Live Oak Bancshares, Inc. Reports Fourth Quarter 2017 Results

WILMINGTON, N.C., Jan. 24, 2018 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq:LOB) (“Live Oak” or “the Company”) today reported fourth quarter net earnings available to common shareholders of $71.7 million, or $1.74 per diluted share, compared to $5.5 million, or $0.16 per diluted share, for the fourth quarter of 2016. The fourth quarter of 2017 included a pretax gain of $68.0 million related to an equity method investment in Apiture, LLC ("Apiture"), an $18.9 million revaluation of the Company's net deferred tax liability, and several other smaller non-routine costs. Net earnings for the year ended December 31, 2017 totaled $100.5 million, or $2.65 per diluted share, compared to $13.8 million for the year ended December 31, 2016, or $0.39 per diluted share.

“2017 was a phenomenal year for Live Oak in many ways. We enjoyed record earnings per share of $2.65 while experiencing terrific growth in recurring revenue sources that exceeded $100 million. We continued our mission to serve small businesses with record setting loan originations in excess of $1.9 billion while steadily expanding the roster of industry sectors we focus on. Specific to the fourth quarter of 2017, we closed our joint venture with First Data Corporation to create Apiture as part of our desire to fundamentally change an industry through open application program technology on next-generation digital banking platforms. We also conducted a highly successful capital raise this past year while recent changes in the tax code further bolstered our capital account, affording us additional opportunities to invest in our growth, our employees, our customers, and our community,” said James S. Mahan, III, Chief Executive Officer of Live Oak.


Year over Year Highlights

(Dollars in thousands, except per share data) Increase (Decrease)
2017 2016 Dollars Percent
Net interest income and servicing revenues$102,622 $64,042 $38,580 60%
Net income attributable to Live Oak Bancshares, Inc.100,499 13,773 86,726 630
Diluted earnings per share2.65 0.39 2.26 579
Non-GAAP net income (1)47,187 20,148 27,039 134
Non-GAAP diluted earnings per share (1)1.25 0.57 0.68 119
Loan and lease production:
Loans and leases originated$1,934,238 $1,537,010 $397,228 26%
% Fully funded50.9% 48.2% n/a n/a
Loan sales:
Guaranteed loans sold$787,926 $761,933 $25,993 3%
Net gains on sales of guaranteed loans79,090 75,326 3,764 5
Average net gain on sale of guaranteed loans, per million sold100.38 98.86 1.52 2

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


Fourth Quarter 2017 Key Measures

(Dollars in thousands, except per share data) Increase (Decrease)
Q4 2017 Q4 2016 Dollars Percent Q3 2017
Net interest income and servicing revenues$28,977 $18,060 $10,917 60% $27,515
Net income attributable to Live Oak Bancshares, Inc.71,730 5,480 66,250 1,209 12,862
Diluted earnings per share1.74 0.16 1.58 988 0.33
Non-GAAP net income (1)16,875 6,076 10,799 178 13,312
Non-GAAP diluted earnings per share (1)0.41 0.17 0.24 141 0.34
Loan and lease production:
Loans and leases originated$483,422 $514,565 $(31,143) (6)% $395,682
% Fully funded42.9% 48.0% n/a n/a 37.4%
Loan sales:
Guaranteed loans sold$211,654 $260,125 $(48,471) (19)% $163,843
Net gains on sales of guaranteed loans23,314 22,513 801 4 18,148
Average net gain on sale of guaranteed loans, per million sold110.15 86.55 23.6 27 110.76

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


Loans and Leases

At December 31, 2017, the total loan and lease portfolio of $2.02 billion increased 55.5% above its level of a year ago and 8.7% from September 30, 2017. Net loans and leases held for investment increased $170.9 million, or 14.9%, to $1.32 billion at December 31, 2017, from $1.15 billion at September 30, 2017. Loans held for sale decreased $12.1 million, or 1.8%, to $680.5 million at December 31, 2017, from $692.6 million at September 30, 2017. Loan and lease originations totaled $483.4 million during the fourth quarter of 2017, an increase of $87.7 million, or 22.2%, from the third quarter of 2017. Originations for year ended December 31, 2017 rose by 25.8% to $1.93 billion compared to $1.54 billion for the year ended December 31, 2016. The total loan and lease portfolio at December 31, 2017, and September 30, 2017, of $2.02 billion and $1.86 billion, respectively, were comprised of approximately 61.4% and 60.6% of unguaranteed loans and leases, respectively.

