Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 25, 2018
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12369565&doc=3
LIVE OAK BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
 
 
 
North Carolina
001-37497
26-4596286
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)
 
 
 
1741 Tiburon Drive, Wilmington, NC
28403
(Address of principal executive offices)
(Zip Code)
 
 
 
Registrant’s telephone number, including area code: (910) 790-5867
 
 
 
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨





Item 2.02.
Results of Operations and Financial Condition.
On July 25, 2018, Live Oak Bancshares, Inc. (the “Company”) announced financial results for the second quarter ended June 30, 2018. A copy of the press release announcing the Company’s results for the second quarter is attached as Exhibit 99.1 hereto and incorporated by reference herein.
The information contained in this report (including Exhibit 99.1) shall not be deemed “filed” for purposes of section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
 
Item 9.01.
Financial Statements and Exhibits.
 
(d)
Exhibits

Exhibit No.
  
Description
 
 
99.1

  





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
LIVE OAK BANCSHARES, INC.
 
By:
/s/ S. Brett Caines                   
 
 
S. Brett Caines
 
 
Chief Financial Officer
 
 
 
 
 
 
Dated: July 25, 2018
 
 



Exhibit


Exhibit 99.1
Section 2: EX-99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12369565&doc=3 
LIVE OAK BANCSHARES, INC. REPORTS SECOND QUARTER 2018 RESULTS
Wilmington, NC, July 25, 2018 - Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported second quarter net earnings available to common shareholders of $14.3 million, or $0.34 per diluted share, compared to $9.8 million, or $0.27 per diluted share, for the second quarter of 2017.

“The power of the Live Oak franchise was on full display in the second quarter as we set a quarterly record with $15.1 million in non-GAAP pre-tax income. Our recurring revenue streams continue to grow in prominence as the loan and lease portfolio grew 35% in the past year. Our steady investments in resources and lending initiatives are yielding excellent returns and setting the stage for continued growth through the operating leverage present in our business. Our unique business model and superior talent positions us to thrive in the digital transformation underway in the financial services industry. We remain passionately focused on serving the needs of small businesses through innovative technology solutions,” said James S. Mahan, III, Chief Executive Officer of Live Oak.
Second Quarter 2018 Key Measures
(Dollars in thousands, except per share data)
 
 
 
Increase (Decrease)
 
 
 
Q2 2018
 
Q2 2017
 
Dollars
 
Percent
 
Q1 2018
Net interest income and servicing revenues
$
34,013

 
$
24,566

 
$
9,447

 
38
 %
 
$
31,374

Net income
14,253

 
9,795

 
4,458

 
46

 
12,453

Diluted earnings per share
0.34

 
0.27

 
0.07

 
26

 
0.30

Non-GAAP net income (1)
14,524

 
10,227

 
4,297

 
42

 
12,721

Non-GAAP diluted earnings per share (1)
0.35

 
0.28

 
0.07

 
25

 
0.31

Loan and lease production:
 
 
 
 
 
 
 
 
 
Loans and leases originated
$
491,797

 
$
586,471

 
$
(94,674
)
 
(16
)%
 
$
397,559

% Fully funded
55.9
%
 
42.2
%
 
n/a

 
n/a

 
69.5
%
Loan sales:
 
 
 
 

 

 
 
Guaranteed loans sold
$
295,216

 
$
203,714

 
$
91,502

 
45
 %
 
$
247,243

Net gains on sales of guaranteed loans
24,388

 
18,676

 
5,712

 
31

 
24,418

Average net gain on sale of guaranteed loans, per million sold
82.61

 
91.68

 
(9.07
)
 
(10
)
 
