Live Oak(LOB) - 2024 Q4 - Annual Report

Employee and Workplace Environment - As of December 31, 2024, the Company had 1,008 full-time employees, 17 part-time employees, and 27 independent contractors[26] - The Company operates on a cloud-based system, allowing flexible work arrangements without affecting operations or customer experience[32] - The Company focuses on employee wellness, providing on-site health clinics, physical therapy, and wellness facilities[31] - The Company aims to foster a supportive environment through Employee Resource Groups and initiatives for underrepresented backgrounds[27] - The Company emphasizes professional development through training programs and tuition reimbursement for job-specific certifications[34] Compensation and Incentives - The Company has a compensation program that includes base salary, cash bonuses, and equity compensation to align employee interests with shareholder value[28] - The Company adopted a clawback policy for excess incentive-based compensation[108] - The Federal Reserve reviews incentive compensation arrangements of bank holding companies as part of its supervisory process[106] Regulatory Compliance and Oversight - The Company is subject to extensive regulation under the Bank Holding Company Act and must comply with NYSE listing standards[44][47] - Live Oak Bank is subject to extensive supervision and regulation by the NCCOB, which oversees compliance with state banking statutes[58] - The Company is committed to monitoring regulatory changes that may impact its operations following the recent shift in political control[46] - The Company is subject to evolving laws and regulations governing privacy and data security, which may present compliance challenges[87] - Bancshares filed an election to become a financial holding company in 2016, allowing it to engage in an expanded list of financial activities[52] Financial Performance and Growth - Increased net interest income of $30.6 million, or 8.9%[255] - Increased net gains on sales of loans of $14.4 million, or 30.8%[255] - Increased other noninterest income of $14.0 million, driven by various asset sales[255] - Total assets as of December 31, 2024, were $12.94 billion for the Company and $12.86 billion for the Bank[113] - Average interest-earning assets increased to $11.5 billion in 2024, with a net interest margin of 3.27%[257] - Noninterest income increased by $12.0 million, or 10.8%, to $123.8 million in 2024, driven by higher servicing revenue and net gains on sales of loans[268] Capital and Liquidity - Bancshares' risk-based capital ratios as of December 31, 2024, were 11.04% for common equity Tier 1 capital to risk-weighted assets, 11.04% for Tier 1 capital to risk-weighted assets, and 12.29% for total capital to risk-weighted assets[70] - Bancshares' leverage ratio at December 31, 2024, was 8.21%, down from 8.58% at December 31, 2023[71] - Live Oak Bank is classified as "well capitalized" under applicable regulations as of December 31, 2024[74] - 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[69] - The Company has $621.4 million of its investment securities portfolio pledged for unused borrowing capacity, leaving $626.8 million available to be pledged as collateral[343] Loan and Credit Quality - For 2024, the provision for credit losses was $96.2 million, an increase of $44.9 million compared to $51.3 million in 2023, primarily due to record loan growth and macroeconomic impacts[262] - Loans and leases held for investment at historical cost increased by $1.66 billion, or 20.1%, reaching $9.90 billion as of December 31, 2024, compared to the previous year[262] - Net charge-offs for loans and leases were $46.7 million, or 0.52% of average loans, representing an increase of $25.3 million, or 118.5%, from $21.4 million, or 0.28%, in 2023[263] - Total nonperforming loans and leases to total loans and leases held for investment rose to 3.07% from 1.64% year-over-year[309] - The allowance for credit losses on loans and leases was $167.5 million, compared to $125.8 million in 2023[310] Deposits and Funding - Total deposits rose by $1.49 billion, or 14.5%, to $11.76 billion, supporting the growth in the loan and lease portfolio[289] - Noninterest-bearing demand deposits rose by $59.6 million, or 23.0%, during 2024, while interest-bearing deposits increased by $1.43 billion, or 14.2%[336] - Total uninsured deposits were $1.71 billion, representing 14.5% of total deposits at December 31, 2024[336] Market and Economic Conditions - The baseline economic forecast assumes the Federal Reserve will cut the policy rate twice in 2025, with CPI rising 2.9% and GDP growth at 1.7% by Q4 2025[354] - A hypothetical adverse scenario predicts an unemployment rate of 8.2% by the end of 2025, significantly higher than the baseline projection[356] - Future monetary policies of the Federal Reserve are expected to continue impacting the Company's operating results[110]