All eyes have been on credit quality in first-quarter earnings for U.S. banks, which have responded with heavy reserve builds that drove earnings down 40% on both linked-quarter and year-over-year bases.
Forty-one banks with assets between $10 billion and $100 billion have reported first-quarter results since the start of earnings season through April 24. Provisioning has turned earnings growth negative almost entirely, with just one of the 41 banks reporting linked-quarter earnings growth driven by an acquisition. For the group, the median linked-quarter EPS change was a decline of 42.0%. Results were nearly identical on a year-over-year basis with a median drop of 43.2% in EPS.
There have been some bright spots, though. Investors were enthused by Bank OZK's earnings report, which showed a past-due rate of just 18 basis points. The bank's stock jumped 11.8% the day of its earnings release, compared to a 2.1% gain in the KBW Nasdaq Bank Index.
Bank OZK's stock has traded at a discount to peers for years due to concerns about the credit quality of its Real Estate Specialties Group business, which focuses on construction commercial real estate. But the business has shown little stress so far. While the bank significantly increased provisioning in the quarter, it still reported a first-quarter profit. Bank OZK executives on their earnings call described the company as "extremely well positioned" for the downturn. Brian Martin, an analyst for Janney Montgomery Scott LLC, largely agreed, saying the bank should have lower losses through the downturn than peers.
"OZK is well positioned for uncertain economic times with substantial levels of capital/liquidity, strong earnings capacity and low leverage points," Martin wrote.
PacWest Bancorp did not post a profit, but its net loss was driven more by a goodwill impairment charge than provisioning. The bank reported the largest linked-quarter decline among banks with $10 billion to $100 billion in assets, posting a $12.23-per-share loss in the first quarter after reporting EPS of 98 cents in the 2019 fourth quarter. The bank's goodwill impairment charge of $1.47 billion exceeded its net loss of $1.43 billion.
At the other end of the spectrum, Simmons First National Corp. led the group of banks with the only quarter-over-quarter increase in profits, reporting EPS of 68 cents in the first quarter compared to 49 cents in the previous quarter. Its figures were boosted by its acquisition of Landrum Co., which closed on Oct. 31, 2019.
