HomeMost PopularBank OZK: Setting The Standard in the Financial Sector for 2024

Bank OZK: Setting The Standard in the Financial Sector for 2024

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Bank OZK building, Lexington, NC

An Analysis of Historical Trends

During periods of economic uncertainty leading into new growth phases, four specific stock sectors tend to exhibit excellent performance. These sectors include Technology, Consumer Discretionary, Industrials, and Financials.

Bank stocks are firmly situated within the Financial sector.

When approaching 2024, I hold an optimistic view of several large mega-banks, particularly Bank of America (BAC).

However, in this piece, I urge investors to conduct additional research on my preferred regional banking stock: Bank OZK (NASDAQ: OZK).

Benefits of Choosing Bank OZK

Three years ago, I wrote about Bank OZK in an article titled, β€œBank OZK: Still Some Gas in the Tank After A 50% Uplift.” Since then, the stock has delivered approximately a 50% total return, doubling that of the S&P500 index.

My ongoing investment perspective for Bank OZK can be summarized as follows:

  • Bank OZK displays exceptional long-term performance across a wide range of banking metrics, making it the best in its class among regional banks.

  • The bank’s business model is often not fully comprehended or evaluated accurately, creating an opportunity for potential investors.

  • The stock remains attractively priced based on various valuation metrics.

The Uniqueness of Bank OZK

Bank OZK’s remarkable long-term operational performance is underpinned by a distinctive business model and an exceptional CEO.

What makes the business model unique?

Unlike most banking institutions that operate conservatively, Bank OZK management diverges from conventional industry practices. This includes maintaining a significantly higher loan-to-deposit ratio and focusing on a concentrated portfolio of commercial real estate (CRE) loans.

While other banks might find a 50%-60% loan-to-deposit ratio acceptable, Bank OZK management aims for an L2D ratio of around 95%. As of the most recent quarter ending 9/30/23, the L2D ratio stood at an impressive 98%.

Moreover, the loan book is heavily weighted with CRE loans, with the Real Estate Specialties Group (RESG) serving as the driving force behind the bank’s growth. RESG focuses on high-quality, high-profile CRE projects sponsored by leading developers, constituting 71% of the total funded and unfunded balances of non-purchased loans as of 9/30/23.

This approach echoes Warren Buffett’s philosophy, similar to β€œkeeping all your eggs in one basket, but watching that basket closely.”

Who is the CEO?

The CEO, George Gleason, is a banking prodigy. Taking over the bank at 25 years old, Mr. Gleason has led as President and CEO for over four decades. His shrewd, experienced, and ambitious leadership style permeates the bank, exemplifying the impact of management on organizational success.

Indeed, Mr. Gleason has engineered a business model unlike most other banks, and the results are a testament to his innovative approach.

The Performance Metrics Compared to Peers

Visual representations in 3Q2023 presentation materials provide valuable insights into Bank OZK’s long-term performance.

Asset Quality

Despite the focus on CRE loans, the bank’s net charge-off (NCO) ratio has consistently outperformed industry peers since 1997.

Net Interest Margin

Bank OZK consistently maintains net interest margins well above industry averages.

Non-Performing Loans

Non-performing loans (NPLs), non-performing assets (NPAs), and loans past due all remain below peer averages.

Efficiency Ratio

Bank OZK maintains a remarkably low efficiency ratio, highlighting the effectiveness of its unique business model.

Enhancing Shareholder Capital

At its core, the bank’s management is focused on creating value for shareholders. Bank OZK has consistently increased shareholder equity, evident from raising the cash dividend for 53 consecutive quarters. As of the first nine months of 2023, the dividend payout ratio stood at 23 percent.

Bank OZK: A Regional Banking Best-of-Breed

Bank OZK: A Regional Banking Best-of-Breed

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