-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TXCL/A7TWP55XcZSrFNDpABSvq80oZ5Q1jEpmdLw1XdserwRud2EIpRpTGec6vKQ 6CvA8QZKljS97a9xXitoNA== 0000930661-98-000570.txt : 19980324 0000930661-98-000570.hdr.sgml : 19980324 ACCESSION NUMBER: 0000930661-98-000570 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANK OF THE OZARKS INC CENTRAL INDEX KEY: 0001038205 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 710556208 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22759 FILM NUMBER: 98570885 BUSINESS ADDRESS: STREET 1: 425 WEST CAPITOL AVENUE STREET 2: SUITE 3100 CITY: LITTLE ROCK STATE: AR ZIP: 72201 BUSINESS PHONE: 5013744100 MAIL ADDRESS: STREET 1: 425 WEST CAPITOL AVENUE STREET 2: SUITE 3100 CITY: LITTLE ROCK STATE: AR ZIP: 72201 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________. Commission File Number 0-22759 BANK OF THE OZARKS, INC. (Exact name of registrant as specified in its charter) ARKANSAS 71-0556208 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 425 WEST CAPITOL AVENUE, SUITE 3100, LITTLE ROCK, ARKANSAS 72201 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 374-4100 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- None N/A Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) State the aggregate market value of the Registrant's common stock held by non-affiliates: $61,899,104 (based upon the average closing bid and asked prices quoted on the Nasdaq National Market on March 4, 1998. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practical date. Class Outstanding at December 31, 1997 - --------------------------------------- --------------------------------- Common Stock, par value $0.01 per share 3,779,555 DOCUMENTS INCORPORATED BY REFERENCE: Parts I, II and III of this Form 10-K incorporate certain information by reference from the Registrant's Annual Report to Stockholders for the year ended December 31, 1997 and the Proxy Statement for its 1998 annual meeting. BANK OF THE OZARKS, INC. FORM 10-K December 31, 1997 INDEX PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Business 1 Item 2. Properties 13 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 PART II. Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 14 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14 Item 8. Financial Statements and Supplementary Data 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 PART III. Item 10. Directors and Executive Officers of the Registrant 15 Item 11. Executive Compensation 15 Item 12. Security Ownership of Certain Beneficial Owners and Management 15 Item 13. Certain Relationships and Related Transactions 15 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 16 Signatures 18 Part I Item 1. BUSINESS - ----------------- GENERAL Bank of the Ozarks, Inc. (the "Company") is an Arkansas business corporation registered under the Bank Holding Company Act of 1956. The Company owns two state chartered subsidiary banks, Bank of the Ozarks, wca ("Ozark WCA") and Bank of the Ozarks, nwa ("Ozark NWA"), that conduct banking operations through 15 branches and two loan production offices in fourteen communities throughout northern, western and central Arkansas. In February, 1998, the Company closed the purchase of Heartland Community Bank, FSB, a federal savings bank in Little Rock, Arkansas ("Ozark FSB") which the Company operates under the Bank of the Ozarks name. At December 31, 1997 the Company had total assets of $352.1 million, total loans of $275.5 million and total deposits of $295.6 million. The Company provides a wide range of retail and commercial banking services. Deposit services include non-interest bearing and interest bearing checking, savings, money market, CDs and individual retirement accounts. Loan services include various types of real estate loans, consumer loans, commercial and industrial loans and agricultural loans. During 1996 the Company began a full service secondary market mortgage operation to originate and sell residential real estate mortgages. Other banking services offered include safety deposit boxes, real estate appraisals, credit related life and disability insurance, ATMs, telephone banking, debit cards, credit cards and merchant credit card services. Through Ozark WCA, the Company provides a wide range of personal and corporate trust services. BUSINESS STRATEGY - ----------------- The Company's goal is to maximize long-term stockholder value through strong year-to-year growth in assets, loans, deposits and net income in a manner consistent with safe, sound and prudent banking practices. To achieve this goal the Company's business strategy includes (i) expanding loans and deposits through market share growth in existing markets, de novo branching and acquisitions; (ii) providing customers with a broad selection of products and financial services; (iii) employing, empowering and motivating management to provide personalized customer service, consistent with the best traditions of community banking, while maximizing profits; and (iv) maintaining asset quality and controlling overhead expense. GROWTH STRATEGY. The Company's growth strategy has resulted in substantial asset growth. The Company seeks to (i) branch in strategic locations, (ii) utilize product superiority and pricing to achieve loan and deposit growth, (iii) aggressively market the Company's products and services and (iv) capitalize on opportunities presented by banking industry consolidation. In 1994 the Company initiated an expansion strategy, via de novo branching, into target Arkansas markets. Since embarking on this strategy, the Company has opened ten new branches and two loan production offices in northern, western and central Arkansas. As noted, in February, 1998 the Company acquired Ozark FSB and immediately began operating a full-service branch in downtown Little Rock. Additionally, the Company currently has facilities under construction in west Little Rock and Fort Smith, Arkansas which are anticipated to open during 1998. The Company has received regulatory approval to open the Fort Smith facility as a full service branch. The west Little Rock facility will consolidate certain existing Little Rock offices (the holding company office, commercial loan production office, and residential mortgage loan production office) into a single location and, subject to obtaining regulatory approval of an application currently pending, will operate a second full service branch of Ozark FSB. Beyond these planned locations, the Company intends to pursue its growth and acquisition strategy with the objective of developing a regional franchise throughout northern, western and central Arkansas. The Company also intends to capitalize on the opportunities presented by the continued consolidation in the banking industry. Many financial institutions operating in the Company's market areas have become, or have announced transactions which will result in their becoming branches or subsidiaries of larger statewide, regional or national organizations. Such actions have created and may continue to create substantial opportunities for the Company to 1 increase market share and develop valuable customer relationships. The Company has also been able to employ quality senior loan officers and other management personnel from these operations. BANKING PRODUCTS AND SERVICES. The Company has expanded its traditional banking products and services in recent years. New offerings are designed to provide customers with a competitive or superior array of products and services in each of the markets it serves. The Company has introduced or is currently developing the following: Triple Option CD. In 1996 the Company introduced the "Triple Option CD" which provides customers with one-time options during the 13-month term to (i) increase the amount by up to 100% of the original balance, (ii) withdraw, without penalty, up to 50% of the original balance and (iii) increase the stated interest rate to match subsequent rate increases in this product. Money Market Gold Account. In 1996 the Company introduced a "Money Market Gold" account designed to provide yields competitive with short-term money market mutual funds. Other Special CD Products. From time to time the Company offers special CD products paying highly competitive rates with atypical maturities (e.g., 7 months, 10 months, 20 months). These special products are heavily marketed and generally used to establish initial market share in new markets or attract large numbers of new customers in existing markets. Free Checking. In 1996 the Company began offering totally free checking account. These accounts feature no minimum balance requirements, no monthly service charges, unlimited check writing privileges and free check safekeeping. Cash Management Services. During 1998 the Company plans to offer a number of new cash management products including a cash consolidation product that will permit commercial customers to electronically transfer funds, via the ACH network, from other depository banks to their deposit accounts with the Company. Other products under development include account analysis, sweep services and repurchase agreements. ATM Network. The Company has installed networked ATMs at 11 locations and plans to include ATMs at future full service branches. Telephone Banking Services. In 1997 the Company introduced a telephonic voice response system which allows deposit customers to access information regarding their individual accounts. The Company also introduced a "Telebank" service whereby customers may open deposit accounts, effect fund transfers to or from such accounts and obtain current rate and other information on the Company's products and services. Debit Cards. In 1997 the Company introduced "debit" cards whereby the amount of the transaction is deducted from the cardholder's checking account. Secondary Market Mortgage Loans. In 1996 the Company expanded its residential mortgage product line by offering long-term fixed and variable rate loans to be resold on a servicing released basis in the secondary market. The Company originates such loans at its Little Rock residential mortgage loan production office and its Fort Smith and Harrison offices. These offices provides such loans to customers in each of the Company's three operating areas. Home Equity Lines of Credit. During 1998 the Company plans to offer lines of credit to qualified customers secured by residential real estate. The Company plans to continue to develop loan and deposit products to meet changing customer needs and expectations. 2 MANAGEMENT STRUCTURE AND INCENTIVES. The Company believes that an empowered management team, motivated to provide high quality, personalized customer service while maximizing profits, is a critical element of its business strategy. The Company implements this element of its strategy by (i) employing experienced, customer-oriented personnel, (ii) using a decentralized and streamlined management structure, (iii) organizing its operations into separately accountable profit centers and (iv) providing incentive compensation designed to reward positive financial performance. The Company strives to create the personal and comfortable atmosphere of a small hometown bank. A decentralized management structure allows managers to make credit and other banking decisions efficiently while providing a higher degree of service and increased flexibility to local customers. The Company's profit center managers and their staff are encouraged to pursue quality customer service and active community involvement and to develop extensive market knowledge, new business and customer relationships. The Company believes that its ability to identify, hire, direct and motivate managers is one of its distinguishing attributes. The Company is divided into sixteen separate profit centers for operations, accounting, budgetary and bonus incentive purposes. Accountability and control of each profit center is maintained through (i) direct senior management oversight of profit center managers and their operating results, (ii) review of asset quality and regulatory compliance by the Company's internal loan review and compliance officers, and (iii) review of operations by the Company's internal audit officer. In 1996 the Company implemented an incentive cash bonus plan which pays benefits to all employees based upon growth and profitability. The plan measures actual performance against budgeted performance at each profit center. The plan assigns customized performance criteria to each profit center, with a common criterion being increased profitability. Management believes this plan has been successful in focusing individuals on the key performance areas of their respective profit centers. Furthermore, the Company provides employees with additional incentive compensation through participation in an employee stock ownership plan. The Company provides additional equity based compensation to certain key management personnel in the form of discretionary stock options to further align the interests of management and stockholders. ASSET QUALITY AND OVERHEAD OBJECTIVES. The successful implementation of the Company's business strategy requires an emphasis on maintaining asset quality. The Board of Directors and senior management regularly monitor asset quality. In addition, the Company employs profit center managers and other loan personnel based in substantial part upon their ability to properly underwrite, originate and service loans. The Company's procedures to maintain favorable asset quality include (i) regular past due meetings among loan and collection personnel to continuously assess the status of problem or nonperforming loans, (ii) rapid resolution of nonaccrual loans with minimal tolerance for loans remaining in nonaccrual status for extended periods and (iii) prompt and orderly liquidation of other real estate received upon foreclosure. The Company has established the goal of becoming a low cost provider of banking services. Over the past several years, the Company has achieved substantial improvements in its overhead and efficiency ratio. Although there can be no assurance that this trend will continue, management believes the Company may be able to achieve additional deposit and loan growth at certain existing offices, with minimal additions to personnel or other operating costs, and spread corporate overhead costs over a larger asset base through the Company's de novo branching strategy. LENDING ACTIVITIES - ------------------ The Company's primary source of income is interest earned from its loan portfolio and, to a lesser extent, earnings on its investment portfolio. In underwriting loans, primary emphasis is placed on the borrower's financial condition, including its ability to generate cash flow to support its debt obligations and other cash expenses. Additionally, substantial consideration is given to collateral value and marketability, as well as, the borrower's character, reputation and 3 other relevant factors. The Company's portfolio includes most types of real estate loans, consumer loans, commercial and industrial loans, agricultural loans and other types of loans. The vast majority of the properties collateralizing the Company's mortgage loans are located within the trade areas of the Company's main offices, branches and loan production offices. Real Estate Loans. The Company's portfolio of real estate loans includes loans secured by single family residential, non-farm non-residential, agricultural, construction and land development, and multifamily (five or more) properties. Single family residential loans include permanent loans secured by first liens on one to four family residential properties. Such loans comprise the majority of the Company's real estate loans. Non-farm non-residential loans include those secured by real estate mortgages on hotels, motels, churches, medical facilities, nursing homes, shopping centers, office buildings, restaurants, and other business and industrial properties. Agricultural real estate loans include loans secured by farmland and improvements thereon including loans secured by farmland and guaranteed by the Farm Service Agency (formerly Farmers Home Administration) or the Small Business Administration. Real estate construction and land development loans include loans with original maturities of sixty months or less to finance land development or construction of industrial, commercial, residential or farm buildings or additions or alterations to existing structures. The Company offers a variety of real estate loan products that are generally amortized over five to thirty years, payable in monthly or other periodic installments of principal and interest, and due and payable in full (unless renewed) at a balloon maturity generally within one to five years. Certain loans not subject to Arkansas' usury law, typically first mortgage residential loans, may be structured as term loans with adjustable interest rates (adjustable daily, every six months, annually, or at other regular adjustment intervals usually not to exceed every five years) and without balloon maturities. Single family residential loans are underwritten primarily based on the borrower's ability to repay, including prior credit history, and the value of the collateral. Other real estate loans are underwritten based on the ability of the property, in the case of income producing property, or the borrower's business to generate sufficient cash flow to amortize the debt. Secondary emphasis is placed upon collateral value and other factors. Loans collateralized by real estate have generally been originated with loan to appraised value ratios of not more than 89% for owner-occupied single family residential, 85% for other single family residential and other improved property, 80% for construction loans secured by commercial, multifamily and other non-residential properties, 75% for land development loans, and 65% for raw land loans. The Company typically requires mortgage title insurance in the amount of the loan and hazard insurance on improvements. Documentation requirements vary depending on loan size, type, complexity and other factors. Consumer Loans. The Company's portfolio of consumer loans generally includes loans to individuals for household, family and other personal expenditures (other than those secured by real estate). Proceeds from such loans are used to, among other things, fund the purchase of automobiles, household appliances, furniture, trailers, boats and mobile homes, and for credit extended pursuant to credit card and other similar plans. Consumer loans made by the Company are generally collateralized with terms typically ranging up to 72 months, depending upon the nature of the collateral and size of the loan. Consumer loans are attractive to the Company because they generally have a short term with interest rates at or near the maximum lawful rate in Arkansas. Such loans, however, pose additional risks of collectibility and loss when compared to certain other types of loans. The borrower's ability to repay is of primary importance in the underwriting of consumer loans. Commercial and Industrial Loans. The Company's commercial and industrial loan portfolio consists of loans for commercial, industrial and professional purposes including loans to fund working capital requirements (such as inventory, floor plan and receivables financings), purchases of machinery and equipment, and other purposes. The Company offers a variety of commercial and industrial loan arrangements, including term loans, balloon loans, and lines of credit with the purpose and collateral supporting a particular loan determining its structure. These loans are offered to businesses and 4 professionals for short and medium terms on both a collateralized and uncollateralized basis. As a general practice, the Company obtains as collateral a lien on furniture, fixtures, equipment, inventory, receivables or other assets. Commercial and industrial loans typically are underwritten on the basis of the borrower's ability to make repayment from the cash flow of its business and generally are collateralized by business assets. As a result, such loans involve additional complexities, variables and risks and require more thorough underwriting and servicing than other types of loans. Agricultural (Non-Real Estate) Loans. The Company's portfolio of agricultural (non-real estate) loans includes loans for financing agricultural production, including loans to businesses or individuals engaged in the production of timber, poultry, livestock and crops. The Company's agricultural (non-real estate) loans are generally secured by farm machinery, livestock, crops, vehicles or other agri-related collateral. DEPOSITS - -------- The Company offers an array of deposit products consisting of non-interest bearing checking accounts, low cost deposit products, including interest bearing transaction (such as checking) and savings accounts, and higher cost deposit products, including money market accounts and CD's. The Company acts as depository for a number of state and local governments and government agencies or instrumentalities. Such public fund deposits are often subject to competitive bid and in many cases must be secured by the Company's pledge of United States Government, government agency, or other securities. The Company's deposits come primarily from within the Company's trade area. As of December 31, 1997 the Company had no outstanding "brokered deposits," defined as deposits which, to the knowledge of management of the Company, have been placed with the banks by a person who acts as a broker in placing such deposits on behalf of others. TRUST SERVICES - -------------- Through Ozark WCA, the Company offers a wide range of personal and corporate trust services. As of December 31, 1996 and 1997 total trust assets under management by the Company were $16.4 million and $32.0 million, respectively. COMPETITION - ----------- The banking industry in the Company's market area is highly competitive. In addition to competing with other commercial and savings banks and savings and loan associations, the Company competes with credit unions, finance companies, mortgage companies, brokerage and investment banking firms, asset-based non-bank lenders and many other financial and financial service institutions. Competition is based upon interest rates offered on deposit accounts, interest rates charged on loans, fees and service charges, the quality and scope of the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits. A substantial number of the commercial banks operating in the Company's market area are branches or subsidiaries of much larger organizations affiliated with statewide, regional or national banking companies, and as a result may have greater resources and lower costs of funds than the Company. Additionally, the Company faces increased competition from de novo community banks, including those with senior management who were previously with other local banks or those controlled by investor groups with strong local business and community ties. Management believes the Company will continue to be competitive because of its strong commitment to quality customer service, highly autonomous local branches, active community involvement, and products and pricing. EMPLOYEES - --------- At December 31, 1997 the Company and its subsidiaries employed 182 full- time equivalent employees. None of the employees were represented by any union or similar group, and the Company has not experienced any labor disputes or strikes arising from such organized labor groups. This Company believes its employee relations are good. 5 EXECUTIVE OFFICERS OF REGISTRANT - -------------------------------- On January 20, 1998 the Board of Directors elected the following persons to serve as executive officers of the Company for 1998: George Gleason, age 44, Chairman and Chief Executive Officer of the Company and its bank subsidiaries. Mr. Gleason received a J.D. from the University of Arkansas and a B.A. in Business and Economics from Hendrix College. James Patridge, age 47, Vice Chairman of the Company. From 1985 to 1997, Mr. Patridge served as Executive Vice President with NationsBank, N.A. (formerly Boatmen's Arkansas, Inc. and Worthen Banking Corporation). He received a J.D. from Oklahoma City University, a M.S. in finance from Memphis State University, and a B.S.B.A. in Banking and Finance from the University of Arkansas. Mark Ross, age 42, President of the Company and its bank subsidiaries. Mr. Ross was elected as a director of the Company in 1992. Mr. Ross received a B.A. in Business Administration from Hendrix College. Danny Criner, age 43, President of Ozark NWA. Mr. Criner received a B.S.B.A. in Banking and Finance from the University of Arkansas. Paul Moore, age 51, Chief Financial Officer of the Company and its bank subsidiaries since July 1995. From December 1989 to July 1995 Mr. Moore served as secretary, secretary/treasurer or director of eight privately held companies under common ownership of Frank Lyon Jr. and family. Such companies engaged in diverse activities ranging from real estate to agricultural to banking. Mr. Moore is a C.P.A. and received a B.S.B.A. in Banking, Finance and Accounting from the University of Arkansas. Margaret Oldner, age 46, Executive Vice President of the Company since October 1997. From January 1991 to March 1997 she was Senior Vice President and Chief Financial Officer for Mercantile Bank of Arkansas (formerly Twin City Bank) in North Little Rock. Ms. Oldner is a C.P.A. and received a B.S. in Business Administration from California State University at Fullerton. Jean Arehart, age 57, Executive Vice President of Ozark WCA since May 1997. She joined Ozark WCA as Senior Vice President in June 1996 and currently manages its residential mortgage lending operations. Ms. Arehart previously served as Senior Vice President and a member of the Executive Committee of Twin City Bank (now Mercantile Bank of Arkansas), where she worked from 1979 to February 1996. Susan Sisk Grobmyer, age 49, Executive Vice President of Ozark WCA since May 1997. She joined Ozark WCA in March 1997 as Senior Vice President and oversees all lending for Ozark WCA's Western Division (Van Buren, Mulberry, Ozark, Clarksville, Alma, Paris and Ft. Smith). Ms. Grobmyer previously served as a Senior Vice President of Commercial Loans for Pulaski Bank from 1995 to 1997 and Twin City Bank (now Mercantile Bank of Arkansas) from 1978 to 1995. Ms. Grobmyer attended the University of Arkansas at Monticello. Darrel Russell, age 44, Executive Vice President of Ozark WCA since May 1997. From 1992 to 1997 Mr. Russell served as Senior Vice President of Ozark WCA. Mr. Russell received a B.S.B.A. in Banking and Finance from the University of Arkansas. Randy Oates, age 54, Senior Vice President, Marketing since 1996. From 1992 to 1996, he served as Marketing Director for Commercial National Bank, Shreveport, Louisiana. Mr. Oates received a B.S.B.A. in Marketing from the University of Arkansas. 6 SUPERVISION AND REGULATION In addition to the generally applicable state and federal laws governing businesses and employers, bank holding companies and banks are extensively regulated under both federal and state law. With few exceptions, state and federal banking laws have as their principal objective either the maintenance of the safety and soundness of the Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") or the protection of consumers or classes of consumers, rather than the specific protection of the stockholders of the Company. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those particular statutory and regulatory provisions. Any change in applicable law or regulation may have an adverse effect on the results of operation and financial condition of the Company and its subsidiary banks. FEDERAL REGULATIONS - ------------------- The primary federal banking regulatory authority for the Company is the Board of Governors of the Federal Reserve System (the "FRB"), acting pursuant to its authority to regulate bank holding companies. Because the Company's subsidiary state banks are insured depository institutions who are not member banks of the Federal Reserve System, they are subject to regulation and supervision by the FDIC and are not subject to direct supervision by the FRB. In February 1998, the Company completed its purchase of Ozark FSB, and as a federal savings bank it is subject to extensive supervision and regulation by its appropriate federal regulatory authority, the Office of Thrift Supervision ("OTS"). These OTS regulations are similar in scope and detail to those imposed on the Company's state bank subsidiaries by the FDIC and include capital adequacy guidelines, enforcement authority, prompt corrective action procedures, reporting responsibilities and periodic examinations. Except as otherwise specifically noted, the following discussion of banking regulation is limited to the Company and its two principal bank subsidiaries, Ozark WCA and Ozark NWA. Bank Holding Company Act. The Company is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the "BHCA"), and to supervision by the FRB thereunder. Federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and policies. The Company's activities, as well as the activities of companies which are controlled by the Company or in which the Company owns 5% or more of the voting securities, are limited by the BHCA to banking, management and control of banks, furnishing or performing services for its subsidiaries, and any other activity that the FRB determines to be incidental to or closely related to banking or managing or controlling banks. In approving acquisitions by the Company of companies engaged in banking-related activities, the FRB considers a number of factors, including the expected benefits to the public, such as greater convenience, increased competition or gains in efficiency, which are weighed against the risks of possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. Under the BHCA, a bank holding company must obtain FRB approval before it may acquire all or substantially all of the assets of any bank, or ownership or control of more than 5% of the outstanding shares of any class of voting stock of any bank or bank holding company. The FRB's approval must also be obtained before a bank holding company merges or consolidates with another bank holding company (although the FRB may not assert jurisdiction in certain bank mergers that are regulated under the Bank Merger Act). In considering any application for approval of an acquisition or merger, the FRB is required to consider various competitive factors, the financial and managerial resources of the companies and banks concerned, the convenience and needs of the communities to be served, and the applicant's record of compliance with the Community Reinvestment Act (the "CRA"). The CRA generally requires financial institutions to take affirmative action to ascertain and meet the credit needs of its entire community, including low and moderate income neighborhoods. The Attorney General of the United States may, within 30 days after approval of an acquisition by the FRB, bring an action challenging such acquisition under the federal antitrust laws, in which case the effectiveness of such approval is stayed pending a final ruling by the courts. 7 Interstate Banking. On September 29, 1994, President Clinton signed into law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") which amended the BHCA to permit bank holding companies to acquire existing banks in any state effective September 29, 1995. The Interstate Act preempts barriers that restricted entry into states--such as regional compacts and reciprocity agreements--thus creating opportunities for expansion into markets that were previously closed. Interstate banking and branching authority (discussed below) will be subject to certain conditions and restrictions, such as capital adequacy, management and CRA compliance. The Interstate Act also contained interstate branching provisions that allow multistate banking operations to merge into a single bank with interstate branches. The interstate branching provisions became effective on June 1, 1997, although states were allowed to pass laws to opt in early or to opt out completely as long as they acted prior to that date. Effective May 31, 1997, the Arkansas Interstate Banking and Branching Act of 1997 (the "Arkansas Interstate Act") authorized banks to engage in interstate branching activities within the borders of the state of Arkansas. Banks acquired pursuant to this new branching authority may subsequently be converted to branches. Interstate branching allows banks to merge across state lines to form a single institution. Interstate merger transactions can be used to consolidate existing multistate operations or to acquire new branches. A bank will be able to establish a new branch as its initial entry into a state only if the state has authorized de novo branching. The Arkansas Interstate Act prohibits entry into the state through de novo branching. Deposit Insurance. The deposits of the subsidiary banks are insured by the FDIC primarily through the BIF, with a portion of the deposits of Ozark WCA being insured through the SAIF, to the extent provided by law. The deposits of Ozark FSB are insured through the SAIF. Under the FDIC's risk-based insurance system, BIF-insured institutions are currently assessed premiums of between zero and twenty-seven cents per $100 of eligible deposits, depending upon the institution's capital position and other supervisory factors. On September 30, 1996, a new law was enacted that, among other things, provides for assessments against BIF-insured institutions that will be used to pay certain Financing Corporation ("FICO") obligations. In addition to any BIF insurance assessments, BIF-insured banks are expected to make payments for the FICO obligations at a rate determined quarterly. For the period July 1, 1997 through December 31, 1997, Ozark NWA and Ozark WCA were each assessed an annualized premium of $0.0126 per $100 of BIF-eligible deposits. As of the most recent assessment date, Ozark WCA had approximately $21.7 million of deposits that are assessed premiums at the rates applicable to SAIF institutions as a result of a branch acquisition completed with the Resolution Trust Company ("RTC") in 1990. The SAIF premium for these deposits is currently zero to twenty-seven cents per $100 of eligible deposits. In addition to any SAIF insurance assessments, SAIF-insured institutions are expected to make payments for FICO obligations at a rate determined quarterly. Ozark WCA's SAIF- eligible deposits were assessed an annualized rate of $0.063 per $100 for the period July 1, 1997 through December 31, 1997. Capital Adequacy Requirements. The FRB monitors the capital adequacy of bank holding companies such as the Company and the FDIC monitors the capital adequacy of Ozark WCA and Ozark NWA. The federal bank regulators use a combination of risk-based guidelines and leverage ratios to evaluate capital adequacy. Under the risk-based capital guidelines, different categories of assets are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk weights are multiplied by corresponding asset balances to determine a "risk-weighted" asset base. The minimum standard for the ratio of total risk-based capital to risk-weighted assets is 8.0%. At least half of the risk-based capital must consist of common equity, retained earnings, and qualifying non-cumulative perpetual preferred stock, less deductions for goodwill and various intangible assets ("Tier I"). The remainder ("Tier 2") may consist of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock, and an allowance for loan losses not to exceed 1.25% of risk-weighted assets. The sum of Tier I capital and Tier II capital is "total risk-based capital." In addition to the risk-based capital guidelines, the federal bank regulators have adopted a leverage ratio as an additional tool to evaluate the capital adequacy. The leverage ratio is a company's Tier 1 capital divided by its adjusted total assets. The leverage ratio requires a 3.0% Tier 1 capital to adjusted total assets ratio for institutions with the highest 8 regulatory rating of 1. All other institutions will be expected to maintain a leverage ratio of 4.0% to 5.0%. For a tabular summary of the Company and the subsidiary banks' risk-weighted capital and leverage ratios, see the information contained in the Management's Discussion & Analysis section of the Company's 1997 Annual Report under the heading "Capital Compliance" on pages 26 through 27, which information is incorporated herein by reference. Bank regulators from time to time consider raising capital requirements applicable to banking organizations beyond current levels. However, the Company is unable to predict whether higher capital requirements will be imposed and, if so, at what levels and on what schedules. Therefore, the Company cannot predict what effect such higher requirements may have on it or its subsidiary banks. Enforcement Authority. The FRB has been granted enforcement powers over bank holding companies and non-banking subsidiaries to forestall activities that represent unsafe or unsound practices or constitute violations of law. These powers may be exercised through the issuance of cease-and-desist orders or other actions. The FRB is also empowered to assess civil penalties against companies or individuals who violate the BHCA or orders or regulations thereunder in amounts up to $1 million for each day's violation, to order termination of non- banking activities of non-banking subsidiaries of bank holding companies, and to order termination of ownership and control of a non-banking subsidiary by a bank holding company. Certain violations may also result in criminal penalties. The FDIC is authorized to exercise comparable authority under the Federal Deposit Insurance Act (the "FDI Act"), the Federal Deposit Insurance Corporation Improvement Act ("FDICIA") and other statutes with respect to the subsidiary banks. In addition, the FDIC has the authority to terminate insurance of accounts, after notice and hearing, upon a finding by the FDIC that the insured institution is or has engaged in any unsafe or unsound practice that has not been corrected, is in an unsafe and unsound condition to continue operations, or has violated any applicable law, regulation, rule, or order of, or condition imposed by, the appropriate supervisors. The FDICIA required federal banking agencies to broaden the scope of regulatory corrective action taken with respect to depository institutions that do not meet minimum capital and related requirements and to take such actions promptly in order to minimize losses to the FDIC. In connection with FDICIA, federal banking agencies established capital measures (including both a leverage measure and a risk-based capital measure) and specified for each capital measure the levels at which depository institutions will be considered well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized. If an institution becomes classified as undercapitalized, the appropriate federal banking agency will require the institution to submit an acceptable capital restoration plan and can suspend or greatly limit the institution's ability to effect numerous actions including capital distributions, acquisitions of assets, the establishment of new branches and the entry into new lines of business. On February 28, 1998, the FDIC advised the Company that each of Ozark WCA and Ozark NWA had been classified as "well-capitalized" under these guidelines. Examination. The FRB may examine the Company and any or all of its subsidiaries. The FDIC examines and evaluates insured banks every 12 months, and it may assess the institution for its costs of conducting the examinations. The FDIC has a reciprocal agreement with the Arkansas State Bank Department whereby each will accept the other's examination reports in certain cases. As a result, the Company's subsidiary banks generally undergo FDIC and state examinations either on a joint basis or in alternating years. Reporting Obligations. As a bank holding company, the Company is required to file with the FRB an annual report and such additional information as the FRB may require pursuant to the BHCA. The Company's subsidiary banks must submit to federal and state regulators annual audit reports prepared by independent auditors, and the Company's audit report can be used to satisfy this requirement. Other Regulation. The status of the Company as a registered bank holding company under the BHCA does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. The Company is under the jurisdiction of the Securities and Exchange Commission and of state securities commissions for matters relating to the offer and sale of its securities. 9 Interest and certain other charges collected or contracted for by the subsidiary banks of the Company are subject to state usury laws and certain federal laws concerning interest rates. The banks' loan operations are also subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves, the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit, the Fair Credit Reporting Act of 1978 governing the use and provision of information to credit reporting agencies, the Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies, and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the subsidiary banks also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act, which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services. STATE REGULATIONS - ----------------- The Company and its subsidiary banks are subject to examination and regulation by the Arkansas State Bank Department. Examinations of the subsidiary banks are conducted annually but may be extended to 24 months if an interim examination is performed by the FDIC. The Arkansas State Bank Department may also make at any time an examination of the Company as may be necessary to disclose fully the relations between the Company and its subsidiary banks and the effect of those relations. In 1982, The Interest Rate Control Amendment ("Constitutional Amendment") to the Constitution of the State of Arkansas was adopted, which provides, in summary, that "consumer loans and credit sales" have a maximum percentage limitation of 17% per annum and that all "general loans" have a maximum limitation of 5% over the Federal Reserve Discount Rate in effect at the time the loan was made. In 1983, the Arkansas Supreme Court determined that "consumer loans and credit sales" are also "general loans" and are thus subject to an interest rate limitation equal to the lesser of 5% over the Federal Reserve Discount Rate or 17% per annum. The Constitutional Amendment also provided penalties for usurious "general loans" and "consumer loans and credit sales," including forfeiture of all principal and interest on consumer loans and credit sales made at a greater rate of interest than 17% per annum. Additionally, "general loans" made at a usurious rate may result in forfeiture of uncollected interest and a refund to the borrower of twice the interest collected. Arkansas usury laws, however, are preempted by federal law with respect to first residential real estate loans and certain loans guaranteed by the Small Business Administration. The Company is also subject to the Bank Holding Company Act of 1983 ("ABHCA") enacted by the State of Arkansas. The ABHCA places certain restrictions on the acquisition of banks by bank holding companies. Any acquisition by the Company of more than 10% of any class of the outstanding capital stock of any bank located in Arkansas, would require the Arkansas Bank Commissioner's approval. Further, no bank holding company may acquire any bank if after such acquisition the holding company would control, directly or indirectly, banks having 25% of the total bank deposits (excluding deposits from other banks and public funds) in the State of Arkansas. Under the ABHCA a bank holding company is prohibited from owning more than one subsidiary bank if any subsidiary bank has been chartered for less than 5 years. In 1988, Arkansas enacted the Regional Reciprocal Banking Act of 1988 ("RRBA") which permitted bank holding companies in Arkansas to acquire banks and bank holding companies located in any of 17 states generally located in the Southern and Midwestern regions of the United States. The Interstate Act preempts the RRBA and authorizes bank holding companies, subject to regulatory approval, to acquire banks and bank holding companies in any state, without regard to whether the acquisition would be permitted by the laws of such state. As discussed above, the recently enacted Arkansas Interstate Act authorizes banks to engage in interstate branching activities within the borders of the state of Arkansas. See "--Federal Regulations--Interstate Banking". 10 Arkansas bank branching laws currently prevent state and national banks from opening branches in any county of the state other than their home county and the counties contiguous to their home county. These laws currently allow the Company to open branches for its subsidiary state banks in only 10 counties in Arkansas, and the Company would have to acquire a bank headquartered in another home county in order to expand its branch banking strategy for its state banks beyond this geographic area. However, Ozark FSB is able to engage in statewide branching because Arkansas bank branching laws do not apply to federal savings banks. Effective January 1, 1999, Arkansas law, as currently in effect, will allow the Company to engage in branching activities for its state banks on a statewide basis. Prior to this effective date for statewide branching, current laws may artificially restrict the growth opportunities of the Company and its state bank and allow its competitors to expand and retain market share in areas of the state that the Company may choose to target after statewide branching becomes available. SUBSIDIARY STATE BANKS - ---------------------- The lending and investment authority of the subsidiary state banks is derived from Arkansas law. The lending powers of each of these banks are generally subject to certain restrictions, including the amount which may be lent to a single borrower. Regulations of the FDIC and the Arkansas State Bank Department limit the ability of the subsidiary state banks to pay dividends to the Company without the prior approval of such agencies. FDIC regulations prevent insured state banks from paying any dividends from capital and allows the payment of dividends only from net profits then on hand after deduction for losses and bad debts. The Arkansas State Bank Department currently limits the amount of dividends that the subsidiary state banks can pay the Company to 75% of each bank's net profits after taxes for the current year plus 75% of its retained net profits after taxes for the immediately preceding year. Federal law substantially restricts transactions between financial institutions and their affiliates, particularly their non-financial institution affiliates. As a result, the Company's subsidiary banks are sharply limited in making extensions of credit to the Company or any non-bank subsidiary of the Company, in investing in the stock or other securities of the Company or its non-bank subsidiaries, in buying the assets of, or selling assets to, the Company, and/or in taking such stock or securities as collateral for loans to any borrower. Moreover, transactions between the subsidiary banks and the Company (or any nonbank subsidiary) must generally be on terms and under circumstances at least as favorable to the subsidiary banks as those prevailing in comparable transactions with independent third parties or, in the absence of comparable transactions, on terms and under circumstances that in good faith would be available to nonaffiliated companies. The FDIC requires all depository institutions, including the subsidiary banks, to maintain reserves against their checking and transaction accounts (primarily checking account, NOW and Super NOW checking accounts). Because reserves must generally be maintained in cash or in non-interest bearing accounts, the effect of the reserve requirements is to increase the subsidiary banks' cost of funds. Arkansas law requires state chartered banks to maintain such reserves as are required by the applicable federal regulatory agency. The subsidiary banks are subject to Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates, including the Company. In addition, limits are placed on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Most of these loans and certain other transactions must be secured in prescribed amounts. The banks are also subject to Section 23B of the Federal Reserve Act, which, among other things, prohibits an institution from engaging in transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated companies. The banks are subject to restrictions on extensions of credit to executive officers, directors, certain principal stockholders, and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. 11 PROPOSED LEGISLATION FOR BANK HOLDING COMPANIES AND BANKS - --------------------------------------------------------- Certain proposals affecting the banking industry have been discussed from time to time. Such proposals include: limitations on investments that an institution may make with insured funds; regulation of all insured depository institutions by a single regulator; limitations on the number of accounts protected by the federal deposit insurance funds; and reduction of the $100,000 coverage limit on deposits. It is uncertain which, if any, of the above proposals may become law and what effect they would have on the Company and its bank subsidiaries. The Financial Services Competitiveness Act of 1997, which has been introduced before the United States Congress, would expand the financial services industry by, among other things, allowing banks to engage in securities underwriting, insurance and other activities that are found to be "financial" in nature by the FRB. The legislation would allow bank holding companies to own firms that could engage in the underwriting of securities and to engage in a broader range of insurance activities than are currently permitted. The Company is unable to predict whether this legislation will be adopted in its proposed form or its potential impact on the Company's operations. 12 Item 2. PROPERTIES ---------- The Company serves its customers by offering a broad range of banking services through full service branches and loan production offices throughout northern, western and central Arkansas as follows:
SQUARE BANKING LOCATION/(1)/ YEAR OPENED FOOTAGE - --------------------- ----------- ------- Alma................................................. 1997 4,100 Altus /(2)/.......................................... 1972 -- Bellefonte........................................... 1997 1,444 Clarksville (Main Street)............................ 1994 2,520 Clarksville (Rogers Avenue) /(3)/.................... 1995 3,300 Fort Smith /(4)/..................................... 1997 2,640 Fort Smith /(5)/..................................... Under construction 22,200 Harrison /(3)/....................................... 1996 3,300 Jasper............................................... 1967 (expanded 1984) 4,408 Little Rock (Chester Street) /(6)/................... 1998 1,716 Little Rock /(7)/.................................... Under construction 39,600 Little Rock (corporate office and commercial loan production office) /(4)/.......................... 1995 4,472 Little Rock (residential mortgage loan production office) /(4)/..................... 1996 2,000 Marshall /(3)/....................................... 1995 2,520 Mulberry............................................. 1997 1,875 Ozark (Main)......................................... 1971 (expanded 1985) 30,877 Ozark (Westside)..................................... 1993 2,520 Paris................................................ 1997 3,100 Van Buren............................................ 1995 2,520 Western Grove........................................ 1976 (expanded 1991) 2,610 - --------
(1) Unless otherwise indicated, the Company owns, or will own upon the completion of construction, its banking locations. (2) Original facility was destroyed by storm in 1997. Operations are currently being conducted in a temporary facility pending completion of the new permanent facility. (3) The Company owns the improvements and leases the land at these locations. The initial lease terms expire in 2001 (Harrison), 2004 (Clarksville) and 2024 (Marshall). The Company has either a renewal option, purchase option or both with respect to each of these leases. (4) These offices are leased. The Little Rock locations house the corporate office, a commercial loan production office and a residential mortgage loan office. These offices will be consolidated into the new west Little Rock location upon completion of its construction. The Fort Smith location operates as a residential mortgage loan office and temporary full service branch for Ozarks WCA. This is a temporary office pending completion of the Fort Smith building now under construction. (5) Construction began on this Fort Smith site in early 1998 with opening expected in the third quarter of 1998. (6) This location was acquired in connection with the purchase of Ozark FSB in February, 1998. The facility was constructed in 1994. 13 (7) This building is currently under construction with completion expected in mid 1998. This building will house the Company's corporate offices and residential and commercial loan production offices. Ozark FSB is expected to lease space in this building to house a full service branch of that institution. Item 3. LEGAL PROCEEDINGS ----------------- No information is required in response to this Item. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- No information is required in response to this Item as no matters were submitted to a vote of Registrant's security holders during the fourth quarter of the fiscal year covered by this report. PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. --------------------------------------------------------------------- The Company's Common Stock is listed on the Nasdaq National Market under the symbol "OZRK". The other information required by Item 201 of Regulation S-K is contained in the Management's Discussion & Analysis section of the Company's 1997 Annual Report under the headings "Liquidity and Capital Resources Initial Public Offering" on page 25 and "Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends" on page 29, which information is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA ----------------------- The information required by Item 301 of Regulation S-K is contained in the Company's 1997 Annual Report under the heading "Selected Consolidated Financial Data" on page 10, which information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ---------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- The information required by Item 303 of Regulation S-K is contained in the Company's 1997 Annual Report on pages 11 through 29, which information is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The information required by Item 305 of Regulation S-K is contained in the Management's Discussion and Analysis section of the Company's 1997 Annual Report under the heading "Interest Rate Sensitivity" on pages 22 through 24, which information is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The information required by this Item and by Item 302 of Regulation S-K is contained in the Company's 1997 Annual Report on pages 30 through 47 and in the Management's Discussion & Analysis section of the 1997 Annual Report under the heading "Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends" on page 29, which information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ---------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- No information is required in response to this Item. 14 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information required by Item 401 of Regulation S-K regarding directors is contained in the Company's Proxy Statement for the 1998 annual meeting under the heading "Election of Directors" on pages 3 through 5, which information is incorporated herein by reference. In accordance with Item 401(b) of Regulation S-K, Instruction 3, information concerning the Company's executive officers is furnished in a separate item captioned Executive Officers of the Registrant in Part I above. The information required by Item 405 of Regulation S-K is contained in the Company's Proxy Statement for the 1998 annual meeting under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 17, which information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION ----------------------- The information required by Item 402 of Regulation S-K is contained in the Company's Proxy Statement for the 1998 annual meeting under the headings "Executive Compensation and Other Information," "Report of the Compensation and Personnel Committee on Executive Compensation" and "Company Performance" on pages 9 through 16, which information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information required by Item 403 of Regulation S-K is contained in the Company's Proxy Statement for the 1998 annual meeting under the headings "Principal Stockholders" and "Security Ownership of Management" on pages 7 through 8, which information is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The information required by Item 404 of Regulation S-K is contained in the Company's Proxy Statement for the 1998 annual meeting under the heading "Certain Transactions" on page 15, which information is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------------------------------------- (a) The following documents are filed as part of this report: (1) The following consolidated financial statements of the Registrant included on pages 31 to 47 in the Company's Annual Report for the fiscal year ended December 31, 1997, and the Report of Independent Auditors on page 30 of such Annual Report are incorporated herein by reference Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 15 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: All schedules are omitted for the reasons that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or the notes thereto. (b) Reports on Form 8-K: Registrant did not file any reports on Form 8-K during the fourth quarter of 1997. (c) Exhibits: The exhibits to this report are listed in the Exhibit Index at the end of this Item 14. (d) Statement Schedules: Not applicable. EXHIBIT INDEX The following exhibits are filed with this report or are incorporated by reference to previously filed material. Exhibit No. - ----------- 3.1 Amended and Restated Articles of Incorporation of the Registrant, dated May 22, 1997 (previously filed as Exhibit No. 3.1 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference) 3.2 Amended and Restated By-Laws of the Registrant, dated March 13, 1997 (previously filed as Exhibit No. 3.2 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.1 Bank of the Ozarks, Inc. Stock Option Plan, dated May 22, 1997 (previously filed as Exhibit No. 10.1 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.2 Bank of the Ozarks, Inc. Non-Employee Director Stock Option Plan, dated May 22, 1997 (previously filed as Exhibit No. 10.2 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.3 Loan Agreement with Union Planters National Bank, Memphis, Tennessee, dated May 16, 1997 (previously filed as Exhibit No. 10.3 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.4 Real Estate Contract - Fort Smith (Sebastian County), dated February 6, 1997 (previously filed as Exhibit No. 10.4 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 16 10.5 Offer & Acceptance - (Chenal Parkway) Little Rock (Pulaski County), dated December 12, 1996 (previously filed as Exhibit No. 10.5 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.6 Ground Lease - Marshall (Searcy County), dated October 15, 1993 (previously filed as Exhibit No. 10.6 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.7 Ground Lease - Harrison (Boone County), dated December 22, 1994 (previously filed as Exhibit No. 10.7 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.8 Ground Lease - Clarksville (Johnson County), dated January 1, 1995 (previously filed as Exhibit No. 10.7 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.9 Employment Agreement, dated May 22, 1997, between the Registrant and George Gleason (previously filed as Exhibit No. 10.9 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.10 Form of Indemnification Agreement between the Registrant and its directors and certain of its executive officers (previously filed as Exhibit No. 10.10 to the Company's Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference). 10.11 Amendment to Employment Agreement, dated September 16, 1997, between the Registrant and George Gleason (previously filed as exhibit 10 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 1997, and incorporated herein by this reference). 10.12 Stock Purchase Agreement, dated November 19, 1997, between the Registrant, Heartland Community Bank, Camden, Arkansas, and HCB Bancshares, Inc. (attached). 10.13 Construction Contract, dated September 2, 1997, between Bank of the Ozarks, wca and East-Harding, Inc. (Little Rock Office) (attached). 10.14 Construction Contract, dated December 24, 1997, between Bank of the Ozarks, wca and East-Harding, Inc. (Fort Smith Office) (attached). 13 Portions of the Registrant's Annual Report to Stockholders for the year ended December 31, 1997 which are incorporated herein by reference: pages 10 to 47 of such Annual Report (attached). 21 List of Subsidiaries of the Registrant (attached). 23 Consent and Report on Financial Statement Schedules of Moore Stephens Frost (attached). 27.1 Financial Data Schedule (attached). 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BANK OF THE OZARKS, INC. By: /s/ George Gleason ------------------------------------ Chairman and Chief Executive Officer Date: March 17, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ George Gleason Chairman of the Board, Chief Executive Officer March 17, 1998 - --------------------------- and Director George Gleason /s/ James Patridge Vice Chairman and Director March 17, 1998 - ---------------------------- James Patridge /s/ Mark Ross President and Director March 17, 1998 - ---------------------------- Mark Ross /s/ Paul Moore Chief Financial Officer March 17, 1998 - ---------------------------- (Chief Accounting Officer) Paul Moore /s/ Roger Collins Director March 17, 1998 - ---------------------------- Roger Collins /s/ C. E. Dougan Director March 17, 1998 - ---------------------------- C. E. Dougan /s/ Robert East Director March 17, 1998 - ---------------------------- Robert East
18
/s/ Linda Gleason Director March 17, 1998 - ---------------------------- Linda Gleason /s/ Porter Hillard Director March 17, 1998 - ---------------------------- Porter Hillard /s/ Henry Mariani Director March 17, 1998 - ---------------------------- Henry Mariani /s/ Dr. R. L. Qualls Director March 17, 1998 - ---------------------------- Dr. R. L. Qualls /s/ Kennith Smith Director March 17, 1998 - ---------------------------- Kennith Smith
19 EX-10.12 2 STOCK PURCHASE AGREEMENT EXHIBIT 10.12 STOCK PURCHASE AGREEMENT AMONG BANK OF THE OZARKS, INC., HEARTLAND COMMUNITY BANK, Camden, Arkansas, AND HCB BANCSHARES, INC. DATED: NOVEMBER 19, 1997 INDEX TO STOCK PURCHASE AGREEMENT 1. The Purchase..................................... 1 (a) Purchase and Sale of Stock....................... 1 (b) Purchase and Assumption of Assets and Liabilities 2 (c) Retained Assets.................................. 2 (d) Retained Liabilities............................. 2 (e) Books, Records, Policies and Other Materials..... 3 (f) Proration of Seller Liabilities.................. 3 2. Purchase Price................................... 4 (a) Holding Company Stock............................ 4 (b) Purchase and Assumption.......................... 4 3. Closing.......................................... 4 (a) Closing Date..................................... 4 (b) Pre-Closing Balance Sheet........................ 4 (c) Payments at Closing.............................. 4 (d) Closing Documents................................ 5 (e) Post-Closing Balance Sheet....................... 6 4. Representation and Warranties of Seller and HCB.. 8 (a) Organization..................................... 8 (b) Capitalization of Holding Company................ 8 (c) Holding Company Shareholder...................... 8 (d) Capitalization of Bank........................... 9 (e) Title to Bank Stock.............................. 9 (f) Authority; Validity of Agreement................. 9 (g) No Violation, Consents and Approval.............. 9 (h) Financial Reports and Statements................. 10 (i) Bank Premises.................................... 10 (j) Reserved......................................... 11 (k) Claims........................................... 11 (l) Employment Contracts............................. 11 (m) Benefit Plans.................................... 11 (n) Agreements, Commitments and Certain Loans........ 12 (o) Litigation....................................... 12 (p) Tax and other Returns, Reports and Agreements................................. 12 (q) Legal and Regulatory Compliance.................. 13 (r) Insurance........................................ 14 (s) Environmental Compliance......................... 15 (t) Certain Transactions............................. 15 (u) Subsidiaries..................................... 15 (v) Corporate Records................................ 15 (w) Disclosure....................................... 15 -i- 5. Representations and Warranties of Buyer.......... 15 (a) Organization..................................... 16 (b) Authorization and Validity of Agreement.......... 16 (c) Investment....................................... 16 6. Covenants of HCB, Seller and Buyer............... 16 (a) Preservation of the Business..................... 16 (b) Access........................................... 17 (c) Best Efforts..................................... 18 (d) Public Announcements............................. 18 (e) Dividend......................................... 18 (f) Closing Net Worth, Indebtedness and Liabilities.. 18 (g) Name Change; Cooperation Regarding Applications.. 19 (h) Transition of Customer Accounts and Files........ 19 (i) Employees and Employee Benefit Plans............. 23 (j) Exclusivity...................................... 23 (k) Certain Notifications............................ 24 (l) Taxes and Reports................................ 24 (m) Deposit Products; Investment of Funds and Loans.. 27 (n) Insurance........................................ 27 7. Closing Conditions............................... 27 (a) Conditions to Obligations of Parties............. 27 (b) Conditions to Obligations of Buyer............... 28 (c) Conditions to Obligations of HCB and Seller...... 31 8. Survival and Indemnification..................... 31 (a) Survival of Representations, Warranties and Covenants.................................... 32 (b) Indemnification.................................. 32 9. Termination, Waiver, Extension and Agreement..... 33 (a) Termination...................................... 33 (b) Willful Breach of Intentional Misrepresentation.. 33 (c) No Willful Breach or Intentional Misrepresentation.............................. 33 (d) Waiver, Extension and Amendment.................. 34 10. Miscellaneous.................................... 34 (a) Broker's or Finder's Fees........................ 34 (b) Confidentiality.................................. 34 (c) Expenses......................................... 35 (d) Notices.......................................... 35 (e) Entire Agreement................................. 36 (f) Binding Effect................................... 36 (g) Further Assurances............................... 36 (h) Knowledge and Investigation...................... 36 (i) Construction..................................... 36 (j) Counterparts..................................... 36 (k) Section Headings................................. 36 -ii- STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of this 19th day of November, 1997, among BANK OF THE OZARKS, INC., an Arkansas corporation ("Buyer"), Heartland Community Bank, Camden, Arkansas, a federal savings bank ("Seller") and HCB Bancshares, Inc., an Oklahoma corporation ("HCB"). W I T N E S S E T H: WHEREAS, HCB owns of record and beneficially 100% of the issued and outstanding common stock of Seller; WHEREAS, Seller owns of record and beneficially 1000 shares of the outstanding common stock, par value $20 per share (the "Holding Company Stock") of Heritage Banc Holding, Inc., an Arkansas corporation (the "Holding Company") which shares represent all of the issued and outstanding capital stock of the Holding Company; WHEREAS, the Holding Company owns of record and beneficially 33,400 shares of common stock, par value $7.50 per share (the "Bank Stock"), of Heartland Community Bank, FSB, a federal stock savings bank (the "Bank"), which shares represent all of the issued and outstanding capital stock of the Bank; WHEREAS, the Bank's sole offices are its home office located at 109 North Chester, Little Rock, Arkansas (the "Main Office"), a full service branch office located at 473 Highway 425 North, Monticello, Arkansas (the "Monticello Branch") and a loan production office located at 23233 I-30, #20, Bryant, Arkansas (the "LPO Office"); WHEREAS, this Agreement contemplates a transaction pursuant to which (i) Buyer will acquire from Seller the Holding Company Stock and (ii) Seller will purchase and assume certain assets and liabilities of the Bank (collectively the "Acquisition Transaction"); and WHEREAS, the Seller desires to sell the Holding Company Stock and the Buyer desires to purchase the Holding Company Stock subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual promises, representations, covenants and actions hereinafter set forth and good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. The Purchase. ------------ (a) Purchase and Sale of Stock. Subject to the terms and conditions -------------------------- set forth herein, at the Closing (as defined below), Seller shall sell, transfer and deliver, free and clear of all liens and encumbrances, and Buyer shall purchase and acquire, all of the shares of Holding Company Stock which are and shall be issued and outstanding on the Closing Date (as defined below). (b) Purchase and Assumption of Assets and Liabilities. ------------------------------------------------- As a pre-condition to the purchase of the Holding Company Stock by Buyer pursuant to Section 1(a), Seller shall on the Closing Date purchase all of the assets, other than Retained Assets (as defined below) (the "Seller Assets") and assume all of the liabilities, other than Retained Liabilities (as defined below) (the "Seller Liabilities") of the Bank pursuant to the terms and conditions of that certain Purchase and Assumption Agreement (the "P&A Agreement") dated as of the date hereof, a copy of which is attached to this Agreement as Exhibit "A". The Seller Assets are being transferred by the Bank to Seller on an "as is" basis without any recourse, representation or warranty (including, but not limited to, representations or warranties as to quality, condition, title or compliance with laws, rules or regulations of Regulatory Authorities (as defined below)). The Seller Liabilities are being assumed by the Seller without recourse or any representation or warranty as to amount or compliance with laws, rules or regulations of Regulatory Authorities. (c) Retained Assets. For purposes of this Agreement and the P&A --------------- Agreement, the term "Retained Assets" shall mean the following assets owned by the Bank: (i) all real property constituting the Main Office and all improvements, fixtures and fittings thereon, and any easements, rights of way and other appurtenants thereto (such as appurtenant rights in and to public streets), (ii) all tangible personal property (other than computer hardware and software used in connection with Seller's existing data processing system) located at the Main Office, including the personal property described on Exhibit "B" hereto, (iii) goodwill, and (iv) cash, Federal Home Loan Bank balances and federal funds deposits. The amount of Retained Assets shall be accurately reflected on the Pre-Closing Balance Sheet (as defined below) of the Bank as of the Pre-Closing Balance Sheet Date (as defined below), which such Pre-Closing Balance Sheet is being delivered by Seller pursuant to Section 3(b). (d) Retained Liabilities. For purposes of this Agreement and the P&A -------------------- Agreement, the term "Retained Liabilities" shall mean (i) the deposits (other than Excluded Deposits, as defined below) associated solely with the Main Office, plus accrued interest thereon and (ii) all accrued and unpaid salaries of employees located at the Main Office, payroll and property taxes and other accrued liabilities associated with the Retained Assets and the operation of and personnel located at the Main Office. The term "Excluded Deposits" shall mean all deposits identified by Buyer on Annex I, which Annex may be modified or supplemented by the mutual agreement of Buyer and Seller no later than three business days prior to the Closing Date. All liabilities, -2- obligations or commitments (contingent or otherwise) of the Bank other than Retained Liabilities shall constitute Seller Liabilities. The amount of Retained Liabilities shall be accurately reflected on the Pre-Closing Balance Sheet as of the Pre-Closing Balance Sheet Date, which such balance sheet is being delivered by Seller pursuant to Section 3(b). (e) Books, Records, Policies and Other Materials. In addition to --------------------------------------------- the Retained Assets, the following items will remain in the possession and ownership of the Bank and the Holding Company, following the Closing: (i) all lists, studies, reports and other printed or written materials relating to the operation of the Main Office, (ii) all approvals, permits, licenses, registrations, certificates, variances and similar rights and all exams and reports obtained from government and governmental agencies relating to the operation of the Bank, the Holding Company or the Main Office, (iii) all deposit agreements, signature cards, change of address notifications and other documentation or correspondence related to the deposits which are included in Retained Liabilities; (iv) the Bank's and the Holding Company's charter, ABA transit routing number, telephone number, and all qualifications to do business, taxpayer and other identification numbers, minute books, stock transfer books, blank stock certificates, general corporate documents and other books, records and documents relating to the organization, maintenance and operation of the Bank and the Holding Company, and (v) subject to Section 6(n), the rights and benefits inuring to the Bank and Holding Company under policies evidencing all insurance, fiduciary bonds or similar coverage. (f) Proration of Seller Liabilities. The parties intend that Bank ------------------------------- shall operate for its own account the business conducted at the Monticello Branch and the LPO Office until the start of business on the Closing Date, and that the Seller shall operate such business for its own account on and after the Closing Date. Thus, except as otherwise specifically provided in this Agreement, items of expense directly attributable to the operation of the Monticello Branch and the LPO Office (which shall not include any general overhead expenses of Bank) and which are not readily capable of determination as of the Closing Date shall be prorated as of the start of business on the Closing Date, whether or not such adjustment would normally be made as of such time, including without limitation, personal (but not real) property taxes and any assessments attributable to FDIC deposit insurance attributable to the deposits included in the Seller Liabilities (such net amount being hereinafter referred to as the "Proration Amount"). Items which are readily capable of determination as of the Closing Date, including telephone, electric, gas and other utility services at the Monticello Branch the LPO Office shall not be prorated; instead, Bank and Seller shall make arrangements for the responsibility for payment of such services on or after the start -3- of business on the Closing Date to be transferred to the Seller as of the Closing Date. 2. Purchase Price. -------------- (a) Holding Company Stock. The purchase price for the Holding --------------------- Company Stock shall be a total of $3,100,000 (the "Stock Purchase Price"). (b) Purchase and Assumption. The purchase price to be paid by Seller ----------------------- for the Seller Assets being purchased by Seller pursuant to the P&A Agreement shall be an amount equal to the sum of the book value of such assets, plus ---- $450,000, minus the book value of the Seller Liabilities, all as of the Pre- ----- Closing Balance Sheet Date (the "Asset Purchase Price"). 3. Closing ------- (a) Closing Date. The closing of the purchase and assumption of the ------------ Seller Assets and Seller Liabilities by the Seller and the closing of the purchase of the Holding Company Stock by Buyer (collectively, the "Closing") shall take place at a mutually agreed time and place on (i) the first Monday to occur after the date on which all conditions specified in Section 7 hereof have been satisfied or waived, or if such Monday is not a business day, the next succeeding business day, or (ii) such other date as Seller and Buyer may mutually agree. The date of the Closing is hereinafter referred to as the "Closing Date." (b) Pre-Closing Balance Sheet. No later than the Saturday ------------------------- immediately preceding the Closing Date (the "Pre-Closing Date"), Seller shall deliver to Buyer copies of a consolidated balance sheet of the Bank and the Holding Company (the "Pre-Closing Balance Sheet"), certified and signed by the Seller, reflecting the Retained Assets, Retained Liabilities and the shareholders' equity of the Bank and the Holding Company as of midnight on the day immediately preceding the Closing Date (the "Pre-Closing Balance Sheet Date"). Such Pre-Closing Balance Sheet shall (i) be true and correct in all material respects, fairly present the assets, liabilities and stockholders' equity of the Bank and the Holding Company and be prepared in accordance with generally accepted accounting principles ("GAAP"), except with respect to variations from GAAP (A) that may result from compliance with any provisions of this Agreement, including, but not limited to, Section 6(n), and (B) with respect to the amount of goodwill included therein, (ii) be determined after giving effect on a pro forma basis to the completion of the purchase and assumption of the Seller Assets and Seller Liabilities pursuant to the P&A Agreement, (iii) include through midnight on the Pre-Closing Balance Sheet Date all accruals for amortization, interest expense, interest income, salaries, payroll and property taxes and other accrued liabilities associated -4- with the Retained Assets and the operation of, and personnel located at, the Main Office, (iv) include as attachments (A) a trial balance of all deposits as of midnight on the Pre-Closing Balance Sheet Date and (B) detailed supporting schedules, (v) exclude the value of any deferred tax assets of the Bank or Holding Company attributable to any tax periods prior to the Closing (the "Deferred Tax Assets"), (vi) reflect the Minimum Equity Amount required by Section 6(f) and (vii) exclude any value attributable to any prepaid insurance premiums for any insurance policies terminated in accordance with Section 6(n). (c) Payments at Closing. The Seller and the Buyer agree that the ------------------- following payments shall be made contemporaneously and under their mutual control on the Closing Date: (i) Seller and Bank shall settle the Asset Purchase Price by wire transfer or delivery of other immediately available funds to an account designated by the Seller or, in the case of amounts to be received by the Bank, an account designated by the Buyer; (ii) if applicable, the Seller may cause the Bank and the Holding Company to pay the dividend specified in Section 6(d) herein by wire transfer or delivery of other immediately available funds to an account designated by Seller; (iii) Buyer shall deliver to Seller the Stock Purchase Price, adjusted for any Proration Amount, for the Holding Company Stock by wire transfer or delivery of other immediately available funds to an account designated by Seller; (iv) the Seller will deposit or cause to be deposited an amount equal to the Stock Purchase Price in certificates of deposit, issued in the name of HCB or the Seller (the "Seller CDs"), by either the Bank or the state bank subsidiaries of the Buyer (such Seller CDs to be allocated among such institutions in amounts proportionate to the respective capitalizations of the institutions). The Seller CDs shall bear interest at the rate of 5.125% per annum, payable quarterly, and shall be issued in the denominations and maintain the maturity dates as set forth on Exhibit "C" hereto. Amounts paid at Closing shall be subject to subsequent adjustment based on the Post-Closing Balance Sheet (as defined herein). (d) Closing Documents. On the Pre-Closing Date, Seller shall deliver ----------------- to Buyer's counsel the following documents: (i) one or more original certificates representing the Holding Company -5- Stock, duly endorsed for transfer to the Buyer and accompanied by separate stock powers in blank, free and clear of all encumbrances, liens, security interests, claims and equities whatsoever, (ii) original certificates representing the Bank Stock issued in the name of the Holding Company free and clear of all encumbrances, liens, security interests, claims and equities whatsoever, (iii) a certificate of the President and Chief Financial Officer of Seller to the effect that the Pre-Closing Balance Sheet is true and correct in all material respects and was prepared in accordance with Section 3(b), and (iv) such other documents, including the legal opinions and closing certificates referenced in Section 7, as may be required by this Agreement or reasonably requested by the Buyer. On the Pre-Closing Date, the Buyer agrees to deliver to the Seller's counsel such documents, including the legal opinions and closing certificates referenced in Section 7, as may be required by this Agreement or reasonably requested by the Seller. Each of the Seller and Buyer acknowledge that their counsels shall not be authorized to release the Closing documents to the respective parties until the parties have received confirmation of the payments set forth in Section 3(c). (e) Post-Closing Balance Sheet. -------------------------- (i) Not later than 15 business days after the Closing Date (the "Post-Closing Balance Sheet Delivery Date"), Seller shall deliver to Buyer copies of a consolidated balance sheet of the Bank and the Holding Company, certified and signed by Seller, reflecting the Retained Assets, Retained Liabilities, and the shareholders' equity of the Bank and the Holding Company as of midnight on the Pre-Closing Balance Sheet Date (the "Post-Closing Balance Sheet"). Such Post- Closing Balance Sheet shall (i) be true and correct in all material respects, fairly present the assets, liabilities and stockholders' equity of the Bank and the Holding Company and shall be prepared in accordance with GAAP, except with respect to variations from GAAP (A) that may result from compliance with any provisions of this Agreement, including, but not limited to, Section 6(n), and (B) with respect to the amount of goodwill included therein, (ii) be determined after giving effect to the completion of the purchase and assumption of the Seller Assets and Seller Liabilities pursuant to the P&A Agreement, (iii) include through midnight on the Pre-Closing Balance Sheet Date all accruals for amortization, interest expense, interest income, salaries, payroll and property taxes and other accrued liabilities associated with the Retained Assets and the operation of, and personnel located at, the Main Office, (iv) exclude the value of any Deferred Tax Assets, (v) exclude any value attributable to any prepaid insurance premiums for any -6- insurance policies terminated in accordance with Section 6(n), and (vi) include as attachments (A) a final trial balance of all deposits as of midnight on the Pre-Closing Balance Sheet Date and (B) detailed supporting schedules and (vi) reflect the Minimum Equity Amount required by Section 6(f). (ii) Seller shall afford Buyer and its accountants and attorneys the opportunity to review all work papers and documentation used by Seller in preparing the Post-Closing Balance Sheet. Within 15 business days following the Post-Closing Balance Sheet Delivery Date (the "Adjustment Delivery Date"), Seller and Buyer shall meet at the offices of the Buyer in Little Rock, Arkansas, or such other location as shall be mutually agreed, to effect the transfer of any funds as may be necessary to reflect the (A) changes in such assets and liabilities between the Pre-Closing Balance Sheet and the Post-Closing Balance Sheet or (B) Minimum Equity Amount, together with interest thereon computed from the Closing Date to the Adjustment Payment Date at the applicable Federal Funds Rate (as defined). The "Federal Funds Rate" shall be the mean of the high and low rates quoted for Federal Funds in the Money Rates Column of the Wall Street Journal on the Closing Date. (iii) In the event that a dispute ("Dispute") arises as to the payment of the appropriate amounts to be paid to either party on the Adjustment Payment Date, each party shall pay to the other party on such Adjustment Payment Date all amounts other than those as to which a dispute exists. If a Dispute still exists 15 business days after the Adjustment Payment Date, the Buyer and Seller shall retain Ernst & Young, LLP, Little Rock (or any successor entity, the "Arbitrating Accountant") to resolve such Dispute and deliver to the Arbitrating Accountant a written notice setting forth in reasonable detail the elements and amounts set forth on the Post-Closing Balance Sheet to which such party disagrees. In resolving such Dispute, (A) each of Seller and Buyer agree to provide such workpapers, documentation and other information relating to the Dispute that are reasonably requested by the Arbitrating Accountant, (B) the determination by the Arbitrating Accountants, as set forth in a written notice delivered to each of the Seller and Buyer, will be binding and conclusive on the parties and (C) Buyer and Seller will each bear 50% of the fees of the Arbitrating Accountant for such determination. Any disputed amounts retained by a party which are later found to be due to the other party shall be paid to such other party promptly upon resolution with interest -7- thereon computed from the Closing Date to the date paid at the applicable Federal Funds Rate. 4. Representations and Warranties of Seller and HCB ------------------------------------------------ Seller and HCB jointly and severally represent and warrant to the Buyer that the following matters are true and correct as of the date hereof and will be true and correct on the Closing Date. As used in this Agreement, the term "Legal Requirements" shall mean any federal, state or local law, ruling or regulation, or the terms of any judgment, decree, order, regulation or rule. (a) Organization. The Holding Company and the Bank are corporations ------------ duly organized, validly existing and in good standing under the laws of the jurisdiction under which each is organized and each has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Holding Company is duly authorized, qualified and licensed under all applicable laws, regulations and orders of public authorities to conduct business as a saving and loan holding