Author Topic: OZRK - Bank of the Ozarks  (Read 57330 times)

NBL0303

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Re: OZRK - Bank of the Ozarks
« Reply #140 on: August 27, 2018, 09:18:05 AM »

I'm not a banks guy at all, but I used to work in ABL.  My perspective is that not everyone is good at everything.  Lending is very specialized, just like investing.  You have aircraft lessors, experts in shipbuilding financing, factoring, etc etc.  You need expertise in a market.  These guys can answer your question far better.   And btw, some of them think Ozarks is too aggressive!

https://www.wallstreetoasis.com/forums/bank-of-the-ozarks-real-estate-specialties-group

Thanks for posting that link Shooter. As a shareholder Bank of the Ozarks, some of the quotes on that link you posted don't worry you at all, or at least raise the possibility that they are a risky lender?

Here is a sample of quotes just from the first few posts on that link:

"Ricky Rosay RERank: King Kong|  banana points 1,570
Second @IRRelevant. Have worked on a deal with them recently for spec office development...one of the only banks willing to lend with partial recourse on a project with minimal pre-leasing. All other banks required 50%+ preleasing, lower proceeds, crazy recourse provisions."

"brosephstalin RERank: King Kong|  banana points 1,902
If Ozarks doesn't do your construction deal you're in trouble. ...Clearly their deal flow is getting so heavy they need more analysts - not surprised. The big question is how long they'll stay afloat. We're taking bets in the office on how soon they're going under."

"GothamGuy RERank: Senior Monkey|  banana points 71
Just to add: Speak to anyone in the market about construction financing -- especially mezz -- and BOTO will come up again and again...and again. Clearly, they are taking on deals that other lenders are passing on."


Shooter MacGavin

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Re: OZRK - Bank of the Ozarks
« Reply #141 on: August 27, 2018, 09:28:18 AM »
Shooter..

As an investor we can justify any thing we want.  But I'd posit that there is more than meets the  eye here.  You can do a LOT of DD if you want, you can pull ALL of their borrowers, you can see who they deal with, you can talk to regulators.

I brought up Penn Square, and this is very similar. In both cases you're lending on some future expected output, from an oil well, or from the completion of a future construction project.  There is no cash flow until the project is complete.

Charge-offs and recoveries happen after the bank has failed.  A bank is required to mark loans as standard, sub-standard, impaired etc.  Their regulator requires them to put away loan loss reserves in anticipation of future problems.  Note, none of these loans are "bad", sometimes they are required to reserve when it's "good".  With the new accounting rules you need to over-reserve for defaults early.  It's up to a regulator to determine the reserves, so if everything is good it might be low, but if things start to look bad they will require additional reserves above and beyond.

The bank now is completely different from the bank in the past, the one that made it through the Great Recession by outrunning their losses by buying failed banks.  They are lending to speculative projects.  Want proof? Look at some of their projects, look at who they're lending to.  The bank has roughly doubled in the last three years.

The math is back of the envelope, because when you're a house of cards there are a lot of ways for it to fall.  The liquidity crisis is the most likely.  Deposits walk out the door, and there is nothing to call in.  Developers don't run flush with cash, and finishing a half finished shopping mall requires extra capital.

You can detail out some scenarios where reserves have to be boosted and suddenly profits become a loss very quickly.  They are dramatically under-reserved given their risk profile.

Then you have the CEO who claims they've invented a better mouse trap, and that it can't fail, and that they aren't worried about risk.  A bank is a levered bond fund, and management succeeds by managing risk.  In good times (like the last decade) everyone is a genius, becuase we're in a risking market.  The fact that they haven't blown up doesn't mean anything.

As I mentioned above, talk to some regulators.  Look deeply into why they switched from the Fed to the state level.  I've give you a hint, the Fed's don't like what they're doing, and if you're the biggest bank in the state there is a lot of regulatory capture and no teeth.

Also worth noting that the marquee names are some of the worst development type projects.  Typically a large investor will attach their name, bring in outside capital and keep almost no skin in the game.  They are the first to walk away.  You want banks with local developers where everything is on the line for them.

Let's look at worse case scenario here.  The economy hits a recession and there's a downturn in residential and commercial activity.  This is inevitable, maybe not this year, but in 1/3/5/10 years, at some point we will have a recession again.  They are extremely heavy in construction and unfinished projects.  The developers don't have money, and there's no buying demand so they stop building.  Ozarks stops receiving cash on those loans.  Now they foreclose and own a bunch of half finished projects.  They have two choices, the first is to sell the project as-is.  It's some dirt pushed around and a bunch of concrete casing for a building.  What does that go for during a recession?  Who is the buyer?  Loan to cost doesn't matter here anymore.

