Safe and Sound

Live Oak Banking Company

Wilmington, NC
5
Star Rating
Wilmington, NC-based Live Oak Banking Company is an FDIC-insured bank started in 2008. As of December 31, 2017, the bank had equity of $307.7 million on assets of $2.67 billion.

Thanks to the work of 446 full-time employees, the bank has amassed loans and leases worth $2.01 billion, including real estate loans of $1.41 billion. The bank currently holds $2.32 billion in deposits from U.S. customers.

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. Here's a look at how the bank did on the three key criteria Bankrate used to score 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 buffer against losses and provides protection for account holders when a bank is experiencing financial instability. It follows then that when it comes to measuring an a bank's financial resilience, capital is valuable. From a safety and soundness perspective, more capital is better.

On our test to measure capital adequacy, Live Oak Banking Company received a score of 10 out of a possible 30 points, below the national average of 13.19.

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, above the 6 percent level regulators consider adequate, but less than the national average of 25.67 percent. A higher capital ratio suggests the bank will be better able to weather financial headwinds.

Overall, Live Oak Banking Company held equity amounting to 11.54 percent of its assets, which was lower than the national average of 12.04 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as unpaid loans.

A bank with a large number of these kinds of assets could eventually have to use capital to cover losses, decreasing its equity buffer. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, reducing earnings and increasing the chances of a future failure.

Live Oak Banking Company scored 40 out of a possible 40 points on Bankrate's test of asset quality, beating the national average of 37.70.

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 1.16 percent of Live Oak Banking Company's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.14 percent.

Banks keep a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problem loans can be a handy 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 affects its long-term survivability. A bank can retain its earnings, increasing its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Conversely, losses lessen a bank's ability to do those things.

Live Oak Banking Company scored 30 out of a possible 30 on Bankrate's test of earnings, exceeding the national average of 16.06.

One key measure of a bank's earnings is return on equity, or net income (profit, essentially) divided by the total amount of equity. 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 recorded net income of $114.0 million on total equity of $307.7 million. The bank reported 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.