Exhibit 99.1
Section 2: EX-99.1
liveoakbancshareslogo.jpg 
LIVE OAK BANCSHARES, INC. REPORTS THIRD QUARTER 2018 RESULTS
Wilmington, NC, October 24, 2018 - Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported third quarter net earnings available to common shareholders of $14.3 million, or $0.34 per diluted share, compared to $12.9 million, or $0.33 per diluted share, for the third quarter of 2017. During the third quarter of 2018, the Company incurred costs of $2.7 million, or $0.05 per diluted share, related to the exit of its title insurance business.
“Recurring revenue continues to grow through net interest income and servicing and further fortifies the Live Oak business model as we continue in our mission to empower small business owners.  We are very excited about the opportunities we have on the horizon to serve the needs of more small businesses across the U.S. and revolutionize the financial services industry by driving technological advancements for digital banking through strategic alliances and investments,” said James S. Mahan, III, Chief Executive Officer of Live Oak.
Third Quarter 2018 Key Measures
(Dollars in thousands, except per share data)
 
 
 
Increase (Decrease)
 
 
 
Q3 2018
 
Q3 2017
 
Dollars
 
Percent
 
Q2 2018
Net interest income and servicing revenues
$
35,230

 
$
27,515

 
$
7,715

 
28
 %
 
$
34,013

Net income
14,252

 
12,862

 
1,390

 
11

 
14,253

Diluted earnings per share
0.34

 
0.33

 
0.01

 
3

 
0.34

Non-GAAP net income (1)
16,562

 
13,323

 
3,239

 
24

 
14,524

Non-GAAP diluted earnings per share (1)
0.40

 
0.34

 
0.06

 
18

 
0.35

Loan and lease production:
 
 
 
 
 
 
 
 
 
Loans and leases originated
$
377,337

 
$
395,682

 
$
(18,345
)
 
(5
)%
 
$
491,797

% Fully funded
48.2
%
 
37.4
%
 
n/a

 
n/a

 
55.9
%
Loan sales:
 
 
 
 

 

 
 
Guaranteed loans sold
$
298,073

 
$
163,843

 
$
134,230

 
82
 %
 
$
295,216

Net gains on sales of guaranteed loans
21,406

 
18,148

 
3,258

 
18

 
24,388

Average net gain on sale of guaranteed loans, per million sold
71.81

 
110.76

 
(38.95
)
 
(35
)
 
