Safe and Sound

Live Oak Banking Company

Wilmington, NC
5
Star Rating
Live Oak Banking Company is a Wilmington, NC-based, FDIC-insured bank started in 2008. Regulatory filings show the bank having equity of $182.5 million on $2,122,692,000 in assets, as of June 30, 2017.

With 434 full-time employees, the bank holds loans and leases worth $1.69 billion, including real estate loans of $1.16 billion. U.S. bank customers currently have $1.89 billion in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Live Oak Banking Company exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for a look at how the bank did on the three important criteria Bankrate used to grade American banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and provides protection for accountholders when a bank is struggling financially. It follows then that a bank's level of capital is a valuable measurement of an institution's financial fortitude. When looking at safety and soundness, the more capital, the better.
On our test to measure the adequacy of a bank's capital, Live Oak Banking Company received a score of 4 out of a possible 30 points, below the national average of 13.38.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. Live Oak Banking Company's Tier 1 capital ratio was 9.54 percent, above the 6 percent level considered adequate by regulators, but below the national average of 25.16 percent. A higher capital ratio suggests the bank will be better able to stand up to economic difficulties.

Overall, Live Oak Banking Company held equity amounting to 8.60 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of troubled assets, such as unpaid loans, on the bank's capitalization and allocated loan loss reserves.

A bank with lots of these kinds of assets could eventually be required to use capital to cover losses, diminishing its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, pushing down earnings and elevating the chances of a future failure.

Live Oak Banking Company scored 40 out of a possible 40 points on Bankrate's asset quality test, beating out the national average of 37.62.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 1.29 percent of Live Oak Banking Company's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.04 percent.

Banks keep a reserve to handle problem assets known as an "allowance for loan and lease losses." Comparing the the size of that reserve to the total amount of problem loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Live Oak Banking Company's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital buffer, or use them to address problematic loans, likely making the bank more resilient in tough times. Obviously, banks that are losing money have less ability to do those things.

Live Oak Banking Company beat the national average on Bankrate's earnings test, achieving a score of 30 out of a possible 30.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important way to measure a bank's earnings. Live Oak Banking Company's most recent annualized quarterly return on equity was 21.39 percent, above the national average of 9.28 percent.

For the twelve months ended June 30, 2017, the bank recorded net income of $18.3 million on total equity of $182.5 million. The bank reported an annualized return on average assets, or ROA, of 1.93 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.14 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.