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 ~~May 3,~~August 2, 2022, there were ~~43,801,292~~43,873,173 shares of the registrant’s voting common stock outstanding.

	March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021
Assets
Cash and due from banks	$	477,778		$	187,203		$	580,493		$	187,203
Federal funds sold		29,993			16,547			51,694			16,547
Certificates of deposit with other banks		4,250			4,750			4,250			4,750
Investment securities available-for-sale		844,577			906,052			927,968			906,052
Loans held for sale (includes $25,056 and $25,310 measured at fair value, respectively)		1,028,635			1,116,519
Loans and leases held for investment (includes $600,571 and $645,201 measured at fair value, respectively)		5,738,241			5,521,262
Loans held for sale (includes $23,452 and $25,310 measured at fair value, respectively)								1,199,734			1,116,519
Loans and leases held for investment (includes $530,644 and $645,201 measured at fair value, respectively)								5,860,209			5,521,262
Allowance for credit losses on loans and leases		(63,058	)		(63,584	)		(65,863	)		(63,584	)
Net loans and leases		5,675,183			5,457,678			5,794,346			5,457,678
Premises and equipment, net		254,865			240,196			257,926			240,196
Foreclosed assets		198			620			191			620
Servicing assets		36,286			33,574			28,661			33,574
Other assets		268,201			250,254			275,634			250,254
Total assets	$	8,619,966		$	8,213,393		$	9,120,897		$	8,213,393
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	86,342		$	89,279		$	119,371		$	89,279
Interest-bearing		7,550,821			7,022,765			8,036,373			7,022,765
Total deposits		7,637,163			7,112,044			8,155,744			7,112,044
Borrowings		196,911			318,289			86,209			318,289
Other liabilities		72,565			67,927			87,282			67,927
Total liabilities		7,906,639			7,498,260			8,329,235			7,498,260
Shareholders’ equity
Preferred stock, no par value, 1,000,000 shares authorized, NaN issued or outstanding at March 31, 2022 and December 31, 2021		—			—
Class A common stock, no par value, 100,000,000 shares authorized, 43,787,660 and 43,494,046 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		315,607			310,970
Class B common stock, no par value, 10,000,000 shares authorized, NaN issued or outstanding at March 31, 2022 and 125,024 shares issued and outstanding at December 31, 2021		—			1,324
Preferred stock, no par value, 1,000,000 shares authorized, NaN issued or outstanding at June 30, 2022 and December 31, 2021								—			—
Class A common stock, no par value, 100,000,000 shares authorized, 43,854,011 and 43,494,046 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively								320,924			310,970
Class B common stock, no par value, 10,000,000 shares authorized, NaN issued or outstanding at June 30, 2022 and 125,024 shares issued and outstanding at December 31, 2021								—			1,324
Retained earnings		434,226			400,893			530,021			400,893
Accumulated other comprehensive (loss) income		(36,506	)		1,946			(59,283	)		1,946
Total shareholders’ equity		713,327			715,133			791,662			715,133
Total liabilities and shareholders’ equity	$	8,619,966		$	8,213,393		$	9,120,897		$	8,213,393

For the three and six months ended ~~March 31,~~June 30, 2022 and 2021 (unaudited)

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2022			2021
Interest income
Loans and fees on loans	$	89,198		$	84,993		$	94,157		$	84,780		$	183,355		$	169,773
Investment securities, taxable		3,399			2,929			4,046			2,975			7,445			5,904
Other interest earning assets		185			303			1,044			244			1,229			547
Total interest income		92,782			88,225			99,247			87,999			192,029			176,224
Interest expense
Deposits		14,348			16,944			18,777			14,820			33,125			31,764
Borrowings		655			1,331			536			1,717			1,191			3,048
Total interest expense		15,003			18,275			19,313			16,537			34,316			34,812
Net interest income		77,779			69,950			79,934			71,462			157,713			141,412
Provision for (recovery of) loan and lease credit losses		1,836			(873	)
Net interest income after provision for (recovery of) loan and lease credit losses		75,943			70,823
Provision for loan and lease credit losses								5,267			7,846			7,103			6,973
Net interest income after provision for loan and lease credit losses								74,667			63,616			150,610			134,439
Noninterest income
Loan servicing revenue		6,356			6,434			6,477			6,218			12,833			12,652
Loan servicing asset revaluation		(1,569	)		1,493			(8,668	)		(3,181	)		(10,237	)		(1,688	)
Net gains on sales of loans		20,977			11,929			5,630			16,234			26,607			28,163
Net gain on loans accounted for under the fair value option		516			4,218
Net (loss) gain on loans accounted for under the fair value option								(4,461	)		1,135			(3,945	)		5,353
Equity method investments income (loss)		(2,124	)		(1,157	)		119,056			(2,278	)		116,932			(3,435	)
Equity security investments gains (losses), net		(44	)		105			1,655			44,253			1,611			44,358
Lease income		2,503			2,599			2,510			2,616			5,013			5,215
Management fee income		1,488			1,934			2,558			1,473			4,046			3,407
Other noninterest income		4,565			3,502			3,772			3,641			8,337			7,143
Total noninterest income		32,668			31,057			128,529			70,111			161,197			101,168
Noninterest expense
Salaries and employee benefits		38,507			31,366			46,276			32,900			84,783			64,266
Travel expense		1,897			659			2,358			1,549			4,255			2,208
Professional services expense		2,791			3,831			3,988			3,329			6,779			7,160
Advertising and marketing expense		1,729			652			2,301			875			4,030			1,527
Occupancy expense		2,327			2,112			2,773			2,224			5,100			4,336
Technology expense		6,053			4,878			5,762			5,131			11,815			10,009
Equipment expense		3,816			3,701			3,784			3,721			7,600			7,422
Other loan origination and maintenance expense		3,113			3,327			3,022			3,307			6,135			6,634
Renewable energy tax credit investment impairment		—			3,127			50			—			50			3,127
FDIC insurance		1,972			1,765			2,164			1,704			4,136			3,469
Contributions and donations								5,515			686			6,238			1,480
Other expense		3,509			2,854			2,886			2,132			5,672			4,192
Total noninterest expense		65,714			58,272			80,879			57,558			146,593			115,830
Income before taxes		42,897			43,608			122,317			76,169			165,214			119,777
Income tax expense		8,388			4,181			25,278			12,587			33,666			16,768
Net income	$	34,509		$	39,427		$	97,039		$	63,582		$	131,548		$	103,009
Basic earnings per share	$	0.79		$	0.92		$	2.22		$	1.48		$	3.01		$	2.40
Diluted earnings per share	$	0.76		$	0.88		$	2.16		$	1.41		$	2.92		$	2.29

For the three and six months ended ~~March 31,~~June 30, 2022 and 2021 (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 (loss)			equity			Class A		Class B			Amount			earnings			income (loss)			equity
Balance at December 31, 2021		43,494,046		125,024		$	312,294		$	400,893		$	1,946		$	715,133
Balance at March 31, 2022																			43,787,660		—		$	315,607		$	434,226		$	(36,506	)	$	713,327
Net income		—		—			—			34,509			—			34,509			—		—			—			97,039			—			97,039
Other comprehensive loss		—		—			—			—			(38,452	)		(38,452	)		—		—			—			—			(22,777	)		(22,777	)
Issuance of restricted stock		95,537		—			—			—			—			—			17,156		—			—			—			—			—
Tax withholding related to vesting of restricted stock and other		—		—			(2,894	)		—			—			(2,894	)		—		—			(197	)		—			—			(197	)
Employee stock purchase program		11,119		—			534			—			—			534
Stock option exercises		61,934		—			719			—			—			719			49,195		—			434			—			—			434
Stock option based compensation expense		—		—			391			—			—			391
Restricted stock expense		—		—			4,563			—			—			4,563
Stock option compensation expense																			—		—			234			—			—			234
Restricted stock compensation expense																			—		—			4,846			—			—			4,846
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense																			—		—			—			71			—			71
Cash dividends ($0.03 per share)																			—		—			—			(1,315	)		—			(1,315	)
Balance at June 30, 2022																			43,854,011		—		$	320,924		$	530,021		$	(59,283	)	$	791,662

Balance at March 31, 2021																			42,259,091		692,253		$	305,855		$	275,377		$	9,128		$	590,360
Net income																			—		—			—			63,582			—			63,582
Other comprehensive income																			—		—			—			—			3,995			3,995
Issuance of restricted stock																			124,607		—			—			—			—			—
Tax withholding related to vesting of restricted stock and other																			—		—			(5,713	)		—			—			(5,713	)
Stock option exercises																			188,509		—			951			—			—			951
Stock option compensation expense																			—		—			353			—			—			353
Restricted stock compensation expense																			—		—			3,767			—			—			3,767
Non-voting common stock converted to voting common stock in private sale		125,024		(125,024	)		—			—			—			—			181,926		(181,926	)		—			—			—			—
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense		—		—			—			136			—			136			—		—			—			1,349			—			1,349
Cash dividends ($0.03 per share)		—		—			—			(1,312	)		—			(1,312	)		—		—			—			(1,297	)		—			(1,297	)
Balance at March 31, 2022		43,787,660		—		$	315,607		$	434,226		$	(36,506	)	$	713,327

Balance at December 31, 2020		41,344,689		1,107,757		$	310,619		$	235,724		$	21,507		$	567,850
Net income		—		—			—			39,427			—			39,427
Other comprehensive loss		—		—			—			—			(12,379	)		(12,379	)
Issuance of restricted stock		292,216		—			—			—			—			—
Tax withholding related to vesting of restricted stock and other		—		—			(11,287	)		—			—			(11,287	)
Employee stock purchase program		5,686		—			296			—			—			296
Stock option exercises		200,996		—			1,213			—			—			1,213
Stock option based compensation expense		—		—			344			—			—			344
Restricted stock expense		—		—			4,670			—			—			4,670
Non-voting common stock converted to voting common stock in private sale		415,504		(415,504	)		—			—			—			—
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense		—		—			—			1,508			—			1,508
Cash dividends ($0.03 per share)		—		—			—			(1,282	)		—			(1,282	)
Balance at March 31, 2021		42,259,091		692,253		$	305,855		$	275,377		$	9,128		$	590,360
Balance at June 30, 2021																			42,754,133		510,327		$	305,213		$	339,011		$	13,123		$	657,347

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

	Six Months Ended
	Common stock											Accumulated other
	Shares								Retained			comprehensive			Total
	Class A		Class B			Amount			earnings			income (loss)			equity
Balance at December 31, 2021		43,494,046		125,024		$	312,294		$	400,893		$	1,946		$	715,133
Net income		—		—			—			131,548			—			131,548
Other comprehensive loss		—		—			—			—			(61,229	)		(61,229	)
Issuance of restricted stock		112,693		—			—			—			—			—
Tax withholding related to vesting of restricted stock and other		—		—			(3,091	)		—			—			(3,091	)
Employee stock purchase program		11,119		—			534			—			—			534
Stock option exercises		111,129		—			1,153			—			—			1,153
Stock option compensation expense		—		—			625			—			—			625
Restricted stock compensation expense		—		—			9,409			—			—			9,409
Non-voting common stock converted to voting common stock in private sale		125,024		(125,024	)		—			—			—			—
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense		—		—			—			207			—			207
Cash dividends ($0.06 per share)		—		—			—			(2,627	)		—			(2,627	)
Balance at June 30, 2022		43,854,011		—		$	320,924		$	530,021		$	(59,283	)	$	791,662

Balance at December 31, 2020		41,344,689		1,107,757		$	310,619		$	235,724		$	21,507		$	567,850
Net income		—		—			—			103,009			—			103,009
Other comprehensive loss		—		—			—			—			(8,384	)		(8,384	)
Issuance of restricted stock		416,823		—			—			—			—			—
Tax withholding related to vesting of restricted stock and other		—		—			(17,000	)		—			—			(17,000	)
Employee stock purchase program		5,686		—			296			—			—			296
Stock option exercises		389,505		—			2,164			—			—			2,164
Stock option compensation expense		—		—			697			—			—			697
Restricted stock compensation expense		—		—			8,437			—			—			8,437
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		—		—			—			2,857			—			2,857
Cash dividends ($0.06 per share)		—		—			—			(2,579	)		—			(2,579	)
Balance at June 30, 2021		42,754,133		510,327		$	305,213		$	339,011		$	13,123		$	657,347

For the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 (unaudited)

	Three Months Ended March 31,						Six Months Ended June 30,
	2022			2021			2022			2021
Cash flows from operating activities
Net income	$	34,509		$	39,427		$	131,548		$	103,009
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization		5,405			5,265			10,553			10,566
Provision for (recovery of) loan and lease credit losses		1,836			(873	)
Provision for loan and lease credit losses								7,103			6,973
Amortization of premium on securities, net of accretion		1,421			1,817			2,378			3,489
Deferred tax expense (benefit)		6,775			(3,984	)
Deferred tax expense								17,439			6,481
Originations of loans held for sale		(222,557	)		(253,588	)		(495,699	)		(654,707	)
Proceeds from sales of loans held for sale		349,364			182,685			529,989			456,873
Net gains on sale of loans held for sale		(20,977	)		(11,929	)		(26,607	)		(28,163	)
Net loss on sale of foreclosed assets		17			24
Net gain on loans accounted for under fair value option		(516	)		(4,218	)
Net increase in servicing assets		(2,712	)		(3,826	)
Net loss (gain) on sale of foreclosed assets								41			(100	)
Net loss (gain) on loans accounted for under fair value option								3,945			(5,353	)
Net decrease (increase) in servicing assets								4,913			(3,048	)
Net gain on disposal of long-lived asset		—			(114	)		—			(114	)
Net gain on disposal of property and equipment		—			(48	)
Net loss (gain) on disposal of property and equipment								22			(48	)
Impairment on premises and equipment, net		—			904			—			904
Equity method investments (income) loss		2,124			1,157			(116,932	)		3,435
Equity security investments (gains) losses, net		44			(105	)		(1,611	)		(44,358	)
Renewable energy tax credit investment impairment		—			3,127			50			3,127
Stock option based compensation expense		391			344
Restricted stock expense		4,563			4,670
Stock option compensation expense								625			697
Restricted stock compensation expense								9,409			8,437
Stock based compensation excess tax benefit		1,119			5,152			1,106			8,430
Changes in assets and liabilities:
Lease right-of-use assets and liabilities, net		(12	)		(1	)		569			(2	)
Other assets		(3,095	)		2,699			(11,017	)		4,626
Other liabilities		(1,260	)		(5,406	)		9,847			(185	)
Net cash provided (used) by operating activities		156,439			(36,821	)		77,671			(119,031	)
Cash flows from investing activities
Purchases of securities available-for-sale		(37,837	)		(108,223	)		(200,285	)		(212,935	)
Proceeds from sales, maturities, calls, and principal paydown of securities available-for-sale		47,297			65,039			95,429			130,617
Proceeds from SBA reimbursement/sale of foreclosed assets, net		333			152			333			3,141
Maturities of certificates of deposits with other banks		500			—			500			500
Loan and lease originations and principal collections, net		(243,463	)		(121,814	)		(449,892	)		38,141
Proceeds from sale of long-lived asset		—			8,988			—			8,988
Proceeds from sale of equity security investment								—			15,000
Proceeds from sale of equity method investment								125,321			—
Proceeds from sale of premises and equipment		—			84			2			84
Purchases of premises and equipment, net		(20,036	)		(674	)		(28,231	)		(1,232	)
Net cash used by investing activities		(253,206	)		(156,448	)		(456,823	)		(17,696	)

For the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 (unaudited)

	Three Months Ended March 31,						Six Months Ended June 30,
	2022			2021			2022			2021
Cash flows from financing activities
Net increase in deposits	$	525,119		$	603,176		$	1,043,700		$	808,005
Proceeds from borrowings		12,026			498,666			12,051			594,791
Repayment of borrowings		(133,404	)		(580,291	)		(244,131	)		(1,128,446	)
Stock option exercises		719			1,213			1,153			2,164
Employee stock purchase program		534			296			534			296
Withholding cash issued in lieu of restricted stock and other		(2,894	)		(11,287	)		(3,091	)		(17,000	)
Shareholder dividend distributions		(1,312	)		(1,282	)		(2,627	)		(2,579	)
Net cash provided by financing activities		400,788			510,491			807,589			257,231
Net increase in cash and cash equivalents		304,021			317,222			428,437			120,504
Cash and cash equivalents, beginning		203,750			318,320			203,750			318,320
Cash and cash equivalents, ending	$	507,771		$	635,542		$	632,187		$	438,824

Supplemental disclosures of cash flow information
Interest paid	$	15,263		$	18,469		$	34,850		$	35,687
Income tax paid, net		8			354			6,778			9,043

Supplemental disclosures of noncash operating, investing, and financing activities
Unrealized holding losses on available-for-sale securities, net of taxes	$	(38,452	)	$	(12,379	)	$	(61,229	)	$	(8,384	)
Transfers from loans and leases to foreclosed real estate and other repossessions or SBA receivable		6,692			2,246			11,278			9,837
Net transfers between foreclosed real estate and SBA receivable		72			196			55			150
Transfer of loans held for sale to loans and leases held for investment		70,649			176,285			88,915			434,322
Transfer of loans and leases held for investment to loans held for sale		110,452			24,260			227,705			156,698
Transfer from retained earnings to other assets for pro rata portion of equity method investee stock compensation expense		136			1,508			207			2,857
Recording of secured borrowing		—			5,493			—			3,993
Equity method investment commitments		10,971			—			10,566			—
Equity security investment commitments		500			1,500			415			2,250

Live Oak Bancshares, Inc. (collectively with its subsidiaries including Live Oak Banking Company, the “Company”) 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 lending and deposit related services to small businesses nationwide. The Bank identifies and 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’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~~include the Bank, Government Loan Solutions, Inc. (“GLS”), Live Oak Grove, LLC (“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”). Live Oak Number One, Inc. holds properties foreclosed on by the Bank. LOCEF provides financing to entities for renewable energy applications. Live Oak Private Wealth provides high-net-worth individuals and families with strategic wealth and investment management services. During the first quarter of 2022, Jolley Asset Management, LLC (“JAM”) was merged into Live Oak Private Wealth. JAM was previously a wholly owned subsidiary of Live Oak Private Wealth.

