Lower Rates Taking A Bite Out Of Bank OZK

Although I thought Bank OZK (OZK) looked undervalued a quarter ago, I also thought that the weak short-term outlook, driven by spread compression risk, was likely to weigh on the shares. And so it has been, with the shares down another 7% and underperforming the broader regional bank group over the last three months.

Credit quality remains very good, but spread compression was worse than the Street (and I) expected, and although I think Bank OZK has some underappreciated opportunities to offset spread compression, I do worry that just as deposit betas didn't rise as far/as quickly as expected in the up-cycle (leading to better NIMs), the reverse might be true in this part of the cycle (leading to worse NIMs). I do think expectations are quite low now and I think there is appealing long-term upside here, if, and this is a VERY big if, credit quality stays strong.

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Lower Rates Taking A Bite Out Of Bank OZK