Wilmington, NC, January 24, 2024 - Live Oak Bancshares, Inc. (NYSE: LOB) (“Live Oak” or “the Company”) today reported fourth quarter of 2023 net income of $16.2 million, or $0.36 per diluted share. Net income for the year ended December 31, 2023, totaled $73.9 million, or $1.64 per diluted share.

“Live Oak Bank spent 2023 doing what we do best -- growing loans, deposits, and revenue in our mission to support small business owners, our employees and our shareholders,” said Live Oak Chairman and CEO James S. (Chip) Mahan III. “When looking back at 2023, it is clear that our customers and our model were extraordinarily resilient. We are proud to serve America’s small business owners through all cycles and believe our fourth quarter results, and the historical performance of our bank, continue to demonstrate our strength in the market.”

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

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

At December 31, 2023, the total loan and lease portfolio was $9.02 billion, 2.8% above its level at September 30, 2023 and 14.2% above its level at December 31, 2022. This growth was driven by strong origination volumes. Compared to the third quarter of 2023, loans and leases held for investment increased $431.2 million, or 5.3%, to $8.63 billion while loans held for sale decreased $185.6 million, or 32.4%, to $387.0 million. Average loans and leases were $8.84 billion during the fourth quarter of 2023 compared to $8.58 billion during the third quarter of 2023.

The total loan and lease portfolio at December 31, 2023, and September 30, 2023 was comprised of 37.8% and 39.0% of guaranteed loans and leases, respectively.

Loan and lease originations totaled $981.7 million during the fourth quarter of 2023, a decrease of $91.6 million, or 8.5%, from the third quarter of 2023.

Total deposits increased to $10.28 billion at December 31, 2023, an increase of $271.4 million compared to September 30, 2023, and an increase of $1.39 billion compared to December 31, 2022. The increase in total deposits from the prior periods provides support for the growth in the loan and lease portfolio.

Average total interest-bearing deposits for the fourth quarter of 2023 increased $137.5 million, or 1.4%, to $9.84 billion, compared to $9.70 billion for the third quarter of 2023. The ratio of average total loans and leases to average interest-bearing deposits was 89.9% for the fourth quarter of 2023 compared to 88.5% for the third quarter of 2023.

Borrowings totaled $23.4 million at December 31, 2023, compared to $25.8 million and $83.2 million at September 30, 2023 and December 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.

Net interest income for the fourth quarter of 2023 increased to $89.6 million compared to $89.4 million for the third quarter of 2023 and $85.9 million for the fourth quarter of 2022.

The net interest margin for the fourth and third quarters of 2023 was 3.32% and 3.37%, respectively, a decrease of 5 basis points quarter over quarter. This decrease was principally the result of growth in loan yields being outpaced by the cost of deposits. The primary mitigant to loan yields in the fourth quarter of 2023 arose from the accelerated recognition of a large deferred expense, as a result of early payoffs on two loans, which was recognized as a reduction to interest income. The increase in cost of deposits was primarily driven by a large certificate of deposit maturity event in the fourth quarter renewing at higher current market rates. During the fourth quarter of 2023, the average cost of interest-bearing liabilities increased by 18 basis points while the average yield on interest-earning assets increased by 11 basis points.

The increase in net interest income for the fourth quarter of 2023 compared to the fourth 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 average cost of funds outpacing the average yield on interest-earning assets.

Noninterest income for the fourth quarter of 2023 decreased to $30.1 million compared to $37.9 million for the third quarter of 2023 and increased from $19.1 million for the fourth quarter of 2022. The primary drivers behind changes in noninterest income are outlined below.

The loan servicing asset revaluation resulted in a loss of $4.0 million for the fourth quarter of 2023 compared to a gain of $11.3 million for the third quarter of 2023 and loss of $5.0 million for the fourth quarter of 2022. The $15.3 million quarter over quarter negative change in servicing asset revaluation was principally due to the third quarter of 2023 one-time positive adjustment of $13.7 million, arising from the Company’s change in valuation techniques used to estimate the fair value of servicing rights.

Net gains on sales of loans was $12.9 million, a $216 thousand increase compared to the third quarter of 2023 and a $5.5 million increase compared to the fourth 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. The average guaranteed loan sale premium was stable for all compared periods at 105% for the fourth quarter of 2023, third quarter of 2023 and fourth quarter of 2022. The volume of guaranteed loans sold was $239.1 million for the fourth quarter of 2023 compared to $225.6 million sold in the third quarter of 2023 and $144.3 million sold in the fourth quarter of 2022.

