Net interest income for the third quarter of 2018 rose to $27.7 million compared to $21.0 million for the third quarter of 2017 and $27.0 million for the second 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 along with higher investment security holdings reflecting the Company's ongoing initiative to grow recurring revenue sources.  The increase from the second quarter of 2018 arose principally from a higher average loan and lease portfolio balance.  The net interest margin for the third quarter of 2018 increased fifteen basis points to 3.61% versus 3.46% in the second quarter of 2018 due to lower average balances of liquid assets and interest-bearing liabilities coupled with an increased yield on the loan and lease portfolio.  The Company anticipates that it is positioned to benefit from a rising rate environment with 74.7% of the total held for sale and held for investment loan and lease portfolio priced at variable rates that adjust on either a calendar monthly or quarterly basis.

Net gains on sales of loans increased to $22.0 million in the third quarter of 2018 compared to $18.1 million in the third quarter of 2017 and decreased compared to $23.1 million in the second quarter of 2018.  The volume of guaranteed loan sales in the third quarter of 2018 rose to $298.1 million compared to $163.8 million in the third quarter of 2017 and $295.2 million in the second quarter of 2018. The average net gain on guaranteed loan sales decreased to $71.8 thousand per million sold in the third quarter of 2018 versus $110.8 thousand in the third quarter of 2017 and $82.6 thousand in the second quarter of 2018. The decline in average loan sale pricing was primarily driven by market conditions and the higher interest rate environment which has led to increased prepayment speeds and fewer active loan purchasers relative to the growing pool of loans available for sale.

Loan servicing revenues of $7.5 million in the third quarter of 2018 rose by $1.0 million, or 15.7%, from the third quarter of 2017 and by $541 thousand, or 7.8%, from the second quarter of 2018. The net loss resulting from the revaluation of the servicing asset totaled $9.4 million for the third quarter of 2018, an increase of $5.7 million compared to the third quarter of 2017 and the second quarter of 2018, largely because of the aforementioned market conditions.

Salaries and employee benefits for the third quarter of 2018 increased to $20.6 million compared to $19.0 million for the third quarter of 2017 and decreased from $22.1 million for the second quarter of 2018. Included in these totals is stock-based compensation expense in the third quarter of 2018 of $2.5 million compared to $2.0 million for the third quarter of 2017 and $2.2 million for the second quarter of 2018.  The reduction in salaries and benefits for the third quarter of 2018 was influenced by the Company's departure from the title insurance business which was partially offset by the ongoing expansion of the Company's workforce and infrastructure to support its initiatives.

Compared to the third quarter of 2017, there were increases in data processing expense of $1.7 million and equipment expense of $1.4 million.  Largely influencing the increase in data processing was the contribution of software development resources to Apiture LLC in the third quarter of 2017 which transferred the recognition of costs associated with the Company's technology development from salaries and employee benefits to data processing.  The increase in equipment expense reflected the higher levels of depreciation related to solar panels acquired for the Company's renewable energy leasing business.

There was a net income tax benefit in the third quarter of 2018 of $3.2 million compared to $5.1 million in the third quarter of 2017 and a tax expense of $491 thousand in the second quarter of 2018.  The Company's effective tax rate is predominantly driven by the leasing of renewable energy assets that generate investment tax credits.  As the lessor of these assets, the Company is accomplishing broader strategic initiatives in the renewable energy sector.

Total deposits decreased slightly by $44.9 million to $2.92 billion at September 30, 2018 from $2.97 billion at June 30, 2018, consistent with desired liquidity levels and stable loan and lease portfolio levels during the quarter. Average total interest-bearing deposits for the third quarter of 2018 decreased $86.7 million, or 2.9%, to $2.91 billion, compared to $2.99 billion for the second quarter of 2018. The ratio of average total loans and leases to average interest-bearing deposits was 79.3% for the third quarter of 2018, compared to 75.1% for the second quarter of 2018.

Live Oak will host a conference call to discuss quarterly results at 9:00 a.m. ET tomorrow morning (October 25, 2018). 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 9884327. 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 November 1, 2018, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international).

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.

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.