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Item 1A. Risk Factors

2026-02-27 compared with 2025-03-18 · 114 added, 76 removed, 420 unchanged (31% of the section changed)

An investment in Live Oak Bancshares, Inc.’s common stock involves certain risks.

An investment in Live Oak Bancshares, Inc.’s securities involves certain risks.

The following discussion highlights the risks that management believes are material for the Company, but do not necessarily include all the risks that we may face.

Additional risks and uncertainties that are not currently known or that management does not currently deem material could also have a material adverse impact on our business, results of our operations and financial condition.

You should carefully consider the risk factors and uncertainties described below and elsewhere in this Report in evaluating an investment in Live Oak Bancshares, Inc.’s common stock.

You should carefully consider the risk factors and uncertainties described below and elsewhere in this Report in evaluating an investment in Live Oak Bancshares, Inc.’s securities.

Summary of Risk Factors

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on government obligations would harm our results of operations.

• Pandemics, natural disasters, global climate change, acts of terrorism and global conflicts may have a negative impact on our business operations.

• Our deployment and use of artificial intelligence presents risks and challenges that may adversely impact our business.

• Pandemics, natural disasters (including hurricanes), global climate change, acts of terrorism, social unrest, and global conflicts could disrupt our operations which may have a negative impact on our business operations.

• Changes in our ability to use, or the terms of our use of, intellectual property owned by other third parties could have a material adverse effect on our business.

• We must effectively manage risks in connection with our information systems and those of our third-party service providers, which may experience disruption, failure, or security breaches, including those caused by cyber-attacks.

• We have identified a material weakness in our internal control over financial reporting which, if not remediated appropriately or in a timely manner, could result in a loss of investor confidence and adversely impact the trading price of our securities.

• We face risks in connection with our information systems and those of our third-party service providers, which may experience disruption, failure, or security breaches, including those caused by cyber-attacks.

• We have identified material weaknesses in our internal control over financial reporting which, if not remediated appropriately or in a timely manner, could result in a loss of investor confidence and adversely impact the trading price of our securities.

• The restatement of our financial statements could affect investor confidence and expose us to additional risks and uncertainties, which could materially and adversely affect our business, operations, and financial condition.

• The valuation of our investment securities, loans, and servicing rights is subject to change based on market conditions and various factors that are beyond our control.

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• We must effectively manage our liquidity risk.

• We must effectively manage our interest rate risks.

• We must effectively manage our interest rate risk.

• Increases in the amount of other real estate owned could result in additional losses, costs and expenses.

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• We may incur increased costs to comply with privacy and data security laws.

Risks Related to Our Common Stock

Risks Related to Our Securities

• The trading volume in our common stock is less than that of larger financial institutions.

• There can be no assurance that we will continue to pay cash dividends.

• There can be no assurance that we will continue to pay cash dividends on our common stock.

• Federal laws and regulations impose restrictions on the ownership of our common stock.

• Anti-takeover provisions in our governing documents could adversely affect our shareholders.

• An investment in our common stock is not an insured deposit.

• An investment in our securities is not an insured deposit.

General Risk Factors

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• Our risk management framework may not effectively mitigate risks or losses to us.

• Hurricanes or other adverse weather events could disrupt our operations.

• Damage to our business reputation could adversely impact our business and results of operations.

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When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the lender’s Preferred Lender status.

If we lose our status as a Preferred Lender, we may lose some or all of our customers to lenders who are SBA Preferred Lenders, and as a result we could experience a material adverse effect on our financial results.

Any changes to the SBA program, including changes to the level of guarantee provided by the federal government on SBA loans, may also have a material adverse effect on our business.

We anticipate that gains on the sale of loans will comprise a meaningful component of our revenue in 2025.

We sell the guaranteed portion of some of our SBA 7(a) loans in the secondary market.

We currently anticipate that gains on the sale of loans will comprise a meaningful component of our revenue in 2026.

We have historically sold the guaranteed portion of some of our SBA 7(a) loans in the secondary market.

These sales have resulted in premium income for us at the time of sale and created a stream of future servicing income.

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government operations would impede our ability to originate SBA loans and our ability to sell such loans in the secondary market, which would materially adversely affect our business, results of operations and financial condition.

