LIVE OAK BANCSHARES : REPORTS FOURTH QUARTER 2021 RESULTS - Form 8-K

LIVE OAK BANCSHARES, INC. REPORTS FOURTH QUARTER 2021 RESULTS

Wilmington, NC, January 25, 2022 - Live Oak Bancshares, Inc. (Nasdaq: LOB) ("Live Oak" or "the Company") today reported fourth quarter 2021 net earnings available to common shareholders of $30.1 million, or $0.66 per diluted share. Net earnings for the year ended December 31, 2021, totaled $167.0 million, or $3.71 per diluted share.

"Live Oak closed 2021 with one of our strongest quarters in the Company's history," said Live Oak Chairman and CEO James S. (Chip) Mahan, III. "For three consecutive quarters we have exceeded $1.0 billion in loan originations, with year-over-year organic growth of 32% in total loans outside of PPP and 24% in total deposits. We also ended the year by marking a new chapter in our model with the launch of our small business checking account on a next-generation platform. Live Oak continues to be strongly positioned to serve small businesses across America while continuing to redefine what it means to be a community bank."

Year over Year Highlights

(Dollars in thousands, except per share data)										Increase (Decrease)
		2021			2020			Dollars			Percent
Total revenue (1)		$	456,985			$	280,723			$	176,262				63	%
Total noninterest expense			230,987				192,676				38,311				20
Income before taxes			210,788				47,389				163,399				345
Effective tax rate			20.8	%			(25.6	)%		n/a			n/a
Net income		$	166,995			$	59,543			$	107,452				180	%
Diluted earnings per share			3.71				1.43				2.28				159
Loan and lease production:
Loans and leases originated		$	4,480,725			$	4,450,198			$	30,527				1	%
% Fully funded			64.5	%			78.6	%		n/a			n/a
Loans and leases originated, excluding PPP loans		$	3,933,207			$	2,687,542			$	1,245,665				46	%
Total loans and leases:			6,637,781				6,320,400				317,381				5
Total loans and leases, excluding PPP loans:			6,375,903				4,821,783				1,554,120				32
Total assets:			8,213,393				7,872,303				341,090				4
Total deposits:			7,112,044				5,712,828				1,399,216				24

Fourth Quarter 2021 Key Measures

(Dollars in thousands, except per share data)										Increase (Decrease)
		Q4 2021			Q3 2021			Dollars			Percent			Q4 2020
Total revenue (1)		$	111,394			$	103,011			$	8,383				8	%		$	73,104
Total noninterest expense			59,698				55,459				4,239				8				52,435
Income before taxes			47,778				43,233				4,545				11				12,035
Effective tax rate			36.9	%			21.7	%		n/a			n/a				(145.8	)%
Net income		$	30,147			$	33,839			$	(3,692	)			(11	)%		$	29,588
Diluted earnings per share			0.66				0.76				(0.10	)			(13	)			0.68
Loan and lease production:
Loans and leases originated		$	1,083,623			$	1,063,190			$	20,433				2	%		$	808,010
% Fully funded			54.1	%			55.1	%		n/a			n/a				55.6	%

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

1

Loans and Leases

At December 31, 2021, the total loan and lease portfolio was $6.64 billion, 5.0% above its level at December 31, 2020 and 2.7% above its level at September 30, 2021. Compared to the third quarter of 2021, loans and leases held for investment increased $102.7 million, or 1.9%, to $5.52 billion while loans held for sale increased $73.8 million, or 7.1%, to $1.12 billion. Average loans and leases were $6.45 billion during the fourth quarter of 2021 compared to $6.47 billion during the third quarter of 2021. Excluding Paycheck Protection Program ("PPP") loans, the total loan and lease portfolio increased by $1.55 billion, or 32.2%, compared to December 31, 2020, and $404.3 million, or 6.8%, compared to September 30, 2021.

The total loan and lease portfolio of $6.64 billion includes $261.9 million of PPP loans, net of deferred fees and costs, at December 31, 2021. The unguaranteed percentage of the total loan and lease portfolio, influenced by the inclusion of PPP loans carrying a 100% government guarantee, continues to lessen as PPP balances decline. The total loan and lease portfolio at December 31, 2021, and September 30, 2021, of $6.64 billion and $6.46 billion, respectively, was comprised of 51.6% and 47.8% of unguaranteed loans and leases, respectively.

