On this page of StockholderLetter.com we present the latest annual shareholder letter from Live Oak Bancshares, Inc. — ticker symbol LOB. Reading current and past LOB letters to shareholders can bring important insights into the investment thesis.

 •  4/4/2025 Letter Continued (Full PDF)
 •  3/31/2023 LOB Stockholder Letter
 •  4/5/2024 LOB Stockholder Letter
 •  More "Banking & Savings" Category Stockholder Letters
 •  LOB Benford's Law Stock Score = 68

LOB Shareholder/Stockholder Letter Transcript:

Live Oak Bancshares
2024 ANNUAL REPORT

LETTER FROM
THE CHAIRMAN
To Our Shareholders,
I am pleased to present our 2024 Annual Report, highlighting the state of our bank and exploring where
I think the puck is going.
In 2024, we delivered record loan production, excellent loan and deposit growth, strong pre-provision net
revenue (PPNR) growth, a solid start to our quest for full relationships with checking account growth, and
well-controlled expenses even while continuing to invest in people and technology. Offsetting this positive
momentum was an elevated loan loss provision. The ending result of all of this was a diluted earnings per
share of $1.69, 3% higher than 2023.
Let   s dig into each of those segments for a moment.
Momentum Continues to Build
Both our Small Business Banking and Commercial lending units had a tremendous year. We posted a
record year of $5.2 billion of loan production, and total assets grew by $1.7 billion, or ~15%, to $12.9 billion.
Our growth story remains remarkable. A 34% total assets CAGR in the banking industry over 10 years is
something to be proud of.
10-YEAR GROWTH
Total Assets ($ in billions)
$14.0B
$12.9
$11.3
$12.0B
$9.9
$10.0B
$8.0B
$6.0B
$8.2
2020
2021
$4.8
$3.7
$4.0B
$2.0B
$7.9
$2.8
$0.7
$1.1
$1.8
$0
2014
2015
2016
2017
2018
2019
2022
2023
2024

Our strong deposit platform continues to provide ample funding for our growth. Total deposits grew by
$1.5 billion in 2024. What I am extremely excited about is the momentum we are seeing in our business
checking product. Starting from practically zero 18 months ago to adding over $200 million of non-interest
checking balances is an outstanding result. A year ago, about 6% of Live Oak customers had both a loan
and deposit relationship with us. We have more than doubled that in 2024. We are already seeing the
benefits of these deposits in terms of broader relationships with our borrowers and through a lower cost
of funds on these relationships.
Growth, pricing discipline, and loan sales outmatched our net interest margin compression and provided
for a 9% increase year-over-year in revenue. Our focus on investing in    good costs    while identifying areas of
efficiency drove a 3% reduction in noninterest expenses. These two results generated a 38% growth in PPNR.
Provision expense for credit losses increased $45 million, or 88%, in 2024. We have a strong credit culture
at Live Oak, but we aren   t completely immune to credit cycles. While the table below shows that our historic
performance relative to the SBA lender universe is very favorable, 2024 revealed that some small businesses
were experiencing stress.
Small businesses are resilient. They are fighters. As we always have, we will continue to work with our
borrowers to help them navigate this uncertain time.
Annual SBA Loan Default Rates*
All Lenders
Live Oak
4.0%
3.0%
2.0%
1.0%
0.0%
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Source: Lumos Technologies, Inc., SBA 7(a) Program Data for fiscal years ending September 30
*Default is defined as 60 days past due or indication that the business has been shut down when less than 60 days past due. Denominator is total
active loans.

