What changed in this filing

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Item 1. Financial Statements

2024-11-05 compared with 2024-08-06 · 264 added, 205 removed, 1086 unchanged (30% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

As of June 30, 2024 (unaudited) and December 31, 2023*

As of September 30, 2024 (unaudited) and December 31, 2023

(Dollars in thousands)

September 30,

2024 December 31,

21 unchanged sentences

Shareholders’ equity

Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding at June 30, 2024 and December 31, 2023

Class A common stock, no par value, 100,000,000 shares authorized, 45,003,856 and 44,617,673 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding at September 30, 2024 and December 31, 2023

Class A common stock, no par value, 100,000,000 shares authorized, 45,151,691 and 44,617,673 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

361,925 344,568

Class B common stock, no par value, 10,000,000 shares authorized, none issued or outstanding at June 30, 2024 and December 31, 2023

Class B common stock, no par value, 10,000,000 shares authorized, none issued or outstanding at September 30, 2024 and December 31, 2023

Retained earnings 707,026 642,817

2 unchanged sentences

Total liabilities and shareholders’ equity $ 12,607,346 $ 11,271,423

* Derived from audited consolidated financial statements.

See Notes to Unaudited Condensed Consolidated Financial Statements

1 unchanged sentence

Condensed Consolidated Statements of Income

For the three and six months ended June 30, 2024 and 2023 (unaudited)

For the three and nine months ended September 30, 2024 and 2023 (unaudited)

(Dollars in thousands, except per share data)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

43 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income

For the three and six months ended June 30, 2024 and 2023 (unaudited)

For the three and nine months ended September 30, 2024 and 2023 (unaudited)

(Dollars in thousands)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

10 unchanged sentences

Condensed Consolidated Statements of Changes in Shareholders’ Equity

For the three and six months ended June 30, 2024 and 2023 (unaudited)

For the three and nine months ended September 30, 2024 and 2023 (unaudited)

(Dollars in thousands)

6 unchanged sentences

Class A Class B

Balance at March 31, 2024

Balance at June 30, 2024

45,003,856 — $ 356,381 $ 695,172 $ ( 90,504 ) $ 961,049

4 unchanged sentences

— — ( 2,356 ) — — ( 2,356 )

Employee stock purchase program 16,445 — 747 — — 747

Stock option exercises 52,988 — 539 — — 539

3 unchanged sentences

— — — ( 1,354 ) — ( 1,354 )

Balance at June 30, 2024

Balance at September 30, 2024

45,151,691 — $ 361,925 $ 707,026 $ ( 61,195 ) $ 1,007,756

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

5 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

1 unchanged sentence

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

For the three and six months ended June 30, 2024 and 2023 (unaudited)

For the three and nine months ended September 30, 2024 and 2023 (unaudited)

(Dollars in thousands)

Six Months Ended

Nine Months Ended

Common stock Retained

7 unchanged sentences

Net income — — — 67,574 — 67,574

Other comprehensive loss — — — — ( 5,785 ) ( 5,785 )

Other comprehensive income — — — — 23,524 23,524

Issuance of restricted stock 247,685 — — — — —

8 unchanged sentences

— — — ( 4,049 ) — ( 4,049 )

Balance at June 30, 2024

Balance at September 30, 2024

45,151,691 — $ 361,925 $ 707,026 $ ( 61,195 ) $ 1,007,756

15 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

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2024 and 2023 (unaudited)

For the nine months ended September 30, 2024 and 2023 (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 9 —

Net loss on loans accounted for under fair value option 47 2,801

Net (gain) loss on loans accounted for under fair value option ( 2,208 ) 3,369

Net change in servicing assets ( 3,962 ) ( 20,804 )

Net gain on disposal of long-lived asset ( 6,663 ) —

Net gain on disposal of long-lived assets ( 9,079 ) —

Net loss on disposal of property and equipment 177 377

Equity method investments loss (income) 8,182 6,041

Equity security investments losses (gains), net 368 ( 198 )

Equity security investments (gains) losses, net ( 541 ) 585

Gain on equity warrant assets ( 6,119 ) —

12 unchanged sentences

Proceeds from SBA reimbursement/sale of foreclosed assets, net 583 —

Maturities of certificates of deposits with other banks — 250

Purchases of loans previously sold ( 67,424 ) ( 36,227 )

Loan and lease originations and principal collections, net ( 1,341,740 ) ( 1,204,309 )

9 unchanged sentences

Condensed Consolidated Statements of Cash Flows (Continued)

For the six months ended June 30, 2024 and 2023 (unaudited)

For the nine months ended September 30, 2024 and 2023 (unaudited)

(Dollars in thousands)

Six Months Ended

Nine Months Ended

September 30,

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 $ ( 5,785 ) $ ( 5,262 )

Unrealized holding gains (losses) on investment securities available-for-sale, net of taxes $ 23,524 $ ( 26,002 )

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

10,351 34,864

Transfer from premises and equipment, net to other assets 18,540 14,177

27 unchanged sentences

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

Canapi Advisors provides investment advisory services to a series of funds focused on providing venture capital to new and emerging financial technology companies.

