Safe and Sound

Live Oak Banking Company

Wilmington, NC
5
Star Rating
Live Oak Banking Company is an FDIC-insured bank founded in 2008 and currently headquartered in Wilmington, NC. The bank holds equity of $307.7 million on assets of $2.67 billion, according to December 31, 2017, regulatory filings.

With 446 full-time employees, the bank holds loans and leases worth $2.01 billion, including real estate loans of $1.41 billion. U.S. bank customers currently have $2.32 billion in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Live Oak Banking Company exhibited a superior condition, earning a full 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three key 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 bulwark against losses and affords protection for account holders when a bank is struggling financially. Therefore, when it comes to measuring an a bank's financial stability, capital is key. When it comes to 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 10 out of a possible 30 points, falling short of the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. Live Oak Banking Company's Tier 1 capital ratio was 12.89 percent, higher than the 6 percent level considered adequate by regulators, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic downturns.

Overall, Live Oak Banking Company held equity amounting to 11.54 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the impact of problem assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.

Having extensive holdings of these kinds of assets may eventually force a bank to use capital to absorb losses, diminishing its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, pushing down earnings and increasing the chances of a future failure.

Live Oak Banking Company scored above the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of December 31, 2017, 1.16 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 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with troubled assets . That reserve's size can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. 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. Earnings can be retained by the bank, expanding its capital buffer, or be used to deal with problematic loans, likely making the bank better prepared to withstand financial trouble. Conversely, losses take away from a bank's ability to do those things.

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

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important measure of a bank's earnings. The most recent annualized quarterly return on equity for Live Oak Banking Company was 54.68 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $114.0 million on total equity of $307.7 million. The bank experienced an annualized return on average assets, or ROA, of 5.33 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.00 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.