GlobeNewswire Inc | Jul 21, 2021 04:35PM EDT

July 21, 2021

WILMINGTON, N.C., July 21, 2021 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (Live Oak or the Company) today reported second quarter 2021 net earnings available to common shareholders of $63.6 million, or $1.41 per diluted share. The second quarter of 2021 included a pretax gain of $44.1 million related to an investment in Greenlight Financial Technologies, Inc. (Greenlight) accounted for as an equity security.

The second quarter of 2021 showed strength across all of Live Oaks key metrics. Our loan originations exceeded $1.0 billion, core revenues continued a strong growth trend, and our efforts in financial technology lifted earnings and capital, said Live Oak Chairman and CEO James S. (Chip) Mahan, III. We strongly believe in our model and will continue to focus on financial technology while serving the small business communities that are the backbone of the American economy. Our teams have an unwavering dedication to small business owners and the quarter reflects our commitment to fueling their growth.

Second Quarter2021 Key Measures

(Dollars inthousands, Increase (Decrease) except pershare data) 2Q 2021 2Q 2020 Dollars Percent 1Q 2021 Netinterestincome and $ 77,680 $ 47,589 $ 30,091 63 % $ 76,384 servicingrevenuesNet income 63,582 3,777 59,805 1,583 39,427 Dilutedearnings 1.41 0.09 1.32 1,467 0.88 per shareNon-GAAPnet income 63,582 3,777 59,805 1,583 39,340 (1)Non-GAAPdilutedearnings 1.41 0.09 1.32 1,467 0.88 per share(1)Loan andlease production:Loans andleases $ 1,153,693 $ 2,175,055 $ (1,021,362 ) (47 )% $ 1,180,219 originated% Fully 58.6 % 89.8 % n/a n/a 77.7 %fundedTotal loans $ 6,506,334 $ 5,626,624 $ 879,710 16 % $ 6,533,495 and leasesTotal 8,243,186 8,209,154 34,032 0 8,417,875 assetsTotal 6,520,833 5,873,292 647,541 11 6,316,004 deposits

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

Loans and Leases

At June 30, 2021, the total loan and lease portfolio was $6.51 billion, 15.6% above its level a year ago and 0.4% below its level at March 31, 2021. Compared to the first quarter of 2021, loans and leases held for investment decreased $15.3 million, or 0.3%, to $5.44 billion while loans held for sale decreased $11.8 million, or 1.1%, to $1.06 billion. Average loans and leases were $6.58 billion during the second quarter of 2021 compared to $6.35 billion during the first quarter of 2021. Excluding PPP, the total loan and lease portfolio increased by $1.64 billion, or 41.7%, compared the second quarter of 2020 and $490.6 million, or 9.6% compared to the first quarter of 2021.

The total loan and lease portfolio of $6.51 billion is comprised of $927.3 million of Paycheck Protection Program (PPP) loans, net of deferred fees and costs, at June 30, 2021, which are carried at historical cost classified as held for investment. The unguaranteed percentage of the total loan and lease portfolio is significantly influenced by the inclusion of PPP loans carrying a 100% government guarantee. The total loan and lease portfolio at June 30, 2021, and March 31, 2021, of $6.51 billion and $6.53 billion, respectively, was comprised of 44.9% and 41.6% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $1.15 billion during the second quarter of 2021, a decrease of $26.5 million, or 2.2%, from the first quarter of 2021. Excluding PPP loans in each quarter, loan and lease originations totaled $1.11 billion for the second quarter of 2021, a 65.7% increase from the prior quarter and a 159.0% increase from the second quarter of 2020.

Deposits

Total deposits increased to $6.52 billion at June 30, 2021, an increase of $647.5 million compared to June 30, 2020, and an increase of $204.8 million compared to March 31, 2021.

The increase in total deposits from the prior quarter provides support for the growth in the loan and lease portfolio, excluding PPP loans, and origination activities during the second quarter of 2021. Average total interest-bearing deposits for the second quarter of 2021 increased $482 million, or 8.2%, to $6.35 billion, compared to $5.86 billion for the first quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 103.7% for the second quarter of 2021, compared to 108.2% for the first quarter of 2021. The ratio is influenced by average PPP loan volume and the use of the Federal Reserves Paycheck Protection Program Liquidity Facility (PPPLF) classified as long-term borrowings.

