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CST: 12/12/2019 01:52:21   

Live Oak Bancshares, Inc. Reports Third Quarter 2019 Results

49 Days ago

WILMINGTON, N.C., Oct. 23, 2019 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported third quarter net earnings available to common shareholders of $3.9 million, or $0.09 per diluted share, compared to $14.3 million, or $0.34 per diluted share, for the third quarter of 2018. 

“We continued to build franchise value through our portfolio of earning assets and exited the third quarter of 2019 with recurring revenue growth of 26% compared to the prior year.  Supporting this recurring revenue trend, our loan and lease originations totaled $562 million for the third quarter, a 49% increase from a year ago.  In addition to our core banking activities, we maintained our focus on changing the infrastructure of the financial industry to deliver more compelling products and services through technological innovation,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

Third Quarter 2019 Key Measures

(Dollars in thousands, except per share data)                   Increase (Decrease)          
    Q3 2019     Q3 2018     Dollars     Percent     Q2 2019  
Net interest income and servicing revenues   $ 44,362     $ 35,230     $ 9,132       26 %   $ 40,998  
Net income     3,895       14,252       (10,357 )     (73 )     4,935  
Diluted earnings per share     0.09       0.34       (0.25 )     (74 )     0.12  
Non-GAAP net income (1)     4,169       16,562       (12,393 )     (75 )     5,664  
Non-GAAP diluted earnings per share (1)     0.10       0.40       (0.30 )     (75 )     0.14  
Loan and lease production:                                        
Loans and leases originated   $ 562,259     $ 377,337     $ 184,922       49 %   $ 525,088  
% Fully funded     51.3 %     48.2 %   n/a     n/a       42.9 %
Total loans and leases   $ 3,345,048     $ 2,277,812     $ 1,067,236       47 %   $ 3,083,310  
Total assets     4,603,697       3,444,757       1,158,940       34       4,274,301  
Total deposits     4,019,267       2,924,288       1,094,979       37       3,721,597  

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

Loans and Leases

At September 30, 2019, the total loan and lease portfolio of $3.35 billion increased 46.9% from its level at the end of the third quarter of 2018 and 8.5% from its level at June 30, 2019.  Compared to the second quarter of 2019, loans and leases held for investment increased $216.5 million, or 9.7%, to $2.44 billion while loans held for sale increased $45.3 million, or 5.3%, to $903.1 million. Loan and lease originations rose to $562.3 million during the third quarter of 2019, an increase of $37.2 million, or 7.1%, from the second quarter of 2019, due to increased production across multiple industry verticals.  Origination volumes also benefited from the ongoing selective hiring of experienced SBA lending generalists along with the ongoing diversification of lending activities.  For the first nine months of 2019, total loan and lease originations reached $1.48 billion.  The total loan and lease portfolio at September 30, 2019, and June 30, 2019, of $3.35 billion and $3.08 billion, respectively, was comprised of approximately 54.7% and 57.0% of unguaranteed loans and leases, respectively.

Average loans and leases were $3.22 billion during the third quarter of 2019 compared to $2.93 billion during the second quarter of 2019.

Deposits

Total deposits increased by $297.7 million, or 8.0%, to $4.02 billion at September 30, 2019, from $3.72 billion at June 30, 2019, supporting the growing loan and lease portfolio. Average total interest-bearing deposits for the third quarter of 2019 increased $302.4 million, or 8.6%, to $3.83 billion, compared to $3.53 billion for the second quarter of 2019. The ratio of average total loans and leases to average deposits was 83.1% for the third quarter of 2019, compared to 81.8% for the second quarter of 2019.

Net Interest Income

Net interest income for the third quarter of 2019 rose to $37.5 million compared to $27.7 million for the third quarter of 2018 and $33.9 million for the second quarter of 2019. The increase from the prior year was driven by the significant growth in the combined held for sale and held for investment loan and lease portfolios reflecting the Company's ongoing initiative to grow recurring revenue sources.  Another contributing factor was higher investment security holdings as the Company strives to strengthen its liquidity profile while improving the asset-liability repricing mix.  The increase from the second quarter of 2019 arose from higher average balances in the loans and lease portfolio.  The net interest margin for the third quarter of 2019 increased four basis points to 3.74% versus 3.70% in the second quarter of 2019 as the increasing yields on interest earning assets outpaced the increase in the average cost of interest bearing liabilities.

