Live Oak Bancshares, Inc. Reports Third Quarter 2023 Results

By: Live Oak Bancshares, Inc. via GlobeNewswire

October 25, 2023 at 16:30 PM EDT

WILMINGTON, N.C., Oct. 25, 2023 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (NYSE: LOB) (“Live Oak” or “the Company”) today reported third quarter of 2023 net income of $39.8 million, or $0.88 per diluted share.

“The success of our quarter shows that Live Oak Bank remains on a path of sustainable and sound growth to fulfill our mission to be America’s small business bank,” said Live Oak Chairman and CEO James S. (Chip) Mahan III. “Our products continue to be delivered with a focus on high-touch service, and our branchless technology-driven platform is an efficient way to get capital into the hands of small business owners.”

Third Quarter 2023 Key Measures

(Dollars in thousands, except per share data)							Increase (Decrease)
	3Q 2023			2Q 2023			Dollars			Percent			3Q 2022
Total revenue ⁽¹⁾	$	127,301		$	108,458		$	18,843		17		%	$	141,610
Total noninterest expense		74,262			76,457			(2,195	)	(3	)			83,048
Income before taxes		42,760			18,973			23,787		125				44,393
Effective tax rate		6.9	%		7.5	%	n/a			n/a				3.4	%
Net income	$	39,793		$	17,544		$	22,249		127		%	$	42,868
Diluted earnings per share		0.88			0.39			0.49		126				0.96
Loan and lease production:
Loans and leases originated	$	1,073,255		$	861,033		$	212,222		25		%	$	1,005,235
% Fully funded		52.2	%		49.4	%	n/a			n/a				54.0	%
Total loans and leases:	$	8,775,235		$	8,360,174		$	415,061		5		%	$	7,391,031
Total assets:		10,950,460			10,819,196			131,264		1				9,314,650
Total deposits:		10,003,642			9,879,111			124,531		1				8,404,909

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

Loans and Leases

As of September 30, 2023, the total loan and lease portfolio was $8.78 billion, 5.0% above its level at June 30, 2023, and 18.7% above its level a year ago. This growth was the product of strong origination volumes. Compared to the second quarter of 2023, loans and leases held for investment increased $366.2 million, or 4.7%, to $8.20 billion while loans held for sale increased $48.8 million, or 9.3%, to $572.6 million. Average loans and leases were $8.58 billion during the third quarter of 2023 compared to $8.29 billion during the second quarter of 2023.

The total loan and lease portfolio at September 30, 2023, and June 30, 2023, was comprised of 39.0% and 39.6% of guaranteed loans and leases, respectively.

Loan and lease originations totaled $1.07 billion during the third quarter of 2023, an increase of $212.2 million, or 24.6%, from the second quarter of 2023. Loan and lease originations increased $68.0 million, or 6.8%, from the third quarter of 2022.

Deposits

Total deposits increased to $10.00 billion at September 30, 2023, an increase of $124.5 million compared to June 30, 2023, and an increase of $1.60 billion compared to September 30, 2022. The increase in total deposits from prior periods was to support growth in the loan and lease portfolio combined with strong deposit inflows.

Average total interest-bearing deposits for the third quarter of 2023 increased $208.5 million, or 2.2%, to $9.70 billion, compared to $9.49 billion for the second quarter of 2023. The ratio of average total loans and leases to average interest-bearing deposits was 88.5% for the third quarter of 2023, compared to 87.3% for the second quarter of 2023.

Net Interest Income

Net interest income for the third quarter of 2023 was $89.4 million compared to $84.3 million for the second quarter of 2023 and $83.9 million for the third quarter of 2022. The net interest margin for the third quarter of 2023 and second quarter of 2023 was 3.37% and 3.29%, respectively, an increase of 8 basis points quarter over quarter. This increase was due to higher average loan balances and yields outpacing increases in both volume and cost of deposits. During the third quarter of 2023, the average cost of interest-bearing liabilities increased by 13 basis points while the average yield on interest-earning assets increased by 18 basis points.

The increase in net interest income for the third quarter of 2023 compared to the third quarter of 2022 was driven by growth in average loans and leases held for investment. Partially mitigating this increase was a decrease in the net interest margin by 47 basis points arising from an increase in deposits combined with the increase in average cost of funds outpacing the increase in average yield on interest-earning assets.

