Why Bank Ozk (NASDAQ: OZK) stock is under pressure

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Bank Ozk (NASDAQ: OZK) stock lost over 3.3% on 27th July, 2020 post its second quarter of 2020 performance after its net income fell 54.5% yoy to $50.3 million against $110.5 million in the prior corresponding period. During the first half of 2020, net income fell 71.9% yoy to $62.1 million, against $221.2 million in the prior corresponding period. The Bank recorded provision for credit losses of $72.0 million during the quarter leading to $189.7 million in the first six months of 2020. Purchased loans, which consist of loans acquired in previous acquisitions, fell 37.4% yoy to $1.06 billion during the quarter. The Bank’s annualized returns on average assets during the first half of 2020 fell to 0.50% as compared to 1.97% in the prior corresponding period. Shareholder equity declined to 3.04% during the first half of 2020 against 11.52% in the prior corresponding period. Average tangible stockholders’ equity fell to 3.64% during the period against 14.04% in the prior corresponding period.

As per the bank’s hotel loans (with sector being heavily hit due to ongoing COVID Pandemic), the firm had 13 reappraisals on hotels leading to the loan to values on these properties at 46.4% as of March 31st, 2020. This is a rise of 2% to 48.4% loan-to-value, which is better than expected.

On the other hand, with CD rates coming down, the firm expects decline in cost of interest-bearing deposits over the next several quarters. The overall loans rose 10.4% yoy to $19.31 billion during the quarter.  Their Deposits rose 14% yoy to $20.72 billion during the period while Total assets increased 14.9% yoy to $26.38 billion during the quarter.

The firm’s RESG concentration is now 60% of the loan balance as compared to 70% a few years ago, while management says that they are not “concerned about that concentration”. The bank currently has 59% TAM of the outstanding balance of non-purchase loans

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