Average loans and leases were $1.91 billion during the fourth quarter of 2017 compared to $1.77 billion during the third quarter of 2017.

Net Interest Income

Net interest income for the fourth quarter of 2017 increased to $23.0 million compared to $12.4 million for the fourth quarter of 2016. The increase was driven by the significant growth in the combined held for sale and held for investment loan and lease portfolios and reflected the Company's initiative to grow recurring revenue sources by increasing the level of loans and leases retained on the balance sheet. The net interest margin of 4.07% for the fourth quarter of 2017 increased from 3.91% for the third quarter of 2017. The net interest margin has risen by 99 basis points from the fourth quarter of 2016 as the Company has benefited from the repricing characteristics of its loan portfolio in the rising interest rate environment.

Noninterest Income

Noninterest income for the fourth quarter of 2017 totaled $95.4 million, compared to $26.3 million for the fourth quarter of 2016. The increase was driven by a $68.0 million gain arising from the Company’s equity method investment in Apiture. Excluding this one-time gain, noninterest income totaled $27.4 million for the fourth quarter of 2017, a $1.1 million increase over the fourth quarter of 2016.

Net gains on sales of loans increased to $23.3 million in the fourth quarter of 2017 compared to $22.5 million in the fourth quarter of 2016 and $18.1 million for the third quarter of 2017. The volume of guaranteed loans sold in the fourth quarter of 2017 totaled $211.7 million compared to $163.8 million in the third quarter of 2017 and $260.1 million in the fourth quarter of 2016. The decline in the volume of guaranteed loans sold compared to fourth quarter of 2016 was countered by a significant increase in the average net gain on sale at $110.2 thousand per million sold for the fourth quarter of 2017 compared to $86.6 thousand per million sold for the fourth quarter of 2016.

Loan servicing revenues of $6.0 million in the fourth quarter of 2017 increased by $333 thousand from the fourth quarter of 2016. The net loss resulting from the servicing asset revaluation totaled $6.3 million for the fourth quarter of 2017, an increase of $3.0 million compared to the fourth quarter of 2016.

The inclusion of Reltco, Inc. and National Assurance Title, Inc. (collectively referred to as "Reltco"), which were acquired in February 2017, contributed $1.8 million in noninterest income to the Company in the fourth quarter of 2017, a decline of $206 thousand compared to the third quarter of 2017.

Noninterest Expense

Noninterest expense for the fourth quarter of 2017 was $41.0 million compared to $32.4 million for the fourth quarter of 2016 and $35.9 million for the third quarter of 2017. Noninterest expense for the fourth quarter of 2017 included costs associated with several non-routine events in the quarter. The Company incurred expenses of $1.7 million of merger and acquisition related costs, $3.6 million due to the impairment of intangible assets associated with the acquisition of Reltco, $1.6 million due to contract modification for the continued operation of Reltco, $690 thousand for the impairment of a tax credit investment from the fourth quarter of 2016, and $360 thousand of stock based compensation expense related to restricted stock awards with an effective grant date of May 24, 2016, for key employee retention. The resulting noninterest expense adjusted for these non-routine items totaled $33.0 million in the fourth quarter of 2017, a decline from third quarter of 2017. See the accompanying GAAP to Non-GAAP Reconciliation for further information relative to non-routine items.

Salaries and employee benefits for the fourth quarter of 2017 increased to $19.0 million compared to $17.1 million for the fourth quarter of 2016. Included in these totals, total stock based compensation expense in the fourth quarter of 2017 was $1.8 million compared to $4.4 million for the fourth quarter of 2016. This decline was offset by the ongoing expansion of the Company’s business platform, workforce and related infrastructure to support its growth strategy along with the addition of Reltco personnel during the first quarter of 2017.

