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

Bank OZK’s (NASDAQ: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%.

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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.