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Bank OZK (OZK) Q4 Earnings & Revenues Beat, Costs Flare Up
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Bank OZK’s (OZK - Free Report) fourth-quarter 2018 earnings per share of 89 cents surpassed the Zacks Consensus Estimate of 83 cents. The figure, however, compares unfavorably with the prior-year tally of $1.14. The year-ago number included adjustment related to the implementation of the tax act.
Results primarily benefited from an improvement in net interest income. Loan and deposit balances displayed improvement. However, lower non interest income, and higher expenses and provisions were the undermining factors.
Net income available to common shareholders was $115 million, down 21.3% from the year-ago quarter.
Earnings per share for 2018 came in at $3.24, down 3.3% from the prior year. Net income available to common shareholders was $417.1 million, down 1.1% from 2017. Figures of both the years included certain nonrecurring items.
Revenues Improve, Costs Soar
Net revenues for the fourth quarter came in at $255.9 million, up nearly 4.4% year over year. The top-line figure also handily outpaced the Zacks Consensus Estimate of $246.08 million.
Net revenues for 2018 came in at $999.2 million, up nearly 6.2% year over year. The revenue figure also beat the Zacks Consensus Estimate of $989.46 million.
Net interest income for the quarter grew 6.3% year over year to $228.4 million. However, net interest margin, on a fully-taxable equivalent basis, shrunk 17 basis points (bps) to 4.55%.
Non-interest income totaled $27.6 million, down 8.8% from the year-ago quarter. The fall mainly reflects the company’s exit from mortgage-lending operation and decrease in bank service charges on deposits primarily due to the Durbin Amendment’s impact on the bank’s interchange revenues.
Non-interest expenses were $94.9 million, up 10.1% year over year. The upsurge resulted from a rise in most of the expense components except professional and outside services, ATM expense, FDIC and state assessments, and advertising and public relations.
Bank OZK’s efficiency ratio was 36.9% compared with 34.82% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.
Rise in Loans & Deposits
As of Dec 31, 2018, total loans were $17.11 billion, up 6.7% from the year-ago quarter. As of the same date, total deposits grew 4.3% from the prior-year quarter end to $17.94 billion.
Furthermore, the company had total assets of $22.39 billion compared to $21.28 billion in the prior-year quarter and shareholders’ equity was $3.77 billion compared to $3.45 billion in the year ago quarter.
Credit Quality Worsens
In the third 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 during 2018.
The ratio of non-performing loans, as a percentage of total loans, expanded 13 bps year over year to 0.23% as of Dec 31, 2018. Additionally, annualized NCO ratio to average total loans rose 2 bps year over year to 0.07%.
In addition, provision for loan and lease losses jumped significantly from the year-earlier quarter to $7.27 million.
Profitability Ratios Deteriorate
At the end of the reported quarter, return on average assets was 2.04%, down from 2.81% in the year-earlier quarter. Moreover, return on average common equity declined to 12.36% from 17.23% a year ago.
Our Take
Bank OZK remains well poised for organic growth on the back of continued improvement in loans and deposit balances. However, persistently rising expenses might keep curbing bottom-line growth. The company’s declining net interest margin remains another concern.
Washington Federal’s (WAFD - Free Report) first-quarter fiscal 2019 (ended Dec 31) earnings came in at 65 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflected year-over-year growth of 10.2%.
Shares of Synovus Financial’s (SNV - Free Report) fourth-quarter earnings of 92 cents per share lagged the Zacks Consensus Estimate of 94 cents. However, the reported figure came in 27.8% higher than the prior-year tally.
Hancock Whitney Corporation’s (HWC - Free Report) fourth-quarter 2018 operating earnings per share of $1.12 missed the Zacks Consensus Estimate of $1.13. The reported figure, however, came in 30.2% higher than the year-ago tally.
