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Live Oak Bancshares, Inc. Reports Fourth Quarter 2021 Results

01/25/22

WILMINGTON, N.C., Jan. 25, 2022 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported fourth quarter 2021 net earnings available to common shareholders of $30.1 million, or $0.66 per diluted share.   Net earnings for the year ended December 31, 2021, totaled $167.0 million, or $3.71 per diluted share.

“Live Oak closed 2021 with one of our strongest quarters in the Company’s history,” said Live Oak Chairman and CEO James S. (Chip) Mahan, III. “For three consecutive quarters we have exceeded $1.0 billion in loan originations, with year-over-year organic growth of 32% in total loans outside of PPP and 24% in total deposits. We also ended the year by marking a new chapter in our model with the launch of our small business checking account on a next-generation platform. Live Oak continues to be strongly positioned to serve small businesses across America while continuing to redefine what it means to be a community bank.”

Year over Year Highlights

(Dollars in thousands, except per share data)                   Increase (Decrease)  
    2021     2020     Dollars     Percent  
Total revenue (1)   $ 456,985     $ 280,723     $ 176,262       63 %
Total noninterest expense     230,987       192,676       38,311       20  
Income before taxes     210,788       47,389       163,399       345  
Effective tax rate     20.8 %     (25.6 )%   n/a     n/a  
Net income   $ 166,995     $ 59,543     $ 107,452       180 %
Diluted earnings per share     3.71       1.43       2.28       159  
Loan and lease production:                                
Loans and leases originated   $ 4,480,725     $ 4,450,198     $ 30,527       1 %
% Fully funded     64.5 %     78.6 %   n/a     n/a  
Loans and leases originated, excluding PPP loans   $ 3,933,207     $ 2,687,542     $ 1,245,665       46 %
Total loans and leases:     6,637,781       6,320,400       317,381       5  
Total loans and leases, excluding PPP loans:     6,375,903       4,821,783       1,554,120       32  
Total assets:     8,213,393       7,872,303       341,090       4  
Total deposits:     7,112,044       5,712,828       1,399,216       24  

Fourth Quarter 2021 Key Measures

(Dollars in thousands, except per share data)                   Increase (Decrease)          
    Q4 2021     Q3 2021     Dollars     Percent     Q4 2020  
Total revenue (1)   $ 111,394     $ 103,011     $ 8,383       8 %   $ 73,104  
Total noninterest expense     59,698       55,459       4,239       8       52,435  
Income before taxes     47,778       43,233       4,545       11       12,035  
Effective tax rate     36.9 %     21.7 %   n/a     n/a       (145.8 )%
Net income   $ 30,147     $ 33,839     $ (3,692 )     (11 )%   $ 29,588  
Diluted earnings per share     0.66       0.76       (0.10 )     (13 )     0.68  
Loan and lease production:                                        
Loans and leases originated   $ 1,083,623     $ 1,063,190     $ 20,433       2 %   $ 808,010  
% Fully funded     54.1 %     55.1 %   n/a     n/a       55.6 %

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

Loans and Leases

At December 31, 2021, the total loan and lease portfolio was $6.64 billion, 5.0% above its level at December 31, 2020 and 2.7% above its level at September 30, 2021. Compared to the third quarter of 2021, loans and leases held for investment increased $102.7 million, or 1.9%, to $5.52 billion while loans held for sale increased $73.8 million, or 7.1%, to $1.12 billion. Average loans and leases were $6.45 billion during the fourth quarter of 2021 compared to $6.47 billion during the third quarter of 2021. Excluding Paycheck Protection Program (“PPP”) loans, the total loan and lease portfolio increased by $1.55 billion, or 32.2%, compared to December 31, 2020, and $404.3 million, or 6.8%, compared to September 30, 2021.

The total loan and lease portfolio of $6.64 billion includes $261.9 million of PPP loans, net of deferred fees and costs, at December 31, 2021. The unguaranteed percentage of the total loan and lease portfolio, influenced by the inclusion of PPP loans carrying a 100% government guarantee, continues to lessen as PPP balances decline. The total loan and lease portfolio at December 31, 2021, and September 30, 2021, of $6.64 billion and $6.46 billion, respectively, was comprised of 51.6% and 47.8% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $1.08 billion during the fourth quarter of 2021, an increase of $20.4 million, or 1.9%, from the third quarter of 2021.

