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What changed in Live Oak Bancshares, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Live Oak Bancshares, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+363 added−432 removedSource: 10-K (2025-03-18) vs 10-K (2024-02-22)

Top changes in Live Oak Bancshares, Inc.'s 2024 10-K

363 paragraphs added · 432 removed · 286 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

54 edited+15 added−17 removed147 unchanged
Biggest changeBank Merger Act Section 18(c) of the Federal Deposit Insurance Act, popularly known as the “Bank Merger Act,” requires the prior written approval of appropriate federal bank regulatory agencies before any bank may (i) merge or consolidate with, (ii) purchase or otherwise acquire the assets of, or (iii) assume the deposit liabilities of, another bank if the resulting institution is to be a state nonmember bank. 6 Table of Contents The Bank Merger Act prohibits the applicable federal bank regulatory agency from approving any proposed merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States.
Biggest changeThese agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. 6 Table of Contents Bank Merger Act Section 18(c) of the Federal Deposit Insurance Act, popularly known as the “Bank Merger Act,” requires the prior written approval of appropriate federal bank regulatory agencies before any bank may (i) merge or consolidate with, (ii) purchase or otherwise acquire the assets of, or (iii) assume the deposit liabilities of, another bank if the resulting institution is to be a state nonmember bank.
A bank holding company, such a Bancshares, and an FDIC-supervised depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, as soon as possible and no later than 36 hours after a determination that a computer-security incident that rises to the level of a notification incident has occurred.
A bank holding company, such as Bancshares, and an FDIC-supervised depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, as soon as possible and no later than 36 hours after a determination that a computer-security incident that rises to the level of a notification incident has occurred.
Compliance by Bancshares and the Bank with these capital requirements affects their respective operations by increasing the amount of capital required to conduct operations. The FDIC has set the minimum required Community Bank Leverage Ratio (“CBLR”) at 9 percent. A qualifying community banking organization may elect to use the CBLR framework if its CBLR is greater than 9 percent.
Compliance by Bancshares and the Bank with these capital requirements affects their respective operations by increasing the amount of capital required to conduct operations. The FDIC has set the minimum required Community Bank Leverage Ratio (“CBLR”) at 9%. A qualifying community banking organization may elect to use the CBLR framework if its CBLR is greater than 9%.
A qualifying community banking organization that has chosen the proposed framework is not required to calculate the existing risk-based and leverage capital requirements. A bank is also considered to have met the capital ratio requirements to be well capitalized for the agencies’ prompt corrective action rules provided it has a CBLR greater than 9 percent.
A qualifying community banking organization that has chosen the proposed framework is not required to calculate the existing risk-based and leverage capital requirements. A bank is also considered to have met the capital ratio requirements to be well capitalized for the agencies’ prompt corrective action rules provided it has a CBLR greater than 9%.
To this end, we communicate with our workforce through a variety of channels and encourage open and direct communication, including: • A biennial company-wide “all hands” meeting; • Regularly scheduled town hall-style meetings that are led by our key executives and held quarterly, or more often as needed, with a focus on our people, culture, strategy, and performance; • Periodic posts from Company leadership via our internal enterprise social media network and intranet; and • An open-door environment that encourages communication, collaboration and the free-flow of information and ideas. 3 Table of Contents Collaboration, both within and between business units, is a hallmark of our approach to service delivery and value creation for our customers and stakeholders.
To this end, we communicate with our workforce through a variety of channels and encourage open and direct communication, including: • Periodic company-wide “all hands” meetings; • Regularly scheduled town hall-style meetings that are led by our key executives and held quarterly, or more often as needed, with a focus on our people, culture, strategy, and performance; • Periodic posts from Company leadership via our internal enterprise social media network and intranet; and • An open-door environment that encourages communication, collaboration and the free-flow of information and ideas. 3 Table of Contents Collaboration, both within and between business units, is a hallmark of our approach to service delivery and value creation for our customers and stakeholders.
Violations of these laws and regulations can give rise to enforcement actions by governmental agencies and to private lawsuits for damages and other forms of relief. 11 Table of Contents Federal Home Loan Bank System The Federal Home Loan Bank (the “FHLB”) System consists of 12 district FHLBs subject to supervision and regulation by the Federal Housing Finance Agency (the “FHFA”).
Violations of these laws and regulations can give rise to enforcement actions by governmental agencies and to private lawsuits for damages and other forms of relief. 11 Table of Contents Federal Home Loan Bank System The Federal Home Loan Bank (the “FHLB”) System consists of 11 district FHLBs subject to supervision and regulation by the Federal Housing Finance Agency (the “FHFA”).
Payment of Dividends and Other Restrictions Bancshares is a legal entity separate and distinct from the Bank. While there are various legal and regulatory limitations under federal and state law on the extent to which banks can pay dividends or otherwise supply funds to holding companies, a principal source of cash revenues for Bancshares is dividends from the Bank.
Payment of Dividends and Other Restrictions Bancshares is a legal entity separate and distinct from the Bank. While there are various legal and regulatory limitations under federal and state law on the extent to which banks can pay dividends or otherwise supply funds to holding companies, a principal source of cash flows for Bancshares is dividends from the Bank.
Management continues to explore investments which generate investment tax credits and as a result there can be no assurance as to the actual effective rate because it will be dependent upon the nature and amount of future income and expenses as well as actual investments generating investment tax credits and transactions with discrete tax effects.
Management continues to explore investments that generate investment tax credits and as a result there can be no assurance as to the actual effective rate because it will be dependent upon the nature and amount of future income and expenses as well as actual investments generating investment tax credits and transactions with discrete tax effects.
The regulatory capital framework under which Bancshares and Live Oak Bank operate changed in significant respects as a result of the Dodd-Frank Act and other regulations, including the separate regulatory capital requirements put forth by the Basel Committee on Banking Supervision, commonly known “Basel III.” The Federal Reserve, FDIC and Office of the Comptroller of the Currency approved final rules that established an integrated regulatory capital framework that implements the Basel III regulatory capital requirements and certain provisions of the Dodd-Frank Act.
The regulatory capital framework under which Bancshares and Live Oak Bank operate changed in significant respects as a result of the Dodd-Frank Act and other regulations, including the separate regulatory capital requirements put forth by the Basel Committee on Banking Supervision, commonly known “Basel III.” 9 Table of Contents The Federal Reserve, FDIC and Office of the Comptroller of the Currency approved final rules that established an integrated regulatory capital framework that implements the Basel III regulatory capital requirements and certain provisions of the Dodd-Frank Act.
For example, a notification incident may include a major computer-system failure; a cyber-related interruption, such as a distributed denial of service or ransomware attack; or another type of significant operational interruption. SEC rules also require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy, and governance. See Item 1C. Cybersecurity.
A notification incident may include a major computer-system failure; a cyber-related interruption, such as a distributed denial of service or ransomware attack; or another type of significant operational interruption. SEC rules also require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy, and governance. See Item 1C. Cybersecurity for additional information.
The payment of dividends could, depending upon the financial condition of a bank, be deemed to constitute an unsafe or unsound practice in conducting its business. North Carolina commercial banks, such as Live Oak Bank, are subject to legal limitations on the amounts of dividends they are permitted to pay.
The payment of dividends could, depending upon the financial condition of a bank, be deemed to constitute an unsafe or unsound practice in conducting its business. 7 Table of Contents North Carolina commercial banks, such as Live Oak Bank, are subject to legal limitations on the amounts of dividends they are permitted to pay.
Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (the “CFPB”) was also created as a new consumer financial services regulator. The CFPB is authorized to prevent unfair, deceptive and abusive practices and ensure that consumers have access to markets for consumer financial products and services and that such markets are fair, transparent and competitive.
Under the Dodd-Frank Act, the CFPB was also created as a new consumer financial services regulator. The CFPB is authorized to prevent unfair, deceptive and abusive practices and ensure that consumers have access to markets for consumer financial products and services and that such markets are fair, transparent and competitive.
At December 31, 2023, Live Oak Bank was “well capitalized” and therefore not subject to any limitations with respect to its brokered deposits. Basel III.
At December 31, 2024, Live Oak Bank was “well capitalized” and therefore not subject to any limitations with respect to its brokered deposits. Basel III.
The Company has certain training programs and resources in place to meet the needs of various roles, skill sets and departments across the Company, including: • Internally and externally led manager training and professional development; • Internally led “lunch and learn” meetings for role-specific skills; • Web-based learning modules and training for personal and professional development, skill-based learning, leadership development and management functions; • Formal cross-department teams tasked with technology, initiative roll-outs and change management; and • Tuition reimbursement for job-specific certifications and required continuing education.
The Company has certain training programs and resources in place to meet the needs of various roles, skill sets, and departments across the Company, including: • Internally and externally led manager training and professional development; • Internally led “lunch and learn” meetings for role-specific skills; • Internally led credit committee meetings open to all employees for participation; • Web-based learning modules and training for personal and professional development, skill-based learning, leadership development, and management functions; • Formal cross-department teams tasked with technology, initiative roll-outs, and change management; and • Tuition reimbursement for job-specific certifications and required continuing education.
The FHLBs provide a central credit facility primarily for member institutions. As a member of the FHLB of Atlanta, the Bank is required to acquire and hold shares of capital stock in the FHLB of Atlanta. The Bank was in compliance with this requirement with investment in FHLB of Atlanta stock of $6.8 million at December 31, 2023.
The FHLBs provide a central credit facility primarily for member institutions. As a member of the FHLB of Atlanta, the Bank is required to acquire and hold shares of capital stock in the FHLB of Atlanta. The Bank was in compliance with this requirement with investment in FHLB of Atlanta stock of $7.8 million at December 31, 2024.
As of December 31, 2023, Live Oak Bank had capital levels that qualify as “well capitalized” under the applicable regulations.
As of December 31, 2024, Live Oak Bank had capital levels that qualify as “well capitalized” under the applicable regulations.
These guidelines provide for a minimum ratio of Tier 1 capital to average total on-balance sheet assets, less goodwill and certain other intangible assets, of 4% for bank holding companies. Bancshares’ ratio at December 31, 2023 was 8.58% compared to 9.26% at December 31, 2022.
These guidelines provide for a minimum ratio of Tier 1 capital to average total on-balance sheet assets, less goodwill and certain other intangible assets, of 4% for bank holding companies. Bancshares’ ratio at December 31, 2024 was 8.21% compared to 8.58% at December 31, 2023.
Although the Company’s federal income tax liability is determined under provisions of the Code, which is applicable to all taxpayers, Sections 581 through 597 of the Code apply specifically to financial institutions.
Although the Company’s federal income tax liability is determined under provisions of the Code, which is applicable to all taxpayers, Sections 581 through 597 of the Code provide special rules that apply specifically to financial institutions.
The Company has not elected to implement the CBLR framework at this time. 9 Table of Contents Acquisitions The Company must comply with numerous laws related to any potential acquisition activity.
The Company has not elected to implement the CBLR framework at this time. Acquisitions The Company must comply with numerous laws related to any potential acquisition activity.
The Company intends to continue to identify, monitor and measure meaningful diversity and inclusion goals, to foster a welcoming environment through education, communication and recruiting efforts, and to provide support so that diverse employees have the resources and relationships they need to be successful and thrive.
The Company intends to continue to identify, monitor and measure meaningful equal opportunity goals, to foster a welcoming environment through education, communication and recruiting efforts, and to provide support so that all employees have the resources and relationships they need to be successful and thrive.
As of December 31, 2023, the Bank's C&D concentration as a percentage of bank capital totaled 61.5% and the Bank's CRE concentration, excluding owner-occupied loans, as a percentage of capital totaled 164.0%. 13 Table of Contents Limitations on Incentive Compensation The Federal Reserve reviews incentive compensation arrangements of bank holding companies such as Bancshares as part of its regular, risk-focused supervisory process.
As of December 31, 2024, the Bank's C&D concentration as a percentage of bank capital totaled 65.0% and the Bank's CRE concentration, excluding owner-occupied loans, as a percentage of capital totaled 198.9%. 13 Table of Contents Limitations on Incentive Compensation The Federal Reserve reviews incentive compensation arrangements of bank holding companies such as Bancshares as part of its regular, risk-focused supervisory process.
The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies and banks with $10 billion or more in total consolidated assets. As of December 31, 2023, the Company and the Bank each had total assets of $11.27 billion and $11.21 billion, respectively. See Item 7.
The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies and banks with $10 billion or more in total consolidated assets. As of December 31, 2024, the Company and the Bank each had total assets of $12.94 billion and $12.86 billion, respectively. See Item 7.
We believe our people provide significant value to our Company and its shareholders. Demographics As of December 31, 2023, the Company had 943 full-time employees, 18 part-time employees and 37 independent contractors. None of the Company’s employees are covered by a collective bargaining agreement, and management considers relations with employees to be good.
We believe our people provide significant value to our Company and its shareholders. Demographics As of December 31, 2024, the Company had 1,008 full-time employees, 17 part-time employees and 27 independent contractors. None of the Company’s employees are covered by a collective bargaining agreement, and management considers relations with employees to be good.
At December 31, 2023, the Company's risk-based capital ratios, as calculated under applicable capital standards were 11.73% common equity Tier 1 capital to risk weighted assets, 11.73% Tier 1 capital to risk weighted assets, and 12.98% total capital to risk weighted assets. In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies.
At December 31, 2024, the Company's risk-based capital ratios, as calculated under applicable capital standards were 11.04% common equity Tier 1 capital to risk weighted assets, 11.04% Tier 1 capital to risk weighted assets, and 12.29% total capital to risk weighted assets. 8 Table of Contents In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies.
Tiburon Land Holdings, LLC was formed in the third quarter of 2022 as a subsidiary of the Bank to hold land adjacent to the Bank’s headquarters consisting of wetlands and other protected property for the use and enjoyment of the Bank’s employees and customers.
Tiburon Land Holdings, LLC was formed in the third quarter of 2022 as a subsidiary of the Bank to hold land adjacent to the Bank’s headquarters consisting of wetlands and other protected property for the use and enjoyment of the Bank’s employees and customers. The Company’s operations are managed along one significant operating segment.
Consolidated income tax returns have the effect of eliminating intercompany income and expense, including dividends, from the computation of consolidated taxable income for the taxable year in which the items occur.
All the returns are filed on a calendar year basis. Consolidated income tax returns have the effect of eliminating intercompany income and expense, including dividends, from the computation of consolidated taxable income for the taxable year in which the items occur.
To the extent applicable, many of these laws and regulations impose additional and/or different requirements than federal law, may present implementation challenges, could be an enforcement priority for the state regulators, and could generate increased lawsuits by consumers and other individuals.
Many states have enacted comprehensive privacy laws, such as the California Consumer Privacy Act. To the extent applicable, these laws and regulations may impose additional and/or different requirements than federal law, may present implementation challenges, could be an enforcement priority for the state regulators, and could generate increased lawsuits by consumers and other individuals.
Subsidiaries In addition to the Bank, Bancshares directly or indirectly held the following wholly owned material subsidiaries as of December 31, 2023: • Canapi Advisors, LLC (“Canapi Advisors”), formed in September 2018 for the purpose of providing investment advisory services to a series of funds focused on investing venture capital in new and emerging financial technology companies; • Live Oak Ventures, Inc., formed in August 2016 for the purpose of investing in businesses that align with the Company's strategic initiative to be a leader in financial technology; • Live Oak Grove, LLC, formed in February 2015 for the purpose of providing Company employees and business visitors with on-site dining at the Company’s Wilmington, North Carolina headquarters; and • Government Loan Solutions, Inc.
Subsidiaries In addition to the Bank, Bancshares directly or indirectly held the following wholly owned material subsidiaries as of December 31, 2024: • Live Oak Ventures, Inc., formed in August 2016 for the purpose of investing in businesses that align with the Company's strategic initiative to be a leader in financial technology; • Live Oak Grove, LLC, formed in February 2015 for the purpose of providing Company employees and business visitors with on-site dining at the Company’s Wilmington, North Carolina headquarters; and • Government Loan Solutions, Inc.
The Company and ERG leadership, membership, and allies remain committed to celebrating and supporting local, diversity-owned small business through on-campus events that showcase diverse entrepreneurs in the surrounding communities. Its commitment to providing and enhancing a support infrastructure for people with underrepresented backgrounds remains a strategic initiative.
The Company and ERG leadership and membership remain committed to celebrating and supporting a wide variety of locally owned small business through on-campus events that showcase a broad range of entrepreneurs in the surrounding communities. Our commitment to providing and enhancing a support infrastructure for people with underrepresented backgrounds remains a strategic initiative.
The Bank received an “Outstanding” rating in its last Community Reinvestment Act examination, which was conducted as of June 1, 2022.
The Bank received an “Outstanding” rating in its last Community Reinvestment Act examination, which was conducted as of December 28, 2021.
