Live Oak Bancshares, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2025

Overview of Live Oak Bancshares’ Financial Performance

Live Oak Bancshares, Inc. is a financial holding company and bank headquartered in Wilmington, North Carolina. The company’s primary subsidiary is Live Oak Banking Company, which specializes in lending to small businesses nationwide, with a focus on government-guaranteed loan programs.

In 2025, Live Oak Bancshares reported record financial results, driven by strong loan growth and improved profitability. Net income attributable to common shareholders increased 32.7% to $102.8 million, or $2.23 per diluted share, compared to $77.5 million, or $1.69 per diluted share, in 2024.

The key factors contributing to the company’s success in 2025 included:

Robust Loan Growth

• Total loans and leases held for sale and investment increased by $1.81 billion, or 17.1%, to $12.39 billion.
• Total loan originations reached a record $6.21 billion in 2025, up 20.5% from $5.16 billion in 2024.
• The growth in the loan portfolio was the primary driver of the 16.9% increase in total assets to $15.13 billion.

Expansion of Deposit Base

• Total deposits grew by $1.93 billion, or 16.4%, to $13.69 billion, supporting the loan growth.
• The increase in deposits was driven by growth in savings and time deposit products, as well as additional wholesale funding.
• Noninterest-bearing deposits increased by 61.5% during 2025.

Improved Net Interest Income

• Net interest income increased by $72.5 million, or 19.3%, to $448.4 million.
• The net interest margin increased slightly from 3.27% in 2024 to 3.30% in 2025, as the growth in the loan portfolio outpaced the increase in interest-bearing liabilities.

Increased Noninterest Income

• Noninterest income grew by $16.8 million, or 14.9%, to $129.5 million.
• This was primarily due to higher net gains on sales of loans, increased equity method investments income, and higher equity security investment gains.
• Partially offsetting the increase was a higher loss related to the servicing asset revaluation and decreases in management fee and other noninterest income.

Controlled Expenses

• Noninterest expense increased by $35.6 million, or 11.7%, to $338.7 million.
• The increase was mainly driven by higher salaries and employee benefits, technology expenses, and FDIC insurance costs to support the company’s growth.

Solid Asset Quality

• The allowance for credit losses on loans and leases increased by $24.7 million, or 14.8%, to $192.3 million.
• Net charge-offs as a percentage of average held for investment loans and leases increased from 0.52% in 2024 to 0.63% in 2025.
• Nonperforming unguaranteed loans and leases as a percentage of total loans and leases held for investment increased from 0.82% to 0.87%.

Strong Capital Position

• Shareholders’ equity increased by $250.6 million, or 25.0%, to $1.25 billion.
• The company’s common equity tier 1 capital ratio was 10.53% at the end of 2025, well above the regulatory “well capitalized” level of 6.50%.

Overall, Live Oak Bancshares’ financial performance in 2025 was characterized by robust loan growth, expanding deposit base, improved profitability, and a continued focus on asset quality and capital strength. The company’s strategic initiatives and investments in technology and human resources have positioned it for continued success in the small business lending market.

Analysis of Revenue and Profit Trends

Live Oak Bancshares’ revenue is primarily generated from net interest income and the origination and sale of government-guaranteed loans. The company’s net interest income increased by 19.3% in 2025, driven by strong loan growth and a slight expansion in net interest margin.

The growth in the loan portfolio, which increased by 17.1% during the year, was the primary driver of the increase in net interest income. The net interest margin improved from 3.27% in 2024 to 3.30% in 2025, as the yield on interest-earning assets declined by a smaller amount than the cost of interest-bearing liabilities.

Noninterest income also contributed to the company’s improved profitability, increasing by 14.9% in 2025. This was primarily due to higher net gains on sales of loans, which increased by 25.4% compared to the prior year. The company also benefited from a $28.3 million increase in equity method investments income, largely related to the sale of its interest in Apiture, Inc.

