It has been about a month since the last earnings report for Bank OZK (OZK - Free Report) . Shares have added about 2.3% in that time frame, underperforming 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 drivers.
Bank OZK Q3 Earnings Lag Estimates, Expenses Decline
Bank OZK’s third-quarter 2019 earnings per share of 81 cents lagged the Zacks Consensus Estimate of 83 cents. The bottom line was higher than the prior-year quarter figure of 58 cents.
Results were adversely impacted by marginally lower net interest income. However, rise in non-interest income, lower operating expenses and a decline in provisions supported results to some extent. Moreover, growth in loans and deposit balances was a positive for the company.
Net income available to common shareholders was $103.9 million, up 40.1% from the year-ago quarter.
Revenues Improve Marginally, Costs Decline
Net revenues were $245.2 million, up marginally year over year. However, the figure missed the Zacks Consensus Estimate of $250.1 million.
Net interest income was $218.8 million, down marginally on a year-over-year basis. Net interest margin, on a fully-taxable equivalent basis, declined 21 basis points (bps) to 4.26%.
Non-interest income totaled $26.4 million, up 9.6% from the year-ago quarter. The rise was due to an increase in almost all components, except for other income from purchased loans, and loan service, maintenance and other fees. The quarter also included gains on sale of other assets.
Non-interest expenses were $100.9 million, down 2% year over year. The decline resulted from lower other operating expenses.
Bank OZK’s efficiency ratio was 40.98%, down from 41.87% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
As of Sep 30, 2019, total loans were $17.73 billion, up 1.4% on a sequential basis. As of the same date, total deposits amounted to $18.44 billion, up 1.4% from the prior quarter.
Credit Quality Improves
The ratio of non-performing loans, as a percentage of total loans, decreased 6 bps year over year to 0.17% as of Sep 30, 2019. Further, annualized net charge off ratio to average total loans declined from 1.14% to 0.12%.
Moreover, provision for loan losses declined 81.3% from the year-earlier quarter to $7.9 million.
Profitability Ratios Improve
At the end of the third quarter, return on average assets was 1.81%, up from 1.33% in the year-earlier quarter. Moreover, return on average common equity rose to 10.22% from 8.07%.
Bank OZK expects non-purchased loans and leases to grow in the mid to high-single-digit rate in 2019. Management expects purchased loan runoff to continue and be a headwind to overall earning asset growth in 2019 and 2020.
RESG loan repayments are expected to remain high in 2019 and exceed 2018 level due to high levels of property sales, leasing and refinancing activity. In fourth-quarter 2019 and some quarters of 2020 loan repayments are expected to exceed the second-quarter 2019 levels.
Further, RESG loan originations for 2019 will likely equal or exceed $4.74 billion achieved in 2018.
The company anticipates that the increase in cost of interest-bearing deposits (COIBD) for 2019 will be less than 67 bps recorded in 2018.
Non-interest income for the remaining quarters of 2019 is expected to be in the range that the company has reported over the last several quarters.
The company expects the effective tax rate to be 24-26% in 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Bank OZK has a subpar Growth Score of D, however its Momentum Score is doing a lot 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.
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 #4 (Sell). We expect a below average return from the stock in the next few months.