These filings are also accessible on the SEC’s website at www.sec.gov. The Company also will provide without charge a copy of this Report, as well as any documents available on the Company's website, to any shareholder by mail.
The Company also will provide without charge a copy of this Report, as well as any documents available on the Company's website, to any shareholder by mail.
Assessments are based on the average consolidated total assets less tangible equity of a financial institution. The assessment rates for an insured depository institution vary according to the level of risk incurred in its activities. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits.
Assessments are based on the average consolidated total assets less tangible equity of a financial institution. The assessment rates for an insured depository institution vary according to the level of risk incurred in its activities.
A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Company and the Bank.
A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Company and the Bank. Management cannot predict what insurance assessment rates will be in the future.
In addition, available free of charge through the Company's website is the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after electronically filing or furnishing such material to the U.S. Securities and Exchange Commission (“SEC”).
In addition, available free of charge through the Company's website is the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after electronically filing or furnishing such material to the SEC. These filings are also accessible on the SEC’s website at www.sec.gov.
While 2023 brought a return-to-campus initiative for our Wilmington headquarters, our 100% cloud-based operations allow our people to transition nimbly between remote working and in-person as personal circumstances require with no material effect on our operations or customer experience.
While we value the presence of employees at our Wilmington headquarters, our 100% cloud-based operations allow our people to transition nimbly between remote working and in-person as personal circumstances require with no material effect on our operations or customer experience.
Management cannot predict what insurance assessment rates will be in the future. 10 Table of Contents Privacy and Data Security We are subject to complex and evolving laws and regulations governing the privacy and security of personal information associated with consumers, prospective, current and former customers, employees and contractors, and other individuals.
Privacy and Data Security We are subject to complex and evolving laws and regulations governing the privacy and security of personal information associated with consumers, prospective, current and former customers, employees and contractors, and other individuals.
Specifically, an insured depository institution, such as Live Oak Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is defined in the applicable law and regulations). 7 Table of Contents The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past four quarters is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition.
The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past four quarters is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition.
Live Oak Bank’s insurance assessments during 2023 and 2022 were $16.7 million and $9.8 million, respectively. In conjunction with the Amended Restoration Plan, the FDIC Board increased deposit insurance assessment rates by two basis points for all insured depository institutions, effective in 2023.
In conjunction with the Amended Restoration Plan, the FDIC Board increased deposit insurance assessment rates by two basis points for all insured depository institutions, effective in 2023.
The Company maintains a website at www.liveoakbank.com. Documents available on the website include: (i) the Company's Code of Ethics and Conflict of Interest Policy; (ii) charters for the Audit, Risk, Compensation, and Nominating and Corporate Governance Committees of the Board of Directors, and (iii) the Company’s Corporate Governance Guidelines.
Documents available on the website include: (i) the Company's Code of Ethics and Conflict of Interest Policy; (ii) charters for the Audit, Risk, Compensation, and Nominating and Corporate Governance Committees of the Board of Directors, and (iii) the Company’s Corporate Governance Guidelines. These documents also are available in print to any shareholder who requests a copy.
The FDIC and the NCCOB regularly examine the operations of Live Oak Bank and are given the authority to approve or disapprove mergers, consolidations, the establishment of branches and similar corporate actions. These agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.
The FDIC and the NCCOB regularly examine the operations of Live Oak Bank and are given the authority to approve or disapprove mergers, consolidations, the establishment of branches and similar corporate actions.
The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before: • it may acquire direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the voting shares of the bank; • it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or • it may merge or consolidate with any other bank holding company.
The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before: • it may acquire direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the voting shares of the bank; • it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or • it may merge or consolidate with any other bank holding company. 5 Table of Contents The BHCA further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or that would substantially lessen competition in the banking business, unless the public interest in meeting the needs of the communities to be served outweighs the anti-competitive effects.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Impact of Asset Growth. Federal and State Taxation Bancshares and its subsidiaries file a consolidated federal income tax return and separate state income tax returns in North Carolina. All the returns are filed on a calendar year basis.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Impact of Asset Growth. Federal and State Taxation Bancshares and its subsidiaries file a consolidated federal income tax return and various state tax returns on either a consolidated or separate entity basis as required by state-specific tax regulations.
Diversity and Inclusion The Company strives to foster a welcoming, supportive, and equitable environment for diverse employees. To accomplish this, the Company focuses on engagement, awareness, training, accountability, education, and communication. During 2023, the Company supported programming through its six Employee Resource Groups (“ERG”) and saw the number of interest groups grow from nine to eleven.
Human Capital and Workplace Initiatives The Company strives to foster a welcoming, supportive, and equitable environment for all employees. To accomplish this, the Company focuses on engagement, awareness, training, accountability, education, and communication. During 2024, the Company continued to support programming through its Employee Resource Groups (“ERG”) and interest groups.
The application, interpretation and enforcement of these laws and regulations are often uncertain, particularly in light of new and rapidly evolving data-driven technologies and significant increases in computing power. These laws and regulations are constantly evolving, remain a focus of regulators, and will continue to have a significant impact on our businesses and operations.
These laws and regulations are constantly evolving, remain a focus of regulators, and will continue to have a significant impact on our businesses and operations.
In addition to federal privacy laws and regulations, numerous state laws and regulations govern the collection, retention, use, and disclosure of personal information, and state legislatures have been actively considering and enacting new laws addressing data security, data breach notification, and privacy.
In addition to federal privacy and data security laws and regulations, numerous state laws and regulations govern the privacy and security of personal information, and state legislatures have been actively considering and enacting new legislation. For example, some states have enacted financial privacy laws and regulations that are similar to the GLBA’s privacy requirements.
Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” and other indications of capital strength in evaluating proposals for expansion or new activities. 8 Table of Contents Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on taking brokered deposits and certain other restrictions on its business.
Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on taking brokered deposits and certain other restrictions on its business.
Taxable income is generally calculated under applicable sections of the Internal Revenue Code of 1986, as amended (the “Code”), with some modifications required by state law and the 2017 tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act").
Banks and bank holding companies are subject to federal and state income taxes in essentially the same manner as other corporations. Taxable income is generally calculated under applicable sections of the Internal Revenue Code of 1986, as amended (the “Code”), with some modifications required by state law for computing state taxable income.
Control is conclusively presumed to exist if a person or company acquires 25% or more of any class of voting securities of a bank holding company.
Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company. Control is conclusively presumed to exist if a person or company acquires 25% or more of any class of voting securities of a bank holding company.
Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues focuses, in part, on the performance under the Community Reinvestment Act of 1977, both of which are discussed elsewhere in more detail. 5 Table of Contents Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company.
Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues focuses, in part, on the performance under the Community Reinvestment Act of 1977, both of which are discussed elsewhere in more detail.
For example, financial institutions are required by the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLBA”) to disclose their policies for collecting and protecting consumer information. The Bank has established a privacy policy that it believes promotes compliance with these federal requirements.
For example, financial institutions are required by the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLBA”) to disclose certain information to consumers regarding their privacy and security practices with respect to personal information.
These employee-led networks provide community and connection through shared interests and experiences. In addition, hiring managers across the Company participated in interview and bias trainings. The Company’s diversity, equity and inclusion initiatives are both internally and externally focused.
These employee-led networks, which are voluntary and open to all employees, provide community and connection through shared interests and experiences. The Company’s human capital initiatives are both internally and externally focused.
The GLBA also imposes restrictions on when and to which entities financial institutions may disclose personal information and how personal information can be used, as well as data security requirements. In addition, we are subject to federal requirements related to unauthorized access to and/or acquisition of personal information, cybersecurity incidents, and similar matters.
The GLBA imposes additional requirements, including restrictions on when and to which entities financial institutions may disclose personal information and how personal information can be used, as well as data security requirements. Another example of a federal privacy law with which we must comply is the Fair Credit Reporting Act, which imposes requirements on our use of consumer reports.
When unauthorized access to and/or acquisition of personal information occurs, the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice may require us to notify affected individuals and regulator The U.S. federal bank regulatory agencies have established computer-security incident notification requirements for banking organizations and bank service providers.
The U.S. federal bank regulatory agencies have also established computer-security incident notification requirements for banking organizations and bank service providers.
The Company's voting common stock trades on the New York Stock Exchange LLC (the “NYSE”) under the symbol “LOB.” As of January 31, 2024, there were 210 holders of record of the Company's voting common stock. The Company's principal executive office is located at 1741 Tiburon Drive, Wilmington, North Carolina 28403, telephone number (910) 790-5867.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report. The Company's voting common stock trades on the New York Stock Exchange LLC (the “NYSE”) under the symbol “LOB.” As of January 31, 2025, there were 207 holders of record of the Company's voting common stock.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report. For a discussion of the Company’s reportable segments see Note 15. Segments in Part II, Item 8. Financial Statements and Supplementary Data of this report.
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The Company's principal executive office is located at 1741 Tiburon Drive, Wilmington, North Carolina 28403, telephone number (910) 790-5867. The Company maintains a website at www.liveoak.bank.
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These documents also are available in print to any shareholder who requests a copy.
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Except as otherwise expressly stated in these documents, the information contained on our website or available by hyperlink from our website is not part of this Report and is not incorporated into this Report or any other documents we file with, or furnish to, the SEC.
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Operating Segments The Company’s operations are managed along two reportable operating segments consisting of Banking and Fintech. See the sections captioned “Results of Segment Operations” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 15. Segments in the notes to consolidated financial statements included in Item 8.
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For further discussion, see the section captioned “Business Segment” within Note 1. Organization and Summary of Significant Accounting Policies in the notes to consolidated financial statements included in Item 8.
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The BHCA further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or that would substantially lessen competition in the banking business, unless the public interest in meeting the needs of the communities to be served outweighs the anti-competitive effects.
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As a result of the 2024 presidential and congressional elections, control of the White House and Congress shifted to the Republican Party in January 2025. The new administration has taken action in its first several weeks in office that indicate its intention to generally reduce federal regulation of the financial services industry.
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A computer-security incident is an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits.
Added
For example, on February 8, 2025, the acting director of the Consumer Financial Protection Bureau (the “CFPB”) issued a notice to its staff to cease all supervision and examination activity. It is currently unknown what, if any, of the CFPB’s policies or directives will continue.
Removed
A notification incident is defined as a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, a banking organization’s: (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business; (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value; or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.
Added
Congress or the federal bank regulatory agencies may modify or rescind rule making and regulatory guidance issued under the prior administration. However, the timing and impact of any changes to the regulatory, enforcement, and supervisory priorities of the federal bank regulatory agencies is not known at this time.
Removed
For example, some states have enacted financial privacy laws and regulations that are similar to the GLBA’s privacy requirements. All fifty states have enacted data breach notification laws, and many states have enacted or are considering comprehensive privacy laws.
Added
Changes in applicable law or regulation, and in their application by regulators, may have a material effect on the business of the Company and the Bank. The Company and the Bank will continue to closely monitor developments and changes.
Removed
Banks and bank holding companies are subject to federal and state income taxes in essentially the same manner as other corporations.
Added
The Bank Merger Act prohibits the applicable federal bank regulatory agency from approving any proposed merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States.
Removed
Among other things, the Tax Act (i) established a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allowed the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limited the deduction for net interest expense incurred by U.S. corporations, (iv) allowed businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminated or reduced certain deductions related to meals and entertainment expenses, (vi) modified the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarified the definition of a covered employee and (vii) limited the deductibility of deposit insurance premiums.
Added
Specifically, an insured depository institution, such as Live Oak Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is defined in the applicable law and regulations).
Removed
The Tax Act also significantly changed U.S. tax law related to foreign operations, however, such changes do not currently impact the Company.
Added
Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” and other indications of capital strength in evaluating proposals for expansion or new activities.
Removed
The Coronavirus Aid, Relief, and Economic Security Act In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in March 2020, to provide national emergency economic relief measures.
Added
The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits. 10 Table of Contents Live Oak Bank’s insurance assessments during 2024 and 2023 were $10.8 million and $16.7 million, respectively.
Removed
Many of the CARES Act’s programs were dependent upon the direct involvement of U.S. financial institutions, such as the Company and the Bank, and were implemented through rules and guidance adopted by federal departments and agencies, including the U.S.
Added
We are also subject to laws and regulations governing how we respond to data breaches, cybersecurity incidents, and similar matters. At the federal level, the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice addresses financial institutions’ notification of customers and regulators when unauthorized access to sensitive customer information occurs.
Removed
Department of Treasury, the Federal Reserve and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and the Bank. 15 Table of Contents Paycheck Protection Program.
Added
In addition to our obligation to address federal standards related to data breaches, cybersecurity incidents, and similar matters, all fifty states have enacted breach notification laws. State breach notification laws often present additional or different notification requirements than those arising under federal law.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

70 edited+20 added−36 removed177 unchanged
Biggest changeRisks Related to Our Business • Increased delinquencies and credit losses could have a material adverse effect on our business, financial condition or results of operations. • Changes to the SBA or other government-guaranteed lending programs by the federal government, or the loss of our status as an SBA Preferred Lender, could have a material adverse effect on our business. • A prolonged U.S. government shutdown or default by the U.S. on government obligations would harm our results of operations. • Pandemics, natural disasters, global climate change, acts of terrorism and global conflicts may have a negative impact on our business operations. • We face risks, including credit risk and litigation risk, in connection with our participation in government programs enacted in response to the COVID-19 pandemic. • Changes in our ability to use, or the terms of our use of, intellectual property owned by other third parties could have a material adverse effect on our business. 16 Table of Contents • We must effectively manage risks in connection with our information systems and those of our third-party service providers, which may experience disruption, failure, or security breaches, including those caused by cyber-attacks. • The valuation of our investment securities, loans, and servicing rights is subject to change based on market conditions and various factors that are beyond our control. • We must maintain an appropriate allowance for credit losses. • Errors in the assumptions used to compute gains on sale of loans could result in material revenue misstatements. • We must effectively manage our liquidity risk. • We must effectively manage our interest rate risks. • Increases in the amount of other real estate owned could result in additional losses, costs and expenses. • We are subject to environmental liability risk associated with our lending activities. • Real property appraisals may not accurately reflect the net value of the collateral that we can realize. • We must effectively manage our counterparty risk. • Our expansion strategy, including new lines of business, new products, acquisitions, and investments, exposes us to risks. • Our investments in tax-advantaged projects may not generate returns as anticipated and may have an adverse effect on our financial results. • Our investments in other companies may be illiquid and may subject us to material financial, reputational and strategic risks. • We are less able to diversify our lending risks than larger financial institutions. • Our directors and executive officers own a significant amount of our outstanding common stock, which could limit other shareholders’ ability to influence corporate matters and may hinder a third party from acquiring control of the Company.
Biggest changeRisks Related to Our Business • Increased delinquencies and credit losses could have a material adverse effect on our business, financial condition or results of operations. • Changes to the SBA or other government-guaranteed lending programs by the federal government, or the loss of our status as an SBA Preferred Lender, could have a material adverse effect on our business. • A prolonged U.S. government shutdown or default by the U.S. on government obligations would harm our results of operations. • Pandemics, natural disasters, global climate change, acts of terrorism and global conflicts may have a negative impact on our business operations. • Changes in our ability to use, or the terms of our use of, intellectual property owned by other third parties could have a material adverse effect on our business. • We must effectively manage risks in connection with our information systems and those of our third-party service providers, which may experience disruption, failure, or security breaches, including those caused by cyber-attacks. • We have identified a material weakness in our internal control over financial reporting which, if not remediated appropriately or in a timely manner, could result in a loss of investor confidence and adversely impact the trading price of our securities. • The valuation of our investment securities, loans, and servicing rights is subject to change based on market conditions and various factors that are beyond our control. • We must maintain an appropriate allowance for credit losses. • Errors in the assumptions used to compute gains on sale of loans could result in material revenue misstatements. • We must effectively manage our liquidity risk. • We must effectively manage our interest rate risks. • Increases in the amount of other real estate owned could result in additional losses, costs and expenses. • We are subject to environmental liability risk associated with our lending activities. • Real property appraisals may not accurately reflect the net value of the collateral that we can realize. • We must effectively manage our counterparty risk. • Our expansion strategy, including new lines of business, new products, acquisitions, and investments, exposes us to risks. • Our investments in tax-advantaged projects may not generate returns as anticipated and may have an adverse effect on our financial results. 16 Table of Contents • Our investments in other companies may be illiquid and may subject us to material financial, reputational and strategic risks. • We are less able to diversify our lending risks than larger financial institutions. • Our directors and executive officers own a significant amount of our outstanding common stock, which could limit other shareholders’ ability to influence corporate matters and may hinder a third party from acquiring control of the Company.
