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Bank of the Ozarks Announces Second Quarter 2018 Earnings

July 11, 2018

LITTLE ROCK, Ark.--(BUSINESS WIRE)--Jul 11, 2018--Bank of the Ozarks (the “Bank”) (Nasdaq: OZRK) today announced that net income for the second quarter of 2018 was $114.8 million, a 26.8% increase from the second quarter of 2017. Diluted earnings per common share for the second quarter of 2018 were $0.89, a 21.9% increase from the second quarter of 2017.

For the six months ended June 30, 2018, net income totaled $227.9 million, a 26.8% increase from the first six months of 2017. Diluted earnings per common share for the first six months of 2018 were $1.77, a 21.2% increase from the first six months of 2017.

The Bank’s annualized returns on average assets, average common stockholders’ equity and average tangible common stockholders’ equity for the second quarter of 2018 were 2.10%, 12.90% and 16.08%, respectively, compared to 1.90%, 12.05% and 15.81%, respectively, for the second quarter of 2017. The Bank’s annualized returns on average assets, average common stockholders’ equity and average tangible common stockholders’ equity for the first six months of 2018 were 2.13%, 13.03%, and 16.30%, respectively, compared to 1.92%, 12.41%, and 16.45%, respectively, for the first six months of 2017. The calculation of the Bank’s return on average tangible common stockholders’ equity and the reconciliation to generally accepted accounting principles (“GAAP”) are included in the schedules accompanying this release.

George Gleason, Chairman and Chief Executive Officer, stated, “We are very pleased to report another excellent quarter, continuing our long tradition of achieving industry-leading results quarter after quarter. Our 2.10% annualized return on average assets, 4.66% net interest margin, 35.2% efficiency ratio, and 0.07% annualized net charge-off ratio for total loans are just a few among many highlights in the quarter. In addition, our non-purchased loans have grown $3.2 billion, or 28.6%, over the last four quarters. Our outstanding team continues to work hard delivering great results for both our shareholders and customers.”

KEY BALANCE SHEET METRICS

Total loans, including purchased loans, were $16.8 billion at June 30, 2018, a 10.4% increase from $15.2 billion at June 30, 2017. Non-purchased loans, which exclude loans acquired in previous acquisitions, were $14.2 billion at June 30, 2018, a 28.6% increase from $11.0 billion at June 30, 2017. Purchased loans, which consist of loans acquired in previous acquisitions, were $2.6 billion at June 30, 2018, a 38.0% decrease from $4.2 billion at June 30, 2017. The unfunded balance of closed loans totaled $12.0 billion at June 30, 2018, a 1.0% increase from $11.9 billion at June 30, 2017, but a 4.4% decrease from $12.6 billion at March 31, 2018.

Deposits were $17.9 billion at June 30, 2018, a 10.2% increase from $16.2 billion at June 30, 2017. Total assets were $22.2 billion at June 30, 2018, a 10.7% increase from $20.1 billion at June 30, 2017.

Common stockholders’ equity was $3.61 billion at June 30, 2018, a 10.9% increase from $3.26 billion at June 30, 2017. Tangible common stockholders’ equity was $2.91 billion at June 30, 2018, a 14.4% increase from $2.54 billion at June 30, 2017. Book value per common share was $28.10 at June 30, 2018, a 10.5% increase from $25.43 at June 30, 2017. Tangible book value per common share was $22.63 at June 30, 2018, a 14.0% increase from $19.85 at June 30, 2017. The calculations of the Bank’s tangible common stockholders’ equity and tangible book value per common share and the reconciliations to GAAP are included in the schedules accompanying this release.

The Bank’s ratio of total common stockholders’ equity to total assets was 16.26% at June 30, 2018 compared to 16.25% at June 30, 2017. Its ratio of total tangible common stockholders’ equity to total tangible assets was 13.53% at June 30, 2018 compared to 13.15% at June 30, 2017. The calculation of the Bank’s ratio of total tangible common stockholders’ equity to total tangible assets and the reconciliation to GAAP are included in the schedules accompanying this release.

NET INTEREST INCOME

Net interest income for the second quarter of 2018 was a record $224.7 million, an 11.2% increase from $202.1 million for the second quarter of 2017. Net interest margin, on a fully taxable equivalent (“FTE”) basis, was 4.66% for the second quarter of 2018, a decrease of 33 basis points from 4.99% for the second quarter of 2017. Average earning assets were $19.4 billion for the second quarter of 2018, a 17.7% increase from $16.5 billion for the second quarter of 2017.

