Press Releases

Live Oak Bancshares, Inc. Reports Third Quarter 2018 Results

10/24/18

WILMINGTON, N.C., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported third quarter net earnings available to common shareholders of $14.3 million, or $0.34 per diluted share, compared to $12.9 million, or $0.33 per diluted share, for the third quarter of 2017. During the third quarter of 2018, the Company incurred costs of $2.7 million, or $0.05 per diluted share, related to the exit of its title insurance business.

“Recurring revenue continues to grow through net interest income and servicing and further fortifies the Live Oak business model as we continue in our mission to empower small business owners.  We are very excited about the opportunities we have on the horizon to serve the needs of more small businesses across the U.S. and revolutionize the financial services industry by driving technological advancements for digital banking through strategic alliances and investments,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

Third Quarter 2018 Key Measures

(Dollars in thousands, except per share data)       Increase (Decrease)    
  Q3 2018   Q3 2017   Dollars   Percent   Q2 2018
Net interest income and servicing revenues $ 35,230     $ 27,515     $ 7,715     28 %   $ 34,013  
Net income 14,252     12,862     1,390     11     14,253  
Diluted earnings per share 0.34     0.33     0.01     3     0.34  
Non-GAAP net income (1) 16,562     13,323     3,239     24     14,524  
Non-GAAP diluted earnings per share (1) 0.40     0.34     0.06     18     0.35  
Loan and lease production:                  
Loans and leases originated $ 377,337     $ 395,682     $ (18,345 )   (5 )%   $ 491,797  
% Fully funded 48.2 %   37.4 %     n/a     n/a     55.9 %
Loan sales:                  
Guaranteed loans sold $ 298,073     $ 163,843     $ 134,230     82 %   $ 295,216  
Net gains on sales of guaranteed loans 21,406     18,148     3,258     18     24,388  
Average net gain on sale of guaranteed loans, per million sold 71.81     110.76     (38.95 )   (35 )   82.61  

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

Loans and Leases

At September 30, 2018, the total loan and lease portfolio of $2.28 billion increased 22.3% above its level of a year ago and was essentially flat with its level at June 30, 2018.  Compared to the second quarter of 2018, loans and leases held for investment increased $97.0 million, or 6.3%, to $1.63 billion while loans held for sale decreased $111.0 million, or 14.7%, to $646.5 million. Loan and lease originations totaled $377.3 million during the third quarter of 2018, a decline of $114.5 million, or 23.3%, from the second quarter of 2018 primarily resulting from seasonal slowdowns in the renewable energy sector combined with increased competition in existing verticals.  The total loan and lease portfolio at September 30, 2018, and June 30, 2018, of $2.28 billion and $2.29 billion, respectively, was comprised of approximately 64.4% and 61.7% of unguaranteed loans and leases, respectively.

Average loans and leases were $2.31 billion during the third quarter of 2018 compared to $2.25 billion during the second quarter of 2018.

Net Interest Income

Net interest income for the third quarter of 2018 rose to $27.7 million compared to $21.0 million for the third quarter of 2017 and $27.0 million for the second quarter of 2018. The increase from the prior year was driven by the significant growth in the combined held for sale and held for investment loan and lease portfolios along with higher investment security holdings reflecting the Company's ongoing initiative to grow recurring revenue sources.  The increase from the second quarter of 2018 arose principally from a higher average loan and lease portfolio balance.  The net interest margin for the third quarter of 2018 increased fifteen basis points to 3.61% versus 3.46% in the second quarter of 2018 due to lower average balances of liquid assets and interest-bearing liabilities coupled with an increased yield on the loan and lease portfolio.  The Company anticipates that it is positioned to benefit from a rising rate environment with 74.7% of the total held for sale and held for investment loan and lease portfolio priced at variable rates that adjust on either a calendar monthly or quarterly basis.

Noninterest Income

Noninterest income for the third quarter of 2018 decreased to $24.3 million compared to $25.1 million for the third quarter of 2017 and $30.6 million for the second quarter of 2018.

Net gains on sales of loans increased to $22.0 million in the third quarter of 2018 compared to $18.1 million in the third quarter of 2017 and decreased compared to $23.1 million in the second quarter of 2018.  The volume of guaranteed loan sales in the third quarter of 2018 rose to $298.1 million compared to $163.8 million in the third quarter of 2017 and $295.2 million in the second quarter of 2018. The average net gain on guaranteed loan sales decreased to $71.8 thousand per million sold in the third quarter of 2018 versus $110.8 thousand in the third quarter of 2017 and $82.6 thousand in the second quarter of 2018. The decline in average loan sale pricing was primarily driven by market conditions and the higher interest rate environment which has led to increased prepayment speeds and fewer active loan purchasers relative to the growing pool of loans available for sale.

Loan servicing revenues of $7.5 million in the third quarter of 2018 rose by $1.0 million, or 15.7%, from the third quarter of 2017 and by $541 thousand, or 7.8%, from the second quarter of 2018. The net loss resulting from the revaluation of the servicing asset totaled $9.4 million for the third quarter of 2018, an increase of $5.7 million compared to the third quarter of 2017 and the second quarter of 2018, largely because of the aforementioned market conditions.

Lease income from solar panels contributed $2.2 million in noninterest income in the third quarter of 2018, compared to $682 thousand in the third quarter of 2017 and $1.9 million in the second quarter of 2018.  The Company began offering operating lease agreements for solar panels to third parties at the end of the first quarter of 2017.

Title insurance income for the third quarter of 2018 was $479 thousand compared to $2.0 million in the third quarter of 2017 and $996 thousand in the second quarter of 2018.  The Company exited the title insurance business during the third quarter of 2018 with the sale of Reltco, Inc.

Noninterest Expense

Noninterest expense for the third quarter of 2018 was $41.2 million compared to $35.9 million for the third quarter of 2017 and $40.8 million for the second quarter of 2018.  The $5.4 million, or 15.0%, increase versus the prior year period reflected the ongoing expansion of the Company’s workforce, industry verticals, infrastructure, and new products in support of its growth strategy.

Salaries and employee benefits for the third quarter of 2018 increased to $20.6 million compared to $19.0 million for the third quarter of 2017 and decreased from $22.1 million for the second quarter of 2018. Included in these totals is stock-based compensation expense in the third quarter of 2018 of $2.5 million compared to $2.0 million for the third quarter of 2017 and $2.2 million for the second quarter of 2018.  The reduction in salaries and benefits for the third quarter of 2018 was influenced by the Company’s departure from the title insurance business which was partially offset by the ongoing expansion of the Company’s workforce and infrastructure to support its initiatives.

Compared to the third quarter of 2017, there were increases in data processing expense of $1.7 million and equipment expense of $1.4 million.  Largely influencing the increase in data processing was the contribution of software development resources to Apiture LLC in the third quarter of 2017 which transferred the recognition of costs associated with the Company’s technology development from salaries and employee benefits to data processing.  The increase in equipment expense reflected the higher levels of depreciation related to solar panels acquired for the Company’s renewable energy leasing business.

During the third quarter of 2018, the Company recorded a $2.7 million net impairment expense associated with the sale of Reltco.

Asset Quality

The unguaranteed exposure of nonperforming loans increased to $12.9 million, or 0.79% of total loans and leases held for investment, at September 30, 2018, compared to $11.5 million, or 0.75%, at June 30, 2018.  Total nonperforming loans increased to $52.7 million in the third quarter of 2018 from $46.1 million at the end of the prior quarter and was primarily related to older verticals.

The unguaranteed exposure of foreclosed assets decreased to $158 thousand at September 30, 2018, from $197 thousand at June 30, 2018.  Foreclosed assets decreased $296 thousand to $1.4 million at September 30, 2018, from $1.7 million at June 30, 2018.

Net charge-offs increased to $2.3 million in the third quarter of 2018 compared to $787 thousand in the second quarter of 2018 and $959 thousand in the third quarter of 2017.  Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarters ended September 30, 2018 and 2017, were 0.57% and 0.34%, respectively.

Provision for Loan and Lease Losses

There was a negative provision for loan and lease losses for the third quarter of 2018 totaling $243 thousand compared to provision expenses of $2.1 million for the second quarter of 2018 and $2.4 million for the third quarter of 2017.  The negative provision is primarily a result from updating historical loss factors for industry verticals as they mature, consistent with our methodology for estimating the allowance for loan and lease losses.

The allowance for loan and lease losses totaled $26.8 million at September 30, 2018, compared to $29.4 million at June 30, 2018. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.64% and 1.91% at September 30, 2018, and June 30, 2018, respectively.

Income Tax

There was a net income tax benefit in the third quarter of 2018 of $3.2 million compared to $5.1 million in the third quarter of 2017 and a tax expense of $491 thousand in the second quarter of 2018.  The Company’s effective tax rate is predominantly driven by the leasing of renewable energy assets that generate investment tax credits.  As the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector.

Deposits

Total deposits decreased slightly by $44.9 million to $2.92 billion at September 30, 2018 from $2.97 billion at June 30, 2018, consistent with desired liquidity levels and stable loan and lease portfolio levels during the quarter. Average total interest-bearing deposits for the third quarter of 2018 decreased $86.7 million, or 2.9%, to $2.91 billion, compared to $2.99 billion for the second quarter of 2018. The ratio of average total loans and leases to average interest-bearing deposits was 79.3% for the third quarter of 2018, compared to 75.1% for the second quarter of 2018.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 25, 2018). 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 9884327. 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 webcast will be archived on the Company's website for one year.  A replay of the conference call will also be available until 5:00 p.m. ETNovember 1, 2018, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

CFO Commentary

Additional commentary on the quarter by Brett Caines, Chief Financial Officer of the Company, is available at http://investor.liveoakbank.com in the supporting materials for the conference call.

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; 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; 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 Banking CompanyLive Oak Bancshares and its subsidiaries partner with businesses that have a common focus of changing the banking industry by bringing efficiency and excellence to customers using technology and innovation.

Contacts:
Brett Caines | CFO | Investor Relations | 910.796.1645 & Micah Davis | Marketing Director | Media Relations | 910.550.2255


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

  Three months ended
  3Q 2018   2Q 2018   1Q 2018   4Q 2017   3Q 2017
Interest income                  
Loans and fees on loans $ 37,724     $ 36,267     $ 32,691     $ 29,343     $ 26,977  
Investment securities, taxable 2,528     2,530     1,117     468     325  
Other interest earning assets 1,638     2,179     1,215     725     870  
Total interest income 41,890     40,976     35,023     30,536     28,172  
Interest expense                  
Deposits 14,165     13,927     10,418     7,330     6,758  
Borrowings 1     1     129     230     389  
Total interest expense 14,166     13,928     10,547     7,560     7,147  
Net interest income 27,724     27,048     24,476     22,976     21,025  
Provision for (recovery of) loan and leases losses (243 )   2,087     4,392     4,055     2,426  
Net interest income after provision for loan and lease losses 27,967     24,961     20,084     18,921     18,599  
Noninterest income                  
Loan servicing revenue 7,506     6,965     6,898     6,001     6,490  
Loan servicing asset revaluation (9,380 )   (3,670 )   (5,088 )   (6,307 )   (3,691 )
Net gains on sales of loans 22,004     23,061     24,418     23,314     18,148  
Lease income 2,194     1,920     1,608     1,165     682  
Gain on contribution to equity method investment             68,000      
Construction supervision fee income 578     597     779     699     362  
Title insurance income 479     996     1,300     1,762     1,968  
Other noninterest income 950     744     841     807     1,101  
Total noninterest income 24,331     30,613     30,756     95,441     25,060  
Noninterest expense                  
Salaries and employee benefits 20,553     22,146     20,209     18,982     19,037  
Travel expense 2,003     2,041     1,843     2,089     2,289  
Professional services expense 1,228     1,119     1,298     709     1,068  
Advertising and marketing expense 1,462     1,868     1,662     1,386     1,516  
Occupancy expense 1,588     1,882     1,857     2,177     1,473  
Data processing expense 3,661     2,906     2,837     2,913     1,982  
Equipment expense 3,649     3,368     3,077     2,474     2,228  
Other loan origination and maintenance expense 1,742     1,414     1,329     1,383     1,601  
Renewable energy tax credit investment impairment             690      
FDIC insurance 1,105     1,010     572     898     858  
Title insurance closing services expense 114     372     426     541     687  
Impairment expense on goodwill and other intangibles, net 2,680             3,648      
Other expense 1,459     2,704     2,962     3,134     3,117  
Total noninterest expense 41,244     40,830     38,072     41,024     35,856  
Income before taxes 11,054     14,744     12,768     73,338     7,803  
Income tax expense (benefit) (3,198 )   491     315     1,608     (5,059 )
Net income $ 14,252     $ 14,253     $ 12,453     $ 71,730     $ 12,862  
Earnings per share                  
Basic $ 0.36     $ 0.36     $ 0.31     $ 1.80     $ 0.34  
Diluted $ 0.34     $ 0.34     $ 0.30     $ 1.74     $ 0.33  
Weighted average shares outstanding                  
Basic 40,119,561     40,027,336     39,926,781     39,879,345     37,366,041  
Diluted 41,688,430     41,619,647     41,399,930     41,184,793     38,644,677  


Live Oak Bancshares, Inc.

Quarterly Balance Sheets (unaudited)
(Dollars in thousands)

  As of the quarter ended
  3Q 2018   2Q 2018   1Q 2018   4Q 2017   3Q 2017
Assets                  
Cash and due from banks $ 368,565     $ 392,941     $ 527,952     $ 295,271     $ 260,907  
Certificates of deposit with other banks 750     2,250     2,250     3,000     3,250  
Investment securities available-for-sale 374,284     382,890     376,453     93,355     76,575  
Loans held for sale 646,475     757,494     720,511     680,454     692,586  
Loans and leases held for investment 1,631,337     1,534,368     1,442,077     1,343,973     1,169,887  
Allowance for loan and lease losses (26,797 )   (29,350 )   (28,050 )   (24,190 )   (21,027 )
Net loans and leases 1,604,540     1,505,018     1,414,027     1,319,783     1,148,860  
Premises and equipment, net 263,861     234,817     216,831     178,790     129,233  
Foreclosed assets 1,429     1,725     1,519     1,281     2,231  
Servicing assets 49,261     52,689     53,120     52,298     53,392  
Other assets 135,592     143,145     148,200     134,242     65,155  
Total assets $ 3,444,757     $ 3,472,969     $ 3,460,863     $ 2,758,474     $ 2,432,189  
Liabilities and Shareholders’ Equity                  
Liabilities                  
Deposits:                  
Noninterest-bearing $ 48,622     $ 46,192     $ 48,755     $ 57,868     $ 55,260  
Interest-bearing 2,875,666     2,923,044     2,924,586     2,202,395     1,957,631  
Total deposits 2,924,288     2,969,236     2,973,341     2,260,263     2,012,891  
Long term borrowings 1,506     3,385     3,489     26,564     26,872  
Other liabilities 41,733     37,362     35,197     34,714     27,835  
Total liabilities 2,967,527     3,009,983     3,012,027     2,321,541     2,067,598  
Shareholders’ equity                  
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                  
Class A common stock (voting) 276,831     274,043     271,451     268,557     266,336  
Class B common stock (non-voting) 49,168     49,168     49,168     49,168     49,168  
Retained earnings 157,839     144,791     131,739     120,241     49,707  
Accumulated other comprehensive loss (6,608 )   (5,016 )   (3,522 )   (1,033 )   (620 )
Total equity 477,230     462,986     448,836     436,933     364,591  
Total liabilities and shareholders’ equity $ 3,444,757     $ 3,472,969     $ 3,460,863     $ 2,758,474     $ 2,432,189  


Live Oak Bancshares, Inc.