98.76

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

1



Loans and Leases
At June 30, 2018, the total loan and lease portfolio of $2.29 billion increased 35.3% above its level of a year ago and by 6.0% above its level at March 31, 2018. Net loans and leases held for investment increased $91.0 million, or 6.4%, to $1.51 billion at June 30, 2018, from $1.41 billion at March 31, 2018. Loans held for sale increased $37.0 million, or 5.1%, to $757.5 million at June 30, 2018, from $720.5 million at March 31, 2018. Loan and lease originations totaled $491.8 million during the second quarter of 2018, an increase of $94.2 million, or 23.7%, from the first quarter of 2018. The total loan and lease portfolio at June 30, 2018, and March 31, 2018, of $2.29 billion and $2.16 billion, respectively, was comprised of approximately 61.7% and 61.3% of unguaranteed loans and leases, respectively.
Average loans and leases were $2.25 billion during the second quarter of 2018 compared to $2.14 billion during the first quarter of 2018.
Net Interest Income
Net interest income for the second quarter of 2018 rose to $27.0 million compared to $18.4 million for the second quarter of 2017 and $24.5 million for the first quarter of 2018. The increase was driven by the significant growth in the combined held for sale and held for investment loan and lease portfolios and reflected the Company's initiative to grow recurring revenue sources. Despite much higher average loan yields, net interest margin for the second quarter of 2018 declined to 3.46% versus 3.72% in the first quarter of 2018 due to significantly higher average balances of liquid assets and securities coupled with the rising cost of deposits. The Company anticipates that it is positioned to benefit from the rising rate environment with 72.7% 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 second quarter of 2018 increased to $30.6 million compared to $26.7 million for the second quarter of 2017 and slightly below the $30.8 million total for the first quarter of 2018.
Net gains on sales of loans increased to $23.1 million in the second quarter of 2018 compared to $18.2 million in the second quarter of 2017 and decreased compared to $24.4 million in the first quarter of 2018. The volume of guaranteed loan sales in the second quarter of 2018 rose to $295.2 million compared to $203.7 million in the second quarter of 2017 and $247.2 million in the first quarter of 2018. The average net gain on guaranteed loan sales decreased to $82.6 thousand per million sold in the second quarter of 2018 versus $91.7 in the second quarter of 2017 and $98.8 in the first quarter of 2018. The decline in average loan sale pricing was primarily driven by the mix of loan types sold during the quarter, especially related to renewable energy loans which typically carry lower sale premiums and, to a lesser extent, a slight decline in market premiums paid.
Loan servicing revenues of $7.0 million in the second quarter of 2018 rose by $791 thousand, or 12.8%, from the second quarter of 2017 and by $67 thousand, or 1.0%, from the first quarter of 2018. The net loss resulting from the revaluation of the servicing asset totaled $3.7 million for the second quarter of 2018, an increase of $2.5 million compared to the second quarter of 2017 but reduced from the net loss of $5.1 million in the first quarter of 2018.
Lease income from solar panels contributed $1.9 million in noninterest income in the second quarter of 2018, compared to $9 thousand in the second quarter of 2017 and $1.6 million in the first 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 second quarter of 2018 was $996 thousand compared to $2.4 million in the second quarter of 2017 and $1.3 million in the first quarter of 2018. This decrease was principally the result of lower levels of finance activity following recent increases in mortgage interest rates.
Noninterest Expense
Noninterest expense for the second quarter of 2018 was $40.8 million compared to $33.3 million for the second quarter of 2017 and $38.1 million for the first quarter of 2018. The $7.5 million, or 22.6%, 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 second quarter of 2018 increased to $22.1 million compared to $18.0 million for the second quarter of 2017 and $20.2 million for the first quarter of 2018. Included in these totals is stock-based compensation expense in the second quarter of 2018 of $2.2 million compared to $1.9 million for the second quarter of 2017 and $2.3 million for the first quarter of 2018. The increase in salaries and benefits, inclusive of stock-based compensation, is the result of the ongoing expansion of the Company’s workforce and infrastructure to support its growth initiatives.

