What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-10 compared with 2023-11-03 · 269 added, 481 removed, 900 unchanged (45% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

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

As of March 31, 2024 (unaudited) and December 31, 2023*

(Dollars in thousands)

September 30,

2024 December 31,

Cash and due from banks $ 597,394 $ 582,540

Federal funds sold — 136,397

Certificates of deposit with other banks 250 250

7 unchanged sentences

Foreclosed assets 8,561 6,481

Servicing assets 47,127 26,323

Servicing assets (includes $ 48,962 and $ 48,186 measured at fair value, respectively)

49,343 48,591

Other assets 387,059 354,476

8 unchanged sentences

Shareholders’ equity

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

Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding at March 31, 2024 and December 31, 2023

Class A common stock, no par value, 100,000,000 shares authorized, 44,938,673 and 44,617,673 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

349,648 344,568

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

Class B common stock, no par value, 10,000,000 shares authorized, none issued or outstanding at March 31, 2024 and December 31, 2023

Retained earnings 669,307 642,817

6 unchanged sentences

Condensed Consolidated Statements of Income

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

For the three months ended March 31, 2024 and 2023 (unaudited)

(Dollars in thousands, except per share data)

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Interest income

14 unchanged sentences

Net gains on sales of loans 11,502 10,175

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

Net loss on loans accounted for under the fair value option ( 219 ) ( 4,529 )

Equity method investments (loss) income ( 5,022 ) ( 2,952 )

13 unchanged sentences

Other loan origination and maintenance expense 3,911 3,927

Renewable energy tax credit investment impairment — 7,721 69 7,771

Renewable energy tax credit investment (recovery) impairment ( 927 ) 69

FDIC insurance 3,200 3,403

Contributions and donations — 191 — 6,429

Other expense 3,226 6,385

1 unchanged sentence

Income before taxes 22,107 3,613

Income tax expense 2,967 1,525 7,611 35,191

Income tax (benefit) expense ( 5,479 ) 3,215

Net income $ 27,586 $ 398

4 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income

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

For the three months ended March 31, 2024 and 2023 (unaudited)

(Dollars in thousands)

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net income $ 27,586 $ 398

Other comprehensive loss before tax:

Net unrealized loss on investment securities available-for-sale during the period ( 27,297 ) ( 47,318 ) ( 34,213 ) ( 127,879 )

Other comprehensive (loss) income before tax:

Net unrealized (loss) gain on investment securities available-for-sale during the period ( 8,576 ) 10,432

Reclassification adjustment for gain on sale of securities available-for-sale included in net income — —

Other comprehensive loss before tax ( 27,297 ) ( 47,318 ) ( 34,213 ) ( 127,879 )

Income tax benefit 6,557 11,359 8,211 30,691

Other comprehensive loss, net of tax ( 20,740 ) ( 35,959 ) ( 26,002 ) ( 97,188 )

Other comprehensive (loss) income before tax ( 8,576 ) 10,432

Income tax benefit (expense) 2,058 ( 2,509 )

Other comprehensive (loss) income, net of tax ( 6,518 ) 7,923

Total comprehensive income $ 21,068 $ 8,321

2 unchanged sentences

Condensed Consolidated Statements of Changes in Shareholders’ Equity

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

For the three months ended March 31, 2024 and 2023 (unaudited)

(Dollars in thousands)

3 unchanged sentences

comprehensive

income (loss) Total

(loss) income Total

Shares Amount

Class A Class B

Balance at June 30, 2023

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

Net income — — — 39,793 — 39,793

Other comprehensive loss — — — — ( 20,740 ) ( 20,740 )

Issuance of restricted stock 63,694 — — — — —

Tax withholding related to vesting of restricted stock and other

— — ( 1,348 ) — — ( 1,348 )

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

Stock option exercises 36,791 — 263 — — 263

Stock option compensation expense — — 135 — — 135

Restricted stock compensation expense — — 82 — — 82

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense — — — 263 — 263

Cash dividends ($ 0.03 per share)

— — — ( 1,333 ) — ( 1,333 )

Balance at September 30, 2023

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

Balance at June 30, 2022

Balance at December 31, 2023

44,617,673 — $ 344,568 $ 642,817 $ ( 84,719 ) $ 902,666

6 unchanged sentences

Stock option exercises 178,845 — 1,129 — — 1,129

Stock option compensation expense — — 261 — — 261

Restricted stock compensation expense — — 6,306 — — 6,306

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense — — — 249 — 249

— — — 208 — 208

Cash dividends ($ 0.03 per share)

— — — ( 1,345 ) — ( 1,345 )

Balance at September 30, 2022

Balance at March 31, 2024

44,938,673 — $ 349,648 $ 669,307 $ ( 91,237 ) $ 927,718

Live Oak Bancshares, Inc.

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

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

(Dollars in thousands)

Nine Months Ended

Common stock Retained

earnings Accumulated

comprehensive

income (loss)

Shares Amount

Class A Class B

Balance at December 31, 2022

1 unchanged sentence

Net income — — — 398 — 398

Other comprehensive loss — — — — ( 26,002 ) ( 26,002 )

Other comprehensive income — — — — 7,923 7,923

Issuance of restricted stock 162,874 — — — — —

3 unchanged sentences

Stock option exercises 35,663 — 367 — — 367

Stock option based compensation expense — — 272 — — 272

Stock option compensation expense — — 133 — — 133

Restricted stock compensation expense — — 6,040 — — 6,040

Adoption of ASU 2022-02

— — — 676 — 676

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense

Cash dividends ($ 0.09 per share)

— — — 286 — 286

Balance at September 30, 2023

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

Balance at December 31, 2021

43,494,046 125,024 $ 312,294 $ 400,893 $ 1,946 $ 715,133

Net income — — — 174,416 — 174,416

Other comprehensive loss — — — — ( 97,188 ) ( 97,188 )

Issuance of restricted stock 172,296 — — — — —

Tax withholding related to vesting of restricted stock and other

— — ( 4,453 ) — — ( 4,453 )

