• Live Oak Bancshares, Inc. Reports Third Quarter 2021 Results

    Source: Nasdaq GlobeNewswire / 27 Oct 2021 15:30:01   America/Chicago

    WILMINGTON, N.C., Oct. 27, 2021 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported third quarter 2021 net earnings available to common shareholders of $33.8 million, or $0.76 per diluted share.

    “Live Oak is on a journey to define small business growth and success across the nation,” said Live Oak Chairman and CEO James S. (Chip) Mahan, III. “To continue on our mission to be America’s small business bank, we are pleased to report that we again exceeded $1.0 billion in loan originations this quarter while also successfully completing the conversion of our deposit customers to a next-generation platform.”

    Third Quarter 2021 Key Measures

    (Dollars in thousands, except per share data)        Increase (Decrease)     
     3Q 2021  3Q 2020  Dollars  Percent  2Q 2021 
    Net interest income and servicing revenues$84,013  $58,166  $25,847   44% $77,680 
    Net income 33,839   33,780   59   0   63,582 
    Diluted earnings per share 0.76   0.81   (0.05)  (6)  1.41 
    Non-GAAP net income (1) 33,839   34,554   (715)  (2)  63,582 
    Non-GAAP diluted earnings per share (1) 0.76   0.83   (0.07)  (8)  1.41 
    Loan and lease production:                   
    Loans and leases originated$1,063,190  $966,499  $96,691   10% $1,153,693 
    % Fully funded 55.1%  72.9% n/a  n/a   58.6%
    Total loans and leases$6,461,367  $6,227,294  $234,073   4% $6,506,334 
    Total assets 8,137,341   8,093,381   43,960   1   8,243,186 
    Total deposits 6,816,613   5,706,044   1,110,569   19   6,520,833 

    (1) See accompanying GAAP to Non-GAAP Reconciliation.

    Loans and Leases

    At September 30, 2021, the total loan and lease portfolio was $6.46 billion, 3.8% above its level a year ago and 0.7% below its level at June 30, 2021. Compared to the second quarter of 2021, loans and leases held for investment decreased $22.8 million, or 0.4%, to $5.42 billion while loans held for sale decreased $22.2 million, or 2.1%, to $1.04 billion. Average loans and leases were $6.47 billion during the third quarter of 2021 compared to $6.58 billion during the second quarter of 2021. Excluding Paycheck Protection Program (“PPP”) loans, the total loan and lease portfolio increased by $1.46 billion, or 32.3%, compared to the third quarter of 2020 and $392.6 million, or 7.0%, compared to the second quarter of 2021.

    The total loan and lease portfolio of $6.46 billion is comprised of $489.8 million of PPP loans, net of deferred fees and costs, at September 30, 2021, which are carried at historical cost classified as held for investment. The unguaranteed percentage of the total loan and lease portfolio is significantly influenced by the inclusion of PPP loans carrying a 100% government guarantee. The total loan and lease portfolio at September 30, 2021, and June 30, 2021, of $6.46 billion and $6.51 billion, respectively, was comprised of 47.8% and 44.9% of unguaranteed loans and leases, respectively.

    Loan and lease originations totaled $1.06 billion during the third quarter of 2021, a decrease of $90.5 million, or 7.8%, from the second quarter of 2021. Excluding PPP loans in each quarter, loan and lease originations totaled $1.06 billion for the third quarter of 2021, a 4.6% decrease from the prior quarter and a 12.1% increase from the third quarter of 2020.

    Deposits

    Total deposits increased to $6.82 billion at September 30, 2021, an increase of $1.11 billion compared to September 30, 2020, and an increase of $295.8 million compared to June 30, 2021.

    The increase in total deposits from the prior quarter provides support for the growth in the loan and lease portfolio, excluding PPP loans, and origination activities during the third quarter of 2021. Average total interest-bearing deposits for the third quarter of 2021 increased $282.8 million, or 4.5%, to $6.63 billion, compared to $6.35 billion for the second quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 97.5% for the third quarter of 2021, compared to 103.7% for the second quarter of 2021. This ratio is influenced by average PPP loan volume and the use of the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) classified as long-term borrowings.

    Borrowings

    Borrowings totaled $575.0 million at September 30, 2021, compared to $1.75 billion and $1.01 billion at September 30, 2020, and June 30, 2021, respectively. During the third quarter of 2021, the Company decreased borrowings by $437.4 million primarily by reducing the outstanding balance in the Federal Reserve’s PPPLF to $526.0 million as of September 30, 2021, compared to $961.0 million at June 30, 2021. The PPPLF has a 100% advance rate equal to the principal amount of PPP loans pledged as security and carries an interest rate of 0.35%, and loans financed under the PPPLF have a neutral impact on regulatory leverage capital ratios.

