-----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, EXWDcnc8DCsX9ZEUbigiF467QDggKs2bKYWSl5/qlcqf51w8R3gm3NJjfwwV5EEm B7luZ+Oq0ZlPnhHYaBqXjw== 0000930661-99-001106.txt : 19990513 0000930661-99-001106.hdr.sgml : 19990513 ACCESSION NUMBER: 0000930661-99-001106 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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-Q SEC ACT: SEC FILE NUMBER: 000-22759 FILM NUMBER: 99618487 BUSINESS ADDRESS: STREET 1: 12615 CHENAL PARKWAY STREET 2: SUITE 3100 CITY: LITTLE ROCK STATE: AR ZIP: 72211 BUSINESS PHONE: 5019782265 MAIL ADDRESS: STREET 1: 12615 CHENAL PARKWAY CITY: LITTLE ROCK STATE: AR ZIP: 72211 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ________________ (Mark one) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 ( ) 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) 12615 CHENAL PARKWAY, LITTLE ROCK, ARKANSAS 72211 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 978-2265 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 the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practical date. Class Outstanding at March 31, 1999 - -------------------------------------- ------------------------------- Common Stock, $0.01 par value per share 3,779,555 BANK OF THE OZARKS, INC. FORM 10-Q March 31, 1999 INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets as of March 31, 1999 and 1998 and December 31, 1998 1 Consolidated Statements of Income for the Three Months Ended March 31, 1999 and 1998 2 Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 1999 and 1998 3 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Selected and Supplemental Financial Data 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings N/A Item 2. Change in Securities and Use of Proceeds N/A Item 3. Defaults Upon Senior Securities N/A Item 4. Submission of Matters to a Vote of Security Holders N/A Item 5. Other Information N/A Item 6. Exhibits and Reports on Form 8-K (a). Exhibits Reference is made to the Exhibit Index contained at the end of this report. (b). Reports on Form 8-K N/A Signature 25 Exhibit Index 26
BANK OF THE OZARKS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) Unaudited
MARCH 31, DECEMBER 31, ---------------------------------- -------------- 1999 1998 1998 -------------- -------------- -------------- ASSETS Cash and due from banks $ 13,260 $ 14,021 $ 14,168 Interest bearing deposits 184 10,885 856 Investment securities - available for sale 44,778 18,461 17,629 Investment securities - held to maturity 170,271 51,790 158,989 Federal funds sold 2,180 7,780 - Loans, net of unearned income 400,851 299,505 387,526 Allowance for loan losses (4,850) (3,822) (4,689) Premises and equipment, net 27,939 16,951 27,155 Foreclosed assets held for sale, net 855 248 314 Interest receivable 6,288 3,414 5,517 Intangible assets, net 3,520 2,162 3,665 Other 1,645 1,260 1,301 -------------- -------------- -------------- Total assets $666,921 $422,655 $612,431 ============== ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand - non-interest bearing $ 56,280 $ 39,259 $ 50,138 Savings and interest-bearing transaction 104,895 69,088 95,471 Time 420,529 243,965 383,431 -------------- -------------- -------------- Total deposits 581,704 352,312 529,040 Notes payable 13,183 5,072 12,448 FHLB advances and federal funds purchased 25,425 25,993 26,823 Repurchase agreements 2,124 - 1,408 Accrued interest and other liabilities 2,855 2,485 2,357 -------------- -------------- -------------- Total liabilities 625,291 385,862 572,076 -------------- -------------- -------------- Stockholders' equity Common stock; $0.01 par value; Authorized 10,000,000 shares; 3,779,555 shares issued and outstanding 38 38 38 Additional paid-in capital 14,314 14,314 14,314 Retained earnings 27,070 22,347 25,922 Accumulated other comprehensive income 208 94 81 -------------- -------------- --------------- Total stockholders' equity 41,630 36,793 40,355 -------------- -------------- --------------- Total liabilities and stockholders' equity $666,921 $422,655 $612,431 ============== ============== ===============
See accompanying notes to consolidated financial statements. 1 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) Unaudited
THREE MONTHS ENDED MARCH 31, --------------------------- 1999 1998 --------- --------- Interest income Loans $ 8,617 $6,921 Investment securities - taxable 2,758 776 - non-taxable 347 128 Federal funds sold 3 54 Deposits with banks 5 114 --------- --------- Total interest income 11,730 7,993 Interest expense Deposits 5,717 3,488 Notes payable 205 108 FHLB advances 334 240 Federal funds purchased and repurchase agreements 165 - --------- --------- Total interest expense 6,421 3,836 --------- --------- Net interest income 5,309 4,157 Provision for loan losses (611) (225) --------- --------- Net interest income after provision for loan losses 4,698 3,932 --------- --------- Other income Trust income 128 78 Service charges on deposit accounts 502 281 Other income, charges and fees 602 557 Gains on sales of securities 25 51 Other 12 127 --------- --------- Total other income 1,269 1,094 --------- --------- Other expense Salaries and employee benefits 2,000 1,677 Net occupancy and equipment 636 426 Other operating expenses 1,132 821 --------- --------- Total other expense 3,768 2,924 --------- --------- Income before income taxes 2,199 2,102 Provision for income taxes 673 728 --------- --------- Net income $ 1,526 $1,374 ========= ========= Basic and diluted earnings per common share $0.40 $0.36 ========= ========= Cash dividends declared $0.10 $0.05 ========= =========
See accompanying notes to consolidated financial statements 2 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands) Unaudited
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN RETAINED COMPREHENSIVE STOCK CAPITAL EARNINGS INCOME TOTAL ----------- ---------- ------------- -------------- ------------ BEGINNING BALANCE - JANUARY 1, 1998 $ 38 $ 14,314 $ 21,162 $ 152 $ 35,666 Comprehensive income Net income 1,374 1,374 Other comprehensive income Unrealized gains on available for sale securities net of $1 tax effect (2) (2) Less: reclassification adjustment for gains included in income net of $35 tax effect (56) (56) ----------- Comprehensive income 1,316 ----------- Cash dividends (189) (189) ---------- --------- ------------ -------------- ----------- ENDING BALANCE - MARCH 31, 1998 $ 38 $ 14,314 $ 22,347 $ 94 $ 36,793 ========== ========= ============ ============== =========== BEGINNING BALANCE JANUARY 1, 1999 $ 38 $ 14,314 $ 25,922 $ 81 $ 40,355 Comprehensive income Net income 1,526 1,526 Other comprehensive income Unrealized gains on available for sale securities net of $113 tax effect 182 182 Less: reclassification adjustment for gains included in income net of $35 tax effect (55) (55) ----------- Comprehensive income 1,653 ----------- Cash dividends (378) (378) ----------- --------- ------------ -------------- ----------- ENDING BALANCE - MARCH 31, 1999 $ 38 $ 14,314 $ 27,070 $ 208 $ 41,630 =========== ========= ============ ============== ===========
3 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Unaudited
THREE MONTHS ENDED MARCH 31, ---------------------------------- 1999 1998 -------- -------- Cash flows from operating activities Net income $ 1,526 $ 1,374 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 331 195 Amortization 67 22 Provision for loan losses 611 225 Provision for losses on foreclosed assets 16 - Gains on sales of securities (25) (51) (Increase) decrease in mortgage loans held for sale 1,481 (365) Gain on disposition of premises and equipment (4) (4) (Gain) loss on disposition of foreclosed assets 10 (84) Deferred income taxes (67) (22) Changes in assets and liabilities Interest receivable (771) (399) Other, net (276) 468 Accrued interest and other liabilities 499 167 -------- -------- Net cash provided by operating activities 3,398 1,526 -------- -------- Cash flows from investing activities Purchase of subsidiaries, net of funds acquired - 7,164 Proceeds from sales and maturities of investment securities available for sale 6,713 7,230 Purchases of investment securities available for sale (33,634) (280) Proceeds from maturities of investment securities held to 26,111 3,145 maturity Purchases of investment securities held to maturity (37,393) (37,781) Increase in federal funds sold (2,180) (4,450) Net increase in loans (16,153) (24,064) Proceeds from issuance of loans - Proceeds from dispositions of bank premises and equipment 15 4 Purchase of bank premises and equipment (1,126) (3,038) Proceeds from dispositions of foreclosed assets 330 210 -------- -------- Net cash used by investing activities (57,317) (51,860) -------- -------- Cash flows from financing activities Net increase in deposits 52,664 47,402 Net changes in FHLB advances and federal funds purchased (1,398) 12,399 Net increase in repurchase agreements 716 - Proceeds from notes payable 735 - Dividends paid (378) (189) -------- -------- Net cash provided by financing activities 52,339 59,612 -------- -------- Net (decrease) increase in cash and cash equivalents (1,580) 9,278 Cash and cash equivalents - beginning of period 15,024 15,628 -------- -------- Cash and cash equivalents - end of period $ 13,444 $ 24,906 ======== ========
