What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-03 compared with 2023-08-02 · 267 added, 174 removed, 1114 unchanged (28% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

As of June 30, 2023 (unaudited) and December 31, 2022*

As of September 30, 2023 (unaudited) and December 31, 2022*

(Dollars in thousands)

September 30,

2023 December 31,

9 unchanged sentences

Premises and equipment, net 258,041 263,290

Foreclosed assets 6,701 —

Servicing assets 47,127 26,323

9 unchanged sentences

Shareholders’ equity

Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding at June 30, 2023 and December 31, 2022

Class A common stock, no par value, 100,000,000 shares authorized, 44,351,715 and 44,061,244 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding at September 30, 2023 and December 31, 2022

Class A common stock, no par value, 100,000,000 shares authorized, 44,480,215 and 44,061,244 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

340,929 330,854

Class B common stock, no par value, 10,000,000 shares authorized, none issued or outstanding at June 30, 2023 and December 31, 2022

Class B common stock, no par value, 10,000,000 shares authorized, none issued or outstanding at September 30, 2023 and December 31, 2022

Retained earnings 627,759 572,497

6 unchanged sentences

Condensed Consolidated Statements of Income

For the three and six months ended June 30, 2023 and 2022 (unaudited)

For the three and nine months ended September 30, 2023 and 2022 (unaudited)

(Dollars in thousands, except per share data)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

15 unchanged sentences

Net gains on sales of loans 12,675 9,275 33,654 35,882

Net gain (loss) on loans accounted for under the fair value option 1,728 ( 4,461 ) ( 2,801 ) ( 3,945 )

Net (loss) gain on loans accounted for under the fair value option ( 568 ) 4,420 ( 3,369 ) 475

Equity method investments (loss) income ( 1,034 ) 29,136 ( 6,041 ) 146,068

Equity security investments gains (losses), net 121 1,655 198 1,611

Equity security investments (losses) gains, net ( 783 ) 876 ( 585 ) 2,487

Lease income 2,498 2,516 7,568 7,529

24 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income

For the three and six months ended June 30, 2023 and 2022 (unaudited)

For the three and nine months ended September 30, 2023 and 2022 (unaudited)

(Dollars in thousands)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

10 unchanged sentences

Condensed Consolidated Statements of Changes in Shareholders’ Equity

For the three and six months ended June 30, 2023 and 2022 (unaudited)

For the three and nine months ended September 30, 2023 and 2022 (unaudited)

(Dollars in thousands)

6 unchanged sentences

Class A Class B

Balance at March 31, 2023

Balance at June 30, 2023

44,351,715 — $ 341,032 $ 589,036 $ ( 97,580 ) $ 832,488

4 unchanged sentences

— — ( 1,348 ) — — ( 1,348 )

Employee stock purchase program 28,015 — 765 — — 765

Stock option exercises 36,791 — 263 — — 263

4 unchanged sentences

— — — ( 1,333 ) — ( 1,333 )

Balance at June 30, 2023

Balance at September 30, 2023

44,480,215 — $ 340,929 $ 627,759 $ ( 118,320 ) $ 850,368

Balance at March 31, 2022

Balance at June 30, 2022

43,854,011 — $ 320,924 $ 530,021 $ ( 59,283 ) $ 791,662

4 unchanged sentences

— — ( 1,362 ) — — ( 1,362 )

Employee stock purchase program 18,264 — 532 — — 532

Stock option exercises 49,472 — 497 — — 497

5 unchanged sentences

— — — ( 1,319 ) — ( 1,319 )

Balance at June 30, 2022

Balance at September 30, 2022

43,981,350 — $ 325,632 $ 571,778 $ ( 95,242 ) $ 802,168

1 unchanged sentence

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Continued)

For the three and six months ended June 30, 2023 and 2022 (unaudited)

For the three and nine months ended September 30, 2023 and 2022 (unaudited)

(Dollars in thousands)

Six Months Ended

Nine Months Ended

Common stock Retained

20 unchanged sentences

— — — ( 3,990 ) — ( 3,990 )

Balance at June 30, 2023

Balance at September 30, 2023

44,480,215 — $ 340,929 $ 627,759 $ ( 118,320 ) $ 850,368

15 unchanged sentences

— — — ( 3,946 ) — ( 3,946 )

Balance at June 30, 2022

Balance at September 30, 2022

43,981,350 — $ 325,632 $ 571,778 $ ( 95,242 ) $ 802,168

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2023 and 2022 (unaudited)

For the nine months ended September 30, 2023 and 2022 (unaudited)

(Dollars in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities

9 unchanged sentences

Net loss on sale of foreclosed assets — 49

Net loss on loans accounted for under fair value option 2,801 3,945

Net loss (gain) on loans accounted for under fair value option 3,369 ( 475 )

Net (increase) decrease in servicing assets ( 20,804 ) 4,493

1 unchanged sentence

Equity method investments loss (income) 6,041 ( 146,068 )

Equity security investments (gains) losses, net ( 198 ) ( 1,611 )

Equity security investments losses (gains), net 585 ( 2,487 )

Renewable energy tax credit investment impairment 69 7,771

15 unchanged sentences

Purchases of equity method investments ( 5,094 ) ( 30,178 )

Proceeds from sale of equity security investment — 369

Proceeds from sale of equity method investments 6,878 147,713

5 unchanged sentences

Condensed Consolidated Statements of Cash Flows (Continued)

For the six months ended June 30, 2023 and 2022 (unaudited)

For the nine months ended September 30, 2023 and 2022 (unaudited)

(Dollars in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from financing activities

13 unchanged sentences

Income tax paid, net 1,689 17,128

Supplemental disclosures of noncash operating, investing, and financing activities

Supplemental disclosures of noncash investing and financing activities

Unrealized holding losses on investment securities available-for-sale, net of taxes $ ( 26,002 ) $ ( 97,188 )

Transfers from loans and leases to foreclosed real estate and other repossessions or SBA receivable

Transfers from loans and leases to foreclosed assets or SBA receivable

34,864 14,880

Net transfers between foreclosed real estate and SBA receivable — 55

Net transfers between foreclosed assets and SBA receivable — 139

Transfer aircraft from premises and equipment, net to other assets 14,177 —

Transfer of loans held for sale to loans and leases held for investment 65,734 843,639

42 unchanged sentences

In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included, and all intercompany transactions have been eliminated in consolidation.

