UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


x			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2025


o			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________.

Commission file number: 001-37497

LIVE OAK BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


North Carolina			26-4596286
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1741 Tiburon Drive Wilmington, North Carolina			28403
(Address of principal executive offices)			(Zip Code)

(910) 790-5867


(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Voting Common Stock, no par value per share	LOB	New York Stock Exchange LLC
Depositary Shares, Each Representing a 1/40th Interest in a Share of 8.375% Fixed Rate Series A Non-Cumulative Perpetual Preferred Stock, no par value per share	LOB PR A	New York Stock Exchange LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

(Dollars in thousands)


	June 30, 2025		December 31, 2024
Assets
Cash and due from banks	$	662,755	$	608,800

Certificates of deposit with other banks	250		250
Investment securities available-for-sale	1,325,206		1,248,203
Loans held for sale	350,791		346,002
Loans and leases held for investment (includes $303,818 and $328,746 measured at fair value, respectively)	11,014,055		10,233,374
Allowance for credit losses on loans and leases	(182,231)		(167,516)
Net loans and leases	10,831,824		10,065,858
Premises and equipment, net	246,493		264,059
Foreclosed assets	6,318		1,944
Servicing assets (includes $60,085 and $55,788 measured at fair value, respectively)	60,359		56,144
Other assets	347,212		352,120
Total assets	$	13,831,208	$	12,943,380
Liabilities and shareholders’ equity
Liabilities
Deposits:
Noninterest-bearing	$	393,393	$	318,890
Interest-bearing	12,201,397		11,441,604
Total deposits	12,594,790		11,760,494
Borrowings	107,659		112,820
Other liabilities	61,494		66,570
Total liabilities	12,763,943		11,939,884
Shareholders’ equity
Preferred stock, no par value, 1,000,000 shares authorized, none issued or outstanding at June 30, 2025 and December 31, 2024	—		—
Class A common stock, no par value, 100,000,000 shares authorized, 45,686,081 and 45,359,425 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively	377,953		365,607
Class B common stock, no par value, 10,000,000 shares authorized, none issued or outstanding at June 30, 2025 and December 31, 2024	—		—
Retained earnings	746,450		715,767
Accumulated other comprehensive loss	(61,514)		(82,344)
Total shareholders' equity attributed to Live Oak Bancshares, Inc.	1,062,889		999,030
Non-controlling interest	4,376		4,466
Total shareholders’ equity	1,067,265		1,003,496
Total liabilities and shareholders’ equity	$	13,831,208	$	12,943,380

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Live Oak Bancshares, Inc.

Condensed Consolidated Statements of Income

For the three and six months ended June 30, 2025 and 2024 (unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Interest income
Loans and fees on loans	$	204,513	$	181,840	$	400,129	$	357,850
Investment securities, taxable	11,648		9,219		22,737		18,173
Other interest earning assets	8,123		7,389		14,523		14,845
Total interest income	224,284		198,448		437,389		390,868
Interest expense
Deposits	113,380		105,358		224,268		207,356
Borrowings	1,683		1,770		3,368		2,081
Total interest expense	115,063		107,128		227,636		209,437
Net interest income	109,221		91,320		209,753		181,431
Provision for credit losses	23,252		11,765		52,216		28,129
Net interest income after provision for credit losses	85,969		79,555		157,537		153,302
Noninterest income
Loan servicing revenue	8,565		7,347		16,863		14,971
Loan servicing asset revaluation	(3,057)		(2,878)		(7,785)		(5,622)
Net gains on sales of loans	21,641		14,395		40,289		25,897
Net gain (loss) on loans accounted for under the fair value option	1,082		172		48		(47)
Equity method investments (loss) income	(2,716)		(1,767)		(4,955)		(6,789)
Equity security investments gains, net	1,004		161		1,024		(368)
Lease income	3,103		2,423		5,676		4,876
Management fee income	—		3,271		—		6,542
Other noninterest income	4,904		11,035		8,947		20,796
Total noninterest income	34,526		34,159		60,107		60,256
Noninterest expense
Salaries and employee benefits	49,137		46,255		97,145		93,530
Travel expense	2,576		2,328		5,371		4,766
Professional services expense	2,874		3,061		5,898		4,939
Advertising and marketing expense	4,420		3,004		8,085		6,696
Occupancy expense	2,369		2,388		5,106		4,635
Technology expense	10,066		7,996		19,317		15,719
Equipment expense	3,685		3,511		7,430		6,585
Other loan origination and maintenance expense	4,190		3,659		8,775		7,570
Renewable energy tax credit investment (recovery) impairment	270		170		270		(757)
FDIC insurance	3,545		2,649		7,096		5,849

Other expense	6,161		2,635		8,817		5,861
Total noninterest expense	89,293		77,656		173,310		155,393
Income before taxes	31,202		36,058		44,334		58,165
Income tax expense	7,815		9,095		11,279		3,616
Net income	23,387		26,963		33,055		54,549
Net loss attributable to non-controlling interest	41		—		90		—
Net income attributable to Live Oak Bancshares, Inc.	$	23,428	$	26,963	$	33,145	$	54,549
Basic earnings per share	$	0.51	$	0.60	$	0.72	$	1.22
Diluted earnings per share	$	0.51	$	0.59	$	0.72	$	1.20

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Live Oak Bancshares, Inc.

Condensed Consolidated Statements of Comprehensive Income

For the three and six months ended June 30, 2025 and 2024 (unaudited)

(Dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Net income	$	23,387	$	26,963	$	33,055	$	54,549
Other comprehensive income (loss) before tax:
Net unrealized gain (loss) on investment securities available-for-sale during the period	8,137		964		27,408		(7,612)
Reclassification adjustment for gain on sale of securities available-for-sale included in net income	—		—		—		—
Other comprehensive income (loss) before tax	8,137		964		27,408		(7,612)
Income tax (expense) benefit	(1,953)		(231)		(6,578)		1,827
Other comprehensive income (loss), net of tax	6,184		733		20,830		(5,785)
Total comprehensive income	29,571		27,696		53,885		48,764
Comprehensive loss attributable to non-controlling interest	41		—		90		—
Total comprehensive income attributable to Live Oak Bancshares, Inc.	$	29,612	$	27,696	$	53,975	$	48,764

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Live Oak Bancshares, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

For the three and six months ended June 30, 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 March 31, 2025	45,589,633	—	$	370,513	$	724,215	$	(67,698)	$	4,417	$	1,031,447
Net income	—	—	—		23,428		—		(41)		23,387
Other comprehensive income	—	—	—		—		6,184		—		6,184
Issuance of restricted stock	36,720	—	—		—		—		—		—
Tax withholding related to vesting of restricted stock and other	—	—	(293)		—		—		—		(293)

Stock option exercises	59,728	—	788		—		—		—		788

Restricted stock compensation expense	—	—	6,945		—		—		—		6,945
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense	—	—	—		176		—		—		176
Cash dividends ($0.03 per share)	—	—	—		(1,369)		—		—		(1,369)
Balance at June 30, 2025	45,686,081	—	$	377,953	$	746,450	$	(61,514)	4,376		$	1,067,265

Balance at March 31, 2024	44,938,673	—	$	349,648	$	669,307	$	(91,237)	$	—	$	927,718
Net income	—	—	—		26,963		—		—		26,963
Other comprehensive income	—	—	—		—		733		—		733
Issuance of restricted stock	45,613	—	—		—		—		—		—
Tax withholding related to vesting of restricted stock and other	—	—	(337)		—		—		—		(337)

Stock option exercises	19,570	—	277		—		—		—		277

Restricted stock compensation expense	—	—	6,793		—		—		—		6,793
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense	—	—	—		252		—		—		252
Cash dividends ($0.03 per share)	—	—	—		(1,350)		—		—		(1,350)
Balance at June 30, 2024	45,003,856	—	$	356,381	$	695,172	$	(90,504)	$	—	$	961,049

Table of Contents

Live Oak Bancshares, Inc.

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

For the three and six months ended June 30, 2025 and 2024 (unaudited)

(Dollars in thousands)


	Six Months Ended
	Common stock				Retained earnings		Accumulated other comprehensive income (loss)		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	—	—	—		33,145		—		(90)		33,055
Other comprehensive income	—	—	—		—		20,830		—		20,830
Issuance of restricted stock	180,504	—	—		—		—		—		—
Tax withholding related to vesting of restricted stock and other	—	—	(3,471)		—		—		—		(3,471)
Employee stock purchase program	23,015	—	659		—		—		—		659
Stock option exercises	123,137	—	1,546		—		—		—		1,546

Restricted stock compensation expense	—	—	13,612		—		—		—		13,612

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense	—	—	—		274		—		—		274
Cash dividends ($0.06 per share)	—	—	—		(2,736)		—		—		(2,736)
Balance at June 30, 2025	45,686,081	—	$	377,953	$	746,450	$	(61,514)	$	4,376	$	1,067,265

Balance at December 31, 2023	44,617,673	—	$	344,568	$	642,817	$	(84,719)	$	—	$	902,666
Net income	—	—	—		54,549		—		—		54,549
Other comprehensive loss	—	—	—		—		(5,785)		—		(5,785)
Issuance of restricted stock	169,283	—	—		—		—		—		—
Tax withholding related to vesting of restricted stock and other	—	—	(3,394)		—		—		—		(3,394)
Employee stock purchase program	18,485	—	702		—		—		—		702
Stock option exercises	198,415	—	1,406		—		—		—		1,406

Restricted stock compensation expense	—	—	13,099		—		—		—		13,099

Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense	—	—	—		501		—		—		501
Cash dividends ($0.06 per share)	—	—	—		(2,695)		—		—		(2,695)
Balance at June 30, 2024	45,003,856	—	$	356,381	$	695,172	$	(90,504)	$	—	$	961,049

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Live Oak Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2025 and 2024 (unaudited)

(Dollars in thousands)


	Six Months Ended June 30,
	2025		2024
Cash flows from operating activities
Net income	$	33,055	$	54,549
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	13,758		10,324
Provision for credit losses	52,216		28,129
Accretion of discount on securities, net	(230)		(497)
Deferred tax benefit	(843)		(278)
Originations of loans held for sale	(697,086)		(467,005)
Proceeds from sales of loans held for sale	924,481		577,817
Net gains on sale of loans held for sale	(40,289)		(25,897)
Net loss on impairment or sale of foreclosed assets	12		9
Net (gains) loss on loans accounted for under fair value option	(48)		47
Net change in servicing assets	(4,215)		(2,937)
Net gain on disposal of long-lived assets	—		(6,663)
Net loss on disposal of property and equipment	3,122		177

Equity method investments loss (income)	4,955		6,789
Equity security investments (gains) losses, net	(1,024)		368
Loss (gain) on equity warrant assets	419		(6,246)
Renewable energy tax credit investment impairment (recovery)	270		(757)

Restricted stock compensation expense	13,612		13,099
Stock based compensation excess tax (deficiency) benefit	(224)		988
Lease right-of-use assets and liabilities, net	7		195
Changes in assets and liabilities:
Other assets	15,288		(13,536)
Other liabilities	(4,090)		6,094
Net cash provided by operating activities	313,146		174,769
Cash flows from investing activities
Purchases of investment securities available-for-sale	(126,937)		(109,829)
Proceeds from maturities, calls, and principal paydowns of investment securities available-for-sale	77,572		77,679
Proceeds from sale of foreclosed assets	827		583


Purchases of loans previously sold	(45,257)		(35,928)
Loan and lease originations and principal collections, net	(984,384)		(577,457)
Proceeds from sale of long-lived asset	—		22,641
Purchases of equity security investments	(4,471)		(3,676)
Purchases of equity method investments	(3,060)		(1,872)
Proceeds from sale of equity security investments	359		957
Proceeds from sale of equity method investments	385		524
Proceeds from sale of premises and equipment	4,361		978
Purchases of premises and equipment, net	(3,719)		(38,882)
Net cash used by investing activities	(1,084,324)		(664,282)

Table of Contents

Live Oak Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (Continued)

For the six months ended June 30, 2025 and 2024 (unaudited)

(Dollars in thousands)


	Six Months Ended June 30,
	2025		2024
Cash flows from financing activities
Net increase in deposits	$	834,296	$	432,012
Proceeds from borrowings	84		99,462
Repayment of borrowings	(5,245)		(5,071)
Stock option exercises	1,546		1,406
Employee stock purchase program	659		702
Tax withholding related to vesting of restricted stock and other	(3,471)		(3,394)
Shareholder dividend distributions	(2,736)		(2,695)
Net cash provided by financing activities	825,133		522,422
Net increase in cash and cash equivalents	53,955		32,909
Cash and cash equivalents, beginning	608,800		582,540
Cash and cash equivalents, ending	$	662,755	$	615,449

Supplemental disclosures of cash flow information
Interest paid	$	227,748	$	209,811
Income tax paid, net	7,221		22,888

Supplemental disclosures of noncash investing and financing activities
Unrealized holding gains (losses) on investment securities available-for-sale, net of taxes	$	20,830	$	(5,785)
Transfers from loans and leases to foreclosed real estate and other repossessions or SBA receivable	18,894		2,125
Net transfers between foreclosed assets and SBA receivable	33		—

Transfer from premises and equipment, net to other assets	—		18,540
Transfer of loans held for sale to loans and leases held for investment	408,925		108,048
Transfer of loans and leases held for investment to loans held for sale	610,907		178,482
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense	274		501

Accrued premises and equipment additions	—		1,193
Equity method investment commitments	—		1,508
Equity security investment commitments	—		1,000

See Notes to Unaudited Condensed Consolidated Financial Statements

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 June 30, 2025, the 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. (“Synply”) 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.