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 funds focused on providing venture capital to new and emerging financial technology companies.

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. Income from the sale of loans is comprised of net gains on sales of loans along with loan servicing revenue and revaluation of related servicing assets. 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 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 three and six months ended ~~March 31,~~June 30, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022. The Unaudited Condensed Consolidated Balance Sheet as of December 31, 2021 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, 2021, filed with the Securities Exchange Commission on February 24, 2022 (SEC File No. 001-37497) (the "2021 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 2021 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 2021 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, 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 two ~~significant~~reportable operating segments: Banking and Fintech, as discussed more fully in Note 11. Segments. In determining the appropriateness of a segment definition, the Company considers the criteria of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting.

Certain reclassifications have been made to the prior period’s unaudited condensed 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.

In March 2020, the FASB issued Accounting Standards Update (“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 expect this standard will have a material impact on its consolidated financial statements. To address the discontinuance of LIBOR, the Company has stopped originating variable LIBOR-based loans effective December 31, 2021 and has started to negotiate loans using the preferred replacement index, the Secured Overnight Financing Rate (“SOFR”) or a relevant duration U.S. Treasury rate. For currently outstanding LIBOR-based loans, the timing and manner in which each customer’s contract transitions from LIBOR to another rate will vary on a case-by-case basis. The Company expects to complete all transitions by the second quarter of 2023 or at the next repricing date if later in 2023.

In March 2022, the FASB issued ASU No. 2022-02 “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures” (“ASU 2022-02”). ASU 2022-02 eliminates the accounting guidance for TDRs by creditors in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. Additionally, for public business entities, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. The amendments in this standard will be effective for the Company on January 1, 2023. The Company does not believe this standard will have a material impact on its consolidated financial statements.

In June 2022, the FASB issued ASU No. 2022-03 “Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Restrictions” (“ASU 2022-03”). ASU 2022-03 indicates a contractual sale restriction on equity securities should not be considered in measuring fair value, however, disclosure should be made about such restrictions. The amendments in this standard will be effective for the Company on January 1, 2024. 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 share in the net income of the Company.

	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2022		2021
Basic earnings per share:
Net income	$	34,509	$	39,427	$	97,039	$	63,582	$	131,548	$	103,009
Weighted-average basic shares outstanding		43,701,943		42,673,615		43,824,707		43,173,312		43,763,681		42,924,844
Basic earnings per share	$	0.79	$	0.92	$	2.22	$	1.48	$	3.01	$	2.40
Diluted earnings per share:
Net income, for diluted earnings per share	$	34,509	$	39,427	$	97,039	$	63,582	$	131,548	$	103,009
Total weighted-average basic shares outstanding		43,701,943		42,673,615		43,824,707		43,173,312		43,763,681		42,924,844
Add effect of dilutive stock options and restricted stock grants		1,525,593		2,023,235		978,571		1,889,080		1,252,082		1,956,158
Total weighted-average diluted shares outstanding		45,227,536		44,696,850		44,803,278		45,062,392		45,015,763		44,881,002
Diluted earnings per share	$	0.76	$	0.88	$	2.16	$	1.41	$	2.92	$	2.29
Anti-dilutive shares		172,631		—		869,753		9,319		869,753		9,319

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

March 31, 2022	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2022									Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
US government agencies	$	10,445	$	58	$	—	$	10,503	$	17,446	$	12	$	71	$	17,387
Mortgage-backed securities		876,426		2,961		51,165		828,222		982,788		503		78,365		904,926
Municipal bonds		3,240		117		5		3,352		3,235		—		70		3,165
Other debt securities		2,500		—		—		2,500		2,500		—		10		2,490
Total	$	892,611	$	3,136	$	51,170	$	844,577	$	1,005,969	$	515	$	78,516	$	927,968

December 31, 2021
US government agencies	$	10,444	$	193	$	—	$	10,637	$	10,444	$	193	$	—	$	10,637
Mortgage-backed securities		887,302		14,246		12,209		889,339		887,302		14,246		12,209		889,339
Municipal bonds		3,246		333		3		3,576		3,246		333		3		3,576
Other debt securities		2,500		—		—		2,500		2,500		—		—		2,500
Total	$	903,492	$	14,772	$	12,212	$	906,052	$	903,492	$	14,772	$	12,212	$	906,052

During the three months ended ~~March 31,~~June 30, 2022, 9 mortgage-backed securities totaling ~~$13.9~~$18.8 million were settled. During the three months ended ~~March 31,~~June 30, 2021, 21 US government agency matured at $5.0 million and 4 mortgage-backed securities totaling ~~$6.5~~$10.4 million were settled.

During the six months ended June 30, 2022, 18 mortgage-backed securities totaling $32.7 million were settled. During the six months ended June 30, 2021, 1 US government agency matured at $5.0 million and 6 mortgage-backed securities totaling $16.9 million were settled.

Accrued interest receivable on available-for-sale securities totaled ~~$2.0~~$2.3 million and $1.9 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, and is included in other assets in the accompanying 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.

	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
March 31, 2022	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2022													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
US government agencies													$	9,375	$	71	$	—	$	—	$	9,375	$	71
Mortgage-backed securities	$	472,660	$	32,492	$	184,166	$	18,673	$	656,826	$	51,165		637,947		44,226		216,231		34,139		854,178		78,365
Municipal bonds		—		—		94		5		94		5		3,072		64		93		6		3,165		70
Other debt securities														490		10		—		—		490		10
Total	$	472,660	$	32,492	$	184,260	$	18,678	$	656,920	$	51,170	$	650,884	$	44,371	$	216,324	$	34,145	$	867,208	$	78,516

	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
December 31, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities	$	479,322	$	8,503	$	110,633	$	3,706	$	589,955	$	12,209	$	479,322	$	8,503	$	110,633	$	3,706	$	589,955	$	12,209
Municipal bonds		—		—		96		3		96		3		—		—		96		3		96		3
Total	$	479,322	$	8,503	$	110,729	$	3,709	$	590,051	$	12,212	$	479,322	$	8,503	$	110,729	$	3,709	$	590,051	$	12,212

Management evaluates available-for-sale debt securities to determine whether the unrealized loss is due to credit-related factors or 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 ~~March 31,~~June 30, 2022, there were NaN mortgage-backed securities and 1 municipal bond in unrealized loss positions for greater than 12 ~~months~~months. There were 3 US government agency securities, NaN mortgage-backed securities, 1 municipal bond, and ~~190 mortgage-backed securities~~1 other debt security in unrealized loss positions for less than 12 months. Unrealized losses at December 31, 2021 were comprised of NaN 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.

These unrealized losses are primarily the result of 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 Unaudited Condensed Consolidated Statements of Income.

All mortgage-backed securities in the Company’s portfolio at ~~March 31,~~June 30, 2022 and December 31, 2021 were backed by U.S. government sponsored enterprises (“GSEs”).

	March 31, 2022				June 30, 2022
	Available-for-Sale				Available-for-Sale
	Amortized cost		Fair value		Amortized cost		Fair value
US government agencies
Within one year	$	7,505	$	7,542	$	7,503	$	7,502
One to five years		2,940		2,961		9,943		9,885
Total		10,445		10,503		17,446		17,387
Mortgage-backed securities
Within one year		201		201
One to five years		79,667		79,248		121,946		117,826
Five to ten years		248,563		236,614		224,820		206,806
After 10 years		547,995		512,159		636,022		580,294
Total		876,426		828,222		982,788		904,926
Municipal bonds
Five to ten years						3,136		3,072
After 10 years		3,240		3,352		99		93
Total		3,240		3,352		3,235		3,165
Other debt securities
Within one year		500		500		500		490
One to five years		2,000		2,000		2,000		2,000
Total		2,500		2,500		2,500		2,490

Total	$	892,611	$	844,577	$	1,005,969	$	927,968

Mortgage-backed securities are included in maturity categories based on their contractual maturity date. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

There were 0 securities pledged at ~~March 31,~~June 30, 2022 or December 31, 2021.

Other investments, largely comprised of non-marketable equity investments, are generally accounted for under the equity method or equity security accounting and are included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. 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 ~~March 31,~~June 30, 2022 and December 31, 2021 is reflected in the following table:

	March 31, 2022					December 31, 2021					June 30, 2022					December 31, 2021
	Amount		Ownership %			Amount		Ownership %			Amount		Ownership %			Amount		Ownership %
Apiture, Inc.	$	51,211		39.1	%	$	52,323		39.1	%	$	63,402		40.3	%	$	52,323		39.1	%
Canapi Ventures SBIC Fund, LP ^{(1) (4)}		19,058		2.9	%		19,431		2.9	%		19,435		2.9	%		19,431		2.9	%
Canapi Ventures Fund, LP ^{(2) (4)}		2,350		1.5	%		2,402		1.5	%		2,407		1.5	%		2,402		1.5	%
Canapi Ventures Fund II, LP ^{(3) (4)}		7,500		1.7	%		—	N/A				7,500		1.7	%		—	N/A
Other fintech investments in private companies ⁽⁵⁾		5,077	Various				5,330	Various				248	Various				5,330	Various
Other ⁽⁶⁾		12,370	Various				4,664	Various				12,284	Various				4,664	Various
Total	$	97,566				$	84,150				$	105,276				$	84,150

The carrying amount of the Company’s investments in non-marketable equity securities with no readily determinable fair value and amounts recognized in earnings on a cumulative basis as of ~~March 31,~~June 30, 2022 and as of and for the ~~quarters~~six months ended ~~March 31,~~June 30, 2022 and 2021 is reflected in the following table:

				As of and for the three month period ended							As of and for the six month period ended
	Cumulative Adjustments			2022		2021		Cumulative Adjustments			June 30, 2022		June 30, 2021
Carrying value ⁽¹⁾				$	64,728	$	32,527				$	72,760	$	62,341
Carrying value adjustments:
Impairment	$	—			—		—	$	—			—		—
Upward changes for observable prices ⁽²⁾		48,469			—		—		49,961			1,492		30,197
Downward changes for observable prices		(86	)		—		—		(86	)		—		—
Net upward change	$	48,383		$	—	$	—	$	49,875		$	1,492	$	30,197

For the three and six months ended June 30, 2022, the Company recognized unrealized gains on all equity securities held at the reporting date of $1.5 million and $1.4 million, respectively. For the three and six months ended June 30, 2021, the Company recognized unrealized gains on all equity securities held at the reporting date of $30.2 million.

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 Cost			Loans Accounted for Under the Fair Value Option¹			Total Loans and Leases
March 31, 2022
June 30, 2022
Commercial & Industrial
Small Business Banking	$	1,181,570	$	6,200	$	10,291	$	16,491	$	1,198,061	$	230,009	$	1,428,070		$	1,232,869		$	5,399		$	13,240		$	18,639		$	1,251,508		$	210,986		$	1,462,494
Specialty Lending		1,024,894		331		—		331		1,025,225		60,646		1,085,871			1,122,411			554			166			720			1,123,131			56,441			1,179,572
Paycheck Protection Program		132,876		—		1,414		1,414		134,290		—		134,290			63,851			14			10			24			63,875			—			63,875
Total		2,339,340		6,531		11,705		18,236		2,357,576		290,655		2,648,231			2,419,131			5,967			13,416			19,383			2,438,514			267,427			2,705,941
Construction & Development
Small Business Banking		308,995		2,670		1,366		4,036		313,031		—		313,031			323,530			—			1,366			1,366			324,896			—			324,896
Specialty Lending		79,994		—		—		—		79,994		—		79,994			98,298			—			—			—			98,298			—			98,298
Total		388,989		2,670		1,366		4,036		393,025		—		393,025			421,828			—			1,366			1,366			423,194			—			423,194
Commercial Real Estate
Small Business Banking		1,661,997		7,159		9,507		16,666		1,678,663		235,524		1,914,187			1,722,856			7,609			1,204			8,813			1,731,669			199,197			1,930,866
Specialty Lending		339,775		—		1,718		1,718		341,493		17,179		358,672			365,214			—			1,631			1,631			366,845			19,879			386,724
Total		2,001,772		7,159		11,225		18,384		2,020,156		252,703		2,272,859			2,088,070			7,609			2,835			10,444			2,098,514			219,076			2,317,590
Commercial Land
Small Business Banking		369,012		180		2,055		2,235		371,247		57,213		428,460			371,299			—			1,917			1,917			373,216			44,141			417,357
Total		369,012		180		2,055		2,235		371,247		57,213		428,460			371,299			—			1,917			1,917			373,216			44,141			417,357
Total	$	5,099,113	$	16,540	$	26,351	$	42,891	$	5,142,004	$	600,571	$	5,742,575		$	5,300,328		$	13,576		$	19,534		$	33,110		$	5,333,438		$	530,644		$	5,864,082
Net deferred fees														(4,334	)																				(3,873	)
Loans and Leases, Net													$	5,738,241																				$	5,860,209

Guaranteed Balance																$	1,903,647		$	11,105		$	14,428		$	25,533		$	1,929,180		$	58,045		$	1,987,225
% Guaranteed																	35.9	%		81.8	%		73.9	%		77.1	%		36.2	%		10.9	%		33.9	%

	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 Cost			Loans Accounted for Under the Fair Value Option¹			Total Loans and Leases
December 31, 2021
Commercial & Industrial
Small Business Banking	$	1,103,915	$	13,171	$	7,320	$	20,491	$	1,124,406	$	248,806	$	1,373,212		$	1,103,915		$	13,171		$	7,320		$	20,491		$	1,124,406		$	248,806		$	1,373,212
Specialty Lending		875,367		—		—		—		875,367		64,525		939,892			875,367			—			—			—			875,367			64,525			939,892
Paycheck Protection Program		266,893		68		1,414		1,482		268,375		—		268,375			266,893			68			1,414			1,482			268,375			—			268,375
Total		2,246,175		13,239		8,734		21,973		2,268,148		313,331		2,581,479			2,246,175			13,239			8,734			21,973			2,268,148			313,331			2,581,479
Construction & Development
Small Business Banking		275,786		—		1,366		1,366		277,152		—		277,152			275,786			—			1,366			1,366			277,152			—			277,152
Specialty Lending		82,014		—		—		—		82,014		—		82,014			82,014			—			—			—			82,014			—			82,014
Total		357,800		—		1,366		1,366		359,166		—		359,166			357,800			—			1,366			1,366			359,166			—			359,166
Commercial Real Estate
Small Business Banking		1,577,765		5,802		10,761		16,563		1,594,328		250,856		1,845,184			1,577,765			5,802			10,761			16,563			1,594,328			250,856			1,845,184
Specialty Lending		285,373		—		2,315		2,315		287,688		19,481		307,169			285,373			—			2,315			2,315			287,688			19,481			307,169
Total		1,863,138		5,802		13,076		18,878		1,882,016		270,337		2,152,353			1,863,138			5,802			13,076			18,878			1,882,016			270,337			2,152,353
Commercial Land
Small Business Banking		362,881		7,399		2,055		9,454		372,335		61,533		433,868			362,881			7,399			2,055			9,454			372,335			61,533			433,868
Total		362,881		7,399		2,055		9,454		372,335		61,533		433,868			362,881			7,399			2,055			9,454			372,335			61,533			433,868
Total	$	4,829,994	$	26,440	$	25,231	$	51,671	$	4,881,665	$	645,201	$	5,526,866		$	4,829,994		$	26,440		$	25,231		$	51,671		$	4,881,665		$	645,201		$	5,526,866
Net deferred fees														(5,604	)																				(5,604	)
Loans and Leases, Net													$	5,521,262																				$	5,521,262

Guaranteed Balance																$	2,037,509		$	18,421		$	16,440		$	34,861		$	2,072,370		$	77,722		$	2,150,092
% Guaranteed																	42.2	%		69.7	%		65.2	%		67.5	%		42.5	%		12.0	%		38.9	%

The following tables present asset quality indicators by portfolio class and origination year. See Note 3. Loans and Leases Held for Investment and Credit Quality in the Company’s 2021 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
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total^1,2		2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total¹
March 31, 2022
June 30, 2022
Small Business Banking
Risk Grades 1 - 4	$	228,645	$	1,095,845	$	831,655	$	511,688	$	264,712	$	270,411	$	57,223	$	384	$	3,260,563	$	518,034	$	1,108,441	$	754,628	$	486,036	$	237,809	$	245,570	$	59,148	$	373	$	3,410,039
Risk Grade 5		—		7,048		30,708		58,116		60,421		53,324		2,882		350		212,849		3,925		8,839		39,239		44,173		41,524		46,087		2,755		—		186,542
Risk Grades 6 - 8		—		4,351		5,123		24,891		13,315		38,604		1,306		—		87,590		1,055		2,147		12,473		23,155		13,046		30,637		2,021		174		84,708
Total		228,645		1,107,244		867,486		594,695		338,448		362,339		61,411		734		3,561,002		523,014		1,119,427		806,340		553,364		292,379		322,294		63,924		547		3,681,289
Specialty Lending
Risk Grades 1 - 4		174,145		634,405		233,734		68,634		42,605		41,474		139,641		124		1,334,762		318,872		626,731		228,784		66,903		32,854		26,602		157,375		5,279		1,463,400
Risk Grade 5		—		22,300		28,236		22,191		10,067		11,042		4,116		—		97,952		—		23,832		31,290		21,965		9,830		10,817		9,348		—		107,082
Risk Grades 6 - 8		—		236		17		3,079		8,944		1,718		4		—		13,998		—		4,398		17		2,993		8,728		1,631		25		—		17,792
Total		174,145		656,941		261,987		93,904		61,616		54,234		143,761		124		1,446,712		318,872		654,961		260,091		91,861		51,412		39,050		166,748		5,279		1,588,274
Paycheck Protection Program
Risk Grades 1 - 4		—		100,841		33,449		—		—		—		—		—		134,290		—		51,883		11,992		—		—		—		—		—		63,875
Risk Grade 5		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Risk Grades 6 - 8		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total		—		100,841		33,449		—		—		—		—		—		134,290		—		51,883		11,992		—		—		—		—		—		63,875
Total	$	402,790	$	1,865,026	$	1,162,922	$	688,599	$	400,064	$	416,573	$	205,172	$	858	$	5,142,004	$	841,886	$	1,826,271	$	1,078,423	$	645,225	$	343,791	$	361,344	$	230,672	$	5,826	$	5,333,438