Pandemics, natural disasters, global climate change, acts of terrorism and global conflicts may have a negative impact on our business and operations.

Pandemics, natural disasters, global climate change, acts of terrorism, global conflicts or other similar events have in the past, and may in the future have, a negative impact on our business and operations.

Pandemics, natural disasters (including hurricanes), global climate change, acts of terrorism, social unrest, and global conflicts may have a negative impact on our business and operations.

Pandemics, natural disasters (including hurricanes), global climate change, acts of terrorism, social unrest, global conflicts or other similar events have in the past, and may in the future have, a negative impact on our business and operations.

These events impact us negatively to the extent that they result in reduced capital markets activity, lower asset price levels, or disruptions in general economic activity in the United States or abroad, or in financial market settlement functions.

In addition, these or similar events may impact economic growth negatively, which could have an adverse effect on our business and operations and may have other adverse effects on us in ways that we are unable to predict.

North Carolina’s coastal region is affected, from time to time, by adverse weather events, particularly hurricanes, the nature and severity of which may be impacted by climate change.

We cannot predict whether, or to what extent, damage caused by future hurricanes or other weather events will affect our operations.

Weather events could cause a disruption in our day-to-day business activities and could have a material adverse effect on our business, results of operations and financial condition.

Our business operations could be disrupted if significant portions of our workforce were unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with a pandemic or similar event.

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Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.

The deployment and use of artificial intelligence presents risks and challenges that may adversely impact our business.

We continually evaluate and selectively deploy emerging technologies like artificial intelligence (“AI”), sometimes referred to as AI, and machine learning for incorporation in our business.

AI refers to a field of computer science that enables computers to perform tasks that typically require human intelligence, such as reasoning, problem-solving, decision-making, and understanding of language.

Machine learning is a subset of AI that uses statistical and computational methods to train algorithms so they can learn patterns from data and improve their performance without explicit programming.

Generative AI is a subset of AI that uses generative models to create novel content.

The failure to strategically embrace these technologies or to achieve the expected effectiveness, productivity, or cost-reduction from our adoption of these technologies may put us at a competitive disadvantage.

If we cannot integrate these technologies into our business as effectively as our competitors, if our competitors develop more cost-effective solutions or other product offerings, or if our employees do not adopt such technologies expediently and prudently, we could experience a material adverse effect on our operating results, customer relationships, and growth opportunities.

Our use and deployment of AI solutions may introduce operational and control risks, including the risk of potential errors in automated decision-making, challenges in oversight and accountability, increased vulnerability to system failures or cyber incidents, and the risk that these technologies may not perform as intended under complex or unforeseen circumstances, which could materially disrupt our business operations and adversely affect our financial condition and reputation.

Regulation of AI is rapidly evolving as legislatures and regulators are increasingly focused on these powerful emerging technologies.

The technologies underlying AI and its uses are subject to a variety of laws and regulations, including intellectual property, data privacy and cybersecurity, consumer protection, competition, equal opportunity, and fair lending laws, and are expected to be subject to increased regulation and new laws or new applications of existing laws and regulations.

AI is the subject of ongoing review by various U.S.

governmental and regulatory agencies, and various U.S.

states are applying, or are considering applying, existing laws and regulations to AI or are considering general legal frameworks for AI.

We may not be able to anticipate how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our operations or offerings in certain jurisdictions if the legal frameworks are inconsistent across jurisdictions.

In addition, the use and development of AI technologies by the us and our third-party vendors, clients, and counterparties may expose us to risks and potential liabilities.

These risks may occur as a result of enhanced governmental or regulatory scrutiny, litigation, ethical concerns, confidentiality or other security risks, intellectual property concerns over data rights and protection, heightened susceptibility to cyberattacks, inaccurate or biased algorithms or underlying datasets, privacy concerns or compliance issues, as well as other factors that could adversely affect our business, reputation, and financial results.

Additionally, we may not be able to control how third-party AI solutions that we choose to use are developed or maintained, including the source and quality of the data on which such models are trained or the frequency and nature of model updates.

We may also be unable to govern or protect the integrity of the data we input into such tools, with respect to how such data is retained, reused, co-mingled with other data or disclosed.

Increased adoption of AI technologies also has the potential to alter competitive dynamics and demand in certain verticals that make up part of our small-business borrower base, including, for example, certified public accountants and investment advisory firms.

