-----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, Kbl54BmGoRdWhcSi2RwjseVzpSSKUdsJZnRkyEqe7X7KY3a8AwUhcA2jEN6+M5wc 9MlZKTo5ErltdIku2EMbsg== 0000930661-02-000802.txt : 20020415 0000930661-02-000802.hdr.sgml : 20020415 ACCESSION NUMBER: 0000930661-02-000802 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020321 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: 1934 Act SEC FILE NUMBER: 000-22759 FILM NUMBER: 02581146 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 d10k.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, 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, 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: $59,758,062 (based upon the average bid and asked prices quoted on the Nasdaq National Market on March 1, 2002). 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, 2002 - --------------------------------------- ----------------------------- Common Stock, par value $0.01 per share 3,784,405 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, 2001 and the Proxy Statement for its 2002 annual meeting. BANK OF THE OZARKS, INC. FORM 10-K December 31, 2001
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 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14 Item 8. Financial Statements and Supplementary Data 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 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 28 offices in 19 communities throughout northern, western and central Arkansas. The Company also owns Ozark Capital Trust, a Delaware business trust. At December 31, 2001 the Company had total assets of $871 million, total loans of $616 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 twenty-three new offices in northern, western and central 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 and 1999 four Little Rock offices were opened, 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 of Fort Smith in September 1998 with the opening of a banking center and in 2001 opened a second office. In 2001 the Company continued its expansion and opened a total of four new banking offices, one in Bryant, one in Lonoke, a second office in Fort Smith and a fifth office in Little Rock. In addition the Company opened a small loan production office in Charlotte, N.C. in 2001. The Company plans to continue its expansion in and around these metropolitan markets. In January 2002 the Company announced it was entering the Conway, Arkansas market. Conway is Arkansas' eighth largest city and is located approximately 25 miles northwest of Little Rock. The Company expects to open at least two or more offices in and around Conway in 2002. In 2002, the Company hopes to open additional fill-in offices in and around metropolitan Little Rock/North Little Rock and Ft. Smith, however the exact number of new offices to be opened in 2002 will depend upon a number of factors including the availability of quality personnel and sites, the Company's earnings growth and economic conditions. 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 family) properties. 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, primarily 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 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. 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 2 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, interest bearing transaction (such as MaxYieldTM checking), savings accounts, 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, 2001 the Company had $3.5 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 moved its trust services department to its main office in Little Rock to handle personal trusts, corporate trusts, employee benefit accounts and trust operations. In late 1998 operations in Little Rock and the Ozark trust operations were consolidated into that office. As of December 31, 2001 total trust assets under management were $79.1 million compared to $114.5 million as of December 31, 2000. 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 2001 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 primarily through its Little Rock, Fort Smith and Harrison offices. In 2001 declining rates impacted the volume of mortgage loans being refinanced and the volume of loans for home purchases resulting in a substantial increase in the Company's mortgage loan originations and mortgage lending income. Originations of mortgage loans for resale increased from $51.1 million in 1999 to $119.7 million in 2001. 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. At December 31, 2001, twenty months after offering this service, 12% of the Company's individual checking account households were enrolled in On-Line Banking. 3 Competition The banking industry in the Company's market areas 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, 2001 the Company employed 327 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 48, 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 46, Vice Chairman, President and Chief Operating Officer. 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 55, 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 47, 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 55, President of the bank subsidiary's western division since November 2000. Prior to that Mr. Dougan served as a director of the Company from February 1997. Mr. Dougan was co-owner from 1996 to 2000 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 61, 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. Ms. Arehart served as Senior Vice President and a member of the Executive Committee of Twin City Bank (subsequently Mercantile Bank of Arkansas, now U.S. Bank), where she worked from 1979 to February 1996. 4 Darrel Russell, age 48, President of the bank subsidiary's central division since December 2001. Served as Executive Vice President of the bank subsidiary from May 1997 to December 2001. 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. Gene Jennings, age 53, President of the bank subsidiary's Trust Division since May 2001. He holds an undergraduate degree from Southern Methodist University and a graduate degree in banking from the Stonier Graduate School of Banking - Rutgers University. Mr. Jennings served as Vice President, Corporate Trust/Personal Trust of Bank of America (formerly NationsBank, N.A., formerly Boatmen's Bank, formerly Worthen Bank) from December 1990 to April 2001. John Stanton, age 50, President of the bank subsidiary's Conway division since December 2001. He holds a BSE degree from the University of Central Arkansas, a graduate of National Commercial Lending School and a graduate from Southwestern School of Banking at Southern Methodist University in Dallas, Texas. Mr. Stanton served as Market President of the Conway/Morrilton market for U.S. Bank (formerly Firstar Bank of Arkansas, formerly Mercantile Bank of Arkansas, formerly Twin City Bank) from October 1992 to December 2001. Messrs. Gleason, Ross and Moore serve in the same position with both the Company and its bank subsidiary. _________________________ (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 non-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, the effectiveness of the applicant in combating money laundering activities, 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, 6 determines by regulation or order is (i) financial in nature or incidental to such financial activity or (ii) complementary to a 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, and compliance remained 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. The Company has no current plans to 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 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. 7 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, 2001 through December 31, 2001, the Company's bank subsidiary was assessed an average annualized premium of $0.0186 per $100 of BIF-eligible deposits and $0.0186 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. 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 8 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 14, 2001 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. The Company's bank subsidiary must submit quarterly to the FDIC Reports of Condition and Income (referred to in the banking industry as a Call Report). 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 Fund 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 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 9 "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. In a non-adversarial test case involving undisputed facts, the Eighth Circuit court of Appeals affirmed the District Court's ruling that the preemptive provisions of the GLBA are constitutional. Although the constitutionality of the preemption provision could be raised again in the future, the Company's bank subsidiary currently may charge interest at rates over and above the limitations set forth in the Arkansas Constitution. 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 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. 10 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. 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, including the impact of the current economic slowdown and its effect on the credit worthiness of borrowers and collateral values; 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) 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 - ---------------------------------------------- -------------------- --------------- Conway /(2)/ ................................ 2002 2,640 Maumelle .................................... 2002 3,576 Bryant Wal-Mart Supercenter/(3)/ ............ 2001 675 Lonoke /(4)/ ................................ 2001 5,731 Little Rock (Otter Creek) ................... 2001 2,400 Fort Smith (Zero) ........................... 2001 2,784 Yellville ................................... 2000 2,716 Clinton ..................................... 1999 2,784 North Little Rock (North Hills) /(5)/ ....... 1999 4,350 Harrison (Downtown) ......................... 1999 14,000 North Little Rock (Indian Hills) /(6)/ ...... 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) /(7)/ ................. 1998 1,716 Bellefonte .................................. 1997 1,444 Alma ........................................ 1997 4,200 Paris ....................................... 1997 3,100 Mulberry .................................... 1997 1,875 Harrison (North) /(8)/ ...................... 1996 3,300 Clarksville (Rogers) /(8)/ .................. 1995 3,300 Van Buren ................................... 1995 2,520 Marshall /(8)/ .............................. 1995 2,520 Clarksville (Main) .......................... 1994 2,520 Ozark (Westside) ............................ 1993 2,520 Western Grove ............................... 1976 (expanded 1991) 2,610 Altus /(9)/ ................................. 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) Lease beginning February 2002 for six months with six one-month renewal options. Space expected to be occupied as a temporary office until permanent sites located and facilities constructed. (3) 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. (4) This facility was acquired by the Company in 2001. The facility was constructed in 1997. (5) 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. (6) The Company leases the building and land at this location with an initial term which expired in December 2001, and was renewed through 2003. This property is subject to options to renew for four additional terms of two years each. (7) This location was acquired by the Company in February 1998. The facility was constructed in 1994. (8) The Company owns the buildings and leases the land at these locations. The initial lease terms expired in 2001 for Harrison and was renewed through 2007. The initial lease terms expire in 2005 (Clarksville) and 2024 (Marshall). 