	2021		2020		2019		2018		2017		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		Total¹
December 31, 2021
Small Business Banking
Risk Grades 1 - 4	$	1,051,775	$	853,250	$	522,407	$	285,397	$	188,858	$	116,645	$	46,356	$	1,771	$	3,066,459	$	1,051,775	$	853,250	$	522,407	$	285,397	$	188,858	$	116,645	$	46,356	$	1,771	$	3,066,459
Risk Grade 5		7,838		19,651		65,715		60,615		37,661		13,933		5,066		195		210,674		7,838		19,651		65,715		60,615		37,661		13,933		5,066		195		210,674
Risk Grades 6 - 8		2,517		8,667		27,696		14,545		14,193		21,239		1,457		774		91,088		2,517		8,667		27,696		14,545		14,193		21,239		1,457		774		91,088
Total		1,062,130		881,568		615,818		360,557		240,712		151,817		52,879		2,740		3,368,221		1,062,130		881,568		615,818		360,557		240,712		151,817		52,879		2,740		3,368,221
Specialty Lending
Risk Grades 1 - 4		644,851		238,409		73,978		42,452		38,703		—		133,889		1,816		1,174,098		644,851		238,409		73,978		42,452		38,703		—		133,889		1,816		1,174,098
Risk Grade 5		2,250		17,677		5,497		10,415		17,104		—		2,953		848		56,744		2,250		17,677		5,497		10,415		17,104		—		2,953		848		56,744
Risk Grades 6 - 8		—		17		3,166		8,654		—		2,315		75				14,227		—		17		3,166		8,654		—		2,315		75				14,227
Total		647,101		256,103		82,641		61,521		55,807		2,315		136,917		2,664		1,245,069		647,101		256,103		82,641		61,521		55,807		2,315		136,917		2,664		1,245,069
Paycheck Protection Program
Risk Grades 1 - 4		204,803		63,572		—		—		—		—		—		—		268,375		204,803		63,572		—		—		—		—		—		—		268,375
Risk Grade 5		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Risk Grades 6 - 8		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total		204,803		63,572		—		—		—		—		—		—		268,375		204,803		63,572		—		—		—		—		—		—		268,375
Total	$	1,914,034	$	1,201,243	$	698,459	$	422,078	$	296,519	$	154,132	$	189,796	$	5,404	$	4,881,665	$	1,914,034	$	1,201,243	$	698,459	$	422,078	$	296,519	$	154,132	$	189,796	$	5,404	$	4,881,665

The following tables present guaranteed and unguaranteed loan and lease balances by asset quality indicator:

As of ~~March 31,~~June 30, 2022 and December 31, 2021 there were 0 loans greater than 90 days past due and still accruing. There was 0no interest income recognized on nonaccrual loans and leases during the three and six months ended ~~March 31,~~June 30, 2022 and 2021. Nonaccrual loans and leases are generally included in the held for investment portfolio. Accrued interest receivable on loans totaled ~~$31.2~~$33.1 million and $31.0 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, and is included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

Nonaccrual loans and leases held for investment as of ~~March 31,~~June 30, 2022 and December 31, 2021 are as follows:

March 31, 2022	Loan and Lease Balance¹		Guaranteed Balance		Unguaranteed Balance		Unguaranteed Exposure with No ACL
June 30, 2022									Loan and Lease Balance¹		Guaranteed Balance		Unguaranteed Balance		Unguaranteed Exposure with No ACL
Commercial & Industrial
Small Business Banking	$	15,892	$	12,639	$	3,253	$	407	$	19,763	$	16,542	$	3,221	$	407
Specialty Lending										166		166		—		—
Payroll Protection Program		1,414		1,414		—		—		24		24		—		—
Total		17,306		14,053		3,253		407		19,953		16,732		3,221		407
Construction & Development
Small Business Banking		4,037		1,201		2,836		2,344		1,366		1,201		165		—
Total		4,037		1,201		2,836		2,344		1,366		1,201		165		—
Commercial Real Estate
Small Business Banking		20,130		10,876		9,254		5,816		17,708		11,925		5,783		3,519
Specialty Lending		1,718		—		1,718		1,718		1,631		—		1,631		1,631
Total		21,848		10,876		10,972		7,534		19,339		11,925		7,414		5,150
Commercial Land
Small Business Banking		9,112		6,699		2,413		827		5,110		3,936		1,174		196
Total		9,112		6,699		2,413		827		5,110		3,936		1,174		196
Total	$	52,303	$	32,829	$	19,474	$	11,112	$	45,768	$	33,794	$	11,974	$	5,753

December 31, 2021	Loan and Lease Balance¹		Guaranteed Balance		Unguaranteed Balance		Unguaranteed Exposure with No ACL
Commercial & Industrial
Small Business Banking	$	16,911	$	13,981	$	2,930	$	—
Payroll Protection Program		1,482		1,482		—		—
Total		18,393		15,463		2,930		—
Construction & Development
Small Business Banking		3,884		1,201		2,683		—
Total		3,884		1,201		2,683		—
Commercial Real Estate
Small Business Banking		12,410		5,226		7,184		5,169
Specialty Lending		2,315		507		1,808		1,808
Total		14,725		5,733		8,992		6,977
Commercial Land
Small Business Banking		5,531		4,148		1,383		—
Total		5,531		4,148		1,383		—
Total	$	42,533	$	26,545	$	15,988	$	6,977

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 ~~March 31,~~June 30, 2022 and December 31, 2021:

	Total Collateral Dependent Loans						Unguaranteed Portion								Total Collateral Dependent Loans						Unguaranteed Portion
March 31, 2022	Real Estate		Business Assets		Other		Real Estate		Business Assets		Other		Allowance for Credit Losses
June 30, 2022															Real Estate		Business Assets		Other		Real Estate		Business Assets		Other		Allowance for Credit Losses
Commercial & Industrial
Small Business Banking	$	—	$	7,466	$	34	$	—	$	2,051	$	34	$	1,631	$	2,730	$	9,770	$	25	$	414	$	2,061	$	25	$	1,631
Total		—		7,466		34		—		2,051		34		1,631		2,730		9,770		25		414		2,061		25		1,631
Construction & Development
Small Business Banking		4,011		—		—		2,810		—		—		180		1,354		—		—		153		—		—		56
Total		4,011		—		—		2,810		—		—		180		1,354		—		—		153		—		—		56
Commercial Real Estate
Small Business Banking		5,028		1,751		103		3,968		451		23		280		836		1,192		39		194		18		9		73
Total		5,028		1,751		103		3,968		451		23		280		836		1,192		39		194		18		9		73
Commercial Land
Small Business Banking		5,812		—		—		1,596		—		—		376		1,922		—		—		382		—		—		61
Total		5,812		—		—		1,596		—		—		376		1,922		—		—		382		—		—		61
Total	$	14,851	$	9,217	$	137	$	8,374	$	2,502	$	57	$	2,467	$	6,842	$	10,962	$	64	$	1,143	$	2,079	$	34	$	1,821

	Total Collateral Dependent Loans						Unguaranteed Portion
December 31, 2021	Real Estate		Business Assets		Other		Real Estate		Business Assets		Other		Allowance for Credit Losses
Commercial & Industrial
Small Business Banking	$	698	$	7,475	$	—	$	152	$	449	$	—	$	235
Total		698		7,475		—		152		449		—		235
Construction & Development
Specialty Lending		3,858		—		—		2,657		—		—		57
Total		3,858		—		—		2,657		—		—		57
Commercial Real Estate
Small Business Banking		5,172		700		64		4,038		14		13		65
Specialty Lending		512		—		—		6		—		—		—
Total		5,684		700		64		4,044		14		13		65
Commercial Land
Small Business Banking		5,541		—		—		1,393		—		—		601
Total		5,541		—		—		1,393		—		—		601
Total	$	15,781	$	8,175	$	64	$	8,246	$	463	$	13	$	958

See Note 1. Organization and Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements in the Company’s 2021 Form 10-K for a description of the methodologies used to estimate the allowance for credit losses (“ACL”).

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

Three Months Ended	Commercial & Industrial			Construction & Development		Commercial Real Estate			Commercial Land			Total			Commercial & Industrial			Construction & Development			Commercial Real Estate			Commercial Land			Total
March 31, 2022
June 30, 2022
Beginning Balance	$	37,770		$	3,435	$	19,068		$	3,311		$	63,584		$	34,162		$	4,102		$	21,614		$	3,180		$	63,058
Charge offs		(2,823	)		—		—			(334	)		(3,157	)		(1,812	)		—			(433	)		(318	)		(2,563	)
Recoveries		145			—		650			—			795			35			—			66			—			101
Provision		(930	)		667		1,896			203			1,836			8,793			(598	)		(3,407	)		479			5,267
Ending Balance	$	34,162		$	4,102	$	21,614		$	3,180		$	63,058		$	41,178		$	3,504		$	17,840		$	3,341		$	65,863
March 31, 2021
June 30, 2021
Beginning Balance	$	26,941		$	5,663	$	18,148		$	1,554		$	52,306		$	26,577		$	5,887		$	18,646		$	1,307		$	52,417
Charge offs		(152	)		—		(517	)		(12	)		(681	)		(225	)		(262	)		(2,173	)		—			(2,660	)
Recoveries		9			—		1,656			—			1,665			137			—			108			—			245
Provision		(221	)		224		(641	)		(235	)		(873	)		950			607			5,582			707			7,846
Ending Balance	$	26,577		$	5,887	$	18,646		$	1,307		$	52,417		$	27,439		$	6,232		$	22,163		$	2,014		$	57,848

Six Months Ended	Commercial & Industrial			Construction & Development			Commercial Real Estate			Commercial Land			Total
June 30, 2022
Beginning Balance	$	37,770		$	3,435		$	19,068		$	3,311		$	63,584
Charge offs		(4,635	)		—			(433	)		(652	)		(5,720	)
Recoveries		180			—			716			—			896
Provision		7,863			69			(1,511	)		682			7,103
Ending Balance	$	41,178		$	3,504		$	17,840		$	3,341		$	65,863
June 30, 2021
Beginning Balance	$	26,941		$	5,663		$	18,148		$	1,554		$	52,306
Charge offs		(377	)		(262	)		(2,690	)		(12	)		(3,341	)
Recoveries		146			—			1,764			—			1,910
Provision		729			831			4,941			472			6,973
Ending Balance	$	27,439		$	6,232		$	22,163		$	2,014		$	57,848

During the three and six months ended ~~March 31,~~June 30, 2022, the ACL ~~decreased~~increased primarily as a result of ~~the charge-off of one large relationship as well as continued improvements in~~charge-offs that contributed to increased loss given default rates. Loss rates are adjusted for twelve month forecasted unemployment ~~and default expectations. These decreases were offset by overall loan growth. 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 ~~months~~and six month periods ended ~~March 31,~~June 30, 2021, 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 ~~recoveries~~charge-offs during the ~~periods.~~period.

Loss rates are adjusted for twelve month forecasted unemployment followed by a twelve-month straight-line reversion period.

The following tables represent the types of loans modified as troubled debt restructurings (“TDRs”) during the periods presented:

	Three Months Ended March 31, 2022																				Three Months Ended June 30, 2022
	Interest Only				Payment Deferral				Extend Amortization				Other				Total TDRs⁽¹⁾				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		Number of Loans		Recorded investment at period end		Number of Loans		Recorded investment at period end
Commercial & Industrial
Small Business Banking		—	$	—		2	$	1,015		1	$	350		3	$	3,809		6	$	5,174
Total		—		—		2		1,015		1		350		3		3,809		6		5,174
Commercial Real Estate
Small Business Banking		—		—		—		—		—		—		1		4,847		1		4,847
Specialty Lending																						—	$	—		1	$	734		—	$	—		—	$	—		1	$	734
Total		—		—		—		—		—		—		1		4,847		1		4,847		—		—		1		734		—		—		—		—		1		734
Total		—	$	—		2	$	1,015		1	$	350		4	$	8,656		7	$	10,021		—	$	—		1	$	734		—	$	—		—	$	—		1	$	734

	Three Months Ended March 31, 2021																				Six Months Ended June 30, 2022
	Interest Only				Payment Deferral				Extend Amortization				Other				Total TDRs⁽¹⁾				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		Number of Loans		Recorded investment at period end
Commercial & Industrial
Small Business Banking		—	$	—		1	$	3,269		—	$	—		—	$	—		1	$	3,269		—	$	—		3	$	3,119		2	$	1,528		1	$	527		6	$	5,174
Specialty Lending																						—		—		1		734		—		—		—		—		1		734
Total		—		—		1		3,269		—		—		—		—		1		3,269		—		—		4		3,853		2		1,528		1		527		7		5,908
Commercial Real Estate
Small Business Banking		—		—		1		629		—		—		1		3,141		2		3,770		—		—		—		—		1		4,847		—		—		1		4,847
Total		—		—		1		629		—		—		1		3,141		2		3,770		—		—		—		—		1		4,847		—		—		1		4,847
Total		—	$	—		2	$	3,898		—	$	—		1	$	3,141		3	$	7,039		—	$	—		4	$	3,853		3	$	6,375		1	$	527		8	$	10,755

	Three Months Ended June 30, 2021
	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		—	$	—		2	$	2,887		—	$	—		—	$	—		2	$	2,887
Total		—		—		2		2,887		—		—		—		—		2		2,887
Commercial Real Estate
Small Business Banking		—		—		3		3,732		—		—		—		—		3		3,732
Total		—		—		3		3,732		—		—		—		—		3		3,732
Total		—	$	—		5	$	6,619		—	$	—		—	$	—		5	$	6,619

	Six Months Ended June 30, 2021
	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
Commercial & Industrial
Small Business Banking		—	$	—		3	$	6,097		—	$	—		—	$	—		3	$	6,097
Total		—		—		3		6,097		—		—		—		—		3		6,097
Commercial Real Estate
Small Business Banking		—		—		4		3,782		—		—		1		3,124		5		6,906
Total		—		—		4		3,782		—		—		1		3,124		5		6,906
Total		—	$	—		7	$	9,879		—	$	—		1	$	3,124		8	$	13,003

(1) Includes one small business banking loan with extend amortization and a rate concession TDR.

Concessions made to improve a loan and lease’s performance have varying degrees of success. ~~There were 0~~NaN TDRs that were modified within the twelve months ended ~~March 31,~~June 30, 2022 ~~that~~ subsequently defaulted during the three months ended ~~March 31,~~June 30, 2022. ~~NaN~~The 2 TDR defaults were Commercial & Industrial Small Business Banking loans. One of the defaults had previously been modified to extend amortization and had a recorded investment of $349 thousand at June 30, 2022. The second default had previously been modified for a payment deferral and had a recorded investment of $2.1 million at June 30, 2022. There was 1 TDR that was modified within the twelve months ended ~~March 31,~~June 30, 2022 that subsequently defaulted during the six months ended June 30, 2022. The TDR had previously been modified for a payment deferral and had a recorded investment of $633 thousand at June 30, 2022.

NaN TDRs that were modified within the twelve months ended June 30, 2021 subsequently defaulted during the three months ended ~~March 31,~~June 30, 2021. NaN TDR that was modified within the twelve months ended June 30, 2021 subsequently defaulted during the six months ended June 30, 2021. The TDR that defaulted was a Commercial Real Estate Small Business Banking loan that had previously been modified for a payment deferral and had a recorded investment of ~~$629~~$50 thousand at ~~March 31,~~June 30, 2021.

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 in the accompanying Unaudited Condensed Consolidated Balance Sheets.

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 to 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 in direct finance leases included in ~~accounts receivable~~loans and leases held for ~~such leases~~investment are as follows:

	March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021
Gross direct finance lease payments receivable	$	6,291		$	7,333		$	5,490		$	7,333
Less – unearned interest		(797	)		(998	)		(662	)		(998	)
Net investment in direct financing leases	$	5,494		$	6,335		$	4,828		$	6,335

As of March 31, 2022	Amount
As of June 30, 2022			Amount
2022	$	1,318	$	517
2023		2,182		2,182
2024		1,570		1,570
2025		1,104		1,104
2026		117		117
Total	$	6,291	$	5,490

Interest income of ~~$115~~$93 thousand and ~~$186~~$172 thousand was recognized in the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Interest income of $208 thousand and $358 thousand was recognized in the six months ended June 30, 2022 and 2021, 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 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 equipment expense at the time the costs are incurred.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company had a net investment of ~~$121.5~~$119.1 million and $123.9 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 as of ~~March 31,~~June 30, 2022 and December 31, 2021 ~~respectively,~~ and accumulated depreciation was ~~$41.9~~$44.3 million and $39.5 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. Depreciation expense recognized on these assets for the three months ended ~~March 31,~~June 30, 2022 and 2021 was $2.4 million. Depreciation expense recognized on these assets for the six months ended June 30, 2022 and 2021 was $4.8 million and $4.9 million, respectively.

Lease income of $2.4 million was recognized in the three months ended ~~March 31,~~June 30, 2022 and 2021. Lease income of $4.7 million and $4.8 million was recognized in the six months ended June 30, 2022 and 2021, respectively.

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

As of March 31, 2022	Amount
As of June 30, 2022			Amount
2022	$	7,100	$	4,001
2023		9,075		9,075
2024		8,808		8,808
2025		8,935		8,935
2026		8,923		8,923
Thereafter		22,252		22,253
Total	$	65,093	$	61,995

Loans serviced for others are not included in the accompanying Unaudited Condensed Consolidated Balance Sheets. The unpaid principal balances of loans serviced for others requiring recognition of a servicing asset were ~~$2.38~~$2.26 billion and $2.29 billion at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. The unpaid principal balance for all loans serviced for others was ~~$3.38~~$3.33 billion and $3.30 billion at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2022			2021
Balance at beginning of period	$	33,574		$	33,918		$	36,286		$	37,744		$	33,574		$	33,918
Additions, net		4,281			2,333			1,043			2,403			5,324			4,736
Fair value changes:
Due to changes in valuation inputs or assumptions		1,388			2,946			(5,436	)		(59	)		(4,048	)		2,887
Decay due to increases in principal paydowns or runoff		(2,957	)		(1,453	)		(3,232	)		(3,122	)		(6,189	)		(4,575	)
Balance at end of period	$	36,286		$	37,744		$	28,661		$	36,966		$	28,661		$	36,966

The fair value of servicing rights was determined using a weighted average discount rate of ~~11.7%~~16.2% on ~~March 31,~~June 30, 2022 and ~~8.8%~~9.6% on ~~March 31,~~June 30, 2021. The fair value of servicing rights was determined using a weighted average prepayment speed of ~~16.1%~~15.9% on ~~March 31,~~June 30, 2022 and ~~18.6%~~17.5% on ~~March 31,~~June 30, 2021, 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 Unaudited Condensed Consolidated Statements of 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.

