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Live Oak Bancshares, Inc. Reports Fourth Quarter 2016 Results

WILMINGTON, N.C., Jan. 25, 2017 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq:LOB) (“Live Oak” or “the Company”) today reported fourth quarter net earnings available to common shareholders of $5.5 million, or $0.16 per diluted share, compared to $5.7 million, or $0.16 per diluted share, for the fourth quarter of 2015.  The fourth quarter of 2016 included $3.4 million in expense from previously disclosed stock-based compensation awards, a $1.4 million impairment on aircraft slated for sale, and $5.5 million in income tax savings arising from a renewable energy investment. The net effect of these items on diluted earnings per share was $0.01.

“We ended 2016 in terrific fashion with our highest ever quarterly production with over $500 million in loan originations and exceeded our target of $1.5 billion for the year.  We expect to continue generating strong double-digit growth in origination volumes.  We are pleased with the contribution Live Oak has made to the success of American small business owners in 2016.  We are committed to serving and empowering small businesses across the U.S.  Our work to expand this mission in new and existing lines of business will continue in 2017 with particular focus on the renewable energy sector.  Our investments in infrastructure and key strategic initiatives over the past year have positioned us for a great 2017,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

Year over Year Highlights

(Dollars in thousands, except per share data)       Increase (Decrease)
  2016   2015   Dollars   Percent
Loan production:              
Loans originated $ 1,537,010     $ 1,158,640     $ 378,370     33 %
% Fully funded 48.2 %   52.1 %     n/a     n/a  
Loan sales:              
Guaranteed loans sold $ 761,933     $ 640,886     $ 121,047     19 %
Net gains on sales of loans 75,326     67,385     7,941     12  
Average net gain on sale of loans, per million sold 98.86     105.14     (6.28 )   (6 )
Net interest income and servicing revenues 64,042     41,670     22,372     54  
Net income attributable to Live Oak Bancshares, Inc. 13,773     20,625     (6,852 )   (33 )
Diluted earnings per share 0.39     0.65     (0.26 )   (40 )
Non-GAAP net income (1) 20,148     18,356     1,792     10  
Non-GAAP diluted earnings per share (1) 0.57     0.57          
                       
(1) See accompanying GAAP to Non-GAAP Reconciliation.
                       

Fourth Quarter 2016 Highlights

(Dollars in thousands, except per share data)       Increase (Decrease)    
  Q4 2016   Q4 2015   Dollars   Percent   Q3 2016
Loan production:                  
Loans originated $ 514,565     $ 330,798     $ 183,767     56 %   $ 381,050  
% Fully funded 48.0 %   44.1 %     n/a     n/a     36.1 %
Loan sales:                  
Guaranteed loans sold $ 260,125     $ 219,328     $ 40,797     19 %   $ 210,610  
Net gains on sales of loans 22,513     20,781     1,732     8     21,833  
Average net gain on sale of loans, per million sold 86.55     94.75     (8.2 )   (9 )   103.67  
Net interest income and servicing revenues 18,060     12,874     5,186     40     17,491  
Net income attributable to Live Oak Bancshares, Inc. 5,480     5,716     (236 )   (4 )   3,479  
Diluted earnings per share 0.16     0.16             0.10  
Non-GAAP net income (1) 6,076     5,716     360     6     5,498  
Non-GAAP diluted earnings per share (1) 0.17     0.16     0.01     6     0.16  
                             
(1) See accompanying GAAP to Non-GAAP Reconciliation.
                             

Loans

Net loans held for investment increased $137.6 million, or 18.3%, to $889.4 million at December 31, 2016, from $751.8 million at September 30, 2016.  Loans held for sale increased $49.0 million, or 14.2%, to $394.3 million at December 31, 2016, from $345.3 million at September 30, 2016.  The increase in both portfolios is the result of robust growth in loan origination activities.  The combined total loan portfolio at December 31, 2016, and September 30, 2016, of $1.30 billion and $1.11 billion, respectively, were comprised of approximately 66.8% and 66.3% of unguaranteed loans, respectively.  The combined total loan portfolio of $1.30 billion at December 31, 2016, rose by 71.2% above its level of a year ago.  Loan originations grew by 32.7% in 2016 to $1.54 billion.

