Bank OZK (NASDAQ:OZK) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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The full earnings call is available at https://edge.media-server.com/mmc/p/bnjh9nks/
Summary
Bank OZK reported strong growth in its Corporate and Institutional Banking (CIB) division, with nearly two dozen new relationships and upsizing of legacy relationships, despite competitive pressures.
The company maintained a robust net interest margin of 4.20%, focusing on maximizing yield and minimizing costs across its balance sheet.
Bank OZK highlighted its diversified and scalable CIB model, which includes 42 industry niches and is expected to continue expanding its portfolio and fee income capabilities.
The management expressed optimism about 2027, expecting easing of headwinds from Real Estate Specialties Group (RESG) repayments and further growth acceleration in other business lines.
The company maintained a cautious but positive outlook on credit quality, citing a resilient economy and stable performance in consumer and commercial lending portfolios.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Bank OZK first quarter 2026 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised to withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first 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)
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 QA 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 Brandon Hamblin, President, Cindy Wolf, Chief Operating Officer Tim Hicks, Chief Financial Officer, and Jake Munn, President, Corporate and Institutional Banking. We will now open up the lines for your questions. Let me now ask our operator Tanya to remind our listeners how to queue in for questions.
Tanya (Operator)
Certainly, as a reminder to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile our Q and A roster. And one moment for our first question, which will come from Manon Gosalia of Morgan Stanley. Your line is open.
Manon Gosalia (Equity Analyst)
Hi, good morning. Thanks for taking my question. The first one is just around the cib. Strong growth again this quarter, I guess. Appreciate that you guys are growing in attractive markets, you’re building teams. But at the same time, we continue to hear across the board that competition is growing. I guess the question is how do you assess risk in that business? And I guess what, if anything, would cause you to pull back there?
Jake Munn (President, Corporate and Institutional Banking)
All right, Jake, you want to take that? Thank you for the question. Manon. Yeah, good morning, Manon. Great to catch up with you and hear you. Good question. We continue to grow at a steady clip, as you mentioned, within CIB across all of our major business lines. This quarter we had really some nice success in generating over nearly Two dozen new relationships, upsizing nearly a dozen legacy relationships. And so we continue to see some nice growth across all of those. You know, you have a good point there. What we’re really building here, and you need to remember is it’s a diversified CIB, so it is not a CIB business that’s focused in one niche. These verticals encompass over 42 different industry niches in particular. And so it’s allowing us whether that’s through ablg, cbsf, efg, Fund Finance, lfg, nrg, our franchise capital solutions that we mentioned we launched this last quarter, we’re creating a really diversified book within CIB that allows us to take advantage of opportunities within those specific industries and push into them. So if we see a slowdown or an increased competition or increase or decrease pricing, let’s say in ablg, it affords us the opportunity to push more into our CBSF or NRG business lines. And so that diversification that we’re building with CIB is allowing us to continue to grow at a nice clip in a way where we’re not taking on any undue credit risk.
Manon Gosalia (Equity Analyst)
And are you seeing any spread compression in certain businesses that is causing a pivot into others?
Jake Munn (President, Corporate and Institutional Banking)
We are, exactly, yeah. So in our ABLG are some of our large corporate opportunities there. We have seen some pricing compression and so we’ve switched that and moved downstream a little bit more towards the middle markets and the lender opportunities in particular. If we look at our fund finance business line, we’ve had a pullback a little bit in our capital call subscription facilities just due to increased pressure there, specifically from non bank lenders and then insurance companies who have really entered that market and pushed down a little bit pricing. And then if we’re looking at our lender finance group too, in our lender finance group, we’ve seen some pricing and structure compression there too. So again, there’s been some competition in those business lines, but as a result, it’s allowed us to push in a little bit more within our cbsf, our EFG and our NRG business lines. And so again, the diversification and the nature of which we’re building CIB is affording us the opportunity to continue to grow without giving up yield and without sacrificing credit quality.