12 The Company has renewal options on the Harrison and Marshall facilities and purchase options on the Harrison and Clarksville facilities. (9) 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. 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. ss. 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. The Bank filed a Motion for Partial Summary Judgment in which the Bank asked the Court to dismiss with prejudice the plaintiffs' RICO claims, as well as their state law claims of fraud, defamation and outrage/intentional infliction of emotional distress. On October 29, 2001, the Court granted the Bank's Motion for Partial Summary Judgment and dismissed the plaintiffs' RICO claims and state law claims of fraud, defamation and outrage/intentional infliction of emotional distress. Presently the only surviving claims of the plaintiffs are breach of contract and intentional interference with contract. The District Court then remanded the case back to the Circuit Court of Pulaski County, Arkansas, Fifth Division, where it is currently pending. The time for an appeal of the District Court's award of partial summary judgment has passed. The Company believes it has substantial defenses to the remaining 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, 2002 the Company had 167 holders of record representing approximately 1,800 beneficial owners. 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 2001 Annual Report under the heading "Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends" on page 26, 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 2001 Annual Report under the heading "Selected Consolidated Financial Data" on page 9, which information is incorporated herein by reference. 13 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 2001 Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 10 through 26, which information is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The information required by Item 305 of Regulation S-K is contained in the Management's Discussion and Analysis section of the Company's 2001 Annual Report under the heading "Interest Rate Sensitivity" on pages 21 through 23, 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 2001 Annual Report on pages 27 through 43 and in the Management's Discussion and Analysis section of the 2001 Annual Report under the heading "Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends" on page 26 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 2002 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 2002 annual meeting under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 17 its belief that during the preceding year all filing requirements applicable to directors and executive officers had been complied with, except for the one exception noted. Item 11. EXECUTIVE COMPENSATION ---------------------- The information required by Item 402 of Regulation S-K is contained in the Company's Proxy Statement for the 2002 annual meeting under the heading "Executive Compensation and Other Information" on pages 9 through 11, 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 2002 annual meeting under the headings "Principal Stockholders" and "Security Ownership of Management" on pages 7 through 8 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 2002 annual meeting under the heading "Certain Transactions" on page 16, 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 28 to 43 in the Company's Annual Report for the fiscal year ended December 31, 2001, and the Report of Independent Auditors on page 27 of such Annual Report are incorporated herein by reference. Consolidated Balance Sheets as of December 31, 2001 and 2000. Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999. Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999. Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999. 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 2001. (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 31, 2000, between the Registrant and George Gleason (previously filed as Exhibit No. 10.13 to the Company's annual report on 10-K for the year ended December 31, 2000 and incorporated herein by this reference). 10.14 Employment agreement, dated December 31, 2001, 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 9 to 43 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 21, 2002 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 21, 2002 - ------------------------- and Director George Gleason /s/ Mark Ross President and Director March 21, 2002 - ------------------------- Mark Ross /s/ Paul Moore Chief Financial Officer March 21, 2002 - ------------------------- (Chief Accounting Officer) Paul Moore /s/ Steven Arnold Director March 21, 2002 - ------------------------- Steven Arnold /s/ Jerry Davis Director March 21, 2002 - ------------------------- Jerry Davis /s/ Robert East Director March 21, 2002 - ------------------------- Robert East /s/ Linda Gleason Director March 21, 2002 - ------------------------- Linda Gleason
18 /s/ Porter Hillard Director March 21, 2002 - ------------------------------- Porter Hillard /s/ Henry Mariani Director March 21, 2002 - ------------------------------- Henry Mariani /s/ Dr. R. L. Qualls Director March 21, 2002 - ------------------------------ Dr. R. L. Qualls /s/ Kennith Smith Director March 21, 2002 - ------------------------------ Kennith Smith 19 EX-10.14 3 dex1014.txt EMPLOYMENT AGREEMENT Exhibit 10.14 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into on this 31st day of December, 2001 to be effective the 1/st/ day of January, 2002, 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 dated December 29, 2000 to be effective as of January 1, 2001; 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 as set forth below; 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, 2002 and ending on December 31, 2004 (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 Three Hundred Sixty Thousand Dollars ($360,000) 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. 8. This Agreement replaces and supersedes the employment agreement between the parties hereto dated December 29, 2000 to be effective as of January 1, 2001. 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, II ------------------------- George G. Gleason, II 3 EX-13 4 dex13.txt SELECTED CONSOLIDATED FINANCIAL DATA [LOGO] Financial Information Selected Consolidated Financial Data
Year Ended December 31, ------------------------------------------------------ 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (Dollars in thousands, except per share amounts) Income statement data: Interest income ............................ $ 60,119 $ 60,752 $ 51,575 $ 38,882 $ 27,468 Interest expense ........................... 30,414 37,089 27,782 20,518 12,979 Net interest income ........................ 29,705 23,663 23,793 18,364 14,489 Provision for loan losses .................. 3,401 2,325 2,485 2,026 1,139 Non-interest income ........................ 7,353 5,542 5,147 5,031 2,925 Non-interest expense ....................... 19,030 16,964 16,464 13,119 9,228 Distribution on trust preferred securities . 1,587 1,587 846 - - Net income ................................. 8,959 6,040 6,635 5,629 4,531 Per common share data: Earnings - diluted ......................... $ 2.35 $ 1.60 $ 1.75 $ 1.47 $ 1.38 Book value ................................. 14.97 12.79 11.61 10.68 9.44 Dividends .................................. 0.46 0.42 0.40 0.23 0.20 Weighted avg. shares outstanding (thousands) 3,816 3,782 3,792 3,819 3,281 Balance sheet data at period end: Total assets ............................... $ 871,379 $ 826,952 $ 796,042 $ 612,431 $ 352,093 Total loans ................................ 616,076 510,544 467,131 387,526 275,463 Allowance for loan losses .................. 8,712 6,606 6,072 4,689 3,737 Total investment securities ................ 187,167 253,016 263,395 176,618 42,459 Total deposits ............................. 677,743 677,683 595,930 529,040 295,555 Repurchase agreements with customers ....... 16,213 13,839 9,026 1,408 - Other borrowings ........................... 99,690 66,703 126,989 39,271 19,089 Total stockholders' equity ................. 56,617 48,349 43,874 40,355 35,666 Loan to deposit ratio ...................... 90.90% 75.34% 78.39% 73.25% 93.20% Average balance sheet data: Total average assets ....................... $ 813,913 $ 818,197 $ 709,640 $ 486,729 $ 314,489 Total average stockholders' equity ......... 52,334 45,723 41,988 37,951 26,328 Average equity to average assets ........... 6.43% 5.59% 5.92% 7.80% 8.37% Performance ratios: Return on average assets ................... 1.10% 0.74% 0.93% 1.16% 1.44% Return on average stockholders' equity ..... 17.12 13.21 15.80 14.83 17.21 Net interest margin ........................ 4.05 3.27 3.77 4.19 4.98 Efficiency ................................. 50.25 55.98 55.09 54.98 52.55 Dividend payout ............................ 19.57 26.25 22.86 15.65 14.49 Assets quality ratios: Net charge-offs as a percentage of average total loans .............................. 0.24% 0.36% 0.26% 0.33% 0.17% Nonperforming loans to total loans ......... 0.29 0.37 0.42 0.70 0.25 Nonperforming assets to total assets ....... 0.28 0.42 0.53 0.50 0.24 Allowance for loan losses as a percentage of: Total loans ................................ 1.41% 1.29% 1.30% 1.21% 1.36% Nonperforming loans ........................ 482.39 351.38 307.91 171.82 534.62 Capital ratios at period end: Leverage capital ........................... 8.51% 7.57% 7.46% 6.21% 9.86% Tier I risk-based capital .................. 11.41 11.52 11.50 9.05 13.01 Total risk-based capital ................... 12.67 12.83 13.15 10.21 14.27
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Net income was $9.0 million for the year ended December 31, 2001, a 48.3% increase from net income of $6.0 million in 2000. Net income in 1999 was $6.6 million. Diluted earnings increased 46.9% to $2.35 per share in 2001 compared to $1.60 per share in 2000. Diluted earnings in 1999 were $1.75 per share. As shown below total assets, loans and deposits increased 5.4%, 20.7% and 0.0%, respectively, from December 31, 2000 to December 31, 2001 and 3.9%, 9.3% and 13.7%, respectively, from December 31, 1999 to December 31, 2000. Stockholders' equity increased 17.1% from December 31, 2000 to December 31, 2001 and 10.2% from December 31, 1999 to December 31, 2000. During these same periods, book value per share increased 17.0% and 10.2%, respectively. -------------------------------------------------
% Change December 31, -------------------- -------------------------------- 2001 2000 2001 2000 1999 from 2000 from 1999 ---- ---- ---- --------- --------- (Dollars in thousands except per share amounts) Assets ................. $ 871,379 $ 826,952 $ 796,042 5.4% 3.9% Loans .................. 616,076 510,544 467,131 20.7 9.3 Deposits ............... 677,743 677,683 595,930 - 13.7 Stockholders' equity ... 56,617 48,349 43,874 17.1 10.2 Book value per share ... 14.97 12.79 11.61 17.0 10.2
