Bank OZK's Q3 Earnings Beat on Higher NII, Provisions Increase Y/Y

Bank OZK’s OZK third-quarter 2024 earnings per share of $1.55 surpassed the Zacks Consensus Estimate of $1.53. The bottom line reflects a rise of 4% from the prior-year quarter’s actual.

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Results benefited from a rise in non-interest income and net interest income (NII), driven by higher rates and improvement in loans and deposit balances. However, increases in expenses and provision for credit losses and rising funding costs were the undermining factors.

Net income available to common shareholders was $177.1 million, up 4.4% from the year-ago quarter’s level. Our estimate for the metric was $164.5 million.

OZK’s Revenues Improve, Expenses Rise

Net revenues were $423 million, up 7.6% year over year. The top line beat the Zacks Consensus Estimate of $419.1 million.

NII was $389.3 million, up 6% year over year. Our estimate for the metric was $387.3 million.

The net interest margin (NIM), on a fully-taxable-equivalent basis, contracted 50 basis points (bps) year over year to 4.55%. Our estimate for NIM was 4.64%.

Non-interest income was $33.6 million, up 30.6% on a year-over-year basis. This increase was mainly driven by higher gains on sales of other assets, a rise in loan service, maintenance and other fees, and other income. Our estimate for non-interest income was $29.9 million.

Non-interest expenses were $140.4 million, up 8.9% from the prior-year quarter’s level. This rise was due to an increase in salaries and employee benefits and other operating expenses. We expected this metric to be $143.1 million.

Bank OZK’s efficiency ratio was 32.95%, down from 33.60% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.

As of Sept. 30, 2024, total loans were $29.2 billion, up 1.9% sequentially. As of the same date, total deposits amounted to $30.6 billion, up 2.1%.

OZK’s Credit Quality Deteriorates

Net charge-offs to average total loans were 0.36%, jumping 21 bps year over year. Also, provision for credit losses was $46.4 million, up 5.5%. We projected a provision of $55.5 million.

The ratio of non-performing loans, as a percentage of total loans, increased 26 bps to 0.60% as of Sept. 30, 2024.

Profitability Ratios Worsen for Bank OZK

At the end of the third quarter, the return on average assets was 1.90%, down from 2.13% in the year-earlier quarter. Return on average common equity was 13.65%, down from 14.81%.

OZK’s Share Repurchase Update

Bank OZK repurchased 11,903 shares for $0.5 million in the quarter.

Our Take on Bank OZK

Bank OZK’s solid loan balance, branch consolidation efforts, fee income growth and higher rates are expected to continue aiding revenues. However, elevated operating expenses and deteriorating asset quality are major near-term concerns.

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

First Horizon Corporation's FHN third-quarter adjusted earnings per share (excluding notable items) of 42 cents surpassed the Zacks Consensus Estimate of 38 cents. Moreover, the figure increased 55.6% year over year.

FHN’s results benefited from a rise in NII and non-interest income. Also, an increase in deposits and lower provisions were other positives. However, a rise in expenses and a fall in loan balances were major headwinds.

Hancock Whitney Corp.’s HWC third-quarter 2024 earnings per share of $1.33 beat the Zacks Consensus Estimate of $1.31. The bottom line compared favorably with $1.12 per share registered in the year-ago quarter.

The results were aided by an increase in non-interest income and NII. Lower expenses and provisions were positives. However, the decline in total loans and deposits affected the results to some extent for HWC.

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