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Live Oak Bancshares, Inc. Reports First Quarter 2022 Results

04/27/22

WILMINGTON, N.C., April 27, 2022 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported first quarter of 2022 net income of $34.5 million, or $0.76 per diluted share.

“Live Oak Bank continues to focus on soundness, profitability and growth – in that order – and this quarter sustains the momentum of our franchise with strong balance sheet growth, credit quality and a differentiated model dedicated to America’s small business owners,” said Live Oak Chairman and CEO James S. (Chip) Mahan, III. “The beginning of 2022 provided continued indications that the small business market is robust and there remain many exciting opportunities for Live Oak to serve American entrepreneurs on a next-generation platform.”

First Quarter 2022 Key Measures

(Dollars in thousands, except per share data)                   Increase (Decrease)          
    1Q 2022     4Q 2021     Dollars     Percent     1Q 2021  
Total revenue (1)   $ 110,447     $ 111,394     $ (947 )     (1 )%   $ 101,007  
Total noninterest expense     65,714       59,698       6,016       10       58,272  
Income before taxes     42,897       47,778       (4,881 )     (10 )     43,608  
Effective tax rate     19.6 %     36.9 %   n/a     n/a       9.6 %
Net income   $ 34,509     $ 30,147     $ 4,362       14 %   $ 39,427  
Diluted earnings per share     0.76       0.66       0.10       15       0.88  
Loan and lease production:                                        
Loans and leases originated   $ 865,063     $ 1,083,623     $ (218,560 )     (20 )%   $ 1,180,219  
% Fully funded     55.9 %     54.1 %   n/a     n/a       77.7 %
Total loans and leases:   $ 6,766,876     $ 6,637,781     $ 129,095       2 %   $ 6,533,495  
Total loans and leases, excluding PPP loans:     6,636,056       6,375,903       260,153       4       5,088,437  
Total assets:     8,619,966       8,213,393       406,573       5       8,417,875  
Total deposits:     7,637,163       7,112,044       525,119       7       6,316,004  

(1) Total revenue consists of net interest income and total noninterest income.

Loans and Leases

As of March 31, 2022, the total loan and lease portfolio was $6.77 billion, 3.6% above its level a year ago and 1.9% above its level at December 31, 2021. Compared to the fourth quarter of 2021, loans and leases held for investment increased $217.0 million, or 3.9%, to $5.74 billion while loans held for sale decreased $87.9 million, or 7.9%, to $1.03 billion. Average loans and leases were $6.72 billion during the first quarter of 2022 compared to $6.45 billion during the fourth quarter of 2021. Excluding Paycheck Protection Program (“PPP”) loans, the total loan and lease portfolio increased by $1.55 billion, or 30.4%, compared to March 31, 2021, and $260.2 million, or 4.1%, compared to December 31, 2021.

The total loan and lease portfolio of $6.77 billion includes $130.8 million of PPP loans, net of deferred fees and costs, at March 31, 2022, which are carried at historical cost classified as held for investment. The total loan and lease portfolio at March 31, 2022, and December 31, 2021, of $6.77 billion and $6.64 billion, respectively, was comprised of 54.9% and 51.6% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $865.1 million during the first quarter of 2022, a decrease of $218.6 million, or 20.2%, from the fourth quarter of 2021. Excluding PPP loans, loan and lease originations increased $192.6 million, or 28.6%, from the first quarter of 2021.

Deposits

Total deposits increased to $7.64 billion at March 31, 2022, an increase of $1.32 billion compared to March 31, 2021, and an increase of $525.1 million compared to December 31, 2021. The increase in total deposits from the prior quarters provides support for the growth in the loan and lease portfolio.

Average total interest-bearing deposits for the first quarter of 2022 increased $343.2 million, or 5.0%, to $7.25 billion, compared to $6.91 billion for the fourth quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 92.8% for the first quarter of 2022, compared to 93.4% for the fourth quarter of 2021.