Employee stock purchase program 29,383 — 1,066 — — 1,066

Stock option exercises 160,601 — 1,650 — — 1,650

Stock option based compensation expense — — 886 — — 886

Restricted stock compensation expense — — 14,189 — — 14,189

Non-voting common stock converted to voting common stock in private sale

125,024 ( 125,024 ) — — — —

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense — — — 415 — 415

Cash dividends ($ 0.03 per share)

— — — ( 1,327 ) — ( 1,327 )

Balance at September 30, 2022

Balance at March 31, 2023

44,290,840 — $ 334,672 $ 572,530 $ ( 84,395 ) $ 822,807

See Notes to Unaudited Condensed Consolidated Financial Statements

Live Oak Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows

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

For the three months ended March 31, 2024 and 2023 (unaudited)

(Dollars in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities

3 unchanged sentences

Provision for loan and lease credit losses 16,364 19,021

Amortization of premium on securities, net of accretion 63 3,019

Deferred tax (benefit) expense ( 13,164 ) 17,258

(Accretion) amortization of (discount) premium on securities, net ( 355 ) 171

Deferred tax benefit ( 6,888 ) ( 5,541 )

Originations of loans held for sale ( 203,956 ) ( 191,466 )

1 unchanged sentence

Net gains on sale of loans held for sale ( 11,502 ) ( 10,175 )

Net loss on sale of foreclosed assets — 49

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

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

Net loss on disposal of property and equipment 377 31

Net loss on loans accounted for under fair value option 219 4,529

Net change in servicing assets ( 752 ) ( 3,034 )

Net (gain) loss on disposal of property and equipment ( 4 ) 402

Equity method investments loss (income) 5,022 2,952

Equity security investments losses (gains), net 529 ( 77 )

Renewable energy tax credit investment impairment 69 7,771

(Gain) loss on equity warrant assets ( 5,662 ) —

Renewable energy tax credit investment (recovery) impairment ( 927 ) 69

Stock option compensation expense — 133

Restricted stock compensation expense 6,306 6,040

Stock based compensation excess tax (shortfall) benefit ( 915 ) 876

Stock based compensation excess tax benefit (deficiency) 889 ( 411 )

Lease right-of-use assets and liabilities, net ( 11 ) ( 17 )

6 unchanged sentences

Proceeds from maturities, calls, and principal paydown of investment securities available-for-sale 43,493 21,319

Proceeds from SBA reimbursement/sale of foreclosed assets, net — 432

Maturities of certificates of deposits with other banks 250 500

Loan and lease originations and principal collections, net ( 251,138 ) ( 455,742 )

2 unchanged sentences

Proceeds from sale of equity security investment 535 —

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

Proceeds from sale of premises and equipment 978 —

4 unchanged sentences

Condensed Consolidated Statements of Cash Flows (Continued)

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

For the three months ended March 31, 2024 and 2023 (unaudited)

(Dollars in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from financing activities

14 unchanged sentences

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 assets or SBA receivable

34,864 14,880

Net transfers between foreclosed assets and SBA receivable — 139

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

Unrealized holding (losses) gains on investment securities available-for-sale, net of taxes $ ( 6,518 ) $ 7,923

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

Transfer from premises and equipment, net to other assets 18,540 —

Transfer of loans held for sale to loans and leases held for investment 94,384 35,742

1 unchanged sentence

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense

Accrued premises and equipment additions 2,971 —

Equity method investment commitments 1,008 7,721

15 unchanged sentences

The Bank also lends more broadly to select borrowers outside of those verticals.

The Company’s wholly owned subsidiaries are the Bank, Government Loan Solutions, Inc.

The Company’s wholly owned material subsidiaries are the Bank, Government Loan Solutions, Inc.

(“GLS”), Live Oak Grove, LLC (“Grove”), Live Oak Ventures, Inc.

2 unchanged sentences

GLS primarily provides services in connection with the settlement, accounting, and securitization processes for government guaranteed loans, including loans originated under the SBA 7(a) loan programs and USDA guaranteed loans.

The Grove provides Company employees and business visitors an on-site restaurant location.

The Grove provides Company employees and business visitors with on-site dining.

Live Oak Ventures’ purpose is investing in businesses that align with the Company's strategic initiative to be a leader in financial technology.

5 unchanged sentences

Live Oak Private Wealth provides high-net-worth individuals and families with strategic wealth and investment management services.

During the first quarter of 2022, Jolley Asset Management, LLC (“JAM”) was merged into Live Oak Private Wealth.

JAM was previously a wholly owned subsidiary of Live Oak Private Wealth.

TLH was formed in the third quarter of 2022 to hold land adjacent to the Bank's headquarters consisting of wetlands and other protected property for the use and enjoyment of the Bank's employees and customers.

TLH holds land adjacent to the Bank's headquarters consisting of wetlands and other protected property for the use and enjoyment of the Bank's employees and customers.

The Company generates revenue primarily from net interest income and secondarily through the origination and sale of government guaranteed loans.

6 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 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.

Results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.

The Condensed Consolidated Balance Sheet as of December 31, 2023 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, 2023, filed with the Securities Exchange Commission ( “ SEC ” ) on February 22, 2024 (SEC File No.

2 unchanged sentences

These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes in the Company's 2023 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.

The preparation of financial statements in conformity with United States ( “ U.S.

” ) 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.

Actual results could differ significantly from those estimates.

5 unchanged sentences

Changes in Accounting Estimates

During the first quarter of 2023, the Company refined its allowance for credit losses (“ACL”) methodology for estimating probability of default ( “ PD ” ) and loss given default ( “ LGD ” ).

Additionally, the Company began using internally calculated prepayment rates based on its historical information.

These changes, based on the continued maturity of internal data, resulted in a $ 1.5 million increase in the ACL in the first quarter of 2023.

The Company also refined its methodology for estimating its reserve on unfunded loan commitments by incorporating historical utilization rates on unused lines of credit and updating probability assumptions related to construction loan commitments.

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.

5 unchanged sentences

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.

Live Oak Bancshares, Inc.

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.

During the first quarter of 2024, the Company determined that retention of an idle building and accompanying land adjacent to its main campus was not best suited to serve future expansion plans.