Canapi Advisors provided investment advisory services to a series of funds (the“Canapi Funds”) focused on providing venture capital to new and emerging financial technology companies.

During the third quarter of 2024, the Canapi Funds were restructured and Canapi Advisors voluntarily withdrew as an investment advisor to the funds.

As of September 30, 2024, Live Oak Bancshares, Inc.

and two Company Directors held carried interest in Canapi Ventures Fund, LP.

The Bank’s wholly owned subsidiaries are Live Oak Number One, Inc., Live Oak Clean Energy Financing LLC (“LOCEF”), Live Oak Private Wealth, LLC (“Live Oak Private Wealth”) and Tiburon Land Holdings, LLC (“TLH”).

12 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, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.

Results of operations for the three and nine months ended September 30, 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.

19 unchanged sentences

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.

These estimate changes were implemented as of July 1, 2023 and resulted in nonrecurring 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.

8 unchanged sentences

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

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

During the third quarter of 2024, the building and land were sold for a gain of $ 2.4 million.

Reclassifications

Certain reclassifications have been made to the prior period's 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.

Recent Accounting Pronouncements

32 unchanged sentences

The Company is currently evaluating the impact the amendments will have on the Consolidated Financial Statements and related disclosures.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

In December 2023, the FASB issued ASU No.

4 unchanged sentences

The Company is currently evaluating the impact the amendments will have the Consolidated Financial Statements and related disclosures.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

9 unchanged sentences

Diluted earnings per share $ 0.28 $ 0.88 $ 1.48 $ 1.28

Anti-dilutive stock options and restricted shares 945,063 2,096,220 702,331 2,096,220

Anti-dilutive stock options and restricted stock grants 297,730 700,768 567,464 700,768

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Available-for-Sale

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

June 30, 2024 Amortized

September 30, 2024 Amortized

government agencies $ 11,267 $ 10 $ 83 $ 11,194

2 unchanged sentences

Total $ 1,313,985 $ 2,841 $ 83,360 $ 1,233,466

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2023 Amortized

5 unchanged sentences

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

During the three months ended June 30, 2024, one security totaling $ 155 thousand was settled and one security totaling $ 3.0 million matured.

During the six months ended June 30, 2024, two securities totaling $ 14.8 million were settled, one security totaling $ 2.5 million was called and one security totaling $ 3.0 million matured.

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

Accrued interest receivable on available-for-sale securities totaled $ 3.7 million and $ 3.3 million at June 30, 2024 and December 31, 2023, respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

During the three months ended September 30, 2024, four securities totaling $ 3.7 million were settled.

During the nine months ended September 30, 2024, six securities totaling $ 18.5 million were settled, one security totaling $ 2.5 million was called and one security totaling $ 3.0 million matured.

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.

Accrued interest receivable on available-for-sale securities totaled $ 4.0 million and $ 3.3 million at September 30, 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

June 30, 2024 Fair

September 30, 2024 Fair

government agencies $ — $ — $ 9,886 $ 83 $ 9,886 $ 83

8 unchanged sentences

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

At June 30, 2024, there were 423 mortgage-backed securities, four U.S.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

At September 30, 2024, there were 406 mortgage-backed securities, three U.S.

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

4 unchanged sentences

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 June 30, 2024 and December 31, 2023 were backed by U.S.

All mortgage-backed securities in the Company’s portfolio at September 30, 2024 and December 31, 2023 were backed by U.S.

government sponsored enterprises (“GSEs”).

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The following is a summary of investment securities by maturity:

June 30, 2024

September 30, 2024

Available-for-Sale

17 unchanged sentences

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

There were no investment securities pledged at June 30, 2024 or December 31, 2023.

There were no investment securities pledged at September 30, 2024 or December 31, 2023.

Equity Investments

4 unchanged sentences

Equity Method Accounting

The carrying amount and ownership percentage of each equity method investment at June 30, 2024 and December 31, 2023 is reflected in the following table:

June 30, 2024 December 31, 2023

The carrying amount and ownership percentage of each equity method investment at September 30, 2024 and December 31, 2023 is reflected in the following table:

September 30, 2024 December 31, 2023

Amount Ownership % Amount Ownership %

9 unchanged sentences

7,778 2.9 7,611 2.9

Affordable housing (6)

15,105 Various 15,611 Various

Solar tax credit investments (7)

6,784 99.0 6,714 99.0

1,390 Various 607 Various

Total $ 112,200 $ 118,914

(1) Includes unfunded commitments of $ 4.8 million and $ 5.0 million as of June 30, 2024 and December 31, 2023, respectively.

(2) Includes unfunded commitments of $ 536 thousand and $ 559 thousand as of June 30, 2024 and December 31, 2023, respectively.

(3) Includes unfunded commitments of $ 6.2 million and $ 6.3 million as of June 30, 2024 and December 31, 2023, respectively.

