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| OZRK > SEC Filings for OZRK > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
GENERAL
Net income available to common stockholders for Bank of the Ozarks, Inc. (the "Company") was $8.4 million for the third quarter of 2009, a 6.9% decrease from net income available to common stockholders of $9.0 million for the comparable quarter in 2008. Diluted earnings per common share were $0.50 for the quarter ended September 30, 2009, a 5.7% decrease from $0.53 for the quarter ended September 30, 2008. For the nine months ended September 30, 2009, net income available to common stockholders totaled $27.2 million, a 7.1% increase from net income of $25.4 million for the first nine months of 2008. Diluted earnings per common share for the first nine months of 2009 were $1.61 compared to $1.50 for the comparable period in 2008, a 7.3% increase.
The Company's annualized return on average assets was 1.14% for the third quarter of 2009 compared to 1.18% for the third quarter of 2008. Its annualized return on average common stockholders' equity was 12.46% for the third quarter of 2009 compared to 16.70% for the third quarter of 2008. The Company's annualized return on average assets was 1.19% for the first nine months of 2009 compared to 1.14% for the comparable period of 2008. Its annualized return on average common stockholders' equity was 13.64% for the first nine months of 2009 compared to 16.23% for the comparable period of 2008.
Total assets were $2.89 billion at September 30, 2009 compared to $3.23 billion at December 31, 2008. Loans and leases were $1.93 billion at September 30, 2009 compared to $2.02 billion at December 31, 2008. Deposits were $2.05 billion at September 30, 2009 compared to $2.34 billion at December 31, 2008.
Common stockholders' equity was $274 million at September 30, 2009 compared to $252 million at December 31, 2008. Book value per common share was $16.21 at September 30, 2009 compared to $14.96 at December 31, 2008. Changes in common stockholders' equity and book value per common share reflect earnings, dividends paid, stock option and warrant transactions and changes in unrealized gains and losses on investment securities available for sale.
Annualized results for these interim periods may not be indicative of results for the full year or future periods.
ANALYSIS OF RESULTS OF OPERATIONS
The Company is a bank holding company whose primary business is commercial banking conducted through its wholly-owned state chartered bank subsidiary - Bank of the Ozarks (the "Bank"). The Company's results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans, leases and investments, and the interest expense incurred on interest bearing liabilities, such as deposits, borrowings and subordinated debentures. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, trust income, bank owned life insurance ("BOLI") income, other charges and fees and gains and losses on investment securities and from sales of other assets.
The Company's non-interest expense consists of employee compensation and benefits, net occupancy and equipment and other operating expenses. The Company's results of operations are significantly impacted by its provision for loan and lease losses and its provision for income taxes. The following discussion provides a comparative summary of the Company's operations for the three and nine months ended September 30, 2009 and 2008 and should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report.
Net Interest Income
Net interest income is analyzed in the discussion and the following tables on a fully taxable equivalent ("FTE") basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company's statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $2.6 million and $2.1 million, respectively, for the quarters ended September 30, 2009 and 2008 and $9.8 million and $6.5 million, respectively, for the nine months ended September 30, 2009 and 2008. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code as a result of investment in certain tax-exempt securities.
Net interest income for the third quarter of 2009 increased 19.1% to $31.8 million compared to $26.7 million for the third quarter of 2008. Net interest income increased 30.2% to $99.6 million for the nine months ended September 30, 2009 compared to $76.5 million for the nine months ended September 30, 2008. Net interest margin was 4.80% during the third quarter of 2009 compared to 3.82% during the third quarter of 2008. Net interest margin was 4.77% during the first nine months of 2009 compared to 3.76% during the first nine months of 2008.
The growth in net interest income for the third quarter of 2009 compared to the comparable period in 2008 was a result of the improvement in the Company's net interest margin, which increased 98 basis points ("bps"), partially offset by a decline in the Company's average earnings assets, which decreased 5.4%. The growth in net interest income for the first nine months of 2009
compared to the same period in 2008 was due primarily to the improvement in the
Company's net interest margin, which increased 101 bps. The Company's
improvement in its net interest margin for both the third quarter and the first
nine months of 2009 resulted from a combination of factors including
(i) improvement in the Company's spread between yields on loans and leases and
rates paid on deposits and other funding sources and (ii) favorable yields
achieved on certain tax-exempt securities purchased during the last four
quarters.
Yields on average earning assets decreased 33 bps in the third quarter of 2009 and 40 bps for the first nine months of 2009 compared to the same periods in 2008. This decrease was due primarily to an 80 bps decline for the third quarter and an 88 bps decline for the first nine months of 2009 in loan and lease yields, which was partially offset by a 98 bps increase for the third quarter and an 88 bps increase for the first nine months of 2009 in the aggregate yield on the Company's investment securities.
