Bank OZK (OZK) Q3 Earnings Lag Estimates on Higher Provisions
Bank OZK’s OZK third-quarter 2022 earnings per share of $1.08 lagged the Zacks Consensus Estimate of $1.18. The bottom line, however, reflects a rise of 8% from the year-earlier quarter.
Results were adversely impacted by higher expenses and a rise in provision for credit losses on worsening economic outlook. Yet, a rise in net interest income (NII) driven by higher loan balances and rising rates, as well as an increase in non-interest income, offered support.
Net income available to common shareholders was $128.3 million, down 1.5% from the year-ago quarter.
Revenues Improve, Expenses Rise
Net revenues were $323.8 million, which grew 18.2% year over year. The top line also beat the Zacks Consensus Estimate of $303.1 million.
Net interest income was $294.6 million, jumping 18.8%. Net interest margin, on a fully-taxable-equivalent basis, expanded 87 basis points (bps) to 5.03%.
Non-interest income was $29.2 million, which rose 12.2%. The increase was mainly driven by gains on sales of other assets, net gains on investment securities, service charges on deposit accounts and loan service, maintenance and other fees.
Non-interest expenses were $115.7 million, up 4.8%. The rise was due to an increase in all cost components.
Bank OZK’s efficiency ratio was 35.50%, down from 40.14% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Sep 30, 2022, net loans were $19.3 billion, up 6.8% from the end of December 2021. As of the same date, total deposits amounted to $20.4 billion, up from $20.2 billion as of Dec 31, 2021.
Credit Quality: A Mixed Bag
The ratio of non-performing loans, as a percentage of total loans, contracted 6 bps year over year to 0.14% as of Sep 30, 2022.
Net charge-offs to average total loans were 0.09%, up 6 bps from the prior-year quarter.
In the reported quarter, the company recorded a provision for credit losses of $39.8 million against a provision benefit of $7.5 million in the year-ago quarter.
Profitability Ratios Solid
At the end of the third quarter, the return on average assets was 1.97%, down from 1.98% in the year-earlier quarter. Return on average common equity was 11.85%, up from 11.41%.
Share Repurchase Update
In the reported quarter, Bank OZK repurchased 1.23 million shares for $47.4 million.
Our Take
Bank OZK’s solid loan balance, business restructuring and 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
Bank OZK currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Performance of Other Banks
Washington Federal’s WAFD fourth-quarter fiscal 2022 (ended Sep 30) earnings of $1.07 per share handily surpassed the Zacks Consensus Estimate of 91 cents. The figure reflects a year-over-year jump of 48.6%.
Results were primarily aided by higher rates, robust deposits and improving loan balances, which drove the NII. However, an increase in expenses, a fall in total other income and higher provisions were the headwinds for WAFD.
F.N.B. Corporation’s FNB third-quarter 2022 adjusted earnings per share of 39 cents outpaced the Zacks Consensus Estimate of 36 cents. The bottom line reflects a 14.7% rise from the prior-year quarter.
The results were primarily aided by a rise in NII and solid loan demand. Higher interest rates supported growth in margins. However, increased expenses, lower fee income and rising provisions were the undermining factors for FNB.
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