Home / Top News / Live Oak Bancshares, Inc. Reports Third Quarter 2021 Results

Live Oak Bancshares, Inc. Reports Third Quarter 2021 Results

WILMINGTON, N.C., Oct. 27, 2021 (GLOBE NEWSWIRE) — Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported third quarter 2021 net earnings available to common shareholders of $33.8 million, or $0.76 per diluted share.

“Live Oak is on a journey to define small business growth and success across the nation,” said Live Oak Chairman and CEO James S. (Chip) Mahan, III. “To continue on our mission to be America’s small business bank, we are pleased to report that we again exceeded $1.0 billion in loan originations this quarter while also successfully completing the conversion of our deposit customers to a next-generation platform.”

Third Quarter 2021 Key Measures

(Dollars in thousands, except per share data)                 Increase (Decrease)          
  3Q 2021     3Q 2020     Dollars     Percent     2Q 2021  
Net interest income and servicing revenues $ 84,013     $ 58,166     $ 25,847       44 %   $ 77,680  
Net income   33,839       33,780       59       0       63,582  
Diluted earnings per share   0.76       0.81       (0.05 )     (6 )     1.41  
Non-GAAP net income (1)   33,839       34,554       (715 )     (2 )     63,582  
Non-GAAP diluted earnings per share (1)   0.76       0.83       (0.07 )     (8 )     1.41  
Loan and lease production:                                      
Loans and leases originated $ 1,063,190     $ 966,499     $ 96,691       10 %   $ 1,153,693  
% Fully funded   55.1 %     72.9 %   n/a     n/a       58.6 %
Total loans and leases $ 6,461,367     $ 6,227,294     $ 234,073       4 %   $ 6,506,334  
Total assets   8,137,341       8,093,381       43,960       1       8,243,186  
Total deposits   6,816,613       5,706,044       1,110,569       19       6,520,833  

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

Loans and Leases

At September 30, 2021, the total loan and lease portfolio was $6.46 billion, 3.8% above its level a year ago and 0.7% below its level at June 30, 2021. Compared to the second quarter of 2021, loans and leases held for investment decreased $22.8 million, or 0.4%, to $5.42 billion while loans held for sale decreased $22.2 million, or 2.1%, to $1.04 billion. Average loans and leases were $6.47 billion during the third quarter of 2021 compared to $6.58 billion during the second quarter of 2021. Excluding Paycheck Protection Program (“PPP”) loans, the total loan and lease portfolio increased by $1.46 billion, or 32.3%, compared to the third quarter of 2020 and $392.6 million, or 7.0%, compared to the second quarter of 2021.

The total loan and lease portfolio of $6.46 billion is comprised of $489.8 million of PPP loans, net of deferred fees and costs, at September 30, 2021, which are carried at historical cost classified as held for investment. The unguaranteed percentage of the total loan and lease portfolio is significantly influenced by the inclusion of PPP loans carrying a 100% government guarantee. The total loan and lease portfolio at September 30, 2021, and June 30, 2021, of $6.46 billion and $6.51 billion, respectively, was comprised of 47.8% and 44.9% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $1.06 billion during the third quarter of 2021, a decrease of $90.5 million, or 7.8%, from the second quarter of 2021. Excluding PPP loans in each quarter, loan and lease originations totaled $1.06 billion for the third quarter of 2021, a 4.6% decrease from the prior quarter and a 12.1% increase from the third quarter of 2020.

Deposits

Total deposits increased to $6.82 billion at September 30, 2021, an increase of $1.11 billion compared to September 30, 2020, and an increase of $295.8 million compared to June 30, 2021.

The increase in total deposits from the prior quarter provides support for the growth in the loan and lease portfolio, excluding PPP loans, and origination activities during the third quarter of 2021. Average total interest-bearing deposits for the third quarter of 2021 increased $282.8 million, or 4.5%, to $6.63 billion, compared to $6.35 billion for the second quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 97.5% for the third quarter of 2021, compared to 103.7% for the second 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.

