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Live Oak Bancshares, Inc. Reports Third Quarter 2017 Results

WILMINGTON, N.C., Oct. 25, 2017 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq:LOB) (“Live Oak” or “the Company”) today reported third quarter net earnings available to common shareholders of $12.9 million, or $0.33 per diluted share, compared to $3.5 million, or $0.10 per diluted share, for the third quarter of 2016.

“We are very pleased with our third quarter performance. We continue our mission to serve the needs of small businesses with year-to-date loan and lease originations of $1.45 billion nearly matching our production for all of 2016. Adding to this excitement, we also raised over $100 million in capital which will expedite the pursuit of our growth trajectory and the many exciting opportunities presented to us. The recent closing of our joint venture with First Data Corporation to create Apiture will significantly enhance our endeavor to revolutionize the industry with open API's on next generation financial institution platforms,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

 
Third Quarter 2017 Key Measures
 
(Dollars in thousands, except per share data)       Increase (Decrease)    
    Q3 2017   Q3 2016   Dollars   Percent   Q2 2017
Loan production:                    
Loans and leases originated   $ 395,682     $ 381,050     $ 14,632     4 %   $ 586,471  
% Fully funded   37.4 %   36.1 %   n/a   n/a   42.2 %
Loan sales:                    
Guaranteed loans sold   $ 163,843     $ 210,610     $ (46,767 )   (22 )%   $ 203,714  
Net gains on sales of guaranteed loans   18,148     21,833     (3,685 )   (17 )   18,676  
Average net gain on sale of guaranteed loans, per million sold   110.76     103.67     7.09     7     91.68  
Net interest income and servicing revenues   27,515     17,491     10,024     57     24,566  
Net income attributable to Live Oak Bancshares, Inc.   12,862     3,479     9,383     270     9,795  
Diluted earnings per share   0.33     0.10     0.23     230     0.27  
Non-GAAP net income (1)   13,323     5,498     7,825     142     10,227  
Non-GAAP diluted earnings per share (1)   0.34     0.16     0.18     113     0.28  
                               

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

Loans and Leases

At September 30, 2017, the total loan and lease portfolio of $1.86 billion increased 67.5% above its level of a year ago. Net loans and leases held for investment increased $83.9 million, or 7.9%, to $1.15 billion at September 30, 2017, from $1.06 billion at June 30, 2017. Loans held for sale increased $83.4 million, or 13.7%, to $692.6 million at September 30, 2017, from $609.1 million at June 30, 2017. Loan and lease originations totaled $395.7 million during the third quarter, a decline from the prior quarter due to the seasonality of lending in the renewable energy sector. The total loan and lease portfolio at September 30, 2017, and June 30, 2017, of $1.86 billion and $1.69 billion, respectively, were comprised of approximately 60.6% and 61.7% of unguaranteed loans and leases, respectively.

Average loans and leases were $1.77 billion during the third quarter of 2017 compared to $1.61 billion during the second quarter of 2017.

Net Interest Income

Net interest income for the third quarter of 2017 increased to $21.0 million compared to $11.6 million for the third quarter of 2016. 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 by increasing the level of loans and leases retained on the balance sheet. The net interest margin of 3.91% for the for the third quarter of 2017 was consistent with 3.92% for the second quarter of 2017. The net interest margin has risen by 59 basis points from the third quarter of 2016 as the Company has benefited from the repricing characteristics of its loan portfolio in the rising rate environment.

Noninterest Income

Noninterest income for the third quarter of 2017 totaled $25.1 million, compared to $25.4 million for the third quarter of 2016. Net gains on sales of loans decreased to $18.1 million in the third quarter of 2017 compared to $21.8 million in the third quarter of 2016 and was in line with $18.2 million in the second quarter of 2017. The decrease in revenue from the prior year was due to a reduction in the volume of guaranteed loan sales partially offset by an increase in the average net gain on sale of guaranteed loans. The $39.9 million reduction in the volume of guaranteed loans sales from the prior sequential quarter resulted from a decrease in the percentage of new loans that were fully funded at closing, a product of the aforementioned seasonality of renewable energy lending. This was countered by the increase in the average net gain on guaranteed loan sales to $110.7 thousand per million sold versus $91.7 thousand in the prior quarter. Loan servicing revenues of $6.5 million in the third quarter of 2017 rose by $630 thousand from the third quarter of 2016. The inclusion of Reltco, Inc. and National Assurance Title, Inc. (collectively referred to as "Reltco"), which were acquired in February 2017, contributed $2.0 million in noninterest income to the Company in the third quarter of 2017.

