Live Oak(LOB)2024-02-22 21:58Employment and Workforce - As of December 31, 2023, the Company had 943 full-time employees, 18 part-time employees, and 37 independent contractors[27]. - The Company supports diversity and inclusion initiatives, with the number of Employee Resource Groups growing from nine to eleven in 2023[28]. - The Company emphasizes professional development through training programs and tuition reimbursement for job-specific certifications[35]. Business Segments and Operations - The Company has two reportable operating segments: Banking and Fintech[42]. - The Company formed Live Oak Private Wealth, LLC in 2018 to provide wealth and investment management services[40]. - The Company operates on a technology-based platform that enhances its ability to issue proposals and improve customer experience[39]. Financial Performance - Total assets increased to 9,855,498 thousand in 2022, representing a growth of 14.3%[420]. - Net interest income for 2023 was 327,501 thousand in 2022, reflecting an increase of 5.4%[421]. - Total interest income rose to 444,473 thousand in 2022[421]. - Net income for 2023 decreased to 176,208 thousand in 2022[422]. - Basic earnings per share for 2023 was 4.02 in 2022[421]. - Total deposits grew to 8,884,928 thousand in 2022[420]. - Noninterest income totaled 237,992 thousand in 2022, a decline of 53%[421]. - Total noninterest expense increased to 314,226 thousand in 2022, reflecting a rise of 2.1%[421]. - Total comprehensive income for 2023 was 81,944 thousand in 2022[422]. Capital and Regulatory Compliance - Bancshares' risk-based capital ratios as of December 31, 2023, were 11.73% for common equity Tier 1 capital to risk-weighted assets, 11.73% for Tier 1 capital to risk-weighted assets, and 12.98% for total capital to risk-weighted assets[69]. - Bancshares' leverage ratio at December 31, 2023, was 8.58%, down from 9.26% at December 31, 2022[70]. - Live Oak Bank was classified as "well capitalized" as of December 31, 2023, meeting all applicable capital requirements[73]. - Bancshares must comply with the Federal Reserve's capital adequacy standards and Live Oak Bank must comply with FDIC standards[66]. - The minimum risk-based capital ratios required are 4.5% for common equity Tier 1 capital, 6% for Tier 1 capital, and 8% for total capital[68]. - The Federal Reserve has established a minimum leverage ratio guideline of 4% for bank holding companies[70]. - Live Oak Bank is subject to extensive supervision and regulation by the NCCOB, which oversees state laws regarding bank capital and operations[57]. - The Company is subject to extensive regulation under the Bank Holding Company Act and must comply with NYSE listing standards[45]. Interest Rate and Risk Management - The Company manages interest rate risk through strategies involving available-for-sale securities, loan and lease portfolio, and available funding sources[379]. - The estimated change in net interest income for a +400 basis point change in interest rates for the 12 months ending December 31, 2024 is an increase of 0.4%[386]. - The estimated percentage change in economic value of equity (EVE) for a +400 basis point change in interest rates as of December 31, 2023 is a decrease of 26.9%[386]. - The Company has a cumulative gap in interest-earning assets and interest-bearing liabilities of 5.0% as of December 31, 2023, indicating that assets will reprice before liabilities[381]. Credit Losses and Asset Management - The allowance for credit losses (ACL) was 388.0 million of loans held for investment as of December 31, 2023, which are valued using the fair value option[403]. - The company's servicing assets were valued at 1.5 million in 2022 to $4.8 million in 2023, a significant increase of 220%[473]. Regulatory Changes and Compliance Risks - The Company is subject to complex and evolving laws regarding privacy and data security, impacting its operations significantly[85]. - The Dodd-Frank Act imposes enhanced restrictions on transactions with affiliates, affecting the Company's operational strategies[80]. - The Company must comply with numerous laws related to potential acquisition activities, limiting ownership and control without prior approval[78]. - Changes in laws or regulations could materially adversely affect the Company's financial condition or results of operations[117]. Audit and Internal Controls - The company maintained effective internal control over financial reporting as of December 31, 2023, based on the criteria established in the Internal Control – Integrated Framework[411]. - The audits conducted were in accordance with PCAOB standards, ensuring reasonable assurance that the consolidated financial statements are free of material misstatement[397]. - The company has been audited by FORVIS, LLP since 2010, ensuring continuity and consistency in the audit process[407]. Asset Valuation and Depreciation - The fair value of loans is sensitive to changes in underlying assumptions, particularly the discount rate, which is a significant factor in the valuation[403]. - The valuation of servicing assets incorporates assumptions such as prepayment speeds and discount rates, which are highly subjective[405]. - Rental equipment is depreciated on a straight-line basis over an estimated useful life of 20 to 25 years, with residual values ranging from 20% to 50%[477]. - The estimated useful lives for various premises and equipment are as follows: Buildings - 39 years, Transportation - 5-10 years, Land improvements - 10-15 years, Furniture and equipment - 5-10 years, Hardware and software - 3-5 years, Solar panels - 20-25 years[480].