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Live Oak Bancshares, Inc. Reports Second Quarter 2022 Results

07/27/22

WILMINGTON, N.C., July 27, 2022 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported second quarter of 2022 net income of $97.0 million, or $2.16 per diluted share. The second quarter of 2022 included a pretax gain of $120.5 million related to the sale of the Company’s investment in Finxact, Inc. (“Finxact”).

“We continue to be optimistic about the future, as the second quarter’s performance indicates there are ample opportunities to serve America’s small businesses on our next-generation platform,” said Live Oak Bancshares Chairman and CEO James S. (Chip) Mahan, III. “The capital gains we recognized this quarter through our Finxact investment add more fuel to our mission, giving Live Oak a unique position to be nimble and innovative while maintaining a focus on safety and soundness.”

Second Quarter 2022 Key Measures

(Dollars in thousands, except per share data)                 Increase (Decrease)          
  2Q 2022     1Q 2022     Dollars     Percent     2Q 2021  
Total revenue (1) $ 208,463     $ 110,447     $ 98,016       89 %   $ 141,573  
Total noninterest expense   80,879       65,714       15,165       23       57,558  
Income before taxes   122,317       42,897       79,420       185       76,169  
Effective tax rate   20.7 %     19.6 %   n/a     n/a       16.5 %
Net income $ 97,039     $ 34,509     $ 62,530       181 %   $ 63,582  
Diluted earnings per share   2.16       0.76       1.40       184       1.41  
Loan and lease production:                                      
Loans and leases originated $ 959,635     $ 865,063     $ 94,572       11 %   $ 1,153,693  
% Fully funded   58.6 %     55.9 %   n/a     n/a       58.6 %
Total loans and leases: $ 7,059,943     $ 6,766,876     $ 293,067       4 %   $ 6,506,334  
Total loans and leases, excluding PPP loans:   6,998,579       6,636,056       362,523       5       5,579,038  
Total assets:   9,120,897       8,619,966       500,931       6       8,243,186  
Total deposits:   8,155,744       7,637,163       518,581       7       6,520,833  

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

Loans and Leases

As of June 30, 2022, the total loan and lease portfolio was $7.06 billion, 4.3% above its level at March 31, 2022, and 8.5% above its level a year ago. Compared to the first quarter of 2022, loans and leases held for investment increased $122.0 million, or 2.1%, to $5.86 billion while loans held for sale increased $171.1 million, or 16.6%, to $1.20 billion. This growth was the product of strong origination volumes combined with intentionally holding loans available for sale for longer periods of time before sale, as discussed in more detail below. Average loans and leases were $6.93 billion during the second quarter of 2022 compared to $6.72 billion during the first quarter of 2022. Excluding Paycheck Protection Program (“PPP”) loans, the total loan and lease portfolio increased by $362.5 million, or 5.5%, compared to March 31, 2022, and $1.42 billion, or 25.4%, compared to June 30, 2021.

The total loan and lease portfolio of $7.06 billion includes $61.4 million of PPP loans, net of deferred fees and costs, at June 30, 2022, which are carried at historical cost and classified as held for investment. The total loan and lease portfolio at June 30, 2022, and March 31, 2022 was comprised of 55.5% and 54.9% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $959.6 million during the second quarter of 2022, an increase of $94.6 million, or 10.9%, from the first quarter of 2022. Excluding PPP loans, loan and lease originations decreased $154.3 million, or 13.9%, from the second quarter of 2021.

Deposits

Total deposits increased to $8.16 billion at June 30, 2022, an increase of $518.6 million compared to March 31, 2022, and an increase of $1.63 billion compared to June 30, 2021. The increase in total deposits from the prior periods provides support for the growth in the loan and lease portfolio.

Average total interest-bearing deposits for the second quarter of 2022 increased $453.5 million, or 6.3%, to $7.70 billion, compared to $7.25 billion for the first quarter of 2022. The ratio of average total loans and leases to average interest-bearing deposits was 89.9% for the second quarter of 2022, compared to 92.8% for the first quarter of 2022.

