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CST: 22/08/2019 18:22:38   

Live Oak Bancshares, Inc. Reports Second Quarter 2019 Results

29 Days ago

WILMINGTON, N.C., July 24, 2019 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported second quarter net earnings available to common shareholders of $4.9 million, or $0.12 per diluted share, compared to $14.3 million, or $0.34 per diluted share, for the second quarter of 2018. 

“We continue to deliver on our commitment to generate a more predictable earnings stream while executing our long-term objective to be a major force in the delivery of financial services to small businesses nationwide through technological innovation.  As we continue to hold a greater portion of our guaranteed loans, recurring revenues grew 21% compared to a year ago and exceeded our operating expenses.  The loan and lease portfolio grew 35% over the prior year reflecting solid efforts of our people to serve the needs of small businesses while also promoting greater financial stability and consistency for Live Oak. We maintain our focus on long-term value creation and will always strive to fulfill the complete needs of small businesses,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

Second Quarter 2019 Key Measures

(Dollars in thousands, except per share data)                   Increase (Decrease)          
    Q2 2019     Q2 2018     Dollars     Percent     Q1 2019  
Net interest income and servicing revenues   $ 40,998     $ 34,013     $ 6,985       21 %   $ 38,015  
Net income     4,935       14,253       (9,318 )     (65 )     2,372  
Diluted earnings per share     0.12       0.34       (0.22 )     (65 )     0.06  
Non-GAAP net income (1)     5,664       14,524       (8,860 )     (61 )     2,368  
Non-GAAP diluted earnings per share (1)     0.14       0.35       (0.21 )     (60 )     0.06  
Loan and lease production:                                        
Loans and leases originated   $ 525,088     $ 491,797     $ 33,291       7 %   $ 390,851  
% Fully funded     42.9 %     55.9 %   n/a     n/a       55.6 %
Total loans and leases   $ 3,083,310     $ 2,291,862     $ 791,448       35 %   $ 2,774,605  
Total assets     4,274,301       3,472,969       801,332       23       4,058,047  
Total deposits     3,721,597       2,969,236       752,361       25       3,528,405  

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

Loans and Leases

At June 30, 2019, the total loan and lease portfolio of $3.08 billion increased 34.5% from its level at the end of the second quarter of 2018 and 11.1% from its level at March 31, 2019.  Compared to the first quarter of 2019, loans and leases held for investment increased $223.3 million, or 11.2%, to $2.23 billion while loans held for sale increased $85.4 million, or 11.0%, to $857.8 million. Loan and lease originations rose to $525.1 million during the second quarter of 2019, an increase of $134.2 million, or 34.3%, from the first quarter of 2019, due to increased originations across multiple industry verticals.  Production volumes also benefited from the ongoing selective hiring of experienced SBA lending generalists.  The total loan and lease portfolio at June 30, 2019, and March 31, 2019, of $3.08 billion and $2.77 billion, respectively, was comprised of approximately 57.0% and 59.4% of unguaranteed loans and leases, respectively.

Average loans and leases were $2.93 billion during the second quarter of 2019 compared to $2.67 billion during the first quarter of 2019.

Deposits

Total deposits increased by $193.2 million, or 5.5%, to $3.72 billion at June 30, 2019, from $3.53 billion at March 31, 2019, supporting the growing loan and lease portfolio. Average total interest-bearing deposits for the second quarter of 2019 increased $233.9 million, or 7.1%, to $3.53 billion, compared to $3.29 billion for the first quarter of 2019. The ratio of average total loans and leases to average deposits was 81.8% for the second quarter of 2019, compared to 80.0% for the first quarter of 2019.

Net Interest Income

Net interest income for the second quarter of 2019 rose to $33.9 million compared to $27.0 million for the second quarter of 2018 and $30.6 million for the first 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 first quarter of 2019 arose from higher average balances in both loans and leases and investment securities.  The net interest margin for the second quarter of 2019 increased seven basis points to 3.70% versus 3.63% in the first quarter of 2019 as the increasing yields on interest earning assets outpaced the increase in rates on interest bearing liabilities.

