WILMINGTON, N.C., Oct. 26, 2022 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (�Live Oak� or �the Company�) today reported third quarter of 2022 net income of $42.9 million, or $0.96 per diluted share. The third quarter of 2022 included a pretax gain of $28.4 million related to the sale of the Company�s investment in Payrailz, LLC (�Payrailz�).

�Live Oak remains steadfastly dedicated to serving small business customers across our country with vital capital to create jobs, boost local economies and achieve more,� said Live Oak Bancshares Chairman and CEO James S. (Chip) Mahan III. �Once again this quarter, we recognized capital gains from a fintech investment, giving Live Oak more dry powder to further its mission to be America�s small business bank.�

Third Quarter�2022 Key Measures

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

Loans and Leases

As of September�30, 2022, the total loan and lease portfolio was $7.39 billion, 4.7% above its level at June�30, 2022, and 14.4% above its level a year ago. This growth was the product of strong origination volumes. Compared to the second quarter of 2022, loans and leases held for investment increased $993.2 million, or 16.9%, to $6.85 billion while loans held for sale decreased $662.1 million, or 55.2%, to $537.6 million. The decrease in loans held for sale was largely the result of a $754.7 million transfer of loans to held for investment classification, including $696.6 million in guaranteed loans, largely due to the impact of recent and anticipated future market conditions in a rising rate environment. Average loans and leases were $7.21 billion during the third quarter of 2022 compared to $6.93 billion during the second quarter of 2022.�Excluding Paycheck Protection Program (�PPP�) loans, the total loan and lease portfolio increased by $368.6 million, or 5.3%, compared to June�30, 2022, and $1.40 billion, or 23.4%, compared to September�30, 2021.

The total loan and lease portfolio of $7.39�billion includes $23.9 million of PPP loans, net of deferred fees and costs, at September�30, 2022, which are carried at historical cost and classified as held for investment. The total loan and lease portfolio at September�30, 2022, and June�30, 2022 was comprised of 56.6% and 55.5% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $1.01 billion during the third quarter of 2022, an increase of $45.6�million, or 4.8%, from the second quarter of 2022. Loan and lease originations decreased $58.0 million, or 5.5%, from the third quarter of 2021.

Deposits

Total deposits increased to $8.40�billion at September�30, 2022, an increase of $249.2 million compared to June�30, 2022, and an increase of $1.59 billion compared to September�30, 2021. 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 third quarter of 2022 increased $386.7 million, or 5.0%, to $8.09�billion, compared to $7.70 billion for the second quarter of 2022. The ratio of average total loans and leases to average interest-bearing deposits was 89.1% for the third quarter of 2022, compared to 89.9% for the second quarter of 2022.

Borrowings

Borrowings totaled $35.6 million at September�30, 2022, compared to $86.2 million and $575.0 million at June�30, 2022, and September�30, 2021, respectively. During the third quarter of 2022, the Company decreased borrowings by $50.6 million and $539.4 million as compared to June 30, 2022, and September 30, 2021, respectively, primarily by paying off the outstanding balance of the Federal Reserve�s Paycheck Protection Program Liquidity Facility by the end of September 2022.

Net Interest Income

Net interest income for the third quarter of 2022 increased to $83.9�million compared to $79.9 million for the second quarter of 2022 and $77.7�million for the third quarter of 2021.

The net interest margin�for the third and second quarters of 2022 was 3.84% and 3.89%, respectively, a decrease of 5 basis points quarter over quarter. This decrease was due to recent interest rate increases where deposits are repricing more rapidly than the Company�s loan portfolio. During the third quarter of 2022, the average cost of interest-bearing liabilities increased by fifty-six basis points while the average yield on interest-earning assets increased by forty-eight basis points.

The increase in net interest income for the third quarter of 2022 compared to the third quarter of 2021 was driven by growth in the volume for 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

Noninterest income for the third quarter of 2022 was $57.7�million, a decrease of $70.8 million compared to the second quarter of 2022 and an increase of $32.4 million, compared to the third quarter of 2021. The primary drivers in noninterest income changes are outlined below.

The largest driver of the decrease in noninterest income for the third quarter of 2022 as compared to the second quarter of 2022 arose from a decrease in equity method investment income of $89.9 million. This quarter over quarter decrease was due to the $120.5 million gain associated with Fiserv, Inc.�s acquisition of the Company�s ownership in Finxact, Inc. (�Finxact�) in the second quarter of 2022 being partially offset by the $28.4 million gain arising in the third quarter of 2022 associated with Jack Henry & Associates, Inc�s acquisition of the Company�s ownership in Payrailz. Correspondingly, the largest contributor to the increase in noninterest income for the third quarter of 2022 compared to the third quarter of 2021 was the Payrailz gain.

The loan servicing asset revaluation resulted in a loss of $1.3�million for the third quarter of 2022 compared to a $8.7 million loss for the second quarter of 2022 and a $5.9�million loss for the third quarter of 2021. The decrease in the loss on loan servicing asset revaluation for both periods was principally the result of positive movements in market pricing, particularly as it relates to variable products, during the third quarter of 2022.

Net gains on sales of loans for the third quarter of 2022 was $9.3 million, a $3.6 million increase compared to $5.6 million for the second quarter of 2022 and a $9.6 million decrease compared $18.9 million for the third quarter of 2021. During the second quarter of 2022, the Company significantly decreased loan sale volumes due to unusually weak market conditions. The increase in net gains on sales of loans over the second quarter of 2022 was largely the result of higher loan sale volumes combined with, to a lesser extent, signs of positive market trends for variable rate loans during the third quarter of 2022. The decrease in net gains on sales of loans compared to the third quarter of 2021 is the result of lower volume of loan sales combined with overall weaker market conditions compared to those experienced in the prior year. The average guaranteed gain on sale premium was 108%, 108% and 110% for the third quarter of 2022, second quarter of 2022 and third quarter of 2021, respectively. The volume of guaranteed loans sold was $148.1 million for the third quarter of 2022 compared to $68.8 million sold in the second quarter of 2022 and $201.9 million sold in the third quarter of 2021.