Noninterest Income

Noninterest income for the third quarter of 2019 decreased by $5.7 million, or 23.4%, compared to the third quarter of 2018, and increased by $3.9 million, or 26.7%, compared to the second quarter of 2019.  The Company’s strategic decision to retain a greater portion of its loans to improve interest income with the consequent reduction in the level of loan sales and related gains was a major factor in the decline from the third quarter of 2018. 

The Company’s net gains on sales of loans decreased to $7.4 million in the third quarter of 2019 compared to $22.0 million in the third quarter of 2018 and increased from $6.0 million in the second quarter of 2019.  The volume of guaranteed loan sales in the third quarter of 2019 declined to $100.5 million compared to $298.1 million in the third quarter of 2018 and increased from $71.9 million in the second quarter of 2019. As mentioned above, the decline in loan sale volumes from the prior year is consistent with the Company’s strategic decision to build its recurring revenue streams by holding substantially more of its production on balance sheet.  The average net gain on guaranteed loan sales was $80.5 thousand per million sold in the third quarter of 2019, an increase from $71.8 thousand in the third quarter of 2018 and from $80.1 thousand in the second quarter of 2019. The average net gain on guaranteed loan sales for the third quarter of 2019 was influenced by $1.5 million in fair value net losses in exchange-traded interest rate lock commitments compared to $770 thousand in fair value net gains during the third quarter of 2018.  Excluding fair value fluctuations in exchange-traded interest rate lock commitments, the average net gain on guaranteed loan sales was $95.0 thousand and $69.2 thousand per million sold in the third quarters of 2019 and 2018, respectively, and $93.7 thousand per million sold in the second quarter of 2019. 

The net loss resulting from the revaluation of the servicing asset declined to $859 thousand for the third quarter of 2019, an improvement of $8.5 million compared to the third quarter of 2018 which was driven by improving market conditions, such as increased premiums, and increased by $456 thousand compared to the second quarter of 2019. 

The flow-through loss from investments accounted for under the equity method totaled $2.4 million, $360 thousand, and $1.7 million for the quarters ended September 30, 2019, September 30, 2018, and June 30, 2019, respectively.  These changes reflect the Company’s pro-rata portion of operating results for certain strategic start-up investments.

Equity security investment net gains totaled $3.3 million for the third quarter of 2019 compared to $39 thousand in the third quarter of 2018 and $32 thousand in the second quarter of 2019. The increase in the third quarter of 2019 was driven by observable fair market value changes in orderly transactions of underlying equity security instruments.  The Company’s equity security portfolio is largely comprised of investments in strategic start-ups.

Noninterest Expense

Noninterest expense for the third quarter of 2019 was $42.7 million, an increase from $41.2 million for the third quarter of 2018 and from $39.6 million for the second quarter of 2019.

The $1.5 million, or 3.6% increase in noninterest expense from the third quarter of 2018 was primarily driven by increases in salaries and employee benefits, professional services expense, and loan related expenses.  Salaries and employee benefits expenses increased by $2.2 million to $22.7 million for the third quarter of 2019 from $20.6 million for the third quarter of 2018 due to the expansion of the workforce to support a variety of initiatives by the Company.  Professional services expenses increased by $845 thousand from the third quarter of 2018 to $2.1 million for the third quarter of 2019 principally due to expenses incurred in relation to the Company’s investment in Apiture and Canapi Advisors, LLC.  Other loan origination and maintenance expenses increased by $1.8 million to $3.5 million for the third quarter of 2019 compared to $1.7 million for the third quarter of 2018 due principally to expenses associated with the repurchase of certain guaranteed loans in the portfolio during the third quarter of 2019 along with increases in the ongoing guarantee fees arising from holding a higher volume of loans on balance sheet.  The increase in noninterest expense from the third quarter of 2018 was mitigated by decreases in FDIC insurance of $1.0 million due to lower required premiums combined with a one-time impairment expense in the third quarter of 2018 of $2.7 million on goodwill and other intangibles associated with the sale of Reltco, Inc.

Compared to the second quarter of 2019, the $3.2 million or 8.0% increase in noninterest expense was principally comprised of data processing expense which increased $1.1 million related largely to system development and other loan origination and maintenance expense which increased by $1.8 million as described above.