Deposits

Total deposits increased to $7.11 billion at December 31, 2021, an increase of $1.40 billion compared to December 31, 2020, and an increase of $295.4 million compared to September 30, 2021.

The increase in total deposits from the prior quarter provides support for the growth in the loan and lease portfolio and origination activities during the fourth quarter of 2021. Average total interest-bearing deposits for the fourth quarter of 2021 increased $276.9 million, or 4.2%, to $6.91 billion, compared to $6.63 billion for the third quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 93.4% for the fourth quarter of 2021, compared to 97.5% for the third quarter of 2021. This ratio is influenced by average PPP loan volume and the use of the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) classified as long-term borrowings; however, its impact also continues to lessen as PPP related balances decline.

Borrowings

Borrowings totaled $318.3 million at December 31, 2021, compared to $1.54 billion and $575.0 million at December 31, 2020, and September 30, 2021, respectively. During the fourth quarter of 2021, the Company decreased borrowings by $256.7 million primarily by reducing the outstanding balance in the Federal Reserve’s PPPLF to $267.5 million as of December 31, 2021, compared to $526.0 million at September 30, 2021. 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.   Including borrowings, the ratio of average total loans and leases to total average interest-bearing liabilities was 88.0% for the fourth quarter of 2021, compared to 86.8% for the third quarter of 2021.

Net Interest Income

Net interest income for the fourth quarter of 2021 was $77.6 million compared to $62.3 million for the fourth quarter of 2020 and $77.7 million for the third quarter of 2021.  

The increase for the fourth quarter of 2021 compared to the fourth quarter of 2020 was driven by significant growth in the total loan and lease portfolio, excluding PPP loans. The increase in net interest income comparing these two periods was also driven by the reduction in the average rate on interest-bearing liabilities from 1.13% for the fourth quarter of 2020 to 0.79% for the fourth quarter of 2021.

The net interest margin increased from the third quarter of 2021 by three basis points, from 3.99% to 4.02%. The yield on interest earning assets for the fourth quarter of 2021 increased one basis point compared to the third quarter of 2021. The increase in asset yield was further enhanced by a one basis point reduction in the average cost of interest-bearing liabilities from 0.80% for the quarter ended September 30, 2021, to 0.79% for the quarter ended December 31, 2021.

Noninterest Income

Noninterest income for the fourth quarter of 2021 increased to $33.8 million compared to $10.8 million for the fourth quarter of 2020 and $25.3 million for the third quarter of 2021. The primary drivers behind increased noninterest income are outlined below.

The largest driver of the increase in noninterest income for the fourth quarter of 2021 arose from equity method investment income which increased $11.7 million over the fourth quarter of 2020 and $4.2 million over the third quarter of 2021. The increase compared to fourth quarter of 2020 was largely a product of the Company’s pro rata portion of income tax expense of $7.8 million recorded during the prior year arising from an investee’s conversion from a partnership to a corporation. Also contributing to the increase for both compared periods was heightened levels of financial performance from the Company’s investments in fintech oriented investment funds.

The loan servicing asset revaluation resulted in a loss of $4.2 million for the fourth quarter of 2021 compared to a loss of $5.8 million for the fourth quarter of 2020 and a loss of $5.9 million for the third quarter of 2021. Lower levels of losses in the loan servicing asset revaluation compared to the prior quarters was largely the result of the ongoing amortization of the guaranteed serviced loan portfolio.

Net gains on sales of loans increased $5.3 million compared to the fourth quarter of 2020 and $1.4 million compared to the third quarter of 2021. The average net gain on guaranteed loan sales was $98.8, $91.0 and $115.9 thousand per million sold for the fourth quarter of 2021, third quarter of 2021 and fourth quarter of 2020, respectively. The change in the average net gain per million on guaranteed loan sales was largely driven by the mix of loan sales while overall market pricing remained relatively consistent for each of the compared periods. The volume of guaranteed loans sold remained relatively flat at $199.0 million for the fourth quarter of 2021 compared to $201.9 million sold in the prior quarter.