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, 2001, the Company's ROA was 1.10% compared with 0.74% and 0.93%, respectively, for the years ended December 31, 2000 and 1999. 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, 2001, the Company's ROE was 17.12% compared with 13.21% and 15.80%, respectively, for the years ended December 31, 2000 and 1999. 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%). 2001 compared to 2000 Net interest income (FTE) increased 23.3% to $30.5 million for 2001 compared to $24.8 million in 2000. Net interest margin, on a fully taxable equivalent basis, improved to 4.05% in 2001 compared to 3.27% in 2000, an increase of 78 basis points. Beginning in late 2000 and continuing throughout 2001, the Company sought to improve financial performance by changing its mix of both assets and deposits. From 2000 to 2001 the Company's average balance of loans increased $58.1 million and the average balance of securities declined $62.6 million. This change in earning asset mix resulted in the yield on total earning assets declining only 8 basis points while loan yields 10 declined 21 basis points. Additionally, interest-bearing liability costs declined as a result of a change in deposit mix and a general decline in interest rates during the year. From 2000 to 2001, the average balance of CD's declined $43.4 million and lower costing savings and interest-bearing transaction accounts average balances increased $54.6 million. This change in interest-bearing deposit mix, combined with the general decline in interest rates during 2001, resulted in an 87 basis point reduction in both the cost of interest-bearing deposits and total interest-bearing liabilities. This reduction was the most significant contributor to the increase in net interest income and net interest margin during 2001. 2000 compared to 1999 Net interest income (FTE) increased modestly to $24.8 million in 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. ------------------------------------------------------ Analysis of Net Interest Income (FTE = Fully Taxable Equivalent) Year Ended December 31, ----------------------------------- 2001 2000 1999 -------- -------- -------- (Dollars in thousands) Interest income ........................ $60,119 $60,752 $51,575 FTE adjustment 813 1,098 947 -------- -------- -------- Interest income--FTE ................... 60,932 61,850 52,522 Interest expense ....................... 30,414 37,089 27,782 -------- -------- -------- Net interest income--FTE ............... $30,518 $24,761 $24,740 ======== ======== ======== Yield on interest earning assets--FTE .. 8.09% 8.17% 8.00% Cost of interest-bearing liabilities ... 4.50 5.37 4.63 Net interest spread--FTE ............... 3.59 2.80 3.37 Net interest margin--FTE ............... 4.05 3.27 3.77 The following table sets forth certain information relating to the Company's net interest income for the years ended December 31, 2001, 2000 and 1999. 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. 11 Average Consolidated Balance Sheets and Net Interest Analysis
Year Ended December 31, ---------------------------------------------------------------------------------- 2001 2000 1999 -------------------------- -------------------------- -------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate -------- ------- --------- -------- ------- --------- -------- ------- --------- ASSETS (Dollars in thousands) Earning assets: Interest-bearing deposits and federal funds sold ...................................... $ 931 $ 49 5.25% $ 282 $ 17 6.11% $ 841 $ 45 5.26% Investment securities: Taxable ..................................... 173,329 11,203 6.46 225,515 15,331 6.80 194,511 12,847 6.61 Tax-exempt--FTE ............................. 29,412 2,125 7.23 39,875 2,960 7.42 36,938 2,538 6.87 Loans--FTE (net of unearned income) ......... 549,497 47,555 8.65 491,390 43,542 8.86 424,339 37,092 8.74 -------- ------- -------- ------- -------- ------- Total earning assets .................... 753,169 60,932 8.09 757,062 61,850 8.17 656,629 52,522 8.00 Non-earning assets ............................ 60,744 61,135 53,011 -------- -------- -------- Total assets ............................ $813,913 $818,197 $709,640 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Savings and interest-bearing transaction .. $165,923 $ 3,754 2.26% $111,283 $ 3,285 2.95% $105,980 $ 2,756 2.60% Time deposits of $100,000 or more ......... 207,273 10,702 5.16 224,231 13,471 6.01 177,938 8,892 5.00 Other time deposits ....................... 205,328 10,844 5.28 231,764 12,945 5.59 239,707 12,183 5.08 -------- ------- -------- ------- -------- ------- Total interest-bearing deposits ......... 578,524 25,300 4.37 567,278 29,701 5.24 523,625 23,831 4.55 Repurchase agreements with customers ........ 16,919 537 3.17 12,536 680 5.42 2,991 132 4.40 Other borrowings ............................ 79,787 4,577 5.74/(1)/ 111,312 6,708 6.03/(1)/ 73,717 3,819 5.18/(1)/ -------- ------- -------- ------- -------- ------- Total interest-bearing liabilities ...... 675,230 30,414 4.50 691,126 37,089 5.37 600,333 27,782 4.63 Non-interest liabilities: Non-interest bearing deposits ............... 65,368 60,636 54,782 Other non-interest liabilities .............. 3,731 3,462 3,085 -------- -------- -------- Total liabilities ....................... 744,329 755,224 658,200 Trust preferred securities .................... 17,250 17,250 9,452 Stockholders' equity .......................... 52,334 45,723 41,988 -------- -------- -------- Total liabilities and stockholders' equity ................................ $813,913 $818,197 709,640 ======== ======== ======== Interest rate spread--FTE ..................... 3.59% 2.80% 3.37% ------- ------- ------- Net interest income--FTE ...................... $30,518 $24,761 $24,740 ======= ======= ======= Net interest margin--FTE ...................... 4.05% 3.27% 3.77%
(1) This rate is impacted by the capitalization of interest on construction projects in the amount of $53, $52 and $51 for the years ended December 31, 2001, 2000 and 1999, respectively. In the absence of this capitalization these percentages would have been 5.80%, 6.07% and 5.25% for the years ended December 31, 2001, 2000 and 1999, 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 (changes 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. 12 Analysis of Changes in Net Interest Income
2001 over 2000 2000 over 1999 -------------------------- -------------------------- 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 $ (2) $ 32 $ (34) $ 6 $ (28) Investment securities: Taxable ................................... (3,373) (755) (4,128) 2,108 376 2,484 Tax-exempt--FTE ........................... (756) (79) (835) 218 204 422 Loans (net of unearned income) .............. 5,029 (1,016) 4,013 5,941 509 6,450 ------ ------ ------ ------ ------ ----- Total interest income--FTE ................ 934 (1,852) (918) 8,233 1,095 9,328 ------ ------ ------ ------ ------ ----- Interest expense: Savings and interest-bearing transaction .... 1,236 (767) 469 157 372 529 Time deposits of $100,000 or more ........... (876) (1,893) (2,769) 2,781 1,798 4,579 Other time deposits ......................... (1,396) (705) (2,101) (444) 1,206 762 Repurchase agreements with customers ........ 139 (282) (143) 518 30 548 Other borrowings ............................ (1,808) (323) (2,131) 2,266 623 2,889 ------ ------ ------ ------ ------ ----- Total interest expense .................... (2,705) (3,970) (6,675) 5,278 4,029 9,307 ------ ------ ------ ------ ------ ----- Increase (decrease) in net interest income--FTE ................................. $3,639 $2,118 $5,757 $2,955 $(2,934) $ 21 ====== ====== ====== ====== ====== =====
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, 2001 increased 32.7% to $7.4 million compared with $5.5 million in 2000. Non-interest income was $5.1 million in 1999. During 2001 the Company benefited from strong growth in service charges on deposit accounts which increased 11.7% from 2000. In 2001 the Company continued and intensified its efforts to add new transaction, savings and money market deposit customers. These efforts contributed to growth in service charges on deposit accounts. During 2001 the Company's non-CD deposits accounted for 35.9% of total average deposits, an improvement from 27.4% in 2000. Non-CD deposits increased throughout 2001 and were 45.5% of total average deposits for the fourth quarter of 2001. The Company benefited from good 2001 mortgage lending income as a result of a favorable mortgage rate environment and a high level of refinancing activity. The table below shows non-interest income for the years ended December 31, 2001, 2000 and 1999. Non-Interest Income Year Ended December 31, ----------------------------- 2001 2000 1999 ------ ------ ------- (Dollars in thousands) Service charges on deposit accounts ........ $3,776 $3,380 $ 2,499 Mortgage lending income .................... 1,920 849 1,306 Other charges and fees ..................... 574 620 630 Trust income ............................... 604 592 479 Brokerage fee income ....................... 108 61 - Gain (loss) on sales ....................... 2 (38) 12 Gain on sale of securities ................. 153 - 69 Other ...................................... 216 78 152 ------ ------ ------- Total non-interest income ............... $7,353 $5,542 $ 5,147 ====== ====== ======= 13 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, 2001 increased 12.2% to $19.0 million compared with $17.0 million in 2000. Non-interest expense was $16.5 million in 1999. The increase in non-interest expense in 2001 primarily resulted from the Company's continued growth and expansion, and increased bonus accruals as a result of the Company's improved performance. The number of full time equivalent employees as of December 31, 2001 was 327, a 12% increase from 292 as of the end of the previous year. As a result of the Company's continuing efforts to control non-interest expenses, the Company's efficiency ratio (non-interest expense divided by the sum of net interest income on a tax equivalent basis and non-interest income) was 50.3% for the year ended December 31, 2001 compared to 56.0% in 2000 and 55.1% in 1999. ------------------------------------------------------ The table below shows non-interest expense for the years ended December 31, 2001, 2000 and 1999. Non-Interest Expense
Year Ended December 31, ------------------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in thousands) Salaries and employee benefits ............... $10,551 $ 8,928 $ 8,752 Net occupancy and equipment expense .......... 3,098 2,910 2,655 Other real estate and foreclosure expense .... 526 592 358 Other operating expense: Professional and outside services ......... 375 315 319 Postage ................................... 326 255 286 Telephone ................................. 490 478 418 Data lines ................................ 238 236 186 Operating supplies ........................ 543 487 513 Advertising and public relations .......... 583 551 612 Directors' fees ........................... 118 103 121 Software expense .......................... 374 409 301 ATM expense ............................... 306 236 178 FDIC and state assessments ................ 259 238 217 Business development, meals and travel .... 136 136 147 Amortization of goodwill .................. 90 90 90 Amortization of other intangibles ......... 151 169 172 Other ..................................... 866 831 1,139 ------- ------- ------- Total non-interest expense .............. $19,030 $16,964 $16,464 ======= ======= =======