Noninterest Income

Noninterest income for the second quarter of 2019 decreased by $15.9 million, or 52.0%, compared to the second quarter of 2018, and increased by $1.7 million, or 12.9%, compared to the first quarter of 2019.  The Company’s transition to retaining 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 key driver in lower noninterest income compared to the second quarter of 2018. 

The Company’s net gains on sales of loans decreased to $6.0 million in the second quarter of 2019 compared to $23.1 million in the second quarter of 2018 and increased from $4.2 million in the first quarter of 2019.  The volume of guaranteed loan sales in the second quarter of 2019 declined to $71.9 million compared to $295.2 million in the second quarter of 2018 and increased from $62.9 million in the first quarter of 2019. As mentioned above, the decline in loan sale volumes from the prior year is consistent with the Company’s strategic shift 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 $80.1 thousand per million sold in the second quarter of 2019, a decrease from $82.6 thousand in the second quarter of 2018 and an increase from $61.3 thousand in the first quarter of 2019. The decline in average net gain on guaranteed loan sales over the second quarter of 2018 was driven by $980 thousand in fair value net losses in exchange-traded interest rate lock commitments during the second quarter of 2019 compared to a $941 thousand in fair value net gains during the second quarter of 2018. The increase in average net gain on guaranteed loans sales compared to the first quarter of 2019 was largely a product of greater selectivity over loans designated for sale combined with improving secondary market conditions.  Excluding fair value fluctuations in exchange-traded interest rate lock commitments, the average net gain on guaranteed loan sales was $93.7 thousand and $79.4 thousand per million sold in the second quarters of 2019 and 2018, respectively, and $89.0 thousand per million sold in the first quarter of 2019. 

The net loss resulting from the revaluation of the servicing asset declined to $403 thousand for the second quarter of 2019, a decrease of $3.3 million compared to the second quarter of 2018 and a decrease of $1.8 million compared to the first quarter of 2019.  The decrease in the net loss was driven by variability in market conditions and changes to the carrying value of the retained portion of USDA loans.

The flow-through loss from investments accounted for under the equity method totaled $1.7 million, $673 thousand and $2.0 million for the quarters ended June 30, 2019, June 30, 2018 and March 31, 2019, respectively.  These changes reflect the Company’s pro-rata portion of operating results for certain strategic start-up investments.

Lease income from solar panels contributed $2.4 million in noninterest income in the second quarter of 2019, compared to $1.9 million in the second quarter of 2018 and $2.3 million in the first quarter of 2019.  The increase was related to growth in leased solar panels.

Other noninterest income of $1.0 million in the second quarter of 2019 decreased by $410 thousand, or 28.9%, from the second quarter of 2018 and by $1.6 million, or 60.8%, from the first quarter of 2019.  The decline from prior quarters was the product of a variety of insignificant non-recurring items.

The sale of the title insurance business in late 2018 also contributed to the decline in noninterest income for the second quarter of 2019 compared to the second quarter 2018.

Noninterest Expense

Noninterest expense for the second quarter of 2019 was $39.6 million, a decrease from $40.8 million for the second quarter of 2018 and an increase from $38.2 million for the first quarter of 2019.

The decline in noninterest expense from the second quarter of 2018 was primarily driven by decreases in travel, data processing, and other expenses.  Travel expense declined from $2.0 million for the second quarter of 2018 to $1.5 million for the second quarter of 2019 due to a reduction in repairs and maintenance costs associated with an older aircraft that was sold during the first quarter of 2019, higher deferred travel costs as more loans were retained, and general improvements in operational efficiency.  Data processing expenses decreased $959 thousand from the second quarter of 2018 to $1.9 million for the second quarter of 2019 primarily as a result of the expiration of software development services provided by Apiture directly to the Company and due to the capitalization of certain software development costs during the second quarter of 2019.  Other expenses declined $988 thousand from the second quarter of 2018 to $1.7 million for the second quarter of 2019.  This decline from the prior year is largely attributable to the elimination of costs related to the operation of the title insurance business, which was sold in the third quarter of 2018, and impairment expenses recognized in the second quarter of 2018 with the transfer of the title insurance business to held for sale.