Loan and lease originations totaled $1.08 billion during the fourth quarter of 2021, an increase of $20.4 million, or 1.9%, from the third quarter of 2021.

Deposits

Total deposits increased to $7.11 billion at December 31, 2021, an increase of $1.40 billion compared to December 31, 2020, and an increase of $295.4 million compared to September 30, 2021.

The increase in total deposits from the prior quarter provides support for the growth in the loan and lease portfolio and origination activities during the fourth quarter of 2021. Average total interest-bearing deposits for the fourth quarter of 2021 increased $276.9 million, or 4.2%, to $6.91 billion, compared to $6.63 billion for the third quarter of 2021. The ratio of average total loans and leases to average interest-bearing deposits was 93.4% for the fourth quarter of 2021, compared to 97.5% for the third quarter of 2021. This ratio is influenced by average PPP loan volume and the use of the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPPLF") classified as long-term borrowings; however, its impact also continues to lessen as PPP related balances decline.

Borrowings

Borrowings totaled $318.3 million at December 31, 2021, compared to $1.54 billion and $575.0 million at December 31, 2020, and September 30, 2021, respectively. During the fourth quarter of 2021, the Company decreased borrowings by $256.7 million primarily by reducing the outstanding balance in the Federal Reserve's PPPLF to $267.5 million as of December 31, 2021, compared to $526.0 million at September 30, 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. Including borrowings, the ratio of average total loans and leases to total average interest-bearing liabilities was 88.0% for the fourth quarter of 2021, compared to 86.8% for the third quarter of 2021.

Net Interest Income

Net interest income for the fourth quarter of 2021 was $77.6 million compared to $62.3 million for the fourth quarter of 2020 and $77.7 million for the third quarter of 2021.

The increase for the fourth quarter of 2021 compared to the fourth quarter of 2020 was driven by significant growth in the total loan and lease portfolio, excluding PPP loans. The increase in net interest income comparing these two periods was also driven by the reduction in the average rate on interest-bearing liabilities from 1.13% for the fourth quarter of 2020 to 0.79% for the fourth quarter of 2021.

2

The net interest margin increased from the thirdquarter of 2021 by threebasis points, from 3.99% to 4.02%. The yield on interest earning assets for the fourthquarter of 2021 increasedonebasis point compared to the thirdquarter of 2021. Theincrease in asset yield was further enhanced by aonebasis point reduction in the average cost of interest-bearing liabilities from 0.80% for the quarter ended September30, 2021, to 0.79% for the quarter ended December31, 2021.

Noninterest Income

Noninterest income for the fourth quarter of 2021 increased to $33.8 million compared to $10.8 million for the fourth quarter of 2020 and $25.3 million for the third quarter of 2021. The primary drivers behind increased noninterest income are outlined below.

The largest driver of the increase in noninterest income for the fourth quarter of 2021 arose from equity method investment income which increased $11.7 million over the fourth quarter of 2020 and $4.2 million over the third quarter of 2021. The increase compared to fourth quarter of 2020 was largely a product of the Company's pro rata portion of income tax expense of $7.8 million recorded during the prior year arising from an investee's conversion from a partnership to a corporation. Also contributing to the increase for both compared periods was heightened levels of financial performance from the Company's investments in fintech oriented investment funds.

The loan servicing asset revaluation resulted in a loss of $4.2 million for the fourth quarter of 2021 compared to a loss of $5.8 million for the fourth quarter of 2020 and a loss of $5.9 million for the third quarter of 2021. Lower levels of losses in the loan servicing asset revaluation compared to the prior quarters was largely the result of the ongoing amortization of the guaranteed serviced loan portfolio.

Net gains on sales of loans increased $5.3 million compared to the fourth quarter of 2020 and $1.4 million compared to the third quarter of 2021. The average net gain on guaranteed loan sales was $98.8, $91.0 and $115.9 thousand per million sold for the fourth quarter of 2021, third quarter of 2021 and fourth quarter of 2020, respectively. The change in the average net gain per million on guaranteed loan sales was largely driven by the mix of loan sales while overall market pricing remained relatively consistent for each of the compared periods. The volume of guaranteed loans sold remained relatively flat at $199.0 million for the fourth quarter of 2021 compared to $201.9 million sold in the prior quarter.