(4) Includes unfunded commitments of $ 7.0 million and $ 7.1 million as of June 30, 2024 and December 31, 2023, respectively.

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

(6) As of June 30, 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.

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 Lessee I, LLC ("Heelstone"), 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 91.0 %, 32.3 %, and 5.9 % of limited member interests, respectively.

As of June 30, 2024, Other investments also includes Capitala SBIC Fund VI, LP which the Company holds less than 1 % limited partner interest, but does maintain potential participation through a lending relationship, with an unfunded commitment of $ 750 thousand.

As of June 30, 2024, and December 31, 2023, there was an unfunded commitment of $ 6.4 million and $ 7.7 million, respectively, for Estrella Landing.

(1) Includes unfunded commitments of $ 5.5 million and $ 5.0 million as of September 30, 2024 and December 31, 2023, respectively.

(2) Includes unfunded commitments of $ 555 thousand and $ 559 thousand as of September 30, 2024 and December 31, 2023, respectively.

(3) Includes unfunded commitments of $ 6.1 million and $ 6.3 million as of September 30, 2024 and December 31, 2023, respectively.

(4) Includes unfunded commitments of $ 7.0 million and $ 7.1 million as of September 30, 2024 and December 31, 2023, respectively.

(5) Investee is accounted for under equity method due to the Company's potential influence with investment advisor.

(6) Affordable Housing includes 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 are Cape Fear Collective Impact Opportunity 1 LLC (“Cape Fear Collective”) and Cape Fear Collective Impact Opportunity 2 LLC (“Cape Fear Collective 2”) which the Company holds 91.0 % and 32.3 % of limited member interests, respectively.

As of September 30, 2024, and December 31, 2023, there was an unfunded commitment of $ 1.8 million and $ 7.7 million, respectively for Estrella Landing.

(7) Solar tax credit investments includes Green Sun Tenant LLC (“Green Sun”), SVA 2021-2 TE Holdco LLC (“Sun Vest”), EG5 CSP1 Holding LLC (“HEP”) and HRE Lessee I, LLC (“Heelstone”), which the Company holds a 99.0 % limited member interest in all investments.

As of September 30, 2024, and December 31, 2023, there was an unfunded commitment of $ 1.0 million and $ 0.0 million for Heelstone, respectively.

(8) Other investments includes OTR Fund I, LLC (“OTR”) which the company holds 5.9 % of limited member interests.

As of September 30, 2024, this investment category also includes the carried interest security related to Canapi Ventures Fund I, LP.

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 June 30, 2024 and as of and for the six months ended June 30, 2024 and 2023 is reflected in the following table:

As of and for the six month period ended

Cumulative Adjustments June 30, 2024 June 30, 2023

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, 2024 and as of and for the nine months ended September 30, 2024 and 2023 is reflected in the following table:

As of and for the nine month period ended

Cumulative Adjustments September 30, 2024 September 30, 2023

Carrying value (1)

5 unchanged sentences

Net upward (downward) change $ 48,921 $ 40 $ ( 999 )

(1) Includes $ 2.7 million and $ 2.8 million in unfunded commitments as of June 30, 2024, and June 30, 2023, respectively.

(1) Includes $ 4.4 million and $ 2.6 million in unfunded commitments as of September 30, 2024, and September 30, 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 six months ended June 30, 2024, the Company recognized unrealized gains (losses) on all equity securities held at the reporting date of $ 31 thousand and $( 269 ) thousand, respectively.

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 nine months ended September 30, 2024, the Company recognized unrealized gains (losses) on all equity securities held at the reporting date of $ 383 thousand and $ 114 thousand, 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.

Variable Interest Entities

18 unchanged sentences

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.

While the partnership agreements allow the Company to remove the general partner, this right is not deemed to be substantive as the general partner can only be removed for cause.

All investments are generally non-redeemable and distributions are expected to be received through the liquidation of the underlying investments throughout the life of the investment fund.

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

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.

2 unchanged sentences

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.

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

Live Oak Bancshares, Inc.

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, 2024 and December 31, 2023:

June 30, 2024 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, 2024 and December 31, 2023:

September 30, 2024 Investment Carrying Amount Maximum Exposure to Loss Liability Recognized Classification

Solar tax credit investments $ 6,784 $ 39,583 $ 1,008 Other assets (1)

23 unchanged sentences

Total Loans and Leases

June 30, 2024

September 30, 2024

Commercial & Industrial

60 unchanged sentences

Credit Quality Indicators

The Bank uses internal loan and lease reviews to assess the performance of individual loans and leases.

Each loan and lease is assigned a risk grade during the origination and closing process.

Subsequent to origination, loans and lease risk grades are continually evaluated as information becomes available.

The Bank performs an annual review of each borrower's financial performance to validate the accuracy of the assigned risk grade.

Additionally, the loan and lease portfolio is subject to annual independent review by an external firm.

These loans and leases are not impaired and have no known issues that could significantly impact their quality.

There are seven categories within the Pass classification depending on the strength of the borrower, including credits that warrant additional management attention but are not currently Special Mention.

