Bank OZK rebounds, emphasizes focus on credit quality
Bank OZK rebounded in the fourth quarter.
The $22 billion-asset bank made progress showing investors that its commercial real estate exposure is under control three months after a spike in charge-offs sent its stock tumbling. Fourth-quarter charge-offs fell by 93%, to $3.2 million.
The Little Rock, Ark., company earned $115 million in the fourth quarter. While that was down 21% from a year earlier, the fourth quarter of 2017 featured a nearly $50 million gain tied to the revaluation of the company's deferred tax liability.
Commercial real estate, for better or worse, remains a focus at Bank OZK. Now, concerns have shifted from credit quality to a struggle to keep lucrative CRE loans on the books.
For a third straight quarter, repayments exceeded originations in the bank's real estate specialties group portfolio, which includes CRE loans from leading markets around the country. Bank OZK is expecting more of the same in 2019, warning in a press release Thursday that repayments “will likely exceed the level of repayments in 2018.”
At the same time, originations in the real estate specialties group fell by 48% in 2018 from a year earlier, to $4.7 billion.
Still, Bank OZK said there are no plans to adjust underwriting guidelines to bring in more business.
“Our focus has been, and will continue to be, on maintaining our credit quality and return standards, even if maintaining those standards adversely affects our origination volume and non-purchased loan growth,” the company said in its release.
Bank OZK’s loan portfolio increased by 6.7%, to $17.1 billion, including $2 billion of loans transferred onto its books from acquired banks. Despite concerns over repayments and originations, the real estate specialties group portfolio rose by 11%, to $9.1 billion.
The full-year net charge-off ratio was 0.38%. Nonperforming assets amounted to 0.23% of total assets at Dec. 31.
Loans rated substandard were equal to about 1% of risk-based capital, the lowest total in nearly a decade, said Brian Martin, an analyst at FIG Partners.
Bank OZK "recovered nicely from a difficult third quarter posting strong performance across most key metrics,” Martin wrote in a Friday note to clients. He noted that the bank has also made progress diversifying its loan book.
Bank OZK said it added 4,700 core checking accounts in 2018. Total deposits increased by 4%, to $17.9 billion.
“Our strong net income in 2018 resulted in meaningful increases in our already strong risked-based capital ratios and allowed us to increase our cash dividends each quarter,” Chairman and CEO George Gleason said in Thursday's release. “We completed our strategic rebranding and continued our efforts to enhance our team of industry and technology professionals. … We believe we are well positioned for success in 2019.”
Bank OZK shareholders appeared to be energized by the results. Shares spiked in after-market trading Thursday, surpassing $31 a share for the first time since October.