See accompanying notes to consolidated financial statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. PRINCIPLES OF CONSOLIDATION The consolidated financial statements of Bank of the Ozarks, Inc. include the accounts of the parent company and its wholly owned subsidiaries, including Bank of the Ozarks, wca and Bank of the Ozarks, nwa, (collectively the "Company"). All material intercompany transactions have been eliminated. 2. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") in Article 10 of Regulation S-X and with the instructions to Form 10-Q, and in accordance with generally accepted accounting principles for interim financial information. Certain information, accounting policies and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. It is therefore suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's annual report on Form 10- K for the year ended December 31, 1998. In the opinion of management all adjustments considered necessary, consisting of normal recurring items, have been included for a fair presentation of the accompanying consolidated financial statements. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the full year. 3. EARNINGS PER COMMON SHARE Basic EPS is computed by dividing reported earnings available to common stockholders by weighted average shares outstanding. No dilution for any potentially dilutive securities is included. Diluted EPS includes the dilutive effect of stock options. In computing dilution for stock options, the average share price is used for the reporting period. Basic and diluted earnings per common share is computed as follows:
THREE MONTHS ENDED MARCH 31, --------------------------------------- 1999 1998 --------------- ---------------- (In thousands, except per share amounts) Common shares - weighted averages.................. 3,780 3,780 Common share equivalents - weighted averages....... 16 41 ------ ------ 3,796 3,821 ====== ====== Net income......................................... $1,526 $1,374 Basic earnings per common share.................... $ 0.40 $ 0.36 Diluted earnings per common share.................. 0.40 0.36
(The remainder of this page intentionally left blank) 5 4. FEDERAL HOME LOAN BANK ("FHLB") ADVANCES FHLB advances with original maturities exceeding one year totaled $25.4 million at March 31, 1999. Interest rates on these advances ranged from 4.16% to 6.47% at March 31, 1999 with a weighted average rate of 5.28%. Aggregate annual maturities (amounts in thousands) and weighted average interest rates of FHLB advances with an original maturity of over one-year at March 31, 1999 are as follows:
WEIGHTED AMOUNTS AVERAGE RATE ----------- ----------------- 1999 $ 2,700 6.47% 2000 2,145 5.77 2001 4,198 5.94 2002 197 6.30 2003 197 6.30 Thereafter 15,988 4.82 ------- $25,425 =======
FHLB advances of $15.0 million maturing in 2008 and 2009 may be called quarterly but the Company has the option to refinance on a long-term basis any amounts called. At March 31, 1999, the Company had no FHLB advances with original maturities of one year or less. 5. SUPPLEMENTARY DATA FOR CASH FLOWS Cash payments for interest by the Company during the three months ended March 31, 1999, amounted to $6.4 million and during the three months ended March 31, 1998, amounted to $3.7 million. Cash payments for income taxes during the three months ended March 31, 1999 and 1998 amounted to $148,000 and $72,000, respectively. (The remainder of this page intentionally left blank) 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Net income was $1,526,000 for the first quarter of 1999, an 11.1% increase over net income of $1,374,000 for the same quarter in 1998. Diluted earnings per share rose 11.1% to $0.40 for the quarter ended March 31, 1999, compared to $0.36 for the same quarter in 1998. The Company's annualized returns on average assets and on average stockholders' equity were 0.97% and 15.14%, respectively, for the first quarter of 1999, compared with 1.46% and 15.41%, respectively, for the same quarter of 1998. Total assets increased from $612.4 million at December 31, 1998, to $666.9 million at March 31, 1999. Loans were $400.9 million at March 31, 1999, compared to $387.5 million at December 31, 1998. Deposits were $581.7 million at March 31, 1999, compared to $529.0 million at December 31, 1998. Stockholders' equity increased from $40.4 million at December 31, 1998, to $41.6 million at March 31, 1999, increasing book value per share from $10.68 to $11.01. Annualized results for interim periods may not be indicative of those for the full year or future periods. 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, mortgage lending income, other charges and fees, trust income, and gains on sales of assets. 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 significantly affected by its provision for loan losses. The following discussion provides a summary of the Company's operations for the three months ended March 31, 1999 and 1998. (The remainder of this page intentionally left blank) 7 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 statutory federal income tax rate (34%). Net interest income (FTE) increased 30.1% to $5,502,000 for the three months ended March 31, 1999, from $4,229,000 for the three months ended March 31, 1998. This increase primarily resulted from a 66.5% increase in average earning assets to $591.5 million for the 1999 period from $355.3 million for the 1998 period. The increase in average earning assets for the 1999 period resulted from continued growth in the Company's loan portfolio as well as substantial growth in the Company's investment securities portfolio. The Company's net interest margin declined from 4.83% in the first quarter ended March 31, 1998, to 3.77% for the same quarter of 1999. The Company's net interest margin declined throughout the year of 1998 as a result of competitive factors, including promotional CD rates at new offices and intense pricing competition for loans, and a reduction in the Company's loan to deposit ratio. While the net interest margin declined throughout 1998, the net interest margin for the first quarter of 1999 remained unchanged from the 1998 fourth quarter. ANALYSIS OF NET INTEREST INCOME (FTE = FULLY TAXABLE EQUIVALENT)
THREE MONTHS ENDED MARCH 31, ----------------------------------- 1999 1998 ------------- ------------- (Dollars in thousands) Interest income............................ $11,730 $7,993 FTE adjustment............................. 193 72 -------- ------- Interest income - FTE...................... 11,923 8,065 Interest expense........................... 6,421 3,836 -------- ------- Net interest income - FTE.................. $ 5,502 $4,229 ======== ======= Yield on interest earning assets - FTE..... 8.17% 9.21% Cost of interest bearing liabilities....... 4.77 5.03 Net interest spread - FTE.................. 3.40 4.18 Net interest margin - FTE.................. 3.77 4.83
(The remainder of this page intentionally left blank) 8 AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS (Dollars in thousands)