Borrowings

Borrowings totaled $1.01 billion at June 30, 2021, compared to $1.72 billion and $1.47 billion at June 30, 2020, and March 31, 2021, respectively. During the second quarter of 2021, the Company decreased borrowings by $453.5 million primarily by reducing the outstanding balance in the Federal Reserves PPPLF to $961.0 million as of June 30, 2021, compared to $1.41 billion at March 31, 2021. The PPPLF has a 100% advance rate equal to the principal amount of PPP loans pledged as security and carries an interest rate of 0.35%, and loans financed under the PPPLF have a neutral impact on regulatory leverage capital ratios.

Net Interest Income

Net interest income for the second quarter of 2021 increased to $71.5 million compared to $40.9 million for the second quarter of 2020 and $70.0 million for the first quarter of 2021.

The increase for the second quarter of 2021 compared to the second quarter of 2020 was driven by the significant growth in the total loan and lease portfolios. The increase in net interest income comparing these two periods was also driven by fees earned through the forgiveness of PPP loans and the reduction in the average rate on interest bearing liabilities from 1.65% for the second quarter of 2020 to 0.86% for the second quarter of 2021.

The net interest margin decreased from the first quarter of 2021 by 18 basis points, from 3.81% to 3.63%. The yield on interest earnings assets for the second quarter of 2021 decreased 34 basis points compared to the first quarter of 2021 and was primarily driven by a reduction in fees recognized on PPP loans. The reduction in asset yield was mitigated by the 16 basis point reduction in the average cost of interest-bearing liabilities from 1.02% for the quarter ended March 31, 2021, to 0.86% for the quarter ended June 30, 2021. The reduction in the cost of interest-bearing liabilities compared to the first quarter of 2021 was largely the result of the maturation and repricing of the certificates of deposit portfolio.

Noninterest Income

Noninterest income for the second quarter of 2021 increased to $70.1 million compared to $22.4 million for the second quarter of 2020 and $31.1 million for the first quarter of 2021. The primary drivers behind these increased levels of noninterest income are outlined below.

The largest driver of the increase in noninterest income for the second quarter of 2021 arose from equity security investment gains of $44.3 million, principally comprised of $44.1 million associated with the Companys investment in Greenlight. This second quarter gain in Greenlight was the result of an increase in the observable fair market value of the Companys investment through an arms length sale of a portion of the Companys shares in the investee.

The loan servicing asset revaluation resulted in a loss of $3.2 million for the second quarter of 2021 compared to a loss of $1.6 million for the second quarter of 2020 and a gain of $1.5 million for the first quarter of 2021. The decrease in the loan servicing asset valuation from the prior quarter was largely the result of amortization of the guaranteed serviced loan portfolio.

The Companys net gains on sales of loans increased $4.3 million compared to the first quarter of 2021 and increased $5.5 million compared to the second quarter of 2020. The average net gain on guaranteed loan sales increased to $114.8 thousand per million sold for the second quarter of 2021 versus $83.9 thousand per million sold for the first quarter of 2021. The quarter over quarter increase in premiums is largely the result of stimulus associated with the SBA program which removes the ongoing guarantee fee, typically paid by the purchaser, on loans originated under the Economic Aid Act. The volume of guaranteed loans sold decreased to $130.9 million for the second quarter of 2021 compared to $136.7 million sold in the prior quarter. The average net gain on guaranteed loan sales was $66.8 thousand per million sold for the second quarter of 2020, largely influenced by pandemic influenced market conditions.

The net gain on loans accounted for under the fair value option totaled $1.1 million for the second quarter of 2021, a $2.2 million increase compared to the net loss for the second quarter of 2020 and a $3.1 million decrease compared to the net gain of $4.2 million for the first quarter of 2021. The increase in valuation of loans accounted for under the fair value option over the second quarter of 2020 was positively impacted by continued improvement in market conditions while the decrease over the first quarter was largely related to the amortization of the portfolio.