Our ability to compete successfully will depend on a number of factors, including, among other things: • our ability to build and maintain long-term customer relationships while ensuring high ethical standards and safe and sound banking practices; • the scope, relevance and pricing of products and services that we offer; • customer satisfaction with our products and services; 33 Table of Contents • industry and general economic trends; and • our ability to keep pace with technological advances and to invest in new technology to provide products and services that will satisfy customer demands, as well as create additional efficiencies in our operations.
Our ability to compete successfully will depend on a number of factors, including, among other things: • our ability to build and maintain long-term customer relationships while ensuring high ethical standards and safe and sound banking practices; • the scope, relevance and pricing of products and services that we offer; • customer satisfaction with our products and services; • industry and general economic trends; and • our ability to keep pace with technological advances and to invest in new technology to provide products and services that will satisfy customer demands, as well as create additional efficiencies in our operations.
Risks Related to Our Common Stock • The trading volume in our common stock is less than that of larger financial institutions. • There can be no assurance that we will continue to pay cash dividends. 17 Table of Contents • Federal laws and regulations impose restrictions on the ownership of our common stock. • Anti-takeover provisions in our governing documents could adversely affect our shareholders. • An investment in our common stock is not an insured deposit.
Risks Related to Our Common Stock • The trading volume in our common stock is less than that of larger financial institutions. • There can be no assurance that we will continue to pay cash dividends. • Federal laws and regulations impose restrictions on the ownership of our common stock. • Anti-takeover provisions in our governing documents could adversely affect our shareholders. • An investment in our common stock is not an insured deposit.
Our collection of such customer and company data is subject to extensive regulation and oversight. 20 Table of Contents Cloud technologies, including third-party cloud infrastructure, are also critical to the operation of our systems, and our reliance on cloud technologies continues to grow.
Our collection of such customer and company data is subject to extensive regulation and oversight. 19 Table of Contents Cloud technologies, including third-party cloud infrastructure, are also critical to the operation of our systems, and our reliance on cloud technologies continues to grow.
You should carefully consider the risk factors and uncertainties described below and elsewhere in this Report in evaluating an investment in Live Oak Bancshares, Inc.’s common stock. Summary of Risk Factors The following is a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition or results of operations.
You should carefully consider the risk factors and uncertainties described below and elsewhere in this Report in evaluating an investment in Live Oak Bancshares, Inc.’s common stock. 15 Table of Contents Summary of Risk Factors The following is a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition or results of operations.
An investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section. As a result, if you acquire shares of our common stock, you may lose some or all of your investment. General Risk Factors We face strong competition from a diverse group of competitors.
An investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section. As a result, if you acquire shares of our common stock, you may lose some or all of your investment. 32 Table of Contents General Risk Factors We face strong competition from a diverse group of competitors.
If conditions are worse than forecast, we could experience higher charge-offs and delinquencies than is provided in the ACL on loans and leases, which could materially adversely affect our business, results of operations and financial condition. 28 Table of Contents Deterioration in the commercial soundness of our counterparties could adversely affect us.
If conditions are worse than forecast, we could experience higher charge-offs and delinquencies than is provided in the ACL on loans and leases, which could materially adversely affect our business, results of operations and financial condition. Deterioration in the commercial soundness of our counterparties could adversely affect us.
We anticipate that gains on the sale of loans will continue to comprise a meaningful component of our revenue in 2024. The determination of noncash gains is based on assumptions regarding the value of unguaranteed loans retained, servicing rights retained and deferred fees and costs. The value of retained unguaranteed loans and servicing rights is determined as described above.
We anticipate that gains on the sale of loans will continue to comprise a meaningful component of our revenue in 2025. The determination of gains is based on assumptions regarding the value of unguaranteed loans retained, servicing rights retained and deferred fees and costs. The value of retained unguaranteed loans and servicing rights is determined as described above.
There can be no assurance that the value at which we carry these assets will necessarily reflect the amount which could be realized upon a sale or other liquidity event. Our investments and/or financings in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our financial results.
There can be no assurance that the value at which we carry these assets will necessarily reflect the amount which could be realized upon a sale or other liquidity event. 27 Table of Contents Our investments and/or financings in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our financial results.
Sales of our used rental equipment at prices that fall significantly below our projections or in lesser quantities than we anticipate will have a negative impact on our results of operations and cash flows. 23 Table of Contents We are subject to liquidity risk in our operations.
Sales of our used rental equipment at prices that fall significantly below our projections or in lesser quantities than we anticipate will have a negative impact on our results of operations and cash flows. We are subject to liquidity risk in our operations.
In addition, adjustments to the ACL on available-for-sale investment securities would negatively affect the Company’s earnings and regulatory capital ratios. Our ACL may prove to be insufficient to absorb lifetime losses on loans, leases and off-balance sheet credit exposures. We maintain allowances for credit losses on loans, leases, and off-balance sheet credit exposures.
In addition, adjustments to the ACL on available-for-sale investment securities would negatively affect the Company’s earnings and regulatory capital ratios. 21 Table of Contents Our ACL may prove to be insufficient to absorb lifetime losses on loans, leases and off-balance sheet credit exposures. We maintain allowances for credit losses on loans, leases, and off-balance sheet credit exposures.
When we sell the guaranteed portion of our SBA 7(a) loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on a loan, we recognize a loss and/or recovery related to the non-guaranteed portion.
When we sell the guaranteed portion of our SBA 7(a) loans, we continue to have credit risk on the non-guaranteed portion of the loans, and if a customer defaults on a loan, we recognize a loss and/or recovery related to the non-guaranteed portion.
Furthermore, if any charge-offs related to loans or off-balance sheet credit exposures in future periods exceed our allowances for credit losses on loans or off-balance sheet credit exposures, we will need to recognize additional credit loss expense to increase the applicable allowance.
Furthermore, if any charge-offs related to loans or off-balance sheet credit exposures in future periods exceed our allowances for credit losses on loans or off-balance sheet credit exposures, we will need to recognize additional credit loss expense.
Any changes to the SBA program, including changes to the level of guarantee provided by the federal government on SBA loans, may also have a material adverse effect on our business. 18 Table of Contents We anticipate that gains on the sale of loans will comprise a meaningful component of our revenue in 2024.
Any changes to the SBA program, including changes to the level of guarantee provided by the federal government on SBA loans, may also have a material adverse effect on our business. We anticipate that gains on the sale of loans will comprise a meaningful component of our revenue in 2025.
As of December 31, 2023, the carrying amount of our investment in Apiture was $60.7 million. Apiture's future success will depend on its ability to develop, sell and deliver new or enhanced solutions to financial institution clients; however, these solutions and related services may not be attractive to existing or prospective clients.
As of December 31, 2024, the carrying amount of our investment in Apiture was $53.1 million. Apiture's future success will depend on its ability to develop, sell and deliver new or enhanced solutions to financial institution clients; however, these solutions and related services may not be attractive to existing or prospective clients.
As a result, declines in the value of our OREO will have a negative effect on our business, results of operations and financial condition. As of December 31, 2023, we had three OREO properties with an aggregate carrying value of $6.5 million. We are subject to environmental liability risk associated with our lending activities.
As a result, declines in the value of our OREO will have a negative effect on our business, results of operations and financial condition. As of December 31, 2024, we had three OREO properties with an aggregate carrying value of $1.9 million. We are subject to environmental liability risk associated with our lending activities.
Also, as of January 31, 2024, there were 2,214,346 outstanding restricted stock units that vest over time that, when vested, will result in additional shares becoming available for sale. A large portion of these shares, options and restricted stock units are held by a relatively small number of persons.
Also, as of January 31, 2025, there were 2,016,375 outstanding restricted stock units that vest over time that, when vested, will result in additional shares becoming available for sale. A large portion of these shares, options and restricted stock units are held by a relatively small number of persons.
As the amount of OREO increases, our losses, and the costs and expenses to maintain the real estate, likewise increase. The amount of OREO we hold may increase due to various economic conditions or other factors.
Such real estate is referred to as other real estate owned (“OREO”). As the amount of OREO increases, our losses, and the costs and expenses to maintain the real estate, likewise increase. The amount of OREO we hold may increase due to various economic conditions or other factors.
Furthermore, it may be difficult for holders to resell their shares at prices they find attractive, or at all. Future sales of shares of our common stock by existing shareholders could depress the market price of our common stock. Live Oak Bancshares, Inc. had 44,648,626 shares of common stock outstanding at January 31, 2024.
Furthermore, it may be difficult for holders to resell their shares at prices they find attractive, or at all. Future sales of shares of our common stock by existing shareholders could depress the market price of our common stock. Live Oak Bancshares, Inc. had 45,403,593 shares of common stock outstanding at January 31, 2025.
In addition, as of January 31, 2024, there were outstanding options to purchase 646,161 shares of our common stock that, if exercised, will result in these additional shares becoming available for sale.
In addition, as of January 31, 2025, there were outstanding options to purchase 287,671 shares of our common stock that, if exercised, will result in these additional shares becoming available for sale.
The average daily trading volume for our common stock is less than that of larger financial institutions. Due to its relatively low trading volume, sales of our common stock may place significant downward pressure on the market price of our common stock.
Our common stock is listed for quotation on the NYSE under the ticker symbol “LOB”. The average daily trading volume for our common stock is less than that of larger financial institutions. Due to its relatively low trading volume, sales of our common stock may place significant downward pressure on the market price of our common stock.
Efforts intended to ensure that our collection, use, disclosure, maintenance, and protection of personal information complies with all applicable laws and regulations in all relevant jurisdictions, including where the laws of different jurisdictions are in conflict, may pose a variety of challenges, including the following: • Our compliance and operating costs may increase. • The development of new products or services may be hindered, our ability to offer existing products or services may be curtailed, and the manner in which we offer products and services to customers may be impacted. • Our efforts may require significant time, attention, and oversite of management, which may result in reduced focus on other operations. • We may be required to structure our business, operations, and systems in less efficient ways.
Efforts intended to ensure that our collection, use, disclosure, maintenance, and protection of personal information complies with all applicable laws and regulations in all relevant jurisdictions, including where the laws of different jurisdictions are in conflict, may pose a variety of challenges, including the following: • Our compliance and operating costs may increase. • The development of new products or services may be hindered, our ability to offer existing products or services may be curtailed, and the manner in which we offer products and services to customers may be impacted. • Our efforts may require significant time, attention, and oversite of management, which may result in reduced focus on other operations. • We may be required to structure our business, operations, and systems in less efficient ways. 31 Table of Contents Risks Related to Our Common Stock The low trading volume in our common stock may adversely affect your ability to resell shares at prices that you find attractive or at all.
Our access to borrowed funds could become limited in the future, and we may be required to pay above market rates for additional borrowed funds, if we are able to obtain them at all, which may adversely affect our business, results of operations and financial condition.
Our access to borrowed funds could become limited in the future, and we may be required to pay above market rates for additional borrowed funds, if we are able to obtain them at all, which may adversely affect our business, results of operations and financial condition. 23 Table of Contents Changes in the interest rate environment could reduce our net interest income, which could reduce our profitability.
These companies may be dependent upon the success of one product or service, a unique distribution channel, or the effectiveness of a manager or management team. The failure of this one product, service or distribution channel, or the loss or ineffectiveness of a key executive or executives within the management team may have a materially adverse impact on such companies.
The failure of this one product, service or distribution channel, or the loss or ineffectiveness of a key executive or executives within the management team may have a materially adverse impact on such companies.
We are focused on our long-term growth and have undertaken various new business initiatives, many of which involve activities that are new to us, or in some cases, are in the early stages of development. From time to time, we may develop, grow and/or acquire new lines of business or offer new products and services within existing lines of business.
New lines of business or new products and services may subject us to additional risks. We are focused on our long-term growth and have undertaken various new business initiatives, many of which involve activities that are new to us, or in some cases, are in the early stages of development.
Our business reputation is important and any damage to it could have a material adverse effect on our business. Our reputation is very important to sustain our business, as we rely on our relationships with our current, former and potential customers, our technology and other strategic partners, our shareholders, and the industries that we serve.
Our reputation is very important to sustain our business, as we rely on our relationships with our current, former and potential customers, our technology and other strategic partners, our shareholders, and the industries that we serve.
We invest in and/or finance certain tax-advantaged projects promoting renewable energy sources. Our investments in these projects are designed to generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, over specified time periods. We utilize an investment tax credit for the installation of certain solar power facilities.
We invest in and/or finance certain tax-advantaged projects promoting renewable energy sources and affordable housing for low- and moderate-income tenants. Our investments in these projects are designed to generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, over specified time periods.
As a result, we are subject to additional requirements including, but not limited to, establishing a dedicated risk committee of our Board, calculating our FDIC deposit insurance assessment using the large bank pricing rule and more frequent regulatory examinations.
As of December 31, 2024, the Company and the Bank had total assets of $12.94 billion and $12.86 billion, respectively. As a result, we are subject to additional requirements including, but not limited to, establishing a dedicated risk committee of our Board, calculating our FDIC deposit insurance assessment using the large bank pricing rule and more frequent regulatory examinations.
This is an inherently uncertain process, and the fair value of our loans may be adversely impacted by factors that are beyond our control, which may in turn have a material adverse effect on our business, results of operations and financial condition. 22 Table of Contents The valuation of our servicing rights is based on estimates and subject to fluctuation based on market conditions and other factors that are beyond our control.
This is an inherently uncertain process, and the fair value of our loans may be adversely impacted by factors that are beyond our control, which may in turn have a material adverse effect on our business, results of operations and financial condition.
We expect that the body of privacy and data security laws and regulations that may apply to us will continue to grow. 31 Table of Contents These laws and regulations are continually evolving and are subject to potentially differing interpretations, including as to their scope and applicability to our business.
States legislatures have also been actively debating and passing new comprehensive privacy laws. We expect that the body of privacy and data security laws and regulations that may apply to us will continue to grow. These laws and regulations are continually evolving and are subject to potentially differing interpretations, including as to their scope and applicability to our business.
Our investments in various financial technology companies have had a significant impact on our results of operations, and we anticipate they will continue to have a significant impact on our results of operations in the future.
Our investments in financial technology companies and initiatives, including our investment in Apiture, subject us to material financial, reputational and strategic risks. Our investments in various financial technology companies have had a significant impact on our results of operations, and we anticipate they will continue to have a significant impact on our results of operations in the future.
In addition, one or more of our employees or vendors could cause a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our loan documentation, operations or systems.
In addition, one or more of our employees or vendors could cause a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our loan documentation, operations or systems. Any of these developments could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to Our Regulatory Environment • We are subject to extensive government regulation and supervision. • We must maintain adequate regulatory capital to support our business. • We are subject to heightened regulatory requirements because our total assets exceed $10 billion. • Negative developments affecting the banking industry may result in additional regulations that could increase our expenses and affect our operations. • We may incur increased costs to comply with privacy and data security laws.
Risks Related to Our Regulatory Environment • We are subject to extensive government regulation and supervision. • We must maintain adequate regulatory capital to support our business. • We are subject to heightened regulatory requirements because our total assets exceed $10 billion. • Adverse developments or concerns affecting the financial services industry or specific financial institutions could adversely affect our financial condition and results of operations. • We may incur increased costs to comply with privacy and data security laws.
Our ability to recover on defaulted loans would then be diminished, and we would be more likely to suffer losses on defaulted loans. The resolution of nonperforming assets, including the initiation of foreclosure proceedings, requires significant commitments of time from management, which can be detrimental to the performance of their other responsibilities, and which expose us to additional legal costs.
The resolution of nonperforming assets, including the initiation of foreclosure proceedings, requires significant commitments of time from management, which can be detrimental to the performance of their other responsibilities, and which expose us to additional legal costs.
If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could materially adversely affect our business, financial condition, results of operations and prospects, as well as the value of our common stock. 21 Table of Contents The fair value of our investment securities can fluctuate due to factors outside of our control.
If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could materially adversely affect our business, financial condition, results of operations and prospects, as well as the value of our common stock. 20 Table of Contents We have identified a material weakness in our internal control over financial reporting which, if not remediated appropriately or in a timely manner, could result in a loss of investor confidence and adversely impact the trading price of our securities.
Should we fail to comply with these regulatory requirements, federal and state regulators could impose additional restrictions on the activities of the Company and the Bank, which could materially and adversely affect our business, results of operations and financial condition. 29 Table of Contents The laws and regulations applicable to the banking industry change frequently and may continue to change, and we cannot predict the effects of these changes on our business and profitability.
Should we fail to comply with these regulatory requirements, federal and state regulators could impose additional restrictions on the activities of the Company and the Bank, which could materially and adversely affect our business, results of operations and financial condition.
As of December 31, 2023, the fair value of our available for sale securities portfolio was approximately $1.13 billion. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
Such companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and service capabilities and a larger number of qualified managerial and technical personnel.
Such companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and service capabilities and a larger number of qualified managerial and technical personnel. Many of the financial technology companies in which we invest directly present risks similar to those in which Canapi Ventures invests.
General Risk Factors • We compete with larger financial institutions and other financial service providers. • We must attract, retain, and develop key personnel. • Our risk management framework may not effectively mitigate risks or losses to us. • Hurricanes or other adverse weather events could disrupt our operations. • Our failure to maintain an effective system of internal control over financial reporting could harm our business. • Damage to our business reputation could adversely impact our business and results of operations.
General Risk Factors • We compete with larger financial institutions and other financial service providers. • We must attract, retain, and develop key personnel. • Our risk management framework may not effectively mitigate risks or losses to us. • Hurricanes or other adverse weather events could disrupt our operations. • Damage to our business reputation could adversely impact our business and results of operations. 17 Table of Contents Risks Related to Our Business We may experience increased delinquencies and credit losses, which could have a material adverse effect on our capital, financial condition, and results of operations.
This is an inherently uncertain process, and our allowance for credit losses may not be sufficient to absorb future loan losses or prevent a material adverse effect on our business, results of operations and financial condition.
This is an inherently uncertain process, and our allowance for credit losses may not be sufficient to absorb future loan losses or prevent a material adverse effect on our business, results of operations and financial condition. 28 Table of Contents Insiders have substantial control over us, and this control may limit our shareholders’ ability to influence corporate matters and may delay or prevent a third party from acquiring control over us.
Defects in Apiture’s software offerings or delays in the development of such software could result in unforeseen costs, diversion of technical and other resources, loss of credibility with existing and potential clients or reputational harm, any of which could materially adversely affect our business, results of operations and financial condition.
Defects in Apiture’s software offerings or delays in the development of such software could result in unforeseen costs, diversion of technical and other resources, loss of credibility with existing and potential clients or reputational harm, any of which could materially adversely affect our business, results of operations and financial condition. 26 Table of Contents Our subsidiary Canapi Advisors was an investment advisor to Canapi Ventures, a series of funds focused on providing venture capital to new and emerging financial technology companies.
Termination of either of these licenses or the reduction or elimination of our licensed rights may result in our having to negotiate new licenses with less favorable terms, or the inability to obtain access to such licensed technology at all. Similarly, Apiture, Inc.
We can offer no assurance that we will be able to renew or maintain technology licenses on terms that are acceptable. Termination of these licenses or the reduction or elimination of our licensed rights may result in our having to negotiate new licenses with less favorable terms, or the inability to obtain access to such licensed technology at all.
Future payment of cash dividends, if any, will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant. 32 Table of Contents Live Oak Bancshares, Inc. is subject to extensive regulation, and ownership of our common stock may have regulatory implications for its holders.
Future payment of cash dividends, if any, will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, inflationary trends, changes in government spending and debt issuance and policies of various governmental and regulatory agencies and, in particular, the Federal Open Market Committee. 24 Table of Contents The amount of other real estate owned, or OREO, may increase significantly, resulting in additional losses, and costs and expenses that will negatively affect our operations.
Changes in interest rates may also present additional challenges to our business that we have not anticipated. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, inflationary trends, changes in government spending and debt issuance and policies of various governmental and regulatory agencies and, in particular, the Federal Open Market Committee.
Although we comply with all current applicable capital requirements, we may be subject to more stringent regulatory capital requirements in the future, and we may need additional capital in order to meet those requirements.
If we fail to meet these capital and other regulatory requirements, our financial condition, liquidity and results of operations could be materially and adversely affected. 29 Table of Contents Although we comply with all current applicable capital requirements, we may be subject to more stringent regulatory capital requirements in the future, and we may need additional capital in order to meet those requirements.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets for these products and services are not fully developed.
From time to time, we may develop, grow and/or acquire new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets for these products and services are not fully developed.
The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.
As of January 31, 2025, our directors and executive officers and their related entities own, in the aggregate, approximately 23.3% of our outstanding common stock. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.
These additional regulatory requirements and increased compliance expenses could have a material adverse effect on our business, financial condition and results of operations. 30 Table of Contents Our deposit operations are subject to extensive regulation, and we expect additional regulatory requirements to be implemented in the future.
We have incurred significant expenses in connection with these compliance obligations and expect to continue to incur expenses to address heightened regulatory requirements. These additional regulatory requirements and increased compliance expenses could have a material adverse effect on our business, financial condition and results of operations.
We are engaged, and may in the future engage, in strategic activities, including acquisitions, joint ventures, partnerships, investments or other business growth initiatives or undertakings. There can be no assurance that we will successfully identify appropriate opportunities, that we will be able to negotiate or finance such activities or that such activities, if undertaken, will be successful.
We are engaged, and may in the future engage, in strategic activities, including acquisitions, joint ventures, partnerships, investments or other business growth initiatives or undertakings.
The market for qualified employees in the businesses in which we operate is competitive, and we may not be successful in attracting, hiring or retaining key personnel. Our inability to attract, hire or retain key personnel could have a material adverse effect on our business, results of operations and financial condition.
The market for qualified employees in the businesses in which we operate is competitive, and we may not be successful in attracting, hiring or retaining key personnel.
Our rental equipment is subject to residual value risk upon disposition, and may not sell at the prices or in the quantities we expect. The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold.
The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold.
In connection with our banking business, we take title to real estate collateral from time to time through foreclosure or otherwise in connection with efforts to collect debts previously contracted. Such real estate is referred to as other real estate owned (“OREO”).
The amount of other real estate owned, or OREO, may increase significantly, resulting in additional losses, and costs and expenses that will negatively affect our operations. In connection with our banking business, we take title to real estate collateral from time to time through foreclosure or otherwise in connection with efforts to collect debts previously contracted.
Our use of appraisals in deciding whether to make a loan secured by real property or how to value the loan in the future may not accurately reflect the net value of the collateral that we can realize. In considering whether to make a loan secured by real property, we generally require an appraisal of the property.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, results of operations and financial condition. 24 Table of Contents Our use of appraisals in deciding whether to make a loan secured by real property or how to value the loan in the future may not accurately reflect the net value of the collateral that we can realize.
Our risk management framework may not be effective in mitigating risks and/or losses to us. We have implemented a risk management framework to manage our risk exposure.
Our inability to attract, hire or retain key personnel could have a material adverse effect on our business, results of operations and financial condition. 33 Table of Contents Our risk management framework may not be effective in mitigating risks and/or losses to us. We have implemented a risk management framework to manage our risk exposure.
However, the value of the collateral might not equal the amount of the unpaid loan, and we may be unsuccessful in recovering the remaining balance from our customer. Any deterioration or downturn in real estate values in the markets we serve could have a material adverse effect on the value of the real property securing those loans.
Any deterioration or downturn in real estate values in the markets we serve could have a material adverse effect on the value of the real property securing those loans. Our ability to recover on defaulted loans would then be diminished, and we would be more likely to suffer losses on defaulted loans.
In addition, management is required to use certain assumptions and estimates in preparing our financial statements, including determining the fair value of certain assets and liabilities, among other items. If the assumptions or estimates are incorrect, we may experience unexpected material adverse consequences that could negatively affect our business, results of operations and financial condition.
If the assumptions or estimates are incorrect, we may experience unexpected material adverse consequences that could negatively affect our business, results of operations and financial condition. Our business reputation is important and any damage to it could have a material adverse effect on our business.
The laws, regulations and standard operating procedures that are applicable to SBA and USDA loan products may change at any time. Because government regulation greatly affects the business and financial results of our organization, changes in the laws, regulations and procedures applicable to SBA and USDA loans could adversely affect our ability to operate profitably.
Because government regulation greatly affects the business and financial results of our organization, changes in the laws, regulations and procedures applicable to SBA and USDA loans could adversely affect our ability to operate profitably. 18 Table of Contents A prolonged U.S. government shutdown or default by the U.S. on government obligations would harm our results of operations.
We cannot assure you that we will be able to raise additional capital if needed or raise additional capital on terms acceptable to us. If we fail to meet these capital and other regulatory requirements, our financial condition, liquidity and results of operations could be materially and adversely affected.
We cannot assure you that we will be able to raise additional capital if needed or raise additional capital on terms acceptable to us.
These companies often have the need for substantial additional capital to support expansion or to achieve or maintain a competitive position. Less established companies tend to have lower capitalization and fewer resources and, therefore, are often more vulnerable to financial failure.
These companies may be unseasoned, unprofitable or have no established operating histories or earnings and may lack technical, marketing, financial and other resources. These companies often have the need for substantial additional capital to support expansion or to achieve or maintain a competitive position.
In addition, in order to finance future strategic undertakings, we might require additional financing, which might not be available on terms favorable to us, or at all.
In addition, in order to finance future strategic undertakings, we might require additional financing, which might not be available on terms favorable to us, or at all. If obtained, equity financing could be dilutive and the incurrence of debt and contingent liabilities could have a material adverse effect on our business, results of operations or financial condition.
In some instances, however, a customer may declare bankruptcy prior to missing payments, and, following a borrower filing bankruptcy, a lender’s recovery of the credit extended is often limited. Since many of our loans are secured by collateral, we may attempt to seize the collateral if and when a customer defaults on a loan.
Like other lenders, we face the risk that our customers will not repay their loans. A customer’s failure to repay us is usually preceded by missed monthly payments. In some instances, however, a customer may declare bankruptcy prior to missing payments, and, following a borrower filing bankruptcy, a lender’s recovery of the credit extended is often limited.
Deferred fees and costs are determined using internal analysis of the cost to originate loans. Significant errors in the assumptions used to compute gains on sale of loans could result in material revenue misstatements, which may have a material adverse effect on our business, results of operations and profitability.
Significant errors in the assumptions used to compute gains on sale of loans could result in material revenue misstatements, which may have a material adverse effect on our business, results of operations and profitability. 22 Table of Contents Our rental equipment is subject to residual value risk upon disposition, and may not sell at the prices or in the quantities we expect.
Our subsidiary Canapi Advisors is an investment advisor to Canapi Ventures, a series of funds focused on providing venture capital to new and emerging financial technology companies. Canapi Ventures invests in early to growth-stage companies that may include companies that utilize advanced science, technology, engineering and/or mathematics to innovate in the financial technology market.
Canapi Ventures invests in early to growth-stage companies that may include companies that utilize advanced science, technology, engineering and/or mathematics to innovate in the financial technology market. Investments in these companies involve a high degree of business and financial risk that can result in substantial losses.
These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings.
In some cases, we could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings. In addition, management is required to use certain assumptions and estimates in preparing our financial statements, including determining the fair value of certain assets and liabilities, among other items.
From time to time, the SEC and the Financial Accounting Standards Board (“FASB”) update accounting principles generally accepted in the United States (“GAAP”) that govern the preparation of our financial statements. In addition, the FASB, SEC, bank regulators and the outside independent auditors may revise their previous interpretations regarding existing accounting regulations and the application of these accounting standards.
In addition, the FASB, SEC, bank regulators and the outside independent auditors may revise their previous interpretations regarding existing accounting regulations and the application of these accounting standards. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations.
In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, results of operations and financial condition.
In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.
Our ability to execute strategic activities and new business initiatives successfully will depend on a variety of factors.
There can be no assurance that we will successfully identify appropriate opportunities, that we will be able to negotiate or finance such activities or that such activities, if undertaken, will be successful. 25 Table of Contents Our ability to execute strategic activities and new business initiatives successfully will depend on a variety of factors.
Any of these developments could have a material adverse effect on our business, results of operations and financial condition. 25 Table of Contents New lines of business or new products and services may subject us to additional risks.
Any of these impacts, or any other impacts resulting from the events described above, could have a material adverse effect on our liquidity and our current and/or projected business operations and financial condition and results of operations.
We also rely on numerous other vendors and third parties to provide software and solutions comprising our banking platform.
We also rely on vendors and third parties to provide software and other services that are important to the operation of our next-generation banking platform. Our future strategy and success depend on our ability to access to these technology services and successfully implement them.
This could have a material adverse effect on our business, financial condition and results of operations, and could subject us to litigation. 34 Table of Contents Changes in accounting standards and management’s selection of accounting methods, including assumptions and estimates, could materially impact our financial statements.
Changes in accounting standards and management’s selection of accounting methods, including assumptions and estimates, could materially impact our financial statements. From time to time, the SEC and the Financial Accounting Standards Board (“FASB”) update accounting principles generally accepted in the United States (“GAAP”) that govern the preparation of our financial statements.
Removed
Risks Related to Our Business We may experience increased delinquencies and credit losses, which could have a material adverse effect on our capital, financial condition, and results of operations. Like other lenders, we face the risk that our customers will not repay their loans. A customer’s failure to repay us is usually preceded by missed monthly payments.
Added
Since many of our loans are secured by collateral, we may attempt to seize the collateral if and when a customer defaults on a loan. However, the value of the collateral might not equal the amount of the unpaid loan, and we may be unsuccessful in recovering the remaining balance from our customer.
Removed
A prolonged U.S. government shutdown or default by the U.S. on government obligations would harm our results of operations.
Added
The laws, regulations and standard operating procedures that are applicable to SBA and USDA loan products may change at any time.
Removed
We face risks in connection with our participation in government programs in response to the COVID-19 pandemic. Federal, state and local governmental authorities enacted legislation, regulations, and protocols in response to the COVID-19 pandemic.
Added
The technology-based lending platform that is pivotal to our success is dependent on the use of intellectual property owned by third parties. We or our vendors license the use of this intellectual property from others. This third-party intellectual property may not continue to be available to us on commercially reasonable terms or at all.
Removed
Our participation in and execution of any such programs may cause operational, compliance, reputational, and credit risks, which could result in litigation, governmental action or other forms of loss. The CARES Act temporarily added a new program titled the Paycheck Protection Program (the “PPP”) to the SBA’s 7(a) loan program.
Added
As disclosed in Part II - Item 9A. Controls and Procedures, management has identified a material weakness in our internal control over financial reporting. As a result, management concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2024. The Company is currently working to remediate the material weakness.
Removed
We were an active participant in the program originating a substantial number and principal amount of PPP loans. 19 Table of Contents In addition, the CARES Act provided regulatory relief on deferrals offered to certain borrowers and provided six months of payment relief through the first quarter of 2021 from the SBA for certain loans guaranteed by that agency.
Added
However, there can be no assurance that these remediation efforts will be successful. In addition, these remediation efforts will place a burden on management and may result in additional expenses.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeAdditionally, annual risk assessments and penetration tests are performed. 35 Table of Contents Management of Material Risks & Integrated Overall Risk Management Assessing, identifying, and managing cybersecurity risks is integrated into our overall risk management framework. The Cybersecurity Program is integrated into the Company’s Enterprise Risk Management (“ERM”) program and framework.
Biggest changeFurther, the Company’s internal controls, various threat landscapes, internal events and incidents, and emerging risks are periodically reviewed to make adjustments to the Cybersecurity Program as needed. Additionally, annual risk assessments and penetration tests are performed. Management of Material Risks & Integrated Overall Risk Management Assessing, identifying, and managing cybersecurity risks is integrated into our overall risk management framework.
It includes the following elements: • Identification and assessment of cybersecurity threats based on periodic internal and external assessments and monitoring, information from internal stakeholders, and external publications and resources. • Technical and organizational safeguards designed to protect against identified threats, including documented policies and procedures, employee training and awareness, and technical controls. • Processes to detect the occurrence of cybersecurity events and incidents, maintenance, and periodic testing of incident response and recovery and business continuity plans and processes. • A third-party risk management program to manage cybersecurity risks associated with our service providers, suppliers, and vendors using a risk-based approach that focuses on cybersecurity risks associated with critical service providers, suppliers, and vendors.
It includes the following elements: • Identification and assessment of cybersecurity threats based on periodic internal and external assessments and monitoring, information from internal stakeholders, and external publications and resources. 34 Table of Contents • Technical and organizational safeguards designed to protect against identified threats, including documented policies and procedures, employee training and awareness, and technical controls. • Processes to detect the occurrence of cybersecurity events and incidents, maintenance, and periodic testing of incident response and recovery and business continuity plans and processes. • A third-party risk management program to manage cybersecurity risks associated with our service providers, suppliers, and vendors using a risk-based approach that focuses on cybersecurity risks associated with critical service providers, suppliers, and vendors.
This enables the highest levels of management to be kept abreast of the Company’s cybersecurity posture and potential risks facing the Company. Furthermore, significant cybersecurity matters and strategic risk management decisions are escalated to the Risk Committee of the Board of Directors, where appropriate. 37 Table of Contents
This enables the highest levels of management to be kept abreast of the Company’s cybersecurity posture and potential risks facing the Company. Furthermore, significant cybersecurity matters and strategic risk management decisions are escalated to the Risk Committee of the Board of Directors, where appropriate. 36 Table of Contents
Governance Managing cybersecurity risk is a key focus for the Board of Directors. The Company seeks to ensure effective governance in managing risks associated with cybersecurity threats, as more thoroughly described below. Board of Directors Oversight The Risk Committee of the Board of Directors is responsible for the oversight of risks from cybersecurity threats.
