Bank of the Ozarks Making Its Mark as Bank of the Nation

George Gleason, chairman  and CEO of Bank of the Ozarks: “We may be the most skilled team of bankers for our size anywhere.”

Little Rock’s Bank of the Ozarks entered the charts of the top 100 largest U.S. banks at No. 60 with a bullet in the fourth quarter last year. The bank’s whiz-bang arrival marked another fiscal milestone in its 20-year journey a publicly traded company. If the measuring stick was profit instead of asset size, Bank of the Ozarks would rank even higher. The company reported net income of $270 million in 2016.

“We’re clearly the top-performing bank of any of the 100 largest banks in the nation,” said George Gleason, the company’s founding chairman and CEO. “That’s a really nice accomplishment that our team can be rightly pleased with and proud of.”

A seven-year string of top-performing bank accolades joins a history dominated by record quarterly earnings. Gleason is justifiably proud of how the company’s growth in talent has accompanied its sheer head count growth from 138 in 1997 to around 2,500 today.

“We may be the most skilled team of bankers for our size anywhere,” he said. “I see the massive potential of where we can go. I’m focused on the future, not the past.”

Gleason did make a celebratory detour to commemorate the 20th anniversary of the company’s IPO on July 17 by ringing the opening bell at the Nasdaq MarketSite in New York’s Times Square.

The momentary pause for the special occasion is a rare move for the forward-looking Gleason, who admits he’s not a very reflective kind of guy.

“Once I check off an item, I’m looking for the next milestone,” he said.

Gleason has led Bank of the Ozarks past more than a few milestones as total assets grew from $307 million in 1997 when the company made its initial public offering to more than $20 billion today.

The bank has transformed from an Arkansas-only lender into a regional concern with a profitable penchant for construction and development loans that makes it a coast-to-coast player.

The company’s real estate specialties group is foundational in establishing Bank of the Ozarks as one of the largest and most active commercial real estate lenders in the nation.

“We do business with probably 80-85 of the top developers in the country,” Gleason said. “They have a national presence, and a number do business on an international basis.”

During the bank’s July 12 conference call with analysts, Gleason highlighted some of the real estate specialties group’s hottest metropolitan markets for loan originations during the second quarter.

The big three were New York, $746 million; Miami, $324 million; and Los Angeles, $306 million. Others included Orlando, $148 million; Atlanta, $94 million; Boston, $80 million; Chicago, $76 million; and Philadelphia, $56 million.

Gleason believes Bank of the Ozarks is probably the most conservative commercial real estate lender in the entire industry regardless of its growing presence on the national scene.

“I think more and more people are understanding that as time goes on, but it’s an outstanding quality portfolio,” he said during the July 12 conference call. “And we have absolute confidence in it.”

Matt Olney, research analyst with Little Rock’s Stephens Inc., noted that Bank of the Ozarks was more of a regional commercial real estate lender five years ago.

As the bank has delved deeper into some of the nation’s largest markets, some critics have wondered if the company is committing too much of its loan portfolio to construction and development financing.

“They’re getting bigger and better and becoming more of a national player,” Olney said. “They’ve been doing it well since their IPO. There’s 20 years of great public data on what they’ve done, so it’s hard to understand some of the concerns about the growth of their commercial real estate lending. There are always naysayers to a story.”

Word-of-Mouth
The real estate specialties group is an outgrowth of the bank’s first two out-of-state moves: a loan production office in Charlotte, North Carolina, in 2001 and entering the Dallas metro market in 2003.

“From those initial offices outside Little Rock, we built relationships with a lot of customers who valued our expertise and ability to execute,” Gleason said.

Opportunity abounded in the aftermath of the financial meltdown of 2008, and the bank was well positioned to bale hay when many lenders were forced to turn their attention inward to stanch hemorrhaging loan portfolios.

“Our performance during the Great Recession wasn’t perfect, but it was good enough to put up record earnings,” Gleason said. “We were thankful we had the capability to capitalize on opportunities to capture market share, add new geography and gain talented people.”

In addition to buying bargain franchises in regulatory-assisted transactions, Bank of the Ozarks benefited from the historic market chaos, which opened doors for new and ex-panded lending relationships.

“The financial system was suffering a lot of setbacks,” Gleason said. “We helped a lot of customers execute their business strategies in a tough economy.

