Live Oak Bancshares, Inc. Reports First Quarter 2023 Results

Source: Nasdaq GlobeNewswire / 26 Apr 2023 19:08:00 America/New_York

WILMINGTON, N.C., April 26, 2023 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (NYSE: LOB) (“Live Oak” or “the Company”) today reported first quarter of 2023 net income of $398 thousand, or $0.01 per diluted share.

“The headlines for the first quarter of 2023 centered around deposits, liquidity, and credit. In the midst of this discourse, Live Oak weathered the noise and has a solid story to tell with continued deposit growth, a record first quarter for production backed by strong liquidity and healthy credit,” said Live Oak Chairman and CEO James S. (Chip) Mahan III. “We will continue to do what we have been doing since inception, diligently working to be America’s small business bank, while keeping a focus on soundness, profitability, and growth, in that order. Always.”

First Quarter 2023 Key Measures

(Dollars in thousands, except per share data)							Increase (Decrease)
	1Q 2023			4Q 2022			Dollars			Percent		1Q 2022
Total revenue⁽¹⁾	$	101,596		$	104,973		$	(3,377	)	(3	)%	$	110,447
Total noninterest expense		78,962			84,585			(5,623	)	(7	)		65,714
Income before taxes		3,613			717			2,896		404			42,897
Effective tax rate		89.0	%		(149.9)	%		n/a		n/a			19.6	%
Net income	$	398		$	1,792		$	(1,394	)	(78	) %	$	34,509
Diluted earnings per share		0.01			0.04			(0.03	)	(75	)		0.76
Loan and lease production:
Loans and leases originated	$	1,030,882		$	1,177,688		$	(146,806	)	(12	) %	$	865,063
% Fully funded		54.5	%		58.1	%		n/a		n/a			55.9	%
Total loans and leases:	$	8,220,279		$	7,898,788		$	321,491		4	%	$	6,766,876
Total assets:		10,364,297			9,855,498			508,799		5			8,619,966
Total deposits:		9,421,994			8,884,928			537,066		6			7,637,163

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

Loans and Leases

As of March 31, 2023, the total loan and lease portfolio was $8.22 billion, 4.1% above its level at December 31, 2022, and 21.5% above its level a year ago. This growth was the product of strong origination volumes. Compared to the fourth quarter of 2022, loans and leases held for investment increased $342.8 million, or 4.7%, to $7.69 billion while loans held for sale decreased $21.3 million, or 3.8%, to $533.3 million. The decrease in loans held for sale was principally due to the impact of market conditions in a rising rate environment which has influenced management's intent to hold a greater portion of loans as held for investment. Average loans and leases were $8.06 billion during the first quarter of 2023 compared to $7.64 billion during the fourth quarter of 2022.

The total loan and lease portfolio at March 31, 2023, and December 31, 2022, was comprised of 40.9% and 42.3% of guaranteed loans and leases, respectively.

Loan and lease originations totaled $1.03 billion during the first quarter of 2023, a decrease of $146.8 million, or 12.5%, from the fourth quarter of 2022. Loan and lease originations increased $165.8 million, or 19.2%, from the first quarter of 2022.

Deposits

Total deposits increased to $9.42 billion at March 31, 2023, an increase of $537.1 million compared to December 31, 2022, and an increase of $1.78 billion compared to March 31, 2022. The increase in total deposits from prior periods was to support growth in the loan and lease portfolio, as well as enhance the Company’s liquidity profile in response to the recent banking crisis. In addition, the Company began offering the IntraFi Insured Cash Sweep product in the first quarter of 2023 whereby depositors have access to FDIC insurance in excess of $250 thousand.

Average total interest-bearing deposits for the first quarter of 2023 increased $520.6 million, or 6.2%, to $8.88 billion, compared to $8.36 billion for the fourth quarter of 2022. The ratio of average total loans and leases to average interest-bearing deposits was 90.8% for the first quarter of 2023, compared to 91.4% for the fourth quarter of 2022.