Net interest income for the first six months of 2018 was $442.4 million, a 12.6% increase from $392.9 million for the first six months of 2017. Net interest margin, on a FTE basis, was 4.68% for the first six months of 2018, a decrease of 25 basis points from 4.93% for the first six months of 2017. Average earning assets were $19.2 billion for the first six months of 2018, a 17.3% increase from $16.3 billion for the first six months of 2017.

NON-INTEREST INCOME

Non-interest income for the second quarter of 2018 decreased 14.0% to $27.4 million compared to $31.8 million for the second quarter of 2017. Non-interest income for the first six months of 2018 decreased 7.9% to $56.1 million compared to $60.9 million for the first six months of 2017. The Bank’s service charges on deposit accounts declined from $11.76 million for the second quarter of 2017 to $9.70 million for the second quarter of 2018 primarily due to the Durbin Amendment’s impact on the Bank’s interchange revenue effective as of July 1, 2017. The Bank’s mortgage lending income declined from $1.91 million in the second quarter of 2017 to effectively none in the second quarter of 2018. This was a result of the Bank’s decision in December 2017 to exit the secondary market mortgage lending business and the substantial wind down of that business in the first quarter of 2018.

NON-INTEREST EXPENSE

Non-interest expense for the second quarter of 2018 increased 6.3% to $89.1 million compared to $83.8 million for the second quarter of 2017. Non-interest expense for the first six months of 2018 increased 12.8% to $182.9 million compared to $162.1 million for the first six months of 2017. Non-interest expense for both the second quarter and the first six months of 2018 included approximately $0.6 million related to the pending name change that will be effective on July 16, 2018 and the related strategic rebranding initiatives.

The Bank’s efficiency ratio (non-interest expense divided by the sum of net interest income FTE and non-interest income) for the second quarter of 2018 was 35.2% compared to 35.3% for the second quarter of 2017. The Bank’s efficiency ratio for the first six months of 2018 was 36.5% compared to 35.2% for the first six months of 2017.

ASSET QUALITY, CHARGE-OFFS AND ALLOWANCE

Excluding purchased loans, the Bank’s ratio of nonperforming loans as a percent of total loans was 0.10% at June 30, 2018 compared to 0.11% at June 30, 2017, and its ratio of nonperforming assets as a percent of total assets was 0.15% at June 30, 2018 compared to 0.23% at June 30, 2017.

Excluding purchased loans, the Bank’s ratio of loans past due 30 days or more, including past due non-accrual loans, to total loans was 0.12% at June 30, 2018 compared to 0.15% at June 30, 2017.

The Bank’s annualized net charge-off ratio for non-purchased loans was 0.05% for the second quarter of 2018 compared to 0.03% for the second quarter of 2017 and 0.04% for both the first six months of 2018 and the first six months of 2017. The Bank’s annualized net charge-off ratio for all loans was 0.07% for the second quarter of 2018 compared to 0.05% for the second quarter of 2017 and 0.06% for the first six months of 2018 compared to 0.07% for the first six months of 2017.

The Bank’s allowance for loan losses for its non-purchased loans was $103.0 million, or 0.73% of total non-purchased loans, at June 30, 2018 compared to $80.7 million, or 0.73% of total non-purchased loans, at June 30, 2017. The Bank had $1.6 million of allowance for loan losses for its purchased loans at both June 30, 2018 and 2017.

MANAGEMENT’S COMMENTS, CONFERENCE CALL, TRANSCRIPT AND FILINGS

In connection with this release, the Bank released management’s comments on the results for the quarter just ended. Management will conduct a conference call to take questions on these quarterly results and management’s comments at 10:00 a.m. CT (11:00 a.m. ET) on Thursday, July 12, 2018. Interested parties may listen to this call by dialing 1-844-818-5110 (U.S. and Canada) or 210-229-8841 (internationally) and asking for the Bank of the Ozarks conference call. A recorded playback of the call will be available for one week following the call at 1-855-859-2056 (U.S. and Canada) or 404-537-3406 (internationally). The passcode for this playback is 5268256. The call will be available live or in a recorded version on the Bank’s Investor Relations website at ir.bankozarks.com under “Company News.” The Bank will also provide a transcript of the conference call on its Investor Relations website.

