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Bank of the Ozarks (OZRK) Q1 Earnings Top, Provisions Dip

Bank of the Ozarks, Inc.’s OZRK first-quarter 2016 earnings of 57 cents per share surpassed the Zacks Consensus Estimate of 54 cents. Further, the figure improved 21% on a year-over-year basis.


Better-than-expected results were driven by a rise in net interest income and a decline in expenses as well as provisions, partly offset by a reduction in non-interest income. Moreover, improvement in loans and deposits remained strong, while credit metrics continued to improve.

Net income came in at $51.7 million, up 30% year over year.

Performance in Detail

Net revenue grew 16% year over year to $132.4 million. Moreover, the reported figure came in line with the Zacks Consensus Estimate of $132.5 million.

Net interest income, on a fully taxable equivalent basis, jumped 30% year over year to $114.4 million. However, net interest margin fell 50 basis points (bps) year over year to 4.92%.

Non-interest income summed $19.9 million, down 32% year over year. The fall primarily reflected absence of net gains on investment securities as well as a decline in other income from purchased loans, gains on sales of other assets and bank-owned life insurance income. These were, however, partly offset by higher service charges on deposit accounts, trust income and other income.

Non-interest expense totaled $47.7 million, down 5% year over year. The reduction was mainly triggered by lower other operating expenses, partially offset by a rise in salaries and employee benefits cost, net occupancy expense and amortization of intangibles costs.

Bank of the Ozarks’ efficiency ratio was 35.51% compared with 42.85% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

As of Mar 31, 2016, Bank of the Ozarks had total assets of $11.4 billion, while shareholders’ equity summed $1.5 billion. As of the same date, total loans and leases (including purchased loans) surged 46% year over year to $9.3 billion. Total deposits climbed 43% year over year to $9.6 billion.

Credit Quality

Credit quality exhibited improvement during the quarter. The annualized net charge-off ratio for all loans and leases declined to 0.05% from 0.36% in the prior-year quarter.

Further, ratio of nonperforming loans and leases (excluding purchased loans), as a percent of total loans and leases, improved to 0.15% as of Mar 31, 2016, from 0.33% as of Mar 31, 2015.

Moreover, provision for credit losses plunged 68% year over year to $2.0 million.

Our Take

Significant growth in loans and deposits along with robust credit quality are expected to support Bank of the Ozarks’ organic growth. Moreover, the company’s inorganic growth strategy reflects a strong balance sheet, enhancing investors’ confidence in the stock.

However, we remain concerned about the company’s considerable exposure to real estate loans and its limited margin improvement along with the impact of lower rates on the company’s financials in the near term.

Bank of the Ozarks currently carries a Zacks Rank #3 (Hold).

Among other South-east banks, First Horizon National Corporation FHN, Synovus Financial Corporation SNV and BancorpSouth, Inc. BXS are scheduled to announce results on Apr 15, Apr 19 and Apr 20, respectively.

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