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Live Oak Bancshares, Inc. Reports Second Quarter 2021 Results

WILMINGTON, N.C., July 21, 2021 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported second quarter 2021 net earnings available to common shareholders of $63.6 million, or $1.41 per diluted share. The second quarter of 2021 included a pretax gain of $44.1 million related to an investment in Greenlight Financial Technologies, Inc. (“Greenlight”) accounted for as an equity security.

“The second quarter of 2021 showed strength across all of Live Oak’s key metrics. Our loan originations exceeded $1.0 billion, core revenues continued a strong growth trend, and our efforts in financial technology lifted earnings and capital,” said Live Oak Chairman and CEO James S. (Chip) Mahan, III. “We strongly believe in our model and will continue to focus on financial technology while serving the small business communities that are the backbone of the American economy. Our teams have an unwavering dedication to small business owners and the quarter reflects our commitment to fueling their growth.”

Second Quarter 2021 Key Measures

(Dollars in thousands, except per share data)        Increase (Decrease)     
 2Q 2021  2Q 2020  Dollars  Percent  1Q 2021 
Net interest income and servicing revenues$77,680  $47,589  $30,091   63% $76,384 
Net income 63,582   3,777   59,805   1,583   39,427 
Diluted earnings per share 1.41   0.09   1.32   1,467   0.88 
Non-GAAP net income (1) 63,582   3,777   59,805   1,583   39,340 
Non-GAAP diluted earnings per share (1) 1.41   0.09   1.32   1,467   0.88 
Loan and lease production:                   
Loans and leases originated$1,153,693  $2,175,055  $(1,021,362)  (47)% $1,180,219 
% Fully funded 58.6%  89.8% n/a  n/a   77.7%
Total loans and leases$6,506,334  $5,626,624  $879,710   16% $6,533,495 
Total assets 8,243,186   8,209,154   34,032   0   8,417,875 
Total deposits 6,520,833   5,873,292   647,541   11   6,316,004 

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

Loans and Leases

At June 30, 2021, the total loan and lease portfolio was $6.51 billion, 15.6% above its level a year ago and 0.4% below its level at March 31, 2021. Compared to the first quarter of 2021, loans and leases held for investment decreased $15.3 million, or 0.3%, to $5.44 billion while loans held for sale decreased $11.8 million, or 1.1%, to $1.06 billion. Average loans and leases were $6.58 billion during the second quarter of 2021 compared to $6.35 billion during the first quarter of 2021. Excluding PPP, the total loan and lease portfolio increased by $1.64 billion, or 41.7%, compared the second quarter of 2020 and $490.6 million, or 9.6% compared to the first quarter of 2021.

The total loan and lease portfolio of $6.51 billion is comprised of $927.3 million of Paycheck Protection Program (“PPP”) loans, net of deferred fees and costs, at June 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 June 30, 2021, and March 31, 2021, of $6.51 billion and $6.53 billion, respectively, was comprised of 44.9% and 41.6% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $1.15 billion during the second quarter of 2021, a decrease of $26.5 million, or 2.2%, from the first quarter of 2021. Excluding PPP loans in each quarter, loan and lease originations totaled $1.11 billion for the second quarter of 2021, a 65.7% increase from the prior quarter and a 159.0% increase from the second quarter of 2020.

Deposits

Total deposits increased to $6.52 billion at June 30, 2021, an increase of $647.5 million compared to June 30, 2020, and an increase of $204.8 million compared to March 31, 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 second quarter of 2021. Average total interest-bearing deposits for the second quarter of 2021 increased $482 million, or 8.2%, to $6.35 billion, compared to $5.86 billion for the first quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 103.7% for the second quarter of 2021, compared to 108.2% for the first quarter of 2021. The 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 $1.01 billion at June 30, 2021, compared to $1.72 billion and $1.47 billion at June 30, 2020, and March 31, 2021, respectively. During the second quarter of 2021, the Company decreased borrowings by $453.5 million primarily by reducing the outstanding balance in the Federal Reserve’s PPPLF to $961.0 million as of June 30, 2021, compared to $1.41 billion at March 31, 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 second quarter of 2021 increased to $71.5 million compared to $40.9 million for the second quarter of 2020 and $70.0 million for the first quarter of 2021.

