Live Oak Bancshares, Inc. Reports Fourth Quarter 2021 Results

·33 min read

WILMINGTON, N.C., Jan. 25, 2022 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported fourth quarter 2021 net earnings available to common shareholders of $30.1 million, or $0.66 per diluted share. Net earnings for the year ended December 31, 2021, totaled $167.0 million, or $3.71 per diluted share.

“Live Oak closed 2021 with one of our strongest quarters in the Company’s history,” said Live Oak Chairman and CEO James S. (Chip) Mahan, III. “For three consecutive quarters we have exceeded $1.0 billion in loan originations, with year-over-year organic growth of 32% in total loans outside of PPP and 24% in total deposits. We also ended the year by marking a new chapter in our model with the launch of our small business checking account on a next-generation platform. Live Oak continues to be strongly positioned to serve small businesses across America while continuing to redefine what it means to be a community bank.”

Year over Year Highlights

(Dollars in thousands, except per share data)

Increase (Decrease)

2021

2020

Dollars

Percent

Total revenue (1)

$

456,985

$

280,723

$

176,262

63

%

Total noninterest expense

230,987

192,676

38,311

20

Income before taxes

210,788

47,389

163,399

345

Effective tax rate

20.8

%

(25.6

)%

n/a

n/a

Net income

$

166,995

$

59,543

$

107,452

180

%

Diluted earnings per share

3.71

1.43

2.28

159

Loan and lease production:

Loans and leases originated

$

4,480,725

$

4,450,198

$

30,527

1

%

% Fully funded

64.5

%

78.6

%

n/a

n/a

Loans and leases originated, excluding PPP loans

$

3,933,207

$

2,687,542

$

1,245,665

46

%

Total loans and leases:

6,637,781

6,320,400

317,381

5

Total loans and leases, excluding PPP loans:

6,375,903

4,821,783

1,554,120

32

Total assets:

8,213,393

7,872,303

341,090

4

Total deposits:

7,112,044

5,712,828

1,399,216

24

Fourth Quarter 2021 Key Measures

(Dollars in thousands, except per share data)

Increase (Decrease)

Q4 2021

Q3 2021

Dollars

Percent

Q4 2020

Total revenue (1)

$

111,394

$

103,011

$

8,383

8

%

$

73,104

Total noninterest expense

59,698

55,459

4,239

8

52,435

Income before taxes

47,778

43,233

4,545

11

12,035

Effective tax rate

36.9

%

21.7

%

n/a

n/a

(145.8

)%

Net income

$

30,147

$

33,839

$

(3,692

)

(11

)%

$

29,588

Diluted earnings per share

0.66

0.76

(0.10

)

(13

)

0.68

Loan and lease production:

Loans and leases originated

$

1,083,623

$

1,063,190

$

20,433

2

%

$

808,010

% Fully funded

54.1

%

55.1

%

n/a

n/a

55.6

%

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

Loans and Leases

At December 31, 2021, the total loan and lease portfolio was $6.64 billion, 5.0% above its level at December 31, 2020 and 2.7% above its level at September 30, 2021. Compared to the third quarter of 2021, loans and leases held for investment increased $102.7 million, or 1.9%, to $5.52 billion while loans held for sale increased $73.8 million, or 7.1%, to $1.12 billion. Average loans and leases were $6.45 billion during the fourth quarter of 2021 compared to $6.47 billion during the third quarter of 2021. Excluding Paycheck Protection Program (“PPP”) loans, the total loan and lease portfolio increased by $1.55 billion, or 32.2%, compared to December 31, 2020, and $404.3 million, or 6.8%, compared to September 30, 2021.

The total loan and lease portfolio of $6.64 billion includes $261.9 million of PPP loans, net of deferred fees and costs, at December 31, 2021. The unguaranteed percentage of the total loan and lease portfolio, influenced by the inclusion of PPP loans carrying a 100% government guarantee, continues to lessen as PPP balances decline. The total loan and lease portfolio at December 31, 2021, and September 30, 2021, of $6.64 billion and $6.46 billion, respectively, was comprised of 51.6% and 47.8% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $1.08 billion during the fourth quarter of 2021, an increase of $20.4 million, or 1.9%, from the third quarter of 2021.

