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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000930661-01-000640.txt : 20010323
<SEC-HEADER>0000930661-01-000640.hdr.sgml : 20010323
ACCESSION NUMBER: 0000930661-01-000640
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010322
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BANK OF THE OZARKS INC
CENTRAL INDEX KEY: 0001038205
STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022]
IRS NUMBER: 710556208
STATE OF INCORPORATION: AR
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-22759
FILM NUMBER: 1576320
BUSINESS ADDRESS:
STREET 1: 12615 CHENAL PARKWAY
STREET 2: SUITE 3100
CITY: LITTLE ROCK
STATE: AR
ZIP: 72211
BUSINESS PHONE: 5019782265
MAIL ADDRESS:
STREET 1: 12615 CHENAL PARKWAY
CITY: LITTLE ROCK
STATE: AR
ZIP: 72211
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________.
Commission File Number 0-22759
BANK OF THE OZARKS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0556208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12615 CHENAL PARKWAY, P. O. BOX 8811, LITTLE ROCK, ARKANSAS 72231-8811
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 978-2265
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
State the aggregate market value of the Registrant's common stock held
by non-affiliates: $28,672,909 (based upon the average bid and asked prices
quoted on the Nasdaq National Market on March 1, 2001).
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practical date.
Class Outstanding at March 1, 2001
- --------------------------------------- --------------------------------
Common Stock, par value $0.01 per share 3,779,555
Documents incorporated by reference: Parts I, II and III of this Form
10-K incorporate certain information by reference from the Registrant's Annual
Report to Stockholders for the year ended December 31, 2000 and the Proxy
Statement for its 2001 annual meeting.
<PAGE>
BANK OF THE OZARKS, INC.
FORM 10-K
December 31, 2000
<TABLE>
<CAPTION>
INDEX
PART I. Financial Information Page
----
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II.
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III.
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management 14
Item 13. Certain Relationships and Related Transactions 15
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 15
Signatures 18
</TABLE>
<PAGE>
Part I
Item 1. BUSINESS
--------
General
Bank of the Ozarks, Inc. (the "Company") is an Arkansas business
corporation registered under the Bank Holding Company Act of 1956. The Company
owns a state chartered subsidiary bank, Bank of the Ozarks, which conducts
banking operations through 24 offices in 17 communities throughout northern,
western and central Arkansas. The Company also owns Ozark Capital Trust, a
Delaware business trust. At December 31, 2000 the Company had total assets of
$827 million, total loans of $511 million and total deposits of $678 million.
The Company provides a wide range of retail and commercial banking
services. Deposit services include checking, savings, money market, time
deposit and individual retirement accounts. Loan services include various types
of real estate, consumer, commercial, industrial and agricultural loans. The
Company also provides mortgage lending, cash management, trust services, safety
deposit boxes, real estate appraisals, credit related life and disability
insurance, ATMs, telephone banking, internet banking and debit cards.
In 1994 the Company initiated an expansion strategy, via de novo
branching, into target Arkansas markets. Since embarking on this strategy, the
Company has opened nineteen new offices in northern, western and central
Arkansas. In 2000 the Company slowed its expansion opening only one office in
Yellville, Arkansas.
The Company's de novo branching strategy initially focused on opening
branches in smaller communities throughout its market area. During the period
from 1994 through 1997 the Company opened a total of nine additional full
service offices including new offices in Marshall, Van Buren, Mulberry, Alma,
Paris, Bellefonte, Harrison and two offices in Clarksville, Arkansas.
In 1998 the Company added a new element to its growth strategy by
significantly expanding into two of Arkansas' largest metropolitan markets -
Little Rock/North Little Rock and Fort Smith. The Company originally entered
the Little Rock market in 1995, when it opened its corporate headquarters and a
small commercial lending office. In 1996 the Company opened a residential
mortgage lending office. In February 1998 the Company began full service
banking operations in Little Rock with the acquisition of a small savings and
loan with $9.4 million in deposits. In 1998 the Company also opened three more
Little Rock offices, including its new corporate headquarters which houses a
full-service banking center, corporate offices, mortgage lending center and full
service trust operations. In 1999 the Company opened two offices in North
Little Rock, Arkansas. The Company began a major expansion in a second
metropolitan market in September 1998 with the opening of a banking center in
Fort Smith.
The Company plans to continue its expansion in and around these
metropolitan markets. During the first half of 2001, the Company expects to
open two previously announced branches in the Otter Creek area of Little Rock
(its fifth Little Rock office) and on Zero Street in Fort Smith (its second Fort
Smith office). During the first quarter of 2001, the Company was given the
opportunity to open a branch in the new Wal-Mart Supercenter being constructed
in Bryant, Arkansas near Little Rock. The Company promptly received regulatory
approval for this branch which is expected to open around the end of the first
quarter of 2001. The Company expects to construct or acquire additional
branches in 2001 and future years as desirable opportunities become available.
Lending Activities
The Company's primary source of income is interest earned from its
loan portfolio and, to a lesser extent, earnings on its investment portfolio.
In underwriting loans, primary emphasis is placed on the borrower's financial
condition, including its ability to generate cash flow to support its debt
obligations and other cash expenses. Additionally, substantial consideration is
given to collateral value and marketability as well as the borrower's character,
reputation and other relevant factors. The Company's portfolio includes most
types of real estate loans, consumer loans, commercial and industrial loans,
agricultural loans and other types of loans. The vast majority of the
properties collateralizing the Company's mortgage loans are located within the
trade areas of the Company's offices.
1
<PAGE>
Real Estate Loans. The Company's portfolio of real estate loans
includes loans secured by residential 1-4 family, non-farm non-residential,
agricultural, construction and land development, and multifamily residential
(five or more) properties. Residential 1-4 family loans comprise the largest
portion of the Company's real estate loans. Non-farm non-residential loans
include those secured by real estate mortgages on owner occupied commercial
buildings of various types, leased commercial buildings, medical and nursing
facilities, underdeveloped raw land for commercial purposes, and other business
and industrial properties. Agricultural real estate loans include loans secured
by farmland and related improvements including loans guaranteed by the Farm
Service Agency. Agricultural real estate loans also include loans to
individuals which would normally be characterized as residential 1-4 family
loans but for the fact that the individual borrowers are primarily engaged in
the production of timber, poultry, livestock or crops. Real estate construction
and land development loans include loans with original maturities of sixty
months or less to finance land development or construction of industrial,
commercial, residential or farm buildings or additions or alterations to
existing structures.
The Company offers a variety of real estate loan products that are
generally amortized over five to thirty years, payable in monthly or other
periodic installments of principal and interest, and due and payable in full
(unless renewed) at a balloon maturity generally within one to five years.
Certain loans not subject to Arkansas' usury law, typically first mortgage
residential loans, may be structured as term loans with adjustable interest
rates (adjustable daily, every six months, annually, or at other regular
adjustment intervals usually not to exceed every five years) and without balloon
maturities.
Residential 1-4 family loans are underwritten primarily based on the
borrower's ability to repay, including prior credit history, and the value of
the collateral. Other real estate loans are underwritten based on the ability
of the property, in the case of income producing property, or the borrower's
business to generate sufficient cash flow to amortize the debt. Secondary
emphasis is placed upon collateral value and other factors. Loans
collateralized by real estate have generally been originated with loan to
appraised value ratios of not more than 89% for residential 1-4 family, 85% for
other single family residential and other improved property, 80% for
construction loans secured by commercial, multifamily and other non-residential
properties, 75% for land development loans and 65% for raw land loans.
The Company typically requires mortgage title insurance in the amount
of the loan and hazard insurance on improvements. Documentation requirements
vary depending on loan size, type, complexity and other factors.
Consumer Loans. The Company's portfolio of consumer loans generally
includes loans to individuals for household, family and other personal
expenditures. Proceeds from such loans are used to, among other things, fund
the purchase of automobiles, household appliances, furniture, trailers, boats,
mobile homes and for other similar purposes. Consumer loans made by the Company
are generally collateralized with terms typically ranging up to 72 months,
depending upon the nature of the collateral and size of the loan.
Consumer loans are attractive to the Company because they generally
have a short term with higher yielding interest rates. Such loans, however,
pose additional risks of collectibility and loss when compared to certain other
types of loans. The borrower's ability to repay is of primary importance in the
underwriting of consumer loans.
Commercial and Industrial Loans. The Company's commercial and
industrial loan portfolio consists of loans for commercial, industrial and
professional purposes including loans to fund working capital requirements (such
as inventory, floor plan and receivables financing), purchases of machinery and
equipment and other purposes. The Company offers a variety of commercial and
industrial loan arrangements, including term loans, balloon loans and lines of
credit with the purpose and collateral supporting a particular loan determining
its structure. These loans are offered to businesses and professionals for
short and medium terms on both a collateralized and uncollateralized basis. As
a general practice, the Company obtains as collateral a lien on furniture,
fixtures, equipment, inventory, receivables or other assets.
Commercial and industrial loans typically are underwritten on the
basis of the borrower's ability to make repayment from the cash flow of its
business and generally are collateralized by business assets. As a result, such
loans involve additional complexities, variables and risks and require more
thorough underwriting and servicing than other types of loans.
2
<PAGE>
Agricultural (Non-Real Estate) Loans. The Company's portfolio of
agricultural (non-real estate) loans includes loans for financing agricultural
production, including loans to businesses or individuals engaged in the
production of timber, poultry, livestock or crops. The Company's agricultural
(non-real estate) loans are generally secured by farm machinery, livestock,
crops, vehicles or other agri-related collateral. A portion of the Company's
portfolio of agricultural (non-real estate) loans are loans to individuals which
would normally be characterized as consumer loans but for the fact that the
individual borrowers are primarily engaged in the production of timber, poultry,
livestock or crops.
Deposits
The Company offers an array of deposit products consisting of non-
interest bearing checking accounts, low cost deposit products, including
interest bearing transaction (such as checking) and savings accounts, and higher
cost deposit products, including money market accounts and time deposits.
The Company acts as depository for a number of state and local
governments and government agencies or instrumentalities. Such public fund
deposits are often subject to competitive bid and in many cases must be secured
by the Company's pledge of government agency or other securities. The Company's
deposits come primarily from within the Company's trade area. As of December 31,
2000 the Company had $1.6 million "brokered deposits," defined as deposits
which, to the knowledge of management of the Company, have been placed with the
bank subsidiary by a person who acts as a broker in placing such deposits on
behalf of others.
Other Banking Services
Trust Services. Prior to 1999 the Company provided trust services
from its Ozark, Arkansas office. As the Company expanded into larger markets, it
identified a need to expand the capabilities and services of this department. In
1998 the Company assembled a team of experienced trust officers at its main
office in Little Rock to handle personal trusts, corporate trusts, employee
benefit accounts and trust operations. In late 1998 this team commenced
operations in Little Rock and the Ozark trust operations were consolidated into
that office. In 1999 and 2000 revenue from trust services continued to grow as
this team began to develop increased business from the expanded trust
operations. As of December 31, 2000 total trust assets under management were
$114.5 million compared to $99.4 million as of December 31, 1999.
Cash Management Services. In 1998 the Company introduced cash
management products which are designed to provide a high level of specialized
support to the treasury operations of business customers. In 2000 the Company
continued to build its cash management products and added new commercial account
customers. Cash management has four basic functions: deposit handling, funds
concentration, funds disbursement and information reporting. The Company's cash
management services include automated clearing house services (e.g., direct
deposit, direct debit and electronic cash concentration and disbursement), zero
balance accounts, current and prior day transaction reporting, wholesale lockbox
services, automated credit line transfer and account analysis. The Company
expects to continue to increase the number of customers to which it provides
such services.
Mortgage Lending. In 1996 the Company expanded its residential
mortgage product line by offering long-term fixed and variable rate loans to be
sold on a servicing released basis in the secondary market. The Company
originates such loans through its Little Rock, Fort Smith and Harrison offices.
In 2000 rising rates impacted the volume of mortgage loans being refinanced and
the volume of loans on home purchases resulting in a substantial decline in the
Company's mortgage loan originations and mortgage lending income. Loan
originations dropped from $83.0 million in 1999 to $51.1 million in 2000.
Although this business is cyclical, it will continue to be an important
component of non-interest income.
Internet Banking. In 2000 the Company launched an On-Line Banking
service providing complete banking service over the Internet for both business
customers and consumers. Through this service individuals can access their
account information, pay bills, transfer funds, reorder checks, change addresses
and issue stop payment requests electronically. Businesses are offered more
advanced features that allow them to take care of most cash management functions
electronically and gives them better access to their account information on a
more timely basis. One thousand individuals signed up for the service in the
first 82 days and by year-end over 8% of the Company's personal checking
households were enrolled to do business on-line. The introduction of On-Line
Banking has also increased activity on the Company's website www.bankozarks.com,
------------------
which has seen a nine-fold increase in visitors to the site since the
introduction of the new service in May.
3
<PAGE>
Competition
The banking industry in the Company's market area is highly
competitive. In addition to competing with other commercial and savings banks
and savings and loan associations, the Company competes with credit unions,
finance companies, mortgage companies, brokerage and investment banking firms,
asset-based non-bank lenders and many other financial service firms. Competition
is based upon interest rates offered on deposit accounts, interest rates charged
on loans, fees and service charges, the quality and scope of the services
rendered, the convenience of banking facilities and, in the case of loans to
commercial borrowers, relative lending limits.
A substantial number of the commercial banks operating in the
Company's market area are branches or subsidiaries of much larger organizations
affiliated with statewide, regional or national banking companies, and as a
result may have greater resources and lower costs of funds than the Company.
Additionally, the Company faces increased competition from de novo community
banks, including those with senior management who were previously with other
local banks or those controlled by investor groups with strong local business
and community ties. Management believes the Company will continue to be
competitive because of its strong commitment to quality customer service,
convenient local branches, active community involvement and competitive products
and pricing.
Employees
At December 31, 2000 the Company employed 292 full-time equivalent
employees. None of the employees were represented by any union or similar
group. The Company has not experienced any labor disputes or strikes arising
from any organized labor groups. The Company believes its employee relations
are good.
Executive Officers of Registrant
The following is a list of the executive officers of the Company:
George Gleason, age 47, Chairman and Chief Executive Officer. Mr.
Gleason has served the Company or its bank subsidiary as Chairman, Chief
Executive Officer and/or President since 1979. He holds a B.A. in Business and
Economics from Hendrix College and a J.D. from the University of Arkansas.
Mark Ross, age 45, President. Mr. Ross has served as President since
1986 and in various capacities for the bank subsidiary since 1980. He was
elected as a director of the Company in 1992. Mr. Ross holds a B.A. in Business
Administration from Hendrix College.
Paul Moore, age 54, Chief Financial Officer since 1995. From December
1989 to 1995 Mr. Moore served as secretary, secretary/treasurer or director of
eight privately held companies under common ownership of Frank Lyon Jr. and
family. Such companies engaged in diverse activities ranging from real estate to
agricultural to banking. He is a C.P.A. and received a B.S.B.A. in Banking,
Finance and Accounting from the University of Arkansas.
Danny Criner, age 46, President of the bank subsidiary's northern
division since 1990. Mr. Criner received a B.S.B.A. in Banking and Finance from
the University of Arkansas.
C. E. Dougan, age 54, President of the bank subsidiary's western
division since November 2000. Prior to that time Mr. Dougan served as a director
of the Company since February 1997. Mr. Dougan is co-owner of Mooney-Dougan,
Inc., specializing in residential real estate development, construction and
investments. Prior to 1997 Mr. Dougan, who has 28 years of banking experience,
served 12 years as president and chief executive officer of Mercantile Bank of
Crawford County, (formerly Peoples Bank & Trust Company of Van Buren and First
National Bank of Crawford County).
Jean Arehart, age 60, President of the bank subsidiary's mortgage
division since November 2000. She joined Bank of the Ozarks as Senior Vice
President in 1996 and was named an Executive Vice President in May 1997. In May
1999 Ms. Arehart resigned employment with the Company but returned to employment
in January 2000. Prior to 1996 Ms. Arehart served as Senior Vice President and a
member of the Executive Committee of Twin City Bank (formerly Mercantile Bank of
Arkansas, now Firstar Bank of Arkansas), where she worked from 1979 to February
1996.
4
<PAGE>
Darrel Russell, age 47, Executive Vice President of the bank
subsidiary since May 1997. From 1992 to 1997 Mr. Russell served as Senior Vice
President of the bank subsidiary. He received a B.S.B.A. in Banking and Finance
from the University of Arkansas.
Susan Sisk Grobmyer, age 52, Executive Vice President of the bank
subsidiary since May 1997. Ms. Grobmyer joined the bank subsidiary in March 1997
as Senior Vice President. She previously served as a Senior Vice President of
Commercial Loans for Pulaski Bank from 1995 to 1997 and Twin City Bank (formerly
Mercantile Bank of Arkansas, now Firstar Bank of Arkansas) from 1978 to 1995.
Ms. Grobmyer attended the University of Arkansas at Monticello.
Randy Oates, age 57, Senior Vice President, Marketing since 1996. From
1992 to 1996 he served as Marketing Director for Commercial National Bank,
Shreveport, Louisiana. He received a B.S.B.A. in Marketing from the University
of Arkansas.
Aubrey Avants*, age 57, Executive Vice President, Trust of the bank
subsidiary since June 1998. From 1993 to June 1997 Mr. Avants served as Senior
Vice President, Trust Manager for First Bank of Arkansas, Jonesboro, Arkansas,
and from June 1997 to June 1998 he served as Senior Vice President, Trust for
First Commercial Bank, Memphis, Tennessee. Mr. Avants received an MBA from the
University of Tennessee and his undergraduate degree in Finance from the
University of Arkansas.
Unless otherwise noted, each of the foregoing persons serves in the
same position with both the Company and its bank subsidiary.
___________________________
* As of the date of this filing Mr. Avants is an executive officer however
effective March 23, 2001 Mr. Avants has resigned his position with the Company.
(The remainder of this page intentionally left blank)
5
<PAGE>
SUPERVISION AND REGULATION
In addition to the generally applicable state and federal laws
governing businesses and employers, bank holding companies and banks are
extensively regulated under both federal and state law. With few exceptions,
state and federal banking laws have as their principal objective either the
maintenance of the safety and soundness of the Bank Insurance Fund ("BIF") and
Savings Association Insurance Fund ("SAIF") of the FDIC or the protection of
consumers or classes of consumers, rather than the specific protection of the
stockholders of the Company. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to those particular statutory and regulatory provisions. Any change
in applicable law or regulation may have an adverse effect on the results of
operation and financial condition of the Company and its bank subsidiary.
Federal Regulations
The primary federal banking regulatory authority for the Company is
the Board of Governors of the Federal Reserve System (the "FRB"), acting
pursuant to its authority to regulate bank holding companies. Because the
Company's bank subsidiary is an insured depository institution which is not a
member bank of the Federal Reserve System, it is subject to regulation and
supervision by the FDIC and is not subject to direct supervision by the FRB.
Bank Holding Company Act. The Company is subject to supervision by
the FRB under the provisions of the Bank Holding Company Act of 1956, as amended
(the "BHCA"). The BHCA restricts the types of activities in which bank holding
companies may engage and imposes a range of supervisory requirements on their
activities, including regulatory enforcement actions for violations of laws and
policies. The BHCA limits the activities of the Company and any companies
controlled by it to the activities of banking, managing and controlling banks,
furnishing or performing services for its subsidiaries, and any other activity
that the FRB determines to be incidental to or closely related to banking. These
restrictions also apply to any company in which the Company owns 5% or more of
the voting securities.
Before a bank holding company engages in any bank-related activities,
either by acquisition or commencement of de novo operations, it must comply with
the FRB's notification and approval procedures. In reviewing these
notifications, the FRB considers a number of factors, including the expected
benefits to the public versus the risks of possible adverse effects. In
general, the potential benefits include greater convenience to the public,
increased competition and gains in efficiency, while the potential risks include
undue concentration of resources, decreased or unfair competition, conflicts of
interest and unsound banking practices.
Under the BHCA, a bank holding company must obtain FRB approval before
engaging in acquisitions of banks or bank holding companies. In particular, the
FRB must generally approve the following actions by a bank holding company:
. the acquisition of ownership or control of more than 5% of the
voting securities of any bank or bank holding company;
. the acquisition of all or substantially all of the assets of a
bank; and
. the merger or consolidation with another bank holding company.
In considering any application for approval of an acquisition or merger, the FRB
is required to consider various competitive factors, the financial and
managerial resources of the companies and banks concerned, the convenience and
needs of the communities to be served and the applicant's record of compliance
with the Community Reinvestment Act (the "CRA"). The CRA generally requires
financial institutions to take affirmative action to ascertain and meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The Attorney General of the United States may, within 30 days
after approval of an acquisition by the FRB, bring an action challenging such
acquisition under the federal antitrust laws, in which case the effectiveness of
such approval is stayed pending a final ruling by the courts.
Recent Banking Legislation. On November 12, 1999, the Gramm-Leach-
Bliley Act (the "GLBA") was signed into law and it became effective March 11,
2000. Under the GLBA, a bank holding company that elects to become a "financial
holding company" will be permitted to engage in any activity that the FRB, in
consultation with the Secretary of the Treasury, determines by regulation or
order is (i) financial in nature or incidental to such financial activity or
(ii) complementary to a
6
<PAGE>
financial activity and does not pose a substantial risk to the safety and
soundness of depository institutions or the financial system generally. In
addition to traditional lending activities, the GLBA specifies the following
activities as financial in nature:
. acting as principal, underwriter, agent or broker for
insurance;
. underwriting, dealing in or making a market in securities;
. merchant banking activities; and
. providing financial and investment advice.
A bank holding company may become a financial holding company only if
all depository institution subsidiaries of the holding company are well-
capitalized, well-managed and have at least a satisfactory rating under the
Community Reinvestment Act. A financial holding company that falls out of
compliance with such requirement may be required to cease engaging in certain
activities.
National banks are also authorized by the GLBA to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company, except (i) insurance underwriting, (ii) real estate development
or real estate investment activities (unless otherwise permitted by law), (iii)
insurance company portfolio investments and (iv) merchant banking. The
authority of a national bank to invest in a financial subsidiary is subject to a
number of conditions, including, among other things, requirements that the bank
must be well-managed and well-capitalized (after deducting from capital the
bank's outstanding investments in financial subsidiaries). The GLBA provides
that state banks, such as the Company's bank subsidiary, may invest in financial
subsidiaries that engage as principal in activities that would only be
permissible for a national bank to conduct in a financial subsidiary. This
authority is generally subject to the same conditions that apply to national
bank investments in financial subsidiaries.
The GLBA also adopts a number of consumer protections, including
provisions intended to protect privacy of bank customers' financial information
and provisions requiring disclosure of ATM fees imposed by banks on customers of
other banks. The consumer privacy regulation mandated by the GLBA was approved
on May 10, 2000. The rule became effective on November 13, 2000, but compliance
is optional until July 1, 2001. Under the rule, when establishing a customer
relationship, a financial institution must give the consumer information such as
when it will disclose nonpublic, personal information to unaffiliated third
parties, what type of information it may share and what types of affiliates may
receive the information. The institution must also provide customers with
annual privacy notices, a reasonable means for preventing the disclosure of
information to third parties, and the opportunity to opt out of the disclosure
at any time.
