Live Oak Bancshares : Q2 2020 Earnings Presentation

SECOND QUARTER 2020

July 23, 2020

©2020 Live Oak Bancshares. All rights reserved.

FORWARD LOOKING STATEMENTS

Information in this presentation may contain "forward-looking statements" within the Private Securities Litigation Reform Act of 1995. These statements generally relate to our financial condition, results of operations, plans, objectives, future performance or business and usually can be identified by the use of forward-looking terminology such as "may," "will," "would," "should," "could," "expect," "anticipate," "estimate," "believe," "plan," "intend," "project," "goals," "outlook," or "continue," or the negative thereof or other variations thereof or comparable terminology. These statements represent our judgment concerning the future and are subject to business, economic and other risks and uncertainties, both known and unknown. These statements are based on current expectations, estimates and projections about our business, management's beliefs and assumptions made by management. These statements are not guarantees of our future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. These risks, uncertainties and assumptions include, without limitation:

• deterioration in the financial condition of borrowers resulting in significant increases in our loan and lease losses and provisions for those losses and other adverse impacts to results of operations and financial condition;
• changes in SBA rules, regulations and loan products, including specifically the Section 7(a) program, changes in SBA standard operating procedures or changes to Live Oak Banking Company's status as an SBA Preferred Lender;
• changes in rules, regulations or procedures for other government loan programs, including those of the United States Department of Agriculture;
• 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 potential impacts of the coronavirus 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 our ability to use the technology-based platform that is critical to the success of our business model or to develop a next-generation banking platform, including a failure in or a breach of our 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 we conduct operations, including reductions in rates of business formation and growth, demand for our 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 institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone and the Internet;
• our 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 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;
• our ability to comply with any requirements imposed on us by our regulators, and the potential negative consequences that may result;
• operational, compliance and other factors, including conditions in local areas in which we conduct 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 we may from time to time be a party, including management's ability to successfully integrate any businesses that we acquire;
• other risk factors listed from time to time in reports that we file with the SEC, including in our Annual Report on Form 10-K; and
• our success at managing the risks involved in the foregoing.

Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Moreover, these forward-looking statements speak only as of the date they are made and based only

on information actually known to us at the time. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 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.

©2020 Live Oak Bancshares. All rights reserved.

2

Agenda

•

•

•

Safety & Soundness and a snapshot of what our customers are saying

Enough is Enough - our shareholders don't understand our investments + a short victory lap for nCino

Huntley to review performance in a very confusing quarter

©2020 Live Oak Bancshares. All rights reserved.

3

OUR FOCUS

KEEPING OUR	PAYCHECK	ORIGINATION	TECHNOLOGY &
CUSTOMERS CLOSE	PROTECTION PROGRAM	OPPORTUNITIES	PRODUCTS
Continued outreach	Disbursed $1.74 billion	Continue to provide capital	Apiture Capital Raise
Deferrals and 6 months of	Processed > 10,000 loans	to small business owners	Deposit Launch
across the country
SBA 7(a) payments	Approximately 214,000	Finxact Live
Ongoing Credit
jobs impacted
Assessment

©2020 Live Oak Bancshares. All rights reserved.

4

CREDIT & FAIR VALUE LOAN METRICS

Ratios1	12/31/2019	3/31/2020	06/30/2020
Past Due > 30 Days2	0.44%	0.54%	0.00%
Watchlist Loans and Leases3	6.28%	6.45%	6.46%
Classified Assets4	1.85%	1.88%	1.66%
Non-Accruals5	0.86%	1.06%	1.00%
Net Charge Off (Annualized)	0.13%	0.58%	0.21%
ACL6 & FV Mark7 on HFI Unguaranteed Loans and Leases	$44.4	$61.3	$67.2
	($ in millions)		$498.3
	Tier 1 Capital (a)
	ACL and FV Mark on HFI Loans and Leases (b)		$67.2
	Total HFI Unguaranteed Loans and Leases8 (c)		$2,173.7
	Ratio (a+b)/c		26.0%
	Ratio b/c		3.1%
	Eligible for Sale Guaranteed Loans, excluding PPP	$1,115.8

1. All ratios use Total HFI Unguaranteed Loan and Leases (see footnote 8) as the denominator, except for net charge-offs
2. Past due loans and leases include only loans and leases on accrual status at amortized cost
3. Watchlist loans and leases include unguaranteed loans and leases at amortized cost (inclusive of loans and leases at fair value and historical cost) categorized as Risk Grade 5 and 6
4. Classified assets include Risk Grade 6 and worse unguaranteed loans and leases at amortized cost (inclusive of loans and leases at fair value and historical cost)
5. Uses unguaranteed balance of non-accrual loans and leases at amortized cost
6. Allowance for credit losses on HFI unguaranteed loans and leases carried at historical cost
7. Fair value mark on HFI unguaranteed loans measured at fair value
8. Represents total HFI unguaranteed loans and leases at amortized cost (inclusive of loans and leases at fair value and historical cost)

©2020 Live Oak Bancshares. All rights reserved.

