879 |
|
|
| — |
|
| $ | — |
|
|
|
|
| 1 |
|
|
|
| $ | 3,124 |
|
|
|
|
| 8 |
|
|
|
| $ | 13,003 |
|
(1) Includes one small business banking loan with extend amortization and leases classified as impaired as of the dates presented are summarized in the following tables.a rate concession TDR.
(2) | Excludes loans accounted for under the fair value option. See Note 9. Fair Value of Financial Instruments for additional information. |
September 30, 2017 | Recorded Investment | Guaranteed Balance | Unguaranteed Exposure | ||||||||
Commercial & Industrial | |||||||||||
Death Care Management | $ | 8 | $ | — | $ | 8 | |||||
Healthcare | 7,384 | 5,712 | 1,672 | ||||||||
Independent Pharmacies | 4,282 | 2,514 | 1,768 | ||||||||
Registered Investment Advisors | 743 | — | 743 | ||||||||
Veterinary Industry | 2,407 | 1,605 | 802 | ||||||||
Total | 14,824 | 9,831 | 4,993 | ||||||||
Construction & Development | |||||||||||
Healthcare | 1,151 | 880 | 271 | ||||||||
Total | 1,151 | 880 | 271 | ||||||||
Commercial Real Estate | |||||||||||
Death Care Management | 2,486 | 1,246 | 1,240 | ||||||||
Healthcare | 4,334 | 2,999 | 1,335 | ||||||||
Independent Pharmacies | 1,622 | 1,622 | — | ||||||||
Veterinary Industry | 13,700 | 8,051 | 5,649 | ||||||||
Total | 22,142 | 13,918 | 8,224 | ||||||||
Commercial Land | |||||||||||
Agriculture | 23 | 23 | — | ||||||||
Total | 23 | 23 | — | ||||||||
Total | $ | 38,140 | $ | 24,652 | $ | 13,488 |
December 31, 2016 | Recorded Investment | Guaranteed Balance | Unguaranteed Exposure | ||||||||
Commercial & Industrial | |||||||||||
Death Care Management | $ | 111 | $ | — | $ | 111 | |||||
Healthcare | 7,923 | 5,453 | 2,470 | ||||||||
Independent Pharmacies | 3,514 | 2,495 | 1,019 | ||||||||
Registered Investment Advisors | 796 | — | 796 | ||||||||
Veterinary Industry | 2,882 | 2,199 | 683 | ||||||||
Total | 15,226 | 10,147 | 5,079 | ||||||||
Construction & Development | |||||||||||
Agriculture | 300 | 233 | 67 | ||||||||
Total | 300 | 233 | 67 | ||||||||
Commercial Real Estate | |||||||||||
Death Care Management | 1,768 | 1,264 | 504 | ||||||||
Healthcare | 4,044 | 2,985 | 1,059 | ||||||||
Independent Pharmacies | 528 | — | 528 | ||||||||
Veterinary Industry | 13,561 | 7,518 | 6,043 | ||||||||
Total | 19,901 | 11,767 | 8,134 | ||||||||
Commercial Land | |||||||||||
Agriculture | 91 | — | 91 | ||||||||
Total | 91 | — | 91 | ||||||||
Total | $ | 35,518 | $ | 22,147 | $ | 13,371 |
September 30, 2017 | |||||||||||||||||||
Recorded Investment | |||||||||||||||||||
With a Recorded Allowance | With No Recorded Allowance | Total | Unpaid Principal Balance | Related Allowance Recorded | |||||||||||||||
Commercial & Industrial | |||||||||||||||||||
Death Care Management | $ | — | $ | 8 | $ | 8 | $ | 7 | $ | — | |||||||||
Healthcare | 6,675 | 709 | 7,384 | 8,034 | 681 | ||||||||||||||
Independent Pharmacies | 2,622 | 1,660 | 4,282 | 4,697 | 76 | ||||||||||||||
Registered Investment Advisors | 668 | 75 | 743 | 735 | 521 | ||||||||||||||
Veterinary Industry | 2,033 | 374 | 2,407 | 2,800 | 173 | ||||||||||||||
Total | 11,998 | 2,826 | 14,824 | 16,273 | 1,451 | ||||||||||||||
Construction & Development | |||||||||||||||||||
Healthcare | 1,151 | — | 1,151 | 1,173 | 53 | ||||||||||||||
Total | 1,151 | — | 1,151 | 1,173 | 53 | ||||||||||||||
Commercial Real Estate | |||||||||||||||||||
Death Care Management | 1,867 | 619 | 2,486 | 2,625 | 187 | ||||||||||||||
Healthcare | 3,759 | 575 | 4,334 | 4,352 | 261 | ||||||||||||||
Independent Pharmacies | 1,622 | — | 1,622 | 2,163 | 9 | ||||||||||||||
Veterinary Industry | 11,506 | 2,194 | 13,700 | 14,787 | 1,408 | ||||||||||||||
Total | 18,754 | 3,388 | 22,142 | 23,927 | 1,865 | ||||||||||||||
Commercial Land | |||||||||||||||||||
Agriculture | 23 | — | 23 | 58 | — | ||||||||||||||
Total | 23 | — | 23 | 58 | — | ||||||||||||||
Total Impaired Loans and Leases | $ | 31,926 | $ | 6,214 | $ | 38,140 | $ | 41,431 | $ | 3,369 |
December 31, 2016 | |||||||||||||||||||
Recorded Investment | |||||||||||||||||||
With a Recorded Allowance | With No Recorded Allowance | Total | Unpaid Principal Balance | Related Allowance Recorded | |||||||||||||||
Commercial & Industrial | |||||||||||||||||||
Death Care Management | $ | 8 | $ | 103 | $ | 111 | $ | 111 | $ | 1 | |||||||||
Healthcare | 7,259 | 664 | 7,923 | 8,120 | 778 | ||||||||||||||
Independent Pharmacies | 3,184 | 330 | 3,514 | 3,610 | 327 | ||||||||||||||
Registered Investment Advisors | 796 | — | 796 | 792 | 514 | ||||||||||||||
Veterinary Industry | 2,754 | 128 | 2,882 | 3,369 | 106 | ||||||||||||||
Total | 14,001 | 1,225 | 15,226 | 16,002 | 1,726 | ||||||||||||||
Construction & Development | |||||||||||||||||||
Agriculture | 300 | — | 300 | 311 | 13 | ||||||||||||||
Total | 300 | — | 300 | 311 | 13 | ||||||||||||||
Commercial Real Estate | |||||||||||||||||||
Death Care Management | 1,580 | 188 | 1,768 | 1,904 | 34 | ||||||||||||||
Healthcare | 3,514 | 530 | 4,044 | 4,042 | 47 | ||||||||||||||
Independent Pharmacies | 528 | — | 528 | 529 | 284 | ||||||||||||||
Veterinary Industry | 11,193 | 2,368 | 13,561 | 14,283 | 1,273 | ||||||||||||||
Total | 16,815 | 3,086 | 19,901 | 20,758 | 1,638 | ||||||||||||||
Commercial Land | |||||||||||||||||||
Agriculture | 91 | — | 91 | 161 | 15 | ||||||||||||||
Total | 91 | — | 91 | 161 | 15 | ||||||||||||||
Total Impaired Loans and Leases | $ | 31,207 | $ | 4,311 | $ | 35,518 | $ | 37,232 | $ | 3,392 |
Three months ended September 30, 2017 | Three months ended September 30, 2016 | ||||||||||||||
Average Balance | Interest Income Recognized | Average Balance | Interest Income Recognized | ||||||||||||
Commercial & Industrial | |||||||||||||||
Death Care Management | $ | 42 | $ | 1 | $ | 9 | $ | — | |||||||
Healthcare | 7,076 | 11 | 6,345 | 38 | |||||||||||
Independent Pharmacies | 4,266 | 26 | 1,946 | 18 | |||||||||||
Registered Investment Advisors | 894 | 14 | 742 | 7 | |||||||||||
Veterinary Industry | 2,511 | 11 | 2,501 | 13 | |||||||||||
Total | 14,789 | 63 | 11,543 | 76 | |||||||||||
Construction & Development | |||||||||||||||
Healthcare | 602 | 2 | — | — | |||||||||||
Total | 602 | 2 | — | — | |||||||||||
Commercial Real Estate | |||||||||||||||
Death Care Management | 2,512 | 13 | 1,801 | 2 | |||||||||||
Healthcare | 3,079 | 11 | 1,012 | 12 | |||||||||||
Independent Pharmacies | 1,985 | — | 551 | 2 | |||||||||||
Veterinary Industry | 13,950 | 132 | 12,218 | 87 | |||||||||||
Total | 21,526 | 156 | 15,582 | 103 | |||||||||||
Commercial Land | |||||||||||||||
Agriculture | 23 | — | 156 | — | |||||||||||
Total | 23 | — | 156 | — | |||||||||||
Total | $ | 36,940 | $ | 221 | $ | 27,281 | $ | 179 |
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | ||||||||||||||
Average Balance | Interest Income Recognized | Average Balance | Interest Income Recognized | ||||||||||||
Commercial & Industrial | |||||||||||||||
Death Care Management | $ | 313 | $ | 3 | $ | 9 | $ | — | |||||||
Healthcare | 4,996 | 25 | 5,777 | 60 | |||||||||||
Independent Pharmacies | 7,998 | 52 | 1,927 | 51 | |||||||||||
Registered Investment Advisors | 1,438 | 28 | 588 | 13 | |||||||||||
Veterinary Industry | 4,329 | 24 | 2,715 | 29 | |||||||||||
Total | 19,074 | 132 | 11,016 | 153 | |||||||||||
Construction & Development | |||||||||||||||
Healthcare | 120 | 2 | — | — | |||||||||||
Total | 120 | 2 | — | — | |||||||||||
Commercial Real Estate | |||||||||||||||
Death Care Management | 2,030 | 30 | 1,811 | 5 | |||||||||||
Healthcare | 2,940 | 24 | 1,013 | 27 | |||||||||||
Independent Pharmacies | 149 | — | 551 | 2 | |||||||||||
Veterinary Industry | 13,069 | 278 | 12,266 | 249 | |||||||||||
Total | 18,188 | 332 | 15,641 | 283 | |||||||||||
Commercial Land | |||||||||||||||
Agriculture | 199 | — | 355 | — | |||||||||||
Total | 199 | — | 355 | — | |||||||||||
Total | $ | 37,581 | $ | 466 | $ | 27,012 | $ | 436 |
Three months ended September 30, 2017 | Three months ended September 30, 2016 | ||||||||||||||||||||
All Restructurings | All Restructurings | ||||||||||||||||||||
Number of Loans | Pre- modification Recorded Investment | Post- modification Recorded Investment | Number of Loans | Pre- modification Recorded Investment | Post- modification Recorded Investment | ||||||||||||||||
Payment Deferral and Extended Amortization | |||||||||||||||||||||
Commercial & Industrial | |||||||||||||||||||||
Independent Pharmacies | — | $ | — | $ | — | — | $ | — | $ | — | |||||||||||
Total Payment Deferral and Extended Amortization | — | — | — | — | — | — | |||||||||||||||
Payment Deferral | |||||||||||||||||||||
Commercial & Industrial | |||||||||||||||||||||
Healthcare | — | — | — | 1 | 440 | 440 | |||||||||||||||
Veterinary Industry | 2 | 559 | 559 | — | — | — | |||||||||||||||
Total Payment Deferral | 2 | 559 | 559 | 1 | 440 | 440 | |||||||||||||||
Total | 2 | $ | 559 | $ | 559 | 1 | $ | 440 | $ | 440 |
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | ||||||||||||||||||||
All Restructurings | All Restructurings | ||||||||||||||||||||
Number of Loans | Pre- modification Recorded Investment | Post- modification Recorded Investment | Number of Loans | Pre- modification Recorded Investment | Post- modification Recorded Investment | ||||||||||||||||
Payment Deferral and Extended Amortization | |||||||||||||||||||||
Commercial & Industrial | |||||||||||||||||||||
Independent Pharmacies | 1 | 262 | 262 | — | — | — | |||||||||||||||
Total Payment Deferral and Extended Amortization | 1 | 262 | 262 | — | — | — | |||||||||||||||
Payment Deferral | |||||||||||||||||||||
Commercial & Industrial | |||||||||||||||||||||
Healthcare | — | — | — | 1 | 440 | 440 | |||||||||||||||
Veterinary Industry | 2 | 559 | 559 | 1 | 420 | 420 | |||||||||||||||
Total Payment Deferral | 2 | 559 | 559 | 2 | 860 | 860 | |||||||||||||||
Total | 3 | $ | 821 | $ | 821 | 2 | $ | 860 | $ | 860 |
Concessions made to improve a loan and lease’s performance have varying degrees of success. No TDRSNaN TDRs that were modified within the twelve months ended SeptemberJune 30, 20172022 subsequently defaulted during the three or nine months ended SeptemberJune 30, 2017.
NaN TDRs that were modified within the twelve months ended June 30, 2021 subsequently defaulted during the three months ended June 30, 2021. NaN TDR that was modified within the twelve months ended June 30, 2021 subsequently defaulted during the six months ended June 30, 2021. The TDR that defaulted was a commercial and industrial veterinaryCommercial Real Estate Small Business Banking loan that washad previously been modified for a payment deferral. Thedeferral and had a recorded investment for this TDRof $50 thousand at SeptemberJune 30, 2016 was $311 thousand.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 6. Leases
Lessor Equipment Leasing
The Company purchases new equipment for the purpose of leasing such equipment to customers within its verticals. Equipment purchased to fulfill commitments to commercial renewable energy projects is rented out under operating leases while leases of equipment outside of the renewable energy vertical are generally direct financing leases. Accordingly, leased assets under operating leases are included in premises and equipment while leased assets under direct financing leases are included in loans and leases held for investment in the accompanying Unaudited Condensed Consolidated Balance Sheets.
Direct Financing Leases
Interest income on direct financing leases is recognized when earned. Unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. The term of each lease is generally 3 to 7 years which is consistent with the useful life of the equipment with no residual value. The net investment in direct finance leases included in loans and leases held for investment are as follows:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Gross direct finance lease payments receivable |
| $ | 5,490 |
|
| $ | 7,333 |
|
Less – unearned interest |
|
| (662 | ) |
|
| (998 | ) |
Net investment in direct financing leases |
| $ | 4,828 |
|
| $ | 6,335 |
|
Future minimum lease payments under finance leases are as follows:
As of June 30, 2022 |
| Amount |
| |
2022 |
| $ | 517 |
|
2023 |
|
| 2,182 |
|
2024 |
|
| 1,570 |
|
2025 |
|
| 1,104 |
|
2026 |
|
| 117 |
|
Total |
| $ | 5,490 |
|
Interest income of $93 thousand and $172 thousand was recognized in the three months ended June 30, 2022 and 2021, respectively. Interest income of $208 thousand and $358 thousand was recognized in the six months ended June 30, 2022 and 2021, respectively.
Operating Leases
The term of each operating lease is generally 10 to 15 years. The Company retains ownership of the equipment and associated tax benefits such as investment tax credits and accelerated depreciation. At the end of the lease term, the lessee has the option to renew the lease for 2 additional terms or purchase the equipment at the then-current fair market value.
Rental revenue from operating leases is recognized on a straight-line basis over the term of the lease. Rental equipment is recorded at cost and depreciated to an estimated residual value on a straight-line basis over the estimated useful life. The useful lives generally range from 20 to 25 years and residual values generally range from 20% to 50%, however, they are subject to periodic evaluation. Changes in useful lives or residual values will impact depreciation expense and any gain or loss from the sale of used equipment. The estimated useful lives and residual values of the Company's leasing equipment are based on industry disposal experience and the Company's expectations for future sale prices.
If the Company decides to sell or otherwise dispose of rental equipment, it is carried at the lower of cost or fair value less costs to sell or dispose. Repair and maintenance costs that do not extend the lives of the rental equipment are charged to equipment expense at the time the costs are incurred.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
As of June 30, 2022 and December 31, 2021, the Company had a net investment of $119.1 million and $123.9 million, respectively, in assets included in premises and equipment that are subject to operating leases. Of the net investment, the gross balance of the assets was $163.4 million as of June 30, 2022 and December 31, 2021 and accumulated depreciation was $44.3 million and $39.5 million as of June 30, 2022 and December 31, 2021, respectively. Depreciation expense recognized on these assets for the three months ended June 30, 2022 and 2021 was $2.4 million. Depreciation expense recognized on these assets for the six months ended June 30, 2022 and 2021 was $4.8 million and $4.9 million, respectively.
Lease income of $2.4 million was recognized in the three months ended June 30, 2022 and 2021. Lease income of $4.7 million and $4.8 million was recognized in the six months ended June 30, 2022 and 2021, respectively.
A maturity analysis of future minimum lease payments to be received under non-cancelable operating leases is as follows:
As of June 30, 2022 |
| Amount |
| |
2022 |
| $ | 4,001 |
|
2023 |
|
| 9,075 |
|
2024 |
|
| 8,808 |
|
2025 |
|
| 8,935 |
|
2026 |
|
| 8,923 |
|
Thereafter |
|
| 22,253 |
|
Total |
| $ | 61,995 |
|
Note 7. Servicing Assets
Loans serviced for others are not included in the accompanying balance sheet.Unaudited Condensed Consolidated Balance Sheets. The unpaid principal balances of loans serviced for others requiring recognition of a servicing asset were $2.36$2.26 billion and $2.22$2.29 billion at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively.
The following summarizes the activity pertaining to servicing rights:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at beginning of period |
| $ | 36,286 |
|
| $ | 37,744 |
|
| $ | 33,574 |
|
| $ | 33,918 |
|
Additions, net |
|
| 1,043 |
|
|
| 2,403 |
|
|
| 5,324 |
|
|
| 4,736 |
|
Fair value changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to changes in valuation inputs or assumptions |
|
| (5,436 | ) |
|
| (59 | ) |
|
| (4,048 | ) |
|
| 2,887 |
|
Decay due to increases in principal paydowns or runoff |
|
| (3,232 | ) |
|
| (3,122 | ) |
|
| (6,189 | ) |
|
| (4,575 | ) |
Balance at end of period |
| $ | 28,661 |
|
| $ | 36,966 |
|
| $ | 28,661 |
|
| $ | 36,966 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Balance at beginning of period | $ | 53,675 | $ | 48,454 | $ | 51,994 | $ | 44,230 | |||||||
Additions, net | 3,527 | 4,964 | 9,412 | 11,923 | |||||||||||
Fair value changes: | |||||||||||||||
Due to changes in valuation inputs or assumptions | (789 | ) | (1,452 | ) | 342 | (821 | ) | ||||||||
Decay due to increases in principal paydowns or runoff | (3,021 | ) | (2,237 | ) | (8,356 | ) | (5,603 | ) | |||||||
Balance at end of period | $ | 53,392 | $ | 49,729 | $ | 53,392 | $ | 49,729 |
The fair value of servicing rights was determined using a weighted average discount rates ranging from 10.1% to 14.5%rate of 16.2% on SeptemberJune 30, 20172022 and 8.1% to 14.1%9.6% on SeptemberJune 30, 2016.2021. The fair value of servicing rights was determined using a weighted average prepayment speeds ranging from 3.1% to 10.0%speed of 15.9% on SeptemberJune 30, 20172022 and 2.9% to 9.8%17.5% on SeptemberJune 30, 2016,2021, with the actual rate depending on the stratification of the specific right. Changes to fair value are reported in loan servicing asset revaluation within the consolidated statementsUnaudited Condensed Consolidated Statements of income.
