Live Oak Bancshares, Inc. 10-Q

Item 1. Financial Statements Live Oak Bancshares, Inc. Condensed Consolidated Balance Sheets As of March 31, 2025 (unaudited) and December 31, 2024 (Dollars in thousands) March 31, 2025 December 31, 2024 Assets Cash and due from banks $ 744,263 $ 608,800 Certificates of deposit with other banks 250 250 Investment securities available-for-sale 1,312,680 1,248,203 Loans held for sale 367,955 346,002 Loans and leases held for investment (includes $ 316,807 and $ 328,746 measured at fair value, respectively) 10,693,911 10,233,374 Allowance for credit losses on loans and leases ( 190,184 ) ( 167,516 ) Net loans and leases 10,503,727 10,065,858 Premises and equipment, net 259,113 264,059 Foreclosed assets 2,108 1,944 Servicing assets (includes $ 56,684 and $ 55,788 measured at fair value, respectively) 56,911 56,144 Other assets 348,697 352,120 Total assets $ 13,595,704 $ 12,943,380 Liabilities and shareholders’ equity Liabilities Deposits: Noninterest-bearing $ 386,108 $ 318,890 Interest-bearing 12,009,837 11,441,604 Total deposits 12,395,945 11,760,494 Borrowings 110,247 112,820 Other liabilities 58,065 66,570 Total liabilities 12,564,257 11,939,884 Shareholders’ equity Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding at March 31, 2025 and December 31, 2024 — — Class A common stock, no par value, 100,000,000 shares authorized, 45,589,633 and 45,359,425 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively 370,513 365,607 Class B common stock, no par value, 10,000,000 shares authorized, none issued or outstanding at March 31, 2025 and December 31, 2024 — — Retained earnings 724,215 715,767 Accumulated other comprehensive loss ( 67,698 ) ( 82,344 ) Total shareholders' equity attributed to Live Oak Bancshares, Inc. 1,027,030 999,030 Non-controlling interest 4,417 4,466 Total shareholders’ equity 1,031,447 1,003,496 Total liabilities and shareholders’ equity $ 13,595,704 $ 12,943,380 See Notes to Unaudited Condensed Consolidated Financial Statements 1 Table of Contents Live Oak Bancshares, Inc. Condensed Consolidated Statements of Income For the three months ended March 31, 2025 and 2024 (unaudited) (Dollars in thousands, except per share data) Three Months Ended March 31, 2025 2024 Interest income Loans and fees on loans $ 195,616 $ 176,010 Investment securities, taxable 11,089 8,954 Other interest earning assets 6,400 7,456 Total interest income 213,105 192,420 Interest expense Deposits 110,888 101,998 Borrowings 1,685 311 Total interest expense 112,573 102,309 Net interest income 100,532 90,111 Provision for credit losses 28,964 16,364 Net interest income after provision for credit losses 71,568 73,747 Noninterest income Loan servicing revenue 8,298 7,624 Loan servicing asset revaluation ( 4,728 ) ( 2,744 ) Net gains on sales of loans 18,648 11,502 Net loss on loans accounted for under the fair value option ( 1,034 ) ( 219 ) Equity method investments (loss) income ( 2,239 ) ( 5,022 ) Equity security investments gains (losses), net 20 ( 529 ) Lease income 2,573 2,453 Management fee income — 3,271 Other noninterest income 4,043 9,761 Total noninterest income 25,581 26,097 Noninterest expense Salaries and employee benefits 48,008 47,275 Travel expense 2,795 2,438 Professional services expense 3,024 1,878 Advertising and marketing expense 3,665 3,692 Occupancy expense 2,737 2,247 Technology expense 9,251 7,723 Equipment expense 3,745 3,074 Other loan origination and maintenance expense 4,585 3,911 Renewable energy tax credit investment (recovery) impairment — ( 927 ) FDIC insurance 3,551 3,200 Other expense 2,656 3,226 Total noninterest expense 84,017 77,737 Income before taxes 13,132 22,107 Income tax expense (benefit) 3,464 ( 5,479 ) Net income 9,668 27,586 Net loss attributable to non-controlling interest 49 — Net income attributable to Live Oak Bancshares, Inc. $ 9,717 $ 27,586 Basic earnings per share $ 0.21 $ 0.62 Diluted earnings per share $ 0.21 $ 0.60 See Notes to Unaudited Condensed Consolidated Financial Statements 2 Table of Contents Live Oak Bancshares, Inc. Condensed Consolidated Statements of Comprehensive Income For the three months ended March 31, 2025 and 2024 (unaudited) (Dollars in thousands) Three Months Ended March 31, 2025 2024 Net income $ 9,668 $ 27,586 Other comprehensive income (loss) before tax: Net unrealized gain (loss) on investment securities available-for-sale during the period 19,271 ( 8,576 ) Reclassification adjustment for gain on sale of securities available-for-sale included in net income — — Other comprehensive income (loss) before tax 19,271 ( 8,576 ) Income tax (expense) benefit ( 4,625 ) 2,058 Other comprehensive income (loss), net of tax 14,646 ( 6,518 ) Total comprehensive income 24,314 21,068 Comprehensive loss attributable to non-controlling interest 49 — Total comprehensive income attributable to Live Oak Bancshares, Inc. $ 24,363 $ 21,068 See Notes to Unaudited Condensed Consolidated Financial Statements 3 Table of Contents Live Oak Bancshares, Inc. Condensed Consolidated Statements of Changes in Shareholders’ Equity For the three months ended March 31, 2025 and 2024 (unaudited) (Dollars in thousands) Three Months Ended Common stock Retained earnings Accumulated other comprehensive (loss) income Non-controlling interest Total equity Shares Amount Class A Class B Balance at December 31, 2024 45,359,425 — $ 365,607 $ 715,767 $ ( 82,344 ) $ 4,466 $ 1,003,496 Net income (loss) — — — 9,717 — ( 49 ) 9,668 Other comprehensive income — — — — 14,646 — 14,646 Issuance of restricted stock 143,784 — — — — — — Tax withholding related to vesting of restricted stock and other — — ( 3,178 ) — — — ( 3,178 ) Employee stock purchase program 23,015 — 659 — — — 659 Stock option exercises 63,409 — 758 — — — 758 Restricted stock compensation expense — — 6,667 — — — 6,667 Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense — — — 98 — — 98 Cash dividends ($ 0.03 per share) — — — ( 1,367 ) — — ( 1,367 ) Balance at March 31, 2025 45,589,633 — $ 370,513 $ 724,215 $ ( 67,698 ) $ 4,417 $ 1,031,447 Balance at December 31, 2023 44,617,673 — $ 344,568 $ 642,817 $ ( 84,719 ) $ — $ 902,666 Net income — — — 27,586 — — 27,586 Other comprehensive loss — — — — ( 6,518 ) — ( 6,518 ) Issuance of restricted stock 123,670 — — — — — — Tax withholding related to vesting of restricted stock and other — — ( 3,057 ) — — — ( 3,057 ) Employee stock purchase program 18,485 — 702 — — — 702 Stock option exercises 178,845 — 1,129 — — — 1,129 Restricted stock compensation expense — — 6,306 — — — 6,306 Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense — — — 249 — — 249 Cash dividends ($ 0.03 per share) — — — ( 1,345 ) — — ( 1,345 ) Balance at March 31, 2024 44,938,673 — $ 349,648 $ 669,307 $ ( 91,237 ) $ — $ 927,718 4 Table of Contents Live Oak Bancshares, Inc. Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2025 and 2024 (unaudited) (Dollars in thousands) Three Months Ended March 31, 2025 2024 Cash flows from operating activities Net income $ 9,668 $ 27,586 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,974 4,981 Provision for credit losses 28,964 16,364 Accretion of discount on securities, net ( 83 ) ( 355 ) Deferred tax benefit ( 1,009 ) ( 6,888 ) Originations of loans held for sale ( 349,091 ) ( 203,956 ) Proceeds from sales of loans held for sale 422,294 258,708 Net gains on sale of loans held for sale ( 18,648 ) ( 11,502 ) Net loss on impairment or sale of foreclosed assets 34 — Net loss on loans accounted for under fair value option 1,034 219 Net change in servicing assets ( 767 ) ( 752 ) Net loss (gain) on disposal of property and equipment 24 ( 4 ) Equity method investments loss (income) 2,239 5,022 Equity security investments losses (gains), net ( 20 ) 529 Loss (gain) on equity warrant assets 304 ( 5,662 ) Renewable energy tax credit investment recovery — ( 927 ) Restricted stock compensation expense 6,667 6,306 Stock based compensation excess tax (deficiency) benefit ( 156 ) 889 Lease right-of-use assets and liabilities, net ( 14 ) ( 11 ) Changes in assets and liabilities: Other assets 4,464 301 Other liabilities ( 7,901 ) 45 Net cash provided by operating activities 104,977 90,893 Cash flows from investing activities Purchases of investment securities available-for-sale ( 76,965 ) ( 46,176 ) Proceeds from maturities, calls, and principal paydowns of investment securities available-for-sale 31,842 43,493 Purchases of loans previously sold ( 23,607 ) ( 22,425 ) Loan and lease originations and principal collections, net ( 524,894 ) ( 228,713 ) Purchases of equity security investments ( 3,433 ) ( 3,279 ) Purchases of equity method investments ( 424 ) ( 1,435 ) Proceeds from sale of equity security investments 160 535 Proceeds from sale of equity method investments 129 — Proceeds from sale of premises and equipment 222 978 Purchases of premises and equipment, net ( 2,294 ) ( 21,676 ) Net cash used by investing activities ( 599,264 ) ( 278,698 ) See Notes to Unaudited Condensed Consolidated Financial Statements 5 Table of Contents Live Oak Bancshares, Inc. Condensed Consolidated Statements of Cash Flows (Continued) For the three months ended March 31, 2025 and 2024 (unaudited) (Dollars in thousands) Three Months Ended March 31, 2025 2024 Cash flows from financing activities Net increase in deposits $ 635,451 $ 108,342 Proceeds from borrowings 43 99,414 Repayment of borrowings ( 2,616 ) ( 2,526 ) Stock option exercises 758 1,129 Employee stock purchase program 659 702 Tax withholding related to vesting of restricted stock and other ( 3,178 ) ( 3,057 ) Shareholder dividend distributions ( 1,367 ) ( 1,345 ) Net cash provided by financing activities 629,750 202,659 Net increase in cash and cash equivalents 135,463 14,854 Cash and cash equivalents, beginning 608,800 582,540 Cash and cash equivalents, ending $ 744,263 $ 597,394 Supplemental disclosures of cash flow information Interest paid $ 112,098 $ 102,644 Income tax paid, net 172 1,928 Supplemental disclosures of noncash investing and financing activities Unrealized holding gains (losses) on investment securities available-for-sale, net of taxes $ 14,646 $ ( 6,518 ) Transfers from loans and leases to foreclosed real estate and other repossessions or SBA receivable 3,648 2,080 Transfer from premises and equipment, net to other assets — 18,540 Transfer of loans held for sale to loans and leases held for investment 205,385 94,384 Transfer of loans and leases held for investment to loans held for sale 283,718 63,508 Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense 98 249 Accrued premises and equipment additions — 2,971 Equity method investment commitments — 1,008 See Notes to Unaudited Condensed Consolidated Financial Statements 6 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Note 1. Basis of Presentation Nature of Operations Live Oak Bancshares, Inc. (collectively with its subsidiaries including Live Oak Banking Company, the “Company”) is a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of the State of North Carolina in December 2008. The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the “Bank”). The Bank was organized and incorporated under the laws of the State of North Carolina on February 25, 2008 and commenced operations on May 12, 2008. The Bank specializes in providing lending and deposit related services to small businesses nationwide. A significant portion of the loans originated by the Bank are partially guaranteed by the Small Business Administration (“SBA”) under the 7(a) Loan Program and the U.S. Department of Agriculture’s ( “ USDA”) Rural Energy for America Program (“REAP”), Water and Environmental Program (“WEP”), Business & Industry ( “ B&I”) and Community Facilities loan programs. These loans are to small businesses and professionals with what the Bank believes are lower risk characteristics. Industries, or “verticals,” on which the Bank focuses its lending efforts are carefully selected. The Bank also lends more broadly to select borrowers outside of those verticals. As of March 31, 2025, t he Company’s wholly owned material subsidiaries are the Bank, Government Loan Solutions, Inc. (“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 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, 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. During the fourth quarter of 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”). Live Oak Number One, Inc. holds properties foreclosed on by the Bank. LOCEF provides financing to entities for renewable energy applications. Live Oak Private Wealth provides high-net-worth individuals and families with strategic wealth and investment management services. TLH holds land adjacent to the Bank's headquarters consisting of wetlands and other protected property for the use and enjoyment of the Bank's employees and customers. The Company generates revenue primarily from net interest income and secondarily through the origination and sale of government guaranteed loans. Income from the retention of loans is comprised principally of interest income. Income from the sale of loans is comprised of loan servicing revenue and revaluation of related servicing rights along with net gains on sales of loans. Offsetting these revenues are the cost of funding sources, provision for credit losses, any costs related to foreclosed assets and other operating costs such as salaries and employee benefits, travel, professional services, advertising and marketing and tax expense. The Company also has less routinely generated gains and losses arising from its financial technology investments. 7 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements General In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included, and all intercompany transactions have been eliminated in consolidation. Results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2025. The Condensed Consolidated Balance Sheet as of December 31, 2024 has been derived from the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the Securities Exchange Commission ( “ SEC ” ) on March 18, 2025 (SEC File No. 001-37497) (the “ 2024 Form 10-K ” ). A summary description of the significant accounting policies followed by the Company is set forth in Note 1 of the Notes to Consolidated Financial Statements in the Company’s 2024 Form 10-K. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes in the Company's 2024 Form 10-K. The preparation of financial statements in conformity with United States ( “ U.S. ” ) generally accepted accounting principles ( “ GAAP ” ) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Amounts in all tables in the Notes to Unaudited Condensed Consolidated Financial Statements have been presented in thousands, except percentage, time period, share and per share data or where otherwise indicated. Business Segments 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. 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. Management has determined that 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. Changes in Accounting Estimates 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 ” ) Accounting Standards Codification ( “ ASC ” ) 250, Accounting Changes and Error Corrections , with prospective application beginning in the period of change. 8 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Long-Lived Asset Reclassified to Held for Sale During the first quarter of 2024, the Company determined that retention of an idle building and accompanying land adjacent to its main campus was not best suited to serve future expansion plans. As a result of this determination, the Company entered into a purchase and sale agreement with a third party with expected total proceeds, net of estimated expenses, of $ 20.9 million. Accordingly, the $ 18.5 million carrying amount of the building and land, was considered held for sale, and reclassified from premises and equipment, net to other assets in the Unaudited Condensed Consolidated Balance Sheet. During the third quarter of 2024, the building and land were sold for a gain of $ 2.4 million. Reclassifications Certain reclassifications have been made to the prior period's Unaudited Condensed Consolidated Financial Statements to place them on a comparable basis with the current year. Net income and shareholders' equity previously reported were not affected by these reclassifications. Note 2. Recent Accounting Pronouncements In October 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-06 “Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”). ASU 2023-06 amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company does not believe this standard will have a material impact on its consolidated financial statements. In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires enhanced income tax disclosures primarily related to the rate reconciliation and income taxes paid information to provide more transparency by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation table and (ii) income taxes paid, net of refunds, to be disaggregated by jurisdiction based on an established threshold. ASU 2023-09 is effective January 1, 2025 and impacts the Company’s annual income tax disclosure. 