If these technologies reduce demand for, or compress margins within, these or other verticals, affected borrowers may experience revenue volatility, fee compression, or client attrition, which could negatively affect their creditworthiness, increase our credit losses, and reduce the demand for our services.

We are dependent upon the use of intellectual property owned by third parties, and any change in our ability to use, or the terms upon which we may use, this intellectual property could have a material adverse effect on our business.

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Termination of these licenses or the reduction or elimination of our licensed rights may result in our having to negotiate new licenses with less favorable terms, or the inability to obtain access to such licensed technology at all.

We also rely on vendors and third parties to provide software and other services that are important to the operation of our next-generation banking platform.

We also rely on vendors and third parties to provide software and other services that are important to the operation of our banking platform.

These services may include or utilize AI and related technologies.

Our future strategy and success depend on our ability to access to these technology services and successfully implement them.

If this technology is not successfully developed and implemented at our Bank, if we were to lose access to any of this technology, or if we were only able to access the technology on less favorable terms, we would not be able to offer our customers the next-generation banking platform services that we intend to offer, and our business, financial condition, results of operations and prospects could be materially and adversely affected.

If this technology is not successfully developed and implemented at our Bank, if we were to lose access to any of this technology, or if we were only able to access the technology on less favorable terms, we would not be able to offer our customers the banking services that we intend to offer, and our business, financial condition, results of operations and prospects could be materially and adversely affected.

A failure in or breach of our operational or security systems, or those of our third-party service providers, including as a result of cyber-attacks, could disrupt our business, result in unintentional disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.

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Any failure, interruption or breach in security or operational integrity of these systems could result in failures or disruptions in our online banking system, customer relationship management, general ledger, deposit and loan servicing and other systems.

The security and integrity of our systems and the technology we use, including services and solutions provided by third-party vendors, could be threatened by a variety of interruptions or information security breaches, including those caused by computer hacking, cyber-attacks, electronic fraudulent activity or attempted theft of financial assets or information.

The security and integrity of our systems and the technology we use, including services and solutions provided by third-party vendors, could be threatened by a variety of interruptions, information security breaches and other threats, including those caused by computer hacking, cyber-attacks, electronic fraudulent activity, errors or attempted theft of financial assets or information.

The increased use of mobile and cloud technologies, as well as the increase in remote work, can heighten these and other operational risks.

We may fail to promptly identify or adequately address any such failures, interruptions or security breaches when they occur.

We may fail to promptly identify or adequately address any such failures, interruptions, security breaches and other threats when they occur.

While we have certain protective policies and procedures in place, the nature and sophistication of the threats continue to evolve.

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While we have taken steps to protect confidential and proprietary information that we have access to, our security measures and the security measures employed by the owners of the technology in the platforms and services that we use can be compromised.

Data incidents including those involving phishing, hacking, misdirected communications and other inadvertent disclosures, and other incidents results in unauthorized access to and/or acquisition of confidential and proprietary information, including personal information, can and do occur.

Security breaches and other data incidents, including those involving phishing, hacking, misdirected communications and other inadvertent disclosures, resulting in unauthorized access to and/or acquisition of confidential and proprietary information, including personal information, can and do occur.

Accidental or willful security breaches or other unauthorized access to our systems can cause confidential customer, borrower, employee, vendor, partner or investor information to be stolen and used for criminal purposes.

Security breaches or unauthorized access to confidential information can also expose us to liability related to the loss of the information, time-consuming and expensive litigation, and negative publicity.

Security breaches or other data incidents involving unauthorized access to confidential information can also expose us to liability related to the loss of the information, time-consuming and expensive litigation, and negative publicity.

When security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in the technology-based platform that we use are exposed and exploited, our relationships with customers, borrowers, employees, vendors, partners and investors could be severely damaged, and we could incur significant liability.

Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we and our partners and collaborators may be unable to anticipate these techniques or to implement adequate preventative measures.

In addition, federal regulators and many federal and state laws and regulations require companies to notify individuals of data security breaches involving their personal information.

In addition, federal regulators and many federal and state laws and regulations require companies to notify individuals of security breaches and other data incidents involving their personal information.

Certain security breaches and other data incidents also require notice to regulators, the media, and/or other parties.