The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Changes in prepayment speed assumptions typically have the most significant impact on the fair value of servicing rights. Generally, as interest rates rise on variable rate loans, loan prepayments increase due to an increase in refinance activity, which results in a decrease in the fair value of servicing assets.assets, however, weakening economic conditions or significant declines in interest rates can also increase loan prepayment activity. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 8. Borrowings
Total outstanding long term borrowings consisted of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Borrowings |
|
|
|
|
|
|
|
|
In March 2021, the Company entered into a 60-month term loan agreement of $50.0 million with a third party correspondent bank. The loan accrues interest at a fixed rate of 2.95% with a monthly payment sufficient to fully amortize the loan, with all remaining unpaid principal and interest due at maturity on March 30, 2026. The Company paid the Lender a non-refundable $325 thousand loan origination fee upon signing of the Note that is presented as a direct deduction from the carrying amount of the loan and will be amortized into interest expense over the life of the loan. |
| $ | 38,006 |
|
| $ | 42,734 |
|
In April 2020, the Company entered into the Federal Reserve Bank's Paycheck Protection Program Liquidity Facility ("PPPLF"). Under the PPPLF, advances must be secured by pledges of loans to small businesses originated by the Company under the U.S. Small Business Administration's 7(a) loan program titled the Paycheck Protection Program. The PPPLF accrues interest at NaN basis points and matures at various dates equal to the maturity date of the PPPLF collateral pledged to secure the advance, ranging from February 9, 2026 to April 14, 2026, and will be accelerated on and to the extent of any 7(a) loan forgiveness reimbursement by the SBA for any PPPLF collateral or the date of purchase by the SBA from the borrower of any PPPLF collateral. On the maturity date of each advance, the Company shall repay the advance plus accrued interest. This $48.2 million borrowing was fully advanced at June 30, 2022. |
|
| 48,201 |
|
|
| 267,550 |
|
In September 2020, the Company renewed a $50.0 million revolving line of credit originally issued in 2017 with a third party correspondent bank. Subsequently on October 20, 2021, the Company renewed and increased the revolving line of credit from $50.0 million to $100.0 million and increased the term from 12 months to 36 months. The line of credit is unsecured and accrues interest at 30-day SOFR plus 1.25%, with an interest rate cap of 4.25% and an interest rate floor of 2.75%. Payments are interest only with all principal and accrued interest due at maturity on October 10, 2024. The terms of this loan require the Company to maintain minimum capital and debt service coverage ratios. The Company paid the Lender a non-refundable $750 thousand loan origination fee upon signing of the Note that will be amortized into interest expense over the life of the loan. The Company made an advance of $8.0 million on December 20, 2021 and $12.0 million on March 16, 2022. The Company paid down this balance in full on May 20, 2022 and there is $100.0 million of available credit remaining at June 30, 2022. |
|
| — |
|
|
| 8,000 |
|
Other short term debt (1) |
|
| 2 |
|
|
| 5 |
|
Total borrowings |
| $ | 86,209 |
|
| $ | 318,289 |
|
(1) | Includes finance leases. |
September 30, 2017 | December 31, 2016 | ||||||
Long term borrowings | |||||||
On September 11, 2014, the Company financed the construction of an additional building located on the Company’s Tiburon Drive main campus with a $24 million construction line of credit with an unaffiliated commercial bank, secured by both properties at its Tiburon Drive main facility location. Payments were interest only through September 11, 2016 at a fixed rate of 3.95% for a term of 84 months. Monthly principal and interest payments of $146 thousand began in October 2016 with all principal and accrued interest due on September 11, 2021. The construction line is fully disbursed and there was no remaining available credit on this construction line at September 30, 2017. | $ | 23,195 | $ | 23,864 | |||
On February 23, 2015, the Company transferred two related party loans to an unaffiliated commercial bank in exchange for $4.7 million. The exchange price equated to the unpaid principal balance plus accrued but uncollected interest at the time of transfer. The terms of the transfer agreement with the unaffiliated commercial bank identified the transaction as a secured borrowing for accounting purposes. Interest accrues at prime plus 1% with monthly principal and interest payments over a term of 60 months. The interest rate at September 30, 2017 is 5.25%. The maturity date is October 5, 2019. The pledged collateral is classified in other assets with a fair value of $3.7 million at September 30, 2017. Underlying loans carry a risk grade of 3 and are current with no delinquencies. | 3,677 | 3,979 | |||||
Total long term borrowings | $ | 26,872 | $ | 27,843 |
The Company may purchase federal funds through unsecured federal funds lines of credit with various correspondent banks, which totaled $47.5$167.5 million and $26.5 millionof available funding as of SeptemberJune 30, 20172022 and December 31, 2016, respectively.2021. These lines are intended for short-term borrowings and are subject to restrictions limiting the frequency and terms of advances. These lines of credit are payable on demand and bear interest based upon the daily federal funds rate. The Company had no0 outstanding balances on the lines of credit as of SeptemberJune 30, 20172022 and December 31, 2016.
The Company has entered into a repurchase agreement with a third party for $5an amount up to $5.0 million as of SeptemberJune 30, 20172022 and December 31, 2016.2021. At the time the Company enters into a transaction with the third party, the Company must transfer securities or other assets against the funds received. The terms of the agreement are set at market conditions at the time the Company enters into such transaction. The Company had no0 outstanding balance on the repurchase agreement as of SeptemberJune 30, 20172022 and December 31, 2016.2021.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
On June 18, 2018, the Company entered into a borrowing agreement with the Federal Home Loan Bank of Atlanta. These borrowings must be secured with eligible collateral approved by the Federal Home Loan Bank of Atlanta. At June 30, 2022 and December 31, 2021, the Company had approximately $2.13 billion and $2.02 billion, respectively, in borrowing capacity available under these agreements. There are no advances outstanding and no collateral pledged as of June 30, 2022 and December 31, 2021.
The Company may borrow funds through the Federal Reserve Bank’s discount window. These borrowings are secured by a blanket floating lien on qualifying loans with a balance of $321.0 million$2.63 billion and $281.3 million$2.44 billion as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. At SeptemberJune 30, 20172022 and December 31, 2016,2021, the Company had approximately $175.0 million$2.22 billion and $142.7 million,$2.04 billion, respectively, in borrowing capacity available under these arrangements with no0 outstanding balance as of SeptemberJune 30, 20172022 and December 31, 2016.
Note 10.9. Fair Value of Financial Instruments
Fair Value Hierarchy
There are three levels of inputs in the fair value hierarchy that may be used to measure fair value. Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.
Recurring Fair Value
The table below provides a rollforward of the Level 3 equity warrant asset fair values.
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
Equity Warrant Assets |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at beginning of period |
| $ | 2,328 |
|
| $ | 1,314 |
|
| $ | 1,672 |
|
| $ | 908 |
|
Issuances |
|
| 48 |
|
|
| 16 |
|
|
| 704 |
|
|
| 37 |
|
Net gains on derivative instruments |
|
| 46 |
|
|
| 385 |
|
|
| 46 |
|
|
| 770 |
|
Settlements |
|
| — |
|
|
| (135 | ) |
|
| — |
|
|
| (135 | ) |
Balance at end of period |
| $ | 2,422 |
|
| $ | 1,580 |
|
| $ | 2,422 |
|
| $ | 1,580 |
|
The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.
June 30, 2022 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agencies |
| $ | 17,387 |
|
| $ | — |
|
| $ | 17,387 |
|
| $ | — |
|
Mortgage-backed securities |
|
| 904,926 |
|
|
| — |
|
|
| 904,926 |
|
|
| — |
|
Municipal bonds(1) |
|
| 3,165 |
|
|
| — |
|
|
| 3,072 |
|
|
| 93 |
|
Other debt securities(2) |
|
| 2,490 |
|
|
| — |
|
|
| 2,000 |
|
|
| 490 |
|
Loans held for sale |
|
| 23,452 |
|
|
| — |
|
|
| — |
|
|
| 23,452 |
|
Loans held for investment |
|
| 530,644 |
|
|
| — |
|
|
| — |
|
|
| 530,644 |
|
Servicing assets(3) |
|
| 28,661 |
|
|
| — |
|
|
| — |
|
|
| 28,661 |
|
Mutual fund |
|
| 2,321 |
|
|
| — |
|
|
| 2,321 |
|
|
| — |
|
Equity warrant assets |
|
| 2,422 |
|
|
| — |
|
|
| — |
|
|
| 2,422 |
|
Total assets at fair value |
| $ | 1,515,468 |
|
| $ | — |
|
| $ | 929,706 |
|
| $ | 585,762 |
|
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
December 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agencies |
| $ | 10,637 |
|
| $ | 0 |
|
| $ | 10,637 |
|
| $ | 0 |
|
Mortgage-backed securities |
|
| 889,339 |
|
|
| 0 |
|
|
| 889,339 |
|
|
| 0 |
|
Municipal bonds(1) |
|
| 3,576 |
|
|
| 0 |
|
|
| 3,480 |
|
|
| 96 |
|
Other debt securities(2) |
|
| 2,500 |
|
|
| — |
|
|
| 2,500 |
|
|
| — |
|
Loans held for sale |
|
| 25,310 |
|
|
| — |
|
|
| — |
|
|
| 25,310 |
|
Loans held for investment |
|
| 645,201 |
|
|
| — |
|
|
| — |
|
|
| 645,201 |
|
Servicing assets(3) |
|
| 33,574 |
|
|
| 0 |
|
|
| 0 |
|
|
| 33,574 |
|
Mutual fund |
|
| 2,379 |
|
|
| 0 |
|
|
| 2,379 |
|
|
| 0 |
|
Equity warrant assets |
|
| 1,672 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,672 |
|
Total assets at fair value |
| $ | 1,614,188 |
|
| $ | 0 |
|
| $ | 908,335 |
|
| $ | 705,853 |
|
September 30, 2017 | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Investment securities available-for-sale | |||||||||||||||
US government agencies | $ | 17,804 | $ | — | $ | 17,804 | $ | — | |||||||
Residential mortgage-backed securities | 56,750 | — | 56,750 | — | |||||||||||
Mutual fund | 2,021 | — | 2,021 | — | |||||||||||
Servicing assets1 | 53,392 | — | — | 53,392 | |||||||||||
Total assets at fair value | $ | 129,967 | $ | — | $ | 76,575 | $ | 53,392 | |||||||
Contingent consideration liability2 | $ | 4,650 | $ | — | $ | — | $ | 4,650 | |||||||
Total liabilities at fair value | $ | 4,650 | $ | — | $ | — | $ | 4,650 |
December 31, 2016 | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Investment securities available-for-sale | |||||||||||||||
US government agencies | $ | 17,823 | $ | — | $ | 17,823 | $ | — | |||||||
Residential mortgage-backed securities | 51,273 | — | 51,273 | — | |||||||||||
Mutual fund | 1,960 | — | 1,960 | — | |||||||||||
Servicing assets1 | 51,994 | — | — | 51,994 | |||||||||||
Total assets at fair value | $ | 123,050 | $ | — | $ | 71,056 | $ | 51,994 |
(1) | During the three and six months ended June 30, 2022, the Company recorded a fair value adjustment loss of $1 thousand and $3 thousand, respectively. During the three and six months ended June 30, 2021, the Company recorded 0 fair value adjustment gain/loss. |
(2) | During the three and six months ended June 30, 2022 the Company recorded a fair value adjustment loss of $10 thousand. During the three and six months ended June 30, 2021, the Company recorded 0 fair value adjustment gain/loss. |
(3) | See Note 7 for a rollforward of recurring Level 3 fair values for servicing |
For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis, see Note 10. Fair Value of Financial Instruments in the Company’s 2021 Form 10-K.
Fair Value Option
The Company has historically elected to account for retained participating interests of all government guaranteed loans under the fair value option in order to align the accounting presentation with the Company’s viewpoint of the economics of the loans. Interest income is recognized in the same manner on loans reported at fair value as on non-fair value loans, except in regard to origination fees and costs which are recognized immediately upon fair value election. Beginning in the first quarter of 2021, the Company chose not to elect fair value for all retained participating interests arising from new government guaranteed loan sales. Not electing fair value generally results in a larger discount being recorded on the date of the sale. This discount is subsequently accreted into interest income over the underlying loan’s remaining term using the effective interest method. Management made this change of election in alignment with its ongoing effort to reduce volatility and drive more predictable revenue. In accordance with GAAP, any loans for which fair value was previously elected will continue to be measured as such.
There were 0 loans accounted for under the fair value option that were 90 days or more past due and still accruing interest at June 30, 2022 or December 31, 2021. The unpaid principal balance of unguaranteed exposure for nonaccruals was $4.6 million and $6.9 million at June 30, 2022 and December 31, 2021, respectively.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The following tables provide more information about the fair value carrying amount and the unpaid principal outstanding of loans accounted for under the fair value option at June 30, 2022 and December 31, 2021.
|
| June 30, 2022 |
| |||||||||||||||||||||||||||||||||
|
| Total Loans |
|
| Nonaccruals |
|
| 90 Days or More Past Due |
| |||||||||||||||||||||||||||
|
| Fair Value Carrying Amount |
|
| Unpaid Principal Balance |
|
| Difference |
|
| Fair Value Carrying Amount |
|
| Unpaid Principal Balance |
|
| Difference |
|
| Fair Value Carrying Amount |
|
| Unpaid Principal Balance |
|
| Difference |
| |||||||||
Fair Value Option Elections |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
| $ | 23,452 |
|
| $ | 25,200 |
|
| $ | (1,748 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Loans held for investment |
|
| 530,644 |
|
|
| 553,437 |
|
|
| (22,793 | ) |
|
| 31,510 |
|
|
| 34,101 |
|
|
| (2,591 | ) |
|
| 16,733 |
|
|
| 18,282 |
|
|
| (1,549 | ) |
|
| $ | 554,096 |
|
| $ | 578,637 |
|
| $ | (24,541 | ) |
| $ | 31,510 |
|
| $ | 34,101 |
|
| $ | (2,591 | ) |
| $ | 16,733 |
|
| $ | 18,282 |
|
| $ | (1,549 | ) |
|
| December 31, 2021 |
| |||||||||||||||||||||||||||||||||
|
| Total Loans |
|
| Nonaccruals |
|
| 90 Days or More Past Due |
| |||||||||||||||||||||||||||
|
| Fair Value Carrying Amount |
|
| Unpaid Principal Balance |
|
| Difference |
|
| Fair Value Carrying Amount |
|
| Unpaid Principal Balance |
|
| Difference |
|
| Fair Value Carrying Amount |
|
| Unpaid Principal Balance |
|
| Difference |
| |||||||||
Fair Value Option Elections |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
| $ | 25,310 |
|
| $ | 26,831 |
|
| $ | (1,521 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Loans held for investment |
|
| 645,201 |
|
|
| 666,066 |
|
|
| (20,865 | ) |
|
| 38,262 |
|
|
| 42,841 |
|
|
| (4,579 | ) |
|
| 24,057 |
|
|
| 25,633 |
|
|
| (1,576 | ) |
|
| $ | 670,511 |
|
| $ | 692,897 |
|
| $ | (22,386 | ) |
| $ | 38,262 |
|
| $ | 42,841 |
|
| $ | (4,579 | ) |
| $ | 24,057 |
|
| $ | 25,633 |
|
| $ | (1,576 | ) |
The following table presents the net gains (losses) from changes in fair value.
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
Gains (Losses) on Loans Accounted for under the Fair Value Option |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Loans held for sale |
| $ | (56 | ) |
| $ | 428 |
|
| $ | (226 | ) |
| $ | 464 |
|
Loans held for investment |
|
| (4,405 | ) |
|
| 707 |
|
|
| (3,719 | ) |
|
| 4,889 |
|
|
| $ | (4,461 | ) |
| $ | 1,135 |
|
| $ | (3,945 | ) |
| $ | 5,353 |
|
Losses related to borrower-specific credit risk were $711 thousand and $2.8 million for the three and six months ended June 30, 2022, respectively, and $484 thousand and $293 thousand for the three and six months ended June 30, 2021, respectively.
The following tables summarize the activity pertaining to loans accounted for under the fair value option.
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
Loans held for sale |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at beginning of period |
| $ | 25,056 |
|
| $ | 35,936 |
|
| $ | 25,310 |
|
| $ | 36,111 |
|
Repurchases |
|
| — |
|
|
| — |
|
|
| 65 |
|
|
| — |
|
Fair value changes |
|
| (56 | ) |
|
| 428 |
|
|
| (226 | ) |
|
| 464 |
|
Sales |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Settlements |
|
| (1,548 | ) |
|
| (7,316 | ) |
|
| (1,697 | ) |
|
| (7,527 | ) |
Balance at end of period |
| $ | 23,452 |
|
| $ | 29,048 |
|
| $ | 23,452 |
|
| $ | 29,048 |
|
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
Loans held for investment |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at beginning of period |
| $ | 600,571 |
|
| $ | 790,797 |
|
| $ | 645,201 |
|
| $ | 815,374 |
|
Repurchases |
|
| 1,380 |
|
|
| 16,215 |
|
|
| 2,905 |
|
|
| 21,785 |
|
Fair value changes |
|
| (4,405 | ) |
|
| 707 |
|
|
| (3,719 | ) |
|
| 4,889 |
|
Settlements |
|
| (66,902 | ) |
|
| (64,493 | ) |
|
| (113,743 | ) |
|
| (98,822 | ) |
Balance at end of period |
| $ | 530,644 |
|
| $ | 743,226 |
|
| $ | 530,644 |
|
| $ | 743,226 |
|
Non-Recurring Fair Value
The tables below present the recorded amount of assets and liabilities measured at fair value on a non-recurring basis.