The net loss on loans accounted for under the fair value option totaled $66 thousand for the fourth quarter of 2021, a $4.7 million decrease compared to the $4.8 million net loss for the fourth quarter of 2020 and a $964 thousand decrease compared to the net loss of $1.0 million for the third quarter of 2021. The decreased level of loss in marking loans to fair value for the above periods was largely the result of continued improvements in economic forecasts used in measuring fair value.

Noninterest Expense

Noninterest expense for the fourth quarter of 2021 totaled $59.7 million compared to $52.4 million for the fourth quarter of 2020 and $55.5 million for the third quarter of 2021. The primary drivers in the noninterest expense changes are outlined below.

Salaries and employee benefits for the fourth quarter of 2021 increased to $32.5 million compared to $29.5 million for the fourth quarter of 2020 and $28.2 million for the third quarter of 2021. The increase in salaries and employee benefits was principally related to continued investment in human resources to support strategic and growth initiatives.

Professional services expense increased to $3.7 million for the fourth quarter of 2021 compared to $1.7 million for the fourth quarter of 2020. The $2.0 million increase over the fourth quarter of 2020 was largely driven by an increase in legal and consulting fees.

Data processing expense for the fourth quarter of 2021 totaled $5.2 million compared to $3.4 million for the fourth quarter of 2020. The increase in 2021 was principally due to enhanced investments in the Company's internal software technology resources.

3

Asset Quality

During the fourth quarter of 2021, the Company recognized net charge-offs for loans carried at historical cost of $15 thousand compared to $537 thousand in the fourth quarter of 2020 and $2.5 million in the 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 December 31, 2021 and 2020 and September 30, 2021, was 0.00%, 0.05% and 0.21%, 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, 2021 and 2020, were 0.09% and 0.45%, respectively. The decrease in net charge-offs as a percentage of total average held for investment loans and leases carried at historical cost for the year ended December 31, 2021 compared to 2020 was largely the result of a 2020 reclassification of fifteen hotel loans totaling $81.2 million in net investment from held for investment to held for sale. This reclassification resulted in a write down reflected in charge-offs of $9.8 million in 2020.

Unguaranteed nonperforming (nonaccrual) loans and leases, excluding $4.8 million and $6.3 million accounted for under the fair value option at December 31, 2021, and September 30, 2021, respectively, decreased to $16.0 million, or 0.33% of loans and leases held for investment which are carried at historical cost, at December 31, 2021, compared to $20.4 million, or 0.43%, at September 30, 2021.

Provision for Loan and Lease Credit Losses

The provision for loan and lease credit losses for the fourth quarter of 2021 totaled $3.9 million compared to $8.6 million for the fourth quarter of 2020 and $4.3 million for the third quarter of 2021. The lower provision expense in the fourth quarter of 2021 was primarily the result of continued improvement in forecasts related to employment and default expectations, combined with the effects of the earlier discussed portfolio performance metrics, outpacing the impact of the growing loan and lease portfolio.

The allowance for credit losses on loans and leases totaled $63.6 million at December 31, 2021, compared to $59.7 million at September 30, 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 1.30% and 1.26% at December 31, 2021, and September 30, 2021, respectively. While the level of impact continues to decline, 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 influenced by the 100% guaranteed PPP loans.

Income Tax

Income tax expense and related effective tax rate was $17.6 million and 36.9% for the fourth quarter of 2021, compared to an income tax benefit of $17.6 million and effective tax rate of (145.8)% for the fourth quarter of 2020, and income tax expense of $9.4 million and effective tax rate of 21.7% for the third quarter of 2021, respectively. The effective tax rate for the fourth quarter of 2021 was principally influenced by recognition of fewer investment tax credits in that quarter than the Company previously anticipated. These expected tax credits, amounting to $10.0 million, were reflected in the effective tax rate calculations reported for the first three quarters of 2021 and are associated with renewable energy investments that have been delayed primarily due to supply chain issues related to the COVID-19 pandemic. While no longer reflected in the effective tax rate for 2021, the Company expects to recognize most of these investment tax credits in 2022.

