OZRK » Topics » Net Interest Income

This excerpt taken from the OZRK 10-Q filed May 7, 2009.

Net Interest Income

Net interest income is analyzed in the discussion and the following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $4.2 million and $1.7 million, respectively, for the quarters ended March 31, 2009 and 2008. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code as a result of investment in certain tax-exempt securities.

Net interest income for the first quarter of 2009 increased 47.2% to $34.5 million compared to $23.4 million for the first quarter of 2008. Net interest margin was 4.73% during the first quarter of 2009 compared to 3.69% during the first quarter of 2008. The growth in net interest income for the first quarter of 2009 compared to the comparable period in 2008 was a result of the improvement in the Company’s net interest margin, which increased 104 basis points (“bps”), and growth in the Company’s average earnings assets, which increased 15.8%. The Company’s improvement in its net interest margin resulted from a combination of factors including favorable yields achieved on the purchase of a large volume of tax-exempt mortgage-backed securities issued by housing authorities of states and political subdivisions (“Municipal Housing Authority Bonds”) during the fourth quarter of 2008 and the first quarter of 2009 and improvement in the Company’s spread between yields on loans, leases and other investment securities and rates paid on deposits and other funding sources.

Yields on average earning assets decreased 55 bps in the first quarter of 2009 compared to the same period in 2008. This decrease was due primarily to a 109 bps decline in loan and lease yields, which was partially offset by an 80 bps increase in the aggregate yield on the Company’s investment securities.

 

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Table of Contents

The 109 bps decrease in loan and lease yields was due primarily to the repricing of the Company’s loan and lease portfolio at lower interest rates during 2008 and continuing through the first quarter of 2009. Beginning in September 2007 and continuing through December 2008, the Federal Open Market Committee (“FOMC”) decreased its federal funds target rate a total of 500 bps, resulting in many of the Company’s variable rate loans repricing to lower rates throughout 2008 and the first quarter of 2009. Additionally, the Company’s newly originated and renewed loans and leases generally priced at lower rates throughout 2008 and the first quarter of 2009 as a result of these FOMC interest rate decreases.

The 80 bps increase in the Company’s aggregate yield on its investment securities in the first quarter of 2009 compared to the same period in 2008 was the result of a seven bps decrease in yield on taxable investment securities, a 44 bps increase in yield on tax-exempt investment securities and a shift in the composition of the portfolio to include a higher proportion of tax-exempt investment securities with generally higher FTE yields than the Company’s taxable investment securities. The increase in the volume of tax-exempt investment securities is due to various factors, including the Company’s purchase of a large volume of Municipal Housing Authority Bonds which are primarily backed by single family or multi-family residential mortgages, the repayment of which is guaranteed by the Government National Mortgage Association, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, U.S. Department of Veteran’s Affairs, Federal Housing Agency or U.S. Department of Agriculture Rural Development. Tax-exempt investment securities comprised 57.4% of the Company’s average investment securities during the first quarter of 2009 compared to 36.4% during the same period in 2008.

The 55 bps decrease in average earning asset yields discussed above was more than offset by a 156 bps decrease in the rates on average interest bearing liabilities in the first quarter of 2009 compared to the same period in 2008, resulting in the Company’s overall 104 bps increase in net interest margin. The decrease in the rates on interest bearing liabilities was primarily attributable to a 174 bps decrease in the rates of interest bearing deposits, the largest component of the Company’s interest bearing liabilities. This decrease in rates on interest bearing deposits was attributable to (i) the FOMC interest rate decreases, which resulted in decreases in rates paid on both time deposits and savings and interest bearing transaction deposits as such deposits were renewed or repriced and (ii) the decrease in the Company’s aggregate time deposits, which generally pay higher rates than its other interest bearing deposits, to 59.1% of average interest bearing deposits in the first quarter of 2009 compared to 73.0% in the first quarter of 2008.

The rates on the Company’s other funding sources also declined in the first quarter of 2009 compared to the first quarter of 2008 primarily as a result of decreases in the FOMC federal funds target rate and other interest rate indices. The Company’s other borrowings, which are comprised primarily of Federal Home Loan Bank of Dallas (“FHLB”) advances, and, to a lesser extent, Federal Reserve Bank (“FRB”) borrowings and federal funds purchased, decreased 40 bps in the first quarter of 2009 compared to the first quarter of 2008. The rates paid on the Company’s subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically, declined 302 bps in the first quarter of 2009 compared to the first quarter of 2008 as a result of the decrease in 90-day LIBOR.

These excerpts taken from the OZRK 10-K filed Mar 11, 2009.

Net Interest Income

Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent (“FTE”) basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%. The FTE adjustments to net interest

 

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income were $10.5 million in 2008, $3.6 million in 2007 and $4.6 million in 2006. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code as a result of investments in certain tax-exempt securities.

2008 compared to 2007

Net interest income for 2008 increased 34.5% to $109.2 million compared to $81.2 million for 2007. Net interest margin was 3.96% in 2008 compared to 3.44% in 2007. The growth in net interest income was a result of the improvement in the Company’s net interest margin, which increased 52 basis points (“bps”) from 2007 to 2008, and growth in the Company’s average earnings assets, which increased 16.6% from 2007 to 2008. The Company’s improvement in its net interest margin resulted from a combination of factors including favorable yields achieved on a large volume of tax-exempt investment securities purchased during 2008 and improvement in the Company’s spread between yields on loans, leases and other investment securities and rates paid on deposits and other funding sources. The Company’s net interest margin improved throughout 2008, increasing from 3.47% in the fourth quarter of 2007 to 3.69%, 3.77%, 3.82% and 4.52%, respectively, in each succeeding quarter of 2008.

Yields on average earning assets decreased 62 bps in 2008 compared to 2007. This decrease was due primarily to a 113 bps decline in loan and lease yields in 2008, which was partially offset by a 93 bps increase in the aggregate yield on the Company’s investment securities.

The 113 bps decrease in loan and lease yields was due primarily to the repricing of the Company’s loan and lease portfolio at lower interest rates during 2008. Beginning in September 2007 and continuing through December 2008, the Federal Open Market Committee (“FOMC”) decreased its federal funds target rate a total of 500 bps, resulting in many of the Company’s variable rate loans repricing to lower rates beginning in the third quarter of 2007 and continuing throughout 2008. Additionally, the Company’s newly originated and renewed loans and leases generally priced at lower rates beginning in the third quarter of 2007 and continuing throughout 2008 as a result of these FOMC interest rate decreases.

The 93 bps increase in the Company’s aggregate yield on its investment securities in 2008 compared to 2007 was the result of a six bps increase in yield on taxable investment securities, a 101 bps increase in yield on tax-exempt investment securities and a shift in the composition of the portfolio to include a higher proportion of tax-exempt investment securities with generally higher FTE yields than the Company’s taxable investment securities. Beginning in February 2008 and continuing through December, the Company purchased various tax-exempt investment securities with favorable yields.

