Live Oak Bancshares, Inc. Reports Second Quarter 2022 Results

ソース: Nasdaq GlobeNewswire / 27 7 2022 15:30:01 America/Chicago

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

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

Second Quarter 2022 Key Measures

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

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

Loans and Leases

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

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

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

Deposits

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

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

Borrowings

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

Net Interest Income

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

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

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

Noninterest Income

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

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

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

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

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

Noninterest Expense

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

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

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

Asset Quality

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

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

Provision for Loan and Lease Credit Losses

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

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

Income Tax

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

Shareholders’ Equity

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

Conference Call

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

Important Note Regarding Forward-Looking Statements

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

About Live Oak Bancshares, Inc.

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

Contacts:

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

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

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

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

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

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

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

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

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

	As of and for the three months ended
	2Q 2022			1Q 2022			4Q 2021			3Q 2021			2Q 2021
Income Statement Data
Net income	$	97,039		$	34,509		$	30,147		$	33,839		$	63,582
Per Common Share
Net income, diluted	$	2.16		$	0.76		$	0.66		$	0.76		$	1.41
Dividends declared		0.03			0.03			0.03			0.03			0.03
Book value		18.05			16.29			16.39			15.89			15.19
Tangible book value (1)		17.97			16.20			16.31			15.80			15.10
Performance Ratios
Return on average assets (annualized)		4.40	%		1.65	%		1.47	%		1.64	%		3.01	%
Return on average equity (annualized)		46.14			18.94			16.80			19.67			41.30
Net interest margin		3.89			4.02			4.02			3.99			3.63
Efficiency ratio (1)		38.80			59.50			53.59			53.84			40.66
Noninterest income to total revenue		61.66			29.58			30.30			24.54			49.52
Selected Loan Metrics
Loans and leases originated	$	959,635		$	865,063		$	1,083,623		$	1,063,190		$	1,153,693
Outstanding balance of sold loans serviced		3,329,616			3,381,883			3,298,828			3,212,271			3,134,068
Asset Quality Ratios
Allowance for credit losses to loans and leases held for investment (3)		1.24	%		1.23	%		1.30	%		1.26	%		1.23	%
Net charge-offs (3)	$	2,462		$	2,362		$	15		$	2,485		$	2,417
Net charge-offs to average loans and leases held for investment (2) (3)		0.19	%		0.19	%		0.00	%		0.21	%		0.21	%

Nonperforming loans and leases at historical cost (3)
Unguaranteed	$	11,974		$	19,475		$	15,987		$	20,450		$	22,458
Guaranteed		33,794			32,828			26,546			28,888			25,551
Total		45,768			52,303			42,533			49,338			48,009
Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment (3)		0.22	%		0.38	%		0.33	%		0.43	%		0.48	%

Nonperforming loans at fair value (4)
Unguaranteed	$	3,615		$	4,451		$	4,791		$	6,303		$	5,503
Guaranteed		27,895			30,850			33,471			36,708			34,323
Total		31,510			35,301			38,262			43,011			39,826
Unguaranteed nonperforming fair value loans to loans held for investment (4)		0.68	%		0.74	%		0.74	%		0.90	%		0.74	%
Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)		13.14	%		12.10	%		12.38	%		12.56	%		12.45	%
Tier 1 leverage capital (to average assets)		9.44			8.87			8.87			8.82			8.70

Notes to Quarterly Selected Financial Data

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

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

(3) Loans and leases at historical cost only (excludes loans measured at fair value).

(4) Loans accounted for under the fair value option only (excludes loans and leases carried at historical cost).

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

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

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

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

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

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

Live Oak Bancshares, Inc. Reports Second Quarter 2022 Results

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