The increase for the second quarter of 2021 compared to the second quarter of 2020 was driven by the significant growth in the total loan and lease portfolios. The increase in net interest income comparing these two periods was also driven by fees earned through the forgiveness of PPP loans and the reduction in the average rate on interest bearing liabilities from 1.65% for the second quarter of 2020 to 0.86% for the second quarter of 2021.

The net interest margin decreased from the first quarter of 2021 by 18 basis points, from 3.81% to 3.63%. The yield on interest earnings assets for the second quarter of 2021 decreased 34 basis points compared to the first quarter of 2021 and was primarily driven by a reduction in fees recognized on PPP loans. The reduction in asset yield was mitigated by the 16 basis point reduction in the average cost of interest-bearing liabilities from 1.02% for the quarter ended March 31, 2021, to 0.86% for the quarter ended June 30, 2021. The reduction in the cost of interest-bearing liabilities compared to the first quarter of 2021 was largely the result of the maturation and repricing of the certificates of deposit portfolio.

Noninterest Income

Noninterest income for the second quarter of 2021 increased to $70.1 million compared to $22.4 million for the second quarter of 2020 and $31.1 million for the first quarter of 2021. The primary drivers behind these increased levels of noninterest income are outlined below.

The largest driver of the increase in noninterest income for the second quarter of 2021 arose from equity security investment gains of $44.3 million, principally comprised of $44.1 million associated with the Company’s investment in Greenlight. This second quarter gain in Greenlight was the result of an increase in the observable fair market value of the Company’s investment through an arm’s length sale of a portion of the Company’s shares in the investee.  

The loan servicing asset revaluation resulted in a loss of $3.2 million for the second quarter of 2021 compared to a loss of $1.6 million for the second quarter of 2020 and a gain of $1.5 million for the first quarter of 2021. The decrease in the loan servicing asset valuation from the prior quarter was largely the result of amortization of the guaranteed serviced loan portfolio.

The Company’s net gains on sales of loans increased $4.3 million compared to the first quarter of 2021 and increased $5.5 million compared to the second quarter of 2020. The average net gain on guaranteed loan sales increased to $114.8 thousand per million sold for the second quarter of 2021 versus $83.9 thousand per million sold for the first quarter of 2021. The quarter over quarter increase in premiums is largely the result of stimulus associated with the SBA program which removes the ongoing guarantee fee, typically paid by the purchaser, on loans originated under the Economic Aid Act. The volume of guaranteed loans sold decreased to $130.9 million for the second quarter of 2021 compared to $136.7 million sold in the prior quarter. The average net gain on guaranteed loan sales was $66.8 thousand per million sold for the second quarter of 2020, largely influenced by pandemic influenced market conditions.

The net gain on loans accounted for under the fair value option totaled $1.1 million for the second quarter of 2021, a $2.2 million increase compared to the net loss for the second quarter of 2020 and a $3.1 million decrease compared to the net gain of $4.2 million for the first quarter of 2021. The increase in valuation of loans accounted for under the fair value option over the second quarter of 2020 was positively impacted by continued improvement in market conditions while the decrease over the first quarter was largely related to the amortization of the portfolio.

Equity method investments loss arising from losses experienced by several of the Company’s financial technology investees totaled $2.3 million for the second quarter of 2021 compared to a loss of $1.2 million for the first quarter of 2021. Compared to the second quarter of 2020 the loss was largely unchanged.

Noninterest Expense

Noninterest expense for the second quarter of 2021 totaled $57.6 million compared to $48.1 million for the second quarter of 2020 and $58.3 million for the first quarter of 2021.Salaries and employee benefits for the second quarter of 2021 increased to $32.9 million compared to $30.8 million for the second quarter of 2020 and $31.4 million for the first quarter of 2021. The increase in salaries and employee benefits for both periods was principally related to continued investment in human resources to support strategic and growth initiatives.  

Primary components of the change in salaries and employee benefits as compared to the second quarter of 2020 were $3.2 million in increased salaries and benefits combined with the vesting of 178 thousand restricted stock unit awards during the second quarter of 2021 with market price conditions that accelerated recognition of both stock compensation expense and payroll tax expense by a combined $1.8 million, partially offset by a decrease of $3.0 million largely related to the 2020 performance bonus pool that was available to all employees other than executive officers.  

Primary components of the change in salaries and employee benefits as compared to the first quarter of 2021 was an additional bonus accrual of $4.0 million for all employees other than executive officers and executive management arising from the earnings associated with gains from the Company’s investment in Greenlight, partially offset by a decrease in payroll taxes and stock expense of $2.2 million largely related to vesting of approximately 398 thousand restricted stock unit awards that vested in the first quarter of 2021.