Governance Managing cybersecurity risk is a key focus for the Board of Directors. The Company seeks to ensure effective governance in managing risks associated with cybersecurity threats, as more thoroughly described below. 35 Table of Contents Board of Directors Oversight The Risk Committee of the Board of Directors is responsible for the oversight of risks from cybersecurity threats.
Friedberg is also an adjunct faculty member at Carnegie Mellon University, teaching risk and cyber practices. Mr. Friedberg holds a Bachelor of Science from Carnegie Mellon University, a Master of Business Administration from George Washington University, and maintains certification as a Certified Information Systems Security Professional and Certified Information Security Manager.
Friedberg holds a Bachelor of Science from Carnegie Mellon University, a Master of Business Administration from George Washington University, and maintains certification as a Certified Information Systems Security Professional and Certified Information Security Manager.
Such quarterly reporting may include, but is not limited to, key metrics and risk indicators, penetration test results, risk assessment results, status of ongoing initiatives, incident and notable event reports, compliance with regulatory standards, and operational issues. 36 Table of Contents In addition to quarterly reporting to the Board’s Risk Committee, the Company’s incident response processes include escalation to management when an incident is suspected.
Such quarterly reporting may include, but is not limited to, key metrics and risk indicators, penetration test results, risk assessment results, status of ongoing initiatives, incident and notable event reports, compliance with regulatory standards, and operational issues.
Together, these programs are designed to foster a company-wide culture of cybersecurity risk management. Our Information Security team works closely with stakeholders across technology, legal, risk, and business units to implement and monitor controls. See “Governance” below for additional information on processes used by management to monitor cybersecurity incidents.
The Cybersecurity Program is integrated into the Company’s Enterprise Risk Management (“ERM”) program and framework. Together, these programs are designed to foster a company-wide culture of cybersecurity risk management. Our Information Security team works closely with stakeholders across technology, legal, risk, and business units to implement and monitor controls.
The Company maintains a relationship with a leading incident response firm to assist the Company in responding to cybersecurity incidents, if appropriate. Oversight of Third-party Risks Our third-party service providers, suppliers, vendors, and partners face cybersecurity risks that could impact us. Therefore, the Company has developed and implemented processes to oversee and manage these risks.
The Company also receives periodic threat intelligence reports from vendors, peers, and industry information sharing and analysis centers. The Company maintains a relationship with a leading incident response firm to assist the Company in responding to cybersecurity incidents, if appropriate. Oversight of Third-party Risks Our third-party service providers, suppliers, vendors, and partners face cybersecurity risks that could impact us.
The Company also maintains cybersecurity insurance; however, the costs related to cybersecurity threats or disruptions may not be fully insured. Additionally, the Company engages third parties to perform penetration tests on an annual basis. The Company also periodically engages third parties for assessments of specific products, services, or applications.
The Company engages a third party to audit its information technology function, which includes an assessment of the Company’s cybersecurity efforts. The Company also maintains cybersecurity insurance; however, the costs related to cybersecurity threats or disruptions may not be fully insured. Additionally, the Company engages third parties to perform penetration tests on an annual basis.
The Company leverages various software and service providers as part of its Cybersecurity Program, including a managed security service provider and a service provider that helps monitor third-party suppliers. The Company also receives periodic threat intelligence reports from vendors, peers, and industry information sharing and analysis centers.
The Company also periodically engages third parties for assessments of specific products, services, or applications. The Company leverages various software and service providers as part of its Cybersecurity Program, including a managed security service provider and a service provider that helps monitor third-party suppliers.
Risk Management Personnel Primary responsibility for assessing, monitoring, and managing our Cybersecurity Program rests with the CISO, Mr. Richard Friedberg. With over 25 years of experience in the field of cybersecurity, his background includes extensive experience across the financial sector, technology sector, and U.S. government. Mr.
With over 25 years of experience in the field of cybersecurity, his background includes extensive experience across the financial sector, technology sector, and U.S. government. Mr. Friedberg is also an adjunct faculty member at Carnegie Mellon University, teaching risk and cyber practices. Mr.
Engagement of Third Parties in Connection With Risk Management The Company leverages various third parties to conduct evaluations of our Cybersecurity Program, including security controls. The Company engages a third party to audit its information technology function, which includes an assessment of the Company’s cybersecurity efforts.
See “Governance” below for additional information on processes used by management to monitor cybersecurity incidents. Engagement of Third Parties in Connection With Risk Management The Company leverages various third parties to conduct evaluations of our Cybersecurity Program, including security controls.
Removed
Further, the Company’s internal controls, various threat landscapes, internal events and incidents, and emerging risks are periodically reviewed to make adjustments to the Cybersecurity Program as needed.
Added
Therefore, the Company has developed and implemented processes to oversee and manage these risks.
Added
In addition to quarterly reporting to the Board’s Risk Committee, the Company’s incident response processes include escalation to management when an incident is suspected. Risk Management Personnel Primary responsibility for assessing, monitoring, and managing our Cybersecurity Program rests with the CISO, Mr. Richard Friedberg.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOffice Address Year Opened Approximate Square Footage Owned or Leased Operating Segment Wilmington, NC Main Offices 1741 Tiburon Dr 2013 36,000 Owned Banking Fintech 1757 Tiburon Dr 2015 55,000 1805 Tiburon Dr 2019 80,972 1811 Tiburon Dr 2019 24,329 Santa Rosa, CA Office 100 B St Ste. 100 2015 2,386 Leased Banking Roseville, CA Office 1223 Pleasant Grove Blvd Ste. 120 2016 1,416 Leased Banking Wilmington Flight Operations 1890 Trask Dr 2017 25,500 Owned Banking Fintech Raleigh, NC Office 1017 Main Campus Dr, Ste. 3200 2019 3,889 Leased Banking Rocky Mount, NC Office 210 Bryant St, Ste.
Biggest changeOffice Address Year Opened Approximate Square Footage Owned or Leased Wilmington, NC Main Offices 1741 Tiburon Dr 2013 36,000 Owned 1757 Tiburon Dr 2015 55,000 1805 Tiburon Dr 2019 64,000 1811 Tiburon Dr 2019 24,000 1817 Tiburon Dr 2024 67,000 Santa Rosa, CA Office 100 B St Ste. 100 2015 2,386 Leased Roseville, CA Office 1223 Pleasant Grove Blvd Ste. 120 2016 1,416 Leased Wilmington Flight Operations 1890 Trask Dr 2017 25,500 Owned Rocky Mount, NC Office 210 Bryant St, Ste.
Dallas Parkway, Ste. 525 2022 5,241 Leased Banking Charlotte, NC Office 1018 Jay Street, Ste. 300 2023 7,645 Leased Banking The Company believes that its properties are maintained in good operating condition and are suitable and adequate for its operational needs.
A 2020 1,698 Leased Wilmington, NC Office 106 Market Street, Ste. 200 2021 5,110 Leased Charlotte, NC Office 1018 Jay Street, Ste. 300 2023 7,645 Leased The Company believes that its properties are maintained in good operating condition and are suitable and adequate for its operational needs.
Removed
A 2020 1,698 Leased Banking Wilmington, NC Office 106 Market Street, Ste. 200 2021 5,110 Leased Banking Dallas, TX Office 14675 N.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn addition, the Company is not aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on its business, operating results or financial condition. Item 4. MINE SAFETY DISCLOSURES Not applicable. 38 Table of Contents PART II
Biggest changeIn addition, the Company is not aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on its business, operating results or financial condition. Item 4. MINE SAFETY DISCLOSURES Not applicable. 37 Table of Contents PART II
Item 3. LEGAL PROCEEDINGS In the ordinary course of operations, the Company is at times involved in legal proceedings. In the opinion of management, as of December 31, 2023, 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 3. LEGAL PROCEEDINGS In the ordinary course of operations, the Company is at times involved in legal proceedings. In the opinion of management, as of December 31, 2024, 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 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeBancshares’ non-voting common stock is not listed for trading on any exchange. Holders As of January 31, 2024, there were 44,648,626 voting shares outstanding and 210 holders of record for Bancshares’ common stock. Dividend Policy The timing and amount of cash dividends paid depends on Bancshares’ earnings, capital requirements, financial condition and other relevant factors.
Biggest changeHolders As of January 31, 2025, there were 45,403,593 voting shares outstanding and 207 holders of record for Bancshares’ common stock. Dividend Policy The timing and amount of cash dividends paid depends on Bancshares’ earnings, capital requirements, financial condition and other relevant factors.
Stock Performance Graph The stock performance graph required by Item 201(e) of Regulation S-K is incorporated into this Report by reference from Bancshares annual report to shareholders for the year ended December 31, 2023, which will be posted on the Company’s website and furnished to the SEC subsequent to the date of this Report.
Stock Performance Graph The stock performance graph required by Item 201(e) of Regulation S-K is incorporated into this Report by reference from Bancshares annual report to shareholders for the year ended December 31, 2024, which will be posted on the Company’s website and furnished to the SEC subsequent to the date of this Report.
The stock performance graph shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, nor shall it be deemed to be “soliciting material” subject to Regulation 14A or incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. 39 Table of Contents Item 6. [RESERVED] 40 Table of Contents
The stock performance graph shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, nor shall it be deemed to be “soliciting material” subject to Regulation 14A or incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Securities Authorized for Issuance under Equity Compensation Plans See Item 12 of this Report for disclosure regarding securities authorized for issuance under equity compensation plans required by Item 201(d) of Regulation S-K.
Securities Authorized for Issuance under Equity Compensation Plans See Item 12 of this Report for disclosure regarding securities authorized for issuance under equity compensation plans required by Item 201(d) of Regulation S-K. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
Removed
Purchases of Equity Securities by the Issuer and Affiliated Purchasers On May 17, 2022, the Board of Directors of the Company authorized the repurchase of up to $50,000,000 in shares of the Company’s voting common stock from time to time through December 31, 2023 (the “Repurchase Program”).
Removed
The Repurchase Program enabled the Company to acquire shares through open market purchases or privately negotiated transactions, including through a Rule 10b5-1 plan, at the discretion of management and on terms (including quantity, timing, and price) that management determined to be advisable.
Removed
Actions in connection with the repurchase program were subject to various factors, including the Company’s capital and liquidity positions, regulatory and accounting considerations, the Company’s financial and operational performance, alternative uses of capital, the trading price of the Company’s common stock, and market conditions.
Removed
The repurchase program did not obligate the Company to acquire a specific dollar amount or number of shares and was subject to extension, modification, or discontinuance at any time. As of December 31, 2023, the Company had not made any purchases of shares under the Repurchase Program.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data 73 Report of Independent Registered Public Accounting Firm 74 Consolidated Balance Sheets as of December 31, 2023 and 2022 79 Consolidated Statements of Income for the Years Ended December 31, 2023, 2022 and 2021 80 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022 and 202 1 81 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2023, 2022 and 202 1 82 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021 83 Notes to Consolidated Financial Statements 85
Biggest changeFinancial Statements and Supplementary Data 68 Reports of Independent Registered Public Accounting Firms 74 Consolidated Balance Sheets as of December 31, 2024 and 2023 75 Consolidated Statements of Income for the Years Ended December 31, 2024, 2023 and 2022 76 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2024, 2023 and 2022 77 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2024, 2023 and 2022 78 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023, and 2022 79 Notes to Consolidated Financial Statements 81
Item 6. [Reserved] 40 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 41 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 71 Item 8.
Item 6. [Reserved] 38 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 39 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 66 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeActual Minimum Capital Requirement Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions (1) Amount Ratio Amount Ratio Amount Ratio Consolidated - December 31, 2023 Common Equity Tier 1 (to Risk-Weighted Assets) $ 960,433 11.73 % $ 368,549 4.50 % N/A N/A Total Capital (to Risk-Weighted Assets) $ 1,063,157 12.98 % $ 655,198 8.00 % N/A N/A Tier 1 Capital (to Risk-Weighted Assets) $ 960,433 11.73 % $ 491,399 6.00 % N/A N/A Tier 1 Capital (to Average Assets) $ 960,433 8.58 % $ 447,561 4.00 % N/A N/A Bank - December 31, 2023 Common Equity Tier 1 (to Risk-Weighted Assets) $ 823,478 10.40 % $ 356,426 4.50 % $ 514,837 6.50 % Total Capital (to Risk-Weighted Assets) $ 922,876 11.65 % $ 633,646 8.00 % $ 792,057 10.00 % Tier 1 Capital (to Risk-Weighted Assets) $ 823,478 10.40 % $ 475,234 6.00 % $ 633,646 8.00 % Tier 1 Capital (to Average Assets) $ 823,478 7.41 % $ 444,480 4.00 % $ 555,600 5.00 % Consolidated - December 31, 2022 Common Equity Tier 1 (to Risk-Weighted Assets) $ 888,235 12.47 % $ 320,446 4.50 % N/A N/A Total Capital (to Risk-Weighted Assets) $ 977,360 13.73 % $ 569,681 8.00 % N/A N/A Tier 1 Capital (to Risk-Weighted Assets) $ 888,235 12.47 % $ 427,261 6.00 % N/A N/A Tier 1 Capital (to Average Assets) $ 888,235 9.26 % $ 383,499 4.00 % N/A N/A Bank - December 31, 2022 Common Equity Tier 1 (to Risk-Weighted Assets) $ 730,092 10.70 % $ 307,179 4.50 % $ 443,703 6.50 % Total Capital (to Risk-Weighted Assets) $ 815,577 11.95 % $ 546,096 8.00 % $ 682,620 10.00 % Tier 1 Capital (to Risk-Weighted Assets) $ 730,092 10.70 % $ 409,572 6.00 % $ 546,096 8.00 % Tier 1 Capital (to Average Assets) $ 730,092 7.70 % $ 379,396 4.00 % $ 474,245 5.00 % Consolidated - December 31, 2021 Common Equity Tier 1 (to Risk-Weighted Assets) $ 689,367 12.38 % $ 250,619 4.50 % N/A N/A Total Capital (to Risk-Weighted Assets) $ 753,691 13.53 % $ 445,544 8.00 % N/A N/A Tier 1 Capital (to Risk-Weighted Assets) $ 689,367 12.38 % $ 334,158 6.00 % N/A N/A Tier 1 Capital (to Average Assets) $ 689,367 8.87 % $ 310,902 4.00 % N/A N/A Bank - December 31, 2021 Common Equity Tier 1 (to Risk-Weighted Assets) $ 640,652 12.05 % $ 239,201 4.50 % $ 345,512 6.50 % Total Capital (to Risk-Weighted Assets) $ 704,976 13.26 % $ 425,246 8.00 % $ 531,557 10.00 % Tier 1 Capital (to Risk-Weighted Assets) $ 640,652 12.05 % $ 318,934 6.00 % $ 425,246 8.00 % Tier 1 Capital (to Average Assets) $ 640,652 8.32 % $ 307,931 4.00 % $ 384,914 5.00 % (1) Prompt corrective action provisions are not applicable at the bank holding company level. 64 Table of Contents 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.
Biggest changeActual Minimum Capital Requirement Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions (1) Amount Ratio Amount Ratio Amount Ratio 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 % Consolidated - December 31, 2023 Common Equity Tier 1 (to Risk-Weighted Assets) $ 960,433 11.73 % $ 368,549 4.50 % N/A N/A Total Capital (to Risk-Weighted Assets) $ 1,063,157 12.98 % $ 655,198 8.00 % N/A N/A Tier 1 Capital (to Risk-Weighted Assets) $ 960,433 11.73 % $ 491,399 6.00 % N/A N/A Tier 1 Capital (to Average Assets) $ 960,433 8.58 % $ 447,561 4.00 % N/A N/A Bank - December 31, 2023 Common Equity Tier 1 (to Risk-Weighted Assets) $ 823,478 10.40 % $ 356,426 4.50 % $ 514,837 6.50 % Total Capital (to Risk-Weighted Assets) $ 922,876 11.65 % $ 633,646 8.00 % $ 792,057 10.00 % Tier 1 Capital (to Risk-Weighted Assets) $ 823,478 10.40 % $ 475,234 6.00 % $ 633,646 8.00 % Tier 1 Capital (to Average Assets) $ 823,478 7.41 % $ 444,480 4.00 % $ 555,600 5.00 % Consolidated - December 31, 2022 Common Equity Tier 1 (to Risk-Weighted Assets) $ 888,235 12.47 % $ 320,446 4.50 % N/A N/A Total Capital (to Risk-Weighted Assets) $ 977,360 13.73 % $ 569,681 8.00 % N/A N/A Tier 1 Capital (to Risk-Weighted Assets) $ 888,235 12.47 % $ 427,261 6.00 % N/A N/A Tier 1 Capital (to Average Assets) $ 888,235 9.26 % $ 383,499 4.00 % N/A N/A Bank - December 31, 2022 Common Equity Tier 1 (to Risk-Weighted Assets) $ 730,092 10.70 % $ 307,179 4.50 % $ 443,703 6.50 % Total Capital (to Risk-Weighted Assets) $ 815,577 11.95 % $ 546,096 8.00 % $ 682,620 10.00 % Tier 1 Capital (to Risk-Weighted Assets) $ 730,092 10.70 % $ 409,572 6.00 % $ 546,096 8.00 % Tier 1 Capital (to Average Assets) $ 730,092 7.70 % $ 379,396 4.00 % $ 474,245 5.00 % (1) Prompt corrective action provisions are not applicable at the bank holding company level.
