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Item 8. Financial Statements and Supplementary Data

2025-03-18 compared with 2024-02-22 · 542 added, 563 removed, 1643 unchanged (40% of the section changed)

4 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Live Oak Bancshares, Inc.

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2024, expressed an unqualified opinion thereon .

We have audited the accompanying consolidated balance sheet of Live Oak Bancshares, Inc.

and subsidiaries (the Company) as of December 31, 2024, the related consolidated statement of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 18, 2025 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the Audit Committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses (ACL)

The Company’s allowance for credit losses (ACL) for expected credit losses on loans and leases was $125.8 million as of December 31, 2023.

The determination of the ACL has been identified by the Company as a critical accounting estimate.

As described in Notes 1 and 3 to the consolidated financial statements, the Company estimates its ACL on a pooled basis for loans and leases that share risk characteristics and on an individual basis for those that do not.

For those evaluated on a pooled basis, the Company’s historical credit loss experience, combined with reasonable and supportable forecasts, supports the underlying assumptions for the estimation of a quantitative component of the ACL.

In addition, there is a qualitative factor component of the ACL based on additional internal and external indicators that adjust for differences in current risk characteristics not considered within the quantitative modeling.

The Company estimates reserves on individually evaluated loans and leases using a discounted cash flow methodology or through the evaluation of collateral values.

The estimation of the ACL is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

We identified the Company’s estimate of the ACL as a critical audit matter.

The principal considerations for that determination were the degree of subjectivity and judgment required to audit management’s selection of assumptions for both the quantitative and qualitative factor components of the ACL for the pooled loans and leases and our use of an auditor’s specialist.

This was particularly true for the areas considered by management in establishing the qualitative factors, as well as the level assigned by management to each qualitative factor.

The primary procedures we performed to address this critical audit matter included the following:

• We evaluated the design and tested the operating effectiveness of controls relating to management’s determination of the ACL, including controls over:

◦ The credit administration function to ensure the timely and complete identification of individually evaluated loans and leases;

◦ Management’s review of portfolio trends that might impact the calculation of the ACL, and;

◦ Management’s review of the ACL, including the review of the qualitative components of the ACL.

• We tested the completeness of the individually evaluated loan and lease population, including substandard or worse rated loans and leases, non-accrual loans and leases, and past due loans and leases.

• We tested the calculation of reserves on a sample of identified individually evaluated loans and leases, including assessing the reasonableness of the significant assumptions including any adjustments made to appraisals for discounts, selling costs, and other unobservable adjustments.

• We involved our internal valuation specialists to assist in:

◦ Evaluating the appropriateness of forecast inputs and assumptions, and;

◦ Testing the design of the model calculation through a re-performance of the discounted cash flow on a sample basis.

• We evaluated the reasonableness of management’s application of qualitative factor adjustments to the ACL, including the comparison of factors considered by management to third party or internal sources as well as evaluated the appropriateness and level of the qualitative factor adjustments.

• We inspected overall trends in credit quality by comparing the Company’s year-over-year and quarterly changes in qualitative factors and the ACL.

• We evaluated subsequent events and transactions and considered whether they corroborated or contradicted the Company’s conclusion.

Loans Held at Fair Value

The Company had $388.0 million of loans held for investment as of December 31, 2023, representing retained participating interests of government guaranteed loans, for which management elected the fair value option.

The valuation of loans accounted for under the fair value option has been identified by the Company as a critical accounting estimate.

As described in Notes 1 and 10 to the consolidated financial statements, the fair values of loans are determined by discounting estimated cash flows and incorporating assumptions that market participants would use to estimate fair value of similar assets such as prepayment speeds, default and severity rates, and a discount rate.

The fair value of loans accounted for using the fair value option is sensitive to changes in underlying assumptions.

The discount rate is one of the most significant assumptions.

We identified the Company’s estimate of the fair value of loans for which the fair value option has been elected as a critical audit matter.

The principal considerations for that determination were the high degree of subjectivity and auditor judgment required to assess the reasonableness of the assumptions used and our use of an auditor’s specialist.

In particular, discount rates are an unobservable input and the related assumptions are the most subjective and provide the most sensitivity to the fair value measurement.

The primary procedures we performed to address this critical audit matter included the following:

• We evaluated the design and tested the operating effectiveness of controls relating to the valuation of loans accounted for using the fair value option, including controls over:

◦ Management’s valuation model, which is designed to ensure the completeness and accuracy of data used in the model, and;

◦ The determination of significant inputs and assumptions, including unobservable inputs such as discount rates, used in the model.

• We involved our internal valuation specialists to assist in:

◦ Evaluating the appropriateness of assumptions used in the model, and;

◦ Testing the design of the model calculation through a re-performance of discounted cash flows on loans accounted for under the fair value option.

• We inspected overall trends for the discount rate and prepayment speeds, and considered how the Company’s assumptions compared to observable market interest rate trends and external prepayment speed data.

Servicing Assets

The Company’s servicing assets were $48.6 million as of December 31, 2023.

The valuation of the servicing asset has been identified by the Company as a critical accounting estimate.

As described in Notes 1, 5, and 10 to the consolidated financial statements, the Company recognizes servicing assets, which represent the portion of the servicing spread that exceeds adequate compensation for the servicing function of the sold portion of loans originated by the Company.

The Company accounts for the servicing assets at fair value with changes in the fair value reported in loan servicing asset revaluation within the consolidated statements of income.

The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, ancillary income, prepayment speeds and default rates and losses, with the prepayment speed and discount rate being the most significant assumptions.

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

We identified the Company’s valuation of the servicing asset as a critical audit matter.

The principal considerations for that determination were the high degree of auditor judgment required to assess the reasonableness of certain assumptions used in the valuation model and our use of an auditor’s specialist.

In particular, prepayment speeds and discount rates are unobservable inputs developed by management and the related assumptions are the most subjective and provide the most sensitivity to the servicing assets.

The primary procedures we performed to address this critical audit matter included the following:

• We evaluated the design and tested the operating effectiveness of controls relating to the valuation of servicing assets, including controls over:

◦ Management’s valuation model, which is designed to ensure the completeness and accuracy of data used in the model, and;

◦ The determination of significant inputs and assumptions, including unobservable inputs such as prepayment speeds and discount rates, used in the model.

• We involved the firm’s internal valuation specialists to assist in:

◦ Evaluating the methodologies and assumptions used by management, including assessing the reasonableness of significant unobservable inputs such as prepayment speeds and discount rates and assumptions of the valuation model, and;

◦ Independently calculating the discounted cash flows at the individual loan level for a sample of loans and comparing the results to management’s estimate.

• We inspected overall trends for the prepayments speeds and discount rate, and considered how the Company’s prepayment speed and discount rate assumptions compared to external prepayment speed data and observable market interest rate trends.

/ S / FORVIS, LLP

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for credit losses evaluated on a collective basis

As discussed in Notes 1 and 3 to the consolidated financial statements, as of December 31, 2024, the Company had an allowance for credit losses on loans and leases (ACL) of $167.5 million of which a substantial portion is related to the allowance for credit losses on loans and leases on a collective basis (the collective ACL).

The collective ACL on loans and leases is estimated using models that incorporate relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions.

The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses.

The ACL is measured on a pooled basis using a quantitative modeling process when similar risk characteristics are present in the portfolio.

The Company has identified pools based on industry or market segment, and whether the receivable is secured by real estate or another form of collateral.

Expected credit losses for pooled loans and leases are estimated

using a discounted cash flow (DCF) methodology for each loan and lease which incorporates measurements of probability of default (PD), loss given default (LGD), prepayments, the estimated outstanding exposure at default (EAD), and the effective interest rate (EIR).

PD rates are calculated using the number of defaults divided by the number of loans available to default for 1-year observation periods over the lifetime of data available for a certain pool.

LGD rates are calculated by dividing the lifetime net charge-offs for each pool by the pool’s EAD.

PD and LGD rates are adjusted for forecasted national unemployment rates during a reasonable and supportable forecast period, using a single macroeconomic scenario.

The Company has determined that four quarters represents a reasonable and supportable forecast period and adjusted loss rates revert back to historical loss rates over four quarters on a straight-line basis.

Expected credit losses are estimated over the contractual term of the loan or lease, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions and renewals unless the extension or renewal options are included in the contract at the reporting date and are not unconditionally cancellable by the Company.

The Company considers a variety of qualitative factors to reflect its current judgment of various events and risks that are not measured within the quantitative modeling.

The qualitative framework is further informed by multiple alternative economic scenarios, as deemed applicable, to arrive at a scenario or a composite of scenarios supporting the period- end ACL balance.

The evaluation of such factors is inherently imprecise and subjective as it requires management judgment based on underlying factors that are susceptible to changes.

We identified the assessment of the collective ACL as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL due to significant complexity, subjectivity and measurement uncertainty.

Specifically, the assessment encompassed the evaluation of the methods and models used to estimate the PD and LGD and their significant assumptions.

Such significant assumptions include the selection of forecasted national unemployment rates as the sole economic variable.

The assessment also included the evaluation of the qualitative framework, including the incorporation of the multiple alternative economic scenarios, and judgmental management adjustments.

The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models.

In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL including controls related to the:

• development and continued appropriateness of the collective ACL methodology, including the qualitative framework

• continued use and appropriateness of the PD and LGD models, including the significant assumptions used in the PD and LGD models

• selection of forecasted national unemployment rates as the sole economic variable

• performance monitoring of the PD and LGD models

• determination of the judgmental management adjustments

• analysis of the collective ACL results, trends, and ratios.

We evaluated the Company’s process to develop the collective ACL by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions.

In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

• evaluating the collective ACL methodology for compliance with U.S.

generally accepted accounting principles

• evaluating judgments made by the Company relative to the assessment and performance testing of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices

• assessing the conceptual soundness of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use

• evaluating the selection of the economic variable by comparing them to the Company’s business environment and relevant industry practices

• evaluating the development of the qualitative framework and the effect of the resulting judgmental management adjustments on the collective ACL compared with relevant credit risk factors and consistency with credit trends associated with the Company’s portfolio

We also assessed the sufficiency of the audit evidence obtained related to the collective ACL by evaluating the:

• cumulative results of the audit procedures

• qualitative aspects of the Company’s accounting practices

• potential bias in the accounting estimate

We have served as the Company’s auditor since 2024.

Greenville, North Carolina

February 22, 2024

Charlotte, North Carolina

March 18, 2025

Report of Independent Registered Public Accounting Firm

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Live Oak Bancshares, Inc.

Opinion on the Internal Control over Financial Reporting

We have audited Live Oak Bancshares, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2023 and 2022, and for each of the three years in the period ended December 31, 2023, and our report dated February 22, 2024, expressed an unqualified opinion on those consolidated financial statements.

Opinion on Internal Control Over Financial Reporting

We have audited Live Oak Bancshares, Inc.

and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2024, the related consolidated statement of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended December 31, 2024, and the related notes (collectively, the consolidated financial statements), and our report dated March 18, 2025 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

A material weakness related to the following has been identified and included in management’s assessment.

• The Company did not sufficiently maintain effective control activities related to the loan review process primarily due to insufficient oversight, inadequate training of employees, lack of effective risk assessment, and ineffective monitoring activities.

The ineffective controls impacted the Company’s ability to timely identify risk rating downgrades and the related impact to the allowance for credit losses (“ACL”) on loans and leases and related disclosures.

The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

Basis for Opinion

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/ S / FORVIS, LLP

Charlotte, North Carolina

March 18, 2025

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors, and Audit Committee

Live Oak Bancshares, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Live Oak Bancshares, Inc.

(the “Company”) as of December 31, 2023, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited the adjustments to the 2023 and 2022 consolidated financial statements to retrospectively apply the changes in accounting for business segments, as described in Note 1 to the consolidated financial statements.

In our opinion, such adjustments are appropriate and have been properly applied.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Forvis Mazars, LLP

We served as the Company’s auditor from 2010 to 2024.