Compared to the fourth quarter of 2016, there were increases in data processing expense of $1.5 million and equipment expense of $1.9 million for the fourth quarter of 2017. The increase in data processing arose from the ongoing efforts of the Company to expand its technological competitive advantage and from the contribution of software development resources to Apiture. The latter move 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 aircraft acquired in the first quarter of 2017 and solar panels acquired for the Company’s renewable energy leasing business.

Asset Quality

The unguaranteed exposure of nonperforming loans increased slightly to $3.6 million at December 31, 2017, compared to $3.3 million at September 30, 2017. Total unguaranteed nonperforming loans as a percentage of total loans and leases held for investment declined to 0.27% at December 31, 2017, compared to 0.28% at September 30, 2017. Total nonperforming loans increased slightly to $23.5 million in the fourth quarter of 2017 from $22.4 million at the end of the prior quarter.

The unguaranteed exposure of foreclosed assets decreased to $90 thousand at December 31, 2017, from $446 thousand at September 30, 2017. Foreclosed assets decreased $950 thousand to $1.3 million at December 31, 2017, from $2.2 million at September 30, 2017.

Net charge-offs amounted to $892 thousand in the fourth quarter of 2017 compared to $959 thousand in the third quarter of 2017 and $813 thousand in the fourth quarter of 2016. Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarters ended December 31, 2017 and 2016 were 0.28% and 0.39%, respectively. Net charge-offs for the twelve months of 2017 totaled $3.6 million compared to $1.7 million for the twelve months of 2016.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the fourth quarter of 2017 totaled $4.1 million compared to $2.4 million for the third quarter of 2017 and $3.8 million for the fourth quarter of 2016. The fourth quarter of 2017 provision exceeded net charge-offs by $3.2 million, thus adding to loan and lease loss reserves in consideration of the continued growth of the loan and lease portfolio.

The allowance for loan and lease losses totaled $24.2 million at December 31, 2017, compared to $21.0 million at September 30, 2017. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.80% at December 31, 2017 and September 30, 2017, respectively.

Income Tax

Income tax expense in the fourth quarter of 2017 totaled $1.6 million compared to a net income tax benefit of $3.0 million in the fourth quarter of 2016 and a benefit of $5.1 million in the third quarter of 2017. For the year ended December 31, 2017, there was a net income tax benefit of $2.2 million. This benefit was primarily driven by the Company’s leasing of renewable energy assets which generated $24.9 million in investment tax credits along with an estimated revaluation of the Company’s net deferred tax liability totaling $18.9 million as a result of the enactment of the Tax Cuts and Jobs Act in the fourth quarter of 2017.

Deposits

Total deposits increased by $247.4 million, or 12.3%, to $2.26 billion at December 31, 2017, compared to $2.01 billion at September 30, 2017, following successful deposit gathering campaigns. Average total interest-bearing deposits for the fourth quarter of 2017 increased $65.9 million, or 3.4%, to $2.01 billion, compared to $1.94 billion for the third quarter of 2017. The ratio of average total loans and leases to average interest-bearing deposits was 95.0% for the fourth quarter of 2017, compared to 91.1% for the third quarter of 2017.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (January 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 2778286. 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 February 1, 2018, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

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, a national online platform for small business lending.

Contacts:
Brett Caines | CFO | Investor Relations | 910.796.1645 & Micah Davis | Marketing Director | Media Relations | 910.550.2255


