Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November ~~3, 2020,~~2, 2021, there were ~~38,176,869~~43,101,598 shares of the registrant’s voting common stock outstanding and ~~2,465,531~~299,565 shares of the registrant’s non-voting common stock outstanding.

	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020
Assets
Cash and due from banks	$	608,826		$	124,610		$	336,362		$	297,167
Federal funds sold		25,924			96,787			10,672			21,153
Certificates of deposit with other banks		7,250			7,250			6,000			6,500
Investment securities available-for-sale		765,777			540,045			861,377			750,098
Loans held for sale (includes $30,443 and $16,198 measured at fair value, respectively)		1,190,200			966,447
Loans and leases held for investment (includes $845,747 and $824,520 measured at fair value, respectively)		5,037,199			2,627,286
Loans held for sale (includes $27,366 and $36,111 measured at fair value, respectively)								1,042,756			1,175,470
Loans and leases held for investment (includes $698,042 and $815,374 measured at fair value, respectively)								5,418,611			5,144,930
Allowance for credit losses on loans and leases		(44,210	)		(28,234	)		(59,681	)		(52,306	)
Net loans and leases		4,992,989			2,599,052			5,358,930			5,092,624
Premises and equipment, net		253,737			279,099			244,212			259,267
Foreclosed assets		3,264			5,612			883			4,155
Servicing assets		37,831			35,365			33,968			33,918
Operating lease right-of-use assets		2,697			2,427
Other assets		204,886			156,134			242,181			231,951
Total assets	$	8,093,381		$	4,812,828		$	8,137,341		$	7,872,303
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	58,771		$	51,965		$	77,026		$	75,287
Interest-bearing		5,647,273			4,175,015			6,739,587			5,637,541
Total deposits		5,706,044			4,226,980			6,816,613			5,712,828
Borrowings		1,747,083			14			575,021			1,542,093
Operating lease liabilities		2,931			2,619
Other liabilities		53,159			50,829			56,284			49,532
Total liabilities		7,509,217			4,280,442			7,447,918			7,304,453
Shareholders’ equity
Preferred stock, no par value, 1,000,000 authorized, NaN issued or outstanding at September 30, 2020 and December 31, 2019		—			—
Class A common stock, no par value, 100,000,000 shares authorized, 38,110,451 and 37,401,443 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		325,753			309,526
Class B common stock, no par value, 10,000,000 shares authorized, 2,465,531 and 2,915,531 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		26,106			30,871
Preferred stock, no par value, 1,000,000 shares authorized, NaN issued or outstanding at September 30, 2021 and December 31, 2020								—			—
Class A common stock, no par value, 100,000,000 shares authorized, 42,870,687 and 41,344,689 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively								304,085			298,890
Class B common stock, no par value, 10,000,000 shares authorized, 510,327 and 1,107,757 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively								5,404			11,729
Retained earnings		207,400			180,265			371,869			235,724
Accumulated other comprehensive income		24,905			11,724			8,065			21,507
Total shareholders’ equity		584,164			532,386			689,423			567,850
Total liabilities and shareholders’ equity	$	8,093,381		$	4,812,828		$	8,137,341		$	7,872,303

For the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Interest income
Loans and fees on loans	$	70,621		$	55,939		$	191,604		$	150,819		$	89,388		$	70,621		$	259,161		$	191,604
Investment securities, taxable		4,123			4,001			11,671			11,434			3,174			4,123			9,078			11,671
Other interest earning assets		334			1,167			2,093			3,914			224			334			771			2,093
Total interest income		75,078			61,107			205,368			166,167			92,786			75,078			269,010			205,368
Interest expense
Deposits		22,155			23,576			70,531			64,096			14,159			22,155			45,923			70,531
Borrowings		1,560			—			2,415			—			892			1,560			3,940			2,415
Total interest expense		23,715			23,576			72,946			64,096			15,051			23,715			49,863			72,946
Net interest income		51,363			37,531			132,422			102,071			77,735			51,363			219,147			132,422
Provision for loan and lease credit losses		10,274			3,960			32,024			10,403			4,319			10,274			11,292			32,024
Net interest income after provision for loan and lease credit losses		41,089			33,571			100,398			91,668			73,416			41,089			207,855			100,398
Noninterest income
Loan servicing revenue		6,803			6,831			19,916			21,304			6,278			6,803			18,930			19,916
Loan servicing asset revaluation		2,061			(5,161	)		(4,202	)		(12,446	)		(5,878	)		2,061			(7,566	)		(4,202	)
Net gains on sales of loans		12,690			7,425			34,497			17,638			18,860			12,690			47,023			34,497
Net gain (loss) on loans accounted for under the fair value option		3,403			1,102			(8,324	)		5,976
Net (loss) gain on loans accounted for under the fair value option														(1,030	)		3,403			4,323			(8,324	)
Equity method investments income (loss)		(1,231	)		(2,370	)		(5,952	)		(6,120	)		(1,250	)		(1,231	)		(4,685	)		(5,952	)
Equity security investments gains (losses), net		14,705			3,343			14,802			3,478			176			14,705			44,534			14,802
Gain on sale of investment securities available-for-sale, net		1,225			87			1,880			92			—			1,225			—			1,880
Lease income		2,634			2,361			7,893			7,055			2,527			2,634			7,742			7,893
Management fee income		1,296			95			4,146			186			1,489			1,296			4,896			4,146
Construction supervision fee income		1,365			360			2,439			1,525
Other noninterest income		2,093			1,355			8,102			4,706			4,104			3,458			11,247			10,541
Total noninterest income		47,044			15,428			75,197			43,394			25,276			47,044			126,444			75,197
Noninterest expense
Salaries and employee benefits		24,203			22,717			83,048			66,562			28,202			24,203			92,468			83,048
Travel expense		250			1,934			2,395			4,675			1,819			250			4,027			2,395
Professional services expense		1,346			2,073			4,668			5,876			4,251			1,346			11,411			4,668
Advertising and marketing expense		552			1,277			2,537			4,306			1,631			552			3,158			2,537
Occupancy expense		2,079			2,131			6,455			5,588			2,042			2,079			6,378			6,455
Data processing expense		3,009			3,072			8,930			7,418			4,867			3,009			12,995			8,930
Equipment expense		4,314			4,361			13,601			11,925			4,567			4,314			13,306			13,601
Other loan origination and maintenance expense		2,669			3,535			7,617			6,882			3,489			2,669			10,123			7,617
Renewable energy tax credit investment impairment		—			—			—			602			60			—			3,187			—
FDIC insurance		2,095			101			5,326			1,435			1,670			2,095			5,139			5,326
Other expense		2,133			1,536			5,664			5,245			2,861			2,133			9,097			5,664
Total noninterest expense		42,650			42,737			140,241			120,514			55,459			42,650			171,289			140,241
Income before taxes		45,483			6,262			35,354			14,548			43,233			45,483			163,010			35,354
Income tax expense		11,703			2,367			5,399			3,346			9,394			11,703			26,162			5,399
Net income	$	33,780		$	3,895		$	29,955		$	11,202		$	33,839		$	33,780		$	136,848		$	29,955
Basic earnings per share	$	0.83		$	0.10		$	0.74		$	0.28		$	0.78		$	0.83		$	3.18		$	0.74
Diluted earnings per share	$	0.81		$	0.09		$	0.73		$	0.27		$	0.76		$	0.81		$	3.05		$	0.73

For the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Net income	$	33,780		$	3,895		$	29,955		$	11,202		$	33,839		$	33,780		$	136,848		$	29,955
Other comprehensive (loss) income before tax:
Net unrealized gain on investment securities arising during the period		701			4,528			19,223			23,683
Net unrealized (loss) gain on investment securities arising during the period														(6,656	)		701			(17,687	)		19,223
Reclassification adjustment for gain on sale of securities available-for-sale included in net income		(1,225	)		(87	)		(1,880	)		(92	)		—			(1,225	)		—			(1,880	)
Other comprehensive (loss) income before tax		(524	)		4,441			17,343			23,591			(6,656	)		(524	)		(17,687	)		17,343
Income tax benefit (expense)		126			(1,066	)		(4,162	)		(5,662	)		1,598			126			4,245			(4,162	)
Other comprehensive (loss) income, net of tax		(398	)		3,375			13,181			17,929			(5,058	)		(398	)		(13,442	)		13,181
Total comprehensive income	$	33,382		$	7,270		$	43,136		$	29,131		$	28,781		$	33,382		$	123,406		$	43,136

For the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)

	Three Months Ended																	Three Months Ended
	Common stock											Accumulated other						Common stock											Accumulated other
	Shares								Retained			comprehensive			Total			Shares								Retained			comprehensive			Total
																		Class A		Class B			Amount			earnings			income			equity
Balance at June 30, 2021																			42,754,133		510,327		$	305,213		$	339,011		$	13,123		$	657,347
Net income																			—		—			—			33,839			—			33,839
Other comprehensive loss																			—		—			—			—			(5,058	)		(5,058	)
Issuance of restricted stock																			16,819		—			—			—			—			—
Tax withholding related to vesting of restricted stock and other																			—		—			(504	)		—			—			(504	)
Employee stock purchase program																			7,988		—			374			—			—			374
Stock option exercises																			91,747		—			693			—			—			693
Stock option based compensation expense																			—		—			384			—			—			384
Restricted stock expense																			—		—			3,329			—			—			3,329
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense																			—		—			—			320			—			320
Cash dividends ($0.03 per share)																			—		—			—			(1,301	)		—			(1,301	)
Balance at September 30, 2021																			42,870,687		510,327		$	309,489		$	371,869		$	8,065		$	689,423
	Class A		Class B			Amount			earnings			income			equity
Balance at June 30, 2020		37,810,101		2,715,531		$	348,295		$	174,837		$	25,303		$	548,435			37,810,101		2,715,531		$	348,295		$	174,837		$	25,303		$	548,435
Net income		—		—			—			33,780			—			33,780			—		—			—			33,780			—			33,780
Other comprehensive loss		—		—			—			—			(398	)		(398	)		—		—			—			—			(398	)		(398	)
Issuance of restricted stock		13,057		—			—			—			—			—			13,057		—			—			—			—			—
Withholding cash issued in lieu of restricted stock issuance		—		—			(126	)		—			—			(126	)
Tax withholding related to vesting of restricted stock and other																			—		—			(126	)		—			—			(126	)
Employee stock purchase program		14,092		—			288			—			—			288			14,092		—			288			—			—			288
Stock option exercises		23,201		—			147			—			—			147			23,201		—			147			—			—			147
Stock option based compensation expense		—		—			461			—			—			461			—		—			461			—			—			461
Restricted stock expense		—		—			2,794			—			—			2,794			—		—			2,794			—			—			2,794
Non-voting common stock converted to voting common stock in private sale		250,000		(250,000	)		—			—			—			—			250,000		(250,000	)		—			—			—			—
Cash dividends ($0.03 per share)		—		—			—			(1,217	)		—			(1,217	)		—		—			—			(1,217	)		—			(1,217	)
Balance at September 30, 2020		38,110,451		2,465,531		$	351,859		$	207,400		$	24,905		$	584,164			38,110,451		2,465,531		$	351,859		$	207,400		$	24,905		$	584,164

Balance at June 30, 2019		35,577,386		4,643,530		$	334,155		$	171,954		$	12,877		$	518,986
Net income		—		—			—			3,895			—			3,895
Other comprehensive income		—		—			—			—			3,375			3,375
Issuance of restricted stock		18,891		—			—			—			—			—
Withholding cash issued in lieu of restricted stock issuance		—		—			(142	)		—			—			(142	)
Employee stock purchase program		15,434		—			255			—			—			255
Stock option exercises		17,667		—			115			—			—			115
Stock option based compensation expense		—		—			440			—			—			440
Restricted stock expense		—		—			2,503			—			—			2,503
Non-voting common stock converted to voting common stock in private sale		827,999		(827,999	)		—			—			—			—
Cash dividends ($0.03 per share)		—		—			—			(1,208	)		—			(1,208	)
Balance at September 30, 2019		36,457,377		3,815,531		$	337,326		$	174,641		$	16,252		$	528,219

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Continued)

For the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)

	Nine Months Ended																	Nine Months Ended
	Common stock											Accumulated other						Common stock											Accumulated other
	Shares								Retained			comprehensive			Total			Shares								Retained			comprehensive			Total
																		Class A		Class B			Amount			earnings			income			equity
Balance at December 31, 2020																			41,344,689		1,107,757		$	310,619		$	235,724		$	21,507		$	567,850
Net income																			—		—			—			136,848			—			136,848
Other comprehensive loss																			—		—			—			—			(13,442	)		(13,442	)
Issuance of restricted stock																			433,642		—			—			—			—			—
Tax withholding related to vesting of restricted stock and other																			—		—			(17,504	)		—			—			(17,504	)
Employee stock purchase program																			13,674		—			670			—			—			670
Stock option exercises																			481,252		—			2,857			—			—			2,857
Stock option based compensation expense																			—		—			1,081			—			—			1,081
Restricted stock expense																			—		—			11,766			—			—			11,766
Non-voting common stock converted to voting common stock in private sale																			597,430		(597,430	)		—			—			—			—
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense																			—		—			—			3,177			—			3,177
Cash dividends ($0.09 per share)																			—		—			—			(3,880	)		—			(3,880	)
Balance at September 30, 2021																			42,870,687		510,327		$	309,489		$	371,869		$	8,065		$	689,423
	Class A		Class B			Amount			earnings			income (loss)			equity
Balance at December 31, 2019		37,401,443		2,915,531		$	340,397		$	180,265		$	11,724		$	532,386			37,401,443		2,915,531		$	340,397		$	180,265		$	11,724		$	532,386
Net income		—		—			—			29,955			—			29,955			—		—			—			29,955			—			29,955
Other comprehensive income		—		—			—			—			13,181			13,181			—		—			—			—			13,181			13,181
Issuance of restricted stock		42,446		—			—			—			—			—			42,446		—			—			—			—			—
Withholding cash issued in lieu of restricted stock issuance		—		—			(235	)		—			—			(235	)
Tax withholding related to vesting of restricted stock and other																			—		—			(235	)		—			—			(235	)
Employee stock purchase program		39,253		—			520			—			—			520			39,253		—			520			—			—			520
Stock option exercises		87,382		—			553			—			—			553			87,382		—			553			—			—			553
Stock option based compensation expense		—		—			1,233			—			—			1,233			—		—			1,233			—			—			1,233
Restricted stock expense		—		—			8,269			—			—			8,269			—		—			8,269			—	��		—			8,269
Issuance of common stock in connection with acquisition of wholly-owned subsidiary		89,927		—			1,122			—			—			1,122			89,927		—			1,122			—			—			1,122
Non-voting common stock converted to voting common stock in private sale		450,000		(450,000	)		—			—			—			—			450,000		(450,000	)		—			—			—			—
Cumulative effect of accounting change for Accounting Standards Update 2016-13		—		—			—			822			—			822			—		—			—			822			—			822
Cash dividends ($0.09 per share)		—		—			—			(3,642	)		—			(3,642	)		—		—			—			(3,642	)		—			(3,642	)
Balance at September 30, 2020		38,110,451		2,465,531		$	351,859		$	207,400		$	24,905		$	584,164			38,110,451		2,465,531		$	351,859		$	207,400		$	24,905		$	584,164

Balance at December 31, 2018		35,512,262		4,643,530		$	328,113		$	167,124		$	(1,677	)	$	493,560
Net income		—		—			—			11,202			—			11,202
Other comprehensive income		—		—			—			—			17,929			17,929
Issuance of restricted stock		40,377		—			—			—			—			—
Withholding cash issued in lieu of restricted stock issuance		—		—			(228	)		—			—			(228	)
Employee stock purchase program		29,493		—			437			—			—			437
Stock option exercises		47,246		—			287			—			—			287
Stock option based compensation expense		—		—			1,310			—			—			1,310
Restricted stock expense		—		—			7,407			—			—			7,407
Non-voting common stock converted to voting common stock in private sale		827,999		(827,999	)		—			—			—			—
Cumulative effect of accounting change for Accounting Standards Update 2016-02		—		—			—			(66	)		—			(66	)
Cash dividends ($0.09 per share)		—		—			—			(3,619	)		—			(3,619	)
Balance at September 30, 2019		36,457,377		3,815,531		$	337,326		$	174,641		$	16,252		$	528,219

For the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2021			2020
Cash flows from operating activities
Net income	$	29,955		$	11,202		$	136,848		$	29,955
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization		16,545			14,303			15,894			16,545
Provision for loan and lease credit losses		32,024			10,403			11,292			32,024
Amortization of premium on securities, net of accretion		1,778			429			5,005			1,778
Deferred tax (benefit) expense		(7,535	)		533
Deferred tax expense (benefit)								9,493			(7,535	)
Originations of loans held for sale		(920,213	)		(712,000	)		(1,062,694	)		(920,213	)
Proceeds from sales of loans held for sale		607,588			310,852			794,892			607,588
Net gains on sale of loans held for sale		(34,497	)		(17,638	)		(47,023	)		(34,497	)
Net (gain) loss on sale of foreclosed assets		(17	)		7
Net loss (gain) on loans accounted for under fair value option		8,324			(5,976	)
Net (increase) decrease in servicing assets		(2,466	)		10,058
Net gain on sale of foreclosed assets								(798	)		(17	)
Net (gain) loss on loans accounted for under fair value option								(4,323	)		8,324
Net increase in servicing assets								(50	)		(2,466	)
Gain on sale of investment securities available-for-sale, net		(1,880	)		(92	)		—			(1,880	)
Net gain on disposal of long-lived asset		—			(357	)		(114	)		—
Net loss on disposal of property and equipment		38			109
Net (gain) loss on disposal of property and equipment								(48	)		38
Impairment on premises and equipment, net		1,019			—			904			1,019
Equity method investments (income) loss		5,952			6,120			4,685			5,952
Equity security investments (gains) losses, net		(14,802	)		(3,478	)		(44,534	)		(14,802	)
Renewable energy tax credit investment impairment		—			602			3,187			—
Stock option based compensation expense		1,233			1,310			1,081			1,233
Restricted stock expense		8,269			7,407			11,766			8,269
Stock based compensation expense tax shortfall		(137	)		(63	)
Stock based compensation excess tax benefit (shortfall)								8,882			(137	)
Changes in assets and liabilities:
Lease right-of-use assets and liabilities, net		42			87			(3	)		42
Other assets		(26,626	)		9,727			4,276			(18,393	)
Other liabilities		3,267			1,526			2,279			3,267
Net cash used by operating activities		(292,139	)		(354,929	)		(149,103	)		(283,906	)
Cash flows from investing activities
Purchases of securities available-for-sale		(343,245	)		(230,256	)		(317,711	)		(343,245	)
Proceeds from sales, maturities, calls, and principal paydown of securities available-for-sale		134,958			63,205			183,740			134,958
Proceeds from SBA reimbursement/sale of foreclosed assets		4,283			724			6,542			4,283
Maturities of certificates of deposits with other banks								500			—
Business combination, net of cash acquired		(895	)		—			—			(895	)
Loan and lease originations and principal collections, net		(2,311,629	)		(394,425	)		167,475			(2,319,862	)
Proceeds from sale of long-lived asset		—			10,895			8,988			—
Proceeds from sale of equity security investment								15,000			—
Proceeds from sale of premises and equipment		4			—			84			4
Purchases of premises and equipment, net		(1,313	)		(30,003	)		(1,664	)		(1,313	)
Net cash used by investing activities		(2,517,837	)		(579,860	)
Net cash provided (used) by investing activities								62,954			(2,526,070	)

For the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2021			2020
Cash flows from financing activities
Net increase in deposits	$	1,479,064		$	865,028		$	1,103,785		$	1,479,064
Proceeds from borrowings		1,808,033			—			594,820			1,808,033
Repayment of borrowings		(60,964	)		(149	)		(1,565,885	)		(60,964	)
Stock option exercises		553			287			2,857			553
Employee stock purchase program		520			437			670			520
Withholding cash issued in lieu of restricted stock		(235	)		(228	)
Withholding cash issued in lieu of restricted stock and other								(17,504	)		(235	)
Shareholder dividend distributions		(3,642	)		(3,619	)		(3,880	)		(3,642	)
Net cash provided by financing activities		3,223,329			861,756			114,863			3,223,329
Net increase (decrease) in cash and cash equivalents		413,353			(73,033	)
Net increase in cash and cash equivalents								28,714			413,353
Cash and cash equivalents, beginning		221,397			319,311			318,320			221,397
Cash and cash equivalents, ending	$	634,750		$	246,278		$	347,034		$	634,750

Supplemental disclosures of cash flow information
Interest paid	$	71,899		$	62,963		$	51,846		$	71,899
Income tax paid (received), net		9,049			(11,092	)
Income tax paid, net								16,546			9,049

Supplemental disclosures of noncash operating, investing, and financing activities
Unrealized holding gains on available-for-sale securities, net of taxes	$	13,181		$	17,929
Transfers from loans and leases to foreclosed real estate and other repossessions		2,034			5,058
Unrealized holding (losses) gains on available-for-sale securities, net of taxes							$	(13,442	)	$	13,181
Transfers from loans and leases to foreclosed real estate and other repossessions or SBA receivable								10,782			10,229
Net transfers between foreclosed real estate and SBA receivable		116			(281	)		(1,643	)		116
Transfer aircraft from premises and equipment, net to held for sale assets		9,069			—			—			9,069
Transfer of loans held for sale to loans and leases held for investment		178,453			225,217			617,475			178,453
Transfer of loans and leases held for investment to loans held for sale		97,033			35,936			247,680			97,033
Right-of-use assets obtained in exchange for lessee operating lease liabilities		—			2,241
Accrued premises and equipment additions		—			2,927
Equity method investment commitments		—			16,751
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense								3,177			—
Recording of secured borrowing								3,993			—
Equity security investment commitments								2,250			—
Business combination:
Assets acquired (excluding goodwill)		2,523			—			—			2,523
Liabilities assumed		2,074			—			—			2,074
Goodwill recorded		1,797			—			—			1,797

Live Oak Bancshares, Inc. (the “Company” or “LOB”) is a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of the State of North Carolina in December 2008. The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the “Bank”). The Bank was organized and incorporated under the laws of the State of North Carolina on February 25, 2008 and commenced operations on May 12, 2008. The Bank specializes in ~~providing~~ lending and deposit related services to small businesses nationwide. The Bank identifies and ~~grows~~extends lending to credit-worthy borrowers both within specific industries, also called verticals, through expertise within those industries, and more broadly to select borrowers outside of those industries. A significant portion of the loans originated by the Bank are guaranteed by the Small Business Administration (“SBA”) under the 7(a) Loan Program and the U.S. Department of ~~Agriculture~~Agriculture’s ("USDA") Rural Energy for America Program ("REAP"), Water and Environmental Program (“WEP”) and Business & Industry ("B&I") loan programs.

The Company’s wholly owned subsidiaries are the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (the “Grove”), Live Oak Ventures, Inc. (“Live Oak Ventures”), and Canapi Advisors, LLC (“Canapi Advisors”).

The Bank’s wholly owned subsidiaries are Live Oak Number One, Inc., Live Oak Clean Energy Financing LLC (“LOCEF”), and Live Oak Private Wealth, LLC.

~~Live Oak Private Wealth, LLC’s wholly owned subsidiary is Jolley Asset Management, LLC (“JAM”). See Business Combination discussion below for more information on this new subsidiary.~~

The Company’s wholly owned subsidiaries are the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“the Grove”), Live Oak Ventures, Inc. (“Live Oak Ventures”), and Canapi Advisors, LLC (“Canapi”).

Live Oak Number One, Inc. holds properties foreclosed on by the Bank. LOCEF provides financing to entities for renewable energy ~~applications and became a wholly owned subsidiary of the Bank during the first quarter of 2019.~~applications. Live Oak Private Wealth, LLC and ~~JAM~~its wholly owned subsidiary, Jolley Asset Management, LLC (“JAM”), provide high-net-worth individuals and families with strategic wealth and investment management services.

GLS is a management and technology consulting firm that advises and offers solutions and services to participants in the government guaranteed lending sector. GLS primarily provides services in connection with the settlement, accounting, and securitization processes for government guaranteed loans, including loans originated under the SBA 7(a) loan programs and USDA guaranteed loans. The Grove provides Company employees and business visitors an on-site restaurant location. Live Oak Ventures’ purpose is investing in businesses that align with the Company's strategic initiative to be a leader in financial technology. Canapi Advisors provides investment advisory services to a series of ~~new~~ funds focused on providing venture capital to new and emerging financial technology companies.

The Company jointly formed 504 Fund Advisors, LLC (“504FA”) to serve as the investment adviser for the 504 Fund, a closed-end mutual fund organized to invest in SBA section 504 loans. 504FA exited as advisor for the 504 Fund in May 2019 and the Company subsequently dissolved this legal entity.

The Company generates revenue primarily from net interest income and secondarily through the origination and sale of government guaranteed loans. Income from the retention of loans is comprised of interest income. The Company ~~elects~~had historically elected to account for certain loans under the fair value option with interest reported in interest income and changes in fair value reported in the net (loss) gain ~~(loss)~~ on loans accounted for under the fair value option line item of the consolidated statements of income. During the first quarter of 2021, the Company chose not to elect fair value for all retained participating interests arising from new government guaranteed loan sales. Income from the sale of loans is comprised of loan servicing revenue and revaluation of related servicing assets along with net gains on sales of loans. Offsetting these revenues are the cost of funding sources, provision for loan and lease credit losses, any costs related to foreclosed assets and other operating costs such as salaries and employee benefits, travel, professional services, advertising and marketing and tax expense. The Company also has less routinely generated gains and losses arising from its financial technology ~~investments.~~investments in its fintech segment.

In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included, and all intercompany transactions have been eliminated in consolidation. Results of operations for the nine months ended September 30, ~~2020~~2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, ~~2020.~~2021. The ~~condensed consolidated balance sheet~~Unaudited Condensed Consolidated Balance Sheet as of December 31, ~~2019~~2020 has been derived from the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, filed with the Securities Exchange Commission on February ~~27, 2020~~25, 2021 (SEC File No. 001-37497) (the ~~"2019 Annual Report"~~"2020 Form 10-K"). A summary description of the significant accounting policies followed by the Company is set forth in Note 1 of the Notes to Consolidated Financial Statements in the Company’s ~~2019 Annual Report.~~2020 Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes in the Company's ~~2019 Annual Report.~~2020 Form 10-K.

The preparation of financial statements in conformity with United States generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

Amounts in all tables in the Notes to Unaudited Condensed Consolidated Financial Statements have been presented in thousands, except percentage, time period, stock option, share and per share data or where otherwise indicated.

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Management has determined that the Company has ~~one~~two significant operating ~~segment, which is providing a lending platform for small businesses nationwide.~~segments: Banking and Fintech, as discussed more fully in Note 12. Segments. In determining the appropriateness of segment definition, the Company considers the ~~materiality~~criteria of a potential segment, the components of the business about which financial information is available, and components for which management regularly evaluates relative to resource allocation and performance assessment.

Certain reclassifications have been made to the prior period’s consolidated financial statements to place them on a comparable basis with the current year. Net income and shareholders’ equity previously reported were not affected by these reclassifications. Current period reclassifications were primarily related to fair value presentation requirements for loans in which the fair value option had previously been elected and included a reclassification of amounts representing the credit component of the fair value discount that was previously reported as a component of the allowance for credit losses on loans and leases to be netted directly against loans and leases held for investment on the Company’s consolidated balance sheet. Amounts reclassified from the allowance for credit losses on loans and leases to net directly against total loans and leases held for investment was $20.0 million, as of December 31, 2019. In addition, the change in the credit component of the fair value discount was previously reported in the provision for loan and lease credit losses while the change in the liquidity component of the fair value discount was previously reported in the loan servicing asset revaluation in the consolidated statements of income, but both have now been reclassified to net gain (loss) on loans accounted for under the fair value option. Amounts reclassified from the provision for loan and lease credit losses and the loan servicing asset revaluation to net gain (loss) on loans accounted for under the fair value option were $(3.2) million and $4.3 million, respectively, for the three months ended September 30, 2019, and $(3.0) million and $8.9 million, respectively for the nine months ended September 30, 2019.