These mandatory disclosures regarding a security breach and other data incidents are costly to implement and often lead to widespread negative publicity, which may cause customers, borrowers, employees, vendors, partners or investors to lose confidence in the effectiveness of our data security measures.

These mandatory disclosures are costly to implement and often lead to widespread negative publicity, which may cause customers, borrowers, employees, vendors, partners or investors to lose confidence in the effectiveness of our data security measures.

Any security breach or other data incident, whether actual or perceived, would harm our reputation and could cause us to lose customers, borrowers, employees, vendors, partners, or investors, and could adversely affect our business and operations.

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Such parties could also be the source of an attack on, or breach of, our operational systems.

Any failures, interruptions or security breaches, including with respect to our information systems or our vendors’ information systems, or any perception that our security measures are inadequate, could negatively impact our operations, damage our reputation, result in a loss of customer business, result in a violation of privacy or other laws, and expose us to civil litigation, enforcement actions by governmental agencies, regulatory fines or other damages or losses, including those not covered by insurance.

Any failures, interruptions, security breaches, or other data incidents, including with respect to our information systems or our vendors’ information systems, or any perception that our security measures are inadequate, could negatively impact our operations, damage our reputation, result in a loss of customer business, result in a violation of privacy or other laws, and expose us to civil litigation, enforcement actions by governmental agencies, regulatory fines or other damages or losses, including those not covered by insurance.

Our business is dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party providers.

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Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.

If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could materially adversely affect our business, financial condition, results of operations and prospects, as well as the value of our common stock.

We have identified a material weakness in our internal control over financial reporting which, if not remediated appropriately or in a timely manner, could result in a loss of investor confidence and adversely impact the trading price of our securities.

We have identified material weaknesses in our internal control over financial reporting which, if not remediated appropriately or in a timely manner, could result in a loss of investor confidence and adversely impact the trading price of our securities.

As disclosed in Part II - Item 9A.

Controls and Procedures, management has identified a material weakness in our internal control over financial reporting.

Controls and Procedures, management has identified material weaknesses in our internal control over financial reporting.

As a result, management concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2025.

The Company is currently working to remediate the material weakness.

The Company is currently working to remediate the material weaknesses.

However, there can be no assurance that these remediation efforts will be successful.

In addition, these remediation efforts will place a burden on management and may result in additional expenses.

If we are unable to remediate this material weakness, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, result in violations of applicable securities laws, result in an inability to meet NYSE listing requirements, negatively affect investor confidence in the accuracy and completeness of our financial statements, and adversely impact the trading price of our securities.

If we are unable to remediate these material weaknesses, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, result in violations of applicable securities laws, result in an inability to meet NYSE listing requirements, negatively affect investor confidence in the accuracy and completeness of our financial statements, and adversely impact the trading price of our securities.

We face risks related to the restatement of our financial statements.

In November 2025, we determined to restate the Consolidated Financial Statements for the years ended December 31, 2024, 2023 and 2022, in order to restate the Consolidated Statements of Cash Flows and related notes.

As a result, we are subject to additional risks and uncertainties, which could affect investor confidence in the accuracy of our financial disclosures and may cause reputational harm to our business.

We may face potential litigation or other disputes, which may include, among others, claims under federal and state securities laws.

In addition, the processes undertaken to effect the restatement may not have been adequate to identify and correct all errors in our historical financial statements.

If one or more of these risks persist, our business, operations, and financial condition could be materially and adversely affected.

The fair value of our investment securities can fluctuate due to factors outside of our control.

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Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.

These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, monetary tapering actions by the Federal Reserve, and changes in market interest rates and potential instability in the capital markets.

Any of these factors, among others, could cause impairments and realized or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects, as well as the value of our common stock.

These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, monetary policy actions by the Federal Reserve, and changes in market interest rates and potential instability in the capital markets.

The process for determining whether a security is reported at the proper carrying amount usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

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As a result, the determination of the appropriate level of ACL inherently involves a high degree of subjectivity and requires us to make significant estimates related to current and expected future credit risks and trends, all of which may undergo material changes.

Continuing deterioration in economic conditions affecting borrowers;

Deterioration in economic conditions affecting borrowers;

new information regarding existing loans and loan commitments;

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Our access to funding sources in amounts adequate to finance our activities or at a reasonable cost could be impaired by factors that affect us specifically or the financial services industry in general.