Borrowings

Borrowings totaled $575.0 million at September 30, 2021, compared to $1.75 billion and $1.01 billion at September 30, 2020, and June 30, 2021, respectively. During the third quarter of 2021, the Company decreased borrowings by $437.4 million primarily by reducing the outstanding balance in the Federal Reserve’s PPPLF to $526.0 million as of September 30, 2021, compared to $961.0 million at June 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.

Net Interest Income

Net interest income for the third quarter of 2021 increased to $77.7 million compared to $51.4 million for the third quarter of 2020 and $71.5 million for the second quarter of 2021.

The increase for the third quarter of 2021 compared to the third quarter of 2020 was driven by the 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 1.27% for the third quarter of 2020 to 0.80% for the third quarter of 2021.

The net interest margin increased from the second quarter of 2021 by 36 basis points, from 3.63% to 3.99%. The yield on interest earning assets for the third quarter of 2021 increased 29 basis points compared to the second quarter of 2021 and was primarily driven by accelerated PPP loan fee recognition accompanying heightened levels of forgiveness. The increase in asset yield was enhanced by a 6 basis point reduction in the average cost of interest-bearing liabilities from 0.86% for the quarter ended June 30, 2021, to 0.80% for the quarter ended September 30, 2021. The reduction in the cost of interest-bearing liabilities compared to the second quarter of 2021 was largely the result of the ongoing maturation and repricing of the certificates of deposit portfolio.

Noninterest Income

Noninterest income for the third quarter of 2021 decreased to $25.3 million compared to $47.0 million for the third quarter of 2020 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 decrease in noninterest income for the third quarter of 2021 arose from equity security investment gains of $176 thousand compared to $14.7 million in the third quarter of 2020 and $44.3 million in the second quarter of 2021. Gains in both the third quarter of 2020 and second quarter of 2021 were principally comprised of $13.7 million and $44.1 million, respectively, both associated with the Company’s investment in Greenlight Financial Technology, Inc. (“Greenlight”).

The loan servicing asset revaluation resulted in a loss of $5.9 million for the third quarter of 2021 compared to a gain of $2.1 million for the third quarter of 2020 and a loss of $3.2 million for the second quarter of 2021. The decrease in the loan servicing asset valuation from the prior quarters was largely the result of negative market pricing movements in the third quarter combined with ongoing amortization of the guaranteed serviced loan portfolio.   The primary cause for negative pricing trends commencing in the third quarter of 2021 was related to increasing levels of prepayment speeds combined with increased inventory levels in the market.

The net (loss) gain on loans accounted for under the fair value option totaled $(1.0) million for the third quarter of 2021, a $4.4 million decrease compared to the $3.4 million net gain for the third quarter of 2020 and a $2.2 million decrease compared to the net gain of $1.1 million for the second quarter of 2021. The decrease in valuation of loans accounted for under the fair value option over the third quarter of 2020 was also impacted by negative trending market conditions discussed above.

Net gains on sales of loans increased $6.2 million compared to the third quarter of 2020 and $2.6 million compared to the second quarter of 2021. The average net gain on guaranteed loan sales was $91.0, $114.8, $110.2 thousand per million sold for the third quarter of 2021, second quarter of 2021 and third quarter of 2020, respectively. The quarter over quarter decrease in premiums is largely the result of the mix of loans being sold and to a lesser extent the above discussed negative market trends. The volume of guaranteed loans sold increased to $201.9 million for the third quarter of 2021 compared to $130.9 million sold in the prior quarter.

Noninterest Expense

Noninterest expense for the third quarter of 2021 totaled $55.5 million compared to $42.7 million for the third quarter of 2020 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 third quarter of 2021 increased to $28.2 million compared to $24.2 million for the third quarter of 2020 and decreased from $32.9 million for the second quarter of 2021. The increase in salaries and employee benefits over the third quarter of 2020 was principally related to continued investment in human resources to support strategic and growth initiatives. The decrease over the second quarter of 2021 was principally due to an additional bonus accrual during the second quarter of $4.0 million arising from the earnings associated with the earlier discussed second quarter gain resulting from the Company’s investment in Greenlight.