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 and six months ended June 30, 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.

Use of Estimates

In preparing unaudited condensed consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The allowance for credit losses is a material estimate that is particularly susceptible to significant change in the near term.

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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Long-Lived Asset Reclassified to Held for Sale

During the second quarter of 2024, the Company sold an aircraft that was previously reclassified as held for sale. The $6.7 million gain on the sale of the aircraft is reflected in other income on the Condensed Consolidated Statements of Income.

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. Aside from complying with the new disclosure requirements, the Company does not believe this standard will have a material impact on its consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01 “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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Legislative Developments

On July 4, 2025, H.R. 1, the U.S. fiscal-year 2025 budget reconciliation legislation, commonly known as the One Big Beautiful Bill Act (“OBBB”), was signed into law, implementing changes in tax and other provisions. The Company does not currently believe the impacts of the OBBB will be material to the consolidated financial statements and related disclosures.

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 June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Basic earnings per share:
Net income attributable to Live Oak Bancshares, Inc.	$	23,428	$	26,963	$	33,145	$	54,549
Weighted-average basic shares outstanding	45,634,741		44,974,942		45,556,842		44,868,625
Basic earnings per share	$	0.51	$	0.60	$	0.72	$	1.22
Diluted earnings per share:
Net income attributable to Live Oak Bancshares, Inc., for diluted earnings per share	$	23,428	$	26,963	$	33,145	$	54,549
Total weighted-average basic shares outstanding	45,634,741		44,974,942		45,556,842		44,868,625
Add effect of dilutive stock options and restricted stock grants	160,867		550,140		268,701		714,521
Total weighted-average diluted shares outstanding	45,795,608		45,525,082		45,825,543		45,583,146
Diluted earnings per share	$	0.51	$	0.59	$	0.72	$	1.20
Anti-dilutive stock options and restricted stock grants	2,177,255		945,063		1,838,191		702,331

Note 4. Investments

Available-for-Sale

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


June 30, 2025	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. government agencies	$	13,919	$	77	$	38	$	13,958
Mortgage-backed securities	1,389,062		3,498		84,387		1,308,173
Municipal bonds	3,164		—		89		3,075

Total	$	1,406,145	$	3,575	$	84,514	$	1,325,206


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

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

During the three months ended June 30, 2025, four securities totaling $11.3 million were settled and one security totaling $4.0 million matured. During the six months ended June 30, 2025, seven securities totaling $16.9 million were settled and one security totaling $4.0 million matured. During the three months ended June 30, 2024, one security totaling $155 thousand was settled and one security totaling $3.0 million matured. During the six months ended June 30, 2024, two securities totaling $14.8 million were settled, one security totaling $2.5 million was called and one security totaling $3.0 million matured.

Accrued interest receivable on available-for-sale securities totaled $4.7 million and $4.2 million at June 30, 2025 and December 31, 2024, respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

The following tables show debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


	Less Than 12 Months				12 Months or More				Total
June 30, 2025	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government agencies	$	—	$	—	$	5,939	$	38	$	5,939	$	38
Mortgage-backed securities	200,410		1,883		817,241		82,504		1,017,651		84,387
Municipal bonds	2,992		76		83		13		3,075		89

Total	$	203,402	$	1,959	$	823,263	$	82,555	$	1,026,665	$	84,514


	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 June 30, 2025, there were 395 mortgage-backed securities, two U.S. government agencies and one municipal bond in unrealized loss positions for greater than 12 months. There were 35 mortgage-backed securities and two municipal bonds 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 June 30, 2025 and December 31, 2024 were backed by U.S. government sponsored enterprises (“GSEs”).

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The following is a summary of investment securities by maturity:


	June 30, 2025
	Available-for-Sale
	Amortized Cost		Fair Value
U.S. government agencies
Within one year	$	3,000	$	2,996
One to five years	4,002		3,972
Five to ten years	6,917		6,990
Total	13,919		13,958
Mortgage-backed securities
Within one year	30,056		29,788
One to five years	216,354		210,828
Five to ten years	202,521		186,080
After 10 years	940,131		881,477
Total	1,389,062		1,308,173
Municipal bonds
Five to ten years	3,068		2,992
After 10 years	96		83
Total	3,164		3,075





Total	$	1,406,145	$	1,325,206

The table above reflects contractual maturities. Actual results will differ as the loans underlying the mortgage-backed securities may prepay sooner than scheduled.

At June 30, 2025, investment securities with a fair value of $597.0 million and amortized cost of $654.2 million were pledged to support unused borrowing capacity. At December 31, 2024, investment securities with a fair value of $621.4 million and amortized cost 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.

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 June 30, 2025 and December 31, 2024 is reflected in the following table:


	June 30, 2025				December 31, 2024
	Amount		Ownership %		Amount		Ownership %
Apiture, Inc.	$	49,673	40.4	%	$	53,108	40.4	%
Canapi Ventures SBIC Fund, LP (1) (5)	11,421		2.9		11,504		2.9
Canapi Ventures Fund, LP (2) (5)	1,391		1.5		1,438		1.5
Canapi Ventures Fund II, LP (3) (5)	2,858		1.6		2,193		1.6
Canapi Ventures SBIC Fund II, LP (4) (5)	1,596		2.9		1,238		2.9
Affordable housing (6)	14,032		Various		14,724		Various
Solar tax credit investments (7)	4,340		99.0		5,309		99.0
Other (8)	943		Various		1,489		Various
Total	$	86,254			$	91,003


(1)			Investment unfunded commitments of $4.8 million and $5.0 million as of June 30, 2025 and December 31, 2024, respectively.
(2)			Investment unfunded commitments of $472 thousand and $492 thousand as of June 30, 2025 and December 31, 2024, respectively.
(3)			Investment unfunded commitments of $4.5 million and $5.2 million as of June 30, 2025 and December 31, 2024, respectively.
(4)			Investment unfunded commitments of $6.1 million and $6.5 million as of June 30, 2025 and December 31, 2024, respectively.
(5)			Investee is accounted for under equity method due to the Company's potential influence with investment advisor.
(6)			Affordable Housing includes low income housing tax credit (“LIHTC”) in Estrella Landing Apartments LLC (“Estrella Landing”), in which the Company holds a 99.9% limited member interest. Also included are Cape Fear Collective Impact Opportunity 1 LLC (“Cape Fear Collective 1”) and Cape Fear Collective Impact Opportunity 2 LLC (“Cape Fear Collective 2”) which the Company holds 91.0% and 32.3% of limited member interests, respectively. As of December 31, 2024, the Company had an unfunded commitment of $1.7 million in Estrella Landing. There was no unfunded commitment as of June 30, 2025.
(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.

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 June 30, 2025 and as of and for the six months ended June 30, 2025 and 2024 is reflected in the following table:


			As of and for the six month period ended
	Cumulative Adjustments		June 30, 2025		June 30, 2024
Carrying value (1)			$	84,864	$	80,467
Carrying value adjustments:
Impairment	$	—	—		—
Upward changes for observable prices (2)	52,029		1,128		56
Downward changes for observable prices	(2,342)		(173)		(369)
Net upward (downward) change	$	49,687	$	955	$	(313)


(1)			Investment unfunded commitments of $5.3 million and $2.7 million as of June 30, 2025, and June 30, 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 and six months ended June 30, 2025, the Company recognized unrealized gains on all equity securities held at the reporting date of $959 thousand and $966 thousand, respectively. For the three and six months ended June 30, 2024, the Company recognized unrealized gains (losses) on all equity securities held at the reporting date of $31 thousand and $(269) thousand, respectively.

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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

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.

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 June 30, 2025 and December 31, 2024:


June 30, 2025	Investment Carrying Amount		Maximum Exposure to Loss		Liability Recognized		Classification
Solar tax credit investments	$	4,340	$	27,781	$	—	Other assets (1)
Affordable housing	14,032		14,973		—		Other assets (2)
Canapi Funds	17,699		33,504		—		Other assets (3)
Non-marketable and other equity investments	5,175		10,505		—		Other assets (4)


December 31, 2024	Investment 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 $4.3 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 $14.0 million of current investments and a scenario in which related tax credits are recaptured, collectively totaling $941 thousand.
(3)			Maximum exposure to loss includes $17.7 million of current investments and $15.8 million in unfunded commitments.
(4)			Maximum exposure to loss includes $5.2 million of current investments and $5.3 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.

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
June 30, 2025
Commercial & Industrial
Small Business Banking	$	2,309,146	$	19,426	$	126,150	$	145,576	$	2,454,722	$	106,175	$	2,560,897
Commercial Banking	2,509,638		6,083		29,862		35,945		2,545,583		48,183		2,593,766
Paycheck Protection Program	1,361		—		—		—		1,361		—		1,361
Total	4,820,145		25,509		156,012		181,521		5,001,666		154,358		5,156,024
Construction & Development
Small Business Banking	634,863		—		1,816		1,816		636,679		—		636,679
Commercial Banking	91,326		—		—		—		91,326		—		91,326
Total	726,189		—		1,816		1,816		728,005		—		728,005
Commercial Real Estate
Small Business Banking	2,971,064		16,746		68,216		84,962		3,056,026		105,564		3,161,590
Commercial Banking	1,273,548		12,794		10,123		22,917		1,296,465		18,885		1,315,350
Total	4,244,612		29,540		78,339		107,879		4,352,491		124,449		4,476,940
Commercial Land
Small Business Banking	657,361		—		4,383		4,383		661,744		25,011		686,755
Total	657,361		—		4,383		4,383		661,744		25,011		686,755
Total	$	10,448,307	$	55,049	$	240,550	$	295,599	$	10,743,906	$	303,818	$	11,047,724
Retained Loan Discount and Net Deferred Costs													$	(33,669)
Loans and Leases, Net													$	11,014,055

Guaranteed Balance	$	3,031,369	$	38,629	$	208,426	$	247,055	$	3,278,424	$	77,852	$	3,356,276
% Guaranteed	29.0%		70.2%		86.6%		83.6%		30.5%		25.6%		30.4%

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.

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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements


	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)
June 30, 2025
Small Business Banking
Pass	$	679,930	$	1,264,667	$	1,040,770	$	1,142,671	$	922,291	$	856,350	$	151,028	$	37,500	$	6,095,207
Special Mention	2,890		21,807		72,357		91,921		48,915		93,835		21,947		1,266		354,938
Substandard	12,427		21,075		42,094		102,667		73,602		96,674		8,285		2,202		359,026
Total	695,247		1,307,549		1,155,221		1,337,259		1,044,808		1,046,859		181,260		40,968		6,809,171
Commercial Banking
Pass	611,019		965,368		630,645		327,064		178,249		136,858		501,564		156,729		3,507,496
Special Mention	2,000		28,632		24,971		73,827		49,262		40,499		10,575		5,074		234,840
Substandard	9,000		—		—		31,954		109,276		27,884		402		12,522		191,038
Total	622,019		994,000		655,616		432,845		336,787		205,241		512,541		174,325		3,933,374
Paycheck Protection Program
Pass	—		—		—		—		1,042		319		—		—		1,361
Total	—		—		—		—		1,042		319		—		—		1,361
Total	$	1,317,266	$	2,301,549	$	1,810,837	$	1,770,104	$	1,382,637	$	1,252,419	$	693,801	$	215,293	$	10,743,906

Year-To-Date Gross Charge-offs
Small Business Banking	$	—	$	3,442	$	6,465	$	6,597	$	2,616	$	3,839	$	3,174	$	50	$	26,183
Commercial Banking	—		—		—		2,249		9,759		—		—		1,679		13,687
Total	$	—	$	3,442	$	6,465	$	8,846	$	12,375	$	3,839	$	3,174	$	1,729	$	39,870

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 $303.8 million and $328.7 million of loans accounted for under the fair value option as of June 30, 2025 and December 31, 2024, respectively.