Other noninterest income for the fourth quarter of 2023 totaled $8.6 million compared to $3.5 million for the third quarter of 2023 and $5.1 million for the fourth quarter of 2022. The increase in noninterest income for both comparative periods was principally driven by a $4.4 million gain arising from the sale of one of the Company’s aircraft in the fourth quarter of 2023.

Noninterest expense for the fourth quarter of 2023 totaled $93.2 million compared to $74.3 million for the third quarter of 2023 and $84.6 million for the fourth quarter of 2022. The primary drivers in the noninterest expense changes are outlined below.

Salaries and employee benefits for the fourth quarter of 2023 increased $1.3 million compared to the third quarter of 2023 and increased $1.7 million compared to the fourth quarter of 2022. Included in the fourth quarter of 2023 was a special employee bonus of $4.5 million. Excluding this special bonus, total salaries and employee benefits for the fourth quarter of 2023 decreased $3.2 million compared to the third quarter of 2023 and decreased $2.8 million compared to the fourth quarter of 2022.

The Company incurred impairment charges related to a new renewable energy tax credit investment transaction of $14.6 million in the fourth quarter of 2023 compared to none in the third quarter of 2023 and $8.4 million in the fourth quarter of 2022. Investments of this type generate a return primarily through the realization of income tax credits and other benefits; accordingly, impairment of the investment amount is recognized in conjunction with the realization of related tax benefits. These investments generated federal investment tax credits in the fourth quarters of 2023 and 2022 of $16.4 million and $10.3 million, respectively, which are reflected in the Company’s effective tax rate for each respective year. Investments of this nature are part of the Company’s ongoing initiative to promote renewable energy sources.

During the fourth quarter of 2023, the Company recognized net charge-offs for loans carried at historical cost of $4.4 million compared to $9.1 million in the third quarter of 2023 and $1.4 million in the fourth quarter of 2022. Net charge-off activity in the fourth quarter of 2023 was largely related to four loans spread across three verticals. 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, 2023, September 30, 2023 and December 31, 2022, was 0.22%, 0.48% and 0.09%, 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, 2023 and 2022, were 0.29% and 0.14%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $7.2 million and $6.5 million accounted for under the fair value option at December 31, 2023, and September 30, 2023, respectively, increased to $39.3 million, or 0.48% of loans and leases held for investment which are carried at historical cost, at December 31, 2023, compared to $33.3 million, or 0.43%, at September 30, 2023.

The provision for loan and lease credit losses for the fourth quarter of 2023 totaled $9.0 million compared to $10.3 million for the third quarter of 2023 and $19.7 million for the fourth quarter of 2022. The lower provision expense in the fourth quarter of 2023 compared to the fourth quarter of 2022 was primarily the result of a decline in reserves related to loans individually evaluated for impairment.

The allowance for credit losses on loans and leases totaled $125.8 million at December 31, 2023, compared to $121.3 million at September 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 1.53% and 1.56% at December 31, 2023, and September 30, 2023, respectively.

Income tax expense (benefit) and related effective tax rate was $1.3 million and 7.6% for the fourth quarter of 2023, $3.0 million and 6.9% for the third quarter of 2023, and $(1.1) million and (149.9)% for the fourth quarter of 2022, respectively. The higher level of income tax expense for the fourth quarter of 2023 compared to the fourth quarter of 2022 was primarily the result of a higher level of pretax income combined with higher levels of investment tax credits related to renewable energy investment transactions in the fourth quarter of 2023 in conjunction with recognition of a research credit recognized during the fourth quarter of 2022.

Live Oak will host a conference call to discuss the company's financial results and business outlook tomorrow, January 25, 2024, at 9:00 a.m. ET. The call will be accessible by telephone and webcast using Conference ID: 19103652. 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.

Walter J. Phifer, CFO | Investor Relations | 910.202.6926

Claire Parker | Corporate Communications | Media Relations | 910.597.1592

(1)Includes $388.0 million, $410.1 million, $441.8 million, $467.0 million and $494.5 million measured at fair value for the quarters ended December 31, 2023, September 30, 2023, June 30, 2023, March 31, 2023, and December 31, 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 the 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.