Greenville, North Carolina

February 22, 2024

February 22, 2024 (except as to the changes in the reporting of the Company’s business segments discussed in Note 1, as to which the date is March 18, 2025)

Live Oak Bancshares, Inc.

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Cash and due from banks $ 608,800 $ 582,540

Federal funds sold — 136,397

Certificates of deposit with other banks 250 4,000

Certificate of deposit with other banks 250 250

Investment securities available-for-sale 1,248,203 1,126,160

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Accumulated other comprehensive loss ( 82,344 ) ( 84,719 )

Total shareholders' equity attributed to Live Oak Bancshares, Inc.

999,030 902,666

Non-controlling interest 4,466 —

Total shareholders’ equity 1,003,496 902,666

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Net interest income 375,905 345,305 327,501

Provision for loan and lease credit losses 51,323 40,943 15,210

Net interest income after provision for loan and lease credit losses 293,982 286,558 281,575

Provision for credit losses 96,212 51,323 40,943

Net interest income after provision for credit losses 279,693 293,982 286,558

Noninterest income

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Net gains on sales of loans 60,899 46,545 43,244

Net (loss) gain on loans accounted for under the fair value option ( 3,539 ) 1,046 4,257

Net gain (loss) on loans accounted for under the fair value option 2,403 ( 3,539 ) 1,046

Equity method investments (loss) income ( 10,921 ) ( 5,994 ) 144,250

Equity security investments (losses) gains, net ( 969 ) 3,355 44,752

Equity security investments gains (losses), net 553 ( 969 ) 3,355

Lease income 9,756 10,007 10,084

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Net income 77,417 73,898 176,208

Net loss attributable to non-controlling interest 57 — —

Net income attributable to Live Oak Bancshares, Inc.

$ 77,474 $ 73,898 $ 176,208

Basic earnings per share $ 1.72 $ 1.67 $ 4.02

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Total comprehensive income 79,792 81,497 81,944

Comprehensive loss attributable to non-controlling interest 57 — —

Total comprehensive income attributable to Live Oak Bancshares, Inc.

$ 79,849 $ 81,497 $ 81,944

See Notes to Consolidated Financial Statements

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comprehensive

income (loss) Total

income (loss) Non-Controlling Interest Total

Shares Amount

8 unchanged sentences

Stock option exercises 201,556 — 2,118 — — — 2,118

Stock option based compensation expense — — 1,379 — — 1,379

Restricted stock expense — — 15,572 — — 15,572

Stock option compensation expense — — 942 — — — 942

Restricted stock compensation expense — — 19,405 — — — 19,405

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense — — — 662 — — 662

Repurchase and retirement of shares securing a note receivable ( 10,000 ) — ( 953 ) — — ( 953 )

Cash dividends ($ 0.12 per share)

2 unchanged sentences

Net income — — — 73,898 — — 73,898

Other comprehensive loss — — — — ( 94,264 ) ( 94,264 )

Other comprehensive income — — — — 7,599 — 7,599

Issuance of restricted stock 373,616 — — — — — —

1 unchanged sentence

Employee stock purchase program 59,074 — 1,396 — — — 1,396

Non-voting common stock converted to voting common stock in private sale 125,024 ( 125,024 ) — — — —

Stock option exercises 123,739 — 1,168 — — — 1,168

Stock option based compensation expense — — 942 — — 942

Restricted stock expense — — 19,405 — — 19,405

Stock option compensation expense — — 272 — — — 272

Restricted stock compensation expense — — 17,603 — — — 17,603

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 — — — 1,072 — — 1,072

2 unchanged sentences

Balance at December 31, 2023 44,617,673 — $ 344,568 $ 642,817 $ ( 84,719 ) $ — $ 902,666

Net income — — — 73,898 — 73,898

Net income (loss) — — — 77,474 — ( 57 ) 77,417

Other comprehensive income — — — — 2,375 — 2,375

3 unchanged sentences

Stock option exercises 307,016 — 2,311 — — — 2,311

Stock option based compensation expense — — 272 — — 272

Restricted stock expense — — 17,603 — — 17,603

Adoption of ASU 2022-02 — — — 676 — 676

Restricted stock compensation expense — — 26,205 — — — 26,205

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense — — — 881 — — 881

Contributions of non-controlling interest — — — — — 4,523 4,523

Cash dividends ($ 0.12 per share)

9 unchanged sentences

Net income $ 77,417 $ 73,898 $ 176,208

Adjustments to reconcile net income to net cash provided (used) by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 23,282 21,271 20,779

Provision for loan and lease credit losses 51,323 40,943 15,210

Amortization of premium on securities, net of accretion 8 3,420 6,461

Provision for credit losses 96,212 51,323 40,943

(Accretion) amortization of (discount) premium on securities, net of accretion ( 721 ) 8 3,420

Deferred tax (benefit) expense ( 11,420 ) ( 22,161 ) 27,129

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Net gains on sale of loans held for sale ( 60,899 ) ( 46,545 ) ( 43,244 )

Net loss (gain) on impairment and sale of foreclosed assets 751 ( 24 ) ( 779 )

Net loss (gain) on loans accounted for under fair value option 3,539 ( 1,046 ) ( 4,257 )

Net (gain) loss on impairment and sale of foreclosed assets ( 249 ) 751 ( 24 )

Net (gain) loss on loans accounted for under fair value option ( 2,403 ) 3,539 ( 1,046 )

Net change in servicing assets ( 7,553 ) ( 22,268 ) 7,251

Net gain on sale or disposal of long lived asset ( 9,079 ) ( 4,411 ) —

Net loss (gain) on disposal of premises and equipment 377 31 ( 48 )

Net loss on disposal of premises and equipment 113 377 31

Impairment on premises and equipment, net — 499 —

Equity method investments loss (income) 10,921 5,994 ( 144,250 )

Equity security investments losses (gains), net 969 ( 3,355 ) ( 44,752 )

Equity security investments (gains) losses, net ( 553 ) 969 ( 3,355 )

Gain on equity warrant assets ( 5,962 ) — —

Renewable energy tax credit investment impairment 530 14,644 16,217

1 unchanged sentence

Restricted stock compensation expense 26,205 17,603 19,405

Stock based compensation excess tax (deficiency) benefit ( 1,004 ) 531 9,340

Stock based compensation excess tax benefit (deficiency) 1,085 ( 1,004 ) 531

Business combination contingent consideration fair value adjustment ( 125 ) 125 ( 86 )

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Other liabilities 18,014 3,970 ( 6,406 )

Net cash provided (used) by operating activities 620,071 124,485 ( 119,717 )

Net cash provided by operating activities 536,468 620,071 124,485

Cash flows from investing activities

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Maturities of certificates of deposit with other banks — 3,750 750

Purchases of loans previously sold ( 116,903 ) ( 51,172 ) ( 16,765 )

Loan and lease originations and principal collections, net ( 1,835,442 ) ( 1,574,912 ) ( 1,252,106 )

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Withholding cash issued in lieu of restricted stock and other ( 8,926 ) ( 6,725 ) ( 4,972 )

Repurchase and retirement of shares — — ( 953 )

Contributions of non-controlling interest 4,523 — —

Shareholder dividend distributions ( 5,405 ) ( 5,326 ) ( 5,266 )

Net cash provided by financing activities 1,568,893 1,320,755 1,530,745

Net increase (decrease) in cash and cash equivalents 165,904 212,886 ( 114,570 )

Net increase in cash and cash equivalents 26,260 165,904 212,886

Cash and cash equivalents, beginning 582,540 416,636 203,750

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Net transfers between foreclosed real estate and SBA receivable 497 — ( 15 )

Transfer aircraft from premises and equipment, net to held for sale assets 30,154 — —

Transfer asset from premises and equipment, net to held for sale assets 18,540 30,154 —

Transfer of loans held for sale to loans and leases held for investment 168,303 275,408 930,612

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

The Company’s wholly owned material subsidiaries are the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”), Live Oak Ventures, Inc.

(“Live Oak Ventures”), and Canapi Advisors, LLC (“Canapi Advisors”).

As of December 31, 2024, the Company’s wholly owned material subsidiaries were the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”) and Live Oak Ventures, Inc.

(“Live Oak Ventures”).

GLS is a management and technology consulting firm that advises and offers solutions and services to participants in the government guaranteed lending sector.

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 with on-site dining.

The Grove provides Company employees and business visitors with on-site dining at the Company’s Wilmington, North Carolina headquarters.

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, LLC (“Canapi Advisors”) was a wholly owned subsidiary providing 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.

Canapi Advisors was subsequently dissolved in the fourth quarter of 2024.

As of December 31, 2024, Live Oak Ventures consolidated its investment in Synply, Inc.

as a result of its controlling interest in that entity.

Synply is a cloud-based technology platform designed to simplify the loan syndication process for financial institutions.

The non-controlling interest in Synply is disclosed according to the Company’s consolidation policy.

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”).

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The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Consolidation Policy

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All significant intercompany balances and transactions have been eliminated in consolidation.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity in a subsidiary not attributable, directly or indirectly, to the Company.

Non-controlling interests are presented as a separate component of equity in the consolidated balance sheets and the presentation of net income (loss) is modified to present the net income (loss) attributed to controlling and non-controlling interests.

The Company evaluates its relationships with other entities to identify whether they are a voting interest entity or variable interest entity (“VIE”).

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Securities, “Variable Interest Entities.”

Business Combinations

Business combinations are accounted for by applying the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations.

Under the acquisition method, identifiable assets acquired and liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date, and are recognized separately from any resulting goodwill.

Results of operations of the acquired entities are included in the consolidated statements of income and comprehensive income from the date of acquisition.

Any subsequent measurement-period adjustments are recorded within 12 months of the acquisition date.

Business Segments

Business Segment

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Management has determined that the Company has two reportable operating segments:

Banking and Fintech, as discussed more fully in Note 15.

The Company’s chief operating decision maker is the President of Live Oak Bancshares, Inc.

and the Bank.

In determining the appropriateness of segment definition, the Company considers the components of the business about which financial information is available and components the chief operating decision maker regularly evaluates relative to resource allocation and performance assessment.

As of December 31, 2023, the Company disclosed two reportable operating segments:

Banking and Fintech.

Due to Canapi Advisors voluntarily withdrawing as an investment advisor to the Canapi Funds in the third quarter of 2024, the chief operating decision maker began evaluating the business on a consolidated basis.

Therefore, the Company has one significant operating segment, which is providing a banking platform for small businesses nationwide.

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

The chief operating decision maker assesses performance and decides how to allocate resources based on net income which is reported on the consolidated statements of income.

The chief operating decision maker uses net income to evaluate income generated from total assets (return on assets) and profitability of the segment in relation to total shareholders’ equity (return on equity).

The measures of segment assets and equity are reported on the consolidated balance sheets as total assets and total shareholders’ equity.

Net income is also used to monitor budget versus actual results.

All of these elements are used in assessing performance of the segment.

Significant segment expenses are reported on the consolidated statements of income.

Use of Estimates

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Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses on loans and leases, valuations of loans at fair value and servicing assets.

The allowance for credit losses is a material estimate that is particularly susceptible to significant change in the near term.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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”).

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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 an adjustment 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.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

During the second quarter of 2024, the Company made enhancements to the qualitative framework of the allowance for credit losses.

The enhanced framework leverages quantifiable credit risk metrics as well as current and forecasted economic conditions to determine possible portfolio outcomes that are not captured in quantitatively modeled results.

The framework continues to consider risk factors which include, but are not limited to, changes in lending policies, economic and business conditions, nature and volume of portfolio, volume and severity of past due loans, value of underlying collateral, concentrations, and prepayment speeds.

The result of these changes was not material.

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

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For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption “cash and due from banks” and “federal funds sold.” Cash and cash equivalents have an initial maturity of three months or less.

To comply with banking regulations, the Company is required to maintain certain average cash reserve balances.

The daily average cash reserve requirement was suspended for the years ended December 31, 2023 and 2022.