Asset Quality

Net charge-offs of $2.3 million in the third quarter of 2019 increased from $526 thousand in the second quarter of 2019 and decreased $46 thousand compared to the third quarter of 2018.  Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarter ended September 30, 2019, was 0.39% compared to 0.10% for the second quarter of 2019 and 0.57% for the third quarter of 2018. 

Total nonperforming loans and leases increased to $80.8 million in the third quarter of 2019 from $65.5 million at the end of the second quarter of 2019.  The unguaranteed exposure of nonperforming loans and leases increased slightly to $19.8 million, or 0.81% of total loans and leases held for investment, at September 30, 2019, compared to $18.4 million, or 0.82%, at June 30, 2019.  For the quarters ended September 30, 2019 and June 30, 2019, the percentage of unguaranteed criticized and classified loans and leases, comprised of risk grades 5 through 8, to unguaranteed held for investment loans and leases was 6.62% and 5.27%, respectively.

Foreclosed assets decreased $342 thousand to $5.7 million at September 30, 2019, from $6.0 million at June 30, 2019.  The unguaranteed exposure of foreclosed assets decreased to $1.1 million at September 30, 2019, from $1.2 million at June 30, 2019.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the third quarter of 2019 totaled $7.2 million compared to a negative provision of $243 thousand for the third quarter of 2018 and provision expense of $3.5 million for the second quarter of 2019.  The increase in provision expense was largely the result of continued significant portfolio growth combined with increases in net charge-offs and criticized and classified loans and leases for the third quarter of 2019. 

The allowance for loan and lease losses totaled $42.9 million at September 30, 2019, compared to $38.0 million at June 30, 2019. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.76% and 1.71% at September 30, 2019, and June 30, 2019, respectively.

Income Tax

Income tax expense was $2.4 million in the third quarter of 2019 compared to an income tax benefit of $3.2 million in the third quarter of 2018 and income tax expense of $662 thousand in the second quarter of 2019.  The Company’s effective tax rate is influenced by the leasing of renewable energy assets which generate investment tax credits.  The significant increase in the effective tax rate for the third quarter of 2019 compared to the preceding quarter is the result of forecasted changes, largely comprised of a reduction in the targeted solar panel leasing activity for the remainder of the year.

Shareholders’ Equity

During the third quarter of 2019, 624,716 shares of Class B common stock (non-voting) were converted to Class A common stock (voting) under a private sale. The conversion decreased the value of Class B common stock (non-voting) and increased the value of Class A common stock (voting) by $6.6 million.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 24, 2019). 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 5573497. A live webcast of the conference call along with presentation materials referenced during the conference call will be available on the Investor Relations page of the Company’s website at http://investor.liveoakbank.com. A replay of the webcast will be archived on the Company's website for one year.  A replay of the conference call will also be available until 5:00 p.m. ET October 31, 2019 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

CFO Commentary

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

Important Note Regarding Forward-Looking Statements

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

About Live Oak Bancshares, Inc.

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

Contacts:

Brett Caines | CFO | Investor Relations | 910.796.1645 & Micah Davis | CMO | Media Relations | 910.550.2255