Or second, they realize the only way to recover money is to finish, so they extend the loan to a developer, giving them more cash to finish up.  Now any safe margin on the project (and I'd argue there aren't safe margins right now) is gone.  Now they've made a bet that things recover and it all goes back to a boom quickly.

In both cases their issue is time.  They have to finish or liquidate faster than their rate of deterioration.  If they can do this and somehow unload billions in dead construction projects at par then they can make it.

The thing banks don't have in a crisis is time.  Deposits walk quickly, and that funding gap HAS to be filled.  Filing lawsuits to foreclose take time.  When you are known as the lender who will lend on anything I'd posit that there is a lot of air in the portfolio.  You don't find that out until a crisis either.

This to me is like a person who walks a tight rope across Niagara Falls.  They've never fallen and so they believe they'll never fall in the future.  The problem is as they've become successful they've developed a bit of a drinking problem.  At some point drinking and walking a tight rope don't go well together.  We just don't know the when.

Check out some books on the S&L crisis.  Or check out Dead Bank Walking, it hits on some of this, and peels back what happens in the board room too.

I get the long thesis.  They have magic, they have a new mouse trap, earnings are growing, they're compounding, Gleason is a genius.  And that thesis is sound as long as we don't have a recession again.

For anyone short the longer this goes on the better.  For two reasons, they aren't learning any lessons, they're adding to their risk profile as they go, and they don't have an adult keeping them in check.  And second the longer this happens the less anyone thinks their could be a failure, so puts and borrow are cheap.

Oddballstocks,

I appreciate your comments. I'm not really trying to defend OZK even though I'm long. But what I'm trying to do is test my thesis, because banks aren't my forte.

In terms of the default rates on construction loans, I'm going to have to walk back my comments from earlier.  You're right.  They default rates were absurd during the crisis and the charge off rates we're high too.  So you absolutely have are right to raise a flag here.

https://www.newyorkfed.org/medialibrary/media/research/banking_research/quarterlytrends2018q1.pdf?la=en

In terms of getting rid of the bank holding company status, from what I see, I don't find it particularly egregious but maybe I'm being naive.  I spoke to someone I know very well who works for one of the largest banks in the world and who works adjacent to their CCAR group.  If you don't need the fed discount window, and you don't want to be subject to their capital holding requirements based on arbitrary rules, and you don't want to spend 1000 man hours every year and pay CCAR consultants a ton of money to game the stress tests, then why have a bank holding company structure?  US banking is one of the most over-regulated industries in the developed world. Banks have to deal with a ridiculous amount of federal regulators who all give them conflicting mandates and then state regulators to boot.  I too used to work at a bank. The compliance rules are nonsensical in a lot of cases and I would argue they don't necessarily protect society or investors etc. Some of it is a costly box checking exercise.

https://www.marketplace.org/2018/03/19/economy/divided-decade/what-balkanization-fragmented-financial-regulatory-system

If you came across something else which is a reg flag, which it sounds like you did, would you mind sharing? or at the very least please PM me?  I'm being sincere. I'm open to this idea that OZK is a ticking time bomb.

Here is the question ultimately that I'm trying to figure out.

Are you (to the entire forum who are negative on this name) negative on OZK because they are heavily weighted in construction loans?  If that's the case, then are you just assuming that construction loans always make bad loans? or is it specific to something OZK is doing?  In other words, what sin is OZK committing? is it just over-indexing construction loans or is it that they're behaving stupidly? or to ask it another way, if there was a lender that was specializing in construction loans, how should they make loans intelligently in a way that Ozark isn't?

Thank you.

Shooter MacGavin

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Re: OZRK - Bank of the Ozarks
« Reply #142 on: August 27, 2018, 09:29:46 AM »

I'm not a banks guy at all, but I used to work in ABL.  My perspective is that not everyone is good at everything.  Lending is very specialized, just like investing.  You have aircraft lessors, experts in shipbuilding financing, factoring, etc etc.  You need expertise in a market.  These guys can answer your question far better.   And btw, some of them think Ozarks is too aggressive!

https://www.wallstreetoasis.com/forums/bank-of-the-ozarks-real-estate-specialties-group

Thanks for posting that link Shooter. As a shareholder Bank of the Ozarks, some of the quotes on that link you posted don't worry you at all, or at least raise the possibility that they are a risky lender?