June 30, 2022 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Collateral-dependent loans |
| $ | 989 |
|
| $ | — |
|
| $ | — |
|
| $ | 989 |
|
Foreclosed assets |
|
| 191 |
|
|
| — |
|
|
| — |
|
|
| 191 |
|
Total assets at fair value |
| $ | 1,180 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,180 |
|
December 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Collateral-dependent loans |
| $ | 1,567 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,567 |
|
Foreclosed assets |
|
| 620 |
|
|
| — |
|
|
| — |
|
|
| 620 |
|
Total assets at fair value |
| $ | 2,187 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,187 |
|
September 30, 2017 | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Impaired loans and leases | $ | 28,557 | $ | — | $ | — | $ | 28,557 | |||||||
Foreclosed assets | 2,231 | — | — | 2,231 | |||||||||||
Total assets at fair value | $ | 30,788 | $ | — | $ | — | $ | 30,788 |
December 31, 2016 | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Impaired loans and leases | $ | 27,815 | $ | — | $ | — | $ | 27,815 | |||||||
Foreclosed assets | 1,648 | — | — | 1,648 | |||||||||||
Total assets at fair value | $ | 29,463 | $ | — | $ | — | $ | 29,463 |
For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets that are measured at fair value on a non-recurring basis, see Note 10. Fair Value of Financial Instruments in the Company’s 2021 Form 10-K.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Level 3 Analysis
For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of SeptemberJune 30, 20172022 and December 31, 20162021 the significant unobservable inputs used in the fair value measurements were as follows:
June 30, 20172022
Level 3 Assets with Significant Unobservable Inputs |
| Fair Value |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range |
| ||
Recurring fair value |
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bond |
| $ | 93 |
|
| Discounted expected cash flows |
| Discount rate Prepayment speed |
| 5.6% 5.0% |
| |
Other debt security |
| $ | 490 |
|
| Discounted expected cash flows |
| Discount rate |
| 6.3% |
| |
Loans held for sale |
| $ | 23,452 |
|
| Discounted expected cash flows |
| Discount rate Prepayment speed |
| 14.5% to 20.1% WAVG 17.5% |
| |
Loans held for investment |
| $ | 530,644 |
|
| Discounted expected cash flows Discounted appraisals |
| Loss rate
Discount rate Prepayment speed Appraisal adjustments |
| 0% to 70.6% (WAVG 1.6%) 14.5% to 20.1% WAVG 17.5% 10.0% to 63.0% |
| |
Equity warrant assets |
| $ | 2,422 |
|
| Black-Scholes option pricing model |
| Volatility Risk-free interest rate Marketability discount Remaining life |
| 25.9% to 84.2% 3.0% 20.0% 3 - 10 years |
| |
Non-recurring fair value |
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent loans |
| $ | 989 |
|
| Discounted appraisals |
| Appraisal adjustments (1) |
| 10.0% to 99.0% |
| |
Foreclosed assets |
| $ | 191 |
|
| Discounted appraisals |
| Appraisal adjustments (1) |
|
| 10.0 | % |
Level 3 Assets with Significant Unobservable Inputs | Fair Value | Valuation Technique | Significant Unobservable Inputs | Range | ||||||
Impaired Loans and Leases | $ | 28,557 | Discounted appraisals Discounted expected cash flows | Appraisal adjustments (1) Interest rate & repayment term | 0% to 25% Weighted average discount rate 6.01% | |||||
Foreclosed Assets | $ | 2,231 | Discounted appraisals | Appraisal adjustments (1) | 10% to 35% |
December 31, 20162021
Level 3 Assets with Significant Unobservable Inputs |
| Fair Value |
|
| Valuation Technique |
| Significant Unobservable Inputs |
| Range | |
Recurring fair value |
|
|
|
|
|
|
|
|
|
|
Municipal bond |
| $ | 96 |
|
| Discounted expected cash flows |
| Discount rate Prepayment speed |
| 4.8% 5.0% |
Loans held for sale |
| $ | 25,310 |
|
| Discounted expected cash flows |
| Discount rate Prepayment speed |
| 6.2% to 21.9% WAVG 17.4% |
Loans held for investment |
| $ | 645,201 |
|
| Discounted expected cash flows Discounted appraisals |
| Loss rate
Discount rate Prepayment speed Appraisal adjustments |
| 0.0% to 70.2% (WAVG 1.5%) 6.2% to 21.9% WAVG 17.4% 10.0% to 85.0% |
Equity warrant assets |
| $ | 1,672 |
|
| Black-Scholes option pricing model |
| Volatility Risk-free interest rate Marketability discount Remaining life |
| 26.2% to 88.2% 1.3% to 1.5% 20.0% 4 - 10 years |
Non-recurring fair value |
|
|
|
|
|
|
|
|
|
|
Collateral-dependent loans |
| $ | 1,567 |
|
| Discounted appraisals |
| Appraisal adjustments (1) |
| 10.0% to 99.0% |
Foreclosed assets |
| $ | 620 |
|
| Discounted appraisals |
| Appraisal adjustments (1) |
| 9.0% to 10.0% |
Level 3 Assets with Significant Unobservable Inputs | Fair Value | Valuation Technique | Significant Unobservable Inputs | Range | ||||||
Impaired Loans and Leases | $ | 27,815 | Discounted appraisals Discounted expected cash flows | Appraisal adjustments (1) Interest rate & repayment term | 0% to 25% Weighted average discount rate 5.28% | |||||
Foreclosed Assets | $ | 1,648 | Discounted appraisals | Appraisal adjustments (1) | 10% to 35% |
(1) | |
Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Estimated Fair Value of Other Financial Instruments
GAAP also requires disclosure of the fair value information aboutof financial instruments carried at book value on the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis are as follows:
June 30, 2022 |
| Carrying Amount |
|
| Quoted Price In Active Markets for Identical Assets /Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Total Fair Value |
| |||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 580,493 |
|
| $ | 580,493 |
|
| $ | — |
|
| $ | — |
|
| $ | 580,493 |
|
Federal funds sold |
|
| 51,694 |
|
|
| 51,694 |
|
|
| — |
|
|
| — |
|
|
| 51,694 |
|
Certificates of deposit with other banks |
|
| 4,250 |
|
|
| 4,257 |
|
|
| — |
|
|
| — |
|
|
| 4,257 |
|
Loans held for sale |
|
| 1,176,282 |
|
|
| — |
|
|
| — |
|
|
| 1,199,307 |
|
|
| 1,199,307 |
|
Loans and leases held for investment, net of allowance for credit losses on loans and leases |
|
| 5,263,702 |
|
|
| — |
|
|
| — |
|
|
| 5,216,334 |
|
|
| 5,216,334 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 8,155,744 |
|
|
| — |
|
|
| 7,635,057 |
|
|
| — |
|
|
| 7,635,057 |
|
Borrowings |
|
| 86,209 |
|
|
| — |
|
|
| — |
|
|
| 81,403 |
|
|
| 81,403 |
|
December 31, 2021 |
| Carrying Amount |
|
| Quoted Price In Active Markets for Identical Assets /Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Total Fair Value |
| |||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 187,203 |
|
| $ | 187,203 |
|
| $ | — |
|
| $ | — |
|
| $ | 187,203 |
|
Federal funds sold |
|
| 16,547 |
|
|
| 16,547 |
|
|
| — |
|
|
| — |
|
|
| 16,547 |
|
Certificates of deposit with other banks |
|
| 4,750 |
|
|
| 4,930 |
|
|
| — |
|
|
| — |
|
|
| 4,930 |
|
Loans held for sale |
|
| 1,091,209 |
|
|
| — |
|
|
| — |
|
|
| 1,197,307 |
|
|
| 1,197,307 |
|
Loans and leases held for investment, net of allowance for credit losses on loans and leases |
|
| 4,812,477 |
|
|
| — |
|
|
| — |
|
|
| 4,958,875 |
|
|
| 4,958,875 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 7,112,044 |
|
|
| — |
|
|
| 6,942,512 |
|
|
| — |
|
|
| 6,942,512 |
|
Borrowings |
|
| 318,289 |
|
|
| — |
|
|
| — |
|
|
| 312,036 |
|
|
| 312,036 |
|
September 30, 2017 | Carrying Amount | Quoted Price In Active Markets for Identical Assets /Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||||
Financial assets | |||||||||||||||||||
Cash and due from banks | $ | 260,907 | $ | 260,907 | $ | — | $ | — | $ | 260,907 | |||||||||
Certificates of deposit with other banks | 3,250 | 3,251 | — | — | 3,251 | ||||||||||||||
Investment securities, available-for-sale | 76,575 | — | 76,575 | — | 76,575 | ||||||||||||||
Loans held for sale | 692,586 | — | — | 770,923 | 770,923 | ||||||||||||||
Loans and leases, net of allowance for loan and lease losses | 1,148,860 | — | — | 1,151,601 | 1,151,601 | ||||||||||||||
Servicing assets | 53,392 | — | — | 53,392 | 53,392 | ||||||||||||||
Accrued interest receivable | 9,669 | 9,669 | — | — | 9,669 | ||||||||||||||
Financial liabilities | |||||||||||||||||||
Deposits | 2,012,891 | — | 1,996,493 | — | 1,996,493 | ||||||||||||||
Accrued interest payable | 270 | 270 | — | — | 270 | ||||||||||||||
Long term borrowings | 26,872 | — | — | 27,904 | 27,904 |
December 31, 2016 | Carrying Amount | Quoted Price In Active Markets for Identical Assets /Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||||
Financial assets | |||||||||||||||||||
Cash and due from banks | $ | 238,008 | $ | 238,008 | $ | — | $ | — | $ | 238,008 | |||||||||
Certificates of deposit with other banks | 7,250 | 7,236 | — | — | 7,236 | ||||||||||||||
Investment securities, available-for-sale | 71,056 | — | 71,056 | — | 71,056 | ||||||||||||||
Loans held for sale | 394,278 | — | — | 426,220 | 426,220 | ||||||||||||||
Loans and leases, net of allowance for loan and lease losses | 889,357 | — | — | 873,158 | 873,158 | ||||||||||||||
Servicing assets | 51,994 | — | — | 51,994 | 51,994 | ||||||||||||||
Accrued interest receivable | 7,520 | 7,520 | — | — | 7,520 | ||||||||||||||
Financial liabilities | |||||||||||||||||||
Deposits | 1,485,076 | — | 1,469,173 | — | 1,469,173 | ||||||||||||||
Accrued interest payable | 319 | 319 | — | — | 319 | ||||||||||||||
Long term borrowings | 27,843 | — | — | 29,559 | 29,559 |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 11.10. Commitments and Contingencies
Litigation
In the normal course of business, the Company is involved in various legal proceedings. Management believes that the outcome of such proceedings will not materially affect the financial position, results of operations or cash flows of the Company.
On March 12, 2021, a purported class action was filed against the Company in the United States District Court for the Eastern District of North Carolina, Joseph McAlear, individually and on behalf of all others similarly situated v. Live Oak Bancshares, Inc. et al. The complaint alleged the existence of an agreement between the Company, nCino, Inc. and Apiture, LLC in which those companies purportedly sought to restrain the mobility of employees in violation of antitrust laws by agreeing not to solicit or hire each other’s employees. The complaint alleged violations of Section 1 of the federal Sherman Act (15 U.S.C. § 1) and violations of Sections 75-1 and 75-2 of the North Carolina General Statutes. The plaintiff sought monetary damages, including treble damages, entitlement to restitution, disgorgement, attorneys’ fees, and pre- and post-judgment interest. On October 12, 2021, the Company reached an agreement to settle the case with a proposed class of all persons (with certain exclusions) employed by the Company or its wholly-owned subsidiary, Live Oak Banking Company, Apiture, Inc. or nCino, Inc. in North Carolina at any time from January 27, 2017, through March 31, 2021. In the agreement, the Company agreed to pay $3.9 million. On October 13, 2021, the plaintiff filed a motion for preliminary approval of the settlement, which the court granted by order entered on November 23, 2021. After class-wide noticing, the plaintiff filed a motion for final approval on March 28, 2022, which the court granted by order entered on April 28, 2022. Pursuant to the terms of the settlement, the settlement became effective on June 11, 2022.
Financial Instruments with Off-balance-sheetOff-Balance-Sheet Risk
The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the balance sheet.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. A summary of the Company’s commitments is as follows:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Commitments to extend credit |
| $ | 2,867,217 |
|
| $ | 2,634,387 |
|
Standby letters of credit |
|
| 25,319 |
|
|
| 10,753 |
|
Total unfunded off-balance-sheet credit risk |
| $ | 2,892,536 |
|
| $ | 2,645,140 |
|
September 30, 2017 | December 31, 2016 | ||||||
Commitments to extend credit | $ | 1,563,688 | $ | 1,342,271 | |||
Standby letters of credit | 1,861 | 343 | |||||
Solar purchase commitments | 182,610 | — | |||||
Airplane purchase agreement commitments | — | 21,500 | |||||
Total unfunded off-balance-sheet credit risk | $ | 1,748,159 | $ | 1,364,114 |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties. In 2012, the Company began issuing commitmentCommitment letters are issued after approval of the loan by the Credit Department. Commitment lettersDepartment and generally expire ninety days after issuance.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary.
The balance of Septemberthe allowance for off-balance sheet credit exposures was $874 thousand and $739 thousand at June 30, 20172022 and December 31, 2016,2021, respectively.
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
As of June 30, 2022 and December 31, 2021, the Company hadrecorded unfunded commitments to provide capital contributions for on-balance sheeton-balance-sheet investments in the amount of $4.4$20.1 million and $4.9$10.4 million, respectively.
Concentrations of Credit Risk
The distribution of commitments to extend credit approximates the distribution of loans outstanding. The Company does not have a significant number of credits to any single borrower or group of related borrowers whereby their retained unguaranteed exposure exceeds $5.0$20.0 million, except for seventeentwenty-two relationships that have a retained unguaranteed exposure of $144.6$641.8 million of which $90.8$377.7 million of the unguaranteed exposure has been disbursed.
Additionally, the Company has future minimum lease payments duereceivable under non-cancelable operating leases totaling $33.0$62.0 million, of which $28.0 million is due from two relationships.
The Company from time-to-time may have cash and cash equivalents on deposit with financial institutions that exceed federally-insured limits.
Note 12. Stock Plans
The Company's management reporting process measures the performance of its operating segments based on internal operating structure, which is subject to change from time to time. Accordingly, the Company adoptedoperates 2 reportable segments for management reporting purposes as discussed below:
Banking - This segment specializes in providing financing services to small businesses nationwide in targeted industries and deposit-related services to small businesses, consumers and other customers nationwide. The primary source of revenue for this segment is net interest income and secondarily the 2015 Omnibus Stock Incentive Plan which replaced the previously existing Amended Incentive Stock Option Planorigination and Nonstatutory Stock Option Plan. Subsequentlysale of government guaranteed loans.
Fintech - This segment is involved in making strategic investments into emerging financial technology companies. The primary sources of revenue for this segment are principally gains and losses on May 24, 2016, the 2015 Omnibus Stock Incentive Plan was amended to authorize awards covering a maximum of 7,000,000 common voting sharesequity method and has an expiration date of March 20, 2025. Options or restricted shares granted under the Amendedequity security investments and Restated 2015 Omnibus Stock Incentive Plan (the "Plan") expire no more than 10 years from the date of grant. Exercise prices under the Plan are set by the Board of Directors at the date of grant, but shall not be less than 100% of fair market valuemanagement fees. The Fintech segment is comprised of the related stock atCompany's direct wholly owned subsidiaries Live Oak Ventures and Canapi Advisors, and the date ofinvestments held by those entities, as well as the grant. Options or restricted shares vest over a minimum of three years from the date of the grant.
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
Outstanding at December 31, 2016 | 3,478,208 | $ | 11.51 | |||||||||
Exercised | 76,285 | 7.89 | ||||||||||
Forfeited | 203,671 | 14.12 | ||||||||||
Granted | — | — | ||||||||||
Outstanding at September 30, 2017 | 3,198,252 | $ | 11.43 | 7.31 years | $ | 38,411,802 | ||||||
Exercisable at September 30, 2017 | 703,425 | $ | 10.41 | 7.06 years | $ | 9,171,805 |
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
Outstanding at December 31, 2015 | 3,546,992 | $ | 11.17 | |||||||||
Exercised | 25,406 | 5.79 | ||||||||||
Forfeited | 166,483 | 9.01 | ||||||||||
Granted | 169,987 | 14.02 | ||||||||||
Outstanding at September 30, 2016 | 3,525,090 | $ | 11.44 | 8.30 years | $ | 14,212,513 | ||||||
Exercisable at September 30, 2016 | 478,141 | $ | 9.22 | 7.84 years | $ | 2,887,741 |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Shares | Weighted Average Grant Date Fair Value | |||||
Non-vested at December 31, 2016 | 3,016,100 | $ | 4.78 | |||
Granted | — | — | ||||
Vested | 317,602 | 4.17 | ||||
Forfeited | 203,671 | 6.03 | ||||
Non-vested at September 30, 2017 | 2,494,827 | $ | 4.75 |
Shares | Weighted Average Grant Date Fair Value | |||||
Non-vested at December 31, 2015 | 3,393,441 | $ | 4.56 | |||
Granted | 169,987 | 6.58 | ||||
Vested | 349,996 | 4.22 | ||||
Forfeited | 166,483 | 3.13 | ||||
Non-vested at September 30, 2016 | 3,046,949 | $ | 4.79 |
The total intrinsic value of options exercised at September 30, 2017 and 2016 was $1.1 million and $223 thousand, respectively.
| Banking |
|
| Fintech |
|
| Other |
|
| Consolidated |
| ||||
As of and for the three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 99,215 |
|
| $ | 36 |
|
| $ | (4 | ) |
| $ | 99,247 |
|
Interest expense |
| 18,850 |
|
|
| — |
|
|
| 463 |
|
|
| 19,313 |
|
Net interest income (loss) |
| 80,365 |
|
|
| 36 |
|
|
| (467 | ) |
|
| 79,934 |
|
Provision for loan and lease credit losses |
| 5,267 |
|
|
| — |
|
|
| — |
|
|
| 5,267 |
|
Noninterest income |
| 5,168 |
|
|
| 122,661 |
|
|
| 700 |
|
|
| 128,529 |
|
Noninterest expense |
| 76,779 |
|
|
| 2,146 |
|
|
| 1,954 |
|
|
| 80,879 |
|
Income tax (benefit) expense |
| (268 | ) |
|
| 25,868 |
|
|
| (322 | ) |
|
| 25,278 |
|
Net income (loss) | $ | 3,755 |
|
| $ | 94,683 |
|
| $ | (1,399 | ) |
| $ | 97,039 |
|
Total assets | $ | 8,963,851 |
|
| $ | 158,930 |
|
| $ | (1,884 | ) |
| $ | 9,120,897 |
|
As of and for the three months ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 87,974 |
|
| $ | 7 |
|
| $ | 18 |
|
| $ | 87,999 |
|
Interest expense |
| 16,135 |
|
|
| — |
|
|
| 402 |
|
|
| 16,537 |
|
Net interest income (loss) |
| 71,839 |
|
|
| 7 |
|
|
| (384 | ) |
|
| 71,462 |
|
Provision for loan and lease credit losses |
| 7,846 |
|
|
| — |
|
|
| — |
|
|
| 7,846 |
|
Noninterest income |
| 26,810 |
|
|
| 42,648 |
|
|
| 653 |
|
|
| 70,111 |
|
Noninterest expense |
| 50,829 |
|
|
| 1,112 |
|
|
| 5,617 |
|
|
| 57,558 |
|
Income tax expense (benefit) |
| 5,130 |
|
|
| 10,209 |
|
|
| (2,752 | ) |
|
| 12,587 |
|
Net income (loss) | $ | 34,844 |
|
| $ | 31,334 |
|
| $ | (2,596 | ) |
| $ | 63,582 |
|
Total assets | $ | 8,092,506 |
|
| $ | 136,104 |
|
| $ | 14,576 |
|
| $ | 8,243,186 |
|
Shares | Weighted Average Grant Date Fair Value | |||||
Non-vested at December 31, 2016 | 134,969 | $ | 14.96 | |||
Granted | 62,721 | 23.85 | ||||
Vested | 38,205 | 15.40 | ||||
Forfeited | 7,485 | 13.96 | ||||
Non-vested at September 30, 2017 | 152,000 | $ | 18.57 |
Live Oak Bancshares, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
| Banking |
|
| Fintech |
|
| Other |
|
| Consolidated |
| ||||
As of and for the six months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 191,961 |
|
| $ | 72 |
|
| $ | (4 | ) |
| $ | 192,029 |
|
Interest expense |
| 33,380 |
|
|
| — |
|
|
| 936 |
|
|
| 34,316 |
|
Net interest income (loss) |
| 158,581 |
|
|
| 72 |
|
|
| (940 | ) |
|
| 157,713 |
|
Provision for loan and lease credit losses |
| 7,103 |
|
|
| — |
|
|
| — |
|
|
| 7,103 |
|
Noninterest income |
| 37,103 |
|
|
| 122,898 |
|
|
| 1,196 |
|
|
| 161,197 |
|
Noninterest expense |
| 138,178 |
|
|
| 4,314 |
|
|
| 4,101 |
|
|
| 146,593 |
|
Income tax expense (benefit) |
| 8,808 |
|
|
| 25,722 |
|
|
| (864 | ) |
|
| 33,666 |
|
Net income (loss) | $ | 41,595 |
|
| $ | 92,934 |
|
| $ | (2,981 | ) |
| $ | 131,548 |
|
Total assets | $ | 8,963,851 |
|
| $ | 158,930 |
|
| $ | (1,884 | ) |
| $ | 9,120,897 |
|
As of and for the six months ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | $ | 176,073 |
|
| $ | 129 |
|
| $ | 22 |
|
| $ | 176,224 |
|
Interest expense |
| 34,300 |
|
|
| — |
|
|
| 512 |
|
|
| 34,812 |
|
Net interest income (loss) |
| 141,773 |
|
|
| 129 |
|
|
| (490 | ) |
|
| 141,412 |
|
Provision for loan and lease credit losses |
| 6,973 |
|
|
| — |
|
|
| — |
|
|
| 6,973 |
|
Noninterest income |
| 57,334 |
|
|
| 42,644 |
|
|
| 1,190 |
|
|
| 101,168 |
|
Noninterest expense |
| 106,454 |
|
|
| 2,132 |
|
|
| 7,244 |
|
|
| 115,830 |
|
Income tax expense (benefit) |
| 9,780 |
|
|
| 10,214 |
|
|
| (3,226 | ) |
|
| 16,768 |
|
Net income (loss) | $ | 75,900 |
|
| $ | 30,427 |
|
| $ | (3,318 | ) |
| $ | 103,009 |
|
Total assets | $ | 8,092,506 |
|
| $ | 136,104 |
|
| $ | 14,576 |
|
| $ | 8,243,186 |
|
Shares | Weighted Average Grant Date Fair Value | |||||
Non-vested at December 31, 2016 | 2,364,500 | $ | 8.28 | |||
Granted | 233,791 | — | ||||
Vested | — | — | ||||
Forfeited | 4,007 | 11.38 | ||||
Non-vested at September 30, 2017 | 2,594,284 | $ | 8.79 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following presents management’s discussion and analysis of the financial condition and results of operations of Live Oak Bancshares, Inc. (the(individually, “Bancshares” and collectively with its subsidiaries including Live Oak Banking Company, the “Company” or “LOB”). This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 20162021 (the "2016 Annual Report""2021 Form 10-K"). Results of operations for the periods included in this quarterly report on Form 10-Q are not necessarily indicative of results to be obtained during any future period.