Deposits

Total deposits increased to $7.11 billion at December 31, 2021, an increase of $1.40 billion compared to December 31, 2020, and an increase of $295.4 million compared to September 30, 2021.

The increase in total deposits from the prior quarter provides support for the growth in the loan and lease portfolio and origination activities during the fourth quarter of 2021. Average total interest-bearing deposits for the fourth quarter of 2021 increased $276.9 million, or 4.2%, to $6.91 billion, compared to $6.63 billion for the third quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 93.4% for the fourth quarter of 2021, compared to 97.5% for the third quarter of 2021. This ratio is influenced by average PPP loan volume and the use of the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) classified as long-term borrowings; however, its impact also continues to lessen as PPP related balances decline.

Borrowings

Borrowings totaled $318.3 million at December 31, 2021, compared to $1.54 billion and $575.0 million at December 31, 2020, and September 30, 2021, respectively. During the fourth quarter of 2021, the Company decreased borrowings by $256.7 million primarily by reducing the outstanding balance in the Federal Reserve’s PPPLF to $267.5 million as of December 31, 2021, compared to $526.0 million at September 30, 2021. The PPPLF has a 100% advance rate equal to the principal amount of PPP loans pledged as security and carries an interest rate of 0.35%, and loans financed under the PPPLF have a neutral impact on regulatory leverage capital ratios. Including borrowings, the ratio of average total loans and leases to total average interest-bearing liabilities was 88.0% for the fourth quarter of 2021, compared to 86.8% for the third quarter of 2021.

Net Interest Income

Net interest income for the fourth quarter of 2021 was $77.6 million compared to $62.3 million for the fourth quarter of 2020 and $77.7 million for the third quarter of 2021.

The increase for the fourth quarter of 2021 compared to the fourth quarter of 2020 was driven by significant growth in the total loan and lease portfolio, excluding PPP loans. The increase in net interest income comparing these two periods was also driven by the reduction in the average rate on interest-bearing liabilities from 1.13% for the fourth quarter of 2020 to 0.79% for the fourth quarter of 2021.

The net interest margin increased from the third quarter of 2021 by three basis points, from 3.99% to 4.02%. The yield on interest earning assets for the fourth quarter of 2021 increased one basis point compared to the third quarter of 2021. The increase in asset yield was further enhanced by a one basis point reduction in the average cost of interest-bearing liabilities from 0.80% for the quarter ended September 30, 2021, to 0.79% for the quarter ended December 31, 2021.

Noninterest Income

Noninterest income for the fourth quarter of 2021 increased to $33.8 million compared to $10.8 million for the fourth quarter of 2020 and $25.3 million for the third quarter of 2021. The primary drivers behind increased noninterest income are outlined below.

The largest driver of the increase in noninterest income for the fourth quarter of 2021 arose from equity method investment income which increased $11.7 million over the fourth quarter of 2020 and $4.2 million over the third quarter of 2021. The increase compared to fourth quarter of 2020 was largely a product of the Company’s pro rata portion of income tax expense of $7.8 million recorded during the prior year arising from an investee’s conversion from a partnership to a corporation. Also contributing to the increase for both compared periods was heightened levels of financial performance from the Company’s investments in fintech oriented investment funds.

The loan servicing asset revaluation resulted in a loss of $4.2 million for the fourth quarter of 2021 compared to a loss of $5.8 million for the fourth quarter of 2020 and a loss of $5.9 million for the third quarter of 2021. Lower levels of losses in the loan servicing asset revaluation compared to the prior quarters was largely the result of the ongoing amortization of the guaranteed serviced loan portfolio.

Net gains on sales of loans increased $5.3 million compared to the fourth quarter of 2020 and $1.4 million compared to the third quarter of 2021. The average net gain on guaranteed loan sales was $98.8, $91.0 and $115.9 thousand per million sold for the fourth quarter of 2021, third quarter of 2021 and fourth quarter of 2020, respectively. The change in the average net gain per million on guaranteed loan sales was largely driven by the mix of loan sales while overall market pricing remained relatively consistent for each of the compared periods. The volume of guaranteed loans sold remained relatively flat at $199.0 million for the fourth quarter of 2021 compared to $201.9 million sold in the prior quarter.