2



Compared to the second quarter of 2017, there were increases in data processing expense of $1.0 million and equipment expense of $1.7 million. Largely influencing the increase in data processing was the contribution of software development resources to Apiture 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.
Asset Quality
The unguaranteed exposure of nonperforming loans increased to $11.5 million at June 30, 2018, compared to $7.4 million at March 31, 2018. Total unguaranteed nonperforming loans as a percentage of total loans and leases held for investment increased to 0.75% at June 30, 2018, compared to 0.51% at March 31, 2018. Total nonperforming loans increased to $46.1 million in the second quarter of 2018 from $36.8 million at the end of the prior quarter and was primarily related to older verticals.
The unguaranteed exposure of foreclosed assets increased to $197 thousand at June 30, 2018, from $101 thousand at March 31, 2018. Foreclosed assets increased $206 thousand to $1.7 million at June 30, 2018, from $1.5 million at March 31, 2018.
Net charge-offs increased to $787 thousand in the second quarter of 2018 compared to $532 thousand in the first quarter of 2018 and $191 thousand in the second quarter of 2017. Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarters ended June 30, 2018 and 2017, were 0.21% and 0.07%, respectively.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the second quarter of 2018 totaled $2.1 million compared to $4.4 million for the first quarter of 2018 and $1.6 million for the second quarter of 2017. The decrease compared to first quarter of 2018 is primarily a result of updated historical loss factors consistent with our methodology for estimating the allowance for loan and lease losses. The second quarter of 2018 provision greatly exceeded net charge-offs, thus adding to loan and lease loss reserves commensurate with the continued growth of the loan and lease portfolio.
The allowance for loan and lease losses totaled $29.4 million at June 30, 2018, compared to $28.1 million at March 31, 2018. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.91% and 1.95% at June 30, 2018, and March 31, 2018, respectively.
Income Tax
Income tax expense was $491 thousand in the second quarter of 2018 compared to $408 thousand in the second quarter of 2017 and $315 thousand in the first 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 of $2.97 billion at June 30, 2018 were essentially unchanged from the level at March 31, 2018. Following successful strategic campaigns in the first quarter of 2018 to strengthen the Company’s liquidity position, deposit gathering in the second quarter of 2018 served to maintain the deposit portfolio levels. Average total interest-bearing deposits for the second quarter of 2018 increased $485.5 million, or 19.4%, to $2.99 billion, compared to $2.51 billion for the first quarter of 2018. The ratio of average total loans and leases to average interest-bearing deposits was 75.1% for the second quarter of 2018, compared to 85.2% for the first quarter of 2018.
Conference Call
Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (July 26, 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 1994024. 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. ET August 3, 2018, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

3



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 Company. Live 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

4



Live Oak Bancshares, Inc.
Quarterly Statements of Income (unaudited)
(Dollars in thousands, except per share data)
 
 
Three months ended
 
2Q 2018
 
1Q 2018
 
4Q 2017
 
3Q 2017
 
2Q 2017
Interest income
 
 
 
 
 
 
 
 
 
Loans and fees on loans
$
36,267

 
$
32,691

 
$
29,343

 
$
26,977

 
$
23,559

Investment securities, taxable
2,530

 
1,117

 
468

 
325

 
316

Other interest earning assets
2,179

 
1,215

 
725

 
870

 
470

Total interest income
40,976

 
35,023

 
30,536

 
28,172

 
24,345

Interest expense
 
 
 
 
 
 
 
 
 
Deposits
13,927

 
10,418

 
7,330

 
6,758

 
5,592

Borrowings
1

 
129

 
230

 
389

 
361

Total interest expense
13,928

 
10,547

 
7,560

 
7,147

 
5,953

Net interest income
27,048

 
24,476

 
22,976

 
21,025

 
18,392

Provision for loan and leases losses
2,087

 
4,392

 
4,055

 
2,426

 
1,556

Net interest income after provision for loan and lease losses
24,961

 
20,084

 
18,921

 
18,599

 
16,836

Noninterest income
 
 
 
 
 
 
 
 
 
Loan servicing revenue
6,965

 
6,898

 
6,001

 
6,490

 
6,174

Loan servicing asset revaluation
(3,670
)
 
(5,088
)
 
(6,307
)
 
(3,691
)
 
