Live Oak Bancshares, Inc. Reports First Quarter 2019 Results


WILMINGTON, N.C., April 24, 2019 (GLOBE NEWSWIRE) -- Live Oak Bancshares, Inc. (Nasdaq: LOB) (“Live Oak” or “the Company”) today reported first quarter net earnings available to common shareholders of $2.4 million, or $0.06 per diluted share, compared to $12.5 million, or $0.30 per diluted share, for the first quarter of 2018. 

“Live Oak diligently worked to execute our long-term strategic goals during the first quarter, evidenced by strong originations combined with significantly more guaranteed loans held compared to the first quarter 2018.  As a result of this and other efforts to continually fortify our balance sheet for maximum stability and growth, total loans and leases and investments grew $805 million, or 32%, over a year ago.  We expect that these investments will enhance long-term profitability and allow us to better serve the needs of small businesses while also empowering our efforts to revolutionize the financial services industry,” said James S. Mahan, III, Chief Executive Officer of Live Oak.

First Quarter 2019 Key Measures

(Dollars in thousands, except per share data)         Increase (Decrease)     
  Q1 2019  Q1 2018  Dollars  Percent  Q4 2018 
Net interest income and servicing revenues $38,015  $31,374  $6,641   21% $36,547 
Net income  2,372   12,453   (10,081)  (81)  10,490 
Diluted earnings per share  0.06   0.30   (0.24)  (80)  0.26 
Non-GAAP net income (1)  2,368   12,721   (10,353)  (81)  10,764 
Non-GAAP diluted earnings per share (1)  0.06   0.31   (0.25)  (81)  0.26 
Loan and lease production:                    
Loans and leases originated $390,851  $397,559  $(6,708)  (2)% $498,987 
% Fully funded  55.6%  69.5% n/a  n/a   49.8%
Total loans and leases $2,774,605  $2,162,588  $612,017   28% $2,530,812 
Total assets  4,058,047   3,460,863   597,184   17   3,670,449 
Total deposits  3,528,405   2,973,341   555,064   19   3,149,583 

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

Loans and Leases

At March 31, 2019, the total loan and lease portfolio of $2.77 billion increased 28.3% from its level at the end of the first quarter of 2018 and 9.6% from its level at December 31, 2018.  Compared to the fourth quarter of 2018, loans and leases held for investment increased $158.7 million, or 8.6%, to $2.00 billion while loans held for sale increased $85.1 million, or 12.4%, to $772.5 million. Loan and lease originations totaled $390.9 million during the first quarter of 2019, a decrease of $108.1 million, or 21.7%, from the fourth quarter of 2018, largely due to seasonality in loan demand.  The total loan and lease portfolio at March 31, 2019, and December 31, 2018, of $2.77 billion and $2.53 billion, respectively, was comprised of approximately 59.4% and 62.0% unguaranteed loans and leases, respectively.

Average loans and leases were $2.67 billion during the first quarter of 2019 compared to $2.40 billion during the fourth quarter of 2018.

Deposits

Total deposits increased by $378.8 million, or 12.0%, to $3.53 billion at March 31, 2019, from $3.15 billion at December 31, 2018, supporting the growing loan and lease portfolio and yielding a robust liquidity profile. Average total interest-bearing deposits for the first quarter of 2019 increased $355.2 million, or 12.1%, to $3.29 billion, compared to $2.94 billion for the fourth quarter of 2018. The ratio of average total loans and leases to average interest-bearing deposits was 81.1% for the first quarter of 2019, compared to 81.7% for the fourth quarter of 2018.

Net Interest Income

Net interest income for the first quarter of 2019 rose to $30.6 million compared to $24.5 million for the first quarter of 2018 and $28.8 million for the fourth quarter of 2018. The increase from the prior year was driven by the significant growth in the combined held for sale and held for investment loan and lease portfolios reflecting the Company's ongoing initiative to grow recurring revenue sources along with higher investment security holdings as the Company deploys excess liquidity while improving the asset-liability repricing mix.  The increase from the fourth quarter of 2018 arose from higher average balances in both loans and leases and investment securities.  The net interest margin for the first quarter of 2019 decreased nine basis points to 3.63% versus 3.72% in the fourth quarter of 2018 as the increasing rates for deposits due to competitive pressures outpaced the improving yield of the loan portfolio. 