Income Taxes The provision for income taxes was $4.1 million for the year ended December 31, 2001 compared to $2.3 million in 2000 and $2.5 million in 1999. The effective income tax rates were 31.3%, 27.5% and 27.4%, respectively, for 2001, 2000 and 1999. The effective tax rates for these years are below the statutory tax rates because of state income tax recoveries in 2001 and 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. In the years 2000 and 1999 the Company incurred no Arkansas income tax due to the large amount of interest income exempt from Arkansas income taxes. The Company began incurring Arkansas income tax expense in 2001 as a result of a reduction in its interest income exempt from Arkansas income tax combined with an increase in the level of its taxable income. 14 Analysis of Financial Condition Loan Portfolio At December 31, 2001 the Company's loan portfolio was $616.0 million, an increase of 20.7% from $510.5 million at December 31, 2000. As of December 31, 2001 the Company's loan portfolio consisted of approximately 75.5% real estate loans, 9.1% consumer loans, 12.7% commercial and industrial loans and 2.1% agricultural loans (non-real estate). The amount and type of loans outstanding are reflected in the following table. Loan Portfolio
December 31, ------------------------------------------------ 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (Dollars in thousands) Real estate: Residential 1-4 family ......... $167,559 $144,920 $136,856 $121,539 $ 96,943 Non-farm/non-residential ....... 180,257 134,726 101,766 76,563 41,710 Agricultural ................... 45,303 38,808 20,396 19,463 13,443 Construction/land development .. 51,140 42,354 28,294 23,305 16,257 Multifamily residential ........ 20,850 8,367 4,687 6,207 3,897 -------- -------- -------- -------- -------- Total real estate ........... 465,109 369,175 291,999 247,077 172,250 Consumer .......................... 55,805 58,430 81,753 66,407 53,233 Commercial and industrial ......... 78,324 63,799 70,012 52,192 37,470 Agricultural (non-real estate) .... 12,866 14,605 19,947 20,068 10,824 Other ............................. 3,972 4,535 3,420 1,782 1,686 -------- -------- -------- -------- -------- Total loans ................. $616,076 $510,544 $467,131 $387,526 $275,463 ======== ======== ======== ======== ========
The following table reflects loans grouped by remaining maturities at December 31, 2001 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 principal paydowns scheduled in periods prior to the period in which they mature. Also many variable rate loans are subject to repricing in periods prior to the period in which they mature. Loan Maturities
Over 1 Year 1 Year Through Over or Less 5 Years 5 Years Total -------- ----------- ------- -------- (Dollars in thousands) Real estate .............................. $112,527 $295,073 $57,509 $465,109 Consumer ................................. 13,719 40,924 1,162 55,805 Commercial, industrial and agricultural .. 46,650 43,554 986 91,190 Other .................................... 846 505 2,621 3,972 -------- ----------- ------- -------- $173,742 $380,056 $62,278 $616,076 ======== =========== ======= ======== Fixed rate ............................... $136,747 $353,100 $37,738 $527,585 Floating rate ............................ 36,995 26,956 24,540 88,491 -------- ----------- ------- -------- $173,742 $380,056 $62,278 $616,076 ======== =========== ======= ========
The following table reflects loans as of December 31, 2001 grouped by expected amortizations, expected paydowns or the earliest repricing opportunity for floating rate loans. This cash flow or repricing schedule approximates the Company's ability to reprice loans or the ability to utilize loan principal repayments for new loans, other investments or repayment of borrowings. 15 Loan Cash Flows or Repricing Over 1 Year 1 Year Through Over or Less 5 Years 5 Years Total --------- --------- -------- --------- (Dollars in thousands) Fixed rate ........... $ 237,091 $ 278,455 $ 12,039 $ 527,585 Floating rate ........ 82,431 5,589 471 88,491 --------- --------- -------- --------- $ 319,522 $ 284,044 $ 12,510 $ 616,076 ========= ========= ======== ========= 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 was 0.29% at year-end 2001 compared to 0.37% and 0.42%, respectively, at years-end 2000 and 1999. Nonperforming assets as a percent of total assets was 0.28% as of year-end 2001 compared to 0.42% and 0.53%, respectively, as of years-end 2000 and 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 of 2000 and the year of 2001 the Company completed the sale of these properties, recognizing a net gain of $23,000 in 2001. These and other sales resulted in a reduction of foreclosed assets held for sale and repossessed assets from $1.6 million at year-end 2000 to $661,000 at year-end 2001. - -------------------------------------------------------------------------------- The following table presents information concerning nonperforming assets including nonaccrual and restructured loans and foreclosed assets held for sale. Nonperforming Assets
December 31, --------------------------------------- 2001 2000 1999 1998 1997 ------- ------- ------- ------- ----- (Dollars in thousands) Nonaccrual loans ........................................ $ 1,806 $ 1,880 $ 1,972 $ 2,708 $ 664 Accruing loans 90 days or more past due ................. - - - 21 35 Restructured loans ...................................... - - - - - ------- ------- ------- ------- ----- Total nonperforming loans ............................ 1,806 1,880 1,972 2,729 699 Foreclosed assets held for sale and repossessions/(1)/ .. 661 1,600 2,238 314 136 ------- ------- ------- ------- ----- Total nonperforming assets ........................... $ 2,467 $ 3,480 $ 4,210 $ 3,043 $ 835 ======= ======= ======= ======= ===== Nonperforming loans to total loans ...................... 0.29% 0.37% 0.42% 0.70% 0.25% Nonperforming assets to total assets .................... 0.28 0.42 0.53 0.50 0.24
/(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. 16
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, --------------------------------------------- 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- (Dollars in thousands) Balance, beginning of period ............................ $ 6,606 $ 6,072 $ 4,689 $ 3,737 $ 3,019 Loans charged off: Real estate: Residential 1-4 family ............................. 306 690 260 75 35 Non-farm/non-residential ........................... 112 121 8 18 - Agricultural ....................................... 9 10 3 - - Construction/land development ...................... 41 - 115 - - Multifamily residential ............................ - 79 - - - ------- ------- ------- ------- ------- Total real estate ............................... 468 900 386 93 35 Consumer ............................................. 452 549 516 633 434 Commercial and industrial ............................ 463 443 271 423 - Agricultural (non-real estate) ....................... 37 106 52 - - ------- ------- ------- ------- ------- Total loans charged off ......................... 1,420 1,998 1,225 1,149 469 ------- ------- ------- ------- ------- Recoveries of loans previously charged off: Real estate: Residential 1-4 family ............................. 20 39 4 9 5 Non-farm/non-residential ........................... 9 44 - - - Agricultural ....................................... - 1 - - 2 Construction/land development ...................... 1 - 2 - - Multifamily residential ............................ - - - - - ------- ------- ------- ------- ------- Total real estate ............................... 30 84 6 9 7 Consumer ............................................. 84 74 111 55 39 Commercial and industrial ............................ 11 48 6 11 2 Agricultural (non-real estate) ....................... - 1 - - - ------- ------- ------- ------- ------- Total recoveries ................................ 125 207 123 75 48 ------- ------- ------- ------- ------- Net loans charged off ................................... 1,295 1,791 1,102 1,074 421 Provision charged to operating expense .................. 3,401 2,325 2,485 2,026 1,139 ------- ------- ------- ------- ------- Balance, end of period .................................. $ 8,712 $ 6,606 $ 6,072 $ 4,689 $ 3,737 ======= ======= ======= ======= ======= Net charge-offs to average loans outstanding during the periods indicated ......................... 0.24% 0.36% 0.26% 0.33% 0.17% Allowance for loan losses to total loans ................ 1.41 1.29 1.30 1.21 1.36 Allowance for loan losses to nonperforming loans ........ 482.39 351.38 307.91 171.82 534.62
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 $8,712,000 at December 31, 2001, or 1.41% of total loans, compared with $6,606,000, or 1.29% of total loans, at December 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. 17 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 allowance 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 an allowance allocation percentage based on past due status. Allowance allocation percentages for the various risk grades and past due categories are determined by management and may be changed periodically. In determining these allowance allocation percentages, management considers historical loss percentages for risk rated loans, consumer loans and residential 1-4 family loans. In addition to this historical data, management considers subjective factors such as national and local economic conditions. The sum of all allowance amounts determined by this methodology, combined with a reasonable unallocated allowance determined by management, is utilized as the primary indicator of the appropriate level of allowance for loan losses. The unallocated allowance compensates for the uncertainty in estimating loan losses including factors and conditions that may not be fully reflected in the determination of the allowance allocation percentages. The factors and conditions evaluated in determining the appropriate unallocated allowance may include the following: (1) general economic and business conditions affecting our key lending areas, (2) credit quality trends (including trends in nonperforming loans expected to result from existing conditions), (3) trends that could affect collateral values, (4) loan volumes and concentrations, (5) seasoning of the loan portfolio, (6) specific industry conditions affecting portfolio segments, (7) recent loss experience in particular segments of the portfolio, (8) duration of the current business cycle, (9) bank regulatory examination results and (10) findings of our internal loan review department. In addition to the internal grading system 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 Report and the Federal Reserve Bank's Uniform Bank Holding Company Report. 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, multifamily residential loans, and agricultural real estate 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 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; (3) 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 (4) 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. The Board of Directors reviews the allowance on a quarterly basis to determine whether the amount of monthly provisions are adequate 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 allowances 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 allowance. The table also reflects the percentage of loans in each category to the total portfolio of loans for each of the periods indicated. These allowance 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. 18 Allocation of the Allowance for Loan Losses