The growth in noninterest expense from the first quarter of 2019 was primarily driven by increases in travel expense and equipment expense associated with the acquisition of a third corporate aircraft during the second quarter of 2019.  Additionally, the Company recognized a one-time impairment loss of $602 thousand on a renewable tax credit investment in the second quarter of 2019.

Asset Quality

Net charge-offs of $526 thousand in the second quarter of 2019 increased from $65 thousand in the first quarter of 2019 and decreased from $787 thousand in the second quarter of 2018.  Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarter ended June 30, 2019, was 0.10% compared to 0.01% for the first quarter of 2019 and 0.21% for the second quarter of 2018. 

Total nonperforming loans decreased to $65.5 million in the second quarter of 2019 from $70.7 million at the end of the prior quarter.  The unguaranteed exposure of nonperforming loans decreased to $18.4 million, or 0.82% of total loans and leases held for investment, at June 30, 2019, compared to $20.2 million, or 1.01%, at March 31, 2019.  For the quarters ended June 30, 2019 and March 31, 2019, the percentage of unguaranteed criticized loans and leases, comprised of risk grades 5 through 8, to unguaranteed held for investment loans and leases was 5.27% and 5.39%, respectively.

Foreclosed assets increased $4.6 million to $6.0 million at June 30, 2019, from $1.4 million at March 31, 2019.  The unguaranteed exposure of foreclosed assets increased to $1.2 million at June 30, 2019, from $170 thousand at March 31, 2019. 

Provision for Loan and Lease Losses

The provision for loan and lease losses for the second quarter of 2019 totaled $3.5 million compared to $2.1 million for the second quarter of 2018 and $2.7 million for the first quarter of 2019.  The increase in provision expense was largely the result of portfolio growth for the second quarter of 2019. 

The allowance for loan and lease losses totaled $38.0 million at June 30, 2019, compared to $35.1 million at March 31, 2019. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.71% and 1.75% at June 30, 2019, and March 31, 2019, respectively.

Income Tax

Income tax expense was $662 thousand in the second quarter of 2019 compared to $491 thousand in the second quarter of 2018 and $317 thousand in the first quarter of 2019.  The Company’s effective tax rate is predominantly driven by the leasing of renewable energy assets which generate investment tax credits.  As the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (July 25, 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 1980859. 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 August 1, 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 | Marketing Director | Media Relations | 910.550.2255