82.61

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

1



Loans and Leases
At September 30, 2018, the total loan and lease portfolio of $2.28 billion increased 22.3% above its level of a year ago and was essentially flat with its level at June 30, 2018. Compared to the second quarter of 2018, loans and leases held for investment increased $97.0 million, or 6.3%, to $1.63 billion while loans held for sale decreased $111.0 million, or 14.7%, to $646.5 million. Loan and lease originations totaled $377.3 million during the third quarter of 2018, a decline of $114.5 million, or 23.3%, from the second quarter of 2018 primarily resulting from seasonal slowdowns in the renewable energy sector combined with increased competition in existing verticals. The total loan and lease portfolio at September 30, 2018, and June 30, 2018, of $2.28 billion and $2.29 billion, respectively, was comprised of approximately 64.4% and 61.7% of unguaranteed loans and leases, respectively.
Average loans and leases were $2.31 billion during the third quarter of 2018 compared to $2.25 billion during the second quarter of 2018.
Net Interest Income
Net interest income for the third quarter of 2018 rose to $27.7 million compared to $21.0 million for the third quarter of 2017 and $27.0 million for the second quarter of 2018. 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 along with higher investment security holdings reflecting the Company's ongoing initiative to grow recurring revenue sources. The increase from the second quarter of 2018 arose principally from a higher average loan and lease portfolio balance. The net interest margin for the third quarter of 2018 increased fifteen basis points to 3.61% versus 3.46% in the second quarter of 2018 due to lower average balances of liquid assets and interest-bearing liabilities coupled with an increased yield on the loan and lease portfolio. The Company anticipates that it is positioned to benefit from a rising rate environment with 74.7% of the total held for sale and held for investment loan and lease portfolio priced at variable rates that adjust on either a calendar monthly or quarterly basis.
Noninterest Income
Noninterest income for the third quarter of 2018 decreased to $24.3 million compared to $25.1 million for the third quarter of 2017 and $30.6 million for the second quarter of 2018.
Net gains on sales of loans increased to $22.0 million in the third quarter of 2018 compared to $18.1 million in the third quarter of 2017 and decreased compared to $23.1 million in the second quarter of 2018. The volume of guaranteed loan sales in the third quarter of 2018 rose to $298.1 million compared to $163.8 million in the third quarter of 2017 and $295.2 million in the second quarter of 2018. The average net gain on guaranteed loan sales decreased to $71.8 thousand per million sold in the third quarter of 2018 versus $110.8 thousand in the third quarter of 2017 and $82.6 thousand in the second quarter of 2018. The decline in average loan sale pricing was primarily driven by market conditions and the higher interest rate environment which has led to increased prepayment speeds and fewer active loan purchasers relative to the growing pool of loans available for sale.
Loan servicing revenues of $7.5 million in the third quarter of 2018 rose by $1.0 million, or 15.7%, from the third quarter of 2017 and by $541 thousand, or 7.8%, from the second quarter of 2018. The net loss resulting from the revaluation of the servicing asset totaled $9.4 million for the third quarter of 2018, an increase of $5.7 million compared to the third quarter of 2017 and the second quarter of 2018, largely because of the aforementioned market conditions.
Lease income from solar panels contributed $2.2 million in noninterest income in the third quarter of 2018, compared to $682 thousand in the third quarter of 2017 and $1.9 million in the second quarter of 2018. The Company began offering operating lease agreements for solar panels to third parties at the end of the first quarter of 2017.
Title insurance income for the third quarter of 2018 was $479 thousand compared to $2.0 million in the third quarter of 2017 and $996 thousand in the second quarter of 2018. The Company exited the title insurance business during the third quarter of 2018 with the sale of Reltco, Inc.
Noninterest Expense
Noninterest expense for the third quarter of 2018 was $41.2 million compared to $35.9 million for the third quarter of 2017 and $40.8 million for the second quarter of 2018. The $5.4 million, or 15.0%, increase versus the prior year period reflected the ongoing expansion of the Company’s workforce, industry verticals, infrastructure, and new products in support of its growth strategy.

