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Live Oak Bancshares, Inc. Reports First Quarter 2018 Results

WILMINGTON, N.C., April 25, 2018 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq:LOB) (“Live Oak” or “the Company”) today reported first quarter net earnings available to common shareholders of $12.5 million, or $0.30 per diluted share, compared to $6.1 million, or $0.17 per diluted share, for the first quarter of 2017.

“We kicked off the year in fine fashion with a very strong performance in the first quarter.  We enjoyed 43% growth in our loan and lease portfolio compared to one year ago while significantly boosting our recurring revenues and liquidity position. We are steadily expanding our array of industry verticals and continuing to diversify our product offerings.  We are intensely focused on serving the needs of small businesses across the U.S. and revolutionizing the financial services industry through innovative technology solutions,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

First Quarter 2018 Key Measures

(Dollars in thousands, except per share data)       Increase (Decrease)    
  Q1 2018   Q1 2017   Dollars   Percent   Q4 2017
Net interest income and servicing revenues $ 31,374     $ 21,564     $ 9,810     45 %   $ 28,977  
Net income 12,453     6,112     6,341     104     71,730  
Diluted earnings per share 0.30     0.17     0.13     76     1.74  
Non-GAAP net income (1) 12,721     6,808     5,913     87     16,875  
Non-GAAP diluted earnings per share (1) 0.31     0.19     0.12     63     0.41  
Loan and lease production:                    
Loans and leases originated $ 397,559     $ 468,663     $ (71,104 )   (15 )%   $ 483,422  
% Fully funded 69.5 %   63.2 %   n/a     n/a     42.9 %
Loan sales:                    
Guaranteed loans sold $ 247,243     $ 208,715     $ 38,528     18 %   $ 211,654  
Net gains on sales of guaranteed loans 24,418     18,952     5,466     29     23,314  
Average net gain on sale of guaranteed loans, per million sold 98.76     90.80     7.96     9     110.15  

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

Loans and Leases

At March 31, 2018, the total loan and lease portfolio of $2.16 billion increased 43.0% above its level of a year ago and by 6.8% above its level at December 31, 2017.  Net loans and leases held for investment increased $94.2 million, or 7.1%, to $1.41 billion at March 31, 2018, from $1.32 billion at December 31, 2017.  Loans held for sale increased $40.1 million, or 5.9%, to $720.5 million at March 31, 2018, from $680.5 million at December 31, 2017. Loan and lease originations totaled $397.6 million during the first quarter of 2018, a decline from the prior quarter due to a combination of lending seasonality and increased competitive pressures.  The total loan and lease portfolio at March 31, 2018, and December 31, 2017, of $2.16 billion and $2.02 billion, respectively, were comprised of approximately 61.3% and 61.4% of unguaranteed loans and leases, respectively.

Average loans and leases were $2.14 billion during the first quarter of 2018 compared to $1.91 billion during the fourth quarter of 2017.

Net Interest Income

Net interest income for the first quarter of 2018 increased to $24.5 million compared to $15.6 million for the first quarter of 2017 and $23.0 million for the fourth quarter of 2017. 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 consolidated balance sheet.  The net interest margin for the first quarter of 2018 was 3.72%, a decline of 35 basis points from the fourth quarter of 2017 primarily due to the reinvestment of a portion of the deposit growth in the first quarter into liquid assets and securities and, to a lesser extent, the rising costs of deposit gathering.  The Company anticipates that it is positioned to benefit from the rising rate environment with 75.3% 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 first quarter of 2018 totaled $30.8 million, compared to $25.8 million for the first quarter of 2017 and $95.4 million for the fourth quarter of 2017 which included a $68.0 million gain arising from the Company’s investment in Apiture. Excluding this one-time gain, noninterest income totaled $27.4 million for the fourth quarter of 2017.