Noninterest Expense

Noninterest expense for the third quarter of 2017 was $35.9 million compared to $27.2 million for the third quarter of 2016 and $33.3 million for the second quarter of 2017.

The $8.6 million, or 31.7%, increase in noninterest expense for the third quarter of 2017 compared to the third quarter of 2016 reflected the ongoing expansion of the Company’s workforce and related infrastructure in support of its growth strategy. There were increases in salaries and employee benefits of $1.6 million, equipment expense of $1.6 million and other expense of $1.5 million. Salaries and employee benefits were largely influenced by the addition of Reltco personnel during the first quarter of 2017 along with resources to support the ongoing growth of the business platform. Total stock based compensation expense in the third quarter of 2017 was $2.0 million compared to $4.1 million for the third quarter of 2016. The increase in equipment expense reflected the higher levels of depreciation related to aircraft acquired in the first quarter of 2017 and solar panels acquired for the Company’s renewable energy leasing business. Other expenses increased primarily due to the addition of Reltco in the first quarter of 2017 combined with support expenses driven by business growth.

Compared to the second quarter of 2017, noninterest expense increased $2.6 million, or 7.7%. This increase was driven by higher levels of salaries and benefits and higher costs related to equipment, delivery of loan and lease products, and other initiatives to support the growing business segments and diversification of the Company. Total stock based compensation expense in the third quarter of 2017 was $2.0 million compared to $1.9 million for the second quarter of 2017.

Asset Quality

The unguaranteed exposure of nonperforming loans declined slightly to $3.3 million at September 30, 2017, compared to $3.5 million at June 30, 2017. Total unguaranteed nonperforming loans as a percentage of total loans and leases held for investment declined to 0.28% at September 30, 2017, compared to 0.33% at June 30, 2017. Total nonperforming loans increased slightly to $22.4 million in the third quarter of 2017 from $21.9 million at the end of the prior quarter.

The unguaranteed exposure of foreclosed assets increased to $446 thousand at September 30, 2017, from $345 thousand at June 30, 2017. Foreclosed assets increased $91 thousand to $2.2 million at September 30, 2017, from June 30, 2017.

Net charge-offs totaled to $959 thousand in the third quarter of 2017 compared to $191 thousand in the second quarter of 2017 and $937 thousand in the third quarter of 2016. Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarters ended September 30, 2017 and 2016 were 0.34% and 0.51%, respectively. Net charge-offs for the first nine months of 2017 totaled $2.7 million compared to $929 thousand for the first nine months of 2016.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the third quarter of 2017 totaled $2.4 million compared to $1.6 million for the second quarter of 2017 and $3.8 million for the third quarter of 2016. The third quarter of 2017 provision exceeded net charge-offs, thus adding to loan loss reserves in consideration of the continued growth of the loan portfolio.

The allowance for loan and lease losses totaled $21.0 million at September 30, 2017, compared to $19.6 million at June 30, 2017. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.80% at September 30, 2017 and June 30, 2017, respectively.

Income Tax

There was a net income tax benefit in the third quarter of 2017 of $5.1 million compared to a tax expense of $2.6 million in the third quarter of 2016 and $408 thousand in the second quarter of 2017. The negative effective rate in the third quarter of 2017 principally reflected an increase in anticipated investment in renewable energy assets generating investment tax credits. As the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector.

Deposits

Total deposits increased by $141.2 million, or 7.5%, to $2.01 billion at September 30, 2017, compared to $1.87 billion at June 30, 2017, following successful deposit gathering campaigns. Average total interest-bearing deposits for the third quarter of 2017 increased $203.2 million, or 11.7%, to $1.94 billion, compared to $1.74 billion for the second quarter of 2017. The ratio of average total loans to average interest-bearing deposits was 91.1% for the third quarter of 2017, compared to 92.7% for the second quarter of 2017.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 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 99094314. 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 November 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.