THREE MONTHS ENDED MARCH 31, ----------------------------------------------------------------------------- 1999 1998 ------------------------------------------ ---------------------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ BALANCE EXPENSE RATE BALANCE EXPENSE ------------ ----------- ----------- ------------ ------------ ASSETS Earning assets: Interest bearing deposits...................... $ 347 $ 5 5.45% $ 8,490 $ 114 Federal funds sold............................. 208 3 4.88 3,967 54 Investment securities: Taxable....................................... 166,560 2,758 6.72 46,501 776 Tax-exempt - FTE.............................. 30,914 525 6.89 9,677 194 Loans - FTE (net of unearned income)............ 393,493 8,632 8.90 286,647 6,927 ------------ ----------- ------------ ------------ Total earnings assets......................... 591,522 11,923 8.17 355,282 8,065 Non-earning assets.............................. 49,270 27,124 ------------ ------------ Total assets.................................. $640,792 $382,406 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings and interest bearing transaction...... $ 98,861 $ 649 2.66% $ 64,828 $ 453 Time deposits of $100,000 or more............. 159,165 1,997 5.09 64,513 900 Other time deposits........................... 236,156 3,071 5.27 152,776 2,135 ------------ ----------- ------------ ------------ Total interest bearing deposits.............. 494,182 5,717 4.69 282,117 3,488 FHLB advances and federal funds................ 37,903 486 5.20 22,072 240 Repurchase agreements.......................... 1,379 13 3.95 - - Notes payable.................................. 12,821 205 6.47 5,072 108 ------------ ----------- ------------ ------------ Total interest bearing liabilities........... 546,285 6,421 4.77 309,261 3,836 Non-interest liabilities: Non-interest bearing deposits.................. 50,799 34,844 Other non-interest liabilities................. 2,841 2,130 ------------ ------------ Total liabilities............................ 599,925 346,235 Stockholders' equity............................ 40,867 36,171 ------------ ------------ Total liabilities and stockholders' equity... $640,792 $382,406 ============ ============ Interest rate spread - FTE...................... 3.40% ----------- ------------ Net interest income - FTE....................... $ 5,502 $4,229 =========== ============ Net interest margin - FTE....................... 3.77% ----------- YIELD/ RATE ----------- ASSETS Earning assets: Interest bearing deposits...................... 5.45% Federal funds sold............................. 5.62 Investment securities: Taxable....................................... 6.77 Tax-exempt - FTE.............................. 8.13 Loans - FTE (net of unearned income)............ 9.80 Total earnings assets......................... 9.21 Non-earning assets.............................. Total assets.................................. LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings and interest bearing transaction...... 2.83% Time deposits of $100,000 or more............. 5.66 Other time deposits........................... 5.67 Total interest bearing deposits.............. 5.02 FHLB advances and federal funds................ 4.41 Repurchase agreements.......................... Notes payable.................................. 8.64 Total interest bearing liabilities........... 5.03 Non-interest liabilities: Non-interest bearing deposits.................. Other non-interest liabilities................. Total liabilities............................ Stockholders' equity............................ Total liabilities and stockholders' equity... Interest rate spread - FTE...................... 4.18% Net interest income - FTE....................... Net interest margin - FTE....................... 4.83%
9 NON-INTEREST INCOME The Company's non-interest income can primarily be broken down into five main sources: (1) service charges on deposit accounts, (2) mortgage lending income, (3) other charges and fees including appraisal fees and commissions from the sale of credit related insurance products, (4) trust income, and (5) gains on sales of assets. Non-interest income for the first quarter of 1999 was $1,269,000 compared with $1,094,000 for the first quarter of 1998, a 16.0% increase. During the first quarter the Company benefited from record levels of service charges on deposit accounts and trust income. The increase in service charges resulted from continued growth in the number of checking, savings and money market accounts as well as the impact of an increase in service charge rates effective January 1, 1999. The Company's growth in trust income resulted from an increase in the volume of trust business due to expansion and relocation of the Company's trust department to Little Rock in late 1998. Mortgage lending income for the first quarter of 1999 increased from the level for the first quarter of 1998, but declined from the record levels for the last two quarters of 1998. The table below shows non-interest income for the three months ended March 31, 1999 and 1998. NON-INTEREST INCOME
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 -------- -------- (Dollars in thousands) Service charges on deposit accounts............. $ 502 $ 281 Mortgage lending income......................... 449 395 Other charges and fees.......................... 154 162 Trust income.................................... 128 78 Gain (loss) on sales of foreclosed real estate.. (10) 84 Gain on sales of other assets................... 3 4 Gain on sales of securities..................... 25 51 Printed check sales............................. 8 32 Other........................................... 10 7 -------- -------- Total non-interest income.................. $1,269 $1,094 ======== ========
(The remainder of this page intentionally left blank) 10 NON-INTEREST EXPENSE Non-interest expense for the first quarter of 1999 was $3,768,000 compared with $2,924,000 for the same period in 1998, a 28.9% increase. This increase resulted primarily from continued growth and expansion in connection with the opening of five new offices in 1998 and one new office in the first quarter of 1999. The Company's efficiency ratio (non-interest expenses divided by the sum of net interest income on a tax equivalent basis and non-interest income) was 55.65% for the first quarter of 1999 compared to 54.93% for the first quarter of 1998. The table below shows non-interest expense for the three months ended March 31, 1999 and 1998. NON-INTEREST EXPENSE
THREE MONTHS ENDED MARCH 31, --------------------------- 1999 1998 -------- -------- (Dollars in thousands) Salaries and employee benefits......... $2,000 $1,677 Net occupancy expense.................. 297 187 Equipment expense...................... 339 239 Other real estate and foreclosure expense............................... 63 16 Other operating expense: Professional and outside services.... 100 45 Postage.............................. 71 68 Telephone............................ 101 67 Data lines........................... 86 18 Operating supplies................... 112 121 Advertising and public relations..... 176 96 Directors' fees...................... 30 28 Software expense..................... 64 38 Check printing charges............... - 37 ATM expense.......................... 36 24 FDIC & state assessment.............. 47 32 Business development, meals and travel............................. 36 27 Amortization of intangibles.......... 67 22 Other................................ 143 182 -------- -------- Total non-interest expense............. $3,768 $2,924 ======== ========
The Company has initiated a series of organizational enhancements intended to eliminate redundant expenses, improve efficiency, enhance customer service and facilitate the introduction of new products and services in the future. During the first quarter of 1999 the Company consolidated its federal savings bank subsidiary into its lead bank. During the second quarter the Company plans to consolidate its two remaining commercial bank subsidiaries. Regulatory approval of this consolidation has been obtained and completion of the consolidation process is expected in June 1999. INCOME TAXES The provision for income taxes was $673,000 for the quarter ended March 31, 1999, compared to $728,000 for the same period in 1998. The effective income tax rates were 30.6% and 34.6%, respectively, for these periods. The decrease in effective tax rates for the 1999 period resulted primarily from the Company's increased investments in tax-exempt securities. These include securities exempt from both federal and Arkansas income taxes as well as other securities exempt solely from Arkansas income taxes. 11 ANALYSIS OF FINANCIAL CONDITION LOAN PORTFOLIO At March 31, 1999, the Company's loan portfolio was $400.9 million, an increase from $387.5 million at December 31, 1998. As of March 31, 1999, the Company's loan portfolio consisted of approximately 64.6% real estate loans, 16.2% consumer loans, 13.7% commercial and industrial loans and 5.0% agricultural loans (non-real estate). The amount and type of loans outstanding at March 31, 1999 and 1998 and December 31, 1998 are reflected in the following table. LOAN PORTFOLIO