Average loans were $1.21 billion during the fourth quarter of 2016 compared to $1.09 billion during the third quarter of 2016.

Net Interest Income

Net interest income for the fourth quarter of 2016 increased to $12.4 million compared to $8.5 million for the fourth quarter of 2015.  The increase was driven by the significant growth in the combined held for sale and held for investment loan portfolios attributable to steadily rising loan originations, along with the Company's efforts to grow recurring revenue sources by increasing the level of loans on the balance sheet.  The net interest margin declined from 3.66% for the fourth quarter of 2015 and 3.32% for the third quarter of 2016 to 3.08% for the fourth quarter of 2016.  This decline in net interest margin was primarily attributable to the strong growth in USDA-guaranteed loans which typically carry a lower yield.

Noninterest Income

Noninterest income for the fourth quarter of 2016 totaled $26.3 million, compared to $24.4 million for the fourth quarter of 2015.  Net gains on sales of loans increased to $22.5 million in the fourth quarter of 2016 compared to $21.8 million in the third quarter of 2016 and $20.8 million in the fourth quarter of 2015 due to a much higher volume of loan sales.  The volume of loan sales rose by 18.9% in 2016 to $761.9 million.  Loan servicing revenues rose by $1.3 million from the fourth quarter of 2015 to $5.7 million.

Noninterest Expense

Noninterest expense for the fourth quarter of 2016 was $32.4 million compared to $27.2 million for the third quarter of 2016 and $22.1 million for the fourth quarter of 2015.  Salaries and employee benefits increased to $17.1 million from $12.7 million for the fourth quarter of 2015 as a result of increased staffing and expanding infrastructure to support growing loan demand and multiple new initiatives of the Company, along with $3.4 million in stock based compensation expense related to restricted stock awards with an effective grant date of May 24, 2016, for key employee retention, as discussed in Note 10 of our March 31, 2016 Form 10-Q.  Excluding the $3.4 million in stock based compensation, salaries and benefits for the fourth quarter of 2016 increased a modest $1.0 million from fourth quarter 2015.  Total stock based compensation related to these restricted stock awards was $9.0 million for calendar year 2016.  Future expense associated with these restricted stock awards is expected to be approximately $346 thousand each quarter through the end of the implied term.  Total stock based compensation expense in the fourth quarter of 2016 was $4.4 million compared to $4.1 million for the third quarter of 2016 and $617 thousand for the fourth quarter of 2015.

The Other expense component of noninterest expense was $3.9 million for the fourth quarter of 2016 as compared to $1.8 million for the third quarter of 2016 and $2.0 million for the fourth quarter of 2015.  The primary reason for this increase was recognition of a $1.4 million impairment loss on aircraft as management committed to a plan to sell the aircraft prior to year-end.  The sale of this aircraft took place subsequent to year end with no additional losses.

Noninterest expense for the fourth quarter of 2016 also included $3.2 million in impairment charges related to a $4.6 million renewable energy tax credit investment.  Investments of this type generate a return primarily through the realization of federal and state income tax credits and other tax benefits; accordingly, impairment of the investment amount is recognized in conjunction with the realization of related tax benefits.  This investment generated tax savings of $5.5 million for 2016.  This equity method investment aligns with the Company's strategic emphasis in the renewable energy sector.  In line with this strategic industry emphasis, the Company originated $124.1 million in loans that support the renewable energy industry during the fourth quarter of 2016.  These loans have no tax credit benefit to the Company.

Income Tax

The fourth quarter of 2016 had an income tax benefit of ($3.0) million as compared to income tax expense of $2.6 million for the third quarter of 2016 and $3.5 million for the fourth quarter of 2015.  This decrease in income tax expense in the fourth quarter of 2016 was the product of the above discussed renewable energy tax credit investment.