Net gains on sales of loans increased to $24.4 million in the first quarter of 2018 compared to $19.0 million in the first quarter of 2017 and $23.3 million in the fourth quarter of 2017.  The volume of guaranteed loan sales in the first quarter of 2018 rose to $247.2 million compared to $208.7 million in the first quarter of 2017 and $211.7 million in the fourth quarter of 2017. The average net gain on guaranteed loan sales increased to $98.8 thousand per million sold in the first quarter of 2018 versus $90.8 thousand per million sold in the first quarter of 2017 and declined from $110.2 thousand per million sold in the fourth quarter of 2017. The Company believes that the recent changes in average loan sale pricing is primarily the result of the mix of loans sold during the quarter and not reflective of an overall decline in market performance.

Loan servicing revenues of $6.9 million in the first quarter of 2018 rose by $975 thousand, or 16.5%, from the first quarter of 2017 and by $897 thousand, or 14.9%, from the fourth quarter of 2017. The net loss resulting from the revaluation of the servicing asset totaled $5.1 million for the first quarter of 2018, an increase of $3.1 million compared to the first quarter of 2017 but reduced from the net loss of $6.3 million in the fourth quarter of 2017.

Lease income from solar panels contributed $1.6 million in noninterest income in the first quarter of 2018, compared to $1.2 million in the fourth quarter of 2017 and none in the first quarter of 2017.  The Company began offering operating lease agreements for solar panels to third parties at the end of the first quarter of 2017.

Noninterest Expense

Noninterest expense for the first quarter of 2018 was $38.1 million compared to $33.0 million for the first quarter of 2017 and $41.0 million for the fourth quarter of 2017.  The $5.1 million, or 15.4%, increase in noninterest expense for the first quarter of 2018 compared to the first quarter of 2017 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 first quarter of 2018 increased to $20.2 million compared to $18.7 million for the first quarter of 2017 and $19.0 million for the fourth quarter of 2017. Included in these totals is stock-based compensation expense in the first quarter of 2018 of $2.3 million compared to $3.7 million for the first quarter of 2017 and $1.8 million for the fourth quarter of 2017.  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.

Compared to the first quarter of 2017, there were increases in data processing expense of $1.1 million and equipment expense of $2.0 million for the first quarter of 2018.  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.

Compared to the fourth quarter of 2017, noninterest expense decreased $3.0 million, or 7.2%.  The decrease was primarily the result of one-time costs associated with events in the fourth quarter that elevated the noninterest expense for the fourth quarter of 2017, most notably due to a net impairment charge of $3.6 million.

Asset Quality

The unguaranteed exposure of nonperforming loans increased to $7.4 million, or 0.51% of total loans and leases held for investment, at March 31, 2018, compared to $3.6 million, or 0.27%, at December 31, 2017.  Total nonperforming loans increased to $36.8 million in the first quarter of 2018 from $23.5 million at the end of the prior quarter and was primarily related to older verticals.

The unguaranteed exposure of foreclosed assets increased to $101 thousand at March 31, 2018, from $90 thousand at December 31, 2017.  Foreclosed assets increased $238 thousand to $1.5 million at March 31, 2018, from $1.3 million at December 31, 2017.

Net charge-offs declined to $532 thousand in the first quarter of 2018 compared to $892 thousand in the fourth quarter of 2017 and $1.5 million in the first quarter of 2017.  Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarters ended March 31, 2018 and 2017 were 0.15% and 0.63%, respectively.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the first quarter of 2018 totaled $4.4 million compared to $4.1 million for the fourth quarter of 2017 and $1.5 million for the first quarter of 2017.  The first 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 $28.1 million at March 31, 2018, compared to $24.2 million at December 31, 2017. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.95% and 1.80% at March 31, 2018 and December 31, 2017, respectively.

Income Tax

Income tax expense was $315 thousand in the first quarter of 2018, compared to $798 thousand in the first quarter of 2017 and $1.6 million in the fourth quarter of 2017.  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.

Investment Securities

Investment securities increased by $285.1 million, or 305.4%, to $378.5 million at March 31, 2018, compared to $93.4 million at December 31, 2017.  This increase is related to the Company purchasing $293.0 million of residential mortgage-backed securities during the first quarter of 2018 as part of a strategic plan to enhance the Company's contingent funding sources.