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

    Three months ended  
    2Q 2019     1Q 2019     4Q 2018     3Q 2018     2Q 2018  
Interest income                                        
Loans and fees on loans   $ 49,914     $ 44,966     $ 40,628     $ 37,724     $ 36,267  
Investment securities, taxable     4,116       3,317       2,558       2,528       2,530  
Other interest earning assets     1,108       1,639       1,568       1,638       2,179  
Total interest income     55,138       49,922       44,754       41,890       40,976  
Interest expense                                        
Deposits     21,203       19,317       15,959       14,165       13,927  
Borrowings                       1       1  
Total interest expense     21,203       19,317       15,959       14,166       13,928  
Net interest income     33,935       30,605       28,795       27,724       27,048  
Provision for (recovery of) loan and leases losses     3,463       2,742       6,822       (243 )     2,087  
Net interest income after provision for loan and
  lease losses
    30,472       27,863       21,973       27,967       24,961  
Noninterest income                                        
Loan servicing revenue     7,063       7,410       7,752       7,506       6,965  
Loan servicing asset revaluation     (403 )     (2,246 )     (627 )     (9,380 )     (3,670 )
Net gains on sales of loans     6,015       4,198       5,687       22,004       23,061  
Equity method investments income (loss)     (1,736 )     (2,014 )     (1,289 )     (360 )     (673 )
Gain on sale of investment securities available-for-sale           5                    
Lease income     2,369       2,325       2,244       2,194       1,920  
Construction supervision fee income     386       779       323       578       597  
Title insurance income                       479       996  
Other noninterest income     1,007       2,570       3,975       1,310       1,417  
Total noninterest income     14,701       13,027       18,065       24,331       30,613  
Noninterest expense                                        
Salaries and employee benefits     21,990       21,855       14,503       20,553       22,146  
Travel expense     1,541       1,200       3,269       2,003       2,041  
Professional services expense     1,621       2,182       1,233       1,228       1,119  
Advertising and marketing expense     1,665       1,364       1,023       1,462       1,868  
Occupancy expense     1,848       1,609       1,738       1,588       1,882  
Data processing expense     1,947       2,399       2,606       3,661       2,906  
Equipment expense     4,239       3,325       3,630       3,649       3,368  
Other loan origination and maintenance expense     1,708       1,639       1,482       1,742       1,414  
Renewable energy tax credit investment impairment     602                          
FDIC insurance     699       635       547       1,105       1,010  
Title insurance closing services expense                       114       372  
Other expense     1,716       1,993       2,527       1,459       2,704  
Total noninterest expense     39,576       38,201       32,558       41,244       40,830  
Income before taxes     5,597       2,689       7,480       11,054       14,744  
Income tax expense (benefit)     662       317       (3,010 )     (3,198 )     491  
Net income   $ 4,935     $ 2,372     $ 10,490     $ 14,252     $ 14,253  
Earnings per share                                        
Basic   $ 0.12     $ 0.06     $ 0.26     $ 0.36     $ 0.36  
Diluted   $ 0.12     $ 0.06     $ 0.26     $ 0.34     $ 0.34  
Weighted average shares outstanding                                        
Basic     40,196,662       40,160,118       40,148,115       40,119,561       40,027,336  
Diluted     40,998,541       40,921,823       41,075,864       41,688,430       41,619,647  

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

    As of the quarter ended  
    2Q 2019     1Q 2019     4Q 2018     3Q 2018     2Q 2018  
Assets                                        
Cash and due from banks   $ 115,292     $ 221,159     $ 316,823     $ 368,565     $ 392,941  
Federal funds sold     68,153       64,708                    
Certificates of deposit with other banks     7,250       7,250       7,250       750       2,250  
Investment securities available-for-sale     576,275       569,739       380,490       374,284       382,890  
Loans held for sale     857,837       772,481       687,393       646,475       757,494  
Loans and leases held for investment     2,225,473       2,002,124       1,843,419       1,631,337       1,534,368  
Allowance for loan and lease losses     (38,048 )     (35,111 )     (32,434 )     (26,797 )     (29,350 )
Net loans and leases     2,187,425       1,967,013       1,810,985       1,604,540       1,505,018  
Premises and equipment, net     281,126       271,810       262,524       263,861       234,817  
Foreclosed assets     6,044       1,374       1,094       1,429       1,725  
Servicing assets     41,687       44,324       47,641       49,261       52,689  
Operating lease right-of-use assets     1,996       2,136                    
Other assets     131,216       136,053       156,249       135,592       143,145  
Total assets   $ 4,274,301     $ 4,058,047     $ 3,670,449     $ 3,444,757     $ 3,472,969  
Liabilities and Shareholders Equity                                        
Liabilities                                        
Deposits:                                        
Noninterest-bearing   $ 55,416     $ 53,843     $ 53,993     $ 48,622     $ 46,192  
Interest-bearing     3,666,181       3,474,562       3,095,590       2,875,666       2,923,044  
Total deposits     3,721,597       3,528,405       3,149,583       2,924,288       2,969,236  
Short term borrowings     1,345       1,393       1,441              
Long term borrowings     16       17       16       1,506       3,385  
Operating lease liabilities     2,162       2,314                    
Other liabilities     30,195       25,538       25,849       41,733       37,362  
Total liabilities     3,755,315       3,557,667       3,176,889       2,967,527       3,009,983  
Shareholders equity                                        
Preferred stock, no par value, 1,000,000 shares
  authorized, none issued or outstanding
                             