Equity method investments loss arising from losses experienced by several of the Companys financial technology investees totaled $2.3 million for the second quarter of 2021 compared to a loss of $1.2 million for the first quarter of 2021. Compared to the second quarter of 2020 the loss was largely unchanged.

Noninterest Expense

Noninterest expense for the second quarter of 2021 totaled $57.6 million compared to $48.1 million for the second quarter of 2020 and $58.3 million for the first quarter of 2021.Salaries and employee benefits for the second quarter of 2021 increased to $32.9 million compared to $30.8 million for the second quarter of 2020 and $31.4 million for the first quarter of 2021. The increase in salaries and employee benefits for both periods was principally related to continued investment in human resources to support strategic and growth initiatives.

Primary components of the change in salaries and employee benefits as compared to the second quarter of 2020 were $3.2 million in increased salaries and benefits combined with the vesting of 178 thousand restricted stock unit awards during the second quarter of 2021 with market price conditions that accelerated recognition of both stock compensation expense and payroll tax expense by a combined $1.8 million, partially offset by a decrease of $3.0 million largely related to the 2020 performance bonus pool that was available to all employees other than executive officers.

Primary components of the change in salaries and employee benefits as compared to the first quarter of 2021 was an additional bonus accrual of $4.0 million for all employees other than executive officers and executive management arising from the earnings associated with gains from the Companys investment in Greenlight, partially offset by a decrease in payroll taxes and stock expense of $2.2 million largely related to vesting of approximately 398 thousand restricted stock unit awards that vested in the first quarter of 2021.

Travel expense for the second quarter of 2021 totaled $1.5 million compared to $364 thousand for the second quarter of 2020 and $659 thousand for the first quarter of 2021. Travel expenses increased to support the growth in loan origination volume and customer base as travel restrictions have lessened in recent months.

Professional services expense increased to $3.3 million for the second quarter of 2021 compared to $1.4 million for the second quarter of 2020 and decreased from $3.8 million for the first quarter of 2021. The increase for the second quarter of 2021 compared to the prior year was largely driven by an increase in legal fees.

Data processing expense for the second quarter of 2021 totaled $4.2 million compared to $2.8 million for the second quarter of 2020 and $3.9 million for the first quarter of 2021. The $1.5 million increase over the second quarter of 2020 was principally due to enhanced investments in the Companys internal software technology resources.

The decrease in noninterest expense for the second quarter of 2021 compared to the first quarter of 2021 was also the result of impairment charges of $3.1 million related to renewable energy tax credit investments of $3.9 million in the first quarter of 2021. As mentioned in the prior quarter, 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 $3.4 million which is included in the Companys estimated annual effective tax rate.Investments of this nature are part of the Companys ongoing initiative to promote renewable energy sources.

Asset Quality

During the second quarter of 2021, the Company recognized net charge-offs for loans carried at historical cost of $2.4 million compared to net recoveries of $984 thousand in the first quarter of 2021 and net charge-offs $1.8 million in the second quarter of 2020. Net charge-offs (recoveries) as a percentage of average held for investment loans and leases carried at historical cost, annualized, for the quarters ended June 30, 2021 and March 31, 2021, was 0.21% and (0.09)%, respectively.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $5.5 million and $5.8 million accounted for under the fair value option at June 30, 2021, and March 31, 2021, respectively, decreased to $22.5 million, or 0.48% of loans and leases held for investment which are carried at historical cost, at June 30, 2021, compared to $24.7 million, or 0.53%, at March 31, 2021.

The unguaranteed exposure of foreclosed assets decreased $486 thousand to $455 thousand at June 30, 2021, compared to March 31, 2021. Foreclosed assets decreased $2.4 million to $1.8 million at June 30, 2021, compared to March 31, 2021.

Provision for (Recovery of) Loan and Lease Credit Losses

The provision for loan and lease credit losses for the second quarter of 2021 totaled $7.8 million compared to a provision of $10.0 million for the second quarter of 2020 and a recovery of $873 thousand for the first quarter of 2021. The provision expense in the second quarter was primarily the result of the growing portfolio of loans and leases and the influence of current credit performance.