Travel expense for the second quarter of 2021 totaled $1.5 million compared to $364 thousand for the second quarter of 2020 and $659 thousand for the first quarter of 2021. Travel expenses increased to support the growth in loan origination volume and customer base as travel restrictions have lessened in recent months.

Professional services expense increased to $3.3 million for the second quarter of 2021 compared to $1.4 million for the second quarter of 2020 and decreased from $3.8 million for the first quarter of 2021. The increase for the second quarter of 2021 compared to the prior year was largely driven by an increase in legal fees.

Data processing expense for the second quarter of 2021 totaled $4.2 million compared to $2.8 million for the second quarter of 2020 and $3.9 million for the first quarter of 2021. The $1.5 million increase over the second quarter of 2020 was principally due to enhanced investments in the Company’s internal software technology resources.

The decrease in noninterest expense for the second quarter of 2021 compared to the first quarter of 2021 was also the result of impairment charges of $3.1 million related to renewable energy tax credit investments of $3.9 million in the first quarter of 2021.  As mentioned in the prior quarter, investments of this type generate a return primarily through the realization of income tax credits and other benefits; accordingly, impairment of the investment amount is recognized in conjunction with the realization of related tax benefits. This investment generated a federal investment tax credit of $3.4 million which is included in the Company’s estimated annual effective tax rate. Investments of this nature are part of the Company’s ongoing initiative to promote renewable energy sources.

Asset Quality

During the second quarter of 2021, the Company recognized net charge-offs for loans carried at historical cost of $2.4 million compared to net recoveries of $984 thousand in the first quarter of 2021 and net charge-offs $1.8 million in the second quarter of 2020. Net charge-offs (recoveries) as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended June 30, 2021 and March 31, 2021, was 0.21% and (0.09)%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $5.5 million and $5.8 million accounted for under the fair value option at June 30, 2021, and March 31, 2021, respectively, decreased to $22.5 million, or 0.48% of loans and leases held for investment which are carried at historical cost, at June 30, 2021, compared to $24.7 million, or 0.53%, at March 31, 2021.

The unguaranteed exposure of foreclosed assets decreased $486 thousand to $455 thousand at June 30, 2021, compared to March 31, 2021. Foreclosed assets decreased $2.4 million to $1.8 million at June 30, 2021, compared to March 31, 2021.

Provision for (Recovery of) Loan and Lease Credit Losses

The provision for loan and lease credit losses for the second quarter of 2021 totaled $7.8 million compared to a provision of $10.0 million for the second quarter of 2020 and a recovery of $873 thousand for the first quarter of 2021. The provision expense in the second quarter was primarily the result of the growing portfolio of loans and leases and the influence of current credit performance.

The allowance for credit losses on loans and leases totaled $57.8 million at June 30, 2021, compared to $52.4 million at March 31, 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 1.23% and 1.12% at June 30, 2021, and March 31, 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 heavily influenced by the 100% guaranteed PPP loans.

Income Tax

Income tax expense in the second quarter of 2021 was $12.6 million compared to an income tax expense in the second quarter of 2020 of $1.5 million and $4.2 million in the first quarter of 2021. The effective tax rate for the second quarter of 2021 of 16.5% is principally the result of the above renewable energy tax credit investments and an income tax benefits arising from the vesting of stock unit awards, as the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes.

The increase in the income tax expense for the second quarter of 2021 compared to the income tax expense for the first quarter of 2021 was primarily the product of an increase of $32.6 million in income before taxes.

Shareholders’ Equity

Total shareholders’ equity increased by $67.0 million, or 11.3%, during the second quarter of 2021. This increase was primarily due to net income, partially offset by cash paid for employee tax obligations in lieu of stock for settlement of vested restricted stock unit awards discussed above. Total cash paid in lieu of stock during the second quarter was $5.7 million.

