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Live Oak Bancshares, Inc. Reports First Quarter 2019 Results

WILMINGTON, N.C., April 24, 2019 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (LOB) (“Live Oak” or “the Company”) today reported first quarter net earnings available to common shareholders of $2.4 million, or $0.06 per diluted share, compared to $12.5 million, or $0.30 per diluted share, for the first quarter of 2018. 

“Live Oak diligently worked to execute our long-term strategic goals during the first quarter, evidenced by strong originations combined with significantly more guaranteed loans held compared to the first quarter 2018.  As a result of this and other efforts to continually fortify our balance sheet for maximum stability and growth, total loans and leases and investments grew $805 million, or 32%, over a year ago.  We expect that these investments will enhance long-term profitability and allow us to better serve the needs of small businesses while also empowering our efforts to revolutionize the financial services industry,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

First Quarter 2019 Key Measures

(Dollars in thousands, except per share data)                   Increase (Decrease)          
    Q1 2019     Q1 2018     Dollars     Percent     Q4 2018  
Net interest income and servicing revenues   $ 38,015     $ 31,374     $ 6,641       21 %   $ 36,547  
Net income     2,372       12,453       (10,081 )     (81 )     10,490  
Diluted earnings per share     0.06       0.30       (0.24 )     (80 )     0.26  
Non-GAAP net income (1)     2,368       12,721       (10,353 )     (81 )     10,764  
Non-GAAP diluted earnings per share (1)     0.06       0.31       (0.25 )     (81 )     0.26  
Loan and lease production:                                        
Loans and leases originated   $ 390,851     $ 397,559     $ (6,708 )     (2 )%   $ 498,987  
% Fully funded     55.6 %     69.5 %   n/a     n/a       49.8 %
Total loans and leases   $ 2,774,605     $ 2,162,588     $ 612,017       28 %   $ 2,530,812  
Total assets     4,058,047       3,460,863       597,184       17       3,670,449  
Total deposits     3,528,405       2,973,341       555,064       19       3,149,583  

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

Loans and Leases

At March 31, 2019, the total loan and lease portfolio of $2.77 billion increased 28.3% from its level at the end of the first quarter of 2018 and 9.6% from its level at December 31, 2018.  Compared to the fourth quarter of 2018, loans and leases held for investment increased $158.7 million, or 8.6%, to $2.00 billion while loans held for sale increased $85.1 million, or 12.4%, to $772.5 million. Loan and lease originations totaled $390.9 million during the first quarter of 2019, a decrease of $108.1 million, or 21.7%, from the fourth quarter of 2018, largely due to seasonality in loan demand.  The total loan and lease portfolio at March 31, 2019, and December 31, 2018, of $2.77 billion and $2.53 billion, respectively, was comprised of approximately 59.4% and 62.0% unguaranteed loans and leases, respectively.

Average loans and leases were $2.67 billion during the first quarter of 2019 compared to $2.40 billion during the fourth quarter of 2018.

Deposits

Total deposits increased by $378.8 million, or 12.0%, to $3.53 billion at March 31, 2019, from $3.15 billion at December 31, 2018, supporting the growing loan and lease portfolio and yielding a robust liquidity profile. Average total interest-bearing deposits for the first quarter of 2019 increased $355.2 million, or 12.1%, to $3.29 billion, compared to $2.94 billion for the fourth quarter of 2018. The ratio of average total loans and leases to average interest-bearing deposits was 81.1% for the first quarter of 2019, compared to 81.7% for the fourth quarter of 2018.

Net Interest Income

Net interest income for the first quarter of 2019 rose to $30.6 million compared to $24.5 million for the first quarter of 2018 and $28.8 million for the fourth 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 reflecting the Company's ongoing initiative to grow recurring revenue sources along with higher investment security holdings as the Company deploys excess liquidity while improving the asset-liability repricing mix.  The increase from the fourth quarter of 2018 arose from higher average balances in both loans and leases and investment securities.  The net interest margin for the first quarter of 2019 decreased nine basis points to 3.63% versus 3.72% in the fourth quarter of 2018 as the increasing rates for deposits due to competitive pressures outpaced the improving yield of the loan portfolio. 

Noninterest Income

Noninterest income for the first quarter of 2019 decreased by $17.7 million, or 57.6%, compared to the first quarter of 2018, and by $5.0 million, or 27.9%, compared to the fourth quarter of 2018.  The Company’s transition to selling fewer loans was a key driver in lower noninterest income compared to the first quarter of 2018. 