(1,164
)
Net gains on sales of loans
23,061

 
24,418

 
23,314

 
18,148

 
18,176

Lease income
1,920

 
1,608

 
1,165

 
682

 
9

Gain on contribution to equity method investment

 

 
68,000

 

 

Construction supervision fee income
597

 
779

 
699

 
362

 
286

Title insurance income
996

 
1,300

 
1,762

 
1,968

 
2,397

Other noninterest income
744

 
841

 
807

 
1,101

 
789

Total noninterest income
30,613

 
30,756

 
95,441

 
25,060

 
26,667

Noninterest expense
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
22,146

 
20,209

 
18,982

 
19,037

 
17,968

Travel expense
2,041

 
1,843

 
2,089

 
2,289

 
2,148

Professional services expense
1,119

 
1,298

 
709

 
1,068

 
1,424

Advertising and marketing expense
1,868

 
1,662

 
1,386

 
1,516

 
1,976

Occupancy expense
1,882

 
1,857

 
2,177

 
1,473

 
1,350

Data processing expense
2,906

 
2,837

 
2,913

 
1,982

 
1,858

Equipment expense
3,368

 
3,077

 
2,474

 
2,228

 
1,703

Other loan origination and maintenance expense
1,414

 
1,329

 
1,383

 
1,601

 
981

Renewable energy tax credit investment impairment

 

 
690

 

 

FDIC insurance
1,010

 
572

 
898

 
858

 
724

Title insurance closing services expense
372

 
426

 
541

 
687

 
785

Other expense
2,704

 
2,962

 
3,134

 
3,117

 
2,383

Total noninterest expense
40,830

 
38,072

 
41,024

 
35,856

 
33,300

Income before taxes
14,744

 
12,768

 
73,338

 
7,803

 
10,203

Income tax expense (benefit)
491

 
315

 
1,608

 
(5,059
)
 
408

Net income
$
14,253

 
$
12,453

 
$
71,730

 
$
12,862

 
$
9,795

Earnings per share
 
 
 
 
 
 
 
 
 
Basic
$
0.36

 
$
0.31

 
$
1.80

 
$
0.34

 
$
0.28

Diluted
$
0.34

 
$
0.30

 
$
1.74

 
$
0.33

 
$
0.27

Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
Basic
40,027,336

 
39,926,781

 
39,879,345

 
37,366,041

 
34,618,721

Diluted
41,619,647

 
41,399,930

 
41,184,793

 
38,644,677

 
35,942,041


5



Live Oak Bancshares, Inc.
Quarterly Balance Sheets (unaudited)
(Dollars in thousands)
 
 
As of the quarter ended
 
2Q 2018
 
1Q 2018
 
4Q 2017
 
3Q 2017
 
2Q 2017
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
392,941

 
$
527,952

 
$
295,271

 
$
260,907

 
$
207,373

Certificates of deposit with other banks
2,250

 
2,250

 
3,000

 
3,250

 
5,750

Investment securities available-for-sale
384,943

 
378,488

 
93,355

 
76,575

 
72,993

Loans held for sale
757,494

 
720,511

 
680,454

 
692,586

 
609,138

Loans and leases held for investment
1,534,368

 
1,442,077

 
1,343,973

 
1,169,887

 
1,084,503

Allowance for loan and lease losses
(29,350
)
 
(28,050
)
 
(24,190
)
 
(21,027
)
 
(19,560
)
Net loans and leases
1,505,018

 
1,414,027

 
1,319,783

 
1,148,860

 
1,064,943

Premises and equipment, net
234,817

 
216,831

 
178,790

 
129,233

 
125,008

Foreclosed assets
1,725

 
1,519

 
1,281

 
2,231

 
2,140

Servicing assets
52,689

 
53,120

 
52,298

 
53,392

 
53,675

Other assets
141,092

 
146,165

 
134,242

 
65,155

 
57,087

Total assets
$
3,472,969

 
$
3,460,863

 
$
2,758,474

 
$
2,432,189

 
$
2,198,107

Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
Noninterest-bearing
$
46,192