MARCH 31, DECEMBER 31 ----------------------------------- -------------- 1999 1998 1998 ------------- -------------- -------------- (Dollars in thousands) Real Estate: Single family residential......... $119,404 $103,225 $121,539 Non-farm/non-residential.......... 86,560 45,691 76,563 Agricultural...................... 20,784 13,585 19,463 Construction/land development..... 26,778 17,591 23,305 Multi-family residential.......... 5,465 4,180 6,207 ------------- -------------- -------------- Total real estate................. 258,991 184,272 247,077 Consumer.......................... 64,976 55,362 66,407 Commercial and industrial......... 55,163 43,348 52,192 Agricultural (non-real estate).... 20,027 14,131 20,068 Other............................. 1,694 2,392 1,782 ------------- -------------- -------------- Total loans....................... $400,851 $299,505 $387,526 ============= ============== ==============
NONPERFORMING ASSETS Nonperforming assets consist of (1) nonaccrual loans, (2) accruing loans 90 days or more past due, (3) restructured loans providing for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower, and (4) real estate or other assets that have been acquired in partial or full satisfaction of loan obligations or upon foreclosure. Nonperforming assets as a percent of total assets were 0.75% as of March 31, 1999, compared to 0.70% as of December 31, 1998, and 0.40% as of March 31, 1998. Nonperforming loans as a percent of total loans were 1.04% as of March 31, 1999 compared to 0.70% as of December 31, 1998, and 0.54% as of March 31, 1998. The Company's ratios of non-performing loans and non-performing assets as of March 31, 1999 were impacted by the placing on non-accrual status of $1.6 million of real estate loans to a single borrower. These loans were charged down by $103,000 to the current appraised value of the collateral. While management expects non-performing loans and net charge-offs to continue to exhibit volatility, it does not presently foresee any adverse trends in its asset quality which would materially affect its future results of operations or financial condition. The Company generally places 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. Foreclosed assets held for sale and repossessions are generally written down to estimated market 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. 12 The following table presents information concerning nonperforming assets, including nonaccrual and restructured loans and foreclosed assets held for sale. NONPERFORMING ASSETS
MARCH 31, DECEMBER 31, ------------------------------- ---------------- 1999 1998 1998 --------- --------- ---------------- (Dollars in thousands) Nonaccrual loans.......................................... $4,126 $1,583 $2,708 Accruing loans 90 days or more past due................... 30 49 21 Restructured loans........................................ - - - ------ ------ ------ Total nonperforming loans...................... 4,156 1,632 2,729 Foreclosed assets held for sale and repossessions......... 855 77 314 ------ ------ ------ Total nonperforming assets..................... $5,011 $1,709 $3,043 ====== ====== ====== Nonperforming loans to total loans........................ 1.04% 0.54% 0.70% Nonperforming assets to total assets...................... 0.75 0.40 0.50
ALLOWANCE AND PROVISION FOR LOAN LOSSES Allowance for Loan Losses: The following table shows an analysis of the allowance for loan losses for the three month periods ended March 31, 1999 and 1998 and the year ended December 31, 1998. ALLOWANCE FOR LOAN LOSSES
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, DECEMBER 31, ------------------------------------ ------------------- 1999 1998 1998 ----------- ----------- ------------------- (Dollars in thousands) Balance, beginning of period...................................... $ 4,689 $ 3,737 $ 3,737 Loans charged off: Real estate.................................................... 237 11 93 Consumer....................................................... 180 93 633 Commercial and industrial...................................... 79 42 423 Agricultural (non-real estate)................................. 4 - - ------- ------- ------- Total loans charged off..................................... 500 146 1,149 ------- ------- ------- Recoveries of loans previously charged off: Real estate.................................................... - - 9 Consumer....................................................... 49 5 55 Commercial and industrial...................................... 1 1 11 Agricultural (non-real estate)................................. - - - ------- ------- ------- Total recoveries............................................ 50 6 75 ------- ------- ------- Net loans charged off............................................. 450 140 1,074 Provision charged to operating expense............................ 611 225 2,026 ------- ------- ------- Balance, end of period............................................ $ 4,850 $ 3,822 $ 4,689 ======= ======= ======= Net charge-offs to average loans outstanding during the periods indicated.......................................... 0.46%/(1)/ 0.20%/(1)/ 0.33% Allowance for loan losses to total loans.......................... 1.21 1.28 1.21 Allowance for loan losses to nonperforming loans.................. 116.70 234.19 171.82
(1) Annualized 13 The amounts of provision to the allowance for loan losses are based on management's judgment and 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 (1) an internal grading system, (2) a peer group analysis, and (3) a historical analysis. In addition to this objective criteria, 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. The Company's allowance for loan losses increased to $4,850,000 at March 31, 1999, or 1.21% of total loans, compared with $4,689,000, or 1.21% of total loans, at December 31, 1998. While management believes the current allowance is adequate, changing economic and other conditions may require future adjustments to the allowance for loan losses. For the first three months of 1999, the annualized net charge-off ratio was 0.46% of average outstanding loans compared with 0.33% for the year of 1998 and 0.20% annualized for the first three months of 1998. The Company's net charge- off ratio for the first quarter of 1999 was impacted by charge-offs taken on real estate loans totaling $1.6 million to a single borrower. Such loans were written down by $103,000 during the quarter to the current appraised value of the collateral. Provision for Loan Losses: The loan loss provision reflects management's ongoing assessment of the loan portfolio and is evaluated in light of risk factors mentioned above. The provision for loan losses was $611,000 for the three months ended March 31, 1999, compared to $225,000 for the same three months in 1998. INVESTMENT 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 table below presents the amortized cost and the fair value of investment securities for each of the dates indicated. INVESTMENT SECURITIES
MARCH 31, MARCH 31, DECEMBER 31, 1999 1998 1998 ----------------------- ------------------------- ---------------------- AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR COST VALUE/(1)/ COST VALUE/(1)/ COST VALUE/(1)/ ----------------------- ------------------------- ---------------------- (Dollars in thousands) Securities of U.S. Government agencies......................... $167,290 $165,151 $43,079 $43,044 $156,351 $156,331 Mortgage-backed securities............ 257 254 7,189 7,295 2,107 2,117 Obligations of states and political subdivisions..................... 43,836 44,167 17,765 17,777 14,742 14,884 Other securities...................... 3,329 3,390 2,068 2,068 3,286 3,347 -------- -------- ------- ------- -------- -------- Total.......... $214,712 $212,962 $70,101 $70,184 $176,486 $176,679 ======== ======== ======= ======= ======== ========
