Bank OZK in Little Rock, Arkansas, had predicted that loan paydowns could
The $26.2 billion-asset bank, whose bread-and-butter business is commercial real estate lending, struggled to grow its loan portfolio in the first half of the year. Paydowns in its national Real Estate Services Group, or RESG, reached an all-time high of $2.34 billion in the second quarter — total loans fell nearly 3% from a year earlier as a result — and Bank OZK had braced for elevated levels through the year
However, following multiple Federal Reserve interest rate hikes this year, refi activity slowed substantially, and third-quarter loan repayments dropped to $1.28 billion. As fewer existing borrowers refinanced into loans offered by competitors, Bank OZK's total loans rose 7% from a year earlier to $19.51 billion, driving interest income and the company's third quarter profit.
"Obviously, it was a material payoff quarter, but not perhaps as heavy as we expected," RESG President Brannon Hamblen said during Bank OZK's earnings call Friday. "We would expect at least for the foreseeable future that it may not be as heavy."
The current environment opens the door for more loan growth as companies across sectors continue to borrow and invest in expansions, despite rising rates and related recession fears,
The "prospects for meaningful loan growth in '23 and '24 look very good," Gleason said. "I think that was the highlight of the quarter."
Bank OZK did build its loan-loss reserves at a level commensurate with its growth, which created a modest drag on earnings, Gleason said. "But we would take that kind of miss every single quarter," he said.
The bank's provision for credit losses was $39.8 million in the third quarter, compared with a negative provision in the year-earlier quarter.
Bank OZK reported quarterly net income of $128.3 million, a 1.5% decrease from $130.3 million in the third quarter of 2021. Earnings per share of $1.08, however, rose from $1.00 a year earlier, reflecting share buybacks. During the third quarter, the company repurchased about 1.2 million shares for a total of $47.7 million.