5

KEEPING OUR CUSTOMERS CLOSE

Agriculture

Healthcare

Hotels

Veterinary

Self Storage

Funeral Homes & Cemeteries

Pharmacy

Wine & Craft Beverage

Investment Advisors

Senior Housing & Senior Care

$1.52

billion

Unguaranteed Exposure1

$2.21

billion

Total Unguaranteed Exposure1

68.7%

% of

Total Unguaranteed

Exposure1

Energy & Infrastructure

General Lending Solutions

Educational Services

Sponsor Finance

Government Contractors Entertainment

Centers

Insurance Agencies

Venture Banking

Fitness Centers

Conventional Financing

Automotive Care

Quick Service Restaurants

Professional Services

Commercial RE Financing

General Franchises

Service Contractors

Auto Dealerships

Restoration

Other

1. Total unguaranteed exposure of loans and leases carried at amortized cost ©2020 Live Oak Bancshares. All rights reserved.

6

CREDIT

COVID-19: Higher at-risk verticals

Industry	Exposure1	% of Portfolio2
Hotels	$179 million	8.1%
Wine & Craft Beverage	$102 million
4.6%
Educational Services		$80 million		3.6%
Entertainment Centers		$57 million		2.6%
Fitness Centers		$23 million		1.0%
Quick Service Restaurants	$12 million		0.6%

1. • Portfolio Impact - Monthly Payments & PPP Loans
   • • ~60%3 of loans are receiving 6 months of P&I payments by the SBA
     • ~9%3 of loans have payment deferrals in place
     • ~75%4 of existing borrowers received a PPP loan
2. Represents total outstanding balance of unguaranteed loans and leases at amortized cost (inclusive of loans and leases at fair value and historical cost)
3. Respective industry exposure as a percent of total outstanding balance of unguaranteed loans and leases at amortized cost (inclusive of loans and leases at fair value and historical cost)
4. Estimation as a percent of total loans and leases at amortized cost (inclusive of loans and leases at fair value and historical cost) excluding PPP loans
5. Estimation as a percent of total number of borrower relationships as of March 31, 2020

©2020 Live Oak Bancshares. All rights reserved.

7

PORTFOLIO DIVERSIFICATION1

$5.70 billion

Portfolio Balance2

Growth through Diversification

61.2%

Guaranteed Portfolio Percentage3

$3.48 billion2

$4.81 billion

SBA Guaranteed2 & Unguaranteed4

SBA 504 - $158M5	USDA - $190M6
Leases - $12M	OTHER - $526M5

1. Total Loans and Leases at amortized cost (inclusive of loans at fair value and historical cost)
2. Includes PPP loans at June 30, 2020
3. The ratio of total guaranteed loans (including PPP loans) divided by portfolio balance
4. Includes $112 million unguaranteed pari passu balances
5. Comprised of first lien unguaranteed loans with average LTV of 50%
6. Comprised of $78 million guaranteed and $112 unguaranteed balances

©2020 Live Oak Bancshares. All rights reserved.

8

TECHNOLOGY INVESTMENTS

2011 Inception by Live Oak	2017 Joint Venture
IPO: July 14, 2020	Formed by Live Oak
~ $7 billion	July 2020 - $20 million investment by
Market Cap	T. Rowe Price & Pinnacle Bank

Live Oak Carrying Value	$2.5	$0	$2.1	$1.5	$8.7
	million	million	million	million	million
Implied Value of Shares	$28.9	$13.9	$3.5	$1.4	$8.7
Owned by Live Oak	million	million	million	million	million

©2020 Live Oak Bancshares. All rights reserved.

9

NCINO BANK OPERATING SYSTEM

©2020 Live Oak Bancshares. All rights reserved.

10

NCINO	Fiscal Year Ended January 31,
(in thousands of dollars)	2018	2019	2020
Subscription Revenues	38,048	64,458	103,265
Professional Services Revenues	20,094	27,076	34,915
Total Revenues	58,142	91,534	138,180

Cost of Subscription Revenues	12,581	19,995	31,062
Cost of Professional Services Revenues	17,890	26,456	33,008
Total Cost of Revenues	30,471	46,451	64,070

Total Operating Expenses	46,446	68,299	102,280
Other (Income) Losses	(236)	(1,104)	(1,021)
Loss before income tax expense	18,539	22,112	27,149