company as presently conducted and to own the Bank Stock. The Bank is duly authorized, qualified and licensed under all applicable laws and regulations to conduct a general savings bank business, embracing all usual functions of savings banks, all subject to the supervision of the Office of Thrift Supervision ("OTS"), and is a "qualified thrift lender," as such term is defined in the Home Owners' Loan Act of 1933 ("HOLA"). The accounts of depositors held by the Bank are insured to the maximum extent permitted by law by the Saving Association Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"), and the Bank has paid in a proper and timely manner all premiums and assessments and filed all reports in connection therewith. (b) Capitalization of Holding Company. The authorized capital stock --------------------------------- of the Holding Company consists of 1,000 shares of common stock, par value $20.00 per share, all of which are issued and outstanding. All shares of Holding Company Stock have been duly and validly authorized and issued and are fully paid and nonassessable. There are no outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or other agreements of any character obligating the Holding Company to issue any additional shares of Holding Company Stock or any other shares of capital stock of the Holding Company or any other securi ties convertible into or evidencing the right to subscribe for any shares of Holding Company capital stock, and no authorization therefor has been given. (c) Holding Company Shareholder. The Seller owns of record and --------------------------- beneficially the Holding Company Stock, free and clear of all liens, encumbrances, equities and claims. There are no -8- outstanding options, warrants or rights to subscribe for or purchase from the Seller any of the Holding Company Stock owned by Seller. (d) Capitalization of Bank. The authorized capital stock of the Bank ---------------------- consists of 150,000 shares of common stock, par value $7.50 per share, 33,400 of which are issued and outstanding, and 100,000 shares of preferred stock, par value $1.00 per share, no shares of which are issued and outstanding. All shares of Bank Stock have been duly and validly authorized and issued and are fully paid and nonassessable. There are no outstanding options, warrants or rights to subscribe for or purchase any of the Bank's capital stock or securities convertible into or exchangeable for any of the Bank's capital stock, and no authorization therefor has been given. (e) Title to Bank Stock. The Holding Company has valid and ------------------- marketable title to the Bank Stock free and clear of all liens, encumbrances, equities and claims. (f) Authority; Validity of Agreement. HCB and Seller have all -------------------------------- requisite power and authority to enter into this Agreement and (subject to receipt of all requisite regulatory approvals) to consummate the transaction contemplated hereby. This Agreement has been duly executed and delivered by HCB and Seller and is a valid and binding obligation of HCB and Seller, enforceable against HCB and Seller in accordance with its terms, except as (i) such enforcement may be subject to applicable bankruptcy, insolvency or other laws, now or hereafter in effect, affecting creditors' rights generally and (ii) the remedy of specific performance, injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any pro ceedings therefor may be brought. (g) No Violation, Consents and Approval. Neither the execution and ----------------------------------- delivery of this Agreement nor the consummation of the transactions contemplated hereby will: (i) violate any provision of the certificate of incorporation, bylaws or other organizational documents of HCB, Seller, Holding Company or the Bank, (ii) violate, constitute a default under or give rise to a right of termination in respect of any agreement to which HCB, the Seller, the Holding Company or the Bank is a party or by which any of their respective assets are bound, (iii) except for requisite regulatory approvals, require any filing with or permit, consent or approval of any public body or Regulatory Authority, or (iv) assuming that the Acquisition Transaction receives requisite regulatory approval, violate any statute or Legal Requirements imposed on or applicable to HCB, the Seller, the Holding Company or the Bank or any assets owned by them. -9- (h) Financial Reports and Statements. The Seller has previously -------------------------------- caused to be delivered to the Buyer true and complete copies of the "Thrift Financial Reports", and any amendments thereto, of the Holding Company and Bank filed with the OTS since January 1, 1994 (collectively the "Financial Reports"). The Financial Reports have been prepared in accordance with all material Legal Requirements and GAAP consistently applied during the periods indicated, are true and correct in all material respects and fairly present the assets, liabilities and financial condition of the Holding Company and the Bank and the results of operations for the periods indicated. There has been no material adverse change in the financial position or business operations of the Holding Company or the Bank since the date of the most recent Financial Reports. The Pre-Closing Balance Sheet (including the trial balance and supporting schedules) to be delivered by Seller pursuant to Section 3(b) will be true and correct in all material respects, fairly present the assets, liabilities and shareholders' equity of the Bank and be prepared in accordance with GAAP, except that no representation is made with respect to variations from GAAP (A) that may result from compliance with any provisions of this Agreement, including, but not limited to, Section 6(n), and (B) with respect to the amount of goodwill included therein. Notwithstanding the foregoing, interim financial statements are subject to normal recurring year-end adjustments the effect of which, individually or in the aggregate, will not be materially adverse. (i) Bank Premises. The Bank has good and marketable title to the ------------- premises constituting the Main Office and to all other Retained Assets free and clear of all liens and encumbrances, except for recorded easements and other minor defects of title which do not impair the use or value of the Main Office and liens for taxes not yet due and payable (the "Permitted Encumbrances"). The premises constituting the Main Office and the continuation of business presently being conducted thereon do not and will not violate any currently applicable zoning laws. The Main Office (i) is served (independent of adjacent landowners) by all utilities and services, including electrical power, gas, water, sewer, and telephone, reasonably necessary for the normal and intended use of the Main Office as a bank branch and (ii) has ingress and egress to and from Chester and Markham Streets and LaHarpe Boulevard necessary to conduct business currently being conducted thereon. The premises constituting the Main Office are free from structural defects (patent and latent). The premises constituting the Main Office and all items of tangible personal property included within the Retained Assets and located in the Main Office (A) will be reflected accurately in the Pre-Closing Balance Sheet and (B) are in good operating condition and repair(subject to normal wear and tear) and are suitable for the purposes for which they are presently used. -10- (j) Reserved. -------- (k) Claims. Except for Seller's rights under the Seller CDs, neither ------ HCB nor the Seller will have any claim against the Holding Company or the Bank on or after the Closing Date. (l) Employment Contracts. Except as described in Schedule 4(l), -------------------- there exist no agreements relating to the employment of any person by the Holding Company or the Bank, or any bonus, deferred compensation, insurance, stock option or other employee benefit arrangements to which the Holding Company or the Bank is a party or which otherwise obligates the Holding Company or the Bank. (m) Benefit Plans. Neither the Holding Company nor the Bank ------------- maintains, contributes to, is a party to or otherwise has or could have any obligation under any "employee benefit plan" (as defined by Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended "ERISA") program, policy, commitment or other arrangement (whether or not in a written document) covering any active, former or retired employee, director or consultant of HCB, the Seller or any of their subsidiaries (including the Holding Company and the Bank), except for Bank's participation in the plans set forth on Schedule 4(m)(i) (collectively, the "Plans"). The Plans comply with all requirements of ERISA (to the extent applicable), the Internal Revenue Code of 1986, as amended (the "Code") and all other applicable Legal Requirements and have been maintained and administered in all material respects in compliance with ERISA (to the extent applicable), the Code and all other applicable Legal Requirements. No Plan is covered by Title IV of ERISA or Section 412 of the Code. Neither the Holding Company nor the Bank, nor any officer or director of the Holding Company or the Bank, has incurred any liability or penalty under Sections 4975 through 4980 of the Code or Title I of ERISA. No suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of the Plans' activities) has been brought, or is threatened, against or with respect to such Plans. All contribu tions, reserves or payments required to be made or accrued as of the date hereof and as of the Closing Date with respect to Plans have been or will be made or accrued. The Bank's participation in the Plans will terminate as of the Closing Date and neither the Holding Company nor the Bank will incur any liability or other obligations with respect to such Plans or as a result of such termination of participation. Except as set forth on Schedule 4(m)(ii), which Schedule may be modified or supplemented by the Seller on the Pre-Closing Date, there are no former employees of the Bank or the Holding Company who are eligible for benefits under any medical plan sponsored by the Bank or the Holding Company under the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA") or under the provisions of such plan. -11- (n) Agreements, Commitments and Certain Loans. Neither the Holding ----------------------------------------- Company nor the Bank are bound by (i) any agreement of indemnification or guaranty running from the Holding Company or the Bank to any person or entity, (ii) except for those agreements and obligations set forth on Schedule 4(n) attached hereto, any contract (other than a loan) which is not terminable on not more than 30 days notice or any agreement under which the Holding Company or Bank has incurred, assumed or guarantied any indebtedness for borrowed money, (iii) any commitments for charitable, civic or similar contributions, (iv) any agreement, contract or other commitments which might reasonably be expected to have a potential material adverse impact on the business of the Holding Company or the Bank, (v) any agreement, contract or other instrument which contains restrictions with respect to the payment of dividends or any other distributions in respect of the Holding Company Stock or the Bank Stock, (vi) any agreement, contract or commitment containing any covenant limiting the ability of the Holding Company or the Bank to compete with any person, (vii) any agreement, contract or commitment relating to capital expenditures, (viii) except as described on Schedule 4(n), any agreement, con tract or commitment relating to any transaction or series of trans actions with any executive officer, director, principal shareholder or their affiliates or related interests (including loans which constitute an extension of credit within the meaning of the regulations of the Federal Reserve Board set forth in Regulation O, Part 215 of Title 12 of the Code of Federal Regulations). (o) Litigation. There is no action, suit, proceeding or investigation ---------- pending or, to the knowledge of HCB, the Seller, Holding Company or Bank, threatened, against the Holding Company or the Bank which (i) might have an adverse effect on the Holding Company or the Bank, (ii) impair the ability of the Holding Company or the Bank to conduct business as now conducted, or (iii) restrain or otherwise impair the sale of the Holding Company Stock by the Seller to the Buyer or restrain or impair the performance of any other action to be taken by the Seller, the Holding Company or the Bank under this Agreement. (p) Tax and Other Returns, Reports and Agreements. All federal, state --------------------------------------------- and local tax returns and tax reports required to be filed by the Holding Company or the Bank have been timely filed with all appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed and all such tax returns were correct and complete in all respects and both the Bank and the Holding Company have complied with all tax laws in all material respects. All federal, state and local income, profits, franchise, sales, use, occupation, property, excise and other taxes (including interest and penalties) with respect to present and prior periods have been fully paid by or on behalf of the Holding Company and Bank and neither the Holding Company nor Bank has any liability for any such taxes; except for income and -12- property taxes not yet due and payable which in the case of (i) all income taxes will be assumed by HCB and Seller in accordance with Section 6(l), and (ii) real property taxes will be (A) accrued through the Pre-Closing Balance Sheet Date and thereafter paid by Buyer with respect to the Main Office, and (B) the sole responsibility and obligation (after giving effect to the payment of any Proration Amount) of Seller with respect to the Monticello Branch and LPO Office. Neither the Seller, the Holding Company nor the Bank have any knowledge that any governmental authority intends to assess any additional income taxes against Holding Company or Bank for any taxable period. There is no dispute or claim concerning any income tax liability of the Holding Company or Bank. No extension of time has been requested or given with respect to any tax returns heretofore filed by the Holding Company or the Bank and neither of the Holding Company nor Bank has waived any statute of limitations in respect of any taxes or agreed to any extension of time with respect to a tax assessment or deficiency. Each "Affiliated Group" (as defined by Section 1504 of the Internal Revenue Code of 1986, as amended) in which the Holding Company or Bank is or was a member has filed all income tax returns that such Affiliated Group was required to file for each taxable period during which either of the Holding Company or the Bank was a member of such group. All income taxes owed by the Affiliated Group have been paid for each taxable period during which any of the Holding Company or Bank was a member of such group. Neither the Seller, the Holding Company nor the Bank have any knowledge that any governmental authority intends to assess any additional income taxes against any Affiliated Group for any taxable period during which either of the Holding Company or Bank was a member of such group. There is no dispute or claim concerning any income tax liability of an Affiliated Group for any taxable period during which either of the Holding Company or Bank was a member of such group. No extension of time has been requested or given with respect to any tax returns heretofore filed by an Affiliated Group and no Affiliated Group has waived any statute of limitations in respect of any income taxes or agreed to any extension of time with respect to any income tax assessment or deficiency for any taxable period during which either of the Holding Company or Bank was a member of such group. Neither of the Holding Company nor the Bank has any liability for the taxes of other person or entity (i) under Treas. Reg. (S) 1.1502-6 (or any similar provision of state law), (ii) as a transferee or successor, (iii) by agreement or (iv) otherwise. (q) Legal and Regulatory Compliance. Since September 30, 1992, the ------------------------------- Holding Company and the Bank have filed with the OTS, the FDIC, Internal Revenue Service and such other federal, state or local regulatory authorities having jurisdiction over the operations of the Holding Company and Bank (collectively, the "Regulatory Authorities") all reports and filings required to be -13- filed with such Regulatory Authorities under all Legal Requirements. Except as set forth in Schedule 4(q) the Holding Company and the Bank are in compliance with all Legal Requirements, including Legal Requirements of Regulatory Authorities. Except as described on Schedule 4(q), neither the Holding Company nor the Bank is subject to any specific limitation on activity, administrative agreement, order or ruling issued by any one or more of the Regulatory Authorities. Neither HCB, Seller, Holding Company or Bank has any knowledge that any Regulatory Authority has threatened or considered (i) any assessment against the Holding Company Stock or the Bank Stock, (ii) a termination of deposit insurance or revocation of charter of the Bank, or (iii) issuing a memorandum of understanding, cease and desist order or other enforcement action against the Bank or Holding Company. Except as set forth in Schedule 4(q), neither HCB, the Seller, the Holding Company nor the Bank has received notice of a violation of any Legal Requirements applicable to: (A) the Holding Company, (B) the Bank, (C) the conduct of the business of the Holding Company or the Bank, (D) the ownership of any asset purported to be owned by the Holding Company or the Bank, or (E) the ownership of the Holding Company Stock by the Seller or the ownership of the Bank Stock by the Holding Company. (r) Insurance. The Holding Company and Bank carry such insurance --------- policies (including property, casualty and liability insurance and fidelity bond and surety arrangements, collectively the "Insurance Policies") with respect to their properties and businesses in such amounts (including, without limitation, such amounts as are sufficient to be fully insured under any coinsurance provisions contained in such policies) and insuring against such risks as is customary, usual and prudent for the businesses being conducted by them. Schedule 4(r) sets forth the following information with respect to each such Insurance Policy under which the Holding Company or Bank is a party, named insured or otherwise the beneficiary of coverage: (i) the name, address and telephone number of the agent, (ii) the name of the insurer, policy holder and each covered insured, (iii) the policy number and the period of coverage, (iv) the scope and amount of coverage (including an indication of whether the coverage is on a claims made, occurrence or other basis) and (v) a description of any retroactive premium adjustments or loss-sharing arrangements. Except as disclosed in Schedule 4(r), neither HCB, Seller, the Holding Company nor the Bank has forfeited or waived any claim under any Insurance Policy and each has fully complied with the terms and conditions thereof. Schedule 4(r) sets forth all property damage and personal injury claims asserted under such Insurance Policies by or against the Holding Company or Bank which are otherwise still pending. All of such claims have been or are being defended by insurance carriers without reservation and are or will be covered by the Insurance -14- Policies. Neither HCB, Seller, Holding Company or Bank has received a notification from any insurance carrier denying or disputing any claim made by it, denying or disputing any coverage for any such claim, denying or disputing the amount of any claim, or regarding the possible termination, cancellation or amendment of or premium increases with respect to any of the Insurance Policies. (s) Environmental Compliance. Both the Holding Company and the Bank ------------------------ are in compliance with all applicable federal, state and local statutes, laws, ordinances and regulations concerning conservation and protection of the environment except to the extent that failure to comply would not result in a material adverse effect on the Bank or the Holding Company. To the knowledge of HCB, the Seller, Holding Company and Bank, no real or personal property owned or leased by either the Holding Company or the Bank is now being used or has at any time in the past ever been used for the storage (whether permanent or temporary), disposal or handling of any hazardous material, hazardous waste, hazardous substance, contaminant or pollutant, nor are any such materials, waste, substance, contaminant or pollutant located in, on, under or at the real or personal property owned, leased or used by the Holding Company or the Bank. (t) Certain Transactions. Except as described on Schedule 4(t), no -------------------- current or former officer, director, employee or shareholder of HCB, Seller, the Holding Company or the Bank has any interest in the Main Office or the Retained Assets. (u) Subsidiaries. The Holding Company has no subsidi aries or direct ------------ or indirect equity interest in any partnership, firm, corporation or other entity or enterprise other than the Bank. The Bank has no subsidiary or direct or indirect equity interest in any partnership, firm, corporation or other entity or enterprise. (v) Corporate Records. The minute and stock record books of the ----------------- Holding Company and the Bank are true, complete and correct in all material respects. (w) Disclosure. HCB and Seller have disclosed to the Buyer in writing ---------- all matters known to HCB, Seller, the Bank or the Holding Company which might have a material adverse affect on the ownership or operation of the Holding Company or the Bank. 5. Representations and Warranties of Buyer --------------------------------------- Buyer represents and warrants to the Seller that the following matters are true and correct as of the date hereof and will be true and correct on the Closing Date. -15- (a) Organization. The Buyer is organized as a corporation, validly ------------ existing and in good standing under the laws of the State of Arkansas. The Buyer is duly authorized, qualified and licensed under all applicable laws and regulations to conduct business as a bank holding company subject to the supervision of the Federal Reserve Board ("FRB"). (b) Authorization and Validity of Agreement. Buyer has the full --------------------------------------- corporate power and authority to execute and deliver this Agreement and (subject to receipt of all requisite regulatory approvals) to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Buyer and is a valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except that (i) such enforcement may be subject to applicable insolvency or similar laws, now or hereafter in effect, affecting creditors' rights generally and (ii) the remedy of specific performance, injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any pro ceedings therefore may be brought. (c) Investment. The Buyer is acquiring the Holding Company Stock for ---------- investment and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act of 1933, as amended. 6. Covenants of HCB, Seller and Buyer. ---------------------------------- (a) Preservation of the Business. From and after the date of this ---------------------------- Agreement, the Seller shall, to the extent required for the continued operation of the Holding Company's business and the business of the Bank without impairment, cause the Holding Company and the Bank to preserve substantially intact their business organization and, in so doing, shall cause the Holding Company and the Bank to (i) continue their businesses in the ordinary and usual course and maintain their properties, (ii) maintain their insurance and bonds in conformity with past practice, (iii) maintain and keep all Retained Assets in good operating condition and repair, (iv) keep on a current basis their financial accounting and policies, (v) exercise their best efforts to keep in their employment present key employees, clerical workers, tellers, and other employees located at the Main Office and to preserve for the Buyer their relationship with customers and others to the end that the going business of the Holding Company and the Bank will be unimpaired at the Closing Date, and (vi) in all respects substantially comply with all Legal Requirements. From and after the date of this Agreement, HCB and Seller shall cause the Holding Company and the Bank to continue their respective businesses in the ordinary course and, by way of clarification and not limitation, neither HCB, nor the Seller shall -16- permit the Holding Company or the Bank, except as otherwise permitted by this Agreement or with the prior written approval of the Buyer, to (i) engage in any transaction which is not in the ordinary course of business or in accordance with sound banking practices, (ii) amend the certificate of incorporation or other organizational documents, or the bylaws of the Holding Company or the Bank, (iii) declare, set aside or pay any dividend or distribu tion with respect to the capital stock of the Holding Company or the Bank, except for the payment of cash dividends allowed by Section 6(e), (iv) effect a split or reclassification of any capital stock of the Holding Company or the Bank, (v) issue any capital stock of the Holding Company or the Bank, (vi) sell or grant any options, rights or warrants to purchase stock or other securities of the Holding Company or the Bank, (vii) encumber, mortgage, transfer or convey any of the Retained Assets or acquire any material assets or property, (viii) grant any bonus or any salary increase to any employee, officer or director of the Holding Company or the Bank, (ix) enter into any written or oral employment agreement with any employee, renew or extend any existing written or oral employment agreement or appoint or elect any new or addi tional officers or directors of the Holding Company or the Bank, (x) borrow or agree to borrow any funds or incur any indebtedness other than in the ordinary course of business, which indebtedness will be assumed by Seller pursuant to the P&A Agreement or repaid by Seller at Closing; (xi) enter into any real or personal property lease, (xii) enter into any exclusive listing or other contract for the sale of Retained Assets, (xiii) purchase or commit to purchase or participate in the purchase of any item of real or personal property, tangible or intangible, (xiv) enter into any deposit or loan contracts or obligations (except for acceptance of FDIC-insured deposit accounts of the type permitted by Section 6(m) and the consummation of loans in the ordinary course of its business which loans will be purchased by Seller pursuant to the P&A Agreement) or enter into any material contract, agreement or other binding relationship which cannot be terminated in full without recourse with thirty days' notice, (xv) incur any expenses other than in the ordinary course of business, (xvi) make any charitable, civic or similar contributions or commitments, (xvii) purchase or acquire any certificates of deposit issued by other financial institutions or, except as permitted by Section 6(m), invest any funds in securities which are not being acquired pursuant to the P&A Agreement, (xviii) waive any rights of substantial value, or (xix) make any commitments for any of the foregoing. (b) Access. From and after the date of this Agreement, the Seller ------ shall cause the Holding Company and the Bank to provide to representatives of the Buyer access to the Bank's facilities and access to, and the ability to make copies of, the Holding Company's and the Bank's books and records during reasonable business hours in order to facilitate the transition of ownership contemplated by this Agreement. Buyer shall also be afforded reasonable access to -17- the Main Office after hours, by appointment, for the purpose of installing computer cables, data lines and other systems necessary to convert the Bank to Buyer's operating systems. Buyer agrees that its representatives will not unreasonably interfere with the activities of the Bank or the Holding Company. (c) Best Efforts. Subject to the terms and conditions herein ------------ provided, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. (d) Public Announcements. The Seller and the Buyer will consult with -------------------- each other before issuing any press release or otherwise making any public statements with respect to the transac tions contemplated by this Agreement. Each of the Buyer and Seller acknowledges that Buyer and HCB are publicly traded companies subject to the Securities Exchange Act of 1934, and that Buyer and HCB may each issue a press release and make a public announcement regarding the transactions contemplated by this Agreement no earlier than 4:30 p.m. Little Rock time on the date of the execution hereof. (e) Dividend. Immediately prior to the Closing on the Closing Date, -------- Seller shall be entitled to cause the (i) Bank to effect a cash dividend to the Holding Company of the amount of shareholder's equity reflected on the Pre- Closing Balance Sheet in excess of $3,100,000 and (ii) Holding Company to effect a dividend of all tangible assets of the Holding Company (other than the Bank Stock) to Seller. (f) Closing Net Worth, Indebtedness and Liabilities. HCB and Seller ----------------------------------------------- covenant that immediately prior to the Closing on the Closing Date, the Bank shall have minimum shareholders' equity (after giving effect to the purchase and assumption of the Seller Assets and Seller Liabilities pursuant to the P&A Agreement and the dividends contemplated by Section 6(e)), determined in accordance with GAAP (except with respect to variations from GAAP (A) that may result from compliance with any provisions of this Agreement, including, but not limited to, Section 6(n), and (B) with respect to the amount of goodwill included therein) of $3,100,000 (the "Minimum Equity Amount"), which such Minimum Equity Amount shall include an amount of goodwill not in excess of the difference between (A) and (B)(the "Maximum Goodwill Amount"), where (A) is equal to $1,415,223 (as such amount shall be reduced after June 30, 1997 based upon monthly amortization (or daily amortization prorated for the partial month occurring prior to Closing) of goodwill in accordance with GAAP and the Bank's prior practice)and (B) is equal to $450,000. HCB and Seller further agree and covenant that as of the Closing Date (i) the Holding Company will -18- have no indebtedness or outstanding liabilities, contingent or otherwise and (ii) the Bank will have no indebtedness or outstanding liabilities, contingent or otherwise, except for Retained Liabilities reflected on the Pre-Closing Balance Sheet and except as contemplated by section 2.02(c) of the P&A Agreement. (g) Name Change; Cooperation Regarding Applications. Buyer covenants ----------------------------------------------- and agrees that in connection with the Acquisition Transaction it shall submit an application to change the name of the Bank following the Closing to a name other than "Heartland Community Bank, FSB," and that such new name shall not include the word "Heartland." Seller acknowledges that in connection with the request for approval of the Acquisition Transaction, Buyer intends to submit an application to Regulatory Authorities for approval of one or more new branch locations for the Bank. Each of the parties hereto agree to fully cooperate and assist one another in the preparation of all applications submitted to Regulatory Authorities in connection with the Acquisition Transaction, the name change and the new branch applications. Following the Closing, each of the parties agree to reasonably cooperate with one another in connection with the gathering and submission of information that may be required by Regulatory Authorities with respect to future applications or reports regarding the Acquisition Transaction or the ownership or operation or the Holding Company or Bank. (h) Transition of Customer Accounts and Files. Each of the parties ----------------------------------------- hereto agree to fully cooperate and assist one another in connection with the transition and conversion of all customer accounts, files (including data processing files) and other information which is being retained by Bank or purchased and assumed by Seller pursuant to the terms hereof and to take no action designed or intended to have the effect of discouraging or damaging any continuing customer relationship being retained or assumed by any party hereunder. In furtherance of this covenant to cooperate, the parties specifically agree as follows: (i) The parties agree to arrange and attend a meeting between their respective electronic data personnel and contractors promptly following the execution of this Agreement for the purpose of coordinating the transition and conversion of the electronic data processing matters contemplated by this Section 6(h). (ii) Seller agrees that sufficiently in advance of the Closing Date it will provide all customer data files relating to all deposit accounts which are included in Retained Liabilities to the Buyer so as to enable the Buyer to download all customer account information from such files onto Buyer's computer system. Such data files will be provided to Buyer in hard-copy form and on -19- magnetic tape or diskette. On the Pre-Closing Date, Seller shall deliver to Buyer (in hard-copy form and on magnetic tape or diskette) a customer trial balance showing the current balances and accrued interest in all customer accounts as of midnight on the Pre-Closing Balance Sheet Date so as to allow Buyer to activate all customer deposit files on its computer system. Although the Seller agrees to cooperate with Buyer in effecting the download and conversion of the foregoing data files to the Buyer's computer system, the Buyer acknowledges that such conversion and transition to its computer system is the Buyer's ultimate responsibility. (iii) As soon as practicable after the Closing, but in no event later than two (2) business days after the Closing Date, the Seller agrees to distribute a special statement of account to customers for all of the Bank's transaction accounts which are included in Retained Liabilities and to provide a copy of such special statements to the Buyer. Such statement of account shall reflect account balances as of midnight on the Pre-Closing Balance Sheet Date and include all transactions in the accounts since the last statement distributed to the customers and all other information that is normally contained in the statements prepared for such accounts. Seller will be entitled to impose normal fees and service charges on a per-item basis, but Seller will not impose monthly service charges or other periodic fees or blanket charges in connection with such special statement. (iv) Seller agrees to pay in accordance with law and customary banking practices all properly drawn and presented checks, drafts and withdrawal orders presented to Seller by mail, over the counter or through the check clearing system of the banking industry, by depositors of the accounts assumed by Seller pursuant to the P&A Agreement, whether drawn on the checks, withdrawal or draft forms provided by the Bank or Seller, and in all other respects to discharge, in the usual course of the banking business, the duties and obligations of the Bank with respect to the balances due and owing to the Seller Retained Customers (as defined below). (v) Immediately following the Closing, the Seller will (A) issue new checks, free of charge, and will furnish instructions to all customers maintaining deposits at the Monticello Branch ("Seller Retained Customers") to utilize the new checks and to destroy unused check, draft and withdrawal order forms in the possession of such Seller Retained Customers which contain the Bank's ABA transit routing number (the "Old -20- Checks") and (B) notify all Seller Retained Customers that no Old Check will be honored or paid by Bank after the expiration of a ninety (90) day period following the Closing Date. (vi) the Seller and Buyer shall develop a mutually agreeable methodology whereby on each business day following the Closing (A) Bank shall make a daily presentment to Seller of all Old Checks drawn on the Bank as of such date of presentment and (B) Seller shall either (1) make payment to Bank (in same-day funds) of the amount represented by each such Old Check or (2) direct bank to return the Old Check on their behalf without payment. Seller acknowledges that Bank will be acting solely as Seller's agent for the purpose of processing Old Checks, and Seller agrees to indemnify and hold harmless the Bank and Buyer from and against any and all Adverse Consequences (as defined below) resulting from any action undertaken by Bank in good faith or at the direction of Seller. (vii) Seller acknowledges that the obligations and responsibility of Bank to honor, pay and process Old Checks shall terminate on the ninetieth (90) day following the Closing Date (the "Processing Termination Date"). After the Processing Termination Date, all Old Checks drawn on the Bank shall be returned to the customer without payment. Seller agrees to indemnify and hold harmless the Bank and Buyer from and against any and all Adverse Consequences resulting from the return by Bank of any Old Check after the Processing Termination Date. (viii) Seller agrees to pay promptly to Buyer an amount equivalent to the amount of any checks, drafts, withdrawal orders or other items provisionally credited to an account of a Seller Retained Customer as of the Closing Date that are returned to Seller or Buyer after the Closing Date. (ix) With respect to any deposit account among the Retained Liabilities that has a negative balance as of the close of business on the day immediately preceding the Closing Date due to an overdraft caused by the Bank's final payment in settlement, on or before the close of business on the day immediately preceding the Closing Date, of one or more checks, drafts or other items drawn against such account or any insufficient, overdraft or similar service charge deducted by Bank from such account (the "Overdraft Items"), which negative balance continues to exist at the close of business on the fifth business -21- day after the Closing Date after the exercise by the Bank of any setoff rights which the Bank is entitled to, the Bank shall be entitled to reimbursement from the Seller in immediately available funds for the amount of any such negative balance of which the Bank gives Seller notice within fifteen (15) business days after the Closing Date. The Bank shall continue as the Seller's agent, for a period of sixty (60) days after the Closing Date, or such shorter period as the Seller may request, to assert setoff rights. The Bank shall immediately deliver to Seller all Overdraft Items in Bank's possession (if any) for which it demands reimbursement and Seller shall be vested with all rights, title and interest in, to and in connection with such Overdraft Items which the Bank otherwise would have had and Seller shall be entitled to enforce and collect all rights, remedies, claims and causes of action against all persons and entities (other than the Bank) including, without limitation, the drawer and the depositor which the Seller or Bank shall have or would have had in connection with the Overdraft Item. (x) If, after the Closing Date, any depositor who is a Seller Retained Customer, instead of accepting the obligation of Seller to pay the Seller Liability relating to such depositor's account and assumed pursuant to the P&A Agreement, shall demand payment from Bank for all or any part of any such liability, Bank shall not be liable or responsible for making any such payment; provided, that if Bank shall pay the same, Seller agrees to reimburse Bank for any such payments, and Bank shall not be deemed to have made any representations or warranties to Seller with respect to any such checks, drafts or withdrawal orders and any such representations or warranties implied by law or hereby expressly disclaimed. (xi) As of the Closing Date, Seller will notify all Automated Clearing House ("ACH") originators effecting debits or credits to the accounts of Seller Retained Customers; provided, however, that the Bank may, at its option, notify all such originators itself (on behalf of Seller). For a period of 90 days beginning on the Closing Date, the Bank will honor all ACH items related to accounts of Seller Retained Customers which are mistakenly routed or presented to Bank. Bank will make no charge to Seller for honoring such items, and will transmit via facsimile such ACH data to Seller. Items mistakenly routed or presented after the 90-day period may be returned to the presenting party. Seller and Bank shall make arrangements to provide for the daily settlement with immediately available funds by Seller of any ACH items honored by Bank, and Seller agrees to -22- indemnify and hold harmless the Bank and Buyer from and against any and all Adverse Consequences resulting from any action undertaken by Bank in good faith for acting in accordance with this arrangement to accept ACH items or at the direction of Seller. The parties acknowledge that each of the foregoing procedures constitute a general statement of the expectations of the parties regarding the transition of customer accounts and files. The parties intend that the actual details and procedures for such transition will be finalized in a manner consistent with the foregoing expectations by the mutual agreement of Buyer's and Seller's data processing personnel and representatives prior to Closing. (i) Employees and Employee Benefit Plans. HCB and Seller shall, ------------------------------------ prior to the Closing, take such action as is necessary to (i) terminate the employment of any all employees of the Bank located at the Monticello Branch or LPO Office and to pay all salaries of such employees through such date and (ii) rehire such persons as employees of HCB or Seller on the same or better terms as such employees were employed by the Bank. Prior to the Closing, HCB and Seller shall take such action as is necessary to terminate all participation and obligations of the Bank and the Holding Company under the Plans. HCB and Seller agree to jointly and severally indemnify and hold harmless the Bank and Buyer from and against any and all Adverse Consequences resulting from (A) the failure of HCB or Seller to comply with any Legal Requirement applicable to the termination and rehiring of the employees of the Bank or the Holding Company on or prior to the Closing Date (including, but not limited to compliance with COBRA) or (B) Bank's or Holding Company's participation in or termination as a participating employer under the Plans. Further, the Buyer shall use its best efforts to cause its insurance carrier to waive the applicable waiting period under Buyer's existing health and medical insurance plans so as to allow all employees of the Bank as of the Closing Date to participate, effective on the 1st day of the month immediately following the Closing Date, in such plans. If Buyer is unable to obtain the foregoing waiver from it insurance carrier, it shall take such action as is necessary to allow all employees of the Bank as of the Closing Date to participate in Buyer's health and medical insurance plans as soon as possible under the terms of such plans. (j) Exclusivity. None of HCB or Seller will (and neither HCB nor ----------- the Seller will cause or permit the Holding Company or the Bank or any officer, director, employee or affiliate of HCB, Seller, the Holding Company or the Bank to) (i) solicit, initiate, or encourage the submission of any proposal or offer from any person or entity relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the -23- assets of, the Holding Company or