The effect of the above discussed reclassifications on the consolidated balance sheet as of December 31, 2019 is reflected in the March 31, 2020 10-Q. The effect on the consolidated statements of income and consolidated statements of cash flows for each period are presented below:

As Reported

Reclassifications

As Reclassified

Consolidated Statement of Income for the three months ended
   September 30, 2019

Provision for loan and lease credit losses

$
7,160

$
(3,200
)

$
3,960

Net interest income after provision for loan and lease credit losses

30,371

3,200

33,571

Loan servicing asset revaluation

(859
)

(4,302
)

(5,161
)
Net gain (loss) on loans accounted for under the fair value option

—

1,102

1,102

Total noninterest income

18,628

(3,200
)

15,428

Net income

3,895

—

3,895

Consolidated Statement of Income for the nine months ended
   September 30, 2019

Provision for loan and lease credit losses

$
13,365

$
(2,962
)

$
10,403

Net interest income after provision for loan and lease credit losses

88,706

2,962

91,668

Loan servicing asset revaluation

(3,508
)

(8,938
)

(12,446
)
Net gain (loss) on loans accounted for under the fair value option

—

5,976

5,976

Total noninterest income

46,356

(2,962
)

43,394

Net income

11,202

—

11,202

Consolidated Statement of Cash Flows for the nine months ended
   September 30, 2019

Provision for loan and lease credit losses

$
13,365

$
(2,962
)

$
10,403

Net decrease in servicing assets

10,058

—

10,058

Change in discount on unguaranteed loans

(6,815
)

6,815

—

Net loss (gain) on loans accounted for under fair value option

—

(5,976
)

(5,976
)
Net cash used by operating activities

(352,806
)

(2,123
)

(354,929
)
Loan and lease originations and principal collections, net

(396,548
)

2,123

(394,425
)
Net cash used by investing activities

(581,983
)

2,123

(579,860
)

As a result of the increase in number and diversification of the industry verticals that the Company serves, management also made changes effective in the second quarter of 2020 to the loan and lease classes used in the credit quality disclosures in Note 5. Loans and leases are now grouped in one of the following classes (also referred to as divisions): Small Business Banking, Specialty Lending, or Paycheck Protection Program. Small Business Banking includes loans to customers in verticals that generally have traditional loan structures. Specialty Lending includes loans to customers in verticals that generally have atypical ownership structures as well as complex collateral arrangements, underwriting requirements, and servicing needs. Paycheck Protection Program (“PPP”) includes all loans originated under the PPP pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”) economic relief program and carry a 100% government guarantee. These loan and lease classes were determined based on industry risk characteristics and management’s method for monitoring credit risk and managing those lending divisions. There were no changes to the Company’s portfolio segments.

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) along with its amendments, which replaces the incurred loss impairment methodology in current standards with the current expected credit loss methodology (“CECL”) and requires consideration of a broader range of information to determine credit loss estimates. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell.

The Company adopted Accounting Standards Codification (“ASC”) 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net increase to retained earnings of $822 thousand, comprised of a $1.3 million decrease in the allowance for credit losses combined with a $499 thousand increase in reserve on unfunded commitments, as of January 1, 2020 for the cumulative effect of adopting ASC 326.

The allowance for credit losses (“ACL”) is a valuation account that is deducted from, or added to, the amortized cost basis of loans and leases to present a net amount expected to be collected. The ACL excludes loans held for sale and loans accounted for under the fair value option. Loans and leases are charged-off against the ACL when management believes the uncollectibility of a loan or lease balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company’s ACL on loans and leases is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses. Management adjusts historical loss information for differences in current risk characteristics such as portfolio risk grading, delinquency levels, or portfolio mix as well as for changes in environmental conditions such as changes in unemployment rates.

The ACL is measured on a pooled basis when similar risk characteristics are present in the portfolio. The Company has identified portfolio segments based on industry and whether the receivable is secured by real estate or another form of collateral. Additional information related to the portfolio segments can be found in the Company’s 2019 Form 10-K. Expected credit losses for pooled loans and leases are estimated using a discounted cash flow (“DCF”) methodology.

Loans or leases that do not share risk characteristics are evaluated on an individual basis and are excluded from the pooled evaluation. This generally occurs when, based on current information and events, it is probable that the Company will be unable to collect all interest and principal payments due according to the originally contracted, or reasonably modified, terms of the loan or lease agreement. The Company has determined that loans and leases meeting the criteria defined below must be reviewed quarterly to determine if they should be evaluated for expected credit losses on an individual basis.

Expected credit losses are estimated over the contractual term of the loan or lease, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the contract at the reporting date and are not unconditionally cancellable by the Company.

When the ACL, for pooled or individually evaluated loans and leases, is estimated using the DCF method, the effective interest rate used to discount expected cash flows is adjusted for expected prepayments.

Past due status of loans and leases is determined based on contractual terms. Loans and leases are placed in nonaccrual status and interest accrual is discontinued if they become 90 days delinquent or there is evidence that the borrower’s ability to make the required payments is impaired. When interest accrual is discontinued, all unpaid accrued interest is reversed. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses.

A loan or lease is accounted for as a TDR if the Company, for reasons related to the borrower’s financial difficulties, restructures a loan or lease, and grants a concession to the borrower that it would not otherwise grant. A TDR typically involves a more than short-term modification of terms such as a reduction of the interest rate below the current market rate for a loan or lease with similar risk characteristics or the waiving of certain financial covenants without corresponding offsetting compensation or additional support.

When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Expected credit losses on off-balance sheet credit exposures is estimated over the contractual period in which the Company is exposed to such losses, unless the obligation to extend credit is unconditionally cancellable. The estimate of off-balance sheet credit exposures includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated losses. The estimate is influenced by historical loss experience, adjusted for current risk characteristics, and economic forecasts.

When available-for-sale debt securities are in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. Available-for-sale debt securities that do not meet the aforementioned criteria are evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected from the security is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale debt securities from the estimate of credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

On March 15, 2020, the Board of Directors of the Company authorized the repurchase of up to $20,000,000 in shares of the Company’s voting common stock from time to time through December 31, 2020 (the “Repurchase Program”). The Repurchase Program enables the Company to acquire shares through open market purchases or privately negotiated transactions, including through a Rule 10b5-1 plan, at the discretion of management and on terms (including quantity, timing, and price) that ~~management~~ determines to be advisable. Actions in connection with the repurchase program will be subject to various factors, including the Company’s capital and liquidity positions, regulatory and accounting considerations, the Company’s financial and operational performance, alternative uses of capital, the trading price of the Company’s common stock, and market conditions. The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and may be extended, modified, or discontinued at any time. There were 0 shares repurchased during the three and nine months ended September 30, 2020.

On April 1, 2020, the Company acquired 100% of the equity interests of JAM, a registered investment advisor based in Rocky Mount, North Carolina. Goodwill, intangible assets and contingent consideration of $1.8 million, $2.3 million and $2.1 million, respectively, ~~have been~~were recorded by the Company. Intangible assets are almost entirely comprised of customer relationships that are being amortized using the straight-line method over 15 years. As a result of this acquisition, the Bank's subsidiary Live Oak Private Wealth, LLC, ~~expects to broaden~~has broadened service offerings to existing high-net-worth individuals and families, ~~attract~~attracts new clients from an expanded footprint and ~~benefit~~benefits from economies of scale. The acquisition did not materially impact the Company's financial position, results of operations or cash flows. Given the impact of the above acquisition was immaterial to the Company and its result of operations, pro forma information has not been ~~included~~.

Certain reclassifications have been made to the third quarter of 2020, the Company determined to sell one of its aircraft as it looks to modify outreach practices while continuing to support origination activities and the needs of an expanding nationwide customer base. As a result of this determination, the Company began marketing the aircraft for sale and recorded an impairment of $1.0 million reflected in the three and nine months ended September 30, 2020prior period’s condensed consolidated financial statements ~~of income in the "Other expense" line item. The Company expects the aircraft~~ to sell within one year from the time marketing began. The carrying amount of the aircraft of $9.1 million is reflected in the September 30, 2020 condensed consolidated balance sheet in the "Other assets" line item. Any gain or loss associatedplace them on a comparable basis with the ~~sale of the aircraft will be recorded at the time of the sale.~~current year. Net income and shareholders’ equity previously reported were not affected by these reclassifications.

In ~~August 2018,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU ~~No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes~~2019-12”). ASU 2019-12 simplifies accounting for income taxes by removing specific technical exceptions in ASC 740 related to the ~~Disclosure Requirements~~incremental approach for ~~Fair Value Measurement” (“~~intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU ~~2018-13”). ASU 2018-13 removes, modifies~~2019-12 also simplifies aspects of the accounting for franchise taxes and ~~adds certain fair value disclosure requirements on fair value measurements.~~enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted the standard on January 1, ~~2020 with no material effect on its consolidated financial statements.~~

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted the standard on January 1, 2020 with no material effect on its consolidated financial statements.

In March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842): Codification Improvements” (“ASU 2019-01”). ASU 2019-01 provides updates to Topic 842 including: (i) guidance on how to determine fair value of leased items for lessors who are not dealers or manufacturers, (ii) cash flow presentation for lessors of sales-type and direct financing leases and (iii) clarifies certain transition disclosures. The Company adopted the standard on January 1, 2020 with no material effect on its consolidated financial statements.

In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”). ASU 2019-04 provides clarification and minor improvements related to ASU 2016-01 “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and ASU 2017-12 “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” The Company adopted the standard on January 1, 20202021 with no material effect on its consolidated financial statements.

In January 2020, theFASB issued ASU No. 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815” (“ASU 2020-01”). ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The ~~amendments in this~~Company adopted the standard ~~will be effective for the Company~~ on January 1, ~~2021. The Company does not expect this standard to have a~~2021 with no material effect on its ~~consolidated financial statements.~~

In ~~March 2020~~, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments” (“ASU 2020-03”). The amendments represent clarification and improvements to the codification and correct unintended application. This standard was effective immediately upon issuance and its adoption did not have a material effect on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments are effective for and can be adopted by the Company as of March 12, 2020 through December 31, 2022. The Company does not believe this standard will have a material impact on its consolidated financial statements.

Basic and diluted earnings per share are computed based on the weighted average number of shares outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur upon the exercise of stock options or upon the vesting of restricted stock grants, any of which would result in the issuance of common stock that would then ~~be shared~~share in the net income of the Company.

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Basic earnings per share:
Net income	$	33,780	$	3,895	$	29,955	$	11,202	$	33,839	$	33,780	$	136,848	$	29,955
Weighted-average basic shares outstanding		40,542,696		40,240,740		40,461,479		40,199,468		43,329,889		40,542,696		43,061,642		40,461,479
Basic earnings per share	$	0.83	$	0.10	$	0.74	$	0.28	$	0.78	$	0.83	$	3.18	$	0.74
Diluted earnings per share:
Net income, for diluted earnings per share	$	33,780	$	3,895	$	29,955	$	11,202	$	33,839	$	33,780	$	136,848	$	29,955
Total weighted-average basic shares outstanding		40,542,696		40,240,740		40,461,479		40,199,468		43,329,889		40,542,696		43,061,642		40,461,479
Add effect of dilutive stock options and restricted stock grants		1,006,936		872,835		787,387		812,140		1,710,801		1,006,936		1,874,372		787,387
Total weighted-average diluted shares outstanding		41,549,632		41,113,575		41,248,866		41,011,608		45,040,690		41,549,632		44,936,014		41,248,866
Diluted earnings per share	$	0.81	$	0.09	$	0.73	$	0.27	$	0.76	$	0.81	$	3.05	$	0.73
Anti-dilutive shares		395,582		1,100,645		395,582		1,100,645		207,811		395,582		207,811		395,582

The carrying amount of ~~investment~~ securities and their approximate fair values are reflected in the following table:

September 30, 2020	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
September 30, 2021											Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
US government agencies											$	10,443	$	264	$	—	$	10,707
Mortgage-backed securities												834,570		18,340		8,329		844,581
Municipal bonds												3,252		340		3		3,589
Other debt securities												2,500		—		—		2,500
Total											$	850,765	$	18,944	$	8,332	$	861,377

December 31, 2020
US government agencies	$	17,941	$	565	$	—	$	—	$	18,506	$	15,440	$	479	$	—	$	15,919
Mortgage-backed securities		711,794		32,357		576		—		743,575		703,092		28,302		940		730,454
Municipal bonds		3,272		429		5		—		3,696		3,267		462		4		3,725
Total	$	733,007	$	33,351	$	581	$	—	$	765,777	$	721,799	$	29,243	$	944	$	750,098

December 31, 2019
US treasury securities	$	4,988	$	27	$	—	$	—	$	5,015
US government agencies		22,444		335		—		—		22,779
Mortgage-backed securities		488,694		15,530		927		—		503,297
Municipal bonds		8,493		469		8		—		8,954
Total	$	524,619	$	16,361	$	935	$	—	$	540,045

During the three months ended September 30, 2021, 2 mortgage-backed securities totaling $6.2 million were settled. During the three months ended September 30, 2020, 1 US government agency matured at $2.0 million, 1 US Treasury note matured at $5.0 million, and 5 mortgage-backed securities totaling $10.2 million were sold resulting in a net gain of $1.2 million.

During the ~~three~~nine months ended September 30, ~~2019, 4~~2021, 1 US government ~~agencies~~agency matured at $5.0 million and 8 mortgage-backed securities totaling ~~$14.3~~$23.1 million were ~~sold resulting in a net gain of $87 thousand.~~

settled. During the nine months ended September 30, 2020, 2 US government ~~agency~~agencies matured at $4.5 million, 1 US Treasury note matured at $5.0 million, 18 mortgage-backed securities totaling $24.4 million were sold resulting in a net gain of $1.3 million, and 2 municipal bonds totaling $5.2 million were sold resulting in a net gain of $620 thousand. ~~During the nine months ended September 30, 2019, $900 thousand of 1 municipal bond was sold~~ ~~and 4 US government agencies totaling $14.3 million were sold resulting in a net gain of $92 thousand~~.

Accrued interest receivable on available-for-sale securities totaled ~~$2.0~~$1.9 million and ~~$1.6~~$1.8 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and is included in other assets in the accompanying ~~condensed consolidated balance sheets.~~Unaudited Condensed Consolidated Balance Sheets.

The following tables show debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

Management evaluates available-for-sale debt securities to determine whether the unrealized loss is due to ~~credit related~~credit-related factors or ~~non-credit related~~non-credit-related factors. The evaluation considers the extent to which the security’s fair value is less than cost, the financial condition and near-term prospects of the issuer, and intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At September 30, ~~2020,~~2021, there were 12 mortgage-backed securities and 1 municipal bond in unrealized loss positions for greater than 12 months and 122 mortgage-backed securities in unrealized loss positions for less than 12 months. Unrealized losses at December 31, 2020 were comprised of 3 mortgage-backed securities and 1 municipal bond in unrealized loss positions for greater than 12 months and NaN mortgage-backed securities in unrealized loss positions for less than 12 months. Unrealized losses at December 31, 2019 were comprised of NaN mortgage-backed securities and 1 municipal bond in unrealized loss positions for greater than 12 months and 20 mortgage-backed securities in unrealized loss positions for less than 12 months.

These unrealized losses are primarily the result of ~~non-credit related~~non-credit-related volatility in the market and market interest rates. Since none of the unrealized losses relate to marketability of the securities or the issuer’s ability to honor redemption obligations and the Company has the intent and ability to hold the securities for a sufficient period of time to recover unrealized losses, NaN of the losses have been recognized in the Company’s ~~consolidated statements~~Unaudited Condensed Consolidated Statements of ~~income.~~Income.

All mortgage-backed securities in the Company’s portfolio at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were backed by U.S. government sponsored enterprises (“GSEs”).

					September 30, 2021
	September 30, 2020				Available-for-Sale
	Amortized cost		Fair value		Amortized cost		Fair value
US government agencies
Within one year	$	7,500	$	7,586
One to five years		7,517		7,812	$	7,509	$	7,663
Five to ten years		2,924		3,108		2,934		3,044
Total		17,941		18,506		10,443		10,707
Mortgage-backed securities
Within one year						203		203
One to five years		8,801		9,244		15,649		16,415
Five to ten years		208,964		227,065		250,504		260,077
After 10 years		494,029		507,266		568,214		567,886
Total		711,794		743,575		834,570		844,581
Municipal bonds
After 10 years		3,272		3,696		3,252		3,589
Total		3,272		3,696		3,252		3,589
Other debt securities
One to five years						2,500		2,500
Total						2,500		2,500

Total	$	733,007	$	765,777	$	850,765	$	861,377

The table above reflects contractual maturities. Actual results will differ as the loans underlying the mortgage-backed securities may repay sooner than scheduled.

There were 0 securities pledged at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

Other investments, largely comprised of non-marketable equity investments, are generally accounted for under the equity method or equity security accounting. The below tables provide additional information related to investments accounted for under these two methods.

The carrying amount and ownership percentage of each equity investment over which the Company has significant influence at September 30, 2021 and December 31, 2020 is reflected in the following table:

The carrying amount of the Company’s investments in non-marketable equity securities with no readily determinable fair value and amounts recognized in earnings for the nine months ended September 30, 2021, and on a cumulative basis is reflected in the following table:

As described in Note 1. Basis of Presentation, loan and lease classes were changed during the current period. Small Business Banking includes loans to customers in verticals that generally have traditional loan structures. Specialty Lending includes loans to customers in verticals that generally have atypical ownership structures as well as complex collateral arrangements, underwriting requirements, and servicing needs. Paycheck Protection Program includes all loans originated under the CARES Act’s economic relief program and carry a 100% government guarantee.

The following tables present total loans and leases held for investment and an aging analysis for the Company’s portfolio segments. Loans and leases are considered past due if the required principal and interest payments have not been received as of the date such payments were due.

	Current or Less than 30 Days Past Due			30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Carried at Amortized Cost¹		Loans Accounted for Under the Fair Value Option²		Total Loans and Leases			Current or Less than 30 Days Past Due		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Carried at Amortized Cost¹		Loans Accounted for Under the Fair Value Option²		Total Loans and Leases
September 30, 2020
September 30, 2021
Commercial & Industrial
Small Business Banking	$	567,970		$	3,306	$	8,292	$	11,598	$	579,568	$	309,454	$	889,022		$	1,038,352	$	5,018	$	6,968	$	11,986	$	1,050,338	$	265,556	$	1,315,894
Specialty Lending		265,719			—		—		—		265,719		68,770		334,489			687,119		—		—		—		687,119		68,427		755,546
Paycheck Protection Program		1,755,012			—		—		—		1,755,012		—		1,755,012			502,986		—		—		—		502,986		—		502,986
Total		2,588,701			3,306		8,292		11,598		2,600,299		378,224		2,978,523			2,228,457		5,018		6,968		11,986		2,240,443		333,983		2,574,426
Construction & Development
Small Business Banking		156,149			—		—		—		156,149		—		156,149			241,903		—		1,366		1,366		243,269		—		243,269
Specialty Lending		72,303			—		3,723		3,723		76,026		—		76,026			67,445		—		—		—		67,445		—		67,445
Total		228,452			—		3,723		3,723		232,175		—		232,175			309,348		—		1,366		1,366		310,714		—		310,714
Commercial Real Estate
Small Business Banking		924,850			3,525		5,403		8,928		933,778		337,865		1,271,643			1,549,107		4,873		8,265		13,138		1,562,245		274,756		1,837,001
Specialty Lending		118,935			—		1,693		1,693		120,628		21,173		141,801			251,202		—		3,384		3,384		254,586		19,460		274,046
Total		1,043,785			3,525		7,096		10,621		1,054,406		359,038		1,413,444			1,800,309		4,873		11,649		16,522		1,816,831		294,216		2,111,047
Commercial Land
Small Business Banking		333,129			—		4,223		4,223		337,352		108,485		445,837			355,810		1,832		2,055		3,887		359,697		69,843		429,540
Total		333,129			—		4,223		4,223		337,352		108,485		445,837			355,810		1,832		2,055		3,887		359,697		69,843		429,540
Total	$	4,194,067	��	$	6,831	$	23,334	$	30,165	$	4,224,232	$	845,747	$	5,069,979		$	4,693,924	$	11,723	$	22,038	$	33,761	$	4,727,685	$	698,042	$	5,425,727
Net deferred (fees) costs														$	(32,780	)
Loan and Leases, Net of unearned														$	5,037,199
Net deferred fees																													$	(7,116	)
Loans and Leases, Net																													$	5,418,611

	Current or Less than 30 Days Past Due		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Carried at Amortized Cost¹		Loans Accounted for Under the Fair Value Option²		Total Loans and Leases		Current or Less than 30 Days Past Due		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Carried at Amortized Cost¹		Loans Accounted for Under the Fair Value Option²		Total Loans and Leases
December 31, 2019
December 31, 2020
Commercial & Industrial
Small Business Banking	$	374,283	$	7,363	$	4,577	$	11,940	$	386,223	$	275,269	$	661,492	$	695,090	$	10,341	$	10,765	$	21,106	$	716,196	$	308,341	$	1,024,537
Specialty Lending		166,710		532		776		1,308		168,018		58,044		226,062		341,952		337		—		337		342,289		71,090		413,379
Paycheck Protection Program																1,528,180		—		—		—		1,528,180		—		1,528,180
Total		540,993		7,895		5,353		13,248		554,241		333,313		887,554		2,565,222		10,678		10,765		21,443		2,586,665		379,431		2,966,096
Construction & Development
Small Business Banking		302,470		—		—		—		302,470		—		302,470		183,087		—		—		—		183,087		—		183,087
Specialty Lending		44,848		—		—		—		44,848		—		44,848		88,890		—		3,723		3,723		92,613		—		92,613
Total		347,318		—		—		—		347,318		—		347,318		271,977		—		3,723		3,723		275,700		—		275,700
Commercial Real Estate
Small Business Banking		525,858		7,210		5,586		12,796		538,654		358,359		897,013		987,358		3,730		8,609		12,339		999,697		321,352		1,321,049
Specialty Lending		121,191		1,849		—		1,849		123,040		27,291		150,331		148,264		5,374		1,693		7,067		155,331		20,317		175,648
Total		647,049		9,059		5,586		14,645		661,694		385,650		1,047,344		1,135,622		9,104		10,302		19,406		1,155,028		341,669		1,496,697
Commercial Land
Small Business Banking		234,133		—		—		—		234,133		105,557		339,690		329,638		—		2,243		2,243		331,881		94,274		426,155
Total		234,133		—		—		—		234,133		105,557		339,690		329,638		—		2,243		2,243		331,881		94,274		426,155
Total	$	1,769,493	$	16,954	$	10,939	$	27,893	$	1,797,386	$	824,520	$	2,621,906	$	4,302,459	$	19,782	$	27,033	$	46,815	$	4,349,274	$	815,374	$	5,164,648
Net deferred (fees) costs													$	5,380
Loan and Leases, Net of unearned													$	2,627,286
Net deferred fees																											$	(19,718	)
Loans and Leases, Net																											$	5,144,930

The following tables ~~presents~~present asset quality indicators by portfolio class and origination year. See Note 5. Loans and Leases Held for Investment and Credit Quality in the Company’s ~~2019~~2020 Form 10-K for additional discussion around the asset quality indicators that the Company uses to manage and monitor credit risk.

	Term Loans and Leases Amortized Cost Basis by Origination Year																		Term Loans and Leases Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total^1,2		2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total^1,2
September 30, 2020
September 30, 2021
Small Business Banking
Risk Grades 1 - 4	$	450,474	$	472,888	$	332,546	$	285,835	$	180,376	$	69,584	$	28,872	$	1,091	$	1,821,666	$	738,982	$	890,756	$	539,137	$	337,509	$	217,673	$	138,604	$	29,622	$	1,497	$	2,893,780
Risk Grade 5		8,010		43,236		31,998		30,636		13,745		4,725		1,753		64		134,167		8,248		23,945		77,220		63,090		40,701		17,757		17,471		511		248,943
Risk Grades 6 - 8		—		8,128		7,491		13,170		11,452		10,158		442		173		51,014		—		4,786		18,187		15,784		15,144		17,672		869		384		72,826
Total		458,484		524,252		372,035		329,641		205,573		84,467		31,067		1,328		2,006,847		747,230		919,487		634,544		416,383		273,518		174,033		47,962		2,392		3,215,549
Specialty Lending
Risk Grades 1 - 4		196,462		97,483		43,701		44,238		—		—		48,102		497		430,483		433,189		246,483		81,492		48,171		51,388		—		80,169		971		941,863
Risk Grade 5		—		—		2,861		13,173		—		—		1,262		—		17,296		2,576		17,305		4,666		5,635		17,285		—		4,359		672		52,498
Risk Grades 6 - 8		—		—		8,657		—		5,782		—		155		—		14,594		—		17		3,256		8,102		—		3,384		30		—		14,789
Total		196,462		97,483		55,219		57,411		5,782		—		49,519		497		462,373		435,765		263,805		89,414		61,908		68,673		3,384		84,558		1,643		1,009,150
Paycheck Protection Program
Risk Grades 1 - 4		1,755,012		—		—		—		—		—		—		—		1,755,012		383,013		119,973		—		—		—		—		—		—		502,986
Risk Grade 5		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Risk Grades 6 - 8		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total		1,755,012		—		—		—		—		—		—		—		1,755,012		383,013		119,973		—		—		—		—		—		—		502,986
Total	$	2,409,958	$	621,735	$	427,254	$	387,052	$	211,355	$	84,467	$	80,586	$	1,825	$	4,224,232	$	1,566,008	$	1,303,265	$	723,958	$	478,291	$	342,191	$	177,417	$	132,520	$	4,035	$	4,727,685

			2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total^1,2
	Total^1,2
December 31, 2019
December 31, 2020
Small Business Banking
Risk Grades 1 - 4	$	1,361,220	$	724,506	$	475,593	$	287,712	$	230,653	$	159,877	$	59,065	$	32,373	$	1,392	$	1,971,171
Risk Grade 5		63,015		16,080		59,595		62,857		44,478		11,203		3,666		2,131		212		200,222
Risk Grades 6 - 8		37,249		81		8,976		14,639		15,090		11,424		8,418		631		209		59,468
Total		1,461,484		740,667		544,164		365,208		290,221		182,504		71,149		35,135		1,813		2,230,861
Specialty Lending
Risk Grades 1 - 4		307,098		296,537		96,553		48,930		40,626		—		—		55,229		632		538,507
Risk Grade 5		26,497		7,672		6,379		2,752		18,718		—		—		1,711		—		37,232
Risk Grades 6 - 8		2,307		—		—		8,635		—		5,782		—		77		—		14,494
Total		335,902		304,209		102,932		60,317		59,344		5,782		—		57,017		632		590,233
Paycheck Protection Program
Risk Grades 1 - 4				1,528,180		—		—		—		—		—		—		—		1,528,180
Risk Grade 5				—		—		—		—		—		—		—		—		—
Risk Grades 6 - 8				—		—		—		—		—		—		—		—		—
Total	$	1,797,386		1,528,180		—		—		—		—		—		—		—		1,528,180
Total			$	2,573,056	$	647,096	$	425,525	$	349,565	$	188,286	$	71,149	$	92,152	$	2,445	$	4,349,274

As of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 there were 0 loans greater than 90 days past due and still accruing. There was 0 interest income recognized on nonaccrual loans and leases during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. Nonaccrual loans and leases are generally included in the held for investment portfolio. Accrued interest receivable on loans totaled ~~$31.6~~$31.2 million and ~~$19.8~~$41.0 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and is included in other assets in the accompanying ~~condensed consolidated balance sheets.~~Unaudited Condensed Consolidated Balance Sheets.