	March 31, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Borrowings
In March 2021, the Company entered into a 60-month term loan agreement of $50.0 million with a third party correspondent bank. The loan accrues interest at a fixed rate of 2.95% with a monthly payment sufficient to fully amortize the loan, with all remaining unpaid principal and interest due at maturity on March 30, 2026. The Company paid the Lender a non-refundable $325 thousand loan origination fee upon signing of the Note that is presented as a direct deduction from the carrying amount of the loan and will be amortized into interest expense over the life of the loan.	$	40,376	$	42,734	$	38,006	$	42,734
In April 2020, the Company entered into the Federal Reserve Bank's Paycheck Protection Program Liquidity Facility ("PPPLF"). Under the PPPLF, advances must be secured by pledges of loans to small businesses originated by the Company under the U.S. Small Business Administration's 7(a) loan program titled the Paycheck Protection Program. The PPPLF accrues interest at NaN basis points and matures at various dates equal to the maturity date of the PPPLF collateral pledged to secure the advance, ranging from April 6, 2022 to May 4, 2026, and will be accelerated on and to the extent of any 7(a) loan forgiveness reimbursement by the SBA for any PPPLF collateral or the date of purchase by the SBA from the borrower of any PPPLF collateral. On the maturity date of each advance, the Company shall repay the advance plus accrued interest. This $136.6 million borrowing was fully advanced at March 31, 2022.		136,550		267,550
In September 2020, the Company renewed a $50.0 million revolving line of credit originally issued in 2017 with a third party correspondent bank. Subsequently on October 20, 2021, the Company renewed and increased the revolving line of credit from $50.0 million to $100.0 million and increased the term from 12 months to 36 months. The line of credit is unsecured and accrues interest at 30-day SOFR plus 1.25%, with an interest rate cap of 4.25% and an interest rate floor of 2.75%. Payments are interest only with all principal and accrued interest due at maturity on October 10, 2024. The terms of this loan require the Company to maintain minimum capital and debt service coverage ratios. The Company paid the Lender a non-refundable $750 thousand loan origination fee upon signing of the Note that will be amortized into interest expense over the life of the loan. The Company made an advance of $8.0 million on December 20, 2021 and $12.0 million on March 16, 2022. There is $80.0 million of available credit remaining at March 31, 2022.		19,982		8,000
In April 2020, the Company entered into the Federal Reserve Bank's Paycheck Protection Program Liquidity Facility ("PPPLF"). Under the PPPLF, advances must be secured by pledges of loans to small businesses originated by the Company under the U.S. Small Business Administration's 7(a) loan program titled the Paycheck Protection Program. The PPPLF accrues interest at NaN basis points and matures at various dates equal to the maturity date of the PPPLF collateral pledged to secure the advance, ranging from February 9, 2026 to April 14, 2026, and will be accelerated on and to the extent of any 7(a) loan forgiveness reimbursement by the SBA for any PPPLF collateral or the date of purchase by the SBA from the borrower of any PPPLF collateral. On the maturity date of each advance, the Company shall repay the advance plus accrued interest. This $48.2 million borrowing was fully advanced at June 30, 2022.						48,201		267,550
In September 2020, the Company renewed a $50.0 million revolving line of credit originally issued in 2017 with a third party correspondent bank. Subsequently on October 20, 2021, the Company renewed and increased the revolving line of credit from $50.0 million to $100.0 million and increased the term from 12 months to 36 months. The line of credit is unsecured and accrues interest at 30-day SOFR plus 1.25%, with an interest rate cap of 4.25% and an interest rate floor of 2.75%. Payments are interest only with all principal and accrued interest due at maturity on October 10, 2024. The terms of this loan require the Company to maintain minimum capital and debt service coverage ratios. The Company paid the Lender a non-refundable $750 thousand loan origination fee upon signing of the Note that will be amortized into interest expense over the life of the loan. The Company made an advance of $8.0 million on December 20, 2021 and $12.0 million on March 16, 2022. The Company paid down this balance in full on May 20, 2022 and there is $100.0 million of available credit remaining at June 30, 2022.						—		8,000
Other short term debt ⁽¹⁾		3		5		2		5
Total borrowings	$	196,911	$	318,289	$	86,209	$	318,289

The Company may purchase federal funds through unsecured federal funds lines of credit with various correspondent banks, which totaled $167.5 million of available funding as of ~~March 31,~~June 30, 2022 and December 31, 2021. 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 ~~March 31,~~June 30, 2022 and December 31, 2021.

The Company has entered into a repurchase agreement with a third party for an amount up to $5.0 million as of ~~March 31,~~June 30, 2022 and December 31, 2021. 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 ~~March 31,~~June 30, 2022 and December 31, 2021.

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 ~~March 31,~~June 30, 2022 and December 31, 2021, the Company had approximately ~~$2.03~~$2.13 billion and $2.02 billion, respectively, in borrowing capacity available under these agreements. There are no advances outstanding and no collateral pledged as of ~~March 31,~~June 30, 2022 and December 31, 2021.

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 ~~$2.68~~$2.63 billion and $2.44 billion as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. At ~~March 31,~~June 30, 2022 and December 31, 2021, the Company had approximately ~~$2.27~~$2.22 billion and $2.04 billion, respectively, in borrowing capacity available under these arrangements with 0 outstanding balance as of ~~March 31,~~June 30, 2022 and December 31, 2021.

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 table below provides a rollforward of the Level 3 equity warrant asset fair values.

	Three Months Ended March 31,				Three Months Ended June 30,					Six Months Ended June 30,
Equity Warrant Assets	2022		2021		2022		2021			2022		2021
Balance at beginning of period	$	1,672	$	908	$	2,328	$	1,314		$	1,672	$	908
Issuances		656		21		48		16			704		37
Net gains on derivative instruments		—		385		46		385			46		770
Settlements		—		—		—		(135	)		—		(135	)
Balance at end of period	$	2,328	$	1,314	$	2,422	$	1,580		$	2,422	$	1,580

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

March 31, 2022	Total		Level 1		Level 2		Level 3
June 30, 2022									Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
US government agencies	$	10,503	$	—	$	10,503	$	—	$	17,387	$	—	$	17,387	$	—
Mortgage-backed securities		828,222		—		828,222		—		904,926		—		904,926		—
Municipal bonds⁽¹⁾		3,352		—		3,258		94		3,165		—		3,072		93
Other debt securities(2)		2,500		—		2,500		—		2,490		—		2,000		490
Loans held for sale		25,056		—		—		25,056		23,452		—		—		23,452
Loans held for investment		600,571		—		—		600,571		530,644		—		—		530,644
Servicing assets⁽²⁾⁽³⁾		36,286		—		—		36,286		28,661		—		—		28,661
Mutual fund		2,327		—		2,327		—		2,321		—		2,321		—
Equity warrant assets		2,328		—		—		2,328		2,422		—		—		2,422
Total assets at fair value	$	1,511,145	$	—	$	846,810	$	664,335	$	1,515,468	$	—	$	929,706	$	585,762

December 31, 2021	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
US government agencies	$	10,637	$	0	$	10,637	$	0	$	10,637	$	0	$	10,637	$	0
Mortgage-backed securities		889,339		0		889,339		0		889,339		0		889,339		0
Municipal bonds⁽¹⁾		3,576		0		3,480		96		3,576		0		3,480		96
Other debt securities(2)		2,500		—		2,500		—		2,500		—		2,500		—
Loans held for sale		25,310		—		—		25,310		25,310		—		—		25,310
Loans held for investment		645,201		—		—		645,201		645,201		—		—		645,201
Servicing assets⁽²⁾⁽³⁾		33,574		0		0		33,574		33,574		0		0		33,574
Mutual fund		2,379		0		2,379		0		2,379		0		2,379		0
Equity warrant assets		1,672		0		0		1,672		1,672		0		0		1,672
Total assets at fair value	$	1,614,188	$	0	$	908,335	$	705,853	$	1,614,188	$	0	$	908,335	$	705,853

For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis, see Note 10. Fair Value of Financial Instruments in the Company’s 2021 Form 10-K.

The Company 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 is recognized in the same manner on loans reported at fair value as on non-fair value loans, except in regard to origination fees and costs which are recognized immediately upon fair value election. 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 GAAP, 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 ~~March 31,~~June 30, 2022 or December 31, 2021. The unpaid principal balance of unguaranteed exposure for nonaccruals was ~~$6.0~~$4.6 million and $6.9 million at ~~March 31,~~June 30, 2022 and December 31, 2021, 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 ~~March 31,~~June 30, 2022 and December 31, 2021.

	March 31, 2022																					June 30, 2022
	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	$	25,056	$	26,747	$	(1,691	)	$	—	$	—	$	—		$	—	$	—	$	—		$	23,452	$	25,200	$	(1,748	)	$	—	$	—	$	—		$	—	$	—	$	—
Loans held for investment		600,571		620,121		(19,550	)		35,301		40,012		(4,711	)		17,411		20,845		(3,434	)		530,644		553,437		(22,793	)		31,510		34,101		(2,591	)		16,733		18,282		(1,549	)
	$	625,627	$	646,868	$	(21,241	)	$	35,301	$	40,012	$	(4,711	)	$	17,411	$	20,845	$	(3,434	)	$	554,096	$	578,637	$	(24,541	)	$	31,510	$	34,101	$	(2,591	)	$	16,733	$	18,282	$	(1,549	)

	Three Months Ended March 31,					Three Months Ended June 30,					Six Months Ended June 30,
Gains (Losses) on Loans Accounted for under the Fair Value Option	2022			2021		2022			2021		2022			2021
Loans held for sale	$	(170	)	$	36	$	(56	)	$	428	$	(226	)	$	464
Loans held for investment		686			4,182		(4,405	)		707		(3,719	)		4,889
	$	516		$	4,218	$	(4,461	)	$	1,135	$	(3,945	)	$	5,353

~~Gains/(losses)~~Losses related to borrower-specific credit risk were ~~$(2.1)~~$711 thousand and $2.8 million for the three and ~~$191~~six months ended June 30, 2022, respectively, and $484 thousand and $293 thousand for the three and six months ended ~~March 31, 2022 and~~June 30, 2021, respectively.

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

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
Loans held for sale	2022			2021			2022			2021			2022			2021
Balance at beginning of period	$	25,310		$	36,111		$	25,056		$	35,936		$	25,310		$	36,111
Issuances & repurchases		65			—
Repurchases								—			—			65			—
Fair value changes		(170	)		36			(56	)		428			(226	)		464
Sales		—			—			—			—			—			—
Settlements		(149	)		(211	)		(1,548	)		(7,316	)		(1,697	)		(7,527	)
Balance at end of period	$	25,056		$	35,936		$	23,452		$	29,048		$	23,452		$	29,048

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

March 31, 2022	Total		Level 1		Level 2		Level 3
June 30, 2022									Total		Level 1		Level 2		Level 3
Collateral-dependent loans	$	2,486	$	—	$	—	$	2,486	$	989	$	—	$	—	$	989
Foreclosed assets		198		—		—		198		191		—		—		191
Total assets at fair value	$	2,684	$	—	$	—	$	2,684	$	1,180	$	—	$	—	$	1,180

For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets that are measured at fair value on a non-recurring basis, see Note 10. Fair Value of Financial Instruments in the Company’s 2021 Form 10-K.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of ~~March 31,~~June 30, 2022 and December 31, 2021 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

5.3%

5.0%

Discounted expected cash flows

Discount rate

Prepayment speed

5.6%

5.0%

Other debt security

490

Discounted expected cash flows

Discount rate

6.3%

Loans held for sale

25,056

Discounted expected

cash flows

Discount rate

Prepayment speed

6.3% to 20.8%

WAVG 17.2%

23,452

Discounted expected cash flows

Discount rate

Prepayment speed

14.5% to 20.1%

WAVG 17.5%

Loans held for

investment

600,571

Discounted expected

cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0% to 70.2%

(WAVG 1.6%)

6.3% to 20.8%

WAVG 17.2%

10.0% to 81.0%

530,644

Discounted expected cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0% to 70.6%

(WAVG 1.6%)

14.5% to 20.1%

WAVG 17.5%

10.0% to 63.0%

Equity warrant assets

2,328

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

26.6-88.0%

2.5%

20.0%

3 - 10 years

2,422

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

25.9% to 84.2%

3.0%

20.0%

3 - 10 years

Non-recurring fair value

Collateral-dependent

loans

2,486

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 99.0%

989

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 99.0%

Foreclosed assets

198

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0%

191

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0

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

4.8%

5.0%

Discounted expected cash flows

Discount rate

Prepayment speed

4.8%

5.0%

Loans held for sale

25,310

Discounted expected cash flows

Discount rate

Prepayment speed

6.2% to 21.9%

WAVG 17.4%

25,310

Discounted expected cash flows

Discount rate

Prepayment speed

6.2% to 21.9%

WAVG 17.4%

Loans held for

investment

645,201

Discounted expected cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0.0% to 70.2%

(WAVG 1.5%)

6.2% to 21.9%

WAVG 17.4%

10.0% to 85.0%

645,201

Discounted expected cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0.0% to 70.2%

(WAVG 1.5%)

6.2% to 21.9%

WAVG 17.4%

10.0% to 85.0%

Equity warrant assets

1,672

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

26.2-88.2%

1.3% to 1.5%

20.0%

4 - 10 years

1,672

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

26.2% to 88.2%

1.3% to 1.5%

20.0%

4 - 10 years

Non-recurring fair value

Collateral-dependent

loans

1,567

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 99.0%

1,567

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 99.0%

Foreclosed assets

620

Discounted appraisals

Appraisal adjustments ⁽¹⁾

9.0% to 10.0%

620

Discounted appraisals

Appraisal adjustments ⁽¹⁾

9.0% to 10.0%

GAAP also requires disclosure of the fair value of financial instruments carried at book value on the Unaudited Condensed 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:

March 31, 2022	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
June 30, 2022											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	$	477,778	$	477,778	$	—	$	—	$	477,778	$	580,493	$	580,493	$	—	$	—	$	580,493
Federal funds sold		29,993		29,993		—		—		29,993		51,694		51,694		—		—		51,694
Certificates of deposit with other banks		4,250		4,316		—		—		4,316		4,250		4,257		—		—		4,257
Loans held for sale		1,003,579		—		—		1,074,381		1,074,381		1,176,282		—		—		1,199,307		1,199,307
Loans and leases held for investment, net of allowance for credit losses on loans and leases		5,074,612		—		—		5,176,365		5,176,365		5,263,702		—		—		5,216,334		5,216,334
Financial liabilities
Deposits		7,637,163		—		7,247,748		—		7,247,748		8,155,744		—		7,635,057		—		7,635,057
Borrowings		196,911		—		—		188,221		188,221		86,209		—		—		81,403		81,403

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~~alleged 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~~alleged 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~~sought 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.~~$3.9 million. On October 13, 2021, the plaintiff filed a motion for preliminary approval of the settlement, which the court granted by order entered on November 23, 2021. After class-wide noticing, the plaintiff filed a motion for final approval on March 28, 2022, which the court granted by order entered on April 28, 2022. Pursuant to the terms of the settlement, the ~~Company expects the~~ settlement ~~to become finally~~became effective ~~no later than~~on June ~~30,~~11, 2022.

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:

	March 31, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Commitments to extend credit	$	2,980,984	$	2,634,387	$	2,867,217	$	2,634,387
Standby letters of credit		24,087		10,753		25,319		10,753
Total unfunded off-balance-sheet credit risk	$	3,005,071	$	2,645,140	$	2,892,536	$	2,645,140

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. Commitment letters are issued after approval of the loan by the Credit 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.

In December 2021, the Company entered into a lease agreement to rent real property for a term of 91 months with $1.1 million of future expected lease payments. There is an option to renew the lease for an additional 5 year period~~. As of March 31, 2022, the lease had not commenced.~~

The balance of the allowance for off-balance sheet credit exposures was ~~$884~~$874 thousand and $739 thousand at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company recorded unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of ~~$20.4~~$20.1 million and $10.4 million, respectively.

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 ~~$15.0~~$20.0 million, except for ~~thirty-five~~twenty-two relationships that have a retained unguaranteed exposure of ~~$850.8~~$641.8 million of which ~~$480.9~~$377.7 million of the unguaranteed exposure has been disbursed.

Additionally, the Company has future minimum lease payments receivable under non-cancelable operating leases totaling ~~$65.1~~$62.0 million, of which no relationships exceed $20.0 ~~million is due from one relationship.~~million.

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

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 direct wholly owned subsidiaries Live Oak Ventures and Canapi Advisors, and the investments held by those entities, as well as the Bank's investment in Apiture.

The following tables provide financial information for the Company's segments. The information provided under the caption “Other” represents operations not considered to be reportable segments and/or general operating expenses of the Company, and includes the parent company, other non-bank subsidiaries and elimination adjustments to reconcile the results of the operating segments to the unaudited condensed consolidated financial statements prepared in conformity with GAAP.