All of the implementing regulations under the GLBA have not yet been
promulgated and the Company cannot predict the full impact of the new
legislation and has not yet determined if it will elect to become a financial
holding company. As long as the Company has not elected to become a financial
holding company, it will remain subject to the current restrictions of the BHCA.
Interstate Banking. On September 29, 1994, President Clinton signed
into law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") which amended the BHCA to permit bank holding companies
to acquire existing banks in any state effective September 29, 1995. The
Interstate Act preempted barriers that restricted entry into states and created
opportunities for expansion into markets that were previously closed. Interstate
banking and branching authority (discussed below) is subject to certain
conditions and restrictions, such as capital adequacy, management and CRA
compliance.
The Interstate Act also contained interstate branching provisions that
allow multistate banking operations to merge into a single bank with interstate
branches. The interstate branching provisions became effective on June 1, 1997,
although states were allowed to pass laws to opt in early or to opt out
completely as long as they acted prior to that date. Effective May 31, 1997, the
Arkansas Interstate Banking and Branching Act of 1997 (the "Arkansas Interstate
Act") authorized banks to engage in interstate branching activities within the
borders of the state of Arkansas.
Banks acquired pursuant to this new branching authority may be
converted to branches. Interstate branching allows banks to merge across state
lines to form a single institution. Interstate merger transactions can be used
to consolidate existing
7
<PAGE>
multistate operations or to acquire new branches. A bank can also establish a
new branch as its initial entry into a state if the state has authorized de novo
branching. The Arkansas Interstate Act prohibits entry into the state through de
novo branching.
Deposit Insurance. The FDIC insures the deposits of the Company's
bank subsidiary to the extent provided by law. BIF is the primary insurance fund
for the bank's deposits, but SAIF insures a portion due to certain acquisitions
by the Company of deposits from SAIF-insured institutions. Under the FDIC's
risk-based insurance system, depository institutions are currently assessed
premiums based upon the institution's capital position and other supervisory
factors. BIF and SAIF members currently have the same risk-based assessment
schedule, which is 0 to 27 cents per $100 of eligible deposits.
Insured depository institutions are further assessed premiums for
Financing Corporation Bond debt service ("FICO"). Beginning January 1, 1997,
FICO premiums for BIF and SAIF became 1.22 and 6.1 basis points, respectively,
per $100 of eligible deposits. For the period July 1, 2000 through December 31,
2000, the Company's bank subsidiary was assessed an average annualized premium
of $0.0204 per $100 of BIF-eligible deposits and $0.0204 per $100 of SAIF-
eligible deposits.
Capital Adequacy Requirements. The FRB monitors the capital adequacy
of bank holding companies such as the Company, and the FDIC monitors the capital
adequacy of its bank subsidiary. The federal bank regulators use a combination
of risk-based guidelines and leverage ratios to evaluate capital adequacy.
Under the risk-based capital guidelines, bank regulators assign a risk
weight to each category of assets based generally on the perceived credit risk
of the asset class. The risk weights are then multiplied by the corresponding
asset balances to determine a "risk-weighted" asset base. The minimum ratio of
total risk-based capital to risk-weighted assets is 8.0%. At least half of the
risk-based capital must consist of Tier 1 capital, which is comprised of common
equity, retained earnings and certain types of preferred stock and excludes
goodwill and various intangible assets. The remainder, or Tier 2 capital, may
consist of a limited amount of subordinated debt, certain hybrid capital
instruments and other debt securities, preferred stock, and an allowance for
loan losses not to exceed 1.25% of risk-weighted assets. The sum of Tier 1
capital and Tier 2 capital is "total risk-based capital."
The leverage ratio is a company's Tier 1 capital divided by its
adjusted total assets. The leverage ratio requires a 3.0% Tier 1 capital to
adjusted average asset ratio for institutions with the highest regulatory rating
of 1. All other institutions must maintain a leverage ratio of 4.0% to 5.0%. For
a tabular summary of the Company's and the bank subsidiary's risk-weighted
capital and leverage ratios, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Liquidity and Capital Resources."
Bank regulators from time to time consider raising the capital
requirements of banking organizations beyond current levels. However, the
Company is unable to predict whether higher capital requirements will be imposed
and, if so, the amount or timing of such increases. Therefore, the Company
cannot predict what effect such higher requirements may have on it or its bank
subsidiary.
Enforcement Authority. The FRB has enforcement authority over bank
holding companies and non-banking subsidiaries to forestall activities that
represent unsafe or unsound practices or constitute violations of law. It may
exercise these powers by issuing cease-and-desist orders or through other
actions. The FRB may also assess civil penalties against companies or
individuals who violate the BHCA or related regulations in amounts up to $1
million for each day's violation. The FRB can also require a bank holding
company to divest ownership or control of a non-banking subsidiary or require
such subsidiary to terminate its non-banking activities. Certain violations may
also result in criminal penalties.
The FDIC possesses comparable authority under the Federal Deposit
Insurance Act (the "FDI Act"), the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA") and other statutes with respect to the bank
subsidiary. In addition, the FDIC can terminate insurance of accounts, after
notice and hearing, upon a finding that the insured institution is or has
engaged in any unsafe or unsound practice that has not been corrected, is in an
unsafe and unsound condition to continue operations, or has violated any
applicable law, regulation, rule, or order of, or condition imposed by the
appropriate supervisors.
8
<PAGE>
The FDICIA required federal banking agencies to broaden the scope of
regulatory corrective action taken with respect to depository institutions that
do not meet minimum capital and related requirements and to take such actions
promptly in order to minimize losses to the FDIC. In connection with FDICIA,
federal banking agencies established capital measures (including both a leverage
measure and a risk-based capital measure) and specified for each capital measure
the levels at which depository institutions will be considered well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized or
critically undercapitalized. If an institution becomes classified as
undercapitalized, the appropriate federal banking agency will require the
institution to submit an acceptable capital restoration plan and can suspend or
greatly limit the institution's ability to effect numerous actions including
capital distributions, acquisitions of assets, the establishment of new branches
and the entry into new lines of business. On December 15, 2000 the FDIC advised
the Company that the bank subsidiary had been classified as "well-capitalized"
under these guidelines.
Examination. The FRB may examine the Company and any or all of its
subsidiaries. The FDIC examines and evaluates insured banks every 12 months, and
it may assess the institution for its costs of conducting the examinations. The
FDIC has a reciprocal agreement with the Arkansas State Bank Department whereby
each will accept the other's examination reports in certain cases. As a result,
the bank subsidiary generally undergoes FDIC and state examinations either on a
joint basis or in alternating years.
Reporting Obligations. As a bank holding company, the Company must
file with the FRB an annual report and such additional information as the FRB
may require pursuant to the BHCA. The bank subsidiary must submit to federal and
state regulators annual audit reports prepared by independent auditors, and the
Company's audit report can be used to satisfy this requirement.
Other Regulation. The Company's status as a registered bank holding
company under the BHCA does not exempt it from certain federal and state laws
and regulations applicable to corporations generally, including, without
limitation, certain provisions of the federal securities laws. The Company is
under the jurisdiction of the Securities and Exchange Commission and of state
securities commissions for matters relating to the offer and sale of its
securities.
The bank subsidiary's loan operations are subject to certain federal
laws applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Home Mortgage
Disclosure Act of 1975 requiring financial institutions to provide information
to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act of 1978 governing the use and provision of information
to credit reporting agencies, the Fair Debt Collection Act governing the manner
in which consumer debts may be collected by collection agencies, the Fair
Housing Act prohibiting discriminatory practices relative to real estate-related
transactions, including the financing of housing and the rules and regulations
of the various federal agencies charged with the responsibility of implementing
such federal laws. The deposit operations of the bank subsidiary also are
subject to the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying with administrative subpoenas of financial records, the Electronic
Funds Transfer Act, which governs automatic deposits to and withdrawals from
deposit accounts and customers' rights and liabilities arising from the use of
automated teller machines and other electronic banking services, the Truth in
Savings Act requiring depository institutions to disclose the terms of deposit
accounts to consumers and the Expedited Funds Availability Act requiring
financial institutions to make deposited funds available according to specified
time schedules and to disclose funds availability policies to consumers.
State Regulations
The Company and its bank subsidiary are subject to examination and
regulation by the Arkansas State Bank Department. Examinations of the bank
subsidiary are conducted annually but may be extended to 24 months if an interim
examination is performed by the FDIC. The Arkansas State Bank Department may
also make at any time an examination of the Company as may be necessary to
disclose fully the relations between the holding company and its bank subsidiary
and the effect of those relations.
The Arkansas Constitution provides, in summary, that "consumer loans
and credit sales" have a maximum percentage limitation of 17% per annum and that
all "general loans" have a maximum limitation of 5% over the Federal Reserve
Discount
9
<PAGE>
Rate in effect at the time the loan was made. The Arkansas Supreme Court has
determined that "consumer loans and credit sales" are also "general loans" and
are thus subject to an interest rate limitation equal to the lesser of 5% over
the Federal Reserve Discount Rate or 17% per annum. The Arkansas Constitution
also provides penalties for usurious "general loans" and "consumer loans and
credit sales," including forfeiture of all principal and interest on consumer
loans and credit sales made at a greater rate of interest than 17% per annum.
Additionally, "general loans" made at a usurious rate may result in forfeiture
of uncollected interest and a refund to the borrower of twice the interest
collected.
Arkansas usury laws have historically been preempted by federal law
with respect to first residential real estate loans and certain loans guaranteed
by the Small Business Administration. Furthermore, the GLBA preempted the
application of the Arkansas Constitution's usury limits to the Company's bank
subsidiary effective November 12, 1999. Because of the recent enactment of this
usury preemption under the GLBA, the lack of clear judicial guidance, and the
current competitive marketplace for loans, the Company is unable to predict the
impact of this provision on its operations or whether its bank subsidiary will
seek to make loans with interest rates in excess of the Arkansas usury limits.
The Company is also subject to the Arkansas Bank Holding Company Act of
1983 ("ABHCA") which places certain restrictions on the acquisition of banks by
bank holding companies. Any acquisition by the Company of more than 10% of any
class of the outstanding capital stock of any bank located in Arkansas, would
require the Arkansas Bank Commissioner's approval. Further, no bank holding
company may acquire any bank if after such acquisition the holding company would
control, directly or indirectly, banks having 25% of the total bank deposits
(excluding deposits from other banks and public funds) in the State of Arkansas.
Under the ABHCA a bank holding company cannot own more than one bank subsidiary
if any of its bank subsidiaries has been chartered for less than 5 years.
Effective January 1, 1999 Arkansas law allows the Company to engage in
branching activities for its bank subsidiaries on a statewide basis.
Immediately prior to that date, the state's branching laws prevented state and
national banks from opening branches in any county of the state other than their
home county and the counties contiguous to their home county. Because the state
branching laws did not limit the branching activities of federal savings banks,
the Company was able to branch outside of the traditional areas of its state
bank subsidiaries through the federal thrift that it acquired in February 1998.
In response to the change in state branching laws, the Company merged its thrift
charter into its lead state bank subsidiaries in early 1999.
Bank Subsidiary
The lending and investment authority of the state bank subsidiary is
derived from Arkansas law. The lending power is generally subject to certain
restrictions, including the amount which may be lent to a single borrower.
Regulations of the FDIC and the Arkansas State Bank Department limit
the ability of the bank subsidiary to pay dividends to the Company without the
prior approval of such agencies. FDIC regulations prevent insured state banks
from paying any dividends from capital and allows the payment of dividends only
from net profits then on hand after deduction for losses and bad debts. The
Arkansas State Bank Department currently limits the amount of dividends that the
bank subsidiary can pay the Company to 75% of the bank's net profits after taxes
for the current year plus 75% of its retained net profits after taxes for the
immediately preceding year.
Federal law substantially restricts transactions between financial
institutions and their affiliates, particularly their non-financial institution
affiliates. As a result, the bank subsidiary is sharply limited in making
extensions of credit to the Company or any non-bank subsidiary, in investing in
the stock or other securities of the Company or any non-bank subsidiary, in
buying the assets of, or selling assets to, the Company, and/or in taking such
stock or securities as collateral for loans to any borrower. Moreover,
transactions between the bank subsidiary and the Company (or any nonbank
subsidiary) must generally be on terms and under circumstances at least as
favorable to the bank subsidiary as those prevailing in comparable transactions
with independent third parties or, in the absence of comparable transactions, on
terms and under circumstances that in good faith would be available to
nonaffiliated companies.
The federal banking laws require all insured banks, including the bank
subsidiary, to maintain reserves against their checking and transaction accounts
(primarily checking accounts, NOW and Super NOW checking accounts). Because
reserves must generally be maintained in cash or in non-interest bearing
accounts, the effect of the reserve requirements is to increase
10
<PAGE>
the bank subsidiary's cost of funds. Arkansas law requires state chartered banks
to maintain such reserves as are required by the applicable federal regulatory
agency.
The bank subsidiary is subject to Section 23A of the Federal Reserve
Act, which places limits on the amount of loans or extensions of credit to, or
investments in, or certain other transactions with, affiliates, including the
Company. In addition, limits are placed on the amount of advances to third
parties collateralized by the securities or obligations of affiliates. Most of
these loans and certain other transactions must be secured in prescribed
amounts. The bank subsidiary is also subject to Section 23B of the Federal
Reserve Act, which prohibits an institution from engaging in transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with non-affiliated
companies. The bank subsidiary is subject to restrictions on extensions of
credit to executive officers, directors, certain principal stockholders, and
their related interests. These extensions of credit (1) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties and (2)
must not involve more than the normal risk of repayment or present other
unfavorable features.
Proposed Legislation For Bank Holding Companies And Banks
Certain proposals affecting the banking industry have been discussed
from time to time. Such proposals include: regulation of all insured depository
institutions by a single regulator; limitations on the number of accounts
protected by the federal deposit insurance funds; and modification of the
$100,000 coverage limit on deposits. It is uncertain which, if any, of the above
proposals may become law and what effect they would have on the Company and its
bank subsidiary.
(The remainder of this page intentionally left blank)
11
<PAGE>
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:
<TABLE>
<CAPTION>
Banking Location /(1)/ Year Opened Square Footage
- --------------------------------------------------------- ---------------------------- -------------------
<S> <C> <C>
Bryant Wal-Mart Supercenter/(2)/..................... Under Construction 675
Little Rock (Otter Creek) ........................... Under Construction 2,400
Fort Smith (Zero).................................... Under Construction 2,784
Yellville ........................................... 2000 2,716
Clinton ............................................. 1999 2,784
North Little Rock (North Hills) /(3)/................ 1999 4,350
Harrison (Downtown).................................. 1999 14,000
North Little Rock (Indian Hills)/(4)/................ 1999 1,500
Fort Smith (Rogers).................................. 1998 22,500
Little Rock (Cantrell)............................... 1998 2,700
Little Rock (Chenal)................................. 1998 40,000
Little Rock (Rodney Parham).......................... 1998 2,500
Little Rock (Chester) /(5)/.......................... 1998 1,716
Bellefonte........................................... 1997 1,444
Alma................................................. 1997 4,200
Paris................................................ 1997 3,100
Mulberry............................................. 1997 1,875
Harrison (North) /(6)/............................... 1996 3,300
Clarksville (Rogers)/(6)/............................ 1995 3,300
Van Buren............................................ 1995 2,520
Marshall /(6)/....................................... 1995 2,520
Clarksville (Main)................................... 1994 2,520
Ozark (Westside)..................................... 1993 2,520
Western Grove........................................ 1976 (expanded 1991) 2,610
Altus /(7)/.......................................... 1972 (rebuilt 1998) 1,500
Ozark (Main)......................................... 1971 (expanded 1985) 30,877
Jasper............................................... 1967 (expanded 1984) 4,408
</TABLE>
________________________
(1) Unless otherwise indicated, the Company owns, or will own upon the
completion of construction, its banking locations.
(2) The Company leases this facility with an initial term expiring May 9,
2006 subject to options to renew for two additional terms of five
years each.
(3) The Company owns the building and leases the land at this location.
The initial lease term expires twenty years from November 1999 with
the right to extend for four additional five-year periods.
(4) The Company leases the building and land at this location with an
initial term expiring in December 2002, subject to options to renew
for four additional terms of two years each.
(5) This location was acquired by the Company in February 1998. The
facility was constructed in 1994.
(6) The Company owns the buildings and leases the land at these locations.
The initial lease terms expire in 2001 (Harrison), 2007 (Clarksville)
and 2024 (Marshall). The Company has renewal options on the Harrison
and Marshall facilities and purchase options on the Harrison and
Clarksville facilities.
(7) Original facility was destroyed by storm in 1997. This facility was
rebuilt and placed in service in 1998.
While management believes its existing banking locations are adequate
for its present operations, the Company intends to establish additional branch
offices in the future in accordance with its growth strategy.
12
<PAGE>
Item 3. LEGAL PROCEEDINGS
-----------------
On July 26, 2000, the case of David Dodds, et. al. vs. Bank of the
------------------------------------
Ozarks and Jean Arehart was filed in the Circuit Court of Pulaski County,
- -----------------------
Arkansas, Fifth Division, which contains allegations that the Company's bank
subsidiary (the "Bank") committed breach of contract, certain common law torts,
fraud, and a violation of the Racketeer Influenced and Corrupt Organizations
Act, 18 U.S.C. (S) 1961, et. seq. ("RICO"). The Bank removed the case to the
United States District Court for the Eastern District of Arkansas, Western
Division. The complaint seeks alternative remedies of either (a) compensatory
damages of $5 million and punitive damages of $10 million based on the common
law tort claims, or (b) compensatory damages of $5 million trebled to $15
million based on RICO. Previously the Bank made several residential construction
loans related to houses built by the plaintiffs, and in 1998, the Bank commenced
foreclosure of a house that was being constructed by one of the plaintiffs. The
complaint relates to such transactions.
On February 3, 2000, the plaintiffs filed a Chapter 13 bankruptcy
petition which is currently pending. In this bankruptcy proceeding, the
individual plaintiffs submitted a plan of reorganization which, among other
matters, proposed litigation against the Bank and to pay certain creditors with
proceeds of litigation, if any. At a hearing on the plan of reorganization, the
bankruptcy judge refused to confirm the plaintiff's proposed plan of
reorganization but did authorize the plaintiffs to file the complaint against
the Bank to avoid the running of the statute of limitations. The ability of the
plaintiffs to pursue the complaint was contingent upon (a) the bankruptcy
court's confirmation of a plan of reorganization which provides for pursuit of
the complaint, (b) a determination by a trustee to pursue the complaint in the
event of conversion of the pending bankruptcy proceeding to a Chapter 7 or
appointment of a trustee, or (c) dismissal of the pending bankruptcy proceeding
so the plaintiffs are no longer subject to the authority of the bankruptcy
court. On February 23, 2001, the plaintiffs voluntarily dismissed their
bankruptcy case. They are, therefore, now free to pursue the case. The Company
believes it has substantial defenses to the claims made in the complaint and
intends to vigorously defend the case.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No information is required in response to this Item as no matters were
submitted to a vote of Registrant's security holders during the fourth quarter
of the fiscal year covered by this report.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
---------------------------------------------------------------------
The Company's Common Stock is listed on the Nasdaq National Market
under the symbol "OZRK" and as of March 1, 2001 the Company had 191 holders of
record. The other information required by Item 201 of Regulation S-K is
contained in the Management's Discussion and Analysis section of the Company's
2000 Annual Report under the heading "Summary of Quarterly Results of
Operations, Common Stock Market Prices and Dividends" on page 22, which
information is incorporated herein by reference.
Item 6 SELECTED FINANCIAL DATA
-----------------------
The information required by Item 301 of Regulation S-K is contained in
the Company's 2000 Annual Report under the heading "Selected Consolidated
Financial Data" on page 4, which information is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by Item 303 of Regulation S-K is contained in
the Company's 2000 Annual Report under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 5 through
22, which information is incorporated herein by reference.
13
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information required by Item 305 of Regulation S-K is contained in
the Management's Discussion and Analysis section of the Company's 2000 Annual
Report under the heading "Interest Rate Sensitivity" on pages 16 through 18,
which information is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this Item and by Item 302 of Regulation S-
K is contained in the Company's 2000 Annual Report on pages 23 through 39 and in
the Management's Discussion and Analysis section of the 2000 Annual Report under
the heading "Summary of Quarterly Results of Operations, Common Stock Market
Prices and Dividends" on page 22 which information is incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by Item 401 of Regulation S-K regarding
directors is contained in the Company's Proxy Statement for the 2001 annual
meeting under the heading "Nominees for Election as Directors" on pages 3
through 4, which information is incorporated herein by reference. In accordance
with Item 401(b) of Regulation S-K, Instruction 3, information concerning the
Company's executive officers is furnished in a separate item captioned
"Executive Officers of Registrant" in Part I above.
Item 405 of Regulation S-K requires the Company to disclose any
failure of its executive officers and directors to file on a timely basis
reports of ownership and subsequent changes of ownership with the Securities and
Exchange Commission. The Company disclosed in its Proxy Statement for the 2001
annual meeting under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 20 its belief that during the preceding year all filing
requirements applicable to directors and executive officers had been complied
with. However, since the 2001 Proxy Statement was distributed, the Company has
become aware of certain failures of an executive officer to file required
reports. Accordingly, the information contained in the Company's Proxy Statement
for the 2001 annual meeting under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 20 is incorporated herein by reference
as supplemented by the following information: Jean Arehart has failed to file
two Form 4's with respect to two purchases of Company common stock in October
2000 and a purchase of Company common stock in November 2000. The aggregate
number of shares purchased in these transactions was 950.
Item 11. EXECUTIVE COMPENSATION
----------------------
The information required by Item 402 of Regulation S-K is contained in
the Company's Proxy Statement for the 2000 annual meeting under the heading
"Executive Compensation and Other Information" on pages 12 through 14, which
information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by Item 403 of Regulation S-K is contained in
the Company's Proxy Statement for the 2001 annual meeting under the headings
"Principal Stockholders" and "Security Ownership of Management" on pages 10
through 11 which information is incorporated herein by reference.
14
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by Item 404 of Regulation S-K is contained in
the Company's Proxy Statement for the 2001 annual meeting under the heading
"Certain Transactions" on page 19, which information is incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) The following consolidated financial statements of the Registrant
included on pages 24 to 39 in the Company's Annual Report for the
fiscal year ended December 31, 2000, and the Report of Independent
Auditors on page 23 of such Annual Report are incorporated herein by
reference.
Consolidated Balance Sheets as of December 31, 2000 and 1999.
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
All schedules are omitted for the reasons that they are not required
or are not applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.