The net loss on loans accounted for under the fair value option totaled $66 thousand for the fourth quarter of 2021, a $4.7 million decrease compared to the $4.8 million net loss for the fourth quarter of 2020 and a $964 thousand decrease compared to the net loss of $1.0 million for the third quarter of 2021. The decreased level of loss in marking loans to fair value for the above periods was largely the result of continued improvements in economic forecasts used in measuring fair value.

Noninterest Expense

Noninterest expense for the fourth quarter of 2021 totaled $59.7 million compared to $52.4 million for the fourth quarter of 2020 and $55.5 million for the third quarter of 2021. The primary drivers in the noninterest expense changes are outlined below.

Salaries and employee benefits for the fourth quarter of 2021 increased to $32.5 million compared to $29.5 million for the fourth quarter of 2020 and $28.2 million for the third quarter of 2021. The increase in salaries and employee benefits was principally related to continued investment in human resources to support strategic and growth initiatives.

Professional services expense increased to $3.7 million for the fourth quarter of 2021 compared to $1.7 million for the fourth quarter of 2020. The $2.0 million increase over the fourth quarter of 2020 was largely driven by an increase in legal and consulting fees.

Data processing expense for the fourth quarter of 2021 totaled $5.2 million compared to $3.4 million for the fourth quarter of 2020. The increase in 2021 was principally due to enhanced investments in the Company’s internal software technology resources.

Asset Quality

During the fourth quarter of 2021, the Company recognized net charge-offs for loans carried at historical cost of $15 thousand compared to $537 thousand in the fourth quarter of 2020 and $2.5 million in the third 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 December 31, 2021 and 2020 and September 30, 2021, was 0.00%, 0.05% and 0.21%, respectively. Net charge-offs as a percentage of total average held for investment loans and leases carried at historical cost for the years ended December 31, 2021 and 2020, were 0.09% and 0.45%, respectively. The decrease in net charge-offs as a percentage of total average held for investment loans and leases carried at historical cost for the year ended December 31, 2021 compared to 2020 was largely the result of a 2020 reclassification of fifteen hotel loans totaling $81.2 million in net investment from held for investment to held for sale. This reclassification resulted in a write down reflected in charge-offs of $9.8 million in 2020.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $4.8 million and $6.3 million accounted for under the fair value option at December 31, 2021, and September 30, 2021, respectively, decreased to $16.0 million, or 0.33% of loans and leases held for investment which are carried at historical cost, at December 31, 2021, compared to $20.4 million, or 0.43%, at September 30, 2021.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the fourth quarter of 2021 totaled $3.9 million compared to $8.6 million for the fourth quarter of 2020 and $4.3 million for the third quarter of 2021. The lower provision expense in the fourth quarter of 2021 was primarily the result of continued improvement in forecasts related to employment and default expectations, combined with the effects of the earlier discussed portfolio performance metrics, outpacing the impact of the growing loan and lease portfolio.

The allowance for credit losses on loans and leases totaled $63.6 million at December 31, 2021, compared to $59.7 million at September 30, 2021. 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 1.30% and 1.26% at December 31, 2021, and September 30, 2021, respectively. While the level of impact continues to decline, the allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost continues to be influenced by the 100% guaranteed PPP loans.

Income Tax

Income tax expense and related effective tax rate was $17.6 million and 36.9% for the fourth quarter of 2021, compared to an income tax benefit of $17.6 million and effective tax rate of (145.8)% for the fourth quarter of 2020, and income tax expense of $9.4 million and effective tax rate of 21.7% for the third quarter of 2021, respectively. The effective tax rate for the fourth quarter of 2021 was principally influenced by recognition of fewer investment tax credits in that quarter than the Company previously anticipated. These expected tax credits, amounting to $10.0 million, were reflected in the effective tax rate calculations reported for the first three quarters of 2021 and are associated with renewable energy investments that have been delayed primarily due to supply chain issues related to the COVID-19 pandemic. While no longer reflected in the effective tax rate for 2021, the Company expects to recognize most of these investment tax credits in 2022.

