Bank OZK Q1 2025 Earnings Report

Bank OZK EPS Results

• Actual EPS: $1.47
• Consensus EPS: $1.42
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: $1.51

Bank OZK Revenue Results

• Actual Revenue: $409.23 million
• Expected Revenue: $403.05 million
• Beat/Miss: Beat by +$6.19 million
• YoY Revenue Growth: N/A

Bank OZK Announcement Details

• Quarter: Q1 2025
• Date: 4/16/2025
• Time: After Market Closes
• Conference Call Date: Thursday, April 17, 2025
• Conference Call Time: 8:30AM ET

Bank OZK (NASDAQ:OZK) is a regional financial institution headquartered in Little Rock, Arkansas. The company provides banking services to individuals, businesses and institutions through a network of banking offices concentrated in the Southeastern United States and select markets, including New York and California.

Its products and services include checking and savings accounts, certificates of deposit, residential and commercial real estate loans, consumer lending, commercial and industrial financing, treasury management and other business banking solutions. Bank OZK also operates specialized lending businesses, including groups focused on commercial real estate, corporate banking and private banking.

The institution was founded in 1903 as the Bank of the Ozarks and adopted the Bank OZK name in 2018. George G. Gleason serves as chairman and chief executive officer. Under its current structure, the company combines community banking services with specialized lending capabilities for businesses, developers and other commercial clients.

Bank OZK Q1 2025 Earnings Call Transcript

Key Takeaways

• Withdrew detailed guidance on RESG originations due to short-term market uncertainty, including potential tariff impacts and timing concerns.
• Reaffirmed mid-single digit to high-single digit total loan growth guidance for 2025 and delivered 3.8% non-annualized loan growth in Q1.
• Non-RESG loans—including C&I, community banking and indirect auto—accounted for 65% of loan growth over the last four quarters, with new CIB verticals and a planned natural resources group.
• Net interest income was flat Q/Q despite two fewer days, driven by a 29 bp reduction in deposit costs and ongoing opportunities to reinvest maturing deposits at higher yields.
• Resumed share repurchases after quarter-end and expect to continue buying back stock if current valuation levels persist, pending board authorization.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to Bank OZK first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jay Staley, Managing Director of Investor Relations and Corporate Development. Please go ahead.

[Jay Staley, Managing Director of Investor Relations and Corporate Development at Bank OZK]

Good morning. I'm Jay Staley, Managing Director of Investor Relations and Corporate Development for Bank OZK. Thank you for joining our call this morning and participating in our question-and-answer session. In today's Q&A session, we may make forward-looking statements about our expectations, estimates, and outlook for the future. Please refer to our earnings release, management comments, and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward-looking statements. Joining me on the call to take your questions are George Gleason, Chairman and CEO; Brannon Hamblen, President; Tim Hicks, Chief Financial Officer; Cindy Wolfe, Chief Operating Officer; and Jake Munn, President, Corporate and Institutional Banking. We'll now open up the lines for your questions. Let me now ask our operator, Michelle, to remind our listeners how to queue in for questions.

[Operator]

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for our first question. Our first question is going to come from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

[Stephen Scouten, Equity Research Analyst at Piper Sandler]

Yeah, good morning, everyone. Thanks for the time.

[George Gleason, Chairman and CEO at Bank OZK]

Good morning.

[Stephen Scouten, Equity Research Analyst at Piper Sandler]

I know you guys said in the management comments it's kind of hard to update guidance around our ESG originations, and I totally appreciate that given all the uncertainty. Can you give us maybe some anecdotal kind of discussion about what your customers are thinking, how they've been reacting over the past couple of weeks, and what you think customer demand, how that's changed maybe in the near term, and kind of how you're thinking about walking through that demand profile in the future?

[George Gleason, Chairman and CEO at Bank OZK]

Brannon, do you want to take that one?

[Brannon Hamblen, President at Bank OZK]

Absolutely. Stephen, thanks for the question. You read the comments correctly. It is an uncertain time right now, but let me give you some background. I have been talking to a number of market participants looking at the industry from a number of different angles. Of course, as we have said in several of the past quarters, the environment was such that equity was already having to work really hard to pencil deals. Sponsors were having to work hard to find their common equity or their pref equity. It was an environment that already had some headwinds. Coming into the beginning of Q1, there was an off-the-100-basis-point drop in the last four months of 2024. There was some hopefulness about direction and a lot of equity that had been on the sideline for a while.

[Brannon Hamblen, President at Bank OZK]

As we looked forward into the year, we were expecting that we could outperform 2024 by some margin, as we said in Q1. Everyone's well aware of some of the uncertainty that's been introduced in the market over the last several weeks. That has added another element, another consideration that our folks are having to look at. I tell you, as I've talked to folks, the sentiment has been, yes, this is another more short-term uncertainty we believe, and long-term believe will be worked out. We don't know where short-term stops and long-term starts, but there's a level of confidence that it's going to make sense to do real estate deals. The uncertainty around that timing has caused us to put a pause on our guidance as it relates to that.

[Brannon Hamblen, President at Bank OZK]

We come into this quarter with a fairly decent closing pipeline for the quarter, but as we look into the subsequent quarters, there is just enough uncertainty that we did not feel like we could stand on solid ground to give additional guidance there. I will tell you that sponsors are—everyone is pushing in to look at the potential impact of tariffs and how their general contracts are written, who is going to be up for funding additional costs if they occur. I would also say that there are others that readily state that it is just a mathematical problem. It is not necessarily a deal killer. Everybody is focused on the good deals that are out there and making sure they are underwriting those, structuring them correctly in light of the uncertainty.

[Brannon Hamblen, President at Bank OZK]

There will still be deals that are originated, but it's difficult to say what that volume's going to be over the remainder of the year.