Factors that could adversely affect our access to liquidity sources include a decrease in the level of our business activity due to a market downturn, failures of or interruptions to our next-generation banking platform, our lack of access to a traditional branch banking network designed to generate core deposits, and adverse regulatory action against us.

Factors that could adversely affect our access to liquidity sources include a decrease in the level of our business activity due to a market downturn, failures of or interruptions to our banking platform, our lack of access to a traditional branch banking network designed to generate core deposits, and adverse regulatory action against us.

Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe disruption in the financial markets or negative views and expectations about the prospects for the financial services industry as a whole.

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Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, inflationary trends, changes in government spending and debt issuance and policies of various governmental and regulatory agencies and, in particular, the Federal Open Market Committee.

The amount of other real estate owned, or OREO, may increase significantly, resulting in additional losses, and costs and expenses that will negatively affect our operations.

The amount of other real estate owned, or OREO, may increase significantly, resulting in additional losses, costs and expenses that will negatively affect our operations.

In connection with our banking business, we take title to real estate collateral from time to time through foreclosure or otherwise in connection with efforts to collect debts previously contracted.

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As a result, declines in the value of our OREO will have a negative effect on our business, results of operations and financial condition.

As of December 31, 2024, we had three OREO properties with an aggregate carrying value of $1.9 million.

As of December 31, 2025, we had eight OREO properties with an aggregate carrying value of $8.2 million.

We are subject to environmental liability risk associated with our lending activities.

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If obtained, equity financing could be dilutive and the incurrence of debt and contingent liabilities could have a material adverse effect on our business, results of operations or financial condition.

Our investments in financial technology companies and initiatives, including our investment in Apiture, subject us to material financial, reputational and strategic risks.

Our investments in financial technology companies and initiatives subject us to material financial, reputational and strategic risks.

Our investments in various financial technology companies have had a significant impact on our results of operations, and we anticipate they will continue to have a significant impact on our results of operations in the future.

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Where we are a minority shareholder, we may be unable to influence the activities of these organizations which could have an adverse impact on our ability to execute our strategic initiatives and successfully develop and implement the banking platform we are developing with these and other partners.

As of December 31, 2024, the carrying amount of our investment in Apiture was $53.1 million.

Apiture's future success will depend on its ability to develop, sell and deliver new or enhanced solutions to financial institution clients;

however, these solutions and related services may not be attractive to existing or prospective clients.

In addition, promoting, selling and delivering these new and enhanced solutions may require increasingly costly sales, marketing and implementation efforts.

We also anticipate that Apiture will face challenges from its current competitors, which in many cases are more established and enjoy greater resources than it does, as well as by new entrants into the industry.

If Apiture is not able to successfully execute its business plan, then the value of our investment in Apiture could decrease, which could have a material adverse effect on our business, financial condition and results of operations.

Apiture’s digital banking solution requires sophisticated software and computing systems that may encounter development delays or software defects.

Defects in Apiture’s software offerings or delays in the development of such software could result in unforeseen costs, diversion of technical and other resources, loss of credibility with existing and potential clients or reputational harm, any of which could materially adversely affect our business, results of operations and financial condition.

Our subsidiary Canapi Advisors was an investment advisor to Canapi Ventures, a series of funds focused on providing venture capital to new and emerging financial technology companies.

Canapi Ventures invests in early to growth-stage companies that may include companies that utilize advanced science, technology, engineering and/or mathematics to innovate in the financial technology market.

We invest, directly and indirectly, in early to growth-stage companies that may include companies that utilize advanced science, technology, engineering and/or mathematics, including AI technologies, to innovate in the financial technology market.

Investments in these companies involve a high degree of business and financial risk that can result in substantial losses.

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The failure of this one product, service or distribution channel, or the loss or ineffectiveness of a key executive or executives within the management team may have a materially adverse impact on such companies.

Such companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and service capabilities and a larger number of qualified managerial and technical personnel.

Many of the financial technology companies in which we invest directly present risks similar to those in which Canapi Ventures invests.

The possibility that the companies in which we and Canapi Ventures invest will not be able to commercialize their technology or product concept presents significant risk to our business operations and financial results.