2



Salaries and employee benefits for the third quarter of 2018 increased to $20.6 million compared to $19.0 million for the third quarter of 2017 and decreased from $22.1 million for the second quarter of 2018. Included in these totals is stock-based compensation expense in the third quarter of 2018 of $2.5 million compared to $2.0 million for the third quarter of 2017 and $2.2 million for the second quarter of 2018. The reduction in salaries and benefits for the third quarter of 2018 was influenced by the Company’s departure from the title insurance business which was partially offset by the ongoing expansion of the Company’s workforce and infrastructure to support its initiatives.
Compared to the third quarter of 2017, there were increases in data processing expense of $1.7 million and equipment expense of $1.4 million. Largely influencing the increase in data processing was the contribution of software development resources to Apiture LLC in the third quarter of 2017 which transferred the recognition of costs associated with the Company’s technology development from salaries and employee benefits to data processing. The increase in equipment expense reflected the higher levels of depreciation related to solar panels acquired for the Company’s renewable energy leasing business.
During the third quarter of 2018, the Company recorded a $2.7 million net impairment expense associated with the sale of Reltco.
Asset Quality
The unguaranteed exposure of nonperforming loans increased to $12.9 million, or 0.79% of total loans and leases held for investment, at September 30, 2018, compared to $11.5 million, or 0.75%, at June 30, 2018. Total nonperforming loans increased to $52.7 million in the third quarter of 2018 from $46.1 million at the end of the prior quarter and was primarily related to older verticals.
The unguaranteed exposure of foreclosed assets decreased to $158 thousand at September 30, 2018, from $197 thousand at June 30, 2018. Foreclosed assets decreased $296 thousand to $1.4 million at September 30, 2018, from $1.7 million at June 30, 2018.
Net charge-offs increased to $2.3 million in the third quarter of 2018 compared to $787 thousand in the second quarter of 2018 and $959 thousand in the third quarter of 2017. Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarters ended September 30, 2018 and 2017, were 0.57% and 0.34%, respectively.
Provision for Loan and Lease Losses
There was a negative provision for loan and lease losses for the third quarter of 2018 totaling $243 thousand compared to provision expenses of $2.1 million for the second quarter of 2018 and $2.4 million for the third quarter of 2017. The negative provision is primarily a result from updating historical loss factors for industry verticals as they mature, consistent with our methodology for estimating the allowance for loan and lease losses.
The allowance for loan and lease losses totaled $26.8 million at September 30, 2018, compared to $29.4 million at June 30, 2018. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.64% and 1.91% at September 30, 2018, and June 30, 2018, respectively.
Income Tax
There was a net income tax benefit in the third quarter of 2018 of $3.2 million compared to $5.1 million in the third quarter of 2017 and a tax expense of $491 thousand in the second quarter of 2018. The Company’s effective tax rate is predominantly driven by the leasing of renewable energy assets that generate investment tax credits. As the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector.
Deposits
Total deposits decreased slightly by $44.9 million to $2.92 billion at September 30, 2018 from $2.97 billion at June 30, 2018, consistent with desired liquidity levels and stable loan and lease portfolio levels during the quarter. Average total interest-bearing deposits for the third quarter of 2018 decreased $86.7 million, or 2.9%, to $2.91 billion, compared to $2.99 billion for the second quarter of 2018. The ratio of average total loans and leases to average interest-bearing deposits was 79.3% for the third quarter of 2018, compared to 75.1% for the second quarter of 2018.
Conference Call
Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 25, 2018). 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 9884327. 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 November 1, 2018, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

3



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

4



Live Oak Bancshares, Inc.
Quarterly Statements of Income (unaudited)
(Dollars in thousands, except per share data)
 
 
Three months ended
 
3Q 2018
 
2Q 2018
 
1Q 2018
 
4Q 2017
 
3Q 2017
Interest income
 
 
 
 
 
 
 
 
 
Loans and fees on loans
$
37,724

 
$
36,267

 
$
32,691

 
$
29,343

 
$
26,977

Investment securities, taxable
2,528

 
2,530

 
1,117

 
468

 
325

Other interest earning assets
1,638

 
2,179

 
1,215

 
725

 
870

Total interest income
41,890

 
40,976

 
35,023

 
30,536

 
28,172

Interest expense
 
 
 
 
 
 
 
 
 
Deposits
14,165

 
13,927

 
10,418

 
7,330

 
6,758

Borrowings
1

 
1

 
129

 
230

 
389

Total interest expense
14,166

 
13,928

 
10,547

 
7,560

 
7,147

Net interest income
27,724

 
27,048

 
24,476

 
22,976

 
21,025

Provision for (recovery of) loan and leases losses
(243
)
 
2,087

 
4,392

 
4,055

 
2,426

Net interest income after provision for loan and lease losses
27,967

 
24,961

 
20,084

 
18,921

 
18,599

Noninterest income
 
 
 
 
 
 
 
 
 
Loan servicing revenue
7,506

 
6,965

 
6,898

 
6,001

 
6,490

Loan servicing asset revaluation
(9,380
)
 
(3,670
)
 
(5,088
)
 
(6,307
)
 
(3,691
)
Net gains on sales of loans
22,004

 
23,061

 
24,418

 
23,314

 
18,148

Lease income
2,194

 
1,920

 
1,608

 
1,165

 
682

Gain on contribution to equity method investment

 

 

 
68,000

 