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

    Three months ended  
    3Q 2019     2Q 2019     1Q 2019     4Q 2018     3Q 2018  
Interest income                                        
Loans and fees on loans   $ 55,939     $ 49,914     $ 44,966     $ 40,628     $ 37,724  
Investment securities, taxable     4,001       4,116       3,317       2,558       2,528  
Other interest earning assets     1,167       1,108       1,639       1,568       1,638  
Total interest income     61,107       55,138       49,922       44,754       41,890  
Interest expense                                        
Deposits     23,576       21,203       19,317       15,959       14,165  
Borrowings                             1  
Total interest expense     23,576       21,203       19,317       15,959       14,166  
Net interest income     37,531       33,935       30,605       28,795       27,724  
Provision for (recovery of) loan and leases losses     7,160       3,463       2,742       6,822       (243 )
Net interest income after provision for loan and lease losses     30,371       30,472       27,863       21,973       27,967  
Noninterest income                                        
Loan servicing revenue     6,831       7,063       7,410       7,752       7,506  
Loan servicing asset revaluation     (859 )     (403 )     (2,246 )     (627 )     (9,380 )
Net gains on sales of loans     7,425       6,015       4,198       5,687       22,004  
Equity method investments income (loss)     (2,370 )     (1,736 )     (2,014 )     1,011       (360 )
Equity security investments gains (losses), net     3,346       32       103       79       39  
Gain on sale of investment securities available-for-sale     87             5              
Lease income     2,361       2,369       2,325       2,244       2,194  
Construction supervision fee income     360       386       779       323       578  
Title insurance income                             479  
Other noninterest income     1,447       975       2,467       1,596       1,271  
Total noninterest income     18,628       14,701       13,027       18,065       24,331  
Noninterest expense                                        
Salaries and employee benefits     22,717       21,990       21,855       14,503       20,553  
Travel expense     1,934       1,541       1,200       3,269       2,003  
Professional services expense     2,073       1,621       2,182       1,233       1,228  
Advertising and marketing expense     1,277       1,665       1,364       1,023       1,462  
Occupancy expense     2,131       1,848       1,609       1,738       1,588  
Data processing expense     3,072       1,947       2,399       2,606       3,661  
Equipment expense     4,361       4,239       3,325       3,630       3,649  
Other loan origination and maintenance expense     3,535       1,708       1,639       1,482       1,742  
Renewable energy tax credit investment impairment           602                    
FDIC insurance     101       699       635       547       1,105  
Title insurance closing services expense                             114  
Impairment expense on goodwill and other intangibles, net                             2,680  
Other expense     1,536       1,716       1,993       2,527       1,459  
Total noninterest expense     42,737       39,576       38,201       32,558       41,244  
Income before taxes     6,262       5,597       2,689       7,480       11,054  
Income tax expense (benefit)     2,367       662       317       (3,010 )     (3,198 )
Net income   $ 3,895     $ 4,935     $ 2,372     $ 10,490     $ 14,252  
Earnings per share                                        
Basic   $ 0.10     $ 0.12     $ 0.06     $ 0.26     $ 0.36  
Diluted   $ 0.09     $ 0.12     $ 0.06     $ 0.26     $ 0.34  
Weighted average shares outstanding                                        
Basic     40,240,740       40,196,662       40,160,118       40,148,115       40,119,561  
Diluted     41,113,575       40,998,541       40,921,823       41,075,864       41,688,430  
                                         

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

    As of the quarter ended  
    3Q 2019     2Q 2019     1Q 2019     4Q 2018     3Q 2018  
Assets                                        
Cash and due from banks   $ 159,527     $ 115,292     $ 221,159     $ 316,823     $ 368,565  
Federal funds sold     88,919       68,153       64,708              
Certificates of deposit with other banks     7,250       7,250       7,250       7,250       750  
Investment securities available-for-sale     570,795       576,275       569,739       380,490       374,284  
Loans held for sale     903,095       857,837       772,481       687,393       646,475  
Loans and leases held for investment     2,441,953       2,225,473       2,002,124       1,843,419       1,631,337  
Allowance for loan and lease losses     (42,944 )     (38,048 )     (35,111 )     (32,434 )     (26,797 )
Net loans and leases     2,399,009       2,187,425       1,967,013       1,810,985       1,604,540  
Premises and equipment, net     280,942       281,126       271,810       262,524       263,861  
Foreclosed assets     5,702       6,044       1,374       1,094       1,429  
Servicing assets     37,583       41,687       44,324       47,641       49,261  
Operating lease right-of-use assets     1,890       1,996       2,136              
Other assets     148,985       131,216       136,053       156,249       135,592  
Total assets   $ 4,603,697     $ 4,274,301     $ 4,058,047     $ 3,670,449     $ 3,444,757  
Liabilities and Shareholders Equity                                        
Liabilities                                        
Deposits:                                        
Noninterest-bearing   $ 56,373     $ 55,416     $ 53,843     $ 53,993     $ 48,622  
Interest-bearing     3,962,894       3,666,181       3,474,562       3,095,590       2,875,666  
Total deposits     4,019,267       3,721,597       3,528,405       3,149,583       2,924,288  
Short term borrowings     1,295       1,345       1,393       1,441        
Long term borrowings     15       16       17       16       1,506  
Operating lease liabilities     2,041       2,162       2,314              
Other liabilities     52,860       30,195       25,538       25,849       41,733  
Total liabilities     4,075,478       3,755,315       3,557,667       3,176,889       2,967,527  
Shareholders equity                                        
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding                              
Class A common stock (voting)     294,773       284,987       281,994       278,945       276,831  
Class B common stock (non-voting)     42,553       49,168       49,168       49,168       49,168  
Retained earnings     174,641       171,954       168,225       167,124       157,839  
Accumulated other comprehensive income (loss)     16,252       12,877       993       (1,677 )     (6,608 )
Total equity     528,219       518,986       500,380       493,560       477,230  
Total liabilities and shareholders equity   $ 4,603,697     $ 4,274,301     $ 4,058,047     $ 3,670,449     $ 3,444,757  
                                         

