Bank OZK, formerly Bank of the Ozarks surprised the market today by reporting a 439% increase in loan loss provisions to $42 million over the year ago quarter. The stock is down 9+ points today to 25, half of its 52 week high of 51.
Why is this important to commercial real estate? Over the past few years this once obscure Arkansas bank has plunged into construction and development lending in such non-Arkansas locales as New York City, Miami and Los Angeles. Those three cities account for half of the bank's $12 billion loan book. For many small and mid-size developers Bank OZK has become the go to lender for C&D loans and therein lies the problem. In order
to gain market share they had to be aggressive with respect to price and terms.
To be sure half the increase in the loan loss provisions was due to two loans originally made in 2007 and 2008 one for an enclosed mall in South Carolina and the other for a residential land development project in North Carolina. Nevertheless absent those two projects, the loans loss provision in quarter would have almost tripled versus a year ago.
My guess is that if we are in the early phases of a commercial real estate decline, future commentators will note that Bank OZK gave the market a fair warning of what was to come.
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