The income tax benefit for the fourth quarter of 2020 was principally the product of the vesting of restricted stock unit awards with market price conditions during the fourth quarter. Upon vesting, the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes, which resulted in the recognition of a tax benefit of $22.1 million.

Shareholders’ Equity

Total shareholders’ equity increased by $25.7 million, or 3.7%, during the fourth quarter of 2021. This increase was primarily due to net income.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 8:30 a.m. ET tomorrow morning (January 26, 2022). 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 2079907. 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 conference call will also be available until February 2, 2022 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; the potential impacts of the Coronavirus Disease 2019 (COVID-19) pandemic on trade (including supply chains and export levels), travel, employee productivity and other economic activities that may have a destabilizing and negative effect on financial markets, economic activity and customer behavior; a reduction in or the termination of the Company's ability to use the technology-based platform that is critical to the success of its business model, including a failure in or a breach of operational or security systems; competition from other lenders; the Company's ability to attract and retain key personnel; market and economic conditions and the associated impact on the Company; operational, liquidity and credit risks associated with the Company's business; the impact of heightened regulatory scrutiny of financial products and services and the Company's ability to comply with regulatory requirements and expectations; adverse results, including related fees and expenses, from pending or future lawsuits, government investigations or private actions; and the other factors discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov). Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

About Live Oak Bancshares, Inc.

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

Contacts:

William C. (BJ) Losch, III | CFO | Investor Relations | 910.218.2173

Claire Parker | SVP Corporate Communications | Media Relations | 910.597.1592

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

Three months ended

4Q 2021 Change vs.

4Q 2021

3Q 2021

2Q 2021

1Q 2021

4Q 2020

3Q 2021

4Q 2020

Interest income

%

%

Loans and fees on loans

$

88,577

$

89,388

$

84,780

$

84,993

$

79,166

(0.9

)

11.9

Investment securities, taxable

3,455

3,174

2,975

2,929

3,345

8.9

3.3

Other interest earning assets

171

224

244

303

529

(23.7

)

(67.7

)

Total interest income

92,203

92,786

87,999

88,225

83,040

(0.6

)

11.0

Interest expense

Deposits

13,817

14,159

14,820

16,944

19,195

(2.4

)

(28.0

)

Borrowings

748

892

1,717

1,331

1,544

(16.1

)

(51.6

)

Total interest expense

14,565

15,051

16,537

18,275

20,739

(3.2

)

(29.8

)

Net interest income

77,638

77,735

71,462

69,950

62,301

(0.1

)

24.6

Provision for (recovery of) loan and lease credit
losses

3,918

4,319

7,846

(873

)

8,634

(9.3

)

(54.6

)

Net interest income after provision for (recovery of)
loan and lease credit losses

73,720

73,416

63,616

70,823

53,667

0.4

37.4

Noninterest income

Loan servicing revenue

6,289

6,278

6,218

6,434

6,684

0.2

(5.9

)

Loan servicing asset revaluation

(4,160

)

(5,878

)

(3,181

)

1,493

(5,756

)

(29.2

)

(27.7

)

Net gains on sales of loans

20,257

18,860

16,234

11,929

14,976

7.4

35.3

Net (loss) gain on loans accounted for under the fair
value option

(66

)

(1,030

)

1,135

4,218

(4,759

)

(93.6

)

(98.6

)

Equity method investments income (loss)

2,969

(1,250

)

(2,278

)

(1,157

)

(8,739

)

(337.5

)

(134.0

)

Equity security investments gains (losses), net

218

176

44,253

105

107

23.9

103.7

Lease income

2,521

2,527

2,616

2,599

2,615

(0.2

)

(3.6

)

Management fee income

1,482

1,489

1,473

1,934

2,206

(0.5

)

(32.8

)

