-----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, MNEOWAqWJ9tfi6WBny9XYhNd/sJhekyph4ADa8PqQf31wBljkGNR75ffjoKC9QRu jfVhVydxAHrSyjtX7s5u1A== 0000930661-01-000640.txt : 20010323 0000930661-01-000640.hdr.sgml : 20010323 ACCESSION NUMBER: 0000930661-01-000640 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010322 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: 1576320 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-K 1 0001.txt 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, 2000 ( ) 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, P. O. BOX 8811, LITTLE ROCK, ARKANSAS 72231-8811 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 978-2265 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: $28,672,909 (based upon the average bid and asked prices quoted on the Nasdaq National Market on March 1, 2001). 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 1, 2001 - --------------------------------------- -------------------------------- 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, 2000 and the Proxy Statement for its 2001 annual meeting. BANK OF THE OZARKS, INC. FORM 10-K December 31, 2000
INDEX PART I. Financial Information Page ---- Item 1. Business 1 Item 2. Properties 12 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 PART II. Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 13 Item 6. Selected Financial Data 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 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 14 PART III. Item 10. Directors and Executive Officers of the Registrant 14 Item 11. Executive Compensation 14 Item 12. Security Ownership of Certain Beneficial Owners and Management 14 Item 13. Certain Relationships and Related Transactions 15 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15 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 a state chartered subsidiary bank, Bank of the Ozarks, which conducts banking operations through 24 offices in 17 communities throughout northern, western and central Arkansas. The Company also owns Ozark Capital Trust, a Delaware business trust. At December 31, 2000 the Company had total assets of $827 million, total loans of $511 million and total deposits of $678 million. The Company provides a wide range of retail and commercial banking services. Deposit services include checking, savings, money market, time deposit and individual retirement accounts. Loan services include various types of real estate, consumer, commercial, industrial and agricultural loans. The Company also provides mortgage lending, cash management, trust services, safety deposit boxes, real estate appraisals, credit related life and disability insurance, ATMs, telephone banking, internet banking and debit cards. 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 nineteen new offices in northern, western and central Arkansas. In 2000 the Company slowed its expansion opening only one office in Yellville, Arkansas. The Company's de novo branching strategy initially focused on opening branches in smaller communities throughout its market area. During the period from 1994 through 1997 the Company opened a total of nine additional full service offices including new offices in Marshall, Van Buren, Mulberry, Alma, Paris, Bellefonte, Harrison and two offices in Clarksville, Arkansas. In 1998 the Company added a new element to its growth strategy by significantly expanding into two of Arkansas' largest metropolitan markets - Little Rock/North Little Rock and Fort Smith. The Company originally entered the Little Rock market in 1995, when it opened its corporate headquarters and a small commercial lending office. In 1996 the Company opened a residential mortgage lending office. In February 1998 the Company began full service banking operations in Little Rock with the acquisition of a small savings and loan with $9.4 million in deposits. In 1998 the Company also opened three more Little Rock offices, including its new corporate headquarters which houses a full-service banking center, corporate offices, mortgage lending center and full service trust operations. In 1999 the Company opened two offices in North Little Rock, Arkansas. The Company began a major expansion in a second metropolitan market in September 1998 with the opening of a banking center in Fort Smith. The Company plans to continue its expansion in and around these metropolitan markets. During the first half of 2001, the Company expects to open two previously announced branches in the Otter Creek area of Little Rock (its fifth Little Rock office) and on Zero Street in Fort Smith (its second Fort Smith office). During the first quarter of 2001, the Company was given the opportunity to open a branch in the new Wal-Mart Supercenter being constructed in Bryant, Arkansas near Little Rock. The Company promptly received regulatory approval for this branch which is expected to open around the end of the first quarter of 2001. The Company expects to construct or acquire additional branches in 2001 and future years as desirable opportunities become available. 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 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 offices. 1 Real Estate Loans. The Company's portfolio of real estate loans includes loans secured by residential 1-4 family, non-farm non-residential, agricultural, construction and land development, and multifamily residential (five or more) properties. Residential 1-4 family loans comprise the largest portion of the Company's real estate loans. Non-farm non-residential loans include those secured by real estate mortgages on owner occupied commercial buildings of various types, leased commercial buildings, medical and nursing facilities, underdeveloped raw land for commercial purposes, and other business and industrial properties. Agricultural real estate loans include loans secured by farmland and related improvements including loans guaranteed by the Farm Service Agency. Agricultural real estate loans also include loans to individuals which would normally be characterized as residential 1-4 family loans but for the fact that the individual borrowers are primarily engaged in the production of timber, poultry, livestock or crops. 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. Residential 1-4 family 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 residential 1-4 family, 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. Proceeds from such loans are used to, among other things, fund the purchase of automobiles, household appliances, furniture, trailers, boats, mobile homes and for other similar purposes. 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 higher yielding interest rates. 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 financing), 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 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. 2 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 or crops. The Company's agricultural (non-real estate) loans are generally secured by farm machinery, livestock, crops, vehicles or other agri-related collateral. A portion of the Company's portfolio of agricultural (non-real estate) loans are loans to individuals which would normally be characterized as consumer loans but for the fact that the individual borrowers are primarily engaged in the production of timber, poultry, livestock or crops. 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 time deposits. 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 government agency or other securities. The Company's deposits come primarily from within the Company's trade area. As of December 31, 2000 the Company had $1.6 million "brokered deposits," defined as deposits which, to the knowledge of management of the Company, have been placed with the bank subsidiary by a person who acts as a broker in placing such deposits on behalf of others. Other Banking Services Trust Services. Prior to 1999 the Company provided trust services from its Ozark, Arkansas office. As the Company expanded into larger markets, it identified a need to expand the capabilities and services of this department. In 1998 the Company assembled a team of experienced trust officers at its main office in Little Rock to handle personal trusts, corporate trusts, employee benefit accounts and trust operations. In late 1998 this team commenced operations in Little Rock and the Ozark trust operations were consolidated into that office. In 1999 and 2000 revenue from trust services continued to grow as this team began to develop increased business from the expanded trust operations. As of December 31, 2000 total trust assets under management were $114.5 million compared to $99.4 million as of December 31, 1999. Cash Management Services. In 1998 the Company introduced cash management products which are designed to provide a high level of specialized support to the treasury operations of business customers. In 2000 the Company continued to build its cash management products and added new commercial account customers. Cash management has four basic functions: deposit handling, funds concentration, funds disbursement and information reporting. The Company's cash management services include automated clearing house services (e.g., direct deposit, direct debit and electronic cash concentration and disbursement), zero balance accounts, current and prior day transaction reporting, wholesale lockbox services, automated credit line transfer and account analysis. The Company expects to continue to increase the number of customers to which it provides such services. Mortgage Lending. In 1996 the Company expanded its residential mortgage product line by offering long-term fixed and variable rate loans to be sold on a servicing released basis in the secondary market. The Company originates such loans through its Little Rock, Fort Smith and Harrison offices. In 2000 rising rates impacted the volume of mortgage loans being refinanced and the volume of loans on home purchases resulting in a substantial decline in the Company's mortgage loan originations and mortgage lending income. Loan originations dropped from $83.0 million in 1999 to $51.1 million in 2000. Although this business is cyclical, it will continue to be an important component of non-interest income. Internet Banking. In 2000 the Company launched an On-Line Banking service providing complete banking service over the Internet for both business customers and consumers. Through this service individuals can access their account information, pay bills, transfer funds, reorder checks, change addresses and issue stop payment requests electronically. Businesses are offered more advanced features that allow them to take care of most cash management functions electronically and gives them better access to their account information on a more timely basis. One thousand individuals signed up for the service in the first 82 days and by year-end over 8% of the Company's personal checking households were enrolled to do business on-line. The introduction of On-Line Banking has also increased activity on the Company's website www.bankozarks.com, ------------------ which has seen a nine-fold increase in visitors to the site since the introduction of the new service in May. 3 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 service firms. 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, convenient local branches, active community involvement and competitive products and pricing. Employees At December 31, 2000 the Company employed 292 full-time equivalent employees. None of the employees were represented by any union or similar group. The Company has not experienced any labor disputes or strikes arising from any organized labor groups. The Company believes its employee relations are good. Executive Officers of Registrant The following is a list of the executive officers of the Company: George Gleason, age 47, Chairman and Chief Executive Officer. Mr. Gleason has served the Company or its bank subsidiary as Chairman, Chief Executive Officer and/or President since 1979. He holds a B.A. in Business and Economics from Hendrix College and a J.D. from the University of Arkansas. Mark Ross, age 45, President. Mr. Ross has served as President since 1986 and in various capacities for the bank subsidiary since 1980. He was elected as a director of the Company in 1992. Mr. Ross holds a B.A. in Business Administration from Hendrix College. Paul Moore, age 54, Chief Financial Officer since 1995. From December 1989 to 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. He is a C.P.A. and received a B.S.B.A. in Banking, Finance and Accounting from the University of Arkansas. Danny Criner, age 46, President of the bank subsidiary's northern division since 1990. Mr. Criner received a B.S.B.A. in Banking and Finance from the University of Arkansas. C. E. Dougan, age 54, President of the bank subsidiary's western division since November 2000. Prior to that time Mr. Dougan served as a director of the Company since February 1997. Mr. Dougan is co-owner of Mooney-Dougan, Inc., specializing in residential real estate development, construction and investments. Prior to 1997 Mr. Dougan, who has 28 years of banking experience, served 12 years as president and chief executive officer of Mercantile Bank of Crawford County, (formerly Peoples Bank & Trust Company of Van Buren and First National Bank of Crawford County). Jean Arehart, age 60, President of the bank subsidiary's mortgage division since November 2000. She joined Bank of the Ozarks as Senior Vice President in 1996 and was named an Executive Vice President in May 1997. In May 1999 Ms. Arehart resigned employment with the Company but returned to employment in January 2000. Prior to 1996 Ms. Arehart served as Senior Vice President and a member of the Executive Committee of Twin City Bank (formerly Mercantile Bank of Arkansas, now Firstar Bank of Arkansas), where she worked from 1979 to February 1996. 4 Darrel Russell, age 47, Executive Vice President of the bank subsidiary since May 1997. From 1992 to 1997 Mr. Russell served as Senior Vice President of the bank subsidiary. He received a B.S.B.A. in Banking and Finance from the University of Arkansas. Susan Sisk Grobmyer, age 52, Executive Vice President of the bank subsidiary since May 1997. Ms. Grobmyer joined the bank subsidiary in March 1997 as Senior Vice President. She previously served as a Senior Vice President of Commercial Loans for Pulaski Bank from 1995 to 1997 and Twin City Bank (formerly Mercantile Bank of Arkansas, now Firstar Bank of Arkansas) from 1978 to 1995. Ms. Grobmyer attended the University of Arkansas at Monticello. Randy Oates, age 57, Senior Vice President, Marketing since 1996. From 1992 to 1996 he served as Marketing Director for Commercial National Bank, Shreveport, Louisiana. He received a B.S.B.A. in Marketing from the University of Arkansas. Aubrey Avants*, age 57, Executive Vice President, Trust of the bank subsidiary since June 1998. From 1993 to June 1997 Mr. Avants served as Senior Vice President, Trust Manager for First Bank of Arkansas, Jonesboro, Arkansas, and from June 1997 to June 1998 he served as Senior Vice President, Trust for First Commercial Bank, Memphis, Tennessee. Mr. Avants received an MBA from the University of Tennessee and his undergraduate degree in Finance from the University of Arkansas. Unless otherwise noted, each of the foregoing persons serves in the same position with both the Company and its bank subsidiary. ___________________________ * As of the date of this filing Mr. Avants is an executive officer however effective March 23, 2001 Mr. Avants has resigned his position with the Company. (The remainder of this page intentionally left blank) 5 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 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 bank subsidiary. 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 bank subsidiary is an insured depository institution which is not a member bank of the Federal Reserve System, it is subject to regulation and supervision by the FDIC and is not subject to direct supervision by the FRB. Bank Holding Company Act. The Company is subject to supervision by the FRB under the provisions of the Bank Holding Company Act of 1956, as amended (the "BHCA"). The BHCA restricts the types of activities in which bank holding companies may engage and imposes a range of supervisory requirements on their activities, including regulatory enforcement actions for violations of laws and policies. The BHCA limits the activities of the Company and any companies controlled by it to the activities of banking, managing and controlling 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. These restrictions also apply to any company in which the Company owns 5% or more of the voting securities. Before a bank holding company engages in any bank-related activities, either by acquisition or commencement of de novo operations, it must comply with the FRB's notification and approval procedures. In reviewing these notifications, the FRB considers a number of factors, including the expected benefits to the public versus the risks of possible adverse effects. In general, the potential benefits include greater convenience to the public, increased competition and gains in efficiency, while the potential risks include undue concentration of resources, decreased or unfair competition, conflicts of interest and unsound banking practices. Under the BHCA, a bank holding company must obtain FRB approval before engaging in acquisitions of banks or bank holding companies. In particular, the FRB must generally approve the following actions by a bank holding company: . the acquisition of ownership or control of more than 5% of the voting securities of any bank or bank holding company; . the acquisition of all or substantially all of the assets of a bank; and . the merger or consolidation with another bank holding company. 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. Recent Banking Legislation. On November 12, 1999, the Gramm-Leach- Bliley Act (the "GLBA") was signed into law and it became effective March 11, 2000. Under the GLBA, a bank holding company that elects to become a "financial holding company" will be permitted to engage in any activity that the FRB, in consultation with the Secretary of the Treasury, determines by regulation or order is (i) financial in nature or incidental to such financial activity or (ii) complementary to a 6 financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. In addition to traditional lending activities, the GLBA specifies the following activities as financial in nature: . acting as principal, underwriter, agent or broker for insurance; . underwriting, dealing in or making a market in securities; . merchant banking activities; and . providing financial and investment advice. A bank holding company may become a financial holding company only if all depository institution subsidiaries of the holding company are well- capitalized, well-managed and have at least a satisfactory rating under the Community Reinvestment Act. A financial holding company that falls out of compliance with such requirement may be required to cease engaging in certain activities. National banks are also authorized by the GLBA to engage, through "financial subsidiaries," in any activity that is permissible for a financial holding company, except (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments and (iv) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the bank's outstanding investments in financial subsidiaries). The GLBA provides that state banks, such as the Company's bank subsidiary, may invest in financial subsidiaries that engage as principal in activities that would only be permissible for a national bank to conduct in a financial subsidiary. This authority is generally subject to the same conditions that apply to national bank investments in financial subsidiaries. The GLBA also adopts a number of consumer protections, including provisions intended to protect privacy of bank customers' financial information and provisions requiring disclosure of ATM fees imposed by banks on customers of other banks. The consumer privacy regulation mandated by the GLBA was approved on May 10, 2000. The rule became effective on November 13, 2000, but compliance is optional until July 1, 2001. Under the rule, when establishing a customer relationship, a financial institution must give the consumer information such as when it will disclose nonpublic, personal information to unaffiliated third parties, what type of information it may share and what types of affiliates may receive the information. The institution must also provide customers with annual privacy notices, a reasonable means for preventing the disclosure of information to third parties, and the opportunity to opt out of the disclosure at any time. All of the implementing regulations under the GLBA have not yet been promulgated and the Company cannot predict the full impact of the new legislation and has not yet determined if it will elect to become a financial holding company. As long as the Company has not elected to become a financial holding company, it will remain subject to the current restrictions of the BHCA. 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 preempted barriers that restricted entry into states and created opportunities for expansion into markets that were previously closed. Interstate banking and branching authority (discussed below) is 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 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 7 multistate operations or to acquire new branches. A bank can also establish a new branch as its initial entry into a state if the state has authorized de novo branching. The Arkansas Interstate Act prohibits entry into the state through de novo branching. Deposit Insurance. The FDIC insures the deposits of the Company's bank subsidiary to the extent provided by law. BIF is the primary insurance fund for the bank's deposits, but SAIF insures a portion due to certain acquisitions by the Company of deposits from SAIF-insured institutions. Under the FDIC's risk-based insurance system, depository institutions are currently assessed premiums based upon the institution's capital position and other supervisory factors. BIF and SAIF members currently have the same risk-based assessment schedule, which is 0 to 27 cents per $100 of eligible deposits. Insured depository institutions are further assessed premiums for Financing Corporation Bond debt service ("FICO"). Beginning January 1, 1997, FICO premiums for BIF and SAIF became 1.22 and 6.1 basis points, respectively, per $100 of eligible deposits. For the period July 1, 2000 through December 31, 2000, the Company's bank subsidiary was assessed an average annualized premium of $0.0204 per $100 of BIF-eligible deposits and $0.0204 per $100 of SAIF- eligible deposits. 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 its bank subsidiary. The federal bank regulators use a combination of risk-based guidelines and leverage ratios to evaluate capital adequacy. Under the risk-based capital guidelines, bank regulators assign a risk weight to each category of assets based generally on the perceived credit risk of the asset class. The risk weights are then multiplied by the corresponding asset balances to determine a "risk-weighted" asset base. The minimum ratio of total risk-based capital to risk-weighted assets is 8.0%. At least half of the risk-based capital must consist of Tier 1 capital, which is comprised of common equity, retained earnings and certain types of preferred stock and excludes goodwill and various intangible assets. The remainder, or Tier 2 capital, 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 1 capital and Tier 2 capital is "total risk-based capital." 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 average asset ratio for institutions with the highest regulatory rating of 1. All other institutions must maintain a leverage ratio of 4.0% to 5.0%. For a tabular summary of the Company's and the bank subsidiary's risk-weighted capital and leverage ratios, see "Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources." Bank regulators from time to time consider raising the capital requirements of banking organizations beyond current levels. However, the Company is unable to predict whether higher capital requirements will be imposed and, if so, the amount or timing of such increases. Therefore, the Company cannot predict what effect such higher requirements may have on it or its bank subsidiary. Enforcement Authority. The FRB has enforcement authority over bank holding companies and non-banking subsidiaries to forestall activities that represent unsafe or unsound practices or constitute violations of law. It may exercise these powers by issuing cease-and-desist orders or through other actions. The FRB may also assess civil penalties against companies or individuals who violate the BHCA or related regulations in amounts up to $1 million for each day's violation. The FRB can also require a bank holding company to divest ownership or control of a non-banking subsidiary or require such subsidiary to terminate its non-banking activities. Certain violations may also result in criminal penalties. The FDIC possesses 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 bank subsidiary. In addition, the FDIC can terminate insurance of accounts, after notice and hearing, upon a finding 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. 