Bank OZK (NASDAQ:OZK) Q3 2019 Earnings Conference Call - Final Transcript

Oct 18, 2019 • 11:00 am ET

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Bank OZK (NASDAQ:OZK) Q3 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] Our first question comes from the line of Ken Zerbe from Morgan Stanley. Your question, please.

Analyst
Ken Zerbe

Excellent. Good morning. I was hoping if you could just start off in terms of RESG, very good origination. Can you just talk a little bit about what drove the higher origination volume in RESG? Was it a lot of loans? Was it a couple of large loans? Thanks.

Executive
George Gleason

Thank you, Ken. I'll address that. Yes, we did have our best origination quarter in RESG since 2017. We had loans of all sizes. We originated our largest loan ever in the quarter. We originated a lot of small loans. I believe the -- I'm not sure of this number, but I think, the number of closings in the quarter were 30-something, I believe. Don't hold me to that. But it was a good job that our team did. We're being very disciplined in our credit quality, continuing to hold very diligently to our long-established and consistent credit quality standards.

We have been very protective of our return on investment on those loans and are not doing transactions that are just so cheap that they are not generating a good return for us. So I'm very pleased with the job that our team did in originating the diversity of credits and diversity of our market, holding to our credit standards. And we're just going to have to continue to work hard and find those good opportunities that fit our credit and profitability profile.

Analyst
Ken Zerbe

Okay. Great. And then in terms of the margin, obviously it came down about 19 basis point this quarter and that's on one rate hike. And I get LIBOR has been coming down too. But if we end up giving two rate cuts, one in September, then one in October, how should we think about margin? I mean, is there any reason to think it wouldn't be down twice as much as the 19 basis points? Were there any offsets?

Executive
Tim Hicks

Hey, Ken, this is Tim. Yeah, we had two rate cuts in Q3, so July and September. I believe one month LIBOR was down 40 basis points during the quarter. So with 75% of our loans variable and 82% of those variably based on one month or three-month LIBOR, we got a chart in here that explains that. We're going to be really variable, very sensitive to that moving in one and three-month LIBOR, specifically one month LIBOR until we have the chance for our floors to catch up, and we got a chart in here on floors as well.

You can see that on figure 14, Page 13 of management comments that we have total commitment 27% of our current loan is our asset floor, that was 15% a quarter ago, another down 50 basis points. Half of our loans, total commitments will be at a floor, 47% specifically. So that will help eventually alleviate some of the decline in loan yields, which would help alleviate the decline in net