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About Bank OZK

Regional banks have been under pressure for quite some time now.

While the downfall of Silicon Valley Bank (SVB) was catastrophic in many respects and brought into the light some perhaps much needed new regulatory and business banking considerations, many other banks have also been struggling for both similar but also some different reasons.

For starters, coming out of what has so far been the worst of COVID-19, many individuals and local business that these banks serve have been depositing less and spending more, which isn’t the best balance for smaller, perhaps (at least in certain instances) not as well capitalized banks, another stress on these banks being bearing the brunt of souring commercial real estate loans and also heightened regulatory scrutiny as a result of the aforementioned calamity that was SVB.

But I’m sure Bank OZK is doing just fine!

I guess that’s sort of the purpose of this stock analysis article, both to gain a better understanding of this company’s financial efficacy but to also see if this company’s stock (NASDAQ: OZK) is worth seriously considering as a prospective investment for your ever so treasured equity portfolio.

Being a regional bank, Bank OZK serves the particular region of the Midwest (headquartered in Little Rock, Arkansas), and while it does serve a few other regions outside of this quadrant, most of this company’s clients, be it individual consumers or local businesses, are based out in the land of Walmart. 

Like any other bank stock I’ve analyzed, Bank OZK faces many of the same risks and makes money in the same ways, generating the vast amounts of its revenues through taking in more deposits than the loans it issues and generating revenue through charging interest on said loans as well as the fees it charges its customers when they use the bank’s other services (i.e., think ATM fees, overdraft fees, and other supplemental services), however, one point of differentiation from a large global bank is the fact that this bank makes a sizable amount of revenue through the high-quality construction loans it issues, specifically through its Real Estate Specialties Group (RESG), lending to those that are developing large-scale real estate projects both within the confines of Arkansas and beyond.

In fact, Bank OZK is actually one of the largest real estate development lenders of the entire country, just to add some insight to its scale.

At any rate, like any bank, this one is not immune to the undulations of the economy nor impacts of fiscal or monetary policy alterations, interest rates and all of the other troves of variables that influence, in way or another, the state of the American banking environment, but this is not a major concern to me, as this is just how it is and there is nothing new under the sun.

Allow me to now walk you through some of Bank OZK’s core financials and other key metrics and ratios and help us both figure out whether or not this company’s stock (NASDAQ: OZK) is worth considering an investment in today and a holding period of forever.

Bank OZK’s stock financials

In kicking things off, Bank OZK is a $4.75 billion enterprise (according to its current market capitalization) and its stock has a price of $41.87 along with a price-to-earnings (P/E) ratio of 6.95 all while paying out an annual dividend of $1.60 to its shareholders, giving me a pretty good base to jump off of, as OZK’s stock price indicates that it is trading at a relatively deep discount given the standard value price-to-earnings ratio of 20 benchmark/rule, and an annual dividend of six quarters and a dime hardly hurts, that is, so long as the company issuing said dividend can reasonably afford to not only continue issuing this dividend, but as it is expected of most companies, also potentially support a gradual, long-term dividend hike to continue rewarding its shareholders.

All good so far.

In digging a bit deeper into this company, Bank OZK’s corporate management team is in charge of tending to and prudently deploying total assets in the amount of just about $34.2 billion and just north of $29 billion in terms of total liabilities, which is yet another decent sign, as we have seen with all of the other banking stocks I’ve analyzed that it is very common for these companies to have total assets that are nearly the same in amount of their cumulative liabilities, as it is just the resoundingly liability-heavy nature of the entire industry (i.e., all of the loans it has on its books). Nevertheless, it is good to find that the company has more stuff that it owns than it owes on its books, the implication being that it is indeed well capitalized and pretty much equipped for any short-term challenges or headwinds that might come it or the industry’s way.

Onto the company’s income statement, Bank OZK’s annually reported revenues (specifically in terms of net interest income) since 2019 have risen each and every year between 2019 and 2023 between a range of a relative low of $884 million, as reported in 2019, leading up to its latest displayed figure (on Charles Schwab’s platform) of a hair over $1.4 billion, reported at the end of 2023.

For a relatively seasoned, little-known regional bank, Bank OZK’s most recent annualized revenues sure are impressive, not all that far off from doubling in this very short span of time, which has been largely bolstered by its previously mentioned RESG division, as the company has been originating loans in the real estate development arena at a strong rate, evidently servicing many of the expanding growth pockets in the United States, surely separating itself from other both small and large financial institutions in a positive manner.

As it relates to the company’s cash flow statement, OZK’s associated total cash from operations certainly demand some self-respect as well, growing nearly each year (again, during the 2019-2023 era), between a low of $425 million (2019) and $882 million, as reported in 2023, this time a little more than doubling the amount of cash it has been able to carve out of its business operations through its heightened revenues. 

In more respects than one, cash generation through loans and other business activities is the fundamental lifeblood of any bank, and to find that this particular player has been able to comfortably turn over more and more cash over the years is no small feat nor something that any potential investor should scoff at or downplay.

Bank OZK’s stock fundamentals

Speaking of things that folks shouldn’t scoff at or downplay, Bank OZK’s net profit margin, as it is displayed on Charles Schwab’s platform, is notably strong, both in its own right but also within the scope of competition with other similar regional banks.

Specifically, the company’s net profit margin is listed as 43.25%, generating nearly $0.50 in profit for each dollar it generates in sales/revenues, whereas some of its more direct competitors such as United Bankshares and Glacier Bancorp, respectively touting less impressive net profit margins of 34.71% and 23.31%, which truly aren’t terrible margins given their line of work, but I am proud to find that OZK’s is far more impressive.

I think the main reason the company’s net profit margin is this outsized is due to its focus on real estate construction lending, which consists of just about 65% of the firm’s entire annual revenues, and construction loans tend to naturally entail higher interest rates for borrowers, obviously benefiting Bank OZK.

Should you buy Bank OZK stock?

Smaller financial institutions have been under pressure, but barring general market sentiment surrounding financials, there sure is a lot to like about Bank OZK.

Now, like most things in life, the tide will eventually turn (to a small degree or large, nobody knows) and the construction lending markets in the United States will dry up, but this bank is well capitalized, its cash flows are growing, its revenues continue to mount on top of the preceding years and when incorporating a more long-term view as it relates to the commercial and residential real estate markets in and surrounding the Midwest, this bank, largely through its RESG platform, has a lot of room for opportunities moving forward, and when also considering its present valuation, I don’t have any current reservations in offering the company’s stock (NASDAQ: OZK) a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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