DEF 14A of Live Oak Bancshares, Inc.
Filed Apr 5, 2024 · FY20230001462120-24-000028
PROPOSAL 1: ELECTION OF DIRECTORS
PROPOSAL 1: ELECTION OF DIRECTORS The Board of Directors has set the number of directors of the Company at ten and recommends that shareholders vote for the nominees listed below, each for a term of one year.
PROPOSAL 1: ELECTION OF DIRECTORS
| Name and Age | Position(s) Held | Director Since (1) | Principal Occupation and Business Experience During the Past Five Years | | Tonya W. Bradford (59) | Director | 2020 | Associate Professor of Marketing at the University of California, Irvine. | | William H. Cameron (70) | Director | 2013 | President, Cameron Management, Inc., an investment management company focusing on real estate development, brokerage, and property management. | | Diane B. Glossman (68) | Director | 2014 | Retired investment analyst with over 25 years of experience as an analyst and over 25 years of governance experience on corporate boards of directors; currently serves on the boards of directors of Barclays US LLC, Barclays Bank Delaware, and Roadzen Inc. Previously, Ms. Glossman served on the board of directors of Bucks County SPCA, WMI Holdings Corp., FinServ Acquisition Corp., and Vahanna Tech Edge Acquisition I Corp. | | Glen F. Hoffsis (83) | Director | 2008 | Veterinary consultant and founding dean of the College of Veterinary Medicine at Arkansas State University; currently serves on the Board of Trustees of Ross University Medical Group; formerly, served as the Special Assistant to the President, Lincoln Memorial University. | | David G. Lucht (67) | Director | 2008 (2) | Retired Executive Vice President of Credit of the Bank. | | James S. Mahan III (72) | Chairman and CEO | 2008 | Chairman and Chief Executive Officer of the Company and the Bank. | | Miltom E. Petty (72) | Director | 2010 | Executive Vice President of Carolina Hosiery Mills, Inc., a privately held manufacturing and real estate development company, and previously served as the Chief Financial Officer for 45 years. | | Neil L. Underwood (54) | Director | 2008 | Former President of the Company; General partner and co-founder of Canapi Ventures, a series of funds focused on providing venture capital to new and emerging financial technology companies. | | Yousef A. Valine (64) | Director | 2022 | Financial services executive with 39 years of experience across a broad range of areas, including credit, operations, regulatory relations, governance, information technology, treasury services, mergers and acquisitions, and risk management. | | William L. Williams III (72) | Vice Chairman and EVP | 2008 | Executive Vice President and Vice Chairman of the Company and the Bank. |
PROPOSAL 1: ELECTION OF DIRECTORS
(1)The year first elected indicates the year in which each individual was first elected a director of the Company or the Bank and does not reflect any break(s) in tenure. (2)Mr. Lucht was previously a member of our Board of Directors from 2008 until 2017 and was re-appointed effective February 23, 2021. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” EACH OF THE NOMINEES FOR DIRECTOR OF THE COMPANY FOR A TERM OF ONE YEAR.
Qualifications of Directors
Qualifications of Directors
Qualifications of Directors
| | Tonya W. Bradford. Dr. Bradford was appointed as a member of our Board of Directors in September 2020 and serves on the Audit, Risk, and Compensation Committees. Dr. Bradford is an associate professor of marketing at the University of California, Irvine where she conducts research regarding rituals, communities and identity across phenomenon including gifting (e.g., registry, organ, charitable), relationships with money, communities (e.g., tailgating and support), acculturation, and brand loyalty. Dr. Bradford graduated with a Bachelor of Arts degree in Anthropology from Northwestern University, a Masters in Business Administration from the Kellogg School of Management, Northwestern University, and a doctoral degree in Marketing from Northwestern University. Her research is published in premier journals, including the Journal of Consumer Research, the Journal of Marketing, the Journal of the Academy of Marketing Science, the Journal of Retailing, the Journal of Business Research, the Journal of Interactive Marketing, and Research in Consumer Behavior. Dr. Bradford serves as associate editor for Journal of Retailing and Journal of Public Policy & Marketing, as well as serving on the editorial review board for the Journal of the Academy of Marketing Science, Journal of Consumer Research, and the Journal of Marketing. Dr. Bradford currently serves on the board of directors of Tealium Inc. Prior to joining the University of California, Dr. Bradford worked domestically and abroad in financial services including Charles Schwab & Company, Gemini Consulting (now Ernst & Young), and S1 Corporation. We believe Dr. Bradford’s depth of executive and academic experience, including marketing expertise, qualify her to serve on our Board of Directors. | | | William H. Cameron. Mr. Cameron has served on our Board of Directors since November 2013 and chairs the Compensation Committee and serves on the Nominating and Corporate Governance, Audit, and Risk Committees. Mr. Cameron has extensive prior experience as a director of a financial institution, having served as a founding director of Port City Capital Bank and as a director of Crescent Financial Corporation and Crescent State Bank following its acquisition of Port City Capital Bank in 2006. Mr. Cameron has extensive executive experience in corporate and real estate finance, real estate development, and private equity. He has been President of Cameron Management, Inc. since 2000 and has held leadership positions in a number of businesses over the last 30 years. Mr. Cameron served as Chief Operating Officer of Atlantic Telecasting Corporation, the NBC television affiliate in Wilmington, North Carolina. Mr. Cameron holds a B.S. in Business Administration and a Juris Doctor degree from the University of North Carolina at Chapel Hill. He has successfully completed the North Carolina Bank Directors’ College and has participated in numerous Advanced Bank Directors’ College programs. As an active business, civic and charitable leader, Mr. Cameron serves on the board of the Dan Cameron Family Foundation, Inc. and as chair of the New Hanover Community Endowment. He is president of the Dan Cameron Family Foundation, Inc., which has made significant contributions to the economic and cultural development of the Wilmington area. We believe Mr. Cameron’s prior experience as a director of two FDIC-insured financial institutions over a period of 15 years brings to our board critical skills related to financial oversight of complex organizations, strategic planning and corporate governance and qualifies him to serve as one of our directors. |
Qualifications of Directors