Borrowings

Borrowings totaled $30.8 million at March 31, 2023 compared to $83.2 million and $196.9 million at December 31, 2022, and March 31, 2022, respectively. During the first quarter of 2023, the Company decreased borrowings by $52.4 million and $166.1 million as compared to December 31, 2022, and March 31, 2022, respectively. The decrease from the fourth quarter of 2022 was principally due to paying off the Company’s Fed Funds line of credit while the decrease from the first quarter of 2022 was primarily the result of paying off the outstanding balance of the Federal Reserve’s Paycheck Protection Program Liquidity Facility in September 2022.

Net Interest Income

Net interest income for the first quarter of 2023 was $82.0 million compared to $85.9 million for the fourth quarter of 2022 and $77.8 million for the first quarter of 2022. The net interest margin for the first quarter of 2023 and fourth quarter of 2022 was 3.46% and 3.76%, respectively, a decrease of 30 basis points quarter over quarter. This decrease was due to higher average liquidity levels as well as recent interest rate increases where new and existing deposits are repricing more rapidly than the Company’s total loan and lease portfolio. During the first quarter of 2023, the average cost of interest-bearing liabilities increased by 71 basis points while the average yield on interest-earning assets increased by 41 basis points.

The increase in net interest income for the first quarter of 2023 compared to the first quarter of 2022 was driven by growth in the total loan and lease portfolio. Partially mitigating this increase was a decrease in the net interest margin arising from an increase in interest-bearing liabilities 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 first quarter of 2023 was $19.6 million, an increase of $508 thousand compared to the fourth quarter of 2022, and a decrease of $13.1 million compared to the first quarter of 2022. The primary drivers in noninterest income changes are outlined below.

The loan servicing asset revaluation resulted in a gain of $356 thousand for the first quarter of 2023 compared to a $5.0 million loss for the fourth quarter of 2022 and a $1.6 million loss for the first quarter of 2022. The net gain in the loan servicing asset revaluation during the first quarter of 2023 was principally related to positive movements in market premiums during the quarter.

Net gains on sales of loans for the first quarter of 2023 was $10.2 million, a $2.8 million increase compared to the fourth quarter of 2022, and a $10.8 million decrease compared to the first quarter of 2022. The increase in net gains on sales of loans compared to the fourth quarter of 2022 was largely the result of a higher volume of loan sales combined with higher quarter over quarter market premiums. The decrease in the net gains on loan sales compared to the first quarter of 2022 was the result of lower loan sale volume and comparatively lower premiums in the first quarter of 2023. The average gain on sale premium of guaranteed loans was 106%, 105% and 109% for the first quarter of 2023, fourth quarter of 2022 and first quarter of 2022, respectively. The volume of guaranteed loans sold was $167.8 million for the first quarter of 2023, compared to $144.3 million sold in the fourth quarter of 2022, and $219.7 million sold in the first quarter of 2022.

Loans accounted for under the fair value option had a net loss of $4.5 million for the first quarter of 2023, a $571 thousand net gain for the fourth quarter of 2022, and a $516 thousand net gain for the first quarter of 2022. The decrease in valuation of loans accounted for under the fair value option compared to both prior periods was largely the result of negative market impacts related to rising interest rates.

Net equity method and equity security investment losses totaled $2.9 million for the first quarter of 2023, a $1.9 million increase in losses from the net loss for the fourth quarter of 2022. The increase was principally related to heightened levels of underlying losses in several of the Company’s equity method investees combined with lower levels of profit distributions from equity security investments.

Management fee income increased $2.0 million to $3.5 million for the first quarter of 2023 compared to the first quarter of 2022. Management fees are earned via Canapi Advisors investment advisory services for financial technology venture funds. This increase was principally due to four funds receiving advisory services in the first quarter of 2023 compared to two funds receiving advisory services in the first quarter of 2022. Canapi Advisors is one of the Company’s wholly owned subsidiaries.

Noninterest Expense

Noninterest expense for the first quarter of 2023 totaled $79.0 million compared to $84.6 million for the fourth quarter of 2022 and $65.7 million for the first quarter of 2022. The primary drivers in noninterest expense changes are outlined below.

Salaries and employee benefits for the first quarter of 2023 increased $2.2 million compared to the fourth quarter of 2022 and $6.3 million compared to the first quarter of 2022. This increase was largely the product of continued investment in human resources to support strategic and growth initiatives.

