Bank Of The Ozarks' (OZRK) Stock Up 3.8% On Q1 Earnings Beat

Shares of Bank of the Ozarks, Inc. (NASDAQ:OZRK) gained 3.8%, following the release of its first-quarter 2018 results. Earnings per share of 88 cents surpassed the Zacks Consensus Estimate of 85 cents. The figure also represents an improvement of 20.5% on a year-over-year basis.

Results primarily benefited from an improvement in net interest income. Also, loans and deposit balances improved, which supported results to some extent. However, higher expenses, lower non-interest income and higher provisions were the undermining factors.

Net income available to common shareholders for the quarter was $113.1 million, up from $89.2 million recorded in the prior-year quarter.

Revenues Improve, Costs Rise

Net revenues were $246.5 million, up 12.1% year over year. Also, the figure marginally surpassed the Zacks Consensus Estimate of $246.1 million.

Net interest income jumped 14.2% year over year to $217.8 million. Nonetheless, net interest margin, on a fully-taxable equivalent basis, decreased 19 basis points (bps) to 4.69%.

Non-interest income totaled $28.7 million, down 1.2% from the year-ago quarter. The fall reflected lower service charge on deposit accounts, mortgage lending income, net other income from purchased loans, gains on sales of other assets and other income.

Non-interest expenses were $93.8 million, up 19.9% year over year. The increase was due to a rise in all expense components.

Bank of the Ozarks’ efficiency ratio was 37.88% compared with 35.03% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

Strong Balance Sheet

As of Mar 31, 2018, net loans were $16.51 billion, up 3.5% sequentially while total deposits increased 3.7% from the prior quarter-end to $17.83 billion.

Further, as of the same date, the company had total assets of $22.04 billion while shareholders’ equity was $3.53 billion.

Credit Quality: Mixed Bag

The ratio of non-performing loans, as a percentage of total loans, decreased 2 bps year over year to 0.09% as of Mar 31, 2018. Further, annualized net charge-off ratio to average total loans decreased 5 bps year over year to 0.04%.

However, provision for loan and lease losses increased 12.9% from the prior-year quarter to $5.6 million.

Profitability Ratios Improve

At the end of the reported quarter, return on average assets was 2.16%, up from 1.93% in the year-ago quarter. Also, return on average common equity increased from 12.80% to 13.17%.

Our Take

While, Bank of the Ozarks remains well positioned for organic growth, given its consistent improvement in loans and deposit balances, persistently rising expenses, due to its expansion strategy through de novo branching, remains a concern and might hurt bottom-line growth in the quarters ahead. Also, its substantial exposure toward risky loan portfolios might hamper its financials and hurt flexibility.

Bank of the Ozarks currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other Southeast banking stocks, results are expected from Hancock Holding Company (NASDAQ:HBHC) and BancorpSouth, Inc. (NYSE:BXS) on Apr 17 and Apr 18, respectively, while Regions Financial Corporation (NYSE:RF) is slated to report its numbers on Apr 20.

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