Nonaccrual loans and leases held for investment as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

September 30, 2020	Loan Balance¹		Guaranteed Balance		Unguaranteed Balance		Unguaranteed Exposure with No ACL
September 30, 2021									Loan and Lease Balance¹		Guaranteed Balance		Unguaranteed Balance		Unguaranteed Exposure with No ACL
Commercial & Industrial
Small Business Banking	$	17,547	$	11,706	$	5,841	$	—	$	22,147	$	15,929	$	6,218	$	3,906
Specialty Lending		—		—		—		—
Payroll Protection Program										1,482		1,482		—		—
Total		17,547		11,706		5,841		—		23,629		17,411		6,218		3,906
Construction & Development
Small Business Banking										1,366		1,201		165		—
Specialty Lending		3,723		—		3,723		3,723		3,440		—		3,440		3,440
Total		3,723		—		3,723		3,723		4,806		1,201		3,605		3,440
Commercial Real Estate
Small Business Banking		14,168		6,020		8,148		5,353		10,801		3,852		6,949		6,016
Specialty Lending		7,089		5,549		1,540		—		8,046		4,883		3,163		3,163
Total		21,257		11,569		9,688		5,353		18,847		8,735		10,112		9,179
Commercial Land
Small Business Banking		4,222		3,321		901		32		2,056		1,541		515		—
Total		4,222		3,321		901		32		2,056		1,541		515		—
Total	$	46,749	$	26,596	$	20,153	$	9,108	$	49,338	$	28,888	$	20,450	$	16,525

The following table presents the amortized cost basis of collateral-dependent loans and leases, which are individually evaluated to determine expected credit losses, as of September 30, 2021 and December 31, 2020:

Total Collateral Dependent Loans

Unguaranteed Portion

September 30, 2020

Real Estate

Business Assets

Other

Real Estate

Business Assets

Other

Allowance for Credit Losses

Commercial & Industrial

Small Business Banking

$
2,468

$
9,643

$
232

$
572

$
4,124

$
101

$
1,361

Total

2,468

9,643

232

572

4,124

101

1,361

Construction & Development

Specialty Lending

3,767

—

—

3,767

—

—

—

Total

3,767

—

—

3,767

—

—

—

Commercial Real Estate

Small Business Banking

11,306

352

331

6,819

96

344

183

Specialty Lending

13,233

—

—

7,684

—

—

6

Total

24,539

352

331

14,503

96

344

189

Commercial Land

Small Business Banking

4,243

—

—

920

—

—

294

Total

4,243

—

—

920

—

—

294

Total

$
35,017

$
9,995

$
563

$
19,762

$
4,220

$
445

$
1,844

On January 1, 2020, the Company adopted ASC 326. Upon adoption, the Company maintains the ACL at levels management believes represents the future expected credit losses in the loan and lease portfolios as of the balance sheet date. See Note 1. Basis of Presentation for additional information around the Company’s methodology for estimating the ACL. See Note 1. Organization and Summary of Significant Accounting Policies and Note 5. Loans and Leases Held for Investment and Credit Quality in the Company’s 2019 Form 10-K for additional information related to the Company’s methodology for estimating the prior period allowance for credit losses under ASC 310.

~~The following table details activity in the ACL by portfolio segment allowance for the periods presented:~~

Three Months Ended

Construction &
Development

Commercial
Real Estate

Commercial
& Industrial

Commercial
Land

Total

September 30, 2020

Beginning Balance

$
4,861

$
16,097

$
21,503

$
1,622

$
44,083

Charge offs

—

(10,155
)

—

—

(10,155
)
Recoveries

—

—

8

—

8

Provision

131

10,842

(567
)

(132
)

10,274

Ending Balance

$
4,992

$
16,784

$
20,944

$
1,490

$
44,210

September 30, 2019

Beginning Balance

$
2,924

$
6,848

$
9,341

$
1,728

$
20,841

Charge offs

—

(615
)

(118
)

(149
)

(882
)
Recoveries

—

3

38

1

42

Provision

(629
)

248

4,615

(274
)

3,960

Ending Balance

$
2,295

$
6,484

$
13,876

$
1,306

$
23,961

	Total Collateral Dependent Loans						Unguaranteed Portion
September 30, 2021	Real Estate		Business Assets		Other		Real Estate		Business Assets		Other		Allowance for Credit Losses
Commercial & Industrial
Small Business Banking	$	954	$	4,359	$	178	$	206	$	302	$	46	$	19
Total		954		4,359		178		206		302		46		19
Construction & Development
Small Business Banking		1,354		—		—		153		—		—		5
Total		1,354		—		—		153		—		—		5
Commercial Real Estate
Small Business Banking		6,051		990		64		4,470		14		13		83
Specialty Lending		3,391		—		—		2,004		—		—		—
Total		9,442		990		64		6,474		14		13		83
Commercial Land
Small Business Banking		3,894		—		—		2,414		—		—		295
Total		3,894		—		—		2,414		—		—		295
Total	$	15,644	$	5,349	$	242	$	9,247	$	316	$	59	$	402

Nine Months Ended

Construction &
Development

Commercial
Real Estate

Commercial
& Industrial

Commercial
Land

Total

September 30, 2020

Beginning Balance, prior to adoption of ASC 326

$
2,732

$
8,427

$
15,757

$
1,318

$
28,234

Impact of adopting ASC 326

1,131

1,916

(4,561
)

193

(1,321
)
Charge offs

—

(10,264
)

(4,170
)

(408
)

(14,842
)
Recoveries

—

43

72

—

115

Provision

1,129

16,662

13,846

387

32,024

Ending Balance

$
4,992

$
16,784

$
20,944

$
1,490

$
44,210

September 30, 2019

Beginning Balance

$
2,042

$
5,259

$
6,524

$
607

$
14,432

Charge offs

—

(615
)

(263
)

(173
)

(1,051
)
Recoveries

—

17

159

1

177

Provision

253

1,823

7,456

871

10,403

Ending Balance

$
2,295

$
6,484

$
13,876

$
1,306

$
23,961

	Total Collateral Dependent Loans						Unguaranteed Portion
December 31, 2020	Real Estate		Business Assets		Other		Real Estate		Business Assets		Other		Allowance for Credit Losses
Commercial & Industrial
Small Business Banking	$	1,279	$	9,440	$	197	$	531	$	4,077	$	66	$	1,281
Total		1,279		9,440		197		531		4,077		66		1,281
Construction & Development
Specialty Lending		3,767		—		—		3,767		—		—		—
Total		3,767		—		—		3,767		—		—		—
Commercial Real Estate
Small Business Banking		11,568		258		332		6,873		9		335		175
Specialty Lending		13,196		—		—		7,663		—		—		23
Total		24,764		258		332		14,536		9		335		198
Commercial Land
Small Business Banking		2,263		—		—		534		—		—		302
Total		2,263		—		—		534		—		—		302
Total	$	32,073	$	9,698	$	529	$	19,368	$	4,086	$	401	$	1,781

The following table details activity in the allowance for credit losses (“ACL”) by portfolio segment allowance for the periods presented:

Nine Months Ended	Commercial & Industrial			Construction & Development			Commercial Real Estate			Commercial Land			Total
September 30, 2021
Beginning Balance	$	26,941		$	5,663		$	18,148		$	1,554		$	52,306
Charge offs		(2,912	)		(262	)		(2,691	)		(12	)		(5,877	)
Recoveries		158			—			1,802			—			1,960
Provision		4,612			(1,110	)		7,333			457			11,292
Ending Balance	$	28,799		$	4,291		$	24,592		$	1,999		$	59,681
September 30, 2020
Beginning Balance, prior to adoption of ASC 326	$	15,757		$	2,732		$	8,427		$	1,318		$	28,234
Impact of adopting ASC 326		(4,561	)		1,131			1,916			193			(1,321	)
Charge offs		(4,170	)		—			(10,264	)		(408	)		(14,842	)
Recoveries		72			—			43			—			115
Provision		13,846			1,129			16,662			387			32,024
Ending Balance	$	20,944		$	4,992		$	16,784		$	1,490		$	44,210

During the three and nine months ended September 30, 2021, increases to the ACL were primarily related to loan growth which has outpaced the improvement in forecasted unemployment rates and other conditions related to the COVID-19 pandemic. Unemployment rates were forecasted for twelve months followed by a twelve-month straight-line reversion period. Additionally, the provision expense was impacted by net charge-offs during the periods.

During the three and nine months ended September 30, 2020, increases to the ACL were primarily related to the severity of forecasted unemployment rates and ongoing developments as a result of the COVID-19 pandemic. Unemployment rates were forecasted for twelve months followed by a twelve-month straight-line reversion period. Additionally, the provision expense was impacted by loan and lease growth and net charge-offs during the ~~period.~~periods.

~~The following tables represent the types of TDRs that were made during the periods presented:~~

Three Months Ended September 30, 2020

Extended Amortization

Payment Deferral

Total TDRs

Number of
Loans

Recorded investment at period end

Number of
Loans

Recorded investment at period end

Number of
Loans

Recorded investment at period end

Commercial & Industrial

Small Business Banking

—

$
—

1

$
24

1

$
24

Specialty Lending

1

116

—

—

1

116

Total

1

116

1

24

2

140

Construction & Development

Small Business Banking

1

879

—

—

1

879

Total

1

879

—

—

1

879

Commercial Real Estate

Small Business Banking

—

—

1

326

1

326

Specialty Lending

—

—

1

3,627

1

3,627

Total

—

—

2

3,953

2

3,953

Total

2

$
995

3

$
3,977

5

$
4,972

The following tables represent the types of TDRs that were made during the periods presented:

	Nine Months Ended September 30, 2020												Three Months Ended September 30, 2021
	Extended Amortization				Payment Deferral				Total TDRs				Interest Only				Payment Deferral				Extend Amortization				Other				Total TDRs⁽¹⁾
	Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end
Commercial & Industrial
Small Business Banking		—	$	—		6	$	1,903		6	$	1,903
Specialty Lending		2		526		—		—		2		526
Total		2		526		6		1,903		8		2,429
Construction & Development
Small Business Banking		1		879		—		—		1		879
Total		1		879		—		—		1		879
Commercial Real Estate
Small Business Banking		—		—		2		3,738		2		3,738
Specialty Lending		—		—		1		3,627		1		3,627
Total		—		—		3		7,365		3		7,365
Commercial Land
Small Business Banking		1		4,885		—		—		1		4,885		—	$	—		1	$	2,830		—	$	—		—	$	—		1	$	2,830
Total		1		4,885		—		—		1		4,885		—		—		1		2,830		—		—		—		—		1		2,830
Total		4	$	6,290		9	$	9,268		13	$	15,558		—	$	—		1	$	2,830		—	$	—		—	$	—		1	$	2,830

	Nine Months Ended September 30, 2019																Nine Months Ended September 30, 2021
	Payment Deferral				Interest Only				Payment Deferral & Rate Concession				Total TDRs				Interest Only				Payment Deferral				Extend Amortization				Other⁽¹⁾				Total TDRs⁽²⁾
	Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end
Commercial & Industrial
Small Business Banking		—	$	—		1	$	350		—	$	—		1	$	350		—	$	—		3	$	6,097		—	$	—		—	$	—		3	$	6,097
Total		—		—		1		350		—		—		1		350		—		—		3		6,097		—		—		—		—		3		6,097
Commercial Real Estate
Small Business Banking		1	$	1,841		—	$	—		1	$	260		2	$	2,101		—		—		5		6,613		—		—		1		3,124		6		9,737
Total		1		1,841		—		—		1		260		2		2,101		—		—		5		6,613		—		—		1		3,124		6		9,737
Total		1	$	1,841		1	$	350		1	$	260		3	$	2,451		—	$	—		8	$	12,710		—	$	—		1	$	3,124		9	$	15,834

	Three Months Ended September 30, 2020
	Interest Only				Payment Deferral				Extend Amortization				Other				Total TDRs⁽¹⁾
	Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end
Commercial & Industrial
Small Business Banking		—	$	—		1	$	24		—	$	—		—	$	—		1	$	24
Specialty Lending		—		—		—		—		1		116		—		—		1		116
Total		—		—		1		24		1		116		—		—		2		140
Construction & Development
Small Business Banking		—		—		—		—		1		879		—		—		1		879
Total		—		—		—		—		1		879		—		—		1		879
Commercial Real Estate
Small Business Banking		—		—		1		326		—		—		—		—		1		326
Specialty Lending		—		—		1		3,627		—		—		—		—		1		3,627
Total		—		—		2		3,953		—		—		—		—		2		3,953
Total		—	$	—		3	$	3,977		2	$	995		—	$	—		5	$	4,972

	Nine Months Ended September 30, 2020
	Interest Only				Payment Deferral				Extend Amortization				Other				Total TDRs⁽¹⁾
	Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end
Commercial & Industrial
Small Business Banking		—	$	—		6	$	1,903		—	$	—		—	$	—		6	$	1,903
Specialty Lending		—		—		—		—		2		526		—		—		2		526
Total		—		—		6		1,903		2		526		—		—		8		2,429
Construction & Development
Small Business Banking		—		—		—		—		1		879		—		—		1		879
Total		—		—		—		—		1		879		—		—		1		879
Commercial Real Estate
Small Business Banking		—		—		2		3,738		—		—		—		—		2		3,738
Specialty Lending		—		—		1		3,627		—		—		—		—		1		3,627
Total		—		—		3		7,365		—		—		—		—		3		7,365
Commercial Land
Small Business Banking		—		—		—		—		1		4,885		—		—		1		4,885
Total		—		—		—		—		1		4,885		—		—		1		4,885
Total		—	$	—		9	$	9,268		4	$	6,290		—	$	—		13	$	15,558

NaN TDR that was modified within the twelve months ended September 30, 2021 subsequently defaulted during the nine months ended September 30, 2021. The TDR that defaulted was a Commercial Real Estate Small Business Banking loan ~~or lease’s performance have varying degrees~~that had previously been modified for a payment deferral and had a recorded investment of ~~success.~~ $50 thousand at September 30, 2021. NaN TDRs that were modified within the twelve months ended September 30, 2021 subsequently defaulted during the three months ended September 30, 2021.

NaN TDRs that were modified within the twelve months ended September 30, 2020 subsequently defaulted during the three and nine months ended September 30, 2020. NaN TDR was modified within the twelve months ended September 30, 2019 and subsequently defaulted during the three and nine months ended September 30, 2019. The TDR that defaulted was a Commercial Real Estate Small Business Banking loan that had been previously modified for payment deferral and had a recorded investment of $1.8 million at September 30, 2019.

The following tables detail the recorded allowance for loan and lease losses and the investment in loans and leases related to each portfolio segment, disaggregated on the basis of impairment evaluation methodology:

~~Loans and leases classified as impaired as of the dates presented are summarized in the following tables.~~

The following table presents evaluated balances of loans and leases classified as impaired at the dates presented that carried an associated reserve as compared to those with no reserve. The recorded investment includes accrued interest and net deferred loan and lease fees or costs.

December 31, 2019

Recorded Investment

With a
Recorded
Allowance

With No
Recorded
Allowance

Total

Unpaid
Principal
Balance

Related
Allowance
Recorded

Commercial & Industrial

Small Business Banking

$
11,607

$
5

$
11,612

$
12,577

$
1,967

Specialty Lending

2,440

—

2,440

2,307

2,022

Total

14,047

5

14,052

14,884

3,989

Construction & Development

Small Business Banking

719

—

719

706

17

Total

719

—

719

706

17

Commercial Real Estate

Small Business Banking

21,370

2,103

23,473

23,996

2,055

Specialty Lending

1,916

—

1,916

1,849

12

Total

23,286

2,103

25,389

25,845

2,067

Commercial Land

Small Business Banking

17,347

��

—

17,347

17,399

748

Total

17,347

—

17,347

17,399

748

Total Impaired Loans and Leases

$
55,399

$
2,108

$
57,507

$
58,834

$
6,821

The following table presents the average recorded investment of impaired loans and leases for each period presented and interest income recognized during the period in which the loans and leases were considered impaired.

The Company purchases new equipment for the purpose of leasing such equipment to customers within its verticals. Equipment purchased to fulfill commitments to commercial renewable energy projects is rented out under operating leases while leases of equipment outside of the renewable energy vertical are generally direct financing leases. Accordingly, leased assets under operating leases are included in premises and equipment while leased assets under direct financing leases are included in loans and leases held for investment.

Interest income on direct financing leases is recognized when earned. Unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. The term of each lease is generally 3-7 years which is consistent with the useful life of the equipment with no residual value. The gross lease payments receivable and the net investment included in accounts receivable for such leases are as follows:

	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020
Gross direct finance lease payments receivable	$	11,355		$	13,959		$	8,276		$	10,629
Less – unearned interest		(1,874	)		(2,562	)		(1,159	)		(1,685	)
Net investment in direct financing leases	$	9,481		$	11,397		$	7,117		$	8,944

As of September 30, 2020	Amount
2020	$	763
As of September 30, 2021			Amount
2021		2,910	$	683
2022		2,665		2,620
2023		2,223		2,182
2024		1,580		1,570
2025				1,104
Thereafter		1,214		117
Total	$	11,355	$	8,276

Interest income of ~~$199~~$159 thousand and ~~$244~~$199 thousand was recognized in the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Interest income of ~~$644~~$517 thousand and ~~$745~~$644 thousand was recognized in the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

The term of each operating lease is generally 10 to 15 years. The Company retains ownership of the equipment and associated tax benefits such as investment tax credits and accelerated depreciation. At the end of the lease term, the lessee has the option to renew the lease for 2 additional terms or purchase the equipment at the ~~then current~~then-current fair market value.

Rental revenue from operating leases is recognized on a straight-line basis over the term of the lease. Rental equipment is recorded at cost and depreciated to an estimated residual value on a straight-line basis over the estimated useful life. The useful lives generally range from 20 to 25 years and residual values generally range from 20% to 50%, however, they are subject to periodic evaluation. Changes in useful lives or residual values will impact depreciation expense and any gain or loss from the sale of used equipment. The estimated useful lives and residual values of the Company's leasing equipment are based on industry disposal experience and the Company's expectations for future sale prices.

If the Company decides to sell or otherwise dispose of rental equipment, it is carried at the lower of cost or fair value less costs to sell or dispose. Repair and maintenance costs that do not extend the lives of the rental equipment are charged to direct operating expenses at the time the costs are incurred.

As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had a net investment of ~~$136.9~~$126.3 million and ~~$144.3~~$134.5 million, respectively, in assets included in premises and equipment that are subject to operating leases. Of the net investment, the gross balance of the assets was $163.4 million and $164.3 million as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020, respectively, and accumulated depreciation was ~~$27.3~~$37.1 million and ~~$20.0~~$29.8 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Depreciation expense recognized on these assets for the three ~~months ended September 30, 2020~~ and ~~2019 was $2.4 million. Depreciation expense recognized on these assets for the~~ nine months ended September 30, 2021 and 2020 ~~and 2019~~ was ~~$7.3~~$2.4 million and ~~$7.2~~$7.3 million, respectively.

Lease income of $2.4 million was recognized in the three months ended September 30, ~~2020~~2021 and ~~2019, respectively.~~2020. Lease income of $7.2 million and $7.1 million ~~and $7.0 million was~~were recognized in the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

A maturity analysis of future minimum lease payments to be received under non-cancelable operating leases is as follows:

As of September 30, 2020	Amount
2020	$	2,005
As of September 30, 2021			Amount
2021		9,052	$	1,969
2022		9,044		9,044
2023		9,075		9,075
2024		8,808		8,808
2025				8,935
Thereafter		40,110		31,175
Total	$	78,094	$	69,006

Loans serviced for others are not included in the accompanying ~~condensed consolidated balance sheets.~~Unaudited Condensed Consolidated Balance Sheets. The unpaid principal balances of loans serviced for others requiring recognition of a servicing asset were ~~$2.27~~$2.26 billion and ~~$2.26~~$2.21 billion at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The unpaid principal balance for all loans serviced for others was ~~$3.14 billion and $2.97~~$3.21 billion at September 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Balance at beginning of period	$	33,834		$	41,687		$	35,365		$	47,641		$	36,966		$	33,834		$	33,918		$	35,365
Additions, net		1,936			1,057			6,668			2,388			2,880			1,936			7,616			6,668
Fair value changes:
Due to changes in valuation inputs or assumptions		3,758			(1,542	)		1,596			(1,850	)		(2,768	)		3,758			119			1,596
Decay due to increases in principal paydowns or runoff		(1,697	)		(3,619	)		(5,798	)		(10,596	)		(3,110	)		(1,697	)		(7,685	)		(5,798	)
Balance at end of period	$	37,831		$	37,583		$	37,831		$	37,583		$	33,968		$	37,831		$	33,968		$	37,831

The fair value of servicing rights was determined using a weighted average discount rate of 12.3% on September 30, 2021 and 9.1% on September 30, ~~2020 and 14.1% on September 30, 2019.~~2020. The fair value of servicing rights was determined using a weighted average prepayment speed of 16.7% on September 30, 2021 and 19.1% on September 30, 2020, ~~and 15.7% on September 30, 2019,~~with the actual rate depending on the stratification of the specific right. Changes to fair value are reported in loan servicing asset revaluation within the ~~consolidated statements~~Unaudited Condensed Consolidated Statements of ~~income.~~Income.

The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Changes in prepayment speed assumptions typically have the most significant impact on the fair value of servicing rights. Generally, as interest rates rise on variable rate loans, loan prepayments increase due to an increase in refinance activity, which results in a decrease in the fair value of servicing assets, however, weakening economic conditions or significant declines in interest rates can also increase loan prepayment activity. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.

The Company may purchase federal funds through unsecured federal funds lines of credit with various correspondent banks, which totaled ~~$72.5~~$167.5 million as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. These lines are intended for short-term borrowings and are subject to restrictions limiting the frequency and terms of advances. These lines of credit are payable on demand and bear interest based upon the daily federal funds rate. The Company had 0 outstanding balances on the lines of credit as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

The Company has entered into a repurchase agreement with a third party for $5.0 million as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. At the time the Company enters into a transaction with the third party, the Company must transfer securities or other assets against the funds received. The terms of the agreement are set at market conditions at the time the Company enters into such transaction. The Company had 0 outstanding balance on the repurchase agreement as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

On June 18, 2018, the Company entered into a borrowing agreement with the Federal Home Loan Bank of Atlanta. These borrowings must be secured with eligible collateral approved by the Federal Home Loan Bank of Atlanta. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had approximately ~~$2.05~~$2.04 billion and ~~$1.14~~$2.01 billion, respectively, in borrowing capacity available under these agreements. There isare no advances outstanding and no collateral pledged ~~and no advances outstanding~~ as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

The Company may borrow funds through the Federal Reserve Bank’s discount window. These borrowings are secured by a blanket floating lien on qualifying loans with a balance of ~~$1.83~~$2.27 billion and ~~$526.8 million~~$2.22 billion as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had approximately ~~$1.43~~$1.87 billion and ~~$294.5 million,~~$1.77 billion, respectively, in borrowing capacity available under these arrangements with 0 outstanding balance as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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.

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: 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 mutual fund 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 sale: The fair values of loans held for sale are determined by discounting estimated cash flows using interest rates approximating prevailing market rates for similar loans adjusted to reflect the inherent credit risk. Due to the nature of the valuation inputs, loans held for sale are classified within Level 3 of the valuation hierarchy.

Loans held for investment: The fair values of loans held for investment are typically determined based on discounted cash flow analyses using market-based interest rate spreads. Discounted cash flow analyses are adjusted, as appropriate, to reflect current market conditions and borrower-specific credit risk. If the loan is collateral dependent, the fair value is determined 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. 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, servicing costs, market 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 ~~following~~below 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. Option expiration dates are modified to account for estimates toof actual life relative to stated expiration. 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.

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.

September 30, 2020	Total		Level 1		Level 2		Level 3
September 30, 2021									Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
US government agencies	$	18,506	$	0	$	18,506	$	0	$	10,707	$	—	$	10,707	$	—
Mortgage-backed securities		743,575		0		743,575		0		844,581		—		844,581		—
Municipal bonds¹		3,696		0		3,601		95		3,589		—		3,492		97
Other debt securities										2,500		—		2,500		—
Loans held for sale		30,443		—		—		30,443		27,366		—		—		27,366
Loans held for investment		845,747		—		—		845,747		698,042		—		—		698,042
Servicing assets²		37,831		0		0		37,831		33,968		—		—		33,968
Mutual fund		2,339		0		2,339		0		2,379		—		2,379		—
Equity warrant assets³		869		0		0		869
Equity warrant assets										1,672		—		—		1,672
Total assets at fair value	$	1,683,006	$	0	$	768,021	$	914,985	$	1,624,804	$	—	$	863,659	$	761,145

December 31, 2019	Total		Level 1		Level 2		Level 3
December 31, 2020									Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
US treasury securities	$	5,015	$	0	$	5,015	$	0
US government agencies		22,779		0		22,779		0	$	15,919	$	0	$	15,919	$	0
Mortgage-backed securities		503,297		0		503,297		0		730,454		0		730,454		0
Municipal bonds¹		8,954		0		8,862		92		3,725		0		3,629		96
Loans held for sale		16,198		—		—		16,198		36,111		—		—		36,111
Loans held for investment		824,520		—		—		824,520		815,374		—		—		815,374
Servicing assets²		35,365		0		0		35,365		33,918		0		0		33,918
Mutual fund		2,206		0		2,206		0		2,351		0		2,351		0
Equity warrant assets³		570		0		0		570
Equity warrant assets										908		0		0		908
Total assets at fair value	$	1,418,904	$	0	$	542,159	$	876,745	$	1,638,760	$	0	$	752,353	$	886,407

The Company ~~elects~~has 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 on loans accounted for under the fair value option is recognized in loans and fees on loans on the Company’s ~~consolidated statements~~Unaudited Condensed Consolidated Statements of ~~income.~~ Income. Beginning in the first quarter of 2021, the Company chose not to elect fair value for all retained participating interests arising from new government guaranteed loan sales. 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 accounting standards, any loans for which fair value was previously elected will continue to be measured as such.

There were 0 loans accounted for under the fair value option that were 90 days or more past due and still accruing interest at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020. The unpaid principal balance of unguaranteed exposure for nonaccruals was ~~$10.0~~$7.9 million and ~~$10.7~~$6.9 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 September 30, ~~2020~~2021 and December 31, ~~2019.~~

	September 30, 2020																					September 30, 2021
	Total Loans							Nonaccruals							90 Days or More Past Due							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 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 sale	$	30,443	$	32,615	$	(2,172	)	$	—	$	—	$	—		$	—	$	—	$	—		$	27,366	$	28,839	$	(1,473	)	$	—	$	—	$	—		$	—	$	—	$	—
Loans held for investment		845,747		870,587		(24,840	)		47,434		52,278		(4,844	)		24,977		27,575		(2,598	)		698,042		720,456		(22,414	)		43,011		47,184		(4,173	)		24,100		27,252		(3,152	)
	$	876,190	$	903,202	$	(27,012	)	$	47,434	$	52,278	$	(4,844	)	$	24,977	$	27,575	$	(2,598	)	$	725,408	$	749,295	$	(23,887	)	$	43,011	$	47,184	$	(4,173	)	$	24,100	$	27,252	$	(3,152	)

	December 31, 2019																					December 31, 2020
	Total Loans							Nonaccruals							90 Days or More Past Due							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 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 sale	$	16,198	$	17,230	$	(1,032	)	$	—	$	—	$	—		$	—	$	—	$	—		$	36,111	$	38,135	$	(2,024	)	$	—	$	—	$	—		$	—	$	—	$	—
Loans held for investment		824,520		842,456		(17,936	)		49,739		54,370		(4,631	)		26,644		28,137		(1,493	)		815,374		845,082		(29,708	)		35,499		39,318		(3,819	)		25,532		28,741		(3,209	)
	$	840,718	$	859,686	$	(18,968	)	$	49,739	$	54,370	$	(4,631	)	$	26,644	$	28,137	$	(1,493	)	$	851,485	$	883,217	$	(31,732	)	$	35,499	$	39,318	$	(3,819	)	$	25,532	$	28,741	$	(3,209	)

	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,					Nine Months Ended September 30,
Gains (Losses) on Loans Accounted for under the Fair Value Option	2020		2019			2020			2019		2021			2020		2021		2020
Loans held for sale	$	109	$	(95	)	$	123		$	376	$	85		$	109	$	549	$	123
Loans held for investment		3,294		1,197			(8,447	)		5,600		(1,115	)		3,294		3,774		(8,447	)
	$	3,403	$	1,102		$	(8,324	)	$	5,976	$	(1,030	)	$	3,403	$	4,323	$	(8,324	)

Gains/(losses) related to borrower-specific credit risk were $81 thousand and $(212) thousand for the three and nine months ended September 30, 2021, respectively, and $(1.5) million and $(3.3) million for the three and nine months ended September 30, 2020, respectively.

Losses related to borrower-specific credit risk were $1.5 million and $3.3 million for the three and nine months ended September 30, 2020, respectively, and $2.6 million and $4.3 million for the three and nine months ended September 30, 2019, respectively.

The following tables summarize the activity pertaining to loans accounted for under the fair value option.