Borrowings

Borrowings totaled $196.9 million at March 31, 2022, compared to $1.47 billion and $318.3 million at March 31, 2021, and December 31, 2021, respectively. During the first quarter of 2022, the Company decreased borrowings by $121.4 million and $1.27 billion as compared to December 31, and March 31, 2021, respectively, primarily by reducing the outstanding balance in the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) to $136.5 million as of March 31, 2022. The PPPLF has a 100% advance rate equal to the principal amount of PPP loans pledged as security and carries an interest rate of 0.35%, and loans financed under the PPPLF have a neutral impact on regulatory leverage capital ratios.

Net Interest Income

Net interest income for the first quarter of 2022 increased to $77.8 million compared to $70.0 million for the first quarter of 2021 and $77.6 million for the fourth quarter of 2021.

The increase for the first quarter of 2022 compared to the first quarter of 2021 was driven by the significant growth in the total loan and lease portfolio combined with the reduction in the average rate on interest bearing liabilities from 1.02% for the first quarter of 2021 to 0.81% for the first quarter of 2022.

The net interest margin remained level compared to the fourth quarter of 2021 at 4.02%, with the yield on interest earning assets increasing by two basis points to 4.79% while the average cost of interest-bearing liabilities also increased by two basis points to 0.81%.

Noninterest Income

Noninterest income for the first quarter of 2022 increased to $32.7 million compared to $31.1 million for the first quarter of 2021 and decreased compared to $33.8 million for the fourth quarter of 2021. The primary drivers in noninterest income changes are outlined below.

The loan servicing asset revaluation resulted in a loss of $1.6 million for the first quarter of 2022 compared to a gain of $1.5 million for the first quarter of 2021 and a loss of $4.2 million for the fourth quarter of 2021. The decrease in the loan servicing asset revaluation from the first quarter of 2021 was largely related to prepayment speeds increasing over the prior year. The reduction of loss in the loan servicing asset revaluation from the fourth quarter of 2021 was principally the result of positive market pricing movements.

Net gains on sales of loans increased $9.0 million compared to the first quarter of 2021 and $720 thousand compared to the fourth quarter of 2021.  The primary driver for the increase was the volume of guaranteed loans sold which increased to $219.7 million for the first quarter of 2022 compared to $199.0 million sold in the fourth quarter of 2021 and $136.7 million sold in the first quarter of 2021. The volume of loan sales in the first quarter of 2022 was influenced by current market considerations. The average net gain on sale premium was 109%, 110% and 110% for the first quarter of 2022, fourth quarter of 2021 and first quarter of 2021, respectively.

The net gain on loans accounted for under the fair value option totaled $516 thousand for the first quarter of 2022, a $3.7 million decrease compared to the $4.2 million net gain for the first quarter of 2021. The $3.7 million decrease in the gain was largely the result of significant economic forecasts improvements experienced during the first quarter of 2021.

Equity method investments had a net loss totaling $2.1 million for the first quarter of 2022, a $967 thousand higher net loss than the first quarter of 2021 and $5.1 million higher net loss than the fourth quarter of 2021. The increased level of net losses from equity method investments was largely a product of the Company’s pro rata portion of losses recognized by fintech oriented investment funds.

Noninterest Expense

Noninterest expense for the first quarter of 2022 totaled $65.7 million compared to $58.3 million for the first quarter of 2021 and $59.7 million for the fourth quarter of 2021. The primary drivers in noninterest expense changes are outlined below.

Salaries and employee benefits for the first quarter of 2022 increased to $38.5 million compared to $31.4 million for the first quarter of 2021 and $32.5 million for the fourth quarter of 2021.  The increase in salaries and employee benefits was principally related to continued investment in human resources to support strategic and growth initiatives.

Travel expense for the first quarter of 2022 increased to $1.9 million compared to $659 thousand for the first quarter of 2021 and $1.8 million for the fourth quarter of 2021. The increase in travel expenses over the first quarter of 2021 was largely related to supporting both loan origination volume and the customer base as travel restrictions continued to ease.

Advertising and marketing expense increased to $1.7 million for the first quarter of 2022 compared to $652 thousand for the first quarter of 2021 and decreased compared to $1.8 million for the fourth quarter of 2021. The $1.0 million increase over the first quarter of 2021 was largely driven by renewed marketing events.