Special Mention:

These loans and leases show signs of weaknesses in either adequate sources of repayment or collateral.

These loans and leases may contain underwriting guideline tolerances and/or exceptions with no mitigating factors;

and/or instances where adverse economic conditions develop subsequent to origination that do not jeopardize liquidation of the debt but substantially increase the level of risk.

Loans and leases graded Substandard are inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral.

Loans and leases classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt;

are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

These loans and leases are consistently not meeting the repayment schedule.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The following tables present asset quality indicators by portfolio class and origination year.

Loans and Leases Held for Investment and Credit Quality in the Company’s 2023 Form 10-K for additional discussion around the asset quality indicators that the Company uses to manage and monitor credit risk.

Term Loans and Leases Amortized Cost Basis by Origination Year

2 unchanged sentences

Converted to Term Total (1)

June 30, 2024

September 30, 2024

Small Business Banking

Risk Grades 1 - 4 $ 436,371 $ 1,062,992 $ 1,408,497 $ 1,143,701 $ 593,527 $ 570,458 $ 78,309 $ 11,321 $ 5,305,176

Risk Grade 5 6,609 25,034 71,269 70,034 32,410 102,040 9,889 999 318,284

Risk Grades 6 - 8 — 12,251 53,912 43,325 31,135 44,121 3,945 170 188,859

Pass $ 785,067 $ 1,086,723 $ 1,388,276 $ 1,071,627 $ 554,927 $ 509,785 $ 115,206 $ 19,040 $ 5,530,651

Special Mention 7,036 32,023 76,061 72,176 31,983 95,949 8,144 1,108 324,480

Substandard 6,811 13,038 75,005 44,541 36,155 57,064 7,439 345 240,398

Total 798,914 1,131,784 1,539,342 1,188,344 623,065 662,798 130,789 20,493 6,095,529

Specialty Lending

Risk Grades 1 - 4 300,133 540,753 274,606 191,067 25,755 2,524 235,376 123,107 1,693,321

Risk Grade 5 — 11,402 72,552 35,664 36,225 7,886 33,564 5,854 203,147

Risk Grades 6 - 8 — 1,146 — 12,252 — — 3,352 6,776 23,526

Pass 641,027 430,420 262,384 160,179 25,222 2,429 367,088 134,325 2,023,074

Special Mention — 11,350 58,310 35,023 36,148 — 22,396 3,907 167,134

Substandard — 1,042 17,876 12,046 — — 4,436 3,874 39,274

Total 641,027 442,812 338,570 207,248 61,370 2,429 393,920 142,106 2,229,482

Energy & Infrastructure

Risk Grades 1-4 75,942 404,239 210,587 94,360 42,211 73,019 15,058 — 915,416

Risk Grade 5 — — 17,868 108,517 — 26,016 — — 152,401

Risk Grades 6 - 8 — — 4,024 7,471 16,208 — — — 27,703

Pass 222,067 354,989 212,845 94,771 34,881 71,171 17,530 — 1,008,254

Special Mention — — 6,494 1,925 — 25,939 — — 34,358

Substandard — — 10,595 119,342 15,772 — — — 145,709

Total 222,067 354,989 229,934 216,038 50,653 97,110 17,530 — 1,188,321

Paycheck Protection Program

Risk Grades 1 - 4 — — — 2,260 1,804 — — — 4,064

Pass — — — 1,888 1,375 — — — 3,263

Total — — — 1,888 1,375 — — — 3,263

2 unchanged sentences

Small Business Banking $ — $ 1,542 $ 5,597 $ 3,533 $ 176 $ 1,681 $ 1,098 $ 170 $ 13,797

Energy & Infrastructure $ — $ — $ — $ 153 $ 273 $ — $ — $ — $ 426

Total $ — $ 1,542 $ 5,597 $ 3,686 $ 449 $ 1,681 $ 1,098 $ 170 $ 14,223

7 unchanged sentences

Small Business Banking

Risk Grades 1 - 4 $ 990,349 $ 1,470,824 $ 1,255,664 $ 660,926 $ 363,377 $ 296,132 $ 63,963 $ 11,047 $ 5,112,282

Risk Grade 5 7,744 72,913 60,115 37,390 42,095 50,705 7,174 1,407 279,543

Risk Grades 6 - 8 2,286 31,487 29,636 35,611 18,429 28,700 2,621 — 148,770

Pass $ 990,349 $ 1,470,824 $ 1,255,664 $ 660,926 $ 363,377 $ 296,132 $ 63,963 $ 11,047 $ 5,112,282

Special Mention 7,744 72,913 60,115 37,390 42,095 50,705 7,174 1,407 279,543

Substandard 2,286 31,487 29,636 35,611 18,429 28,700 2,621 — 148,770

Total 1,000,379 1,575,224 1,345,415 733,927 423,901 375,537 73,758 12,454 5,540,595

Specialty Lending

Risk Grades 1 - 4 640,596 337,880 226,170 21,286 9,103 112 210,460 58,441 1,504,048