The allowance for credit losses on loans and leases totaled $57.8 million at June 30, 2021, compared to $52.4 million at March 31, 2021. 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 1.12% at June 30, 2021, and March 31, 2021, respectively. The allowance for credit losses on loans and leases as a percentage of total loans and leases held for investment carried at historical cost continues to be heavily influenced by the 100% guaranteed PPP loans.

Income Tax

Income tax expense in the second quarter of 2021 was $12.6 million compared to an income tax expense in the second quarter of 2020 of $1.5 million and $4.2 million in the first quarter of 2021. The effective tax rate for the second quarter of 2021 of 16.5% is principally the result of the above renewable energy tax credit investments and an income tax benefits arising from the vesting of stock unit awards, as the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes.

The increase in the income tax expense for the second quarter of 2021 compared to the income tax expense for the first quarter of 2021 was primarily the product of an increase of $32.6 million in income before taxes.

Shareholders Equity

Total shareholders equity increased by $67.0 million, or 11.3%, during the second quarter of 2021. This increase was primarily due to net income, partially offset by cash paid for employee tax obligations in lieu of stock for settlement of vested restricted stock unit awards discussed above. Total cash paid in lieu of stock during the second quarter was $5.7 million.

During the second quarter of 2021, 181,926 shares of Class B common stock (non-voting) were converted to Class A common stock (voting) in connection with private sales. The conversion decreased the value of Class B common stock (non-voting) and increased the value of Class A common stock (voting) by $1.9 million.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (July 22, 2021). 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 5508559. 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 Companys website at http://investor.liveoakbank.com. A replay of the conference call will also be available until August 5, 2021 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.comin 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 Companys 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 Companys 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 managements 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 Section7(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; and the other factors discussed in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) and available at the SECs 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:

Brett Caines | CFO | Investor Relations | 910.796.1645Claire 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)

Three months ended 2Q 2021 1Q 2021 4Q 2020 3Q 2020 2Q 2020 Interest income Loans and fees on loans $ 84,780 $ 84,993 $ 79,166 $ 70,621 $ 62,022 Investment securities, taxable 2,975 2,929 3,345 4,123 3,786 Other interest earning assets 244 303 529 334 1,009 Total interest income 87,999 88,225 83,040 75,078 66,817 Interest expense Deposits 14,820 16,944 19,195 22,155 25,121 Borrowings 1,717 1,331 1,544 1,560 798 Total interest expense 16,537 18,275 20,739 23,715 25,919 Net interest income 71,462 69,950 62,301 51,363 40,898 Provision for (recovery of) loan 7,846 (873 ) 8,634 10,274 9,958 and lease creditlossesNet interest income afterprovision for (recovery of) loan 63,616 70,823 53,667 41,089 30,940 and lease credit lossesNoninterest income Loan servicing revenue 6,218 6,434 6,684 6,803 6,691 Loan servicing asset revaluation (3,181 ) 1,493 (5,756 ) 2,061 (1,571 )Net gains on sales of loans 16,234 11,929 14,976 12,690 10,695 Net gain (loss) on loansaccounted for under the fair 1,135 4,218 (4,759 ) 3,403 (1,089 )value optionEquity method investments income (2,278 ) (1,157 ) (8,739 ) (1,231 ) (2,243 )(loss)Equity security investments gains 44,253 105 107 14,705 161 (losses), netGain on sale of investmentsecuritiesavailable-for-sale, ? ? ? 1,225 734 netLease income 2,616 2,599 2,615 2,634 2,635 Management fee income 1,473 1,934 2,206 1,296 1,206 Other noninterest income 3,641 3,502 3,469 3,458 5,192 Total noninterest income 70,111 31,057 10,803 47,044 22,411 Noninterest expense Salaries and employee benefits 32,900 31,366 29,477 24,203 30,782 Travel expense 1,549 659 1,056 250 364 Professional services expense 3,329 3,831 1,691 1,346 1,385 Advertising and marketing expense 875 652 973 552 624 Occupancy expense 2,224 2,112 2,302 2,079 1,955 Data processing expense 4,234 3,894 3,414 3,009 2,764 Equipment expense 4,385 4,354 4,002 4,314 4,652 Other loan origination and 3,307 3,327 3,173 2,669 2,492 maintenance expenseRenewable energy tax credit ? 3,127 ? ? ? investment impairmentFDIC insurance 1,704 1,765 2,147 2,095 1,721 Other expense 3,051 3,185 4,200 2,133 1,361 Total noninterest expense 57,558 58,272 52,435 42,650 48,100 Income before taxes 76,169 43,608 12,035 45,483 5,251 Income tax expense (benefit) 12,587 4,181 (17,553 ) 11,703 1,474 Net income $ 63,582 $ 39,427 $ 29,588 $ 33,780 $ 3,777 Earnings per share Basic $ 1.48 $ 0.92 $ 0.72 $ 0.83 $ 0.09 Diluted $ 1.41 $ 0.88 $ 0.68 $ 0.81 $ 0.09 Weighted average shares outstandingBasic 43,173,312 42,673,615 41,320,851 40,542,696 40,506,671 Diluted 45,062,392 44,696,850 43,333,707 41,549,632 41,122,025