Construction supervision fee income
578

 
597

 
779

 
699

 
362

Title insurance income
479

 
996

 
1,300

 
1,762

 
1,968

Other noninterest income
950

 
744

 
841

 
807

 
1,101

Total noninterest income
24,331

 
30,613

 
30,756

 
95,441

 
25,060

Noninterest expense
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
20,553

 
22,146

 
20,209

 
18,982

 
19,037

Travel expense
2,003

 
2,041

 
1,843

 
2,089

 
2,289

Professional services expense
1,228

 
1,119

 
1,298

 
709

 
1,068

Advertising and marketing expense
1,462

 
1,868

 
1,662

 
1,386

 
1,516

Occupancy expense
1,588

 
1,882

 
1,857

 
2,177

 
1,473

Data processing expense
3,661

 
2,906

 
2,837

 
2,913

 
1,982

Equipment expense
3,649

 
3,368

 
3,077

 
2,474

 
2,228

Other loan origination and maintenance expense
1,742

 
1,414

 
1,329

 
1,383

 
1,601

Renewable energy tax credit investment impairment

 

 

 
690

 

FDIC insurance
1,105

 
1,010

 
572

 
898

 
858

Title insurance closing services expense
114

 
372

 
426

 
541

 
687

Impairment expense on goodwill and other intangibles, net
2,680

 

 

 
3,648

 

Other expense
1,459

 
2,704

 
2,962

 
3,134

 
3,117

Total noninterest expense
41,244

 
40,830

 
38,072

 
41,024

 
35,856

Income before taxes
11,054

 
14,744

 
12,768

 
73,338

 
7,803

Income tax expense (benefit)
(3,198
)
 
491

 
315

 
1,608

 
(5,059
)
Net income
$
14,252

 
$
14,253

 
$
12,453

 
$
71,730

 
$
12,862

Earnings per share
 
 
 
 
 
 
 
 
 
Basic
$
0.36

 
$
0.36

 
$
0.31

 
$
1.80

 
$
0.34

Diluted
$
0.34

 
$
0.34

 
$
0.30

 
$
1.74

 
$
0.33

Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
Basic
40,119,561

 
40,027,336

 
39,926,781

 
39,879,345

 
37,366,041

Diluted
41,688,430

 
41,619,647

 
41,399,930

 
41,184,793

 
38,644,677


5



Live Oak Bancshares, Inc.
Quarterly Balance Sheets (unaudited)
(Dollars in thousands)
 
 
As of the quarter ended
 
3Q 2018
 
2Q 2018
 
1Q 2018
 
4Q 2017
 
3Q 2017
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
368,565

 
$
392,941

 
$
527,952

 
$
295,271

 
$
260,907

Certificates of deposit with other banks
750

 
2,250

 
2,250

 
3,000

 
3,250

Investment securities available-for-sale
374,284

 
382,890

 
376,453

 
93,355

 
76,575

Loans held for sale
646,475

 
757,494

 
720,511

 
680,454

 
692,586

Loans and leases held for investment
1,631,337

 
1,534,368

 
1,442,077

 
1,343,973

 
1,169,887

Allowance for loan and lease losses
(26,797
)
 
(29,350
)
 
(28,050
)
 
(24,190
)
 
(21,027
)
Net loans and leases
1,604,540

 
1,505,018

 
1,414,027

 
1,319,783

 
1,148,860

Premises and equipment, net
263,861

 
234,817

 
216,831

 
178,790

 
129,233

Foreclosed assets
1,429

 
1,725

 
1,519

 
1,281

 
2,231

Servicing assets
49,261

 
52,689

 
53,120

 
52,298

 
53,392

Other assets
135,592

 
143,145

 
148,200

 
134,242

 
65,155

Total assets
$
3,444,757

 
$
3,472,969

 
$
3,460,863

 
$
2,758,474

 
$
2,432,189

Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
Noninterest-bearing
$
48,622

 
$
46,192

 
$
48,755

 
$
57,868

 
$
55,260

Interest-bearing
2,875,666

 
2,923,044

 
2,924,586

 
2,202,395

 
1,957,631

Total deposits
2,924,288

 
2,969,236

 
2,973,341

 
2,260,263

 
2,012,891

Long term borrowings
1,506

 
3,385

 
3,489

 
26,564

 
26,872

Other liabilities
41,733

 
37,362

 
35,197

 
34,714

 
27,835

Total liabilities
2,967,527

 
3,009,983

 
3,012,027

 
2,321,541

 
2,067,598

Shareholders’ equity
 
 
 
 
 
 
 
 
 
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding

 