Such companies may face intense competition, including competition from companies with greater financial resources, more extensive development, AI, manufacturing, marketing and service capabilities, and a larger number of qualified managerial and technical personnel.

The possibility that the companies in which we invest will not be able to commercialize their technology or product concept presents significant risk to our business operations and financial results.

These companies tend to lack management depth, to have limited or no history of operations and to not have attained profitability.

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Thus, the ultimate success of these companies may depend on their ability to continually innovate in increasingly competitive markets.

Most of the companies in which we and Canapi Ventures invest will require substantial additional equity financing to satisfy their continuing growth and working capital requirements.

Most of the companies in which we invest will require substantial additional equity financing to satisfy their continuing growth and working capital requirements.

Each round of venture financing is typically intended to provide a company with enough capital to reach the next stage of development.

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Our investments in other companies may be illiquid.

The equity securities of the companies in which we and Canapi Ventures invest are at the time of acquisition unmarketable and illiquid, and there can be no assurance that a ready market for these securities will ever exist.

The equity securities of the companies in which we invest are at the time of acquisition unmarketable and illiquid, and there can be no assurance that a ready market for these securities will ever exist.

Such securities generally cannot be sold publicly without prior agreement with the issuer to register the securities under the Securities Act or by selling such securities under Rule 144 or other provisions of the Securities Act which permit only limited sales under specified conditions.

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This concentration of ownership could limit the ability of other shareholders to influence corporate matters and may have the effect of delaying or preventing a change in control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change in control would benefit our other shareholders.

For information regarding the ownership of our outstanding stock by our executive officers and directors and related entities, see “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” in this Report.

For information regarding the ownership of our outstanding securities by our executive officers and directors and related entities, see “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” in this Report.

Risks Related to Our Regulatory Environment

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Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve.

Actions by monetary and fiscal authorities, including the Federal Reserve, could have an adverse effect on our deposit levels, loan demand, or business and earnings, as well as the value of our common stock.

We are required to maintain capital to meet regulatory requirements, and, if we fail to maintain sufficient capital, whether due to growth opportunities, losses or an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our compliance with regulatory requirements, would be adversely affected.

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Although we comply with all current applicable capital requirements, we may be subject to more stringent regulatory capital requirements in the future, and we may need additional capital in order to meet those requirements.

If we or the Bank fail to meet applicable minimum capital requirements or cease to be well capitalized, such failure would cause us and the Bank to be subject to regulatory restrictions and could adversely affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common stock and/or repurchase shares, our ability to make acquisitions, and our business, results of operations and financial condition, generally.

If we or the Bank fail to meet applicable minimum capital requirements or cease to be well capitalized, such failure would cause us and the Bank to be subject to regulatory restrictions and could adversely affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common or preferred stock and/or repurchase shares, our ability to make acquisitions, and our business, results of operations and financial condition, generally.

Because our total assets exceed $10 billion, we are subject to heightened regulatory requirements, which could have an adverse effect on our financial condition or results of operations.

Various federal banking laws and regulations, including rules adopted by the Federal Reserve pursuant to the requirements of the Dodd-Frank Act, impose additional requirements on bank holding companies with total assets of at least $10 billion.

In addition, banks with total assets of at least $10 billion are primarily examined by the CFPB with respect to federal consumer protection laws and regulations.

In addition, banks with total assets of at least $10 billion are primarily examined by the CFPB with respect to federal consumer protection laws and regulations, however, there is currently uncertainty surrounding the ongoing operations of the CFPB.

In the first quarter of 2023, the Company and the Bank each first exceeded $10 billion in total assets.

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We have incurred significant expenses in connection with these compliance obligations and expect to continue to incur expenses to address heightened regulatory requirements.

These additional regulatory requirements and increased compliance expenses could have a material adverse effect on our business, financial condition and results of operations.

These additional regulatory requirements and increased compliance expenses could have a material adverse effect on our business, financial condition, results of operations, and the value of our securities.

Our deposit operations are subject to extensive regulation, and we expect additional regulatory requirements to be implemented in the future.

We are subject to significant anti-money laundering, “know your customer” and other regulations under applicable law, including the Bank Secrecy Act and the USA PATRIOT Act, and we could become subject in the future to additional regulatory requirements beyond those that are currently adopted, proposed or contemplated.

