FORWARD LOOKING STATEMENTS

This presentation and other communications by Bank OZK (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 in implementing the Bank's growth, expansion and acquisition strategies, including delays in identifying satisfactory sites, hiring or retaining qualified personnel, obtaining regulatory or other approvals, obtaining permits and designing, constructing and opening new offices or relocating, selling or closing existing offices; the ability to enter into and/or close additional acquisitions; the availability of and access to capital; possible downgrades in the Bank's credit ratings or outlook which could increase the costs of or decrease the 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; the potential impact of the phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR; 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, including those actions in response to the coronavirus ("COVID-19") pandemic such as the Coronavirus Aid, Relief and Economic Security Act, the Consolidated Appropriations Act of 2021, the American Rescue Plan Act of 2021, and any similar or related laws, rules and regulations; 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; natural disasters or acts of war or terrorism; the adverse effects of the ongoing global COVID-19 pandemic, including the duration of the pandemic and actions taken to contain or treat COVID-19, on the Bank, the Bank's customers, the Bank's staff, the global economy and the financial markets; national, international or political instability; impairment of our goodwill or other intangible assets; 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 communication or as detailed from time to time in our public filings, including those factors described in the disclosures under the headings "Forward-Looking Information" and "Item 1A. Risk Factors" in our most recent Annual Report on Form 10-K for the year ended December 31, 2020 and our 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 described 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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Summary

We are pleased to report our results for the second quarter of 2021. Highlights of the quarter are as follows:

  • Record Net Income. Our $150.5 million of net income and our $1.16 of diluted earnings per common share for the quarter just ended were both our best quarterly results ever.
  • Record Net Interest Income and Improvement in Core Spread. Our net interest income for the quarter was a record $240.7 million, an increase of $24.2 million, or 11.2%, from the second quarter of 2020, and a $6.1 million, or 2.6% not annualized, increase from the level achieved in the first quarter of 2021. In the quarter just ended, our core spread, which is how we describe the difference between our yield on non- purchased loans and our cost of interest bearing deposits ("COIBD"), increased 90 and 24 basis points ("bps") compared to the second quarter of 2020 and first quarter of 2021, respectively, helping offset the effect of the high level of net loan repayments in the quarter just ended.
  • Excellent Asset Quality. Our focus on asset quality was again evident, as reflected in our annualized net charge-off ratios for the quarter just ended of 0.09% for non-purchased loans and 0.08% for total loans. Our June 30, 2021 ratios of nonperforming non-purchased loans to total non-purchased loans and nonperforming assets to total assets1 were just 0.22% and 0.18%, respectively.
  • Efficiency Among the Industry's Best. Our efficiency ratio for the quarter was 38.4%.
  • Dividend Growth. We recently increased our regular quarterly dividend for the 44th consecutive quarter.
  • Multiple Options for Increasing Shareholder Value. Our combination of strong earnings and robust capital gives us great optionality to increase shareholder value. Options for deploying our excess capital include organic loan growth, adding new business lines, continuing to increase our cash dividend, financially attractive acquisitions for cash or some combination of cash and stock, and stock repurchases pursuant to our recently adopted stock repurchase program.

Profitability and Earnings Metrics

Net income for the second quarter of 2021 was a record $150.5 million, a 199% increase from $50.3 million for the second quarter of 2020. Diluted earnings per common share for the second quarter of 2021 were $1.16, a 197% increase from $0.39 for the second quarter of 2020. For the six months ended June 30, 2021, net income was $299.0 million, a 381% increase from $62.1 million for the first six months of 2020. Diluted earnings per common share for the first six months of 2021 were $2.30, a 379% increase from $0.48 for the first six months of 2020.

Our results for the second quarter and first six months of 2020 reflected the substantial build of our allowance for credit losses ("ACL") associated with the COVID-19 pandemic and the related actual and expected economic

  • Excludes purchased loans, except for their inclusion in total assets.

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impacts at that time, and our results for the second quarter and first six months of 2021 reflect some release of our ACL as a result of improving economic conditions and prospects for improvement in the U.S. economy.

Our annualized return on average assets was 2.24% for the second quarter of 2021 compared to 0.78% for the second quarter of 2020. Our annualized returns on average common stockholders' equity and average tangible common stockholders' equity2 for the second quarter of 2021 were 13.65% and 16.10%, respectively, compared to 4.92% and 5.89%, respectively, for the second quarter of 2020. Our annualized returns on average assets, average common stockholders' equity, and average tangible common stockholders' equity for the first six months of 2021 were 2.23%, 13.81%, and 16.33%, respectively, compared to 0.50%, 3.04%, and 3.64%, respectively, for the first six months of 2020.

Net Interest Income

Net interest income is our largest category of revenue. It is affected by many factors, including our volume and mix of earning assets; volume and mix of deposits and other liabilities; net interest margin; core spread; and other factors.

As shown in Figure 1 below, our net interest income for the second quarter of 2021 was a record $240.7 million, a $24.2 million, or 11.2%, increase from the second quarter of 2020, and a $6.1 million, or 2.6% not annualized, increase from the level achieved in the first quarter of 2021. In the quarter just ended, our core spread increased 90 bps and 24 bps, compared to the second quarter of 2020 and first quarter of 2021, respectively, helping offset the effect of the high level of net loan repayments in the quarter just ended.

Figure 1: Quarterly Net Interest Income

Interest Income

($ millions)

Net

$300

50.00%

$250

$225

$219

$225

$238

$235

$241

45.00%

$215

$210

$217

40.00%

$200

35.00%

30.00%

$150

25.00%

$100

20.00%

15.00%

$50

10.00%

5.00%

$-

0.00%

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

4Q20

1Q21

2Q21

  • 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 schedule at the end of this presentation.

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Average Earning Assets - Volume and Mix

Our average earning assets for the quarter just ended totaled $24.6 billion, a 4.8% increase from $23.5 billion for the second quarter of 2020, but a 0.7% decrease from $24.8 billion for the first quarter of 2021. Average earning assets were $24.7 billion for the first six months of 2021, a 9.9% increase from $22.5 billion for the first six months of 2020.

Total Loans

Our outstanding balance of total loans at June 30, 2021 decreased $1.04 billion, or 5.4%, from June 30, 2020, and decreased $0.44 billion, or 2.4% not annualized, from March 31, 2021, as illustrated in Figure 2. For the first six months of 2021, our outstanding balance of total loans decreased $0.94 billion, or 4.9% not annualized. During the first and second quarters of 2021, we experienced a high level of net loan repayments in non-purchased loans following delays in the completion, sale and refinancing of many real estate projects during 2020 due to the COVID-19 pandemic.

Figure 2: Total Loan Balances and Yields

$20,000

$18,228

$19,311

$19,358

$19,209

$18,715

$18,272

$17,735

$17,485

$17,532

Period End Total Loans

$15,000

7.00%

Total Loan Yield

($ millions)

6.37%

6.00%

6.15%

5.92%

$10,000

5.73%

5.51%

5.00%

5.36%

5.39%

5.27%

5.21%

4.00%

$5,000

3.00%

2.00%

1.00%

$-

0.00%

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

4Q20

1Q21

2Q21

Period End Total Loans

Total Loan Yield

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Bank OZK published this content on 22 July 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 July 2021 20:07:05 UTC.