The net loss on loans accounted for under the fair value option totaled $66 thousand for the fourth quarter of 2021, a $4.7 million decrease compared to the $4.8 million net loss for the fourth quarter of 2020 and a $964 thousand decrease compared to the net loss of $1.0 million for the third quarter of 2021. The decreased level of loss in marking loans to fair value for the above periods was largely the result of continued improvements in economic forecasts used in measuring fair value.

Noninterest Expense

Noninterest expense for the fourth quarter of 2021 totaled $59.7 million compared to $52.4 million for the fourth quarter of 2020 and $55.5 million for the third quarter of 2021.   The primary drivers in the noninterest expense changes are outlined below.

Salaries and employee benefits for the fourth quarter of 2021 increased to $32.5 million compared to $29.5 million for the fourth quarter of 2020 and $28.2 million for the third 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.

Professional services expense increased to $3.7 million for the fourth quarter of 2021 compared to $1.7 million for the fourth quarter of 2020. The $2.0 million increase over the fourth quarter of 2020 was largely driven by an increase in legal and consulting fees.

Data processing expense for the fourth quarter of 2021 totaled $5.2 million compared to $3.4 million for the fourth quarter of 2020. The increase in 2021 was principally due to enhanced investments in the Company’s internal software technology resources.

Asset Quality

During the fourth quarter of 2021, the Company recognized net charge-offs for loans carried at historical cost of $15 thousand compared to $537 thousand in the fourth quarter of 2020 and $2.5 million in the third quarter of 2021. Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended December 31, 2021 and 2020 and September 30, 2021, was 0.00%, 0.05% and 0.21%, respectively.   Net charge-offs as a percentage of total average held for investment loans and leases carried at historical cost for the years ended December 31, 2021 and 2020, were 0.09% and 0.45%, respectively. The decrease in net charge-offs as a percentage of total average held for investment loans and leases carried at historical cost for the year ended December 31, 2021 compared to 2020 was largely the result of a 2020 reclassification of fifteen hotel loans totaling $81.2 million in net investment from held for investment to held for sale.  This reclassification resulted in a write down reflected in charge-offs of $9.8 million in 2020.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $4.8 million and $6.3 million accounted for under the fair value option at December 31, 2021, and September 30, 2021, respectively, decreased to $16.0 million, or 0.33% of loans and leases held for investment which are carried at historical cost, at December 31, 2021, compared to $20.4 million, or 0.43%, at September 30, 2021.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the fourth quarter of 2021 totaled $3.9 million compared to $8.6 million for the fourth quarter of 2020 and $4.3 million for the third quarter of 2021. The lower provision expense in the fourth quarter of 2021 was primarily the result of continued improvement in forecasts related to employment and default expectations, combined with the effects of the earlier discussed portfolio performance metrics, outpacing the impact of the growing loan and lease portfolio.

The allowance for credit losses on loans and leases totaled $63.6 million at December 31, 2021, compared to $59.7 million at September 30, 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 1.30% and 1.26% at December 31, 2021, and September 30, 2021, respectively. While the level of impact continues to decline, the allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost continues to be influenced by the 100% guaranteed PPP loans.

Income Tax

Income tax expense and related effective tax rate was $17.6 million and 36.9% for the fourth quarter of 2021, compared to an income tax benefit of $17.6 million and effective tax rate of (145.8)% for the fourth quarter of 2020, and income tax expense of $9.4 million and effective tax rate of 21.7% for the third quarter of 2021, respectively. The effective tax rate for the fourth quarter of 2021 was principally influenced by recognition of fewer investment tax credits in that quarter than the Company previously anticipated. These expected tax credits, amounting to $10.0 million, were reflected in the effective tax rate calculations reported for the first three quarters of 2021 and are associated with renewable energy investments that have been delayed primarily due to supply chain issues related to the COVID-19 pandemic. While no longer reflected in the effective tax rate for 2021, the Company expects to recognize most of these investment tax credits in 2022.

