10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q __________________ (Mark one) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________. Commission File Number 0-22759 BANK OF THE OZARKS, INC. (Exact name of registrant as specified in its charter) ARKANSAS 71-0556208 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 12615 CHENAL PARKWAY, LITTLE ROCK, ARKANSAS 72211 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 978-2265 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practical date. Class Outstanding at March 31, 2001 --------------------------------------- ------------------------------------- Common Stock, $0.01 par value per share 3,779,555 BANK OF THE OZARKS, INC. FORM 10-Q March 31, 2001 INDEX
PART I. Financial Information Item 1. Consolidated Balance Sheets as of March 31, 2001 and 2000 and December 31, 2000 1 Consolidated Statements of Income for the Three Months Ended March 31, 2001 and 2000 2 Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2001 and 2000 3 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Selected and Supplemental Financial Data 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II. Other Information Item 1. Legal Proceedings 21 Item 2 Change in Securities N/A Item 3. Defaults Upon Senior Securities N/A Item 4. Submission of Matters to a Vote of Security Holders N/A Item 5. Other Information N/A Item 6. Exhibits and Reports on Form 8-K (a). Exhibits Reference is made to the Exhibit Index contained at the end of this report. (b). Reports on Form 8-K 22 Signature 23 Exhibit Index 24
BANK OF THE OZARKS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) Unaudited
March 31, December 31, -------------------------------- -------------- 2001 2000 2000 ------------- ------------- -------------- ASSETS Cash and due from banks $ 18,504 $ 24,785 $ 20,523 Interest-earning deposits 212 519 17 Investment securities - available for sale 41,047 44,560 51,696 Investment securities - held to maturity 182,545 218,536 201,520 Federal funds sold - 11,835 2,000 Loans, net of unearned income 520,852 477,265 510,544 Allowance for loan losses (6,740) (6,139) (6,606) ------------- ------------- -------------- Net loans 514,112 471,126 503,938 Premises and equipment, net 31,469 30,672 30,535 Foreclosed assets held for sale, net 1,333 1,883 1,600 Interest receivable 8,257 8,243 8,894 Intangible assets, net 3,004 3,258 3,064 Other 2,509 3,689 3,165 ------------- ------------- -------------- Total assets $802,992 $819,106 $826,952 ============= ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand - non-interest bearing $ 63,537 $ 64,665 $ 64,572 Savings and interest-bearing transaction 115,826 117,500 113,606 Time 462,409 429,944 499,505 ------------- ------------- -------------- Total deposits 641,772 612,109 677,683 Repurchase agreements with customers 16,858 11,837 13,839 Other borrowings 71,677 129,183 66,703 Accrued interest and other liabilities 4,435 3,634 3,128 ------------- ------------- -------------- Total liabilities 734,742 756,763 761,353 ------------- ------------- -------------- Guaranteed preferred beneficial interest in the Company's subordinated debentures 17,250 17,250 17,250 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 38 38 38 Additional paid-in capital 14,314 14,314 14,314 Retained earnings 36,944 32,453 35,498 Accumulated other comprehensive loss (296) (1,712) (1,501) ------------- ------------- -------------- Total stockholders' equity 51,000 45,093 48,349 ------------- ------------- -------------- Total liabilities and stockholders' equity $802,992 $819,106 $826,952 ============= ============= ==============
See accompanying notes to consolidated financial statements. 1 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) Unaudited
Three Months Ended March 31, -------------------------------- 2001 2000 ------------- -------------- Interest income Loans $11,484 $10,183 Investment securities - taxable 3,406 3,737 - non-taxable 467 481 Federal funds sold 13 2 Deposits with banks 4 1 ------------- -------------- Total interest income 15,374 14,404 Interest expense Deposits 8,074 6,390 Repurchase agreements with customers 176 105 Other borrowings 1,112 1,703 ------------- -------------- Total interest expense 9,362 8,198 ------------- -------------- Net interest income 6,012 6,206 Provision for loan losses (354) (378) ------------- -------------- Net interest income after provision for loan losses 5,658 5,828 ------------- -------------- Other income Trust income 173 130 Service charges on deposit accounts 842 763 Other income, charges and fees 528 328 Gain on sale of securities 113 - Other 1 29 ------------- -------------- Total other income 1,657 1,250 ------------- -------------- Other expense Salaries and employee benefits 2,359 2,246 Net occupancy and equipment 728 700 Other operating expenses 1,209 1,241 ------------- -------------- Total other expense 4,296 4,187 ------------- -------------- Income before income taxes and trust distribution 3,019 2,891 Distributions on trust preferred securities 397 397 Provision for income taxes 760 708 ------------- -------------- Net income $ 1,862 $ 1,786 ============= ============== Basic and diluted earnings per common share $0.49 $0.47 ============= ==============
See accompanying notes to consolidated financial statements. 2 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands) Unaudited
Accumulated Additional Other Common Paid-In Retained Comprehensive Stock Capital Earnings Income (Loss) Total ------- --------- ------------ -------------- ---------- Balance - January 1, 2000 $38 $14,314 $31,045 $(1,523) $43,874 Comprehensive income: Net income 1,786 1,786 Other comprehensive income (loss) Unrealized losses on available for sale securities net of $117 tax effect (189) (189) Reclassification adjustment for gains included in income - - -------- Comprehensive income 1,597 -------- Cash dividends (378) (378) ------- --------- ---------- ------- -------- Balance - March 31, 2000 $38 $14,314 $32,453 $(1,712) $45,093 ======= ========= ========== ======= ======== Balance - January 1, 2001 $38 $14,314 $35,498 $(1,501) $48,349 Comprehensive income: Net income 1,862 1,862 Other comprehensive income Unrealized gains on available for sale securities net of $577 tax effect 930 930 Reclassification adjustment for losses included in income net of $170 tax effect 275 275 -------- Comprehensive income 3,067 -------- Cash dividends (416) (416) ------- --------- ---------- ------- -------- Balance - March 31, 2001 $38 $14,314 $36,944 $ (296) $51,000 ======= ========= ========== ======= ========