Certificates of Deposit with other Banks

Certificate of Deposit with other Banks

The certificate of deposit with other banks has a maturity of December 2025 and bears interest at a rate of 3.80 %.

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Securities that may be sold prior to maturity are classified as available-for-sale and recorded at fair value.

Unrealized gains and losses for available-for-sale investment securities, other than certain credit-related impairment losses, are excluded from earnings and reported in other comprehensive income.

Unrealized gains and losses for available-for-sale investment securities, other than credit-related impairment losses, are excluded from earnings and reported in other comprehensive income.

The Company’s entire portfolio of debt securities is classified as available-for-sale for the periods presented.

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Gains and losses on the sales of these securities are recorded on the trade date and are determined using the specific identification method.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

When debt securities are in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.

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Securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Equity Investments

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To determine whether an equity security may be impaired, the Company considers various indicators of impairment, including, but not limited to (1) the financial condition and near-term prospects of the issuer, (2) adverse market conditions and (3) bona-fide offers to purchase an equity interest in the investee below the carrying amount.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Federal Home Loan Bank Stock

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FHLB stock is restricted because it may only be sold to the FHLB and all sales must be at par.

FHLB stock is carried at cost minus impairment, if any, and is recorded within other assets in the consolidated balance sheets.

FHLB stock is carried at cost minus impairment, if any, and is recorded within other assets in the consolidated balance sheet.

FHLB stock was $ 7.8 million and $ 6.8 million at December 31, 2024 and 2023, respectively.

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The changes in fair value of loans are reported in noninterest income.

Fair value of loans includes adjustments for historical credit losses, market liquidity, and economic conditions.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Fair value of loans includes adjustments for credit losses, market liquidity, and economic conditions.

Management estimates the fair value of loans accounted for under the fair value option using a discounted cash flow (“DCF”) methodology.

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Salability requirements of government guaranteed portions include, but are not limited to, full disbursement of the loan commitment amount.

Loans held for sale are carried at either fair value, if the fair value option is elected, or the lower of cost or estimated fair value.

Loans held for sale are carried at the lower of cost or fair value.

Net unrealized losses, if any, on loans without a fair value election, are recognized through a valuation allowance and recorded as a charge to noninterest income.

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Management’s intent to sell may be impacted by secondary market conditions, loan credit quality, or other factors.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The following summarizes the activity pertaining to loans held for sale for the years ended December 31, 2024 and 2023:

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Balance at end of period $ 346,002 $ 387,037

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Held for Investment

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Loans and leases are charged-off against the ACL when management believes the uncollectibility of a loan or lease balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company’s ACL on loans and leases is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

As a result, the impact of loss mitigation strategies, such as loan modifications and restructurings, are captured in the estimates of LGD and PD.

Expected recoveries, included in the ACL, do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company’s ACL on loans and leases is estimated using models that incorporate relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions.

The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The ACL is measured on a pooled basis using a quantitative modeling process when similar risk characteristics are present in the portfolio.

The Company has identified pools based on industry, which aggregates into divisions, and whether the receivable is secured by real estate or another form of collateral.

The Company has identified pools based on industry or market segment, and whether the receivable is secured by real estate or another form of collateral.

Additional information related to the portfolio segments can be found in Note 3.

Loans and Leases Held for Investment and Credit Quality.

Expected credit losses for pooled loans and leases are estimated using a DCF methodology for each loan which incorporates measurements of PD, LGD, prepayments, the estimated outstanding exposure at default (“EAD”), and the effective interest rate (“EIR”).

Expected credit losses for pooled loans and leases are estimated using a DCF methodology for each loan and lease which incorporates measurements of PD, LGD, prepayments, the estimated outstanding exposure at default (“EAD”), and the effective interest rate (“EIR”).

PD rates are calculated using the number of defaults divided by the number of loans available to default for 1-year observation periods over the lifetime of data available for a certain pool.

LGD rates are calculated by dividing the lifetime net charge-offs for each pool by the pool’s average outstanding balance.

PD and LGD rates are adjusted for forecasted national unemployment rates during a reasonable and supportable forecast period.

LGD rates are calculated by dividing the lifetime net charge-offs for each pool by the pool’s EAD.

PD and LGD rates are adjusted for forecasted national unemployment rates during a reasonable and supportable forecast period, using a single macroeconomic scenario.

Management has determined that four quarters represents a reasonable and supportable forecast period and adjusted loss rates revert back to a historical loss rate over four quarters on a straight-line basis.

Expected losses are calculated as the product of PD, LGD, and EAD.

Expected losses are discounted using the loan or lease EIR, adjusted for prepayments.

Management adjusts historical loss information for differences in current risk characteristics that are not considered within the quantitative modeling processes but are relevant in assessing the expected credit losses within the loan and lease pools.

These qualitative factor adjustments generally increase management’s estimate of expected credit losses based upon the estimated level of risk.

The various risk factors considered in qualitative adjustments include risk grading, delinquency levels, pool age, portfolio mix and growth rates, and the status of servicing efforts which may be impacted by natural disasters or health pandemics.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Expected credit losses are estimated over the contractual term of the loan or lease, adjusted for expected prepayments when appropriate.

The Company considers a variety of qualitative factors to reflect its current judgment of various events and risks that are not measured within the quantitative modeling, including lending policies and procedures, economic and business conditions, nature and volume of the loan and lease portfolio, experience of lending staff, volume and severity of credit risk metrics, quality of loan review, value of underlying collateral, loan and lease portfolio concentrations, and other external factors.

The qualitative component of the ACL is further informed by multiple alternative economic scenarios, as deemed applicable, to arrive at a scenario or a composite of scenarios supporting the period-end ACL balance.

The evaluation process is inherently imprecise and subjective as it requires management judgment based on underlying factors that are susceptible to changes.

In 2023, management adjusted historical loss information for differences in current risk characteristics that are not considered within the quantitative modeling processes but were relevant in assessing the expected credit losses within the loan and lease pools.

These qualitative factor adjustments generally increased management’s estimate of expected credit losses based upon the estimated level of risk.

The various risk factors considered in qualitative adjustments included risk grading, delinquency levels, pool age, portfolio mix and growth rates, and the status of servicing efforts which may be impacted by natural disasters or health pandemics.

This evaluation was inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Loans or leases that do not share risk characteristics are evaluated on an individual basis and are excluded from the pooled evaluation.

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• All commercial loans and leases classified substandard or worse.

• Any loan or lease that is on nonaccrual, or any loan or lease that is delinquent greater than 90 days past due and still accruing interest.

• Any loan or lease that is on nonaccrual.

• Prior to January 1, 2023, any loan or lease that was restructured with an interest rate concession and met the definition of a troubled debt restructuring (“TDR”).

The Company estimates reserves on individually evaluated loans and leases using a DCF methodology or through the evaluation of collateral values.

During the quarter ended September 30, 2021, management updated the Company’s policy for estimating expected credit losses on certain relationships that would otherwise meet the criteria for individual evaluation.

Relationships with unguaranteed exposure of less than $ 250 thousand are now collectively evaluated using an average of loss rates applied to individually evaluated relationships with unguaranteed exposure between $ 250 thousand and $ 1.0 million.

The impact of this change on the ACL was not considered material.

Expected credit losses are estimated over the contractual term of the loan or lease, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications unless management has a reasonable expectation at the reporting date that a modification will be executed with an individual borrower or the extension or renewal options are included in the contract at the reporting date and are not unconditionally cancellable by the Company.

When the ACL, for pooled or individually evaluated loans and leases, is estimated using the DCF method, the EIR used to discount expected cash flows is adjusted for expected prepayments.

The Company estimates reserves on individually evaluated loans and leases using either a DCF methodology in conjunction with the evaluation of collateral values or strictly through the evaluation of collateral values.

Loan relationships which meet the criteria to be individually evaluated with unguaranteed exposure of less than $ 250 thousand are collectively evaluated using an average of loss rates applied to individually evaluated relationships with unguaranteed exposure between $ 250 thousand and $ 1.0 million.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Allowance for Off-Balance Sheet Credit Exposures

Expected credit losses on off-balance sheet credit exposures is estimated over the contractual period in which the Company is exposed to such losses, unless the obligation to extend credit is unconditionally cancellable.

Expected credit losses on off-balance sheet credit exposures is estimated over the contractual period in which the Company is exposed to such losses.

The estimate of off-balance sheet credit exposures includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated losses.

The estimate is influenced by historical loss experience, adjusted for current risk characteristics, and economic forecasts.

The balance of the allowance for off-balance sheet credit exposures was $ 4.8 million and $ 1.5 million at December 31, 2023 and 2022, respectively, and is recorded in other expense in the consolidated statements of income and other liabilities in the consolidated balance sheets.

The balance of the allowance for off-balance sheet credit exposures was $ 13.6 million and $ 4.8 million at December 31, 2024 and 2023, respectively, and is recorded in other liabilities in the consolidated balance sheet.

During the years ended December 31, 2024, 2023 and 2022, the Company recorded $ 8.8 million, $ 3.3 million and $ 794 thousand in expense 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 was historically presented in other expense and that classification remains unchanged for prior periods.

Equipment Leasing

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Equipment purchased to fulfill commitments to commercial renewable energy projects is leased out under operating leases while leases of equipment outside of the renewable energy vertical are generally direct financing leases.

Accordingly, leased assets under operating leases are included in premises and equipment while leased assets under direct financing leases are included in loans and leases held for investment in the consolidated balance sheets.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Direct Financing Leases

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

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The Company evaluates the carrying value of rental equipment for impairment whenever events or circumstances have occurred that would indicate the carrying amount may not be fully recoverable.

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The Company determines fair value based upon the condition of the rental equipment and the projected net cash flows from its rental and sale considering current market conditions.

During the years ended December 31, 2023 and December 31, 2021, the Company recognized impairment expense of $ 499 thousand and $ 904 thousand, respectively, related to rental equipment.

No impairment expense was recorded during the year ended December 31, 2022.

During the year ended December 31, 2023, the Company recognized impairment expense of $ 499 thousand related to rental equipment.

No impairment expense was recorded during the years ended December 31, 2024 and 2022.

Premises and Equipment

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Solar panels 20 - 25

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Foreclosed Assets

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Industry practice recognizes adequate compensation for servicing SBA and USDA loans as 25 basis points.

Servicing assets are recognized as separate assets measured at fair value when a loan is sold.

Servicing assets related to SBA and USDA loan sales are recognized as separate assets measured at fair value when a loan is sold.

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Servicing rights recognized through the sale of conventional loans are amortized over the period of estimated future net servicing life of the underlying assets and are evaluated quarterly for impairment by comparing the amortized cost to the estimated fair value.

Servicing assets related to conventional commercial loans are carried at amortized cost.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Servicing fee income is recorded for fees earned for servicing loans.

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Certain warrant agreements contain net share settlement provisions, which permit the receipt of, upon exercise, a share count equal to the intrinsic value of the warrant divided by the share price (otherwise known as a “cashless” exercise).

These equity warrant assets are recorded at fair value and are classified as derivative assets, a component of other assets, on the consolidated balance sheets at the time they are obtained.

These equity warrant assets are recorded at fair value and are classified as derivative assets, a component of other assets, on the consolidated balance sheet at the time they are obtained.

The grant date fair values of equity warrant assets classified as derivatives received in connection with the issuance of a credit facility are deemed to be loan fees and recognized as an adjustment of loan yield through loan interest income.

Similar to other loan fees, the yield adjustment related to grant date fair value of warrants is recognized over the life of that credit facility.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Any changes in fair value from the grant date fair value of equity warrant assets classified as derivatives are recognized as increases or decreases to other assets on the consolidated balance sheets and as net gains or losses on derivative instruments, in other noninterest income, a component of consolidated net income.

Any changes in fair value from the grant date fair value of equity warrant assets classified as derivatives are recognized as increases or decreases to other assets on the consolidated balance sheet and as net gains or losses on derivative instruments, in other noninterest income, a component of consolidated net income.

When a portfolio company is acquired, the Company may exercise these equity warrant assets for shares or cash.

