Bank OZK Q4 Earnings Call Highlights

Key Points

• Management said Bank OZK sees the commercial real estate cycle in the “late stages” with 2026 likely to resemble 2024–25, having built its allowance for credit losses over 14 quarters; a RESG loan sale during Q4 was executed at par and was described as a one-off tied to a specific sponsor situation.
• Bank OZK emphasized strong sponsor backing, saying roughly 95% of RESG loans continue to have support and that over 14 quarters it collected $1.3 billion in additional equity, $866 million in reserve deposits and $429 million in unscheduled principal paydowns, while resolving problem assets on a deal-by-deal basis.
• On capital and growth, the bank repurchased 2.25 million shares at an average $44.45, raised the dividend for the 62nd consecutive quarter, expects mid-single-digit loan growth, and is investing in its Corporate & Institutional Banking and other fee businesses to materially boost non-interest income in 2026–2027.

Bank OZK NASDAQ: OZK management focused much of its fourth-quarter and full-year 2025 earnings call on credit trends in real estate, sponsor support across its Real Estate Specialties Group (RESG) portfolio, and the company’s longer-term effort to broaden fee income through its expanding Corporate and Institutional Banking (CIB) platform and other businesses.

Loan sale and outlook for the credit cycle

Executives addressed a RESG loan sale completed during the quarter, emphasizing it was executed at par. President Brannon Hamblen said the bank collected “all our outstanding principal” as well as “all our accrued interest on the note sale,” and stressed the transaction did not represent a change in strategy. He described the sale as a “one-off” situation tied to a particular sponsor and equity-partner overlap across multiple projects, including Lincoln Yards-related exposures.

Chairman and CEO George Gleason said management expects 2026 results to resemble 2024 and 2025 in several respects, describing the environment for commercial real estate sponsors as challenging for an extended period. He said the bank built its allowance for credit losses (ACL) over 14 quarters in anticipation that, as the cycle dragged on, some sponsors would become “no longer willing to or able to support their projects.”

Gleason added that the bank believes it is in the “late stages” of the commercial real estate cycle and pointed to what he described as “green shoots” in leasing and property sales, an increase in refinancing activity amid improving sector liquidity, and relief from Federal Reserve rate cuts. He said the company sees 2026 as a year of continued work-through, while expressing optimism about 2027.

Life sciences and office: mixed conditions, improving liquidity

On life sciences, Hamblen said results have varied by project and market, and cited several macro headwinds. He pointed to reduced funding and a slowdown in parts of venture capital activity affecting demand for space, while noting a lack of new speculative life-science construction starts nationwide as a positive factor. He said absorption is “slowly moving forward,” but that it will take time for the segment to rebound.

Management also said some demand is being supported by markets with limited traditional office space and by investment tied to AI, including interest in using certain life-science projects for alternative purposes. Gleason said the environment is becoming “more constructive in a noticeable way.”

On office exposure, Hamblen characterized trends in the bank’s portfolio as positive, citing improving leasing activity and continued “flight to quality.” He also emphasized liquidity, noting that office projects have been refinancing and paying off at a notable rate, second to multifamily in his review of the past 12 months. Gleason added that the bank saw multiple office refinancings in the fourth quarter, including a mixed-use project with a significant office component.

Nonperforming assets and resolution paths

In response to questions about the resolution timeline for nonperforming assets, Gleason described a deal-by-deal approach and multiple possible outcomes depending on sponsor actions, recapitalizations, and market conditions. Discussing a Boston property, he said equity partners declined to contribute additional capital without a lease, while the bank’s approach requires borrowers to pay for extensions. Gleason said the bank is “dual-tracking” a path that includes potential new equity partners or taking title to the property if the recapitalization effort fails.

He also addressed other non-accrual assets, including a Santa Monica office building where the bank is pursuing a sale, a Chicago life-science property where the sponsor is working on a short sale, and Baltimore land where the bank is working on a potential sale while continuing discussions with the sponsor. Gleason said resolutions can occur quickly in some cases but take longer in others, citing prior OREO dispositions and an example of a Los Angeles land asset that remained under contract for an extended period before the transaction did not close.