Results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

Results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

The Condensed Consolidated Balance Sheet as of December 31, 2022 has been derived from the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities Exchange Commission ( “ SEC ” ) on February 23, 2023 (SEC File No.

1 unchanged sentence

A summary description of the significant accounting policies followed by the Company is set forth in Note 1 of the Notes to Consolidated Financial Statements in the Company’s 2022 Form 10-K.

These Unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes in the Company's 2022 Form 10-K.

These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes in the Company's 2022 Form 10-K.

The preparation of financial statements in conformity with United States ( “ US ” ) generally accepted accounting principles ( “ GAAP ” ) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period.

11 unchanged sentences

These changes resulted in a $ 2.4 million increase in the reserve on unfunded commitments in the first quarter of 2023.

During the third quarter of 2023, the Company changed the valuation techniques used to estimate the fair value of servicing rights and loans measured at fair value as a result of rising interest rates and their impacts on market conditions.

The changes include aligning our net servicing income and loan fair value estimates with changes in forward interest rate curves.

Loan fair value estimates were also revised to utilize market participant credit loss information.

These revisions provide estimates that the Company believes are more representative of fair value while transitioning from unobservable inputs to those that are more observable.

These estimate changes were implemented as of July 1, 2023 and resulted in one-time adjustments to increase the estimated value of the servicing asset by $ 13.7 million and loans measured at fair value by $ 1.3 million.

This adjustment also increased noninterest income by a corresponding $ 15.0 million.

These refinements have been accounted for as changes in accounting estimates under Financial Accounting Standards Board ( “ FASB ” ) Accounting Standards Codification ( “ ASC ” ) 250, Accounting Changes and Error Corrections , with prospective application beginning in the period of change.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

Long-Lived Asset Reclassified to Held for Sale

During the third quarter of 2023, the Company determined retention of one of its aircraft was ineffective in serving the needs of an expanding nationwide customer base.

As a result of this determination, the Company marketed the aircraft for sale.

In September 2023, the Company entered into a sale and purchase agreement with a third party with expected total proceeds, net of estimated expenses, of $ 18.6 million.

The carrying amount of the aircraft of $ 14.2 million is reflected in the September 30, 2023 Unaudited Condensed Consolidated Balance Sheet in the "Other assets" line item.

Subsequent to September 30, 2023, the aircraft was sold for a gain of $ 4.4 million.

Reclassifications

During the third quarter of 2023, management reclassified all Search Fund Lending loans from the Specialty Lending division to the Small Business Banking division to better align with the underlying risk characteristics and management's methods for managing the Sponsor Finance business.

This resulted in a reclassification of $ 297.2 million between loan classes as of December 31, 2022.

Recent Accounting Pronouncements

10 unchanged sentences

For currently outstanding LIBOR-based loans, the timing and manner in which each customer’s contract transitions from LIBOR to another rate will vary on a case-by-case basis.

As of June 30, 2023, the Company has transitioned nearly all its LIBOR-based loan exposure to an alternative index.

As of September 30, 2023, the Company has transitioned nearly all its LIBOR-based loan exposure to an alternative index.

The remaining LIBOR-based loans will transition to an alternative index at their next repricing date.

22 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

12 unchanged sentences

The carrying amount of securities and their approximate fair values are reflected in the following table:

June 30, 2023 Amortized

September 30, 2023 Amortized

US government agencies $ 30,799 $ — $ 615 $ 30,184

1 unchanged sentence

Municipal bonds 3,207 — 324 2,883

Other debt securities 500 — 22 478

Total $ 1,255,562 $ 66 $ 155,750 $ 1,099,878

5 unchanged sentences

Total $ 1,136,190 $ 270 $ 121,741 $ 1,014,719

During the three and six months ended June 30, 2023, two mortgage-backed securities totaling $ 2.7 million were settled.

During the three months ended June 30, 2022, nine mortgage-backed securities totaling $ 18.8 million were settled.

During the six months ended June 30, 2022, eighteen mortgage-backed securities totaling $ 32.7 million were settled.

During the three months ended September 30, 2023, two mortgage-backed securities totaling $ 4.3 million were settled.

During the nine months ended September 30, 2023, four mortgage-backed securities totaling $ 7.0 million were settled.

During the three months ended September 30, 2022, two mortgage-backed securities totaling $ 3.8 million were settled.

During the nine months ended September 30, 2022, twenty mortgage-backed securities totaling $ 36.5 million were settled.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Accrued interest receivable on available-for-sale securities totaled $ 3.4 million and $ 2.9 million at June 30, 2023 and December 31, 2022, respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

Accrued interest receivable on available-for-sale securities totaled $ 3.4 million and $ 2.9 million at September 30, 2023 and December 31, 2022, respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

The following tables show debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

Less Than 12 Months 12 Months or More Total

June 30, 2023 Fair

September 30, 2023 Fair

US government agencies $ 17,666 $ 176 $ 12,518 $ 439 $ 30,184 $ 615

1 unchanged sentence

Municipal bonds — — 2,883 324 2,883 324

Other debt securities 478 22 — — 478 22

Total $ 236,091 $ 10,920 $ 857,634 $ 144,830 $ 1,093,725 $ 155,750

7 unchanged sentences

The evaluation considers the extent to which the security’s fair value is less than cost, the financial condition and near-term prospects of the issuer, and intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At June 30, 2023, there were 359 mortgage-backed securities, two US government agency securities and two municipal bonds in unrealized loss positions for greater than 12 months.

There were 88 mortgage-backed securities, seven US government agency securities, and one other debt security in unrealized loss positions for less than 12 months.

At September 30, 2023, there were 405 mortgage-backed securities, four US government agency securities and two municipal bonds in unrealized loss positions for greater than 12 months.

There were 49 mortgage-backed securities and five US government agency securities in unrealized loss positions for less than 12 months.

Unrealized losses at December 31, 2022 were comprised of 185 mortgage-backed securities and one municipal bond in unrealized loss positions for greater than 12 months and 236 mortgage-backed securities, five US government agency securities and one municipal bond in unrealized loss positions for less than 12 months.

1 unchanged sentence

Since none of the unrealized losses relate to marketability of the securities or the issuers' ability to honor redemption obligations and the Company has the intent and ability to hold the securities for a sufficient period of time to recover unrealized losses, none of the losses have been recognized in the Company’s Unaudited Condensed Consolidated Statements of Income.

All mortgage-backed securities in the Company’s portfolio at June 30, 2023 and December 31, 2022 were backed by U.S.

All mortgage-backed securities in the Company’s portfolio at September 30, 2023 and December 31, 2022 were backed by U.S.

government sponsored enterprises (“GSEs”).

2 unchanged sentences

The following is a summary of investment securities by maturity:

June 30, 2023

September 30, 2023

Available-for-Sale

15 unchanged sentences

Total 3,207 2,883

Other debt securities

Within one year 500 478

Total $ 1,255,562 $ 1,099,878

Total $ 1,261,533 $ 1,133,146

Mortgage-backed securities are included in maturity categories based on their contractual maturity date.

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

There were no securities pledged at June 30, 2023 or December 31, 2022.

There were no securities pledged at September 30, 2023 or December 31, 2022.

Other investments, largely comprised of non-marketable equity investments, are generally accounted for under the equity method or equity security accounting and are included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

3 unchanged sentences

Equity Method Accounting

The carrying amount and ownership percentage of each equity investment over which the Company has significant influence at June 30, 2023 and December 31, 2022 is reflected in the following table:

June 30, 2023 December 31, 2022

The carrying amount and ownership percentage of each equity investment over which the Company has significant influence at September 30, 2023 and December 31, 2022 is reflected in the following table:

September 30, 2023 December 31, 2022

Amount Ownership % Amount Ownership %

10 unchanged sentences

Other Fintech investments in private companies (6)

— — % 241 4.3 %

20,217 Various 12,476 Various

Total $ 112,375 $ 110,058

(1) Includes unfunded commitments of $ 5.4 million and $ 5.5 million as of June 30, 2023 and December 31, 2022, respectively.

(2) Includes unfunded commitments of $ 613 thousand and $ 617 thousand as of June 30, 2023 and December 31, 2022, respectively.

(3) Includes unfunded commitments of $ 6.9 million as of June 30, 2023 and December 31, 2022.

(4) Includes unfunded commitments of $ 7.6 million and $ 7.5 million as of June 30, 2023 and December 31, 2022, respectively.

(1) Includes unfunded commitments of $ 5.1 million and $ 5.5 million as of September 30, 2023 and December 31, 2022, respectively.

(2) Includes unfunded commitments of $ 613 thousand and $ 617 thousand as of September 30, 2023 and December 31, 2022, respectively.

(3) Includes unfunded commitments of $ 6.7 million as of September 30, 2023 and December 31, 2022.

(4) Includes unfunded commitments of $ 7.4 million and $ 7.5 million as of September 30, 2023 and December 31, 2022, respectively.

(5) Investee is accounted for under equity method due to the Company's participation as an investment advisor.

(6) As of December 31, 2022, Other Fintech investments include Kwipped, Inc.

As of June 30, 2023, the investment has been moved to equity security as the preferred shares do not qualify as in-substance common stock.

(7) As of June 30, 2023, Other investments include low income housing tax credit (“LIHTC”) in Estrella Landing Apartments LLC (“Estrella Landing”), in which the company holds a 99.9 % limited member interest.

As of September 30, 2023, the investment has been moved to equity security as the preferred shares do not qualify as in-substance common stock.

(7) As of September 30, 2023, Other investments include low income housing tax credit (“LIHTC”) in Estrella Landing Apartments LLC (“Estrella Landing”), in which the company holds a 99.9 % limited member interest.

Also included in Other investments are solar income tax credit investments in Green Sun Tenant LLC (“Green Sun”), SVA 2021-2 TE Holdco LLC (“Sun Vest”) and EG5 CSP1 Holding LLC (“HEP”), which the Company holds a 99.0 % limited member interest in all investments.

Also included are Cape Fear Collective Impact Opportunity 1 LLC (“Cape Fear Collective”), Cape Fear Collective Impact Opportunity 2 LLC (“Cape Fear Collective 2”) and OTR Fund I, LLC ("OTR") which the Company holds 99.0 %, 32.3 %, and 11.5 % of limited member interests, respectively.

As of June 30, 2023, there was an unfunded commitment of $ 7.7 million for Estrella Landing.

As of September 30, 2023, there was an unfunded commitment of $ 7.7 million for Estrella Landing.

The Company also has an unrecorded commitment related to a solar income tax credit investment for $ 18.2 million.

1 unchanged sentence

Also included within Other investments are Cape Fear Collective and Cape Fear Collective 2, which the Company holds 99.0 % and 32.3 % of limited member interests, respectively.

As of December 31, 2022 an unfunded commitment of $ 2.6 million was recorded as a liability for HEP, and as of June 30, 2023, this commitment has been funded.

As of December 31, 2022 an unfunded commitment of $ 2.6 million was recorded as a liability for HEP, and as of September 30, 2023, this commitment has been funded.

Managing control of the above investments resides with the managing members.

2 unchanged sentences

Equity Security Accounting

The carrying amount of the Company’s investments in non-marketable equity securities with no readily determinable fair value and amounts recognized in earnings on a cumulative basis as of June 30, 2023 and as of and for the six months ended June 30, 2023 and 2022 is reflected in the following table:

As of and for the six month period ended

Cumulative Adjustments June 30, 2023 June 30, 2022

The carrying amount of the Company’s investments in non-marketable equity securities with no readily determinable fair value and amounts recognized in earnings on a cumulative basis as of September 30, 2023 and as of and for the nine months ended September 30, 2023 and 2022 is reflected in the following table:

As of and for the nine month period ended

Cumulative Adjustments September 30, 2023 September 30, 2022

Carrying value (1)

6 unchanged sentences

Net upward change $ 49,407 $ ( 999 ) $ 2,022

(1) Includes $ 2.8 million and $ 3.2 million in unfunded commitments as of June 30, 2023, and June 30, 2022, respectively.

(1) Includes $ 2.6 million and $ 3.1 million in unfunded commitments as of September 30, 2023, and September 30, 2022, respectively.

(2) Cumulative adjustments excludes $ 13.9 million in realized gains for sale of an investment in the second quarter of 2021.

For the three and six months ended June 30, 2023, the Company recognized unrealized losses on all equity securities held at the reporting date of $ 20 thousand and $ 4 thousand, respectively.

For the three and six months ended June 30, 2022, the Company recognized unrealized gains on all equity securities held at the reporting date of $ 1.5 million and $ 1.4 million, respectively.

For the three and nine months ended September 30, 2023, the Company recognized unrealized losses on all equity securities held at the reporting date of $ 1.0 million.

For the three and nine months ended September 30, 2022, the Company recognized unrealized gains on all equity securities held at the reporting date of $ 493 thousand and $ 1.9 million, respectively.

Variable Interest Entities

21 unchanged sentences

Investments may only be sold or transferred subject to the notice and approval provisions of the underlying investment agreement.

The above investments meet the criteria of a VIE, however, the Company is not the primary beneficiary of the entities, as it does not have the power to direct the activities that most significantly impact the economic performance of the entities.

All above investments meet the criteria of a VIE, however, the Company is not the primary beneficiary of the entities, as it does not have the power to direct the activities that most significantly impact the economic performance of the entities.

The Company’s investment in the unconsolidated VIEs are carried in other assets and the Company’s unfunded capital and other commitments related to the unconsolidated VIEs are carried in other liabilities on the Unaudited Condensed Consolidated Balance Sheets.

4 unchanged sentences

Notes to Unaudited Condensed Consolidated Financial Statements

The following table provides a summary of the VIEs that the Company has not consolidated as of June 30, 2023 and December 31, 2022:

June 30, 2023 Investment Carrying Amount Maximum Exposure to Loss Liability Recognized Classification

The following table provides a summary of the VIEs that the Company has not consolidated as of September 30, 2023 and December 31, 2022:

September 30, 2023 Investment Carrying Amount Maximum Exposure to Loss Liability Recognized Classification

Solar tax credit investments $ 3,713 $ 18,837 $ — Other assets (1)

22 unchanged sentences

Total Loans and Leases

June 30, 2023

September 30, 2023

Commercial & Industrial

18 unchanged sentences

Total $ 7,695,971 $ 42,698 $ 70,292 $ 112,990 $ 7,808,961 $ 410,128 $ 8,219,089

Net deferred fees ( 17,224 )

Retained Loan Discount ( 33,783 )

Net Deferred Cost 17,325

Loans and Leases, Net $ 8,202,631

30 unchanged sentences

Total $ 6,786,593 $ 37,232 $ 30,329 $ 67,561 $ 6,854,154 $ 494,458 $ 7,348,612

Net deferred fees ( 4,434 )

Retained Loan Discount ( 23,893 )

Net Deferred Cost 19,459

Loans and Leases, Net $ 7,344,178

12 unchanged sentences

Converted to Term Total (1)

June 30, 2023

September 30, 2023

Small Business Banking

47 unchanged sentences

Total $ 2,290,712 $ 2,015,005 $ 1,073,386 $ 595,376 $ 305,809 $ 284,984 $ 254,078 $ 34,804 $ 6,854,154

(1) Excludes $ 441.8 million and $ 494.5 million of loans accounted for under the fair value option as of June 30, 2023 and December 31, 2022, respectively.

(1) Excludes $ 410.1 million and $ 494.5 million of loans accounted for under the fair value option as of September 30, 2023 and December 31, 2022, respectively.

The following tables present guaranteed and unguaranteed loan and lease balances by asset quality indicator:

June 30, 2023 Loan and Lease

September 30, 2023 Loan and Lease

Guaranteed Balance Unguaranteed Balance % Guaranteed

9 unchanged sentences

Total $ 6,854,154 $ 2,703,995 $ 4,150,159 39.5 %

(1) Excludes $ 441.8 million and $ 494.5 million of loans accounted for under the fair value option as of June 30, 2023 and December 31, 2022, respectively.

(1) Excludes $ 410.1 million and $ 494.5 million of loans accounted for under the fair value option as of September 30, 2023 and December 31, 2022, respectively.

Live Oak Bancshares, Inc.

1 unchanged sentence

Nonaccrual Loans and Leases

As of June 30, 2023 and December 31, 2022 there were no loans greater than 90 days past due and still accruing.

There was no interest income recognized on nonaccrual loans and leases during the three and six months ended June 30, 2023 and 2022.

Accrued interest receivable on loans totaled $ 51.8 million and $ 46.5 million at June 30, 2023 and December 31, 2022 , respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

Nonaccrual loans and leases held for investment as of June 30, 2023 and December 31, 2022 are as follows:

June 30, 2023 Loan and Lease

As of September 30, 2023 and December 31, 2022 there were no loans greater than 90 days past due and still accruing.

There was no interest income recognized on nonaccrual loans and leases during the three and nine months ended September 30, 2023 and 2022.

Accrued interest receivable on loans totaled $ 59.0 million and $ 46.5 million at September 30, 2023 and December 31, 2022 , respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

Nonaccrual loans and leases held for investment as of September 30, 2023 and December 31, 2022 are as follows:

September 30, 2023 Loan and Lease

Balance Unguaranteed Balance Unguaranteed

2 unchanged sentences

Small Business Banking $ 34,535 $ 29,113 $ 5,422 $ 407

Specialty Lending 15,824 4,619 11,205 —

Energy & Infrastructure 6,828 2,794 4,034 2,560

9 unchanged sentences

Total $ 99,092 $ 65,837 $ 33,255 $ 6,843

December 31, 2022 Loan and Lease

December 31, 2022 Loan and Lease Balance (1)

Balance Unguaranteed Balance Unguaranteed

19 unchanged sentences

The following table summarizes the amount of accrued interest reversed during the periods presented:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

3 unchanged sentences

Total $ 295 $ 376 $ 2,104 $ 972

The following table presents the amortized cost basis of collateral-dependent loans and leases, which are individually evaluated to determine expected credit losses, as of June 30, 2023 and December 31, 2022:

The following table presents the amortized cost basis of collateral-dependent loans and leases, which are individually evaluated to determine expected credit losses, as of September 30, 2023 and December 31, 2022:

Total Collateral-Dependent Loans Unguaranteed Portion

June 30, 2023 Real Estate Business Assets Other Real Estate Business Assets Other Allowance for Credit Losses

September 30, 2023 Real Estate Business Assets Other Real Estate Business Assets Other Allowance for Credit Losses

Commercial & Industrial

14 unchanged sentences

Small Business Banking $ 2,730 $ 371 $ — $ 414 $ 371 $ — $ 291

Specialty Lending — 371 — — 371 — 291

Energy & Infrastructure 16,378 — — 13,583 — — —

16 unchanged sentences

Real Estate Commercial

June 30, 2023

September 30, 2023

Beginning Balance $ 79,407 $ 6,428 $ 29,908 $ 4,373 $ 120,116

1 unchanged sentence

Recoveries 104 — 149 — 253

Provision 8,989 ( 526 ) 4,360 205 13,028

Provision (Recovery) 10,395 ( 448 ) 134 198 10,279

Ending Balance $ 80,818 $ 5,980 $ 29,904 $ 4,571 $ 121,273

June 30, 2022

September 30, 2022

Beginning Balance $ 41,178 $ 3,504 $ 17,840 $ 3,341 $ 65,863

3 unchanged sentences

Ending Balance $ 48,913 $ 5,486 $ 20,531 $ 3,361 $ 78,291

Six Months Ended Commercial

Nine Months Ended Commercial

& Industrial Construction &

1 unchanged sentence

Real Estate Commercial

June 30, 2023

September 30, 2023

Beginning Balance $ 64,995 $ 5,101 $ 22,901 $ 3,569 $ 96,566

4 unchanged sentences

Ending Balance $ 80,818 $ 5,980 $ 29,904 $ 4,571 $ 121,273

June 30, 2022

September 30, 2022

Beginning Balance $ 37,770 $ 3,435 $ 19,068 $ 3,311 $ 63,584

3 unchanged sentences

Ending Balance $ 48,913 $ 5,486 $ 20,531 $ 3,361 $ 78,291

During the three and six months ended June 30, 2023, the ACL increased as a result of continued loan growth, combined with portfolio trends and changes in the macroeconomic outlook.

During the three and nine months ended September 30, 2023, the ACL increased as a result of loan growth, combined with specific reserve changes on individually evaluated loans and charge-off related impacts.

Additionally, during the first quarter of 2023, certain assumptions were refined, drawing more heavily on internal data, in the calculations of PD, LGD, and prepayment rates.

These refinements increased the ACL by $ 1.5 million during the six months ended June 30, 2023.

These refinements increased the ACL by $ 1.5 million during the nine months ended September 30, 2023.

Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period.

During the three and six month periods ended June 30, 2022, the ACL increased primarily as a result of the charge-offs that contributed to increased loss given default rates.

During the three and nine month periods ended September 30, 2022, the ACL increased primarily as a result of loan growth, charge-off experience impacts, a transfer of $ 729.5 million in loans carried at amortized cost, including $ 694.0 million in guaranteed loans, from held for sale to held for investment and changes in the macroeconomic outlook.

Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period.

6 unchanged sentences

The following tables summarize the amortized cost basis of loans that were modified during the periods presented.

Three Months Ended June 30, 2023 Other-Than-Insignificant

Three Months Ended September 30, 2023 Other-Than-Insignificant

Payment Delay Term Extension Interest Rate Reduction

2 unchanged sentences

Small Business Banking $ 10,117 $ 5,184 $ — $ — 0.3 %

Specialty Lending — 4,427 — — 0.26

Total $ 10,117 $ 5,184 $ — $ — 0.3 %

Six Months Ended June 30, 2023 Other-Than-Insignificant

Nine Months Ended September 30, 2023 Other-Than-Insignificant

Payment Delay Term Extension Interest Rate Reduction Combination - Term Extension & Payment Delay % of Total Class of

4 unchanged sentences

Total $ 10,117 $ 19,068 $ 3,356 $ 4,525 2.3 %

As of June 30, 2023, the Company had commitments to lend additional funds to these borrowers totaling $ 5.4 million.

The following table presents an aging analysis of loans that were modified on or after January 1, 2023, the date the Company adopted ASU 2022-02, through June 30, 2023.

As of September 30, 2023, the Company had commitments to lend additional funds to these borrowers totaling $ 1.7 million.

The following table presents an aging analysis of loans that were modified on or after January 1, 2023, the date the Company adopted ASU 2022-02, through September 30, 2023.

Current 30-89 Days

5 unchanged sentences

The following tables summarize the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the periods presented.

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Weighted Average

2 unchanged sentences

Small Business Banking — % 60

Specialty Lending — 72

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Weighted Average

4 unchanged sentences

Energy & Infrastructure — 12

There were no loans that were modified on or after January 1, 2023, the date the Company adopted ASU 2022-02, through September 30, 2023 that subsequently defaulted during the periods presented.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

There were no loans that were modified on or after January 1, 2023, the date the Company adopted ASU 2022-02, through June 30, 2023 that subsequently defaulted during the periods presented.

The Company’s ACL is estimated using lifetime historical loan performance adjusted to reflect current conditions and reasonable and supportable forecasts.

4 unchanged sentences

The following tables present the types of loans modified as troubled debt restructurings (“TDRs”):

Three Months Ended June 30, 2022

Interest Only Payment Deferral Extend Amortization Other Total TDRs (1)

Three Months Ended September 30, 2022

Interest Only Payment Deferral Extend Amortization Other (1)

Total TDRs (2)

Loans Recorded investment at

8 unchanged sentences

Commercial & Industrial

Specialty Lending — $ — 1 $ 734 — $ — — $ — 1 $ 734

Small Business Banking — $ — 3 $ 7,074 1 $ 146 — $ — 4 $ 7,220

Total — — 3 7,074 1 146 — — 4 7,220

Construction & Development

Small Business Banking — — — — — — 2 2,518 2 2,518

Total — — — — — — 2 2,518 2 2,518

Total — $ — 3 $ 7,074 1 $ 146 2 $ 2,518 6 $ 9,738

(1) Includes two small business banking loans with extended amortization and interest only.

(2) Excludes loans accounted for under the fair value option.

Fair Value of Financial Instruments for additional information.

Six Months Ended June 30, 2022

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2022

Interest Only Payment Deferral Extend Amortization Other (1)

16 unchanged sentences

Total — — — — 1 4,847 — — 1 4,847

Construction & Development

Small Business Banking — — — — — — 2 2,518 2 2,518

Total — — — — — — 2 2,518 2 2,518

(1) Includes one small business banking loan with extend amortization and a rate concession TDR.

Total — $ — 7 $ 10,926 4 $ 6,521 3 $ 3,045 14 $ 20,492

(1) Includes one small business banking loan with extend amortization and a rate concession, two small business banking loans with extended amortization and interest only.

(2) Excludes loans accounted for under the fair value option.

Fair Value of Financial Instruments for additional information.

Restructurings made to improve a loan’s performance have varying degrees of success.

The following tables present TDRs that were modified within the twelve months ended September 30, 2022 subsequently defaulted during the period:

Three Months Ended September 30, 2022

Interest Only Payment Deferral Extend Amortization Other Total TDRs (1)

Loans Recorded investment at

period end Number of

Loans Recorded investment at

period end Number of

Loans Recorded investment at

period end Number of

Loans Recorded investment at

period end Number of

Loans Recorded investment at

Commercial & Industrial

Small Business Banking — $ — — $ — 1 $ 146 — $ — 1 $ 146

Total — $ — — $ — 1 $ 146 — $ — 1 $ 146

(1) Excludes loans accounted for under the fair value option.

Fair Value of Financial Instruments for additional information.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Concessions made to improve a loan’s performance have varying degrees of success.

Two TDRs that were modified within the twelve months ended June 30, 2022 subsequently defaulted during the three months ended June 30, 2022.

The two TDR defaults were Commercial & Industrial Small Business Banking loans.

One of the defaults had previously been modified to extend amortization and had a recorded investment of $ 349 thousand at June 30, 2022.

The second default had previously been modified for a payment deferral and had a recorded investment of $ 2.1 million at June 30, 2022.

There was one TDR that was modified within the twelve months ended June 30, 2022 that subsequently defaulted during the six months ended June 30, 2022.

The TDR had previously been modified for a payment default and had a recorded investment of $ 633 thousand at June 30, 2022.

Nine Months Ended September 30, 2022

Interest Only Payment Deferral Extend Amortization Other Total TDRs (1)

Loans Recorded investment at

period end Number of

Loans Recorded investment at

period end Number of

Loans Recorded investment at

period end Number of

Loans Recorded investment at

period end Number of

Loans Recorded investment at

Commercial & Industrial

Small Business Banking — $ — 2 $ 2,737 2 $ 496 — $ — 4 $ 3,233

Total — $ — 2 $ 2,737 2 $ 496 — $ — 4 $ 3,233

(1) Excludes loans accounted for under the fair value option.

Fair Value of Financial Instruments for additional information.

Lessor Equipment Leasing

7 unchanged sentences

The net investment in direct finance leases included in loans and leases held for investment are as follows:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Gross direct finance lease payments receivable $ 2,716 $ 4,284

2 unchanged sentences

Future minimum lease payments under finance leases are as follows:

As of June 30, 2023

As of September 30, 2023

Total $ 2,716

Interest income of $ 66 thousand and $ 93 thousand was recognized in the three months ended June 30, 2023 and 2022, respectively.

Interest income of $ 139 thousand and $ 208 thousand was recognized in the six months ended June 30, 2023 and 2022, respectively.

Interest income of $ 72 thousand and $ 101 thousand was recognized in the three months ended September 30, 2023 and 2022, respectively.

Interest income of $ 211 thousand and $ 309 thousand was recognized in the nine months ended September 30, 2023 and 2022, respectively.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Operating Leases

2 unchanged sentences

At the end of the lease term, the lessee has the option to renew the lease for two additional terms or purchase the equipment at the then-current fair market value.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Rental revenue from operating leases is recognized on a straight-line basis over the term of the lease.

5 unchanged sentences

Repair and maintenance costs that do not extend the lives of the rental equipment are charged to equipment expense at the time the costs are incurred.

As of June 30, 2023 and December 31, 2022, the Company had a net investment of $ 109.4 million and $ 114.2 million, respectively, in assets included in premises and equipment that are subject to operating leases.

Of the net investment, the gross balance of the assets was $ 163.4 million as of June 30, 2023 and December 31, 2022 and accumulated depreciation was $ 54.0 million and $ 49.2 million as of June 30, 2023 and December 31, 2022, respectively.

Depreciation expense recognized on these assets was $ 2.4 million for the three months ended June 30, 2023 and 2022.

Depreciation expense recognized on these assets was $ 4.8 million for the six months ended June 30, 2023 and 2022.

Lease income of $ 2.4 million was recognized in the three months ended June 30, 2023 and 2022.

Lease income of $ 4.8 million and $ 4.7 million was recognized in the six months ended June 30, 2023 and 2022, respectively.

As of September 30, 2023 and December 31, 2022, the Company had a net investment of $ 106.9 million and $ 114.2 million, respectively, in assets included in premises and equipment that are subject to operating leases.

Of the net investment, the gross balance of the assets was $ 162.8 million and $ 163.4 million as of September 30, 2023 and December 31, 2022, respectively.

Accumulated depreciation was $ 55.9 million and $ 49.2 million as of September 30, 2023 and December 31, 2022, respectively.

Depreciation expense recognized on these assets was $ 2.4 million for the three months ended September 30, 2023 and 2022.

Depreciation expense recognized on these assets was $ 7.2 million and $ 7.3 million for the nine months ended September 30, 2023 and 2022.

Lease income of $ 2.4 million was recognized in the three months ended September 30, 2023 and 2022.

Lease income of $ 7.1 million was recognized in the nine months ended September 30, 2023 and 2022.

A maturity analysis of future minimum lease payments to be received under non-cancelable operating leases is as follows:

As of June 30, 2023

As of September 30, 2023

Thereafter 13,562

2 unchanged sentences

Loans serviced for others are not included in the accompanying Unaudited Condensed Consolidated Balance Sheets.

The unpaid principal balance of loans serviced for others requiring recognition of a servicing asset was $ 2.38 billion and $ 2.67 billion at June 30, 2023 and December 31, 2022, respectively.

The unpaid principal balance for all loans serviced for others was $ 3.81 billion and $ 3.48 billion at June 30, 2023 and December 31, 2022, respectively.

The following summarizes the activity pertaining to servicing rights:

The unpaid principal balance of loans serviced for others requiring recognition of a servicing asset was $ 3.00 billion and $ 2.67 billion at September 30, 2023 and December 31, 2022, respectively.

The unpaid principal balance for all loans serviced for others was $ 4.03 billion and $ 3.48 billion at September 30, 2023 and December 31, 2022, respectively.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table summarizes the activity pertaining to servicing rights:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

Due to changes in valuation inputs or assumptions (1)

13,334 992 15,457 ( 3,056 )

Decay due to increases in principal paydowns or runoff ( 1,999 ) ( 2,316 ) ( 6,597 ) ( 8,505 )

Balance at end of period $ 47,127 $ 29,081 $ 47,127 $ 29,081

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The fair value of servicing rights was determined using a weighted average discount rate of 17.3 % on June 30, 2023 and 16.2 % on June 30, 2022.

The fair value of servicing rights was determined using a weighted average prepayment speed of 15.8 % on June 30, 2023 and 15.9 % on June 30, 2022, with the actual rate depending on the stratification of the specific right.

(1) Three and nine month periods ended September 30, 2023 include a $ 13.7 million increase related to change in estimate implemented on July 1, 2023.

Basis of Presentation for additional information.

