Live Oak Bancshares, Inc. Reports Fourth Quarter 2023 Results

Rhea-AI Summary

Live Oak Bancshares, Inc. reported a net income of $16.2 million for Q4 2023 and $73.9 million for the full year. The company attributes its success to growing loans, deposits, and revenue, supporting small business owners. However, total revenue decreased by 19% in 2023, and net income declined by 58%. Loan and lease production also decreased by 2%, and the effective tax rate decreased from 16.2% to 10.8%. 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. 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.

Insights

Financial Analyst

Live Oak Bancshares, Inc.'s fourth quarter report indicates a significant year-over-year decline in net income, down 58% from the previous year. This sharp decrease, alongside a 19% drop in total revenue, suggests a challenging period for the company. Investors should note the effective tax rate reduction to 10.8%, which is lower than the previous year's 16.2%, potentially reflecting strategic tax management or changes in tax legislation impacting the company's liabilities.

The reported increase in total loans and leases by 14% suggests an expansion in Live Oak's lending activities, which could be a positive indicator of growth potential. However, the decrease in loan and lease originations by 2% year over year and the 8.5% decrease from the previous quarter, may raise concerns about the sustainability of loan growth. The increase in total deposits by 16% year over year is a positive sign of customer trust and liquidity, which supports the bank's lending capacity.

Furthermore, the net interest margin's slight decrease could be indicative of a competitive interest rate environment or a shift in the bank's asset-liability composition. The impairment charges related to renewable energy tax credit investments are noteworthy, as they reflect the bank's investment strategy and commitment to renewable energy, despite the immediate impact on expenses.

Market Research Analyst

Live Oak Bancshares' performance must be contextualized within the broader banking industry and current economic conditions. The banking sector has faced headwinds from fluctuating interest rates and economic uncertainty, which can affect loan origination volumes and interest margins. The company's reported net interest income increase is a positive sign, but the reduced net interest margin may point to pressure from rising deposit costs or changes in asset yields.

Investors should also consider the impact of noninterest income, which saw a decrease in the fourth quarter compared to the third quarter, but an increase from the previous year. This volatility could be driven by factors such as loan sale premiums and the sale of assets like the company's aircraft. The stability of the guaranteed loan sale premium at 105% is a positive indicator of the company's ability to maintain profitability on loan sales despite market fluctuations.

The asset quality metrics, including a slight increase in the percentage of nonperforming loans and the provision for loan and lease credit losses, should be monitored for indications of potential credit quality issues. However, the current levels do not seem alarmingly high and appear manageable within the context of the bank's overall portfolio.

Legal Expert

From a regulatory and compliance perspective, the reported impairment charges related to renewable energy tax credit investments highlight the bank's engagement in activities that may offer tax advantages and contribute to corporate social responsibility objectives. These investments, while impacting the noninterest expense in the short term, can have long-term benefits, including tax credits and enhancement of the bank's public image.

The effective tax rate and the income tax expense are critical for understanding the bank's tax strategy and its implications on profitability. The reported tax rates and benefits from investment tax credits suggest that Live Oak Bancshares is actively managing its tax position, which is an essential aspect of financial strategy in the banking industry.

It is also important to consider the legal and regulatory environment surrounding the banking industry, as changes in legislation can significantly impact a bank's operations, particularly in areas such as tax policy and investment in renewable energy. These factors can influence the bank's strategic decisions and financial performance.

WILMINGTON, N.C., Jan. 24, 2024 (GLOBE NEWSWIRE) -- 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.”

Year Over Year Highlights

(Dollars in thousands, except per share data)									Increase (Decrease)
		2023				2022			Dollars				Percent
Total revenue(1)	$	457,038			$	565,493			$	(108,455	)		(19)%
Total noninterest expense		322,885				314,226				8,659			3
Income before taxes		82,830				210,324				(127,494	)		(61	)
Effective tax rate		10.8	%			16.2	%		n/a				n/a
Net income	$	73,898			$	176,208			$	(102,310	)		(58)%
Diluted earnings per share		1.64				3.92				(2.28	)		(58	)
Loan and lease production:
Loans and leases originated	$	3,946,873			$	4,007,621			$	(60,748	)		(2)%
% Fully funded		55.1	%			58.8	%		n/a				n/a
Total loans and leases:	$	9,020,884			$	7,898,788			$	1,122,096			14	%
Total assets:		11,271,423				9,855,498				1,415,925			14
Total deposits:		10,275,019				8,884,928				1,390,091			16

