8-K: Live Oak Bancshares to Restate Cash Flow Statements

Live Oak Bancshares announced it will restate its previously issued cash flow statements for fiscal year 2024 and the first two quarters of 2025 due to a material misclassification error.

Summary

• Live Oak Bancshares, Inc. will amend its 2024 Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q for the periods ended March 31, 2025, and June 30, 2025.
• The restatement is specifically for the Consolidated Statements of Cash Flows and related notes.
• An error was identified in the classification of cash flows between operating and investing activities related to proceeds from the sale of loan participations.
• The misclassification had no impact on the company's reported cash balances, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Balance Sheets, or Consolidated Statements of Changes in Shareholders' Equity.
• The error also did not affect liquidity measures, total loan cash flow activity, total loans, allowance for credit losses, total assets, total liabilities, total shareholders' equity, regulatory capital ratios, net interest income, net interest margin, net income, return on average assets, return on average equity, asset quality ratios, or any other key performance metrics.
• Management concluded the misclassifications are quantitatively material, despite being qualitatively immaterial.
• A material weakness exists in the company's internal control over financial reporting concerning the classification of participation loan activity cash flows.
• KPMG LLP's report on the company's internal control over financial reporting as of December 31, 2024, should no longer be relied upon.
• The company intends to amend the Prior Filings on or about November 17, 2025.

Sentiment

Score: 4

Explanation: While the misclassification did not impact core financial health metrics like net income or total cash, the necessity of a restatement and the identification of a material weakness in internal controls are significant negative events that undermine confidence in financial reporting accuracy.

Positives

• The misclassification had no impact on the company's total cash balances, liquidity measures, total loans, total assets, total liabilities, or total shareholders' equity.
• There was no impact on the Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, net interest income, net interest margin, net income, return on average assets, return on average equity, or asset quality ratios.
• Regulatory capital ratios were unaffected by the misclassification.

Negatives

• The company's previously issued Consolidated Statement of Cash Flows for FY2024, Q1 2025, and Q2 2025 can no longer be relied upon.
• A material weakness exists in the company's internal control over financial reporting regarding cash flow classification.
• KPMG LLP's report on internal control over financial reporting as of December 31, 2024, should no longer be relied upon.

Risks

• A material weakness in internal control over financial reporting could lead to future financial reporting errors if not effectively remediated.
• The completion and filing of the restated financial statements and the Quarterly Report on Form 10-Q for the quarter ended September 30, 2025, may take longer than expected.

Future Outlook

The company anticipates remediating the identified material weakness in internal control over financial reporting by the time of the filing of its 2025 Annual Report on Form 10-K. The company intends to amend the affected prior filings on or about November 17, 2025.

Management Comments

• Management concluded that the misclassifications are quantitatively material, despite being qualitatively immaterial.
• Management has further concluded that a material weakness exists in the company's internal control over financial reporting with respect to the classification of the company's participation loan activity cash flows between Operating Activities and Investing Activities in the company's Statements of Cash Flows.

Industry Context

Accurate financial reporting, particularly in cash flow statements, is critical for financial institutions as it provides insights into liquidity and operational efficiency. Misclassifications, even if not impacting total cash, highlight deficiencies in internal controls, which are closely scrutinized by regulators and investors in the banking sector.

Comparison to Industry Standards

• NA

Corporate Governance

Stakeholder Impact

• Shareholders and investors: May experience reduced confidence in the accuracy of historical financial statements and internal controls, potentially impacting investment decisions.
• Regulatory authorities: Will closely monitor the company's remediation efforts regarding the material weakness in internal controls.
• Auditors (KPMG LLP): Their report on internal control over financial reporting as of December 31, 2024, can no longer be relied upon, potentially impacting their reputation and requiring additional work.

Next Steps

• The company intends to amend its 2024 Annual Report on Form 10-K and Q1 and Q2 2025 Quarterly Reports on Form 10-Q on or about November 17, 2025.
• The company anticipates remediating the material weakness in internal control over financial reporting by the time of the filing of the 2025 Annual Report on Form 10-K.

Key Dates

Recommendation

The restatement and identified material weakness in internal controls are concerning, typically leading to negative market reactions. However, the fact that the misclassification did not impact net income, total cash, balance sheet, or regulatory capital ratios provides a significant mitigating factor. Investors should hold and monitor the company's progress in filing the restated financials and, more importantly, the effective remediation of the material weakness in internal controls. A 'sell' would be premature given the lack of impact on core financial health, but a 'buy' would be too risky until the control issues are resolved.

Keywords

SEC filing, 8-K, restatement, cash flow statement, financial reporting, internal controls, material weakness, loan participations, Live Oak Bancshares, LOB