Travel expense for the third quarter of 2021 increased to $1.8 million compared to $250 thousand for the third quarter of 2020 and $1.5 million for the second quarter of 2021. The increase in travel expenses was largely related to supporting both loan origination volume and the customer base as travel restrictions have continued to ease in recent months.

Professional services expense increased to $4.3 million for the third quarter of 2021 compared to $1.3 million for the third quarter of 2020 and $3.3 million for the second quarter of 2021. The $2.9 million increase over the third quarter of 2020 was largely driven by an increase in legal fees.

Data processing expense for the third quarter of 2021 totaled $4.9 million compared to $3.0 million for the third quarter of 2020 and $4.2 million for the second quarter of 2021. The increase in 2021 was principally due to enhanced investments in the Company’s internal software technology resources.

Other expense for the third quarter of 2021 increased to $2.9 million compared to $2.1 million for the third quarter of 2020 and $3.1 million for the second quarter of 2021. Included in the slight increase over the third quarter of 2020 was a $3.9 million accrual related to the earlier disclosed putative class action in Note 10 of the Company’s Report on Form 10-Q for the quarterly period ended June 30, 2021, for which the Company entered into a final settlement agreement on October 12, 2021. Largely offsetting this $3.9 million accrual in the third quarter of 2021 is a $3.7 million receivable related to an insurance recovery in regards to the same litigation.

Asset Quality

During the third quarter of 2021, the Company recognized net charge-offs for loans carried at historical cost of $2.5 million compared to $10.1 million in the third quarter of 2020 and $2.4 million in the second quarter of 2021. The decrease in net charge-offs for the third quarter of 2021 compared to the third quarter of 2020 was principally the result of a third quarter of 2020 reclassification of fifteen hotel loans from held for investment to held for sale totaling $81.2 million in net investment.  This third quarter of 2020 reclassification resulted in a write down reflected in charge-offs of $9.8 million.  Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended September 30, 2021 and 2020 and June 30, 2021, was 0.21%, 1.03% and 0.21%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $6.3 million and $5.5 million accounted for under the fair value option at September 30, 2021, and June 30, 2021, respectively, decreased to $20.4 million, or 0.43% of loans and leases held for investment which are carried at historical cost, at September 30, 2021, compared to $22.5 million, or 0.48%, at June 30, 2021.

The unguaranteed exposure of foreclosed assets decreased $264 thousand to $191 thousand at September 30, 2021, compared to June 30, 2021. Foreclosed assets decreased $910 thousand to $883 thousand at September 30, 2021, compared to June 30, 2021.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the third quarter of 2021 totaled $4.3 million compared to a provision of $10.3 million for the third quarter of 2020 and $7.8 million for the second quarter of 2021. The lower provision expense in the third 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 $59.7 million at September 30, 2021, compared to $57.8 million at June 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 1.26% and 1.23% at September 30, 2021, and June 30, 2021, respectively. 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 $9.4 million and 21.7% for the third quarter of 2021, $11.7 million and 25.7% for the third quarter of 2020, and $12.6 million and 16.5% for the second quarter of 2021, respectively. The effective tax rate for the third quarter of 2021 is principally influenced by renewable energy tax credit investment activities.

The lower level of income tax expense for the third quarter of 2021 compared to the second quarter of 2021 was primarily the product of a decrease of $32.9 million in income before taxes arising largely from the earlier discussed second quarter Greenlight gain.

Shareholders’ Equity

Total shareholders’ equity increased by $32.1 million, or 4.9%, during the third 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 9:00 a.m. ET tomorrow morning (October 28, 2021). 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 8796489. 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 November 4, 2021 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 | 910.765.9966