The income tax benefit for the fourth quarter of 2020 was principally the product of the vesting of restricted stock unit awards with market price conditions during the fourth quarter.  Upon vesting, the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes, which resulted in the recognition of a tax benefit of $22.1 million. 

Shareholders’ Equity

Total shareholders’ equity increased by $25.7 million, or 3.7%, during the fourth quarter of 2021. This increase was primarily due to net income.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 8:30 a.m. ET tomorrow morning (January 26, 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 2079907. 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 February 2, 2022 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; 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 | 910.218.2173

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     4Q 2021 Change vs.  
    4Q 2021     3Q 2021     2Q 2021     1Q 2021     4Q 2020     3Q 2021     4Q 2020  
Interest income                                           %     %  
Loans and fees on loans   $ 88,577     $ 89,388     $ 84,780     $ 84,993     $ 79,166       (0.9 )     11.9  
Investment securities, taxable     3,455       3,174       2,975       2,929       3,345       8.9       3.3  
Other interest earning assets     171       224       244       303       529       (23.7 )     (67.7 )
Total interest income     92,203       92,786       87,999       88,225       83,040       (0.6 )     11.0  
Interest expense                                                        
Deposits     13,817       14,159       14,820       16,944       19,195       (2.4 )     (28.0 )
Borrowings     748       892       1,717       1,331       1,544       (16.1 )     (51.6 )
Total interest expense     14,565       15,051       16,537       18,275       20,739       (3.2 )     (29.8 )
Net interest income     77,638       77,735       71,462       69,950       62,301       (0.1 )     24.6  
Provision for (recovery of) loan and lease credit
losses		     3,918       4,319       7,846       (873 )     8,634       (9.3 )     (54.6 )
Net interest income after provision for (recovery of)
loan and lease credit losses		     73,720       73,416       63,616       70,823       53,667       0.4       37.4  
Noninterest income                                                        
Loan servicing revenue     6,289       6,278       6,218       6,434       6,684       0.2       (5.9 )
Loan servicing asset revaluation     (4,160 )     (5,878 )     (3,181 )     1,493       (5,756 )     (29.2 )     (27.7 )
Net gains on sales of loans     20,257       18,860       16,234       11,929       14,976       7.4       35.3  
Net (loss) gain on loans accounted for under the fair
value option		     (66 )     (1,030 )     1,135       4,218       (4,759 )     (93.6 )     (98.6 )
Equity method investments income (loss)     2,969       (1,250 )     (2,278 )     (1,157 )     (8,739 )     (337.5 )     (134.0 )
Equity security investments gains (losses), net     218       176       44,253       105       107       23.9       103.7  
Lease income     2,521       2,527       2,616       2,599       2,615       (0.2 )     (3.6 )
Management fee income     1,482       1,489       1,473       1,934       2,206       (0.5 )     (32.8 )
Other noninterest income     4,246       4,104       3,641       3,502       3,469       3.5       22.4  
Total noninterest income     33,756       25,276       70,111       31,057       10,803       33.5       212.5  
Noninterest expense                                                        
Salaries and employee benefits     32,464       28,202       32,900       31,366       29,477       15.1       10.1  
Travel expense     1,782       1,819       1,549       659       1,056       (2.0 )     68.8  
Professional services expense     3,724       4,251       3,329       3,831       1,691       (12.4 )     120.2  
Advertising and marketing expense     1,844       1,631       875       652       973       13.1       89.5  
Occupancy expense     2,045       2,042       2,224       2,112       2,302       0.1       (11.2 )
Data processing expense     5,186       4,867       4,234       3,894       3,414       6.6       51.9  
Equipment expense     4,644       4,567       4,385       4,354       4,002       1.7       16.0  
Other loan origination and maintenance expense     3,406       3,489       3,307       3,327       3,173       (2.4 )     7.3  
Renewable energy tax credit investment impairment     —       60       —       3,127       —       (100.0 )     —  
FDIC insurance     1,931       1,670       1,704       1,765       2,147       15.6       (10.1 )
Other expense     2,672       2,861       3,051       3,185       4,200       (6.6 )     (36.4 )
Total noninterest expense     59,698       55,459       57,558       58,272       52,435       7.6       13.9  
Income before taxes     47,778       43,233       76,169       43,608       12,035       10.5       297.0  
Income tax expense (benefit)     17,631       9,394       12,587       4,181       (17,553 )     87.7       (200.4 )
Net income   $ 30,147     $ 33,839     $ 63,582     $ 39,427     $ 29,588       (10.9 )     1.9  
Earnings per share                                                        
Basic   $ 0.69     $ 0.78     $ 1.48     $ 0.92     $ 0.72       (11.5 )     (4.2 )
Diluted   $ 0.66     $ 0.76     $ 1.41     $ 0.88     $ 0.68       (13.2 )     (2.9 )
Weighted average shares outstanding                                                        
Basic     43,492,172       43,329,889       43,173,312       42,673,615       41,320,851                  
Diluted     45,474,530       45,040,690       45,062,392       44,696,850       43,333,707                  

