Bank of the Ozarks Inc. is taking its brand of disciplined expansion to faster-growing markets: Dallas first, then Charlotte.
The Little Rock company opened its first branch outside Arkansas this spring in the Dallas suburb of Frisco and plans to turn its Dallas loan production office into a branch early next year.
In Charlotte, Bank of the Ozarks plans to convert a loan production office into a federal thrift, with the first branch up and running within the next year. When the Charlotte operation is established, the bank plans to build one to three branches a year there and in Dallas for the next five years.
Come 2009, when it expects to have completed branch-building in its home state, the company aims to start opening eight to 10 branches a year in each of those two markets.
Over the past decade, Bank of the Ozarks, which has a namesake bank that is 100 years old, has increased its network ninefold, to 45, and boosted assets to $1.5 billion from $140 million. Through it all, Bank of the Ozarks has returned 20% on equity and kept its efficiency ratio below 50%.
"We wanted to experiment with and pioneer the early stages of development in other states, so when we are finished with building our Arkansas franchise we can smoothly take our proven business plan elsewhere," said president and chief executive George Gleason.
Bank of the Ozarks is about halfway to its goal of 83 branches in Arkansas, and Dallas - a major metropolitan area in a neighboring state - is a logical extension of its current market. (The Arkansas-chartered bank bought a charter from the $166 million-asset Happy State Bancshares Inc. of Canyon to enter Texas.)
The choice of Charlotte is less obvious.
Mr. Gleason said Bank of the Ozarks began looking at the North Carolina city three years ago, when a former executive moved there for personal reasons. After studying the demographics, the bank opened a loan production office in Charlotte in 2001 and hired the relocated executive to run it. It currently has $25 million of loans there.
"While Charlotte is a much larger market, the type of business done in Charlotte and the way people think is similar to Little Rock," Mr. Gleason said. He has no plans to move into any other markets for some time and said the Dallas and Charlotte markets provide Bank of the Ozarks with more than enough room to grow.
The entire state of Arkansas has $37 billion of deposits; the Charlotte metropolitan market has $67 billion and Dallas $63.5 billion, according to June 2003 statistics from the Federal Deposit Insurance Corp.
But competition for those deposits will be much tougher. Bank of the Ozarks will be up against 40 other banks in Charlotte, and in Dallas it faces 127 competitors.
Mr. Gleason says he is confident, however, that his bank can win customers by providing personal, friendly service while offering a wide array of products. The Bank of the Ozarks name will be used in Dallas and Charlotte because customers are "attracted to the service, not the name."
"Our products and services are in line with the larger banks, and combined with personal, hometown service, it's a pretty potent mix," Mr. Gleason said.
Analysts endorsed Bank of the Ozarks' expansion plans.
"They have got a very focused niche, and they can compete with the behemoths that can't just move as fast as they do," said Joseph A. Stieven of Stifel Nicolaus & Co. in St. Louis. "And it all comes from a hardworking culture led by George Gleason."
Arielle Whitman of Sandler O'Neill & Partners LP in New York said she expects Bank of the Ozarks to succeed in Dallas and Charlotte because it branches so efficiently. But should things go awry in either market, Mr. Gleason will pull out before the bottom line is affected, she said.
The CEO "is very disciplined and very honest, and his processes are well thought out, and he does not do anything on a grand scale," Ms. Whitman said. "So if it does not work out in Charlotte, he will cut the plan and get out of there."
Mr. Gleason was 25 when he bought Bank of the Ozarks in 1979. For the next 15 years he focused on making the bank - which he had purchased with borrowed money - debt-free. When that was accomplished in 1994 he started on the Arkansas growth plan, choosing key locations and building branches that paid attention to the community's needs.
Mr. Gleason was obsessed with efficiency. Bank of the Ozarks has managed to keep its efficiency ratio below 50% for so long because it has not done acquisitions, he said, but they are not out of the question.
"Our stock is now highly regarded, so we could make an acquisition using stock as currency - and we would if a good opportunity presents itself," he said. "But ... we have found that building is more profitable than buying, so we will continue to do that."