(b) Reports on Form 8-K:
Registrant did not file any reports on Form 8-K during the fourth
quarter of 2000.
(c) Exhibits:
The exhibits to this report are listed in the Exhibit Index at the end
of this Item 14.
(d) Financial Statement Schedules:
Not applicable.
15
<PAGE>
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
<PAGE>
10.5 Ground Lease - Clarksville (Johnson County), dated January 1, 1995
(previously filed as Exhibit No. 10.7 to the Company's Registration
Statement on Form S-1 filed with the Commission on May 22, 1997, as
amended, Commission File No. 333-27641, and incorporated herein by this
reference).
10.6 Form of Indemnification Agreement between the Registrant and its
directors and certain of its executive officers (previously filed as
Exhibit No. 10.10 to the Company's Registration Statement on Form S-1
filed with the Commission on May 22, 1997, as amended, Commission File
No. 333-27641, and incorporated herein by this reference).
10.7 Ground Lease - North Little Rock, Indian Hills Shopping Center (Pulaski
County), dated November 20, 1998, between Bank of the Ozarks, wca and
Indian Hills Shopping Center Partnership d/b/a Indian Hills Shopping
Center, as amended December 8, 1998 (previously filed as Exhibit No.
10.16 to the Company's annual report on 10-K for the year ended
December 31, 1998 and incorporated herein by this reference).
10.8 Construction Contract, dated June 16, 1999, between Bank of the Ozarks
and East-Harding, Inc. (Clinton, Arkansas) (previously filed as Exhibit
10.15 to the Company's annual report on 10-K for the year ended
December 31, 1999 and incorporated herein by this reference).
10.9 Construction Contract, dated June 16, 1999, between Bank of the Ozarks
and East-Harding, Inc. (North Little Rock) (previously filed as Exhibit
10.16 to the Company's annual report on 10-K for the year ended
December 31, 1999 and incorporated herein by this reference).
10.10 Construction Contract, dated November 23, 1999, between Bank of the
Ozarks and East-Harding, Inc. (Yellville, Arkansas) (previously filed
as Exhibit 10.17 to the Company's annual report on 10-K for the year
ended December 31, 1999 and incorporated herein by this reference).
10.11 Ground Lease - North Little Rock, Lakewood Shopping Center (Pulaski
County), dated May 18, 1999, between Bank of the Ozarks, wca and
Metropolitan Realty and Development, LLC (previously filed as Exhibit
10.18 to the Company's annual report on 10-K for the year ended
December 31, 1999 and incorporated herein by this reference).
10.12 Construction Contract, dated September 20, 2000, between Bank of the
Ozarks and East-Harding, Inc. (Little Rock, Otter Creek, Arkansas)
(attached).
10.13 Employment agreement, dated December 29, 2000, between the Registrant
and George Gleason (attached).
13 Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 2000 which are incorporated herein by reference:
pages 4 to 39 of such Annual Report (attached).
21 List of Subsidiaries of the Registrant (attached).
23.1 Consent of Ernst & Young LLP (attached).
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BANK OF THE OZARKS, INC.
By: /s/ George Gleason
------------------------------------
Chairman and Chief Executive Officer
Date: March 20, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ George Gleason Chairman of the Board, Chief Executive Officer March 20, 2001
- ------------------------------ and Director
George Gleason
/s/ Mark Ross President and Director March 20, 2001
- ------------------------------
Mark Ross
/s/ Paul Moore Chief Financial Officer March 20, 2001
- ------------------------------ (Chief Accounting Officer)
Paul Moore
/s/ Jerry Davis Director March 20, 2001
- ------------------------------
Jerry Davis
/s/ Robert East Director March 20, 2001
- ------------------------------
Robert East
/s/ Linda Gleason Director March 20, 2001
- ------------------------------
Linda Gleason
/s/ Porter Hillard Director March 20, 2001
- ------------------------------
Porter Hillard
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Henry Mariani Director March 20, 2001
- -------------------------------
Henry Mariani
/s/ Dr. R. L. Qualls Director March 20, 2001
- ------------------------------
Dr. R. L. Qualls
/s/ Kennith Smith Director March 20, 2001
- ------------------------------
Kennith Smith
</TABLE>
19
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>FORM AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.12
Standard Form of Agreement Between Owner and
Contractor where the basis for payment is the COST OF THE
WORK PLUS A FEE with a negotiated Guaranteed Maximum Price
AIA Document A111 - 1997
1997 Edition - Electronic Format
This document has important legal consequences. Consultation with an attorney is
encouraged with respect to its completion or modification. AUTHENTICATION OF
THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401.
This document is not intended for use in competitive bidding.
AIA Document A201-1997, General Conditions of the Contract for Construction, is
adopted in this document by reference.
This document has been approved and endorsed by The Associated General
Contractors of America.
Copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967, 1974, 1978, 1987, Copyright
1997 by The American Institute of Architects. Reproduction of the material
herein or substantial quotation of its provisions without written permission of
the AIA violates the copyright laws of the United States and will subject the
violator to legal prosecution.
AGREEMENT made as of the 20 day of September in the year 2000
(In words, indicate day, month and year)
BETWEEN the Owner:
(Name address and other information)
Bank of the Ozarks
P.O. Box 8811
Little Rock, AR 72231
and the Contractor:
(Name, address and other information)
East-Harding, Inc.
P.O. Box 251556
Little Rock, AR 72225-1556
The Project is:
(Name and location)
Bank of the Ozarks
Otter Creek Branch
Hwy. #5 & Otter Creek Parkway
Otter Creek Village, AR
The Architect is:
(Name, address and other information)
AMR Architects, Inc.
201 East Markham, Ste. 150
Little Rock, AR 72201
The Owner and Contractor agree as follows.
ARTICLE 1 THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the Contract
(General, Supplementary and other Conditions), Drawings, Specifications, Addenda
issued prior to execution of this Agreement,
<PAGE>
other documents listed in this Agreement and Modifications issued after
execution of this Agreement; these form the Contract, and are as fully a part of
the Contract as if attached to this Agreement or repeated herein. The Contract
represents the entire and integrated agreement between the parties hereto and
supersedes prior negotiations, representations or agreements, either written or
oral. An enumeration of the Contract Documents, other than Modifications,
appears in Article 15. If anything in the other Contract Documents is
inconsistent with this Agreement, this Agreement shall govern.
ARTICLE 2 THE WORK OF THIS CONTRACT
The Contractor shall fully execute the Work described in the Contract Documents,
except to the extent specifically indicated in the Contract Documents to be the
responsibility of others.
ARTICLE 3 RELATIONSHIP OF THE PARTIES
The Contractor accepts the relationship of trust and confidence established by
this Agreement and covenants with the Owner to cooperate with the Architect and
exercise the Contractors skill and judgment in furthering the interests of the
Owner; to furnish efficient business administration and supervision; to furnish
at all times an adequate supply of workers and materials; and to perform the
Work in an expeditious and economical manner consistent with the Owner's
interests. The Owner agrees to furnish and approve, in a timely manner,
information required by the Contractor and to make payments to the Contractor in
accordance with the requirements of the Contract Documents.
ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement of the Work shall be the date of this Agreement
unless a different date is stated below or provision is made for the date to be
fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
Commencement will begin upon receipt of a Building Permit.
If, prior to commencement of the Work, the Owner requires time to file
mortgages, mechanic's liens and other security interests, the Owner's time
requirement shall be as follows:
4.2 The Contract Time shall be measured from the date of commencement.
4.3 The Contractor shall achieve Substantial Completion of the entire Work not
later than _____ days from the date of commencement, or as follows:
(Insert number of calendar days. Alternatively, a calendar date may be used when
coordinated with the date of commencement. Unless stated elsewhere in the
Contract Documents, insert any requirements for earlier Substantial Completion
of certain portions of the Work.)
4.5 months from date of receipt of a Building Permit , subject to adjustments of
this Contract Time as provided in the Contract Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time, or for bonus payments for early completion of the Work.)
ARTICLE 5 BASIS FOR PAYMENT
5.1 CONTRACT SUM
5.1.1 The Owner shall pay the Contractor the Contract Sum in current funds for
the Contractor's performance of the Contract. The Contract Sum is the Cost of
the Work as defined in Article 7 plus the Contractor's Fee.
5.1.2 The Contractor's Fee is:
(State a lump sum, percentage of Cost of the Work or other provision for
determining the Contractor's Fee, and describe the method of adjustment of the
Contractor's Fee for changes in the Work)
$23,533
5.2 GUARANTEED MAXIMUM PRICE
<PAGE>
5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by
the Contractor not to exceed Four Hundred Ninety Four Thousand One Hundred
Eighty Nine Dollars ($494,189 ), subject to additions and deductions by Change
Order as provided in the Contract Documents. Such maximum sum is referred to in
the Contract Documents as the Guaranteed Maximum Price. Costs which would cause
the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor
without reimbursement by the Owner.
(insert specific provisions if the Contractor is to participate in any savings.)
5.2.2 The Guaranteed Maximum Price is based on the following alternates, if any,
which are described in the Contract Documents and are hereby accepted by the
Owner:
(State the numbers or other identification of accepted alternates. If decisions
on other alternates are to be made by the Owner subsequent to the execution of
this Agreement, attach a schedule of such other alternates showing the amount
for each and the date when the amount expires.)
5.2.3 Unit prices, if any, are as follows:
5.2.4 Allowances, if any, are as follows:
(Identify and state the amounts of any allowances, and state whether they
include labor, materials, or both.) Landscape and Irrigation allowance is
$15,000
5.2.5 Assumptions, if any, on which the Guaranteed Maximum Price is based are as
follows:
We do not include costs for Bank Equipment, Security & Bank Equipment Wiring,
Phone or Data Wiring.
5.2.6 To the extent that the Drawings and Specifications are anticipated to
require further development by the Architect, the Contractor has provided in the
Guaranteed Maximum Price for such further development consistent with the
Contract Documents and reasonably inferable therefrom. Such further development
does not include such things as changes in scope, systems, kinds and quality of
materials, finishes or equipment, all of which, if required, shall be
incorporated by Change Order.
ARTICLE 6 CHANGES IN THE WORK
6.1 Adjustments to the Guaranteed Maximum Price on account of changes in the
Work may be determined by any of the methods listed in Subparagraph 7.3.3 of AIA
Document A201-1997.
6.2 In calculating adjustments to subcontracts (except those awarded with the
Owner's prior consent on the basis of cost plus a fee), the terms "cost" and
"fee" as used in Clause 7.3.3.3 of AIA Document A201-1997 and the terms "costs"
and "a reasonable allowance for overhead and profit" as used in Subparagraph
7.3.6 of AIA Document A201-1997 shall have the meanings assigned to them in AIA
Document A201-1997 and shall not be modified by Articles 5, 7 and 8 of this
Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on
the basis of cost plus a fee shall be calculated in accordance with the terms of
those subcontracts.
6.3 In calculating adjustments to the Guaranteed Maximum Price, the terms "cost"
and "costs" as used in the above-referenced provisions of AIA Document A201-1997
shall mean the Cost of the Work as defined in Article 7 of this Agreement and
the terms "fee" and "a reasonable allowance for overhead and profit" shall mean
the Contractor's Fee as defined in Subparagraph 5.1.2 of this Agreement.
6.4 If no specific provision is made in Paragraph 5.1 for adjustment of the
Contractor's Fee in the case of changes in the Work, or if the extent of such
changes is such, in the aggregate, that application of the adjustment provisions
of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the
Contractor's Fee shall be equitably adjusted on the basis of the Fee established
for the original Work, and the Guaranteed Maximum Price shall be adjusted
accordingly.
ARTICLE 7 COSTS TO BE REIMBURSED
7.1 COST OF THE WORK
<PAGE>
The term Cost of the Work shall mean costs necessarily incurred by the
Contractor in the proper performance of the Work. Such costs shall be at rates
not higher than the standard paid at the place of the Project except with prior
consent of the Owner. The Cost of the Work shall include only the items set
forth in this Article 7.
7.2 LABOR COSTS
7.2.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's approval,
at off-site workshops.
7.2.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's approval.
(If it is intended that the wages or salaries of certain personnel stationed at
the Contractor's principal or other offices shall be included in the Cost of the
Work, identify in Article 14 the personnel to be included and whether for all or
only part of their time, and the rates at which their time will be charged to
the Work.)
7.2.3 Wages and salaries of the Contractor's supervisory or administrative
personnel engaged, at factories, workshops or on the road, in expediting the
production or transportation of materials or equipment required for the Work,
but only for that portion of their time required for the Work.
7.2.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law or collective bargaining
agreements and, for personnel not covered by such agreements, customary benefits
such as sick leave, medical and health benefits, holidays, vacations and
pensions, provided such costs are based on wages and salaries included in the
Cost of the Work under Subparagraphs 7.2.1 through 7.2.3.
7.3 SUBCONTRACT COSTS
7.3.1 Payments made by the Contractor to Subcontractors in
accordance with the requirements of the subcontracts.
7.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION
7.4.1 Costs, including transportation and storage, of materials and equipment
incorporated or to be incorporated in the completed construction.
7.4.2 Costs of materials described in the preceding Subparagraph 7.4.1 in excess
of those actually installed to allow for reasonable waste and spoilage. Unused
excess materials, if any, shall become the Owner's property at the completion of
the Work or, at the Owners option, shall be sold by the Contractor. Any amounts
realized from such sales shall be credited to the Owner as a deduction from the
Cost of the Work.
7.5 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED
ITEMS
7.5.1 Costs, including transportation and storage, installation, maintenance,
dismantling and removal of materials, supplies, temporary facilities, machinery,
equipment, and hand tools not customarily owned by construction workers, that
are provided by the Contractor at the site and fully consumed in the performance
of the Work; and cost (less salvage value) of such items if not fully consumed,
whether sold to others or retained by the Contractor. Cost for items previously
used by the Contractor shall mean fair market value.
7.5.2 Rental charges for temporary facilities, machinery, equipment, and hand
tools not customarily owned by construction workers that are provided by the
Contractor at the site, whether rented from the Contractor or others, and costs
of transportation, installation, minor repairs and replacements, dismantling and
removal thereof. Rates and quantities of equipment rented shall be subject to
the Owner's prior approval.
7.5.3 Costs of removal of debris from the site.
7.5.4 Costs of document reproductions, facsimile transmissions and long-
distance telephone calls, postage and parcel delivery charges, telephone
service at the site and reasonable petty cash expenses of the site office.
<PAGE>
7.5.5 That portion of the reasonable expenses of the Contractor's personnel
incurred while traveling in discharge of duties connected with the Work.
7.5.6 Costs of materials and equipment suitably stored off the site at a
mutually acceptable location, if approved in advance by the Owner.
7.6 MISCELLANEOUS COSTS
7.6.1 That portion of insurance and bond premiums that can be directly
attributed to this Contract:
7.6.2 Sales, use or similar taxes imposed by a governmental authority that are
related to the work.
7.6.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the Contract
Documents to pay.
7.6.4 Fees of laboratories for tests required by the Contract Documents, except
those related to defective or nonconforming Work for which reimbursement is
excluded by Subparagraph 13.5.3 of AIA Document A201-1997 or other provisions of
the Contract Documents, and which do not fall within the scope of Subparagraph
7.7.3.
7.6.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of defending
suits or claims for infringement of patent rights arising from such requirement
of the Contract Documents; and payments made in accordance with legal judgments
against the Contractor resulting from such suits or claims and payments of
settlements made with the Owner's consent. However, such costs of legal
defenses, judgments and settlements shall not be included in the calculation of
the Contractor's Fee or subject to the Guaranteed Maximum Price. If such
royalties, fees and costs are excluded by the last sentence of Subparagraph
3.17.1 of AIA Document A201-1997 or other provisions of the Contract Documents,
then they shall not be included in the Cost of the Work.
7.6.6 Data processing costs related to the Work.
7.6.7 Deposits lost for causes other than the Contractor's negligence or failure
to fulfill a specific responsibility to the Owner as set forth in the Contract
Documents.
7.6.8 Legal, mediation and arbitration costs, including attorneys' fees, other
than those arising from disputes between the Owner and Contractor, reasonably
incurred by the Contractor in the performance of the Work and with the Owner's
prior written approval; which approval shall not be unreasonably withheld.
7.6.9 Expenses incurred in accordance with the Contractor's standard personnel
policy for relocation and temporary living allowances of personnel required for
the Work, if approved by the Owner.
7.7 OTHER COSTS AND EMERGENCIES
7.7.1 Other costs incurred in the performance of the Work if and to the extent
approved in advance in writing by the Owner.
7.7.2 Costs due to emergencies incurred in taking action to prevent threatened
damage, injury or loss in case of an emergency affecting the safety of persons
and property, as provided in Paragraph 10.6 of AIA Document A201-1997.
7.7.3 Costs of repairing or correcting damaged or nonconforming Work executed by
the Contractor, Subcontractors or suppliers, provided that such damaged or
nonconforming Work was not caused by negligence or failure to fulfill a specific
responsibility of the Contractor and only to the extent that the cost of repair
or correction is not recoverable by the Contractor from insurance, sureties,
Subcontractors or suppliers.
ARTICLE 8 COSTS NOT TO BE REIMBURSED
<PAGE>
8.1 The Cost of the Work shall not include:
8.1.1 Salaries and other compensation of the Contractor's personnel stationed at
the Contractor's principal office or offices other than the site office, except
as specifically provided in Subparagraphs 7.2.2 and 7.2.3 or as may be provided
in Article 14.
8.1.2 Expenses of the Contractor's principal office and offices other than the
site office.
8.1.3 Overhead and general expenses, except as may be expressly included in
Article 7.
8.1.4 The Contractor's capital expenses, including interest on the Contractor's
capital employed for the Work.
8.1.5 Rental costs of machinery and equipment, except as specifically provided
in Subparagraph 7.5.2.
8.1.6 Except as provided in Subparagraph 7.7.3 of this Agreement, costs due to
the negligence or failure to fulfill a specific responsibility of the
Contractor, Subcontractors and suppliers or anyone directly or indirectly
employed by any of them or for whose acts any of them may be liable.
8.1.7 Any cost not specifically and expressly described in Article 7.
8.1.8 Costs, other than costs included in Change Orders approved by the Owner,
that would cause the Guaranteed Maximum Price to be exceeded.
ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS
9.1 Cash discounts obtained on payments made by the Contractor shall accrue to
the Owner if (1) before making the payment, the Contractor included them in an
Application for Payment and received payment therefor from the Owner, or (2) the
Owner has deposited funds with the Contractor with which to make payments;
otherwise, cash discounts shall accrue to the Contractor. Trade discounts,
rebates, refunds and amounts received from sales of surplus materials and
equipment shall accrue to the Owner, and the Contractor shall make provisions so
that they can be secured.
9.2 Amounts that accrue to the Owner in accordance with the provisions of
Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the
Work.
ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Those portions of the Work that the Contractor does not customarily perform
with the Contractor's own personnel shall be performed under subcontracts or by
other appropriate agreements with the Contractor. The Owner may designate
specific persons or entities from whom the Contractor shall obtain bids. The
Contractor shall obtain bids from Subcontractors and from suppliers of materials
or equipment fabricated especially for the Work and shall deliver such bids to
the Architect. The Owner shall then determine, with the advice of the Contractor
and the Architect, which bids will be accepted. The Contractor shall not be
required to contract with anyone to whom the Contractor has reasonable
objection.
10.2 If a specific bidder among those whose bids are delivered by the Contractor
to the Architect (1) is recommended to the Owner by the Contractor; (2) is
qualified to perform that portion of the Work; and (3) has submitted a bid that
conforms to the requirements of the Contract Documents without reservations or
exceptions, but the Owner requires that another bid be accepted, then the
Contractor may require that a Change Order be issued to adjust the Guaranteed
Maximum Price by the difference between the bid of the person or entity
recommended to the Owner by the Contractor and the amount of the subcontract or
other agreement actually signed with the person or entity designated by the
Owner.
10.3 Subcontracts or other agreements shall conform to the applicable payment
provisions of this Agreement, and shall not be awarded on the basis of cost plus
a fee without the prior consent of the Owner.
ARTICLE 11 ACCOUNTING RECORDS
<PAGE>
The Contractor shall keep full and detailed accounts and exercise such controls
as may be necessary for proper financial management under this Contract, and the
accounting and control systems shall be satisfactory to the Owner. The Owner and
the Owner's accountants shall be afforded access to, and shall be permitted to
audit and copy, the Contractor's records, books, correspondence, instructions,
drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other
data relating to this Contract, and the Contractor shall preserve these for a
period of three years after final payment, or for such longer period as may be
required by law.
ARTICLE 12 PAYMENTS
12.1.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
12.1.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
12.1.3 Provided that an Application for Payment is received by the Architect not
later than the Thirtieth (30th) day of a month, the Owner shall make payment to
the Contractor not later than the Fifteenth (15th) day of the Following month.
If an Application for Payment is received by the Architect after the application
date fixed above, payment shall be made by the Owner not later than Fifteen (15)
days after the Architect receives the Application for Payment.
12.1.4 With each Application for Payment, the Contractor shall submit payrolls,
petty cash accounts, receipted invoices or invoices with check vouchers
attached, and any other evidence required by the Owner or Architect to
demonstrate that cash disbursements already made by the Contractor on account of
the Cost of the Work equal or exceed (1) progress payments already received by
the Contractor; less (2) that portion of those payments attributable to the
Contractor's Fee; plus (3) payrolls for the period covered by the present
Application for Payment.
12.1.5 Each Application for Payment shall be based on the most recent schedule
of values submitted by the Contractor in accordance with the Contract Documents.
The schedule of values shall allocate the entire Guaranteed Maximum Price among
the various portions of the Work, except that the Contractor's Fee shall be
shown as a single separate item. The schedule of values shall be prepared in
such form and supported by such data to substantiate its accuracy as the
Architect may require. This schedule, unless objected to by the Architect, shall
be used as a basis for reviewing the Contractor's Applications for Payment.
12.1.6 Applications for Payment shall show the percentage of completion of each
portion of the Work as of the end of the period covered by the Application for
Payment. The percentage of completion shall be the lesser of (1) the percentage
of that portion of the Work which has actually been completed; or (2) the
percentage obtained by dividing (a) the expense that has actually been incurred
by the Contractor on account of that portion of the Work for which the
Contractor has made or intends to make actual payment prior to the next
Application for Payment by (b) the share of the Guaranteed Maximum Price
allocated to that portion of the Work in the schedule of values.
