Bank of the Ozarks 2Q17 Earnings Call Notes

George Gleason

Construction is likely to pullback a bit

“We do have the expectation that construction nationally across all product types and all markets across country is likely to pullback a little bit and whether that number is 10% or 20% I don’t know, but in talking with our customers as RESG guys do and they are passing that feedback along to me, cost of labor and materials in some markets are going up significantly. Cost of construction financing is going up. Cost of feds moved interest rates now four times and probably spreads on construction financing at least in our experience have gone up over the last 18 months to 2 years. So, it’s costing more in labor materials and capitalized construction period interest for our customers to build things and we are working against a period of years coming out of the great recession, where supply did not keep pace with demand and supply of product and lot of product types is caught up with demand now and lot of submarkets. So, there are lot of markets around the country where you might have had 5 projects coming to market a year ago, but there is really only a need for two more projects coming to market this year and that is slowing the volume to some extent.”

We wish we could invest more in securities but we can’t

“We are not – our securities portfolio right now is at a very low percentage of earning assets compared to where we were say 7 years ago or 10 years ago and we would like to be in an environment where that securities portfolio could become a much higher percentage of our earning assets. We are unfortunately not in an environment today where we feel like we can add a lot of securities for yield purpose as we did add securities last year that we retained a lot of the kind of short and medium-term mortgage-backed securities and other short-term securities from the CSB acquisition for liquidity. And then we added securities as we have talked about at length on this call in the last quarter for liquidity. So, we are keeping the liquidity element of our securities portfolio where we feel like it needs to be. But as far as really investing a much higher percentage of our earning assets and securities because we love the risk reward profile from an interest rate risk we think – we are a long way from that at this point.”