| | Diane B. Glossman. Ms. Glossman has served as a member of our Board of Directors since August 2014. She chairs the Nominating and Corporate Governance and Risk Committees and serves on the Compensation Committee and Audit Committee. Ms. Glossman is a retired investment analyst with over 25 years of experience as an analyst and over 25 years of governance experience on boards. Ms. Glossman currently serves on the boards of directors of Barclays US LLC, Barclays Bank Delaware, and Roadzen Inc. Previously, Ms. Glossman served on the board of directors of WMI Holdings Corp. from 2012 through July 2018, FinServ Acquisition Corp. from November 2019 to June 2021, Vahanna Tech Edge Acquisition I Corp. from November 2021 through September 2023, as well as the boards of directors of the Bucks County SPCA, Ambac Assurance Company, QBE North America and A.M. Todd Company. Ms. Glossman also served as an independent trustee on State Street Global Advisors mutual fund board. Ms. Glossman was a six-time member of Institutional Investor’s All-America Research Team and a member of the top ranked Global Bank Research team, along with winning the 2003 Wall Street Journal survey in the broker/dealer category and was ranked for several years in the Reuters large cap and mid cap bank surveys by both fund managers and companies. Further, she was a frequent commentator on industry and company events for such entities as The Nightly Business Report, the Wall Street Journal, Financial Times, the New York Times, the Economist, CNN, CNBC, and various trade publications. Ms. Glossman earned a B.S. in economics from the Wharton School at the University of Pennsylvania with a double major in finance and health care administration, having also attended the University of California at Davis. Ms. Glossman was awarded her Chartered Financial Analyst designation (CFA). We believe that Ms. Glossman’s depth of experience and financial expertise, and ability to serve as an Audit Committee financial expert, qualify her to serve as one of our directors. | | | Glen F. Hoffsis. Dr. Hoffsis has served as a member of our Board of Directors since 2008. He serves on the Nominating and Corporate Governance Committee and the Compensation Committee. He is a veterinarian who has devoted most of his career to veterinary colleges as a clinician, teacher, researcher and administrator. Since June 2023, Dr. Hoffsis has served as the founding dean of the College of Veterinary Medicine at Arkansas State University. Retiring in July 2013 as dean of the College of Veterinary Medicine at the University of Florida, Dr. Hoffsis was appointed dean of the newly established Lincoln Memorial University College of Veterinary Medicine effective July 2014. He relinquished the deanship in July 2016 to become Special Assistant to the President of LMU, which he served as until July 2021. Prior to that he served as Director of Veterinary Services at Procter and Gamble for two years. He was Dean of the College of Veterinary Medicine at the Ohio State University for 11 years. He has held many professional positions and served on the board of directors of Banfield Pet Hospitals of Portland, Oregon, from 2010 to 2015. In February 2017, Dr. Hoffsis was appointed to the Board of Trustees of Ross University Medical Group. He is a diplomate of the American College of Veterinary Internal Medicine. Dr. Hoffsis is well known and respected within the veterinary profession. We believe that his wide range of knowledge and perspective relative to the business of veterinary medicine brings important skills and qualifies him to serve on the Board of Directors. If re-elected at the Annual Meeting, Dr. Hoffsis intends to retire from the Company's Board of Directors at the 2025 Annual Meeting of Shareholders. |
Qualifications of Directors
| | David G. Lucht. Mr. Lucht was most recently appointed as a member of our Board of Directors in February 2021. He is a founding member of the executive management team and previously served on the Board of Directors from 2008 to 2017. He served in several roles at Live Oak Bank including as President, Chief Risk Officer, Chief Lending Officer and Chief Credit Officer. After retiring from the Board in November 2017, Mr. Lucht continued to serve in several roles with the Bank most recently as Executive Vice President of Credit, until his retirement from employment in December 2020. Before joining the Bank’s predecessor in May of 2007, Mr. Lucht held executive positions with several different banking institutions, including Chief Credit Officer and Executive Vice President for First Merit Bank, Akron, Ohio, where he was responsible for leading a turnaround in credit culture and performance of the $10.5 billion bank. Prior to First Merit, Mr. Lucht served as Senior Credit Officer of National City Bank, Cleveland, Ohio. A native of Ohio, Mr. Lucht began his banking career with National City Bank in 1985 after graduating from Kent State University with his Master’s in Business Administration. He obtained his undergraduate Bachelor of Science degree in Marketing at Miami University in Ohio. Mr. Lucht helped design the Bank’s approach to the identification and management of credit risk. He has helped to positively shape the corporate culture of the Company since inception, and his leadership and executive management experience, which has contributed to our success to date, qualifies him to serve as a member of our Board of Directors. | | | James S. Mahan III. Mr. Mahan is the Company’s founder, Chief Executive Officer and Chairman of the Board of Directors. Mr. Mahan is also a managing partner and co-founder of Canapi Ventures, a series of funds focused on providing venture capital to new and emerging financial technology companies. Mr. Mahan currently serves on the board of directors for Apiture, Inc., a joint venture between Live Oak Banking Company and First Data Corporation, and DefenseStorm, Inc., a cloud-based cyber security firm. Mr. Mahan is also co-founder of nCino, Inc., a cloud-based banking software built on the Salesforce platform, Finxact, Inc., the cloud-native core-as-a-service platform, and Payrailz, Inc., a digital payment company. Prior to starting Live Oak Bank, Mr. Mahan was the Chief Executive Officer and Chairman for S1 Corporation and founder of Security First Network Bank, the world’s first internet bank. Under his leadership, S1 Corporation grew to become a $234 million software and services provider in only six years, averaging more than 200 percent growth year over year. At its peak, S1 had a market capitalization of over $6 billion. During his term as Chief Executive Officer, Mr. Mahan was ranked as one of the 10 Most Influential Personalities in Financial Services by FutureBanker magazine. Prior to founding Security First Network Bank and S1 Corporation, Mr. Mahan launched Cardinal Bancshares, where he served as Chairman and Chief Executive Officer. Mr. Mahan built Cardinal into an institution with approximately $675 million in total assets and took the company public in 1992. Before launching Cardinal, Mr. Mahan spent several years with Citizens Union National Bank & Trust Co., serving as President, Chief Operating Officer and Vice Chairman and becoming Chairman and Chief Executive Officer in 1984. In 1986, Mr. Mahan formed an investment group that purchased Citizens Union and subsequently sold it to BankOne Corp. of Columbus, Ohio. Mr. Mahan began his career in 1973 at Wachovia Bank & Trust Co. in Winston-Salem, NC, after graduating with a Bachelor’s degree in Economics from Washington & Lee University in Lexington, Virginia. As the Company’s founder, Chief Executive Officer and Chairman, Mr. Mahan brings valuable perspective and experience which qualifies him to serve as a member of the Board of Directors. |
