July 25, 2018 - 4:30 PM EDT
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Live Oak Bancshares, Inc. Reports Second Quarter 2018 Results

WILMINGTON, N.C., July 25, 2018 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq:LOB) (“Live Oak” or “the Company”) today reported second quarter net earnings available to common shareholders of $14.3 million, or $0.34 per diluted share, compared to $9.8 million, or $0.27 per diluted share, for the second quarter of 2017.

“The power of the Live Oak franchise was on full display in the second quarter as we set a quarterly record with $15.1 million in non-GAAP pre-tax income.  Our recurring revenue streams continue to grow in prominence as the loan and lease portfolio grew 35% in the past year.  Our steady investments in resources and lending initiatives are yielding excellent returns and setting the stage for continued growth through the operating leverage present in our business.  Our unique business model and superior talent positions us to thrive in the digital transformation underway in the financial services industry.  We remain passionately focused on serving the needs of small businesses through innovative technology solutions,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

Second Quarter 2018 Key Measures

(Dollars in thousands, except per share data)   Increase (Decrease)  
 Q2 2018 Q2 2017 Dollars Percent Q1 2018
Net interest income and servicing revenues$34,013  $24,566  $9,447  38% $31,374 
Net income14,253  9,795  4,458  46  12,453 
Diluted earnings per share0.34  0.27  0.07  26  0.30 
Non-GAAP net income (1)14,524  10,227  4,297  42  12,721 
Non-GAAP diluted earnings per share (1)0.35  0.28  0.07  25  0.31 
Loan and lease production:         
Loans and leases originated$491,797  $586,471  $(94,674) (16)% $397,559 
% Fully funded55.9% 42.2%  n/a  n/a  69.5%
Loan sales:         
Guaranteed loans sold$295,216  $203,714  $91,502  45% $247,243 
Net gains on sales of guaranteed loans24,388  18,676  5,712  31  24,418 
Average net gain on sale of guaranteed loans, per million sold82.61  91.68  (9.07) (10) 98.76 

(1) See accompanying GAAP to Non-GAAP Reconciliation.

Loans and Leases

At June 30, 2018, the total loan and lease portfolio of $2.29 billion increased 35.3% above its level of a year ago and by 6.0% above its level at March 31, 2018.  Net loans and leases held for investment increased $91.0 million, or 6.4%, to $1.51 billion at June 30, 2018, from $1.41 billion at March 31, 2018.  Loans held for sale increased $37.0 million, or 5.1%, to $757.5 million at June 30, 2018, from $720.5 million at March 31, 2018. Loan and lease originations totaled $491.8 million during the second quarter of 2018, an increase of $94.2 million, or 23.7%, from the first quarter of 2018.  The total loan and lease portfolio at June 30, 2018, and March 31, 2018, of $2.29 billion and $2.16 billion, respectively, was comprised of approximately 61.7% and 61.3% of unguaranteed loans and leases, respectively.

Average loans and leases were $2.25 billion during the second quarter of 2018 compared to $2.14 billion during the first quarter of 2018.

Net Interest Income

Net interest income for the second quarter of 2018 rose to $27.0 million compared to $18.4 million for the second quarter of 2017 and $24.5 million for the first quarter of 2018. The increase was driven by the significant growth in the combined held for sale and held for investment loan and lease portfolios and reflected the Company's initiative to grow recurring revenue sources.  Despite much higher average loan yields, net interest margin for the second quarter of 2018 declined to 3.46% versus 3.72% in the first quarter of 2018 due to significantly higher average balances of liquid assets and securities coupled with the rising cost of deposits.  The Company anticipates that it is positioned to benefit from the rising rate environment with 72.7% of the total held for sale and held for investment loan and lease portfolio priced at variable rates that adjust on either a calendar monthly or quarterly basis.

Noninterest Income

Noninterest income for the second quarter of 2018 increased to $30.6 million compared to $26.7 million for the second quarter of 2017 and slightly below the $30.8 million total for the first quarter of 2018.