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
Loans held for sale	2020			2019			2020			2019			2021			2020			2021			2020
Balance at beginning of period	$	32,071		$	26,603		$	16,198		$	17,745		$	29,048		$	32,071		$	36,111		$	16,198
Issuances		4,560			9,354			20,759			29,196
Issuances & repurchases														—			4,560			—			20,759
Fair value changes		109			(95	)		123			376			85			109			549			123
Sales		(6,082	)		(21,108	)		(6,082	)		(32,452	)		—			(6,082	)		—			(6,082	)
Settlements		(215	)		(32	)		(555	)		(143	)		(1,767	)		(215	)		(9,294	)		(555	)
Balance at end of period	$	30,443		$	14,722		$	30,443		$	14,722		$	27,366		$	30,443		$	27,366		$	30,443

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
Loans held for investment	2020			2019			2020			2019			2021			2020			2021			2020
Balance at beginning of period	$	834,602		$	839,080		$	824,520		$	885,527		$	743,226		$	834,602		$	815,374		$	824,520
Issuances		37,346			39,842			136,718			94,363
Issuances & repurchases														10,005			37,346			31,790			136,718
Fair value changes		3,294			1,197			(8,447	)		5,600			(1,115	)		3,294			3,774			(8,447	)
Settlements		(29,495	)		(48,806	)		(107,044	)		(154,177	)		(54,074	)		(29,495	)		(152,896	)		(107,044	)
Balance at end of period	$	845,747		$	831,313		$	845,747		$	831,313		$	698,042		$	845,747		$	698,042		$	845,747

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~~Collateral-dependent loans: Loans are considered ~~collateral dependent~~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~~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~~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 nonrecurring Level 3.

Long-lived asset held for sale: Long-lived assets held for sale are carried at the lower of carrying value or fair value less selling costs. Fair value is based upon an independent market valuation of the property. Given the lack of observable market prices for identical assets and market discounts applied to market prices, the Company generally classifies long-lived assets held for sale as nonrecurring Level 3.

Equity security investments 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 an observable price change in an orderly transaction occurs for an identical investment of the same issuer, the investment is generally classified as nonrecurring Level 1 within the valuation hierarchy. When an observable price change in an orderly transaction occurs for a similar investment of the same issuer, the investment is generally classified as nonrecurring Level 2 within the valuation hierarchy.

The tables below present the recorded amount of assets and liabilities measured at fair value on a non-recurring basis.

December 31, 2019	Total		Level 1		Level 2		Level 3
Collateral dependent loans	$	1,245	$	—	$	—	$	1,245
December 31, 2020									Total		Level 1		Level 2		Level 3
Collateral-dependent loans									$	4,159	$	—	$	—	$	4,159
Foreclosed assets		5,612		—		—		5,612		4,155		—		—		4,155
Long-lived asset held for sale										8,874		8,874		—		—
Equity security investment with a non-readily determinable fair value		8,738		8,738		—		—		25,367		—		25,367		—
Total assets at fair value	$	15,595	$	8,738	$	—	$	6,857	$	42,555	$	8,874	$	25,367	$	8,314

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 the significant unobservable inputs used in the fair value measurements were as follows:

Level 3 Assets with Significant

Unobservable Inputs

Fair Value

Valuation Technique

Significant

Unobservable

Inputs

Range

Fair Value

Valuation Technique

Significant

Unobservable

Inputs

Range

Recurring fair value

Municipal bond

Discounted expected cash flows

Discount rate

Prepayment speed

4.2%

5.0%

Discounted expected cash flows

Discount rate

Prepayment speed

4.8%

5.0%

Loans held for sale

30,443

Discounted expected cash flows

Discount rate

Prepayment speed

0.7% to 16.9%

WAVG 19.1%

27,366

Discounted expected cash flows

Discount rate

Prepayment speed

5.1% to 21.4%

WAVG 18.0%

Loans held for

investment

845,747

Discounted expected cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0.0% to 73.6% (WAVG 1.4%)

0.7% to 16.9%

WAVG 19.1%

10.0% to 60.0%

698,042

Discounted expected cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0.0% to 72.0% (WAVG 1.4%)

5.1% to 21.4%

WAVG 18.0%

10.0% to 75.0%

Equity warrant assets

869

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

26.0% to 87.3%

0.28% to 0.69%

20.0%

5-10 years

1,672

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

26.4-88.9%

0.98% to 1.48%

20.0%

4-10 years

Non-recurring fair value

Collateral dependent

loans

4,238

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 55.0%

Collateral-dependent

loans

919

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 65.0%

Foreclosed assets

3,264

Discounted appraisals

Appraisal adjustments ⁽¹⁾

4.0% to 20.0%

883

Discounted appraisals

Appraisal adjustments ⁽¹⁾

4.0% to 10.0%

Long-lived asset held

for sale

9,070

Discounted independent market valuation

Independent market valuation adjustments

1.4%

Level 3 Assets with Significant

Unobservable Inputs

Fair Value

Valuation Technique

Significant

Unobservable

Inputs

Range

Fair Value

Valuation Technique

Significant

Unobservable

Inputs

Range

Recurring fair value

Municipal bond

Discounted expected cash flows

Discount rate

Prepayment speed

4.6%

5.0%

Discounted expected cash flows

Discount rate

Prepayment speed

4.3%

5.0%

Loans held for sale

16,198

Discounted expected cash flows

Discount rate

Prepayment speed

7.7% to 21.4%

WAVG 13.1%

36,111

Discounted expected cash flows

Discount rate

Prepayment speed

4.2% to 18.5%

WAVG 19.0%

Loans held for

investment

824,520

Discounted expected cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0.0% to 10.9% (WAVG 1.3%)

7.7% to 21.4%

WAVG 13.1%

10.0% to 70.0%

815,374

Discounted expected cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0.0% to 73.2% (WAVG 1.5%)

4.2% to 18.5%

WAVG 19.0%

10.0% to 83.0%

Equity warrant assets

570

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

21.0-75.0%

1.90%

20.0%

8-10 years

908

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

26.5-87.1%

0.36% to 0.93%

20.0%

5-10 years

Non-recurring fair value

Collateral dependent

loans

1,245

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 57.0%

Collateral-dependent

loans

4,159

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 83.0%

Foreclosed assets

5,612

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 37.0%

4,155

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 20.0%

GAAP also requires disclosure of the fair value of financial instruments carried at book value on the consolidated balance sheets.

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:

September 30, 2020	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
September 30, 2021											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	$	608,826	$	608,826	$	—	$	—	$	608,826	$	336,362	$	336,362	$	—	$	—	$	336,362
Federal funds sold		25,924		25,924		—		—		25,924		10,672		10,672		—		—		10,672
Certificates of deposit with other banks		7,250		7,701		—		—		7,701		6,000		6,253		—		—		6,253
Loans held for sale		1,159,757		—		—		1,260,154		1,260,154		1,015,390		—		—		1,116,657		1,116,657
Loans and leases, net of allowance for credit losses on loans and leases		4,191,452		—		—		4,225,566		4,225,566		4,660,888		—		—		4,790,033		4,790,033
Financial liabilities
Deposits		5,706,044		—		5,736,521		—		5,736,521		6,816,613		—		6,690,754		—		6,690,754
Borrowings		1,747,083		—		—		1,747,119		1,747,119		575,021		—		—		562,932		562,932

December 31, 2019	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
December 31, 2020											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	$	124,610	$	124,610	$	—	$	—	$	124,610	$	297,167	$	297,167	$	—	$	—	$	297,167
Federal funds sold		96,787		96,787		—		—		96,787		21,153		21,153		—		—		21,153
Certificates of deposit with other banks		7,250		7,568		—		—		7,568		6,500		6,906		—		—		6,906
Loans held for sale		950,249		—		—		1,004,135		1,004,135		1,139,359		—		—		1,235,122		1,235,122
Loans and leases, net of allowance for credit losses on loans and leases		1,774,532		—		—		1,822,569		1,822,569		4,277,250		—		—		4,366,489		4,366,489
Financial liabilities
Deposits		4,226,980		—		4,211,522		—		4,211,522		5,712,828		—		5,711,781		—		5,711,781
Borrowings		14		—		—		14		14		1,542,093		—		—		1,542,171		1,542,171

In the normal course of business, the Company is involved in various legal proceedings. Management believes that the outcome of such proceedings will not materially affect the financial position, results of operations or cash flows of the Company.

On March 12, 2021, a purported class action was filed against the Company in the United States District Court for the Eastern District of North Carolina, Joseph McAlear, individually and on behalf of all others similarly situated v. Live Oak Bancshares, Inc. et al. The complaint alleges the existence of an agreement between the Company, nCino, Inc. and Apiture, LLC in which those companies purportedly sought to restrain the mobility of employees in violation of antitrust laws by agreeing not to solicit or hire each other’s employees. The complaint alleges violations of Section 1 of the federal Sherman Act (15 U.S.C. § 1) and violations of Sections 75-1 and 75-2 of the North Carolina General Statutes. The plaintiff seeks monetary damages, including treble damages, entitlement to restitution, disgorgement, attorneys’ fees, and pre- and post-judgment interest. On October 12, 2021, the Company reached an agreement to settle the case with a proposed class of all persons (with certain exclusions) employed by the Company or its wholly-owned subsidiary, Live Oak Banking Company, Apiture, Inc. or nCino, Inc. in North Carolina at any time from January 27, 2017, through March 31, 2021. In the agreement, the Company agreed to pay $3.9 million. On October 13, 2021, the plaintiff filed a motion for preliminary approval of the settlement, and that motion remains pending before the court.

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the balance sheet.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. A summary of the Company’s commitments is as follows:

	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Commitments to extend credit	$	1,810,114	$	1,834,449	$	2,687,933	$	2,054,910
Standby letters of credit		27,197		25,532		9,150		22,913
Total unfunded off-balance-sheet credit risk	$	1,837,311	$	1,859,981	$	2,697,083	$	2,077,823

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties. ~~In 2012, the Company began issuing commitment~~Commitment letters are issued after approval of the loan by the Credit ~~Department. Commitment letters~~Department and generally expire ninety days after issuance.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary.

The balance of the allowance for off-balance sheet credit exposures was $611 thousand and $746 thousand at September 30, 2021 and December 31, 2020, respectively.

As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of ~~$14.7~~$11.0 million and ~~$16.9~~$15.8 million, respectively.

Although the Company is not subject to any geographic concentrations, a substantial amount of the Company’s loans, leases, and commitments to extend credit have been granted to customers in the agriculture, healthcare and veterinary verticals. The concentrations of credit by type of loan are set forth in Note 5. The distribution of commitments to extend credit approximates the distribution of loans outstanding. The Company does not have a significant number of credits to any single borrower or group of related borrowers whereby their retained unguaranteed exposure exceeds ~~$7.5~~$15.0 million, except for 3825 relationships that have a retained unguaranteed exposure of ~~$521.0~~$637.7 million of which ~~$269.9~~$284.8 million of the unguaranteed exposure has been disbursed.

Additionally, the Company has future minimum lease payments ~~due~~receivable under non-cancelable operating leases totaling ~~$78.1~~$69.0 million, of which ~~$56.1~~$21.2 million is due from ~~four relationships.~~one relationship.

The Company from time-to-time may have cash and cash equivalents on deposit with financial institutions that exceed federally-insured limits.

On March 20, 2015, the Company adopted the 2015 Omnibus Stock Incentive Plan which replaced the previously existing Amended Incentive Stock Option Plan and Nonstatutory Stock Option Plan. Subsequently on May 24, 2016 and May 15, 2018, the 2015 Omnibus Stock Incentive Plan was amended to authorize awards covering a maximum of 7,000,000 and 8,750,000 common voting shares, ~~and has an expiration date of March 20, 2025.~~respectively. On May ~~15, 2018,~~11, 2021, the Amended and Restated 2015 Omnibus Stock Incentive Plan was amended to authorize awards covering a maximum of ~~8,750,000~~10,750,000 common voting shares. Options or restricted shares granted under the Amended and Restated 2015 Omnibus Stock Incentive Plan (the "Plan") expire no more than 10 years from the date of grant. Exercise prices under the Plan are set by the Board of Directors at the date of grant, but shall not be less than 100% of fair market value of the related stock at the date of the grant. Options vest over a minimum of three years from the date of the grant. Restricted stock grants vest in equal installments ranging from immediate vesting to over a ~~seven year~~seven-year period from the date of the grant. Market Restricted Stock Units also have a restriction based on the passage of time and ~~non-market-related performance criteria, but also~~ have a restriction based on market price criteria related to the Company’s share price closing at or above a specified price defined at time of ~~grant.~~grant, but also may have non-market-related performance criteria.

There were 0 stock options granted during the three and nine months ended September 30, ~~2020.~~2021.

At September 30, ~~2020,~~2021, unrecognized compensation costs relating to stock options amounted to ~~$2.8~~$1.2 million which will be recognized over a weighted average period of ~~1.87~~0.98 years.

Restricted stock awards are authorized in the form of restricted stock awards or units ("RSU"s) and restricted stock awards or units with a market price condition ("Market RSU"s).

RSUs have a restriction based on the passage of time and may also have a restriction based on a non-market-related performance criteria. The fair value of the RSUs is based on the closing price on the date of the grant.

There were 0 Market RSUs ~~have a restriction based on~~granted during the ~~passage of time~~three and ~~non-market-related~~nine months ended September 30, 2021.

For the nine months ended September 30, 2021, 575,500 Market RSUs met the performance ~~criteria, but also have a restriction based on market~~stock price ~~criteria related to~~condition for the ~~Company’s share~~$45.00, $48.00, $50.00 and $55.00 stock price ~~closing at or above a specified price ranging from $34.00 to $55.00 per share~~ for ~~at least~~ twenty (20) consecutive trading ~~days at any time prior~~days. For the nine months ended September 30, 2021, the remaining expense of $3.7 million was fully recognized due to ~~expiration date.~~the accelerated vesting. The ~~amount of~~weighted average grant date fair value for the 575,500 vested Market RSUs ~~earned will not exceed 100% of the~~was $7.62.

For the three months ended September 30, 2021, 339,118 RSUs were granted with a weighted average grant date fair value of $61.11. For the ~~Market~~nine months ended September 30, 2021, 1,155,694 RSUs were granted with a weighted average grant date fair value of $54.01. Of the RSUs granted in the nine-month period, 288,680 were awarded in connection with annual long term incentive stock compensation and 500,000 were awarded as a special retention RSU award.

At September 30, 2021, unrecognized compensation costs relating to RSUs amounted to $67.0 million which will be recognized over a weighted average period of 4.80 years.

The Company's management reporting process measures the performance of its operating segments based on internal operating structure, which is subject to change from time to time. Accordingly, the Company operates 2 reportable segments for management reporting purposes as discussed below:

Banking - This segment specializes in providing financing services to small businesses nationwide in targeted industries and deposit-related services to small businesses, consumers and other customers nationwide. The primary source of revenue for this segment is net interest income and secondarily the origination and sale of government guaranteed loans.

Fintech - This segment is involved in making strategic investments into emerging financial technology companies. The primary sources of revenue for this segment are principally gains and losses on equity method and equity security investments and management fees. The Fintech segment is comprised of the Company's wholly owned subsidiaries Live Oak Ventures and Canapi Advisors, and the ~~implied service period is calculated using~~investments held by those entities, as well as the ~~Monte Carlo simulation method.~~Bank's investment in Apiture.

For the three months ended September 30, 2020, 39,999 RSUs were granted with a weighted average grant date fair value of $19.99. For the nine months ended September 30, 2020, 581,678 RSUs were granted with a weighted average grant date fair value of $17.57. Of the RSUs granted in the nine month period, 447,273 were awarded in connection with annual long term incentive stock compensation.

~~At September 30, 2020, unrecognized compensation costs relating to RSUs amounted to $15.6 million which will be recognized over a weighted average period of 4.39 years.~~

~~There were 0 Market RSUs granted during the three and nine months ended September 30, 2020.~~

~~At September 30, 2020, unrecognized compensation costs relating to Market RSUs amounted to $8.8 million which will be recognized over a weighted average period of 2.92 years.~~

In accordance with Rule 10-01(b)(1) of Regulation S-X, the Company must assess whether any of its equity method investments are significant equity method investments. In evaluating the significance of these investments, the Company performed the income test and the investment test described in S-X 3-05 and S-X 1-02(w). Rule 10-01(b)(1) of Regulation S-X requires summarized financial information in a quarterly report if any of the two tests exceeds 20%.

The following ~~table provides summarized balance sheet~~tables provide financial information for the ~~Company’s equity method investments as~~Company's segments. The information provided under the caption “Other” represents operations not considered to be reportable segments and/or general operating expenses of ~~September 30, 2020~~the Company, and ~~December 31, 2019. The Company’s equity method investments are included in~~includes the parent company, other ~~assets line on~~non-bank subsidiaries and elimination adjustments to reconcile the results of the operating segments to the unaudited condensed consolidated ~~balance sheets and are largely concentrated~~financial statements prepared in ~~new or emerging financial service technology companies.~~

~~The following table provides summarized income statement information for the Company’s equity method investments for the three and nine months ended September 30, 2020 and 2019.~~conformity with GAAP.

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Summary of operations

Total revenues

$
19,026

$
13,567

$
50,998

$
40,807

Net loss

(8,713
)

(9,336
)

(38,199
)

(22,556
)

	Banking		Fintech			Other			Consolidated
Three Months Ended September 30, 2021
Interest income	$	92,783	$	—		$	3		$	92,786
Interest expense		14,667		—			384			15,051
Net interest income (loss)		78,116		—			(381	)		77,735
Provision for loan and lease credit losses		4,319		—			—			4,319
Noninterest income		27,041		(283	)		(1,482	)		25,276
Noninterest expense		52,423		1,223			1,813			55,459
Income tax expense (benefit)		9,363		(206	)		237			9,394
Net income (loss)	$	39,052	$	(1,300	)	$	(3,913	)	$	33,839
Total assets	$	7,984,677	$	113,117		$	39,547		$	8,137,341
Three Months Ended September 30, 2020
Interest income	$	75,068	$	—		$	10		$	75,078
Interest expense		23,679		—			36			23,715
Net interest income (loss)		51,389		—			(26	)		51,363
Provision for loan and lease credit losses		10,274		—			—			10,274
Noninterest income		31,757		14,699			588			47,044
Noninterest expense		41,005		1,113			532			42,650
Income tax expense		7,942		3,478			283			11,703
Net income (loss)	$	23,925	$	10,108		$	(253	)	$	33,780
Total assets	$	7,998,576	$	93,727		$	1,078		$	8,093,381

	Banking		Fintech		Other			Consolidated
Nine Months Ended September 30, 2021
Interest income	$	268,856	$	129	$	25		$	269,010
Interest expense		48,967		—		896			49,863
Net interest income (loss)		219,889		129		(871	)		219,147
Provision for loan and lease credit losses		11,292		—		—			11,292
Noninterest income		82,459		42,361		1,624			126,444
Noninterest expense		158,877		3,355		9,057			171,289
Income tax expense (benefit)		19,143		10,008		(2,989	)		26,162
Net income (loss)	$	113,036	$	29,127	$	(5,315	)	$	136,848
Total assets	$	7,984,677	$	113,117	$	39,547		$	8,137,341
Nine Months Ended September 30, 2020
Interest income	$	205,269	$	—	$	99		$	205,368
Interest expense		72,623		—		323			72,946
Net interest income (loss)		132,646		—		(224	)		132,422
Provision for loan and lease credit losses		32,024		—		—			32,024
Noninterest income		60,842		12,884		1,471			75,197
Noninterest expense		132,988		3,971		3,282			140,241
Income tax expense (benefit)		5,778		2,987		(3,366	)		5,399
Net income	$	22,698	$	5,926	$	1,331		$	29,955
Total assets	$	7,998,576	$	93,727	$	1,078		$	8,093,381

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of the financial condition and results of operations of Live Oak Bancshares, Inc. (the “Company” or “LOB”). This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 (the ~~"2019 Annual Report"~~"2020 Form 10-K"). Results of operations for the periods included in this quarterly report on Form 10-Q are not necessarily indicative of results to be obtained during any future period.

This quarterly report on Form 10-Q contains statements that management believes are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements generally relate to the ~~Company’s~~ financial condition, results of operations, plans, objectives, future performance or ~~business.~~business of Live Oak Bancshares, Inc. (the "Company"). They usually can be identified by the use of forward-looking terminology, such as “believes,” “expects,” or “are expected to,” “plans,” “projects,” “goals,” “estimates,” “will,” “may,” “should,” “could,” “would,” “continues,” “intends to,” “outlook” or “anticipates,” or variations of these and similar words, or by discussions of strategies that involve risks and uncertainties. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to, those described in this ~~quarterly report on Form 10-Q.~~Report. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements management may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information actually known to the Company at the time. Management undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements contained in this ~~quarterly report on Form 10-Q~~Report are based on current expectations, estimates and projections about the Company’s business, management’s beliefs and assumptions made by management. These statements are not guarantees of the Company’s future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. These risks, uncertainties and assumptions include, without limitation:

Except as otherwise disclosed, forward-looking statements do not reflect: (i) the effect of any acquisitions, divestitures or similar transactions that have not been previously disclosed; (ii) any changes in laws, regulations or regulatory interpretations; or (iii) any change in current dividend or repurchase strategies, in each case after the date as of which such statements are made. All forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any statement, to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

Amounts in all tables in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) have been presented in thousands, except percentage, time period, stock option, share and per share data or where otherwise indicated.

LOB is a financial holding company and a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of the state of North Carolina in December 2008. The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the “Bank”). The Bank was incorporated in February 2008 as a North Carolina-chartered commercial bank. The Bank specializes in providing lending and deposit related services to small businesses nationwide. The Bank identifies and ~~grows~~extends lending to credit-worthy borrowers within ~~selected industry sectors, or~~both specified industries, also called verticals, ~~by leveraging~~through expertise within those industries, and more broadly to select borrowers outside of those industries. A significant portion of the loans originated by the Bank are guaranteed by the SBA under the 7(a) Loan Program and the U.S. Department of ~~Agriculture~~Agriculture’s ("USDA") Rural Energy for America Program ("REAP"), Water and Environmental Program (“WEP”) and Business & Industry ("B&I") loan programs.

~~Effective July 29, 2016, the Company elected to become a “financial holding company” within the meaning of~~The Company’s wholly owned subsidiaries are the Bank, ~~Holding Company Act. A financial holding company,~~Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”), Live Oak Ventures, Inc. (“Live Oak Ventures”), and the nonbank companies under its control, are permitted to engage in activities considered financial in nature or incidental to financial activities. For the Company to become and remain eligible for financial holding company status, it and the Bank must meet certain criteria, including capital, management and Community Reinvestment Act (“CRA”) requirements. The failure to meet such criteria could, depending on which requirements were not met, result in the Company facing restrictions on new financial activities or acquisitions or being required to discontinue existing activities that are not otherwise permissible for bank holding companies.

~~In 2018, the Company formed~~ Canapi Advisors, LLC ~~for the purpose of providing investment advisory services to a series of new funds focused on providing venture capital to new and emerging financial technology companies.In 2019,~~ (“Canapi Advisors”).

The Bank’s wholly owned subsidiaries are Live Oak Number One, Inc., Live Oak Clean Energy Financing LLC (“LOCEF”) ~~became a subsidiary of~~, and Live Oak Private Wealth, LLC. Live Oak Number One, Inc. holds properties foreclosed on by the Bank.LOCEF ~~was formed in November 2016 as a subsidiary of the Company for the purpose of providing~~provides financing to entities for renewable energy ~~applications. In~~ ~~2018,~~applications and became a wholly owned subsidiary of the Bank ~~formed~~during the first quarter of 2019. Live Oak Private Wealth, LLC ~~a registered investment advisor that provides~~and its wholly owned subsidiary, Jolley Asset Management, LLC (“JAM”), provide high-net-worth individuals and families with strategic wealth and investment management services, and on April 1, 2020, it acquired Jolley Asset Management, LLC to broaden service offerings for existing high-net-worth individuals and families, attract new clients from an expanded footprint and benefit from economies of scale. ~~In 2017, the Bank entered into a joint venture, Apiture LLC (“Apiture”), with First Data Corporation for the purpose of creating next generation technology for financial institutions.~~ ~~In addition to the Bank, the Company~~ owns Live Oak Ventures, Inc., formed in August 2016 for the purpose of investing in businesses that align with the Company's strategic initiative to be a leader in financial technology; Live Oak Grove, LLC, formed in February 2015 for the purpose of providing Company employees and business visitors an on-site restaurant location; and Government Loan Solutions, Inc. (“GLS”),services.

GLS is a management and technology consulting firm that ~~specializes~~advises and offers solutions and services to participants in the government guaranteed lending sector. GLS primarily provides services in connection with the settlement, accounting, and securitization processes for government guaranteed loans, including loans originated under the SBA 7(a) loan ~~program~~programs and ~~USDA-guaranteed~~USDA guaranteed loans. ~~In 2019, 504 Fund~~The Grove provides Company employees and business visitors an on-site restaurant location. Live Oak Ventures’ purpose is investing in businesses that align with the Company's strategic initiative to be a leader in financial technology. Canapi Advisors ~~LLC (“504FA”~~provides investment advisory services to a series of funds (the “Canapi Funds”) ~~exited as the advisor~~focused on providing venture capital to ~~The 504 Fund,~~new and ~~the Company dissolved this legal entity.~~emerging financial technology companies.

The Company generates revenue primarily from net interest income and secondarily through origination and sale of government guaranteed loans. Income from the retention of loans is comprised principally of interest income. The Company ~~elects~~had historically elected to account for certain loans under the fair value option with interest reported in interest income and changes in fair value reported in the net (loss) gain on loans accounted for under the fair value option line item of the consolidated statements of income. Beginning in the first quarter of 2021, the Company chose not to elect fair value for all retained participating interests arising from new government guaranteed loan sales. Income from the sale of loans is comprised of loan servicing revenue and revaluation of related servicing assets along with net gains on sales of loans. Offsetting these revenues are the cost of funding sources, provision for loan and lease credit losses, any costs related to foreclosed assets and other operating costs such as salaries and employee benefits, travel, professional services, advertising and marketing and tax expense. The Company also has ~~less routinely~~ generated gains and losses arising from its financial technology ~~investments.~~investments in its fintech segment, as discussed more fully later in this section entitled “Results of Segment Operations.”

~~The~~Indications of recovery from the COVID-19 pandemic are continuing to appear in the United ~~States~~States; however, the fallout continues to have a complex and significant adverse impact on certain areas of the economy, the banking industry and the Company, all of which are subject to a high degree of uncertainty. This uncertainty is magnified with the risk of a resurgence of the virus or new variants. While it is ~~still~~ not possible to know the full universe or extent of these impacts as of the date of this filing, we are disclosing potentially material items of which we are currently aware.

Relating to our September 30, ~~2020~~2021 financial condition and results of operations, improving conditions around COVID-19 continued to have a ~~cumulative~~positive impact on the allowance for credit losses (“ACL”) on loans and leases and net interest income while these same improving conditions were mitigated by current market fluctuations influencing loans carried at fair value, loan servicing asset revaluation and net gains on sales of loans, ~~and net interest income, however observed improvement~~as discussed below in ~~economic forecasts and broader markets did begin to slow and in some cases somewhat reverse pandemic effects recorded earlier in the year.~~MD&A. With improving ~~economic forecasts,~~conditions, the ACL and resulting provision for loan and lease credit losses ~~were most significantly impacted by charge-offs related~~continue to ~~COVID-19 while the loan fair value calculation and net gain on loans accounted for under the fair value were positively affected. With the ongoing monitoring of effects surfacing in certain~~slowly return to pre-pandemic levels relative to credit exposure. The Company continues to monitor pandemic-at-risk verticals, ~~combined with~~and is seeing a substantial number of borrowers showing signs of recovery by making regular payments in the ~~risk that~~absence of payment deferrals and ~~those being made~~payment subsidies provided by the ~~SBA for borrowers under its programs may be skewing actual indications of ability to repay,~~SBA. Accordingly, total credit related reserves were also positively impacted by this continued ~~to grow but at a slower pace due to the above mentioned improving economic forecasts~~improvement during the third quarter. Refer to the discussion of the ACL and loans at fair value in Notes 5 and 9, respectively, of the ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements as well as further discussion below in MD&A. Also impacted by improving market conditions was the Company’s valuation of the loan servicing asset as discussed in Note 7 of the unaudited condensed consolidated financial statements and net gains on sales of loans, both of which are further discussed below in MD&A. The secondary market continued to improve during the third quarter which also began to somewhat offset earlier negative COVID-19 adjustments for loans carried at fair value and the loan servicing asset valuation. In the third quarter the net interest margin continued to be ~~negatively~~positively impacted by ~~significant rate cuts in response to stimulus efforts combined with heightened levels~~the continued recognition of liquidity at the Company as a part of pandemic preparedness, however improvements began to emerge as the deposit portfolio started to reprice and a substantial portion of excess liquidity was utilized to fund significant loan demand, whilePaycheck Protection Program (“PPP”) ~~lending had a positive impact on net interest margin~~income as discussed more fully below in MD&A. Should economic conditions worsen, the Company could experience ~~further increases~~significant levels of provision in the ~~allowance for credit losses (“ACL”)~~ACL and negative fair value marks and record additional credit or market related loss expense. It is also possible that the Company’s asset quality measures could worsen at future measurement periods if there is a ~~significant~~continued resurgence of COVID-19 cases or ~~the pandemic’s effects are prolonged.~~variants.