Qualifications of Directors
| | Miltom E. Petty. Mr. Petty has served as a member of our Board of Directors since August 2010. He chairs our Audit Committee. Mr. Petty currently serves as Executive Vice President of Carolina Hosiery Mills, Inc., a privately held manufacturing and real estate development company, and previously served as its Chief Financial Officer for 45 years. Since August 2013, Mr. Petty has served as a director of Trust Company of the South. Mr. Petty graduated with a Bachelor of Science degree in Business Administration from the University of North Carolina at Chapel Hill. He has held an active CPA license from the State of North Carolina for over 40 years. We believe Mr. Petty’s experience serving as the Chief Financial Officer and now the Executive Vice President of Carolina Hosiery Mills, Inc., including his familiarity with accounting standards and ability to serve as an Audit Committee financial expert, brings important skills and qualifies him to serve on our Board of Directors. | | | Neil L. Underwood. Mr. Underwood has served as a member of our Board of Directors since 2008, and previously served as President until November 2023. Mr. Underwood is a general partner and co-founder of Canapi Ventures, a series of funds focused on providing venture capital to new and emerging financial technology companies. Prior to joining the Bank, Mr. Underwood served as General Manager of S1 Corporation, where he was responsible for the S1 Enterprise division. S1, since acquired by ACI Worldwide, Inc., built and deployed financial services systems such as online banking, payments and mobile solutions to over 3,000 financial institutions worldwide. Before S1, Mr. Underwood played a key role in launching the Americas division of Brokat Technologies AG, a global financial services software supplier based in Stuttgart, Germany. Acting as Chief Operating Officer, he was responsible for Retail and Wholesale Banking solutions for the Americas. Mr. Underwood came to Brokat as a principal of Transaction Software, which was acquired by Brokat in May of 1999. While at the Bank, Mr. Underwood co-founded nCino, a cloud-based bank operating system now serving over 200 financial institutions globally. Through the venture arm of the Company, Mr. Underwood has incubated and helped raise capital for companies focused on digital bank transformation such as Finxact Inc., Payrailz, LLC, DefenseStorm, Inc. and Greenlight Financial Technologies, Inc. In 2017, Mr. Underwood co-founded Apiture, a joint venture between the Bank and First Data Corporation, serving as a cloud-native omni-channel onboarding and servicing platform. Mr. Underwood currently serves on the board of directors of Live Oak Bank, DefenseStorm, Inc., Apiture, Inc., Greenlight Financial Technologies, Inc., Able AI, Inc., Notarize, Inc., Posh Technologies, Inc., Camp Schreiber Foundation and Asset Class Limited. A native of Miami, Florida, Mr. Underwood holds a Bachelor of Science Degree in Industrial Engineering from the Georgia Institute of Technology. Mr. Underwood’s experience in the technology sector, coupled with a talented approach to management and resource utilization, makes him well suited to serve as a member of our Board of Directors. | | | Yousef A. Valine. Mr. Valine was appointed as a member of our Board of Directors in September 2022. He has 39 years of broad experience in financial services which include 24 years at Wachovia and 13 years at First Horizon Corporation. Mr. Valine’s leadership and expertise span all aspects of credit, market and operational risk management, regulatory relations, management and board governance, Community Reinvestment and Bank Secrecy Acts, operations, information technology, treasury services, finance and mergers and acquisitions. He has served as Chief Operating Officer, Chief Risk Officer and Merger Executive at First Horizon. Prior to joining First Horizon, Mr. Valine held progressively senior roles at Wachovia, including Chief Operating Officer of the Risk Management Division. We believe Mr. Valine’s depth of executive experience in banking and financial services, including risk management, qualify him to serve on our Board of Directors. |
Qualifications of Directors
| | William L. Williams III. Mr. Williams is the Vice Chairman of our Board of Directors and one of the original founders of the Bank. He currently serves as Executive Vice President of the Company and the Bank. Prior to starting at Live Oak Bank, Mr. Williams spent 19 years in corporate banking at Wachovia Bank & Trust Co. and worked for 14 years at Vine Street Financial doing SBA lending. Mr. Williams began his banking career in 1973 at Wachovia, where he worked with Wachovia Services, Inc., then Wachovia Regional Corporate Lending, calling on and lending to mid-market regional companies. In 1987, he relocated to Wilmington, North Carolina, where he managed the Wachovia Corporate Lending group for the three-county area of Southeastern North Carolina. In 1992, he re-joined Mr. Mahan at Cardinal Bancshares as they began Vine Street Financial, a niche SBA lending division of Vine Street Trust Company. Mr. Williams held several positions within this group including President and Senior SBA lender. Through a series of mergers/acquisitions, Vine Street Financial became a division of BB&T, where Mr. Williams served as a senior SBA lender, resigning in May of 2007 to found Live Oak Bank’s predecessor. Mr. Williams currently serves on the Board of Trustees for Elon University. Mr. Williams graduated in 1973 from the University of North Carolina at Chapel Hill with a B.S. degree in Business Administration. Mr. Williams’ over 40 years of corporate banking experience, including deep experience in the SBA lending sector and his involvement as a founder and organizer of our Company, make him uniquely qualified to serve as Vice Chairman of our Board of Directors. |
Key 2023 Compensation Highlights
Key 2023 Compensation Highlights ➢ Mr. Mahan received a base salary, perquisites, and other benefits for 2023. Mr. Mahan’s salary has not materially increased since we completed our IPO. Due to his long-standing and substantial stock ownership in the Company, the Committee believes Mr. Mahan’s interests are aligned with those of our shareholders to a substantial degree and has not awarded Mr. Mahan any equity-based awards since the IPO. ➢ None of our NEOs received a discretionary cash bonus for the 2023 performance year. See “2023 Discretionary Cash Bonus” below for more details. ➢ Messrs. Losch, Derraik, and Seward and Ms. Mann each received restricted stock unit (“RSU”) awards that vest pro rata over five years. The RSUs granted to each of them in February 2024 were based on the Committee’s review of Company and individual performance during 2023. Mr. Losch also received an RSU award in February 2024 in recognition of his promotion to President of the Company and the Bank, which vests pro rata over five years beginning on August 25, 2024, the first anniversary of his promotion to President of the Bank. See “2023 RSU Awards” below for more details on these RSUs. ➢ Our NEOs serve at the discretion of the Board of Directors, and no NEO is party to an employment agreement.