The income tax benefit for the fourth quarter of 2020 was principally the product of the vesting of restricted stock unit awards with market price conditions during the fourth quarter. Upon vesting, the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes, which resulted in the recognition of a tax benefit of $22.1 million.

Shareholders' Equity

Total shareholders' equity increased by $25.7 million, or 3.7%, during the fourth quarter of 2021. This increase was primarily due to net income.

4

Conference Call

Live Oak will host a conference call to discuss quarterly results at 8:30 a.m. ET tomorrow morning (January 26, 2022). Media representatives, analysts and the public are invited to listen to this discussion by calling [phone] (domestic) or [phone] (international) with conference ID 2079907. A live webcast of the conference call along with presentation materials referenced during the conference call will be available on the Investor Relations page of the Company's website at http://investor.liveoakbank.com. A replay of the conference call will also be available until February 2, 2022 and can be accessed by dialing [phone] (domestic) or [phone] (international).

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 | Investor Relations | 910.218.2173

Claire Parker | SVP Corporate Communications | Media Relations | 910.597.1592

5

Live Oak Bancshares, Inc.

Quarterly Statements of Income (unaudited)

(Dollars in thousands, except per share data)

		Three months ended			4Q 2021 Change vs.
		4Q 2021			3Q 2021			2Q 2021			1Q 2021			4Q 2020			3Q 2021			4Q 2020
Interest income																						%			%
Loans and fees on loans		$	88,577			$	89,388			$	84,780			$	84,993			$	79,166				(0.9	)			11.9
Investment securities, taxable			3,455				3,174				2,975				2,929				3,345				8.9				3.3
Other interest earning assets			171				224				244				303				529				(23.7	)			(67.7	)
Total interest income			92,203				92,786				87,999				88,225				83,040				(0.6	)			11.0
Interest expense
Deposits			13,817				14,159				14,820				16,944				19,195				(2.4	)			(28.0	)
Borrowings			748				892				1,717				1,331				1,544				(16.1	)			(51.6	)
Total interest expense			14,565				15,051				16,537				18,275				20,739				(3.2	)			(29.8	)
Net interest income			77,638				77,735				71,462				69,950				62,301				(0.1	)			24.6
Provision for (recovery of) loan and lease credit losses			3,918				4,319				7,846				(873	)			8,634				(9.3	)			(54.6	)
Net interest income after provision for (recovery of) loan and lease credit losses			73,720				73,416				63,616				70,823				53,667				0.4				37.4
Noninterest income
Loan servicing revenue			6,289				6,278				6,218				6,434				6,684				0.2				(5.9	)
Loan servicing asset revaluation			(4,160	)			(5,878	)			(3,181	)			1,493				(5,756	)			(29.2	)			(27.7	)
Net gains on sales of loans			20,257				18,860				16,234				11,929				14,976				7.4				35.3
Net (loss) gain on loans accounted for under the fair value option			(66	)			(1,030	)			1,135				4,218				(4,759	)			(93.6	)			(98.6	)
Equity method investments income (loss)			2,969				(1,250	)			(2,278	)			(1,157	)			(8,739	)			(337.5	)			(134.0	)
Equity security investments gains (losses), net			218				176				44,253				105				107				23.9				103.7
Lease income			2,521				2,527				2,616				2,599				2,615				(0.2	)			(3.6	)
Management fee income			1,482				1,489				1,473				1,934				2,206				(0.5	)			(32.8	)
Other noninterest income			4,246				4,104				3,641				3,502				3,469				3.5				22.4
Total noninterest income			33,756				25,276				70,111				31,057				10,803				33.5				212.5
Noninterest expense
Salaries and employee benefits			32,464				28,202				32,900				31,366				29,477				15.1				10.1
Travel expense			1,782				1,819				1,549				659				1,056				(2.0	)			68.8
Professional services expense			3,724				4,251				3,329				3,831				1,691				(12.4	)			120.2
Advertising and marketing expense			1,844				1,631				875				652				973				13.1				89.5
Occupancy expense			2,045				2,042				2,224				2,112				2,302				0.1				(11.2	)
Data processing expense			5,186				4,867				4,234				3,894				3,414				6.6				51.9
Equipment expense			4,644				4,567				4,385				4,354				4,002				1.7				16.0
Other loan origination and maintenance expense			3,406				3,489				3,307				3,327				3,173				(2.4	)			7.3
Renewable energy tax credit investment impairment			-				60				-				3,127				-				(100.0	)			-
FDIC insurance			1,931				1,670				1,704				1,765				2,147				15.6				(10.1	)
Other expense			2,672				2,861				3,051				3,185				4,200				(6.6	)			(36.4	)
Total noninterest expense			59,698				55,459				57,558				58,272				52,435				7.6				13.9
Income before taxes			47,778				43,233				76,169				43,608				12,035				10.5				297.0
Income tax expense (benefit)			17,631				9,394				12,587				4,181				(17,553	)			87.7				(200.4	)
Net income		$	30,147			$	33,839			$	63,582			$	39,427			$	29,588				(10.9	)			1.9
Earnings per share
Basic		$	0.69			$	0.78			$	1.48			$	0.92			$	0.72				(11.5	)			(4.2	)
Diluted		$	0.66			$	0.76			$	1.41			$	0.88			$	0.68				(13.2	)			(2.9	)
Weighted average shares outstanding
Basic			43,492,172				43,329,889				43,173,312				42,673,615				41,320,851
Diluted			45,474,530				45,040,690				45,062,392				44,696,850				43,333,707