    Net Interest Income

    Net interest income for the third quarter of 2021 increased to $77.7 million compared to $51.4 million for the third quarter of 2020 and $71.5 million for the second quarter of 2021.

    The increase for the third quarter of 2021 compared to the third quarter of 2020 was driven by the significant growth in the total loan and lease portfolio, excluding PPP loans. The increase in net interest income comparing these two periods was also driven by the reduction in the average rate on interest bearing liabilities from 1.27% for the third quarter of 2020 to 0.80% for the third quarter of 2021.

    The net interest margin increased from the second quarter of 2021 by 36 basis points, from 3.63% to 3.99%. The yield on interest earning assets for the third quarter of 2021 increased 29 basis points compared to the second quarter of 2021 and was primarily driven by accelerated PPP loan fee recognition accompanying heightened levels of forgiveness. The increase in asset yield was enhanced by a 6 basis point reduction in the average cost of interest-bearing liabilities from 0.86% for the quarter ended June 30, 2021, to 0.80% for the quarter ended September 30, 2021. The reduction in the cost of interest-bearing liabilities compared to the second quarter of 2021 was largely the result of the ongoing maturation and repricing of the certificates of deposit portfolio.

    Noninterest Income

    Noninterest income for the third quarter of 2021 decreased to $25.3 million compared to $47.0 million for the third quarter of 2020 and $70.1 million for the second quarter of 2021. The primary drivers in noninterest income changes are outlined below.

    The largest driver of the decrease in noninterest income for the third quarter of 2021 arose from equity security investment gains of $176 thousand compared to $14.7 million in the third quarter of 2020 and $44.3 million in the second quarter of 2021. Gains in both the third quarter of 2020 and second quarter of 2021 were principally comprised of $13.7 million and $44.1 million, respectively, both associated with the Company’s investment in Greenlight Financial Technology, Inc. (“Greenlight”).

    The loan servicing asset revaluation resulted in a loss of $5.9 million for the third quarter of 2021 compared to a gain of $2.1 million for the third quarter of 2020 and a loss of $3.2 million for the second quarter of 2021. The decrease in the loan servicing asset valuation from the prior quarters was largely the result of negative market pricing movements in the third quarter combined with ongoing amortization of the guaranteed serviced loan portfolio.   The primary cause for negative pricing trends commencing in the third quarter of 2021 was related to increasing levels of prepayment speeds combined with increased inventory levels in the market.

    The net (loss) gain on loans accounted for under the fair value option totaled $(1.0) million for the third quarter of 2021, a $4.4 million decrease compared to the $3.4 million net gain for the third quarter of 2020 and a $2.2 million decrease compared to the net gain of $1.1 million for the second quarter of 2021. The decrease in valuation of loans accounted for under the fair value option over the third quarter of 2020 was also impacted by negative trending market conditions discussed above.

    Net gains on sales of loans increased $6.2 million compared to the third quarter of 2020 and $2.6 million compared to the second quarter of 2021. The average net gain on guaranteed loan sales was $91.0, $114.8, $110.2 thousand per million sold for the third quarter of 2021, second quarter of 2021 and third quarter of 2020, respectively. The quarter over quarter decrease in premiums is largely the result of the mix of loans being sold and to a lesser extent the above discussed negative market trends. The volume of guaranteed loans sold increased to $201.9 million for the third quarter of 2021 compared to $130.9 million sold in the prior quarter.

    Noninterest Expense

    Noninterest expense for the third quarter of 2021 totaled $55.5 million compared to $42.7 million for the third quarter of 2020 and $57.6 million for the second quarter of 2021.   The primary drivers in noninterest expense changes are outlined below.

    Salaries and employee benefits for the third quarter of 2021 increased to $28.2 million compared to $24.2 million for the third quarter of 2020 and decreased from $32.9 million for the second quarter of 2021. The increase in salaries and employee benefits over the third quarter of 2020 was principally related to continued investment in human resources to support strategic and growth initiatives. The decrease over the second quarter of 2021 was principally due to an additional bonus accrual during the second quarter of $4.0 million arising from the earnings associated with the earlier discussed second quarter gain resulting from the Company’s investment in Greenlight.

    Travel expense for the third quarter of 2021 increased to $1.8 million compared to $250 thousand for the third quarter of 2020 and $1.5 million for the second quarter of 2021. The increase in travel expenses was largely related to supporting both loan origination volume and the customer base as travel restrictions have continued to ease in recent months.