December 31, --------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997/(1)/ ----------------- ----------------- ----------------- ----------------- ----------------- % of % of % of % of % of Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans ----------------- ----------------- ----------------- ----------------- ----------------- (Dollars in thousands) Real estate: Residential 1-4 family ............ $ 929 27.2% $ 430 28.4% $ 478 29.2% $ 532 31.4% $1,116 35.2% Non-farm/non-residential .......... 2,177 29.3 1,499 26.4 1,067 21.8 801 19.7 423 15.2 Agricultural ...................... 591 7.3 517 7.6 302 4.4 231 5.0 152 4.9 Construction/land development ..... 614 8.3 456 8.3 321 6.1 267 6.0 163 5.9 Multifamily ....................... 227 3.4 95 1.6 57 1.0 63 1.6 41 1.4 Consumer ............................. 986 9.1 883 11.4 1,313 17.5 1,236 17.1 372 19.3 Commercial and industrial ............ 896 12.7 859 12.5 808 15.0 610 13.5 412 13.6 Agricultural (non-real estate) ....... 166 2.1 199 2.9 322 4.3 257 5.2 114 3.9 Other ................................ 479 0.6 326 0.9 225 0.7 179 0.5 248 0.6 Unallocated allowance ................ 1,647 1,342 1,179 513 696 --------- ------ --------- ------ --------- ------ --------- ------ --------- ------ $8,712 100.0% $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, 2001, substandard loans not designated as nonaccrual or 90 days past due totaled $1.7 million. No loans were designated as doubtful or loss at December 31, 2001. 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 and certain other executive officers 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 $1.5 million up to the lending limit of the bank are authorized by the loan committee which consists of any five directors. 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 a summary of the 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 recent years, key allowance and nonperforming loan ratios and comparisons to industry averages. Based on these procedures, management believes that the allowance of $8,712,000 at December 31, 2001 is adequate. The allowance for loan losses was 1.41% of loans at December 31, 2001 compared to 1.29% at December 31, 2000. 19 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 2001 was $3.4 million compared to $2.3 million in 2000 and $2.5 million in 1999. -------------------------------- 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, -------------------------------------------------------------------------- 2001 2000 1999 ---------------------- ----------------------- ------------------------ 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 ........................... $ 70,177 $ 70,177 $ 195,771 $ 192,107 $ 215,713 $ 202,947 Mortgage-backed securities ............ 91,234 91,234 174 174 192 192 Obligations of states and political subdivisions ....................... 18,120 18,152 43,135 43,092 39,705 39,665 Other securities ...................... 7,636 7,642 14,136 14,142 7,785 7,782 --------- --------- --------- --------- --------- --------- Total ............................ $ 187,167 $ 187,205 $ 253,216 $ 249,515 $ 263,395 $ 250,586 ========= ========= ========= ========= ========= =========
(1) Book value for available-for-sale securities equals their original cost adjusted for unrealized gains or losses as reflected in the Company's financial statements. (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 maturity distribution of the Company's investment securities, at book value, as of December 31, 2001 and weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis assuming a 34% tax rate) of such securities. The maturity for all securities are shown based on their contractual maturity date, except (1) equity securities with no contractual maturity date which are shown in the longest maturity category and (2) mortgage-backed securities which are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds. 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/(1)/ ..................... $ - $ 60,168 $10,009 $ - $ 70,177 $ 70,177 Mortgage-backed securities/(2)/ ................................. 14,670 54,607 15,569 6,388 91,234 91,234 Obligations of states and political subdivisions/(3)/ ........... 514 1,716 1,429 14,461 18,120 18,152 Other securities/(4)/ ........................................... - - - 7,636 7,636 7,642 ------- -------- ------- ------- -------- -------- Total ........................................................ $15,184 $116,491 $27,007 $28,485 $187,167 $187,205 ======= ======== ======= ======= ======== ======== Percentage of total ............................................. 8.11% 62.24% 14.43% 15.22% 100.00% Weighted average yield (FTE)/(5)/ ............................... 6.10 5.39 6.03 6.51 5.71
(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) For purposes of this maturity distribution schedule mortgage-backed securities have been allocated among estimated repayment periods based on Bloomberg median prepayment speeds as of January 23, 2002. (3) Includes approximately $1.0 million of securities earning interest at floating rates repricing semi-annually. (4) Includes approximately $4.7 million of Federal Home Loan Bank stock which has historically paid quarterly dividends at a variable rate approximating the federal funds rate. (5) The weighted average yields (FTE) are based on book value. 20 Deposits The Company's bank subsidiary's lending and investing activities are funded primarily by deposits, approximately 53.7% of which were time deposits and 46.3% of which were demand and savings deposits at December 31, 2001. Interest-bearing deposits other than time deposits consist of transaction, savings and money market accounts. These deposits comprise 35.6% of total deposits at December 31, 2001. Non-interest bearing demand deposits at December 31, 2001, constituted approximately 10.7% of total deposits. The Company had $3.5 million of brokered deposits at December 31, 2001. Average Deposit Balances and Rates
Year Ended December 31, -------------------------------------------------------------- 2001 2000 1999 ------------------ ------------------ ------------------ Average Average Average Average Rate Average Rate Average Rate Amount Paid Amount Paid Amount Paid ------------------ ------------------ ------------------ (Dollars in thousands) Non-interest bearing accounts .................. $ 65,368 - $ 60,636 - $ 54,782 - Interest-bearing accounts: Transaction (NOW) ........................... 102,318 2.30% 55,452 2.47% 51,615 2.21% Savings ..................................... 18,745 1.14 16,586 2.06 15,702 1.97 Money market ................................ 44,860 2.63 39,245 4.01 38,663 3.38 Time deposits less than $100,000 ............ 205,328 5.28 231,764 5.59 239,707 5.08 Time deposits $100,000 or more .............. 207,273 5.16 224,231 6.01 177,938 5.00 -------- -------- -------- Total deposits ............................ $643,892 $627,914 $578,407 ======== ======== ========
The following table sets forth by time remaining to maturity, time deposits in amounts of $100,000 or more at December 31, 2001. Maturity Distribution of Time Deposits of $100,000 and Over December 31, 2001 ----------------- (Dollars in thousands) Maturity -------- 3 months or less ..................... $94,079 Over 3 to 6 months ................... 60,751 Over 6 to 12 months .................. 32,956 Over 12 months 2,829 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 factors in the 21 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 correct and may impact the model results. 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, 2002. 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 (6.2)% +100 (2.5) -100 (2.5) -200 (6.6) --------------------------------------------- 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, 2001 the cumulative ratios of rate sensitive assets to rate sensitive liabilities at six months and one year, respectively, were 52.5% and 61.2%. A financial institution is considered to be liability sensitive, or as having a negative gap, when the amount of its interest-bearing liabilities maturing or repricing within a given time period exceeds the amount of its interest earning assets also maturing or repricing within that time period. Conversely, an institution is considered to be asset sensitive, or as having a positive gap, when the amount of its interest-bearing liabilities maturing and repricing is less than the amount of its interest earning assets also maturing or repricing during the same period. 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, 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) Immediate to 6 months .................... $ 248,567 $ 473,585 $(225,018) $(225,018) (28.01)% 52.49% 7 months--12 months ...................... 93,393 85,009 8,384 (216,634) (26.96) 61.22 1--2 years ............................... 146,232 52,495 93,737 (122,897) (15.30) 79.89 2--3 years ............................... 116,569 2,444 114,125 (8,772) (1.09) 98.57 3--4 years ............................... 134,689 1,348 133,341 124,569 15.50 120.26 4--5 years ............................... 9,112 16,715 (7,603) 116,966 14.56 118.52 Over 5 years ............................. 54,899 89,249 (34,350) 82,616 10.28 111.46 --------- --------- --------- Total .................................... $ 803,461 $ 720,845 $ 82,616 ========= ========= =========
(1) Rate Sensitive Assets (2) Rate Sensitive Liabilities 22 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 (except MaxYield/TM/) and regular savings accounts of which 50% are reflected as repricing pro rata 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. Mortgage-backed securities are scheduled over maturity periods based on Bloomberg median estimated prepayment speeds as of January 23, 2002. Other financial instruments are scheduled based 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. 23 The Company's risk-based and leverage capital ratios exceeded these minimum requirements at December 31, 2001 and December 31, 2000 and are presented below, followed by the capital ratios of the Company's bank subsidiary at December 31, 2001. Consolidated Capital Ratios
December 31, --------------------- 2001 2000 ---------- --------- (Dollars in thousands) Tier 1 capital: Stockholders' equity ........................................................ $ 56,617 $ 48,349 Allowed amount of guaranteed preferred beneficial interest in Company's subordinated debentures (trust preferred securities) ...................... 17,250 16,617 Plus net unrealized losses on available for sale securities ................. 499 1,501 Less goodwill and certain intangible assets ................................. (2,823) (3,064) -------- -------- Total Tier 1 capital ................................................... 71,543 63,403 Tier 2 capital: Qualifying allowance for loan losses ........................................ 7,846 6,606 Remaining amount of guaranteed preferred beneficial interest in Company's subordinated debentures (trust preferred securities) ...................... - 633 -------- -------- Total risk-based capital ............................................... $ 79,389 $ 70,642 ======== ======== Risk-weighted assets ........................................................... $626,806 $550,516 ======== ======== Ratios at end of period: Leverage capital ............................................................ 8.51% 7.57% Tier 1 risk-based capital ................................................... 11.41 11.52 Total risk-based capital .................................................... 12.67 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 December 31, 2001 ----------------- Bank of the Ozarks (Dollars in Thousands) Stockholders' equity - Tier 1 ................ $ 69,645 Leverage capital ............................. 8.29% Tier 1 risk-based capital .................... 11.13 Total risk-based capital ..................... 