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


June 30, 2025	Loan and Lease Balance (1)		Guaranteed Balance		Unguaranteed Balance		% Guaranteed
Pass	$	9,604,064	$	2,699,594	$	6,904,470	28.1	%
Special Mention	589,778		176,523		413,255		29.9
Substandard	550,064		402,307		147,757		73.1
Total	$	10,743,906	$	3,278,424	$	7,465,482	30.5	%


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 $303.8 million and $328.7 million of loans accounted for under the fair value option as of June 30, 2025 and December 31, 2024, respectively.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Nonaccrual Loans and Leases

As of June 30, 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 and six months ended June 30, 2025 and 2024. Accrued interest receivable on loans totaled $79.8 million and $80.7 million at June 30, 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 June 30, 2025 and December 31, 2024 are as follows:


June 30, 2025	Loan and Lease Balance (1)		Guaranteed Balance		Unguaranteed Balance		Unguaranteed Exposure with No Allowance for Credit Losses (“ACL”)
Commercial & Industrial
Small Business Banking	$	154,211	$	140,178	$	14,033	$	5,987
Commercial Banking	126,378		112,832		13,546		13,546
Total	280,589		253,010		27,579		19,533
Construction & Development
Small Business Banking	1,816		1,745		71		—
Total	1,816		1,745		71		—
Commercial Real Estate
Small Business Banking	82,133		61,308		20,825		11,940
Commercial Banking	23,437		13,242		10,195		9,232
Total	105,570		74,550		31,020		21,172
Commercial Land
Small Business Banking	8,357		7,472		885		162
Total	8,357		7,472		885		162
Total	$	396,332	$	336,777	$	59,555	$	40,867


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.

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 June 30,				Six Months Ended June 30,
	2025 (1)		2024 (1)		2025 (1)		2024 (1)
Commercial & Industrial	$	597	$	364	$	1,041	$	974
Commercial Real Estate	284		219		774		338
Commercial Land	52		52		52		52
Construction & Development	—		—		—		30
Total	$	933	$	635	$	1,867	$	1,394


(1)			Excludes loans accounted for under the fair value option. See Note 9. Fair Value of Financial Instruments for additional information.

The following table presents the amortized cost basis of collateral-dependent loans and leases, which are individually evaluated to determine expected credit losses, as of June 30, 2025 and December 31, 2024:


	Total Collateral-Dependent Loans				Unguaranteed Portion
June 30, 2025	Real Estate		Business Assets			Real Estate		Business Assets		Allowance for Credit Losses
Commercial & Industrial
Small Business Banking	$	15,540	$	3,658		$	5,040	$	145	$	32

Commercial Banking	2,869		91,635			74		10,854		—
Total	18,409		95,293			5,114		10,999		32
Commercial Real Estate
Small Business Banking	48,859		—			12,604		—		186

Total	48,859		—			12,604		—		186
Commercial Land
Small Business Banking	1,608		—			168		—		—
Total	1,608		—			168		—		—
Total	$	68,876	$	95,293		$	17,886	$	10,999	$	218


	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

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
June 30, 2025
Beginning Balance	$	149,916	$	5,712	$	30,295	$	4,261	$	190,184
Charge offs	(30,853)		—		(1,916)		(178)		(32,947)
Recoveries	731		—		771		—		1,502
Provision (Recovery)	19,166		324		5,098		(1,096)		23,492
Ending Balance	$	138,960	$	6,036	$	34,248	$	2,987	$	182,231
June 30, 2024
Beginning Balance	$	98,552	$	4,292	$	31,369	$	4,828	$	139,041
Charge offs	(8,415)		(35)		(105)		(8)		(8,563)
Recoveries	57		—		253		—		310
Provision (Recovery)	17,972		(563)		(7,977)		(2,353)		7,079
Ending Balance	$	108,166	$	3,694	$	23,540	$	2,467	$	137,867


Six Months Ended	Commercial & Industrial		Construction & Development		Commercial Real Estate		Commercial Land		Total
June 30, 2025
Beginning Balance	$	129,007	$	4,943	$	29,501	$	4,065	$	167,516
Charge offs	(36,840)		—		(2,852)		(178)		(39,870)
Recoveries	771		—		862		18		1,651
Provision (Recovery)	46,022		1,093		6,737		(918)		52,934
Ending Balance	$	138,960	$	6,036	$	34,248	$	2,987	$	182,231
June 30, 2024
Beginning Balance	$	87,581	$	4,717	$	28,864	$	4,678	$	125,840

Charge offs	(11,744)		(338)		(105)		(8)		(12,195)
Recoveries	512		—		267		—		779
Provision (Recovery)	31,817		(685)		(5,486)		(2,203)		23,443
Ending Balance	$	108,166	$	3,694	$	23,540	$	2,467	$	137,867

During the three months ended June 30, 2025, the ACL decreased primarily as a result of moderating credit trends and net charge-offs of individually evaluated loans with specific reserves recorded in prior periods. During the six months ended June 30, 2025, the ACL increased as a result of growth in the loan and lease portfolio, the impact of the macroeconomic environment on our small business and commercial borrowers, and changes in the macroeconomic outlook. Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period.

During the three months ended June 30, 2024, the ACL decreased primarily as a result of a decrease in specific reserves on loans individually evaluated for impairment. During the six months ended June 30, 2024, the ACL increased as a result of loan growth and changes in the macroeconomic outlook. Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period.

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 tables summarize the amortized cost basis of loans that were modified during the three and six months ended June 30, 2025 and June 30, 2024, respectively:


Three Months Ended June 30, 2025	Other-Than-Insignificant Payment Delay		Term Extension		Combination - Term Extension & Interest Rate Reduction		% of Total Class of Financing Receivable
Small Business Banking	$	—	$	10,893	$	9,820	0.16	%
Commercial Banking	5,527		—		—		0.21

Total	$	5,527	$	10,893	$	9,820	0.37	%


Six Months Ended June 30, 2025	Other-Than-Insignificant Payment Delay		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	$	—	$	14,448	$	9,862	$	3,020	$	3,009	$	10,010	0.45	%
Commercial Banking	5,527		—		—		—		—		—		0.21

Total	$	5,527	$	14,448	$	9,862	$	3,020	$	3,009	$	10,010	0.66	%


Three Months Ended June 30, 2024	Other-Than-Insignificant Payment Delay		% of Total Class of Financing Receivable
Small Business Banking	$	6,459	0.11	%
Commercial Banking	2,333		0.12
Total	$	8,792	0.23	%


Six Months Ended June 30, 2024	Other-Than-Insignificant Payment Delay		% of Total Class of Financing Receivable
Small Business Banking	$	6,459	0.11	%
Commercial Banking	2,333		0.12
Total	$	8,792	0.23	%

As of June 30, 2025, the Company had commitments to lend additional funds to these borrowers totaling $28 thousand. As of December 31, 2024, the Company had commitments to lend additional funds to these borrowers totaling $6.3 million.

The following table presents an aging analysis of loans that were modified within the twelve months ended June 30, 2025 and June 30, 2024, respectively:


June 30, 2025	Current		30-89 Days Past Due		90 Days or More Past Due		Total Past Due
Small Business Banking	$	40,120	$	—	$	2,243	$	2,243
Commercial Banking	22,824		—		—		—

Total	$	62,944	$	—	$	2,243	$	2,243

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements


June 30, 2024	Current		30-89 Days Past Due		90 Days or More Past Due		Total Past Due
Small Business Banking	$	21,518	$	—	$	—	$	—
Commercial Banking	2,333		—		—		—

Total	$	23,851	$	—	$	—	$	—

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


	Three Months Ended June 30, 2025
	Weighted Average Interest Rate Reduction		Weighted Average Term Extension (in Months)

Small Business Banking	2.48	%	54


	Six Months Ended June 30, 2025
	Weighted Average Interest Rate Reduction		Weighted Average Term Extension (in Months)

Small Business Banking	4.32	%	51

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

Additionally, there were no loans that were modified within the twelve months ended June 30, 2025 and June 30, 2024 that subsequently defaulted during the periods presented.

The Company’s ACL is estimated using lifetime historical loan performance adjusted to reflect current conditions and reasonable and supportable forecasts. 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.

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

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:


	June 30, 2025		December 31, 2024
Gross direct finance lease payments receivable	$	474	$	961
Less – unearned interest	(10)		(39)
Net investment in direct financing leases	$	464	$	922

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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


As of June 30, 2025	Amount
2025	$	378
2026	96


Total	$	474

Interest income of $12 thousand and $48 thousand was recognized in the three months ended June 30, 2025 and 2024, respectively. Interest income of $29 thousand and $66 thousand was recognized in the six months ended June 30, 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 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.

As of June 30, 2025 and December 31, 2024, the Company had a net investment of $81.2 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 $142.4 million and $159.7 million as of June 30, 2025 and December 31, 2024, respectively. Accumulated depreciation was $61.2 million and $66.2 million as of June 30, 2025 and December 31, 2024, respectively. Depreciation expense recognized on these assets was $2.5 million and $2.4 million for the three months ended June 30, 2025 and 2024. Depreciation expense recognized on these assets was $5.1 million and $4.7 million for the six months ended June 30, 2025 and 2024, respectively.

Lease income of $3.0 million and $2.3 million was recognized in the three months ended June 30, 2025 and 2024, respectively. Lease income of $5.5 million and $4.7 million was recognized in the six months ended June 30, 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 June 30, 2025	Amount
2025	$	3,653
2026	8,721
2027	8,483
2028	3,836
2029	2,399
Thereafter	7,309
Total	$	34,401

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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 $3.76 billion and $3.46 billion at June 30, 2025 and December 31, 2024, respectively. The unpaid principal balance for all loans serviced for others was $5.32 billion and $4.72 billion at June 30, 2025 and December 31, 2024, respectively.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Balance at beginning of period	$	56,684	$	48,962	$	55,788	$	48,186
Additions, net	6,458		5,218		12,082		8,739
Fair value changes:
Due to changes in valuation inputs or assumptions	(125)		701		(1,220)		922
Decay due to increases in principal paydowns or runoff	(2,932)		(3,578)		(6,565)		(6,544)
Balance at end of period	$	60,085	$	51,303	$	60,085	$	51,303

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 June 30, 2025 and 14.5% on June 30, 2024. The fair value of servicing rights was determined using a weighted average prepayment speed of 16.0% on June 30, 2025 and 15.7% on June 30, 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.

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 June. 30, 2025	As of December. 31, 2024
Fair value of servicing rights	$60,085	$55,788
	Incremental Increase (Decrease) in Value	Incremental Increase (Decrease) in Value
Prepayment Speed
20% increase	($3,472)	($3,459)
10% increase	(1,688)	(1,785)
Discount Rate

200 basis point increase	(2,513)	(2,603)
100 basis point increase	(1,179)	(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 June 30, 2025 and December 31, 2024, the Company had servicing assets related to conventional commercial loans carried at amortized cost of $274 thousand and $356 thousand, respectively.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 8. Borrowings

Total outstanding borrowings consisted of the following:


	June 30, 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.	$	7,973	$	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.	99,575		99,505
Other long term debt(1)	111		131

Total borrowings	$	107,659	$	112,820

(1) Includes finance leases.

As of June 30, 2025 and December 31, 2024, the Company’s unused borrowing capacity was $3.78 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 $6.48 billion and $6.10 billion as of June 30, 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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Recurring Fair Value

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


	Three Months Ended June 30,				Six Months Ended June 30,
Equity Warrant Assets	2025		2024		2025		2024
Balance at beginning of period	$	7,035	$	8,700	$	7,162	$	2,874
New equity warrant assets	50		123		267		493
Changes in fair value, net	(115)		585		(419)		6,246
Settlements	(225)		(2,001)		(265)		(2,206)
Balance at end of period	$	6,745	$	7,407	$	6,745	$	7,407

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.


June 30, 2025	Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
U.S. government agencies	$	13,958	$	—	$	13,958	$	—
Mortgage-backed securities	1,308,173		—		1,308,173		—
Municipal bonds (1)	3,075		—		2,992		83

Loans held for investment	303,818		—		—		303,818
Servicing assets (2)	60,085		—		—		60,085
Mutual fund (3)	345		—		345		—
Equity warrant assets	6,745		—		—		6,745
Total assets at fair value	$	1,696,199	$	—	$	1,325,468	$	370,731


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 (3)	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 and six months ended June 30, 2025 and June 30, 2024 there were no level 3 fair value adjustment gains or losses.
(2)			See Note 7 for a rollforward of recurring Level 3 fair values for servicing assets.
(3)			Included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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 June 30, 2025 or December 31, 2024. The unpaid principal balance of unguaranteed exposure for nonaccruals was $9.9 million and $10.0 million at June 30, 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 June 30, 2025 and December 31, 2024.


	June 30, 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	$	303,818	$	315,724	$	(11,907)	$	69,326	$	70,799	$	(1,473)	$	59,768	$	61,140	$	(1,372)
	$	303,818	$	315,724	$	(11,907)	$	69,326	$	70,799	$	(1,473)	$	59,768	$	61,140	$	(1,372)


	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 June 30,				Six Months Ended June 30,
Gains (Losses) on Loans Accounted for under the Fair Value Option	2025		2024		2025		2024
Loans held for investment	$	1,082	$	172	$	48	$	(47)
	$	1,082	$	172	$	48	$	(47)

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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


	Three Months Ended June 30,				Six Months Ended June 30,
Loans held for investment	2025		2024		2025		2024
Balance at beginning of period	$	316,807	$	379,222	$	328,746	$	388,036
Repurchases	3,057		4,247		9,309		12,812
Fair value changes	1,082		172		48		(47)

Settlements	(17,128)		(20,624)		(34,285)		(37,784)
Balance at end of period	$	303,818	$	363,017	$	303,818	$	363,017

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.