Net gains on sales of loans increased to $23.1 million in the second quarter of 2018 compared to $18.2 million in the second quarter of 2017 and decreased compared to $24.4 million in the first quarter of 2018.  The volume of guaranteed loan sales in the second quarter of 2018 rose to $295.2 million compared to $203.7 million in the second quarter of 2017 and $247.2 million in the first quarter of 2018. The average net gain on guaranteed loan sales decreased to $82.6 thousand per million sold in the second quarter of 2018 versus $91.7 in the second quarter of 2017 and $98.8 in the first quarter of 2018. The decline in average loan sale pricing was primarily driven by the mix of loan types sold during the quarter, especially related to renewable energy loans which typically carry lower sale premiums and, to a lesser extent, a slight decline in market premiums paid.

Loan servicing revenues of $7.0 million in the second quarter of 2018 rose by $791 thousand, or 12.8%, from the second quarter of 2017 and by $67 thousand, or 1.0%, from the first quarter of 2018. The net loss resulting from the revaluation of the servicing asset totaled $3.7 million for the second quarter of 2018, an increase of $2.5 million compared to the second quarter of 2017 but reduced from the net loss of $5.1 million in the first quarter of 2018.

Lease income from solar panels contributed $1.9 million in noninterest income in the second quarter of 2018, compared to $9 thousand in the second quarter of 2017 and $1.6 million in the first quarter of 2018.  The Company began offering operating lease agreements for solar panels to third parties at the end of the first quarter of 2017.

Title insurance income for the second quarter of 2018 was $996 thousand compared to $2.4 million in the second quarter of 2017 and $1.3 million in the first quarter of 2018.  This decrease was principally the result of lower levels of finance activity following recent increases in mortgage interest rates.

Noninterest Expense

Noninterest expense for the second quarter of 2018 was $40.8 million compared to $33.3 million for the second quarter of 2017 and $38.1 million for the first quarter of 2018.  The $7.5 million, or 22.6%, increase versus the prior year period reflected the ongoing expansion of the Company’s workforce, industry verticals, infrastructure, and new products in support of its growth strategy.

Salaries and employee benefits for the second quarter of 2018 increased to $22.1 million compared to $18.0 million for the second quarter of 2017 and $20.2 million for the first quarter of 2018. Included in these totals is stock-based compensation expense in the second quarter of 2018 of $2.2 million compared to $1.9 million for the second quarter of 2017 and $2.3 million for the first quarter of 2018.  The increase in salaries and benefits, inclusive of stock-based compensation, is the result of the ongoing expansion of the Company’s workforce and infrastructure to support its growth initiatives.

Compared to the second quarter of 2017, there were increases in data processing expense of $1.0 million and equipment expense of $1.7 million.  Largely influencing the increase in data processing was the contribution of software development resources to Apiture which transferred the recognition of costs associated with the Company’s technology development from salaries and employee benefits to data processing.  The increase in equipment expense reflected the higher levels of depreciation related to solar panels acquired for the Company’s renewable energy leasing business.

Asset Quality

The unguaranteed exposure of nonperforming loans increased to $11.5 million at June 30, 2018, compared to $7.4 million at March 31, 2018.  Total unguaranteed nonperforming loans as a percentage of total loans and leases held for investment increased to 0.75% at June 30, 2018, compared to 0.51% at March 31, 2018.  Total nonperforming loans increased to $46.1 million in the second quarter of 2018 from $36.8 million at the end of the prior quarter and was primarily related to older verticals.

The unguaranteed exposure of foreclosed assets increased to $197 thousand at June 30, 2018, from $101 thousand at March 31, 2018.  Foreclosed assets increased $206 thousand to $1.7 million at June 30, 2018, from $1.5 million at March 31, 2018.