	Banking			Fintech			Other			Consolidated			Banking			Fintech		Other			Consolidated
As of and for the three months ended March 31, 2022
As of and for the three months ended June 30, 2022
Interest income	$	92,746		$	36		$	—		$	92,782		$	99,215		$	36	$	(4	)	$	99,247
Interest expense		14,530			—			473			15,003			18,850			—		463			19,313
Net interest income		78,216			36			(473	)		77,779
Net interest income (loss)														80,365			36		(467	)		79,934
Provision for loan and lease credit losses														5,267			—		—			5,267
Noninterest income														5,168			122,661		700			128,529
Noninterest expense														76,779			2,146		1,954			80,879
Income tax (benefit) expense														(268	)		25,868		(322	)		25,278
Net income (loss)													$	3,755		$	94,683	$	(1,399	)	$	97,039
Total assets													$	8,963,851		$	158,930	$	(1,884	)	$	9,120,897
As of and for the three months ended June 30, 2021
Interest income													$	87,974		$	7	$	18		$	87,999
Interest expense														16,135			—		402			16,537
Net interest income (loss)														71,839			7		(384	)		71,462
Provision for loan and lease credit losses		1,836			—			—			1,836			7,846			—		—			7,846
Noninterest income		31,935			237			496			32,668			26,810			42,648		653			70,111
Noninterest expense		61,399			2,168			2,147			65,714			50,829			1,112		5,617			57,558
Income tax expense (benefit)		9,076			(146	)		(542	)		8,388			5,130			10,209		(2,752	)		12,587
Net income (loss)	$	37,840		$	(1,749	)	$	(1,582	)	$	34,509		$	34,844		$	31,334	$	(2,596	)	$	63,582
Total assets	$	8,450,425		$	121,471		$	48,070		$	8,619,966		$	8,092,506		$	136,104	$	14,576		$	8,243,186
As of and for the three months ended March 31, 2021
Interest income	$	88,099		$	122		$	4		$	88,225
Interest expense		18,165			—			110			18,275
Net interest income		69,934			122			(106	)		69,950
(Recovery of) provision for loan and lease credit losses		(873	)		—			—			(873	)
Noninterest income		30,524			(4	)		537			31,057
Noninterest expense		55,625			1,020			1,627			58,272
Income tax expense (benefit)		4,650			5			(474	)		4,181
Net income (loss)	$	41,056		$	(907	)	$	(722	)	$	39,427
Total assets	$	8,281,729		$	91,662		$	44,484		$	8,417,875

On April 1, 2022, Fiserv, Inc., (“Fiserv”) acquired all of the ownership interests in Finxact, Inc. (“Finxact”) that it did not already own (the “Transaction”), including the interest of the Company, pursuant to the previously announced definitive agreement between Fiserv and Finxact. The Company received initial cash of $125.3 million, and the Transaction resulted in a pre-tax gain of approximately $120.5 million which will be included in the Company’s noninterest income for the second quarter of 2022.

	Banking		Fintech		Other			Consolidated
As of and for the six months ended June 30, 2022
Interest income	$	191,961	$	72	$	(4	)	$	192,029
Interest expense		33,380		—		936			34,316
Net interest income (loss)		158,581		72		(940	)		157,713
Provision for loan and lease credit losses		7,103		—		—			7,103
Noninterest income		37,103		122,898		1,196			161,197
Noninterest expense		138,178		4,314		4,101			146,593
Income tax expense (benefit)		8,808		25,722		(864	)		33,666
Net income (loss)	$	41,595	$	92,934	$	(2,981	)	$	131,548
Total assets	$	8,963,851	$	158,930	$	(1,884	)	$	9,120,897
As of and for the six months ended June 30, 2021
Interest income	$	176,073	$	129	$	22		$	176,224
Interest expense		34,300		—		512			34,812
Net interest income (loss)		141,773		129		(490	)		141,412
Provision for loan and lease credit losses		6,973		—		—			6,973
Noninterest income		57,334		42,644		1,190			101,168
Noninterest expense		106,454		2,132		7,244			115,830
Income tax expense (benefit)		9,780		10,214		(3,226	)		16,768
Net income (loss)	$	75,900	$	30,427	$	(3,318	)	$	103,009
Total assets	$	8,092,506	$	136,104	$	14,576		$	8,243,186

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. (individually, “Bancshares” and collectively with its subsidiaries including Live Oak Banking Company, the “Company”). 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, 2021 (the "2021 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 financial condition, results of operations, plans, objectives, future performance or 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 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 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.

Bancshares 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 extends lending to credit-worthy borrowers within specified 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 SBA under the 7(a) Loan Program and the U.S. Department of 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~~include the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“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”). 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. Live Oak Private Wealth provides high-net-worth individuals and families with strategic wealth and investment management services. During the first quarter of 2022, Jolley Asset Management, LLC (“JAM”) was merged into Live Oak Private Wealth. JAM was previously a wholly owned subsidiary of Live Oak Private Wealth.

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 funds (the “Canapi Funds”) focused on providing venture capital to new and 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. Income from the sale of loans is comprised of net gains on sales of loans along with loan servicing revenue and revaluation of related servicing assets. 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 in its fintech segment, as discussed more fully later in this section entitled “Results of Segment Operations.”

The COVID-19 pandemic caused complex and significant adverse impacts, all of which continue to be subject to a high degree of uncertainty. This uncertainty is magnified with the continued risk of a resurgence of the virus and new variants. ~~Despite ongoing uncertainty, the impact has decreased, and the economy has continued to generally improve, resulting in positive impacts on the Company’s~~ ~~allowance for credit losses (“ACL”) on loans and leases, as discussed below in MD&A.~~

~~Relative to~~ ~~Paycheck Protection Program~~ (“PPP”) loans, the Company ended the first quarter of 2022 with a total outstanding balance net of deferred fees and costs of $130.8 million compared to $261.9 million at December 31, 2021. The Company’s interest income, arising from PPP loan amortization of net deferred fees combined with the 1% annualized interest rate, continues to recede from $20.7 million to $7.5 million to $4.3 million, for the first and fourth quarters of 2021 and first quarter of 2022, respectively. At March 31, 2022, $2.7 million in net deferred fees remains to be recognized into future interest income. The Company’s corresponding Paycheck Protection Program Liquidity Facility (“PPPLF”) used to help provide financing for the origination of PPP loans decreased from $267.6 million at December 31, 2021 to $136.6 million at March 31, 2022. Borrowings under the PPPLF bear interest at a rate of 0.35%, and there are no fees paid by the Company.

At March 31, 2022, the Company had a total of $3.1 million in unguaranteed loans and leases on payment deferral with $122 thousand in accrued interest receivable. In addition, the Company had $31.2 million in unguaranteed loans on SBA payment assistance at March 31, 2022. As of March 31, 2022, almost all loans after expiration of assistance have returned to making regular payments.

In 2021, the Company disclosed certain industries that had heightened levels of exposure as a result of COVID-19. Specifically, management identified six verticals that were considered to be “at-risk” of significant COVID-19 impacts. These verticals were hotels, educational services, wine and craft beverage, quick service restaurants, entertainment centers and fitness centers. Businesses within these six verticals generally have continued to show notable improvements and are now considered to have emerged from at-risk status. As of March 31, 2022, these verticals contained six loans still on payment deferral with an aggregate balance of $2.3 million, $950 thousand of which was unguaranteed, and 10 loans that continue to receive SBA payment subsidies with an aggregate balance of $26.4 million, $5.9 million of which was unguaranteed. While there are positive signs of emerging from at-risk status, management continues to closely monitor these vulnerable verticals for signs of weakness.

As a result of the uncertain economic environment caused by COVID-19, the Company continues to engage in more frequent communication with borrowers in an effort to better understand their situation and the challenges faced as circumstances evolve, which the Company anticipates will enable it to respond proactively as needs and issues arise.

Three months ended ~~March 31,~~June 30, 2022 compared with three months ended ~~March 31,~~June 30, 2021

For the three months ended ~~March 31,~~June 30, 2022, the Company reported net income of ~~$34.5~~$97.0 million, or ~~$0.76~~$2.16 per diluted share, compared to net income of ~~$39.4~~$63.6 million, or ~~$0.88~~$1.41 per diluted share, for the ~~first~~second quarter of 2021.

The ~~decrease~~increase in net income was ~~primary~~largely due to the following items:

Key factors partially offsetting the increase in net income for the second quarter of 2022 were:

For the six months ended June 30, 2022, the Company reported a net income of $131.5 million, or $2.92 per diluted share, as compared to net income of $103.0 million, or $2.29 per diluted share, for the six months ended June 30, 2021. This increase in net income was largely due to the following items:

Key factors partially offsetting the increase in net income for the first half of 2022 were:

~~Other key factors partially offsetting the decrease in net income for the first quarter of 2022 were:~~

Net interest income represents the difference between the income that the Company earns on interest-earning assets and the cost 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 ~~March 31,~~June 30, 2022 compared with three months ended ~~March 31,~~June 30, 2021

For the three months ended ~~March 31,~~June 30, 2022, net interest income increased ~~$7.8~~$8.5 million, or ~~11.2%~~11.9%, to ~~$77.8~~$79.9 million compared to ~~$70.0~~$71.5 million for the three months ended ~~March 31,~~June 30, 2021. This increase was principally due to ~~the significant~~ growth in both average yield and volume for the ~~held for investment~~total loan and lease ~~portfolios since the first quarter~~portfolio outpacing moderate growth in interest-bearing liabilities combined with an increase in average cost of ~~2021.~~ funds.This increase over the prior year was significantly higher when excluding the effects of declining levels of ~~PPP~~Paycheck Protection Program (“PPP”) loan net interest income for the compared period, which has been declining over time as PPP loans are paid down. Excluding PPP loan impacts of $1.2 million, comprised of amortization of net deferred fees combined with a 1% annualized interest rate less the related interest expense from funding activity, net interest income increased by ~~$22.6~~$20.1 million. Average interest-earning assets increased by ~~$411.8~~$356.8 million, or ~~5.5%~~4.5%, to ~~$7.85~~$8.25 billion for the ~~first quarter of~~three months ended June 30, 2022, compared to ~~$7.44~~$7.89 billion for the ~~first quarter of~~three months ended June 30, 2021, while the yield on average interest-earning assets ~~decreased two~~increased thirty-five basis points to ~~4.79%~~4.83%. The cost of funds on interest-bearing liabilities for the ~~first quarter of~~three months ended June 30, 2022, ~~decreased 21~~increased thirteen basis points to ~~0.81%~~0.99% while the average balance of interest-bearing liabilities increased by ~~$218.1~~$120.6 million, or ~~3.0%~~1.6%, over the ~~first quarter of~~three months ended June 30, 2021. The increase in average interest-bearing liabilities was largely driven by funding for significant loan originations and growth. This increase was muted by a ~~$1.27~~$1.24 billion reduction in average borrowings largely related to PPPLF repayments since ~~March 31,~~June 30, 2021. As indicated in the rate/volume table below, ~~increased volume on interest-earning assets and greater levels of rate reductions on interest-bearing liabilities outpaced~~ the ~~lower yields on interest-earning assets and higher volume of interest-bearing liabilities, resulting~~overall increase discussed above is reflected in ~~increases to~~increased interest income of ~~$4.6~~$11.2 million ~~and decreases to~~outpacing growth in interest expense of ~~$3.3~~$2.8 million for the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021. For the ~~first quarter of 2022~~three months ended June 30, 2021 compared to the ~~first quarter of 2021,~~three months ended June 30, 2022, net interest margin increased from ~~3.81%~~3.63% to ~~4.02%, respectively, due primarily to significant loan portfolio growth, the maturity of longer term deposits which are repricing at lower rates and the continued deployment of excess liquidity.~~3.89%. As of ~~March 31,~~June 30, 2022, the Company had ~~$130.8~~$61.4 million in PPP loan balances on its books which includes ~~$2.7~~$1.6 million in net deferred fees remaining to be recognized into future interest income. The Company expects to recognize most of the remaining net deferred fees for PPP loans in 2022.

~~In March~~Six months ended June 30, 2022 compared with six months ended June 30, 2021

For the six months ended June 30, 2022, net interest income increased $16.3 million, or 11.5%, to $157.7 million compared to $141.4 million for the six months ended June 30, 2021. This increase was principally due to growth in both average yield and volume for the total loan and lease portfolio outpacing growth in interest-bearing liabilities combined with a decrease in average cost of funds.This increase over the prior year was significantly higher when excluding the effects of declining levels of PPP loan net interest income for the compared period. Excluding PPP loan impacts of $5.3 million as defined above, net interest income increased by $42.7 million. Average interest-earning assets increased by $384.1 million, or 5.0%, to $8.05 billion for the six months ended June 30, 2022, compared to $7.67 billion for the six months ended June 30, 2021, while the yield on average interest-earning assets increased seventeen basis points to 4.81%. The cost of funds on interest-bearing liabilities for the six months ended June 30, 2022, decreased four basis points to 0.90% while the average balance of interest-bearing liabilities increased by $169.0 million, or 2.3%, over the six months ended June 30, 2021. The increase in average interest-bearing liabilities was also largely driven by funding for significant loan originations and growth. This increase was muted by a $1.20 billion reduction in average borrowings largely related to PPPLF repayments since June 30, 2021. As indicated in the rate/volume table below, the overall increase discussed above is reflected in increased interest income of $15.8 million as compared to a decrease in interest expense of $496 thousand for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. For the six months ended June 30, 2021 compared to the six months ended June 30, 2022, net interest margin increased from 3.72% to 3.95%.

During the first half of 2022, the Federal Reserve increased the federal funds target rate by 25150 basis points. Subsequently on July 27, 2022 the Federal Reserve further increased the target federal funds rate by 75 basis points and released projections where the midpoint of the projected target range for the federal funds rate would rise to 1.9% by the end of 2022 to 2.8% by the end of 2023 and remaining static through the end of 2024. These projections imply approximately seven 25 basis pointindicates that it anticipates ongoing increases ~~in the federal funds rate in 2022, followed by four in 2023.~~will be appropriate. There can be no assurance that any increases in the federal funds rate will occur, and if they do, the amount and timing of actual increases are subject to change. See Item 3. Quantitative and Qualitative Disclosures About Market Risk for information about the Company’s sensitivity to interest 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 March 31,																Three Months Ended June 30,
	2022								2021								2022								2021
	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:
Interest-earning balances in other banks	$	223,638		$	179		0.32	%	$	331,260		$	297		0.36	%	$	328,014		$	848		1.04	%	$	514,232		$	234		0.18	%
Federal funds sold		9,197			6		0.26			28,202			6		0.09			78,216			196		1.01			29,199			10		0.14
Investment securities		895,592			3,399		1.54			736,158			2,929		1.61			915,106			4,046		1.77			764,017			2,975		1.56
Loans held for sale		1,115,441			15,183		5.52			1,158,844			15,077		5.28			1,119,094			15,969		5.72			1,134,259			15,216		5.38
Loans and leases held for investment⁽¹⁾		5,609,338			74,015		5.35			5,186,963			69,916		5.47			5,805,907			78,188		5.40			5,447,839			69,564		5.12
Total interest-earning assets		7,853,206			92,782		4.79			7,441,427			88,225		4.81			8,246,337			99,247		4.83			7,889,546			87,999		4.47
Less: Allowance for credit losses on loans and leases		(62,732	)							(52,317	)							(62,566	)							(51,994	)
Noninterest-earning assets		588,171								593,573								644,495								623,895
Total assets	$	8,378,645							$	7,982,683							$	8,828,266							$	8,461,447
Interest-bearing liabilities:
Interest-bearing checking	$	—		$	—		—	%	$	250,005		$	356		0.58	%	$	—		$	—		—	%	$	60,439		$	86		0.57	%
Savings		3,605,905			4,840		0.54			2,356,598			3,512		0.60			3,894,177			7,538		0.78			3,101,733			4,309		0.56
Money market accounts		91,463			54		0.24			105,753			83		0.32			93,072			56		0.24			104,826			82		0.31
Certificates of deposit		3,551,310			9,454		1.08			3,151,575			12,993		1.67			3,714,882			11,183		1.21			3,078,789			10,343		1.35
Total deposits		7,248,678			14,348		0.80			5,863,931			16,944		1.17			7,702,131			18,777		0.98			6,345,787			14,820		0.94
Borrowings		262,485			655		1.01			1,429,177			1,331		0.38			132,969			536		1.62			1,368,742			1,717		0.50
Total interest-bearing liabilities		7,511,163			15,003		0.81			7,293,108			18,275		1.02			7,835,100			19,313		0.99			7,714,529			16,537		0.86
Noninterest-bearing deposits		86,570								63,917								96,123								85,824
Noninterest-bearing liabilities		51,940								39,155								55,725								45,309
Shareholders' equity		728,972								586,503								841,318								615,785
Total liabilities and shareholders' equity	$	8,378,645							$	7,982,683							$	8,828,266							$	8,461,447
Net interest income and interest rate spread				$	77,779		3.98	%				$	69,950		3.79	%				$	79,934		3.84	%				$	71,462		3.61	%
Net interest margin							4.02	%							3.81	%							3.89	%							3.63	%
Ratio of average interest-earning assets to average interest-bearing liabilities							104.55	%							102.03	%							105.25	%							102.27	%

	Six Months Ended June 30,
	2022								2021
	Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate
Interest-earning assets:
Interest-earning balances in other banks	$	276,114		$	1,027		0.75	%	$	423,252		$	531		0.25	%
Federal funds sold		43,897			202		0.93			28,703			16		0.11
Investment securities		905,403			7,445		1.66			750,164			5,904		1.59
Loans held for sale		1,117,360			31,152		5.62			1,152,667			30,293		5.30
Loans and leases held for investment⁽¹⁾		5,708,084			152,203		5.38			5,311,939			139,480		5.30
Total interest-earning assets		8,050,858			192,029		4.81			7,666,725			176,224		4.64
Less: Allowance for credit losses on loans and leases		(62,649	)							(52,155	)
Noninterest-earning assets		616,486								608,923
Total assets	$	8,604,695							$	8,223,493
Interest-bearing liabilities:
Interest-bearing checking	$	—		$	—		—	%	$	154,698		$	442		0.58	%
Savings		3,750,838			12,378		0.67			2,731,224			7,821		0.58
Money market accounts		92,272			110		0.24			105,289			165		0.32
Certificates of deposit		3,633,547			20,637		1.15			3,114,979			23,336		1.51
Total deposits		7,476,657			33,125		0.89			6,106,190			31,764		1.05
Borrowings		197,369			1,191		1.22			1,398,793			3,048		0.44
Total interest-bearing liabilities		7,674,026			34,316		0.90			7,504,983			34,812		0.94
Noninterest-bearing deposits		91,373								83,336
Noninterest-bearing liabilities		53,841								33,649
Shareholders' equity		785,455								601,525
Total liabilities and shareholders' equity	$	8,604,695							$	8,223,493
Net interest income and interest rate spread				$	157,713		3.91	%				$	141,412		3.70	%
Net interest margin							3.95	%							3.72	%
Ratio of average interest-earning assets to average interest-bearing liabilities							104.91	%							102.16	%