June 30, 2025	Total		Level 1		Level 2		Level 3
Collateral-dependent loans	$	14,750	$	—	$	—	$	14,750
Foreclosed assets	4,210		—		—		4,210
Total assets at fair value	$	18,960	$	—	$	—	$	18,960


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.

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 June 30, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:


June 30, 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	$	303,818	Discounted expected cash flows	Loss rate	0.0 % - 4.7 %		1.0	%
				Discount rate	7.0 % - 18.0 %		9.0	%
				Prepayment speed	15.1 % - 30.2 %		16.9	%

Servicing assets	$	60,085	Discounted expected cash flows	Discount rate	13.5	%	13.5	%
				Prepayment speed	11.9 % - 18.7 %		16.0	%
Equity warrant assets	$	6,745	Black-Scholes option pricing model	Volatility	13.1 % - 90.0 %		33.3	%
				Risk-free interest rate	3.8 % - 4.3 %		4.2	%
				Marketability discount	20.0 % - 52.0 %		21.0	%
				Remaining life	2.4 - 11.2 years		7.7 years
Non-recurring fair value
Collateral-dependent loans	$	14,750	Discounted appraisals	Appraisal adjustments (2)	11.3 % - 76.7 %		36.1	%
Foreclosed assets	$	4,210	Discounted appraisals	Appraisal adjustments (2)	10.0 %		10.0	%

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements


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	%


(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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis are as follows:


June 30, 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	$	662,755	$	662,755	$	—	$	—	$	662,755

Certificates of deposit with other banks	250		250		—		—		250
Loans held for sale	350,791		—		—		365,540		365,540
Loans and leases held for investment, net of allowance for credit losses on loans and leases	10,528,006		—		—		10,473,868		10,473,868
Financial liabilities
Deposits	12,594,790		—		12,064,625		—		12,064,625
Borrowings	107,659		—		—		116,417		116,417


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

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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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:


	June 30, 2025		December 31, 2024
Commitments to extend credit (1) (2)	$	4,276,758	$	3,597,937
Standby letters of credit	8,141		7,365

Total unfunded off-balance-sheet credit risk	$	4,284,899	$	3,605,302


(1)			Includes unfunded overdraft protection.
(2)			Includes $1.77 billion and $1.20 billion at June 30, 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 $12.9 million and $13.6 million at June 30, 2025 and December 31, 2024, respectively. During the three and six months ended June 30, 2025, the Company recorded $240 thousand and $718 thousand in recoveries related to the allowance for off-balance-sheet credit exposures, respectively. During the three and six months ended June 30, 2024, the Company recorded $4.7 million and $5.6 million in expense 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 has historically been presented in other expense and that classification remains unchanged for prior periods.

Other Commitments

See Note 4. Investments for unfunded commitments to provide capital contributions for equity fund investments as of June 30, 2025 and December 31, 2024.

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 60 relationships that have a retained unguaranteed exposure of $2.55 billion of which $1.71 billion of the unguaranteed exposure has been disbursed.

Additionally, the Company has future minimum lease payments receivable under non-cancelable operating leases totaling $34.4 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.

Table of Contents

Live Oak Bancshares, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Geographic Concentrations

The following table presents the geographic concentration of the Company's loan and lease portfolio at June 30, 2025:


	% of Total
Geographic Regions (1)
Midwest	12.8	%
Northeast	17.1
Southeast	32.2
Southwest	13.2
West	24.3
Non-U.S.	0.4
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. Subsequent Event

On August 4, 2025, the Company issued and sold 4,000,000 depositary shares (the “Depositary Shares”), each representing a 1/40th interest in a share of the Company’s 8.375% Fixed Rate Series A Non-Cumulative Perpetual Preferred Stock, no par value per share (the “Series A Preferred Stock”), with a liquidation preference of $1,000 per share of Series A Preferred Stock (equivalent to $25 per depositary Share), which represents $100,000,000 in aggregate liquidation preference. Net proceeds, after underwriting discounts and estimated expenses, total approximately $96.2 million. Holders of the Series A Preferred Stock will not have voting rights, except with respect to certain changes in the terms of the preferred stock, certain dividend non-payments and as otherwise required by applicable law. The Company may redeem the Series A Preferred Stock at its option, (i) in whole or in part, from time to time, on any dividend payment date on or after September 15, 2030 or (ii) in whole but not in part, at any time within 90 days following a regulatory capital treatment event, in either case at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share), plus any declared and unpaid dividends.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of the financial condition and results of operations of Live Oak Bancshares, Inc. (individually, “Bancshares” and collectively with its subsidiaries including Live Oak Banking Company, the “Company”). This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”). Results of operations for the periods included in this quarterly report on Form 10-Q are not necessarily indicative of results to be obtained during any future period.

Important Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains statements that management believes are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements generally relate to the financial condition, results of operations, plans, objectives, future performance or business of Live Oak Bancshares, Inc. (the “Company”). They usually can be identified by the use of forward-looking terminology, such as “believes,” “expects,” or “are expected to,” “plans,” “projects,” “goals,” “estimates,” “will,” “may,” “should,” “could,” “would,” “continues,” “intends to,” “outlook” or “anticipates,” or variations of these and similar words, or by discussions of strategies that involve risks and uncertainties. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to, those described in this Report. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements management may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information actually known to the Company at the time. Management undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements contained in this Report are based on current expectations, estimates and projections about the Company’s business, management’s beliefs and assumptions made by management. These statements are not guarantees of the Company’s future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. These risks, uncertainties and assumptions include, without limitation:

•deterioration in the financial condition of borrowers resulting in significant increases in the Company’s provision for credit losses and other adverse impacts to results of operations and financial condition;

•changes in Small Business Administration (“SBA”) rules, regulations and loan products, including specifically the Section 7(a) program, changes in SBA standard operating procedures or changes to the status of Live Oak Banking Company (the “Bank”) as an SBA Preferred Lender;

•changes in rules, regulations or procedures for other government loan programs, including those of the United States Department of Agriculture (“USDA”);

•changes in interest rates that affect the level and composition of deposits, loan demand and the values of loan collateral, securities, and interest sensitive assets and liabilities;

•the failure of assumptions underlying the establishment of reserves for possible credit losses;

•changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments;

•adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments;

•the impacts of any pandemic or public health situation on trade (including supply chains and export levels), travel, employee productivity and other economic activities that may have a destabilizing and negative effect on financial markets, economic activity and customer behavior;

Table of Contents

•a reduction in or the termination of the Company’s ability to use the technology-based platform that is critical to the success of the Company’s business model or to develop a next-generation banking platform, including a failure in or a breach of the Company’s operational or security systems or those of its third party service providers;

•risks relating to the material weakness we identified in our internal control over financial reporting;

•technological risks and developments, including cyber threats, attacks, or events;

•changes in financial market conditions, either internationally, nationally or locally in areas in which the Company conducts operations, including reductions in rates of business formation and growth, demand for the Company’s products and services, commercial and residential real estate development and prices, premiums paid in the secondary market for the sale of loans, and valuation of servicing rights;

•changes in accounting principles, policies, and guidelines applicable to bank holding companies and banking;

•fluctuations in markets for equity, fixed-income, commercial paper and other securities, which could affect availability, market liquidity levels, and pricing;

•the effects of competition from other commercial banks, non-bank lenders, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and mutual funds, and other financial institutions operating in the Company’s market area and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone and the Internet;

•the Company's ability to attract and retain key personnel;

•changes in governmental monetary and fiscal policies as well as other legislative and regulatory changes, including with respect to SBA or USDA lending programs and investment tax credits;

•changes in tariffs and trade barriers, including potential changes in U.S. and international trade policies and the resulting impact on the Company and its customers;

•a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget;

•changes in political and economic conditions, including any prolonged U.S. government shutdown;

•the impact of heightened regulatory scrutiny of financial products and services, primarily led by the Consumer Financial Protection Bureau and various state agencies;

•the Company's ability to comply with any requirements imposed on it by regulators, and the potential negative consequences that may result;

•operational, compliance and other factors, including conditions in local areas in which the Company conducts business such as inclement weather or a reduction in the availability of services or products for which loan proceeds will be used, that could prevent or delay closing and funding loans before they can be sold in the secondary market;

•the effect of any mergers, acquisitions or other transactions, to which the Company or the Bank may from time to time be a party, including management’s ability to successfully integrate any businesses acquired;

•adverse results, including related fees and expenses, from pending or future lawsuits, government investigations or private actions;

Table of Contents

•other risk factors listed from time to time in reports that the Company files with the SEC, including those described under “Risk Factors” in this Report; and

•the Company’s success at managing the risks involved in the foregoing.

Except as otherwise disclosed, forward-looking statements do not reflect: (i) the effect of any acquisitions, divestitures or similar transactions that have not been previously disclosed; (ii) any changes in laws, regulations or regulatory interpretations; or (iii) any change in current dividend or repurchase strategies, in each case after the date as of which such statements are made. All forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any statement, to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

Amounts in all tables in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) have been presented in thousands, except percentage, time period, stock option, share and per share data or where otherwise indicated.

Nature of Operations

Bancshares is a financial holding company and 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 incorporated in February 2008 as a North Carolina-chartered commercial bank. 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 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 June 30, 2025, the Company’s wholly owned material subsidiaries were the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”) and Live Oak Ventures, Inc. (“Live Oak Ventures”). GLS is a management and technology consulting firm that advises and offers solutions and services to participants in the government guaranteed lending sector. GLS primarily provides services in connection with the settlement, accounting, and securitization processes for government guaranteed loans, including loans originated under the SBA 7(a) loan programs and USDA guaranteed loans. The Grove provides Company employees and business visitors with on-site dining 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. As of December 31, 2024, Live Oak Ventures consolidated its investment in Synply, Inc. (“Synply”) 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 and discloses the non-controlling interest according to the Company’s consolidation policy.

Table of Contents

The Company generates revenue primarily from net interest income and secondarily through 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 assets 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.

Results of Operations

Performance Summary

Three months ended June 30, 2025 compared with three months ended June 30, 2024

For the three months ended June 30, 2025, the Company reported net income attributable to Live Oak Bancshares, Inc. of $23.4 million, or $0.51 per diluted share, compared to net income attributable to Live Oak Bancshares, Inc. of $27.0 million, or $0.59 per diluted share, for the second quarter of 2024.

The decrease in net income was principally due to the following items:

•Provision for credit losses increased by $11.5 million, or 97.6%, to $23.3 million, compared to $11.8 million for the second quarter of 2024;

•Management fee income decreased by $3.3 million, or 100.0%, due to the restructuring of the Canapi Funds in the third quarter of 2024;

•Other noninterest income decreased by $6.1 million, or 55.6%, largely related to a $6.7 million gain arising from the sale of one of the Company’s aircraft in the second quarter of 2024; and

•Other noninterest expense increased by $3.5 million, or 133.8%, principally driven by a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease.

Key factors largely offsetting the decrease in net income are increased levels of net interest income of $17.9 million, combined with increased net gains on sales of loans of $7.2 million.

Six months ended June 30, 2025 compared with six months ended June 30, 2024

For the six months ended June 30, 2025, the Company reported net income attributable to Live Oak Bancshares, Inc. of $33.1 million, or $0.72 per diluted share, compared to net income attributable to Live Oak Bancshares, Inc. of $54.5 million, or $1.20 per diluted share, for the six months ended June 30, 2024.

The decrease in net income was largely due to the following items:

•Provision for credit losses increased by $24.1 million, or 85.6%, to $52.2 million, compared to $28.1 million for the first half of 2024;

•Management fee income decreased by $6.5 million, or 100.0%, due to reasons discussed above;

•Other noninterest income decreased by $11.8 million, or 57.0%, largely related to activity in the first half of 2024 arising from the above noted $6.7 million gain arising from the sale of one of the Company’s aircraft combined with a first quarter of 2024 gain arising from increased fair value of equity warrant assets;

•Noninterest expense increased by $17.9 million, or 11.5%. This increase was principally comprised by increased levels of salary and employee benefits of $3.6 million, technology expense of $3.6 million and other expense of $3.0 million. The increase in other expense was principally comprised of a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease;

Table of Contents

•Net income tax expense increased by $7.7 million, from $3.6 million in the first half of 2024, to $11.3 million for the first half of 2025. This increase was largely the result of an additional $10.6 million in investment tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024.

Key factors largely offsetting the decrease in net income are increased levels of net interest income of $28.3 million, combined with increased net gains on sales of loans of $14.4 million.

Net Interest Income and Margin

Net interest income represents the difference between the income that the Company earns on interest-earning assets and the cost of interest-bearing liabilities. The Company’s net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates that the Company earns or pays on them, respectively. Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “rate changes.” As a bank without a branch network, the Bank gathers deposits over the Internet and in the community in which it is headquartered. Due to the nature of a branchless bank and the relatively low overhead required for deposit gathering, the rates that the Bank offers are generally above the industry average.

