Bank OZK (NASDAQ:OZK) Q4 2022 Earnings Call Transcript

Bank OZK (NASDAQ:OZK) Q4 2022 Earnings Call Transcript January 20, 2023

Operator: Good day and thank you for standing by. Welcome to the Bank OZK Fourth Quarter 2022 Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to today, Jay Staley. Please go ahead.

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Jay Staley: Good morning. I am Jay Staley, 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 Q&A session, we may make forward-looking statements about our expectations, estimates and outlook for the future. Please refer to our earnings release, management comments 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 Hamlin, President; Tim Hicks, Chief Financial Officer; and Cindy Wolfe, Chief Operating Officer. We will now open up the line for your questions. Let me now ask our operator, Victor, to remind our listeners how to queue in for questions.

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Q&A Session

Operator: Your first question comes from the line of Steph Scouten from Piper Sandler. Your line is open.

Steph Scouten: Hey, good morning guys. Congratulations on a great quarter. First of all, I guess when you all are thinking about originations, I mean, I think it was 2.81%, it’s still extremely high relative to what we saw in €˜21 or early €˜22. What’s the reason maybe for the thinking it will be a little slower? Is it just overall economic slowdown? Are you seeing more construction projects kind of get tabled today than you were maybe 90 days ago or how can we think about those trends that you are seeing from customers in that space?

George Gleason: Good morning, Steve. I am going to let Brandon Hamlin take that question if you will, Brandon.

Brandon Hamlin: Absolutely, Steve and great to hear from you this morning. Yes, we actually last quarter, we had the same question and the answer is similar. You hit on a couple of the items that are impacting deal flow, costs have continued to increase, although I would say that we are hearing and seeing anecdotal evidence that the velocity of those cost increases is coming in. So, it’s still up but at a slower pace. But obviously, interest rates have not slowed down. So, that piece of the puzzle still pressing against new deals, but we are still seeing new deals. We are still signing up new opportunities. And €“ but given that the pie is a bit smaller, we will probably take a little bit less in 2023. I mean, competition is really not a piece of that answer.

We have had really good success in pushing into and getting our fair share or more given where the competition is. And as I have said in the past, the quality of what we are able to originate today in light of less competition is lower leverage and better spreads on the deals that we are quoting and winning.

Steph Scouten: Okay, great. And this question may be a little early, but I think it starts to become interesting. If rates begin to rollover in the back half of the year, how do your floors play into that?

George Gleason: Yes, Stephen, let me tell you that. Obviously, the longer the Fed stays at whatever their terminal rate is, the better that works for our floors, because loans that we originated 2 years ago out of floor near the origination rate on those loans, we are obviously way away from those floors before they would become active. The loans we originated last quarter maybe at or very near their floor rate. So, the longer the Fed stays at whatever the peak rate is, the more we roll off older loans that are far from the floor and replace those with new loans that are at or near the floor at the time of origination. So the scenario where the Fed slows their rate increases and maybe has 1, 2 or 3 more quarter point increases and then stays at that rate for a year or longer. The longer they stay there, the better it is for our floors and the more defensive it is for our margin.