As a result of this determination, the Company entered into a purchase and sale agreement with a third party with expected total proceeds, net of estimated expenses, of $ 20.9 million.

Accordingly, the $ 18.5 million carrying amount of the building and land, now considered held for sale, was reclassified from premises and equipment, net to other assets in the March 31, 2024 Unaudited Condensed Consolidated Balance Sheet.

Any gain associated with the sale of the building will be recorded at the time of the sale.

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.

Certain reclassifications have been made to the prior period's Unaudited Condensed Consolidated Financial Statements to place them on a comparable basis with the current year.

Net income and shareholders' equity previously reported were not affected by these reclassifications.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

5 unchanged sentences

Deferral of the Sunset Date of Topic 848” was issued deferring the sunset date of Topic 848.

With the amendments, the ASU can be adopted by the Company as of March 12, 2020, through December 31, 2024.

The Company does not believe these standards will have a material impact on its consolidated financial statements.

As subsequently amended, the guidance in the ASU can be applied by the Company through December 31, 2024.

To address the discontinuance of LIBOR, the Company stopped originating variable LIBOR-based loans effective December 31, 2021 and started to negotiate loans using the preferred replacement index, the Secured Overnight Financing Rate (“SOFR”) or a relevant duration U.S.

Treasury rate.

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 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.

In March 2022, the FASB issued ASU No.

2022-02 “Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures” (“ASU 2022-02”).

ASU 2022-02 eliminates the accounting guidance for TDRs by creditors in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors , while enhancing disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty.

Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost .

The Company adopted the standard on January 1, 2023 using the modified retrospective method resulting in a net increase to retained earnings of $ 676 thousand.

As of March 31, 2024, the Company has transitioned all its LIBOR-based loan exposure to an alternative index.

The application of the standard did not have a material effect on the consolidated financial statements.

In June 2022, the FASB issued ASU No.

1 unchanged sentence

ASU 2022-03 indicates a contractual sale restriction on equity securities should not be considered in measuring fair value, however, disclosure should be made about such restrictions.

The amendments in this standard will be effective for the Company on January 1, 2024.

The Company does not believe this standard will have a material impact on its consolidated financial statements.

The Company adopted the standard on January 1, 2024 with no material effect on its consolidated financial statements.

In March 2023, the FASB issued ASU No.

2 unchanged sentences

ASU 2023-02 permits companies to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

The Company adopted the standard on January 1, 2024 with no material effect on its consolidated financial statements.

In October 2023, the FASB issued ASU No.

2023-06 “Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”).

ASU 2023-06 amends the ASC to incorporate certain disclosure requirements from SEC Release No.

33-10532 - Disclosure Update and Simplification that was issued in 2018.

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

The Company does not believe this standard will have a material impact on its consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07 “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” (“ASU 2023-07”).

ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The amendments in this standard will be effective for the Company for the fiscal year ended December 31, 2024 and subsequent interim periods.

The amendments will be applied retrospectively to all prior periods in the consolidated financial statements.

The Company is currently evaluating the impact the amendments will have on the consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No.

2023-09 “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures” (“ASU 2023-09”).

ASU 2023-09 requires enhanced income tax disclosures primarily related to the rate reconciliation and income taxes paid information to provide more transparency by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation table and (ii) income taxes paid, net of refunds, to be disaggregated by jurisdiction based on an established threshold.

The amendments in this standard will be effective for the Company on January 1, 2025.

The Company is currently evaluating the impact the amendments will have the consolidated financial statements and related disclosures.

In March 2024, the FASB issued ASU 2024-01 “Compensation - Stock Compensation (Topic 718):

Scope Application of Profits Interest and Similar Awards” (“ASU 2024-01”).

ASU 2024-01 adds an illustrative example to clarify how an entity should determine whether a profits interest or similar award is within the scope of ASC 718.

The amendments in this standard will be effective for the Company on January 1, 2025.

The Company does not believe this standard will have a material impact on its consolidated financial statements.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

In March 2024, the FASB issued ASU 2024-02 “Codification Improvements - Amendments to Remove References to the Concepts Statements” (“ASU 2024-02”).

ASU 2024-02 removes references to various Concepts Statements in the Codification.

The amendments in this standard will be effective for the Company on January 1, 2025.

The Company does not believe this standard will have a material impact on its consolidated financial statements.

Earnings Per Share

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Basic earnings per share:

11 unchanged sentences

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

September 30, 2023 Amortized

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

March 31, 2024 Amortized

government agencies $ 15,081 $ — $ 340 $ 14,741

Mortgage-backed securities 1,222,395 428 119,947 1,102,876

2 unchanged sentences

December 31, 2023

US government agencies $ 16,080 $ — $ 412 $ 15,668

government agencies $ 17,809 $ 2 $ 282 $ 17,529

Mortgage-backed securities 1,216,624 466 111,498 1,105,592

Municipal bonds 3,200 — 161 3,039

Other debt securities 500 — — 500

Total $ 1,237,633 $ 468 $ 111,941 $ 1,126,160

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.

During the three months ended March 31, 2024, one security totaling $ 14.7 million was settled and one security totaling $ 2.5 million was called.

During the three months ended March 31, 2023, no securities were sold or 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 September 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 $ 3.3 million at March 31, 2024 and December 31, 2023, 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

September 30, 2023 Fair

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

March 31, 2024 Fair

government agencies $ — $ — $ 14,741 $ 340 $ 14,741 $ 340

Mortgage-backed securities 122,441 1,588 936,335 118,359 1,058,776 119,947

3 unchanged sentences

December 31, 2023 Fair

US government agencies $ 15,668 $ 412 $ — $ — $ 15,668 $ 412

government agencies $ — $ — $ 15,057 $ 282 $ 15,057 $ 282

Mortgage-backed securities 138,823 3,431 886,699 108,067 1,025,522 111,498

1 unchanged sentence

Total $ 138,823 $ 3,431 $ 904,795 $ 108,510 $ 1,043,618 $ 111,941

Management evaluates available-for-sale debt securities to determine whether the unrealized loss is due to credit-related factors or non-credit-related factors.