12.1.7 Subject to other provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
.1 take that portion of the Guaranteed Maximum Price properly allocable to
completed Work as determined by multiplying the percentage of completion of each
portion of the Work by the share of the Guaranteed Maximum Price allocated to
that portion of the Work in the schedule of values. Pending final determination
of cost to the Owner of changes in the Work, amounts not in dispute shall be
included as provided in Subparagraph 7.3.8 of AIA Document A201-1997;
.2 add that portion of the Guaranteed Maximum Price properly allocable to
materials and equipment delivered and suitably stored at the site for subsequent
incorporation in the Work, or if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing;
<PAGE>
.3 add the Contractor's Fee, less retainage of Ten percent ( 10 %).The
Contractor's Fee shall be computed upon the Cost of the Work described in the
two preceding Clauses at the rate stated in Subparagraph 5.1.2 or, if the
Contractor's Fee is stated as a fixed sum in that Subparagraph, shall be an
amount that bears the same ratio to that fixed-sum fee as the Cost of the Work
in the two preceding Clauses bears to a reasonable estimate of the probable Cost
of the Work upon its completion;
.4 subtract the aggregate of previous payments made by the owner;
.5 subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.1.4 to substantiate prior Applications
for Payment, or resulting from errors subsequently discovered by the Owner's
accountants in such documentation; and
.6 subtract amounts, if any, for which the Architect has withheld or nullified a
Certificate for Payment as provided in Paragraph 9.5 of AIA Document A201-1997.
12.1.8 Except with the Owner's prior approval, payments to Subcontractors shall
be subject to retainage of not less than Ten percent (10%). The Owner and the
Contractor shall agree upon a mutually acceptable procedure for review and
approval of payments and retention for Subcontractors.
12.1.9 In taking action on the Contractor's Applications for Payment, the
Architect shall be entitled to rely on the accuracy and completeness of the
information furnished by the Contractor and shall not be deemed to represent
that the Architect has made a detailed examination, audit or arithmetic
verification of the documentation submitted in accordance with Subparagraph
12.1.4 or other supporting data; that the Architect has made exhaustive or
continuous on-site inspections or that the Architect has made examinations to
ascertain how or for what purposes the Contractor has used amounts previously
paid on account of the Contract. Such examinations, audits and verifications, if
required by the Owner, will be performed by the Owner's accountants acting in
the sole interest of the Owner.
12.2 FINAL PAYMENT
12.2.1 Final payment, constituting the entire unpaid balance of the Contract
Sum, shall be made by the Owner to the Contractor when:
.1 the Contractor has fully performed the Contract except for the Contractor's
responsibility to correct Work as provided in Subparagraph 12.2.2 of AIA
Document A201-1997, and to satisfy other requirements, if any, which extend
beyond final payment; and
.2 a final Certificate for Payment has been issued by the Architect.
12.2.2 The Owner's final payment to the Contractor shall be made no later than
30 days after the issuance of the Architect's final Certificate for Payment, or
as follows:
12.2.3 The Owner's accountants will review and report in writing on the
Contractor's final accounting within 30 days after delivery of the final
accounting to the Architect by the Contractor. Based upon such Cost of the Work
as the Owner's accountants report to be substantiated by the Contractor's final
accounting, and provided the other conditions of Subparagraph 12.2.1 have been
met, the Architect will, within seven days after receipt of the written report
of the Owner's accountants, either issue to the Owner a final Certificate for
Payment with a copy to the Contractor, or notify the Contractor and Owner in
writing of the Architect's reasons for withholding a certificate as provided in
Subparagraph 9.5.1 of the AIA Document A201-1997. The time periods stated in
this Subparagraph 12.2.3 supersede those stated in Subparagraph 9.4.1 of the AIA
Document A201-1997.
12.2.4 If the Owner's accountants report the Cost of the Work as substantiated
by the Contractor's final accounting to be less than claimed by the Contractor,
the Contractor shall be entitled to demand arbitration of the disputed amount
without a further decision of the Architect. Such demand for arbitration shall
be made by the Contractor within 30 days after the Contractor's receipt of a
copy of the Architect's final
<PAGE>
Certificate for Payment; failure to demand arbitration within this 30-day period
shall result in the substantiated amount reported by the Owner's accountants
becoming binding on the Contractor. Pending a final resolution by arbitration,
the Owner shall pay the Contractor the amount certified in the Architects final
Certificate for Payment.
12.2.5 If, subsequent to final payment and at the Owner's request, the
Contractor incurs costs described in Article 7 and not excluded by Article 8 to,
correct defective or nonconforming Work, the Owner shall reimburse the
Contractor such costs and the Contractor's Fee applicable thereto on the same-
basis as if such costs had been incurred prior to final payment, but not in
excess of the Guaranteed Maximum Price. If the Contractor has participated in
savings as provided in Paragraph 5.2, the amount of such savings shall be
recalculated and appropriate credit given to the Owner in determining the net
amount to be paid by the Owner to the Contractor.
ARTICLE 13 TERMINATION OR SUSPENSION
13.1 The Contract may be terminated by the Contractor, or by the Owner for
convenience, as provided in Article 14 of AIA Document A201-1997. However, the
amount to be paid to the Contractor under Subparagraph 14.1.3 of AIA Document
A201-1997 shall not exceed the amount the Contractor would be entitled to
receive under Paragraph 13.2 below, except that the Contractor's Fee shall be
calculated as if the Work had been fully completed by the Contractor, including
a reasonable estimate of the Cost of the Work for Work not actually completed.
13.2 The Contract may be terminated by the Owner for cause as provided in
Article 14 of AIA Document A201-1997. The amount, if any, to be paid to the
Contractor under Subparagraph 14.2.4 of AIA Document A201-1997 shall not cause
the Guaranteed Maximum Price to be exceeded, nor shall it exceed an amount
calculated as follows:
13.2.1 Take the Cost of the Work incurred by the Contractor to the date of
termination;
13.2.2 Add the Contractor's Fee computed upon the Cost of the Work to the date
of termination at the rate stated in Subparagraph 5.1.2 or, if the Contractor's
Fee is stated as a fixed sum in that Subparagraph, an amount that bears the same
ratio to that fixed-sum Fee as the Cost of the Work at the time of termination
bears to a reasonable estimate of the probable Cost of the Work upon its
completion; and
13.2.3 Subtract the aggregate of previous payments-made by the Owner.
13.3 The Owner shall also pay the Contractor fair compensation, either by
purchase or rental at the election of the Owner, for any equipment owned by the
Contractor that the Owner elects to retain and that is not otherwise included in
the Cost of the Work under Subparagraph 13.2.1. To the extent that the Owner
elects to take legal assignment of subcontracts and purchase orders (including
rental agreements), the Contractor shall, as a condition of receiving the
payments referred to in this Article 13, execute and deliver all such papers and
take all such steps, including the legal assignment of such subcontracts and
other contractual rights of the Contractor, as the Owner may require for the
purpose of fully vesting in the Owner the rights and benefits of the Contractor
under such subcontracts or purchase orders.
13.4 The Work may be suspended by the Owner as provided in Article 14 of AIA
Document A201-1997; in such case, the Guaranteed Maximum Price and Contract Time
shall be increased as provided in Subparagraph 14.3.2 of AIA Document A201-1997
except that the term "profit" shall be understood to mean the Contractor's Fee
as described in Subparagraphs 5.1.2 and Paragraph 6.4 of this Agreement.
ARTICLE 14 MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to a provision AIA Document A201-
1997 or another Contract Document, the reference refers to that provision as
amended or supplemented by other provisions of the Contract Documents.
<PAGE>
14.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers)
14.3 The Owner's representative is:
(Name, address and other information)
Melvin Edwards
Bank of the Ozarks
P.O. Box 8811
Little Rock, AR
14.4 The Contractor's representative is:
(Name, address and other information.)
Greg Fluger
East-Harding, Inc.
P.O. Box 251556
Little Rock, AR 72225
14.5 Neither the Owner's nor the Contractor's representative shall be changed
without ten days' written notice to the other party.
14.6 Other provisions:
ARTICLE 15 ENUMERATION OF CONTRACT DOCUMENTS
15.1 The Contract Documents, except for Modifications issued after execution of
this Agreement, are enumerated as follows:
15.1.1 The Agreement is this executed 1997 edition of the Standard Form of
Agreement Between Owner and Contractor, AIA Document A111-1997.
15.1.2 The General Conditions are the 1997 edition of the General Conditions of
the Contract for Construction, AIA Document A201-1997.
15.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated June 30, 2000, and are as follows:
Document Title Pages
Project Manual Bank of the Ozarks,
Otter Creek Branch
15.1.4 The Specifications are those contained in the Project Manual dated as in
Subparagraph 15.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
Section Title Pages
Refer to Exhibit "A"
15.1.5 The Drawings are as follows, and are dated unless a different date is
shown below:
(Either list the Drawings here or refer to an exhibit attached to
this Agreement.)
<PAGE>
Number Title
Refer to Exhibit "B"
15.1.6 The Addenda, if any, are as follows:
Number Date Pages
1 August 11, 2000 3
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 15.
15.1.7 Other Documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents, such as a list of alternates that are
intended to form part of the Contract Documents. AIA Document A201-1997 provides
that bidding requirements such as advertisement or invitation to bid,
Instructions to Bidders, sample forms and the Contractor's bid are not part of
the Contract Documents unless enumerated in this Agreement. They should be
listed here only if intended to be part of the Contract Documents)
Proposal letters dated August 24, 2000 and September 1, 2000 with accepted cost
savings items are a part of this Contract.
ARTICLE 16 INSURANCE AND BONDS
(List required limits of liability for insurance and bonds. AIA Document A201-
1997 gives other specific requirements for insurance and bonds.)
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies, of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
Bank of the Ozarks
/s/ Melvin L. Edwards /s/ Tom Harding
- ----------------------------------- --------------------------------------
OWNER (Signature) CONTRACTOR (Signature)
Melvin L. Edwards Vice President Tom Harding President
- --------------------------------- --------------------------------------
(Printed name and title) (Printed name and title)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into on
this 29/th/ day of December, 2000 to be effective the 1st day of January, 2001,
by and between Bank of the Ozarks, Inc., an Arkansas corporation (the
"Corporation"), and George G. Gleason, II, an individual and resident of
Arkansas ("Gleason").
W I T N E S S E T H:
WHEREAS, the Corporation and Gleason are parties to an employment
agreement, the term of which ends on December 31, 2000;
WHEREAS, the Board of Directors of the Corporation believes that the future
services of Gleason will be of great value to the Corporation and, by this
Agreement, proposes to ensure his continued employment for a certain period;
WHEREAS, Gleason hereby expresses his willingness to continue in the
employment of the Corporation as is hereby provided;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Period of Active Employment. Gleason shall continue in the active
---------------------------
employment of the Corporation commencing on January 1, 2001 and ending on
December 31, 2003 (the "Term").
2. Duties. During the period of this contract, and subject to the
------
limitations hereinafter expressed, Gleason agrees to serve the Corporation
faithfully and to the best of his ability, under the direction of the Board of
Directors of the Corporation, devoting his time, energy and skill to the
management of the Corporation's business.
3. Compensation. The Corporation agrees to pay to Gleason during the term
------------
as defined in Section 1 above, as compensation for his full-time services:
(a) A minimum base salary of Two Hundred Seventy-Five Thousand Dollars
($275,000) per annum. Gleason's base salary will be evaluated and
increased, if appropriate, each year thereafter for the term of this
contract by majority vote of the Compensation Committee of the Board of
Directors of the Corporation, with members of the Gleason family or any
other interested director abstaining. Consideration will be given to
increases in Gleason's base salary based on, among other things, individual
merit and performance, assigned duties and scope of responsibility and
relative compensation of comparable positions within the industry.
1
<PAGE>
(b) A bonus for each fiscal year during the term of this contract, the
amount of which will be subjectively determined by majority vote of the
Compensation Committee of the Board of Directors of the Corporation, with
members of the Gleason family or any other interested director abstaining.
Such bonus will be based on, among other things, individual merit and
performance, taking into account Gleason's contribution to the overall
success of the Corporation and its subsidiaries and various measures of
corporate performance including long-term growth in deposits, loans and
assets, return on average assets, return on average stockholders' equity,
net interest margin, overhead ratio, efficiency ratio, net charge-offs
ratio, other measures of growth, earnings, asset quality and risk and other
factors deemed appropriate by the Compensation Committee. Such bonus, if
any, shall be payable to Gleason no later than the end of the first quarter
of the succeeding fiscal year.
Additional benefits may be provided and additional equity based compensation may
be paid Gleason from time to time by majority vote of the Compensation Committee
of the Board of Directors of the Corporation, with members of the Gleason family
or any other interested director abstaining. Nothing herein shall prohibit
Gleason from being reimbursed for reasonable and customary business expenses or
from receiving an allowance therefor.
4. Restrictive Covenant. Gleason expressly agrees, as a condition to the
--------------------
performance by the Corporation of its obligations hereunder, that during the
term of this Agreement he will not, directly or indirectly, enter into or in any
manner take part in any business competitive with any business of the
Corporation, without the prior written consent of the Corporation.
5. Prohibition Against Assignment. Gleason shall have no right to
------------------------------
commute, encumber or dispose of the right to receive payments hereunder, which
payments and the right thereto are expressly declared to be non-assignable and
non-transferable and, in the event of any attempted assignment or transfer, the
Corporation shall have no further liability hereunder.
6. Reorganization. The Corporation shall not merge or consolidate with
--------------
any other organization or organizations until such organization or organizations
expressly assume the duties of the Corporation herein set forth.
7. Independence of Other Agreements. This Agreement is hereby declared to
--------------------------------
be independent of all other benefits and retirement or deferred compensation
plans now or hereafter adopted by the Corporation, including the 401(k) plan
currently existing, and shall not, unless mutually agreed upon in writing, be
supplanted or replaced by any other such plan or agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate
original the day and year first above recited.
ATTEST: BANK OF THE OZARKS, INC.
/s/ Donna Quandt By: /s/ Mark D. Ross
- ------------------------------- ---------------------------
Donna Quandt, Corporate Secretary Mark D. Ross, President
/s/ George G. Gleason
---------------------------
George G. Gleason
3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>SELECTED CONSOLIDATED FINANCIAL DATA
<TEXT>
<PAGE>
EXHIBIT 13
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ------------ ------------ ------------ ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income.................................... $ 60,752 $ 51,575 $ 38,882 $ 27,468 $ 21,836
Interest expense................................... 37,089 27,782 20,518 12,979 10,031
Net interest income................................ 23,663 23,793 18,364 14,489 11,805
Provision for loan losses.......................... 2,325 2,485 2,026 1,139 1,486
Non-interest income................................ 5,542 5,147 5,031 2,925 1,865
Non-interest expense............................... 16,964 16,464 13,119 9,228 7,151
Distribution on trust preferred securities......... 1,587 846 -- -- --
Net income......................................... 6,040 6,635 5,629 4,531 3,027
Per common share data:
Earnings - diluted................................. $ 1.60 $ 1.75 $ 1.47 $ 1.38 $ 1.05
Book value......................................... 12.79 11.61 10.68 9.44 6.44
Dividends.......................................... 0.42 0.40 0.23 0.20 0.30
Weighted avg. shares outstanding (thousands)....... 3,782 3,792 3,819 3,281 2,880
Balance sheet data at period end:
Total assets....................................... $826,952 $796,042 $ 612,431 $ 352,093 $ 270,600
Total loans........................................ 510,544 467,131 387,526 275,463 214,462
Allowance for loan losses.......................... 6,606 6,072 4,689 3,737 3,019
Total investment securities........................ 253,216 263,395 176,618 42,459 39,608
Total deposits..................................... 677,683 595,930 529,040 295,555 231,648
Repurchase agreements with customers............... 13,839 9,026 1,408 -- --
Other borrowings................................... 66,703 126,989 39,271 19,089 18,123
Total stockholders' equity......................... 48,349 43,874 40,355 35,666 18,547
Loan to deposit ratio.............................. 75.34% 78.39% 73.25% 93.20% 92.58%
Average balance sheet data:
Total average assets............................... $818,197 $709,640 $ 486,729 $ 314,489 $ 240,208
Total average stockholders' equity................. 45,723 41,988 37,951 26,328 17,144
Average equity to average assets................... 5.59% 5.92% 7.80% 8.37% 7.14%
Performance ratios:
Return on average assets........................... 0.74% 0.93% 1.16% 1.44% 1.26%
Return on average stockholders' equity............. 13.21 15.80 14.83 17.21 17.66
Net interest margin................................ 3.27 3.77 4.19 4.98 5.36
Efficiency ........................................ 55.98 55.09 54.98 52.55 51.60
Dividend payout ................................... 26.25 22.86 15.65 14.49 28.57
Assets quality ratios:
Net charge-offs as a percentage of average total
loans ........................................... 0.36% 0.26% 0.33% 0.17% 0.21%
Nonperforming loans to total loans................. 0.37 0.42 0.70 0.25 1.08
Nonperforming assets to total assets............... 0.42 0.53 0.50 0.24 0.88
Allowance for loan losses as a percentage of:
Total loans........................................ 1.29% 1.30% 1.21% 1.36% 1.41%
Nonperforming loans................................ 351.38 307.91 171.82 534.62 130.69
Capital ratios at period end:
Leverage capital................................... 7.57% 7.46% 6.21% 9.86% 6.42%
Tier I risk-based capital.......................... 11.52 11.50 9.05 13.01 8.45
Total risk-based capital........................... 12.83 13.15 10.21 14.27 9.70
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Net income was $6.0 million for the year ended December 31, 2000, a 9.0%
decrease from net income of $6.6 million in 1999. Net income in 1998 was $5.6
million. Diluted earnings declined 8.6% to $1.60 per share in 2000 compared to
$1.75 per share in 1999. Diluted earnings in 1998 were $1.47 per share.
As shown below total assets, loans and deposits increased 3.9%, 9.3% and
13.7%, respectively, from December 31, 1999 to December 31, 2000 and 30.0%,
20.5% and 12.6%, respectively, from December 31, 1998 to December 31, 1999.
Stockholders' equity increased 10.2% from December 31, 1999 to December 31, 2000
and 8.7% from December 31, 1998 to December 31, 1999. During these same periods,
book value per share increased 10.2% and 8.7%, respectively.
<TABLE>
<CAPTION>
% Change
December 31, ----------------------
------------------------------------- 2000 1999
2000 1999 1998 from 1999 from 1998
--------- --------- --------- --------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Assets................ $826,952 $796,042 $612,431 3.9% 30.0%
Loans................. 510,544 467,131 387,526 9.3 20.5
Deposits.............. 677,683 595,930 529,040 13.7 12.6
Stockholders' equity.. 48,349 43,874 40,355 10.2 8.7
Book value per share.. 12.79 11.61 10.68 10.2 8.7
</TABLE>
Two measures of performance by banking institutions are return on average
assets and return on average equity. Return on average assets ("ROA") measures
net earnings in relation to average total assets and indicates a company's
ability to employ its resources profitably. For the year ended December 31,
2000, the Company's ROA was 0.74% compared with 0.93% and 1.16%, respectively,
for the years ended December 31, 1999 and 1998. Return on average equity ("ROE")
is determined by dividing annual net earnings by average shareholders' equity
and indicates how effectively a company can generate net income on the capital
invested by its shareholders. For the year ended December 31, 2000, the
Company's ROE was 13.21% compared with 15.80% and 14.83%, respectively, for the
years ended December 31, 1999 and 1998.
Analysis of Results of Operations
The Company's results of operations depend primarily on net interest
income, which is the difference between the interest income from earning assets,
such as loans and investments, and the interest expense incurred on
interest-bearing liabilities, such as deposits and other borrowings. The Company
also generates non-interest income, including service charges on deposit
accounts, mortgage lending income, other charges and fees, trust income, and
gains on sales of assets.
The Company's non-interest expenses primarily consist of employee compensation
and benefits, occupancy, equipment, and other operating expenses. The Company's
results of operations are also significantly affected by its provision for loan
losses. The following discussion provides a summary of the Company's operations
for the past three years.
Net Interest Income
Net interest income is analyzed in the discussion and tables below on a
fully taxable equivalent ("FTE") basis. The adjustment to convert certain income
to an FTE basis consists of dividing tax-exempt income by one minus the
statutory federal income tax rate (34%).
2000 compared to 1999
Net interest income (FTE) increased modestly to $24.8 million for 2000 from
$24.7 million in 1999, a 0.1% increase. While average earning assets increased
15.3% from 1999 to 2000, net interest income (FTE) increased very little
primarily as a result of the narrowing of interest rate spreads as increases in
deposit and borrowing cost exceeded increases in loan and other earning asset
yields. Thus, an increase in net interest income usually associated with growth
in average earning assets did not occur due to the decline in interest rate
spreads. The Company's net interest margin declined from 3.77% for 1999 to 3.27%
for 2000. The Company experienced strong competition for loans and deposits
during 2000 which resulted in the Company's average loan yields increasing only
12 basis points compared to 1999 while deposit and borrowing costs increased 74
basis points in 2000 compared to 1999. These competitive conditions, coupled
with the Company's liability sensitive balance sheet and 2000's rising rate
environment, were the principal factors in the decline in the Company's net
interest margin in 2000.
5
<PAGE>
1999 compared to 1998
Net interest income (FTE) increased 31.4% to $24.7 million in 1999 from
$18.8 million in 1998. This increase primarily resulted from a 46.1% increase in
average earning assets to $656.6 million in 1999 from $449.4 million in 1998.
The increase in average earning assets resulted from continued growth in the
Company's loan portfolio and a significant increase in the investment securities
portfolio. The Company's net interest margin declined from 4.19% for 1998 to
3.77% for 1999. The Company experienced strong competition for loans which
reduced the Company's average loan yields by 77 basis points in 1999 compared to
1998. Deposit costs declined 48 basis points in 1999 compared to 1998 primarily
as a result of lower CD rates on the repricing of promotional CD's offered in
connection with certain branch openings in 1997 and 1998. Deposit growth not
used to fund loans, along with certain borrowings, was used to increase the
investment securities portfolio. The increase in the investment securities
portfolio in amount and as a percentage of total assets reduced net interest
margin as the yield on securities was less than the yield on loans.
Analysis of Net Interest Income
(FTE = Fully Taxable Equivalent)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
2000 1999 1998
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income........................... $60,752 $51,575 $38,882
FTE adjustment............................ 1,098 947 466
------- ------- -------
Interest income - FTE..................... 61,850 52,522 39,348
Interest expense.......................... 37,089 27,782 20,518
------- ------- -------
Net interest income - FTE................. $24,761 $24,740 $18,830
======= ======= =======
Yield on interest earning assets - FTE.... 8.17% 8.00% 8.76%
Cost of interest-bearing liabilities...... 5.37 4.63 5.06
Net interest spread - FTE................. 2.80 3.37 3.70
Net interest margin - FTE................. 3.27 3.77 4.19
</TABLE>
The following table sets forth certain information relating to the
Company's net interest income for the years ended December 31, 2000, 1999 and
1998. The yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods shown
except where otherwise noted. Average balances are derived from daily average
balances for assets and liabilities. The average balance of loans receivable
includes loans on which the Company has discontinued accruing interest. The
yields and costs include amortization of certain deferred fees and origination
costs, capitalization of interest on construction projects and late fees. These
are considered adjustments to yields or rates.