The Bank files annual, quarterly and current reports, proxy materials and other information required by the Securities and Exchange Act of 1934 with the Federal Deposit Insurance Corporation (“FDIC”), copies of which are available electronically at the FDIC’s website at https://efr.fdic.gov/fcxweb/efr/index.html and are also available on the Bank’s Investor Relations website at http://ir.bankozarks.com.

NON-GAAP FINANCIAL MEASURES

This release contains certain non-GAAP financial measures. The Bank uses these non-GAAP financial measures, specifically return on average tangible common stockholders’ equity, tangible book value per common share, total tangible common stockholders’ equity and the ratio of total tangible common stockholders’ equity to total tangible assets, as important measures of the strength of its capital and its ability to generate earnings on its tangible capital invested by its shareholders. These measures typically adjust GAAP financial measures to exclude intangible assets. Management believes presentation of these non-GAAP financial measures provides useful supplemental information which contributes to a proper understanding of the financial results and capital levels of the Bank. These non-GAAP disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other banks. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the tables at the end of this release under the caption “Reconciliation of Non-GAAP Financial Measures.”

FORWARD-LOOKING STATEMENTS

This release and other communications by the Bank include certain “forward-looking statements” regarding the Bank’s plans, expectations, thoughts, beliefs, estimates, goals and outlook for the future that are intended to be covered by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time. Those statements are not guarantees of future results or performance and are subject to certain known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to: potential delays or other problems implementing the Bank’s growth, expansion and acquisition strategies including delays in identifying sites, hiring or retaining qualified personnel, obtaining regulatory or other approvals, obtaining permits and designing, constructing and opening new offices; the ability to enter into and/or close additional acquisitions; problems with, or additional expenses relating to, integrating acquisitions; the inability to realize expected cost savings and/or synergies from acquisitions; problems with managing acquisitions; the effect of the announcements of any future acquisition on customer relationships and operating results; the availability and access to capital; possible downgrades in the Bank’s credit ratings or outlook which could increase the costs or availability of funding from capital markets; the ability to attract new or retain existing or acquired deposits or to retain or grow loans, including growth from unfunded closed loans; the ability to generate future revenue growth or to control future growth in non-interest expense; interest rate fluctuations, including changes in the yield curve between short-term and long-term interest rates or changes in the relative relationships of various interest rate indices; competitive factors and pricing pressures, including their effect on the Bank’s net interest margin or core spread; general economic, unemployment, credit market and real estate market conditions, and the effect of such conditions on the creditworthiness of borrowers, collateral values, the value of investment securities and asset recovery values; failure to receive approval of the Bank’s pending applications for change in accounting methods with the Internal Revenue Service; changes in legal, financial and/or regulatory requirements; recently enacted and potential legislation and regulatory actions, including changes expected to result from the Tax Cuts and Jobs Act and the Economic Growth, Regulatory Relief and Consumer Protection Act and the costs and expenses to comply with new and/or existing legislation and regulatory actions; changes in U.S. government monetary and fiscal policy; FDIC special assessments or changes to regular assessments; the ability to keep pace with technological changes, including changes regarding maintaining cybersecurity; the impact of failure in, or breach of, our operational or security systems or infrastructure, or those of third parties with whom we do business, including as a result of cyber-attacks or an increase in the incidence or severity of fraud, illegal payments, security breaches or other illegal acts impacting the Bank or its customers; adoption of new accounting standards or changes in existing standards; and adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory actions or rulings as well as other factors identified in this press release or as detailed from time to time in the Bank’s public filings, including those factors included in the disclosures under the headings “Forward-Looking Information” and “Item 1A. Risk Factors” in the Bank’s most recent Annual Report on Form 10-K for the year ended December 31, 2017 and its quarterly reports on Form 10-Q. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those projected in, or implied by, such forward-looking statements. The Bank disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise.

GENERAL INFORMATION

Bank of the Ozarks (Nasdaq: OZRK) is a regional bank providing innovative financial solutions delivered by expert bankers with a relentless pursuit of excellence. Bank of the Ozarks has been recognized as the #1 bank in the nation in its asset size for eight consecutive years.

Headquartered in Little Rock, Arkansas, Bank of the Ozarks conducts operations through 253 offices in Arkansas, Georgia, Florida, North Carolina, Texas, Alabama, South Carolina, California, New York, and Mississippi. Bank of the Ozarks can be found at www.bankozarks.com and on Facebook, Twitter and LinkedIn or contacted at (501) 978-2265 or P.O. Box 8811, Little Rock, Arkansas 72231-8811.

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