Gleason also discussed how Bank OZK approaches problem assets, describing a long-running substandard accrual loan near Lake Tahoe that has remained on watch for years. He said the bank worked with the sponsor on a plan intended to maximize value and, over time, earned $43 million in interest and fees, with an outstanding balance of about $34 million on a $43 million total commitment, and said there was a “very high probability” of payoff without a loss.

Allowance for credit losses and sponsor support statistics

Management repeatedly emphasized sponsor support as a key differentiator in the current cycle. Gleason said that during this cycle the bank has had four RESG assets where it acquired title in satisfaction of debt, and he noted that three of those were liquidated in the past year. He also clarified that the bank did not take a charge-off on the Los Angeles land asset referenced in prior commentary, stating it was moved to OREO at book value and that reductions in carrying value reflected forfeited earnest money rather than charge-offs.

To support the view that most sponsors remain supportive, Gleason cited extension-related cash flows and paydowns, including fourth-quarter figures of 49 loans receiving term extensions and associated collections of $56.7 million in reserve deposits, $7.6 million in modification fees, and $45.1 million in unscheduled principal paydowns. Over the last 14 quarters, he said the bank collected $1.3 billion in additional equity contributions, $866 million in reserve deposits, and $429 million in unscheduled principal paydowns, along with “tens of millions of dollars” in fee income. He said this indicated that roughly “95% plus or minus” of RESG loans continue to have good sponsor support, while acknowledging the possibility of additional sponsor fallout before the cycle ends.

When asked about 2026 net charge-offs and provisioning, Gleason said the bank would “do the right thing” based on the economy, portfolio risk ratings, and models, and added that while building reserves further was “probably not my base case,” it would be done if warranted. He said the ACL may continue to ease lower if the CRE cycle winds down as expected, but emphasized that CECL requires lifetime expected losses and that the ACL includes expected migration across the portfolio.

Capital returns, margin commentary, and fee-income initiatives

Chief Financial Officer Tim Hicks discussed share repurchases, noting the company began a new authorization on July 1 and said the bank was “opportunistic” when the stock traded below tangible book value. Hicks said Bank OZK repurchased 2.25 million shares at an average price of $44.45, calling the buyback accretive to earnings per share and tangible book value. He said the company still had just under $100 million remaining in the authorization and suggested the bank could be active with repurchases as the program approaches its end-of-June expiration, depending on trading levels. Hicks also noted the dividend was increased for what he said was the 62nd consecutive quarter, alongside increasing capital ratios.

On net interest margin, Hicks said margin held up during the quarter, partially due to the timing of RESG loan rate resets and changes in SOFR, and credited deposit-cost management. He also flagged that the first quarter has two fewer days, which is a headwind to net interest income, and said the bank will continue working to manage deposit costs.

On growth, management reiterated its view that loan growth would be more weighted to later in the year. Hicks said first-quarter growth is expected to be positive, though payoffs can affect quarterly results. Gleason said the company expects mid-single-digit loan growth for the year, likely “loaded” more into the final three quarters, and noted the bank expects “a lot of payoffs” in the first quarter.

Looking beyond credit and spread income, Gleason said the company wants fee income to become a “much larger part” of revenue over the longer term, though he characterized the effort as early. Jake Munn, president of Corporate and Institutional Banking, said the CIB loan syndication and corporate services business line was launched about 18 months ago and includes capital markets activity, interest rate hedging, syndications, permanent placement solutions, foreign exchange capabilities, and additional services expected to roll out over the next couple of quarters. Gleason also cited mortgage lending fee income, growth in trust and wealth offerings, a new private banking effort, and expanded treasury management capabilities as areas of investment that could drive non-interest income, with incremental progress expected in 2026 and a larger impact anticipated in 2027 and beyond.

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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