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 Company adopted the standard on January 1, 2025, with no material effect 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 Company adopted the standard on January 1, 2025, with no material effect 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. 9 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Note 3. Earnings Per Share Basic and diluted earnings per share are computed based on the weighted-average number of shares outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur upon the exercise of stock options or upon the vesting of restricted stock grants, any of which would result in the issuance of common stock that would then share in the net income of the Company. Three Months Ended March 31, 2025 2024 Basic earnings per share: Net income attributable to Live Oak Bancshares, Inc. $ 9,717 $ 27,586 Weighted-average basic shares outstanding 45,377,965 44,762,308 Basic earnings per share $ 0.21 $ 0.62 Diluted earnings per share: Net income attributable to Live Oak Bancshares, Inc., for diluted earnings per share $ 9,717 $ 27,586 Total weighted-average basic shares outstanding 45,377,965 44,762,308 Add effect of dilutive stock options and restricted stock grants 376,534 878,902 Total weighted-average diluted shares outstanding 45,754,499 45,641,210 Diluted earnings per share $ 0.21 $ 0.60 Anti-dilutive stock options and restricted stock grants 1,499,126 459,599 Note 4. Securities Available-for-Sale The carrying amount of securities and their approximate fair values are reflected in the following table: March 31, 2025 Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. government agencies $ 17,912 $ 13 $ 68 $ 17,857 Mortgage-backed securities 1,380,674 2,732 91,633 1,291,773 Municipal bonds 3,170 — 120 3,050 Total $ 1,401,756 $ 2,745 $ 91,821 $ 1,312,680 December 31, 2024 Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. government agencies $ 18,196 $ — $ 299 $ 17,897 Mortgage-backed securities 1,335,177 1,083 108,927 1,227,333 Municipal bonds 3,176 — 203 2,973 Total $ 1,356,549 $ 1,083 $ 109,429 $ 1,248,203 During the three months ended March 31, 2025, three securities totaling $ 5.6 million were settled. During the three months ended March 31, 2024, one security totaling $ 14.7 million was settled and one security totaling $ 2.5 million was called. Accrued interest receivable on available-for-sale securities totaled $ 4.5 million and $ 4.2 million at March 31, 2025 and December 31, 2024, respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. 10 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed 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. Less Than 12 Months 12 Months or More Total March 31, 2025 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. government agencies $ 1,020 $ 3 $ 9,909 $ 65 $ 10,929 $ 68 Mortgage-backed securities 183,670 2,154 850,837 89,479 1,034,507 91,633 Municipal bonds — — 3,050 120 3,050 120 Total $ 184,690 $ 2,157 $ 863,796 $ 89,664 $ 1,048,486 $ 91,821 Less Than 12 Months 12 Months or More Total December 31, 2024 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. government agencies $ 8,036 $ 189 $ 9,861 $ 110 $ 17,897 $ 299 Mortgage-backed securities 265,934 4,173 859,819 104,754 1,125,753 108,927 Municipal bonds — — 2,973 203 2,973 203 Total $ 273,970 $ 4,362 $ 872,653 $ 105,067 $ 1,146,623 $ 109,429 At March 31, 2025, there were 402 mortgage-backed securities, three U.S. government agencies and two municipal bonds in unrealized loss positions for greater than 12 months. There were 34 mortgage-backed securities and one U.S. government agency in unrealized loss positions for less than 12 months. Unrealized losses at December 31, 2024 were comprised of 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. These unrealized losses are primarily the result of non-credit-related volatility in the market and market interest rates. Since none of the unrealized losses relate to the issuers' ability to honor redemption obligations, and the Company does not intend to sell the related securities and does not believe it is more likely than not that it will be required to sell the securities before recovery of amortized cost, none of the losses have been recognized in the Company’s Unaudited Condensed Consolidated Statements of Income. All mortgage-backed securities in the Company’s portfolio at March 31, 2025 and December 31, 2024 were backed by U.S. government sponsored enterprises (“GSEs”). 11 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements The following is a summary of investment securities by maturity: March 31, 2025 Available-for-Sale Amortized Cost Fair Value U.S. government agencies Within one year $ 7,000 $ 6,981 One to five years 3,997 3,948 Five to ten years 6,915 6,928 Total 17,912 17,857 Mortgage-backed securities Within one year 30,237 30,101 One to five years 215,854 209,408 Five to ten years 214,097 194,625 After 10 years 920,486 857,639 Total 1,380,674 1,291,773 Municipal bonds Five to ten years 3,074 2,967 After 10 years 96 83 Total 3,170 3,050 Total $ 1,401,756 $ 1,312,680 The table above reflects contractual maturities. Actual results will differ as the loans underlying the mortgage-backed securities may prepay sooner than scheduled. At March 31, 2025, investment securities with a market value of $ 611.3 million and a carrying value of $ 674.1 million were pledged to support unused borrowing capacity. 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. Equity Investments Equity investments, largely comprised of non-marketable equity investments, are generally accounted for under either the equity method or equity security accounting and are included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. The below tables provide additional information related to investments accounted for under these two methods. 12 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Equity Method Accounting The carrying amount and ownership percentage of each equity method investment at March 31, 2025 and December 31, 2024 is reflected in the following table: March 31, 2025 December 31, 2024 Amount Ownership % Amount Ownership % Apiture, Inc. $ 52,177 40.4 % $ 53,108 40.4 % Canapi Ventures SBIC Fund, LP (1) (5) 11,631 2.9 11,504 2.9 Canapi Ventures Fund, LP (2) (5) 1,397 1.5 1,438 1.5 Canapi Ventures Fund II, LP (3) (5) 2,401 1.6 2,193 1.6 Canapi Ventures SBIC Fund II, LP (4) (5) 1,184 2.9 1,238 2.9 Affordable housing (6) 12,665 Various 14,724 Various Solar tax credit investments (7) 4,404 99.0 5,309 99.0 Other (8) 1,177 Various 1,489 Various Total $ 87,036 $ 91,003 (1) Investment unfunded commitments of $ 4.8 million and $ 5.0 million as of March 31, 2025 and December 31, 2024, respectively. (2) Investment unfunded commitments of $ 492 thousand as of March 31, 2025 and December 31, 2024. (3) Investment unfunded commitments of $ 4.9 million and $ 5.2 million as of March 31, 2025 and December 31, 2024, respectively. (4) Investment unfunded commitments of $ 6.5 million as of March 31, 2025 and December 31, 2024. (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 March 31, 2025 and December 31, 2024, there was an unfunded commitment of $ 1.7 million 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. This investment category also includes the carried interest security related to Canapi Ventures Fund I, L.P. 13 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Equity Security Accounting The carrying amount of the Company’s investments in non-marketable equity securities with no readily determinable fair value and amounts recognized in earnings on a cumulative basis as of March 31, 2025 and as of and for the three months ended March 31, 2025 and 2024 is reflected in the following table: As of and for the three month period ended Cumulative Adjustments March 31, 2025 March 31, 2024 Carrying value (1) $ 83,069 $ 80,005 Carrying value adjustments: Impairment $ — — — Upward changes for observable prices (2) 50,901 — 56 Downward changes for observable prices ( 2,169 ) — ( 369 ) Net upward (downward) change $ 48,732 $ — $ ( 313 ) (1) Investment unfunded commitments of $ 5.4 million and $ 2.3 million as of March 31, 2025 and March 31, 2024, respectively. (2) Cumulative adjustments excludes $ 13.9 million in realized gains for sale of an investment in the second quarter of 2021. For the three months ended March 31, 2025 and 2024, the Company recognized unrealized gains (losses) on all equity securities