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Bank OZK (OZK) Up 18.3% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Bank OZK (OZK - Free Report) . Shares have added about 18.3% 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 drivers.
Bank OZK Q1 Earnings Lag Estimates, Revenues Decline Y/Y
Bank OZK’s first-quarter 2020 earnings per share of 9 cents missed the Zacks Consensus Estimate of 58 cents. Further, the bottom line reflects a decline of 89.5% from the prior-year quarter’s earnings per share of 86 cents.
Significant increase in provision for loan losses, lower net interest income and an uptick in expenses impacted the company’s performance. Nonetheless, improvement in non-interest income aided results. Moreover, total deposits and loans increased in the reported quarter, which was a positive.
Net income available to common shareholders was $11.9 million as compared with $110.7 million in the year-ago quarter.
Revenues Decline, Expenses Rise
Net revenues were $237.5 million, down 5% year over year. Nonetheless, the figure surpassed the Zacks Consensus Estimate of $233.7 million.
Net interest income was $209.8 million, down 7.1% on a year-over-year basis. Net interest margin, on a fully-taxable equivalent basis, declined 57 basis points (bps) to 3.96%.
Non-interest income totaled $27.7 million, up 15% from the year-ago quarter. The rise was attributable to an increase in almost all components, except for other income from purchased loans, loan service, maintenance and other fees as well as lower gains on sales of other assets.
Non-interest expenses were $103.4 million, up 7% year over year. The rise resulted from higher salaries and employee benefits costs as well as net occupancy and equipment costs.
Bank OZK’s efficiency ratio was 43.35%, up from 38.49% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.
As of Mar 31, 2020, total loans were $18.23 billion, up 4% on a sequential basis. As of the same date, total deposits amounted to $18.81 billion, up from $18.47 billion recorded in the prior quarter.
Credit Quality Worsens
The ratio of non-performing loans, as a percentage of total loans, decreased 7 bps year over year to 0.16% as of Mar 31, 2020.
However, provision for loan losses increased from $6.7 million in the year-earlier quarter to $117.7 million. Also, annualized net charge off ratio to average total loans increased from 0.07% to 0.10% on a year-over-year basis.
Profitability Ratios Deteriorates
At the end of the first quarter, return on average assets was 0.20%, down from 1.99% in the year-earlier quarter. Also, return on average common equity declined to 1.16% from 11.77%.
2020 Outlook
The company expects Real Estate Specialties Group (“RESG”) loans to be the largest contributor to total loan growth.
RESG loan repayments are expected to remain significant in the year due to property sales and refinancing activity. However, repayments will likely be more heavily weighted toward the fourth quarter of 2020 and be less than what was recorded in 2019.
The company expects RESG loan originations to reduce in the second half of 2020.
The company’s Indirect RV & Marine portfolio is expected to shrink and the purchased loan portfolio is expected to continue to pay down.
Management expects purchased loan runoff to continue and be a headwind to overall earning asset growth.
The company anticipates cost of interest-bearing deposits to continue to decrease.
Owing to the concerns related to the coronavirus, the company has withdrawn its earlier guidance on loan growth and non-interest expenses.
The company expects effective tax rate to be nearly 23.5-24.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -38.37% due to these changes.
VGM Scores
At this time, Bank OZK has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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.
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Bank OZK (OZK) Up 18.3% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Bank OZK (OZK - Free Report) . Shares have added about 18.3% 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 drivers.
Bank OZK Q1 Earnings Lag Estimates, Revenues Decline Y/Y
Bank OZK’s first-quarter 2020 earnings per share of 9 cents missed the Zacks Consensus Estimate of 58 cents. Further, the bottom line reflects a decline of 89.5% from the prior-year quarter’s earnings per share of 86 cents.
Significant increase in provision for loan losses, lower net interest income and an uptick in expenses impacted the company’s performance. Nonetheless, improvement in non-interest income aided results. Moreover, total deposits and loans increased in the reported quarter, which was a positive.
Net income available to common shareholders was $11.9 million as compared with $110.7 million in the year-ago quarter.
Revenues Decline, Expenses Rise
Net revenues were $237.5 million, down 5% year over year. Nonetheless, the figure surpassed the Zacks Consensus Estimate of $233.7 million.
Net interest income was $209.8 million, down 7.1% on a year-over-year basis. Net interest margin, on a fully-taxable equivalent basis, declined 57 basis points (bps) to 3.96%.
Non-interest income totaled $27.7 million, up 15% from the year-ago quarter. The rise was attributable to an increase in almost all components, except for other income from purchased loans, loan service, maintenance and other fees as well as lower gains on sales of other assets.
Non-interest expenses were $103.4 million, up 7% year over year. The rise resulted from higher salaries and employee benefits costs as well as net occupancy and equipment costs.
Bank OZK’s efficiency ratio was 43.35%, up from 38.49% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.
As of Mar 31, 2020, total loans were $18.23 billion, up 4% on a sequential basis. As of the same date, total deposits amounted to $18.81 billion, up from $18.47 billion recorded in the prior quarter.
Credit Quality Worsens
The ratio of non-performing loans, as a percentage of total loans, decreased 7 bps year over year to 0.16% as of Mar 31, 2020.
However, provision for loan losses increased from $6.7 million in the year-earlier quarter to $117.7 million. Also, annualized net charge off ratio to average total loans increased from 0.07% to 0.10% on a year-over-year basis.
Profitability Ratios Deteriorates
At the end of the first quarter, return on average assets was 0.20%, down from 1.99% in the year-earlier quarter. Also, return on average common equity declined to 1.16% from 11.77%.
2020 Outlook
The company expects Real Estate Specialties Group (“RESG”) loans to be the largest contributor to total loan growth.
RESG loan repayments are expected to remain significant in the year due to property sales and refinancing activity. However, repayments will likely be more heavily weighted toward the fourth quarter of 2020 and be less than what was recorded in 2019.
The company expects RESG loan originations to reduce in the second half of 2020.
The company’s Indirect RV & Marine portfolio is expected to shrink and the purchased loan portfolio is expected to continue to pay down.
Management expects purchased loan runoff to continue and be a headwind to overall earning asset growth.
The company anticipates cost of interest-bearing deposits to continue to decrease.
Owing to the concerns related to the coronavirus, the company has withdrawn its earlier guidance on loan growth and non-interest expenses.
The company expects effective tax rate to be nearly 23.5-24.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -38.37% due to these changes.
VGM Scores
At this time, Bank OZK has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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.