See accompanying notes to consolidated financial statements. 3 BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Unaudited
Three Months Ended March 31, -------------------------------------- 2001 2000 --------------- --------------- Cash flows from operating activities Net income $ 1,862 $ 1,786 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 344 379 Amortization 69 74 Provision for loan losses 354 378 Provision for losses on foreclosed assets 67 47 Amortization and accretion on investment securities (30) (17) Gain on sale of securities (113) - Increase in mortgage loans held for sale (3,025) (772) Gain on disposition of premises and equipment - (1) Loss on disposition of foreclosed assets 7 13 Deferred income taxes (67) 252 Changes in assets and liabilities: Interest receivable 638 (1,069) Other assets, net (35) (87) Accrued interest and other liabilities 1,307 659 --------------- --------------- Net cash provided by operating activities 1,378 1,642 --------------- --------------- Cash flows from investing activities Proceeds from sales and maturities of investment securities available for sale 13,393 75 Purchases of investment securities available for sale (664) (97) Proceeds from maturities of investment securities held to maturity 18,791 33 (Increase) decrease in federal funds sold 2,000 (11,835) Net increase in loans (7,735) (9,900) Proceeds from dispositions of bank premises and equipment - 1 Purchase of bank premises and equipment (1,278) (504) Proceeds from dispositions of foreclosed assets 625 521 --------------- --------------- Net cash provided by (used by) investing activities 25,132 (21,706) --------------- --------------- Cash flows from financing activities Net increase (decrease) in deposits (35,911) 16,179 Net proceeds from other borrowings 4,974 2,194 Net increase in repurchase agreements 3,019 2,811 Dividends paid (416) (378) --------------- --------------- Net cash (used by) provided by financing activities (28,334) 20,806 --------------- --------------- Net increase (decrease) in cash and cash equivalents (1,824) 742 Cash and cash equivalents - beginning of period 20,540 24,562 --------------- --------------- Cash and cash equivalents - end of period $ 18,716 $ 25,304 =============== ===============
See accompanying notes to consolidated financial statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Principles of Consolidation: The consolidated financial statements of Bank of the Ozarks, Inc. include the accounts of the parent company and its wholly owned subsidiaries, including Bank of the Ozarks, a state chartered bank, and Ozark Capital Trust (collectively the "Company"). All material intercompany transactions have been eliminated. 2. Basis of Presentation: The accompanying consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") in Article 10 of Regulation S-X and with the instructions to Form 10-Q, and in accordance with accounting principles generally accepted in the United States for interim financial information. Certain information, accounting policies and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in accordance with such rules and regulations. It is therefore suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. In the opinion of management all adjustments considered necessary, consisting of normal recurring items, have been included for a fair presentation of the accompanying consolidated financial statements. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the full year. 3. Earnings Per Common Share: Basic EPS is computed by dividing reported earnings available to common stockholders by weighted average shares outstanding. Diluted EPS includes only the dilutive effect of stock options. In computing dilution for stock options, the average share price is used for the reporting period. The Company had outstanding stock options to purchase approximately 205,700 shares at March 31, 2001 and 165,000 shares at March 31, 2000 that were not included in the dilutive EPS calculation for these respective three month periods because they would have been antidilutive. Basic and diluted earnings per common share are computed as follows:
Three Months Ended March 31, 2001 2000 ------------ ------------ (In thousands, except per share amounts) Common shares - weighted averages............................ 3,780 3,780 Common share equivalents - weighted averages ................ 9 4 ------ ------ 3,789 3,784 ====== ====== Net income.................................................... $1,862 $1,786 Basic earnings per common share............................... $ 0.49 $ 0.47 Diluted earnings per common share............................. 0.49 0.47
(The remainder of this page intentionally left blank) 5 4. Federal Home Loan Bank ("FHLB") Advances FHLB advances with original maturities exceeding one year totaled $65.4 million at March 31, 2001. Interest rates on these advances ranged from 5.93% to 6.43% at March 31, 2001 with a weighted average rate of 6.25%. Aggregate annual maturities (amounts in thousands) and weighted average interest rates of FHLB advances with an original maturity of over one year at March 31, 2001 are as follows: Weighted Amounts Average Rate ------- ------------ 2001 $ 4,000 5.93% 2002 197 6.30 2003 198 6.30 2004 197 6.30 2005 198 6.30 Thereafter 60,593 6.27 ------- $65,383 6.25 ======= FHLB advances of $60.0 million maturing in 2010 may be called quarterly and if called the Company expects to refinance with short-term FHLB advances, other short-term funding sources or FHLB long-term callable advances. At March 31, 2001 the Company had no short-term FHLB advances. 5. 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. 