Borrowings

Borrowings totaled $86.2 million at June 30, 2022, compared to $196.9 million and $1.01 billion at March 31, 2022, and June 30, 2021, respectively. During the second quarter of 2022, the Company decreased borrowings by $110.7 million and $926.2 million as compared to March 31, 2022, and June 30, 2021, respectively, primarily by reducing the outstanding balance in the Federal Reserve’s Paycheck Protection Program Liquidity Facility to $48.2 million as of June 30, 2022.

Net Interest Income

Net interest income for the second quarter of 2022 increased to $79.9 million compared to $77.8 million for the first quarter of 2022 and $71.5 million for the second quarter of 2021.

The net interest margin for the second and first quarters of 2022 was 3.89% and 4.02%, respectively, a decrease of thirteen basis points quarter over quarter. This decrease was due to heightened average liquidity levels combined with recent interest rate increases where deposits are repricing more rapidly than the Company’s loan portfolio. During the second quarter of 2022, the average cost of interest-bearing liabilities increased by eighteen basis points while the average yield on interest-earning assets increased by four basis points.

The increase in net interest income for the second quarter of 2022 compared to the second quarter of 2021 was driven by growth in both average yield and volume for the total loan and lease portfolio outpacing moderate growth in interest-bearing liabilities combined with an increase in average cost of funds. The benefit of rising rates on the Company’s cash and loan portfolio was mitigated by the increase in the average cost of funds from 0.86% for the second quarter of 2021 to 0.99% for the second quarter of 2022.

Noninterest Income

Noninterest income for the second quarter of 2022 increased to $128.5 million compared to $32.7 million for the first quarter of 2022 and $70.1 million for the second quarter of 2021. The primary drivers in noninterest income changes are outlined below.

The largest driver of the increase in noninterest income for the second quarter of 2022 arose from equity method investments income of $119.1 million, principally comprised of the $120.5 million gain associated with Fiserv, Inc.’s acquisition of the Company’s ownership in Finxact. In comparison, the second quarter of 2021 had a $44.1 million gain related to the Company’s investment in Greenlight Financial Technologies, which partially offset the overall increase over the prior year.

The loan servicing asset revaluation resulted in a loss of $8.7 million for the second quarter of 2022 compared to $1.6 million for the first quarter of 2022 and $3.2 million for the second quarter of 2021. The increase in the loss on loan servicing asset revaluation for both periods was principally the result of negative market pricing influenced by heightened interest rates and broader movements in market conditions.

Net gains on sales of loans decreased by $15.3 million compared to the first quarter of 2022 and $10.6 million compared to the second quarter of 2021. This decrease was a product of heightened sales in the first quarter of 2022 in advance of expected market premium changes combined with the second quarter of 2022 emergence of the negative market conditions discussed above. The average net gain on sale premium was 108%, 109% and 112% for the second quarter of 2022, first quarter of 2022 and second quarter of 2021, respectively. Based primarily upon these market conditions, the Company decreased the volume of guaranteed loans sold to $68.8 million for the second quarter of 2022 compared to $219.7 million sold in the first quarter of 2022 and $130.9 million sold in the second quarter of 2021.

The net loss on loans accounted for under the fair value option totaled $4.5 million for the second quarter of 2022, a $5.0 million decrease compared to the $516 thousand net gain for the first quarter of 2022 and a $5.6 million decrease compared to the $1.1 million net gain for the second quarter of 2021. The decrease in valuation of loans accounted for under the fair value option compared to both prior periods was largely the result of negative market pricing influences discussed above.

Noninterest Expense

Noninterest expense for the second quarter of 2022 totaled $80.9 million compared to $65.7 million for the first quarter of 2022 and $57.6 million for the second quarter of 2021. The primary drivers in noninterest expense changes are outlined below.

Salaries and employee benefits for the second quarter of 2022 increased $7.8 million compared to the first quarter of 2022 and increased $13.4 million compared to the second quarter of 2021. The increase in salaries and employee benefits compared to both prior periods was principally related to continued investment in human resources to support strategic and growth initiatives. The second quarter of 2022 included an additional $7.5 million bonus accrual related to the earlier discussed Finxact gain, largely comprising the increase over the first quarter of 2022.

