Bank OZK quarterly profits below year ago results, net interest income sees tepid growth

by Wesley Brown (wesbrocomm@gmail.com) 228 views 

Bank OZK on Thursday (July 18) reported that second quarter profits fell short of year ago as a greater volume of loan repayments, the competitive environment for loans and deposits, and recent declines in benchmark interest rates impacted those results.

For the period ended June 30, the Little Rock bank formerly known as Bank of the Ozarks reported second quarter net income was $110.5 million, or 86 cents per share, down slightly from $114.8 million, or 89 cents a year ago. A survey of financial analysts had forecasted the Arkansas publicly-traded concern to report second quarter profits of 86 cents per share on revenue of $253.2 million, according to Thomson Reuters.

In management comments released after Thursday’s closing bell, Bank OZK noted that second quarter net earnings were impacted by flat net interest income growth, which is the bank’s largest category of revenue.

“We strive to increase net interest income through a combination of growth in earning assets and good yields on those assets,” Bank OZK commented. “Our growth in net interest income has been inhibited in recent quarters by the large volume of loan repayments in non-purchased loans, the pay-downs in our purchased loan portfolio, the impact on our net interest margin from the competitive environment for loans and deposits, and recent decreases in LIBOR (interest) rates.”

The Arkansas regional bank, which completed more than 15 acquisitions over the past decade, said it is pursuing a four-fold approach to return to positive quarterly net interest income growth. Bank officials said that a strategic plan includes reversing negative growth in the bank’s Real Estate Specialties Group (RSEG), which reported that two unrelated projects in South Carolina and North Carolina incurred a total debt of $45.5 million at the end of 2018.

“This approach includes achieving positive growth in RESG loan originations from the level achieved in 2018, continuing significant growth in our Indirect RV and Marine business, achieving increased scale in a number of the specialty lending channels within community banking and reducing our COIBD through better management of our deposit pricing and deposit products,” the Arkansas bank said.

Longtime Bank OZK Chairman and CEO George Gleason said he was pleased that the bank continued to deliver the best financial metrics in the industry, including 1.95% annualized return on average assets, 4.45% net interest margin and 39.3% efficiency ratio for the quarter.

Our strong credit culture and consistent discipline have been important ingredients in our long-term success, and we are not wavering from those principles in today’s challenging competitive and interest rate environment,” said Gleason. “We will remain disciplined and focused on delivering long-term value for our shareholders.”

“Our non-purchased loans grew $633 million during the quarter, and we had $1.1 billion of RESG originations, while continuing to adhere to our high standards of lending,” Gleason said during the conference call. “Our deep industry and market knowledge and relationships with our sponsors gives us a unique ability to win business based on our service and expertise without sacrificing our standards.”

Overall, Bank OZK deposits were $18.19 billion for the period ended June 30, a 1.65% increase from $17.9 billion in the same period a year ago. Total assets grew by 3.3% to $22.96 billion in the second quarter of 2018, compared to $22.22 billion a year ago.

As noted, net interest income for the second quarter was $224.5 million, down slightly from $224.7 million a year ago and $225.9 million in the first quarter. Total loans were $17.49 billion in the second quarter, a 4.3% increase from $16.76 billion in the same period a year ago. Non-purchased loans, which exclude loans acquired in previous acquisitions, were $15.79 billion for the period ended June 30, an 11.3% increase from $14.18 billion a year ago.

Common stockholders’ equity was $3.99 billion in the second quarter, a 10.5% increase from $3.61 billion compared to a year ago. Tangible common stockholders’ equity rose 13.5% to $3.3 billion, up from $2.91 billion in the second quarter of 2018.

Bank OZK is still expected to move into its new headquarters in west Little Rock by the end of 2019, where it will oversee its operations through 253 offices in Arkansas, Georgia, Florida, North Carolina, Texas, Alabama, South Carolina, California, New York and Mississippi.

At the close of business Thursday, the Arkansas bank’s stock closed up 1.74% or 49 cents at $28.59. In after-hours trading on the Nasdaq stock exchange, however, Bank OZK shares were down nearly three percent. In the past year, the Arkansas bank’s shares have touched a low at $21.02 and a 52-week high of $42.74.

Comments

comments