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Live Oak is a niche SBA/USDA government-guaranteed small-business lender that is growing the balance sheet briskly — total assets +16.9% to $15.1B, equity +25.1% to $1.25B — and FY2025 net income rebounded +36.7% to $106M with diluted EPS up 32% to $2.23. On the surface that momentum reads like a buy. But the returns underneath are mediocre for a bank: ROE of just 8.5% and a management-disclosed return on average assets of only 0.74%. And the recovery is off a low base — net income ($106M) is still below the FY2021 ($167M) and FY2022 ($176M) peaks, after collapsing to ~$74M in 2023. This is a bank earning a single-digit ROE, not a compounder that has re-rated its earnings power.

The decisive issue is the quality of the numbers. The 10-K explicitly flags a material weakness in internal control over financial reporting that, if not remediated, 'could result in a loss of investor confidence,' and a restatement of prior financial statements (a 10-K/A was filed 2025-11-17). When a lender's own gain-on-sale assumptions, servicing-rights valuations and credit-loss allowances drive reported earnings — all named as risks in the filing — an unremediated control weakness means I cannot underwrite the $2.23 EPS with confidence. Penalize, don't reward, earnings you can't fully trust.