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An impairment loss is recognized if the carrying value of the intangible asset with an indefinite life exceeds its fair value.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2024 and 2023, the Company had $ 1.8 million of goodwill.

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Long-Lived Assets Reclassified to Held for Sale

During 2023, the Company determined retention of two of its aircraft, included in the Banking segment, was ineffective in serving the needs of an expanding nationwide customer base.

During 2024, the Company determined 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 $ 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 consolidated balance sheet.

During the year, the building and land were sold for a gain of $ 2.4 million which is reflected in the 2024 consolidated statement of income in other noninterest income.

During 2023, the Company determined retention of two 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 and accordingly reclassified them from premises and equipment, net to other assets.

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Prior to December 31, 2023, one aircraft was sold for a $ 4.4 million gain and is reflected in the 2023 consolidated statement of income in other noninterest income with one aircraft remaining in other assets with a carrying amount of $ 16.0 million at December 31, 2023.

During 2021, an aircraft previously reclassified to held for sale was sold for a gain of $ 114 thousand.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

During 2024, the Company sold the other aircraft for a gain of $ 6.7 million which is reflected in the 2024 consolidated statement of income in other noninterest income.

On June 11, 2014, the Company amended its Articles of Incorporation to create two classes of common stock.

These two classes are identified as Class A and Class B or Voting Common Stock and Non-Voting Common Stock, respectively, in the accompanying consolidated balance sheets and statements of changes in shareholders’ equity.

These two classes are identified as Class A and Class B or Voting Common Stock and Non-Voting Common Stock, respectively, in the accompanying consolidated balance sheet and statements of changes in shareholders’ equity.

Voting and Non-Voting Common Stock holders have identical rights and privileges, with the exception that Non-Voting Common shares have no voting power except in limited circumstances.

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These costs are included in advertising and marketing expense as presented in the consolidated statements of income.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities (excluding deferred tax assets and liabilities related to business combinations or components of other comprehensive income).

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The only components of other comprehensive income consist of realized and unrealized gains and losses related to investment securities available-for-sale.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Stock Compensation Plans

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Fair Value of Financial Instruments for further discussion and detail.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Earnings Per Share

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Basic earnings per share:

Net income $ 73,898 $ 176,208 $ 166,995

Net income attributable to Live Oak Bancshares, Inc.

$ 77,474 $ 73,898 $ 176,208

Weighted-average basic shares outstanding 45,009,567 44,353,708 43,862,291

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Diluted earnings per share:

Net income, for diluted earnings per share $ 73,898 $ 176,208 $ 166,995

Net income attributable to Live Oak Bancshares, Inc., for diluted earnings per share $ 77,474 $ 73,898 $ 176,208

Total weighted-average basic shares outstanding 45,009,567 44,353,708 43,862,291

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Diluted earnings per share $ 1.69 $ 1.64 $ 3.92

Anti-dilutive stock options and restricted shares 1,233,230 1,413,738 37,401

Anti-dilutive stock options and restricted stock grants 494,481 1,233,230 1,413,738

Revenue Recognition

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As of December 31, 2024, 2023 and 2022, remaining performance obligations consisted primarily of service based revenues for contracts with an original expected length of two years or less.

Service based revenues are included in other noninterest income in the consolidated statements of income and consist of other recurring revenue streams from services provided by the Bank for advisory and successful transactions, GLS to its clients for settlement, accounting and valuation for government guaranteed loan sales and holdings, fund investment advisory services performed by Canapi Advisors, and investment management and financial planning services provided by Live Oak Private Wealth.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Service based revenues are included in other noninterest income in the consolidated statements of income and consist of other recurring revenue streams from GLS to its clients for settlement, accounting and valuation for government guaranteed loan sales and holdings, fund investment advisory services performed by Canapi Advisors, and investment management and financial planning services provided by Live Oak Private Wealth.

Fund investment advisory services performed by Canapi Advisors ended in the third quarter of 2024 when Canapi Advisors voluntarily withdrew as an investment advisor.

Service Based Revenues

In addition to lending and related activities, the Bank’s specialized industry teams also provide advisory services to certain Government Contracting clients.

Performance obligations are satisfied over the contract period and revenue is recognized monthly.

In 2021, the Company stopped offering advisory services to new Government Contracting clients.

GLS provides services when requested by clients.

Each requested service represents a specific performance obligation with a transaction price outlined by GLS' fee schedule.

Each requested service represents a specific performance obligation with a transaction price outlined by a fee schedule.

Revenue is recognized as the requested services are completed and payment is generally received the following month.

Canapi Advisors provides investment advisory services to four financial technology venture funds where its performance obligations are satisfied over time.

Fund management fees are based upon the contractual terms of the limited partnership agreements and are recognized as earned over the specified contract period, which is generally equal to the life of the individual fund.

Fund management fees are calculated as a percentage of committed capital, net of any permitted offsets, and are collected in advance and recognized quarterly.

Canapi Advisors provided investment advisory services to four financial technology venture funds where its performance obligations were satisfied over time.

Fund management fees were based upon the contractual terms of the limited partnership agreements and were recognized as earned over the specified contract period, which was generally equal to the life of the individual fund.

Fund management fees were calculated as a percentage of committed capital, net of any permitted offsets, and were collected in advance and recognized quarterly.

Live Oak Private Wealth’s investment management and financial planning performance obligations are generally satisfied over time.

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Contracts with customers may be terminated at any time by either party.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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 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.

Loan and Lease Classes

During the fourth quarter of 2024, management made changes to loan and lease classes to align the presentation in the credit quality disclosures in Note 3.

Loans and Leases Held for Investment and Credit Quality with the Company’s method for monitoring and assessing credit risk.

As a result, loans and leases previously classified as Specialty Lending class and Energy & Infrastructure class in the 2023 financial statements were reclassified into the Commercial Banking class to reflect the current year classifications.

Recent Accounting Pronouncements

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As subsequently amended, the ASU can be adopted by the Company through December 31, 2024.

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

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

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.

As of December 31, 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 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.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

As of December 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 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 October 2023, the FASB issued ASU No.

8 unchanged sentences

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.

The Company adopted this standard on December 31, 2024 with no material effect on its consolidated financial statements.

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

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

In December 2023, the FASB issued ASU No.

3 unchanged sentences

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.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The Company is currently evaluating the impact the amendments will have on 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.

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.

In November 2024, the FASB issued ASU 2024-03 “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (“ASU 2024-03”).

ASU 2024-03 requires disaggregation of certain expense captions into specified categories within the footnotes.

The amendments in this standard will be effective for the Company on January 1, 2027.

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

Available-for-Sale

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

December 31, 2023 Amortized

Cost Unrealized

Gains Unrealized

December 31, 2024 Amortized Cost Unrealized Gains Unrealized Losses Fair Value

government agencies $ 18,196 $ — $ 299 $ 17,897

6 unchanged sentences

Municipal bonds 3,200 — 161 3,039

Other debt securities 500 — — 500

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

During the year ended December 31, 2024, one security totaling $ 3.0 million matured, one security totaling $ 2.5 million was called and ten securities totaling $ 27.0 million were settled.

During the year ended December 31, 2023, three securities totaling $ 13.0 million were called and four securities totaling $ 7.0 million were settled.

During the year ended December 31, 2022, two securities totaling $ 7.5 million matured and twenty securities totaling $ 36.5 million were settled.

During the year ended December 31, 2021, one security totaling $ 5.0 million matured and twelve securities totaling $ 33.1 million were settled.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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.

17 unchanged sentences

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

At December 31, 2023, there were 409 mortgage-backed securities, five U.S.

At December 31, 2024, there were 404 mortgage-backed securities, three U.S.

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

There were 59 mortgage-backed securities and two U.S.

government agencies in unrealized loss positions for less than 12 months.

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

government agencies and two municipal bond for greater than 12 months.

There were 27 mortgage-backed securities in unrealized loss positions for less than 12 months.

Unrealized losses at December 31, 2022 consisted of 185 mortgage-backed securities and one municipal bond for greater than 12 months.

There were 236 mortgage-backed securities, five U.S.

government agencies, and one municipal bond in unrealized loss positions for less than 12 months.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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

2 unchanged sentences

government sponsored enterprises (“GSEs”).

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The following is a summary of investment securities by maturity:

20 unchanged sentences

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

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

At December 31, 2024, investment securities with a market value of $ 621.4 million and a carrying value of $ 695.1 million were pledged to support unused borrowing capacity.

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

Equity Investments

16 unchanged sentences

1,238 2.9 7,611 2.9

Other investments in fintech private companies (6)

Other (7) (8)

Affordable housing (6)

14,724 Various 15,611 Various

Solar tax credit investments (7)

5,309 99.0 6,714 99.0

1,489 Various 607 Various

Total $ 91,003 $ 118,914

(1) Includes unfunded commitments of $ 5.0 million and $ 5.5 million as of December 31, 2023 and 2022, respectively.

(2) Includes unfunded commitments of $ 559 thousand and $ 617 thousand as of December 31, 2023 and 2022, respectively.

(3) Includes unfunded commitments of $ 6.3 million and $ 6.9 million as of December 31, 2023 and 2022, respectively.

(4) Includes unfunded commitments of $ 7.1 million and $ 7.5 million as of December 31, 2023 and 2022, respectively.

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

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

As of December 31, 2023, the investment has been moved to equity security as the preferred shares do not qualify as in-substance common stock.

(7) As of 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 MM 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 11.5 % of limited member interests, respectively.

As of December 31, 2023, there was an unfunded commitment of $ 7.7 million for Estrella Landing.

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 December 31, 2023, this commitment has been funded.

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

(8) Investments reported in Banking segment.

(9) Investments reported in Other segment.

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

(2) Investment unfunded commitments of $ 492 thousand and $ 559 thousand as of December 31, 2024 and December 31, 2023, respectively.

(3) Investment unfunded commitments of $ 5.2 million and $ 6.3 million as of December 31, 2024 and December 31, 2023, respectively.

(4) Investment unfunded commitments of $ 6.5 million and $ 7.1 million as of December 31, 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 1”) 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 December 31, 2024 and December 31, 2023, there was an unfunded commitment of $ 1.7 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.

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

As of December 31, 2024, this investment category also includes the carried interest security related to Canapi Ventures Fund I, L.P.

Live Oak Bancshares, Inc.

11 unchanged sentences

Net upward (downward) change $ 47,991 $ 40 $ ( 1,524 ) $ 2,022

(1) Includes $ 2.3 million, $ 3.0 million and $ 2.8 million in unfunded commitments for the years ended December 31, 2023, 2022 and 2021, respectively.

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

For the twelve months ended December 31, 2023, 2022 and 2021, the Company recognized unrealized (losses) gains on all equity securities still held at the reporting date of $( 1.5 ) million, $ 1.9 million, and $ 44.0 million, respectively.

(1) Investment unfunded commitments of $ 4.3 million, $ 2.3 million, and $ 3.0 million as of December 31, 2024, 2023, and 2022, respectively.

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

For the twelve months ended December 31, 2024, 2023 and 2022, the Company recognized unrealized gains (losses) on all equity securities still held at the reporting date of $ 119 thousand, $( 1.5 ) million, and $ 1.9 million, respectively.

Variable Interest Entities

22 unchanged sentences

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

The Company’s investment in the unconsolidated VIEs are carried in other assets and the Company’s unfunded capital and other commitments related to the unconsolidated VIEs are carried in other liabilities on the consolidated balance sheets.

The Company’s maximum exposure to loss from unconsolidated VIEs includes the investment recorded on the Company’s consolidated balance sheets.

The Company’s investment in the unconsolidated VIEs are carried in other assets.

The Company’s maximum exposure to loss from unconsolidated VIEs includes the investment recorded on the Company’s consolidated balance sheet and unfunded commitment.