Professional services expense for the first quarter of 2023 decreased $1.5 million compared to the fourth quarter of 2022 and $1.9 million compared to the first quarter of 2022. This decrease was primarily driven by an insurance recovery of $1.3 million in the current quarter for previously expensed legal fees.

Advertising and marketing expense increased $1.9 million compared to the first quarter of 2022 as a continued investment in the Company’s lending and deposit market growth.

The Company incurred $8.4 million in impairment charges related to a renewable energy tax credit investment in the fourth quarter of 2022. Comparatively, there was $69 thousand in impairment charges in the first quarter of 2023.

Other noninterest expense increased by $3.7 million during the first quarter of 2023 compared to the fourth quarter of 2022 and $3.5 million compared to the first quarter of 2022, largely related to $2.8 million in increased levels of reserves on unfunded commitments. This increase was a result of refinements to the assumptions for estimating the reserve in the first quarter of 2023.

Asset Quality

During the first quarter of 2023, the Company recognized net charge-offs for loans carried at historical cost of $6.7 million compared to $1.4 million in the fourth quarter of 2022 and $2.4 million in the first quarter of 2022. Net charge-offs as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended March 31, 2023, December 31, 2022 and March 31, 2022, was 0.38%, 0.09% and 0.19%, respectively. The increase in net charge-offs in the first quarter of 2023 was primarily isolated to two relationships.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $8.2 million and $6.7 million accounted for under the fair value option at March 31, 2023, and December 31, 2022, respectively, increased to $22.0 million, or 0.30% of loans and leases held for investment which are carried at historical cost, at March 31, 2023, compared to $18.8 million, or 0.27%, at December 31, 2022.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the first quarter of 2023 totaled $19.0 million compared to $19.7 million for the fourth quarter of 2022 and $1.8 million for the first quarter of 2022. The provision expense in the first quarter of 2023 was primarily the result of continued growth of the loan and lease portfolio combined with portfolio trends and changes in the macroeconomic outlook.

The allowance for credit losses on loans and leases totaled $108.2 million at March 31, 2023 compared to $96.6 million at December 31, 2022. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost was 1.50% and 1.41% at March 31, 2023, and December 31, 2022, respectively.

Income Tax

Income tax expense (benefit) and related effective tax rate was $3.2 million and 89.0% for the first quarter of 2023, $(1.1) million and (149.9)% for the fourth quarter of 2022 and $8.4 million and 19.6% for the first quarter of 2022, respectively. The higher level of income tax expense for the first quarter of 2023 compared to the fourth quarter of 2022 was primarily the result of discrete items related to stock compensation expense while the lower level of income tax expense compared to the first quarter of 2022 was principally related to decreased pretax income.