The decrease in loan and lease yields was due primarily to the repricing of the Company's loan and lease portfolio at lower interest rates during 2008 and the first nine months of 2009. Beginning in September 2007 and continuing through December 2008, the Federal Open Market Committee ("FOMC") decreased its federal funds target rate a total of 500 bps, resulting in many of the Company's variable rate loans repricing to lower rates throughout 2008 and the first nine months of 2009. Additionally, the Company's newly originated and renewed loans and leases generally priced at lower rates throughout 2008 and the first nine months of 2009 as a result of these FOMC interest rate decreases.
The increase in the Company's aggregate yield on its investment securities was the result of an increase in yield on both taxable and tax-exempt investment securities in 2009 compared to 2008 and a shift in the composition of the portfolio to include a higher proportion of tax-exempt investment securities with generally higher FTE yields than the Company's taxable investment securities.
The decrease in average earning asset yields discussed above was more than offset by a 129 bps decrease for the third quarter and a 138 bps decrease for the first nine months of 2009 in the rates on average interest bearing liabilities compared to the same periods in 2008, resulting in the Company's overall increase in net interest margin. The decrease in the rates on interest bearing liabilities was primarily attributable to a 158 bps decrease for the third quarter and a 162 bps decrease for the first nine months of 2009 in the rates of interest bearing deposits, the largest component of the Company's interest bearing liabilities, compared to the same periods in 2008. This decrease in rates on interest bearing deposits was attributable to (i) the FOMC interest rate decreases, which resulted in decreases in rates paid on both time deposits and savings and interest bearing transaction deposits as such deposits were renewed or repriced and (ii) the decrease in the Company's aggregate time deposits, which generally pay higher rates than its other interest bearing deposits, as a percent of total interest bearing deposits.
The Company's other funding sources include (i) repurchase agreements with customers ("repos"), (ii) other borrowings, comprised primarily of Federal Home Loan Bank of Dallas ("FHLB") advances, and, to a lesser extent, Federal Reserve Bank ("FRB") borrowings and federal funds purchased, and (iii) subordinated debentures. The rates paid on repos decreased 51 bps for the third quarter and 76 bps for the nine months ended September 30, 2009 compared to the same periods in 2008, primarily as a result of decreases in the FOMC federal funds target rate and other rate indices. The rates paid on the Company's other borrowings increased 9 bps for the third quarter but decreased 2 bps for the nine months ended September 30, 2009 compared to the comparable periods in 2008. The rates paid on the subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate ("LIBOR") and reset periodically, declined 216 bps for the third quarter and 227 bps for the nine months ended September 30, 2009 compared to the same periods of 2008 as a result of the decrease in 90-day LIBOR.
Analysis of Net Interest Income - FTE
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(Dollars in thousands)
Interest income $ 39,904 $ 45,030 $ 127,753 $ 135,522
FTE adjustment 2,557 2,074 9,785 6,532
Interest income - FTE 42,461 47,104 137,538 142,054
Interest expense 10,672 20,414 37,924 65,552
Net interest income - FTE $ 31,789 $ 26,690 $ 99,614 $ 76,502
Yields on earning assets - FTE 6.41 % 6.74 % 6.59 % 6.99 %
Rates on interest bearing liabilities 1.81 3.10 2.03 3.41
Net interest margin - FTE 4.80 3.82 4.77 3.76
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Average Consolidated Balance Sheets and Net Interest Analysis-FTE
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate
(Dollars in thousands)
ASSETS
Earning assets:
Interest earning deposits and federal
funds sold $ 517 $ 3 1.95 % $ 575 $ 3 2.14 % $ 529 $ 8 2.03 % $ 428 $ 10 3.15 %
Investment securities:
Taxable 296,700 4,280 5.72 392,819 5,332 5.40 353,242 15,180 5.75 397,039 16,467 5.54
Tax-exempt - FTE 353,491 7,296 8.19 342,565 5,905 6.86 438,739 27,922 8.51 334,637 18,589 7.42
Loans and leases - FTE 1,978,863 30,882 6.19 2,042,307 35,864 6.99 1,998,154 94,428 6.32 1,984,426 106,988 7.20
Total earning assets - FTE 2,629,571 42,461 6.41 2,778,266 47,104 6.74 2,790,664 137,538 6.59 2,716,530 142,054 6.99
Non-interest earning assets 281,080 258,386 275,457 256,686
Total assets $ 2,910,651 $ 3,036,652 $ 3,066,121 $ 2,973,216
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest bearing transaction $ 765,878 $ 1,664 0.86 % $ 645,338 $ 2,500 1.54 % $ 825,141 $ 5,220 0.85 % $ 588,675 $ 6,902 1.57 %
Time deposits of $100,000 or more 686,517 2,756 1.59 906,137 8,347 3.66 722,864 11,414 2.11 929,586 28,431 4.09