Here is a sample of quotes just from the first few posts on that link:

"Ricky Rosay RERank: King Kong|  banana points 1,570
Second @IRRelevant. Have worked on a deal with them recently for spec office development...one of the only banks willing to lend with partial recourse on a project with minimal pre-leasing. All other banks required 50%+ preleasing, lower proceeds, crazy recourse provisions."

"brosephstalin RERank: King Kong|  banana points 1,902
If Ozarks doesn't do your construction deal you're in trouble. ...Clearly their deal flow is getting so heavy they need more analysts - not surprised. The big question is how long they'll stay afloat. We're taking bets in the office on how soon they're going under."

"GothamGuy RERank: Senior Monkey|  banana points 71
Just to add: Speak to anyone in the market about construction financing -- especially mezz -- and BOTO will come up again and again...and again. Clearly, they are taking on deals that other lenders are passing on."

They absolutely do.  Again, I'm trying to get to the bottom of this!  credit goes to someone else actually who shared that link earlier. 

Shooter MacGavin

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Re: OZRK - Bank of the Ozarks
« Reply #143 on: August 27, 2018, 09:45:26 AM »
Shooter..

As an investor we can justify any thing we want.  But I'd posit that there is more than meets the  eye here.  You can do a LOT of DD if you want, you can pull ALL of their borrowers, you can see who they deal with, you can talk to regulators.

I brought up Penn Square, and this is very similar. In both cases you're lending on some future expected output, from an oil well, or from the completion of a future construction project.  There is no cash flow until the project is complete.

Charge-offs and recoveries happen after the bank has failed.  A bank is required to mark loans as standard, sub-standard, impaired etc.  Their regulator requires them to put away loan loss reserves in anticipation of future problems.  Note, none of these loans are "bad", sometimes they are required to reserve when it's "good".  With the new accounting rules you need to over-reserve for defaults early.  It's up to a regulator to determine the reserves, so if everything is good it might be low, but if things start to look bad they will require additional reserves above and beyond.

The bank now is completely different from the bank in the past, the one that made it through the Great Recession by outrunning their losses by buying failed banks.  They are lending to speculative projects.  Want proof? Look at some of their projects, look at who they're lending to.  The bank has roughly doubled in the last three years.

The math is back of the envelope, because when you're a house of cards there are a lot of ways for it to fall.  The liquidity crisis is the most likely.  Deposits walk out the door, and there is nothing to call in.  Developers don't run flush with cash, and finishing a half finished shopping mall requires extra capital.

You can detail out some scenarios where reserves have to be boosted and suddenly profits become a loss very quickly.  They are dramatically under-reserved given their risk profile.

Then you have the CEO who claims they've invented a better mouse trap, and that it can't fail, and that they aren't worried about risk.  A bank is a levered bond fund, and management succeeds by managing risk.  In good times (like the last decade) everyone is a genius, becuase we're in a risking market.  The fact that they haven't blown up doesn't mean anything.

As I mentioned above, talk to some regulators.  Look deeply into why they switched from the Fed to the state level.  I've give you a hint, the Fed's don't like what they're doing, and if you're the biggest bank in the state there is a lot of regulatory capture and no teeth.

Also worth noting that the marquee names are some of the worst development type projects.  Typically a large investor will attach their name, bring in outside capital and keep almost no skin in the game.  They are the first to walk away.  You want banks with local developers where everything is on the line for them.

Let's look at worse case scenario here.  The economy hits a recession and there's a downturn in residential and commercial activity.  This is inevitable, maybe not this year, but in 1/3/5/10 years, at some point we will have a recession again.  They are extremely heavy in construction and unfinished projects.  The developers don't have money, and there's no buying demand so they stop building.  Ozarks stops receiving cash on those loans.  Now they foreclose and own a bunch of half finished projects.  They have two choices, the first is to sell the project as-is.  It's some dirt pushed around and a bunch of concrete casing for a building.  What does that go for during a recession?  Who is the buyer?  Loan to cost doesn't matter here anymore.

Or second, they realize the only way to recover money is to finish, so they extend the loan to a developer, giving them more cash to finish up.  Now any safe margin on the project (and I'd argue there aren't safe margins right now) is gone.  Now they've made a bet that things recover and it all goes back to a boom quickly.