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 March 31,									Three Months Ended June 30,									Six Months Ended June 30,
	2022 vs. 2021									2022 vs. 2021									2022 vs. 2021
	Increase (Decrease) Due to									Increase (Decrease) Due to									Increase (Decrease) Due to
	Rate			Volume			Total			Rate			Volume			Total			Rate			Volume			Total
Interest income:
Interest-earning balances in other banks	$	(26	)	$	(92	)	$	(118	)	$	897		$	(283	)	$	614		$	862		$	(366	)	$	496
Federal funds sold		8			(8	)		—			116			70			186			147			39			186
Investment securities		(150	)		620			470			443			628			1,071			292			1,249			1,541
Loans held for sale		684			(578	)		106			963			(210	)		753			1,815			(956	)		859
Loans and leases held for investment		(1,534	)		5,633			4,099			3,927			4,697			8,624			2,241			10,482			12,723
Total interest income		(1,018	)		5,575			4,557			6,346			4,902			11,248			5,357			10,448			15,805
Interest expense:
Interest-bearing checking		—			(356	)		(356	)		—			(86	)		(86	)		—			(442	)		(442	)
Savings		(441	)		1,769			1,328			1,912			1,317			3,229			1,415			3,142			4,557
Money market accounts		(19	)		(10	)		(29	)		(18	)		(8	)		(26	)		(37	)		(18	)		(55	)
Certificates of deposit		(4,895	)		1,356			(3,539	)		(1,186	)		2,026			840			(6,114	)		3,415			(2,699	)
Borrowings		1,324			(2,000	)		(676	)		2,085			(3,266	)		(1,181	)		3,077			(4,934	)		(1,857	)
Total interest expense		(4,031	)		759			(3,272	)		2,793			(17	)		2,776			(1,659	)		1,163			(496	)
Net interest income	$	3,013		$	4,816		$	7,829		$	3,553		$	4,919		$	8,472		$	7,016		$	9,285		$	16,301

The provision for loan and lease credit losses represents the amount necessary to be charged against the current period’s earnings to maintain the 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. Typical SBA 7(a) 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 ~~first~~second quarter of 2022, there was a provision for loan and lease credit losses of ~~$1.8~~$5.3 million compared to $7.8 million for the same period in 2021, a ~~recovery~~decrease of $2.6 million. For the first six months of 2022, there was a provision for loan and lease credit losses of ~~$873 thousand~~$7.1 million compared to $7.0 million for the same period in ~~2021.~~2021, an increase of $130 thousand. The ~~level of~~decrease in provision expense inas compared to the second quarter of 2021 and nominal change from the first ~~quarter~~half of ~~2022~~2021 was primarily the result of ~~continued~~significant improvement in forecasts related to employment and default expectations ~~combined with the effect of higher than usual recoveries in certain verticals and overall growth in the loan and lease portfolio. In comparison, the first quarter of 2021 recovery was largely due~~within industries previously impacted by COVID-19 which have continued to ~~significant improvement in~~ ~~forecasts related to employment and default expectations~~ ~~as the economic outlook had improved~~improve significantly over that experienced in ~~2020.~~2021.

Loans and leases held for investment at historical cost were ~~$5.14~~$5.33 billion as of ~~March 31,~~June 30, 2022, increasing by ~~$471.7~~$631.4 million, or ~~10.1%~~13.4%, compared to ~~March 31,~~June 30, 2021. Excluding PPP loans and net unearned fees on those loans, the balance in loans and leases held for investment at historical cost was ~~$5.01~~$5.27 billion at ~~March 31,~~June 30, 2022, an increase of ~~$1.79~~$1.50 billion, or ~~55.4%~~39.7%, over ~~March 31,~~June 30, 2021.

Net charge-offs for loans and leases carried at historical cost were ~~$2.4~~$2.5 million, or 0.19% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended ~~March 31,~~June 30, 2022, compared to a net ~~recovery~~ charge-offs of ~~$984 thousand,~~$2.4 million, or ~~(0.09)%~~0.21%, for the three months ended ~~March 31,~~June 30, 2021. For the six months ended June 30, 2022, net charge-offs totaled $4.8 million compared to $1.4 million for the six months ended June 30, 2021, an increase of $3.4 million, or 237.1%. The increase in net charge-offs for the first ~~quarter~~half of 2022 was principally related to ~~one relationship that was fully reserved for in~~ the ~~fourth quarter~~expiration of ~~2021.~~government subsidies and the return to expected losses consistent with pre-covid historical experience. 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 ~~$4.5~~$3.6 million and ~~$5.8~~$5.5 million accounted for under the fair value option at ~~March 31,~~June 30, 2022 and 2021, respectively, totaled ~~$19.5~~$12.0 million, which was ~~0.38%~~0.22% of the held for investment loan and lease portfolio carried at historical cost at ~~March 31,~~June 30, 2022, compared to ~~$24.7~~$22.5 million, or ~~0.53%~~0.48% of loans and leases held for investment carried at historical cost at ~~March 31,~~June 30, 2021. Nonperforming loans and leases carried at historical cost which are not guaranteed by the SBA or USDA were ~~0.39%~~0.23% and ~~0.77%~~0.60% of the historical cost portion of the held for investment loan and lease portfolio, excluding PPP loans, at ~~March 31,~~June 30, 2022 and 2021, 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 (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 consistent elements of noninterest income include 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 March 31,						2022/2021 Increase (Decrease)						Three Months Ended June 30,						2022/2021 Increase (Decrease)
	2022			2021			Amount			Percent			2022			2021			Amount			Percent
Noninterest income
Loan servicing revenue	$	6,356		$	6,434		$	(78	)		(1.21	)%	$	6,477		$	6,218		$	259			4.17	%
Loan servicing asset revaluation		(1,569	)		1,493			(3,062	)		(205.09	)		(8,668	)		(3,181	)		(5,487	)		(172.49	)
Net gains on sales of loans		20,977			11,929			9,048			75.85			5,630			16,234			(10,604	)		(65.32	)
Net gain on loans accounted for under the fair value option		516			4,218			(3,702	)		(87.77	)
Net (loss) gain on loans accounted for under the fair value option														(4,461	)		1,135			(5,596	)		(493.04	)
Equity method investments income (loss)		(2,124	)		(1,157	)		(967	)		(83.58	)		119,056			(2,278	)		121,334			5,326.34
Equity security investments gains (losses), net		(44	)		105			(149	)		(141.90	)		1,655			44,253			(42,598	)		(96.26	)
Lease income		2,503			2,599			(96	)		(3.69	)		2,510			2,616			(106	)		(4.05	)
Management fee income		1,488			1,934			(446	)		(23.06	)		2,558			1,473			1,085			73.66
Other noninterest income		4,565			3,502			1,063			30.35			3,772			3,641			131			3.60
Total noninterest income	$	32,668		$	31,057		$	1,611			5.19	%	$	128,529		$	70,111		$	58,418			83.32	%

For the three months ended ~~March 31,~~June 30, 2022, noninterest income increased by ~~$1.6~~$58.4 million, or ~~5.2%~~83.3%, compared to the three months ended ~~March 31,~~June 30, 2021. The increase over the prior year is ~~primarily~~ the result of ~~a $9.0~~the $120.5 million Finxact gain. Partially offsetting the increase over the prior year was decreased equity security investment gains of $42.6 million, due to the second quarter of 2021 gain arising from Company’s investment in Greenlight, combined with decreased net gains on sales of loans ~~partially offset by~~of $10.6 million, increased ~~losses arising from the~~loss on loan servicing asset ~~valuation~~revaluation of ~~$3.1~~$5.5 million, ~~combined with lower gains~~and increased net loss on loans accounted for under the fair value option of ~~$3.7~~$5.6 million.

For the six months ended June 30, 2022, noninterest income increased by $60.0 million, or 59.3%, compared to the six months ended June 30, 2021. The increase over the first half of 2021 is also the result of the above mentioned Finxact gain partially offset by a decrease in equity security investment gains of $42.7 million related to Greenlight. Also partially offsetting the increase over the first half of 2021 was an increased loss on loan servicing asset revaluation of $8.5 million, and an increased net loss on loans accounted for under the fair value option of $9.3 million.

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 March 31,				For years ended December 31,								Six Months Ended June 30,				For years ended December 31,
	2022		2021		2021		2020		2019		2018		2022		2021		2021		2020		2019		2018
Amount of loans and leases originated	$	865,063	$	1,180,219	$	4,480,725	$	4,450,198	$	2,001,886	$	1,765,680	$	1,824,698	$	2,333,912	$	4,480,725	$	4,450,198	$	2,001,886	$	1,765,680
Guaranteed portions of loans sold		219,703		136,747		668,462		542,596		340,374		945,178		288,521		267,605		668,462		542,596		340,374		945,178
Outstanding balance of guaranteed loans sold⁽¹⁾		2,786,403		2,843,963		2,756,915		2,819,625		2,746,480		3,045,460		2,681,079		2,694,931		2,756,915		2,819,625		2,746,480		3,045,460

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

Loan Servicing Asset Revaluation: The Company revalues its serviced loan portfolio at least quarterly. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses, with the prepayment speed being one of the most sensitive assumptions. For the three months ended ~~March~~June ~~31,~~30, 2022, there was a negative loan servicing revaluation adjustment of ~~$1.6~~$8.7 million, compared to ~~a positive adjustment of $1.5~~$3.2 million for the three months ended ~~March~~June ~~31, 2021.~~ 30, 2021, an increase in expense of $5.5 million, or 172.5%. For the six months ended June 30, 2022 there was negative loan servicing revaluation adjustment of $10.2 million compared to $1.7 million for the six months ended June 30, 2021, an increase in expense of $8.5 million, or 506.5%. The decrease in the ~~loan~~valuation of the servicing asset ~~revaluation from~~for both comparative periods was principally the ~~first~~result of negative market pricing in the second quarter of ~~2021 was largely related to~~2022 influenced by heighted interest rates and broader movements in market conditions. Increased prepayment speeds ~~increasing over the prior year.~~ also contributed to lower valuations, to a lesser extent, when comparing year to date periods.

Net Gains on Sales of Loans: For the three months ended ~~March 31,~~June 30, 2022, net gains on sales of loans ~~increased $9.0~~decreased $10.6 million, or ~~75.9%~~65.3%, compared to the ~~first quarter of~~three months ended June 30, 2021. The volume of guaranteed loans sold ~~increased $83.0~~decreased $62.1 million, or ~~60.7%~~47.4%, infor the ~~first quarter of~~three months ended June 30, 2022 to ~~$219.7~~$68.8 million from ~~$136.7~~$130.9 million in the ~~first quarter of~~three months ended June 30, 2021. ~~The~~For the six months ended June 30, 2022, net gains on sales of loans decreased $1.6 million, or 5.5%, compared to the six months ended June 30, 2021. For the six months ended June 30, 2022, the volume of ~~loan sales in~~guaranteed loans sold increased $20.9 million, or 7.8%, to $288.5 million from $267.6 million for the ~~first quarter of 2022 was influenced by current market considerations.~~ six months ended June 30, 2021. The average net gain on loan sale premium decreased from ~~110%~~112% to ~~109%,~~108% in the ~~first~~second quarters of 2021 and 2022, respectively, ~~which~~and decreased from 111% to 109% in the first halves of 2021 and 2022, respectively. The decrease in net gains on sales of loans for both periods was the result of emerging negative market conditions in the second quarter of 2022, as discussed above. Further exacerbating the decrease between comparative quarters was significantly lower sales volume in the second quarter of 2022 following a higher than normal sales volume in the first quarter of 2022. This decrease in sales volume was largely a product of expected negative premium changes occurring in the ~~mix~~second quarter of ~~loan sales combined with slightly lower premiums.~~ 2022.

Net (Loss) Gain on Loans Accounted for Under the Fair Value Option: For the three months ended ~~March~~June 3130, 2022, the Company had a net ~~gain~~loss on loans accounted for under the fair value option ~~decreased $3.7~~of $4.5 million compared to a net gain of $1.1 million for the second quarter of 2021, a negative change of $5.6 million, or ~~87.8%,~~493.0%. For the six months ended June 30, 2022, the Company had a net loss on loans accounted for under the fair value option of $3.9 million compared to a net gain of $5.4 million for the ~~three months ended March~~ 31~~, 2021.~~same period of 2021, a negative change of $9.3 million, or 173.7%. The carrying amount of loans accounted for under the fair value option at ~~March~~June 3130, 2022 and 2021 was ~~$625.7~~$554.1 million ($~~25.1~~23.5 million classified as held for sale and ~~$600.6~~$530.6 million classified as held for investment) and ~~$826.7~~$772.3 million ($~~35.9~~29.0 million classified as held for sale and ~~$790.8~~$743.2 million classified as held for investment), respectively, a decrease of ~~$201.1~~$218.2 million, or ~~24.3%~~28.3%. The decreased net gain on loans accounted for under the fair value option during ~~first~~second quarter and half of 2022 ~~as compared to the first quarter of 2021~~ was largely the result of ~~significant economic forecasts improvements experienced to a greater degree in~~ the ~~first quarter of 2021 as compared to the first quarter of 2022.~~same negative market conditions discussed above.

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 March 31,				2022/2021 Increase (Decrease)							Three Months Ended June 30,				2022/2021 Increase (Decrease)
		2022		2021		Amount			Percent				2022		2021		Amount			Percent
Noninterest expense	Noninterest expense											Noninterest expense
Salaries and employee benefits		$	38,507	$	31,366	$	7,141			22.77	%		$	46,276	$	32,900	$	13,376			40.66	%
Non-employee expenses:
Travel expense			1,897		659		1,238			187.86				2,358		1,549		809			52.23
Professional services expense			2,791		3,831		(1,040	)		(27.15	)			3,988		3,329		659			19.80
Advertising and marketing expense			1,729		652		1,077			165.18				2,301		875		1,426			162.97
Occupancy expense			2,327		2,112		215			10.18				2,773		2,224		549			24.69
Technology expense			6,053		4,878		1,175			24.09				5,762		5,131		631			12.30
Equipment expense			3,816		3,701		115			3.11				3,784		3,721		63			1.69
Other loan origination and maintenance expense			3,113		3,327		(214	)		(6.43	)			3,022		3,307		(285	)		(8.62	)
Renewable energy tax credit investment impairment			—		3,127		(3,127	)		(100.00	)			50		—		50			100.00
FDIC insurance			1,972		1,765		207			11.73				2,164		1,704		460			27.00
Contributions and donations														5,515		686		4,829			703.94
Other expense			3,509		2,854		655			22.95				2,886		2,132		754			35.37
Total non-employee expenses			27,207		26,906		301			1.12				34,603		24,658		9,945			40.33
Total noninterest expense		$	65,714	$	58,272	$	7,442			12.77	%		$	80,879	$	57,558	$	23,321			40.52	%

	Six Months Ended June 30,				2022/2021 Increase (Decrease)
	2022		2021		Amount			Percent
Noninterest expense
Salaries and employee benefits	$	84,783	$	64,266	$	20,517			31.93	%
Non-employee expenses:
Travel expense		4,255		2,208		2,047			92.71
Professional services expense		6,779		7,160		(381	)		(5.32	)
Advertising and marketing expense		4,030		1,527		2,503			163.92
Occupancy expense		5,100		4,336		764			17.62
Technology expense		11,815		10,009		1,806			18.04
Equipment expense		7,600		7,422		178			2.40
Other loan origination and maintenance expense		6,135		6,634		(499	)		(7.52	)
Renewable energy tax credit investment impairment		50		3,127		(3,077	)		(98.40	)
FDIC insurance		4,136		3,469		667			19.23
Contributions and donations		6,238		1,480		4,758			321.49
Other expense		5,672		4,192		1,480			35.31
Total non-employee expenses		61,810		51,564		10,246			19.87
Total noninterest expense	$	146,593	$	115,830	$	30,763			26.56	%

Total noninterest expense for the three and six months ended ~~March~~June 3130, 2022, increased ~~$7.4~~$23.3 million, or ~~12.8%~~40.5%, and $30.8 million, or 26.6%, respectively, compared to the same ~~period~~periods in 2021. The increase in noninterest expense for the comparable three and six month ~~period~~periods was largely driven by various components, as discussed below.

Salaries and employee benefits: Total personnel expense for the three and six months ended ~~March~~June 3130, 2022 increased by ~~$7.1~~$13.4 million, or ~~22.8%~~40.7%, and $20.5 million, or 31.9%, respectively, compared to the same ~~period~~periods in 2021. The increase in salaries and employee benefits was principally related to continued investment in human resources to support strategic and growth initiatives. The second quarter of 2022 included an additional $7.5 million bonus accrual while the second quarter of 2021 included an additional $4.0 million bonus accrual, both related to earlier mentioned Finxact and Greenlight gains, respectively. Total full-time equivalent employees increased from ~~651~~701 at ~~March~~June 3130, 2021, to ~~842~~891 at ~~March~~June 3130, 2022. Salaries and employee benefits expense included ~~$5.0~~$5.1 million and $10.0 million of stock-based compensation infor the ~~first quarter of both~~three and six months ended June 30, 2022, respectively, compared to $4.1 million and ~~2021.~~$9.1 million for the three and six months ended June 30, 2021, 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 expense: ~~Travel~~For the three and six months ended June 30, 2022, travel expenses increased ~~$1.2~~$809 thousand, or 52.2%, and $2.0 million, or ~~187.9%~~92.7%, respectively, compared to the same ~~period~~periods in 2021. Travel expenses increased primarily in relation to supporting both loan origination volume and the customer base as travel restrictions ~~continued to ease.~~

~~Professional services expense:~~ ~~Professional services expense decreased $1.0 million, or 27.1%, compared to the same period in 2021. The decrease compared to the prior periods was largely driven by~~ ~~lower legal fees.~~have eased combined with inflationary impacts on travel related costs.

Advertising and marketing expense: ~~Advertising~~For the three and six months ended June 30, 2022, advertising and marketing expense increased ~~$1.1~~$1.4 million, or ~~165.2%. The increase over~~163.0%, and $2.5 million, or 163.9%, respectively, compared to the ~~first quarter of 2021 was~~same periods in 2021. Increases were largely a driven by a continuation of renewed marketing events.