 
$
48,755

 
$
57,868

 
$
55,260

 
$
40,966

Interest-bearing
2,923,044

 
2,924,586

 
2,202,395

 
1,957,631

 
1,830,755

Total deposits
2,969,236

 
2,973,341

 
2,260,263

 
2,012,891

 
1,871,721

Short term borrowings

 

 

 

 
10,000

Long term borrowings
3,385

 
3,489

 
26,564

 
26,872

 
52,173

Other liabilities
37,362

 
35,197

 
34,714

 
27,835

 
26,582

Total liabilities
3,009,983

 
3,012,027

 
2,321,541

 
2,067,598

 
1,960,476

Shareholders’ equity
 
 
 
 
 
 
 
 
 
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding

 

 

 

 

Class A common stock (voting)
274,043

 
271,451

 
268,557

 
266,336

 
150,939

Class B common stock (non-voting)
49,168

 
49,168

 
49,168

 
49,168

 
49,168

Retained earnings
144,791

 
131,739

 
120,241

 
49,707

 
38,041

Accumulated other comprehensive loss
(5,016
)
 
(3,522
)
 
(1,033
)
 
(620
)
 
(517
)
Total equity
462,986

 
448,836

 
436,933

 
364,591

 
237,631

Total liabilities and shareholders’ equity
$
3,472,969

 
$
3,460,863

 
$
2,758,474

 
$
2,432,189

 
$
2,198,107



6



Live Oak Bancshares, Inc.
Statements of Income (unaudited)
(Dollars in thousands, except per share data)
 
Six months ended
 
June 30, 2018
 
June 30, 2017
Interest income
 
 
 
Loans and fees on loans
$
68,958

 
$
43,313

Investment securities, taxable
3,647

 
639

Other interest earning assets
3,394

 
812

Total interest income
75,999

 
44,764

Interest expense
 
 
 
Deposits
24,345

 
10,135

Borrowings
130

 
596

Total interest expense
24,475

 
10,731

Net interest income
51,524

 
34,033

Provision for loan losses
6,479

 
3,055

Net interest income after provision for loan losses
45,045

 
30,978

Noninterest income
 
 
 
Loan servicing revenue
13,863

 
12,097

Loan servicing asset revaluation
(8,758
)
 
(3,173
)
Net gains on sales of loans
47,479

 
37,128

Lease income
3,528

 
9

Construction supervision fee income
1,376

 
715

Title insurance income
2,296

 
3,835

Other noninterest income
1,585

 
1,809

Total noninterest income
61,369

 
52,420

Noninterest expense
 
 
 
Salaries and employee benefits
42,355

 
36,650

Travel expense
3,884

 
3,746

Professional services expense
2,417

 
3,160

Advertising and marketing expense
3,530

 
3,461

Occupancy expense
3,739

 
2,545

Data processing expense
5,743

 
3,554

Equipment expense
6,445

 
2,777

Other loan origination and maintenance expense
2,743

 
1,986

FDIC insurance
1,582

 
1,450

Title insurance closing services expense
798

 
1,190

Other expense
5,666

 
5,766

Total noninterest expense
78,902

 
66,285

Income before taxes
27,512

 
17,113

Income tax expense
806

 
1,206

Net income
$
26,706

 
$
15,907

Earnings per share
 
 
 
Basic
$
0.67

 
$
0.46

Diluted
$
0.64

 
$
0.44

Weighted average shares outstanding
 
 
 
Basic
39,977,336

 
34,543,229

Diluted
41,516,333

 
35,772,182


7



Live Oak Bancshares, Inc.
Quarterly Selected Financial Data
(Dollars in thousands, except per share data)
 
 
As of and for the three months ended
 
2Q 2018
 
1Q 2018
 
4Q 2017
 
3Q 2017
 
2Q 2017
Income Statement Data
 
 
 
 
 
 
 
 
 