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

    Nine Months Ended  
    September 30, 2019     September 30, 2018  
Interest income                
Loans and fees on loans   $ 150,819     $ 106,682  
Investment securities, taxable     11,434       6,175  
Other interest earning assets     3,914       5,032  
Total interest income     166,167       117,889  
Interest expense                
Deposits     64,096       38,510  
Borrowings           131  
Total interest expense     64,096       38,641  
Net interest income     102,071       79,248  
Provision for loan and lease losses     13,365       6,236  
Net interest income after provision for loan and lease losses     88,706       73,012  
Noninterest income                
Loan servicing revenue     21,304       21,369  
Loan servicing asset revaluation     (3,508 )     (18,138 )
Net gains on sales of loans     17,638       69,483  
Equity method investments income (loss)     (6,120 )     (1,397 )
Equity security investments gains (losses), net     3,481       134  
Gain on sale of investment securities available-for-sale     92        
Lease income     7,055       5,722  
Construction supervision fee income     1,525       1,954  
Title insurance income           2,775  
Other noninterest income     4,889       3,798  
Total noninterest income     46,356       85,700  
Noninterest expense                
Salaries and employee benefits     66,562       62,908  
Travel expense     4,675       5,887  
Professional services expense     5,876       3,645  
Advertising and marketing expense     4,306       4,992  
Occupancy expense     5,588       5,327  
Data processing expense     7,418       9,404  
Equipment expense     11,925       10,094  
Other loan origination and maintenance expense     6,882       4,485  
Renewable energy tax credit investment impairment     602        
FDIC insurance     1,435       2,687  
Title insurance closing services expense           912  
Impairment expense on goodwill and other intangibles, net           2,680  
Other expense     5,245       7,125  
Total noninterest expense     120,514       120,146  
Income before taxes     14,548       38,566  
Income tax expense (benefit)     3,346       (2,392 )
Net income   $ 11,202     $ 40,958  
Earnings per share                
Basic   $ 0.28     $ 1.02  
Diluted   $ 0.27     $ 0.98  
Weighted average shares outstanding                
Basic     40,199,468       40,025,265  
Diluted     41,011,608       41,586,987  
                 

