Bank OZK of Little Rock on Thursday reported second-quarter net income of $50.3 million, down 54.5% from $110.5 million it reported in the same quarter of last year.
The bank blamed the poorer performance on the sudden and severe economic downturn caused by the pandemic, implementation of the new "current expected credit losses" accounting standard and uncertain future economic projection. CECL, an order from the Financial Accounting Standards Board, changed the way large and publicly traded banks reserve for possible loan losses, and it took effect this year.
Earnings per share was 39 cents, a 54.7% decrease from 86 cents. But those earnings beat Wall Street expectations. The average estimate of 10 analysts surveyed was for earnings of 58 cents per share, according to CNN.
For the six months ended June 30, net income was $62.1 million, a 71.9% decrease from $221.2 million for the first six months of 2019. Earnings per share was 48 cents, a 71.9% decrease from $1.71.
“We have continued our long-standing focus on our team members, our customers, serving the communities in which we operate and delivering favorable returns for shareholders,” Chairman and CEO George Gleason said in a news release. “Our strong credit culture and consistent discipline have been important ingredients in our success, and we believe they have positioned us well for the current economic environment.”
In management comments posted alongside earnings, the company said its quarterly earnings were also affected by the Fed cutting interest rates to near zero in March. "This caused our loan yields to drop much faster than we could adjust deposit rates, adversely impacting our net interest margin. Because these changes in the Fed funds target rate occurred late in the first quarter, the impact was not fully reflected until the second quarter of 2020.”
The company also said, "The COVID-19 pandemic was a significant factor throughout the quarter, but our results reflect solid fundamental performance and include a number of significant achievements. … The current situation surrounding the COVID-19 pandemic continues to evolve, and the ultimate depth and duration of resulting economic impacts are not yet fully known.”
Among those achievements are:
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Total loan growth $1.08 billion;
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A record $1.9 billion of organic deposit growth during the quarter;
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Balance sheet strength that "continues to be industry leading"; and
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A net interest income of $216.6 million, a 3.3% increase from the first quarter of 2020 (a reversal in a declining trend); and
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Announcing after June 30 that it will sell four branches in Alabama and South Carolina. "As the bank has grown in size and complexity, it has become more difficult to efficiently operate in Alabama and South Carolina with just two branches in each state.”
As for the outlook for loan growth this year, it "may vary widely quarter-to-quarter, particularly due to uncertainty surrounding current economic conditions.”
The company said it still expects its Real Estate Specialties Group to be the largest contributor to 2020 total loan growth; for various community banking teams to be secondary contributors; for its indirect RV and marine portfolio to continue shrinking; and for its purchased loan portfolio to continue to pay down.
In addition, construction delays on many projects its RESG is financing are affecting the volume and timing of RESG loan repayments in 2020. Those delays are the result of shelter-in-place orders implemented during the pandemic.
As of June 30, total loans were $19.31 billion, up 10.4% increase from the same point last year. Non-purchased loans, which exclude loans acquired in acquisitions, were $18.25 billion, up 15.6% from last year. Purchased loans were $1.06 billion, down 37.4% from last year.
Deposits were $20.72 billion at June 30, a 14% increase from last year. Total assets were $26.38billion, up 14.9% from last year.