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.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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

1 unchanged sentence

Solar tax credit investments $ 5,309 $ 38,107 $ — Other assets (1)

Affordable housing 15,611 15,611 7,715 Other assets & other liabilities (2)

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

Non-marketable and other equity investments 8,840 8,840 2,321 Other assets & other liabilities

December 31, 2022 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 12,940 15,463 — Other assets (2)

Canapi Funds 17,104 34,269 — Other assets (3)

Non-marketable and other equity investments 5,290 9,591 — Other assets (4)

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

Solar tax credit investments $ 6,714 $ 38,228 $ — Other assets (5)

Affordable housing 15,611 15,611 7,715 Other assets & other liabilities (6)

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

Non-marketable and other equity investments 8,840 8,840 2,321 Other assets & other liabilities

(1) Maximum exposure to loss represents $ 6.7 million of current investments and a scenario in which $ 31.5 million in related tax credits are recaptured.

(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.

(1) Maximum exposure to loss includes $ 5.3 million of current investments and a scenario in which related tax credits are recaptured, collectively totaling $ 32.8 million.

(2) Maximum exposure to loss includes $ 12.9 million of investments, $ 1.7 million in unfunded commitments and a scenario in which related tax credits are recaptured, collectively totaling $ 0.8 million.

(3) Maximum exposure to loss includes $ 17.1 million of current investments and $ 17.2 million in unfunded commitments.

(4) Maximum exposure to loss includes $ 5.3 million of current investments and $ 4.3 million in unfunded commitments.

(5) Maximum exposure to loss represents $ 6.7 million of current investments and a scenario in which related tax credits are recaptured, collectively totaling $ 31.5 million.

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

As there are no tax credits allocated in 2023, there is no increase to the maximum exposure to loss related to recaptured tax credits on the $ 8.8 million LIHTC investment as of December 31, 2023.

The following table provides a summary of the tax benefits the Company has received from VIEs as of December 31, 2024, 2023, and 2022:

The Year Ended December 31,

Provision for income taxes:

Amortization of tax credit investments under proportional amortization

$ 1,106 $ — $ —

Tax credits from tax credit investments

( 11,546 ) ( 16,390 ) ( 16,361 )

Other tax benefits related to tax credit investments

Total $ ( 10,440 ) $ ( 16,390 ) $ ( 16,361 )

Live Oak Bancshares, Inc.

30 unchanged sentences

The loan and lease portfolio is further grouped into one of the following classes (also referred to as divisions):

Small Business Banking, Specialty Lending, Energy & Infrastructure (“E&I”), or Paycheck Protection Program.

Small Business Banking, Commercial Banking, or Paycheck Protection Program.

Small Business Banking includes loans to customers in verticals that generally have traditional loan structures.

Specialty Lending includes loans to customers in verticals that generally have atypical ownership structures as well as complex collateral arrangements, underwriting requirements, and servicing needs.

E&I includes loans to customers that operate renewable energy projects, lodging facilities, and municipalities.

E&I loans often utilize USDA or tax-exempt loan structures.

Commercial Banking includes loans to customers in verticals that generally have atypical ownership structures as well as complex collateral arrangements, underwriting requirements, and servicing needs.

Commercial Banking also includes loans to customers that operate renewable energy projects, lodging facilities, and municipalities, and often utilize USDA or tax-exempt loan structures.

Paycheck Protection Program (“PPP”) includes all loans originated under the PPP pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”) economic relief program and carry a 100 % government guarantee.

10 unchanged sentences

Small Business Banking $ 2,182,596 $ 37,966 $ 104,362 $ 142,328 $ 2,324,924 $ 119,378 $ 2,444,302

Specialty Lending 1,131,493 — — — 1,131,493 7,829 1,139,322

Energy & Infrastructure 842,907 2,806 4,044 6,850 849,757 46,185 895,942

Commercial Banking 2,418,078 15,282 23,999 39,281 2,457,359 49,767 2,507,126

Paycheck Protection Program 2,361 — — — 2,361 — 2,361

2 unchanged sentences

Small Business Banking 514,997 1,488 2,468 3,956 518,953 — 518,953

Specialty Lending 47,419 — — — 47,419 — 47,419

Energy & Infrastructure 7,541 — — — 7,541 — 7,541

Commercial Banking 85,456 — — — 85,456 — 85,456

Total 600,453 1,488 2,468 3,956 604,409 — 604,409

1 unchanged sentence

Small Business Banking 2,773,306 42,058 57,896 99,954 2,873,260 107,751 2,981,011

Specialty Lending 511,712 — 12,032 12,032 523,744 — 523,744

Energy & Infrastructure 158,613 — 3,072 3,072 161,685 17,751 179,436

Commercial Banking 1,040,065 5,000 10,778 15,778 1,055,843 19,025 1,074,868

Total 3,813,371 47,058 68,674 115,732 3,929,103 126,776 4,055,879

11 unchanged sentences

90 Days or More Past Due Total Past Due Total Carried at Amortized

Cost Loans Accounted for Under

the Fair Value Option (1)

Cost Loans Accounted for Under the Fair Value Option (1)

Total Loans and Leases

1 unchanged sentence

Small Business Banking $ 2,075,227 $ 16,570 $ 33,366 $ 49,936 $ 2,125,163 $ 151,887 $ 2,277,050

Specialty Lending 754,272 — — — 754,272 15,576 769,848

Energy & Infrastructure 420,447 — 3,082 3,082 423,529 50,094 473,623

Commercial Banking 1,974,400 2,806 4,044 6,850 1,981,250 54,014 2,035,264

Paycheck Protection Program 5,595 — — — 5,595 — 5,595

2 unchanged sentences

Small Business Banking 413,349 1,745 — 1,745 415,094 — 415,094

Specialty Lending 104,069 — — — 104,069 — 104,069

Energy & Infrastructure 13,753 — — — 13,753 — 13,753

Commercial Banking 54,960 — — — 54,960 — 54,960

Total 468,309 1,745 — 1,745 470,054 — 470,054

1 unchanged sentence

Small Business Banking 2,414,677 18,589 32,310 50,899 2,465,576 127,358 2,592,934

Specialty Lending 306,785 — — — 306,785 236 307,021

Energy & Infrastructure 136,706 — 3,072 3,072 139,778 22,123 161,901

Commercial Banking 670,325 — 15,104 15,104 685,429 17,751 703,180

Total 3,085,002 18,589 47,414 66,003 3,151,005 145,109 3,296,114

15 unchanged sentences

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

The Bank uses a grading system to rank the quality of each loan and lease.

The grade is periodically evaluated and adjusted as performance dictates.

Loan and lease grades 1 through 4 are passing grades and grade 5 is special mention.

Collectively, grades 6 through 8 represent classified loans and leases in the Bank’s portfolio.

The following guidelines govern the assignment of these risk grades:

Exceptional (1 Rated):

These loans and leases are of the highest quality, with strong, well-documented sources of repayment.

These loans and leases will typically have multiple demonstrated sources of repayment with no significant identifiable risk to collection, exhibit well-qualified management, and have liquid financial statements relative to both direct and indirect obligations.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Quality (2 Rated):

These loans and leases are of very high credit quality, with strong, well-documented sources of repayment.

These loans and leases exhibit very strong, well defined primary and secondary sources of repayment, with no significant identifiable risk of collection and have internally generated cash flow that more than adequately covers current maturities of long-term debt.

Satisfactory (3 Rated):

These loans and leases exhibit satisfactory credit risk and have excellent sources of repayment, with no significant identifiable risk of collection.

These loans and leases have documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.

They have adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

Acceptable (4 Rated):

These loans and leases show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss.

These loans and leases may have unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time.

Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected performance.

They may also contain marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor.

Special mention (5 Rated):

Pass (Risk Grades 10-47):

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 (Risk Grade 50):

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;

These loans and leases may contain underwriting guidelines 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.

Substandard (6 Rated):

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Substandard (Risk Grades 60-80):

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

2 unchanged sentences

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

Doubtful (7 Rated):

Loans and leases graded Doubtful have all the weaknesses inherent in those classified as Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

The ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment schedule exists.

Once the loss position is determined, the amount is charged off.

Loss (8 Rated):

Loss rated loans and leases are considered uncollectible and of such little value that their continuance as assets is not warranted.

This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this credit even though partial recovery may be affected in the future.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The following tables present credit quality indicators by portfolio class:

4 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

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 $ 1,112,351 $ 1,084,996 $ 1,323,982 $ 1,001,021 $ 528,008 $ 482,192 $ 124,370 $ 33,359 $ 5,690,279

Special Mention 7,041 46,047 77,638 61,906 31,575 83,693 22,729 2,790 333,419

Substandard 13,805 28,573 84,067 74,990 40,266 59,874 7,922 395 309,892

Total 1,133,197 1,159,616 1,485,687 1,137,917 599,849 625,759 155,021 36,544 6,333,590

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

Commercial Banking

Pass 1,169,167 752,078 398,333 207,755 51,552 81,166 423,334 116,594 3,199,979

Special Mention — 16,483 88,464 36,165 24,018 17,569 9,555 4,245 196,499

Substandard — — 31,461 136,818 27,905 — 2,902 3,094 202,180

Total 1,169,167 768,561 518,258 380,738 103,475 98,735 435,791 123,933 3,598,658

Paycheck Protection Program

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

Pass — — — 1,461 900 — — — 2,361

Total — — — 1,461 900 — — — 2,361

2 unchanged sentences

Small Business Banking $ 652 $ 4,198 $ 18,630 $ 4,954 $ 3,462 $ 3,481 $ 3,555 $ 170 $ 39,102

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

Commercial Banking — 17 5,176 1,493 756 — 1,535 — 8,977

Total $ 652 $ 4,215 $ 23,806 $ 6,447 $ 4,218 $ 3,481 $ 5,090 $ 170 $ 48,079

6 unchanged sentences

Small Business Banking

Risk Grades 1 - 4 $ 1,499,309 $ 1,490,346 $ 857,380 $ 438,907 $ 224,199 $ 204,933 $ 75,005 $ 1,773 $ 4,791,852

Risk Grade 5 15,942 22,295 45,541 46,655 30,523 27,212 15,549 452 204,169

Risk Grades 6 - 8 1,806 8,777 18,261 29,047 14,260 27,215 2,688 759 102,813

Total 1,517,057 1,521,418 921,182 514,609 268,982 259,360 93,242 2,984 5,098,834

Specialty Lending

Risk Grades 1 - 4 562,952 266,165 82,812 13,343 268 788 143,512 31,469 1,101,309

Risk Grade 5 7,341 28,722 6,990 9,258 — — 4,280 — 56,591

Risk Grades 6 - 8 — 6,933 — — — — 293 — 7,226

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

Energy & Infrastructure

Risk Grades 1 - 4 199,338 176,855 39,600 51,190 23,374 19,694 12,751 351 523,153

Risk Grade 5 4,024 4,409 500 6,976 4,706 5,142 — — 25,757

Risk Grades 6 - 8 — 3,082 16,589 — 8,479 — — — 28,150

Commercial Banking

Pass 1,027,017 561,189 347,087 63,205 59,138 23,420 225,278 58,441 2,364,775

Special Mention 8,858 52,767 139,824 56,565 17,050 18,627 20,547 5,417 319,655

Substandard — 4,024 18,335 3,619 — — 7,203 4,028 37,209

Total 1,035,875 617,980 505,246 123,389 76,188 42,047 253,028 67,886 2,721,639

Paycheck Protection Program

Risk Grades 1 - 4 — 7,421 5,713 — — — — — 13,134

Pass — — 2,831 2,764 — — — — 5,595

Total — — 2,831 2,764 — — — — 5,595

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

Gross Charge-offs

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

Commercial Banking — — — — — — 7,966 — 7,966

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

(1) Excludes $ 328.7 million and $ 388.0 million of loans accounted for under the fair value option as of December 31, 2024 and December 31, 2023, respectively.

