Bank of the Ozarks' stock went into a free fall Wednesday afternoon after an investor well known for shorting stocks criticized the Little Rock, Ark., company's business model.

Carson Block, founder of Muddy Waters Research, claimed during an investment conference that Bank of the Ozarks' management has been downplaying the riskiness of the company's construction loans, according to published reports. He also criticized Bank of the Ozarks' acquisition strategy, telling attendees that the company's growth depends on deals, while expressing a belief that those opportunities would run out.

The $11.4 billion-asset company's stock fell nearly 15% by early afternoon, bottoming out at $33.66 a share, before rallying to finish at $37.69, off 4.4% on the day. Shares changed hands at nearly 10 times the normal trading volume for Bank of the Ozarks' stock.

Block's criticisms were unfounded, industry observers said. Though Bank of the Ozarks has a high concentration of commercial real estate loans — equal to 408% of its risk-adjusted capital at Sept. 30 — executives have managed risk by keeping leverage low on these deals, they said.

George Gleason, Bank of the Ozarks' chairman and chief executive, said during the company's first-quarter earnings call that the CRE portfolio's loan-to-cost ratio was about 50%. That ratio stood at 72% in 2009, and the company still weathered the financial crisis far better than many peers, said Michael Rose, an analyst at Raymond James.

It would take a catastrophic financial crisis — one far worse than the most recent downturn — to cause serious issues for the company, industry observers said.

"Some of this analysis is muddy at best," Rose said of Block's comments. "You can miss a lot from just a cursory review of their regulatory filings. I've talked to several of the bank's largest investors and people think this is an overreaction."

Block's comments didn't take into account that Bank of the Ozarks is a structured finance lender that mostly competes with bigger banks, Rose said. The company helps finance a project and, once completed, rolls the credit off its balance sheet as it is funded by another lender. Such shorter-term loans have higher yields and less duration risk, he added.

Bank of the Ozarks has continued to earn its cost of capital, succeeding in an area where many other banks have fallen short, Rose said.

Bank of the Ozarks is also facing a Community Reinvestment Act protest for its planned purchase of Community & Southern Bank. Gleason said during the quarterly call that Bank of the Ozarks basically "inherited" a complaint that had been filed against C&S when the Atlanta bank agreed to buy CertusBank's Florida branches. Gleason said he expects the deal to close, though there might be some conditions attached to regulatory approval.

Bank of the Ozarks has historically been a successful acquirer, buying seven failed banks after the financial crisis, industry experts said.

A call to Bank of the Ozarks was not immediately returned.

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