Noninterest Income

Noninterest income for the third quarter of 2023 was $37.9 million, an increase of $13.7 million compared to the second quarter of 2023, and a decrease of $19.8 million compared to the third quarter of 2022. The primary drivers in noninterest income changes are outlined below.

The Company changed the valuation techniques used to estimate the fair value of servicing rights and loans measured at fair value as a result of rising interest rates and their impacts on market conditions. These revisions provide estimates that the Company believes are more representative of fair value. These estimate changes were implemented as of July 1, 2023, and resulted in one-time adjustments on that date to increase the estimated value of the servicing asset by $13.7 million and loans measured at fair value by $1.3 million, or a total impact to noninterest income of $15.0 million.

The loan servicing asset revaluation resulted in a gain of $11.3 million for the third quarter of 2023 (inclusive of the one-time adjustment discussed above) compared to a $2.8 million loss for the second quarter of 2023 and a $1.3 million loss for the third quarter of 2022. The increase in the servicing asset revaluation for both comparative periods was principally the result of the above discussed third quarter of 2023 change in estimate.

Net gains on sales of loans for the third quarter of 2023 was $12.7 million, a $1.9 million increase compared to the second quarter of 2023, and a $3.4 million increase compared to the third quarter of 2022. The increase in net gains on sales of loans compared to the second quarter of 2023 was principally the result of the above discussed change in estimate effective during the third quarter of 2023, resulting in incrementally higher servicing asset values recognized when loans are sold and corresponding higher gains on sale. The increase in net gains on sales of loans compared to the third quarter of 2022 was principally the result of a higher volume of loan sales in the third quarter of 2023. The volume of guaranteed loans sold was $225.6 million for the third quarter of 2023, compared to $245.1 million sold in the second quarter of 2023, and $148.1 million sold in the third quarter of 2022. Partially mitigating the increase in net gains on loan sales was lower premiums in the third quarter of 2023 compared to the third quarter of 2022. The average gain on sale premium of guaranteed loans was 105%, 105% and 108% for the third quarter of 2023, second quarter of 2023 and third quarter of 2022, respectively.

Loans accounted for under the fair value option had a net loss of $568 thousand for the third quarter of 2023 (inclusive of the one-time adjustment discussed above), a $1.7 million net gain for the second quarter of 2023, and a $4.4 million net gain for the third quarter of 2022. The decrease in valuation of loans accounted for under the fair value option compared to the second quarter of 2023 was largely the result of credit losses partially offset by the previously discussed change in estimate. The decrease compared to the third quarter of 2022 was principally the result of negative market trends between the comparative periods.

Equity method investment losses totaled $1.0 million for the third quarter of 2023, a $30.2 million decrease from the net gain of $29.1 million in the third quarter of 2022. The decrease was principally related to the $28.4 million gain arising in the third quarter of 2022 associated with the acquisition of the Company’s ownership in Payrailz, LLC.

Noninterest Expense

Noninterest expense for the third quarter of 2023 totaled $74.3 million compared to $76.5 million for the second quarter of 2023 and $83.0 million for the third quarter of 2022. The primary driver for the decrease compared to the third quarter of 2022 was $7.7 million of impairment charges in the third quarter of 2022 primarily related to a new renewable energy tax credit investment.

Asset Quality

During the third quarter of 2023, the Company recognized net charge-offs for loans carried at historical cost of $9.1 million, compared to $1.2 million in the second quarter of 2023 and $1.7 million in the third quarter of 2022. The increase in net charge-offs was primarily related to a single borrower relationship for which a significant portion was reserved in the second quarter of 2023. Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022, was 0.48%, 0.06% and 0.12%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $6.5 million and $8.6 million accounted for under the fair value option at September 30, 2023, and June 30, 2023, respectively, decreased to $33.3 million, or 0.43%, of loans and leases held for investment which are carried at historical cost, at September 30, 2023, compared to $44.9 million, or 0.61%, at June 30, 2023.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the third quarter of 2023 totaled $10.3 million compared to $13.0 million for the second quarter of 2023 and $14.2 million for the third quarter of 2022. The provision expense in the third quarter of 2023 was primarily the result of continued growth of the loan and lease portfolio combined with specific reserve changes on individually evaluated loans and charge-off related impacts.

The allowance for credit losses on loans and leases totaled $121.3 million at September 30, 2023, compared to $120.1 million at June 30, 2023. 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 1.56% and 1.62% at September 30, 2023, and June 30, 2023, respectively.