Risk Grade 5 8,858 52,767 35,453 43,080 9,223 — 20,547 5,417 175,345

Risk Grades 6 - 8 — — 12,032 — — — 7,203 4,028 23,263

Pass 640,596 337,880 226,170 21,286 9,103 112 210,460 58,441 1,504,048

Special Mention 8,858 52,767 35,453 43,080 9,223 — 20,547 5,417 175,345

Substandard — — 12,032 — — — 7,203 4,028 23,263

Total 649,454 390,647 273,655 64,366 18,326 112 238,210 67,886 1,702,656

Energy & Infrastructure

Risk Grades 1 - 4 386,421 223,309 120,917 41,919 50,035 23,308 14,818 — 860,727

Risk Grade 5 — — 104,371 13,485 7,827 18,627 — — 144,310

Risk Grades 6 - 8 — 4,024 6,303 3,619 — — — — 13,946

Pass 386,421 223,309 120,917 41,919 50,035 23,308 14,818 — 860,727

Special Mention — — 104,371 13,485 7,827 18,627 — — 144,310

Substandard — 4,024 6,303 3,619 — — — — 13,946

Total 386,421 227,333 231,591 59,023 57,862 41,935 14,818 — 1,018,983

Paycheck Protection Program

Risk Grades 1 - 4 — — 2,831 2,764 — — — — 5,595

Pass — — 2,831 2,764 — — — — 5,595

Total — — 2,831 2,764 — — — — 5,595

4 unchanged sentences

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

(1) Excludes $ 363.0 million and $ 388.0 million of loans accounted for under the fair value option as of June 30, 2024 and December 31, 2023, respectively.

(1) Excludes $ 343.4 million and $ 388.0 million of loans accounted for under the fair value option as of September 30, 2024 and December 31, 2023, respectively.

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

June 30, 2024 Loan and Lease

September 30, 2024 Loan and Lease

Guaranteed Balance Unguaranteed Balance % Guaranteed

Risk Grades 1 - 4 $ 7,917,977 $ 2,624,641 $ 5,293,336 33.1 %

Risk Grade 5 673,832 249,640 424,192 37.0

Risk Grades 6 - 8 240,088 160,999 79,089 67.1

Pass $ 8,565,242 $ 2,639,737 $ 5,925,505 30.8 %

Special Mention 525,972 169,371 356,601 32.2

Substandard 425,381 279,387 145,994 65.7

Total $ 9,516,595 $ 3,088,495 $ 6,428,100 32.5 %

3 unchanged sentences

Guaranteed Balance Unguaranteed Balance % Guaranteed

Risk Grades 1 - 4 $ 7,482,652 $ 2,622,558 $ 4,860,094 35.0 %

Risk Grade 5 599,198 234,845 364,353 39.2

Risk Grades 6 - 8 185,979 109,992 75,987 59.1

Pass $ 7,482,652 $ 2,622,558 $ 4,860,094 35.0 %

Special Mention 599,198 234,845 364,353 39.2

Substandard 185,979 109,992 75,987 59.1

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

(1) Excludes $ 363.0 million and $ 388.0 million of loans accounted for under the fair value option as of June 30, 2024 and December 31, 2023, respectively.

(1) Excludes $ 343.4 million and $ 388.0 million of loans accounted for under the fair value option as of September 30, 2024 and December 31, 2023, respectively.

Nonaccrual Loans and Leases

As of June 30, 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 and six months ended June 30, 2024 and 2023.

Accrued interest receivable on loans totaled $ 70.2 million and $ 63.5 million at June 30, 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 June 30, 2024 and December 31, 2023 are as follows:

June 30, 2024 Loan and Lease

As of September 30, 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 and nine months ended September 30, 2024 and 2023.

Accrued interest receivable on loans totaled $ 74.7 million and $ 63.5 million at September 30, 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 September 30, 2024 and December 31, 2023 are as follows:

September 30, 2024 Loan and Lease

Balance Unguaranteed Balance Unguaranteed

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

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

2024 2023 2024 2023

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

Commercial & Industrial $ 950 $ 165 $ 1,924 $ 1,208

3 unchanged sentences

Total $ 1,464 $ 197 $ 2,858 $ 1,584

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, 2024 and December 31, 2023:

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

Fair Value of Financial Instruments for additional information.