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 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.

At March 31, 2024, there were 416 mortgage-backed securities, five U.S.

government agencies and two municipal bonds in unrealized loss positions for greater than 12 months.

There were 35 mortgage-backed securities in unrealized loss positions for less than 12 months.

Unrealized losses at December 31, 2023 were comprised of 409 mortgage-backed securities, five U.S.

government agencies and two municipal bond in unrealized loss positions for greater than 12 months and 27 mortgage-backed securities in unrealized loss positions for less than 12 months.

These unrealized losses are primarily the result of non-credit-related volatility in the market and market interest rates.

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 September 30, 2023 and December 31, 2022 were backed by U.S.

Since none of the unrealized losses relate to the issuers' ability to honor redemption obligations, and the Company does not intend to sell the related securities and does not believe it is more likely than not that it will be required to sell the securities before recovery of amortized cost, 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 March 31, 2024 and December 31, 2023 were backed by U.S.

government sponsored enterprises (“GSEs”).

2 unchanged sentences

The following is a summary of investment securities by maturity:

September 30, 2023

March 31, 2024

Available-for-Sale

Amortized Cost Fair Value

US government agencies

government agencies

Within one year $ 3,000 $ 2,986

One to five years 12,081 11,755

Five to ten years 2,375 2,261

Total 15,081 14,741

10 unchanged sentences

Total $ 1,240,671 $ 1,120,622

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 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.

The table above reflects contractual maturities.

Actual results will differ as the loans underlying the mortgage-backed securities may prepay sooner than scheduled.

There were no investment securities pledged at March 31, 2024 or December 31, 2023.

Equity Investments

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

The below tables provide additional information related to investments accounted for under these two methods.

2 unchanged sentences

Equity Method Accounting

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

The carrying amount and ownership percentage of each equity method investment at March 31, 2024 and December 31, 2023 is reflected in the following table:

March 31, 2024 December 31, 2023

Amount Ownership % Amount Ownership %

9 unchanged sentences

7,591 2.9 7,611 2.9

Other Fintech investments in private companies (6)

23,821 Various 22,932 Various

Total $ 115,860 $ 118,914

(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.

(1) Includes unfunded commitments of $ 5.0 million as of March 31, 2024 and December 31, 2023.

(2) Includes unfunded commitments of $ 559 thousand as of March 31, 2024 and December 31, 2023.

(3) Includes unfunded commitments of $ 6.2 million and $ 6.3 million as of March 31, 2024 and December 31, 2023, respectively.

(4) Includes unfunded commitments of $ 7.1 million as of March 31, 2024 and December 31, 2023.

(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 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.

(6) As of March 31, 2024, and December 31, 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 March 31, 2024, and December 31, 2023, there was an unfunded commitment of $ 6.4 million and $ 7.7 million, respectively, for Estrella Landing.

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”), EG5 CSP1 Holding LLC (“HEP”) and HRE MM I LLC ("Heelstone"), which the Company holds a 99.0 % limited member interest in all investments.

As of March 31, 2024, there was an unfunded commitment of $ 1.0 million for Heelstone, while there was no unfunded commitment as of December 31, 2023.

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 91.0 %, 32.3 %, and 11.5 % of limited member interests, respectively.

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.

As of December 31, 2022, Other investments include Green Sun, Sun Vest, and HEP, which the Company holds a 99.0 % limited member interest in all investments.

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 September 30, 2023, this commitment has been funded.

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

Live Oak Bancshares, Inc.

1 unchanged sentence

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 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

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 March 31, 2024 and as of and for the three months ended March 31, 2024 and 2023 is reflected in the following table:

As of and for the three month period ended

Cumulative Adjustments March 31, 2024 March 31, 2023

Carrying value (1)

3 unchanged sentences

Upward changes for observable prices (2)

50,492 — 2,022

Downward changes for observable prices ( 1,980 ) ( 369 ) —

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

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

Net upward (downward) change $ 48,568 $ ( 313 ) $ —

(1) Includes $ 2.3 million and $ 3.3 million in unfunded commitments as of March 31, 2024, and March 31, 2023, 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 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.

For the three months ended March 31, 2024 and 2023 the Company recognized unrealized gains (losses) on all equity securities held at the reporting date of $( 490 ) thousand and $ 16 thousand, respectively.

Variable Interest Entities

14 unchanged sentences

The Company’s limited partnership investments in the Canapi Funds focus on providing venture capital to new and emerging financial technology companies.

After initial commitment and over the course of the investment period, the Company will make capital contributions and receive profit and return of capital distributions as a result of fund performance until the funds wind down.

After the initial commitment and over the course of the investment period, the Company will make capital contributions and receive profit and return of capital distributions as a result of fund performance until the funds wind down.

Non-marketable and Other Equity Investments

7 unchanged sentences

The Company’s maximum exposure to loss from unconsolidated VIEs includes the investment recorded on the Company’s Unaudited Condensed Consolidated Balance Sheets.

For solar ITC investments, the balance sheet figures are net of any impairment recognized, and includes previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level.

For solar tax credit investments, the balance sheet figures are net of any impairment recognized, and includes previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level.

While the Company believes the potential for loss from these investments is remote, the maximum exposure for solar tax credit investments was determined by assuming a scenario where related tax credits were recaptured.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

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

The following table provides a summary of the VIEs that the Company has not consolidated as of March 31, 2024 and December 31, 2023:

March 31, 2024 Investment Carrying Amount Maximum Exposure to Loss Liability Recognized Classification

Solar tax credit investments $ 7,638 $ 40,437 $ 1,008 Other assets (1)

3 unchanged sentences

December 31, 2023 Investment Carrying Amount Maximum Exposure to Loss Liability Recognized Classification

Solar tax credit investments $ 5,221 $ 24,295 $ 2,641 Other assets & other liabilities (3)

Affordable housing 7,255 7,255 — Other assets

Solar tax credit investments $ 6,714 $ 48,869 $ — Other assets (3)

Affordable housing 15,611 15,611 7,715 Other assets & other liabilities (4)

Canapi Funds 35,300 35,300 18,930 Other assets & other liabilities

2 unchanged sentences

(2) Maximum exposure to loss represents $ 15.6 million of investments.