Income Tax

Income tax expense and related effective tax rate was $3.0 million and 6.9% for the third quarter of 2023, $1.4 million and 7.5% for the second quarter of 2023 and $1.5 million and 3.4% for the third quarter of 2022, respectively. The higher level of income tax expense for the third quarter of 2023 compared to the second quarter of 2023 was principally related to increased pretax income. The higher level of income tax expense in the third quarter of 2023 compared to the third quarter of 2022 was primarily the result of higher than anticipated investment tax credits in the third quarter of 2022 related to renewable energy investments, arising from the impacts of the passage of the Inflation Reduction Act of 2022 combined with higher than expected costs, as a result of the inflationary environment.

Conference Call

Live Oak will host a conference call to discuss the company's financial results and business outlook tomorrow, October 26, 2023, at 9:00 a.m. ET. The call will be accessible by telephone and webcast using Conference ID: 73371580. A supplementary slide presentation will be posted to the website prior to the event, and a replay will be available for 12 months following the event. The conference call details are as follows:

Live Telephone Dial-In

U.S.: 888.259.6580
International: +1 416.764.8624
Pass Code: None Required

Live Webcast Log-In

Webcast Link: investor.liveoakbank.com
Registration: Name and Email Required
Multi-Factor Code: Provided After Registration

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 impacts of global health crises and pandemics, such as 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; recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments; 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; changes in political and economic conditions, including any prolonged U.S. government shutdown; the impact of heightened regulatory scrutiny of financial products and services and the Company's ability to comply with regulatory requirements and expectations; a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget; 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. (NYSE: 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															3Q 2023 Change vs.
	3Q 2023			2Q 2023			1Q 2023			4Q 2022			3Q 2022			2Q 2023		3Q 2022
Interest income																%		%
Loans and fees on loans	$	162,722		$	152,362		$	139,052		$	127,310		$	107,880		6.8		50.8
Investment securities, taxable		8,701			8,503			7,547			6,716			5,506		2.3		58.0
Other interest earning assets		9,188			8,847			4,817			2,584			2,448		3.9		275.3
Total interest income		180,611			169,712			151,416			136,610			115,834		6.4		55.9
Interest expense
Deposits		90,914			85,003			67,595			50,357			31,553		7.0		188.1
Borrowings		287			407			1,804			351			395		(29.5	)	(27.3	)
Total interest expense		91,201			85,410			69,399			50,708			31,948		6.8		185.5
Net interest income		89,410			84,302			82,017			85,902			83,886		6.1		6.6
Provision for loan and lease credit losses		10,279			13,028			19,021			19,671			14,169		(21.1	)	(27.5	)
Net interest income after provision for loan and lease credit losses		79,131			71,274			62,996			66,231			69,717		11.0		13.5
Noninterest income
Loan servicing revenue		6,990			6,687			6,380			6,296			6,230		4.5		12.2
Loan servicing asset revaluation		11,335			(2,831	)		356			(5,016	)		(1,324	)	500.4		956.1
Net gains on sales of loans		12,675			10,804			10,175			7,362			9,275		17.3		36.7
Net (loss) gain on loans accounted for under the fair value option		(568	)		1,728			(4,529	)		571			4,420		(132.9	)	(112.9	)
Equity method investments (loss) income		(1,034	)		(2,055	)		(2,952	)		(1,818	)		29,136		49.7		(103.5	)
Equity security investments (losses) gains, net		(783	)		121			77			868			876		(747.1	)	(189.4	)
Lease income		2,498			2,535			2,535			2,555			2,516		(1.5	)	(0.7	)
Management fee income		3,277			3,266			3,472			3,200			2,844		0.3		15.2
Other noninterest income		3,501			3,901			4,065			5,053			3,751		(10.3	)	(6.7	)
Total noninterest income		37,891			24,156			19,579			19,071			57,724		56.9		(34.4	)
Noninterest expense
Salaries and employee benefits		42,947			43,066			44,765			42,560			43,479		(0.3	)	(1.2	)
Travel expense		2,197			2,770			2,411			1,872			2,372		(20.7	)	(7.4	)
Professional services expense		1,762			1,996			927			2,453			2,505		(11.7	)	(29.7	)
Advertising and marketing expense		3,446			3,009			3,603			3,892			2,621		14.5		31.5
Occupancy expense		2,129			2,205			1,925			3,469			2,519		(3.4	)	(15.5	)
Technology expense		7,722			8,005			7,729			8,849			7,770		(3.5	)	(0.6	)
Equipment expense		3,676			4,023			3,818			3,759			3,761		(8.6	)	(2.3	)
Other loan origination and maintenance expense		3,498			3,442			3,927			3,657			3,376		1.6		3.6
Renewable energy tax credit investment impairment		—			—			69			8,446			7,721		—		(100.0	)
FDIC insurance		4,115			5,061			3,403			2,923			2,697		(18.7	)	52.6
Contributions and donations		—			—			—			33			191		—		(100.0	)
Other expense		2,770			2,880			6,385			2,672			4,036		(3.8	)	(31.4	)
Total noninterest expense		74,262			76,457			78,962			84,585			83,048		(2.9	)	(10.6	)
Income before taxes		42,760			18,973			3,613			717			44,393		125.4		(3.7	)
Income tax expense (benefit)		2,967			1,429			3,215			(1,075	)		1,525		107.6		94.6
Net income	$	39,793		$	17,544		$	398		$	1,792		$	42,868		126.8		(7.2	)
Earnings per share
Basic	$	0.89		$	0.40		$	0.01		$	0.04		$	0.97		122.5		(8.2	)
Diluted	$	0.88		$	0.39		$	0.01		$	0.04		$	0.96		125.6		(8.3	)
Weighted average shares outstanding
Basic		44,408,997			44,327,474			44,157,156			44,005,220			43,914,920
Diluted		45,268,745			44,835,089			44,964,616			44,794,941			44,797,109