[George Gleason, Chairman and CEO at Bank OZK]

Stephen, you were focused on RESG volume. I would point out that we reiterated our prior guidance for mid-single digit to high single digit total loan growth for the year. Of course, our first quarter was pretty strong with 3.8% growth, not annualized in Q1. While we did pull down the RESG origination volume, we still think our cautious guidance at the beginning of the year was appropriate and still stands.

[Stephen Scouten, Equity Research Analyst at Piper Sandler]

Yeah, no, that's a good point to make, George. Appreciate that. I think what's really interesting there, and maybe my follow-up would be, it looks like I think last four quarters, 65% of the loan growth has actually come from non-RESG loans, which is pretty impressive. That handoff story continues to play out well ahead of what I would have thought. It's great to see. I guess my question there is, with this kind of uncertainty and maybe with tariffs, there's more of a focus on small business or C&I type of lending, people are a little more skittish.

[Stephen Scouten, Equity Research Analyst at Piper Sandler]

Does it make you guys think any differently about, I guess, the pace and the aggressiveness in which you would go after those loans and those new verticals versus RESG, which has traditionally been just your bread and butter, kind of your strongest, highest credit quality, most collateral type loans? I guess, does the environment make you think about the timing of that handoff any differently?

[George Gleason, Chairman and CEO at Bank OZK]

Yeah, that's a great question. The corporate and institutional banking group that Jake Munn runs for us has obviously been the biggest contributor to that non-RESG growth, which, as you pointed out, has been the majority of our growth over the most recent quarters. I'll let Jake answer that question. Jake?

[Jake Munn, President of Corporate and Institutional Banking at Bank OZK]

Yeah, I appreciate that, George. Good morning, Stephen. Good question there. We had a good, strong quarter for CIB in first quarter. ABLG led from a total dollars deployed standpoint. CBSF led from a new relationship account standpoint. First quarter for diversified C&I lending holistically, if you look at the markets, typically the weakest. Second quarter and fourth quarter mimic one another. Third quarter is typically the strongest. We do still feel good about the build and the momentum that we're getting in CIB as a whole as a part of that continued growth, growth, and diversification strategy that we've talked about previously. Given that macroeconomic noise and some of those headwinds you mentioned, we're still conservatively looking at this on a quarter-by-quarter basis. I can tell you, our three legacy business lines, being ABLG, EFCS, and Fund Finance, still have great pipelines.

[Jake Munn, President of Corporate and Institutional Banking at Bank OZK]

They continue to add new deals at a steady cadence. When we look at our corporate banking and sponsor finance business line that we only launched a few quarters ago, that group is really still in expansion mode, and we're actively looking at placing two additional teams out within our core footprint in two major metropolitan areas that would further drive growth. In addition to that, our LSCS group, which I'm sure we'll talk about later on in the call, is up and running. We are starting to feel the benefit of additional fee income and business services that we can provide for our clients. Lastly, I'm equally as excited to share on this call that we're actively pursuing and launching a natural resources group this year.

[Jake Munn, President of Corporate and Institutional Banking at Bank OZK]

We've identified and sourced and brought over our new Executive Managing Director of that group, George McKean, who I've been a longtime colleague and friend and have great faith in. We'll be, over the next couple of quarters, working with our credit, our risk partners, corporate finance, analytics, etc., to build that group up and ready it for launch. As I mentioned, our pipelines remain robust. We're cautiously optimistic of the continued growth that you're seeing in CIB and that handoff we've discussed. All of our business lines really remain focused on credit quality first, and I've got all the faith in that team to continue to march that direction.

[George Gleason, Chairman and CEO at Bank OZK]

Stephen, I would add implicit in the reiteration, reaffirmation of our aggregate loan growth guidance for the year, even though we have withdrawn RESG origination volume guidance. Implicit in that is the growing confidence and expectation we have for other business lines to pick up the pace if and as needed to offset any reduction in RESG origination volume. We are feeling good about it.

[Stephen Scouten, Equity Research Analyst at Piper Sandler]

That's fantastic. Thanks for all the time and the color. Appreciate it as always. Great start to the year.

[George Gleason, Chairman and CEO at Bank OZK]

Thank you.

[Operator]

Thank you. One moment as we move on to our next question. Our next question comes from the line of Manan Gosalia with Morgan Stanley. Your line is open. Please go ahead.

[Manan Gosalia, Research Analyst at Morgan Stanley]

Hi, good morning, all.

[George Gleason, Chairman and CEO at Bank OZK]

Good morning, Manan.

[Manan Gosalia, Research Analyst at Morgan Stanley]

You noted it's an uncertain time. I guess my question is, if this uncertainty remains and businesses are slow to make decisions, how are you thinking about the pace at which properties lease up and find permanent financing? What conversations are you having with sponsors in terms of their ability to support properties for a longer period of time should we need that?

[George Gleason, Chairman and CEO at Bank OZK]

Brannon, you want to take that one?

[Brannon Hamblen, President at Bank OZK]

Absolutely. I'll speak about the last part of that question, Manan, conversations with sponsors. You guys have seen in our comments for a number of quarters the evidence that we continue to update for you around how our sponsors are doing exactly that. We are up to $957 million of total additional equity contributions over the 450 modifications and extensions that we have made. Yes, we are constantly having those conversations, and we're very pleased with the level at which they continue to support those. As it relates to leasing activity, business decisions, we are seeing continued lease-up across the portfolio. Based on the facts that we've seen them so far, certainly some have elongated lease-up periods. We've noted that, but we continue to see healthy lease-up in the portfolio. We'll continue to monitor that.