~~While there are positive signs of recovery in the secondary market pricing, the~~The income from gain on sale of loans in future periods could also be reduced due to ~~COVID-19. Negative impacts began to be felt in~~COVID-19, the ~~latter part~~termination of ~~March and early April 2020 with loan sales executed at that time as secondary markets conditions began to weaken.~~pandemic response programs or other economic factors. At this time, the Company is unable to project the materiality of such impacts but anticipates that the breadth of the economic impact ~~would likely~~could impact gains in future periods.

Interest income could be further reduced due to COVID-19. In accordance with guidance from banking regulators, the Company has worked and continues to work with COVID-19 affected borrowers to help defer their payments, interest, and fees. In addition to regulatory relief on deferrals from banking regulators, ~~six months of~~ payment relief ~~is also~~was available from the SBA for certain loans guaranteed by that agency pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). and subsequently by the below discussed Economic Aid Act. While interest ~~and fees~~ will still accrue to interest income through GAAP accounting, should eventual credit losses on these loans with deferred payments emerge, interest income ~~and fees~~ accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. AtAs of September 30, 2021, the Company carried $302 thousand in accrued interest on outstanding loans with deferrals made to COVID-19 affected borrowers. At this time, ~~we are~~the Company is unable to project the materiality of such an impact on future deferrals to COVID-19 borrowers, but ~~anticipate that~~recognizes the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

As of September 30, ~~2020,~~2021, all of the Company’s capital ratios, and the Bank’s capital ratios, were in excess of all minimum regulatory requirements. While the Company believes that capital is sufficient to withstand ~~an extended~~a double-dip economic recession if brought about by a resurgence in COVID-19, reported and regulatory capital ratios could be adversely impacted by further credit losses. The Company relies on cash on hand as well as dividends from the Bank to service any debt at the Company. If our capital deteriorates such that the Bank is unable to pay dividends to the Company for an extended period of time, the Company may not be able to service its debt.

The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to the Company, but rates for ~~short term~~short-term funding ~~have recently been~~can be volatile and the secondary market for guaranteed loans has shown reactionary and varying responses to the changing economic environment. ~~The Company increased its levels of deposits and borrowings in the first nine months of the year, as discussed further in MD&A.~~ If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession causes large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.

The Federal Reserve created the Paycheck Protection Program Liquidity Facility (“PPPLF”) to help provide financing for the origination of PPP loans. The PPPLF extends loans to banks that have loaned money to small businesses under the PPP, discussed in more detail below. Amounts borrowed are non-recourse and have a 100% advance rate equal to the principal amount of PPP loans pledged as security. In addition, loans financed under the PPPLF have a neutral impact on regulatory leverage capital ratios. The maturity date of a borrowing under the PPPLF is equal to the maturity date of the PPP loan pledged to secure the borrowing and would be accelerated (i) if the underlying PPP loan goes into default and is transferred to the SBA to realize on the SBA guarantee or (ii) to the extent that any loan forgiveness reimbursement is received from the SBA. Borrowings under the PPPLF bear interest at a rate of 0.35%, and there are no fees paid by the Company. As of September 30, ~~2020,~~2021, the Company had ~~borrowed $1.74 billion~~outstanding borrowings of $526.0 million from the PPPLF.

With the establishment of the PPP administered by the SBA, the Company ~~has~~ implemented new loan programs and systems using its technology platform while participating in assisting its customers and other small businesses in need of resources through the program. PPP loans earn interest at 1% and currently have a two-year or five-year contractual term depending on the origination date. For the earlier loans with a two-year term there is an option to extend to five years if ~~requested~~agreed upon by the borrower and ~~approved by the~~ lender. The Company ~~expects that some portion~~continues to receive substantial levels of forgiveness for these ~~loans will ultimately be forgiven by the SBA in accordance with the terms of the program.~~loans. As of September 30, ~~2020,~~2021, the Company ~~secured funding from the SBA for approximately 11,000~~ carried 3,211 PPP loans on its balance sheet representing ~~$1.76 billion~~a book balance of $489.8 million, which includes $13.2 million in ~~originations.~~net deferred fees, expected to be amortized and recognized in interest income over the remaining lives of the loans. In comparison, the Company carried 6,580 PPP loans on its balance sheet with a book balance of $927.3 million at June 30, 2021. The Company recognized $10.9 million and $39.3 million of interest income in the third quarter and first nine months of 2021, respectively, related to amortization of net PPP fees. Loans funded through the PPP are fully guaranteed by the SBA, subject to the terms and conditions of the program. Should those circumstances change, the Company could be required to record additional credit loss expense through earnings.

With the passage of the ~~Coronavirus Aid, Relief, and Economic Security~~CARES Act ~~(CARES Act)~~ on March 27, 2020, the SBA ~~will be~~was making six months of principal and interest payments on all fully disbursed SBA 7(a) and SBA Express loans in regular servicing status that closed by September 25, 2020. In addition, with regulatory guidance to work with borrowers during this unprecedented situation, the Company has also mobilized to provide a payment deferral program when needed by customers that are adversely affected by the pandemic. Depending on the demonstrated need of the client, the Company iswas deferring either the full loan payment or the principal component of the loan payment for 60 or 90 days. In accordance with interagency guidance issued in March 2020, these short-term deferrals ~~are~~were not considered troubled debt restructurings. After 60 or 90 days, borrowers may apply for an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as a troubled debt restructuring, nor are loans granted payment deferrals related to COVID-19 placed on non-accrual (provided the loans were not past due or on non-accrual status prior to the deferral). At September 30, 2021, and ~~June~~December 30, 2020, the Company estimated that as a percentage toof total loans and leases at amortized cost, excluding PPP loans, ~~63%~~ 8%and ~~60%~~20%, respectively, of its loans were receiving the six months of payments from the SBA and that 2%0.5% and 9%11%, respectively, of its loans had a payment deferral in place. The decrease in loans on payment deferral was largely a product of the Economic Aid Act introduced late in 2020, as discussed below. The Company estimated that 8% of its loans and leases at amortized cost, excluding PPP loans, were receiving payments from the SBA and that 0.5% had a payment deferral in place as of October 31, 2021. On October 2, 2020, the SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers. As of ~~November 3, 2020,~~October 31, 2021, the Company has ~~processed and submitted $77.5 million,~~received approximately $1.90 billion in PPP loan forgiveness from approximately 12,600, or 4%85% of ~~gross~~total PPP loans originated by ~~dollar amount,~~count.

On December 27, 2020 the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) was enacted which allows the SBA to make payments of up to $9,000 per month for ~~forgiveness.~~

~~On September 5, 2020,~~up to six months of principal and interest payments on certain fully disbursed SBA 7(a) and SBA 504 loans in regular servicing status based upon the Paycheck Protection Program Flexibility Act (the “new Act”) was signed into law, and made significant changes to the PPP to provide additional relief for small businesses. The new Act increased flexibility for small businesses that have been unable to rehire employees due to lack of employee availability, or have been unable to operate as normal due to COVID-19 related restrictions. It extended the period that businesses have to use PPP funds to qualify for loan forgiveness to 24 weeks, up from 8 weeks under the original rules. The new Act also relaxed the requirements that loan recipients must adhere to in order to qualify for loan forgiveness.origination date. In addition, this legislation increased the ~~new Act extended the payment deferral period for PPP~~75% guarantee on many SBA 7(a) loans ~~until the date when the amount of loan forgiveness is determined and remitted~~ to ~~the lender. For PPP recipients who do not apply for forgiveness, the loan deferral period is 10 months after the applicable forgiveness period ends.~~90%, among other things.

While ~~most~~some industries have experienced and ~~will~~ continue to experience ~~adverse~~ impacts as a result of COVID-19, the Company has ~~$414.4~~$472.5 million in total unguaranteed exposure in six verticals considered by management to be “at-risk” of significant impact: hotels, educational services, wine and craft beverage, ~~educational services,~~ entertainment centers, fitness centers, and quick service restaurants, each comprising ~~$129.1 million or 5.4%, $98.8~~$127.5 million or 4.1%, ~~$88.8~~$117.9 million or ~~3.7%~~3.8%, ~~$55.3~~$97.8 million or ~~2.3%~~3.1%, ~~$25.6~~$49.0 million or ~~1.1%~~1.6%, $41.3 million or 1.3%, and ~~$16.8~~$39.0 million or ~~0.7%~~1.3% of total unguaranteed loans and leases (all at amortized cost, inclusive of loans carried at fair value) as of September 30, ~~2020,~~2021, respectively. A substantial number of borrowers continue to show signs of recovery by making regular payments in the absence of payment deferrals and payment subsidies provided by the SBA. As of September 30, 2021 there are only 17 loans with an aggregate balance of $20.8 million in at-risk verticals still on payment deferral and 30 that continue to receive SBA payment subsidies with an aggregate balance of $53.8 million. While the third quarter reflected positive signs of emerging from at-risk status, management continues to closely monitor these vulnerable verticals for signs of weakness.

The Company continues to work with customers directly affected by COVID-19 and is prepared to offer short-term assistance in accordance with regulatory guidelines. As a result of the uncertain economic environment caused by COVID-19, the Company ~~is engaging~~continues to engage in more frequent communication with borrowers in an effort to better understand their situation and the challenges faced ~~and~~as circumstances evolve, which the Company anticipates will enable it to respond proactively as needs and issues arise.

Three months ended September 30, ~~2020~~2021 compared with three months ended September 30, ~~2019~~2020

For the three months ended September 30, ~~2020,~~2021, the Company reported net income of $33.8 million, or $0.76 per diluted share, compared to net income of $33.8 million, or $0.81 per diluted share, ~~compared to net income of $3.9 million, or $0.09 per diluted share,~~ for the third quarter of ~~2019. This increase in~~2020. While net income ~~is largely due to~~was relatively the same for both periods, the primary changes are described in the following items:

Nine months ended September 30, 2021 compared with nine months ended September 30, 2020

For the nine months ended September 30, 2021, the Company reported a net income of $136.8 million, or $3.05 per diluted share, as compared to $30.0 million, or $0.73 per diluted share, for the nine months ended September 30, 2020. This increase in net income was largely due to the following items:

Key factors partially offsetting the increase in net income for the first nine months of 2021 were:

~~The valuation of loans and loan servicing assets were favorably impacted by greater stability and improvement of market conditions that began to emerge in the third quarter.~~

~~The primary factors partially offsetting the net income for the third quarter of 2020 were:~~

~~Nine months ended September 30, 2020 compared with nine months ended September 30, 2019~~

For the nine months ended September 30, 2020, the Company reported net income of $30.0 million, or $0.73 per diluted share, as compared to net income of $11.2 million, or $0.27 per diluted share, for the nine months ended September 30, 2019. This increase in net income was largely the due to the following items:

~~As mentioned above, the valuation of the loan servicing assets was favorably impacted by greater stability and improvement of market conditions that began to emerge during the third quarter.~~

~~The primary factors partially offsetting the net income for the first nine months of 2020 were:~~

The increase in the provision for loan and lease credit losses and loss on loans carried at fair value in the first nine months of the year was largely due to continued risks and uncertainties related to the COVID-19 pandemic which was intensified by the adoption of new current expected credit losses model (“CECL”) in the first quarter of 2020. The combination of these items had significant impacts to the Company’s credit reserves and fair value adjustments.

Net interest income represents the difference between the income that the Company earns on interest-earning assets and the cost ~~it incurs on~~of interest-bearing liabilities. The Company’s net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates that the Company earns or pays on them, respectively. Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “rate changes.” As a bank without a branch network, the Bank gathers deposits over the Internet and in the community in which it is headquartered. Due to the nature of a branchless bank and the relatively low overhead required for deposit gathering, the rates that the Bank offers are generally above the industry average.

Three months ended September 30, ~~2020~~2021 compared with three months ended September 30, ~~2019~~2020

For the three months ended September 30, ~~2020,~~2021, net interest income increased ~~$13.8~~$26.4 million, or ~~36.9%~~51.3%, to ~~$51.4~~$77.7 million compared to ~~$37.5~~$51.4 million for the three months ended September 30, ~~2019.~~2020. The increase was principally due to the significant growth in the ~~held for investment~~ loan and lease portfolios reflecting the Company's ongoing initiative to grow recurring revenue sources combined with lower costs of interest bearing deposits. Accordingly, average interest earning assets increased by $377.9 million, or 5.1%, to $7.74 billion for the three months ended September 30, 2021, compared to $7.36 billion for the three months ended September 30, 2020, while the yield on average interest earning assets increased 71 basis points to 4.76%. The cost of funds on interest bearing liabilities for the three months ended September 30, 2021 decreased 47 basis points to 0.80%, and ~~strengthen its liquidity profile.~~the average balance of interest bearing liabilities increased by $25.3 million, or 0.3%, over the same period in 2020. While average interest bearing liabilities were largely flat between periods there was increased levels of interest bearing deposits to support continued loan originations and growth. Largely offsetting the increase in interest bearing deposits was curtailment of sizable PPPLF borrowings as PPP loan forgiveness continues. As indicated in the rate/volume table below, increased interest earning asset volume and yields, outpaced the higher volume and greater levels of cost declines of interest bearing liabilities, resulting in increases to interest income of $17.7 million and decreases to interest expense of $8.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. For the three months ended September 30, 2020, compared to the three months ended September 30, 2021, net interest margin increased from 2.77% to 3.99%, respectively, due to significant loan portfolio growth and the maturity of longer term deposits which are repricing at lower rates.

Nine months ended September 30, 2021 compared with nine months ended September 30, 2020

For the nine months ended September 30, 2021, net interest income increased $86.7 million, or 65.5%, to $219.1 million compared to $132.4 million for the nine months ended September 30, 2020. The increase was principally due to the significant growth in the loan and lease portfolios reflecting the Company's ongoing strategy to grow recurring revenue sources combined with lower costs of interest bearing deposits. This increase over the prior year was further enhanced by the ~~aforementioned~~ origination of ~~$1.76 billion~~$547.5 million in PPP loans induring the ~~second and third quarters of 2020~~nine months ended September 30, 2021, with ~~$13.6~~a $25.6 million increase in interest income ~~coming from~~related to the amortization of net deferred fees combined with a 1% annualized interest rate. Accordingly, average interest earning assets increased by ~~$3.39~~$1.59 billion, or ~~85.4%~~26.0%, to ~~$7.36~~$7.69 billion for the three months ended September 30, 2020, compared to $3.97 billion for the three months ended September 30, 2019, while the yield on average interest earning assets decreased 206 basis points to 4.05%. The cost of funds on interest bearing liabilities for the three months ended September 30, 2020 decreased 117 basis points to 1.27%, and the average balance of interest bearing liabilities increased by $3.59 billion, or 93.7%, over the same period in 2019. The increase in average interest bearing liabilities was largely driven by strategically heightened levels of liquidity related to COVID-19 risks and uncertainties combined with funding for significant loan originations discussed above, including the PPPLF. As indicated in the rate/volume table below, increased interest earning asset volume more than offset lower yields, outpacing the higher volume and lower levels of cost declines of interest bearing liabilities, resulting in increased interest income of $14.0 million and increased interest expense of $139 thousand for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. For the three months ended September 30, 2019 compared to the three months ended September 30, 2020, net interest margin decreased from 3.75% to 2.77%, respectively, due to lower fed funds rates impacting the yield on interest earning assets more significantly than interest earning liabilities, combined with the above mentioned impacts of PPP related activities and heightened levels of liquidity.

~~Nine Months Ended September 30, 2020 compared with nine months ended September 30, 2019~~

~~For the nine months ended September 30, 2020, net interest income increased $30.4 million, or 29.7%, to $132.4 million compared to $102.1 million~~ for the nine months ended September 30, 2019. This increase was principally due to the significant growth in the held for investment loan and lease portfolios reflecting the Company's ongoing initiative to grow recurring revenue sources and strengthen liquidity. This increase over the first nine months of 2019 was further enhanced by the above mentioned origination of PPP loans in the second and third quarters of 2020. Accordingly, average interest earning assets increased by $2.42 billion, or 65.8%,2021, compared to $6.10 billion for the nine months ended September 30, 2020, ~~compared to $3.68 billion for the nine months ended September 30, 2019,~~ while the yield on average interest earning assets ~~decreased 156~~increased 20 basis points to ~~4.48%~~4.68%. The cost of funds on interest bearing liabilities for the nine months ended September 30, ~~2020~~2021 decreased 8072 basis points to ~~1.61%~~0.89%, ~~and~~while the average balance of interest bearing liabilities increased by ~~$2.49~~$1.45 billion, or ~~69.9%~~23.9%, over the same period in ~~2019.~~2020. The increase in average interest bearing liabilities was largely ~~impacted~~driven by ~~strategically heightened levels of liquidity in the first nine months of 2020 related to COVID-19 risks and uncertainties and~~ funding ~~sources~~ for significant loan ~~originations.~~originations and growth from the prior year. As indicated in the rate/volume table below, ~~the increase in~~increased interest earning asset volume ~~more than offset lower~~and yields ~~outpacing~~outpaced the higher volume and ~~lower~~greater levels of cost declines of interest bearing liabilities, resulting in ~~increased~~increases to interest income of ~~$39.2~~$63.6 million and ~~increased~~decreases to interest expense of ~~$8.9~~$23.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. For the nine months ended September 30, 2020 compared to the nine months ended September 30, ~~2019. For the nine months ended September 30, 2019 compared to the nine months ended September 30, 2020,~~2021, net interest margin ~~decreased~~increased from ~~3.71%~~2.89% to ~~2.89%~~3.81%, respectively, ~~principally~~ due primarily to lower fed funds rates impacting the yield on interest earning assets more rapidly than the cost of interest bearing liabilities in the first nine months of 2020, combined with the above mentioned impactsrecognition of PPP related ~~activities~~income, which is being accelerated with forgiveness efforts, in combination with significant loan portfolio growth and ~~heightened levels~~the maturity of ~~liquidity.~~longer term deposits which are repricing at lower rates.

Average Balances and Yields. The following table presents information regarding average balances for assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amount of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the income or expense by the average balances for assets or liabilities, respectively, for the periods presented and annualizing that result. Loan fees are included in interest income on loans.

	Three Months Ended September 30,																Three Months Ended September 30,
	2020								2019								2021								2020
	Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate
Interest earning assets:
Federal funds sold and interest earning balances in other banks	$	736,387		$	334		0.18	%	$	205,342		$	1,167		2.25	%
Interest earning balances in other banks																	$	452,830		$	221		0.19	%		681,408			320		0.19	%
Federal funds sold																		9,260			3		0.13			54,979			14		0.10
Investment securities		755,412			4,123		2.17			554,871			4,001		2.86			808,697			3,174		1.56			755,412			4,123		2.17
Loans held for sale		1,084,024			14,399		5.27			910,837			15,982		6.96			1,098,940			15,090		5.45			1,084,019			14,399		5.27
Loans and leases held for investment⁽¹⁾		4,782,075			56,222		4.66			2,298,021			39,957		6.90			5,366,088			74,298		5.49			4,782,051			56,222		4.66
Total interest earning assets		7,357,898			75,078		4.05			3,969,071			61,107		6.11			7,735,815			92,786		4.76			7,357,869			75,078		4.05
Less: Allowance for credit losses on loans and leases		(44,054	)							(22,401	)							(56,411	)							(44,054	)
Non-interest earning assets		778,826								499,110								581,771								778,855
Total assets	$	8,092,670							$	4,445,780							$	8,261,175							$	8,092,670
Interest bearing liabilities:
Interest bearing checking	$	500,007		$	747		0.59	%	$	—		$	—		—	%	$	—		$	—		—	%	$	500,007		$	747		0.59	%
Savings		1,669,199			3,674		0.87			1,036,858			5,501		2.10			3,367,168			4,359		0.51			1,669,199			3,674		0.87
Money market accounts		95,151			83		0.35			91,813			179		0.77			104,576			74		0.28			95,151			83		0.35
Certificates of deposit		3,423,643			17,651		2.05			2,701,350			17,896		2.63			3,156,834			9,726		1.22			3,423,643			17,651		2.05
Total deposits		5,688,000			22,155		1.55			3,830,021			23,576		2.44			6,628,578			14,159		0.85			5,688,000			22,155		1.55
Borrowings		1,733,805			1,560		0.36			1,359			—		—			818,511			892		0.43			1,733,805			1,560		0.36
Total interest bearing liabilities		7,421,805			23,715		1.27			3,831,380			23,576		2.44			7,447,089			15,051		0.80			7,421,805			23,715		1.27
Non-interest bearing deposits		43,993								49,522								79,006								43,993
Non-interest bearing liabilities		55,353								35,654								46,907								55,353
Shareholders' equity		571,519								529,224								688,173								571,519
Total liabilities and shareholders' equity	$	8,092,670							$	4,445,780							$	8,261,175							$	8,092,670
Net interest income and interest rate spread				$	51,363		2.78	%				$	37,531		3.67	%				$	77,735		3.96	%				$	51,363		2.78	%
Net interest margin							2.77	%							3.75	%							3.99	%							2.77	%
Ratio of average interest-earning assets to average interest-bearing liabilities							99.14	%							103.59	%							103.88	%							99.14	%

	Nine Months Ended September 30,																Nine Months Ended September 30,
	2020								2019								2021								2020
	Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate
Interest earning assets:
Federal funds sold and interest earning balances in other banks	$	560,042		$	2,093		0.50	%	$	224,278		$	3,914		2.33	%
Interest earning balances in other banks																	$	433,219		$	752		0.23	%	$	476,243		$	1,823		0.51	%
Federal funds sold																		22,151			19		0.11			83,799			270		0.43
Investment securities		616,386			11,671		2.52			527,799			11,434		2.90			769,890			9,078		1.58			616,386			11,671		2.52
Loans held for sale		1,026,118			43,379		5.63			834,043			42,948		6.88			1,127,924			45,383		5.38			1,026,104			43,379		5.63
Loans and leases held for investment⁽¹⁾		3,899,329			148,225		5.06			2,093,777			107,871		6.89			5,336,824			213,778		5.36			3,899,277			148,225		5.06
Total interest earning assets		6,101,875			205,368		4.48			3,679,897			166,167		6.04			7,690,008			269,010		4.68			6,101,809			205,368		4.48
Less: Allowance for credit losses on loans and leases		(35,675	)							(19,217	)							(53,589	)							(35,675	)
Non-interest earning assets		629,486								482,138								599,902								629,552
Total assets	$	6,695,686							$	4,142,818							$	8,236,321							$	6,695,686
Interest bearing liabilities:
Interest bearing checking	$	321,649		$	1,393		0.58	%	$	55		$	—		—	%	$	102,566		$	442		0.58	%	$	321,649		$	1,393		0.58	%
Savings		1,398,146			13,332		1.27			985,050			15,522		2.11			2,945,535			12,180		0.55			1,398,146			13,332		1.27
Money market accounts		85,263			272		0.42			87,063			448		0.69			105,048			239		0.30			85,263			272		0.42
Certificates of deposit		3,425,109			55,534		2.16			2,480,273			48,126		2.59			3,129,084			33,062		1.41			3,425,109			55,534		2.16
Total deposits		5,230,167			70,531		1.80			3,552,441			64,096		2.41			6,282,233			45,923		0.98			5,230,167			70,531		1.80
Borrowings		809,323			2,415		0.40			1,410			—		—			1,203,240			3,940		0.44			809,323			2,415		0.40
Total interest bearing liabilities		6,039,490			72,946		1.61			3,553,851			64,096		2.41			7,485,473			49,863		0.89			6,039,490			72,946		1.61
Non-interest bearing deposits		44,709								48,045								76,304								44,709
Non-interest bearing liabilities		53,142								25,638								43,819								53,142
Shareholders' equity		558,345								515,284								630,725								558,345
Total liabilities and shareholders' equity	$	6,695,686							$	4,142,818							$	8,236,321							$	6,695,686
Net interest income and interest rate spread				$	132,422		2.87	%				$	102,071		3.63	%				$	219,147		3.79	%				$	132,422		2.87	%
Net interest margin							2.89	%							3.71	%							3.81	%							2.89	%
Ratio of average interest-earning assets to average interest-bearing liabilities							101.03	%							103.55	%							102.73	%							101.03	%

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, increases or decreases attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

	Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2020 vs. 2019								2020 vs. 2019									2021 vs. 2020									2021 vs. 2020
	Increase (Decrease) Due to								Increase (Decrease) Due to									Increase (Decrease) Due to									Increase (Decrease) Due to
	Rate			Volume		Total			Rate			Volume			Total			Rate			Volume			Total			Rate			Volume			Total
Interest income:
Federal funds sold and interest earning balances in other banks	$	(2,462	)	$	1,629	$	(833	)	$	(5,378	)	$	3,557		$	(1,821	)
Interest earning balances in other banks																		$	10		$	(109	)	$	(99	)	$	(951	)	$	(120	)	$	(1,071	)
Federal funds sold																			2			(13	)		(11	)		(125	)		(126	)		(251	)
Investment securities		(1,148	)		1,270		122			(1,561	)		1,798			237			(1,199	)		250			(949	)		(4,951	)		2,358			(2,593	)
Loans held for sale		(4,253	)		2,670		(1,583	)		(8,574	)		9,005			431			489			202			691			(2,197	)		4,201			2,004
Loans and leases held for investment		(19,933	)		36,198		16,265			(40,474	)		80,828			40,354			10,600			7,476			18,076			9,438			56,115			65,553
Total interest income		(27,796	)		41,767		13,971			(55,987	)		95,188			39,201			9,902			7,806			17,708			1,214			62,428			63,642
Interest expense:
Interest bearing checking		—			747		747			—			1,393			1,393			—			(747	)		(747	)		(5	)		(946	)		(951	)
Savings		(4,200	)		2,373		(1,827	)		(7,414	)		5,224			(2,190	)		(2,283	)		2,968			685			(11,729	)		10,577			(1,152	)
Money market accounts		(101	)		5		(96	)		(168	)		(8	)		(176	)		(16	)		7			(9	)		(87	)		54			(33	)
Certificates of deposit		(4,499	)		4,254		(245	)		(9,418	)		16,826			7,408			(6,826	)		(1,099	)		(7,925	)		(18,508	)		(3,964	)		(22,472	)
Borrowings		—			1,560		1,560			—			2,415			2,415			243			(911	)		(668	)		292			1,233			1,525
Total interest expense		(8,800	)		8,939		139			(17,000	)		25,850			8,850			(8,882	)		218			(8,664	)		(30,037	)		6,954			(23,083	)
Net interest income	$	(18,996	)	$	32,828	$	13,832		$	(38,987	)	$	69,338		$	30,351		$	18,784		$	7,588		$	26,372		$	31,251		$	55,474		$	86,725

The provision for loan and lease credit losses represents the amount necessary to be charged against the current period’s earnings to maintain the ~~allowance for credit losses (“ACL”)~~ACL on loans and leases at a level that the Company believes is appropriate in relation to the estimated losses inherent in the loan and lease portfolio.

Losses inherent in loan relationships are mitigated if a portion of the loan is guaranteed by the SBA or USDA. ~~A typical~~Typical SBA 7(a) ~~loan carries a 75% guarantee while~~and USDA guarantees range from 50% to 90% depending on loan size and type, which serve to reduce the risk profile of these loans. The Company believes that its focus on compliance with regulations and guidance from the SBA and USDA are key factors to managing this risk.

For the third quarter of ~~2020, the~~2021, there was a provision for loan and lease credit losses ~~was $10.3~~of $4.3 million compared to ~~$4.0~~$10.3 million for the same period in ~~2019, an increase~~2020, a decrease in provision of ~~$6.3~~$6.0 million. For the first nine months of ~~2020, the~~2021, there was a provision for loan and lease credit losses ~~was $32.0~~of $11.3 million compared to ~~$10.4~~$32.0 million for the same period in ~~2019, an increase~~2020, a decrease in provision of ~~$21.6~~$20.7 million. The ~~Company adopted~~decrease in provision for both periods was primarily the ~~new current expected credit losses (“CECL”) standard effective January 1, 2020~~result of continued improvement in forecasts related to employment and ~~accordingly determined to use forecasted levels of unemployment as a primary economic variable in forecasting future expected losses. The majority~~default expectations combined with the effects of the ~~provision for the third quarter of 2020 was due to~~below discussed performance metrics, partially offset by the impact of ~~charge-offs on fifteen hotel loans exceeding~~growth in the existing allowance for credit losses (“ACL”) on those loans, of which ten were sold before quarter end. This charge-off created a shortfall in ACL of $6.4 million which was replenished through the quarter end provision forCompany’s loan and lease credit losses. See below discussion of charge-offs for more information. Approximately $21.9 million of the first nine months of 2020 provision was estimated to be based upon the severity of the COVID-19 pandemic. portfolios.