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

    As of the quarter ended     4Q 2021 Change vs.  
    4Q 2021     3Q 2021     2Q 2021     1Q 2021     4Q 2020     3Q 2021     4Q 2020  
Assets                                           %     %  
Cash and due from banks   $ 187,203     $ 336,362     $ 428,907     $ 630,081     $ 297,167       (44.3 )     (37.0 )
Federal funds sold     16,547       10,672       9,917       5,461       21,153       55.1       (21.8 )
Certificates of deposit with other banks     4,750       6,000       6,000       6,500       6,500       (20.8 )     (26.9 )
Investment securities available-for-sale     906,052       861,377       817,896       775,177       750,098       5.2       20.8  
Loans held for sale (1)     1,116,519       1,042,756       1,064,911       1,076,741       1,175,470       7.1       (5.0 )
Loans and leases held for investment (2)     5,521,262       5,418,611       5,441,423       5,456,754       5,144,930       1.9       7.3  
Allowance for credit losses on loans and leases     (63,584 )     (59,681 )     (57,848 )     (52,417 )     (52,306 )     6.5       21.6  
Net loans and leases     5,457,678       5,358,930       5,383,575       5,404,337       5,092,624       1.8       7.2  
Premises and equipment, net     240,196       244,212       249,069       253,774       259,267       (1.6 )     (7.4 )
Foreclosed assets     620       883       1,793       4,185       4,155       (29.8 )     (85.1 )
Servicing assets     33,574       33,968       36,966       37,744       33,918       (1.2 )     (1.0 )
Other assets     250,254       242,181       244,152       223,875       231,951       3.3       7.9  
Total assets   $ 8,213,393     $ 8,137,341     $ 8,243,186     $ 8,417,875     $ 7,872,303       0.9       4.3  
Liabilities and Shareholders’ Equity                                                        
Liabilities                                                        
Deposits:                                                        
Noninterest-bearing   $ 89,279     $ 77,026     $ 89,768     $ 75,794     $ 75,287       15.9       18.6  
Interest-bearing     7,022,765       6,739,587       6,431,065       6,240,210       5,637,541       4.2       24.6  
Total deposits     7,112,044       6,816,613       6,520,833       6,316,004       5,712,828       4.3       24.5  
Borrowings     318,289       575,021       1,012,431       1,465,961       1,542,093       (44.6 )     (79.4 )
Other liabilities     67,927       56,284       52,575       45,550       49,532       20.7       37.1  
Total liabilities     7,498,260       7,447,918       7,585,839       7,827,515       7,304,453       0.7       2.7  
Shareholders’ equity                                                        
Preferred stock, no par value, 1,000,000 shares
authorized, none issued or outstanding		     —       —       —       —       —       —       —  
Class A common stock (voting)     310,970       304,085       299,809       298,525       298,890       2.3       4.0  
Class B common stock (non-voting)     1,324       5,404       5,404       7,330       11,729       (75.5 )     (88.7 )
Retained earnings     400,893       371,869       339,011       275,377       235,724       7.8       70.1  
Accumulated other comprehensive income     1,946       8,065       13,123       9,128       21,507       (75.9 )     (91.0 )
Total shareholders' equity     715,133       689,423       657,347       590,360       567,850       3.7       25.9  
Total liabilities and shareholders’ equity   $ 8,213,393     $ 8,137,341     $ 8,243,186     $ 8,417,875     $ 7,872,303       0.9       4.3  

      (1)   Includes $25.3 million, $27.4 million, $29.0 million, $35.9 million and $36.1 million measured at fair value for the quarters ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively.