Contributions and donations for the second quarter of 2022 increased $4.8 million compared to both the first quarter of 2022 and second quarter of 2021. This increase was related to a special charitable donation during the second quarter of 2022 of $5.0 million made in connection with the Finxact gain discussed earlier.

Asset Quality

During the second quarter of 2022, the Company recognized net charge-offs for loans carried at historical cost of $2.5 million compared to net charge-offs of $2.4 million in both the first quarter of 2022 and second 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 June 30, 2022, March 31, 2022 and June 30, 2021, was 0.19%, 0.19% and 0.21%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $3.6 million and $4.5 million accounted for under the fair value option at June 30, 2022, and March 31, 2022, respectively, decreased to $12.0 million, or 0.22% of loans and leases held for investment which are carried at historical cost, at June 30, 2022, compared to $19.5 million, or 0.38%, at March 31, 2022.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the second quarter of 2022 totaled $5.3 million compared to $1.8 million for the first quarter of 2022 and $7.8 million for the second quarter of 2021. The level of provision expense in the second quarter of 2022 was primarily the result of charge-off experience from one relationship.

The allowance for credit losses on loans and leases totaled $65.9 million at June 30, 2022, compared to $63.1 million at March 31, 2022. 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 1.24% and 1.23% at June 30, 2022, and March 31, 2022, respectively.

Income Tax

Income tax expense and related effective tax rate was $25.3 million and 20.7% for the second quarter of 2022, $8.4 million and 19.6% for the first quarter of 2022 and $12.6 million and 16.5% for the second quarter of 2021, respectively. The higher level of income tax expense for the second quarter of 2022 compared to the first quarter of 2022 and second quarter of 2021 was primarily from the increased pretax income resulting from the Finxact gain. The higher effective tax rate in 2022 compared to 2021 is principally due to lower levels of expected renewable energy tax credits in 2022 combined with tax benefits arising from the vesting of stock unit awards which vested in 2021.

Shareholders’ Equity

Total shareholders’ equity increased by $78.3 million, or 11.0%, during the second quarter of 2022. This increase was primarily due to $97.0 million in net income partially offset by $22.8 million of negative market impacts on the Company’s available-for-sale investment portfolio included in accumulated other comprehensive loss.

Conference Call

Live Oak will host a conference call to discuss the company's financial results and business outlook tomorrow, July 28, 2022, at 9:00 a.m. ET. To participate via telephone, please register in advance at this link: https://register.vevent.com/register/BI742b362216fb43a0af58bc7251128382. Upon registration, all telephone participants will receive a confirmation email detailing how to join the conference call, including the dial-in number along with a unique passcode and registrant ID that can be used to access the call. The call can also be accessed via a live audio webcast at http://investor.liveoakbank.com/. After the conference call, a replay will be available until August 4, 2022, at the same audio webcast link.