Technology expense is a new line item which replaces data processing expense in previous income statements. This new line item includes data processing expense and other non-compensation related costs reclassified from equipment expense and other expense line items for software, computer and telecommunications. This reclassification was made primarily to improve the clarity of expenses related to the Company’s ongoing technology initiatives and is reflected in all comparative periods of this release. Technology expense for the first quarter of 2022 was $6.1 million, a $1.2 million increase over the first quarter of 2021. This increase was primarily related to enhanced investments in the Company’s technology resources.

Partially offsetting the increase in noninterest expense for the first quarter of 2022 compared to the first quarter of 2021 was decreased impairment charges of $3.1 million related to renewable energy tax credit investments during the prior year combined with decreased professional services expense of $1.1 million largely driven by lower legal fees.

Asset Quality

During the first quarter of 2022, the Company recognized net charge-offs for loans carried at historical cost of $2.4 million compared to net recoveries of $984 thousand in the first quarter of 2021 and net charge-offs of $15 thousand in the fourth quarter of 2021. The increase in net charge-offs for the first quarter of 2022 was principally related to one relationship that was fully reserved for in the fourth quarter of 2021.  Net charge-offs (recoveries) as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended March 31, 2022 and 2021, and December 31, 2021, was 0.19%, (0.09)% and 0.00%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $4.5 million and $4.8 million accounted for under the fair value option at March 31, 2022, and December 31, 2021, respectively, increased to $19.5 million, or 0.38% of loans and leases held for investment which are carried at historical cost, at March 31, 2022, compared to $16.0 million, or 0.33%, at December 31, 2021.

Provision for (Recovery of) Loan and Lease Credit Losses

The provision for loan and lease credit losses for the first quarter of 2022 totaled $1.8 million compared to a recovery of $873 thousand for the first quarter of 2021 and provision of $3.9 million for the fourth quarter of 2021. The level of provision expense in the first quarter of 2022 was primarily the result of continued improvement in forecasts related to employment and default expectations combined with the effect of higher than usual recoveries in certain verticals and overall growth in the loan and lease portfolio.

The allowance for credit losses on loans and leases totaled $63.1 million at March 31, 2022, compared to $63.6 million at December 31, 2021. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost was 1.23% and 1.30% at March 31, 2022, and December 31, 2021, respectively.

Income Tax

Income tax expense and related effective tax rate was $8.4 million and 19.6% for the first quarter of 2022, $4.2 million and 9.6% for the first quarter of 2021, and $17.6 million and 36.9% for the fourth quarter of 2021, respectively. The effective tax rate for the first quarter of 2022 was principally influenced by anticipated renewable energy tax credits associated with investments expected in 2021 but delayed to 2022 due to supply chain issues.

The higher level of income tax expense for the first quarter of 2022 compared to the first quarter of 2021 was primarily driven by vesting of restricted stock unit awards with market price conditions during the first three months of 2021.

The lower level of income tax expense for the first quarter of 2022 compared to the fourth quarter of 2021 was primarily the product of the above mentioned recognition of fewer investment tax credits in the last quarter of 2021 than the Company had anticipated in its annual effective tax rate for that year.

Shareholders’ Equity

Total shareholders’ equity decreased by $1.8 million, or 0.3%, during the first quarter of 2022. This decrease was primarily due to $38.5 million of negative market impacts on the Company’s available-for-sale investment portfolio included in accumulated other comprehensive loss and largely offset by net income of $34.5 million.

During the first quarter of 2022, all of the remaining shares of Class B common stock (non-voting) amounting to 125,024 shares were converted to Class A common stock (voting) in connection with private sales.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (April 28, 2022). 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 8584099. 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 conference call will also be available until May 5, 2022 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID 8584099.

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; the potential impacts of the Coronavirus Disease 2019 (COVID-19) pandemic on trade (including supply chains and export levels), travel, employee productivity and other economic activities that may have a destabilizing and negative effect on financial markets, economic activity and customer behavior; 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; adverse results, including related fees and expenses, from pending or future lawsuits, government investigations or private actions; 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 Bank. Live Oak Bancshares and its subsidiaries partner with businesses that share a groundbreaking focus on service and technology to redefine banking. To learn more, visit www.liveoakbank.com.

