Bank of the Ozarks Posts In-Line Q3 Earnings, Shares Down
Shares of Bank of the Ozarks, Inc. OZRK dipped 1.6% in the extended trading session on Oct 13, after the company reported results for third-quarter 2015. Notably, adjusted earnings of 52 cents per share came in line with the Zacks Consensus Estimate. Further, the figure improved 40% year over year.
Bank of the Ozarks Inc. - Earnings Surprise | FindTheBest
Results reflected higher revenues, which were driven by a rise in net interest as well as non-interest income, and a decrease in provision for loan losses. These were, however, offset by a rise in operating expenses. Additionally, growth in loans and deposits as well as improving credit metrics acted as tailwinds.
Adjusted results exclude $0.2 million in software and contract termination charges and nearly $2.9 million of acquisition-related and systems conversion expenses. Otherwise, net income came in at $47.9 million, up 49.2% year over year.
Performance in Detail
Net revenue grew 26.3% year over year to $118.5 million. However, the reported figure lagged the Zacks Consensus Estimate of $123.4 million.
Net interest income, on a fully taxable equivalent basis, jumped 29.2% year over year to a record level of $96.4 million. However, net interest margin fell 42 basis points (bps) year over year to 5.07%.
Non-interest income summed $22.1 million, up 15% year over year. The growth was driven by a rise across all categories, including 5.6% increase in mortgage lending income and 5.7% rise in trust income. Moreover, service charges on deposit inched up 0.9% to a record tally of $7.4 million during the quarter.
Non-interest expense was $45.4 million, up 6.8% year over year. The increase was primarily led by an 18.4% rise in net occupancy expenses. Further, expenses related to salaries and employee benefits increased 1.6%, while other operating expenses rose 8.7% for the quarter.
Bank of the Ozarks’ efficiency ratio was 37.58% compared with 43.95% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
As of Sep 30, 2015, Bank of the Ozarks had total assets of $9.3 billion, while shareholders’ equity summed $1.3 billion. As of the same date, total loans and leases (including purchased loans) surged 50.6% year over year to $7.4 billion. Total deposits rose 48% year over year to $7.6 billion.
Credit Quality
Credit quality exhibited improvement during the quarter. The annualized net charge-offs ratio declined to 0.08% from 0.09% in the prior-year quarter.
Further, ratio of nonperforming loans and leases (excluding purchased loans), as a percent of total loans and leases, improved to 0.26% as of Sep 30, 2015, from 0.49% as of Sep 30, 2014.
Moreover, provision for credit losses declined 22.8% year over year to $4.3 million.
Our Take
Robust credit quality, along with remarkable growth in loans and deposits, continue to act as Bank of the Ozarks’ key strength. Moreover, the company’s inorganic growth strategy reflects a strong balance sheet position, enhancing investors’ confidence in the stock.
However, we remain concerned about Bank of the Ozarks’ significant exposure to real estate loans and its limited margin improvement. Further, a still low interest rate environment and mounting expenses are anticipated to weigh on the company’s financials in the near term.
Bank of the Ozarks currently carries a Zacks Rank #4 (Sell).
Among other South-east banks, First Horizon National Corporation FHN is scheduled to announce results on Oct 16, while Regions Financial Corporation RF and Synovus Financial Corporation SNV will report on Oct 20.
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