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     3Q 2021 Change vs.  
  3Q 2021     2Q 2021     1Q 2021     4Q 2020     3Q 2020     2Q 2021     3Q 2020  
Interest income                                         %     %  
Loans and fees on loans $ 89,388     $ 84,780     $ 84,993     $ 79,166     $ 70,621       5.4       26.6  
Investment securities, taxable   3,174       2,975       2,929       3,345       4,123       6.7       (23.0 )
Other interest earning assets   224       244       303       529       334       (8.2 )     (32.9 )
Total interest income   92,786       87,999       88,225       83,040       75,078       5.4       23.6  
Interest expense                                                      
Deposits   14,159       14,820       16,944       19,195       22,155       (4.5 )     (36.1 )
Borrowings   892       1,717       1,331       1,544       1,560       (48.0 )     (42.8 )
Total interest expense   15,051       16,537       18,275       20,739       23,715       (9.0 )     (36.5 )
Net interest income   77,735       71,462       69,950       62,301       51,363       8.8       51.3  
Provision for (recovery of) loan and lease credit losses   4,319       7,846       (873 )     8,634       10,274       (45.0 )     (58.0 )
Net interest income after provision for (recovery of) loan and lease credit losses   73,416       63,616       70,823       53,667       41,089       15.4       78.7  
Noninterest income                                                      
Loan servicing revenue   6,278       6,218       6,434       6,684       6,803       1.0       (7.7 )
Loan servicing asset revaluation   (5,878 )     (3,181 )     1,493       (5,756 )     2,061       (84.8 )     (385.2 )
Net gains on sales of loans   18,860       16,234       11,929       14,976       12,690       16.2       48.6  
Net (loss) gain on loans accounted for under the fair value option   (1,030 )     1,135       4,218       (4,759 )     3,403       (190.7 )     (130.3 )
Equity method investments income (loss)   (1,250 )     (2,278 )     (1,157 )     (8,739 )     (1,231 )     45.1       (1.5 )
Equity security investments gains (losses), net   176       44,253       105       107       14,705       (99.6 )     (98.8 )
Gain on sale of investment securities available-for-sale, net                           1,225             (100.0 )
Lease income   2,527       2,616       2,599       2,615       2,634       (3.4 )     (4.1 )
Management fee income   1,489       1,473       1,934       2,206       1,296       1.1       14.9  
Other noninterest income   4,104       3,641       3,502       3,469       3,458       12.7       18.7  
Total noninterest income   25,276       70,111       31,057       10,803       47,044       (63.9 )     (46.3 )
Noninterest expense                                                      
Salaries and employee benefits   28,202       32,900       31,366       29,477       24,203       (14.3 )     16.5  
Travel expense   1,819       1,549       659       1,056       250       17.4       627.6  
Professional services expense   4,251       3,329       3,831       1,691       1,346       27.7       215.8  
Advertising and marketing expense   1,631       875       652       973       552       86.4       195.5  
Occupancy expense   2,042       2,224       2,112       2,302       2,079       (8.2 )     (1.8 )
Data processing expense   4,867       4,234       3,894       3,414       3,009       15.0       61.7  
Equipment expense   4,567       4,385       4,354       4,002       4,314       4.2       5.9  
Other loan origination and maintenance expense   3,489       3,307       3,327       3,173       2,669       5.5       30.7  
Renewable energy tax credit investment impairment   60             3,127                          
FDIC insurance   1,670       1,704       1,765       2,147       2,095       (2.0 )     (20.3 )
Other expense   2,861       3,051       3,185       4,200       2,133       (6.2 )     34.1  
Total noninterest expense   55,459       57,558       58,272       52,435       42,650       (3.6 )     30.0  
Income before taxes   43,233       76,169       43,608       12,035       45,483       (43.2 )     (4.9 )
Income tax expense (benefit)   9,394       12,587       4,181       (17,553 )     11,703       (25.4 )     (19.7 )
Net income $ 33,839     $ 63,582     $ 39,427     $ 29,588     $ 33,780       (46.8 )     0.2  
Earnings per share                                                      
Basic $ 0.78     $ 1.48     $ 0.92     $ 0.72     $ 0.83       (47.3 )     (6.0 )
Diluted $ 0.76     $ 1.41     $ 0.88     $ 0.68     $ 0.81       (46.1 )     (6.2 )
Weighted average shares outstanding                                                      
Basic   43,329,889       43,173,312       42,673,615       41,320,851       40,542,696                  
Diluted   45,040,690       45,062,392       44,696,850       43,333,707       41,549,632                  