6

Live Oak Bancshares, Inc.

Quarterly Balance Sheets (unaudited)

(Dollars in thousands)

		As of the quarter ended			4Q 2021 Change vs.
		4Q 2021			3Q 2021			2Q 2021			1Q 2021			4Q 2020			3Q 2021			4Q 2020
Assets																						%			%
Cash and due from banks		$	187,203			$	336,362			$	428,907			$	630,081			$	297,167				(44.3	)			(37.0	)
Federal funds sold			16,547				10,672				9,917				5,461				21,153				55.1				(21.8	)
Certificates of deposit with other banks			4,750				6,000				6,000				6,500				6,500				(20.8	)			(26.9	)
Investment securities available-for-sale			906,052				861,377				817,896				775,177				750,098				5.2				20.8
Loans held for sale (1)			1,116,519				1,042,756				1,064,911				1,076,741				1,175,470				7.1				(5.0	)
Loans and leases held for investment (2)			5,521,262				5,418,611				5,441,423				5,456,754				5,144,930				1.9				7.3
Allowance for credit losses on loans and leases			(63,584	)			(59,681	)			(57,848	)			(52,417	)			(52,306	)			6.5				21.6
Net loans and leases			5,457,678				5,358,930				5,383,575				5,404,337				5,092,624				1.8				7.2
Premises and equipment, net			240,196				244,212				249,069				253,774				259,267				(1.6	)			(7.4	)
Foreclosed assets			620				883				1,793				4,185				4,155				(29.8	)			(85.1	)
Servicing assets			33,574				33,968				36,966				37,744				33,918				(1.2	)			(1.0	)
Other assets			250,254				242,181				244,152				223,875				231,951				3.3				7.9
Total assets		$	8,213,393			$	8,137,341			$	8,243,186			$	8,417,875			$	7,872,303				0.9				4.3
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing		$	89,279			$	77,026			$	89,768			$	75,794			$	75,287				15.9				18.6
Interest-bearing			7,022,765				6,739,587				6,431,065				6,240,210				5,637,541				4.2				24.6
Total deposits			7,112,044				6,816,613				6,520,833				6,316,004				5,712,828				4.3				24.5
Borrowings			318,289				575,021				1,012,431				1,465,961				1,542,093				(44.6	)			(79.4	)
Other liabilities			67,927				56,284				52,575				45,550				49,532				20.7				37.1
Total liabilities			7,498,260				7,447,918				7,585,839				7,827,515				7,304,453				0.7				2.7
Shareholders' equity
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding			-				-				-				-				-				-				-
Class A common stock (voting)			310,970				304,085				299,809				298,525				298,890				2.3				4.0
Class B common stock (non-voting)			1,324				5,404				5,404				7,330				11,729				(75.5	)			(88.7	)
Retained earnings			400,893				371,869				339,011				275,377				235,724				7.8				70.1
Accumulated other comprehensive income			1,946				8,065				13,123				9,128				21,507				(75.9	)			(91.0	)
Total shareholders' equity			715,133				689,423				657,347				590,360				567,850				3.7				25.9
Total liabilities and shareholders' equity		$	8,213,393			$	8,137,341			$	8,243,186			$	8,417,875			$	7,872,303				0.9				4.3