Loans and leases held for investment at historical cost were ~~$4.19~~$4.72 billion as of September 30, ~~2020,~~2021, increasing by ~~$2.60 billion,~~$529.2 million, or ~~163.3%~~12.6%, compared to September 30, ~~2019. This growth was largely fueled by $1.76 billion in PPP loan originations in the second and third quarters of~~ 2020. Excluding PPP ~~loan originations~~loans and net unearned fees on those loans, the balance in loans and leases held for investment at historical cost was ~~$2.48~~$4.23 billion at September 30, ~~2020,~~2021, an increase of ~~$888.2 million,~~$1.75 billion, or ~~55.8%~~70.8%, over September 30, ~~2019.~~2020. This growth outside of PPP activity ~~in the third quarter of 2020,~~ was fueled by robust ~~origination volumes combined with retention of substantially more loans on the balance sheet.~~loan originations.

Net charge-offs for loans and leases carried at historical cost were ~~$10.1~~$2.5 million, or ~~1.03%~~0.21% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended September 30, ~~2020,~~2021, compared to ~~$840 thousand,~~net charge-offs of $10.1 million, or ~~0.23%~~1.03%, for the three months ended September 30, ~~2019. Net~~2020. For the nine months ended September 30, 2021, net charge-offs ~~for loans and leases carried at historical cost~~totaled $3.9 million compared to $14.7 million for the nine months ended September 30, 2020, a decrease of $10.8 million, or 73.4%. The decrease in net charge-offs for the three and nine months ended September 31, 2021 as compared to the same periods of 2020 was principally the result of a third quarter of 2020 were 1.81% of average quarterly loans and leases held for investment, excluding PPP loans, on an annualized basis. The increase in net charge-offs during the third quarter of 2020 was principally driven by the reclassification of fifteen hotel loans ~~discussed above,~~ from held for investment to held for ~~sale. These loans aggregating~~sale totaling $81.2 million in net ~~investment were reclassified as available for sale due to negative trends observed from management’s ongoing analysis~~investment. This third quarter of ~~COVID-19 impacts and were marked to the lower of cost or fair value upon~~2020 reclassification ~~with the~~resulted in a write down reflected in charge-offs of $9.8 million reflected in charge-offs. The existing ACL on these loans at the time of charge-off was $3.4 million with the remaining $6.4 million requiring an additional provision for loan and lease losses. At September 30, 2020, the Company had completed the sale of ten of these loans with only five still held for sale with an aggregate net investment balance of $25.7 million; however, these unsold loans have been written down to an agreed upon price.

~~For the nine months ended September 30, 2020, net charge-offs totaled $14.7 million compared to $874 thousand for the nine months ended September 30, 2019, an increase of $13.9 million, or 1,585.01%~~.The increase in net charge-offs for the first nine months of 2020 compared to the same period of 2019 largely consisted of the above discussed hotel loans combined with a number of loans in the Government Contracting, Healthcare, Family Entertainment, and Independent Pharmacies verticals. Net charge-offs are a key element of historical experience in the Company's estimation of the allowance for credit losses on loans and leases.

In addition, nonperforming loans and leases not guaranteed by the SBA or USDA, excluding ~~$7.5~~$6.3 million and ~~$8.2~~$7.5 million accounted for under the fair value option at September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, totaled ~~$20.2~~$20.5 million, which was ~~0.48%~~0.43% of the held for investment loan and lease portfolio carried at historical cost at September 30, ~~2020,~~2021, compared to ~~$7.8~~$20.2 million, or ~~0.49%~~0.48% of loans and leases held for investment at September 30, ~~2019.~~2020. Nonperforming loans and leases carried at historical cost which are not guaranteed by the SBA or USDA were 0.48% and 0.81% of the historical cost portion of the held for investment loan and lease portfolio, excluding PPP loans, at September 30, ~~2020.~~2021 and 2020, respectively.

Noninterest income is principally comprised of net gains from the sale of SBA and USDA-guaranteed loans along with loan servicing revenue and related revaluation of the servicing asset. Revenue from the sale of loans depends upon the volume, maturity structure and rates of underlying loans as well as the pricing and availability of funds in the secondary markets prevailing in the period between completed loan funding and closing of sale. In addition, the loan servicing revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates. Net gain (loss) ~~gain~~ on loans accounted for under the fair value option is also significantly impacted by changes in market rates, prepayment speeds and inherent credit risk. Other less common elements of noninterest income include less ~~routine~~consistent gains and losses on investments.

The following table shows the components of noninterest income and the dollar and percentage changes for the periods presented.

	Three Months Ended September 30,						2020/2019 Increase (Decrease)						Three Months Ended September 30,						2021/2020 Increase (Decrease)
	2020			2019			Amount			Percent			2021			2020			Amount			Percent
Noninterest income
Loan servicing revenue	$	6,803		$	6,831		$	(28	)		(0.41	)%	$	6,278		$	6,803		$	(525	)		(7.72	)%
Loan servicing asset revaluation		2,061			(5,161	)		7,222			139.93			(5,878	)		2,061			(7,939	)		(385.20	)
Net gains on sales of loans		12,690			7,425			5,265			70.91			18,860			12,690			6,170			48.62
Net gain (loss) on loans accounted for under the fair value option		3,403			1,102			2,301			208.80
Net (loss) gain on loans accounted for under the fair value option														(1,030	)		3,403			(4,433	)		(130.27	)
Equity method investments income (loss)		(1,231	)		(2,370	)		1,139			48.06			(1,250	)		(1,231	)		(19	)		(1.54	)
Equity security investments gains (losses), net		14,705			3,343			11,362			339.87			176			14,705			(14,529	)		(98.80	)
Gain on sale of investment securities available-for-sale, net		1,225			87			1,138			1,308.05			—			1,225			(1,225	)		(100.00	)
Lease income		2,634			2,361			273			11.56			2,527			2,634			(107	)		(4.06	)
Management fee income		1,296			95			1,201			1,264.21			1,489			1,296			193			14.89
Construction supervision fee income		1,365			360			1,005			279.17
Other noninterest income		2,093			1,355			738			54.46			4,104			3,458			646			18.68
Total noninterest income	$	47,044		$	15,428		$	31,616			204.93	%	$	25,276		$	47,044		$	(21,768	)		(46.27	)%

For the three months ended September 30, ~~2020,~~2021, noninterest income ~~increased~~decreased by ~~$31.6~~$21.8 million, ~~or 204.9%,~~ compared to the three months ended September 30, ~~2019.~~2020. The decrease from the prior year is primarily the result of the aforementioned decrease in in equity security gains of $14.5 million associated with the Company’s $13.7 million gain in Greenlight during the third quarter of 2020, a higher net loss on the loan servicing asset of $7.9 million and a decrease in net gain on loans accounted for under the fair value option of $4.4 million.

For the nine months ended September 30, 2021, noninterest income increased by $51.2 million, compared to the nine months ended September 30, 2020. The increase from the prior year is primarily the result of ~~the aforementioned increase in net gains on equity securities of $11.4 million combined with a net increase in the loan servicing asset revaluation of $7.2 million, a $5.3 million increase in~~increased net gains on sales of loans ~~and a $2.3~~of $12.5 million,an increase in equity security gains of $29.7 million, principally the result of a second quarter 2021 gain of $44.1 million associated with the Company’s investment in Greenlight and an increased net gain on loans accounted for under the fair value option of $12.6 million. Both gains on loans accounted for under the fair value option. As previously discussed, the $11.4 million increase in net gains in equity securities was largely due to a $13.7 million non-cash gain resulting from the increase in the observable fair market value of the Company’s investment in Greenlight arising from orderly transactions. In assessing the effect of transactions at Greenlight giving rise to this gain, the Company reevaluated its ownership percentageoption and other factors to reassess the existence of significant influence and determined that this investment should continue to be accounted for as an equity security. Other items contributing to the increase in noninterest income were management fee income earned by Canapi Advisors, the Company’s investment advisor subsidiary, increasing by $1.2 million.

For the nine months ended September 30, 2020, noninterest income increased by $31.8 million, or 73.3%, compared to the nine months ended September 30, 2019. The increase from the prior year is primarily the result of a $16.9 million increase in net gains on sales of loans combined with net gains on equity securities discussed above, a net increase in the loan servicing asset revaluation of $8.2 million, management fee income earned by Canapi Advisors increasing by $4.0 million and a $3.4 million increase in other noninterest income largely comprised of $2.5 million in revenue resulting from the sale of services from co-developed technology for processing PPP loans and financial planning fees earned by Live Oak Private Wealth. Other items contributing to the increase in noninterest income were a ~~$1.8 million~~product of improved market conditions in increase gains a sale of investments available for sale. Offsetting the increases in noninterest income for the first half of 2020 was the aforementioned net loss on the valuation adjustment related to loans measured at fair value which increased by $14.3 million and decreased loan servicing revenue of $1.4 million.2021.

The following table reflects loan and lease production, sales of guaranteed loans and the aggregate balance in guaranteed loans sold. These components are key drivers of the Company's noninterest income.

	Three months ended September 30,				Three months ended June 30,				Three months ended March 31,				Three months ended September 30,				Three months ended June 30,				Three months ended March 31,
	2020		2019		2020		2019		2020		2019		2021		2020		2021		2020		2021		2020
Amount of loans and leases originated	$	966,499	$	562,259	$	2,175,055	$	525,088	$	500,634	$	390,851	$	1,063,190	$	966,499	$	1,153,693	$	2,175,055	$	1,180,219	$	500,634
Guaranteed portions of loans sold		114,731		100,498		154,980		71,934		162,297		62,940		201,903		114,731		130,858		154,980		136,747		162,297
Outstanding balance of guaranteed loans sold ⁽¹⁾		2,878,664		2,802,073		2,840,429		2,870,108		2,761,015		2,952,774		2,731,031		2,878,664		2,694,931		2,840,429		2,843,963		2,761,015

	Nine Months Ended September 30,				For years ended December 31,								Nine Months Ended September 30,				For years ended December 31,
	2020		2019		2019		2018		2017		2016		2021		2020		2020		2019		2018		2017
Amount of loans and leases originated	$	3,642,188	$	1,478,198	$	2,001,886	$	1,765,680	$	1,934,238	$	1,537,010	$	3,397,102	$	3,642,188	$	4,450,198	$	2,001,886	$	1,765,680	$	1,934,238
Guaranteed portions of loans sold		432,008		235,372		340,374		945,178		787,926		761,933		469,508		432,008		542,596		340,374		945,178		787,926
Outstanding balance of guaranteed loans sold⁽¹⁾		2,878,664		2,802,073		2,746,840		3,045,460		2,680,641		2,278,618		2,731,031		2,878,664		2,819,625		2,746,840		3,045,460		2,680,641

Changes in various components of noninterest income are discussed in more detail below.

~~Loan Servicing Revenue:~~ While portions of the loans that the Bank originates are sold and generate gain on sale revenue, servicing rights for those sold portions are retained by the Bank. In exchange for continuing to service sold loans, the Bank receives fee income represented in loan servicing revenue equivalent to 1.0% of the outstanding balance of SBA loans sold and 0.40% of the outstanding balance of USDA loans sold. In addition, the standard cost (adequate compensation) for servicing sold loans is approximately 0.40% of the balance of the loans sold, which is included in the loan servicing revaluation computations. Unrecognized servicing revenue above the standard cost to service is reflected in a servicing asset recorded on the balance sheet. Revenues associated with the servicing of loans are recognized over the expected life of the loan through the income statement, and the servicing asset is reduced as this revenue is recognized. For the quarter ended September 30, 2020, loan servicing revenue decreased $28 thousand, or 0.41%, to $6.8 million as compared to the quarter ended September 30, 2019. For the nine months ended September 30, 2020, loan servicing revenue decreased $1.4 million, or 6.5% to $19.9 million as compared to the nine months ended September 30, 2019. The lower servicing revenue for the third quarter and first nine months of 2020 has been a result of a downward trend in the balance of the serviced portfolio which began to reverse direction in the second quarter of 2020. At September 30, 2020, the outstanding balance of guaranteed loans sold in the secondary market was $2.88 billion compared to $2.80 billion at September 30, 2019.

Loan Servicing Revaluation: The Company revalues its serviced loan portfolio at least quarterly. The revaluation considers the amortization of the portfolio, current market conditions for loan sale premiums, and current prepayment speeds. For the three months ended September 30, ~~2020, there was a net positive~~2021, loan servicing revaluation ~~adjustment of $2.1~~decreased $7.9 million, or 385.2%, compared to ~~a net negative adjustment of $5.2 million for~~ the three months ended September 30, ~~2019.~~2020. For the nine months ended September 30, ~~2020, there was a net negative~~2021, loan servicing revaluation ~~adjustment of $4.2~~decreased $3.4 million, or 80.1%, as compared to ~~a net negative adjustment of $12.4 million for~~ the nine months ended September 30, ~~2019.The net positive revaluation amount~~2020. The lower servicing valuation for the ~~third~~quarter over quarter and ~~lower net negative revaluation first half of 2020 as compared~~year over year periods is principally due to the ~~corresponding period~~amortization of ~~2019 was primarily a result of greater stability and improving~~the guaranteed serviced loan portfolio combined with increased inventory levels in the market ~~conditions.~~ .

Net Gains on Sale of Loans: For the three months ended September 30 ~~2020,~~, 2021, net gains on sales of loans increased ~~$5.3~~$6.2 million, or ~~70.9%~~48.6%, compared to the three months ended September 30 ~~2019.~~, 2020. For the three months ended September 30 ~~2020,~~, 2021, the volume of guaranteed loans sold increased ~~$14.2~~$87.2 million, or ~~14.2%~~76.0%, to ~~$114.7~~$201.9 million from ~~$100.5~~$114.7 million for the three months ended September 30 ~~2019. For the nine months ended September 30,~~, 2020 ~~net gains on sales of loans increased $16.9 million, or 95.6%, compared to~~and the nine months ended September 30, 2019. For the nine months ended September 30, 2020, the volume of guaranteed loans sold increased $196.6 million, or 83.5%, to $432.0 million from $235.4 million for the nine months ended September 30, 2019. The average net gain on guaranteed loan sales ~~increased~~decreased from ~~$80.5~~$110.2 thousand to ~~$110.2~~$91.0 thousand, per million sold, in the third quarters of ~~2019~~2020 and 2021, respectively. The overall increase in loan sale volume in the third quarter of 2021 drove the increase in net gains on sales of loans over the third quarter of 2020, ~~respectively,~~while the gain per million was reduced largely due to the mix of loans being sold and to a lesser extent lower market premiums arising from negative market conditions discussed above.

For the nine months ended September 30, 2021, net gains on sales of loans increased $12.5 million, or 36.3%, compared to the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the volume of guaranteed loans sold increased $37.5 million, or 8.7%, to $469.5 million from $432.0 million for the nine months ended September 30, 2020 and the average net gain on guaranteed loan sales increased from ~~$75.3~~$77.2 thousand to ~~$77.2~~$95.5 thousand, per million sold, in the first nine months of ~~2019~~2020 and ~~2020, respectively.~~2021, respectively. With ~~this overall increase in~~higher loan ~~sales earlier~~sale volume and higher premium levels in the third quarter combined with the mix of loan sales, the increase in net gains on sales of loans in the third quarter and first nine months of 2020 is due to both higher volume of loans sold combined with higher secondary market ~~premiums. The volume of sales~~ in the first nine months of ~~2020 was largely a product of heightened efforts~~2021 compared to ~~strengthen~~ the ~~Company’s capital and liquidity profile in light of uncertain market conditions while the third quarter~~same period of 2020, the average net gain on guaranteed loan sales ~~volume is in-line~~increased, largely as a result of improvement in market premium levels which were magnified by stimulus associated with the ~~Company’s balance sheet strategy. Also enhancing~~SBA program which removes the ongoing guarantee fee, typically paid by the purchaser, on loans originated under the Economic Aid Act. The magnitude of the increase in net gains on sale of loans inwas muted somewhat due the ~~third quarter and first nine months of 2020 are $1.7 million and $1.3 million, respectively, in decreased losses from~~Company’s choice to not elect fair value changes in exchange-traded interest rate futures contracts. This decrease in volatility of exchange-traded interest rate futures contracts was the product of the Company preemptively exiting such contractsfor all retained participating interests arising from new government guaranteed loan sales beginning in the first ~~quarter.~~ quarter of 2021. Not electing fair value generally results in a larger discount, which will reduce the amount of gain recognized at the date of sale. This larger 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 accounting standards, any loans for which fair value was previously elected continue to be measured as such.

Net (Loss) Gain on Loans Accounted for Under the Fair Value Option: For the three months ended September 30 ~~2020,~~, 2021, the net loss on loans accounted for under the fair value option increased $4.4 million, or 130.3%, compared to the three months ended September 30, 2020. For the nine months ended September 30, 2021, the net gain on loans accounted for under the fair value option increased ~~$2.3~~$12.6 million, or 208.8%, compared to the three months ended September 30, 2019. For the nine months ended September 30, 2020, the net loss on loans accounted for under the fair value option increased $14.3 million, or 239.3%151.9%, compared to the nine months ended September 30 ~~2019.~~, 2020. The carrying amount of loans accounted for under the fair value option at September 30, 2021 and 2020 was $725.4 million ($27.4 million classified as held for sale and ~~2019 was~~$698.0 million classified as held for investment) and $876.2 million ($30.4 million classified as held for sale and $845.7 million classified as held for investment) ~~and $846.0 million ($14.7 million classified as held for sale and $831.3 million classified as held for investment)~~, respectively, ~~an increase~~a decrease of ~~$30.2~~$150.8 million, or ~~3.6%~~17.2%. The ~~first nine months of 2020~~ net loss on loans accounted for under the fair value option was estimated to be approximately $9.8 million related to the severity of ongoing developments of the COVID-19 pandemic. The magnitude of COVID-19 related impacts on loan fair value adjustments in theduring third quarter of ~~2020~~2021 was ~~dampened by~~largely due to negative market conditions discussed above while the net gain in the first nine months of 2021 was largely due to improving market conditions ~~for unguaranteed loans.~~compared to COVID-19 pandemic economic impacts in the prior year.

Noninterest expense comprises all operating costs of the Company, such as employee related costs, travel, professional services, advertising and marketing expenses, exclusive of interest and income tax expense.

The following table shows the components of noninterest expense and the related dollar and percentage changes for the periods presented.

		Three Months Ended September 30,				2020/2019 Increase (Decrease)							Three Months Ended September 30,				2021/2020 Increase (Decrease)
		2020		2019		Amount			Percent				2021		2020		Amount			Percent
Noninterest expense	Noninterest expense											Noninterest expense
Salaries and employee benefits		$	24,203	$	22,717	$	1,486			6.54	%		$	28,202	$	24,203	$	3,999			16.52	%
Non-staff expenses:
Travel expense			250		1,934		(1,684	)		(87.07	)			1,819		250		1,569			627.60
Professional services expense			1,346		2,073		(727	)		(35.07	)			4,251		1,346		2,905			215.82
Advertising and marketing expense			552		1,277		(725	)		(56.77	)			1,631		552		1,079			195.47
Occupancy expense			2,079		2,131		(52	)		(2.44	)			2,042		2,079		(37	)		(1.78	)
Data processing expense			3,009		3,072		(63	)		(2.05	)			4,867		3,009		1,858			61.75
Equipment expense			4,314		4,361		(47	)		(1.08	)			4,567		4,314		253			5.86
Other loan origination and maintenance expense			2,669		3,535		(866	)		(24.50	)			3,489		2,669		820			30.72
Renewable energy tax credit investment impairment														60		—		60			100.00
FDIC insurance			2,095		101		1,994			1,974.26				1,670		2,095		(425	)		(20.29	)
Other expense			2,133		1,536		597			38.87				2,861		2,133		728			34.13
Total non-staff expenses			18,447		20,020		(1,573	)		(7.86	)			27,257		18,447		8,810			47.76
Total noninterest expense		$	42,650	$	42,737	$	(87	)		(0.20	)%		$	55,459	$	42,650	$	12,809			30.03	%

		Nine Months Ended September 30,				2020/2019 Increase (Decrease)							Nine Months Ended September 30,				2021/2020 Increase (Decrease)
		2020		2019		Amount			Percent				2021		2020		Amount			Percent
Noninterest expense	Noninterest expense											Noninterest expense
Salaries and employee benefits		$	83,048	$	66,562	$	16,486			24.77	%		$	92,468	$	83,048	$	9,420			11.34	%
Non-staff expenses:
Travel expense			2,395		4,675		(2,280	)		(48.77	)			4,027		2,395		1,632			68.14
Professional services expense			4,668		5,876		(1,208	)		(20.56	)			11,411		4,668		6,743			144.45
Advertising and marketing expense			2,537		4,306		(1,769	)		(41.08	)			3,158		2,537		621			24.48
Occupancy expense			6,455		5,588		867			15.52				6,378		6,455		(77	)		(1.19	)
Data processing expense			8,930		7,418		1,512			20.38				12,995		8,930		4,065			45.52
Equipment expense			13,601		11,925		1,676			14.05				13,306		13,601		(295	)		(2.17	)
Other loan origination and maintenance expense			7,617		6,882		735			10.68				10,123		7,617		2,506			32.90
Renewable energy tax credit investment impairment			—		602		(602	)		(100.00	)			3,187		—		3,187			100.00
FDIC insurance			5,326		1,435		3,891			271.15				5,139		5,326		(187	)		(3.51	)
Other expense			5,664		5,245		419			7.99				9,097		5,664		3,433			60.61
Total non-staff expenses			57,193		53,952		3,241			6.01				78,821		57,193		21,628			37.82
Total noninterest expense		$	140,241	$	120,514	$	19,727			16.37	%		$	171,289	$	140,241	$	31,048			22.14	%

Total noninterest expense for the three and nine months ended September 30 ~~2020 decreased $87 thousand,~~, 2021, increased $12.8 million, or ~~0.2%~~30.0%, and ~~increased $19.7~~$31.0 million, or ~~16.4%~~22.1%, respectively, compared to the same periods in ~~2019.~~2020. The increase in noninterest expense for the comparable three and nine month ~~period~~periods was largely driven by ~~salaries and employee benefits. Changes in~~ various components, ~~of noninterest expense are~~as discussed below.

Salaries and employee benefits: Total personnel expense for the three and nine months ended September 30 ~~2020~~, 2021 increased by ~~$1.5~~$4.0 million, or ~~6.5%~~16.5%, and ~~$16.5~~$9.4 million, or ~~24.8%~~11.3%, respectively, compared to the same periods in ~~2019. While personnel expense is carefully managed, the quarter over quarter~~2020. The increase isin salaries and employee benefits for both periods was principally ~~due~~related to ~~the Company’s commitment to and~~continued investment in ~~its workforce~~human resources to support strategic and growth and a variety of initiatives while the year over year increase was also influenced by $7.2 million in expense for a performance bonus pool that was available to all employees other than executive officers during the second quarter of 2020.initiatives. Total full-time equivalent employees increased from ~~569 at September 30, 2019 to~~ 628 at September 30 ~~2020.~~, 2020, to 755 at September 30, 2021. Salaries and employee benefits expense included ~~$3.3~~$3.7 million and ~~$9.5~~$12.8 million of stock-based compensation for the three and nine months ended September 30 ~~2020,~~, 2021, respectively, compared to ~~$2.9~~ $3.3 million and ~~$8.7~~$9.5 million for the three and nine months ended September 30, ~~2019, respectively.~~2020, respectively. Expenses related to the employee stock purchase program, stock grants, stock option compensation and restricted stock expense are all considered stock-based compensation.

Travel ~~& Advertising and marketing expenses:~~expense: For the three and nine months ended September 30, ~~2020,~~2021, travel ~~& advertising and marketing~~ expenses ~~in aggregate decreased $2.4~~increased $1.6 million, or ~~75.0%~~627.6%, and ~~$4.0~~$1.6 million, or ~~45.1%~~68.1%, ~~respectively. This decrease was the result of certain operational adaptations due~~respectively, compared to the ~~impact of COVID-19.~~same periods in 2020. Travel expenses increased primarily to support the growth in loan origination volume and customer base as travel restrictions have continued to ease in recent months.

Professional services expense:For the three and nine months ended September 30, 2021, professional services expense increased $2.9 million, or 215.8%, and $6.7 million, or 144.5%, respectively, compared to the same periods in 2020. The increase compared to the prior periods was largely driven by an increase in legal fees related to the previously disclosed letter the Company received in December 2020 and the resulting putative class action filed against the Company and other parties in March 2021. See Note 10. Commitments and Contingencies for additional information.

Data processing expense: Total data processing expense for the three and nine months ended September 30, ~~2020 decreased by $63 thousand, or 2.1% and~~2021 increased by ~~$1.5~~$1.9 million, or ~~20.4%~~61.8%, and $4.1 million, or 45.5%, respectively, compared to the same ~~period~~periods in ~~2019.~~2020. The increase for both periods was principally due to enhanced investments in the Company’s internal software technology resources.

Loan related expenses: Total loan related expenses for the three and nine months ended September 30, 2021 increased by $820 thousand, or 30.7%, and $2.5 million, or 32.9%, respectively, compared to the same periods in 2020. The nine month over nine month increase was principally due to heightened levels of SBA guaranty fees arising from the Company retaining more guaranteed loans.

Renewable energy tax credit investment impairment: For the nine months ended September 30, 2021, the Company recognized $3.1 million in impairment charges related to a $3.9 million renewable energy tax credit investment that was fully funded during the first quarter of 2021. Investments of this type generate a return primarily through the realization of income tax credits and other benefits; accordingly, impairment of the investment amount is recognized in conjunction with the realization of related tax benefits. This investment generated a federal investment tax credit of $3.4 million which is included in the Company’s estimated annual effective tax rate.

Other expense: For the three and nine months ended September 30, 2021, other expense increased $728 thousand, or 34.1%, and $3.4 million, or 60.6%, respectively, compared to the same periods in 2020. The increase over the first nine months of ~~2019~~2020 was ~~predominantly~~primarily driven by a $1.2 million increase in charitable donations combined with $904 thousand of impairment expense on solar panels due to lower than expected energy production capability recognized in the first quarter of 2021. Also included in other expense is a $3.9 million accrual related to the settlement of a putative class action filed against the Company and other parties in March 2021 for which the Company entered into a final settlement agreement on October 12, 2021. See Note 10. Commitments and Contingencies for additional information. Largely offsetting this $3.9 million accrual in the third ~~party costs incurred~~quarter of 2021 is a $3.7 million receivable related to an insurance recovery in ~~internal software development and with additional software subscriptions to help maximize operational efficiencies.~~

~~Equipment expense:~~ ~~For the three and nine months ended September 30, 2020, equipment expense decreased $47 thousand, or 1.1%, and increased $1.7 million, or 14.1%, respectively, compared~~regards to the same periods in 2019. Primary factors contributing to this increase over the first nine months of 2019 were the depreciation of technology and infrastructure investments to support the Company’s growth initiatives.

~~FDIC insurance:~~ For the three and nine months ended September 30, 2020, FDIC insurance increased $2.0 million and $3.9 million, respectively, compared to the same periods in 2019 due to higher required premiums largely related to increased levels of assets.litigation.

For the three months ended September 30, ~~2020,~~2021, income tax expense ~~increased~~decreased by ~~$9.3~~$2.3 million, while the Company’s effective tax rates were 21.7% and 25.7%, respectively, as compared to the same period in ~~2019,~~2020. The lower effective rate for the third quarter of 2021 is principally due to earlier discussed items related to renewable energy tax credit investments.

For the nine months ended September 30, 2021, income tax expense was $26.2 million compared to $5.4 million for the first nine months of 2020, and the Company’s effective tax rates were ~~25.7%~~16.0% and ~~37.8%~~15.3%, respectively. The ~~increase in income tax expense in the third quarter of 2020 over the third quarter of 2019 is primarily due to a significant increase in income before taxes. The higher~~ effective ~~tax rate in the third quarter of 2019 was the~~ ~~result of forecasted reductions in the targeted solar panel leasing activity for the remainder of that year~~.