The 62 bps decrease in average earning asset yields in 2008 compared to 2007 was more than offset by a 121 bps decrease in the rates on average interest bearing liabilities, resulting in the overall 52 bps increase in net interest margin in 2008 compared to 2007. The decrease in the rates on interest bearing liabilities was primarily attributable to a 123 bps decrease in the rates of interest bearing deposits, the largest component of the Company’s interest bearing liabilities. This decrease in rates on interest bearing deposits was attributable to (i) the FOMC interest rate decreases through December 2008, which resulted in decreases in rates paid on both time deposits and savings and interest bearing transaction deposits as such deposits were renewed or repriced during 2008 and (ii) the decrease in the Company’s time deposits, which generally pay higher rates than its other interest bearing deposits, to 69.4% of average interest bearing deposits in 2008 compared to 72.7% in 2007.

The rates on the Company’s other funding sources also declined in 2008 compared to 2007 primarily as a result of decreases in the FOMC federal funds target rate and other interest rate indices in 2008. The Company’s other borrowings, which are comprised primarily of Federal Home Loan Bank of Dallas (“FHLB”) advances, and, to a lesser extent, Federal Reserve Bank (“FRB”) borrowings and federal funds purchased, decreased 89 bps in 2008 compared to 2007. The rates paid on the Company’s subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically, declined 201 bps in 2008 compared to 2007 as a result of the decrease in 90-day LIBOR during 2008.

2007 compared to 2006

Net interest income for 2007 increased 7.8% to $81.2 million compared to $75.3 million for 2006. Net interest margin was 3.44% in 2007 compared to 3.49% in 2006, a decrease of five bps. The growth in net interest income was primarily a result of the 9.6% growth in earning assets from 2006 to 2007. The relatively flat to inverted yield curve between short-term and long-term interest rates and the competitive environment for pricing loans and deposits during 2007 contributed to the decline in net interest margin

 

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for the full year of 2007 compared to 2006. However, the Company’s net interest margin improved over the course of 2007, increasing from 3.22% in the fourth quarter of 2006, to 3.35%, 3.46%, 3.45% and 3.47%, respectively, in each succeeding quarter of 2007.

Yields on earning assets increased 23 bps in 2007 compared to 2006. This increase was due primarily to an increase in loan and lease yields of 22 bps and an increase in loans and leases as a percentage of earning assets from 70.4% in 2006 to 74.9% in 2007. The increased loan and lease yields were due in part to the repricing of a portion of the Company’s fixed rate loans and leases at higher interest rates during 2007. From June 2004 through June 2006, the FOMC increased its federal funds target rate a total of 425 basis points, and during 2007 the Company benefited as fixed rate loans and leases originated prior to June 2006 either renewed at current rates or paid off and were replaced with new loans and leases at current rates. This increased repricing of fixed rate loans and leases was partially offset by declines in yields on variable rate loans due to the FOMC lowering its federal funds target rate starting in September 2007.

The Company’s aggregate yield on its investment securities decreased 13 bps in 2007 compared to 2006. This was the result of a 13 basis point decrease in yield on taxable investment securities, an 18 basis point increase in yield on tax-exempt investment securities and a shift in the composition of the portfolio to include a higher proportion of taxable investment securities that generally have a lower FTE yield than the Company’s tax-exempt investment securities. Additionally, the Company’s average balance of investment securities declined by $45 million for 2007 compared to 2006, resulting in a smaller percentage of its average earning assets being comprised of investment securities in 2007 compared to 2006.

The 23 bps increase in the yield on average earning assets in 2007 compared to 2006 was more than offset by a 32 bps increase in the rate on interest bearing liabilities, resulting in the overall five bps decline in net interest margin. The increase in the rates on interest bearing liabilities was primarily attributable to a 46 bps increase in the rates of interest bearing deposits. This increase in the rates on interest bearing deposits was attributable to both the increase in the Company’s time deposits, which generally pay higher rates than its other interest bearing deposits, to 72.7% of average interest bearing deposits in 2007 compared to 68.7% in 2006 and the increase in rates paid on time deposits as such deposits were renewed at higher rates as a result of FOMC interest rate increases through June of 2006.

The increase in the rates on interest bearing deposits was partially offset by a decline in rates on the Company’s other borrowings, which decreased 41 bps in 2007 compared to 2006. This decline in rates on other borrowings was primarily due to the decline in the FOMC federal funds target rate, to which a portion of the Company’s other borrowings are tied, starting in September 2007, the increased utilization of lower cost FHLB advances in 2007 compared to 2006, and the increase in capitalized interest on construction projects in 2007 compared to 2006.

Net
Interest Income

Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent
(“FTE”) basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%. The FTE adjustments to net interest

 


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income were $10.5 million in 2008, $3.6 million in 2007 and $4.6 million in 2006. No adjustments have been made in this analysis for income exempt from state
income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code as a result of investments in certain tax-exempt securities.

FACE="Times New Roman" SIZE="2">2008 compared to 2007

Net interest income for 2008 increased 34.5% to $109.2 million compared to
$81.2 million for 2007. Net interest margin was 3.96% in 2008 compared to 3.44% in 2007. The growth in net interest income was a result of the improvement in the Company’s net interest margin, which increased 52 basis points (“bps”)
from 2007 to 2008, and growth in the Company’s average earnings assets, which increased 16.6% from 2007 to 2008. The Company’s improvement in its net interest margin resulted from a combination of factors including favorable yields
achieved on a large volume of tax-exempt investment securities purchased during 2008 and improvement in the Company’s spread between yields on loans, leases and other investment securities and rates paid on deposits and other funding sources.
The Company’s net interest margin improved throughout 2008, increasing from 3.47% in the fourth quarter of 2007 to 3.69%, 3.77%, 3.82% and 4.52%, respectively, in each succeeding quarter of 2008.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Yields on average earning assets decreased 62 bps in 2008 compared to 2007. This decrease was due primarily to a 113 bps decline in loan and lease yields
in 2008, which was partially offset by a 93 bps increase in the aggregate yield on the Company’s investment securities.

The 113 bps
decrease in loan and lease yields was due primarily to the repricing of the Company’s loan and lease portfolio at lower interest rates during 2008. Beginning in September 2007 and continuing through December 2008, the Federal Open Market
Committee (“FOMC”) decreased its federal funds target rate a total of 500 bps, resulting in many of the Company’s variable rate loans repricing to lower rates beginning in the third quarter of 2007 and continuing throughout 2008.
Additionally, the Company’s newly originated and renewed loans and leases generally priced at lower rates beginning in the third quarter of 2007 and continuing throughout 2008 as a result of these FOMC interest rate decreases.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The 93 bps increase in the Company’s aggregate yield on its investment securities in 2008 compared to 2007 was the result of a six bps increase in
yield on taxable investment securities, a 101 bps increase in yield on tax-exempt investment securities and a shift in the composition of the portfolio to include a higher proportion of tax-exempt investment securities with generally higher FTE
yields than the Company’s taxable investment securities. Beginning in February 2008 and continuing through December, the Company purchased various tax-exempt investment securities with favorable yields.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The 62 bps decrease in average earning asset yields in 2008 compared to 2007 was more than offset by a 121 bps decrease in the rates on average interest
bearing liabilities, resulting in the overall 52 bps increase in net interest margin in 2008 compared to 2007. The decrease in the rates on interest bearing liabilities was primarily attributable to a 123 bps decrease in the rates of interest
bearing deposits, the largest component of the Company’s interest bearing liabilities. This decrease in rates on interest bearing deposits was attributable to (i) the FOMC interest rate decreases through December 2008, which resulted in
decreases in rates paid on both time deposits and savings and interest bearing transaction deposits as such deposits were renewed or repriced during 2008 and (ii) the decrease in the Company’s time deposits, which generally pay higher
rates than its other interest bearing deposits, to 69.4% of average interest bearing deposits in 2008 compared to 72.7% in 2007.