The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, ancillary income, prepayment speeds and default rates and losses, with the prepayment speed and discount rate being the most sensitive assumptions.
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.
This discussion should be read in conjunction with the financial statements and related notes included elsewhere in this Report on Form 10-K. Results of operations for the periods included in this review are not necessarily indicative of results to be obtained during any future period. Dollar amounts in tables are stated in thousands, except for per share amounts.
This discussion should be read in conjunction with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Results of operations for the periods included in this review are not necessarily indicative of results to be obtained during any future period. Dollar amounts in tables are stated in thousands, except for per share amounts.
In addition, the loan servicing asset revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates. Net (loss) gain on loans accounted for under the fair value option is also significantly impacted by changes in market rates, prepayment speeds and inherent credit risk.
In addition, the loan servicing asset revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds. 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.
This increase was principally due to the significant growth in the held for investment loan and lease portfolio outpacing growth in interest-bearing liabilities offset by an increase in average cost of funds which exceeded the increase in average yield on interest-earning assets.
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 an increase in average cost of funds which exceeded the increase in average yield on interest-earning assets.
While the efficiency ratio is a measure of productivity, its value reflects the unique attributes of the “high-touch business model” the Company employs. 69 Table of Contents The Company believes these non-GAAP financial measures provide useful information to management and investors that is supplementary to the financial condition, results of operations and cash flows computed in accordance with GAAP; however, the Company acknowledges that non-GAAP financial measures have a number of limitations.
While the efficiency ratio is a measure of productivity, its value reflects the unique attributes of the “high-touch business model” the Company employs. 64 Table of Contents The Company believes these non-GAAP financial measures provide useful information to management and investors that is supplementary to the financial condition, results of operations and cash flows computed in accordance with GAAP; however, the Company acknowledges that non-GAAP financial measures have a number of limitations.
As of December 31, 2023, the Bank’s wholly owned subsidiaries were 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.
As of December 31, 2024, the Bank’s wholly owned subsidiaries were 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.
Contractual Obligations The Company has entered into significant fixed and determinable contractual obligations for future payments. See the accompanying notes to the consolidated financial statements for expected timing of payments as of December 31, 2023. These include operating leases (Note 4. Leases), time deposits with stated maturity dates (Note 7. Deposits) and borrowings (Note 8. Borrowings).
Contractual Obligations The Company has entered into significant fixed and determinable contractual obligations for future payments. See the accompanying notes to the consolidated financial statements for expected timing of payments as of December 31, 2024. These include operating leases (Note 4. Leases), time deposits with stated maturity dates (Note 7. Deposits) and borrowings (Note 8. Borrowings).
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. In 2022, the Company entered into airplane purchase agreement commitments of which one airplane was placed in service in 2023 and one airplane purchase agreement commitment is outstanding as of December 31, 2023.
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. In 2022, the Company entered into airplane purchase agreement commitments and one airplane purchase agreement commitment was outstanding as of December 31, 2023, which was placed in service in 2024.
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. 49 Table of Contents The following table shows the components of noninterest expense and the related dollar and percentage changes for the periods presented.
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. 48 Table of Contents The following table shows the components of noninterest expense and the related dollar and percentage changes for the periods presented.
Offsetting these revenues are the cost of funding sources, provision for loan and lease 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.
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.
This increase was primarily due to the growth of the Company’s customer base in the savings and time deposit products, enhanced by a nationwide marketing campaign with attractive rates and additional wholesale funding, to support the significant loan growth in 2023.
This increase was primarily due to the growth of the Company’s customer base in the savings and time deposit products, enhanced by a nationwide marketing campaign with attractive rates and additional wholesale funding, to support the significant loan growth in 2024.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following presents management’s discussion and analysis (“MD&A”) of the more significant factors that affected the Company's financial condition and results of operations for the year ended December 31, 2023 as compared to December 31, 2022.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following presents management’s discussion and analysis (“MD&A”) of the more significant factors that affected the Company's financial condition and results of operations for the year ended December 31, 2024 as compared to December 31, 2023.
The increase in the investment portfolio for 2023 was to support earnings through additional yield compared to cash alternatives, continue to provide a contingent funding source and act as a mechanism to manage the Company’s interest rate risk.
The increase in the investment portfolio for 2024 was to support earnings through additional yield compared to cash alternatives, continue to provide a contingent funding source and act as a mechanism to manage the Company’s interest rate risk.
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 Audit Committee of the Board of Directors.
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.
There are a number of exclusions from the definition of “covered funds,” including for investments in Small Business Investment Companies, or SBICs, and certain qualifying venture capital funds. The Volcker Rule also places restrictions on proprietary trading, which could impact certain hedging activities. Limits on Interchange Fees.
There are a number of exclusions from the definition of “covered funds,” including for investments in Small Business Investment Companies, or SBICs, and certain qualifying venture capital funds. The Volcker Rule also places restrictions on proprietary trading, which could impact certain hedging activities. 50 Table of Contents Limits on Interchange Fees.
The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies and banks with $10 billion or more in total consolidated assets. Consumer Financial Laws.
The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies and banks with $10 billion or more in total consolidated asset Consumer Financial Laws.
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 iden tification and intervention is critical to successfully managing a small business loan portfolio.
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.
The Bank exceeded $10 billion in assets at December 31, 2023. This will trigger a reduction of annual pre-tax income from debit card interchange fees beginning July 1, 2024. Additional information regarding the Durbin Amendment is presented in Item 1A. Risk Factors.
The Bank exceeded $10 billion in assets at December 31, 2023. This triggered a reduction of annual pre-tax income from debit card interchange fees beginning July 1, 2024. Additional information regarding the Durbin Amendment is presented in Item 1A. Risk Factors.
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 market value of unpledged investment securities; and (d) availability under lines of credit, FHLB advances, Federal Reserve Bank Term Funding Program and the Federal Reserve Discount Window.
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 market value of unpledged investment securities; and (d) availability under lines of credit, FHLB advances and the Federal Reserve Discount Window.
Approximately 12.1% of the current held for sale portfolio is older than two years. The majority of held for sale loans over one year old are composed of construction loans or other loans that have yet to fully fund.
Approximately 3.3% of the current held for sale portfolio is older than two years. The majority of held for sale loans over one year old are composed of construction loans or other loans that have yet to fully fund.
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 Term Funding Program, or through liquidation.
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.
For a comparison of 2022 results to 2021 and other 2021 information not included herein, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 of the 2022 Form 10-K filed with the SEC on February 23, 2023 .
For a comparison of 2023 results to 2022 and other 2022 information not included herein, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 of the 2023 Form 10-K filed with the SEC on February 22, 2024 .
Loans Held for Sale & Serviced Portfolio Any loan or portion of a loan that the Company has the intent and ability to sell is classified as held for sale. The average age of the held for sale portfolio as of December 31, 2023 was 10.9 months from origination date.
Loans Held for Sale & Serviced Portfolio Any loan or portion of a loan that the Company has the intent and ability to sell is classified as held for sale. The average age of the held for sale portfolio as of December 31, 2024 was 6.9 months from origination date.
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. Capital amounts and ratios as of December 31, 2023, 2022 and 2021 are presented in the table below.
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. 61 Table of Contents Capital amounts and ratios as of December 31, 2024, 2023 and 2022 are presented in the table below.
Construction loans typically have extended build out periods that inherently result in longer lead times between origination and the ultimate sale date. Approximately 19.8% of the held for sale portfolio is aged between one and two years.
Construction loans typically have extended build out periods that inherently result in longer lead times between origination and the ultimate sale date. Approximately 27.0% of the held for sale portfolio is aged between one and two years.
The following table provides information with respect to commercial real estate loans as of December 31, 2023.
The following table provides information with respect to commercial real estate loans as of December 31, 2024.
Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time. 67 Table of Contents At December 31, 2023, the key assumptions used to determine the fair value of the Company’s servicing rights included a weighted average prepayment speed equal to 15.3% and a weighted average discount rate equal to 14.5%.
Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time. 47 Table of Contents At December 31, 2024, the key assumptions used to determine the fair value of the Company’s servicing rights included a weighted average prepayment speed equal to 15.6% and a weighted average discount rate equal to 13.5%.
The Bank also lends more broadly to select borrowers outside of those verticals. As of December 31, 2023, the Company’s wholly owned material subsidiaries were the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”), Live Oak Ventures, Inc. (“Live Oak Ventures”) and Canapi Advisors, LLC (“Canapi Advisors”).
The Bank also lends more broadly to select borrowers outside of those verticals. As of December 31, 2024, the Company’s wholly owned material subsidiaries were the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”) and Live Oak Ventures, Inc. (“Live Oak Ventures”).
The increase in noninterest expense was predominately driven by the following items. Salaries and employee benefits : Total personnel expense for 2023 increased by $4.2 million, or 2.5%, compared to 2022 . The increase in salaries and employee benefits was principally related to continued investment in human resources to support strategic and growth initiatives.
The decrease in noninterest expense was predominately driven by the following items. Salaries and employee benefits : Total personnel expense for 2024 increased by $8.2 million, or 4.7%, compared to 2023 . The increase in salaries and employee benefits was principally related to continued investment in human resources to support strategic and growth initiatives.
As of December 31, 2023 and 2022, the cumulative total outstanding balance of loans sold since May 2007 totaled $4.24 billion and $3.48 billion, respectively. The Company generally continues to service loans after the date of sale.
As of December 31, 2024 and 2023, the cumulative total outstanding balance of loans sold since May 2007 totaled $4.72 billion and $4.24 billion, respectively. The Company generally continues to service loans after the date of sale.
Total nonperforming unguaranteed loans and leases as a percentage of total loans and leases held for investment, both excluding loans measured at fair value, increased from 0.27% at the end of 2022 to 0.48% at the end of 2023.
Total nonperforming unguaranteed loans and leases as a percentage of total loans and leases held for investment, excluding loans measured at fair value, increased from 0.48% at the end of 2023 to 0.82% at the end of 2024.
At December 31, 2023 and December 31, 2022, 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 0.8% and 0.7%, respectively.
At December 31, 2024 and December 31, 2023, 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 1.3% and 0.8%, respectively.
Management believes the ACL of $125.8 million at December 31, 2023 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 prove to be accurate.
Management believes the ACL of $167.5 million at December 31, 2024 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 prove to be valid.
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.
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. 39 Table of Contents The Company generates revenue primarily from net interest income and secondarily through the origination and sale of government guaranteed loans.
At December 31, 2023 , the portion o f criticized and classified loans and leases guaranteed by the SBA or USDA totaled $344.8 million and total portfolio unguaranteed exposure risk was $440.3 million, or 8.3% of total held for investment unguaranteed exposure carried at historic al cost.
At December 31, 2024 , the portion o f criticized and classified loans and leases guaranteed by the SBA or USDA 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 historic al cost.
The table below reflects the sensitivity of the current fair value of servicing assets to immediate changes in the above key assumptions with all other assumptions remaining static: As of December 31, 2023 Fair value of servicing rights $48,186 Incremental Increase (Decrease) in Value Prepayment Speed 20% increase ($2,815) 10% increase (1,452) 10% decrease 1,549 20% decrease 3,203 Discount Rate 200 basis point increase ($2,186) 100 basis point increase (1,117) 100 basis point decrease 1,170 200 basis point decrease 2,396 The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance.
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 December. 31, 2024 As of December. 31, 2023 Fair value of servicing rights $55,788 $48,186 Incremental Increase (Decrease) in Value Incremental Increase (Decrease) in Value Prepayment Speed 20% increase ($3,459) ($2,815) 10% increase (1,785) (1,452) Discount Rate 200 basis point increase (2,603) (2,186) 100 basis point increase (1,331) (1,117) The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance.
Loan and Lease Maturity As of December 31, 2023, $10.60 billion, or 79.8%, of the total outstanding balance of loans and leases, including those at fair value and those serviced for others, were variable rate loans that adjust at specified dates based on the prime lending rate or other variable indices.
Loan and Lease Maturity As of December 31, 2024, $13.10 billion, or 85.5%, of the total outstanding balance of loans and leases, including those at fair value and those serviced for others, were variable rate loans that adjust at specified dates based on the prime lending rate or other variable indices.
As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, repres ented 14.6% at December 31, 2023, compared to 9.0% at December 31, 2022.
As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, repres ented 26.7% at December 31, 2024, compared to 14.6% at December 31, 2023.
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. In April 2020, the Company entered into the Federal Reserve Bank's PPPLF.
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.
As of December 31, 2023, $5.97 billion, or 45.0%, of total outstanding balance of loans and leases, including those at fair value and those serviced for others, were variable rate loans that adjust on either a calendar monthly or calendar quarterly basis using the prime lending rate or other variable indices.
As of December 31, 2024, $9.05 billion, or 59.1%, of total outstanding balance of loans and leases, including those at fair value and those serviced for others, were variable rate loans that adjust on either a calendar monthly or calendar quarterly basis using the prime lending rate or other variable indices.
The following is a discussion of these loans and leases. Risk Grades 5 through 8 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 to the notes to consolidated financial statements.
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 to the notes to consolidated financial statements.
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 2023, the provision for loan and lease credit losses was $51.3 million compared to $40.9 million in 2022, an increase of $10.4 million.
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 2024, the provision for credit losses was $96.2 million compared to $51.3 million in 2023, an increase of $44.9 million.
As of December 31, 2023 and 2022, the total outstanding balance of loans and leases, including those serviced for others, was $13.28 billion and $11.38 billion, respectively.
As of December 31, 2024 and 2023, the total outstanding balance of loans and leases, including those serviced for others, was $15.32 billion and $13.28 billion, respectively.
This large bank method is based on a bank’s ability to withstand asset- and funding-related stress, its regulatory ratings, and potential losses to the FDIC in the event of the bank’s failure, subject to discretionary adjustments by the FDIC.
This large bank method is based on a bank’s ability to withstand asset- and funding-related stress, its regulatory ratings, and potential losses to the FDIC in the event of the bank’s failure, subject to discretionary adjustments by the FDIC. The Bank became subject to the large bank method for determining its deposit insurance assessments in 2024. Volcker Rule.
This provision is expected to be applicable to the Bank in the first quarter of 2024. Deposit Insurance Assessments.
This provision became applicable to the Bank in the first quarter of 2024. Deposit Insurance Assessments.
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.
Income from the retention of loans consists principally of interest income. Income from the sale of loans consists of loan servicing revenue and revaluation of related servicing assets along with net gains on sales of loans.
Of those deposits, $255.8 million was uninsured and 97.6% of the uninsured time deposit accounts were scheduled to mature within one year.
Of those deposits, $293.1 million was uninsured and 98.6% of the uninsured time deposit accounts were scheduled to mature within one year.
At December 31, 2023 , approximately 99.3% of loans and leases classified as Risk Grade 5 are performing with no relationships having payments past due more than 30 days.
At December 31, 2024, approximately 97.4% of loans and leases classified as Risk Grade 50 are performing with no relationships having payments past due more than 30 days.
The increase in the ACL during 2023 was primarily due to significant loan growth combined with charge-off related impacts, as addressed more fully in the above section captioned “Provision for Loan and Lease Credit Losses” in “Results of Operations.” 58 Table of Contents Actual past due held for investment loans and leases, inclusive of loans measured at fair value, have increased by $65.7 million since December 31, 2022.
The increase in the ACL during 2024 was primarily due to record loan growth combined with the impacts of the current macroeconomic environment, as addressed more fully in the above section captioned “Provision for Credit Losses” in “Results of Operations.” 56 Table of Contents Actual past due held for investment loans and leases, inclusive of loans measured at fair value, have increased by $197.4 million since December 31, 2023.