Asset Quality

The unguaranteed exposure of nonperforming loans amounted to $4.8 million at December 31, 2016, compared to $3.4 million at September 30, 2016.  Total nonperforming loans increased to $23.8 million from $14.0 million at the end of the prior quarter.  No systemic issues were noted in this increase of nonperforming loans which was comprised of a small number of borrowers in our most mature verticals.  Total unguaranteed nonperforming loans as a percentage of total held for investment loans was 0.53% and 0.44% as of December 30, 2016, and September 30, 2016, respectively.

Foreclosed assets decreased $587 thousand to $1.6 million at December 31, 2016, from $2.2 million at September 30, 2016.

Net charge-offs were $813 thousand in the fourth quarter of 2016 compared to $937 thousand in the third quarter of 2016 and $205 thousand in the fourth quarter of 2015.  Net charge-offs as a percentage of average held for investment loans, annualized, for the quarters ended December 31, 2016 and 2015, were 0.39% and 0.30%, respectively.  Net charge-offs for 2016 totaled $1.7 million as compared to $799 thousand for 2015.

Provision for Loan Losses

The provision for loan losses remained at $3.8 million for both the fourth and third quarters of 2016 and was $1.5 million for the fourth quarter of 2015.  The level of provision in the fourth quarter of 2016 reflects the continued strong growth in the loan portfolio and remained above net charge-off levels which contributed to the increase in the allowance for loan losses.

The allowance for loan losses increased $3.0 million, or 20.0%, to $18.2 million at December 31, 2016, from $15.2 million at September 30, 2016.  The allowance for loan losses as a percentage of total loans held for investment increased from 1.98% at September 30, 2016 to 2.01% at December 31, 2016.

Deposits

Total deposits increased by $82.1 million, or 5.8%, to $1.49 billion at December 31, 2016, compared to $1.40 billion at September 30, 2016, following successful deposit gathering campaigns.  Average total interest bearing deposits for the fourth quarter of 2016 increased $197.5 million, or 15.9%, to $1.44 billion, compared to $1.24 billion for the third quarter of 2016.  The ratio of average total loans to average interest bearing deposits was 84.3% for the fourth quarter of 2016, compared to 87.7% for the third quarter of 2016.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (January 26, 2017). 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 48919345. 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 February 2, 2017, 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; 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, a national online platform for small business lending.

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

  Three months ended
  4Q 2016   3Q 2016   2Q 2016   1Q 2016   4Q 2015
Interest income                  
Loans and fees on loans $ 16,239     $ 14,961     $ 12,902     $ 11,005     $ 10,474  
Investment securities, taxable 292     337     252     251     224  
Other interest earning assets 383     264     248     138     80  
Total interest income 16,914     15,562     13,402     11,394     10,778  
Interest expense                  
Deposits 4,283     3,689     3,243     2,444     2,105  
Borrowings 239     242     242     241     203  
Total interest expense 4,522     3,931     3,485     2,685     2,308  
Net interest income 12,392     11,631     9,917     8,709     8,470  
Provision for loan losses 3,844     3,806     3,453     1,433     1,467  
Net interest income after provision for loan losses 8,548     7,825     6,464     7,276     7,003  
Noninterest income                  
Loan servicing revenue 5,668     5,860     5,081     4,784     4,404  
Loan servicing asset revaluation (3,340 )   (3,421 )   (1,604 )   (26 )   (1,996 )
Net gains on sales of loans 22,513     21,833     14,555     16,425     20,781  
Gain on sale of securities available-for-sale     1             1  
Construction supervision fee income 868     502     667     630     745  
Other noninterest income 618     657     649     619     433  
Total noninterest income 26,327     25,432     19,348     22,432     24,368  
Noninterest expense                  
Salaries and employee benefits 17,121     17,471     15,411     12,993     12,700  
Travel expense 1,811     2,218     2,330     1,846     1,465  
Professional services expense 1,137     907     910     528     752  
Advertising and marketing expense 1,109     1,097     1,365     963     1,156  
Occupancy expense 1,267     1,058     1,055     1,193     1,555  
Data processing expense 1,435     1,252     1,404     1,208     1,195  
Equipment expense 550     611     534     551     646  
Other loan origination and maintenance expense 824     806     621     574     685  
Renewable energy tax credit investment impairment 3,197                  
Other expense 3,933     1,798     1,502     1,855     1,979  
Total noninterest expense 32,384     27,218     25,132     21,711     22,133  
Income before taxes 2,491     6,039     680     7,997     9,238  
Income tax (benefit) expense (2,989 )   2,561     557     3,314     3,523  
Net income 5,480     3,478     123     4,683     5,715  
Net loss attributable to noncontrolling interest     1         8     1  
Net income attributable to Live Oak Bancshares, Inc. $ 5,480     $ 3,479     $ 123     $ 4,691     $ 5,716  
Earnings per share                  
Basic $ 0.16     $ 0.10     $ 0.00     $ 0.14     $ 0.17  
Diluted $ 0.16     $ 0.10     $ 0.00     $ 0.13     $ 0.16  
Weighted average shares outstanding                  
Basic 34,235,375     34,206,943     34,189,217     34,176,753     34,169,855  
Diluted 35,208,433     35,001,817     35,206,125     34,954,592     35,079,486  
                             