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, 2024 and December 31, 2023:

Total Collateral-Dependent Loans Unguaranteed Portion

June 30, 2024 Real Estate Business Assets Other Real Estate Business Assets Other Allowance for Credit Losses

September 30, 2024 Real Estate Business Assets Other Real Estate Business Assets Other Allowance for Credit Losses

Commercial & Industrial

Small Business Banking $ 6,324 $ 27,759 $ — $ 1,255 $ 6,747 $ — $ 5,107

Specialty Lending — 14,976 — — 14,976 — 7,181

Energy & Infrastructure 94,131 2,869 — 13,350 74 — —

30 unchanged sentences

Real Estate Commercial

June 30, 2024

September 30, 2024

Beginning Balance $ 108,166 $ 3,694 $ 23,540 $ 2,467 $ 137,867

3 unchanged sentences

Ending Balance $ 133,048 $ 3,985 $ 27,973 $ 3,731 $ 168,737

June 30, 2023

September 30, 2023

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

3 unchanged sentences

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

Six Months Ended Commercial

Nine Months Ended Commercial

& Industrial Construction &

1 unchanged sentence

Real Estate Commercial

June 30, 2024

September 30, 2024

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

3 unchanged sentences

Ending Balance $ 133,048 $ 3,985 $ 27,973 $ 3,731 $ 168,737

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

During the three months ended June 30, 2024, the ACL decreased primarily as a result of a decrease in specific reserves on loans individually evaluated for impairment.

During the six months ended June 30, 2024, the ACL increased as a result of loan growth and changes in the macroeconomic outlook.

During the three months ended September 30, 2024, the ACL increased primarily as a result of an increase in specific reserves on loans individually evaluated for impairment.

During the nine months ended September 30, 2024, the ACL increased as a result of specific reserve changes on individually evaluated loans and continued growth of the loan and lease portfolio.

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

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 continued 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.

5 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 three and six months ended June 30, 2024 and June 30, 2023, respectively:

Three Months Ended June 30, 2024 Other-Than-Insignificant

The following tables summarize the amortized cost basis of loans that were modified during the three and nine months ended September 30, 2024 and September 30, 2023, respectively:

Three Months Ended September 30, 2024 Other-Than-Insignificant

Payment Delay Term Extension Interest Rate Reduction

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

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

Financing Receivable

2 unchanged sentences

Total $ 2,014 $ — $ 3,478 $ 2,500 0.19 %

Six Months Ended June 30, 2024 Other-Than-Insignificant

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

Nine Months Ended September 30, 2024 Other-Than-Insignificant

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

Financing Receivable

2 unchanged sentences

Total $ 8,278 $ — $ 3,478 $ 2,500 0.30 %

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

1 unchanged sentence

Small Business Banking $ 10,117 $ 5,184 $ — $ — 0.28 %

Specialty Lending — 4,427 — — 0.26

Total $ 10,117 $ 5,184 $ — $ — 0.28 %

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 2.31 %

As of June 30, 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 June 30, 2024:

Current 30-89 Days

As of September 30, 2024, the Company had $ 6.3 million in 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 September 30, 2024 and September 30, 2023, respectively:

September 30, 2024 Current 30-89 Days

Past Due 90 Days or More Past Due Total Past Due

4 unchanged sentences

Notes to Unaudited Condensed Consolidated Financial Statements

There was no financial impacts related to the loan modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2024.

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

Three Months Ended June 30, 2023

September 30, 2023 Current 30-89 Days

Past Due 90 Days or More Past Due Total Past Due

Small Business Banking $ 19,018 $ — $ — $ —

Specialty Lending 4,563 — — —

Energy & Infrastructure 13,485 — — —

Total $ 37,066 $ — $ — $ —

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, 2024

Weighted Average

1 unchanged sentence

Term Extension (in Months)

Small Business Banking — % 161

Specialty Lending 5.00 % 7

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2024

Weighted Average

1 unchanged sentence

Term Extension (in Months)

Specialty Lending 5.00 % 7

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

Weighted Average

Interest Rate Reduction Weighted Average

Term Extension (in Months)

Small Business Banking 1.41 % 67

Specialty Lending — 70

Energy & Infrastructure — 12

Additionally, there were no loans that were modified within the twelve months ended June 30, 2024 that subsequently defaulted during the periods presented.

Additionally, there were no loans that were modified within the twelve months ended September 30, 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.

6 unchanged sentences

Accordingly, leased assets under operating leases are included in premises and equipment, net while leased assets under direct financing leases are included in loans and leases held for investment in the accompanying Unaudited Condensed Consolidated Balance Sheets.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Direct Financing Leases

3 unchanged sentences

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Gross direct finance lease payments receivable $ 1,357 $ 2,335

1 unchanged sentence

Net investment in direct financing leases $ 1,241 $ 2,117

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Future minimum lease payments to be received under finance leases are as follows:

As of June 30, 2024

As of September 30, 2024

Total $ 1,357

Interest income of $ 48 thousand and $ 66 thousand was recognized in the three months ended June 30, 2024 and 2023, respectively.

Interest income of $ 66 thousand and $ 139 thousand was recognized in the six months ended June 30, 2024 and 2023, respectively.

Interest income of $ 29 thousand and $ 72 thousand was recognized in the three months ended September 30, 2024 and 2023, respectively.

Interest income of $ 95 thousand and $ 211 thousand was recognized in the nine months ended September 30, 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 June 30, 2024 and December 31, 2023, the Company had a net investment of $ 98.3 million and $ 104.0 million, respectively, in assets included in premises and equipment, net 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 June 30, 2024 and December 31, 2023, respectively.

Accumulated depreciation was $ 62.4 million and $ 58.3 million as of June 30, 2024 and December 31, 2023, respectively.