4 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 $ 8,892,619 $ 2,644,310 $ 6,248,309 29.7 %

Special Mention 529,918 172,015 357,903 32.5

Substandard 512,072 346,669 165,403 67.7

Total $ 9,934,609 $ 3,162,994 $ 6,771,615 31.8 %

1 unchanged sentence

Guaranteed Balance Unguaranteed Balance % Guaranteed

Risk Grades 1 - 4 $ 6,429,448 $ 2,508,229 $ 3,921,219 39.0 %

Risk Grade 5 286,517 115,573 170,944 40.3

Risk Grades 6 - 8 138,189 80,193 57,996 58.0

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 %

4 unchanged sentences

Nonaccrual loans and leases are generally included in the held for investment portfolio.

Accrued interest receivable on loans totaled $ 63.5 million and $ 46.5 million at December 31, 2023 and December 31, 2022, respectively, and is included in other assets in the accompanying consolidated balance sheets.

Accrued interest receivable on loans totaled $ 80.7 million and $ 63.5 million at December 31, 2024 and December 31, 2023, respectively, and is included in other assets in the accompanying consolidated balance sheet.

Nonaccrual loans and leases as of December 31, 2024 and December 31, 2023 are as follows:

3 unchanged sentences

Small Business Banking $ 141,674 $ 116,596 $ 25,078 $ 5,219

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

Commercial Banking 39,282 26,300 12,982 3,816

Total 180,956 142,896 38,060 9,035

4 unchanged sentences

Small Business Banking 81,847 55,290 26,557 17,736

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

Energy & Infrastructure 3,072 2,799 273 —

Commercial Banking 26,888 13,981 12,907 11,907

Total 108,735 69,271 39,464 29,643

9 unchanged sentences

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

Energy & Infrastructure 3,082 2,794 288 288

Commercial Banking 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

Energy & Infrastructure 3,072 2,799 273 —

Commercial Banking 15,104 2,799 12,305 12,032

Total 72,244 47,225 25,019 20,231

9 unchanged sentences

Commercial & Industrial $ 4,213 $ 2,212

Construction & Development 74 56

Commercial Real Estate 1,699 1,041

Commercial Land 218 —

Construction & Development 56 —

Total $ 6,204 $ 3,309

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

Fair Value of Financial Instruments for additional information.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The following tables present the amortized cost basis of collateral-dependent loans and leases which are individually evaluated to determine expected credit losses, as of December 31, 2024 and 2023:

3 unchanged sentences

Small Business Banking $ 6,693 $ 36,500 $ — $ 2,738 $ 12,061 $ — $ 8,299

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

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

Commercial Banking 101,001 26,788 — 13,704 11,350 — 4,374

Total 107,694 63,288 — 16,442 23,411 — 12,673

6 unchanged sentences

Total $ 167,295 $ 69,615 $ — $ 41,394 $ 24,472 $ — $ 14,537

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Total Collateral-Dependent Loans Unguaranteed Portion

2 unchanged sentences

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

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

Commercial Banking — 7,733 — — 4,938 — —

Total 2,737 10,159 — 421 5,485 — 277

9 unchanged sentences

Organization and Summary of Significant Accounting Policies for a description of the methodologies used to estimate credit losses.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The following tables detail activity in the allowance for credit losses for the periods presented:

2 unchanged sentences

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

Adoption of ASU 2022-02 ( 25 ) ( 166 ) ( 83 ) ( 402 ) ( 676 )

Charge offs ( 43,785 ) ( 338 ) ( 3,932 ) ( 24 ) ( 48,079 )

4 unchanged sentences

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

Adoption of ASU 2022-02 ( 25 ) ( 166 ) ( 83 ) ( 402 ) ( 676 )

Charge offs ( 22,510 ) — ( 1,417 ) — ( 23,927 )

8 unchanged sentences

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

During the year ended December 31, 2024, the ACL increased primarily as a result of record loan growth combined with the impacts of the current and forecasted macroeconomic environment.

Loss rates are adjusted for four quarters of forecasted unemployment followed by a four-quarter straight-line reversion period.

During the year ended December 31, 2023, the ACL increased primarily as a result of loan growth and charge-off related impacts.

1 unchanged sentence

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

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

During the year ended December 31, 2022, the ACL increased primarily as a result of loan growth, charge-off experience impacts and changes in the macroeconomic outlook.

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

During the year ended December 31, 2021, increases to the ACL were primarily related to loan growth which has outpaced the improvement in forecasted unemployment rates and other conditions related to the COVID-19 pandemic.

Unemployment rates were forecasted for twelve months followed by a twelve-month straight-line reversion period.

Additionally, the provision expense was impacted by net charge-offs during the period .

Loan Modifications for Borrowers Experiencing Financial Difficulty

2 unchanged sentences

The Company typically does not offer principal forgiveness.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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

Twelve Months Ended December 31, 2024 Other-Than-Insignificant

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

Financing Receivable

Small Business Banking $ 8,083 $ — $ — $ — 0.1 %

Commercial Banking 12,779 — 3,094 2,500 0.7

Total $ 20,862 $ — $ 3,094 $ 2,500 0.8 %

Twelve Months Ended December 31, 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 $ 10,090 $ 5,127 $ 3,330 $ 361 0.3 %

Specialty Lending — 708 — 4,133 0.3

Energy & Infrastructure — 13,485 — — 1.4

Commercial Banking — 14,193 — 4,133 1.7

Total $ 10,090 $ 19,320 $ 3,330 $ 4,494 2.0 %

As of December 31, 2023, the Company had commitments to lend additional funds to these borrowers totaling $ 1.2 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 December 31, 2023.

Current 30-89 Days

As of December 31, 2024 and December 31, 2023 , the Company had commitments to lend additional funds to these borrowers totaling $ 6.3 million and $ 1.2 million, respectively.

The following table presents an aging analysis of loans that were modified within the twelve months ended December 31, 2024 and December 31, 2023, respectively:

Twelve Months Ended December 31, 2024 Current 30-89 Days

Past Due 90 Days or More Past Due Total Past Due

Small Business Banking $ 8,083 $ — $ — $ —

Specialty Lending 4,841 — — —

Energy & Infrastructure 13,485 — — —

Commercial Banking 18,373 — — —

Total $ 26,456 $ — $ — $ —

Twelve Months Ended December 31, 2023 Current 30-89 Days

Past Due 90 Days or More Past Due Total Past Due

Small Business Banking $ 18,908 $ — $ — $ —

Commercial Banking 18,326 — — —

Total $ 37,234 $ — $ — $ —

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

4 unchanged sentences

Small Business Banking — % 0

Specialty Lending — 67

Energy & Infrastructure — 15

There were no loans that were modified on or after January 1, 2023, the date the Company adopted ASU 2022-02, through December 31, 2023 that subsequently defaulted during the periods presented.

Commercial Banking 5.00 7

Twelve Months Ended December 31, 2023

Weighted Average

Interest Rate Reduction Weighted Average

Term Extension (in Months)

Small Business Banking 1.41 % 67

Commercial Banking — 29

There were no loans that were modified within the twelve months ended December 31, 2024 and December 31, 2023, respectively, that subsequently defaulted during the periods presented.

Live Oak Bancshares, Inc.

17 unchanged sentences

Small Business Banking — $ — 7 $ 8,795 3 $ 1,442 1 $ 490 11 $ 10,727

Specialty Lending — — 1 4,183 — — — — 1 4,183

Energy & Infrastructure — — — — 1 13,517 1 13,517

Commercial Banking — — 1 4,183 1 13,517 — — 2 17,700

Total — — 8 12,978 4 14,959 1 490 13 28,427

9 unchanged sentences

Fair Value of Financial Instruments for additional information.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Twelve months ended December 31, 2021

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

Commercial & Industrial

Small Business Banking — $ — 3 $ 6,097 1 $ 496 — $ — 4 $ 6,593

Total — — 3 6,097 1 496 — — 4 6,593

Commercial Real Estate

Small Business Banking — — 5 6,613 — — 1 3,124 6 9,737

Total — — 5 6,613 — — 1 3,124 6 9,737

Total — $ — 8 $ 12,710 1 $ 496 1 $ 3,124 10 $ 16,330

(1) Includes one small business banking loan with extended amortization and a rate concession TDR ($ 3.1 million).

(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 December 31, 2022 that subsequently defaulted during the period:

The following table presents TDRs that were modified within the twelve months ended December 31, 2022 that subsequently defaulted during the period:

Twelve months ended December 31, 2022

10 unchanged sentences

Fair Value of Financial Instruments for additional information.

One TDR that was modified within the twelve months ended December 31, 2021 subsequently defaulted during the twelve months ended December 31, 2021.

The TDR that defaulted was a commercial real estate small business banking loan that had previously been modified for a payment deferral and had a recorded investment of $ 50 thousand at December 31, 2021.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Lessor Equipment Leasing

2 unchanged sentences

Accordingly, leased assets under operating leases are included in premises and equipment while leased assets under direct financing leases are included in loans and leases held for investment.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Direct Financing Leases

6 unchanged sentences

As of December 31, 2024 Amount

Total $ 2,335

Interest income of $ 122 thousand, $ 253 thousand and $ 393 thousand was recognized in the twelve months ended December 31, 2024 , 2023 and 2022 , respectively.

Operating Leases

As of December 31, 2023 and 2022 , the Company had a net investment of $ 104.0 million and $ 114.2 million, respectively, in assets included in premises and equipment, net in the consolidated balance sheets that are subject to operating leases.

As of December 31, 2024 and 2023 , the Company had a net investment of $ 93.4 million and $ 104.0 million, respectively, in assets included in premises and equipment, net in the consolidated balance sheet that are subject to operating leases.

Of the net investment, the gross balance of the assets was $ 159.7 million and $ 162.3 million as of December 31, 2024 and 2023, respectively, and accumulated depreciation was $ 66.2 million and $ 58.3 million as of December 31, 2024 and 2023 , respectively.

Depreciation expense recognized on these assets for the twelve months ended December 31, 2024 , 2023 and 2022 was $ 9.6 million, $ 9.6 million and $ 9.7 million, respectively.

Lease income of $ 9.5 million was recognized in the twelve months ended December 31, 2023, 2022 and 2021.

Lease income of $ 9.4 million, $ 9.5 million and $ 9.5 million was recognized in the twelve months ended December 31, 2024, 2023 and 2022, respectively.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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

5 unchanged sentences

If it is determined to be or contain a lease, then the lease is classified as an operating or finance lease.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Right-of-use assets represent the Company's right to use an underlying asset for the lease term.

7 unchanged sentences

The Company does not apply the recognition and measurement requirements to any short-term leases (terms of twelve months or less).

Operating leases are included in other assets and other liabilities in the consolidated balance sheets.

Finance leases are included in other assets and borrowings in the consolidated balance sheets.

Operating leases are included in other assets and other liabilities in the consolidated balance sheet.

Finance leases are included in other assets and borrowings in the consolidated balance sheet.

Lease expense for operating leases and finance leases is included in occupancy expense in the consolidated statements of income and interest expense for finance leases is included in borrowings interest expense in the consolidated statements of income.

The Company has operating leases for real property and land.

These leases have remaining lease terms of less than 1 year to 23 years, some of which include options to extend the leases for up to 20 years, and some of which include options to terminate the leases.

These leases have remaining lease terms of 1 year to 22 years, some of which include options to extend the leases for up to 20 years, and some of which include options to terminate the leases.

The Company has concluded that it is reasonably certain it will exercise the options to extend for only one lease, which was therefore recognized as part of the right-of-use asset and lease liability.

The Company had a finance lease for fitness equipment, which matured during the year ended December 31, 2022.

The Company has a finance lease for business equipment, and it has a remaining lease term of approximately 2.58 years.

There are no options to extend or terminate this lease.

