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Bank OZK (OZK) Rides on Loan Growth, Higher Costs a Headwind

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Bank OZK’s (OZK - Free Report) branch consolidation initiatives, along with decent loan demand and higher interest rates, are expected to continue aiding top-line growth. However, operating expenses might remain elevated due to the company’s efforts to improve technology, continued investments in franchises and inflationary pressure, thus hurting profits.

Bank OZK’s revenues witnessed a CAGR of 8.2% over the last four years (2019-2022), mainly driven by steady loan growth and a rise in fee income. The company also has a solid deposit balance. Of the total deposits, 21.7% comprised non-interest-bearing deposits as of Dec 31, 2022. This has aided revenue growth, and the positive trend is expected to continue in the near term.

With the Federal Reserve expected to keep interest rates high in the near term, Bank OZK's net interest margin is anticipated to witness an improvement in the quarters ahead, but the pace might slow down somewhat.

Given a robust capital position, and lower debt equity and dividend payout ratios compared with peers, OZK is expected to sustain its capital deployment activities, thereby continuing to enhance shareholder value. The company has been regularly increasing its quarterly dividend. In January 2023, it hiked its dividend for the 50th consecutive quarter. Bank OZK has a share repurchase plan.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have dropped 14.7% compared with a decline of 16% recorded by the industry.

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Bank OZK has been witnessing a persistent rise in non-interest expenses. Over the last four years (2019-2022), expenses witnessed a CAGR of 4%. The rise was mainly due to an increase in salaries and employee-benefit costs. As the company is expanding into newer areas organically as well as through acquisitions, expenses are expected to continue rising. Also, inflationary pressure will likely weigh on the company’s expense base.

Bank OZK’s substantial exposure to real estate loans is another headwind. Its exposure to these loans was 75.5% of total loans as of Dec 31, 2022. Though the housing and real estate sectors are holding up well amid the current economic slowdown, any deterioration in real estate prices is likely to pose a threat to the company’s financials.

Stocks Worth a Look

A couple of better-ranked stocks from the finance space are S&T Bancorp, Inc. (STBA - Free Report) and Fulton Financial Corporation (FULT - Free Report) . STBA currently sports a Zacks Rank #1 (Strong Buy) and FULT carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

S&T Bancorp’s 2023 earnings estimates have been revised 3.3% upward over the past 30 days. STBA’s shares have risen 7.9% over the past six months.

The consensus estimate for Fulton Financial’s 2023 earnings has remained unchanged over the past month. Over the past six months, FULT’s share price has decreased 12.5%.

See More Zacks Research for These Tickers

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Fulton Financial Corporation (FULT) - free report >>

S&T Bancorp, Inc. (STBA) - free report >>

Bank OZK (OZK) - free report >>

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