Three months ended June 30, 2025 compared with three months ended June 30, 2024

For the three months ended June 30, 2025, net interest income increased $17.9 million, or 19.6%, to $109.2 million compared to $91.3 million for the three months ended June 30, 2024. This increase was principally due to the growth in the held for investment loan and lease portfolio outpacing growth in interest-bearing liabilities, offset by the decrease in average yield on interest-earning assets outpacing the decrease in average cost of funds. Average interest-earning assets increased by $2.16 billion, or 19.3%, to $13.36 billion for the second quarter of 2025, compared to $11.20 billion for the second quarter of 2024, while the yield on average interest-earning assets decreased 39 basis points to 6.73%. The cost of funds on interest-bearing liabilities for the second quarter of 2025 decreased 37 basis points to 3.78% and the average balance of interest-bearing liabilities increased by $1.83 billion, or 17.6%, over the second quarter of 2024.

As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $25.8 million outpacing growth in interest expense of $7.9 million for the second quarter of 2025 compared to the second quarter of 2024. The net interest margin remained stable at 3.28% for both the second quarters of 2024 and 2025.

Six months ended June 30, 2025 compared with six months ended June 30, 2024

For the six months ended June 30, 2025, net interest income increased $28.3 million, or 15.6%, to $209.8 million compared to $181.4 million for the six months ended June 30, 2024. This increase was principally due to the growth in the held for investment loan and lease portfolio outpacing growth in interest-bearing liabilities, offset by the decrease in average yield on interest-earning assets outpacing the decrease in average cost of funds. Average interest-earning assets increased by $2.01 billion, or 18.2%, to $13.06 billion for the six months ended June 30, 2025, compared to $11.05 billion for the six months ended June 30, 2024, while the yield on average interest-earning assets decreased 36 basis points to 6.75%. The cost of funds on interest-bearing liabilities for the six months ended June 30, 2025 decreased 27 basis points to 3.84%, and the average balance of interest-bearing liabilities increased by $1.72 billion, or 16.7%, over the six months ended June 30, 2024.

The increase in average interest-bearing liabilities was largely driven by funding for significant loan originations and growth as well as maintenance of the Company's target liquidity profile. As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $46.5 million outpacing growth in interest expense of $18.2 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The net interest margin decreased from 3.30% for the six months ended June 30, 2024 to 3.24% for the six months ended June 30, 2025.

Table of Contents

In June and July 2025, the Federal Reserve decided to maintain the federal funds upper target rate at 4.5%. In June 2025, the Federal Reserve released its most current federal funds target rate midpoint projections which implied a decrease of the median Federal Funds rate to 3.9% by the end of 2025. There can be no assurance that any further decreases or increases in the Federal Funds rate will occur, and if they do, the amount and timing of actual adjustments are subject to change. See Item 3. Quantitative and Qualitative Disclosures About Market Risk for information about the Company’s sensitivity to interest rates.

Average Balances and Yields. The following table presents information regarding average balances for assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amount of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the income or expense by the average balances for assets or liabilities, respectively, for the periods presented and annualizing that result. Loan fees are included in interest income on loans.


	Three Months Ended June 30,
	2025						2024
	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Interest-earning balances in other banks	$	727,715	$	8,123	4.48	%	$	555,570	$	7,389	5.35	%

Investment securities	1,408,942		11,648		3.32		1,263,675		9,219		2.93
Loans held for sale	381,531		8,008		8.42		387,824		9,329		9.67
Loans and leases held for investment (1)	10,843,303		196,505		7.27		8,997,164		172,511		7.71
Total interest-earning assets	13,361,491		224,284		6.73		11,204,233		198,448		7.12
Less: Allowance for credit losses on loans and leases	(186,022)						(136,668)
Noninterest-earning assets	539,485						562,488
Total assets	$	13,714,954					$	11,630,053
Interest-bearing liabilities:
Interest-bearing checking	$	350,978	$	3,969	4.54	%	$	304,505	$	4,267	5.64	%
Savings	6,241,053		56,529		3.63		4,804,037		48,617		4.07
Money market accounts	128,757		93		0.29		128,625		186		0.58
Certificates of deposit	5,392,494		52,789		3.93		5,032,856		52,288		4.18
Total deposits	12,113,282		113,380		3.75		10,270,023		105,358		4.13
Borrowings	109,463		1,683		6.17		119,321		1,770		5.97
Total interest-bearing liabilities	12,222,745		115,063		3.78		10,389,344		107,128		4.15
Noninterest-bearing deposits	375,503						223,026
Noninterest-bearing liabilities	53,717						70,667
Shareholders' equity	1,058,572						947,016
Non-controlling interest	4,417						—
Total liabilities and shareholders' equity	$	13,714,954					$	11,630,053
Net interest income and interest rate spread			$	109,221	2.95	%			$	91,320	2.97	%
Net interest margin					3.28	%					3.28	%
Ratio of average interest-earning assets to average interest-bearing liabilities					109.32	%					107.84	%


(1)			Average loan and lease balances include non-accruing loans and leases.

Table of Contents


	Six Months Ended June 30,
	2025						2024
	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Interest-earning balances in other banks	$	654,896	$	14,523	4.47	%	$	550,608	$	14,845	5.42	%

Investment securities	1,394,450		22,737		3.29		1,252,268		18,173		2.92
Loans held for sale	394,846		16,620		8.49		370,662		17,683		9.59
Loans and leases held for investment (1)	10,617,166		383,509		7.28		8,875,186		340,167		7.71
Total interest-earning assets	13,061,358		437,389		6.75		11,048,724		390,868		7.11
Less: Allowance for credit losses on loans and leases	(175,728)						(131,057)
Noninterest-earning assets	536,823						554,961
Total assets	$	13,422,453					$	11,472,628
Interest-bearing liabilities:
Interest-bearing checking	$	350,736	$	7,898	4.54	%	$	302,285	$	8,450	5.62	%
Savings	5,892,536		108,133		3.70		4,678,214		94,788		4.07
Money market accounts	128,335		213		0.33		126,971		373		0.59
Certificates of deposit	5,477,278		108,024		3.98		5,063,704		103,745		4.12
Total deposits	11,848,885		224,268		3.82		10,171,174		207,356		4.10
Borrowings	110,684		3,368		6.14		73,047		2,081		5.73
Total interest-bearing liabilities	11,959,569		227,636		3.84		10,244,221		209,437		4.11
Noninterest-bearing deposits	359,084						218,298
Noninterest-bearing liabilities	56,214						74,305
Shareholders' equity	1,043,145						935,804
Non-controlling interest	4,441						—
Total liabilities and shareholders' equity	$	13,422,453					$	11,472,628
Net interest income and interest rate spread			$	209,753	2.91	%			$	181,431	3.00	%
Net interest margin					3.24	%					3.30	%
Ratio of average interest-earning assets to average interest-bearing liabilities					109.21	%					107.85	%


(1)			Average loan and lease balances include non-accruing loans and leases.

Table of Contents

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, increases or decreases attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.


	Three Months Ended June 30,						Six Months Ended June 30,
	2025 vs. 2024						2025 vs. 2024
	Increase (Decrease) Due to						Increase (Decrease) Due to
	Rate		Volume		Total		Rate		Volume		Total
Interest income:
Interest-earning balances in other banks	$	(1,372)	$	2,106	$	734	$	(2,884)	$	2,562	$	(322)

Investment securities	1,299		1,130		2,429		2,373		2,191		4,564
Loans held for sale	(1,179)		(142)		(1,321)		(2,149)		1,086		(1,063)
Loans and leases held for investment	(10,433)		34,427		23,994		(21,502)		64,844		43,342
Total interest income	(11,685)		37,521		25,836		(24,162)		70,683		46,521
Interest expense:
Interest-bearing checking	(886)		588		(298)		(1,775)		1,223		(552)
Savings	(5,867)		13,779		7,912		(10,099)		23,444		13,345
Money market accounts	(93)		—		(93)		(163)		3		(160)
Certificates of deposit	(3,127)		3,628		501		(4,036)		8,315		4,279
Borrowings	62		(149)		(87)		178		1,109		1,287
Total interest expense	(9,911)		17,846		7,935		(15,895)		34,094		18,199
Net interest income	$	(1,774)	$	19,675	$	17,901	$	(8,267)	$	36,589	$	28,322

Provision for Credit Losses

The provision for credit losses represents the amount necessary to be charged against the current period’s earnings to maintain the allowance for credit losses (“ACL”) on loans and leases at a level that the Company believes is appropriate in relation to the estimated losses inherent in the loan and lease portfolio. Beginning in the second quarter of 2024, expense related to off-balance sheet credit exposures was also included in the provision for credit losses in response to growth in the amount of loans with applicable off-balance sheet credit risk. See Note 10. Commitments and Contingencies under the subheading Financial Instruments with Off-Balance-Sheet Risk for additional information.

Losses inherent in loan relationships are mitigated if a portion of the loan is guaranteed by the SBA or USDA. Typical SBA 7(a) and USDA guarantees range from 50% to 90% depending on loan size and type, which serve to reduce the risk profile of these loans. The Company believes that its focus on compliance with regulations and guidance from the SBA and USDA are key factors to managing this risk.

For the second quarter of 2025, there was a provision for credit losses of $23.3 million compared to $11.8 million for the same period in 2024, an increase of $11.5 million. For the six months ended June 30, 2025, there was a provision for credit losses of $52.2 million compared to $28.1 million for the same period in 2024, an increase of $24.1 million. The increase in provision was principally driven by loan growth and elevated specific reserves on individually evaluated loans amid a challenging macroeconomic environment, where elevated interest rates and inflationary pressures placed financial strain on some small business and commercial borrowers.

Loans and leases held for investment at historical cost were $10.71 billion as of June 30, 2025, increasing by $1.90 billion, or 21.6%, compared to June 30, 2024.

Table of Contents

Net charge-offs for loans and leases carried at historical cost were $31.4 million, or 1.19% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended June 30, 2025, compared to net charge-offs of $8.3 million, or 0.38%, for the three months ended June 30, 2024, an increase of $23.2 million, or 281.0%. The increase in net charge-offs compared to the second quarter of 2024 was largely concentrated to individually evaluated loans with specific reserves recorded in prior periods. For the six months ended June 30, 2025, net charge-offs totaled $38.2 million compared to $11.4 million for the six months ended June 30, 2024, an increase of $26.8 million, or 234.8%. Net charge-offs are a key element of historical experience in the Company's estimation of the allowance for credit losses on loans and leases.

In addition, nonperforming loans and leases not guaranteed by the SBA or USDA, excluding $8.9 million and $9.6 million accounted for under the fair value option at June 30, 2025 and 2024, respectively, totaled $59.6 million, which was 0.56% of the held for investment loan and lease portfolio carried at historical cost at June 30, 2025, compared to $37.3 million, or 0.42% of loans and leases held for investment carried at historical cost at June 30, 2024.

Noninterest Income

Noninterest income is principally comprised of net gains from the sale of SBA and USDA-guaranteed loans along with loan servicing revenue and related revaluation of the servicing asset. Revenue from the sale of loans depends upon the volume, maturity structure and rates of underlying loans as well as the pricing and availability of funds in the secondary markets prevailing in the period between completed loan funding and closing of sale. In addition, the loan servicing revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates. Net gain (loss) on loans accounted for under the fair value option is also significantly impacted by changes in market rates, prepayment speeds and inherent credit risk. Other less consistent elements of noninterest income include gains and losses on investments.

The following table shows the components of noninterest income and the dollar and percentage changes for the periods presented.


	Three Months Ended June 30,				2025/2024 Increase (Decrease)
	2025		2024		Amount		Percent
Noninterest income
Loan servicing revenue	$	8,565	$	7,347	$	1,218	16.6	%
Loan servicing asset revaluation	(3,057)		(2,878)		(179)		(6.2)
Net gains on sales of loans	21,641		14,395		7,246		50.3
Net gain on loans accounted for under the fair value option	1,082		172		910		529.1
Equity method investments (loss) income	(2,716)		(1,767)		(949)		(53.7)
Equity security investments gains, net	1,004		161		843		523.6
Lease income	3,103		2,423		680		28.1
Management fee income	—		3,271		(3,271)		(100.0)
Other noninterest income	4,904		11,035		(6,131)		(55.6)
Total noninterest income	$	34,526	$	34,159	$	367	1.1	%

Table of Contents


	Six Months Ended June 30,				2025/2024 Increase (Decrease)
	2025		2024		Amount		Percent
Noninterest income
Loan servicing revenue	$	16,863	$	14,971	$	1,892	12.6	%
Loan servicing asset revaluation	(7,785)		(5,622)		(2,163)		(38.5)
Net gains on sales of loans	40,289		25,897		14,392		55.6
Net gain (loss) on loans accounted for under the fair value option	48		(47)		95		202.1
Equity method investments (loss) income	(4,955)		(6,789)		1,834		27.0
Equity security investments gains, net	1,024		(368)		1,392		378.3
Lease income	5,676		4,876		800		16.4
Management fee income	—		6,542		(6,542)		(100.0)
Other noninterest income	8,947		20,796		(11,849)		(57.0)
Total noninterest income	$	60,107	$	60,256	$	(149)	(0.2)	%

For the three months ended June 30, 2025, noninterest income increased by $367 thousand, or 1.1%, compared to the three months ended June 30, 2024. Principal changes when compared with the second quarter of 2024 are higher net gains on sales of loans of $7.2 million combined with a $3.3 million decrease in management fee income due to the restructuring of the Canapi Funds in the third quarter of 2024 and a $6.1 million decrease in other noninterest income largely related to a $6.7 million gain arising from the sale of one of the Company’s aircraft in the second quarter of 2024.