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

Three months ended
4Q 2017 3Q 2017 2Q 2017 1Q 2017 4Q 2016
Interest income
Loans and fees on loans$29,343 $26,977 $23,559 $19,754 $16,239
Investment securities, taxable468 325 316 323 292
Other interest earning assets725 870 470 342 383
Total interest income30,536 28,172 24,345 20,419 16,914
Interest expense
Deposits7,330 6,758 5,592 4,543 4,283
Borrowings230 389 361 235 239
Total interest expense7,560 7,147 5,953 4,778 4,522
Net interest income22,976 21,025 18,392 15,641 12,392
Provision for loan and lease losses4,055 2,426 1,556 1,499 3,844
Net interest income after provision for loan and lease losses18,921 18,599 16,836 14,142 8,548
Noninterest income
Loan servicing revenue6,001 6,490 6,174 5,923 5,668
Loan servicing asset revaluation(6,307) (3,691) (1,164) (2,009) (3,340)
Net gains on sales of loans23,314 18,148 18,176 18,952 22,513
Gain on contribution to equity method investment68,000
Construction supervision fee income699 362 286 429 868
Title insurance income1,762 1,968 2,397 1,438
Other noninterest income1,972 1,783 798 1,020 618
Total noninterest income95,441 25,060 26,667 25,753 26,327
Noninterest expense
Salaries and employee benefits18,982 19,037 17,968 18,682 17,121
Travel expense2,089 2,289 2,148 1,598 1,811
Professional services expense709 1,068 1,424 1,736 1,137
Advertising and marketing expense1,386 1,516 1,976 1,485 1,109
Occupancy expense2,177 1,473 1,350 1,195 1,267
Data processing expense2,913 1,982 1,858 1,696 1,435
Equipment expense2,474 2,228 1,703 1,074 550
Other loan origination and maintenance expense1,383 1,601 981 1,005 824
Renewable energy tax credit investment impairment690 3,197
FDIC insurance898 858 724 726 910
Title insurance closing services expense541 687 785 405
Impairment expense on goodwill and other intangibles3,648
Other expense3,134 3,117 2,383 3,383 3,023
Total noninterest expense41,024 35,856 33,300 32,985 32,384
Income before taxes73,338 7,803 10,203 6,910 2,491
Income tax (benefit) expense1,608 (5,059) 408 798 (2,989)
Net income attributable to Live Oak Bancshares, Inc.$71,730 $12,862 $9,795 $6,112 $5,480
Earnings per share
Basic$1.80 $0.34 $0.28 $0.18 $0.16
Diluted$1.74 $0.33 $0.27 $0.17 $0.16
Weighted average shares outstanding
Basic39,879,345 37,366,041 34,618,721 34,466,904 34,235,375
Diluted41,184,793 38,644,677 35,942,041 35,646,918 35,208,433


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

As of the quarter ended
4Q 2017 3Q 2017 2Q 2017 1Q 2017 4Q 2016
Assets
Cash and due from banks$295,271 $260,907 $207,373 $158,887 $238,008
Certificates of deposit with other banks3,000 3,250 5,750 6,000 7,250
Investment securities available-for-sale93,355 76,575 72,993 68,630 71,056
Loans held for sale680,454 692,586 609,138 512,501 394,278
Loans and leases held for investment1,343,973 1,169,887 1,084,503 999,270 907,566
Allowance for loan and lease losses(24,190) (21,027) (19,560) (18,195) (18,209)
Net loans and leases1,319,783 1,148,860 1,064,943 981,075 889,357
Premises and equipment, net178,790 129,233 125,008 101,398 64,661
Foreclosed assets1,281 2,231 2,140 1,706 1,648
Servicing assets52,298 53,392 53,675 53,584 51,994
Other assets134,242 65,155 57,087 48,344 37,009
Total assets$2,758,474 $2,432,189 $2,198,107 $1,932,125 $1,755,261
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing$57,868 $55,260 $40,966 $38,029 $27,990
Interest-bearing2,202,395 1,957,631 1,830,755 1,601,114 1,457,086
Total deposits2,260,263 2,012,891 1,871,721 1,639,143 1,485,076
Short term borrowings 10,000 13,100
Long term borrowings26,564 26,872 52,173 27,473 27,843
Other liabilities34,714 27,835 26,582 26,220 19,495
Total liabilities2,321,541 2,067,598 1,960,476 1,705,936 1,532,414
Shareholders’ equity
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding
Class A common stock (voting)268,557 266,336 150,939 147,933 149,966
Class B common stock (non-voting)49,168 49,168 49,168 50,015 50,015
Retained earnings120,241 49,707 38,041 28,938 23,518
Accumulated other comprehensive (loss) income(1,033) (620) (517) (697) (652)
Total equity436,933 364,591 237,631 226,189 222,847
Total liabilities and shareholders’ equity$2,758,474 $2,432,189 $2,198,107 $1,932,125 $1,755,261