held at the reporting date of $ 8 thousand and $( 490 ) thousand, respectively. Variable Interest Entities ( “ VIE ”s ) Variable interests are defined as contractual ownership or other interests in an entity that change with fluctuations in the fair value of an entity's net asset value. The primary beneficiary consolidates the VIE. The primary beneficiary is defined as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. Solar Renewable Energy Tax Credit Investments The Company has equity interests in several limited liability companies that own and operate solar renewable energy projects which are accounted for as equity method investments. Over the course of the investments, the Company will receive federal and state tax credits, tax-related benefits, and excess cash available for distribution, if any. The Company may be called to sell its interest in the limited partnerships through a call option once all investment tax credits have been recognized. Affordable Housing The Company has an equity investment in a limited liability company LIHTC that qualifies as an affordable housing project, managed by an unrelated general partner. The Company accounts for the investment under the proportional amortization method. Under this method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance as a component of income tax expense. The Company also has equity interests in two limited liability companies that invest in the acquisition, rehabilitation, or new construction of local qualified housing projects which are accounted for as equity method investments. Canapi Funds The Company’s limited partnership investments in the Canapi Funds focus on providing venture capital to new and emerging financial technology companies. After the initial commitment and over the course of the investment period, the Company will make capital contributions and receive profit and return of capital distributions as a result of fund performance until the funds wind down. 14 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Non-marketable and Other Equity Investments The Company also has limited interests in several non-marketable funds, including Small Business Investment Company (“SBIC”) and venture capital funds, which are accounted for as equity security investments. After the initial commitment and over the course of the investment period, the Company will make capital contributions and receive profit and return of capital distributions as a result of fund performance until the funds wind down. While the partnership agreements allow the Company to remove the general partner, this right is not deemed to be substantive as the general partner can only be removed for cause. All investments are generally non-redeemable and distributions are expected to be received through the liquidation of the underlying investments throughout the life of the investment fund. Investments may only be sold or transferred subject to the notice and approval provisions of the underlying investment agreement. 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 on the Unaudited Condensed Consolidated Balance Sheets. The Company’s maximum exposure to loss from unconsolidated VIEs includes the investment recorded on the Company’s Unaudited Condensed Consolidated Balance Sheets 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. 15 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements The following table provides a summary of the VIEs that the Company has not consolidated as of March 31, 2025 and December 31, 2024: March 31, 2025 Carrying Amount Maximum Exposure to Loss Liability Recognized Classification Solar tax credit investments $ 4,404 $ 27,845 $ — Other assets (1) Affordable housing 12,665 15,305 — Other assets (2) Canapi Funds 17,280 34,021 — Other assets (3) Non-marketable and other equity investments 5,331 10,700 — Other assets (4) December 31, 2024 Carrying Amount Maximum Exposure to Loss Liability Recognized Classification Solar tax credit investments $ 5,309 $ 38,107 $ — Other assets (5) Affordable housing 12,940 15,463 — Other assets (6) Canapi Funds 17,104 34,269 — Other assets (7) Non-marketable and other equity investments 5,290 9,591 — Other assets (8) (1) Maximum exposure to loss includes $ 4.4 million of current investments and a scenario in which related tax credits are recaptured, collectively totaling $ 23.4 million. (2) Maximum exposure to loss includes $ 12.7 million of current investments, $ 1.7 million in unfunded commitments, and a scenario in which related tax credits are recaptured, collectively totaling $ 941 thousand. (3) Maximum exposure to loss includes $ 17.3 million of current investments and $ 16.7 million in unfunded commitments. (4) Maximum exposure to loss includes $ 5.3 million of current investments and $ 5.4 million in unfunded commitments. (5) 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. (6) Maximum exposure to loss includes $ 12.9 million of current investments, $ 1.7 million in unfunded commitments, and a scenario in which related tax credits are recaptured, collectively totaling $ 824 thousand. (7) Maximum exposure to loss includes $ 17.1 million of current investments and $ 17.2 million in unfunded commitments. (8) Maximum exposure to loss includes $ 5.3 million of current investments and $ 4.3 million in unfunded commitments. 16 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Note 5. Loans and Leases Held for Investment and Credit Quality The following tables present total loans and leases held for investment and an aging analysis for the Company’s portfolio segments. Loans and leases are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Current or Less than 30 Days Past Due 30-89 Days Past Due 90 Days or More Past Due Total Past Due Total Carried at Amortized Cost Loans Accounted for Under the Fair Value Option (1) Total Loans and Leases March 31, 2025 Commercial & Industrial Small Business Banking $ 2,251,813 $ 25,540 $ 121,830 $ 147,370 $ 2,399,183 $ 112,013 $ 2,511,196 Commercial Banking 2,535,684 2,544 39,022 41,566 2,577,250 48,658 2,625,908 Paycheck Protection Program 1,399 101 260 361 1,760 — 1,760 Total 4,788,896 28,185 161,112 189,297 4,978,193 160,671 5,138,864 Construction & Development Small Business Banking 585,725 — 2,468 2,468 588,193 — 588,193 Commercial Banking 86,236 — — — 86,236 — 86,236 Total 671,961 — 2,468 2,468 674,429 — 674,429 Commercial Real Estate Small Business Banking 2,849,422 20,918 82,618 103,536 2,952,958 106,478 3,059,436 Commercial Banking 1,137,275 15,990 10,451 26,441 1,163,716 19,091 1,182,807 Total 3,986,697 36,908 93,069 129,977 4,116,674 125,569 4,242,243 Commercial Land Small Business Banking 638,107 — 4,042 4,042 642,149 30,567 672,716 Total 638,107 — 4,042 4,042 642,149 30,567 672,716 Total $ 10,085,661 $ 65,093 $ 260,691 $ 325,784 $ 10,411,445 $ 316,807 $ 10,728,252 Retained Loan Discount and Net Deferred Costs $ ( 34,341 ) Loans and Leases, Net $ 10,693,911 Guaranteed Balance $ 2,959,459 $ 35,990 $ 202,876 $ 238,866 $ 3,198,325 $ 81,112 $ 3,279,437 % Guaranteed 29.3 % 55.3 % 77.8 % 73.3 % 30.7 % 25.6 % 30.6 % 17 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Current or Less than 30 Days Past Due 30-89 Days Past Due 90 Days or More Past Due Total Past Due Total Carried at Amortized Cost Loans Accounted for Under the Fair Value Option (1) Total Loans and Leases December 31, 2024 Commercial & Industrial Small Business Banking $ 2,182,596 $ 37,966 $ 104,362 $ 142,328 $ 2,324,924 $ 119,378 $ 2,444,302 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 Total 4,603,035 53,248 128,361 181,609 4,784,644 169,145 4,953,789 Construction & Development Small Business Banking 514,997 1,488 2,468 3,956 518,953 — 518,953 Commercial Banking 85,456 — — — 85,456 — 85,456 Total 600,453 1,488 2,468 3,956 604,409 — 604,409 Commercial Real Estate Small Business Banking 2,773,306 42,058 57,896 99,954 2,873,260 107,751 2,981,011 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 Commercial Land Small Business Banking 610,920 2,209 3,324 5,533 616,453 32,825 649,278 Total 610,920 2,209 3,324 5,533 616,453 32,825 649,278 Total $ 9,627,779 $ 104,003 $ 202,827 $ 306,830 $ 9,934,609 $ 328,746 $ 10,263,355 Retained Loan Discount and Net Deferred Costs $ ( 29,981 ) Loans and Leases, Net $ 10,233,374 Guaranteed Balance $ 2,933,636 $ 58,235 $ 171,123 $ 229,358 $ 3,162,994 $ 77,514 $ 3,240,508 % Guaranteed 30.5 % 56.0 % 84.4 % 74.8 % 31.8 % 23.6 % 31.6 % (1) Retained portions of government guaranteed loans sold prior to January 1, 2021 are carried at fair value under FASB ASC Subtopic 825-10, Financial Instruments: Overall . See Note 9. Fair Value of Financial Instruments for additional information. 