Loan growth and higher yields fueled a double-digit increase in first-quarter profit at Bank of the Ozarks in Little Rock, Ark., though expenses rose sharply.
Net income at the $22 billion-asset bank rose 27% to $113 million from a year earlier. Earnings per share of 88 cents were 3 cents higher than the mean estimate of analysts compiled by FactSet Research Systems.
Net interest income climbed 14% to $217.8 million. The bank’s average balance of nonpurchased loans rose 32% to $13 billion, and the average yield on those loans increased 68 basis points to 5.94%.
“We have now achieved record net interest income in four consecutive quarters,” the bank said in a 31-page commentary that accompanied its earnings release Thursday.
Total loans increased 12% to $16.6 billion. Deposits rose 14% to $17.8 billion.
Noninterest expense climbed 20% to $93.8 million on higher salaries, employee benefits, professional services and other expenses. The bank primarily blamed an accounting issue — it said in the commentary that it had fewer loan origination costs to defer because of a "seasonally low volume of loan originations" in the quarter.
The bank predicted its expense picture would improve later in the year, though it warned of a one-time hit to expenses that will occur in the third quarter tied to its rebranding campaign. The bank said last month it plans to change its name to Bank OZK.
Long commentaries like the one issued by the bank are rare; the bank said its executives would not read the commentary during its conference call with analysts Thursday call but would take questions on it.
Bank of the Ozarks may have released the commentary ahead of its earnings call to "alleviate some of the pushback on the higher expenses seen in the quarter as well as the decline in the unfunded loan commitments," Sandler O'Neill analyst Stephen Scouten wrote in a research note.
The bank’s securities portfolio increased 78% to $2.6 billion, largely through the purchase of short-duration, mortgage-backed securities. The bank expanded its holdings of these securities “to provide another tool for managing our balance sheet liquidity, while also trying to avoid any significant interest rate and market risks,” it said in the commentary.
Noninterest income dropped 1% to $28.7 million on lower deposit service charges as a result of the Durbin amendment's limits on interchange fees. The bank also had lower income from purchased loans in the quarter.