8 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 December 15, 2000 the FDIC advised the Company that the bank subsidiary 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 bank subsidiary generally undergoes FDIC and state examinations either on a joint basis or in alternating years. Reporting Obligations. As a bank holding company, the Company must file with the FRB an annual report and such additional information as the FRB may require pursuant to the BHCA. The bank subsidiary 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 Company's status 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. The bank subsidiary's loan operations are 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, the Fair Housing Act prohibiting discriminatory practices relative to real estate-related transactions, including the financing of housing and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the bank subsidiary 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, 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, the Truth in Savings Act requiring depository institutions to disclose the terms of deposit accounts to consumers and the Expedited Funds Availability Act requiring financial institutions to make deposited funds available according to specified time schedules and to disclose funds availability policies to consumers. State Regulations The Company and its bank subsidiary are subject to examination and regulation by the Arkansas State Bank Department. Examinations of the bank subsidiary 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 holding company and its bank subsidiary and the effect of those relations. The Arkansas Constitution 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 9 Rate in effect at the time the loan was made. The Arkansas Supreme Court has 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 Arkansas Constitution also provides 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 have historically been preempted by federal law with respect to first residential real estate loans and certain loans guaranteed by the Small Business Administration. Furthermore, the GLBA preempted the application of the Arkansas Constitution's usury limits to the Company's bank subsidiary effective November 12, 1999. Because of the recent enactment of this usury preemption under the GLBA, the lack of clear judicial guidance, and the current competitive marketplace for loans, the Company is unable to predict the impact of this provision on its operations or whether its bank subsidiary will seek to make loans with interest rates in excess of the Arkansas usury limits. The Company is also subject to the Arkansas Bank Holding Company Act of 1983 ("ABHCA") which 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 cannot own more than one bank subsidiary if any of its bank subsidiaries has been chartered for less than 5 years. Effective January 1, 1999 Arkansas law allows the Company to engage in branching activities for its bank subsidiaries on a statewide basis. Immediately prior to that date, the state's branching laws prevented 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. Because the state branching laws did not limit the branching activities of federal savings banks, the Company was able to branch outside of the traditional areas of its state bank subsidiaries through the federal thrift that it acquired in February 1998. In response to the change in state branching laws, the Company merged its thrift charter into its lead state bank subsidiaries in early 1999. Bank Subsidiary The lending and investment authority of the state bank subsidiary is derived from Arkansas law. The lending power is 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 bank subsidiary 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 bank subsidiary can pay the Company to 75% of the 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 bank subsidiary is sharply limited in making extensions of credit to the Company or any non-bank subsidiary, in investing in the stock or other securities of the Company or any non-bank subsidiary, 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 bank subsidiary and the Company (or any nonbank subsidiary) must generally be on terms and under circumstances at least as favorable to the bank subsidiary 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 federal banking laws require all insured banks, including the bank subsidiary, to maintain reserves against their checking and transaction accounts (primarily checking accounts, 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 10 the bank subsidiary's cost of funds. Arkansas law requires state chartered banks to maintain such reserves as are required by the applicable federal regulatory agency. The bank subsidiary is 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 bank subsidiary is also subject to Section 23B of the Federal Reserve Act, which 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 bank subsidiary is subject to restrictions on extensions of credit to executive officers, directors, certain principal stockholders, and their related interests. These extensions of credit (1) 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 (2) must not involve more than the normal risk of repayment or present other unfavorable features. Proposed Legislation For Bank Holding Companies And Banks Certain proposals affecting the banking industry have been discussed from time to time. Such proposals include: regulation of all insured depository institutions by a single regulator; limitations on the number of accounts protected by the federal deposit insurance funds; and modification 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 subsidiary. (The remainder of this page intentionally left blank) 11 Item 2. PROPERTIES The Company serves its customers by offering a broad range of banking services throughout northern, western and central Arkansas from the following locations:
Banking Location /(1)/ Year Opened Square Footage - --------------------------------------------------------- ---------------------------- ------------------- Bryant Wal-Mart Supercenter/(2)/..................... Under Construction 675 Little Rock (Otter Creek) ........................... Under Construction 2,400 Fort Smith (Zero).................................... Under Construction 2,784 Yellville ........................................... 2000 2,716 Clinton ............................................. 1999 2,784 North Little Rock (North Hills) /(3)/................ 1999 4,350 Harrison (Downtown).................................. 1999 14,000 North Little Rock (Indian Hills)/(4)/................ 1999 1,500 Fort Smith (Rogers).................................. 1998 22,500 Little Rock (Cantrell)............................... 1998 2,700 Little Rock (Chenal)................................. 1998 40,000 Little Rock (Rodney Parham).......................... 1998 2,500 Little Rock (Chester) /(5)/.......................... 1998 1,716 Bellefonte........................................... 1997 1,444 Alma................................................. 1997 4,200 Paris................................................ 1997 3,100 Mulberry............................................. 1997 1,875 Harrison (North) /(6)/............................... 1996 3,300 Clarksville (Rogers)/(6)/............................ 1995 3,300 Van Buren............................................ 1995 2,520 Marshall /(6)/....................................... 1995 2,520 Clarksville (Main)................................... 1994 2,520 Ozark (Westside)..................................... 1993 2,520 Western Grove........................................ 1976 (expanded 1991) 2,610 Altus /(7)/.......................................... 1972 (rebuilt 1998) 1,500 Ozark (Main)......................................... 1971 (expanded 1985) 30,877 Jasper............................................... 1967 (expanded 1984) 4,408
________________________ (1) Unless otherwise indicated, the Company owns, or will own upon the completion of construction, its banking locations. (2) The Company leases this facility with an initial term expiring May 9, 2006 subject to options to renew for two additional terms of five years each. (3) The Company owns the building and leases the land at this location. The initial lease term expires twenty years from November 1999 with the right to extend for four additional five-year periods. (4) The Company leases the building and land at this location with an initial term expiring in December 2002, subject to options to renew for four additional terms of two years each. (5) This location was acquired by the Company in February 1998. The facility was constructed in 1994. (6) The Company owns the buildings and leases the land at these locations. The initial lease terms expire in 2001 (Harrison), 2007 (Clarksville) and 2024 (Marshall). The Company has renewal options on the Harrison and Marshall facilities and purchase options on the Harrison and Clarksville facilities. (7) Original facility was destroyed by storm in 1997. This facility was rebuilt and placed in service in 1998. While management believes its existing banking locations are adequate for its present operations, the Company intends to establish additional branch offices in the future in accordance with its growth strategy. 12 Item 3. LEGAL PROCEEDINGS ----------------- On July 26, 2000, the case of David Dodds, et. al. vs. Bank of the ------------------------------------ Ozarks and Jean Arehart was filed in the Circuit Court of Pulaski County, - ----------------------- Arkansas, Fifth Division, which contains allegations that the Company's bank subsidiary (the "Bank") committed breach of contract, certain common law torts, fraud, and a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. (S) 1961, et. seq. ("RICO"). The Bank removed the case to the United States District Court for the Eastern District of Arkansas, Western Division. The complaint seeks alternative remedies of either (a) compensatory damages of $5 million and punitive damages of $10 million based on the common law tort claims, or (b) compensatory damages of $5 million trebled to $15 million based on RICO. Previously the Bank made several residential construction loans related to houses built by the plaintiffs, and in 1998, the Bank commenced foreclosure of a house that was being constructed by one of the plaintiffs. The complaint relates to such transactions. On February 3, 2000, the plaintiffs filed a Chapter 13 bankruptcy petition which is currently pending. In this bankruptcy proceeding, the individual plaintiffs submitted a plan of reorganization which, among other matters, proposed litigation against the Bank and to pay certain creditors with proceeds of litigation, if any. At a hearing on the plan of reorganization, the bankruptcy judge refused to confirm the plaintiff's proposed plan of reorganization but did authorize the plaintiffs to file the complaint against the Bank to avoid the running of the statute of limitations. The ability of the plaintiffs to pursue the complaint was contingent upon (a) the bankruptcy court's confirmation of a plan of reorganization which provides for pursuit of the complaint, (b) a determination by a trustee to pursue the complaint in the event of conversion of the pending bankruptcy proceeding to a Chapter 7 or appointment of a trustee, or (c) dismissal of the pending bankruptcy proceeding so the plaintiffs are no longer subject to the authority of the bankruptcy court. On February 23, 2001, the plaintiffs voluntarily dismissed their bankruptcy case. They are, therefore, now free to pursue the case. The Company believes it has substantial defenses to the claims made in the complaint and intends to vigorously defend the case. 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" and as of March 1, 2001 the Company had 191 holders of record. The other information required by Item 201 of Regulation S-K is contained in the Management's Discussion and Analysis section of the Company's 2000 Annual Report under the heading "Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends" on page 22, 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 2000 Annual Report under the heading "Selected Consolidated Financial Data" on page 4, 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 2000 Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 5 through 22, which information is incorporated herein by reference. 13 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 2000 Annual Report under the heading "Interest Rate Sensitivity" on pages 16 through 18, 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 2000 Annual Report on pages 23 through 39 and in the Management's Discussion and Analysis section of the 2000 Annual Report under the heading "Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends" on page 22 which information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None 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 2001 annual meeting under the heading "Nominees for Election as Directors" on pages 3 through 4, 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 Registrant" in Part I above. Item 405 of Regulation S-K requires the Company to disclose any failure of its executive officers and directors to file on a timely basis reports of ownership and subsequent changes of ownership with the Securities and Exchange Commission. The Company disclosed in its Proxy Statement for the 2001 annual meeting under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 20 its belief that during the preceding year all filing requirements applicable to directors and executive officers had been complied with. However, since the 2001 Proxy Statement was distributed, the Company has become aware of certain failures of an executive officer to file required reports. Accordingly, the information contained in the Company's Proxy Statement for the 2001 annual meeting under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 20 is incorporated herein by reference as supplemented by the following information: Jean Arehart has failed to file two Form 4's with respect to two purchases of Company common stock in October 2000 and a purchase of Company common stock in November 2000. The aggregate number of shares purchased in these transactions was 950. Item 11. EXECUTIVE COMPENSATION ---------------------- The information required by Item 402 of Regulation S-K is contained in the Company's Proxy Statement for the 2000 annual meeting under the heading "Executive Compensation and Other Information" on pages 12 through 14, 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 2001 annual meeting under the headings "Principal Stockholders" and "Security Ownership of Management" on pages 10 through 11 which information is incorporated herein by reference. 14 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 2001 annual meeting under the heading "Certain Transactions" on page 19, 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 24 to 39 in the Company's Annual Report for the fiscal year ended December 31, 2000, and the Report of Independent Auditors on page 23 of such Annual Report are incorporated herein by reference. Consolidated Balance Sheets as of December 31, 2000 and 1999. Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998. Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998. Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998. 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 2000. (c) Exhibits: The exhibits to this report are listed in the Exhibit Index at the end of this Item 14. (d) Financial Statement Schedules: Not applicable. 15 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). 4.1 Amended and Restated Trust Agreement, dated June 18, 1999, relating to the issuance of Ozark Capital Trust's $17,250,000 of 9.0% Cumulative Trust Preferred Securities (previously filed as exhibit 4.1 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.2 9.0% Cumulative Trust Preferred Securities Certificate (included as an exhibit to Item 4.1 previously filed with the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.3 Agreement as to Expenses and Liabilities (included as an exhibit to Item 4.1, previously filed as exhibit 4.1 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.4 Subordinated Indenture, dated June 18, 1999, relating to the issuance of the Company's $17,783,510 of 9.0% Subordinated Debentures (previously filed as exhibit 4.4 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.5 Form of 9.0% Subordinated Debenture (included as an exhibit to Item 4.4 previously filed with the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference). 4.6 Form of Preferred Securities Guarantee Agreement, dated June 18, 1999, (previously filed as exhibit 4.6 to the Company's quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, 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 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). 10.4 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). 16 10.5 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). 10.6 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). 10.7 Ground Lease - North Little Rock, Indian Hills Shopping Center (Pulaski County), dated November 20, 1998, between Bank of the Ozarks, wca and Indian Hills Shopping Center Partnership d/b/a Indian Hills Shopping Center, as amended December 8, 1998 (previously filed as Exhibit No. 10.16 to the Company's annual report on 10-K for the year ended December 31, 1998 and incorporated herein by this reference). 10.8 Construction Contract, dated June 16, 1999, between Bank of the Ozarks and East-Harding, Inc. (Clinton, Arkansas) (previously filed as Exhibit 10.15 to the Company's annual report on 10-K for the year ended December 31, 1999 and incorporated herein by this reference). 10.9 Construction Contract, dated June 16, 1999, between Bank of the Ozarks and East-Harding, Inc. (North Little Rock) (previously filed as Exhibit 10.16 to the Company's annual report on 10-K for the year ended December 31, 1999 and incorporated herein by this reference). 10.10 Construction Contract, dated November 23, 1999, between Bank of the Ozarks and East-Harding, Inc. (Yellville, Arkansas) (previously filed as Exhibit 10.17 to the Company's annual report on 10-K for the year ended December 31, 1999 and incorporated herein by this reference). 10.11 Ground Lease - North Little Rock, Lakewood Shopping Center (Pulaski County), dated May 18, 1999, between Bank of the Ozarks, wca and Metropolitan Realty and Development, LLC (previously filed as Exhibit 10.18 to the Company's annual report on 10-K for the year ended December 31, 1999 and incorporated herein by this reference). 10.12 Construction Contract, dated September 20, 2000, between Bank of the Ozarks and East-Harding, Inc. (Little Rock, Otter Creek, Arkansas) (attached). 10.13 Employment agreement, dated December 29, 2000, between the Registrant and George Gleason (attached). 13 Portions of the Registrant's Annual Report to Stockholders for the year ended December 31, 2000 which are incorporated herein by reference: pages 4 to 39 of such Annual Report (attached). 21 List of Subsidiaries of the Registrant (attached). 23.1 Consent of Ernst & Young LLP (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 20, 2001 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 20, 2001 - ------------------------------ and Director George Gleason /s/ Mark Ross President and Director March 20, 2001 - ------------------------------ Mark Ross /s/ Paul Moore Chief Financial Officer March 20, 2001 - ------------------------------ (Chief Accounting Officer) Paul Moore /s/ Jerry Davis Director March 20, 2001 - ------------------------------ Jerry Davis /s/ Robert East Director March 20, 2001 - ------------------------------ Robert East /s/ Linda Gleason Director March 20, 2001 - ------------------------------ Linda Gleason /s/ Porter Hillard Director March 20, 2001 - ------------------------------ Porter Hillard
18 /s/ Henry Mariani Director March 20, 2001 - ------------------------------- Henry Mariani /s/ Dr. R. L. Qualls Director March 20, 2001 - ------------------------------ Dr. R. L. Qualls /s/ Kennith Smith Director March 20, 2001 - ------------------------------ Kennith Smith
19 EX-10.12 2 0002.txt FORM AGREEMENT EXHIBIT 10.12 Standard Form of Agreement Between Owner and Contractor where the basis for payment is the COST OF THE WORK PLUS A FEE with a negotiated Guaranteed Maximum Price AIA Document A111 - 1997 1997 Edition - Electronic Format This document has important legal consequences. Consultation with an attorney is encouraged with respect to its completion or modification. AUTHENTICATION OF THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401. This document is not intended for use in competitive bidding. AIA Document A201-1997, General Conditions of the Contract for Construction, is adopted in this document by reference. This document has been approved and endorsed by The Associated General Contractors of America. Copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967, 1974, 1978, 1987, Copyright 1997 by The American Institute of Architects. 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 subject the violator to legal prosecution. AGREEMENT made as of the 20 day of September in the year 2000 (In words, indicate day, month and year) BETWEEN the Owner: (Name address and other information) Bank of the Ozarks P.O. Box 8811 Little Rock, AR 72231 and the Contractor: (Name, address and other information) East-Harding, Inc. P.O. Box 251556 Little Rock, AR 72225-1556 The Project is: (Name and location) Bank of the Ozarks Otter Creek Branch Hwy. #5 & Otter Creek Parkway Otter Creek Village, AR The Architect is: (Name, address and other information) AMR Architects, Inc. 201 East Markham, Ste. 150 Little Rock, AR 72201 The Owner and Contractor agree as follows. ARTICLE 1 THE CONTRACT DOCUMENTS 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 15. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 THE WORK OF THIS CONTRACT The Contractor shall fully execute the Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others. ARTICLE 3 RELATIONSHIP OF THE PARTIES The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and exercise the Contractors skill and judgment in furthering the interests of the Owner; to furnish efficient business administration and supervision; to furnish at all times an adequate supply of workers and materials; and to perform the Work in an expeditious and economical manner consistent with the Owner's interests. The Owner agrees to furnish and approve, in a timely manner, information required by the Contractor and to make payments to the Contractor in accordance with the requirements of the Contract Documents. ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement of the Work shall be the date of this Agreement 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.) Commencement will begin upon receipt of a Building Permit. If, prior to commencement of the Work, the Owner requires time to file mortgages, mechanic's liens and other security interests, the Owner's time requirement shall be as follows: 4.2 The Contract Time shall be measured from the date of commencement. 4.3 The Contractor shall achieve Substantial Completion of the entire Work not later than _____ days from the date of commencement, or as follows: (Insert number of calendar days. Alternatively, a calendar date may be used when coordinated with the date of commencement. Unless stated elsewhere in the Contract Documents, insert any requirements for earlier Substantial Completion of certain portions of the Work.) 4.5 months from date of receipt of a Building Permit , 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, or for bonus payments for early completion of the Work.) ARTICLE 5 BASIS FOR PAYMENT 5.1 CONTRACT SUM 5.1.1 The Owner shall pay the Contractor the Contract Sum in current funds for the Contractor's performance of the Contract. The Contract Sum is the Cost of the Work as defined in Article 7 plus the Contractor's Fee. 5.1.2 The Contractor's Fee is: (State a lump sum, percentage of Cost of the Work or other provision for determining the Contractor's Fee, and describe the method of adjustment of the Contractor's Fee for changes in the Work) $23,533 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 Hundred Ninety Four Thousand One Hundred Eighty Nine Dollars ($494,189 ), 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.) 5.2.2 The Guaranteed Maximum Price is based on 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. 