Important Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains statements that management believes are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements generally relate to the Company’s financial condition, results of operations, plans, objectives, future performance or business.business of Live Oak Bancshares, Inc. (the "Company"). They usually can be identified by the use of forward-looking terminology, such as “believes,” “expects,” or “are expected to,” “plans,” “projects,” “goals,” “estimates,” “will,” “may,” “should,” “could,” “would,” “continues,” “intends to,” “outlook” or “anticipates,” or variations of these and similar words, or by discussions of strategies that involve risks and uncertainties. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to, those described in this quarterly report on Form 10-Q.
• | deterioration in the financial condition of borrowers resulting in significant increases in the Company’s loan and lease losses and provisions for those losses and other adverse impacts to results of operations and financial condition; |
• | changes in Small Business Administration ("SBA") rules, regulations and loan products, including specifically the Section 7(a) program, changes in SBA standard operating procedures or changes to the status of Live Oak Banking Company (the "Bank") 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 (“USDA”); |
• | changes in interest rates that affect the level and composition of deposits, loan demand and the values of loan collateral, securities, and interest sensitive assets and liabilities; |
• | the failure of assumptions underlying the establishment of reserves for possible loan and lease losses; |
• | changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; |
• | the continuing 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 the Company’s business model or to develop a next-generation banking platform, including a failure in or a breach of the Company’s operational or security systems or those of its third party service providers; |
• | changes in financial market conditions, either internationally, nationally or locally in areas in which the Company conducts operations, including reductions in rates of business formation and growth, demand for the Company’s products and services, commercial and residential real estate development and prices, premiums paid in the secondary market for the sale of loans, and valuation of servicing rights; |
• | changes in accounting principles, policies, and guidelines applicable to bank holding companies and banking; |
• | fluctuations in markets for equity, fixed-income, commercial paper and other securities, which could affect availability, market liquidity levels, and pricing; |
• | the effects of competition from other commercial banks, non-bank lenders, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and mutual funds, and other financial service providers operating in the Company’s market area and elsewhere, including providers operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone and the Internet; |
• | the Company's ability to attract and retain key personnel; |
• | changes in governmental monetary and fiscal policies as well as other legislative and regulatory changes, including with respect to SBA or USDA lending programs and investment tax credits; |
• | changes in political and economic conditions; |
• | the impact of heightened regulatory scrutiny of financial products and services, primarily led by the Consumer Financial Protection Bureau and various state agencies; |
• | the Company's ability to comply with any requirements imposed on it by regulators, and the potential negative consequences that may result; |
• | operational, compliance and other factors, including conditions in local areas in which the Company conducts business such as inclement weather or a reduction in the availability of services or products for which loan proceeds will be used, that could prevent or delay closing and funding loans before they can be sold in the secondary market; |
• | the effect of any mergers, acquisitions or other transactions, to which the Company or the Bank may from time to time be a party, including management’s ability to successfully integrate any businesses acquired; |
• | adverse results, including related fees and expenses, from pending or future lawsuits, government investigations or private actions; |
• | other risk factors listed from time to time in reports that the Company files with the SEC, including those described under “Risk Factors” in this Report; and |
• | the Company’s success at managing the risks involved in the foregoing. |
Except as otherwise disclosed, forward-looking statements do not reflect: (i) the effect of any acquisitions, divestitures or similar transactions that have not been previously disclosed; (ii) any changes in laws, regulations or regulatory interpretations; or (iii) any change in current dividend or repurchase strategies, in each case after the date as of which such statements are made. All forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any statement, to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
Amounts in all tables in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) have been presented in thousands, except percentage, time period, stock option, share and per share data or where otherwise indicated.
Nature of Operations
Bancshares is a financial holding company and a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of the state of North Carolina in December 2008. The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the “Bank”). The Bank was incorporated in February 2008 as a North Carolina-chartered commercial bank. The Bank specializes in providing lending and deposit related services to small businesses nationwide in targeted industries.nationwide. The Bank identifies and growsextends lending to credit-worthy borrowers within selected industry sectors, orspecified industries, also called verticals, by leveragingthrough expertise within those industries, and more broadly to select borrowers outside of those industries. A significant portion of the loans originated by the Bank are guaranteed by the SBA under itsthe 7(a) program. In 2010,Loan Program and the U.S. Department of Agriculture’s ("USDA") Rural Energy for America Program ("REAP"), Water and Environmental Program (“WEP”) and Business & Industry ("B&I") loan programs.
The Company’s wholly owned subsidiaries include the Bank, formedGovernment Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”), Live Oak Ventures, Inc. (“Live Oak Ventures”), and Canapi Advisors, LLC (“Canapi Advisors”).
The Bank’s wholly owned subsidiaries are Live Oak Number One, Inc., a wholly-owned subsidiary, to holdLive Oak Clean Energy Financing LLC (“LOCEF”) and Live Oak Private Wealth, LLC (“Live Oak Private Wealth”). Live Oak Number One, Inc. holds properties foreclosed on by the Bank.
GLS is a management and technology consulting firm that specializesadvises and offers solutions and services to participants in the government guaranteed lending sector. GLS primarily provides services in connection with the settlement, accounting, and securitization processes for government guaranteed loans, including loans originated under the SBA 7(a) loan programprograms and U.S. DepartmentUSDA guaranteed loans. The Grove provides Company employees and business visitors an on-site restaurant location. Live Oak Ventures’ purpose is investing in businesses that align with the Company's strategic initiative to be a leader in financial technology. Canapi Advisors provides investment advisory services to a series of Agriculture ("USDA"funds (the “Canapi Funds”)-guaranteed loans; focused on providing venture capital to new and 504 Fund Advisors, LLC (“504FA”), which was formed to serve as the investment advisor to The 504 Fund, a closed-end mutual fund organized to invest in SBA section 504 loans.
The Company generates revenue primarily from thenet interest income and secondarily through origination and sale of SBA-guaranteedgovernment guaranteed loans. Income from the retention of loans and USDA guaranteed Rural Energy for America Program ("REAP") and Business & Industry ("B&I") loans andis comprised principally of interest income. Income from the sale of loans is comprised of net gains on sales of loans along with loan servicing revenue and revaluation of related servicing assets and net gains on sales of loans.assets. Offsetting these revenues are the cost of funding sources, provision for loan and lease credit losses, any costs related to foreclosed assets and other operating costs such as salaries and employee benefits, travel, professional services, advertising and marketing and tax expense.
Results of Operations
Performance Summary
Three months ended SeptemberJune 30, 20172022 compared with three months ended SeptemberJune 30, 2016
For the three months ended SeptemberJune 30, 2017,2022, the Company reported net income of $12.9$97.0 million, or $0.33$2.16 per diluted share, compared to net income of $63.6 million, or $1.41 per diluted share, for the second quarter of 2021.
The increase in net income was largely due to the following items:
• | Increase in equity method investment income of $121.3 million, largely driven by a $120.5 million gain related to the Company’s sale of its investment in Finxact, Inc. (“Finxact”); and |
• | Increase in net interest income of $8.5 million, or 11.9%, predominately from increases in both average yield and volume for the total loan and lease portfolio outpacing moderate growth in interest-bearing liabilities combined with an increase in average cost of funds. |
Key factors partially offsetting the increase in net income for the second quarter of 2022 were:
• | Decreased equity security investment gains of $42.6 million, due to the Company’s $44.1 million second quarter of 2021 fair value gain from its investment in Greenlight Financial Technologies, Inc. (“Greenlight”); |
• | Decreased net gains on sales of loans of $10.6 million, or 65.3%, combined with an increased loss on loan servicing asset revaluation of $5.5 million, or 172.5%, and a net loss on loans accounted for under the fair value option increasing by $5.6 million, or 493.0%, all principally the result of negative market pricing influenced by heightened interest rates and broader movements in market conditions in the second quarter of 2022; |
• | Increased noninterest expense of $23.3 million, or 40.5%, principally comprised of salaries and employee benefits up $13.4 million, or 40.7%, and contributions and donations up $4.8 million, or 703.9%; and |
• | Increased income tax expense of $12.7 million primarily due the above discussed increase in net income. |
Six months ended June 30, 2022 compared with six months ended June 30, 2021
For the six months ended June 30, 2022, the Company reported a net income of $131.5 million, or $2.92 per diluted share, as compared to $3.5net income of $103.0 million, or $0.10$2.29 per diluted share, for the threesix months ended SeptemberJune 30, 2016.2021. This increase in net income is primarilywas largely due to the following items:
• | Increase in equity method investment income of $120.4 million due to the above mentioned second quarter 2022 Finxact gain of $120.5 million; and |
• | Increase in net interest income of $16.3 million, or 11.5%, predominately from increases in both average yield and volume for the total loan and lease portfolio outpacing moderate growth in interest-bearing liabilities combined with a decrease in average cost of funds. |
Key factors partially offsetting the above factors that contributed to increased levels of net income was a $3.7 million decrease in the net gains on sales of loans, $1.6 million increase in salaries and employee benefits, $1.6 million in equipment expense and $1.5 million in other expenses. The increase in salaries and employee benefits and other expenses were influenced by the growth of the overall business, including the addition of the title insurance subsidiary in the first quarter of 2017, compared to the same period of 2016. Equipment expense increased principally due to higher levels of depreciation related to aircraft acquired in the first quarter of 2017 and solar panels purchased for the renewable energy leasing initiative.
• | Decreased equity security investment gains of $42.7 million, due to the above mentioned second quarter of 2021 fair value gain of $44.1 million in Greenlight; |
• | Increased loss on loan servicing asset revaluation of $8.5 million, or 506.5%, and a net loss on loans accounted for under the fair value option increasing by $9.3 million, or 173.7%, also principally the result of negative market pricing market conditions referenced above; |
• | Increased noninterest expense of $30.8 million, or 26.6%, principally comprised of salaries and employee benefits up $20.5 million, or 31.9%, travel expense up $2.0 million, or 92.7%, advertising and marketing expense up $2.5 million, or 163.9% and contributions and donations up $4.8 million, or 321.5%; all partially offset by decreased impairment charges of $3.1 million related to renewable energy tax credits during the three months ended March 31, 2021; and |
• | Increased income tax expense of $16.9 million primarily due the above discussed increase in net income. |
Net Interest Income and Margin
Net interest income represents the difference between the income that the Company earns on interest-earning assets and the cost of interest-bearing liabilities. The Company’s net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates that the Company earns or pays on them.them, respectively. Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “rate changes.” WithoutAs a bank without a branch network, the Bank generatesgathers deposits over the Internet and in the community in which it is headquartered. Due to the nature of a branchless bank and the relatively low overhead required for deposit gathering, the rates that the Bank offers are generally above the industry average.
Three months ended SeptemberJune 30, 20172022 compared with three months ended SeptemberJune 30, 2016
For the three months ended SeptemberJune 30, 2017,2022, net interest income increased $9.4$8.5 million, or 80.8%11.9%, to $21.0$79.9 million compared to $11.6$71.5 million for the three months ended SeptemberJune 30, 2016.2021. This increase was principally due to the significant growth in both average interest earning assetsyield and to a lesser extent higher yields on these assets which outpacedvolume for the total loan and lease portfolio outpacing moderate growth and change in theinterest-bearing liabilities combined with an increase in average cost of funds.This increase over the prior year was significantly higher when excluding the effects of declining levels of Paycheck Protection Program (“PPP”) loan net interest bearing liabilities.income for the compared period, which has been declining over time as PPP loans are paid down. Excluding PPP loan impacts of $1.2 million, comprised of amortization of net deferred fees combined with a 1% annualized interest rate less the related interest expense from funding activity, net interest income increased by $20.1 million. Average interest earninginterest-earning assets increased by $746.9$356.8 million, or 53.8%4.5%, to $2.13$8.25 billion for the three months ended SeptemberJune 30, 2017,2022, compared to $1.39$7.89 billion for the three months ended SeptemberJune 30, 2016,2021, while the yield on average interest earninginterest-earning assets rose sharply by seventy-nineincreased thirty-five basis points to 5.24%4.83%. The cost of funds on interest bearinginterest-bearing liabilities for the three months ended SeptemberJune 30, 20172022, increased twentythirteen basis points to 1.43%, and0.99% while the average balance of interest bearinginterest-bearing liabilities increased by $717.1$120.6 million, or 56.6%1.6%, over the same period.three months ended June 30, 2021. The increase in average interest-bearing liabilities was largely driven by funding for significant loan originations and growth. This increase was muted by a $1.24 billion reduction in average borrowings largely related to PPPLF repayments since June 30, 2021. As indicated in the rate/volume table below, the overall increase in interest bearing liabilities and corresponding cost of funds was outpaced by the positive effects of the increased volume of interest earning assets along with much higher yields, resultingdiscussed above is reflected in increased interest income of $12.6$11.2 million and increasedoutpacing growth in interest expense of $3.2$2.8 million for the second quarter of 2022 compared to the second quarter of 2021. For the three months ended SeptemberJune 30, 20172021 compared to the three months ended SeptemberJune 30, 2016. For the three months ended September 30, 2017 compared to the three months ended September 30, 2016,2022, net interest margin increased sharply from 3.32%3.63% to 3.91% due3.89%. As of June 30, 2022, the Company had $61.4 million in PPP loan balances on its books which includes $1.6 million in net deferred fees remaining to be recognized into future interest income. The Company expects to recognize most of the aforementioned effects.
Six months ended SeptemberJune 30, 20172022 compared with ninesix months ended SeptemberJune 30, 2016
For the ninesix months ended SeptemberJune 30, 2017,2022, net interest income increased $24.8$16.3 million, or 82.0%11.5%, to $55.1$157.7 million compared to $30.3$141.4 million for the ninesix months ended SeptemberJune 30, 2016. 2021. This increase was also principally due to the significant growth in both average interest earning assetsyield and tovolume for the total loan and lease portfolio outpacing growth in interest-bearing liabilities combined with a lesser extent higher yields on these assets outpacing the growth and changedecrease in theaverage cost of funds.This increase over the prior year was significantly higher when excluding the effects of declining levels of PPP loan net interest bearing liabilities.income for the compared period. Excluding PPP loan impacts of $5.3 million as defined above, net interest income increased by $42.7 million. Average interest earninginterest-earning assets increased by $702.0$384.1 million, or 58.4%5.0%, to $1.90$8.05 billion for the ninesix months ended SeptemberJune 30, 20172022, compared to $1.20$7.67 billion for the ninesix months ended SeptemberJune 30, 2016,2021, while the yield on average interest earninginterest-earning assets increased by sixty-fourseventeen basis points to 5.12%4.81%. The cost of funds on interest bearinginterest-bearing liabilities for the ninesix months ended SeptemberJune 30, 2017 increased by eleven2022, decreased four basis points to 1.34%, and0.90% while the average balance of interest bearinginterest-bearing liabilities increased by $688.0$169.0 million, or 63.13%2.3%, duringover the same period.six months ended June 30, 2021. The increase in average interest-bearing liabilities was also largely driven by funding for significant loan originations and growth. This increase was muted by a $1.20 billion reduction in average borrowings largely related to PPPLF repayments since June 30, 2021. As indicated in the rate/volume table below, the overall increase in interest bearing liabilities and corresponding cost of funds was outpaced by the positive effects of the increased volume of interest earning assets along with much higher yields, resultingdiscussed above is reflected in increased interest income of $32.6$15.8 million and increasedas compared to a decrease in interest expense of $7.8 million$496 thousand for the ninesix months ended SeptemberJune 30, 2017. For the nine months ended September 30, 20172022 compared to the ninesix months ended SeptemberJune 30, 2016,2021. For the six months ended June 30, 2021 compared to the six months ended June 30, 2022, net interest margin increased sharply from 3.36%3.72% to 3.87% due3.95%.
During the first half of 2022, the Federal Reserve increased the federal funds target rate by 150 basis points. Subsequently on July 27, 2022 the Federal Reserve further increased the target federal funds rate by 75 basis points and indicates that it anticipates ongoing increases will be appropriate. There can be no assurance that any increases in the federal funds rate will occur, and if they do, the amount and timing of actual increases are subject to change. See Item 3. Quantitative and Qualitative Disclosures About Market Risk for information about the aforementioned effects.
Average Balances and Yields.
The following table presents information regarding average balances for assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amount of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the income or expense by the average balances for assets or liabilities, respectively, for the periods presented and annualizing that result. Loan fees are included in interest income on loans.
