Bank OZK Drops Real Estate Exposure Below 50%

One of real estate’s favorite lenders continued to turn its back on the industry during the second quarter.

Arkansas-based Bank OZK dropped the real estate exposure in its overall loan book to 47 percent in the second quarter, Bisnow reported, below its historic norms. The real estate exposure was down 5 percentage points from the first quarter, according to the company’s earnings report.

From April to June, the bank originated $1 billion in real estate loans, in line with the debt issued in the first quarter. Still, that represented one of the slowest second quarters of the past half-decade for the firm and comes after the slowest first quarter in the last five years.

The bank will need to pick up the pace if it’s going to meet its previously stated intention to lend $5 billion to the industry for the year. Part of the slowdown, it said, relates to developers’ struggles to raise equity due to macroeconomic uncertainty, including the cost of construction materials.

Commercial real estate charge-offs increased from the first quarter to 0.69 percent of its loan book, while the share of nonperforming assets has more than doubled year over year. One of those loans is in discussions to be sold, while another is set to be recapitalized and two are in contract to be sold.

Bank OZK recorded $163 million in profit in the second quarter, down 8.7 percent from the year before. Its income for the first half of the year, meanwhile, fell 7 percent year over year.

In a statement accompanying the earnings report, CEO George Gleason said the firm “continued to make significant progress with the strategic diversification of our loan portfolio.”

Towards the end of last year, Bank OZK tipped its hand about getting out of nonperforming real estate assets, a plan the company is making good on. Its portfolio includes multifamily, residential, mixed-use, industrial, office and life sciences properties, though it hasn’t leaned into data centers yet.

A deeper cut in real estate exposure is coming for the bank, which wants that metric in line with its corporate and institutional banking lending, which the bank predicts will happen next year. The corporate and institutional banking practice makes up 22.2 percent of the company’s loan portfolio.

— Holden Walter-Warner