No bank has gone through the housing crash and credit crisis totally unscathed, but it clearly has not harmed all banks to the same degree. Although government-mandated changes to key aspects of the banking industry like capital requirements, lending standards and fee income will alter the profitability of banks going forward, some banks have been able to use the crisis to expand and gather assets. (To read more about how banking has changed, see The Evolution Of Banking.)


Bank of the Ozarks (Nasdaq:OZRK) was a very interesting small-cap bank before the crisis, but a combination of savvy management and FDIC-assisted acquisitions have left the company in good shape for the coming years.

Solid-Looking Numbers for Q1
Bank of the Ozarks has profited from the oxymoronic policy of aggressive conservatism. That in turn has led to unusually low credit losses and non-performing assets, as well as surprisingly high net interest margin. At the same time, it is hard to ignore that the bank's performance has been boosted by the contributions of acquired businesses.

For the first quarter, OZRK saw fully-taxed net interest income rise about 33% on an annual basis (to $36.1 million). On that basis, net interest margin rose to 5.61% from 4.99% - a level that is well above the norm and even high-end performers like Westamerica Bancorp (Nasdaq:WABC), BankUnited (NYSE:BKU) and First Republic Bank (NYSE:FRU).

Along the way, the company did see higher operating expenses, but that is not entirely unexpected from a bank integrating several acquisitions and looking to expand its own operations. On a more encouraging note, credit continued to improve - non-performing loans ticked up a bit from the fourth quarter but remain at an attractive level overall (or at least attractive relative to most other banks). (For more on banks from that area, see Arkansas Regional Is Banking On Growth.)

A Bank with New Footholds for the Future
On one hand, the multiple FDIC-assisted deals that OZRK has done has given the bank a lot of branches, customers and deposits at a very attractive price (with the FDIC covering a lot of the potential bad loans). Generally speaking, buying assets for less than they worth is a winning strategy.

On the other hand, acquisitions are challenging enough in their own right and buying distressed banks can be even more challenging as these companies often cut corners leading up to their failures. Add to that the general complications and headaches of integrating payroll systems, IT systems and so on, and it is a lot for a relatively small company to take on at once.

Long term, the deals make sense. OZRK has shown that it can be competitive through its own organic efforts; growing to become one of the largest banks in Arkansas, even while competing with Regions (NYSE:RF), Bank of America (NYSE:BAC) and BancorpSouth (NYSE:BXS). Getting footholds in states like Georgia, Texas, Alabama, Florida and the Carolinas, then, could be a good base for future organic expansion. (To read more on smaller banks, check out Small Banks Cast A Wide Net.)

The Bottom Line
Unfortunately for value hounds, the quality of Bank of the Ozarks is no great secret in the market. If the company can get back to returns on equity in the 20% range, the stock may be worth a price in the low $50s, but that is not tremendous upside potential. This would be a fine bank to buy on a market pullback or a missed quarter, but for now it's mostly a watchlist candidate. (For more on banks, check out Who Will Make The Bank "Death Watch" List?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  2. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  3. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  4. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  5. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  6. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  7. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  8. Insurance

    Biggest Life Insurance Companies in the US

    Read about the top life insurance companies in the United States as measured by written premiums and learn a little more about their business operations.
  9. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  10. Mutual Funds & ETFs

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!