The net�gain�on loans accounted for under the fair value option totaled $4.4�million�for the�third�quarter of 2022, a $8.9 million increase compared to the�$4.5 million net loss for the second quarter of 2022 and�a $5.5 million increase compared to the�$1.0 million net loss for the�third�quarter of 2021. The�increase in�valuation of loans accounted for under the�fair value�option�compared to�both�prior�periods�was largely the result of�the above referenced signs of positive market pricing trends on variable rate loans combined with continued amortization of the portfolio of loans accounted for under the fair value option.

Noninterest Expense

Noninterest expense for the third quarter of 2022 totaled $83.0 million compared to $80.9 million for the second quarter of 2022 and $55.5�million for the third quarter of 2021. The primary drivers in noninterest expense changes are outlined below.

Salaries and employee benefits for the third quarter of 2022 decreased $2.8 million compared to the second quarter of 2022 and increased $15.3 million compared to the third quarter of 2021. Additional bonus accruals of $7.5 million and $3.0 million were included in both the second and third quarters of 2022 related to the earlier discussed Finxact and Payrailz gains, respectively. The decrease in salaries and employee benefits compared to the second quarter of 2022 was principally due to the decrease in additional bonus accruals while the increase over the third quarter of 2021 was largely the product of continued investment in human resources to support strategic and growth initiatives, including the $3.0 million additional bonus accrual discussed above.

Technology expenses increased $2.0 million compared to the second quarter of 2022 and $1.6 million compared to the third quarter of 2021. The increase for both periods was primarily related to enhanced investments in the Company�s technology resources.

During the third quarter of 2022, the Company incurred $7.6 million in impairment charges related to a new renewable energy tax credit investment. 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. This investment generated a federal investment tax credit of $6.1 million which is included in the Company�s estimated annual effective tax rate. Investments of this nature are part of the Company�s ongoing initiative to promote renewable energy sources.

Contributions and donations for the third quarter of 2022 decreased $5.3 million compared to the second quarter of 2022. This decrease was related to a special charitable donation during the second quarter of 2022 of $5.0 million made in connection with the Finxact gain discussed earlier.

Asset Quality

During the third quarter of 2022, the Company recognized net charge-offs for loans carried at historical cost of $1.7 million compared to net charge-offs of $2.5 million in both the second quarter of 2022 and third quarter of 2021. 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, 2022, June�30, 2022, and September�30, 2021, was 0.12%, 0.19% and 0.21%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $2.7 million and $3.6�million accounted for under the fair value option at September�30, 2022, and June�30, 2022, respectively, increased to $14.3 million, or 0.23% of loans and leases held for investment which are carried at historical cost, at September�30, 2022, compared to $12.0 million, or 0.22%, at June�30, 2022.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the third quarter of 2022 totaled $14.2�million compared to $5.3 million for the second quarter of 2022 and $4.3 million for the third quarter of 2021. The level of provision expense in the third quarter of 2022 was the result of loan growth, charge-off experience impacts, the above discussed loan reclassification from held for sale to held for investment and changes in the macroeconomic outlook.

The allowance for credit losses on loans and leases totaled $78.3�million at September�30, 2022, compared to $65.9 million at June�30, 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 1.23% and 1.24% at September�30, 2022, and June�30, 2022, respectively.

Income Tax

Income tax expense and related effective tax rate was $1.5�million and 3.4% for the third quarter of 2022, $25.3 million and 20.7% for the second quarter of 2022 and $9.4�million and 21.7% for the third quarter of 2021, respectively. The lower level of income tax expense for the third quarter of 2022 compared to the second quarter of 2022 and third quarter of 2021 was primarily the result of higher than anticipated investment tax credits 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 ongoing inflationary environment.

Shareholders� Equity

Total shareholders� equity increased by $10.5 million, or 1.3%, during the third quarter of 2022. This increase was primarily due to $42.9 million in net income partially offset by $36.0 million of negative market impacts on the Company�s available-for-sale investment portfolio included in accumulated other comprehensive loss.

Conference Call

Live Oak will host a conference call to discuss the company's financial results and business outlook tomorrow, October�27, 2022, at�9:00 a.m. ET. To participate via telephone, please register in advance at this link:�https://register.vevent.com/register/BI8691db015f994feb8d94d064927ef770. Upon registration, all telephone participants will receive a confirmation email detailing how to join the conference call, including the dial-in number along with a unique passcode and registrant ID that can be used to access the call. The call can also be accessed via a live audio webcast at�http://investor.liveoakbank.com. After the conference call, a replay will be available until�November 3, 2022, at the same audio webcast link.

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 potential impacts of 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; 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. (Nasdaq: 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:

William C. (BJ) Losch, III�| CFO & Chief Banking Officer | Investor Relations | 910.765.9966
Claire Parker | SVP Corporate Communications | Media Relations | 910.597.1592

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

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

(1)� Includes $23.5 million, $25.1 million, $25.3 million and $27.4 million measured at fair value for the quarters ended June�30, 2022, March�31, 2022, December�31, 2021 and September�30, 2021, respectively.
(2)� Includes $512.2 million, $530.6 million, $600.6 million, $645.2 million and $698.0 million measured at fair value for the quarters ended September�30, 2022, June�30, 2022, March�31, 2022, December�31, 2021 and September�30, 2021, respectively.

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

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

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)

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

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

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.