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

	As of the quarter ended															3Q 2023 Change vs.
	3Q 2023			2Q 2023			1Q 2023			4Q 2022			3Q 2022			2Q 2023		3Q 2022
Assets																%		%
Cash and due from banks	$	534,774		$	808,131		$	463,186		$	280,239		$	335,046		(33.8	)	59.6
Federal funds sold		—			—			—			136,397			68,324		—		(100.0	)
Certificates of deposit with other banks		3,750			4,000			4,000			4,000			4,250		(6.3	)	(11.8	)
Investment securities available-for-sale		1,099,878			1,133,146			1,149,691			1,014,719			1,005,372		(2.9	)	9.4
Loans held for sale		572,604			523,776			533,292			554,610			537,649		9.3		6.5
Loans and leases held for investment ⁽¹⁾		8,202,631			7,836,398			7,686,987			7,344,178			6,853,382		4.7		19.7
Allowance for credit losses on loans and leases		(121,273	)		(120,116	)		(108,242	)		(96,566	)		(78,291	)	(1.0	)	(54.9	)
Net loans and leases		8,081,358			7,716,282			7,578,745			7,247,612			6,775,091		4.7		19.3
Premises and equipment, net		258,041			269,485			268,138			263,290			260,285		(4.2	)	(0.9	)
Foreclosed assets		6,701			—			—			—			1,178		100.0		468.8
Servicing assets		47,127			31,042			29,357			26,323			29,081		51.8		62.1
Other assets		346,227			333,334			337,888			328,308			298,374		3.9		16.0
Total assets	$	10,950,460		$	10,819,196		$	10,364,297		$	9,855,498		$	9,314,650		1.2		17.6
Liabilities and shareholders’ equity
*Liabilities*
Deposits:
Noninterest-bearing	$	239,536		$	229,833		$	176,439		$	194,100		$	170,336		4.2		40.6
Interest-bearing		9,764,106			9,649,278			9,245,555			8,690,828			8,234,573		1.2		18.6
Total deposits		10,003,642			9,879,111			9,421,994			8,884,928			8,404,909		1.3		19.0
Borrowings		25,847			28,317			30,767			83,203			35,616		(8.7	)	(27.4	)
Other liabilities		70,603			79,280			88,729			76,334			71,957		(10.9	)	(1.9	)
Total liabilities		10,100,092			9,986,708			9,541,490			9,044,465			8,512,482		1.1		18.7
*Shareholders’ equity*
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding		—			—			—			—			—		—		—
Class A common stock (voting)		340,929			341,032			334,672			330,854			325,632		—		4.7
Class B common stock (non-voting)		—			—			—			—			—		—		—
Retained earnings		627,759			589,036			572,530			572,497			571,778		6.6		9.8
Accumulated other comprehensive loss		(118,320	)		(97,580	)		(84,395	)		(92,318	)		(95,242	)	21.3		24.2
Total shareholders' equity		850,368			832,488			822,807			811,033			802,168		2.1		6.0
Total liabilities and shareholders’ equity	$	10,950,460		$	10,819,196		$	10,364,297		$	9,855,498		$	9,314,650		1.2		17.6

(1)	Includes $410.1 million, $441.8 million, $467.0 million, $494.5 million and $512.2 million measured at fair value for the quarters ended September 30, 2023, June 30, 2023, March 31, 2023, December 31, 2022, and September 30, 2022 respectively.