For the six months ended June 30, 2025, noninterest income decreased by $149 thousand, or 0.2%, compared to the six months ended June 30, 2024. Principal changes when compared with the first half of 2024 are primarily a result of a $2.2 million increase in loss related to the servicing asset revaluation combined with a $6.5 million decrease in management fee income discussed above and a $11.8 million decrease in other noninterest income largely related to activity in the first half of 2024 arising from a $6.7 million gain arising from the sale of one of the Company’s aircraft combined with a gain arising from increased fair value of equity warrant assets. Partially offsetting these negative changes was higher net gains on sales of loans of $14.4 million.

The following tables reflects loan and lease production, sales of guaranteed loans and the aggregate balance in guaranteed loans sold. These components are key drivers of the Company's noninterest income.


	Three months ended June 30,			Three months ended March 31,
		2025		2024		2025		2024
Amount of loans and leases originated		$	1,526,592	$	1,171,141	$	1,396,223	$	805,129
Guaranteed portions of loans sold		322,317		250,466		266,275		186,654
Outstanding balance of guaranteed loans sold (1)		3,685,981		3,177,629		3,486,533		3,057,641


	Six Months Ended June 30,				For years ended December 31,
	2025		2024		2024		2023		2022		2021
Amount of loans and leases originated	$	2,922,815	$	1,976,270	$	5,155,244	$	3,946,873	$	4,007,621	$	4,480,725
Guaranteed portions of loans sold	588,592		437,120		980,973		877,551		580,889		668,462
Outstanding balance of guaranteed loans sold (1)	3,685,981		3,177,629		3,379,477		2,986,959		2,668,110		2,756,915


(1)			This represents the outstanding principal balance of guaranteed loans serviced, as of the last day of the applicable period, which have been sold into the secondary market.

Table of Contents

Changes in various components of noninterest income are discussed in more detail below.

Loan Servicing Asset Revaluation: The Company revalues its serviced loan portfolio at least quarterly. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, ancillary income, prepayment speeds and default rates and losses, with prepayment speed and discount rate being the most sensitive assumptions. For the three months ended June 30, 2025, there was a net loss on loan servicing asset revaluation of $3.1 million, compared to a net loss of $2.9 million for the three months ended June 30, 2024. For the six months ended June 30, 2025, there was a net loss on loan servicing asset revaluation of $7.8 million compared to a net loss of $5.6 million for the six months ended June 30, 2024, resulting in a negative comparative year-to-date change of $2.2 million. The decrease in the valuation of the servicing asset compared to the first half of 2024 was principally the result of principal paydowns or runoff as well as less favorable market conditions in 2025.

Net Gains on Sales of Loans: For the three months ended June 30, 2025, net gains on sales of loans increased $7.2 million, or 50.3%, compared to the three months ended June 30, 2024. The volume of guaranteed loans sold increased $71.9 million, or 28.7%, for the three months ended June 30, 2025 to $322.3 million from $250.5 million for the three months ended June 30, 2024. For the six months ended June 30, 2025, net gains on sales of loans increased $14.4 million, or 55.6%, compared to the six months ended June 30, 2024. For the six months ended June 30, 2025, the volume of guaranteed loans sold increased $151.5 million, or 34.7%, to $588.6 million from $437.1 million for the six months ended June 30, 2024. The average net gain on loan sale premium increased from 106% to 107% in the second quarters of 2024 and 2025, respectively, and for the six months ended June 30, 2024 and 2025. The increase in net gains on sales of loans over the second quarter of 2024 and six months ended June 30, 2024 was principally related to a higher loan sale volume combined with improving premiums.

Noninterest Expense

Noninterest expense comprises all operating costs of the Company, such as employee related costs, travel, professional services, advertising and marketing expenses, exclusive of interest and income tax expense.

The following table shows the components of noninterest expense and the related dollar and percentage changes for the periods presented.


	Three Months Ended June 30,				2025/2024 Increase (Decrease)
	2025		2024		Amount		Percent
Noninterest expense
Salaries and employee benefits	$	49,137	$	46,255	$	2,882	6.2	%
Non-employee expenses:
Travel expense	2,576		2,328		248		10.7
Professional services expense	2,874		3,061		(187)		(6.1)
Advertising and marketing expense	4,420		3,004		1,416		47.1
Occupancy expense	2,369		2,388		(19)		(0.8)
Technology expense	10,066		7,996		2,070		25.9
Equipment expense	3,685		3,511		174		5.0
Other loan origination and maintenance expense	4,190		3,659		531		14.5
Renewable energy tax credit investment impairment	270		170		100		58.8
FDIC insurance	3,545		2,649		896		33.8

Other expense	6,161		2,635		3,526		133.8
Total non-employee expenses	40,156		31,401		8,755		27.9
Total noninterest expense	$	89,293	$	77,656	$	11,637	15.0	%

Table of Contents


	Six Months Ended June 30,				2025/2024 Increase (Decrease)
	2025		2024		Amount		Percent
Noninterest expense
Salaries and employee benefits	$	97,145	$	93,530	$	3,615	3.9	%
Non-employee expenses:
Travel expense	5,371		4,766		605		12.7
Professional services expense	5,898		4,939		959		19.4
Advertising and marketing expense	8,085		6,696		1,389		20.7
Occupancy expense	5,106		4,635		471		10.2
Technology expense	19,317		15,719		3,598		22.9
Equipment expense	7,430		6,585		845		12.8
Other loan origination and maintenance expense	8,775		7,570		1,205		15.9
Renewable energy tax credit investment (recovery) impairment	270		(757)		1,027		135.7
FDIC insurance	7,096		5,849		1,247		21.3

Other expense	8,817		5,861		2,956		50.4
Total non-employee expenses	76,165		61,863		14,302		23.1
Total noninterest expense	$	173,310	$	155,393	$	17,917	11.5	%

Total noninterest expense for the three and six months ended June 30, 2025, increased $11.6 million, or 15.0%, and increased $17.9 million, or 11.5%, respectively, compared to the same periods in 2024. The changes within noninterest expense for the comparable three and six month periods was largely driven by various components, as discussed below.

Salaries and employee benefits: Total personnel expense for the three and six months ended June 30, 2025 increased by $2.9 million, or 6.2%, and increased by $3.6 million, or 3.9%, respectively, compared to the same periods in 2024. The increase over both comparative periods of 2024 is principally related to investment in human resources to support strategic and growth initiatives. Total full-time equivalent employees increased from 987 at June 30, 2024, to 1,056 at June 30, 2025. Salaries and employee benefits expense included $6.9 million and $13.7 million of stock-based compensation for the three and six months ended June 30, 2025, respectively, compared to $6.8 million and $13.2 million for the three and six months ended June 30, 2024, respectively. Expenses related to the employee stock purchase program, stock grants, stock option compensation and restricted stock expense are all considered stock-based compensation.

Technology expense: For the three and six months ended June 30, 2025, technology expense increased $2.1 million, or 25.9%, and $3.6 million, or 22.9%, respectively, compared to the same periods in 2024. This increase for both compared periods was primarily related to enhanced investments in the Company’s technology resources.

Other expense: For the three and six months ended June 30, 2025, other expense increased $3.5 million, or 133.8%, and $3.0 million, or 50.4%, respectively, compared to the same periods in 2024. The increase over both comparative periods was principally driven by a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease in the second quarter of 2025.

Income Tax Expense

For the three months ended June 30, 2025, income tax expense was $7.8 million compared to income tax expense of $9.1 million in the second quarter of 2024, and the Company’s effective tax rates were 25.0% and 25.2%, respectively. For the six months ended June 30, 2025, income tax expense was $11.3 million compared to $3.6 million for the six months ended June 30, 2024, and the Company’s effective tax rates were 25.4% and 6.2%, respectively. The lower level of income tax expense for the second quarter of 2025 as compared to the second quarter of 2024 was largely the result of decreased pretax income during the current period. The higher level of income tax expense for the first half of 2025 as compared to the first half of 2024 was largely the result of an additional $10.6 million in tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024. Partially offsetting the comparative increase in income tax expense in the first half of 2025 was decreased pretax income during the current period.

Table of Contents

Discussion and Analysis of Financial Condition

June 30, 2025 vs. December 31, 2024

Total assets at June 30, 2025 were $13.83 billion, an increase of $887.8 million, or 6.9%, compared to total assets of $12.94 billion at December 31, 2024. The growth in total assets was principally driven by the following:

•Cash and cash equivalents, comprised of cash and due from banks, combined with investment securities available-for-sale was $1.99 billion at June 30, 2025, an increase of $131.0 million, or 7.1%, compared to $1.86 billion at December 31, 2024. This increase reflects growing deposit levels combined with maintenance of the Company's targeted liquidity profile.

•Growth in total loans and leases held for investment and held for sale of $785.5 million, or 7.4%, during the first half of 2025, from $10.58 billion at December 31, 2024, to $11.36 billion at June 30, 2025. This growth was a result of strong origination activity during the first half of 2025 of $2.92 billion.

Total deposits were $12.59 billion at June 30, 2025, an increase of $834.3 million, or 7.1%, from $11.76 billion at December 31, 2024. The increase in total deposits from the prior period was to support growth in the loan and lease portfolio as well as the Company's targeted liquidity levels. At June 30, 2025, the Bank’s total uninsured deposits were approximately $1.95 billion, or 15.4%, of total deposits.

Commercial Real Estate

Commercial real estate loans as indicated by the FDIC include loans secured by the following: construction, land development, multifamily property and nonfarm, nonresidential real property. The following table provides information with respect to commercial real estate loans as of June 30, 2025.


	Guaranteed			Unguaranteed			Total (1)
Held for Investment Loans:
Owner Occupied
Small Business Banking	$	1,317,130		$	1,174,127		$	2,491,257

Commercial Banking	19,960			45,906			65,866
Total	1,337,090			1,220,033			2,557,123
Non-Owner Occupied
Small Business Banking	440,686			688,252			1,128,938

Commercial Banking	32,829			1,308,770			1,341,599
Total	473,515			1,997,022			2,470,537
Total Held for Investment Commercial Real Estate	$	1,810,605		$	3,217,055		$	5,027,660
Held for Sale Loans:
Owner Occupied
Small Business Banking	$	58,869		$	—		$	58,869


Total	58,869			—			58,869
Non-Owner Occupied
Small Business Banking	175,110			—			175,110


Total	175,110			—			175,110
Total Held for Sale Commercial Real Estate	$	233,979		$	—		$	233,979
Total Commercial Real Estate Loans	$	2,044,584		$	3,217,055		$	5,261,639
% of Total Commercial Real Estate Loans	38.9		%	61.1		%	100.0		%

(1)Excludes retained loan discount and net deferred costs.

Table of Contents

Asset Quality

Management considers asset quality to be of primary importance. A formal loan review function, independent of loan origination, is used to identify and monitor problem loans. This function reports directly to the Risk Committee of the Board of Directors.

Nonperforming Assets

The Bank places loans and leases on nonaccrual status when they become 90 days past due as to principal or interest payments, or prior to that if management has determined based upon current information available to them that the timely collection of principal or interest is not probable. When a loan or lease is placed on nonaccrual status, any interest previously accrued as income but not actually collected is reversed and recorded as a reduction of loan or lease interest and fee income. Typically, collections of interest and principal received on a nonaccrual loan or lease are applied to the outstanding principal as determined at the time of collection of the loan or lease.

Nonperforming assets, including loans measured at fair value, at June 30, 2025 were $473.5 million, which represented a $101.7 million, or 27.4%, increase from December 31, 2024. These nonperforming assets at June 30, 2025 were comprised of $467.1 million in nonaccrual loans and leases and $6.3 million in foreclosed assets. Of the $473.5 million of nonperforming assets, $402.8 million carried a government guarantee, leaving an unguaranteed exposure of $70.6 million in total nonperforming assets at June 30, 2025. This represents a decrease of $20.9 million, or 22.9%, from an unguaranteed exposure of $91.6 million at December 31, 2024.

Table of Contents

The following table provides information with respect to nonperforming assets, excluding loans measured at fair value, at the dates indicated.


