Live Oak Bancshares, Inc.LOB
Live Oak Bancshares, Inc. Fair Value Disclosure
Fair Value of Financial Instruments
Fair Value Hierarchy
There are three levels of inputs in the fair value hierarchy that may be used to measure fair value. Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.
Recurring Fair Value
The following sections provide a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the fair value hierarchy:
Investment securities available-for-sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, discounted cash flow or at net asset value per share. Level 2 securities would include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
Loans held for investment: The fair values of loans accounted for under the fair value option are determined using a DCF methodology. The estimate incorporates assumptions that market participants would use to estimate fair value of similar assets such as prepayment speeds, default and severity rates, and a discount rate. Due to the nature of the valuation inputs, loans held for investment are classified within Level 3 of the valuation hierarchy.
Servicing assets: Servicing rights do not trade in an active, open market with readily observable prices. While sales of servicing rights do occur, the precise terms and conditions typically are not readily available. Accordingly, the Company estimates the fair value of servicing rights using discounted cash flow models incorporating numerous assumptions from the perspective of a market participant including servicing income, ancillary income, servicing costs, discount rates and prepayment speeds. Due to the nature of the valuation inputs, servicing rights are classified within Level 3 of the valuation hierarchy.
Mutual fund: The mutual fund is registered with the Securities and Exchange Commission as a closed-end, non-diversified management investment company and operates as an interval fund. The fund primarily invests in the unguaranteed portion of SBA504 first lien loans secured by owner-occupied commercial real estate. This investment is valued using quoted prices in markets that are not active and is classified as Level 2 within the valuation hierarchy.
Equity warrant assets: Fair value measurements of equity warrant assets of private companies are priced based on a Black-Scholes option pricing model to estimate the asset value by using stated strike prices, option expiration dates, risk-free interest rates and option volatility assumptions. Option volatility assumptions used in the Black-Scholes model are based on public companies that operate in similar industries as the companies in the Company’s private company portfolio. Values are further adjusted for a general lack of liquidity due to the private nature of the associated underlying company. The Company classifies equity warrant assets within Level 3 of the valuation hierarchy.
The table below provides a rollforward of the Level 3 equity warrant asset fair values.
| Twelve months ended December 31, | ||||||||||||||
| Equity Warrant Assets | 2025 | 2024 | ||||||||||||
| Balance at beginning of period | $ | 7,162 | $ | 2,874 | ||||||||||
| Issuances | 436 | 798 | ||||||||||||
| Net (loss) gain on equity warrant assets | (5,558) | 5,962 | ||||||||||||
| Settlements | (265) | (2,472) | ||||||||||||
| Balance at end of period | $ | 1,775 | $ | 7,162 | ||||||||||
The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.
| December 31, 2025 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Investment securities available-for-sale | ||||||||||||||||||||||||||
| U.S. government agencies | $ | 13,617 | $ | — | $ | 13,617 | $ | — | ||||||||||||||||||
| Mortgage-backed securities | 1,410,679 | — | 1,410,679 | — | ||||||||||||||||||||||
Municipal bonds (1) | 3,105 | — | 3,022 | 83 | ||||||||||||||||||||||
| Loans held for investment | 260,625 | — | — | 260,625 | ||||||||||||||||||||||
Servicing assets (2) | 62,941 | — | — | 62,941 | ||||||||||||||||||||||
| Mutual fund | 19 | — | 19 | — | ||||||||||||||||||||||
| Equity warrant assets | 1,775 | — | — | 1,775 | ||||||||||||||||||||||
| Total assets at fair value | $ | 1,752,761 | $ | — | $ | 1,427,337 | $ | 325,424 | ||||||||||||||||||
| December 31, 2024 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Investment securities available-for-sale | ||||||||||||||||||||||||||
| U.S. government agencies | $ | 17,897 | $ | — | $ | 17,897 | $ | — | ||||||||||||||||||
| Mortgage-backed securities | 1,227,333 | — | 1,227,333 | — | ||||||||||||||||||||||
Municipal bonds (1) | 2,973 | — | 2,890 | 83 | ||||||||||||||||||||||
| Loans held for investment | 328,746 | — | — | 328,746 | ||||||||||||||||||||||
Servicing assets (2) | 55,788 | — | — | 55,788 | ||||||||||||||||||||||
| Mutual fund | 458 | — | 458 | — | ||||||||||||||||||||||
| Equity warrant assets | 7,162 | — | — | 7,162 | ||||||||||||||||||||||
| Total assets at fair value | $ | 1,640,357 | $ | — | $ | 1,248,578 | $ | 391,779 | ||||||||||||||||||
| (1) | During the year ended December 31, 2025, the Company recorded a principal paydown of $1 thousand and a fair value adjustment gain of $1 thousand. During the year ended December 31, 2024, the Company recorded a principal paydown of $1 thousand and a fair value adjustment loss of $1 thousand. | ||||
| (2) | See Note 5 for a rollforward of recurring Level 3 fair values for servicing assets. | ||||
Fair Value Option
Until the first quarter of 2021, the Company had historically elected to account for retained participating interests of all government guaranteed loans under the fair value option in order to align the accounting presentation with the Company’s viewpoint of the economics of the loans. Interest income is recognized in the same manner on loans reported at fair value as on non-fair value loans, except in regard to origination fees and costs which are recognized immediately upon fair value election. Not electing fair value generally results in a larger discount being recorded on the date of the sale. This discount is subsequently accreted into interest income over the underlying loan’s remaining term using the effective interest method. Management made this change of election in alignment with its ongoing effort to reduce volatility and drive more predictable revenue. In accordance with GAAP, any loans for which fair value was previously elected continue to be measured as such.