Noninterest Income

Noninterest income for the first quarter of 2019 decreased by $17.7 million, or 57.6%, compared to the first quarter of 2018, and by $5.0 million, or 27.9%, compared to the fourth quarter of 2018.  The Company’s transition to selling fewer loans was a key driver in lower noninterest income compared to the first quarter of 2018. 

The Company’s net gains on sales of loans decreased to $4.2 million in the first quarter of 2019 compared to $24.4 million in the first quarter of 2018 and $5.7 million in the fourth quarter of 2018.  The volume of guaranteed loan sales in the first quarter of 2019 declined to $62.9 million compared to $247.2 million in the first quarter of 2018 and $104.6 million in the fourth quarter of 2018. As mentioned above, the decline in loan sale volumes is consistent with the Company’s recent strategic shift to hold substantially more of its production on balance sheet intended to build its recurring revenue streams.  The average net gain on guaranteed loan sales was $61.3 thousand per million sold in the first quarter of 2019, a decrease from $98.8 thousand in the first quarter of 2018 and an increase from $59.8 thousand in the fourth quarter of 2018. The decline in average net gain on guaranteed loan sales for the first quarter of 2019 compared to the first quarter of 2018 was impacted by the mix of loans sold along with lower secondary market premiums combined with $1.7 million in fair value net losses in exchange-traded interest rate lock commitments. The increase in average net gain on guaranteed loans sales compared to the fourth quarter of 2018 was largely a product of greater selectivity over loans designated for sale combined with improving secondary market conditions.  Excluding fair value fluctuations in exchange-traded interest rate lock commitments, the average net gain on guaranteed loan sales was $89.0 thousand and $98.5 thousand per million sold in the first quarters of 2019 and 2018, respectively, and $77.4 thousand per million sold in the fourth quarter of 2018. 

The sale of the title insurance business in late 2018 also contributed to the decline in noninterest income compared to the first quarter 2018.  These factors were partially offset by increases in loan servicing revenues, lower losses from the loan servicing asset revaluation and higher lease income. The reduction in noninterest income from the fourth quarter of 2018, other than reduced net gains on sales of loans, reflected increased losses in the loan servicing asset revaluation and flow through losses from equity method investments. 

Loan servicing revenues of $7.4 million in the first quarter of 2019 increased by $512 thousand, or 7.4%, from the first quarter of 2018 and decreased by $342 thousand, or 4.4%, from the fourth quarter of 2018. The decline from the fourth quarter of 2018 was related to a decrease in the SBA 7(a) serviced portfolio balance due to amortization combined with fewer loans sold.  The net loss resulting from the revaluation of the servicing asset totaled $2.2 million for the first quarter of 2019, a decrease of $2.8 million compared to the first quarter of 2018 and an increase of $1.6 million compared to the fourth quarter of 2018, largely because of variability in market conditions.

Lease income from solar panels contributed $2.3 million in noninterest income in the first quarter of 2019, compared to $1.6 million in the first quarter of 2018 and $2.2 million in the fourth quarter of 2018.  The increase from the first quarter of 2018 was related to growth in leased solar panels.

Other noninterest income of $556 thousand in the first quarter of 2019 decreased by $2.1 million, or 79.3%, from the fourth quarter of 2018 and was driven by a net change of $3.0 million non-cash loss on equity method investments.

Noninterest Expense

Noninterest expense for the first quarter of 2019 was $38.2 million, an increase from $38.1 million for the first quarter of 2018 and an increase from $32.6 million for the fourth quarter of 2018.

Salaries and employee benefits for the first quarter of 2019 increased to $21.9 million compared to $20.2 million for the first quarter of 2018 and $14.5 million for the fourth quarter of 2018.  The increase over the fourth quarter of 2018 was largely influenced by the Company’s $4.5 million reversal of accrued incentive compensation during the fourth quarter due to not meeting budgeted performance metrics for the year ending December 31, 2018.  Influencing the increase to a smaller extent was the ongoing expansion of the Company’s workforce and infrastructure to support its initiatives.

Partially offsetting the increase in noninterest expense from the fourth quarter of 2018 were decreases in travel expense of $2.1 million attributable to lower levels of routine maintenance for corporate aircraft that was sold in the first quarter of 2019.

Asset Quality

Net charge-offs of $65 thousand in the first quarter of 2019 decreased compared to $1.2 million in the fourth quarter of 2018 and $532 thousand in the first quarter of 2018.  Net charge-offs as a percentage of average held for investment loans and leases, annualized, for the quarter ended March 31, 2019, was 0.01% compared to 0.28% for the fourth quarter of 2018 and 0.15% for the first quarter of 2018. 