 

 

 

Class A common stock (voting)
276,831

 
274,043

 
271,451

 
268,557

 
266,336

Class B common stock (non-voting)
49,168

 
49,168

 
49,168

 
49,168

 
49,168

Retained earnings
157,839

 
144,791

 
131,739

 
120,241

 
49,707

Accumulated other comprehensive loss
(6,608
)
 
(5,016
)
 
(3,522
)
 
(1,033
)
 
(620
)
Total equity
477,230

 
462,986

 
448,836

 
436,933

 
364,591

Total liabilities and shareholders’ equity
$
3,444,757

 
$
3,472,969

 
$
3,460,863

 
$
2,758,474

 
$
2,432,189



6



Live Oak Bancshares, Inc.
Statements of Income (unaudited)
(Dollars in thousands, except per share data)
 
Nine months ended
 
September 30, 2018
 
September 30, 2017
Interest income
 
 
 
Loans and fees on loans
$
106,682

 
$
70,290

Investment securities, taxable
6,175

 
964

Other interest earning assets
5,032

 
1,682

Total interest income
117,889

 
72,936

Interest expense
 
 
 
Deposits
38,510

 
16,893

Borrowings
131

 
985

Total interest expense
38,641

 
17,878

Net interest income
79,248

 
55,058

Provision for loan losses
6,236

 
5,481

Net interest income after provision for loan losses
73,012

 
49,577

Noninterest income
 
 
 
Loan servicing revenue
21,369

 
18,587

Loan servicing asset revaluation
(18,138
)
 
(6,864
)
Net gains on sales of loans
69,483

 
55,276

Lease income
5,722

 
691

Construction supervision fee income
1,954

 
1,077

Title insurance income
2,775

 
5,803

Other noninterest income
2,535

 
2,910

Total noninterest income
85,700

 
77,480

Noninterest expense
 
 
 
Salaries and employee benefits
62,908

 
55,687

Travel expense
5,887

 
6,035

Professional services expense
3,645

 
4,228

Advertising and marketing expense
4,992

 
4,977

Occupancy expense
5,327

 
4,018

Data processing expense
9,404

 
5,536

Equipment expense
10,094

 
5,005

Other loan origination and maintenance expense
4,485

 
3,587

FDIC insurance
2,687

 
2,308

Title insurance closing services expense
912

 
1,877

Impairment expense on goodwill and other intangibles, net
2,680

 

Other expense
7,125

 
8,883

Total noninterest expense
120,146

 
102,141

Income before taxes
38,566

 
24,916

Income tax benefit
(2,392
)
 
(3,853
)
Net income
$
40,958

 
$
28,769

Earnings per share
 
 
 
Basic
$
1.02

 
$
0.81

Diluted
$
0.98

 
$
0.78

Weighted average shares outstanding
 
 
 
Basic
40,025,265

 
35,485,371

Diluted
41,586,987

 
36,730,054


7



Live Oak Bancshares, Inc.
Quarterly Selected Financial Data
(Dollars in thousands, except per share data)
 
 
As of and for the three months ended
 
3Q 2018
 
2Q 2018
 
1Q 2018
 
4Q 2017
 
3Q 2017
Income Statement Data
 
 
 
 
 
 
 
 
 
Net income
$
14,252

 
$
14,253

 
$
12,453

 
$
71,730

 
$
12,862

Per Common Share
 
 
 
 
 
 
 
 
 
Net income, basic
$
0.36

 
$
0.36

 
$
0.31

 
$
1.80

 
$
0.34

Net income, diluted
0.34

 
0.34

 
0.30

 
1.74

 
0.33

Dividends declared
0.03

 
0.03

 
0.03

 
0.03

 
0.03

Book value
11.89

 
11.55

 
11.23

 
10.95

 
9.15

Tangible book value (1)
11.89

 
11.45

 
11.13

 
10.85

 
8.84

Performance Ratios
 
 
 
 
 
 
 
 
 