    Professional services expense increased to $4.3 million for the third quarter of 2021 compared to $1.3 million for the third quarter of 2020 and $3.3 million for the second quarter of 2021. The $2.9 million increase over the third quarter of 2020 was largely driven by an increase in legal fees.

    Data processing expense for the third quarter of 2021 totaled $4.9 million compared to $3.0 million for the third quarter of 2020 and $4.2 million for the second quarter of 2021. The increase in 2021 was principally due to enhanced investments in the Company’s internal software technology resources.

    Other expense for the third quarter of 2021 increased to $2.9 million compared to $2.1 million for the third quarter of 2020 and $3.1 million for the second quarter of 2021. Included in the slight increase over the third quarter of 2020 was a $3.9 million accrual related to the earlier disclosed putative class action in Note 10 of the Company’s Report on Form 10-Q for the quarterly period ended June 30, 2021, for which the Company entered into a final settlement agreement on October 12, 2021. Largely offsetting this $3.9 million accrual in the third quarter of 2021 is a $3.7 million receivable related to an insurance recovery in regards to the same litigation.

    Asset Quality

    During the third quarter of 2021, the Company recognized net charge-offs for loans carried at historical cost of $2.5 million compared to $10.1 million in the third quarter of 2020 and $2.4 million in the second quarter of 2021. The decrease in net charge-offs for the third quarter of 2021 compared to the third quarter of 2020 was principally the result of a third quarter of 2020 reclassification of fifteen hotel loans from held for investment to held for sale totaling $81.2 million in net investment.  This third quarter of 2020 reclassification resulted in a write down reflected in charge-offs of $9.8 million.  Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended September 30, 2021 and 2020 and June 30, 2021, was 0.21%, 1.03% and 0.21%, respectively.

    Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $6.3 million and $5.5 million accounted for under the fair value option at September 30, 2021, and June 30, 2021, respectively, decreased to $20.4 million, or 0.43% of loans and leases held for investment which are carried at historical cost, at September 30, 2021, compared to $22.5 million, or 0.48%, at June 30, 2021.

    The unguaranteed exposure of foreclosed assets decreased $264 thousand to $191 thousand at September 30, 2021, compared to June 30, 2021. Foreclosed assets decreased $910 thousand to $883 thousand at September 30, 2021, compared to June 30, 2021.

    Provision for Loan and Lease Credit Losses

    The provision for loan and lease credit losses for the third quarter of 2021 totaled $4.3 million compared to a provision of $10.3 million for the third quarter of 2020 and $7.8 million for the second quarter of 2021. The lower provision expense in the third quarter of 2021 was primarily the result of continued improvement in forecasts related to employment and default expectations combined with the effects of the earlier discussed portfolio performance metrics, outpacing the impact of the growing loan and lease portfolio.

    The allowance for credit losses on loans and leases totaled $59.7 million at September 30, 2021, compared to $57.8 million at June 30, 2021. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost was 1.26% and 1.23% at September 30, 2021, and June 30, 2021, respectively. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost continues to be influenced by the 100% guaranteed PPP loans.

    Income Tax

    Income tax expense and related effective tax rate was $9.4 million and 21.7% for the third quarter of 2021, $11.7 million and 25.7% for the third quarter of 2020, and $12.6 million and 16.5% for the second quarter of 2021, respectively. The effective tax rate for the third quarter of 2021 is principally influenced by renewable energy tax credit investment activities.

    The lower level of income tax expense for the third quarter of 2021 compared to the second quarter of 2021 was primarily the product of a decrease of $32.9 million in income before taxes arising largely from the earlier discussed second quarter Greenlight gain.

    Shareholders’ Equity

    Total shareholders’ equity increased by $32.1 million, or 4.9%, during the third quarter of 2021. This increase was primarily due to net income.

    Conference Call

    Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 28, 2021). Media representatives, analysts and the public are invited to listen to this discussion by calling (844) 743-2494 (domestic) or (661) 378-9528 (international) with conference ID 8796489. A live webcast of the conference call along with presentation materials referenced during the conference call will be available on the Investor Relations page of the Company’s website at http://investor.liveoakbank.com. A replay of the conference call will also be available until November 4, 2021 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

    Important Note Regarding Forward-Looking Statements

    Statements in this press release that are based on other than historical data or that express the Company’s plans or expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements based on historical data are not intended and should not be understood to indicate the Company’s expectations regarding future events. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance or determinations, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this press release. Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include changes in Small Business Administration (“SBA”) rules, regulations or loan products, including the Section 7(a) program, changes in SBA standard operating procedures or changes in 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; the potential 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 its business model, including a failure in or a breach of operational or security systems; competition from other lenders; the Company's ability to attract and retain key personnel; market and economic conditions and the associated impact on the Company; operational, liquidity and credit risks associated with the Company's business; the impact of heightened regulatory scrutiny of financial products and services and the Company's ability to comply with regulatory requirements and expectations; adverse results, including related fees and expenses, from pending or future lawsuits, government investigations or private actions; and the other factors discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov). Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

    About Live Oak Bancshares, Inc.