Other time deposits 375,755 1,986 2.10 510,430 4,535 3.53 433,294 8,366 2.58 509,703 14,981 3.93
Total interest bearing deposits 1,828,150 6,406 1.39 2,061,905 15,382 2.97 1,981,299 25,000 1.69 2,027,964 50,314 3.31
Repurchase agreements with customers 54,922 151 1.09 43,442 174 1.60 54,436 461 1.13 42,637 604 1.89
Other borrowings 392,705 3,624 3.66 446,899 4,015 3.57 395,626 10,750 3.63 431,973 11,816 3.65
Subordinated debentures 64,950 491 3.00 64,950 843 5.16 64,950 1,713 3.53 64,950 2,818 5.80
Total interest bearing liabilities 2,340,727 10,672 1.81 2,617,196 20,414 3.10 2,496,311 37,924 2.03 2,567,524 65,552 3.41
Non-interest bearing liabilities:
Non-interest bearing deposits 211,940 191,225 206,016 182,216
Other non-interest bearing liabilities 15,233 10,206 21,875 11,186
Total liabilities 2,567,900 2,818,627 2,724,202 2,760,926
Preferred stock 72,228 - 72,090 -
Common stockholders' equity 267,082 214,623 266,383 208,871
Noncontrolling interest 3,441 3,402 3,446 3,419
Total liabilities and stockholders'
equity $ 2,910,651 $ 3,036,652 $ 3,066,121 $ 2,973,216
Net interest income - FTE $ 31,789 $ 26,690 $ 99,614 $ 76,502
Net interest margin - FTE 4.80 % 3.82 % 4.77 % 3.76 %
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Non-Interest Income
The Company's non-interest income consists primarily of (1) service charges on deposit accounts, (2) mortgage lending income, (3) trust income, (4) BOLI income, (5) appraisal fees, credit life commissions and other credit related fees, (6) safe deposit box rental, operating lease income, brokerage fees and other miscellaneous fees and (7) gains and losses on investment securities and sales of other assets. Non-interest income for the third quarter of 2009 increased 19.3% to $5.8 million compared to $4.9 million for the third quarter of 2008. Non-interest income for the nine months ended September 30, 2009 increased 143.0% to $37.8 million compared to $15.6 million for the nine months ended September 30, 2008. This large increase for the nine months ended September 30, 2009 compared to the same period in 2008 was primarily attributable to significant gains on investment securities during the first and second quarters of 2009.
Service charges on deposit accounts, traditionally the Company's largest source of non-interest income, increased 4.3% for the third quarter of 2009 to $3.23 million compared to $3.10 million for the same period in 2008. Service charges on deposit accounts increased 1.6% for the nine months ended September 30, 2009 to $9.08 million compared to $8.94 million for the same period in 2008.
Mortgage lending income increased 42.1% for the third quarter of 2009 to $0.67 million compared to $0.47 million for the same period in 2008. Mortgage lending income increased 47.7% for the nine months ended September 30, 2009 to $2.63 million compared to $1.78 million for the same period in 2008. The volume of originations of mortgage loans available for sale increased 28.8% and 43.8%, respectively, for the third quarter and first nine months of 2009 compared to the same periods in 2008. During the third quarter of 2009, approximately 46% of the Company's originations of mortgage loans available for sale were related to mortgage refinancings and approximately 54% were related to new home purchases, compared to approximately 39% for refinancings and approximately 61% for new home purchases in the third quarter of 2008. During the first nine months of 2009, approximately 65% of the Company's originations of mortgage loans available for sale were related to mortgage refinancings and approximately 35% were related to new home purchases, compared to approximately 49% for refinancings and approximately 51% for new home purchases in the first nine months of 2008.
Trust income increased 23.4% for the third quarter of 2009 to $0.80 million compared to $0.65 million for the same period in 2008. Trust income increased 16.8% for the nine months ended September 30, 2009 to $2.20 million compared to $1.88 million for the same period in 2008. The increase in trust income for the quarter and nine months ended September 30, 2009 was primarily due to growth in the Company's corporate trust and investment management business as the Company continued to add new customers.
Net gains on investment securities and from sales of other assets were $0.09 million for the third quarter of 2009 compared to net losses of $0.40 million for the same period in 2008. Net gains on investment securities and from sales of other assets were $20.63 million for the nine months ended September 30, 2009 compared to net losses of $0.26 million for the same period in 2008. During the third quarter and first nine months of 2009, the Company sold approximately $22 million and approximately $301 million, respectively, of its investment securities AFS. During the third quarter and first nine months of 2008, the Company sold approximately $2 million and approximately $10 million, respectively, of its investment securities AFS.
