Bank OZK : Form 10-Q~Quarterly Report

UNITED STATES

FEDERAL DEPOSIT INSURANCE CORPORATION

WASHINGTON, D.C. 20429

FORM 10-Q

(Mark One)

• QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024

• TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

.

FDIC Certificate No. 110

BANK OZK

(Exact name of registrant as specified in its charter)

ARKANSAS	71-0130170
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
18000 CANTRELL ROAD, LITTLE ROCK, ARKANSAS	72223
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: [phone]

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	OZK	Nasdaq Global Select Market
4.625% Series A Non-Cumulative Perpetual	OZKAP	Nasdaq Global Select Market
Preferred Stock, $0.01 par value per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Emerging growth company	☐
Smaller reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Class		Outstanding at April 30, 2024
Common Stock, $0.01 par value per share		113,431,898

BANK OZK

FORM 10-Q

March 31, 2024

INDEX

PART I.	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (Unaudited)	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023
	(Unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and
	2023 (Unaudited)	5
	Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2024 and
	2023 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023
	(Unaudited)	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 4	Controls and Procedures	62
PART II	Other Information	63
Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	64
Item 6.	Exhibits	64
Signatures		65
Exhibit Index	66

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BANK OZK

CONSOLIDATED BALANCE SHEETS

Unaudited

		March 31,			December 31,
		2024			2023
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and cash equivalents	$	2,323,813	$	2,149,529
Investment securities - available for sale ("AFS")		3,072,391			3,244,371
Federal Home Loan Bank of Dallas ("FHLB") and other bankers' bank stocks		14,484			50,400
Non-purchased loans		27,781,091			26,195,030
Purchased loans		250,257			264,045
Allowance for loan losses		(365,935)			(339,394)
Net Loans		27,665,413			26,119,681
Premises and equipment, net		681,865			676,821
Foreclosed assets		60,782			61,720
Accrued interest receivable		175,201			170,110
Bank owned life insurance ("BOLI")		813,996			808,490
Goodwill		660,789			660,789
Other, net		561,170			295,546
Total assets	$	36,029,904		$	34,237,457
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand non-interest bearing	$	4,046,054	$	4,095,874
Savings and interest bearing transaction		9,504,445			9,074,296
Time		15,855,571			14,234,973
Total deposits		29,406,070			27,405,143
Other borrowings		202,009			805,318
Subordinated notes		347,961			347,761
Subordinated debentures		121,652			121,652
Reserve for losses on unfunded credit commitments		170,952			161,834
Accrued interest payable and other liabilities		513,420			255,773
Total liabilities		30,762,064			29,097,481
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized; 14,000,000 shares
issued and outstanding as of March 31, 2024 and December 31, 2023		338,980			338,980
Common stock, $0.01 par value; 300,000,000 shares authorized; 113,434,816 and
113,148,672 shares issued and outstanding, as of March 31, 2024 and December 31,
2023, respectively		1,134			1,131
Additional paid-in capital		1,609,268			1,612,446
Retained earnings		3,424,672			3,283,818
Accumulated other comprehensive loss		(107,207)			(97,374)
Total stockholders' equity before noncontrolling interest		5,266,847			5,139,001
Noncontrolling interest		993			975
Total stockholders' equity		5,267,840			5,139,976
Total liabilities and stockholders' equity	$	36,029,904		$	34,237,457

See accompanying notes to the consolidated financial statements.

3

BANK OZK

CONSOLIDATED STATEMENTS OF INCOME

Unaudited

Interest income:

Non-purchased loans

Purchased loans

Investment securities:

Taxable

Tax-exempt

Deposits with banks

Total interest income

Interest expense:

Deposits

Other borrowings

Subordinated notes

Subordinated debentures

Total interest expense

Net interest income Provision for credit losses

Net interest income after provision for credit losses

Non-interest income:

Service charges on deposit accounts:

Three Months Ended

March 31,

20242023

(Dollars in thousands, except per share

$	586,981	$	414,896
	4,960			6,518
	9,333			10,171
	11,173			9,264
	24,606			7,870
	637,053			448,719
	254,323			93,632
	750			5,422
	2,574			2,574
	2,472			2,239
	260,119			103,867
	376,934			344,852
	42,923			35,829
	334,011			309,023

NSF fees		-			991
Overdraft fees		3,427			3,287
All other service charges		6,839			6,502
Trust income		2,324			2,033
BOLI income		5,506			4,974
Loan service, maintenance and other fees		6,343			4,076
Gains on sales of other assets		459			343
Net gains on investment securities		410			1,716
Other		3,776			3,887
Total non-interest income		29,084			27,809
Non-interest expense:
Salaries and employee benefits		69,564			63,249
Net occupancy and equipment		17,974			17,870
Other operating expenses		45,776			45,098
Total non-interest expense		133,314			126,217
Income before taxes		229,781			210,615
Provision for income taxes		54,226			40,703
Net income		175,555			169,912
Earnings attributable to noncontrolling interest		(18)			(12)
Preferred stock dividends		4,047			4,047
Net income available to common stockholders	$	171,490		$	165,853
Basic earnings per common share	$	1.51		$	1.42
Diluted earnings per common share	$	1.51	$	1.41

See accompanying notes to the consolidated financial statements.

4

BANK OZK

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

Three Months Ended

March 31,

		2024			2023
		(Dollars in thousands)
Net income	$	175,555	$	169,912
Other comprehensive income (loss):
Unrealized gains and (losses) on investment securities AFS		(12,815)			47,777
Tax effect of unrealized gains and losses on investment securities AFS		2,982			(11,805)
Total other comprehensive income (loss)		(9,833)			35,972
Total comprehensive income	$	165,722	$	205,884

See accompanying notes to the consolidated financial statements.

5

BANK OZK

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Unaudited

												Accumulated
							Additional					Other		Non-
	Preferred		Common		Paid-in		Retained		Comprehensive	Controlling
		Stock			Stock		Capital		Earnings		(Loss) Income			Interest			Total
							(Dollars in thousands, except per share amounts)
Three months ended March 31, 2024
Balances - December 31, 2023	$	338,980	$	1,131	$1,612,446	$3,283,818	$	(97,374)		$	975	$	5,139,976
Cumulative effect of change in accounting		-			-		-	12,690			-		-			12,690
Balances - January 1, 2024		338,980			1,131		1,612,446		3,296,508			(97,374)			975			5,152,666
Net income		-			-		-	175,555			-		-			175,555
Earnings attributable to noncontrolling interest		-			-		-	(18)			-		18			-
Total other comprehensive loss		-			-		-		-			(9,833)			-			(9,833)
Preferred stock dividends, $0.28906 per share		-			-		-	(4,047)			-		-			(4,047)
Common stock dividends, $0.38 per share		-			-		-	(43,326)			-		-			(43,326)
Issuance of 484,818 shares of common stock
pursuant to stock-based compensation plans		-			5	179		-			-		-			184
Repurchase and cancellation of 184,415 shares of
common stock withheld for tax pursuant to
stock-based compensation plans		-			(2)	(8,008)		-			-		-			(8,010)
Stock-based compensation expense		-			-	4,651		-			-		-			4,651
Forfeitures of 14,259 shares of unvested
restricted common stock		-			-		-		-			-		-			-
Balances - March 31, 2024	$	338,980		$	1,134		$1,609,268		$3,424,672		$	(107,207)		$	993		$	5,267,840
Three months ended March 31, 2023
Balances - December 31, 2022	$	338,980	$	1,172	$1,753,941	$2,773,135	$	(177,649)		$	1,359	$	4,690,938
Net income		-			-		-	169,912			-		-			169,912
Earnings attributable to noncontrolling interest		-			-		-	(12)			-		12			-
Total other comprehensive income		-			-		-		-			35,972			-			35,972
Preferred stock dividends, $0.28906 per share		-			-		-	(4,047)			-					(4,047)
Common stock dividends, $0.34 per share		-			-		-	(40,084)			-		-			(40,084)
Issuance of 473,039 shares of common stock
pursuant to stock-based compensation plans		-			5	518		-			-		-			523
Repurchase and cancellation of 2,348,138 shares
of common stock under share repurchase
program		-			(24)	(85,315)		-			-		-			(85,339)
Repurchase and cancellation of 215,362
shares of common stock withheld for tax
pursuant to stock-based compensation		-			(2)	(8,672)		-			-		-			(8,674)
plans.		-			-	4,097		-			-		-			4,097
Stock-based compensation expense
Forfeitures of 6,359 shares of unvested restricted
common stock		-			-		-		-			-		-			-
Balances - March 31, 2023	$	338,980		$	1,151		1,664,569		$2,898,904		$	(141,677)		$	1,371		$	4,763,298