Deposits

Total deposits increased by $713.1 million, or 31.5%, to $2.97 billion at March 31, 2018, compared to $2.26 billion at December 31, 2017, following successful deposit gathering campaigns to strengthen the Company’s liquidity position.  Average total interest-bearing deposits for the first quarter of 2018 increased $499.6 million, or 24.9%, to $2.51 billion, compared to $2.01 billion for the fourth quarter of 2017. The ratio of average total loans and leases to average interest-bearing deposits was 85.2% for the first quarter of 2018, compared to 95.0% for the fourth quarter of 2017.

Long Term Borrowings

Long term borrowings decreased by $23.1 million, or 86.9%, to $3.5 million at March 31, 2018, compared to $26.6 million at December 31, 2017. This decrease was a result of the Company repaying debt during 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 (April 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 1893701. 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 May 3, 2018, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

CFO Commentary

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

Important Note Regarding Forward-Looking Statements

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

About Live Oak Bancshares, Inc.

Live Oak Bancshares, Inc. (Nasdaq:LOB) is a financial holding company and the parent company of Live Oak Banking CompanyLive Oak Bancshares and its subsidiaries partner with businesses that have a common focus of changing the banking industry by bringing efficiency and excellence to customers using technology and innovation.

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


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

  Three months ended
  1Q 2018   4Q 2017   3Q 2017   2Q 2017   1Q 2017
Interest income                  
Loans and fees on loans $ 32,691     $ 29,343     $ 26,977     $ 23,559     $ 19,754  
Investment securities, taxable 1,117     468     325     316     323  
Other interest earning assets 1,215     725     870     470     342  
Total interest income 35,023     30,536     28,172     24,345     20,419  
Interest expense                  
Deposits 10,418     7,330     6,758     5,592     4,543  
Borrowings 129     230     389     361     235  
Total interest expense 10,547     7,560     7,147     5,953     4,778  
Net interest income 24,476     22,976     21,025     18,392     15,641  
Provision for loan and leases losses 4,392     4,055     2,426     1,556     1,499  
Net interest income after provision for loan and lease losses 20,084     18,921     18,599     16,836     14,142  
Noninterest income                  
Loan servicing revenue 6,898     6,001     6,490     6,174     5,923  
Loan servicing asset revaluation (5,088 )   (6,307 )   (3,691 )   (1,164 )   (2,009 )
Net gains on sales of loans 24,418     23,314     18,148     18,176     18,952  
Lease income 1,608     1,165     682     9      
Gain on contribution to equity method investment     68,000              
Construction supervision fee income 779     699     362     286     429  
Title insurance income 1,300     1,762     1,968     2,397     1,438  
Other noninterest income 841     807     1,101     789     1,020  
Total noninterest income 30,756     95,441     25,060     26,667     25,753  
Noninterest expense                  
Salaries and employee benefits 20,209     18,982     19,037     17,968     18,682  
Travel expense 1,843     2,089     2,289     2,148     1,598  
Professional services expense 1,298     709     1,068     1,424     1,736  
Advertising and marketing expense 1,662     1,386     1,516     1,976     1,485  
Occupancy expense 1,857     2,177     1,473     1,350     1,195  
Data processing expense 2,837     2,913     1,982     1,858     1,696  
Equipment expense 3,077     2,474     2,228     1,703     1,074  
Other loan origination and maintenance expense 1,329     1,383     1,601     981     1,005  
Renewable energy tax credit investment impairment     690              
FDIC insurance 572     898     858     724     726  
Title insurance closing services expense 426     541     687     785     405  
Impairment expense on goodwill and other intangibles     3,648              
Other expense 2,962     3,134     3,117     2,383     3,383  
Total noninterest expense 38,072     41,024     35,856     33,300     32,985  
Income before taxes 12,768     73,338     7,803     10,203     6,910  
Income tax expense (benefit) 315     1,608     (5,059 )   408     798  
Net income $ 12,453     $ 71,730     $ 12,862     $ 9,795     $ 6,112  
Earnings per share                  
Basic $ 0.31     $ 1.80     $ 0.34     $ 0.28     $ 0.18  
Diluted $ 0.30     $ 1.74     $ 0.33     $ 0.27     $ 0.17  
Weighted average shares outstanding                  
Basic 39,926,781     39,879,345     37,366,041     34,618,721     34,466,904  
Diluted 41,399,930     41,184,793     38,644,677     35,942,041     35,646,918  
                             