The rates
on the Company’s other funding sources also declined in 2008 compared to 2007 primarily as a result of decreases in the FOMC federal funds target rate and other interest rate indices in 2008. The Company’s other borrowings, which are
comprised primarily of Federal Home Loan Bank of Dallas (“FHLB”) advances, and, to a lesser extent, Federal Reserve Bank (“FRB”) borrowings and federal funds purchased, decreased 89 bps in 2008 compared to 2007. The rates paid on
the Company’s subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically, declined 201 bps in 2008 compared to 2007 as a result of the decrease in 90-day LIBOR
during 2008.

2007 compared to 2006

SIZE="2">Net interest income for 2007 increased 7.8% to $81.2 million compared to $75.3 million for 2006. Net interest margin was 3.44% in 2007 compared to 3.49% in 2006, a decrease of five bps. The growth in net interest income was primarily a
result of the 9.6% growth in earning assets from 2006 to 2007. The relatively flat to inverted yield curve between short-term and long-term interest rates and the competitive environment for pricing loans and deposits during 2007 contributed to the
decline in net interest margin

 


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for the full year of 2007 compared to 2006. However, the Company’s net interest margin improved over the course of 2007, increasing from 3.22% in the
fourth quarter of 2006, to 3.35%, 3.46%, 3.45% and 3.47%, respectively, in each succeeding quarter of 2007.

Yields on earning assets
increased 23 bps in 2007 compared to 2006. This increase was due primarily to an increase in loan and lease yields of 22 bps and an increase in loans and leases as a percentage of earning assets from 70.4% in 2006 to 74.9% in 2007. The increased
loan and lease yields were due in part to the repricing of a portion of the Company’s fixed rate loans and leases at higher interest rates during 2007. From June 2004 through June 2006, the FOMC increased its federal funds target rate a total
of 425 basis points, and during 2007 the Company benefited as fixed rate loans and leases originated prior to June 2006 either renewed at current rates or paid off and were replaced with new loans and leases at current rates. This increased
repricing of fixed rate loans and leases was partially offset by declines in yields on variable rate loans due to the FOMC lowering its federal funds target rate starting in September 2007.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The Company’s aggregate yield on its investment securities decreased 13 bps in 2007 compared to 2006. This was the result of a 13 basis point
decrease in yield on taxable investment securities, an 18 basis point increase in yield on tax-exempt investment securities and a shift in the composition of the portfolio to include a higher proportion of taxable investment securities that
generally have a lower FTE yield than the Company’s tax-exempt investment securities. Additionally, the Company’s average balance of investment securities declined by $45 million for 2007 compared to 2006, resulting in a smaller percentage
of its average earning assets being comprised of investment securities in 2007 compared to 2006.

The 23 bps increase in the yield on
average earning assets in 2007 compared to 2006 was more than offset by a 32 bps increase in the rate on interest bearing liabilities, resulting in the overall five bps decline in net interest margin. The increase in the rates on interest bearing
liabilities was primarily attributable to a 46 bps increase in the rates of interest bearing deposits. This increase in the rates on interest bearing deposits was attributable to both the increase in the Company’s time deposits, which generally
pay higher rates than its other interest bearing deposits, to 72.7% of average interest bearing deposits in 2007 compared to 68.7% in 2006 and the increase in rates paid on time deposits as such deposits were renewed at higher rates as a result of
FOMC interest rate increases through June of 2006.

The increase in the rates on interest bearing deposits was partially offset by a
decline in rates on the Company’s other borrowings, which decreased 41 bps in 2007 compared to 2006. This decline in rates on other borrowings was primarily due to the decline in the FOMC federal funds target rate, to which a portion of the
Company’s other borrowings are tied, starting in September 2007, the increased utilization of lower cost FHLB advances in 2007 compared to 2006, and the increase in capitalized interest on construction projects in 2007 compared to 2006.

This excerpt taken from the OZRK 10-Q filed Nov 5, 2008.

Net Interest Income

Net interest income is analyzed in the discussion and the following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $2.1 million and $0.9 million, respectively, for the quarters ended September 30, 2008 and 2007 and $6.5 million and $2.6 million, respectively, for the nine months ended September 30, 2008 and 2007. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code as a result of investment in certain tax-exempt securities.

Net interest income (FTE) increased 29.8% to $26.7 million for the quarter ended September 30, 2008, compared to $20.6 million for the quarter ended September 30, 2007. Net interest income (FTE) increased 27.9% to $76.5 million for the nine months ended September 30, 2008 compared to $59.8 million for the nine months ended September 30, 2007. The Company’s growth in average earning assets and improvement in its net interest margin (FTE) contributed to the increase in net interest income (FTE) for the third quarter and first nine months of 2008 compared to the same periods in 2007.

 

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Table of Contents

Average earning assets increased 17.6% in the third quarter and 16.3% in the first nine months of 2008 compared with the same periods in 2007. Average loans and leases increased 14.7% in the third quarter and 13.9% in the first nine months of 2008 compared to the same periods in 2007. The Company’s aggregate average balance of investment securities increased 26.6% in the third quarter and 23.3% in the first nine months of 2008 compared to the same periods in 2007. The investment securities portfolio comprised 26.5% of the Company’s average earning assets during the third quarter and 26.9% of the Company’s average earning assets during the first nine months of 2008 compared to 24.6% for the third quarter and 25.4% for the first nine months of 2007.

Net interest margin (FTE) was 3.82% for the quarter ended September 30, 2008 compared to 3.45% for the third quarter of 2007, an increase of 37 basis points (“bps”). Net interest margin (FTE) for the nine months ended September 30, 2008 was 3.76% compared with 3.42% for the first nine months of 2007, an increase of 34 bps.

Yields on earning assets decreased 95 bps for the quarter and 71 bps for the nine months ended September 30, 2008 compared to the same periods in 2007. The decrease in yields on earning assets was primarily attributable to a decrease in yields on loans and leases of 130 bps for the quarter and 111 bps for the nine months ended September 30, 2008 compared to the same periods in 2007, offset in part by increases in the aggregate yields on its investment securities of 21 bps for the quarter and 50 bps for the nine months ended September 30, 2008 compared to the same periods in 2007.

The decrease in loan and lease yields is attributable to overall decreases in general interest rate levels as a result of the Federal Open Market Committee (“FOMC”) lowering its federal funds target rate a total of 325 bps through a series of rate reductions beginning in September 2007 and continuing through April 2008. This resulted in many of the Company’s variable rate loans repricing to lower rates beginning in the third quarter of 2007 and continuing through the third quarter of 2008. Additionally the Company’s loan and lease originations and renewals generally priced at lower interest rates beginning in the third quarter of 2007 and continuing through the third quarter of 2008 as a result of these FOMC interest rate decreases.

As previously noted, the aggregate yields on the Company’s investment securities portfolio increased for both the third quarter and the first nine months of 2008 compared to the same periods of 2007. Beginning in February 2008 and continuing through September, the Company purchased a large volume of tax-exempt investment securities with favorable yields. The interest rates on the majority of these securities reset weekly. The Company estimates that its addition of these tax-exempt investment securities increased its net interest margin (FTE) by approximately 11 bps during the first quarter and by approximately 3 bps during the second quarter, and decreased its net interest margin (FTE) by approximately 3 bps during the third quarter of 2008. While these securities were dilutive to net interest margin (FTE) for the third quarter, they were accretive to net interest income.