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

  As of the quarter ended     3Q 2021 Change vs.  
  3Q 2021     2Q 2021     1Q 2021     4Q 2020     3Q 2020     2Q 2021     3Q 2020  
Assets                                         %     %  
Cash and due from banks $ 336,362     $ 428,907     $ 630,081     $ 297,167     $ 608,826       (21.6 )     (44.8 )
Federal funds sold   10,672       9,917       5,461       21,153       25,924       7.6       (58.8 )
Certificates of deposit with other banks   6,000       6,000       6,500       6,500       7,250             (17.2 )
Investment securities available-for-sale   861,377       817,896       775,177       750,098       765,777       5.3       12.5  
Loans held for sale (1)   1,042,756       1,064,911       1,076,741       1,175,470       1,190,200       (2.1 )     (12.4 )
Loans and leases held for investment (2)   5,418,611       5,441,423       5,456,754       5,144,930       5,037,094       (0.4 )     7.6  
Allowance for credit losses on loans and leases   (59,681 )     (57,848 )     (52,417 )     (52,306 )     (44,210 )     (3.2 )     (35.0 )
Net loans and leases   5,358,930       5,383,575       5,404,337       5,092,624       4,992,884       (0.5 )     7.3  
Premises and equipment, net   244,212       249,069       253,774       259,267       253,737       (2.0 )     (3.8 )
Foreclosed assets   883       1,793       4,185       4,155       3,264       (50.8 )     (72.9 )
Servicing assets   33,968       36,966       37,744       33,918       37,831       (8.1 )     (10.2 )
Other assets   242,181       244,152       223,875       231,951       207,688       (0.8 )     16.6  
Total assets $ 8,137,341     $ 8,243,186     $ 8,417,875     $ 7,872,303     $ 8,093,381       (1.3 )     0.5  
Liabilities and Shareholders’ Equity                                                      
Liabilities                                                      
Deposits:                                                      
Noninterest-bearing $ 77,026     $ 89,768     $ 75,794     $ 75,287     $ 58,771       (14.2 )     31.1  
Interest-bearing   6,739,587       6,431,065       6,240,210       5,637,541       5,647,273       4.8       19.3  
Total deposits   6,816,613       6,520,833       6,316,004       5,712,828       5,706,044       4.5       19.5  
Borrowings   575,021       1,012,431       1,465,961       1,542,093       1,747,083       (43.2 )     (67.1 )
Other liabilities   56,284       52,575       45,550       49,532       56,090       7.1       0.3  
Total liabilities   7,447,918       7,585,839       7,827,515       7,304,453       7,509,217       (1.8 )     (0.8 )
Shareholders’ equity                                                      
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                                        
Class A common stock (voting)   304,085       299,809       298,525       298,890       325,753       1.4       (6.7 )
Class B common stock (non-voting)   5,404       5,404       7,330       11,729       26,106             (79.3 )
Retained earnings   371,869       339,011       275,377       235,724       207,400       9.7       79.3  
Accumulated other comprehensive income   8,065       13,123       9,128       21,507       24,905       (38.5 )     (67.6 )
Total shareholders’ equity   689,423       657,347       590,360       567,850       584,164       4.9       18.0  
Total liabilities and shareholders’ equity $ 8,137,341     $ 8,243,186     $ 8,417,875     $ 7,872,303     $ 8,093,381       (1.3 )     0.5  

(1)  Includes $27.4 million, $29.0 million, $35.9 million, $36.1 million and $30.4 million measured at fair value for the quarters ended September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020, respectively.

(2)  Includes $698.0 million, $743.2 million, $790.8 million, $815.4 million and $845.7 million measured at fair value for the quarters ended September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020, respectively.

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

  Nine months ended  
  September 30, 2021     September 30, 2020  
Interest income              
Loans and fees on loans $ 259,161     $ 191,604  
Investment securities, taxable   9,078       11,671  
Other interest earning assets   771       2,093  
Total interest income   269,010       205,368  
Interest expense              
Deposits   45,923       70,531  
Borrowings   3,940       2,415  
Total interest expense   49,863       72,946  
Net interest income   219,147       132,422  
Provision for loan and lease credit losses   11,292       32,024  
Net interest income after provision for loan and lease credit losses   207,855       100,398  
Noninterest income              
Loan servicing revenue   18,930       19,916  
Loan servicing asset revaluation   (7,566 )     (4,202 )
Net gains on sales of loans   47,023       34,497  
Net gain (loss) on loans accounted for under the fair value option   4,323       (8,324 )
Equity method investments income (loss)   (4,685 )     (5,952 )
Equity security investments gains (losses), net   44,534       14,802  
Gain on sale of investment securities available-for-sale, net         1,880  
Lease income   7,742       7,893  
Management fee income   4,896       4,146  
Other noninterest income   11,247       10,541  
Total noninterest income   126,444       75,197  
Noninterest expense              
Salaries and employee benefits   92,468       83,048  
Travel expense   4,027       2,395  
Professional services expense   11,411       4,668  
Advertising and marketing expense   3,158       2,537  
Occupancy expense   6,378       6,455  
Data processing expense   12,995       8,930  
Equipment expense   13,306       13,601  
Other loan origination and maintenance expense   10,123       7,617  
Renewable energy tax credit investment impairment   3,187        
FDIC insurance   5,139       5,326  
Other expense   9,097       5,664  
Total noninterest expense   171,289       140,241  
Income before taxes   163,010       35,354  
Income tax expense   26,162       5,399  
Net income $ 136,848     $ 29,955  
Earnings per share              
Basic $ 3.18     $ 0.74  
Diluted $ 3.05     $ 0.73  
Weighted average shares outstanding              
Basic   43,061,642       40,461,479  
Diluted   44,936,014       41,248,866  

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

  As of and for the three months ended  
  3Q 2021     2Q 2021     1Q 2021     4Q 2020     3Q 2020  
Income Statement Data                                      
Net income $ 33,839     $ 63,582     $ 39,427     $ 29,588     $ 33,780  
Per Common Share                                      
Net income, basic $ 0.78     $ 1.48     $ 0.92     $ 0.72     $ 0.83  
Net income, diluted   0.76       1.41       0.88       0.68       0.81  
Dividends declared   0.03       0.03       0.03       0.03       0.03  
Book value   15.89       15.19       13.74       13.38       14.69  
Tangible book value (1)   15.80       15.10       13.65       13.28       14.30  
Performance Ratios                                      
Return on average assets (annualized)   1.64 %     3.01 %     1.98 %     1.49 %     1.67 %
Return on average equity (annualized)   19.67       41.30       26.89       19.86       23.64  
Net interest margin   3.99       3.63       3.81       3.33       2.77  
Efficiency ratio (1)   53.84       40.66       57.69       71.73       43.89  
Noninterest income to total revenue   24.54       49.52       30.75       14.78       47.15  
Selected Loan Metrics                                      
Loans and leases originated $ 1,063,190     $ 1,153,693     $ 1,180,219     $ 808,010     $ 966,499  
Guaranteed loans sold   201,903       130,858       136,747       110,588       114,731  
Average net gain on sale of guaranteed loans   90.95       114.77       83.92       115.94       110.19  
Adjusted average net gain on sale of guaranteed loans (2)   90.95       114.77       83.92       114.07       107.99  
Outstanding balance of sold loans serviced:                                      
Guaranteed   2,731,031       2,694,931       2,843,963       2,819,625       2,878,664  
Unguaranteed   481,240       439,137       372,764       385,998       264,829  
Total   3,212,271       3,134,068       3,216,727       3,205,623       3,143,493  
Asset Quality Ratios                                      
Allowance for credit losses to loans and leases held for investment (4)   1.26 %     1.23 %     1.12 %     1.21 %     1.05 %
Net charge-offs (recoveries) (4) $ 2,485     $ 2,417     $ (984 )   $ 537     $ 10,147  
Net charge-offs (recoveries) to average loans and leases held for investment (3) (4)   0.21 %     0.21 %     (0.09 )%     0.05 %     1.03 %
Nonperforming loans and leases (4) (5) $ 49,338     $ 48,009     $ 57,371     $ 46,110     $ 46,749  
Foreclosed assets   883       1,793       4,185       4,155       3,264  
Nonperforming loans and leases (unguaranteed exposure) (4) (5)   20,450       22,458       24,738       20,078       20,153  
Foreclosed assets (unguaranteed exposure)   191       455       941       935       642  
Nonperforming loans and leases not guaranteed by the SBA and foreclosures (4) (5) $ 20,641     $ 22,913     $ 25,679     $ 21,013     $ 20,795  
Nonperforming loans, leases and foreclosures, not guaranteed by the SBA, to total assets (4) (5)   0.28 %     0.31 %     0.34 %     0.30 %     0.29 %
Nonperforming loans accounted for under the fair value option $ 43,011     $ 39,826     $ 40,234     $ 35,499     $ 47,434  
Nonperforming loans accounted for under the fair value option (unguaranteed exposure)   6,303       5,503       5,838       5,387       7,495  
Capital Ratios                                      
Common equity tier 1 capital (to risk-weighted assets)   12.56 %     12.45 %     12.16 %     12.15 %     13.09 %
Total capital (to risk-weighted assets)   13.71       13.63       13.32       13.39       14.19  
Tier 1 risk based capital (to risk-weighted assets)   12.56       12.45       12.16       12.15       13.09  
Tier 1 leverage capital (to average assets)   8.82       8.70       8.50       8.40       8.44  