There were no loans accounted for under the fair value option that were 90 days or more past due and still accruing interest at December 31, 2025 or 2024. The unpaid principal balance of unguaranteed exposure for nonaccruals was $8.5 million and $10.0 million at December 31, 2025 and 2024, respectively.
The following tables provide more information about the fair value carrying amount and the unpaid principal outstanding of loans accounted for under the fair value option at December 31, 2025 and December 31, 2024.
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Loans | Nonaccruals | 90 Days or More Past Due | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Carrying Amount | Unpaid Principal Balance | Difference | Fair Value Carrying Amount | Unpaid Principal Balance | Difference | Fair Value Carrying Amount | Unpaid Principal Balance | Difference | |||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Option Elections | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for investment | $ | 260,625 | $ | 269,851 | $ | (9,226) | $ | 61,602 | $ | 62,824 | $ | (1,222) | $ | 45,784 | $ | 46,824 | $ | (1,040) | |||||||||||||||||||||||||||||||||||
| $ | 260,625 | $ | 269,851 | $ | (9,226) | $ | 61,602 | $ | 62,824 | $ | (1,222) | $ | 45,784 | $ | 46,824 | $ | (1,040) | ||||||||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Loans | Nonaccruals | 90 Days or More Past Due | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Carrying Amount | Unpaid Principal Balance | Difference | Fair Value Carrying Amount | Unpaid Principal Balance | Difference | Fair Value Carrying Amount | Unpaid Principal Balance | Difference | |||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Option Elections | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for investment | $ | 328,746 | $ | 342,150 | $ | (13,404) | $ | 63,386 | $ | 64,784 | $ | (1,398) | $ | 51,272 | $ | 52,528 | $ | (1,256) | |||||||||||||||||||||||||||||||||||
| $ | 328,746 | $ | 342,150 | $ | (13,404) | $ | 63,386 | $ | 64,784 | $ | (1,398) | $ | 51,272 | $ | 52,528 | $ | (1,256) | ||||||||||||||||||||||||||||||||||||
The following table presents the net gains (losses) from changes in fair value.
| Twelve Months Ended December 31, | |||||||||||||||||
| Gains (Losses) on Loans Accounted for under the Fair Value Option | 2025 | 2024 | 2023 | ||||||||||||||
| Loans held for investment | $ | 1,216 | $ | 2,403 | $ | (3,539) | |||||||||||
| $ | 1,216 | $ | 2,403 | $ | (3,539) | ||||||||||||
There were no losses related to borrower-specific credit risk for the years ended December 31, 2025 and 2024. Losses related to borrower-specific credit risk was $3.5 million for the year ended December 31, 2023.
The following tables summarize the activity pertaining to loans accounted for under the fair value option.
| Twelve Months Ended December 31, | |||||||||||
| Loans held for investment | 2025 | 2024 | |||||||||
| Balance at beginning of period | $ | 328,746 | $ | 388,036 | |||||||
| Repurchases | 19,534 | 25,192 | |||||||||
| Fair value changes | 1,216 | 2,403 | |||||||||
| Settlements | (88,871) | (86,885) | |||||||||
| Balance at end of period | $ | 260,625 | $ | 328,746 | |||||||
Non-recurring Fair Value
The following sections provide a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis, as well as the general classification of such instruments pursuant to the fair value hierarchy:
Collateral-dependent loans: Loans are considered collateral-dependent when the Company has determined that foreclosure of the collateral is probable or when a borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of collateral. A collateral-dependent loan’s ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. Fair value of the loan’s collateral is determined by appraisals, independent valuation, or management’s estimation of fair value which is then adjusted for the cost related to liquidation of the collateral. Collateral-dependent loans are generally classified as Level 3 based on management’s judgment and estimation. Loans with agreed upon sales prices are classified as Level 1.
