From Bank of the Ozarks to See Bank of America

Bank of the Ozarks is one of the banks I followed. It is a very small region bank comparing to Bank of America. You may read Bank of Ozarks business profile here if interested. I have long believe that Bank of Ozarks is one of the well managed banks that is financial is much healthier than its bigger peers. Bank of the Ozarks reported earning today. So lets see if that believe still holds and see if we can get some hint about the earning of Bank of America from Bank of the Ozarks.

It reported record earning $9,501,000 and $0.56 per share. 10.4% higher than the same period last year. Q1 2009 had profit of $9,286,000 so Q2 was a bit higher. I summarized what was the change compared to Q2 2008 or Q1 2009.

  • Loans and leases were 0.7% declined from last year
  • Deposits 7.6% declined from last year
  • Total assets 3.6% declined from last year
  • Common stockholders’ equity and Book value per common share increased about 23% from last year but slightly decline from Q1 because of an unfavorable change during the quarter in the Company’s mark-to-market adjustment for unrealized gains and losses on AFS investment securities.
  • Net interest income for the second quarter of 2009 increased 28.2% but slightly declined from Q1 2009
  • Non-interest income for the second quarter of 2009 increased 306.9% to $22,610,000 compared to $5,557,000 for the comparable quarter of 2008. Q1 Non-interest income was about $9,000,000. his large increase in non-interest income was primarily attributable to significant gains on sales of investment securities during the most recent quarter.
  • Service charges on deposit accounts were $3,047,000. Q1 was about $2,800,000. 2.7% increase from last year
  • Mortgage lending income was $1,096,000 in the second quarter of 2009. Q1 was about $900,000. 72.3% increase from last year
  • Trust income was a record $751,000. Q1 was about $650,000. 19.4% increase from last year
  • Net gains on investment securities and from sales of other assets were $16,487,000. It was $206,000 last year and about $4,000,000 in Q1 2009
  • Non-interest expense for the second quarter of 2009 was $17,945,000. 33% increase from last years. It includes $1.3 million for the special assessment levied by the FDIC on all insured institutions. It was about $16,000,000 in Q1 2009
  • Nonperforming assets as a percent of total assets increased to 1.37%. It was 0.59% as of June 30, 2008 and 1.17% as of March 31, 2009
  • the Company’s provisions to the allowance for loan and lease losses totaled $21.1 million. It was $4.0 million last year and $10.6 million the first quarter of 2009.

The source of this data is from
businesswire Bank of the Ozarks, Inc. Announces Record Second Quarter 2009 Earnings

What I saw from this summary is that business was about the same from Q1 to Q2. Provisions to the allowance for loan and lease losses almost doubled form Q1 to Q2. However Non-interest income, mainly the gain on sale of investment securities and other assets was able to more than offset the provisions for loans loss.

I don’t see this earning report a good news because the record income was not generated from its day to day business. Loan loss provision has huge increase and it doesn’t look good for the next quarter with employment rising. However stock price of OZRK went up 2.4% after report come out.

I kind of think we will see the same on Bank of America. Like the analysis I did on this post, “Bank of America Earning Forecast and Financial Statement Analysis”. Business may not have significant improvement compare to Q1. Loan loss provision will be huge. Mark to Market change is not favorable. And Bank of America has to rely on gain on asset sale to show a profit and most likely this gain is not able to offset loan loss provision and MTM changes. So it will likely to show loss. Book value may slightly decrease from last quarter.

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