[Brannon Hamblen, President at Bank OZK]

As that occurs or as it is elongated, expect to continue to see our sponsors support these projects that, as we noted, are the newest and highest quality projects in the market. Our experience has been that those highest quality, best located projects do still obtain the majority of the leasing that does occur in the market. The story is similar today as it was before. We, as you noted, have some additional noise in the market. It remains to be seen how long that lasts. Our sponsors have been great to step up through the higher-for-longer period that we have been through over the last couple of years, and we expect they will continue to do so into the future.

[Manan Gosalia, Research Analyst at Morgan Stanley]

Got it. Very helpful. Maybe just to pivot over to NII. NII was relatively flat Q on Q despite, I think, the average Fed funds rate was down meaningfully. Can you talk about what drove that? I see the new disclosure on securities repayments in 2025. Can you talk about what reinvestment rates you're getting there and maybe also speak to the duration that you're putting on the securities book? We noticed it's been increasing a little bit over the past couple of quarters.

[George Gleason, Chairman and CEO at Bank OZK]

Now, let me take the securities question, and then I'll let Tim provide some commentary on the net interest income question. You'll notice in our management comments that this was the first quarter among many that we actually had some growth in the bond book. With the very optimistic view of the economy early in the quarter, very early in the quarter, and the steepening of the yield curve, the kind of medium-term, short-term, 15-year agency mortgage-backed product that we buy a lot of, and some medium-dated muni bonds backed up into our strike zone. We bought about $320 million, I think, was the number of bonds when the 10-year treasury backed up into the $468 million-$478 million range. That was our buy range to execute on some of those strategies. We were very particular, very careful in what we bought in there.

[George Gleason, Chairman and CEO at Bank OZK]

We were not in that range for very long, but we did add some bonds, and those had a very nice yield on them. We obviously went way far away from that when the 10-year got down to like 3.80% and is now back, I think, to 4.30% or something today. We would probably not be a buyer in that 4.68%-4.78% range now, but beyond that, would be a buyer again. I think we were very opportunistic in what we did and feel good about that. We have, obviously, some lower-rate bonds rolling off. We gave you that detail in figure four on page six of the management comments.

[George Gleason, Chairman and CEO at Bank OZK]

It's not a huge volume, but it's about 13% of the portfolio, I guess, rolling off this year and another 15% or so rolling off next year, 16% rolling off next year in the low threes weighted average yield for those. We would expect to reinvest those at improved rates in the 5%-7% sort of tax equivalent yield range if we are consistent with our prior experience. That's what I've got to say on investment securities. Tim, you want to comment on the net interest income generally, including the fact that we had two fewer days in Q1 than we did in Q4. That was really the difference.

[Tim Hicks, CFO at Bank OZK]

Yeah. Yeah, that's right, George. Two fewer days in Q1. Our NIM down two basis points, which was a good result there. We gave you some guidance on page eight under that figure seven on our net interest margin and where we believe that should go under different rate scenarios. Certainly, during Q1, we had a great, as George mentioned earlier in the call, we had a very strong loan growth quarter. We believe we'll have continued growth in average earning assets throughout the year, which we continue to expect that would drive record net interest income in at least one or more quarters in the rest of 2025 and certainly for the full year. Cindy and Audie and team did a great job driving down our COIBD during the quarter. We were down 29 basis points in the quarter.

[Tim Hicks, CFO at Bank OZK]

I think that's probably going to be one of the best in the industry for this quarter as more folks report. You see our chart on figure six. We still have several more quarters of volume of time deposit maturities with weighted average rates in the mid 4% range. We still feel like we've got some opportunity to continue to decrease our COIBD. We were very pleased with our NII results for the quarter. I think that sets us up in a pretty good spot for the rest of the year. Cindy, do you want to provide some color on kind of where we finished the quarter and on deposit costs since that's a big element, obviously, of net interest income?

[Cindy Wolfe, COO at Bank OZK]

Sure. I'm happy to do that. A little color on March. Obviously, we're extremely pleased and proud, as Tim said, of the 29 basis point decrease in the quarter. If you want to know a little more about March and why we're, as Tim says, we expect to have more opportunity there with our maturities in the future. In March alone, we picked up 90 basis points of savings. We retained 88% of our maturing CDs in March, and we cut another 10 basis points in April on our published CD special. Going forward, we're excited. I just have to point out the obvious here that even while doing that, we've grown deposits. If you read anything about deposit growth and deposit acquisition right now, it's extraordinarily hard to grow deposits right now.

[Cindy Wolfe, COO at Bank OZK]

I could not be prouder of our team continuing to fund our balance sheet and drop those costs down. They have been working together for years now. They execute with extreme precision and discipline and also just aggressively out there growing our business with our amazing team of retail bankers and the amazing team in our wholesale deposit group.

[George Gleason, Chairman and CEO at Bank OZK]

The 90 basis points that we picked up in March, for clarification, that was the weighted average rate on time deposits rolling versus the weighted average rate on.

[Cindy Wolfe, COO at Bank OZK]

That's right. Yes, sir. Yeah. Thank you.

[George Gleason, Chairman and CEO at Bank OZK]

Our net interest margin, or I'm sorry, our cost of interest bearing deposits for the month of March was.

[Cindy Wolfe, COO at Bank OZK]

It was 371.

[George Gleason, Chairman and CEO at Bank OZK]

So 7 basis points below the quarterly average. We are continuing to work hard to push those cost of interest bearing deposits lower. As Cindy mentioned, it is a battle out there, but it is a battle our team is doing a really good job of winning.

[Manan Gosalia, Research Analyst at Morgan Stanley]

I think you mentioned last time that maybe one or two cuts would be slightly negative to them because your loan yields would come down faster. And then beyond that, the floors protect you on the loan side. Is that still something that you guys see happening? More than two cuts and your NIM could be supported a little bit more?