(1)	Includes $25.3 million, $27.4 million, $29.0 million, $35.9 million and $36.1 million measured at fair value for the quarters ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively.

(2)	Includes $645.2 million, $698.0 million, $743.2 million, $790.8 million and $815.4 million measured at fair value for the quarters ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively.

7

Live Oak Bancshares, Inc.

Statements of Income (unaudited)

(Dollars in thousands, except per share data)

		Twelve months ended
		December 31, 2021			December 31, 2020
Interest income
Loans and fees on loans		$	347,738			$	270,770
Investment securities, taxable			12,533				15,016
Other interest earning assets			942				2,622
Total interest income			361,213				288,408
Interest expense
Deposits			59,740				89,726
Borrowings			4,688				3,959
Total interest expense			64,428				93,685
Net interest income			296,785				194,723
Provision for loan and lease credit losses			15,210				40,658
Net interest income after provision for loan and lease credit losses			281,575				154,065
Noninterest income
Loan servicing revenue			25,219				26,600
Loan servicing asset revaluation			(11,726	)			(9,958	)
Net gains on sales of loans			67,280				49,473
Net gain (loss) on loans accounted for under the fair value option			4,257				(13,083	)
Equity method investments income (loss)			(1,716	)			(14,691	)
Equity security investments gains (losses), net			44,752				14,909
Gain on sale of investment securities available-for-sale, net			-				1,880
Lease income			10,263				10,508
Management fee income			6,378				6,352
Other noninterest income			15,493				14,010
Total noninterest income			160,200				86,000
Noninterest expense
Salaries and employee benefits			124,932				112,525
Travel expense			5,809				3,451
Professional services expense			15,135				6,359
Advertising and marketing expense			5,002				3,510
Occupancy expense			8,423				8,757
Data processing expense			18,181				12,344
Equipment expense			17,950				17,603
Other loan origination and maintenance expense			13,529				10,790
Renewable energy tax credit investment impairment			3,187				-
FDIC insurance			7,070				7,473
Other expense			11,769				9,864
Total noninterest expense			230,987				192,676
Income before taxes			210,788				47,389
Income tax expense (benefit)			43,793				(12,154	)
Net income		$	166,995			$	59,543
Earnings per share
Basic		$	3.87			$	1.46
Diluted		$	3.71			$	1.43
Weighted average shares outstanding
Basic			43,169,935				40,677,496
Diluted			45,071,304				41,771,250

8

Live Oak Bancshares, Inc.

Quarterly Selected Financial Data

(Dollars in thousands, except per share data)

