What changed in this filing

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Item 1. Business

2025-03-18 compared with 2024-02-22 · 53 added, 68 removed, 356 unchanged (25% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report.

For a discussion of the Company’s reportable segments see Note 15.

Segments in Part II, Item 8.

Financial Statements and Supplementary Data of this report.

The Company's voting common stock trades on the New York Stock Exchange LLC (the “NYSE”) under the symbol “LOB.” As of January 31, 2025, there were 207 holders of record of the Company's voting common stock.

The Company's principal executive office is located at 1741 Tiburon Drive, Wilmington, North Carolina 28403, telephone number (910) 790-5867.

The Company maintains a website at www.liveoakbank.com.

The Company maintains a website at www.liveoak.bank.

Documents available on the website include:

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These documents also are available in print to any shareholder who requests a copy.

In addition, available free of charge through the Company's website is the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after electronically filing or furnishing such material to the U.S.

Securities and Exchange Commission (“SEC”).

Except as otherwise expressly stated in these documents, the information contained on our website or available by hyperlink from our website is not part of this Report and is not incorporated into this Report or any other documents we file with, or furnish to, the SEC.

These filings are also accessible on the SEC’s website at www.sec.gov.

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None of the Company’s employees are covered by a collective bargaining agreement, and management considers relations with employees to be good.

Diversity and Inclusion

The Company strives to foster a welcoming, supportive, and equitable environment for diverse employees.

Human Capital and Workplace Initiatives

The Company strives to foster a welcoming, supportive, and equitable environment for all employees.

To accomplish this, the Company focuses on engagement, awareness, training, accountability, education, and communication.

During 2023, the Company supported programming through its six Employee Resource Groups (“ERG”) and saw the number of interest groups grow from nine to eleven.

These employee-led networks provide community and connection through shared interests and experiences.

In addition, hiring managers across the Company participated in interview and bias trainings.

The Company’s diversity, equity and inclusion initiatives are both internally and externally focused.

The Company and ERG leadership, membership, and allies remain committed to celebrating and supporting local, diversity-owned small business through on-campus events that showcase diverse entrepreneurs in the surrounding communities.

Its commitment to providing and enhancing a support infrastructure for people with underrepresented backgrounds remains a strategic initiative.

The Company intends to continue to identify, monitor and measure meaningful diversity and inclusion goals, to foster a welcoming environment through education, communication and recruiting efforts, and to provide support so that diverse employees have the resources and relationships they need to be successful and thrive.

During 2024, the Company continued to support programming through its Employee Resource Groups (“ERG”) and interest groups.

These employee-led networks, which are voluntary and open to all employees, provide community and connection through shared interests and experiences.

The Company’s human capital initiatives are both internally and externally focused.

The Company and ERG leadership and membership remain committed to celebrating and supporting a wide variety of locally owned small business through on-campus events that showcase a broad range of entrepreneurs in the surrounding communities.

Our commitment to providing and enhancing a support infrastructure for people with underrepresented backgrounds remains a strategic initiative.

The Company intends to continue to identify, monitor and measure meaningful equal opportunity goals, to foster a welcoming environment through education, communication and recruiting efforts, and to provide support so that all employees have the resources and relationships they need to be successful and thrive.

We believe that creating an unprecedented banking experience for small business owners nationwide through service and technology will build long-term shareholder value.

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Flexibility is an important contributor to employee engagement and job satisfaction.

While 2023 brought a return-to-campus initiative for our Wilmington headquarters, our 100% cloud-based operations allow our people to transition nimbly between remote working and in-person as personal circumstances require with no material effect on our operations or customer experience.

While we value the presence of employees at our Wilmington headquarters, our 100% cloud-based operations allow our people to transition nimbly between remote working and in-person as personal circumstances require with no material effect on our operations or customer experience.