2023 Compensation Program
2023 Compensation Program The Committee seeks to align management’s incentives with the long-term interests of our shareholders by designing incentive compensation to reward corporate performance. When approving compensation for the 2023 performance year for our NEOs, the Committee reviewed key financial measures and performance related to our strategic plan and financial results. When it considered the base salary and any equity-based awards for the NEOs, the Committee’s evaluation of our performance was more subjective in nature than objective without specific financial targets, objectives, or time periods under review. The Committee also had the goal of attracting and retaining its talented NEOs through the compensation program. In February 2024, the Committee determined to award RSUs based on its review of Company and individual performance during 2023. The Committee did not target any specific mix or percentage of compensation components and believes that the overall mix of 2023 compensation components for the NEOs, including base salary that provided fixed pay and awards of RSUs to Messrs. Losch, Derraik, and Seward, and Ms. Mann, each of which will vest pro rata over a five-year period, appropriately motivated the NEOs and aligned their interests with the long-term interests of shareholders. Base Salaries. We aim to provide our NEOs with a base salary that is commensurate with similar financial institutions and appropriate for the overall responsibility of the individual based on experience, performance and any other unique factors or qualifications such as the difficulty of replacing the officer with someone of comparable experience and skill. The base salaries are intended to compensate our NEOs for the day-to-day services performed for us. When setting base salaries for our executive officers, the Committee considers the scope of the officer’s role and the officer’s ability to contribute to our success. The Committee also considers length of service as well as other forms of compensation awarded. For executive officers other than the CEO, the Committee takes into account the CEO’s input and recommendations. After considering these factors, the Committee increased 2023 base salaries for Messrs. Losch, Derraik, and Seward, and Ms. Mann. In the case of Messrs. Losch and Seward and Ms. Mann, the Committee specifically considered that each of these officers took on expanded duties and responsibilities beginning in July 2022. Mr. Mahan’s 2023 base salary was unchanged from 2022. Prior to the termination of his employment in August 2023, Mr. Garriott’s 2023 base salary was unchanged from 2022. 2023 Discretionary Cash Bonus. In February 2024, the Committee reviewed our performance for 2023. Based on overall Company performance that was largely driven by industry challenges that negatively impacted performance, the Committee determined not to award a discretionary cash bonus to any NEO. Equity Compensation. At various times, the Committee awards incentive compensation to our NEOs in the form of equity-based compensation in order to further align management and shareholder interests and to reward management for increases in shareholder value. The Committee also uses these awards to attract and retain its NEOs. Grants are not made on a pre-determined schedule but are typically made during an open trading window under our Insider Trading Policy. 2023 RSU Awards. In February 2024, the Committee reviewed both Company and individual performance during 2023. The Committee specifically considered the financial highlights and events under the heading “Key 2023 Business and Financial Highlights” above. The Committee determined to grant RSU awards that vest pro rata over five years for each of our NEOs other than Mr. Mahan and Mr. Garriott. The Committee has not awarded Mr. Mahan any equity-based awards since the Company’s IPO, and Mr. Garriott’s employment with the Bank was terminated in August 2023. Mr. Losch received an award of 55,082 RSUs with a grant date fair value of $2,170,231. The Committee determined to grant this award based upon Mr. Losch’s strategic leadership of the Company and the Bank in his role as both Chief Financial Officer and as President navigating industry disruption while building financial performance momentum. Mr. Derraik received an award of 21,281 RSUs with a grant date fair value of $838,471. The Committee determined to grant this award based upon Mr. Derraik’s continued leadership successfully designing and delivering a future state architecture and technology roadmap aligned with the Company’s strategic priorities. Mr. Seward received an award of 13,770 RSUs with a grant date fair value of $542,538. The Committee determined to grant this award based upon Mr. Seward’s performance as Chief Risk Officer and General Counsel leading our risk management function during a challenging year for the industry while the Company crossed the $10 billion threshold for total assets and providing critical advice supporting our business operations. Ms. Mann received an award of 11,266 RSUs with a grant date fair value of $443,880. The Committee determined to grant this award based upon Ms. Mann’s demonstrated commitment to the Company’s strategic and innovation objectives in 2023, including managing our venture investments and incubating new business strategies. Mr. Losch also received an award of 250,000 RSUs with a grant date fair value of $9,862,500. The Committee determined to grant this award based upon Mr. Losch’s promotion to President of the Company and the Bank and the Committee’s desire to motivate and retain him over a long-term horizon. Set forth below is additional information regarding our equity compensation plans that were in effect or under which awards were outstanding in 2023. 2015 Omnibus Stock Incentive Plan. Our shareholders approved the 2015 Omnibus Stock Incentive Plan, as amended and restated effective May 24, 2016, at the 2016 Annual Meeting. At the 2018, 2021, and 2023 Annual Meetings, our shareholders approved amendments to the 2015 Omnibus Stock Incentive Plan to increase the number of shares issuable under the plan. We refer to the 2015 Omnibus Stock Incentive Plan, as amended and currently in effect, as the “2015 Omnibus Stock Incentive Plan.” The original 2015 Omnibus Stock Incentive Plan was approved by our shareholders at the 2015 Annual Meeting. The 2015 Omnibus Stock Incentive Plan replaced the 2008 Incentive Stock Option Plan, the Restricted Stock Plan and the 2008 Nonstatutory Stock Option Plan (collectively, the “Prior Plans”). The aggregate number of shares of our voting common stock that may be issued pursuant to the 2015 Omnibus Stock Incentive Plan is currently 13,750,000, less such shares as are issued or subject to outstanding grants under the Prior Plans since the date of adoption of the 2015 Omnibus Stock Incentive Plan. The awards may be issued in the form of incentive stock options, non-qualified stock options, restricted stock, RSUs or stock appreciation rights. As of December 31, 2023, there were a total of 2,904,799 shares of our voting common stock reserved for issuance pursuant to awards under the 2015 Omnibus Stock Incentive Plan and the Prior Plans. 2008 Incentive Stock Option Plan. At the 2008 Annual Meeting, shareholders approved the adoption of the Live Oak Banking Company 2008 Incentive Stock Option Plan, or the 2008 Plan.