The Company’s net gains on sales of loans decreased to $4.2 million in the first quarter of 2019 compared to $24.4 million in the first quarter of 2018 and $5.7 million in the fourth quarter of 2018.  The volume of guaranteed loan sales in the first quarter of 2019 declined to $62.9 million compared to $247.2 million in the first quarter of 2018 and $104.6 million in the fourth quarter of 2018. As mentioned above, the decline in loan sale volumes is consistent with the Company’s recent strategic shift to hold substantially more of its production on balance sheet intended to build its recurring revenue streams.  The average net gain on guaranteed loan sales was $61.3 thousand per million sold in the first quarter of 2019, a decrease from $98.8 thousand in the first quarter of 2018 and an increase from $59.8 thousand in the fourth quarter of 2018. The decline in average net gain on guaranteed loan sales for the first quarter of 2019 compared to the first quarter of 2018 was impacted by the mix of loans sold along with lower secondary market premiums combined with $1.7 million in fair value net losses in exchange-traded interest rate lock commitments. The increase in average net gain on guaranteed loans sales compared to the fourth quarter of 2018 was largely a product of greater selectivity over loans designated for sale combined with improving secondary market conditions.  Excluding fair value fluctuations in exchange-traded interest rate lock commitments, the average net gain on guaranteed loan sales was $89.0 thousand and $98.5 thousand per million sold in the first quarters of 2019 and 2018, respectively, and $77.4 thousand per million sold in the fourth quarter of 2018. 

The sale of the title insurance business in late 2018 also contributed to the decline in noninterest income compared to the first quarter 2018.  These factors were partially offset by increases in loan servicing revenues, lower losses from the loan servicing asset revaluation and higher lease income. The reduction in noninterest income from the fourth quarter of 2018, other than reduced net gains on sales of loans, reflected increased losses in the loan servicing asset revaluation and flow through losses from equity method investments. 

Loan servicing revenues of $7.4 million in the first quarter of 2019 increased by $512 thousand, or 7.4%, from the first quarter of 2018 and decreased by $342 thousand, or 4.4%, from the fourth quarter of 2018. The decline from the fourth quarter of 2018 was related to a decrease in the SBA 7(a) serviced portfolio balance due to amortization combined with fewer loans sold.  The net loss resulting from the revaluation of the servicing asset totaled $2.2 million for the first quarter of 2019, a decrease of $2.8 million compared to the first quarter of 2018 and an increase of $1.6 million compared to the fourth quarter of 2018, largely because of variability in market conditions.

Lease income from solar panels contributed $2.3 million in noninterest income in the first quarter of 2019, compared to $1.6 million in the first quarter of 2018 and $2.2 million in the fourth quarter of 2018.  The increase from the first quarter of 2018 was related to growth in leased solar panels.

Other noninterest income of $556 thousand in the first quarter of 2019 decreased by $2.1 million, or 79.3%, from the fourth quarter of 2018 and was driven by a net change of $3.0 million non-cash loss on equity method investments.

Noninterest Expense

Noninterest expense for the first quarter of 2019 was $38.2 million, an increase from $38.1 million for the first quarter of 2018 and an increase from $32.6 million for the fourth quarter of 2018.

Salaries and employee benefits for the first quarter of 2019 increased to $21.9 million compared to $20.2 million for the first quarter of 2018 and $14.5 million for the fourth quarter of 2018.  The increase over the fourth quarter of 2018 was largely influenced by the Company’s $4.5 million reversal of accrued incentive compensation during the fourth quarter due to not meeting budgeted performance metrics for the year ending December 31, 2018.  Influencing the increase to a smaller extent was the ongoing expansion of the Company’s workforce and infrastructure to support its initiatives.

Partially offsetting the increase in noninterest expense from the fourth quarter of 2018 were decreases in travel expense of $2.1 million attributable to lower levels of routine maintenance for corporate aircraft that was sold in the first quarter of 2019.

Asset Quality

Net charge-offs of $65 thousand in the first quarter of 2019 decreased compared to $1.2 million in the fourth quarter of 2018 and $532 thousand in the first quarter of 2018.  Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarter ended March 31, 2019, was 0.01% compared to 0.28% for the fourth quarter of 2018 and 0.15% for the first quarter of 2018. 

