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Bank OZK projects 30% to 60% increase in reserves for CECL


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Bank OZK projects 30% to 60% increase in reserves for CECL

Bank OZK offered its estimate for an increase in total reserves due to adopting the current expected credit loss model and also provided an estimate for the bank's unfunded commitments.

Management said in an 8-K filing that they expect the bank's allowance for loan losses to increase from 30% to 60% when the bank implements CECL. The bank also provided an estimate for a liability that CECL would require the bank to record on its balance sheet related to its large amount of unfunded commitments. Executives said that liability item would be between $50 million and $80 million and would reside as a liability on the balance sheet separate from the total allowance for loan losses figure.

Management said the liability item was not unique to Bank OZK but was more notable due to the bank's focus on construction financing, which includes a significant amount of unfunded loan commitments. CFO Gregory McKinney said during an earnings call that the bank provided a wide estimate due to parallel runs with multiple scenarios ranging from optimistic to pessimistic.

"That should tighten up somewhat as we move throughout [the fourth quarter] and get ready to go live come first quarter of 2020," he said.