Source: nCino SEC Filing
©2020 Live Oak Bancshares. All rights reserved.	11

PUBLIC SAAS COMPS ANALYSIS

	Comp Group	Description		Multiples (TEV/Rev)
	High Growth SaaS	Public SaaS companies with >30% revenue growth	•	CY 21E Median:	15.7x
	•	CY 22E Median:	12.3x
	High Efficiency Comps	Public SaaS companies in which revenue growth + FCF	•	CY 21E Median:	17.6x
	margin >40%	•	CY 22E Median:	14.8x
	Efficient Comps	Public SaaS companies in which revenue growth + FCF	•	CY 21E Median:	9.6x
	margin 20% - 40%	•	CY 22E Median:	8.7x
	Vertical SaaS	Vertical specific software companies in financial services	•	CY 21E Median:	10.4x
	and other industries	•	CY 22E Median:	9.4x
	Recent IPO	Companies that have IPO'd in the last 12 months including	•	CY 21E Median:	16.3x
	names in which stock price has normalized	•	CY 22E Median:	12.5x
Source: Capital IQ
©2020 Live Oak Bancshares. All rights reserved.				12

NON-GAAP EARNINGS

1. As reported
2. Included as a component of the net gains on sales of loans, as reported
3. Includes valuation gains and losses related to equity security investments, equity warrant assets, and foreclosed assets
4. See Appendix

©2020 Live Oak Bancshares. All rights reserved.

13

PERFORMANCE

©2020 Live Oak Bancshares. All rights reserved.

Q2 2020 HIGHLIGHTS

84%

Increase versus Q2 2019

Total Loans and Leases HFS and HFI

$5.63 billion

2%

Increase versus Q1 2020

Net Interest Income &

Loan Servicing Revenue

$47.6 million

92%

Increase versus Q2 2019

Total Assets

$8.21 billion

3%

Decrease versus Q1 2020

Noninterest Expense

$48.1 million

42%

Increase versus Q2 2019

Managed Portfolio

$8.70 billion

54%

Held portion of guaranteed loans that became eligible for sale in Q2 20201

$184.5 million

1. Percentage held of $339.5 million of guaranteed loans that became eligible for sale in the current quarter

©2020 Live Oak Bancshares. All rights reserved.

15

PPP ACTIVITY IMPACTS

1. See Appendix for total assets, as adjusted to exclude PPP activities.
2. Total loans and leases, as reported less $1.69 billion PPP net loans
3. Estimated negative impact of PPP loans & excess liquidity on Q2 2020 net interest margin
4. Adjustment for PPP to the liquidity ratio assumes Q2 2020 liquidity is unchanged from March 31, 2020

©2020 Live Oak Bancshares. All rights reserved.

16

• 1. IMPACT
• Origination Fees Received1 - $60.4 million
• PPP Net Origination Fees & Costs1

• • $5.4 million net fees amortized into income
  • $51.7 million net fees on balance sheet
• PPP Interest Rate of 1% - $3.3 million1

Loan Tier	Loan Count	PPP Originations1
< $350 thousand	9,843	$764 million
$350 thousand - $2.0 million	920	$670 million
> $2.0 million	84	$311 million
Total	10,847	$1,745 million

1. As of and for the quarter ended June 30, 2020 ©2020 Live Oak Bancshares. All rights reserved.

$62.0

million

Reported Interest Income

and Fees on Loans

Q2 2020

Less $5.4

million

Amortization of Net Deferred Fees

on PPP Loans

Less $3.3

million

Interest Income on PPP Loans

$53.3

million

Interest Income & Amortization of

Net Deferred Fees on Loans

(excluding PPP)

17

FRANCHISE FUNDAMENTALS

$5,627

20.5%

Net Interest Income

Q2 2020 vs. Q2 2019

1.7x

Guaranteed Loans

Eligible for Sale

Q2 2020 vs. Q2 2019

$430

million

Loan & Lease Originations

Q2 2020 Excluding PPP

©2020 Live Oak Bancshares. All rights reserved.

18

LOAN & LEASE ORIGINATIONS

For the three months ending June 30, 2020

$2.18

billion

Loan & Lease Originations

PPP

Originations

$1.74

billion

$430.1

million

Traditional Platforms

USDA

Non-SBA$65.8

$251.4 million

million $185.6

million

$178.7 Conventional

million

SBA 7(a)

©2020 Live Oak Bancshares. All rights reserved.

19

HIGHLY EFFICIENT DEPOSIT PLATFORM

$4.06	$363.5
billion	million
Retail Deposits	CD Maturities
As of June 30, 2020	Q2 2020

97.4%	62.9%
Savings	CD Retention2
Retention1	Q2 2020
1H 2020

1.00%	0.70%
Savings	1-Year CD
Offered Rate	Offered Rate
July 22, 2020	July 22, 2020

1. Savings balance retention compared to accounts active at December 31, 2019
2. Retention of balances matured in Q2 2020

©2020 Live Oak Bancshares. All rights reserved.