Conference Call

Live Oak will host a conference call to discuss the company's financial results and business outlook tomorrow, April 27, 2023, at 9:00 a.m. ET. The call will be accessible by telephone and webcast using Conference ID: 21279493. 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.: 888.886.7786
International: +1 416.764.8658
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; 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; 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															1Q 2023 Change vs.
	1Q 2023			4Q 2022			3Q 2022			2Q 2022			1Q 2022			4Q 2022		1Q 2022
Interest income																%		%
Loans and fees on loans	$	139,052		$	127,310		$	107,880		$	94,157		$	89,198		9.2		55.9
Investment securities, taxable		7,547			6,716			5,506			4,046			3,399		12.4		122.0
Other interest earning assets		4,817			2,584			2,448			1,044			185		86.4		2503.8
Total interest income		151,416			136,610			115,834			99,247			92,782		10.8		63.2
Interest expense
Deposits		67,595			50,357			31,553			18,777			14,348		34.2		371.1
Borrowings		1,804			351			395			536			655		414.0		175.4
Total interest expense		69,399			50,708			31,948			19,313			15,003		36.9		362.6
Net interest income		82,017			85,902			83,886			79,934			77,779		(4.5	)	5.4
Provision for loan and lease credit losses		19,021			19,671			14,169			5,267			1,836		(3.3	)	936.0
Net interest income after provision for loan and lease credit losses		62,996			66,231			69,717			74,667			75,943		(4.9	)	(17.0	)
Noninterest income
Loan servicing revenue		6,380			6,296			6,230			6,477			6,356		1.3		0.4
Loan servicing asset revaluation		356			(5,016	)		(1,324	)		(8,668	)		(1,569	)	107.1		122.7
Net gains on sales of loans		10,175			7,362			9,275			5,630			20,977		38.2		(51.5	)
Net (loss) gain on loans accounted for under the fair value option		(4,529	)		571			4,420			(4,461	)		516		(893.2	)	(977.7	)
Equity method investments income (loss)		(2,952	)		(1,818	)		29,136			119,056			(2,124	)	(62.4	)	(39.0	)
Equity security investments gains (losses), net		77			868			876			1,655			(44	)	(91.1	)	275.0
Lease income		2,535			2,555			2,516			2,510			2,503		(0.8	)	1.3
Management fee income		3,472			3,200			2,844			2,558			1,488		8.5		133.3
Other noninterest income		4,065			5,053			3,751			3,772			4,565		(19.6	)	(11.0	)
Total noninterest income		19,579			19,071			57,724			128,529			32,668		2.7		(40.1	)
Noninterest expense
Salaries and employee benefits		44,765			42,560			43,479			46,276			38,507		5.2		16.3
Travel expense		2,411			1,872			2,372			2,358			1,897		28.8		27.1
Professional services expense		927			2,453			2,505			3,988			2,791		(62.2	)	(66.8	)
Advertising and marketing expense		3,603			3,892			2,621			2,301			1,729		(7.4	)	108.4
Occupancy expense		1,925			3,469			2,519			2,773			2,327		(44.5	)	(17.3	)
Technology expense		7,729			8,849			7,770			5,762			6,053		(12.7	)	27.7
Equipment expense		3,818			3,759			3,761			3,784			3,816		1.6		0.1
Other loan origination and maintenance expense		3,927			3,657			3,376			3,022			3,113		7.4		26.1
Renewable energy tax credit investment impairment		69			8,446			7,721			50			—		(99.2	)	100.0
FDIC insurance		3,403			2,923			2,697			2,164			1,972		16.4		72.6
Contributions and donations		56			33			191			5,515			723		69.7		(92.3	)
Other expense		6,329			2,672			4,036			2,886			2,786		136.9		127.2
Total noninterest expense		78,962			84,585			83,048			80,879			65,714		(6.6	)	20.2
Income before taxes		3,613			717			44,393			122,317			42,897		403.9		(91.6	)
Income tax expense (benefit)		3,215			(1,075	)		1,525			25,278			8,388		399.1		(61.7	)
Net income	$	398		$	1,792		$	42,868		$	97,039		$	34,509		(77.8	)	(98.8	)
Earnings per share
Basic	$	0.01		$	0.04		$	0.97		$	2.22		$	0.79		(75.0	)	(98.7	)
Diluted	$	0.01		$	0.04		$	0.96		$	2.16		$	0.76		(75.0	)	(98.7	)
Weighted average shares outstanding
Basic		44,157,156			44,005,220			43,914,920			43,824,707			43,701,943
Diluted		44,964,616			44,794,941			44,797,109			44,803,278			45,227,536