As I mentioned in last year   s letter to you, the bottom line is this: organic growth in the banking business is
difficult, and I like the hand we are playing. Our tangible book value grew 9% in 2024, and we   ve delivered a
21% CAGR over the last 10 years. That is a clear win for shareholders.
Equity Growth Momentum Since Inception ($ in millions)
Capital Markets
Fintech Investment Generated
Core Business Retained Earnings
Tangible Book Value Per Share
$22.05
$113M
Secondary Offering
$1,000
$20.15
$18.32
$800
$16.31
$87M
IPO
$600
$10.85
$75M
Private Placement
$400
$13M
Initial Raise
$200

$5.84
$5M
Private Placement
$1.46 $1.57
$0.62 $0.71 $1.10
2008 2009 2010
2011
2012
$2.36
2013
$12.29
$13.20 $13.28
$6.51
$3.20
2014
2015
2016
2017
2018
2019
2020
2021
2022 2023 2024
The Future Is Now
Which brings me to the banking business today. Quite like small business, community banks face
uncertainty with increased competition and economic stresses.
How do you create an exciting future where a community bank can thrive? Two factors we know well    
embracing technology and creating a moat.
Before we dive in, one must reflect on whether the past is a proxy for the future. So, let   s ponder a bit three
inflection points that have     and will     reshape banking as we know it. The advent of the internet, the
cloud, and now artificial intelligence.
In the 90s the world   s first web browser was created. This next generation technology called the internet
allowed incredible innovations transforming our everyday lives. Hard to imagine the days when getting
paper statements in the mail was the only way to see your financials.
Fast forward to the early 2000s, and a second monumental transformation arrived with the advent
of cloud computing. The cloud allowed programmers to use massive data centers to create magic in
banking functionality.
What is coming next will exceed these two.
Artificial intelligence.
The ability for large language models to fundamentally get better every minute of every day will change
the banking business from the ground up.

The AI wave is coming, and banks have to learn to surf, or they will drown. Here is how Live Oak will ride
the wave.
Today, when we make a small business loan, we ask the applicant to go to the web, log into a portal, and
upload documents. We then take those documents, complete required forms from the SBA, send them to
the agency, and then embark on a very hands-on approach to assessing the health of the applicant.
Our folks look through volumes of tax returns, budgets, and financial statements, trying to determine
whether there   s a sufficient cushion between what they might owe us and what the business earns. It takes
us weeks and weeks to go through that to make a loan.
Enter AI. With artificial intelligence and next generation technology such as optical character recognition
(OCR), this will be done in a matter of minutes or seconds.
These machines do not take vacation, nor do they sleep. And they have access to a vast array of knowledge
    instantly     that could not possibly be gathered by one human over a lifetime.
Here   s an example of what we are working to develop. Let   s take an entrepreneur who owns an HVAC
company and wants working capital to hire technicians and secure accounts receivable at a discount. With
the help of AI, we could interview him in a 15-minute phone call and analyze every word in that conversation
while simultaneously gathering and analyzing the business tax returns to identify the cash flow repayment.
Why? So we could answer his two questions     can I get a loan and when do I get my money?
We have tested this process in a proof-of-concept pilot.
The process is reminiscent of how we started this company lending money to veterinarians. What we did
back then was hire an industry expert, a veterinarian, and pair her with a lender. Together they were able to
assess the cash flow of the business and create a conservative approach to credit that was beneficial for
both the borrower and the bank.
So, if we lend capital to the HVAC entrepreneur I mentioned earlier, get him the money quickly so he can
ramp his business and see significant growth, then we   ve actually done something impactful.
This is not just going to be for loan origination, folks.
This could be in every single part of the bank. It   s game, set, match. Think of the improvements the industry
has already seen with the advent of open-source code paramount in AI. Death by excel spreadsheets
should vanish. Pounding through thousands of pages of tax returns only to fat-finger a debt service
coverage ratio in a spreadsheet should be eliminated by OCR technology that is more than 99% accurate.
Lenders, underwriters, and closers will be 10x more efficient. You could surmise they will be 10x happier.
The mundane nature of their job will disappear and could be replaced with the opportunity to spend much
more meaningful time understanding the business itself and the entrepreneurs who run it. Given this
massive gain in efficiency, early adopters will gain market share!
And really, it   s all about offering two paths for our customers     full-service and self-service.



 4/4/2025 Letter Continued (Full PDF)