      (2)   Includes $645.2 million, $698.0 million, $743.2 million, $790.8 million and $815.4 million measured at fair value for the quarters ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively.

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

    Twelve months ended  
    December 31, 2021     December 31, 2020  
Interest income                
Loans and fees on loans   $ 347,738     $ 270,770  
Investment securities, taxable     12,533       15,016  
Other interest earning assets     942       2,622  
Total interest income     361,213       288,408  
Interest expense                
Deposits     59,740       89,726  
Borrowings     4,688       3,959  
Total interest expense     64,428       93,685  
Net interest income     296,785       194,723  
Provision for loan and lease credit losses     15,210       40,658  
Net interest income after provision for loan and
lease credit losses		     281,575       154,065  
Noninterest income                
Loan servicing revenue     25,219       26,600  
Loan servicing asset revaluation     (11,726 )     (9,958 )
Net gains on sales of loans     67,280       49,473  
Net gain (loss) on loans accounted for under the fair
value option		     4,257       (13,083 )
Equity method investments income (loss)     (1,716 )     (14,691 )
Equity security investments gains (losses), net     44,752       14,909  
Gain on sale of investment securities available-for-sale, net     —       1,880  
Lease income     10,263       10,508  
Management fee income     6,378       6,352  
Other noninterest income     15,493       14,010  
Total noninterest income     160,200       86,000  
Noninterest expense                
Salaries and employee benefits     124,932       112,525  
Travel expense     5,809       3,451  
Professional services expense     15,135       6,359  
Advertising and marketing expense     5,002       3,510  
Occupancy expense     8,423       8,757  
Data processing expense     18,181       12,344  
Equipment expense     17,950       17,603  
Other loan origination and maintenance expense     13,529       10,790  
Renewable energy tax credit investment impairment     3,187       —  
FDIC insurance     7,070       7,473  
Other expense     11,769       9,864  
Total noninterest expense     230,987       192,676  
Income before taxes     210,788       47,389  
Income tax expense (benefit)     43,793       (12,154 )
Net income   $ 166,995     $ 59,543  
Earnings per share                
Basic   $ 3.87     $ 1.46  
Diluted   $ 3.71     $ 1.43  
Weighted average shares outstanding                
Basic     43,169,935       40,677,496  
Diluted     45,071,304       41,771,250  

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

    As of and for the three months ended  
    4Q 2021     3Q 2021     2Q 2021     1Q 2021     4Q 2020  
Income Statement Data                                        
Net income   $ 30,147     $ 33,839     $ 63,582     $ 39,427     $ 29,588  
Per Common Share                                        
Net income, diluted   $ 0.66     $ 0.76     $ 1.41     $ 0.88     $ 0.68  
Dividends declared     0.03       0.03       0.03       0.03       0.03  
Book value     16.39       15.89       15.19       13.74       13.38  
Tangible book value (1)     16.31       15.80       15.10       13.65       13.28  
Performance Ratios                                        
Return on average assets (annualized)     1.47 %     1.64 %     3.01 %     1.98 %     1.49 %
Return on average equity (annualized)     16.80       19.67       41.30       26.89       19.86  
Net interest margin     4.02       3.99       3.63       3.81       3.33  
Efficiency ratio (1)     53.59       53.84       40.66       57.69       71.73  
Noninterest income to total revenue     30.30       24.54       49.52       30.75       14.78  
Selected Loan Metrics                                        
Loans and leases originated   $ 1,083,623     $ 1,063,190     $ 1,153,693     $ 1,180,219     $ 808,010  
Outstanding balance of sold loans serviced     3,298,828       3,212,271       3,134,068       3,216,727       3,205,623  
Asset Quality Ratios                                        
Allowance for credit losses to loans and leases held for
investment (3)		     1.30 %     1.26 %     1.23 %     1.12 %     1.21 %
Net charge-offs (3)   $ 15     $ 2,485     $ 2,417     $ (984 )   $ 537  
Net charge-offs to average loans and leases held for
investment (2) (3)		     — %     0.21 %     0.21 %     (0.09 )%     0.05 %
                                         