Commitment to Values and Ethics

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• Internally led “lunch and learn” meetings for role-specific skills;

• Internally led credit committee meetings open to all employees for participation;

• Web-based learning modules and training for personal and professional development, skill-based learning, leadership development, and management functions;

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To this end, we communicate with our workforce through a variety of channels and encourage open and direct communication, including:

• A biennial company-wide “all hands” meeting;

• Periodic company-wide “all hands” meetings;

• Regularly scheduled town hall-style meetings that are led by our key executives and held quarterly, or more often as needed, with a focus on our people, culture, strategy, and performance;

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In addition to the Bank, Bancshares directly or indirectly held the following wholly owned material subsidiaries as of December 31, 2024:

• Canapi Advisors, LLC (“Canapi Advisors”), formed in September 2018 for the purpose of providing investment advisory services to a series of funds focused on investing venture capital in new and emerging financial technology companies;

• Live Oak Ventures, Inc., formed in August 2016 for the purpose of investing in businesses that align with the Company's strategic initiative to be a leader in financial technology;

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Tiburon Land Holdings, LLC was formed in the third quarter of 2022 as a subsidiary of the Bank 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.

Operating Segments

The Company’s operations are managed along two reportable operating segments consisting of Banking and Fintech.

See the sections captioned “Results of Segment Operations” in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 15.

Segments in the notes to consolidated financial statements included in Item 8.

The Company’s operations are managed along one significant operating segment.

For further discussion, see the section captioned “Business Segment” within Note 1.

Organization and Summary of Significant Accounting Policies in the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data elsewhere in this report.

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The information set forth below is subject to change.

As a result of the 2024 presidential and congressional elections, control of the White House and Congress shifted to the Republican Party in January 2025.

The new administration has taken action in its first several weeks in office that indicate its intention to generally reduce federal regulation of the financial services industry.

For example, on February 8, 2025, the acting director of the Consumer Financial Protection Bureau (the “CFPB”) issued a notice to its staff to cease all supervision and examination activity.

It is currently unknown what, if any, of the CFPB’s policies or directives will continue.

Congress or the federal bank regulatory agencies may modify or rescind rule making and regulatory guidance issued under the prior administration.

However, the timing and impact of any changes to the regulatory, enforcement, and supervisory priorities of the federal bank regulatory agencies is not known at this time.

Changes in applicable law or regulation, and in their application by regulators, may have a material effect on the business of the Company and the Bank.

The Company and the Bank will continue to closely monitor developments and changes.

Federal Bank Holding Company Regulation and Structure

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Bancshares is a legal entity separate and distinct from the Bank.

While there are various legal and regulatory limitations under federal and state law on the extent to which banks can pay dividends or otherwise supply funds to holding companies, a principal source of cash revenues for Bancshares is dividends from the Bank.

The relevant federal and state regulatory agencies have authority to prohibit a state bank or bank holding company, which would include the Bank and Bancshares, from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business.

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Compliance by Bancshares and the Bank with these capital requirements affects their respective operations by increasing the amount of capital required to conduct operations.

The FDIC has set the minimum required Community Bank Leverage Ratio (“CBLR”) at 9 percent.

A qualifying community banking organization may elect to use the CBLR framework if its CBLR is greater than 9 percent.

The FDIC has set the minimum required Community Bank Leverage Ratio (“CBLR”) at 9%.

A qualifying community banking organization may elect to use the CBLR framework if its CBLR is greater than 9%.

A qualifying community banking organization that has chosen the proposed framework is not required to calculate the existing risk-based and leverage capital requirements.

A bank is also considered to have met the capital ratio requirements to be well capitalized for the agencies’ prompt corrective action rules provided it has a CBLR greater than 9 percent.

A bank is also considered to have met the capital ratio requirements to be well capitalized for the agencies’ prompt corrective action rules provided it has a CBLR greater than 9%.

The Company has not elected to implement the CBLR framework at this time.

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We are subject to complex and evolving laws and regulations governing the privacy and security of personal information associated with consumers, prospective, current and former customers, employees and contractors, and other individuals.

For example, financial institutions are required by the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLBA”) to disclose their policies for collecting and protecting consumer information.

