Bank OZK (OZK) Q2 Earnings Miss Estimates, Revenues Rise Y/Y
Bank OZK’s OZK second-quarter 2023 earnings per share of $1.47 missed the Zacks Consensus Estimate by a penny. However, the bottom line reflects a rise of 33.6% from the year-earlier quarter.
Results were positively impacted by an improvement in net interest income (NII), driven by higher rates and loan balances. However, rising expenses and a rise in provision for credit losses on challenging economic backdrop were concerns. As a result, shares of the company witnessed a decline of 4.5% in the after-market trading.
Net income available to common shareholders was $167.9 million, up 26.9% from the year-ago quarter. Our estimate for the metric was $169 million.
Revenues Improve, Expenses Rise
Net revenues were $388.8 million, up 33.1% year over year. The top line beat the Zacks Consensus Estimate of $375.2 million.
NII was $356.8 million, up 34.2% from the year-earlier quarter. Our estimate for the metric was $348.6 million. Better-than-expected loan growth has led the company to post higher numbers.
Net interest margin (NIM), on a fully-taxable-equivalent basis, expanded 80 basis points (bps) to 5.32%. Our estimate for NIM was 5.56%. However, substantially higher-than-expected deposit cost led the company to post lower numbers.
Non-interest income was $32 million, which increased 21.5% from the year-earlier quarter. The increase was primarily due to gains on sales of other assets, loan service, maintenance and other fees. We had projected a non-interest income of $23.4 million. However, larger-than-expected gains on sales of other assets drove the company to post higher numbers.
Non-interest expenses were $129.4 million, up 18.3%. The rise was due to an increase in all cost components. We had expected this metric to be $122.8 million.
Bank OZK’s efficiency ratio was 33.05%, down from 37.25% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Jun 30, 2023, total loans were $23.6 billion, up 7% sequentially. As of the same date, total deposits amounted to $24 billion, up from $22.3 billion as of Mar 31, 2023. Our estimate for total deposits was $21.8 billion.
Credit Quality Worsens
Net charge-offs to average total loans were 0.15%, up from 0.01% in the prior-year quarter. In the reported quarter, the company recorded a provision for credit losses of $41.8 million, up substantially from $7 million in the year-ago quarter. We had projected provision of $28.5 million, but better-than-expected loan growth and expectation of economic slowdown led the company to post higher numbers.
The ratio of non-performing loans, as a percentage of total loans, contracted 1 bps year over year to 0.15% as of Mar 31, 2023.
Profitability Ratios: Mixed
At the end of the second quarter, the return on average assets was 2.27%, up from 2.02% in the year-earlier quarter. Return on average common equity was 15.14%, up from 12.40%.
Share Repurchase Update
In the reported quarter, Bank OZK repurchased 1.96 million shares for $66.1 million.
Our Take
Bank OZK’s solid loan balance, branch consolidation efforts and higher rates are expected to continue aiding revenues. However, elevated operating expenses and rising credit costs are major near-term concerns.
Bank OZK Price, Consensus and EPS Surprise
Bank OZK price-consensus-eps-surprise-chart | Bank OZK Quote
The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Hancock Whitney Corporation’s HWC second-quarter 2023 earnings of $1.35 per share met the Zacks Consensus Estimate. The bottom line rose 2.2% from the prior-year quarter.
HWC's results benefited from higher NII, a rise in loan balance and increasing interest rates. However, lower non-interest income, higher expenses and a rise in provision were concerning.
Commerce Bancshares Inc.’s CBSH second-quarter 2023 earnings per share of $1.02 surpassed the Zacks Consensus Estimate of 93 cents. The bottom line increased 10.9% from the prior-year quarter.
CBSH's results benefited from an increase in NII, driven by a rise in loan balance and higher interest rates. Also, non-interest income grew during the quarter.
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