Bank OZK Reports Strong Q4 Earnings Driven by Higher Net Interest Income and Lower Expenses

Bank OZK (OZK) reported its fourth-quarter earnings for 2024, achieving earnings per share of $1.56, which exceeded the Zacks Consensus Estimate of $1.45. This figure is a 4% increase compared to the same quarter last year.

Overall results were positively impacted by a growth in net interest income (NII), which was fueled by an increase in both loans and deposit balances. Additionally, reduced non-interest expenses and lower provisions contributed to the favorable performance. However, challenges included a decrease in non-interest income and heightened funding costs.

The net income attributed to common shareholders stood at $178.1 million, reflecting a 4.1% rise from the previous year. This was higher than the projected amount of $160.9 million.

For the full year of 2024, earnings of $6.14 per share also surpassed the consensus estimate of $6.03, registering a 4.6% year-over-year increase. The net income for common shareholders totaled $700.3 million, which is a 3.8% rise from the prior year.

Revenue Growth and Decreased Expenses

Net revenues for the fourth quarter reached $412.3 million, marking a 1.2% increase from the previous year and surpassing the Zacks Consensus Estimate of $408 million.

In 2024, net revenues climbed by 6.2% to $1.66 billion, again exceeding analyst expectations, which were set at $1.65 billion.

NII was reported at $379.3 million, up 2.4% from a year ago. However, this was slightly below the estimate of $387.3 million.

The net interest margin (NIM), calculated on a fully taxable equivalent basis, contracted by 49 basis points (bps) year-over-year, landing at 4.33%. Our prediction for NIM was 4.40%.

Non-interest income declined to $32.9 million, a drop of 11% year-over-year. This decrease was primarily attributed to lower gains on the sale of other assets, reduced death benefits income, diminished net gains on investment securities, and the lack of non-sufficient funds (NSF) fees. This result was higher than our estimate of $30.8 million.

Non-interest expenses decreased to $140.1 million, a reduction of 3.4% from the same quarter last year, aided by lower operational costs. This figure was expected to be around $144.3 million.

The efficiency ratio for Bank OZK improved to 33.71%, down from 35.33% in the same quarter of the previous year, indicating enhanced profitability.

As of December 31, 2024, total loans amounted to $30 billion, reflecting a 2.6% increase quarter over quarter, while total deposits reached $31 billion, up 1.5%.

Deteriorating Credit Quality

Despite the positive overall performance, the bank experienced some credit quality deterioration. The net charge-offs as a percentage of average total loans nudged up to 0.16%, a 10 basis point increase from last year. Meanwhile, the provision for credit losses decreased notably, amounting to $37.2 million, which was a 15.2% decline, as compared to the anticipated provision of $47.8 million.

The ratio of non-performing loans as a percentage of total loans saw a slight rise of 19 bps, reaching 0.44% by the end of Q4 2024.

Declining Profitability Ratios

In terms of profitability ratios, the return on average assets stood at 1.87%, down from 2.04% in the previous year’s quarter, while the return on average common equity declined to 13.33%, compared to 14.58% a year ago.

No Share Repurchase Activity

During this quarter, Bank OZK did not engage in any share repurchase activity.

Conclusion on Bank OZK's Performance

Looking ahead, Bank OZK's strong loan balances, efforts in branch consolidations, potential for increased fee income, and lower deposit costs due to interest rate reductions are expected to positively impact revenues. However, elevated operating expenses and a decline in asset quality pose significant near-term challenges.

Currently, the bank holds a Zacks Rank of #3 (Hold).

Upcoming Earnings Reports from Other Banks

Hancock Whitney Corp (HWC) is set to announce its fourth-quarter and full-year earnings on January 21. The consensus estimate for HWC’s quarterly earnings has remained steady at $1.28, indicating a 1.6% increase from the same quarter the previous year.

Zions Bancorporation (ZION) is also due to report its fourth-quarter and full-year results on January 21, with the consensus estimate for ZION’s earnings remaining unchanged at $1.26, suggesting a 2.3% decrease compared to the previous year’s quarter.

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