10-K: Live Oak Bancshares Reports Strong 2025 Growth Amidst Internal Control Challenges

Sentiment:

Annual Report 26 February 2026 8:42 PM

📋All filings for Live Oak Bancshares, INC

Live Oak Bancshares achieved record loan production and significant net income growth in 2025, despite identifying a material weakness in internal financial reporting controls and an increase in nonperforming assets.

Capital raiseIssued 100,000 shares of 8.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, with a liquidation preference of $1,000 per share (equivalent to $25 per Depositary Share), totaling $100,000,000 in aggregate liquidation preference.Net proceeds from the issuance of depositary shares totaled $96.3 million.

Summary

Net income attributable to common shareholders increased by 32.7% to $102.8 million in 2025, up from $77.5 million in 2024.
Diluted earnings per share rose to $2.23 in 2025, compared to $1.69 in 2024.
Total assets grew by 16.9% to $15.13 billion at December 31, 2025, from $12.94 billion at December 31, 2024.
Total loan originations reached a record $6.21 billion in 2025, a 20.5% increase from $5.16 billion in 2024.
Total deposits increased by 16.4% to $13.69 billion at the end of 2025, up from $11.76 billion in 2024.
Shareholders' equity increased by 25.0% to $1.25 billion in 2025, from $1.00 billion in 2024, bolstered by net income and $96.3 million from depositary share issuance.
Net interest income increased by 19.3% to $448.4 million in 2025, with the net interest margin slightly increasing to 3.30% from 3.27%.
The provision for credit losses remained relatively flat at $96.3 million in 2025, compared to $96.2 million in 2024.
Nonperforming unguaranteed loans and leases as a percentage of total held for investment loans and leases increased to 0.87% in 2025 from 0.82% in 2024.
Net charge-offs as a percentage of average held for investment loans and leases increased to 0.63% in 2025 from 0.52% in 2024.
A material weakness in internal control over financial reporting related to loan participation activity was identified, leading to an adverse opinion from the independent auditor.
The company restated its Consolidated Financial Statements for the years ended December 31, 2024, 2023, and 2022 to correct errors in classification of loan participation activity.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a moderately positive report, reflecting strong operational growth and profitability, but tempered by identified internal control weaknesses and an increase in nonperforming assets, which warrant close monitoring.

Positives

Achieved record loan production of $6.21 billion in 2025, a 20.5% increase year-over-year.
Experienced substantial growth in total assets, increasing by 16.9% to $15.13 billion.
Reported strong deposit growth of 16.4%, reaching $13.69 billion, supporting loan expansion.
Net income attributable to common shareholders increased significantly by 32.7% to $102.8 million.
Diluted earnings per share improved to $2.23 in 2025.
Net interest income increased by 19.3% to $448.4 million, with a slight improvement in net interest margin to 3.30%.
Realized a significant $24.1 million gain from the sale of the company's interest in Apiture, Inc., contributing to increased equity method investments income.
Successfully remediated a previously reported material weakness in internal control over financial reporting related to the loan review process.
The Bank maintains capital levels that qualify as 'well capitalized' under applicable regulatory frameworks.

Negatives

Identified a material weakness in internal control over financial reporting concerning the accounting and classification of loan participation activity, leading to an adverse audit opinion.
Restated Consolidated Financial Statements for 2024, 2023, and 2022 due to errors in loan participation activity classification.
Total nonperforming assets increased by 53.9% to $572.2 million at December 31, 2025.
Unguaranteed nonperforming loans and leases increased to 0.87% of held for investment loans in 2025 from 0.82% in 2024.
Net charge-offs increased by 47.3% to $68.8 million in 2025, representing 0.63% of average held for investment loans.
Criticized and classified loans and leases increased by $347.7 million to $1.39 billion in 2025.
Management fee income decreased by $7.7 million due to the restructuring of the Canapi Funds.
Other noninterest income decreased by $20.2 million, partly due to fair value losses in equity warrant assets and the absence of prior year gains from asset sales.
Salaries and employee benefits expense increased by $14.7 million, or 8.4%, due to continued investment in human resources.
Technology expense increased by $8.7 million, or 25.6%, reflecting enhanced investments.
FDIC insurance assessment expense increased by $3.8 million, or 35.4%, due to growth and higher assessment rates.
Other expense increased by $5.8 million, or 47.0%, including a $1.5 million charitable donation and a $2.8 million loss from a bioenergy lease buyout.
Income tax expense significantly increased to $37.2 million in 2025 from $11.8 million in 2024, primarily due to higher pretax income and lower tax credits.