See accompanying notes to the consolidated financial statements.

6

BANK OZK

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

		Three months ended March 31,
		2024			2023
		(Dollars in thousands)
Cash flows from operating activities:	$	175,555	$	169,912
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		6,799			7,636
Amortization		12,073			9,617
Earnings attributable to noncontrolling interest		(18)			(12)
Provision for credit losses		42,923			35,829
Provision for losses on foreclosed and other assets		472			941
Net amortization of investment securities AFS		4,135			5,663
Net gains on investment securities		(410)			(1,716)
Accretion of purchased loans		(1,167)			(1,208)
Gains on sales of other assets		(459)			(343)
Deferred income tax (benefit) expense		24,813			(30,648)
Increase in cash surrender value of BOLI		(5,506)			(4,974)
Stock-based compensation expense		4,651			4,097
Changes in assets and liabilities:
Trading account securities		414			6,057
Accrued interest receivable		(5,091)			(10,185)
Other assets, net		(5,089)			(9,834)
Accrued interest payable and other liabilities		(14,559)			72,311
Cash provided by operating activities		239,536		$	253,143
Cash flows from investing activities:		36,859
Proceeds from sales of FHLB and other bankers' bank stock				-
Purchases of FHLB and other bankers' bank stock		(944)			(19,898)
Proceeds from maturities/calls/paydowns of investment securities AFS		165,058			160,532
Purchases of investment securities AFS		(10,032)			(48,837)
Proceeds from sale of loans		143			88
Net increase of non-purchased loans		(1,594,783)			(1,369,099)
Net payments received on purchased loans		15,008			17,228
Purchases of premises and equipment		(15,087)			(5,727)
Proceeds from BOLI death benefits		-			236
Proceeds from sales of other assets		2,199			2,610
Net cash invested in unconsolidated investments		(6,330)			(17,192)
Net cash used by investing activities		(1,407,909)			(1,280,059)
Cash flows from financing activities:
Net increase in deposits		2,000,927			782,840
Net proceeds (repayments) of other borrowings		(603,309)			387,413
Proceeds from issuance of common stock pursuant to stock-based compensation plans		184			523
Cash dividends paid on common stock		(43,088)			(39,854)
Cash dividends paid on preferred stock		(4,047)			(4,047)
Repurchase and cancellation of shares of common stock - share repurchase program		-			(85,339)
Repurchase and cancellation of shares of common stock - withheld for taxes		(8,010)			(8,674)
Net cash provided by financing activities		1,342,657			1,032,862
Net increase in cash and cash equivalents		174,284			5,946
Cash and cash equivalents - beginning of period		2,149,529			1,033,454
Cash and cash equivalents - end of period	$	2,323,813		$	1,039,400

See accompanying notes to the consolidated financial statements.

