Bank OZK: Preferred Stock Is Attractive Thanks To Robust Loan Book

2025-02-11 10:30:00 ET

Summary

• Bank OZK's strong net results and low loan loss provisions ensure preferred dividends are well-covered, making the preferred shares attractive.
• The bank's low LTV ratio in its real-estate-backed portfolio and sufficient loan loss allowances mitigate risks, even in adverse scenarios.
• Preferred shares offer a 6.55% yield, trading at a 30% discount to par value, with the potential for price appreciation if interest rates drop.
• Despite non-cumulative dividends, the preferred shares are a good investment for yield and speculation on lower market interest rates.

Introduction

In an article last summer, I made an argument the market was overly concerned with Bank OZK’s ( OZK ) exposure to commercial real estate. While CRE indeed plays an important role in OZK’s loan book, the average LTV ratio of the bank’s CRE lending was pretty low , and I didn’t expect any major issues. The bank has now reported on three additional quarters since my previous article, and I wanted to check up on its financial health and the implications for the preferred shares, as I have a long position in those preferred securities....

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