18 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Credit Quality Indicators The following tables present asset quality indicators by portfolio class and origination year. See Note 3. Loans and Leases Held for Investment and Credit Quality in the Company’s 2024 Form 10-K for additional discussion around the asset quality indicators that the Company uses to manage and monitor credit risk. Term Loans and Leases Amortized Cost Basis by Origination Year 2025 2024 2023 2022 2021 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total (1) March 31, 2025 Small Business Banking Pass $ 321,320 $ 1,194,328 $ 1,062,093 $ 1,218,096 $ 963,900 $ 905,959 $ 131,367 $ 35,824 $ 5,832,887 Special Mention 615 20,262 63,949 102,214 53,783 104,710 26,463 1,542 373,538 Substandard — 15,190 43,727 102,818 83,386 119,238 9,686 2,013 376,058 Total 321,935 1,229,780 1,169,769 1,423,128 1,101,069 1,129,907 167,516 39,379 6,582,483 Commercial Banking Pass 244,185 1,121,801 700,250 395,072 188,678 120,302 531,286 137,117 3,438,691 Special Mention — 1,000 16,359 73,194 51,389 36,457 9,127 5,552 193,078 Substandard — — — 18,979 130,346 32,492 402 13,214 195,433 Total 244,185 1,122,801 716,609 487,245 370,413 189,251 540,815 155,883 3,827,202 Paycheck Protection Program Pass — — — — 1,257 503 — — 1,760 Total — — — — 1,257 503 — — 1,760 Total $ 566,120 $ 2,352,581 $ 1,886,378 $ 1,910,373 $ 1,472,739 $ 1,319,661 $ 708,331 $ 195,262 $ 10,411,445 Year-To-Date Gross Charge-offs Small Business Banking $ — $ 1,822 $ 1,269 $ 2,135 $ 76 $ 1,152 $ 469 $ — $ 6,923 Total $ — $ 1,822 $ 1,269 $ 2,135 $ 76 $ 1,152 $ 469 $ — $ 6,923 19 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Term Loans and Leases Amortized Cost Basis by Origination Year 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total (1) December 31, 2024 Small Business Banking 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 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 Pass — — — 1,461 900 — — — 2,361 Total — — — 1,461 900 — — — 2,361 Total $ 2,302,364 $ 1,928,177 $ 2,003,945 $ 1,520,116 $ 704,224 $ 724,494 $ 590,812 $ 160,477 $ 9,934,609 Year-To-Date Gross Charge-offs Small Business Banking $ 652 $ 4,198 $ 18,630 $ 4,954 $ 3,462 $ 3,481 $ 3,555 $ 170 $ 39,102 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 (1) Excludes $ 316.8 million and $ 328.7 million of loans accounted for under the fair value option as of March 31, 2025 and December 31, 2024, respectively. The following tables present guaranteed and unguaranteed loan and lease balances by asset quality indicator: March 31, 2025 Loan and Lease Balance (1) Guaranteed Balance Unguaranteed Balance % Guaranteed Pass $ 9,273,338 $ 2,627,607 $ 6,645,731 28.3 % Special Mention 566,616 176,876 389,740 31.2 Substandard 571,491 393,842 177,649 68.9 Total $ 10,411,445 $ 3,198,325 $ 7,213,120 30.7 % December 31, 2024 Loan and Lease Balance (1) Guaranteed Balance Unguaranteed Balance % Guaranteed 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) Excludes $ 316.8 million and $ 328.7 million of loans accounted for under the fair value option as of March 31, 2025 and December 31, 2024, respectively. 20 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Nonaccrual Loans and Leases As of March 31, 2025 and December 31, 2024, there were no loans greater than 90 days past due and still accruing. There was no interest income recognized on nonaccrual loans and leases during the three months ended March 31, 2025 and 2024. Accrued interest receivable on loans totaled $ 84.6 million and $ 80.7 million at March 31, 2025 and December 31, 2024 , respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. Nonaccrual loans and leases held for investment as of March 31, 2025 and December 31, 2024 are as follows: March 31, 2025 Loan and Lease Balance (1) Guaranteed Balance Unguaranteed Balance Unguaranteed Exposure with No Allowance for Credit Losses (“ACL”) Commercial & Industrial Small Business Banking $ 152,494 $ 126,631 $ 25,863 $ 4,484 Commercial Banking 136,231 109,371 26,860 3,810 Payroll Protection Program 260 260 — — Total 288,985 236,262 52,723 8,294 Construction & Development Small Business Banking 2,467 2,263 204 — Total 2,467 2,263 204 — Commercial Real Estate Small Business Banking 94,727 63,701 31,026 20,865 Commercial Banking 26,441 13,591 12,850 11,874 Total 121,168 77,292 43,876 32,739 Commercial Land Small Business Banking 10,280 7,176 3,104 168 Total 10,280 7,176 3,104 168 Total $ 422,900 $ 322,993 $ 99,907 $ 41,201 December 31, 2024 Loan and Lease Balance (1) Guaranteed Balance Unguaranteed Balance Unguaranteed Exposure with No ACL Commercial & Industrial Small Business Banking $ 141,674 $ 116,596 $ 25,078 $ 5,219 Commercial Banking 39,282 26,300 12,982 3,816 Total 180,956 142,896 38,060 9,035 Construction & Development Small Business Banking 3,955 3,379 576 372 Total 3,955 3,379 576 372 Commercial Real Estate Small Business Banking 81,847 55,290 26,557 17,736 Commercial Banking 26,888 13,981 12,907 11,907 Total 108,735 69,271 39,464 29,643 Commercial Land Small Business Banking 10,651 7,339 3,312 173 Total 10,651 7,339 3,312 173 Total $ 304,297 $ 222,885 $ 81,412 $ 39,223 (1) Excludes loans accounted for under the fair value option. See Note 9. Fair Value of Financial Instruments for additional information. 21 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements When a loan or lease is placed on nonaccrual status, any accrued interest is reversed from loan interest income. The following table summarizes the amount of accrued interest reversed during the periods presented: Three Months Ended March 31, 2025 2024 Commercial & Industrial $ 444 $ 610 Commercial Real Estate 490 119 Construction & Development — 30 Total $ 934 $ 759 The following table presents the amortized cost basis of collateral-dependent loans and leases, which are individually evaluated to determine expected credit losses, as of March 31, 2025 and December 31, 2024: Total Collateral-Dependent Loans Unguaranteed Portion March 31, 2025 Real Estate Business Assets Real Estate Business Assets Allowance for Credit Losses Commercial & Industrial Small Business Banking $ 32,991 $ 20,299 $ 9,484 $ 6,974 $ 9,266 Commercial Banking 2,869 16,525 74 9,812 3,100 Total 35,860 36,824 9,558 16,786 12,366 Commercial Real Estate Small Business Banking 67,093 — 25,814 — 1,426 Commercial Banking 11,103 — 11,103 — — Total 78,196 — 36,917 — 1,426 Commercial Land Small Business Banking 4,209 2,006 687 2,006 986 Total 4,209 2,006 687 2,006 986 Total $ 118,265 $ 38,830 $ 47,162 $ 18,792 $ 14,778 Total Collateral-Dependent Loans Unguaranteed Portion December 31, 2024 Real Estate Business Assets Real Estate Business Assets Allowance for Credit Losses Commercial & Industrial Small Business Banking $ 6,693 $ 36,500 $ 2,738 $ 12,061 $ 8,299 Commercial Banking 101,001 26,788 13,704 11,350 4,374 Total 107,694 63,288 16,442 23,411 12,673 Commercial Real Estate Small Business Banking 53,306 6,327 22,239 1,061 890 Total 53,306 6,327 22,239 1,061 890 Commercial Land Small Business Banking 6,295 — 2,713 — 974 Total 6,295 — 2,713 — 974 Total $ 167,295 $ 69,615 $ 41,394 $ 24,472 $ 14,537 22 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Allowance for Credit Losses - Loans and Leases See Note 1. Organization and Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements in the Company’s 2024 Form 10-K for a description of the methodologies used to estimate the ACL. The following table details activity in the ACL by portfolio segment allowance for the periods presented: Three Months Ended Commercial & Industrial Construction & Development Commercial Real Estate Commercial Land Total March 31, 2025 Beginning Balance $ 129,007 $ 4,943 $ 29,501 $ 4,065 $ 167,516 Charge offs ( 5,987 ) — ( 936 ) — ( 6,923 ) Recoveries 40 — 91 18 149 Provision 26,856 769 1,639 178 29,442 Ending Balance $ 149,916 $ 5,712 $ 30,295 $ 4,261 $ 190,184 March 31, 2024 Beginning Balance $ 87,581 $ 4,717 $ 28,864 $ 4,678 $ 125,840 Charge offs ( 3,329 ) ( 303 ) — — ( 3,632 ) Recoveries 455 — 14 — 469 Provision (Recovery) 13,845 ( 122 ) 2,491 150 16,364 Ending Balance $ 98,552 $ 4,292 $ 31,369 $ 4,828 $ 139,041 During the three months ended March 31, 2025, the ACL increased as a result of loan growth amid a challenging macroeconomic environment which included specific reserve changes on individually evaluated loans. Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period. During the three months ended March 31, 2024, the ACL increased as a result of specific reserve changes on individually evaluated loans and to a lesser extent continued growth of the loan and lease portfolio combined with charge-off related impacts. Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period. 23 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Loan Modifications for Borrowers Experiencing Financial Difficulty The Company may agree to modify the contractual terms of a loan to a borrower experiencing financial difficulty as a part of ongoing loss mitigation strategies. These modifications may result in an interest rate reduction, term extension, an other-than-insignificant payment delay, or a combination thereof. The Company typically does not offer principal forgiveness. The following table summarizes the amortized cost basis of loans that were modified during the three months ended March 31, 2025: Three Months Ended March 31, 2025 Term Extension Interest Rate Reduction Combination - Term Extension, Other-Than-Insignificant Payment Delay & Interest Rate Reduction Combination - Term Extension & Other-Than-Insignificant Payment Delay Combination - Term Extension & Interest Rate Reduction % of Total Class of Financing Receivable Small Business Banking $ 3,601 $ 2,243 $ 3,057 $ 3,009 $ 193 0.2 % Total $ 3,601 $ 2,243 $ 3,057 $ 3,009 $ 193 0.2 % During the three months ended March 31, 2024, there were no loan modifications to borrowers experiencing financial difficulty. As of March 31, 2025, the Company had commitments to lend additional funds to these borrowers totaling $ 28 thousand. As of March 31, 2024, the Company had no commitments to lend additional funds to these borrowers. The following table presents an aging analysis of loans that were modified within the twelve months ended March 31, 2025, and March 31, 2024, respectively: March 31, 2025 Current 30-89 Days Past Due 90 Days or More Past Due Total Past Due Small Business Banking $ 17,644 $ — $ 2,243 $ 2,243 Commercial Banking 17,576 — — — Total $ 35,220 $ — $ 2,243 $ 2,243 March 31, 2024 Current 30-89 Days Past Due 90 Days or More Past Due Total Past Due Small Business Banking $ 15,286 $ — $ — $ — Commercial Banking 17,691 — — — Total $ 32,977 $ — $ — $ — The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the period presented: Three Months Ended March 31, 2025 Weighted Average Interest Rate Reduction Weighted Average Term Extension (in Months) Small Business Banking 1.81 % 44 Additionally, there were no loans that were modified within the twelve months ended March 31, 2025 and March 31, 2024 that subsequently defaulted during the period presented. The Company’s ACL is estimated using lifetime historical loan performance adjusted to reflect current conditions and reasonable and supportable forecasts. Upon determination that a modified loan, or portion of a modified loan, has subsequently been deemed uncollectible, the uncollectible portion is written off. The amortized cost basis is reduced by the uncollectible amount and the ACL is adjusted by the same amount. As a result, the impact of loss mitigation strategies is captured in the estimates of PD and LGD. 24 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Note 6. Leases Lessor Equipment Leasing The Company may purchase new equipment for the purpose of leasing such equipment to customers within its verticals. Equipment purchased to fulfill commitments to commercial renewable energy projects is rented 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 accompanying Unaudited Condensed Consolidated Balance Sheets. Direct Financing Leases Interest income on direct financing leases is recognized when earned. Unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. The term of each lease is generally 3 to 7 years which is consistent with the useful life of the equipment with no residual value. The net investment in direct finance leases included in loans and leases held for investment are as follows: March 31, 2025 December 31, 2024 Gross direct finance lease payments receivable $ 710 $ 961 Less – unearned interest ( 22 ) ( 39 ) Net investment in direct financing leases $ 688 $ 922 Future minimum lease payments under finance leases are as follows: As of March 31, 2025 Amount 2025 $ 614 2026 96 Total $ 710 Interest income of $ 17 thousand and $ 18 thousand was recognized in the three months ended March 31, 2025 and 2024, respectively. Operating Leases The term of each operating lease is generally 10 to 15 years. The Company retains ownership of the equipment and associated tax benefits such as investment tax credits and accelerated depreciation. At the end of the lease term, the lessee has the option to renew the lease for two additional terms or purchase the equipment at the then-current fair market value. Rental revenue from operating leases is recognized on a straight-line basis over the term of the lease. Rental equipment is recorded at cost and depreciated to an estimated residual value on a straight-line basis over the estimated useful life. The useful lives generally range from 20 to 25 years and residual values generally range from 20 % to 50 %, however, they are subject to periodic evaluation. Changes in useful lives or residual values will impact depreciation expense and any gain or loss from the sale of used equipment. The estimated useful lives and residual values of the Company's leasing equipment are based on industry disposal experience and the Company's expectations for future sale prices. If the Company decides to sell or otherwise dispose of rental equipment, it is carried at the lower of cost or fair value less costs to sell or dispose. Repair and maintenance costs that do not extend the lives of the rental equipment are charged to equipment expense at the time the costs are incurred. 25 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements As of March 31, 2025 and December 31, 2024, the Company had a net investment of $ 90.7 million and $ 93.4 million, respectively, in assets included in premises and equipment, net that are subject to operating leases. Of the net investment, the gross balance of the assets was $ 159.3 million and $ 159.7 million as of March 31, 2025 and December 31, 2024, respectively. Accumulated depreciation was $ 68.6 million and $ 66.2 million as of March 31, 2025 and December 31, 2024, respectively. Depreciation expense recognized on these assets was $ 2.6 million and $ 2.4 million for the three months ended March 31, 2025 and 2024, respectively. Lease income of $ 2.5 million and $ 2.4 million was recognized in the three months ended March 31, 2025 and 2024, respectively. A maturity analysis of future minimum lease payments to be received under non-cancelable operating leases is as follows: As of March 31, 2025 Amount 2025 $ 6,653 2026 8,721 2027 8,483 2028 3,837 2029 2,399 Thereafter 7,308 Total $ 37,401 Note 7. Servicing Assets Loans serviced for others are not included in the accompanying Unaudited Condensed Consolidated Balance Sheets. The unpaid principal balance of loans serviced for others requiring recognition of a servicing asset was $ 3.57 billion and $ 3.46 billion at March 31, 2025 and December 31, 2024, respectively. The unpaid principal balance for all loans serviced for others was $ 4.95 billion and $ 4.72 billion at March 31, 2025 and December 31, 2024, respectively. The following table summarizes the activity pertaining to servicing rights measured at fair value: Three Months Ended March 31, 2025 2024 Balance at beginning of period $ 55,788 $ 48,186 Additions, net 5,624 3,520 Fair value changes: Due to changes in valuation inputs or assumptions ( 1,095 ) 221 Decay due to increases in principal paydowns or runoff ( 3,633 ) ( 2,965 ) Balance at end of period $ 56,684 $ 48,962 See Note 9. Fair Value of Financial Instruments for further details about servicing assets measured at fair value. The fair value of servicing rights was determined using a weighted average discount rate of 13.5 % on March 31, 2025 and 14.5 % on March 31, 2024. The fair value of servicing rights was determined using a weighted average prepayment speed of 16.0 % on March 31, 2025 and 15.7 % on March 31, 2024, with the actual rate depending on the stratification of the specific right. Changes to fair value are reported in loan servicing asset revaluation within the Unaudited Condensed Consolidated Statements of Income. 