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

Twelve months ended
December 31, 2017 December 31, 2016 December 31, 2015
Interest income
Loans and fees on loans$99,633 $55,107 $33,340
Investment securities, taxable1,432 1,132 811
Other interest earning assets2,407 1,033 300
Total interest income103,472 57,272 34,451
Interest expense
Deposits24,223 13,659 7,379
Borrowings1,215 964 1,483
Total interest expense25,438 14,623 8,862
Net interest income78,034 42,649 25,589
Provision for loan and lease losses9,536 12,536 3,806
Net interest income after provision for loan and lease losses68,498 30,113 21,783
Noninterest income
Loan servicing revenue24,588 21,393 16,081
Loan servicing asset revaluation(13,171) (8,391) (6,229)
Net gains on sales of loans78,590 75,326 67,385
Equity in earnings (loss) of non-consolidated affiliates (26)
Gain on sale of investment in non-consolidated affiliate 3,782
Gain on contribution to equity method investment68,000
Gain on sale of securities available-for-sale 1 13
Construction supervision fee income1,776 2,667 1,623
Title insurance income7,565
Other noninterest income5,573 2,543 1,699
Total noninterest income172,921 93,539 84,328
Noninterest expense
Salaries and employee benefits74,669 62,996 40,323
Travel expense8,124 8,205 7,379
Professional services expense4,937 3,482 2,643
Advertising and marketing expense6,363 4,534 4,333
Occupancy expense6,195 4,573 3,475
Data processing expense8,449 5,299 3,583
Equipment expense7,479 2,246 2,119
Other loan origination and maintenance expense4,970 2,825 2,069
Renewable energy tax credit investment impairment690 3,197
FDIC insurance3,206 1,417 514
Title insurance closing services expense2,418
Impairment expense on goodwill and other intangibles3,648
Other expense12,017 7,671 5,277
Total noninterest expense143,165 106,445 71,715
Income before taxes98,254 17,207 34,396
Income tax (benefit) expense(2,245) 3,443 13,795
Net income100,499 13,764 20,601
Net loss attributable to noncontrolling interest 9 24
Net income attributable to Live Oak Bancshares, Inc.$100,499 $13,773 $20,625
Earnings per share
Basic$2.75 $0.40 $0.66
Diluted$2.65 $0.39 $0.65
Weighted average shares outstanding
Basic36,592,893 34,202,168 31,079,032
Diluted37,859,535 35,086,959 31,973,146


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

As of and for the three months ended
4Q 2017 3Q 2017 2Q 2017 1Q 2017 4Q 2016
Income Statement Data
Net income attributable to Live Oak Bancshares, Inc.$71,730 $12,862 $9,795 $6,112 $5,480
Per Common Share
Net income, basic$1.80 $0.34 $0.28 $0.18 $0.16
Net income, diluted1.74 0.33 0.27 0.17 0.16
Dividends declared0.03 0.03 0.02 0.02 0.02
Book value10.95 9.15 6.86 6.54 6.51
Tangible book value (1)10.85 8.84 6.50 6.17 6.51
Performance Ratios
Return on average assets (annualized)11.21% 2.18% 1.89% 1.33% 1.26%
Return on average equity (annualized)68.33 16.79 16.53 10.93 9.95
Net interest margin4.07 3.91 3.92 3.76 3.08
Efficiency ratio (1)34.64 77.80 73.90 79.69 83.64
Noninterest income to total revenue80.60 54.38 59.18 62.21 68.00
Selected Loan Metrics
Loans and leases originated$483,422 $395,682 $586,471 $468,663 $514,565
Guaranteed loans sold211,654 163,843 203,714 208,715 260,125
Average net gain on sale of guaranteed loans110.15 110.76 91.68 90.80 86.55
Held for sale guaranteed loans (note amount) (2)1,087,636 1,093,385 1,005,753 866,260 754,834
Quarterly increase (decrease) in note amount of held for sale guaranteed loans(5,749) 87,632 139,493 111,426 62,556
Estimated net gain to be recognized on quarterly increase in guaranteed loans held for sale (3) N/A 9,707 12,789 10,117 5,414
Asset Quality Ratios
Allowance for loan and lease losses to loans and leases held for investment1.80% 1.80% 1.80% 1.82% 2.01%
Net charge-offs$892 $959 $191 $1,513 $813
Net charge-offs to average loans and leases held for investment (4)0.28% 0.34% 0.07% 0.63% 0.39%
Nonperforming loans$23,480 $22,420 $21,856 $22,469 $23,781
Foreclosed assets1,281 2,231 2,140 1,706 1,648
Nonperforming loans (unguaranteed exposure)3,610 3,299 3,546 3,643 4,784
Foreclosed assets (unguaranteed exposure)90 446 345 304 246
Nonperforming loans not guaranteed by the SBA and foreclosures3,700 3,745 3,891 3,947 5,030
Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets0.13% 0.15% 0.18% 0.20% 0.29%
Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)17.81% 17.78% 11.93% 12.79% 15.35%
Total capital (to risk-weighted assets)18.91 18.93 13.08 14.01 16.60
Tier 1 risk based capital (to risk-weighted assets)17.81 17.78 11.93 12.79 15.35
Tier 1 leverage capital (to average assets)15.53 13.99 9.93 10.60 12.03