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 2017   2Q 2017   1Q 2017   4Q 2016   3Q 2016
Interest income                    
Loans and fees on loans   $ 26,977     $ 23,559     $ 19,754     $ 16,239     $ 14,961  
Investment securities, taxable   325     316     323     292     337  
Other interest earning assets   870     470     342     383     264  
Total interest income   28,172     24,345     20,419     16,914     15,562  
Interest expense                    
Deposits   6,758     5,592     4,543     4,283     3,689  
Borrowings   389     361     235     239     242  
Total interest expense   7,147     5,953     4,778     4,522     3,931  
Net interest income   21,025     18,392     15,641     12,392     11,631  
Provision for loan and leases losses   2,426     1,556     1,499     3,844     3,806  
Net interest income after provision for loan and lease losses   18,599     16,836     14,142     8,548     7,825  
Noninterest income                    
Loan servicing revenue   6,490     6,174     5,923     5,668     5,860  
Loan servicing asset revaluation   (3,691 )   (1,164 )   (2,009 )   (3,340 )   (3,421 )
Net gains on sales of loans   18,148     18,176     18,952     22,513     21,833  
Gain on sale of securities available-for-sale                   1  
Construction supervision fee income   362     286     429     868     502  
Title insurance income   1,968     2,397     1,438          
Other noninterest income   1,783     798     1,020     618     657  
Total noninterest income   25,060     26,667     25,753     26,327     25,432  
Noninterest expense                    
Salaries and employee benefits   19,037     17,968     18,682     17,121     17,471  
Travel expense   2,289     2,148     1,598     1,811     2,218  
Professional services expense   1,068     1,424     1,736     1,137     907  
Advertising and marketing expense   1,516     1,976     1,485     1,109     1,097  
Occupancy expense   1,473     1,350     1,195     1,267     1,058  
Data processing expense   1,982     1,858     1,696     1,435     1,252  
Equipment expense   2,228     1,703     1,074     550     611  
Other loan origination and maintenance expense   1,601     981     1,005     824     806  
Renewable energy tax credit investment impairment               3,197      
FDIC insurance   858     724     726     910     210  
Title insurance closing services expense   687     785     405          
Other expense   3,117     2,383     3,383     3,023     1,588  
Total noninterest expense   35,856     33,300     32,985     32,384     27,218  
Income before taxes   7,803     10,203     6,910     2,491     6,039  
Income tax (benefit) expense   (5,059 )   408     798     (2,989 )   2,561  
Net income   12,862     9,795     6,112     5,480     3,478  
Net loss attributable to noncontrolling interest                   1  
Net income attributable to Live Oak Bancshares, Inc.   $ 12,862     $ 9,795     $ 6,112     $ 5,480     $ 3,479  
Earnings per share                    
Basic   $ 0.34     $ 0.28     $ 0.18     $ 0.16     $ 0.10  
Diluted   $ 0.33     $ 0.27     $ 0.17     $ 0.16     $ 0.10  
Weighted average shares outstanding                    
Basic   37,366,041     34,618,721     34,466,904     34,235,375     34,206,943  
Diluted   38,644,677     35,942,041     35,646,918     35,208,433     35,001,817  
                               
                               


 
Live Oak Bancshares, Inc.
Quarterly Balance Sheets (unaudited)
(Dollars in thousands)
 
    As of the quarter ended
    3Q 2017   2Q 2017   1Q 2017   4Q 2016   3Q 2016
Assets                    
Cash and due from banks   $ 260,907     $ 207,373     $ 158,887     $ 238,008     $ 355,485  
Certificates of deposit with other banks   3,250     5,750     6,000     7,250     7,500  
Investment securities available-for-sale   76,575     72,993     68,630     71,056     70,334  
Loans held for sale   692,586     609,138     512,501     394,278     345,277  
Loans and leases held for investment   1,169,887     1,084,503     999,270     907,566     766,977  
Allowance for loan losses   (21,027 )   (19,560 )   (18,195 )   (18,209 )   (15,178 )
Net loans and leases   1,148,860     1,064,943     981,075     889,357     751,799  
Premises and equipment, net   129,233     125,008     101,398     64,661     60,646  
Foreclosed assets   2,231     2,140     1,706     1,648     2,235  
Servicing assets   53,392     53,675     53,584     51,994     49,729  
Other assets   65,155     57,087     48,344     37,009     26,735  
Total assets   $ 2,432,189     $ 2,198,107     $ 1,932,125     $ 1,755,261     $ 1,669,740  
Liabilities and Shareholders’ Equity                    
Liabilities                    
Deposits:                    
Noninterest-bearing   $ 55,260     $ 40,966     $ 38,029     $ 27,990     $ 28,461  
Interest-bearing   1,957,631     1,830,755     1,601,114     1,457,086     1,374,556  
Total deposits   2,012,891     1,871,721     1,639,143     1,485,076     1,403,017  
Short term borrowings       10,000     13,100          
Long term borrowings   26,872     52,173     27,473     27,843     28,074  
Other liabilities   27,835     26,582     26,220     19,495     24,497  
Total liabilities   2,067,598     1,960,476     1,705,936     1,532,414     1,455,588  
Shareholders’ equity                    
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                    
Class A common stock (voting)   266,336     150,939     147,933     149,966     145,284  
Class B common stock (non-voting)   49,168     49,168     50,015     50,015     50,015  
Retained earnings   49,707     38,041     28,938     23,518     18,723  
Accumulated other comprehensive (loss) income   (620 )   (517 )   (697 )   (652 )   130  
Total shareholders’ equity attributed to Live Oak Bancshares, Inc.   364,591     237,631     226,189     222,847     214,152  
Noncontrolling interest                    
Total equity   364,591     237,631     226,189     222,847     214,152  
Total liabilities and shareholders’ equity   $ 2,432,189     $ 2,198,107     $ 1,932,125     $ 1,755,261     $ 1,669,740  
 