12.38 (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. Liquidity and Capital Resources 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. Growth and Expansion. During 2001 the Company opened four new banking offices and one new loan production office. This gives the Company a total of 28 banking offices and one loan production office. The Company expects to open its new 24 Maumelle office in the first quarter of 2002 and plans to open at least two offices in the Conway, Arkansas market during 2002. Additional offices may be opened in 2002, including possible new offices in the metropolitan Little Rock area and Fort Smith. Capital expenditures were $4.0 million in 2001 and are expected to be in the range of $7 to $9 million for 2002. 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 and are subject to risks associated with borrowers ability to pay which may be impacted by national and local economic conditions. 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, 2001, the Company's bank subsidiary had substantial unused borrowing availability. This availability was primarily comprised of the following three sources: (1) $31.9 million of available blanket borrowing capacity with the Federal Home Loan Bank which offers various terms, (2) $8.9 million of securities available to pledge on a federal funds line of credit or for repurchase agreements or other borrowings and (3) up to $118.8 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 2001 the Company paid dividends of $0.46 per share. In 2000 and 1999 the Company paid dividends of $0.42 and $0.40 per share, respectively. Commencing in the third quarter of 2001 the dividend was increased from $0.11 per quarter to $0.12 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 $0.12 quarterly dividend with consideration to future changes depending on the Company's earnings, capital and liquidity needs. 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, including the impact of the current economic slowdown and its effect on the credit worthiness of borrowers and collateral values; 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. 25 Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends
2001 - Three Months Ended ------------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 ------- ------- -------- ------- (Dollars in thousands, except per share amounts) Total interest income ................................. $ 15,374 $ 15,044 $ 14,782 $ 14,919 Total interest expense ................................ 9,362 8,115 6,957 5,980 -------- -------- -------- -------- Net interest income ................................ 6,012 6,929 7,825 8,939 Provision for loan losses ............................. 354 658 910 1,479 Non-interest income ................................... 1,657 1,920 1,737 2,039 Non-interest expense .................................. 4,296 4,746 4,816 5,171 Income taxes .......................................... 760 835 1,138 1,348 Distributions on trust preferred securities ........... 397 397 397 397 -------- -------- -------- -------- Net income ......................................... $ 1,862 $ 2,213 $ 2,301 $ 2,583 ======== ======== ======== ======== Per share: Earnings - diluted ................................. $ 0.49 $ 0.58 $ 0.60 $ 0.67 Cash dividends ..................................... 0.11 0.11 0.12 0.12 Bid price per common share: Low ................................................ $ 12.63 $ 13.00 $ 19.38 $ 20.75 High ............................................... 14.75 20.20 24.10 25.60 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
See Note 14 to Consolidated Financial Statements for discussion of dividend restrictions. 26 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, 2001 and 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Little Rock, Arkansas January 10, 2002 27 Bank of the Ozarks, Inc. CONSOLIDATED BALANCE SHEETS December 31, ------------------------ 2001 2000 -------- -------- (Dollars in thousands, except per share amounts) ASSETS ------ Cash and due from banks $ 31,114 $ 20,523 Interest-bearing deposits 218 217 -------- -------- Cash and cash equivalents 31,332 20,740 Investment securities - available for sale 182,704 51,696 Investment securities - held to maturity (estimated market value: $4,501 in 2001 and $197,619 in 2000) 4,463 201,320 Federal funds sold - 2,000 Loans, net of unearned income 616,076 510,544 Allowance for loan losses (8,712) (6,606) -------- -------- Net loans 607,364 503,938 Premises and equipment, net 33,123 30,535 Foreclosed assets held for sale, net 661 1,600 Interest receivable 5,821 8,894 Intangible assets, net 2,823 3,064 Other 3,088 3,165 -------- -------- Total assets $871,379 $826,952 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Deposits Demand non-interest bearing $ 72,801 $ 64,572 Savings and interest-bearing transaction 241,042 113,606 Time 363,900 499,505 -------- -------- Total deposits 677,743 677,683 Repurchase agreements with customers 16,213 13,839 Other borrowings 99,690 66,703 Accrued interest and other liabilities 3,866 3,128 -------- -------- Total liabilities 797,512 761,353 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, 3,782,055 and 3,779,555 shares issued and outstanding in 2001 and 2000, respectively 38 38 Additional paid-in capital 14,360 14,314 Retained earnings 42,718 35,498 Accumulated other comprehensive loss (499) (1,501) -------- -------- Total stockholders' equity 56,617 48,349 -------- -------- Total liabilities and stockholders' equity $871,379 $826,952 ======== ======== The accompanying notes are an integral part of these consolidated financial statements 28 Bank of the Ozarks, Inc. CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, ----------------------------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in thousands, except per share amounts) Interest income Loans $47,464 $43,451 $37,008 Investment securities - taxable 11,203 15,331 12,847 - nontaxable 1,403 1,953 1,675 Deposits with banks and federal funds sold 49 17 45 ------- ------- ------- Total interest income 60,119 60,752 51,575 ------- ------- ------- Interest expense Deposits 25,300 29,701 23,831 Repurchase agreements with customers 537 680 132 Other borrowings 4,577 6,708 3,819 ------- ------- ------- Total interest expense 30,414 37,089 27,782 ------- ------- ------- Net interest income 29,705 23,663 23,793 Provision for loan losses (3,401) (2,325) (2,485) ------- ------- ------- Net interest income after provision for loan losses 26,304 21,338 21,308 ------- ------- ------- Other income Trust income 604 592 479 Service charges on deposit accounts 3,776 3,380 2,499 Other income, charges and fees 2,602 1,530 1,936 Gain on sale of securities 153 - 69 Other 218 40 164 ------- ------- ------- Total other income 7,353 5,542 5,147 ------- ------- ------- Other expense Salaries and employee benefits 10,551 8,928 8,752 Net occupancy and equipment 3,098 2,910 2,655 Other operating expenses 5,381 5,126 5,057 ------- ------- ------- Total other expense 19,030 16,964 16,464 ------- ------- ------- Income before income taxes and trust distribution 14,627 9,916 9,991 Distributions on trust preferred securities 1,587 1,587 846 Provision for income taxes 4,081 2,289 2,510 ------- ------- ------- Net income $ 8,959 $ 6,040 $ 6,635 ======= ======= ======= Basic earnings per common share $ 2.37 $ 1.60 $ 1.76 ======= ======= ======= Diluted earnings per common share $ 2.35 $ 1.60 $ 1.75 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements 29 Bank of the Ozarks, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Additional Other Common Paid-In Retained Comprehensive Stock Capital Earnings Income (Loss) Total ------- ---------- -------- -------------- ------- (Dollars in thousands, except per share amounts) Balance - January 1, 1999 $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 (loss) 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 Comprehensive income: Net income - - 8,959 - 8,959 Other comprehensive income Unrealized gains on available for sale securities net of $457 tax effect - - - 737 737 Reclassification adjustment for gains included in income net of $164 tax effect - - - 265 265 ------- Comprehensive income 9,961 Dividends paid, $0.46 per share - - (1,739) - (1,739) Issuance of 2,500 shares of common stock for exercise of stock options including tax benefits of $5 - 46 - - 46 --- ------- ------- ------ ------- Balance - December 31, 2001 $38 $14,360 $42,718 $ (499) $56,617 === ======= ======= ====== =======
The accompanying notes are an integral part of these consolidated financial statements 30 Bank of the Ozarks, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------- 2001 2000 1999 --------- --------- --------- (Dollars in thousands) Cash flows from operating activities Net income $ 8,959 $ 6,040 $ 6,635 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,460 1,490 1,375 Amortization 276 293 262 Provision for loan losses 3,401 2,325 2,485 Provision for losses on foreclosed assets 163 183 90 Amortization and accretion on investment securities (130) (104) (132) Gain on sale of investment securities (153) - (69) (Increase) decrease in mortgage loans held for sale (12,308) 545 4,308 Gain on disposition of premises and equipment - (8) (40) (Gain) loss on disposition of foreclosed assets (2) 45 28 Deferred income taxes (569) 405 (139) Changes in assets and liabilities: Interest receivable 3,073 (1,720) (1,657) Other assets, net (11) 128 (1,500) Accrued interest and other liabilities 741 155 1,017 --------- --------- --------- Net cash provided by operating activities 4,900 9,777 12,663 --------- --------- --------- Cash flows from investing activities Proceeds from sales and maturities of investment securities available for sale 48,302 316 19,922 Purchases of investment securities available for sale (177,681) (7,093) (49,635) Proceeds from maturities of investment securities held to maturity 197,135 20,176 42,293 Purchases of investment securities held to maturity - (2,880) (101,756) Increase (decrease) in federal funds sold 2,000 (2,000) - Net increase in loans (96,515) (48,862) (89,630) Proceeds from sale of loans - - 994 Proceeds from dispositions of premises and equipment - 99 317 Purchases of premises and equipment (4,048) (1,570) (5,048) Proceeds from dispositions of foreclosed assets 2,775 3,524 1,454 --------- --------- --------- Net cash used in investing activities (28,032) (38,290) (181,089) --------- --------- --------- Cash flows from financing activities Net increase in deposits 60 81,752 66,890 Net proceeds (repayments) from other borrowings 32,988 (60,287) 87,718 Net increase in repurchase agreements with customers 2,374 4,813 7,618 Proceeds from trust preferred securities - - 17,250 Proceeds on exercise of stock options 41 - - Dividends paid (1,739) (1,587) (1,512) --------- --------- --------- Net cash provided by financing activities 33,724 24,691 177,964 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 10,592 (3,822) 9,538 Cash and cash equivalents - beginning of year 20,740 24,562 15,024 --------- --------- --------- Cash and cash equivalents - end of year $ 31,332 $ 20,740 $ 24,562 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements 31 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 named Bank of the Ozarks 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. 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 and other comprehensive income. 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. Interest on 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. 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 32 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data 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, improvements and 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. Valuations are periodically performed by management and the real estate is carried at the lower of book value 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 in 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 is 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 $1,765 and $1,524 at December 31, 2001 and 2000, 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 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 $583, $551 and $612 for the years ended December 31, 2001, 2000 and 1999, respectively. Stock-based compensation - The Company has elected to follow Accounting ------------------------ Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options. Under APB 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. Recent Accounting Pronouncements - In June 2001, the Financial Accounting -------------------------------- Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets such as core deposit intangibles will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. The Company does not expect the adoption of these accounting standards to have a significant impact on the operating results and financial position of the Company. Reclassifications - Certain reclassifications of 2000 and 1999 amounts have ----------------- been made to conform with the 2001 financial statements presentation. 33 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data 2. Investment Securities The following is a summary of the amortized cost and estimated market values of investment securities:
December 31, 2001 -------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ------ --------- ---------- Securities - available for sale: Securities of United States government and agencies $ 69,912 $ 429 $ (164) $ 70,177 Mortgage-backed securities 91,726 138 (630) 91,234 State and political subdivisions 17,121 81 (662) 16,540 Other securities 4,753 - - 4,753 --------- ------ --------- ---------- Total securities - available for sale $ 183,512 $ 648 $ (1,456) $ 182,704 ========= ====== ========= ========== Securities - held to maturity: Securities of United States government and agencies $ - $ - $ - $ - State and political subdivisions 1,580 32 - 1,612 Other securities 2,883 6 - 2,889 --------- ------ --------- ---------- Total securities - held to maturity $ 4,463 $ 38 $ - $ 4,501 ========= ====== ========= ========== 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 2,980 6 - 2,986 --------- ------ --------- ---------- Total securities - held to maturity $ 201,320 $ 22 $ (3,723) $ 197,619 ========= ====== ========= ==========
34 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data A maturity distribution of available-for-sale and held-to-maturity investment securities reflected at amortized cost and estimated market value as of December 31, 2001 is as follows:
Available for Sale Held to Maturity ------------------------- ---------------------- Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value --------- --------- ------- ------- Due in one year or less $ 15,011 $ 15,013 $ 171 $ 172 Due after one year to five years 115,273 115,527 964 981 Due after five years to ten years 26,531 26,562 445 459 Due after ten years 26,697 25,602 2,883 2,889 --------- --------- ------- ------- Totals $ 183,512 $ 182,704 $ 4,463 $ 4,501 ========= ========= ======= =======
----------------------------------------------- For purposes of this maturity distribution all securities are shown based on their contractual maturity date, except equity securities with no contractual maturity date which are shown in the longest maturity category and mortgage-backed securities which are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds. 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. During the year ended December 31, 2001 investment securities available-for- sale with a fair value at the date of sale of $35,153 were sold. In the year ended December 31, 2000 no securities were sold. In the year ended December 31, 1999 investment securities available-for-sale with a fair value of $18,408 were sold. The gross realized gains on such sales in 2001 and 1999 totaled $273 and $78, respectively. The gross realized losses totaled $83 in 2001 and $9 in 1999. The Company maintained a trading account of up to $200 during part of 2001. No trading account securities were held at December 31, 2001. The Company had no trading securities during 2000 or 1999. The gross realized gains on trading securities in 2001 totaled $3 and gross realized losses totaled $40. Assets, principally investment securities, having a carrying value of approximately $173,684 and $229,853 at December 31, 2001 and 2000, 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, ---------------------- 2001 2000 -------- -------- Real Estate: Residential 1-4 family $167,559 $144,920 Non-farm/non-residential 180,257 134,726 Agricultural 45,303 38,808 Construction/land development 51,140 42,354 Multifamily residential 20,850 8,367 Consumer 55,805 58,430 Commercial and industrial 78,324 63,799 Agricultural (non-real estate) 12,866 14,605 Other 3,972 4,535 -------- -------- Loans, net of unearned discounts $616,076 $510,544 ======== ======== These loan categories are presented net of unearned income, unearned purchase discounts and deferred costs totaling $750 and $799 at December 31, 2001 and 2000, respectively. Loans on which the accrual of interest has been discontinued aggregated $1,806 and $1,880 at December 31, 2001 and 2000, respectively. Interest income recorded during 2001 for non-accrual loans at December 31, 2001 was $117. Under the original terms, these loans would have reported approximately $175 of interest income during 2001. The Company did not segregate income recognized on a cash basis in its financial records in 2000 and 1999, and thus, such disclosure is not practical. Mortgage loans held for resale of $14,140 and $1,832 at December 31, 2001 and 2000, respectively, are included in residential 1-4 family loans. The carrying value of these loans approximates their fair value. Other income, charges and fees include mortgage lending income of $1,920, $849 and $1,306 during 2001, 2000 and 1999, respectively. 4. Allowance for Loan Losses The following is a summary of activity within the allowance for loan losses: Year Ended December 31, ---------------------------- 2001 2000 1999 ------ ------ ------ Balance - beginning of year $6,606 $6,072 $4,689 Loans charged-off (1,420) (1,998) (1,225) Recoveries on loans previously charged-off 125 207 123 ------ ------ ------ Net Charge-offs (1,295) (1,791) (1,102) Provision charged to operating expense 3,401 2,325 2,485 ------ ------ ------ Balance - end of year $8,712 $6,606 $6,072 ====== ====== ====== Impairment of loans having carrying values of $1,806 and $1,880 (all of which were on a non-accrual basis) at December 31, 2001 and 2000, 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 $323 and $212 at December 31, 2001 and 2000, respectively. The average carrying value of impaired loans was $1,659, $2,748 and $3,611, for the years ended December 31, 2001, 2000 and 1999, respectively. For impairment recognized in conformity with SFAS 114, as amended, the entire change in present value of expected cash 35 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data flows is reported as provision for loan losses in the same manner in which impairment 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 $1,336 and $2,641 was transferred to foreclosed assets held for sale in 2001 and 2000, respectively. The Company 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, -------------------- 2001 2000 ------- ------- Land $ 8,088 $ 7,289 Construction in process 496 369 Buildings and improvements 21,696 19,408 Leasehold improvements 2,660 2,460 Equipment 7,910 7,926 ------- ------- 40,850 37,452 Accumulated depreciation (7,727) (6,917) ------- ------- Premises and equipment, net $33,123 $30,535 ======= ======= The Company capitalized $53, $52 and $51 of interest on construction projects during the years ended December 31, 2001, 2000 and 1999, respectively. Included in occupancy expense is rent of approximately $162, $123 and $71 incurred under noncancelable operating leases in 2001, 2000 and 1999, 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, 2001 are $163 -- 2002, $161 -- 2003, $143 -- 2004, $126 -- 2005, $102 -- 2006 and $775 -- thereafter. 6. Deposits The aggregate amount of time deposits with a minimum denomination of $100 was $190,615 and $265,345 at December 31, 2001 and 2000, respectively. The following is a summary of the scheduled maturities of all time deposits: December 31, ---------------------- 2001 2000 -------- -------- Up to one year $352,098 $470,707 One year to two years 8,003 24,543 Two years to three years 2,148 1,954 Three years to four years 578 1,019 Four years to five years 334 556 Thereafter 739 726 -------- -------- Total time deposits $363,900 $499,505 ======== ======== 7. Borrowings Short-term borrowings with maturities less than one year include FHLB advances, Federal Reserve Bank borrowings, 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, -------------------- 2001 2000 ------- ------- Average annual balance $14,299 $28,700 December 31 balance 18,247 1,062 Maximum month-end balance during year 40,793 45,702 Interest rate: Weighted average 3.54% 6.37% December 31 1.74 5.00 The following is a summary of long term borrowings: December 31, -------------------- 2001 2000 ------- ------- FHLB advances with original maturities exceeding one year. Interest rates range from 2.49% to 6.43% at December 31, 2001. At December 31, 2001, the Company's bank subsidiary had remaining $31,936 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. $81,383 $65,581 Other 60 60 ------- ------- $81,443 $65,641 ======= ======= Maturities of long term borrowings at December 31, 2001 are as follows: 2002 - -- $198; 2003 -- $20,258; 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. 36 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data 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 regulatory 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, ------------------------------ 2001 2000 1999 ------ ------ ------ Current: Federal $4,520 $1,884 $2,814 State 130 - (165) ------ ------ ------ Total current 4,650 1,884 2,649 ------ ------ ------ Deferred: Federal (515) 405 (146) State (54) - 7 ------ ------ ------ Total deferred (569) 405 (139) ------ ------ ------ Provision for income taxes $4,081 $2,289 $2,510 ====== ====== ====== The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows: Year Ended December 31, -------------------------- 2001 2000 1999 ---- ---- ---- Statutory federal income tax rate 35.0% 34.0% 34.0% State income taxes, net of federal benefit 0.9 - - Effect of non-taxable interest income (3.6) (7.1) (5.7) Refund of prior years state income tax (0.7) - (1.1) Effect of graduated rate differential (0.9) - - Other 0.6 0.6 0.2 ---- ---- ---- Effective income tax rate 31.3% 27.5% 27.4% ==== ==== ==== In 2001 and 1999 the Company recorded tax refunds of a state income tax assessment the Company had paid and expensed in 1997. These settlements resulted in a refund of $147 of tax and $123 of interest in 2001 and a refund of $153 of tax and $91 of interest in 1999. These amounts were recorded as a credit to tax expense and other income, respectively, for the years 2001 and 1999. 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, ------------------ 2001 2000 ------ ------ Deferred tax assets: Allowance for loan losses $3,207 $2,153 Valuation of foreclosed assets 34 40 Unrealized depreciation on securities available for sale 309 931 ------ ------ Gross deferred tax assets 3,550 3,124 Deferred tax liabilities: Accelerated depreciation on premises and equipment 1,635 1,269 Other 531 418 ------ ------ Gross deferred tax liabilities 2,166 1,687 ------ ------ Net deferred tax assets included in other assets $1,384 $1,437 ====== ====== 37 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data 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. 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 2001, 2000 and 1999 of $157, $160 and $146, 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 385,000 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, ----------------------------------------------------------------- 2001 2000 1999 ----------------- -------------------- ------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price -------- ------ ------- ----- ------- ------ Outstanding - beginning of year 307,775 $ 17.08 254,100 $19.72 198,050 $ 20.42 Granted 38,450 19.56 105,650 12.26 71,500 17.96 Exercised (2,500) 16.24 - - Canceled (14,575) 18.31 (51,975) 20.15 (15,450) 20.57 -------- ------- -------- Outstanding - end of year 329,150 $ 17.33 307,775 $17.08 254,100 $ 19.72 ======== ======= ======== Exercisable at end of year 129,500 $ 19.71 144,825 $18.68 83,200 $ 22.20 ======== ======= ========