26 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements The table below reflects the sensitivity of the current fair value of servicing assets to immediate adverse changes in the above key assumptions with all other assumptions remaining static: As of March. 31, 2025 As of December. 31, 2024 Fair value of servicing rights $ 56,684 $ 55,788 Incremental Increase (Decrease) in Value Incremental Increase (Decrease) in Value Prepayment Speed 20% increase ($ 3,390 ) ($ 3,459 ) 10% increase ( 1,699 ) ( 1,785 ) Discount Rate 200 basis point increase ( 2,469 ) ( 2,603 ) 100 basis point increase ( 1,209 ) ( 1,331 ) The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the servicing rights is calculated without changing any other assumption. Changes in one factor may result in changes in another. As of March 31, 2025 and 2024, the Company had servicing assets related to conventional commercial loans carried at amortized cost of $ 227 thousand and $ 381 thousand, respectively. Note 8. Borrowings Total outstanding borrowings consisted of the following: March 31, 2025 December 31, 2024 Borrowings In March 2021, the Company entered into a 60 -month term loan agreement of $ 50.0 million with a third party correspondent bank. The loan accrues interest at a fixed rate of 2.95 % with a monthly payment sufficient to fully amortize the loan, with all remaining unpaid principal and interest due at maturity on March 30, 2026 . The Company paid the Lender a non-refundable $ 325 thousand loan origination fee upon signing of the Note that is presented as a direct deduction from the carrying amount of the loan and will be amortized into interest expense over the life of the loan. $ 10,588 $ 13,184 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. 99,540 99,505 Other long term debt (1) 119 131 Total borrowings $ 110,247 $ 112,820 (1) Includes finance leases. 27 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements As of March 31, 2025 and December 31, 2024, the Company’s unused borrowing capacity was $ 3.80 billion and $ 3.55 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, and access to a repurchase agreement. If additional collateral is available, the Company's aggregate borrowing capacity with all of the above sources is $ 6.36 billion and $ 6.10 billion as of March 31, 2025 and December 31, 2024, respectively. Note 9. Fair Value of Financial Instruments Fair Value Hierarchy There are three levels of inputs in the fair value hierarchy that may be used to measure fair value. Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation. Recurring Fair Value The table below provides a rollforward of the Level 3 equity warrant asset fair values: Three Months Ended March 31, Equity Warrant Assets 2025 2024 Balance at beginning of period $ 7,162 $ 2,874 New equity warrant assets 217 370 Changes in fair value, net ( 304 ) 5,661 Settlements ( 40 ) ( 205 ) Balance at end of period $ 7,035 $ 8,700 The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis. March 31, 2025 Total Level 1 Level 2 Level 3 Investment securities available-for-sale U.S. government agencies $ 17,857 $ — $ 17,857 $ — Mortgage-backed securities 1,291,773 — 1,291,773 — Municipal bonds (1) 3,050 — 2,967 83 Loans held for investment 316,807 — — 316,807 Servicing assets (2) 56,684 — — 56,684 Mutual fund 341 — 341 — Equity warrant assets 7,035 — — 7,035 Total assets at fair value $ 1,693,547 $ — $ 1,312,938 $ 380,609 28 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements December 31, 2024 Total Level 1 Level 2 Level 3 Investment securities available-for-sale U.S. government agencies $ 17,897 $ — $ 17,897 $ — Mortgage-backed securities 1,227,333 — 1,227,333 — Municipal bonds (1) 2,973 — 2,890 83 Loans held for investment 328,746 — — 328,746 Servicing assets (2) 55,788 — — 55,788 Mutual fund 458 — 458 — Equity warrant assets 7,162 — — 7,162 Total assets at fair value $ 1,640,357 $ — $ 1,248,578 $ 391,779 (1) During the three months ended March 31, 2025 and March 31, 2024 there was no level 3 fair value adjustment gain or loss. (2) See Note 7 for a rollforward of recurring Level 3 fair values for servicing assets. For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis, see Note 10. Fair Value of Financial Instruments in the Company’s 2024 Form 10-K. Fair Value Option Until the first quarter of 2021, the Company had historically elected to account for retained participating interests of all government guaranteed loans under the fair value option in order to align the accounting presentation with the Company’s viewpoint of the economics of the loans. Interest income is recognized in the same manner on loans reported at fair value as on non-fair value loans, except in regard to origination fees and costs which are recognized immediately upon fair value election. Not electing fair value generally results in a larger discount being recorded on the date of the sale. This discount is subsequently accreted into interest income over the underlying loan’s remaining term using the effective interest method. Management made this change of election in alignment with its ongoing effort to reduce volatility and drive more predictable revenue. In accordance with GAAP, any loans for which fair value was previously elected continue to be measured as such. There were no loans accounted for under the fair value option that were 90 days or more past due and still accruing interest at March 31, 2025 or December 31, 2024. The unpaid principal balance of unguaranteed exposure for nonaccruals was $ 10.8 million and $ 10.0 million at March 31, 2025 and December 31, 2024, respectively. The following tables provide more information about the fair value carrying amount and the unpaid principal outstanding of loans accounted for under the fair value option at March 31, 2025 and December 31, 2024. March 31, 2025 Total Loans Nonaccruals 90 Days or More Past Due Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Option Elections Loans held for investment $ 316,807 $ 331,203 $ ( 14,396 ) $ 68,038 $ 69,662 $ ( 1,623 ) $ 54,226 $ 55,503 $ ( 1,277 ) $ 316,807 $ 331,203 $ ( 14,396 ) $ 68,038 $ 69,662 $ ( 1,623 ) $ 54,226 $ 55,503 $ ( 1,277 ) 29 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements December 31, 2024 Total Loans Nonaccruals 90 Days or More Past Due Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Option Elections Loans held for investment $ 328,746 $ 342,150 $ ( 13,404 ) $ 63,386 $ 64,784 $ ( 1,398 ) $ 51,272 $ 52,528 $ ( 1,256 ) $ 328,746 $ 342,150 $ ( 13,404 ) $ 63,386 $ 64,784 $ ( 1,398 ) $ 51,272 $ 52,528 $ ( 1,256 ) The following table presents the net gains (losses) from changes in fair value. Three Months Ended March 31, Gains (Losses) on Loans Accounted for under the Fair Value Option 2025 2024 Loans held for investment $ ( 1,034 ) $ ( 219 ) $ ( 1,034 ) $ ( 219 ) The following tables summarize the activity pertaining to loans accounted for under the fair value option: Three Months Ended March 31, Loans held for investment 2025 2024 Balance at beginning of period $ 328,746 $ 388,036 Repurchases 6,252 8,565 Fair value changes ( 1,034 ) ( 219 ) Settlements ( 17,157 ) ( 17,160 ) Balance at end of period $ 316,807 $ 379,222 Non-Recurring Fair Value The tables below present the recorded amount of assets measured at fair value on a non-recurring basis. The Company has no liabilities recorded at fair value on a non-recurring basis. March 31, 2025 Total Level 1 Level 2 Level 3 Collateral-dependent loans $ 17,602 $ — $ — $ 17,602 Foreclosed assets 668 — — 668 Total assets at fair value $ 18,270 $ — $ — $ 18,270 December 31, 2024 Total Level 1 Level 2 Level 3 Collateral-dependent loans $ 17,085 $ — $ — $ 17,085 Foreclosed assets 1,944 — — 1,944 Total assets at fair value $ 19,029 $ — $ — $ 19,029 For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets that are measured at fair value on a non-recurring basis, see Note 10. Fair Value of Financial Instruments in the Company’s 2024 Form 10-K. 30 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Level 3 Analysis For Level 3 assets measured at fair value on a recurring or non-recurring basis as of March 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows: March 31, 2025 Level 3 Assets with Significant Unobservable Inputs Fair Value Valuation Technique Significant Unobservable Inputs Range Weighted Average (1) Recurring fair value Municipal bond $ 83 Discounted expected cash flows Discount rate 7.2 % N/A Prepayment speed 5.0 % N/A Loans held for investment $ 316,807 Discounted expected cash flows Loss rate 0.0 % - 6.6 % 1.1 % Discount rate 7.0 % - 18.0 % 9.1 % Prepayment speed 15.0 % - 30.4 % 17.1 % Servicing