Bank OZK has announced that net income for the fourth quarter of 2018 was $115.0 million, a 21.3% decrease from net income of $146.2 million for the fourth quarter of 2017. Diluted earnings per common share for the fourth quarter of 2018 were $0.89, a 21.9% decrease from $1.14 for the fourth quarter of 2017.
For the full year of 2018, net income totaled $417.1 million, a 1.1% decrease from net income of $421.9 million for the full year of 2017. Diluted earnings per common share for the full year of 2018 were $3.24, a 3.3% decrease from $3.35 for the full year of 2017.
During the fourth quarter of 2017, the Bank recognized a one-time income tax benefit of $49.8 million as a result of the revaluation, in the fourth quarter of 2017, of the Bank’s net deferred tax liability position to reflect the reduction in its federal corporate income tax rate from 35% to 21% due to the Tax Cuts and Jobs Act enacted on December 22, 2017. Additionally, the Bank incurred pre-tax expenses of approximately $0.3 million for the fourth quarter and $11.7 million for the full year of 2018 (none in 2017) related to its name change and related strategic rebranding.
The Bank’s annualized returns on average assets, average common stockholders’ equity and average tangible common stockholders’ equity for the fourth quarter of 2018 were 2.04%, 12.36% and 15.24%, respectively, compared to 2.81%, 17.23% and 21.84%, respectively, for the fourth quarter of 2017. The Bank’s returns on average assets, average common stockholders’ equity and average tangible common stockholders’ equity for the full year of 2018 were 1.90%, 11.59% and 14.41%, respectively, compared to 2.15%, 13.49% and 17.49%, respectively, for the full year 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.
“We had excellent fourth quarter results, achieving our most profitable quarter of the year with net income of $115.0 million and an annualized return on average assets of 2.04%,” stated George Gleason, Chairman and Chief Executive Officer. “For the full year of 2018, our net income was $417.1 million and our return on average assets was 1.90%. Our strong net income in 2018 resulted in meaningful increases in our already strong risked based capital ratios and allowed us to increase our cash dividends each quarter. In 2018 we completed our strategic rebranding and continued our efforts to enhance our team of industry and technology professionals, which is key to our competitive advantage. We believe we are well positioned for success in 2019.”
KEY BALANCE SHEET METRICS
Total loans, including purchased loans, were $17.12 billion at December 31, 2018, a 6.7% increase from $16.04 billion at December 31, 2017. Non-purchased loans, which exclude loans acquired in previous acquisitions, were $15.07 billion at December 31, 2018, an 18.4% increase from $12.73 billion at December 31, 2017. Purchased loans, which consist of loans acquired in previous acquisitions, were $2.04 billion at December 31, 2018, a 38.2% decrease from $3.31 billion at December 31, 2017. The unfunded balance of closed loans totaled $11.36 billion at December 31, 2018, a 13.9% decrease from $13.19 billion at December 31, 2017.
Deposits were $17.94 billion at December 31, 2018, a 4.3% increase from $17.19 billion at December 31, 2017. Total assets were $22.39 billion at December 31, 2018, a 5.2% increase from $21.28 billion at December 31, 2017.
Common stockholders’ equity was $3.77 billion at December 31, 2018, an 8.9% increase from $3.46 billion at December 31, 2017. Tangible common stockholders’ equity was $3.07 billion at December 31, 2018, an 11.7% increase from $2.75 billion at December 31, 2017. Book value per common share was $29.32 at December 31, 2018, an 8.7% increase from $26.98 at December 31, 2017. Tangible book value per common share was $23.90 at December 31, 2018, an 11.4% increase from $21.45 at December 31, 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 16.84% at December 31, 2018 compared to 16.27% at December 31, 2017. Its ratio of total tangible common stockholders’ equity to total tangible assets was 14.17% at December 31, 2018 compared to 13.38% at December 31, 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 fourth quarter of 2018 was $228.4 million, a 6.3% increase from $214.8 million for the fourth quarter of 2017. Net interest margin, on a fully taxable equivalent (“FTE”) basis, was 4.55% for the fourth quarter of 2018, a decrease of 17 basis points from 4.72% for the fourth quarter of 2017. Average earning assets were $20.00 billion for the fourth quarter of 2018, a 9.4% increase from $18.28 billion for the fourth quarter of 2017.