Notes to Quarterly Selected Financial Data

(1) See accompanying GAAP to Non-GAAP Reconciliation.
(2) Excludes fair value gain/loss on exchange-traded interest rate futures contracts.
(3) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.
(4) Excludes loans measured at fair value.
(5) The quarters ended December 31, 2020 and September 30, 2020 exclude one $6.1 million hotel loan classified as held for sale.

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

  Three Months Ended
September 30, 2021
    Three Months Ended
June 30, 2021
 
  Average
Balance
    Interest     Average
Yield/Rate
    Average
Balance
    Interest     Average
Yield/Rate
 
Interest earning assets:                                              
Interest earning balances in other banks $ 452,830     $ 221       0.19 %   $ 514,232     $ 234       0.18 %
Federal funds sold   9,260       3       0.13       29,199       10       0.14  
Investment securities   808,697       3,174       1.56       764,017       2,975       1.56  
Loans held for sale   1,098,940       15,090       5.45       1,134,259       15,216       5.38  
Loans and leases held for investment (1)   5,366,088       74,298       5.49       5,447,839       69,564       5.12  
Total interest earning assets   7,735,815       92,786       4.76       7,889,546       87,999       4.47  
Less: allowance for credit losses on loans and leases   (56,411 )                     (51,994 )                
Non-interest earning assets   581,771                       623,895                  
Total assets $ 8,261,175                     $ 8,461,447                  
Interest bearing liabilities:                                              
Interest bearing checking $     $       %   $ 60,439     $ 86       0.57 %
Savings   3,367,168       4,359       0.51       3,101,733       4,309       0.56  
Money market accounts   104,576       74       0.28       104,826       82       0.31  
Certificates of deposit   3,156,834       9,726       1.22       3,078,789       10,343       1.35  
Total interest bearing deposits   6,628,578       14,159       0.85       6,345,787       14,820       0.94  
Borrowings   818,511       892       0.43       1,368,742       1,717       0.50  
Total interest bearing liabilities   7,447,089       15,051       0.80       7,714,529       16,537       0.86  
Non-interest bearing deposits   79,006                       85,824                  
Non-interest bearing liabilities   46,907                       45,309                  
Shareholders’ equity   688,173                       615,785                  
Total liabilities and shareholders’ equity $ 8,261,175                     $ 8,461,447                  
Net interest income and interest rate spread         $ 77,735       3.96 %           $ 71,462       3.61 %
Net interest margin                   3.99                       3.63  
Ratio of average interest-earning assets to average interest-bearing liabilities                   103.88 %                     102.27 %

(1) Average loan and lease balances include non-accruing loans.

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

  As of and for the three months ended  
  3Q 2021     2Q 2021     1Q 2021     4Q 2020     3Q 2020  
Total shareholders’ equity $ 689,423     $ 657,347     $ 590,360     $ 567,850     $ 584,164  
Less:                                      
Goodwill   1,797       1,797       1,797       1,797       1,797  
Other intangible assets   2,065       2,103       2,141       2,179       2,218  
Tangible shareholders’ equity (a) $ 685,561     $ 653,447     $ 586,422     $ 563,874     $ 580,149  
Shares outstanding (c)   43,381,014       43,264,460       42,951,344       42,452,446       40,575,982  
Total assets $ 8,137,341     $ 8,243,186     $ 8,417,875     $ 7,872,303     $ 8,093,381  
Less:                                      
Goodwill   1,797       1,797       1,797       1,797       1,797  
Other intangible assets   2,065       2,103       2,141       2,179       2,218  
Tangible assets (b) $ 8,133,479     $ 8,239,286     $ 8,413,937     $ 7,868,327     $ 8,089,366  
Tangible shareholders’ equity to tangible assets (a/b)   8.43 %     7.93 %     6.97 %     7.17 %     7.17 %
Tangible book value per share (a/c) $ 15.80     $ 15.10     $ 13.65     $ 13.28     $ 14.30  
Efficiency ratio:                                      
Noninterest expense (d) $ 55,459     $ 57,558     $ 58,272     $ 52,435     $ 42,650  
Net interest income   77,735       71,462       69,950       62,301       51,363  
Noninterest income   25,276       70,111       31,057       10,803       47,044  
Less: gain on sale of securities                           1,225  
Adjusted operating revenue (e) $ 103,011     $ 141,573     $ 101,007     $ 73,104     $ 97,182  
Efficiency ratio (d/e)   53.84 %     40.66 %     57.69 %     71.73 %     43.89 %

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

  Three Months Ended     Nine Months Ended  
  3Q 2021     2Q 2021     3Q 2020     3Q 2021     3Q 2020  
Reconciliation of net income to non-GAAP net income:                                      
Net income $ 33,839     $ 63,582     $ 33,780     $ 136,848     $ 29,955  
Gain on sale of aircraft                     (114 )      
Impairment on aircraft held for sale               1,019             1,019  
Income tax effects and adjustments for non-GAAP items *               (245 )     27       (245 )
Non-GAAP net income $ 33,839     $ 63,582     $ 34,554     $ 136,761     $ 30,729  
* Estimated at 24.0%                                      
Non-GAAP earnings per share:                                      
Basic $ 0.78     $ 1.48     $ 0.85     $ 3.18     $ 0.76  
Diluted $ 0.76     $ 1.41     $ 0.83     $ 3.04     $ 0.74  
Weighted-average shares outstanding:                                      
Basic   43,329,889       43,173,312       40,542,696       43,061,642       40,461,479  
Diluted   45,040,690       45,062,392       41,549,632       44,936,014       41,248,866  
Reconciliation of financial statement line items as reported to non-GAAP:                                      
Noninterest income, as reported $ 25,276     $ 70,111     $ 47,044     $ 126,444     $ 75,197  
Gain on sale of aircraft                     (114 )      
Noninterest income, non-GAAP $ 25,276     $ 70,111     $ 47,044     $ 126,330     $ 75,197  
Noninterest expense, as reported $ 55,459     $ 57,558     $ 42,650     $ 171,289     $ 140,241  
Impairment on aircraft held for sale               (1,019 )           (1,019 )
Noninterest expense, non-GAAP $ 55,459     $ 57,558     $ 41,631     $ 171,289     $ 139,222  
Income before taxes, as reported $ 43,233     $ 76,169     $ 45,483     $ 163,010     $ 35,354  
Gain on sale of aircraft                     (114 )      
Impairment on aircraft held for sale               1,019             1,019  
Income before taxes, non-GAAP $ 43,233     $ 76,169     $ 46,502     $ 162,896     $ 36,373  
Income tax expense, as reported $ 9,394     $ 12,587     $ 11,703     $ 26,162     $ 5,399  
Income tax effects and adjustments for non-GAAP items               245       (27 )     245  
Income tax expense, non-GAAP $ 9,394     $ 12,587     $ 11,948     $ 26,135     $ 5,644  

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.

GlobeNewswire