For the nine months ended September 30, 2020, the Company had income tax expense of $5.4 million with an effective tax rate of 15.3% while the first nine months of 2019 had income tax expense of $3.3 million with an effective tax rate of 23.0%. The lower effective tax rate for the first nine months of 2021 is principally due to the impact of renewable energy tax credit investments and vesting of approximately 576 thousand restricted stock unit awards with market price conditions, as the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes. The effective rate during the first nine months of 2020 was partially a result of a discrete, estimated income tax benefit of $3.7 million related to the enactment of the CARES Act on March 27, 2020. The CARES Act allows taxpayers to carryback certain net operating losses to each of the five taxable years preceding the taxable year of such losses. As a result, the Company ~~will be~~was allowed to carryback its 2018 net operating loss which had been utilized and measured under the prior law using a 21% corporate income tax rate to pre-2018 taxable years during which the corporate income tax rate was 35%. ~~Based upon current projections,~~

The Company’s operations are managed along two primary operating segments Banking and Fintech. A description of each business and the ~~effective tax rate~~methodologies used to measure financial performance is described in Note 12. Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements. Net income (loss) by operating segment is presented below:

For the three and nine months ended September 30, 2021, net income increased $15.1 million and $90.3 million, respectively, compared to the same periods of 2020. The increase for both periods was primarily the ~~remainder~~result of increased net interest income and lower levels of provision expense while the year to date period was also significantly increased due to higher levels of noninterest income.

For the three and nine months ended September 30, 2021, net interest income increased $26.7 million, or 52.0%, and $87.2 million, or 65.8%, respectively, compared to the same periods of 2020. See the analysis of net interest income included in the above section captioned “Net Interest Income and Margin” as it is predominantly related to the Banking segment.

See the analysis of provision for loan and lease credit losses included in the above section captioned “Provision for Loan and Lease Credit Losses” as it is entirely related to the Banking segment.

For the three and nine months ended September 30, 2021, noninterest income decreased $4.7 million and increased $21.6 million, respectively, compared to the same periods of 2020. The quarter over quarter decrease was largely comprised of an increase in the net loss on the loan servicing asset revaluation of $7.9 million, or 385.2% combined with a net loss on loans accounted for under the fair value increasing by $4.4 million, or 130.3% and partially offset by increased net gains on sales of loans of $6.2 million, or 48.6%. The increase over the first nine months of 2020 ~~is expected~~was principally comprised of increased net gains on loans accounted for under the fair value option increasing by $12.6 million, or 151.9% combined with an increase in net gains on sales of loans of $12.5 million, or 36.3% and partially offset by an increase in the net loss on the loan servicing asset revaluation of $3.4 million, or 80.1%. See the analysis of these categories of noninterest income included in the above section captioned “Noninterest Income” for additional discussion.

For the three and nine months ended September 30, 2021, noninterest expense increased $11.4 million, or 27.8%, and $25.9 million, or 19.5%, respectively, compared to ~~be approximately 26.0% to 28.0%; however, there can be no assurance as~~same periods of 2020. See the analysis of these categories of noninterest expense included in the above section captioned “Noninterest Expense” for additional discussion.

For the three and nine months ended September 30, 2021, income tax expense increased $1.4 million, or 17.9%, and $13.4 million, or 231.3%, respectively, compared to the ~~actual amount because it will be dependent upon~~same periods of 2020. See the ~~nature~~above section captioned “Income Tax Expense.”

For the three and ~~amount~~nine months ended September 30, 2021, the net income decreased by $11.4 million and increased $23.2 million, respectively, compared to same periods of ~~future~~2020. The quarter over quarter decrease was principally due to the earlier referenced $13.7 million Greenlight gain in the third quarter of 2020 while the increase over the first nine months of 2020 was principally the result of the aforementioned $44.1 million Greenlight gain recognized in the second quarter of 2021.

For the three and nine months ended September 30, 2021, noninterest income decreased $15.0 million and ~~expenses, investments generating~~increased $29.5 million, respectively, compared to the same periods of 2020. This increase was largely due to the above mentioned Greenlight gains.

For the three and nine months ended September 30, 2021, noninterest expense increased $110 thousand, or 9.9%, and decreased $616 thousand, or 15.5%, respectively, compared to the same periods of 2020. This decrease over the first nine months of 2020 was largely due to a reduction in compensation expense.

For the three and nine months ended September 30, 2021, income tax expense decreased $3.7 million, and increased $7.0 million, respectively, compared to the same periods of 2020. This increase in income tax expense was principally driven by the significant changes in net income before taxes arising from the above discussed gains arising from the Company’s investment ~~tax credits~~in Greenlight during the third quarter of 2020 and ~~transactions with discrete tax effects.~~second quarter of 2021.

Total assets at September 30, ~~2020~~2021 were ~~$8.09~~$8.14 billion, an increase of ~~$3.28 billion,~~$265.0 million, or ~~68.2%~~3.4%, compared to total assets of ~~$4.81~~$7.87 billion at December 31, ~~2019.~~2020. The growth in total assets was principally driven by the following:

Cash and cash equivalents, comprised of cash and due from banks and federal funds sold, was ~~$634.8~~$347.0 million at September 30, ~~2020,~~2021, an increase of ~~$413.4~~$28.7 million, or ~~186.7%~~9.0%, compared to ~~$221.4~~$318.3 million at December 31, ~~2019. As mentioned above, this~~2020. This increase reflects ~~the impact of strategically heightened~~liquidity planning through increased levels of ~~liquidity related to COVID-19 risks~~deposits for funding expected loan and ~~uncertainties and funding for PPP and other loans during the second and third quarters.~~lease originations.

Total investment securities increased $225.7 million during the first nine months of 2020, from $540.0 million at December 31, 2019, to $765.8 million at September 30, 2020, an increase of 41.8%. The Company increased its investment securities position during the first nine months of 2020 largely as a part of improving returns on excess liquidity and meeting annual investment asset-liability plans, as discussed above. At September 30, 2020, the investment portfolio was comprised of U.S. government agency, U.S. government-sponsored entity mortgage-backed securities and municipal bonds.

Loans and leases held for sale ~~increased $223.8~~decreased $132.7 million, or ~~23.2%~~11.3%, during the first nine months of ~~2020,~~2021, from ~~$966.4 million~~$1.18 billion at December 31, ~~2019,~~2020, to ~~$1.19~~$1.04 billion at September 30, ~~2020.~~2021. The ~~increase~~decrease was primarily the result of strong loan ~~originations, excluding PPP loans, in the third quarter of 2020 combined with declining levels of loan~~ sales in the ~~same period.~~first nine months of 2021 combined with higher levels of loans being retained as held for investment.

Loans and leases held for investment increased ~~$2.41 billion,~~$273.7 million, or ~~91.7%~~5.3%, during the first nine months of ~~2020,~~2021, from ~~$2.63~~$5.14 billion at December 31, ~~2019,~~2020, to ~~$5.04~~$5.42 billion at September 30, ~~2020.~~2021. The increase was primarily the result of the ~~above mentioned~~above-mentioned loan originations in ~~2020.~~

~~Premises and equipment, net, decreased $25.4 million, or 9.1%, during the first nine months of 2020 which was primarily driven by~~2021 combined with increased levels of depreciation of facilities and infrastructure to accommodate Company growth and solar panels to meet leasing obligations in prior periods combined with the decision to sell an aircraft carried at $10.1 million. The decision to sell this aircraft resulted in it being reclassified out of premises and equipment to other assetsloans retained as a held for ~~sale asset carried at the lower of cost or market value. Upon reclassification to~~investment. All PPP loans are classified as held for ~~sale the Company recognized an impairment charge of $1.0 million to mark the aircraft to its estimated fair value.~~investment.

Other assets increased $48.8 million, or 31.2%, from $156.1 million at December 31, 2019 to $204.9 million at September 30, 2020. This increase was due to a variety of items, principally comprised of the earlier discussed $13.7 million increase in the carrying value of the Company’s investment in Greenlight, a $12.2 million increase in accrued interest receivable driven by higher levels of interest earning assets, the above discussed aircraft reclassification, $6.6 million in increased receivables from the SBA for guarantee recoveries, $4.1 million in new intangibles added as a result of the acquisition of Jolley Asset Management, LLC (as discussed more fully in Note 1. Basis of Presentation under the subheading ~~Business Combination) and $2.5 million in additional receivables for~~ ~~co-developed technology PPP loan processing services.~~

Total deposits were ~~$5.71~~$6.82 billion at September 30, ~~2020,~~2021, an increase of ~~$1.48~~$1.10 billion, or ~~35.0%~~19.3%, from ~~$4.23~~$5.71 billion at December 31, ~~2019.~~2020. The increase in deposits was largely driven by ~~the planned~~significant loan origination ~~of PPP and other loans combined with the defensive strategy to build liquidity~~efforts during the first ~~quarter~~nine months of ~~2020 due to the uncertainty of the effects of COVID-19.~~2021.

Borrowings ~~increased~~decreased to ~~$1.75 billion~~$575.0 million at September 30, ~~2020~~2021 from ~~$14 thousand~~$1.54 billion at December 31, ~~2019.~~2020. This ~~increase~~decrease was related principally to ~~$1.74 billion in new~~net curtailments of borrowings through the PPPLF in the ~~second and third quarters~~first nine months of ~~2020.~~2021 as PPP loan forgiveness outpaced new PPPLF advances. These PPPLF borrowings ~~were~~are used to help fund PPP ~~loans and complement the defensive strategy to build liquidity which commenced in the first quarter of 2020 due to the uncertainty of the effects of COVID-19.~~loans.

Shareholders’ equity at September 30, ~~2020~~2021 was ~~$584.2~~$689.4 million as compared to ~~$532.4~~$567.9 million at December 31, ~~2019.~~2020. The book value per share was ~~$14.40~~$15.89 at September 30, ~~2020~~2021 compared to ~~$13.20~~$13.38 at December 31, ~~2019.~~2020. Average equity to average assets was ~~8.3%~~7.7% for the nine months ended September 30, ~~2020~~2021 compared to ~~12.2%~~8.1% for the year ended December 31, ~~2019.~~2020. The increase in shareholders’ equity for the first nine months of ~~2020~~2021 was principally the result of net income of ~~$30.0 million, other comprehensive income of $13.2~~$136.8 million and stock-based compensation expense of ~~$9.5~~$12.8 million, partially offset by ~~$3.6~~other comprehensive loss of $13.4 million and $17.5 million in ~~dividends.~~

~~During the first nine months~~cash paid in lieu of ~~2020, 450,000 shares~~stock for employee tax obligations in settlement of ~~Class B common~~vested stock (non-voting) were converted to Class A common stock (voting) under a private sale. The conversion decreased the value of Class B common stock (non-voting) and increased the value of Class A common stock (voting) by $4.8 million.grants.

Management considers asset quality to be of primary importance. A formal loan review function, independent of loan origination, is used to identify and monitor problem loans. This function reports directly to the Audit & Risk Committee of the Board of Directors.

The Bank places loans and leases on nonaccrual status when they become 90 days past due as to principal or interest payments, or prior to that if management has determined based upon current information available to them that the timely collection of principal or interest is not probable. When a loan or lease is placed on nonaccrual status, any interest previously accrued as income but not actually collected is reversed and recorded as a reduction of loan or lease interest and fee income. Typically, collections of interest and principal received on a nonaccrual loan or lease are applied to the outstanding principal as determined at the time of collection of the loan or lease.

Troubled debt restructurings (“TDRs”) occur when, because of economic or legal reasons pertaining to the debtor’s financial difficulties, debtors are granted concessions that would not otherwise be considered. Such concessions would include, but are not limited to, the transfer of assets or the issuance of equity interests by the debtor to satisfy all or part of the debt, modification of the terms of debt or the substitution or addition of debtor(s).

~~Total nonperforming~~Nonperforming assets and ~~troubled debt restructurings, including~~TDRs, excluding loans measured at fair value, at September 30, ~~2020~~2021 were ~~$145.0~~$93.1 million, which represented a ~~$33.9~~$10.6 million, or ~~30.5%~~12.8%, increase from December 31, ~~2019.~~2020. These nonperforming assets, at September 30, ~~2020~~2021 were comprised of ~~$99.0~~$49.3 million in nonaccrual loans and leases and ~~$3.3 million~~$883 thousand in foreclosed assets. Of the ~~$145.0~~$93.1 million of nonperforming assets and TDRs, ~~$98.5~~$50.0 million carried ~~an SBA~~a government guarantee, leaving an unguaranteed exposure of ~~$46.4~~$43.1 million in total nonperforming assets and TDRs at September 30, ~~2020.~~2021. This represents an increase of ~~$19.2~~$3.8 million, or ~~70.6%~~9.6%, from an unguaranteed exposure of ~~$27.2~~$39.3 million at December 31, ~~2019.~~2020.

The following table provides information with respect to nonperforming assets and troubled debt restructurings, excluding loans measured at fair value, at the dates indicated.

~~Nonperforming~~Total nonperforming assets and TDRs, ~~excluding~~including loans measured at fair value, at September 30, ~~2020~~2021 were ~~$74.4~~$173.1 million, which represented a ~~$32.5~~$20.0 million, or ~~77.6%~~13.0%, increase from December 31, ~~2019.~~2020. These nonperforming assets, at September 30, ~~2020~~2021 were comprised of ~~$46.7~~$96.5 million in nonaccrual loans and leases and ~~$3.3 million~~$883 thousand in foreclosed assets. Of the ~~$74.4~~$173.1 million of nonperforming assets and TDRs, ~~$43.2~~$107.6 million carried ~~an SBA~~a government guarantee, leaving an unguaranteed exposure of ~~$31.2~~$65.5 million in total nonperforming assets and TDRs at September 30, ~~2020.~~2021. This represents an increase of ~~$19.0~~$10.0 million, or ~~155.2%~~18.1%, from an unguaranteed exposure of ~~$12.2~~$55.5 million at December 31, ~~2019.~~2020.

See the below discussion related to the change in potential problem and impaired loans and leases for management’s overall observations regarding growth in total nonperforming loans and leases.

As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented ~~9.0%~~7.4% at September 30, ~~2020,~~2021, compared to ~~4.4%~~8.8% at December 31, ~~2019.~~2020. Adjusting the ratio to include only the unguaranteed portion of nonperforming loans and leases at historical cost to reflect management’s belief that the greater magnitude of risk resides in this portion, the ratios at both September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~3.9%~~3.1% and ~~1.5%~~3.8%, respectively.

As of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, potential problem (also referred to as criticized) and classified loans and leases, excluding loans measured at fair value, totaled ~~$217.1~~$387.5 million and ~~$129.1~~$311.4 million, respectively. The following is a discussion of these loans and leases. Risk Grades 5 through 8 represent the spectrum of criticized and classified loans and leases. For a complete description of the risk grading system, see Note 5. Loans and Leases Held for Investment and Credit Quality in the Company’s 2020 Form 10-K. At September 30 ~~2020,~~, 2021, the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled ~~$118.7~~$192.3 million resulting in unguaranteed exposure risk of ~~$98.4~~$195.3 million, or ~~6.4%~~8.1% of total held for investment unguaranteed exposure carried at historical cost. This compares to the December 31, ~~2019~~2020 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled ~~$65.8~~$168.9 million resulting in unguaranteed exposure risk of ~~$63.3~~$142.5 million, or ~~5.4%~~8.2% of total held for investment unguaranteed exposure carried at historical cost. As of September 30, 2021, loans and leases carried at historical cost within the following verticals comprise the largest portion of the total potential problem and classified loans and leases: Wine and Craft Beverage at 18.6%, Educational Services at 15.7%, Entertainment Centers at 11.5%, Hotels at 11.2%, Healthcare at 7.7%, Fitness Centers at 5.2%, Self Storage at 4.6%, and Agriculture at 4.6%. As of December 31, 2020, loans and leases carried at historical cost within the following verticals comprise the largest portion of the total potential problem and classified loans and leases: ~~Healthcare at 14.0%, Wine and Craft Beverage at 13.2%, Hotels at 12.7%, Entertainment Centers at 11.7%,~~ Educational Services at ~~8.7%, Fitness Centers at 8.3%, Veterinary at 6.3% and Senior Care at 5.4%.~~ ~~As of December 31, 2019, loans and leases~~ ~~carried at historical cost within the following verticals comprise the largest portion of the total potential problem and classified loans and leases: Healthcare at 20.8%, Hotels at 14.7%~~15.3%, Wine and Craft Beverage at 14.3%, Hotels at 13.6%, Entertainment Centers at 12.5%, Healthcare at 10.3%, Fitness Centers at 7.2%, Self Storage at ~~8.4%,~~6.4% and Veterinary at ~~7.1%, Government Contracting at 6.1%, and Educational Services at 5.7%~~4.5%. Other than Hotels ~~and~~ ~~Government Contracting~~ which are a part of the Company’s Specialty Lending division, all of the above listed verticals are within the Company’s Small Business Banking division. ~~Two previously impaired Government Contracting relationships were charged off in~~The majority of the $76.1 million first nine months of ~~2020 which resulted in a reduction in impaired loans for this vertical. The majority of the~~2021 increase in potential problem and classified loans and leases was comprised ~~of a relatively small number~~ of borrowers largely concentrated in the Company’s more mature verticals. Furthermore, the Company believes that its underwriting and credit quality standards have ~~continued to tighten~~remained high with an emphasis on new production in pandemic resilient verticals and increased monitoring of existing loans in pandemic susceptible verticals as the impacts ~~and uncertainties~~of COVID-19 continue to ~~evolve~~. With this emphasis, systemic issues have begun to appear within the Hotel and Entertainment Center verticals due to stress related to the COVID-19 pandemic and contributed to the increase in criticized and classified loans and leases.evolve.

~~The Bank does not classify loans~~Loans and leases that experience insignificant payment delays and payment shortfalls ~~as impaired.~~are generally not individually evaluated for the purpose of estimating the allowance for credit losses. The Bank generally considers an “insignificant period of time” from payment delays to be a period of 90 days or less, unless the borrower was not past due at the time of a modification as a part of a COVID-19 assistance program. ~~In such instances this time period could extend to a period of six months or less.~~ The Bank would consider a modification for a customer experiencing what is expected to be a short-term event that has temporarily impacted cash flow. This could be due, among other reasons, to illness, weather, impact from a one-time expense, slower than expected start-up, construction issues or other short-term issues. ~~In all cases, credit~~Credit personnel will review the request to determine if the customer is stressed and how the event has impacted the ability of the customer to repay the loan or lease long term. ~~Short term modifications are not classified as TDRs, because they do not meet the definition set by the applicable accounting standards and the Federal Deposit Insurance Corporation.~~ At September 30 ~~2020,~~, 2021, the Company had ~~$56.4~~$11.4 million in modified unguaranteed loans and leases for borrowers impacted by the COVID-19 ~~pandemic with $20.9 million of that total occurring in the third quarter.~~pandemic. These modifications were primarily short-term payment deferrals generally no more than six-months in duration and accordingly are not considered troubled debt restructurings. As of October 31, 2021, the Company’s modified unguaranteed loans and leases for borrowers impacted by the COVID-19 pandemic was approximately $11.5 million.

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. Management implements a proactive approach to identifying and classifying loans and leases as special mention (also referred to as criticized), Risk Grade 5. At September 30 ~~2020,~~, 2021, and December 31, ~~2019,~~2020, Risk Grade 5 loans and leases, excluding loans measured at fair value, totaled ~~$151.5~~$301.4 million and ~~$89.5~~$237.5 million, respectively. The increase in Risk Grade 5 loans and leases, exclusive of loans measured at fair value, during the ~~first~~ nine months of ~~2020~~2021 was principally confined to six verticals: ~~Fitness Centers ($14.3 million or 23.1%), Entertainment Centers ($12.6 million or 20.4%), Senior Care ($11.8 million or 19.1%), Educational Services ($11.6 million or 18.7%),~~ Wine and Craft Beverage ($~~7.0~~22.8 million or ~~11.3%~~42.3%), Agriculture ($12.2 million or 22.7%), Educational Services ($12.2 million or 22.7%), Independent Pharmacies ($6.2 million or 11.4%), Hotels ($4.2 million or 7.8%) and ~~General Lending Solutions~~Asset Based ($~~6.3~~2.7 million or ~~10.1%~~5.1%). Partially offsetting the ~~increase~~above increases were declines in ~~the above~~ Risk Grade 5 loans ~~and leases were decreases~~principally concentrated in ~~Hotels~~three verticals: Senior Care ($~~5.8~~5.1 million or ~~9.3%~~9.4%), Sponsor Finance ($3.0 million or 5.5%) and Fitness Centers ($2.8 million or 5.3%). Other than Hotels, Asset Based and Sponsor Finance, which are a part of the Company’s Specialty Lending division, all of the above listed verticals are within the Company’s Small Business Banking division. ~~The decrease~~Lower levels of Risk Grade 5 loans in ~~Hotels was largely~~Senior Care, Sponsor Finance and Fitness Centers were principally due to two previous Risk Grade 5 relationships ~~moving~~continuing to ~~risk grade~~experience stress and being downgraded to Risk Grade 6 ~~(substandard).~~ during the first quarter.

At September 30 ~~2020,~~, 2021, approximately ~~100.0%~~99.1% of loans and leases classified as Risk Grade 5 are performing with ~~no current~~only one relationship having payments past due more than 30 days. While the level of nonperforming assets fluctuates in response to changing economic and market conditions, in light of the relative size and composition of the loan and lease portfolio and management’s degree of success in resolving problem assets, management believes that a proactive approach to early identification and intervention is critical to successfully managing a small business loan portfolio. In conjunction with this, management believes that volumes of delinquencies may be not be an accurate depiction of the borrower’s repayment abilities under the current pandemic induced circumstances due to payments being made by the SBA on behalf of ~~borrower~~borrowers with loans under its programs. ~~This~~As government payment assistance ~~commenced~~began to expire toward the end of 2020, borrowers with continuing difficulties arising from the pandemic were provided additional relief through payment deferrals. Management monitors these borrowers closely and has observed financial conditions continuing to improve. Management has also noted that most loans with expired government assistance have been able to resume making regular payments in the first ~~quarter and will continue for six months.~~

During the quarter ended September 30, 2021, management updated the Company’s policy for estimating expected credit losses on certain relationships that would otherwise meet the criteria for individual evaluation. Relationships with unguaranteed exposure of less than $250 thousand are now collectively evaluated using an average of loss rates applied to individually evaluated relationships with unguaranteed exposure between $250 thousand and $1.0 million. See Note 1. Organization and Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements in ~~The~~the Company’s 2020 Form 10-K for further description of the methodologies used to estimate the allowance for credit losses (“ACL”) on loans and leases is a valuation account that is deducted from, or added to, the amortized cost basis of loans and leases to present a net amount expected to be collected. The ACL excludes loans held for sale and loans accounted for under the fair value option. Loans and leases are charged-off against the ACL when management believes the uncollectibility of a loan or lease balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Judgment in determining the adequacy of the ACL is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available and as situations and information change.

~~The ACL is evaluated on a quarterly basis by management and~~ is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses. Management adjusts historical loss information for differences in current risk characteristics such as portfolio risk grading, delinquency levels, or portfolio mix as well as for changes in environmental conditions such as changes in unemployment rates.

The ACL of ~~$28.2~~$52.3 million at December 31, ~~2019~~2020, increased by ~~$16.0~~$7.4 million, or ~~56.6%~~14.1%, to ~~$44.2~~$59.7 million at September 30, ~~2020.~~2021. The ACL as a percentage of loans and leases held for investment at historical cost amounted to ~~1.1%~~1.3% and 1.2% at September 30, ~~2020~~2021 and ~~1.6% at~~ December 31, ~~2019.~~2020, respectively. Excluding PPP loans and related reserves, the ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.4% and 1.8% at September 30, ~~2020. As mentioned earlier, the Company adopted the new CECL standard effective January 1, 2020. Upon adoption, the Company recorded a $1.3 million decrease~~2021 and December 31, 2020, respectively. The increase in the ~~ACL. In implementing CECL,~~ACL during the ~~Company accordingly determined~~first nine months of 2021 was primarily due to ~~use forecasted levels~~impact of ~~unemployment as a primary economic variable~~growth in ~~forecasting future expected losses. Based upon the severity of ongoing developments resulting from the COVID-19 pandemic, combined with~~loan and lease originations somewhat mitigated by the effects of improved forecasts related to employment and default expectations as the ~~above discussed increased levels of criticized and classified loans and leases and charge-offs,~~economic outlook has continued to improve, as addressed more fully in the ~~Provision~~above section captioned “Provision for Loan and Lease Credit ~~Losses section~~Losses” in “Results of Results of Operations, the Company’s allowance for credit losses on loans and leases increased significantly in the first half of the year and subsequently began to contract somewhat during the third quarter of 2020 due to improving economic forecasts.Operations.”

Actual past due held for investment loans and leases, inclusive of loans measured at fair value, have decreased by ~~$5.7~~$20.8 million since December 31, ~~2019. This decrease was principally due to monthly payments being made by the SBA for our SBA 7(a) borrowers.~~2020. Total loans and leases 90 or more days past due ~~increased $18.0~~decreased $12.6 million, or ~~46.0%~~20.4%, compared to December 31, ~~2019.~~2020. The ~~increase~~decrease was comprised of a ~~$11.9~~$13.7 million ~~and $6.0~~decrease in unguaranteed combined with a $1.0 million increase in the ~~unguaranteed and~~ guaranteed portions ~~respectively,~~ of past due loans compared to December 31, ~~2019 and was the result of a small number of relationships across eight industries but primarily concentrated within the Entertainment Center and Hotel verticals.~~2020. At September 30 ~~2020~~, 2021, and December 31, ~~2019,~~2020, total held for investment unguaranteed loans and leases past due as a percentage of total held for investment unguaranteed loans and leases, inclusive of loans measured at fair value, was ~~1.0%~~0.5% and ~~1.7%~~1.1%, respectively. Total unguaranteed loans and leases past due were comprised of ~~$20.7~~$11.4 million carried at historical cost, ~~an increase~~a decrease of ~~$12.8~~$11.6 million, and ~~$3.8~~$5.0 million measured at fair value, a decrease of ~~$7.8~~$1.3 million, as of September 30 ~~2020~~, 2021 compared to December 31, ~~2019.~~2020. Management continues to actively monitor and work to improve asset quality. Management believes the ACL of ~~$44.2~~$59.7 million at September 30 ~~2020~~, 2021 is appropriate in light of the risk inherent in the loan and lease portfolio. Management’s judgments are based on numerous assumptions about current and expected events that it believes to be reasonable, but which may or may not be valid, including but not limited to factors related to the above mentioned SBA delinquency effect and pandemic-susceptible verticals. Accordingly, no assurance can be given that management’s ongoing evaluation of the loan and lease portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the ACL, thus adversely affecting the Company’s operating results. Additional information on the ACL is presented in Note 5. Loans and Leases Held for Investment and Credit Quality of the Notes to the Unaudited Condensed Consolidated Financial Statements in this report.

Liquidity management refers to the ability to meet day-to-day cash flow requirements based primarily on activity in loan and deposit accounts of the Company’s customers. Liquidity is immediately available from four major sources: (a) cash on hand and on deposit at other banks; (b) the outstanding balance of federal funds sold; (c) the market value of unpledged investment securities; and (d) availability under lines of credit. At September 30, ~~2020,~~2021, the total amount of these four items was ~~$2.96~~$3.30 billion, or ~~36.6%~~40.6% of total assets, an increase of ~~$1.77 billion~~$247.7 million from ~~$1.19~~$3.06 billion, or ~~24.8%~~38.8% of total assets, at December 31, ~~2019.~~2020.

Loans and other assets are funded by loan sales, wholesale deposits, core deposits and ~~core deposits.~~PPPLF borrowings. To date, an increasing retail deposit base and an increased long term wholesale deposit base along with PPPLF borrowings have been adequate to meet loan obligations while maintaining the desired level of immediate liquidity. Additionally, the investment securities portfolio is available for both immediate and secondary liquidity purposes.

At September 30, ~~2020,~~2021, none of the investment securities portfolio was pledged to secure public deposits or pledged to retail repurchase agreements, leaving ~~$765.8~~$858.9 million available to pledge as ~~lendable~~ collateral.

The following table presents the Company’s significant fixed and determinable contractual obligations by payment date as of September 30, ~~2020.~~2021. The payment amounts represent those amounts contractually due to the recipient. The table excludes liabilities recorded where management cannot reasonably estimate the timing of any payments that may be required in connection with these liabilities.