    Live Oak Bancshares, Inc. (Nasdaq: LOB) is a financial holding company and the parent company of Live Oak Bank. Live Oak Bancshares and its subsidiaries partner with businesses that share a groundbreaking focus on service and technology to redefine banking. To learn more, visit www.liveoakbank.com.

    Contacts:

    William C. (BJ) Losch, III | CFO | Investor Relations | 910.765.9966

    Claire Parker | SVP Corporate Communications | Media Relations | 910.597.1592

    Live Oak Bancshares, Inc.
    Quarterly Statements of Income (unaudited)
    (Dollars in thousands, except per share data)

     Three months ended  3Q 2021 Change vs. 
     3Q 2021  2Q 2021  1Q 2021  4Q 2020  3Q 2020  2Q 2021  3Q 2020 
    Interest income                    %  % 
    Loans and fees on loans$89,388  $84,780  $84,993  $79,166  $70,621   5.4   26.6 
    Investment securities, taxable 3,174   2,975   2,929   3,345   4,123   6.7   (23.0)
    Other interest earning assets 224   244   303   529   334   (8.2)  (32.9)
    Total interest income 92,786   87,999   88,225   83,040   75,078   5.4   23.6 
    Interest expense                           
    Deposits 14,159   14,820   16,944   19,195   22,155   (4.5)  (36.1)
    Borrowings 892   1,717   1,331   1,544   1,560   (48.0)  (42.8)
    Total interest expense 15,051   16,537   18,275   20,739   23,715   (9.0)  (36.5)
    Net interest income 77,735   71,462   69,950   62,301   51,363   8.8   51.3 
    Provision for (recovery of) loan and lease credit losses 4,319   7,846   (873)  8,634   10,274   (45.0)  (58.0)
    Net interest income after provision for (recovery of) loan and lease credit losses 73,416   63,616   70,823   53,667   41,089   15.4   78.7 
    Noninterest income                           
    Loan servicing revenue 6,278   6,218   6,434   6,684   6,803   1.0   (7.7)
    Loan servicing asset revaluation (5,878)  (3,181)  1,493   (5,756)  2,061   (84.8)  (385.2)
    Net gains on sales of loans 18,860   16,234   11,929   14,976   12,690   16.2   48.6 
    Net (loss) gain on loans accounted for under the fair value option (1,030)  1,135   4,218   (4,759)  3,403   (190.7)  (130.3)
    Equity method investments income (loss) (1,250)  (2,278)  (1,157)  (8,739)  (1,231)  45.1   (1.5)
    Equity security investments gains (losses), net 176   44,253   105   107   14,705   (99.6)  (98.8)
    Gain on sale of investment securities available-for-sale, net —   —   —   —   1,225   —   (100.0)
    Lease income 2,527   2,616   2,599   2,615   2,634   (3.4)  (4.1)
    Management fee income 1,489   1,473   1,934   2,206   1,296   1.1   14.9 
    Other noninterest income 4,104   3,641   3,502   3,469   3,458   12.7   18.7 
    Total noninterest income 25,276   70,111   31,057   10,803   47,044   (63.9)  (46.3)
    Noninterest expense                           
    Salaries and employee benefits 28,202   32,900   31,366   29,477   24,203   (14.3)  16.5 
    Travel expense 1,819   1,549   659   1,056   250   17.4   627.6 
    Professional services expense 4,251   3,329   3,831   1,691   1,346   27.7   215.8 
    Advertising and marketing expense 1,631   875   652   973   552   86.4   195.5 
    Occupancy expense 2,042   2,224   2,112   2,302   2,079   (8.2)  (1.8)
    Data processing expense 4,867   4,234   3,894   3,414   3,009   15.0   61.7 
    Equipment expense 4,567   4,385   4,354   4,002   4,314   4.2   5.9 
    Other loan origination and maintenance expense 3,489   3,307   3,327   3,173   2,669   5.5   30.7 
    Renewable energy tax credit investment impairment 60   —   3,127   —   —   —   — 
    FDIC insurance 1,670   1,704   1,765   2,147   2,095   (2.0)  (20.3)
    Other expense 2,861   3,051   3,185   4,200   2,133   (6.2)  34.1 
    Total noninterest expense 55,459   57,558   58,272   52,435   42,650   (3.6)  30.0 
    Income before taxes 43,233   76,169   43,608   12,035   45,483   (43.2)  (4.9)
    Income tax expense (benefit) 9,394   12,587   4,181   (17,553)  11,703   (25.4)  (19.7)
    Net income$33,839  $63,582  $39,427  $29,588  $33,780   (46.8)  0.2 
    Earnings per share                           
    Basic$0.78  $1.48  $0.92  $0.72  $0.83   (47.3)  (6.0)
    Diluted$0.76  $1.41  $0.88  $0.68  $0.81   (46.1)  (6.2)
    Weighted average shares outstanding                           
    Basic 43,329,889   43,173,312   42,673,615   41,320,851   40,542,696         
    Diluted 45,040,690   45,062,392   44,696,850   43,333,707   41,549,632         