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

Fourth Quarter 2023 Key Measures

(Dollars in thousands, except per share data)									Increase (Decrease)
	4Q 2023				3Q 2023				Dollars				Percent			4Q 2022
Total revenue(1)	$	119,683			$	127,301			$	(7,618	)		(6)%			$	104,973
Total noninterest expense		93,204				74,262				18,942			26				84,585
Income before taxes		17,484				42,760				(25,276	)		(59	)			717
Effective tax rate		7.6	%			6.9	%		n/a				n/a			(149.9)%
Net income	$	16,163			$	39,793			$	(23,630	)		(59)%			$	1,792
Diluted earnings per share		0.36				0.88				(0.52	)		(59	)			0.04
Loan and lease production:
Loans and leases originated	$	981,703			$	1,073,255			$	(91,552	)		(9)%			$	1,177,688
% Fully funded		49.0	%			52.2	%		n/a				n/a				58.1	%

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

Loans and Leases

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.

Deposits

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

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

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

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

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.

Asset Quality

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.

Provision for Loan and Lease Credit Losses

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

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.

Conference Call

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:

Live Telephone Dial-In

U.S.: 888.259.6580
International: +1 416.764.8624
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; 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.

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:

Walter J. Phifer, CFO | Investor Relations | 910.202.6926
Claire Parker | Corporate Communications | Media Relations | 910.597.1592

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

	Three Months Ended																				4Q 2023 Change vs.
	4Q 2023				3Q 2023				2Q 2023				1Q 2023				4Q 2022				3Q 2023			4Q 2022
Interest income																					%			%
Loans and fees on loans	$	169,531			$	162,722			$	152,362			$	139,052			$	127,310			4.2			33.2
Investment securities, taxable		8,746				8,701				8,503				7,547				6,716			0.5			30.2
Other interest earning assets		8,259				9,188				8,847				4,817				2,584			(10.1	)		219.6
Total interest income		186,536				180,611				169,712				151,416				136,610			3.3			36.5
Interest expense
Deposits		96,695				90,914				85,003				67,595				50,357			6.4			92.0
Borrowings		265				287				407				1,804				351			(7.7	)		(24.5	)
Total interest expense		96,960				91,201				85,410				69,399				50,708			6.3			91.2
Net interest income		89,576				89,410				84,302				82,017				85,902			0.2			4.3
Provision for loan and lease credit losses		8,995				10,279				13,028				19,021				19,671			(12.5	)		(54.3	)
Net interest income after provision for loan and lease credit losses		80,581				79,131				71,274				62,996				66,231			1.8			21.7
Noninterest income
Loan servicing revenue		7,342				6,990				6,687				6,380				6,296			5.0			16.6
Loan servicing asset revaluation		(3,974	)			11,335				(2,831	)			356				(5,016	)		(135.1	)		20.8
Net gains on sales of loans		12,891				12,675				10,804				10,175				7,362			1.7			75.1
Net (loss) gain on loans accounted for under the fair value option		(170	)			(568	)			1,728				(4,529	)			571			70.1			(129.8	)
Equity method investments income (loss)		47				(1,034	)			(2,055	)			(2,952	)			(1,818	)		104.5			102.6
Equity security investments (losses) gains, net		(384	)			(783	)			121				77				868			51.0			(144.2	)
Lease income		2,439				2,498				2,535				2,535				2,555			(2.4	)		(4.5	)
Management fee income		3,309				3,277				3,266				3,472				3,200			1.0			3.4
Other noninterest income		8,607				3,501				3,901				4,065				5,053			145.8			70.3
Total noninterest income		30,107				37,891				24,156				19,579				19,071			(20.5	)		57.9
Noninterest expense
Salaries and employee benefits		44,274				42,947				43,066				44,765				42,560			3.1			4.0
Travel expense		1,544				2,197				2,770				2,411				1,872			(29.7	)		(17.5	)
Professional services expense		3,052				1,762				1,996				927				2,453			73.2			24.4
Advertising and marketing expense		2,501				3,446				3,009				3,603				3,892			(27.4	)		(35.7	)
Occupancy expense		2,231				2,129				2,205				1,925				3,469			4.8			(35.7	)
Technology expense		8,402				7,722				8,005				7,729				8,849			8.8			(5.1	)
Equipment expense		3,480				3,676				4,023				3,818				3,759			(5.3	)		(7.4	)
Other loan origination and maintenance expense		3,937				3,498				3,442				3,927				3,657			12.6			7.7
Renewable energy tax credit investment impairment		14,575				—				—				69				8,446			100.0			72.6
FDIC insurance		4,091				4,115				5,061				3,403				2,923			(0.6	)		40.0
Contributions and donations		—				—				—				—				33			—			(100.0	)
Other expense		5,117				2,770				2,880				6,385				2,672			84.7			91.5
Total noninterest expense		93,204				74,262				76,457				78,962				84,585			25.5			10.2
Income before taxes		17,484				42,760				18,973				3,613				717			(59.1	)		2,338.5
Income tax expense (benefit)		1,321				2,967				1,429				3,215				(1,075	)		(55.5	)		222.9
Net income	$	16,163			$	39,793			$	17,544			$	398			$	1,792			(59.4	)		802.0
Earnings per share
Basic	$	0.36			$	0.89			$	0.40			$	0.01			$	0.04			(59.6	)		800.0
Diluted	$	0.36			$	0.88			$	0.39			$	0.01			$	0.04			(59.1	)		800.0
Weighted average shares outstanding
Basic		44,516,646				44,408,997				44,327,474				44,157,156				44,005,220
Diluted		45,306,506				45,268,745				44,835,089				44,964,616				44,794,941