Contacts:

William C. (BJ) Losch, III | CFO | Investor Relations | 910.765.9966
Claire Parker | SVP Corporate Communications | Media Relations | 910.597.1592

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

    Three months ended     1Q 2022 Change vs.  
    1Q 2022     4Q 2021     3Q 2021     2Q 2021     1Q 2021     4Q 2021     1Q 2021  
Interest income                                           %     %  
Loans and fees on loans   $ 89,198     $ 88,577     $ 89,388     $ 84,780     $ 84,993       0.7       4.9  
Investment securities, taxable     3,399       3,455       3,147       2,975       2,929       (1.6 )     16.0  
Other interest earning assets     185       171       224       244       303       8.2       (38.9 )
Total interest income     92,782       92,203       92,786       87,999       88,225       0.6       5.2  
Interest expense                                                        
Deposits     14,348       13,817       14,159       14,820       16,944       3.8       (15.3 )
Borrowings     655       748       892       1,717       1,331       (12.4 )     (50.8 )
Total interest expense     15,003       14,565       15,051       16,537       18,275       3.0       (17.9 )
Net interest income     77,779       77,638       77,735       71,462       69,950       0.2       11.2  
Provision for (recovery of) loan and lease credit losses     1,836       3,918       4,319       7,846       (873 )     (53.1 )     (310.3 )
Net interest income after provision for (recovery of) loan and lease credit losses     75,943       73,720       73,416       63,616       70,823       3.0       7.2  
Noninterest income                                                        
Loan servicing revenue     6,356       6,289       6,278       6,218       6,434       1.1       (1.2 )
Loan servicing asset revaluation     (1,569 )     (4,160 )     (5,878 )     (3,181 )     1,493       62.3       (205.1 )
Net gains on sales of loans     20,977       20,257       18,860       16,234       11,929       3.6       75.8  
Net gain (loss) on loans accounted for under the fair value option     516       (66 )     (1,030 )     1,135       4,218       881.8       (87.8 )
Equity method investments income (loss)     (2,124 )     2,969       (1,250 )     (2,278 )     (1,157 )     (171.5 )     (83.6 )
Equity security investments gains (losses), net     (44 )     218       176       44,253       105       (120.2 )     (141.9 )
Lease income     2,503       2,521       2,527       2,616       2,599       (0.7 )     (3.7 )
Management fee income     1,488       1,482       1,489       1,473       1,934       0.4       (23.1 )
Other noninterest income     4,565       4,246       4,104       3,641       3,502       7.5       30.4  
Total noninterest income     32,668       33,756       25,276       70,111       31,057       (3.2 )     5.2  
Noninterest expense                                                        
Salaries and employee benefits     38,507       32,464       28,202       32,900       31,366       18.6       22.8  
Travel expense     1,897       1,782       1,819       1,549       659       6.5       187.9  
Professional services expense     2,791       3,724       4,251       3,329       3,831       (25.1 )     (27.1 )
Advertising and marketing expense     1,729       1,844       1,631       875       652       (6.2 )     165.2  
Occupancy expense     2,327       2,045       2,042       2,224       2,112       13.8       10.2  
Technology expense     6,053       6,489       6,150       5,131       4,878       (6.7 )     24.1  
Equipment expense     3,816       3,741       3,706       3,721       3,701       2.0       3.1  
Other loan origination and maintenance expense     3,113       3,406       3,489       3,307       3,327       (8.6 )     (6.4 )
Renewable energy tax credit investment impairment                 60             3,127             (100.0 )
FDIC insurance     1,972       1,931       1,670       1,704       1,765       2.1       11.7  
Other expense     3,509       2,272       2,439       2,818       2,854       54.4       23.0  
Total noninterest expense     65,714       59,698       55,459       57,558       58,272       10.1       12.8  
Income before taxes     42,897       47,778       43,233       76,169       43,608       (10.2 )     (1.6 )
Income tax expense     8,388       17,631       9,394       12,587       4,181       (52.4 )     100.6  
Net income   $ 34,509     $ 30,147     $ 33,839     $ 63,582     $ 39,427       14.5       (12.5 )
Earnings per share                                                        
Basic   $ 0.79     $ 0.69     $ 0.78     $ 1.48     $ 0.92       14.5       (14.1 )
Diluted   $ 0.76     $ 0.66     $ 0.76     $ 1.41     $ 0.88       15.2       (13.6 )
Weighted average shares outstanding                                                        
Basic     43,701,943       43,492,172       43,329,889       43,173,312       42,673,615                  
Diluted     45,227,536       45,474,530       45,040,690       45,062,392       44,696,850                  