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

	Nine Months Ended
	September 30, 2023			September 30, 2022
Interest income
Loans and fees on loans	$	454,136		$	291,235
Investment securities, taxable		24,751			12,951
Other interest earning assets		22,852			3,677
Total interest income		501,739			307,863
Interest expense
Deposits		243,512			64,678
Borrowings		2,498			1,586
Total interest expense		246,010			66,264
Net interest income		255,729			241,599
Provision for loan and lease credit losses		42,328			21,272
Net interest income after provision for loan and lease credit losses		213,401			220,327
Noninterest income
Loan servicing revenue		20,057			19,063
Loan servicing asset revaluation		8,860			(11,561	)
Net gains on sales of loans		33,654			35,882
Net (loss) gain on loans accounted for under the fair value option		(3,369	)		475
Equity method investments (loss) income		(6,041	)		146,068
Equity security investments (losses) gains, net		(585	)		2,487
Lease income		7,568			7,529
Management fee income		10,015			6,890
Other noninterest income		11,467			12,088
Total noninterest income		81,626			218,921
Noninterest expense
Salaries and employee benefits		130,778			128,262
Travel expense		7,378			6,627
Professional services expense		4,685			9,284
Advertising and marketing expense		10,058			6,651
Occupancy expense		6,259			7,619
Technology expense		23,456			19,585
Equipment expense		11,517			11,361
Other loan origination and maintenance expense		10,867			9,511
Renewable energy tax credit investment impairment		69			7,771
FDIC insurance		12,579			6,833
Contributions and donations		—			6,429
Other expense		12,035			9,708
Total noninterest expense		229,681			229,641
Income before taxes		65,346			209,607
Income tax expense		7,611			35,191
Net income	$	57,735		$	174,416
Earnings per share
Basic	$	1.30		$	3.98
Diluted	$	1.28		$	3.88
Weighted average shares outstanding
Basic		44,298,798			43,814,648
Diluted		45,023,739			44,943,432

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

	As of and for the three months ended
	3Q 2023			2Q 2023			1Q 2023			4Q 2022			3Q 2022
Income Statement Data
Net income	$	39,793		$	17,544		$	398		$	1,792		$	42,868
Per Common Share
Net income, diluted	$	0.88		$	0.39		$	0.01		$	0.04		$	0.96
Dividends declared		0.03			0.03			0.03			0.03			0.03
Book value		19.12			18.77			18.58			18.41			18.24
Tangible book value ⁽¹⁾		19.04			18.69			18.50			18.32			18.15
Performance Ratios
Return on average assets (annualized)		1.46	%		0.66	%		0.02	%		0.08	%		1.86	%
Return on average equity (annualized)		18.68			8.26			0.19			0.88			20.79
Net interest margin		3.37			3.29			3.46			3.76			3.84
Efficiency ratio ⁽¹⁾		58.34			70.49			77.72			80.58			58.65
Noninterest income to total revenue		29.76			22.27			19.27			18.17			40.76
Selected Loan Metrics
Loans and leases originated	$	1,073,255		$	861,033		$	1,030,882		$	1,177,688		$	1,005,235
Outstanding balance of sold loans serviced		4,028,575			3,813,852			3,616,701			3,481,885			3,345,907
Asset Quality Ratios
Allowance for credit losses to loans and leases held for investment ⁽³⁾		1.56	%		1.62	%		1.50	%		1.41	%		1.23	%
Net charge-offs ⁽³⁾	$	9,122		$	1,154		$	6,669		$	1,396		$	1,741
Net charge-offs to average loans and leases held for investment ^{(2) (3)}		0.48	%		0.06	%		0.38	%		0.09	%		0.12	%

Nonperforming loans and leases at historical cost ⁽³⁾
Unguaranteed	$	33,255		$	44,899		$	22,002		$	18,784		$	14,334
Guaranteed		65,837			66,322			63,696			54,608			45,730
Total		99,092			111,221			85,698			73,392			60,064
Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment ⁽³⁾		0.43	%		0.61	%		0.30	%		0.27	%		0.23	%