Technology expense: ~~Technology~~For the three and six months ended June 30, 2022, technology expense ~~is a new line item which replaces data processing expense in previous consolidated income statements. This new line item includes data processing expense~~increased $631 thousand, or 12.3%, and other non-compensation related costs reclassified from equipment expense and other expense line items for software, computer and telecommunications. This reclassification was made primarily to improve the clarity of expenses related$1.8 million, or 18.0%, respectively, compared to the ~~Company’s ongoing technology initiatives and is reflected~~same periods in ~~all comparative periods of this filing. Technology expense for the first quarter of 2022 was $6.1 million, a $1.2 million increase over the first quarter of~~ 2021. This increase was primarily related to enhanced investments in the Company’s technology resources.

Renewable energy tax credit investment impairment: During the first quarter of 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. 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.

Contributions and donations:For the three and six months ended June 30, 2022, contributions and donations expense increased $4.8 million, or 703.9%, and $4.8 million, or 321.5%, respectively, compared to the same periods in 2021. This increase was related to a special charitable donation during the second quarter of 2022 of $5.0 million made in connection with the earlier discussed Finxact gain.

For the three months ended ~~March 31,~~June 30, 2022, income tax expense was ~~$8.4~~$25.3 million compared to ~~$4.2~~$12.6 million for the ~~first~~second quarter of 2021, and the Company’s effective tax rates were ~~19.6%~~20.7% and ~~9.6%~~16.5%, respectively. ~~The effective~~For the six months ended June 30, 2022, income tax ~~rate~~expense was $33.7 million compared to $16.8 million for the first ~~quarter~~half of ~~2022 was principally influenced by anticipated renewable energy~~2021, and the Company’s effective tax ~~credits associated with investments expected in 2021 but delayed to 2022 due to supply chain issues.~~rates were 20.4% and 14.0%, respectively. The higher level of income tax expense for the second quarter and first ~~quarter~~half of 2022 compared to the ~~first quarter~~comparative periods of 2021 was primarily ~~driven by~~from increased pretax income during the quarter, largely a product of the earlier discussed Finxact gain. The effective tax rate for the second quarter and first half of 2022 was higher than comparative periods principally due to lower levels of expected renewable energy tax credits in 2022 combined with tax benefits arising from the vesting of ~~restricted~~ stock unit awards ~~with market price conditions during the first three months of 2021, as the fair value of these awards exceeded the total compensation cost recognized by the Company for book purposes.~~ which vested in 2021.

The Company’s operations are managed along two primary operating segments Banking and Fintech. A description of each segment and the methodologies used to measure financial performance is described in Note 11. Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements. Net income (loss) by operating segment is presented below:

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2022			2021
Banking	$	37,840		$	41,056		$	3,755		$	34,844		$	41,595		$	75,900
Fintech		(1,749	)		(907	)		94,683			31,334			92,934			30,427
Other		(1,582	)		(722	)		(1,399	)		(2,596	)		(2,981	)		(3,318	)
Consolidated net income	$	34,509		$	39,427		$	97,039		$	63,582		$	131,548		$	103,009

For the three and six months ended ~~March 31,~~June 30, 2022, net income decreased ~~$3.2~~$31.1 million, or 89.2%, and $34.3 million, or 45.2%, respectively, compared to the same ~~period~~periods of 2021. The decrease was principally due to lower levels of noninterest income arising from negative market pricing influenced by heightened interest rates and broader movements in market conditions in the second quarter of 2022.

~~Net~~For the three and six months ended June 30, 2022, net interest income increased ~~$8.3~~$8.5 million, or ~~11.8%~~11.9%, and $16.8 million, or 11.9%, respectively, compared to the same ~~period~~periods of 2021. 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.

~~Noninterest~~For the three and six months ended June 30, 2022, noninterest income ~~increased $1.4~~decreased $21.6, or 80.7%, and $20.2 million, or 35.3%, respectively, compared to the same ~~period~~periods of 2021. The ~~increase~~decrease for both comparative periods was principally driven by ana ~~increase~~decrease in net gains on sales of loans combined with an increase of ~~$9.0 million and partially offset by a decrease~~losses in loan servicing asset revaluation ~~of $3.1 million combined with a $3.7 million lower gain~~and net losses arising from loans accounted for under the fair value option. See the analysis of these categories of noninterest income included in the above section captioned “Noninterest Income” for additional discussion.

~~Noninterest~~For the three and six months ended June 30, 2022, noninterest expense increased ~~$5.8~~$26.0 million, or ~~10.4%~~51.1%, and $31.7 million, or 29.8%, respectively, compared to same ~~period~~periods of 2021. See the analysis of these categories of noninterest expense included in the above section captioned “Noninterest Expense” for additional discussion.

For the three and six months ended ~~March 31,~~June 30, 2022, income tax expense ~~increased $4.4~~decreased $5.4 million, or ~~95.2%~~105.2%, and $972 thousand, or 9.9%, respectively, compared to the same periods of 2021. This decrease is a product of the above discussed decrease in Banking segment income for comparative periods.

For the three and six months ended June 30, 2022, net income increased by $63.3 million, or 202.2%, and $62.5 million, or 205.4%, respectively, compared to same periods of 2021. The increase was principally due to the second quarter of 2022 equity method investment gain of $120.5 million from the sale of Finxact. This increase was partially offset by the equity security investment gains arising from the second quarter of 2021 gain of $44.1 million arising from the Company’s investment in Greenlight.

For the three and six months ended June 30, 2022, noninterest expense increased $1.0 million and $2.2 million, respectively, compared to the same period of 2021. ~~See the above section captioned “Income Tax Expense.”~~

~~For the three months ended March 31, 2022, net income decreased by $842 thousand compared to same period of 2021. The decrease was principally due to heightened levels of salaries and benefits.~~

~~Noninterest expense increased $1.1 million compared to the same period of 2021. As mentioned above, this~~This increase was largely due increased levels of salaries and benefits.

For the three and six months ended June 30, 2022, income tax expense increased $15.7 million, or 153.4%, and $15.5 million, or 151.8%, respectively, compared to the same periods of 2021. This increase is a product of the above discussed increase in Fintech segment income for comparative periods. See the above section captioned “Income Tax Expense.”

Total assets at ~~March 31,~~June 30, 2022 were ~~$8.62~~$9.12 billion, an increase of ~~$406.6~~$907.5 million, or ~~5.0%~~11.0%, compared to total assets of $8.21 billion at December 31, 2021. The growth in total assets was principally driven by the following:

Total investment securities available-for-sale decreased $61.5 million during the first three months of 2022, from $906.1 million at December 31, 2021, to $844.6 million at March 31, 2022, a decrease of 6.8%. The decrease was largely the result of $50.6 million in unrealized losses arising from negative market impacts for the Company’s available-for-sale investment portfolio. At March 31, 2022, the investment portfolio was comprised of U.S. government agencies, U.S. government-sponsored entity mortgage-backed securities, municipal bonds and other debt securities.

Loans ~~and leases~~ held for sale ~~decreased $87.9~~increased $83.2 million, or ~~7.9%~~7.5%, during the first ~~three~~six months of 2022, from $1.12 billion at December 31, 2021, to ~~$1.03~~$1.20 billion at ~~March 31,~~June 30, 2022. The ~~decrease~~increase was primarily the result of strong ~~loan sales in~~origination volumes during the first ~~three months~~half of the year combined with intentionally holding loans available for sale for longer periods of time during the second quarter of 2022 ~~combined with higher levels~~due to recent circumstances negatively impacting gain on sale premiums. See “Results of ~~loans being retained as held~~Operations” discussion of “Net Gains on Sales of Loans” for ~~investment.~~additional information.

Loans and leases held for investment increased ~~$217.0~~$338.9 million, or ~~3.9%~~6.1%, during the first ~~three~~six months of 2022, from $5.52 billion at December 31, 2021, to ~~$5.74~~$5.86 billion at ~~March 31,~~June 30, 2022. The increase was primarily the result of the above-mentioned loan originations in 2022 combined with increased levels of loans retained as held for investment. Excluding PPP loans, total loans and leases held for investment increased ~~$348.0~~$539.5 million, or ~~6.6%~~10.3%, during the first ~~three~~six months of 2022. All PPP loans are classified as held for investment.

Total deposits were ~~$7.64~~$8.16 billion at ~~March 31,~~June 30, 2022, an increase of ~~$525.1 million,~~$1.04 billion, or ~~7.4%~~14.7%, from $7.11 billion at December 31, 2021. The increase in deposits is largely driven by significant loan origination efforts.

Borrowings decreased to ~~$196.9~~$86.2 million at ~~March 31,~~June 30, 2022 from $318.3 million at December 31, 2021. This decrease was related principally to net curtailments of borrowings through the PPPLF ~~in the first quarter of~~which decreased to $48.2 million at June 30, 2022 from ~~PPP loan forgiveness.~~$267.6 million at December 31, 2021. These PPPLF borrowings are used to help fund PPP loans.

Shareholders’ equity at ~~March 31,~~June 30, 2022 was ~~$713.3~~$791.7 million as compared to $715.1 million at December 31, 2021. The book value per share was ~~$16.29~~$18.05 at ~~March 31,~~June 30, 2022 compared to $16.39 at December 31, 2021. Average equity to average assets was ~~8.7%~~9.1% for the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to 8.8% for the year ended December 31, 2021. The ~~decrease~~increase in shareholders’ equity for the first ~~three~~six months of 2022 was principally the result of ~~$38.5~~$131.5 million in net income and stock-based compensation expense of $10.0 million, partially offset by other comprehensive loss associated with negative market impacts on the Company’s available-for-sale investment portfolio ~~partially offset by net income~~ of ~~$34.5 million and stock-based compensation expense of $5.0~~$61.2 million.

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).

Nonperforming assets and TDRs, excluding loans measured at fair value, at ~~March 31,~~June 30, 2022 were ~~$93.8~~$88.8 million, which represented a ~~$13.6~~$8.6 million, or ~~16.9%~~10.7%, increase from December 31, 2021. These nonperforming assets at ~~March 31,~~June 30, 2022 were comprised of ~~$52.3~~$45.8 million in nonaccrual loans and leases and ~~$198~~$191 thousand in foreclosed assets. Of the ~~$93.8~~$88.8 million of nonperforming assets and TDRs, ~~$52.4~~$54.8 million carried a government guarantee, leaving an unguaranteed exposure of ~~$41.4~~$34.0 million in total nonperforming assets and TDRs at ~~March 31,~~June 30, 2022. This represents ~~an increase~~a decrease of ~~$4.4~~$3.0 million, or ~~12.0%~~8.2%, from an unguaranteed exposure of $37.0 million at December 31, 2021.

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

	March 31, 2022 ⁽¹⁾			December 31, 2021 ⁽¹⁾			June 30, 2022 ⁽¹⁾			December 31, 2021 ⁽¹⁾
Nonaccrual loans and leases:
Total nonperforming loans and leases (all on nonaccrual)	$	52,303		$	42,533		$	45,768		$	42,533
Total accruing loans and leases past due 90 days or more		—			—			—			—
Foreclosed assets		198			620			191			620
Total troubled debt restructurings		63,865			55,273			66,638			55,273
Less nonaccrual troubled debt restructurings		(22,563	)		(18,210	)		(23,809	)		(18,210	)
Total performing troubled debt restructurings		41,302			37,063			42,829			37,063
Total nonperforming assets and troubled debt restructurings	$	93,803		$	80,216		$	88,788		$	80,216
Allowance for credit losses on loans and leases	$	63,058		$	63,584		$	65,863		$	63,584
Total nonperforming loans and leases to total loans and leases held for investment		1.02	%		0.87	%		0.86	%		0.87	%
Total nonperforming loans and leases to total assets		0.65	%		0.56	%		0.53	%		0.56	%
Total nonperforming assets and troubled debt restructurings to total assets		1.17	%		1.06	%		1.04	%		1.06	%
Allowance for credit losses on loans and leases to loans and leases held for investment		1.23	%		1.30	%		1.24	%		1.30	%
Allowance for credit losses on loans and leases to total nonperforming loans and leases		120.56	%		149.49	%		143.91	%		149.49	%

Total nonperforming assets and TDRs, including loans measured at fair value, at ~~March 31,~~June 30, 2022 were ~~$164.7~~$148.7 million, which represented a ~~$11.2~~$4.9 million, or ~~7.3%~~3.2%, ~~increase~~decrease from December 31, 2021. These nonperforming assets at ~~March 31,~~June 30, 2022 were comprised of ~~$92.3~~$79.9 million in nonaccrual loans and leases and ~~$198~~$191 thousand in foreclosed assets. Of the ~~$164.7~~$148.7 million of nonperforming assets and TDRs, ~~$108.6~~$102.7 million carried a government guarantee, leaving an unguaranteed exposure of ~~$56.1~~$45.9 million in total nonperforming assets and TDRs at ~~March 31,~~June 30, 2022. This represents ~~an increase~~a decrease of ~~$3.6~~$6.6 million, or ~~6.8%~~12.6%, from an unguaranteed exposure of $52.5 million at December 31, 2021.

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 ~~7.1%~~6.1% at ~~March 31,~~June 30, 2022, compared to 6.0% at December 31, 2021. 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 ~~March 31,~~June 30, 2022 and December 31, 2021 were ~~2.6%~~1.6% and 2.3%, respectively.

As of ~~March 31,~~June 30, 2022, and December 31, 2021, potential problem (also referred to as criticized) and classified loans and leases, excluding loans measured at fair value, totaled ~~$412.4~~$396.1 million and $372.7 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 3. Loans and Leases Held for Investment and Credit Quality in the Company’s 2021 Form 10-K. At ~~March 31~~June 30, 2022, the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled ~~$198.3~~$196.6 million ~~resulting in~~and total portfolio unguaranteed exposure risk ~~of $214.1~~was $199.6 million, or ~~6.8%~~5.9% of total held for investment unguaranteed exposure carried at historical cost. This compares to the December 31, 2021 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled $197.2 million ~~resulting in~~and total portfolio unguaranteed exposure risk ofwas $175.5 million, or 6.3% of total held for investment unguaranteed exposure carried at historical cost. As of ~~March 31~~June 30, 2022, 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: ~~Educational Services at 13.0%,~~ Wine and Craft Beverage at 10.9%, Hotels at ~~9.5%~~9.8%, Educational Services at 9.0%, Senior Care at 8.6%, Healthcare at 7.7%, General Lending at 7.6%, Entertainment Centers at ~~9.2%, Healthcare at 7.5%, Senior Care at 7.3%~~6.0%, Agriculture at ~~7.1%~~4.7%, Veterinary at 4.6%, Fitness Centers at ~~5.3%~~4.4%, ~~Veterinary at 4.8%~~ and ~~Self Storage~~Sponsor Finance at 4.4%. As of December 31, 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: Educational Services at 16.1%, Wine and Craft Beverage at 13.7%, Hotels at 11.8%, Entertainment Centers at 10.4%, Healthcare at 9.0%, Fitness Centers at 5.3%, Self Storage at 4.8%, Agriculture at 4.5% and Veterinary at 4.4%. Other than Hotels 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 majority of the ~~$40.0~~$23.4 million ~~first quarter of 2022~~ increase in potential problem and classified loans and leases in the first six months of 2022 was comprised of ~~borrowers~~several relationships that did not have a government guarantee, largely ~~concentrated in~~related to some of the ~~Company’s~~ more ~~mature~~recently matured verticals. ~~Furthermore, the~~The Company believes that its underwriting and credit quality standards have remained high and continues to consider changing economic conditions in a rising interest rate environment.

Loans and leases that experience insignificant payment delays and payment shortfalls 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. 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. 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. At ~~March 31~~June 30, 2022, the Company had a total of ~~$3.1~~$7.8 million in modified unguaranteed loans and ~~leases.~~leases on payment deferral with $258 thousand in accrued interest.

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 ~~March 31~~June 30, 2022, and December 31, 2021, Risk Grade 5 loans and leases, excluding loans measured at fair value, totaled ~~$310.8~~$293.6 million and $267.4 million, respectively. The increase in Risk Grade 5 loans and leases, exclusive of loans measured at fair value, during the first ~~quarter~~half of 2022 was principally confined to ~~ten~~eight verticals: Senior Care ($~~18.5~~22.3 million or ~~42.7%), Agriculture ($8.5 million or 19.7%~~85.2%), Venture Banking ($~~7.9~~10.6 million or ~~18.3%~~40.4%), Rural Lending ($7.7 million or 29.3%), General Lending ($7.1 million or 27.1%), Sponsor Finance ($6.7 million or 25.6%), Solar Energy ($5.6 million or ~~12.9%~~21.4%), ~~Rural Lending~~Agriculture ($~~3.9~~4.8 million or ~~9.0%~~18.5%), and Bioenergy ($~~3.7~~4.2 million or ~~8.6%), Veterinary ($3.4 million or 7.9%), Sponsor Finance ($2.9 million or 6.7%), Fitness Centers ($2.7 million or 6.2%) and Government Contracting ($2.6 million or 5.9%~~15.7%). Partially offsetting the above increases were declines in Risk Grade 5 loans principally concentrated in ~~three~~four verticals: Educational Services ($~~6.3~~22.0 million or ~~14.5%~~83.9%), Entertainment Centers ($7.6 million or 29.1%), Hotels ($~~3.9~~4.3 million or ~~8.9%~~16.6%) and Wine and Craft Beverage ($~~2.9~~4.3 million or ~~6.6%~~16.4%). ~~Other than~~ Hotels, Sponsor Finance, Venture Banking, Solar Energy, Rural Lending ~~Bioenergy~~ and ~~Government Contracting, which~~Bioenergy are a part of the Company’s Specialty Lending division ~~all of~~with the remaining above listed verticals ~~are~~ within the Company’s Small Business Banking division.

At ~~March 31,~~June 30, 2022, approximately ~~98.2%~~98.8% of loans and leases classified as Risk Grade 5 are performing with 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. As government payment assistance began to expire toward the end of 2020, borrowers with continuing difficulties arising from the pandemic were provided additional relief through payment deferrals. At June 30, 2022, the Company had $23.3 million in unguaranteed loans on SBA payment assistance. 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.