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

    As of and for the three months ended  
    3Q 2019     2Q 2019     1Q 2019     4Q 2018     3Q 2018  
Income Statement Data                                        
Net income   $ 3,895     $ 4,935     $ 2,372     $ 10,490     $ 14,252  
Per Common Share                                        
Net income, basic   $ 0.10     $ 0.12     $ 0.06     $ 0.26     $ 0.36  
Net income, diluted     0.09       0.12       0.06       0.26       0.34  
Dividends declared     0.03       0.03       0.03       0.03       0.03  
Book value     13.12       12.90       12.45       12.29       11.89  
Tangible book value (1)     13.12       12.90       12.45       12.29       11.89  
Performance Ratios                                        
Return on average assets (annualized)     0.35 %     0.48 %     0.25 %     1.20 %     1.65 %
Return on average equity (annualized)     2.94       3.85       1.88       8.64       12.08  
Net interest margin     3.74       3.70       3.63       3.72       3.61  
Efficiency ratio (1)     76.22       81.37       87.56       69.48       79.23  
Noninterest income to total revenue     33.07       30.23       29.85       38.55       46.74  
Selected Loan Metrics                                        
Loans and leases originated   $ 562,259     $ 525,088     $ 390,851     $ 498,987     $ 377,337  
Guaranteed loans sold     100,498       71,934       62,940       104,646       298,073  
Average net gain on sale of guaranteed loans     80.51       80.12       61.30       59.83       71.81  
Adjusted average net gain on sale of guaranteed loans (2)     94.98       93.74       89.04       77.42       69.23  
Outstanding balance of sold loans serviced:                                        
Guaranteed     2,802,073       2,870,108       2,952,774       3,045,460       3,102,820  
Unguaranteed     211,095       183,991       179,307       174,066       170,784  
Total     3,013,168       3,054,099       3,132,081       3,219,526       3,273,604  
Asset Quality Ratios                                        
Allowance for loan losses to loans and leases held for investment     1.76 %     1.71 %     1.75 %     1.76 %     1.64 %
Net charge-offs   $ 2,264     $ 526     $ 65     $ 1,185     $ 2,310  
Net charge-offs to average loans and leases held for investment (3)     0.39 %     0.10 %     0.01 %     0.28 %     0.57 %
Nonperforming loans and leases   $ 80,757     $ 65,473     $ 70,692     $ 57,690     $ 52,709  
Foreclosed assets     5,702       6,044       1,374       1,094       1,429  
Nonperforming loans and leases (unguaranteed exposure)     19,817       18,352       20,186       14,488       12,897  
Foreclosed assets (unguaranteed exposure)     1,142       1,228       170       148       158  
Nonperforming loans and leases not guaranteed by the SBA and foreclosures   $ 20,959     $ 19,580     $ 20,356     $ 14,636     $ 13,055  
Nonperforming loans and leases and foreclosures, not guaranteed by the SBA, to total assets     0.46 %     0.46 %     0.50 %     0.40 %     0.38 %
Capital Ratios                                        
Common equity tier 1 capital (to risk-weighted assets)     15.22 %     15.94 %     16.68 %     17.10 %     17.88 %
Total capital (to risk-weighted assets)     16.47       17.19       17.92       18.28       18.93  
Tier 1 risk based capital (to risk-weighted assets)     15.22       15.94       16.68       17.10       17.88  
Tier 1 leverage capital (to average assets)     11.12       11.77       12.34       13.40       13.21  
                                         

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 lock commitments.

(3) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.


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

    Three Months Ended September   30, 2019     Three months ended June 30, 2019  
    Average
Balance
    Interest     Average
Yield/Rate
    Average
Balance
    Interest     Average
Yield/Rate
 
Interest earning assets:                                                
Federal funds sold and interest earning balances in other banks   $ 205,342     $ 1,167       2.25 %   $ 184,986     $ 1,108       2.40 %
Investment securities     554,871       4,001       2.86       566,159       4,116       2.92  
Loans held for sale     910,837       15,982       6.96       839,724       14,333       6.85  
Loans and leases held for investment (1)     2,313,615       39,957       6.85       2,089,225       35,581       6.83  
Total interest earning assets     3,984,665       61,107       6.08       3,680,094       55,138       6.01  
Less: allowance for loan and lease losses     (37,995 )                     (35,124 )                
Non-interest earning assets     501,369                       474,706                  
Total assets   $ 4,448,039                     $ 4,119,676                  
Interest bearing liabilities:                                                
Interest bearing checking   $     $       %   $     $       %
Savings     1,036,858       5,501       2.10       989,512       5,235       2.12  
Money market accounts     91,813       179       0.77       85,982       161       0.75  
Certificates of deposit     2,701,350       17,896       2.63       2,452,159       15,807       2.59  
Total interest bearing deposits     3,830,021       23,576       2.44       3,527,653       21,203       2.41  
Other borrowings     1,359                   1,409              
Total interest bearing liabilities     3,831,380       23,576       2.44       3,529,062       21,203       2.41  
Non-interest bearing deposits     51,781                       51,643                  
Non-interest bearing liabilities     35,654                       26,580                  
Shareholders' equity     529,224                       512,391                  
Total liabilities and shareholders' equity   $ 4,448,039                     $ 4,119,676                  
Net interest income and interest rate spread           $ 37,531       3.64 %           $ 33,935       3.60 %
Net interest margin                     3.74                       3.70  
Ratio of average interest-earning assets to average interest-bearing liabilities                     104.00 %                     104.28 %
                                                 