|
| Three Months Ended June 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| Average Balance |
|
| Interest |
|
| Average Yield/Rate |
|
| Average Balance |
|
| Interest |
|
| Average Yield/Rate |
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning balances in other banks |
| $ | 328,014 |
|
| $ | 848 |
|
|
| 1.04 | % |
| $ | 514,232 |
|
| $ | 234 |
|
|
| 0.18 | % |
Federal funds sold |
|
| 78,216 |
|
|
| 196 |
|
|
| 1.01 |
|
|
| 29,199 |
|
|
| 10 |
|
|
| 0.14 |
|
Investment securities |
|
| 915,106 |
|
|
| 4,046 |
|
|
| 1.77 |
|
|
| 764,017 |
|
|
| 2,975 |
|
|
| 1.56 |
|
Loans held for sale |
|
| 1,119,094 |
|
|
| 15,969 |
|
|
| 5.72 |
|
|
| 1,134,259 |
|
|
| 15,216 |
|
|
| 5.38 |
|
Loans and leases held for investment(1) |
|
| 5,805,907 |
|
|
| 78,188 |
|
|
| 5.40 |
|
|
| 5,447,839 |
|
|
| 69,564 |
|
|
| 5.12 |
|
Total interest-earning assets |
|
| 8,246,337 |
|
|
| 99,247 |
|
|
| 4.83 |
|
|
| 7,889,546 |
|
|
| 87,999 |
|
|
| 4.47 |
|
Less: Allowance for credit losses on loans and leases |
|
| (62,566 | ) |
|
|
|
|
|
|
|
|
|
| (51,994 | ) |
|
|
|
|
|
|
|
|
Noninterest-earning assets |
|
| 644,495 |
|
|
|
|
|
|
|
|
|
|
| 623,895 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 8,828,266 |
|
|
|
|
|
|
|
|
|
| $ | 8,461,447 |
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking |
| $ | — |
|
| $ | — |
|
|
| — | % |
| $ | 60,439 |
|
| $ | 86 |
|
|
| 0.57 | % |
Savings |
|
| 3,894,177 |
|
|
| 7,538 |
|
|
| 0.78 |
|
|
| 3,101,733 |
|
|
| 4,309 |
|
|
| 0.56 |
|
Money market accounts |
|
| 93,072 |
|
|
| 56 |
|
|
| 0.24 |
|
|
| 104,826 |
|
|
| 82 |
|
|
| 0.31 |
|
Certificates of deposit |
|
| 3,714,882 |
|
|
| 11,183 |
|
|
| 1.21 |
|
|
| 3,078,789 |
|
|
| 10,343 |
|
|
| 1.35 |
|
Total deposits |
|
| 7,702,131 |
|
|
| 18,777 |
|
|
| 0.98 |
|
|
| 6,345,787 |
|
|
| 14,820 |
|
|
| 0.94 |
|
Borrowings |
|
| 132,969 |
|
|
| 536 |
|
|
| 1.62 |
|
|
| 1,368,742 |
|
|
| 1,717 |
|
|
| 0.50 |
|
Total interest-bearing liabilities |
|
| 7,835,100 |
|
|
| 19,313 |
|
|
| 0.99 |
|
|
| 7,714,529 |
|
|
| 16,537 |
|
|
| 0.86 |
|
Noninterest-bearing deposits |
|
| 96,123 |
|
|
|
|
|
|
|
|
|
|
| 85,824 |
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities |
|
| 55,725 |
|
|
|
|
|
|
|
|
|
|
| 45,309 |
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
| 841,318 |
|
|
|
|
|
|
|
|
|
|
| 615,785 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ | 8,828,266 |
|
|
|
|
|
|
|
|
|
| $ | 8,461,447 |
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread |
|
|
|
|
| $ | 79,934 |
|
|
| 3.84 | % |
|
|
|
|
| $ | 71,462 |
|
|
| 3.61 | % |
Net interest margin |
|
|
|
|
|
|
|
|
|
| 3.89 | % |
|
|
|
|
|
|
|
|
|
| 3.63 | % |
Ratio of average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
| 105.25 | % |
|
|
|
|
|
|
|
|
|
| 102.27 | % |
Three months ended September 30, | ||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||
Average Balance | Interest | Average Yield/Rate | Average Balance | Interest | Average Yield/Rate | |||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||
Interest earning balances in other banks | $ | 292,066 | $ | 870 | 1.18 | % | $ | 231,238 | $ | 264 | 0.45 | % | ||||||||||
Investment securities | 73,312 | 325 | 1.76 | 69,869 | 337 | 1.91 | ||||||||||||||||
Loans held for sale | 653,342 | 9,922 | 6.03 | 358,867 | 4,996 | 5.52 | ||||||||||||||||
Loans and leases held for investment (1) | 1,116,209 | 17,055 | 6.06 | 728,041 | 9,965 | 5.43 | ||||||||||||||||
Total interest earning assets | 2,134,929 | 28,172 | 5.24 | 1,388,015 | 15,562 | 4.45 | ||||||||||||||||
Less: allowance for loan and lease losses | (19,544 | ) | (12,188 | ) | ||||||||||||||||||
Non-interest earning assets | 242,014 | 146,159 | ||||||||||||||||||||
Total assets | $ | 2,357,399 | $ | 1,521,986 | ||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||
Interest bearing checking | $ | 35,127 | $ | 51 | 0.58 | % | $ | — | $ | — | — | % | ||||||||||
Savings | 196,220 | 682 | 1.38 | — | — | — | ||||||||||||||||
Money market accounts | 453,985 | 1,303 | 1.14 | 471,447 | 866 | 0.73 | ||||||||||||||||
Certificates of deposit | 1,257,072 | 4,722 | 1.49 | 767,887 | 2,823 | 1.46 | ||||||||||||||||
Total deposits | 1,942,404 | 6,758 | 1.38 | 1,239,334 | 3,689 | 1.18 | ||||||||||||||||
Other borrowings | 42,219 | 389 | 3.66 | 28,172 | 242 | 3.41 | ||||||||||||||||
Total interest bearing liabilities | 1,984,623 | 7,147 | 1.43 | 1,267,506 | 3,931 | 1.23 | ||||||||||||||||
Non-interest bearing deposits | 43,652 | 20,742 | ||||||||||||||||||||
Non-interest bearing liabilities | 22,650 | 20,807 | ||||||||||||||||||||
Shareholders' equity | 306,474 | 212,914 | ||||||||||||||||||||
Noncontrolling interest | — | 17 | ||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 2,357,399 | $ | 1,521,986 | ||||||||||||||||||
Net interest income and interest rate spread | $ | 21,025 | 3.81 | % | $ | 11,631 | 3.22 | % | ||||||||||||||
Net interest margin | 3.91 | 3.32 | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 107.57 | % | 109.51 | % |
(1) | |
Average loan and lease balances include non-accruing |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| Average Balance |
|
| Interest |
|
| Average Yield/Rate |
|
| Average Balance |
|
| Interest |
|
| Average Yield/Rate |
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning balances in other banks |
| $ | 276,114 |
|
| $ | 1,027 |
|
|
| 0.75 | % |
| $ | 423,252 |
|
| $ | 531 |
|
|
| 0.25 | % |
Federal funds sold |
|
| 43,897 |
|
|
| 202 |
|
|
| 0.93 |
|
|
| 28,703 |
|
|
| 16 |
|
|
| 0.11 |
|
Investment securities |
|
| 905,403 |
|
|
| 7,445 |
|
|
| 1.66 |
|
|
| 750,164 |
|
|
| 5,904 |
|
|
| 1.59 |
|
Loans held for sale |
|
| 1,117,360 |
|
|
| 31,152 |
|
|
| 5.62 |
|
|
| 1,152,667 |
|
|
| 30,293 |
|
|
| 5.30 |
|
Loans and leases held for investment(1) |
|
| 5,708,084 |
|
|
| 152,203 |
|
|
| 5.38 |
|
|
| 5,311,939 |
|
|
| 139,480 |
|
|
| 5.30 |
|
Total interest-earning assets |
|
| 8,050,858 |
|
|
| 192,029 |
|
|
| 4.81 |
|
|
| 7,666,725 |
|
|
| 176,224 |
|
|
| 4.64 |
|
Less: Allowance for credit losses on loans and leases |
|
| (62,649 | ) |
|
|
|
|
|
|
|
|
|
| (52,155 | ) |
|
|
|
|
|
|
|
|
Noninterest-earning assets |
|
| 616,486 |
|
|
|
|
|
|
|
|
|
|
| 608,923 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 8,604,695 |
|
|
|
|
|
|
|
|
|
| $ | 8,223,493 |
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking |
| $ | — |
|
| $ | — |
|
|
| — | % |
| $ | 154,698 |
|
| $ | 442 |
|
|
| 0.58 | % |
Savings |
|
| 3,750,838 |
|
|
| 12,378 |
|
|
| 0.67 |
|
|
| 2,731,224 |
|
|
| 7,821 |
|
|
| 0.58 |
|
Money market accounts |
|
| 92,272 |
|
|
| 110 |
|
|
| 0.24 |
|
|
| 105,289 |
|
|
| 165 |
|
|
| 0.32 |
|
Certificates of deposit |
|
| 3,633,547 |
|
|
| 20,637 |
|
|
| 1.15 |
|
|
| 3,114,979 |
|
|
| 23,336 |
|
|
| 1.51 |
|
Total deposits |
|
| 7,476,657 |
|
|
| 33,125 |
|
|
| 0.89 |
|
|
| 6,106,190 |
|
|
| 31,764 |
|
|
| 1.05 |
|
Borrowings |
|
| 197,369 |
|
|
| 1,191 |
|
|
| 1.22 |
|
|
| 1,398,793 |
|
|
| 3,048 |
|
|
| 0.44 |
|
Total interest-bearing liabilities |
|
| 7,674,026 |
|
|
| 34,316 |
|
|
| 0.90 |
|
|
| 7,504,983 |
|
|
| 34,812 |
|
|
| 0.94 |
|
Noninterest-bearing deposits |
|
| 91,373 |
|
|
|
|
|
|
|
|
|
|
| 83,336 |
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities |
|
| 53,841 |
|
|
|
|
|
|
|
|
|
|
| 33,649 |
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
| 785,455 |
|
|
|
|
|
|
|
|
|
|
| 601,525 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ | 8,604,695 |
|
|
|
|
|
|
|
|
|
| $ | 8,223,493 |
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread |
|
|
|
|
| $ | 157,713 |
|
|
| 3.91 | % |
|
|
|
|
| $ | 141,412 |
|
|
| 3.70 | % |
Net interest margin |
|
|
|
|
|
|
|
|
|
| 3.95 | % |
|
|
|
|
|
|
|
|
|
| 3.72 | % |
Ratio of average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
| 104.91 | % |
|
|
|
|
|
|
|
|
|
| 102.16 | % |
Nine months ended September 30, | ||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||
Average Balance | Interest | Average Yield/Rate | Average Balance | Interest | Average Yield/Rate | |||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||
Interest earning balances in other banks | $ | 229,074 | $ | 1,682 | 0.98 | % | $ | 189,944 | $ | 650 | 0.46 | % | ||||||||||
Investment securities | 71,319 | 964 | 1.81 | 60,057 | 840 | 1.86 | ||||||||||||||||
Loans held for sale | 561,408 | 24,679 | 5.88 | 428,316 | 17,666 | 5.49 | ||||||||||||||||
Loans and leases held for investment(1) | 1,041,265 | 45,611 | 5.86 | 522,757 | 21,202 | 5.40 | ||||||||||||||||
Total interest earning assets | 1,903,066 | 72,936 | 5.12 | 1,201,074 | 40,358 | 4.48 | ||||||||||||||||
Less: allowance for loan and lease losses | (18,652 | ) | (9,463 | ) | ||||||||||||||||||
Non-interest earning assets | 206,653 | 143,876 | ||||||||||||||||||||
Total assets | $ | 2,091,067 | $ | 1,335,487 | ||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||
Interest bearing checking | $ | 39,973 | $ | 173 | 0.58 | % | $ | — | $ | — | — | % | ||||||||||
Savings | 67,395 | 693 | 1.37 | — | — | — | ||||||||||||||||
Money market accounts | 469,505 | 3,365 | 0.96 | 423,923 | 2,384 | 0.75 | ||||||||||||||||
Certificates of deposit | 1,163,081 | 12,662 | 1.46 | 637,469 | 6,992 | 1.46 | ||||||||||||||||
Total deposits | 1,739,954 | 16,893 | 1.30 | 1,061,392 | 9,376 | 1.18 | ||||||||||||||||
Other borrowings | 37,736 | 985 | 3.49 | 28,345 | 725 | 3.41 | ||||||||||||||||
Total interest bearing liabilities | 1,777,690 | 17,878 | 1.34 | 1,089,737 | 10,101 | 1.23 | ||||||||||||||||
Non-interest bearing deposits | 35,073 | 19,314 | ||||||||||||||||||||
Non-interest bearing liabilities | 22,288 | 19,444 | ||||||||||||||||||||
Shareholders’ equity | 256,016 | 206,967 | ||||||||||||||||||||
Noncontrolling interest | — | 25 | ||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 2,091,067 | $ | 1,335,487 | ||||||||||||||||||
Net interest income and interest rate spread | $ | 55,058 | 3.78 | % | $ | 30,257 | 3.25 | % | ||||||||||||||
Net interest margin | 3.87 | 3.36 | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 107.05 | % | 110.22 | % |
(1) | |
Average loan and lease balances include non-accruing |
Rate/Volume Analysis.
The following table sets forth the effects of changing rates and volumes on net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, increases or decreases attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
|
| 2022 vs. 2021 |
|
| 2022 vs. 2021 |
| ||||||||||||||||||
|
| Increase (Decrease) Due to |
|
| Increase (Decrease) Due to |
| ||||||||||||||||||
|
| Rate |
|
| Volume |
|
| Total |
|
| Rate |
|
| Volume |
|
| Total |
| ||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning balances in other banks |
| $ | 897 |
|
| $ | (283 | ) |
| $ | 614 |
|
| $ | 862 |
|
| $ | (366 | ) |
| $ | 496 |
|
Federal funds sold |
|
| 116 |
|
|
| 70 |
|
|
| 186 |
|
|
| 147 |
|
|
| 39 |
|
|
| 186 |
|
Investment securities |
|
| 443 |
|
|
| 628 |
|
|
| 1,071 |
|
|
| 292 |
|
|
| 1,249 |
|
|
| 1,541 |
|
Loans held for sale |
|
| 963 |
|
|
| (210 | ) |
|
| 753 |
|
|
| 1,815 |
|
|
| (956 | ) |
|
| 859 |
|
Loans and leases held for investment |
|
| 3,927 |
|
|
| 4,697 |
|
|
| 8,624 |
|
|
| 2,241 |
|
|
| 10,482 |
|
|
| 12,723 |
|
Total interest income |
|
| 6,346 |
|
|
| 4,902 |
|
|
| 11,248 |
|
|
| 5,357 |
|
|
| 10,448 |
|
|
| 15,805 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking |
|
| — |
|
|
| (86 | ) |
|
| (86 | ) |
|
| — |
|
|
| (442 | ) |
|
| (442 | ) |
Savings |
|
| 1,912 |
|
|
| 1,317 |
|
|
| 3,229 |
|
|
| 1,415 |
|
|
| 3,142 |
|
|
| 4,557 |
|
Money market accounts |
|
| (18 | ) |
|
| (8 | ) |
|
| (26 | ) |
|
| (37 | ) |
|
| (18 | ) |
|
| (55 | ) |
Certificates of deposit |
|
| (1,186 | ) |
|
| 2,026 |
|
|
| 840 |
|
|
| (6,114 | ) |
|
| 3,415 |
|
|
| (2,699 | ) |
Borrowings |
|
| 2,085 |
|
|
| (3,266 | ) |
|
| (1,181 | ) |
|
| 3,077 |
|
|
| (4,934 | ) |
|
| (1,857 | ) |
Total interest expense |
|
| 2,793 |
|
|
| (17 | ) |
|
| 2,776 |
|
|
| (1,659 | ) |
|
| 1,163 |
|
|
| (496 | ) |
Net interest income |
| $ | 3,553 |
|
| $ | 4,919 |
|
| $ | 8,472 |
|
| $ | 7,016 |
|
| $ | 9,285 |
|
| $ | 16,301 |
|
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
2017 vs. 2016 | 2017 vs. 2016 | ||||||||||||||||||||||
Increase (Decrease) Due to | Increase (Decrease) Due to | ||||||||||||||||||||||
Rate | Volume | Total | Rate | Volume | Total | ||||||||||||||||||
Interest income: | |||||||||||||||||||||||
Interest earning balances in other banks | $ | 481 | $ | 125 | $ | 606 | $ | 821 | $ | 211 | $ | 1,032 | |||||||||||
Investment securities | (28 | ) | 16 | (12 | ) | (31 | ) | 155 | 124 | ||||||||||||||
Loans held for sale | 640 | 4,286 | 4,926 | 1,343 | 5,670 | 7,013 | |||||||||||||||||
Loans and leases held for investment | 1,468 | 5,622 | 7,090 | 2,538 | 21,871 | 24,409 | |||||||||||||||||
Total interest income | 2,561 | 10,049 | 12,610 | 4,671 | 27,907 | 32,578 | |||||||||||||||||
Interest expense: | |||||||||||||||||||||||
Interest bearing checking | — | 51 | 51 | — | 173 | 173 | |||||||||||||||||
Savings | — | 682 | 682 | — | 693 | 693 | |||||||||||||||||
Money market accounts | 478 | (41 | ) | 437 | 689 | 292 | 981 | ||||||||||||||||
Certificates of deposit | 81 | 1,818 | 1,899 | (74 | ) | 5,744 | 5,670 | ||||||||||||||||
Other borrowings | 22 | 125 | 147 | 26 | 234 | 260 | |||||||||||||||||
Total interest expense | 581 | 2,635 | 3,216 | 641 | 7,136 | 7,777 | |||||||||||||||||
Net interest income | $ | 1,980 | $ | 7,414 | $ | 9,394 | $ | 4,030 | $ | 20,771 | $ | 24,801 |
Provision for Loan and Lease Credit Losses
The provision for loan and lease credit losses represents the amount necessary to be charged against the current period’s earnings to maintain the allowance for loanACL on loans and lease lossesleases at a level that the Company believes is appropriate in relation to the estimated losses inherent in the loan and lease portfolio. A number of factors are considered in determining the required level of loan and lease loss reserves and the provision required to achieve the appropriate reserve level, including loan and lease growth, credit risk rating trends, nonperforming loan and lease levels, delinquencies, loan and lease portfolio concentrations and economic and market trends.
Losses inherent in loan relationships are mitigated if a portion of the loan is guaranteed by the SBA or USDA. A typicalTypical SBA 7(a) loan carries a 75% guarantee whileand USDA guarantees range from 60%50% to 80%90% depending on loan size and type, which reducesserve to reduce the risk profile of these loans. The Company believes that its focus on compliance with regulations and guidance from the SBA and USDA are key factors to managing this risk.
For the second quarter of 2022, there was a provision for loan and lease credit losses of $5.3 million compared to $7.8 million for the same period in 2021, a decrease of $2.6 million. For the first six months of 2022, there was a provision for loan and lease credit losses of $7.1 million compared to $7.0 million for the same period in 2021, an increase of $130 thousand. The decrease in provision expense as compared to the second quarter of 2021 and nominal change from the first half of 2021 was primarily the result of significant improvement in forecasts related to employment and default expectations within industries previously impacted by COVID-19 which have continued to improve significantly over that experienced in 2021.
Loans and leases held for investment at historical cost were $5.33 billion as of June 30, 2022, increasing by $631.4 million, or 13.4%, compared to June 30, 2021. Excluding PPP loans and net unearned fees on those loans, the balance in loans and leases held for investment at historical cost was $5.27 billion at June 30, 2022, an increase of $1.50 billion, or 39.7%, over June 30, 2021.
Net charge-offs for loans and leases carried at historical cost were $2.5 million, or 0.19% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended June 30, 2022, compared to net charge-offs of $2.4 million, or 0.21%, for the three months ended June 30, 2021. For the six months ended June 30, 2022, net charge-offs totaled $4.8 million compared to $1.4 million for the six months ended June 30, 2021, an increase of $3.4 million, or 237.1%. The increase in net charge-offs for the first half of 2022 was principally related to the expiration of government subsidies and the return to expected losses consistent with pre-covid historical experience. Net charge-offs are a key element of historical experience in the Company's estimation of the allowance for credit losses on loans and leases.
In addition, nonperforming loans and leases not guaranteed by the SBA or USDA, excluding $3.6 million and $5.5 million accounted for under the fair value option at June 30, 2022 and 2021, respectively, totaled $12.0 million, which was 0.22% of the held for investment loan and lease portfolio carried at historical cost at June 30, 2022, compared to $22.5 million, or 0.48% of loans and leases held for investment carried at historical cost at June 30, 2021. Nonperforming loans and leases carried at historical cost which are not guaranteed by the SBA or USDA were 0.23% and 0.60% of the historical cost portion of the held for investment loan and lease portfolio, excluding PPP loans, at June 30, 2022 and 2021, respectively.
Noninterest Income
Noninterest income is principally comprised of net gains from the sale of SBA and USDA-guaranteed loans along with loan servicing revenue and revaluation.related revaluation of the servicing asset. Revenue from the sale of loans depends upon the volume, maturity structure and rates of underlying loans as well as the pricing and availability of funds in the secondary markets prevailing in the period between completed loan funding and closing of sale. In addition, the loan servicing revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates. Net (loss) gain on loans accounted for under the fair value option is also significantly impacted by changes in market rates, prepayment speeds and inherent credit risk. Other less commonconsistent elements of noninterest income include nonrecurring gains and losses on investments.