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

	As of the quarter ended																				4Q 2023 Change vs.
	4Q 2023				3Q 2023				2Q 2023				1Q 2023				4Q 2022				3Q 2023			4Q 2022
Assets																					%			%
Cash and due from banks	$	582,540			$	534,774			$	808,131			$	463,186			$	280,239			8.9			107.9
Federal funds sold		—				—				—				—				136,397			—			(100.0	)
Certificates of deposit with other banks		250				3,750				4,000				4,000				4,000			(93.3	)		(93.8	)
Investment securities available-for-sale		1,126,160				1,099,878				1,133,146				1,149,691				1,014,719			2.4			11.0
Loans held for sale		387,037				572,604				523,776				533,292				554,610			(32.4	)		(30.2	)
Loans and leases held for investment(1)		8,633,847				8,202,631				7,836,398				7,686,987				7,344,178			5.3			17.6
Allowance for credit losses on loans and leases		(125,840	)			(121,273	)			(120,116	)			(108,242	)			(96,566	)		3.8			30.3
Net loans and leases		8,508,007				8,081,358				7,716,282				7,578,745				7,247,612			5.3			17.4
Premises and equipment, net		257,881				258,041				269,485				268,138				263,290			(0.1	)		(2.1	)
Foreclosed assets		6,481				6,701				—				—				—			(3.3	)		100.0
Servicing assets		48,591				47,127				31,042				29,357				26,323			3.1			84.6
Other assets		354,476				346,227				333,334				337,888				328,308			2.4			8.0
Total assets	$	11,271,423			$	10,950,460			$	10,819,196			$	10,364,297			$	9,855,498			2.9			14.4
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	259,270			$	239,536			$	229,833			$	176,439			$	194,100			8.2			33.6
Interest-bearing		10,015,749				9,764,106				9,649,278				9,245,555				8,690,828			2.6			15.2
Total deposits		10,275,019				10,003,642				9,879,111				9,421,994				8,884,928			2.7			15.6
Borrowings		23,354				25,847				28,317				30,767				83,203			(9.6	)		(71.9	)
Other liabilities		70,384				70,603				79,280				88,729				76,334			(0.3	)		(7.8	)
Total liabilities		10,368,757				10,100,092				9,986,708				9,541,490				9,044,465			2.7			14.6
Shareholders’ equity
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding		—				—				—				—				—			—			—
Class A common stock (voting)		344,568				340,929				341,032				334,672				330,854			1.1			4.1
Class B common stock (non-voting)		—				—				—				—				—			—			—
Retained earnings		642,817				627,759				589,036				572,530				572,497			2.4			12.3
Accumulated other comprehensive (loss) income		(84,719	)			(118,320	)			(97,580	)			(84,395	)			(92,318	)		(28.4	)		(8.2	)
Total shareholders’ equity		902,666				850,368				832,488				822,807				811,033			6.2			11.3
Total liabilities and shareholders’ equity	$	11,271,423			$	10,950,460			$	10,819,196			$	10,364,297			$	9,855,498			2.9			14.4

(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.