	Payments Due by Period										Payments Due by Period
	Total		Less than One Year		One to Three Years		Three to Five Years		More than Five Years		Total		Less than One Year		One to Three Years		Three to Five Years		More than Five Years
Contractual Obligations
Deposits without stated maturity	$	2,424,382	$	2,424,382	$	—	$	—	$	—	$	3,619,836	$	3,619,836	$	—	$	—	$	—
Time deposits		3,281,662		2,226,729		717,217		285,333		52,383		3,196,777		1,797,908		658,642		342,196		398,031
Borrowings		1,747,083		4,992		1,742,091		—		—		575,021		535,410		19,855		15,763		3,993
Operating lease obligations		3,585		752		1,327		292		1,214		2,924		734		862		157		1,171
Total	$	7,456,712	$	4,656,855	$	2,460,635	$	285,625	$	53,597	$	7,394,558	$	5,953,888	$	679,359	$	358,116	$	403,195

As of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, the Company had unfunded commitments to provide capital contributions for on-balance sheet investments in the amount of ~~$14.7~~$11.0 million and ~~$16.9~~$15.8 million, respectively.

One of the primary objectives of asset/liability management is to maximize the net interest margin while minimizing the earnings risk associated with changes in interest rates. One method used to manage interest rate sensitivity is to measure, over various time periods, the interest rate sensitivity positions, or gaps. As of September 30 ~~2020,~~, 2021, the balance sheet’s total cumulative gap position was ~~slightly~~ asset-sensitive at ~~0.1%~~ 4.0%. ~~The shift to asset-sensitive versus the prior quarter liability-sensitive position is primarily due to the deployment of excess liquidity into loans and through reductions in the deposit portfolio.~~

The interest rate gap method, however, addresses only the magnitude of asset and liability repricing timing differences as of the report date and does not address earnings, market value, changes in account behaviors based on the interest rate environment, nor growth. Therefore, management also uses an earnings simulation model to prepare, on a regular basis, earnings projections based on a range of interest rate scenarios to measure interest rate ~~risk more accurately.~~risk. As of September 30 ~~2020,~~, 2021, the Company’s interest rate risk profile under the earnings simulation model method ~~remains~~remained asset-sensitive. An asset-sensitive position means that net interest income will generally move in the same direction as interest rates. For instance, if interest rates increase, net interest income can be expected to increase, and if interest rates decrease, net interest income can be expected to decrease. The Company attempts to mitigate interest rate risk by match funding assets and liabilities with similar rate instruments. The quarterly revaluation adjustment to the servicing asset, however, adjusts in an opposite direction to interest rate changes. Asset/liability sensitivity is primarily derived from the prime-based loans that adjust as the prime interest rate changes, rates on cash accounts that adjusts as the federal funds rate changes and the longer duration of indeterminate term deposits.

The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. The Company’s principal goals related to the maintenance of capital are the following: to provide adequate capital to support the Company’s risk profile consistent with the risk appetite approved by the Board of Directors; to provide financial flexibility to support future growth and client needs; comply with relevant laws, regulations, and supervisory guidance; to achieve optimal ~~credit~~ ratings for the Company and its subsidiaries; and to provide a competitive return to shareholders. Management regularly monitors the capital position of the Company on both a consolidated and bank level basis. In this regard, management’s goal is to maintain capital at levels that are in excess of the regulatory “well capitalized” levels. Risk-based capital ratios, which include Tier 1 Capital, Total Capital and Common Equity Tier 1 Capital, are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.

Capital amounts and ratios as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, are presented in the table below.

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions⁽¹⁾					Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions⁽¹⁾
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Consolidated - September 30, 2020
Consolidated - September 30, 2021
Common Equity Tier 1 (to Risk-Weighted Assets)	$	532,219		13.09	%	$	182,902		4.50	%	N/A		N/A			$	657,340		12.56	%	$	235,590		4.50	%	N/A		N/A
Total Capital (to Risk-Weighted Assets)	$	576,903		14.19	%	$	325,160		8.00	%	N/A		N/A				717,633		13.71			418,827		8.00		N/A		N/A
Tier 1 Capital (to Risk-Weighted Assets)	$	532,219		13.09	%	$	243,870		6.00	%	N/A		N/A				657,340		12.56			314,121		6.00		N/A		N/A
Tier 1 Capital (to Average Assets)	$	532,219		8.44	%	$	252,171		4.00	%	N/A		N/A				657,340		8.82			298,033		4.00		N/A		N/A
Bank - September 30, 2020
Bank - September 30, 2021
Common Equity Tier 1 (to Risk-Weighted Assets)	$	477,182		12.06	%	$	178,087		4.50	%	$	257,237		6.50	%	$	605,634		12.13	%	$	224,732		4.50	%	$	324,612		6.50	%
Total Capital (to Risk-Weighted Assets)	$	521,866		13.19	%	$	316,600		8.00	%	$	395,749		10.00	%		665,927		13.33			399,523		8.00			499,403		10.00
Tier 1 Capital (to Risk-Weighted Assets)	$	477,182		12.06	%	$	237,450		6.00	%	$	316,600		8.00	%		605,634		12.13			299,642		6.00			399,523		8.00
Tier 1 Capital (to Average Assets)	$	477,182		7.59	%	$	251,381		4.00	%	$	314,226		5.00	%		605,634		8.24			294,053		4.00			367,566		5.00
Consolidated - December 31, 2019
Consolidated - December 31, 2020
Common Equity Tier 1 (to Risk-Weighted Assets)	$	499,513		14.90	%	$	150,927		4.50	%	N/A		N/A			$	521,568		12.15	%	$	193,172		4.50	%	N/A		N/A
Total Capital (to Risk-Weighted Assets)	$	527,747		15.74	%	$	268,315		8.00	%	N/A		N/A				574,621		13.39			343,417		8.00		N/A		N/A
Tier 1 Capital (to Risk-Weighted Assets)	$	499,513		14.90	%	$	201,236		6.00	%	N/A		N/A				521,568		12.15			257,563		6.00		N/A		N/A
Tier 1 Capital (to Average Assets)	$	499,513		10.65	%	$	187,582		4.00	%	N/A		N/A				521,568		8.40			248,417		4.00		N/A		N/A
Bank - December 31, 2019
Bank - December 31, 2020
Common Equity Tier 1 (to Risk-Weighted Assets)	$	451,807		13.66	%	$	148,950		4.50	%	$	215,150		6.50	%	$	470,069		11.25	%	$	188,012		4.50	%	$	271,573		6.50	%
Total Capital (to Risk-Weighted Assets)	$	480,040		14.51	%	$	264,800		8.00	%	$	331,000		10.00	%		522,305		12.50			334,243		8.00			417,804		10.00
Tier 1 Capital (to Risk-Weighted Assets)	$	451,807		13.66	%	$	198,600		6.00	%	$	264,800		8.00	%		470,069		11.25			250,683		6.00			334,243		8.00
Tier 1 Capital (to Average Assets)	$	451,807		9.68	%	$	186,627		4.00	%	$	233,283		5.00	%		470,069		7.60			247,288		4.00			309,110		5.00

The preparation of consolidated financial statements in accordance with GAAP requires the Company to make estimates and judgments that affect reported amounts of assets, liabilities, income and expenses and related disclosure of contingent assets and liabilities. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Estimates are evaluated on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Accounting policies, as described in detail in the Notes to the Company’s Unaudited Condensed Consolidated Financial Statements in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, are an integral part of the Company’s consolidated financial statements. A thorough understanding of these accounting policies is essential when reviewing the Company’s reported results of operations and financial position. Management believes that the critical accounting policies and estimates listed below require the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain.

Changes in these estimates, that are likely to occur from period to period, or the use of different estimates that the Company could have reasonably used in the current period, would have a material impact on the Company’s financial position, results of operations or liquidity.

Management considers interest rate risk the most significant market risk. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. Consistency of net interest income is largely dependent upon the effective management of interest rate risk.

The Company’s Asset/Liability Management Committee (“ALCO”), which includes senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk. See “Asset/Liability Management and Interest Rate Sensitivity” in Item 2 of this Form 10-Q for further discussion.

The objective of asset/liability management is the maximization of net interest income within the Company’s risk guidelines. This objective is accomplished through management of the balance sheet composition, maturities, liquidity, and interest rate risk exposures arising from changing economic conditions, interest rates and customer preferences.

To identify and manage its interest rate risk, the Company employs an earnings simulation model to analyze net interest income sensitivity to changing interest rates. The model is based on contractual cash flows and repricing characteristics and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. The model also includes management projections for activity levels in each of the product lines offered by the Bank. Assumptions are inherently uncertain, and the measurement of net interest income or the impact of rate fluctuations on net interest income cannot be precisely predicted. Actual results may differ materially from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

An evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), was carried out under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer as of September 30, ~~2020,~~2021, the last day of the period covered by this Quarterly Report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, ~~2020,~~2021, in ensuring that the information required to be disclosed in the reports the Company files or submits under the Exchange Act is (i) accumulated and communicated to management (including the Company’s Chief Executive Officer and Chief Financial Officer) as appropriate to allow timely decisions regarding required disclosures, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

~~Beginning January 1, 2020,~~During the three months ended September 30, 2021, the Company ~~adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The Company implemented changes~~converted its core deposit system to ~~the policies, processes, and controls over the estimation of the allowance for credit losses to support the adoption of ASU 2016-13. While many controls in operation under this~~a new ~~standard mirror controls under prior GAAP, there were some new controls implemented.~~

platform. During the three months ended June 30, ~~2020,~~2021, the Company migrated its human capital, accounting and financial management systems to a new platform. As a result of these implementations, the Company modified existing internal controls and implemented new processes and controls related to ~~the origination of loans through the SBA’s Paycheck Protection Program. As a part of the Company’s PPP efforts in the second quarter, a~~these new ~~loan accounting system was implemented and utilized as the system of record for PPP loans.~~platforms. The Company will continue to monitor and evaluate internal controls over financial reporting as it relates to ~~the PPP portfolio and this~~these new ~~loan system.~~

During the three months ended September 30, 2020, the Company implemented new processes and controls related to a new core deposit operating system which began to house new customer accounts for savings accounts and certificates of deposits during the third quarter. The Company will continue to monitor and evaluate internal controls over financial reporting as it relates this new deposit system.systems.

Except as related to the ~~adoption~~implementation of ~~ASU 2016‑13, the loan accounting system for PPP loans and~~ the new ~~core deposit operating system,~~systems, there were no changes in the Company’s internal control over financial reporting during the three and nine ~~month periods~~months ended September 30, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In the ordinary course of operations, the Company is ~~party to various~~at times involved in legal proceedings. ~~The~~In the opinion of management, as of September 30, 2021, 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. In addition, the Company is not ~~involved in, nor has it terminated during~~aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on its business, operating results or financial condition.

On March 12, 2021, a purported class action was filed against the ~~three months ended September 30, 2020, any pending legal proceedings other than nonmaterial proceedings occurring~~Company in the ~~ordinary course~~United States District Court for the Eastern District of ~~business.~~North Carolina, Joseph McAlear, individually and on behalf of all others similarly situated v. Live Oak Bancshares, Inc. et al. The complaint alleges the existence of an agreement between the Company, nCino, Inc. and Apiture, LLC in which those companies purportedly sought to restrain the mobility of employees in violation of antitrust laws by agreeing not to solicit or hire each other’s employees. The complaint alleges violations of Section 1 of the federal Sherman Act (15 U.S.C. § 1) and violations of Sections 75-1 and 75-2 of the North Carolina General Statutes. The plaintiff seeks monetary damages, including treble damages, entitlement to restitution, disgorgement, attorneys’ fees, and pre- and post-judgment interest. On October 12, 2021, the Company reached an agreement to settle the case with a proposed class of all persons (with certain exclusions) employed by the Company or its wholly-owned subsidiary, Live Oak Banking Company, Apiture, Inc. or nCino, Inc. in North Carolina at any time from January 27, 2017, through March 31, 2021. In the agreement, the Company agreed to pay $3.9 million. On October 13, 2021, the plaintiff filed a motion for preliminary approval of the settlement, and that motion remains pending before the court.

There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019, with the exception of the following:~~2020.

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, and financial condition, and such effects will depend on future developments that are highly uncertain and difficult to predict.

Global health concerns relating to the COVID-19 outbreak and related government actions taken to reduce the spread of the virus have had a significant negative impact on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity. The outbreak has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to historically high unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and other legislation, and may take additional steps in the future for the same purpose, but there can be no assurance that there will be any further legislation or that any such steps will be effective or achieve their desired results in a timely fashion.

The outbreak has adversely impacted and is likely to further adversely impact our operations and the operations of our borrowers, customers, and business partners. For example, as a result of the significant uncertainty due to the COVID-19 pandemic we realized a substantial build in our allowance for credit losses for the first half of 2020. We could also experience declining values of other financial assets and other negative impacts on our financial position, including possible constraints on liquidity and capital, as well as higher costs of capital. A number of factors impacting us or our borrowers, customers or business partners could materially adversely affect our business, results of operations, and financial condition, including but not limited to:

The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel and developing work-from-home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers, and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.

Federal, state and local governmental authorities have enacted, and may enact in the future, legislation, regulations, and protocols in response to the COVID-19 pandemic, including governmental programs intended to provide economic relief to businesses and individuals. Our participation in and execution of any such programs may cause operational, compliance, reputational, and credit risks, which could result in litigation, governmental action or other forms of loss. There remains significant uncertainty regarding the measures that authorities will enact in the future and the ultimate impact of the legislation, regulations, and protocols that have been and will be enacted. For example, the CARES Act temporarily added a new program titled the Paycheck Protection Program (the “PPP”) to the SBA’s 7(a) loan program. The PPP was intended to provide economic relief to small businesses nationwide. Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved lenders that enroll in the program, subject to numerous limitations and eligibility criteria. After the PPP launched on April 3, 2020, we were an active participant in the program originating a substantial number and principal amount of PPP loans. Rules and guidance regarding the PPP were not readily available at the start of the program, and the SBA and other government agencies continue to release additional rules and guidance that change or update the requirements and expectations of the regulatory agencies administering the PPP and regulating participating lenders. As of the date of this report, there remains some ambiguity in the laws, rules, and guidance regarding the operation of the PPP, with a number of important aspects of the PPP where regulatory agencies have not provided adequate or complete guidance, particularly with respect to process, procedures and criteria for forgiveness and servicing of PPP loans. Banks participating in the PPP have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and regarding claims for fees to be paid to purported agents and other third parties, and we are exposed to the risk of litigation regarding the PPP. If any such litigation is not resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. We also face credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Bank.

Additionally, our future success and profitability substantially depends on the management skills of our executive officers and directors. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

The extent to which the COVID-19 outbreak impacts our business, results of operations, and financial condition will depend on future developments that are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business, financial condition, and results of operations and prospects as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity, and any recession that has occurred or may occur in the future. For more information on the impacts of COVID-19 on our business, results of operations and financial condition, see “Recent Developments” in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations, or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.

On March 15, 2020, the Board of Directors of the Company authorized the repurchase of up to $20,000,000 in shares of the Company’s voting common stock from time to time through December 31, 2020 (the “Repurchase Program”). The Repurchase Program enables the Company to acquire shares through open market purchases or privately negotiated transactions, including through a Rule 10b5-1 plan, at the discretion of management and on terms (including quantity, timing, and price) that management determines to be advisable. Actions in connection with the repurchase program will be subject to various factors, including the Company’s capital and liquidity positions, regulatory and accounting considerations, the Company’s financial and operational performance, alternative uses of capital, the trading price of the Company’s common stock, and market conditions. The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and may be extended, modified, or discontinued at any time. As of September 30, 2020, the Company had not made any purchases of shares under the Repurchase Program.None.

Exhibits to this report are listed in the Index to Exhibits section of this report.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

North Carolina	26-4596286
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1741 Tiburon Drive Wilmington, North Carolina	28403
(Address of principal executive offices)	(Zip Code)

Large accelerated filer	☒☐	Accelerated filer	☐☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Voting Common Stock, no par value per share	LOB	The NASDAQ Stock Market LLC

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		1
	Condensed Consolidated Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020		1
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020		2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020		3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020		6
	Notes to Unaudited Condensed Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3936
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		6359
Item 4.	Controls and Procedures		6459
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		6560
Item 1A.	Risk Factors		6560
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		6760
Item 3.	Defaults Upon Senior Securities		6760
Item 4.	Mine Safety Disclosures		6760
Item 5.	Other Information		6760
Item 6.	Exhibits		6861
	Index to Exhibits		6861
	Signatures		6962

	September 30, 2021					December 31, 2020
	Amount		Ownership %			Amount		Ownership %
Apiture, Inc.	$	52,755		39.1	%	$	53,344		39.1	%
Canapi Ventures SBIC Fund, LP ^{(1) (3)}		16,525		2.9	%		14,843		3.1	%
Canapi Ventures Fund, LP ^{(2) (3)}		1,881		1.5	%		1,686		1.5	%
Other fintech investments in private companies ⁽⁴⁾		5,418	Various				1,634	Various
Other ⁽⁵⁾		4,443	Various				6,421	Various
Total	$	81,022				$	77,928

	As Reported			Reclassifications			As Reclassified
Consolidated Statement of Income for the three months ended September 30, 2019
Provision for loan and lease credit losses	$	7,160		$	(3,200	)	$	3,960
Net interest income after provision for loan and lease credit losses		30,371			3,200			33,571
Loan servicing asset revaluation		(859	)		(4,302	)		(5,161	)
Net gain (loss) on loans accounted for under the fair value option		—			1,102			1,102
Total noninterest income		18,628			(3,200	)		15,428
Net income		3,895			—			3,895

Consolidated Statement of Income for the nine months ended September 30, 2019
Provision for loan and lease credit losses	$	13,365		$	(2,962	)	$	10,403
Net interest income after provision for loan and lease credit losses		88,706			2,962			91,668
Loan servicing asset revaluation		(3,508	)		(8,938	)		(12,446	)
Net gain (loss) on loans accounted for under the fair value option		—			5,976			5,976
Total noninterest income		46,356			(2,962	)		43,394
Net income		11,202			—			11,202

Consolidated Statement of Cash Flows for the nine months ended September 30, 2019
Provision for loan and lease credit losses	$	13,365		$	(2,962	)	$	10,403
Net decrease in servicing assets		10,058			—			10,058
Change in discount on unguaranteed loans		(6,815	)		6,815			—
Net loss (gain) on loans accounted for under fair value option		—			(5,976	)		(5,976	)
Net cash used by operating activities		(352,806	)		(2,123	)		(354,929	)
Loan and lease originations and principal collections, net		(396,548	)		2,123			(394,425	)
Net cash used by investing activities		(581,983	)		2,123			(579,860	)

	Less Than 12 Months				12 Months or More				Total
September 30, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities	$	15,004	$	553	$	2,086	$	23	$	17,090	$	576
Municipal bonds		—		—		95		5		95		5
Total	$	15,004	$	553	$	2,181	$	28	$	17,185	$	581

	Less Than 12 Months				12 Months or More				Total
December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities	$	42,835	$	460	$	36,518	$	467	$	79,353	$	927
Municipal bonds		—		—		92		8		92		8
Total	$	42,835	$	460	$	36,610	$	475	$	79,445	$	935

	As of and for the nine month period ended September 30, 2021
	Amount		Cumulative Adjustments
Carrying value ⁽¹⁾	$	62,341
Carrying value adjustments:
Impairment		—	$	—
Upward changes for observable prices ⁽²⁾		30,197		48,469
Downward changes for observable prices		—		(86	)
Net upward change	$	30,197	$	48,383

	Three Months Ended September 30, 2019
	Interest Only				Payment Deferral & Rate Concession				Total TDRs
	Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end
Commercial & Industrial
Small Business Banking		1	$	350		—	$	—		1	$	350
Total		1		350		—		—		1		350
Commercial Real Estate
Small Business Banking		—		—		1		260		1		260
Total		—		—		1		260		1		260
Total		1	$	350		1	$	260		2	$	610

December 31, 2019	Recorded Investment		Guaranteed Balance		Unguaranteed Exposure
Commercial & Industrial
Small Business Banking	$	11,612	$	7,841	$	3,771
Specialty Lending		2,440		157		2,283
Total		14,052		7,998		6,054
Construction & Development
Small Business Banking		719		530		189
Total		719		530		189
Commercial Real Estate
Small Business Banking		23,473		13,198		10,275
Specialty Lending		1,916		1,387		529
Total		25,389		14,585		10,804
Commercial Land
Small Business Banking		17,347		12,898		4,449
Total		17,347		12,898		4,449
Total	$	57,507	$	36,011	$	21,496

	December 31, 2019
	Recorded Investment
	With a Recorded Allowance			With No Recorded Allowance		Total		Unpaid Principal Balance		Related Allowance Recorded
Commercial & Industrial
Small Business Banking	$	11,607		$	5	$	11,612	$	12,577	$	1,967
Specialty Lending		2,440			—		2,440		2,307		2,022
Total		14,047			5		14,052		14,884		3,989
Construction & Development
Small Business Banking		719			—		719		706		17
Total		719			—		719		706		17
Commercial Real Estate
Small Business Banking		21,370			2,103		23,473		23,996		2,055
Specialty Lending		1,916			—		1,916		1,849		12
Total		23,286			2,103		25,389		25,845		2,067
Commercial Land
Small Business Banking		17,347	��		—		17,347		17,399		748
Total		17,347			—		17,347		17,399		748
Total Impaired Loans and Leases	$	55,399		$	2,108	$	57,507	$	58,834	$	6,821

	Three Months Ended September 30, 2019
	Average Balance		Interest Income Recognized
Commercial & Industrial
Small Business Banking	$	10,101	$	35
Specialty Lending		1,945		10
Total		12,046		45
Construction & Development
Small Business Banking		724		4
Total		724		4
Commercial Real Estate
Small Business Banking		16,087		162
Specialty Lending		744		—
Total		16,831		162
Commercial Land
Small Business Banking		17,342		170
Total		17,342		170
Total	$	46,943	$	381

	Nine Months Ended September 30, 2019
	Average Balance		Interest Income Recognized
Commercial & Industrial
Small Business Banking	$	10,448	$	89
Specialty Lending		1,934		34
Total		12,382		123
Construction & Development
Small Business Banking		724		4
Total		724		4
Commercial Real Estate
Small Business Banking		16,203		471
Specialty Lending		1,226		—
Total		17,429		471
Commercial Land
Small Business Banking		17,469		602
Total		17,469		602
Total	$	48,004	$	1,200

	September 30, 2020		December 31, 2019
Balance sheet data
Current assets	$	59,966	$	56,710
Noncurrent assets		180,648		162,304
Total assets	$	240,614	$	219,014

Current liabilities	$	23,787	$	19,910
Noncurrent liabilities		672		683
Total liabilities		24,459		20,593
Equity interests		216,155		198,421
Total liabilities and equity	$	240,614	$	219,014

	September 30, 2020 ⁽¹⁾			December 31, 2019 ⁽¹⁾
Nonaccrual loans and leases:
Total nonperforming loans and leases (all on nonaccrual) (2)	$	46,749		$	21,937
Total accruing loans and leases past due 90 days or more		—			—
Foreclosed assets		3,264			5,612
Total troubled debt restructurings (3)		31,830			16,566
Less nonaccrual troubled debt restructurings		(7,460	)		(2,225	)
Total performing troubled debt restructurings (3)		24,370			14,341
Total nonperforming assets and troubled debt restructurings (2)(3)	$	74,383		$	41,890
Total nonperforming loans and leases to total loans and leases held for investment (2)		1.12	%		1.22	%
Total nonperforming loans and leases to total assets (2)		0.65	%		0.55	%
Total nonperforming assets and troubled debt restructurings to total assets (2) (3)		1.03	%		1.05	%

	September 30, 2020 ⁽¹⁾			December 31, 2019 ⁽¹⁾
Nonaccrual loans and leases guaranteed by U.S. government:
Total nonperforming loans and leases guaranteed by the SBA (all on nonaccrual)	$	26,596		$	14,713
Total accruing loans and leases past due 90 days or more guaranteed by the SBA		—			—
Foreclosed assets guaranteed by the SBA		2,622			4,492
Total troubled debt restructurings guaranteed by the SBA		18,081			10,845
Less nonaccrual troubled debt restructurings guaranteed by the SBA		(4,113	)		(385	)
Total performing troubled debt restructurings guaranteed by SBA		13,968			10,460
Total nonperforming assets and troubled debt restructurings guaranteed by the SBA	$	43,186		$	29,665
Total nonperforming loans and leases not guaranteed by the SBA to total loans and leases held for investment (2)		0.48	%		0.40	%
Total nonperforming loans and leases not guaranteed by the SBA to total assets (2)		0.28	%		0.18	%
Total nonperforming assets and troubled debt restructurings not guaranteed by the SBA to total assets (2) (3)		0.43	%		0.31	%

	September 30, 2021 ⁽¹⁾			December 31, 2020 ⁽¹⁾
Nonaccrual loans and leases:
Total nonperforming loans and leases (all on nonaccrual) (2)	$	49,338		$	46,110
Total accruing loans and leases past due 90 days or more		—			—
Foreclosed assets		883			4,155
Total troubled debt restructurings (3)		55,010			39,803
Less nonaccrual troubled debt restructurings		(12,160	)		(7,592	)
Total performing troubled debt restructurings (3)		42,850			32,211
Total nonperforming assets and troubled debt restructurings (2)(3)	$	93,071		$	82,476
Allowance for credit losses on loans and leases	$	59,681		$	52,306
Total nonperforming loans and leases to total loans and leases held for investment (2)		1.05	%		1.06	%
Total nonperforming loans and leases to total assets (2)		0.67	%		0.66	%
Total nonperforming assets and troubled debt restructurings to total assets (2) (3)		1.26	%		1.17	%
Allowance for credit losses on loans and leases to loans and leases held for investment		1.26	%		1.21	%
Allowance for credit losses on loans and leases to total nonperforming loans and leases (2)		120.96	%		113.44	%

	September 30, 2021 (1)			December 31, 2020 ⁽¹⁾
Nonaccrual loans and leases guaranteed by U.S. government:
Total nonperforming loans and leases guaranteed by the U.S government (all on nonaccrual)	$	28,888		$	26,032
Total accruing loans and leases past due 90 days or more guaranteed by the U.S government		—			—
Foreclosed assets guaranteed by the U.S. government		692			3,220
Total troubled debt restructurings guaranteed by the U.S. government		26,606			18,160
Less nonaccrual troubled debt restructurings guaranteed by the U.S. government		(6,215	)		(4,271	)
Total performing troubled debt restructurings guaranteed by U.S. government		20,391			13,889
Total nonperforming assets and troubled debt restructurings guaranteed by the U.S. government	$	49,971		$	43,141
Allowance for credit losses on loans and leases	$	59,681		$	52,306
Total nonperforming loans and leases not guaranteed by the U.S. government to total held for investment loans and leases		0.43	%		0.46	%
Total nonperforming loans and leases not guaranteed by the U.S. government to total assets		0.28	%		0.29	%
Total nonperforming assets and troubled debt restructurings not guaranteed by the U.S. government to total assets		0.58	%		0.56	%
Allowance for credit losses on loans and leases to total nonperforming loans and leases not guaranteed by the U.S government		291.84	%		260.51	%


Exhibit No.			Description of Exhibit

3.1			Amended and Restated Articles of Incorporation of Live Oak Bancshares, Inc. (incorporated by reference to Exhibit 3.1 of the registration statement on Form S-1, filed on June 19, 2015)
3.2			Amended Bylaws of Live Oak Bancshares, Inc. (incorporated by reference to Exhibit 3.2 of the amended registration statement on Form S-1, filed on July 13, 2015)
4.1			Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the registration statement on Form S-1, filed on June 19, 2015)
4.2			Registration and Other Rights Agreement between Live Oak Bancshares, Inc. and Wellington purchasers (incorporated by reference to Exhibit 4.2 of the registration statement on Form S-1, filed on June 19, 2015)
10.1			Form of 2021 RSU Award Agreement for non-employee directors* #
10.2			RSU Award Agreement for William C. Losch, III* #
31.1			Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2			Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32			Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101			Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019;~~2020; (ii) Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019;~~2020; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019;~~2020; (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019;~~2020; (v) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019;~~2020; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements*
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	Live Oak Bancshares, Inc.
	(Registrant)

Date: November ~~4, 2020~~3, 2021	By:	/s/ ~~S. Brett Caines~~William C. Losch III
		~~S. Brett Caines~~William C. Losch III
		Chief Financial Officer