Nonperforming loans and leases at historical cost (3) (4)                                        
Unguaranteed   $ 15,987     $ 20,450     $ 22,458     $ 24,738     $ 20,078  
Guaranteed     26,546       28,888       25,551       32,633       26,032  
Total     42,533       49,338       48,009       57,371       46,110  
Unguaranteed nonperforming historical cost loans and
leases, to loans and leases held for investment (3) (4)		     0.33 %     0.43 %     0.48 %     0.53 %     0.46 %
                                         
Nonperforming loans at fair value (5)                                        
Unguaranteed   $ 4,791     $ 6,303     $ 5,503     $ 5,838     $ 5,387  
Guaranteed     33,471       36,708       34,323       34,396       30,112  
Total     38,262       43,011       39,826       40,234       35,499  
Unguaranteed nonperforming fair value loans to loans
held for investment (5)		     0.74 %     0.90 %     0.74 %     0.74 %     0.66 %
Capital Ratios                                        
Common equity tier 1 capital (to risk-weighted assets)     12.38 %     12.56 %     12.45 %     12.16 %     12.15 %
Tier 1 leverage capital (to average assets)     8.87       8.82       8.70       8.50       8.40  

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) The quarter ended December 31, 2020 excludes one $6.1 million hotel loan classified as held for sale.
(5) 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
December 31, 2021		     Three months ended
September 30, 2021		  
    Average Balance     Interest     Average Yield/Rate     Average Balance     Interest     Average Yield/Rate  
Interest earning assets:                                                
Interest earning balances in other banks   $ 331,077     $ 168       0.20 %   $ 452,830     $ 221       0.19 %
Federal funds sold     8,515       3       0.14       9,260       3       0.13  
Investment securities     879,138       3,455       1.56       808,697       3,174       1.56  
Loans held for sale     1,059,672       14,661       5.49       1,098,940       15,090       5.45  
Loans and leases held for investment (1)     5,391,283       73,916       5.44       5,366,088       74,298       5.49  
Total interest earning assets     7,669,685       92,203       4.77       7,735,815       92,786       4.76  
Less: allowance for credit losses on loans and
leases		     (59,088 )                     (56,411 )                
Non-interest earning assets     569,493                       581,771                  
Total assets   $ 8,180,090                     $ 8,261,175                  
Interest bearing liabilities:                                                
Interest bearing checking   $ —     $ —       — %   $ —     $ —       — %
Savings     3,470,813       4,487       0.51       3,367,168       4,359       0.51  
Money market accounts     97,230       61       0.25       104,576       74       0.28  
Certificates of deposit     3,337,399       9,269       1.10       3,156,834       9,726       1.22  
Total interest bearing deposits     6,905,442       13,817       0.79       6,628,578       14,159       0.85  
Borrowings     427,044       748       0.69       818,511       892       0.43  
Total interest bearing liabilities     7,332,486       14,565       0.79       7,447,089       15,051       0.80  
Non-interest bearing deposits     79,479                       79,006                  
Non-interest bearing liabilities     50,190                       46,907                  
Shareholders' equity     717,935                       688,173                  
Total liabilities and shareholders' equity   $ 8,180,090                     $ 8,261,175                  
Net interest income and interest rate spread           $ 77,638       3.98 %           $ 77,735       3.96 %
Net interest margin                     4.02                       3.99  
Ratio of average interest-earning assets to average
interest-bearing liabilities		                     104.60 %                     103.88 %

