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Bank of the Ozarks (OZRK) Q2 Earnings in Line, Costs Rise

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Bank of the Ozarks Inc.’s second-quarter 2018 earnings per share of 89 cents came in line with the Zacks Consensus Estimate of 89 cents. The reported figure represents year-over-year growth of 21.9%.

Results primarily benefited from an improvement in net interest income. Also, loans and deposit balances improved, which supported results to some extent. However, elevated expenses, lower non-interest income and higher provisions were the undermining factors.

Net income available to common shareholders for the reported quarter was $114.8 million, up 26.75% from the year-ago quarter.

Revenues Improve, Costs Flare Up

Net revenues came in at $252 million, up 7.7% year over year. However, the top line missed the Zacks Consensus Estimate of $256.2 million.

Net interest income jumped 11.2% year over year to $224.7 million. However, net interest margin, on a fully-taxable equivalent basis, shrunk 33 basis points (bps) to 4.66%.

Non-interest income totaled $27.4 million, down 14% from the year-ago quarter. The fall reflected lower service charge on deposit accounts and the company’s exit from mortgage-lending operation.

Non-interest expenses were $89.1 million, up 6.3% year over year. The upsurge resulted from a rise in all expense components.

Bank of the Ozarks efficiency ratio was 35.19% compared with 35.32% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

Loans & Deposits Rise

As of Jun 30, 2018, net loans were $16.66 billion, up 0.9% sequentially, while total deposits inched up 0.4% from the prior-quarter end to $17.90 billion.

Furthermore, as of the same date, the company had total assets of $22.22 billion, while shareholders’ equity was $3.62 billion.

Credit Quality: Mixed Bag

The ratio of non-performing loans, as a percentage of total loans, contracted 1 basis point, year over year, to 0.10% as of Jun 30, 2018. Additionally, annualized net charge-off ratio to average total loans expanded 2 bps year over year to 0.07%.

However, provision for loan and lease losses increased 57.5% from the year-earlier quarter to $9.6 million.

Profitability Ratios Improve

At the end of the reported quarter, return on average assets was 2.10%, up from 1.90% in the year-ago quarter. Also, return on average common equity rose from 12.05% to 12.90%.

Our Take

Bank of the Ozarks remains well positioned for organic growth given the continued improvement in loans and deposit balances. The uptrend in revenues continued during the second quarter of 2018 as well. However, persistently rising expenses, due to the bank’s expansion strategy through de novo branching, might dent bottom-line growth in the quarters ahead. Also, its declining net interest margin remains another huge concern.

Bank of the Ozarks, Inc. Price, Consensus and EPS Surprise

 

Bank of the Ozarks, Inc. Price, Consensus and EPS Surprise | Bank of the Ozarks, Inc. Quote

Bank of the Ozarks currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other Southeast banking stocks, Hancock Whitney Corporation (HWC - Free Report) and BancorpSouth Bank (BXS - Free Report) are set to release their earnings numbers on Jul 17 and Jul 18, respectively, while Capstar Financial Holdings Inc (CSTR - Free Report) is slated to report its figures on Jul 26.

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