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Bank OZK (OZK) Down 24.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Bank OZK (OZK - Free Report) . Shares have lost about 24.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Bank OZK due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Bank OZK Q3 Earnings Miss on Higher Costs & Provision

Bank OZK’s third-quarter 2018 earnings per share of 58 cents missed the Zacks Consensus Estimate of 90 cents. The figure represents a year-over-year decline of 22.7%. Notably, results in the reported quarter included pre-tax expenses of $10.8 million related to the strategic rebranding effort.

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

Net income available to common shareholders was $74.2 million, down 22.7% from the year-ago quarter.

Revenues Improve, Costs Surge

Net revenues came in at $244.7 million, up nearly 1% year over year. However, the top line missed the Zacks Consensus Estimate of $258.1 million.  

Net interest income grew 5.2% year over year to $220.6 million. However, net interest margin, on a fully-taxable equivalent basis, fell 37 basis points (bps) to 4.47%.

Non-interest income totaled $24.1 million, down 26.3% from the year-ago quarter. The fall mainly reflected the company’s exit from mortgage-lending operation.

Non-interest expenses were $102.9 million, up 22% year over year. The upsurge resulted from a rise in all expense components.

Bank OZK’s efficiency ratio was 41.87% compared with 34.88% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

Rise in Loans & Deposits

As of Sep 30, 2018, total loans were $16.73 billion, up 6% from the year-ago quarter and total deposits grew 5.9% from the prior-year quarter end to $17.82 billion.

Furthermore, the company had total assets of $22.09 billion and shareholders’ equity was $3.65 billion, as of the same date.

Credit Quality Worsens

During the reported quarter, Bank OZK incurred combined net charge-offs (NCOs) of $45.5 million on two Real Estate Specialties Group credits, which had been in its portfolio over more than a decade. Notably, these were previously classified as substandard. This was the primary reason for deterioration of the company’s asset quality.

The ratio of non-performing loans, as a percentage of total loans, increased 12 bps year over year to 0.23% as of Sep 30, 2018. Additionally, annualized NCO ratio to average total loans rose 105 bps year over year to 1.14%.

Also, provision for loan and lease losses jumped significantly from the year-earlier quarter to $41.9 million.

Profitability Ratios Deteriorate

At the end of the reported quarter, return on average assets was 1.33%, down from 1.89% in the year-ago quarter. Also, return on average common equity declined to 8.07% from 11.56% a year ago.    


Bank OZK expects non-purchased loans and leases to grow at a strong pace in 2018, higher than growth recorded in 2017. Likewise, growth in 2019 is likely to exceed that of 2018’s. However, the increasingly competitive environment might slow down the momentum to some extent.

RESG loan repayments in the fourth quarter of 2018 are expected to result in near-zero or even negative growth in non-purchased loans for the quarter. Also, the company expects elevated repayments in 2019 to continue. Despite repayments headwinds, 2019 non-purchased loan growth is projected to be better than 2018 level.

The company expects its core spread to increase over the second half of 2018, provided that the Fed continues to hike rates and LIBOR rates increase correspondingly.

One-time pre-tax costs of nearly $1-$3 million are expected to be incurred in fourth-quarter 2018 for marketing, rebranding and other related expenses, owing to the company’s name change.

Management expects its efficiency ratio (excluding the one-time costs) to keep improving in 2018 and by the end of the year, the ratio will be similar to the 2017 level.

The company expects the effective tax rate to be 24.5-26.5% in the fourth quarter 2018 and in 2019.


How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -11.63% due to these changes.

VGM Scores

Currently, Bank OZK has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Bank OZK has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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