[George Gleason, Chairman and CEO at Bank OZK]

Yes. We alluded to that in the language as Tim pointed out below figure seven there on page eight, where we said if the Fed reduces interest rates, anticipate loan yields would decrease faster than our deposit costs, likely resulting in some decrease in our net interest margin at least until time deposits reprice and our floor rates are reached on more variable rate loans. We refer you to figure 22, which shows the variable rate loans that hit their floor with each decrease in the Fed funds target rate and other similar market rates. You can see when we get down to three decreases, you're getting one decrease, we don't get a lot more. We go from 22% of the loans to 28% of the loans, 22% currently to 28% of loans at their floors with a 25 basis point increase.

[George Gleason, Chairman and CEO at Bank OZK]

With a 50 basis point increase, that number goes to or decrease. Thank you. Decrease. That number goes to 44%. We get a lot more support from the floors. The 44% number is a meaningful percent at their floors that will contribute to us protecting the margin quite a bit. That is a big difference between a -25% and a -50% in there.

[Manan Gosalia, Research Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

Thank you. One moment as we move on to our next question. Our next question comes from the line of Tim Mitchell with Raymond James. Your line is open. Please go ahead.

[Tim Mitchell, Research Analyst at Raymond James]

Hey, good morning, everyone. Thanks for taking my questions. I want to start out on the buybacks subsequent to quarter end, which was great to see. With stocks still trading around those levels, if there's any color you can give on your attitude, just kind of given all this uncertainty out there, but you still have a lot remaining under your program. Just curious if you give us any thoughts.

[George Gleason, Chairman and CEO at Bank OZK]

Tim, you want to take that?

[Tim Hicks, CFO at Bank OZK]

Yeah. I mean, as you said, if we continue to trade at current levels, we would expect to continue to repurchase throughout the quarter. Our current authorization ends at the end of the quarter. We would expect our board to consider a new authorization sometime before the end of the quarter. Certainly, at the current levels, we'd buy some more. We bought back some more yesterday. The data we gave you in the management comments was through the 15th and 16th. We had some additional purchases as well. It depends on stock price and a lot of other variables, but I think you could expect us to be somewhat active at this level.

[Tim Mitchell, Research Analyst at Raymond James]

Got it. On expenses, if loan growth was more muted than you expected, I know it sounds you sound pretty confident in your outlook, but just your thoughts on weighing near-term EPS versus continuing to invest in branches and new people, just how you're thinking about that over the near term?

[George Gleason, Chairman and CEO at Bank OZK]

We are very focused on taking advantage, capitalizing on opportunities in the market. You saw that with our bond purchases early in the quarter. You saw that with our stock repurchases after quarter end here. You saw it in Cindy and her deposit teams being very strategic in the way they managed our deposit base to get probably one of the best quarter-over-quarter reductions in our cost of interest bearing deposits. We are leaning into opportunities that the market provides. That has always been part of our culture and our company's history, to capitalize on opportunities when they are presented. We have believed last year, continue to believe this year that we have got opportunities to both grow various parts of our balance sheet. Brannon and Jake have addressed that.

[George Gleason, Chairman and CEO at Bank OZK]

If Alan Jessup or Ken Ronecker were here or Dennis Poer, who run other parts of our business, they would address the work they're doing to capitalize on growth opportunities on the asset side. We also think we've got real good opportunities to capitalize on growth on the deposit side. We will continue to add team members to grow in areas. Jake alluded to one recent hire and a new line of business in the energy area. We're continuing to add staff in mortgage, continuing to add staff in business banking, continue to ramp up our consumer banking pieces. We're growing and we're adding people to grow, and that's reflected in the 10% growth in our net non-interest expense in the quarter and consistent with our guidance, almost exactly consistent with our guidance of estimated 10% growth in non-interest expense this year.

[George Gleason, Chairman and CEO at Bank OZK]

We're continuing to capitalize on that. That includes opening a lot of retail branches. Cindy, I don't know if you know, do you have a count on that?

[Cindy Wolfe, COO at Bank OZK]

Sure. We're excited about opening new branches. This year alone, if you look at the schedule, the published schedule that we shared to plan all those branch openings, it's 34 branches. That is three in Q1, could be up to 11 or 12 in Q2, 12 in Q3, 8 in Q4. Anyone who's developed real estate knows that can swing by weeks or days as far as the exact timing of those openings based on construction schedules and all sorts of things that we can't control. That's an estimate that we'll have probably around 30 more branches at the end of the year than we had at the beginning of the year. Those will take time to grow our deposits. We're making those moves now and hiring staff.

[Cindy Wolfe, COO at Bank OZK]

Obviously, some of those are outright acquisitions of branch buildings, and we can get those opened really quickly. The ones that are ground-up development can take months or even years to develop. Over time, we expect that to add meaningful deposit growth.

[George Gleason, Chairman and CEO at Bank OZK]

That is, I would tell you, that is embedded in our 10% year-over-year guidance for growth in non-interest expense. We baked that branch addition and the staff for those into those projections as we have the projections for adding an energy group, growing CIB, growing business banking, growing our consumer banking functionality. Mortgage, that's all built into our projections.

[Tim Mitchell, Research Analyst at Raymond James]

Got it. Thanks for all the color. Thanks for taking my questions.

[George Gleason, Chairman and CEO at Bank OZK]

Thank you.

[Operator]

Thank you. One moment for our next question. Our next question is going to come from the line of Jordan Ghent with Stephens Inc. Your line is open. Please go ahead.

[Jordan Ghent, Equity Research Analyst at Stephens]

Hey, good morning. I just wanted to ask about RESG, kind of the RESG mix going forward. I think last time you said it would be kind of upper 50% by year-end of 2025 and into early 2026. Is that still a kind of target we can be expecting?