Net income
$
14,253

 
$
12,453

 
$
71,730

 
$
12,862

 
$
9,795

Per Common Share
 
 
 
 
 
 
 
 
 
Net income, basic
$
0.36

 
$
0.31

 
$
1.80

 
$
0.34

 
$
0.28

Net income, diluted
0.34

 
0.30

 
1.74

 
0.33

 
0.27

Dividends declared
0.03

 
0.03

 
0.03

 
0.03

 
0.02

Book value
11.55

 
11.23

 
10.95

 
9.15

 
6.86

Tangible book value (1)
11.45

 
11.13

 
10.85

 
8.84

 
6.50

Performance Ratios
 
 
 
 
 
 
 
 
 
Return on average assets (annualized)
1.61
%
 
1.64
%
 
11.21
%
 
2.18
%
 
1.89
%
Return on average equity (annualized)
12.34

 
11.08

 
68.33

 
16.79

 
16.53

Net interest margin
3.46

 
3.72

 
4.07

 
3.91

 
3.92

Efficiency ratio (1)
70.81

 
68.93

 
34.64

 
77.80

 
73.90

Noninterest income to total revenue
53.09

 
55.69

 
80.60

 
54.38

 
59.18

Selected Loan Metrics
 
 
 
 
 
 
 
 
 
Loans and leases originated
$
491,797

 
$
397,559

 
$
483,422

 
$
395,682

 
$
586,471

Guaranteed loans sold
295,216

 
247,243

 
211,654

 
163,843

 
203,714

Average net gain on sale of guaranteed loans
82.61

 
98.76

 
110.15

 
110.76

 
91.68

Held for sale guaranteed loans (note amount) (2)
1,075,801

 
1,068,886

 
1,087,636

 
1,093,385

 
1,005,753

Asset Quality Ratios
 
 
 
 
 
 
 
 
 
Allowance for loan losses to loans and leases held for investment
1.91
%
 
1.95
%
 
1.80
%
 
1.80
%
 
1.80
%
Net charge-offs
$
787

 
$
532

 
$
892

 
$
959

 
$
191

Net charge-offs to average loans and leases held for investment (3)
0.21
%
 
0.15
%
 
0.28
%
 
0.34
%
 
0.07
%
Nonperforming loans
$
46,105

 
$
36,776

 
$
23,480

 
$
22,420

 
$
21,856

Foreclosed assets
1,725

 
1,519

 
1,281

 
2,231

 
2,140

Nonperforming loans (unguaranteed exposure)
11,466

 
7,386

 
3,610

 
3,299

 
3,546

Foreclosed assets (unguaranteed exposure)
197

 
101

 
90

 
446

 
345

Nonperforming loans not guaranteed by the SBA and foreclosures
11,663

 
7,487

 
3,700

 
3,745

 
3,891

Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets
0.34
%
 
0.22
%
 
0.13
%
 
0.15
%
 
0.18
%
Capital Ratios
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital (to risk-weighted assets)
16.78
%
 
16.36
%
 
17.81
%
 
17.78
%
 
11.93
%
Total capital (to risk-weighted assets)
17.97

 
17.51

 
18.91

 
18.93

 
13.08

Tier 1 risk based capital (to risk-weighted assets)
16.78

 
16.36

 
17.81

 
17.78

 
11.93

Tier 1 leverage capital (to average assets)
11.81

 
13.32

 
15.53

 
13.99

 
9.93

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.

8



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

 
 
Three months ended June 30, 2018
 
Three months ended March 31, 2018
 
 
Average Balance
 
 Interest
 
Average Yield/Rate
 
Average Balance
 
 Interest
 
Average Yield/Rate
Interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest earning balances in other banks
 
$
505,351

 
$
2,179

 
1.73
%
 
$
354,028

 
$
1,215

 
1.39
%
Investment securities
 
383,154

 
2,530

 
2.65

 
181,900

 
1,117

 
2.49

Loans held for sale
 
744,789

 
11,937

 
6.43

 
727,696

 
11,046

 
6.16

Loans and leases held for investment (1)
 