Depreciation expense recognized on these assets was $ 2.4 million for the three months ended June 30, 2024 and 2023.

Depreciation expense recognized on these assets was $ 4.7 million and $ 4.8 million for the six months ended June 30, 2024 and 2023, respectively.

Lease income of $ 2.3 million and $ 2.4 million was recognized in the three months ended June 30, 2024 and 2023, respectively.

Lease income of $ 4.7 million and $ 4.8 million was recognized in the six months ended June 30, 2024 and 2023, respectively.

As of September 30, 2024 and December 31, 2023, the Company had a net investment of $ 96.0 million and $ 104.0 million, respectively, in assets included in premises and equipment, net 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 September 30, 2024 and December 31, 2023, respectively.

Accumulated depreciation was $ 64.7 million and $ 58.3 million as of September 30, 2024 and December 31, 2023, respectively.

Depreciation expense recognized on these assets was $ 2.4 million for the three months ended September 30, 2024 and 2023.

Depreciation expense recognized on these assets was $ 7.1 million and $ 7.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Lease income of $ 2.3 million and $ 2.4 million was recognized in the three months ended September 30, 2024 and 2023, respectively.

Lease income of $ 7.1 million was recognized in the nine months ended September 30, 2024 and 2023.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

As of June 30, 2024

As of September 30, 2024

Thereafter 9,708

Total $ 42,478

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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 $ 3.26 billion and $ 3.09 billion at June 30, 2024 and December 31, 2023, respectively.

The unpaid principal balance for all loans serviced for others was $ 4.29 billion and $ 4.24 billion at June 30, 2024 and December 31, 2023, respectively.

The unpaid principal balance of loans serviced for others requiring recognition of a servicing asset was $ 3.38 billion and $ 3.09 billion at September 30, 2024 and December 31, 2023, respectively.

The unpaid principal balance for all loans serviced for others was $ 4.45 billion and $ 4.24 billion at September 30, 2024 and December 31, 2023, respectively.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

6 unchanged sentences

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 June 30, 2024 and 17.3 % on June 30, 2023.

The fair value of servicing rights was determined using a weighted average prepayment speed of 15.7 % on June 30, 2024 and 15.8 % on June 30, 2023, with the actual rate depending on the stratification of the specific right.

The fair value of servicing rights was determined using a weighted average discount rate of 14.5 % on September 30, 2024 and 15.0 % on September 30, 2023.

The fair value of servicing rights was determined using a weighted average prepayment speed of 15.7 % on September 30, 2024 and 15.3 % on September 30, 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.

As of June 30, 2024, the Company had servicing assets related to conventional commercial loans carried at amortized cost of $ 225 thousand .

As of September 30, 2024, the Company had servicing assets related to conventional commercial loans carried at amortized cost of $ 258 thousand.

Live Oak Bancshares, Inc.

1 unchanged sentence

Total outstanding borrowings consisted of the following:

September 30,

2024 December 31,

6 unchanged sentences

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.

Other long term debt (1)

Total borrowings $ 115,371 $ 23,354

As of June 30, 2024 and December 31, 2023, the Company’s unused borrowing capacity was $ 3.62 billion and $ 3.68 billion, respectively, based upon securities and loans identified as available for collateral.

(1) Includes finance leases.

As of September 30, 2024 and December 31, 2023, the Company’s unused borrowing capacity was $ 3.69 billion and $ 3.68 billion, respectively, based upon securities and loans identified as available for collateral.

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, access to a repurchase agreement, and the Federal Reserve Bank's Bank Term Funding Program which ended March 11, 2024.

If additional collateral is available, the Company's aggregate borrowing capacity with all of the above sources is $ 6.29 billion and $ 6.28 billion as of June 30, 2024 and December 31, 2023, respectively.

If additional collateral is available, the Company's aggregate borrowing capacity with all of the above sources is $ 6.37 billion and $ 6.28 billion as of September 30, 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 June 30, Six Months Ended June 30,

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

Equity Warrant Assets 2024 2023 2024 2023

4 unchanged sentences

Balance at end of period $ 7,314 $ 2,978 $ 7,314 $ 2,978

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.

June 30, 2024 Total Level 1 Level 2 Level 3

September 30, 2024 Total Level 1 Level 2 Level 3

Investment securities available-for-sale

21 unchanged sentences

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

(1) During the three and six months ended June 30, 2024 there was no level 3 fair value adjustment gain or loss.

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.

(1) During the three and nine months ended September 30, 2024 there was no level 3 fair value adjustment gain or loss.

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.

(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 June 30, 2024 or December 31, 2023.

The unpaid principal balance of unguaranteed exposure for nonaccruals was $ 11.3 million and $ 9.1 million at June 30, 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 June 30, 2024 and December 31, 2023.

June 30, 2024

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, 2024 or December 31, 2023.

The unpaid principal balance of unguaranteed exposure for nonaccruals was $ 9.5 million and $ 9.1 million at September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023.