assets $ 56,684 Discounted expected cash flows Discount rate 13.5 % 13.5 % Prepayment speed 12.0 % - 18.6 % 16.0 % Equity warrant assets $ 7,035 Black-Scholes option pricing model Volatility 13.1 % - 90.0 % 33.3 % Risk-free interest rate 4.1 % - 4.3 % 4.2 % Marketability discount 15.0 % - 25.0 % 17.1 % Remaining life 2.7 - 11.4 years 4.5 years Non-recurring fair value Collateral-dependent loans $ 17,602 Discounted appraisals Appraisal adjustments (2) 0.0 % - 95.3 % 45.4 % Foreclosed assets $ 668 Discounted appraisals Appraisal adjustments (2) 10.0 % 10.0 % December 31, 2024 Level 3 Assets with Significant Unobservable Inputs Fair Value Valuation Technique Significant Unobservable Inputs Range Weighted Average (1) Recurring fair value Municipal bond $ 83 Discounted expected cash flows Discount rate 7.2 % N/A Prepayment speed 5.0 % N/A Loans held for investment $ 328,746 Discounted expected cash flows Loss rate 0.0 % - 6.3 % 1.1 % Discount rate 7.0 % - 18.0 % 9.2 % Prepayment speed 14.3 % - 30.1 % 16.3 % Servicing assets $ 55,788 Discounted expected cash flows Discount rate 13.5 % 13.5 % Prepayment speed 11.9 % - 18.3 % 15.6 % Equity warrant assets $ 7,162 Black-Scholes option pricing model Volatility 13.1 % - 90.0 % 32.1 % Risk-free interest rate 4.5 % - 4.6 % 4.5 % Marketability discount 10.0 % - 25.0 % 13.8 % Remaining life 2.9 - 12 years 4.5 years Non-recurring fair value Collateral-dependent loans $ 17,085 Discounted appraisals Appraisal adjustments (2) 0.0 % - 95.8 % 45.4 % Foreclosed assets $ 1,944 Discounted appraisals Appraisal adjustments (2) 10.0 % 10.0 % 31 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements (1) Weighted averages are determined by the relative fair value of the instruments or the relative contribution to the instruments fair value. (2) Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and other qualitative adjustments. Estimated Fair Value of Other Financial Instruments GAAP also requires disclosure of the fair value of financial instruments carried at book value on the Unaudited Condensed Consolidated Balance Sheets. The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis are as follows: March 31, 2025 Carrying Amount Quoted Price In Active Markets for Identical Assets/Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Financial assets Cash and due from banks $ 744,263 $ 744,263 $ — $ — $ 744,263 Certificates of deposit with other banks 250 250 — — 250 Loans held for sale 367,955 — — 390,155 390,155 Loans and leases held for investment, net of allowance for credit losses on loans and leases 10,186,920 — — 10,096,104 10,096,104 Financial liabilities Deposits 12,395,945 — 11,953,670 — 11,953,670 Borrowings 110,247 — — 117,449 117,449 December 31, 2024 Carrying Amount Quoted Price In Active Markets for Identical Assets/Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Financial assets Cash and due from banks $ 608,800 $ 608,800 $ — $ — $ 608,800 Certificates of deposit with other banks 250 250 — — 250 Loans held for sale 346,002 — — 367,993 367,993 Loans and leases held for investment, net of allowance for credit losses on loans and leases 9,737,112 — — 9,556,981 9,556,981 Financial liabilities Deposits 11,760,494 — 11,317,639 — 11,317,639 Borrowings 112,820 — — 121,026 121,026 32 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Note 10. Commitments and Contingencies Litigation In the normal course of business, the Company is involved in various legal proceedings. Management believes that the outcome of such proceedings will not materially affect the financial position, results of operations or cash flows of the Company. Financial Instruments with Off-Balance-Sheet Risk The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. A summary of the Company’s commitments is as follows: March 31, 2025 December 31, 2024 Commitments to extend credit (1) (2) $ 3,609,307 $ 3,597,937 Standby letters of credit 8,487 7,365 Total unfunded off-balance-sheet credit risk $ 3,617,794 $ 3,605,302 (1) Includes unfunded overdraft protection. (2) Includes $ 1.19 billion and $ 1.20 billion at March 31, 2025 and December 31, 2024, 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. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary. The allowance for off-balance-sheet credit exposures was $ 13.1 million and $ 13.6 million at March 31, 2025 and December 31, 2024, respectively. For the three months ended March 31, 2025 and March 31, 2024, the Company recorded $ 478 thousand in recoveries and $ 906 thousand in expenses related to the allowance for off-balance-sheet credit exposures, respectively. 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. Other Commitments See Note 4. Securities for unfunded commitments to provide capital contributions for equity fund investments as of March 31, 2025 and December 31, 2024 . 33 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Concentrations of Credit Risk The distribution of commitments to extend credit approximates the distribution of loans outstanding. The Company generally does not have a significant number of credits to any single borrower or group of related borrowers whereby their retained unguaranteed exposure exceeds $ 20.0 million, except for 55 relationships that have a retained unguaranteed exposure of $ 2.26 billion of which $ 1.50 billion of the unguaranteed exposure has been disbursed. Additionally, the Company has future minimum lease payments receivable under non-cancelable operating leases totaling $ 37.4 million, of which no relationships exceed $ 20.0 million. The Company from time-to-time may have cash and cash equivalents on deposit with other financial institutions that exceed federally-insured limits. Geographic Concentration s The following table presents the geographic concentration of the Company's loan and lease portfolio at March 31, 2025 : % of Total Geographic Regions (1) Midwest 12.1 % Northeast 17.0 Southeast 31.8 Southwest 13.1 West 25.5 Non-U.S. 0.5 Total 100.0 % (1) Concentrations are stated as a percentage of total unguaranteed loans held for investment. Midwest consists of ND, SD, NE, KS, MN, IA,WI, MO, IL, IN, MI and OH. Northeast consists of MD, DE, PA, NJ, NY, CT, RI, MA, VT, ME and NH. Southeast consists of AR, LA, MS, TN, AL, GA, FL, SC, KY, NC, VA, WV, DC, PR and VI. Southwest consists of AZ, NM, TX and OK. West consists of WA, OR, CA, NV, ID, MT, WY, CO, UT, AK and HI. Non-U.S. includes addressees with foreign domicile. Domicile is determined by the principal resident or business address of the entity. Note 11. Stock Plans On March 20, 2015, the Company adopted the 2015 Omnibus Stock Incentive Plan (as amended and currently in effect, the “2015 Omnibus Stock Incentive Plan”) which replaced the previously existing Amended Incentive Stock Option Plan and Nonstatutory Stock Option Plan. Subsequently on May 24, 2016, the 2015 Omnibus Stock Incentive Plan was amended and restated, and on May 15, 2018, the 2015 Omnibus Stock Incentive Plan was amended, to authorize awards covering a maximum of 7,000,000 and 8,750,000 common voting shares, respectively. On May 11, 2021, the Amended and Restated 2015 Omnibus Stock Incentive Plan was amended to authorize awards covering a maximum of 10,750,000 common voting shares. Subsequently on May 16, 2023, the 2015 Omnibus Stock Incentive Plan was amended to authorize awards covering a maximum of 13,750,000 common voting shares. Options or restricted shares granted under the 2015 Omnibus Stock Incentive Plan expire no more than 10 years from date of grant. Exercise prices under the 2015 Omnibus Stock Incentive Plan are set by the Board of Directors at the date of grant but shall not be less than 100 % of fair market value of the related stock at the date of the grant. Forfeitures are recognized as they occur. Restricted Stock Restricted stock awards are authorized in the form of restricted stock awards or units (“RSU”s). RSUs have a restriction based on the passage of time and may also have a restriction based on a non-market-related performance criteria. The fair value of the RSUs is based on the closing price on the date of the grant. 34 Table of Contents Live Oak Bancshares, Inc. Notes to Unaudited Condensed Consolidated Financial Statements For the three months ended March 31, 2025 , 551,911 RSUs were granted with a weighted average grant date fair value of $ 34.54 . At March 31, 2025 , unrecognized compensation costs relating to RSUs amounted to $ 79.2 million which will be recognized over a weighted average period of 3.48 years. 35 Table of Contents