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

  As of the quarter ended
  1Q 2018   4Q 2017   3Q 2017   2Q 2017   1Q 2017
Assets                  
Cash and due from banks $ 527,952     $ 295,271     $ 260,907     $ 207,373     $ 158,887  
Certificates of deposit with other banks 2,250     3,000     3,250     5,750     6,000  
Investment securities available-for-sale 378,488     93,355     76,575     72,993     68,630  
Loans held for sale 720,511     680,454     692,586     609,138     512,501  
Loans and leases held for investment 1,442,077     1,343,973     1,169,887     1,084,503     999,270  
Allowance for loan and lease losses (28,050 )   (24,190 )   (21,027 )   (19,560 )   (18,195 )
Net loans and leases 1,414,027     1,319,783     1,148,860     1,064,943     981,075  
Premises and equipment, net 216,831     178,790     129,233     125,008     101,398  
Foreclosed assets 1,519     1,281     2,231     2,140     1,706  
Servicing assets 53,120     52,298     53,392     53,675     53,584  
Other assets 146,165     134,242     65,155     57,087     49,269  
Total assets $ 3,460,863     $ 2,758,474     $ 2,432,189     $ 2,198,107     $ 1,933,050  
Liabilities and Shareholders’ Equity                  
Liabilities                  
Deposits:                  
Noninterest-bearing $ 48,755     $ 57,868     $ 55,260     $ 40,966     $ 38,029  
Interest-bearing 2,924,586     2,202,395     1,957,631     1,830,755     1,601,114  
Total deposits 2,973,341     2,260,263     2,012,891     1,871,721     1,639,143  
Short term borrowings             10,000     13,100  
Long term borrowings 3,489     26,564     26,872     52,173     27,473  
Other liabilities 35,197     34,714     27,835     26,582     27,145  
Total liabilities 3,012,027     2,321,541     2,067,598     1,960,476     1,706,861  
Shareholders’ equity                  
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                  
Class A common stock (voting) 271,451     268,557     266,336     150,939     147,933  
Class B common stock (non-voting) 49,168     49,168     49,168     49,168     50,015  
Retained earnings 131,739     120,241     49,707     38,041     28,938  
Accumulated other comprehensive loss (3,522 )   (1,033 )   (620 )   (517 )   (697 )
Total equity 448,836     436,933     364,591     237,631     226,189  
Total liabilities and shareholders’ equity $ 3,460,863     $ 2,758,474     $ 2,432,189     $ 2,198,107     $ 1,933,050  
                                       
                                       