We expect that federal and state bank regulators will continue to increase their oversight, inspection and investigatory role over our deposit operations and the financial services industry generally.

We expect that federal and state bank regulators will continue to increase their oversight, inspection and investigatory role over our deposit operations.

Furthermore, we intend to further increase our deposit product offerings and grow our customer deposit portfolio in the future and, as a result, we are, and will continue to be, subject to heightened compliance and operating costs that could adversely affect our business, results of operations and financial condition.

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Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar events, have in the past and may in the future lead to erosion of customer confidence in the banking system, deposit volatility, liquidity issues, stock price volatility, increased regulatory scrutiny and other adverse developments.

Similarly, inflation and rapid increases in interest rates have led to a decline in the fair value of previously issued government securities with interest rates below current market interest rates.

Similarly, inflation and rapid increases in interest rates have led in the past and may lead in the future to a decline in the fair value of previously issued government securities with interest rates below current market interest rates.

Any sale of investment securities that are held in an unrealized loss position by financial institutions for liquidity or other purposes will cause actual losses to be realized.

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Adverse financial market and economic conditions can exert downward pressure on stock prices, security prices, and credit availability for financial institutions without regard to their underlying financial strength.

Any of these impacts, or any other impacts resulting from the events described above, could have a material adverse effect on our liquidity and our current and/or projected business operations and financial condition and results of operations.

We may incur increased costs to comply with privacy and data security laws and regulations and, to the extent we fail to comply, we could be subject to government enforcement actions, private claims and litigation, adverse publicity, loss of customers, and other negative outcomes.

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• We may be required to structure our business, operations, and systems in less efficient ways.

Risks Related to Our Common Stock

Risks Related to Our Securities

The low trading volume in our common stock may adversely affect your ability to resell shares at prices that you find attractive or at all.

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Sales by these holders of a substantial number of shares could significantly reduce the market price of our common stock.

There can be no assurance that we will continue to pay cash dividends.

Although we have historically paid cash dividends, there is no assurance that we will continue to pay cash dividends.

Future payment of cash dividends, if any, will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.

There can be no assurance that we will continue to pay cash dividends on our common stock.

Although we have historically paid cash dividends to the holders of our common stock, there is no assurance that we will continue to pay such cash dividends.

Future payment of cash dividends on our common stock, if any, will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.

The Company’s common stock is subordinate to the Company’s existing and future preferred stock.

The Company has outstanding Series A preferred stock that is senior to the Company’s common stock and could adversely affect the ability of the Company to declare or pay dividends or distributions on common stock.

Under the terms of the Series A preferred stock, the Company is prohibited from paying dividends on its common stock unless all full dividends for the latest dividend period on all outstanding shares of Series A preferred stock have been declared and paid in full or declared and a sum sufficient for the payment of those dividends has been set aside.

Furthermore, if the Company experiences a material deterioration in its financial condition, liquidity, capital, results of operations or risk profile, the Company’s regulators may not permit it to make future payments on its Series A preferred stock, thereby preventing the payment of dividends on the Company’s common stock.

Live Oak Bancshares, Inc.

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Consequently, a takeover attempt may prove difficult, and shareholders may not realize the highest possible price for their securities.

Shares of Live Oak Bancshares, Inc.’s common stock are not insured deposits and may lose value.

Shares of Live Oak Bancshares, Inc.’s common stock are not savings accounts, deposits or other obligations of any depository institution and are not insured or guaranteed by the FDIC or any other governmental agency or instrumentality, any other deposit insurance fund or by any other public or private entity.

Live Oak Bancshares, Inc.’s securities are not insured deposits and may lose value.

Live Oak Bancshares, Inc.’s securities are not savings accounts, deposits or other obligations of any depository institution and are not insured or guaranteed by the FDIC or any other governmental agency or instrumentality, any other deposit insurance fund or by any other public or private entity.

An investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section.

As a result, if you acquire shares of our common stock, you may lose some or all of your investment.

As a result, if you acquire our securities, you may lose some or all of your investment.

General Risk Factors

We face strong competition from a diverse group of competitors.

