A month has gone by since the last earnings report for Bank OZK (OZK). Shares have lost about 8.8% 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 catalysts.
Bank OZK Q4 Earnings Beat Estimates, Provisions Down
Bank OZK’s 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, 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%.
Bank OZK expects growth in non-purchased loans to be less than that achieved in 2019.
Management expects purchased loan runoff to continue and be a headwind to overall earning asset growth.
RESG loan repayments are expected to remain high and exceed the 2019 level.
Further, RESG loan origination volumes will likely be a little higher than 2019.
The company anticipates cost of interest-bearing deposits (COIBD) to decrease but at a slower rate than the decrease witnessed in the fourth quarter of 2019.
The company anticipates non-interest expenses to increase in a high-single-digit percentage on a year over year basis.
The company expects effective tax rate to be nearly 24.5-25.5%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Bank OZK has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 this revision indicates a downward shift. Notably, Bank OZK has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.