Live Oak Bancshares (LOB) Reports Q4 EPS of $0.66

January 25, 2022 4:46 PM EST
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Live Oak Bancshares, Inc. (Nasdaq: LOB) 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 endedDecember 31, 2021 Three months endedSeptember 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.

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Source: Live Oak Bancshares, Inc.



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