The following table shows the components of noninterest income and the dollar and percentage changes for the periods presented.
|
| Three Months Ended June 30, |
|
| 2022/2021 Increase (Decrease) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
|
| Percent |
| ||||
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
| $ | 6,477 |
|
| $ | 6,218 |
|
| $ | 259 |
|
|
| 4.17 | % |
Loan servicing asset revaluation |
|
| (8,668 | ) |
|
| (3,181 | ) |
|
| (5,487 | ) |
|
| (172.49 | ) |
Net gains on sales of loans |
|
| 5,630 |
|
|
| 16,234 |
|
|
| (10,604 | ) |
|
| (65.32 | ) |
Net (loss) gain on loans accounted for under the fair value option |
|
| (4,461 | ) |
|
| 1,135 |
|
|
| (5,596 | ) |
|
| (493.04 | ) |
Equity method investments income (loss) |
|
| 119,056 |
|
|
| (2,278 | ) |
|
| 121,334 |
|
|
| 5,326.34 |
|
Equity security investments gains (losses), net |
|
| 1,655 |
|
|
| 44,253 |
|
|
| (42,598 | ) |
|
| (96.26 | ) |
Lease income |
|
| 2,510 |
|
|
| 2,616 |
|
|
| (106 | ) |
|
| (4.05 | ) |
Management fee income |
|
| 2,558 |
|
|
| 1,473 |
|
|
| 1,085 |
|
|
| 73.66 |
|
Other noninterest income |
|
| 3,772 |
|
|
| 3,641 |
|
|
| 131 |
|
|
| 3.60 |
|
Total noninterest income |
| $ | 128,529 |
|
| $ | 70,111 |
|
| $ | 58,418 |
|
|
| 83.32 | % |
|
| Six Months Ended June 30, |
|
| 2022/2021 Increase (Decrease) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
|
| Percent |
| ||||
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
| $ | 12,833 |
|
| $ | 12,652 |
|
| $ | 181 |
|
|
| 1.43 | % |
Loan servicing asset revaluation |
|
| (10,237 | ) |
|
| (1,688 | ) |
|
| (8,549 | ) |
|
| (506.46 | ) |
Net gains on sales of loans |
|
| 26,607 |
|
|
| 28,163 |
|
|
| (1,556 | ) |
|
| (5.52 | ) |
Net (loss) gain on loans accounted for under the fair value option |
|
| (3,945 | ) |
|
| 5,353 |
|
|
| (9,298 | ) |
|
| (173.70 | ) |
Equity method investments income (loss) |
|
| 116,932 |
|
|
| (3,435 | ) |
|
| 120,367 |
|
|
| 3,504.13 |
|
Equity security investments gains (losses), net |
|
| 1,611 |
|
|
| 44,358 |
|
|
| (42,747 | ) |
|
| (96.37 | ) |
Lease income |
|
| 5,013 |
|
|
| 5,215 |
|
|
| (202 | ) |
|
| (3.87 | ) |
Management fee income |
|
| 4,046 |
|
|
| 3,407 |
|
|
| 639 |
|
|
| 18.76 |
|
Other noninterest income |
|
| 8,337 |
|
|
| 7,143 |
|
|
| 1,194 |
|
|
| 16.72 |
|
Total noninterest income |
| $ | 161,197 |
|
| $ | 101,168 |
|
| $ | 60,029 |
|
|
| 59.34 | % |
Three Months Ended September 30, | Increase (Decrease) | |||||||||||||
2017 | 2016 | Amount | Percent | |||||||||||
Noninterest income | ||||||||||||||
Loan servicing revenue | $ | 6,490 | $ | 5,860 | $ | 630 | 10.75 | % | ||||||
Loan servicing asset revaluation | (3,691 | ) | (3,421 | ) | (270 | ) | 7.89 | |||||||
Net gains on sales of loans | 18,148 | 21,833 | (3,685 | ) | (16.88 | ) | ||||||||
Gain on sale of securities available-for-sale | — | 1 | (1 | ) | (100.00 | ) | ||||||||
Construction supervision fee income | 362 | 502 | (140 | ) | (27.89 | ) | ||||||||
Title insurance income | 1,968 | — | 1,968 | 100.00 | ||||||||||
Other noninterest income | 1,783 | 657 | 1,126 | 171.39 | ||||||||||
Total noninterest income | $ | 25,060 | $ | 25,432 | $ | (372 | ) | (1.46 | )% |
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||
2017 | 2016 | Amount | Percent | |||||||||||
Noninterest income | ||||||||||||||
Loan servicing revenue | $ | 18,587 | $ | 15,725 | $ | 2,862 | 18.20 | % | ||||||
Loan servicing asset revaluation | (6,864 | ) | (5,051 | ) | (1,813 | ) | 35.89 | |||||||
Net gains on sales of loans | 55,276 | 52,813 | 2,463 | 4.66 | ||||||||||
Gain on sale of investment securities available-for-sale | — | 1 | (1 | ) | (100.00 | ) | ||||||||
Construction supervision fee income | 1,077 | 1,799 | (722 | ) | (40.13 | ) | ||||||||
Title insurance income | 5,803 | — | 5,803 | 100.00 | ||||||||||
Other noninterest income | 3,601 | 1,925 | 1,676 | 87.06 | ||||||||||
Total noninterest income | $ | 77,480 | $ | 67,212 | $ | 10,268 | 15.28 | % |
For the three months ended SeptemberJune 30, 2017,2022, noninterest income decreasedincreased by $372 thousand,$58.4 million, or 1.5%83.3%, compared to the three months ended SeptemberJune 30, 2016.2021. The decline fromincrease over the prior year is primarily the result of the $120.5 million Finxact gain. Partially offsetting the increase over the prior year was decreased equity security investment gains of $42.6 million, due to the second quarter of 2021 gain arising from Company’s investment in Greenlight, combined with decreased net gains on sales of loans decreasing $3.7of $10.6 million, to $18.1increased loss on loan servicing asset revaluation of $5.5 million, in the third quarter of 2017 compared to $21.8 million in the third quarter of 2016 as a function of reduced volume of guaranteed loans sales, which was partially offset by an improvement in the average net gain on sale of guaranteed loans. Partially offsetting the effects of lower gains on sales of loans were increased servicing revenue of $630 thousand, title insurance income of $2.0 million from the acquisition of a nationwide title insurance business on February 1, 2017 and increased other noninterest incomenet loss on loans accounted for under the fair value option of $1.1$5.6 million. The increase in other noninterest income was primarily comprised of $682 thousand of operating lease income from renewable energy assets and trust management income of $236 thousand.
For the ninesix months ended SeptemberJune 30, 2017,2022, noninterest income increased by $10.3$60.0 million, or 15.3%59.3%, compared to the ninesix months ended SeptemberJune 30, 2016. Increases in noninterest income were primarily2021. The increase over the first half of 2021 is also the result of higher year-to-date levelsthe above mentioned Finxact gain partially offset by a decrease in equity security investment gains of $42.7 million related to Greenlight. Also partially offsetting the servicedincrease over the first half of 2021 was an increased loss on loan portfolioservicing asset revaluation of $8.5 million, and the volume of loans sold in the secondary market which generated $2.9 million of increased servicing revenue and $2.5 million ofan increased net gainsloss on saleloans accounted for under the fair value option of loans. Also driving increased levels of noninterest income was $5.8 million in title insurance revenue from the acquisition of a nationwide title insurance business in early 2017 and increased other
The following table reflects loan and lease production, sales of guaranteed loans and the aggregate balance in guaranteed loans sold. These components are key drivers of the Company's noninterest income.
|
| Three months ended June 30, |
|
| Three months ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Amount of loans and leases originated |
| $ | 959,635 |
|
| $ | 1,153,693 |
|
| $ | 865,063 |
|
| $ | 1,180,219 |
|
Guaranteed portions of loans sold |
|
| 68,818 |
|
|
| 130,858 |
|
|
| 219,703 |
|
|
| 136,747 |
|
Outstanding balance of guaranteed loans sold (1) |
|
| 2,681,079 |
|
|
| 2,694,931 |
|
|
| 2,786,403 |
|
|
| 2,843,963 |
|
|
| Six Months Ended June 30, |
|
| For years ended December 31, |
| ||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Amount of loans and leases originated |
| $ | 1,824,698 |
|
| $ | 2,333,912 |
|
| $ | 4,480,725 |
|
| $ | 4,450,198 |
|
| $ | 2,001,886 |
|
| $ | 1,765,680 |
|
Guaranteed portions of loans sold |
|
| 288,521 |
|
|
| 267,605 |
|
|
| 668,462 |
|
|
| 542,596 |
|
|
| 340,374 |
|
|
| 945,178 |
|
Outstanding balance of guaranteed loans sold (1) |
|
| 2,681,079 |
|
|
| 2,694,931 |
|
|
| 2,756,915 |
|
|
| 2,819,625 |
|
|
| 2,746,480 |
|
|
| 3,045,460 |
|
Three months ended September 30, | Three months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Amount of loans and leases originated | $ | 395,682 | $ | 381,050 | $ | 586,471 | $ | 356,865 | |||||||
Guaranteed portions of loans sold | 163,843 | 210,610 | 203,714 | 135,555 | |||||||||||
Outstanding balance of guaranteed loans sold (1) | 2,584,163 | 2,102,468 | 2,521,506 | 1,970,908 |
Nine months ended September 30, | For years ended December 31, | ||||||||||||||||||||||
2017 | 2016 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||
Amount of loans and leases originated | $ | 1,450,816 | $ | 1,022,445 | $ | 1,537,010 | $ | 1,158,640 | $ | 848,090 | $ | 498,752 | |||||||||||
Guaranteed portions of loans sold | 576,272 | 501,808 | 761,933 | 640,886 | 433,912 | 339,342 | |||||||||||||||||
Outstanding balance of guaranteed loans sold (1) | 2,584,163 | 2,102,468 | 2,278,618 | 1,779,989 | 1,302,828 | 1,005,764 |
(1) | |
This represents the outstanding principal balance of guaranteed loans serviced, as of the last day of the applicable period, which have been sold into the secondary market. |
Changes in various components of noninterest income are discussed in more detail below.
Loan Servicing Revenue:
Net Gains on SaleSales of Loans:
Net (Loss) Gain on Loans Accounted for Under the Fair Value Option: For the three months ended June 30, 2022, the Company had a net loss on loans accounted for under the fair value option of $4.5 million compared to a net gain of $1.1 million for the second quarter of 2021, a negative change of $5.6 million, or 493.0%. For the six months ended June 30, 2022, the Company had a net loss on loans accounted for under the fair value option of $3.9 million compared to a net gain of $5.4 million for the same period of 2021, a negative change of $9.3 million, or 173.7%. The carrying amount of loans accounted for under the fair value option at June 30, 2022 and 2021 was $554.1 million ($23.5 million classified as held for sale and $530.6 million classified as held for investment) and $772.3 million ($29.0 million classified as held for sale and $743.2 million classified as held for investment), respectively, a decrease of $218.2 million, or 28.3%. The decreased net gain on saleloans accounted for under the fair value option during second quarter and half of loans for 2022 was largely the three and nine months ended September 30, 2017 was $111 thousand and $97 thousandresult of revenue for each $1 million in loans sold, respectively, compared to $104 thousand and $105 thousand of revenue for each $1 million in loans sold for the three and nine months ended September 30, 2016. The lower average premiums recorded in 2017 were driven by increased USDA guaranteed loan sales which commonly receive lower premiums than SBA guaranteed loan sales.
Noninterest Expense
Noninterest expense comprises all operating costs of the Company, such as employee related costs, travel, professional services, advertising and marketing expenses, exclusive of interest and income tax expense.
The following table shows the components of noninterest expense and the related dollar and percentage changes for the periods presented.
|
| Three Months Ended June 30, |
|
| 2022/2021 Increase (Decrease) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
|
| Percent |
| ||||
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Salaries and employee benefits |
| $ | 46,276 |
|
| $ | 32,900 |
|
| $ | 13,376 |
|
|
| 40.66 | % |
Non-employee expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel expense |
|
| 2,358 |
|
|
| 1,549 |
|
|
| 809 |
|
|
| 52.23 |
|
Professional services expense |
|
| 3,988 |
|
|
| 3,329 |
|
|
| 659 |
|
|
| 19.80 |
|
Advertising and marketing expense |
|
| 2,301 |
|
|
| 875 |
|
|
| 1,426 |
|
|
| 162.97 |
|
Occupancy expense |
|
| 2,773 |
|
|
| 2,224 |
|
|
| 549 |
|
|
| 24.69 |
|
Technology expense |
|
| 5,762 |
|
|
| 5,131 |
|
|
| 631 |
|
|
| 12.30 |
|
Equipment expense |
|
| 3,784 |
|
|
| 3,721 |
|
|
| 63 |
|
|
| 1.69 |
|
Other loan origination and maintenance expense |
|
| 3,022 |
|
|
| 3,307 |
|
|
| (285 | ) |
|
| (8.62 | ) |
Renewable energy tax credit investment impairment |
|
| 50 |
|
|
| — |
|
|
| 50 |
|
|
| 100.00 |
|
FDIC insurance |
|
| 2,164 |
|
|
| 1,704 |
|
|
| 460 |
|
|
| 27.00 |
|
Contributions and donations |
|
| 5,515 |
|
|
| 686 |
|
|
| 4,829 |
|
|
| 703.94 |
|
Other expense |
|
| 2,886 |
|
|
| 2,132 |
|
|
| 754 |
|
|
| 35.37 |
|
Total non-employee expenses |
|
| 34,603 |
|
|
| 24,658 |
|
|
| 9,945 |
|
|
| 40.33 |
|
Total noninterest expense |
| $ | 80,879 |
|
| $ | 57,558 |
|
| $ | 23,321 |
|
|
| 40.52 | % |
|
| Six Months Ended June 30, |
|
| 2022/2021 Increase (Decrease) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
|
| Percent |
| ||||
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Salaries and employee benefits |
| $ | 84,783 |
|
| $ | 64,266 |
|
| $ | 20,517 |
|
|
| 31.93 | % |
Non-employee expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel expense |
|
| 4,255 |
|
|
| 2,208 |
|
|
| 2,047 |
|
|
| 92.71 |
|
Professional services expense |
|
| 6,779 |
|
|
| 7,160 |
|
|
| (381 | ) |
|
| (5.32 | ) |
Advertising and marketing expense |
|
| 4,030 |
|
|
| 1,527 |
|
|
| 2,503 |
|
|
| 163.92 |
|
Occupancy expense |
|
| 5,100 |
|
|
| 4,336 |
|
|
| 764 |
|
|
| 17.62 |
|
Technology expense |
|
| 11,815 |
|
|
| 10,009 |
|
|
| 1,806 |
|
|
| 18.04 |
|
Equipment expense |
|
| 7,600 |
|
|
| 7,422 |
|
|
| 178 |
|
|
| 2.40 |
|
Other loan origination and maintenance expense |
|
| 6,135 |
|
|
| 6,634 |
|
|
| (499 | ) |
|
| (7.52 | ) |
Renewable energy tax credit investment impairment |
|
| 50 |
|
|
| 3,127 |
|
|
| (3,077 | ) |
|
| (98.40 | ) |
FDIC insurance |
|
| 4,136 |
|
|
| 3,469 |
|
|
| 667 |
|
|
| 19.23 |
|
Contributions and donations |
|
| 6,238 |
|
|
| 1,480 |
|
|
| 4,758 |
|
|
| 321.49 |
|
Other expense |
|
| 5,672 |
|
|
| 4,192 |
|
|
| 1,480 |
|
|
| 35.31 |
|
Total non-employee expenses |
|
| 61,810 |
|
|
| 51,564 |
|
|
| 10,246 |
|
|
| 19.87 |
|
Total noninterest expense |
| $ | 146,593 |
|
| $ | 115,830 |
|
| $ | 30,763 |
|
|
| 26.56 | % |
Three Months Ended September 30, | Increase (Decrease) | |||||||||||||
2017 | 2016 | Amount | Percent | |||||||||||
Noninterest expense | ||||||||||||||
Salaries and employee benefits | $ | 19,037 | $ | 17,471 | $ | 1,566 | 8.96 | % | ||||||
Non-staff expenses: | ||||||||||||||
Travel expense | 2,289 | 2,218 | 71 | 3.20 | ||||||||||
Professional services expense | 1,068 | 907 | 161 | 17.75 | ||||||||||
Advertising and marketing expense | 1,516 | 1,097 | 419 | 38.20 | ||||||||||
Occupancy expense | 1,473 | 1,058 | 415 | 39.22 | ||||||||||
Data processing expense | 1,982 | 1,252 | 730 | 58.31 | ||||||||||
Equipment expense | 2,228 | 611 | 1,617 | 264.65 | ||||||||||
Other loan origination and maintenance expense | 1,601 | 806 | 795 | 98.64 | ||||||||||
FDIC insurance | 858 | 210 | 648 | 308.57 | ||||||||||
Title insurance closing services expense | 687 | — | 687 | 100.00 | ||||||||||
Other expense | 3,117 | 1,588 | 1,529 | 96.28 | ||||||||||
Total non-staff expenses | 16,819 | 9,747 | 7,072 | 72.56 | ||||||||||
Total noninterest expense | $ | 35,856 | $ | 27,218 | $ | 8,638 | 31.74 | % |
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||
2017 | 2016 | Amount | Percent | |||||||||||
Noninterest expense | ||||||||||||||
Salaries and employee benefits | $ | 55,687 | $ | 45,875 | $ | 9,812 | 21.39 | % | ||||||
Non-staff expenses: | ||||||||||||||
Travel expense | 6,035 | 6,394 | (359 | ) | (5.61 | ) | ||||||||
Professional services expense | 4,228 | 2,345 | 1,883 | 80.30 | ||||||||||
Advertising and marketing expense | 4,977 | 3,425 | 1,552 | 45.31 | ||||||||||
Occupancy expense | 4,018 | 3,306 | 712 | 21.54 | ||||||||||
Data processing expense | 5,536 | 3,864 | 1,672 | 43.27 | ||||||||||
Equipment expense | 5,005 | 1,696 | 3,309 | 195.11 | ||||||||||
Other loan origination and maintenance expense | 3,587 | 2,001 | 1,586 | 79.26 | ||||||||||
FDIC insurance | 2,308 | 507 | 1,801 | 355.23 | ||||||||||
Title insurance closing services expense | 1,877 | — | 1,877 | 100.00 | ||||||||||
Other expense | 8,883 | 4,648 | 4,235 | 91.11 | ||||||||||
Total non-staff expenses | 46,454 | 28,186 | 18,268 | 64.81 | ||||||||||
Total noninterest expense | $ | 102,141 | $ | 74,061 | $ | 28,080 | 37.91 | % |
Total noninterest expense for the three and ninesix months ended September June 30 2017, 2022, increased $8.6$23.3 million, or 31.7%40.5%, and $28.1$30.8 million, or 37.9%26.6%, respectively, compared to the same periods in 2016.2021. The increase in noninterest expense for the comparable three and six month periods was predominately impacted by increased personnel, equipment expense and other expenses primarilylargely driven by the significant growth of the Company's core business. Changes in various components, of noninterest expense areas discussed below.
Salaries and employee benefits
: Total personnel expense for the three andTravel expense: For the total stock based compensation, $286three and six months ended June 30, 2022, travel expenses increased $809 thousand, for the third quarter of 2017or 52.2%, and $1.0$2.0 million, for the first nine months of 2017 included in salaries and employee benefits is related to restricted stock unit ("RSU") awards with a market price condition of $34 per share for key employee retention with an effective grant date of May 24, 2016. See Note 10 - Stock Plans in the Notesor 92.7%, respectively, compared to the Unaudited Consolidated Financial Statementssame periods in our quarterly report2021. Travel expenses increased primarily in relation to supporting both loan origination volume and the customer base as travel restrictions have eased combined with inflationary impacts on Form 10-Q for the period ended March 31, 2016, for more information.
Advertising and marketing expense
: For the three andTechnology expense
: For the three andRenewable energy tax credit investment impairment: During the first quarter of 2021, the Company recognized $3.1 million in impairment charges related to a $3.9 million renewable energy tax credit investment that was fully funded. Investments of this type generate a return primarily through the realization of income tax credits and other benefits; accordingly, impairment of the increaseinvestment amount is recognized in advertisingconjunction with the realization of related tax benefits.
Contributions and marketing expense was the cost of growing brand recognition in new and existing verticals and launching a new deposit platform.
Income Tax Expense
For the three months ended June 30, 2022, income tax expense was $25.3 million compared to $12.6 million for the second quarter of 2021, and the Company’s effective tax rates were 20.7% and 16.5%, respectively. For the six months ended June 30, 2022, income tax expense was $33.7 million compared to $16.8 million for the first half of 2021, and the Company’s effective tax rates were 20.4% and 14.0%, respectively. The primary driverhigher level of income tax expense for the second quarter and first half of 2022 compared to the comparative periods of 2021 was primarily from increased pretax income during the quarter, largely a product of the increaseearlier discussed Finxact gain. The effective tax rate for the second quarter and first half of 2022 was higher than comparative periods principally due to lower levels of expected renewable energy tax credits in data processing expense was2022 combined with tax benefits arising from the growthvesting of stock unit awards which vested in our loan2021.
Results of Segment Operations
The Company’s operations are managed along two primary operating segments Banking and deposit portfoliosFintech. A description of each segment and the development of a new deposit platform.
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Banking |
| $ | 3,755 |
|
| $ | 34,844 |
|
| $ | 41,595 |
|
| $ | 75,900 |
|
Fintech |
|
| 94,683 |
|
|
| 31,334 |
|
|
| 92,934 |
|
|
| 30,427 |
|
Other |
|
| (1,399 | ) |
|
| (2,596 | ) |
|
| (2,981 | ) |
|
| (3,318 | ) |
Consolidated net income |
| $ | 97,039 |
|
| $ | 63,582 |
|
| $ | 131,548 |
|
| $ | 103,009 |
|
Banking
For the three and ninesix months ended SeptemberJune 30, 2017, the total costs associated with equipment increased $1.62022, net income decreased $31.1 million, or 264.6%89.2%, and $3.3$34.3 million, or 195.1%, respectively, compared to the same period in 2016. A major factor behind
For the three and ninesix months ended SeptemberJune 30, 2017, total title insurance closing services expense was $687 thousand and $1.9 million, respectively.
See the analysis of provision for loan and lease credit losses included in other expenses was predominately comprised of costs associated with support expensesthe above section captioned “Provision for Loan and infrastructure driven by business growth and an increase in charitable contributions. The year-over-year increase in other expense was comprised predominately of charitable initiatives, costs associated withLease Credit Losses” as it is entirely related to the newly acquired title company, and a first quarter 2017 loss incurred upon the trade-in of an existing aircraft.