Other noninterest income

4,246

4,104

3,641

3,502

3,469

3.5

22.4

Total noninterest income

33,756

25,276

70,111

31,057

10,803

33.5

212.5

Noninterest expense

Salaries and employee benefits

32,464

28,202

32,900

31,366

29,477

15.1

10.1

Travel expense

1,782

1,819

1,549

659

1,056

(2.0

)

68.8

Professional services expense

3,724

4,251

3,329

3,831

1,691

(12.4

)

120.2

Advertising and marketing expense

1,844

1,631

875

652

973

13.1

89.5

Occupancy expense

2,045

2,042

2,224

2,112

2,302

0.1

(11.2

)

Data processing expense

5,186

4,867

4,234

3,894

3,414

6.6

51.9

Equipment expense

4,644

4,567

4,385

4,354

4,002

1.7

16.0

Other loan origination and maintenance expense

3,406

3,489

3,307

3,327

3,173

(2.4

)

7.3

Renewable energy tax credit investment impairment

60

3,127

(100.0

)

FDIC insurance

1,931

1,670

1,704

1,765

2,147

15.6

(10.1

)

Other expense

2,672

2,861

3,051

3,185

4,200

(6.6

)

(36.4

)

Total noninterest expense

59,698

55,459

57,558

58,272

52,435

7.6

13.9

Income before taxes

47,778

43,233

76,169

43,608

12,035

10.5

297.0

Income tax expense (benefit)

17,631

9,394

12,587

4,181

(17,553

)

87.7

(200.4

)

Net income

$

30,147

$

33,839

$

63,582

$

39,427

$

29,588

(10.9

)

1.9

Earnings per share

Basic

$

0.69

$

0.78

$

1.48

$

0.92

$

0.72

(11.5

)

(4.2

)

Diluted

$

0.66

$

0.76

$

1.41

$

0.88

$

0.68

(13.2

)

(2.9

)

Weighted average shares outstanding

Basic

43,492,172

43,329,889

43,173,312

42,673,615

41,320,851

Diluted

45,474,530

45,040,690

45,062,392

44,696,850

43,333,707

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

As of the quarter ended

4Q 2021 Change vs.

4Q 2021

3Q 2021

2Q 2021

1Q 2021

4Q 2020

3Q 2021

4Q 2020

Assets

%

%

Cash and due from banks

$

187,203

$

336,362

$

428,907

$

630,081

$

297,167

(44.3

)

(37.0

)

Federal funds sold

16,547

10,672

9,917

5,461

21,153

55.1

(21.8

)

Certificates of deposit with other banks

4,750

6,000

6,000

6,500

6,500

(20.8

)

(26.9

)

Investment securities available-for-sale

906,052

861,377

817,896

775,177

750,098

5.2

20.8

Loans held for sale (1)

1,116,519

1,042,756

1,064,911

1,076,741

1,175,470

7.1

(5.0

)

Loans and leases held for investment (2)

5,521,262

5,418,611

5,441,423

5,456,754

5,144,930

1.9

7.3

Allowance for credit losses on loans and leases

(63,584

)

(59,681

)

(57,848

)

(52,417

)

(52,306

)

6.5

21.6

Net loans and leases

5,457,678

5,358,930

5,383,575

5,404,337

5,092,624

1.8

7.2

Premises and equipment, net

240,196

244,212

249,069

253,774

259,267

(1.6

)

(7.4

)

Foreclosed assets

620

883

1,793

4,185

4,155

(29.8

)

(85.1

)

Servicing assets

33,574

33,968

36,966

37,744

33,918

(1.2

)

(1.0

)

Other assets

250,254

242,181

244,152

223,875

231,951

3.3

7.9

Total assets

$

8,213,393

$

8,137,341

$

8,243,186

$

8,417,875

$

7,872,303

0.9

4.3

Liabilities and Shareholders’ Equity

Liabilities

Deposits:

Noninterest-bearing

$

89,279

$

77,026

$

89,768

$

75,794

$

75,287

15.9

18.6

Interest-bearing

7,022,765

6,739,587

6,431,065

6,240,210

5,637,541

4.2

24.6

Total deposits

7,112,044

6,816,613

6,520,833

6,316,004

5,712,828

4.3

24.5

Borrowings

318,289

575,021

1,012,431

1,465,961

1,542,093

(44.6

)