The banking business is highly competitive, and we experience strong competition from many other financial institutions, including some of the largest commercial banks headquartered in the country, as well as other federally and state chartered financial institutions such as community banks and credit unions, finance and business development companies, commercial and consumer finance companies, peer-to-peer and marketplace lenders, securities brokerage firms, insurance companies, money market and mutual funds and other non-bank lenders.

We compete with these institutions both in attracting deposits and in making loans, primarily on the basis of the interest rates we pay and yield on these products.

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In addition, many of our non-bank competitors have fewer regulatory constraints and may have lower cost structures.

We expect competition to continue to intensify due to financial institution consolidation, legislative, regulatory and technological changes, and the emergence of alternative banking sources.

We expect competition to continue to intensify due to financial institution consolidation, legislative, regulatory and technological changes, including advances in AI and automation, and the emergence of alternative banking sources.

Our ability to compete successfully will depend on a number of factors, including, among other things:

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We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively.

In addition, our implementation of certain new technologies, such as those related to AI, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively.

Increased competition could require us to increase the rates we pay on deposits or lower the rates we offer on loans, which could reduce our profitability.

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Our framework also includes financial and other modeling methodologies which involve management assumptions and judgment.

We are also making efforts to evolve our risk management framework to manage the novel and amplified risks arising from the deployment and use of AI and related technologies.

Our risk management framework may not be effective under all circumstances and it may fail to adequately identify or mitigate risk or loss to us.

If our framework is not effective, we could suffer unexpected losses and be subject to potentially adverse regulatory consequences, and our business, results of operations and financial condition could be materially and adversely affected.

Hurricanes or other adverse weather events could disrupt our operations, which could have an adverse effect on our business or results of operations.

North Carolina’s coastal region is affected, from time to time, by adverse weather events, particularly hurricanes, the nature and severity of which may be impacted by climate change.

We cannot predict whether, or to what extent, damage caused by future hurricanes or other weather events will affect our operations.

Weather events could cause a disruption in our day-to-day business activities and could have a material adverse effect on our business, results of operations and financial condition.

Changes in accounting standards and management’s selection of accounting methods, including assumptions and estimates, could materially impact our financial statements.

From time to time, the SEC and the Financial Accounting Standards Board (“FASB”) update accounting principles generally accepted in the United States (“GAAP”) that govern the preparation of our financial statements.

In addition, the FASB, SEC, bank regulators and the outside independent auditors may revise their previous interpretations regarding existing accounting regulations and the application of these accounting standards.

From time to time, the SEC and the Financial Accounting Standards Board (“FASB”) update U.S.

generally accepted accounting principles (“GAAP”) that govern the preparation of our financial statements.

In addition, the FASB, SEC, bank regulators and our outside independent auditors may revise their previous interpretations regarding existing accounting regulations and the application of these accounting standards.

These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations.

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Any damage to our reputation, whether arising from legal, regulatory, supervisory or enforcement actions, matters affecting our financial reporting or compliance with SEC and exchange listing requirements, negative publicity, the conduct of our business or otherwise could have a material adverse effect on our business, results of operations and financial condition.

Changes in U.S.

trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations.

There have been, and may be in the future, changes with respect to U.S.

and international trade policies, legislation, treaties and tariffs, embargoes, sanctions and other trade restrictions.

In response to tariffs imposed by the U.S., foreign countries have implemented, or may implement, retaliatory tariffs on U.S.

Historically, tariffs have led to increased trade and political tensions.

Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets.

It may also cause the prices of our customers’ products and services to increase, which could reduce demand for such products and services, or reduce our customers’ margins, and adversely impact their revenues, financial results, and ability to service debt.

This in turn could adversely affect our financial condition and results of operations.

We lend primarily to small businesses in selected industries.

Our small business borrowers have fewer financial resources than larger commercial entities, and as a result may be more susceptible than larger businesses to decreased economic activity caused by changes in trade policies and global trade patterns.

Negative impacts on our small business borrowers could impair their ability to service their debt, which could adversely affect our financial condition and results of operations.

In addition, to the extent changes in the political environment have a negative impact on us, our small business borrowers, or on the markets in which we operate our business, our results of operations and financial condition could be materially and adversely impacted in the future.

At this time, it remains unclear what the U.S.

government or foreign governments will or will not do with respect to additional tariffs that may be imposed or changes that may be made to international trade agreements and policies.

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 1A. Risk Factors