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

As of the quarter ended 2Q 2021 1Q 2021 4Q 2020 3Q 2020 2Q 2020 Assets Cash and due from $ 428,907 $ 630,081 $ 297,167 $ 608,826 $ 1,256,958 banksFederal funds sold 9,917 5,461 21,153 25,924 91,188 Certificates ofdeposit with other 6,000 6,500 6,500 7,250 7,250 banksInvestmentsecurities 817,896 775,177 750,098 765,777 779,794 available-for-saleLoans held for sale 1,064,911 1,076,741 1,175,470 1,190,200 976,594 ^(1)Loans and leasesheld for investment 5,441,423 5,456,754 5,144,930 5,037,094 4,650,030 ^(2)Allowance forcredit losses on (57,848 ) (52,417 ) (52,306 ) (44,210 ) (44,083 )loans and leasesNet loans and 5,383,575 5,404,337 5,092,624 4,992,884 4,605,947 leasesPremises and 249,069 253,774 259,267 253,737 269,063 equipment, netForeclosed assets 1,793 4,185 4,155 3,264 5,660 Servicing assets 36,966 37,744 33,918 37,831 33,834 Other assets 244,152 223,875 231,951 207,688 182,866 Total assets $ 8,243,186 $ 8,417,875 $ 7,872,303 $ 8,093,381 $ 8,209,154 Liabilities andShareholders? EquityLiabilities Deposits: Noninterest-bearing $ 89,768 $ 75,794 $ 75,287 $ 58,771 $ 53,938 Interest-bearing 6,431,065 6,240,210 5,637,541 5,647,273 5,819,354 Total deposits 6,520,833 6,316,004 5,712,828 5,706,044 5,873,292 Borrowings 1,012,431 1,465,961 1,542,093 1,747,083 1,721,029 Other liabilities 52,575 45,550 49,532 56,090 66,398 Total liabilities 7,585,839 7,827,515 7,304,453 7,509,217 7,660,719 Shareholders? equityPreferred stock, nopar value,1,000,000 shares ? ? ? ? ? authorized, noneissued oroutstandingClass A common 299,809 298,525 298,890 325,753 319,542 stock (voting)Class B common 5,404 7,330 11,729 26,106 28,753 stock (non-voting)Retained earnings 339,011 275,377 235,724 207,400 174,837 Accumulated othercomprehensive 13,123 9,128 21,507 24,905 25,303 incomeTotal shareholders' 657,347 590,360 567,850 584,164 548,435 equityTotal liabilitiesand shareholders? $ 8,243,186 $ 8,417,875 $ 7,872,303 $ 8,093,381 $ 8,209,154 equity

Includes $29.0 million, $35.9 million, $36.1 million, $30.4 million and(1) $32.1 million measured at fair value for the quarters ended June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020, respectively. Includes $743.2 million, $790.8 million, $815.4 million, $845.7 million and(2) $834.6 million measured at fair value for the quarters ended June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020, respectively.

