Exhibit 99.3
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On October 1, 2017 Live Oak Bancshares, Inc. (“Live Oak” or the “Company”) closed the digital banking joint venture between Live Oak Banking Company, a wholly owned subsidiary of the Company (the "Bank"), and First Data Corporation ("First Data"). The new company, named Apiture LLC is a Delaware limited liability company (“Joint Venture” or "Apiture"), governed by a limited liability company agreement. Apiture combines First Data's and the Bank's digital banking platforms, products, services, and certain human resources used in the creation and delivery of technology solutions for financial institutions. The contributed assets of both the Company and First Data are considered businesses in accordance with relevant accounting standards. At closing, both the Bank and First Data received equal voting interests in Apiture in exchange for their respective contributions. As a term of the closing agreements, First Data is entitled to a preference in Apiture's cash earnings for the remainder of calender year 2017 and all of 2018, not to exceed $18.0 million and $18.9 million, respectively.
As a result of this transaction, the Company and First Data each have, directly or indirectly, equal voting interests in Apiture. In addition, the Company has analyzed the Contribution Agreement and the Joint Venture's limited liability company agreement and determined that Apiture is not a variable interest entity. The Company also considered the partners' participating rights under the agreements and determined that the Joint Venture partners have the ability to participate in major decisions, which equates to shared decision making. Accordingly, the Bank has significant influence but does not control the Joint Venture. Therefore, the Joint Venture will be accounted for as an equity method investment effective on October 1, 2017 (the date of the transaction). Under the equity method of accounting, the net equity investment of the Bank and the Bank's share of net income or loss from the unconsolidated entity will be reflected in the Company's consolidated balance sheets and the consolidated statements of income.
The preliminary estimated fair value of Apiture at the date of closing was approximately $150 million. Based on the aforementioned cash earnings preference to First Data during 2017 and 2018, the valuation of equity interests received in exchange for contributions by the two initial investors was unequal. As a consequence of this preference, the preliminary initial economic interest in Apiture for First Data was equal to 54.7% or $82.0 million, while the Company's preliminary initial economic interest in Apiture was equal to 45.3%, or $68.0 million. As the Company had no carrying amount for its contribution in the formation of Apiture, the preliminary pre-tax results for this transaction as of the date of closing is expected to be a $68.0 million equity method investment on the consolidated balance sheet and a one-time gain of the same amount on the consolidated statement of income. The estimated fair value of Apiture and the related initial economic interests of both parties are based on accounting estimates that are inherently subjective and uncertain by their nature.
The Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2017, reflects the recording of Live Oak’s 45.3% economic interest in the Joint Venture as if the transactions had occurred on that date. Due to the nonrecurring nature, the Pro Forma Consolidated Statements of Income for the nine months ended September 30, 2017, and year ended December 31, 2016, do not reflect, (i) the above mentioned one-time gain to record the initial fair value of this equity method investment, or (ii) the estimated tax impact from the gain. Live Oak would not be expected to have equity in earnings of the Joint Venture for the periods presented due to the aforementioned preference. Also, due to the fact that Live Oak had no carrying amount for the business it contributed in the formation of Apiture, there were no disposition adjustments.
The Company’s December 31, 2016 consolidated balance sheet was derived from its audited consolidated financial statements filed in its Annual Report on Form 10-K for that year. The Company’s September 30, 2017 information was derived from its unaudited consolidated financial statements filed in its Quarterly Report on Form 10-Q for the quarter then ended.
The Unaudited Pro Forma Consolidated Financial Statements are for illustrative purposes only and should be read in conjunction with, and are qualified in their entirety by reference to, the Company’s separate historical consolidated financial statements and the notes related thereto which are referred to above. The Unaudited Pro Forma Consolidated Financial Statements are based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The Unaudited Pro Forma Consolidated Financial Statements do not purport to represent what the Company’s financial position or results of operations would actually have been if the aforementioned transactions had in fact occurred on such dates or at the beginning of the periods indicated, nor do they project the Company’s financial position or results of operations at any future date or for any future period. Furthermore, the adjustments included in these Unaudited Pro Forma Consolidated Financial Statements are preliminary and may be revised.