Class A common stock (voting)     284,987       281,994       278,945       276,831       274,043  
Class B common stock (non-voting)     49,168       49,168       49,168       49,168       49,168  
Retained earnings     171,954       168,225       167,124       157,839       144,791  
Accumulated other comprehensive income (loss)     12,877       993       (1,677 )     (6,608 )     (5,016 )
Total equity     518,986       500,380       493,560       477,230       462,986  
Total liabilities and shareholders equity   $ 4,274,301     $ 4,058,047     $ 3,670,449     $ 3,444,757     $ 3,472,969  
                                         


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

    Six months ended  
    June 30, 2019     June 30, 2018  
Interest income                
Loans and fees on loans   $ 94,880     $ 68,958  
Investment securities, taxable     7,433       3,647  
Other interest earning assets     2,747       3,394  
Total interest income     105,060       75,999  
Interest expense                
Deposits     40,520       24,345  
Borrowings           130  
Total interest expense     40,520       24,475  
Net interest income     64,540       51,524  
Provision for loan and lease losses     6,205       6,479  
Net interest income after provision for loan and lease losses     58,335       45,045  
Noninterest income                
Loan servicing revenue     14,473       13,863  
Loan servicing asset revaluation     (2,649 )     (8,758 )
Net gains on sales of loans     10,213       47,479  
Equity method investments income (loss)     (3,750 )     (1,037 )
Gain on sale of investment securities available-for-sale     5        
Lease income     4,694       3,528  
Construction supervision fee income     1,165       1,376  
Title insurance income           2,296  
Other noninterest income     3,577       2,622  
Total noninterest income     27,728       61,369  
Noninterest expense                
Salaries and employee benefits     43,845       42,355  
Travel expense     2,741       3,884  
Professional services expense     3,803       2,417  
Advertising and marketing expense     3,029       3,530  
Occupancy expense     3,457       3,739  
Data processing expense     4,346       5,743  
Equipment expense     7,564       6,445  
Other loan origination and maintenance expense     3,347       2,743  
Renewable energy tax credit investment impairment     602        
FDIC insurance     1,334       1,582  
Title insurance closing services expense           798  
Other expense     3,709       5,666  
Total noninterest expense     77,777       78,902  
Income before taxes     8,286       27,512  
Income tax expense     979       806  
Net income   $ 7,307     $ 26,706  
Earnings per share                
Basic   $ 0.18     $ 0.67  
Diluted   $ 0.18     $ 0.64  
Weighted average shares outstanding                
Basic     40,178,491       39,977,336  
Diluted     40,960,283       41,516,333  
                 

