Arkansas-based Bank of the Ozarks
For the third quarter, Bank of the Ozarks' net income rose 21%, and earnings per share rose 20%. Growth was fueled in large part by nearly 24% year-over-year growth in loans and tight control over expenses. While the net interest margin slipped a bit (in large part because of the flatter yield curve), it's still at a comparatively high level of 4.19%. What's more, non-interest expenses climbed only about 5%, and the efficiency ratio dropped to just 43%.
The efficiency/expense profile was no doubt helped by the fact that the company isn't opening new branches quite as quickly as originally planned. Five new offices were opened in the first half of the year, and one is scheduled to open in the fourth quarter, bringing the total to 54. Though branch expansion is clearly an important part of driving deposit growth and growing the overall business, I would not be too troubled by this slowdown because management commentary seems to suggest it's more of a temporary aberration than a change in philosophy.
This bank continues to succeed by doing things a little differently. Bank of the Ozarks wants to keep about 25% to 30% of its earning assets in investments (instead of loans) even though its credit quality (as judged by the percentage of non-performing loans) is excellent. Further, management is willing to let the loan/deposit ratio continue to creep up a bit rather than overpay for new deposit growth. All in all, it's a slightly risky approach, but it's tough to argue with management's track record thus far.
Looking back at a chart of this stock is one of those great "I coudda had a V-8" moments. That said, we're still talking about a pretty small bank, so it's entirely possible that growth will continue for years. I'd rather get these shares a bit cheaper, but then that's almost always the case, and you can't often find quality growth at rock-bottom prices.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).