Statements of Income (unaudited)
(Dollars in thousands, except per share data)

  Nine months ended
  September 30, 2018   September 30, 2017
Interest income      
Loans and fees on loans $ 106,682     $ 70,290  
Investment securities, taxable 6,175     964  
Other interest earning assets 5,032     1,682  
Total interest income 117,889     72,936  
Interest expense      
Deposits 38,510     16,893  
Borrowings 131     985  
Total interest expense 38,641     17,878  
Net interest income 79,248     55,058  
Provision for loan losses 6,236     5,481  
Net interest income after provision for loan losses 73,012     49,577  
Noninterest income      
Loan servicing revenue 21,369     18,587  
Loan servicing asset revaluation (18,138 )   (6,864 )
Net gains on sales of loans 69,483     55,276  
Lease income 5,722     691  
Construction supervision fee income 1,954     1,077  
Title insurance income 2,775     5,803  
Other noninterest income 2,535     2,910  
Total noninterest income 85,700     77,480  
Noninterest expense      
Salaries and employee benefits 62,908     55,687  
Travel expense 5,887     6,035  
Professional services expense 3,645     4,228  
Advertising and marketing expense 4,992     4,977  
Occupancy expense 5,327     4,018  
Data processing expense 9,404     5,536  
Equipment expense 10,094     5,005  
Other loan origination and maintenance expense 4,485     3,587  
FDIC insurance 2,687     2,308  
Title insurance closing services expense 912     1,877  
Impairment expense on goodwill and other intangibles, net 2,680      
Other expense 7,125     8,883  
Total noninterest expense 120,146     102,141  
Income before taxes 38,566     24,916  
Income tax benefit (2,392 )   (3,853 )
Net income $ 40,958     $ 28,769  
Earnings per share      
Basic $ 1.02     $ 0.81  
Diluted $ 0.98     $ 0.78  
Weighted average shares outstanding      
Basic 40,025,265     35,485,371  
Diluted 41,586,987     36,730,054  


Live Oak Bancshares, Inc.

Quarterly Selected Financial Data
(Dollars in thousands, except per share data)

  As of and for the three months ended
  3Q 2018   2Q 2018   1Q 2018   4Q 2017   3Q 2017
Income Statement Data                  
Net income $ 14,252     $ 14,253     $ 12,453     $ 71,730     $ 12,862  
Per Common Share                  
Net income, basic $ 0.36     $ 0.36     $ 0.31     $ 1.80     $ 0.34  
Net income, diluted 0.34     0.34     0.30     1.74     0.33  
Dividends declared 0.03     0.03     0.03     0.03     0.03  
Book value 11.89     11.55     11.23     10.95     9.15  
Tangible book value (1) 11.89     11.45     11.13     10.85     8.84  
Performance Ratios                  
Return on average assets (annualized) 1.65 %   1.61 %   1.64 %   11.21 %   2.18 %
Return on average equity (annualized) 12.08     12.34     11.08     68.33     16.79  
Net interest margin 3.61     3.46     3.72     4.07     3.91  
Efficiency ratio (1) 79.23     70.81     68.93     34.64     77.80  
Noninterest income to total revenue 46.74     53.09     55.69     80.60     54.38  
Selected Loan Metrics                  
Loans and leases originated $ 377,337     $ 491,797     $ 397,559     $ 483,422     $ 395,682  
Guaranteed loans sold 298,073     295,216     247,243     211,654     163,843  
Average net gain on sale of guaranteed loans 71.81     82.61     98.76     110.15     110.76  
Held for sale guaranteed loans (note amount) (2) 896,464     1,075,801     1,068,886     1,087,636     1,093,385  
Outstanding balance of sold loans serviced:                  
Guaranteed 3,102,820     2,951,379     2,812,108     2,680,641     2,584,163  
Unguaranteed 170,784     155,939     174,867     169,355     135,705  
Total 3,273,604     3,107,318     2,986,975     2,849,996     2,719,868  
Asset Quality Ratios                  
Allowance for loan losses to loans and leases held for investment 1.64 %   1.91 %   1.95 %   1.80 %   1.80 %
Net charge-offs $ 2,310     $ 787     $ 532     $ 892     $ 959  
Net charge-offs to average loans and leases held for investment (3) 0.57 %   0.21 %   0.15 %   0.28 %   0.34 %
Nonperforming loans $ 52,709     $ 46,105     $ 36,776     $ 23,480     $ 22,420  
Foreclosed assets 1,429     1,725     1,519     1,281     2,231  
Nonperforming loans (unguaranteed exposure) 12,897     11,466     7,386     3,610     3,299  
Foreclosed assets (unguaranteed exposure) 158     197     101     90     446  
Nonperforming loans not guaranteed by the SBA and foreclosures $ 13,055     $ 11,663     $ 7,487     $ 3,700     $ 3,745  
Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets 0.38 %   0.34 %   0.22 %   0.13 %   0.15 %
Capital Ratios                  
Common equity tier 1 capital (to risk-weighted assets) 16.95 %   16.78 %   16.36 %   17.81 %   17.78 %
Total capital (to risk-weighted assets) 18.01     17.97     17.51     18.91     18.93  
Tier 1 risk based capital (to risk-weighted assets) 16.95     16.78     16.36     17.81     17.78  
Tier 1 leverage capital (to average assets) 12.53     11.81     13.32     15.53     13.99  