The fair value of servicing rights was determined using a weighted average discount rate of 15.0 % on September 30, 2023 and 15.1 % on September 30, 2022.

The fair value of servicing rights was determined using a weighted average prepayment speed of 15.3 % on September 30, 2023 and 16.1 % on September 30, 2022, with the actual rate depending on the stratification of the specific right.

Changes to fair value are reported in loan servicing asset revaluation within the Unaudited Condensed Consolidated Statements of Income.

3 unchanged sentences

Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Total outstanding borrowings consisted of the following:

September 30,

2023 December 31,

4 unchanged sentences

On December 30, 2022, the Company made an advance of $ 50.0 million on an overnight Fed Funds line of credit that is unsecured with a variable interest rate of 4.65 %.

The Company paid down the balance in full on January 3, 2023 and there is $ 100.0 million of available credit remaining at June 30, 2023.

The Company paid down the balance in full on January 3, 2023 and there is $ 100.0 million of available credit remaining at September 30, 2023.

Total borrowings $ 25,847 $ 83,203

As of June 30, 2023 the Company’s unused borrowing capacity was $ 3.77 billion, remaining consistent with March 31, 2023.

As of September 30, 2023 the Company’s unused borrowing capacity was $ 3.80 billion.

Unused borrowing capacity consists of access through the Federal Reserve Bank's discount window, available lines of credit with the Federal Home Loan Bank and other correspondent banks as well as access to a repurchase agreement.

3 unchanged sentences

BTFP advances can be requested for a term of up to one year at a fixed market rate until the program ends March 11, 2024.

In September 2023, the Company modified a $ 100.0 million revolving line of credit with a third party correspondent bank.

The line of credit was extended 12 months to a maturity date of October 10, 2026 and the interest rate cap was increased from 4.25 % to 6.75 %.

The Company paid the Lender a non-refundable $ 250 thousand renewal fee upon signing the Note that will be amortized into interest expense over the life of the loan.

Fair Value of Financial Instruments

10 unchanged sentences

The table below provides a rollforward of the Level 3 equity warrant asset fair values:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Equity Warrant Assets 2023 2022 2023 2022

4 unchanged sentences

Balance at end of period $ 2,978 $ 2,557 $ 2,978 $ 2,557

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.

June 30, 2023 Total Level 1 Level 2 Level 3

The tables below present the recorded amount of assets measured at fair value on a recurring basis.

September 30, 2023 Total Level 1 Level 2 Level 3

Investment securities available-for-sale

3 unchanged sentences

2,883 — 2,799 84

Other debt securities (2)

Loans held for investment 410,128 — — 410,128

17 unchanged sentences

Total assets at fair value $ 1,539,366 $ — $ 1,016,282 $ 523,084

(1) During the three and six months ended June 30, 2023, the Company recorded a level 3 fair value adjustment gain of $ 1 thousand and loss of $ 9 thousand, respectively.

During the three and six months ended June 30, 2022, the Company recorded a level 3 fair value adjustment loss of $ 1 thousand and $ 3 thousand, respectively.

(2) During the three and six months ended June 30, 2023, the Company recorded a level 3 fair value adjustment loss of $ 2 thousand and $ 22 thousand, respectively.

During the three and six months ended June 30, 2022, the Company recorded a level 3 fair value adjustment loss of $ 10 thousand.

(1) During the three months ended September 30, 2023 there was no level 3 fair value adjustment gain or loss.

During the nine months ended September 30, 2023, the Company recorded a level 3 fair value adjustment loss of $ 9 thousand.

During the three and nine months ended September 30, 2022, the Company recorded a level 3 fair value adjustment gain of $ 1 thousand and a loss of $ 2 thousand, respectively.

(2) See Note 7 for a rollforward of recurring Level 3 fair values for servicing assets.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis, see Note 10.

Fair Value of Financial Instruments in the Company’s 2022 Form 10-K.

Additionally, see Note 1.

Basis of Presentation of the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for information related to changes in valuation techniques for the Company's loan servicing assets and loans accounted for under the fair value option.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Fair Value Option

5 unchanged sentences

In accordance with GAAP, any loans for which fair value was previously elected continue to be measured as such.

There were no loans accounted for under the fair value option that were 90 days or more past due and still accruing interest at June 30, 2023 or December 31, 2022.

The unpaid principal balance of unguaranteed exposure for nonaccruals was $ 10.7 million and $ 7.2 million at June 30, 2023 and December 31, 2022, respectively.

The following tables provide more information about the fair value carrying amount and the unpaid principal outstanding of loans accounted for under the fair value option at June 30, 2023 and December 31, 2022.

June 30, 2023

There were no loans accounted for under the fair value option that were 90 days or more past due and still accruing interest at September 30, 2023 or December 31, 2022.

The unpaid principal balance of unguaranteed exposure for nonaccruals was $ 8.4 million and $ 7.2 million at September 30, 2023 and December 31, 2022, respectively.

The following tables provide more information about the fair value carrying amount and the unpaid principal outstanding of loans accounted for under the fair value option at September 30, 2023 and December 31, 2022.

September 30, 2023

Total Loans Nonaccruals 90 Days or More Past Due

20 unchanged sentences

The following table presents the net gains (losses) from changes in fair value.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Gains (Losses) on Loans Accounted for under the Fair Value Option 2023 2022 2023 2022

2 unchanged sentences

$ ( 568 ) $ 4,420 $ ( 3,369 ) $ 475

Gains and (losses) related to borrower-specific credit risk were $ 0 and $ 3.5 million for the three and nine months ended September 30, 2023, respectively, and $ 451 thousand and $( 2.4 ) million for the three and nine months ended September 30, 2022, respectively.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Losses related to borrower-specific credit risk were $ 291 thousand and $ 3.5 million for the three and six months ended June 30, 2023, respectively, and $ 711 thousand and $ 2.8 million for the three and six months ended June 30, 2022, respectively.

The following tables summarize the activity pertaining to loans accounted for under the fair value option:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Loans held for sale 2023 2022 2023 2022

2 unchanged sentences

Fair value changes — 1,748 — 1,521

Transfers to held for investment, net — ( 24,768 ) — ( 26,219 )

Settlements — ( 432 ) — ( 677 )

Balance at end of period $ — $ — $ — $ —

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Loans held for investment 2023 2022 2023 2022

2 unchanged sentences

Fair value changes (1)

( 568 ) 2,672 ( 3,369 ) ( 1,046 )

Transfers from held for sale, net — 24,768 — 26,219

Settlements ( 34,475 ) ( 47,847 ) ( 100,248 ) ( 163,042 )

Balance at end of period $ 410,128 $ 512,183 $ 410,128 $ 512,183

(1) Three and nine month periods ended September 30, 2023 include a $ 1.3 million increase related to change in estimate implemented on July 1, 2023.