2023 Compensation Program
Options granted under the 2008 Plan were intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, or the Code. Under the Code, options are afforded favorable tax treatment to recipients upon compliance with certain restrictions but do not result in tax deductions to the Company. The purpose of the 2008 Plan was to increase the performance incentive for employees of the Bank, to encourage the continued employment of current employees and to attract new employees by facilitating their purchase of a stock interest in the Company. The 2008 Plan was adopted by our Board of Directors in connection with the reorganization of the Bank into the holding company form of organization on March 31, 2009. Upon our adoption of the 2008 Plan, all outstanding options to purchase shares of the Bank were converted into options to purchase shares of our common stock. The 2008 Plan was replaced by the 2015 Omnibus Stock Incentive Plan, and no further grants of stock options will be made under the 2008 Plan. 2008 Nonstatutory Stock Option Plan. At the 2008 Annual Meeting, shareholders approved the adoption of the Live Oak Banking Company 2008 Nonstatutory Stock Option Plan, or the 2008 Directors’ Plan. Options granted under the 2008 Directors’ Plan do not qualify as “incentive stock options” within the meaning of Section 422 of the Code. The purpose of the 2008 Directors’ Plan is to encourage the continued participation of members of our Board of Directors, to align the interests of directors with those of shareholders and to facilitate the recruitment of new members of the Board of Directors as necessary or desirable. The 2008 Directors’ Plan was adopted by our Board of Directors in connection with the reorganization of the Bank into the holding company form of organization on March 31, 2009. Upon our adoption of the 2008 Directors’ Plan, all outstanding options to purchase shares of the Bank were converted into options to purchase shares of our common stock. The 2008 Directors’ Plan was replaced by the 2015 Omnibus Stock Incentive Plan, and no further grants of stock options will be made under the 2008 Directors’ Plan.
Severance Benefits
Severance Benefits We do not have employment agreements in place with any executive officer, and any severance benefits are negotiated on an individual basis. On September 26, 2023, the Company and Mr. Garriott, former President of the Bank, entered into a Separation and Release Agreement (the “Separation Agreement”). The Company terminated Mr. Garriott’s employment effective August 25, 2023. Pursuant to the Separation Agreement, and in consideration and in exchange for the agreements and representations within, the Bank agreed to pay Mr. Garriott a gross amount of $5,000,000, plus premiums for COBRA continuation of health insurance coverage through February 28, 2025. Mr. Garriott was not party to an employment agreement with the Company. The Separation Agreement was negotiated between the parties and their respective legal counsel. Pursuant to the Separation Agreement, Mr. Garriott provided the Bank and related persons a general release of claims arising out of or relating to his employment with the Bank and termination thereof. The Separation Agreement also includes customary non-disparagement and employee non-solicit provisions. Separately, as a result of his termination, Mr. Garriott forfeited 408,899 unvested RSUs, which resulted in an approximately $5.0 million expense reversal for the Company. For additional information regarding severance benefits, see “Potential Payments Upon Termination or Change in Control” on page 43.
Change in Control
Change in Control We do not have employment agreements in place with any executive officer that would provide benefits in connection with a change in control of the Company or any of its subsidiaries. Some of the outstanding equity awards to our NEOs include provisions that provide for accelerated vesting in connection with a change in control. See “Potential Payments Upon Termination or Change in Control” below for more information.
Compensation Consultant; Benchmarking
Compensation Consultant; Benchmarking In making compensation decisions for 2023, the Committee did not utilize the services of a compensation consultant, and the Committee did not obtain or perform compensation benchmarking from an external compensation consultant.
Equity Compensation Plan Information
Equity Compensation Plan Information The following table sets forth additional information with respect to the Company’s equity compensation plans at December 31, 2023.
Equity Compensation Plan Information
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) | | | (a) | (b) | (c) | | Equity compensation plans approved by security holders | | | | | 2015 Omnibus Stock Incentive Plan and Prior Plans | 2,904,799(1) | $12.74(2) | 3,670,448 | | Employee Stock Purchase Plan (3) | — | — | 35,488 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 2,904,799 | $12.74 | 3,705,936 |
Equity Compensation Plan Information
(1)Includes 2,228,236 outstanding RSUs under the 2015 Omnibus Stock Incentive Plan. Also includes 228,701 shares to be issued upon exercise of outstanding options under the Prior Plans, which include our 2008 Incentive Stock Option Plan and 2008 Nonstatutory Stock Option Plan. (2)Does not reflect RSUs because they have no exercise price. (3)Under this plan, eligible employees are able to purchase available shares with post-tax dollars at a 15% discount to fair market value. There were 59,074 shares purchased under the Employee Stock Purchase Plan at a weighted average price of $23.64 during 2023.