The ACL of $63.6 million at December 31, 2021, ~~decreased~~increased by ~~$526 thousand,~~$2.3 million, or ~~0.8%~~3.6%, to ~~$63.1~~$65.9 million at ~~March 31,~~June 30, 2022. The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.3% and 1.2% ~~and 1.3%~~ at ~~March 31, 2022 and~~ December 31, 2021 ~~respectively. Excluding PPP loans~~ and ~~related reserves, the ACL as a percentage of loans and leases held for investment at historical cost also amounted to 1.2% and 1.3% at March 31,~~June 30, 2022, ~~and December 31,~~ respectively. The ~~decrease~~increase in the ACL during the first ~~quarter~~half of 2022 was primarily due to~~continued improvement in~~ ~~forecasts related to employment and default expectations combined with the effect of higher than usual recoveries in certain verticals and~~ overall growth in the loan and lease portfolio ~~as addressed more fully in~~combined with increased loss given default during the second quarter arising from charge-off experience from one relationship. See also the above section captioned “Provision for Loan and Lease Credit Losses” in “Results of ~~Operations.”~~Operations” for related information. The ACL for PPP loans and leases was $2.4 million and $96 thousand at December 31, 2021 and June 30, 2022, respectively.

Actual past due held for investment loans and leases, inclusive of loans measured at fair value, have decreased by ~~$14.3~~$27.5 million since December 31, 2021. Total loans and leases 90 or more days past due decreased ~~$3.4~~$11.4 million, or ~~7.0%~~23.2%, compared to December 31, 2021. ~~The~~This decrease was comprised of a ~~$264 thousand~~$5.4 million decrease in unguaranteed exposure combined with a ~~$3.2~~$6.0 million decrease in the guaranteed portion of past due loans compared to December 31, 2021. At ~~March 31,~~June 30, 2022 and December 31, 2021, 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 0.3% and 0.6%., respectively. Total unguaranteed loans and leases past due were comprised of ~~$15.6~~$7.6 million carried at historical cost, a decrease of ~~$991 thousand,~~$9.0 million, and ~~$5.7~~$3.7 million measured at fair value, ~~an increase~~a decrease of ~~$632 thousand,~~$1.4 million, as of ~~March 31~~June 30, 2022 compared to December 31, 2021. Management continues to actively monitor and work to improve asset quality. Management believes the ACL of ~~$63.1~~$65.9 million at ~~March 31,~~June 30, 2022 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 borrowers.~~valid. 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 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 ~~March 31,~~June 30, 2022, the total amount of these four items was ~~$3.88~~$4.05 billion, or ~~45.0%~~44.4% of total assets, an increase of ~~$461.7~~$634.6 million from $3.42 billion, or 41.6% of total assets, at December 31, 2021.

Loans and other assets are funded by loan sales, wholesale deposits and core deposits. To date, an increasing retail deposit base and a stable amount of brokered deposits have been adequate to meet loan obligations, while maintaining the desired level of immediate liquidity. The Company maintains an investment securities portfolio that is available for both immediate and secondary contingent liquidity purposes, whether via pledging to the Federal Home Loan Bank or through liquidation. Additionally, the Company maintains a guaranteed loan portfolio that is also a contingent liquidity source, whether via pledging to the Federal Reserve Discount Window or through liquidation.

At ~~March 31,~~June 30, 2022, none of the investment securities portfolio was pledged to secure public deposits or pledged to retail repurchase agreements, leaving ~~$842.1~~$925.5 million available to pledge as collateral.

The Company has entered into significant fixed and determinable contractual obligations for future payments. Other than normal changes in the ordinary course of the Company’s operations, there have been no significant changes in the types of contractual obligations or amounts due since December 31, 2021. See the section titled “Liquidity Management” in Part II, Item 7 of the Company’s 2021 Form 10-K for additional discussion of contractual obligations.

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of commitments to extend credit and standby letters of credit. For more information, see Note 10. Commitments and Contingencies in the accompanying notes to unaudited condensed consolidated financial statements.

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 ~~March 31~~June 30, 2022, the balance sheet’s total cumulative gap position was asset-sensitive at ~~4.6%~~5.7%.

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 instantaneous parallel interest rate ~~scenarios~~shocks applied to a static balance sheet to measure interest rate risk. As of ~~March 31~~June 30, 2022, the Company’s interest rate risk profile under the ~~earnings simulation model method~~instantaneous parallel interest rate shock scenarios remained asset-sensitive. For more information, see Item 3. Quantitative and Qualitative Disclosures About Market Risk. 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. Note that the Company regularly models various forecasted rate projections with non-parallel shifts that are reflective of potential current rate environment outcomes. Under these scenarios, the Company’s interest rate risk profile may increase in asset sensitivity, decrease in asset sensitivity, or depending on the scenario and timing of anticipated rate changes, may transition to a liability sensitive interest rate risk profile. Regular, robust modeling of various interest rate outcomes allows the Company to properly assess and manage potential risks from various rate shifts.

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 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 ~~March 31,~~June 30, 2022 and December 31, 2021, 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 - March 31, 2022
Consolidated - June 30, 2022
Common Equity Tier 1 (to Risk-Weighted Assets)	$	724,078		12.10	%	$	269,237		4.50	%	N/A		N/A			$	828,942		13.14	%	$	283,874		4.50	%	N/A		N/A
Total Capital (to Risk-Weighted Assets)	$	788,020		13.17	%	$	478,644		8.00	%	N/A		N/A				895,677		14.20			504,666		8.00		N/A		N/A
Tier 1 Capital (to Risk-Weighted Assets)	$	724,078		12.10	%	$	358,983		6.00	%	N/A		N/A				828,942		13.14			378,499		6.00		N/A		N/A
Tier 1 Capital (to Average Assets)	$	724,078		8.87	%	$	326,400		4.00	%	N/A		N/A				828,942		9.44			351,419		4.00		N/A		N/A
Bank - March 31, 2022
Bank - June 30, 2022
Common Equity Tier 1 (to Risk-Weighted Assets)	$	677,361		11.88	%	$	256,554		4.50	%	$	370,578		6.50	%	$	687,823		11.39	%	$	271,856		4.50	%	$	392,681		6.50	%
Total Capital (to Risk-Weighted Assets)	$	741,303		13.00	%	$	456,096		8.00	%	$	570,120		10.00	%		754,558		12.49			483,300		8.00			604,125		10.00
Tier 1 Capital (to Risk-Weighted Assets)	$	677,361		11.88	%	$	342,072		6.00	%	$	456,096		8.00	%		687,823		11.39			362,475		6.00			483,300		8.00
Tier 1 Capital (to Average Assets)	$	677,361		8.38	%	$	323,278		4.00	%	$	404,098		5.00	%		687,823		7.90			348,418		4.00			435,522		5.00
Consolidated - December 31, 2021
Common Equity Tier 1 (to Risk-Weighted Assets)	$	689,367		12.38	%	$	250,619		4.50	%	N/A		N/A			$	689,367		12.38	%	$	250,619		4.50	%	N/A		N/A
Total Capital (to Risk-Weighted Assets)	$	753,691		13.53	%	$	445,544		8.00	%	N/A		N/A				753,691		13.53			445,544		8.00		N/A		N/A
Tier 1 Capital (to Risk-Weighted Assets)	$	689,367		12.38	%	$	334,158		6.00	%	N/A		N/A				689,367		12.38			334,158		6.00		N/A		N/A
Tier 1 Capital (to Average Assets)	$	689,367		8.87	%	$	310,902		4.00	%	N/A		N/A				689,367		8.87			310,902		4.00		N/A		N/A
Bank - December 31, 2021
Common Equity Tier 1 (to Risk-Weighted Assets)	$	640,652		12.05	%	$	239,201		4.50	%	$	345,512		6.50	%	$	640,652		12.05	%	$	239,201		4.50	%	$	345,512		6.50	%
Total Capital (to Risk-Weighted Assets)	$	704,976		13.26	%	$	425,246		8.00	%	$	531,557		10.00	%		704,976		13.26			425,246		8.00			531,557		10.00
Tier 1 Capital (to Risk-Weighted Assets)	$	640,652		12.05	%	$	318,934		6.00	%	$	425,246		8.00	%		640,652		12.05			318,934		6.00			425,246		8.00
Tier 1 Capital (to Average Assets)	$	640,652		8.32	%	$	307,931		4.00	%	$	384,914		5.00	%		640,652		8.32			307,931		4.00			384,914		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, 2021, 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. The Company’s most critical accounting policies and estimates are listed below. These estimates 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.

Interest rate risk is a significant market risk and can result from timing and volume differences in the repricing of rate-sensitive assets and liabilities, widening or tightening of credit spreads, changes in the general level of market interest rates and changes in the shape and level of market yield curves. The Company manages the interest rate sensitivity of interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Management of interest rate risk is carried out primarily through strategies involving available-for-sale securities, loan and lease portfolio, and available funding sources.

The Company has an Asset/Liability Committee to communicate, coordinate and control all aspects involving interest rate risk management. The Asset/Liability Committee, which includes three members of our board of directors, establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals. Adherence to relevant policies is monitored on an ongoing basis by the Asset/Liability Committee.

The Company has a total cumulative gap in interest-earning assets and interest-bearing liabilities of ~~4.56%~~5.7% as of ~~March 31,~~June 30, 2022, indicating that, overall, assets will reprice before liabilities during the expected life of the instruments. Cumulative gap is a useful measure to monitor balance sheet match-funding, yet economic value of equity and net interest income simulations, discussed below, are more useful in understanding potential impacts to earnings from a change in interest rates.

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The Company analyzes interest rate sensitivity position to manage the risk associated with interest rate movements through the use of two simulation models: economic value of equity (“EVE”) and net interest income (“NII”) simulations. These simulations project both short-term and long-term interest rate risk under a variety of instantaneous parallel rate shocks applied to a static balance sheet. The EVE simulation provides a long-term view of interest rate risk because it analyzes all of the Company’s future cash flows. EVE is defined as the present value of the Company’s assets, less the present value of its liabilities, adjusted for any off-balance sheet items. The results show a theoretical change in the economic value of shareholders’ equity as interest rates change.

EVE and NII simulations are completed routinely and presented to the Asset/Liability Committee. The simulations provide an estimate of the impact of changes in interest rates on equity and net interest income under a range of assumptions. The numerous assumptions used in the simulation process are provided to the Asset/Liability Committee on at least an annual basis. Changes to these assumptions can significantly affect the results of the simulation. The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates. The simulation analysis incorporates management’s current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.

Simulation analysis is only an estimate of interest rate risk exposure at a particular point in time. The Company ~~continually reviews~~regularly models various forecasted rate projections with non-parallel shifts that are reflective of potential current rate environment outcomes. Under these scenarios, the ~~potential effect changes~~Company’s interest rate risk profile may increase in ~~interest rates could have~~asset sensitivity, decrease in asset sensitivity, or depending on the ~~repayment~~scenario and timing of anticipated rate changes, may transition to a liability sensitive ~~assets~~interest rate risk profile. Regular, robust modeling of various interest rate outcomes allows the Company to properly assess and ~~funding requirements of~~manage potential risks from various rate ~~sensitive liabilities.~~shifts.

The table below sets forth an approximation of the Company’s NII sensitivity exposure for the 12-month periods ending ~~March 31,~~June 30, 2023 and 2024 and the Company’s EVE sensitivity at ~~March 31,~~June 30, 2022. The simulation uses projected repricing of assets and liabilities at ~~March 31,~~June 30, 2022 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Critical model assumptions such as loan and investment prepayment rates, deposit decay rates, deposit betas and lags and assumed replacement pricing can have a significant impact on interest income simulation. A static balance sheet is maintained to remove volume considerations and to place the focal point on the rate sensitivity of the Company’s balance sheet. While management believes such assumptions to be reasonable, approximate actual future activity may differ from the results shown below as it will include growth considerations, non-parallel rate movements, and management actions to mitigate the impacts of changing interest rates on the balance sheet’s earnings profile.

	Estimated Increase/Decrease in Net Interest Income		Estimated Percentage Change in EVE	Estimated Increase/Decrease in Net Interest Income		Estimated Percentage Change in EVE
Basis Point ("bp") Change in Interest Rates	12 Months Ending March 31, 2023	12 Months Ending March 31, 2024	As of March 31, 2022	12 Months Ending June 30, 2023	12 Months Ending June 30, 2024	As of June 30, 2022
+400	8.4%	6.3%	(34.0)%	10.1%	6.5%	(30.8)%
+300	6.3	4.6	(26.2)	7.5	4.8	(23.7)
+200	4.1	2.9	(17.8)	5.0	3.2	(16.1)
+100	2.0	1.4	(9.0)	2.5	1.6	(8.2)
-100	(5.2)	(5.7)	10.1	(2.4)	(1.5)	8.1
-200				(6.4)	(5.5)	19.1

Rates are increased instantaneously at the beginning of the projection. The Company is slightly asset sensitive in the initial year, as the Company’s large variable rate loan portfolio reprices the full amount of the assumed change in interest rates, while the large retail savings and short-term retail certificates of deposits portfolio will reprice with an assumed beta. Annually, the Company’s retail certificate of deposits portfolio has a significant maturity event in the first half of the year. The Company is slightly asset sensitive in the second year of the projection due to interest rates increasing or decreasing for the full year, the Company’s loan portfolio continuing to reprice, and also due to the other assumptions used in the analysis as noted previously. Interest rates do not normally move all at once or evenly over time, but management believes that the analysis is useful to understanding the potential direction and magnitude of net interest income changes due to changing interest rates.

The EVE analysis shows that the Company would theoretically lose market value in a rising rate environment. The favorable EVE change resulting from the loan and lease portfolio in a rising rate analysis is more than offset by the devaluation of the interest-bearing liabilities. This is largely driven by the Company’s longer asset duration, primarily consisting of investments and loans, versus the shorter duration of its funding portfolio, primarily consisting of retail savings and short-term retail certificates of deposits. Increased fixed rate loan production since 2020, given the historical low market rate environment, has also been a significant driver in the model results.

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 ~~March 31,~~June 30, 2022, 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 ~~March 31,~~June 30, 2022, 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.

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~March 31,~~June 30, 2022, 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 at times involved in legal proceedings. In the opinion of management, as of ~~March 31,~~June 30, 2022, 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 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 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~~alleged 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~~alleged 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~~sought 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, which the court granted by order entered on November 23, 2021. After class-wide noticing, the plaintiff filed a motion for final approval on March 28, 2022, which the court granted by order entered on April 28, 2022. Pursuant to the terms of the settlement, the ~~Company expects the~~ settlement ~~to become finally~~became effective ~~no later than~~on June ~~30,~~11, 2022.

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, 2021.

~~None.~~On May 17, 2022, the Board of Directors of the Company authorized the repurchase of up to $50,000,000 in shares of the Company’s voting common stock from time to time through December 31, 2023 (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 June 30, 2022, the Company had not made any purchases of shares under the Repurchase Program.

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)

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 M~~arch~~ ~~31,~~June 30, 2022 and December 31, 2021		1
	Condensed Consolidated Statements of Income for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021		2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021		3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021		4
	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021		56
	Notes to Unaudited Condensed Consolidated Financial Statements		78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3235
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		4955
Item 4.	Controls and Procedures		5056
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		5157
Item 1A.	Risk Factors		5157
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		5157
Item 3.	Defaults Upon Senior Securities		5157
Item 4.	Mine Safety Disclosures		5157
Item 5.	Other Information		5157
Item 6.	Exhibits		5258
	Index to Exhibits		5258
	Signatures		5359

	Three Months Ended March 31,
	2022			2021
Net income	$	34,509		$	39,427
Other comprehensive loss before tax:
Net unrealized loss on investment securities arising during the period		(50,594	)		(16,288	)
Reclassification adjustment for gain on sale of securities available-for-sale included in net income		—			—
Other comprehensive loss before tax		(50,594	)		(16,288	)
Income tax benefit		12,142			3,909
Other comprehensive loss, net of tax		(38,452	)		(12,379	)
Total comprehensive (loss) income	$	(3,943	)	$	27,048

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net income	$	97,039		$	63,582		$	131,548		$	103,009
Other comprehensive (loss) income before tax:
Net unrealized (loss) gain on investment securities arising during the period		(29,967	)		5,257			(80,561	)		(11,031	)
Reclassification adjustment for gain on sale of securities available-for-sale included in net income		—			—			—			—
Other comprehensive (loss) income before tax		(29,967	)		5,257			(80,561	)		(11,031	)
Income tax benefit (expense)		7,190			(1,262	)		19,332			2,647
Other comprehensive (loss) income, net of tax		(22,777	)		3,995			(61,229	)		(8,384	)
Total comprehensive income	$	74,262		$	67,577		$	70,319		$	94,625

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

	March 31, 2022 ⁽¹⁾			December 31, 2021 ⁽¹⁾
Nonaccrual loans and leases guaranteed by U.S. government:
Total nonperforming loans and leases guaranteed by the U.S government (all on nonaccrual)	$	32,828		$	26,546
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		162			490
Total troubled debt restructurings guaranteed by the U.S. government		33,766			26,954
Less nonaccrual troubled debt restructurings guaranteed by the U.S. government		(14,397	)		(10,770	)
Total performing troubled debt restructurings guaranteed by U.S. government		19,369			16,184
Total nonperforming assets and troubled debt restructurings guaranteed by the U.S. government	$	52,359		$	43,220
Allowance for credit losses on loans and leases	$	63,058		$	63,584
Total nonperforming loans and leases not guaranteed by the U.S. government to total held for investment loans and leases		0.38	%		0.33	%
Total nonperforming loans and leases not guaranteed by the U.S. government to total assets		0.24	%		0.21	%
Total nonperforming assets and troubled debt restructurings not guaranteed by the U.S. government to total assets		0.52	%		0.49	%
Allowance for credit losses on loans and leases to total nonperforming loans and leases not guaranteed by the U.S government		323.79	%		397.73	%


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 2022 RSU Award Agreement for non-employee directors* #
10.2.1			Member Interest Letters, dated May 9, 2019 and September 7, 2019, as revised on February 14, 2022, from Canapi Ventures LOB SLP, LLC, to the Neil L. Underwood Revocable Trust * #
10.2.2			Member Interest Letter, dated May 5, 2022, from Canapi Ventures LOB SLP II, LLC, to the Neil L. Underwood Revocable Trust * #
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 ~~March 31,~~June 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Statements of Income for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021; (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021; (v) Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021; 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: ~~May 4,~~August 3, 2022	By:	/s/ William C. Losch III
		William C. Losch III
		Chief Financial Officer