Net charge-offs increased to $787 thousand in the second quarter of 2018 compared to $532 thousand in the first quarter of 2018 and $191 thousand in the second quarter of 2017.  Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarters ended June 30, 2018 and 2017, were 0.21% and 0.07%, respectively.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the second quarter of 2018 totaled $2.1 million compared to $4.4 million for the first quarter of 2018 and $1.6 million for the second quarter of 2017.  The decrease compared to first quarter of 2018 is primarily a result of updated historical loss factors consistent with our methodology for estimating the allowance for loan and lease losses.  The second quarter of 2018 provision greatly exceeded net charge-offs, thus adding to loan and lease loss reserves commensurate with the continued growth of the loan and lease portfolio.

The allowance for loan and lease losses totaled $29.4 million at June 30, 2018, compared to $28.1 million at March 31, 2018. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.91% and 1.95% at June 30, 2018, and March 31, 2018, respectively.

Income Tax

Income tax expense was $491 thousand in the second quarter of 2018 compared to $408 thousand in the second quarter of 2017 and $315 thousand in the first quarter of 2018.  The Company’s effective tax rate is predominantly driven by the leasing of renewable energy assets that generate investment tax credits.  As the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector.

Deposits

Total deposits of $2.97 billion at June 30, 2018 were essentially unchanged from the level at March 31, 2018.  Following successful strategic campaigns in the first quarter of 2018 to strengthen the Company’s liquidity position, deposit gathering in the second quarter of 2018 served to maintain the deposit portfolio levels. Average total interest-bearing deposits for the second quarter of 2018 increased $485.5 million, or 19.4%, to $2.99 billion, compared to $2.51 billion for the first quarter of 2018. The ratio of average total loans and leases to average interest-bearing deposits was 75.1% for the second quarter of 2018, compared to 85.2% for the first quarter of 2018.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (July 26, 2018). Media representatives, analysts and the public are invited to listen to this discussion by calling (844) 743-2494 (domestic) or (661) 378-9528 (international) with conference ID 1994024. A live webcast of the conference call along with presentation materials referenced during the conference call will be available on the Investor Relations page of the Company’s website at http://investor.liveoakbank.com. A replay of the webcast will be archived on the Company's website for one year.  A replay of the conference call will also be available until 5:00 p.m. ET August 3, 2018, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

CFO Commentary

Additional commentary on the quarter by Brett Caines, Chief Financial Officer of the Company, is available at http://investor.liveoakbank.com in the supporting materials for the conference call.

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; 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; and the other factors discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov). Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

About Live Oak Bancshares, Inc.

Live Oak Bancshares, Inc. (Nasdaq:LOB) is a financial holding company and the parent company of Live Oak Banking Company.  Live Oak Bancshares and its subsidiaries partner with businesses that have a common focus of changing the banking industry by bringing efficiency and excellence to customers using technology and innovation.

Contacts:
Brett Caines | CFO | Investor Relations | 910.796.1645 & Micah Davis | Marketing Director | Media Relations | 910.550.2255

