Bank OZK (OZK) Q4 Earnings Beat Estimates, Provisions Down

Bank OZK’s OZK fourth-quarter 2019 earnings per share of 78 cents surpassed the Zacks Consensus Estimate of 76 cents. However, the bottom line reflects a decline of 12.4% from the prior-year quarter’s earnings of 89 cents.

Results displayed improvement in non-interest income. Moreover, provision for loan losses declined in the reported quarter, which was a positive. However, a decline in net interest income along with rise in expenses hurt the company’s performance to some extent.

Net income available to common shareholders was $100.8 million, down 12.4% from the year-ago quarter.

For 2019, earnings per share of $3.30 surpassed the Zacks Consensus Estimate of $3.28. The bottom line was higher than the prior-year figure of $3.24 per share. Net income available to common shareholders for the year was $425.9 million, up 2.1% from 2018.

Revenues Decline, Expenses Rise

Net revenues for the quarter were $245.4 million, down 4.1% year over year. However, the figure surpassed the Zacks Consensus Estimate of $238.8 million.

For 2019, net revenues were $991.7 million, down marginally year over year. However, the figure beat the Zacks Consensus Estimate of $986.3 million.

Quarterly net interest income was $215 million, down 5.9% on a year-over-year basis. Net interest margin, on a fully-taxable equivalent basis, declined 40 basis points (bps) to 4.15%.

Non-interest income totaled $30.4 million, up 10.3% 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.

Non-interest expenses were $104.4 million, up 10% year over year. The rise resulted from higher salaries and employee benefits costs, and net occupancy and equipment costs.

Bank OZK’s efficiency ratio was 42.37%, up from 36.90% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

As of Dec 31, 2019, total loans were $17.53 billion, down 1.1% on a sequential basis. As of the same date, total deposits amounted to $18.47 billion, up from $18.44 billion recorded in the prior quarter.

Credit Quality: Mixed Bag

The ratio of non-performing loans, as a percentage of total loans, decreased 8 bps year over year to 0.15% as of Dec 31, 2019. Moreover, provision for loan losses declined 32.1% from the year-earlier quarter to $4.9 million.

However, annualized net charge off ratio to average total loans increased from 0.07% to 0.12%.

Profitability Ratios Decline

At the end of the fourth quarter, return on average assets was 1.74%, down from 2.04% in the year-earlier quarter. Moreover, return on average common equity declined to 9.73% from 12.36%.

Our Viewpoint

Bank OZK is well-poised for organic growth on continued improvement in loan demand. Moreover, its efficient capital deployment activities indicate a strong balance sheet position. However, pressure on margins due to lower interest rates might hamper top-line growth in the near term. Also, because of the company’s inorganic growth efforts, expenses are expected to increase and hence hurt the bottom line to an extent.

Bank OZK Price, Consensus and EPS Surprise

Bank OZK Price, Consensus and EPS Surprise

Bank OZK price-consensus-eps-surprise-chart | Bank OZK Quote

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

Performance of Other Banks

Better-than-expected trading performance and rise in mortgage banking fees drove JPMorgan’s JPM fourth-quarter 2019 earnings of $2.57 per share, which handily outpaced the Zacks Consensus Estimate of $2.32.

Citigroup C delivered a positive earnings surprise of 4.4% in fourth-quarter 2019, backed by revenue strength. Adjusted earnings per share of $1.90 for the quarter handily outpaced the Zacks Consensus Estimate of $1.82.

Wells Fargo’s WFC fourth-quarter 2019 adjusted earnings of 93 cents per share lagged the Zacks Consensus Estimate of $1.12. Results excluded litigation accruals. After including litigation accruals (not tax-deductible) of 33 cents per share, earnings were 60 cents per share compared with $1.21 in the prior-year quarter.

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