Profit slumps 12.4% at Little Rock-based Bank OZK

Bank’s earnings in 4Q top $100M

Graphs showing Bank OZK fourth quarter information.
Graphs showing Bank OZK fourth quarter information.

Profitability decreased by 12.4% in the fourth quarter at Little Rock-based Bank OZK, which reported Thursday that earnings per share also fell during the period ending Dec. 31.

Net income for the fourth quarter of 2019 was $100.8 million, down from $115 million over the same period a year ago. Earnings per share were 78 cents for the quarter, compared with 89 cents for the same period in 2018. The 2019 quarter beat analysts' expectations of 76 cents per share.

Total assets for the quarter increased 5% to $23.56 billion, up from $22.39 billion in 2018. Earnings were announced Thursday afternoon after the stock market closed.

For the full year, Bank OZK reported net income and earnings per share were both up by about 2%. Net income increased to $425.9 million in 2019, up from $417.1 million in 2018. That is the highest net income reported since the bank began publicly trading in 1997.

Earnings per share were $3.30 last year, compared with $3.24 the previous year.

"We are very pleased to have achieved record net income of $425.9 million in 2019 and a 1.87% return on average assets," George Gleason, chairman and chief executive officer, said in a news release.

"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," Gleason said. "We believe our competitive advantages will allow us to capitalize on opportunities throughout 2020 and beyond."

Chief Administrative Officer Tim Hicks noted that three interest rate drops during the year hindered profitability in the fourth quarter and led to the declines in net income. "That's really the function of the three rate decreases throughout the year," Hicks said.

In 2019, the Federal Reserve dropped interest rates three times -- each time by a quarter point. Interest rates set by the Fed control the cost of mortgages, credit cards and other lending from banks and affect the overall earnings of financial institutions.

"Our loans grew 8% year over year, but the Fed rate decreases impacted the yield on those loans," he added. "That was the main driver."

Bank OZK increased the amount of loans it originated, from $15.1 billion in 2018 to $16.2 billion in 2019. That was not enough to overcome the lower interest rates. "It was a challenging interest rate environment," Hicks said.

Bank OZK's fourth quarter report was disappointing, according to Little Rock banking analyst Garland Binns.

"Net income and earnings decreased by 12.4% in the fourth quarter of 2019 compared to the fourth quarter of 2018," he said. "This is in part due to the increase in overhead expenses."

Bank deposits increased to $18.5 billion in 2019, up 3% from $17.9 billion in 2018. Net interest income, the bank's largest category of revenue, decreased by nearly 6% in the quarter. Net interest income was $215 million for the quarter ended Dec. 31, compared with $228.4 million in 2018.

Net interest margin for the quarter was 4.15%, down 40 basis points from a year ago.

Two weeks ago, the bank announced a regular quarterly cash dividend of 26 cents per common share payable Jan. 24 to shareholders of record as of today. The dividend is a penny increase over the dividend paid in the previous quarter. Bank OZK has increased its quarterly cash dividend in each of the past 38 quarters.

In the second quarter, the bank said it will move about 400 employees into its new 246,000-square-foot headquarters building on Cantrell Road in west Little Rock. The bank is investing more than $6 million to build a solar power plant to provide electricity for the building and 40 other locations in the state.

Bank OZK operates through more than 250 offices in Arkansas, Georgia, Florida, North Carolina, Texas, Alabama, South Carolina, California, New York and Mississippi.

Business on 01/17/2020

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