Notes to Quarterly Selected Financial Data

(1)  See accompanying GAAP to Non-GAAP Reconciliation.
(2)  Includes the entire note amount, including undisbursed funds for the multi-advance loans.
(3)  Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.


Live Oak Bancshares, Inc.

Quarterly Average Balances and Net Interest Margin
(Dollars in thousands)

    Three months ended September 30, 2018   Three months ended June 30, 2018
    Average Balance    Interest   Average Yield/Rate   Average Balance    Interest   Average Yield/Rate
Interest earning assets:                        
Interest earning balances in other banks   $ 349,739     $ 1,638     1.86 %   $ 505,351     $ 2,179     1.73 %
Investment securities   388,520     2,528     2.58     383,154     2,530     2.65  
Loans held for sale   693,517     11,270     6.45     744,789     11,937     6.43  
Loans and leases held for investment (1)   1,612,699     26,454     6.51     1,504,738     24,330     6.49  
Total interest earning assets   3,044,475     41,890     5.46     3,138,032     40,976     5.24  
Less: allowance for loan and lease losses   (29,266 )           (27,930 )        
Non-interest earning assets   434,963             424,100          
Total assets   $ 3,450,172             $ 3,534,202          
                         
Interest bearing liabilities:                        
Interest bearing checking   $ 31,950     $ 87     1.08 %   $ 36,926     $ 100     1.09 %
Savings   943,958     4,026     1.69     998,521     4,061     1.63  
Money market accounts   120,702     314     1.03     151,880     463     1.22  
Certificates of deposit   1,810,040     9,738     2.13     1,806,063     9,303     2.07  
Total interest bearing deposits   2,906,650     14,165     1.93     2,993,390     13,927     1.87  
Other borrowings   3,365     1     0.12     3,488     1     0.11  
Total interest bearing liabilities   2,910,015     14,166     1.93     2,996,878     13,928     1.86  
Non-interest bearing deposits   46,272             53,922          
Non-interest bearing liabilities   21,804             21,217          
Shareholders' equity   472,081             462,185          
Total liabilities and shareholders' equity   $ 3,450,172             $ 3,534,202          
                         
Net interest income and interest rate spread       $ 27,724     3.53 %       $ 27,048     3.38 %
                         
Net interest margin           3.61             3.46  
                         
Ratio of average interest-earning assets to average interest-bearing liabilities           104.62 %           104.71 %

(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 2018   2Q 2018   1Q 2018   4Q 2017   3Q 2017
Total shareholders’ equity $ 477,230     $ 462,986     $ 448,836     $ 436,933     $ 364,591  
Less:                  
Goodwill                 7,278  
Other intangible assets     3,980     4,122     4,264     5,126  
Tangible shareholders’ equity (a) $ 477,230     $ 459,006     $ 444,714     $ 432,669     $ 352,187  
Shares outstanding (c) 40,140,417     40,086,409     39,974,148     39,895,583     39,862,147  
Total assets $ 3,444,757     $ 3,472,969     $ 3,460,863     $ 2,758,474     $ 2,432,189  
Less:                  
Goodwill                 7,278  
Other intangible assets     3,980     4,122     4,264     5,126  
Tangible assets (b) $ 3,444,757     $ 3,468,989     $ 3,456,741     $ 2,754,210     $ 2,419,785  
Tangible shareholders’ equity to tangible assets (a/b) 13.85 %   13.23 %   12.87 %   15.71 %   14.55 %
Tangible book value per share (a/c) $ 11.89     $ 11.45     $ 11.13     $ 10.85     $ 8.84  
Efficiency ratio:                  
Noninterest expense (d) $ 41,244     $ 40,830     $ 38,072     $ 41,024     $ 35,856  
Net interest income 27,724     27,048     24,476     22,976     21,025  
Noninterest income 24,331     30,613     30,756     95,441     25,060  
Less: gain on sale of securities                  
Adjusted operating revenue (e) $ 52,055     $ 57,661     $ 55,232     $ 118,417     $ 46,085  
Efficiency ratio (d/e) 79.23 %   70.81 %   68.93 %   34.64 %   77.80 %


