Loan Growth and Restructuring Aid Bank OZK (OZK) in Low Rate Environment


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OZK BankOZK’s business restructuring and branch consolidation efforts should continue to support growth. Additionally, a decent loan application is likely to help turnover in a low interest rate environment.
Zacks’ consensus estimate for the company’s current-year earnings has been revised up slightly over the past 60 days. This shows that analysts are optimistic about OZK’s earnings growth potential. Thus, the company currently carries a Zacks Rank #2 (Buy).
Over the past year, shares of Bank OZK have gained 48.5%, slightly outpacing sector growth of 47.7%.

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In terms of fundamentals, OZK Bank’s revenue has recorded a compound annual growth rate (CAGR) of 15.3% over the past six years (2015-2020), with the upward trend continuing over the past six years. of the first nine months of 2021. The increase was mainly due to regular loans. growth.
Through its expansion strategy, the company has been able to increase deposit balances. Over the past six years (2015-2020), filings have grown at a CAGR of 21.9%. Of the total deposits, 22.8% included non-interest bearing deposits as of September 30, 2021.
In addition, Bank OZK has a solid balance sheet. As of September 30, 2021, the company had total debt of $1.22 billion and cash and cash equivalents of $1.78 billion. So, given a solid liquidity position and decent earnings strength, it should continue to meet its short-term obligations, even if the economic situation deteriorates.
The change in the operating environment in 2020 due to the uncertainty induced by the coronavirus has led banks to realign activities according to customer needs, with a greater emphasis on digitization. Thus, OZK Bank evaluated its branch network. As part of this effort, the company left Alabama and South Carolina and closed three branches in Arkansas and one in Florida. In the third quarter of 2021, it closed three branches – two in Georgia and the only depository branch in New York.
The company’s capital deployment activities look impressive. It has steadily increased its quarterly dividends. Last October, OZK increased its dividend for the 45th consecutive quarter. Given its strong capital position as well as lower debt and dividend payout ratios than its peers, Bank OZK will likely be able to maintain efficient capital deployments, thereby continuing to enhance shareholder value.
However, the company’s net interest margin remains under pressure due to the low interest rate environment. While the NIM rose in the first nine months of 2021, it had a downward trend before (from 5.91 in 2012 to 3.81% in 2020). In addition, the continuous increase in expenses (mainly due to an increase in salaries and social charges) and the company’s significant exposure to real estate loans (77.4% of total loans as of September 30, 2021) make us understand its growth prospects.

Other actions to consider

A few other top-ranked stocks from the same space are Merchant’s Bank MBIN, Community Banking System, Inc. UBC and Fulton Financial Corporation FULL. While MBIN currently sports a Zacks rank of #1 (strong buy), Community Bank System and Fulton Financial have a Zacks rank of 2. You can see the full list of today’s Zacks #1 Rank stocks here.
The Zacks consensus estimate for Merchants Bancorp’s current-year earnings has been revised up 9.5% over the past 60 days. MBIN shares are up 74.7% over the past year.
Earnings estimates for CBU have remained unchanged for 2021 over the past 60 days. Over the past year, shares of Community Bank System have risen 20.6%.
Fulton Financial has not recorded any changes to its 2021 earnings estimates in the past 60 days. The stock is up 37.1% over the past year.

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