A month has gone by since the last earnings report for Bank of the Ozarks . Shares have added about 7.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Bank of the Ozarks Beats Q4 Earnings, Revenues Up
Bank of the Ozarks’ fourth-quarter 2016 earnings of $0.72 per share surpassed the Zacks Consensus Estimate of $0.69. Further, the figure improved nearly 26.3% on a year-over-year basis.
Better-than-expected results were driven by an increase in both net interest income and non-interest income during the quarter. Further, growth in total loans and deposits acted as tailwinds. However, rising provision for loan and lease losses and higher non-interest expenses remained headwinds.
Net income for the quarter came in at $87.8 million, up 70.5% year over year.
The company reported full-year earnings per share of $2.58, up 23.4% from the prior-year. Also, the figure surpassed the Zacks Consensus Estimate of $2.52. Further, net income for 2016 was $270 million, up 48.1% year over year.
Revenues & Expenses Increase
Net revenue for the quarter rose 64.4% year over year to $225.4 million. Moreover, the figure surpassed the Zacks Consensus Estimate of $216.6 million.
For 2016, net revenue was $703.9 million, up 44.5% year over year. Moreover, the figure surpassed the Zacks Consensus Estimate of $698.0 million.
Net interest income for the quarter grew 82.9% year over year to $194.8 million. Also, net interest margin, on a fully taxable equivalent basis, increased 4 basis points (bps) to 5.02%.
Non-interest income totaled $30.6 million, up marginally year over year. The rise was driven by an increase in all the components except net gains on investment securities and gain on sale of other assets.
Non-interest expense summed to $78.4 million, reflecting a rise of 51.7% year over year. The increase was triggered by a rise in all the expense components.
Bank of the Ozarks’ efficiency ratio came in at 34.27%, compared with 37.12% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
Strong Balance Sheet
As of Dec 31, 2016, the company had total assets of $18.9 billion, while shareholders equity summed up to $2.8 billion. Further, as of the same date, total loans and leases (including purchased loans) jumped 74.7% year over year to $14.6 billion, while total deposits surged 95.4% to $15.6 billion.
Credit Quality: A Mixed Bag
Annualized net charge-off ratio for all loans and leases declined 8 bps to 0.09%.
The ratio of non-performing loans and leases, as a percentage of total loans and leases, fell 5 bps to 0.15% as of Dec 31, 2016.
Conversely, provision for loan and lease losses jumped 89.1% year over year to $9.9 million.
Profitability Ratios Deteriorate
As of Dec 31, 2016, return on average assets was 1.92%, down 20 bps year over year. Additionally, return on average common equity decreased from 15.02% to 12.62%.
Outlook
Management remains cautiously optimistic about NIM growth in 2017.
Also, the Durbin Amendment will impact the company’s service charge revenues effective Jul 1, 2017. Based on the transaction volume in the fourth-quarter 2016 its impact will have a pre-tax reduction in revenue of about $1.85 million per quarter.
With both integration processes of Community & Southern Holdings and C1 Financial acquisitions complete, management expects a substantial reduction in non-interest expense in the first quarter of 2017 as a result of the cost savings. Nonetheless, the quarter will witness a rise in compensation and benefit costs owing to staff additions required to maintain growth levels, annual compensation increases and annual health insurance premium increases.
Notably, the company expects non-interest expense to be $78–$79 million in the first quarter 2017, relatively stable sequentially.
The company targets its efficiency ratio over the long term to be lower than 30%. This target does not include the impact of future acquisitions.
Further, management expects growth in non-purchased loans and leases in 2017 to exceed 2016’s growth level. Notably, there will be significant variation in loan growth from quarter to quarter and based on expectations of funding and prepayment of loans and leases already closed, the company expects growth in the first half of 2017 to be less than growth in the second half of 2017. Nonetheless, management affirmed its previous guidance of growth in non-purchased loans and leases to be in the range of $3.1–$4 billion this year.
The company expects the rate of prepayments on purchased loan portfolio to slow gradually in 2017.
Moreover, management anticipates commercial real estate (CRE) lending volume to continue rising. The company targets CRE to comprise 57% and non-CRE asset categories to comprise 43% of quarterly growth in earnings assets by 2018. Further, management anticipates RESG growth to pick up pace starting this year.
Further, the cost of interest bearing deposits is expected to increase in 2017, on the back of assumptions of continued growth in deposits and further Fed rate hike later this year.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend for fresh estimates. There have been four upward revisions for the current quarter.
VGM Scores
At this time, Bank of the Ozarks's stock has a subpar score of 'D' on both growth and momentum front. Following the exact same course, the stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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Why Is Bank of the Ozarks (OZRK) Up 7.5% Since the Last Earnings Report?
A month has gone by since the last earnings report for Bank of the Ozarks . Shares have added about 7.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Bank of the Ozarks Beats Q4 Earnings, Revenues Up
Bank of the Ozarks’ fourth-quarter 2016 earnings of $0.72 per share surpassed the Zacks Consensus Estimate of $0.69. Further, the figure improved nearly 26.3% on a year-over-year basis.
Better-than-expected results were driven by an increase in both net interest income and non-interest income during the quarter. Further, growth in total loans and deposits acted as tailwinds. However, rising provision for loan and lease losses and higher non-interest expenses remained headwinds.
Net income for the quarter came in at $87.8 million, up 70.5% year over year.
The company reported full-year earnings per share of $2.58, up 23.4% from the prior-year. Also, the figure surpassed the Zacks Consensus Estimate of $2.52. Further, net income for 2016 was $270 million, up 48.1% year over year.
Revenues & Expenses Increase
Net revenue for the quarter rose 64.4% year over year to $225.4 million. Moreover, the figure surpassed the Zacks Consensus Estimate of $216.6 million.
For 2016, net revenue was $703.9 million, up 44.5% year over year. Moreover, the figure surpassed the Zacks Consensus Estimate of $698.0 million.
Net interest income for the quarter grew 82.9% year over year to $194.8 million. Also, net interest margin, on a fully taxable equivalent basis, increased 4 basis points (bps) to 5.02%.
Non-interest income totaled $30.6 million, up marginally year over year. The rise was driven by an increase in all the components except net gains on investment securities and gain on sale of other assets.
Non-interest expense summed to $78.4 million, reflecting a rise of 51.7% year over year. The increase was triggered by a rise in all the expense components.
Bank of the Ozarks’ efficiency ratio came in at 34.27%, compared with 37.12% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
Strong Balance Sheet
As of Dec 31, 2016, the company had total assets of $18.9 billion, while shareholders equity summed up to $2.8 billion. Further, as of the same date, total loans and leases (including purchased loans) jumped 74.7% year over year to $14.6 billion, while total deposits surged 95.4% to $15.6 billion.
Credit Quality: A Mixed Bag
Annualized net charge-off ratio for all loans and leases declined 8 bps to 0.09%.
The ratio of non-performing loans and leases, as a percentage of total loans and leases, fell 5 bps to 0.15% as of Dec 31, 2016.
Conversely, provision for loan and lease losses jumped 89.1% year over year to $9.9 million.
Profitability Ratios Deteriorate
As of Dec 31, 2016, return on average assets was 1.92%, down 20 bps year over year. Additionally, return on average common equity decreased from 15.02% to 12.62%.
Outlook
Management remains cautiously optimistic about NIM growth in 2017.
Also, the Durbin Amendment will impact the company’s service charge revenues effective Jul 1, 2017. Based on the transaction volume in the fourth-quarter 2016 its impact will have a pre-tax reduction in revenue of about $1.85 million per quarter.
With both integration processes of Community & Southern Holdings and C1 Financial acquisitions complete, management expects a substantial reduction in non-interest expense in the first quarter of 2017 as a result of the cost savings. Nonetheless, the quarter will witness a rise in compensation and benefit costs owing to staff additions required to maintain growth levels, annual compensation increases and annual health insurance premium increases.
Notably, the company expects non-interest expense to be $78–$79 million in the first quarter 2017, relatively stable sequentially.
The company targets its efficiency ratio over the long term to be lower than 30%. This target does not include the impact of future acquisitions.
Further, management expects growth in non-purchased loans and leases in 2017 to exceed 2016’s growth level. Notably, there will be significant variation in loan growth from quarter to quarter and based on expectations of funding and prepayment of loans and leases already closed, the company expects growth in the first half of 2017 to be less than growth in the second half of 2017. Nonetheless, management affirmed its previous guidance of growth in non-purchased loans and leases to be in the range of $3.1–$4 billion this year.
The company expects the rate of prepayments on purchased loan portfolio to slow gradually in 2017.
Moreover, management anticipates commercial real estate (CRE) lending volume to continue rising. The company targets CRE to comprise 57% and non-CRE asset categories to comprise 43% of quarterly growth in earnings assets by 2018. Further, management anticipates RESG growth to pick up pace starting this year.
Further, the cost of interest bearing deposits is expected to increase in 2017, on the back of assumptions of continued growth in deposits and further Fed rate hike later this year.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend for fresh estimates. There have been four upward revisions for the current quarter.
Bank of the Ozarks Price and Consensus
Bank of the Ozarks Price and Consensus | Bank of the Ozarks Quote
VGM Scores
At this time, Bank of the Ozarks's stock has a subpar score of 'D' on both growth and momentum front. Following the exact same course, the stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.