In both cases their issue is time.  They have to finish or liquidate faster than their rate of deterioration.  If they can do this and somehow unload billions in dead construction projects at par then they can make it.

The thing banks don't have in a crisis is time.  Deposits walk quickly, and that funding gap HAS to be filled.  Filing lawsuits to foreclose take time.  When you are known as the lender who will lend on anything I'd posit that there is a lot of air in the portfolio.  You don't find that out until a crisis either.

This to me is like a person who walks a tight rope across Niagara Falls.  They've never fallen and so they believe they'll never fall in the future.  The problem is as they've become successful they've developed a bit of a drinking problem.  At some point drinking and walking a tight rope don't go well together.  We just don't know the when.

Check out some books on the S&L crisis.  Or check out Dead Bank Walking, it hits on some of this, and peels back what happens in the board room too.

I get the long thesis.  They have magic, they have a new mouse trap, earnings are growing, they're compounding, Gleason is a genius.  And that thesis is sound as long as we don't have a recession again.

For anyone short the longer this goes on the better.  For two reasons, they aren't learning any lessons, they're adding to their risk profile as they go, and they don't have an adult keeping them in check.  And second the longer this happens the less anyone thinks their could be a failure, so puts and borrow are cheap.

After re-reading this, I guess I'm going to summarize your view and say you think the sin that they are committing is that they are severely under-capitalized for a downward scenario.  That's a fair point to consider.  I will do more work.  I will disagree with that the point about LTC not making a difference though.  In NYC at least, there is no such thing as an unusable dirt lot...every square inch can be liquidated and there is a buyer at some price.  Particularly in Manhattan.  While the scenario you describe is true on a per-lot basis, it's less true across a portfolio in my view.  The charge-off rates that I sent in a previous link don't really adjust for LTC. 

Again I make the analogy about subprime auto lending. Can you conceive of a worse borrower? and yet there is a way to make money doing it if you structure it correctly. Look at CACC, one of the best performing stocks in the US market.  I'm NOT saying I'm convinced OZK is structured well.  All i'm saying is that IT IS POSSIBLE to do intelligent construction financing.

NBL0303

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Re: OZRK - Bank of the Ozarks
« Reply #144 on: August 27, 2018, 12:39:19 PM »

Again I make the analogy about subprime auto lending. Can you conceive of a worse borrower? and yet there is a way to make money doing it if you structure it correctly. Look at CACC, one of the best performing stocks in the US market.  I'm NOT saying I'm convinced OZK is structured well.  All i'm saying is that IT IS POSSIBLE to do intelligent construction financing.

Shooter - it is awesome that you are digging so deep and thinking about all the facts on every side of the equation.

I agree with you completely that it is possible to do intelligent construction financing.

I would say that the specific risks that some of us are worried about with Bank of the Ozarks is that this bank specifically may be engaged in risky construction lending - but not that it is impossible to lend well in this area.

And I'm not saying I know that Ozarks is a ticking time bomb - but the concern about them is not that they are simply engaged in construction financing. The concerns are much more specific to Ozarks then that. The concern is that the bank that has thrived all these years is no longer the same bank. The lending operation that held up very well in 2008/2009 is not at all the same as the current lending operation. Since that time, they completely changed qualitatively and qualitatively. Almost all of the loans on their books now are in the specific markets they entered since then, namely New York City and Miami. So one of the risks is just the concentration on a specific type of loan and in just a handful of specific markets. (The other side of this is that maybe that specializing in this way gives them an expertise edge/etc. But the possibility or enhanced risk is clearly present when a bank concentrates this heavily into construction loans largely in just a couple of markets.) In 2008/2009 I do not believe that Ozarks had a single construction loan in those markets; but in just the last few years - construction loans in these two markets have become a large portion of their book. The concern is enhanced because these are not underbanked markets, Ozarks had no or little experience with those markets until recently, they came out of no where and didn't really tip-toe into but jumped right into the deep end. Additionally, they are making loans that no other lenders in those markets will do; and with permissive terms in many cases that no other lenders would accept for any construction loan. Thus, they went into a traditionally risky market, that is extremely competitive and made loans that many other lenders specifically looked at and passed on. Historically in banking, this has all the hallmarks of bank that could be prone to major issues. That is one version of the bear case.

