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Live Oak Bancshares, Inc. Reports Second Quarter 2022 Results

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

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

Second Quarter 2022 Key Measures

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

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

Loans and Leases

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

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

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

Deposits

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

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

Borrowings

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

Net Interest Income

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

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

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

Noninterest Income

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

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

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

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

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

Noninterest Expense

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

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

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

Asset Quality

During the second quarter of 2022, the Company recognized net charge-offs for loans carried at historical cost of $2.5 million compared to net charge-offs of $2.4 million in both the first quarter of 2022 and second quarter of 2021. Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended June 30, 2022, March 31, 2022 and June 30, 2021, was 0.19%, 0.19% and 0.21%, respectively.

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

Provision for Loan and Lease Credit Losses

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

The allowance for credit losses on loans and leases totaled $65.9 million at June 30, 2022, compared to $63.1 million at March 31, 2022. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost was 1.24% and 1.23% at June 30, 2022, and March 31, 2022, respectively.

Income Tax

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

Shareholders’ Equity

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

Conference Call

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

Important Note Regarding Forward-Looking Statements

Statements in this press release that are based on other than historical data or that express the Company’s plans or expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements based on historical data are not intended and should not be understood to indicate the Company’s expectations regarding future events. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance or determinations, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this press release. Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include changes in Small Business Administration (“SBA”) rules, regulations or loan products, including the Section 7(a) program, changes in SBA standard operating procedures or changes in Live Oak Banking Company's status as an SBA Preferred Lender; changes in rules, regulations or procedures for other government loan programs, including those of the United States Department of Agriculture; the potential impacts of the Coronavirus Disease 2019 (COVID-19) pandemic on trade (including supply chains and export levels), travel, employee productivity and other economic activities that may have a destabilizing and negative effect on financial markets, economic activity and customer behavior; a reduction in or the termination of the Company's ability to use the technology-based platform that is critical to the success of its business model, including a failure in or a breach of operational or security systems; competition from other lenders; the Company's ability to attract and retain key personnel; market and economic conditions and the associated impact on the Company; operational, liquidity and credit risks associated with the Company's business; the impact of heightened regulatory scrutiny of financial products and services and the Company's ability to comply with regulatory requirements and expectations; adverse results, including related fees and expenses, from pending or future lawsuits, government investigations or private actions; and the other factors discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov). Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

About Live Oak Bancshares, Inc.

Live Oak Bancshares, Inc. (Nasdaq: LOB) is a financial holding company and the parent company of Live Oak Bank. Live Oak Bancshares and its subsidiaries partner with businesses that share a groundbreaking focus on service and technology to redefine banking. To learn more, visit www.liveoakbank.com.

Contacts:

William C. (BJ) Losch, III | CFO & Chief Banking Officer | Investor Relations | 910.765.9966
Claire Parker | SVP Corporate Communications | Media Relations | 910.597.1592

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

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

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

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

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

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

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

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

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

Notes to Quarterly Selected Financial Data

(1) See accompanying GAAP to Non-GAAP Reconciliation.
(2) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.
(3) Loans and leases at historical cost only (excludes loans measured at fair value).
(4) Loans accounted for under the fair value option only (excludes loans and leases carried at historical cost).

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

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

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

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

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

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

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