Bank OZK

summer

Key Statistics

Price/Book = .91x

Earnings Yield = 11%

Dividend Yield = 3.4%

Debt/Equity = 12%

The Company

Bank OZK (formerly Bank of the Ozarks) is a regional bank headquartered in Little Rock, Arkansas with a substantial presence in the southern United States. The bank has grown significantly over the last 25 years, growing from 4 locations in 1994 to 251 today. Their business is focused mostly on real estate.

Growth has been both organic and through the acquisitions of smaller banks. Some of the banks acquired in the last five years include: First National Bank of Shelby (North Carolina), Bancshares Inc. (Houston), Arkadelphia (Arkansas), Intervest Bancshares Group (Florida). The bank is growing aggressively through acquisitions, but is largely maintaining their southern presence. I think this is a smart move, as this includes some of the fastest growing states in the country.

My Take

I discovered Bank OZK when I was looking for regional banks below book value that were well capitalized with easy to understand businesses (as opposed to the massive, global, banks – which I don’t even think the CEO’s completely comprehend).

Right now, the major macro worry about banks is that we might be on the brink of another recession. Everyone remembers how banks fared in the last recession, so investors are proceeding with massive amounts of caution. OZK has a concentration in real estate loans, and memories are also fresh of that debacle. OZK suffered a peak to trough decline of over 50% during the last crisis.

While Bank OZK suffered a significant stock decline during the financial crisis, the actual business weathered it well. In 2009 during the depths of the recession, OZK earned a profit of 55 cents per share. This was during a time when most banks were suffering massive losses. Meanwhile, the company is much better capitalized than it was going into the last recession. Debt/equity was over 250% going into the last recession and it is only 12% today.

Meanwhile, the stock is priced like a recession has already taken place. In 2009, in the depths of the financial crisis, Bank OZK traded at book value. Prior to the crisis, it peaked at nearly 4x book value. Now, the stock is below book value trading at 91%. We aren’t in a recession and this bank is profitable, but the market is treating this stock like we’re already in one.

This is also a company that is undergoing significant growth. Revenues are up 462% since 2009. Dividends are up 515%. Earnings are up 489%. Return on equity is also at a respectable level of 10.89%. Meanwhile, the bank doesn’t appear to be obtaining these results with higher amounts of risk taking, with a very low debt/equity ratio. I don’t see why they won’t be able to continue growing into the future and maintain their current returns on equity. The bank also sports a nice dividend yield of 3.4%.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.