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Bank OZK (OZK) Beats on Q2 Earnings Despite Higher Provisions
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Bank OZK’s (OZK - Free Report) second-quarter 2020 earnings per share of 39 cents surpassed the Zacks Consensus Estimate of 35 cents. However, the bottom line indicates a decline of 54.7% from the prior-year quarter’s reported number.
In the reported quarter, the company recorded a decline in revenues along with higher expenses. Moreover, a significant increase in provision for credit losses hurt performance to some extent. Nevertheless, the balance sheet position remained strong. Loans and deposits witnessed an increase in the quarter.
Net income available to common shareholders was $50.3 million as compared with $110.5 million in the year-ago quarter.
Revenues Decline, Expenses Rise
Net revenues for the quarter under review were $238.2 million, down 5.2% year over year. Nonetheless, the figure surpassed the Zacks Consensus Estimate of $234.5 million.
Net interest income was $216.6 million, down 3.5% on a year-over-year basis. Net interest margin, on a fully-taxable equivalent basis, declined 71 basis points (bps) to 3.74%.
Non-interest income totaled $21.6 million, down 18.8% from the year-ago quarter. The fall was due to a decline in almost all components, except for other income and gains on sales of other assets.
Non-interest expenses were $101 million, up 1.8% year over year. The rise resulted from higher salaries and employee benefits costs as well as net occupancy and equipment costs.
Bank OZK’s efficiency ratio was 42.07%, up from 39.30% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.
As of Jun 30, 2020, total loans were $19.31 billion, up from $17.53 billion recorded as of Dec 31, 2019. As of the same date, total deposits amounted to $20.72 billion, up from $18.47 billion recorded as of Dec 31, 2019.
Credit Quality Worsens
The ratio of non-performing loans, as a percentage of total loans, increased 3 bps year over year to 0.18% as of Jun 30, 2020. Moreover, provision for credit losses increased significantly from $6.8 million in the year-earlier quarter to $72 million.
Annualized net charge off ratio to average total loans increased from 0.14% to 0.29% on a year-over-year basis.
Profitability Ratios Deteriorate
At the end of the second quarter, return on average assets was 0.78%, down from 1.95% in the year-earlier quarter. Return on average common equity declined year over year to 4.92% from 11.29%.
Our Viewpoint
Bank OZK’s steadily improving loan balances along with its strategic growth initiatives are expected to support revenues. However, owing to near-zero interest rates, the company’s margins are expected to remain under pressure in the near term. Also, elevated expenses (as witnessed in the second quarter) will likely hurt profits.
M&T Bank Corporation (MTB - Free Report) reported second-quarter 2020 negative earnings surprise of 7.9% on higher provisions. Net operating earnings per share of $1.76 missed the Zacks Consensus Estimate of $1.91. The bottom line also compared unfavorably with the $3.37 per share reported in the year-ago quarter.
First Republic Bank’s earnings per share of $1.40 surpassed the Zacks Consensus Estimate of $1.20 in the second quarter. Also, the bottom line climbed 12.9% from the year-ago quarter. The results were supported by an increase in net interest income. However, higher expenses, a decline in fee income and elevated provisions were the offsetting factors.
Regions Financial (RF - Free Report) reported an adjusted loss of 23 cents per share in the April-June quarter, as against earnings of 39 cents per share recorded in the prior-year period. The Zacks Consensus Estimate was pegged at 7 cents. Results were negatively impacted by higher provisions for credit losses on increasing economic uncertainty due to coronavirus woes. Moreover, rise in expenses was a major drag. Nevertheless, higher revenues aided by rising loans and deposit balances provided some respite.
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Bank OZK (OZK) Beats on Q2 Earnings Despite Higher Provisions
Bank OZK’s (OZK - Free Report) second-quarter 2020 earnings per share of 39 cents surpassed the Zacks Consensus Estimate of 35 cents. However, the bottom line indicates a decline of 54.7% from the prior-year quarter’s reported number.
In the reported quarter, the company recorded a decline in revenues along with higher expenses. Moreover, a significant increase in provision for credit losses hurt performance to some extent. Nevertheless, the balance sheet position remained strong. Loans and deposits witnessed an increase in the quarter.
Net income available to common shareholders was $50.3 million as compared with $110.5 million in the year-ago quarter.
Revenues Decline, Expenses Rise
Net revenues for the quarter under review were $238.2 million, down 5.2% year over year. Nonetheless, the figure surpassed the Zacks Consensus Estimate of $234.5 million.
Net interest income was $216.6 million, down 3.5% on a year-over-year basis. Net interest margin, on a fully-taxable equivalent basis, declined 71 basis points (bps) to 3.74%.
Non-interest income totaled $21.6 million, down 18.8% from the year-ago quarter. The fall was due to a decline in almost all components, except for other income and gains on sales of other assets.
Non-interest expenses were $101 million, up 1.8% year over year. The rise resulted from higher salaries and employee benefits costs as well as net occupancy and equipment costs.
Bank OZK’s efficiency ratio was 42.07%, up from 39.30% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.
As of Jun 30, 2020, total loans were $19.31 billion, up from $17.53 billion recorded as of Dec 31, 2019. As of the same date, total deposits amounted to $20.72 billion, up from $18.47 billion recorded as of Dec 31, 2019.
Credit Quality Worsens
The ratio of non-performing loans, as a percentage of total loans, increased 3 bps year over year to 0.18% as of Jun 30, 2020. Moreover, provision for credit losses increased significantly from $6.8 million in the year-earlier quarter to $72 million.
Annualized net charge off ratio to average total loans increased from 0.14% to 0.29% on a year-over-year basis.
Profitability Ratios Deteriorate
At the end of the second quarter, return on average assets was 0.78%, down from 1.95% in the year-earlier quarter. Return on average common equity declined year over year to 4.92% from 11.29%.
Our Viewpoint
Bank OZK’s steadily improving loan balances along with its strategic growth initiatives are expected to support revenues. However, owing to near-zero interest rates, the company’s margins are expected to remain under pressure in the near term. Also, elevated expenses (as witnessed in the second quarter) will likely hurt profits.
Bank OZK Price, Consensus and EPS Surprise
Bank OZK price-consensus-eps-surprise-chart | Bank OZK Quote
Bank OZK 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
M&T Bank Corporation (MTB - Free Report) reported second-quarter 2020 negative earnings surprise of 7.9% on higher provisions. Net operating earnings per share of $1.76 missed the Zacks Consensus Estimate of $1.91. The bottom line also compared unfavorably with the $3.37 per share reported in the year-ago quarter.
First Republic Bank’s earnings per share of $1.40 surpassed the Zacks Consensus Estimate of $1.20 in the second quarter. Also, the bottom line climbed 12.9% from the year-ago quarter. The results were supported by an increase in net interest income. However, higher expenses, a decline in fee income and elevated provisions were the offsetting factors.
Regions Financial (RF - Free Report) reported an adjusted loss of 23 cents per share in the April-June quarter, as against earnings of 39 cents per share recorded in the prior-year period. The Zacks Consensus Estimate was pegged at 7 cents. Results were negatively impacted by higher provisions for credit losses on increasing economic uncertainty due to coronavirus woes. Moreover, rise in expenses was a major drag. Nevertheless, higher revenues aided by rising loans and deposit balances provided some respite.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
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