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 when the amount expires.) 5.2.3 Unit prices, if any, are as follows: 5.2.4 Allowances, if any, are as follows: (Identify and state the amounts of any allowances, and state whether they include labor, materials, or both.) Landscape and Irrigation allowance is $15,000 5.2.5 Assumptions, if any, on which the Guaranteed Maximum Price is based are as follows: We do not include costs for Bank Equipment, Security & Bank Equipment Wiring, Phone or Data Wiring. 5.2.6 To the extent that the Drawings and Specifications are anticipated to require further development by the Architect, the Contractor has provided in the Guaranteed Maximum Price for such further development consistent with the Contract Documents and reasonably inferable therefrom. Such further development does not include such things as changes in scope, systems, kinds and quality of materials, finishes or equipment, all of which, if required, shall be incorporated by Change Order. ARTICLE 6 CHANGES IN THE WORK 6.1 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 AIA Document A201-1997. 6.2 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 AIA Document A201-1997 and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of AIA Document A201-1997 shall have the meanings assigned to them in AIA Document A201-1997 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. 6.3 In calculating adjustments to the Guaranteed Maximum Price, the terms "cost" and "costs" as used in the above-referenced provisions of AIA Document A201-1997 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 Subparagraph 5.1.2 of this Agreement. 6.4 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, and the Guaranteed Maximum Price shall be adjusted accordingly. ARTICLE 7 COSTS TO BE REIMBURSED 7.1 COST OF THE WORK 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. 7.2 LABOR COSTS 7.2.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's approval, at off-site workshops. 7.2.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's approval. (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, and the rates at which their time will be charged to the Work.) 7.2.3 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. 7.2.4 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 Subparagraphs 7.2.1 through 7.2.3. 7.3 SUBCONTRACT COSTS 7.3.1 Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.4.1 Costs, including transportation and storage, of materials and equipment incorporated or to be incorporated in the completed construction. 7.4.2 Costs of materials described in the preceding Subparagraph 7.4.1 in excess of those actually installed to allow for reasonable waste and spoilage. Unused excess materials, if any, shall become the Owner's property at the completion of the Work or, at the Owners option, shall be sold by the Contractor. Any amounts realized from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.5 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.5.1 Costs, including transportation and storage, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by construction workers, that are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost (less salvage value) of 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. 7.5.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by construction workers that 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. 7.5.3 Costs of removal of debris from the site. 7.5.4 Costs of document reproductions, facsimile transmissions and long- distance telephone calls, postage and parcel delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 7.5.5 That portion of the reasonable expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.5.6 Costs of materials and equipment suitably stored off the site at a mutually acceptable location, if approved in advance by the Owner. 7.6 MISCELLANEOUS COSTS 7.6.1 That portion of insurance and bond premiums that can be directly attributed to this Contract: 7.6.2 Sales, use or similar taxes imposed by a governmental authority that are related to the work. 7.6.3 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. 7.6.4 Fees of 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 AIA Document A201-1997 or other provisions of the Contract Documents, and which do not fall within the scope of Subparagraph 7.7.3. 7.6.5 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 of the Contract Documents; and 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. However, such costs of legal defenses, judgments and settlements shall not be included in the calculation of the Contractor's Fee or subject to the Guaranteed Maximum Price. If such royalties, fees and costs are excluded by the last sentence of Subparagraph 3.17.1 of AIA Document A201-1997 or other provisions of the Contract Documents, then they shall not be included in the Cost of the Work. 7.6.6 Data processing costs related to the Work. 7.6.7 Deposits lost for causes other than the Contractor's negligence or failure to fulfill a specific responsibility to the Owner as set forth in the Contract Documents. 7.6.8 Legal, mediation and arbitration costs, including attorneys' fees, other than those arising from disputes between the Owner and Contractor, reasonably incurred by the Contractor in the performance of the Work and with the Owner's prior written approval; which approval shall not be unreasonably withheld. 7.6.9 Expenses incurred in accordance with the Contractor's standard personnel policy for relocation and temporary living allowances of personnel required for the Work, if approved by the Owner. 7.7 OTHER COSTS AND EMERGENCIES 7.7.1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 7.7.2 Costs due to emergencies incurred 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 10.6 of AIA Document A201-1997. 7.7.3 Costs of repairing or correcting damaged or nonconforming Work executed by the Contractor, Subcontractors or suppliers, provided that such damaged or nonconforming Work was not caused by negligence or failure to fulfill a specific responsibility of the Contractor and only to the extent that the cost of repair or correction is not recoverable by the Contractor from insurance, sureties, Subcontractors or suppliers. 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 Subparagraphs 7.2.2 and 7.2.3 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 Subparagraph 7.5.2. 8.1.6 Except as provided in Subparagraph 7.7.3 of this Agreement, costs due to the negligence or failure to fulfill a specific responsibility of the Contractor, Subcontractors and suppliers or anyone directly or indirectly employed by any of them or for whose acts any of them may be liable. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs, other than costs included in Change Orders approved by the Owner, that would cause the Guaranteed Maximum Price 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 that 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 Owner may designate specific persons or entities from whom the Contractor shall obtain bids. 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 shall then determine, with the advice of the Contractor and the Architect, which bids will be accepted. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. 10.2 If 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 that 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 applicable payment provisions of this Agreement, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. ARTICLE 11 ACCOUNTING RECORDS The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract, and the accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to, and shall be permitted to audit and copy, 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 PAYMENTS 12.1.1 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. 12.1.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.1.3 Provided that an Application for Payment is received by the Architect not later than the Thirtieth (30th) day of a month, the Owner shall make payment to the Contractor not later than the Fifteenth (15th) 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 Fifteen (15) days after the Architect receives the Application for Payment. 12.1.4 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. 12.1.5 Each Application for Payment shall be based on 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. 12.1.6 Applications for Payment shall show the percentage of completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage of 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 that 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. 12.1.7 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: .1 take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage of 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 shall be included as provided in Subparagraph 7.3.8 of AIA Document A201-1997; .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; .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 Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a fixed sum in that Subparagraph, shall be an amount that 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; .4 subtract the aggregate of previous payments made by the owner; .5 subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.1.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation; and .6 subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of AIA Document A201-1997. 12.1.8 Except with the Owner's prior approval, payments to Subcontractors shall be subject to retainage of not less than Ten percent (10%). The Owner and the Contractor shall agree upon a mutually acceptable procedure for review and approval of payments and retention for Subcontractors. 12.1.9 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 Subparagraph 12.1.4 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. 12.2 FINAL PAYMENT 12.2.1 Final payment, constituting the entire unpaid balance of the Contract Sum, shall be made by the Owner to the Contractor when: .1 the Contractor has fully performed the Contract except for the Contractor's responsibility to correct Work as provided in Subparagraph 12.2.2 of AIA Document A201-1997, and to satisfy other requirements, if any, which extend beyond final payment; and .2 a final Certificate for Payment has been issued by the Architect. 12.2.2 The Owner's final payment to the Contractor shall be made no later than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 12.2.3 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 Subparagraph 12.2.1 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 AIA Document A201-1997. The time periods stated in this Subparagraph 12.2.3 supersede those stated in Subparagraph 9.4.1 of the AIA Document A201-1997. 12.2.4 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 demand 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 Architects final Certificate for Payment. 12.2.5 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 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 13 TERMINATION OR SUSPENSION 13.1 The Contract may be terminated by the Contractor, or by the Owner for convenience, as provided in Article 14 of AIA Document A201-1997. However, the amount to be paid to the Contractor under Subparagraph 14.1.3 of AIA Document A201-1997 shall not exceed the amount the Contractor would be entitled to receive under Paragraph 13.2 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. 13.2 The Contract may be terminated by the Owner for cause as provided in Article 14 of AIA Document A201-1997. The amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of AIA Document A201-1997 shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed an amount calculated as follows: 13.2.1 Take the Cost of the Work incurred by the Contractor to the date of termination; 13.2.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Subparagraph 5.1.2 or, if the Contractor's Fee is stated as a fixed sum in that Subparagraph, an amount that 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; and 13.2.3 Subtract the aggregate of previous payments-made by the Owner. 13.3 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 that the Owner elects to retain and that is not otherwise included in the Cost of the Work under Subparagraph 13.2.1. 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 13, 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. 13.4 The Work may be suspended by the Owner as provided in Article 14 of AIA Document A201-1997; in such case, the Guaranteed Maximum Price and Contract Time shall be increased as provided in Subparagraph 14.3.2 of AIA Document A201-1997 except that the term "profit" shall be understood to mean the Contractor's Fee as described in Subparagraphs 5.1.2 and Paragraph 6.4 of this Agreement. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision AIA Document A201- 1997 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 The Owner's representative is: (Name, address and other information) Melvin Edwards Bank of the Ozarks P.O. Box 8811 Little Rock, AR 14.4 The Contractor's representative is: (Name, address and other information.) Greg Fluger East-Harding, Inc. P.O. Box 251556 Little Rock, AR 72225 14.5 Neither the Owner's nor the Contractor's representative shall be changed without ten days' written notice to the other party. 14.6 Other provisions: ARTICLE 15 ENUMERATION OF CONTRACT DOCUMENTS 15.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: 15.1.1 The Agreement is this executed 1997 edition of the Standard Form of Agreement Between Owner and Contractor, AIA Document A111-1997. 15.1.2 The General Conditions are the 1997 edition of the General Conditions of the Contract for Construction, AIA Document A201-1997. 15.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated June 30, 2000, and are as follows: Document Title Pages Project Manual Bank of the Ozarks, Otter Creek Branch 15.1.4 The Specifications are those contained in the Project Manual dated as in Subparagraph 15.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement.) Section Title Pages Refer to Exhibit "A" 15.1.5 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 Refer to Exhibit "B" 15.1.6 The Addenda, if any, are as follows: Number Date Pages 1 August 11, 2000 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 15. 15.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here any additional documents, such as a list of alternates that are intended to form part of the Contract Documents. AIA Document A201-1997 provides 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) Proposal letters dated August 24, 2000 and September 1, 2000 with accepted cost savings items are a part of this Contract. ARTICLE 16 INSURANCE AND BONDS (List required limits of liability for insurance and bonds. AIA Document A201- 1997 gives other specific requirements for insurance and bonds.) 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. Bank of the Ozarks /s/ Melvin L. Edwards /s/ Tom Harding - ----------------------------------- -------------------------------------- OWNER (Signature) CONTRACTOR (Signature) Melvin L. Edwards Vice President Tom Harding President - --------------------------------- -------------------------------------- (Printed name and title) (Printed name and title) EX-10.13 3 0003.txt EMPLOYMENT AGREEMENT EXHIBIT 10.13 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into on this 29/th/ day of December, 2000 to be effective the 1st day of January, 2001, by and between Bank of the Ozarks, Inc., an Arkansas corporation (the "Corporation"), and George G. Gleason, II, an individual and resident of Arkansas ("Gleason"). W I T N E S S E T H: WHEREAS, the Corporation and Gleason are parties to an employment agreement, the term of which ends on December 31, 2000; WHEREAS, the Board of Directors of the Corporation believes that the future services of Gleason will be of great value to the Corporation and, by this Agreement, proposes to ensure his continued employment for a certain period; WHEREAS, Gleason hereby expresses his willingness to continue in the employment of the Corporation as is hereby provided; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Period of Active Employment. Gleason shall continue in the active --------------------------- employment of the Corporation commencing on January 1, 2001 and ending on December 31, 2003 (the "Term"). 2. Duties. During the period of this contract, and subject to the ------ limitations hereinafter expressed, Gleason agrees to serve the Corporation faithfully and to the best of his ability, under the direction of the Board of Directors of the Corporation, devoting his time, energy and skill to the management of the Corporation's business. 3. Compensation. The Corporation agrees to pay to Gleason during the term ------------ as defined in Section 1 above, as compensation for his full-time services: (a) A minimum base salary of Two Hundred Seventy-Five Thousand Dollars ($275,000) per annum. Gleason's base salary will be evaluated and increased, if appropriate, each year thereafter for the term of this contract by majority vote of the Compensation Committee of the Board of Directors of the Corporation, with members of the Gleason family or any other interested director abstaining. Consideration will be given to increases in Gleason's base salary based on, among other things, individual merit and performance, assigned duties and scope of responsibility and relative compensation of comparable positions within the industry. 1 (b) A bonus for each fiscal year during the term of this contract, the amount of which will be subjectively determined by majority vote of the Compensation Committee of the Board of Directors of the Corporation, with members of the Gleason family or any other interested director abstaining. Such bonus will be based on, among other things, individual merit and performance, taking into account Gleason's contribution to the overall success of the Corporation and its subsidiaries and various measures of corporate performance including long-term growth in deposits, loans and assets, return on average assets, return on average stockholders' equity, net interest margin, overhead ratio, efficiency ratio, net charge-offs ratio, other measures of growth, earnings, asset quality and risk and other factors deemed appropriate by the Compensation Committee. Such bonus, if any, shall be payable to Gleason no later than the end of the first quarter of the succeeding fiscal year. Additional benefits may be provided and additional equity based compensation may be paid Gleason from time to time by majority vote of the Compensation Committee of the Board of Directors of the Corporation, with members of the Gleason family or any other interested director abstaining. Nothing herein shall prohibit Gleason from being reimbursed for reasonable and customary business expenses or from receiving an allowance therefor. 4. Restrictive Covenant. Gleason expressly agrees, as a condition to the -------------------- performance by the Corporation of its obligations hereunder, that during the term of this Agreement he will not, directly or indirectly, enter into or in any manner take part in any business competitive with any business of the Corporation, without the prior written consent of the Corporation. 5. Prohibition Against Assignment. Gleason shall have no right to ------------------------------ commute, encumber or dispose of the right to receive payments hereunder, which payments and the right thereto are expressly declared to be non-assignable and non-transferable and, in the event of any attempted assignment or transfer, the Corporation shall have no further liability hereunder. 6. Reorganization. The Corporation shall not merge or consolidate with -------------- any other organization or organizations until such organization or organizations expressly assume the duties of the Corporation herein set forth. 7. Independence of Other Agreements. This Agreement is hereby declared to -------------------------------- be independent of all other benefits and retirement or deferred compensation plans now or hereafter adopted by the Corporation, including the 401(k) plan currently existing, and shall not, unless mutually agreed upon in writing, be supplanted or replaced by any other such plan or agreement. 2 IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate original the day and year first above recited. ATTEST: BANK OF THE OZARKS, INC. /s/ Donna Quandt By: /s/ Mark D. Ross - ------------------------------- --------------------------- Donna Quandt, Corporate Secretary Mark D. Ross, President /s/ George G. Gleason --------------------------- George G. Gleason 3 EX-13 4 0004.txt SELECTED CONSOLIDATED FINANCIAL DATA EXHIBIT 13 Selected Consolidated Financial Data
Year Ended December 31, ---------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ------------ ------------ ------------ ---------- (Dollars in thousands, except per share amounts) Income statement data: Interest income.................................... $ 60,752 $ 51,575 $ 38,882 $ 27,468 $ 21,836 Interest expense................................... 37,089 27,782 20,518 12,979 10,031 Net interest income................................ 23,663 23,793 18,364 14,489 11,805 Provision for loan losses.......................... 2,325 2,485 2,026 1,139 1,486 Non-interest income................................ 5,542 5,147 5,031 2,925 1,865 Non-interest expense............................... 16,964 16,464 13,119 9,228 7,151 Distribution on trust preferred securities......... 1,587 846 -- -- -- Net income......................................... 6,040 6,635 5,629 4,531 3,027 Per common share data: Earnings - diluted................................. $ 1.60 $ 1.75 $ 1.47 $ 1.38 $ 1.05 Book value......................................... 12.79 11.61 10.68 9.44 6.44 Dividends.......................................... 0.42 0.40 0.23 0.20 0.30 Weighted avg. shares outstanding (thousands)....... 3,782 3,792 3,819 3,281 2,880 Balance sheet data at period end: Total assets....................................... $826,952 $796,042 $ 612,431 $ 352,093 $ 270,600 Total loans........................................ 510,544 467,131 387,526 275,463 214,462 Allowance for loan losses.......................... 6,606 6,072 4,689 3,737 3,019 Total investment securities........................ 253,216 263,395 176,618 42,459 39,608 Total deposits..................................... 677,683 595,930 529,040 295,555 231,648 Repurchase agreements with customers............... 13,839 9,026 1,408 -- -- Other borrowings................................... 66,703 126,989 39,271 19,089 18,123 Total stockholders' equity......................... 48,349 43,874 40,355 35,666 18,547 Loan to deposit ratio.............................. 75.34% 78.39% 73.25% 93.20% 92.58% Average balance sheet data: Total average assets............................... $818,197 $709,640 $ 486,729 $ 314,489 $ 240,208 Total average stockholders' equity................. 45,723 41,988 37,951 26,328 17,144 Average equity to average assets................... 5.59% 5.92% 7.80% 8.37% 7.14% Performance ratios: Return on average assets........................... 0.74% 0.93% 1.16% 1.44% 1.26% Return on average stockholders' equity............. 13.21 15.80 14.83 17.21 17.66 Net interest margin................................ 3.27 3.77 4.19 4.98 5.36 Efficiency ........................................ 55.98 55.09 54.98 52.55 51.60 Dividend payout ................................... 26.25 22.86 15.65 14.49 28.57 Assets quality ratios: Net charge-offs as a percentage of average total loans ........................................... 0.36% 0.26% 0.33% 0.17% 0.21% Nonperforming loans to total loans................. 0.37 0.42 0.70 0.25 1.08 Nonperforming assets to total assets............... 0.42 0.53 0.50 0.24 0.88 Allowance for loan losses as a percentage of: Total loans........................................ 1.29% 1.30% 1.21% 1.36% 1.41% Nonperforming loans................................ 351.38 307.91 171.82 534.62 130.69 Capital ratios at period end: Leverage capital................................... 7.57% 7.46% 6.21% 9.86% 6.42% Tier I risk-based capital.......................... 11.52 11.50 9.05 13.01 8.45 Total risk-based capital........................... 12.83 13.15 10.21 14.27 9.70
4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Net income was $6.0 million for the year ended December 31, 2000, a 9.0% decrease from net income of $6.6 million in 1999. Net income in 1998 was $5.6 million. Diluted earnings declined 8.6% to $1.60 per share in 2000 compared to $1.75 per share in 1999. Diluted earnings in 1998 were $1.47 per share. As shown below total assets, loans and deposits increased 3.9%, 9.3% and 13.7%, respectively, from December 31, 1999 to December 31, 2000 and 30.0%, 20.5% and 12.6%, respectively, from December 31, 1998 to December 31, 1999. Stockholders' equity increased 10.2% from December 31, 1999 to December 31, 2000 and 8.7% from December 31, 1998 to December 31, 1999. During these same periods, book value per share increased 10.2% and 8.7%, respectively.