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Live Oak Bancshares, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2017
(Dollars in thousands)
| September 30, 2017 | Disposition of Business Adjustments | Acquired Business Adjustments | Pro Forma Combined | ||||||||||||
| Assets | |||||||||||||||
| Cash and due from banks | $ | 260,907 | $ | — | $ | — | $ | 260,907 | |||||||
| Certificates of deposit with other banks | 3,250 | — | — | 3,250 | |||||||||||
| Investment securities available-for-sale | 76,575 | — | — | 76,575 | |||||||||||
| Loans held for sale | 692,586 | — | — | 692,586 | |||||||||||
| Loans and leases held for investment | 1,169,887 | — | — | 1,169,887 | |||||||||||
| Allowance for loan and lease losses | (21,027 | ) | — | — | (21,027 | ) | |||||||||
| Net loans and leases | 1,148,860 | — | — | 1,148,860 | |||||||||||
| Premises and equipment, net | 129,233 | — | — | 129,233 | |||||||||||
| Foreclosed assets | 2,231 | — | — | 2,231 | |||||||||||
| Servicing assets | 53,392 | — | — | 53,392 | |||||||||||
| Other assets | 65,155 | — | 68,000 | (a) | 133,155 | ||||||||||
| Total assets | $ | 2,432,189 | $ | — | $ | 68,000 | $ | 2,500,189 | |||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||
| Liabilities | |||||||||||||||
| Deposits: | |||||||||||||||
| Noninterest-bearing | $ | 55,260 | $ | — | $ | — | $ | 55,260 | |||||||
| Interest-bearing | 1,957,631 | — | — | 1,957,631 | |||||||||||
| Total deposits | 2,012,891 | — | — | 2,012,891 | |||||||||||
| Long term borrowings | 26,872 | — | — | 26,872 | |||||||||||
| Other liabilities | 27,835 | — | 27,200 | (b) | 55,035 | ||||||||||
| Total liabilities | 2,067,598 | — | 27,200 | 2,094,798 | |||||||||||
| Shareholders’ equity | |||||||||||||||
| Preferred stock, no par value, 1,000,000 authorized, none issued or outstanding at September 30, 2017 | — | — | — | — | |||||||||||
| Class A common stock, no par value, 100,000,000 shares authorized, 35,218,617 shares issued and outstanding at September 30, 2017 | 266,336 | — | — | 266,336 | |||||||||||
| Class B common stock, no par value, 10,000,000 shares authorized, 4,643,530 shares issued and outstanding at September 30, 2017 | 49,168 | — | — | 49,168 | |||||||||||
| Retained earnings | 49,707 | — | 40,800 | (c) | 90,507 | ||||||||||
| Accumulated other comprehensive loss | (620 | ) | — | — | (620 | ) | |||||||||
| Total equity | 364,591 | — | 40,800 | 405,391 | |||||||||||
| Total liabilities and shareholders’ equity | $ | 2,432,189 | $ | — | $ | 68,000 | $ | 2,500,189 | |||||||
See Notes to the Unaudited Pro Forma Consolidated Financial Statements
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Live Oak Bancshares, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the nine months ended September 30, 2017
(Dollars in thousands, except per share data)
| Nine Months Ended September 30, 2017 | Disposition of Business Adjustments | Acquired Business Adjustments | Pro Forma Combined | ||||||||||||
| Interest income | |||||||||||||||
| Loans and fees on loans | $ | 70,290 | $ | — | $ | — | $ | 70,290 | |||||||
| Investment securities, taxable | 964 | — | — | 964 | |||||||||||
| Other interest earning assets | 1,682 | — | — | 1,682 | |||||||||||
| Total interest income | 72,936 | — | — | 72,936 | |||||||||||
| Interest expense | |||||||||||||||
| Deposits | 16,893 | — | — | 16,893 | |||||||||||
| Borrowings | 985 | — | — | 985 | |||||||||||
| Total interest expense | 17,878 | — | — | 17,878 | |||||||||||
| Net interest income | 55,058 | — | — | 55,058 | |||||||||||
| Provision for loan and lease losses | 5,481 | — | 5,481 | ||||||||||||
| Net interest income after provision for loan and lease losses | 49,577 | — | — | 49,577 | |||||||||||
| Noninterest income | |||||||||||||||
| Loan servicing revenue | 18,587 | — | — | 18,587 | |||||||||||
| Loan servicing asset revaluation | (6,864 | ) | — | — | (6,864 | ) | |||||||||
| Net gains on sales of loans | 55,276 | — | — | 55,276 | |||||||||||
| Construction supervision fee income | 1,077 | — | — | 1,077 | |||||||||||
| Title insurance income | 5,803 | — | — | 5,803 | |||||||||||
| Other noninterest income | 3,601 | — | — | 3,601 | |||||||||||
| Total noninterest income | 77,480 | — | — | 77,480 | |||||||||||
| Noninterest expense | |||||||||||||||
| Salaries and employee benefits | 55,687 | — | — | 55,687 | |||||||||||
| Travel expense | 6,035 | — | — | 6,035 | |||||||||||
| Professional services expense | 4,228 | — | — | 4,228 | |||||||||||
| Advertising and marketing expense | 4,977 | — | — | 4,977 | |||||||||||
| Occupancy expense | 4,018 | — | — | 4,018 | |||||||||||
| Data processing expense | 5,536 | — | — | 5,536 | |||||||||||
| Equipment expense | 5,005 | — | — | 5,005 | |||||||||||
| Other loan origination and maintenance expense | 3,587 | — | — | 3,587 | |||||||||||
| FDIC insurance | 2,308 | — | — | 2,308 | |||||||||||