6
<PAGE>
Average Consolidated Balance Sheets and Net Interest Analysis
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
2000 1999 1998
---------------------------- ------------------------ -------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- ------- ------- ------- ------- ------ ------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Interest-bearing deposits and federal funds
sold..................................... $ 282 $ 17 6.11% $ 841 $ 45 5.26% $ 5,389 $ 294 5.46
Investment securities:
Taxable.................................. 225,515 15,331 6.80 194,511 12,847 6.61 99,840 6,654 6.66
Tax-exempt-FTE........................... 39,875 2,960 7.42 36,938 2,538 6.87 15,790 1,160 7.35
Loans - FTE (net of unearned income)......... 491,390 43,542 8.86 424,339 37,092 8.74 328,394 31,240 9.51
--------- ------- -------- ------- -------- -------
Total earning assets.................. 757,062 61,850 8.17 656,629 52,522 8.00 449,413 39,348 8.76
Non-earning assets............................. 61,135 53,011 37,316
--------- -------- --------
Total assets.......................... $818,197 $709,640 $486,729
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings and interest-bearing transaction... $111,283 $ 3,285 2.95% $105,980 $ 2,756 2.60% $ 74,354 $ 2,054 2.76%
Time deposits of $100,000 or more.......... 224,231 13,471 6.01 177,938 8,892 5.00 87,751 4,899 5.58
Other time deposits........................ 231,764 12,945 5.59 239,707 12,183 5.08 198,268 11,165 5.63
--------- ------- -------- ------- -------- -------
Total interest-bearing deposits 567,278 29,701 5.24 523,625 23,831 4.55 360,373 18,118 5.03
Repurchase agreements with customers......... 12,536 680 5.42 2,991 132 4.40 108 4 3.70
Other borrowings............................. 111,312 6,708 6.03(1) 73,717 3,819 5.18(1) 45,213 2,396 5.30(1)
--------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 691,126 37,089 5.37 600,333 27,782 4.63 405,694 20,518 5.06
Non-interest liabilities:
Non-interest bearing deposits................ 60,636 54,782 40,583
Other non-interest liabilities............... 3,462 3,085 2,501
--------- -------- --------
Total liabilities........................ 755,224 658,200 448,778
Trust preferred securities..................... 17,250 9,452 -
Stockholders' equity........................... 45,723 41,988 37,951
--------- -------- --------
Total liabilities and stockholders'
equity ............................... $818,197 $709,640 $486,729
========= ======== ========
Interest rate spread - FTE..................... 2.80% 3.37% 3.70%
------- ------- -------
Net interest income - FTE...................... $24,761 $24,740 $18,830
======= ======= =======
Net interest margin - FTE...................... 3.27% 3.77% 4.19%
</TABLE>
(1) This rate is impacted by the capitalization of interest on construction
projects in the amount of $52,000, $51,000 and $275,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. In the absence of this
capitalization these percentages would have been 6.07%, 5.25% and 5.91% for
the years ended December 31, 2000, 1999 and 1998, respectively.
The following table reflects how changes in the volume of interest earning
assets and interest-bearing liabilities and changes in interest rates have
affected the Company's interest income and interest expense during the periods
indicated. Information is provided in each category with respect to changes
attributable to (1) changes in volume (changes in volume multiplied by prior
rate); (2) changes in rate (changes in rate multiplied by prior volume); and (3)
changes in rate/volume (change in rate multiplied by change in volume). The
changes attributable to the combined impact of volume and rate have all been
allocated to the changes due to volume.
7
<PAGE>
Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
2000 over 1999 1999 over 1998
--------------------------------- ------------------------------
Yield/ Yield/
Volume Rate Total Volume Rate Total
--------- -------- -------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income - FTE:
Interest-bearing deposits and federal
funds sold .................................. $ (34) $ 6 $ (28) $ (236) $ (13) $ (249)
Investment securities:
Taxable ....................................... 2,108 376 2,484 6,253 (60) 6,193
Tax-exempt - FTE ............................... 218 204 422 1,453 (75) 1,378
Loans (net of unearned income) .................. 5,941 509 6,450 8,388 (2,536) 5,852
-------- -------- -------- -------- ------- --------
Total interest income - FTE .................. 8,233 1,095 9,328 15,858 (2,684) 13,174
-------- -------- -------- -------- ------- --------
Interest expense:
Savings and interest-bearing transaction ......... 157 372 529 823 (121) 702
Time deposits of $100,000 or more ................ 2,781 1,798 4,579 4,507 (514) 3,993
Other time deposits .............................. (444) 1,206 762 2,106 (1,088) 1,018
Repurchase agreements with customers ............. 518 30 548 127 1 128
Other borrowings ................................. 2,266 623 2,889 1,401 22 1,423
-------- -------- -------- -------- ------- --------
Total interest expense ....................... 5,278 4,029 9,307 8,964 (1,700) 7,264
-------- -------- -------- -------- ------- --------
Increase (decrease) in net interest
income - FTE ................................. $ 2,955 $ (2,934) $ 21 $ 6,894 $ (984) $ 5,910
======== ======== ======== ======== ======= ========
</TABLE>
Non-Interest Income
The Company's non-interest income can primarily be broken down into five
main sources: (1) service charges on deposit accounts, (2) mortgage lending
income, (3) other charges and fees including appraisal fees and commissions from
the sale of credit related insurance products, (4) trust income and (5) gains on
sales of assets.
Non-interest income for the year ended December 31, 2000 increased 7.7% to
$5.5 million compared with $5.1 million in 1999. Non-interest income was $5.0
million in 1998. During 2000 the Company benefited from strong growth in service
charges on deposit accounts which increased 35.3% from 1999. The increase in
service charge income resulted primarily from the continued growth in the number
of retail checking, commercial checking and cash management customers, increased
service charge rates and improved collection and waiver practices. The Company
also achieved good growth in trust income as the Company continued to capitalize
on enhanced trust services and competitive opportunities. The improvements in
these components of non-interest income were offset by declining mortgage
lending income in 2000, due primarily to increased mortgage rates during most of
2000.
The table below shows non-interest income for the years ended December 31,
2000, 1999 and 1998.
Non-Interest Income
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
2000 1999 1998
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts..................... $ 3,380 $ 2,499 $ 1,372
Mortgage lending income................................. 849 1,306 2,136
Other charges and fees.................................. 620 630 656
Trust income............................................ 592 479 335
Gain (loss) on sales.................................... (38) 12 113
Gain on sale of securities.............................. - 69 255
Brokerage fee income.................................... 61 - -
Other................................................... 78 152 164
------- ------- -------
Total non-interest income.......................... $ 5,542 $ 5,147 $ 5,031
======= ======= =======
</TABLE>
8
<PAGE>
Non-Interest Expense
Non-interest expense consists of salaries and employee benefits, occupancy,
equipment and other operating expenses. Non-interest expense for the year ended
December 31, 2000 increased 3.0% to $17.0 million compared with $16.5 million in
1999. Non-interest expense was $13.1 million in 1998. The increase in 2000
primarily resulted from the Company's continued growth and expansion. Full time
equivalent employees remained stable at 292 as of December 31, 2000 as the
Company slowed its rate of new office openings with only one new office opened
in 2000.
The Company's efficiency ratio (non-interest expenses divided by the sum of
net interest income on a tax equivalent basis and non-interest income) was 56.0%
for the year ended December 31, 2000 compared to 55.1% in 1999 and 55.0% in
1998.
The table below shows non-interest expense for the years ended December 31,
2000, 1999 and 1998.
Non-Interest Expense
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
2000 1999 1998
---------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Salaries and employee benefits...................... $ 8,928 $ 8,752 $ 7,197
Net occupancy and equipment expense................. 2,910 2,655 1,961
Other real estate and foreclosure expense .......... 592 358 130
Other operating expense:
Professional and outside services................ 315 319 211
Postage.......................................... 255 286 243
Telephone........................................ 478 418 314
Data lines....................................... 236 186 139
Operating supplies............................... 487 513 454
Advertising and public relations................. 551 612 566
Directors' fees.................................. 103 121 114
Software expense................................. 409 301 190
ATM expense...................................... 236 178 118
FDIC and state assessments....................... 238 217 166
Business development, meals and travel........... 136 147 120
Amortization of goodwill......................... 90 90 106
Amortization of other intangibles................ 169 172 67
Other............................................ 831 1,139 1,023
------- ------- -------
Total non-interest expense................... $16,964 $16,464 $13,119
======= ======= =======
</TABLE>
Income Taxes
The provision for income taxes was $2.3 million for the year ended December
31, 2000 compared to $2.5 million in 1999 and $2.6 million in 1998. The
effective income tax rates were 27.5%, 27.4% and 31.8%, respectively, for 2000,
1999 and 1998.
The effective tax rates for these years are below the statutory tax rates
because of a state income tax recovery in 1999 and the large portfolio of
investments in tax-exempt securities, including securities exempt from both
federal and Arkansas income taxes as well as certain federal agency securities
exempt solely from Arkansas income taxes.
9
<PAGE>
Analysis of Financial Condition
Loan Portfolio
At December 31, 2000 the Company's loan portfolio was $510.5 million, an
increase of 9.3% from $467.1 million at December 31, 1999. As of December 31,
2000 the Company's loan portfolio consisted of approximately 72.3% real estate
loans, 11.4% consumer loans, 12.5% commercial and industrial loans and 2.9%
agricultural loans (non-real estate).
The amount and type of loans outstanding are reflected in the following
table.
Loan Portfolio
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real Estate:
Residential 1-4 family....................... $144,920 $136,856 $121,539 $ 96,943 $ 78,124
Non-farm/non-residential..................... 134,726 101,766 76,563 41,710 35,258
Agricultural................................. 38,808 20,396 19,463 13,443 11,583
Construction/land development................ 42,354 28,294 23,305 16,257 8,808
Multifamily residential...................... 8,367 4,687 6,207 3,897 3,743
-------- -------- -------- -------- --------
Total real estate........................ 369,175 291,999 247,077 172,250 137,516
Consumer......................................... 58,430 81,753 66,407 53,233 39,868
Commercial and industrial........................ 63,799 70,012 52,192 37,470 28,154
Agricultural (non-real estate)................... 14,605 19,947 20,068 10,824 8,363
Other............................................ 4,535 3,420 1,782 1,686 561
-------- -------- -------- -------- --------
Total loans.............................. $510,544 $467,131 $387,526 $275,463 $214,462
======== ======== ======== ======== ========
</TABLE>
The following table reflects loans classified by remaining maturities at
December 31, 2000 by type and by fixed or floating interest rates. This table is
based on actual maturities and does not reflect amortizations, projected
paydowns or the earliest repricing for floating rate loans. Many loans have
maturities exceeding one year but have principal paydowns scheduled in less than
a year. Also many variable rate loans have maturities exceeding one year but are
repriceable in periods of one year or less.
Loan Maturities
<TABLE>
<CAPTION>
Over 1 Year
1 Year Through Over
or Less 5 Years 5 Years Total
-------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate .................................... $ 97,138 $235,253 $ 36,784 $369,175
Consumer........................................ 13,966 43,314 1,150 58,430
Commercial, industrial and agricultural......... 34,022 41,114 3,268 78,404
Other........................................... 412 1,007 3,116 4,535
-------- -------- -------- --------
$145,538 $320,688 $ 44,318 $510,544
======== ======== ======== ========
Fixed rate...................................... $128,296 $301,664 $ 22,852 $452,812
Floating rate................................... 17,242 19,024 21,466 57,732
-------- -------- -------- --------
$145,538 $320,688 $ 44,318 $510,544
======== ======== ======== ========
</TABLE>
The following table reflects loans classified as of December 31, 2000 by
expected amortizations, expected paydowns or the earliest repricing opportunity
for floating rate loans. This cash flow or repricing classification approximates
the Company's ability to reprice loans or the ability to reinvest loan payoffs
in new loans, other investments or reduce borrowings.
10
<PAGE>
Loan Cash Flows or Repricing
<TABLE>
<CAPTION>
Over 1 Year
1 Year Through Over
or Less 5 Years 5 Years Total
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fixed rate................... $213,084 $218,068 $ 21,660 $452,812
Floating rate................ 51,102 6,630 - 57,732
-------- -------- -------- --------
$264,186 $224,698 $ 21,660 $510,544
======== ======== ======== ========
</TABLE>
Nonperforming Assets
Nonperforming assets consist of (1) nonaccrual loans, (2) accruing loans 90
days or more past due, (3) certain restructured loans providing for a reduction
or deferral of interest or principal because of a deterioration in the financial
position of the borrower and (4) real estate or other assets that have been
acquired in partial or full satisfaction of loan obligations or upon
foreclosure.
The Company generally places a loan on nonaccrual status when payment of
principal or interest is contractually past due 90 days, or earlier when doubt
exists as to the ultimate collection of principal and interest. The Company
continues to accrue interest on certain loans contractually past due 90 days if
such loans are both well secured and in the process of collection. At the time a
loan is placed on nonaccrual status, interest previously accrued but uncollected
is generally reversed and charged against interest income. If a loan is
determined to be uncollectible, the portion of the loan principal determined to
be uncollectible will be charged against the allowance for loan losses. Interest
income on nonaccrual loans is recognized on a cash basis when and if actually
collected.
Nonperforming loans as a percent of total loans improved to 0.37% at
year-end 2000 compared to 0.42% at year-end 1999. Nonperforming assets as a
percent of total assets improved to 0.42% as of year-end 2000 compared to 0.53%
as of year-end 1999. During the third quarter of 2000 the Company transferred a
large credit to other real estate owned and took a significant charge-off of
$787,000. During the fourth quarter twenty-four of the thirty-four properties
securing this credit were sold. This resulted in a 69.7% reduction of the
outstanding book value of these properties from $1,515,000 at September 30, 2000
to $459,000 at December 31, 2000. The Company's experience to date in the
disposal of these properties leads management to believe the Company will incur
no additional losses with respect to this credit.
During the first quarter of 1999 the Company placed on nonaccrual status
residential real estate development loans to a single borrower and charged these
loans down to the $1.6 million dollar appraised value of the collateral. During
the third quarter the Company completed foreclosure and acquired title to the
real estate securing these loans and transferred the loan balances to other real
estate.
The following table presents information concerning nonperforming assets
including nonaccrual and restructured loans and foreclosed assets held for sale.
Nonperforming Assets
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ..................................................... $1,880 $1,972 $2,708 $ 664 $2,057
Accruing loans 90 days or more past due .............................. -- -- 21 35 253
Restructured loans ................................................... -- -- -- -- --
------ ------ ------ ------ ------
Total nonperforming loans ................................... 1,880 1,972 2,729 699 2,310
Foreclosed assets held for sale and repossessions(1).................. 1,600 2,238 314 136 78
------ ------ ------ ------ ------
Total nonperforming assets .................................. $3,480 $4,210 $3,043 $ 835 $2,388
====== ====== ====== ====== ======
Nonperforming loans to total loans ................................... 0.37% 0.42% 0.70% 0.25% 1.08%
Nonperforming assets to total assets ................................. 0.42 0.53 0.50 0.24 0.88
</TABLE>
(1) Foreclosed assets held for sale and repossessions are generally written down
to estimated market value at the time of transfer from the loan portfolio.
The value of such assets is reviewed from time to time throughout the
holding period with the value adjusted to the then estimated market value,
if lower, until disposition. Under Arkansas banking law, other real estate
owned is generally required to be written off over a five year period unless
approval of the Arkansas State Bank Department is obtained to write such
assets off over an extended period. The Company's other real estate owned is
being written off over periods of five or twenty years.
11
<PAGE>
An analysis of the allowance for loan losses for the periods indicated is
shown in the table below.
Allowance and Provision for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period...................................... $6,072 $4,689 $3,737 $3,019 $1,909
Loans charged off:
Real estate:
Residential 1-4 family..................................... 690 260 75 35 73
Non-farm/non-residential................................... 121 8 18 -- --
Agricultural............................................... 10 3 -- -- --
Construction/land development.............................. -- 115 -- -- --
Multifamily residential.................................... 79 -- -- -- --
------ ------ ------ ------ ------
Total real estate........................................ 900 386 93 35 73
Consumer..................................................... 549 516 633 434 216
Commercial and industrial.................................... 443 271 423 -- 128
Agricultural (non-real estate)............................... 106 52 -- -- --
------ ------ ------ ------ ------
Total loans charged off.................................. 1,998 1,225 1,149 469 417
------ ------ ------ ------ ------
Recoveries of loans previously charged off:
Real estate:
Residential 1-4 family..................................... 39 4 9 5 2
Non-farm/non-residential................................... 44 -- -- -- --
Agricultural............................................... 1 -- -- 2 --
Construction/land development.............................. -- 2 -- -- --
Multifamily residential.................................... -- -- -- -- --
------ ------ ------ ------ ------
Total real estate........................................ 84 6 9 7 2
Consumer..................................................... 74 111 55 39 35
Commercial and industrial.................................... 48 6 11 2 4
Agricultural (non-real estate)............................... 1 -- -- -- --
------ ------ ------ ------ ------
Total recoveries......................................... 207 123 75 48 41
------ ------ ------ ------ ------
Net loans charged off............................................. 1,791 1,102 1,074 421 376
Provision charged to operating expense............................ 2,325 2,485 2,026 1,139 1,486
------ ------ ------ ------ ------
Balance, end of period............................................ $6,606 $6,072 $4,689 $3,737 $3,019
====== ====== ====== ====== ======
Net charge-offs to average loans outstanding during
the periods indicated........................................ 0.36% 0.26% 0.33% 0.17% 0.21%
Allowance for loan losses to total loans.......................... 1.29 1.30 1.21 1.36 1.41
Allowance for loan losses to nonperforming loans.................. 351.38 307.91 171.82 534.62 130.69
</TABLE>
The amounts of provisions to the allowance for loan losses are based on
management's judgment and evaluation of the loan portfolio utilizing objective
and subjective criteria. The objective criteria utilized by the Company to
assess the adequacy of its allowance for loan losses and required additions to
such reserve are (1) an internal grading system, (2) a peer group analysis and
(3) a historical analysis. In addition to these objective criteria, the Company
subjectively assesses adequacy of the allowance for loan losses and the need for
additions thereto, with consideration given to the nature and volume of the
portfolio, overall portfolio quality, review of specific problem loans,
national, regional and local business and economic conditions that may affect
the borrowers' ability to pay or the value of collateral securing the loans, and
other relevant factors. The Company's allowance for loan losses increased to
$6,606,000 at December 31, 2000, or 1.29% of total loans, compared with
$6,072,000, or 1.30% of total loans, at December 31, 1999. While management
believes the current allowance is adequate, changing economic and other
conditions may require future adjustments to the allowance for loan losses.
12
<PAGE>
The Company's net charge-offs for 2000 were significantly increased by a
third quarter charge-off in the amount of $787,000 related to a single credit,
which the Company considers to be an unusual situation. Excluding the charge-off
related to this one credit, net charge-offs for the year 2000 would have been
$1,004,000, or 0.20% of average outstanding loans.
The Company's internal grading system analysis assigns grades to all loans
except residential 1-4 family loans and consumer installment loans. Graded loans
are assigned to one of seven risk grades, with each grade being assigned a
specific reserve allocation percentage. The loan grade for each individual loan
is determined by the loan officer at the time it is made and changed from time
to time to reflect an ongoing assessment of loan risk. Loan grades are reviewed
on specific loans from time to time by senior management and as part of the
Company's internal loan review process. Residential 1-4 family and consumer
installment loans are assigned a reserve allocation percentage based on past due
status.
The sum of all reserve amounts determined by this methodology is utilized
by management as the primary indicator of the appropriate reserve level. The
unallocated reserve generally serves to compensate for the uncertainty in
estimating loan losses including the possibility of changing risk ratings or
specific reserve allocations.
In addition to the above analysis, the Company compares the allowance for
loan losses (as a percentage of total loans) maintained by its subsidiary bank
to the peer group average percentage as shown on the most recently available
FDIC Uniform Bank Performance Reports for such banks. The Company also compares
the allowance for loan loss to the bank's historical cumulative net charge-offs
for the five preceding calendar years.
Although the Company does not determine the overall allowance based upon
the amount of loans in a particular type or category (except in the case of
residential 1-4 family and consumer installment loans), risk elements
attributable to particular loan types or categories are considered in assigning
loan grades to individual loans. These risk elements include the following: (1)
for non-farm/non-residential loans and multifamily residential loans, the debt
service coverage ratio (income from the property in excess of operating expenses
compared to loan payment requirements), operating results of the owner in the
case of owner-occupied properties, the loan to value ratio, the age and
condition of the collateral and the volatility of income, property value and
future operating results typical of properties of that type; (2) for
agricultural real estate loans, the loan to value ratio; (3) for construction
and land development loans, the perceived feasibility of the project including
the ability to sell developed lots or improvements constructed for resale or
ability to lease property constructed for lease, the quality and nature of
contracts for presale or preleasing, if any, experience and ability of the
developer and loan to value ratios; (4) for commercial and industrial loans, the
operating results of the commercial, industrial or professional enterprise, the
borrower's business, professional and financial ability and expertise, the
specific risks and volatility of income and operating results typical for
businesses in that category and the value, nature and marketability of
collateral; and (5) for non-real estate agricultural loans, the operating
results, experience and ability of the borrower, historical and expected market
conditions and the value, nature and marketability of collateral. In addition,
for each category the Company considers secondary sources of income and the
financial strength of the borrower and any guarantors.
Management reviews the allowance on a quarterly basis to determine whether
the amount of monthly provisions should be increased or decreased or whether
additional provisions should be made to the allowance. The allowance is
determined by management's assessment and grading of individual loans in the
case of loans other than residential 1-4 family and consumer installments and
specific reserves made for other categories of loans. The total allowance amount
is available to absorb losses across the Company's entire portfolio.
The following table sets forth the sum of the amounts of the allowance for
loan losses attributable to individual loans within each loan category, or loan
categories in general, and unallocated reserves as of December 31, 2000, 1999,
1998 and 1997. These amounts have been computed using the Company's grading
system analysis. The amounts shown are not necessarily indicative of the actual
future losses that may occur within particular loan categories. Information
prior to the Company's initial public offering in 1997 is not available.
13
<PAGE>
Allocation Of The Allowance For Loan Losses
<TABLE>
<CAPTION>
Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in
Category Category Category Category
Allowance to Total Allowance to Total Allowance to Total Allowance to Total
Amount Loans Amount Loans Amount Loans Amount/1/ Loans
--------- ---------- --------- ---------- --------- ---------- --------- ----------
December 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997
--------------------- --------------------- --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
Residential 1-4 family.............. $ 430 28.4% $ 478 29.2% $ 532 31.4% $ 1,116 35.2%
Non-farm/
non-residential................. 1,499 26.4 1,067 21.8 801 19.7 423 15.2
Agricultural........................ 517 7.6 302 4.4 231 5.0 152 4.9
Construction/land
development..................... 456 8.3 321 6.1 267 6.0 163 5.9
Multifamily......................... 95 1.6 57 1.0 63 1.6 41 1.4
Consumer.............................. 883 11.4 1,313 17.5 1,236 17.1 372 19.3
Commercial and industrial............. 859 12.5 808 15.0 610 13.5 412 13.6
Agricultural (non-real estate)........ 199 2.9 322 4.3 257 5.2 114 3.9
Other................................. 326 0.9 225 0.7 179 0.5 248 0.6
Unallocated reserves.................. 1,342 N/A 1,179 N/A 513 N/A 696 N/A
------- ------ ------- ----- ------- ----- ------- ------
$ 6,606 100.0% $ 6,072 100.0% $ 4,689 100.0% $ 3,737 100.0%
</TABLE>
(1) The allocation of the allowance by loan type as of December 31, 1997 is
presented based on the Company's previous methodology as information is not
available to restate this allocation.
The Company maintains an internally classified loan list that, along with
the list of nonaccrual or nonperforming loans, helps management assess the
overall quality of the loan portfolio and the adequacy of the allowance. Loans
classified as "substandard" are loans with clear and defined weaknesses such as
highly leveraged positions, unfavorable financial ratios, uncertain repayment
sources or poor financial condition which may jeopardize recoverability of the
loan. Loans classified as "doubtful" are those loans that have characteristics
similar to substandard loans, but also have an increased risk that a loss may
occur or at least a portion of the loan may require a charge-off if liquidated.
Although loans classified as substandard do not duplicate loans classified as
doubtful, both substandard and doubtful loans may include some loans that are
past due at least 90 days, are on nonaccrual status or have been restructured.
Loans classified as "loss" are loans that are in the process of being charged
off. At December 31, 2000, substandard loans not designated as nonaccrual or 90
days past due totaled $1.8 million. No loans were designated as doubtful or loss
at December 31, 2000.
Administration of the subsidiary bank's lending function is the
responsibility of the Chief Executive Officer and certain senior lenders. Such
officers perform their lending duties subject to the oversight and policy
direction of the Board of Directors and various loan committees. Loan authority
is granted to the Chief Executive Officer as determined appropriate by the Board
of Directors. Loan authorities of other lending officers are assigned by the
Chief Executive Officer.
Loans and aggregate loan relationships exceeding $3 million up to the
lending limit of the bank can be authorized only by the Board of Directors.
Loans and aggregate loan relationships exceeding $1 million up to $3 million can
be authorized by the loan committee. The Board of Directors reviews on a monthly
basis reports of loan originations, loan commitments over $100,000, past due
loans, internally classified and watch list loans and activity in the Company's
allowance for loan losses.
The Company's compliance and loan review officers are responsible for
serving the bank subsidiary of the Company in the loan review and compliance
areas. Periodic reviews are scheduled for the purpose of evaluating asset
quality and effectiveness of loan administration. The compliance and loan review
officers prepare loan review reports which identify deficiencies, establish
recommendations for improvement, and outline management's proposed action plan
for curing the deficiencies. These reports are provided to the audit committee,
which consists of three non-employee independent members of the Board of
Directors.
The Company's allowance for loan losses exceeds its cumulative historical
net charge-off experience for the last five years. However, the allowance is
considered reasonable given the significant growth in the loan portfolio during
the last three years, key allowance and nonperforming loan ratios and
comparisons to industry averages.
Based on these procedures, management believes that the allowance of
$6,606,000 at December 31, 2000 is adequate. The allowance for loan losses was
1.29% of loans at December 31, 2000 compared to 1.30% at December 31, 1999.
14
<PAGE>
Provision for Loan Losses: The amounts of provision to the allowance for loan
losses are based on management's judgment and evaluation of the loan portfolio
utilizing the criteria discussed above. The provision for 2000 was $2.3 million
compared to $2.5 million in 1999 and $2.0 million in 1998.
Investments and Securities
The Company's securities portfolio is the second largest component of
earning assets and provides a significant source of revenue for the Company. The
following table presents the book value and the fair value of investment
securities for each of the dates indicated.
Investment Securities
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
2000 1999 1998
------------------------ ----------------------- -----------------------
Book Fair Book Fair Book Fair
Value/(1)/ Value/(2)/ Value/1)/ Value/(2)/ Value/(1)/ Value/(2)/
---------- ---------- --------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities of U.S. Government
agencies........................... $ 195,771 $ 192,107 $ 215,713 $ 202,947 $ 156,351 $ 156,331
Mortgage-backed securities............ 174 174 192 192 2,117 2,117
Obligations of states and political
subdivisions....................... 43,135 43,092 39,705 39,665 14,904 14,985
Other securities...................... 14,136 14,142 7,785 7,782 3,246 3,246
--------- --------- --------- --------- --------- ---------
Total ......................... $ 253,216 $ 249,515 $ 263,395 $ 250,586 $ 176,618 $ 176,679
========= ========= ========= ========= ========= =========
</TABLE>
(1) The book value on available-for-sale securities is adjusted to reflect the
unrealized gains or losses on those securities.
(2) The fair value of the Company's investment securities is based on quoted
market prices where available. If quoted market prices are not available,
fair values are based on market prices for comparable securities.
The following table reflects the book value, by contractual maturity, of
the Company's investment securities at December 31, 2000 and weighted average
yields (for tax-exempt obligations on a fully taxable equivalent basis assuming
a 34% tax rate) of such securities. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Maturity Distribution of Investment Securities
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
Securities of U.S. Government agencies....... $ - $ 250 $161,016 $34,505 $195,771/(1)/ $192,107
Mortgage-backed securities................... - - 57 117 174 174
Obligations of states and political
subdivisions................................ 1,454 5,483 9,350 26,848 43,135/(2)/ 43,092
Other securities............................. 997 1,879 - 11,260 14,136/(3)/ 14,142
------ ------ -------- ------- -------- --------
Total...................................... $2,451 $7,612 $170,423 $72,730 $253,216 $249,515
====== ====== ======== ======= ======== ========
Percentage of total.......................... 0.97% 3.01% 67.30% 28.72% 100.00%
Weighted average yield (FTE)/(4)/............ 7.95 7.85 6.62 7.08 6.80
</TABLE>
(1) All federal agency securities held by the Company have certain rights which
allow the issuer to call or prepay the obligation without prepayment
penalties.
(2) Includes approximately $1.0 million of securities earning interest at
floating rates repricing semi-annually.
(3) Includes approximately $8.1 million of Federal Home Loan Bank stock which
has historically paid quarterly dividends at a variable rate approximating
the federal funds rate.
(4) The weighted average yields (FTE) are based on book value.
15
<PAGE>
Deposits
The Company's bank subsidiary lending and investing activities are funded
primarily by deposits, approximately 73.7% of which were time deposits and 26.3%
of which were demand and savings deposits at December 31, 2000. Interest-bearing
deposits other than time deposits consist of transaction, savings and money
market accounts. These deposits comprise 16.8% of total deposits at December 31,
2000. Non-interest bearing demand deposits at December 31, 2000, constituted
approximately 9.5% of total deposits. The Company had $1.6 million of brokered
deposits at December 31, 2000.
Average Deposit Balances and Rates
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
Average Average Average
Average Rate Average Rate Average Rate
Amount Paid Amount Paid Amount Paid
--------- ---------- --------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing accounts......... $ 60,636 - $ 54,782 - $ 40,583 -
Interest-bearing accounts:
Transaction (NOW)................... 55,452 2.47% 51,615 2.21% 32,419 2.25%
Savings............................. 16,586 2.06 15,702 1.97 12,002 2.11
Money Market........................ 39,245 4.01 38,663 3.38 29,933 3.58
Time deposits less than $100,000.... 231,764 5.59 239,707 5.08 198,268 5.63
Time deposits $100,000 or more...... 224,231 6.01 177,938 5.00 87,751 5.58
-------- -------- --------
Total deposits................... $627,914 $578,407 $400,956
======== ======== ========
</TABLE>
The following table sets forth by time remaining to maturity, time deposits
in amounts of $100,000 or more at December 31, 2000.
Maturity distribution of time deposits of $100,000 and over
<TABLE>
<CAPTION>
December 31, 2000
----------------------
(Dollars in thousands)
Maturity
--------
<S> <C>
3 months or less............. $134,383
3 to 6 months................ 94,348
6 to 12 months............... 28,842
Over 12 months............... 7,772
</TABLE>
Interest Rate Sensitivity
The Company's interest rate risk management is the responsibility of the
Asset/Liability Management Committee, which reports to the Board of Directors.
This committee establishes policies that monitor and coordinate the Company's
sources, uses and pricing of funds. The committee is also involved with
management in the Company's planning and budgeting process.
The Company regularly reviews its exposure to changes in interest rates.
Among the factors considered are changes in the mix of earning assets and
interest-bearing liabilities, interest rate spreads and repricing periods.
Typically, the committee reviews on at least a quarterly basis the bank
subsidiary's relative ratio of rate sensitive assets to rate sensitive
liabilities and the related cumulative gap for different time periods.
Additionally, the committee and management utilize a simulation model in
assessing the Company's interest rate sensitivity.
This simulation modeling process projects a baseline net interest income
(assuming no changes in interest rate levels) and estimates changes to that
baseline net interest income resulting from changes in interest rate levels. The
Company relies primarily on the results of this model in evaluating its interest
rate risk. In addition to the data in the GAP table presented below, this model
incorporates a number of additional factors. These factors include: (1) the
expected exercise of call features on various assets and liabilities, (2) the
expected rates at which various rate sensitive assets and liabilities will
reprice, (3) the expected growth in various interest earning assets and
interest-bearing liabilities and the expected interest rates on such new assets
and liabilities, (4) the expected relative movements in different interest rate
indexes which are used as the basis for pricing or repricing various assets and
liabilities, (5) existing and expected contractual cap and floor rates on
various assets and liabilities, (6) expected changes in administered rates on
interest-bearing transaction, savings, money market and time deposit accounts
and the expected impact of competition on the pricing or repricing of such
accounts and (7) other factors. Inclusion of these
16
<PAGE>
factors in the model is intended to more accurately project the Company's
changes in net interest income resulting from an immediate and sustained
parallel shift in interest rates of up 100 basis points (bps), up 200 bps, down
100 bps and down 200 bps. While the Company believes this model provides a more
accurate projection of its interest rate risk, the model includes a number of
assumptions and predictions which may or may not be accurate. These assumptions
and predictions include inputs to compute baseline net interest income, growth
rates, competition and a variety of other factors that are difficult to
accurately predict. Accordingly, there can be no assurance the simulation model
will reflect future results.
The following table presents the simulation model's projected impact of an
immediate and sustained parallel shift in interest rates on the projected
baseline net interest income for a twelve month period commencing January 1,
2001.
<TABLE>
<CAPTION>
Change in $ Change in % Change in
Interest Rates Projected Baseline Projected Baseline
(in bps) Net Interest Income Net Interest Income
-------------- ------------------- -------------------
(Dollars in thousands)
<S> <C> <C>
+200 $(2,875) (11.1)%
+100 (1,269) (4.9)
-100 783 3.0
-200 (2,242) (8.6)
</TABLE>
In the event of a shift in interest rates, management may take certain
actions intended to mitigate the negative impact to net interest income or to
maximize the positive impact to net interest income. These actions may include,
but are not limited to, restructuring of earning assets and interest-bearing
liabilities, seeking alternative funding sources or investment opportunities and
modifying the pricing or terms of loans and deposits.
The Company's simple static GAP analysis is shown in the following table.
At December 31, 2000 the cumulative ratios of rate sensitive assets to rate
sensitive liabilities at six months and one year, respectively, were 44.4% and
51.1%. A financial institution is considered to be liability sensitive, or as
having a negative GAP, when the amount of its interest-bearing liabilities
maturing or repricing within a given time period exceeds the amount of its
interest earning assets also maturing or repricing within that time period.
Conversely, an institution is considered to be asset sensitive, or as having a
positive GAP, when the amount of its interest-bearing liabilities maturing and
repricing is less than the amount of its interest earning assets also maturing
or repricing during the same period. Generally, in a falling interest rate
environment, a negative GAP should result in an increase in net interest income,
and in a rising interest rate environment this negative GAP should adversely
affect net interest income. The converse would be true for a positive GAP. Due
to inherent limitations in any static GAP analysis and since conditions change
on a daily basis, these expectations may not reflect future results.
Rate Sensitive Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 2000
----------------------------------------------------------------------------------------
Rate Rate Cumulative Cumulative
Sensitive Sensitive Period Cumulative Gap to RSA/(1)/ to
Assets Liabilities Gap Gap Total RSA/(1)/ RSL/(2)/
--------- ----------- ---------- ------------ -------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Floating rate.............. $ 60,987 $ 52,275 $ 8,712 $ 8,712 1.14% 116.67%
Fixed rate repricing in:
1 day - 6 months......... 131,677 381,336 (249,659) (240,947) (31.46) 44.43
7 months - 12 months..... 84,677 109,660 (24,983) (265,930) (34.73) 51.05
1 - 2 years.............. 105,517 47,076 58,441 (207,489) (27.10) 64.85
2 - 3 years.............. 91,146 2,177 88,969 (118,520) (15.48) 80.00
3 - 4 years.............. 28,125 20,887 7,238 (111,282) (14.53) 81.86
4 - 5 years.............. 38,473 12,264 26,209 (85,073) (11.11) 86.40
Over 5 years............. 225,175 67,978 157,197 72,124 9.42 110.40
--------- --------- ---------
Total.................. $ 765,777 $ 693,653 $ 72,124
========= ========= =========
</TABLE>
(1) Rate Sensitive Assets
(2) Rate Sensitive Liabilities
17
<PAGE>
The data used in the table above is based on contractual repricing dates
for variable or adjustable rate instruments except for interest-bearing Now
accounts and regular savings accounts of which 50% are reflected as repricing
prorata during the first two years with the remaining 50% distributed over
future periods. Callable investments or borrowings are scheduled on their
contractual maturity unless the Company has received notification the investment
or borrowing will be called. In the event the Company has received notification
of call, the investment or borrowing is placed in the fixed rate category for
the time period in which the call occurs or is expected to occur. Other
financial instruments are scheduled on their contractual maturity. This simple
GAP analysis gives no consideration to a number of factors which can have a
material impact on the Company's interest rate risk position. Such factors
include among other things, call features on certain assets and liabilities,
prepayments, interest rate floors and caps on various assets and liabilities,
the current interest rates on assets and liabilities to be repriced in each
period, and the relative changes in interest rates on different types of assets
and liabilities.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and related Notes presented elsewhere
in the report have been prepared in accordance with accounting principles
generally accepted in the United States. This requires the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Company's operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Company are monetary in nature. As a result, interest
rates have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
Capital Compliance
Bank regulatory authorities in the United States impose certain capital
standards on all bank holding companies and banks. These capital standards
require compliance with certain minimum "risk-based capital ratios" and a
minimum "leverage ratio". The risk-based capital ratios consist of (1) Tier 1
capital (i.e. common stockholders' equity excluding goodwill, certain
intangibles and net unrealized gains on available for sale securities, but
including, subject to limitations, trust preferred securities and other
qualifying items) to total risk-weighted assets and (2) total capital (Tier 1
capital plus Tier 2 capital which is the qualifying portion of the allowance for
loan losses and the portion of trust preferred securities not counted as Tier 1
capital) to risk-weighted assets. The leverage ratio is measured as Tier 1
capital to adjusted quarterly average assets.
18
<PAGE>
The Company's risk-based and leverage capital ratios exceeded these minimum
requirements at December 31, 2000 and December 31, 1999 and are presented below,
followed by the capital ratios of the Company's bank subsidiary at December 31,
2000.
Consolidated Capital Ratios
<TABLE>
<CAPTION>
December 31,
---------------------------------
2000 1999
--------- ----------
(Dollars in thousands)
<S> <C> <C>
Tier 1 capital:
Stockholders' equity....................................................... $ 48,349 $ 43,874
Allowed amount of guaranteed preferred beneficial interest in
Company's subordinated debentures (trust preferred securities).......... 16,617 15,132
Plus net unrealized losses on available for sale securities ............... 1,501 1,523
Less goodwill and certain intangible assets................................ (3,064) (3,304)
--------- ---------
Total tier 1 capital................................................. $ 63,403 $ 57,225
Tier 2 capital:
Qualifying allowance for loan losses....................................... 6,606 6,072
Remaining amount of guaranteed preferred beneficial interest in
Company's subordinated debentures (trust preferred securities).......... 633 2,118
--------- ---------
Total risk-based capital............................................. $ 70,642 $ 65,415
========= =========
Risk-weighted assets........................................................... $ 550,516 $ 497,460
========= =========
Ratios at end of period:
Leverage capital........................................................... 7.57% 7.46%
Tier 1 risk-based capital.................................................. 11.52 11.50
Total risk-based capital................................................... 12.83 13.15
Minimum ratio guidelines:
Leverage capital/(1)/...................................................... 3.00% 3.00%
Tier 1 risk-based capital.................................................. 4.00 4.00
Total risk-based capital................................................... 8.00 8.00
</TABLE>
Capital Ratios of Bank Subsidiary
<TABLE>
<CAPTION>
December 31, 2000
----------------------
Bank of the Ozarks
(Dollars in thousands)
<S> <C>
Stockholders' equity - Tier 1......... $62,357
Leverage capital ..................... 7.45%
Tier 1 risk-based capital ............ 11.34
Total risk-based capital ............. 12.54
</TABLE>
(1) Regulatory authorities require institutions to operate at varying levels
(ranging from 100-200 basis points) above a minimum leverage ratio of 3%
depending upon capitalization classification.
19
<PAGE>
Liquidity and Capital Resources
Line of Credit. Prior to the fourth quarter of 2000 the Company maintained
a revolving line of credit for up to $22 million with a correspondent bank. In
the fourth quarter of 2000 the Company terminated their line of credit. No
borrowings had been outstanding for more than a year and no borrowing needs were
anticipated in the immediate future. Consequently, to reduce administration
associated with maintaining this line, the Company asked the correspondent bank
to terminate the agreement.
Trust Preferred Securities. On June 18, 1999 Ozark Capital Trust, the
Company's wholly owned Delaware trust subsidiary, sold to investors $17.3
million of 9% trust preferred securities. The proceeds were used to purchase an
equal principal amount of subordinated debentures of Bank of the Ozarks, Inc.
Subject to certain limitations, the trust preferred securities qualify as Tier 1
capital and are presented in the Consolidated Balance Sheets as "Guaranteed
preferred beneficial interest in the Company's subordinated debentures." Both
the trust preferred securities and the subordinated debentures will mature on
June 18, 2029; however, they may be prepaid, subject to regulatory approval,
prior to maturity at any time on or after June 18, 2004, or earlier upon certain
changes in tax or investment company laws or regulatory capital requirements.
The net proceeds from this offering were used to repay $12.5 million outstanding
borrowings under the Company's revolving line of credit with the balance of the
proceeds used for general corporate purposes including a $3.0 million capital
investment in the Company's bank subsidiary.
Growth and Expansion. On May 30, 2000 the Company opened its 24/th/ banking
office located in Yellville, Arkansas, the county seat of Marion County. This
new office is an expansion of the Company's operations in North Arkansas. During
2000 the Company broke ground for two new banking offices at 2520 South Zero
Street in Fort Smith, Arkansas and 10300 Stagecoach Road in the Otter Creek area
of Little Rock, Arkansas. The Company's new Fort Smith office will be its second
in that city and is expected to open during the first half of 2001. The
Company's new Otter Creek office will be the Company's seventh office in the
Little Rock and North Little Rock market and is expected to open during the
second quarter of 2001. The Company has submitted application for approval of a
branch location in a Wal-Mart Supercenter located in Bryant, Arkansas. Opening
is expected to occur in the first half of 2001 subject to regulatory approval.
Capital expenditures were $1.6 million in 2000 and are projected to be in the
range of $2.0-$2.5 million for 2001.
Bank Liquidity. Liquidity represents an institution's ability to provide
funds to satisfy demands from depositors and borrowers by either converting
assets into cash or accessing new or existing sources of incremental funds.
Generally, the Company's bank subsidiary relies on customer deposits and loan
repayments as their primary sources of funds. The Company has used these funds,
together with FHLB advances and other borrowings, to make loans, acquire
investment securities and other assets and to fund continuing operations.
Deposit levels may be affected by a number of factors, including rates paid
by competitors, general interest rate levels, returns available to customers on
alternative investments and general economic conditions. Loan repayments are a
relatively stable source of funds, but such loans generally are not readily
convertible to cash. Accordingly, the Company may be required from time to time
to rely on secondary sources of liquidity to meet loan and withdrawal demands or
otherwise fund operations. Such sources include FHLB advances, federal funds
lines of credit from correspondent banks and Federal Reserve Bank borrowings
At December 31, 2000, the Company's bank subsidiary had substantial unused
borrowing availability. This availability was primarily comprised of the
following three sources: (1) $188.5 million of available blanket borrowing
capacity with the Federal Home Loan Bank which offers various terms, (2) $8.2
million of securities available to pledge on a federal funds line of credit or
for repurchase agreements or other borrowings and (3) up to $4.4 million from
several borrowing programs of the Federal Reserve Bank.
Management anticipates the Company's bank subsidiary will continue to rely
primarily on customer deposits and loan repayments to provide liquidity.
Additionally, where necessary, the above described borrowings will be used to
augment the Company's primary funding sources.
Dividend Policy. In 2000 the Company paid dividends of $0.42 per share. In
1999 and 1998 the Company paid dividends of $0.40 and $0.23 per share,
respectively. Commencing in the third quarter of 2000 the dividend was increased
from $0.10 per quarter to $0.11 per quarter. The determination of future
dividends on the Company's common stock will depend on conditions existing at
that time. The Company's goal is to continue the current $0.11 quarterly
dividend with consideration to future changes depending on the Company's
earnings, capital and liquidity needs.
20
<PAGE>
Year 2000
The Company believes it has completed its Year 2000 Project as scheduled.
As of December 31, 2000, the Company's computer and other systems with imbedded
microchips have operated without Year 2000 related problems and appear to be
Year 2000 compliant. The Company is not aware that any of its software and
hardware vendors, major loan customers, correspondent banks or governmental
agencies with which the Company interacts have experienced material Year 2000
related problems. While the Company believes all of its critical systems are
Year 2000 ready, there can be no guarantee the Company has discovered all
possible failure points including all of its systems, non-ready third parties
whose systems and failures could impact the Company, or other uncertainties.
The Company's aggregate expenses incurred since 1996 with respect to its
Year 2000 Project were less than $130,000, all of which were expensed as of
December 31, 1999. A significant portion of these costs were represented by the
redeployment of existing staff during 1998 and 1999 to the Year 2000 project. No
projects under consideration by the Company have been deferred because of Year
2000 efforts. The Company does not anticipate any additional material costs
relating to the Year 2000 issue.