The components of lease expense are as follows:

5 unchanged sentences

Interest expense on lease liabilities 3 —

Sublease income ( 40 ) —

Total net lease cost $ 1,255 $ 943

Supplemental disclosure for the consolidated balance sheets related to operating leases is as follows:

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Supplemental disclosure for the consolidated balance sheets related to leases is as follows:

December 31, 2024 December 31, 2023

1 unchanged sentence

Operating lease liability 2,636 3,180

Finance lease right-of-use asset 130 —

Finance lease liability 132 —

The weighted average remaining lease term and weighted average discount rate for leases are as follows:

2 unchanged sentences

Operating leases 10.73 10.58

Finance lease 2.58 —

Weighted average discount rate

Operating leases 3.76 % 3.64 %

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

A maturity analysis of operating lease liabilities is as follows:

As of December 31, 2023 Operating Leases

Finance lease 4.40 % — %

A maturity analysis of operating and finance lease liabilities is as follows:

As of December 31, 2024 Operating Leases Finance Leases

2025 $ 603 $ 58

Thereafter 1,022 —

6 unchanged sentences

The unpaid principal balance for all loans serviced for others was $ 4.72 billion, $ 4.24 billion and $ 3.48 billion at December 31, 2024, 2023 and 2022 , respectively.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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

3 unchanged sentences

Due to changes in valuation inputs or assumptions (1)

14,297 ( 5,934 )

Decay due to increases in principal paydowns or runoff ( 12,158 ) ( 9,411 )

2 unchanged sentences

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

As of December 31, 2023, the Company had servicing assets related to conventional commercial loans carried at amortized cost of $ 405 thousand.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2024 and 2023, the Company had servicing assets related to conventional commercial loans carried at amortized cost of $ 356 thousand and $ 405 thousand, respectively.

Premises and Equipment

13 unchanged sentences

Premises and equipment, net of depreciation $ 264,059 $ 257,881

Deposits on fixed assets at December 31, 2023 consist primarily of construction costs related to the Company’s planned fourth building, software development costs, plane deposits and campus improvement costs.

Deposits on fixed assets at December 31, 2024 consist primarily of software development costs and campus improvement costs.

Depreciation expense for the years ended December 31, 2024, 2023 and 2022 amounted to $ 23.4 million, $ 21.1 million and $ 20.6 million, respectively.

In 2022, the Company purchased a building and land adjacent to its main campus for $ 18.3 million.

The building, with a value of $ 11.5 million and $ 11.3 million at December 31, 2023 and 2022, respectively, is temporarily idle and therefore included in deposits on fixed assets as the Company formalizes plans for its campus expansion.

Total capitalized interest of $ 769 thousand related to the Company’s newly constructed building at its headquarters campus was recorded for the year ended December 31, 2024.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The types of deposits at December 31, 2024 and 2023 are:

7 unchanged sentences

Total deposits $ 11,760,494 $ 10,275,019

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The aggregate amount of time deposits in denominations of $250 thousand or more at December 31, 2024 and 2023 was approximately $ 695.9 million and $ 695.6 million, respectively.

3 unchanged sentences

Total $ 5,659,975

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Total outstanding borrowings consisted of the following:

4 unchanged sentences

$ 13,184 $ 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 an 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 December 31, 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.

Other long term debt (1)

Total borrowings $ 112,820 $ 23,354

(1) Includes finance leases.

As of December 31, 2024 and 2023, the Company’s total unused borrowing capacity was $ 3.55 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, the Federal Reserve Bank’s Bank Term Funding Program, as well as access to a repurchase agreement.

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 approved borrowing capacity with all of the above sources is $ 6.10 billion and $ 6.28 billion as of December 31, 2024 and 2023, respectively.

See further details below on each type of unused borrowing available to the Company.

The Company may borrow funds through the Federal Reserve Bank’s discount window.

These borrowings are secured by a blanket floating lien on qualifying loans with a balance of $ 2.74 billion and $ 2.81 billion as of December 31, 2023 and 2022, respectively.

These borrowings are secured by qualifying loans and investment securities with a balance of $ 3.25 billion and $ 2.74 billion as of December 31, 2024 and 2023, respectively.

At December 31, 2024 and 2023, the Company had approximately $ 2.73 billion and $ 2.21 billion, respectively, in borrowing capacity available under these arrangements with no outstanding balance as of December 31, 2024 or 2023.

3 unchanged sentences

There is no collateral pledged and no advances outstanding as of December 31, 2024 or 2023.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The Company may purchase federal funds through unsecured federal funds lines of credit with various correspondent banks, which totaled $ 130.0 million and $ 164.5 million as of December 31, 2023 and 2022, respectively.

The Company may purchase federal funds through unsecured federal funds lines of credit with various correspondent banks, which totaled $ 130.0 million as of December 31, 2024 and 2023.

These lines are intended for short-term borrowings and are subject to restrictions limiting the frequency and terms of advances.

These lines of credit are payable on demand and bear interest based upon the daily federal funds rate.

The Company had no outstanding balance on the lines of credit as of December 31, 2023, and $ 50.0 million in outstanding balances on the lines of credit as of December 31, 2022.

The Company had no outstanding balance on the lines of credit as of December 31, 2024 and 2023.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

In September 2024, the Company modified a $ 100.0 million revolving line of credit with a third party correspondent bank.

The line of credit is unsecured and accrues interest at 30-day SOFR plus 1.25 % with an interest rate floor of 2.75 %.

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 line of credit is unsecured and accrues interest at 30-day SOFR plus 1.25 % with an interest rate floor of 2.75 % and an interest rate cap of 6.75 %.

The line of credit was extended 12 months to a maturity date of October 10, 2027.

Payments are interest only with all principal and accrued interest due at maturity.

2 unchanged sentences

As of December 31, 2024 and 2023, there was $ 100.0 million of available credit.

The Company may borrow funds from the Bank Term Funding Program (“BTFP”).

The Company could borrow funds 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.

As of December 31, 2023, there was $ 1.12 billion of potential borrowing capacity available and no outstanding balance.

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

As of December 31, 2024, there was no potential borrowing capacity available and no outstanding balance.

The Company has entered into a repurchase agreement with a third party for up to $ 5.0 million as of December 31, 2024 and 2023.

13 unchanged sentences

Income tax expense, as reported $ 11,818 $ 8,932 $ 34,116

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Reported income tax expense differed from the amounts computed by applying the U.S.

8 unchanged sentences

Total income tax expense $ 11,818 $ 8,932 $ 34,116

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Components of deferred tax assets and liabilities are as follows:

5 unchanged sentences

Accrued expenses 4,029 1,283

Allowance for off-balance sheet credit exposures

Operating lease liabilities 638 773

Goodwill and intangibles — 14

Unguaranteed loan discount — 319

11 unchanged sentences

Total deferred tax liabilities 67,079 62,550

Net deferred tax asset (liability) $ 6,386 $ ( 13,375 )

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Net deferred tax asset $ 17,056 $ 6,386

The Company assesses the realizability of deferred tax assets at each reporting period and considers whether it is more likely than not that a deferred tax asset will not be realized.

9 unchanged sentences

Generally, the Company’s federal and state tax returns are no longer subject to examination by the taxing authorities for years prior to 2015.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Fair Value of Financial Instruments

24 unchanged sentences

Due to the nature of the valuation inputs, servicing rights are classified within Level 3 of the valuation hierarchy.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The mutual fund is registered with the Securities and Exchange Commission as a closed-end, non-diversified management investment company and operates as an interval fund.

6 unchanged sentences

The Company classifies equity warrant assets within Level 3 of the valuation hierarchy.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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

19 unchanged sentences

Total assets at fair value $ 1,640,357 $ — $ 1,248,578 $ 391,779

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 Total Level 1 Level 2 Level 3

4 unchanged sentences

3,039 — 2,954 85

Other debt securities 500 — 500 —

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

7 unchanged sentences

(2) See Note 5 for a rollforward of recurring Level 3 fair values for servicing assets.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Fair Value Option

14 unchanged sentences

$ 328,746 $ 342,150 $ ( 13,404 ) $ 63,386 $ 64,784 $ ( 1,398 ) $ 51,272 $ 52,528 $ ( 1,256 )

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

December 31, 2023

4 unchanged sentences

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

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

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

Twelve Months Ended

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

Loans held for sale $ — $ 1,521

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

Loans held for investment $ 2,403 $ ( 3,539 )

$ 2,403 $ ( 3,539 )

Losses related to borrower-specific credit risk were $ 3.5 million and $ 1.9 million for the twelve months ended December 31, 2023 and 2022, respectively.

Losses related to borrower-specific credit risk were $ 0 and $ 3.5 million for the twelve months ended December 31, 2024 and 2023, respectively.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

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

Twelve Months Ended December 31,

Loans held for sale 2023 2022

Balance at beginning of period $ — $ 25,310

Repurchases and issuances — 65

Fair value changes — 1,521

Transfers — ( 26,219 )

Settlements — ( 677 )

Balance at end of period $ — $ —

Twelve Months Ended December 31,

Loans held for investment 2024 2023

5 unchanged sentences

Balance at end of period $ 328,746 $ 388,036

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Non-recurring Fair Value

19 unchanged sentences

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

Foreclosed assets 6,481 — — 6,481

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

21 unchanged sentences

Foreclosed assets $ 1,944 Discounted appraisals Appraisal adjustments (2)

10.0 % - 17.4 %

Live Oak Bancshares, Inc.

8 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 %

7 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.

21 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

23 unchanged sentences

(1) Includes unfunded overdraft protection.

(2) Includes $ 1.20 billion and $ 1.17 billion at December 31, 2024 and 2023, respectively, for which loan commitment letters have been issued.

Such letters do not represent a present obligation to extend credit due to the variety of conditions contained in the letters.

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

4 unchanged sentences

Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties.

Commitment letters are issued after approval of the loan by the Credit Department and generally expire ninety days after issuance.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

3 unchanged sentences

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 $ 37.0 million.

At December 31, 2023 , the Company has paid and was committed to approximately $ 21.5 million of the total estimated amount.

As of December 31, 2023 and December 31, 2022, the Company recorded unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of $ 29.0 million and $ 26.1 million, respectively.

Securities for unfunded commitments to provide capital contributions for equity fund investments as of December 31, 2024 and 2023.

As of December 31, 2023, the Company was 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 was approximately $ 37.0 million.

At December 31, 2023, the Company paid and was committed to approximately $ 21.5 million of the total estimated amount.

As of December 31, 2024, construction was complete and there was no additional committed balance.

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 exposure exceeds $ 20.0 million, except for twenty-seven relationships that have a retained unguaranteed exposure of $ 1.10 billion of which $ 684.9 million of the unguaranteed exposure has been disbursed.

The Company does not have a significant number of credits to any single borrower or group of related borrowers whereby their retained exposure exceeds $ 20.0 million, except for fifty-one relationships that have a retained unguaranteed exposure of $ 2.15 billion of which $ 1.31 billion of the unguaranteed exposure has been disbursed.

Additionally, the Company has future minimum lease payments receivable under non-cancelable operating leases totaling $ 40.4 million, of which no relationships exceed $ 20.0 million.

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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.

Benefit Plans

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Employee Stock Purchase Plan

The Company adopted an Employee Stock Purchase Plan on October 8, 2014, which plan was most recently amended and restated as of March 22, 2021 and approved by the Company’s shareholders on May 11, 2021 (“ESPP”), within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.

The Company adopted an Employee Stock Purchase Plan, or ESPP, on October 8, 2014, which was most recently amended and approved by the Company’s shareholders on May 21, 2024, within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.

Under this plan, eligible employees are able to purchase available shares with post-tax dollars as of the grant date.

14 unchanged sentences

Compensation cost relating to share-based payment transactions are recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued.

For the years ended December 31, 2023, 2022 and 2021 the Company recognized $ 25 thousand, $ 753 thousand and $ 1.3 million in compensation expense for stock options, respectively.

There was no compensation expense for stock options recognized for the year ended December 31, 2024.

For the years ended December 31, 2023 and 2022, the Company recognized $ 25 thousand and $ 753 thousand in compensation expense for stock options, respectively.

Stock option activity under the 2015 Omnibus Stock Incentive Plan during the year ended December 31, 2024 is summarized below.