Risks

Increased delinquencies and credit losses could have a material adverse effect on capital, financial condition, and results of operations.
Changes to SBA or other government-guaranteed lending programs, or the loss of SBA Preferred Lender status, could materially adversely affect the business.
A prolonged U.S. government shutdown or default on government obligations would harm results of operations.
Deployment and use of artificial intelligence presents operational, control, and regulatory risks, including potential errors, oversight challenges, and increased vulnerability to cyber incidents.
Pandemics, natural disasters (including hurricanes), global climate change, acts of terrorism, social unrest, and global conflicts may negatively impact business and operations.
Dependence on third-party intellectual property and technology-based platforms, with risks of non-renewal or less favorable terms.
Failure in or breach of operational or security systems, or those of third-party service providers, including cyber-attacks, could disrupt business, result in unintentional disclosure, damage reputation, and increase costs.
Material weaknesses in internal control over financial reporting, if not remediated, could result in loss of investor confidence and adversely impact stock price.
The restatement of financial statements could affect investor confidence and expose the company to additional risks and uncertainties.
The valuation of investment securities, loans, and servicing rights is subject to change based on market conditions and factors beyond control.
The allowance for credit losses may prove to be insufficient to absorb lifetime losses on loans, leases, and off-balance sheet credit exposures.
Errors in the assumptions used to compute gains on sale of loans could result in material revenue misstatements.
Rental equipment is subject to residual value risk upon disposition, potentially selling below depreciated value.
Liquidity risk, including potential impairment of access to funding sources or increased costs, especially if the Bank becomes less than well-capitalized.
Changes in the interest rate environment could reduce net interest income and profitability.
Increases in other real estate owned (OREO) could result in additional losses, costs, and expenses.
Environmental liability risk associated with lending activities, particularly from foreclosed properties.
Real property appraisals may not accurately reflect the net value of collateral.
Deterioration in the commercial soundness of counterparties could adversely affect the company.
Different lending risks compared to larger, more diversified banks due to focus on small businesses in selected industries.
Substantial control by directors and executive officers could limit other shareholders' ability to influence corporate matters and hinder third-party acquisitions.
Extensive government regulation and supervision could limit or restrict activities and increase compliance costs.
Failure to maintain adequate regulatory capital could adversely affect financial condition, liquidity, and results of operations.
Heightened regulatory requirements due to total assets exceeding $10 billion could have an adverse effect on financial condition or results of operations.
Increased costs to comply with privacy and data security laws and regulations, with potential for enforcement actions or litigation for non-compliance.
Low trading volume in common stock may adversely affect the ability to resell shares.
No assurance of continued cash dividends on common stock.
Common stock is subordinate to existing and future preferred stock, potentially affecting dividend payments.
Federal laws and regulations impose restrictions on the ownership of common stock.
Anti-takeover provisions in governing documents could adversely affect shareholders.
Securities are not insured deposits and may lose value.
Strong competition from a diverse group of financial institutions and fintech companies.
Reliance on management team and dependence on ability to attract and retain key personnel.
Risk management framework may not effectively mitigate all risks or losses.
Damage to business reputation could adversely impact business and results of operations.
Changes in U.S. trade policies, including tariffs, may adversely impact business, financial condition, and results of operations.

Future Outlook

The Federal Reserve's most current federal funds target rate midpoint projections imply a decrease of approximately 25 basis points to 3.4% by the end of 2026 and a further decrease of approximately 25 basis points to 3.1% by the end of 2027. However, there is no assurance that any further decreases or increases in the Federal Funds rate will occur, and the amount and timing of actual adjustments are subject to change. The company anticipates that gains on the sale of loans will comprise a meaningful component of revenue in 2026.

Management Comments

Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company without regard to certain transactional activities.
Management believes the ACL of $192.3 million at December 31, 2025 is appropriate in light of the risk inherent in the loan and lease portfolio.
Management endeavors to be proactive in its approach to identify and resolve problem loans and leases and is focused on working with the borrowers and guarantors of these loans and leases to provide loan and lease modifications when warranted.

Industry Context

StockSavvy.ai notes that Live Oak Bancshares' strong loan and deposit growth, particularly in small business lending, positions it well in a competitive banking landscape. The company's focus on technology and industry verticals differentiates it from traditional banks, while its increasing asset size brings heightened regulatory scrutiny, a trend observed across the financial services sector. The reliance on government-guaranteed loans and fintech investments aligns with broader industry shifts towards specialized lending and digital transformation. The identified internal control weaknesses and asset quality deterioration, while concerning, highlight the operational challenges inherent in rapid growth within a highly regulated industry.

Comparison to Industry Standards

The company's net interest margin of 3.30% in 2025 is competitive within the banking sector, though specific peer comparisons would require detailed analysis of similar-sized, technology-focused small business lenders.
The efficiency ratio of 58.62% in 2025 indicates a relatively efficient operation, especially for a bank with a national online platform, comparing favorably to many traditional banks that often have higher overheads due to extensive branch networks.
The increase in nonperforming loans and net charge-offs, while concerning, is noted by StockSavvy.ai to be concentrated in specific loan types and verticals, suggesting a more targeted credit risk management approach compared to broad-based industry deterioration seen in less specialized lenders.
The company's capital ratios, such as Common Equity Tier 1 of 10.53% and Tier 1 Leverage of 8.48% in 2025, exceed regulatory minimums and are generally in line with or better than many regional banks, demonstrating strong capital adequacy.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Interim Information Security Officer and Chief Information and Digital Officer	NA	Renato Derraik	June 2021	NA
Interim Deputy Chief Information Security Officer	NA	Scott McMichael	NA	NA
Interim Deputy Chief Information Security Officer	NA	George Werbacher	NA	NA

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Preferred Stock Authorization	Board of directors is authorized to issue shares of preferred stock in one or more series, fixing their rights, preferences, and privileges, without further shareholder action.	NA	Could adversely affect voting power or other rights of common stock holders.
Shareholder Voting Rights	Shareholders are not entitled to cumulate votes for the election of directors; directors are elected by a plurality of votes cast.	NA	Limits minority shareholder influence in director elections.
Dividend Policy	Payment of cash dividends is subject to North Carolina law and Federal Reserve policy, which expresses that a bank holding company should pay dividends only if net income for the past year is sufficient to cover dividends and earnings retention consistent with capital needs.	NA	Restricts the company's ability to pay dividends based on financial health and regulatory guidance.
Common Stock Rights	Holders of voting common stock are not entitled to preemptive rights and common stock is not subject to call or redemption.	NA	Shareholders cannot maintain their proportional ownership in new issuances and lack redemption options.
Ownership Restrictions	Bank Holding Company Act requires Federal Reserve approval for any bank holding company acquiring 5% or more of voting common stock, or any other person acquiring 10% or more under the Change in Bank Control Act.	NA	Limits large-scale acquisitions of company stock without regulatory oversight.
Series A Preferred Stock Voting Rights	Holders of Series A preferred stock generally have no voting rights, except if dividends are not declared and paid for six quarterly dividend periods, entitling them to elect two additional board members.	July 31, 2025	Provides a mechanism for preferred shareholders to gain board representation under specific adverse financial conditions.
Series A Preferred Stock Protective Covenants	Affirmative vote or consent of holders of at least two-thirds of outstanding Series A preferred stock is required to authorize senior capital stock, adversely amend Series A rights, or consummate certain mergers.	July 31, 2025	Protects the rights and preferences of Series A preferred shareholders against certain corporate actions.
Special Meetings of Shareholders	Bylaws provide that special meetings of shareholders may be called only by the chairman, president, or at the request of the board of directors.	NA	Limits the ability of individual shareholders to call special meetings.
Change-in-Control Supermajority Vote	Unless approved by a majority of non-affiliated directors, approval by holders of at least two-thirds of outstanding capital stock is required for certain merger, consolidation, or share exchange transactions.	NA	Acts as an anti-takeover provision, making it more difficult for unapproved acquisitions.
Clawback Policy	Adopted a Clawback Policy providing for recoupment of certain incentive compensation in the event of an accounting restatement due to material noncompliance with financial reporting requirements.	August 19, 2025 (effective for compensation received on or after October 2, 2023)	Enhances accountability for executive officers and aligns compensation with accurate financial performance.
Insider Trading Policy	Approved an Insider Trading Policy to ensure compliance with federal and state securities laws, prohibiting trading on material nonpublic information and establishing black-out periods and pre-clearance requirements for Section 16 Group members.	February 19, 2026	Strengthens ethical conduct and reduces legal and reputational risks associated with insider trading.
Cybersecurity Governance	The Risk Committee of the Board of Directors oversees cybersecurity risks, receiving periodic reports from management's Information Security Committee and Corporate Risk Committee.	NA	Ensures high-level oversight and integration of cybersecurity risk management into overall corporate governance.

Legal Proceedings

As of December 31, 2025, 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.
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.

Related Party Transactions

Related party loan activity had a balance of $19.373 million at December 31, 2025, down from $21.208 million at December 31, 2024.
Deposits from related parties amounted to $30.8 million at December 31, 2025, compared to $41.1 million at December 31, 2024.
The Company paid Medical Park Hotels $147 thousand in 2025 ($183 thousand in 2024) for room rentals; one executive officer and one board member hold a combined 24% interest in Medical Park Hotels.
During the period from January 1, 2025, through October 21, 2025, the Company paid Apiture, Inc. $3.8 million for professional services and recognized $187 thousand in income from Apiture for shared services and rent (Apiture was a related party until its sale on October 20, 2025).
The Company recognized $500 thousand in carried interest from Canapi Ventures Fund, L.P. in 2025, compared to $731 thousand in 2024.

Stakeholder Impact

Shareholders: Experienced increased net income and EPS, but face risks from a material weakness in internal controls and increased nonperforming assets. The issuance of preferred stock subordinates common stock. Anti-takeover provisions may limit shareholder influence on corporate control.
Employees: Benefit from continued investment in human resources, comprehensive benefits, and professional development. The identified material weakness in financial reporting highlights areas for improved training and oversight.
Customers: Benefit from strong loan origination and a technology-based platform for financial services, particularly small businesses. Increased delinquencies and credit losses could potentially impact lending terms or availability.
Regulators: The company's growth beyond $10 billion in assets triggers heightened regulatory scrutiny and compliance requirements. The identified material weakness will require significant attention and remediation efforts to satisfy regulatory expectations.
Creditors: The issuance of preferred stock ranks senior to common stock, potentially affecting the company's ability to service common dividends under certain conditions. Strong capital ratios generally provide comfort to creditors.

Next Steps

Remediate the material weakness in internal control over financial reporting related to loan participation activity.
Continue to identify, monitor, and measure meaningful equal opportunity goals and foster a welcoming environment through education, communication, and recruiting efforts.
Continue to identify, recruit, retain, and incentivize exceptional employees.
Continue to monitor and work to improve asset quality.
Regularly model various forecasted rate projections with non-parallel shifts to assess and manage potential risks from various rate shifts.
Evaluate the impact of new accounting standards (ASU 2024-03, ASU 2025-06, ASU 2025-07, ASU 2025-11, ASU 2025-12) on consolidated financial statements and disclosures.
Undergo annual review of each borrower's financial performance to validate risk grade accuracy.
Loan and lease portfolio subject to annual independent review by an external firm.
Information Security leadership, in conjunction with the Corporate Risk Committee, make quarterly reports to the Risk Committee of the Board of Directors on cybersecurity matters.
All newly hired employees are required to review the Insider Trading Policy, and all current employees are required to undergo a review every 12-24 months.
General Counsel to annually require Section 16 Group members to review and execute a Director and Officer Questionnaire.
Violations of the Insider Trading Policy by Section 16 Group members or their Immediate Family Members will be reported to the Company's Risk Committee no less frequently than annually.
The company plans to file its definitive proxy statement for the 2026 Annual Meeting of Shareholders and its annual report to shareholders for the year ended December 31, 2025, subsequent to the date of this 10-K.

Key Dates

Date	Description
2008-02	Live Oak Banking Company incorporated.
2008-05-12	Live Oak Banking Company commenced operations.
2008-12	Live Oak Bancshares, Inc. incorporated.
2010	Live Oak Bank formed Live Oak Number One, Inc. and adopted a Restricted Stock Plan.
2013	Main Offices at 1741 Tiburon Dr, Wilmington, NC opened.
2014-06-11	Company amended Articles of Incorporation to create Class A and Class B common stock.
2014-10-08	Company adopted an Employee Stock Purchase Plan (ESPP).
2015-02	Live Oak Grove, LLC formed.
2015-03-20	Company adopted the 2015 Omnibus Stock Incentive Plan.
2015-07	Live Oak Bancshares, Inc. completed its initial public offering (IPO).
2015	Santa Rosa, CA Office opened.
2016	Live Oak Bancshares, Inc. became a financial holding company.
2016-05-24	2015 Omnibus Stock Incentive Plan amended and restated.
2016-08	Live Oak Ventures, Inc. formed.
2016-11	Live Oak Clean Energy Financing LLC (LOCEF) formed.
2017	Wilmington Flight Operations office opened.
2018	Live Oak Private Wealth, LLC (LOPW) formed.
2018-05-15	2015 Omnibus Stock Incentive Plan amended.
2018-06-18	Company entered into a borrowing agreement with the Federal Home Loan Bank of Atlanta.
2019	LOCEF became a subsidiary of the Bank. Offices at 1805 and 1811 Tiburon Dr, Wilmington, NC opened.
2020	Rocky Mount, NC Office opened.
2021-03	Company entered into a 60-month term loan agreement of $50.0 million with a third-party correspondent bank.
2021-05-11	Amended and Restated 2015 Omnibus Stock Incentive Plan amended to authorize awards covering a maximum of 10,750,000 common voting shares.
2022	Tiburon Land Holdings, LLC (TLH) formed.
2023-03	Refined certain assumptions in ACL calculations, drawing more heavily on internal data.
2023-05-16	2015 Omnibus Stock Incentive Plan amended to authorize awards covering a maximum of 13,750,000 common voting shares.
2023-10-02	Effective date for Clawback Policy for Incentive Compensation received.
2023-12-31	Fiscal year ended.
2024-01-01	Tax credits related to 2023 renewable energy investment became eligible for an extra 10%.
2024-03	Company entered into a 60-month term loan agreement of $100.0 million with a third-party correspondent bank.
2024-03-18	Date of auditor's report for 2023 financial statements (as to business segments changes).
2024-Q2	Enhancements made to the qualitative framework of the allowance for credit losses.
2024-Q3	Canapi Funds restructured and Canapi Advisors voluntarily withdrew as an investment advisor.
2024-Q4	Canapi Advisors dissolved. Live Oak Ventures consolidated its investment in Synply, Inc.
2024-05-21	Employee Stock Purchase Plan most recently amended and approved by shareholders.
2024-11	Company determined to restate Consolidated Financial Statements for 2024, 2023, and 2022.
2024-11-17	Date of auditor's report for 2023 financial statements (as to error correction in 2024 10-K/A).
2024	Office at 1817 Tiburon Dr, Wilmington, NC opened.
2025-01-01	Company adopted ASU 2023-09, ASU 2024-01, and ASU 2024-02.
2025-03-11	Date of last Community Reinvestment Act examination, where the Bank received a Satisfactory rating.
2025-05-19	Date of Grant for Mark M. Moroz's Restricted Stock Unit Award Agreement.
2025-07-04	H.R. 1, the U.S. fiscal-year 2025 budget reconciliation legislation (One Big Beautiful Bill Act), signed into law.
2025-07-31	Company filed articles of amendment to establish terms of 8.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A.
2025-08-04	Company issued and sold 4,000,000 depositary shares representing Series A Preferred Stock.
2025-08-19	Clawback Policy approved by the Board.
2025-09	Company modified a $100.0 million revolving line of credit with a third-party correspondent bank.
2025-09-15	Initial dividend payment date for Series A preferred stock.
2025-Q3	Enhancements made to the quantitative and qualitative components of the ACL estimate.
2025-10-20	Apiture, Inc. was sold to Computer Services, Inc.
2025-Q4	Special charitable donation made in connection with the Apiture gain.
2025-12-31	Fiscal year ended. Material weakness in internal control over financial reporting related to loan review process remediated.
2026-01	Federal Reserve decided to maintain the federal funds upper target rate at 3.75%.
2026-01-31	Number of voting common shares outstanding reported.
2026-02	Company granted 777,543 RSUs.
2026-02-19	Insider Trading Policy approved by the Board.
2026-02-25	Number of voting common shares outstanding reported.
2026-02-26	Date of this Annual Report on Form 10-K.
2026-03-30	Maturity date of $50.0 million term loan agreement.
2026-12-31	Federal Reserve's implied federal funds target rate midpoint of 3.4%.
2027-01-01	Effective date for ASU 2024-03, ASU 2025-07, and ASU 2025-12.
2027-12-31	Federal Reserve's implied federal funds target rate midpoint of 3.1%.
2028-01-01	Effective date for ASU 2025-06 and ASU 2025-11.
2028-10-10	Maturity date of $100.0 million revolving line of credit.
2029-03-28	Maturity date of $100.0 million term loan agreement.
2030-09-15	Earliest optional redemption date for Series A preferred stock.

Recommendation

hold

Live Oak Bancshares demonstrates strong growth in loan originations and deposits, leading to a substantial increase in net income and EPS for 2025. The company's strategic focus on technology and specialized small business lending continues to drive operational success. However, the identified material weakness in internal controls over financial reporting, the restatement of prior financial statements, and the increase in nonperforming assets and net charge-offs introduce notable uncertainties and risks. While the company is addressing these issues and maintains strong capital ratios, the mixed signals suggest a 'Hold' recommendation as investors await further clarity on the remediation of internal control issues and the stabilization of asset quality trends.

Keywords

Banking, Small Business Lending, SBA Loans, USDA Loans, Fintech, Financial Services, Bank Holding Company, Preferred Stock, Common Stock, Capital Adequacy, Credit Risk, Cybersecurity, Internal Controls, Loan Origination, Deposits, Net Interest Income, Asset Quality, Regulatory Compliance, Financial Reporting

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