		As of and for the three months ended
		4Q 2021			3Q 2021			2Q 2021			1Q 2021			4Q 2020
Income Statement Data
Net income		$	30,147			$	33,839			$	63,582			$	39,427			$	29,588
Per Common Share
Net income, diluted		$	0.66			$	0.76			$	1.41			$	0.88			$	0.68
Dividends declared			0.03				0.03				0.03				0.03				0.03
Book value			16.39				15.89				15.19				13.74				13.38
Tangible book value (1)			16.31				15.80				15.10				13.65				13.28
Performance Ratios
Return on average assets (annualized)			1.47	%			1.64	%			3.01	%			1.98	%			1.49	%
Return on average equity (annualized)			16.80				19.67				41.30				26.89				19.86
Net interest margin			4.02				3.99				3.63				3.81				3.33
Efficiency ratio (1)			53.59				53.84				40.66				57.69				71.73
Noninterest income to total revenue			30.30				24.54				49.52				30.75				14.78
Selected Loan Metrics
Loans and leases originated		$	1,083,623			$	1,063,190			$	1,153,693			$	1,180,219			$	808,010
Outstanding balance of sold loans serviced			3,298,828				3,212,271				3,134,068				3,216,727				3,205,623
Asset Quality Ratios
Allowance for credit losses to loans and leases held for investment (3)			1.30	%			1.26	%			1.23	%			1.12	%			1.21	%
Net charge-offs (3)		$	15			$	2,485			$	2,417			$	(984	)		$	537
Net charge-offs to average loans and leases held for investment (2) (3)			-	%			0.21	%			0.21	%			(0.09	)%			0.05	%
Nonperforming loans and leases at historical cost (3) (4)
Unguaranteed		$	15,987			$	20,450			$	22,458			$	24,738			$	20,078
Guaranteed			26,546				28,888				25,551				32,633				26,032
Total			42,533				49,338				48,009				57,371				46,110
Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment (3) (4)			0.33	%			0.43	%			0.48	%			0.53	%			0.46	%
Nonperforming loans at fair value (5)
Unguaranteed		$	4,791			$	6,303			$	5,503			$	5,838			$	5,387
Guaranteed			33,471				36,708				34,323				34,396				30,112
Total			38,262				43,011				39,826				40,234				35,499
Unguaranteed nonperforming fair value loans to loans held for investment (5)			0.74	%			0.90	%			0.74	%			0.74	%			0.66	%
Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)			12.38	%			12.56	%			12.45	%			12.16	%			12.15	%
Tier 1 leverage capital (to average assets)			8.87				8.82				8.70				8.50				8.40

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) The quarter ended December 31, 2020 excludes one $6.1 million hotel loan classified as held for sale.

(5) Loans accounted for under the fair value option only (excludes loans and leases carried at historical cost).

9

Live Oak Bancshares, Inc.

Quarterly Average Balances and Net Interest Margin

(Dollars in thousands)

		Three months ended December 31, 2021			Three months ended September 30, 2021
		Average Balance			Interest			Average Yield/Rate			Average Balance			Interest			Average Yield/Rate
Interest earning assets:
Interest earning balances in other banks		$	331,077			$	168				0.20	%		$	452,830			$	221				0.19	%
Federal funds sold			8,515				3				0.14				9,260				3				0.13
Investment securities			879,138				3,455				1.56				808,697				3,174				1.56
Loans held for sale			1,059,672				14,661				5.49				1,098,940				15,090				5.45
Loans and leases held for investment (1)			5,391,283				73,916				5.44				5,366,088				74,298				5.49
Total interest earning assets			7,669,685				92,203				4.77				7,735,815				92,786				4.76
Less: allowance for credit losses on loans and leases			(59,088	)											(56,411	)
Non-interest earning assets			569,493												581,771
Total assets		$	8,180,090											$	8,261,175
Interest bearing liabilities:
Interest bearing checking		$	-			$	-				-	%		$	-			$	-				-	%
Savings			3,470,813				4,487				0.51				3,367,168				4,359				0.51
Money market accounts			97,230				61				0.25				104,576				74				0.28
Certificates of deposit			3,337,399				9,269				1.10				3,156,834				9,726				1.22
Total interest bearing deposits			6,905,442				13,817				0.79				6,628,578				14,159				0.85
Borrowings			427,044				748				0.69				818,511				892				0.43
Total interest bearing liabilities			7,332,486				14,565				0.79				7,447,089				15,051				0.80
Non-interest bearing deposits			79,479												79,006
Non-interest bearing liabilities			50,190												46,907
Shareholders' equity			717,935												688,173
Total liabilities and shareholders' equity		$	8,180,090											$	8,261,175
Net interest income and interest rate spread						$	77,638				3.98	%						$	77,735				3.96	%
Net interest margin											4.02												3.99
Ratio of average interest-earning assets to average interest-bearing liabilities											104.60	%											103.88	%

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

10

Live Oak Bancshares, Inc.