6. Supplementary Data for Cash Flows: Cash payments for interest by the Company during the three months ended March 31, 2001 amounted to $10.0 million and during the three months ended March 31, 2000 amounted to $8.0 million. Cash payments for income taxes during the three months ended March 31, 2001 was $10,000. No cash payments for taxes were made for the three months ended March 31, 2000. (The remainder of this page intentionally left blank) 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Net income was $1,862,000 for the first quarter of 2001, a 4.3% increase from net income of $1,786,000 for the same quarter in 2000. Diluted earnings increased 4.3% to $0.49 per share for the quarter ended March 31, 2001, compared to $0.47 per share for the same quarter in 2000. The Company's annualized returns on average assets and on average stockholders' equity were 0.92% and 15.25%, respectively, for the first quarter of 2001, compared with 0.90% and 16.13%, respectively, for the same quarter of 2000. Total assets declined from $827 million at December 31, 2000 to $803 million at March 31, 2001. Loans were $521 million at March 31, 2001, compared to $511 million at December 31, 2000. Deposits were $642 million at March 31, 2001, compared to $678 million at December 31, 2000. Stockholders' equity increased from $48.3 million at December 31, 2000, to $51.0 million at March 31, 2001, resulting in book value per share increasing from $11.93 to $13.49. Annualized results for these interim periods may not be indicative of those for the full year or future periods. Analysis of Results of Operations The Company's results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans and investments, and the interest expense incurred on interest bearing liabilities, such as deposits and other borrowings. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, other charges and fees, trust income, and gains on sales of assets. The Company's non-interest expenses primarily consist of employee compensation and benefits, occupancy, equipment, and other operating expenses. The Company's results of operations are also impacted by its provision for loan losses. The following discussion provides a summary of the Company's operations for the three months ended March 31, 2001. (The remainder of this page intentionally left blank) 7 Net Interest Income Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent ("FTE") basis. The adjustment to convert certain income to an FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate (34%). Net interest income (FTE) declined 3.1% to $6,275,000 for the three months ended March 31, 2001, from $6,479,000 for the three months ended March 31, 2000. This decrease resulted primarily from a narrowing of interest rate spreads as increases in deposit and borrowing cost exceeded increases in loan and other earning asset yields. This narrowing of interest rate spread was offset somewhat with a 3.2% increase in average earning assets from $735 million in the first quarter of 2000 compared with $759 million in the first quarter of 2001. The Company's net interest margin declined to 3.35% for the first quarter of 2001 compared with 3.55% for the first quarter of 2000. The Company's net interest margin was significantly impacted by rising interest rates and intense competition in 2000. In the first quarter of 2001, the net interest margin improved 25 basis points over the fourth quarter of 2000 as earning asset yields improved 5 basis points and deposit and other borrowing cost declined 18 basis points. Analysis of Net Interest Income (FTE = Fully Taxable Equivalent) Three Months Ended March 31, --------------------------------- 2001 2000 ------------- ------------- (Dollars in thousands) Interest income............................. $15,374 $14,404 FTE adjustment.............................. 263 273 ------- ------- Interest income - FTE....................... 15,637 14,677 Interest expense............................ 9,362 8,198 ------- ------- Net interest income - FTE................... $ 6,275 $ 6,479 ======= ======= Yield on interest earning assets - FTE...... 8.36% 8.03% Cost of interest bearing liabilities........ 5.53 4.90 Net interest spread - FTE................... 2.83 3.13 Net interest margin - FTE................... 3.35 3.55 (The remainder of this page intentionally left blank) 8 Average Consolidated Balance Sheet and Net Interest Analysis (Dollars in thousands)
Three Months Ended March 31, --------------------------------------------------------- 2001 --------------------------------------------------------- Average Income/ Yield/ ASSETS Balance Expense Rate ------- -------- ---- Earnings assets: Interest bearing deposits and federal funds sold............. $ 1,103 $ 17 6.24% Investment securities: Taxable..................................................... 205,012 3,406 6.74 Tax-exempt - FTE............................................ 38,058 707 7.54 Loans - FTE (net of unearned income)........................ 514,541 11,507 9.07 ---------- ----------- Total earning assets....................................... 758,714 15,637 8.36 Non-earning assets........................................... 59,880 ---------- Total assets............................................... $ 818,594 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings and interest bearing transaction..................... $ 112,299 $ 726 2.62% Time deposit of $100,000 or more............................. 253,215 3,897 6.24 Other time deposits.......................................... 232,782 3,451 6.01 ---------- ----------- Total interest-bearing deposits............................. 598,296 8,074 5.47 Repurchase agreements with customers......................... 15,094 176 4.73 Other borrowings............................................. 73,565 1,112 6.13 ---------- ----------- Total interest-bearing liabilities.......................... 686,955 9,362 5.53 Non-interest liabilities: Non-interest bearing deposits................................ 61,158 Other non-interest liabilities............................... 3,709 ---------- Total liabilities........................................... 751,822 Trust preferred securities.................................... 17,250 Stockholders' equity.......................................... 49,522 ---------- Total liabilities and stockholders' equity.................. $ 818,594 ========== Interest rate spread - FTE.................................... 2.83% ----------- Net interest income - FTE..................................... $ 6,275 =========== Net interest margin - FTE..................................... 3.35% Three Months Ended March 31, ------------------------------------------------------ 2000 ------------------------------------------------------ Average Income/ Yield/ ASSETS Balance Expense Rate -------- ------- ---- Earnings assets: Interest bearing deposits and federal funds sold............. $ 221 $ 3 6.11% Investment securities: Taxable..................................................... 