During the second quarter of 2021, 181,926 shares of Class B common stock (non-voting) were converted to Class A common stock (voting) in connection with private sales. The conversion decreased the value of Class B common stock (non-voting) and increased the value of Class A common stock (voting) by $1.9 million.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (July 22, 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 5508559. 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 August 5, 2021 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; 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; 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:

Brett Caines | CFO | Investor Relations | 910.796.1645
Claire Parker | SVP Corporate Communications | Media Relations | 910.597.1592

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

 Three months ended 
 2Q 2021  1Q 2021  4Q 2020  3Q 2020  2Q 2020 
Interest income                   
Loans and fees on loans$84,780  $84,993  $79,166  $70,621  $62,022 
Investment securities, taxable 2,975   2,929   3,345   4,123   3,786 
Other interest earning assets 244   303   529   334   1,009 
Total interest income 87,999   88,225   83,040   75,078   66,817 
Interest expense                   
Deposits 14,820   16,944   19,195   22,155   25,121 
Borrowings 1,717   1,331   1,544   1,560   798 
Total interest expense 16,537   18,275   20,739   23,715   25,919 
Net interest income 71,462   69,950   62,301   51,363   40,898 
Provision for (recovery of) loan and lease credit losses 7,846   (873)  8,634   10,274   9,958 
Net interest income after provision for (recovery of) loan and lease credit losses 63,616   70,823   53,667   41,089   30,940 
Noninterest income                   
Loan servicing revenue 6,218   6,434   6,684   6,803   6,691 
Loan servicing asset revaluation (3,181)  1,493   (5,756)  2,061   (1,571)
Net gains on sales of loans 16,234   11,929   14,976   12,690   10,695 
Net gain (loss) on loans accounted for under the fair value option 1,135   4,218   (4,759)  3,403   (1,089)
Equity method investments income (loss) (2,278)  (1,157)  (8,739)  (1,231)  (2,243)
Equity security investments gains (losses), net 44,253   105   107   14,705   161 
Gain on sale of investment securities available-for-sale, net          1,225   734 
Lease income 2,616   2,599   2,615   2,634   2,635 
Management fee income 1,473   1,934   2,206   1,296   1,206 
Other noninterest income 3,641   3,502   3,469   3,458   5,192 
Total noninterest income 70,111   31,057   10,803   47,044   22,411 
Noninterest expense                   
Salaries and employee benefits 32,900   31,366   29,477   24,203   30,782 
Travel expense 1,549   659   1,056   250   364 
Professional services expense 3,329   3,831   1,691   1,346   1,385 
Advertising and marketing expense 875   652   973   552   624 
Occupancy expense 2,224   2,112   2,302   2,079   1,955 
Data processing expense 4,234   3,894   3,414   3,009   2,764 
Equipment expense 4,385   4,354   4,002   4,314   4,652 
Other loan origination and maintenance expense 3,307   3,327   3,173   2,669   2,492 
Renewable energy tax credit investment impairment    3,127          
FDIC insurance 1,704   1,765   2,147   2,095   1,721 
Other expense 3,051   3,185   4,200   2,133   1,361 
Total noninterest expense 57,558   58,272   52,435   42,650   48,100 
Income before taxes 76,169   43,608   12,035   45,483   5,251 
Income tax expense (benefit) 12,587   4,181   (17,553)  11,703   1,474 
Net income$63,582  $39,427  $29,588  $33,780  $3,777 
Earnings per share                   
Basic$1.48  $0.92  $0.72  $0.83  $0.09 
Diluted$1.41  $0.88  $0.68  $0.81  $0.09 
Weighted average shares outstanding                   
Basic 43,173,312   42,673,615   41,320,851   40,542,696   40,506,671 
Diluted 45,062,392   44,696,850   43,333,707   41,549,632   41,122,025 
                    