Summary Compensation and Other Tables
| Name and Principal Position | Year | Salary | Bonus (1) | Stock Awards (2) | All Other Compensation (3) | Total | | James S. Mahan III Chairman and Chief Executive Officer | 2023 | $510,601 | $— | $— | $394,892 | $905,493 | | | 2022 | 510,601 | — | — | 270,594 | 781,195 | | | 2021 | 512,565 | — | — | 371,815 | 884,380 | | William C. Losch III (4) President | 2023 | $697,115 | $— | $3,149,967 | $128,283 | $3,975,365 | | | 2022 | 675,000 | 77,500 | 399,993 | 45,872 | 1,198,365 | | | 2021 | 285,577 | 25,962 | 12,833,100 | 33,588 | 13,178,227 | | Renato Derraik Chief Information and Digital Officer, Bank | 2023 | $594,231 | $— | $3,149,967 | $48,738 | $3,792,936 | | | 2022 | 550,000 | 158,000 | 499,991 | 44,594 | 1,252,585 | | | 2021 | 317,308 | 35,615 | 7,638,750 | 33,939 | 8,025,612 | | M. Huntley Garriott, Jr. (5) Former President, Bank | 2023 | $523,082 | $— | $— | $5,125,766 | $5,648,848 | | | 2022 | 800,007 | 90,000 | — | 156,831 | 1,046,838 | | | 2021 | 803,084 | 83,231 | 25,330,000 | 168,690 | 26,385,005 | | Stephanie A. Mann Chief Strategy Officer | 2023 | $397,116 | $— | $2,099,966 | $40,594 | $2,537,676 | | | 2022 | 373,077 | 140,500 | 499,991 | 31,924 | 1,045,492 | | | 2021 | 351,346 | 39,788 | 506,600 | 29,390 | 927,124 | | Gregory W. Seward Chief Risk Officer and General Counsel | 2023 | $444,231 | $— | $2,099,966 | $39,695 | $2,583,892 | | | 2022 | 397,500 | 143,000 | 749,987 | 42,116 | 1,332,603 | | | 2021 | 368,914 | 41,478 | 253,300 | 38,601 | 702,293 |
Potential Payments Upon Termination or Change in Control
Potential Payments Upon Termination or Change in Control The following discussion presents the potential payments for each of our NEOs upon a termination of employment or change in control. Pursuant to applicable SEC rules, the analysis contained in this discussion does not consider or include payments made to a NEO with respect to contracts, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation in favor of NEOs of the Company and that are available generally to all salaried employees. The actual amounts that would be paid upon a NEO’s termination of employment can only be determined at the time of such executive officer’s termination. Due to the number of factors that affect the nature and amount of any compensation or benefits provided upon the termination events, any actual amounts paid or distributed may be higher or lower than reported below. Among other factors that could affect these amounts are the timing during the year of any such event and our stock price. The Company’s NEOs serve at the discretion of the Board of Directors, and no NEO is party to an employment agreement. In the event of a NEO’s termination of employment for any reason whatsoever, any severance benefits or other cash payments would be negotiated on an individual basis. Awards Under the 2015 Omnibus Stock Incentive Plan. In the event a NEO voluntarily terminates his or her employment, he or she would forfeit all unvested equity awards. The NEO would have three months from date of termination to exercise any vested stock options. In the event of termination of a NEO’s employment by the Company, with or without Cause (as defined in the 2015 Omnibus Stock Incentive Plan and summarized below), he or she would forfeit all unvested equity awards. The NEO would have three months from date of termination to exercise any vested stock options, unless the officer is terminated for Cause in which case he or she may not exercise any stock options after the date of termination. As defined in the 2015 Omnibus Stock Incentive Plan, “Cause” is generally defined as: •the officer’s performance of any act, or failure to perform any act, in bad faith and to the detriment of the Company or its subsidiaries; •the officer’s dishonesty, intentional misconduct or material breach of any agreement with the Company or its subsidiaries; •the removal of the officer from office or permanent prohibition of the officer from participating in the affairs of the Company or its subsidiaries by regulatory order; •the occurrence of any event that results in the officer being excluded from coverage, or having coverage limited for the officer, under the Company’s blanket bond or other fidelity or insurance policy covering its directors, officers, or employees; or •the officer’s commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. In the event of termination of a NEO’s employment due to death or Disability (as defined in the 2015 Omnibus Stock Incentive Plan and summarized below), he or she would forfeit all unvested equity awards. The NEO would have twelve months from the date of termination to exercise any vested stock options. As defined in the 2015 Omnibus Stock Incentive Plan, “Disability” generally means a “disability” (or similar word) as defined under the long-term disability policy of the Company or its subsidiaries. If the Company or its subsidiaries do not have a long-term disability plan in place, “Disability” means that an officer is unable to carry out the responsibilities and functions of the position held by the officer by reason of any medically determinable physical or mental impairment for a period of not less than ninety consecutive days. None of the outstanding equity awards for any NEO provides for acceleration or continued vesting of the awards in the event of retirement. Terminations Involving a Change in Control. In the event of a change in control of the Company, defined as a Corporate Transaction in the 2015 Omnibus Stock Incentive Plan and summarized below, unvested time-based RSUs would become fully vested immediately in the event a NEO’s employment is terminated within twelve months following a Corporate Transaction for any reason other than Cause. All unvested stock options would become fully vested immediately in the event a NEO’s employment is terminated within twelve months following a Corporate Transaction for any reason other than Cause, and the NEO would have twelve months from the date of termination to exercise any vested options. As defined in the 2015 Omnibus Stock Incentive Plan, “Corporate Transaction” generally means any of the following transactions: •a merger or consolidation in which the Company is not the surviving entity (except for a transaction the principal purpose of which is to change the state in which the Company is incorporated); •the sale, transfer or other disposition of all or substantially all of the assets of the Company; •the complete liquidation or dissolution of the Company; •any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the shares of the Company’s common stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger; or •acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities. The table below presents the amounts that would be owed to the NEOs under the 2015 Omnibus Stock Incentive Plan in the event of termination or a change in control. In the case of voluntary or involuntary termination, death, disability and retirement, the presentation assumes that the NEO’s employment was terminated on December 31, 2023. In the case of a change in control, the presentation assumes that the Corporate Transaction occurred on December 31, 2023 and, in the case of any outstanding, unvested stock options, that the NEO’s employment was terminated on December 31, 2023, for a reason other than cause.