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

    As of the quarter ended     1Q 2022 Change vs.  
    1Q 2022     4Q 2021     3Q 2021     2Q 2021     1Q 2021     4Q 2021     1Q 2021  
Assets                                           %     %  
Cash and due from banks   $ 477,778     $ 187,203     $ 336,362     $ 428,907     $ 630,081       155.2       (24.2 )
Federal funds sold     29,993       16,547       10,672       9,917       5,461       81.3       449.2  
Certificates of deposit with other banks     4,250       4,750       6,000       6,000       6,500       (10.5 )     (34.6 )
Investment securities available-for-sale     844,577       906,052       861,377       817,896       775,177       (6.8 )     9.0  
Loans held for sale (1)     1,028,635       1,116,519       1,042,756       1,064,911       1,076,741       (7.9 )     (4.5 )
Loans and leases held for investment (2)     5,738,241       5,521,262       5,418,611       5,441,423       5,456,754       3.9       5.2  
Allowance for credit losses on loans and leases     (63,058 )     (63,584 )     (59,681 )     (57,848 )     (52,417 )     0.8       (20.3 )
Net loans and leases     5,675,183       5,457,678       5,358,930       5,383,575       5,404,337       4.0       5.0  
Premises and equipment, net     254,865       240,196       244,212       249,069       253,774       6.1       0.4  
Foreclosed assets     198       620       883       1,793       4,185       (68.1 )     (95.3 )
Servicing assets     36,286       33,574       33,968       36,966       37,744       8.1       (3.9 )
Other assets     268,201       250,254       242,181       244,152       223,875       7.2       19.8  
Total assets   $ 8,619,966     $ 8,213,393     $ 8,137,341     $ 8,243,186     $ 8,417,875       5.0       2.4  
Liabilities and Shareholders’ Equity                                                        
Liabilities                                                        
Deposits:                                                        
Noninterest-bearing   $ 86,342     $ 89,279     $ 77,026     $ 89,768     $ 75,794       (3.3 )     13.9  
Interest-bearing     7,550,821       7,022,765       6,739,587       6,431,065       6,240,210       7.5       21.0  
Total deposits     7,637,163       7,112,044       6,816,613       6,520,833       6,316,004       7.4       20.9  
Borrowings     196,911       318,289       575,021       1,012,431       1,465,961       (38.1 )     (86.6 )
Other liabilities     72,565       67,927       56,284       52,575       45,550       6.8       59.3  
Total liabilities     7,906,639       7,498,260       7,447,918       7,585,839       7,827,515       5.4       1.0  
Shareholders’ equity                                                        
Preferred stock, no par value, 1,000,000 shares
authorized, none issued or outstanding
                                         
Class A common stock (voting)     315,607       310,970       304,085       299,809       298,525       1.5       5.7  
Class B common stock (non-voting)           1,324       5,404       5,404       7,330       (100.0 )     (100.0 )
Retained earnings     434,226       400,893       371,869       339,011       275,377       8.3       57.7  
Accumulated other comprehensive (loss) income     (36,506 )     1,946       8,065       13,123       9,128       (1,976.0 )     (499.9 )
Total shareholders' equity     713,327       715,133       689,423       657,347       590,360       (0.3 )     20.8  
Total liabilities and shareholders’ equity   $ 8,619,966     $ 8,213,393     $ 8,137,341     $ 8,243,186     $ 8,417,875       5.0       2.4  

(1) Includes $25.1 million, $25.3 million, $27.4 million, $29.0 million and $35.9 million measured at fair value for the quarters ended March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively.
(2) Includes $600.6 million, $645.2 million, $698.0 million, $743.2 million and $790.8 million measured at fair value for the quarters ended March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively.


