Bank OZK’s Q1 earnings fall 90%, but sees lending opportunities ahead

The bank said it can find more opportunities in construction lending, as other lenders back out of the market

National /
Apr.April 24, 2020 01:45 PM
Bank OZK CEO and Chair George Gleason

Bank OZK CEO and Chair George Gleason

Bank OZK, one of the most active construction lenders in Miami and New York, is bracing for losses from the coronavirus pandemic, but says that it sees opportunities ahead as competitors back out of the market.

Little Rock, Arkansas-based Bank OZK reported its first quarter earnings on Friday, and increased its provision for credit losses to $117.7 million, up from $6.6 million in the first quarter of 2019. The bank said it raised its provision due to the coronavirus pandemic and the use of a bank accounting method tied to current expected credit losses. It’s total allowance for credit losses amounted to $316.4 million at March 31.

The higher provision caused the bank’s net income to drop by 89 percent to $11.9 million in the first quarter, compared to $110.7 million in the same period of 2019.

Other banks, like JPMorgan Chase, Wells Fargo and Bank of America also reported sharp declines in first quarter net income due to the pandemic, as businesses shut down and demand for new loans dried up.

Bank OZK’s real estate loans showed no signs of distress yet, as the bank reported no new write-offs in its real estate lending group. Real estate loan originations dropped 5.4 percent, year-over-year, to $1.76 billion.

The bank said construction delays on development projects should not have a major impact on the bank’s financials. Furthermore, the bank could benefit from delays, by allowing it to earn additional interest on outstanding loans.

“We like keeping loans on the books longer,” said George Gleason, Bank OZK’s chairman and CEO, during a conference call with analysts. “If the secondary market is disrupted for a few months or few quarters, and those loans are on the books longer term, we are fine with that.”

In fact, Gleason said that the bank may benefit from the coronavirus crisis, as other construction lenders pull back due to the uncertainty.

“You will have some people back out of the space permanently, which will let us have a bigger share of the pie, with less competition,” Gleason said.

Bank OZK is closely watched by the real estate industry since the regional bank has become one of the go-to lenders for large ground-up development projects in Miami, Los Angeles and New York City and has made some eye-popping loans, including a $558 million loan in 2018 to the Estates at Acqualina luxury condo project in Sunny Isles Beach.

Critics of the bank argue that Bank OZK is taking on substantial risk by being so heavily concentrated in construction lending in large metro areas and also making such large loans. But Gleason says that the bank works with the best sponsors at low leverage points, and is the sole-senior secured lender, meaning it is first to get paid back.

“We feel very good about those loans, and we think that the quality of the credit and quality of the asset will prove over time what good projects they are for us,” Gleason told analysts.

Bank OZK’s stock rose 6 percent to $18.75 as of 12:35 p.m. on Friday. Since the beginning of March, the bank’s stock has fallen 28 percent.


Related Articles

arrow_forward_ios
With a cooling trade war, stocks perform well, including real estate. (Credit: iStock)
Real estate stocks push up this week as U.S.-China trade tensions ease
Real estate stocks push up this week as U.S.-China trade tensions ease
416 West 25th Street and Maverick Real Estate Partners principal David Aviram (Credit: Google Maps and LinkedIn)
Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
Avishai Abrahami with Ziel Feldman and Nir Meir, and 500 Bailey Ave, Buffalo, NY; 707 Spence Lane, Nashville, TN; 1100 Milwaukee Avenue, South Milwaukee, WI (Getty, Google Maps, NY Supreme Court)
Ziel Feldman, Nir Meir accused of fraud over $30M loan
Ziel Feldman, Nir Meir accused of fraud over $30M loan
G4's Jason Behfarin and Robyn Sorid with a rendering of the Cascade complex
Sprawling Bed-Stuy condo complex lands $105M in financing
Sprawling Bed-Stuy condo complex lands $105M in financing
(Getty, iStock)
Capacity restrictions in NY to ease as soon as next week
Capacity restrictions in NY to ease as soon as next week
Though some companies have received fat PPP payouts, real estate received just 4.6% of the loans distributed in New York. (iStock)
Real estate receives just 5% of New York’s PPP loans
Real estate receives just 5% of New York’s PPP loans
Hammerson CEO Rita-Rose Gagne and Brookfield's Bruce Flatt. (Hammerson, Brookfield, Getty)
Brookfield’s US malls are struggling. Now it’s buying some in Europe
Brookfield’s US malls are struggling. Now it’s buying some in Europe
(iStock)
Homebuilder sentiment ticks up in April
Homebuilder sentiment ticks up in April
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...