For the three and ninesix months ended SeptemberJune 30, 2017 were (64.8)%2022, noninterest income decreased $21.6, or 80.7%, and (15.5)%$20.2 million, or 35.3%, respectively, compared to the effective ratessame periods of 42.4%2021. The decrease for both comparative periods was principally driven by a decrease in net gains on sales of loans combined with an increase of losses in loan servicing asset revaluation and 43.7%net losses arising from loans accounted for under the fair value option. See the analysis of these categories of noninterest income included in the above section captioned “Noninterest Income” for additional discussion.
For the three and ninesix months ended SeptemberJune 30, 2016, respectively. The negative effective rates2022, noninterest expense increased $26.0 million, or 51.1%, and $31.7 million, or 29.8%, respectively, compared to same periods of (64.8)% and (15.5)%2021. See the analysis of these categories of noninterest expense included in the above section captioned “Noninterest Expense” for additional discussion.
For the three and nine-monthsix months ended June 30, 2022, income tax expense decreased $5.4 million, or 105.2%, and $972 thousand, or 9.9%, respectively, compared to the same periods of 2021. This decrease is a product of the above discussed decrease in Banking segment income for comparative periods.
Fintech
For the three and six months ended SeptemberJune 30, 20172022, net income increased by $63.3 million, or 202.2%, and $62.5 million, or 205.4%, respectively, compared to same periods of 2021. The increase was principally reflected andue to the second quarter of 2022 equity method investment gain of $120.5 million from the sale of Finxact. This increase was partially offset by the equity security investment gains arising from the second quarter of 2021 gain of $44.1 million arising from the Company’s investment in Greenlight.
For the three and six months ended June 30, 2022, noninterest expense increased $1.0 million and $2.2 million, respectively, compared to the same period of 2021. This increase was largely due increased levels of salaries and benefits.
For the three and six months ended June 30, 2022, income tax expense increased $15.7 million, or 153.4%, and $15.5 million, or 151.8%, respectively, compared to the same periods of 2021. This increase is a product of the above discussed increase in anticipated investment in renewable energy assets generating investment tax credits. AsFintech segment income for comparative periods. See the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector. The year to date tax rate also benefited from the first quarter adoption of a new accounting pronouncement related to the treatment of share based compensation issued by the Financial Accounting Standards Board that was effective January 1, 2017; "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," also referred to as ASU 2016-09.above section captioned “Income Tax Expense.”
Discussion and Analysis of Financial Condition
June 30, 20172022 vs. December 31, 2016
Total assets at SeptemberJune 30, 20172022 were $2.43$9.12 billion, an increase of $676.9$907.5 million, or 38.6%11.0%, compared to total assets of $1.76$8.21 billion at December 31, 2016.2021. The growth in total assets was principally driven by the following:
• | Cash and cash equivalents, comprised of cash and due from banks and federal funds sold was $632.2 million at June 30, 2022, an increase of $428.4 million, or 210.3%, compared to $203.8 million at December 31, 2021. This change reflects increased liquidity planning levels in the current rising rate environment and proceeds arising from the Finxact sale combined with growing deposit levels. |
• | Growth in total loans and |
Loans held for sale increased $298.3$83.2 million, or 75.7%7.5%, during the first ninesix months of 2017,2022, from $394.3 million$1.12 billion at December 31, 2016,2021, to $692.6 million$1.20 billion at SeptemberJune 30, 2017.2022. The increase was primarily the result of strong growth in loan origination activities throughout 2017 andvolumes during the strategyfirst half of the year combined with intentionally holding loans available for sale for longer periods of time during the second quarter of 2022 due to enhance interest income by increasing the retention timerecent circumstances negatively impacting gain on sale premiums. See “Results of guaranteed loans along with growth in certain loans that take time to fully fund.
Loans and leases held for investment increased $262.3$338.9 million, or 28.9%6.1%, during the first ninesix months of 2017,2022, from $907.6 million$5.52 billion at December 31, 2016,2021, to $1.17$5.86 billion at SeptemberJune 30, 2017.2022. The increase was primarily the result of robustthe above-mentioned loan and lease growth from origination activities during the first three quarters of 2017originations in 2022 combined with greater retentionincreased levels of loans on the consolidated balance sheet.
Total deposits were $8.16 billion at June 30, 2022, an increase was primarilyof $1.04 billion, or 14.7%, from $7.11 billion at December 31, 2021. The increase in deposits is largely driven by construction of a new aircraft hangar and the replacement of two older aircraft with two new ones better suitedsignificant loan origination efforts.
Borrowings decreased to service the Company's growing nationwide customer base and the addition of solar panels to meet leasing commitments.
Shareholders’ equity at June 30, 2022 was $791.7 million at September 30, 2017. The increase in other assets was primarily driven by the recognition of $8.9 million in income taxes receivable arising from investment tax credits generated from the investment in solar panel leasing activities combined with the first quarter 2017 acquisition of the nationwide title insurance business. As a result of the title insurance acquisition, other assets includes goodwill and intangible assets of $7.3 million and $5.3 million, respectively.
Asset Quality
Management considers asset quality to be of primary importance. A formal loan review function, independent of loan origination, is used to identify and monitor problem loans. This function reports directly to the Audit & Risk Committee of the Board of Directors.
Nonperforming Assets
The Bank places loans and leases on nonaccrual status when they become 90 days past due as to principal or interest payments, or prior to that if management has determined based upon current information available to them that the timely collection of principal or interest is not probable. When a loan or lease is placed on nonaccrual status, any interest previously accrued as income but not actually collected is reversed and recorded as a reduction of loan or lease interest and fee income. Typically, collections of interest and principal received on a nonaccrual loan or lease are applied to the outstanding principal as determined at the time of collection of the loan.
Troubled debt restructurings (“TDRs”) occur when, because of economic or legal reasons pertaining to the debtor’s financial difficulties, debtors are granted concessions that would not otherwise be considered. Such concessions would include, but are not limited to, the transfer of assets or the issuance of equity interests by the debtor to satisfy all or part of the debt, modification of the terms of debt or the substitution or addition of debtor(s).
The following table provides information with respect to nonperforming assets and troubled debt restructurings, excluding loans measured at fair value, at the dates indicated.
|
| June 30, 2022 (1) |
|
| December 31, 2021 (1) |
| ||
Nonaccrual loans and leases: |
|
|
|
|
|
|
|
|
Total nonperforming loans and leases (all on nonaccrual) |
| $ | 45,768 |
|
| $ | 42,533 |
|
Total accruing loans and leases past due 90 days or more |
|
| — |
|
|
| — |
|
Foreclosed assets |
|
| 191 |
|
|
| 620 |
|
Total troubled debt restructurings |
|
| 66,638 |
|
|
| 55,273 |
|
Less nonaccrual troubled debt restructurings |
|
| (23,809 | ) |
|
| (18,210 | ) |
Total performing troubled debt restructurings |
|
| 42,829 |
|
|
| 37,063 |
|
Total nonperforming assets and troubled debt restructurings |
| $ | 88,788 |
|
| $ | 80,216 |
|
Allowance for credit losses on loans and leases |
| $ | 65,863 |
|
| $ | 63,584 |
|
Total nonperforming loans and leases to total loans and leases held for investment |
|
| 0.86 | % |
|
| 0.87 | % |
Total nonperforming loans and leases to total assets |
|
| 0.53 | % |
|
| 0.56 | % |
Total nonperforming assets and troubled debt restructurings to total assets |
|
| 1.04 | % |
|
| 1.06 | % |
Allowance for credit losses on loans and leases to loans and leases held for investment |
|
| 1.24 | % |
|
| 1.30 | % |
Allowance for credit losses on loans and leases to total nonperforming loans and leases |
|
| 143.91 | % |
|
| 149.49 | % |
(1) | Excludes loans measured at fair value. |
|
| June 30, 2022 (1) |
|
| December 31, 2021 (1) |
| ||
Nonaccrual loans and leases guaranteed by U.S. government: |
|
|
|
|
|
|
|
|
Total nonperforming loans and leases guaranteed by the U.S government (all on nonaccrual) |
| $ | 33,794 |
|
| $ | 26,546 |
|
Total accruing loans and leases past due 90 days or more guaranteed by the U.S government |
|
| — |
|
|
| — |
|
Foreclosed assets guaranteed by the U.S. government |
|
| 162 |
|
|
| 490 |
|
Total troubled debt restructurings guaranteed by the U.S. government |
|
| 36,712 |
|
|
| 26,954 |
|
Less nonaccrual troubled debt restructurings guaranteed by the U.S. government |
|
| (15,842 | ) |
|
| (10,770 | ) |
Total performing troubled debt restructurings guaranteed by U.S. government |
|
| 20,870 |
|
|
| 16,184 |
|
Total nonperforming assets and troubled debt restructurings guaranteed by the U.S. government |
| $ | 54,826 |
|
| $ | 43,220 |
|
Allowance for credit losses on loans and leases |
| $ | 65,863 |
|
| $ | 63,584 |
|
Total nonperforming loans and leases not guaranteed by the U.S. government to total held for investment loans and leases |
|
| 0.22 | % |
|
| 0.33 | % |
Total nonperforming loans and leases not guaranteed by the U.S. government to total assets |
|
| 0.14 | % |
|
| 0.21 | % |
Total nonperforming assets and troubled debt restructurings not guaranteed by the U.S. government to total assets |
|
| 0.40 | % |
|
| 0.49 | % |
Allowance for credit losses on loans and leases to total nonperforming loans and leases not guaranteed by the U.S government |
|
| 550.05 | % |
|
| 397.73 | % |
September 30, 2017 | December 31, 2016 | ||||||
Nonperforming assets: | |||||||
Total nonperforming loans (all on nonaccrual) | $ | 22,420 | $ | 23,781 | |||
Total accruing loans past due 90 days or more | — | — | |||||
Foreclosed assets | 2,231 | 1,648 | |||||
Total troubled debt restructurings | 8,527 | 9,856 | |||||
Less nonaccrual troubled debt restructurings | (6,078 | ) | (7,688 | ) | |||
Total performing troubled debt restructurings | 2,449 | 2,168 | |||||
Total nonperforming assets and troubled debt restructurings | $ | 27,100 | $ | 27,597 | |||
Total nonperforming loans to total loans and leases held for investment | 1.92 | % | 2.62 | % | |||
Total nonperforming loans to total assets | 0.92 | % | 1.36 | % | |||
Total nonperforming assets and troubled debt restructurings to total assets | 1.11 | % | 1.57 | % |
(1) | Excludes loans measured at fair value. |
September 30, 2017 | December 31, 2016 | ||||||
Nonperforming assets guaranteed by U.S. government: | |||||||
Total nonperforming loans guaranteed by the SBA (all on nonaccrual) | $ | 19,121 | $ | 18,997 | |||
Total accruing loans past due 90 days or more guaranteed by the SBA | — | — | |||||
Foreclosed assets guaranteed by the SBA | 1,785 | 1,402 | |||||
Total troubled debt restructurings guaranteed by the SBA | 5,427 | 6,723 | |||||
Less nonaccrual troubled debt restructurings guaranteed by the SBA | (5,340 | ) | (6,602 | ) | |||
Total performing troubled debt restructurings guaranteed by SBA | 87 | 121 | |||||
Total nonperforming assets and troubled debt restructurings guaranteed by the SBA | $ | 20,993 | $ | 20,520 | |||
Total nonperforming loans not guaranteed by the SBA to total held for investment loans and leases | 0.28 | % | 0.53 | % | |||
Total nonperforming loans not guaranteed by the SBA to total assets | 0.14 | % | 0.27 | % | |||
Total nonperforming assets and troubled debt restructurings not guaranteed by the SBA to total assets | 0.25 | % | 0.40 | % |
Total nonperforming assets and troubled debt restructuringsTDRs, including loans measured at Septemberfair value, at June 30, 20172022 were $27.1$148.7 million, which represented a $497 thousand,$4.9 million, or 1.8%3.2%, decrease from December 31, 2016. Total2021. These nonperforming assets at SeptemberJune 30, 20172022 were comprised of $22.4$79.9 million in nonaccrual loans and $2.2 millionleases and $191 thousand in foreclosed assets. Of the $27.1$148.7 million of nonperforming assets and troubled debt restructurings ("TDRs"), $21.0TDRs, $102.7 million carried an SBAa government guarantee, leaving an unguaranteed exposure of $6.1$45.9 million in total nonperforming assets and TDRs at SeptemberJune 30, 2017. The2022. This represents a decrease of $6.6 million, or 12.6%, from an unguaranteed exposure of $52.5 million at December 31, 2021.
See the below discussion related to the change in potential problem and impaired loans and leases for management’s overall observations regarding growth in total nonperforming assetsloans and TDRs at December 31, 2016 was $7.1 million. Unguaranteed exposure relating to nonperforming assets and TDRs at September 30, 2017 decreased by $970 thousand, or 13.7%, compared to December 31, 2016.
As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented 10.2%6.1% at SeptemberJune 30, 2017,2022, compared to nonperforming loans of 15.3% of the Bank’s total capital6.0% at December 31, 2016.2021. Adjusting the ratio to include only the unguaranteed portion of nonperforming loans and leases at historical cost to reflect management’s belief that the greater magnitude of risk resides in this portion, the ratios at Septemberboth June 30, 20172022 and December 31, 20162021 were 1.5%1.6% and 3.1%2.3%, respectively.
As of SeptemberJune 30, 20172022, and December 31, 2016,2021, potential problem (also referred to as criticized) and impairedclassified loans and leases, excluding loans measured at fair value, totaled $66.0$396.1 million and $64.1$372.7 million, respectively.The following is a discussion of these loans and leases. Risk Grades 5 through 8 represent the spectrum of criticized and impaired loans.classified loans and leases. For a complete description of the risk grading system, see Note 3. Loans and Leases Held for Investment and Credit Quality in the Company’s 2021 Form 10-K. At SeptemberJune 30 2017,, 2022, the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled $28.2$196.6 million resulting inand total portfolio unguaranteed exposure risk of $37.8was $199.6 million, or 3.3%5.9% of total held for investment unguaranteed exposure.exposure carried at historical cost. This compares to the December 31, 20162021 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled $29.0$197.2 million resulting inand total portfolio unguaranteed exposure risk of $35.1was $175.5 million, or 4.0%6.3% of total held for investment unguaranteed exposure.exposure carried at historical cost. As of SeptemberJune 30 2017, 2022, loans in Veterinary, Healthcare and Independent Pharmacies industryleases carried at historical cost within the following verticals comprise the largest portion of the total potential problem and impairedclassified loans and leases: Wine and Craft Beverage at 28.5%10.9%, 30.8%Hotels at 9.8%, Educational Services at 9.0%, Senior Care at 8.6%, Healthcare at 7.7%, General Lending at 7.6%, Entertainment Centers at 6.0%, Agriculture at 4.7%, Veterinary at 4.6%, Fitness Centers at 4.4%, and 20.4%, respectively.Sponsor Finance at 4.4%. As of December 31, 20162021, loans inand leases carried at historical cost within the Healthcare and Veterinary industriesfollowing verticals comprise the largest portion of the total potential problem and impairedclassified loans and leases: Educational Services at 30.8%16.1%, Wine and 32.9%Craft Beverage at 13.7%, respectively.Hotels at 11.8%, Entertainment Centers at 10.4%, Healthcare at 9.0%, Fitness Centers at 5.3%, Self Storage at 4.8%, Agriculture at 4.5% and Veterinary at 4.4%. Other than Hotels and Sponsor Finance which are a part of the Company’s Specialty Lending division, all of the above listed verticals are within the Company’s Small Business Banking division. The majority of the $23.4 million increase in potential problem and classified loans and leases in the first six months of 2022 was comprised of several relationships that did not have a government guarantee, largely related to some of the more recently matured verticals. The Company believes that its underwriting and credit quality standards have improved as the business has matured.
Loans and leases that experience insignificant payment delays and payment shortfalls as impaired.are generally not individually evaluated for the purpose of estimating the allowance for credit losses. The Bank generally considers an “insignificant period of time” from payment delays to be a period of 90 days or less. The Bank would consider a modification for a customer experiencing what is expected to be a short-term event that has temporarily impacted cash flow. This could be due, among other reasons, to illness, weather, impact from a one-time expense, slower than expected start-up, construction issues or other short-term issues. In all cases, creditCredit personnel will review the request to determine if the customer is stressed and how the event has impacted the ability of the customer to repay the loan or lease long term. To date,At June 30, 2022, the only typesCompany had a total of short term modifications the Bank has given are$7.8 million in modified unguaranteed loans and leases on payment deferral and interest only extensions. The Bank does not typically alter the rate or lengthen the amortization of the note due to insignificant payment delays. Short term modifications are not classified as TDRs, because they do not meet the definition set by the applicable accounting standards and the Federal Deposit Insurance Corporation.
Management endeavors to be proactive in its approach to identify and resolve special mention (Risk Grade 5)problem loans and leases and is focused on working with the borrowers and guarantors of these loans and leases to provide loan and lease modifications when warranted. Management implements a proactive approach to identifying and classifying loans and leases as special mention (also referred to as criticized), Risk Grade 5. At SeptemberJune 30 2017, 2022, and December 31, 2016,2021, Risk Grade 5 loans and leases, excluding loans measured at fair value, totaled $30.5$293.6 million and $32.1$267.4 million, respectively. The decrease in Risk Grade 5 loans from December 31, 2016 to September 30, 2017 was principally confined to three verticals; Veterinary ($3.2 million or 41.8% of decrease), Healthcare ($353 thousand or 4.5% of decrease), and Independent Pharmacy ($144 thousand or 1.7% of decrease). The decrease in these three verticals was offset by an increase in Risk Grade 5 loans from December 31, 2016and leases, exclusive of loans measured at fair value, during the first half of 2022 was principally confined to September 30, 2017 in two verticals; Agricultureeight verticals: Senior Care ($1.122.3 million or 95.0% of increase)85.2%), Venture Banking ($10.6 million or 40.4%), Rural Lending ($7.7 million or 29.3%), General Lending ($7.1 million or 27.1%), Sponsor Finance ($6.7 million or 25.6%), Solar Energy ($5.6 million or 21.4%), Agriculture ($4.8 million or 18.5%) and Investment AdvisorsBioenergy ($464 thousand4.2 million or 20.7% of decrease)15.7%). The overall decreasePartially offsetting the above increases were declines in Risk Grade 5 loans from December 31, 2016 to Septemberprincipally concentrated in four verticals: Educational Services ($22.0 million or 83.9%), Entertainment Centers ($7.6 million or 29.1%), Hotels ($4.3 million or 16.6%) and Wine and Craft Beverage ($4.3 million or 16.4%). Hotels, Sponsor Finance, Venture Banking, Solar Energy, Rural Lending and Bioenergy are a part of the Company’s Specialty Lending division with the remaining above listed verticals within the Company’s Small Business Banking division.
At June 30, 2017 was the result of routine credit monitoring in the ongoing risk grade management process. At September 30, 2017, 2022, approximately 99.9%98.8% of loans and leases classified as Risk Grade 5 are performing with no currentonly one relationship having payments past due.due more than 30 days. While the level of nonperforming assets fluctuates in response to changing economic and market conditions, in light of the relative size and composition of the loan and lease portfolio and management’s degree of success in resolving problem assets, management believes that a proactive approach to early identification and intervention is critical to successfully managing a small business loan portfolio. As government payment assistance began to expire toward the end of 2020, borrowers with continuing difficulties arising from the pandemic were provided additional relief through payment deferrals. At June 30, 2022, the Company had $23.3 million in unguaranteed loans on SBA payment assistance. Management monitors these borrowers closely and has observed financial conditions continuing to improve. Management has also noted that most loans with expired government assistance have been able to resume making regular payments.
Allowance for LoanCredit Losses on Loans and Lease Losses
The allowance for loan and lease losses (“ALLL”), a material estimate which could change significantly in the near-term in the eventACL of rapidly deteriorating credit quality, is established through a provision for loan and lease losses charged to earnings to account for losses that are inherent in the loan and lease portfolio and estimated to occur, and is maintained at a level that management considers appropriate to absorb potential losses in the portfolio. Loan and lease losses are charged against the ALLL when management believes that the collectibility of the principal loan and lease balance is unlikely. Subsequent recoveries, if any, are credited to the ALLL when received.