The rates on interest bearing liabilities decreased 138 bps for the quarter and 111 bps for the nine months ended September 30, 2008 compared to the same periods in 2007. The decrease in rates on interest bearing liabilities was primarily attributable to the overall decreases in general interest rate levels as a result of previously mentioned FOMC actions. The rate on interest bearing deposits, the Company’s largest source of interest bearing liabilities, decreased 142 bps for the quarter and 112 bps for the nine months ended September 30, 2008 compared to the same periods in 2007, while aggregate rates on other interest bearing liabilities decreased 141 bps for the quarter and 146 bps for the nine months ended September 30, 2008 compared to the same periods in 2007.

This excerpt taken from the OZRK 10-Q filed Aug 7, 2008.

Net Interest Income

Net interest income is analyzed in the discussion and the following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $2.8 million and $0.8 million, respectively, for the quarters ended June 30, 2008 and 2007 and $4.5 million and $1.7 million, respectively, for the six months ended June 30, 2008 and 2007. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code as a result of investment in certain tax-exempt securities.

Net interest income (FTE) increased 31.0% to $26.4 million for the quarter ended June 30, 2008, compared to $20.1 million for the quarter ended June 30, 2007. Net interest income (FTE) increased 27.0% to $49.8 million for the six months ended June 30, 2008 compared to $39.2 million for the six months ended June 30, 2007. The Company’s growth in average earning assets and improvement in its net interest margin (FTE) contributed to the increase in net interest income (FTE) for the second quarter and first six months of 2008 compared to the same periods in 2007.

 

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Table of Contents

Average earning assets increased 20.6% in the second quarter and 15.7% in the first six months of 2008 compared with the same periods in 2007. Average loans and leases increased 13.6% in the second quarter and 13.5% in the first six months of 2008 compared to the same periods in 2007. The Company’s aggregate average balance of investment securities increased 41.6% in the second quarter and 21.8% in the first six months of 2008 compared to the same periods in 2007. The investment securities portfolio comprised 29.5% of the Company’s average earning assets during the second quarter and 27.2% of the Company’s average earning assets during the first six months of 2008 compared to 25.1% for the second quarter and 25.8% for the first six months of 2007.

Net interest margin (FTE) was 3.77% for the quarter ended June 30, 2008 compared to 3.46% for the second quarter of 2007, an increase of 31 basis points (“bps”). Net interest margin (FTE) for the six months ended June 30, 2008 was 3.73% compared with 3.41% for the first six months of 2007, an increase of 32 bps. Yields on earning assets decreased 81 bps for the quarter and 59 bps for the six months ended June 30, 2008 compared to the same periods in 2007. The decrease in yields on earning assets was primarily attributable to a decrease in yields on loans and leases of 123 bps for the quarter and 100 bps for the six months ended June 30, 2008 compared to the same periods in 2007. This decrease was partially offset by an increase in the aggregate yield on the Company’s investment securities portfolio of 58 bps for the quarter and 65 bps for the six months ended June 30, 2008 compared to the same periods in 2007.

The decrease in loan and lease yields is attributable to overall decreases in general interest rate levels as a result of the Federal Open Market Committee (“FOMC”) lowering its federal funds target rate a total of 325 bps through a series of rate reductions beginning in September 2007 and continuing through April 2008. This resulted in most of the Company’s variable rate loans repricing to lower rates beginning in the third quarter of 2007 and continuing through the second quarter of 2008. Additionally the Company’s loan and lease originations and renewals generally priced at lower interest rates beginning in the third quarter of 2007 and continuing through the second quarter of 2008 as a result of these FOMC interest rate decreases.

The aggregate yields on the Company’s investment securities portfolio increased 58 bps for the second quarter and 65 bps for the first six months of 2008 compared to the same periods of 2007 primarily as a result of the Company’s purchase of a large volume of tax-exempt investment securities with favorable yields beginning in late February 2008 and continuing through June. The 18 bps increase for the second quarter and the 55 bps increase for the six months ended June 30, 2008 in yields on tax-exempt investment securities compared to the same periods in 2007 were primarily due to these purchases. The opportunity to acquire these high quality, tax-exempt securities at favorable yields was due to unusual market conditions which may not continue. The interest rates on the majority of these securities reset weekly, and a significant portion of these securities were called in the second quarter or are expected to be called or otherwise paid off during the third quarter of 2008. The Company estimates that its addition of these tax-exempt investment securities increased its net interest margin (FTE) by approximately 11 bps during the first quarter and by approximately 3 bps during the second quarter of 2008.

The rates on interest bearing liabilities decreased 120 bps for the quarter and 98 bps for the six months ended June 30, 2008 compared to the same periods in 2007. The decrease in rates on interest bearing liabilities was primarily attributable to the overall decreases in general interest rate levels as a result of previously mentioned FOMC actions. The rate on interest bearing deposits, the Company’s largest source of interest bearing liabilities, decreased 120 bps for the quarter and 95 bps for the six months ended June 30, 2008 compared to the same periods in 2007, while aggregate rates on other interest bearing liabilities decreased 175 bps for the quarter and 152 bps for the six months ended June 30, 2008 compared to the same periods in 2007.

This excerpt taken from the OZRK 10-Q filed May 8, 2008.

Net Interest Income

Net interest income is analyzed in the discussion and the following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $1.7 million and $0.8 million, respectively, for the quarters ended March 31, 2008 and 2007. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the Internal Revenue Code as a result of investment in certain tax-exempt securities.

Net interest income (FTE) increased 22.8% to $23.4 million for the quarter ended March 31, 2008, compared to $19.1 million for the quarter ended March 31, 2007. The Company’s growth in average earning assets and improvement in its net interest margin (FTE) were the primary contributors to the increase in net interest income (FTE) for the first quarter of 2008 compared to the same period in 2007. Average earning assets increased 10.7% in the first quarter of 2008 compared to the same quarter in 2007. Net interest margin (FTE) was 3.69% for the quarter ended March 31, 2008 compared to 3.35% for the first quarter of 2007, an increase of 34 basis points (“bps”).

Yields on earning assets decreased 35 bps for the quarter ended March 31, 2008 compared to the same period in 2007. The decrease in yields on earning assets was primarily attributable to a 77 bps decrease in yields on loans and leases, which comprised 75% of the Company’s average earning assets during the first quarter of 2008. This decrease was partially offset by an increase of 76 bps in the aggregate yield on the Company’s investment securities portfolio, which comprised 25% of the Company’s average earning assets during the first quarter of 2008.

 

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Table of Contents

The decrease in loan and lease yields is attributable to overall decreases in general interest rate levels as a result of the Federal Open Market Committee (“FOMC”) lowering its federal funds target rate a total of 300 bps through a series of rate reductions beginning in September 2007 and continuing through March 2008. This resulted in most of the Company’s variable rate loans repricing to lower rates beginning in the third quarter of 2007 and continuing through the first quarter of 2008. Additionally the Company’s loan and lease originations and renewals generally priced at lower interest rates beginning in the third quarter of 2007 and continuing through the first quarter of 2008 as a result of these FOMC interest rate decreases.