The other side of that is that, Ozarks has done well for a long-time and they believe they are just simply better at lending - such that these loans that other lenders (all other lenders in some of these markets) perceive as too risky, are not as risky as others perceive. If this bull case is accurate, then they truly have simply found or invented a better lending mousetrap. Which is not impossible, but in a competitive industry with 6,000 banks and large markets with dozens of large lenders, it is very, very difficult to have invented a lending mousetrap that is that much better than everyone else. Throw in the comments from many, many other bankers who will tell you that they believe Ozarks lending in the last few years is reckless and throw in the regulatory issue (the Feds pushing back on Ozarks so much that it led to Ozarks opting out of federal regulation to being regulated by its home state officials). This why many of us are skeptical - but that doesn't mean we are right and it is impossible that they indeed did invent a better lending mousetrap.

John Hjorth

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Re: OZRK - Bank of the Ozarks
« Reply #145 on: August 27, 2018, 01:50:58 PM »

Again I make the analogy about subprime auto lending. Can you conceive of a worse borrower? and yet there is a way to make money doing it if you structure it correctly. Look at CACC, one of the best performing stocks in the US market.  I'm NOT saying I'm convinced OZK is structured well.  All i'm saying is that IT IS POSSIBLE to do intelligent construction financing.

Shooter - it is awesome that you are digging so deep and thinking about all the facts on every side of the equation.

I agree with you completely that it is possible to do intelligent construction financing.

I would say that the specific risks that some of us are worried about with Bank of the Ozarks is that this bank specifically may be engaged in risky construction lending - but not that it is impossible to lend well in this area. ...

With all due respect, I think these kind of arguments are void - absolutely void, perhaps taking investment horizon into consideration as being a material matter make giving it some degree.

No fellow board member - as far as I can read - has so far in this topic ruled out OZRK going broke or to fail on its obligations. Actually, Nate is betting on it, ref. his posts in this topic.

Actually, what we from a risk perspective is dealing with here [with no visible complaints in the topic so far], is a derivative of a binominal outcome distribution with regard to your investment return, where you - year by year - has to substitute fail [= 0] with some number less than 1 of your capital at the beginning of each period - for each period, and success with some number higher than 1 of your capital at the beginning of each period - for each period.

All that, with the assumption, that when you [eventually] multiply "something" with zero, you get: zero.


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cmlber

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Re: OZRK - Bank of the Ozarks
« Reply #146 on: August 27, 2018, 04:53:39 PM »
Again I make the analogy about subprime auto lending. Can you conceive of a worse borrower? and yet there is a way to make money doing it if you structure it correctly. Look at CACC, one of the best performing stocks in the US market.  I'm NOT saying I'm convinced OZK is structured well.  All i'm saying is that IT IS POSSIBLE to do intelligent construction financing.

Very dangerous to compare half constructed high-rises to cars.  There is ALWAYS a liquid market for used cars.  Prices go up and down, but the collateral is easy to repossess and easy to sell. 

Also, I think part of the issue here is you don't necessarily need defaults when the liabilities are short-term and the assets long-term.  Wholesale funding can disappear quickly just on the increased probability of default, and then what? 

Disclosure: not long or short and have not done any work on this other than following this great thread.

s8019

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Re: OZRK - Bank of the Ozarks
« Reply #147 on: August 28, 2018, 07:33:31 AM »
Shooter, thanks for referring to CACC. I just had a very cursory look at financials.

In the period of 1998-2008 this company increased lending by about 5% per year. I would say that this is pretty conservative lending growth more or less consistent with the stable underwriting standards. However in the next 10 years the company increased lending by 16% p.a. In my view there is no way they can achive this lending growth without compromising on quality. Looking at their financials I see the opposite, reserves for loan losses were 23% of total loans in 2003 for example and now it is only 8%. Really? How is that possible?

By the way 8% loan loss reserve on a portfolio of customers whom they charge 20%+ interest? What happened to the US if almost creditworthy people (judged by reserves) have to borrow at 20% against collateral? It seems that autolending is much better business than Facebook or Google (judged by ROE). Who khew?

Icing on the cake - the market values this commoditiy financial business (as far as I can see from their website they don't provide any unique services - just money) at 5 times book value.

Well, what can I say. I think this is insane. However it is just me of course, may be I'm very oldschool and don't get it.


AdjustedEarnings

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Re: OZRK - Bank of the Ozarks
« Reply #148 on: September 04, 2018, 08:32:22 PM »
Hi all - My first post here on COBF. Figured I'd jump right into a battleground stock. Everything that has been said about sound banking principles is correct: deposit costs matter, low defaults are important, liquidity is key, construction loans have a bad history, etc. etc. But I do think we ought to consider the context.

