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Bank OZK (OZK) Q3 Earnings Beat Estimates, Provisions Rise
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Bank OZK’s (OZK - Free Report) third-quarter 2023 earnings per share of $1.49 beat the Zacks Consensus Estimate of $1.44. The bottom line reflects a rise of 38% from the year-earlier quarter.
Results were positively impacted by an improvement in net interest income (NII), driven by higher rates and robust loan and deposit balances. However, rising expenses, a decline in non-interest income and an increase in provision for credit losses were concerns.
Net income available to common shareholders was $169.7 million, up 32.3% from the year-ago quarter. Our estimate for the metric was $160.6 million.
Revenues Improve, Expenses Rise
Net revenues were $393 million, up 21.4% year over year. The top line beat the Zacks Consensus Estimate of $384.41 million.
NII was $367.3 million, up 24.7%. Our estimate for the metric was $355.5 million. Better-than-expected loan growth led the company to post higher numbers.
Net interest margin (NIM), on a fully-taxable-equivalent basis, expanded 5 basis points (bps) to 5.05%. Our estimate for NIM was 5.17%. However, substantially higher-than-expected deposit costs led the company to post lower numbers.
Non-interest income was $25.7 million, which decreased 11.7%. The decline was primarily due to lower service charges on deposit accounts, gains on sales of other assets and other fees. We had projected a non-interest income of $23 million.
Non-interest expenses were $129 million, up 11.5%. The rise was due to an increase in all cost components except net occupancy and equipment costs. We had expected this metric to be $131.5 million.
Bank OZK’s efficiency ratio was 32.60%, down from 35.50% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Sep 30, 2023, total loans were $25.3 billion, up 7.3% sequentially. As of the same date, total deposits amounted to $25.5 billion, up 6.5%.
Credit Quality Worsens
Net charge-offs to average total loans were 0.15%, up from 0.09% in the prior-year quarter.
In the reported quarter, the company recorded a provision for credit losses of $44 million, up 10.7% from the year-ago quarter. We had projected a provision of $36 million, but better-than-expected loan growth and expectation of economic slowdown led the company to post higher numbers.
The ratio of non-performing loans, as a percentage of total loans, increased 27 bps year over year to 0.40% as of Sep 30, 2023.
Profitability Ratios Improve
At the end of the third quarter, the return on average assets was 2.13%, up from 1.97% in the year-earlier quarter. Return on average common equity was 14.81%, up from 11.85%.
Share Repurchase Update
In the reported quarter, Bank OZK did not repurchase any shares.
Our Take
Bank OZK’s solid loan balance, 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.
Commerce Bancshares Inc.’s (CBSH - Free Report) third-quarter 2023 earnings per share of 96 cents surpassed the Zacks Consensus Estimate of 93 cents. The bottom line, however, decreased 1% from the prior-year quarter.
CBSH’s results benefited from a modest increase in NII driven by solid loan balance and higher interest rates. A rise in non-interest income and lower provisions were the other tailwinds. However, deposit outflows and higher non-interest expenses were the major concerning factors. Despite lower provisions, other asset quality metrics weakened during the quarter.
Hancock Whitney Corp.’s (HWC - Free Report) third-quarter 2023 earnings of $1.12 per share outpaced the Zacks Consensus Estimate of $1.02. However, the bottom line reflects a year-over-year decline of 27.7%.
Results were positively impacted by a marginal rise in non-interest income. The loan balance witnessed a slight sequential rise, which was another positive. However, lower NII, higher expenses and significantly higher provisions were major headwinds for HWC.
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Bank OZK (OZK) Q3 Earnings Beat Estimates, Provisions Rise
Bank OZK’s (OZK - Free Report) third-quarter 2023 earnings per share of $1.49 beat the Zacks Consensus Estimate of $1.44. The bottom line reflects a rise of 38% from the year-earlier quarter.
Results were positively impacted by an improvement in net interest income (NII), driven by higher rates and robust loan and deposit balances. However, rising expenses, a decline in non-interest income and an increase in provision for credit losses were concerns.
Net income available to common shareholders was $169.7 million, up 32.3% from the year-ago quarter. Our estimate for the metric was $160.6 million.
Revenues Improve, Expenses Rise
Net revenues were $393 million, up 21.4% year over year. The top line beat the Zacks Consensus Estimate of $384.41 million.
NII was $367.3 million, up 24.7%. Our estimate for the metric was $355.5 million. Better-than-expected loan growth led the company to post higher numbers.
Net interest margin (NIM), on a fully-taxable-equivalent basis, expanded 5 basis points (bps) to 5.05%. Our estimate for NIM was 5.17%. However, substantially higher-than-expected deposit costs led the company to post lower numbers.
Non-interest income was $25.7 million, which decreased 11.7%. The decline was primarily due to lower service charges on deposit accounts, gains on sales of other assets and other fees. We had projected a non-interest income of $23 million.
Non-interest expenses were $129 million, up 11.5%. The rise was due to an increase in all cost components except net occupancy and equipment costs. We had expected this metric to be $131.5 million.
Bank OZK’s efficiency ratio was 32.60%, down from 35.50% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Sep 30, 2023, total loans were $25.3 billion, up 7.3% sequentially. As of the same date, total deposits amounted to $25.5 billion, up 6.5%.
Credit Quality Worsens
Net charge-offs to average total loans were 0.15%, up from 0.09% in the prior-year quarter.
In the reported quarter, the company recorded a provision for credit losses of $44 million, up 10.7% from the year-ago quarter. We had projected a provision of $36 million, but better-than-expected loan growth and expectation of economic slowdown led the company to post higher numbers.
The ratio of non-performing loans, as a percentage of total loans, increased 27 bps year over year to 0.40% as of Sep 30, 2023.
Profitability Ratios Improve
At the end of the third quarter, the return on average assets was 2.13%, up from 1.97% in the year-earlier quarter. Return on average common equity was 14.81%, up from 11.85%.
Share Repurchase Update
In the reported quarter, Bank OZK did not repurchase any shares.
Our Take
Bank OZK’s solid loan balance, 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
The company 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
Commerce Bancshares Inc.’s (CBSH - Free Report) third-quarter 2023 earnings per share of 96 cents surpassed the Zacks Consensus Estimate of 93 cents. The bottom line, however, decreased 1% from the prior-year quarter.
CBSH’s results benefited from a modest increase in NII driven by solid loan balance and higher interest rates. A rise in non-interest income and lower provisions were the other tailwinds. However, deposit outflows and higher non-interest expenses were the major concerning factors. Despite lower provisions, other asset quality metrics weakened during the quarter.
Hancock Whitney Corp.’s (HWC - Free Report) third-quarter 2023 earnings of $1.12 per share outpaced the Zacks Consensus Estimate of $1.02. However, the bottom line reflects a year-over-year decline of 27.7%.
Results were positively impacted by a marginal rise in non-interest income. The loan balance witnessed a slight sequential rise, which was another positive. However, lower NII, higher expenses and significantly higher provisions were major headwinds for HWC.