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

    As of and for the three months ended  
    2Q 2019     1Q 2019     4Q 2018     3Q 2018     2Q 2018  
Income Statement Data                                        
Net income   $ 4,935     $ 2,372     $ 10,490     $ 14,252     $ 14,253  
Per Common Share                                        
Net income, basic   $ 0.12     $ 0.06     $ 0.26     $ 0.36     $ 0.36  
Net income, diluted     0.12       0.06       0.26       0.34       0.34  
Dividends declared     0.03       0.03       0.03       0.03       0.03  
Book value     12.90       12.45       12.29       11.89       11.55  
Tangible book value (1)     12.90       12.45       12.29       11.89       11.45  
Performance Ratios                                        
Return on average assets (annualized)     0.48 %     0.25 %     1.20 %     1.65 %     1.61 %
Return on average equity (annualized)     3.85       1.88       8.64       12.08       12.34  
Net interest margin     3.70       3.63       3.72       3.61       3.46  
Efficiency ratio (1)     81.37       87.56       69.48       79.23       70.81  
Noninterest income to total revenue     30.23       29.85       38.55       46.74       53.09  
Selected Loan Metrics                                        
Loans and leases originated   $ 525,088     $ 390,851     $ 498,987     $ 377,337     $ 491,797  
Guaranteed loans sold     71,934       62,940       104,646       298,073       295,216  
Average net gain on sale of guaranteed loans     80.12       61.30       59.83       71.81       82.61  
Adjusted average net gain on sale of guaranteed
  loans (2)
    93.74       89.04       77.42       69.23       79.42  
Outstanding balance of sold loans serviced:                                        
Guaranteed     2,870,108       2,952,774       3,045,460       3,102,820       2,951,379  
Unguaranteed     183,991       179,307       174,066       170,784       155,939  
Total     3,054,099       3,132,081       3,219,526       3,273,604       3,107,318  
Asset Quality Ratios                                        
Allowance for loan losses to loans and leases held for
  investment
    1.71 %     1.75 %     1.76 %     1.64 %     1.91 %
Net charge-offs   $ 526     $ 65     $ 1,185     $ 2,310     $ 787  
Net charge-offs to average loans and leases held for
  investment (3)
    0.10 %     0.01 %     0.28 %     0.57 %     0.21 %
Nonperforming loans   $ 65,473     $ 70,692     $ 57,690     $ 52,709     $ 46,105  
Foreclosed assets     6,044       1,374       1,094       1,429       1,725  
Nonperforming loans (unguaranteed exposure)     18,352       20,186       14,488       12,897       11,466  
Foreclosed assets (unguaranteed exposure)     1,228       170       148       158       197  
Nonperforming loans not guaranteed by the SBA and
  foreclosures
  $ 19,580     $ 20,356     $ 14,636     $ 13,055     $ 11,663  
Nonperforming loans and foreclosures, not guaranteed
  by the SBA, to total assets
    0.46 %     0.50 %     0.40 %     0.38 %     0.34 %
Capital Ratios                                        
Common equity tier 1 capital (to risk-weighted assets)     16.01 %     16.68 %     17.10 %     17.88 %     17.49 %
Total capital (to risk-weighted assets)     17.26       17.92       18.28       18.93       18.68  
Tier 1 risk based capital (to risk-weighted assets)     16.01       16.68       17.10       17.88       17.49  
Tier 1 leverage capital (to average assets)     11.77       12.34       13.40       13.21       12.31  

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 June   30, 2019     Three months ended March 31, 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
  $ 184,986     $ 1,108       2.40 %   $ 283,364     $ 1,639       2.35 %
Investment securities     566,159       4,116       2.92       461,339       3,317       2.92  
Loans held for sale     839,724       14,333       6.85       749,700       12,583       6.81  
Loans and leases held for investment (1)     2,089,225       35,581       6.83       1,922,280       32,383       6.83  
Total interest earning assets     3,680,094       55,138       6.01       3,416,683       49,922       5.93  
Less: allowance for loan and lease losses     (35,124 )                     (32,464 )                
Non-interest earning assets     474,706                       476,232                  
Total assets   $ 4,119,676                     $ 3,860,451                  
Interest bearing liabilities:                                                
Interest bearing checking   $     $       %   $ 169     $       %
Savings     989,512       5,235       2.12       927,579       4,786       2.09  
Money market accounts     85,982       161       0.75       83,298       108       0.53  
Certificates of deposit     2,452,159       15,807       2.59       2,282,709       14,423       2.56  
Total interest bearing deposits     3,527,653       21,203       2.41       3,293,755       19,317       2.38  
Other borrowings     1,409                   1,464              
Total interest bearing liabilities     3,529,062       21,203       2.41       3,295,219       19,317       2.38  
Non-interest bearing deposits     51,643                       46,822                  
Non-interest bearing liabilities     26,580                       14,449                  
Shareholders' equity     512,391                       503,961                  
Total liabilities and shareholders' equity   $ 4,119,676                     $ 3,860,451                  
Net interest income and interest rate spread           $ 33,935       3.60 %           $ 30,605       3.55 %
Net interest margin                     3.70                       3.63  
Ratio of average interest-earning assets to average
  interest-bearing liabilities
                    104.28 %                     103.69 %