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

Six months ended June30, June30, 2021 2020Interest income Loans and fees on loans $ 169,773 $ 120,983 Investment securities, taxable 5,904 7,548 Other interest earning assets 547 1,759 Total interest income 176,224 130,290 Interest expense Deposits 31,764 48,376 Borrowings 3,048 855 Total interest expense 34,812 49,231 Net interest income 141,412 81,059 Provision for loan and lease credit losses 6,973 21,750 Net interest income after provision for loan 134,439 59,309 and lease credit lossesNoninterest income Loan servicing revenue 12,652 13,113 Loan servicing asset revaluation (1,688 ) (6,263 )Net gains on sales of loans 28,163 21,807 Net gain (loss) on loans accounted for under 5,353 (11,727 )the fair value optionEquity method investments income (loss) (3,435 ) (4,721 )Equity security investments gains (losses), net 44,358 97 Gain on sale of investment securities ? 655 available-for-sale, netLease income 5,215 5,259 Management fee income 3,407 2,850 Other noninterest income 7,143 7,083 Total noninterest income 101,168 28,153 Noninterest expense Salaries and employee benefits 64,266 58,845 Travel expense 2,208 2,145 Professional services expense 7,160 3,322 Advertising and marketing expense 1,527 1,985 Occupancy expense 4,336 4,376 Data processing expense 8,128 5,921 Equipment expense 8,739 9,287 Other loan origination and maintenance expense 6,634 4,948 Renewable energy tax credit investment 3,127 ? impairmentFDIC insurance 3,469 3,231 Other expense 6,236 3,531 Total noninterest expense 115,830 97,591 Income (loss) before taxes 119,777 (10,129 )Income tax expense (benefit) 16,768 (6,304 )Net income (loss) $ 103,009 $ (3,825 )Earnings (loss) per share Basic $ 2.40 $ (0.10 )Diluted $ 2.29 $ (0.10 )Weighted average shares outstanding Basic 42,924,844 40,420,425 Diluted 44,881,002 41,098,037

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

As of and for the three months ended 2Q 2021 1Q 2021 4Q 2020 3Q 2020 2Q 2020 IncomeStatement DataNet income $ 63,582 $ 39,427 $ 29,588 $ 33,780 $ 3,777 Per Common ShareNet income, $ 1.48 $ 0.92 $ 0.72 $ 0.83 $ 0.09 basicNet income, 1.41 0.88 0.68 0.81 0.09 dilutedDividends 0.03 0.03 0.03 0.03 0.03 declaredBook value 15.19 13.74 13.38 14.69 13.53 Tangible book 15.10 13.65 13.28 14.30 13.43 value (1)Performance RatiosReturn onaverage 3.01 % 1.98 % 1.49 % 1.67 % 0.22 %assets(annualized)Return onaverage 41.30 26.89 19.86 23.64 2.68 equity(annualized)Net interest 3.63 3.81 3.33 2.77 2.56 marginEfficiency 40.66 57.69 71.73 43.89 76.87 ratio (1)Noninterestincome to 49.52 30.75 14.78 47.15 34.64 total revenueSelected Loan MetricsLoans andleases $ 1,153,693 $ 1,180,219 $ 808,010 $ 966,499 $ 2,175,055 originatedGuaranteed 130,858 136,747 110,588 114,731 154,980 loans soldAverage netgain on sale 114.77 83.92 115.94 110.19 66.76 of guaranteedloansAdjustedaverage netgain on sale 114.77 83.92 114.07 107.99 65.94 of guaranteedloans (2)Outstandingbalance of sold loansserviced:Guaranteed 2,694,931 2,843,963 2,819,625 2,878,664 2,840,429 Unguaranteed 439,137 372,764 385,998 264,829 231,602 Total 3,134,068 3,216,727 3,205,623 3,143,493 3,072,031 Asset Quality RatiosAllowance forcredit lossesto loans andleases held 1.23 % 1.12 % 1.21 % 1.05 % 1.16 %forinvestment(4)Netcharge-offs $ 2,417 $ (984 ) $ 537 $ 10,147 $ 1,781 (recoveries)(4)Netcharge-offs(recoveries)to averageloans and 0.21 % (0.09 )% 0.05 % 1.03 % 0.21 %leases heldforinvestment(3) (4)Nonperformingloans and $ 48,009 $ 57,371 $ 46,110 $ 46,749 $ 40,275 leases (4)(5)Foreclosed 1,793 4,185 4,155 3,264 5,660 assetsNonperformingloans andleases 22,458 24,738 20,078 20,153 13,122 (unguaranteedexposure) (4)(5)Foreclosedassets 455 941 935 642 1,199 (unguaranteedexposure)Nonperformingloans andleases notguaranteed by $ 22,913 $ 25,679 $ 21,013 $ 20,795 $ 14,321 the SBA andforeclosures(4) (5)Nonperformingloans, leasesandforeclosures,not 0.31 % 0.34 % 0.30 % 0.29 % 0.20 %guaranteed bythe SBA, tototal assets(4) (5)Nonperformingloansaccounted for $ 39,826 $ 40,234 $ 35,499 $ 47,434 $ 46,221 under thefair valueoptionNonperformingloansaccounted forunder the 5,503 5,838 5,387 7,495 6,352 fair valueoption(unguaranteedexposure)Capital RatiosCommon equitytier 1capital (to 12.45 % 12.16 % 12.15 % 13.09 % 12.84 %risk-weightedassets)Total capital(to 13.63 13.32 13.39 14.19 13.99 risk-weightedassets)Tier 1 riskbased capital(to 12.45 12.16 12.15 13.09 12.84 risk-weightedassets)Tier 1leveragecapital (to 8.70 8.50 8.40 8.44 7.96 averageassets)



Notes to Quarterly Selected Financial Data (1) See accompanying GAAP to Non-GAAP Reconciliation. (2) Excludes fair value gain/loss on exchange-traded interest rate futures contracts. (3) Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized. (4) Excludes loans measured at fair value. (5) The quarters ended December 31, 2020 and September 30, 2020 exclude one $6.1 million hotel loan classified as held for sale.

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

Three Months Ended Three Months Ended June30, 2021 March 31, 2021 Average Average Average Average Balance Interest Yield/ Balance Interest Yield/ Rate RateInterest earning assets:Interest earningbalances in $ 514,232 $ 234 0.18 % $ 331,260 $ 297 0.36 %other banksFederal funds 29,199 10 0.14 28,202 6 0.09 soldInvestment 764,017 2,975 1.56 736,158 2,929 1.61 securitiesLoans held for 1,134,259 15,216 5.38 1,158,844 15,077 5.28 saleLoans and leasesheld for 5,447,839 69,564 5.12 5,186,963 69,916 5.47 investment ^(1)Total interest 7,889,546 87,999 4.47 7,441,427 88,225 4.81 earning assetsLess: allowancefor creditlosses on loans (51,994 ) (52,317 ) andleasesNon-interest 623,895 593,573 earning assetsTotal assets $ 8,461,447 $ 7,982,683 Interest bearing liabilities:Interest bearing $ 60,439 $ 86 0.57 % $ 250,005 $ 356 0.58 %checkingSavings 3,101,733 4,309 0.56 2,356,598 3,512 0.60 Money market 104,826 82 0.31 105,753 83 0.32 accountsCertificates of 3,078,789 10,343 1.35 3,151,575 12,993 1.67 depositTotal interest 6,345,787 14,820 0.94 5,863,931 16,944 1.17 bearing depositsBorrowings 1,368,742 1,717 0.50 1,429,177 1,331 0.38 Total interestbearing 7,714,529 16,537 0.86 7,293,108 18,275 1.02 liabilitiesNon-interest 85,824 63,917 bearing depositsNon-interestbearing 45,309 39,155 liabilitiesShareholders' 615,785 586,503 equityTotalliabilities and $ 8,461,447 $ 7,982,683 shareholders'equityNet interestincome and $ 71,462 3.61 % $ 69,950 3.79 %interest ratespreadNet interest 3.63 3.81 marginRatio of averageinterest-earningassets to 102.27 % 102.03 %averageinterest-bearingliabilities