(1) The fair value of the Company's financial instruments is based on quoted market prices where available. If quoted market prices are not available, fair values are based on market prices for comparable securities. LIQUIDITY AND CAPITAL RESOURCES Line of Credit. The Company maintains a revolving line of credit for up to $22 million with a correspondent bank. Interest accrues on all outstanding borrowings due under the line of credit at a variable rate equal to the average prime lending rate reported from time to time by the Wall Street Journal minus 1.25%, provided, however, the rate is not to exceed 7.75%. Interest is payable quarterly. The line of credit is effective through March 31, 2003 subject to an annual compliance review by the lender. No standby or unused commitment fees are payable by the Company under the line of credit. All borrowings under the line of credit are secured by a pledge of 100% of the Company's stock in each of Bank of the Ozarks, wca and Bank of the Ozarks, nwa. As of March 31, 1999 $13.1 million was outstanding under the line of credit. 14 The line of credit requires the Company's bank subsidiaries, Bank of the Ozarks, wca and Bank of the Ozarks, nwa, to maintain (1) a return on average assets for each calendar year equal to at least 1.0%, (2) a ratio of capital, as defined in the line of credit, to assets at levels acceptable to bank regulatory authorities but at least 7.0% at each calendar year end, and (3) net charges to the reserve for loan losses at less than 1.0% of net loans during any calendar year. In addition, the line of credit requires that the parent Company's aggregate indebtedness not exceed 60.0% of the Company's tangible net worth through March 31, 1999, reducing 5% a year thereafter and that borrowings under the line of credit not exceed 50.0% of the tangible book value of all subsidiary bank stock pledged to secure such borrowings. At March 31, 1999 the Company was in compliance with these requirements. Growth and Expansion. During the first quarter of 1999, the Company opened its first branch in North Little Rock. The Company also continued construction of its third Harrison area branch and expects to open this facility during the second quarter of 1999. Regulatory approval has been obtained to construct a branch in Clinton, Arkansas and construction is expected to begin in the second quarter of 1999. The Company is negotiating to lease a site in North Little Rock on which to construct a second branch in that city. 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. The Company has used these funds, together with FHLB and other borrowings, to make loans, acquire investment securities and other assets and to fund continuing operations. Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions. Loan repayments are a relatively stable source of funds, but such loans generally are not readily convertible to cash. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet loan and 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 line of credit described above. At March 31, 1999, the Company's bank subsidiaries had an aggregate of $58.6 million of unused blanket FHLB borrowing availability. Additionally at March 31, 1999 the bank subsidiaries had available substantial federal funds lines of credit. 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 line of credit) will be used to augment the Company's primary funding sources. Year 2000 Liquidity Needs. The Company may experience additional liquidity needs in connection with increased deposit withdrawals due to customer concerns over the Year 2000 issue. The Board of Directors has adopted a Contingency Funding Plan to guide management in handling unusual liquidity needs. In preparing for possible increased Year 2000 liquidity demands, management is taking several actions including: (1) modification of the pricing and terms of certain time deposit products to encourage depositors to accept maturities after year-end, (2) developing plans to place collateral with various sources of secondary liquidity to facilitate short-term borrowing, and (3) developing plans to have additional cash available at the branches and ATMs of the bank subsidiaries during the latter part of the year. Although management believes these and other actions will prepare the Company for this potential liquidity need, there can be no assurance these steps will be adequate. 15 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 (1) Tier 1 capital (i.e. common stockholders' equity excluding goodwill, certain intangibles and net unrealized gains on available for sale securities, but including certain other qualifying items) to total risk-weighted assets and (2) 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 quarterly average assets. The Company's risk-based and leverage capital ratios exceeded these minimum requirements at March 31, 1999, and December 31, 1998, and are presented below, followed by the capital ratios of each of the Company's bank subsidiaries at March 31, 1999. CONSOLIDATED CAPITAL RATIOS
MARCH 31, DECEMBER 31, 1999 1998 ------------ -------------- (Dollars in thousands) Tier 1 capital: Stockholders' equity................................................ $ 41,630 $ 40,355 Less net unrealized gains on available for sale securities.......... (208) (81) Less goodwill and certain intangible assets......................... (3,478) (3,623) ------------ -------------- Total Tier 1 capital................................ $ 37,944 $ 36,651 ============ ============== Tier 2 capital: Qualifying allowance for loan losses................................. 4,850 4,689 ------------ -------------- Total risk-based capital............................ $ 42,794 $ 41,340 ============ ============== Risk-weighted assets........................................................ $426,644 $404,879 ============ ============== Ratios at end of period: Leverage............................................................. 5.95% 6.21% Tier 1 risk-based capital............................................ 8.89 9.05 Total risk-based capital............................................. 10.03 10.21 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
MARCH 31, 1999 --------------------------------------------- BANK OF THE BANK OF THE OZARKS, WCA OZARKS, NWA ------------------ ----------------- (Dollars in thousands) Stockholders' equity - Tier 1....................... $39,036 $11,579 Leverage ratio...................................... 8.17% 7.25% Risk-based capital ratios: Tier 1...................................... 12.22% 11.06% Total capital............................... 13.38 12.16
(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. 16 YEAR 2000 The Year 2000 issue relates to the ability of the Company's computer and other systems with imbedded microchips to properly handle Year 2000 date sensitive data and the potential risk to the Company because of relationships with third parties (e.g. software and hardware vendors, loan customers, correspondent banks, utility companies 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. In late 1997 the Company established a Year 2000 Project Committee to evaluate and assess the Company's exposure to this issue. This Committee has implemented an approach to the Year 2000 issue consisting of four phases. These phases include awareness, assessment, renovation and testing. The awareness phase consisted of defining the Year 2000 problem, developing the resources necessary to perform compliance work, establishing a Year 2000 program committee and program coordinator and developing an overall strategy that encompasses in-house systems, service bureaus, vendors, auditors, customers and suppliers (including correspondents). This phase has been completed. The assessment phase consists of evaluating the size and complexity of the problem and detailing the magnitude of the effort necessary to address the Year 2000 issue. The objective of this phase is to identify all hardware, software, networks, automated teller machines, other various processing platforms, and customer and vendor interdependencies affected by the Year 2000 date change. The assessment phase goes beyond the Company's information systems and includes environmental systems that are dependent on embedded microchips, such as security systems, elevators, sprinkler systems, alarms and vaults. The assessment phase is substantially completed, but is considered an ongoing process for the Company. The renovation phase includes the remediation of any systems identified in the awareness phase as not Year 2000 compliant. The replacement of a proof/capture system was expedited due to lack of Year 2000 compliance earlier in 1998. Also the need for minor upgrades to several proof machines were identified and have been completed. Environmental systems including vault doors, security systems, elevators, sprinkler systems and alarms have been evaluated and assurances from vendors have been received regarding their Year 2000 compliance. The renovation phase is essentially complete with all identified problem areas having been addressed. The Company is well into its testing phase with the primary focus being on the core software that runs basic bank services including the following applications: checking, savings, time deposits, individual retirement accounts, loans, safe deposit box and general ledger accounting. Complete testing of mission critical systems was substantially complete as of December 31, 1998. Further testing with mission critical vendors and other significant third party vendors will continue and is expected to be completed by June 30, 1999. The Company has not identified any problems thus far with any of its systems that would have a material adverse impact upon its operations. The Company incurred expenses throughout 1996, 1997, 1998 and in the first quarter of 1999 related to this project and will continue to incur expenses over the next nine months. The Company currently estimates that the cost to remediate both its Year 2000 hardware and software issues to be less than $130,000 with approximately 85% of the costs having already been expended through March 31, 1999. A significant portion of total Year 2000 project expenses is represented by existing staff that have been redeployed to this project. The Company does not believe that the redeployment of existing staff will have a material adverse effect on its business, results of operations or financial position nor have any projects under consideration by the Company been deferred because of Year 2000. Incremental expenses related to the Year 2000 project are not expected to materially impact operating results in any one period. The impact of Year 2000 issues on the Company will depend not only on corrective actions that the Company takes, but also on the way in which Year 2000 issues are addressed by governmental agencies, businesses and other third parties that provide services or data to, or receive services or data from, the Company, or whose financial condition or operational capability is important to the Company. To reduce this exposure, the Company has an ongoing process of identifying and contacting mission critical third party vendors and other significant third parties to determine their Year 2000 plans and target dates. Notwithstanding the Company's efforts, there can be no assurance that mission critical third party vendors or other significant third parties will adequately address their Year 2000 issues. 17 The Company has developed contingency plans for implementation in the event that mission critical third party vendors or other significant third parties fail to adequately address Year 2000 issues. Such plans principally involve identifying alternate vendors or internal remediation. There can be no assurance that any such plans will fully mitigate any failures or problems. Furthermore, there may be certain mission critical third parties, such as utilities or telecommunication companies, where alternative arrangements or sources are limited or unavailable. The most reasonably likely worst case scenario would be that the Company may experience disruption in its operations if any of these mission critical third parties experienced system failure. The Company's credit risk associated with borrowers may increase to the extent borrowers fail to adequately address Year 2000 issues. As a result there may be increases in the Company's problem loans and credit losses in future years. The Company is making ongoing efforts to assess the risks associated with loan customers, large depositors and significant employers in the Company's service areas, however, it is not possible to quantify the potential impact of such risks at this time. As remediated and tested systems and other new systems are brought into operation, the Company will need to take steps to avoid the re-introduction of Year 2000 related problems into its systems. This is an ongoing process for the Company because normal operations and other considerations may require that modifications continue to be made to its systems in 1999. To some extent, therefore, all four phases of the Company's project will need to continue throughout 1999 and beyond. The forward-looking statements contained herein with regard to the timing and overall cost estimates of the Company's efforts to address the Year 2000 problem are based upon the Company's experience thus far in this effort. Should the Company encounter unforeseen difficulties either in the continuing review of its computerized systems, their ultimate remediation, or the response of parties with which it does business or from which it obtains services, the actual results could vary significantly from the estimates contained in these forward- looking statements. 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, 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 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: (1) potential delays or other problems in implementing the Company's growth and expansion strategy; (2) the ability to attract new deposits and loans; (3) interest rate fluctuations; (4) competitive factors and pricing pressures; (5) general economic conditions; and (6) changes in legal and regulatory requirements, 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. (The remainder of this page intentionally left blank) 18 SELECTED AND SUPPLEMENTAL FINANCIAL DATA The Company is also providing the selected and supplemental financial data in the tables below. The following table sets forth selected consolidated financial data concerning the Company for the three months ended March 31, 1999 and 1998 and is qualified in its entirety by the consolidated financial statements, including the notes thereto, included elsewhere herein. SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share amounts) Unaudited
THREE MONTHS ENDED MARCH 31, ------------------------------ 1999 1998 -------------- ----------- INCOME STATEMENT DATA: Net interest income...................................... $ 5,309 $ 4,157 Provision for loan losses................................ (611) (225) Non-interest income...................................... 1,269 1,094 Non-interest expense..................................... (3,768) (2,924) Income tax expense....................................... (673) (728) Net income............................................... 1,526 1,374 PER COMMON SHARE DATA: Earnings - diluted....................................... $ 0.40 $ 0.36 Book value............................................... 11.01 9.73 Fully diluted shares outstanding (thousands)............. 3,796 3,821 End of period shares outstanding (thousands) ............ 3,780 3,780 BALANCE SHEET DATA AT PERIOD END: Total assets............................................. $666,921 $422,655 Total loans.............................................. 400,851 299,505 Allowance for loan losses................................ 4,850 3,822 Total investment securities.............................. 215,049 70,252 Total deposits........................................... 581,704 352,312 FHLB advances & fed funds purchased...................... 25,425 25,993 Notes payable............................................ 13,183 5,072 Total stockholders' equity............................... 41,630 36,793 Loan to deposit ratio.................................... 68.91% 85.01% PERFORMANCE RATIOS: Return on average assets*................................ 0.97% 1.46% Return on average stockholders' equity*.................. 15.14 15.41 Net interest margin - FTE*............................... 3.77 4.83 Overhead ratio*.......................................... 2.38 3.10 Efficiency ratio......................................... 55.65 54.93 ASSETS QUALITY RATIOS: Net charge-offs as a percentage of average total loans*.. 0.46% 0.20% Nonperforming loans to total loans....................... 1.04 0.54 Nonperforming assets to total assets..................... 0.75 0.40 ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF: Total loans.............................................. 1.21% 1.28% Nonperforming loans...................................... 116.71 234.19 CAPITAL RATIOS AT PERIOD END: Leverage capital ratio................................... 5.95% 9.08% Tier 1 risk-based capital................................ 8.89 11.65 Total risk-based capital................................. 10.03 12.90 *Annualized based on actual days