(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 2019     1Q 2019     4Q 2018     3Q 2018     2Q 2018  
Total shareholders’ equity   $ 518,986     $ 500,380     $ 493,560     $ 477,230     $ 462,986  
Less:                                        
Goodwill                              
Other intangible assets                             3,980  
Tangible shareholders’ equity (a)   $ 518,986     $ 500,380     $ 493,560     $ 477,230     $ 459,006  
Shares outstanding (c)     40,220,916       40,175,079       40,155,792       40,140,417       40,086,409  
Total assets   $ 4,274,301     $ 4,058,047     $ 3,670,449     $ 3,444,757     $ 3,472,969  
Less:                                        
Goodwill                              
Other intangible assets                             3,980  
Tangible assets (b)   $ 4,274,301     $ 4,058,047     $ 3,670,449     $ 3,444,757     $ 3,468,989  
Tangible shareholders’ equity to tangible assets (a/b)     12.14 %     12.33 %     13.45 %     13.85 %     13.23 %
Tangible book value per share (a/c)   $ 12.90     $ 12.45     $ 12.29     $ 11.89     $ 11.45  
Efficiency ratio:                                        
Noninterest expense (d)   $ 39,576     $ 38,201     $ 32,558     $ 41,244     $ 40,830  
Net interest income     33,935       30,605       28,795       27,724       27,048  
Noninterest income     14,701       13,027       18,065       24,331       30,613  
Less: gain on sale of securities           5                    
Adjusted operating revenue (e)   $ 48,636     $ 43,627     $ 46,860     $ 52,055     $ 57,661  
Efficiency ratio (d/e)     81.37 %     87.56 %     69.48 %     79.23 %     70.81 %


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

    Three Months Ended     Six Months Ended  
    2Q 2019     1Q 2019     2Q 2018     2Q 2019     2Q 2018  
Reconciliation of net income to non-GAAP net income
  for non-routine income and expenses:
                                       
Net income   $ 4,935     $ 2,372     $ 14,253     $ 7,307     $ 26,706  
Gain on sale of aircraft           (357 )           (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
    357       352       357       709       709  
Renewable energy tax credit investment impairment     602                   602        
Income tax effects and adjustments for non-GAAP items *     (230 )     1       (86 )     (229 )     (170 )
Non-GAAP net income   $ 5,664     $ 2,368     $ 14,524     $ 8,032     $ 27,245  
* Estimated at 24.0%                                        
Non-GAAP earnings per share:                                        
Basic   $ 0.14     $ 0.06     $ 0.36     $ 0.20     $ 0.68  
Diluted   $ 0.14     $ 0.06     $ 0.35     $ 0.20     $ 0.66  
Weighted-average shares outstanding:                                        
Basic     40,196,662       40,160,118       40,027,336       40,178,491       39,977,336  
Diluted     40,998,541       40,921,823       41,619,647       40,960,283       41,516,333  
Reconciliation of financial statement line items as reported
  to adjusted for non-routine income and expenses:
                                       
Noninterest income, as reported   $ 14,701     $ 13,027     $ 30,613     $ 27,728     $ 61,369  
Gain on sale of aircraft           (357 )           (357 )      
Noninterest income, as adjusted   $ 14,701     $ 12,670     $ 30,613     $ 27,371     $ 61,369  
Noninterest expense, as reported   $ 39,576     $ 38,201     $ 40,830     $ 77,777     $ 78,902  
Stock based compensation expense     (357 )     (352 )     (357 )     (709 )     (709 )
Renewable energy tax credit investment impairment     (602 )                 (602 )      
Noninterest expense, as adjusted   $ 38,617     $ 37,849     $ 40,473     $ 76,466     $ 78,193  
Income before taxes, as reported   $ 5,597     $ 2,689     $ 14,744     $ 8,286     $ 27,512  
Gain on sale of aircraft           (357 )           (357 )      
Stock based compensation expense     357       352       357       709       709  
Renewable energy tax credit investment impairment     602                   602        
Income before taxes, as adjusted   $ 6,556     $ 2,684     $ 15,101     $ 9,240     $ 28,221  
Income tax expense, as reported   $ 662     $ 317     $ 491     $ 979     $ 806  
Income tax effects and adjustments for non-recurring
  income and expenses
    230       (1 )     86       229       170  
Income tax expense, as adjusted   $ 892     $ 316     $ 577     $ 1,208     $ 976  

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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