Partially offsetting the increase in noninterest income were higher losses related to the servicing asset revaluation, a decrease in management fee income, and lower other noninterest income. The decrease in other noninterest income was primarily due to fair value losses in equity warrant assets and the absence of certain one-time gains recorded in 2024.

On the expense side, noninterest expense increased by 11.7% in 2025, driven by higher salaries and employee benefits, technology expenses, and FDIC insurance costs. These increases were necessary to support the company’s strategic growth initiatives and expanding operations.

Overall, Live Oak Bancshares’ revenue and profit trends in 2025 demonstrate the company’s ability to generate strong organic growth, effectively manage its net interest margin, and leverage its expertise in government-guaranteed lending to drive profitability. The company’s focus on cost control and prudent risk management has also contributed to its solid financial performance.

Strengths and Weaknesses

Strengths:

1. Specialized Lending Expertise: Live Oak Bancshares has developed a strong expertise in government-guaranteed lending, particularly in the SBA 7(a) and USDA loan programs. This has allowed the company to generate consistent loan growth and maintain a relatively low-risk profile.

2. Diversified Loan Portfolio: The company’s focus on carefully selected industry “verticals” has resulted in a diversified loan portfolio, which helps to mitigate concentration risk.

3. Robust Deposit Growth: The company has been successful in growing its deposit base, particularly in the savings and time deposit products, to support its loan growth.

4. Solid Asset Quality: While the company has experienced some increase in nonperforming loans and net charge-offs, its overall asset quality remains strong, with a well-capitalized position and a prudent approach to risk management.

5. Technological Capabilities: The company’s investments in technology and digital capabilities have enhanced its operational efficiency and customer experience, positioning it for continued growth.

Weaknesses:

1. Reliance on Government-Guaranteed Lending: While the company’s expertise in government-guaranteed lending has been a strength, it also exposes the company to potential changes in government programs or policies that could impact its business model.

2. Sensitivity to Interest Rate Movements: As a lender focused on variable-rate products, the company’s profitability is somewhat sensitive to changes in interest rates, which could impact its net interest margin.

3. Concentration in Small Business Lending: The company’s primary focus on small business lending, while a strength, also makes it vulnerable to economic conditions that could disproportionately affect this segment of the market.

4. Regulatory Compliance Risks: As a financial institution, Live Oak Bancshares is subject to a complex regulatory environment, which requires ongoing attention and investment to ensure compliance.

Outlook and Future Prospects

Looking ahead, Live Oak Bancshares appears well-positioned for continued growth and success. The company’s strong loan origination capabilities, expanding deposit base, and focus on technological innovation suggest that it can maintain its momentum in the small business lending market.

However, the company will need to navigate several challenges and risks that could impact its future performance:

1. Interest Rate Environment: The Federal Reserve’s interest rate decisions will continue to be a key factor in the company’s net interest margin and profitability. While the company’s variable-rate loan portfolio provides some protection against rising rates, it also exposes the company to potential margin compression if rates decline.

2. Economic Conditions: The performance of the small business sector, which is the company’s primary focus, is closely tied to broader economic trends. A potential economic downturn could lead to increased credit losses and pressure on the company’s asset quality.

3. Regulatory Changes: Ongoing regulatory changes, particularly in the government-guaranteed lending programs, could impact the company’s business model and require adaptations to its operations.

4. Competition: The small business lending market is highly competitive, and the company may face increased pressure from both traditional and fintech lenders seeking to capture market share.

To address these challenges and capitalize on its strengths, Live Oak Bancshares may need to continue investing in technology, diversifying its product offerings, and exploring new growth opportunities, both organically and through strategic partnerships or acquisitions.

Overall, Live Oak Bancshares’ strong financial performance in 2025, combined with its specialized expertise, diversified loan portfolio, and technological capabilities, suggest that the company is well-positioned to navigate the evolving financial landscape and deliver value to its shareholders in the years to come.