	June 30, 2025 (1)			December 31, 2024 (1)
Nonaccrual loans and leases:
Total nonperforming loans and leases (all on nonaccrual)	$	396,332		$	304,297

Foreclosed assets	6,318			1,944
Total nonperforming assets	$	402,650		$	306,241
Allowance for credit losses on loans and leases	$	182,231		$	167,516
Total nonperforming loans and leases to total loans and leases held for investment	3.70		%	3.07		%
Total nonperforming loans and leases to total assets	2.93		%	2.41		%
Allowance for credit losses on loans and leases to loans and leases held for investment	1.70		%	1.69		%
Allowance for credit losses on loans and leases to total nonperforming loans and leases	45.98		%	55.05		%

Nonaccrual loans and leases guaranteed by U.S. government:
Total nonperforming loans and leases guaranteed by the U.S government (all on nonaccrual)	$	336,777		$	222,885

Foreclosed assets guaranteed by the U.S. government	5,147			1,753
Total nonperforming assets guaranteed by the U.S. government	$	341,924		$	224,638
Allowance for credit losses on loans and leases	$	182,231		$	167,516
Total nonperforming loans and leases not guaranteed by the U.S. government to total held for investment loans and leases	0.56		%	0.82		%
Total nonperforming loans and leases not guaranteed by the U.S. government to total assets	0.44		%	0.65		%
Allowance for credit losses on loans and leases to total nonperforming loans and leases not guaranteed by the U.S. government	305.99		%	205.76		%


(1)			Excludes loans measured at fair value.

Nonperforming assets, excluding loans measured at fair value, at June 30, 2025 were $402.7 million, which represented a $96.4 million, or 31.5%, increase from December 31, 2024. These nonperforming assets at June 30, 2025 were comprised of $396.3 million in nonaccrual loans and leases and $6.3 million in foreclosed assets. Of the $402.7 million of nonperforming assets, $341.9 million carried a government guarantee, leaving an unguaranteed exposure of $60.7 million in total nonperforming assets at June 30, 2025. This represents a decrease of $20.9 million, or 25.6%, from an unguaranteed exposure of $81.6 million at December 31, 2024.

See the below discussion related to the change in potential problem and individually evaluated loans and leases for management’s overall observations regarding growth in total nonperforming loans and leases.

As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented 33.2% at June 30, 2025, compared to 26.7% at December 31, 2024. Adjusting the ratio to include only the unguaranteed portion of nonperforming loans and leases at historical cost to reflect management’s belief that the greater magnitude of risk resides in this portion, the ratios at both June 30, 2025 and December 31, 2024 were 5.0% and 7.2%, respectively.

As of June 30, 2025, and December 31, 2024, potential problem (also referred to as criticized) and classified loans and leases, excluding loans measured at fair value, totaled $1.14 billion and $1.04 billion, respectively. The following is a discussion of these loans and leases. Risk Grades 50 through 80 represent the spectrum of criticized and classified loans and leases. For a complete description of the risk grading system, see “Credit Quality Indicators” in Note 3 in the notes to consolidated financial statements in the Company’s 2024 Form 10-K. At June 30, 2025, the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled $578.8 million and total portfolio unguaranteed exposure risk was $561.0 million, or 7.5% of total held for investment unguaranteed exposure carried at historical cost. This compares to the December 31, 2024 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled $518.7 million and total portfolio unguaranteed exposure risk was $523.3 million, or 7.8% of total held for investment unguaranteed exposure carried at historical cost.

Table of Contents

As of June 30, 2025 and December 31, 2024, loans and leases carried at historical cost within the following verticals comprise the largest portion of the total potential problem and classified loans and leases:


As of June 30, 2025		As of December 31, 2024
Vertical	% of Criticized and Classified Loans and Leases	Vertical	% of Criticized and Classified Loans and Leases
General Lending	12.9%	General Lending	15.1%
Senior Housing	9.2	Bioenergy	11.1
Bioenergy	8.7	Senior Housing	9.9
Healthcare	8.3	Healthcare	6.9
Sponsor Finance	5.8	Sponsor Finance	5.5
Auto Care	5.2	Wine & Craft Beverage	5.3
Self Storage	5.2	Search Fund Lending	5.0
Community Facilities	4.3	Community Facilities	4.8
Wine & Craft Beverage	4.3	Self Storage	4.6
% of Total Criticized and Classified Loans	63.9%	% of Total Criticized and Classified Loans	68.2%

Of the above listed verticals, Senior Housing, Sponsor Finance, Bioenergy and Community Facilities are within the Company’s Commercial Banking division, the remainder of the above listed verticals are within the Small Business Banking division. The total $97.8 million increase in potential problem and classified loans and leases in the first six months of 2025 was comprised of $59.9 million in increased levels of Risk Grade 50 loans and leases, as discussed below and $38.0 million in classified loans. The overall increase in criticized and classified loans in the first half of 2025 was primarily driven by higher levels of commercial borrowers impacted by the challenging macroeconomic environment. The Company believes that its underwriting and credit quality standards have remained high and continues to consider changing economic conditions as well as the current interest rate environment.

Loans and leases that experience insignificant payment delays and payment shortfalls are generally not individually evaluated for the purpose of estimating the allowance for credit losses. The Bank generally considers an “insignificant period of time” from payment delays to be a period of 90 days or less. The Bank would consider a modification for a customer experiencing what is expected to be a short-term event that has temporarily impacted cash flow. This could be due, among other reasons, to illness, weather, impact from a one-time expense, slower than expected start-up, construction issues or other short-term issues. Credit personnel will review the request to determine if the customer is experiencing financial stress and how the event has impacted the ability of the customer to repay the loan or lease long term. At June 30, 2025, the Company had a total of $45.9 million in loans modified in 2025 to borrowers experiencing financial difficulty, excluding loans measured at fair value, $43.7 million of which remained current and $36.0 million of which are for an other-than-insignificant payment delay or term extension.

Management endeavors to be proactive in its approach to identify and resolve problem loans and leases and is focused on working with the borrowers and guarantors of these loans and leases to provide loan and lease modifications when warranted. Management implements a proactive approach to identifying and classifying loans and leases as special mention (also referred to as criticized), Risk Grade 50. At June 30, 2025, and December 31, 2024, Risk Grade 50 loans and leases, excluding loans measured at fair value, totaled $589.8 million and $529.9 million, respectively, for an increase of $59.9 million. Relative to total held for investment unguaranteed exposure carried at historical cost at December 31, 2024 and June 30, 2025, unguaranteed Risk Grade 50 loans and leases increased from $357.9 million, or 5.3%, to $413.3 million, or 5.5%, respectively.

Table of Contents

The largest year-to-date changes in Risk Grade 50 loans and leases carried at historical cost were within the following verticals:


June 30, 2025 vs. December 31, 2024 Increase (Decrease)
Vertical	$		%
Healthcare	$	26,396	37.1	%
Government Contractors	25,677		36.1
Sponsor Finance	15,117		21.3
Agriculture	12,373		17.4
Auto Care	9,199		12.9
Hospitality	8,780		12.3
RV Parks	5,286		7.4
Self Storage	(5,409)		(7.6)
Veterinary	(6,799)		(9.6)
Senior Housing	(7,430)		(10.4)
Commercial Real Estate Financing	(7,498)		(10.5)
General Lending	(11,606)		(16.3)
Search Fund Lending	(12,300)		(17.3)
Total of largest changes in Risk Grade 50 loans and leases	$	51,786	72.8%

The increase in Risk Grade 50 loans and leases, exclusive of loans measured at fair value, during the first six months of 2025 was principally confined to 13 verticals, as reflected above. Of the above listed verticals, Government Contractors, Sponsor Finance, Hospitality, Senior Housing, and Commercial Real Estate Financing are within the Company’s Commercial Banking division and the remainder of the above listed verticals are within the Small Business Banking division.

At June 30, 2025, approximately 97.8% of loans and leases classified as Risk Grade 50 are performing with no relationships having payments past due more than 30 days. While the level of nonperforming assets fluctuates in response to changing economic and market conditions, in light of the relative size and composition of the loan and lease portfolio and management’s degree of success in resolving problem assets, management believes that a proactive approach to early identification and intervention is critical to successfully managing a small business loan portfolio.

Allowance for Credit Losses on Loans and Leases

The ACL of $167.5 million at December 31, 2024, increased by $14.7 million, or 8.8%, to $182.2 million at June 30, 2025. The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.7% at both December 31, 2024 and June 30, 2025, respectively. The increase in the ACL during the first six months of 2025 was primarily the result of specific reserve changes on individually evaluated loans and continued growth of the loan and lease portfolio. See also the above section captioned “Provision for Credit Losses” in “Results of Operations” for related information.

Table of Contents

Actual past due held for investment loans and leases, inclusive of loans measured at fair value, have decreased by $12.0 million since December 31, 2024. Total loans and leases 90 or more days past due increased $46.3 million, or 18.1%, compared to December 31, 2024. This increase was comprised of a $1.8 million increase in unguaranteed exposure combined with a $44.5 million increase in the guaranteed portion of past due loans compared to December 31, 2024. At June 30, 2025 and December 31, 2024, total held for investment unguaranteed loans and leases past due as a percentage of total held for investment unguaranteed loans and leases, inclusive of loans measured at fair value, was 0.7% and 1.3%, respectively. Total unguaranteed loans and leases past due were comprised of $48.5 million carried at historical cost, a decrease of $28.9 million, and $8.5 million measured at fair value, a decrease of $1.8 million, as of June 30, 2025 compared to December 31, 2024. Management continues to actively monitor and work to improve asset quality. Management believes the ACL of $182.2 million at June 30, 2025 is appropriate in light of the risk inherent in the loan and lease portfolio. Management’s judgments are based on numerous assumptions about current and expected events that it believes to be reasonable, but which may or may not be valid. Accordingly, no assurance can be given that management’s ongoing evaluation of the loan and lease portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the ACL, thus adversely affecting the Company’s operating results. Additional information on the ACL is presented in Note 5. Loans and Leases Held for Investment and Credit Quality of the Unaudited Condensed Consolidated Financial Statements in this report.

Liquidity Management

Liquidity management refers to the ability to meet day-to-day cash flow requirements based primarily on activity in loan and deposit accounts of the Company’s customers. Liquidity is immediately available from four major sources: (a) cash on hand and on deposit at other banks; (b) the outstanding balance of federal funds sold; (c) the fair value of unpledged investment securities; and (d) availability under lines of credit, FHLB advances and the Federal Reserve Discount Window. A primary tool in the Company's liquidity management process is the utilization of an Outflow Coverage Ratio (“OCR”) model to stress outflows in various scenarios with targeted days of liquidity coverage. The OCR model output is then used by management to ensure adequate liquidity sources are available during those future periods. At June 30, 2025, the total amount of these four liquidity source items was $4.49 billion, or 32.5% of total assets, an increase of 0.1% of total assets from $4.20 billion, or 32.4% of total assets, at December 31, 2024.

Loans and other assets are funded primarily by customer deposits, brokered deposits and loan sales. The Company maintains an investment securities portfolio that is available for both immediate and secondary contingent liquidity purposes, whether via pledging to the Federal Home Loan Bank, Federal Reserve Bank, or through liquidation. Additionally, the Company maintains a guaranteed and unguaranteed loan portfolio that is also a contingent liquidity source, whether via pledging to the Federal Reserve Discount Window or through liquidation.

At June 30, 2025, $597.0 million of the investment securities portfolio were pledged for unused borrowing capacity, leaving $728.2 million available to be pledged as collateral.

Contractual Obligations

The Company has entered into significant fixed and determinable contractual obligations for future payments. Other than normal changes in the ordinary course of the Company’s operations, there have been no significant changes in the types of contractual obligations or amounts due since December 31, 2024. See the section titled “Liquidity Management” in Part II, Item 7 of the Company’s 2024 Form 10-K for additional discussion of contractual obligations.

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of commitments to extend credit and standby letters of credit. For more information, see Note 10. Commitments and Contingencies in the accompanying notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Asset/Liability Management and Interest Rate Sensitivity

One of the primary objectives of asset/liability management is to maximize the net interest margin while minimizing the earnings risk associated with changes in interest rates. One method used to manage interest rate sensitivity is to measure the repricing differences, or interest rate gaps, between interest-earning assets and interest-bearing liabilities, across various time periods. As of June 30, 2025, the balance sheet’s total cumulative gap position was 5.3%, meaning that over the entire life of the Company's assets and liabilities, more assets will reprice than liabilities. For further information, see Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The interest rate gap method, however, addresses only the magnitude of asset and liability repricing timing differences as of the report date and does not address earnings, market value, changes in account behaviors based on the interest rate environment, or growth. Therefore, management also uses an earnings simulation model to prepare, on a regular basis, earnings projections based on a range of instantaneous parallel interest rate shocks applied to a static balance sheet and non-parallel interest rate shocks applied to a dynamic balance sheet to measure interest rate risk. As of June 30, 2025, the Company’s interest rate risk profile under the instantaneous parallel interest rate shock scenarios applied to a static balance sheet is moderately asset-sensitive. For more information, see Item 3. Quantitative and Qualitative Disclosures About Market Risk.

An asset-sensitive position means that net interest income will generally move in the same direction as interest rates. For instance, if interest rates increase, net interest income can be expected to increase, and if interest rates decrease, net interest income can be expected to decrease. The Company attempts to mitigate interest rate risk by match funding assets and liabilities with similar rate instruments. Asset/liability sensitivity is primarily derived from the prime-based loans that adjust as the prime interest rate changes, rates on cash accounts that adjust as the federal funds rate changes and the longer duration of indeterminate term deposits. Note that the Company regularly models various forecasted rate projections with non-parallel shifts that are reflective of potential current rate environment outcomes. Under these scenarios, the Company’s interest rate risk profile may increase in asset sensitivity, decrease in asset sensitivity, or depending on the scenario and timing of anticipated rate changes, may transition to a liability-sensitive interest rate risk profile. The Company believes that regular modeling of various interest rate outcomes allows it to assess and manage potential risks from various rate shifts.