The unguaranteed exposure of nonperforming loans increased to $20.2 million, or 1.01% of total loans and leases held for investment, at March 31, 2019, compared to $14.5 million, or 0.79%, at December 31, 2018.  Total nonperforming loans increased to $70.7 million in the first quarter of 2019 from $57.7 million at the end of the prior quarter.  For the quarters ended March 31, 2019 and December 31, 2018, the percentage of unguaranteed criticized loans and leases, comprised of risk grades 5 through 8, to unguaranteed held for investment loans and leases was 5.39% and 5.12%, respectively.

The unguaranteed exposure of foreclosed assets increased to $170 thousand at March 31, 2019, from $148 thousand at December 31, 2018.  Foreclosed assets increased $280 thousand to $1.4 million at March 31, 2019, from $1.1 million at December 31, 2018.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the first quarter of 2019 totaled $2.7 million compared to $4.4 million for the first quarter of 2018 and $6.8 million for the fourth quarter of 2018.  The decrease in provision expense was largely the result of growth principally comprised of guaranteed loans combined with decreased levels of net charge-offs. 

The allowance for loan and lease losses totaled $35.1 million at March 31, 2019, compared to $32.4 million at December 31, 2018. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.75% and 1.76% at March 31, 2019, and December 31, 2018, respectively.

Income Tax

Income tax expense was $317 thousand in the first quarter of 2019 compared to $315 thousand in the first quarter of 2018 and a net income tax benefit of $3.0 million in the fourth quarter of 2018.  The Company’s effective tax rate is predominantly driven by the leasing of renewable energy assets which generate investment tax credits.  As the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (April 25, 2019). Media representatives, analysts and the public are invited to listen to this discussion by calling (844) 743-2494 (domestic) or (661) 378-9528 (international) with conference ID 5862699. 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 May 2, 2019 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

CFO Commentary

Additional commentary on the quarter by Brett Caines, Chief Financial Officer of the Company, is available at http://investor.liveoakbank.com in the supporting materials for the conference call.

Important Note Regarding Forward-Looking Statements

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

About Live Oak Bancshares, Inc.

Live Oak Bancshares, Inc. (LOB) is a financial holding company and the parent company of Live Oak Banking Company.  Live Oak Bancshares and its subsidiaries partner with businesses that have a common focus of changing the banking industry by bringing efficiency and excellence to customers using technology and innovation.

Contacts:

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

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

    Three months ended  
    1Q 2019     4Q 2018     3Q 2018     2Q 2018     1Q 2018  
Interest income                                        
Loans and fees on loans   $ 44,966     $ 40,628     $ 37,724     $ 36,267     $ 32,691  
Investment securities, taxable     3,317       2,558       2,528       2,530       1,117  
Other interest earning assets     1,639       1,568       1,638       2,179       1,215  
Total interest income     49,922       44,754       41,890       40,976       35,023  
Interest expense                                        
Deposits     19,317       15,959       14,165       13,927       10,418  
Borrowings                 1       1       129  
Total interest expense     19,317       15,959       14,166       13,928       10,547  
Net interest income     30,605       28,795       27,724       27,048       24,476  
Provision for (recovery of) loan and leases losses     2,742       6,822       (243 )     2,087       4,392  
Net interest income after provision for loan and
  lease losses
    27,863       21,973       27,967       24,961       20,084  
Noninterest income                                        
Loan servicing revenue     7,410       7,752       7,506       6,965       6,898  
Loan servicing asset revaluation     (2,246 )     (627 )     (9,380 )     (3,670 )     (5,088 )
Net gains on sales of loans     4,198       5,687       22,004       23,061       24,418  
Gain on sale of investment securities available-for-sale     5                          
Lease income     2,325       2,244       2,194       1,920       1,608  
Construction supervision fee income     779       323       578       597       779  
Title insurance income                 479       996       1,300  
Other noninterest income     556       2,686       950       744       841  
Total noninterest income     13,027       18,065       24,331       30,613       30,756  
Noninterest expense                                        
Salaries and employee benefits     21,855       14,503       20,553       22,146       20,209  
Travel expense     1,200       3,269       2,003       2,041       1,843  
Professional services expense     2,182       1,233       1,228       1,119       1,298  
Advertising and marketing expense     1,364       1,023       1,462       1,868       1,662  
Occupancy expense     1,609       1,738       1,588       1,882       1,857  
Data processing expense     2,399       2,606       3,661       2,906       2,837  
Equipment expense     3,325       3,630       3,649       3,368       3,077  
Other loan origination and maintenance expense     1,639       1,482       1,742       1,414       1,329  
FDIC insurance     635       547       1,105       1,010       572  
Title insurance closing services expense                 114       372       426  
Impairment expense on goodwill and other
  intangibles, net
                2,680              
Other expense     1,993       2,527       1,459       2,704       2,962  
Total noninterest expense     38,201       32,558       41,244       40,830       38,072  
Income before taxes     2,689       7,480       11,054       14,744       12,768  
Income tax expense (benefit)     317       (3,010 )     (3,198 )     491       315  
Net income   $ 2,372     $ 10,490     $ 14,252     $ 14,253     $ 12,453  
Earnings per share                                        
Basic   $ 0.06     $ 0.26     $ 0.36     $ 0.36     $ 0.31  
Diluted   $ 0.06     $ 0.26     $ 0.34     $ 0.34     $ 0.30  
Weighted average shares outstanding                                        
Basic     40,160,118       40,148,115       40,119,561       40,027,336       39,926,781  
Diluted     40,921,823       41,075,864       41,688,430       41,619,647       41,399,930  
                                         

