More than a month has gone by since the last earnings report for Bank of the Ozarks (OZRK - Free Report) . Shares have lost about 7.2% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is the stock due for a breakout? Before we dive into how investors and analysts have reacted 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’ Q3 Earnings Beat Estimates, Revenues Up
Bank of the Ozarks’ third-quarter 2017 earnings of 75 cents per share surpassed the Zacks Consensus Estimate by a penny. Moreover, the bottom line jumped 13.6% on a year-over-year basis.
Higher net interest income and non-interest income acted as tailwinds. Also, enhanced loans and deposits supported the results. However, expenses escalated during the quarter. An increase in nonperforming loans and higher provision for loan and lease losses also acted as headwinds.
Net income available to common shareholders came in at $96 million, surging 26.3% year over year.
Revenue Growth Offsets Rise in Costs
Net revenues grew 18.6% from the prior-year quarter to $242.4 million. However, the figure missed the Zacks Consensus Estimate of $244 million.
Net interest income jumped 19.7% year over year to $209.7 million. Nonetheless, net interest margin, on a fully taxable equivalent basis, decreased 6 basis points (bps) to 4.84%.
Non-interest income totaled $32.7 million, up 12% from the year-ago quarter. The rise mainly reflected higher loan service, maintenance and other fees, net gains on investment and other income.
Non-interest expenses were $84.4 million, increasing 7.1% year over year. The increase was due to a rise in all expense components except salaries and employee benefits.
Bank of the Ozarks’ efficiency ratio was 34.38% compared with 38.07% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
Strong Balance Sheet
As of Sep 30, 2017, total loans and leases (including purchased loans) were $15.78 billion, up 11.4% year over year, while total deposits surged 11.2% year over year to $16.82 billion.
Further, as of the same date, the company had total assets of $20.77 billion, while shareholders’ equity was $3.3 billion.
Weak Credit Quality
The ratio of non-performing loans and leases, as a percentage of total loans and leases, increased 3 bps to 0.11% as of Sep 30, 2017. Also, provision for loan and lease losses increased 9.8% from the prior-year quarter to $7.8 million.
Further, annualized net charge-off ratio for all loans and leases increased 2 bps year-over-year to 0.09%.
At the end of the reported quarter, return on average assets was 1.89%, up from 1.80% in the year-ago quarter. However, return on average common equity decreased from 12.18% to 11.56%.
Bank of the Ozarks expects non-purchased loans and leases to grow in the lower half of the range of $3.1-$4 billion in 2017. Moreover, in terms of dollar volume, growth for non-purchase loans and lease in 2018 is expected to exceed the growth in 2017. Likewise, the growth in 2019 will exceed 2018’s growth.
Management expects fully tax equivalent yield on total securities portfolio to range between 2.8 in fourth-quarter 2017.
On the cost front, the company anticipates total non-interest expenses in fourth-quarter to increase by $3-$5 million sequentially. The uptrend in expenses is expected to continue till mid-2018. However, as the company continues to grow at a healthy pace, the rate of increase in costs will gradually decline starting from the second half of 2018. This will enable the company to maintain a long term increasing trend in its efficiency ratio, starting mid-2018.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
At this time, Bank of the Ozarks' stock has an average Growth Score of C, though its Momentum is doing a bit better with a B. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for momentum investors and to a lesser degree growth.
The stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.