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 & Chief Banking Officer | 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     2Q 2022 Change vs.  
  2Q 2022     1Q 2022     4Q 2021     3Q 2021     2Q 2021     1Q 2022     2Q 2021  
Interest income                                         %     %  
Loans and fees on loans $ 94,157     $ 89,198     $ 88,577     $ 89,388     $ 84,780       5.6       11.1  
Investment securities, taxable   4,046       3,399       3,455       3,147       2,975       19.0       36.0  
Other interest earning assets   1,044       185       171       224       244       464.3       327.9  
Total interest income   99,247       92,782       92,203       92,786       87,999       7.0       12.8  
Interest expense                                                      
Deposits   18,777       14,348       13,817       14,159       14,820       30.9       26.7  
Borrowings   536       655       748       892       1,717       (18.2 )     (68.8 )
Total interest expense   19,313       15,003       14,565       15,051       16,537       28.7       16.8  
Net interest income   79,934       77,779       77,638       77,735       71,462       2.8       11.9  
Provision for loan and lease credit losses   5,267       1,836       3,918       4,319       7,846       186.9       (32.9 )
Net interest income after provision for
loan and lease credit losses
  74,667       75,943       73,720       73,416       63,616       (1.7 )     17.4  
Noninterest income                                                      
Loan servicing revenue   6,477       6,356       6,289       6,278       6,218       1.9       4.2  
Loan servicing asset revaluation   (8,668 )     (1,569 )     (4,160 )     (5,878 )     (3,181 )     (452.5 )     (172.5 )
Net gains on sales of loans   5,630       20,977       20,257       18,860       16,234       (73.2 )     (65.3 )
Net (loss) gain on loans accounted for under the fair
value option
  (4,461 )     516       (66 )     (1,030 )     1,135       (964.5 )     (493.0 )
Equity method investments income (loss)   119,056       (2,124 )     2,969       (1,250 )     (2,278 )     5,705.3       5,326.3  
Equity security investments gains (losses), net   1,655       (44 )     218       176       44,253       3,861.4       (96.3 )
Lease income   2,510       2,503       2,521       2,527       2,616       0.3       (4.1 )
Management fee income   2,558       1,488       1,482       1,489       1,473       71.9       73.7  
Other noninterest income   3,772       4,565       4,246       4,104       3,641       (17.4 )     3.6  
Total noninterest income   128,529       32,668       33,756       25,276       70,111       293.4       83.3  
Noninterest expense                                                      
Salaries and employee benefits   46,276       38,507       32,464       28,202       32,900       20.2       40.7  
Travel expense   2,358       1,897       1,782       1,819       1,549       24.3       52.2  
Professional services expense   3,988       2,791       3,724       4,251       3,329       42.9       19.8  
Advertising and marketing expense   2,301       1,729       1,844       1,631       875       33.1       163.0  
Occupancy expense   2,773       2,327       2,045       2,042       2,224       19.2       24.7  
Technology expense   5,762       6,053       6,489       6,150       5,131       (4.8 )     12.3  
Equipment expense   3,784       3,816       3,741       3,706       3,721       (0.8 )     1.7  
Other loan origination and maintenance expense   3,022       3,113       3,406       3,489       3,307       (2.9 )     (8.6 )
Renewable energy tax credit investment impairment   50                   60             100.0       100.0  
FDIC insurance   2,164       1,972       1,931       1,670       1,704       9.7       27.0  
Contributions and donations   5,515       723       328       523       686       662.8       703.9  
Other expense   2,886       2,786       1,944       1,916       2,132       3.6       35.4  
Total noninterest expense   80,879       65,714       59,698       55,459       57,558       23.1       40.5  
Income before taxes   122,317       42,897       47,778       43,233       76,169       185.1       60.6  
Income tax expense   25,278       8,388       17,631       9,394       12,587       201.4       100.8  
Net income $ 97,039     $ 34,509     $ 30,147     $ 33,839     $ 63,582       181.2       52.6  
Earnings per share                                                      
Basic $ 2.22     $ 0.79     $ 0.69     $ 0.78     $ 1.48       181.0       50.0  
Diluted $ 2.16     $ 0.76     $ 0.66     $ 0.76     $ 1.41       184.2       53.2  
Weighted average shares outstanding                                                      
Basic   43,824,707       43,701,943       43,492,172       43,329,889       43,173,312                  
Diluted   44,803,278       45,227,536       45,474,530       45,040,690       45,062,392                  