Forward-Looking Information
This Management's Discussion and Analysis of Financial Condition and
Results of Operations, other filings made by the Company with the Securities and
Exchange Commission and other oral and written statements or reports by the
Company and its management, include certain forward-looking statements
including, without limitation, statements with respect to net interest margin,
net interest income and anticipated future operating and financial performance,
statements regarding asset quality and nonperforming loans, growth opportunities
and growth rates, acquisition opportunities and other similar forecasts and
statements of expectation. Words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Forward-looking statements made
by the Company and its management are based on estimates, projections, beliefs
and assumptions of management at the time of such statements and are not
guarantees of future performance. The Company disclaims any obligation to update
or revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management due to certain risks, uncertainties and assumptions. Certain factors
that may affect operating results of the Company include, but are not limited
to, the following: (1) potential delays or other problems in implementing the
Company's growth and expansion strategy; (2) the ability to attract new deposits
and loans; (3) interest rate fluctuations; (4) competitive factors and pricing
pressures; (5) general economic conditions; and (6) changes in legal and
regulatory requirements, as well as, other factors described in this and other
Company reports and statements. Should one or more of the foregoing risks
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described in the forward-looking
statements.
21
<PAGE>
Summary of Quarterly Results of
Operations, Common Stock Market Prices and Dividends
<TABLE>
<CAPTION>
2000 - Three Months Ended
----------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------- --------- ---------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
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
<CAPTION>
1999 - Three Months Ended
----------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------- --------- ---------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Total interest income........................... $ 11,730 $ 12,617 $ 13,234 $ 13,993
Total interest expense.......................... 6,421 6,730 7,012 7,618
-------- -------- -------- ---------
Net interest income.......................... 5,309 5,887 6,222 6,375
Provision for loan losses....................... 611 580 578 716
Non-interest income............................. 1,269 1,303 1,293 1,282
Non-interest expense............................ 3,768 4,241 4,195 4,261
Income taxes.................................... 673 658 639 539
Distributions on trust preferred securities .... - 52 397 397
======== ======== ======== =========
Net income................................... $ 1,526 $ 1,659 $ 1,706 $ 1,744
======== ======== ======== =========
Per share:
Earnings - diluted........................... $ 0.40 $ 0.44 $ 0.45 $ 0.46
Cash dividends............................... 0.10 0.10 0.10 0.10
Bid price per common share:
Low.......................................... $ 20.50 $ 17.00 $ 16.75 $ 16.63
High......................................... 23.25 21.38 21.25 20.63
</TABLE>
See Note 14 to Consolidated Financial Statements for discussion of dividend
restrictions.
22
<PAGE>
Report of Independent Auditors
------------------------------
Board of Directors and Shareholders
Bank of the Ozarks, Inc.
We have audited the accompanying consolidated balance sheets of Bank of the
Ozarks, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bank of the
Ozarks, Inc. and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
--------------------------------
Ernst & Young LLP
Little Rock, Arkansas
January 11, 2001
23
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
2000 1999
----------------- -----------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
ASSETS
------
Cash and due from banks $ 20,523 $ 24,279
Interest-bearing deposits 17 283
---------- ---------
Cash and cash equivalents 20,540 24,562
Investment securities - available for sale 51,696 44,837
Investment securities - held to maturity (estimated market value: $197,819 in
2000 and $205,749 in 1999) 201,520 218,558
Federal funds sold 2,000 -
Loans, net of unearned income 510,544 467,131
Allowance for loan losses (6,606) (6,072)
---------- ---------
Net loans 503,938 461,059
Premises and equipment, net 30,535 30,547
Foreclosed assets held for sale, net 1,600 2,238
Interest receivable 8,894 7,174
Intangible assets, net 3,064 3,323
Other 3,165 3,744
---------- ---------
Total assets $ 826,952 $ 796,042
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits
Demand non-interest bearing $ 64,572 $ 56,177
Savings and interest-bearing transaction 113,606 105,211
Time 499,505 434,542
---------- ---------
Total deposits 677,683 595,930
Repurchase agreements with customers 13,839 9,026
Other borrowings 66,703 126,989
Accrued interest and other liabilities 3,128 2,973
---------- ---------
Total liabilities 761,353 734,918
Guaranteed preferred beneficial interest in the Company's
subordinated debentures 17,250 17,250
Commitments and contingencies - -
Stockholders' equity
Preferred stock; $0.01 par value, 1,000,000 shares authorized, no shares
issued and outstanding - -
Common stock; $0.01 par value, 10,000,000 shares authorized, 3,779,555
shares issued and outstanding in 2000 and 1999 38 38
Additional paid-in capital 14,314 14,314
Retained earnings 35,498 31,045
Accumulated other comprehensive loss (1,501) (1,523)
---------- ---------
Total stockholders' equity 48,349 43,874
---------- ---------
Total liabilities and stockholders' equity $ 826,952 $ 796,042
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
2000 1999 1998
------------- ------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Interest income
Loans $ 43,451 $ 37,008 $ 31,168
Investment securities - taxable 15,331 12,847 6,654
- nontaxable 1,953 1,675 766
Deposits with banks and federal funds sold 17 45 294
--------- --------- ---------
Total interest income 60,752 51,575 38,882
--------- --------- ---------
Interest expense
Deposits 29,701 23,831 18,118
Repurchase agreements with customers 680 132 4
Other borrowings 6,708 3,819 2,396
--------- --------- ---------
Total interest expense 37,089 27,782 20,518
--------- --------- ---------
Net interest income 23,663 23,793 18,364
Provision for loan losses (2,325) (2,485) (2,026)
--------- --------- ---------
Net interest income after provision for loan losses 21,338 21,308 16,338
--------- --------- ---------
Other income
Trust income 592 479 335
Service charges on deposit accounts 3,380 2,499 1,372
Other income, charges and fees 1,530 1,936 2,792
Gain on sale of securities - 69 255
Other 40 164 277
--------- --------- ---------
Total other income 5,542 5,147 5,031
--------- --------- ---------
Other expense
Salaries and employee benefits 8,928 8,752 7,197
Net occupancy and equipment 2,910 2,655 1,961
Other operating expenses 5,126 5,057 3,961
--------- --------- ---------
Total other expense 16,964 16,464 13,119
--------- --------- ---------
Income before income taxes and trust distribution 9,916 9,991 8,250
Distributions on trust preferred securities 1,587 846 -
Provision for income taxes 2,289 2,510 2,621
--------- --------- ---------
Net income $ 6,040 $ 6,635 $ 5,629
========= ========= =========
Basic earnings per common share $ 1.60 $ 1.76 $ 1.49
========= ========= =========
Diluted earnings per common share $ 1.60 $ 1.75 $ 1.47
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Accumulated Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income (Loss) Total
------- ---------- -------- ----------------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1998 $ 38 $ 14,314 $ 21,162 $ 152 $ 35,666
Comprehensive income:
Net income - - 5,629 - 5,629
Other comprehensive income
Unrealized gains on available for
sale securities net of $35 tax
effect - - - 57 57
Less: reclassification adjustment
for gains included in income net of
$79 tax effect - - - (128) (128)
---------
Comprehensive income 5,558
Dividends paid, $0.23 per share - - (869) - (869)
------ -------- -------- -------- ---------
Balance - December 31, 1998 38 14,314 25,922 81 40,355
Comprehensive income:
Net income - - 6,635 - 6,635
Other comprehensive income (loss)
Unrealized losses on available for
sale securities net of $966 tax
effect - - - (1,558) (1,558)
Less: reclassification adjustment
for gains included in income net of
$30 tax effect - - - (46) (46)
---------
Comprehensive income 5,031
Dividends paid, $0.40 per share - - (1,512) - (1,512)
------ -------- -------- -------- ---------
Balance - December 31, 1999 38 14,314 31,045 (1,523) 43,874
Comprehensive income:
Net income - - 6,040 - 6,040
Other comprehensive income
Unrealized gains on available for
sale securities net of $14 tax
effect - - - 22 22
Reclassification adjustment for
gains included in income - - - - -
---------
Comprehensive income 6,062
Dividends paid, $0.42 per share (1,587) (1,587)
------ -------- -------- -------- ---------
Balance - December 31, 2000 $ 38 $ 14,314 $ 35,498 $ (1,501) $ 48,349
====== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
2000 1999 1998
-------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 6,040 $ 6,635 $ 5,629
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,490 1,375 1,043
Amortization 293 262 173
Provision for loan losses 2,325 2,485 2,026
Provision for losses on foreclosed assets 183 90 35
Amortization and accretion on investment securities (104) (132) (115)
Gain on disposition of investments - (69) (255)
Gain on sale of loans - (4) -
(Increase) decrease in mortgage loans held for sale 545 4,308 (3,750)
Gain on disposition of premises and equipment (8) (36) (14)
(Gain) loss on disposition of foreclosed assets 45 28 (98)
Deferred income taxes 405 (139) 222
Changes in assets and liabilities:
Interest receivable (1,720) (1,657) (2,502)
Other assets, net 128 (1,500) (305)
Accrued interest and other liabilities 155 1,017 74
-------- --------- ---------
Net cash provided by operating activities 9,777 12,663 2,163
-------- --------- ---------
Cash flows from investing activities
Acquisitions, net of funds acquired - - 22,123
Proceeds from sales and maturities of investment securities
available for sale 316 19,922 54,036
Purchases of investment securities available for sale (7,093) (49,635) (20,260)
Proceeds from maturities of investment securities held to maturity 20,176 42,293 67,386
Purchases of investment securities held to maturity (3,080) (101,756) (234,804)
Increase (decrease) in federal funds sold (2,000) - 3,149
Net increase in loans (48,862) (89,630) (110,019)
Proceeds from sale of loans - 994 -
Proceeds from dispositions of bank premises and equipment 99 317 30
Purchases of bank premises and equipment (1,570) (5,048) (14,109)
Proceeds from dispositions of foreclosed assets 3,524 1,454 525
-------- --------- ---------
Net cash used in investing activities (38,490) (181,089) (231,943)
-------- --------- ---------
Cash flows from financing activities
Net increase in deposits 81,752 66,890 208,455
Net (repayments) proceeds from other borrowings (60,287) 87,718 20,182
Net increase in repurchase agreements with customers 4,813 7,618 1,408
Proceeds from trust preferred - 17,250 -
Dividends paid (1,587) (1,512) (869)
-------- --------- ---------
Net cash provided by financing activities 24,691 177,964 229,176
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents (4,022) 9,538 (604)
Cash and cash equivalents - beginning of year 24,562 15,024 15,628
-------- --------- ---------
Cash and cash equivalents - end of year $ 20,540 $ 24,562 $ 15,024
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Organization - Bank of the Ozarks, Inc. (the "Company") is a bank
------------
holding company headquartered in Little Rock, Arkansas, which operates
under the rules and regulations of the Board of Governors of the Federal
Reserve System and owns a state chartered bank and Ozark Capital Trust, a
Delaware business trust. The bank is subject to the regulation of certain
federal and state agencies and undergoes periodic examinations by those
regulatory authorities. The bank has offices located in northern, western,
and central Arkansas.
Merger of subsidiaries - During 1999 the Company consolidated its
----------------------
federal savings bank and two banking subsidiaries into a single banking
subsidiary. This resulted in the Company owning one state chartered bank
subsidiary which is named Bank of the Ozarks.
Principles of consolidation - The consolidated financial statements
---------------------------
include the accounts of the Company and its wholly owned subsidiaries.
Significant intercompany transactions and amounts have been eliminated in
consolidation.
Use of estimates - The preparation of financial statements in
----------------
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents - For purposes of reporting cash flows, cash
-------------------------
and cash equivalents include cash on hand, amounts due from banks and
interest-bearing deposits with banks.
Investment securities - Management determines the appropriate
---------------------
classification of debt securities at the time of purchase and reevaluates
such designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost.
Debt securities not classified as held-to-maturity or trading and
marketable equity securities not classified as trading are classified as
available-for-sale. Available-for-sale securities are stated at estimated
fair value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity
or available-for-sale is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed
securities, over the estimated life of the security. Such amortization is
included in interest income from investments. Interest and dividends are
included in interest income from investments.
Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. Gains
or losses on the sale of securities are recognized on the specific
identification method at the time of sale.
Loans - Loans receivable that management has the intent and ability to
-----
hold for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal adjusted for any charge-offs, deferred fees
or costs on originated loans, and unamortized premiums or discounts on
purchased loans. Unearned discounts on certain installment loans are
recognized as income over the terms by the rule of 78's interest method
which approximates the interest method. The Company discontinued the use of
the rule of 78's method on loans originated in 1999, and interest on these
loans is recognized using the interest method. Unearned purchased discounts
are recorded as income over the life of the loans utilizing the interest
method to achieve a constant yield. Interest on other loans is calculated
by using the simple interest method on daily balances of the principal
amount outstanding. Loan origination fees and direct origination costs are
capitalized and recognized as adjustments to yields on the related loans.
Allowance for loan losses - The allowance for loan losses is
-------------------------
established through a provision for loan losses charged against income.
Loans deemed to be uncollectible are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely, and subsequent recoveries, if any, are credited to the allowance.
The allowance is maintained at a level that management believes will
be adequate to absorb losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, historical loan loss
experience and current economic and business conditions that may affect the
borrowers' ability to pay or the value of the collateral securing the
loans. The Company's policy generally is to place a loan on nonaccrual
status when payment of principal or interest is contractually past due 90
days, or earlier when concern exists as to the ultimate collection of
principal and interest. The Company continues to accrue interest on certain
loans contractually past due 90 days if such loans are both well secured
and in the process of collection.
The Company considers a loan to be impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms thereof. The
Company applies this policy even if delays or shortfalls in payment are
expected to be insignificant.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
All nonaccrual loans and all loans that have been restructured from their
original contractual terms are considered impaired loans. The aggregate
amount of impairment of loans is utilized in evaluating the adequacy of the
allowance for loan losses and amount of provisions thereto. Losses on
impaired loans are charged against the allowance for loan losses when in
the process of collection it appears likely that such losses will be
realized. The accrual of interest on impaired loans is discontinued, when
in management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
Premises and equipment - Premises and equipment are stated at cost
----------------------
less accumulated depreciation and amortization. Depreciation and
amortization are computed on a straight-line basis over the estimated
useful lives of the related assets. Estimated book depreciation lives for
the major classes of assets are 20 to 50 years for buildings, 40 years for
leaseholds and 3 to 15 years for furniture, fixtures and equipment.
Accelerated depreciation methods are used for tax purposes.
Foreclosed assets held for sale - Real estate and personal properties
-------------------------------
acquired through or in lieu of loan foreclosure are to be sold and are
initially recorded at fair value at the date of foreclosure establishing a
new cost basis. After foreclosure, real property is generally amortized
over 60 months unless regulatory authority approves the write off over an
extended period.
Valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value less cost
to sell. Gains and losses from the sale of other real estate are recorded
in other income, and expenses used to maintain the properties are included
as operating expenses.
Income taxes - The Company utilizes the liability method in accounting
------------
for income taxes. Under this method, deferred tax assets and liabilities
are determined based upon the difference between the values of the assets
and liabilities as reflected in the financial statement and their related
tax basis using enacted tax rates in effect for the year in which the
differences are expected to be recovered or settled. As changes in tax laws
or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
The Company and its subsidiaries file consolidated tax returns. Its
subsidiaries provide for income taxes on a separate return basis, and remit
to the Company amounts determined to be currently payable.
Trust department income - Property, other than cash deposits, held by
-----------------------
the Company's trust department in fiduciary or agency capacities for its
customers are not included in the accompanying consolidated financial
statements, since such items are not assets of the Company. Trust
department income has been recognized on the cash basis in accordance with
customary banking practice, which does not differ materially from the
accrual method.
Intangible assets - Intangible assets consist of goodwill and core
-----------------
deposit intangibles. These assets are being amortized over periods ranging
from 10 to 40 years. Goodwill represents the excess purchase price over the
fair value of net assets acquired in business acquisitions. Core deposit
intangibles represent premiums paid for deposits acquired. Accumulated
amortization of intangibles totaled $1,524 and $1,449 at December 31, 2000
and 1999, respectively.
Earnings per share - Basic earnings per share has been calculated
------------------
based on the weighted average number of shares outstanding. Diluted
earnings per share has been calculated based on the weighted average number
of shares outstanding after consideration of the dilutive effect of the
Company's outstanding stock options.
Financial instruments - In the ordinary course of business, the
---------------------
Company has entered into off-balance sheet financial instruments consisting
of commitments to extend credit, commitments under credit card
arrangements, and letters of credit. Such financial instruments are
recorded in the financial statements when they are funded or related fees
are incurred or received.
Advertising and public relations expense - Advertising and public
----------------------------------------
relations expense is expensed as incurred and totaled $551, $612 and $566
for the years ended December 31, 2000, 1999 and 1998, respectively.
Stock-based compensation - The Company has elected to follow
------------------------
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("ABP 25") and related interpretations in accounting for its
employee stock options. Under ABP 25, because the exercise price of
employee stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation".
Segment Disclosures - On December 31, 1998, the Company adopted SFAS
-------------------
No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 established standards for reporting information
about operating segments and related disclosures about products and
services, geographic areas and major customers. As the Company operates in
only one segment - community banking - the adoption of SFAS 131 did not
have a material effect on the primary financial statements or the
disclosure of segment information. No revenues are derived from foreign
countries and no single external customer comprises more than 10% of the
Company's revenues.
Derivatives and Hedging Activities - In June 1998, the Financial
----------------------------------
Accounting Standards Board issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133, which
requires the Company to recognize all derivatives on the balance sheet at
fair value, was adopted by the Company effective July 1, 1998. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives are either offset against the change in fair
value of the assets, liabilities, or firm
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portions
of a derivative's change in fair value will be immediately recognized in
earnings. The adoption of SFAS No. 133 did not have a significant impact on
the Company's financial position or results of operations. In connection
with the adoption of SFAS No. 133, the Company transferred investment
securities with a carrying value of $25,795 and unrealized gains of $167
from its held-to-maturity to available-for-sale portfolio.
Reclassifications - Certain reclassifications of 1999 and 1998 amounts
-----------------
have been made to conform with the 2000 financial statements presentation.
2. Investment Securities
The following is a summary of the amortized cost and estimated market
values of investment securities:
<TABLE>
<CAPTION>
December 31, 2000
-----------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities - available for sale:
Securities of United States
government and agencies $ - $ - $ - $ -
Mortgage-backed securities 178 - (4) 174
State and political subdivisions 42,943 - (2,377) 40,566
Other securities 11,006 72 (122) 10,956
--------- ---------- ---------- ---------
Total securities - available for sale $ 54,127 $ 72 $ (2,503) $ 51,696
========= ========== ========== =========
Securities - held to maturity:
Securities of United States
government and agencies $ 195,771 $ - $ (3,664) $ 192,107
State and political subdivisions 2,569 16 (59) 2,526
Other securities 3,180 6 - 3,186
--------- ---------- ---------- ---------
Total securities - held to maturity $ 201,520 $ 22 $ (3,723) $ 197,819
========= ========== ========== =========
<CAPTION>
December 31, 1999
-----------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities - available for sale:
Securities of United States
government and agencies $ - $ - $ - $ -
Mortgage-backed securities 201 - (9) 192
State and political subdivisions 39,488 - (2,528) 36,960
Other securities 7,615 70 - 7,685
--------- ---------- ---------- ---------
Total securities - available for sale $ 47,304 $ 70 $ (2,537) $ 44,837
========= ========== ========== =========
Securities - held to maturity:
Securities of United States
government and agencies $ 215,713 $ - $ (12,766) $ 202,947
State and political subdivisions 2,745 14 (54) 2,705
Other securities 100 - (3) 97
--------- ---------- ---------- ---------
Total securities - held to maturity $ 218,558 $ 14 $ (12,823) $ 205,749
========= ========== ========== =========
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
The amortized cost and estimated market value by contractual maturity of
investment securities classified as available-for-sale and held-to-maturity at
December 31, 2000 are as follows:
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------------ ------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,214 $ 2,212 $ 239 $ 239
Due from one year to five years 6,463 6,260 1,352 1,351
Due from five years to ten years 8,808 8,479 161,944 159,302
Due after ten years 36,642 34,745 37,985 36,927
--------- --------- --------- ---------
Totals $ 54,127 $ 51,696 $ 201,520 $ 197,819
========= ========= ========= =========
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
For purposes of the maturity table, mortgage-backed securities which are
not due at a single maturity date have been allocated over maturity groupings
based on anticipated maturities. The mortgage-backed securities may mature
earlier than their weighted average contractual maturities because of principal
prepayments.
During the year ended December 31, 2000 no investment securities available-
for-sale were sold. During the years ended December 31, 1999 and 1998,
investment securities available-for-sale with a fair value at the date of sale
of $18,408 and $41,613, respectively, were sold. The gross realized gains on
such sales in 1999 and 1998 totaled $78 and $322, respectively. The gross
realized losses totaled $9 and $67, respectively. The income tax expenses
related to net security gains was $23 and $87 in 1999 and 1998, respectively.
The Bank had no trading securities during 2000, 1999 or 1998.
Assets, principally investment securities, having a carrying value of
approximately $229,853 and $202,660 at December 31, 2000 and 1999, respectively,
were pledged to secure public deposits and for other purposes required or
permitted by law.
3. Loans
The following is a summary of the loan portfolio by principal categories:
<TABLE>
<CAPTION>
December 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Real Estate
Residential 1-4 family $144,920 $136,856
Non-farm/non-residential 134,726 101,766
Agricultural 38,808 20,396
Construction/land development 42,354 28,294
Multifamily residential 8,367 4,687
Consumer 58,430 81,753
Commercial and industrial 63,799 70,012
Agricultural (non-real estate) 14,605 19,947
Other 4,535 3,420
-------- --------
Loans, net of unearned discounts $510,544 $467,131
======== ========
</TABLE>
These loan categories are presented net of unearned discounts, unearned
purchase discounts and deferred costs totaling $799 at December 31, 2000 and
$812 at December 31, 1999. Loans on which the accrual of interest has been
discontinued aggregated $1,880 and $1,972 at December 31, 2000 and 1999,
respectively.
Mortgage loans held for resale of $1,832 and $2,377 at December 31, 2000
and 1999, respectively, are included in residential 1-4 family loans. The
carrying value of these loans approximate their fair value. Other income,
charges and fees include mortgage lending income of $849, $1,306 and $2,136
during 2000, 1999 and 1998, respectively.
4. Allowance for Loan Losses
The following is a summary of activity within the allowance for loan
losses:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Balance - beginning of year $ 6,072 $ 4,689 $ 3,737
Loans charged-off (1,998) (1,225) (1,149)
Recoveries on loans previously charged-off 207 123 75
-------- -------- --------
Net charge-offs (1,791) (1,102) (1,074)
Provision charged to operating expense 2,325 2,485 2,026
-------- -------- --------
Balance - end of year $ 6,606 $ 6,072 $ 4,689
======== ======== ========
</TABLE>
Impairment of loans having carrying values of $1,880 and $1,972 (all of
which were on a non-accrual basis) at December 31, 2000 and 1999,
respectively, have been recognized in conformity with SFAS No. 114, as
amended by SFAS No. 118. The total allowance for credit losses related to
these loans was $212 and $276 at December 31, 2000 and 1999, respectively.