(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  
    4Q 2021     3Q 2021     2Q 2021     1Q 2021     4Q 2020  
Total shareholders’ equity   $ 715,133     $ 689,423     $ 657,347     $ 590,360     $ 567,850  
Less:                                        
Goodwill     1,797       1,797       1,797       1,797       1,797  
Other intangible assets     2,026       2,065       2,103       2,141       2,179  
Tangible shareholders’ equity (a)   $ 711,310     $ 685,561     $ 653,447     $ 586,422     $ 563,874  
Shares outstanding (c)     43,619,070       43,381,014       43,264,460       42,951,344       42,452,446  
Total assets   $ 8,213,393     $ 8,137,341     $ 8,243,186     $ 8,417,875     $ 7,872,303  
Less:                                        
Goodwill     1,797       1,797       1,797       1,797       1,797  
Other intangible assets     2,026       2,065       2,103       2,141       2,179  
Tangible assets (b)   $ 8,209,570     $ 8,133,479     $ 8,239,286     $ 8,413,937     $ 7,868,327  
Tangible shareholders’ equity to tangible assets
(a/b)		     8.66 %     8.43 %     7.93 %     6.97 %     7.17 %
Tangible book value per share (a/c)   $ 16.31     $ 15.80     $ 15.10     $ 13.65     $ 13.28  
Efficiency ratio:                                        
Noninterest expense (d)   $ 59,698     $ 55,459     $ 57,558     $ 58,272     $ 52,435  
Net interest income     77,638       77,735       71,462       69,950       62,301  
Noninterest income     33,756       25,276       70,111       31,057       10,803  
Less: gain on sale of securities     —       —       —       —       —  
Adjusted operating revenue (e)   $ 111,394     $ 103,011     $ 141,573     $ 101,007     $ 73,104  
Efficiency ratio (d/e)     53.59 %     53.84 %     40.66 %     57.69 %     71.73 %

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

    Three months ended     Twelve months ended  
    4Q 2021     3Q 2021     4Q 2020     4Q 2021     4Q 2020  
Reconciliation of net income to non-GAAP net income:                                        
Net income   $ 30,147     $ 33,839     $ 29,588     $ 166,995     $ 59,543  
Loss (gain) on sale of aircraft     —       —       6       (114 )     6  
Impairment on aircraft held for sale     —       —       244       —       1,263  
Income tax effects and adjustments for non-GAAP
items *		     —       —       (60 )     27       (305 )
Non-GAAP net income   $ 30,147     $ 33,839     $ 29,778     $ 166,908     $ 60,507  
* Estimated at 24.0%                                        
Non-GAAP earnings per share:                                        
Basic   $ 0.69     $ 0.78     $ 0.72     $ 3.87     $ 1.49  
Diluted   $ 0.66     $ 0.76     $ 0.69     $ 3.70     $ 1.45  
Weighted-average shares outstanding:                                        
Basic     43,492,172       43,329,889       41,320,851       43,169,935       40,677,496  
Diluted     45,474,530       45,040,690       43,333,707       45,071,304       41,771,250  
Reconciliation of financial statement line items as
reported to non-GAAP:		                                        
Noninterest income, as reported   $ 33,756     $ 25,276     $ 10,803     $ 160,200     $ 86,000  
Gain on sale of aircraft     —       —       —       (114 )     —  
Noninterest income, non-GAAP   $ 33,756     $ 25,276     $ 10,803     $ 160,086     $ 86,000  
Noninterest expense, as reported   $ 59,698     $ 55,459     $ 52,435     $ 230,987     $ 192,676  
Loss on sale of aircraft     —       —       (6 )     —       (6 )
Impairment on aircraft held for sale     —       —       (244 )     —       (1,263 )
Noninterest expense, non-GAAP   $ 59,698     $ 55,459     $ 52,185     $ 230,987     $ 191,407  
Income before taxes, as reported   $ 47,778     $ 43,233     $ 12,035     $ 210,788     $ 47,389  
Loss (gain) on sale of aircraft     —       —       6       (114 )     6  
Impairment on aircraft held for sale     —       —       244       —       1,263  
Income before taxes, non-GAAP   $ 47,778     $ 43,233     $ 12,285     $ 210,674     $ 48,658  
Income tax expense (benefit), as reported   $ 17,631     $ 9,394     $ (17,553 )   $ 43,793     $ (12,154 )
Income tax effects and adjustments for non-GAAP
items		     —       —       60       (27 )     305  
Income tax expense (benefit), non-GAAP   $ 17,631     $ 9,394     $ (17,493 )   $ 43,766     $ (11,849 )

This press release presents 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.