% Change December 31, ---------------------- ------------------------------------- 2000 1999 2000 1999 1998 from 1999 from 1998 --------- --------- --------- --------- -------- (Dollars in thousands, except per share amounts) Assets................ $826,952 $796,042 $612,431 3.9% 30.0% Loans................. 510,544 467,131 387,526 9.3 20.5 Deposits.............. 677,683 595,930 529,040 13.7 12.6 Stockholders' equity.. 48,349 43,874 40,355 10.2 8.7 Book value per share.. 12.79 11.61 10.68 10.2 8.7
Two measures of performance by banking institutions are return on average assets and return on average equity. Return on average assets ("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, 2000, the Company's ROA was 0.74% compared with 0.93% and 1.16%, respectively, for the years ended December 31, 1999 and 1998. Return on average equity ("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, 2000, the Company's ROE was 13.21% compared with 15.80% and 14.83%, respectively, for the years ended December 31, 1999 and 1998. 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 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 statutory federal income tax rate (34%). 2000 compared to 1999 Net interest income (FTE) increased modestly to $24.8 million for 2000 from $24.7 million in 1999, a 0.1% increase. While average earning assets increased 15.3% from 1999 to 2000, net interest income (FTE) increased very little primarily as a result of the narrowing of interest rate spreads as increases in deposit and borrowing cost exceeded increases in loan and other earning asset yields. Thus, an increase in net interest income usually associated with growth in average earning assets did not occur due to the decline in interest rate spreads. The Company's net interest margin declined from 3.77% for 1999 to 3.27% for 2000. The Company experienced strong competition for loans and deposits during 2000 which resulted in the Company's average loan yields increasing only 12 basis points compared to 1999 while deposit and borrowing costs increased 74 basis points in 2000 compared to 1999. These competitive conditions, coupled with the Company's liability sensitive balance sheet and 2000's rising rate environment, were the principal factors in the decline in the Company's net interest margin in 2000. 5 1999 compared to 1998 Net interest income (FTE) increased 31.4% to $24.7 million in 1999 from $18.8 million in 1998. This increase primarily resulted from a 46.1% increase in average earning assets to $656.6 million in 1999 from $449.4 million in 1998. The increase in average earning assets resulted from continued growth in the Company's loan portfolio and a significant increase in the investment securities portfolio. The Company's net interest margin declined from 4.19% for 1998 to 3.77% for 1999. The Company experienced strong competition for loans which reduced the Company's average loan yields by 77 basis points in 1999 compared to 1998. Deposit costs declined 48 basis points in 1999 compared to 1998 primarily as a result of lower CD rates on the repricing of promotional CD's offered in connection with certain branch openings in 1997 and 1998. Deposit growth not used to fund loans, along with certain borrowings, was used to increase the investment securities portfolio. The increase in the investment securities portfolio in amount and as a percentage of total assets reduced net interest margin as the yield on securities was less than the yield on loans. Analysis of Net Interest Income (FTE = Fully Taxable Equivalent)
Year Ended December 31, ------------------------------------------ 2000 1999 1998 ------- ------- ------- (Dollars in thousands) Interest income........................... $60,752 $51,575 $38,882 FTE adjustment............................ 1,098 947 466 ------- ------- ------- Interest income - FTE..................... 61,850 52,522 39,348 Interest expense.......................... 37,089 27,782 20,518 ------- ------- ------- Net interest income - FTE................. $24,761 $24,740 $18,830 ======= ======= ======= Yield on interest earning assets - FTE.... 8.17% 8.00% 8.76% Cost of interest-bearing liabilities...... 5.37 4.63 5.06 Net interest spread - FTE................. 2.80 3.37 3.70 Net interest margin - FTE................. 3.27 3.77 4.19
The following table sets forth certain information relating to the Company's net interest income for the years ended December 31, 2000, 1999 and 1998. 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 assets and liabilities. The average balance of loans receivable includes loans on which the Company has discontinued accruing interest. The yields and costs include amortization of certain deferred fees and origination costs, capitalization of interest on construction projects and late fees. These are considered adjustments to yields or rates. 6 Average Consolidated Balance Sheets and Net Interest Analysis
Year Ended December 31, -------------------------------------------------------------------------------- 2000 1999 1998 ---------------------------- ------------------------ ------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate -------- ------- ------- ------- ------- ------ ------- ------- ------ (Dollars in thousands) ASSETS Earning assets: Interest-bearing deposits and federal funds sold..................................... $ 282 $ 17 6.11% $ 841 $ 45 5.26% $ 5,389 $ 294 5.46 Investment securities: Taxable.................................. 225,515 15,331 6.80 194,511 12,847 6.61 99,840 6,654 6.66 Tax-exempt-FTE........................... 39,875 2,960 7.42 36,938 2,538 6.87 15,790 1,160 7.35 Loans - FTE (net of unearned income)......... 491,390 43,542 8.86 424,339 37,092 8.74 328,394 31,240 9.51 --------- ------- -------- ------- -------- ------- Total earning assets.................. 757,062 61,850 8.17 656,629 52,522 8.00 449,413 39,348 8.76 Non-earning assets............................. 61,135 53,011 37,316 --------- -------- -------- Total assets.......................... $818,197 $709,640 $486,729 ========= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings and interest-bearing transaction... $111,283 $ 3,285 2.95% $105,980 $ 2,756 2.60% $ 74,354 $ 2,054 2.76% Time deposits of $100,000 or more.......... 224,231 13,471 6.01 177,938 8,892 5.00 87,751 4,899 5.58 Other time deposits........................ 231,764 12,945 5.59 239,707 12,183 5.08 198,268 11,165 5.63 --------- ------- -------- ------- -------- ------- Total interest-bearing deposits 567,278 29,701 5.24 523,625 23,831 4.55 360,373 18,118 5.03 Repurchase agreements with customers......... 12,536 680 5.42 2,991 132 4.40 108 4 3.70 Other borrowings............................. 111,312 6,708 6.03(1) 73,717 3,819 5.18(1) 45,213 2,396 5.30(1) --------- ------- -------- ------- -------- ------- Total interest-bearing liabilities 691,126 37,089 5.37 600,333 27,782 4.63 405,694 20,518 5.06 Non-interest liabilities: Non-interest bearing deposits................ 60,636 54,782 40,583 Other non-interest liabilities............... 3,462 3,085 2,501 --------- -------- -------- Total liabilities........................ 755,224 658,200 448,778 Trust preferred securities..................... 17,250 9,452 - Stockholders' equity........................... 45,723 41,988 37,951 --------- -------- -------- Total liabilities and stockholders' equity ............................... $818,197 $709,640 $486,729 ========= ======== ======== Interest rate spread - FTE..................... 2.80% 3.37% 3.70% ------- ------- ------- Net interest income - FTE...................... $24,761 $24,740 $18,830 ======= ======= ======= Net interest margin - FTE...................... 3.27% 3.77% 4.19%
(1) This rate is impacted by the capitalization of interest on construction projects in the amount of $52,000, $51,000 and $275,000 for the years ended December 31, 2000, 1999 and 1998, respectively. In the absence of this capitalization these percentages would have been 6.07%, 5.25% and 5.91% for the years ended December 31, 2000, 1999 and 1998, respectively. The following table reflects how changes in the volume of interest earning 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 changes attributable to (1) changes in volume (changes in volume multiplied by prior rate); (2) changes in rate (changes in rate multiplied by prior volume); and (3) 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. 7 Analysis of Changes in Net Interest Income
2000 over 1999 1999 over 1998 --------------------------------- ------------------------------ Yield/ Yield/ Volume Rate Total Volume Rate Total --------- -------- -------- -------- ------- -------- (Dollars in thousands) Increase (decrease) in: Interest income - FTE: Interest-bearing deposits and federal funds sold .................................. $ (34) $ 6 $ (28) $ (236) $ (13) $ (249) Investment securities: Taxable ....................................... 2,108 376 2,484 6,253 (60) 6,193 Tax-exempt - FTE ............................... 218 204 422 1,453 (75) 1,378 Loans (net of unearned income) .................. 5,941 509 6,450 8,388 (2,536) 5,852 -------- -------- -------- -------- ------- -------- Total interest income - FTE .................. 8,233 1,095 9,328 15,858 (2,684) 13,174 -------- -------- -------- -------- ------- -------- Interest expense: Savings and interest-bearing transaction ......... 157 372 529 823 (121) 702 Time deposits of $100,000 or more ................ 2,781 1,798 4,579 4,507 (514) 3,993 Other time deposits .............................. (444) 1,206 762 2,106 (1,088) 1,018 Repurchase agreements with customers ............. 518 30 548 127 1 128 Other borrowings ................................. 2,266 623 2,889 1,401 22 1,423 -------- -------- -------- -------- ------- -------- Total interest expense ....................... 5,278 4,029 9,307 8,964 (1,700) 7,264 -------- -------- -------- -------- ------- -------- Increase (decrease) in net interest income - FTE ................................. $ 2,955 $ (2,934) $ 21 $ 6,894 $ (984) $ 5,910 ======== ======== ======== ======== ======= ========
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 year ended December 31, 2000 increased 7.7% to $5.5 million compared with $5.1 million in 1999. Non-interest income was $5.0 million in 1998. During 2000 the Company benefited from strong growth in service charges on deposit accounts which increased 35.3% from 1999. The increase in service charge income resulted primarily from the continued growth in the number of retail checking, commercial checking and cash management customers, increased service charge rates and improved collection and waiver practices. The Company also achieved good growth in trust income as the Company continued to capitalize on enhanced trust services and competitive opportunities. The improvements in these components of non-interest income were offset by declining mortgage lending income in 2000, due primarily to increased mortgage rates during most of 2000. The table below shows non-interest income for the years ended December 31, 2000, 1999 and 1998. Non-Interest Income
Year Ended December 31, ----------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (Dollars in thousands) Service charges on deposit accounts..................... $ 3,380 $ 2,499 $ 1,372 Mortgage lending income................................. 849 1,306 2,136 Other charges and fees.................................. 620 630 656 Trust income............................................ 592 479 335 Gain (loss) on sales.................................... (38) 12 113 Gain on sale of securities.............................. - 69 255 Brokerage fee income.................................... 61 - - Other................................................... 78 152 164 ------- ------- ------- Total non-interest income.......................... $ 5,542 $ 5,147 $ 5,031 ======= ======= =======
8 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, 2000 increased 3.0% to $17.0 million compared with $16.5 million in 1999. Non-interest expense was $13.1 million in 1998. The increase in 2000 primarily resulted from the Company's continued growth and expansion. Full time equivalent employees remained stable at 292 as of December 31, 2000 as the Company slowed its rate of new office openings with only one new office opened in 2000. 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 56.0% for the year ended December 31, 2000 compared to 55.1% in 1999 and 55.0% in 1998. The table below shows non-interest expense for the years ended December 31, 2000, 1999 and 1998. Non-Interest Expense
Year Ended December 31, ----------------------------------------- 2000 1999 1998 ---------- ----------- -------- (Dollars in thousands) Salaries and employee benefits...................... $ 8,928 $ 8,752 $ 7,197 Net occupancy and equipment expense................. 2,910 2,655 1,961 Other real estate and foreclosure expense .......... 592 358 130 Other operating expense: Professional and outside services................ 315 319 211 Postage.......................................... 255 286 243 Telephone........................................ 478 418 314 Data lines....................................... 236 186 139 Operating supplies............................... 487 513 454 Advertising and public relations................. 551 612 566 Directors' fees.................................. 103 121 114 Software expense................................. 409 301 190 ATM expense...................................... 236 178 118 FDIC and state assessments....................... 238 217 166 Business development, meals and travel........... 136 147 120 Amortization of goodwill......................... 90 90 106 Amortization of other intangibles................ 169 172 67 Other............................................ 831 1,139 1,023 ------- ------- ------- Total non-interest expense................... $16,964 $16,464 $13,119 ======= ======= =======
Income Taxes The provision for income taxes was $2.3 million for the year ended December 31, 2000 compared to $2.5 million in 1999 and $2.6 million in 1998. The effective income tax rates were 27.5%, 27.4% and 31.8%, respectively, for 2000, 1999 and 1998. The effective tax rates for these years are below the statutory tax rates because of a state income tax recovery in 1999 and the large portfolio of investments in tax-exempt securities, including securities exempt from both federal and Arkansas income taxes as well as certain federal agency securities exempt solely from Arkansas income taxes. 9 Analysis of Financial Condition Loan Portfolio At December 31, 2000 the Company's loan portfolio was $510.5 million, an increase of 9.3% from $467.1 million at December 31, 1999. As of December 31, 2000 the Company's loan portfolio consisted of approximately 72.3% real estate loans, 11.4% consumer loans, 12.5% commercial and industrial loans and 2.9% agricultural loans (non-real estate). The amount and type of loans outstanding are reflected in the following table. Loan Portfolio
December 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (Dollars in thousands) Real Estate: Residential 1-4 family....................... $144,920 $136,856 $121,539 $ 96,943 $ 78,124 Non-farm/non-residential..................... 134,726 101,766 76,563 41,710 35,258 Agricultural................................. 38,808 20,396 19,463 13,443 11,583 Construction/land development................ 42,354 28,294 23,305 16,257 8,808 Multifamily residential...................... 8,367 4,687 6,207 3,897 3,743 -------- -------- -------- -------- -------- Total real estate........................ 369,175 291,999 247,077 172,250 137,516 Consumer......................................... 58,430 81,753 66,407 53,233 39,868 Commercial and industrial........................ 63,799 70,012 52,192 37,470 28,154 Agricultural (non-real estate)................... 14,605 19,947 20,068 10,824 8,363 Other............................................ 4,535 3,420 1,782 1,686 561 -------- -------- -------- -------- -------- Total loans.............................. $510,544 $467,131 $387,526 $275,463 $214,462 ======== ======== ======== ======== ========
The following table reflects loans classified by remaining maturities at December 31, 2000 by type and by fixed or floating interest rates. This table is based on actual maturities and does not reflect amortizations, projected paydowns or the earliest repricing for floating rate loans. Many loans have maturities exceeding one year but have principal paydowns scheduled in less than a year. Also many variable rate loans have maturities exceeding one year but are repriceable in periods of one year or less. Loan Maturities
Over 1 Year 1 Year Through Over or Less 5 Years 5 Years Total -------- --------- --------- -------- (Dollars in thousands) Real Estate .................................... $ 97,138 $235,253 $ 36,784 $369,175 Consumer........................................ 13,966 43,314 1,150 58,430 Commercial, industrial and agricultural......... 34,022 41,114 3,268 78,404 Other........................................... 412 1,007 3,116 4,535 -------- -------- -------- -------- $145,538 $320,688 $ 44,318 $510,544 ======== ======== ======== ======== Fixed rate...................................... $128,296 $301,664 $ 22,852 $452,812 Floating rate................................... 17,242 19,024 21,466 57,732 -------- -------- -------- -------- $145,538 $320,688 $ 44,318 $510,544 ======== ======== ======== ========
The following table reflects loans classified as of December 31, 2000 by expected amortizations, expected paydowns or the earliest repricing opportunity for floating rate loans. This cash flow or repricing classification approximates the Company's ability to reprice loans or the ability to reinvest loan payoffs in new loans, other investments or reduce borrowings. 10 Loan Cash Flows or Repricing
Over 1 Year 1 Year Through Over or Less 5 Years 5 Years Total -------- -------- -------- -------- (Dollars in thousands) Fixed rate................... $213,084 $218,068 $ 21,660 $452,812 Floating rate................ 51,102 6,630 - 57,732 -------- -------- -------- -------- $264,186 $224,698 $ 21,660 $510,544 ======== ======== ======== ========
Nonperforming Assets Nonperforming assets consist of (1) nonaccrual loans, (2) accruing loans 90 days or more past due, (3) certain 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. 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. Nonperforming loans as a percent of total loans improved to 0.37% at year-end 2000 compared to 0.42% at year-end 1999. Nonperforming assets as a percent of total assets improved to 0.42% as of year-end 2000 compared to 0.53% as of year-end 1999. During the third quarter of 2000 the Company transferred a large credit to other real estate owned and took a significant charge-off of $787,000. During the fourth quarter twenty-four of the thirty-four properties securing this credit were sold. This resulted in a 69.7% reduction of the outstanding book value of these properties from $1,515,000 at September 30, 2000 to $459,000 at December 31, 2000. The Company's experience to date in the disposal of these properties leads management to believe the Company will incur no additional losses with respect to this credit. During the first quarter of 1999 the Company placed on nonaccrual status residential real estate development loans to a single borrower and charged these loans down to the $1.6 million dollar appraised value of the collateral. During the third quarter the Company completed foreclosure and acquired title to the real estate securing these loans and transferred the loan balances to other real estate. The following table presents information concerning nonperforming assets including nonaccrual and restructured loans and foreclosed assets held for sale. Nonperforming Assets