Potential Payments Upon Termination or Change in Control
| Name and Principal Position | Voluntary or Involuntary Termination | Death | Disability | Retirement | Change in Control | | James S. Mahan III Chairman and Chief Executive Officer | $— | $— | $— | $— | $— | | William C. Losch III President | — | — | — | — | 10,040,531(1) | | Renato Derraik Chief Information and Digital Officer, Bank | — | — | — | — | 7,777,543(1) | | M. Huntley Garriott Jr. Former President, Bank | — | — | — | — | — | | Stephanie A. Mann Chief Strategy Officer | — | — | — | — | 3,649,009(1) | | Gregory W. Seward Chief Risk Officer and General Counsel | — | — | — | — | 3,468,374(1) |
Potential Payments Upon Termination or Change in Control
(1)Amounts shown for Messrs. Losch, Derraik, Seward, and Ms. Mann include the value of unvested RSUs that would become fully vested upon termination of their respective employment within twelve months following a Corporate Transaction for any reason other than Cause, calculated based on the closing price of our common stock on the last trading day of 2023.
Principal Executive Officer Pay Ratio
Principal Executive Officer Pay Ratio As required by Section 953(b) of the Dodd-Frank Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our median employee and the annual total compensation of Mr. James S. Mahan III, our CEO, as of December 31, 2023. For 2023, our median employee annual total compensation (for all employees other than our CEO) was $126,869. The annual total compensation for our CEO during the same period was $905,493. Based on this information, the ratio of the annual total compensation of our CEO to the median employee was 7.1 to 1. We identified our median employee using our entire workforce (other than our CEO), as of December 31, 2023, of approximately 949 full-time and part-time employees. We utilized payroll records for fiscal 2023 wages as reported to the Internal Revenue Service. We did not annualize compensation for employees who were not active for the entire year. No full-time adjustments were made for part-time employees. We identified our median employee using a standard median formula based on the compensation measure, which was consistently applied to all employees included in this calculation. We believe the principal executive officer pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. With respect to the annual total compensation of the median employee, we identified and calculated compensation for 2023 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $126,869. With respect to the annual total compensation for the CEO, we used the amount reported in the “Total” column of our 2023 Summary Compensation Table. Under the SEC’s rules and guidance, companies are allowed to adopt numerous ways to identify the median employee. In addition, other companies have different employee demographics and compensation and benefit practices. As a result, principal executive officer pay ratios reported by other companies may vary significantly and are likely not comparable to our CEO pay ratio.
Pay versus Performance
Pay versus Performance Pay versus Performance Table. The following table provides information for the years 2023, 2022, 2021 and 2020 with respect to the compensation of our principal executive officer (“PEO”), which is our chief executive officer, Mr. Mahan, the average compensation of our other non-PEO NEOs, and the performance measures set forth in the table, including the Company’s selected performance measure of book value per share.
Pay versus Performance
| | | | | | Value of Initial Fixed $100 Investment Based On: | | | | | Year | Summary Compensation Table Total for PEO (1) | Compensation Actually Paid to PEO (1) (2) | Average Summary Compensation Table Total for Non-PEO NEOs (3) | Average Compensation Actually Paid to Non-PEO NEOs (3) (4) | Total Shareholder Return (5) | Peer Group Total Shareholder Return (5) | Net Income (6) ($ in thousands) | Book Value Per Share (7) | | 2023 | $905,493 | $905,493 | $3,707,743 | $2,830,090 | $243 | $102 | $73,898 | $20.23 | | 2022 | 781,195 | 781,195 | 1,207,866 | (4,211,841) | 161 | 106 | 176,208 | 18.41 | | 2021 | 884,380 | 884,380 | 9,833,931 | 16,358,379 | 463 | 117 | 166,995 | 16.39 | | 2020 | 821,768 | 821,768 | 904,919 | 10,805,365 | 251 | 88 | 59,543 | 13.38 |
Pay versus Performance
(1)Mr. Mahan served as the PEO for each year indicated. (2)This is the amount of compensation actually paid to the PEO for each year, as set forth within the Summary Compensation Table “Total” column for the applicable year. The Company did not provide any stock or option awards for the PEO within the Summary Compensation Table. Compensation actually paid to the PEO was identical to the total compensation for the PEO reported for each applicable year within the Summary Compensation Table. No adjustments were made. (3)For 2023, our non-PEO NEOs were Messrs. Losch, Derraik, Garriott, former President of the Bank until August 25, 2023, Seward, and Ms. Mann. For 2022, our non-PEO NEOs were Messrs. Losch, Derraik, Seward and Smits. For 2021, our non-PEO NEOs were Messrs. Losch, Derraik, and Garriott, Mr. S. Brett Caines, who served as our Chief Financial Officer until August 31, 2021, and Mr. Underwood, a member of our Board of Directors, who served as President of the Company until November 14, 2023. For 2020, our non-PEO NEOs were Messrs. Caines, Garriott, Smits and Underwood. (4)This is the average compensation actually paid to the non-PEO NEOs for each applicable year, starting with the average of such amounts set forth within the Summary Compensation Table “Total” column for the applicable year. See Average of Non-PEO NEOs table below. (5)The Company TSR and the Company’s Peer Group TSR reflected in these columns is calculated based on a fixed investment of $100 on December 31, 2019 and calculated on the same cumulative basis as is used in Item 201(e) of Regulation S-K. The peer group used to determine the Company’s Peer Group TSR for each applicable fiscal year is the KBW Nasdaq Regional Banking Index, as disclosed in our Annual Report for the year ended December 31, 2023, pursuant to Item 201(e) of Regulation S-K. (6)Represents the amount of net income reflected in the Company’s audited financial statements for the year indicated. (7)We have selected book value per share as our most important financial measure (that is not otherwise required to be disclosed in the table) used to link compensation actually paid to our NEOs to Company performance for fiscal year 2023. Book value per share is defined as total equity divided by total common shares outstanding. To calculate the average compensation actually paid (“CAP”) to the other NEOs, the following amounts were deducted from and added to total compensation, as depicted in the Summary Compensation Table. No NEOs had any awards that vested in the same year they were granted or any dividends or other earnings paid on awards in the year prior to vesting that are not reflected in total compensation for the applicable year, and therefore, no adjustments for those items were included in calculating CAP.