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

  As of the quarter ended     2Q 2022 Change vs.  
  2Q 2022     1Q 2022     4Q 2021     3Q 2021     2Q 2021     1Q 2022     2Q 2021  
Assets                                         %     %  
Cash and due from banks $ 580,493     $ 477,778     $ 187,203     $ 336,362     $ 428,907       21.5       35.3  
Federal funds sold   51,694       29,993       16,547       10,672       9,917       72.4       421.3  
Certificates of deposit with other banks   4,250       4,250       4,750       6,000       6,000             (29.2 )
Investment securities available-for-sale   927,968       844,577       906,052       861,377       817,896       9.9       13.5  
Loans held for sale (1)   1,199,734       1,028,635       1,116,519       1,042,756       1,064,911       16.6       12.7  
Loans and leases held for investment (2)   5,860,209       5,738,241       5,521,262       5,418,611       5,441,423       2.1       7.7  
Allowance for credit losses on loans and leases   (65,863 )     (63,058 )     (63,584 )     (59,681 )     (57,848 )     (4.4 )     (13.9 )
Net loans and leases   5,794,346       5,675,183       5,457,678       5,358,930       5,383,575       2.1       7.6  
Premises and equipment, net   257,926       254,865       240,196       244,212       249,069       1.2       3.6  
Foreclosed assets   191       198       620       883       1,793       (3.5 )     (89.3 )
Servicing assets   28,661       36,286       33,574       33,968       36,966       (21.0 )     (22.5 )
Other assets   275,634       268,201       250,254       242,181       244,152       2.8       12.9  
Total assets $ 9,120,897     $ 8,619,966     $ 8,213,393     $ 8,137,341     $ 8,243,186       5.8       10.6  
Liabilities and Shareholders’ Equity                                                      
Liabilities                                                      
Deposits:                                                      
Noninterest-bearing $ 119,371     $ 86,342     $ 89,279     $ 77,026     $ 89,768       38.3       33.0  
Interest-bearing   8,036,373       7,550,821       7,022,765       6,739,587       6,431,065       6.4       25.0  
Total deposits   8,155,744       7,637,163       7,112,044       6,816,613       6,520,833       6.8       25.1  
Borrowings   86,209       196,911       318,289       575,021       1,012,431       (56.2 )     (91.5 )
Other liabilities   87,282       72,565       67,927       56,284       52,575       20.3       66.0  
Total liabilities   8,329,235       7,906,639       7,498,260       7,447,918       7,585,839       5.3       9.8  
Shareholders’ equity                                                      
Preferred stock, no par value, 1,000,000 shares
authorized, none issued or outstanding
                                       
Class A common stock (voting)   320,924       315,607       310,970       304,085       299,809       1.7       7.0  
Class B common stock (non-voting)               1,324       5,404       5,404             (100.0 )
Retained earnings   530,021       434,226       400,893       371,869       339,011       22.1       56.3  
Accumulated other comprehensive (loss) income   (59,283 )     (36,506 )     1,946       8,065       13,123       62.4       (551.7 )
Total shareholders' equity   791,662       713,327       715,133       689,423       657,347       11.0       20.4  
Total liabilities and shareholders’ equity $ 9,120,897     $ 8,619,966     $ 8,213,393     $ 8,137,341     $ 8,243,186       5.8       10.6  

 

(1) Includes $23.5 million, $25.1 million, $25.3 million, $27.4 million and $29.0 million measured at fair value for the quarters ended June 30, 2022, March 31, 2022, December 31, 2021, September 30, 2021 and June 30, 2021, respectively.
   
(2) Includes $530.6 million, $600.6 million, $645.2 million, $698.0 million and $743.2 million measured at fair value for the quarters ended June 30, 2022, March 31, 2022, December 31, 2021, September 30, 2021 and June 30, 2021, respectively.