5 unchanged sentences

Exercised ( 336,197 ) 10.35

Forfeited ( 7,980 ) 4.40

Outstanding at December 31, 2024 332,386 $ 15.35 0.70 years $ 8,043,504

7 unchanged sentences

Vested ( 37,760 ) 6.60

Forfeited ( 8,626 ) 6.95

Non-vested at December 31, 2023 — —

Vested ( 37,760 ) 6.60

Non-vested at December 31, 2024 — $ —

13 unchanged sentences

The fair value of each restricted stock unit is based on the market value of the Company’s stock on the date of the grant.

Restricted stock awards are authorized in the form of restricted stock awards or units (“RSUs”) and restricted stock awards or units with a market price condition (“Market RSUs”).

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

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.

Market RSUs may have a restriction based on the passage of time and may have non-market-related performance criteria, but also have a restriction based on market price criteria related to the Company’s share price closing at or above a specified price for at least twenty ( 20 ) consecutive trading days at any time prior to the expiration date of the grants.

The amount of Market RSUs earned will not exceed 100 % of the Market RSUs awarded.

The fair value of the Market RSUs and the implied service period is calculated using the Monte Carlo Simulation method.

The following is a summary of non-vested RSU stock activity for the Company for the year ended December 31, 2024.

5 unchanged sentences

Non-vested at December 31, 2024 2,026,522 $ 39.66

During 2022 and 2021, the Company granted 885,939 and 1,329,508 RSUs, respectively.

The weighted average grant date fair value for RSUs granted in 2022 and 2021 was $ 37.75 and $ 58.19 , respectively.

For the years ended December 31, 2024, 2023 and 2022, the Company recognized $ 26.2 million, $ 17.6 million and $ 19.4 million in compensation expense for RSUs, respectively.

1 unchanged sentence

Subsequently in February 2025, the Company granted 551,911 RSUs with a weighted average grant date fair value of $ 34.54 with unrecognized compensation expense of $ 19.1 million which will be recognized over a weighted average period of 5.01 years.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

The compensation expense for Market RSUs is measured based on their grant date fair value as calculated using the Monte Carlo Simulation and is recognized on a straight-line basis over the average vesting period.

The Monte Carlo Simulation used 100,000 simulation paths to assess the expected date of achieving the market price criteria.

For the year ended December 31, 2021, the Company recognized $ 4.2 million in compensation expense for Market RSUs.

For the year ended December 31, 2021, 575,500 Market RSUs met the performance stock price conditions for the $ 45.00 , $ 48.00 $ 50.00 and $ 55.00 stock price for twenty consecutive days.

The remaining expense of $ 3.7 million was fully recognized due to the accelerated vesting.

There were no remaining Market RSUs at year end December 31, 2023 and 2022.

Employee Incentive Compensation

3 unchanged sentences

Total expenses related to the cash bonus for employees were $ 12.9 million, $ 1.0 million and $ 9.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.

In addition, for the years ended December 31, 2023, 2022 and 2021 the Company had discretionary special bonuses of $ 4.5 million, $ 10.5 million and $ 4.0 million, respectively, to most full-time employees.

There were no discretionary special bonuses for December 31, 2024.

In addition, for the years ended December 31, 2023 and 2022 the Company had discretionary special bonuses of $ 4.5 million and $ 10.5 million, respectively, to most full-time employees.

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Regulatory Matters

5 unchanged sentences

banking organizations, includes quantitative measures designed to ensure capital adequacy.

The Basel III Rules require the Company and the Bank to maintain (i) a minimum common equity Tier 1 ratio minimum of 4.50 percent plus a 2.50 percent “capital conservation buffer” (effectively resulting in minimum common equity Tier 1 ratio of 7.00 percent), (ii) Tier 1 risk-based capital minimum of 6.00 percent plus the capital conservation buffer (effectively resulting in a minimum Tier 1 risk-based capital ratio of 8.50 percent), (iii) total risk-based capital ratio minimum of 8.00 percent plus the capital conservation buffer (effectively resulting in a minimum total risk-based capital ratio of 10.5 percent) and (iv) Tier 1 leverage capital ratio minimum of 4.00 percent.

The Basel III Rules require the Company and the Bank to maintain (i) a minimum common equity Tier 1 ratio of 4.50 percent plus a 2.50 percent “capital conservation buffer” (effectively resulting in minimum common equity Tier 1 ratio of 7.00 percent), (ii) Tier 1 risk-based capital minimum of 6.00 percent plus the capital conservation buffer (effectively resulting in a minimum Tier 1 risk-based capital ratio of 8.50 percent), (iii) total risk-based capital ratio minimum of 8.00 percent plus the capital conservation buffer (effectively resulting in a minimum total risk-based capital ratio of 10.5 percent) and (iv) Tier 1 leverage capital ratio minimum of 4.00 percent.

The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.

49 unchanged sentences

The Company has entered into transactions with its directors, officers, significant shareholders, their affiliates, and equity method investments (“related parties”).

The following table provides related party loan activity during 2023:

Balance as of December 31, 2022 $ 21,738

Loan originations 3,723

Loan repayments ( 2,537 )

Balance as of December 31, 2023 $ 22,924

Deposits from related parties held by the Company as of December 31, 2023 and 2022 amounted to $ 48.6 million and $ 63.5 million, respectively.

Transactions with related parties include the following equity method investments:

Related parties include the following equity method investments:

Apiture, Inc.

(“Apiture”), Canapi Funds, Cape Fear Collective 1 & 2, OTR, Estrella Landing, Green Sun, Sunvest, HEP and Heelstone.

(“Apiture”), Canapi Funds, Cape Fear Collective 1 & 2, OTR, Estrella Landing, Green Sun, Sun Vest, HEP and Heelstone.

Apiture is a digital banking solution for financial institutions.

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Estrella Landing is a LIHTC investment that qualifies as an affordable housing project located in Wilmington, NC.

Green Sun, Sunvest, HEP, and Heelstone are solar income tax credit projects.

Green Sun, Sun Vest, HEP, and Heelstone are solar income tax credit projects.

Securities, section captioned “Equity Method Accounting,” for further detail on equity method investments.

The following table provides related party loan activity during 2024:

Balance as of December 31, 2023 $ 22,924

Loan originations —

Loan repayments ( 1,716 )

Balance as of December 31, 2024 $ 21,208

Deposits from related parties held by the Company as of December 31, 2024 and 2023 amounted to $ 41.1 million and $ 48.6 million, respectively.

Medical Park Hotels, LLC (“Medical Park Hotels”) owns a hotel in the Wilmington, North Carolina area.

One executive officer and one board member hold a combined total of 24 % interest in Medical Park Hotels.

During the year ended December 31, 2024, the Company paid Medical Park Hotels $ 183 thousand for room rentals to house employees, recruits and other business associates when visiting the Wilmington, North Carolina area.

During the years ended December 31, 2024, 2023 and 2022, the Company paid Apiture $ 3.8 million, $ 2.5 million and $ 2.0 million, respectively, for professional services.

During 2024, 2023 and 2022, the Company recognized income from Apiture of $ 217 thousand, $ 385 thousand and $ 438 thousand, respectively, for shared services and rent.

During the years ended December 31, 2022 and 2021, the Company made charitable contributions in the amounts of $ 310 thousand and $ 352 thousand, respectively, to Collective Impact in New Hanover County, a 501(c)(3) charitable organization (“Collective Impact”).

There were no charitable contributions made during the year ended December 31, 2023.

As of December 31, 2024, Live Oak Bancshares, Inc.

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

The Company recognized $ 731 thousand of carried interest during the year ended December 31, 2024.

No carried interest was recognized during 2023 and 2022.

During the year ended December 31, 2022, the Company made charitable contributions in the amount of $ 310 thousand, to Collective Impact in New Hanover County, a 501(c)(3) charitable organization (“Collective Impact”).

There were no charitable contributions made during the years ended December 31, 2024 and 2023.

Cape Fear Collective Ventures, LLC, a wholly owned subsidiary of Collective Impact, manages each of Cape Fear Collective 1 & 2.

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.

Accordingly, the Company operates two reportable segments for management reporting purposes as discussed below:

Banking - This segment specializes in providing financing services to small businesses nationwide in targeted industries and deposit-related services to small businesses, consumers and other customers nationwide.

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

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

The primary sources of revenue for this segment are principally gains and losses on equity method and equity security investments and management fees.

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 Consolidated Financial Statements

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

The information provided under the caption “Other” represents operations not considered to be reportable segments and/or general operating expenses of the Company, and includes the parent company, other non-bank subsidiaries and elimination adjustments to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP.

Banking Fintech Other Consolidated

As of and for the year ended December 31, 2023

Interest income $ 687,655 $ 39 $ 581 $ 688,275

Interest expense 341,789 — 1,181 342,970

Net interest income 345,866 39 ( 600 ) 345,305

Provision for loan and lease credit losses 51,323 — — 51,323

Noninterest income 101,054 8,297 2,382 111,733

Noninterest expense 303,695 10,458 8,732 322,885

Income tax (benefit) expense 9,106 1,034 ( 1,208 ) 8,932

Net income (loss) $ 82,796 $ ( 3,156 ) $ ( 5,742 ) $ 73,898

Total assets $ 11,145,385 $ 131,310 $ ( 5,272 ) $ 11,271,423

As of and for the year ended December 31, 2022

Interest income $ 444,307 $ 93 $ 73 $ 444,473

Interest expense 115,324 — 1,648 116,972

Net interest income 328,983 93 ( 1,575 ) 327,501

Provision for loan and lease credit losses 40,943 — — 40,943

Noninterest income 80,562 155,028 2,402 237,992

Noninterest expense 296,891 9,413 7,922 314,226

Income tax (benefit) expense ( 226 ) 36,016 ( 1,674 ) 34,116

Net income (loss) $ 71,937 $ 109,692 $ ( 5,421 ) $ 176,208

Total assets $ 9,672,458 $ 124,249 $ 58,791 $ 9,855,498

As of and for the year ended December 31, 2021

Interest income $ 360,986 $ 201 $ 26 $ 361,213

Interest expense 63,119 — 1,309 64,428

Net interest income 297,867 201 ( 1,283 ) 296,785

Provision for loan and lease credit losses 15,210 — — 15,210

Noninterest income 114,363 43,141 2,696 160,200

Noninterest expense 215,819 5,395 9,773 230,987

Income tax (benefit) expense 35,539 10,280 ( 2,026 ) 43,793

Net income (loss) $ 145,662 $ 27,667 $ ( 6,334 ) $ 166,995

Total assets $ 8,053,212 $ 121,889 $ 38,292 $ 8,213,393

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Parent Company Only Financial Statements

14 unchanged sentences

Accumulated other comprehensive loss ( 82,344 ) ( 84,719 )

Total shareholders' equity attributed to Live Oak Bancshares, Inc.

999,030 902,666

Non-controlling interest 4,466 —

Total shareholders' equity 1,003,496 902,666

Total liabilities and shareholders' equity $ 1,122,775 $ 940,393

Live Oak Bancshares, Inc.

Notes to Consolidated Financial Statements

Statements of Income

18 unchanged sentences

83,939 79,252 181,046

Net income 77,417 73,898 176,208

Net loss attributable to non-controlling interest 57 — —

Net income attributable to Live Oak Bancshares, Inc.

7 unchanged sentences

Net income $ 77,417 $ 73,898 $ 176,208

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Equity in undistributed net income of subsidiaries in excess of dividends of subsidiaries

9 unchanged sentences

Net change in other liabilities 526 299 ( 1,626 )

Net cash provided by (used in) operating activities 38,739 ( 3,477 ) 10,370

Net cash (used in) provided by operating activities ( 7,205 ) 38,739 ( 3,477 )

Cash flows from investing activities

11 unchanged sentences

Shareholder dividend distributions ( 5,405 ) ( 5,326 ) ( 5,266 )

Net cash (used in) provided by financing activities ( 19,336 ) ( 24,584 ) 15,784

Net cash provided by (used in) financing activities 78,764 ( 19,336 ) ( 24,584 )

Net change in cash and cash equivalents ( 25,753 ) ( 21,341 ) 92,603

3 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-K

Item 8. Financial Statements and Supplementary Data