7

BANK OZK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

1. Organization and Principles of Consolidation

Bank OZK ("the Bank") is headquartered in Little Rock, Arkansas and provides a wide range of retail and commercial banking services. At March 31, 2024, the Bank conducted operations through approximately 240 offices in eight states, including offices in Arkansas, Georgia, Florida, North Carolina, Texas, California, New York and Mississippi. The Bank owns 100% of eight finance subsidiary business trusts - Ozark Capital Statutory Trust II ("Ozark II"), Ozark Capital Statutory Trust III ("Ozark III"), Ozark Capital Statutory Trust IV ("Ozark IV"), Ozark Capital Statutory Trust V ("Ozark V"), Intervest Statutory Trust II ("Intervest II"), Intervest Statutory Trust III ("Intervest III"), Intervest Statutory Trust IV ("Intervest IV") and Intervest Statutory Trust V ("Intervest V") (collectively, the "Trusts"). In addition, the Bank owns a subsidiary that holds its investment securities, a subsidiary engaged in the development of real estate, a subsidiary that holds an ownership interest in a private aircraft, a subsidiary that owns a renewable energy facility and various other entities that hold foreclosed assets or tax credits or engage in other activities.

The Bank is an Arkansas state banking corporation and is subject to regulation by the Arkansas State Bank Department. Because the Bank is an insured depository institution that is not a member bank of the Board of Governors of the Federal Reserve System, its primary federal regulator is the Federal Deposit Insurance Corporation ("FDIC").

2. Basis of Presentation and Significant Accounting Policy Changes

The accompanying interim consolidated financial statements have been prepared by the Bank, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") in Article 10 of Regulation S-X and in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States ("GAAP") for interim financial information. Certain information, accounting policies and footnote disclosures normally included in complete financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Bank's Annual Report on Form 10-K filed with the FDIC for the year ended December 31, 2023.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. In the opinion of management, all adjustments considered necessary, consisting of normal recurring items, have been included for a fair statement of the accompanying consolidated financial statements. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the full year or future periods. Certain reclassifications of prior year amounts have been made to conform to the 2024 financial statements presentation. These reclassifications had no impact on prior year net income, as previously reported.

3. Earnings Per Common Share ("EPS")

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding after consideration of the dilutive effect, if any, using the treasury stock method, of the Bank's common stock options and the non-vested performance stock units ("PSUs") under its long-term incentive agreements. Options to purchase 345,107 shares and 600,524 shares, respectively, of the Bank's common stock for the three months ended March 31, 2024 and 2023 were excluded from the diluted EPS calculations as inclusion of such options would have been anti-dilutive. There were no anti-dilutive PSUs for the three months ended March 31, 2024. There were 40,561 PSU's excluded from the diluted EPS calculations for the three months ended March 31, 2023 as inclusion would have been anti-dilutive.

8

The following table presents the computation of basic and diluted EPS for the periods indicated.

Three Months Ended

March 31,

		2024			2023
	(In thousands, except per share amounts)
Numerator:
Net income available to common stockholders	$	171,490	$	165,853
Denominator:
Denominator for basic EPS - weighted-average common shares		113,559			117,078
Effect of dilutive securities - stock options and PSUs		324			327
Denominator for diluted EPS - weighted-average common shares and assumed
conversions		113,883			117,405
Basic EPS
$	1.51		$	1.42
Diluted EPS
$	1.51		$	1.41

4. Investment Securities

The Bank's investment securities AFS are stated at estimated fair value in the consolidated financial statements with unrealized gains and losses, that do not include a credit component, reported net of related income tax as a separate component of stockholders' equity and included in accumulated other comprehensive income. Unrealized losses that include a credit component are considered in determining the Bank's allowance for credit losses ("ACL"). The Bank believes that the vast majority of unrealized losses on individual investment securities at March 31, 2024 and December 31, 2023 are the result of fluctuations in interest rates.

The following table presents the amortized cost and estimated fair value of investment securities AFS as of the dates indicated.