(79.4

)

Other liabilities

67,927

56,284

52,575

45,550

49,532

20.7

37.1

Total liabilities

7,498,260

7,447,918

7,585,839

7,827,515

7,304,453

0.7

2.7

Shareholders’ equity

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

Class A common stock (voting)

310,970

304,085

299,809

298,525

298,890

2.3

4.0

Class B common stock (non-voting)

1,324

5,404

5,404

7,330

11,729

(75.5

)

(88.7

)

Retained earnings

400,893

371,869

339,011

275,377

235,724

7.8

70.1

Accumulated other comprehensive income

1,946

8,065

13,123

9,128

21,507

(75.9

)

(91.0

)

Total shareholders' equity

715,133

689,423

657,347

590,360

567,850

3.7

25.9

Total liabilities and shareholders’ equity

$

8,213,393

$

8,137,341

$

8,243,186

$

8,417,875

$

7,872,303

0.9

4.3

(1) Includes $25.3 million, $27.4 million, $29.0 million, $35.9 million and $36.1 million measured at fair value for the quarters ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively.

(2) Includes $645.2 million, $698.0 million, $743.2 million, $790.8 million and $815.4 million measured at fair value for the quarters ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively.

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

Twelve months ended

December 31, 2021

December 31, 2020

Interest income

Loans and fees on loans

$

347,738

$

270,770

Investment securities, taxable

12,533

15,016

Other interest earning assets

942

2,622

Total interest income

361,213

288,408

Interest expense

Deposits

59,740

89,726

Borrowings

4,688

3,959

Total interest expense

64,428

93,685

Net interest income

296,785

194,723

Provision for loan and lease credit losses

15,210

40,658

Net interest income after provision for loan and
lease credit losses

281,575

154,065

Noninterest income

Loan servicing revenue

25,219

26,600

Loan servicing asset revaluation

(11,726

)

(9,958

)

Net gains on sales of loans

67,280

49,473

Net gain (loss) on loans accounted for under the fair
value option

4,257

(13,083

)

Equity method investments income (loss)

(1,716

)

(14,691

)

Equity security investments gains (losses), net

44,752

14,909

Gain on sale of investment securities available-for-sale, net

1,880

Lease income

10,263

10,508

Management fee income

6,378

6,352

Other noninterest income

15,493

14,010

Total noninterest income

160,200

86,000

Noninterest expense

Salaries and employee benefits

124,932

112,525

Travel expense

5,809

3,451

Professional services expense

15,135

6,359

Advertising and marketing expense

5,002

3,510

Occupancy expense

8,423

8,757

Data processing expense

18,181

12,344

Equipment expense

17,950

17,603

Other loan origination and maintenance expense

13,529

10,790

Renewable energy tax credit investment impairment

3,187

FDIC insurance

7,070

7,473

Other expense

11,769

9,864

Total noninterest expense

230,987

192,676

Income before taxes

210,788

47,389

Income tax expense (benefit)

43,793

(12,154

)

Net income

$

166,995

$

59,543

Earnings per share

Basic

$

3.87

$

1.46

Diluted

$

3.71

$

1.43

Weighted average shares outstanding

Basic

43,169,935

40,677,496

Diluted

45,071,304

41,771,250

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

As of and for the three months ended

4Q 2021

3Q 2021

2Q 2021

1Q 2021

4Q 2020

Income Statement Data

Net income

$

30,147

$

33,839

$

63,582

$

39,427

$

29,588

Per Common Share

Net income, diluted

$

0.66

$

0.76

$

1.41

$

0.88

$

0.68

Dividends declared

0.03

0.03

0.03

0.03

0.03

Book value

16.39

15.89

15.19

13.74

13.38

Tangible book value (1)

16.31

15.80

15.10

13.65

13.28

Performance Ratios

Return on average assets (annualized)

1.47

%

1.64

%

3.01

%

1.98

%

1.49

%

Return on average equity (annualized)