19 BANK OF THE OZARKS, INC. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (Dollars in thousands, except per share amounts) Unaudited
FOR THE QUARTER ENDED ----------------------------------------------------------------------------------------------------- 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 ----------- --------- --------- --------- --------- --------- ---------- --------- EARNINGS SUMMARY: - ----------------- Net interest income $ 3,419 $ 3,703 $ 4,251 $ 4,157 $ 4,430 $ 4,641 $ 5,136 $ 5,309 Federal tax equivalent adjustment 28 32 56 72 158 156 56 193 ----------- --------- --------- --------- --------- --------- ---------- --------- Net interest margin - FTE 3,447 3,735 4,307 4,229 4,588 4,797 5,192 5,502 Loan loss provision (265) (150) (465) (225) (255) (742) (804) (611) Non-interest income 641 662 880 1,094 1,152 1,333 1,452 1,269 Non-interest expense (2,219) (2,316) (2,588) (2,924) (3,329) (3,267) (3,599) (3,768) ----------- --------- --------- --------- --------- --------- ---------- --------- Pretax income - FTE 1,604 1,931 2,134 2,174 2,156 2,121 2,241 2,392 FTE adjustment (28) (32) (56) (72) (158) (156) (56) (193) Provision for taxes (572) (698) (709) (728) (611) (544) (738) (673) ----------- --------- --------- --------- --------- --------- ---------- --------- Net income $ 1,004 $ 1,201 $ 1,369 $ 1,374 $ 1,387 $ 1,421 $ 1,447 $ 1,526 =========== ========= ========= ========= ========= ========= ========== ========= Earnings per share - diluted $ 0.35 $ 0.34 $ 0.36 $ 0.36 $ 0.36 $ 0.37 $ 0.38 $ 0.40 NON-INTEREST INCOME DETAIL: - --------------------------- Trust income $ 78 $ 39 $ 98 $ 78 $ 99 $ 62 $ 96 $ 128 Service charges on deposit accounts 242 242 263 281 326 366 399 502 Mortgage lending income 156 156 199 395 423 570 748 449 Gain (loss) on sale of assets (17) 30 138 88 12 6 6 (5) Security gains 4 - - 51 74 130 - 25 Other 178 195 182 201 218 199 203 170 ----------- --------- --------- --------- --------- --------- ---------- --------- Total non-interest income $ 641 $ 662 $ 880 $ 1,094 $ 1,152 $ 1,333 $ 1,452 $ 1,269 NON-INTEREST EXPENSE DETAIL: - ---------------------------- Salaries and employee benefits $ 1,283 $ 1,301 $ 1,502 $ 1,677 $ 1,955 $ 1,651 $ 1,913 $ 2,000 Net occupancy expense 293 341 386 426 453 529 553 636 Other operating expenses 643 674 700 821 921 1,087 1,133 1,132 ----------- --------- --------- --------- --------- --------- ---------- --------- Total non-interest expense $ 2,219 $ 2,316 $ 2,588 $ 2,924 $ 3,329 $ 3,267 $ 3,599 $ 3,768 ALLOWANCE FOR LOAN LOSSES: - -------------------------- Balance beginning of period $ 3,240 $ 3,462 $ 3,535 $ 3,737 $ 3,822 $ 3,853 $ 4,392 $ 4,689 Net charge offs (43) (77) (263) (140) (224) (203) (507) (450) Loan loss provision 265 150 465 225 255 742 804 611 ----------- --------- --------- --------- --------- --------- ---------- --------- Balance at end of period $ 3,462 $ 3,535 $ 3,737 $ 3,822 $ 3,853 $ 4,392 $ 4,689 $ 4,850 SELECTED RATIOS: - ---------------- Net interest margin - FTE 4.91% 4.82% 5.27% 4.83% 4.50% 3.93% 3.77% 3.77% Overhead expense ratio* 2.95 2.78 2.95 3.10 3.01 2.46 2.41 2.38 Efficiency ratio 54.27 52.67 49.89 54.93 58.00 53.30 54.17 55.65 Non-performing loans to total loans 0.75 0.75 0.25 0.54 0.55 0.65 0.70 1.04 Non-performing assets to total assets 0.63 0.62 0.24 0.40 0.45 0.45 0.50 0.75
*Annualized 20 PART I (continued) Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's interest rate risk management is the responsibility of the Asset/Liability Management Committee, which reports to the Board of Directors. This committee establishes policies that monitor and coordinate 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 reviews on at least a quarterly basis the bank subsidiaries' relative ratio of rate sensitive assets to rate sensitive liabilities and the related cumulative gap for different time periods. Additionally the committee and management review other alternative interest rate risk measures and models in assessing the Company's interest rate sensitivity. Using a simple GAP analysis as shown in the following table, at March 31, 1999, the cumulative ratios of rate sensitive assets to rate sensitive liabilities at six months and one year were 54.1% and 53.8%, respectively. 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. 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. Due to inherent limitations in any static GAP analysis and since conditions change on a daily basis, these conclusions may not reflect future results.
RATE SENSITIVE ASSETS AND LIABILITIES MARCH 31, 1999 RATE RATE CUMULATIVE CUMULATIVE SENSITIVE SENSITIVE PERIOD CUMULATIVE GAP TO RSA/(1)/ TO ASSETS LIABILITIES GAP GAP TOTAL RSA/(1)/ RSL/(2)/ --------- ----------- ----------- ---------- -------------- ----------- (Dollars in thousands) Floating rate............. $ 37,941 $ 56,016 $(18,075) $ (18,075) (2.92)% 67.73% Fixed rate repricing in: 1 month............... 52,283 81,370 (29,087) (47,162) (7.63) 65.67 2 month............... 21,686 43,832 (22,146) (69,308) (11.21) 61.75 3 month............... 20,196 43,344 (23,148) (92,456) (14.95) 58.83 4 month............... 16,168 32,675 (16,507) (108,963) (17.62) 57.64 5 month............... 14,415 33,544 (19,129) (128,092) (20.72) 55.95 6 month............... 14,526 36,650 (22,124) (150,216) (24.30) 54.12 6 months - 1 year..... 66,870 126,706 (59,836) (210,052) (33.97) 53.75 1--2 years............ 75,372 53,942 21,430 (188,622) (30.51) 62.88 2--3 years............ 48,262 14,714 33,548 (155,074) (25.08) 70.34 3--4 years............ 31,273 23,665 7,608 (147,466) (23.85) 73.01 4--5 years............ 9,200 2,727 6,473 (140,993) (22.80) 74.33 Over 5 years.......... 210,073 16,971 193,102 52,109 8.43 109.20 ======== ======== ======== Total.............. $618,265 $566,156 $ 52,109 ======== ======== ========
(1) Rate Sensitive Assets (2) Rate Sensitive Liabilities The data used in the table above is based on contractural repricing dates rather than maturities. This simple GAP analysis gives no consideration to a number of factors which can have a material impact on the Company's interest rate risk position. Such factors include call features on certain assets and liabilities, prepayments, interest rate floors and caps on various assets and liabilities, the current interest rates on assets and liabilities to be repriced in each period, and the relative changes in interest rates on different types of assets and liabilities. 21 The Company also utilizes an earnings change ratio analysis, which it believes is a more accurate analysis of interest rate sensitivity because it measures not only the volume of assets and liabilities being repriced but also the expected relative change in interest rates on the different types of assets and liabilities. This analysis applies coefficients to the various types of assets and liabilities in order to estimate the relative rates of change expected. As of March 31, 1999 this model reflected a one-year ratio of rate sensitive assets to rate sensitive liabilities of 67.1%. The earnings change ratio analysis is subject to a number of limitations, including the other limitations discussed above. The following table provides in tabular form the March 31, 1999 contractual balances of the Company's financial instruments at the expected maturity for the twelve month periods beginning March 31, 1999. Fixed and variable rate categories are based upon expected amortization or contractual maturity dates. The Company considers assets and liabilities that do not have a stated maturity date, as in cash equivalents and certain deposits, to be long term in nature and reports them 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 FTE as of March 31, 1999.