December 31, ---------------------------------------------- 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ (Dollars in thousands) Nonaccrual loans ..................................................... $1,880 $1,972 $2,708 $ 664 $2,057 Accruing loans 90 days or more past due .............................. -- -- 21 35 253 Restructured loans ................................................... -- -- -- -- -- ------ ------ ------ ------ ------ Total nonperforming loans ................................... 1,880 1,972 2,729 699 2,310 Foreclosed assets held for sale and repossessions(1).................. 1,600 2,238 314 136 78 ------ ------ ------ ------ ------ Total nonperforming assets .................................. $3,480 $4,210 $3,043 $ 835 $2,388 ====== ====== ====== ====== ====== Nonperforming loans to total loans ................................... 0.37% 0.42% 0.70% 0.25% 1.08% Nonperforming assets to total assets ................................. 0.42 0.53 0.50 0.24 0.88
(1) 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 adjusted to the then estimated 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 is obtained to write such assets off over an extended period. The Company's other real estate owned is being written off over periods of five or twenty years. 11 An analysis of the allowance for loan losses for the periods indicated is shown in the table below. Allowance and Provision for Loan Losses
Year Ended December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ (Dollars in thousands) Balance, beginning of period...................................... $6,072 $4,689 $3,737 $3,019 $1,909 Loans charged off: Real estate: Residential 1-4 family..................................... 690 260 75 35 73 Non-farm/non-residential................................... 121 8 18 -- -- Agricultural............................................... 10 3 -- -- -- Construction/land development.............................. -- 115 -- -- -- Multifamily residential.................................... 79 -- -- -- -- ------ ------ ------ ------ ------ Total real estate........................................ 900 386 93 35 73 Consumer..................................................... 549 516 633 434 216 Commercial and industrial.................................... 443 271 423 -- 128 Agricultural (non-real estate)............................... 106 52 -- -- -- ------ ------ ------ ------ ------ Total loans charged off.................................. 1,998 1,225 1,149 469 417 ------ ------ ------ ------ ------ Recoveries of loans previously charged off: Real estate: Residential 1-4 family..................................... 39 4 9 5 2 Non-farm/non-residential................................... 44 -- -- -- -- Agricultural............................................... 1 -- -- 2 -- Construction/land development.............................. -- 2 -- -- -- Multifamily residential.................................... -- -- -- -- -- ------ ------ ------ ------ ------ Total real estate........................................ 84 6 9 7 2 Consumer..................................................... 74 111 55 39 35 Commercial and industrial.................................... 48 6 11 2 4 Agricultural (non-real estate)............................... 1 -- -- -- -- ------ ------ ------ ------ ------ Total recoveries......................................... 207 123 75 48 41 ------ ------ ------ ------ ------ Net loans charged off............................................. 1,791 1,102 1,074 421 376 Provision charged to operating expense............................ 2,325 2,485 2,026 1,139 1,486 ------ ------ ------ ------ ------ Balance, end of period............................................ $6,606 $6,072 $4,689 $3,737 $3,019 ====== ====== ====== ====== ====== Net charge-offs to average loans outstanding during the periods indicated........................................ 0.36% 0.26% 0.33% 0.17% 0.21% Allowance for loan losses to total loans.......................... 1.29 1.30 1.21 1.36 1.41 Allowance for loan losses to nonperforming loans.................. 351.38 307.91 171.82 534.62 130.69
The amounts of provisions 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 these 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 $6,606,000 at December 31, 2000, or 1.29% of total loans, compared with $6,072,000, or 1.30% of total loans, at December 31, 1999. While management believes the current allowance is adequate, changing economic and other conditions may require future adjustments to the allowance for loan losses. 12 The Company's net charge-offs for 2000 were significantly increased by a third quarter charge-off in the amount of $787,000 related to a single credit, which the Company considers to be an unusual situation. Excluding the charge-off related to this one credit, net charge-offs for the year 2000 would have been $1,004,000, or 0.20% of average outstanding loans. The Company's internal grading system analysis assigns grades to all loans except residential 1-4 family loans and consumer installment loans. Graded loans are assigned to one of seven risk grades, with each grade being assigned a specific reserve allocation percentage. 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. Residential 1-4 family and consumer installment loans are assigned a reserve allocation percentage based on past due status. The sum of all reserve amounts determined by this methodology is utilized by management as the primary indicator of the appropriate reserve level. The unallocated reserve generally serves to compensate for the uncertainty in estimating loan losses including the possibility of changing risk ratings or specific reserve allocations. In addition to the above analysis, the Company compares the allowance for loan losses (as a percentage of total loans) maintained by its subsidiary bank 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 loss to the bank's historical cumulative net charge-offs for the five preceding calendar years. Although the Company does not determine the overall allowance based upon the amount of loans in a particular type or category (except in the case of residential 1-4 family and consumer installment loans), risk elements attributable to particular loan types or categories are considered in assigning loan grades to individual loans. These risk elements include the following: (1) 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; (2) for agricultural real estate loans, the loan to value ratio; (3) 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; (4) 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; and (5) 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. Management reviews the allowance on a quarterly basis to determine whether the amount of monthly provisions should be increased or decreased or whether additional provisions should be made to the allowance. The allowance is determined by management's assessment and grading of individual loans in the case of loans other than residential 1-4 family and consumer installments and specific reserves made for other categories of loans. The total allowance amount is available to absorb losses across the Company's entire portfolio. The following table sets forth the sum of the amounts of the allowance for loan losses attributable to individual loans within each loan category, or loan categories in general, and unallocated reserves as of December 31, 2000, 1999, 1998 and 1997. These amounts have been computed using the Company's grading system analysis. The amounts shown are not necessarily indicative of the actual future losses that may occur within particular loan categories. Information prior to the Company's initial public offering in 1997 is not available. 13 Allocation Of The Allowance For Loan Losses
Percent of Percent of Percent of Percent of Loans in Loans in Loans in Loans in Category Category Category Category Allowance to Total Allowance to Total Allowance to Total Allowance to Total Amount Loans Amount Loans Amount Loans Amount/1/ Loans --------- ---------- --------- ---------- --------- ---------- --------- ---------- December 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997 --------------------- --------------------- --------------------- --------------------- (Dollars in thousands) Real estate: Residential 1-4 family.............. $ 430 28.4% $ 478 29.2% $ 532 31.4% $ 1,116 35.2% Non-farm/ non-residential................. 1,499 26.4 1,067 21.8 801 19.7 423 15.2 Agricultural........................ 517 7.6 302 4.4 231 5.0 152 4.9 Construction/land development..................... 456 8.3 321 6.1 267 6.0 163 5.9 Multifamily......................... 95 1.6 57 1.0 63 1.6 41 1.4 Consumer.............................. 883 11.4 1,313 17.5 1,236 17.1 372 19.3 Commercial and industrial............. 859 12.5 808 15.0 610 13.5 412 13.6 Agricultural (non-real estate)........ 199 2.9 322 4.3 257 5.2 114 3.9 Other................................. 326 0.9 225 0.7 179 0.5 248 0.6 Unallocated reserves.................. 1,342 N/A 1,179 N/A 513 N/A 696 N/A ------- ------ ------- ----- ------- ----- ------- ------ $ 6,606 100.0% $ 6,072 100.0% $ 4,689 100.0% $ 3,737 100.0%
(1) The allocation of the allowance by loan type as of December 31, 1997 is presented based on the Company's previous methodology as information is not available to restate this allocation. 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 loans with clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize recoverability 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. 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 loans that are in the process of being charged off. At December 31, 2000, substandard loans not designated as nonaccrual or 90 days past due totaled $1.8 million. No loans were designated as doubtful or loss at December 31, 2000. Administration of the subsidiary bank's lending function is the responsibility of the Chief Executive Officer and certain senior lenders. Such officers perform their lending duties subject to the oversight and policy direction of the Board of Directors and various loan committees. Loan authority is granted to the Chief Executive Officer as determined appropriate by the Board of Directors. Loan authorities of other lending officers are assigned by the Chief Executive Officer. Loans and aggregate loan relationships exceeding $3 million up to the lending limit of the bank can be authorized only by the Board of Directors. Loans and aggregate loan relationships exceeding $1 million up to $3 million can be authorized by the loan committee. The Board of Directors reviews on a monthly basis reports of loan originations, loan commitments over $100,000, past due loans, internally classified and watch list loans and activity in the Company's allowance for loan losses. The Company's compliance and loan review officers are responsible for serving the bank subsidiary of the Company in the loan review and compliance areas. Periodic reviews are scheduled for the purpose of evaluating asset quality and effectiveness of loan administration. The compliance and loan review officers prepare loan review reports which identify deficiencies, establish recommendations for improvement, and outline management's proposed action plan for curing the deficiencies. These reports are provided to the audit committee, which consists of three non-employee independent members of the Board of Directors. The Company's allowance for loan losses exceeds its cumulative historical net charge-off experience for the last five years. However, the allowance is considered reasonable given the significant growth in the loan portfolio during the last three years, key allowance and nonperforming loan ratios and comparisons to industry averages. Based on these procedures, management believes that the allowance of $6,606,000 at December 31, 2000 is adequate. The allowance for loan losses was 1.29% of loans at December 31, 2000 compared to 1.30% at December 31, 1999. 14 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 2000 was $2.3 million compared to $2.5 million in 1999 and $2.0 million in 1998. 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 book value and the fair value of investment securities for each of the dates indicated. Investment Securities
December 31, -------------------------------------------------------------------------- 2000 1999 1998 ------------------------ ----------------------- ----------------------- Book Fair Book Fair Book Fair Value/(1)/ Value/(2)/ Value/1)/ Value/(2)/ Value/(1)/ Value/(2)/ ---------- ---------- --------- ---------- ---------- ---------- (Dollars in thousands) Securities of U.S. Government agencies........................... $ 195,771 $ 192,107 $ 215,713 $ 202,947 $ 156,351 $ 156,331 Mortgage-backed securities............ 174 174 192 192 2,117 2,117 Obligations of states and political subdivisions....................... 43,135 43,092 39,705 39,665 14,904 14,985 Other securities...................... 14,136 14,142 7,785 7,782 3,246 3,246 --------- --------- --------- --------- --------- --------- Total ......................... $ 253,216 $ 249,515 $ 263,395 $ 250,586 $ 176,618 $ 176,679 ========= ========= ========= ========= ========= =========
(1) The book value on available-for-sale securities is adjusted to reflect the unrealized gains or losses on those securities. (2) The fair value of the Company's investment securities 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. The following table reflects the book value, by contractual maturity, of the Company's investment securities at December 31, 2000 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
Over Over 1 Year 1 Year 5 Years Over or Thru 5 Thru 10 10 Fair Less Years Years Years Total Value ------ ------ -------- ------- --------- -------- (Dollars in thousands) Securities of U.S. Government agencies....... $ - $ 250 $161,016 $34,505 $195,771/(1)/ $192,107 Mortgage-backed securities................... - - 57 117 174 174 Obligations of states and political subdivisions................................ 1,454 5,483 9,350 26,848 43,135/(2)/ 43,092 Other securities............................. 997 1,879 - 11,260 14,136/(3)/ 14,142 ------ ------ -------- ------- -------- -------- Total...................................... $2,451 $7,612 $170,423 $72,730 $253,216 $249,515 ====== ====== ======== ======= ======== ======== Percentage of total.......................... 0.97% 3.01% 67.30% 28.72% 100.00% Weighted average yield (FTE)/(4)/............ 7.95 7.85 6.62 7.08 6.80
(1) All federal agency securities held by the Company have certain rights which allow the issuer to call or prepay the obligation without prepayment penalties. (2) Includes approximately $1.0 million of securities earning interest at floating rates repricing semi-annually. (3) Includes approximately $8.1 million of Federal Home Loan Bank stock which has historically paid quarterly dividends at a variable rate approximating the federal funds rate. (4) The weighted average yields (FTE) are based on book value. 15 Deposits The Company's bank subsidiary lending and investing activities are funded primarily by deposits, approximately 73.7% of which were time deposits and 26.3% of which were demand and savings deposits at December 31, 2000. Interest-bearing deposits other than time deposits consist of transaction, savings and money market accounts. These deposits comprise 16.8% of total deposits at December 31, 2000. Non-interest bearing demand deposits at December 31, 2000, constituted approximately 9.5% of total deposits. The Company had $1.6 million of brokered deposits at December 31, 2000. Average Deposit Balances and Rates
Year Ended December 31, ---------------------------------------------------------------------------------- 2000 1999 1998 ------------------------ ------------------------ ------------------------ Average Average Average Average Rate Average Rate Average Rate Amount Paid Amount Paid Amount Paid --------- ---------- --------- ---------- --------- ---------- (Dollars in thousands) Non-interest bearing accounts......... $ 60,636 - $ 54,782 - $ 40,583 - Interest-bearing accounts: Transaction (NOW)................... 55,452 2.47% 51,615 2.21% 32,419 2.25% Savings............................. 16,586 2.06 15,702 1.97 12,002 2.11 Money Market........................ 39,245 4.01 38,663 3.38 29,933 3.58 Time deposits less than $100,000.... 231,764 5.59 239,707 5.08 198,268 5.63 Time deposits $100,000 or more...... 224,231 6.01 177,938 5.00 87,751 5.58 -------- -------- -------- Total deposits................... $627,914 $578,407 $400,956 ======== ======== ========
The following table sets forth by time remaining to maturity, time deposits in amounts of $100,000 or more at December 31, 2000. Maturity distribution of time deposits of $100,000 and over
December 31, 2000 ---------------------- (Dollars in thousands) Maturity -------- 3 months or less............. $134,383 3 to 6 months................ 94,348 6 to 12 months............... 28,842 Over 12 months............... 7,772
Interest Rate Sensitivity 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 subsidiary's relative ratio of rate sensitive assets to rate sensitive liabilities and the related cumulative gap for different time periods. Additionally, the committee and management utilize a simulation model in assessing the Company's interest rate sensitivity. This simulation modeling process projects a baseline net interest income (assuming no changes in interest rate levels) and estimates changes to that baseline net interest income resulting from changes in interest rate levels. The Company relies primarily on the results of this model in evaluating its interest rate risk. In addition to the data in the GAP table presented below, this model incorporates a number of additional factors. These factors include: (1) the expected exercise of call features on various assets and liabilities, (2) the expected rates at which various rate sensitive assets and liabilities will reprice, (3) the expected growth in various interest earning assets and interest-bearing liabilities and the expected interest rates on such new assets and liabilities, (4) the expected relative movements in different interest rate indexes which are used as the basis for pricing or repricing various assets and liabilities, (5) existing and expected contractual cap and floor rates on various assets and liabilities, (6) expected changes in administered rates on interest-bearing transaction, savings, money market and time deposit accounts and the expected impact of competition on the pricing or repricing of such accounts and (7) other factors. Inclusion of these 16 factors in the model is intended to more accurately project the Company's changes in net interest income resulting from an immediate and sustained parallel shift in interest rates of up 100 basis points (bps), up 200 bps, down 100 bps and down 200 bps. While the Company believes this model provides a more accurate projection of its interest rate risk, the model includes a number of assumptions and predictions which may or may not be accurate. These assumptions and predictions include inputs to compute baseline net interest income, growth rates, competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be no assurance the simulation model will reflect future results. The following table presents the simulation model's projected impact of an immediate and sustained parallel shift in interest rates on the projected baseline net interest income for a twelve month period commencing January 1, 2001.