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

  As of and for the three months ended
  1Q 2018   4Q 2017   3Q 2017   2Q 2017   1Q 2017
Income Statement Data                  
Net income $ 12,453     $ 71,730     $ 12,862     $ 9,795     $ 6,112  
Per Common Share                  
Net income, basic $ 0.31     $ 1.80     $ 0.34     $ 0.28     $ 0.18  
Net income, diluted 0.30     1.74     0.33     0.27     0.17  
Dividends declared 0.03     0.03     0.03     0.02     0.02  
Book value 11.23     10.95     9.15     6.86     6.54  
Tangible book value (1) 11.13     10.85     8.84     6.50     6.17  
Performance Ratios                  
Return on average assets (annualized) 1.64 %   11.21 %   2.18 %   1.89 %   1.33 %
Return on average equity (annualized) 11.08     68.33     16.79     16.53     10.93  
Net interest margin 3.72     4.07     3.91     3.92     3.76  
Efficiency ratio (1) 68.93     34.64     77.80     73.90     79.69  
Noninterest income to total revenue 55.69     80.60     54.38     59.18     62.21  
Selected Loan Metrics                                      
Loans and leases originated $ 397,559     $ 483,422     $ 395,682     $ 586,471     $ 468,663  
Guaranteed loans sold 247,243     211,654     163,843     203,714     208,715  
Average net gain on sale of guaranteed loans 98.76     110.15     110.76     91.68     90.80  
Held for sale guaranteed loans (note amount) (2) 1,068,886     1,087,636     1,093,385     1,005,753     866,260  
Asset Quality Ratios                                      
Allowance for loan losses to loans and leases held for investment 1.95 %   1.80 %   1.80 %   1.80 %   1.82 %
Net charge-offs $ 532     $ 892     $ 959     $ 191     $ 1,513  
Net charge-offs to average loans and leases held for investment (3) 0.15 %   0.28 %   0.34 %   0.07 %   0.63 %
Nonperforming loans $ 36,776     $ 23,480     $ 22,420     $ 21,856     $ 22,469  
Foreclosed assets 1,519     1,281     2,231     2,140     1,706  
Nonperforming loans (unguaranteed exposure) 7,386     3,610     3,299     3,546     3,643  
Foreclosed assets (unguaranteed exposure) 101     90     446     345     304  
Nonperforming loans not guaranteed by the SBA and foreclosures 7,487     3,700     3,745     3,891     3,947  
Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets 0.22 %   0.13 %   0.15 %   0.18 %   0.20 %
Capital Ratios                                      
Common equity tier 1 capital (to risk-weighted assets) 16.36 %   17.81 %   17.78 %   11.93 %   12.79 %
Total capital (to risk-weighted assets) 17.51     18.91     18.93     13.08     14.01  
Tier 1 risk based capital (to risk-weighted assets) 16.36     17.81     17.78     11.93     12.79  
Tier 1 leverage capital (to average assets) 13.32     15.53     13.99     9.93     10.60  

Notes to Quarterly Selected Financial Data

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


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

    Three months ended March 31, 2018   Three months ended December 31, 2017
    Average
Balance
   Interest   Average
Yield/Rate
  Average
Balance
   Interest   Average
Yield/Rate
Interest earning assets:                        
Interest earning balances in other banks   $ 354,028     $ 1,215     1.39 %   $ 242,261     $ 725     1.19 %
Investment securities   181,900     1,117     2.49     90,884     468     2.04  
Loans held for sale   727,696     11,046     6.16     643,764     9,819     6.05  
Loans and leases held for investment (1)   1,408,112     21,645     6.23     1,264,721     19,524     6.12  
Total interest earning assets   2,671,736     35,023     5.32     2,241,630     30,536     5.40  
Less: allowance for loan and lease losses   (24,219 )             (20,943 )          
Non-interest earning assets   396,920               338,148            
Total assets   $ 3,044,437               $ 2,558,835            
                             
Interest bearing liabilities:                            
Interest bearing checking   $ 43,597     $ 103     0.96 %   $ 36,958     $ 83     0.89 %
Savings   822,266     3,118     1.54     566,050     1,992     1.40  
Money market accounts   168,954     521     1.25     247,899     695     1.11  
Certificates of deposit   1,473,054     6,676     1.84     1,157,405     4,560     1.56  
Total interest bearing deposits   2,507,871     10,418     1.68     2,008,312     7,330     1.45  
Other borrowings   11,228     129     4.66     26,756     230     3.41  
Total interest bearing liabilities   2,519,099     10,547     1.70     2,035,068     7,560     1.47  
Non-interest bearing deposits   56,596               57,917            
Non-interest bearing liabilities   19,022               45,933            
Shareholders' equity   449,720               419,917            
Total liabilities and shareholders' equity   $ 3,044,437               $ 2,558,835            
                             
Net interest income and interest rate spread       $ 24,476     3.62 %       $ 22,976     3.93 %
                             
Net interest margin           3.72             4.07  
                             
Ratio of average interest-earning assets to average interest-bearing liabilities           106.06 %           110.15 %