Foreclosed assets: Foreclosed real estate is adjusted to fair value less selling costs upon transfer of the loans to foreclosed real estate. Subsequently, foreclosed real estate is carried at the lower of carrying value or fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. Given the lack of observable market prices for identical properties and market discounts applied to appraised values, the Company generally classifies foreclosed assets as non-recurring Level 3.
Equity security investment with a non-readily determinable fair value: Equity security investments are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. When impairment indicators are present, the investment will be fair valued and classified as non-recurring Level 3.
The tables below present the recorded amount of assets measured at fair value on a non-recurring basis. The Company has no liabilities recorded at fair value on a non-recurring basis.
| December 31, 2025 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Collateral-dependent loans | $ | 20,619 | $ | — | $ | — | $ | 20,619 | ||||||||||||||||||
| Foreclosed assets | 6,877 | — | — | 6,877 | ||||||||||||||||||||||
| Equity security investment with a non-readily determinable fair value | 2,101 | — | — | 2,101 | ||||||||||||||||||||||
| Total assets at fair value | $ | 29,597 | $ | — | $ | — | $ | 29,597 | ||||||||||||||||||
| December 31, 2024 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Collateral-dependent loans | $ | 17,085 | $ | — | $ | — | $ | 17,085 | ||||||||||||||||||
| Foreclosed assets | 1,944 | — | — | 1,944 | ||||||||||||||||||||||
| Total assets at fair value | $ | 19,029 | $ | — | $ | — | $ | 19,029 | ||||||||||||||||||
Level 3 Analysis
For Level 3 assets measured at fair value on a recurring or non-recurring basis as of December 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:
| December 31, 2025 | ||||||||||||||||||||||||||||||||
| Level 3 Assets with Significant Unobservable Inputs | Fair Value | Valuation Technique | Significant Unobservable Inputs | Range | Weighted Average (1) | |||||||||||||||||||||||||||
| Recurring fair value | ||||||||||||||||||||||||||||||||
| Municipal bond | $ | 83 | Discounted expected cash flows | Discount rate | 7.0% | N/A | ||||||||||||||||||||||||||
| Prepayment speed | 5.0% | N/A | ||||||||||||||||||||||||||||||
| Loans held for investment | $ | 260,625 | Discounted expected cash flows | Loss rate | 0.0% - 4.6% | 1.1 | % | |||||||||||||||||||||||||
| Discount rate | 6.7% - 10.0% | 8.6 | % | |||||||||||||||||||||||||||||
| Prepayment speed | 15.1% - 21.2% | 17.2 | % | |||||||||||||||||||||||||||||
| Servicing assets | $ | 62,941 | Discounted expected cash flows | Discount rate | 12.8% | 12.8 | % | |||||||||||||||||||||||||
| Prepayment speed | 12.0% - 18.8% | 16.2 | % | |||||||||||||||||||||||||||||
| Equity warrant assets | $ | 1,775 | Black-Scholes option pricing model | Volatility | 13.1% - 104.4% | 58.3 | % | |||||||||||||||||||||||||
| Risk-free interest rate | 3.7% - 4.2% | 4.2 | % | |||||||||||||||||||||||||||||
| Marketability discount | 20.0% - 100.0% | 20.4 | % | |||||||||||||||||||||||||||||
| Remaining life | 2.5 - 11.5 years | 8.2 years | ||||||||||||||||||||||||||||||
| Non-recurring fair value | ||||||||||||||||||||||||||||||||
| Collateral-dependent loans | $ | 20,619 | Discounted appraisals | Appraisal adjustments (2) | 10.0% - 82.7% | 39.7 | % | |||||||||||||||||||||||||
| Foreclosed assets | $ | 6,877 | Discounted appraisals | Appraisal adjustments (2) | 10.0% | 10.0 | % | |||||||||||||||||||||||||
| Equity security investment with a non-readily determinable fair value | $ | 2,101 | Market Approach | Revenue Multiple | 3.75 | N/A | ||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Level 3 Assets with Significant Unobservable Inputs | Fair Value | Valuation Technique | Significant Unobservable Inputs | Range | Weighted Average (1) | |||||||||||||||||||||||||||
| Recurring fair value | ||||||||||||||||||||||||||||||||