The Bank has established a privacy policy that it believes promotes compliance with these federal requirements.

The GLBA also imposes restrictions on when and to which entities financial institutions may disclose personal information and how personal information can be used, as well as data security requirements.

In addition, we are subject to federal requirements related to unauthorized access to and/or acquisition of personal information, cybersecurity incidents, and similar matters.

When unauthorized access to and/or acquisition of personal information occurs, the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice may require us to notify affected individuals and regulator

federal bank regulatory agencies have established computer-security incident notification requirements for banking organizations and bank service providers.

A bank holding company, such a Bancshares, and an FDIC-supervised depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, as soon as possible and no later than 36 hours after a determination that a computer-security incident that rises to the level of a notification incident has occurred.

A computer-security incident is an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits.

A notification incident is defined as a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, a banking organization’s:

(i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business;

(ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value;

or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.

For example, a notification incident may include a major computer-system failure;

For example, financial institutions are required by the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLBA”) to disclose certain information to consumers regarding their privacy and security practices with respect to personal information.

The GLBA imposes additional requirements, including restrictions on when and to which entities financial institutions may disclose personal information and how personal information can be used, as well as data security requirements.

Another example of a federal privacy law with which we must comply is the Fair Credit Reporting Act, which imposes requirements on our use of consumer reports.

In addition to federal privacy and data security laws and regulations, numerous state laws and regulations govern the privacy and security of personal information, and state legislatures have been actively considering and enacting new legislation.

For example, some states have enacted financial privacy laws and regulations that are similar to the GLBA’s privacy requirements.

Many states have enacted comprehensive privacy laws, such as the California Consumer Privacy Act.

To the extent applicable, these laws and regulations may impose additional and/or different requirements than federal law, may present implementation challenges, could be an enforcement priority for the state regulators, and could generate increased lawsuits by consumers and other individuals.

We are also subject to laws and regulations governing how we respond to data breaches, cybersecurity incidents, and similar matters.

At the federal level, the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice addresses financial institutions’ notification of customers and regulators when unauthorized access to sensitive customer information occurs.

federal bank regulatory agencies have also established computer-security incident notification requirements for banking organizations and bank service providers.

A bank holding company, such as Bancshares, and an FDIC-supervised depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, as soon as possible and no later than 36 hours after a determination that a computer-security incident that rises to the level of a notification incident has occurred.

A notification incident may include a major computer-system failure;

a cyber-related interruption, such as a distributed denial of service or ransomware attack;

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SEC rules also require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy, and governance.

Cybersecurity.

In addition to federal privacy laws and regulations, numerous state laws and regulations govern the collection, retention, use, and disclosure of personal information, and state legislatures have been actively considering and enacting new laws addressing data security, data breach notification, and privacy.

For example, some states have enacted financial privacy laws and regulations that are similar to the GLBA’s privacy requirements.

All fifty states have enacted data breach notification laws, and many states have enacted or are considering comprehensive privacy laws.

To the extent applicable, many of these laws and regulations impose additional and/or different requirements than federal law, may present implementation challenges, could be an enforcement priority for the state regulators, and could generate increased lawsuits by consumers and other individuals.

Cybersecurity for additional information.

In addition to our obligation to address federal standards related to data breaches, cybersecurity incidents, and similar matters, all fifty states have enacted breach notification laws.

State breach notification laws often present additional or different notification requirements than those arising under federal law.

Evaluating and addressing our obligations under these laws adds complexity to our incident response process, and the nature of these laws may present compliance challenges.

The application, interpretation and enforcement of these laws and regulations are often uncertain, particularly in light of new and rapidly evolving data-driven technologies and significant increases in computing power.

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A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the Gramm-Leach-Bliley Act may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory Community Reinvestment Act rating in its latest Community Reinvestment Act examination.

The Bank received an “Outstanding” rating in its last Community Reinvestment Act examination, which was conducted as of June 1, 2022.

The Bank received an “Outstanding” rating in its last Community Reinvestment Act examination, which was conducted as of December 28, 2021.

