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 include:

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 the company’s 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 improved 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.
• The increase was primarily driven by higher net gains on sales of loans, which rose 25.4% to $62.4 million, and a $28.3 million gain from the sale of the company’s interest in Apiture, Inc.
• These gains were partially offset by a $7.7 million decrease in management fee income and a $20.2 million decrease in other noninterest income.

Controlled Noninterest Expense

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

Asset Quality Remains Stable

• 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 loans and leases held for investment increased from 0.52% in 2024 to 0.63% in 2025.
• Nonperforming loans and leases, excluding those measured at fair value, increased from 3.07% of total loans and leases held for investment in 2024 to 4.28% in 2025.

Outlook and Strategic Initiatives Looking ahead, Live Oak Bancshares remains focused on its strategic priorities, which include:

• Continuing to grow its lending portfolio, particularly in its targeted industry verticals
• Expanding its deposit base and diversifying its funding sources
• Investing in technology and digital capabilities to enhance the customer experience
• Exploring opportunities to expand its financial technology investments and partnerships

The company believes it is well-positioned to capitalize on the small business lending market and deliver sustainable growth and profitability for its shareholders.

Analysis of Key Trends and Strengths

Live Oak Bancshares’ strong financial performance in 2025 was driven by its ability to capitalize on the growing small business lending market and effectively manage its balance sheet. The company’s key strengths include:

Robust Loan Growth and Diversified Portfolio The company’s focus on government-guaranteed loan programs, such as the SBA 7(a) and USDA programs, has allowed it to generate consistent loan growth while mitigating credit risk. The company’s loan portfolio is well-diversified across various industry verticals, with the largest concentrations in commercial and industrial, commercial real estate, and commercial land loans.

Stable Asset Quality Despite the challenging economic environment, Live Oak Bancshares has maintained relatively stable asset quality. While nonperforming loans and leases increased during the year, the company’s allowance for credit losses remains adequate, and the majority of its nonperforming assets are government-guaranteed, limiting the company’s exposure to credit risk.

Diversified Funding Sources The company has been successful in growing its deposit base, particularly in its savings and time deposit products, to support its loan growth. Additionally, the company has access to other funding sources, such as borrowings and loan sales, which provide flexibility and stability to its balance sheet.

Technological Capabilities and Fintech Investments Live Oak Bancshares has invested in technology and digital capabilities to enhance the customer experience and improve operational efficiency. The company’s fintech investments, such as its stake in Apiture, Inc., have also provided additional revenue streams and exposure to emerging financial technologies.

Experienced Management Team The company’s management team has a proven track record of successfully navigating economic cycles and implementing growth strategies. The team’s expertise in government-guaranteed lending and small business banking has been a key driver of the company’s success.

Challenges and Risks

While Live Oak Bancshares has demonstrated strong financial performance, the company faces several challenges and risks that it must manage effectively:

Interest Rate Risk The company’s net interest margin is sensitive to changes in interest rates, which could impact its profitability. The company’s asset-liability management strategies, such as the use of variable-rate loans and investments, help mitigate this risk, but the company must continue to closely monitor and manage its interest rate exposure.

Credit Risk Although the company’s asset quality has remained relatively stable, a prolonged economic downturn or industry-specific challenges could lead to an increase in nonperforming loans and leases. The company must maintain disciplined underwriting standards and proactive credit risk management practices to address this risk.

Regulatory and Compliance Risks As a financial institution, Live Oak Bancshares is subject to a complex regulatory environment. The company must ensure that it remains in compliance with all applicable laws and regulations, which can be time-consuming and costly.

Competition The small business lending market is highly competitive, with both traditional banks and alternative lenders vying for market share. The company must continue to differentiate itself through its specialized expertise, technological capabilities, and customer service to maintain its competitive edge.

Cybersecurity Threats As a technology-focused financial institution, Live Oak Bancshares is exposed to the risk of cyber attacks and data breaches. The company must invest in robust cybersecurity measures and maintain vigilance to protect its systems and customer information.

Conclusion

Live Oak Bancshares delivered strong financial results in 2025, driven by its focus on small business lending, diversified funding sources, and strategic investments in technology and fintech. The company’s experienced management team, stable asset quality, and robust loan growth have positioned it well for continued success.

However, the company must remain vigilant in managing its interest rate risk, credit risk, regulatory compliance, competitive pressures, and cybersecurity threats. By addressing these challenges and building on its core strengths, Live Oak Bancshares can continue to deliver value to its shareholders and support the growth of small businesses across the country.