Basis of Presentation for additional information.

Non-Recurring Fair Value

1 unchanged sentence

The Company has no liabilities recorded at fair value on a non-recurring basis.

June 30, 2023 Total Level 1 Level 2 Level 3

September 30, 2023 Total Level 1 Level 2 Level 3

Collateral-dependent loans $ 4,220 $ — $ — $ 4,220

Foreclosed assets 6,701 — — 6,701

Total assets at fair value $ 10,921 $ — $ — $ 10,921

7 unchanged sentences

Level 3 Analysis

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2023 and December 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

June 30, 2023

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of September 30, 2023 and December 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

September 30, 2023

Level 3 Assets with Significant Unobservable Inputs

3 unchanged sentences

Prepayment speed 5.0 % N/A

Other debt security $ 478 Discounted expected cash flows Discount rate 7.1 % N/A

Loans held for investment $ 410,128 Discounted expected cash flows Loss rate 0.0 % - 7.5 %

8 unchanged sentences

10.0 % - 37.5 %

Foreclosed assets $ 6,701 Discounted appraisals Appraisal adjustments (2)

10.0 % 10.0 %

December 31, 2022

25 unchanged sentences

The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis are as follows:

June 30, 2023 Carrying

Identical Assets

September 30, 2023 Carrying

Identical Assets/Liabilities

(Level 1) Significant

10 unchanged sentences

December 31, 2022 Carrying

Identical Assets

Identical Assets/Liabilities

(Level 1) Significant

22 unchanged sentences

A summary of the Company’s commitments is as follows:

2023 December 31,

September 30, 2023 December 31, 2022

Commitments to extend credit (1)

$ 2,831,592 $ 2,731,866

Standby letters of credit 21,983 26,454

1 unchanged sentence

Total unfunded off-balance-sheet credit risk $ 2,871,575 $ 2,782,320

(1) Includes unfunded overdraft protection.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

9 unchanged sentences

Collateral held varies as specified above and is required in instances which the Company deems necessary.

The allowance for off-balance-sheet credit exposures was $ 4.8 million and $ 1.5 million at June 30, 2023 and December 31, 2022, respectively.

The allowance for off-balance-sheet credit exposures was $ 4.6 million and $ 1.5 million at September 30, 2023 and December 31, 2022, respectively.

Other Commitments

The Company is in the early phase of constructing a new facility to accommodate expansion of its main campus.

The total estimated cost to complete the construction program is approximately $ 36.7 million.

At June 30, 2023, the Company has paid and was committed to approximately $ 7.0 million of the total estimated amount.

As of June 30, 2023 and December 31, 2022, the Company recorded unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of $ 31.0 million and $ 26.1 million, respectively.

At September 30, 2023, the Company has paid and was committed to approximately $ 12.0 million of the total estimated amount.

As of September 30, 2023 and December 31, 2022, the Company recorded unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of $ 30.1 million and $ 26.1 million, respectively.

Concentrations of Credit Risk

The distribution of commitments to extend credit approximates the distribution of loans outstanding.

The Company does not have a significant number of credits to any single borrower or group of related borrowers whereby their retained unguaranteed exposure exceeds $ 20.0 million, except for twenty-eight relationships that have a retained unguaranteed exposure of $ 932.0 million of which $ 578.3 million of the unguaranteed exposure has been disbursed.

The Company does not have a significant number of credits to any single borrower or group of related borrowers whereby their retained unguaranteed exposure exceeds $ 20.0 million, except for twenty-nine relationships that have a retained unguaranteed exposure of $ 1.05 billion of which $ 673.1 million of the unguaranteed exposure has been disbursed.

Additionally, the Company has future minimum lease payments receivable under non-cancelable operating leases totaling $ 50.9 million, of which no relationships exceed $ 20.0 million.

The Company from time-to-time may have cash and cash equivalents on deposit with other financial institutions that exceed federally-insured limits.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company from time-to-time may have cash and cash equivalents on deposit with other financial institutions that exceed federally-insured limits.

Geographic Concentration s

The following table presents the geographic concentration of our loan and lease portfolio at September 30, 2023:

Geographic Regions (1)

Midwest 12.6 %

Northeast 18.7

Southeast 31.0

Southwest 11.2

Total 100.0 %

(1) Concentrations are stated as a percentage of total unguaranteed loans held for investment.

Midwest consists of ND, SD, NE, KS, MN, IA,WI, MO, IL, IN, MI and OH.

Northeast consists of MD, DE, PA, NJ, NY, CT, RI, MA, VT, ME and NH.

Southeast consists of AR, LA, MS, TN, AL, GA, FL, SC, KY, NC, VA, WV, DC, PR and VI.

Southwest consists of AZ, NM, TX and OK.

West consists of WA, OR, CA, NV, ID, MT, WY, CO, UT, AK and HI.

The Company's management reporting process measures the performance of its operating segments based on internal operating structure, which is subject to change from time-to-time.

5 unchanged sentences

The Fintech segment is comprised of the Company's direct wholly owned subsidiaries Live Oak Ventures and Canapi Advisors, and the investments held by those entities, as well as the Bank's investment in Apiture.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The following tables provide financial information for the Company's segments.

1 unchanged sentence

Banking Fintech Other Consolidated

As of and for the three months ended June 30, 2023

As of and for the three months ended September 30, 2023

Interest income $ 180,416 $ ( 6 ) $ 201 $ 180,611

7 unchanged sentences

Total assets $ 10,800,881 $ 110,914 $ 38,665 $ 10,950,460

As of and for the three months ended June 30, 2022

As of and for the three months ended September 30, 2022

Interest income $ 115,819 $ 8 $ 7 $ 115,834

10 unchanged sentences

Banking Fintech Other Consolidated

As of and for the six months ended June 30, 2023

As of and for the nine months ended September 30, 2023

Interest income $ 501,271 $ 14 $ 454 $ 501,739

7 unchanged sentences

Total assets $ 10,800,881 $ 110,914 $ 38,665 $ 10,950,460

As of and for the six months ended June 30, 2022

As of and for the nine months ended September 30, 2022

Interest income $ 307,780 $ 80 $ 3 $ 307,863

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements