Bank Of The Ozarks Inc (NASDAQ:OZRK) Q4 2019 Earnings Conference Call - Final Transcript
Jan 17, 2020 • 11:00 am ET
about -- so the reason why it was downgraded was because projects are being delayed or canceled, which I guess I kind of think about as being synonymous with sort of deterioration in that sort of the cash flow outlook. I mean is that the right way of interpreting it that that there was a deterioration in this credit, which led it to be downgraded or it was downgraded for some other reason?
Yes, you're exactly right. We had several, or they had, the sponsor had several contracts fall out some of those were for lots, some for townhomes and they were either fell out or delayed in closing and that resulted in several million dollars less in sales in Q4 than we had previously expected. And we mentioned in our management comments that the sales volume of lots under contract that would have near-term closings was very low. I think there was one at the end of the year and I think they've signed up one since the end of the year on the lot side. The townhome sales are better than the lot sales. So that having a few contracts fall out in Q4, lowered the receipt of cash layer and pushed out the time frame for the development sales and the margins got thinner, the margin for error got thinner as a result of that elongation of the sell-out expectations. So you're exactly right, it's a cash flow issue.
Got it, okay. And then maybe switching gears just a little bit. In terms of the RESG portfolio. So, I noticed that you did say that both pay-offs and originations should be a little bit higher in 2020. It seems that net-net you should still have positive growth in RESG but just kind of want to get a sense like, is it possible that these balances could be either relatively flat or even down for the -- on sort of on a point-to-point basis in 2020 given payoffs?
Hey, Ken, this is Tim. I think I'd point you to Figure 8 on our management comments, which is on Page 9, there we show the trends of our originations by year and the trends of the remaining loans outstanding by year. So you can see in 2016, originations, we had $8 billion of loans originated in 2016, $2.08 billion are still outstanding. And then you can see in 2017, we had $9.1 billion of originations, we're -- at the end of the year, we had $6.06 billion of those balances remaining. Those as we've talked about before, our construction loans typically average about three years in life, somewhere two to four years is the span typically, but the average is around three years.
So if you look at our 2017 origination volume, most of those loans have come -- will come to completion this year and as we've seen in many of our RESG loans is once the project is complete, we get paid off pretty soon after completion.