[George Gleason, Chairman and CEO at Bank OZK]

I think you'll see a continuation of the trend that we've seen over the last half dozen quarters or so where RESG percentage of our total book comes down. CIBs and our community banking, commercial banking part of our book, along with indirect lending, goes up. I think that trend is there, whether we're at 50% RESG or 55% at the end of the year or 57%. The trend is there. It's a long-term trend. I'm not going to reaffirm specific guidance because I don't have that number in front of me and haven't reprojected that. The trend is there. RESG is going to become a lower percentage of our book. Now, longer term, it's still going to grow. It'll be bigger in five years than it was two years ago in my estimation, my expectation. It will be a lower percentage of our book.

[George Gleason, Chairman and CEO at Bank OZK]

We expect, as we've been very clear on this, we're not in any way pulling back from that business. We're fully committed to its business. These other business units are going to continue to outgrow it in most quarters going forward for the next several years until RESG is a much smaller percentage of our book, even if it's bigger in dollars.

[Jordan Ghent, Equity Research Analyst at Stephens]

Perfect. Maybe just another question. I noticed that there was the Maryland land loan that was moved to substandard non-accrual. I did notice that the LTV on it was pretty healthy, pretty low at 51%, especially compared to the other substandard accruals. Is there any color you could give on this on why it was moved to substandard accrual?

[George Gleason, Chairman and CEO at Bank OZK]

It is substandard accrual. I know you said in your first sentence there, substandard non-accrual. It is substandard accrual. Brandon, you want to take that question?

[Brannon Hamblen, President at Bank OZK]

Sure. Sure, George. George, thanks for the question. We've based that on the appraisal that we have that was a 2024 appraisal. That's where valuation was at that point in time. That is a healthy LTV. We'll be updating that appraisal in the near future. It's just a complicated land development loan that has some similarity, I guess you would say in that context to the Chicago land loan, large, complex. We've taken what we believe is the right approach with that asset in where we rated it in the reserve that we took on it. That's really the story on that asset.

[George Gleason, Chairman and CEO at Bank OZK]

Yeah. I want to add a little bit to that. Most of our land loans in our RESG portfolio are land bridge loans to go to on projects that are going toward near-term vertical development. There are a few loans in the book that are more land development loans. The Chicago land loan that we have in other real estate foreclosed assets is one of those. This loan is one of those few that really is a land development loan, Maryland loan. That's really where the similarity on this probably ends. We're in active positive discussions with the sponsor on this. This loan is migrated on here because of the nature of those discussions and the fact that it's approaching a maturity. It's premature to assume that it is going to pan out the same way the Chicago land did. It may. It may not.

[George Gleason, Chairman and CEO at Bank OZK]

It may continue to progress in a very positive manner going forward. We do not know. The uncertainty around that as we approach maturity and discussions with the customer is the reason it is on there. I think it is an appropriate place to put it. We will have more clarification on that next quarter as we continue discussions with the sponsor about their plan forward and as we get a new appraisal on it in connection with this upcoming maturity.

[Jordan Ghent, Equity Research Analyst at Stephens]

Perfect. Thanks for all that updated discussions. Maybe just kind of one follow-up regarding that Chicago land loan. Can you give any update on what's the appetite to market this property? It kind of sounds like you can be a little bit more patient and just kind of wanting to understand how aggressively you might market it going forward.

[George Gleason, Chairman and CEO at Bank OZK]

It is a very significant asset. If you're reading the commentary, particularly in Chicago about it, you understand the significant potential and importance of this asset to the future of Chicago and development in Chicago. It's a significant asset. We will be as patient as we need to be to get the right sponsor in there who has the capital and the expertise to develop this land to its full potential or significant potential. We will take the time to do that. With that said, we've already had several parties indicate an interest in it, very serious interest, it would seem. Time will tell on that. This is a very valuable piece of land. The City of Chicago is very interested in the outcome of this development because it's important to the city.

[George Gleason, Chairman and CEO at Bank OZK]

It has gotten quite a bit of attention already as folks have come to know that we have taken title to it and are looking for the right path forward. We will be as patient as we need to be. It would not surprise me if things moved on this fairly quickly just because of the value and importance of the land. You should not take that to mean we are going to have it sold in a quarter. A big complicated land piece like this with a lot of interaction with the city and city entitlements and TIF districts and those things, it takes a good while to formulate a plan and develop full due diligence to formulate a big plan to go forward with a project like this. It will take a little while. We are optimistic from the initial unsolicited feedback we have had from the market.

[Jordan Ghent, Equity Research Analyst at Stephens]

Perfect. Thanks for answering my questions.

[Operator]

Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Samuel Varga with UBS. Your line is open. Please go ahead.

[Samuel Varga, Equity Research Analyst at UBS]

Hey, good morning.

[George Gleason, Chairman and CEO at Bank OZK]

Good morning, Sam.

[Samuel Varga, Equity Research Analyst at UBS]

I wanted to turn back a little bit to just the discussion around how the macro environment is impacting originations. Could you touch on the other side of that equation, the payoffs? I guess, does the recent volatility speed up repayments at all?

[Brannon Hamblen, President at Bank OZK]

Yeah. Happy to. Yeah. Brannon?

[Jake Munn, President of Corporate and Institutional Banking at Bank OZK]

We got to do George.