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

	Twelve Months Ended
	December 31, 2023				December 31, 2022
Interest income
Loans and fees on loans	$	623,667			$	418,545
Investment securities, taxable		33,497				19,667
Other interest earning assets		31,111				6,261
Total interest income		688,275				444,473
Interest expense
Deposits		340,207				115,035
Borrowings		2,763				1,937
Total interest expense		342,970				116,972
Net interest income		345,305				327,501
Provision for loan and lease credit losses		51,323				40,943
Net interest income after provision for loan and lease credit losses		293,982				286,558
Noninterest income
Loan servicing revenue		27,399				25,359
Loan servicing asset revaluation		4,886				(16,577	)
Net gains on sales of loans		46,545				43,244
Net (loss) gain on loans accounted for under the fair value option		(3,539	)			1,046
Equity method investments (loss) income		(5,994	)			144,250
Equity security investments (losses) gains, net		(969	)			3,355
Lease income		10,007				10,084
Management fee income		13,324				10,090
Other noninterest income		20,074				17,141
Total noninterest income		111,733				237,992
Noninterest expense
Salaries and employee benefits		175,052				170,822
Travel expense		8,922				8,499
Professional services expense		7,737				11,737
Advertising and marketing expense		12,559				10,543
Occupancy expense		8,490				11,088
Technology expense		31,858				28,434
Equipment expense		14,997				15,120
Other loan origination and maintenance expense		14,804				13,168
Renewable energy tax credit investment impairment		14,644				16,217
FDIC insurance		16,670				9,756
Contributions and donations		—				6,462
Other expense		17,152				12,380
Total noninterest expense		322,885				314,226
Income before taxes		82,830				210,324
Income tax expense		8,932				34,116
Net income	$	73,898			$	176,208
Earnings per share
Basic	$	1.67			$	4.02
Diluted	$	1.64			$	3.92
Weighted average shares outstanding
Basic		44,353,708				43,862,291
Diluted		45,094,879				44,906,310

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

	As of and for the three months ended
	4Q 2023				3Q 2023				2Q 2023				1Q 2023				4Q 2022
Income Statement Data
Net income	$	16,163			$	39,793			$	17,544			$	398			$	1,792
Per Common Share
Net income, diluted	$	0.36			$	0.88			$	0.39			$	0.01			$	0.04
Dividends declared		0.03				0.03				0.03				0.03				0.03
Book value		20.23				19.12				18.77				18.58				18.41
Tangible book value(1)		20.15				19.04				18.69				18.50				18.32
Performance Ratios
Return on average assets (annualized)		0.58	%			1.46	%			0.66	%			0.02	%			0.08	%
Return on average equity (annualized)		7.36				18.68				8.26				0.19				0.88
Net interest margin		3.32				3.37				3.29				3.46				3.76
Efficiency ratio(1)		77.88				58.34				70.49				77.72				80.58
Noninterest income to total revenue		25.16				29.76				22.27				19.27				18.17
Selected Loan Metrics
Loans and leases originated	$	981,703			$	1,073,255			$	861,033			$	1,030,882			$	1,177,688
Outstanding balance of sold loans serviced		4,238,328				4,028,575				3,813,852				3,616,701				3,481,885
Asset Quality Ratios
Allowance for credit losses to loans and leases held for investment(3)		1.53	%			1.56	%			1.62	%			1.50	%			1.41	%
Net charge-offs(3)	$	4,428			$	9,122			$	1,154			$	6,669			$	1,396
Net charge-offs to average loans and leases held for investment(2) (3)		0.22	%			0.48	%			0.06	%			0.38	%			0.09	%
Nonperforming loans and leases at historical cost(3)
Unguaranteed	$	39,285			$	33,255			$	44,899			$	22,002			$	18,784
Guaranteed		95,678				65,837				66,322				63,696				54,608
Total		134,963				99,092				111,221				85,698				73,392
Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment(3)		0.48	%			0.43	%			0.61	%			0.30	%			0.27	%
Nonperforming loans at fair value(4)
Unguaranteed	$	7,230			$	6,518			$	8,602			$	8,193			$	6,678
Guaranteed		41,244				39,378				45,114				43,968				38,212
Total		48,474				45,896				53,716				52,161				44,890
Unguaranteed nonperforming fair value loans to loans held for investment(4)		1.86	%			1.59	%			1.95	%			1.75	%			1.35	%
Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)		11.73	%			11.63	%			11.55	%			11.67	%			12.46	%
Tier 1 leverage capital (to average assets)		8.58				8.56				8.46				8.70				9.26