223,782 3,736 6.72 Tax-exempt - FTE............................................ 39,650 730 7.40 Loans - FTE (net of unearned income)......................... 471,208 10,208 8.71 ------------- ----------- Total earning assets........................................ 734,861 14,677 8.03 Non-earning assets........................................... 61,305 ------------- Total assets................................................ $ 796,166 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings and interest bearing transaction.................... $ 109,193 $ 761 2.81% Time deposit of $100,000 or more............................ 190,991 2,575 5.42 Other time deposits......................................... 239,389 3,054 5.13 -------------- ------------ Total interest-bearing deposits............................ 539,573 6,390 4.76 Repurchase agreements with customers......................... 9,004 105 4.68 Other borrowings............................................. 123,736 1,703 5.54 -------------- ------------ Total interest-bearing liabilities......................... 672,313 8,198 4.90 Non-interest liabilities: Non-interest bearing deposits................................ 58,612 Other non-interest liabilities............................... 3,450 -------------- Total liabilities.......................................... 734,375 Trust preferred securities.................................... 17,250 Stockholders' equity.......................................... 44,541 -------------- Total liabilities and stockholder's equity................. $ $796,166 ============== Interest rate spread - FTE.................................... 3.13% -------------- Net interest income - FTE..................................... $ $ 6,479 ============== Net interest margin - FTE..................................... 3.55%
(The remainder of this page intentionally left blank) 9 Non-Interest Income The Company's non-interest income can primarily be broken down into five main sources: (1) service charges on deposit accounts, (2) mortgage lending income, (3) other charges and fees including appraisal fees and commissions from the sale of credit related insurance products, (4) trust income and (5) net gains on sales of assets. Non-interest income for the first quarter of 2001 was $1,657,000 compared with $1,250,000 for the first quarter of 2000, a 32.6% increase. In the first quarter of 2001, the Company had net securities gains of $113,000. Excluding these gains non-interest income increased 23.5% from the first quarter of 2000. During the first quarter of 2001, the Company benefited from strong growth in mortgage lending income almost doubling the amount earned in the comparable quarter of 2000. Excluding security gains, the increase in mortgage lending income accounted for 59% of the increase in non-interest income and service charge income accounted for 27% of the increase in non-interest income. The improvement in mortgage lending income was primarily a result of increased mortgage lending activity due to lower interest rates during the first quarter. The increase in service charge income resulted primarily from growth in the number of retail checking, commercial checking and cash management customers. The table below shows non-interest income for the three months ended March 31, 2001 and 2000. Non-Interest Income
Three Months Ended March 31, ------------------------------- 2001 2000 ------------ ------------ (Dollars in thousands) Service charges on deposit accounts........................ $ 842 $ 763 Mortgage lending income.................................... 347 175 Other charges and fees..................................... 155 154 Trust income............................................... 173 130 Loss on sale of other assets............................... (11) (12) Gain on sale of securities................................. 113 - Brokerage fee income....................................... 26 - Other...................................................... 12 40 ---------- ---------- Total non-interest income............................. $ 1,657 $ 1,250 ========== ==========
(The remainder of this page intentionally left blank) 10 Non-Interest Expense Non-interest expense for the first quarter of 2001 was $4,296,000 compared with $4,187,000 for the same period in 2000, a 2.6% increase. The table below shows non-interest expense for the three months ended March 31, 2001 and 2000. Non-Interest Expense
Three Months Ended March 31, ------------------------------- 2001 2000 ------------ ------------ (Dollars in thousands) Salaries and employee benefits.................... $2,359 $2,246 Net occupancy expense............................. 406 344 Equipment expense................................. 322 356 Other operating expense: Professional and outside services............... 48 69 Postage......................................... 88 56 Telephone ...................................... 123 118 Data lines...................................... 66 59 Operating supplies.............................. 119 129 Advertising and public relations................ 90 158 Directors' fees................................. 23 29 Software expense................................ 93 102 Check printing charges.......................... 8 12 ATM expense..................................... 67 48 FDIC & state assessment......................... 67 70 Other real estate and foreclosure expense....... 135 119 Business development, meals and travel.......... 31 30 Amortization of goodwill........................ 22 22 Amortization of other intangibles .............. 38 42 Other........................................... 191 178 ------------ ------------ Total non-interest expense $4,296 $4,187 ============ ============