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

    As of the quarter ended  
    1Q 2019     4Q 2018     3Q 2018     2Q 2018     1Q 2018  
Assets                                        
Cash and due from banks   $ 221,159     $ 316,823     $ 368,565     $ 392,941     $ 527,952  
Federal funds sold     64,708                          
Certificates of deposit with other banks     7,250       7,250       750       2,250       2,250  
Investment securities available-for-sale     569,739       380,490       374,284       382,890       376,453  
Loans held for sale     772,481       687,393       646,475       757,494       720,511  
Loans and leases held for investment     2,002,124       1,843,419       1,631,337       1,534,368       1,442,077  
Allowance for loan and lease losses     (35,111 )     (32,434 )     (26,797 )     (29,350 )     (28,050 )
Net loans and leases     1,967,013       1,810,985       1,604,540       1,505,018       1,414,027  
Premises and equipment, net     271,810       262,524       263,861       234,817       216,831  
Foreclosed assets     1,374       1,094       1,429       1,725       1,519  
Servicing assets     44,324       47,641       49,261       52,689       53,120  
Operating lease right-of-use assets     2,136                          
Other assets     136,053       156,249       135,592       143,145       148,200  
Total assets   $ 4,058,047     $ 3,670,449     $ 3,444,757     $ 3,472,969     $ 3,460,863  
Liabilities and Shareholders Equity                                        
Liabilities                                        
Deposits:                                        
Noninterest-bearing   $ 53,843     $ 53,993     $ 48,622     $ 46,192     $ 48,755  
Interest-bearing     3,474,562       3,095,590       2,875,666       2,923,044       2,924,586  
Total deposits     3,528,405       3,149,583       2,924,288       2,969,236       2,973,341  
Short term borrowings     1,393       1,441                    
Long term borrowings     17       16       1,506       3,385       3,489  
Operating lease liabilities     2,314                          
Other liabilities     25,538       25,849       41,733       37,362       35,197  
Total liabilities     3,557,667       3,176,889       2,967,527       3,009,983       3,012,027  
Shareholders equity                                        
Preferred stock, no par value, 1,000,000 shares
  authorized, none issued or outstanding
                             
Class A common stock (voting)     281,994       278,945       276,831       274,043       271,451  
Class B common stock (non-voting)     49,168       49,168       49,168       49,168       49,168  
Retained earnings     168,225       167,124       157,839       144,791       131,739  
Accumulated other comprehensive income (loss)     993       (1,677 )     (6,608 )     (5,016 )     (3,522 )
Total equity     500,380       493,560       477,230       462,986       448,836  
Total liabilities and shareholders equity   $ 4,058,047     $ 3,670,449     $ 3,444,757     $ 3,472,969     $ 3,460,863  
                                         

