Bank of The Ozarks 3Q16 Earnings Call Notes

Bank of the Ozarks’ (OZRK) CEO George Gleason on Q3 2016 Results

Assets have doubled since last year

“Our $18.5 billion in total assets at quarter end was almost double our $9.3 billion in total assets as of September 30 last year. Our $76.0 million in net income for the quarter just ended was a quarterly record and a 40% increase from the immediately preceding quarter. Our $0.66 of diluted earnings per common share for the quarter just ended were a record, a 10% increase from this year’s second quarter EPS of $0.60 and well ahead of consensus estimates. ”

Discussion about CRE concentrations

“Over the past year, there has been a lot of discussion in industry publications about CRE and CRE concentrations. For several decades, our focus has been on the real estate lending. When bank regulators first issued their CRE concentration guidelines in 2006, our CRE ratios were well above the guidelines just as our CRE ratios are today. We were comfortable then with our level of CRE lending and because of all the factors we have just discussed, we are even more constable with the quality of our portfolio, our exceptional rate of portfolio growth and our CRE levels today. The regulatory guidelines mandate that if you have a CRE concentration, extra safeguards should be in place. We totally agree with that. And we have robust policies, procedures and processes in place to assure the quality of our CRE portfolio and to effectively measure, monitor and manage our CRE concentrations.”

We are one of the largest and most active CRE lenders in the country

“Because we are one of the largest and most active CRE lenders in the country, we have received attention in recent articles regarding CRE. These articles tend to lump everyone involved in CRE transactions in the same category without distinguishing between equity, mezzanine lender and senior secured lender priorities. In almost every transaction we do, we are the sole senior secured lender, which means that in the event of default, every penny of equity and every penny provided by a mezzanine lender would be lost before we lose even penny of interest or principal. Simply stated, we have the lowest risk position in the capital stack.”

A lot of the CRE commentary is written by people who don’t understand the markets

“You have got all these articles and a lot of these articles are self propagating articles. One person writes an article about CRE that causes another person to write an article about CRE and you have this whole litany of articles about CRE written by people who, by and large, don’t understand the market. And in many cases, some do, but many don’t. And the result of that is you end up with a lot of commentary about the markets that are just not consistent with the reality that’s occurring in the market.”

Greg Mckinney

Building infrastructure for $50B bank

“While we only crossed $10 billion in total assets earlier this year and expect to cross $20 billion in total assets in 2017, we are looking several years ahead and are currently working to build the infrastructure we will ultimately need as a $50 billion bank. We are also expanding our human and physical infrastructure to serve low to moderate income and majority/minority markets and customer segments. The constantly increasing costs for such enhanced infrastructure will be a headwind in our efforts to improve our efficiency ratio. “