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

  As of the quarter ended
  4Q 2016   3Q 2016   2Q 2016   1Q 2016   4Q 2015
Assets                  
Cash and due from banks $ 238,008     $ 355,485     $ 175,506     $ 226,556     $ 102,607  
Certificates of deposit with other banks 7,250     7,500     8,500     9,000     10,250  
Investment securities available-for-sale 71,056     70,334     66,804     55,674     53,762  
Loans held for sale 394,278     345,277     329,206     537,293     480,619  
Loans held for investment 907,566     766,977     690,517     313,633     279,969  
Allowance for loan losses (18,209 )   (15,178 )   (12,309 )   (8,616 )   (7,415 )
Net loans 889,357     751,799     678,208     305,017     272,554  
Premises and equipment, net 64,661     60,646     61,064     61,839     62,653  
Foreclosed assets 1,648     2,235     2,971     3,020     2,666  
Servicing assets 51,994     49,729     48,454     47,377     44,230  
Other assets 37,009     26,735     24,591     22,765     23,281  
Total assets $ 1,755,261     $ 1,669,740     $ 1,395,304     $ 1,268,541     $ 1,052,622  
Liabilities and Shareholders’ Equity                  
Liabilities                  
Deposits:                  
Noninterest-bearing $ 27,990     $ 28,461     $ 22,942     $ 21,125     $ 21,502  
Interest-bearing 1,457,086     1,374,556     1,117,855     994,340     783,286  
Total deposits 1,485,076     1,403,017     1,140,797     1,015,465     804,788  
Long term borrowings 27,843     28,074     28,173     28,271     28,375  
Other liabilities 19,495     24,497     18,984     20,372     19,971  
Total liabilities 1,532,414     1,455,588     1,187,954     1,064,108     853,134  
Shareholders’ equity                  
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                  
Class A common stock (voting) 149,966     145,284     141,181     138,199     137,492  
Class B common stock (non-voting) 50,015     50,015     50,015     50,015     50,015  
Retained earnings 23,518     18,723     15,928     16,147     12,140  
Accumulated other comprehensive (loss) income (652 )   130     201     47     (192 )
Total shareholders’ equity attributed to Live Oak Bancshares, Inc. 222,847     214,152     207,325     204,408     199,455  
Noncontrolling interest         25     25     33  
Total equity 222,847     214,152     207,350     204,433     199,488  
Total liabilities and shareholders’ equity $ 1,755,261     $ 1,669,740     $ 1,395,304     $ 1,268,541     $ 1,052,622  
                                       