Pay versus Performance
| Average of Non-PEO NEOs | 2023 | 2022 | 2021 | 2020 | | Average Total Compensation Reported in Summary Compensation Table for the Year Indicated | $3,707,743 | $1,207,866 | $9,833,931 | $904,919 | | Adjustments: | | | | | | Less, Average Grant Date Fair Value of Stock Awards Reported in the Summary Compensation Table for the Year Indicated | 2,099,973 | 537,490 | 9,211,030 | 212,492 | | Plus, Average Year-End Fair Value of Awards Granted in the Year Indicated that were Outstanding and Unvested at Year-End of Such Year | 2,718,316 | 256,473 | 14,577,430 | 560,894 | | Plus, Average Change in Fair Value of Awards Granted in Prior Years that were Outstanding and Unvested at Year-End (From Prior Year-End to Year-End) | 762,907 | (4,082,106) | 261,261 | 3,013,040 | | Plus, Average Change in Fair Value of Awards Granted in Prior Years that Vested in the Year Indicated (From Prior Year-End to Vesting Date) | 210,847 | (1,056,584) | 896,787 | 6,539,004 | | Less, Average Prior Year-End Fair Value of Awards Granted in Prior Years that Forfeited in the Year Indicated | 2,469,750 | — | — | — | | Average Total Adjustments | (877,653) | (5,419,707) | 6,524,448 | 9,900,446 | | Average Compensation Actually Paid | $2,830,090 | $(4,211,841) | $16,358,379 | $10,805,365 |
Pay versus Performance
Pay versus Performance Tabular List. As described in the Compensation Discussion & Analysis beginning on page 29, our approach to compensation is designed to recognize both corporate and individual performance, promote long-term stock ownership, attract, retain and motivate talented employees, and balance risk and reward while taking into consideration shareholder feedback as well as market trends and practices. The most important financial measures used by the company to link CAP (as defined by SEC rules) to the Company’s NEOs for the most recently completed fiscal year to the Company’s performance are: •Book Value Per Share •Annual TSR •Pre-Provision Net Revenue Pay versus Performance Comparative Disclosure. While we utilize several performance measures to align executive compensation with performance, all of those measures are not presented in the Pay versus Performance table above. Moreover, the Company generally seeks to incentivize long-term performance, and therefore does not specifically align the Company’s performance measures with compensation that is actually paid (as defined by SEC rules) for a particular year. The graphics below depicts the relationship between each financial performance measures in the Pay versus Performance table above and CAP to our CEO and, on average, to our other NEOs, for each the four applicable years.
Director Compensation
Director Compensation Members of the Board of Directors who are not employees of the Company or the Bank receive compensation for their service on the Board. The Compensation Committee annually reviews the total compensation of our non-employee directors and each element of our non-employee director compensation plan (the “Director Compensation Plan”) and makes a recommendation regarding the Director Compensation Plan to the Board. This review typically takes place in May of each year. Board Fees. In May 2023, the Board approved an annual retainer of $60,000 for each non-employee director, $36,000 for the chair of the former Audit and Risk Committee, $15,000 for the chairs of the Compensation Committee, the Nominating & Corporate Governance Committee, the Bank’s Directors Loan Committee, and the Bank’s former Asset & Liability Committee, and $15,000 for non-employee directors who are members of the Bank’s Directors Loan Committee. In connection with the reorganization of the former Audit and Risk Committee into two separate committees in November 2023, the Board of Directors approved an updated Director Compensation Plan that superseded and replaced the May 2023 Director Compensation Plan. The retainer fees paid under the updated Director Compensation Plan for 2023 were prorated to account for amounts previously paid under the May 2023 Director Compensation Plan. Under the updated Director Compensation Plan, each non-employee director receives an annual retainer of $60,000. The chair of the Audit Committee and the Risk Committee each receive an additional annual retainer of $30,000 and $20,000, respectively. The chairs of the Compensation Committee, the Nominating and Corporate Governance Committee, and the Bank’s Directors Loan Committee, each receive an additional annual retainer of $15,000. Each non-employee director who is a member of the Bank’s Directors Loan Committee each receive an additional annual retainer of $15,000. In December 2020, a Special Committee was established under the direction of our Board of Directors. Each non-employee director of the Special Committee received an additional quarterly retainer of $5,000 in 2023. 2015 Omnibus Stock Incentive Plan. Our directors are eligible for awards under our 2015 Omnibus Stock Incentive Plan. The awards may be issued in the form of stock options, restricted stock, RSUs or stock appreciation rights. Each non-employee director received an award of 3,625 RSUs on May 16, 2023, valued at $80,004. Information regarding the 2015 Omnibus Stock Incentive Plan can be found under the heading “2015 Omnibus Stock Incentive Plan” on page 33. The following table presents a summary of all compensation received or earned by the Company’s non-employee directors for their service during the year ended December 31, 2023. Directors of the Company who are also employees are not separately compensated for their service on the Board of Directors. No director received any non-equity incentive plan compensation or non-qualified deferred compensation earnings in 2023.
Director Compensation
| Name of Director | Fees Earned or Paid in Cash | Stock Awards (2) | Option Awards (3) | All Other Compensation | Total | | Tonya W. Bradford | $95,000 | $80,004 | $— | $— | $175,004 | | William H. Cameron | 90,000 | 80,004 | — | — | 170,004 | | Casey S. Crawford (1) | 60,000 | 80,004 | — | — | 140,004 | | Diane B. Glossman | 128,333 | 80,004 | — | — | 208,337 | | Glen F. Hoffsis | 75,000 | 80,004 | — | — | 155,004 | | David G. Lucht | 90,000 | 80,004 | — | — | 170,004 | | Miltom E. Petty | 96,000 | 80,004 | — | — | 176,004 | | Yousef A. Valine | 75,000 | 80,004 | — | — | 155,004 |
Director Compensation
(1)Mr. Crawford resigned as a member of our Board of Directors effective February 15, 2024. (2)Each non-employee director received an award of 3,625 RSUs with a grant date fair value of $80,004 on May 16, 2023. The RSUs vest on May 1, 2024. There were no other RSUs outstanding for any director as of December 31, 2023. Mr. Crawford’s RSUs associated with this grant were forfeited upon his resignation as a member of our Board of Directors. (3)No options were awarded to non-employee directors in 2023. At December 31, 2023, each of Mr. Cameron and Mr. Petty had 30,000 options outstanding, of which all 30,000 were exercisable. Dr. Hoffsis had 15,000 options outstanding, of which all 15,000 were exercisable.