As there are no tax credits allocated in the current year, there is no increase to the maximum exposure to loss related to recaptured tax credits on the $ 8.8 million LIHTC investment.

As there are no tax credits allocated in the current year, there is no increase to the maximum exposure to loss related to recaptured tax credits on the $ 8.8 million LIHTC investment as of March 31, 2024.

(3) Maximum exposure to loss represents $ 6.7 million of current investments and a scenario in which related tax credits are recaptured, collectively totaling $ 42.2 million.

(4) Maximum exposure to loss represents $ 15.6 million of investments.

As there are no tax credits allocated in the current year, there is no increase to the maximum exposure to loss related to recaptured tax credits on the $ 8.8 million LIHTC investment.

Live Oak Bancshares, Inc.

9 unchanged sentences

Total Loans and Leases

September 30, 2023

March 31, 2024

Commercial & Industrial

18 unchanged sentences

Total $ 8,404,171 $ 37,441 $ 114,069 $ 151,510 $ 8,555,681 $ 379,222 $ 8,934,903

Retained Loan Discount ( 33,783 )

Net Deferred Cost 17,325

Retained Loan Discount and Net Deferred Costs $ ( 22,342 )

Loans and Leases, Net $ 8,912,561

30 unchanged sentences

Total $ 8,139,864 $ 41,231 $ 86,734 $ 127,965 $ 8,267,829 $ 388,036 $ 8,655,865

Retained Loan Discount ( 23,893 )

Net Deferred Cost 19,459

Retained Loan Discount and Net Deferred Costs $ ( 22,018 )

Loans and Leases, Net $ 8,633,847

12 unchanged sentences

Converted to Term Total (1)

September 30, 2023

March 31, 2024

Small Business Banking

19 unchanged sentences

Small Business Banking $ — $ 837 $ 2,487 $ 158 $ — $ — $ 150 $ — $ 3,632

Specialty Lending — — — — — — 7,966 — 7,966

Total $ — $ 837 $ 2,487 $ 158 $ — $ — $ 150 $ — $ 3,632

25 unchanged sentences

Total $ 2,036,254 $ 2,193,204 $ 1,853,492 $ 860,080 $ 500,089 $ 417,584 $ 326,786 $ 80,340 $ 8,267,829

(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.

Current Period Gross Charge-offs

Small Business Banking $ — $ 5,621 $ 6,435 $ 1,058 $ 1,225 $ 525 $ 1,097 $ — $ 15,961

Specialty Lending — — — — — — 7,966 — 7,966

Total $ — $ 5,621 $ 6,435 $ 1,058 $ 1,225 $ 525 $ 9,063 $ — $ 23,927

(1) Excludes $ 379.2 million and $ 388.0 million of loans accounted for under the fair value option as of March 31, 2024 and December 31, 2023, respectively.

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

September 30, 2023 Loan and Lease

March 31, 2024 Loan and Lease

Guaranteed Balance Unguaranteed Balance % Guaranteed

3 unchanged sentences

Total $ 8,555,681 $ 3,075,403 $ 5,480,278 35.9 %

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2023 Loan and Lease

4 unchanged sentences

Total $ 8,267,829 $ 2,967,395 $ 5,300,434 35.9 %

(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.

Notes to Unaudited Condensed Consolidated Financial Statements

(1) Excludes $ 379.2 million and $ 388.0 million of loans accounted for under the fair value option as of March 31, 2024 and December 31, 2023, respectively.

Nonaccrual Loans and Leases

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

As of March 31, 2024 and December 31, 2023 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 months ended March 31, 2024 and 2023.

Accrued interest receivable on loans totaled $ 67.6 million and $ 63.5 million at March 31, 2024 and December 31, 2023 , respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

Nonaccrual loans and leases held for investment as of March 31, 2024 and December 31, 2023 are as follows:

March 31, 2024 Loan and Lease

Balance Unguaranteed Balance Unguaranteed

2 unchanged sentences

Small Business Banking $ 64,543 $ 53,725 $ 10,818 $ 407

Payroll Protection Program 4 4 — —

Energy & Infrastructure 6,716 2,794 3,922 2,178

Total 71,263 56,523 14,740 2,585

Construction & Development

Small Business Banking 2,502 2,263 239 —

Total 2,502 2,263 239 —

Commercial Real Estate

7 unchanged sentences

Total $ 148,468 $ 105,351 $ 43,117 $ 22,379

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2023 Loan and Lease Balance (1)

3 unchanged sentences

Small Business Banking $ 47,558 $ 39,018 $ 8,540 $ 407

Specialty Lending — — — —

Energy & Infrastructure 6,850 2,794 4,056 2,546

Total 54,408 41,812 12,596 2,953

Construction & Development

Small Business Banking 1,745 1,309 436 —

Total 1,745 1,309 436 —

Commercial Real Estate

Small Business Banking 57,140 44,426 12,714 8,199

Specialty Lending 12,032 — 12,032 12,032

Energy & Infrastructure 3,072 2,799 273 —

4 unchanged sentences

Total $ 134,963 $ 95,678 $ 39,285 $ 23,378

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

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

Fair Value of Financial Instruments for additional information.