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

 As of the quarter ended 
 2Q 2021  1Q 2021  4Q 2020  3Q 2020  2Q 2020 
Assets                   
Cash and due from banks$428,907  $630,081  $297,167  $608,826  $1,256,958 
Federal funds sold 9,917   5,461   21,153   25,924   91,188 
Certificates of deposit with other banks 6,000   6,500   6,500   7,250   7,250 
Investment securities available-for-sale 817,896   775,177   750,098   765,777   779,794 
Loans held for sale (1) 1,064,911   1,076,741   1,175,470   1,190,200   976,594 
Loans and leases held for investment (2) 5,441,423   5,456,754   5,144,930   5,037,094   4,650,030 
Allowance for credit losses on loans and leases (57,848)  (52,417)  (52,306)  (44,210)  (44,083)
Net loans and leases 5,383,575   5,404,337   5,092,624   4,992,884   4,605,947 
Premises and equipment, net 249,069   253,774   259,267   253,737   269,063 
Foreclosed assets 1,793   4,185   4,155   3,264   5,660 
Servicing assets 36,966   37,744   33,918   37,831   33,834 
Other assets 244,152   223,875   231,951   207,688   182,866 
Total assets$8,243,186  $8,417,875  $7,872,303  $8,093,381  $8,209,154 
Liabilities and Shareholders’ Equity                   
Liabilities                   
Deposits:                   
Noninterest-bearing$89,768  $75,794  $75,287  $58,771  $53,938 
Interest-bearing 6,431,065   6,240,210   5,637,541   5,647,273   5,819,354 
Total deposits 6,520,833   6,316,004   5,712,828   5,706,044   5,873,292 
Borrowings 1,012,431   1,465,961   1,542,093   1,747,083   1,721,029 
Other liabilities 52,575   45,550   49,532   56,090   66,398 
Total liabilities 7,585,839   7,827,515   7,304,453   7,509,217   7,660,719 
Shareholders’ equity                   
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding              
Class A common stock (voting) 299,809   298,525   298,890   325,753   319,542 
Class B common stock (non-voting) 5,404   7,330   11,729   26,106   28,753 
Retained earnings 339,011   275,377   235,724   207,400   174,837 
Accumulated other comprehensive income 13,123   9,128   21,507   24,905   25,303 
Total shareholders' equity 657,347   590,360   567,850   584,164   548,435 
Total liabilities and shareholders’ equity$8,243,186  $8,417,875  $7,872,303  $8,093,381  $8,209,154 

(1)Includes $29.0 million, $35.9 million, $36.1 million, $30.4 million and $32.1 million measured at fair value for the quarters ended June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020, respectively.
  
(2)Includes $743.2 million, $790.8 million, $815.4 million, $845.7 million and $834.6 million measured at fair value for the quarters ended June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020, respectively.
  

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

 Six months ended 
 June 30, 2021  June 30, 2020 
Interest income       
Loans and fees on loans$169,773  $120,983 
Investment securities, taxable 5,904   7,548 
Other interest earning assets 547   1,759 
Total interest income 176,224   130,290 
Interest expense       
Deposits 31,764   48,376 
Borrowings 3,048   855 
Total interest expense 34,812   49,231 
Net interest income 141,412   81,059 
Provision for loan and lease credit losses 6,973   21,750 
Net interest income after provision for loan and lease credit losses 134,439   59,309 
Noninterest income       
Loan servicing revenue 12,652   13,113 
Loan servicing asset revaluation (1,688)  (6,263)
Net gains on sales of loans 28,163   21,807 
Net gain (loss) on loans accounted for under the fair value option 5,353   (11,727)
Equity method investments income (loss) (3,435)  (4,721)
Equity security investments gains (losses), net 44,358   97 
Gain on sale of investment securities available-for-sale, net    655 
Lease income 5,215   5,259 
Management fee income 3,407   2,850 
Other noninterest income 7,143   7,083 
Total noninterest income 101,168   28,153 
Noninterest expense       
Salaries and employee benefits 64,266   58,845 
Travel expense 2,208   2,145 
Professional services expense 7,160   3,322 
Advertising and marketing expense 1,527   1,985 
Occupancy expense 4,336   4,376 
Data processing expense 8,128   5,921 
Equipment expense 8,739   9,287 
Other loan origination and maintenance expense 6,634   4,948 
Renewable energy tax credit investment impairment 3,127    
FDIC insurance 3,469   3,231 
Other expense 6,236   3,531 
Total noninterest expense 115,830   97,591 
Income (loss) before taxes 119,777   (10,129)
Income tax expense (benefit) 16,768   (6,304)
Net income (loss)$103,009  $(3,825)
Earnings (loss) per share       
Basic$2.40  $(0.10)
Diluted$2.29  $(0.10)
Weighted average shares outstanding       
Basic 42,924,844   40,420,425 
Diluted 44,881,002   41,098,037 
        

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

 As of and for the three months ended 
 2Q 2021  1Q 2021  4Q 2020  3Q 2020  2Q 2020 
Income Statement Data                   
Net income$63,582  $39,427  $29,588  $33,780  $3,777 
Per Common Share                   
Net income, basic$1.48  $0.92  $0.72  $0.83  $0.09 
Net income, diluted 1.41   0.88   0.68   0.81   0.09 
Dividends declared 0.03   0.03   0.03   0.03   0.03 
Book value 15.19   13.74   13.38   14.69   13.53 
Tangible book value (1) 15.10   13.65   13.28   14.30   13.43 
Performance Ratios                   
Return on average assets (annualized) 3.01%  1.98%  1.49%  1.67%  0.22%
Return on average equity (annualized) 41.30   26.89   19.86   23.64   2.68 
Net interest margin 3.63   3.81   3.33   2.77   2.56 
Efficiency ratio (1) 40.66   57.69   71.73   43.89   76.87 
Noninterest income to total revenue 49.52   30.75   14.78   47.15   34.64 
Selected Loan Metrics                   
Loans and leases originated$1,153,693  $1,180,219  $808,010  $966,499  $2,175,055 
Guaranteed loans sold 130,858   136,747   110,588   114,731   154,980 
Average net gain on sale of guaranteed loans 114.77   83.92   115.94   110.19   66.76 
Adjusted average net gain on sale of guaranteed loans (2) 114.77   83.92   114.07   107.99   65.94 
Outstanding balance of sold loans serviced:                   
Guaranteed 2,694,931   2,843,963   2,819,625   2,878,664   2,840,429 
Unguaranteed 439,137   372,764   385,998   264,829   231,602 
Total 3,134,068   3,216,727   3,205,623   3,143,493   3,072,031 
Asset Quality Ratios                   
Allowance for credit losses to loans and leases held for investment (4) 1.23%  1.12%  1.21%  1.05%  1.16%
Net charge-offs (recoveries) (4)$2,417  $(984) $537  $10,147  $1,781 
Net charge-offs (recoveries) to average loans and leases held for investment (3) (4) 0.21%  (0.09)%  0.05%  1.03%  0.21%
Nonperforming loans and leases (4) (5)$48,009  $57,371  $46,110  $46,749  $40,275 
Foreclosed assets 1,793   4,185   4,155   3,264   5,660 
Nonperforming loans and leases (unguaranteed exposure) (4) (5) 22,458   24,738   20,078   20,153   13,122 
Foreclosed assets (unguaranteed exposure) 455   941   935   642   1,199 
Nonperforming loans and leases not guaranteed by the SBA and foreclosures (4) (5)$22,913  $25,679  $21,013  $20,795  $14,321 
Nonperforming loans, leases and foreclosures, not guaranteed by the SBA, to total assets (4) (5) 0.31%  0.34%  0.30%  0.29%  0.20%
Nonperforming loans accounted for under the fair value option$39,826  $40,234  $35,499  $47,434  $46,221 
Nonperforming loans accounted for under the fair value option (unguaranteed exposure) 5,503   5,838   5,387   7,495   6,352 
Capital Ratios                   
Common equity tier 1 capital (to risk-weighted assets) 12.45%  12.16%  12.15%  13.09%  12.84%
Total capital (to risk-weighted assets) 13.63   13.32   13.39   14.19   13.99 
Tier 1 risk based capital (to risk-weighted assets) 12.45   12.16   12.15   13.09   12.84 
Tier 1 leverage capital (to average assets) 8.70   8.50   8.40   8.44   7.96 

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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  Three Months Ended 
 June 30, 2021  March 31, 2021 
 Average Balance  Interest  Average Yield/Rate  Average Balance  Interest  Average Yield/Rate 
Interest earning assets:                       
Interest earning balances in other banks$514,232  $234   0.18% $331,260  $297   0.36%
Federal funds sold 29,199   10   0.14   28,202   6   0.09 
Investment securities 764,017   2,975   1.56   736,158   2,929   1.61 
Loans held for sale 1,134,259   15,216   5.38   1,158,844   15,077   5.28 
Loans and leases held for investment (1) 5,447,839   69,564   5.12   5,186,963   69,916   5.47 
Total interest earning assets 7,889,546   87,999   4.47   7,441,427   88,225   4.81 
Less: allowance for credit losses on loans and
leases
 (51,994)          (52,317)        
Non-interest earning assets 623,895           593,573         
Total assets$8,461,447          $7,982,683         
Interest bearing liabilities:                       
Interest bearing checking$60,439  $86   0.57% $250,005  $356   0.58%
Savings 3,101,733   4,309   0.56   2,356,598   3,512   0.60 
Money market accounts 104,826   82   0.31   105,753   83   0.32 
Certificates of deposit 3,078,789   10,343   1.35   3,151,575   12,993   1.67 
Total interest bearing deposits 6,345,787   14,820   0.94   5,863,931   16,944   1.17 
Borrowings 1,368,742   1,717   0.50   1,429,177   1,331   0.38 
Total interest bearing liabilities 7,714,529   16,537   0.86   7,293,108   18,275   1.02 
Non-interest bearing deposits 85,824           63,917         
Non-interest bearing liabilities 45,309           39,155         
Shareholders' equity 615,785           586,503         
Total liabilities and shareholders' equity$8,461,447          $7,982,683         
Net interest income and interest rate spread    $71,462   3.61%     $69,950   3.79%
Net interest margin         3.63           3.81 
Ratio of average interest-earning assets to average interest-bearing liabilities         102.27%          102.03%