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

 Three months ended
 2Q 2018 1Q 2018 4Q 2017 3Q 2017 2Q 2017
Interest income         
Loans and fees on loans$36,267  $32,691  $29,343  $26,977  $23,559 
Investment securities, taxable2,530  1,117  468  325  316 
Other interest earning assets2,179  1,215  725  870  470 
Total interest income40,976  35,023  30,536  28,172  24,345 
Interest expense         
Deposits13,927  10,418  7,330  6,758  5,592 
Borrowings1  129  230  389  361 
Total interest expense13,928  10,547  7,560  7,147  5,953 
Net interest income27,048  24,476  22,976  21,025  18,392 
Provision for loan and leases losses2,087  4,392  4,055  2,426  1,556 
Net interest income after provision for loan and lease losses24,961  20,084  18,921  18,599  16,836 
Noninterest income         
Loan servicing revenue6,965  6,898  6,001  6,490  6,174 
Loan servicing asset revaluation(3,670) (5,088) (6,307) (3,691) (1,164)
Net gains on sales of loans23,061  24,418  23,314  18,148  18,176 
Lease income1,920  1,608  1,165  682  9 
Gain on contribution to equity method investment    68,000     
Construction supervision fee income597  779  699  362  286 
Title insurance income996  1,300  1,762  1,968  2,397 
Other noninterest income744  841  807  1,101  789 
Total noninterest income30,613  30,756  95,441  25,060  26,667 
Noninterest expense         
Salaries and employee benefits22,146  20,209  18,982  19,037  17,968 
Travel expense2,041  1,843  2,089  2,289  2,148 
Professional services expense1,119  1,298  709  1,068  1,424 
Advertising and marketing expense1,868  1,662  1,386  1,516  1,976 
Occupancy expense1,882  1,857  2,177  1,473  1,350 
Data processing expense2,906  2,837  2,913  1,982  1,858 
Equipment expense3,368  3,077  2,474  2,228  1,703 
Other loan origination and maintenance expense1,414  1,329  1,383  1,601  981 
Renewable energy tax credit investment impairment    690     
FDIC insurance1,010  572  898  858  724 
Title insurance closing services expense372  426  541  687  785 
Other expense2,704  2,962  3,134  3,117  2,383 
Total noninterest expense40,830  38,072  41,024  35,856  33,300 
Income before taxes14,744  12,768  73,338  7,803  10,203 
Income tax expense (benefit)491  315  1,608  (5,059) 408 
Net income$14,253  $12,453  $71,730  $12,862  $9,795 
Earnings per share         
Basic$0.36  $0.31  $1.80  $0.34  $0.28 
Diluted$0.34  $0.30  $1.74  $0.33  $0.27 
Weighted average shares outstanding         
Basic40,027,336  39,926,781  39,879,345  37,366,041  34,618,721 
Diluted41,619,647  41,399,930  41,184,793  38,644,677  35,942,041 
               

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

 As of the quarter ended
 2Q 2018 1Q 2018 4Q 2017 3Q 2017 2Q 2017
Assets         
Cash and due from banks$392,941  $527,952  $295,271  $260,907  $207,373 
Certificates of deposit with other banks2,250  2,250  3,000  3,250  5,750 
Investment securities available-for-sale384,943  378,488  93,355  76,575  72,993 
Loans held for sale757,494  720,511  680,454  692,586  609,138 
Loans and leases held for investment1,534,368  1,442,077  1,343,973  1,169,887  1,084,503 
Allowance for loan and lease losses(29,350) (28,050) (24,190) (21,027) (19,560)
Net loans and leases1,505,018  1,414,027  1,319,783  1,148,860  1,064,943 
Premises and equipment, net234,817  216,831  178,790  129,233  125,008 
Foreclosed assets1,725  1,519  1,281  2,231  2,140 
Servicing assets52,689  53,120  52,298  53,392  53,675 
Other assets141,092  146,165  134,242  65,155  57,087 
Total assets$3,472,969  $3,460,863  $2,758,474  $2,432,189  $2,198,107 
Liabilities and Shareholders’ Equity         
Liabilities         
Deposits:         
Noninterest-bearing$46,192  $48,755  $57,868  $55,260  $40,966 
Interest-bearing2,923,044  2,924,586  2,202,395  1,957,631  1,830,755 
Total deposits2,969,236  2,973,341  2,260,263  2,012,891  1,871,721 
Short term borrowings        10,000 
Long term borrowings3,385  3,489  26,564  26,872  52,173 
Other liabilities37,362  35,197  34,714  27,835  26,582 
Total liabilities3,009,983  3,012,027  2,321,541  2,067,598  1,960,476 
Shareholders’ equity         
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding         
Class A common stock (voting)274,043  271,451  268,557  266,336  150,939 
Class B common stock (non-voting)49,168  49,168  49,168  49,168  49,168 
Retained earnings144,791  131,739  120,241  49,707  38,041 
Accumulated other comprehensive loss(5,016) (3,522) (1,033) (620) (517)
Total equity462,986  448,836  436,933  364,591  237,631 
Total liabilities and shareholders’ equity$3,472,969  $3,460,863  $2,758,474  $2,432,189  $2,198,107 
                    