The Volcker Rule

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financial regulatory agencies (including the Federal Reserve, the FDIC and the SEC) in establishing regulations to address systemic financial stability concerns.

Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (the “CFPB”) was also created as a new consumer financial services regulator.

Under the Dodd-Frank Act, the CFPB was also created as a new consumer financial services regulator.

The CFPB is authorized to prevent unfair, deceptive and abusive practices and ensure that consumers have access to markets for consumer financial products and services and that such markets are fair, transparent and competitive.

However, as noted above, the acting director of the CFPB instructed its staff to cease all supervision and examination activity.

It is not currently known what, if any, of the CFPB’s policies or directives will continue.

The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies and banks with $10 billion or more in total consolidated assets.

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Federal and State Taxation

Bancshares and its subsidiaries file a consolidated federal income tax return and separate state income tax returns in North Carolina.

Bancshares and its subsidiaries file a consolidated federal income tax return and various state tax returns on either a consolidated or separate entity basis as required by state-specific tax regulations.

All the returns are filed on a calendar year basis.

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Banks and bank holding companies are subject to federal and state income taxes in essentially the same manner as other corporations.

Taxable income is generally calculated under applicable sections of the Internal Revenue Code of 1986, as amended (the “Code”), with some modifications required by state law and the 2017 tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act").

Although the Company’s federal income tax liability is determined under provisions of the Code, which is applicable to all taxpayers, Sections 581 through 597 of the Code apply specifically to financial institutions.

Among other things, the Tax Act (i) established a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allowed the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limited the deduction for net interest expense incurred by U.S.

corporations, (iv) allowed businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminated or reduced certain deductions related to meals and entertainment expenses, (vi) modified the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarified the definition of a covered employee and (vii) limited the deductibility of deposit insurance premiums.

The Tax Act also significantly changed U.S.

tax law related to foreign operations, however, such changes do not currently impact the Company.

Management continues to explore investments which generate investment tax credits and as a result there can be no assurance as to the actual effective rate because it will be dependent upon the nature and amount of future income and expenses as well as actual investments generating investment tax credits and transactions with discrete tax effects.

The Coronavirus Aid, Relief, and Economic Security Act

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in March 2020, to provide national emergency economic relief measures.

Many of the CARES Act’s programs were dependent upon the direct involvement of U.S.

financial institutions, such as the Company and the Bank, and were implemented through rules and guidance adopted by federal departments and agencies, including the U.S.

Department of Treasury, the Federal Reserve and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and the Bank.

Paycheck Protection Program.

The CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the Paycheck Protection Program (“PPP”), to fund operational costs of eligible businesses, organizations and self-employed persons during the COVID-19 pandemic.

As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.

Troubled Debt Restructuring and Loan Modifications for Affected Borrowers.

The CARES Act, as amended, permits banks to suspend requirements under U.S.

generally accepted accounting principles (“GAAP”) for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as troubled debt restructurings and suspend any determination related thereto if certain conditions are met.

In order to be eligible for this treatment, the applicable loan must have been no more than 30 days past due as of December 31, 2019 and the loan modification must be made between March 1, 2020 and the earlier of (i) 60 days after the date of termination of the national emergency related to COVID-19 declared by the president of the United States, or (ii) January 11, 2022.

The federal banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to assure banks that they will not be criticized by examiners for doing so.

Taxable income is generally calculated under applicable sections of the Internal Revenue Code of 1986, as amended (the “Code”), with some modifications required by state law for computing state taxable income.

Although the Company’s federal income tax liability is determined under provisions of the Code, which is applicable to all taxpayers, Sections 581 through 597 of the Code provide special rules that apply specifically to financial institutions.

Management continues to explore investments that generate investment tax credits and as a result there can be no assurance as to the actual effective rate because it will be dependent upon the nature and amount of future income and expenses as well as actual investments generating investment tax credits and transactions with discrete tax effects.

Evolving Legislation and Regulatory Action

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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-K

Item 1. Business