Manon Gosalia (Equity Analyst)
Got it. And then just in terms of helping us model out nim, we saw some material securities growth, Q on Q, any color you can provide there on what you’re putting on. And I guess how should we be modeling yields in that portfolio beyond the 460 to 470 that you’ve guided to for next quarter.
Tim Hicks (Chief Financial Officer)
Tim, do you want to jump in there? Tim, go ahead. Yeah, sure will. Thanks Manon. Yeah. We early in the quarter took the opportunity to use some of our excess liquidity and buy a decent amount of investments during the quarter and enhance our yield. About 40% of those are in muni housing bonds and 60% are in mortgage backed securities. Those both have favorable yields. The muni housing bonds are a tax equivalent yield of around 6% and the mortgage backed securities are somewhere around the 4.60% range or better. These are agency mortgage backed, agency mortgage backed. So we saw good growth there. We saw. We gave you some guidance on where we thought the range would be for yields for that portfolio. We had a nice pickup in Q1 and we’ll see another nice pickup in Q2 and then from there we’ll see what the market brings to us on opportunities. But team did a great job of finding good yielding, attractive, high quality investments and. And that’s going to certainly help us on NII during the quarter and will continue to help us throughout the year.
Manon Gosalia (Equity Analyst)
Great. Thank you.
OPERATOR
And our next question will be coming from the line of Stephen Skelton of Piper Sandler. Your line is open.
Stephen Skelton (Equity Analyst)
Yeah, thanks everyone. Good morning. I guess first question would be around commentary within the management comments document around 2027. You guys seem pretty upbeat about the potential for the bank in 2017 both in terms of growth and maybe even resolution progress with RESG and the resumption of growth within that book. So I’m wondering if you could give any additional color as to what kind of driving that confidence, whether anecdotal or more concrete, that would kind of give us a view into that progression.
George Gleason (Chairman and CEO)
Yeah, Stephen, happy to address that. Obviously Jake’s already spoken about CIB and the diversification, the new areas we’re pushing into there. CIB will be the predominant growth engine we would expect in 2027 as it has been last year and will be this year. So we expect that leadership to continue from the CIB group. We’re continuing to add people, we’re continuing to push into other verticals there. RESG may not be a great source of growth in 2027, but we’re looking for a slowing of the headwinds from resg repayments in 2027. It may be 2028 before we actually see significant growth there. We would expect our indirect lending group to continue to grow nicely. It stayed steady at 12 and sort of pushed up to about 13% of our portfolio. That portfolio is a very high end prime, high prime, super prime consumer portfolio and it has continued to just perform very well and very consistently. And we expect to get some more growth out of our commercial banking community banking group next year. So we think, you know, the headwinds from RESG repayments ease quite a bit in 27. We expect these other business lines to actually accelerate a touch more in 27 contributing to that better incremental growth we’re seeing that year. The other thing that I think is important is we’re building a number of other and investing to build a number of other fee generating businesses. We’re putting increased emphasis on trust and wealth. We’ve got a mortgage group that we’ve been building for a couple of years now that continues to gain scale. Although the mortgage business is not hot business right now. We think it will improve and that unit will gain more scale. We’re continuing to grow our fee income through treasury management and improving what we’re doing there a lot. And probably the biggest source of fee income opportunity just as far as growth is in our CIB group where there are a number of fee based businesses and opportunities we’re tapping into. And I think you’ll begin to see that incrementally add some non interest income in subsequent quarters this year and really hit a good pace in 2027. So we’re fairly optimistic about 2027.
Stephen Skelton (Equity Analyst)
Got it. Really helpful color George. And I guess my other question would be maybe similar to Manon’s question in a way but thinking about cib, I mean with resg we’ve all known you guys to have a best in class platform for the last 20 years or so that you’ve shown a differentiated model. How do you give investors confidence around the pace of growth within CIB and that there is a more differentiated model there as well, that we should have the same level of confidence as you grow that this rapidly similar to the results you’ve delivered in RESG over the life of that business.