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) The estimated revenue from the sale of the quarterly increase in guaranteed loans is based on the average net gain on sale of loans for that quarter. This is an estimate based on the respective quarter activity and does not reflect actual gains to be recognized.

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


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

Three months ended December 31, 2017 Three months ended September 30, 2017
Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
Interest earning assets:
Interest earning balances in other banks $242,261 $725 1.19% $292,066 $870 1.18%
Investment securities 90,884 468 2.04 73,312 325 1.76
Loans held for sale 643,764 9,819 6.05 653,342 9,922 6.03
Loans and leases held for investment (1) 1,264,721 19,524 6.12 1,116,209 17,055 6.06
Total interest earning assets 2,241,630 30,536 5.40 2,134,929 28,172 5.24
Less: allowance for loan and lease losses (20,943) (19,544)
Non-interest earning assets 338,148 242,014
Total assets $2,558,835 $2,357,399
Interest bearing liabilities:
Interest bearing checking $36,958 $83 0.89% $35,127 $51 0.58%
Savings 566,050 1,992 1.40 196,220 682 1.38
Money market accounts 247,899 695 1.11 453,985 1,303 1.14
Certificates of deposit 1,157,405 4,560 1.56 1,257,072 4,722 1.49
Total interest bearing deposits 2,008,312 7,330 1.45 1,942,404 6,758 1.38
Other borrowings 26,756 230 3.41 42,219 389 3.66
Total interest bearing liabilities 2,035,068 7,560 1.47 1,984,623 7,147 1.43
Non-interest bearing deposits 57,917 43,652
Non-interest bearing liabilities 45,933 22,650
Shareholders' equity 419,917 306,474
Total liabilities and shareholders' equity $2,558,835 $2,357,399
Net interest income and interest rate spread $22,976 3.93% $21,025 3.81%
Net interest margin 4.07 3.91
Ratio of average interest-earning assets to average interest-bearing liabilities 110.15% 107.57%

(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
4Q 2017 3Q 2017 2Q 2017 1Q 2017 4Q 2016
Total shareholders’ equity$436,933 $364,591 $237,631 $226,189 $222,847
Less:
Goodwill 7,278 7,266 7,165
Other intangible assets4,264 5,126 5,292 5,410
Tangible shareholders’ equity (a)$432,669 $352,187 $225,073 $213,614 $222,847
Shares outstanding (c)39,895,583 39,862,147 34,639,848 34,600,819 34,253,602
Total assets$2,758,474 $2,432,189 $2,198,107 $1,932,125 $1,755,261
Less:
Goodwill 7,278 7,266 7,165
Other intangible assets4,264 5,126 5,292 5,410
Tangible assets (b)$2,754,210 $2,419,785 $2,185,549 $1,919,550 $1,755,261
Tangible shareholders’ equity to tangible assets (a/b)15.71% 14.55% 10.30% 11.13% 12.70%
Tangible book value per share (a/c)$10.85 $8.84 $6.50 $6.17 $6.51
Efficiency ratio:
Noninterest expense (d)$41,024 $35,856 $33,300 $32,985 $32,384
Net interest income22,976 21,025 18,392 15,641 12,392
Noninterest income95,441 25,060 26,667 25,753 26,327
Less: gain on sale of securities
Adjusted operating revenue (e)$118,417 $46,085 $45,059 $41,394 $38,719
Efficiency ratio (d/e)34.64% 77.80% 73.90% 79.69% 83.64%