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

 Six months ended
 June 30, 2018 June 30, 2017
Interest income   
Loans and fees on loans$68,958  $43,313 
Investment securities, taxable3,647  639 
Other interest earning assets3,394  812 
Total interest income75,999  44,764 
Interest expense   
Deposits24,345  10,135 
Borrowings130  596 
Total interest expense24,475  10,731 
Net interest income51,524  34,033 
Provision for loan losses6,479  3,055 
Net interest income after provision for loan losses45,045  30,978 
Noninterest income   
Loan servicing revenue13,863  12,097 
Loan servicing asset revaluation(8,758) (3,173)
Net gains on sales of loans47,479  37,128 
Lease income3,528  9 
Construction supervision fee income1,376  715 
Title insurance income2,296  3,835 
Other noninterest income1,585  1,809 
Total noninterest income61,369  52,420 
Noninterest expense   
Salaries and employee benefits42,355  36,650 
Travel expense3,884  3,746 
Professional services expense2,417  3,160 
Advertising and marketing expense3,530  3,461 
Occupancy expense3,739  2,545 
Data processing expense5,743  3,554 
Equipment expense6,445  2,777 
Other loan origination and maintenance expense2,743  1,986 
FDIC insurance1,582  1,450 
Title insurance closing services expense798  1,190 
Other expense5,666  5,766 
Total noninterest expense78,902  66,285 
Income before taxes27,512  17,113 
Income tax expense806  1,206 
Net income$26,706  $15,907 
Earnings per share   
Basic$0.67  $0.46 
Diluted$0.64  $0.44 
Weighted average shares outstanding   
Basic39,977,336  34,543,229 
Diluted41,516,333  35,772,182 
      

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

 As of and for the three months ended
 2Q 2018 1Q 2018 4Q 2017 3Q 2017 2Q 2017
Income Statement Data         
Net income$14,253  $12,453  $71,730  $12,862  $9,795 
Per Common Share         
Net income, basic$0.36  $0.31  $1.80  $0.34  $0.28 
Net income, diluted0.34  0.30  1.74  0.33  0.27 
Dividends declared0.03  0.03  0.03  0.03  0.02 
Book value11.55  11.23  10.95  9.15  6.86 
Tangible book value (1)11.45  11.13  10.85  8.84  6.50 
Performance Ratios         
Return on average assets (annualized)1.61% 1.64% 11.21% 2.18% 1.89%
Return on average equity (annualized)12.34  11.08  68.33  16.79  16.53 
Net interest margin3.46  3.72  4.07  3.91  3.92 
Efficiency ratio (1)70.81  68.93  34.64  77.80  73.90 
Noninterest income to total revenue53.09  55.69  80.60  54.38  59.18 
Selected Loan Metrics         
Loans and leases originated$491,797  $397,559  $483,422  $395,682  $586,471 
Guaranteed loans sold295,216  247,243  211,654  163,843  203,714 
Average net gain on sale of guaranteed loans82.61  98.76  110.15  110.76  91.68 
Held for sale guaranteed loans (note amount) (2)1,075,801  1,068,886  1,087,636  1,093,385  1,005,753 
Asset Quality Ratios         
Allowance for loan losses to loans and leases held for investment1.91% 1.95% 1.80% 1.80% 1.80%
Net charge-offs$787  $532  $892  $959  $191 
Net charge-offs to average loans and leases held for investment (3)0.21% 0.15% 0.28% 0.34% 0.07%
Nonperforming loans$46,105  $36,776  $23,480  $22,420  $21,856 
Foreclosed assets1,725  1,519  1,281  2,231  2,140 
Nonperforming loans (unguaranteed exposure)11,466  7,386  3,610  3,299  3,546 
Foreclosed assets (unguaranteed exposure)197  101  90  446  345 
Nonperforming loans not guaranteed by the SBA and foreclosures11,663  7,487  3,700  3,745  3,891 
Nonperforming loans and foreclosures, not guaranteed by the SBA, to total assets0.34% 0.22% 0.13% 0.15% 0.18%
Capital Ratios         
Common equity tier 1 capital (to risk-weighted assets)16.78% 16.36% 17.81% 17.78% 11.93%
Total capital (to risk-weighted assets)17.97  17.51  18.91  18.93  13.08 
Tier 1 risk based capital (to risk-weighted assets)16.78  16.36  17.81  17.78  11.93 
Tier 1 leverage capital (to average assets)11.81  13.32  15.53  13.99  9.93 
               