September 30, 2024

Total Loans Nonaccruals 90 Days or More Past Due

18 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 2024 2023 2024 2023

Loans held for investment $ 2,255 $ ( 568 ) $ 2,208 $ ( 3,369 )

Losses related to borrower-specific credit risk were $ 0 for the three and six months ended June 30, 2024, respectively, and $ 291 thousand and $ 3.5 million for the three and six months ended June 30, 2023, respectively.

Gains and (losses) related to borrower-specific credit risk were $ 0 for the three and nine months ended September 30, 2024, and $ 0 and $ 3.5 million for the three and nine months ended September 30, 2023, respectively.

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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 investment 2024 2023 2024 2023

2 unchanged sentences

Fair value changes (1)

2,255 ( 568 ) 2,208 ( 3,369 )

Settlements ( 25,213 ) ( 34,475 ) ( 62,998 ) ( 100,248 )

Balance at end of period $ 343,371 $ 410,128 $ 343,371 $ 410,128

(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, 2024 Total Level 1 Level 2 Level 3

September 30, 2024 Total Level 1 Level 2 Level 3

Collateral-dependent loans $ 13,400 $ — $ — $ 13,400

Foreclosed assets 5,936 — — 5,936

Total assets at fair value $ 13,400 $ — $ — $ 13,400

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2023 Total Level 1 Level 2 Level 3

4 unchanged sentences

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 June 30, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

June 30, 2024

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of September 30, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

September 30, 2024

Level 3 Assets with Significant Unobservable Inputs

15 unchanged sentences

0.0 % - 92.9 %

Foreclosed assets $ 5,936 Discounted appraisals Appraisal adjustments (2)

Live Oak Bancshares, Inc.

30 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, 2024 Carrying

September 30, 2024 Carrying

Identical Assets/Liabilities

35 unchanged sentences

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

June 30, 2024 December 31, 2023

September 30, 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 $ 10.4 million and $ 4.8 million at June 30, 2024 and December 31, 2023, respectively.

During the three and six months ended June 30, 2024, the Company recorded $ 4.7 million and $ 5.6 million, respectively, in expense related to the allowance for off-balance sheet credit exposures.

During the three and six months ended June 30, 2023, the Company recorded $ 482 thousand and $ 3.2 million, respectively, in expense related to the allowance for off-balance sheet credit exposures.

Beginning in the second quarter of 2024, this expense was classified in the provision for credit losses.

This expense has historically been classified in other expense and that classification remains unchanged for prior periods.

The allowance for off-balance-sheet credit exposures was $ 12.4 million and $ 4.8 million at September 30, 2024 and December 31, 2023, respectively.

During the three and nine months ended September 30, 2024, the Company recorded $ 1.9 million and $ 7.5 million, respectively, in expense related to the allowance for off-balance sheet credit exposures.

During the three and nine months ended September 30, 2023, the Company recorded a $ 161 thousand expense reversal and $ 3.1 million in expense, respectively, related to the allowance for off-balance sheet credit exposures.

Beginning in the second quarter of 2024, this expense was presented in the provision for credit losses.

This expense has historically been presented in other expense and that classification remains unchanged for prior periods.

Other Commitments

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 $ 38.9 million.

At June 30, 2024, the Company has paid and was committed to approximately $ 37.5 million of the total estimated amount.

As of June 30, 2024 and December 31, 2023, the Company recorded unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of $ 29.4 million and $ 29.0 million, respectively.

As of September 30, 2024 and December 31, 2023, the Company recorded unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of $ 26.4 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 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 thirty-four relationships that have a retained unguaranteed exposure of $ 1.30 billion of which $ 811.8 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 forty-four relationships that have a retained unguaranteed exposure of $ 1.71 billion of which $ 1.12 billion of the unguaranteed exposure has been disbursed.

Additionally, the Company has future minimum lease payments receivable under non-cancelable operating leases totaling $ 42.5 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 the Company's loan and lease portfolio at June 30, 2024:

The following table presents the geographic concentration of the Company's loan and lease portfolio at September 30, 2024:

Geographic Regions (1)

Midwest 12.6 %

Northeast 17.7

Southeast 32.1 %

Northeast 17.3

Southwest 12.4

6 unchanged sentences

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

includes addressees with foreign domicile.

Domicile is determined by the principal resident or business address of the entity.

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.

10 unchanged sentences

Banking Fintech Other Consolidated

As of and for the three months ended June 30, 2024

As of and for the three months ended September 30, 2024

Interest income $ 208,897 $ 3 $ 36 $ 208,936

7 unchanged sentences

Total assets $ 12,470,278 $ 137,272 $ ( 204 ) $ 12,607,346

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

10 unchanged sentences

Banking Fintech Other Consolidated

As of and for the six months ended June 30, 2024

As of and for the nine months ended September 30, 2024

Interest income $ 599,534 $ 30 $ 240 $ 599,804

7 unchanged sentences

Total assets $ 12,470,278 $ 137,272 $ ( 204 ) $ 12,607,346

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

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