Bank OZK 1Q Profit Falls Amid Virus, CECL Effects

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Bank OZK of Little Rock on Thursday reported first-quarter net income of $11.9 million, down 89% from $110.7 million it reported in the same quarter last year, as the effects of COVID-19 and new accounting methods weighed on results.

Earnings were 9 cents per share, down from 86 cents per share last year, missing Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of 58 cents per share, according to The Associated Press.

Like other Arkansas banks, Bank OZK saw quarterly results affected by a new accounting standard that took effect this year for large and publicly traded banks. Called CECL — current expected credit losses — the order from the Financial Accounting Standards Board changes the way banks reserve for possible loan losses. 

In a news release, Bank OZK said that “the sudden and severe economic downturn in tandem with the adoption of CECL” resulted in the bank incurring provision for credit losses of $117.7 million, resulting in a total allowance of credit losses of $316.4 million at March 31.

In management comments posting alongside earnings, the company said quarterly results were also affected by the Federal Reserve’s moves to cut interest rates to near zero.

“Due to the Fed’s 50 basis point cut on March 3, 2020 and 100 basis point cut on March 16, 2020, our loan yields dropped much faster than we could adjust deposit rates, adversely impacting our net interest margin,” the company said. “We expect it will take us several quarters to adjust our deposit rates downward to align more closely with the reductions in our loan yields.” 

The company also provided color on its prospects for loan growth in the coming quarters, withdrawing its previous 2020 loan growth guidance citing “current economic conditions.” The company said it expects its Real Estate Specialties Group to be the largest contributor to 2020 total loan growth, with various community banking teams to be secondary contributors. It expects its Indirect RV & Marine portfolio to shrink in 2020.

As of March 31, total loans were $18.23 billion, up 4.3% increase from the same point last year. Non-purchased loans, which exclude loans acquired in acquisitions, were $17.03 billion, up 9.1% from last year. Purchased loans were $1.2 billion, down 35.8% from last year.

Deposits were $18.81 billion at March 31, down 1.8% increase from last year. Total assets were $24.57 billion, up 6.8% from last year.