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

 
  Three months ended   Nine months ended
  3Q 2018   2Q 2018   3Q 2017   3Q 2018   3Q 2017
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:                  
Net income $ 14,252     $ 14,253     $ 12,862     $ 40,958     $ 28,769  
Stock based compensation expense for restricted stock awards with an effective grant date of May 24, 2016, as discussed in Note 10 of our March 31, 2016 Form 10-Q 360     357     286     1,069     1,010  
Merger costs for acquisition of Reltco and Apiture investment         390         1,156  
Trade-in loss on aircraft                 206  
Impairment expense on goodwill and other intangibles, net 2,680             2,680      
Renewable energy tax credit investment income, impairment and loss                 38  
Income tax effects and adjustments for non-GAAP items * (730 )   (86 )   (270 )   (900 )   (964 )
Other renewable energy tax expense         44         132  
Non-GAAP net income $ 16,562     $ 14,524     $ 13,312     $ 43,807     $ 30,347  
* Estimated at 24.0% for 2018 and 40.0% for 2017                  
Non-GAAP earnings per share:                  
Basic $ 0.41     $ 0.36     $ 0.36     $ 1.09     $ 0.86  
Diluted $ 0.40     $ 0.35     $ 0.34     $ 1.05     $ 0.83  
                   
Weighted-average shares outstanding:                  
Basic 40,119,561     40,027,336     37,366,041     40,025,265     35,485,371  
Diluted 41,688,430     41,619,647     38,644,677     41,586,987     36,370,054  
                   
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:                  
Noninterest income, as reported $ 24,331     $ 30,613     $ 25,060     $ 85,700     $ 77,480  
Renewable energy tax credit investment income                 (20 )
Noninterest income, as adjusted $ 24,331     $ 30,613     $ 25,060     $ 85,700     $ 77,460  
                   
Noninterest expense, as reported $ 41,244     $ 40,830     $ 35,856     $ 120,146     $ 102,141  
Stock based compensation expense (360 )   (357 )   (286 )   (1,069 )   (1,010 )
Merger costs associated with Reltco and Apiture investment         (390 )       (1,156 )
Trade-in loss on aircraft                 (206 )
Impairment expense on goodwill and other intangibles, net (2,680 )           (2,680 )    
Renewable energy tax credit investment impairment and loss                 (58 )
Noninterest expense, as adjusted $ 38,204     $ 40,473     $ 35,180     $ 116,397     $ 99,711  
                   
Income before taxes, as reported $ 11,054     $ 14,744     $ 7,803     $ 38,566     $ 24,916  
Renewable energy tax credit investment income                 (20 )
Stock based compensation expense 360     357     286     1,069     1,010  
Merger costs associated with Reltco and Apiture investment         390         1,156  
Trade-in loss on aircraft                 206  
Impairment expense on goodwill and other intangibles, net 2,680             2,680      
Renewable energy tax credit investment impairment and loss                 58  
Income before taxes, as adjusted $ 14,094     $ 15,101     $ 8,479     $ 42,315     $ 27,326  
                   
Income tax expense (benefit), as reported $ (3,198 )   $ 491     $ (5,059 )   $ (2,392 )   $ (3,853 )
Income tax effects and adjustments for non-recurring income and expenses 730     86     270     900     964  
Other renewable energy tax expense         (44 )       (132 )
Income tax expense (benefit), as adjusted $ (2,468 )   $ 577     $ (4,833 )   $ (1,492 )   $ (3,021 )

This press release presents the non-GAAP financial measures previously shown. The adjustments to reconcile from the applicable GAAP financial measure to the non-GAAP financial measures 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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Source: Live Oak Bancshares, Inc.