As of and for the Year Ended December 31, 2023 2022 2021 Income Statement Data Net income $ 73,898 $ 176,208 $ 166,995 Per Common Share Net income, diluted $ 1.64 $ 3.92 $ 3.71 Dividends declared 0.12 0.12 0.12 Book value 20.23 18.41 16.39 Tangible book value (1) 20.15 18.32 16.31 Performance Ratios Return on average assets 0.69 % 1.96 % 2.03 % Return on average equity 8.66 21.92 25.58 Net interest margin 3.35 3.87 3.86 Efficiency ratio (1) 70.65 55.57 50.55 Noninterest income to total revenue 24.45 42.09 35.06 Dividend payout ratio 7.20 2.99 3.10 Selected Loan Metrics Loans and leases originated $ 3,946,873 $ 4,007,621 $ 4,480,725 Outstanding balance of sold loans serviced 4,238,328 3,481,885 3,298,828 Asset Quality Ratios Allowance for credit losses to loans and leases held for investment (2) 1.53 % 1.41 % 1.30 % Net charge-offs (2) $ 21,373 $ 7,961 $ 3,932 Net charge-offs to average loans and leases held for investment (2) (3) 0.28 % 0.14 % 0.08 % Nonperforming loans and leases at historical cost (2) Unguaranteed $ 39,285 $ 18,784 $ 15,987 Guaranteed 95,678 54,608 26,546 Total 134,963 73,392 42,533 Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment (2) 0.48 % 0.27 % 0.33 % Nonperforming loans at fair value (4) Unguaranteed $ 7,230 $ 6,678 $ 4,791 Guaranteed 41,244 38,212 33,471 Total 48,474 44,890 38,262 Unguaranteed nonperforming fair value loans to loans held for investment (4) 1.86 % 1.35 % 0.74 % Consolidated Capital Ratios Common equity tier 1 capital (to risk-weighted assets) 11.73 % 12.47 % 12.38 % Tier 1 leverage capital (to average assets) 8.58 9.26 8.87 (1) See "Non-GAAP Measures" presented at the conclusion of this Item 7 for more information and a reconciliation to the most closely related GAAP measure.
As of and for the Year Ended December 31, 2024 2023 2022 Income Statement Data Net income attributable to Live Oak Bancshares, Inc. $ 77,474 $ 73,898 $ 176,208 Per Common Share Net income, diluted $ 1.69 $ 1.64 $ 3.92 Dividends declared 0.12 0.12 0.12 Book value 22.12 20.23 18.41 Tangible book value (1) 22.05 20.15 18.32 Performance Ratios Return on average assets 0.65 % 0.69 % 1.96 % Return on average equity 7.94 8.66 21.92 Net interest margin 3.27 3.35 3.87 Efficiency ratio (1) 62.89 70.65 55.57 Noninterest income to total revenue 24.77 24.45 42.09 Dividend payout ratio 6.97 7.20 2.99 Selected Loan Metrics Loans and leases originated $ 5,155,244 $ 3,946,873 $ 4,007,621 Outstanding balance of sold loans serviced 4,715,895 4,238,328 3,481,885 Asset Quality Ratios Allowance for credit losses to loans and leases held for investment (2) 1.69 % 1.53 % 1.41 % Net charge-offs (2) $ 46,692 $ 21,373 $ 7,961 Net charge-offs to average loans and leases held for investment (2) (3) 0.52 % 0.28 % 0.14 % Nonperforming loans and leases at historical cost (2) Unguaranteed $ 81,412 $ 39,285 $ 18,784 Guaranteed 222,885 95,678 54,608 Total 304,297 134,963 73,392 Unguaranteed nonperforming historical cost loans and leases, to loans and leases held for investment (2) 0.82 % 0.48 % 0.27 % Nonperforming loans at fair value (4) Unguaranteed $ 9,115 $ 7,230 $ 6,678 Guaranteed 54,873 41,244 38,212 Total 63,988 48,474 44,890 Unguaranteed nonperforming fair value loans to loans held for investment (4) 2.77 % 1.86 % 1.35 % Consolidated Capital Ratios Common equity tier 1 capital (to risk-weighted assets) 11.04 % 11.73 % 12.47 % Tier 1 leverage capital (to average assets) 8.21 8.58 9.26 (1) See "Non-GAAP Measures" presented at the conclusion of this Item 7 for more information and a reconciliation to the most closely related GAAP measure.
Management implements a proactive approach to identifying and classifying loans and leases as special mention (also referred to as criticized), Risk Grade 5. At December 31, 2023, and December 31, 2022, Risk Grade 5 loans and leases, excluding loans measured at fair value, totaled $599.2 million and $286.5 million, respectively, for a year-over-year increase of $312.7 million.
Management implements a proactive approach to identifying and classifying loans and leases as special mention (also referred to as criticized), Risk Grade 50. At December 31, 2024, and December 31, 2023, Risk Grade 50 loans and leases, excluding loans measured at fair value, totaled $529.9 million and $599.2 million, respectively, for a year-over-year decrease of $69.3 million.
Net charge-offs for loans and leases carried at historical cost were $21.4 million, or 0.28% of average loans and leases held for investment at amortized cost, excluding loans measured at fair value, for 2023, compared to net charge-offs of $8.0 million, or 0.14%, for 2022, an increase of $13.4 million, or 168.5%.
Net charge-offs for loans and leases carried at historical cost were $46.7 million, or 0.52% of average loans and leases held for investment at amortized cost, excluding loans measured at fair value, for 2024, compared to net charge-offs of $21.4 million, or 0.28%, for 2023, an increase of $25.3 million, or 118.5%.
Allowance for Credit Losses on Loans and Leases The ACL of $96.6 million at December 31, 2022 , increased by $29.3 million, or 30.3%, to $125.8 million at December 31, 2023 . The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.5% and 1.4% at December 31, 2023 and 2022 , respectively.
Allowance for Credit Losses on Loans and Leases The ACL of $125.8 million at December 31, 2023 , increased by $41.7 million, or 33.1%, to $167.5 million at December 31, 2024 . The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.7% and 1.5% at December 31, 2024 and 2023 , respectively.
(2) Average loans and leases held for investment, at amortized cost. Investment Securities Investment securities totaled $1.13 billion at December 31, 2023, an increase of $111.4 million, or 11.0%, compared to $1.01 billion at December 31, 2022.
(2) Average loans and leases held for investment, at amortized cost. Investment Securities Investment securities totaled $1.25 billion at December 31, 2024, an increase of $122.0 million, or 10.8%, compared to $1.13 billion at December 31, 2023.
As of December 31, 2023, the Company also has $301.0 million in brokered deposits with $75.2 million scheduled to mature in less than a year and $225.8 million scheduled to mature within one to three years.
As of December 31, 2024, the Company also has $351.0 million in brokered deposits with $225.7 million scheduled to mature in less than a year and $125.3 million scheduled to mature within one to three years.
As indicated in the rate/volume table below, the overall increase discussed above is reflected in increased interest income of $243.8 million outpacing growth in interest expense of $226.0 million for 2023 compared to 2022. The net interest margin decreased from 3.87% for 2022 to 3.35% for 2023 .
As indicated in the rate/volume table below, the overall increase discussed above is reflected in increased interest income of $124.1 million outpacing growth in interest expense of $93.5 million for 2024 compared to 2023. The net interest margin decreased from 3.35% for 2023 to 3.27% for 2024 .
Net (Loss) Gain on Loans Accounted for Under the Fair Value Option : For 2023, the Company had a net loss on loans accounted for under the fair value option of $3.5 million compared to a net gain of $1.0 million for 2022, a negative change of $4.6 million.
Net Gain (Loss) on Loans Accounted for Under the Fair Value Option : For 2024, the Company had a net gain on loans accounted for under the fair value option of $2.4 million compared to a net loss of $3.5 million for 2023, a positive change of $5.9 million.
Total loans and leases 90 or more days past due increased $68.2 million, or 120.6%, compared to December 31, 2022. This increase was comprised of a $24.0 million increase in unguaranteed exposure combined with a $44.2 million increase in the guaranteed portion of past due loans compared to December 31, 2022.
Total loans and leases 90 or more days past due increased $131.0 million, or 105.1%, compared to December 31, 2023. This increase was comprised of a $6.4 million increase in unguaranteed exposure combined with a $124.6 million increase in the guaranteed portion of past due loans compared to December 31, 2023.
Noninterest-bearing deposits increased $65.2 million, or 33.6%, during 2023, and interest-bearing deposits increased $1.32 billion, or 15.2%, during the same period. The aggregate amount of time deposits in denominations of $250 thousand or more at December 31, 2023 was approximately $695.6 million.
Noninterest-bearing deposits increased $59.6 million, or 23.0%, during 2024, and interest-bearing deposits increased $1.43 billion, or 14.2%, during the same period. The aggregate amount of time deposits in denominations of $250 thousand or more at December 31, 2024 was approximately $695.9 million.
Total unguaranteed loans and leases past due were comprised of $37.6 million carried at historical cost, an increase of $16.4 million, and $9.8 million measured at fair value, an increase of $237 thousand, as of December 31, 2023 compared to December 31, 2022. Management continues to actively monitor and work to improve asset quality.
Total unguaranteed loans and leases past due were comprised of $77.5 million carried at historical cost, an increase of $39.8 million, and $10.3 million measured at fair value, an increase of $447 thousand, as of December 31, 2024 compared to December 31, 2023. Management continues to actively monitor and work to improve asset quality.
At December 31, 2023, the total amount of these four liquidity source items was $4.26 billion, or 37.8% of total assets, a decrease of 2.9% of total assets from $4.01 billion, or 40.7% of total assets, at December 31, 2022. Loans and other assets are funded primarily by loan sales, wholesale deposits and core deposits.
At December 31, 2024, the total amount of these four liquidity source items was $4.20 billion, or 32.4% of total assets, a decrease of 5.4% of total assets from $4.26 billion, or 37.8% of total assets, at December 31, 2023. Loans and other assets are funded primarily by customer deposits, brokered deposits and loan sales.
The carrying amount of loans accounted for under the fair value option at December 31, 2023 and 2022 was $388.0 million (all classified as held for investment) and $494.5 million (all classified as held for investment), respectively, a decrease of $106.4 million, or 21.5%.
The carrying amount of loans accounted for under the fair value option at December 31, 2024 and 2023 was $328.7 million (all classified as held for investment) and $388.0 million (all classified as held for investment), respectively, a decrease of $59.3 million, or 15.3%.
Loans and leases maturing in greater than five years total $5.96 billion of the total $8.66 billion. The variable rate portion of the total held for investment loans and leases, excluding PPP loans, is 81.4%, which reflects the Company’s strategy to minimize interest rate risk through the use of variable rate products.
Loans and leases maturing in greater than five years total $6.51 billion of the total $10.26 billion. The variable rate portion of the total held for investment loans and leases is 87.9%, which reflects the Company’s strategy to minimize interest rate risk through the use of variable rate products.
There can be no assurance that any further increases or decreases in the Federal Funds rate will occur, and if they do, the amount and timing of actual adjustments are subject to change. 45 Table of Contents Average Balances and Yields.
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 7A. Quantitative and Qualitative Disclosures About Market Risk for information about the Company’s sensitivity to interest rates. 43 Table of Contents Average Balances and Yields.
This also included purchases of $206.9 million in mortgage-backed securities, including $14.7 million for purposes of complying with the Community Reinvestment Act and purchases of $32.1 million in collateralized mortgage obligations to increase yield and duration. The investment securities portfolio consists entirely of available-for-sale securities.
This also included purchases of $263.9 million in mortgage-backed securities, including $42.9 million for purposes of complying with the Community Reinvestment Act and purchases of $66.4 million in collateralized mortgage obligations to diversify the reinvestment of portfolio cash flows. The investment securities portfolio consists entirely of available-for-sale securities.
Loan fees are included in interest income on loans. 2023 2022 2021 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Interest-earning assets: Interest-earning balances in other banks $ 584,691 $ 29,487 5.04 % $ 228,866 $ 3,465 1.51 % $ 407,474 $ 920 0.23 % Federal funds sold 34,529 1,624 4.70 109,473 2,796 2.55 18,714 22 0.12 Investment securities 1,237,458 33,497 2.71 995,481 19,667 1.98 797,426 12,533 1.57 Loans held for sale 539,197 48,235 8.95 952,606 58,943 6.19 1,111,216 60,044 5.40 Loans and leases held for investment (1) 7,905,875 575,432 7.28 6,174,763 359,602 5.82 5,350,055 287,694 5.38 Total interest-earning assets 10,301,750 688,275 6.68 8,461,189 444,473 5.25 7,684,885 361,213 4.70 Less: Allowance for credit losses on loans and leases (110,855) (67,234) (54,975) Noninterest-earning assets 493,968 576,524 592,237 Total assets $ 10,684,863 $ 8,970,479 $ 8,222,147 Interest-bearing liabilities: Interest-bearing checking $ 231,413 $ 12,718 5.50 % $ — $ — — % $ 76,714 $ 442 0.58 % Savings 4,428,306 171,151 3.86 3,903,151 57,740 1.48 3,077,933 16,667 0.54 Money market accounts 125,279 721 0.58 100,684 303 0.30 103,078 300 0.29 Certificates of deposit 4,695,161 155,617 3.31 3,849,203 56,992 1.48 3,181,591 42,331 1.33 Total deposits 9,480,159 340,207 3.59 7,853,038 115,035 1.46 6,439,316 59,740 0.92 Other borrowings 61,743 2,763 4.48 122,946 1,937 1.58 1,007,596 4,688 0.47 Total interest-bearing liabilities 9,541,902 342,970 3.59 7,975,984 116,972 1.47 7,446,912 64,428 0.87 Noninterest-bearing deposits 215,327 125,062 77,104 Noninterest-bearing liabilities 74,046 65,619 45,424 Shareholders' equity 853,588 803,814 652,707 Total liabilities and shareholders' equity $ 10,684,863 $ 8,970,479 $ 8,222,147 Net interest income and interest rate spread $ 345,305 3.09 % $ 327,501 3.78 % $ 296,785 3.83 % Net interest margin 3.35 % 3.87 % 3.86 % Ratio of average interest-earning assets to average interest-bearing liabilities 107.96 % 106.08 % 103.20 % (1) Average loan and lease balances include non-accruing loans and leases. 46 Table of Contents Rate/Volume Analysis.
Loan fees are included in interest income on loans. 2024 2023 2022 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Interest-earning assets: Interest-earning balances in other banks $ 556,108 $ 29,118 5.24 % $ 584,691 $ 29,487 5.04 % $ 228,866 $ 3,465 1.51 % Federal funds sold — — — 34,529 1,624 4.70 109,473 2,796 2.55 Investment securities 1,283,161 38,413 2.99 1,237,458 33,497 2.71 995,481 19,667 1.98 Loans held for sale 372,803 34,903 9.36 539,197 48,235 8.95 952,606 58,943 6.19 Loans and leases held for investment (1) 9,285,908 709,938 7.65 7,905,875 575,432 7.28 6,174,763 359,602 5.82 Total interest-earning assets 11,497,980 812,372 7.07 10,301,750 688,275 6.68 8,461,189 444,473 5.25 Less: Allowance for credit losses on loans and leases (138,766) (110,855) (67,234) Noninterest-earning assets 557,297 493,968 576,524 Total assets $ 11,916,511 $ 10,684,863 $ 8,970,479 Interest-bearing liabilities: Interest-bearing checking $ 326,410 $ 17,692 5.42 % $ 231,413 $ 12,718 5.50 % $ — $ — — % Savings 4,934,818 198,612 4.02 4,428,306 171,151 3.86 3,903,151 57,740 1.48 Money market accounts 131,636 739 0.56 125,279 721 0.58 100,684 303 0.30 Certificates of deposit 5,133,511 213,844 4.17 4,695,161 155,617 3.31 3,849,203 56,992 1.48 Total deposits 10,526,375 430,887 4.09 9,480,159 340,207 3.59 7,853,038 115,035 1.46 Other borrowings 94,512 5,580 5.90 61,743 2,763 4.48 122,946 1,937 1.58 Total interest-bearing liabilities 10,620,887 436,467 4.11 9,541,902 342,970 3.59 7,975,984 116,972 1.47 Noninterest-bearing deposits 239,078 215,327 125,062 Noninterest-bearing liabilities 80,549 74,046 65,619 Shareholders' equity 975,215 853,588 803,814 Non-controlling interest 782 — — Total liabilities and shareholders' equity $ 11,916,511 $ 10,684,863 $ 8,970,479 Net interest income and interest rate spread $ 375,905 2.96 % $ 345,305 3.09 % $ 327,501 3.78 % Net interest margin 3.27 % 3.35 % 3.87 % Ratio of average interest-earning assets to average interest-bearing liabilities 108.26 % 107.96 % 106.08 % (1) Average loan and lease balances include non-accruing loans and leases. 44 Table of Contents Rate/Volume Analysis.
(4) Loans accounted for under the fair value option only (excludes loans and leases carried at historical cost). 42 Table of Contents The following is a summary of the Company's financial highlights and events for 2023: • Loans and leases held for sale and investment increased by $1.12 billion, or 14.2%.