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

  Six Months Ended  
  June 30, 2022     June 30, 2021  
Interest income              
Loans and fees on loans $ 183,355     $ 169,773  
Investment securities, taxable   7,445       5,904  
Other interest earning assets   1,229       547  
Total interest income   192,029       176,224  
Interest expense              
Deposits   33,125       31,764  
Borrowings   1,191       3,048  
Total interest expense   34,316       34,812  
Net interest income   157,713       141,412  
Provision for loan and lease credit losses   7,103       6,973  
Net interest income after provision for loan and lease credit losses   150,610       134,439  
Noninterest income              
Loan servicing revenue   12,833       12,652  
Loan servicing asset revaluation   (10,237 )     (1,688 )
Net gains on sales of loans   26,607       28,163  
Net (loss) gain on loans accounted for under the fair value option   (3,945 )     5,353  
Equity method investments income (loss)   116,932       (3,435 )
Equity security investments gains (losses), net   1,611       44,358  
Lease income   5,013       5,215  
Management fee income   4,046       3,407  
Other noninterest income   8,337       7,143  
Total noninterest income   161,197       101,168  
Noninterest expense              
Salaries and employee benefits   84,783       64,266  
Travel expense   4,255       2,208  
Professional services expense   6,779       7,160  
Advertising and marketing expense   4,030       1,527  
Occupancy expense   5,100       4,336  
Technology expense   11,815       10,009  
Equipment expense   7,600       7,422  
Other loan origination and maintenance expense   6,135       6,634  
Renewable energy tax credit investment impairment   50       3,127  
FDIC insurance   4,136       3,469  
Contributions and donations   6,238       1,480  
Other expense   5,672       4,192  
Total noninterest expense   146,593       115,830  
Income before taxes   165,214       119,777  
Income tax expense   33,666       16,768  
Net income $ 131,548     $ 103,009  
Earnings per share              
Basic $ 3.01     $ 2.40  
Diluted $ 2.92     $ 2.29  
Weighted average shares outstanding              
Basic   43,763,681       42,924,844  
Diluted   45,015,763       44,881,002  

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

  As of and for the three months ended  
  2Q 2022     1Q 2022     4Q 2021     3Q 2021     2Q 2021  
Income Statement Data                                      
Net income $ 97,039     $ 34,509     $ 30,147     $ 33,839     $ 63,582  
Per Common Share                                      
Net income, diluted $ 2.16     $ 0.76     $ 0.66     $ 0.76     $ 1.41  
Dividends declared   0.03       0.03       0.03       0.03       0.03  
Book value   18.05       16.29       16.39       15.89       15.19  
Tangible book value (1)   17.97       16.20       16.31       15.80       15.10  
Performance Ratios                                      
Return on average assets (annualized)   4.40 %     1.65 %     1.47 %     1.64 %     3.01 %
Return on average equity (annualized)   46.14       18.94       16.80       19.67       41.30  
Net interest margin   3.89       4.02       4.02       3.99       3.63  
Efficiency ratio (1)   38.80       59.50       53.59       53.84       40.66  
Noninterest income to total revenue   61.66       29.58       30.30       24.54       49.52  
Selected Loan Metrics                                      
Loans and leases originated $ 959,635     $ 865,063     $ 1,083,623     $ 1,063,190     $ 1,153,693  
Outstanding balance of sold loans serviced   3,329,616       3,381,883       3,298,828       3,212,271       3,134,068  
Asset Quality Ratios                                      
Allowance for credit losses to loans and leases held for
investment (3)
  1.24 %     1.23 %     1.30 %     1.26 %     1.23 %
Net charge-offs (3) $ 2,462     $ 2,362     $ 15     $ 2,485     $ 2,417  
Net charge-offs to average loans and leases held for
investment (2) (3)
  0.19 %     0.19 %     0.00 %     0.21 %     0.21 %
                                       
Nonperforming loans and leases at historical cost (3)                                      
Unguaranteed $ 11,974     $ 19,475     $ 15,987     $ 20,450     $ 22,458  
Guaranteed   33,794       32,828       26,546       28,888       25,551  
Total   45,768       52,303       42,533       49,338       48,009  
Unguaranteed nonperforming historical cost loans and
leases, to loans and leases held for investment (3)
  0.22 %     0.38 %     0.33 %     0.43 %     0.48 %
                                       
Nonperforming loans at fair value (4)                                      
Unguaranteed $ 3,615     $ 4,451     $ 4,791     $ 6,303     $ 5,503  
Guaranteed   27,895       30,850       33,471       36,708       34,323  
Total   31,510       35,301       38,262       43,011       39,826  
Unguaranteed nonperforming fair value loans to loans
held for investment (4)
  0.68 %     0.74 %     0.74 %     0.90 %     0.74 %
Capital Ratios                                      
Common equity tier 1 capital (to risk-weighted assets)   13.14 %     12.10 %     12.38 %     12.56 %     12.45 %
Tier 1 leverage capital (to average assets)   9.44       8.87       8.87       8.82       8.70  