Non-interest income from all other sources was $1.01 million in the third quarter of 2009 compared to $1.04 million for the same period of 2008, and was $3.26 million for the nine months ended September 30, 2009 compared to $3.21 million for the same period in 2008.
The following table presents non-interest income for the three and nine months ended September 30, 2009 and 2008.
Non-Interest Income
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(Dollars in thousands)
Service charges on deposit accounts $ 3,234 $ 3,102 $ 9,084 $ 8,939
Mortgage lending income 672 473 2,630 1,781
Trust income 801 649 2,198 1,882
BOLI income 495 512 1,456 1,500
Appraisal fees, credit life commissions and
other credit related fees 59 96 443 344
Safe deposit box rental, operating lease
income, brokerage fees and other miscellaneous
fees 300 308 925 909
Gains (losses) on investment securities 142 (317 ) 20,660 (297 )
Gains (losses) on sales of other assets (51 ) (78 ) (35 ) 35
Other 158 126 432 460
Total non-interest income $ 5,810 $ 4,871 $ 37,793 $ 15,553
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Non-Interest Expense
Non-interest expense increased 12.1% for the third quarter of 2009 to $15.5 million compared to $13.8 million for the same period in 2008. Non-interest expense increased 23.5% for the nine months ended September 30, 2009 to $49.6 million compared to $40.1 million for the same period in 2008. The increase in non-interest expense for the nine months ended September 30, 2009 compared to the same period in 2008 was due to a number of factors, including (i) a special assessment levied by the Federal Deposit Insurance Corporation ("FDIC") on all insured institutions during the second quarter of 2009 which resulted in the Company incurring a $1.3 million expense, (ii) higher FDIC base insurance premium assessments applicable to all FDIC insured institutions which resulted in the Company incurring increased expenses of $1.4 million during the first nine months of 2009 compared to the same period in 2008, (iii) higher expenses related to write downs of the carrying value of items in other real estate owned which increased expenses by $1.6 million for the nine months ended September 30, 2009 compared to the same period in 2008, and (iv) higher accrual of delinquent and current property taxes associated with other real estate owned which resulted in the Company incurring increased expenses of $0.9 million during the first nine months of 2009 compared to the same period in 2008.
At September 30, 2009 the Company had 73 offices, including 72 full service banking offices and one loan production office, compared to 73 offices, including 71 full service banking offices and two loan production offices, at September 30, 2008. The Company had 705 full time equivalent employees at September 30, 2009 compared to 703 full time equivalent employees at September 30, 2008.
The Company's efficiency ratio (non-interest expense divided by the sum of net interest income - FTE and non-interest income) was 41.2% for the quarter ended September 30, 2009 compared to 43.8% for the quarter ended September 30, 2008. The Company's efficiency ratio for the nine months ended September 30, 2009 was 36.1% compared to 43.6% for the same period in 2008. Approximately 639 bps of the 749 bps improvement in the Company's efficiency ratio for the nine months ended September 30, 2009 was due to the higher volume of net gains on investment securities during 2009 compared to 2008, and 110 bps of such improvement was due to other factors.
The following table presents non-interest expense for the three and nine months ended September 30, 2009 and 2008.
Non-Interest Expense
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(Dollars in thousands)
Salaries and employee benefits $ 7,823 $ 7,728 $ 23,717 $ 22,684
Net occupancy and equipment 2,558 2,318 7,584 6,575
Other operating expenses:
Postage and supplies 378 397 1,162 1,242
Advertising and public relations 229 308 765 867
Telephone and data lines 471 318 1,386 1,232
Professional and outside services 436 338 1,393 1,034
ATM expense 149 169 570 478
Software expense 400 319 1,114 918
FDIC insurance 683 283 3,601 842
FDIC and state assessments 171 168 536 482
Other real estate and foreclosure expense 1,308 468 4,861 1,002
Amortization of intangibles 27 55 83 186
Other 866 959 2,859 2,634
Total non-interest expense $ 15,499 $ 13,828 $ 49,631 $ 40,176
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Income Taxes
The provision for income taxes was $2.6 million for the third quarter of 2009 and $8.4 million for the first nine months of 2009 compared to $3.3 million for the third quarter and $9.3 million for the first nine months of 2008. The effective income tax rate was 21.6% for both the third quarter and the first nine months of 2009 compared to 26.5% for the third quarter and 26.8% for the first nine months of 2008. The primary factor in the decrease in the effective tax rate in the third quarter and first nine months of 2009 compared to the same periods in 2008 was the increase in the Company's tax-exempt income, principally as a result of the increase in investment securities, both in volume and as a percentage of earning assets, which are exempt from federal and/or state income taxes.
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