    Live Oak Bancshares, Inc.
    Quarterly Balance Sheets (unaudited)
    (Dollars in thousands)

     As of the quarter ended  3Q 2021 Change vs. 
     3Q 2021  2Q 2021  1Q 2021  4Q 2020  3Q 2020  2Q 2021  3Q 2020 
    Assets                    %  % 
    Cash and due from banks$336,362  $428,907  $630,081  $297,167  $608,826   (21.6)  (44.8)
    Federal funds sold 10,672   9,917   5,461   21,153   25,924   7.6   (58.8)
    Certificates of deposit with other banks 6,000   6,000   6,500   6,500   7,250   —   (17.2)
    Investment securities available-for-sale 861,377   817,896   775,177   750,098   765,777   5.3   12.5 
    Loans held for sale (1) 1,042,756   1,064,911   1,076,741   1,175,470   1,190,200   (2.1)  (12.4)
    Loans and leases held for investment (2) 5,418,611   5,441,423   5,456,754   5,144,930   5,037,094   (0.4)  7.6 
    Allowance for credit losses on loans and leases (59,681)  (57,848)  (52,417)  (52,306)  (44,210)  (3.2)  (35.0)
    Net loans and leases 5,358,930   5,383,575   5,404,337   5,092,624   4,992,884   (0.5)  7.3 
    Premises and equipment, net 244,212   249,069   253,774   259,267   253,737   (2.0)  (3.8)
    Foreclosed assets 883   1,793   4,185   4,155   3,264   (50.8)  (72.9)
    Servicing assets 33,968   36,966   37,744   33,918   37,831   (8.1)  (10.2)
    Other assets 242,181   244,152   223,875   231,951   207,688   (0.8)  16.6 
    Total assets$8,137,341  $8,243,186  $8,417,875  $7,872,303  $8,093,381   (1.3)  0.5 
    Liabilities and Shareholders’ Equity                           
    Liabilities                           
    Deposits:                           
    Noninterest-bearing$77,026  $89,768  $75,794  $75,287  $58,771   (14.2)  31.1 
    Interest-bearing 6,739,587   6,431,065   6,240,210   5,637,541   5,647,273   4.8   19.3 
    Total deposits 6,816,613   6,520,833   6,316,004   5,712,828   5,706,044   4.5   19.5 
    Borrowings 575,021   1,012,431   1,465,961   1,542,093   1,747,083   (43.2)  (67.1)
    Other liabilities 56,284   52,575   45,550   49,532   56,090   7.1   0.3 
    Total liabilities 7,447,918   7,585,839   7,827,515   7,304,453   7,509,217   (1.8)  (0.8)
    Shareholders’ equity                           
    Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding —   —   —   —   —   —   — 
    Class A common stock (voting) 304,085   299,809   298,525   298,890   325,753   1.4   (6.7)
    Class B common stock (non-voting) 5,404   5,404   7,330   11,729   26,106   —   (79.3)
    Retained earnings 371,869   339,011   275,377   235,724   207,400   9.7   79.3 
    Accumulated other comprehensive income 8,065   13,123   9,128   21,507   24,905   (38.5)  (67.6)
    Total shareholders' equity 689,423   657,347   590,360   567,850   584,164   4.9   18.0 
    Total liabilities and shareholders’ equity$8,137,341  $8,243,186  $8,417,875  $7,872,303  $8,093,381   (1.3)  0.5 

    (1)  Includes $27.4 million, $29.0 million, $35.9 million, $36.1 million and $30.4 million measured at fair value for the quarters ended September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020, respectively.

