Bank OZK’s stock drops nearly 24% after CRE write-offs

The Arkansas-based bank is one of the largest condo construction lenders in Miami, NYC and LA

Oct.October 19, 2018 11:15 AM
Bank OZK, Condo Construction

Bank OZK CEO George Gleason (Credit: iStock)

Bank OZK’s stock tanked almost 24 percent in early morning trading on Friday after it reported two large commercial real estate write-offs in its third quarter earnings. The bank is one of the largest condo construction lenders in South Florida, New York City and Los Angeles.

The Little Rock-based regional bank, with just over $22 billion in assets, also reported that net income declined 23 percent to $74.2 million in its third quarter from the same period of the previous year, due to these write-offs. Bank OZK’s earnings are closely monitored by analysts since it is such an active real estate lender.

Bank OZK reported that the two write-offs during the third quarter were in its Real Estate Specialties Group (“RESG”) portfolio and were related to properties in South Carolina and North Carolina from loans originated in 2007 and 2008.

The bank said in its management comments that accompanied earnings that its South Carolina charge-off was secured by a regional mall, which has suffered from both “declining property performance and increasing interest rates.” The project was further impacted by uncertainty related to anchor tenants Sears and JC Penney, according to the bank.

The North Carolina charge-off was secured by a multi-phase land, residential lot and residential home project, according to the bank. The homes have not sold well, the bank said, in part due to “cheaper pricing on existing homes.”

In total, these properties had allowance allocations totaling $19.1 million as of June 30. But after new appraisals, which were much lower than it initially presumed, the bank said it would have to write down each credit to about 80 percent of its recent appraised value. The combined charge-offs on the two loans in the third quarter came to $45.5 million. Since the bank already had the $19.1 million allowance, it had to make an additional provision expense of $26.4 million. Had it not, its earnings would have slightly surpassed its third quarter 2017 earnings of $96 million.

The bank said “other than these two substandard and one watch credit, the credit quality of the RESG portfolio is excellent.”

Bank of the Ozarks also reported that its net interest margin, or the difference between the interest income banks earn and what they pay out, was down 37 basis points from the third quarter of 2017 to 4.47 percent. The bank said this was due to a lower than expected yield on non-purchased loans.

At 11 am, the bank’s stock was trading at $26.57, down 23.8 percent from its opening price.

Bank OZK recently provided the biggest condo construction loan in the Miami area, $558 million for The Estates at Acqualina in Sunny Isles Beach.

The regional bank provided more than $1.2 billion in construction loans in the Miami metropolitan area from 2013 through 2017, according to its 2017 annual report.

Bank OZK changed its name from Bank of the Ozarks in July in an effort to free itself from “the limitations of a name tied to a specific geographic region,” according to a statement from the bank at that time.

Related Articles

Matt Rieger and a rendering of Paradise Lake Apartments

Developer scores financing for West Kendall affordable housing project

William Dabbs

Contractor guilty of manslaughter in fatal shooting of his boss

Wynwood 25 and Wynwood Annex with Jon Paul Perez and Jonathon Yormak (Credit: East End Capital/Related Group)

Related, East End score $136M refi of Wynwood projects

Rendering of Missoni Baia with a concrete truck and Vlad Doronin (Credit: Getty Images and iStock)

5,800-ton concrete pour set for Missoni Baia condo tower

These real estate power players are involved in 2019’s juiciest lawsuits (Credit: Getty Images)

Here are South Florida’s juiciest lawsuits of 2019

Best of TRD 2019 promo

Coming soon: The Real Deal’s Best of 2019

Brickell Flatiron and Ugo Colombo

Ugo Colombo pays off $236M construction loan for Brickell Flatiron

2965 West Corporate Lakes Boulevard and Black Creek Group CEO Raj Dhanda (Credit: Google Maps, Blue Vault)

TIAA sells Weston warehouse for $33M