3 unchanged sentences

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Commercial & Industrial $ 610 $ 211

Commercial Real Estate 119 58

Commercial Land — — — 105

Construction & Development 30 —

Total $ 759 $ 269

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:

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 March 31, 2024 and December 31, 2023:

Total Collateral-Dependent Loans Unguaranteed Portion

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

March 31, 2024 Real Estate Business Assets Other Real Estate Business Assets Other Allowance for Credit Losses

Commercial & Industrial

14 unchanged sentences

Small Business Banking $ 2,737 $ 2,426 $ — $ 421 $ 547 $ — $ 277

Specialty Lending — 4,711 — — 4,711 — —

Energy & Infrastructure — 3,022 — — 227 — —

16 unchanged sentences

Real Estate Commercial

September 30, 2023

March 31, 2024

Beginning Balance $ 87,581 $ 4,717 $ 28,864 $ 4,678 $ 125,840

3 unchanged sentences

Ending Balance $ 98,552 $ 4,292 $ 31,369 $ 4,828 $ 139,041

September 30, 2022

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

Charge offs ( 1,528 ) — ( 945 ) — ( 2,473 )

Recoveries 240 — 481 11 732

Provision 9,023 1,982 3,155 9 14,169

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

Nine Months Ended Commercial

& Industrial Construction &

Development Commercial

Real Estate Commercial

September 30, 2023

March 31, 2023

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

4 unchanged sentences

Ending Balance $ 72,058 $ 6,954 $ 25,062 $ 4,168 $ 108,242

September 30, 2022

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

Charge offs ( 6,163 ) — ( 1,378 ) ( 652 ) ( 8,193 )

Recoveries 420 — 1,197 11 1,628

Provision 16,886 2,051 1,644 691 21,272

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

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 nine months ended September 30, 2023.

During the three months ended March 31, 2024, the ACL increased as a result of specific reserve changes on individually evaluated loans and to a lesser extent continued growth of the loan and lease portfolio combined with charge-off related impacts.

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

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.

During the three months ended March 31, 2023, the ACL increased as a result of continued loan growth, combined with portfolio trends and changes in the macroeconomic outlook.

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 three months ended March 31, 2023.

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

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Loan Modifications for Borrowers Experiencing Financial Difficulty

2 unchanged sentences

The Company typically does not offer principal forgiveness.

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

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

Payment Delay Term Extension Interest Rate Reduction

Combination - Term Extension & Payment Delay % of Total Class of

Financing Receivable

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

Total $ 10,117 $ 5,184 $ — $ — 0.3 %

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

During the three months ended March 31, 2024, there were no loan modifications to borrowers experiencing financial difficulty.

The following table summarizes the amortized cost basis of loans that were modified during the three months ended March 31, 2023:

Three Months Ended March 31, 2023 Other-Than-Insignificant

Payment Delay Term Extension Interest Rate Reduction % of Total Class of

Financing Receivable

3 unchanged sentences

Total $ 4,183 $ 13,517 $ 3,436 2.67 %

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.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

As of March 31, 2024, the Company had no commitments to lend additional funds to these borrowers.

The following table presents an aging analysis of loans that were modified within the twelve months ended March 31, 2024:

Current 30-89 Days

4 unchanged sentences

Total $ 32,977 $ — $ — $ —

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

Three Months Ended September 30, 2023

Weighted Average

Interest Rate Reduction Weighted Average

Term Extension (in Months)

Small Business Banking — % 60

Nine Months Ended September 30, 2023

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the prior period:

Three Months Ended March 31, 2023

Weighted Average

2 unchanged sentences

Small Business Banking 1.45 % 0

Specialty Lending — 70

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

Additionally, there were no loans that were modified within the twelve months ended March 31, 2024 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.

2 unchanged sentences

As a result, the impact of loss mitigation strategies is captured in the estimates of PD and LGD.

Troubled Debt Restructurings

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

Three Months Ended September 30, 2022

Interest Only Payment Deferral Extend Amortization Other (1)

Total TDRs (2)

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 — $ — 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.

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)

Total TDRs (2)

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 — $ — 6 $ 10,192 3 $ 1,674 1 $ 527 10 $ 12,393

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

Total — — 7 10,926 3 1,674 1 527 11 13,127

Commercial Real Estate

Small Business Banking — — — — 1 4,847 — — 1 4,847

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

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

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:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Gross direct finance lease payments receivable $ 1,938 $ 2,335

1 unchanged sentence

Net investment in direct financing leases $ 1,760 $ 2,117

Future minimum lease payments under finance leases are as follows:

As of September 30, 2023

Total $ 2,716

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

Future minimum lease payments under finance leases are as follows:

As of March 31, 2024

Total $ 1,938

Interest income of $ 18 thousand and $ 73 thousand was recognized in the three months ended March 31, 2024 and 2023, respectively.

Operating Leases

9 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 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.

As of March 31, 2024 and December 31, 2023, the Company had a net investment of $ 100.7 million and $ 104.0 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 $ 160.7 million and $ 162.3 million as of March 31, 2024 and December 31, 2023, respectively.

Accumulated depreciation was $ 60.0 million and $ 58.3 million as of March 31, 2024 and December 31, 2023, respectively.

Depreciation expense recognized on these assets was $ 2.4 million for the three months ended March 31, 2024 and 2023.

Lease income of $ 2.4 million was recognized in the three months ended March 31, 2024 and 2023.

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

As of September 30, 2023

As of March 31, 2024

Thereafter 9,708

Total $ 47,478

Servicing Assets

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 $ 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:

Servicing Assets

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 $ 3.15 billion and $ 3.09 billion at March 31, 2024 and December 31, 2023, respectively.

The unpaid principal balance for all loans serviced for others was $ 4.33 billion and $ 4.24 billion at March 31, 2024 and December 31, 2023, respectively.

The following table summarizes the activity pertaining to servicing rights measured at fair value:

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Balance at beginning of period $ 48,186 $ 26,323

2 unchanged sentences

Due to changes in valuation inputs or assumptions 221 2,624

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

Decay due to increases in principal paydowns or runoff ( 2,965 ) ( 2,268 )

Balance at end of period $ 48,962 $ 29,357

(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.

Fair Value of Financial Instruments for further details about servicing assets measured at fair value.

The fair value of servicing rights was determined using a weighted average discount rate of 14.5 % on March 31, 2024 and 17.7 % on March 31, 2023.

The fair value of servicing rights was determined using a weighted average prepayment speed of 15.7 % on March 31, 2024 and 15.3 % on March 31, 2023, 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.

The fair value of servicing rights is highly sensitive to changes in underlying assumptions.

Changes in prepayment speed assumptions typically have the most significant impact on the fair value of servicing rights.