GAAP to Non-GAAP Reconciliation

(Dollars in thousands)

		As of and for the three months ended
		4Q 2021			3Q 2021			2Q 2021			1Q 2021			4Q 2020
Total shareholders' equity		$	715,133			$	689,423			$	657,347			$	590,360			$	567,850
Less:
Goodwill			1,797				1,797				1,797				1,797				1,797
Other intangible assets			2,026				2,065				2,103				2,141				2,179
Tangible shareholders' equity (a)		$	711,310			$	685,561			$	653,447			$	586,422			$	563,874
Shares outstanding (c)			43,619,070				43,381,014				43,264,460				42,951,344				42,452,446
Total assets		$	8,213,393			$	8,137,341			$	8,243,186			$	8,417,875			$	7,872,303
Less:
Goodwill			1,797				1,797				1,797				1,797				1,797
Other intangible assets			2,026				2,065				2,103				2,141				2,179
Tangible assets (b)		$	8,209,570			$	8,133,479			$	8,239,286			$	8,413,937			$	7,868,327
Tangible shareholders' equity to tangible assets (a/b)			8.66	%			8.43	%			7.93	%			6.97	%			7.17	%
Tangible book value per share (a/c)		$	16.31			$	15.80			$	15.10			$	13.65			$	13.28
Efficiency ratio:
Noninterest expense (d)		$	59,698			$	55,459			$	57,558			$	58,272			$	52,435
Net interest income			77,638				77,735				71,462				69,950				62,301
Noninterest income			33,756				25,276				70,111				31,057				10,803
Less: gain on sale of securities			-				-				-				-				-
Adjusted operating revenue (e)		$	111,394			$	103,011			$	141,573			$	101,007			$	73,104
Efficiency ratio (d/e)			53.59	%			53.84	%			40.66	%			57.69	%			71.73	%

11

Live Oak Bancshares, Inc.

GAAP to Non-GAAP Reconciliation (Continued)

(Dollars in thousands)

		Three months ended			Twelve months ended
		4Q 2021			3Q 2021			4Q 2020			4Q 2021			4Q 2020
Reconciliation of net income to non-GAAP net income:
Net income		$	30,147			$	33,839			$	29,588			$	166,995			$	59,543
Loss (gain) on sale of aircraft			-				-				6				(114	)			6
Impairment on aircraft held for sale			-				-				244				-				1,263
Income tax effects and adjustments for non-GAAP items *			-				-				(60	)			27				(305	)
Non-GAAP net income		$	30,147			$	33,839			$	29,778			$	166,908			$	60,507
* Estimated at 24.0%
Non-GAAP earnings per share:
Basic		$	0.69			$	0.78			$	0.72			$	3.87			$	1.49
Diluted		$	0.66			$	0.76			$	0.69			$	3.70			$	1.45
Weighted-average shares outstanding:
Basic			43,492,172				43,329,889				41,320,851				43,169,935				40,677,496
Diluted			45,474,530				45,040,690				43,333,707				45,071,304				41,771,250
Reconciliation of financial statement line items as reported to non-GAAP:
Noninterest income, as reported		$	33,756			$	25,276			$	10,803			$	160,200			$	86,000
Gain on sale of aircraft			-				-				-				(114	)			-
Noninterest income, non-GAAP		$	33,756			$	25,276			$	10,803			$	160,086			$	86,000
Noninterest expense, as reported		$	59,698			$	55,459			$	52,435			$	230,987			$	192,676
Loss on sale of aircraft			-				-				(6	)			-				(6	)
Impairment on aircraft held for sale			-				-				(244	)			-				(1,263	)
Noninterest expense, non-GAAP		$	59,698			$	55,459			$	52,185			$	230,987			$	191,407
Income before taxes, as reported		$	47,778			$	43,233			$	12,035			$	210,788			$	47,389
Loss (gain) on sale of aircraft			-				-				6				(114	)			6
Impairment on aircraft held for sale			-				-				244				-				1,263
Income before taxes, non-GAAP		$	47,778			$	43,233			$	12,285			$	210,674			$	48,658
Income tax expense (benefit), as reported		$	17,631			$	9,394			$	(17,553	)		$	43,793			$	(12,154	)
Income tax effects and adjustments for non-GAAP items			-				-				60				(27	)			305
Income tax expense (benefit), non-GAAP		$	17,631			$	9,394			$	(17,493	)		$	43,766			$	(11,849	)

This press release presents 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.

12