the Bank (including any acquisition structured as merger, consolidation or share exchange) or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person or entity to do or seek any of the foregoing. HCB and Seller will notify the Buyer immediately if any person or entity makes any proposal, offer, inquiry or contact with respect to any of the foregoing. (k) Certain Notifications. Each party shall promptly notify the other --------------------- in writing of the occurrence of any event which will or could reasonably be expected to result in the failure to satisfy any of the conditions specified in Section 7. (l) Taxes and Reports. (i) HCB shall prepare and file when due all ----------------- federal, state and local tax returns of any kind for the Holding Company and the Bank for the period up to the Closing Date (the "Pre-Closing Tax Period") and shall promptly pay all taxes relating to such Pre-Closing Tax Period, including installment payments for taxes, interest, penalties, assessments or other deficiencies of any kind. At least ten (10) days prior to the filing of any tax return which includes the Pre-Closing Tax Period of the Holding Company and the Bank, HCB shall deliver a copy of such return to Buyer for approval of any portion of such return relating to the Holding Company or Bank, which approval shall not be unreasonably withheld. It is understood that HCB will include the income of the Holding Company and the Bank (including any deferred income triggered as a result of the Acquisition Transaction) for the Pre-Closing Tax Period on HCB's consolidated federal and state income tax returns and will pay any federal or state income taxes attributable to such income. HCB and Seller shall be responsible for assimilating all tax information and other data of Holding Company and Bank with respect to the Pre-Closing Tax Period as may be necessary for the preparation of HCB's consolidated tax returns; provided however, that following the Closing, Buyer agrees to cooperate and provide Seller with such information as may be reasonably necessary for the preparation of such returns. The income of the Holding Company and the Bank will be determined for the periods prior to and after the Pre-Closing Tax Period by closing the books of the Holding Company and the Bank as of the close of business on the day immediately preceding the Closing Date. All tax allocation or tax sharing agreements to which the Holding Company or Bank are parties shall be terminated as of the Closing Date. In the event of any audit or litigation relating to any consolidated tax return of HCB which includes all or any portion of the taxable year of the Holding Company or Bank, HCB will notify Buyer and provide Buyer with any information on any proposed adjustment of any items relating to Holding Company or Bank. HCB agrees that, without the consent of Buyer, it shall not compromise any such items or otherwise take any action relating to -24- such items where such compromise or action could have an adverse impact on either the Holding Company or Bank for any period subsequent to the Pre-Closing Tax Period. (ii) All unpaid personal and real property taxes associated with the Monticello Branch and the LPO Office shall be the responsibility of the Seller and Seller agrees to (A) pay all such taxes on behalf of Bank directly to the appropriate taxing authorities and (B) reimburse Bank and Buyer for any amounts required to be paid directly by Buyer due to Seller's failure to pay such taxes on a timely basis. (iii) From and after the date of this Agreement, each of the Buyer and Seller agrees to provide each other, upon reasonable prior notice, with such information and data as is necessary to allow the Buyer, Seller, Holding Company or the Bank, as applicable, to comply with all tax and other regulatory reporting, audit or other compliance obligations relating to the customers and operations of the Bank and the Holding Company. For the purposes of this section, the term "Applicable Tax Period" shall mean the period beginning on the first day of the year in which the Closing Date occurs and ending on the Closing Date. Without limiting the generality of the foregoing Seller and Buyer specifically agrees that: (A) If the Closing Date occurs after December 31, 1997, the Seller shall be responsible for the preparation and filing of the following tax reporting forms for all payroll, account or other activity occurring in 1997: Internal Revenue Service ("IRS") Forms W-2 and other miscellaneous federal, state and local tax reporting forms (the "Payroll Forms") and IRS Forms 1099, 1098 and all other miscellaneous federal state and local tax reporting forms relating to all loan, deposit, trust and other accounts ("Account Forms"). Concurrently with the filing of such forms, the Seller shall provide copies to Buyer of all such forms, and HCB and the Seller agree to indemnify the Buyer from and against any Adverse Consequences incurred by the Bank or Buyer as a result of the Seller's preparation or filing of such forms. (B) Prior to the Closing Date, Seller shall provide Buyer with payroll and other information regarding all persons employed by the Bank at any time during the Applicable Tax Period, in a form reasonably acceptable to Buyer, so as to allow Bank to prepare and file Payroll Forms for such Applicable Tax Period, which such payroll information shall be true, correct and complete in all respects. (C) Prior to the Closing Date, Seller shall provide Buyer with all information for the Applicable Tax Period (including historical account data) required to effect the preparation -25- and filing of Account Forms for such Applicable Tax Period relating to all loan, deposit, trust and other accounts which either (1) constitute Seller Assets and Seller Liabilities or (2) which were closed prior to the date of the Closing. (D) On the Pre-Closing Date, Seller shall provide Buyer with all information for the Applicable Tax Period (including historical account data) required to effect the preparation and filing of Account Forms for the Applicable Tax Period relating to all deposit accounts which are included in the Retained Liabilities. (E) Notwithstanding any other provision herein, the Buyer shall file all IRS Forms 5498 and any similar state or local tax reporting forms attributable to the Bank's individual retirement accounts for each of 1997 and 1998, even if the Closing Date occurs after December 31, 1997. On the Pre-Closing Date, Seller shall provide Buyer with all information for the period prior to the Closing Date for such tax years of 1997 and 1998 (including historical account data) required to effect the preparation and filing of the IRS Forms 5498 and any similar state or local tax reporting forms. (F) The information and data to be provided by Seller to Buyer pursuant to paragraphs (B)-(E) immediately above shall be in hard-copy form and on magnetic tape or diskette (which such magnetic tape or diskette shall be in a form acceptable for filing with the IRS) and shall be true, correct and complete in all respects. If such information is in a form that cannot be processed by the Buyer's computer systems, then the Seller shall cooperate with the Buyer to prepare and effect any and all filings required by the IRS or any state or local taxing authorities on the Bank's behalf. (iv) Subject to the provisions of this Section 6(l)(iv), the Buyer agrees to promptly pay the Seller an amount equal to the income tax benefit (net of any increase in federal income tax expense or reduction in federal income tax benefits resulting from the lower state tax deduction) derived by the Buyer with respect to any Deferred Tax Assets that the Buyer utilizes on its future income tax returns. The Buyer agrees that it shall have an affirmative obligation to utilize the Deferred Tax Assets on its future income tax returns if, but only if, (i) the Seller causes its certified public accounting firm to provide to the Buyer (at the Seller's expense) a written opinion that sets forth the manner and circumstances in which the Buyer may utilize the Deferred Tax Assets and (ii) the Buyer's own certified public accountants are in agreement with Seller's accountants that such Deferred Tax Assets may be so utilized by Buyer. Every year until the Deferred Tax Assets are completely utilized or otherwise expire under applicable law, Buyer shall, within 30 days of the filing of its state income -26- tax return, cause its certified public accountants to provide (at Buyer's expense) a letter to Seller outlining the amount, if any, of the Deferred Tax Asset so utilized and the dollar value benefit being derived by Buyer with respect to such use. HCB and the Seller agree to indemnify the Buyer from and against any Adverse Consequences arising from the Buyer's utilization of the Deferred Tax Assets in accordance with the opinion of the Seller's accountant's, including any payments or penalties incurred by the Buyer resulting from any disallowance of the Buyer's utilization of the Deferred Tax Assets by the IRS or the Arkansas State Department of Finance. (m) Deposit Products; Investment of Funds and Loans. From and after the ----------------------------------------------- date of this Agreement, Seller shall not offer any deposit products (including certificates of deposit) to existing or new customers associated solely with the Bank's Main Office unless the terms and rates of such products have been approved in advance by Buyer in its reasonable discretion. (n) Insurance. On the Closing Date, the Buyer agrees that the Seller may --------- terminate any insurance policies listed on Schedule 4(r) for which coverage is occurrence (but not claims) based, and the parties agree that all other insurance policies listed on Schedule 4(r) shall remain in full force and effect. If the Bank receives any refund of pre-paid premiums with respect to any insurance policies due to their early termination in accordance with this Section 6(n), the Buyer agrees to cause the Bank to promptly remit the amount of such refund payments to the Seller. 7. Closing Conditions ------------------ (a) Conditions to Obligations of Parties. The obliga tions of the ------------------------------------ Buyer and the Seller to cause the Acquisition Transaction to be consummated shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions: (i) Approvals of Third Parties. All orders, consents and approvals -------------------------- necessary in order for the Acquisition Transaction to be lawfully accomplished shall have been entered by each regulatory authority having jurisdiction over the transactions contemplated by this Agreement; the form and substance of all such orders, consents and approvals shall be satisfactory to the parties hereto; and all applicable statutory waiting periods shall have expired. (ii) Litigation. There shall not be pending or threatened any ---------- litigation in any court or any proceeding before or by any governmental department, agency or instrumentality in which it is sought to restrain or prohibit or obtain damages in respect of the consummation of the Acquisition Transaction. -27- (b) Conditions to Obligations of Buyer. The obligations of Buyer ---------------------------------- hereunder shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions, unless Buyer shall have waived such conditions in writing. (i) Performance. HCB, Seller, the Holding Company and the Bank ----------- shall have performed all obligations and complied with all covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date. (ii) Representations and Warranties. The representations and ------------------------------ warranties of HCB and the Seller contained herein shall be true and correct in all material respects at the Closing Date with the same force and effect as though made at and as of such time. (iii) Purchase and Assumption. The Purchase and Assumption of the ----------------------- Seller Assets and Seller Liabilities shall have occurred. (iv) Pre-Closing Balance Sheet. The Pre-Closing Balance Sheet ------------------------- shall show shareholders' equity for the Bank in an amount equal to the Minimum Equity Amount, which such Minimum Equity Amount shall include an amount of goodwill not in excess of the Maximum Goodwill Amount. (v) Legal Opinion. The Buyer shall have received an opinion dated ------------- as of the Closing Date from counsel and in form and substance satisfactory to the Buyer to the effect that (A) HCB, Seller, the Holding Company and the Bank are corporations duly organized, validly existing and in good standing under the laws of the jurisdiction under which each is organized and have corporate power to own or lease their properties and to carry on their business as now being conducted, (B) the authorized capital stock of the Holding Company consists of 1,000 shares of common stock, par value $20.00 per share, all of which are issued and outstanding and have been duly and validly authorized and issued and are fully paid and nonassessable, (C) the authorized capital stock of the Bank consists of 150,000 shares of common stock, par value $7.50 per share, 33,400 of which are issued and outstanding and have been duly and validly authorized and issued and are fully paid and nonassessable, and 100,000 shares of preferred stock, par value $1.00 per share, no shares of which are issued and outstanding, and (D) this Agreement is a valid and binding obligation of HCB and Seller, enforceable against HCB and Seller in accordance with its terms, except as (1) such enforcement may be subject to applicable bankruptcy, insolvency or other laws, now or hereafter in effect, affecting creditors' rights generally and (2) the remedy of specific performance, injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. -28- (vi) Title Policy and Survey. Seller shall have delivered to Buyer ----------------------- (at Seller's expense) a title insurance commitment from a sound and reputable title insurance company in a form satisfactory to Buyer in its reasonable discretion, insuring title to the premises constituting the Main Office and any appurtenant easements as of the Closing Date subject only to exceptions for Permitted Encumbrances. Seller shall have also delivered to Buyer (at Seller's expense) a current survey for premises constituting the Main Office and any appurtenant easements (A) certified to the Buyer and prepared by a licensed surveyor, (B) conforming to the current ALTA Minimum Standard Detail Requirements for Land Title Surveys, (C) disclosing the location of all improvements, easements, sidewalks, roadways, utility lines and other matters shown customarily on such surveys, and (D) showing ingress and egress to public streets (the "Survey"). The Survey shall be in a form satisfactory to Buyer and shall not disclose any survey defect or encroachment from or onto the real property which has not been cured or insured over prior to the Closing or which might materially impair Buyer's operation of the property as a bank branch. (vii) Environmental Survey. Sellers shall have delivered to Buyer -------------------- (at Buyer's expense) a Phase I Environmental Survey of the premises constituting the Main Office, which such survey shall disclose no violations of applicable federal, state and local statutes, laws, ordinances and regulations concerning conservation and protection of the environment or the presence of any of any hazardous material, hazardous waste, hazardous substance, contaminant or pollutant located in, on, under or at such Main Office. (viii) Termination of Regulatory Restrictions. The Seller shall -------------------------------------- have provided to Buyer satisfactory evidence that all restrictions, covenants or representations relating to the Bank's ability to make loans or otherwise operate its business set forth in any order of, memorandum of understanding or agreement with, or correspondence to or from the OTS will be lifted or waived immediately following the consummation of the Acquisition Transaction. (ix) Termination of Contractual Obligations. The Seller shall have -------------------------------------- provided to Buyer satisfactory evidence that Seller has obtained the termination or release of all contractual obligations of Holding Company or Bank under the agreements referenced in paragraphs 1-8, 11, 12, and 14-19 of Schedule 4(n); provided, however, if Seller is unable to obtain, after using its reasonable best efforts, a release or termination of all contractual obligations of the Holding Company or Bank under the Agreement referenced in paragraph 19 of Schedule 4(n) (the "Servicing Contract"), then the Seller shall have provided to Buyer in lieu thereof satisfactory evidence that Seller has obtained the -29- consents of all third parties required in order for the Bank or the Holding Company to transfer and assign the Servicing Contract to the Seller pursuant to an assignment and assumption to be delivered under the Purchase and Assumption Agreement in which the Seller agrees to specifically indemnify and hold harmless the Buyer, Bank and Holding Company (in addition to, and without limitation of, any indemnification rights otherwise provided by this Agreement) from any Adverse Consequences arising or resulting from the Seller's failure to perform its obligations under the Servicing Agreement. (x) Resignation. Seller shall have delivered to the Buyer the ----------- resignations of all members of the Boards of Directors, officers and employees of the Holding Company and Bank other than those whom the Buyer shall have specified in writing at least three (3) business days prior to the Closing. (xi) No Material Adverse Change. There shall not have occurred any -------------------------- material adverse change in the business, properties, operations, assets, condition (financial or otherwise) or prospects of the Bank. (xii) Certificates of Good Standing and Transcript. The Seller -------------------------------------------- shall have delivered to the Buyer a certificate of good standing or existence, as applicable, for the Holding Company and Bank reflecting that the Holding Company and Bank are in good standing, have filed all required franchise tax returns and have paid all required franchise taxes under the laws of the respective jurisdictions in which they were organized. Seller shall also have delivered to the Buyer (A) Secretaries' Certificates for each of HCB, Seller and Bank, in a form and substance satisfactory to Buyer, certifying as to matters of incumbency and corporate authority for the Acquisition Transaction and attaching with respect to each of HCB, Seller, and the Bank, a true and correct copy of its articles of incorporation and bylaws and (B) a transcript containing a true and correct copy of the Holding Company's articles of incorporation, together with all amendments thereto, certified by the Arkansas Secretary of State. (xiii) Closing Certificate. HCB and Seller shall have executed and ------------------- delivered to Buyer a certificate, in form and substance satisfactory to Buyer, dated as of the Closing Date, certifying in such detail as the Buyer may reasonably request to the fulfillment of the foregoing conditions. (xiv) Tax Affidavit. Each of the Bank and Seller shall have ------------- executed and delivered to Buyer an affidavit certifying that it is not a "foreign person" as defined in the federal Foreign Investment and Real Property Tax Act of 1980. (xv) Form 5500R. The Bank shall have caused to be filed the Form ---------- 5500R for the Heritage Bank, FSB, 401(K) Plan with -30- all applicable governmental agencies, including the IRS and the United States Department of Labor. (c) Conditions to Obligations of HCB and Seller. The obligations of ------------------------------------------- HCB and Seller hereunder shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions, unless the Seller shall have waived such condition in writing: (i) Performance. The Buyer shall have performed all obligations ----------- and complied with all covenants required under this Agreement to be performed or complied with by it on or prior to the Closing Date. (ii) Representations and Warranties of the Buyer. The ------------------------------------------- representations and warranties of the Buyer contained herein shall be true and correct in all material respects at the Closing Date with the same force and effect as those made at and as of such time. (iii) Closing Certificate. Buyer shall have delivered to the ------------------- Seller a certificate, in form and substance satis factory to the Seller, dated as of the Closing Date, certifying in such detail as the Seller may reasonably request, the fulfillment of the foregoing conditions. (iv) Legal Opinion. The Seller shall have received from Buyer's ------------- counsel an opinion dated as of the Closing Date from counsel and in form and substance satisfactory to Seller to the effect that (A) the Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Arkansas and has the corporate power to own or lease its properties and to carry on its business as now being conducted, (B) this Agreement is a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as (1) such enforcement may be subject to applicable bankruptcy, insolvency or other laws, now or hereafter in effect, affecting creditors' rights generally and (2) the remedy of specific performance, injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. (v) Certificate of Good Standing. The Buyer shall have delivered ---------------------------- to Seller a certificate of good standing for the Buyer reflecting that it is in good standing, has filed all required franchise tax returns and has paid all required franchise taxes under the laws of the jurisdiction in which it is organized. 8. Survival and Indemnification. ---------------------------- -31- (a) Survival of Representations, Warranties and Covenants. All of ----------------------------------------------------- the representations, warranties and covenants of the parties to this Agreement shall survive the Closing and continue in full force and effect for a period of 24 months thereafter, provided that: (i) the representations and warranties set forth in Sections 4(a)-(f) and 5(a)-(b) and the matters described in Section 6(f) shall survive the Closing and continue in full force and effect forever thereafter; and (ii) the representations and warranties set forth in Sections 4(m) and (p), the matters described in Sections 6(i) and (l) and the indemnification provisions set forth in Section 8(b)(ii) shall survive the Closing and continue in full force and effect until one year after the expiration of the applicable statute of limitations period during which any person or entity could bring an action, suit, or proceeding, whether civil, criminal, administrative, or investigative, relating to the subject matter of such representations, warranties or provisions. (b) Indemnification. --------------- (i) General. HCB and Seller agree to jointly and severally ------- indemnify and hold harmless Holding Company, Bank and Buyer, and Buyer agrees to indemnify and hold harmless Seller, from and against any and all claims, demands, charges, losses, damages, liabilities, fines, assessments, penalties and obligations (including, without limitation, reasonable attorneys' and accountants' fees and other costs and expenses of the indemnified party incurred as an incident thereto) (collectively "Adverse Consequences") in excess of $10,000, determined in the aggregate and not separately as to each claim (the "Deductible") arising out of, based on, or relating to any facts or circumstances that would constitute a breach by the other of this Agreement of any representation, warranty or covenant contained herein or in the P&A Agreement; provided however, that the Deductible set forth in this Section 8(b) shall not act as a limitation on any rights or claims that Buyer may have for indemnification arising out of a breach of HCB's and Seller's covenants and obligations under Section 6(f), 6(h) and 6(l)(iii). (ii) Specific. HCB and Seller agree to jointly and severally -------- indemnify and hold harmless Holding Company, Bank and Buyer from and against any and all Adverse Consequences resulting from the Holding Company's or Bank's violation of, or noncompliance with, any Legal Requirements including, but not limited to, all violations or matters of noncompliance specifically listed on Schedule 4(m)(ii) or 4(q). -32- (iii) Ceiling. Notwithstanding any other provision contained herein, ------- there will be a aggregate ceiling equal to the Stock Purchase Price on the obligation of each party arising under this Section 8(b) to indemnify the other parties from and against any Adverse Consequences. 9. Termination, Waiver, Extension and Amendment -------------------------------------------- (a) Termination. This Agreement may be terminated and abandoned at any ----------- time prior to or on the Closing Date: (i) by the mutual consent in writing of the Seller and the Buyer; (ii) by either the Seller or the Buyer in writing if any of the conditions to the obligations of such parties contained in Section 7(a) hereof have not been satisfied or, if unsatisfied, waived (if legally permissible) as of the Closing Date; (iii) by the Buyer in writing if any of the conditions to the obligations of the Buyer contained in Section 7(b) hereof shall not have been satisfied or, if unsatisfied, waived as of the Closing Date; (iv) by the Seller in writing if any of the condi tions to the obligations of the Seller contained in Section 7(c) hereof shall not have been satisfied or, if unsatisfied, waived as of the Closing Date; or (v) by either the Buyer or the Seller in writing if the Closing Date shall not have occurred on or before March 31, 1998. (b) Willful Breach or Intentional Misrepresentation. In the event the ----------------------------------------------- transactions contemplated by this Agreement are not consummated due to the failure of any condition precedent to the consummation of the transactions resulting from a willful breach of a covenant, an intentional misrepresentation or a willful failure to comply with the terms of this Agreement by one party, then the other party, upon termination of this Agreement, shall be entitled to all appropriate legal and equitable remedies. (c) No Willful Breach or Intentional Misrepresentation. In the event -------------------------------------------------- of the termination and abandonment of this Agreement pursuant to the provisions of Section 9(a) and such termination or abandonment did not result from the actions described in Section 9(b), this Agreement shall be of no further force or effect and no party hereto shall have any liability or further obligation to the other party to this Agreement, except as set forth in that certain -33- Letter of Intent among HCB and Buyer, dated September 15, 1997 (the "Letter of Intent"). (d) Waiver, Extension and Amendment. Any of the terms or conditions ------------------------------- of this Agreement may be waived, or the time for performance of any obligations or acts extended, at any time, by the party which is entitled to the benefits thereof. This Agreement may be modified or amended only by the mutual consent of the parties hereto. Any waiver, extension, modification or amendment shall be in writing. 10. Miscellaneous ------------- (a) Broker's or Finder's Fees. All negotiations rela tive to the ------------------------- transactions hereby have been carried on by the Buyer and the Seller directly and without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a finder's fee, brokerage commission or other similar payment except for that certain fee for consulting services payable upon Closing to DD&F Consulting Group, Inc., which fee shall be the exclusive responsibility of, and shall be paid by, the Seller. (b) Confidentiality. Any non-public information concerning the --------------- Holding Company or the Bank shall be considered "Confidential Information" within the meaning of this Agreement. Each of HCB and the Seller will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the Buyer or destroy, at the request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession; provided, however, HCB and Seller may retain copies of such information and data as is necessary to allow them to comply with all tax and other regulatory reporting, audit or other compliance obligations relating to the customers and operations of the Bank and the Holding Company. In the event that any of HCB or the Sellers is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, the Seller will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 10(b). If, in the absence of a protective order or the receipt of a waiver hereunder, either HCB or Seller is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, HCB or Seller may disclose the Confidential Information to the tribunal; provided, however, that each of HCB and Seller shall use its best efforts to obtain, at the request of the Buyer -34- and at Buyer's expense, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate. (c) Expenses. Whether or not the transactions contem plated hereby -------- are consummated, each party shall pay its own expenses and costs incident to this Agreement and the transactions contemplated hereby, including but not limited to all expenses incurred by such parties in connection with obtaining required approvals for the Acquisition Transaction from Regulatory Authorities. In this regard, the parties agree that all costs and expenses associated with obtaining regulatory approval of the purchase and assumption of the Seller Assets and Seller Liabilities shall be borne by Seller and all costs and expenses associated with obtaining regulatory approval for the acquisition of the Holding Company Stock shall be borne by the Buyer. (d) Notices. Any notice or consummation required or permitted to be ------- made hereunder shall be in writing, and shall be deemed to have been made if delivered personally or by facsimile, receipt confirmed, or if mailed, by registered or certified mail, return receipt requested, to the parties at the addresses shown below. The date of personal delivery shall be the date of giving notice, or if mailed in the manner prescribed above, notice shall be deemed to have been given three business days after the mailing. To the Seller: Heartland Community Bank, Camden, Arkansas 237 Jackson Street, S.W. P.O. Box 878 Camden, AR 71711-0878 Attention: Cameron McKeel Facsimile: 870-836-7125 With a copy to: McAfee & Taft 10th Floor, Two Leadership Square 211 N. Robinson Oklahoma City, Oklahoma 73102 Attn: C. Bruce Crum, Esq. Facsimile: (405) 235-0439 To the Buyer: Bank of the Ozarks, Inc. 425 West Capitol Avenue Suite 3100 Little Rock, Arkansas 72201 Attention: George G. Gleason, II Facsimile: (501) 374-6344 With a copy to: Rose Law Firm, a Professional Association 120 East Fourth Street -35- Little Rock, Arkansas 72201 Attention: Jeffrey J. Gearhart Facsimile: (501) 375-1309 (e) Entire Agreement. This Agreement sets forth the entire ---------------- understanding of the parties hereto and supersedes all prior agreements and understandings, whether oral or written, except as set forth in the Section 5 of the Letter of Intent. This Agreement shall not be modified or amended except by written agreement of all parties hereto. (f) Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of each of the parties hereto, their respective successors and assigns. (g) Further Assurances. Each of the parties hereto agrees to execute ------------------ and deliver such further agreements, assurances, instruments and documents at any time reasonably requested by another party as is necessary or desirable to consummate the trans actions contemplated by this Agreement. (h) Knowledge and Investigation. For the purposes hereof, the term --------------------------- "knowledge" shall mean information or matters of which HCB, Seller, Holding Company, Bank and each of their directors, officers, employees or authorized agents and representatives has actual knowledge or reasonably should have known after due investigation. No due diligence investigation made by Buyer, its directors, officers, employees, authorized agents and representatives (including attorneys and accountants) shall affect the representations and warranties of HCB and Seller made herein, and each such representation and warranty shall survive the investigation. (i) Construction. This Agreement shall be construed and interpreted ------------ in accordance with the laws of the State of Arkansas applicable to contracts made and performed entirely therein. (j) Counterparts. This Agreement may be executed in any number of ------------ counterparts, which, taken together, shall constitute one and the same instrument. (k) Section Headings. The section headings contained in this ---------------- Agreement are for convenience and reference only and shall not in any way affect the meaning or interpretation of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -36- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. SELLER: HEARTLAND COMMUNITY BANK, Camden, Arkansas By_______________________________ _____________, President HCB: HCB BANCSHARES, INC. By_______________________________ _____________, President BUYER: BANK OF THE OZARKS, INC. By_______________________________ George G. Gleason, II, Chief Executive Officer -37- Exhibit "A" to Stock Purchase Agreement Purchase and Assumption Agreement --------------------------------- PURCHASE AND ASSUMPTION AGREEMENT --------------------------------- This PURCHASE AND ASSUMPTION AGREEMENT (this "Agreement") is made and executed as of the ____ day of November, 1997, by and between HEARTLAND COMMUNITY BANK, FSB ("Little Rock"), a federal savings bank with its main office located in Little Rock, Arkansas and HEARTLAND COMMUNITY BANK ("Camden"), a federal savings bank with its main office located in Camden, Arkansas. Capitalized terms not otherwise defined in this Agreement shall have the same meaning as set forth in that certain Stock Purchase Agreement, of even date herewith, by and between Bank of the Ozarks, Inc., the Camden and HCB Bancshares, Inc. (the "Stock Purchase Agreement"). W I T N E S S E T H: WHEREAS, pursuant to the terms and as a condition to the closing of the transactions contemplated by the Stock Purchase Agreement, Little Rock desires to sell and Camden desires to acquire all of the assets of Little Rock other than the Retained Assets and, in connection therewith, Camden desires to assume from Little Rock all liabilities, obligations or commitments (contingent or otherwise) of Little Rock other than the Retained Liabilities. NOW, THEREFORE, in consideration of the premises and the mutual terms and provisions set forth in this Agreement and in the Stock Purchase Agreement, the parties agree as follows: ARTICLE ONE ----------- PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES --------------------------------------------------------- Section 1.01. Purchase of Assets. Upon the terms and subject to the ------------ ------------------ provisions of this Agreement and the Stock Purchase Agreement, Little Rock shall sell, convey, assign and transfer to Camden, and Camden shall purchase and accept from Little Rock, all right, title and interest of Little Rock in and to all assets of Little Rock, other than the Retained Assets (the " Seller Assets"). Little Rock and Camden agree and acknowledge that the Seller Assets are sold, conveyed, assigned and transferred to Camden on an "as is" basis without any recourse, representation or warranty (including, but not limited to, representations or warranties as to quality, condition, title or compliance with laws, rules or regulations of Regulatory Authorities). Section 1.02. Assumption of Liabilities. Upon the terms and subject ------------ ------------------------- to provisions of this Agreement and the Stock Purchase Agreement, Little Rock shall transfer and assign to Camden, and Camden shall assume from Little Rock and agree to pay, perform and discharge as of the Effective Time (as hereinafter defined), all of the liabilities, obligations or commitments (contingent or otherwise) of Little Rock other than the Retained Liabilities (the "Seller Liabilities") existing as of the Effective Time, including, without limitation, all deposit liabilities maintained at the Monticello Branch and all Excluded Deposits maintained at the Main Office (the "Deposits" or "Deposit Liabilities"), as shown on the books and records of Little Rock as of the Effective Time, including accrued but unpaid interest thereon to the Effective Time, except as provided in Section 2.02(c) hereof. ARTICLE TWO ----------- CLOSING, PAYMENT OF PURCHASE PRICE AND CLOSING DELIVERIES --------------------------------------------------------- Section 2.01. The Closing; Effective Time. The closing of the ------------ --------------------------- purchase and assumption transactions contemplated by this Agreement (the "Closing") shall take place immediately prior to the closing of the stock purchase and sale transaction (the "Stock Acquisition") contemplated by the Stock Purchase Agreement at the time and place agreed for the closing of the Stock Acquisition, and shall be effective (the "Effective Time") immediately prior to the start of business on the date of the Closing (the "Closing Date"). Section 2.02. Retirement Accounts. ------------ ------------------- (a) At the Closing, Little Rock shall resign as custodian with respect to any individual retirement account ("IRA Account") as to which Little Rock is custodian and as to which one or more of the assets included therein is a deposit included within the Deposits transferred to Camden on the Closing Date. At the Closing, Little Rock shall designate or appoint Camden as successor custodian under each such IRA Account. (b) Camden covenants and agrees that it will, following its designation or appointment as successor custodian under the IRA Accounts, promptly and faithfully perform, fulfill, and discharge each of the obligations required to be performed by the custodian with respect to such accounts pursuant to law, or pursuant to the governing documents establishing such IRA Account. (c) If an individual depositor with respect to an IRA Account refuses to accept the designation or appointment of Camden as successor custodian with respect to any such IRA Account, Camden agrees on demand to provide to Little Rock sufficient funds to pay the deposit liability represented by such IRA Account as reflected on the books of Camden at the time the claim is made. Upon payment by Camden to Little Rock of such amount, Camden shall be discharged from any further obligation under this Agreement to pay any such depositor the amount of such deposit liability paid to Little Rock and such Deposits contained in the IRA account shall not be assumed by Camden but shall remain the liability and obligation of Little Rock. A-2 Section 2.03. Payment of Purchase Price. ------------ ------------------------- (a) On the Effective Date, Little Rock and Camden shall settle the Asset Purchase Price in accordance with the provisions of Sections 2(b) and 3(c)(i) of the Stock Purchase Agreement. (b) If necessary, on the Adjustment Delivery Date, an adjustment payment (the "Adjustment Payment") shall be made either by Little Rock to Camden or by Camden to Little Rock, as appropriate, so as to correct any discrepancy regarding the amount of the Asset Purchase Price described in Section 3(e)(ii) of the Stock Purchase Agreement plus interest as described therein. The Adjustment Payment due to either party pursuant to this paragraph shall be paid to such party on the Adjustment Payment Date by the other party by wire transfer in immediately available funds to an account designated by the payee party. (c) In the event of a Dispute, promptly upon the resolution of the Dispute regarding the amount of the Asset Purchase Price in accordance with Section 3(e)(iii) of the Stock Purchase Agreement, the payment, as specified therein, shall be made either by Little Rock to Camden or by Camden to Little Rock, as appropriate, which payment shall be made by wire transfer in immediately available funds to an account designated by the payee party. Section 2.04. Closing Deliveries. ------------ ------------------ (a) At the Closing, Little Rock shall deliver to Camden: (i) a certified copy of the resolutions of Little Rock's Board of Directors, as required for valid approval of the execution of this Agreement and the consummation of the purchase and assumption transactions contemplated hereby; (ii) an Assignment and Assumption of Seller Liabilities Agreement in substantially the form of Exhibit 1 hereto; (iii) an Assignment and Assumption of Contracts Agreement in substantially the form of Exhibit 2 hereto; (iv) a Bill of Sale in substantially the form of Exhibit 3 hereto; (v) a quit claim deed conveying all of Little Rock's real property to the Camden, other than that certain real property included in the Retained Assets as described in Section 1(c)(i) of the Stock Purchase Agreement (the "Real Property"); A-3 (vi) an Assignment and Successor Trustee Agreement with respect to the transfer of the IRA Accounts in substantially the form set forth in Exhibit 4; (vii) listings of the Deposit Liabilities as of the start of business on the Closing Date (the "Deposit Listings") on magnetic tape or utilizing such other method of information transfer as the parties may mutually agree, which Deposit Listings shall include account number, outstanding principal balance, and accrued interest; (viii) Little Rock's files and records related to all loans (the "Loans") comprising the Seller Assets as of the start of business on the Effective Date, including, without limitation, all deposit related overdrafts and/or overdrafts pursuant to an overdraft protection plan which are associated with Deposit Liabilities, the notes or other instruments evidencing such Loans which shall be duly endorsed on their face or by separate assignment by Little Rock to the Camden without recourse; (ix) teller working cash, petty cash and vault cash at the Monticello Branch as of the start of business on the Closing Date; (x) such records and files specifically relating to the Seller Assets and Seller Liabilities, excluding, without limitation, those matters specified in Section 2(e) of the Stock Purchase Agreement; (xi) Little Rock's keys to the safe deposit boxes and Little Rock's records related to the safe deposit box business at the Monticello Branch; (xii) such of the other Seller Assets as shall be capable of physical delivery to the Camden; and (xiii) affidavit of Little Rock certifying that Little Rock is not a "foreign person" as defined in the federal Foreign Investment and Real Property Tax Act of 1980. (b) At the Closing, Camden shall deliver to Little Rock: (i) a certified copy of the resolutions of the Board of Directors of Camden authorizing the execution of this Agreement and the consummation of the purchase and assumption transactions contemplated hereby; (ii) an Assignment and Assumption of Seller Liabilities Agreement in substantially the form set forth in Exhibit 1 hereto; A-4 (iii) an Assignment and Assumption of Contracts Agreement in substantially the form set forth in Exhibit 2 hereto; and (iv) an Assignment and Successor Trustee Agreement with respect to the transfer of the IRA Accounts in substantially the form set forth in Exhibit 4 hereto. ARTICLE THREE ------------- CONDITIONS PRECEDENT TO THE PURCHASE AND ASSUMPTION --------------------------------------------------- Section 3.01. Conditions to Little Rock's Obligations. Little Rock's ------------ --------------------------------------- obligations to effect the purchase and assumption transactions contemplated by this Agreement shall be subject to the satisfaction (or waiver by Little Rock) prior to or on the Closing Date of the following conditions: (a) Camden shall have performed and complied in all material respects with all of its obligations and agreements hereunder required to be performed prior to the Closing Date under this Agreement. (b) All conditions to the closing of the Stock Acquisition as specified by the Stock Purchase Agreement shall have been satisfied (or, if legally permissible, waived) other than the condition related to the closing of the transactions contemplated by this Agreement. Section 3.02. Conditions to Camden's Obligations. Camden's ------------ ---------------------------------- obligations to effect the purchase and assumption transactions contemplated by this Agreement shall be subject to the satisfaction (or waiver by Camden) prior to or on the Closing Date of the following conditions: (a) Little Rock shall have performed and complied in all material respects with all of its obligations and agreements required to be performed prior to the Closing Date under this Agreement. (b) All conditions to the closing of the Stock Acquisition as specified by the Stock Purchase Agreement shall have been satisfied (or, if legally permissible, waived) other than the condition related to the closing of the transactions contemplated by this Agreement. A-5 ARTICLE FOUR ------------ TERMINATION OR ABANDONMENT -------------------------- Section 4.01. Mutual Agreement. This Agreement may be terminated by ------------- ---------------- the mutual written agreement of the parties in conjunction with or at any time following the termination of the Stock Purchase Agreement in accordance with Section 9(a) thereof. Section 4.02. Automatic Termination. If the Closing Date does not ------------ --------------------- occur on or prior to the date specified by Section 9(a)(v) in the Stock Purchase Agreement (including any extensions thereof), then this Agreement shall thereupon be terminated without any further action by the parties hereto. ARTICLE FIVE ------------ GENERAL ------- Section 5.01. Notices. Any notice or other communication shall be in ------------ ------- writing and shall be deemed to have been given or made on the date of delivery, in the case of hand delivery, or three (3) business days after deposit in the United States Registered Mail, postage prepaid, or upon receipt if transmitted by facsimile telecopy or any other means, addressed (in any case) as follows: (a) if to Little Rock: Heartland Community Bank, FSB P. O. Box 8052 109 N. Chester Little Rock, AR 72203-8052 Attn: President Facsimile: (501) 378-0520 and (b) if to Camden: Heartland Community Bank P. O. Box 878 237 Jackson Street, SW Camden, AR 71711-0878 Attn: Mr. Cameron McKeel Facsimile: (870) 836-7125 or to such other address as any party may from time to time designate by notice to the other. A-6 In the event of any notice or other communication by either party is given pursuant to this Section 5.01, a copy of such notice or communication shall be provided to: McAfee & Taft Tenth Floor, Two Leadership Square 211 North Robinson Oklahoma City, OK 73102 Attn: C. Bruce Crum Facsimile: (405) 235-0439 and Rose Law Firm a Professional Association 120 East 4th Street Little Rock, AR 72201 Attn: Jeffrey J. Gearhart Facsimile: (501) 375-1309 Section 5.02. Entire Agreement. This Agreement and the Stock ------------ ---------------- Purchase Agreement constitutes the entire agreement between the parties and supersedes and cancels any and all prior discussions, negotiations, undertakings, agreements in principle and other agreements between the parties relating to the subject matter hereof. In the event of a conflict between any of the terms and provisions hereof and the Stock Purchase Agreement, the Stock Purchase Agreement shall be deemed to control except as contemplated by Section 2.02(c) hereof. Section 5.03. Headings and Captions. The captions of Articles and ------------- --------------------- Sections hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. Section 5.04. Amendment or Modification. This Agreement may not be ------------- ------------------------- amended or modified except by a written document duly executed by the parties hereto and Bank of the Ozarks, Inc. Section 5.05. Further Assurances. Each of the parties hereto agrees ------------- ------------------ to execute and deliver such further agreements, assurances, instruments and documents at any time reasonably requested by the other party as is necessary or desirable to carry out the purposes of this Agreement. Section 5.06. Rules of Construction. Unless the context otherwise ------------- --------------------- requires: (a) a term has the meaning assigned to it; (b) "or" is not exclusive; and (c) words in the singular may include the plural and in the plural include the singular. A-7 Section 5.07. Counterparts. This Agreement may be executed in two or ------------- ------------ more counterparts, each of which shall be deemed an original and all of which shall be deemed one and the same instrument. Section 5.08. Successors and Assigns. This Agreement shall be ------------ ---------------------- binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 5.09. Governing Law; Assignment. This Agreement shall be ------------- ------------------------- governed by the laws of the State of Arkansas and applicable federal laws and regulations. Neither this Agreement, nor any of the rights, interests or obligations hereunder, shall be assigned by either of the parties hereto without the prior written consent of the other. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. LITTLE ROCK HEARTLAND COMMUNITY BANK, FSB Little Rock, Arkansas By:_________________________________ Title:______________________________ Attest: By:_______________________ Title:____________________ CAMDEN HEARTLAND COMMUNITY BANK Camden, Arkansas By:_________________________________ Title:______________________________ Attest: By:_______________________ Title:____________________ A-8 Exhibit "B" to Stock Purchase Agreement Furniture and Fixtures ---------------------- (Intentionally Omitted) Exhibit "C" to Stock Purchase Agreement Denominations and Maturities of Seller CDs ------------------------------------------- Amount of Seller CD Maturity Date ------------------- ------------- $516,000 91 days following the Closing Date $516,000 182 days following the Closing Date $516,000 273 days following the Closing Date $516,000 First anniversary of the Closing Date $516,000 First anniversary of the Closing Date, plus 91 days $520,000 First anniversary of the Closing Date, plus 182 days EX-10.13 3 CONSTRUCTION CONTRACT DATED SEPT. 2, 1997 EXHIBIT 10.13 - -------------------------------------------------------------------------------- AIA Document A111 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the COST OF THE WORK PLUS A FEE with or without a Guaranteed Maximum Price 1987 EDITION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES, CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. The 1987 Edition of AIA Document A201, General Conditions of the Contract for Construction, is adopted in this document by reference. Do not use with other general conditions unless this document is modified. This document has been approved and endorsed by The Associated General Contractors of America. - -------------------------------------------------------------------------------- AGREEMENT made as of the Second day of September in the year of Nineteen Hundred and Ninety Seven BETWEEN the Owner: Bank of the Ozarks, WCA (Name and address) 425 West Capital Little Rock, AR 72201 and the Contractor: East-Harding, Inc. (Name and address) 2230 Cottandale Ln., Suite 3 Little Rock, AR 72202 the Project is: Bank of the Ozarks (Name and address) 12615 Chenal Parkway Little Rock, AR 72211 the Architect is: AMR Architects (Name and address) 201 East Markham, Suite 150 Little Rock, AR 72201 The Owner and Contractor agree as set forth below. - -------------------------------------------------------------------------------- Copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967, 1974, 1978, (C)1987 by The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecution. AIA DOCUMENT A111.OWNER-CONTRACTOR AGREEMENT.TENTH EDITION.AIA(R).(C)1987.THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 A111-1987 1 - -------------------------------------------------------------------------------- ARTICLE I --------- THE CONTRACT DOCUMENTS 1.1 The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 16. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 --------- THE WORK OF THIS CONTRACT 2.1 The Contractor shall execute the entire Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others, or as follows: Painting of insulation on parking level ceiling Pylon Sign Telephone & Data Cabling ARTICLE 3 --------- RELATIONSHIP OF THE PARTIES 3.1 The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and utilize the Contractor's best skill, efforts and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to make best efforts to furnish at all times an adequate supply of workers and materials; and to perform the Work in the best way and most expeditious and economical manner consistent with the interests of the Owner. The Owner agrees to exercise best efforts to enable the Contractor to perform the Work in the best way and most expeditious manner by furnishing and approving in a timely way information required by the Contractor and making payments to the Contractor in accordance with requirements of the Contract Documents. 2 ARTICLE 4 --------- DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement is the date from which the Contract Time of Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first written above, unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. (Insert the date of commencement, if it differs from the date of this Agreement or, if applicable, state that the date will be fixed in a notice to proceed.) Unless the date of commencement is established by a notice to proceed issued by the Owner, the Contractor shall notify the Owner in writing not less than five days before commencing the Work to permit the timely filing of mortgages, mechanic's liens and other security interests. 4.2 The Contractor shall achieve Substantial Completion of the entire Work not later than (Insert the calendar date or number of calendar days after the date of commencement. Also insert any requirements for earlier Substantial Completion of certain portions of the Work, if not stated elsewhere in the Contract Documents.) May 31, 1998 , subject to adjustments of this Contract Time as provided in the Contract Documents. (Insert provisions, if any, for liquidated damages relating to failure to complete on time.) ARTICLE 5 --------- CONTRACT SUM 5.1 The Owner shall pay the Contractor in current funds for the Contractor's performance of the Contract the Contract Sum consisting of the Cost of the Work as defined in Article 7 and the Contractor's Fee determined as follows: (State lump sum, percentage of Cost of the Work or other provision for determining the Contractor's Fee, and explain how the Contractor's Fee is to be adjusted for changes in the Work.) 3 5.2 GUARANTEED MAXIMUM PRICE 5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by the Contractor not to exceed Four Million Three Hundred Sixty Eight Thousand Four Hundred Six Dollars ($4,368,406), subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (Insert specific provisions if the Contractor is to participate in any savings.) 100% Savings given to OWNER 5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates, but only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date until which that amount is valid.) Utilize wood trusses at canopy framing Utilize shear tab connections in lieu of double clip angles at all main steel beams Change downspout boots from cast iron to alternate material (to be determined) Change Kim site light poles to Valmont Change minimum conduit from 3/4" to 1/2" Use MC cable where desired 5.2.3 The amounts agreed to for unit prices, if any, are as follows: (State unit prices only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1.) ARTICLE 6 --------- CHANGES IN THE WORK 6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the General Conditions. 6.1.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of the General Conditions shall have the meanings 4 assigned to them in the General Conditions and shall not be modified by Articles 5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs" as used in the above-referenced provisions of the General Conditions shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Paragraph 5.1 of this Agreement. 6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 6.2.1 Increased costs for the items set forth in Article 7 which result from changes in the Work shall become part of the Cost of the Work, and the Contractor's Fee shall be adjusted as provided in Paragraph 5.1. 6.3 ALL CONTRACTS 6.3.1 If no specific provision is made in Paragraph 5.1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work. ARTICLE 7 --------- COSTS TO BE REIMBURSED 7.1 The term Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.1.1 LABOR COSTS 7.1.1.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's agreement, at off-site workshops. 7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's agreement. (If it is intended that the wages or salaries of certain personnel stationed at the Contractor's principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time.) 5 7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3. 7.1.2 SUBCONTRACT COSTS Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.1.3.1 Costs, including transportation, of materials and equipment incorporated or to be incorporated in the completed construction. 7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess of those actually installed but required to provide reasonable allowance for waste and for spoilage. Unused excess materials, if any, shall be handed over to the Owner at the completion of the Work or, at the Owner's option, shall be sold by the Contractor; amounts realized, if any, from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.1.4.1 Costs, including transportation, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost less salvage value on such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall mean fair market value. 7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. 7.1.4.3 Costs of removal of debris from the site. 7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and parcel delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 6 7.1.4.5 That portion of the reasonable travel and subsistence expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.1.5 MISCELLANEOUS COSTS 7.1.5.1 That portion directly attributable to this Contract of premium for insurance and bonds. 7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which are related to the Work and for which the Contractor is liable. 7.1.5.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.1.5.4 Fees of testing laboratories for tests required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or other provisions of the Contract Documents and which do not fall within the scope of Subparagraphs 7.2.2 through 7.2.4 below. 7.1.5.5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents; the cost of defending suits or claims for infringement of patent rights arising from such requirement by the Contract Documents; payments made in accordance with legal judgments against the Contractor resulting from such suits or claims and payments of settlements made with the Owner's consent; provided, however, that such costs of legal defenses, judgment and settlements shall not be included in the calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any, and provided that such royalties, fees and costs are not excluded by the last sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of the Contract Documents. 7.1.5.6 Deposits lost for causes other than the Contractor's fault or negligence. 7.1.6 OTHER COSTS 7.1.6.1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK The Cost of the Work shall also include costs described in Paragraph 7.1 which are incurred by the Contractor: 7.2.1 In taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 10.3 of the General Conditions. 7 7.2.2 In repairing or correcting Work damaged or improperly executed by construction workers in the employ of the Contractor, provided such damage or improper execution did not result from the fault or negligence of the Contractor or the Contractor's foremen, engineers or superintendents, or other supervisory, administrative or managerial personnel of the Contractor. 7.2.3 In repairing damaged Work other than that described in Subparagraph 7.2.2, provided such damage did not result from the fault or negligence of the Contractor or the Contractor's personnel, and only to the extent that the cost of such repairs is not recoverable by the Contractor from others and the Contractor is not compensated therefor by insurance or otherwise. 7.2.4 In correcting defective or nonconforming Work performed or supplied by a Subcontractor or material supplier and not corrected by them, provided such defective or nonconforming Work did not result from the fault or neglect of the Contractor or the Contractor's personnel adequately to supervise and direct the Work of the Subcontractor or material supplier, and only to the extent that the cost of correcting the defective or nonconforming Work is not recoverable by the Contractor from the Subcontractor or material supplier. ARTICLE 8 --------- COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Clauses 7.1.1.2 and 7.1 .1 .3 or as may be provided in Article 14. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the Work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Clause 7.1.4.2. 8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph 13.5 of this Agreement, costs due to the fault or negligence of the Contractor, Subcontractors, anyone directly or indirectly employed by any of them, or for whose acts any of them may be liable, including but not limited to costs for the correction of damaged, defective or nonconforming Work, disposal and replacement of materials and equipment incorrectly ordered or supplied, and making good damage to property not forming part of the Work. 8.1.7 Any cost not specifically and expressly described in Article 7. 8 8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be exceeded. ARTICLE 9 --------- DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments; otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts which accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the Work. ARTICLE 10 ---------- SUBCONTRACTS AND OTHER AGREEMENTS 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner will then determine, with the advice of the Contractor and subject to the reasonable objection of the Architect, which bids will be accepted. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been established, the Owner may not prohibit the Contractor from obtaining bids from others. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If a Guaranteed Maximum Price has been established and a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid which conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted; then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the payment provisions of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. 9 ARTICLE 11 ---------- ACCOUNTING RECORDS 11.1 The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract; the accounting and control system shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 ---------- PROGRESS PAYMENTS 12.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.3 Provided an Application for Payment is received by the Architect not later than the last day of a month, the Owner shall make payment to the Contractor not later than the tenth day of the following month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than ten days after the Architect receives the Application for Payment. 12.4 With each Application for Payment the Contractor shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Contractor on account of the Cost of the Work equal or exceed (1) progress payments already received by the Contractor; less (2) that portion of those payments attributable to the Contractor's Fee; plus (3) payrolls for the period covered by the present Application for Payment; plus (4) retainage provided in Subparagraph 12.5.4, if any, applicable to prior progress payments. 12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 12.5.1 Each Application for Payment shall be based upon the most recent schedule of values submitted by the Contractor in accordance with the Contract Documents. The Schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy 10 as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.5.2 Applications for Payment shall show the percentage completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed or (2) the percentage obtained by dividing (a) the expense which has actually been incurred by the Contractor on account of that portion of the Work for which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 12.5.3 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions, even though the Guaranteed Maximum Price has not yet been adjusted by Change Order. 12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing. 12.5.3.3 Add the Contractor's Fee, less retainage of ten percent (10%). The Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, shall be an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.5.3.4 Subtract the aggregate of previous payments made by the Owner. 12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of the General Conditions. 12.5.4 Additional retainage, if any, shall be as follows: (If it is intended to retain additional amounts from progress payments to the Contractor beyond (1) the retainage from the Contractor's Fee provided in Clause 12.5.3.3, (2) the retainage from 11 Subcontractors provided in Paragraph 12.7 below, and (3) the retainage, if any, provided by other provisions of the Contract, insert provision for such additional retainage here. Such provision, if made, should also describe any arrangement for limiting or reducing the amount retained after the Work reaches a certain state of completion.) 12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 12.6.1 Applications for Payment shall show the Cost of the Work actually incurred by the Contractor through the end of the period covered by the Application for Payment and for which the Contractor has made or intends to make actual payment prior to the next Application for Payment. 12.6.2 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6.1. 12.6.2.2 Add the Contractor's Fee, less retainage of ____________ percent (________________%). The Contractor's Fee shall be computed upon the Cost of the Work described in the preceding Clause 12.6.2.1 at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the preceding Clause bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.6.2.3 Subtract the aggregate of previous payments made by the Owner. 12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 or to substantiate prior Applications for Payment or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.6.2.5 Subtract amounts, if any, for which the Architect has withheld or withdrawn a Certificate for Payment as provided in the Contract Documents. 12.6.3 Additional retainage, if any, shall be as follows: 12.7 Except with the Owner's prior approval, payments to Subcontractors included in the Contractor's Applications for Payment shall not exceed an amount for each Subcontractor calculated as follows: 12.7.1 Take that portion of the Subcontract Sum properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Subcontractor's 12 Work by the share of the total Subcontract Sum allocated to that portion in the Subcontractor's schedule of values, less retainage of ten percent (10%). Pending final determination of amounts to be paid to the Subcontractor for changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions even though the Subcontract Sum has not yet been adjusted by Change Order. 12.7.2 Add that portion of the Subcontract Sum properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing, less retainage of ten percent (10%). 12.7.3 Subtract the aggregate of previous payments made by the Contractor to the Subcontractor. 12.7.4 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment by the Owner to the Contractor for reasons which are the fault of the Subcontractor. 12.7.5 Add, upon Substantial Completion of the entire Work of the Contractor, a sum sufficient to increase the total payments to the Subcontractor to five percent (5%) of the Subcontract Sum, less amounts, if any, for incomplete Work and unsettled claims; and, if final completion of the entire Work is thereafter materially delayed through no fault of the Subcontractor, add any additional amounts payable on account of Work of the Subcontractor in accordance with Subparagraph 9.10.3 of the General Conditions. (If it is intended, prior to Substantial Completion of the entire Work of the Contractor, to reduce or limit the retainage from Subcontractors resulting from the percentages inserted in Subparagraphs 12.7.1 and 12.7.2 above, and this is not explained elsewhere in the Contract Documents, insert here provisions for such reduction or limitation.) The Subcontract Sum is the total amount stipulated in the subcontract to be paid by the Contractor to the Subcontractor for the Subcontractor's performance of the subcontract. 12.8 Except with the Owner's prior approval, the Contractor shall not make advance payments to suppliers for materials or equipment which have not been delivered and stored at the site. 12.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely.on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Paragraph 12.4 or other supporting data; that the Architect has made exhaustive or continuous on- site inspections or that the Architect has made examinations to ascertain how or for what purposes the 13 Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. ARTICLE 13 ---------- FINAL PAYMENT 13.1 Final payment shall be made by the Owner to the Contractor when (1) the Contract has been fully performed by the Contractor except for the Contractor's responsibility to correct defective or nonconforming Work, as provided in Subparagraph 12.2.2 of the General Conditions, and to satisfy other requirements, if any, which necessarily survive final payment; (2) a final Application for Payment and a final accounting for the Cost of the Work have been submitted by the Contractor and reviewed by the owner's accountants; and (3) a final Certificate for Payment has then been issued by the Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 13.2 The amount of the final payment shall be calculated as follows: 13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's final accounting and the Contractor's Fee; but not more than the Guaranteed Maximum Price, if any. 13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of the General Conditions or other provisions of the Contract Documents. 13.2.3 Subtract the aggregate of previous payments made by the Owner. If the aggregate of previous payments made by the Owner exceeds the amount due the Contractor, the Contractor shall reimburse the difference to the Owner. 13.3 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Paragraph 13.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor, or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of the General 14 Conditions. The time periods stated in this Paragraph 13.3 supersede those stated in Subparagraph 9.4.1 of the General Conditions. 13.4 If the Owner's accountants report the Cost of the Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to den-and arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment; failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 13.5 If, subsequent to final payment and at the Owner's request, the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price, if any. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. ARTICLE 14 ---------- MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision of the General Conditions or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agreed upon, if any.) (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Contractor's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. 15 Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) 14.3 Other provisions: Retainage to be reduced to 5% at 50% completion of project. ARTICLE 15 ---------- TERMINATION OR SUSPENSION 15.1 The Contract may be terminated by the Contractor as provided in Article 14 of the General Conditions; however, the amount to be paid to the contractor under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of the General Conditions shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below. 15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the Owner shall then pay the Contractor an amount calculated as follows: 15.3.1 Take the Cost of the Work incurred by the Contractor to the date of termination. 15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion. 15.3.3 Subtract the aggregate of previous payments made by the Owner. The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor which the Owner elects to retain and which is not otherwise included in the Cost of the Work under Subparagraph 15.3.1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 15, execute and deliver all such papers and take all such steps, including the legal assignment of such subcontracts and other contractual rights of the 16 Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 15.4 The Work may be suspended by the Owner as provided in Article 14 of the General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be increased as provided in Subparagraph 14.3.2 of the General Conditions except that the term "cost of performance of the Contract" in that Subparagraph shall be understood to mean the Cost of the Work and the term "profit" shall be understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3 of this Agreement. ARTICLE 16 ---------- ENUMERATION OF CONTRACT DOCUMENTS 16.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner and Contractor, AIA Document A111, 1987 Edition. 16.1.2 The General Conditions are the General Conditions of the Contract for Construction, AIA Document A201, 1987 Edition. 16.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated August 11, 1997, and are as follows: DOCUMENT TITLE PAGES Little Rock Headquarters Bank of the Ozarks Project Manual dated August 11, 1997 AMR Architects, Inc. 16.1.4 The Specifications are those contained in the Project Manual dated as in Paragraph 16.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) SECTION TITLE PAGES Little Rock Headquarters Bank of the Ozarks Project Manual dated August 11, 1997 AMR Architects, Inc. 17 16.1.5 The Drawings are as follows, and are dated __________, unless a different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement.) NUMBER TITLE DATE See attached 16.1.6 The addenda, if any, are as follows: NUMBER TITLE PAGES One August 21, 1997 9 Two August 26, 1997 3 Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 16. 16.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents which are intended to form part of the Contract Documents. The General Conditions provide that bidding requirements such as advertisement or invitation to bid, Instructions to Bidders, sample forms and the Contractor's bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) 18 This Agreement is entered into as of the day and year first written above and is executed in at least three original copies of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the Owner. OWNER CONTRACTOR BANK OF THE OZARKS, WCA /s/ George G. Gleason, II /s/ Robert East - ------------------------------ ------------------------------------- (Signature) (Signature) Chairman/CEO - ------------------------------ ------------------------------------- (Printed name and title) (Printed name and title) AIA CAUTION: YOU SHOULD SIGN AN ORIGINAL AIA DOCUMENT WHICH HAS THIS CAUTION PRINTED IN RED. AN ORIGINAL ASSURES THAT CHANGES WILL NOT BE OBSCURED AS MAY OCCUR WHEN DOCUMENTS ARE REPRODUCED. 19 BANK OF THE OZARKS
C1 DIMENSION LAYOUT 08/12/97 C2 EXCAVATION PLAN 08/12/97 C3 DRAINAGE AND DETENTION 08/12/97 C4 CONTOURS AND SPOT ELEVATIONS 08/12/97 C5 MARKHAM STREET IMPROVEMENTS 08/12/97 C6 CHENAL STREET IMPROVEMENTS 08/12/97 C7 DETAILS 08/12/97 C8 DETAILS 08/12/97 L1 LANDSCAPE PLAN A1.0 BASEMENT LEVEL FLOOR PLAN 09/16/97 A1.1 FIRST LEVEL FLOOR PLAN + SCHEDULE 09/16/97 A1.2 SECOND LEVEL FLOOR PLAN + SCHDULE 09/16/97 A1.3 THIRD LEVEL FLOOR PLAN + SCHEDULE 09/16/97 A1.4 ROOF PLAN + DETAILS 08/11/97 A1.5 ENLARGED PLANS + DETAILS 08/11197 A2.0 ELEVATIONS 08/11/97 A2.1 ELEVATIONS 09/16/97 A3.0 BUILDING SECTION 08/11/97 A3.1 WALL SECTIONS + DETAILS 08/11/97 A3.2 WALL SECTIONS + DETAILS 08/11/97 A3.3 WALL SECTIONS + DETAILS 08/11/97 A3.4 STAIR SECTION 08/11/97 A3.5 STAIR + ELEVATOR SECTIONS 08/13/97 A3.6 INTERIOR PARTITION SCHEDULE 08/11/97 A4.0 DOOR DETAILS 08/11/97 A4.1 WINDOW DETAILS 08/11/97 A5.0 INTERIOR ELEVATIONS 08/11/97 A6.0 MILLWORK DETAILS 08/11/97 A7.1 FIRST LEVEL REFLECTED CEILING PLAN 09/16/97 A7.2 SECOND LEVEL REFLECTED CEILING PLAN 09/16/97 A7.3 THIRD LEVEL REFLECTED CEILING PLAN 09/16/97 S1.0 FOUNDATION PLAN 09/24/97 S1.1 FIRST FLOOR FRAMING PLAN 09/24/97 S1.2 SECOND FLOOR FRAMING PLAN 09/24/97 S1.3 THIRD FLOOR FRAMING PLAN 09/24/97 S1.4 ROOF LEVEL FRAMING PLAN 08/11197 A1.5 SLOPING ROOF FRAMING PLAN 08/11/97 S1.6 COLUMN DETAILS 09/03/97
20 S2.0 FOUNDATION DETAILS 09/24/97 S2.1 FOUNDATION DETAILS 08/11/97 S3.0 FRAMING DETAILS 08/11/97 S3.1 FRAMING DETAILS 08/11/97 S3.2 FRAMING DETAILS 08/11/97 S3.3 FRAMING DETAILS 08/11/97 S3.4 MISC. DETAILS 08/11/97 S3.5 FRAMING DETAILS 08/11/97 S3.6 DEDUCTIVE ALTERNATE 08/21/97 M-1 MECHANICAL SITE PLAN + DETAILS 08/11/97 M-2 BASEMENT PLUMBING FLOOR PLAN + DETAILS 09/16/97 M-3 FIRST FLOOR PLUMBING PLAN 09/16/97 M-4 SECOND FLOOR PLUMBING PLAN 09/16/97 M-5 THIRD FLOOR PLUMBING PLAN 09/16/97 M-6 PLUMBING SCHEDULE + DETAILS 09/16/97 M-7 BASEMENT MECHANICAL FLOOR PLAN 09/16/97 M-8 FIRST FLOOR MECHANICAL PLAN 09/16/97 M-9 SECOND FLOOR MECHANICAL PLAN 09/16/97 M-10 THIRD FLOOR MECHANICAL PLAN 09/16/97 M-11 FIRST FLOOR MECHANICAL PIPING PLAN 09/16/97 M-12 SECOND FLOOR MECH. PIPING + PLAN 09/16/97 M-13 THIRD FLOOR MECHANICAL PIPING PLAN 09/16/97 M-14 MECHANICAL SCHEDULES + DETAILS 08/11/97 M-15 MECHANICAL PIPING SCHEMATICS + DETAILS 08/11/97 M-16 MECHANICAL SYSTEMS POINT LISTS + DETAILS 08/11/97 E0.1 ELECTRICAL SITE PLAN 08/11/97 E1.1 BASEMENT FLOOR PLAN-LIGHTING 09/17/97 E1.2 FIRST FLOOR PLAN-LIGHTING 09/17/97 E1.3 SECOND FLOOR PLAN-LIGHTING 09/17/97 E1.4 THIRD FLOOR PLAN-LIGHTING 09/17/97 E2.1 BASEMENT FLOOR PLAN-LIGHTING 09/17/97 E2.2 FIRST FLOOR PLAN-POWER 09/17/97 E2.3 SECOND FLOOR PLAN-POWER 09/17/97 E2.4 THIRD FLOOR PLAN-POWER 09/17/97 E3.1 FIRST FLOOR PLAN-SYSTEMS 09/17/97 E3.2 SECOND FLOOR PLAN-SYSTEMS 09/17/97 E3.3 THIRD FLOOR PLAN-SYSTEMS 09/17/97 E4.1 PARTIAN ELECTRICAL PLAN-KITCHEN 09/17/97 E4.2 CCTV, TELEPHONE, ALARM RISER DIAGRAMS 09/17/97
21 EX-10.14 4 CONSTRUCTION CONTRACT DATED DEC. 24, 1997 EXHIBIT 10.14 - -------------------------------------------------------------------------------- AIA Document A111 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the COST OF THE WORK PLUS A FEE with or without a Guaranteed Maximum Price 1987 EDITION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES, CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. The 1987 Edition of AIA Document A201, General Conditions of the Contract for Construction, is adopted in this document by reference. Do not use with other general conditions unless this document is modified. This document has been approved and endorsed by The Associated General Contractors of America. - -------------------------------------------------------------------------------- AGREEMENT made as of the Twenty-Fourth day of December in the year of Nineteen Hundred and Ninety Seven BETWEEN the Owner: Bank of the Ozarks (Name and address) 425 West Capital Little Rock, AR 72201 and the Contractor: East-Harding, Inc. (Name and address) 2230 Cottandale Ln. Little Rock, AR 72202 the Project is: Bank of the Ozarks (Name and address) 5401 Rogers Ave. Fort Smith, AR 72903 the Architect is: AMR Architects (Name and address) 201 East Markham, Suite 150 Little Rock, AR 72201 The Owner and Contractor agree as set forth below. - -------------------------------------------------------------------------------- Copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967, 1974, 1978, (C)1987 by The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecution. AIA DOCUMENT A111.OWNER-CONTRACTOR AGREEMENT.TENTH EDITION.AIA(R).(C)1987.THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 A111-1987 1 - -------------------------------------------------------------------------------- ARTICLE I --------- THE CONTRACT DOCUMENTS 1.1 The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 16. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 --------- THE WORK OF THIS CONTRACT 2.1 The Contractor shall execute the entire Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others, or as follows: Telephone & Data Cabling Bank Equipment Bank Vault ARTICLE 3 --------- RELATIONSHIP OF THE PARTIES 3.1 The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and utilize the Contractor's best skill, efforts and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to make best efforts to furnish at all times an adequate supply of workers and materials; and to perform the Work in the best way and most expeditious and economical manner consistent with the interests of the Owner. The Owner agrees to exercise best efforts to enable the Contractor to perform the Work in the best way and most expeditious manner by furnishing and approving in a timely way information required by the Contractor and making payments to the Contractor in accordance with requirements of the Contract Documents. ARTICLE 4 --------- DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement is the date from which the Contract Time of Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first written above, unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. (Insert the date of commencement, if it differs from the date of this Agreement or, if applicable, state that the date will be fixed in a notice to proceed.) Unless the date of commencement is established by a notice to proceed issued by the Owner, the Contractor shall notify the Owner in writing not less than five days before commencing the Work to permit the timely filing of mortgages, mechanic's liens and other security interests. 2 4.2 The Contractor shall achieve Substantial Completion of the entire Work not later than (Insert the calendar date or number of calendar days after the date of commencement. Also insert any requirements for earlier Substantial Completion of certain portions of the Work, if not stated elsewhere in the Contract Documents.) September 30, 1998 , subject to adjustments of this Contract Time as provided in the Contract Documents. (Insert provisions, if any, for liquidated damages relating to failure to complete on time.) ARTICLE 5 --------- CONTRACT SUM 5.1 The Owner shall pay the Contractor in current funds for the Contractor's performance of the Contract the Contract Sum consisting of the Cost of the Work as defined in Article 7 and the Contractor's Fee determined as follows: (State lump sum, percentage of Cost of the Work or other provision for determining the Contractor's Fee, and explain how the Contractor's Fee is to be adjusted for changes in the Work.) EAST-HARDING INC. FEE OF 5% 5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE) 5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by the Contractor not to exceed Two Million Seven Hundred Sixty Three Thousand One Hundred Sixty One Dollars ($2,763,161), subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (Insert specific provisions if the Contractor is to participate in any savings.) 100% Savings given to OWNER 3 5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates, but only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement, attach a schedule of such other alternates showing the amount for each and the date until which that amount is valid.) Change downspout boots from cast iron to alternate material (to be determined) Change Kim site light poles to Valmont. Omit water-repellant an black veneer and precast (remins on stone base) Change 8" underground fire protection piping & 8" backflow presenter to 6" for underground piping and backflow preventer. 5.2.3 The amounts agreed to for unit prices, if any, are as follows: (State unit prices only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1.) Signage allowance of $5000 Undercut and compacted fill for, 7000cy at $10/cy or $70,000 ARTICLE 6 --------- CHANGES IN THE WORK 6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the General Conditions. 6.1.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of the General Conditions shall have the meanings assigned to them in the General Conditions and shall not be modified by Articles 5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs" as used in the above-referenced provisions of the General Conditions shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Paragraph 5.1 of this Agreement. 4 6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 6.2.1 Increased costs for the items set forth in Article 7 which result from changes in the Work shall become part of the Cost of the Work, and the Contractor's Fee shall be adjusted as provided in Paragraph 5.1. 6.3 ALL CONTRACTS 6.3.1 If no specific provision is made in Paragraph 5.1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work. ARTICLE 7 --------- COSTS TO BE REIMBURSED 7.1 The term Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.1.1 LABOR COSTS 7.1.1.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's agreement, at off-site workshops. 7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's agreement. (If it is intended that the wages or salaries of certain personnel stationed at the Contractor's principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time.) 7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3. 7.1.2 SUBCONTRACT COSTS Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.1.3.1 Costs, including transportation, of materials and equipment incorporated or to be incorporated in the completed construction. 7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess of those actually installed but required to provide reasonable allowance for waste and for spoilage. Unused excess materials, if any, shall be handed over to the Owner at the completion of the Work or, at the Owner's option, shall be sold by the Contractor; amounts realized, if any, from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.1.4.1 Costs, including transportation, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost less salvage value on such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall mean fair market value. 5 7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. 7.1.4.3 Costs of removal of debris from the site. 7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and parcel delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 7.1.4.5 That portion of the reasonable travel and subsistence expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.1.5 MISCELLANEOUS COSTS 7.1.5.1 That portion directly attributable to this Contract of premium for insurance and bonds. 7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which are related to the Work and for which the Contractor is liable. 7.1.5.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.1.5.4 Fees of testing laboratories for tests required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or other provisions of the Contract Documents and which do not fall within the scope of Subparagraphs 7.2.2 through 7.2.4 below. 