    (2)  Includes $698.0 million, $743.2 million, $790.8 million, $815.4 million and $845.7 million measured at fair value for the quarters ended September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020, respectively.

    Live Oak Bancshares, Inc.
    Statements of Income (unaudited)
    (Dollars in thousands, except per share data)

     Nine months ended 
     September 30, 2021  September 30, 2020 
    Interest income       
    Loans and fees on loans$259,161  $191,604 
    Investment securities, taxable 9,078   11,671 
    Other interest earning assets 771   2,093 
    Total interest income 269,010   205,368 
    Interest expense       
    Deposits 45,923   70,531 
    Borrowings 3,940   2,415 
    Total interest expense 49,863   72,946 
    Net interest income 219,147   132,422 
    Provision for loan and lease credit losses 11,292   32,024 
    Net interest income after provision for loan and lease credit losses 207,855   100,398 
    Noninterest income       
    Loan servicing revenue 18,930   19,916 
    Loan servicing asset revaluation (7,566)  (4,202)
    Net gains on sales of loans 47,023   34,497 
    Net gain (loss) on loans accounted for under the fair value option 4,323   (8,324)
    Equity method investments income (loss) (4,685)  (5,952)
    Equity security investments gains (losses), net 44,534   14,802 
    Gain on sale of investment securities available-for-sale, net —   1,880 
    Lease income 7,742   7,893 
    Management fee income 4,896   4,146 
    Other noninterest income 11,247   10,541 
    Total noninterest income 126,444   75,197 
    Noninterest expense       
    Salaries and employee benefits 92,468   83,048 
    Travel expense 4,027   2,395 
    Professional services expense 11,411   4,668 
    Advertising and marketing expense 3,158   2,537 
    Occupancy expense 6,378   6,455 
    Data processing expense 12,995   8,930 
    Equipment expense 13,306   13,601 
    Other loan origination and maintenance expense 10,123   7,617 
    Renewable energy tax credit investment impairment 3,187   — 
    FDIC insurance 5,139   5,326 
    Other expense 9,097   5,664 
    Total noninterest expense 171,289   140,241 
    Income before taxes 163,010   35,354 
    Income tax expense 26,162   5,399 
    Net income$136,848  $29,955 
    Earnings per share       
    Basic$3.18  $0.74 
    Diluted$3.05  $0.73 
    Weighted average shares outstanding       
    Basic 43,061,642   40,461,479 
    Diluted 44,936,014   41,248,866 

    Live Oak Bancshares, Inc.
    Quarterly Selected Financial Data
    (Dollars in thousands, except per share data)

     As of and for the three months ended 
     3Q 2021  2Q 2021  1Q 2021  4Q 2020  3Q 2020 
    Income Statement Data                   
    Net income$33,839  $63,582  $39,427  $29,588  $33,780 
    Per Common Share                   
    Net income, basic$0.78  $1.48  $0.92  $0.72  $0.83 
    Net income, diluted 0.76   1.41   0.88   0.68   0.81 
    Dividends declared 0.03   0.03   0.03   0.03   0.03 
    Book value 15.89   15.19   13.74   13.38   14.69 
    Tangible book value (1) 15.80   15.10   13.65   13.28   14.30 
    Performance Ratios                   
    Return on average assets (annualized) 1.64%  3.01%  1.98%  1.49%  1.67%
    Return on average equity (annualized) 19.67   41.30   26.89   19.86   23.64 
    Net interest margin 3.99   3.63   3.81   3.33   2.77 
    Efficiency ratio (1) 53.84   40.66   57.69   71.73   43.89 
    Noninterest income to total revenue 24.54   49.52   30.75   14.78   47.15 
    Selected Loan Metrics                   
    Loans and leases originated$1,063,190  $1,153,693  $1,180,219  $808,010  $966,499 
    Guaranteed loans sold 201,903   130,858   136,747   110,588   114,731 
    Average net gain on sale of guaranteed loans 90.95   114.77   83.92   115.94   110.19 
    Adjusted average net gain on sale of guaranteed loans (2) 90.95   114.77   83.92   114.07   107.99 
    Outstanding balance of sold loans serviced:                   
    Guaranteed 2,731,031   2,694,931   2,843,963   2,819,625   2,878,664 
    Unguaranteed 481,240   439,137   372,764   385,998   264,829 
    Total 3,212,271   3,134,068   3,216,727   3,205,623   3,143,493 
    Asset Quality Ratios                   
    Allowance for credit losses to loans and leases held for investment (4) 1.26%  1.23%  1.12%  1.21%  1.05%
    Net charge-offs (recoveries) (4)$2,485  $2,417  $(984) $537  $10,147 
    Net charge-offs (recoveries) to average loans and leases held for investment (3) (4) 0.21%  0.21%  (0.09)%  0.05%  1.03%
    Nonperforming loans and leases (4) (5)$49,338  $48,009  $57,371  $46,110  $46,749 
    Foreclosed assets 883   1,793   4,185   4,155   3,264 
    Nonperforming loans and leases (unguaranteed exposure) (4) (5) 20,450   22,458   24,738   20,078   20,153 
    Foreclosed assets (unguaranteed exposure) 191   455   941   935   642 
    Nonperforming loans and leases not guaranteed by the SBA and foreclosures (4) (5)$20,641  $22,913  $25,679  $21,013  $20,795 
    Nonperforming loans, leases and foreclosures, not guaranteed by the SBA, to total assets (4) (5) 0.28%  0.31%  0.34%  0.30%  0.29%
    Nonperforming loans accounted for under the fair value option$43,011  $39,826  $40,234  $35,499  $47,434 
    Nonperforming loans accounted for under the fair value option (unguaranteed exposure) 6,303   5,503   5,838   5,387   7,495 
    Capital Ratios                   
    Common equity tier 1 capital (to risk-weighted assets) 12.56%  12.45%  12.16%  12.15%  13.09%
    Total capital (to risk-weighted assets) 13.71   13.63   13.32   13.39   14.19 
    Tier 1 risk based capital (to risk-weighted assets) 12.56   12.45   12.16   12.15   13.09 
    Tier 1 leverage capital (to average assets) 8.82   8.70   8.50   8.40   8.44 