Live Oak Bancshares, Inc.
GAAP to Non-GAAP Reconciliation (Continued)
(Dollars in thousands)
Three months ended Twelve months ended
4Q 2017 3Q 2017 4Q 2016 4Q 2017 4Q 2016
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:
Net income attributable to Live Oak Bancshares, Inc.$71,730 $12,862 $5,480 $100,499 $13,773
Provision for loans reclassified as held for investment 4,023
Gain on contribution to equity method investment(68,000) (68,000)
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-Q360 286 3,365 1,370 8,973
Merger costs associated with Reltco acquisition and Apiture investment1,718 390 2,874
Trade-in loss on aircraft 206
Impairment charge taken on aircraft held for sale 1,422 1,422
Impairment expense on goodwill and other intangibles3,648 3,648
Contract modification of Reltco1,600 1,600
Renewable energy tax credit investment income, impairment and loss710 3,239 690 3,239
Income tax effects and adjustments for non-GAAP items *23,986 (270) (3,210) 23,045 (7,062)
Deferred tax liability revaluation(18,921) (18,921)
Other renewable energy tax expense44 44 176 176 176
Renewable energy tax credit (4,396) (4,396)
Non-GAAP net income$16,875 $13,312 $6,076 $47,187 $20,148
* Estimated at 40.0%
Non-GAAP earnings per share:
Basic$0.42 $0.36 $0.18 $1.29 $0.59
Diluted$0.41 $0.34 $0.17 $1.25 $0.57
Weighted-average shares outstanding:
Basic39,879,345 37,366,041 34,235,375 36,592,893 34,202,168
Diluted41,184,793 38,644,677 35,208,433 37,859,535 35,086,959
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:
Noninterest income, as reported$95,441 $25,060 $26,327 $172,921 $93,539
Gain on contribution to equity method investment(68,000) (68,000)
Renewable energy tax credit investment income20 42 42
Noninterest income, as adjusted27,461 25,060 26,369 104,921 93,581
Provision for loan and lease losses, as reported4,055 2,426 3,844 9,536 12,536
Provision for loans reclassified as held for investment (4,023)
Provision for loan and lease losses, as adjusted4,055 2,426 3,844 9,536 8,513
Noninterest expense, as reported41,024 35,856 32,384 143,165 106,445
Stock based compensation expense(360) (286) (3,365) (1,370) (8,973)
Merger costs associated with Reltco acquisition and Apiture investment(1,718) (390) (2,874)
Trade-in loss on aircraft (206)
Impairment charge taken on aircraft held for sale (1,422) (1,422)
Impairment expense on goodwill and other intangibles(3,648) (3,648)
Contract modification of Reltco(1,600) (1,600)
Renewable energy tax credit investment impairment and loss(690) (3,197) (690) (3,197)
Noninterest expense, as adjusted33,008 35,180 24,400 132,777 92,853
Income tax (benefit) expense, as reported1,608 (5,059) (2,989) (2,245) 3,443
Income tax effects and adjustments for non-recurring income and expenses(23,986) 270 3,210 (23,045) 7,062
Deferred tax liability revaluation18,921 18,921
Other renewable energy tax expense(44) (44) (176) (176) (176)
Renewable energy tax credit 4,396 $ 4,396
Income tax (benefit) expense, as adjusted$(3,501) $(4,833) $4,441 $(6,545) $14,725


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.

Source:Live Oak Bancshares, Inc.