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

    As of and for the three months ended  
    1Q 2019     4Q 2018     3Q 2018     2Q 2018     1Q 2018  
Income Statement Data                                        
Net income   $ 2,372     $ 10,490     $ 14,252     $ 14,253     $ 12,453  
Per Common Share                                        
Net income, basic   $ 0.06     $ 0.26     $ 0.36     $ 0.36     $ 0.31  
Net income, diluted     0.06       0.26       0.34       0.34       0.30  
Dividends declared     0.03       0.03       0.03       0.03       0.03  
Book value     12.45       12.29       11.89       11.55       11.23  
Tangible book value (1)     12.45       12.29       11.89       11.45       11.13  
Performance Ratios                                        
Return on average assets (annualized)     0.25 %     1.20 %     1.65 %     1.61 %     1.64 %
Return on average equity (annualized)     1.88       8.64       12.08       12.34       11.08  
Net interest margin     3.63       3.72       3.61       3.46       3.72  
Efficiency ratio (1)     87.56       69.48       79.23       70.81       68.93  
Noninterest income to total revenue     29.85       38.55       46.74       53.09       55.69  
Selected Loan Metrics                                        
Loans and leases originated   $ 390,851     $ 498,987     $ 377,337     $ 491,797     $ 397,559  
Guaranteed loans sold     62,940       104,646       298,073       295,216       247,243  
Average net gain on sale of guaranteed loans     61.30       59.83       71.81       82.61       98.76  
Adjusted average net gain on sale of guaranteed
  loans (2)
    89.04       77.42       69.23       79.42       98.51  
Outstanding balance of sold loans serviced:                                        
Guaranteed     2,952,774       3,045,460       3,102,820       2,951,379       2,812,108  
Unguaranteed     179,307       174,066       170,784       155,939       174,867  
Total     3,132,081       3,219,526       3,273,604       3,107,318       2,986,975  
Asset Quality Ratios                                        
Allowance for loan losses to loans and leases held for
  investment
    1.75 %     1.76 %     1.64 %     1.91 %     1.95 %
Net charge-offs   $ 65     $ 1,185     $ 2,310     $ 787     $ 532  
Net charge-offs to average loans and leases held for
  investment (3)
    0.01 %     0.28 %     0.57 %     0.21 %     0.15 %
Nonperforming loans   $ 70,692     $ 57,690     $ 52,709     $ 46,105     $ 36,776  
Foreclosed assets     1,374       1,094       1,429       1,725       1,519  
Nonperforming loans (unguaranteed exposure)     20,186       14,488       12,897       11,466       7,386  
Foreclosed assets (unguaranteed exposure)     170       148       158       197       101  
Nonperforming loans not guaranteed by the SBA and
  foreclosures
  $ 20,356     $ 14,636     $ 13,055     $ 11,663     $ 7,487  
Nonperforming loans and foreclosures, not guaranteed
  by the SBA, to total assets
    0.50 %     0.40 %     0.38 %     0.34 %     0.22 %
Capital Ratios                                        
Common equity tier 1 capital (to risk-weighted assets)     16.68 %     17.10 %     16.95 %     16.78 %     16.36 %
Total capital (to risk-weighted assets)     17.92       18.28       18.01       17.97       17.51  
Tier 1 risk based capital (to risk-weighted assets)     16.68       17.10       16.95       16.78       16.36  
Tier 1 leverage capital (to average assets)     12.34       13.40       12.53       11.81       13.32  

Notes to Quarterly Selected Financial Data

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

(2)  Excludes fair value gain/loss on exchange-traded interest rate lock commitments.

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


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

    Three months ended March 31, 2019     Three months ended December 31, 2018  
    Average
Balance
    Interest     Average
Yield/Rate
    Average
Balance
    Interest     Average
Yield/Rate
 
Interest earning assets:                                                
Federal funds sold and interest earning
  balances in other banks
  $ 283,364     $ 1,639       2.35 %   $ 284,320     $ 1,568       2.19 %
Investment securities     461,339       3,317       2.92       384,481       2,558       2.64  
Loans held for sale     749,700       12,583       6.81       684,013       11,555       6.70  
Loans and leases held for investment (1)     1,922,280       32,383       6.83       1,716,023       29,073       6.72  
Total interest earning assets     3,416,683       49,922       5.93       3,068,837       44,754       5.79  
Less: allowance for loan and lease losses     (32,464 )                     (26,816 )                
Non-interest earning assets     476,232                       448,074                  
Total assets   $ 3,860,451                     $ 3,490,095                  
Interest bearing liabilities:                                                
Interest bearing checking   $ 169     $       %   $ 18,975     $ 52       1.09 %
Savings     927,579       4,786       2.09       881,280       4,151       1.87  
Money market accounts     83,298       108       0.53       85,479       155       0.72  
Certificates of deposit     2,282,709       14,423       2.56       1,952,833       11,601       2.36  
Total interest bearing deposits     3,293,755       19,317       2.38       2,938,567       15,959       2.15  
Other borrowings     1,464                   1,521              
Total interest bearing liabilities     3,295,219       19,317       2.38       2,940,088       15,959       2.15  
Non-interest bearing deposits     46,822                       45,696                  
Non-interest bearing liabilities     14,449                       18,474                  
Shareholders' equity     503,961                       485,837                  
Total liabilities and shareholders' equity   $ 3,860,451                     $ 3,490,095                  
Net interest income and interest rate spread           $ 30,605       3.55 %           $ 28,795       3.64 %
Net interest margin                     3.63                       3.72  
Ratio of average interest-earning assets to average
  interest-bearing liabilities
                    103.69 %                     104.38 %