“There was not one day when we were not positively disposed to take every type of credit application during that time.

“We started getting calls from CEOs of Fortune 500 companies who said, ‘We heard you guys are making loans.’

“We were getting attention from some really large customers because their banks were out of the market. That’s how our real estate specialties group has grown.

“You execute, and other national players take note.

“We don’t really market our real estate specialties group. It’s all word-of-mouth.”

During the first-quarter conference call on April 11, Gleason elaborated on the bank’s conservative strategy in commercial real estate lending.

“In almost every transaction we do, we are the sole senior-secured lender, which means that in the event of default every penny of equity and every penny provided by a mezzanine lender would be lost before we lose even 1 cent of interest or principal,” he said.

“Simply stated, we have the lowest risk position in the capital stack. Likewise, our extremely low loan-to-cost and loan-to-value ratios are probably more conservative than just about every other CRE lender in the country. Accordingly, we believe our CRE portfolio may be the lowest risk CRE portfolio in the industry.”

Bank of the Ozarks operates 251 offices in nine states but makes loans in 42 states overall. The bank doesn’t have a physical presence in some of its biggest CRE markets.

Gleason has indicated that future loan production offices for the real estate specialties group — in addition to the New York office opened in 2013 — would likely open in Seattle, Chicago, Boston and Washington.

As the size of the bank has grown, so has its competence and sophistication. Gleason credits that to the deepening pool of talent that has accompanied the growth, which has in turn enhanced the bank’s ability to protect and expand its lending pipeline.

“That’s an important part of our culture, to think and plan and use sophisticated analytics to assess and manage risk,” Gleason said. “Econometrics and deep analytics, we do that in every market, every macromarket we’re in.”

Holding Company Gone
A few weeks ahead of the 20th anniversary of its initial public offering, Bank of the Ozarks Inc. became simply Bank of the Ozarks.

The ever-so-slight name change denoted the bank was no longer operating under the corporate umbrella of a parent company.

“It was all about getting rid of administration, accounting and regulatory responsibilities that were totally redundant and added no value,” Gleason said.

In making the move, Bank of the Ozarks joined a short list of lenders without holding companies. The list includes $73 billion-asset First Republic Bank of San Francisco, $39 billion-asset Signature Bank of New York and two $8 billion concerns, TowneBank of Portsmouth, Virginia, and Opus Bank of Irvine, California.

The change was facilitated by a few noncontroversial changes in Arkansas banking law during the 2017 legislative session.

The technical changes al-lowed Bank of the Ozarks and other similarly situated state-chartered banks to directly issue subordinated debt as capital and do other things once required to be accomplished through a holding company.

“It’s like having a lake house you never use,” Gleason said. “Why do we still have this lake house?

“A holding company is such a common attribute. I think a lot of folks just haven’t sat back in the chair at night to say, ‘Why do we do that?’”

The advantages of operating through a holding company have dissipated over time as the banking industry has evolved.

From Gleason’s perspective, only two categories of banks can derive benefits from a holding company: really small lenders that can use a parent corporation to help leverage their balance sheet or a big international bank that takes in deposits overseas, which require extra regulatory reporting requirements.

“We have no aspirations to do international banking business on the deposit side,” he said.

Gleason has shown no interest in altering the bank’s name to convey a less localized image. The name was tweaked once to embrace an expansion into Newton County while recognizing the bank’s origin in the Franklin County seat of Ozark.

What began as Bank of Ozark became Bank of the Ozarks.

“The idea was to change the name to a common name, and we were sensitive to our long-term customer base,” Gleason said.

And so it has remained, even as the bank’s footprint expanded beyond its namesake mountain range in Arkansas and into Texas and beyond.

“The name is very unimportant,” Gleason said. “It’s all about relationships. If you deliver great products and service, then you’re going to do well.”

He does believe the “Ozarks” name transcends geography and reflects a time-honored style of doing business, where your word is your bond, and evokes timeless qualities such as integrity and fair dealing.

“This resonates in New York, Miami or Seattle or L.A. or any point in between,” Gleason said.

‘To Do All Things Well Is the Ultimate Test’

Bank of the Ozarks
Biggest Markets for Construction & Land Development Loans

As of March 31 from the company’s most recently filed quarterly report.