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) for the quarter ended March 31, 2001 was 54.2%, identical to the ratio for the comparable quarter of 2000. Income Taxes The provision for income taxes was $760,000 for the quarter ended March 31, 2001, compared to $708,000 for the same period in 2000. The effective income tax rates were 29.0% and 28.4%, respectively, for these periods. The effective tax rates for these periods are less than the expected combined statutory federal and state rates primarily as a result of the Company's investments in tax-exempt securities. These include securities exempt from both federal and Arkansas income taxes as well as other securities exempt solely from Arkansas income taxes. (The remainder of this page intentionally left blank) 11 Analysis of Financial Condition Loan Portfolio At March 31, 2001, the Company's loan portfolio was $521 million, an increase from $511 million at December 31, 2000. As of March 31, 2001, the Company's loan portfolio consisted of approximately 72.6% real estate loans, 10.6% consumer loans, 13.0% commercial and industrial loans and 2.8% agricultural loans (non-real estate). The amount and type of loans outstanding at March 31, 2001 and 2000 and December 31, 2000 are reflected in the following table. Loan Portfolio
March 31, December 31, -------------------------------- ------------- 2001 2000 2000 -------------- -------------- -------------- (Dollars in thousands) Real Estate: Residential 1-4 family....................... $ 146,551 $ 146,686 $ 144,920 Non-farm/non-residential..................... 139,148 98,574 134,726 Agricultural................................. 37,852 22,523 38,808 Construction/land development................ 44,505 30,589 42,354 Multifamily residential...................... 10,231 4,796 8,367 -------------- -------------- -------------- Total real estate.......................... 378,287 303,168 369,175 Consumer...................................... 55,080 78,449 58,430 Commercial and industrial..................... 67,658 73,500 63,799 Agricultural (non-real estate)................ 14,530 18,772 14,605 Other......................................... 5,297 3,376 4,535 -------------- -------------- -------------- Total loans................................ $ 520,852 $ 477,265 $ 510,544 ============== ============== ==============
Nonperforming Assets Nonperforming assets consist of (1) nonaccrual loans, (2) accruing loans 90 days or more past due, (3) restructured loans providing for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower and (4) real estate or other assets that have been acquired in partial or full satisfaction of loan obligations or upon foreclosure. 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 0.25% as of March 31, 2001, compared to 0.37% at December 31, 2000 and 0.42% as of March 31, 2000. Nonperforming assets as a percent of total assets improved to 0.33% as of March 31, 2001 compared to 0.42% at December 31, 2000 and 0.47% as of March 31, 2000. These are the Company's best nonperforming loan and asset ratios since December 31, 1997. While the Company cannot predict the ultimate impact and magnitude of the current economic slowdown, the Company is encouraged by its favorable trend in asset quality ratios during the first quarter. (The remainder of this page intentionally left blank) 12 The following table presents information concerning nonperforming assets, including nonaccrual and restructured loans and foreclosed assets held for sale. Nonperforming Assets
March 31, December 31, ---------------------------------- -------------- 2001 2000 2000 -------------- -------------- -------------- (Dollars in thousands) Nonaccrual loans......................................... $1,316 $1,996 $1,880 Accruing loans 90 days or more past due.................. - - - Restructured loans....................................... - - - ------ ------ ------ Total nonperforming loans........................... 1,316 1,996 1,880 Foreclosed assets held for sale and repossessions(1)..... 1,333 1,883 1,600 ------ ------ ------ Total nonperforming assets.......................... $2,649 $3,879 $3,480 ====== ====== ====== Nonperforming loans to total loans....................... 0.25% 0.42% 0.37% Nonperforming assets to total assets..................... 0.33 0.47 0.42
(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. Allowance and Provision for Loan Losses Allowance for Loan Losses: The following table shows an analysis of the allowance for loan losses for the three month periods ended March 31, 2001 and 2000 and the year ended December 31, 2000.
Three Months Ended Twelve Months Ended March 31, December 31, --------------------------------- -------------------- 2001 2000 2000 -------------- ------------- ------------- (Dollars in thousands) Balance, beginning of period.............................. $ 6,606 $ 6,072 $ 6,072 Loans charged off Real estate........................................... 69 114 900 Consumer.............................................. 78 110 549 Commercial and industrial............................. 112 93 443 Agricultural (non-real estate)........................ 4 13 106 ------- ------- ------- Total loans charged off.............................. 263 330 1,998 ------- ------- ------- Recoveries of loans previously charged off: Real estate........................................... 9 - 84 Consumer.............................................. 30 15 74 Commercial and industrial............................. 4 4 48 Agricultural (non-real estate)........................ - - 1 ------- ------- ------- Total recoveries.................................... 43 19 207 ------- ------- ------- Net loans charged off 220 311 1,791 Provision charged to operating expense.................... 354 378 2,325 ------- ------- ------- Balance, end of period.................................... $ 6,740 $ 6,139 $ 6,606 ======= ======= ======= Net charge-offs to average loans outstanding during the periods indicated................................... 0.17%(1) 0.27%(1) 0.36% Allowance for loan losses to total loans.................. 1.29 1.29 1.29 Allowance for loan losses to nonperforming loans.......... 512.16 307.57 351.38