1,504,738

 
24,330

 
6.49

 
1,408,112

 
21,645

 
6.23

Total interest earning assets
 
3,138,032

 
40,976

 
5.24

 
2,671,736

 
35,023

 
5.32

Less: allowance for loan and lease losses
 
(27,930
)
 
 
 
 
 
(24,219
)
 
 
 
 
Non-interest earning assets
 
424,100

 
 
 
 
 
396,920

 
 
 
 
Total assets
 
$
3,534,202

 
 
 
 
 
$
3,044,437

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking
 
$
36,926

 
$
100

 
1.09
%
 
$
43,597

 
$
103

 
0.96
%
Savings
 
998,521

 
4,061

 
1.63

 
822,266

 
3,118

 
1.54

Money market accounts
 
151,880

 
463

 
1.22

 
168,954

 
521

 
1.25

Certificates of deposit
 
1,806,063

 
9,303

 
2.07

 
1,473,054

 
6,676

 
1.84

Total interest bearing deposits
 
2,993,390

 
13,927

 
1.87

 
2,507,871

 
10,418

 
1.68

Other borrowings
 
3,488

 
1

 
0.11

 
11,228

 
129

 
4.66

Total interest bearing liabilities
 
2,996,878

 
13,928

 
1.86

 
2,519,099

 
10,547

 
1.70

Non-interest bearing deposits
 
53,922

 
 
 
 
 
56,596

 
 
 
 
Non-interest bearing liabilities
 
21,217

 
 
 
 
 
19,022

 
 
 
 
Shareholders' equity
 
462,185

 
 
 
 
 
449,720

 
 
 
 
Total liabilities and shareholders' equity
 
$
3,534,202

 
 
 
 
 
$
3,044,437

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income and interest rate spread
 
 
 
$
27,048

 
3.38
%
 
 
 
$
24,476

 
3.62
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
 
 
 
 
3.46

 
 
 
 
 
3.72

 
 
 
 
 
 
 
 
 
 
 
 
 
Ratio of average interest-earning assets to average interest-bearing liabilities
 
 
 
 
 
104.71
%
 
 
 
 
 
106.06
%

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


9



Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation
(Dollars in thousands)
 
 
As of and for the three months ended
 
2Q 2018
 
1Q 2018
 
4Q 2017
 
3Q 2017
 
2Q 2017
Total shareholders’ equity
$
462,986

 
$
448,836

 
$
436,933

 
$
364,591

 
$
237,631

Less:
 
 
 
 
 
 
 
 
 
Goodwill

 

 

 
7,278

 
7,266

Other intangible assets
3,980

 
4,122

 
4,264

 
5,126

 
5,292

Tangible shareholders’ equity (a)
$
459,006

 
$
444,714

 
$
432,669

 
$
352,187

 
$
225,073

Shares outstanding (c)
40,086,409

 
39,974,148

 
39,895,583

 
39,862,147

 
34,639,848

Total assets
$
3,472,969

 
$
3,460,863

 
$
2,758,474

 
$
2,432,189

 
$
2,198,107

Less:
 
 
 
 
 
 
 
 
 
Goodwill

 

 

 
7,278

 
7,266

Other intangible assets
3,980

 
4,122

 
4,264

 
5,126

 
5,292

Tangible assets (b)
$
3,468,989

 
$
3,456,741

 
$
2,754,210

 
$
2,419,785

 
$
2,185,549

Tangible shareholders’ equity to tangible assets (a/b)
13.23
%
 
12.87
%
 
15.71
%
 
14.55
%
 
10.30
%
Tangible book value per share (a/c)
$
11.45

 
$
11.13

 
$
10.85

 
$
8.84

 
$
6.50

Efficiency ratio:
 
 
 
 
 
 
 
 
 
Noninterest expense (d)
$
40,830

 
$
38,072

 
$
41,024

 
$
35,856

 
$
33,300

Net interest income
27,048

 
24,476

 
22,976

 
21,025

 
18,392

Noninterest income
30,613

 
30,756

 
95,441

 
25,060

 
26,667

Less: gain on sale of securities

 

