Bank OZK 2026 Q3 Earnings Call

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, financial supplement, 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, and Jake Munn, President, Corporate and Institutional Banking. We'll now open up the lines for your questions. Let me now ask our operator, Liz, to remind our listeners how to queue in for questions.

Thanks. Yeah, thank you, Matt.

Appreciate you being on the call this morning and appreciate the question. Obviously, we had a very good quarter of loan growth in Q3. Also that was driven by growth in CIB and to a lesser extent, indirect marine and RV and Community Banking. As expected, RESG had moderate to heavy payoffs in the quarter. The real directional difference between Q3 and Q4 is several RESG payoffs we had projected in Q3 actually have occurred in Q4. You've already seen that in the guidance we gave that we've already had in the first 19 days of October, $690 million or so of RESG payoffs and pay downs. There was a little bit of shift from Q3 to Q4. We expect as we said in the management comments, near record RESG payoffs and perhaps record RESG payoffs in Q4.

That will butt up against continued strong origination from CIB and what we expect will be continued positive origination from Indirect Lending and Community Banking. We think you may see a little bit of retracement in balances in Q4. We've given the guidance that we expect growth for the full year to be at 3%-5%, so that would suggest retracement in Q4. That is probably a percent or so below the guidance we had given at the beginning of the year, and that reflects the fact that we've got a few RESG repayments that we had originally, at the beginning of the year, thought would occur in Q1 of next year that may pull into this year.

That movement and potential shift from Q4 of this year and next year sort of explains the fact that we've given a percent increase to our upside loan growth guidance for next year, really reflects the fact that some of that may come into Q4. It's all the same expected movements. It's just a little bit of difference between Q3 and Q4, and Q4 and Q1 of next year in that guidance. To follow on to your second point, we do expect really nice loan growth next year being 10%-12%. You never have them closed till you have them closed and on the books, but we have a pretty good line of sight into opportunities that all of our business lines are working on.

Of course, that gets you a quarter or two, but you can see the momentum of those business lines, and we feel pretty good about that guidance and expect that loan growth number to accelerate further in 2028 from the 2027 level as a result of the fact that we should be pretty much through, if not all the way through this RESG repayment wave by the time we get to 2028. We think RESG's balances that have been steadily declining because of the high level of pay-downs will inflect at some point in 2028. We hope that's earlier rather than later, but we'll have more clarity on that as we get a few quarters down the road. But we think RESG will contribute to growth at some point in 2028, along with the continued positive momentum from CIB, Indirect Lending, and Community Banking.

You will also note we've enhanced our Indirect Lending growth potential by adding another business line that launched October 1. We feel pretty good about those future growth numbers.

Thanks. I appreciate that question.

Obviously, that's a focus. While it is a focus, Matt, it's not something we're being hasty or urgent about. You can liquidate these properties in a thoughtful manner and not get in a hurry and not take losses you don't need to take. That's what we're trying to do, is be smart and responsible. As we mentioned in the management comments, we've got active buyers potentially working on all of those properties except for one. On that one, we're really not focused on selling it as much as we are leasing it. We mentioned in the management comments that there's a property, the property in Atlanta, that we feel like there's really good potential for some upside on that property if we're patient and approach the leasing on that.

We have a couple of interested parties that we're working for leasing opportunities. Those things, whether it's a sale of a big commercial property or a lease of a property, take several quarters to work out. Sometimes, as we've seen with that Sunset land in Los Angeles, you have to go through the process a couple of times to finally get one that gets to the finish line and works. We feel like we have those appropriately valued. We're working diligently on prospects all the time on those, and they'll sell at the right time and hopefully for the right price. We feel pretty good about that portfolio.