 


 
Live Oak Bancshares, Inc.
Statements of Income (unaudited)
(Dollars in thousands, except per share data)
 
    Nine months ended
    September 30, 2017   September 30, 2016
Interest income        
Loans and fees on loans   $ 70,290     $ 38,868  
Investment securities, taxable   964     840  
Other interest earning assets   1,682     650  
Total interest income   72,936     40,358  
Interest expense        
Deposits   16,893     9,376  
Borrowings   985     725  
Total interest expense   17,878     10,101  
Net interest income   55,058     30,257  
Provision for loan losses   5,481     8,692  
Net interest income after provision for loan losses   49,577     21,565  
Noninterest income        
Loan servicing revenue   18,587     15,725  
Loan servicing asset revaluation   (6,864 )   (5,051 )
Net gains on sales of loans   55,276     52,813  
Gain on sale of securities available-for-sale       1  
Construction supervision fee income   1,077     1,799  
Title insurance income   5,803      
Other noninterest income   3,601     1,925  
Total noninterest income   77,480     67,212  
Noninterest expense        
Salaries and employee benefits   55,687     45,875  
Travel expense   6,035     6,394  
Professional services expense   4,228     2,345  
Advertising and marketing expense   4,977     3,425  
Occupancy expense   4,018     3,306  
Data processing expense   5,536     3,864  
Equipment expense   5,005     1,696  
Other loan origination and maintenance expense   3,587     2,001  
FDIC insurance   2,308     507  
Title insurance closing services expense   1,877      
Other expense   8,883     4,648  
Total noninterest expense   102,141     74,061  
Income before taxes   24,916     14,716  
Income tax (benefit) expense   (3,853 )   6,432  
Net income   28,769     8,284  
Net loss attributable to noncontrolling interest       9  
Net income attributable to Live Oak Bancshares, Inc.   $ 28,769     $ 8,293  
Earnings per share        
Basic   $ 0.81     $ 0.24  
Diluted   $ 0.78     $ 0.24  
Weighted average shares outstanding        
Basic   35,485,371     34,191,014  
Diluted   36,730,054     35,003,422  
             
             


 
Live Oak Bancshares, Inc.
Quarterly Selected Financial Data
(Dollars in thousands, except per share data)
 