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
June 30, 2022
    Three Months Ended
March 31, 2022
 
  Average
Balance
    Interest     Average
Yield/Rate
    Average
Balance
    Interest     Average
Yield/Rate
 
Interest-earning assets:                                              
Interest-earning balances in other banks $ 328,014     $ 848       1.04 %   $ 223,638     $ 179       0.32 %
Federal funds sold   78,216       196       1.01       9,197       6       0.26  
Investment securities   915,106       4,046       1.77       895,592       3,399       1.54  
Loans held for sale   1,119,094       15,969       5.72       1,115,441       15,183       5.52  
Loans and leases held for investment(1)   5,805,907       78,188       5.40       5,609,338       74,015       5.35  
Total interest-earning assets   8,246,337       99,247       4.83       7,853,206       92,782       4.79  
Less: allowance for credit losses on loans and leases   (62,566 )                     (62,732 )                
Noninterest-earning assets   644,495                       588,171                  
Total assets $ 8,828,266                     $ 8,378,645                  
Interest-bearing liabilities:                                              
Savings $ 3,894,177     $ 7,538       0.78 %   $ 3,605,905     $ 4,840       0.54 %
Money market accounts   93,072       56       0.24       91,463       54       0.24  
Certificates of deposit   3,714,882       11,183       1.21       3,551,310       9,454       1.08  
Total interest-bearing deposits   7,702,131       18,777       0.98       7,248,678       14,348       0.80  
Borrowings   132,969       536       1.62       262,485       655       1.01  
Total interest-bearing liabilities   7,835,100       19,313       0.99       7,511,163       15,003       0.81  
Noninterest-bearing deposits   96,123                       86,570                  
Noninterest-bearing liabilities   55,725                       51,940                  
Shareholders' equity   841,318                       728,972                  
Total liabilities and shareholders' equity $ 8,828,266                     $ 8,378,645                  
Net interest income and interest rate spread         $ 79,934       3.84 %           $ 77,779       3.98 %
Net interest margin                   3.89                       4.02  
Ratio of average interest-earning assets to average interest-bearing liabilities                   105.25 %                     104.55 %

(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  
  2Q 2022     1Q 2022     4Q 2021     3Q 2021     2Q 2021  
Total shareholders’ equity $ 791,662     $ 713,327     $ 715,133     $ 689,423     $ 657,347  
Less:                                      
Goodwill   1,797       1,797       1,797       1,797       1,797  
Other intangible assets   1,950       1,988       2,026       2,065       2,103  
Tangible shareholders’ equity (a) $ 787,915     $ 709,542     $ 711,310     $ 685,561     $ 653,447  
Shares outstanding (c)   43,854,011       43,787,660       43,619,070       43,381,014       43,264,460  
Total assets $ 9,120,897     $ 8,619,966     $ 8,213,393     $ 8,137,341     $ 8,243,186  
Less:                                      
Goodwill   1,797       1,797       1,797       1,797       1,797  
Other intangible assets   1,950       1,988       2,026       2,065       2,103  
Tangible assets (b) $ 9,117,150     $ 8,616,181     $ 8,209,570     $ 8,133,479     $ 8,239,286  
Tangible shareholders’ equity to tangible assets (a/b)   8.64 %     8.23 %     8.66 %     8.43 %     7.93 %
Tangible book value per share (a/c) $ 17.97     $ 16.20     $ 16.31     $ 15.80     $ 15.10  
Efficiency ratio:                                      
Noninterest expense (d) $ 80,879     $ 65,714     $ 59,698     $ 55,459     $ 57,558  
Net interest income   79,934       77,779       77,638       77,735       71,462  
Noninterest income   128,529       32,668       33,756       25,276       70,111  
Total revenue (e) $ 208,463     $ 110,447     $ 111,394     $ 103,011     $ 141,573  
Efficiency ratio (d/e)   38.80 %     59.50 %     53.59 %     53.84 %     40.66 %

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.