The 76 bps increase in aggregate yields on the Company’s investment securities portfolio for the quarter ended March 31, 2008 compared to the first quarter of 2007 was primarily due to two factors. First, the Company had approximately $39 million of U.S. Government Agency Securities called during the first quarter of 2008. Such securities had a weighted-average yield of 4.93% which was lower than the Company’s aggregate yield on its taxable investment securities portfolio. Second, during late February and March of 2008, the Company purchased a large volume of tax-exempt investment securities with favorable yields. The 126 bps increase in yields on tax-exempt investment securities in the first quarter of 2008 compared to the same period in 2007 was primarily due to these purchases. The opportunity to acquire these high quality, tax-exempt securities at favorable yields was due to unusual market conditions which may not continue. The interest rates on the majority of these securities reset weekly, and a significant portion of these securities will be called in the second quarter of 2008. The Company estimates that its addition of these tax-exempt investment securities in the first quarter increased its net interest margin (FTE) for the quarter ended March 31, 2008 by approximately 11 bps.

The rates on interest bearing liabilities decreased 72 bps for the quarter ended March 31, 2008 compared to the first quarter of 2007. The decrease in rates on interest bearing liabilities was primarily attributable to the overall decreases in general interest rate levels as a result of previously mentioned FOMC actions. The rate on interest bearing deposits, the Company’s largest source of interest bearing liabilities, decreased 68 bps in the first quarter of 2008 compared to the first quarter of 2007, while rates on other borrowings and subordinated debentures decreased 107 bps and 73 bps, respectively, in the quarter ended March 31, 2008 compared to the comparable period in 2007.

This excerpt taken from the OZRK 8-K filed Apr 11, 2008.

NET INTEREST INCOME

Net interest income for the first quarter of 2008 increased 19.2% to $21,751,000 compared to $18,249,000 for the first quarter of 2007. Net interest margin, on a fully taxable equivalent (“FTE”) basis, improved to 3.69% in the first quarter of 2008, an increase of 34 basis points from 3.35% in the first quarter of 2007.

Mr. Gleason stated, “Good growth in loans and leases and favorable opportunities to acquire certain tax-exempt investment securities, combined with continued improvement in our net interest margin, allowed us to achieve our fifth consecutive quarter of record net interest income. This accomplished the first step in our goal of achieving record net interest income in each quarter of 2008.”

These excerpts taken from the OZRK 10-K filed Mar 12, 2008.

Net Interest Income

Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent (“FTE”) basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $3.6 million in 2007, $4.6 million in 2006 and $4.5 million in 2005.

 

12


Net
Interest Income

Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent
(“FTE”) basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $3.6 million in
2007, $4.6 million in 2006 and $4.5 million in 2005.

 


12








This excerpt taken from the OZRK 10-Q filed Nov 8, 2007.

Net Interest Income

Net interest income is analyzed in the discussion and the following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. No adjustment has been made in this analysis for income exempt from state income taxes. The FTE adjustments to net interest income were $0.9 million and $1.2 million, respectively, for the quarters ended September 30, 2007 and 2006 and $2.6 million and $3.7 million, respectively, for the nine months ended September 30, 2007 and 2006.

Net interest income (FTE) increased 8.4% to $20.6 million for the quarter ended September 30, 2007, compared to $19.0 million for the quarter ended September 30, 2006. Net interest income (FTE) increased 5.1% to $59.8 million for the

 

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nine months ended September 30, 2007 compared to $56.9 million for the nine months ended September 30, 2006. The Company’s growth in average earning assets, primarily loans and leases, and the 11 basis points (“bps”) increase in net interest margin (FTE) in the third quarter of 2007 compared to the third quarter of 2006 contributed to the increase in net interest income (FTE) for the third quarter of 2007 compared to the third quarter of 2006. Growth in the Company’s average earning assets, offset in part by a 17 bps decline in net interest margin (FTE) for the nine months ended September 30, 2007 compared to the first nine months of 2006, contributed to the increase in net interest income (FTE) for the first nine months of 2007 compared to the same period in 2006. Average earning assets increased 5.0% in the third quarter and 10.2% in the first nine months of 2007 compared with the same periods in 2006.

Net interest margin (FTE) was 3.45% for the quarter ended September 30, 2007 compared to 3.34% for the comparable quarter in 2006, an increase of 11 bps. Net interest margin (FTE) for the nine months ended September 30, 2007 was 3.42% compared with 3.59% for the same period in 2006, a decrease of 17 bps. Yields on earning assets increased 17 bps for the quarter and 33 bps for the nine months ended September 30, 2007 compared to the same periods in 2006, while the rates on interest bearing liabilities increased 11 bps for the quarter and 53 bps for the nine months ended September 30, 2007 compared to the same periods in 2006.

Loan and lease yields increased 13 bps for the quarter and 37 bps for the nine months ended September 30, 2007 compared to the same periods in 2006. This increase in loan and lease yields is attributable to overall increases in general interest rate levels as a result of the Federal Open Market Committee (“FOMC”) raising its federal funds target rate through a series of four 25 bps increases during the first half of 2006. The increase in general interest rates as a result of these FOMC actions resulted in most of the Company’s variable rate loans repricing higher in the first half of 2006. The Company’s variable rate loans and leases as a percentage of total loans and leases were 49% at September 30, 2007 compared to 43% at September 30, 2006. Additionally the Company’s loan and lease originations and renewals generally priced at higher interest rates during 2006 and 2007 as a result of these and previous FOMC interest rate increases.

During late January 2006 and continuing throughout much of 2006, the Company implemented a more aggressive deposit pricing and growth initiative, resulting in its repricing a number of deposit products in most of its markets. This adjustment in deposit pricing, combined with the repricing of deposits at higher rates as a result of FOMC increases in its federal funds target rate, contributed to the Company’s increase in rates on interest bearing deposits throughout 2006 and the first three quarters of 2007 and the decline in its net interest margin (FTE) in the first nine months of 2007 compared to the same period in 2006. The aggregate rate paid on the Company’s interest bearing deposits increased 25 bps for the quarter and 71 bps for the nine months ended September 30, 2007 compared to the same periods in 2006.

However, beginning in the first quarter of 2007 and continuing through the third quarter of 2007, the Company began to moderate the pricing of some deposit products in some markets. This moderation of deposit pricing, along with increases in yields on earning assets, contributed to the increase in net interest margin (FTE) in the third quarter of 2007 compared to the comparable period in 2006.

This excerpt taken from the OZRK 10-Q filed Aug 9, 2007.

Net Interest Income

Net interest income is analyzed in the discussion and the following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. No adjustment has been made in this analysis for income exempt from state income taxes. The FTE adjustments to net interest income were $0.8 million and $1.1 million, respectively, for the quarters ended June 30, 2007 and 2006 and $1.7 million and $2.5 million, respectively, for the six months ended June 30, 2007 and 2006.

Net interest income (FTE) increased 5.3% to $20.1 million for the quarter ended June 30, 2007, compared to $19.1 million for the quarter ended June 30, 2006. Net interest income (FTE) increased 3.5% to $39.2 million for the six months ended June 30, 2007 compared to $37.9 million for the six months ended June 30, 2006. The Company’s growth in average earning assets, primarily loans and leases, offset in part by declines in net interest margin (FTE), contributed to the increase in net interest income (FTE) for the second quarter and first six months of 2007 compared to the same periods in 2006. Average earning assets increased 10.0% in the second quarter and 13.1% in the first six months of 2007 compared with the same periods in 2006.