The unguaranteed exposure of nonperforming loans increased to $20.2 million, or 1.01% of total loans and leases held for investment, at March 31, 2019, compared to $14.5 million, or 0.79%, at December 31, 2018.  Total nonperforming loans increased to $70.7 million in the first quarter of 2019 from $57.7 million at the end of the prior quarter.  For the quarters ended March 31, 2019 and December 31, 2018, the percentage of unguaranteed criticized loans and leases, comprised of risk grades 5 through 8, to unguaranteed held for investment loans and leases was 5.39% and 5.12%, respectively.

The unguaranteed exposure of foreclosed assets increased to $170 thousand at March 31, 2019, from $148 thousand at December 31, 2018.  Foreclosed assets increased $280 thousand to $1.4 million at March 31, 2019, from $1.1 million at December 31, 2018.

Provision for Loan and Lease Losses

The provision for loan and lease losses for the first quarter of 2019 totaled $2.7 million compared to $4.4 million for the first quarter of 2018 and $6.8 million for the fourth quarter of 2018.  The decrease in provision expense was largely the result of growth principally comprised of guaranteed loans combined with decreased levels of net charge-offs. 

The allowance for loan and lease losses totaled $35.1 million at March 31, 2019, compared to $32.4 million at December 31, 2018. The allowance for loan and lease losses as a percentage of total loans and leases held for investment was 1.75% and 1.76% at March 31, 2019, and December 31, 2018, respectively.

Income Tax

Income tax expense was $317 thousand in the first quarter of 2019 compared to $315 thousand in the first quarter of 2018 and a net income tax benefit of $3.0 million in the fourth quarter of 2018.  The Company’s effective tax rate is predominantly driven by the leasing of renewable energy assets which generate investment tax credits.  As the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector.

Conference Call

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (April 25, 2019). 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 5862699. A live webcast of the conference call along with presentation materials referenced during the conference call will be available on the Investor Relations page of the Company’s website at http://investor.liveoakbank.com. A replay of the webcast will be archived on the Company's website for one year.  A replay of the conference call will also be available until 5:00 p.m. ET May 2, 2019 and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

CFO Commentary

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

Important Note Regarding Forward-Looking Statements

Statements in this press release that are based on other than historical data or that express the Company’s plans or expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements based on historical data are not intended and should not be understood to indicate the Company’s expectations regarding future events. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance or determinations, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this press release. Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include changes in Small Business Administration (“SBA”) rules, regulations or loan products, including the Section 7(a) program, changes in SBA standard operating procedures or changes in Live Oak Banking Company's status as an SBA Preferred Lender; changes in rules, regulations or procedures for other government loan programs, including those of the United States Department of Agriculture; a reduction in or the termination of the Company's ability to use the technology-based platform that is critical to the success of its business model, including a failure in or a breach of operational or security systems; competition from other lenders; the Company's ability to attract and retain key personnel; market and economic conditions and the associated impact on the Company; operational, liquidity and credit risks associated with the Company's business; the impact of heightened regulatory scrutiny of financial products and services and the Company's ability to comply with regulatory requirements and expectations; and the other factors discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov). Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

About Live Oak Bancshares, Inc.

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

Contacts:

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

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

  Three months ended 
  1Q 2019  4Q 2018  3Q 2018  2Q 2018  1Q 2018 
Interest income                    
Loans and fees on loans $44,966  $40,628  $37,724  $36,267  $32,691 
Investment securities, taxable  3,317   2,558   2,528   2,530   1,117 
Other interest earning assets  1,639   1,568   1,638   2,179   1,215 
Total interest income  49,922   44,754   41,890   40,976   35,023 
Interest expense                    
Deposits  19,317   15,959   14,165   13,927   10,418 
Borrowings        1   1   129 
Total interest expense  19,317   15,959   14,166   13,928   10,547 
Net interest income  30,605   28,795   27,724   27,048   24,476 
Provision for (recovery of) loan and leases losses  2,742   6,822   (243)  2,087   4,392 
Net interest income after provision for loan and
  lease losses
  27,863   21,973   27,967   24,961   20,084 
Noninterest income                    
Loan servicing revenue  7,410   7,752   7,506   6,965   6,898 
Loan servicing asset revaluation  (2,246)  (627)  (9,380)  (3,670)  (5,088)
Net gains on sales of loans  4,198   5,687   22,004   23,061   24,418 
Gain on sale of investment securities available-for-sale  5             
Lease income  2,325   2,244   2,194   1,920   1,608 
Construction supervision fee income  779   323   578   597   779 
Title insurance income        479   996   1,300 
Other noninterest income  556   2,686   950   744   841 
Total noninterest income  13,027   18,065   24,331   30,613   30,756 
Noninterest expense                    
Salaries and employee benefits  21,855   14,503   20,553   22,146   20,209 
Travel expense  1,200   3,269   2,003   2,041   1,843 
Professional services expense  2,182   1,233   1,228   1,119   1,298 
Advertising and marketing expense  1,364   1,023   1,462   1,868   1,662 
Occupancy expense  1,609   1,738   1,588   1,882   1,857 
Data processing expense  2,399   2,606   3,661   2,906   2,837 
Equipment expense  3,325   3,630   3,649   3,368   3,077 
Other loan origination and maintenance expense  1,639   1,482   1,742   1,414   1,329 
FDIC insurance  635   547   1,105   1,010   572 
Title insurance closing services expense        114   372   426 
Impairment expense on goodwill and other
  intangibles, net
        2,680       
Other expense  1,993   2,527   1,459   2,704   2,962 
Total noninterest expense  38,201   32,558   41,244   40,830   38,072 
Income before taxes  2,689   7,480   11,054   14,744   12,768 
Income tax expense (benefit)  317   (3,010)  (3,198)  491   315 
Net income $2,372  $10,490  $14,252  $14,253  $12,453 
Earnings per share                    
Basic $0.06  $0.26  $0.36  $0.36  $0.31 
Diluted $0.06  $0.26  $0.34  $0.34  $0.30 
Weighted average shares outstanding                    
Basic  40,160,118   40,148,115   40,119,561   40,027,336   39,926,781 
Diluted  40,921,823   41,075,864   41,688,430   41,619,647   41,399,930 
                     

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

  As of the quarter ended 
  1Q 2019  4Q 2018  3Q 2018  2Q 2018  1Q 2018 
Assets                    
Cash and due from banks $221,159  $316,823  $368,565  $392,941  $527,952 
Federal funds sold  64,708             
Certificates of deposit with other banks  7,250   7,250   750   2,250   2,250 
Investment securities available-for-sale  569,739   380,490   374,284   382,890   376,453 
Loans held for sale  772,481   687,393   646,475   757,494   720,511 
Loans and leases held for investment  2,002,124   1,843,419   1,631,337   1,534,368   1,442,077 
Allowance for loan and lease losses  (35,111)  (32,434)  (26,797)  (29,350)  (28,050)
Net loans and leases  1,967,013   1,810,985   1,604,540   1,505,018   1,414,027 
Premises and equipment, net  271,810   262,524   263,861   234,817   216,831 
Foreclosed assets  1,374   1,094   1,429   1,725   1,519 
Servicing assets  44,324   47,641   49,261   52,689   53,120 
Operating lease right-of-use assets  2,136             
Other assets  136,053   156,249   135,592   143,145   148,200 
Total assets $4,058,047  $3,670,449  $3,444,757  $3,472,969  $3,460,863 
Liabilities and Shareholders Equity                    
Liabilities                    
Deposits:                    
Noninterest-bearing $53,843  $53,993  $48,622  $46,192  $48,755 
Interest-bearing  3,474,562   3,095,590   2,875,666   2,923,044   2,924,586 
Total deposits  3,528,405   3,149,583   2,924,288   2,969,236   2,973,341 
Short term borrowings  1,393   1,441          
Long term borrowings  17   16   1,506   3,385   3,489 
Operating lease liabilities  2,314             
Other liabilities  25,538   25,849   41,733   37,362   35,197 
Total liabilities  3,557,667   3,176,889   2,967,527   3,009,983   3,012,027 
Shareholders equity                    
Preferred stock, no par value, 1,000,000 shares
  authorized, none issued or outstanding
               
Class A common stock (voting)  281,994   278,945   276,831   274,043   271,451 
Class B common stock (non-voting)  49,168   49,168   49,168   49,168   49,168 
Retained earnings  168,225   167,124   157,839   144,791   131,739 
Accumulated other comprehensive income (loss)  993   (1,677)  (6,608)  (5,016)  (3,522)
Total equity  500,380   493,560   477,230   462,986   448,836 
Total liabilities and shareholders equity $4,058,047  $3,670,449  $3,444,757  $3,472,969  $3,460,863 
                     

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

  As of and for the three months ended 
  1Q 2019  4Q 2018  3Q 2018  2Q 2018  1Q 2018 
Income Statement Data                    
Net income $2,372  $10,490  $14,252  $14,253  $12,453 
Per Common Share                    
Net income, basic $0.06  $0.26  $0.36  $0.36  $0.31 
Net income, diluted  0.06   0.26   0.34   0.34   0.30 
Dividends declared  0.03   0.03   0.03   0.03   0.03 
Book value  12.45   12.29   11.89   11.55   11.23 
Tangible book value (1)  12.45   12.29   11.89   11.45   11.13 
Performance Ratios                    
Return on average assets (annualized)  0.25%  1.20%  1.65%  1.61%  1.64%
Return on average equity (annualized)  1.88   8.64   12.08   12.34   11.08 
Net interest margin  3.63   3.72   3.61   3.46   3.72 
Efficiency ratio (1)  87.56   69.48   79.23   70.81   68.93 
Noninterest income to total revenue  29.85   38.55   46.74   53.09   55.69 
Selected Loan Metrics                    
Loans and leases originated $390,851  $498,987  $377,337  $491,797  $397,559 
Guaranteed loans sold  62,940   104,646   298,073   295,216   247,243 
Average net gain on sale of guaranteed loans  61.30   59.83   71.81   82.61   98.76 
Adjusted average net gain on sale of guaranteed
  loans (2)
  89.04   77.42   69.23   79.42   98.51 
Outstanding balance of sold loans serviced:                    
Guaranteed  2,952,774   3,045,460   3,102,820   2,951,379   2,812,108 
Unguaranteed  179,307   174,066   170,784   155,939   174,867 
Total  3,132,081   3,219,526   3,273,604   3,107,318   2,986,975 
Asset Quality Ratios                    
Allowance for loan losses to loans and leases held for
  investment
  1.75%  1.76%  1.64%  1.91%  1.95%
Net charge-offs $65  $1,185  $2,310  $787  $532 
Net charge-offs to average loans and leases held for
  investment (3)
  0.01%  0.28%  0.57%  0.21%  0.15%
Nonperforming loans $70,692  $57,690  $52,709  $46,105  $36,776 
Foreclosed assets  1,374   1,094   1,429   1,725   1,519 
Nonperforming loans (unguaranteed exposure)  20,186   14,488   12,897   11,466   7,386 
Foreclosed assets (unguaranteed exposure)  170   148   158   197   101 
Nonperforming loans not guaranteed by the SBA and
  foreclosures
 $20,356  $14,636  $13,055  $11,663  $7,487 
Nonperforming loans and foreclosures, not guaranteed
  by the SBA, to total assets
  0.50%  0.40%  0.38%  0.34%  0.22%
Capital Ratios                    
Common equity tier 1 capital (to risk-weighted assets)  16.68%  17.10%  16.95%  16.78%  16.36%
Total capital (to risk-weighted assets)  17.92   18.28   18.01   17.97   17.51 
Tier 1 risk based capital (to risk-weighted assets)  16.68   17.10   16.95   16.78   16.36 
Tier 1 leverage capital (to average assets)  12.34   13.40   12.53   11.81   13.32 

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 lock commitments.

(3)  Quarterly net charge-offs as a percentage of quarterly average loans and leases held for investment, annualized.


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

  Three months ended March 31, 2019  Three months ended December 31, 2018 
  Average
Balance
  Interest  Average
Yield/Rate
  Average
Balance
  Interest  Average
Yield/Rate
 