				Gross Unrealized		Gross Unrealized			Estimated Fair
	Amortized Cost			Gains			Losses			Value
					(Dollars in thousands)
March 31, 2024:
U.S. Government agency mortgage-backed securities	$	1,181,249	$	1	$	(99,926)	$	1,081,324
Obligations of state and political subdivisions		1,402,752			13,942			(34,587)			1,382,107
Other U.S. Government agency securities		594,998			-			(16,420)			578,578
Corporate obligations		33,660			2			(3,280)			30,382
Total investment securities AFS	$	3,212,659	$	13,945	$	(154,213)	$	3,072,391
December 31, 2023:
U.S. Government agency mortgage-backed securities	$	1,272,015	$	1	$	(97,587)	$	1,174,429
Obligations of state and political subdivisions		1,406,617			22,727			(28,456)			1,400,888
Other U.S. Government agency securities		658,851			-			(20,579)			638,272
Corporate obligations		34,341			-			(3,559)			30,782
Total investment securities AFS	$	3,371,824	$	22,728	$	(150,181)	$	3,244,371

9

The following table shows the estimated fair value of investment securities AFS having gross unrealized losses and the amount of such unrealized losses, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position, as of the dates indicated.

		Less than 12 Months		12 Months or More		Total
		Estimated			Unrealized		Estimated			Unrealized		Estimated			Unrealized
		Fair Value			Losses		Fair Value			Losses		Fair Value			Losses
							(Dollars in thousands)
March 31, 2024:
U.S. Government agency mortgage-backed
securities	$	163	$	3	$ 1,081,102	$	99,923	$ 1,081,265	$	99,926
Obligations of state and political subdivisions		249,872			4,394	530,626			30,193	780,498			34,587
Other U.S. Government agency securities		-			-	578,578			16,420	578,578			16,420
Corporate obligations		-			-		29,813			3,280		29,813			3,280
Total investment securities AFS	$	250,035	$	4,397	$ 2,220,119	$	149,816	$ 2,470,154	$	154,213
December 31, 2023:
U.S. Government agency mortgage-backed
securities	$	771	$	8	$ 1,173,593	$	97,579	$ 1,174,364	$	97,587
Obligations of state and political subdivisions		218,365			2,822	455,862			25,634	674,227			28,456
Other U.S. Government agency securities		-			-	638,272			20,579	638,272			20,579
Corporate obligations		-			-		30,782			3,559		30,782			3,559
Total investment securities AFS	$	219,136	$	2,830	$ 2,298,509	$	147,351	$ 2,517,645	$	150,181

In evaluating the Bank's unrealized loss positions for credit losses of its investment securities portfolio, management considers the credit quality, financial condition and near term prospects of the issuer, the nature and cause of the unrealized loss and other factors. While the Bank periodically evaluates its investment strategy relative to current economic and business conditions, at the present time, the Bank does not have the intent to sell these investment securities with unrealized losses and, more likely than not, will not sell these investment securities before fair value recovers to amortized cost. In addition, for the vast majority of investment securities AFS in an unrealized loss position, the Bank does not believe the unrealized losses are the result of issues with credit quality.

The following table shows the amortized cost and estimated fair value of investment securities AFS by maturity or estimated date of repayment as of March 31, 2024.

Maturity or Estimated Repayment			Amortized Costs		Estimated Fair Value
			(Dollars in thousands)
One year or less	$	1,016,026	$	973,716
After one year to five years			872,245			807,672
After five years to ten years			359,004			338,434
After ten years			965,384			952,569
Total	$	3,212,659	$	3,072,391

For purposes of this maturity or estimated repayment distribution, all investment securities AFS are shown based on their contractual maturity date or estimated date of repayment, except (i) U.S. Government agency mortgage-backed securities are allocated among various maturities or repayment categories based on an estimated repayment schedule utilizing third-party median prepayment speeds or other estimates of prepayment speeds and interest rate levels at the measurement date and (ii) callable investment securities for which the Bank has received notification of call are included in the maturity or repayment category in which the call occurs or is expected to occur. Expected maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.

At March 31, 2024 the Bank had no trading securities compared to $4.5 million of trading securities at March 31, 2023. During the three months ended March 31, 2024, the Bank had net gains of $0.4 million from the sale of approximately $161.0 million of trading securities, compared to net gains of $1.7 million from the sale of approximately $425.0 million of trading securities for the three months ended March 31, 2023.

10