    As of and for the three months ended
    3Q 2017   2Q 2017   1Q 2017   4Q 2016   3Q 2016
Income Statement Data                    
Net income attributable to Live Oak Bancshares, Inc.   $ 12,862     $ 9,795     $ 6,112     $ 5,480     $ 3,479  
Per Common Share                    
Net income, basic   $ 0.34     $ 0.28     $ 0.18     $ 0.16     $ 0.10  
Net income, diluted   0.33     0.27     0.17     0.16     0.10  
Dividends declared   0.03     0.02     0.02     0.02     0.02  
Book value   9.15     6.86     6.54     6.51     6.26  
Tangible book value (1)   8.84     6.50     6.17     6.51     6.26  
Performance Ratios                    
Return on average assets (annualized)   2.18 %   1.89 %   1.33 %   1.26 %   0.91 %
Return on average equity (annualized)   16.79     16.53     10.93     9.95     6.54  
Net interest margin   3.91     3.92     3.76     3.08     3.32  
Efficiency ratio (1)   77.80     73.90     79.69     83.64     73.44  
Noninterest income to total revenue   54.38     59.18     62.21     68.00     68.62  
Selected Loan Metrics                    
Loans and leases originated   $ 395,682     $ 586,471     $ 468,663     $ 514,565     $ 381,050  
Guaranteed loans sold   163,843     203,714     208,715     260,125     210,610  
Average net gain on sale of guaranteed loans   110.76     91.68     90.80     86.55     103.67  
Held for sale guaranteed loans (note amount) (2)   1,093,385     1,005,753     866,260     754,834     692,278  
Quarterly increase (decrease) in note amount of held for sale guaranteed loans   87,632     139,493     111,426     62,556     52,922  
Estimated net gain to be recognized on quarterly increase in guaranteed loans held for sale (3)   9,707     12,789     10,117     5,414     5,486  
Asset Quality Ratios                    
Allowance for loan losses to loans and leases held for investment   1.80 %   1.80 %   1.82 %   2.01 %   1.98 %
Net charge-offs   $ 959     $ 191     $ 1,513     $ 813     $ 937  
Net charge-offs to average loans and leases held for investment (4)   0.34 %   0.07 %   0.63 %   0.39 %   0.51 %
Nonperforming loans   $ 22,420     $ 21,856     $ 22,469     $ 23,781     $ 14,023  
Foreclosed assets   2,231     2,140     1,706     1,648     2,235  
Nonperforming loans (unguaranteed exposure)   3,299     3,546     3,643     4,784     3,354  
Foreclosed assets (unguaranteed exposure)   446     345     304     246     304  
Nonperforming loans not guaranteed by the SBA and foreclosures   3,745     3,891     3,947     5,030     3,658  
Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets   0.15 %   0.18 %   0.20 %   0.29 %   0.22 %
Capital Ratios                    
Common equity tier 1 capital (to risk-weighted assets)   17.78 %   11.93 %   12.79 %   15.35 %   16.63 %
Total capital (to risk-weighted assets)   18.93     13.08     14.01     16.60     17.88  
Tier 1 risk based capital (to risk-weighted assets)   17.78     11.93     12.79     15.35     16.63  
Tier 1 leverage capital (to average assets)   13.99     9.93     10.60     12.03     13.18  
                               

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 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, 2017   Three months ended June 30, 2017
    Average Balance    Interest   Average Yield/Rate   Average Balance    Interest   Average Yield/Rate
Interest earning assets:                        
Interest earning balances in other banks   $ 292,066     $ 870     1.18 %   $ 199,904     $ 470     0.94 %
Investment securities   73,312     325     1.76     69,544     316     1.82  
Loans held for sale   653,342     9,922     6.03     562,984     8,226     5.86  
Loans and leases held for investment (1)   1,116,209     17,055     6.06     1,050,074     15,333     5.86  
Total interest earning assets   2,134,929     28,172     5.24     1,882,506     24,345     5.19  
Less: allowance for loan and lease losses   (19,544 )           (18,198 )        
Non-interest earning assets   242,014             209,484          
Total assets   $ 2,357,399             $ 2,073,792          
                         
Interest bearing liabilities:                        
Interest bearing checking   $ 35,127     $ 51     0.58 %   $ 40,541     $ 57     0.56 %
Savings   196,220     682     1.38     3,809     12     1.26  
Money market accounts   453,985     1,303     1.14     475,265     1,114     0.94  
Certificates of deposit   1,257,072     4,722     1.49     1,219,542     4,409     1.45  
Total interest bearing deposits   1,942,404     6,758     1.38     1,739,157     5,592     1.29  
Other borrowings   42,219     389     3.66     42,765     361     3.39  
Total interest bearing liabilities   1,984,623     7,147     1.43     1,781,922     5,953     1.34  
Non-interest bearing deposits   43,652             32,718          
Non-interest bearing liabilities   22,650             22,165          
Shareholders' equity   306,474             236,987          
Noncontrolling interest                        
Total liabilities and shareholders' equity   $ 2,357,399             $ 2,073,792          
                         
Net interest income and interest rate spread       $ 21,025     3.81 %       $ 18,392     3.85 %
                         
Net interest margin           3.91             3.92  
                         
Ratio of average interest-earning assets to average interest-bearing liabilities           107.57 %           105.64 %
                             