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

	As of the quarter ended															1Q 2023 Change vs.
	1Q 2023			4Q 2022			3Q 2022			2Q 2022			1Q 2022			4Q 2022		1Q 2022
Assets																%		%
Cash and due from banks	$	463,186		$	280,239		$	335,046		$	580,493		$	477,778		65.3		(3.1	)
Federal funds sold		—			136,397			68,324			51,694			29,993		(100.0	)	(100.0	)
Certificates of deposit with other banks		4,000			4,000			4,250			4,250			4,250		—		(5.9	)
Investment securities available-for-sale		1,149,691			1,014,719			1,005,372			927,968			844,577		13.3		36.1
Loans held for sale ⁽¹⁾		533,292			554,610			537,649			1,199,734			1,028,635		(3.8	)	(48.2	)
Loans and leases held for investment ⁽²⁾		7,686,987			7,344,178			6,853,382			5,860,209			5,738,241		4.7		34.0
Allowance for credit losses on loans and leases		(108,242	)		(96,566	)		(78,291	)		(65,863	)		(63,058	)	12.1		71.7
Net loans and leases		7,578,745			7,247,612			6,775,091			5,794,346			5,675,183		4.6		33.5
Premises and equipment, net		268,138			263,290			260,285			257,926			254,865		1.8		5.2
Foreclosed assets		—			—			1,178			191			198		—		(100.0	)
Servicing assets		29,357			26,323			29,081			28,661			36,286		11.5		(19.1	)
Other assets		337,888			328,308			298,374			275,634			268,201		2.9		26.0
Total assets	$	10,364,297		$	9,855,498		$	9,314,650		$	9,120,897		$	8,619,966		5.2		20.2
Liabilities and Shareholders’ Equity
*Liabilities*
Deposits:
Noninterest-bearing	$	176,439		$	194,100		$	170,336		$	119,371		$	86,342		(9.1	)	104.3
Interest-bearing		9,245,555			8,690,828			8,234,573			8,036,373			7,550,821		6.4		22.4
Total deposits		9,421,994			8,884,928			8,404,909			8,155,744			7,637,163		6.0		23.4
Borrowings		30,767			83,203			35,616			86,209			196,911		(63.0	)	(84.4	)
Other liabilities		88,729			76,334			71,957			87,282			72,565		16.2		22.3
Total liabilities		9,541,490			9,044,465			8,512,482			8,329,235			7,906,639		5.5		20.7
*Shareholders’ equity*
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding		—			—			—			—			—		—		—
Class A common stock (voting)		334,672			330,854			325,632			320,924			315,607		1.2		6.0
Class B common stock (non-voting)		—			—			—			—			—		—		—
Retained earnings		572,530			572,497			571,778			530,021			434,226		—		31.9
Accumulated other comprehensive loss		(84,395	)		(92,318	)		(95,242	)		(59,283	)		(36,506	)	(8.6	)	131.2
Total shareholders' equity		822,807			811,033			802,168			791,662			713,327		1.5		15.3
Total liabilities and shareholders’ equity	$	10,364,297		$	9,855,498		$	9,314,650		$	9,120,897		$	8,619,966		5.2		20.2

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

(2) Includes $467.0 million, $494.5 million, $512.2 million, $530.6 million and $600.6 million measured at fair value for the quarters ended March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, respectively.

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

	As of and for the three months ended
	1Q 2023			4Q 2022			3Q 2022			2Q 2022			1Q 2022
Income Statement Data
Net income	$	398		$	1,792		$	42,868		$	97,039		$	34,509
Per Common Share
Net income, diluted	$	0.01		$	0.04		$	0.96		$	2.16		$	0.76
Dividends declared		0.03			0.03			0.03			0.03			0.03
Book value		18.58			18.41			18.24			18.05			16.29
Tangible book value (1)		18.50			18.32			18.15			17.97			16.20
Performance Ratios
Return on average assets (annualized)		0.02	%		0.08	%		1.86	%		4.40	%		1.65	%
Return on average equity (annualized)		0.19			0.88			20.79			46.14			18.94
Net interest margin		3.46			3.76			3.84			3.89			4.02
Efficiency ratio (1)		77.72			80.58			58.65			38.80			59.50
Noninterest income to total revenue		19.27			18.17			40.76			61.66			29.58
Selected Loan Metrics
Loans and leases originated	$	1,030,882		$	1,177,688		$	1,005,235		$	959,635		$	865,063
Outstanding balance of sold loans serviced		3,616,701			3,481,885			3,345,907			3,329,616			3,381,883
Asset Quality Ratios
Allowance for credit losses to loans and leases held for investment (3)		1.50	%		1.41	%		1.23	%		1.24	%		1.23	%
Net charge-offs (3)	$	6,669		$	1,396		$	1,741		$	2,462		$	2,362
Net charge-offs to average loans and leases held for investment (2) (3)		0.38	%		0.09	%		0.12	%		0.19	%		0.19	%

Nonperforming loans and leases at historical cost (3)
Unguaranteed	$	22,002		$	18,784		$	14,334		$	11,974		$	19,475
Guaranteed		63,696			54,608			45,730			33,794			32,828
Total		85,698			73,392			60,064			45,768			52,303
Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment (3)		0.30	%		0.27	%		0.23	%		0.22	%		0.38	%

