Bank of the Ozarks, Inc. is a bank holding company. The Company wholly owns a state-chartered bank subsidiary, Bank of the Ozarks (the Bank). As of December 31, 2010, the Bank conducts banking operations through 66 offices in Arkansas, seven in Texas, ten in Georgia, three in Florida, two in North Carolina, and one each in South Carolina and Alabama. The Company provides a range of retail and commercial banking services, including loaning, checking, savings, money market, time deposit and individual retirement accounts. The company does not earn revenue outside of the United States and only operates in one segment: community banking.
During 2010, the company earned net income of $64 million, a 73.8% increase from the previous year., while diluted earnings per share was $3.75, a 72% increase from the previous year. Net interest for the year increased 2.5% to $133.6 million, due to an improvement in the Company’s net interest margin, which increased 38 basis points to 5.18% in 2010. Additionally, the Company's four FDIC-assisted acquisitions resulted in the addition of higher yielding covered loans.
With its activity in loaning, the company has high exposure to credit risk, and relies on accurately predicting how well its customers will repay their loans. The corporation must maintain proactive credit risk management and constantly weigh ongoing economic factors--should they overestimate its customers' ability to repay loans, the bank's overall performance will suffer.
Changes in interest rates inversely affect a bank's net interest margin — the difference between the yield the bank earns on assets and the interest rate it pays for deposits and other sources of funding. Interest rate fluctuations, such as in the Federal Funds Rate (the rate at which financial institutions lend federal funds to other depository institutions) and Prime Rate (rate at which banks lend to their highest-credited consumers) affect bank products such as loans, deposits, securities, and short-term lending. As interest rates rise, banks are forced to pay higher rates on deposits and other interest bearing accounts. Meanwhile consumer demand for mortgages and other loan products diminishes as borrowing becomes more expensive. The combination of these two effects reduces both the volume of loans and the profitability of each loan. Rising interest rates also have the potential to increase a bank's defaults as holders of adjustable rate mortgages find themselves unable to meet their obligations.
In addition to commercial and savings banks, the Bank of the Ozarks also competes with credit unions and other financial service firms. Other banks with large presence in Arkansas include: