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Why Is Bank OZK (OZK) Up 19.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Bank OZK (OZK - Free Report) . Shares have added about 19.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Bank OZK due for a pullback? 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 catalysts.

Bank OZK Q4 Earnings & Revenues Beat, Costs Flare Up

Bank OZK’s 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 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 fourth 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.


Bank OZK expects non-purchased loans and leases to grow in the low to mid-teens in 2019. However, growth may vary quarter to quarter and on the current expectations of economic conditions, competitive environment and other factors.

RESG loan repayments are expected to remain high in 2019. Despite repayments headwinds, 2019 non-purchased loan growth is projected to be better than 2018 level.

The company expects its core spread to decrease in some quarters in 2019. Also, it expects factors such as the Fed’s decision to hike rates and movement in LIBOR rates to affect spread.

Management expects first-quarter 2019 non-interest expenses to be higher on account of annual salary adjustments, increase in employee count and health insurance premiums.

The company expects the effective tax rate to be 24-26% in 2019.


How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Bank OZK has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 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.


Bank OZK has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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