 

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Table of Contents

Net interest margin (FTE) was 3.46% for the quarter ended June 30, 2007 compared to 3.61% for the comparable quarter in 2006, a decrease of 15 basis points (“bps”). Net interest margin (FTE) for the six months ended June 30, 2007 was 3.41% compared with 3.72% for the same period in 2006, a decrease of 31 bps. Yields on earning assets increased 36 bps for the quarter and 42 bps for the six months ended June 30, 2007 compared to the same periods in 2006, while the rates on interest bearing liabilities increased 57 bps for the quarter and 78 bps for the six months ended June 30, 2007 compared to the same periods in 2006. The relatively flat to inverted yield curve between short-term and long-term interest rates and the competitive environment for pricing loans and deposits were significant contributors to the decline in the Company’s net interest margin (FTE).

Loan and lease yields increased 40 bps for the quarter and 50 bps for the six months ended June 30, 2007 compared to the same periods in 2006. This increase in loan and lease yields is attributable to overall increases in general interest rate levels as a result of the Federal Open Market Committee (“FOMC”) raising its federal funds target rate through a series of four 25 bps increases during the first half of 2006. The Company’s variable rate loans and leases as a percentage of total loans and leases were 46.7% at June 30, 2007 compared to 44.1% at June 30, 2006. Variable rate loans and leases benefit the Company when interest rates are increasing by allowing it to more quickly reprice its loan and lease portfolio.

During late January 2006 and continuing throughout much of 2006, the Company implemented a more aggressive deposit pricing and growth initiative, resulting in its repricing a number of deposit products in most of its markets. This adjustment in deposit pricing, particularly the repricing of time deposits at higher rates as a result of the FOMC increases in its federal funds target rate, contributed to the Company’s increase in rates on interest bearing deposits throughout 2006 and 2007 and the decline in its net interest margin (FTE) in the second quarter and first six months of 2007 compared to the same periods in 2006. The aggregate rate paid for the Company’s time deposits increased 83 bps for the quarter and 105 bps for the six months ended June 30, 2007 compared to the same periods in 2006. Also, such time deposits, which generally pay higher rates than its other interest bearing deposits, increased to 73.1% and 73.2%, respectively, of the Company’s average interest bearing deposits for the second quarter and first six months of 2007 compared to 66.6% and 66.5%, respectively, for the second quarter and first six months of 2006.

This excerpt taken from the OZRK 10-Q filed May 8, 2007.

Net Interest Income

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to an FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. No adjustment has been made in this analysis for income exempt from state income taxes. The FTE adjustments to net interest income were $0.8 million and $1.4 million, respectively, for the quarters ended March 31, 2007 and 2006.

Net interest income (FTE) increased 1.6% to $19.1 million for the quarter ended March 31, 2007, compared to $18.8 million for the quarter ended March 31, 2006. The Company’s growth in average earning assets, primarily loans and leases, was the primary contributor to the increase in net interest income (FTE) for the first quarter of 2007 compared to the same period in 2006. Average earning assets increased 16.5% in the first quarter of 2007 compared with the same quarter of 2006.

Net interest margin (FTE) was 3.35% for the quarter ended March 31, 2007 compared to 3.84% for the comparable quarter in 2006, a decrease of 49 basis points (“bps”). Yields on earning assets increased 48 bps for the quarter ended March 31, 2007 compared to the same period in 2006, while the rates on interest bearing liabilities increased 100 bps for the quarter ended March 31, 2007 compared to the same period in 2006. The relatively flat to inverted yield curve between short-term and long-term interest rates and the competitive environment for pricing loans and deposits were significant contributors to the decline in the Company’s net interest margin (FTE).

Loan and lease yields increased 61 bps for the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006. This increase in loan and lease yields is primarily attributable to overall increases in general interest rate levels as a result of the Federal Open Market Committee (“FMOC”) raising its federal funds target rate through the first half of 2006. The Company’s variable rate loans and leases as a percentage of total loans and leases increased to 47.0% at March 31, 2007 compared to 44.6% at March 31, 2006. Variable rate loans and leases benefit the Company when interest rates are increasing by allowing it to more quickly reprice its loan and lease portfolio.

During late January 2006 and continuing throughout much of last year, the Company implemented a more aggressive deposit pricing and growth initiative, resulting in its repricing a number of deposit products in most of its markets. This adjustment in deposit pricing contributed to the Company’s increase in rates on interest bearing deposits during 2006 and the decline in its net interest margin (FTE) in the first quarter of 2007 compared with the comparable period in 2006. Additionally, the Company’s time deposits, which generally pay higher rates than its other interest bearing deposits, increased to 73.4% of the Company’s average interest bearing deposits for the first quarter of 2007 compared to 66.3% for the same period of 2006.

This excerpt taken from the OZRK 10-K filed Mar 12, 2007.

Net Interest Income

Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent (“FTE”) basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $4.6 million in 2006, $4.5 million in 2005 and $2.5 million in 2004.

 

16


2006 compared to 2005

Net interest income (FTE) for 2006 increased 3.1% to $75.3 million compared to $73.0 million for 2005. Net interest margin (FTE) was 3.49% in 2006 compared to 4.18% in 2005, a decrease of 69 basis points (“bps”). The relatively flat to inverted yield curve between short-term and long-term interest rates and the competitive environment for pricing loans and deposits during 2006 were significant contributors to both the decline in the Company’s net interest margin (FTE) and in its net interest income (FTE) in 2006 compared to 2005.

Yields on earning assets increased 69 bps in 2006 compared to 2005. This increase was due primarily to an increase in loan and lease yields of 96 bps. The increased loan and lease yields are attributable to overall increases in general interest rate levels during 2006 as a result of the Federal Open Market Committee (“FOMC”) raising its federal funds target rate through a series of four 25 bps increases during the first half of 2006, which followed eight 25 bps increases during 2005. The Company’s variable rate loans and leases as a percentage of total loans and leases were 43.7% at December 31, 2006, down slightly from 44.0% at December 31, 2005. These variable rate loans and leases benefited the Company in 2006 as the yields on such loans and leases adjusted more quickly than the yields on fixed rate loans and leases to increases in the prime rate and other interest rates which followed the FOMC’s increases in the federal funds target rate.

The Company’s aggregate yield on its investment securities portfolio increased 11 bps in 2006 compared to 2005. This was the result of a 28 basis point increase in yield on taxable investment securities, an 11 basis point increase in yield on tax-exempt investment securities and a shift in the composition of the portfolio to include a higher proportion of taxable investment securities. The increases in the yields on the Company’s taxable and tax-exempt investment securities were primarily a result of new purchases during 2006 with weighted-average yields above the weighted-average yields of the taxable and tax exempt investment securities portfolios at the beginning of the year.

