Bank of the Ozarks shares have followed a sometimes precipitous trek during the past few quarters. The pricing landscape traveled by the $18.5 billion-asset bank holding company is marked by several dramatic climbs and descents.
The topography of the company’s two-year stock price resembles a mountain range dominated by three peaks with a fourth major summit now under formation. Market activity established four high points for OZRK closing prices:
- $48.27 on June 22, 2015;
- $54.69 on Dec. 1, 2015;
- $44.74 on April 20, 2016; and
- $50.07 on Dec. 6, 2016.
Interspersed with the ridges are low-point valleys:
- $39.25 on Aug. 24, 2015;
- $36.73 on Feb. 11, 2016; and
- $34.82 on June 27, 2016.
The ups and downs of stock pricing are at odds with a company where re-cord earnings are the norm rather than the exception.
“Earnings have not lagged,” said Matt Olney, research analyst with Little Rock’s Stephens Inc. “This has just been a valuation issue. Expectations are that strong earnings will continue. It’s only a matter of time before the valuation rebounds.”
And valuations did rebound though some of the 2015-16 price swings were larger than historical patterns.
George Gleason, Bank of the Ozarks chairman and CEO, shrugs off the uncharacteristic movements as vagaries of the market relative to the performance of his company.
“There’s a disconnect for a season,” Gleason said. “That doesn’t really matter. As long as we keep putting up excellent results, the stock price will eventually reflect it. That is our approach. Our focus is on the long-term performance of our company and stock.”
The occasional bouncing valuation of OZRK shares is sometimes tied to investment community concerns that have so far proven to be misplaced.
Among the concerns in some quarters was that Bank of the Ozarks perhaps had overpaid for Community & Southern Holdings Inc. of Atlanta and C1 Financial Inc. of St. Petersburg, Florida.
The nearly $800 million stock-swap deal for the $4.4 billion-asset Community & Southern represented a tangible book value multiple of about 1.8.
The $402.5 million stock swap for the $1.7 billion-asset C1 franchise clocked in at about 2 times tangible book value.
Helping feed misgivings were the longer than expected time it took to close the deals announced in October and November 2015. The July 20 Community & Southern purchase and the July 21 C1 acquisition came about three to four months later than anticipated.
An added wild card for some was the unexpected July 26 exit of Trevor Burgess, former CEO of C1 who resigned as chief innovation officer and director at Bank of the Ozarks.
“The informed people who follow our company and our track record understand our transactions,” Gleason said. “We had done our homework. If anyone did have concerns, our third-quarter results certainly put those issues to rest.”
On Oct. 11, Bank of the Ozarks announced record third-quarter net in-come of $76 million, a whopping 64.8 percent increase over the third quarter of 2015.
The results followed the company’s July 11 announcement of record second-quarter net income of $54.5 million, up nearly 22 percent from the same quarter in 2015.
“Our asset growth and earnings have just been excellent,” Gleason said. “There’s really no reason whatsoever that the fundamentals of our company are so good and our stock price isn’t.”
CRE Concerns
Bank of the Ozarks hasn’t been immune from creeping concerns about commercial real estate lending, the chief fuel of the company’s profit machine.
“They’ve probably been among the best and most effective commercial real estate lenders,” said Olney of Stephens Inc. “Some investors who rewarded Bank of the Ozarks for that in the past are now punishing the company for what they perceive as too much commercial real estate lending. It’s a fickle thing.”
The worry about possible overbuilding affecting commercial real estate was among the topics Gleason addressed in the company’s Oct. 11 conference call with analysts.
“You’ve got all of these articles and a lot of these articles are self-propagated articles,” he said. “You know, one person writes an article about CRE, that causes another person to write an article about CRE, and you have this whole litany of articles about CRE written by people who by and large don’t understand the market, and in many cases some do, but many don’t. The result of that is you end up with a lot of commentary about the markets that is just not consistent with the reality that’s occurring in the market.”
Timur Braziler, analyst with Wells Fargo Securities in New York, asked in the conference call if Gleason saw any warning signs or cause for fear related to commercial lending on the national scene.
“No, and what I will tell you is that our product by and large — whether it’s speculative homes or lots, commercial lots or residential lots or condos or speculative buildings — our product is selling faster than we modeled in the majority of cases and not slower,” Gleason said. “And in our universe of customers and our universe of projects, the trends are very positive.”
He acknowledged that Bank of the Ozarks draws attention as one of the largest and most active CRE lenders in the nation and tends to get lumped in with worrisome broad brush critiques of the commercial lending scene despite its profitable quarterly march through the Great Recession.
Gleason has told the investment community he doesn’t expect another Great Recession but if one happens, Bank of the Ozarks is “superbly prepared.”
“Simply stated, we believe our CRE portfolio is the lowest risk CRE portfolio in the industry,” Gleason said during the third-quarter conference call.