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Bank OZK originates largest CRE loan ever in Q3

Bank OZK booked its largest loan ever in the third quarter, helping boost originations by 77% from the previous quarter. The loan growth comes in contrast to other banks who have pulled back from commercial real estate amid late-cycle concerns.

Asked about the bank's origination growth on the Oct. 18 third-quarter earnings call, Chairman and CEO George Gleason II said the bank originated several small loans in secondary markets in addition to its largest credit ever. He said the large loan was in Tampa, Fla., for a mixed-use project with multiple buildings, including office, condo, apartments, retail, a parking facility and other components. On Oct. 2, the Tampa Bay Business Journal reported that Bank OZK was behind a $664.1 million mortgage tied to Water Street Tampa, a mixed-use project with 9 million square feet of new commercial real estate space next to Amalie Arena, home of the Tampa Bay Lightning hockey team.

"It meets our standards of being a high-quality project with truly great sponsorship and a great market, and we're very excited about it. It's a very defensive structure," Gleason said. He added that the bank's aggregate loan-to-value and loan-to-cost figures actually declined in the quarter as the bank's originations were more conservatively underwritten than the loans that paid off or matured during the quarter.

The bank disclosed aggregate loan-to-value figures by market for its real estate specialties group, or RESG, which focuses on commercial real estate construction financing. For Tampa, the bank reported $670 million of total commitments in the market with a loan-to-value ratio of 39%. There were no disclosures for Tampa in the bank's second-quarter report. The bank only reports figures for its top 10 markets; the 10th market in the second quarter was Orlando with $395 million of commitments.

During the earnings call's question-and-answer period, an analyst asked about the growing average loan size in the bank's RESG book considering previous comments that the bank would focus on markets outside the five largest cities, which would suggest a decline in average loan size. Gleason said the bank has reached out into new markets, pointing to notable growth in Philadelphia, Washington, D.C., Boston and Minneapolis. And he said the bank is working on a deal in Detroit.

While the bank has done more smaller deals in secondary markets, Gleason said the competitive landscape has made certain large deals more attractive since the bank has been unwilling to compromise on price or structure.

"In a market where competition is intense and pricing is aggressive on a lot of middle-sized transactions, where we add a lot of value is on very complex transactions," he said. "Our expertise and ability to execute really makes it worth our customer paying our rates and our pricing and putting up with our low-leverage deal structure."