Change in $ Change in % Change in Interest Rates Projected Baseline Projected Baseline (in bps) Net Interest Income Net Interest Income -------------- ------------------- ------------------- (Dollars in thousands) +200 $(2,875) (11.1)% +100 (1,269) (4.9) -100 783 3.0 -200 (2,242) (8.6)
In the event of a shift in interest rates, management may take certain actions intended to mitigate the negative impact to net interest income or to maximize the positive impact to net interest income. These actions may include, but are not limited to, restructuring of earning assets and interest-bearing liabilities, seeking alternative funding sources or investment opportunities and modifying the pricing or terms of loans and deposits. The Company's simple static GAP analysis is shown in the following table. At December 31, 2000 the cumulative ratios of rate sensitive assets to rate sensitive liabilities at six months and one year, respectively, were 44.4% and 51.1%. 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 expectations may not reflect future results. Rate Sensitive Assets and Liabilities
December 31, 2000 ---------------------------------------------------------------------------------------- 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.............. $ 60,987 $ 52,275 $ 8,712 $ 8,712 1.14% 116.67% Fixed rate repricing in: 1 day - 6 months......... 131,677 381,336 (249,659) (240,947) (31.46) 44.43 7 months - 12 months..... 84,677 109,660 (24,983) (265,930) (34.73) 51.05 1 - 2 years.............. 105,517 47,076 58,441 (207,489) (27.10) 64.85 2 - 3 years.............. 91,146 2,177 88,969 (118,520) (15.48) 80.00 3 - 4 years.............. 28,125 20,887 7,238 (111,282) (14.53) 81.86 4 - 5 years.............. 38,473 12,264 26,209 (85,073) (11.11) 86.40 Over 5 years............. 225,175 67,978 157,197 72,124 9.42 110.40 --------- --------- --------- Total.................. $ 765,777 $ 693,653 $ 72,124 ========= ========= =========
(1) Rate Sensitive Assets (2) Rate Sensitive Liabilities 17 The data used in the table above is based on contractual repricing dates for variable or adjustable rate instruments except for interest-bearing Now accounts and regular savings accounts of which 50% are reflected as repricing prorata during the first two years with the remaining 50% distributed over future periods. Callable investments or borrowings are scheduled on their contractual maturity unless the Company has received notification the investment or borrowing will be called. In the event the Company has received notification of call, the investment or borrowing is placed in the fixed rate category for the time period in which the call occurs or is expected to occur. Other financial instruments are scheduled on their contractual maturity. 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 among other things, 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. Impact of Inflation and Changing Prices The Consolidated Financial Statements and related Notes presented elsewhere in the report have been prepared in accordance with accounting principles generally accepted in the United States. This requires 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. 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, subject to limitations, trust preferred securities and 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 and the portion of trust preferred securities not counted as Tier 1 capital) to risk-weighted assets. The leverage ratio is measured as Tier 1 capital to adjusted quarterly average assets. 18 The Company's risk-based and leverage capital ratios exceeded these minimum requirements at December 31, 2000 and December 31, 1999 and are presented below, followed by the capital ratios of the Company's bank subsidiary at December 31, 2000. Consolidated Capital Ratios
December 31, --------------------------------- 2000 1999 --------- ---------- (Dollars in thousands) Tier 1 capital: Stockholders' equity....................................................... $ 48,349 $ 43,874 Allowed amount of guaranteed preferred beneficial interest in Company's subordinated debentures (trust preferred securities).......... 16,617 15,132 Plus net unrealized losses on available for sale securities ............... 1,501 1,523 Less goodwill and certain intangible assets................................ (3,064) (3,304) --------- --------- Total tier 1 capital................................................. $ 63,403 $ 57,225 Tier 2 capital: Qualifying allowance for loan losses....................................... 6,606 6,072 Remaining amount of guaranteed preferred beneficial interest in Company's subordinated debentures (trust preferred securities).......... 633 2,118 --------- --------- Total risk-based capital............................................. $ 70,642 $ 65,415 ========= ========= Risk-weighted assets........................................................... $ 550,516 $ 497,460 ========= ========= Ratios at end of period: Leverage capital........................................................... 7.57% 7.46% Tier 1 risk-based capital.................................................. 11.52 11.50 Total risk-based capital................................................... 12.83 13.15 Minimum ratio guidelines: Leverage capital/(1)/...................................................... 3.00% 3.00% Tier 1 risk-based capital.................................................. 4.00 4.00 Total risk-based capital................................................... 8.00 8.00
Capital Ratios of Bank Subsidiary
December 31, 2000 ---------------------- Bank of the Ozarks (Dollars in thousands) Stockholders' equity - Tier 1......... $62,357 Leverage capital ..................... 7.45% Tier 1 risk-based capital ............ 11.34 Total risk-based capital ............. 12.54
(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. 19 Liquidity and Capital Resources Line of Credit. Prior to the fourth quarter of 2000 the Company maintained a revolving line of credit for up to $22 million with a correspondent bank. In the fourth quarter of 2000 the Company terminated their line of credit. No borrowings had been outstanding for more than a year and no borrowing needs were anticipated in the immediate future. Consequently, to reduce administration associated with maintaining this line, the Company asked the correspondent bank to terminate the agreement. Trust Preferred Securities. On June 18, 1999 Ozark Capital Trust, the Company's wholly owned Delaware trust subsidiary, sold to investors $17.3 million of 9% trust preferred securities. The proceeds were used to purchase an equal principal amount of subordinated debentures of Bank of the Ozarks, Inc. Subject to certain limitations, the trust preferred securities qualify as Tier 1 capital and are presented in the Consolidated Balance Sheets as "Guaranteed preferred beneficial interest in the Company's subordinated debentures." Both the trust preferred securities and the subordinated debentures will mature on June 18, 2029; however, they may be prepaid, subject to regulatory approval, prior to maturity at any time on or after June 18, 2004, or earlier upon certain changes in tax or investment company laws or regulatory capital requirements. The net proceeds from this offering were used to repay $12.5 million outstanding borrowings under the Company's revolving line of credit with the balance of the proceeds used for general corporate purposes including a $3.0 million capital investment in the Company's bank subsidiary. Growth and Expansion. On May 30, 2000 the Company opened its 24/th/ banking office located in Yellville, Arkansas, the county seat of Marion County. This new office is an expansion of the Company's operations in North Arkansas. During 2000 the Company broke ground for two new banking offices at 2520 South Zero Street in Fort Smith, Arkansas and 10300 Stagecoach Road in the Otter Creek area of Little Rock, Arkansas. The Company's new Fort Smith office will be its second in that city and is expected to open during the first half of 2001. The Company's new Otter Creek office will be the Company's seventh office in the Little Rock and North Little Rock market and is expected to open during the second quarter of 2001. The Company has submitted application for approval of a branch location in a Wal-Mart Supercenter located in Bryant, Arkansas. Opening is expected to occur in the first half of 2001 subject to regulatory approval. Capital expenditures were $1.6 million in 2000 and are projected to be in the range of $2.0-$2.5 million for 2001. 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 subsidiary relies on customer deposits and loan repayments as their primary sources of funds. The Company has used these funds, together with FHLB advances 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 Federal Reserve Bank borrowings At December 31, 2000, the Company's bank subsidiary had substantial unused borrowing availability. This availability was primarily comprised of the following three sources: (1) $188.5 million of available blanket borrowing capacity with the Federal Home Loan Bank which offers various terms, (2) $8.2 million of securities available to pledge on a federal funds line of credit or for repurchase agreements or other borrowings and (3) up to $4.4 million from several borrowing programs of the Federal Reserve Bank. Management anticipates the Company's bank subsidiary will continue to rely primarily on customer deposits and loan repayments to provide liquidity. Additionally, where necessary, the above described borrowings will be used to augment the Company's primary funding sources. Dividend Policy. In 2000 the Company paid dividends of $0.42 per share. In 1999 and 1998 the Company paid dividends of $0.40 and $0.23 per share, respectively. Commencing in the third quarter of 2000 the dividend was increased from $0.10 per quarter to $0.11 per quarter. The determination of future dividends on the Company's common stock will depend on conditions existing at that time. The Company's goal is to continue the current $0.11 quarterly dividend with consideration to future changes depending on the Company's earnings, capital and liquidity needs. 20 Year 2000 The Company believes it has completed its Year 2000 Project as scheduled. As of December 31, 2000, the Company's computer and other systems with imbedded microchips have operated without Year 2000 related problems and appear to be Year 2000 compliant. The Company is not aware that any of its software and hardware vendors, major loan customers, correspondent banks or governmental agencies with which the Company interacts have experienced material Year 2000 related problems. While the Company believes all of its critical systems are Year 2000 ready, there can be no guarantee the Company has discovered all possible failure points including all of its systems, non-ready third parties whose systems and failures could impact the Company, or other uncertainties. The Company's aggregate expenses incurred since 1996 with respect to its Year 2000 Project were less than $130,000, all of which were expensed as of December 31, 1999. A significant portion of these costs were represented by the redeployment of existing staff during 1998 and 1999 to the Year 2000 project. No projects under consideration by the Company have been deferred because of Year 2000 efforts. The Company does not anticipate any additional material costs relating to the Year 2000 issue. 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 net interest margin, net interest income and anticipated future operating and financial performance, statements regarding asset quality and nonperforming loans, 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. 21 Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends
2000 - Three Months Ended ---------------------------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 --------- --------- ---------- --------- (Dollars in thousands, except per share amounts) Total interest income........................... $ 14,404 $ 14,905 $ 15,425 $ 16,018 Total interest expense.......................... 8,198 8,812 9,856 10,223 -------- -------- --------- --------- Net interest income.......................... 6,206 6,093 5,569 5,795 Provision for loan losses....................... 378 324 1,225 398 Non-interest income............................. 1,250 1,417 1,552 1,323 Non-interest expense............................ 4,187 4,244 4,351 4,182 Income taxes.................................... 708 730 255 596 Distributions on trust preferred securities..... 397 397 397 396 -------- -------- --------- --------- Net income................................... $ 1,786 $ 1,815 $ 893 $ 1,546 ======== ======== ========= ========= Per share: Earnings - diluted........................... $ 0.47 $ 0.48 $ 0.24 $ 0.41 Cash dividends............................... 0.10 0.10 0.11 0.11 Bid price per common share: Low.......................................... $ 14.13 $ 14.94 $ 11.75 $ 10.19 High......................................... 19.44 18.25 16.50 12.94 1999 - Three Months Ended ---------------------------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 --------- --------- ---------- --------- (Dollars in thousands, except per share amounts) Total interest income........................... $ 11,730 $ 12,617 $ 13,234 $ 13,993 Total interest expense.......................... 6,421 6,730 7,012 7,618 -------- -------- -------- --------- Net interest income.......................... 5,309 5,887 6,222 6,375 Provision for loan losses....................... 611 580 578 716 Non-interest income............................. 1,269 1,303 1,293 1,282 Non-interest expense............................ 3,768 4,241 4,195 4,261 Income taxes.................................... 673 658 639 539 Distributions on trust preferred securities .... - 52 397 397 ======== ======== ======== ========= Net income................................... $ 1,526 $ 1,659 $ 1,706 $ 1,744 ======== ======== ======== ========= Per share: Earnings - diluted........................... $ 0.40 $ 0.44 $ 0.45 $ 0.46 Cash dividends............................... 0.10 0.10 0.10 0.10 Bid price per common share: Low.......................................... $ 20.50 $ 17.00 $ 16.75 $ 16.63 High......................................... 23.25 21.38 21.25 20.63
See Note 14 to Consolidated Financial Statements for discussion of dividend restrictions. 22 Report of Independent Auditors ------------------------------ Board of Directors and Shareholders Bank of the Ozarks, Inc. We have audited the accompanying consolidated balance sheets of Bank of the Ozarks, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bank of the Ozarks, Inc. and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP -------------------------------- Ernst & Young LLP Little Rock, Arkansas January 11, 2001 23 BANK OF THE OZARKS, INC. CONSOLIDATED BALANCE SHEETS
December 31, ------------------------------------------------ 2000 1999 ----------------- ----------------- (Dollars in thousands, except per share amounts) ASSETS ------ Cash and due from banks $ 20,523 $ 24,279 Interest-bearing deposits 17 283 ---------- --------- Cash and cash equivalents 20,540 24,562 Investment securities - available for sale 51,696 44,837 Investment securities - held to maturity (estimated market value: $197,819 in 2000 and $205,749 in 1999) 201,520 218,558 Federal funds sold 2,000 - Loans, net of unearned income 510,544 467,131 Allowance for loan losses (6,606) (6,072) ---------- --------- Net loans 503,938 461,059 Premises and equipment, net 30,535 30,547 Foreclosed assets held for sale, net 1,600 2,238 Interest receivable 8,894 7,174 Intangible assets, net 3,064 3,323 Other 3,165 3,744 ---------- --------- Total assets $ 826,952 $ 796,042 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Deposits Demand non-interest bearing $ 64,572 $ 56,177 Savings and interest-bearing transaction 113,606 105,211 Time 499,505 434,542 ---------- --------- Total deposits 677,683 595,930 Repurchase agreements with customers 13,839 9,026 Other borrowings 66,703 126,989 Accrued interest and other liabilities 3,128 2,973 ---------- --------- Total liabilities 761,353 734,918 Guaranteed preferred beneficial interest in the Company's subordinated debentures 17,250 17,250 Commitments and contingencies - - Stockholders' equity Preferred stock; $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding - - Common stock; $0.01 par value, 10,000,000 shares authorized, 3,779,555 shares issued and outstanding in 2000 and 1999 38 38 Additional paid-in capital 14,314 14,314 Retained earnings 35,498 31,045 Accumulated other comprehensive loss (1,501) (1,523) ---------- --------- Total stockholders' equity 48,349 43,874 ---------- --------- Total liabilities and stockholders' equity $ 826,952 $ 796,042 ========== =========