Actual past due held for investment loans and leases, inclusive of Operations. General reservesloans measured at fair value, have decreased by $27.5 million since December 31, 2021. Total loans and leases 90 or more days past due decreased $11.4 million, or 23.2%, compared to December 31, 2021. This decrease was comprised of a $5.4 million decrease in unguaranteed exposure combined with a $6.0 million decrease in the guaranteed portion of past due loans compared to December 31, 2021. At June 30, 2022 and December 31, 2021, total held for investment unguaranteed loans and leases past due as a percentage of non-impaired loans amounted to 1.56% at September 30, 2017 and 1.70% December 31, 2016. See the aforementioned Provisiontotal held for Loan and Lease Losses section of this section for a discussion of the Company's charge-off experience.
Liquidity Management
Liquidity management refers to the ability to meet day-to-day cash flow requirements based primarily on activity in loan and deposit accounts of the Company’s customers. Liquidity is immediately available from four major sources: (a) cash on hand and on deposit at other banks; (b) the outstanding balance of federal funds sold; (c) the market value of unpledged investment securities; and (d) availability under lines of credit. At SeptemberJune 30, 2017,2022, the total amount of these four items was $589.1 million,$4.05 billion, or 25.1%44.4% of total assets, an increase of $93.3$634.6 million from $495.8 million,$3.42 billion, or 28.2%41.6% of total assets, at December 31, 2016.
Loans and other assets are funded primarily by loan sales, wholesale deposits and core deposits. To date, an increasing retail deposit base and an increaseda stable amount of long-term brokered deposits have been adequate to meet loan obligations, while maintaining the desired level of immediate liquidity. Additionally,The Company maintains an investment securities portfolio that is available for both immediate and secondary contingent liquidity purposes.
At SeptemberJune 30, 2017,2022, none of the investment securities portfolio was pledged to secure public deposits or pledged to retail repurchase agreements, while $100 thousand was pledged for trust activities in the State of Ohio and $2.5 million was pledged for uninsured trust assets, leaving $74.0$925.5 million available to pledge as lendable collateral. In addition, of the $260.9 million in cash on hand, $1.5 million was pledged for ACH processing at one of the correspondent depository banks.
Contractual Obligations
The following table presents the Company’sCompany has entered into significant fixed and determinable contractual obligations by payment date asfor future payments. Other than normal changes in the ordinary course of September 30, 2017. The paymentthe Company’s operations, there have been no significant changes in the types of contractual obligations or amounts represent those amounts contractually due to the recipient. The table excludes liabilities recorded where management cannot reasonably estimate the timing of any payments that may be required in connection with these liabilities.
Payments Due by Period | |||||||||||||||||||
Total | Less than One Year | One to Three Years | Three to Five Years | More Than Five Years | |||||||||||||||
Contractual Obligations | |||||||||||||||||||
Deposits without stated maturity | $ | 828,947 | $ | — | $ | — | $ | — | $ | — | |||||||||
Time deposits | 1,183,944 | 860,718 | 209,019 | 114,207 | — | ||||||||||||||
Long term borrowings | 26,872 | 844 | 5,472 | 20,556 | — | ||||||||||||||
Operating lease obligations1 | 3,037 | 941 | 1,345 | 463 | 288 | ||||||||||||||
Total | $ | 2,042,800 | $ | 862,503 | $ | 215,836 | $ | 135,226 | $ | 288 |
Off-Balance Sheet Arrangements
In the normal course of operations, the Company had unfundedengages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of commitments to provide capital contributions for on-balance sheet investmentsextend credit and standby letters of credit. For more information, see Note 10. Commitments and Contingencies in the amount of $4.4 million and $4.9 million, respectively.accompanying notes to unaudited condensed consolidated financial statements.
Asset/Liability Management and Interest Rate Sensitivity
One of the primary objectives of asset/liability management is to maximize the net interest margin while minimizing the earnings risk associated with changes in interest rates. One method used to manage interest rate sensitivity is to measure, over various time periods, the interest rate sensitivity positions, or gaps. ThisAs of June 30, 2022, the balance sheet’s total cumulative gap position was asset-sensitive at 5.7%.
The interest rate gap method, however, addresses only the magnitude of asset and liability repricing timing differences as of the report date and does not address earnings, or market value.value, changes in account behaviors based on the interest rate environment, nor growth. Therefore, management also uses an earnings simulation model to prepare, on a regular basis, earnings projections based on a range of instantaneous parallel interest rate scenariosshocks applied to more accuratelya static balance sheet to measure interest rate risk.
Capital
The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. The Company’s principal goals related to the maintenance of capital are the following: to provide adequate capital to support the Company’s risk profile consistent with the risk appetite approved by the Board of Directors; to provide financial flexibility to support future growth and client needs; comply with relevant laws, regulations, and supervisory guidance; to achieve optimal credit ratings for the Company and its subsidiaries; and to provide a competitive return to shareholders. Management regularly monitors the capital position of the Company on both a consolidated and bank level basis. In this regard, management’s goal is to maintain capital at levels that are in excess of the regulatory “well capitalized” levels. Risk-based capital ratios, which include Tier 1 Capital, Total Capital and Common Equity Tier 1 Capital, are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.
Capital amounts and ratios as of SeptemberJune 30, 20172022 and December 31, 2016,2021, are presented in the table below.
|
| Actual |
|
| Minimum Capital Requirement |
|
| Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions (1) |
| |||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
Consolidated - June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 (to Risk-Weighted Assets) |
| $ | 828,942 |
|
|
| 13.14 | % |
| $ | 283,874 |
|
|
| 4.50 | % |
| N/A |
|
| N/A |
| ||
Total Capital (to Risk-Weighted Assets) |
|
| 895,677 |
|
|
| 14.20 |
|
|
| 504,666 |
|
|
| 8.00 |
|
| N/A |
|
| N/A |
| ||
Tier 1 Capital (to Risk-Weighted Assets) |
|
| 828,942 |
|
|
| 13.14 |
|
|
| 378,499 |
|
|
| 6.00 |
|
| N/A |
|
| N/A |
| ||
Tier 1 Capital (to Average Assets) |
|
| 828,942 |
|
|
| 9.44 |
|
|
| 351,419 |
|
|
| 4.00 |
|
| N/A |
|
| N/A |
| ||
Bank - June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 (to Risk-Weighted Assets) |
| $ | 687,823 |
|
|
| 11.39 | % |
| $ | 271,856 |
|
|
| 4.50 | % |
| $ | 392,681 |
|
|
| 6.50 | % |
Total Capital (to Risk-Weighted Assets) |
|
| 754,558 |
|
|
| 12.49 |
|
|
| 483,300 |
|
|
| 8.00 |
|
|
| 604,125 |
|
|
| 10.00 |
|
Tier 1 Capital (to Risk-Weighted Assets) |
|
| 687,823 |
|
|
| 11.39 |
|
|
| 362,475 |
|
|
| 6.00 |
|
|
| 483,300 |
|
|
| 8.00 |
|
Tier 1 Capital (to Average Assets) |
|
| 687,823 |
|
|
| 7.90 |
|
|
| 348,418 |
|
|
| 4.00 |
|
|
| 435,522 |
|
|
| 5.00 |
|
Consolidated - December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 (to Risk-Weighted Assets) |
| $ | 689,367 |
|
|
| 12.38 | % |
| $ | 250,619 |
|
|
| 4.50 | % |
| N/A |
|
| N/A |
| ||
Total Capital (to Risk-Weighted Assets) |
|
| 753,691 |
|
|
| 13.53 |
|
|
| 445,544 |
|
|
| 8.00 |
|
| N/A |
|
| N/A |
| ||
Tier 1 Capital (to Risk-Weighted Assets) |
|
| 689,367 |
|
|
| 12.38 |
|
|
| 334,158 |
|
|
| 6.00 |
|
| N/A |
|
| N/A |
| ||
Tier 1 Capital (to Average Assets) |
|
| 689,367 |
|
|
| 8.87 |
|
|
| 310,902 |
|
|
| 4.00 |
|
| N/A |
|
| N/A |
| ||
Bank - December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 (to Risk-Weighted Assets) |
| $ | 640,652 |
|
|
| 12.05 | % |
| $ | 239,201 |
|
|
| 4.50 | % |
| $ | 345,512 |
|
|
| 6.50 | % |
Total Capital (to Risk-Weighted Assets) |
|
| 704,976 |
|
|
| 13.26 |
|
|
| 425,246 |
|
|
| 8.00 |
|
|
| 531,557 |
|
|
| 10.00 |
|
Tier 1 Capital (to Risk-Weighted Assets) |
|
| 640,652 |
|
|
| 12.05 |
|
|
| 318,934 |
|
|
| 6.00 |
|
|
| 425,246 |
|
|
| 8.00 |
|
Tier 1 Capital (to Average Assets) |
|
| 640,652 |
|
|
| 8.32 |
|
|
| 307,931 |
|
|
| 4.00 |
|
|
| 384,914 |
|
|
| 5.00 |
|
Actual | Minimum Capital Requirement | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions (1) | ||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
Consolidated - September 30, 2017 | ||||||||||||||||||||
Common Equity Tier 1 (to Risk-Weighted Assets) | $ | 323,780 | 17.72 | % | $ | 82,232 | 4.50 | % | N/A | N/A | ||||||||||
Total Capital (to Risk-Weighted Assets) | $ | 344,807 | 18.87 | % | $ | 146,191 | 8.00 | % | N/A | N/A | ||||||||||
Tier 1 Capital (to Risk-Weighted Assets) | $ | 323,780 | 17.72 | % | $ | 109,643 | 6.00 | % | N/A | N/A | ||||||||||
Tier 1 Capital (to Average Assets) | $ | 323,780 | 13.95 | % | $ | 92,863 | 4.00 | % | N/A | N/A | ||||||||||
Bank - September 30, 2017 | ||||||||||||||||||||
Common Equity Tier 1 (to Risk-Weighted Assets) | $ | 198,353 | 11.26 | % | $ | 79,287 | 4.50 | % | $ | 114,525 | 6.50 | % | ||||||||
Total Capital (to Risk-Weighted Assets) | $ | 219,651 | 12.47 | % | $ | 140,954 | 8.00 | % | $ | 176,193 | 10.00 | % | ||||||||
Tier 1 Capital (to Risk-Weighted Assets) | $ | 198,353 | 11.26 | % | $ | 105,716 | 6.00 | % | $ | 140,954 | 8.00 | % | ||||||||
Tier 1 Capital (to Average Assets) | $ | 198,353 | 8.78 | % | $ | 90,382 | 4.00 | % | $ | 112,978 | 5.00 | % | ||||||||
Consolidated - December 31, 2016 | ||||||||||||||||||||
Common Equity Tier 1 (to Risk-Weighted Assets) | $ | 206,670 | 15.31 | % | $ | 60,732 | 4.50 | % | N/A | N/A | ||||||||||
Total Capital (to Risk-Weighted Assets) | $ | 223,559 | 16.56 | % | $ | 107,968 | 8.00 | % | N/A | N/A | ||||||||||
Tier 1 Capital (to Risk-Weighted Assets) | $ | 206,670 | 15.31 | % | $ | 80,976 | 6.00 | % | N/A | N/A | ||||||||||
Tier 1 Capital (to Average Assets) | $ | 206,670 | 12.00 | % | $ | 68,919 | 4.00 | % | N/A | N/A | ||||||||||
Bank - December 31, 2016 | ||||||||||||||||||||
Common Equity Tier 1 (to Risk-Weighted Assets) | $ | 139,078 | 10.68 | % | $ | 58,579 | 4.50 | % | $ | 84,615 | 6.50 | % | ||||||||
Total Capital (to Risk-Weighted Assets) | $ | 155,423 | 11.94 | % | $ | 104,141 | 8.00 | % | $ | 130,177 | 10.00 | % | ||||||||
Tier 1 Capital (to Risk-Weighted Assets) | $ | 139,078 | 10.68 | % | $ | 78,106 | 6.00 | % | $ | 104,141 | 8.00 | % | ||||||||
Tier 1 Capital (to Average Assets) | $ | 139,078 | 8.41 | % | $ | 66,142 | 4.00 | % | $ | 82,678 | 5.00 | % |
(1) | |
Prompt corrective action provisions are not applicable at the bank holding company level. |
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in accordance with GAAP requires the Company to make estimates and judgments that affect reported amounts of assets, liabilities, income and expenses and related disclosure of contingent assets and liabilities. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Estimates are evaluated on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Accounting policies, as described in detail in the Notes to the Company’s Unaudited Condensed Consolidated Financial Statements in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of the Company’s consolidated financial statements. A thorough understanding of these accounting policies is essential when reviewing the Company’s reported results of operations and financial position. Management believes that theThe Company’s most critical accounting policies and estimates are listed belowbelow. These estimates require the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain.
• | Allowance for credit losses; |
• | Valuation of loans accounted for under the fair value option; and |
• | Valuation of servicing assets. |
Changes in these estimates, that are likely to occur from period to period, or the use of different estimates that the Company could have reasonably used in the current period, would have a material impact on the Company’s financial position, results of operations or liquidity.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk is a significant market risk and can result from timing and volume differences in the exposure to adverserepricing of rate-sensitive assets and liabilities, widening or tightening of credit spreads, changes in the general level of market interest rates and changes in the shape and level of market yield curves. The Company manages the interest rate sensitivity of interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Management of interest rate risk is carried out primarily through strategies involving available-for-sale securities, loan and lease portfolio, and available funding sources.
The Company has an Asset/Liability Committee to communicate, coordinate and control all aspects involving interest rate risk management. The Asset/Liability Committee, which includes three members of our board of directors, establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals. Adherence to relevant policies is monitored on an ongoing basis by the Asset/Liability Committee.
The Company has a total cumulative gap in interest-earning assets and interest-bearing liabilities of 5.7% as of June 30, 2022, indicating that, overall, assets will reprice before liabilities during the expected life of the instruments. Cumulative gap is a useful measure to monitor balance sheet match-funding, yet economic value of equity and net interest income duesimulations, discussed below, are more useful in understanding potential impacts to earnings from a change in interest rates.
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The Company analyzes interest rate sensitivity position to manage the risk associated with interest rate movements through the use of two simulation models: economic value of equity (“EVE”) and net interest income (“NII”) simulations. These simulations project both short-term and long-term interest rate risk under a variety of instantaneous parallel rate shocks applied to a static balance sheet. The EVE simulation provides a long-term view of interest rate risk because it analyzes all of the Company’s future cash flows. EVE is defined as the present value of the Company’s assets, less the present value of its liabilities, adjusted for any off-balance sheet items. The results show a theoretical change in the economic value of shareholders’ equity as interest rates change.
EVE and NII simulations are completed routinely and presented to the Asset/Liability Committee. The simulations provide an estimate of the impact of changes in interest rates. Consistency ofrates on equity and net interest income under a range of assumptions. The numerous assumptions used in the simulation process are provided to the Asset/Liability Committee on at least an annual basis. Changes to these assumptions can significantly affect the results of the simulation. The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates. The simulation analysis incorporates management’s current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.
Simulation analysis is largely dependent upon the effective managementonly an estimate of interest rate risk.
The table below sets forth an earningsapproximation of the Company’s NII sensitivity exposure for the 12-month periods ending June 30, 2023 and 2024 and the Company’s EVE sensitivity at June 30, 2022. The simulation uses projected repricing of assets and liabilities at June 30, 2022 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Critical model to analyze netassumptions such as loan and investment prepayment rates, deposit decay rates, deposit betas and lags and assumed replacement pricing can have a significant impact on interest income simulation. A static balance sheet is maintained to remove volume considerations and to place the focal point on the rate sensitivity of the Company’s balance sheet. While management believes such assumptions to changing interest rates. The model is based on contractual cash flowsbe reasonable, approximate actual future activity may differ from the results shown below as it will include growth considerations, non-parallel rate movements, and repricing characteristics and incorporates market-based assumptions regardingmanagement actions to mitigate the effectimpacts of changing interest rates on the prepayment rates of certain assets and liabilities. The model also includes management projections for activity levels in eachbalance sheet’s earnings profile.
|
| Estimated Increase/Decrease in Net Interest Income |
| Estimated Percentage Change in EVE | ||
Basis Point ("bp") Change in Interest Rates |
| 12 Months Ending June 30, 2023 |
| 12 Months Ending June 30, 2024 |
| As of June 30, 2022 |
+400 |
| 10.1% |
| 6.5% |
| (30.8)% |
+300 |
| 7.5 |
| 4.8 |
| (23.7) |
+200 |
| 5.0 |
| 3.2 |
| (16.1) |
+100 |
| 2.5 |
| 1.6 |
| (8.2) |
-100 |
| (2.4) |
| (1.5) |
| 8.1 |
-200 |
| (6.4) |
| (5.5) |
| 19.1 |
Rates are increased instantaneously at the beginning of the product lines offered byprojection. The Company is slightly asset sensitive in the Bank. Assumptions are inherently uncertain,initial year, as the Company’s large variable rate loan portfolio reprices the full amount of the assumed change in interest rates, while the large retail savings and short-term retail certificates of deposits portfolio will reprice with an assumed beta. Annually, the measurementCompany’s retail certificate of deposits portfolio has a significant maturity event in the first half of the year. The Company is slightly asset sensitive in the second year of the projection due to interest rates increasing or decreasing for the full year, the Company’s loan portfolio continuing to reprice, and also due to the other assumptions used in the analysis as noted previously. Interest rates do not normally move all at once or evenly over time, but management believes that the analysis is useful to understanding the potential direction and magnitude of net interest income or the impact of rate fluctuations on net interest income cannot be precisely predicted. Actual results may differ materially from simulated resultschanges due to timing, magnitude,changing interest rates.
The EVE analysis shows that the Company would theoretically lose market value in a rising rate environment. The favorable EVE change resulting from the loan and frequencylease portfolio in a rising rate analysis is more than offset by the devaluation of interestthe interest-bearing liabilities. This is largely driven by the Company’s longer asset duration, primarily consisting of investments and loans, versus the shorter duration of its funding portfolio, primarily consisting of retail savings and short-term retail certificates of deposits. Increased fixed rate changes as well as changesloan production since 2020, given the historical low market rate environment, has also been a significant driver in market conditions and management strategies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), was carried out under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer as of SeptemberJune 30, 2017,2022, the last day of the period covered by this Quarterly Report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of SeptemberJune 30, 20172022, in ensuring that the information required to be disclosed in the reports the Company files or submits under the Exchange Act is (i) accumulated and communicated to management (including the Company’s Chief Executive Officer and Chief Financial Officer) as appropriate to allow timely decisions regarding required disclosures, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months quarter ended SeptemberJune 30, 20172022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of operations, the Company is party to variousat times involved in legal proceedings. TheIn the opinion of management, as of June 30, 2022, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. In addition, the Company is not involved in, nor has it terminated duringaware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on its business, operating results or financial condition.
On March 12, 2021, a purported class action was filed against the three and nine months ended September 30, 2017, any pending legal proceedings other than nonmaterial proceedings occurringCompany in the ordinary courseUnited States District Court for the Eastern District of business.
Item 1A. Risk Factors
There have been no material changes in Part 1, Item 1A of ourthe Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and "Risk Factors" in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, for a detailed discussion of risk factors affecting the Company. There have been no material changes to the risk factors previously disclosed in these filings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 17, 2022, the Board of Directors of the Company authorized the repurchase of up to $50,000,000 in shares of the Company’s voting common stock from time to time through December 31, 2023 (the “Repurchase Program”). The Repurchase Program enables the Company to acquire shares through open market purchases or privately negotiated transactions, including through a Rule 10b5-1 plan, at the discretion of management and on terms (including quantity, timing, and price) that management determines to be advisable. Actions in connection with the repurchase program will be subject to various factors, including the Company’s capital and liquidity positions, regulatory and accounting considerations, the Company’s financial and operational performance, alternative uses of capital, the trading price of the Company’s common stock, and market conditions. The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and may be extended, modified, or discontinued at any time. As of June 30, 2022, the Company had not made any purchases of shares under the Repurchase Program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits.
Exhibits
INDEX TO EXHIBITS
Exhibit No. | Description of Exhibit | ||
3.1 | |||
3.2 | |||
4.1 | |||
4.2 | |||
10.1 | |||
10.2.1 | |||
10.2.2 | |||
31.1 | |||
31.2 | |||
32 | |||
101 | Interactive data files pursuant to Rule 405 of Regulation | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Indicates a document being filed with this Form 10-Q. |
** | |
Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Live Oak Bancshares, Inc. | |||
( Registrant) | |||
Date: | By: | / s/ | |
William C. Losch III | |||
Chief Financial Officer |
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