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

    As of and for the three months ended  
    1Q 2022     4Q 2021     3Q 2021     2Q 2021     1Q 2021  
Income Statement Data                                        
Net income   $ 34,509     $ 30,147     $ 33,839     $ 63,582     $ 39,427  
Per Common Share                                        
Net income, diluted   $ 0.76     $ 0.66     $ 0.76     $ 1.41     $ 0.88  
Dividends declared     0.03       0.03       0.03       0.03       0.03  
Book value     16.29       16.39       15.89       15.19       13.74  
Tangible book value (1)     16.20       16.31       15.80       15.10       13.65  
Performance Ratios                                        
Return on average assets (annualized)     1.65 %     1.47 %     1.64 %     3.01 %     1.98 %
Return on average equity (annualized)     18.94       16.80       19.67       41.30       26.89  
Net interest margin     4.02       4.02       3.99       3.63       3.81  
Efficiency ratio (1)     59.50       53.59       53.84       40.66       57.69  
Noninterest income to total revenue     29.58       30.30       24.54       49.52       30.75  
Selected Loan Metrics                                        
Loans and leases originated   $ 865,063     $ 1,083,623     $ 1,063,190     $ 1,153,693     $ 1,180,219  
Outstanding balance of sold loans serviced     3,381,883       3,298,828       3,212,271       3,134,068       3,216,727  
Asset Quality Ratios                                        
Allowance for credit losses to loans and leases held for investment (3)     1.23 %     1.30 %     1.26 %     1.23 %     1.12 %
Net charge-offs (recoveries) (3)   $ 2,362     $ 15     $ 2,485     $ 2,417     $ (984 )
Net charge-offs (recoveries) to average loans and leases held for investment (2) (3)     0.19 %     0.00 %     0.21 %     0.21 %     (0.09 )%
                                         
Nonperforming loans and leases at historical cost (3)                                        
Unguaranteed   $ 19,475     $ 15,987     $ 20,450     $ 22,458     $ 24,738  
Guaranteed     32,828       26,546       28,888       25,551       32,633  
Total     52,303       42,533       49,338       48,009       57,371  
Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment (3)     0.38 %     0.33 %     0.43 %     0.48 %     0.53 %
                                         
Nonperforming loans at fair value (4)                                        
Unguaranteed   $ 4,451     $ 4,791     $ 6,303     $ 5,503     $ 5,838  
Guaranteed     30,850       33,471       36,708       34,323       34,396  
Total     35,301       38,262       43,011       39,826       40,234  
Unguaranteed nonperforming fair value loans to loans held for investment (4)     0.74 %     0.74 %     0.90 %     0.74 %     0.74 %
Capital Ratios                                        
Common equity tier 1 capital (to risk-weighted assets)     12.10 %     12.38 %     12.56 %     12.45 %     12.16 %
Tier 1 leverage capital (to average assets)     8.87       8.87       8.82       8.70       8.50  

Notes to Quarterly Selected Financial Data
(1) See accompanying GAAP to Non-GAAP Reconciliation.
(2) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.
(3) Loans and leases at historical cost only (excludes loans measured at fair value).
(4) Loans accounted for under the fair value option only (excludes loans and leases carried at historical cost).

