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Bank OZK (OZK) Rides on Loan Growth, Higher Rates Amid Cost Woe
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Bank OZK’s (OZK - Free Report) branch consolidation initiatives, along with solid loan balances, are expected to continue supporting top-line growth. Driven by higher interest rates, the company’s margins are expected to improve in the near term.
However, operating expenses might remain elevated on the back of the company’s efforts to improve technology and continued investments in franchise, thus hurting profits.
The Zacks Consensus Estimate for the company’s 2022 earnings has been unchanged over the past seven days. This shows that analysts have a neutral stance toward the stock. Thus, OZK currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of Bank OZK have gained 2.2% against a decline of 2% recorded by the industry.
Image Source: Zacks Investment Research
Looking at the fundamentals, Bank OZK’s revenues witnessed a compound annual growth rate (CAGR) of 9.4% over the last six years (2016-2021), mainly driven by steady loan growth and a rise in fee income. The uptrend in revenues continued in the first nine months of 2022.
Bank OZK has been able to grow deposit balances as well. Over the five-year period that ended in 2021, deposits witnessed a CAGR of 4.1%. Of the total deposits, 23.6% comprised non-interest-bearing deposits as of Sep 30, 2022. This aided revenue growth. The positive trend is expected to continue in the near term.
Supported by higher interest rates, the company is expected to witness an improvement in net interest margin (NIM) in the quarters ahead. Because of the near-zero interest rate environment, the company’s margins have witnessed a decline in the past several years. However, NIM improved in 2021 and the first nine months of 2022. With the Federal Reserve raising interest rates, Bank OZK’s NIM is anticipated to improve further.
The change in the operating backdrop in 2020 led banks to realign their businesses per customer needs, with more emphasis on digitization. Thus, Bank OZK evaluated its branch network. As part of this effort, the company exited Alabama and South Carolina, while closing branches in Arkansas, Florida, Georgia and New York.
Given a robust capital position, and lower debt equity and dividend payout ratios compared with peers, OZK is expected to sustain its capital deployment activities, thereby continuing to enhance shareholder value.
However, over the last six years (2016-2021), expenses witnessed a CAGR of 11%. The rise was mainly due to an increase in salaries and employee benefit costs. The upward trend in expenses persisted in the first nine months of 2022. As the company is expanding into newer areas organically, as well as through acquisitions, expenses are expected to continue rising.
Bank OZK’s substantial exposure to real estate loans is another headwind. The company’s exposure to these loans was 74.4% of the total loans as of Sep 30, 2022. Though the housing and real estate sectors have been improving, any deterioration in real estate prices will likely pose a threat to the company’s financials.
CF Bankshares’ 2022 earnings estimates have been revised 1% upward over the past 60 days. CFBK’s shares have gained 3.7% over the past six months.
The consensus estimate for Mid Penn Bancorp’s 2022 earnings has been revised 3.4% upward over the past 60 days. Over the past six months, MPB’s share price has increased 13.8%.
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Bank OZK (OZK) Rides on Loan Growth, Higher Rates Amid Cost Woe
Bank OZK’s (OZK - Free Report) branch consolidation initiatives, along with solid loan balances, are expected to continue supporting top-line growth. Driven by higher interest rates, the company’s margins are expected to improve in the near term.
However, operating expenses might remain elevated on the back of the company’s efforts to improve technology and continued investments in franchise, thus hurting profits.
The Zacks Consensus Estimate for the company’s 2022 earnings has been unchanged over the past seven days. This shows that analysts have a neutral stance toward the stock. Thus, OZK currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of Bank OZK have gained 2.2% against a decline of 2% recorded by the industry.
Image Source: Zacks Investment Research
Looking at the fundamentals, Bank OZK’s revenues witnessed a compound annual growth rate (CAGR) of 9.4% over the last six years (2016-2021), mainly driven by steady loan growth and a rise in fee income. The uptrend in revenues continued in the first nine months of 2022.
Bank OZK has been able to grow deposit balances as well. Over the five-year period that ended in 2021, deposits witnessed a CAGR of 4.1%. Of the total deposits, 23.6% comprised non-interest-bearing deposits as of Sep 30, 2022. This aided revenue growth. The positive trend is expected to continue in the near term.
Supported by higher interest rates, the company is expected to witness an improvement in net interest margin (NIM) in the quarters ahead. Because of the near-zero interest rate environment, the company’s margins have witnessed a decline in the past several years. However, NIM improved in 2021 and the first nine months of 2022. With the Federal Reserve raising interest rates, Bank OZK’s NIM is anticipated to improve further.
The change in the operating backdrop in 2020 led banks to realign their businesses per customer needs, with more emphasis on digitization. Thus, Bank OZK evaluated its branch network. As part of this effort, the company exited Alabama and South Carolina, while closing branches in Arkansas, Florida, Georgia and New York.
Given a robust capital position, and lower debt equity and dividend payout ratios compared with peers, OZK is expected to sustain its capital deployment activities, thereby continuing to enhance shareholder value.
However, over the last six years (2016-2021), expenses witnessed a CAGR of 11%. The rise was mainly due to an increase in salaries and employee benefit costs. The upward trend in expenses persisted in the first nine months of 2022. As the company is expanding into newer areas organically, as well as through acquisitions, expenses are expected to continue rising.
Bank OZK’s substantial exposure to real estate loans is another headwind. The company’s exposure to these loans was 74.4% of the total loans as of Sep 30, 2022. Though the housing and real estate sectors have been improving, any deterioration in real estate prices will likely pose a threat to the company’s financials.
Stocks Worth Considering
A couple of better-ranked stocks from the finance space are CF Bankshares Inc. (CFBK - Free Report) and Mid Penn Bancorp (MPB - Free Report) . CFBK currently sports a Zacks Rank #1 (Strong Buy) and MPB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CF Bankshares’ 2022 earnings estimates have been revised 1% upward over the past 60 days. CFBK’s shares have gained 3.7% over the past six months.
The consensus estimate for Mid Penn Bancorp’s 2022 earnings has been revised 3.4% upward over the past 60 days. Over the past six months, MPB’s share price has increased 13.8%.