The 69 bps increase in earning asset yields in 2006 compared to 2005 was more than offset by a 141 bps increase in the rates on interest bearing liabilities, resulting in the overall net interest margin (FTE) compression. The increase in the rates on interest bearing liabilities was primarily attributable to a 151 bps increase in the rates of interest bearing deposits. This increase in the rates on interest bearing deposits, the largest component of the Company’s interest bearing liabilities, was attributable to overall increases in general interest rate levels and more aggressive deposit pricing by the Company in 2006. Additionally, the Company’s time deposits, which generally pay higher rates than its other interest bearing deposits, increased to 68.7% of the Company’s average interest bearing deposits in 2006 compared to 64.3% in 2005.

The rates on the Company’s other borrowings, which are comprised primarily of Federal Home Loan Bank of Dallas (“FHLB”) advances and federal funds purchased, increased 102 bps in 2006 compared to 2005. The majority of the Company’s other borrowings are short-term in nature and have interest rates which tend to move in tandem with the federal funds target rate. The rate on the Company’s subordinated debentures adjust quarterly at various margins above the 90-day London Interbank Offered Rate (“LIBOR”) and increased 171 bps in 2006 compared to 2005.

2005 compared to 2004

Net interest income (FTE) for 2005 increased 15.7% to $73.0 million compared to $63.1 million for 2004. The growth in net interest income (FTE) in 2005 was primarily attributable to a 22.6% growth in average earning assets. Net interest margin (FTE) was 4.18% in 2005 compared to 4.43% in 2004, a decrease of 25 bps. Yields on earning assets increased 56 bps in 2005 compared to 2004. This increase was due to an increase in loan and lease yields of 63 bps. The increased loan and lease yields are attributable to overall increases in general interest rate levels during 2005 as a result of the FOMC raising its federal funds target rate through a series of eight 25 bps increases during the year, which followed five 25 bps increases during 2004. Additionally, the Company increased variable rate loans and leases as a percentage of its total loans and leases from 40.6% at December 31, 2004 to 44.0% at December 31, 2005. Such increase in variable rate loans and leases allowed the Company to more quickly benefit from the increases in the prime rate and other interest rates which followed the FOMC increases in the federal funds target rate. However, competitive loan pricing in many of the Company’s markets and a flattening of the yield curve differential between short-term and long-term interest rates during 2005 limited the Company’s ability to benefit fully from the FOMC rate increases.

 

17


The Company’s aggregate yield on its investment securities portfolio increased 39 bps in 2005 compared to 2004. This was the result of a 31 basis point increase in yield on taxable investment securities, a 15 basis point decrease in yield on tax-exempt investment securities and a shift in the composition of the portfolio to include a higher proportion of tax-exempt investment securities. The increase in the yield on the Company’s taxable investment securities was primarily a result of new purchases at higher rates throughout 2005. The decrease in yield on the Company’s tax-exempt investment securities was primarily a result of purchasing new tax-exempt investment securities with a weighted-average yield below the weighted-average yield of the tax-exempt investment securities in the portfolio at the beginning of the year.

The 56 bps increase in earning asset yields was more than offset by an increase in the rates on interest bearing liabilities of 85 bps in 2005 compared to 2004, resulting in the overall net interest margin (FTE) compression. The increase in interest bearing liabilities rates was primarily attributable to an increase in the rates of interest bearing deposits of 83 bps. This increase in the rates on interest bearing deposits, the largest component of the Company’s interest bearing liabilities, was primarily attributable to the overall increases in general interest rate levels in 2005 resulting from the FOMC rate increases and competitive deposit pricing pressures in the Company’s markets. Additionally, the Company’s time deposits increased to 64.3% of the Company’s average interest bearing deposits in 2005 compared to 61.0% in 2004.

The Company’s use of other borrowings, which are comprised primarily of FHLB advances and federal funds purchased, increased in 2005 compared to 2004. The rate on the Company’s other borrowings increased by 69 bps and the rate on its subordinated debentures increased by 65 bps in 2005 compared to 2004. Such rate increases were attributable to the increase in short-term interest rates.

This excerpt taken from the OZRK 10-Q filed Nov 8, 2006.

Net Interest Income

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to an FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. No adjustment has been made in this analysis for income exempt from state income taxes.

Net interest income (FTE) increased 1.4% to $19.0 million for the quarter ended September 30, 2006, compared to $18.7 million for the quarter ended September 30, 2005. Net interest income (FTE) increased 5.6% to $56.9 million for the nine months ended September 30, 2006, compared to $53.8 million for the nine months ended September 30, 2005. The Company’s growth in average earning assets was the primary contributor to the increase in net interest income (FTE) for the third quarter and first nine months of 2006 compared to the same periods in 2005. Average earning assets increased 26.9% and 24.9%, respectively, in the third quarter and first nine months of 2006 compared with the same periods of 2005.

Net interest margin (FTE) was 3.34% for the quarter ended September 30, 2006 compared to 4.19% for the comparable quarter in 2005, a decrease of 85 basis points (“bps”). Net interest margin for the nine months ended September 30, 2006 was 3.59% compared with 4.24% for the same period in 2005, a decrease of 65 bps. Yields on earning assets increased 70 bps for the quarter and 75 bps for the nine months ended September 30, 2006 compared to the same periods in 2005, while the rates on interest bearing liabilities increased 154 bps for the quarter and 144 bps for the nine months ended September 30, 2006 compared to the same periods in 2005. The increases in both yields on earning assets, primarily loans and leases, and rates on interest bearing liabilities reflect the overall increase in interest rate levels. Competitive loan and deposit pricing in many of the Company’s markets and the relatively flat yield curve between short-term and long-term interest rates were both significant contributors to the decline in net interest margin (FTE). During late January 2006 and continuing through the third quarter, the Company implemented a more aggressive deposit pricing and growth initiative, resulting in its repricing a number of deposit products in most of its markets. This adjustment in deposit pricing contributed to the Company’s increase in rates on interest bearing deposits and the decline in its net interest margin in the third quarter and the first nine months of 2006 compared with the comparable periods in 2005. The Company believes to the extent the relatively flat yield curve and the current competitive environment continue, the Company will experience some further downward pressure on its net interest margin in the remainder of 2006.

This excerpt taken from the OZRK 10-Q filed Aug 8, 2006.

Net Interest Income

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to an FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. No adjustment has been made in this analysis for income exempt from state income taxes.

Net interest income (FTE) increased 6.8% to $19.1 million for the quarter ended June 30, 2006, compared to $17.9 million for the quarter ended June 30, 2005. Net interest income (FTE) increased 7.9% to $37.9 million for the six months ended June 30, 2006, compared to $35.1 million for the six months ended June 30, 2005. The Company’s growth in average earning assets was the primary contributor to the increase in net interest income (FTE) for the second quarter and first six months of 2006 compared to the same periods in 2005. Average earning assets increased 24.8% and 23.9%, respectively, in the second quarter and first six months of 2006 compared with the same periods of 2005.