Return on average assets (annualized)
1.65
%
 
1.61
%
 
1.64
%
 
11.21
%
 
2.18
%
Return on average equity (annualized)
12.08

 
12.34

 
11.08

 
68.33

 
16.79

Net interest margin
3.61

 
3.46

 
3.72

 
4.07

 
3.91

Efficiency ratio (1)
79.23

 
70.81

 
68.93

 
34.64

 
77.80

Noninterest income to total revenue
46.74

 
53.09

 
55.69

 
80.60

 
54.38

Selected Loan Metrics
 
 
 
 
 
 
 
 
 
Loans and leases originated
$
377,337

 
$
491,797

 
$
397,559

 
$
483,422

 
$
395,682

Guaranteed loans sold
298,073

 
295,216

 
247,243

 
211,654

 
163,843

Average net gain on sale of guaranteed loans
71.81

 
82.61

 
98.76

 
110.15

 
110.76

Held for sale guaranteed loans (note amount) (2)
896,464

 
1,075,801

 
1,068,886

 
1,087,636

 
1,093,385

Outstanding balance of sold loans serviced:
 
 
 
 
 
 
 
 
 
Guaranteed
3,102,820

 
2,951,379

 
2,812,108

 
2,680,641

 
2,584,163

Unguaranteed
170,784

 
155,939

 
174,867

 
169,355

 
135,705

Total
3,273,604

 
3,107,318

 
2,986,975

 
2,849,996

 
2,719,868

Asset Quality Ratios
 
 
 
 
 
 
 
 
 
Allowance for loan losses to loans and leases held for investment
1.64
%
 
1.91
%
 
1.95
%
 
1.80
%
 
1.80
%
Net charge-offs
$
2,310

 
$
787

 
$
532

 
$
892

 
$
959

Net charge-offs to average loans and leases held for investment (3)
0.57
%
 
0.21
%
 
0.15
%
 
0.28
%
 
0.34
%
Nonperforming loans
$
52,709

 
$
46,105

 
$
36,776

 
$
23,480

 
$
22,420

Foreclosed assets
1,429

 
1,725

 
1,519

 
1,281

 
2,231

Nonperforming loans (unguaranteed exposure)
12,897

 
11,466

 
7,386

 
3,610

 
3,299

Foreclosed assets (unguaranteed exposure)
158

 
197

 
101

 
90

 
446

Nonperforming loans not guaranteed by the SBA and foreclosures
$
13,055

 
$
11,663

 
$
7,487

 
$
3,700

 
$
3,745

Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets
0.38
%
 
0.34
%
 
0.22
%
 
0.13
%
 
0.15
%
Capital Ratios
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital (to risk-weighted assets)
16.95
%
 
16.78
%
 
16.36
%
 
17.81
%
 
17.78
%
Total capital (to risk-weighted assets)
18.01

 
17.97

 
17.51

 
18.91

 
18.93

Tier 1 risk based capital (to risk-weighted assets)
16.95

 
16.78

 
16.36

 
17.81

 
17.78

Tier 1 leverage capital (to average assets)
12.53

 
11.81

 
13.32

 
15.53

 
13.99

Notes to Quarterly Selected Financial Data
(1) See accompanying GAAP to Non-GAAP Reconciliation.
(2)
Includes the entire note amount, including undisbursed funds for the multi-advance loans.
(3) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.

8



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

 
 
Three months ended September 30, 2018
 
Three months ended June 30, 2018
 
 
Average Balance
 
 Interest
 
Average Yield/Rate
 
Average Balance
 
 Interest
 
Average Yield/Rate
Interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest earning balances in other banks
 
$
349,739

 
$
1,638

 
1.86
%
 
$
505,351

 
$
2,179

 
1.73
%
Investment securities
 
388,520

 
2,528

 
2.58

 
383,154

 
2,530

 
2.65

Loans held for sale
 
693,517

 
11,270

 
6.45

 
744,789

 
11,937

 
6.43

Loans and leases held for investment (1)
 
1,612,699

 
26,454

 
6.51

 
1,504,738

 
24,330

 
6.49

Total interest earning assets
 
3,044,475

 
41,890

 
5.46

 
3,138,032

 
40,976

 
5.24

Less: allowance for loan and lease losses
 
(29,266
)
 
 
 
 
 
(27,930
)
 
 
 
 
Non-interest earning assets
 
434,963

 
 
 
 
 
424,100

 
 
 
 
Total assets
 
$
3,450,172

 
 
 
 
 
$
3,534,202

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking
 
$
31,950

 
$
87

 
1.08
%
 
$
36,926

 
$
100

 
1.09
%
Savings
 
943,958

 
4,026

 
1.69

 
998,521

 
4,061

 
1.63

Money market accounts
 
120,702

 
314

 
1.03

 
151,880

 
463

 
1.22

Certificates of deposit
 
1,810,040

 
9,738

 
2.13

 
1,806,063

 
9,303

 
2.07

Total interest bearing deposits
 
2,906,650

 
14,165

 
1.93

 
2,993,390

 
13,927

 
1.87

Other borrowings
 
3,365

 
1

 
0.12

 
3,488

 
1

 
0.11

Total interest bearing liabilities
 
2,910,015

 
14,166

 
1.93

 
2,996,878

 
13,928

 
1.86

Non-interest bearing deposits
 
46,272

 
 
 
 
 
53,922

 
 
 
 
Non-interest bearing liabilities
 
21,804

 
 
 
 
 
21,217

 
 
 
 
Shareholders' equity
 
472,081

 
 
 
 
 
462,185

 
 
 
 
Total liabilities and shareholders' equity
 
$
3,450,172

 
 
 
 
 
$
3,534,202

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income and interest rate spread
 
 
 
$
27,724

 
3.53
%
 
 
 
$
27,048

 
3.38
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
 
 
 
 
3.61

 
 
 
 
 
3.46

 
 
 
 
 
 
 
 
 
 
 
 
 
Ratio of average interest-earning assets to average interest-bearing liabilities
 
 
 
 
 
104.62
%
 
 
 
 
 
104.71
%

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


9



Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation
(Dollars in thousands)
 
 
As of and for the three months ended
 
3Q 2018
 
2Q 2018
 
1Q 2018
 
4Q 2017
 
3Q 2017
Total shareholders’ equity
$
477,230

 
$
462,986

 
$
448,836

 
$
436,933

 
$
364,591

Less:
 
 
 
 
 
 
 
 
 
Goodwill

 

 

 

 
7,278

Other intangible assets

 
3,980

 
4,122

 
4,264

 
5,126

Tangible shareholders’ equity (a)
$
477,230

 
$
459,006

 
$
444,714

 
$
432,669

 
$
352,187

Shares outstanding (c)
40,140,417

 
40,086,409

 
39,974,148

 
39,895,583

 
39,862,147

Total assets
$
3,444,757

 
$
3,472,969

 
$
3,460,863

 
$
2,758,474

 
$
2,432,189

Less:
 
 
 
 
 
 
 
 
 
Goodwill

 

 

 

 
7,278

Other intangible assets

 
3,980

 
4,122

 
4,264

 
5,126

Tangible assets (b)
$
3,444,757

 
$
3,468,989

 
$
3,456,741

 
$
2,754,210

 
$
2,419,785

Tangible shareholders’ equity to tangible assets (a/b)
13.85
%
 
13.23
%
 
12.87
%
 
15.71
%
 
14.55
%
Tangible book value per share (a/c)
$
11.89

 
$
11.45

 
$
11.13

 
$
10.85

 
$
8.84

Efficiency ratio:
 
 
 
 
 
 
 
 
 
Noninterest expense (d)
$
41,244

 
$
40,830

 
$
38,072

 
$
41,024

 
$
35,856

Net interest income
27,724

 
27,048

 
24,476

 
22,976

 
21,025

Noninterest income
24,331

 
30,613

 
30,756

 
95,441

 
25,060

Less: gain on sale of securities

 

 

 

 

Adjusted operating revenue (e)
$
52,055

 
$
57,661

 
$
55,232

 
$
118,417

 
$
46,085

Efficiency ratio (d/e)
79.23
%
 
70.81
%
 
68.93
%
 
34.64
%
 
77.80
%



















10



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

 
Three months ended
 
Nine months ended
 
3Q 2018
 
2Q 2018
 
3Q 2017
 
3Q 2018
 
3Q 2017
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:
 
