Bank OZK NASDAQ: OZK executives used the company’s second-quarter 2026 earnings call to emphasize the bank’s ongoing shift toward a more diversified loan portfolio, with rapid growth in corporate and institutional banking helping offset elevated repayments in its real estate specialties group.
Chairman and CEO George Gleason said the corporate and institutional banking, or CIB, business is “a very important and rapidly growing and developing part” of the franchise. He said the bank is investing in the unit and hiring experienced leadership as it seeks to reduce concentration in commercial real estate and the real estate specialties group, or RESG.
“We want to make sure that we are not trading one concentration for another,” Gleason said, adding that diversification within CIB is important to long-term franchise value.
CIB Growth Adds Diversification
Jake Munn, president of corporate and institutional banking, said CIB now includes more than seven major business lines, including corporate banking and sponsor finance, fund finance, lender finance, natural resources, franchise capital solutions, asset-based lending and equipment finance.
Munn also highlighted the bank’s emerging middle market group, which he said is intended to bridge the gap between the legacy community bank and the larger corporate banking and sponsor finance segment. The group will focus on family-owned businesses with roughly $15 million to $100 million in revenue, particularly within Bank OZK’s core footprint.
According to Munn, CIB currently represents more than 42 unique NAICS categories, giving the bank flexibility to adjust its emphasis across business lines as market conditions change. He said growth in the most recent quarter was led by corporate banking and sponsor finance, along with natural resources, while asset-based lending was less emphasized because of tighter pricing and more aggressive advance rates in that market.
Munn said the bank views CIB as more than a loan-growth engine, pointing to potential deposit opportunities and cross-selling in treasury management, private wealth management, commodity hedging, interest-rate hedging and capital markets services.
RESG Repayments Expected to Remain Elevated
Executives said repayments in the RESG portfolio remained high in the second quarter and are expected to stay elevated through the rest of 2026 and into 2027. Gleason said repayments approached $3 billion in the second quarter and averaged about $2.5 billion per quarter over the trailing four quarters.
Gleason said the elevated repayment activity is tied to the natural cadence of loans originated during 2022, which he described as a record origination year. He said the bank expects repayments to taper somewhat in 2027 but remain elevated based on current projections.
President Brannon Hamblen said repayment timing can shift based on market conditions, sponsor strategies, refinancing activity, sales decisions and cap-rate changes. “A lot of it’s just the natural cadence of the portfolio moving through the pipe,” Hamblen said.
Despite the repayment headwind, Gleason said the bank continues to expect mid-single-digit loan growth for the full year. He said a wave of repayments early in the second quarter pressured average earning assets, making it difficult to catch up during the rest of the period.
“Hopefully those prepayments will be a little more levelized in Q3 and Q4,” Gleason said.
Net Interest Income Guidance Pressured by Average Earning Assets
Asked about changes in net interest income commentary, Gleason said the principal factor was average earning assets rather than deposit competition or liability-side pressures. He said the bank had expected more linear growth during the year but experienced a pullback in the second quarter after early loan payoffs.
Gleason said Bank OZK had anticipated a competitive deposit environment at the start of the year, and that environment has continued. He said the bank’s view of net interest margin is broadly consistent with analyst consensus estimates and reiterated that management expects margin to be slightly below the first quarter’s 4.20% level.
On deposit costs, Gleason said the bank’s CD specials are roughly 10 basis points higher than their low point, reflecting expectations for more deposit growth in the third and fourth quarters to support loan growth. He said the second-quarter cost of interest-bearing deposits likely represented an inflection point and that modest increases are expected going forward.
Chief Financial Officer Tim Hicks said he expects average earning assets to increase in both the third and fourth quarters from the second-quarter level.
Credit Trends and Reserves Remain in Focus
Credit quality was a major focus of the call, with analysts asking about special mention loans, life science exposure and charge-offs. Gleason said the increase in special mention loans should not be overinterpreted, noting that some loans enter the category while extension or recapitalization discussions are underway and later return to pass status.
“I think there are several of them that look like they’re going to work out favorably and be candidates for upgrade over the next couple of quarters, if not the next month or two,” Gleason said.
Hicks said Bank OZK had built its allowance for credit losses in recent years in anticipation of later charge-offs. As those charge-offs are realized, he said the bank has considered it appropriate to reduce the allowance over the last couple of quarters. He cited two Seattle buildings that moved into other real estate owned during the quarter, with charge-offs of $22 million on the office property and $3.7 million on the life science property, saying those amounts had already been reserved for in the prior quarter.
Hicks said provision expense has been below consensus estimates over the last several quarters and could continue to “drift down” if the economy maintains its resiliency and strength.
On life science, Gleason said the bank has a “pretty healthy” allowance for the portfolio given sector challenges. He said several life science assets are well leased, while one life science loan that was exited through a discounted payoff was, in his view, probably the least desirable single asset in the portfolio. Hamblen said tenant activity has improved in some markets, including interest from technology, AI and office users in addition to life science tenants.
Real Estate Concentration Continues to Decline
Gleason said muted RESG origination volume and ongoing repayments will continue to reduce the bank’s real estate concentration. He said Bank OZK is now below the regulatory concentration guideline for total commercial real estate and expects to be below the 100% guideline for construction and development by the end of 2026 or early 2027.
Management expects the CIB and RESG portfolios to become roughly equal in size at some point in 2027. Gleason said that implies continued strong growth in CIB and continued paydowns in RESG. He also said the community banking, indirect and RV portfolios could show more positive momentum through 2027, resulting in a more balanced portfolio across major segments.
Asked about share repurchases, Hicks said the bank used about $175 million of its prior $200 million authorization over the last four quarters at an average price below tangible book value. He said the board has approved a new $200 million authorization for the next four quarters, with actual usage dependent on the stock price.
Gleason closed the call by saying management looks forward to updating investors again next quarter.
About Bank OZK (NASDAQ:OZK)
Bank OZK, formerly known as Bank of the Ozarks, is a regional commercial bank headquartered in Little Rock, Arkansas. Established in 1903, the bank offers a full suite of banking products and services to both individual and corporate clients. Through a combination of organic growth and targeted acquisitions, Bank OZK has built a diversified lending portfolio and a strong deposit franchise.
The bank's core operations focus on commercial real estate lending, including acquisition, development and construction financing.
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