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

    Three Months Ended
March 31, 2022
    Three Months Ended
December 31, 2021
 
    Average Balance     Interest     Average Yield/Rate     Average Balance     Interest     Average Yield/Rate  
Interest earning assets:                                                
Interest earning balances in other banks   $ 223,638     $ 179       0.32 %   $ 331,077     $ 168       0.20 %
Federal funds sold     9,197       6       0.26       8,515       3       0.14  
Investment securities     895,592       3,399       1.54       879,138       3,455       1.56  
Loans held for sale     1,115,441       15,183       5.52       1,059,672       14,661       5.49  
Loans and leases held for investment (1)     5,609,338       74,015       5.35       5,391,283       73,916       5.44  
Total interest earning assets     7,853,206       92,782       4.79       7,669,685       92,203       4.77  
Less: allowance for credit losses on loans and leases     (62,732 )                     (59,088 )                
Non-interest earning assets     588,171                       569,493                  
Total assets   $ 8,378,645                     $ 8,180,090                  
Interest bearing liabilities:                                                
Savings   $ 3,605,905     $ 4,840       0.54 %   $ 3,470,813     $ 4,487       0.51 %
Money market accounts     91,463       54       0.24       97,230       61       0.25  
Certificates of deposit     3,551,310       9,454       1.08       3,337,399       9,269       1.10  
Total interest bearing deposits     7,248,678       14,348       0.80       6,905,442       13,817       0.79  
Borrowings     262,485       655       1.01       427,044       748       0.69  
Total interest bearing liabilities     7,511,163       15,003       0.81       7,332,486       14,565       0.79  
Non-interest bearing deposits     86,570                       79,479                  
Non-interest bearing liabilities     51,940                       50,190                  
Shareholders' equity     728,972                       717,935                  
Total liabilities and shareholders' equity   $ 8,378,645                     $ 8,180,090                  
Net interest income and interest rate spread           $ 77,779       3.98 %           $ 77,638       3.98 %
Net interest margin                     4.02                       4.02  
Ratio of average interest-earning assets to average interest-bearing liabilities                     104.55 %                     104.60 %

(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 2022     4Q 2021     3Q 2021     2Q 2021     1Q 2021  
Total shareholders’ equity   $ 713,327     $ 715,133     $ 689,423     $ 657,347     $ 590,360  
Less:                                        
Goodwill     1,797       1,797       1,797       1,797       1,797  
Other intangible assets     1,988       2,026       2,065       2,103       2,141  
Tangible shareholders’ equity (a)   $ 709,542     $ 711,310     $ 685,561     $ 653,447     $ 586,422  
Shares outstanding (c)     43,787,660       43,619,070       43,381,014       43,264,460       42,951,344  
Total assets   $ 8,619,966     $ 8,213,393     $ 8,137,341     $ 8,243,186     $ 8,417,875  
Less:                                        
Goodwill     1,797       1,797       1,797       1,797       1,797  
Other intangible assets     1,988       2,026       2,065       2,103       2,141  
Tangible assets (b)   $ 8,616,181     $ 8,209,570     $ 8,133,479     $ 8,239,286     $ 8,413,937  
Tangible shareholders’ equity to tangible assets (a/b)     8.23 %     8.66 %     8.43 %     7.93 %     6.97 %
Tangible book value per share (a/c)   $ 16.20     $ 16.31     $ 15.80     $ 15.10     $ 13.65  
Efficiency ratio:                                        
Noninterest expense (d)   $ 65,714     $ 59,698     $ 55,459     $ 57,558     $ 58,272  
Net interest income     77,779       77,638       77,735       71,462       69,950  
Noninterest income     32,668       33,756       25,276       70,111       31,057  
Less: gain on sale of securities                              
Adjusted operating revenue (e)   $ 110,447     $ 111,394     $ 103,011     $ 141,573     $ 101,007  
Efficiency ratio (d/e)     59.50 %     53.59 %     53.84 %     40.66 %     57.69 %

This press release presents the non-GAAP financial measures. The adjustments to reconcile from the non-GAAP financial measures to the applicable GAAP financial measure are included where applicable in financial results presented in accordance with GAAP. The Company considers these adjustments to be relevant to ongoing operating results. The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period comparisons, which will assist regulators, investors, and analysts in analyzing the operating results or financial position of the Company. The non-GAAP financial measures are used by management to assess the performance of the Company’s business for presentations of Company performance to investors, and for other reasons as may be requested by investors and analysts. The Company further believes that presenting the non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although non-GAAP financial measures are frequently used by shareholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.


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Source: Live Oak Bancshares, Inc.