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 December 31, 2023										Three Months Ended September 30, 2023
	Average Balance				Interest			Average Yield/Rate			Average Balance				Interest			Average Yield/Rate
Interest-earning assets:
Interest-earning balances in other banks	$	598,720			$	8,259		5.47	%		$	677,857			$	9,188		5.38	%
Investment securities		1,251,467				8,746		2.77				1,257,740				8,701		2.74
Loans held for sale		477,155				10,825		9.00				602,109				13,271		8.74
Loans and leases held for investment(1)		8,363,881				158,706		7.53				7,978,870				149,451		7.43
Total interest-earning assets		10,691,223				186,536		6.92				10,516,576				180,611		6.81
Less: Allowance for credit losses on loans and leases		(120,257	)									(119,941	)
Noninterest-earning assets		482,615										499,508
Total assets	$	11,053,581									$	10,896,143
Interest-bearing liabilities:
Interest-bearing checking	$	300,064			$	4,262		5.64	%		$	300,059			$	4,217		5.58	%
Savings		4,633,563				47,192		4.04				4,588,085				45,778		3.96
Money market accounts		128,486				198		0.61				136,879				202		0.59
Certificates of deposit		4,775,497				45,043		3.74				4,675,075				40,717		3.46
Total deposits		9,837,610				96,695		3.90				9,700,098				90,914		3.72
Borrowings		24,887				265		4.22				27,425				287		4.15
Total interest-bearing liabilities		9,862,497				96,960		3.90				9,727,523				91,201		3.72
Noninterest-bearing deposits		240,009										237,545
Noninterest-bearing liabilities		72,272										78,930
Shareholders' equity		878,803										852,145
Total liabilities and shareholders' equity	$	11,053,581									$	10,896,143
Net interest income and interest rate spread					$	89,576		3.02	%						$	89,410		3.09	%
Net interest margin								3.32										3.37
Ratio of average interest-earning assets to average interest-bearing liabilities								108.40	%									108.11	%

(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
	4Q 2023				3Q 2023				2Q 2023				1Q 2023				4Q 2022
Total shareholders’ equity	$	902,666			$	850,368			$	832,488			$	822,807			$	811,033
Less:
Goodwill		1,797				1,797				1,797				1,797				1,797
Other intangible assets		1,721				1,759				1,797				1,835				1,873
Tangible shareholders’ equity (a)	$	899,148			$	846,812			$	828,894			$	819,175			$	807,363
Shares outstanding (c)		44,617,673				44,480,215				44,351,715				44,290,840				44,061,244
Total assets	$	11,271,423			$	10,950,460			$	10,819,196			$	10,364,297			$	9,855,498
Less:
Goodwill		1,797				1,797				1,797				1,797				1,797
Other intangible assets		1,721				1,759				1,797				1,835				1,873
Tangible assets (b)	$	11,267,905			$	10,946,904			$	10,815,602			$	10,360,665			$	9,851,828
Tangible shareholders’ equity to tangible assets (a/b)		7.98	%			7.74	%			7.66	%			7.91	%			8.20	%
Tangible book value per share (a/c)	$	20.15			$	19.04			$	18.69			$	18.50			$	18.32
Efficiency ratio:
Noninterest expense (d)	$	93,204			$	74,262			$	76,457			$	78,962			$	84,585
Net interest income		89,576				89,410				84,302				82,017				85,902
Noninterest income		30,107				37,891				24,156				19,579				19,071
Total revenue (e)	$	119,683			$	127,301			$	108,458			$	101,596			$	104,973
Efficiency ratio (d/e)		77.88	%			58.34	%			70.49	%			77.72	%			80.58	%

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.

FAQ

What was Live Oak Bancshares, Inc.'s net income for Q4 2023?

The net income for Q4 2023 was $16.2 million.

What was Live Oak Bancshares, Inc.'s total revenue decrease in 2023?

The total revenue decreased by 19% in 2023.

What was Live Oak Bancshares, Inc.'s net income decrease in 2023?

The net income declined by 58% in 2023.

What was Live Oak Bancshares, Inc.'s loan and lease production decrease in 2023?

Loan and lease production decreased by 2% in 2023.

What was Live Oak Bancshares, Inc.'s effective tax rate decrease in 2023?

The effective tax rate decreased from 16.2% to 10.8% in 2023.