Notes to Quarterly Selected Financial Data
(1)  See accompanying GAAP to Non-GAAP Reconciliation.
(2)  Includes the entire note amount, including undisbursed funds for the multi-advance loans.
(3)  Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.


Live Oak Bancshares, Inc.
Quarterly Average Balances and Net Interest Margin
(Dollars in thousands)

  Three months ended June 30, 2018 Three months ended March 31, 2018
  Average
Balance
  Interest Average Yield/
Rate
 Average
Balance
  Interest Average Yield/
Rate
Interest earning assets:            
Interest earning balances in other banks $505,351  $2,179  1.73% $354,028  $1,215  1.39%
Investment securities 383,154  2,530  2.65  181,900  1,117  2.49 
Loans held for sale 744,789  11,937  6.43  727,696  11,046  6.16 
Loans and leases held for investment (1) 1,504,738  24,330  6.49  1,408,112  21,645  6.23 
Total interest earning assets 3,138,032  40,976  5.24  2,671,736  35,023  5.32 
Less: allowance for loan and lease losses (27,930)     (24,219)    
Non-interest earning assets 424,100      396,920     
Total assets $3,534,202      $3,044,437     
             
Interest bearing liabilities:            
Interest bearing checking $36,926  $100  1.09% $43,597  $103  0.96%
Savings 998,521  4,061  1.63  822,266  3,118  1.54 
Money market accounts 151,880  463  1.22  168,954  521  1.25 
Certificates of deposit 1,806,063  9,303  2.07  1,473,054  6,676  1.84 
Total interest bearing deposits 2,993,390  13,927  1.87  2,507,871  10,418  1.68 
Other borrowings 3,488  1  0.11  11,228  129  4.66 
Total interest bearing liabilities 2,996,878  13,928  1.86  2,519,099  10,547  1.70 
Non-interest bearing deposits 53,922      56,596     
Non-interest bearing liabilities 21,217      19,022     
Shareholders' equity 462,185      449,720     
Total liabilities and shareholders' equity $3,534,202      $3,044,437     
             
Net interest income and interest rate spread   $27,048  3.38%   $24,476  3.62%
             
Net interest margin     3.46      3.72 
             
Ratio of average interest-earning assets to average interest-bearing liabilities     104.71%     106.06%

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


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

 As of and for the three months ended
 2Q 2018 1Q 2018 4Q 2017 3Q 2017 2Q 2017
Total shareholders’ equity$462,986  $448,836  $436,933  $364,591  $237,631 
Less:         
Goodwill      7,278  7,266 
Other intangible assets3,980  4,122  4,264  5,126  5,292 
Tangible shareholders’ equity (a)$459,006  $444,714  $432,669  $352,187  $225,073 
Shares outstanding (c)40,086,409  39,974,148  39,895,583  39,862,147  34,639,848 
Total assets$3,472,969  $3,460,863  $2,758,474  $2,432,189  $2,198,107 
Less:         
Goodwill      7,278  7,266 
Other intangible assets3,980  4,122  4,264  5,126  5,292 
Tangible assets (b)$3,468,989  $3,456,741  $2,754,210  $2,419,785  $2,185,549 
Tangible shareholders’ equity to tangible assets (a/b)13.23% 12.87% 15.71% 14.55% 10.30%
Tangible book value per share (a/c)$11.45  $11.13  $10.85  $8.84  $6.50 
Efficiency ratio:         
Noninterest expense (d)$40,830  $38,072  $41,024  $35,856  $33,300 
Net interest income27,048  24,476  22,976  21,025  18,392 
Noninterest income30,613  30,756  95,441  25,060  26,667 
Less: gain on sale of securities         
Adjusted operating revenue (e)$57,661  $55,232  $118,417  $46,085  $45,059 
Efficiency ratio (d/e)70.81% 68.93% 34.64% 77.80% 73.90%
               

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

 Three months ended Six months ended
 2Q 2018 1Q 2018 2Q 2017 2Q 2018 2Q 2017
Reconciliation of net income to non-GAAP net income for non-routine income and expenses:         
Net income$14,253  $12,453  $9,795  $26,706  $15,907 
Stock based compensation expense for restricted stock awards with an effective grant date of May 24, 2016, as discussed in Note 10 of our March 31, 2016 Form 10-Q357  352  378  709  724 
Merger costs for acquisition of Reltco and Apiture investment    250    766 
Trade-in loss on aircraft        206 
Renewable energy tax credit investment income, impairment and loss    19    38 
Income tax effects and adjustments for non-GAAP items *(86) (84) (259) (170) (694)
Other renewable energy tax expense    44    88 
Non-GAAP net income$14,524  $12,721  $10,227  $27,245  $17,035 
* Estimated at 24.0% for 2018 and 40.0% for 2017         
Non-GAAP earnings per share:         
Basic$0.36  $0.32  $0.30  $0.68  $0.49 
Diluted$0.35  $0.31  $0.28  $0.66  $0.48 
          
Weighted-average shares outstanding:         
Basic40,027,336  39,926,781  34,618,721  39,977,336  34,543,229 
Diluted41,619,647  41,399,930  35,942,041  41,516,333  35,772,182 
          
Reconciliation of financial statement line items as reported to adjusted for non-routine income and expenses:         
Noninterest income, as reported$30,613  $30,756  $26,667  $61,369  $52,420 
Renewable energy tax credit investment income    (10)   (20)
Noninterest income, as adjusted30,613  30,756  26,657  61,369  52,400 
          
Noninterest expense, as reported40,830  38,072  33,300  78,902  66,285 
Stock based compensation expense(357) (352) (378) (709) (724)
Merger costs associated with Reltco and Apiture investment    (250)   (766)
Trade-in loss on aircraft        (206)
Renewable energy tax credit investment impairment and loss    (29)   (58)
Noninterest expense, as adjusted40,473  37,720  32,643  78,193  64,531 
          
Income before taxes, as reported14,744  12,768  10,203  27,512  17,113 
Renewable energy tax credit investment income    (10)   (20)
Stock based compensation expense357  352  378  709  724 
Merger costs associated with Reltco and Apiture investment    250    766 
Trade-in loss on aircraft        206 
Renewable energy tax credit investment impairment and loss    29    58 
Income before taxes, as adjusted15,101  13,120  10,850  28,221  18,847 
          
Income tax expense, as reported491  315  408  806  1,206 
Income tax effects and adjustments for non-recurring income and expenses86  84  259  170  694 
Other renewable energy tax expense    (44)   (88)
Income tax expense, as adjusted$577  $399  $623  $976  $1,812 
                    

This press release presents the non-GAAP financial measures previously shown. The adjustments to reconcile from the applicable GAAP financial measure to the non-GAAP financial measures are included where applicable in financial results presented in accordance with GAAP. The Company considers these adjustments to be relevant to ongoing operating results. The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period comparisons, which will assist regulators, investors, and analysts in analyzing the operating results or financial position of the Company. The non-GAAP financial measures are used by management to assess the performance of the Company’s business for presentations of Company performance to investors, and for other reasons as may be requested by investors and analysts. The Company further believes that presenting the non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although non-GAAP financial measures are frequently used by shareholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.

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Source: GlobeNewswire (July 25, 2018 - 4:30 PM EDT)

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