(1) Annualized 13 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 allowance are (1) an internal grading system, (2) a peer group analysis and (3) a historical analysis. In addition to this objective criteria, the Company subjectively assesses adequacy of the allowance for loan losses and the need for additions thereto, with consideration given to the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans, national, regional and local business and economic conditions that may affect borrowers' ability to pay or the value of collateral securing loans, and other relevant factors. The Company's allowance for loan losses was $6,740,000 at March 31, 2001, or 1.29% of total loans, compared with $6,606,000, or 1.29% of total loans, at December 31, 2000 and $6,139,000, or 1.29% of total loans, at March 31, 2000. While management believes the current allowance is adequate, changing economic and other conditions may require future adjustments to the allowance for loan losses. For the first three months of 2001, annualized charge-offs were 0.17% of average outstanding loans compared with 0.36% for the year of 2000 and 0.27% annualized for the first three months of 2000. Provision for Loan Losses: The loan loss provision reflects management's ongoing assessment of the loan portfolio and is evaluated in light of risk factors mentioned above. The provision for loan losses was $354,000 for the three months ended March 31, 2001 compared to $378,000 for the same three month period in 2000. 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 table below presents the book value and the fair value of investment securities for each of the dates indicated. Investment Securities
March 31, March 31, December 31, 2001 2000 2000 -------------------------- --------------------------- ----------------------- 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............................ $177,581 $177,766 $215,723 $203,732 $195,771 $192,107 Mortgage-backed securities............ 171 171 182 182 174 174 Obligations of state and political subdivisions........................ 33,434 33,475 39,306 39,251 43,135 43,092 Other securities...................... 12,406 12,412 7,885 7,882 14,136 14,142 -------- -------- -------- -------- -------- -------- Total $223,592 $223,824 $263,096 $251,047 $253,216 $249,515 ======== ======== ======== ======== ======== ========
(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 price is not available, fair values are based on market prices for comparable securities. (The remainder of this page intentionally left blank) 14 Liquidity and Capital Resources Assets, Loans and Deposits. During the quarter just ended, the Company's total assets decreased $24 million from $827 million at year end 2000 to $803 million at March 31, 2001. This decrease in total assets resulted primarily from a $32 million reduction in the Company's investment securities portfolio, which was partially offset by a $10 million increase in the Company's loan portfolio. The Company sold some securities and did not replace securities called for prepayment. Proceeds from the liquidation of these securities were used primarily to repay certain higher costing time deposits, contributing to a reduction in total deposits during the quarter from $678 million to $642 million. These actions were taken principally to reduce the sensitivity of the Company's balance sheet to future interest rate changes. Growth and Expansion. During March 2001 the Company opened its twenty-fifth banking office in a Wal-Mart Supercenter in Bryant, Arkansas. The Company has two additional offices currently under construction at 2520 South Zero Street in Fort Smith and in the Otter Creek area of Little Rock both of which will open in the second quarter of 2001. The Company has signed an agreement to purchase a Lonoke, Arkansas branch currently operated by another financial institution. The purchase will include a small amount of deposit secured loans and approximately $2.3 million of deposits and is expected to close late in the second quarter. A site in Maumelle, Arkansas has been acquired and the Company expects to request regulatory approval to begin construction of an office there in late 2001. The Company previously projected capital expenditures in the range of $2.0 - $2.5 million for the year 2001. As a result of the Company's planned purchase of the Lonoke branch and the opening of the Bryant banking office, both of which were not anticipated at the time of previous disclosures, the Company now estimates its total capital expenditures for 2001 will be between $2.5 and $3.5 million. 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 its 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 March 31, 2001, the Company's bank subsidiary had substantial unused borrowing availability. This availability is primarily comprised of the following three options: (1) $184.7 million from the Federal Home Loan Bank, (2) $10.1 million of securities available to pledge on a federal funds line of credit and (3) up to $4.7 million from borrowing programs of the Federal Reserve Bank. Management anticipates that 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 borrowing sources will be used to augment the Company's primary funding sources. 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. (The remainder of this page intentionally left blank) 15 The Company's risk-based and leverage capital ratios exceeded these minimum requirements at March 31, 2001 and December 31, 2000, and are presented below, followed by the capital ratios of the Company's bank subsidiary at March 31, 2001. Consolidated Capital Ratios
March 31, December 31, 2001 2000 -------------- -------------- (Dollars in thousands) Tier 1 capital: Stockholders' equity........................................................ $ 51,000 $ 48,349 Allowed amount of guaranteed preferred beneficial interest in Company's subordinated debentures (trust preferred securities)............ 17,099 16,617 Plus (less) net unrealized losses (gains) on available for sale securities.. 296 1,501 Less goodwill and certain intangible assets................................. (3,004) (3,064) -------- -------- Total tier 1 capital.................................................. $ 65,391 $ 63,403 Tier 2 capital: Qualifying allowance for loan losses........................................ 6,740 6,606 Remaining amount of guaranteed preferred beneficial interest in Company's subordinated debentures (trust preferred securities)............ 151 633 -------- -------- Total risk-based capital.............................................. $ 72,282 $ 70,642 ======== ======== Risk-weighted assets............................................................. $554,615 $550,516 ======== ======== Ratios at end of period: Leverage.................................................................... 8.02% 7.57% Tier 1 risk-based capital................................................... 11.79 11.52 Total risk-based capital.................................................... 13.03 12.83 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
