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Bank OZK (OZK) Q3 Earnings Lag Estimates, Expenses Decline

Zacks Equity Research

Bank OZK’s OZK third-quarter 2019 earnings per share of 81 cents lagged the Zacks Consensus Estimate of 83 cents. The bottom line was higher than the prior-year quarter figure of 58 cents.

Results were adversely impacted by marginally lower net interest income. However, rise in non-interest income, lower operating expenses and a decline in provisions supported results to some extent. Moreover, growth in loans and deposit balances was a positive for the company.

Net income available to common shareholders was $103.9 million, up 40.1% from the year-ago quarter.

Revenues Improve Marginally, Costs Decline

Net revenues were $245.2 million, up marginally year over year. However, the figure missed the Zacks Consensus Estimate of $250.1 million.

Net interest income was $218.8 million, down marginally on a year-over-year basis. Net interest margin, on a fully-taxable equivalent basis, declined 21 basis points (bps) to 4.26%.

Non-interest income totaled $26.4 million, up 9.6% from the year-ago quarter. The rise was due to an increase in almost all components, except for other income from purchased loans, and loan service, maintenance and other fees. The quarter also included gains on sale of other assets.

Non-interest expenses were $100.9 million, down 2% year over year. The decline resulted from lower other operating expenses.

Bank OZK’s efficiency ratio was 40.98%, down from 41.87% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

As of Sep 30, 2019, total loans were $17.73 billion, up 1.4% on a sequential basis. As of the same date, total deposits amounted to $18.44 billion, up 1.4% from the prior quarter.

Credit Quality Improves

The ratio of non-performing loans, as a percentage of total loans, decreased 6 bps year over year to 0.17% as of Sep 30, 2019. Further, annualized net charge off ratio to average total loans declined from 1.14% to 0.12%.

Moreover, provision for loan losses declined 81.3% from the year-earlier quarter to $7.9 million.

Profitability Ratios Improve

At the end of the third quarter, return on average assets was 1.81%, up from 1.33% in the year-earlier quarter. Moreover, return on average common equity rose to 10.22% from 8.07%.

Our Viewpoint

Bank OZK is well-poised for organic growth on the back of continued improvement in loan demand. However, declining net interest margin mainly due to reduction of the high-yielding purchased loans portfolio remains a major near-term concern. Lower margins are expected to hurt the company's top-line growth.

Bank OZK Price, Consensus and EPS Surprise
 

Bank OZK Price, Consensus and EPS Surprise

Bank OZK price-consensus-eps-surprise-chart | Bank OZK Quote

Bank OZK currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Banks

Among other banks, BankUnited, Inc BKU is scheduled to report quarterly results on Oct 23. Huntington Bancshares Incorporated HBAN and Associated Banc-Corp ASB are slated to report results on Oct 24.

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