16.80

19.67

41.30

26.89

19.86

Net interest margin

4.02

3.99

3.63

3.81

3.33

Efficiency ratio (1)

53.59

53.84

40.66

57.69

71.73

Noninterest income to total revenue

30.30

24.54

49.52

30.75

14.78

Selected Loan Metrics

Loans and leases originated

$

1,083,623

$

1,063,190

$

1,153,693

$

1,180,219

$

808,010

Outstanding balance of sold loans serviced

3,298,828

3,212,271

3,134,068

3,216,727

3,205,623

Asset Quality Ratios

Allowance for credit losses to loans and leases held for
investment (3)

1.30

%

1.26

%

1.23

%

1.12

%

1.21

%

Net charge-offs (3)

$

15

$

2,485

$

2,417

$

(984

)

$

537

Net charge-offs to average loans and leases held for
investment (2) (3)

%

0.21

%

0.21

%

(0.09

)%

0.05

%

Nonperforming loans and leases at historical cost (3) (4)

Unguaranteed

$

15,987

$

20,450

$

22,458

$

24,738

$

20,078

Guaranteed

26,546

28,888

25,551

32,633

26,032

Total

42,533

49,338

48,009

57,371

46,110

Unguaranteed nonperforming historical cost loans and
leases, to loans and leases held for investment (3) (4)

0.33

%

0.43

%

0.48

%

0.53

%

0.46

%

Nonperforming loans at fair value (5)

Unguaranteed

$

4,791

$

6,303

$

5,503

$

5,838

$

5,387

Guaranteed

33,471

36,708

34,323

34,396

30,112

Total

38,262

43,011

39,826

40,234

35,499

Unguaranteed nonperforming fair value loans to loans
held for investment (5)

0.74

%

0.90

%

0.74

%

0.74

%

0.66

%

Capital Ratios

Common equity tier 1 capital (to risk-weighted assets)

12.38

%

12.56

%

12.45

%

12.16

%

12.15

%

Tier 1 leverage capital (to average assets)

8.87

8.82

8.70

8.50

8.40

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) The quarter ended December 31, 2020 excludes one $6.1 million hotel loan classified as held for sale.
(5) 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
December 31, 2021

Three months ended
September 30, 2021

Average Balance

Interest

Average Yield/Rate

Average Balance

Interest

Average Yield/Rate

Interest earning assets:

Interest earning balances in other banks

$

331,077

$

168

0.20

%

$

452,830

$

221

0.19

%

Federal funds sold

8,515

3

0.14

9,260

3

0.13

Investment securities

879,138

3,455

1.56

808,697

3,174

1.56

Loans held for sale

1,059,672

14,661

5.49

1,098,940

15,090

5.45

Loans and leases held for investment (1)

5,391,283

73,916

5.44

5,366,088

74,298

5.49

Total interest earning assets

7,669,685

92,203

4.77

7,735,815

92,786

4.76

Less: allowance for credit losses on loans and
leases

(59,088

)

(56,411

)

Non-interest earning assets

569,493

581,771

Total assets

$

8,180,090

$

8,261,175

Interest bearing liabilities:

Interest bearing checking

$

$

%

$

$

%

Savings

3,470,813

4,487

0.51

3,367,168

4,359

0.51

Money market accounts

97,230

61

0.25

104,576

74

0.28

Certificates of deposit

3,337,399

9,269

1.10

3,156,834

9,726

1.22

Total interest bearing deposits

6,905,442

13,817

0.79

6,628,578

14,159

0.85

Borrowings

427,044

748

0.69

818,511

892

0.43

Total interest bearing liabilities

7,332,486

14,565

0.79

7,447,089

15,051

0.80

Non-interest bearing deposits

79,479

79,006

Non-interest bearing liabilities

50,190

46,907

Shareholders' equity

717,935

688,173

Total liabilities and shareholders' equity

$

8,180,090

$

8,261,175

Net interest income and interest rate spread

$

77,638

3.98

%

$

77,735

3.96

%

Net interest margin

4.02

3.99

Ratio of average interest-earning assets to average
interest-bearing liabilities

104.60

%

103.88

%

(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 2021

3Q 2021

2Q 2021

1Q 2021

4Q 2020

Total shareholders’ equity

$

715,133

$

689,423

$

657,347

$

590,360

$

567,850

Less:

Goodwill

1,797

1,797

1,797

1,797

1,797

Other intangible assets

2,026

2,065

2,103

2,141

2,179

Tangible shareholders’ equity (a)

$

711,310

$

685,561

$

653,447

$

586,422

$

563,874

Shares outstanding (c)

43,619,070

43,381,014

43,264,460

42,951,344

42,452,446

Total assets

$

8,213,393

$

8,137,341

$

8,243,186

$

8,417,875

$

7,872,303

Less:

Goodwill

1,797

1,797

1,797

1,797

1,797

Other intangible assets

2,026

2,065

2,103

2,141

2,179

Tangible assets (b)

$

8,209,570

$

8,133,479

$

8,239,286

$

8,413,937

$

7,868,327

Tangible shareholders’ equity to tangible assets
(a/b)

8.66

%

8.43

%

7.93

%

6.97

%

7.17

%

Tangible book value per share (a/c)

$

16.31

$

15.80

$

15.10

$

13.65

$

13.28

Efficiency ratio:

Noninterest expense (d)

$

59,698

$

55,459

$

57,558

$

58,272

$

52,435

Net interest income

77,638

77,735

71,462

69,950

62,301

Noninterest income

33,756

25,276

70,111

31,057

10,803

Less: gain on sale of securities

Adjusted operating revenue (e)

$

111,394

$

103,011

$

141,573

$

101,007

$

73,104

Efficiency ratio (d/e)

53.59

%

53.84

%

40.66

%

57.69

%

71.73

%

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

Three months ended

Twelve months ended

4Q 2021

3Q 2021

4Q 2020

4Q 2021

4Q 2020

Reconciliation of net income to non-GAAP net income:

Net income

$

30,147

$

33,839

$

29,588

$

166,995

$

59,543

Loss (gain) on sale of aircraft

6

(114

)

6

Impairment on aircraft held for sale

244

1,263

Income tax effects and adjustments for non-GAAP
items *

(60

)

27

(305

)

Non-GAAP net income

$

30,147

$

33,839

$

29,778

$

166,908

$

60,507

* Estimated at 24.0%

Non-GAAP earnings per share:

Basic

$

0.69

$

0.78

$

0.72

$

3.87

$

1.49

Diluted

$

0.66

$

0.76

$

0.69

$

3.70

$

1.45

Weighted-average shares outstanding:

Basic

43,492,172

43,329,889

41,320,851

43,169,935

40,677,496

Diluted

45,474,530

45,040,690

43,333,707

45,071,304

41,771,250

Reconciliation of financial statement line items as
reported to non-GAAP:

Noninterest income, as reported

$

33,756

$

25,276

$

10,803

$

160,200

$

86,000

Gain on sale of aircraft

(114

)

Noninterest income, non-GAAP

$

33,756

$

25,276

$

10,803

$

160,086

$

86,000

Noninterest expense, as reported

$

59,698

$

55,459

$

52,435

$

230,987

$

192,676

Loss on sale of aircraft

(6

)

(6

)

Impairment on aircraft held for sale

(244

)

(1,263

)

Noninterest expense, non-GAAP

$

59,698

$

55,459

$

52,185

$

230,987

$

191,407

Income before taxes, as reported

$

47,778

$

43,233

$

12,035

$

210,788

$

47,389

Loss (gain) on sale of aircraft

6

(114

)

6

Impairment on aircraft held for sale

244

1,263

Income before taxes, non-GAAP

$

47,778

$

43,233

$

12,285

$

210,674

$

48,658

Income tax expense (benefit), as reported

$

17,631

$

9,394

$

(17,553

)

$

43,793

$

(12,154

)

Income tax effects and adjustments for non-GAAP
items

60

(27

)

305

Income tax expense (benefit), non-GAAP

$

17,631

$

9,394

$

(17,493

)

$

43,766

$

(11,849

)

This press release presents 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.