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

  Twelve months ended
  12/31/16   12/31/15   12/31/14
Interest income          
Loans and fees on loans $ 55,107     $ 33,340     $ 19,947  
Investment securities, taxable 1,132     811     455  
Other interest earning assets 1,033     300     163  
Total interest income 57,272     34,451     20,565  
Interest expense          
Deposits 13,659     7,379     4,731  
Borrowings 964     1,483     1,121  
Total interest expense 14,623     8,862     5,852  
Net interest income 42,649     25,589     14,713  
Provision for loan losses 12,536     3,806     2,793  
Net interest income after provision for loan losses 30,113     21,783     11,920  
Noninterest income          
Loan servicing revenue 21,393     16,081     12,823  
Loan servicing asset revaluation (8,391 )   (6,229 )   (2,201 )
Net gains on sales of loans 75,326     67,385     49,977  
Equity in earnings (loss) of non-consolidated affiliates     (26 )   (2,221 )
Gain on sale of investment in non-consolidated affiliate     3,782      
Gain (loss) on sale of securities available-for-sale 1     13     (74 )
Construction supervision fee income 2,667     1,623     361  
Other noninterest income 2,543     1,699     1,377  
Total noninterest income 93,539     84,328     60,042  
Noninterest expense          
Salaries and employee benefits 62,996     40,323     29,165  
Travel expense 8,205     7,379     5,392  
Professional services expense 3,482     2,643     3,775  
Advertising and marketing expense 4,534     4,333     3,316  
Occupancy expense 4,573     3,475     1,851  
Data processing expense 5,299     3,583     2,660  
Equipment expense 2,246     2,119     1,566  
Other loan origination and maintenance expense 2,825     2,069     1,652  
Renewable energy tax credit investment impairment 3,197          
Other expense 9,088     5,791     5,149  
Total noninterest expense 106,445     71,715     54,526  
Income before taxes 17,207     34,396     17,436  
Income tax expense 3,443     13,795     7,388  
Net income 13,764     20,601     10,048  
Net loss attributable to noncontrolling interest 9     24      
Net income attributable to Live Oak Bancshares, Inc. $ 13,773     $ 20,625     $ 10,048  
Earnings per share          
Basic $ 0.40     $ 0.66     $ 0.42  
Diluted $ 0.39     $ 0.65     $ 0.41  
Weighted average shares outstanding          
Basic 34,202,168     31,079,032     23,973,398  
Diluted 35,086,959     31,973,146     24,424,181  
                 

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

  As of and for the three months ended
  4Q 2016   3Q 2016   2Q 2016   1Q 2016   4Q 2015
Income Statement Data                  
Net income attributable to Live Oak Bancshares, Inc. $ 5,480     $ 3,479     $ 123     $ 4,691     $ 5,716  
Per Common Share                  
Net income, basic $ 0.16     $ 0.10     $ 0.00     $ 0.14     $ 0.17  
Net income, diluted 0.16     0.10     0.00     0.13     0.16  
Dividends declared 0.02     0.02     0.01     0.02     0.01  
Book value 6.51     6.26     6.06     5.98     5.84  
Performance Ratios                  
Return on average assets (annualized) 1.26 %   0.91 %   0.04 %   1.67 %   2.18 %
Return on average equity (annualized) 9.95     6.54     0.24     9.38     11.60  
Net interest margin 3.08     3.32     3.26     3.52     3.66  
Efficiency ratio (1) 83.64     73.44     85.88     69.72     67.40  
Noninterest income to total revenue 68.00     68.62     66.11     72.03     74.21  
Selected Loan Metrics                  
Loans originated $ 514,565     $ 381,050     $ 356,865     $ 284,530     $ 330,798  
Guaranteed loans sold 260,125     210,610     135,555     155,643     219,328  
Average net gain on sale of loans 86.55     103.67     107.37     105.53     94.75  
Held for sale guaranteed loans (note amount) (2) 754,834     692,278     639,356     541,595     497,875  
Quarterly increase (decrease) in note amount of held for sale guaranteed loans 62,556     52,922     97,761     43,720     (1,428 )
Estimated net gain to be recognized on quarterly increase in guaranteed loans held for sale (3) 5,414     5,486     10,497     4,614       N/A  
Asset Quality Ratios                  
Allowance for loan losses to loans held for investment 2.01 %   1.98 %   1.78 %   2.75 %   2.65 %
Net charge-offs (recoveries) $ 813     $ 937     $ (240 )   $ 232     $ 205  
Net charge-offs (recoveries) to average loans held for investment (4) 0.39 %   0.51 %   (0.18 )%   0.30 %   0.30 %
Nonperforming loans $ 23,781     $ 14,023     $ 12,902     $ 14,829     $ 12,367  
Foreclosed assets 1,648     2,235     2,971     3,020     2,666  
Nonperforming loans (unguaranteed exposure) 4,784     3,354     2,174     2,421     2,037  
Foreclosed assets (unguaranteed exposure) 246     304     433     438     373  
Nonperforming loans not guaranteed by the SBA and foreclosures 5,030     3,658     2,607     2,859     2,410  
Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets 0.29 %   0.22 %   0.19 %   0.23 %   0.23 %
Capital Ratios                  
Common equity tier 1 capital (to risk-weighted assets) 15.35 %   16.63 %   18.26 %   20.61 %   23.22 %
Total capital (to risk-weighted assets) 16.60     17.88     19.43     21.54     24.12  
Tier 1 risk based capital (to risk-weighted assets) 15.35     16.63     18.26     20.61     23.22  
Tier 1 leverage capital (to average assets) 12.03     13.18     14.32     17.09     18.36  
                             