(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 2021 1Q 2021 4Q 2020 3Q 2020 2Q 2020 Totalshareholders? $ 657,347 $ 590,360 $ 567,850 $ 584,164 $ 548,435 equityLess: Goodwill 1,797 1,797 1,797 1,797 1,797 Other intangible 2,103 2,141 2,179 2,218 2,294 assetsTangibleshareholders? $ 653,447 $ 586,422 $ 563,874 $ 580,149 $ 544,344 equity (a)Shares 43,264,460 42,951,344 42,452,446 40,575,982 40,525,632 outstanding (c)Total assets $ 8,243,186 $ 8,417,875 $ 7,872,303 $ 8,093,381 $ 8,209,154 Less: Goodwill 1,797 1,797 1,797 1,797 1,797 Other intangible 2,103 2,141 2,179 2,218 2,294 assetsTangible assets $ 8,239,286 $ 8,413,937 $ 7,868,327 $ 8,089,366 $ 8,205,063 (b)Tangibleshareholders?equity to 7.93 % 6.97 % 7.17 % 7.17 % 6.63 %tangible assets(a/b)Tangible bookvalue per share $ 15.10 $ 13.65 $ 13.28 $ 14.30 $ 13.43 (a/c)Efficiency ratio:Noninterest $ 57,558 $ 58,272 $ 52,435 $ 42,650 $ 48,100 expense (d)Net interest 71,462 69,950 62,301 51,363 40,898 incomeNoninterest 70,111 31,057 10,803 47,044 22,411 incomeLess: gain(loss) on sale ? ? ? 1,225 734 of securitiesAdjustedoperating $ 141,573 $ 101,007 $ 73,104 $ 97,182 $ 62,575 revenue (e)Efficiency ratio 40.66 % 57.69 % 71.73 % 43.89 % 76.87 %(d/e)

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

Three Months Ended Six Months Ended 2Q 2021 1Q 2021 2Q 2020 2Q 2021 2Q 2020 Reconciliationof net income(loss) to non-GAAP netincome (loss):Net income $ 63,582 $ 39,427 $ 3,777 $ 103,009 $ (3,825 )(loss)Gain on sale of ? (114 ) ? (114 ) ? aircraftIncome taxeffects and ? 27 ? 27 ? adjustments fornon-GAAP items *Non-GAAP net $ 63,582 $ 39,340 $ 3,777 $ 102,922 $ (3,825 )income (loss)* Estimated at 24.0%Non-GAAPearnings (loss) per share:Basic $ 1.48 $ 0.92 $ 0.09 $ 2.40 $ (0.10 )Diluted $ 1.41 $ 0.88 $ 0.09 $ 2.29 $ (0.10 )Weighted-averageshares outstanding:Basic 43,173,312 42,673,615 40,506,671 42,924,844 40,420,425 Diluted 45,062,392 44,696,850 41,122,025 44,881,002 41,098,037 Reconciliationof financialstatement line items asreportedtonon-GAAP:Noninterestincome, as $ 70,111 $ 31,057 $ 22,411 $ 101,168 $ 28,153 reportedGain on sale of ? (114 ) ? (114 ) ? aircraftNoninterest $ 70,111 $ 30,943 $ 22,411 $ 101,054 $ 28,153 income, non-GAAPIncome (loss)before taxes, as $ 76,169 $ 43,608 $ 5,251 $ 119,777 $ (10,129 )reportedGain on sale of ? (114 ) ? (114 ) ? aircraftIncome (loss)before taxes, $ 76,169 $ 43,494 $ 5,251 $ 119,663 $ (10,129 )non-GAAPIncome taxexpense $ 12,587 $ 4,181 $ 1,474 $ 16,768 $ (6,304 )(benefit), asreportedIncome taxeffects and ? (27 ) ? (27 ) ? adjustments fornon-GAAP itemsIncome taxexpense $ 12,587 $ 4,154 $ 1,474 $ 16,741 $ (6,304 )(benefit),non-GAAP

This press release presents the non-GAAP financial measures. 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 Companys 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.