1. Before the GFC and today are two totally different scenarios. Anyone who has bought a home recently or sought a business loan probably can attest to this. Yet, watching for CRE/Resi bubbles has become kind of a national sport. Probably because that's what happened LAST time. I believe Peter Lynch called it the 'penultimate preparedness', preparing for the last crisis (more popularly, fighting the last battle). A 'normal' recession (unlike GFC) doesn't cause mass defaults on any and all CRE loans and run on banks (though, understandably, that memory is fresh from 08-09). Elevated defaults? Sure. But run-on-the-bank-triggering defaults? I doubt it.

2. OZRK was quite opportunistic in buying up banks AFTER the GFC. This was actually a good time to buy banks. So growth through acquisitions, generally disliked in the banking industry (correctly, IMO), was not a problem here. For those who take an interest in FDIC-loss share accounting, you'll notice that OZRK accounted for each failed bank acquisition conservatively and the disclosure was amazing so you could actually see it.

3. In whole-bank acquisitions, they mostly issued stock when their stock was valued higher than what they acquired. This is what Singleton did when TDY was valued much higher in the 60s than target companies. It was all disclosed and well executed so investors could follow along. From a capital allocation standpoint, it makes sense. It was opportunistic and when the premium multiple faded, they stopped acquiring. So management wasn't chasing growth. Now that OZK stock is lower, Gleason is talking about ways to buy it back (potentially). Again, opportunistic, and shows management sensibility.

4. OZRK didn't just come out well through the GFC, but also survived the 80s and the 90s banking crises. To think that Gleason remained disciplined from 1979 to 2009 and then lost his mind seems a stretch.

5. As to Holdco-merger, this is not uncommon. Why spend money and be under Fed regulation if you don't have to be. Some of the FRB regs are ridiculous and I don't see any problem in avoiding them legally if they can. Other banks without federal charter are large banks such as First Republic, Signature, and small banks such as Farmers And Merchants Bank of Long Beach, a "value investor" favorite. (put that in quotes because of the whole thing about all investing being value investing, etc.). Also, just because they steered clear of the Fed does not mean there's only state regulation. The FDIC is still a regulator and is not a pushover.

6. I have also read the short-thesis comment about showing low GFC losses by acquiring banks (i.e. acquiring loans faster than you are losing money to show low NCO ratios). But, if we take out purchased loans and then recalculate the ratios, OZRK's NCOs were still better than industry. Also, as noted above, the marks on acquired loans were conservative.

7. Last call, they talked about slowing down a little in CRE because they were seeing some not-so-good-lending in the space. So it seems management isn't totally blind to the possibility of a slow-down eventually.

8. Finally, to be short at this level means the stock really has to fall to 5x earnings or zero. Maybe if CRE problems do come, their numbers could take a hit. Perhaps the stock could take a hit. But to bet on a zero seems extreme to me.

9. Now being on COBF, I suppose I must talk about Buffett. If you go back to the 1969-71 reports, you'll see they owned a bank called Illinois National Bank. Readers on this forum ought to be very familiar with the situation there. Time deposits were over 50% of the mix. Efficiency ratio was very low and ROAs were high at 2% v/s 0.5% industry back then. Not that there's a comparison but just to show that not ALL of these are headed for the trash heap.

I was a little unsure about making my first post on a battleground stock. But it did seem a very interesting name so figured I'd chime in. Nice to meet everyone. Hoping to hear some feedback. Thanks!

Schwab711

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Re: OZRK - Bank of the Ozarks
« Reply #149 on: September 05, 2018, 08:04:01 AM »
I don't think OZK is going bankrupt any time soon but I also don't think this is a binomial distribution (bankrupt or bank continues as it has). All of the inputs governing OZK's decisions over the last 10 years have changed. The yield curve is flat but short-term rates aren't 0%. With brokered deposits at 2.5% (their marginal cost of funds) + cost of originating a loan for OZK, I don't think they can profitably originate a mortgage. That's scary for a community bank. It looks like OZK's loan portfolio is showing this to be true. 73% of 2Q 2018 loan growth was from RV/boat loans. In prior years it came from C&I. They are all-in on a strong consumer-driven economy. Maybe they are right but I think the market sees high capital ratios and doesn't appreciate just how much leverage OZK has absorbed. A relatively narrow band of economic variables must occur for OZK to grow earnings from here (or they have to buy another bank with stock). There are also some plausible scenarios where OZK takes huge losses.