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Loan Growth, Restructuring Aid Bank OZK (OZK) Amid Low Rates

Bank OZK’s OZK business restructuring and branch consolidation efforts are expected to continue to support growth. Moreover, decent loan demand will likely aid the top line amid the low-interest-rate environment.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised marginally upward over the past 60 days. This shows that analysts are optimistic regarding OZK’s earnings growth potential. Thus, the company currently carries a Zacks Rank #2 (Buy).

Over the past year, shares of Bank OZK have gained 48.5%, marginally outperforming the industry’s growth of 47.7%.


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Looking at fundamentals, Bank OZK’s revenues witnessed a compound annual growth rate (CAGR) of 15.3% over the last six years (2015-2020), with the uptrend continuing in the first nine months of 2021. The rise was mainly due to steady loan growth.

With the help of its expansion strategy, the company has been able to grow deposit balances. Over the last six years (2015-2020), deposits witnessed a CAGR of 21.9%. Of the total deposits, 22.8% comprised non-interest-bearing deposits as of Sep 30, 2021.

Further, Bank OZK boasts a solid balance sheet. As of Sep 30, 2021, the company had total debt of $1.22 billion, and cash and cash equivalents of $1.78 billion. Thus, given a robust liquidity position and decent earnings strength, it is expected to continue to meet debt obligations in the near term, even if the economic situation worsens.

The change in the operating backdrop in 2020 due to the coronavirus-induced uncertainty has led banks to realign business per customer needs, with more emphasis on digitization. Thus, Bank OZK has been evaluating its branch network. As part of this effort, the company has exited from Alabama and South Carolina, and closed three branches in Arkansas and one in Florida. In third-quarter 2021, it closed three branches — two in Georgia and the only deposit-taking branch in New York.

The company’s capital deployment activities seem impressive. It has been regularly increasing quarterly dividends. This October, OZK hiked its dividend for the 45th consecutive quarter. Given its robust capital position as well as lower debt-equity and dividend payout ratios compared with peers, Bank OZK will likely be able to sustain efficient capital deployments, thereby, continuing to enhance shareholder value.

However, the company’s net interest margin continues to remain under pressure due to the low-interest-rate environment. While NIM increased in the first nine months of 2021, the same has witnessed a declining trend before that (from 5.91 in 2012 to 3.81% in 2020). Moreover, continuously increasing expenses (mainly due to a rise in salaries and employee-benefit costs) and the company’s substantial exposure to real estate loans (77.4% of total loans as of Sep 30, 2021) make us apprehensive about its growth prospects.

Other Stocks Worth Considering

A few other top-ranked stocks from the same space are Merchants Bancorp MBIN, Community Bank System, Inc. CBU and Fulton Financial Corporation FULT. While MBIN currently sports a Zacks Rank #1 (Strong Buy), Community Bank System and Fulton Financial carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Merchants Bancorp’s current-year earnings has been revised upward by 9.5% over the past 60 days. MBIN’s shares have risen 74.7% in the past year.

Earnings estimates for CBU have been unchanged for 2021 over the past 60 days. Over the past year, Community Bank System’s shares have rallied 20.6%.

Fulton Financial recorded no change in its earnings estimates for 2021 over the past 60 days. The stock has rallied 37.1% in the past year.

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