7.1.5.5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents; the cost of defending suits or claims for infringement of patent rights arising from such requirement by the Contract Documents; payments made in accordance with legal judgments against the Contractor resulting from such suits or claims and payments of settlements made with the Owner's consent; provided, however, that such costs of legal defenses, judgment and settlements shall not be included in the calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any, and provided that such royalties, fees and costs are not excluded by the last sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of the Contract Documents. 7.1.5.6 Deposits lost for causes other than the Contractor's fault or negligence. 7.1.6 OTHER COSTS 7.1.6.1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK The Cost of the Work shall also include costs described in Paragraph 7.1 which are incurred by the Contractor: 7.2.1 In taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 10.3 of the General Conditions. 7.2.2 In repairing or correcting Work damaged or improperly executed by construction workers in the employ of the Contractor, provided such damage or improper execution did not result from the fault or negligence of the Contractor or the Contractor's foremen, engineers or superintendents, or other supervisory, administrative or managerial personnel of the Contractor. 7.2.3 In repairing damaged Work other than that described in Subparagraph 7.2.2, provided such damage did not result from the fault or negligence of the Contractor or the Contractor's personnel, and only to the extent that the cost of such repairs is not recoverable by the Contractor from others and the Contractor is not compensated therefor by insurance or otherwise. 7.2.4 In correcting defective or nonconforming Work performed or supplied by a Subcontractor or material supplier and not corrected by them, provided such defective or nonconforming Work did not result from the fault or neglect of the Contractor or the Contractor's personnel adequately to supervise and direct the Work of the Subcontractor or material supplier, and only to the extent that the cost of correcting the defective or nonconforming Work is not recoverable by the Contractor from the Subcontractor or material supplier. 6 ARTICLE 8 --------- COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Clauses 7.1.1.2 and 7.1 .1 .3 or as may be provided in Article 14. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the Work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Clause 7.1.4.2. 8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph 13.5 of this Agreement, costs due to the fault or negligence of the Contractor, Subcontractors, anyone directly or indirectly employed by any of them, or for whose acts any of them may be liable, including but not limited to costs for the correction of damaged, defective or nonconforming Work, disposal and replacement of materials and equipment incorrectly ordered or supplied, and making good damage to property not forming part of the Work. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be exceeded. ARTICLE 9 --------- DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments; otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts which accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the Work. ARTICLE 10 ---------- SUBCONTRACTS AND OTHER AGREEMENTS 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner will then determine, with the advice of the Contractor and subject to the reasonable objection of the Architect, which bids will be accepted. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been established, the Owner may not prohibit the Contractor from obtaining bids from others. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If a Guaranteed Maximum Price has been established and a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid which conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted; then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the payment provisions of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. 7 ARTICLE 11 ---------- ACCOUNTING RECORDS 11.1 The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract; the accounting and control system shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 ---------- PROGRESS PAYMENTS 12.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.3 Provided an Application for Payment is received by the Architect not later than the last day of a month, the Owner shall make payment to the Contractor not later than the tenth day of the following month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than ten days after the Architect receives the Application for Payment. 12.4 With each Application for Payment the Contractor shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Contractor on account of the Cost of the Work equal or exceed (1) progress payments already received by the Contractor; less (2) that portion of those payments attributable to the Contractor's Fee; plus (3) payrolls for the period covered by the present Application for Payment; plus (4) retainage provided in Subparagraph 12.5.4, if any, applicable to prior progress payments. 12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 12.5.1 Each Application for Payment shall be based upon the most recent schedule of values submitted by the Contractor in accordance with the Contract Documents. The Schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.5.2 Applications for Payment shall show the percentage completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed or (2) the percentage obtained by dividing (a) the expense which has actually been incurred by the Contractor on account of that portion of the Work for which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 12.5.3 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions, even though the Guaranteed Maximum Price has not yet been adjusted by Change Order. 12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing. 12.5.3.3 Add the Contractor's Fee, less retainage of ten percent (10%). The Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, shall be an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion. 8 12.5.3.4 Subtract the aggregate of previous payments made by the Owner. 12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of the General Conditions. 12.5.4 Additional retainage, if any, shall be as follows: (If it is intended to retain additional amounts from progress payments to the Contractor beyond (1) the retainage from the Contractor's Fee provided in Clause 12.5.3.3, (2) the retainage from Subcontractors provided in Paragraph 12.7 below, and (3) the retainage, if any, provided by other provisions of the Contract, insert provision for such additional retainage here. Such provision, if made, should also describe any arrangement for limiting or reducing the amount retained after the Work reaches a certain state of completion.) *No additional retainage to be held after the Work is fifty percent (50%) complete. 12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 12.6.1 Applications for Payment shall show the Cost of the Work actually incurred by the Contractor through the end of the period covered by the Application for Payment and for which the Contractor has made or intends to make actual payment prior to the next Application for Payment. 12.6.2 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6.1. 12.6.2.2 Add the Contractor's Fee, less retainage of ____________ percent (________________%). The Contractor's Fee shall be computed upon the Cost of the Work described in the preceding Clause 12.6.2.1 at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the preceding Clause bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.6.2.3 Subtract the aggregate of previous payments made by the Owner. 12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 or to substantiate prior Applications for Payment or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.6.2.5 Subtract amounts, if any, for which the Architect has withheld or withdrawn a Certificate for Payment as provided in the Contract Documents. 12.6.3 Additional retainage, if any, shall be as follows: 12.7 Except with the Owner's prior approval, payments to Subcontractors included in the Contractor's Applications for Payment shall not exceed an amount for each Subcontractor calculated as follows: 12.7.1 Take that portion of the Subcontract Sum properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Subcontractor's Work by the share of the total Subcontract Sum allocated to that portion in the Subcontractor's schedule of values, less retainage of ten percent (10%). Pending final determination of amounts to be paid to the Subcontractor for changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions even though the Subcontract Sum has not yet been adjusted by Change Order. 12.7.2 Add that portion of the Subcontract Sum properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing, less retainage of ten percent (10%). 12.7.3 Subtract the aggregate of previous payments made by the Contractor to the Subcontractor. 9 12.7.4 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment by the Owner to the Contractor for reasons which are the fault of the Subcontractor. 12.7.5 Add, upon Substantial Completion of the entire Work of the Contractor, a sum sufficient to increase the total payments to the Subcontractor to five percent (5%) of the Subcontract Sum, less amounts, if any, for incomplete Work and unsettled claims; and, if final completion of the entire Work is thereafter materially delayed through no fault of the Subcontractor, add any additional amounts payable on account of Work of the Subcontractor in accordance with Subparagraph 9.10.3 of the General Conditions. (If it is intended, prior to Substantial Completion of the entire Work of the Contractor, to reduce or limit the retainage from Subcontractors resulting from the percentages inserted in Subparagraphs 12.7.1 and 12.7.2 above, and this is not explained elsewhere in the Contract Documents, insert here provisions for such reduction or limitation.) The Subcontract Sum is the total amount stipulated in the subcontract to be paid by the Contractor to the Subcontractor for the Subcontractor's performance of the subcontract. 12.8 Except with the Owner's prior approval, the Contractor shall not make advance payments to suppliers for materials or equipment which have not been delivered and stored at the site. 12.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely.on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Paragraph 12.4 or other supporting data; that the Architect has made exhaustive or continuous on- site inspections or that the Architect has made examinations to ascertain how or for what purposes the Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. ARTICLE 13 ---------- FINAL PAYMENT 13.1 Final payment shall be made by the Owner to the Contractor when (1) the Contract has been fully performed by the Contractor except for the Contractor's responsibility to correct defective or nonconforming Work, as provided in Subparagraph 12.2.2 of the General Conditions, and to satisfy other requirements, if any, which necessarily survive final payment; (2) a final Application for Payment and a final accounting for the Cost of the Work have been submitted by the Contractor and reviewed by the owner's accountants; and (3) a final Certificate for Payment has then been issued by the Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 13.2 The amount of the final payment shall be calculated as follows: 13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's final accounting and the Contractor's Fee; but not more than the Guaranteed Maximum Price, if any. 13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of the General Conditions or other provisions of the Contract Documents. 13.2.3 Subtract the aggregate of previous payments made by the Owner. If the aggregate of previous payments made by the Owner exceeds the amount due the Contractor, the Contractor shall reimburse the difference to the Owner. 10 13.3 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Paragraph 13.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor, or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of the General Conditions. The time periods stated in this Paragraph 13.3 supersede those stated in Subparagraph 9.4.1 of the General Conditions. 13.4 If the Owner's accountants report the Cost of the Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to den-and arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment; failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 13.5 If, subsequent to final payment and at the Owner's request, the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price, if any. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. ARTICLE 14 ---------- MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision of the General Conditions or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agreed upon, if any.) (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Contractor's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) 14.3 Other provisions: Retainage to be reduced to 5% at 50% completion of project. ARTICLE 15 ---------- TERMINATION OR SUSPENSION 15.1 The Contract may be terminated by the Contractor as provided in Article 14 of the General Conditions; however, the amount to be paid to the contractor under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 11 15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of the General Conditions shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below. 15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the Owner shall then pay the Contractor an amount calculated as follows: 15.3.1 Take the Cost of the Work incurred by the Contractor to the date of termination. 15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion. 15.3.3 Subtract the aggregate of previous payments made by the Owner. The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor which the Owner elects to retain and which is not otherwise included in the Cost of the Work under Subparagraph 15.3.1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 15, execute and deliver all such papers and take all such steps, including the legal assignment of such subcontracts and other contractual rights of the Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 15.4 The Work may be suspended by the Owner as provided in Article 14 of the General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be increased as provided in Subparagraph 14.3.2 of the General Conditions except that the term "cost of performance of the Contract" in that Subparagraph shall be understood to mean the Cost of the Work and the term "profit" shall be understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3 of this Agreement. ARTICLE 16 ---------- ENUMERATION OF CONTRACT DOCUMENTS 16.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner and Contractor, AIA Document A111, 1987 Edition. 16.1.2 The General Conditions are the General Conditions of the Contract for Construction, AIA Document A201, 1987 Edition. 16.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated __________________________, and are as follows: DOCUMENT TITLE PAGES Fort Smith, Arkansas Bank of the Ozarks Project Manual dated October 22, 1997 AMR Architects, Inc. 16.1.4 The Specifications are those contained in the Project Manual dated as in Paragraph 16.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) 12 SECTION TITLE PAGES Fort Smith, Arkansas Bank of the Ozarks Project Manual dated October 22, 1997 AMR Architects, Inc. 16.1.5 The Drawings are as follows, and are dated __________, unless a different date is shown below: (Either list the Drawings here or refer to an exhibit attached to this Agreement.) NUMBER TITLE DATE See attached 16.1.6 The addenda, if any, are as follows: NUMBER TITLE PAGES One November 17, 1997 3 Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 16. 16.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents which are intended to form part of the Contract Documents. The General Conditions provide that bidding requirements such as advertisement or invitation to bid, Instructions to Bidders, sample forms and the Contractor's bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.) 13 This Agreement is entered into as of the day and year first written above and is executed in at least three original copies of which one is to be delivered to the Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the Owner. OWNER CONTRACTOR /s/ Mark D. Ross /s/ T. Harding - ------------------------------------ ----------------------------------------- (Signature) (Signature) President - ------------------------------------ ----------------------------------------- (Printed name and title) (Printed name and title) AIA CAUTION: YOU SHOULD SIGN AN ORIGINAL AIA DOCUMENT WHICH HAS THIS CAUTION PRINTED IN RED. AN ORIGINAL ASSURES THAT CHANGES WILL NOT BE OBSCURED AS MAY OCCUR WHEN DOCUMENTS ARE REPRODUCED. 14 Bank of the Ozarks C1.1 Site Grading (revised) 11-24-97 C1.2 Site Layout + Details (revised) 11-24-97 L1 Landscape Plan 11-03-97 A1.0 First Floor Plan 10-22-97 A1.1 Second Floor Plan 10-22-97 A1.2 Roof Plan 10-22-97 A1.3 Enlarged Plans & Details 10-22-97 A1.4 Roof Details 10-22-97 A2.0 Elevations 10-22-97 A3.0 Building Sections 10-22-97 A3.1 Wall Sections 10-22-97 A3.2 Wall Sections 10-22-97 A3.3 Wall Sections 10-22-97 A3.4 Interior Partition Schedule 10-22-97 A4.0 Door Details & Schedule 10-22-97 A4.1 Window Details & Schedule 10-22-97 A5.0 Interior Elevations 10-22-97 A6.0 Millwork Details 10-22-97 A7.0 First Floor Reflected Ceiling Plans 10-22-97 A7.1 Second Floor Reflected Ceiling Plans 10-22-97 S1.0 Foundation Plan 10-22-97 S1.1 Second Floor Framing Plan 10-22-97 S1.2 Roof Level Framing Plan 10-22-97 S1.3 Sloping Roof Framing Plan 10-22-97 S1.4 General Notes & Schedules 10-22-97 S2.0 Foundation Details 10-22-97 S2.1 Foundation Details 10-22-97 S3.0 Framing Details 10-22-97 S3.1 Framing Details 10-22-97 S3.2 Framing Details 10-22-97 S3.3 Framing Details 10-22-97 S3.4 Framing Details 10-22-97 S3.5 Wood Truss Plan & Details 10-22-97 M-1 Mechanical Utility Site Plan 10-22-97 M-2 First Floor Plumbing Plan 10-22-97 M-3 Second Floor Plumbing Plan 10-22-97 M-4 Plumbing Schedule Details & Details 10-22-97 M-5 First Floor Mechanical 10-22-97 M-6 Second Floor Mechanical Plan 10-22-97 M-7 First Floor Mechanical Piping Plan 10-22-97 M-8 Second Floor Mechanical Piping Plan 10-22-97 M-9 Mechanical Schedule & Details 10-06-97 M10 Mechanical Details 10-22-97 M11 Mechanical Control Details 10-22-97 EO.1 Electrical Site Plan 10-22-97 E1.1 First Floor Plan Lighting 10-22-97 E1.2 Second Floor Plan Lighting 10-22-97 E2.1 First Floor Plan Power 10-22-97 E2.2 Second Floor Plan Power 10-22-97 E3.1 First Floor Plan Systems 10-22-97 E3.2 Second Floor Plan Systems 10-22-97 E4.1 Electrical Details 10-22-97 15 EX-13 5 PORTIONS OF THE REGISTRANTS ANNUAL REPORT EXHIBIT 13 SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (Dollars in Thousands, Except Per Share Amounts) INCOME STATEMENT DATA: Interest income ............................... $ 27,468 $ 21,836 $ 15,703 $ 12,645 $ 14,057 Interest expense .............................. 12,979 10,031 7,391 4,651 5,011 Net interest income ........................... 14,489 11,805 8,312 7,994 9,046 Provision for loan losses ..................... 1,139 1,486 360 339 338 Non-interest income ........................... 2,925 1,865 1,168 2,713 1,068 Non-interest expense .......................... 9,228 7,151 5,996 5,735 6,162 Net income .................................... 4,531 3,027 2,170 2,954/(1)/ 2,425 PER COMMON SHARE DATA: Earnings ...................................... $ 1.38 $ 1.05 $ 0.75 $ 0.99/(1/ $ 0.82 Book value .................................... 9.44 6.44 5.66 5.07 4.53 Dividends ..................................... 0.20 0.30 0.30 0.30 0.25 Weighted avg. shares outstanding (thousands)... 3,281 2,880 2,894 2,975 2,968 BALANCE SHEET DATA AT PERIOD END: Total assets .................................. $352,093 $270,600 $212,476 $165,030 $181,609 Total loans ................................... 275,463 214,462 153,198 112,806 115,032 Allowance for loan losses ..................... 3,737 3,019 1,909 1,649 1,716 Net loans ..................................... 271,726 211,443 151,289 111,157 113,316 Total investment securities ................... 42,459 39,608 37,137 40,521 44,786 Total deposits ................................ 295,555 231,648 182,463 148,453 164,362 FHLB advances ................................. 14,017 12,517 7,947 - - Notes payable ................................. 5,072 5,396 3,920 - 2,278 Total stockholders' equity .................... 35,666 18,547 16,294 15,076 13,484 Loan to deposit ratio ......................... 93.20% 92.58% 83.96% 75.99% 69.99% AVERAGE BALANCE SHEET DATA: Total average assets .......................... $314,489 $240,208 $185,160 $167,333 $178,570 Total average stockholders' equity ............ 26,328 17,144 15,392 14,287 12,559 Average equity to total average assets ........ 8.37% 7.14% 8.31% 8.54% 7.03% PERFORMANCE RATIOS: Return on average assets ...................... 1.44% 1.26% 1.17% 1.77% 1.36% Return on average stockholders' equity ........ 17.21 17.66 14.09 20.67 19.31 Net interest margin ........................... 4.98 5.36 4.95 5.24 5.76 Overhead ratio ................................ 2.93 2.99 3.23 3.49 3.61 Efficiency ratio .............................. 52.55 51.60 61.57 62.83 60.56 Dividend payout ratio ......................... 14.49 28.57 40.00 30.30 30.49 ASSETS QUALITY RATIOS: Net charge-offs as a percentage of average total loans .................................. 0.17% 0.21% 0.08% 0.09% 0.52% Nonperforming loans to total loans ............ 0.25 1.08 0.85 0.57 1.73 Nonperforming assets to total assets .......... 0.24 0.88 0.63 0.50 1.51 ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF: Total loans ................................... 1.36% 1.41% 1.25% 1.46% 1.49% Nonperforming loans ........................... 534.62 130.69 146.28 258.46 86.10 CAPITAL RATIOS AT PERIOD END: Leverage capital ratio ........................ 9.86% 6.42% 7.49% 9.10% 6.83% Tier I risk-based capital ..................... 13.01 8.45 9.80 12.71 10.13 Total risk-based capital ...................... 14.27 9.70 11.05 13.96 11.38
(1) Includes after tax gain of $1.0 million ($0.34 per common share) from the May 1994 sale of a bank subsidiary having $36.7 million of total assets. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Net income was $4.5 million for the year ended December 31, 1997, a 49.7% increase over net income of $3.0 million for the same period in 1996. Net income in 1995 was $2.2 million. Earnings per share, which was impacted by the Company's issuance of 899,755 additional shares of common stock in the Company's initial public offering ("IPO") completed during the third quarter of 1997, rose 31.4% to $1.38 per share in 1997 compared to $1.05 per share in 1996. Earnings per share in 1995 was $0.75 per share. As reflected in the following table, total assets, loans and deposits increased 30.1%, 28.4% and 27.6%, respectively, at December 31, 1997 from December 31, 1996. As a result of the Company's IPO and earnings, stockholders' equity increased 92.3% from $18.5 million at December 31, 1996, to $35.7 million at December 31, 1997. During this same period book value per share increased 46.6% from $6.44 to $9.44 per share. % CHANGE DECEMBER 31, -------------------- ------------------------------- 1997 1996 1997 1996 1995 FROM 1996 FROM 1995 -------- -------- -------- --------- --------- (Dollars in Thousands) Assets ............. $352,093 $270,600 $212,476 30.1% 27.4% Loans .............. 275,463 214,462 153,198 28.4 40.0 Deposits ........... 295,555 231,648 182,463 27.6 27.0 Stockholders' Equity 35,666 18,547 16,294 92.3 13.8 Two measures of the performance by financial institutions are return on average assets (ROA) and return on average equity (ROE). ROA measures net earnings in relation to average total assets and indicates a company's ability to employ its resources profitably. For the year ended December 31, 1997 the Company's ROA was 1.44% compared with 1.26% and 1.17% respectively for the years ended December 31, 1996 and 1995. ROE is determined by dividing annual net earnings by average shareholders' equity and indicates how effectively a company can generate net income on the capital invested by its shareholders. For the year ended December 31, 1997 the Company's ROE was 17.21% compared with 17.66% and 14.09% respectively for the years ended December 31, 1996 and 1995. ANALYSIS OF RESULTS OF OPERATIONS The Company's results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans and investments, and the interest expense incurred on interest bearing liabilities, such as deposits and other borrowings. The Company also generates non-interest income, including service charges on deposit accounts, fees from origination of residential mortgage loans for resale, other service charges and fees, trust fees, and gains on sales. The Company's non-interest expenses primarily consist of employee compensation and benefits, occupancy, equipment, and other operating expenses. The Company's results of operations are also significantly affected by its provision for loan losses. The following discussion provides a summary of the Company's operations for the past three years. NET INTEREST INCOME Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent ("FTE") basis. The adjustment to convert certain income to an FTE basis consists of dividing tax exempt income by one minus the federal income tax rate (34%). 1997 COMPARED TO 1996 Net interest income (FTE) increased 22.0% to $14.6 million in 1997 from $12.0 million in 1996. This increase primarily resulted from a 31.1% increase in average earnings assets to $293.6 million in 1997 from $223.9 million in 1996. The increase in average earning assets resulted primarily from expansion of the Company's loan portfolio. The increase in interest margin attributable to the growth in earning assets was offset somewhat by a decline in the net interest margin from 5.36% to 4.98%. The decrease in the net interest margin resulted primarily from a 44 basis point decrease in the yield on average earning assets. A substantial portion of this decrease was attributable to lower average balances during 1997 on a relative high 11 yielding portfolio of loans acquired prior to 1996 from the Resolution Trust Corporation. 1996 COMPARED TO 1995 Net interest income (FTE) increased 40.6% to $12.0 million in 1996 from $8.5 million in 1995. This increase primarily resulted from a 29.9% increase in average earning assets to $223.9 million in 1996 from $172.3 million in 1995 and a 41 basis point improvement in the net interest margin to 5.36% in 1996 from 4.95% in 1995. The increase in average earning assets resulted from expansion of the Company's loan portfolio due to continued growth of existing branches, opening of new branches and the purchase of a discounted loan portfolio from the RTC in late 1995. The increase in the net interest margin resulted primarily from a 60 basis point increase in the yield on average earning assets (a substantial portion of which was attributable to the higher yielding RTC loan portfolio) which more than offset a 14 basis point increase in the cost of average interest bearing liabilities. ANALYSIS OF NET INTEREST INCOME (FTE = Fully Taxable Equivalent)
YEARS ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 --------- ---------- --------- (Dollars in thousands) Interest income ........................ $27,468 $21,836 $15,703 FTE adjustment ......................... 144 187 218 ------- ------- ------- Interest income -FTE ................... 27,612 22,023 15,921 Interest expense ....................... 12,979 10,031 7,391 ------- ------- ------- Net interest income -FTE ............... $14,633 $11,992 $ 8,530 ======= ======= ======= Yield on interest earning assets - FTE.. 9.40% 9.84% 9.24% Cost of interest bearing liabilities ... 5.02 5.02 4.88 Net interest spread - FTE .............. 4.38 4.82 4.36 Net interest margin-FTE ................ 4.98 5.36 4.95
The following table sets forth certain information relating to the elements of the Company's net interest income for the years ended December 31, 1997, 1996 and 1995. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown except where otherwise noted. Average balances are derived from daily average balances for bank assets and liabilities as well as the averages for holding company borrowings. The average balance of loans receivable includes loans on which the Company has discontinued accruing interest. The yields and costs include certain fees which are considered adjustments to yields. 12 AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1997 1996 -------------------------------- ------------------------------ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE -------- -------- -------- -------- -------- ------- (Dollars in Thousands) ASSETS Earnings assets: Interest-earning deposits ........................ $ 3,883 $ 213 5.49% $ 3,077 $ 169 5.49% Federal funds sold ............................... 2,021 108 5.34 2,720 145 5.33 Investment securities: Taxable ........................................ 39,413 2,684 6.81 32,526 2,069 6.36 Tax-exempt-FTE ................................. 3,520 353 10.03 5,215 551 10.57 Loans (net of unearned income) ................... 244,757 24,254 9.91 180,334 19,089 10.59 -------- -------- -------- -------- Total earnings assets ...................... 293,594 27,612 9.40 223,872 22,023 9.84 Non-earning assets ................................. 20,895 16,336 -------- -------- Total assets ............................... $314,489 $240,208 ======== ======== LIABILITIES AND STOCKHOLDERS EQUITY Interest-bearing liabilities: Deposits Interest bearing transaction and savings ....... $ 61,184 $ 1,786 2.92% $ 48,989 $ 1,311 2.68% Certificates of deposits $100,000 or more .... 48,919 2,753 5.63 34,689 1,975 5.69 Other time deposits .......................... 129,969 7,287 5.61 102,076 5,719 5.60 -------- -------- -------- -------- Total interest bearing deposits ............ 240,072 11,826 4.93 185,754 9,005 4.85 Federal funds and FHLB borrowings .................. 12,347 599 4.85/(1)/ 9,564 558 5.83 Holding company debt(2) ............................ 6,125 554 9.04 4,315 468 10.85 -------- -------- -------- -------- Total interest bearing liabilities ......... 258,544 12,979 5.02 199,633 10,031 5.02 Non-interest liabilities Non-interest bearing deposits .................... 26,981 20,129 Other non-interest liabilities ................... 2,636 3,302 -------- -------- Total liabilities .......................... 288,161 223,064 Stockholders' equity ............................... 26,328 17,144 -------- -------- Total liabilities and stockholders' equity . $314,489 $240,208 ======== ======== Interest rate spread ............................... 4.38% 4.82% -------- -------- Net interest income ................................ $ 14,633 $ 11,992 ======== ======== Net interest margin ................................ 4.98% 5.36% 1995 ------------------------------ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE -------- -------- -------- (Dollars in Thousands) ASSETS Earnings assets: Interest-earning deposits ........................ $ 1,524 $ 85 5.58% Federal funds sold ............................... 1,832 109 5.95 Investment securities: Taxable ........................................ 34,771 2,079 5.98 Tax-exempt-FTE ................................. 5,654 642 11.35 Loans (net of unearned income) ................... 128,530 13,006 10.12 -------- -------- Total earnings assets ...................... 172,311 15,921 9.24 Non-earning assets ................................. 12,849 -------- Total assets ............................... $185,160 ======== LIABILITIES AND STOCKHOLDERS EQUITY Interest-bearing liabilities: Deposits $ 40,537 $ 913 2.25% Interest bearing transaction and savings ....... 24,307 1,436 5.91 Certificates of deposits $100,000 or more .... 85,936 5,008 5.83 Other time deposits .......................... -------- -------- 150,780 7,357 4.88 Total interest bearing deposits ............ 419 24 5.73 Federal funds and FHLB borrowings .................. 104 10 9.62 Holding company debt(2) ............................ -------- -------- 151,303 7,391 4.88 Total interest bearing liabilities ......... Non-interest liabilities 16,492 Non-interest bearing deposits .................... 1,973 Other non-interest liabilities ................... -------- 169,768 Total liabilities .......................... 15,392 Stockholders' equity ............................... -------- $185,160 Total liabilities and stockholders' equity . ======== 4.36% Interest rate spread ............................... -------- $ 8,530 Net interest income ................................ ======== 4.95% Net interest margin ................................
(1) This rate was impacted by the capitalization of interest on construction projects in the amount of $145,000. In the absence of this capitalization this percentage would have been 6.03% (2) The interest expense of holding company debt includes interest accrued for the years ended December 31, 1997 and 1996 for a tax dispute related to the years 1992-1995. Such interest accruals were $25,000 and $93,000 and were recorded during the years ended December 31, 1997 and 1996 respectfully. The following table reflects the extent to which changes in the volume of interest earnings assets and interest bearing liabilities and changes in interest rates have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes attributable to changes in rate/volume (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume and rate have all been allocated to the changes due to volume. 13 ANALYSIS OF CHANGES IN NET INTEREST INCOME
1997 over 1996 1996 over 1995 --------------------------- --------------------------- YIELD/ YIELD/ VOLUME RATE TOTAL VOLUME RATE TOTAL ------- ------- ------- ------- ------- ------- (Dollars in Thousands) Increase (decrease) in: Interest income: Interest earning deposits ........ $ 44 $ - $ 44 $ 85 $ (1) $ 84 Federal funds sold ............... (37) - (37) 47 (11) 36 Investment securities: Taxable ........................ 469 146 615 (143) 133 (10) Tax-exempt ..................... (170) (28) (198) (46) (45) (91) Loans (net of unearned income) ... 6,384 (1,219) 5,165 5,484 599 6,083 ------- ------- ------- ------- ------- ------- Total interest earnings assets . 6,690 (1,101) 5,589 5,427 675 6,102 ------- ------- ------- ------- ------- ------- Interest expense: Interest bearing transaction deposits and savings accts ........ 356 119 475 226 172 398 Time deposits of $100,000 or more .. 801 (23) 778 591 (52) 539 Other time deposits ................ 1,564 4 1,568 904 (193) 711 Federal funds and FHLB borrowings .. 135 (94) 41 534 - 534 Holding company debt ............... 164 (78) 86 457 1 458 ------- ------- ------- ------- ------- ------- Total interest bearing liabilities ................... 3,020 (72) 2,948 2,712 (72) 2,640 ------- ------- ------- ------- ------- ------- Increase (decrease) in net interest income ........................... $ 3,670 $(1,029) $ 2,641 $ 2,715 $ 747 $ 3,462 ======= ======= ======= ======= ======= =======
NON-INTEREST INCOME The Company's non-interest income can primarily be broken down into five main sources: service charges on deposit accounts, fees from origination of residential mortgage loans for resale, other service charges and fees including appraisal fees and commissions from the sale of credit related insurance products, trust fees, and gains on sales. Non-interest income for the year ending December 31, 1997 increased 56.8% to $2.9 million compared with $1.9 million in 1996. Non-interest income was $1.2 million in 1995. The Company's growth in non-interest income is primarily due to increases in loan fees, service charges on deposit accounts and gains on sale of assets. In 1996, the Company began to originate residential mortgage loans for resale in the secondary market. The growth in the volume of secondary market loan fees was the largest single contributor to the Company's improvement in non-interest income in 1997. The table below shows non-interest income for the years ended December 31, 1997, 1996 and 1995. 14 NON-INTEREST INCOME DECEMBER 31, ----------------------------- 1997 1996 1995 ------- --------- -------- (Dollars in thousands) Trust department income ............. $ 274 $ 214 $ 231 Service charges on deposit accounts . 957 806 514 Loan fees ........................... 566 68 23 Other service charges and fees ...... 570 469 338 Gain on sale of loans ............... 57 274 - Gain on sale of previously foreclosed real estate ........................ 261 14 4 Gain on sale of other assets ........ 76 - - Securities gains (losses) ........... 14 (77) (44) Printed check sales ................. 127 90 9 Other income ........................ 23 7 93 ------- ------- ------- Total non-interest income ........ $ 2,925 $ 1,865 $ 1,168 ======= ======= ======= NON-INTEREST EXPENSE Non-interest expense consists of salaries and employee benefits, occupancy, equipment and other operating expenses. Non-interest expense for the year ended December 31, 1997 increased 29.0% to $9.2 million compared with $7.2 million in 1996. Non-interest expense was $6.0 million in 1995. The increases in non-interest expense are primarily attributable to increases in staff, facilities and operating volumes resulting from the Company's continued growth and expansion, including the cost of preparation for and opening of new offices. During 1997, the Company opened five new offices. Management is committed to controlling the level of non-interest expense and utilizes the assistance of a detailed branch level accounting and budgeting process in its monitoring of these expense levels. The overhead ratio (non-interest expenses divided by average assets) for the year ended December 31, 1997 was 2.93%, down 6 basis points from 2.99% in 1996. The efficiency ratio (non-interest expenses divided by the sum of net interest income on a tax equivalent basis and non-interest income) was 52.55% for the year ended December 31, 1997 compared to 51.60% in 1996. The table below shows non-interest expense for the years ended December 31, 1997, 1996 and 1995. NON-INTEREST EXPENSE DECEMBER 31, ------------------------- 1997 1996 1995 ------- ------ ------- (Dollars in thousands) Salaries and employee benefits ............ $5,330 $4,263 $3,374 Net occupancy expense ..................... 584 457 319 Equipment expense ......................... 721 541 426 Other real estate and foreclosure expense.. 40 49 142 Other operating expense: Professional services .................... 102 60 56 Postage .................................. 178 140 118 Telephone ................................ 221 125 106 Operating supplies ....................... 405 215 214 Advertising and public relations ......... 332 123 101 Other outside service fees ............... 59 59 31 Directors' fees .......................... 116 96 79 Software expense ......................... 119 69 75 Check printing charges ................... 137 102 30 FDIC & state assessment .................. 112 47 373 Amortization of goodwill ................. 56 56 59 Charitable contributions ................. 84 126 126 Guaranty fee ............................. 76 91 - Other .................................... 556 532 367 ------ ------ ------ Total non-interest expense ........... $9,228 $7,151 $5,996 ====== ====== ====== 15 INCOME TAXES The provision for income taxes was $2.5 million for the year ended December 31, 1997 compared to $2.0 million in 1996 and $845,000 in 1995. The effective income tax rates were 35.7%, 39.9% and 27.0%, respectively, for these periods. In 1996, the Company was assessed $326,000 of additional state income taxes for the years 1992 through 1995 with respect to a dispute involving the taxation of intercompany dividends. This assessment, plus $93,000 of interest expense, net of federal tax effect, was fully expensed in 1996 and significantly increased the Company's effective income tax rate for 1996. The tax rate for 1996 would have been 35.6% without this additional tax expense. The Company paid the disputed taxes and related interest during 1997. This payment was made under protest and the Company plans to file suit seeking a refund. ANALYSIS OF FINANCIAL CONDITION LOAN PORTFOLIO At December 31, 1997 the Company's loan portfolio was $275.5 million, an increase of 28.4% from $214.5 million at December 31, 1996. As of December 31, 1997, the Company's loan portfolio consisted of approximately 62.5% real estate loans, 19.3% consumer loans, 13.6% commercial and industrial loans and 3.9% agricultural loans (non-real estate). The amount and type of loans outstanding at December 31, 1997, 1996, 1995, 1994, 1993 are reflected in the following table. LOAN PORTFOLIO
DECEMBER 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (Dollars in thousands) Real Estate Single family residential ...... $ 96,943 $ 78,124 $ 55,609 $ 41,494 $ 42,569 Non-farm/non-residential ....... 41,710 35,258 36,603 22,978 27,326 Agricultural ................... 13,443 11,583 9,274 8,373 9,199 Construction/land development... 16,257 8,808 3,471 4,668 1,672 Multifamily residential ........ 3,897 3,743 4,388 3,806 4,369 -------- -------- -------- -------- -------- Total real estate ............ 172,250 137,516 109,345 81,319 85,135 Consumer ....................... 53,233 39,868 25,372 17,583 17,278 Commercial and industrial ...... 37,470 28,154 11,077 6,191 5,405 Agricultural (non-real estate) 10,824 8,363 6,963 6,889 6,161 Other .......................... 1,686 561 441 824 1,053 -------- -------- -------- -------- -------- Total loans .................. $275,463 $214,462 $153,198 $112,806 $115,032 ======== ======== ======== ======== ========
16 The following table reflects remaining loan maturities at December 31, 1997 by type and with fixed or floating interest rates. LOAN MATURITIES OVER 1 YEAR 1 YEAR THROUGH OVER OR LESS 5 YEARS 5 YEARS TOTAL -------- -------- -------- -------- (Dollars in thousands) Real Estate .................. $ 57,134 $ 78,950 $ 36,166 $172,250 Consumer ..................... 12,031 39,099 2,103 53,233 Commercial and industrial .... 20,158 15,970 1,342 37,470 Other ........................ 6,550 3,265 2,695 12,510 -------- -------- -------- -------- $ 95,873 $137,284 $ 42,306 $275,463 ======== ======== ======== ======== Fixed rate ................... $ 90,091 $130,145 $ 18,683 $238,919 Floating rate ................ 5,782 7,139 23,623 36,544 -------- -------- -------- -------- $ 95,873 $137,284 $ 42,306 $275,463 ======== ======== ======== ======== NONPERFORMING ASSETS Nonperforming assets consist of (i) nonaccrual loans, (ii) loans for which the terms have been restructured to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower and (iii) real estate or other assets that have been acquired in partial or full satisfaction of loan obligations or upon foreclosure. As of December 31, 1996, one loan for $1.3 million accounted for 68.4% of the total $1.9 million nonaccrual loans. This large nonaccrual loan was paid off in the fourth quarter of 1997. As a result, nonperforming loans as a percent of total loans declined to .25% at December 31, 1997, from 1.08% at December 31, 1996. The Company's policy generally is to place a loan on nonaccrual status when payment of principal or interest is contractually past due 90 days, or earlier when doubt exists as to the ultimate collection of principal and interest. The Company continues to accrue interest on certain loans contractually past due 90 days if such loans are both well secured and in the process of collection. At the time a loan is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. If a loan is determined to be uncollectible, the portion of the loan principal determined to be uncollectible will be charged against the allowance for loan losses. Interest income on nonaccrual loans is recognized on a cash basis when and if actually collected. The following table presents information concerning nonperforming assets including nonaccrual and restructured loans and foreclosed assets held for sale. NONPERFORMING ASSETS