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) The estimated revenue from the sale of the quarterly increase in guaranteed loans is based on the average net gain on sale of loans for that quarter. This is an estimate based on the respective quarter activity and does not reflect actual gains to be recognized.

(4) Quarterly net charge-offs as a percentage of quarterly average loans held for investment, annualized.

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

    Three months ended December 31, 2016   Three months ended September 30, 2016
    Average
Balance
   Interest   Average
Yield/Rate
  Average
Balance
   Interest   Average
Yield/Rate
Interest earning assets:                        
Interest earning balances in other banks   $ 320,270     $ 383     0.48 %   $ 231,238     $ 264     0.45 %
Investment securities   70,755     292     1.64     69,869     337     1.91  
Loans held for sale   369,057     4,995     5.38     358,867     4,996     5.52  
Loans held for investment (1)   841,676     11,244     5.31     728,041     9,965     5.43  
Total interest earning assets   1,601,758     16,914     4.20     1,388,015     15,562     4.45  
Less: allowance for loan losses   (15,174 )           (12,188 )        
Non-interest earning assets   153,000             146,159          
Total assets   $ 1,739,584             $ 1,521,986          
                         
Interest bearing liabilities:                        
Interest bearing checking   $ 28,091     $ 42     0.59 %   $ 23,529     $ 33     0.56 %
Money market accounts   473,495     887     0.75     447,918     833     0.74  
Certificates of deposit   935,274     3,354     1.43     767,887     2,823     1.46  
Total interest bearing deposits   1,436,860     4,283     1.19     1,239,334     3,689     1.18  
Other borrowings   27,969     239     3.40     28,172     242     3.41  
Total interest bearing liabilities   1,464,829     4,522     1.23     1,267,506     3,931     1.23  
Non-interest bearing deposits   28,669             20,742          
Non-interest bearing liabilities   25,816             20,807          
Shareholders' equity   220,270             212,914          
Noncontrolling interest               17          
Total liabilities and shareholders' equity   $ 1,739,584             $ 1,521,986          
                         
Net interest income and interest rate spread       $ 12,392     2.97 %       $ 11,631     3.22 %
                         
Net interest margin           3.08             3.32  
                         
Ratio of average interest-earning assets to average interest-bearing liabilities           109.35 %           109.51 %
                             