(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
  1Q 2018   4Q 2017   3Q 2017   2Q 2017   1Q 2017
Total shareholders’ equity $ 448,836     $ 436,933     $ 364,591     $ 237,631     $ 226,189  
Less:                  
Goodwill         7,278     7,266     7,165  
Other intangible assets 4,122     4,264     5,126     5,292     5,410  
Tangible shareholders’ equity (a) $ 444,714     $ 432,669     $ 352,187     $ 225,073     $ 213,614  
Shares outstanding (c) 39,974,148     39,895,583     39,862,147     34,639,848     34,600,819  
Total assets $ 3,460,863     $ 2,758,474     $ 2,432,189     $ 2,198,107     $ 1,933,050  
Less:                  
Goodwill         7,278     7,266     7,165  
Other intangible assets 4,122     4,264     5,126     5,292     5,410  
Tangible assets (b) $ 3,456,741     $ 2,754,210     $ 2,419,785     $ 2,185,549     $ 1,920,475  
Tangible shareholders’ equity to tangible assets (a/b) 12.87 %   15.71 %   14.55 %   10.30 %   11.12 %
Tangible book value per share (a/c) $ 11.13     $ 10.85     $ 8.84     $ 6.50     $ 6.17  
Efficiency ratio:                                      
Noninterest expense (d) $ 38,072     $ 41,024     $ 35,856     $ 33,300     $ 32,985  
Net interest income 24,476     22,976     21,025     18,392     15,641  
Noninterest income 30,756     95,441     25,060     26,667     25,753  
Less: gain on sale of securities                  
Adjusted operating revenue (e) $ 55,232     $ 118,417     $ 46,085     $ 45,059     $ 41,394  
Efficiency ratio (d/e) 68.93 %   34.64 %   77.80 %   73.90 %   79.69 %


Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation (Continued)
(Dollars in thousands)
  Three months ended
  1Q 2018   4Q 2017   1Q 2017
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:          
Net income $ 12,453     $ 71,730     $ 6,112  
Gain on contribution to equity method investment     (68,000 )    
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 352     360     346  
Merger costs for acquisition of Reltco and Apiture investment     1,718     516  
Trade-in loss on aircraft         206  
Impairment expense on goodwill and other intangibles     3,648      
Contract modification of Reltco     1,600      
Renewable energy tax credit investment income, impairment and loss     710     19  
Income tax effects and adjustments for non-GAAP items * (84 )   23,986     (435 )
Deferred tax liability revaluation     (18,921 )    
Other renewable energy tax expense     44     44  
Non-GAAP net income $ 12,721     $ 16,875     $ 6,808  
* Estimated at 24.0% for 1Q 2018 and 40.0% for 2017          
Non-GAAP earnings per share:          
Basic $ 0.32     $ 0.42     $ 0.20  
Diluted $ 0.31     $ 0.41     $ 0.19  
           
Weighted-average shares outstanding:          
Basic 39,926,781     39,879,345     34,466,904  
Diluted 41,399,930     41,184,793     35,646,918  
           
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:          
Noninterest income, as reported $ 30,756     $ 95,441     $ 25,753  
Gain on contribution to equity method investment     (68,000 )    
Renewable energy tax credit investment income     20     (10 )
Noninterest income, as adjusted 30,756     27,461     25,743  
           
Noninterest expense, as reported 38,072     41,024     32,985  
Stock based compensation expense (352 )   (360 )   (346 )
Merger costs associated with Reltco and Apiture investment     (1,718 )   (516 )
Trade-in loss on aircraft         (206 )
Impairment expense on goodwill and other intangibles     (3,648 )    
Contract modification of Reltco     (1,600 )    
Renewable energy tax credit investment impairment and loss     (690 )   (29 )
Noninterest expense, as adjusted 37,720     33,008     31,888  
           
Income tax expense, as reported 315     1,608     798  
Income tax effects and adjustments for non-recurring income and expenses 84     (23,986 )   435  
Deferred tax liability revaluation     18,921      
Other renewable energy tax expense     (44 )   (44 )
Income tax expense (benefit), as adjusted $ 399     $ (3,501 )   $ 1,189  

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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