The average carrying value of impaired loans was $2,748, $3,611 and $1,840,
for the years ended December 31, 2000, 1999 and 1998, respectively. The
Company does not segregate income recognized on a cash basis in its financial
records, and thus, such disclosure is not practicable. For impairment
recognized in conformity with SFAS 114, as amended, the entire change in
present value of expected cash flows is reported as provision for loan losses
in the same manner in which impairment
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
initially was recognized or as a reduction in the amount of provision for
loan losses that otherwise would be reported.
Real estate securing loans having a carrying value of $2,641 and $3,625
was transferred to foreclosed assets held for sale in 2000 and 1999,
respectively. The bank is not committed to lend additional funds to debtors
whose loans have been modified.
5. Premises and Equipment
The following is a summary of premises and equipment:
December 31,
--------------------
2000 1999
------- -------
Land $ 7,289 $ 7,284
Construction in process 369 60
Buildings and improvements 19,408 18,130
Leasehold improvements 2,460 2,243
Equipment 7,926 8,384
------- -------
37,452 36,101
Accumulated depreciation (6,917) (5,554)
------- -------
Premises and equipment, net $30,535 $30,547
======= =======
The Company capitalized $52, $51 and $275 of interest on construction
projects during the years ended December 31, 2000, 1999 and 1998,
respectively. Included in occupancy expense is rent of approximately $123,
$71, and $45 incurred under noncancelable operating leases in 2000, 1999 and
1998, respectively, for leases of real estate in connection with buildings and
premises. These leases contain certain renewal and purchase options according
to the terms of the agreements. Future amounts due under noncancelable
operating leases at December 31, 2000 are $101 -- 2001, $76 -- 2002, $76 --
2003, $76 -- 2004, $60 -- 2005 and $849 - thereafter.
6. Deposits
The aggregate amount of time deposits with a minimum denomination of $100
was $265,345 and $190,900 at December 31, 2000 and 1999, respectively.
The following is a summary of the scheduled maturities of all time
deposits:
December 31,
-----------------------
2000 1999
-------- ---------
Up to one year $470,707 $384,365
One year to two years 24,543 43,859
Two years to three years 1,954 3,653
Three years to four years 1,019 1,096
Four years to five years 556 811
Thereafter 726 758
-------- --------
Total time deposits $499,505 $434,542
======== ========
7. Borrowings
Short-term borrowings with maturities less than one year include FHLB
advances, non-customer repurchase agreements, treasury, tax and loan note
accounts and federal funds purchased. The following is a summary of
information relating to the short-term borrowings:
December 31,
----------------------
2000 1999
------- -------
Average annual balance $28,700 $20,793
December 31 balance 1,062 38,206
Maximum month-end balance during year 45,702 38,206
Interest rate:
Weighted average 6.37% 4.47%
December 31 5.00% 4.53%
The following is a summary of long term borrowings:
<TABLE>
<CAPTION>
December 31,
----------------------------
2000 1999
---------- ----------
<S> <C> <C>
FHLB advances with original maturities exceeding one year. Interest rates
range from 5.93% to 6.43% at December 31, 2000. At December 31, 2000, the
Company's bank subsidiary had remaining $188,500 of unused blanket FHLB
borrowing availability. The FHLB maintains as collateral a blanket lien
on a portion of the Company's real estate, commercial and agricultural
loans. $65,581 $97,725
Other 60 84
---------- ----------
$65,641 $97,809
========== ==========
</TABLE>
Maturities of long term borrowings at December 31, 2000 are as follows:
2001--$4,198; 2002--$198; 2003--$258; 2004--$198; 2005--$198; 2006--$197; 2007-
- -$197; 2008--$197 and 2010 -- $60,000. FHLB advances of $60 million maturing in
2010 may be called quarterly but the Company has the option to refinance on a
long-term basis any amounts called.
During 2000 the Company terminated their revolving line of credit for up to
$22 million with a correspondent bank. No borrowings were outstanding on the
line of credit at December 31, 1999.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
8. Guaranteed Preferred Beneficial Interest in the Company's Subordinated
Debentures
On June 18, 1999 Ozark Capital Trust ("Ozark Capital"), a Delaware business
trust wholly owned by Bank of the Ozarks, Inc., sold to investors in a public
underwritten offering $17.3 million of 9% cumulative trust preferred
securities. The proceeds were used to purchase an equal principal amount of
9% subordinated debentures of Bank of the Ozarks, Inc. Bank of the Ozarks,
Inc. has, through various contractual arrangements, fully and unconditionally
guaranteed all obligations of Ozark Capital on a subordinated basis with
respect to the preferred securities. Subject to certain limitations, the
preferred securities qualify as Tier 1 capital and are presented in the
Consolidated Balance Sheets as "Guaranteed preferred beneficial interest in
the Company's subordinated debentures." The sole asset of Ozark Capital is
the subordinated debentures issued by Bank of the Ozarks, Inc. Both the
preferred securities of Ozark Capital and the subordinated debentures of Bank
of the Ozarks, Inc. will mature on June 18, 2029; however, they may be
prepaid, subject to regulatory approval, prior to maturity at any time on or
after June 18, 2004, or earlier upon certain changes in tax or investment
company laws or regulatory capital requirements.
9. Income Taxes
The following is a summary of the components of the provision (benefit) for
income taxes:
Year Ended December 31,
-------------------------------
2000 1999 1998
-------- -------- --------
Current:
Federal $1,884 $2,814 $2,363
State - (165) 36
-------- -------- -------
Total current 1,884 2,649 2,399
-------- -------- -------
Deferred:
Federal 405 (146) 180
State - 7 42
-------- -------- -------
Total deferred 405 (139) 222
-------- -------- -------
Provision for income taxes $2,289 $2,510 $2,621
======== ======== =======
The reconciliation between the statutory federal income tax rate and
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit - - 0.6
Effect of non-taxable interest income (7.1) (5.7) (3.7)
Refund of 1992 state income tax assessment - (1.1) -
Other 0.6 0.2 0.9
------------- ------------- ------------
Effective income tax rate 27.5% 27.4% 31.8%
============= ============= ============
</TABLE>
In 1999 the Company recorded a tax refund for 1992 state income taxes.
The state agreed to a settlement with respect to a 1992 tax assessment the
Company had paid in 1997. This settlement resulted in a refund of $153 of tax
and $91 of interest. These were recorded in 1999 as a credit to tax expense
and other income, respectively.
The types of temporary differences between the tax basis of assets and
liabilities and their financial reporting amounts that give rise to deferred
income tax assets and liabilities and their approximate tax effects are as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
2000 1999
------------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $2,153 $1,913
Valuation of foreclosed assets 40 13
Unrealized depreciation on
securities available for sale 931 945
------------- ------------
Gross deferred tax assets 3,124 2,871
Deferred tax liabilities:
Accelerated depreciation on
premises and equipment 1,269 807
Other 418 208
------------- ------------
Gross deferred tax liabilities 1,687 1,015
Net deferred tax assets included
------------- ------------
in other assets $1,437 $1,856
============= ============
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
10. Employee Benefit Plans
Employee Stock Ownership Plan - The Company had an employee stock ownership
-----------------------------
plan ("ESOP") to provide benefits to substantially all employees of the
Company. The ESOP was merged into the 401(k) Plan in 1999. The Company had
historically made annual contributions to the plan as determined solely by
the Board of Directors. The Company made no contributions in 1999 and 1998.
401(k) Plan - In May 1997 the Company established a qualified retirement
-----------
plan, with a salary deferral feature designed to qualify under Section 401
of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan permits
the employees of the Company to defer a portion of their compensation in
accordance with the provisions of Section 401(k) of the Code. Matching
contributions may be made in amounts and at times determined by the
Company. Certain other statutory limitations with respect to the Company's
contribution under the 401(k) Plan also apply. Amounts contributed by the
Company for a participant will vest over six years and will be held in
trust until distributed pursuant to the terms of the 401(k) Plan.
Employees of the Company are eligible to participate in the 401(k) Plan
when they meet certain requirements concerning minimum age and period of
credited service. All contributions to the 401(k) Plan will be invested in
accordance with participant elections among certain investment options.
Distributions from participant accounts will not be permitted before age 65,
except in the event of death, permanent disability, certain financial
hardships or termination of employment. The Company made matching
contributions to the 401(k) plan during 2000, 1999 and 1998 of $160, $146
and $99, respectively.
11. Stock Options
The Company has a nonqualified stock option plan for certain key employees
and officers of the Company. This plan provides for the granting of
incentive nonqualified options to purchase up to 285,000 shares of common
stock in the Company. No option may be granted under this plan for less than
the fair market value of the common stock at the date of the grant. The
exercise period and the termination date for the employee plan options is
determined when the options are actually granted. The Company also has a
nonqualified stock option plan for non-employee directors. The non-employee
director plan calls for options to purchase 1,000 shares of common stock to
be granted to non-employee directors the day after the annual stockholders'
meeting. These options are exercisable immediately and expire ten years
after issuance.
The following summarizes stock option activity for the year indicated:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------ ------------------------------------ ------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------- ------------------ ------------- ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
beginning of year 254,100 $19.72 198,050 $20.42 106,500 $16.42
Granted 105,650 12.26 71,500 17.96 103,700 24.11
Exercised - - -
Canceled (51,975) 20.15 (15,450) 20.57 (12,150) 16.00
---------- ----------- -----------
Outstanding - end
of year 307,775 $17.08 254,100 $19.72 198,050 $20.42
========== =========== ===========
Exercisable at end
of year 144,825 $18.68 83,200 $22.20 17,000 $22.37
========== =========== ===========
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
Exercise prices for options outstanding as of December 31, 2000 ranged from
$11.85 to $34.13. The weighted-average fair value of options granted during
2000, 1999 and 1998 was $4.22, $6.85 and $8.36, respectively. The weighted-
average remaining contractual life of the options issued in 2000 is 3.4 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2000 1999 1998
---- ---- ----
Risk-free interest rate 5.71% 5.71% 4.94%
Dividend yield 2.77 2.00 0.91
Expected dividend yield increase 9.00 12.00 15.00
Expected stock volatility 38.88 42.16 39.09
Weighted average expected life 5 years 5 years 4 years
For purposes of pro forma disclosures as required by SFAS No. 123, the
estimated fair value of the options is amortized over the option's vesting
period. The following table represents the required pro forma disclosures for
options granted subsequent to December 31, 1996:
<TABLE>
<CAPTION>
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Pro forma net income $5,797 $6,243 $5,363
Pro forma earnings per share:
Basic 1.53 1.65 1.42
Diluted 1.53 1.64 1.40
</TABLE>
The following is a summary of currently outstanding and exercisable options at
December 31, 2000:
<TABLE>
<CAPTION>
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
- -------------- ------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$11.85-19.19 233,050 6.3 $14.78 87,400 $16.36
21.50-27.75 68,725 3.6 23.39 51,425 22.05
34.13 6,000 7.3 34.13 6,000 34.13
------------- ----------
307,775 144,825
============= ==========
</TABLE>
12. Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments. The
Company has the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since these commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties.
The Company had outstanding commitments to extend credit of
approximately $53,803 and $36,686 at December 31, 2000 and 1999,
respectively. The commitments extend over varying periods of time with the
majority to be disbursed within a one-year period.
The Company had total outstanding letters of credit amounting to
$1,922 and $684 at December 31, 2000 and 1999, respectively. The commitment
terms generally expire within one year.
The Company grants agribusiness, commercial, residential and consumer
installment loans to customers primarily in northern, western and central
Arkansas. The Company maintains a diversified loan portfolio.
13. Related Party Transactions
The Banks have entered into transactions with their executive
officers, directors, principal shareholders, and their affiliates (related
parties). The aggregate amount of loans to such related parties at December
31, 2000 and 1999 was $8,061 and $7,513, respectively. New loans and
advances on prior commitments made to
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
such related parties were $13,955, $3,263 and $5,483 for the years ended
December 31, 2000, 1999 and 1998, respectively. Repayments of loans made by
such related parties were $13,407, $1,067 and $376 for the years ended
December 31, 2000, 1999 and 1998, respectively.
During 2000 and 1999 the Company constructed four banking buildings.
The majority owner of the contractor on these construction projects is a
member of the Company's Board of Directors. Total payments to the
contractor during the years ended December 31, 2000 and 1999 were
approximately $708 and $2,343, respectively.
14. Regulatory Matters
Federal regulatory agencies generally require member banks to maintain
core (Tier 1) capital of at least 3% of total assets plus an additional
cushion of 1% to 2%, depending upon capitalization classifications. Tier 1
capital generally consists of total stockholders' equity. Additionally,
these agencies require member banks to maintain total risk-based capital of
at least 8% of risk-weighted assets, with at least one-half of that total
capital amount consisting of Tier 1 capital. Total capital for risk-based
purposes includes Tier 1 capital plus the lesser of the allowance for loan
losses or 1.25% of risk weighted assets.
The Company's regulatory capital positions were as follows:
<TABLE>
<CAPTION>
December 31, 2000 December 31, 1999
-------------------------------- --------------------------------
Computed Computed Computed Computed
Capital Percent Capital Percent
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Bank of the Ozarks, Inc. (consolidated):
Total risk-based capital $70,642 12.83% $65,415 13.15%
Tier 1 risk-based capital 63,403 11.52 57,225 11.50
Leverage ratio - 7.57 - 7.46
Bank of the Ozarks:
Total risk-based capital $68,963 12.54% $63,552 12.64%
Tier 1 risk-based capital 62,357 11.34 57,450 11.44
Leverage ratio - 7.45 - 7.50
</TABLE>
As of December 31, 2000 and 1999, the most recent notification from
the regulators categorized the Company and its subsidiary bank as well
capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that management
believes have changed the Company's or its subsidiary bank's category.
At December 31, 2000, the subsidiary bank exceeded its minimum capital
requirements. As of December 31, 2000, the state bank commissioner's
approval was required before the bank could declare and pay any dividend of
75% or more of the net profits of the bank after all taxes for the current
year plus 75% of the retained net profits for the immediately preceding
year. $6,144 was available at December 31, 2000, for payments of dividends
by the bank without the approval of regulatory authorities.
Under Federal Reserve regulation, the subsidiary bank is also limited
as to the amount it may loan to its affiliates, including the Company,
unless such loans are collateralized by specific obligations. At December
31, 2000, the maximum amount available for transfer from the subsidiary
bank to the Company in the form of loans approximated $6,896.
The subsidiary bank is required by bank regulatory agencies to
maintain certain minimum balances of cash or non-interest bearing deposits
primarily with the Federal Reserve. At December 31, 2000 and 1999, these
required balances aggregated $678 and $5,458, respectively.
15. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of financial instruments.
Cash and due from banks - For these short-term instruments, the
-----------------------
carrying amount is a reasonable estimate of fair value.
Investment securities - For securities held for investment purposes,
---------------------
fair values are based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities or the carrying amount.
Loans, net of unearned income - The fair value of loans is estimated
-----------------------------
by discounting the future cash flows using the current rate at which
similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.
Deposit liabilities - The fair value of demand deposits, savings
-------------------
accounts, NOW accounts and certain money market deposits is the amount
payable on demand at the reporting date. The fair value of fixed maturity
certificates is estimated using the rate currently offered for deposits of
similar remaining maturities. The carrying amount of accrued interest
payable approximates its fair value.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
Other borrowed funds - For these short-term instruments, the carrying
--------------------
amount is a reasonable estimate of fair value. The fair value of long-term
debt is estimated based on the current rates available to the Company for
debt with similar terms and remaining maturities.
Accrued interest - The carrying amount of accrued interest payable
----------------
approximates its fair value.
Off-balance sheet instruments - Fair values for off-balance sheet
-----------------------------
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Commitments to extend credit and standby letters of credit - The fair
----------------------------------------------------------
value of these commitments is estimated using the fees currently charged to
enter into similar agreements taking into account the remaining terms of
the agreements and the present credit-worthiness of the counter-parties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair
value of letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle
the obligations with the counter-parties at the reporting date.
The following table presents the estimated fair values of the
Company's financial instruments. The fair values of certain of these
instruments were calculated by discounting expected cash flows, which
involves significant judgments by management and uncertainties. Fair value
is the estimated amount at which financial assets or liabilities could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. Because no market exists for certain of these
financial instruments and because management does not intend to sell these
financial instruments, the Company does not know whether the fair values
shown below represent values at which the respective financial instruments
could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 20,540 $ 20,540 $ 24,562 $ 24,562
Available-for-sale securities 51,696 51,696 44,837 44,837
Held-to-maturity securities 201,520 197,819 218,558 205,749
Loans, net of allowance for loan losses 503,938 501,842 461,059 456,848
Accrued interest receivable 8,894 8,894 7,174 7,174
Financial liabilities:
Demand, NOW and savings account deposits $178,178 $178,178 $161,388 $161,388
Time deposits 499,505 502,214 434,542 434,000
Repurchase agreements with customers 13,839 13,844 9,026 9,026
Other borrowings 66,703 70,038 126,989 124,243
Accrued interest and other liabilities 3,128 3,128 2,973 2,973
Off balance sheet items:
Standby letters of credit $ - $ 1,922 $ - $ 684
Commitments to extend credit - 53,802 - 36,686
</TABLE>
16. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
2000 1999 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $36,909 $27,448 $20,466
Income taxes 1,927 2,314 2,333
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans to foreclosed assets held for sale 2,641 3,625 628
Loans advanced for sales of foreclosed assets 441 771 251
Change in unrealized loss (gain) in available for sale securities (36) 2,600 (78)
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
17. Other Operating Expenses
The following is a summary of other operating expenses:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Telephone and data lines $ 714 $ 604 $ 453
Operating supplies 487 513 454
Advertising and public relations 551 612 566
Other 3,374 3,328 2,488
------------ ------------ ------------
Total other operating expenses $5,126 $5,057 $3,961
============ ============ ============
</TABLE>
18. Earnings Per Common Share
The following table sets forth the computation of basic and diluted
earnings per share ("EPS"):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
2000 1999 1998
------------ ------------ -----------
<S> <C> <C> <C>
Numerator:
Net income $6,040 $6,635 $5,629
============ ============ ===========
Denominator:
Denominator for basic EPS weighted average shares 3,780 3,780 3,780
Effect of dilutive securities:
Stock options 2 12 39
------------ ------------ -----------
Denominator for diluted EPS - adjusted weighted average
shares and assumed conversions 3,782 3,792 3,819
============ ============ ===========
Basic EPS $ 1.60 $ 1.76 $ 1.49
============ ============ ===========
Diluted EPS $ 1.60 $ 1.75 $ 1.47
============ ============ ===========
</TABLE>
Options to purchase 211, 97 and 24 shares of common stock at prices ranging
from $21.50 to $34.13 per share were outstanding during 2000, 1999 and 1998 but
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the common shares
and inclusion would have been antidilutive.
19. Parent Company Financial Information
The following condensed balance sheets, income statements and statements of
cash flows reflect the financial position and results of operations for the
parent company:
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Assets
------
Cash and cash equivalents $ 720 $ 713
Investment in subsidiaries 63,307 58,580
Premises and equipment, net 6 14
Excess cost over fair value of net
assets acquired, at amortized cost 1,148 1,204
Debt issuance cost, net 970 1,004
Other 25 214
------------- -------------
Total assets $66,176 $61,729
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Accrued interest and other liabilities $ 43 $ 47
Notes payable - 24
Subordinated debentures 17,784 17,784
------------- -------------
Total liabilities 17,827 17,855
------------- -------------
Stockholders' equity
Common stock 38 38
Additional paid-in capital 14,314 14,314
Retained earnings 35,498 31,045
Accumulated other comprehensive income (1,501) (1,523)
------------- -------------
Total stockholders' equity 48,349 43,874
------------- -------------
Total liabilities and stockholders' equity $66,176 $61,729
============= =============
</TABLE>
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Dollars in thousands
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $2,748 $2,591 $3,174
Other 29 92 2
----------- ----------- -----------
Total income 2,777 2,683 3,176
----------- ----------- -----------
Expenses
Interest 1,636 1,257 637
Net occupancy and equipment - - 53
Other operating expenses 477 777 620
----------- ----------- -----------
Total expenses 2,113 2,034 1,310
----------- ----------- -----------
Income before income tax benefit and
equity in undistributed earnings of subsidiaries 664 649 1,866
Income tax benefit 672 743 461
Equity in undistributed earnings of subsidiary 4,704 5,243 3,302
----------- ----------- -----------
Net income $6,040 $6,635 $5,629
=========== =========== ===========
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 6,040 $ 6,635 $ 5,629
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8 11 13
Amortization 90 75 77
Equity in undistributed earnings of subsidiaries (4,704) (5,243) (3,302)
Change in assets and liabilities:
Accrued interest and other liabilities (4) 27 (110)
Other, net 188 (195) (3)
------------- ------------- -------------
Net cash provided by operating activities 1,618 1,310 2,304
------------- ------------- -------------
Cash flows from investing activities
Purchases of premises and equipment - - (7)
Purchase 100% of the stock in Heartland
Community Bank, FSB - - (3,100)
Additional investment in subsidiaries - (3,534) (9,000)
Dividends from prior years earnings of subsidiary - - 143
-------------- ------------ ------------
Net cash used in investing activities - (3,534) (11,964)
-------------- ------------ ------------
Cash flows from financing activities
Increase in deferred debt issuance cost - (1,022) -
Issue subordinated debentures - 17,784 -
Proceeds from notes payable - - 14,350
Payments of notes payable (24) (12,364) (7,034)
Dividends paid (1,587) (1,512) (869)
-------------- ------------ ------------
Net cash (used in) provided by financing activities (1,611) 2,886 6,447
-------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 7 662 (3,213)
Cash and cash equivalents - beginning of period 713 51 3,264
-------------- ------------ ------------
Cash and cash equivalents - end of period $ 720 $ 713 $ 51
============== ============ ============
</TABLE>
39
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>SUBSIDIARIES OF REGISTRANT
<TEXT>
<PAGE>
Exhibit 21
Subsidiaries of Registrant
1. Bank of the Ozarks, an Arkansas state chartered bank.
2. Ozark Capital Trust, a Delaware business trust.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Bank of the Ozarks, Inc. of our report dated January 11, 2001, included in
the 2000 Annual Report to Shareholders of Bank of the Ozarks, Inc.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-32173) pertaining to the Bank of the Ozarks, Inc. Stock Option
Plan, (Form S-8 No. 333-74577) pertaining to the Bank of the Ozarks, Inc. 401(k)
Retirement Savings Plan, and (Form S-8 No. 333-32175) pertaining to the Bank of
the Ozarks, Inc. Non-employee Director Stock Option Plan, of our report dated
January 11, 2001, with respect to the consolidated financial statements
incorporated herein by reference in this Annual Report (Form 10-K) of Bank of
the Ozarks, Inc. for the year ended December 31, 2000.
/s/ Ernst & Young LLP
Little Rock, Arkansas
March 19, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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