 

 

 

Adjusted operating revenue (e)
$
57,661

 
$
55,232

 
$
118,417

 
$
46,085

 
$
45,059

Efficiency ratio (d/e)
70.81
%
 
68.93
%
 
34.64
%
 
77.80
%
 
73.90
%



















10



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

 
Three months ended
 
Six months ended
 
2Q 2018
 
1Q 2018
 
2Q 2017
 
2Q 2018
 
2Q 2017
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:
 
 
 
 
 
 
 
 
 
Net income
$
14,253

 
$
12,453

 
$
9,795

 
$
26,706

 
$
15,907

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
357

 
352

 
378

 
709

 
724

Merger costs for acquisition of Reltco and Apiture investment

 

 
250

 

 
766

Trade-in loss on aircraft

 

 

 

 
206

Renewable energy tax credit investment income, impairment and loss

 

 
19

 

 
38

Income tax effects and adjustments for non-GAAP items *
(86
)
 
(84
)
 
(259
)
 
(170
)
 
(694
)
Other renewable energy tax expense

 

 
44

 

 
88

Non-GAAP net income
$
14,524

 
$
12,721

 
$
10,227

 
$
27,245

 
$
17,035

* Estimated at 24.0% for 2018 and 40.0% for 2017
 
 
 
 
 
 
 
 
 
Non-GAAP earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.36

 
$
0.32

 
$
0.30

 
$
0.68

 
$
0.49

Diluted
$
0.35

 
$
0.31

 
$
0.28

 
$
0.66

 
$
0.48

 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
40,027,336

 
39,926,781

 
34,618,721

 
39,977,336

 
34,543,229

Diluted
41,619,647

 
41,399,930

 
35,942,041

 
41,516,333

 
35,772,182

 
 
 
 
 
 
 
 
 
 
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:
 
 
 
 
 
 
 
 
 
Noninterest income, as reported
$
30,613

 
$
30,756

 
$
26,667

 
$
61,369

 
$
52,420

Renewable energy tax credit investment income



 
(10
)
 

 
(20
)
Noninterest income, as adjusted
30,613


30,756

 
26,657

 
61,369

 
52,400

 
 
 
 
 
 
 
 
 
 
Noninterest expense, as reported
40,830

 
38,072

 
33,300

 
78,902

 
66,285

Stock based compensation expense
(357
)
 
(352
)
 
(378
)
 
(709
)
 
(724
)
Merger costs associated with Reltco and Apiture investment

 

 
(250
)
 

 
(766
)
Trade-in loss on aircraft

 

 

 

 
(206
)
Renewable energy tax credit investment impairment and loss

 

 
(29
)
 

 
(58
)
Noninterest expense, as adjusted
40,473

 
37,720

 
32,643

 
78,193

 
64,531

 
 
 
 
 
 
 
 
 
 

11



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

 
Three months ended
 
Six months ended
 
2Q 2018
 
1Q 2018
 
2Q 2017
 
2Q 2018
 
2Q 2017
Income before taxes, as reported
14,744

 
12,768

 
10,203

 
27,512

 
17,113

Renewable energy tax credit investment income




(10
)



(20
)
Stock based compensation expense
357


352


378


709


724

Merger costs associated with Reltco and Apiture investment




250




766

Trade-in loss on aircraft








206

Renewable energy tax credit investment impairment and loss




29




58

Income before taxes, as adjusted
15,101


13,120


10,850


28,221


18,847

 
 
 
 
 
 
 
 
 
 
Income tax expense, as reported
491

 
315

 
408

 
806

 
1,206

Income tax effects and adjustments for non-recurring income and expenses
86


84


259


170


694

Other renewable energy tax expense

 

 
(44
)
 

 
(88
)
Income tax expense, as adjusted
$
577

 
$
399

 
$
623

 
$
976

 
$
1,812

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.

12