    Notes to Quarterly Selected Financial Data

    (1) See accompanying GAAP to Non-GAAP Reconciliation.
    (2) Excludes fair value gain/loss on exchange-traded interest rate futures contracts.
    (3) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.
    (4) Excludes loans measured at fair value.
    (5) The quarters ended December 31, 2020 and September 30, 2020 exclude one $6.1 million hotel loan classified as held for sale.

    Live Oak Bancshares, Inc.
    Quarterly Average Balances and Net Interest Margin
    (Dollars in thousands)

     Three Months Ended
    September 30, 2021    		  Three Months Ended
    June 30, 2021    		 
     Average
    Balance    		  Interest  Average
    Yield/Rate    		  Average
    Balance    		  Interest  Average
    Yield/Rate    		 
    Interest earning assets:                       
    Interest earning balances in other banks$452,830  $221   0.19% $514,232  $234   0.18%
    Federal funds sold 9,260   3   0.13   29,199   10   0.14 
    Investment securities 808,697   3,174   1.56   764,017   2,975   1.56 
    Loans held for sale 1,098,940   15,090   5.45   1,134,259   15,216   5.38 
    Loans and leases held for investment (1) 5,366,088   74,298   5.49   5,447,839   69,564   5.12 
    Total interest earning assets 7,735,815   92,786   4.76   7,889,546   87,999   4.47 
    Less: allowance for credit losses on loans and leases (56,411)          (51,994)        
    Non-interest earning assets 581,771           623,895         
    Total assets$8,261,175          $8,461,447         
    Interest bearing liabilities:                       
    Interest bearing checking$—  $—   —% $60,439  $86   0.57%
    Savings 3,367,168   4,359   0.51   3,101,733   4,309   0.56 
    Money market accounts 104,576   74   0.28   104,826   82   0.31 
    Certificates of deposit 3,156,834   9,726   1.22   3,078,789   10,343   1.35 
    Total interest bearing deposits 6,628,578   14,159   0.85   6,345,787   14,820   0.94 
    Borrowings 818,511   892   0.43   1,368,742   1,717   0.50 
    Total interest bearing liabilities 7,447,089   15,051   0.80   7,714,529   16,537   0.86 
    Non-interest bearing deposits 79,006           85,824         
    Non-interest bearing liabilities 46,907           45,309         
    Shareholders' equity 688,173           615,785         
    Total liabilities and shareholders' equity$8,261,175          $8,461,447         
    Net interest income and interest rate spread    $77,735   3.96%     $71,462   3.61%
    Net interest margin         3.99           3.63 
    Ratio of average interest-earning assets to average interest-bearing liabilities         103.88%          102.27%

    (1) Average loan and lease balances include non-accruing loans.