Net interest income for the full year of 2018 was $891.4 million, a 9.1% increase from $817.4 million for the full year of 2017. Net interest margin, on a FTE basis, was 4.59% for the full year of 2018, a decrease of 26 basis points from 4.85% for the full year of 2017. Average earning assets were $19.52 billion for the full year of 2018, a 14.1% increase from $17.11 billion for the full year of 2017.
NON-INTEREST INCOME
Non-interest income for the fourth quarter of 2018 decreased 8.8% to $27.6 million compared to $30.2 million for the fourth quarter of 2017. Non-interest income for the full year of 2018 decreased 13.0% to $107.8 million compared to $123.9 million for the full year of 2017.
The Bank’s service charges on deposit accounts decreased from $42.9 million in 2017 to $39.5 million in 2018 primarily due to the Durbin Amendment’s impact on the Bank’s interchange revenue effective July 1, 2017. The Bank’s mortgage lending income decreased from $6.4 million in 2017 to $0.5 million in 2018 as a result of the Bank’s decision in December 2017 to exit secondary market mortgage lending and the wind down of that business in early 2018.
NON-INTEREST EXPENSE
Non-interest expense for the fourth quarter of 2018 increased 10.1% to $94.9 million compared to $86.2 million for the fourth quarter of 2017. Non-interest expense for the full year of 2018 increased 14.5% to $380.8 million compared to $332.7 million for the full year of 2017. Non-interest expense included approximately $0.3 million for the fourth quarter and $11.7 million for the full year of 2018 (none in 2017) related to the name change and the related strategic rebranding.
The Bank’s efficiency ratio (non-interest expense divided by the sum of net interest income FTE and non-interest income) for the fourth quarter of 2018 was 36.9% compared to 34.8% for the fourth quarter of 2017. The Bank’s efficiency ratio for the full year of 2018 was 37.9% compared to 34.9% for the full year of 2017.
ASSET QUALITY, CHARGE-OFFS, PROVISIONS AND ALLOWANCE
Excluding purchased loans, the Bank’s ratio of nonperforming loans as a percent of total loans was 0.23% at December 31, 2018 compared to 0.10% at December 31, 2017, and its ratio of nonperforming assets as a percent of total assets was 0.23% at December 31, 2018 compared to 0.18% at December 31, 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 0.28% at December 31, 2018 compared to 0.15% at December 31, 2017.
The Bank’s annualized net charge-off ratio for non-purchased loans was 0.06% for the fourth quarter of 2018 compared to 0.08% for the fourth quarter of 2017, and it was 0.38% for the full year of 2018 compared to 0.06% for the full year of 2017. The Bank’s annualized net charge-off ratio for all loans was 0.07% for the fourth quarter of 2018 compared to 0.05% for the fourth quarter of 2017, and it was 0.34% for the full year of 2018 compared to 0.07% for the full year of 2017.
The Bank’s provision for loan losses totaled $7.3 million for the fourth quarter and $64.4 million for the full year of 2018 compared to $9.3 million for the fourth quarter and $28.1 million for the full year of 2017.
The increases in the Bank’s net charge-off ratios and provision expense for the full year of 2018 compared to 2017 were primarily due to the charge-offs totaling $45.5 million during the third quarter of 2018 on two Real Estate Specialties Group credits.
The Bank’s allowance for loan losses for its non-purchased loans was $100.7 million, or 0.67% of total non-purchased loans, at December 31, 2018 compared to $92.5 million, or 0.73% of total non-purchased loans, at December 31, 2017. The Bank had $1.6 million of allowance for loan losses for its purchased loans at both December 31, 2018 and 2017.
MANAGEMENT’S COMMENTS, CONFERENCE CALL, TRANSCRIPT AND FILINGS
In connection with this release, the Bank released management’s comments on its quarterly and year end results. Management will conduct a conference call to take questions on the quarterly and year end results and management’s comments at 10:00 a.m. CT (11:00 a.m. ET) on Friday, January 18, 2019. 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 OZK 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 4759034. The call will be available live or in a recorded version on the Bank’s Investor Relations website at ir.ozk.com under “Company News/Webcasts.” 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 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 ir.ozk.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 of 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; changes in legal, financial and/or regulatory requirements; recently enacted and potential legislation and regulatory actions 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; future 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.
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