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Bank OZK (OZK) Q4 Earnings & Revenues Beat, Costs Flare Up
Bank OZK’s (OZK - Free Report) fourth-quarter 2018 earnings per share of 89 cents surpassed the Zacks Consensus Estimate of 83 cents. The figure, however, compares unfavorably with the prior-year tally of $1.14. The year-ago number included adjustment related to the implementation of the tax act.
Results primarily benefited from an improvement in net interest income. Loan and deposit balances displayed improvement. However, lower non interest income, and higher expenses and provisions were the undermining factors.
Net income available to common shareholders was $115 million, down 21.3% from the year-ago quarter.
Earnings per share for 2018 came in at $3.24, down 3.3% from the prior year. Net income available to common shareholders was $417.1 million, down 1.1% from 2017. Figures of both the years included certain nonrecurring items.
Revenues Improve, Costs Soar
Net revenues for the fourth quarter came in at $255.9 million, up nearly 4.4% year over year. The top-line figure also handily outpaced the Zacks Consensus Estimate of $246.08 million.
Net revenues for 2018 came in at $999.2 million, up nearly 6.2% year over year. The revenue figure also beat the Zacks Consensus Estimate of $989.46 million.
Net interest income for the quarter grew 6.3% year over year to $228.4 million. However, net interest margin, on a fully-taxable equivalent basis, shrunk 17 basis points (bps) to 4.55%.
Non-interest income totaled $27.6 million, down 8.8% from the year-ago quarter. The fall mainly reflects the company’s exit from mortgage-lending operation and decrease in bank service charges on deposits primarily due to the Durbin Amendment’s impact on the bank’s interchange revenues.
Non-interest expenses were $94.9 million, up 10.1% year over year. The upsurge resulted from a rise in most of the expense components except professional and outside services, ATM expense, FDIC and state assessments, and advertising and public relations.
Bank OZK’s efficiency ratio was 36.9% compared with 34.82% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.
Rise in Loans & Deposits
As of Dec 31, 2018, total loans were $17.11 billion, up 6.7% from the year-ago quarter. As of the same date, total deposits grew 4.3% from the prior-year quarter end to $17.94 billion.
Furthermore, the company had total assets of $22.39 billion compared to $21.28 billion in the prior-year quarter and shareholders’ equity was $3.77 billion compared to $3.45 billion in the year ago quarter.
Credit Quality Worsens
In the third 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 during 2018.
The ratio of non-performing loans, as a percentage of total loans, expanded 13 bps year over year to 0.23% as of Dec 31, 2018. Additionally, annualized NCO ratio to average total loans rose 2 bps year over year to 0.07%.
In addition, provision for loan and lease losses jumped significantly from the year-earlier quarter to $7.27 million.
Profitability Ratios Deteriorate
At the end of the reported quarter, return on average assets was 2.04%, down from 2.81% in the year-earlier quarter. Moreover, return on average common equity declined to 12.36% from 17.23% a year ago.
Our Take
Bank OZK remains well poised for organic growth on the back of continued improvement in loans and deposit balances. However, persistently rising expenses might keep curbing bottom-line growth. The company’s declining net interest margin remains another concern.
Bank OZK Price, Consensus and EPS Surprise
Bank OZK Price, Consensus and EPS Surprise | Bank OZK Quote
Bank OZK currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Washington Federal’s (WAFD - Free Report) first-quarter fiscal 2019 (ended Dec 31) earnings came in at 65 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflected year-over-year growth of 10.2%.
Shares of Synovus Financial’s (SNV - Free Report) fourth-quarter earnings of 92 cents per share lagged the Zacks Consensus Estimate of 94 cents. However, the reported figure came in 27.8% higher than the prior-year tally.
Hancock Whitney Corporation’s (HWC - Free Report) fourth-quarter 2018 operating earnings per share of $1.12 missed the Zacks Consensus Estimate of $1.13. The reported figure, however, came in 30.2% higher than the year-ago tally.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>