(4) Loans accounted for under the fair value option only (excludes loans and leases carried at historical cost). 41 Table of Contents The following is a summary of the Company's financial highlights and events for 2024: • Record year of loan production with total loans and leases held for sale and investment increasing by $1.56 billion, or 17.3%.
The Company also has less routinely generated gains and losses arising from its financial technology investments predominantly in its fintech segment, as discussed more fully later in this section under the caption “Results of Segment Operations.” 41 Table of Contents Executive Summary The table below sets forth selected consolidated financial data as of the dates or for the periods indicated.
The Company also has less routinely generated gains and losses arising from its financial technology investments. 40 Table of Contents Executive Summary The table below sets forth selected consolidated financial data as of the dates or for the periods indicated.
At December 31, 2023, 81.5%, or $7.38 billion, of the combined held for sale and held for investment loan and lease portfolio, including those at fair value, were composed of variable rate loans. 53 Table of Contents At December 31, 2023, $2.70 billion, or 31.2%, of loans held for investment, including those at fair value, matures in less than five years.
At December 31, 2024, 88.1%, or $9.36 billion, of the combined held for sale and held for investment loan and lease portfolio, including those at fair value, were composed of variable rate loans. 51 Table of Contents At December 31, 2024, $3.75 billion, or 36.6%, of loans held for investment, including those at fair value, matures in less than five years.
In December 2023, the Federal Reserve released its most current federal funds target rate midpoint projections which implied a decrease of the median Federal Funds rate to 4.6% by the end of 2024 and a decrease of approximately 100 basis points to 3.6% by the end of 2025.
In January 2025, the Federal Reserve decided to maintain the federal funds upper target rate at 4.5%. The Federal Reserve released its most current federal funds target rate midpoint projections at its previous meeting in December 2024 which implied a decrease of approximately 50 basis points to 3.9% by the end of 2025.
Of the above listed verticals, Senior Housing, Asset-Based Lending and Government Contracting are within the Company’s Specialty Lending division while Hotels and Bioenergy are within the Energy & Infrastructure division, the remainder of the above listed verticals are within the Small Business Banking division.
Of the above listed verticals, Sponsor Finance, Solar Energy, Venture Banking, Asset-Based Lending, Senior Housing, and Bioenergy are within the Company’s Commercial Banking division, the remainder of the above listed verticals are within the Small Business Banking division.
Years Ended December 31, 2023 2022 2021 Total shareholders' equity $ 902,666 $ 811,033 $ 715,133 Less: Goodwill 1,797 1,797 1,797 Other intangible assets 1,721 1,873 2,026 Tangible shareholders' equity (a) $ 899,148 $ 807,363 $ 711,310 Shares outstanding (c) 44,617,673 44,061,244 43,619,070 Total assets $ 11,271,423 $ 9,855,498 $ 8,213,393 Less: Goodwill 1,797 1,797 1,797 Other intangible assets 1,721 1,873 2,026 Tangible assets (b) $ 11,267,905 $ 9,851,828 $ 8,209,570 Tangible shareholders' equity to tangible assets (a/b) 7.98% 8.20% 8.66% Tangible book value per share (a/c) $ 20.15 $ 18.32 $ 16.31 Efficiency ratio: Noninterest expense (d) $ 322,885 $ 314,226 $ 230,987 Net interest income 345,305 327,501 296,785 Noninterest income 111,733 237,992 160,200 Adjusted operating revenue (e) $ 457,038 $ 565,493 $ 456,985 Efficiency ratio (d/e) 70.65% 55.57% 50.55% 70 Table of Contents
Years Ended December 31, 2024 2023 2022 Total shareholders' equity $ 1,003,496 $ 902,666 $ 811,033 Less: Goodwill 1,797 1,797 1,797 Other intangible assets 1,568 1,721 1,873 Tangible shareholders' equity (a) $ 1,000,131 $ 899,148 $ 807,363 Shares outstanding (c) 45,359,425 44,617,673 44,061,244 Total assets $ 12,943,380 $ 11,271,423 $ 9,855,498 Less: Goodwill 1,797 1,797 1,797 Other intangible assets 1,568 1,721 1,873 Tangible assets (b) $ 12,940,015 $ 11,267,905 $ 9,851,828 Tangible shareholders' equity to tangible assets (a/b) 7.73% 7.98% 8.20% Tangible book value per share (a/c) $ 22.05 $ 20.15 $ 18.32 Efficiency ratio: Noninterest expense (d) $ 314,239 $ 322,885 $ 314,226 Net interest income 375,905 345,305 327,501 Noninterest income 123,781 111,733 237,992 Adjusted operating revenue (e) $ 499,686 $ 457,038 $ 565,493 Efficiency ratio (d/e) 62.89% 70.65% 55.57% 65 Table of Contents
The maturity profile of uninsured time deposits at December 31, 2023 is as follows: Maturity Period Three months or less More than three months to six months More than six months to twelve months More than twelve months Amount of time deposits in uninsured accounts $ 67,828 $ 97,527 $ 84,245 $ 6,204 Borrowings Total borrowings decreased $59.8 million at December 31, 2023 from December 31, 2022 as a result of the following: In March 2021, the Company entered into a 60-month term loan agreement of $50.0 million with a third party correspondent bank.
The maturity profile of uninsured time deposits at December 31, 2024 is as follows: Maturity Period Three months or less More than three months to six months More than six months to twelve months More than twelve months Amount of time deposits in uninsured accounts $ 96,713 $ 63,987 $ 128,125 $ 4,247 Borrowings Total borrowings increased $89.5 million at December 31, 2024 from December 31, 2023 as a result of the following: In March 2024, the Company entered into a 60-month term loan agreement of $100.0 million with a third party correspondent bank.
Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP. Management’s non-GAAP measures are not necessarily comparable to similarly named measures represented by other companies, as they may be calculated differently.
Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.
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.
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 .
These nonperforming assets, at December 31, 2023 were comprised of $185.7 million in nonaccrual loans and leases and $6.5 million in foreclosed assets. Of the $192.2 million of nonperforming assets, $141.0 million carried a government guarantee, leaving an unguaranteed exposure of $51.2 million in total nonperforming assets at December 31, 2023.
These nonperforming assets, at December 31, 2024 were comprised of $369.8 million in nonaccrual loans and leases and $1.9 million in foreclosed assets. Of the $371.7 million of nonperforming assets, $280.1 million carried a government guarantee, leaving an unguaranteed exposure of $91.6 million in total nonperforming assets 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 ratio at December 31, 2023 and 2022 was 4.3% and 2.3%, respectively. 56 Table of Contents As of December 31, 2023 , and December 31, 2022 , potential problem (also referred to as criticized) and classified loans and leases, excluding loans measured at fair value, totaled $785.2 million and $424.7 million, respectively.
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 ratio at December 31, 2024 and 2023 was 7.2% and 4.3%, respectively.
Deposits The following table sets forth the composition of deposits. 2023 2022 2021 Total Percent Total Percent Total Percent Period end: Noninterest-bearing demand deposits $ 259,270 2.5 % $ 194,100 2.2 % $ 89,279 1.3 % Interest-bearing deposits: Interest-bearing checking 301,006 2.9 — — — — Money market 135,551 1.3 128,443 1.4 105,628 1.5 Savings 4,497,376 43.8 4,096,576 46.1 3,507,354 49.3 Time deposits 5,081,816 49.5 4,465,809 50.3 3,409,783 47.9 Total 10,015,749 97.5 8,690,828 97.8 7,022,765 98.7 Total period end deposits $ 10,275,019 100.0 % $ 8,884,928 100.0 % $ 7,112,044 100.0 % Total uninsured deposits $ 1,457,800 14.2 % $ 1,563,189 17.6 % $ 1,197,057 16.8 % 2023 2022 2021 Total Percent Average Rate Total Percent Average Rate Total Percent Average Rate Average: Noninterest-bearing demand deposits $ 215,327 2.2 % — % $ 125,062 1.6 % — % $ 77,104 1.2 % — % Interest-bearing deposits: Interest-bearing checking 231,413 2.4 5.50 — — — 76,714 1.2 0.58 Money market 125,279 1.3 0.58 100,684 1.3 0.30 103,078 1.6 0.29 Savings 4,428,306 45.7 3.86 3,903,151 48.9 1.48 3,077,933 47.2 0.54 Time deposits 4,695,161 48.4 3.31 3,849,203 48.2 1.48 $ 3,181,591 100.0 % 1.33 Total average deposits $ 9,695,486 100.0 % 3.59 % $ 7,978,100 100.0 % 1.46 % $ 6,516,420 100.0 % 0.92 % 61 Table of Contents Deposits increased to $10.28 billion at December 31, 2023 from $8.88 billion at December 31, 2022, an increase of $1.39 billion, or 15.6%.
Deposits The following table sets forth the composition of deposits. 2024 2023 2022 Total Percent Total Percent Total Percent Period end: Noninterest-bearing demand deposits $ 318,890 2.7 % $ 259,270 2.5 % $ 194,100 2.2 % Interest-bearing deposits: Interest-bearing checking 351,284 3.0 301,006 2.9 — — Money market 147,533 1.3 135,551 1.3 128,443 1.4 Savings 5,282,812 44.9 4,497,376 43.8 4,096,576 46.1 Time deposits 5,659,975 48.1 5,081,816 49.5 4,465,809 50.3 Total 11,441,604 97.3 10,015,749 97.5 8,690,828 97.8 Total period end deposits $ 11,760,494 100.0 % $ 10,275,019 100.0 % $ 8,884,928 100.0 % Total uninsured deposits $ 1,705,780 14.5 % $ 1,457,800 14.2 % $ 1,563,189 17.6 % 2024 2023 2022 Total Percent Average Rate Total Percent Average Rate Total Percent Average Rate Average: Noninterest-bearing demand deposits $ 239,078 2.2 % — % $ 215,327 2.2 % — % $ 125,062 1.6 % — % Interest-bearing deposits: Interest-bearing checking 326,410 3.0 5.42 231,413 2.4 5.50 — — — Money market 131,636 1.2 0.56 125,279 1.3 0.58 100,684 1.3 0.30 Savings 4,934,818 45.8 4.02 4,428,306 45.7 3.86 3,903,151 48.9 1.48 Time deposits 5,133,511 47.7 4.17 4,695,161 48.4 3.31 3,849,203 48.2 1.48 Total average deposits $ 10,765,453 100.0 % 4.09 % $ 9,695,486 100.0 % 3.59 % $ 7,978,100 100.0 % 1.46 % 59 Table of Contents Deposits increased to $11.76 billion at December 31, 2024 from $10.28 billion at December 31, 2023, an increase of $1.49 billion, or 14.5%.
Years Ended December 31, 2022/2023 Increase (Decrease) 2021/2022 Increase (Decrease) 2023 2022 2021 Amount Percent Amount Percent Noninterest expense Salaries and employee benefits $ 175,052 $ 170,822 $ 124,932 $ 4,230 2.5 % $ 45,890 36.7 % Non-employee expenses: Travel expense 8,922 8,499 5,809 423 5.0 2,690 46.3 Professional services expense 7,737 11,737 15,135 (4,000) (34.1) (3,398) (22.5) Advertising and marketing expense 12,559 10,543 5,002 2,016 19.1 5,541 110.8 Occupancy expense 8,490 11,088 8,423 (2,598) (23.4) 2,665 31.6 Technology expense 31,858 28,434 22,648 3,424 12.0 5,786 25.5 Equipment expense 14,997 15,120 14,869 (123) (0.8) 251 1.7 Other loan origination and maintenance expense 14,804 13,168 13,529 1,636 12.4 (361) (2.7) Renewable energy tax credit investment impairment 14,644 16,217 3,187 (1,573) (9.7) 13,030 408.8 FDIC insurance 16,670 9,756 7,070 6,914 70.9 2,686 38.0 Contributions and donations — 6,462 2,331 (6,462) (100.0) 4,131 177.2 Other expense 17,152 12,380 8,052 4,772 38.5 4,328 53.8 Total non-employee expenses 147,833 143,404 106,055 4,429 3.1 37,349 35.2 Total noninterest expense $ 322,885 $ 314,226 $ 230,987 $ 8,659 2.8 % $ 83,239 36.0 % Total noninterest expense for 2023 increased $8.7 million, or 2.8%, compared to 2022.
Years Ended December 31, 2023/2024 Increase (Decrease) 2022/2023 Increase (Decrease) 2024 2023 2022 Amount Percent Amount Percent Noninterest expense Salaries and employee benefits $ 183,268 $ 175,052 $ 170,822 $ 8,216 4.7 % $ 4,230 2.5 % Non-employee expenses: Travel expense 9,738 8,922 8,499 816 9.1 423 5.0 Professional services expense 11,023 7,737 11,737 3,286 42.5 (4,000) (34.1) Advertising and marketing expense 11,148 12,559 10,543 (1,411) (11.2) 2,016 19.1 Occupancy expense 10,000 8,490 11,088 1,510 17.8 (2,598) (23.4) Technology expense 34,206 31,858 28,434 2,348 7.4 3,424 12.0 Equipment expense 13,826 14,997 15,120 (1,171) (7.8) (123) (0.8) Other loan origination and maintenance expense 17,254 14,804 13,168 2,450 16.5 1,636 12.4 Renewable energy tax credit investment impairment 530 14,644 16,217 (14,114) (96.4) (1,573) (9.7) FDIC insurance 10,835 16,670 9,756 (5,835) (35.0) 6,914 70.9 Contributions and donations — — 6,462 — — (6,462) (100.0) Other expense 12,411 17,152 12,380 (4,741) (27.6) 4,772 38.5 Total non-employee expenses 130,971 147,833 143,404 (16,862) (11.4) 4,429 3.1 Total noninterest expense $ 314,239 $ 322,885 $ 314,226 $ (8,646) (2.7) % $ 8,659 2.8 % Total noninterest expense for 2024 decreased $8.6 million, or 2.7%, compared to 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−2 removed17 unchanged
Biggest changeEstimated Increase/Decrease in Net Interest Income Estimated Percentage Change in EVE Basis Point ("bp") Change in Interest Rates 12 Months Ending December 31, 2024 12 Months Ending December 31, 2025 As of December 31, 2023 +400 0.4% (3.2)% (26.9)% +300 0.5 (2.1) (20.4) +200 0.5 (1.1) (13.7) +100 0.3 (0.4) (6.8) -100 (0.5) 0.2 6.8 Rates are increased instantaneously at the beginning of the projection.
Biggest changeEstimated Increase/Decrease in Net Interest Income Estimated Percentage Change in EVE Basis Point ("bp") Change in Interest Rates 12 Months Ending December 31, 2025 12 Months Ending December 31, 2026 As of December 31, 2024 +300 10.3 6.8 (10.0) +200 7.0 4.6 (6.2) +100 3.5 2.3 (2.7) -100 (3.2) (2.1) 1.0 -200 (5.4) (3.5) 0.9 -300 (6.6) (4.3) 1.0 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 slightly 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.
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 simulation uses projected repricing of assets and liabilities at December 31, 2023 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.
The simulation uses projected repricing of assets and liabilities at December 31, 2024 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.
The Company is slightly liability 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.
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.
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. 71 Table of Contents The table below sets forth an approximation of the Company’s NII sensitivity exposure for the 12-month periods ending December 31, 2024 and 2025 and the Company’s EVE sensitivity at December 31, 2023 under instantaneous parallel interest rate shocks assuming a static balance sheet.
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. 66 Table of Contents The table below sets forth an approximation of the Company’s NII sensitivity exposure for the 12-month periods ending December 31, 2025 and 2026 and the Company’s EVE sensitivity at December 31, 2024 under instantaneous parallel interest rate shocks assuming a static balance sheet.
Regular, robust modeling of various interest rate outcomes allows the Company to properly assess and manage potential risks from various rate shifts . 72 Table of Contents
Regular, robust modeling of various interest rate outcomes allows the Company to properly assess and manage potential risks from various rate shifts . 67 Table of Contents
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 5.0% as of December 31, 2023, indicating that, overall, assets will reprice before liabilities during the expected life of the instruments.
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 4.9% as of December 31, 2024, indicating that, overall, assets will reprice before liabilities during the expected life of the instruments.
As of December 31, 2022, the Company had a cumulative gap in interest-earning assets and interest-bearing liabilities of 4.8%, indicating that, overall, assets will reprice before liabilities during the expected life of the instruments.
As of December 31, 2023, the Company had a cumulative gap in interest-earning assets and interest-bearing liabilities of 5.0%, indicating that, overall, assets will reprice before liabilities during the expected life of the instruments.
Removed
The Company’s retail certificate of deposits portfolio has a larger maturity event in the first and last quarters of the year.
Removed
The favorable EVE change resulting from the loan and lease portfolio in a rising rate analysis is more than offset by the devaluation of the interest-bearing liabilities.

Other LOB 10-K year-over-year comparisons