| Title insurance closing services expense | 1,877 | — | — | 1,877 | |||||||||||
| Other expense | 8,883 | — | — | 8,883 | |||||||||||
| Total noninterest expense | 102,141 | — | — | 102,141 | |||||||||||
| Income before taxes | 24,916 | — | — | 24,916 | |||||||||||
| Income tax benefit | (3,853 | ) | — | — | (3,853 | ) | |||||||||
| Net income attributable to Live Oak Bancshares, Inc. | $ | 28,769 | $ | — | $ | — | $ | 28,769 | |||||||
| Basic earnings per share | $ | 0.81 | $ | — | $ | — | $ | 0.81 | |||||||
| Diluted earnings per share | $ | 0.78 | $ | — | $ | — | $ | 0.78 | |||||||
See Notes to the Unaudited Pro Forma Consolidated Financial Statements
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Live Oak Bancshares, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the year ended December 31, 2016
(Dollars in thousands, except per share data)
| Twelve Months Ended December 31, 2016 | Disposition of Business Adjustments | Acquired Business Adjustments | Pro Forma Combined | ||||||||||||
| Interest income | |||||||||||||||
| Loans and fees on loans | $ | 55,107 | $ | — | $ | — | $ | 55,107 | |||||||
| Investment securities, taxable | 1,132 | — | — | 1,132 | |||||||||||
| Other interest earning assets | 1,033 | — | — | 1,033 | |||||||||||
| Total interest income | 57,272 | — | — | 57,272 | |||||||||||
| Interest expense | |||||||||||||||
| Deposits | 13,659 | — | — | 13,659 | |||||||||||
| Borrowings | 964 | — | — | 964 | |||||||||||
| Total interest expense | 14,623 | — | — | 14,623 | |||||||||||
| Net interest income | 42,649 | — | — | 42,649 | |||||||||||
| Provision for loan and lease losses | 12,536 | — | 12,536 | ||||||||||||
| Net interest income after provision for loan and lease losses | 30,113 | — | — | 30,113 | |||||||||||
| Noninterest income | |||||||||||||||
| Loan servicing revenue | 21,393 | — | — | 21,393 | |||||||||||
| Loan servicing asset revaluation | (8,391 | ) | — | — | (8,391 | ) | |||||||||
| Net gains on sales of loans | 75,326 | — | — | 75,326 | |||||||||||
| Gain on sale of investment securities available-for-sale | 1 | — | — | 1 | |||||||||||
| Construction supervision fee income | 2,667 | — | — | 2,667 | |||||||||||
| Other noninterest income | 2,543 | — | — | 2,543 | |||||||||||
| Total noninterest income | 93,539 | — | — | 93,539 | |||||||||||
| Noninterest expense | |||||||||||||||
| Salaries and employee benefits | 62,996 | — | — | 62,996 | |||||||||||
| Travel expense | 8,205 | — | — | 8,205 | |||||||||||
| Professional services expense | 3,482 | — | — | 3,482 | |||||||||||
| Advertising and marketing expense | 4,534 | — | — | 4,534 | |||||||||||
| Occupancy expense | 4,573 | — | — | 4,573 | |||||||||||
| Data processing expense | 5,299 | — | — | 5,299 | |||||||||||
| Equipment expense | 2,246 | — | — | 2,246 | |||||||||||
| Other loan origination and maintenance expense | 2,825 | — | — | 2,825 | |||||||||||
| Renewable energy tax credit investment impairment | 3,197 | — | — | 3,197 | |||||||||||
| FDIC insurance | 1,417 | — | — | 1,417 | |||||||||||
| Other expense | 7,671 | — | — | 7,671 | |||||||||||
| Total noninterest expense | 106,445 | — | — | 106,445 | |||||||||||
| Income before taxes | 17,207 | — | 17,207 | ||||||||||||
| Income tax expense | 3,443 | — | — | 3,443 | |||||||||||
| Net income | 13,764 | — | — | 13,764 | |||||||||||
| Net loss attributable to noncontrolling interest | 9 | — | — | 9 | |||||||||||
| Net income attributable to Live Oak Bancshares, Inc. | $ | 13,773 | $ | — | $ | — | $ | 13,773 | |||||||
| Basic earnings per share | $ | 0.40 | $ | — | $ | — | $ | 0.40 | |||||||
| Diluted earnings per share | $ | 0.39 | $ | — | $ | — | $ | 0.39 | |||||||
See Notes to the Unaudited Pro Forma Consolidated Financial Statements
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Live Oak Bancshares, Inc.
Notes to the Unaudited Pro Forma Consolidated Financial Statements
Note 1. Adjustments to Unaudited Pro Forma Consolidated Financial Statements
Following is a summary of adjustments made to develop the pro forma financial statements previously presented:
| (a) | Adjustment to record the Company’s initial 50% voting interest (45.3% economic interest) in the Joint Venture, accounted for as an equity method investment. |
| (b) | Adjustment to record the deferred tax liability arising from one-time gain recognition of $68 million for the initial recording of the Joint Venture investment, using an estimated effective tax rate of 40.0%. |
| (c) | Adjustment to record the one-time gain for initial recording of the Joint Venture, net of estimated tax effect of 40.0%. |
Note 2. Acquisition Related Costs
The Unaudited Pro Forma Consolidated Statement of Income for the nine months ended September 30, 2017 included approximately $622 thousand, or $373 thousand net of tax, in acquisition related expenses.
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