Bank OZK expects record repayments in 2022 for real estate specialties group

Little Rock, Ark.-based Bank OZK expects higher repayments in 2022 in its real estate specialties group portfolio than the record level of $6.22 billion last year.

The bank has about $230 million remaining in 2016 vintage originations and $1.34 billion in 2017 originations. Normally, it would mostly get 2018 and 2019 repayments by now.

"There's still $1.5 billion-plus of 2016 and 2017 vintage originations that are probably paying off a little more slowly than what typically would have been the case just because of COVID delays and construction progress and so forth on those projects," CEO George Gleason said on a call to discuss first-quarter earnings.

The guidance that 2022 will be a record year for repayments "would communicate to you that those circumstances largely across the board are going to culminate into a successful sale or refinance in 2022 of those legacy loans," President Paschall Hamblen said.

Also during the call, Gleason said a change in deposit betas, or the proportion of the move in underlying rates that passes through to deposit costs, is "hard to quantify" given executives' uncertainty over how much the Federal Reserve will raise its federal funds rate at its next Federal Open Market Committee meeting in May.

"But I think we've done the preparatory foundational work to have better deposit betas than we had in the last cycle," Gleason said. "And hopefully, that will be improved enough that people will say, 'Yes, I can see the results of their hard work.'"

During the last rate-hike cycle, Bank OZK's 10 largest depositors accounted for nearly 20% of its deposit base, and many of those were contractually indexed, meaning "they had essentially 100% beta," Gleason said. Currently, the top 10 make up less than 8% of the deposit base, and very few if any of them are contractually indexed.

"So, we've made a very conscious decision to get away from the big concentrated 100 beta index deposits and try to control that deposit beta much more effectively going forward than we did in the last cycle," the CEO said.