 
 
 
 
 
 
 
 
Net income
$
14,252

 
$
14,253

 
$
12,862

 
$
40,958

 
$
28,769

Stock based compensation expense for restricted stock awards with an effective grant date of May 24, 2016, as discussed in Note 10 of our March 31, 2016 Form 10-Q
360

 
357

 
286

 
1,069

 
1,010

Merger costs for acquisition of Reltco and Apiture investment

 

 
390

 

 
1,156

Trade-in loss on aircraft

 

 

 

 
206

Impairment expense on goodwill and other intangibles, net
2,680

 

 

 
2,680

 

Renewable energy tax credit investment income, impairment and loss

 

 

 

 
38

Income tax effects and adjustments for non-GAAP items *
(730
)
 
(86
)
 
(270
)
 
(900
)
 
(964
)
Other renewable energy tax expense

 

 
44

 

 
132

Non-GAAP net income
$
16,562

 
$
14,524

 
$
13,312

 
$
43,807

 
$
30,347

* Estimated at 24.0% for 2018 and 40.0% for 2017
 
 
 
 
 
 
 
 
 
Non-GAAP earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.41

 
$
0.36

 
$
0.36

 
$
1.09

 
$
0.86

Diluted
$
0.40

 
$
0.35

 
$
0.34

 
$
1.05

 
$
0.83

 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
40,119,561

 
40,027,336

 
37,366,041

 
40,025,265

 
35,485,371

Diluted
41,688,430

 
41,619,647

 
38,644,677

 
41,586,987

 
36,370,054

 
 
 
 
 
 
 
 
 
 
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:
 
 
 
 
 
 
 
 
 
Noninterest income, as reported
$
24,331

 
$
30,613

 
$
25,060

 
$
85,700

 
$
77,480

Renewable energy tax credit investment income



 

 

 
(20
)
Noninterest income, as adjusted
$
24,331


$
30,613

 
$
25,060

 
$
85,700

 
$
77,460

 
 
 
 
 
 
 
 
 
 
Noninterest expense, as reported
$
41,244

 
$
40,830

 
$
35,856

 
$
120,146

 
$
102,141

Stock based compensation expense
(360
)
 
(357
)
 
(286
)
 
(1,069
)
 
(1,010
)
Merger costs associated with Reltco and Apiture investment

 

 
(390
)
 

 
(1,156
)
Trade-in loss on aircraft

 

 

 

 
(206
)
Impairment expense on goodwill and other intangibles, net
(2,680
)
 

 

 
(2,680
)
 

Renewable energy tax credit investment impairment and loss

 

 

 

 
(58
)
Noninterest expense, as adjusted
$
38,204

 
$
40,473

 
$
35,180

 
$
116,397

 
$
99,711

 
 
 
 
 
 
 
 
 
 

11



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

 
Three months ended
 
Nine months ended
 
3Q 2018
 
2Q 2018
 
3Q 2017
 
3Q 2018
 
3Q 2017
Income before taxes, as reported
$
11,054

 
$
14,744

 
$
7,803

 
$
38,566

 
$
24,916

Renewable energy tax credit investment income








(20
)
Stock based compensation expense
360


357


286


1,069


1,010

Merger costs associated with Reltco and Apiture investment




390




1,156

Trade-in loss on aircraft








206

Impairment expense on goodwill and other intangibles, net
2,680

 

 

 
2,680

 

Renewable energy tax credit investment impairment and loss








58

Income before taxes, as adjusted
$
14,094


$
15,101


$
8,479


$
42,315


$
27,326

 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit), as reported
$
(3,198
)
 
$
491

 
$
(5,059
)
 
$
(2,392
)
 
$
(3,853
)
Income tax effects and adjustments for non-recurring income and expenses
730


86


270


900


964

Other renewable energy tax expense

 

 
(44
)
 

 
(132
)
Income tax expense (benefit), as adjusted
$
(2,468
)
 
$
577

 
$
(4,833
)
 
$
(1,492
)
 
$
(3,021
)
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.

12

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