March 31, 2001 ----------------------- (Dollars in thousands) Stockholders' equity - Tier 1.................................... $63,618 Leverage capital................................................. 7.81% Tier 1 risk-based capital........................................ 11.49 Total risk-based capital.................................... 12.71
(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. (The remainder of this page intentionally left blank) 16 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, capital expenditures 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, including the effects of the current economic slowdown; and (6) changes in legal and regulatory requirements, as well as, other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements. (The remainder of this page intentionally left blank) 17 Selected and Supplemental Financial Data The following table sets forth selected consolidated financial data concerning the Company for the three month periods ended March 31, 2001 and 2000 and is qualified in its entirety by the consolidated financial statements, including the notes thereto, included elsewhere herein. Selected Consolidated Financial Data (Dollars in thousands, except per share amounts) Unaudited
Three Months Ended March 31, ---------------------------- 2001 2000 --------- --------- Income statement data: Interest income.................................................. $ 15,374 $ 14,404 Interest expense................................................. 9,362 8,198 Net interest income.............................................. 6,012 6,206 Provision for loan losses........................................ 354 378 Non-interest income.............................................. 1,657 1,250 Non-interest expenses............................................ 4,296 4,187 Net income....................................................... 1,862 1,786 Per common share data: Earnings - diluted............................................... $ 0.49 $ 0.47 Book value....................................................... 13.49 11.93 Dividends........................................................ 0.11 0.10 Weighted avg. shares outstanding (thousands)..................... 3,789 3,784 Balance sheet data at period end: Total assets..................................................... $802,992 $819,106 Total loans...................................................... 520,852 477,265 Allowance for loan losses........................................ 6,740 6,139 Total investment securities...................................... 223,592 263,096 Total deposits................................................... 641,772 612,109 Repurchase agreements with customers............................. 16,858 11,837 Other borrowings................................................. 71,677 129,183 Total stockholders' equity....................................... 51,000 45,093 Loan to deposit ratio............................................ 81.16% 77.97% Average balance sheet data: Total average assets............................................. $818,594 $796,166 Total average stockholders' equity............................... 49,522 44,541 Average equity to average assets................................. 6.05% 5.59% Performance ratios: Return on average assets*........................................ 0.92% 0.90% Return on average stockholders' equity*.......................... 15.25 16.13 Net interest margin.............................................. 3.35 3.55 Efficiency....................................................... 54.16 54.17 Dividend payout.................................................. 22.45 21.28 Asset quality ratios: Net charge-offs as a percentage of average total loans*.......... 0.17% 0.27% Nonperforming loans to total loans............................... 0.25 0.42 Nonperforming assets to total assets............................. 0.33 0.47 Allowance for loan losses as a percentage of: Total loans...................................................... 1.29% 1.29% Nonperforming loans.............................................. 512.16 307.57 Capital ratios at period end: Leverage capital................................................. 8.02% 7.46% Tier 1 risk-based capital........................................ 11.79 11.68 Total risk-based capital......................................... 13.03 13.22 *Annualized based on actual days
18 Bank of the Ozarks, Inc. Supplemental Quarterly Financial Data (Dollars in Thousands, Except Per Share Amounts) Unaudited
6/30/99 9/30/99 12/31/99 3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 ------- ------- -------- ------- ------- ------- -------- ------- Earnings Summary: ---------------- Net interest income $ 5,887 $ 6,222 $ 6,375 $ 6,206 $ 6,093 $ 5,569 $ 5,795 $ 6,012 Federal tax (FTE) adjustment 242 244 267 273 272 274 279 263 -------- -------- -------- -------- -------- -------- -------- -------- Net interest margin (FTE) 6,129 6,466 6,642 6,479 6,365 5,843 6,074 6,275 Loan loss provision (580) (578) (716) (378) (324) (1,225) (398) (354) Non-interest income 1,303 1,293 1,282 1,250 1,417 1,552 1,323 1,657 Non-interest expense (4,241) (4,195) (4,261) (4,187) (4,244) (4,351) (4,182) (4,296) -------- -------- -------- -------- -------- -------- -------- -------- Pretax income (FTE) 2,611 2,986 2,947 3,164 3,214 1,819 2,817 3,282 FTE adjustment (242) (244) (267) (273) (272) (274) (279) (263) Provision for taxes (658) (639) (539) (708) (730) (255) (596) (760) Distribution on trust preferred securities (52) (397) (397) (397) (397) (397) (396) (397) -------- -------- -------- -------- -------- -------- -------- -------- Net income $ 1,659 $ 1,706 $ 1,744 $ 1,786 $ 1,815 $ 893 $ 1,546 $ 1,862 ======== ======== ========= ========= ======== ======== ======== ======== Earnings