38 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data Exercise prices for options outstanding as of December 31, 2001 ranged from $11.85 to $34.13. The weighted-average fair value of options granted during 2001, 2000 and 1999 was $5.47, $4.22 and $6.85, respectively. The weighted-average remaining contractual life of the options issued in 2001 is 7.3 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: 2001 2000 1999 ---- ---- ---- Risk-free interest rate 4.13% 5.71% 5.71% Dividend yield 2.38 2.77 2.00 Expected dividend yield increase 9.00 9.00 12.00 Expected stock volatility 33.13 38.88 42.16 Weighted average expected life 5 years 5 years 5 years For purposes of pro forma disclosures as required by SFAS No. 123, the estimated fair value of the options is amortized over the options' vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1996: 2001 2000 1999 ---- ---- ---- Pro forma net income $8,674 $5,797 $6,243 Pro forma earnings per share: Basic $ 2.29 $ 1.53 $ 1.65 Diluted 2.27 1.53 1.64 ------------------------------------------------------ The following is a summary of currently outstanding and exercisable options at December 31, 2001:
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 ------------ ----------- --------------- -------- ----------- -------- $11.85-19.19 228,400 4.8 $14.78 69,500 $16.31 21.50-27.75 94,750 4.1 22.39 54,000 22.49 34.13 6,000 6.3 34.13 6,000 34.13 ------- ------- 329,150 129,500 ======= =======
------------------------------------------------------ 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 $70,798 and $53,803 at December 31, 2001 and 2000, 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 $3,662 and $1,922 at December 31, 2001 and 2000, 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 Company has entered into transactions with its executive officers, directors, principal shareholders, and their affiliates (related parties). The aggregate amount of loans to such related parties at December 31, 2001 and 2000 was $14,587 and $8,061, respectively. New loans and advances on prior commitments made to such related parties were $14,186, $13,955 and $3,263 for the years ended December 31, 2001, 2000 39 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data and 1999, respectively. Repayments of loans made by such related parties were $7,660, $13,407 and $1,067 for the years ended December 31, 2001, 2000 and 1999, respectively. During 2001, 2000 and 1999 the Company incurred costs in connection with construction of eight banking buildings or facilities. The majority owner of the contractor on five of these construction projects is a member of the Company's Board of Directors. Total payments to the contractor for these projects and certain renovation type contracts during the years ended December 31, 2001, 2000 and 1999 were approximately $545, $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, 2001 December 31, 2000 -------------------- -------------------- Computed Computed Computed Computed Capital Percent Capital Percent -------- -------- -------- -------- Bank of the Ozarks, Inc. (consolidated): Total risk-based capital $79,389 12.67% $70,642 12.83% Tier 1 risk-based capital 71,543 11.41 63,403 11.52 Leverage ratio - 8.51 - 7.57 Bank of the Ozarks: Total risk-based capital $77,479 12.38% $68,963 12.54% Tier 1 risk-based capital 69,645 11.13 62,357 11.34 Leverage ratio - 8.29 - 7.45
As of December 31, 2001 and 2000, 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, 2001, the subsidiary bank exceeded its minimum capital requirements. As of December 31, 2001, 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. $7,429 was available at December 31, 2001, 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, 2001, the maximum amount available for transfer from the subsidiary bank to the Company in the form of loans is limited to 10% of the bank's total risk-based capital or approximately $7,748. 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, 2001 and 2000, these required balances aggregated $958 and $678, 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. 40 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data 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 counterparties. 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 counterparties 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.
2001 2000 ------------------------- ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- -------- ---------- -------- Financial assets: Cash and cash equivalents $ 31,332 $ 31,332 $ 20,740 $ 20,740 Available-for-sale securities 182,704 182,704 51,696 51,696 Held-to-maturity securities 4,463 4,501 201,320 197,619 Loans, net of allowance for loan losses 607,364 618,374 503,938 501,842 Accrued interest receivable 5,821 5,821 8,894 8,894 Financial liabilities: Demand, NOW and savings account deposits $ 313,843 $ 313,843 $ 178,178 $ 178,178 Time deposits 363,900 365,753 499,505 502,214 Repurchase agreements with customers 16,213 16,225 13,839 13,844 Other borrowings 99,690 102,011 66,703 70,038 Accrued interest and other liabilities 3,866 3,866 3,128 3,128 Off-balance sheet items: Standby letters of credit $ - $ 3,662 $ - $ 1,922 Commitments to extend credit - 70,798 - 53,803
16. Supplemental Cash Flow Information Supplemental cash flow information is as follows:
Year Ended December 31, ------------------------------------ 2001 2000 1999 ---- ---- ---- Cash paid during the period for: Interest $31,096 $36,909 $27,448 Income taxes 4,205 1,927 2,314 Supplemental schedule of non-cash investing and financing activities: Transfer of loans to foreclosed assets held for sale 1,336 2,641 3,625 Loans advanced for sales of foreclosed assets 1,215 441 771 Change in unrealized loss (gain) in available for sale securities 1,623 (36) 2,600
41 Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data 17. Other Operating Expenses The following is a summary of other operating expenses:
Year Ended December 31, ------------------------- 2001 2000 1999 ------ ------ ------ Telephone and data lines $ 728 $ 714 $ 604 Operating supplies 543 487 513 Advertising and public relations 583 551 612 Other 3,527 3,374 3,328 ------ ------ ------ Total other operating expenses $5,381 $5,126 $5,057 ====== ====== ======
18. Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per share ("EPS"):
Year Ended December 31, ------------------------- 2001 2000 1999 ------ ------ ------ Numerator: Net income $8,959 $6,040 $6,635 ====== ====== ====== Denominator: Denominator for basic EPS weighted average shares 3,781 3,780 3,780 Effect of dilutive securities: Stock options 35 2 12 ------ ------ ------ Denominator for diluted EPS - adjusted weighted average shares and assumed conversions 3,816 3,782 3,792 ====== ====== ====== Basic EPS $ 2.37 $ 1.60 $ 1.76 ====== ====== ====== Diluted EPS $ 2.35 $ 1.60 $ 1.75 ====== ====== ======
Options to purchase 101, 211 and 97 shares of common stock at prices ranging from $21.87 to $34.13 per share were outstanding during 2001, 2000 and 1999 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, ----------------- 2001 2000 ------- ------- Assets ------ Cash and cash equivalents $ 817 $ 720 Investment in subsidiaries 71,410 63,307 Premises and equipment, net 3 6 Excess cost over fair value of net assets acquired, at amortized cost 1,092 1,148 Debt issuance cost, net 936 970 Other 183 25 ------- ------- Total assets $74,441 $66,176 ======= ======= Liabilities and Stockholders' Equity ------------------------------------ Accrued interest and other liabilities $ 40 $ 43 Notes payable - - Subordinated debentures 17,784 17,784 ------- ------- Total liabilities 17,824 17,827 ------- ------- Stockholders' equity Common stock 38 38 Additional paid-in capital 14,360 14,314 Retained earnings 42,718 35,498 Accumulated other comprehensive loss (499) (1,501) ------- ------- Total stockholders' equity 56,617 48,349 ------- ------- Total liabilities and stockholders' equity $74,441 $66,176 ======= =======
42
Notes to Consolidated Financial Statements, Dollars in Thousands, Except Per Share Data Condensed Statements of Income Year Ended December 31, ----------------------------- 2001 2000 1999 ------- ------- -------- Income Dividends from subsidiaries $ 3,048 $ 2,748 $ 2,591 Other 88 29 92 ------- ------- -------- Total income 3,136 2,777 2,683 ------- ------- -------- Expenses Interest 1,635 1,636 1,257 Other operating expenses 486 477 777 ------- ------- -------- Total expenses 2,121 2,113 2,034 ------- ------- -------- Income before income tax benefit and equity in undistributed earnings of subsidiaries 1,015 664 649 Income tax benefit 843 672 743 Equity in undistributed earnings of subsidiary 7,101 4,704 5,243 ------- ------- -------- Net income $ 8,959 $ 6,040 $ 6,635 ======= ======= ======== Condensed Statements of Cash Flows Year Ended December 31, ----------------------------- 2001 2000 1999 ------- ------- -------- Cash flows from operating activities Net income $ 8,959 $ 6,040 $ 6,635 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3 8 11 Amortization 90 90 75 Equity in undistributed earnings of subsidiaries (7,101) (4,704) (5,243) Changes in assets and liabilities: Accrued interest and other liabilities (3) (4) 27 Other, net (158) 188 (195) ------- ------- -------- Net cash provided by operating activities 1,790 1,618 1,310 ------- ------- -------- Cash flows from investing activities Investment in subsidiaries - - (3,534) ------- ------- -------- Net cash used in investing activities - - (3,534) ------- ------- -------- Cash flows from financing activities Issue common stock 46 - - Increase in deferred debt issuance cost - - (1,022) Issue subordinated debentures - - 17,784 Payments of notes payable - (24) (12,364) Dividends paid (1,739) (1,587) (1,512) ------- ------- -------- Net cash (used in) provided by financing activities (1,693) (1,611) 2,886 ------- ------- -------- Net increase in cash and cash equivalents 97 7 662 Cash and cash equivalents - beginning of period 720 713 51 ------- ------- -------- Cash and cash equivalents - end of period $ 817 $ 720 $ 713 ======= ======= ========
43 EX-21 5 dex21.txt LIST OF SUBSIDIARIES Exhibit 21 Subsidiaries of the Registrant 1. Bank of the Ozarks, an Arkansas state chartered bank. 2. Ozark Capital Trust, a Delaware business trust. EX-23.1 6 dex231.txt CONSENT OF ERNST & YOUNG 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 10, 2002, included in the 2001 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 10, 2002, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. /s/ Ernst & Young Little Rock, Arkansas March 19, 2002 -----END PRIVACY-ENHANCED MESSAGE-----