Interest earning assets:                        
Federal funds sold and interest earning
  balances in other banks
 $283,364  $1,639   2.35% $284,320  $1,568   2.19%
Investment securities  461,339   3,317   2.92   384,481   2,558   2.64 
Loans held for sale  749,700   12,583   6.81   684,013   11,555   6.70 
Loans and leases held for investment (1)  1,922,280   32,383   6.83   1,716,023   29,073   6.72 
Total interest earning assets  3,416,683   49,922   5.93   3,068,837   44,754   5.79 
Less: allowance for loan and lease losses  (32,464)          (26,816)        
Non-interest earning assets  476,232           448,074         
Total assets $3,860,451          $3,490,095         
Interest bearing liabilities:                        
Interest bearing checking $169  $   % $18,975  $52   1.09%
Savings  927,579   4,786   2.09   881,280   4,151   1.87 
Money market accounts  83,298   108   0.53   85,479   155   0.72 
Certificates of deposit  2,282,709   14,423   2.56   1,952,833   11,601   2.36 
Total interest bearing deposits  3,293,755   19,317   2.38   2,938,567   15,959   2.15 
Other borrowings  1,464         1,521       
Total interest bearing liabilities  3,295,219   19,317   2.38   2,940,088   15,959   2.15 
Non-interest bearing deposits  46,822           45,696         
Non-interest bearing liabilities  14,449           18,474         
Shareholders' equity  503,961           485,837         
Total liabilities and shareholders' equity $3,860,451          $3,490,095         
Net interest income and interest rate spread     $30,605   3.55%     $28,795   3.64%
Net interest margin          3.63           3.72 
Ratio of average interest-earning assets to average
  interest-bearing liabilities
          103.69%          104.38%

(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 
  1Q 2019  4Q 2018  3Q 2018  2Q 2018  1Q 2018 
Total shareholders’ equity $500,380  $493,560  $477,230  $462,986  $448,836 
Less:                    
Goodwill               
Other intangible assets           3,980   4,122 
Tangible shareholders’ equity (a) $500,380  $493,560  $477,230  $459,006  $444,714 
Shares outstanding (c)  40,175,079   40,155,792   40,140,417   40,086,409   39,974,148 
Total assets $4,058,047  $3,670,449  $3,444,757  $3,472,969  $3,460,863 
Less:                    
Goodwill               
Other intangible assets           3,980   4,122 
Tangible assets (b) $4,058,047  $3,670,449  $3,444,757  $3,468,989  $3,456,741 
Tangible shareholders’ equity to tangible assets (a/b)  12.33%  13.45%  13.85%  13.23%  12.87%
Tangible book value per share (a/c) $12.45  $12.29  $11.89  $11.45  $11.13 
Efficiency ratio:                    
Noninterest expense (d) $38,201  $32,558  $41,244  $40,830  $38,072 
Net interest income  30,605   28,795   27,724   27,048   24,476 
Noninterest income  13,027   18,065   24,331   30,613   30,756 
Less: gain on sale of securities  5             
Adjusted operating revenue (e) $43,627  $46,860  $52,055  $57,661  $55,232 
Efficiency ratio (d/e)  87.56%  69.48%  79.23%  70.81%  68.93%


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

  Three months ended 
  1Q 2019  4Q 2018  1Q 2018 
Reconciliation of net income to non-GAAP net income
  for non-routine income and expenses:
            
Net income $2,372  $10,490  $12,453 
Gain on sale of aircraft  (357)      
Stock based compensation expense for restricted
  stock awards with an effective grant date of May
  24, 2016, as discussed in Note 10 of our March
  31, 2016 Form 10-Q
  352   360   352 
Income tax effects and adjustments for non-GAAP items *  1   (86)  (84)
Non-GAAP net income $2,368  $10,764  $12,721 
* Estimated at 24.0%            
Non-GAAP earnings per share:            
Basic $0.06  $0.27  $0.32 
Diluted $0.06  $0.26  $0.31 
Weighted-average shares outstanding:            
Basic  40,160,118   40,148,115   39,926,781 
Diluted  40,921,823   41,075,864   41,399,930 
Reconciliation of financial statement line items as reported
  to adjusted for non-routine income and expenses:
            
Noninterest income, as reported $13,027  $18,065  $30,756 
Gain on sale of aircraft  (357)      
Noninterest income, as adjusted $12,670  $18,065  $30,756 
Noninterest expense, as reported $38,201  $32,558  $38,072 
Stock based compensation expense  (352)  (360)  (352)
Noninterest expense, as adjusted $37,849  $32,198  $37,720 
Income before taxes, as reported $2,689  $7,480  $12,768 
Gain on sale of aircraft  (357)      
Stock based compensation expense  352   360   352 
Income before taxes, as adjusted $2,684  $7,840  $13,120 
Income tax expense (benefit), as reported $317  $(3,010) $315 
Income tax effects and adjustments for non-recurring
  income and expenses
  (1)  86   84 
Income tax expense (benefit), as adjusted $316  $(2,924) $399 

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