(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  
    1Q 2019     4Q 2018     3Q 2018     2Q 2018     1Q 2018  
Total shareholders’ equity   $ 500,380     $ 493,560     $ 477,230     $ 462,986     $ 448,836  
Less:                                        
Goodwill                              
Other intangible assets                       3,980       4,122  
Tangible shareholders’ equity (a)   $ 500,380     $ 493,560     $ 477,230     $ 459,006     $ 444,714  
Shares outstanding (c)     40,175,079       40,155,792       40,140,417       40,086,409       39,974,148  
Total assets   $ 4,058,047     $ 3,670,449     $ 3,444,757     $ 3,472,969     $ 3,460,863  
Less:                                        
Goodwill                              
Other intangible assets                       3,980       4,122  
Tangible assets (b)   $ 4,058,047     $ 3,670,449     $ 3,444,757     $ 3,468,989     $ 3,456,741  
Tangible shareholders’ equity to tangible assets (a/b)     12.33 %     13.45 %     13.85 %     13.23 %     12.87 %
Tangible book value per share (a/c)   $ 12.45     $ 12.29     $ 11.89     $ 11.45     $ 11.13  
Efficiency ratio:                                        
Noninterest expense (d)   $ 38,201     $ 32,558     $ 41,244     $ 40,830     $ 38,072  
Net interest income     30,605       28,795       27,724       27,048       24,476  
Noninterest income     13,027       18,065       24,331       30,613       30,756  
Less: gain on sale of securities     5                          
Adjusted operating revenue (e)   $ 43,627     $ 46,860     $ 52,055     $ 57,661     $ 55,232  
Efficiency ratio (d/e)     87.56 %     69.48 %     79.23 %     70.81 %     68.93 %


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

    Three months ended  
    1Q 2019     4Q 2018     1Q 2018  
Reconciliation of net income to non-GAAP net income
  for non-routine income and expenses:
                       
Net income   $ 2,372     $ 10,490     $ 12,453  
Gain on sale of aircraft     (357 )            
Stock based compensation expense for restricted
  stock awards with an effective grant date of May
  24, 2016, as discussed in Note 10 of our March
  31, 2016 Form 10-Q
    352       360       352  
Income tax effects and adjustments for non-GAAP items *     1       (86 )     (84 )
Non-GAAP net income   $ 2,368     $ 10,764     $ 12,721  
* Estimated at 24.0%                        
Non-GAAP earnings per share:                        
Basic   $ 0.06     $ 0.27     $ 0.32  
Diluted   $ 0.06     $ 0.26     $ 0.31  
Weighted-average shares outstanding:                        
Basic     40,160,118       40,148,115       39,926,781  
Diluted     40,921,823       41,075,864       41,399,930  
Reconciliation of financial statement line items as reported
  to adjusted for non-routine income and expenses:
                       
Noninterest income, as reported   $ 13,027     $ 18,065     $ 30,756  
Gain on sale of aircraft     (357 )            
Noninterest income, as adjusted   $ 12,670     $ 18,065     $ 30,756  
Noninterest expense, as reported   $ 38,201     $ 32,558     $ 38,072  
Stock based compensation expense     (352 )     (360 )     (352 )
Noninterest expense, as adjusted   $ 37,849     $ 32,198     $ 37,720  
Income before taxes, as reported   $ 2,689     $ 7,480     $ 12,768  
Gain on sale of aircraft     (357 )            
Stock based compensation expense     352       360       352  
Income before taxes, as adjusted   $ 2,684     $ 7,840     $ 13,120  
Income tax expense (benefit), as reported   $ 317     $ (3,010 )   $ 315  
Income tax effects and adjustments for non-recurring
  income and expenses
    (1 )     86       84  
Income tax expense (benefit), as adjusted   $ 316     $ (2,924 )   $ 399  

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.