Wilmington, NC, October 25, 2023 - 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.”

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

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.

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 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 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 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.

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.

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 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.

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:

U.S.: 888.259.6580

International: +1 416.764.8624

Pass Code: None Required

Webcast Link: investor.liveoakbank.com

Registration: Name and Email Required

Multi-Factor Code: Provided After Registration 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.

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.

William C. (BJ) Losch, III | President & CFO | Investor Relations | 910.202.6926

Claire Parker | Corporate Communications | Media Relations | 910.597.1592

(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.

(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).

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

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.