(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 2017   2Q 2017   1Q 2017   4Q 2016   3Q 2016
Total shareholders’ equity   $ 364,591     $ 237,631     $ 226,189     $ 222,847     $ 214,152  
Less:                    
Goodwill   7,278     7,266     7,165          
Other intangible assets   5,126     5,292     5,410          
Tangible shareholders’ equity (a)   $ 352,187     $ 225,073     $ 213,614     $ 222,847     $ 214,152  
Shares outstanding (c)   39,862,147     34,639,848     34,600,819     34,253,602     34,215,050  
Total assets   $ 2,432,189     $ 2,198,107     $ 1,932,125     $ 1,755,261     $ 1,669,740  
Less:                    
Goodwill   7,278     7,266     7,165          
Other intangible assets   5,126     5,292     5,410          
Tangible assets (b)   $ 2,419,785     $ 2,185,549     $ 1,919,550     $ 1,755,261     $ 1,669,740  
Tangible shareholders’ equity to tangible assets (a/b)   14.55 %   10.30 %   11.13 %   12.70 %   12.83 %
Tangible book value per share (a/c)   $ 8.84     $ 6.50     $ 6.17     $ 6.51     $ 6.26  
Efficiency ratio:                    
Noninterest expense (d)   $ 35,856     $ 33,300     $ 32,985     $ 32,384     $ 27,218  
Net interest income   21,025     18,392     15,641     12,392     11,631  
Noninterest income   25,060     26,667     25,753     26,327     25,432  
Less: gain on sale of securities                   1  
Adjusted operating revenue (e)   $ 46,085     $ 45,059     $ 41,394     $ 38,719     $ 37,062  
Efficiency ratio (d/e)   77.80 %   73.90 %   79.69 %   83.64 %   73.44 %
                               
                               


 
Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation (Continued)
(Dollars in thousands) 
 
    Three months ended   Nine months ended
    3Q 2017   2Q 2017   3Q 2016   3Q 2017   3Q 2016
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:                    
Net income attributable to Live Oak Bancshares, Inc.   $ 12,862     $ 9,795     $ 3,479     $ 28,769     $ 8,293  
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   286     378     3,365     1,010     5,608  
Merger costs for acquisition of Reltco and Apiture investment   390     250         1,156      
Trade-in loss on aircraft               206      
Renewable energy tax credit investment income, impairment and loss   19     19         57      
Income tax effects and adjustments for non-GAAP items *   (278 )   (259 )   (1,346 )   (972 )   (3,852 )
Other renewable energy tax expense   44     44         132      
Non-GAAP net income   $ 13,323     $ 10,227     $ 5,498     $ 30,358     $ 14,072  
* Estimated at 40.0%                    
Non-GAAP earnings per share:                    
Basic   $ 0.36     $ 0.30     $ 0.16     $ 0.86     $ 0.41  
Diluted   $ 0.34     $ 0.28     $ 0.16     $ 0.83     $ 0.40  
                     
Weighted-average shares outstanding:                    
Basic   37,366,041     34,618,721     34,206,943     35,485,371     34,191,014  
Diluted   38,644,677     35,942,041     35,001,817     36,370,054     35,003,422  
                     
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:                    
Noninterest income, as reported   $ 25,060     $ 26,667     $ 25,432     $ 77,480     $ 67,212  
Renewable energy tax credit investment income   (10 )   (10 )       (30 )    
Noninterest income, as adjusted   25,050     26,657     25,432     77,450     67,212  
                     
Provision for loan losses, as reported   2,426     1,556     3,806     5,481     8,692  
Provision for loans reclassified as held for investment                   (4,023 )
Provision for loan losses, as adjusted   2,426     1,556     3,806     5,481     4,669  
                     
Noninterest expense, as reported   35,856     33,300     27,218     102,141     74,061  
Stock based compensation expense   (286 )   (378 )   (3,365 )   (1,010 )   (5,608 )
Merger costs associated with Reltco and Apiture investment   (390 )   (250 )       (1,156 )    
Trade-in loss on aircraft               (206 )    
Renewable energy tax credit investment impairment and loss   (29 )   (29 )       (87 )    
Noninterest expense, as adjusted   35,151     32,643     23,853     99,682     68,453  
                     
Income tax (benefit) expense, as reported   (5,059 )   408     2,561     (3,853 )   6,432  
Income tax effects and adjustments for non-recurring income and expenses   278     259     1,346     972     3,852  
Other renewable energy tax expense   (44 )   (44 )       (132 )    
Income tax expense, as adjusted   $ (4,825 )   $ 623     $ 3,907     $ (3,013 )   $ 10,284  
                                         

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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Live Oak Bancshares, Inc.
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