Generally, as interest rates rise on variable rate loans, loan prepayments increase due to an increase in refinance activity, which results in a decrease in the fair value of servicing assets, however, weakening economic conditions or significant declines in interest rates can also increase loan prepayment activity.

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.

As of March 31, 2024, the Company had servicing assets related to conventional commercial loans carried at amortized cost of $ 381 thousand .

Live Oak Bancshares, Inc.

1 unchanged sentence

Total outstanding borrowings consisted of the following:

September 30,

2024 December 31,

3 unchanged sentences

$ 20,842 $ 23,354

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 September 30, 2023.

In March 2024, the Company entered into a 60 -month term loan agreement of $ 100.0 million with a third party correspondent bank.

The loan accrues interest at a fixed rate of 5.95 % with monthly interest payments until maturity on March 28, 2029 , and $ 33.0 million of principal to be paid in year 4, and $ 67.0 million of principal to be paid in year 5.

The Company paid the Lender a non-refundable $ 600 thousand loan origination fee upon signing of the Note that is represented as a direct deduction from the carrying amount of the loan and will be amortized into interest expense over the life of the loan.

Total borrowings $ 120,242 $ 23,354

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.

As of December 31, 2022 the Company's unused borrowing capacity was $ 3.55 billion based upon securities and loans identified as available for collateral and $ 4.88 billion based principally upon the stated available limits from sources mentioned above.

New borrowing capacity added in the first quarter of 2023 was from the Bank Term Funding Program (“BTFP”).

Under the BTFP, advances must be secured by pledging eligible securities owned by the Company on March 12, 2023.

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.

As of March 31, 2024 and December 31, 2023, the Company’s unused borrowing capacity was $ 3.51 billion and $ 3.68 billion, respectively, based upon securities and loans identified as available for collateral.

If additional collateral is available, the Company's aggregate borrowing capacity with all of the above sources is $ 6.19 billion and $ 6.28 billion as of March 31, 2024 and December 31, 2023, respectively.

Fair Value of Financial Instruments

6 unchanged sentences

Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Recurring Fair Value

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

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

Three Months Ended March 31,

Equity Warrant Assets 2024 2023

4 unchanged sentences

Balance at end of period $ 8,700 $ 2,187

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

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

March 31, 2024 Total Level 1 Level 2 Level 3

Investment securities available-for-sale

15 unchanged sentences

3,039 — 2,954 85

Other debt securities

Loans held for investment 388,036 — — 388,036

4 unchanged sentences

Total assets at fair value $ 1,566,901 $ — $ 1,127,720 $ 439,181

(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.

(1) During the three months ended March 31, 2024 there was no level 3 fair value adjustment gain or loss.

During the three months ended March 31, 2023, the Company recorded a level 3 fair value adjustment loss of $ 10 thousand.

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

3 unchanged sentences

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 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

There were no loans accounted for under the fair value option that were 90 days or more past due and still accruing interest at March 31, 2024 or December 31, 2023.

The unpaid principal balance of unguaranteed exposure for nonaccruals was $ 10.2 million and $ 9.1 million at March 31, 2024 and December 31, 2023, respectively.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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 March 31, 2024 and December 31, 2023.

March 31, 2024

Total Loans Nonaccruals 90 Days or More Past Due

7 unchanged sentences

Loans held for investment $ 379,222 $ 397,990 $ ( 18,768 ) $ 55,562 $ 58,280 $ ( 2,718 ) $ 43,502 $ 45,252 $ ( 1,750 )

$ 410,128 $ 429,643 $ ( 19,515 ) $ 45,896 $ 48,202 $ ( 2,306 ) $ 30,388 $ 31,581 $ ( 1,193 )

December 31, 2023

8 unchanged sentences

Loans held for investment $ 388,036 $ 407,544 $ ( 19,508 ) $ 48,474 $ 50,749 $ ( 2,275 ) $ 36,490 $ 37,939 $ ( 1,449 )

$ 494,458 $ 513,219 $ ( 18,761 ) $ 44,890 $ 46,993 $ ( 2,103 ) $ 24,663 $ 26,321 $ ( 1,658 )

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

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

Three Months Ended March 31,

Gains (Losses) on Loans Accounted for under the Fair Value Option 2024 2023

Loans held for sale $ — $ 1,748 $ — $ 1,521

Loans held for investment $ ( 219 ) $ ( 4,529 )

$ ( 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 $ 0 and $ 3.2 million for the three months ended March 31, 2024 and 2023, respectively.

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

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

Loans held for sale 2023 2022 2023 2022

Balance at beginning of period $ — $ 23,452 $ — $ 25,310

Repurchases — — — 65

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 September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Loans held for investment 2024 2023

2 unchanged sentences

Fair value changes ( 219 ) ( 4,529 )

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

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

Settlements ( 17,160 ) ( 34,813 )

Balance at end of period $ 379,222 $ 466,950

(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.

September 30, 2023 Total Level 1 Level 2 Level 3

March 31, 2024 Total Level 1 Level 2 Level 3

Collateral-dependent loans $ 5,425 $ — $ — $ 5,425

1 unchanged sentence

Total assets at fair value $ 7,505 $ — $ — $ 7,505

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2023 Total Level 1 Level 2 Level 3

Collateral-dependent loans $ 4,503 $ — $ — $ 4,503

Foreclosed assets 6,481 — — 6,481

Total assets at fair value $ 10,984 $ — $ — $ 10,984

1 unchanged sentence

Fair Value of Financial Instruments in the Company’s 2023 Form 10-K.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Level 3 Analysis

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

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of March 31, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

March 31, 2024

Level 3 Assets with Significant Unobservable Inputs

6 unchanged sentences

Prepayment speed 14.3 % - 30.6 %

Servicing assets $ 48,962 Discounted expected cash flows Discount rate 14.5 % 14.5 %

Prepayment speed 12.0 % - 18.2 %

Equity warrant assets $ 8,700 Black-Scholes option pricing model Volatility 26.5 % - 90.0 %

6 unchanged sentences

Foreclosed assets $ 2,080 Discounted appraisals Appraisal adjustments (2)

10.0 % 10.0 %

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2023

9 unchanged sentences

Prepayment speed 14.0 % - 30.3 %

Discounted appraisals Appraisal adjustments 0.0 % - 77.3 %

Servicing assets $ 48,186 Discounted expected cash flows Discount rate 14.5 % 14.5 %

Prepayment speed 11.8 % - 17.8 %

Equity warrant assets $ 2,874 Black-Scholes option pricing model Volatility 26.9 % - 90.0 %

6 unchanged sentences

10.0 % - 70.0 %

Foreclosed assets $ 6,481 Discounted appraisals Appraisal adjustments (2)

10.0 % - 17.4 %

(1) Weighted averages are determined by the relative fair value of the instruments or the relative contribution to the instruments fair value.