| Municipal Bond | $ | 83 | Discounted expected cash flows | Discount rate | 7.2% | N/A | ||||||||||||||||||||||||||
| Prepayment speed | 5.0% | N/A | ||||||||||||||||||||||||||||||
| Loans held for investment | $ | 328,746 | Discounted expected cash flows | Loss rate | 0.0% - 6.3% | 1.1 | % | |||||||||||||||||||||||||
| Discount rate | 7.0% - 18.0% | 9.2 | % | |||||||||||||||||||||||||||||
| Prepayment speed | 14.3% - 30.1% | 16.3 | % | |||||||||||||||||||||||||||||
| Servicing assets | $ | 55,788 | Discounted expected cash flows | Discount rate | 13.5 | % | 13.5 | % | ||||||||||||||||||||||||
| Prepayment speed | 11.9% - 18.3% | 15.6 | % | |||||||||||||||||||||||||||||
| Equity warrant assets | $ | 7,162 | Black-Scholes option pricing model | Volatility | 13.1% - 90.0% | 32.1 | % | |||||||||||||||||||||||||
| Risk-free interest rate | 4.5% - 4.6% | 4.5 | % | |||||||||||||||||||||||||||||
| Marketability discount | 10.0% - 25.0% | 13.8 | % | |||||||||||||||||||||||||||||
| Remaining life | 2.9 - 12.0 years | 4.5 years | ||||||||||||||||||||||||||||||
| Non-recurring fair value | ||||||||||||||||||||||||||||||||
| Collateral-dependent loans | $ | 17,085 | Discounted appraisals | Appraisal adjustments (2) | 0.0% - 95.8% | 45.4 | % | |||||||||||||||||||||||||
| Foreclosed assets | $ | 1,944 | Discounted appraisals | Appraisal adjustments (2) | 10.0% | 10.0 | % | |||||||||||||||||||||||||
| (1) | Weighted averages are determined by the relative fair value of the instruments or the relative contribution to the instruments fair value. | ||||
| (2) | Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and other qualitative adjustments. | ||||
Estimated Fair Value of Other Financial Instruments
GAAP also requires disclosure of fair value information about financial instruments carried at book value on the consolidated balance sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value to the Company.
The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis are as follows:
| December 31, 2025 | Carrying Amount | Quoted Price In Active Markets for Identical Assets/Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||||||||||||||
| Financial assets | ||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | 864,904 | $ | 864,904 | $ | — | $ | — | $ | 864,904 | ||||||||||||||||||||||
| Certificates of deposit with other banks | 250 | 250 | — | — | 250 | |||||||||||||||||||||||||||
| Loans held for sale | 420,055 | — | — | 440,928 | 440,928 | |||||||||||||||||||||||||||
| Loans and leases held for investment, net of allowance for credit losses on loans and leases | 11,520,733 | — | — | 11,329,479 | 11,329,479 | |||||||||||||||||||||||||||
| Financial liabilities | ||||||||||||||||||||||||||||||||
| Deposits | 13,688,659 | — | 13,096,941 | — | 13,096,941 | |||||||||||||||||||||||||||
| Borrowings | 102,404 | — | — | 110,782 | 110,782 | |||||||||||||||||||||||||||
| December 31, 2024 | Carrying Amount | Quoted Price In Active Markets for Identical Assets/Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||||||||||||||
| Financial assets | ||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | 608,800 | $ | 608,800 | $ | — | $ | — | $ | 608,800 | ||||||||||||||||||||||
| Certificates of deposit with other banks | 250 | 250 | — | — | 250 | |||||||||||||||||||||||||||
| Loans held for sale | 346,002 | — | — | 367,993 | 367,993 | |||||||||||||||||||||||||||
| Loans and leases held for investment, net of allowance for credit losses on loans and leases | 9,737,112 | — | — | 9,556,981 | 9,556,981 | |||||||||||||||||||||||||||
| Financial liabilities | ||||||||||||||||||||||||||||||||
| Deposits | 11,760,494 | — | 11,317,639 | — | 11,317,639 | |||||||||||||||||||||||||||
| Borrowings | 112,820 | — | — | 121,026 | 121,026 | |||||||||||||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 18, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Mar 8, 2018 | |
| 2016 | Mar 9, 2017 | |
| 2015 | Mar 14, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.