(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 2019     2Q 2019     1Q 2019     4Q 2018     3Q 2018  
Total shareholders’ equity   $ 528,219     $ 518,986     $ 500,380     $ 493,560     $ 477,230  
Less:                                        
Goodwill                              
Other intangible assets                              
Tangible shareholders’ equity (a)   $ 528,219     $ 518,986     $ 500,380     $ 493,560     $ 477,230  
Shares outstanding (c)     40,272,908       40,220,916       40,175,079       40,155,792       40,140,417  
Total assets   $ 4,603,697     $ 4,274,301     $ 4,058,047     $ 3,670,449     $ 3,444,757  
Less:                                        
Goodwill                              
Other intangible assets                              
Tangible assets (b)   $ 4,603,697     $ 4,274,301     $ 4,058,047     $ 3,670,449     $ 3,444,757  
Tangible shareholders’ equity to tangible assets (a/b)     11.47 %     12.14 %     12.33 %     13.45 %     13.85 %
Tangible book value per share (a/c)   $ 13.12     $ 12.90     $ 12.45     $ 12.29     $ 11.89  
Efficiency ratio:                                        
Noninterest expense (d)   $ 42,737     $ 39,576     $ 38,201     $ 32,558     $ 41,244  
Net interest income     37,531       33,935       30,605       28,795       27,724  
Noninterest income     18,628       14,701       13,027       18,065       24,331  
Less: gain on sale of securities     87             5              
Adjusted operating revenue (e)   $ 56,072     $ 48,636     $ 43,627     $ 46,860     $ 52,055  
Efficiency ratio (d/e)     76.22 %     81.37 %     87.56 %     69.48 %     79.23 %
                                         

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

    Three Months Ended     Nine Months Ended  
    3Q 2019     2Q 2019     3Q 2018     3Q 2019     3Q 2018  
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:                                        
Net income   $ 3,895     $ 4,935     $ 14,252     $ 11,202     $ 40,958  
Gain on sale of aircraft                       (357 )      
Stock based compensation expense for restricted stock awards with an effective grant date of May 24, 2016, as discussed in Note 10 of our March 31, 2016 Form 10-Q     360       357       360       1,069       1,069  
Impairment expense on goodwill and other intangibles, net                 2,680             2,680  
Renewable energy tax credit investment impairment           602             602        
Income tax effects and adjustments for non-GAAP items*     (86 )     (230 )     (730 )     (315 )     (900 )
Non-GAAP net income   $ 4,169     $ 5,664     $ 16,562     $ 12,201     $ 43,807  
* Estimated at 24.0%                                        
Non-GAAP earnings per share:                                        
Basic   $ 0.10     $ 0.14     $ 0.41     $ 0.30     $ 1.09  
Diluted   $ 0.10     $ 0.14     $ 0.40     $ 0.30     $ 1.05  
Weighted-average shares outstanding:                                        
Basic     40,240,740       40,196,662       40,119,561       40,199,468       40,025,265  
Diluted     41,113,575       40,998,541       41,688,430       41,011,608       41,586,987  
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:                                        
Noninterest income, as reported   $ 18,628     $ 14,701     $ 24,331     $ 46,356     $ 85,700  
Gain on sale of aircraft                       (357 )      
Noninterest income, as adjusted   $ 18,628     $ 14,701     $ 24,331     $ 45,999     $ 85,700  
Noninterest expense, as reported   $ 42,737     $ 39,576     $ 41,244     $ 120,514     $ 120,146  
Stock based compensation expense     (360 )     (357 )     (360 )     (1,069 )     (1,069 )
Impairment expense on goodwill and other intangibles, net                 (2,680 )           (2,680 )
Renewable energy tax credit investment impairment           (602 )           (602 )      
Noninterest expense, as adjusted   $ 42,377     $ 38,617     $ 38,204     $ 118,843     $ 116,397  
Income before taxes, as reported   $ 6,262     $ 5,597     $ 11,054     $ 14,548     $ 38,566  
Gain on sale of aircraft                       (357 )      
Stock based compensation expense     360       357       360       1,069       1,069  
Impairment expense on goodwill and other intangibles, net                 2,680             2,680  
Renewable energy tax credit investment impairment           602             602        
Income before taxes, as adjusted   $ 6,622     $ 6,556     $ 14,094     $ 15,862     $ 42,315  
Income tax expense, as reported   $ 2,367     $ 662     $ (3,198 )   $ 3,346     $ (2,392 )
Income tax effects and adjustments for non-recurring income and expenses     86       230       730       315       900  
Income tax expense, as adjusted   $ 2,453     $ 892     $ (2,468 )   $ 3,661     $ (1,492 )
                                         

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

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