2Q profit down 54.5% at Bank OZK

Profits plummeted at Bank OZK in the second quarter, with the Little Rock bank reporting Thursday that net income and earnings per share were both down by more than 50% compared with the same period last year.

Net income for the period ending June 30 was $50.3 million, a 54.5% drop from $110.5 million in 2019. Earnings per share fell to 39 cents, down 54.7% from 86 cents per share in the same quarter last year.

The bank cited the ongoing pandemic and the “sudden and severe economic downturn” it created along with “uncertain future economic projections” as key factors leading it to increase provisions for credit losses by $72 million in the quarter.

“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,” Chairman

George Gleason said in the news release.

In management comments released along with earnings, the bank said it is pleased with the results. “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 statement said in its opening.

Along those lines, Bank OZK noted that total loans increased by $1.08 billion in the quarter and organic deposits increased by a record $1.9 billion. Total deposits for the quarter were $20.72 bil

lion, a 14% increase from the $18.19 billion recorded at the end of the second quarter last year.

The bank also pointed out that net interest income increased sequentially over the first quarter by $6.8 million. “This reverses what has recently been a declining trend in net interest income and is a result of both our strong loan origination volume and slower loan repayments,” the management comments said.

However, net interest income of $216.6 million in the second quarter was down 3.5% compared with net interest income of $224.5 million in the same period last year. “All things considered, our net interest income in the second quarter of 2020 held up reasonably well,” the management comments said.

Net interest margin in the quarter also declined to 3.74% from 4.45% a year ago. “We are cautiously optimistic regarding the potential to improve our net interest margin and core spread in coming quarters,” the bank said in management’s comments.

Total assets were up 14.9% in the quarter, increasing to nearly $26.4 billion from $22.9 billion a year ago.

Bank OZK also announced it will sell four branches in Alabama and South Carolina in agreements that were reached after the close of the quarter. “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,” the management comments noted.

Discarding branches during the pandemic is a growing trend for Arkansas banks.

Simmons First National Corp. announced Tuesday during its earnings report that it had closed 11 branches in June, including three in Arkansas, and plans to shutter another 24 branches later this year.

Banks also have been increasing loan loss provisions to meet new federal guidelines and those set-asides have been exacerbated by the pandemic.

“2020 has been a tough year for Bank OZK, due in part to the negative economic impact caused by the covid-19 pandemic along with the implementation of [loss provisions] that requires Bank OZK to estimate expected credit losses over the life of a loan versus the previous standard that required the bank only to account for incurred losses,” Little Rock banking analyst Garland Binns said Thursday.

The $72 million in provision expense for the quarter sliced the bank’s earnings. “Similar to challenges being felt across the banking industry, this was the second consecutive quarter in which our provision expense has been elevated due to the actual and expected economic impact of the Covid-19 pandemic,” the bank said in management’s comments.

The bank reported earnings after the stock market closed Thursday. OZK shares closed the day at $24.32, up about 2.5%.

Bank OZK has more than 250 offices in 10 states, including Arkansas, Georgia, Florida, North Carolina, Texas, Alabama, South Carolina, New York, California and Mississippi.