EXPECTED MATURITY DATE OF FINANCIAL INSTRUMENTS MARCH 31, --------------------------------------------------------- 2000 2001 2002 2003 2004 Thereafter Total -------- -------- -------- -------- -------- ---------- -------- (Dollars in thousands) FINANCIAL ASSETS: Cash and due from banks $ - $ - $ - $ - $ - $ 13,260 $ 13,260 Interest-bearing deposits 184 - - - - - 184 Weighted avg. interest rate 5.00% - - - - - 5.00% Federal funds sold 2,180 - - - - - 2,180 Weighted avg. interest rate 4.92% - - - - - 4.92% Securities-available for sale: US Govt. agencies - - - - - 163 163 Weighted avg. interest rate - - - - 6.04% 6.04% Mortgage-backed securities: Fixed rate - - - - - 90 90 Weighted avg. interest rate - - - - - 5.58% 5.58% Variable rate - - - - - - - Weighted avg. interest rate - - - - - - - State and political subdivision obligations: Fixed Rate 769 1,661 1,795 1,759 1,909 33,341 41,235 Weighted avg. int. rate - FTE 5.48% 5.45% 5.53% 5.64% 5.71% 6.45% 6.32% Equity securities - - - - - 136 136 Dividend yields - - - - - - - FHLB stock - - - - - 3,154 3,154 Dividend yield - - - - - 5.50% 5.50% Securities - held to maturity US Govt. agencies - - - - - 167,291 167,291 Weighted avg. interest rate - - - - - 6.52% 6.52% State and political subdivision obligations Fixed Rate 73 84 95 81 88 1,383 1,804 Weighted avg. int. rate - FTE 7.27% 7.80% 7.98% 7.27% 7.27% 7.53% 7.53% Variable Rate 70 73 83 91 100 658 1,076 Weighted avg. int. rate - FTE 9.98% 9.98% 9.98% 9.98% 9.98% 9.98% 9.98% Other securities - - - - - 100 100 Weighted avg. interest rate - - - - - 7.60% 7.60%
22
EXPECTED MATURITY DATE OF FINANCIAL INSTRUMENTS (CONTINUED) MARCH 31, -------------------------------------------------------- 2000 2001 2002 2003 2004 Thereafter Total -------- -------- -------- -------- -------- ---------- -------- (Dollars in thousands) Loans held for sale-fixed rate 5,204 - - - - - 5,204 Weighted avg. interest rate 7.62% - - - - - 7.62% Loans held for sale-var. rate - - - - - - - Weighted avg. interest rate - - - - - - - Loans: Loans - fixed 110,610 57,722 63,858 41,868 62,499 26,097 362,654 Weighted avg. interest rate 9.04% 9.08% 9.06% 9.03% 8.93% 8.09% 9.06% Loans - variable 7,803 1,078 290 3,411 670 19,741 32,993 Weighted avg. interest rate 8.36% 8.40% 8.40% 8.31% 8.27% 8.64% 8.52% Interest receivable - - - - - 6,288 6,288 FINANCIAL LIABILITIES: Deposits Demand deposits $ - $ - $ - $ - $ - $ 56,280 $ 56,280 NOW accounts - - - - - 51,184 51,184 Weighted avg. interest rate - - - - - 1.40% 1.40% Money market accounts - - - - - 38,273 38,273 Weighted avg. interest rate - - - - - 3.53% 3.53% Regular savings - - - - - 15,439 15,439 Weighted avg. interest rate - - - - - 2.00% 2.00% Time deposits Fixed rate 375,604 34,259 4,881 1,669 592 980 417,986 Weighted avg. interest rate 5.06% 5.17% 5.62% 6.05% 5.53% 5.79% 5.08% Variable rate 1,647 896 - - - - 2,544 Weighted avg. interest rate 4.31% 4.32% - - - - 4.31% Repurchase agreements 2,124 - - - - - 2,124 Weighted avg. interest rate 3.95% - - - - - 3.95% FHLB advances - long term 2,700 2,145 4,198 198 198 15,988 25,425 Weighted avg. interest rate 6.47% 5.77% 5.95% 6.30% 6.30% 4.82% 5.28% Federal funds purchased - - - - - - - Weighted avg. interest rate - - - - - - - Notes Payable 24 24 - 13,075 30 30 13,183 Weighted avg. interest rate 6.00% 6.00% - 6.50% 7.00% 7.00% 6.50% Interest payable - - - - - 1,909 1,909
(The remainder of this page intentionally left blank) 23 PART II Other Information Item 1. LEGAL PROCEEDINGS ----------------- Not Applicable Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ----------------------------------------- Not Applicable Item 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Not Applicable Item 5. OTHER MATTERS ------------- Not Applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a). Exhibits Reference is made to the Exhibit Index contained at the end of this report. (b). Reports on Form 8-K Not Applicable (The remainder of this page intentionally left blank) 24 SIGNATURE Pursuant to the requirements of the Securities and 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. DATE: May 12, 1999 /s/ Paul E. Moore ------------------- Paul E. Moore Chief Financial Officer (Chief Accounting Officer) 25 Bank of the Ozarks, Inc. Exhibit Index Exhibit Number - ------ 3 (a) Amended and Restated Articles of Incorporation of the Company, effective May 22, 1997, (previously filed as Exhibit 3.1 to the Company's Form S-1 Registration Statement (File No. 333-27641) and incorporated herein by reference). 3 (b) Amended and Restated Bylaws of the Company, dated as of March 13, 1997, (previously filed as Exhibit 3.2 to the Company's Form S-1 Registration Statement (File No. 333-27641) and incorporated herein by reference). 27 Financial Data Schedule for the period ended March 31, 1999 (attached). 26 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED BY REFERENCE IN QUARTERLY REPORT 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 13,260 184 2,180 0 44,778 170,271 168,183 400,851 4,850 666,921 581,704 5,022 2,855 35,711 0 0 38 41,592 666,921 8,617 3,105 8 11,730 5,717 6,421 5,309 611 25 3,768 2,199 2,199 0 0 1,526 .40 .40 3.77 4,126 21 0 2,894 4,689 500 50 4,850 4,850 0 0
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