20

DEPOSIT RATES & MATURITIES

Since 12/31/2019

• Consumer Savings rate reduced by 85bps to 1.00%1
• 12-monthCD (comprising 62% of the Retail CD portfolio balance2) rate offering reduced by 145bps to 0.70%

Savings/MMA

1.00% at July 23

1-Year CD

0.70% at July 23

Deposit Maturities within 12 months ($ in millions)

• Retail CD Portfolio: $1,910 average maturing rate of 2.12%

• Brokered Portfolio: $985 average maturing rate of 1.19%3

1. As of July 17, 2020
2. As of June 30, 2020
3. Includes $500MM of Promontory ICS One-Way Buy. $250MM matures October 2020 and $250MM matures April 2021

©2020 Live Oak Bancshares. All rights reserved.

21

CAPITAL & LIQUIDITY

As of June 30, 2020

$2.14	$1.75	$1.12
billion	billion	billion
Cash & Investments	Government	Eligible for Sale
	Guaranteed Loans	Government
	(excl. PPP)1	Guaranteed Loans

60.0%	12.9%	36.4%
Cash, Investments,	CET1 Capital Ratio	Liquidity Ratio3
Government Guaranteed
Loans (excl. PPP)2
to Total Assets (excl. PPP)2

1. At amortized costs, excludes $1.74 billion PPP loans at June 30, 2020. Government guaranteed loans including PPP loans totaled $3.48 billion at June 30, 2020.
2. Excludes $1.74 billion PPP loans at June 30, 2020. The ratio of cash, investments, and government guaranteed loans including PPP loans to total assets including PPP loans is 68.5%.
3. Liquidity ratio is defined as Net Cash and Short-Term Marketable Assets Divided by Net Deposits and Short-Term Liabilities.

©2020 Live Oak Bancshares. All rights reserved.

22

PPP IMPACT

51

basis points

Estimated Negative Impact of

1. Loans & Excess Liquidity on Q2 2020 Net Interest Margin

171

basis points

Estimated Negative Impact of

PPP Loans & Excess Liquidity

on Q2 2020 Tier 1 Leverage

Capital Ratio

1.	Excludes net PPP loan balances at June 30, 2020.
2.	Outstanding balance of sold and serviced loans plus loans and leases held for investment and held for sale
3.	See Appendix for reconciliation of total assets, as adjusted to exclude PPP activities
©2020 Live Oak Bancshares. All rights reserved.	23

RECURRING REVENUE GROWTH

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24

SECONDARY MARKET RECOVERY

116.80	115.85
Jun 2019	Feb 2020

Trade Price %

111.25		111.60
Jun 2019		Feb 2020

Source: Government Loan Solutions

©2020 Live Oak Bancshares. All rights reserved.

116.50

Jun 2020

Benchmark Trades

Prime + 2.75%

Quarterly Adjusting

111.50

Jun 2020

25

HIGH PERFORMING BANK METRICS

	Asset Size			$ 7.0	$ 8.0	$8.21
	($ in billion)
	NIM	2.56%		3.50%	3.75%
	Noninterest Income	35.4%	30%	25%
	to Total Income
	Efficiency Ratio1 76.9%		60%
	ROA 0.22%			1.25%	1.75%
	ROE 2.68%			15%	20%
	Tier 1 Leverage		7.96%	8.5%	10%

1. See Appendix for calculation of efficiency ratio ©2020 Live Oak Bancshares. All rights reserved.

Q1 2020 Trend

$5.27B +

3.55% -

12.5% +

107.6% + -0.61%+

-5.64%+

9.94% -

26

OUR FOCUS

SAFETY & WELL-BEING	HELP OUR CUSTOMERS	CONTINUE TO INVEST
OF OUR EMPLOYEES	NAVIGATE THE CRISIS	IN OUR COMMUNITIES
		LOCAL & IN-VERTICAL

KEEPING OUR	PAYCHECK	ORIGINATION	TECHNOLOGY &
CUSTOMERS CLOSE	PROTECTION PROGRAM	OPPORTUNITIES	PRODUCTS

©2020 Live Oak Bancshares. All rights reserved.

27

©2020 Live Oak Bancshares. All rights reserved.

APPENDIX

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29

APPENDIX

($ in thousands)
Total Assets, as reported for the quarter ended June 30, 2020	$ 8,209,154
PPP-related activities
Cash and cash receivable for origination fees	61,492
Loans, net of unearned	1,688,104
Allowance for credit losses	(1,565)
Accrued interest receivable	3,289
Estimated excess balance sheet liquidity arising from PPP	874,195
Total adjustments for PPP activities	2,625,514
Total Assets, as adjusted to exclude PPP activities	5,583,640

©2020 Live Oak Bancshares. All rights reserved.

30

APPENDIX

($ in thousands)

©2020 Live Oak Bancshares. All rights reserved.

31