The accompanying notes are an integral part of these consolidated financial statements. 24 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, ----------------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- (Dollars in thousands, except per share amounts) Interest income Loans $ 43,451 $ 37,008 $ 31,168 Investment securities - taxable 15,331 12,847 6,654 - nontaxable 1,953 1,675 766 Deposits with banks and federal funds sold 17 45 294 --------- --------- --------- Total interest income 60,752 51,575 38,882 --------- --------- --------- Interest expense Deposits 29,701 23,831 18,118 Repurchase agreements with customers 680 132 4 Other borrowings 6,708 3,819 2,396 --------- --------- --------- Total interest expense 37,089 27,782 20,518 --------- --------- --------- Net interest income 23,663 23,793 18,364 Provision for loan losses (2,325) (2,485) (2,026) --------- --------- --------- Net interest income after provision for loan losses 21,338 21,308 16,338 --------- --------- --------- Other income Trust income 592 479 335 Service charges on deposit accounts 3,380 2,499 1,372 Other income, charges and fees 1,530 1,936 2,792 Gain on sale of securities - 69 255 Other 40 164 277 --------- --------- --------- Total other income 5,542 5,147 5,031 --------- --------- --------- Other expense Salaries and employee benefits 8,928 8,752 7,197 Net occupancy and equipment 2,910 2,655 1,961 Other operating expenses 5,126 5,057 3,961 --------- --------- --------- Total other expense 16,964 16,464 13,119 --------- --------- --------- Income before income taxes and trust distribution 9,916 9,991 8,250 Distributions on trust preferred securities 1,587 846 - Provision for income taxes 2,289 2,510 2,621 --------- --------- --------- Net income $ 6,040 $ 6,635 $ 5,629 ========= ========= ========= Basic earnings per common share $ 1.60 $ 1.76 $ 1.49 ========= ========= ========= Diluted earnings per common share $ 1.60 $ 1.75 $ 1.47 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 25 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Accumulated Other Common Paid-In Retained Comprehensive Stock Capital Earnings Income (Loss) Total ------- ---------- -------- ----------------- --------- (Dollars in thousands, except per share amounts) Balance - January 1, 1998 $ 38 $ 14,314 $ 21,162 $ 152 $ 35,666 Comprehensive income: Net income - - 5,629 - 5,629 Other comprehensive income Unrealized gains on available for sale securities net of $35 tax effect - - - 57 57 Less: reclassification adjustment for gains included in income net of $79 tax effect - - - (128) (128) --------- Comprehensive income 5,558 Dividends paid, $0.23 per share - - (869) - (869) ------ -------- -------- -------- --------- Balance - December 31, 1998 38 14,314 25,922 81 40,355 Comprehensive income: Net income - - 6,635 - 6,635 Other comprehensive income (loss) Unrealized losses on available for sale securities net of $966 tax effect - - - (1,558) (1,558) Less: reclassification adjustment for gains included in income net of $30 tax effect - - - (46) (46) --------- Comprehensive income 5,031 Dividends paid, $0.40 per share - - (1,512) - (1,512) ------ -------- -------- -------- --------- Balance - December 31, 1999 38 14,314 31,045 (1,523) 43,874 Comprehensive income: Net income - - 6,040 - 6,040 Other comprehensive income Unrealized gains on available for sale securities net of $14 tax effect - - - 22 22 Reclassification adjustment for gains included in income - - - - - --------- Comprehensive income 6,062 Dividends paid, $0.42 per share (1,587) (1,587) ------ -------- -------- -------- --------- Balance - December 31, 2000 $ 38 $ 14,314 $ 35,498 $ (1,501) $ 48,349 ====== ======== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 26 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ---------------------------------------- 2000 1999 1998 -------- ---------- ---------- (Dollars in thousands) Cash flows from operating activities Net income $ 6,040 $ 6,635 $ 5,629 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,490 1,375 1,043 Amortization 293 262 173 Provision for loan losses 2,325 2,485 2,026 Provision for losses on foreclosed assets 183 90 35 Amortization and accretion on investment securities (104) (132) (115) Gain on disposition of investments - (69) (255) Gain on sale of loans - (4) - (Increase) decrease in mortgage loans held for sale 545 4,308 (3,750) Gain on disposition of premises and equipment (8) (36) (14) (Gain) loss on disposition of foreclosed assets 45 28 (98) Deferred income taxes 405 (139) 222 Changes in assets and liabilities: Interest receivable (1,720) (1,657) (2,502) Other assets, net 128 (1,500) (305) Accrued interest and other liabilities 155 1,017 74 -------- --------- --------- Net cash provided by operating activities 9,777 12,663 2,163 -------- --------- --------- Cash flows from investing activities Acquisitions, net of funds acquired - - 22,123 Proceeds from sales and maturities of investment securities available for sale 316 19,922 54,036 Purchases of investment securities available for sale (7,093) (49,635) (20,260) Proceeds from maturities of investment securities held to maturity 20,176 42,293 67,386 Purchases of investment securities held to maturity (3,080) (101,756) (234,804) Increase (decrease) in federal funds sold (2,000) - 3,149 Net increase in loans (48,862) (89,630) (110,019) Proceeds from sale of loans - 994 - Proceeds from dispositions of bank premises and equipment 99 317 30 Purchases of bank premises and equipment (1,570) (5,048) (14,109) Proceeds from dispositions of foreclosed assets 3,524 1,454 525 -------- --------- --------- Net cash used in investing activities (38,490) (181,089) (231,943) -------- --------- --------- Cash flows from financing activities Net increase in deposits 81,752 66,890 208,455 Net (repayments) proceeds from other borrowings (60,287) 87,718 20,182 Net increase in repurchase agreements with customers 4,813 7,618 1,408 Proceeds from trust preferred - 17,250 - Dividends paid (1,587) (1,512) (869) -------- --------- --------- Net cash provided by financing activities 24,691 177,964 229,176 -------- --------- --------- Net increase (decrease) in cash and cash equivalents (4,022) 9,538 (604) Cash and cash equivalents - beginning of year 24,562 15,024 15,628 -------- --------- --------- Cash and cash equivalents - end of year $ 20,540 $ 24,562 $ 15,024 ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 27 BANK OF THE OZARKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 1. Summary of Significant Accounting Policies Organization - Bank of the Ozarks, Inc. (the "Company") is a bank ------------ holding company headquartered in Little Rock, Arkansas, which operates under the rules and regulations of the Board of Governors of the Federal Reserve System and owns a state chartered bank and Ozark Capital Trust, a Delaware business trust. The bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The bank has offices located in northern, western, and central Arkansas. Merger of subsidiaries - During 1999 the Company consolidated its ---------------------- federal savings bank and two banking subsidiaries into a single banking subsidiary. This resulted in the Company owning one state chartered bank subsidiary which is named Bank of the Ozarks. Principles of consolidation - The consolidated financial statements --------------------------- include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany transactions and amounts have been eliminated in consolidation. Use of estimates - The preparation of financial statements in ---------------- conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Cash and cash equivalents - For purposes of reporting cash flows, cash ------------------------- and cash equivalents include cash on hand, amounts due from banks and interest-bearing deposits with banks. Investment securities - Management determines the appropriate --------------------- classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity or trading and marketable equity securities not classified as trading are classified as available-for-sale. Available-for-sale securities are stated at estimated fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization is included in interest income from investments. Interest and dividends are included in interest income from investments. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Gains or losses on the sale of securities are recognized on the specific identification method at the time of sale. Loans - 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 adjusted for any charge-offs, deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans. Unearned discounts on certain installment loans are recognized as income over the terms by the rule of 78's interest method which approximates the interest method. The Company discontinued the use of the rule of 78's method on loans originated in 1999, and interest on these loans is recognized using the 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 on the related loans. Allowance for loan losses - The allowance for loan losses is ------------------------- established through a provision for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely, and subsequent recoveries, if any, are credited to the allowance. The allowance is maintained at a level that management believes will be adequate to absorb 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. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands All nonaccrual loans and all loans that have been restructured from their original contractual terms are considered impaired 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. Premises and equipment - Premises and equipment are stated at cost ---------------------- less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets. Estimated book depreciation lives for the major classes of assets are 20 to 50 years for buildings, 40 years for leaseholds and 3 to 15 years for furniture, fixtures and equipment. Accelerated depreciation methods are used for tax purposes. Foreclosed assets held for sale - Real estate and personal properties ------------------------------- acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, real property is generally amortized over 60 months unless regulatory authority approves the write off over an extended period. Valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or 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. Under this method, deferred tax assets and 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 consolidated 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 differ materially from the accrual method. Intangible assets - Intangible assets consist of goodwill and core ----------------- deposit intangibles. These assets are being amortized over periods ranging from 10 to 40 years. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Core deposit intangibles represent premiums paid for deposits acquired. Accumulated amortization of intangibles totaled $1,524 and $1,449 at December 31, 2000 and 1999, respectively. Earnings per share - Basic earnings per share has been calculated ------------------ based on the weighted average number of shares outstanding. Diluted earnings per share has been calculated based on the weighted average number of shares outstanding after consideration of the dilutive effect of the Company's outstanding stock options. 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 $551, $612 and $566 for the years ended December 31, 2000, 1999 and 1998, respectively. Stock-based compensation - The Company has elected to follow ------------------------ Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("ABP 25") and related interpretations in accounting for its employee stock options. Under ABP 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". Segment Disclosures - On December 31, 1998, the Company adopted SFAS ------------------- No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 established standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. As the Company operates in only one segment - community banking - the adoption of SFAS 131 did not have a material effect on the primary financial statements or the disclosure of segment information. No revenues are derived from foreign countries and no single external customer comprises more than 10% of the Company's revenues. Derivatives and Hedging Activities - In June 1998, the Financial ---------------------------------- Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, which requires the Company to recognize all derivatives on the balance sheet at fair value, was adopted by the Company effective July 1, 1998. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the assets, liabilities, or firm 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portions of a derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS No. 133 did not have a significant impact on the Company's financial position or results of operations. In connection with the adoption of SFAS No. 133, the Company transferred investment securities with a carrying value of $25,795 and unrealized gains of $167 from its held-to-maturity to available-for-sale portfolio. Reclassifications - Certain reclassifications of 1999 and 1998 amounts ----------------- have been made to conform with the 2000 financial statements presentation. 2. Investment Securities The following is a summary of the amortized cost and estimated market values of investment securities:
December 31, 2000 ----------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- --------- Securities - available for sale: Securities of United States government and agencies $ - $ - $ - $ - Mortgage-backed securities 178 - (4) 174 State and political subdivisions 42,943 - (2,377) 40,566 Other securities 11,006 72 (122) 10,956 --------- ---------- ---------- --------- Total securities - available for sale $ 54,127 $ 72 $ (2,503) $ 51,696 ========= ========== ========== ========= Securities - held to maturity: Securities of United States government and agencies $ 195,771 $ - $ (3,664) $ 192,107 State and political subdivisions 2,569 16 (59) 2,526 Other securities 3,180 6 - 3,186 --------- ---------- ---------- --------- Total securities - held to maturity $ 201,520 $ 22 $ (3,723) $ 197,819 ========= ========== ========== ========= December 31, 1999 ----------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- --------- Securities - available for sale: Securities of United States government and agencies $ - $ - $ - $ - Mortgage-backed securities 201 - (9) 192 State and political subdivisions 39,488 - (2,528) 36,960 Other securities 7,615 70 - 7,685 --------- ---------- ---------- --------- Total securities - available for sale $ 47,304 $ 70 $ (2,537) $ 44,837 ========= ========== ========== ========= Securities - held to maturity: Securities of United States government and agencies $ 215,713 $ - $ (12,766) $ 202,947 State and political subdivisions 2,745 14 (54) 2,705 Other securities 100 - (3) 97 --------- ---------- ---------- --------- Total securities - held to maturity $ 218,558 $ 14 $ (12,823) $ 205,749 ========= ========== ========== =========
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands 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, 2000 are as follows:
Available-for-Sale Held-to-Maturity ------------------------ ------------------------ Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value --------- --------- --------- --------- Due in one year or less $ 2,214 $ 2,212 $ 239 $ 239 Due from one year to five years 6,463 6,260 1,352 1,351 Due from five years to ten years 8,808 8,479 161,944 159,302 Due after ten years 36,642 34,745 37,985 36,927 --------- --------- --------- --------- Totals $ 54,127 $ 51,696 $ 201,520 $ 197,819 ========= ========= ========= =========
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities which are not due at a single maturity date have been allocated over maturity groupings based on anticipated maturities. The mortgage-backed securities may mature earlier than their weighted average contractual maturities because of principal prepayments. During the year ended December 31, 2000 no investment securities available- for-sale were sold. During the years ended December 31, 1999 and 1998, investment securities available-for-sale with a fair value at the date of sale of $18,408 and $41,613, respectively, were sold. The gross realized gains on such sales in 1999 and 1998 totaled $78 and $322, respectively. The gross realized losses totaled $9 and $67, respectively. The income tax expenses related to net security gains was $23 and $87 in 1999 and 1998, respectively. The Bank had no trading securities during 2000, 1999 or 1998. Assets, principally investment securities, having a carrying value of approximately $229,853 and $202,660 at December 31, 2000 and 1999, 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:
December 31, -------------------- 2000 1999 -------- -------- Real Estate Residential 1-4 family $144,920 $136,856 Non-farm/non-residential 134,726 101,766 Agricultural 38,808 20,396 Construction/land development 42,354 28,294 Multifamily residential 8,367 4,687 Consumer 58,430 81,753 Commercial and industrial 63,799 70,012 Agricultural (non-real estate) 14,605 19,947 Other 4,535 3,420 -------- -------- Loans, net of unearned discounts $510,544 $467,131 ======== ========
These loan categories are presented net of unearned discounts, unearned purchase discounts and deferred costs totaling $799 at December 31, 2000 and $812 at December 31, 1999. Loans on which the accrual of interest has been discontinued aggregated $1,880 and $1,972 at December 31, 2000 and 1999, respectively. Mortgage loans held for resale of $1,832 and $2,377 at December 31, 2000 and 1999, respectively, are included in residential 1-4 family loans. The carrying value of these loans approximate their fair value. Other income, charges and fees include mortgage lending income of $849, $1,306 and $2,136 during 2000, 1999 and 1998, respectively. 4. Allowance for Loan Losses The following is a summary of activity within the allowance for loan losses:
Year Ended December 31, ----------------------------------- 2000 1999 1998 -------- -------- -------- Balance - beginning of year $ 6,072 $ 4,689 $ 3,737 Loans charged-off (1,998) (1,225) (1,149) Recoveries on loans previously charged-off 207 123 75 -------- -------- -------- Net charge-offs (1,791) (1,102) (1,074) Provision charged to operating expense 2,325 2,485 2,026 -------- -------- -------- Balance - end of year $ 6,606 $ 6,072 $ 4,689 ======== ======== ========
Impairment of loans having carrying values of $1,880 and $1,972 (all of which were on a non-accrual basis) at December 31, 2000 and 1999, respectively, have been recognized in conformity with SFAS No. 114, as amended by SFAS No. 118. The total allowance for credit losses related to these loans was $212 and $276 at December 31, 2000 and 1999, respectively. The average carrying value of impaired loans was $2,748, $3,611 and $1,840, for the years ended December 31, 2000, 1999 and 1998, respectively. The Company does not segregate income recognized on a cash basis in its 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 provision for loan losses in the same manner in which impairment 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands initially was recognized or as a reduction in the amount of provision for loan losses that otherwise would be reported. Real estate securing loans having a carrying value of $2,641 and $3,625 was transferred to foreclosed assets held for sale in 2000 and 1999, respectively. The bank is not committed to lend additional funds to debtors whose loans have been modified. 5. Premises and Equipment The following is a summary of premises and equipment: December 31, -------------------- 2000 1999 ------- ------- Land $ 7,289 $ 7,284 Construction in process 369 60 Buildings and improvements 19,408 18,130 Leasehold improvements 2,460 2,243 Equipment 7,926 8,384 ------- ------- 37,452 36,101 Accumulated depreciation (6,917) (5,554) ------- ------- Premises and equipment, net $30,535 $30,547 ======= ======= The Company capitalized $52, $51 and $275 of interest on construction projects during the years ended December 31, 2000, 1999 and 1998, respectively. Included in occupancy expense is rent of approximately $123, $71, and $45 incurred under noncancelable operating leases in 2000, 1999 and 1998, respectively, for leases of real estate in connection with buildings and premises. These leases contain certain renewal and purchase options according to the terms of the agreements. Future amounts due under noncancelable operating leases at December 31, 2000 are $101 -- 2001, $76 -- 2002, $76 -- 2003, $76 -- 2004, $60 -- 2005 and $849 - thereafter. 6. Deposits The aggregate amount of time deposits with a minimum denomination of $100 was $265,345 and $190,900 at December 31, 2000 and 1999, respectively. The following is a summary of the scheduled maturities of all time deposits: December 31, ----------------------- 2000 1999 -------- --------- Up to one year $470,707 $384,365 One year to two years 24,543 43,859 Two years to three years 1,954 3,653 Three years to four years 1,019 1,096 Four years to five years 556 811 Thereafter 726 758 -------- -------- Total time deposits $499,505 $434,542 ======== ======== 7. Borrowings Short-term borrowings with maturities less than one year include FHLB advances, non-customer repurchase agreements, treasury, tax and loan note accounts and federal funds purchased. The following is a summary of information relating to the short-term borrowings: December 31, ---------------------- 2000 1999 ------- ------- Average annual balance $28,700 $20,793 December 31 balance 1,062 38,206 Maximum month-end balance during year 45,702 38,206 Interest rate: Weighted average 6.37% 4.47% December 31 5.00% 4.53% The following is a summary of long term borrowings:
December 31, ---------------------------- 2000 1999 ---------- ---------- FHLB advances with original maturities exceeding one year. Interest rates range from 5.93% to 6.43% at December 31, 2000. At December 31, 2000, the Company's bank subsidiary had remaining $188,500 of unused blanket FHLB borrowing availability. The FHLB maintains as collateral a blanket lien on a portion of the Company's real estate, commercial and agricultural loans. $65,581 $97,725 Other 60 84 ---------- ---------- $65,641 $97,809 ========== ==========
Maturities of long term borrowings at December 31, 2000 are as follows: 2001--$4,198; 2002--$198; 2003--$258; 2004--$198; 2005--$198; 2006--$197; 2007- - -$197; 2008--$197 and 2010 -- $60,000. FHLB advances of $60 million maturing in 2010 may be called quarterly but the Company has the option to refinance on a long-term basis any amounts called. During 2000 the Company terminated their revolving line of credit for up to $22 million with a correspondent bank. No borrowings were outstanding on the line of credit at December 31, 1999. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands 8. Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debentures On June 18, 1999 Ozark Capital Trust ("Ozark Capital"), a Delaware business trust wholly owned by Bank of the Ozarks, Inc., sold to investors in a public underwritten offering $17.3 million of 9% cumulative trust preferred securities. The proceeds were used to purchase an equal principal amount of 9% subordinated debentures of Bank of the Ozarks, Inc. Bank of the Ozarks, Inc. has, through various contractual arrangements, fully and unconditionally guaranteed all obligations of Ozark Capital on a subordinated basis with respect to the preferred securities. Subject to certain limitations, the preferred securities qualify as Tier 1 capital and are presented in the Consolidated Balance Sheets as "Guaranteed preferred beneficial interest in the Company's subordinated debentures." The sole asset of Ozark Capital is the subordinated debentures issued by Bank of the Ozarks, Inc. Both the preferred securities of Ozark Capital and the subordinated debentures of Bank of the Ozarks, Inc. will mature on June 18, 2029; however, they may be prepaid, subject to regulatory approval, prior to maturity at any time on or after June 18, 2004, or earlier upon certain changes in tax or investment company laws or regulatory capital requirements. 9. Income Taxes The following is a summary of the components of the provision (benefit) for income taxes: Year Ended December 31, ------------------------------- 2000 1999 1998 -------- -------- -------- Current: Federal $1,884 $2,814 $2,363 State - (165) 36 -------- -------- ------- Total current 1,884 2,649 2,399 -------- -------- ------- Deferred: Federal 405 (146) 180 State - 7 42 -------- -------- ------- Total deferred 405 (139) 222 -------- -------- ------- Provision for income taxes $2,289 $2,510 $2,621 ======== ======== ======= The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows:
Year Ended December 31, ---------------------------------------------------- 2000 1999 1998 ------------- ------------- ------------ Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit - - 0.6 Effect of non-taxable interest income (7.1) (5.7) (3.7) Refund of 1992 state income tax assessment - (1.1) - Other 0.6 0.2 0.9 ------------- ------------- ------------ Effective income tax rate 27.5% 27.4% 31.8% ============= ============= ============
In 1999 the Company recorded a tax refund for 1992 state income taxes. The state agreed to a settlement with respect to a 1992 tax assessment the Company had paid in 1997. This settlement resulted in a refund of $153 of tax and $91 of interest. These were recorded in 1999 as a credit to tax expense and other income, respectively. 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:
December 31, -------------------------------- 2000 1999 ------------- ------------ Deferred tax assets: Allowance for loan losses $2,153 $1,913 Valuation of foreclosed assets 40 13 Unrealized depreciation on securities available for sale 931 945 ------------- ------------ Gross deferred tax assets 3,124 2,871 Deferred tax liabilities: Accelerated depreciation on premises and equipment 1,269 807 Other 418 208 ------------- ------------ Gross deferred tax liabilities 1,687 1,015 Net deferred tax assets included ------------- ------------ in other assets $1,437 $1,856 ============= ============
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands 10. Employee Benefit Plans Employee Stock Ownership Plan - The Company had an employee stock ownership ----------------------------- plan ("ESOP") to provide benefits to substantially all employees of the Company. The ESOP was merged into the 401(k) Plan in 1999. The Company had historically made annual contributions to the plan as determined solely by the Board of Directors. The Company made no contributions in 1999 and 1998. 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. 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 six years and will be held in trust until distributed pursuant to the terms of the 401(k) Plan. 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. The Company made matching contributions to the 401(k) plan during 2000, 1999 and 1998 of $160, $146 and $99, respectively. 11. Stock Options The Company has a nonqualified stock option plan for certain key employees and officers of the Company. This plan provides for the granting of incentive nonqualified options to purchase up to 285,000 shares of common stock in 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 Company also has a nonqualified stock option plan for non-employee directors. 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. The following summarizes stock option activity for the year indicated:
Year ended December 31, -------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------------ ------------------------------------ ------------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------------- ------------------ ------------- ------------------ ------------- ------------ Outstanding - beginning of year 254,100 $19.72 198,050 $20.42 106,500 $16.42 Granted 105,650 12.26 71,500 17.96 103,700 24.11 Exercised - - - Canceled (51,975) 20.15 (15,450) 20.57 (12,150) 16.00 ---------- ----------- ----------- Outstanding - end of year 307,775 $17.08 254,100 $19.72 198,050 $20.42 ========== =========== =========== Exercisable at end of year 144,825 $18.68 83,200 $22.20 17,000 $22.37 ========== =========== ===========
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands Exercise prices for options outstanding as of December 31, 2000 ranged from $11.85 to $34.13. The weighted-average fair value of options granted during 2000, 1999 and 1998 was $4.22, $6.85 and $8.36, respectively. The weighted- average remaining contractual life of the options issued in 2000 is 3.4 years. 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: 2000 1999 1998 ---- ---- ---- Risk-free interest rate 5.71% 5.71% 4.94% Dividend yield 2.77 2.00 0.91 Expected dividend yield increase 9.00 12.00 15.00 Expected stock volatility 38.88 42.16 39.09 Weighted average expected life 5 years 5 years 4 years For purposes of pro forma disclosures as required by SFAS No. 123, the estimated fair value of the options is amortized over the option's vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1996:
2000 1999 1998 -------------- -------------- -------------- Pro forma net income $5,797 $6,243 $5,363 Pro forma earnings per share: Basic 1.53 1.65 1.42 Diluted 1.53 1.64 1.40
The following is a summary of currently outstanding and exercisable options at December 31, 2000:
Options Outstanding Options Exercisable --------------------------------------------------------- ----------------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Options Contractual Exercise Options Exercise Prices Outstanding Life (in years) Price Exercisable Price - -------------- ------------- --------------- --------------- ------------- --------------- $11.85-19.19 233,050 6.3 $14.78 87,400 $16.36 21.50-27.75 68,725 3.6 23.39 51,425 22.05 34.13 6,000 7.3 34.13 6,000 34.13 ------------- ---------- 307,775 144,825 ============= ==========
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's 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 $53,803 and $36,686 at December 31, 2000 and 1999, 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 $1,922 and $684 at December 31, 2000 and 1999, 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. 13. 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, 2000 and 1999 was $8,061 and $7,513, respectively. New loans and advances on prior commitments made to 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands such related parties were $13,955, $3,263 and $5,483 for the years ended December 31, 2000, 1999 and 1998, respectively. Repayments of loans made by such related parties were $13,407, $1,067 and $376 for the years ended December 31, 2000, 1999 and 1998, respectively. During 2000 and 1999 the Company constructed four banking buildings. The majority owner of the contractor on these construction projects is a member of the Company's Board of Directors. Total payments to the contractor during the years ended December 31, 2000 and 1999 were approximately $708 and $2,343, respectively. 14. 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 Company's regulatory capital positions were as follows:
December 31, 2000 December 31, 1999 -------------------------------- -------------------------------- Computed Computed Computed Computed Capital Percent Capital Percent -------------------------------- -------------------------------- Bank of the Ozarks, Inc. (consolidated): Total risk-based capital $70,642 12.83% $65,415 13.15% Tier 1 risk-based capital 63,403 11.52 57,225 11.50 Leverage ratio - 7.57 - 7.46 Bank of the Ozarks: Total risk-based capital $68,963 12.54% $63,552 12.64% Tier 1 risk-based capital 62,357 11.34 57,450 11.44 Leverage ratio - 7.45 - 7.50
As of December 31, 2000 and 1999, the most recent notification from the regulators categorized the Company and its subsidiary bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company's or its subsidiary bank's category. At December 31, 2000, the subsidiary bank exceeded its minimum capital requirements. As of December 31, 2000, the state bank commissioner's approval was required before the bank could declare and pay any dividend of 75% or more of the net profits of the bank after all taxes for the current year plus 75% of the retained net profits for the immediately preceding year. $6,144 was available at December 31, 2000, for payments of dividends by the bank without the approval of regulatory authorities. Under Federal Reserve regulation, the subsidiary bank is also limited as to the amount it may loan to its affiliates, including the Company, unless such loans are collateralized by specific obligations. At December 31, 2000, the maximum amount available for transfer from the subsidiary bank to the Company in the form of loans approximated $6,896. The subsidiary bank is 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, 2000 and 1999, these required balances aggregated $678 and $5,458, respectively. 15. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of financial instruments. Cash and due from banks - For these 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, net of unearned income - 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. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands Other borrowed funds - For these 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. 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 judgments 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.
2000 1999 ------------------------------------------------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value --------------- --------------- -------------- --------------- Financial assets: Cash and cash equivalents $ 20,540 $ 20,540 $ 24,562 $ 24,562 Available-for-sale securities 51,696 51,696 44,837 44,837 Held-to-maturity securities 201,520 197,819 218,558 205,749 Loans, net of allowance for loan losses 503,938 501,842 461,059 456,848 Accrued interest receivable 8,894 8,894 7,174 7,174 Financial liabilities: Demand, NOW and savings account deposits $178,178 $178,178 $161,388 $161,388 Time deposits 499,505 502,214 434,542 434,000 Repurchase agreements with customers 13,839 13,844 9,026 9,026 Other borrowings 66,703 70,038 126,989 124,243 Accrued interest and other liabilities 3,128 3,128 2,973 2,973 Off balance sheet items: Standby letters of credit $ - $ 1,922 $ - $ 684 Commitments to extend credit - 53,802 - 36,686
16. Supplemental Cash Flow Information Supplemental cash flow information is as follows:
Year Ended December 31, --------------------------------------------------- 2000 1999 1998 -------------- ------------- -------------- Cash paid during the period for: Interest $36,909 $27,448 $20,466 Income taxes 1,927 2,314 2,333 Supplemental schedule of non-cash investing and financing activities: Transfer of loans to foreclosed assets held for sale 2,641 3,625 628 Loans advanced for sales of foreclosed assets 441 771 251 Change in unrealized loss (gain) in available for sale securities (36) 2,600 (78)
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands 17. Other Operating Expenses The following is a summary of other operating expenses:
Year Ended December 31, ------------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ Telephone and data lines $ 714 $ 604 $ 453 Operating supplies 487 513 454 Advertising and public relations 551 612 566 Other 3,374 3,328 2,488 ------------ ------------ ------------ Total other operating expenses $5,126 $5,057 $3,961 ============ ============ ============
18. Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per share ("EPS"):
Year Ended December 31, ------------------------------------------------- 2000 1999 1998 ------------ ------------ ----------- Numerator: Net income $6,040 $6,635 $5,629 ============ ============ =========== Denominator: Denominator for basic EPS weighted average shares 3,780 3,780 3,780 Effect of dilutive securities: Stock options 2 12 39 ------------ ------------ ----------- Denominator for diluted EPS - adjusted weighted average shares and assumed conversions 3,782 3,792 3,819 ============ ============ =========== Basic EPS $ 1.60 $ 1.76 $ 1.49 ============ ============ =========== Diluted EPS $ 1.60 $ 1.75 $ 1.47 ============ ============ ===========
Options to purchase 211, 97 and 24 shares of common stock at prices ranging from $21.50 to $34.13 per share were outstanding during 2000, 1999 and 1998 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares and inclusion would have been antidilutive. 19. Parent Company Financial Information The following condensed balance sheets, income statements and statements of cash flows reflect the financial position and results of operations for the parent company: Condensed Balance Sheets
December 31, ------------------------------- 2000 1999 ------------- ------------- Assets ------ Cash and cash equivalents $ 720 $ 713 Investment in subsidiaries 63,307 58,580 Premises and equipment, net 6 14 Excess cost over fair value of net assets acquired, at amortized cost 1,148 1,204 Debt issuance cost, net 970 1,004 Other 25 214 ------------- ------------- Total assets $66,176 $61,729 ============= ============= Liabilities and Stockholders' Equity ------------------------------------ Accrued interest and other liabilities $ 43 $ 47 Notes payable - 24 Subordinated debentures 17,784 17,784 ------------- ------------- Total liabilities 17,827 17,855 ------------- ------------- Stockholders' equity Common stock 38 38 Additional paid-in capital 14,314 14,314 Retained earnings 35,498 31,045 Accumulated other comprehensive income (1,501) (1,523) ------------- ------------- Total stockholders' equity 48,349 43,874 ------------- ------------- Total liabilities and stockholders' equity $66,176 $61,729 ============= =============
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands Condensed Statements of Income
Year Ended December 31, --------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Income Dividends from subsidiaries $2,748 $2,591 $3,174 Other 29 92 2 ----------- ----------- ----------- Total income 2,777 2,683 3,176 ----------- ----------- ----------- Expenses Interest 1,636 1,257 637 Net occupancy and equipment - - 53 Other operating expenses 477 777 620 ----------- ----------- ----------- Total expenses 2,113 2,034 1,310 ----------- ----------- ----------- Income before income tax benefit and equity in undistributed earnings of subsidiaries 664 649 1,866 Income tax benefit 672 743 461 Equity in undistributed earnings of subsidiary 4,704 5,243 3,302 ----------- ----------- ----------- Net income $6,040 $6,635 $5,629 =========== =========== ===========
Condensed Statements of Cash Flows
Year Ended December 31, --------------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- Cash flows from operating activities Net income $ 6,040 $ 6,635 $ 5,629 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 8 11 13 Amortization 90 75 77 Equity in undistributed earnings of subsidiaries (4,704) (5,243) (3,302) Change in assets and liabilities: Accrued interest and other liabilities (4) 27 (110) Other, net 188 (195) (3) ------------- ------------- ------------- Net cash provided by operating activities 1,618 1,310 2,304 ------------- ------------- ------------- Cash flows from investing activities Purchases of premises and equipment - - (7) Purchase 100% of the stock in Heartland Community Bank, FSB - - (3,100) Additional investment in subsidiaries - (3,534) (9,000) Dividends from prior years earnings of subsidiary - - 143 -------------- ------------ ------------ Net cash used in investing activities - (3,534) (11,964) -------------- ------------ ------------ Cash flows from financing activities Increase in deferred debt issuance cost - (1,022) - Issue subordinated debentures - 17,784 - Proceeds from notes payable - - 14,350 Payments of notes payable (24) (12,364) (7,034) Dividends paid (1,587) (1,512) (869) -------------- ------------ ------------ Net cash (used in) provided by financing activities (1,611) 2,886 6,447 -------------- ------------ ------------ Net increase (decrease) in cash and cash equivalents 7 662 (3,213) Cash and cash equivalents - beginning of period 713 51 3,264 -------------- ------------ ------------ Cash and cash equivalents - end of period $ 720 $ 713 $ 51 ============== ============ ============
39 EX-21 5 0005.txt SUBSIDIARIES OF REGISTRANT Exhibit 21 Subsidiaries of Registrant 1. Bank of the Ozarks, an Arkansas state chartered bank. 2. Ozark Capital Trust, a Delaware business trust. EX-23.1 6 0006.txt CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 Consent of Independent Auditors 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 11, 2001, included in the 2000 Annual Report to Shareholders of Bank of the Ozarks, Inc. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-32173) pertaining to the Bank of the Ozarks, Inc. Stock Option Plan, (Form S-8 No. 333-74577) pertaining to the Bank of the Ozarks, Inc. 401(k) Retirement Savings Plan, and (Form S-8 No. 333-32175) pertaining to the Bank of the Ozarks, Inc. Non-employee Director Stock Option Plan, of our report dated January 11, 2001, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. for the year ended December 31, 2000. /s/ Ernst & Young LLP Little Rock, Arkansas March 19, 2001 -----END PRIVACY-ENHANCED MESSAGE-----