Nonperforming loans at fair value ⁽⁴⁾
Unguaranteed	$	6,518		$	8,602		$	8,193		$	6,678		$	2,736
Guaranteed		39,378			45,114			43,968			38,212			25,169
Total		45,896			53,716			52,161			44,890			27,905
Unguaranteed nonperforming fair value loans to fair value loans held for investment ⁽⁴⁾		1.59	%		1.95	%		1.75	%		1.35	%		0.53	%

Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)		11.63	%		11.55	%		11.67	%		12.46	%		13.16	%
Tier 1 leverage capital (to average assets)		8.56			8.46			8.70			9.26			9.49

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 September 30, 2023							Three Months Ended June 30, 2023
	Average Balance			Interest		Average Yield/Rate		Average Balance			Interest		Average Yield/Rate
Interest-earning assets:
Interest-earning balances in other banks	$	677,857		$	9,188	5.38	%	$	731,427		$	8,847	4.85	%
Investment securities		1,257,740			8,701	2.74			1,252,320			8,503	2.72
Loans held for sale		602,109			13,271	8.74			516,378			12,153	9.44
Loans and leases held for investment ⁽¹⁾		7,978,870			149,451	7.43			7,773,816			140,209	7.23
Total interest-earning assets		10,516,576			180,611	6.81			10,273,941			169,712	6.63
Less: Allowance for credit losses on loans and leases		(119,941	)						(108,552	)
Noninterest-earning assets		499,508							499,661
Total assets	$	10,896,143						$	10,665,050
Interest-bearing liabilities:
Interest-bearing checking	$	300,059		$	4,217	5.58	%	$	300,046		$	3,968	5.30	%
Savings		4,588,085			45,778	3.96			4,277,850			41,930	3.93
Money market accounts		136,879			202	0.59			121,382			184	0.61
Certificates of deposit		4,675,075			40,717	3.46			4,792,289			38,921	3.26
Total deposits		9,700,098			90,914	3.72			9,491,567			85,003	3.59
Borrowings		27,425			287	4.15			37,997			407	4.30
Total interest-bearing liabilities		9,727,523			91,201	3.72			9,529,564			85,410	3.59
Noninterest-bearing deposits		237,545							205,741
Noninterest-bearing liabilities		78,930							80,427
Shareholders' equity		852,145							849,318
Total liabilities and shareholders' equity	$	10,896,143						$	10,665,050
Net interest income and interest rate spread				$	89,410	3.09	%				$	84,302	3.04	%
Net interest margin						3.37							3.29
Ratio of average interest-earning assets to average interest-bearing liabilities						108.11	%						107.81	%

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

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

	As of and for the three months ended
	3Q 2023			2Q 2023			1Q 2023			4Q 2022			3Q 2022
Total shareholders’ equity	$	850,368		$	832,488		$	822,807		$	811,033		$	802,168
Less:
Goodwill		1,797			1,797			1,797			1,797			1,797
Other intangible assets		1,759			1,797			1,835			1,873			1,912
Tangible shareholders’ equity (a)	$	846,812		$	828,894		$	819,175		$	807,363		$	798,459
Shares outstanding (c)		44,480,215			44,351,715			44,290,840			44,061,244			43,981,350
Total assets	$	10,950,460		$	10,819,196		$	10,364,297		$	9,855,498		$	9,314,650
Less:
Goodwill		1,797			1,797			1,797			1,797			1,797
Other intangible assets		1,759			1,797			1,835			1,873			1,912
Tangible assets (b)	$	10,946,904		$	10,815,602		$	10,360,665		$	9,851,828		$	9,310,941
Tangible shareholders’ equity to tangible assets (a/b)		7.74	%		7.66	%		7.91	%		8.20	%		8.58	%
Tangible book value per share (a/c)	$	19.04		$	18.69		$	18.50		$	18.32		$	18.15
Efficiency ratio:
Noninterest expense (d)	$	74,262		$	76,457		$	78,962		$	84,585		$	83,048
Net interest income		89,410			84,302			82,017			85,902			83,886
Noninterest income		37,891			24,156			19,579			19,071			57,724
Total revenue (e)	$	127,301		$	108,458		$	101,596		$	104,973		$	141,610
Efficiency ratio (d/e)		58.34	%		70.49	%		77.72	%		80.58	%		58.65	%

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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