[George Gleason, Chairman and CEO at Bank OZK]

Yeah. Yeah. Great question, Samuel. This past quarter, you saw a little bit of drop-off in the originations or, I mean, sorry, in the repayment volume that we had relative to past quarters. I would not take that as indicative of repayment, certainly, in the near term. I mean, we've noted that as some of the noise, the macroeconomic noise and uncertainty unfolds, it does have an impact on these decisions. Our guys stay very close to our sponsorship in terms of their plans and their expectations. For the very near term, we do expect those repayments to return to a level that was more akin to what we saw in the latter part of 2024. We would expect that to, as we said, result in elevated repayments for the year. Things can change, though, from month to month, quarter to quarter.

[George Gleason, Chairman and CEO at Bank OZK]

We will keep our eye on it. Based on what information we have today, we do expect those repayments to be elevated over Q2 and to continue to do so over the remainder of the year.

[George Gleason, Chairman and CEO at Bank OZK]

Brannon, we might give a little interim color, I believe, already in the first 10 days or so, two weeks of April, we've had six RESG loans pay off. I believe the balances were, what, $250 million-$300 million range total?

[Brannon Hamblen, President at Bank OZK]

Correct. That is correct.

[George Gleason, Chairman and CEO at Bank OZK]

Yeah. Those loans, most of them, if not all of them, were loans we expected to pay off in Q1. For one reason or another, the closings almost dragged out another week or two. That is certainly not unusual. Big transactions, whether we are closing them or somebody else, have a lot of moving parts to them and a lot of lawyers and others involved in that closing process. Those closings sometimes get hung up on one issue or another and take several weeks longer than expected or sometimes even months longer than expected. That is not unusual. It did throw our expectations off a little bit from Q1 to Q2.

[Brannon Hamblen, President at Bank OZK]

Yeah. To your point, five of those six paid off in the first three days of the month. So point well made.

[George Gleason, Chairman and CEO at Bank OZK]

Yeah. They just barely missed the tape.

[Samuel Varga, Equity Research Analyst at UBS]

Awesome. Thanks for all that color. Just a more housekeeping item, and it's probably for Tim. On the buybacks, the capital ratios have been CET1 especially has been pretty flattish, it seems, when I look at the preliminary for the first quarter. Is it fair to say that the buybacks are there and you're going to be opportunistic and sort of keep capital ratios flattish through that? Is that a governor on it? If valuations stay where they are today, you'd be willing to actually lower CET1 to take advantage of those opportunities to buy back shares?

[Tim Hicks, CFO at Bank OZK]

Yes. Thanks for the question. Certainly, we had really good growth and then really strong earnings during Q1, which, as you pointed out, kept our CET1 ratios and most of our ratios relatively flat. Some were down a few basis points. Some were up a few basis points. Yes, I mean, as share repurchases right now, it's such a compelling value, we would be willing to let the CET1 come down slightly. That certainly is a consideration, not only a stock price, but our capital ratios and our outlook for growth for the remainder of the year. If they came down slightly in one quarter, it's likely that they'd bounce back up in subsequent quarters as we go throughout the year. We're really pleased that we've held on to our share repurchase authorization up to this point. We've been very patient.

[Tim Hicks, CFO at Bank OZK]

As George has pointed out, we've got a history of being very opportunistic on a lot of different fronts. This is one of those cases where our patience has paid off. We're really able to utilize that share repurchase authorization at very compelling values right now.

[Samuel Varga, Equity Research Analyst at UBS]

Great. Thank you very much for taking my questions.

[Operator]

Thank you. As a reminder, to ask a question, please press star one one on your telephone at this time. One moment for our next question. Our next question comes from the line of Timur Braziller with Wells Fargo. Your line is open. Please go ahead.

[Timur Braziler, Equity Research Analyst at Wells Fargo]

Hi. Good morning.

[George Gleason, Chairman and CEO at Bank OZK]

Hi. Good morning.

[Timur Braziler, Equity Research Analyst at Wells Fargo]

I wanted to circle back. I wanted to circle back on the Chicago exposure and the relationship with Sterling Bay in particular. Clearly, you took back a good chunk of the land in Lincoln Yards. You do have other exposure to Sterling Bay. I'm just wondering, as the quarter progressed, how are you thinking about the other loans that you have to Sterling Bay and if there was maybe a broader consideration, whether it's for incremental allowance, risk rating, what it might be for that sponsor in particular?

[George Gleason, Chairman and CEO at Bank OZK]

Brannon, you want to take that?

[Brannon Hamblen, President at Bank OZK]

Sure, Timur. I would tell you that those loans are unique. There is a commonality in the sponsorship, but you have to understand every one of those projects. You've got different types of projects. You've got significant leasing in a number of those projects. You have different capital stacks in those projects. You have different capital partners as part of those projects that are a consideration. It is not our practice to broad brush a situation like that in a portfolio that just happens to have the same sponsorship name.

[Timur Braziler, Equity Research Analyst at Wells Fargo]

Okay. I guess, more specifically, the remaining loans in Lincoln Yards themselves, how are you guys thinking about the development and the fact that it has been a little bit of a mess with just the city and the fact that the city is so involved? Is there an incremental risk that either the full build-out or the leasing up of the additional properties on Lincoln Yards themselves gets pushed out and just how that might translate to the loans?

[George Gleason, Chairman and CEO at Bank OZK]

Brannon, go ahead.

[Brannon Hamblen, President at Bank OZK]

Yeah. Yeah. I would restate what I said before. You have different capital partners in different loans. You sort of lumped in a lot of issues there that are not necessarily tied together. We treat each one of them individually as to their situation. As George noted, that is a phenomenal location and piece of real estate that has a tremendous amount of opportunity, a tremendous amount of interest. It needs, as George alluded to, the right sponsorship to execute on that. I would also remind you that our basis in these loans is we enter these to be prepared for things not going as planned. We are pleased with the fact that we have got diversity of property type. Again, to lump all those in would be a mistake.

[George Gleason, Chairman and CEO at Bank OZK]

I would make a couple of notes. Timur, let me add another comment or two. We've had a number of successful executions with the Sterling Bay Group and a positive long-term history with them. That's important to note. Secondly, the city's interest and engagement in this project, we view as very positive. I mean, the developer who ends up developing this project to its ultimate potential is going to be a developer that is going to work closely with the city because there's city infrastructure and collaboration that is required on a project of this scale that sits right sort of at the confluence of several significant urban areas in the city, urban suburban areas in the city. It's going to take a sponsor who is very capable of working with the city, and the city's going to have to be engaged.

[George Gleason, Chairman and CEO at Bank OZK]

We view that constructively, not negatively. If there was a negative innuendo in the question there about city involvement, we actually view that as positive, not negative.

[Timur Braziler, Equity Research Analyst at Wells Fargo]

Okay. Thanks for that. My follow-up, just the gross growth and diversification strategy. I'm just wondering your thoughts on that strategy going into a period of uncertainty like we're in today, more specifically just in growing out CIB as aggressively as you guys have been growing it. I'm just wondering, A, does that growth rate still make sense as we look at it today, just given the level of uncertainty? I guess, if it does, just be what the conviction that you guys have in making some of those loans to industries that maybe could be more at acute risk if the economy does sour more quickly?

[George Gleason, Chairman and CEO at Bank OZK]

I would tell you, I think our conviction, our belief that it's the absolute right thing to do, and our growth and diversification strategy is as strong as it's been any time since we started down that path five or six years ago when we brought in and began to build the first team that is now part of Jake's Group. A year later, added another team on a different business line. A third year, added another team on a different product line. We absolutely believe it's the right thing to do. We've got tremendous confidence in the team that we have built over the years and that Jake has significantly augmented in the last year plus. These are experienced veteran folks. They share our commitment, as Jake articulated in his earlier comments, that asset quality is always paramount.

[George Gleason, Chairman and CEO at Bank OZK]

They're doing business with high-quality customers. I think they'll do a good job. I think we will achieve more diversification, and that will be healthy for our company, healthy for our stock price, and will not dilute our asset quality but contribute to better asset quality through broader diversification.

[Jake Munn, President of Corporate and Institutional Banking at Bank OZK]

Yeah. To piggyback off of that, George, if I can, it's a good question, a fair question. As previously mentioned, we're really just now hitting our stride with some of these new business units that have come online. When we look out over the broader opportunity that's out there, specifically in that just general C&I space, call it middle market to upper middle market corporate space, the bank doesn't have much asset there historically. Pushing into that, there's really a whole world available for us to continue to grow within. I want to reiterate, though, just given that market uncertainty and some of those macroeconomic headwinds that you mentioned, if you look at the opportunities we're pursuing, the vast majority of them have a sponsor behind them or are publicly traded.

[Jake Munn, President of Corporate and Institutional Banking at Bank OZK]

We have a nice tertiary source repayment potentially there or access to capital markets, if you will. Average client, or if not most of our clients, are over $10 million+ in EBITDA. They have been around for years and years. They have gone through multiple business cycles and economic cycles. They have gotten hardened balance sheets. We have taken a page out of RESG's book. If you look at our average LTEV, it is down in the 50% range on these too when we are doing enterprise value lending. Also, to reiterate, we do not do leverage lending when we are actively doing enterprise value lending, which is very different than many of our peers.

[Jake Munn, President of Corporate and Institutional Banking at Bank OZK]

Holistically, if you look at the type of opportunities we're pursuing in CIB, strong balance sheets, ample equity in, and a long-running history of success for these companies through multiple business and economic cycles. To George's point, we're cautiously optimistic, and we anticipate continued growth across these CIB business lines. The new CIB business lines that we've launched work kind of in tandem with the existing ones, ABLG, EFCS, and Fund Finance. If we start to see pricing pressure or structuring pressure in one of those areas, it allows us to pull the lever on another area to continue to pursue that growth. That diversified nature that we've built out strategically is really what's going to continue to propel our growth there successfully.

[Timur Braziler, Equity Research Analyst at Wells Fargo]

Great. Thank you for the questions.

[Operator]

Thank you. One moment as we move on to our next question. Our last question is going to come from the line of Brian Martin with Janney. Your line is open. Please go ahead.

[Brian Martin, Research Analyst at Janney]

Hey, good morning, guys.

[George Gleason, Chairman and CEO at Bank OZK]

Good morning, Brian.

[Brian Martin, Research Analyst at Janney]

Hey, I joined a bit late here. If you covered this, George, I apologize, and I'll go back and listen to the transcript. Just in terms of just with the tariffs and kind of the uncertainty and just the opportunities, I guess when you look at the reserves today, I guess, are you with the Moody's forecast? I don't know how you guys changed or if at all changed your outlook in terms of reserving or just how we should think about that going forward, or if you could just give a little bit of color if you haven't already done so, just on how we should think about that going forward.

[George Gleason, Chairman and CEO at Bank OZK]

Brian, let me make a few comments on that, and then I'll let Tim make a comment. In our management comments on page 22, where we show that progression of our ACL build over the last 11 quarters, and I'll let Tim talk to that. We make a comment that if you read it and sort of read between the lines, there's been a steady array of challenges that our customers have faced that have prompted that ACL build. The recession was always coming. The recession was coming. The recession was coming from the lingering effects of the pandemic, from remote work, from all sorts of things. It was the Fed raising rates 500, 525 basis points, I guess 525 basis points of Fed rate increases. It was, gosh, the Fed's not going to cut quickly, so we're going to have a recession.

[George Gleason, Chairman and CEO at Bank OZK]

We're going to have higher for longer. We're going to have a recession. You could throw in all sorts of the war in Ukraine, the conflict in the Middle East, the recession risk in Europe, and trade tensions and supply chain disruptions. Now we've got the little tariff tantrum going on. There has been just a steady progression of risk that our customers have had to deal with. As those risks have increased and a handoff from one apparent risk to the next apparent risk has occurred, we just kept building our ACL, realizing that the cumulative impact of all these risks could manifest itself in more and more challenges for our customers. Our customers have done an exceptionally good job. If you look over that 11-quarter period of time, our provision expense has been four times our actual losses.

[George Gleason, Chairman and CEO at Bank OZK]

That tells you that, one, we're being very cautious in our build of the ACL. Two, our customers have just continued to perform very well, even under a constantly evolving and shifting array of risks and challenges, all of which have threatened a recession or adverse situation of some kind or another. We looked at all that coming into the year through the fourth quarter when everybody was euphoric to the extreme and said, "Wow, that's probably excessive euphoria," and built our ACL in the fourth quarter of last year, even though everybody was in a euphoric mindset because we were adopting a very conservative set of scenarios at that point in time. Being appropriate, prudent, and cautious regarding the outlook.

[George Gleason, Chairman and CEO at Bank OZK]

As that euphoria has turned more recently into just doom and gloom, we think the doom and gloom is overdone as the euphoria was three months earlier, and that the economy and the outcomes are going to be somewhere in that. Being cautious and being prudent and wanting to make sure we've got an appropriate ACL in the quarter just ended, we built our ACL again.

[Tim Hicks, CFO at Bank OZK]

$19 million.

[George Gleason, Chairman and CEO at Bank OZK]

$19 million. Tim, why do not you talk about our specific scenario of selections in the quarter just ended and anything else I missed in my comments?

[Tim Hicks, CFO at Bank OZK]

Yes. Thanks, George. As you pointed out, I mean, we have increased more than doubled over that 11-quarter period. Our ACL increased at 113%, which was a net $339 million increase, given all the, as you pointed out, all the risks and uncertainties that have been present over those 11 quarters. We have been consistently weighted to downside scenarios. During the quarter just ended, we did shift even more of our weightings to those downside scenarios. You can see in that last paragraph, we mentioned that the weightings we assigned each of the Moody's S4, which is a recessionary scenario, and Moody's stagflation scenario, each of those exceeded the weighting that we had to the Moody's baseline scenario. We have been including stagflation in our downside scenarios for the last several quarters and continue to view that as something that should be considered in our ACL calculations.

[Brian Martin, Research Analyst at Janney]

Gotcha. Okay. That helps. Maybe just one, not the Chicago land, George, but the other property in OREO that had the contract out there, did you provide any update on where that stands today, or do you have an update on that?

[George Gleason, Chairman and CEO at Bank OZK]

Yeah. We've got that updated. The Los Angeles land is updated on page 25. When we finished the fourth quarter, that land had fallen out of contract because the prospective purchaser of that land did not make the contract extension payments that they were supposed to make at the end of the year. Reasonably quickly, I think it took about a month for the sponsor to come back and work out a new contract. We had already canceled the old contract and captured the $3 million of non-refundable earnest money that we applied that reduced our carry value on that asset from $59.95 million to $56.95 million, where it is today.

[George Gleason, Chairman and CEO at Bank OZK]

As part of the sponsor re-engaging with that contract, they had to pay us $2.5 million in fees that was in our non-interest income in the quarter just ended and put up an additional $1.5 million in non-refundable earnest money deposit. So $4 million they put up. That was in addition to the $6 million that they had previously paid to us and all the money that they've spent on it. The contract currently expires June 30. They have one extension option, which they negotiated for three additional months to September 30. To exercise that extension option, they've got to pay us a $1 million fee and put up another $1 million of non-refundable earnest money by June 30.

[George Gleason, Chairman and CEO at Bank OZK]

Our current expectation of the most likely scenario, given their apparent commitment to this project, is that they'll probably take that extension and probably pay those payments on or before June 30 and extend to September 30. It's impossible to know for sure if this project closes or not, but certainly by the time they do that, they will put up, if they exercise the extension, they'll have paid us $12 million in fees and earnest money toward the project. That seems pretty serious interest to me, and they will have spent millions of dollars of other money on due diligence and work on the project. I think it's more likely that that sale closes than not, but I'm not going to celebrate it till it closes and the money is in our account. If it closes that contract, the closing should result in a small gain on sale.

[Jay Staley, Managing Director of Investor Relations and Corporate Development at Bank OZK]

Gotcha. Okay. I appreciate you taking the questions. Thank you.

[George Gleason, Chairman and CEO at Bank OZK]

All right. Thank you.

[Operator]

Thank you. This concludes today's question-and-answer session. I would like to turn the conference back over to George Gleason, Chairman and CEO, for closing remarks.

[George Gleason, Chairman and CEO at Bank OZK]

Thank you, guys, for joining us today. We appreciate all the questions. We appreciate your interest in OZK, and we look forward to talking with you in about 90 days, more or less. Thanks so much.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Participants

Executives

• Jake Munn, President of Corporate and Institutional Banking
• Brannon Hamblen, President
• George Gleason, Chairman and CEO
• Jay Staley, Managing Director of Investor Relations and Corporate Development
• Cindy Wolfe, COO
• Tim Hicks, CFO

Analysts

• Tim Mitchell, Research Analyst at Raymond James
• Stephen Scouten, Equity Research Analyst at Piper Sandler
• Brian Martin, Research Analyst at Janney
• Jordan Ghent, Equity Research Analyst at Stephens
• Samuel Varga, Equity Research Analyst at UBS
• Manan Gosalia, Research Analyst at Morgan Stanley
• Timur Braziler, Equity Research Analyst at Wells Fargo