(1) Average loan 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
  4Q 2016   3Q 2016   2Q 2016   1Q 2016   4Q 2015
Total shareholders’ equity $ 222,847     $ 214,152     $ 207,350     $ 204,433     $ 199,488  
Less:                  
Goodwill                  
Other intangible assets                  
Tangible shareholders’ equity (a) $ 222,847     $ 214,152     $ 207,350     $ 204,433     $ 199,488  
Shares outstanding (c) 34,253,602     34,215,050     34,192,382     34,183,878     34,172,899  
Total assets $ 1,755,261     $ 1,669,740     $ 1,395,304     $ 1,268,541     $ 1,052,622  
Less:                  
Goodwill                  
Other intangible assets                  
Tangible assets (b) $ 1,755,261     $ 1,669,740     $ 1,395,304     $ 1,268,541     $ 1,052,622  
Tangible shareholders’ equity to tangible assets (a/b) 12.70 %   12.83 %   14.86 %   16.12 %   18.95 %
Tangible book value per share (a/c) $ 6.51     $ 6.26     $ 6.06     $ 5.98     $ 5.84  
Efficiency ratio:                  
Noninterest expense (d) $ 32,384     $ 27,218     $ 25,132     $ 21,711     $ 22,133  
Net interest income 12,392     11,631     9,917     8,709     8,470  
Noninterest income 26,327     25,432     19,348     22,432     24,368  
Less: gain (loss) on sale of securities     1             1  
Adjusted operating revenue (e) $ 38,719     $ 37,062     $ 29,265     $ 31,141     $ 32,837  
Efficiency ratio (d/e) 83.64 %   73.44 %   85.88 %   69.72 %   67.40 %
                             

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

  Three months ended   Twelve months ended
  12/31/2016   9/30/2016   12/31/2015   12/31/2016   12/31/2015
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:                  
Net income attributable to Live Oak Bancshares, Inc. $ 5,480     $ 3,479     $ 5,716     $ 13,773     $ 20,625  
Gain on sale of investment in non-consolidated affiliate                 (3,782 )
Provision for loans reclassified as held for investment             4,023      
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 3,365     3,365         8,973      
Impairment charge taken on aircraft held for sale 1,422             1,422      
Renewable energy tax credit investment impairment and loss 3,239             3,239      
Income tax effects and adjustments for non-GAAP items * (3,210 )   (1,346 )       (7,062 )   1,513  
Other renewable energy tax expense 176             176      
Renewable energy tax credit (4,396 )           (4,396 )    
Non-GAAP net income $ 6,076     $ 5,498     $ 5,716     $ 20,148     $ 18,356  
* Estimated at 40.0%                  
Non-GAAP earnings per share:                  
Basic $ 0.18     $ 0.16     $ 0.17     $ 0.59     $ 0.59  
Diluted $ 0.17     $ 0.16     $ 0.16     $ 0.57     $ 0.57  
                   
Weighted-average shares outstanding:                  
Basic 34,235,375     34,206,943     34,169,855     34,202,168     31,079,032  
Diluted 35,208,433     35,001,817     35,079,486     35,086,959     31,973,146  
                   
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:                  
Noninterest income, as reported $ 26,327     $ 25,432     $ 24,368     $ 93,539     $ 84,328  
Gain on sale of investment in non-consolidated affiliate                 (3,782 )
Renewable energy tax credit investment loss 42             42      
Noninterest income, as adjusted 26,369     25,432     24,368     93,581     80,546  
                   
Provision for loan losses, as reported 3,844     3,806     1,467     12,536     3,806  
Provision for loans reclassified as held for investment             (4,023 )    
Provision for loan losses, as adjusted 3,844     3,806     1,467     8,513     3,806  
                   
Noninterest expense, as reported $ 32,384     $ 27,218     $ 22,133     $ 106,445     $ 71,715  
Stock based compensation expense (3,365 )   (3,365 )       (8,973 )    
Impairment charge taken on aircraft (1,422 )           (1,422 )    
Renewable energy tax credit investment impairment (3,197 )           (3,197 )    
Noninterest expense, as adjusted 24,400     23,853     22,133     92,853     71,715  
                   
Income tax (benefit) expense, as reported (2,989 )   2,561     3,523     3,443     13,795  
Income tax effects and adjustments for non-recurring income and expenses 3,210     1,346         7,062     (1,513 )
Other renewable energy tax expense (176 )           (176 )    
Renewable energy tax credit 4,396             4,396      
Income tax expense, as adjusted $ 4,441     $ 3,907     $ 3,523     $ 14,725     $ 12,282  
                                       

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.

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

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