Nonperforming loans at fair value (4)
Unguaranteed	$	8,193		$	6,678		$	2,736		$	3,615		$	4,451
Guaranteed		43,968			38,212			25,169			27,895			30,850
Total		52,161			44,890			27,905			31,510			35,301
Unguaranteed nonperforming fair value loans to loans held for investment (4)		1.75	%		1.35	%		0.53	%		0.68	%		0.74	%
Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)		11.67	%		12.46	%		13.16	%		13.14	%		12.10	%
Tier 1 leverage capital (to average assets)		8.70			9.26			9.49			9.44			8.87

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 March 31, 2023							Three Months Ended December 31, 2022
	Average Balance			Interest		Average Yield/Rate		Average Balance			Interest		Average Yield/Rate
Interest-earning assets:
Interest-earning balances in other banks	$	220,114		$	3,193	5.88	%	$	138,819		$	1,063	3.04	%
Federal funds sold		140,033			1,624	4.70			160,944			1,521	3.75
Investment securities		1,187,377			7,547	2.58			1,128,105			6,716	2.36
Loans held for sale		560,155			11,986	8.68			573,280			11,635	8.05
Loans and leases held for investment⁽¹⁾		7,497,824			127,066	6.87			7,066,106			115,675	6.49
Total interest-earning assets		9,605,503			151,416	6.39			9,067,254			136,610	5.98
Less: Allowance for credit losses on loans and leases		(94,283	)						(77,977	)
Noninterest-earning assets		600,471							476,204
Total assets	$	10,111,691						$	9,465,481
Interest-bearing liabilities:
Interest-bearing checking	$	21,668		$	271	5.07	%	$	—		$	—	—	%
Savings		4,207,286			36,251	3.49			4,096,034			28,587	2.77
Money market accounts		114,084			137	0.49			117,843			121	0.41
Certificates of deposit		4,535,363			30,936	2.77			4,143,894			21,649	2.07
Total deposits		8,878,401			67,595	3.09			8,357,771			50,357	2.39
Borrowings		158,508			1,804	4.62			36,264			351	3.84
Total interest-bearing liabilities		9,036,909			69,399	3.11			8,394,035			50,708	2.40
Noninterest-bearing deposits		177,078							182,727
Noninterest-bearing liabilities		64,409							69,814
Shareholders' equity		833,295							818,905
Total liabilities and shareholders' equity	$	10,111,691						$	9,465,481
Net interest income and interest rate spread				$	82,017	3.28	%				$	85,902	3.58	%
Net interest margin						3.46							3.76
Ratio of average interest-earning assets to average interest-bearing liabilities						106.29	%						108.02	%

(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
	1Q 2023			4Q 2022			3Q 2022			2Q 2022			1Q 2022
Total shareholders’ equity	$	822,807		$	811,033		$	802,168		$	791,662		$	713,327
Less:
Goodwill		1,797			1,797			1,797			1,797			1,797
Other intangible assets		1,835			1,873			1,912			1,950			1,988
Tangible shareholders’ equity (a)	$	819,175		$	807,363		$	798,459		$	787,915		$	709,542
Shares outstanding (c)		44,290,840			44,061,244			43,981,350			43,854,011			43,787,660
Total assets	$	10,364,297		$	9,855,498		$	9,314,650		$	9,120,897		$	8,619,966
Less:
Goodwill		1,797			1,797			1,797			1,797			1,797
Other intangible assets		1,835			1,873			1,912			1,950			1,988
Tangible assets (b)	$	10,360,665		$	9,851,828		$	9,310,941		$	9,117,150		$	8,616,181
Tangible shareholders’ equity to tangible assets (a/b)		7.91	%		8.20	%		8.58	%		8.64	%		8.23	%
Tangible book value per share (a/c)	$	18.50		$	0.02		$	0.02		$	17.97		$	16.20
Efficiency ratio:
Noninterest expense (d)	$	78,962		$	84,585		$	83,048		$	80,879		$	65,714
Net interest income		82,017			85,902			83,886			79,934			77,779
Noninterest income		19,579			19,071			57,724			128,529			32,668
Total revenue (e)	$	101,596		$	104,973		$	141,610		$	208,463		$	110,447
Efficiency ratio (d/e)		77.72	%		80.58	%		58.65	%		38.80	%		59.50	%

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.

Live Oak Bancshares, Inc. Reports First Quarter 2023 Results

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