    Live Oak Bancshares, Inc.   
    GAAP to Non-GAAP Reconciliation
    (Dollars in thousands)

     As of and for the three months ended 
     3Q 2021  2Q 2021  1Q 2021  4Q 2020  3Q 2020 
    Total shareholders’ equity$689,423  $657,347  $590,360  $567,850  $584,164 
    Less:                   
    Goodwill 1,797   1,797   1,797   1,797   1,797 
    Other intangible assets 2,065   2,103   2,141   2,179   2,218 
    Tangible shareholders’ equity (a)$685,561  $653,447  $586,422  $563,874  $580,149 
    Shares outstanding (c) 43,381,014   43,264,460   42,951,344   42,452,446   40,575,982 
    Total assets$8,137,341  $8,243,186  $8,417,875  $7,872,303  $8,093,381 
    Less:                   
    Goodwill 1,797   1,797   1,797   1,797   1,797 
    Other intangible assets 2,065   2,103   2,141   2,179   2,218 
    Tangible assets (b)$8,133,479  $8,239,286  $8,413,937  $7,868,327  $8,089,366 
    Tangible shareholders’ equity to tangible assets (a/b) 8.43%  7.93%  6.97%  7.17%  7.17%
    Tangible book value per share (a/c)$15.80  $15.10  $13.65  $13.28  $14.30 
    Efficiency ratio:                   
    Noninterest expense (d)$55,459  $57,558  $58,272  $52,435  $42,650 
    Net interest income 77,735   71,462   69,950   62,301   51,363 
    Noninterest income 25,276   70,111   31,057   10,803   47,044 
    Less: gain on sale of securities —   —   —   —   1,225 
    Adjusted operating revenue (e)$103,011  $141,573  $101,007  $73,104  $97,182 
    Efficiency ratio (d/e) 53.84%  40.66%  57.69%  71.73%  43.89%

    Live Oak Bancshares, Inc.
    GAAP to Non-GAAP Reconciliation (Continued)
    (Dollars in thousands)

     Three Months Ended  Nine Months Ended 
     3Q 2021  2Q 2021  3Q 2020  3Q 2021  3Q 2020 
    Reconciliation of net income to non-GAAP net income:                   
    Net income$33,839  $63,582  $33,780  $136,848  $29,955 
    Gain on sale of aircraft —   —   —   (114)  — 
    Impairment on aircraft held for sale —   —   1,019   —   1,019 
    Income tax effects and adjustments for non-GAAP items * —   —   (245)  27   (245)
    Non-GAAP net income$33,839  $63,582  $34,554  $136,761  $30,729 
    * Estimated at 24.0%                   
    Non-GAAP earnings per share:                   
    Basic$0.78  $1.48  $0.85  $3.18  $0.76 
    Diluted$0.76  $1.41  $0.83  $3.04  $0.74 
    Weighted-average shares outstanding:                   
    Basic 43,329,889   43,173,312   40,542,696   43,061,642   40,461,479 
    Diluted 45,040,690   45,062,392   41,549,632   44,936,014   41,248,866 
    Reconciliation of financial statement line items as reported to non-GAAP:                   
    Noninterest income, as reported$25,276  $70,111  $47,044  $126,444  $75,197 
    Gain on sale of aircraft —   —   —   (114)  — 
    Noninterest income, non-GAAP$25,276  $70,111  $47,044  $126,330  $75,197 
    Noninterest expense, as reported$55,459  $57,558  $42,650  $171,289  $140,241 
    Impairment on aircraft held for sale —   —   (1,019)  —   (1,019)
    Noninterest expense, non-GAAP$55,459  $57,558  $41,631  $171,289  $139,222 
    Income before taxes, as reported$43,233  $76,169  $45,483  $163,010  $35,354 
    Gain on sale of aircraft —   —   —   (114)  — 
    Impairment on aircraft held for sale —   —   1,019   —   1,019 
    Income before taxes, non-GAAP$43,233  $76,169  $46,502  $162,896  $36,373 
    Income tax expense, as reported$9,394  $12,587  $11,703  $26,162  $5,399 
    Income tax effects and adjustments for non-GAAP items —   —   245   (27)  245 
    Income tax expense, non-GAAP$9,394  $12,587  $11,948  $26,135  $5,644 

    This press release presents the non-GAAP financial measures. The adjustments to reconcile from the non-GAAP financial measures to the applicable GAAP financial measure are included where applicable in financial results presented in accordance with GAAP. The Company considers these adjustments to be relevant to ongoing operating results. The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period comparisons, which will assist regulators, investors, and analysts in analyzing the operating results or financial position of the Company. The non-GAAP financial measures are used by management to assess the performance of the Company’s business for presentations of Company performance to investors, and for other reasons as may be requested by investors and analysts. The Company further believes that presenting the non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although non-GAAP financial measures are frequently used by shareholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.


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