DECEMBER 31, ----------------------------------------------- 1997 1996 1995 1994 1993 --------- -------- ------- ------ ------- (Dollars in thousands) Nonaccrual loans ................................... $ 664 $2,057 $1,181 $ 571 $1,931 Accruing loans 90 days or more past due ............ 35 253 124 67 62 Restructured loans ................................. - - - - - ------ ------ ------ ------ ------ Total nonperforming loans ...................... 699 2,310 1,305 638 1,993 Foreclosed assets held for sale and repossessions/(1)/ ............................... 136 78 29 189 745 ------ ------ ------ ------ ------ Total nonperforming assets ..................... $ 835 $2,388 $1,334 $ 827 $2,738 ====== ====== ====== ====== ====== Nonperforming loans to total loans ................. 0.25% 1.08% 0.85% 0.57% 1.73% Nonperforming assets to total assets ............... 0.24 0.88 0.63 0.50 1.51
(1) Foreclosed assets held for sale and repossessions are generally written down to appraised value at the time of transfer from the loan portfolio. The value of such assets is reviewed from time to time throughout the holding period, with the value being adjusted to the then market value, if lower, until disposition. Under Arkansas banking law, other real estate owned is generally required to be written off over a five year period unless approval of the Arkansas State Bank Department can be obtained to write such assets off over an extended period. 17 An analysis of the allowance for loan losses for the periods indicated is shown in the table below. ALLOWANCE AND PROVISION FOR LOAN LOSSES
DECEMBER 31, ----------------------------------------------- 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- (Dollars in thousands) Balance of allowance for loan losses at beginning of period ......................... $ 3,019 $ 1,909 $ 1,649 $ 1,716 $ 2,011 Loans charged off: Real estate: Single family residential .................. 35 73 14 58 20 Non-farm/non residential ................... - - 51 34 537 Agricultural ............................... - - - - - ------- ------- ------- ------- ------- Total real estate ...................... 35 73 65 92 557 ------- ------- ------- ------- ------- Consumer ..................................... 434 216 44 31 15 Commercial and industrial .................... - 128 47 3 46 Agricultural (non-real estate) ............... - - - - 60 ------- ------- ------- ------- ------- Total loans charged off ................ 469 417 156 126 678 ------- ------- ------- ------- ------- Recoveries of loans previously charged off: Real estate: Single family residential .................. 5 2 33 7 7 Non-farm/non-residential ................... - - - - 2 Agricultural ............................... 2 - - - 2 ------- ------- ------- ------- ------- Total real estate ...................... 7 2 33 7 11 ------- ------- ------- ------- ------- Consumer ..................................... 39 35 23 12 23 Commercial and industrial .................... 2 4 - - 9 Agricultural (non-real estate) ............... - - - 2 2 ------- ------- ------- ------- ------- Total recoveries ....................... 48 41 56 21 45 ------- ------- ------- ------- ------- Net loans charged off .......................... 421 376 100 105 633 Provision charged to operating expense ......... 1,139 1,486 360 339 338 Sale of subsidiary ............................. - - - (301) - ------- ------- ------- ------- ------- Balance, end of period ......................... $ 3,737 $ 3,019 $ 1,909 $ 1,649 $ 1,716 ======= ======= ======= ======= ======= Net charge-offs to average loans outstanding during the periods indicated ................. 0.17% 0.21% 0.08% 0.09% 0.52% Allowance for loan losses to total loans ....... 1.36 1.41 1.25 1.46 1.49 Allowance for loan losses to nonperforming loans 534.62 130.69 146.28 258.46 86.10
The allowance for loan losses is the amount determined by management to be adequate to provide for losses on loans that may become uncollectable. The level of the allowance for loan losses and the need for additions are based on management's judgment as well as the evaluation of the loan portfolio utilizing objective and subjective criteria. The objective criteria utilized by the Company to assess the adequacy of its allowance for loan losses and required additions to such reserve are (i) an internal grading system, (ii) a peer group analysis and (iii) a historical analysis. 18 The Company's internal grading system assigns each loan (other than consumer installment loans) to one of seven risk categories, with each category being assigned a specific reserve allocation percentage as follows: LOAN GRADE/ RESERVE ALLOCATION ----------- ------------------ RISK CATEGORY PERCENTAGE ------------- ---------- 1 Excellent 0.10% 2 Good 0.50 3 Moderate 1.00 4 Fair 2.00 5 Watch 7.00 6(a) Substandard 15.00 6(b) Impaired-SFAS Impaired Amount 114 or 15%, whichever is greater 7 Doubtful 50.00 The loan grade for each individual loan is determined by the loan officer at the time it is made and changed from time to time to reflect an ongoing assessment of loan risk. Loan grades are reviewed on specific loans from time to time by senior management and as part of the Company's internal loan review process. Required reserves are calculated for consumer installment loans based upon past due status as follows: RESERVE ------- PAST DUE STATUS ALLOCATION PERCENTAGE - --------------- --------------------- Current 0.225% Overdue 30 to 89 days 7.500 Overdue 90 days or more 37.500 Reserve allocations are also calculated using the internal grading system for all outstanding letters of credit, outstanding loan commitments and unfunded loan balances. The sum of all reserve amounts determined by the internal grading system is utilized by management as the primary indicator of the appropriate reserve level. In addition to the internal grading system, the Company compares the allowance for loan losses (as a percentage of total loans) maintained by each of its subsidiary banks to the peer group average percentage as shown on the most recently available FDIC Uniform Bank Performance Reports for such banks. The Company also compares the allowance for loan losses for each subsidiary bank to such bank's historical cumulative net charge-offs for the five preceding calendar years. Aside from the objective criteria described above, the Company subjectively assesses adequacy of the allowance for loan losses and the need for additions thereto, with consideration given to the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans, national, regional and local business and economic conditions that may affect the borrowers' ability to pay or the value of collateral securing the loans, and other relevant factors. Although the Company does not determine the overall allowance based upon the amount of loans in a particular type or category, risk elements attributable to particular loan types or categories are considered in assigning loan grades to individual loans. These risk elements include, but are not limited to, the following: (i) in the case of single family residential real estate loans, the borrower's ability to repay including credit history, debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of collateral; (ii) for non-farm non-residential loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; (iii) for agricultural real estate loans, the loan to value ratio; (iv) for construction and land development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or ability to lease property constructed for lease, the quality and nature of contracts for presale or preleasing if any, experience and ability of the developer and loan to value ratios; (v) for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower's business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral; (vi) for non-real estate agricultural loans, the operating results, experience and ability of the borrower, historical and expected market conditions and the value, nature and marketability of collateral. In addition, for each category the Company considers secondary sources of income and the financial strength of the borrower and any guarantors. It is management's practice to review the allowance on a quarterly basis to determine whether the amount of regular monthly provision should be increased or decreased or whether additional provision should be made to the allowance. Because the allowance is primarily determined based upon management's assessment and grading of individual loans, no reserve is made for specific categories of loans. The total allowance amount is available to absorb losses across the Company's entire portfolio. 19 The following table sets forth the sum of the amounts of the allowance for loan losses attributable to individual loans within each loan category, unfunded items and unallocated reserves as of December 31, 1997. The amounts shown are not necessarily indicative of the actual future losses that may occur within particular loan categories. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
PERCENT OF LOANS ALLOWANCE IN CATEGORY TO AMOUNT TOTAL LOANS -------- ------------- CATEGORY (Dollars in Thousands) Real estate Single family residential ......................... $1,116 35.2% Non-farm/non-residential .......................... 423 15.2 Agriculture ....................................... 152 4.9 Construction/land development ..................... 163 5.9 Multifamily ....................................... 41 1.4 Consumer .............................................. 372 19.3 Commercial and industrial ............................. 412 13.6 Agriculture (non-real estate) ......................... 114 3.9 Other ................................................. 15 .6 Unfunded items (letters of credit, outstanding loan commitments and unadvanced loan balances) ........... 233 N/A Unallocated reserves .................................. 696 N/A ------ ----- $3,737 100.0% ====== =====
The Company maintains an internally classified loan list that, along with the list of nonaccrual or nonperforming loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance. Loans classified as "substandard" are those loans with clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition, which may jeopardize recoverablity of the loan. Loans, classified as "doubtful" are those loans that have characteristics similar to substandard loans, but also have an increased risk that a loss may occur or at least a portion of the loan may require a charge-off if liquidated at present. Although loans classified as substandard do not duplicate loans classified as doubtful, both substandard and doubtful loans may include some loans that are past due at least 90 days, are on nonaccrual status or have been restructured. Loans classified as "loss" are those loans that are in the process of being charged off. At December 31, 1997 "substandard" loans not designated as nonaccrual or 90 days past due totaled $2.3 million. There were no loans designated as "doubtful" or "loss" at December 31, 1997. Administration of the subsidiary banks' lending function is the responsibility of the Chief Executive Officer, Vice Chairman and senior lenders at each profit center. Such officers perform their lending duties subject to the oversight and policy direction of the Board of Directors and the loan committee of each bank. Loan authorities are granted to bank officers as determined appropriate by the Board of Directors. Loan and aggregate loan relationships exceeding bank officers authorities up to the lending limit of the banks can be authorized by the loan committees or the Boards of Directors. At monthly meetings, the Boards of Directors monitor loan delinquencies, the status of nonperforming assets, the level and adequacy of the allowance for loan losses and other related matters. The Company's compliance officers are responsible for serving the bank subsidiaries of the Company in the loan review and compliance areas. Periodic reviews of each profit center are scheduled for the purpose of evaluating asset quality and effectiveness of loan administration. The compliance officers prepare loan review reports which identify deficiencies, establish recommendations for improvement, and outline management's proposed action plan for curing the deficiencies. This report is provided to the audit committee, which consists of three non-employee members of the Boards of Directors. Based on the procedures described herein, management is of the opinion that the allowance of $3.7 million at December 31, 1997 is adequate. The allowance for loan losses is 1.36% of average loans at December 31, 1997 compared to 1.41% at December 31, 1996. Provision for Loan Losses: The amounts of provision to the allowance for loan losses are based on management's judgment and evaluation of the loan portfolio utilizing the criteria discussed above. The provision for 1997 was $1.1 million compared to $1.5 million in 1996 and $360,000 in 1995. 20 INVESTMENTS AND SECURITIES The Company's securities portfolio is the second largest component of earning assets and provides a significant source of revenue for the Company. The following table presents the amortized cost and the fair value of investment securities for each of the dates indicated. INVESTMENT SECURITIES
DECEMBER 31, ---------------------------------------------------------------- 1997 1996 1995 -------------------- -------------------- --------------------- AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR COST VALUE(1) COST VALUE(1) COST VALUE(1) -------------------- -------------------- --------------------- (Dollars in thousands) Securities of U.S. Government agencies ........................ $24,562 $24,596 $23,881 $23,896 $14,001 $13,831 Mortgage-backed securities ........ 9,340 9,571 10,119 10,256 14,014 14,153 Obligations of states and political subdivisions .................... 6,801 6,819 4,094 4,119 8,126 8,191 Other securities .................. 1,510 1,510 1,353 1,353 981 981 ------- ------- ------- ------- ------- ------- Total ......................... $42,213 $42,496 $39,447 $39,624 $37,122 $37,156 ======= ======= ======= ======= ======= =======
(1) The fair value of the Company's financial instruments is determined pursuant to Statement of Financial Accounting Standards No. 107. The following table reflects the amortized cost, by contractual maturity, of the Company's investment securities at December 31, 1997 and weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis, assuming a 34% tax rate) of such securities. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
DECEMBER 31, 1997 ------------------------------------------------------------------ OVER OVER 1 YEAR 1 YEAR 5 YEARS OVER OR THRU 5 THRU 10 10 LESS YEARS YEARS YEARS TOTAL FAIR VALUE ------- ------- ------- ------- ------- ---------- (Dollars in Thousands) Securities of U.S. Government agencies ......... $ - $18,594 $ 5,968 $ - $24,562 $24,596 Mortgage-backed securities ..................... - - 5,074 4,266 9,340/(1)/ 9,571 Obligations of states and political subdivisions 498 1,590 2,102 2,611 6,801/(2)/ 6,819 Other securities ............................... - - - 1,510 1,510 1,510 ------- ------- ------- ------- ------- ------- Total .................................. $ 498 $20,184 $13,144 $ 8,387 $42,213 $42,496 ======= ======= ======= ======= ======= ======= Percentage of total ............................ 1.18% 47.81% 31.14% 19.87% 100.00% Weighted average yield (FTE)/(3)/ .............. 7.95 6.67 7.27 7.01 6.94
(1) At December, 1997 approximately $9.2 million of these securities earned interest at floating rates repricing monthly or semi-annually. (2) At December, 1997 approximately $2.1 million of these securities earned interest at floating rates repricing semi-annually. (3) The weighted average yields (FTE) are based on book value and effective yields weighted for the scheduled maturity of each security. 21 DEPOSITS The Company's subsidiary banks' lending and investing activities are funded primarily by deposits, approximately 67.6% of which were time deposits and 32.4% of which were demand and savings deposits at December 31, 1997. Interest bearing deposits other than time deposits consist of transaction, savings and money market accounts. These deposits comprise 21.9% of total deposits at December 31, 1997. Noninterest bearing demand deposits at December 31, 1997 constituted approximately 10.5% of total deposits. The following table reflects the classification of the average deposits and the average rate paid on each deposit category for the period indicated. AVERAGE DEPOSIT BALANCES AND RATES
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- 1997 1996 1995 ------------------- ------------------- ------------------- AVERAGE AVERAGE AVERAGE AVERAGE RATE AVERAGE RATE AVERAGE RATE AMOUNT PAID AMOUNT PAID AMOUNT PAID ------------------- ------------------- ------------------- (Dollars in thousands) Non-interest bearing accounts ...... $ 26,981 - $ 20,129 - $ 16,492 - Interest bearing accounts Transaction (NOW) ................ 25,469 2.19% 22,209 2.20% 19,911 2.16% Savings .......................... 8,734 2.13 8,238 2.14 7,568 2.15 Money Market ..................... 26,981 3.86 18,542 3.49 13,058 2.46 Time deposits less than $100,000 . 129,969 5.61 102,076 5.60 85,936 5.83 Time deposits $100,000 or more ... 48,919 5.63 34,689 5.69 24,307 5.91 -------- -------- -------- Total deposits ................. $267,053 $205,883 $167,272 ======== ======== ========
The following table sets forth by time remaining to maturity, time deposits in amounts of $100,000 or more at December 31, 1997. MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 AND OVER DECEMBER 31, 1997 ----------------- (Dollars in Thousands) MATURITY -------- 3 months or less ........ $16,493 3 to 6 months ........... 12,396 6 to 12 months .......... 19,448 Over 12 months .......... 9,644 INTEREST RATE SENSITIVITY The Company's interest rate risk management is the responsibility of the ALCO and Investment Committee, which reports to the Board of Directors. This committee establishes policies and oversees the Company's sources, uses and pricing of funds. The committee is also involved with management in the Company's planning and budgeting process. The Company regularly reviews its exposure to changes in interest rates. Among the factors considered are changes in the mix of earning assets and interest bearing liabilities, interest rate spreads and repricing periods. Typically, the committee and Board of Directors review on a monthly basis the bank's relative ratio of rate sensitive assets to rate sensitive liabilities and the related cumulative gap for three different time periods - six months, one year and two years. Additionally, management, the committee and the Boards of Directors review other alternative interest rate risk measures and models in assessing the Company's interest rate sensitivity. As shown in the table below at December 31, 1997, the cumulative rate sensitive assets to rate sensitive liabilities at six months and one year, respectively, were 93.9% and 85.2%. A financial institution is considered to be liability sensitive, or as having a negative GAP, when the amount of its interest bearing liabilities maturing or repricing within a given time period exceeds the amount of its interest earning assets also maturing or repricing within that time period. Conversely, an institution is considered to be asset sensitive, or as having a positive GAP, when the amount of its interest bearing liabilities maturing and repricing is less than the amount of its interest earning assets also maturing or repricing during the same period. 22 Generally, in a falling interest rate environment, a negative GAP should result in an increase in net interest income, and in a rising interest rate environment this negative GAP should adversely affect net interest income. The converse would be true for a positive GAP. Since conditions change on a daily basis, these theoretical conclusions may not be indicative of future results. RATE SENSITIVE ASSETS AND LIABILITIES
DECEMBER 31, 1997 ------------------------------------------------------------------------------ RATE RATE CUMULATIVE CUMULATIVE SENSITIVE SENSITIVE PERIOD CUMMULATIVE GAP TO RSA/(1)/ TO ASSETS LIABILITIES GAP GAP TOTAL RSA/(1)/ RSL/(2)/ -------- -------- -------- -------- ------------- ----------- (Dollars in Thousands) Floating rate .......... $ 27,124 $ 29,788 $ (2,664) $ (2,664) -0.86% 91.06% Fixed rate repricing in: 1 month ........... 21,883 18,714 3,169 505 0.16 101.04 2 month ........... 17,949 13,610 4,339 4,844 1.56 107.80 3 month ........... 15,579 18,576 (2,997) 1,847 0.59 102.29 4 month ........... 12,297 15,068 (2,771) (924) -0.30 99.04 5 month ........... 12,488 17,234 (4,746) (5,670) -1.82 94.98 6 month ........... 12,068 14,123 (2,055) (7,725) -2.48 93.92 6 months - 1 year . 53,577 75,885 (22,308) (30,033) -9.66 85.21 1-2 years ......... 47,333 39,127 8,206 (21,827) -7.02 90.99 2-3 years ......... 38,377 5,935 32,442 10,615 3.41 104.28 3-4 years ......... 29,060 16,421 12,639 23,254 7.48 108.79 4-5 years ......... 5,155 828 4,327 27,581 8.87 110.40 Over 5 years ...... 18,135 14,366 3,769 31,350 10.08 111.21 -------- -------- -------- Total ........... $311,025 $279,675 $ 31,350 ======== ======== ========
(1) Rate Sensitive Assets (2) Rate Sensitive Liabilities The following table provides in tabular form contractural balances of the Company's financial instruments at the expected maturity as well as the fair value of those balance sheet financial instruments for the period ended December 31, 1997. Fixed and variable rate categories are based upon expected amortization or contractural maturity dates. The Company's assets and liabilities that do not have a stated maturity date, as in cash equivalents and certain deposits, are considered to be long term in nature by the Company and are reported in the thereafter column. The Company does not consider these financial instruments materially sensitive to interest rate fluctuations and management expects these balances to remain fairly constant over various economic conditions. The weighted average interest rates for the various assets and liabilities presented are actual as of December 31, 1997. The fair value of cash, interest bearing deposits at other banks, and interest receivable approximate their book values due to their short maturities. The fair value of available for sale securities are based on reports provided the Company by third parties. Federal Home Loan Bank stock is valued at stated redemption value. The fair value of loans and time deposits are estimated by discounted cash flows through the estimated maturity using estimated market discount rates that reflect current rates offered by the Company. The fair value of FHLB borrowings is estimated by discounting the cash flows through maturity based on current rates offered by the FHLB for borrowings with similar maturities. The fair value of the note payable approximates the carrying value due to the note payable's interest rate approximating market rates. 23 EXPECTED MATURITY DATE OF FINANCIAL ASSETS
DECEMBER 31, --------------------------------------------------------- 1998 1999 2000 2001 2002 THEREAFTER TOTAL FAIR VALUE ------ ------ ------ ------ ------ ---------- ------- ---------- (Dollars in Thousands) FINANCIAL ASSETS: Cash and due from banks $ - $ - $ - $ - $ - $ 9,021 $ 9,021 $ 9,021 Interest-bearing deposits 6,607 - - - - - 6,607 6,607 Weighted average interest rate 5.98% - - - - - 5.98% Federal funds sold 2,885 - - - - - 2,885 2,885 Weighted average interest rate 5.50% - - - - - 5.50% Securities-available for sale Securities of US Govt. agencies - - 2,825 6,322 1,500 1,972 12,619 12,640 Weighted average interest rate - - 6.53% 6.42% 6.90% 6.72% 6.52% Mortgage-backed securities Fixed rate 39 45 49 - - - 133 131 Weighted average interest rate 5.51% 5.51% 5.51% - - - 5.51% Variable rate 490 372 293 293 691 7,067 9,206 9,440 Weighted average interest rate 6.60% 6.40% 6.43% 6.46% 6.46% 6.27% 6.44% State and political subdivisions - - - - - 1,583 1,583 1,576 Weighted average interest rate - - - - - 5.33% 5.33% Equity securities - - - - - 75 75 75 Dividend yield - - - - - - - FHLB stock - - - - - 1,435 1,435 1,435 Dividend yield - - - - - 6.00% 6.00% Securities - held to maturity Securities of US Govt. agencies - - 4,998 - 2,949 3,996 11,943 11,956 Weighted average interest rate - - 6.35% - 6.60% 7.12% 6.67% State and political subdivisions Fixed rate 345 237 138 229 220 1,922 3,091 3,115 Weighted average interest rate 4.55% 4.32% 4.71% 4.71% 4.55% 4.84% 4.74% Variable rate 153 174 190 206 225 1,083 2,031 2,128 Weighted average interest rate 7.23% 7.23% 7.23% 7.23% 7.23% 7.23% 7.23% Loans Held for Sale-fixed rate 2,935 - - - - - 2,935 2,941 Weighted average interest rate 7.14% - - - - - 7.14% Loans Loans - fixed 90,091 63,106 35,587 22,154 9,298 15,748 235,984 237,757 Weighted average interest rate 9.63% 9.52% 9.47% 9.13% 9.03% 8.96% 9.46% Loans - variable 5,782 2,335 1,454 1,673 1,677 23,623 36,544 37,570 Weighted average interest rate 9.12% 9.05% 9.33% 9.31% 9.35% 9.25% 9.23% Interest receivable 3,013 - - - - - 3,013 3,013 Weighted average interest rate - - - - - - - FINANCIAL LIABILITIES: Deposits (with no stated maturity) Demand deposits - - - - - $ 31,091 $ 31,091 $ 31,091 Weighted average interest rate - - - - - - - NOW accounts - - - - - 27,527 27,527 27,527 Weighted average interest rate - - - - - 2.00% 2.00% Money market accounts - - - - - 28,132 28,132 28,132 Weighted average interest rate - - - - - 3.71% 3.71% Regular savings - - - - - 9,083 9,083 9,083 Weighted average interest rate - - - - - 2.15% 2.15% Time deposits Fixed rate 163,958 25,344 3,470 2,172 1,354 1,066 197,364 199,173 Weighted average interest rate 5.62% 5.93% 6.02% 6.03% 6.19% 5.93% 5.68% Variable rate 2,358 - - - - - 2,358 2,358 Weighted average interest rate 5.20% - - - - - 5.20% FHLB advances 3,000 5,070 1,947 4,000 - - 14,017 13,983 Weighted average interest rate 5.74% 6.48% 5.72% 5.93% - - 6.06% Notes payable 524 524 524 500 500 2,500 5,072 5,072 Weighted average interest rate 8.67% 8.77% 8.79% 8.80% 8.80% 8.80% 8.79%
24 IMPACT OF INFLATION AND CHANGING PRICES The Consolidated Financial Statements with Notes thereto presented elsewhere in the report have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. LIQUIDITY AND CAPITAL RESOURCES Credit Agreement. The Company has a $10.0 million term loan and revolving credit facility with a correspondent bank (the "Credit Agreement"). The term loan portion has a principal balance of $5.0 million, payable in equal annual principal installments of $500,000 commencing in 1998 plus interest payable annually at 8.804% per annum. The term loan matures in 2007 and provides for prepayment penalties under certain circumstances. The Credit Agreement also provides for a revolving line of credit of up to $5.0 million. Advances remaining unpaid for any consecutive period of 365 days are converted to term loans under the facility, with a corresponding reduction in availability, and are payable in equal annual installments of principal through 2007. Interest accrues on outstanding borrowings under the revolving line of credit (including any amounts converted to term loans thereunder) at a variable rate equal to the average prime lending rate reported from time to time by the Wall Street Journal minus 0.25% and is payable quarterly. The revolving line of credit commitment expires in 2007 and is subject to an annual compliance review by the lender. No standby or unused commitment fees are payable by the Company under the revolving line of credit. There were no outstanding balances on the revolving line of credit at December 31, 1997. The Credit Agreement requires the Company's bank subsidiaries to maintain certain levels of return on assets, primary capital, loan charge-off and debt/equity ratios. At December 31, 1997 the Company was in compliance with these requirements. Borrowings under the Credit Agreement are secured by a pledge of 80% of the Company's stock in the subsidiary banks. Initial Public Offering. On July 16, 1997, the Securities and Exchange Commission ("SEC") declared effective the Company's Registration Statement on Form S-1 (File No. 333-27641) with respect to the IPO of 899,755 shares (including over-allotment shares) of the Company's Common Stock. Stephens Inc. was the managing underwriter for the offering, which was commenced on July 17, 1997 and which was terminated after the entire amount of the 899,755 shares registered had been sold for an aggregate offering price of approximately $14.4 million. The net proceeds to the Company from this offering were approximately $13.2 million (including proceeds from over-allotment shares) after deduction for aggregate offering expenses of approximately $1.2 million. Proceeds from the offering in the amount of $5 million were used to repay the outstanding balance under the revolving line of credit described above. An additional $4.5 million of the proceeds was used to make a capital infusion to a subsidiary bank. The remainder of the proceeds (including proceeds from exercise of the underwriters over-allotment option) were used for general corporate purposes, including financing the Company's February, 1998 acquisition of Heartland Community Bank, FSB, and continued growth, expansion and branching strategy. Growth, Expansion and Acquisition. During 1997 the Company's banking subsidiaries completed aggregate investments of approximately $2.1 million to construct and equip three new offices opened in Mulberry, Paris and Alma, Arkansas. In late 1997 a branch site and building in Bellefonte, Arkansas were purchased from another financial institution. This purchase, refurbishing, and equipping resulted in an investment of approximately $285,000. Approximately $3.0 million was expended to acquire sites for banking facilities in Little Rock and Fort Smith, Arkansas. Construction of the Little Rock facility began in the third quarter of 1997 with completion expected in mid-1998. Upon completion, this facility will combine the Company's existing corporate offices and two existing Little Rock loan production offices. The Company also plans to apply for regulatory approval to open a branch of its recently acquired Little Rock savings bank at this location. Construction of the Fort Smith facility began in the fourth quarter of 1997 with completion expected in the last half of 1998. Pending completion, the Company has opened a temporary Fort Smith branch, which includes mortgage lending operations. In February, 1998 the Company closed its acquisition of Heartland Community Bank, FSB, a federal savings bank in Little Rock, Arkansas. The Company paid $3.1 million in cash acquiring the charter, cash, Little Rock land and building and bank furnishings and equipment. As part of the transaction the Company acquired approximately $9.4 million in deposits. The seller retained all loans and all deposits and operations located outside Little Rock. Following closing the Company commenced operations in Little Rock under the Bank of the Ozarks' name. 25 Bank Liquidity. Liquidity represents an institution's ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. Generally, the Company's bank subsidiaries rely on customer deposits and loan repayments as their primary sources of funds. These funds are used to make loans, acquire investment securities and other assets and to fund continuing operations. The Company has experienced significant growth in its loan portfolio which has resulted in a continuation of the Company's high loan-to-deposit ratio (93.2% at December 31, 1997). While scheduled loan repayments are a relatively stable source of funds, such loans generally are not readily convertible to cash. Additionally, deposit levels may be affected by a number of factors, including rates paid by competitiors, general interest rate levels, returns available to customers on alternative investments and general economic conditions. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include FHLB advances, federal funds lines of credit from correspondent banks and borrowings by the Company under its revolving credit facility described above. At December 31, 1997, the Company's bank subsidiaries had an aggregate of $51.7 million of unused blanket FHLB borrowing availability. Additionally at December 31, 1997 the bank subsidiaries maintained pre-approved unsecured federal funds lines of credit in an amount of up to $15.2 million. Management anticipates that the Company's bank subsidiaries will continue to rely primarily on customer deposits and loan repayments to provide liquidity. However, where necessary, the above described borrowings (including borrowings under the Company's Credit Agreement) will be used to augment the Company's primary funding sources. Dividend Policy. During the three months ended March 31, 1997, the Company paid a cash dividend on its common stock of $0.10 per share. Effective July, 1997, the Company commenced payment of a quarterly cash dividend of $0.05 per share ($0.20 annually). In 1996 and 1995 the Company paid a $0.30 per share dividend. The Company reduced its annual dividend from these earlier periods in order to retain a greater portion of earnings as capital to support the Company's growth. The final determination of the timing, amount and payment of future dividends on the common stock is at the discretion of the Company's Board of Directors and will depend on conditions then existing, including regulatory requirements and the Company's profitability, liquidity, financial condition and capital requirements. CAPITAL COMPLIANCE Bank regulatory authorities in the United States impose certain capital standards on all bank holding companies and banks. These capital standards require compliance with certain minimum "risk-based capital ratios" and a minimum "leverage ratio". The risk-based capital ratios consist of (i) Tier 1 capital (i.e. common stockholders' equity excluding goodwill and appreciation on investment securities, but including certain other qualifying items) to total risk-weighted assets and (ii) total capital (Tier 1 capital plus Tier 2 capital which is the qualifying portion of the allowance for loan losses) to risk-weighted assets. The leverage ratio is measured as Tier 1 capital to adjusted average assets. The Company's risk-based and leverage capital ratios exceed these minimum requirements at December 31, 1997 and December 31, 1996 and are presented below, followed by the capital ratios of each of the Company's two bank subsidiaries at December 31, 1997. 26 CONSOLIDATED CAPITAL RATIOS DECEMBER 31, ----------------------- 1997 1996 -------- -------- (Dollars in Thousands) Tier 1 capital: Stockholders' equity ......................... $ 35,666 $ 18,547 Add (less) net unrealized losses (gains) on available for sale securities ............ (152) (99) Less goodwill ................................ (1,337) (1,394) -------- -------- Total tier 1 capital ..................... $ 34,177 $ 17,054 -------- -------- Tier 2 capital: Qualifying allowance for loan losses ......... 3,288 2,529 -------- -------- Total risk-based capital ................. $ 37,465 $ 19,583 ======== ======== Risk-weighted assets ............................ $262,592 $201,802 ======== ======== Ratios at end of period: Leverage ..................................... 9.86% 6.42% Tier 1 risk-based capital .................... 13.01 8.45 Total risk-based capital ..................... 14.27 9.70 Minimum ratio guidelines: Leverage ..................................... 3.00%/(1)/ 3.00%/(1)/ Tier 1 risk-based capital .................... 4.00 4.00 Total risk-based capital ..................... 8.00 8.00 CAPITAL RATIOS OF SUBSIDIARY BANKS DECEMBER 31, 1997 -------------------------- BANK OF THE BANK OF THE OZARKS, WCA OZARKS, NWA ----------- ----------- (Dollars in Thousands) Stockholders' equity - Tier 1 ................... $ 26,050 $ 9,810 Leverage ratio .................................. 11.15% 8.71% Risk-based capital ratios: Tier 1 ....................................... 14.19 12.88 Total capital ................................ 15.44 14.13 (1) Regulatory authorities require institutions to operate at varying levels (ranging from 100-200 basis points) above a minimum leverage ratio of 3% depending upon capitalization classification. 27 YEAR 2000 The Year 2000 Issue relates to the ability of computer systems and other systems with imbedded microchips to properly handle year 2000 date sensitive data and the potential for risk to the Company because of relationships with third parties (e.g. software and hardware vendors, loan customers, correspondent banks, and others) who do not adequately address the year 2000 issue. Failure in any of these areas could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. The Company has established a Year 2000 Project Team to evaluate and assess the Company's exposure to this issue. This team has conducted evaluations of all software, hardware, environmental systems and other relationships affecting the Company's daily operating capabilities. The most significant area of exposure to the Company relates to computer programs and software which are provided to the Company from third party vendors. In each case the Company has received assurance that such software programs are fully operational with respect to the Year 2000. The Company continues to seek additional documentation of testing procedures and other confirmations from these vendors. The Year 2000 Project Team will continue to identify and assess additional exposures to this issue and develop solutions in areas where exposures are identified. Based on recent and ongoing assessments by the team, no area of material exposure has been identified with respect to the Year 2000 issue. The necessary system changes or testing procedures identified to date are not expected to result in a material expense to the Company. FORWARD-LOOKING INFORMATION This Management's Discussion and Analysis of Financial Condition and Results of Operations, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management, may include certain forward-looking statements including, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition opportunities and other similar forecasts and statements of expectation. Words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the the occurrence of future events, the receipt of new information, or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management due to certain risks, uncertainties and assumptions. Certain factors that may affect operating results of the Company include, but are not limited to, the following: (i) potential delays in opening new branches and other operating locations; (ii) the ability to attract deposits and loans from new locations or markets; (iii) competitive factors and pricing pressures; (iv) changes in legal and regulatory requirements; (v) interest rate fluctuations and (vi) general economic conditions, as well as, other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements. 28 SUMMARY OF QUARTERLY RESULTS OF OPERATIONS, COMMON STOCK MARKET PRICES AND DIVIDENDS 1997 - THREE MONTHS ENDED ------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------- ------- -------- ------- (Dollars in Thousands, Except per Share Amounts) Total interest income ........ $6,016 $6,635 $7,168 $7,649 Total interest expense ....... 2,900 3,216 3,465 3,398 ------ ------ ------ ------ Net interest income ...... 3,116 3,419 3,703 4,251 Provision for loan losses .... 259 265 150 465 Non-interest income .......... 742 641 662 880 Non-interest expense ......... 2,105 2,219 2,316 2,588 Income Taxes ................. 537 572 698 709 ------ ------ ------ ------ Net income ............... $ 957 $1,004 $1,201 $1,369 ====== ====== ====== ====== Per share: Net income ................... $ 0.33 $ 0.35 $ 0.34 $ 0.36 Cash dividends declared .. 0.10 - 0.05 0.05 Bid price per common share: Low ...................... - - $17 3/8 $19 3/4 High ..................... - - $20 1/8 $25 1/4 1996 - THREE MONTHS ENDED ------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------- ------- -------- ------- (Dollars in Thousands, Except per Share Amounts) Total interest income ........ $4,981 $5,317 $5,603 $5,935 Total interest expense ....... 2,283 2,372 2,481 2,895 ------ ------ ------ ------ Net interest income ...... 2,698 2,945 3,122 3,040 Provision for loan losses .... 221 323 375 567 Non-interest income .......... 358 291 476 740 Non-interest expense ......... 1,625 1,637 1,856 2,033 Income Taxes ................. 429 455 489 633 ------ ------ ------ ------ Net income ................... $ 781 $ 821 $ 878 $ 547 ====== ====== ====== ====== Per share: Net income ............... $ 0.27 $ 0.29 $ 0.30 $ 0.19 Cash dividends declared .. 0.30 - - - Bid price per common share: Low ...................... - - - - High ..................... - - - - 29 INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated balance sheets of BANK OF THE OZARKS, INC. as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BANK OF THE OZARKS, INC. as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ MOORE STEPHENS FROST Certified Public Accountants Little Rock, Arkansas January 28, 1998 30 BANK OF THE OZARKS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, --------------------- 1997 1996 --------- --------- (Dollars in Thousands, Except Per Share Amounts) ASSETS ------ CASH AND DUE FROM BANKS $ 9,021 $ 6,713 INTEREST BEARING DEPOSITS 6,607 102 --------- --------- Cash and cash equivalents 15,628 6,815 INVESTMENT SECURITIES - AVAILABLE FOR SALE 25,297 36,883 INVESTMENT SECURITIES - HELD TO MATURITY 17,162 2,725 FEDERAL FUNDS SOLD 2,885 350 LOANS, NET OF UNEARNED INCOME 275,463 214,462 ALLOWANCE FOR LOAN LOSSES (3,737) (3,019) BANK PREMISES AND EQUIPMENT, NET 13,439 6,872 INTEREST RECEIVABLE 3,013 2,552 EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, AT AMORTIZED COST 1,337 1,394 OTHER 1,606 1,566 --------- --------- TOTAL ASSETS $ 352,093 $ 270,600 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ DEPOSITS Demand - non-interest bearing $ 31,091 $ 21,295 Savings and interest-bearing transaction 64,742 56,929 Time 199,722 153,424 --------- --------- TOTAL DEPOSITS 295,555 231,648 NOTES PAYABLE 5,072 5,396 FHLB ADVANCES AND FEDERAL FUNDS PURCHASED 14,017 12,727 ACCRUED INTEREST AND OTHER LIABILITIES 1,783 2,282 --------- --------- TOTAL LIABILITIES 316,427 252,053 --------- --------- STOCKHOLDERS' EQUITY Preferred stock; $0.01 par value; Authorized 1,000,000 shares; none issued - - Common stock; $0.01 par value; Authorized 10,000,000 shares; 3,779,555 shares issued and outstanding in 1997, 2,879,800 shares issued and outstanding in 1996 38 29 Additional paid-in capital 14,314 1,168 Retained earnings 21,162 17,251 Unrealized gains on available for sale securities - net of income tax 152 99 --------- --------- TOTAL STOCKHOLDERS' EQUITY 35,666 18,547 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 352,093 $ 270,600 ========= ========= See notes to consolidated financial statements 31 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 ------- ------- ------- (Dollars in Thousands, Except Per Share Amounts) INTEREST INCOME Loans $24,230 $19,089 $13,006 Investment securities - taxable 2,684 2,069 2,079 - nontaxable 233 364 424 Federal funds sold 108 145 109 Deposits with banks 213 169 85 ------- ------- ------- TOTAL INTEREST INCOME 27,468 21,836 15,703 ------- ------- ------- INTEREST EXPENSE Deposits 11,826 9,005 7,357 Borrowed funds 1,150 1,025 26 Federal funds purchased 3 1 8 ------- ------- ------- TOTAL INTEREST EXPENSE 12,979 10,031 7,391 ------- ------- ------- NET INTEREST INCOME 14,489 11,805 8,312 Provision for loan losses (1,139) (1,486) (360) ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,350 10,319 7,952 ------- ------- ------- OTHER INCOME Trust department income 274 214 231 Service charges on deposit accounts 957 806 514 Other service charges and fees 1,136 537 361 Gain (loss) on sale of securities 14 (77) (44) Other income 544 385 106 ------- ------- ------- TOTAL OTHER INCOME 2,925 1,865 1,168 ------- ------- ------- OTHER EXPENSE Salaries and employee benefits 5,330 4,263 3,374 Net occupancy and equipment 1,305 998 745 Other operating expenses 2,593 1,890 1,877 ------- ------- ------- TOTAL OTHER EXPENSE 9,228 7,151 5,996 ------- ------- ------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 7,047 5,033 3,124 Income taxes 2,516 2,006 845 ------- ------- ------- INCOME BEFORE MINORITY INTEREST 4,531 3,027 2,279 Minority interest in earnings of subsidiaries - - 109 ------- ------- ------- NET INCOME $ 4,531 $ 3,027 $ 2,170 ======= ======= ======= BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 1.38 $ 1.05 $ 0.75 ======= ======= =======
See notes to consolidated financial statements 32 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNREALIZED GAINS ADDITIONAL (LOSS) COMMON PAID-IN RETAINED ON INVESTMENT STOCK CAPITAL EARNINGS SECURITIES TOTAL ----- -------- -------- ---------- -------- (Dollars in Thousands, Except Per Share Amounts) BALANCE - JANUARY 1, 1995 $ 30 $ 1,704 $ 13,811 $(469) $ 15,076 Net income - - 2,170 - 2,170 Cash dividends - $.30 per share - - (893) - (893) Redemption of common stock (1) (536) - - (537) Change in unrealized gains on investment securities - - - 478 478 ----- -------- -------- ----- -------- BALANCE - DECEMBER 31, 1995 29 1,168 15,088 9 16,294 Net income - - 3,027 - 3,027 Cash dividends - $.30 per share - - (864) - (864) Change in unrealized gains on investment securities - - - 90 90 ----- -------- -------- ----- -------- BALANCE - DECEMBER 31, 1996 29 1,168 17,251 99 18,547 Net income - - 4,531 - 4,531 Cash dividends - $.20 per share - - (620) - (620) Issuance of 899,755 shares of common stock 9 13,146 - - 13,155 Change in unrealized gains on investment securities - - - 53 53 ----- -------- -------- ----- -------- BALANCE - DECEMBER 31, 1997 $ 38 $ 14,314 $ 21,162 $ 152 $ 35,666 ===== ======== ======== ===== ========
33 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 1996 1995 -------- -------- -------- (Dollars in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,531 $ 3,027 $ 2,170 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 626 505 370 Amortization 56 126 134 Provision for loan losses 1,139 1,486 360 Provision for losses on other real estate 8 11 124 Amortization and accretion on investment securities (39) 9 (14) (Gain) loss on disposition of investments (14) 77 44 (Gain) on sale of loans (57) (274) - (Gain) on disposition of bank premises and equipment (76) (1) (24) (Gain) on disposition of foreclosed assets (261) (14) (23) Deferred income tax provision (benefit) (11) (292) (49) Changes in assets and liabilities Interest receivable (461) (563) (454) Other, net 73 (237) 846 Accrued interest and other liabilities (531) 375 708 Minority interest - - (600) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,983 4,235 3,592 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investment securities available for sale 31,171 28,784 15,116 Purchases of investment securities available for sale (19,453) (32,904) (20,354) Proceeds from maturities of investment securities held to maturity 6,576 1,862 13,696 Purchases of investment securities held to maturity (21,007) - (4,283) Decrease (increase) in federal funds sold (2,535) 3,730 (4,080) Net increase in loans (62,656) (64,008) (40,530) Proceeds from sale of loans 811 2,252 - Proceeds from dispositions of bank premises and equipment 178 1 57 Purchase of bank premises and equipment (7,295) (997) (2,930) Proceeds from dispositions of foreclosed assets 632 221 97 -------- -------- -------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (73,578) (61,059) (43,211) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 63,907 49,184 34,011 Proceeds from FHLB advances and federal funds purchased 4,000 4,780 7,947 Payments of FHLB advances and federal funds purchased (2,710) - - Proceeds from notes payable 10,000 1,500 3,920 Payments of notes payable (10,324) (24) - Dividends paid (620) (864) (893) Proceeds from issuance of common stock 13,155 - - Redemption of common stock - - (537) -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 77,408 54,576 44,448 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,813 (2,248) 4,829 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 6,815 9,063 4,234 -------- -------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 15,628 $ 6,815 $ 9,063 ======== ======== ========
See notes to consolidated financial statements 34 BANK OF THE OZARKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Bank of the Ozarks, Inc. conform with generally accepted accounting principles and practices within the banking industry. On May 22, 1997, the Company's stockholders approved an amendment to the Articles of Incorporation that, among other things, changed the Company's name to Bank of the Ozarks, Inc. from Ozark Bankshares, Inc., changed the par value of the common stock, increased the number of authorized shares of common stock, and changed the par value of the authorized but unissued preferred stock. The unissued authorized preferred stock of 1,000,000 shares had its par value changed from $0.10 to $0.01 per share. The 100,000 authorized shares of common stock was increased to 10,000,000 authorized shares of common stock and the par value of the common stock was also changed from $0.10 to $0.01 per share. The Company's Board of Directors also approved a common stock dividend of 99 shares for every one share of issued and outstanding common stock. The accompanying financial statements for all years presented have been restated to reflect these changes. The policies that materially affect financial position and the results of operations are summarized as follows: PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Bank of the Ozarks, Inc., and its wholly-owned subsidiaries Bank of the Ozarks, wca, Bank of the Ozarks, nwa and Ozark Commercial Corporation (collectively the "Company"). The Company is a multi-bank holding company that operates under the rules and regulations of the Board of Governors of the Federal Reserve System. Significant intercompany transactions and amounts have been eliminated in consolidation. During 1995, the Company acquired the remaining stock owned by minority shareholders of Bank of the Ozarks, wca (5.964%) and Bank of the Ozarks, nwa (4.273%). Bank holding companies, Bankstock One, Inc. and Newco Corporation, owned the majority of the Bank of the Ozarks, wca and Bank of the Ozarks, nwa, respectively, at January 1, 1995. During 1995, these holding companies were merged into the respective banks after the remaining stock of the minority shareholders was purchased. Ozark Financial Services, Inc., which was engaged in the offering of mortgage brokerage and related services, was liquidated during 1995. NATURE OF OPERATIONS - Bank of the Ozarks, wca and Bank of the Ozarks, nwa ("the Banks") are state-chartered commercial banks with offices located in northern, western and central Arkansas. The Banks are subject to competition from other area financial institutions. The Banks are also subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory authorities. Ozark Commercial Corporation is in the business of originating and servicing loans with the loans originated being sold to investors. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS - For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts classified as cash on hand, due from banks, and interest bearing deposits with banks. INVESTMENT SECURITIES - Investments in debt and equity securities are classified into three categories: securities held as trading securities, securities which are available-for-sale and securities being held-to-maturity. These categories are defined as follows: TRADING SECURITIES - Securities held principally for resale in the near term are classified as trading account securities and recorded at their fair values. Unrealized gains and losses on trading accounts securities are included immediately in other income. The Company had no trading securities at December 31, 1997 and 1996. HELD-TO-MATURITY SECURITIES - General Obligation Bonds, Industrial Development Revenue Bonds, Revenue Bonds and other securities which the Company has the intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. AVAILABLE-FOR-SALE SECURITIES - Available-for-sale securities consists of bonds, notes, debentures, and certain equity securities not classified as trading securities or as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as a net amount in a separate component of stockholders' equity. Gains and losses on sales of available-for-sale securities are determined using the specific identification method. 35 LOANS AND ALLOWANCE FOR LOAN LOSSES - Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal, less unearned interest, and adjusted for any charge-offs and deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Unearned discounts on installment loans are recognized as income over the terms by the rule of 78's interest method. Unearned purchased discounts are recorded as income over the life of the loans utilizing the interest method to achieve a constant yield. Interest on other loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yields to the extent that the net effect of such items is material. For the periods presented such amounts were not deemed material and therefore were recognized as actually received and paid. The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, historical loan loss experience and current economic and business conditions that may affect the borrowers' ability to pay or the value of the collateral securing the loans. The Company's policy generally is to place a loan on nonaccrual status when payment of principal or interest is contractually past due 90 days, or earlier when concern exists as to the ultimate collection of principal and interest. The Company continues to accrue interest on certain loans contractually past due 90 days if such loans are both well secured and in the process of collection. The Company considers a loan to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms thereof. The Company applies this policy even if delays or shortfalls in payment are expected to be insignificant. All nonaccrual loans, except consumer installment loans, and all loans that have been restructured from their original contractual terms are considered impaired loans. Nonaccrual consumer installment loans are evaluated collectively since they are considered to be small-balance, homogenous loans. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for loan losses when in the process of collection it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued, when in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. BANK PREMISES AND EQUIPMENT - Land is carried at cost. Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the related assets by the straight-line method for financial statement purposes and accelerated methods for tax purposes. Leasehold improvements are capitalized and amortized by the straight-line method over the estimated useful lives of the improvements. FORECLOSED ASSETS HELD FOR SALE - Real estate and personal properties acquired through, or in lieu of, loan foreclosure are initially recorded at estimated fair value at the date of foreclosure establishing a new cost basis. After foreclosure, the real property is amortized over 60 months. Valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or estimated fair value less cost to sell. Gains and losses from the sale of other real estate are recorded in other income, and expenses used to maintain the properties are included as operating expenses. INCOME TAXES - The Company utilizes the liability method in accounting for income taxes. This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred tax assets or liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statement and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiaries file consolidated tax returns. Its subsidiaries provide for income taxes on a separate return basis, and remit to the Company amounts determined to be currently payable. TRUST DEPARTMENT INCOME - Property, other than cash deposits, held by the Company's trust department in fiduciary or agency capacities for its customers are not included in the accompanying financial statements, since such items are not assets of the Company. Trust department income has been recognized on the cash basis in accordance with customary banking practice, which does not materially affect reported net income. EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED - The excess of cost over fair value of net assets acquired before December 23, 1981 are being amortized over 40 years. The excess cost over fair value of net assets acquired after December 23, 1981 are being amortized over 25 years. EARNINGS PER SHARE - Earnings per share has been 36 calculated based on the weighted average number of shares outstanding. Earnings per share has been adjusted to reflect the 99-for-1 stock dividend as more fully discussed in the first two paragraphs of this note. FINANCIAL INSTRUMENTS - In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, and letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. ADVERTISING AND PUBLIC RELATIONS EXPENSE -Advertising and public relations expense is expensed as incurred and totaled $332, $123, and $101 for the years ended December 31, 1997, 1996 and 1995, respectively. STOCK OPTION PLAN - Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123) grants companies the option to recognize and measure compensation costs related to employee stock option plans based on either the fair value of the award at date of grant or the difference between the quoted market price of the stock at the date the award is granted over the amount the employee must pay to acquire the stock (the "intrinsic value based method"). Bank of the Ozarks, Inc. and its subsidiaries elected to apply the intrinsic value based method, which generally does not result in compensation expense for fixed stock option plans. RECLASSIFICATIONS - Certain reclassifications of 1996 and 1995 balances have been made to conform to the 1997 presentation. 2. INVESTMENT SECURITIES The amortized cost and approximate market values of investment securities were as follows:
DECEMBER 31, 1997 ------------------------------------------------ AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------- ------- ------- ------- INVESTMENT SECURITIES - AVAILABLE FOR SALE - ------------------------------------------ Securities of United States government and agencies $12,619 $ 39 $ (18) $12,640 Mortgage-backed securities 9,340 256 (25) 9,571 State and political subdivisions 1,582 14 (20) 1,576 Other securities 1,510 - - 1,510 ------- ------- ------- ------- Total securities - available for sale $25,051 $ 309 $ (63) $25,297 ======= ======= ======= ======= INVESTMENT SECURITIES - HELD TO MATURITY - ---------------------------------------- Securities of United States government and agencies $11,943 $ 17 $ (4) $11,956 State and political subdivisions 5,219 27 (3) 5,243 ------- ------- ------- ------- Total securities - held to maturity $17,162 $ 44 $ (7) $17,199 ======= ======= ======= ======= DECEMBER 31, 1996 ------------------------------------------------ AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------- ------- ------- ------- INVESTMENT SECURITIES - AVAILABLE FOR SALE - ------------------------------------------ Securities of United States government and agencies $23,881 $ 71 $ (56) $23,896 Mortgage-backed securities 10,119 162 (25) 10,256 State and political subdivisions 1,369 20 (11) 1,378 Other securities 1,353 - - 1,353 ------- ------- ------- ------- Total securities - available for sale $36,722 $ 253 $ (92) $36,883 ======= ======= ======= ======= INVESTMENT SECURITIES - HELD TO MATURITY - ---------------------------------------- State and political subdivisions $ 2,725 $ 17 $ (1) $ 2,741 ------- ------- ------- ------- Total securities - held to maturity $ 2,725 $ 17 $ (1) $ 2,741 ======= ======= ======= =======
37 The amortized cost and estimated market value by contractual maturity of investment securities classified as available for sale and held to maturity at December 31, 1997 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. DECEMBER 31, 1997 -------------------------------------- AVAILABLE FOR SALE HELD TO MATURITY ------------------ ------------------ AMORTIZED AMORTIZED COST MARKET COST MARKET -------- ------- ------- ------- Due in one year or less $ - $ - $ 498 $ 498 Due from one year to five years 10,647 10,647 9,537 9,547 Due from five years to ten years 7,081 7,275 6,063 6,078 Due after ten years 7,323 7,375 1,064 1,076 ------- ------- ------- ------- Totals $25,051 $25,297 $17,162 $17,199 ======= ======= ======= ======= For purposes of the maturity table, mortgage-backed securities which are not due at a single maturity date have been allocated over maturity groupings. The mortgage-backed securities may mature earlier than their weighted average contractual maturities because of principal prepayments. At December 31, 1997, the unrealized appreciation on available for sale securities was $246, net of deferred income taxes of $94. At December 31, 1996, the unrealized appreciation on available for sale securities was $161, net of deferred income taxes of $62. The Banks had no trading securities during 1997; however, the Banks did hold trading securities during 1996. Gross gains of $2 and gross losses of $34 were realized on these sales during 1996. Assets, principally securities, carried at approximately $31,535 and $20,593 at December 31, 1997 and 1996, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. 3. LOANS The following is a summary of the loan portfolio by principal categories: 1997 1996 -------- -------- Real Estate Single family residential (1-4) $ 96,943 $ 78,124 Non-farm/non-residential 41,710 35,258 Agricultural 13,443 11,583 Construction/land development 16,257 8,808 Multifamily residential 3,897 3,743 Consumer 53,233 39,868 Commercial and industrial 37,470 28,154 Agricultral (non-real estate) 10,824 8,363 Other 1,686 561 -------- -------- Loans, net of unearned income $275,463 $214,462 ======== ======== The above loan categories are presented net of unearned purchase discounts totaling $3,759 at December 31, 1997 and $3,966 at December 31, 1996. Loans on which the accrual of interest has been discontinued aggregated $664 and $2,057 at December 31, 1997 and 1996, respectively. 4. ALLOWANCE FOR LOAN LOSSES A summary of transactions within the allowance for loan losses for the years ended December 31, 1997, 1996, and 1995 are as follows: 1997 1996 1995 ------- ------- ------- Balance - beginning of year $ 3,019 $ 1,909 $ 1,649 Provision charged against income 1,139 1,486 360 Recoveries on loans previously charged-off 48 41 56 ------- ------- ------- 4,206 3,436 2,065 Loans charged-off (469) (417) (156) ------- ------- ------- Balance - end of year $ 3,737 $ 3,019 $ 1,909 ======= ======= ======= Impairment of loans having carrying values of $581 and $1,984 at December 31, 1997 and 1996, respectively, have been recognized in conformity with Statement of Financial Accounting Standards No. 114, as amended by Statement of Financial Accounting Standards No. 118. The average carrying value of impaired loans was $1,886, $1,042, and $683 for the years ended December 31, 1997, 1996, and 1995, respectively. The total allowance for credit losses related to those loans was $105 and $350 at December 31, 1997 and 1996, respectively. The Company does not segregate income recognized on a cash basis in its 38 financial records, and thus, such disclosure is not practicable. For impairment recognized in conformity with SFAS 114, as amended, the entire change in present value of expected cash flows is reported as bad debt expense in the same manner in which impairment initially was recognized or as a reduction in the amount of bad debt expense that otherwise would be reported. Real estate securing loans having a carrying value of $683 and $236 was transferred to foreclosed assets held for sale in 1997 and 1996, respectively. The Banks are not committed to lend additional funds to debtors whose loans have been modified. 5. BANK PREMISES AND EQUIPMENT Bank premises and equipment consist of: DECEMBER 31, -------------------- 1997 1996 -------- -------- Land $ 4,140 $ 1,178 Construction in process 985 115 Buildings and improvements 5,274 3,526 Leasehold improvements 1,637 1,645 Equipment 4,763 3,396 -------- -------- 16,799 9,860 Accumulated depreciation (3,360) (2,988) -------- -------- Total premises and equipment $ 13,439 $ 6,872 ======== ======== The Company capitalized $145 of interest on construction projects during the year ended December 31, 1997. 6. DEPOSITS The aggregate amount of time deposits with a minimum denomination of $100 was $57,981 and $41,922 at December 31, 1997 and 1996, respectively. The scheduled maturities of time deposits are as follows: 1997 1996 -------- -------- Zero to one year $166,316 $ 76,824 One year to two years 25,344 56,916 Two years to three years 3,470 7,353 Three years to four years 2,172 5,057 Four years to five years 1,354 2,695 Thereafter 1,066 4,579 -------- -------- Total time deposits $199,722 $153,424 ======== ======== 7. NOTES PAYABLE Notes payable consists of: 1997 1996 ----- ------ Note payable to a bank, interest at 8.804%, interest only payable in December 1996 and 1997, then payable in annual installments of $380, plus interest, through December 2007, secured by 100% of the issued and outstanding stock of Bank of the Ozarks, nwa. $ - $3,800 Note payable to a bank, interest at 8.25% paid quarterly, principal balance due on September 28, 1998, secured by 5,478 shares of Bank of the Ozarks, wca stock. - 1,500 Note payable to a bank, interest at 8.804%, payable in annual installments of $500, plus interest, through December 2006, then a final installment of all accrued and unpaid interest and outstanding principal due and payable December 2007. The note is subject to prepayment penalties under certain circumstances. Note secured by 1,872 shares of Bank of the Ozarks, nwa common stock and 21,919 shares of Bank of the Ozarks, wca common stock. 5,000 - Notes payable to individuals, interest at 6%, payable in annual installments of $24, plus interest, through December 2000, unsecured. 72 96 ------ ------ $5,072 $5,396 ====== ====== Aggregate annual maturities of notes payable at December 31, 1997 are as follows: 1998 $ 524 1999 524 2000 524 2001 500 2002 500 Thereafter 2,500 ------ $5,072 ====== The Company has an available revolving line of credit with a bank, with an aggregate outstanding amount not to exceed $5,000. Under this Credit Facility, advances remaining unpaid for any 39 consecutive period of 365 days are converted to term loans under the facility, with a corresponding reduction in availability, and are payable in equal annual installments of principal through December 21, 2007. Interest accrues on outstanding borrowings under the revolving line of credit, including any amounts converted to term loans, at a variable rate equal to the average prime lending rate reported from time to time by the Wall Street Journal minus 0.25% payable quarterly commencing June 21, 1997. The revolving line of credit commitment is effective through December 21, 2007, subject to an annual compliance review by the lender. The Credit Facility requires that the Banks, among other things, maintain a minimum return on average assets, a minimum ratio of primary capital to assets and maximum charges for loan losses. The Banks were in compliance with these requirements at December 31, 1997. 8. FHLB ADVANCES AND FEDERAL FUNDS PURCHASED Information relating to the short-term FHLB advances and federal funds purchased is summarized as follows: 1997 1996 ---- ---- FHLB advances - short-term Average balance $ 244 $ 3 Year-end balance - 500 Maximum month-end balance during year 2,750 500 Interest rate: Weighted average 5.81% 5.82% Year-end - 5.82% Federal funds purchased: Average balance 52 87 Year-end balance - 210 Maximum month-end balance during year 1,006 210 Interest rate: Weighted average 5.30% 5.24% Year-end - 6.22% FHLB advances with original maturities exceeding one year totalled $14,017 and $12,017 at December 31, 1997 and 1996, respectively. Interest rates on these advances ranged from 5.72% to 6.50% at December 31, 1997 and 1996. Aggregate annual maturities of these long-term FHLB advances at December 31, 1997 are as follows: 1998 $ 3,000 1999 5,070 2000 1,947 2001 4,000 ------- $14,017 ======= 9. INCOME TAXES The components of income tax expense for the years ended December 31, 1997, 1996, and 1995 are as follows: YEAR ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ------ ------ ----- Current provision $2,527 $2,298 $ 894 Deferred provision (benefit) (11) (292) (49) ------ ------ ----- Provision for income taxes $2,516 $2,006 $ 845 ====== ====== ===== The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows: 1997 1996 1995 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit 4.3 4.3 4.3 Effect of non-taxable interest income (2.7) (2.5) (4.6) Accrual for state income tax assessment - 6.5 - Other .1 (2.4) (6.7) ---- ---- ---- Effective income tax rate 35.7% 39.9% 27.0% ==== ==== ==== During the year ended December 31, 1996, the Company was assessed approximately $326 of additional state income taxes for the years ended December 31, 1992 through 1995. This assessment related to the State of Arkansas taking a different position than the federal income tax treatment regarding dividends from less than 95% owned subsidiaries. The full assessment was recorded as income tax expense during the year ended December 31, 1996 and paid during the year ended December 31, 1997. In addition, approximately $93 of interest charged on this assessment was also recorded during the year ended December 31, 1996. The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities and their approximate tax effects are as follows: 40
1997 1996 -------------------- -------------------- TEMPORARY TAX TEMPORARY TAX DIFFERENCES EFFECT DIFFERENCES EFFECT ----------- ------ ----------- ------ Deferred tax assets Allowance for loan losses $3,007 $1,151 $2,353 $ 901 Valuation of foreclosed assets 767 293 1,246 477 ------ ------ ------ ------ Gross deferred tax assets 3,774 1,444 3,599 1,378 ------ ------ ------ ------ Deferred tax liabilities Unrealized appreciation on securities available for sale $ 246 $ 94 $ 161 $ 62 Accelerated depreciation on bank premises and equipment 814 311 637 244 Other 365 139 212 81 ------ ------ ------ ------ Gross deferred tax liabilities 1,425 544 1,010 387 ------ ------ ------ ------ Net deferred tax assets $2,349 $ 900 $2,589 $ 991 ====== ====== ====== ======
10. EMPLOYEE BENEFIT PLANS EMPLOYEE STOCK OWNERSHIP PLAN - The Company has an employee stock ownership ----------------------------- plan ("ESOP") to provide benefits to substantially all employees of the Company who meet certain period of employment requirements. The Company makes annual contributions to the plan as determined solely by the Board of Directors. Participants in the plan become fully vested after seven years of service although cash or shares are not distributed until employment is terminated. The Company contributed $64, $95 and $86 to the plan for in the years ended December 31, 1997, 1996, and 1995, respectively. 401(k) PLAN - In May 1997 the Company established a qualified retirement ----------- plan, with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code ("the 401(k) Plan"). The 401(k) Plan permits the employees of the Company to defer a portion of their compensation in accordance with the provisions of Section 401(k) of the Code. Matching contributions may be made in amounts and at times determined by the Company. The 401(k) Plan provides for Company matching contributions, if determined by the Company to be made, up to a maximum of two percent of the participant's salary per year. No other Company matching contributions are contemplated at this time. Certain other statutory limitations with respect to the Company's contribution under the 401(k) Plan also apply. Amounts contributed by the Company for a participant will vest over five years and will be held in trust until distributed pursuant to the terms of the 401(k) Plan. The Company contributed $32 to the Plan for the year ended December 31, 1997. Employees of the Company are eligible to participate in the 401(k) Plan when they meet certain requirements concerning minimum age and period of credited service. All contributions to the 401(k) Plan will be invested in accordance with participant elections among certain investment options. Distributions from participant accounts will not be permitted before age 65, except in the event of death, permanent disability, certain financial hardships or termination of employment. 11. STOCK OPTIONS During 1997, the Company established a nonqualified stock option plan for certain key employees and officers of the Company. This plan provides for the granting of nonqualified options to purchase up to 285,000 shares of common stock in the Company. It also has a nonqualified stock option plan for non-employee directors of the Company. No option may be granted under this plan for less than the fair market value of the common stock at the date of the grant. The exercise period and the termination date for the employee plan options is determined when the options are actually granted. The non-employee director plan calls for options to purchase 1,000 shares of common stock to be granted to non-employee directors the day after the annual stockholders' meeting. These options are exercisable immediately and expire ten years after issuance. 41 SUMMARY OF THE STATUS OF THE PLANS 1997 ----------------- WEIGHTED- AVERAGE EXERCISE OPTIONS PRICE ------- -------- Outstanding - beginning of year - $ - Granted 108,500 16.42 Exercised - - Canceled (2,000) 16.00 ------- ------ Outstanding - end of year 106,500 $16.42 ======= ====== Exercisable at end of year - - Exercise prices for options outstanding as of December 31, 1997 ranged from $16.00 to $25.38. The weighted-average fair value of options granted during the year was $6.20. The weighted-average remaining contractual life of these options is 8.15 years. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's two stock option plans been determined based on the fair value at the grant date for awards in 1997 consistent with the provisions of SFAS No. 123, the Company's pro forma net income and earnings per share would have been $4,462 and $1.36. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997: dividend yield increasing 15% per year from the current $0.20; expected volatility ranging from .326 to .342; risk-free interest rates ranging from 5.77% to 6.19% and expected lives ranging from 5 to 7.5 years. 12. COMMITMENTS AND CONTINGENCIES The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company has the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. The Company had outstanding commitments to extend credit of approximately $20,004 and $10,186 at December 31, 1997 and 1996, respectively. The commitments extend over varying periods of time with the majority to be disbursed within a one-year period. The Company had total outstanding letters of credit amounting to $1,931 and $484 at December 31, 1997 and 1996, respectively. The commitment terms generally expire within one year. The Company grants agribusiness, commercial, residential and consumer installment loans to customers primarily in northern, western and central Arkansas. The Company maintains a diversified loan portfolio. At December 31, 1997, the Company was committed to incur $6,675 of construction costs on construction projects in process. 13. PURCHASE OF FEDERAL SAVINGS BANK The Company signed a purchase agreement in November 1997 to buy a federal savings bank for $3,100 in cash. The Company will receive at closing the federal savings bank charter, approximately $12,500 in customer deposits, the land and building in Little Rock, bank furnishings and equipment, and cash. The seller will retain all loans, and the deposits and all operations of the branch in Monticello, Arkansas and the loan production office in Bryant, Arkansas. The Company plans to operate a full-service bank in Little Rock under the Bank of the Ozarks name. 14. RELATED PARTY TRANSACTIONS The Banks have entered into transactions with their executive officers, directors, principal shareholders, and their affiliates (related parties). The aggregate amount of loans to such related parties at December 31, 1997 and 1996 was $210 and $1,612, respectively. New loans made to such related parties were $169 and $1,780 for the years ended December 31, 1997 and 1996, respectively. Repayments of loans made by such related parties were $1,571 and $1,890 for the years ended December 31, 1997 and 1996, respectively. 42 15. REGULATORY MATTERS Federal regulatory agencies generally require member banks to maintain core (Tier 1) capital of at least 3% of total assets plus an additional cushion of 1% to 2%, depending upon capitalization classifications. Tier 1 capital generally consists of total stockholders' equity. Additionally, these agencies require member banks to maintain total risk-based capital of at least 8% of risk-weighted assets, with at least one-half of that total capital amount consisting of Tier 1 capital. Total capital for risk-based purposes includes Tier 1 capital plus the lesser of the allowance for loan losses or 1.25% of risk weighted assets. The Banks' regulatory capital position was as follows:
DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------------------------------- COMPUTED COMPUTED COMPUTED COMPUTED CAPITAL PERCENT CAPITAL PERCENT -------- -------- -------- -------- Bank of the Ozarks, Inc. (consolidated) Total risk-based capital $37,464 14.27% $19,584 9.70 (1) Tier 1 risk-based capital 34,176 13.01% 17,055 8.45% (1) Leverage ratio 9.86% 6.42% Bank of the Ozarks, wca: Total risk-based capital $28,349 15.44% $16,464 11.99% (1) Tier 1 risk-based capital 26,050 14.19% 14,742 10.74% (1) Leverage ratio 11.15% 8.10% Bank of the Ozarks, nwa: Total risk-based capital 10,764 14.13% 7,584 12.86% (1) Tier 1 risk-based capital 9,810 12.88% 6,847 11.61% (1) Leverage ratio 8.71% 8.22%
(1) Stated as a percent of risk-weighted assets as defined in OTS capital regulations. At December 31, 1997, the subsidiary banks exceeded their minimum capital requirements. As of December 31, 1997, the state bank commissioner's approval was required before the Banks could declare and pay any dividend of 75% or more of the net profits of the Banks after all taxes for the current year plus 75% of the retained net profits for the immediately preceding year. The subsidiary banks are required by bank regulatory agencies to maintain certain minimum balances of cash or non-interest bearing deposits primarily with the Federal Reserve. At December 31, 1997, these required balances aggregated approximately $1,395. 16. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value. CASH AND DUE FROM BANKS - For those short-term instruments, the carrying amount is a reasonable estimate of fair value. INVESTMENT SECURITIES - For securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or the carrying amount. LOANS - The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSIT LIABILITIES - The fair value of demand deposits, savings accounts, NOW accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates is estimated using the rate currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value. OTHER BORROWED FUNDS - For those short-term instruments, the carrying amount is a reasonable estimate of fair value. The fair value of long-term debt is estimated based on the current rates available to the Company for debt with similar terms and remaining maturities. ACCRUED INTEREST - The carrying amount of accrued interest payable approximates its fair value. OFF-BALANCE SHEET INSTRUMENTS - Fair values for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. 43 COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The fair value of these commitments is estimated using the fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the present credit-worthiness of the counter-parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter-parties at the reporting date. The following table presents the estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgements by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
1997 1996 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Financial assets: Cash and due from banks $ 15,628 $ 15,628 $ 6,815 $ 6,815 Available-for-sale securities 25,297 25,297 36,883 36,883 Held-to-maturity securities 17,162 17,199 2,725 2,741 Federal funds sold 2,885 2,885 350 350 Loans, net of allowance for loan losses 271,726 274,531 211,443 215,143 Accrued interest receivable 3,013 3,013 2,552 2,552 Financial liabilities: Demand, NOW and savings account deposits $ 95,833 $ 95,833 $ 78,224 $ 78,224 Time deposits 199,722 201,547 153,424 154,148 Notes Payable 5,072 5,072 5,396 5,396 FHLB advances and federal funds purchased 14,017 13,983 12,727 12,367 Accrued interest and other liabilities 1,783 1,783 2,282 2,282 Off balance sheet assets (liabilities): Standby letters of credit $ - $ - $ - $ - Commitments to extend credit - - - - Unfunded credit card loans - - - -
17. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information is as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ---- ---- ---- Cash paid during the period for: -------------------------------- Interest (net of $145 capitalized in 1997) $13,255 $ 9,682 $ 6,786 Income taxes 2,752 1,984 898 Supplemental schedule of non-cash investing and financing activities: - --------------------------------------------------------------------- Transfer of loans to foreclosed assets held for sale 683 236 69 Loans advanced for sales of foreclosed assets 203 72 32 Change in unrealized gain on available-for-sale securities 86 146 793
44 18. OTHER INCOME Other income consists of: YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 ---- ---- ---- Gain on sale of loans $ 57 $274 - Gain on sale of other assets 76 - - Gain on sale of previously foreclosed real estate 261 14 $ 4 Printed checks sales 127 90 9 Other 23 7 93 ---- ---- ---- Total other income $544 $385 $106 ==== ==== ==== 19. OTHER OPERATING EXPENSES Other operating expenses consists of: YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ------ ------ ------ Other real estate and foreclosure expense $ 40 $ 49 $ 142 Professional services 102 60 56 Postage 178 140 118 Telephone 221 125 106 Operating supplies 405 215 214 Advertising and public relations 332 123 101 Other outside service fees 59 59 31 Directors' fees 116 96 79 Software amortization 119 69 75 Check printing charges 137 102 30 FDIC and state assessment 112 47 373 Amortization of goodwill 56 56 59 Charitable contributions 84 126 126 Guaranty fees 76 91 - Other 556 532 367 ------ ------ ------ Total other operating expenses $2,593 $1,890 $1,877 ====== ====== ====== 20. EARNINGS PER COMMON SHARE Basic and diluted earnings per share were determined according to the following: FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- Common shares - weighted average 3,272,305 2,879,800 2,894,299 Common stock equivalents - weighted average 8,910 - - ---------- ---------- ---------- 3,281,215 2,879,800 2,894,299 ========== ========== ========== Net income $ 4,531 $ 3,027 $ 2,170 ========== ========== ========== Basic and diluted earnings per share $ 1.38 $ 1.05 $ 0.75 ========== ========== ========== 45 21. NEW AUTHORITATIVE PRONOUNCEMENT The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier application is permitted. Reclassification of financial statements for earlier periods provided for comparative purposes is required. SFAS No. 130 is not expected to have a material impact on the Company. 22. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS ------------------------
1997 1996 ------- ------- ASSETS ------ CASH AND CASH EQUIVALENTS $ 3,264 $ 964 INVESTMENT IN SUBSIDIARIES 36,313 21,915 BANK PREMISES AND EQUIPMENT, NET 31 27 EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, AT AMORTIZED COST 1,337 1,394 OTHER 8 25 ------- ------- TOTAL ASSETS $40,953 $24,325 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ NOTES PAYABLE $ 5,072 $ 5,396 ACCRUED INTEREST AND OTHER LIABILITIES 215 382 ------- ------- TOTAL LIABILITIES 5,287 5,778 ------- ------- STOCKHOLDERS' EQUITY Common stock 38 29 Additional paid-in capital 14,314 1,168 Retained earnings 21,162 17,251 Unrealized gains on available for sale securities-net of income tax 152 99 ------- ------- TOTAL STOCKHOLDERS' EQUITY 35,666 18,547 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,953 $24,325 ======= =======
CONDENSED STATEMENTS OF INCOME ------------------------------
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- INCOME Dividends from subsidiaries $ - $ 1,250 $ 905 Other 1 1 5 ------- ------- ------- TOTAL INCOME 1 1,251 910 ------- ------- ------- EXPENSES Interest 554 468 10 Salaries and employee benefits 284 349 30 Net occupancy and equipment 71 51 25 Other operating expenses 360 243 78 ------- ------- ------- TOTAL EXPENSES 1,269 1,111 143 ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES (1,268) 140 767 Income taxes (benefit) (486) (183) (219) Equity in undistributed earnings of subsidiary 5,313 2,704 1,184 ------- ------- ------- NET INCOME $ 4,531 $ 3,027 $ 2,170 ======= ======= =======
46 CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,531 $ 3,027 $ 2,170 Adjustments to reconcile net income to net cash provided (used) by operating activities Depreciation 18 16 9 Amortization 56 57 58 Equity in undistributed earnings of unconsolidated subsidiaries (5,313) (2,704) (1,184) Change in assets and liabilities Accrued interest and other liabilities (199) 106 112 Other, net 18 (30) (13) -------- -------- -------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (889) 472 1,152 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of bank premises and equipment (22) (6) (46) Additional investment in subsidiaries and purchase of minority shares of stock (9,000) (1,500) (3,573) -------- -------- -------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (9,022) (1,506) (3,619) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 13,155 - - Proceeds from notes payable 10,000 1,500 3,920 Payments of notes payable (10,324) (24) - Redemption of common stock - - (537) Dividends paid (620) (864) (893) -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 12,211 612 2,490 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,300 (422) 23 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 964 1,386 1,363 -------- -------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 3,264 $ 964 $ 1,386 ======== ======== ========
47 EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Subsidiaries of the Registrant 1. Bank of the Ozarks, wca, an Arkansas state chartered bank which does business as Bank of the Ozarks, Inc. 2. Bank of the Ozarks, nwa, an Arkansas state chartered bank which does business as Bank of the Ozarks, Inc. 3. Heartland Community Bank, FSB, a federal savings bank to be renamed Bank of the Ozarks EX-23 7 CONSENT OF MOORE STEPHENS FROST EXHIBIT 23 CONSENT OF MOORE STEPHENS FROST, INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. of our Report dated January 28, 1998, included in the 1997 Annual Report to Stockholders of Bank of the Ozarks, Inc. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-32177, 333-32175 and 333-32173) pertaining to certain employee benefit plans of Bank of the Ozarks, Inc. of our Report dated January 28, 1998, with respect to the Consolidated Financial Statements included in or incorporated by reference in this Annual Report (Form 10-K), MOORE STEPHENS FROST Certified Public Accountants Little Rock, Arkansas March 19, 1998 20 EX-27.1 8 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED BY REFERENCE IN THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 9,021 6,607 2,885 0 25,297 17,162 17,199 275,463 3,737 352,093 295,555 0 1,783 19,089 0 0 38 35,628 352,093 24,230 2,917 321 27,468 11,826 12,979 14,489 1,139 14 9,228 7,047 4,531 0 0 4,531 1.38 1.38 4.98 664 35 0 2,292 3,019 469 48 3,737 3,737 0 0
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