Capital

The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. The Company’s principal goals related to the maintenance of capital are the following: to provide adequate capital to support the Company’s risk profile consistent with the risk appetite approved by the Board of Directors; to provide financial flexibility to support future growth and client needs; to comply with relevant laws, regulations, and supervisory guidance; to achieve optimal ratings for the Company and its subsidiaries; and to provide a competitive return to shareholders. Management regularly monitors the capital position of the Company on both a consolidated and bank level basis. In this regard, management’s goal is to maintain capital at levels that are in excess of the regulatory “well capitalized” levels. Risk-based capital ratios, which include Tier 1 Capital, Total Capital and Common Equity Tier 1 Capital, are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.

Table of Contents

Capital amounts and ratios as of June 30, 2025, and December 31, 2024, are presented in the table below.


	Actual				Minimum Capital Requirement				Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions (1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Consolidated - June 30, 2025
Common Equity Tier 1 (to Risk-Weighted Assets)	$	1,088,967	10.67	%	$	459,367	4.50	%	N/A		N/A
Total Capital (to Risk-Weighted Assets)	1,217,403		11.93		816,653		8.00		N/A		N/A
Tier 1 Capital (to Risk-Weighted Assets)	1,088,967		10.67		612,490		6.00		N/A		N/A
Tier 1 Capital (to Average Assets)	1,088,967		7.90		551,427		4.00		N/A		N/A
Bank - June 30, 2025
Common Equity Tier 1 (to Risk-Weighted Assets)	$	1,066,764	10.65	%	$	450,806	4.50	%	$	651,164	6.50	%
Total Capital (to Risk-Weighted Assets)	1,192,851		11.91		801,433		8.00		1,001,791		10.00
Tier 1 Capital (to Risk-Weighted Assets)	1,066,764		10.65		601,074		6.00		801,433		8.00
Tier 1 Capital (to Average Assets)	1,066,764		7.79		547,878		4.00		684,847		5.00
Consolidated - December 31, 2024
Common Equity Tier 1 (to Risk-Weighted Assets)	$	1,049,420	11.04	%	$	427,941	4.50	%	N/A		N/A
Total Capital (to Risk-Weighted Assets)	1,169,061		12.29		760,784		8.00		N/A		N/A
Tier 1 Capital (to Risk-Weighted Assets)	1,049,420		11.04		570,588		6.00		N/A		N/A
Tier 1 Capital (to Average Assets)	1,049,420		8.21		511,293		4.00		N/A		N/A
Bank - December 31, 2024
Common Equity Tier 1 (to Risk-Weighted Assets)	$	1,020,820	10.96	%	$	418,992	4.50	%	$	605,210	6.50	%
Total Capital (to Risk-Weighted Assets)	1,138,006		12.22		744,874		8.00		931,093		10.00
Tier 1 Capital (to Risk-Weighted Assets)	1,020,820		10.96		558,656		6.00		744,874		8.00
Tier 1 Capital (to Average Assets)	1,020,820		8.04		507,725		4.00		634,657		5.00


(1)			Prompt corrective action provisions are not applicable at the bank holding company level.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in accordance with GAAP requires the Company to make estimates and judgments that affect reported amounts of assets, liabilities, income and expenses and related disclosure of contingent assets and liabilities. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Estimates are evaluated on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Accounting policies, including those for the Company's critical accounting policies, as described in detail in the Notes to the Company’s Unaudited Condensed Consolidated Financial Statements in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, are an integral part of the Company’s consolidated financial statements. A thorough understanding of these accounting policies is essential when reviewing the Company’s reported results of operations and financial position. The Company’s most critical accounting policy and estimate is listed below. This estimate requires the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain.

•Allowance for credit losses

Changes in this estimate, that are likely to occur from period to period, or the use of different estimates that the Company could have reasonably used in the current period, could have a material impact on the Company’s financial position, results of operations or liquidity.

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk is a significant market risk and can result from timing and volume differences in the repricing of rate-sensitive assets and liabilities, widening or tightening of credit spreads, changes in the general level of market interest rates and changes in the shape and level of market yield curves. The Company manages the interest rate sensitivity of interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Management of interest rate risk is carried out primarily through strategies involving available-for-sale securities, loan and lease portfolio, and available funding sources.

The Company has an Asset/Liability Committee to communicate, coordinate and control all aspects involving interest rate risk management. The Asset/Liability Committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals. Adherence to relevant policies is monitored on an ongoing basis by the Asset/Liability Committee.

The Company has a total cumulative gap in interest-earning assets and interest-bearing liabilities of 5.3% as of June 30, 2025, indicating that, overall, assets will reprice before liabilities during the expected life of the instruments. Cumulative gap is a useful measure to monitor balance sheet match-funding, yet economic value of equity and net interest income simulations, discussed below, are more useful in understanding potential impacts to earnings from a change in interest rates.

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The Company analyzes interest rate sensitivity position to manage the risk associated with interest rate movements through the use of two simulation models: economic value of equity (“EVE”) and net interest income (“NII”) simulations. The EVE simulation provides a long-term view of interest rate risk because it analyzes all of the Company’s future cash flows. EVE is defined as the present value of the Company’s assets, less the present value of its liabilities, adjusted for any off-balance sheet items. The results show a theoretical change in the economic value of shareholders’ equity as interest rates change. The NII simulation provides a short-term view of interest rate risk as it analyzes impact on net interest income over a 12-month and 24-month time horizon. NII simulations are prepared by calculating net interest income in a scenario where interest rates do not change (base case) and then recalculated in scenarios with higher and lower interest rates. The results of each variation are compared against the base case scenario to determine the potential change in earnings.

EVE and NII simulations are completed regularly and presented to the Asset/Liability Committee. The simulations provide an estimate of the impact of changes in interest rates on equity and net interest income under a range of assumptions, and under instantaneous parallel interest rate shocks assuming a static balance sheet. The numerous assumptions used in the simulation process are provided to the Asset/Liability Committee on at least an annual basis. Changes to these assumptions can significantly affect the results of the simulation. The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates. The simulation analysis incorporates management’s current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.

Simulation analysis is only an estimate of interest rate risk exposure at a particular point in time. The Company regularly models various forecasted rate projections with non-parallel shifts that are reflective of potential current rate environment outcomes. Under these scenarios, the Company’s interest rate risk profile may increase in asset sensitivity, decrease in asset sensitivity, or depending on the scenario and timing of anticipated rate changes, may transition to a liability sensitive interest rate risk profile. The Company believes that regular modeling of various interest rate outcomes allows it to assess and manage potential risks from various rate shifts.

Table of Contents

The table below sets forth an approximation of the Company’s NII sensitivity exposure for the 12-month periods ending June 30, 2026 and 2027, and the Company’s EVE sensitivity at June 30, 2025 under instantaneous parallel interest rate shocks assuming a static balance sheet. The simulation uses projected repricing of assets and liabilities at June 30, 2025, on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Critical model assumptions such as loan and investment prepayment rates, deposit decay rates, deposit betas and lags and assumed replacement pricing can have a significant impact on interest income simulation. A static balance sheet is maintained to remove volume considerations and to place the focal point on the rate sensitivity of the Company’s balance sheet. While management believes such assumptions to be reasonable, approximate actual future activity may differ from the results shown below as it will include growth considerations and management actions to mitigate the impacts of changing interest rates on the balance sheet’s earnings profile.


	Estimated Increase/Decrease in Net Interest Income		Estimated Percentage Change in EVE
Basis Point Change in Interest Rates	12 Months Ending June 30, 2026	12 Months Ending June 30, 2027	As of June 30, 2025
+300	12.4 %	8.6 %	(9.9 %)
+200	8.6	6.0	(6.3)
+100	4.3	3.0	(2.9)
-100	(4.0)	(2.9)	1.5
-200	(6.8)	(5.0)	1.7
-300	(8.2)	(6.4)	1.8

Rates are increased instantaneously at the beginning of the projection. Under this instantaneous parallel interest rate shock, with a static balance sheet NII simulation, the Company is moderately asset sensitive in the initial year, as the Company’s large variable rate loan portfolio reprices the full amount of the assumed change in interest rates, while the large retail savings and short-term retail certificates of deposits portfolio will reprice with an assumed beta. The Company is slightly asset sensitive in the second year of the projection due to interest rates increasing or decreasing for the full year, the Company’s loan portfolio continuing to reprice, and also due to the other assumptions used in the analysis as noted previously. Interest rates do not normally move all at once or evenly over time, but management believes that the analysis is useful to understanding the potential direction and magnitude of net interest income changes due to changing interest rates.

The EVE analysis shows that the Company would theoretically lose market value in a rising rate environment. This is largely driven by the Company’s longer asset duration, primarily consisting of investments and loans, versus the shorter duration of its funding portfolio, primarily consisting of retail savings and short-term retail certificates of deposits.

The NII and EVE simulation analysis shown above is only an estimate of interest rate risk exposure at a particular point in time without growth considerations. The Company regularly models various forecasted rate projections with non-parallel shifts that are reflective of potential current rate environment outcomes using the Company’s assumed growth projections. Under these scenarios, the Company’s interest rate risk profile may increase in asset sensitivity, decrease in asset sensitivity, or depending on the scenario and timing of anticipated rate changes, may transition to a liability sensitive interest rate risk profile. Regular, robust modeling of various interest rate outcomes allows the Company to properly assess and manage potential risks from various rate shifts.

Table of Contents

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), was carried out under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer as of June 30, 2025, the last day of the period covered by this Quarterly Report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not effective as of June 30, 2025, in ensuring that the information required to be disclosed in the reports the Company files or submits under the Exchange Act is (i) accumulated and communicated to management (including the Company’s Chief Executive Officer and Chief Financial Officer) as appropriate to allow timely decisions regarding required disclosures, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. The conclusion that disclosure controls and procedures were not effective was due to the presence of a material weakness in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as previously disclosed in Part II, Item 9A of the Company's annual report on Form 10-K for the year ended December 31, 2024 (the “2024 10-K”). The Company did not have a restatement of current or prior periods as a result of this material weakness in internal control over financial reporting.

Remediation Plan for Material Weakness in Internal Control Over Financial Reporting

In responses to the material weakness identified above, the Company has implemented changes to its internal control over financial reporting to enhance the control environment and strengthen communication protocols in connection with the loan review process. The Company's remediation efforts have focused on enhanced internal control trainings for individuals responsible for the risk assessment, design, monitoring and documentation of the Company's loan review process and increased reporting to the Company's Risk Committee of the Board of Directors through the Company's independent loan review function.

As of the date of this filing, the Company's remediation efforts are ongoing and the material weakness has not yet been fully remediated. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Other than the implementation of the measures outlined in the remediation plan for the material weakness described above, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of operations, the Company is at times involved in legal proceedings. In the opinion of management, as of June 30, 2025, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

Item 1A. Risk Factors

There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, with the exception of the additional risk factor disclosed in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2025.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Insider Trading Arrangements - During the quarter ended June 30, 2025, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined in Item 408 of Regulation S-K.

Table of Contents

Item 6. Exhibits.

Exhibits to this report are listed in the Index to Exhibits section of this report.

INDEX TO EXHIBITS


Exhibit No.						Description of Exhibit

3.1						Amended and Restated Articles of Incorporation of Live Oak Bancshares, Inc. (incorporated by reference to Exhibit 3.1 of the registration statement on Form S-1, filed on June 19, 2015)
3.2						Articles of Amendment designating the 8.375% Fixed Rate Series A Non-Cumulative Perpetual Preferred Stock (incorporated by reference to Exhibit 3.2 of the Form 8-A, filed on August 4, 2025)
3.3						Amended Bylaws of Live Oak Bancshares, Inc. (incorporated by reference to Exhibit 3.2 of the amended registration statement on Form S-1, filed on July 13, 2015)
4.1						Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the registration statement on Form S-1, filed on June 19, 2015)
4.2						Deposit Agreement, by and among Live Oak Bancshares, Inc., and Broadridge Corporate Issuer Solutions, LLC, and the Holders from time to time of the depositary receipts described therein (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K, filed on August 4, 2025)
4.3						Form of Depositary Receipt representing the Depositary Shares (included as Exhibit A to Exhibit 4.2 hereto) (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K, filed on August 4, 2025)
10.1						Form of 2025 RSU Award Agreement for non-employee directors* #
31.1						Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2						Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32						Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101						Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024; (ii) Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2025 and 2024; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2025 and 2024; (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2025 and 2024; (v) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements*
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024	1
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2025 and 2024	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2025 and 2024	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 202 5 and 20 24	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 202 5 and 202 4	6
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4.	Controls and Procedures	60
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
	Index to Exhibits	62
	Signatures	63


	Live Oak Bancshares, Inc.
	(Registrant)

Date: August 5, 2025	By:	/s/ Walter J. Phifer
		Walter J. Phifer
		Chief Financial Officer