per share - diluted $ 0.44 $ 0.45 $ 0.46 $ 0.47 $ 0.48 $ 0.24 $ 0.41 $ 0.49 Non-interest Income Detail: --------------------------- Trust income $ 115 $ 113 $ 124 $ 130 $ 131 $ 162 $ 168 $ 173 Service charges on deposit accounts 599 674 724 763 877 868 872 842 Mortgage lending income 351 316 190 175 208 278 188 347 Gain (loss) on sale of assets (5) 16 7 (12) 2 30 (58) (11) Security gains 50 - (6) - - - - 113 Other 193 174 243 194 199 214 153 193 -------- -------- -------- -------- -------- -------- -------- -------- Total non-interest income $ 1,303 $ 1,293 $ 1,282 $ 1,250 $ 1,417 $ 1,552 $ 1,323 $ 1,657 Non-interest Expense Detail: --------------------------- Salaries and employee benefits $ 2,322 $ 2,273 $ 2,158 $ 2,246 $ 2,285 $ 2,220 $ 2,178 $ 2,359 Net occupancy expense 619 681 719 700 703 748 759 728 Other operating expenses 1,234 1,176 1,320 1,177 1,192 1,319 1,179 1,144 Goodwill charges 23 23 22 22 22 22 23 22 Amortization of other intangibles - pretax 43 42 42 42 42 42 43 43 -------- -------- -------- -------- -------- -------- -------- -------- Total non-interest expense $ 4,241 $ 4,195 $ 4,261 $ 4,187 $ 4,244 $ 4,351 $ 4,182 $ 4,296 Allowance for Loan Losses: Balance beginning of period $ 4,850 $ 5,248 $ 5,611 $ 6,072 $ 6,139 $ 6,310 $ 6,447 $ 6,606 Net charge offs (182) (215) (255) (311) (153) (1,088) (239) (220) Loan loss provision 580 578 716 378 324 1,225 398 354 -------- -------- -------- -------- -------- -------- -------- -------- Balance at end of period $ 5,248 $ 5,611 $ 6,072 $ 6,139 $ 6,310 $ 6,447 $ 6,606 $ 6,740 Selected Ratios: --------------- Net interest margin - FTE* 3.81% 3.79% 3.71% 3.55% 3.42% 3.04% 3.10% 3.35% Overhead expense ratio* 2.45 2.28 2.20 2.12 2.11 2.09 1.98 2.13 Efficiency ratio 57.06 54.07 53.77 54.17 54.54 58.84 56.54 54.16 Non-performing loans to total loans 1.01 0.59 0.42 0.42 0.88 0.34 0.37 0.25 Non-performing assets to total assets 0.70 0.62 0.53 0.47 0.78 0.61 0.42 0.33 Loans past due 30 days or more, including non-accrual loans, to total loans 1.70 1.15 1.23 1.03 1.48 0.90 0.88 0.79 *Annualized
19 PART I (continued) Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's interest rate risk management is the responsibility of the Asset/Liability Management Committee, which reports to the Board of Directors. This committee establishes policies that monitor and coordinate the Company's sources, uses and pricing of funds. The committee is also involved with management in the Company's planning and budgeting process. The Company regularly reviews its exposure to changes in interest rates. Among the factors considered are changes in the mix of earning assets and interest bearing liabilities, interest rate spreads and repricing periods. Typically, the committee reviews on at least a quarterly basis the bank 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 repricing data used to prepare the GAP table presented below, this model incorporates a number of assumptions and predictions regarding 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 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 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 estimated results projected by 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 March 31, 2001. A parallel shift in the interest rates is an arbitrary assumption which fails to take into account changes in the slope of the yield curve. Change in % Change in Interest Rates Projected Baseline (in bps) Net Interest Income -------------- ------------------- +200 (9.8)% +100 (3.1) -100 (8.6) -200 (10.9) 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 March 31, 2001 the cumulative ratios of rate sensitive assets to rate sensitive liabilities at six months and one year, respectively, were 51.3% and 54.9%. 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. 20 Rate Sensitive Assets and Liabilities
March 31, 2001 ------------------------------------------------------------------------------------- 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............... $ 61,761 $ 63,370 $ (1,609) $ (1,609) (0.22) 97.46 Fixed rate repricing in: 1 day - 6 months......... 152,265 353,527 (201,262) (202,871) (27.24) 51.34 7 month - 12 months....... 74,199 107,750 (33,551) (236,422) (31.75) 54.94 1 - 2 years............... 112,063 39,388 72,675 (163,747) (21.99) 70.97 2 - 3 years............... 75,803 1,725 74,078 (89,669) (12.04) 84.15 3 - 4 years............... 43,658 956 42,702 (46,967) (6.31) 91.71 4 - 5 years............... 39,222 19,318 19,904 (27,063) (3.63) 95.38 Over 5 years.............. 185,685 80,736 104,949 77,886 10.46 111.68 ---------- ---------- ---------- Total............... $744,656 $666,770 $ 77,886 ========== ========== ==========
(1) Rate Sensitive Assets (2) Rate Sensitive Liabilities 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 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. PART II Other Information Item 1. 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. 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. 21 Item 2. Changes in Securities --------------------- Not Applicable Item 3. Defaults Upon Senior Securities ------------------------------- Not Applicable Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable Item 5. Other Information ----------------- Not Applicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a). Exhibits Reference is made to the Exhibit Index contained at the end of this report. (b). Reports on Form 8-K Not Applicable 22 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Bank of the Ozarks, Inc. DATE: May 11, 2001 /s/ Paul E. Moore ------------------- Paul E. Moore Chief Financial Officer (Chief Accounting Officer) 23 Bank of the Ozarks, Inc. Exhibit Index Exhibit Number ------ 3(a) Amended and Restated Articles of Incorporation of the Company, effective May 22, 1997, (previously filed as Exhibit 3.1 to the Company's Form S-1 Registration Statement (File No. 333-27641) and incorporated herein by reference). 3(b) Amended and Restated Bylaws of the Company, dated as of March 13, 1997, (previously filed as Exhibit 3.2 to the Company's Form S-1 Registration Statement (File No. 333-27641) and incorporated herein by reference). 10.1 Lease of Bryant Wal-Mart Supercenter facility dated February 9, 2001 between Bank of the Ozarks and Wal-Mart Stores, Inc. 24