(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 2021  1Q 2021  4Q 2020  3Q 2020  2Q 2020 
Total shareholders’ equity$657,347  $590,360  $567,850  $584,164  $548,435 
Less:                   
Goodwill 1,797   1,797   1,797   1,797   1,797 
Other intangible assets 2,103   2,141   2,179   2,218   2,294 
Tangible shareholders’ equity (a)$653,447  $586,422  $563,874  $580,149  $544,344 
Shares outstanding (c) 43,264,460   42,951,344   42,452,446   40,575,982   40,525,632 
Total assets$8,243,186  $8,417,875  $7,872,303  $8,093,381  $8,209,154 
Less:                   
Goodwill 1,797   1,797   1,797   1,797   1,797 
Other intangible assets 2,103   2,141   2,179   2,218   2,294 
Tangible assets (b)$8,239,286  $8,413,937  $7,868,327  $8,089,366  $8,205,063 
Tangible shareholders’ equity to tangible assets (a/b) 7.93%  6.97%  7.17%  7.17%  6.63%
Tangible book value per share (a/c)$15.10  $13.65  $13.28  $14.30  $13.43 
Efficiency ratio:                   
Noninterest expense (d)$57,558  $58,272  $52,435  $42,650  $48,100 
Net interest income 71,462   69,950   62,301   51,363   40,898 
Noninterest income 70,111   31,057   10,803   47,044   22,411 
Less: gain (loss) on sale of securities          1,225   734 
Adjusted operating revenue (e)$141,573  $101,007  $73,104  $97,182  $62,575 
Efficiency ratio (d/e) 40.66%  57.69%  71.73%  43.89%  76.87%
                    

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

 Three Months Ended  Six Months Ended 
 2Q 2021  1Q 2021  2Q 2020  2Q 2021  2Q 2020 
Reconciliation of net income (loss) to non-GAAP net income (loss):                   
Net income (loss)$63,582  $39,427  $3,777  $103,009  $(3,825)
Gain on sale of aircraft    (114)     (114)   
Income tax effects and adjustments for non-GAAP items *    27      27    
Non-GAAP net income (loss)$63,582  $39,340  $3,777  $102,922  $(3,825)
* Estimated at 24.0%                   
Non-GAAP earnings (loss) per share:                   
Basic$1.48  $0.92  $0.09  $2.40  $(0.10)
Diluted$1.41  $0.88  $0.09  $2.29  $(0.10)
Weighted-average shares outstanding:                   
Basic 43,173,312   42,673,615   40,506,671   42,924,844   40,420,425 
Diluted 45,062,392   44,696,850   41,122,025   44,881,002   41,098,037 
Reconciliation of financial statement line items as reported to non-GAAP:                   
Noninterest income, as reported$70,111  $31,057  $22,411  $101,168  $28,153 
Gain on sale of aircraft    (114)     (114)   
Noninterest income, non-GAAP$70,111  $30,943  $22,411  $101,054  $28,153 
Income (loss) before taxes, as reported$76,169  $43,608  $5,251  $119,777  $(10,129)
Gain on sale of aircraft    (114)     (114)   
Income (loss) before taxes, non-GAAP$76,169  $43,494  $5,251  $119,663  $(10,129)
Income tax expense (benefit), as reported$12,587  $4,181  $1,474  $16,768  $(6,304)
Income tax effects and adjustments for non-GAAP items    (27)     (27)   
Income tax expense (benefit), non-GAAP$12,587  $4,154  $1,474  $16,741  $(6,304)
                    

This press release presents the non-GAAP financial measures. 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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