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Gleason floats possibility of sub debt raise to boost capital levels as Bank of the Ozarks grows aggressively

StreetTalk – Episode 69: Banks left with pockets full of cash and few places to go

Street Talk – Episode 69: Banks left with pockets full of cash and few places to go

Street Talk Episode 68 - As many investors zig away from bank stocks, 2 vets in the space zag toward them

Street Talk Episode 66 - Community banks tap the debt markets while the getting is good

Gleason floats possibility of sub debt raise to boost capital levels as Bank of the Ozarks grows aggressively

Chairmanand CEO George Gleason II said the company will continue to book as much growthas it can through its real estate specialty groups despite concerns about overheatingmarkets in some major metropolitan areas.

He andother company executives also said during an April 12 conference call to discussthe bank's first-quarter earnings that if the company continues to grow at the samerate it has in recent quarters it will likely issue capital in the form of subordinateddebt.

Gleason,who has built much of the company's organic growth capacity on specialty real estatelending groups located in major markets, spent much of the call explaining why thecompany believes its book will perform well in most interest rate and economic scenarios.Part of that confidence, Gleason said during the call, comes from the company'shigh credit quality even during previous downturns — he noted the real estate specialtygroups had an annualized loss ratio of 11 basis points over their entire history.

"Iam profoundly, 100%, totally, utterly confident in RESG in getting as big as itcan get following the business model they are executing today," Gleason saidin response to one question about whether he saw the group leading the company'sgrowth long-term. "They are our best-underwritten loans, they're our best-documentedand -closed loans, they are our best-structured loans and best-serviced loans. …It is the highest-quality portfolio in our entire bank," he added.

He saidthe company was hungry for more growth in the real estate space. It plans to buildmore real estate teams because Gleason said the current teams are limited by manpowerlevels from taking even more market share. "If I had another team or two moreteams … our volume would be 20%, 40% or 60% more," he added.

The company'srapid growth — total assets were up 37.6% from the first quarter of 2015 — is alsoforcing the company to consider its funding and capital levels. Gleason said a capitalraise was likely if the company continues to grow at the same pace as recent quarters.

"Thatgrowth rate will necessitate us adding some capital. At the current time, we thinkthe most accretive and effective way to do that is to issue subordinated debt atthe holding company. We're carefully monitoring growth rates and that capital position,"Gleason said.

Bankof the Ozarks reported net income available to common stockholders of $51.7 million,or 57 cents per share, for the first quarter, compared to year-ago earnings of $39.9million, or 47 cents per share.