Net interest margin (FTE) was 3.61% for the quarter ended June 30, 2006 compared to 4.22% for the comparable quarter in 2005, a decrease of 61 basis points (“bps”). Net interest margin for the six months ended June 30, 2006 was 3.72% compared with 4.28% for the same period in 2005, a decrease of 56 bps. Yields on interest earning assets increased 78 bps for the quarter and 77 bps for the six months ended June 30, 2006 compared to the same periods in 2005, while the rates on interest bearing liabilities increased 143 bps for the quarter and 138 bps for the six months ended June 30, 2006 compared to the same periods in 2005. The increases in both yields on earning assets, primarily loans and leases, and rates on interest bearing liabilities reflect the overall increase in interest rate levels during the second quarter and first six months of 2006 compared to the second quarter and first six months of 2005. Competitive loan and lease and deposit pricing in many of the Company’s markets and the relatively flat yield curve between short-term and long-term interest rates were both significant contributors to the decline in net interest margin (FTE). During late January 2006 and continuing throughout the second quarter, the Company implemented a more aggressive deposit pricing and growth initiative, resulting in its repricing a number of deposit products in most of its markets. This adjustment in deposit pricing contributed to the Company’s increase in rates on interest bearing deposits and the decline in its net interest margin in the second quarter and the first six months of 2006. The Company believes to the extent the relatively flat yield curve and the current competitive environment continue, the Company will experience some further downward pressure on its net interest margin in the remainder of 2006.

This excerpt taken from the OZRK 10-Q filed May 9, 2006.

Net Interest Income

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to an FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. No adjustment has been made in this analysis for income exempt from state income taxes.

Net interest income (FTE) increased 9.1% to $18.8 million for the quarter ended March 31, 2006, compared to $17.2 million for the quarter ended March 31, 2005. The Company’s growth in average earning assets was the primary contributor to the increase in net interest income (FTE) for the first quarter of 2006 compared to the same period in 2005. Average earning assets increased 22.9% in the first quarter of 2006 compared with the same quarter of 2005.

Net interest margin (FTE) was 3.84% for the quarter ended March 31, 2006 compared to 4.33% for the comparable quarter in 2005, a decrease of 49 basis points (“bps”). Yields on interest earning assets increased 77 bps for the quarter ended March 31, 2006 compared to the same period in 2005, while the rates on interest bearing liabilities increased 131 bps for the first quarter of 2006 compared to the same period in 2005. The increases in both yields on earning assets, primarily loans and leases, and rates on interest bearing liabilities reflect the overall increase in interest rate levels during the first quarter of 2006 compared to the first quarter of 2005. Competitive loan and lease and deposit pricing in many of the Company’s markets and the relatively flat yield curve between short-term and long-term interest rates were both significant contributors to the decline in net interest margin (FTE). During late January 2006, the Company implemented a more aggressive deposit pricing and growth policy, resulting in its repricing a number of deposit products in most of its markets. This adjustment in deposit pricing contributed to the Company’s increase in rates on interest bearing deposits and the decline in its net interest margin in the first quarter of 2006. After an evaluation of its markets, competition and growth opportunities, the Company concluded that it was the appropriate time to become more aggressive in regard to deposit pricing and growth.

The Company believes to the extent the relatively flat yield curve and the current competitive environment continue, the Company will experience some further downward pressure on its net interest margin in the remainder of 2006.

This excerpt taken from the OZRK 10-K filed Mar 13, 2006.

Net Interest Income

Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent (“FTE”) basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $4.5 million in 2005, $2.5 million in 2004 and $1.2 million in 2003. Such increases are consistent with the increase in the Company’s tax-exempt investment securities during those periods.

This excerpt taken from the OZRK 10-Q filed Nov 7, 2005.

Net Interest Income

 

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to an FTE basis consists of dividing federal tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%. No adjustment has been made for income exempt from state income taxes.

 

Net interest income (FTE) increased 13.1% to $18.7 million for the quarter ended September 30, 2005, compared to $16.5 million for the quarter ended September 30, 2004. Net interest income (FTE) increased 16.2% to $53.8 million for the nine months ended September 30, 2005 from $46.3 million for the nine months ended September 30, 2004. The Company’s growth in average earning assets was the primary contributor to the increase in net interest income (FTE) for the third quarter and first nine months of 2005 compared to the same periods in 2004. Average earning assets increased 20.6% and 22.3%, respectively, in the third quarter and first nine months of 2005 compared with the same periods of 2004.

 

Net interest margin (FTE) was 4.19% for the quarter ended September 30, 2005, compared to 4.47% for the same quarter in 2004, a decrease of 28 basis points (“bps”). Net interest margin for the nine months ended September 30, 2005 was 4.24% compared with 4.46% for the same period in 2004, a decrease of 22 bps. The declines in net interest margin (FTE) were a result of yields on interest earning assets increasing 64 bps for the third quarter and 50 bps for the nine months ended September 30, 2005 compared to the same periods in 2004, while the costs of interest bearing liabilities increased 99 bps for the third quarter and 74 bps for the nine months ended September 30, 2005 compared to the same periods in 2004. The Company believes the relatively flat yield curve and intense competitive pressures for both loans and leases and deposits contributed to these declines in net interest margin.

 

This excerpt taken from the OZRK 10-Q filed Aug 3, 2005.

Net Interest Income

 

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to an FTE basis consists of dividing tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%.

 

Net interest income (FTE) increased 17.0% to $17.9 million for the quarter ended June 30, 2005, compared to $15.3 million for the quarter ended June 30, 2004. Net interest income (FTE) increased 17.8% to $35.1 million for the six months ended June 30, 2005 from $29.8 million for the six months ended June 30, 2004. The Company’s growth in average earning assets was the primary contributor to the increase in net interest income (FTE) for the second quarter and first six months of 2005 compared to the same periods in 2004. Average earning assets increased 22.4% and 23.2%. respectively, in the second quarter and first six months of 2005 compared with the same periods of 2004.

 

Net interest margin (FTE) was 4.22% for the quarter ended June 30, 2005, compared to 4.43% for the same quarter in 2004, a decrease of 21 basis points (“bps”). Net interest margin for the six months ended June 30, 2005 was 4.28% compared with 4.46% for the same period in 2004, a decrease of 18 bps. The declines in net interest margin (FTE) were a result of yields on interest earning assets increasing 53 bps for the second quarter and 42 bps for the six months ended June 30, 2005, compared to the same periods in 2004, while the costs of interest bearing liabilities increased 76 bps for the second quarter and 61 bps for the six months ended June 30, 2005. The Company believes the flattening of the yield curve and competitive pressures for both loans and deposits in certain markets contributed to these declines in net interest margin.

 

This excerpt taken from the OZRK 10-Q filed May 9, 2005.

Net Interest Income

 

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to an FTE basis consists of dividing tax-exempt income by one minus the Company’s statutory federal income tax rate of 35%.

 

Net interest income (FTE) increased 18.7% to $17.2 million for the three months ended March 31, 2005, compared to $14.5 million for the three months ended March 31, 2004. The primary contributor to the increase in net interest income (FTE) for the first quarter of 2005 compared to the same period in 2004 was the Company’s growth in average earning assets. Average earning assets increased 23.9% in the first quarter of 2005 compared to the first quarter of 2004. Net interest margin (FTE) was 4.33% for the quarter ended March 31, 2005, compared to 4.48% for the same quarter in 2004, a decrease of 15 basis points (“bps”). This decline in net interest margin (FTE) was a result of yields on interest-earning assets increasing 29 bps, while the costs of interest-bearing liabilities increased 45 bps. As the Federal Open Market Committee has increased the Fed Funds target rate in recent quarters, the yield curve has flattened and competitive pressures have intensified. The Company believes these factors have contributed to the decline in net interest margin.

 

This excerpt taken from the OZRK 10-K filed Mar 11, 2005.

Net Interest Income

 

Net interest income is analyzed in the discussion and following tables on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%.

 

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