George Gleason (Chairman and CEO)
Great question. Thank you for that. I’m going to let Jake answer part of that question, but before he does, I’m going to tell you a couple of things. Number one is talent and leadership are critically important in our company and Jake will talk a little bit about talent and as he answers your question. And the other thing is we’ve really built CIB aligned with the way we have built and approached resg and that is you’re going to look at a whole universe of opportunities all over the country. You’re going to focus on a very narrow subset of that universe that meet your criteria for quality of credit, profitability and relationship building. And then you’re going to close those transactions with very intentional bank protective documentation. You’re going to service and manage those assets in a very engaged way so that you see early warning signs, you’re able to influence behaviors and move those transactions in a way that is conducive with bank standards and objectives. So Jake, I’m going to let you talk about your team and why, given the growth you’re experiencing and projecting to experience, you’re comfortable with what we’re doing.
Jake Munn (President, Corporate and Institutional Banking)
Yeah, George, I appreciate that. And Steven, good morning. A good question as usual. You know, it’s really about building an infrastructure that’s scalable to George’s point. So when we got over here and we started to develop CIB in a very similar form and fashion resg it started with building out a really strong portfolio management and operations team. And so our portfolio management, our underwriting, our quarterly status reporting on every single credit we do within this book of business, our four operations teams that sit within PMO that ensure from beginning to end, it’s a clean and crisp process for our clients as they’re onboarded and serviced through the life of their relationship with us. And then it’s also building out something that’s scalable from a cross sell and a products and capabilities standpoint. George mentioned that answering your last question about fee income. But if you go back a couple years ago to where we are now, we’ve really developed some nice additional business lines that support the needs of our clients and our communities but also will assist in generating some really nice non interest income. So whether that’s our syndications desk that’s afforded us and blessed us with the opportunity to now lead more deals as admin agent. Whether that’s our interest rate hedging capabilities, our foreign exchange capabilities, whether that’s our capital markets program that we have that allows companies to access the capital markets with our partnership that we have there, or whether that’s our great treasury management platform that Cindy and Chad continue to develop and build out. We really have the products and the capabilities now to grow with a company and scale with the company over the long term horizon within the CNI space. Then to top it all off and really the most important part that that George hit on it’s all about talent. At the end of the day we’re in the business of people. We’re banking people, we’re banking communities, we’re banking businesses. And so attracting the Right. Talent who has a like mind for credit, who has the fire in their bellies to say to get in here and roll up their sleeves and make a difference. That talent is really what’s been differentiating us. And so put it all together. We’ve developed all the products and capabilities that are needed to scale this business. We have a great foundation with our portfolio management operations team and then you know, we’ve sat here and developed and bolted on complementary business lines. So whether it’s our asset based lending or corporate banking and sponsor finance, our equipment finance, our lender finance, our fund finance, our natural resources group and now our franchise capital solutions, you know we’re just getting started. There’s a great market out there. We’re being highly selective in what we’re doing. To George’s point, our pull through rate on our more mature businesses is still around 14, 15%. And so we are passing on 80, 85% of the deals we see in the market whether it’s a credit or pricing driven pass. But being highly selective in who we bring on, being highly selective in the products and services that we’re launching into the market to ensure that they’re best in class. It’s all really working out well for us and we’re seeing nice continued growth and true franchise growth. Really built one relationship at a time. Got it.
OPERATOR
That’s extremely helpful. Color and positioning it like Resg was built is something I wasn’t fully aware of. So thank you for going into that detail. I appreciate you. Thank you. And our next question will be coming from the line of Brian Martin of Marine Capital. Your line is open. Brian.
Cindy Wolf (Chief Operating Officer)
Hi. Good morning guys. Good morning Brian. Say maybe just one on the margin. I know you gave a little commentary in the management comments but just thinking about if we don’t see a change, …
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