(2) Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and other qualitative adjustments.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Estimated Fair Value of Other Financial Instruments

GAAP also requires disclosure of the fair value of financial instruments carried at book value on the Unaudited Condensed Consolidated Balance Sheets.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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:

September 30, 2023 Carrying

March 31, 2024 Carrying

Identical Assets/Liabilities

17 unchanged sentences

Cash and due from banks $ 582,540 $ 582,540 $ — $ — $ 582,540

Federal funds sold 136,397 136,397 — — 136,397

Certificates of deposit with other banks 250 250 — — 250

7 unchanged sentences

Management believes that the outcome of such proceedings will not materially affect the financial position, results of operations or cash flows of the Company.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Financial Instruments with Off-Balance-Sheet Risk

2 unchanged sentences

These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the balance sheet.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.

1 unchanged sentence

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Commitments to extend credit (1)

15 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 $ 4.6 million and $ 1.5 million at September 30, 2023 and December 31, 2022, respectively.

The allowance for off-balance-sheet credit exposures was $ 5.8 million and $ 4.8 million at March 31, 2024 and December 31, 2023, respectively.

Other Commitments

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

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

The total estimated cost to complete the construction program is approximately $ 37.4 million.

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.

At March 31, 2024, the Company has paid and was committed to approximately $ 30.7 million of the total estimated amount.

As of March 31, 2024 and December 31, 2023, the Company recorded unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of $ 27.5 million and $ 29.0 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-nine relationships that have a retained unguaranteed exposure of $ 1.05 billion of which $ 673.1 million of the unguaranteed exposure has been disbursed.

The Company generally 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 $ 1.12 billion of which $ 694.6 million of the unguaranteed exposure has been disbursed.

Additionally, the Company has future minimum lease payments receivable under non-cancelable operating leases totaling $ 47.5 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:

The following table presents the geographic concentration of the Company's loan and lease portfolio at March 31, 2024:

Geographic Regions (1)

10 unchanged sentences

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

On March 20, 2015, the Company adopted the 2015 Omnibus Stock Incentive Plan (as amended and currently in effect, the “2015 Omnibus Stock Incentive Plan”) which replaced the previously existing Amended Incentive Stock Option Plan and Nonstatutory Stock Option Plan.

Subsequently on May 24, 2016, the 2015 Omnibus Stock Incentive Plan was amended and restated, and on May 15, 2018, the 2015 Omnibus Stock Incentive Plan was amended, to authorize awards covering a maximum of 7,000,000 and 8,750,000 common voting shares, respectively.

On May 11, 2021, the Amended and Restated 2015 Omnibus Stock Incentive Plan was amended to authorize awards covering a maximum of 10,750,000 common voting shares.

Subsequently on May 16, 2023, the 2015 Omnibus Stock Incentive Plan was amended to authorize awards covering a maximum of 13,750,000 common voting shares.

Options or restricted shares granted under the 2015 Omnibus Stock Incentive Plan expire no more than 10 years from date of grant.

Exercise prices under the 2015 Omnibus Stock Incentive Plan are set by the Board of Directors at the date of grant but shall not be less than 100 % of fair market value of the related stock at the date of the grant.

Forfeitures are recognized as they occur.

Restricted Stock

Restricted stock awards are authorized in the form of restricted stock awards or units (“RSU”s).

RSUs have a restriction based on the passage of time and may also have a restriction based on a non-market-related performance criteria.

The fair value of the RSUs is based on the closing price on the date of the grant.

For the three months ended March 31, 2024, 457,167 RSUs were granted with a weighted average grant date fair value of $ 39.40 .

At March 31, 2024, unrecognized compensation costs relating to RSUs amounted to $ 88.0 million which will be recognized over a weighted average period of 3.82 years.

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.

2 unchanged sentences

The primary source of revenue for this segment is net interest income and secondarily the origination and sale of government guaranteed loans.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Fintech - This segment is involved in making strategic investments into emerging financial technology companies.

1 unchanged sentence

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 September 30, 2023

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

Interest expense 90,914 — 287 91,201

Net interest income (loss) 89,502 ( 6 ) ( 86 ) 89,410

Provision for loan and lease credit losses 10,279 — — 10,279

Noninterest income 35,730 1,652 509 37,891

Noninterest expense 69,480 3,069 1,713 74,262

Income tax expense (benefit) 3,084 ( 5 ) ( 112 ) 2,967

Net income (loss) $ 42,389 $ ( 1,418 ) $ ( 1,178 ) $ 39,793

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

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

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

Interest expense 31,581 — 367 31,948

Net interest income (loss) 84,238 8 ( 360 ) 83,886

Provision for loan and lease credit losses 14,169 — — 14,169

Noninterest income 27,268 29,980 476 57,724

Noninterest expense 78,474 2,495 2,079 83,048

Income tax expense (benefit) 1,344 416 ( 235 ) 1,525

Net income (loss) $ 17,519 $ 27,077 $ ( 1,728 ) $ 42,868

Total assets $ 9,140,943 $ 163,304 $ 10,403 $ 9,314,650

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Banking Fintech Other Consolidated

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

As of and for the three months ended March 31, 2024

Interest income $ 192,269 $ 23 $ 128 $ 192,420

7 unchanged sentences

Total assets $ 11,362,230 $ 138,444 $ 4,895 $ 11,505,569

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

As of and for the three months ended March 31, 2023

Interest income $ 151,269 $ 12 $ 135 $ 151,416

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