<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1997
REGISTRATION NO. 333-27641
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BANK OF THE OZARKS, INC.
(EXACT NAME OF REGISTRATION AS SPECIFIED IN ITS CHARTER)
ARKANSAS 6022 71-0556208
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
425 WEST CAPITOL AVENUE
SUITE 3100
LITTLE ROCK, ARKANSAS 72201
(501) 374-4100
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GEORGE G. GLEASON, II
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
BANK OF THE OZARKS, INC.
425 WEST CAPITOL AVENUE
SUITE 3100
LITTLE ROCK, ARKANSAS 72201
(501) 374-4100
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES OF ALL CORRESPONDENCE TO:
LES R. BALEDGE, ESQ. H. WATT GREGORY, III, ESQ.
JEFFREY J. GEARHART, ESQ. JOSEPH S. MOWERY, ESQ.
ROSE LAW FIRM, A PROFESSIONAL ASSOCIATION GIROIR, GREGORY, HOLMES & HOOVER,
120 EAST FOURTH STREET PLC
LITTLE ROCK, ARKANSAS 72201 111 CENTER STREET, SUITE 1900
(501) 375-9131 LITTLE ROCK, ARKANSAS 72201
(501) 372-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
BANK OF THE OZARKS, INC.
CROSS-REFERENCE SHEET PURSUANT TO RULE 501(B) OF REGULATION S-K SHOWING
LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1 PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
----------------------- ---------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk
Factors....................... Prospectus Summary; Risk Factors; The
Company
4. Use of Proceeds................ Prospectus Summary; Use of Proceeds;
Capitalization
5. Determination of Offering
Price......................... Outside Front Cover Page; Underwriting
6. Dilution....................... Dilution
7. Selling Security Holders....... Principal and Selling Stockholders
8. Plan of Distribution........... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered.................... Description of Capital Stock
10. Interests of Named Experts and
Counsel....................... Legal Matters; Experts
11. Information with Respect to the
Registrant.................... Prospectus Summary; Risk Factors; The Com-
pany; Dividend Policy; Use of Proceeds;
Capitalization; Selected Consolidated Fi-
nancial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Supervision and
Regulation; Management; Certain Transac-
tions; Principal and Selling Stockholders;
Description of Capital Stock; Shares Eligi-
ble for Future Sale; Index to Consolidated
Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Management
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH STATE OR JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 26, 1997
PROSPECTUS
1,331,700 SHARES
[LOGO OF BANK OF OZARKS, INC. APPEARS HERE]
COMMON STOCK
Of the 1,331,700 shares of common stock, $.01 par value (the "Common Stock"),
of Bank of the Ozarks, Inc. (the "Company") being offered hereby, 700,000
shares are being sold by the Company and 631,700 shares are being sold by
certain stockholders of the Company (the "Selling Stockholders"). See
"Principal and Selling Stockholders." The Company will not receive any proceeds
from the sale of the shares by the Selling Stockholders.
The Common Stock is the only class of outstanding capital stock of the
Company. Prior to this offering there has been no public market for the Common
Stock of the Company. The Common Stock has been approved for trading on The
Nasdaq Stock Market, Inc. ("Nasdaq") National Market under the symbol "OZRK".
It is currently estimated that the initial public offering price for the shares
of Common Stock being sold hereby will be between $14.00 and $16.00 per share.
See "Underwriting" for information relating to the method of determining the
initial public offering price for the Common Stock.
-----------
SEE "RISK FACTORS," BEGINNING ON PAGE 6 OF THIS PROSPECTUS, FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
- --------------------------------------------------------------------------------
Total(3)................... $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company and Selling Stockholders
estimated to be approximately $210,000 and $190,000, respectively.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 199,755 shares of Common Stock at the Price to Public
referred to above, less the Underwriting Discounts and Commissions, solely
to cover over-allotments, if any. If all of such shares are purchased, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively.
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them and subject to the
right of the Underwriters to reject any order in whole or in part, and subject
to certain other conditions. It is expected that delivery of the shares of
Common Stock will be made on or about , 1997.
-----------
STEPHENS INC.
-----------
The date of this Prospectus is , 1997.
<PAGE>
[INSERT MAP]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, included
elsewhere in this Prospectus. Unless the context requires otherwise, references
in this Prospectus to the "Company" shall mean Bank of the Ozarks, Inc. and its
consolidated subsidiaries. All references to shares of Common Stock to be
outstanding after this offering assume that there will be no exercise of the
over-allotment option by the Underwriters. All per share information in this
Prospectus has been adjusted to reflect a reduction of par value from $.10 to
$.01 per common share and a 99-1 stock dividend, both effected May 22, 1997.
THE COMPANY
The Company is an Arkansas business corporation registered under the Bank
Holding Company Act of 1956. The Company owns two state chartered subsidiary
banks, Bank of the Ozarks, wca ("Ozark WCA"), and Bank of the Ozarks, nwa
("Ozark NWA"), that conduct banking operations through 11 branches and two loan
production offices in ten communities throughout northern, western and central
Arkansas. At March 31, 1997 the Company had total assets of $286.9 million, net
loans of $221.4 million and total deposits of $247.3 million.
The Company provides a wide range of retail and commercial banking services
including non-interest bearing and interest bearing checking, savings and money
market accounts, certificates of deposit ("CDs"), and individual retirement
accounts, as well as real estate, consumer, commercial, industrial and
agricultural loans. Other banking services include personal and corporate trust
services, safety deposit boxes, real estate appraisals, credit related life and
disability insurance, automated teller machines ("ATMs"), telephone banking,
credit cards and merchant credit card services.
Since 1994 the Company has experienced significant growth in operations and
maintained favorable returns on assets and stockholders' equity. Between
December 31, 1994 and March 31, 1997 the Company's total assets increased from
$165.0 million to $286.9 million, net loans increased from $111.2 million to
$221.4 million, and total deposits increased from $148.5 million to $247.3
million. For the fiscal year ended December 31, 1996 the Company's return on
average assets was 1.26% and its return on average stockholders' equity was
17.7%.
The Company's goal is to maximize long-term stockholder value through strong
year-to-year growth in assets, loans, deposits and net income in a manner
consistent with safe, sound and prudent banking practices. To achieve this
goal, the Company's business strategy is to:
. Expand loans and deposits through market share growth and de novo
branching;
. Provide customers with the breadth of products and financial services of a
regional bank;
. Employ, empower and motivate management to provide personalized customer
service, consistent with the best traditions of community banking, while
maximizing profits; and
. Maintain asset quality and control overhead expense.
The Company's corporate offices are located at 425 West Capitol Avenue, Suite
3100, Little Rock, Arkansas 72201, Telephone: (501) 374-4100.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company.................. 700,000 shares/(1)/
By the Selling Stockholders..... 631,700 shares
Common Stock to be outstanding
after this offering.............. 3,579,800 shares/(1)//(2)/
Use of proceeds by the Company.... The net proceeds to be received by the
Company from the sale of the Common Stock
will be used to repay indebtedness
(approximately $5.0 million) and for
general corporate purposes, including
capital investments in the Company's
subsidiary banks to fund anticipated growth
and expansion. See "Use of Proceeds" and
"Capitalization."
Nasdaq National Market symbol..... OZRK
</TABLE>
- --------
(1) An additional 199,755 shares may be sold pursuant to an over-allotment
option granted by the Company to the Underwriters. See "Underwriting."
(2) Excludes shares to be authorized for issuance from time to time under the
Company's stock option plans, of which approximately 103,000 shares are
anticipated to be granted under such plans on the commencement date of this
offering at an exercise price equal to the initial public offering price.
See "Management--Director Compensation" and "--Stock Option Plan."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------ -----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.... $ 9,525 $ 9,046 $ 7,994 $ 8,312 $ 11,805 $ 2,698 $ 3,116
Provision for loan
losses................ 1,219 338 339 360 1,486 221 259
Non-interest income.... 2,159 1,068 2,713 1,168 1,865 358 756
Non-interest expense... 6,806 6,162 5,735 5,996 7,151 1,625 2,119
Net income............. 2,359 2,425 2,954/(1)/ 2,170 3,027 781 957
PER COMMON SHARE DATA:
Earnings............... $ 0.65 $ 0.82 $ 0.99/(1)/ $ 0.75 $ 1.05 $ 0.27 $ 0.33
Book value............. 3.96 4.53 5.07 5.66 6.44 5.61 6.62
Weighted average shares
outstanding
(in thousands)........ 3,620 2,968 2,975 2,894 2,880 2,880 2,880
BALANCE SHEET DATA AT
PERIOD END:
Total assets........... $175,531 $181,609 $165,030 $212,476 $270,600 $225,292 $286,942
Total loans............ 115,008 115,032 112,806 153,198 214,462 164,663 224,641
Allowance for loan
losses................ 2,011 1,716 1,649 1,909 3,019 2,051 3,240
Total investment
securities............ 40,002 44,786 40,521 37,137 39,608 40,091 42,170
Total deposits......... 158,662 164,362 148,453 182,463 231,648 194,791 247,263
FHLB advances.......... -- -- -- 7,947 12,517 7,947 12,017
Notes payable.......... 3,719 2,278 -- 3,920 5,396 3,920 5,396
Total stockholders'
equity................ 11,635 13,484 15,076 16,294 18,547 16,169 19,076
Loan to deposit ratio.. 72.49% 69.99% 75.99% 83.96% 92.58% 84.53% 90.85%
AVERAGE BALANCE SHEET
DATA:
Total average assets... $174,928/(2)/ $178,570/(2)/ $167,333 $185,160 $240,208 $218,757 $278,469
Total average
stockholders' equity.. 12,086/(2)/ 12,559/(2)/ 14,287 15,392 17,144 16,232 18,812
Average equity to total
average assets........ 6.91% 7.03% 8.54% 8.31% 7.14% 7.42% 6.76%
PERFORMANCE RATIOS:
Return on average
assets................ 1.35% 1.36% 1.77% 1.17% 1.26% 1.43%/(3)/ 1.37%/(3)/
Return on average
stockholders' equity.. 19.52 19.31 20.67 14.09 17.66 19.25/(3)/ 20.35/(3)/
Net interest margin.... 6.22 5.76 5.24 4.95 5.36 5.47/(3)/ 4.88/(3)/
Overhead ratio(/4/).... 3.98 3.61 3.49 3.23 2.99 2.97/(3)/ 3.04/(3)/
Efficiency ratio(/5/).. 58.09 60.56 62.83 61.57 52.40 52.62 57.50
Dividend payout
ratio(/6/)............ 27.69 30.49 30.30 40.00 28.57 111.11/(7)/ 30.30
ASSET QUALITY RATIOS:
Net charge-offs as a
percentage of average
total loans........... 0.62% 0.52% 0.09% 0.08% 0.21% 0.20%/(3)/ 0.07%/(3)/
Nonperforming loans to
total loans........... 0.50 1.73 0.57 0.85 1.08 0.59 0.80
Nonperforming assets to
total assets.......... 1.91 1.51 0.50 0.63 0.87 0.43 0.66
ALLOWANCE FOR LOAN
LOSSES AS A PERCENTAGE
OF:
Total loans............ 1.75% 1.49% 1.46% 1.25% 1.41% 1.25% 1.44%
Nonperforming loans.... 350.96 86.10 258.46 146.28 130.69 212.32 180.70
CAPITAL RATIOS AT PERIOD
END:
Leverage capital
ratio................. 5.85% 6.83% 9.10% 7.49% 6.42% 6.79% 6.40%
Tier I risk-based
capital............... 8.46 10.13 12.71 9.80 8.45 9.10 8.29
Total risk-based
capital............... 9.72 11.38 13.96 11.05 9.70 10.35 9.53
</TABLE>
- --------
(1) Includes after tax gain of $1.0 million ($0.34 per common share) from the
May 1994 sale of a bank subsidiary having $36.7 million of total assets.
(2) Represents average of beginning and end-of-year balances.
(3) Annualized. Results for the three months ended March 31, 1997 may not be
indicative of full year results.
(4) Calculated by dividing non-interest expense by quarterly average assets as
reported to regulatory authorities.
(5) Calculated by dividing non-interest expense by federal tax equivalent net
interest income plus non-interest income (excluding gains on sale of
assets).
(6) Calculated by dividing dividends per share by earnings per share.
(7) Represents dividends for full year paid on January 12, 1996.
5
<PAGE>
FORWARD-LOOKING INFORMATION
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available
to the Company's management. When used in this Prospectus, words such as
"anticipate," "believe," "estimate," "expect," "intend" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, relating to the operations, results of
operations and growth strategy of the Company, liquidity, competitive factors
and pricing pressures, changes in legal and regulatory requirements, interest
rate fluctuations, and general economic conditions, as well as other factors
described in this Prospectus. Should one or more of the risks materialize, or
should underlying assumptions prove incorrect, actual results or outcomes may
vary materially from those described herein as anticipated, believed,
estimated, expected or intended. See "Risk Factors."
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the
Company and its business before purchasing shares of Common Stock offered
hereby. Each of the following factors may have a material adverse effect on
the Company's operations, financial results, financial condition, liquidity,
market valuation or market liquidity in future periods.
GROWTH STRATEGY
The Company owns two state chartered banks operating in 13 locations in
Arkansas. The Company's current growth strategy involves growth at existing
offices and expansion via new, or de novo, branches into target Arkansas
markets. This strategy involves certain special risks as follows:
Acquisition and Development of Offices. The Company may encounter delays or
other problems in opening offices currently under construction or in opening
future offices. Although the Company has received regulatory approval and
begun construction on two additional branch sites expected to open in the
third quarter of 1997, there can be no assurance that these projects will be
completed in a timely manner. Additionally, the Company may be unable to
accomplish its future expansion plans due to lack of available satisfactory
sites in suitable locations, difficulties in acquiring such sites, increased
expenses or loss of potential sites due to complexities associated with zoning
and permitting processes, higher than anticipated acquisition costs or other
factors.
Regulatory and Economic Factors. The Company's growth and expansion plans
may be adversely affected by a number of regulatory and economic developments
or other events. Failure to obtain required regulatory approvals, changes in
laws and regulations or other regulatory developments and changes in
prevailing economic conditions or other unanticipated events may prevent or
adversely affect the Company's continued growth and expansion. Such factors
may cause the Company to alter its growth and expansion plans or slow or halt
the growth and expansion process, which may prevent the Company from entering
certain target markets or allow competitors to gain or retain market share in
the Company's existing or expected markets.
Operating Results. Even if the Company is successful in opening new offices,
there is no assurance that such offices will achieve deposit levels, loan
balances or other operating results necessary to avoid losses or produce
profitability. The results achieved to date by the Company may not be
indicative of future results or results that may be achieved from a larger
number of locations. Should any new location be unprofitable or marginally
profitable, or should any existing location experience a decline in
profitability or incur losses, the adverse effect on the Company's results of
operations and financial condition could be more significant than would be the
case for a larger company.
6
<PAGE>
Management of Growth. The Company's past and expected growth involves a
variety of risks including maintaining loan quality in the context of
significant portfolio growth, maintaining adequate management personnel and
systems to oversee such growth, maintaining adequate internal audit, loan
review and compliance functions, and implementing additional policies,
procedures and operating systems required to support such growth. Failure of
the Company to successfully address these issues could have a material adverse
effect on the Company's results of operations and financial condition.
See "Business--Growth Strategy."
LIQUIDITY
Banking Subsidiaries. The Company's primary sources of funds are customer
deposits and loan repayments. The Company has experienced significant growth
in its loan portfolio which has resulted in a high loan to deposit ratio
(90.9% at March 31, 1997). While scheduled loan repayments are a relatively
stable source of funds, loans generally are not readily convertible to cash.
Additionally, 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.
Accordingly, the Company may be required from time to time to rely on
secondary sources of liquidity to meet withdrawal demands or otherwise fund
operations. Such sources include borrowings under the Company's revolving
credit facility, unsecured and secured Federal Home Loan Bank ("FHLB")
advances and federal funds lines of credit from correspondent banks. While
management believes that these sources are currently adequate to meet the
Company's liquidity requirements, there can be no assurance that they will be
sufficient to meet long-term liquidity demands. The Company may be required to
slow or discontinue loan growth, capital expenditures or other investments
should such sources not be adequate. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Holding Company. The Company has leveraged its investment in its subsidiary
banks and depends upon the dividends paid to it, as sole stockholder thereof,
as a principal source of funds for the Company's capital requirements. Federal
and state banking regulations restrict the payment of dividends by the
Company's subsidiary banks. Although management expects the level of dividends
to be adequate to meet the Company's current and anticipated capital needs,
including debt service requirements imposed by the Company's credit facility,
the continued ability to pay dividends at adequate levels is determined
primarily by the net profits, after taxes, of the banks. Accordingly, because
there can be no assurance as to the future profitability of the banks,
dividends from such banks may not be sufficient to meet the Company's future
capital requirements. Also, there can be no assurance that additional federal
or state regulations will not further restrict the banks' ability to pay
dividends. Failure to receive sufficient dividends from subsidiary banks could
result in defaults under the Company's credit facility or the inability of the
Company to pay dividends to stockholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Supervision and Regulation--Subsidiary Banks."
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 and financial service institutions. 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 cost of funds than the Company. Additionally, the
Company may face 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.
Various legislative acts in recent years, including the interstate banking
and branching laws, have led to increased competition among financial
institutions. There can be no assurance that the Company will compete
7
<PAGE>
effectively in the future. Further, there can be no assurance that the United
States Congress or the Arkansas General Assembly will not enact legislation
that may further increase competitive pressures on the Company. See
"Business--Competition" and "Supervision and Regulation."
CHANGES IN ECONOMIC CONDITIONS
The Company's profitability is dependent on the profitability of its
subsidiary banks, which operate principally in northern, western and central
Arkansas. The Company's loans are made primarily to borrowers who are
residents of this area and are in substantial part secured by real estate
collateral located in such area. Thus, in addition to adverse changes in
general economic conditions in the United States such as inflation, recession
and high unemployment, unfavorable changes in economic conditions affecting
the Company's markets may have a material adverse effect on the Company's
results of operations and financial condition. Such changes could result from,
among other things, a reduction in real estate values, plant closings or
layoffs, adverse trends or events affecting various major industry groups such
as timber, cattle and poultry, inclement weather, natural disasters or other
factors beyond the Company's control.
INTEREST RATE RISK
The Company's earnings depend to a substantial extent on "rate
differentials," i.e., the differences between the rates the Company earns on
loans, securities and other earning assets, and the interest rates it pays to
obtain deposits and other liabilities. These rates are highly sensitive to
many factors which are beyond the Company's control, including general
economic conditions and the policies of various governmental and regulatory
authorities. From time to time, maturities of assets and liabilities may not
be balanced, and an increase or decrease in interest rates could have a
material adverse effect on the net interest margin, results of operations and
financial condition of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Interest Rate Sensitivity."
RELIANCE ON KEY PERSONNEL
The Company is dependent on the services of George Gleason, the Chairman of
the Board and Chief Executive Officer of the Company. Mr. Gleason is the
largest individual stockholder of the Company, and although the Company has
entered into an employment agreement with him, the loss of the services of Mr.
Gleason could have a material adverse effect on the Company's results of
operations and financial condition. The Company is also dependent on certain
other key officers and members of management who have important customer
relationships or are instrumental to the Company's operations. The loss of
such individuals could have a material adverse effect on the Company's results
of operations and financial condition. In addition, there can be no assurance
that the Company will be able to attract and retain key personnel with the
skills and expertise necessary to achieve and manage its planned growth. See
"Business--Growth Strategy" and "Management."
POSSIBLE NEED FOR ADDITIONAL CAPITAL
The Company will use a portion of the proceeds of this offering, along with
existing credit facilities, to capitalize its planned growth. However, there
is no assurance that such proceeds and credit facilities will be sufficient to
meet the Company's future capital needs, and it may be necessary to seek
additional capital through borrowings or additional equity. There is no
assurance the Company will be able to obtain any such borrowings or additional
equity and thus the Company may have to alter its planned growth and
expansion. See "Use of Proceeds" and "Capitalization."
REGULATORY RESTRICTIONS AND REQUIREMENTS
The Company is subject to extensive government regulation and supervision
under various state and federal laws, rules and regulations, including rules
and regulations promulgated by the Federal Reserve Board, the Federal Deposit
Insurance Corporation ("FDIC") and the Arkansas State Bank Department. These
laws and regulations are designed primarily to protect depositors, borrowers,
and the Bank Insurance Fund of the FDIC
8
<PAGE>
and to further certain social policies; consequently, they may impose
limitations on the Company that may not be in the best interests of the
Company and its stockholders. The Company is subject to changes in federal and
state laws, regulations, governmental policies and accounting principles. The
effects of any such potential changes cannot be predicted, but they could have
a material adverse effect on the results of operations and financial condition
of the Company. See "Supervision and Regulation."
ARKANSAS USURY LAWS
The Constitution of the State of Arkansas provides that "consumer loans and
credit sales" have a maximum interest rate limitation of 17% per annum and
that all "general loans" have a maximum limitation of 5% over the Federal
Reserve Discount Rate in effect at the time the loan was made. The Arkansas
Supreme Court has determined that "consumer loans and credit sales" are also
"general loans" and are thus subject to an interest rate limitation equal to
the lesser of 5% over the Federal Reserve Discount Rate or 17% per annum. The
Arkansas Constitution provides significant penalties, including the forfeiture
of interest and principal depending on the type of loans, for usurious loans.
These usury provisions impose an artificial cap on the Company's net interest
margin and could have a material adverse effect on the Company's results of
operations and financial condition to the extent that the Federal Reserve
Discount Rate fails to move in tandem with market rates or that a high
interest rate environment reduces or eliminates the Company's net interest
margin. See "Supervision and Regulation--State Regulations."
CONCENTRATION OF OWNERSHIP
Following completion of this offering, George Gleason will beneficially own
approximately 36.4%, and the Company's directors and executive officers as a
group (including Mr. Gleason) will beneficially own approximately 45.2% (not
including any shares purchased in or after the offering) of the Company's
outstanding Common Stock. Additionally, the Company's Stock Ownership Plan and
Trust for employees (the "ESOP") will beneficially own approximately 10.4% of
the Company's Common Stock following completion of this offering. Accordingly,
Mr. Gleason and certain employees may have the ability to determine the
election of the Company's directors and control corporate actions which are
submitted to stockholders. See "Principal and Selling Stockholders."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the shares of
the Company's Common Stock. Although the Common Stock has been approved for
trading on The Nasdaq National Market, there can be no assurance that an
active market for the Common Stock will develop or be sustained following
completion of this offering. The initial public offering price will be
determined through negotiations between the Company and the Representative of
the Underwriters and may not be indicative of the market price for the shares
of Common Stock following completion of this offering. Additionally, the stock
market has from time to time experienced extreme price and volume volatility.
These fluctuations may be unrelated to the operating performance of particular
companies whose shares are traded. Market fluctuations may adversely affect
the market price of the Common Stock. A variety of events, including
regulatory developments, quarterly variations in operating results, news
announcements, trading volume, general market trends and other factors could
result in fluctuations in the price of the Common Stock, and there can be no
assurance that the market price of the Common Stock will not decline below the
initial public offering price. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of previously issued shares of the Company's
Common Stock in the public market following completion of this offering could
adversely affect the market price of the Common Stock. Including the shares
offered hereby, approximately 1,774,700 shares of Common Stock will be
eligible for sale immediately following completion of this offering, and
approximately 11,900 shares of Common Stock will become eligible for sale in
the public market upon expiration of the 90-day period immediately following
the
9
<PAGE>
effectiveness of the Company's registration statement under the Securities Act
of 1933 (the "Securities Act"), subject to compliance with Securities and
Exchange Commission ("SEC") Rule 144. Further, following expiration or release
from the 180-day lock-up agreements with the Underwriters, approximately
1,793,200 additional shares of Common Stock will be eligible for sale in
accordance with SEC Rule 144. See "Shares Eligible for Future Sale" and
"Underwriting."
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Amended and Restated Articles of Incorporation contain certain
provisions that could delay, discourage or prevent an attempted acquisition or
change of control of the Company. These provisions include (i) the option for
the Board of Directors to classify or stagger the Board of Directors into two
or three classes with each class having staggered terms; (ii) a provision
establishing certain advance notice procedures for stockholder proposals to be
considered at an annual meeting of stockholders; and (iii) a provision that
directors may be removed only for cause, and then only by the two-thirds vote
of stockholders. The Company's Amended and Restated Articles of Incorporation
also allow the Board of Directors to authorize the issuance of preferred
stock, $.01 par value (the "Preferred Stock") with rights superior to those of
the Common Stock. This provision could discourage a third party from
attempting to acquire, or make it more difficult for a third party to acquire,
control of the Company without approval of the Company's Board of Directors,
and could also limit the price that certain investors might be willing to pay
in the future for shares of the Common Stock. See "Description of Capital
Stock."
DIVIDEND POLICY
The Company currently pays a cash dividend on its Common Stock. The
Company's ability to pay dividends in the future is subject to regulatory
requirements and other conditions existing at the time, including the
Company's profitability, liquidity, financial condition and capital
requirements. Additionally, the payment of dividends is subject to
restrictions imposed by federal and state banking laws, regulations and
authorities. Accordingly, there can be no assurance that the Company will be
able to continue to pay cash dividends on its Common Stock. See "Dividend
Policy" and "Supervision and Regulation."
10
<PAGE>
THE COMPANY
The Company is an Arkansas business corporation registered under the Bank
Holding Company Act of 1956. The Company owns two state chartered subsidiary
banks that conduct banking operations through 11 branches and two loan
production offices in ten communities throughout northern, western and central
Arkansas. At March 31, 1997 the Company had total assets of $286.9 million,
net loans of $221.4 million and total deposits of $247.3 million.
The Company's lead bank, Ozark WCA, received its charter in 1937. Ozark WCA
operates from its principal office in Ozark, Arkansas, with branch offices in
Ozark, Altus, Clarksville (2), Van Buren, and Mulberry, Arkansas. In addition,
Ozark WCA has branch offices under construction in Paris and Alma, Arkansas,
and plans to add future offices, subject to regulatory approval, in Fort Smith
and Little Rock, Arkansas. See "Business--Growth Strategy." Ozark WCA also
maintains separate commercial loan and residential mortgage loan production
offices in Little Rock, Arkansas. Ozark NWA, the Company's other bank
subsidiary, was chartered in 1903 and operates from its principal office in
Jasper, Arkansas, with branch offices in Western Grove, Harrison, and
Marshall, Arkansas.
The Company was incorporated in 1981 as a one-bank holding company for Bank
of Ozark, Ozark, Arkansas. In 1986 the Company became a multi-bank holding
company through consummation of an acquisition agreement with its principal
stockholders and others pursuant to which it also acquired controlling
interests in Arkansas Valley Bank, Dardanelle, Arkansas and Newton County
Bank, Jasper, Arkansas. The Company sold Arkansas Valley Bank in 1994 in order
to redeploy capital to implement the Company's de novo branching strategy. In
1995 Bank of Ozark changed its name to Bank of the Ozarks, wca, and Newton
County Bank changed its name to Bank of the Ozarks, nwa. Additionally, in May
1997 the Company changed its name from Ozark Bankshares, Inc. to Bank of the
Ozarks, Inc. These name changes were undertaken for marketing reasons,
including facilitating parallel marketing of various common products and
services in existing and new markets.
At March 31, 1997 the Company employed 138 full-time equivalent employees.
The Company's corporate offices are located at 425 West Capitol Avenue, Suite
3100, Little Rock, Arkansas, 72201, Telephone: (501) 374-4100.
DIVIDEND POLICY
During the years ended December 31, 1995 and 1996 the Company paid annual
cash dividends on the Common Stock in the aggregate amount of $0.30 per share
per year. During the three months ended March 31, 1997 the Company paid a cash
dividend on the Common Stock in the amount of $0.10 per share. Effective for
stockholders of record on July 10, 1997, the Company will commence payment of
a quarterly cash dividend on the Common Stock of $0.05 per share ($0.20
annually). The Company reduced its annual dividend from $0.30 to $0.20 per
share to retain a greater portion of earnings as capital in order to support
the Company's growth strategy. See "Business--Growth Stategy."
The final determination of the timing, amount and payment of dividends on
the Common Stock is at the discretion of the Company's Board of Directors and
will depend on conditions then existing, including regulatory requirements and
the Company's profitability, liquidity, financial condition and capital
requirements. The Company's principal source of funds to pay dividends on the
shares of Common Stock will be cash dividends from the subsidiary banks. The
payment of dividends by the banks to the Company is subject to restrictions
imposed by federal and state banking laws, regulations and authorities. See
"Supervision and Regulation."
11
<PAGE>
DILUTION
As of March 31, 1997 the net tangible book value of the Common Stock was
approximately $17.6 million, or $6.12 per share. "Net tangible book value per
share" represents the tangible net worth of the Company (total assets less
intangible assets (goodwill and core deposit intangibles) and total
liabilities), divided by the number of shares of Common Stock outstanding.
Without taking into account any changes in net tangible book value after March
31, 1997, after giving effect to the sale by the Company of 700,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$15.00 per share (assuming no exercise of the Underwriters' over-allotment
option) and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, the pro forma net tangible
book value at March 31, 1997 would have been $7.59 per share, representing an
immediate increase of $1.47 per share to current stockholders and an immediate
dilution of $7.41 per share to persons purchasing the shares offered hereby.
The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Estimated initial public offering price per share................ $15.00
Net tangible book value per share before offering................ $6.12
Increase in net tangible book value per share attributable to new
investors....................................................... 1.47
-----
Pro forma net tangible book value per share after offering....... 7.59
------
Dilution per share to new investors.............................. $ 7.41
======
</TABLE>
The following table summarizes the total number of shares of Common Stock
purchased from the Company during the past five years, and the total cash
consideration and weighted average price per share paid by current officers,
directors and other persons affiliated with the Company (including the ESOP)
("Affiliates") and to be paid by persons purchasing shares of Common Stock
offered hereby ("New Investors"), at an assumed initial public offering price
of $15.00 per share (assuming no exercise of the Underwriters' over-allotment
option) and before deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
WEIGHTED
TOTAL AVERAGE PRICE
SHARES PURCHASED CONSIDERATION PER SHARE
---------------- ------------- -------------
<S> <C> <C> <C>
Affiliates......................... 35,000/(1)/ $ 173,250 $ 4.95
New Investors...................... 700,000 10,500,000 15.00
</TABLE>
- --------
(1) Represents shares sold by the Company to the ESOP in March 1993.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, assuming an offering price of $15.00 per share, are estimated to be
$9.6 million ($12.3 million if the Underwriters' over-allotment option is
exercised in full) after deducting underwriting discounts and commissions and
offering expenses payable by the Company estimated to be approximately
$210,000.
The Company intends to use approximately $5.0 million of the net proceeds to
reduce borrowings under a revolving line of credit, the proceeds of which were
used to repay outstanding notes payable and for general corporate purposes,
including capital investments in the Company's subsidiary banks to fund
anticipated growth and expansion. The revolving line of credit provides for
maximum outstanding amounts of up to $5.0 million, is secured by 80% of the
Company's stock in its subsidiary banks, and has a final maturity of December
21, 2007. Interest accrues on outstanding borrowings under the revolving line
of credit at a variable rate equal to prime minus 0.25%. For a more detailed
description of the Company's credit facility, including the revolving line of
credit, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
The Company intends to use the balance of the net proceeds from the sale of
the Common Stock offered hereby for general corporate purposes, including
investments in and advances to the Company's subsidiaries, and financing its
continued expansion pursuant to its de novo branching strategy. See
"Business--Growth Strategy." The precise amounts and timing of expenditure of
such net proceeds will depend on the funding requirements of the Company and
the availability of other capital resources. Pending application of the net
proceeds as described above, the Company intends to invest such proceeds in
short term and intermediate term interest bearing securities or deposits in
its subsidiary banks.
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders.
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) at March 31, 1997, (ii) on a pro forma basis to reflect the
Company's new credit facility established May 16, 1997 and (iii) as adjusted
to give effect to the receipt and application of the estimated net proceeds
from the sale by the Company of 700,000 shares of Common Stock (assuming no
exercise of the Underwriters' over-allotment option) in this offering at an
assumed offering price of $15.00 per share. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Notes payable
Term loans............................. $ 5,396 $ 5,096/(1)/ $ 5,096
Revolving line of credit............... -- 5,000/(1)/ --
Stockholders' equity/(2)/
Common Stock, $0.01 par value,
10,000,000 shares authorized,
2,879,800 shares issued and
outstanding, 3,579,800/(3)/ shares as
adjusted.............................. 29 29 36(/3/)
Preferred Stock, $0.01 par value,
1,000,000 shares authorized, no shares
issued and outstanding................ -- -- --
Additional paid-in capital............. 1,168 1,168 10,716
Retained earnings...................... 17,920 17,920 17,920
Unrealized depreciation on investment
securities............................ (41) (41) (41)
------- ------- -------
Total stockholders' equity........... 19,076 19,076 28,631
------- ------- -------
Total capitalization................. $24,472 $29,172 $33,727
======= ======= =======
</TABLE>
- --------
(1) On May 16, 1997 the Company entered into a $10.0 million term loan and
revolving credit facility. Proceeds from this credit facility were used to
repay notes payable outstanding on such date and to fund capital
investments in the Company's subsidiary banks. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
(2) See "Description of Capital Stock."
(3) Does not include 285,000 shares authorized for issuance from time to time
under the Company's Stock Option Plan (the "Stock Option Plan"), and
shares authorized for issuance pursuant to options to be granted annually
to non-employee directors under the Non-Employee Director Stock Option
Plan (the "Director Option Plan"). Approximately 103,000 shares are
anticipated to be granted under such plans on the commencement date of
this offering at an exercise price equal to the initial public offering
price. See "Management--Director Compensation" and "--Stock Option Plan."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning the Company and is qualified in its entirety by the detailed
information and consolidated financial statements, including the notes
thereto, included elsewhere in this Prospectus. The income statement, balance
sheet and per common share data as of and for the years ended December 31,
1992, 1993, 1994, 1995, and 1996 were derived from audited consolidated
financial statements of the Company. The income statement, balance sheet and
per common share data as of and for the periods ended March 31, 1996 and March
31, 1997, were derived from the unaudited consolidated financial statements of
the Company. The selected consolidated financial data set forth below should
be read in conjunction with such financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------ -----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income....... $ 15,625 $ 14,057 $ 12,645 $ 15,703 $ 21,836 $ 4,981 $ 6,016
Interest expense...... 6,100 5,011 4,651 7,391 10,031 2,283 2,900
Net interest income... 9,525 9,046 7,994 8,312 11,805 2,698 3,116
Provision for loan
losses............... 1,219 338 339 360 1,486 221 259
Non-interest income... 2,159 1,068 2,713 1,168 1,865 358 756
Non-interest expense.. 6,806 6,162 5,735 5,996 7,151 1,625 2,119
Net income............ 2,359 2,425 2,954(/1/) 2,170 3,027 781 957
PER COMMON SHARE DATA:
Earnings.............. $ 0.65 $ 0.82 $ 0.99(/1/) $ 0.75 $ 1.05 $ 0.27 $ 0.33
Book value............ 3.96 4.53 5.07 5.66 6.44 5.61 6.62
Dividends............. 0.18 0.25 0.30 0.30 0.30 0.30 0.10
Weighted average
shares outstanding
(in thousands)....... 3,620 2,968 2,975 2,894 2,880 2,880 2,880
BALANCE SHEET DATA AT
PERIOD END:
Total assets.......... $175,531 $181,609 $165,030 $212,476 $270,600 $225,292 $286,942
Total loans........... 115,008 115,032 112,806 153,198 214,462 164,663 224,641
Allowance for loan
losses............... 2,011 1,716 1,649 1,909 3,019 2,051 3,240
Net loans............. 112,997 113,316 111,157 151,289 211,443 162,612 221,401
Total investment secu-
rities............... 40,002 44,786 40,521 37,137 39,608 40,091 42,170
Total deposits........ 158,662 164,362 148,453 182,463 231,648 194,791 247,263
FHLB advances......... -- -- -- 7,947 12,517 7,947 12,017
Notes payable......... 3,719 2,278 -- 3,920 5,396 3,920 5,396
Total stockholders'
equity............... 11,635 13,484 15,076 16,294 18,547 16,169 19,076
Loan to deposit ra-
tio.................. 72.49% 69.99% 75.99% 83.96% 92.58% 84.53% 90.85%
AVERAGE BALANCE SHEET
DATA:
Total average assets.. $174,928/(2)/ $178,570/(2)/ $167,333 $185,160 $240,208 $218,757 $278,469
Total average stock-
holders' equity...... 12,086/(2)/ 12,559/(2)/ 14,287 15,392 17,144 16,232 18,812
Average equity to
total average
assets............... 6.91% 7.03% 8.54% 8.31% 7.14% 7.42% 6.76%
PERFORMANCE RATIOS:
Return on average as-
sets................. 1.35% 1.36% 1.77% 1.17% 1.26% 1.43%/(3)/ 1.37%/(3)/
Return on average
stockholders' equi-
ty................... 19.52 19.31 20.67 14.09 17.66 19.25/(3)/ 20.35/(3)/
Net interest margin... 6.22 5.76 5.24 4.95 5.36 5.47/(3)/ 4.88/(3)/
Overhead ratio(/4/)... 3.98 3.61 3.49 3.23 2.99 2.97/(3)/ 3.04/(3)/
Efficiency ra-
tio(/5/)............. 58.09 60.56 62.83 61.57 52.40 52.62 57.50
Dividend payout
ratio(/6/)........... 27.69 30.49 30.30 40.00 28.57 111.11/(7)/ 30.30
ASSET QUALITY RATIOS:
Net charge-offs as a
percentage of average
total loans.......... 0.62% 0.52% 0.09% 0.08% 0.21% 0.20%/(3)/ 0.07%/(3)/
Nonperforming loans to
total loans.......... 0.50 1.73 0.57 0.85 1.08 0.59 0.80
Nonperforming assets
to total assets...... 1.91 1.51 0.50 0.63 0.87 0.43 0.66
ALLOWANCE FOR LOAN
LOSSES AS A PERCENTAGE
OF:
Total loans........... 1.75% 1.49% 1.46% 1.25% 1.41% 1.25% 1.44%
Nonperforming loans... 350.96 86.10 258.46 146.28 130.69 212.32 180.70
CAPITAL RATIOS AT PE-
RIOD END:
Leverage capital ra-
tio.................. 5.85% 6.83% 9.10% 7.49% 6.42% 6.79% 6.40%
Tier I risk-based cap-
ital................. 8.46 10.13 12.71 9.80 8.45 9.10 8.29
Total risk-based capi-
tal.................. 9.72 11.38 13.96 11.05 9.70 10.35 9.53
</TABLE>
- --------
(1) Includes after tax gain of $1.0 million ($0.34 per common share) from the
May 1994 sale of a bank subsidiary having $36.7 million of total assets.
(2) Represents average of beginning and end-of-year balances.
(3) Annualized. Results for the three months ended March 31, 1997 may not be
indicative of full year results.
(4) Calculated by dividing non-interest expense by quarterly average assets as
reported to regulatory authorities.
(5) Calculated by dividing non-interest expense by federal tax equivalent net
interest income plus non-interest income (excluding gains on sale of
assets).
(6) Calculated by dividing dividends per share by earnings per share.
(7) Represents dividends for full year paid on January 12, 1996.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
Net income increased 22.5% to $957,000 ($0.33 per share) for the three
months ended March 31, 1997 from $781,000 ($0.27 per share) for the three
months ended March 31, 1996. For the years ended December 31, 1994, 1995 and
1996 net income was $3.0 million ($0.99 per share), $2.2 million ($0.75 per
share) and $3.0 million ($1.05 per share), respectively; return on average
assets was 1.77%, 1.17% and 1.26%, respectively; and return on average
stockholders' equity was 20.7%, 14.1% and 17.7%, respectively. In May 1994 the
Company sold a subsidiary bank which had $36.7 million of total assets. This
sale resulted in a gain of $1.4 million ($1.0 million after taxes). Excluding
such gain, return on average assets and return on average stockholders' equity
for 1994 would have been 1.16% and 13.6%, respectively.
At December 31, 1994, 1995, 1996 and March 31, 1997 the Company had total
assets of $165.0 million, $212.5 million, $270.6 million and $286.9 million,
respectively; total loans of $112.8 million, $153.2 million, $214.5 million
and $224.6 million, respectively; total deposits of $148.5 million, $182.5
million, $231.6 million and $247.3 million, respectively; and stockholders'
equity of $15.1 million, $16.3 million, $18.6 million and $19.1 million,
respectively.
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. Factors that
determine the level of net interest income include the volume of earning
assets and interest bearing liabilities, yields earned and rates paid, fee
income from portfolio loans, the level of nonperforming loans and other non-
earning assets and the amount of non-interest bearing liabilities supporting
earning assets. The Company also generates non-interest income, including
transactional fees, real estate appraisal fees, trust fees, fees from
origination of residential mortgage loans for resale and commissions from the
sale of credit related insurance products. The Company's non-interest expenses
primarily consist of employee compensation and benefits, occupancy and
equipment expenses, and other operating expenses. The Company's results of
operations are significantly affected by its provision for loan losses.
Results of operations may also be significantly affected by many other factors
including general economic and competitive conditions, mergers and
acquisitions of other financial institutions within the market area, changes
in market interest rates, government policies, and actions of regulatory
agencies.
NET INTEREST INCOME
Net interest income is analyzed in the discussion and tables below on a
fully taxable equivalent basis. The adjustment to convert certain income to a
fully taxable equivalent basis consists of dividing tax exempt income by one
minus the federal income tax rate (34%).
Three months ended March 31, 1997 compared to three months ended March 31,
1996.
Net interest income increased 14.3% to $3.1 million for the three months
ended March 31, 1997 from $2.8 million for the three months ended March 31,
1996. This increase primarily resulted from a 28.1% increase in average
earning assets to $261.3 million for the 1997 period from $203.9 million for
the 1996 period. The increase in average earning assets resulted from
continued growth in the Company's loan portfolio, both at existing and new
branches. This increase was somewhat offset by a 59 basis point reduction in
the net interest margin to 4.88% in the 1997 period from 5.47% in the 1996
period, a substantial portion of which decrease
16
<PAGE>
resulted from lower average balances during the 1997 period of a relatively
high-yielding portfolio of loans acquired from the Resolution Trust
Corporation ("RTC") in late 1995.
1996 compared to 1995.
Net interest income increased 40.6% to $12.0 million in 1996 from $8.5
million in 1995. This increase primarily resulted from a 29.9% increase in
average earning assets to $223.9 million in 1996 from $172.3 million in 1995
and a 41 basis point improvement in the net interest margin to 5.36% in 1996
from 4.95% in 1995. The increase in average earning assets resulted from
expansion of the Company's loan portfolio due to continued growth of existing
branches, opening of new branches and the purchase of a discounted loan
portfolio from the RTC in late 1995. The increase in the net interest margin
resulted primarily from a 60 basis point increase in the yield on average
earning assets (a substantial portion of which was attributable to the higher
yielding RTC loan portfolio) which more than offset a 14 basis point increase
in the cost of average interest bearing liabilities.
1995 compared to 1994.
Net interest income increased 4.1% to $8.5 million in 1995 from $8.2 million
in 1994. This increase primarily resulted from a 10.3% increase in average
earning assets to $172.3 million in 1995 from $156.3 million in 1994 which
more than offset a 29 basis point decline in the net interest margin to 4.95%
in 1995 from 5.24% in 1994. The increase in average earning assets resulted
from the Company's decision in 1994 to implement its de novo branching
strategy.
ANALYSIS OF NET INTEREST INCOME
(FTE = FULLY TAXABLE EQUIVALENT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........... $ 12,645 $ 15,703 $ 21,836 $ 4,981 $ 6,016
FTE adjustment............ 198 218 187 53 28
-------- -------- -------- --------- ---------
Interest income--FTE...... 12,843 15,921 22,023 5,034 6,044
Interest expense.......... 4,651 7,391 10,031 2,283 2,900
-------- -------- -------- --------- ---------
Net interest income--FTE.. $ 8,192 $ 8,530 $ 11,992 $ 2,751 $ 3,144
======== ======== ======== ========= =========
Yield on interest earning
assets--FTE.............. 8.22% 9.24% 9.84% 10.01% 9.38%
Cost of interest bearing
liabilities.............. 3.44 4.88 5.02 5.07 5.01
Net interest spread--FTE.. 4.78 4.36 4.82 4.94 4.37
Net interest margin--FTE.. 5.24 4.95 5.36 5.47 4.88
</TABLE>
CHANGES IN FULLY TAXABLE EQUIVALENT NET INTEREST INCOME
<TABLE>
<CAPTION>
1995 1996 3/31/97
CHANGE CHANGE CHANGE
FROM FROM FROM
1994 1995 3/31/96
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Increase due to change in earning assets............ $ 1,657 $ 5,427 $1,403
Increase (decrease) due to change in earning asset
yields............................................. 1,421 675 (393)
(Decrease) increase due to change in interest rates
paid
on interest bearing liabilities.................... (1,494) 72 16
(Decrease) due to change in interest bearing liabil-
ities.............................................. (1,246) (2,712) (633)
------- ------- ------
Increase in net interest income..................... $ 338 $ 3,462 $ 393
======= ======= ======
</TABLE>
17
<PAGE>
The following table sets forth certain information relating to the elements
of the Company's net interest income for the years ended December 31, 1994,
1995 and 1996 and for the three months ended March 31, 1996 and 1997. 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 bank assets and liabilities as well as the averages for holding
company borrowings. The average balance of loans receivable includes loans on
which the Company has discontinued accruing interest. The yields and costs
include fees which are considered adjustments to yields.
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1994 1995 1996
------------------------ ------------------------ -------------------------
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 earn-
ing deposits... $ 1,999 $ 70 3.50% $ 1,524 $ 85 5.58% $ 3,077 $ 169 5.49%
Federal funds
sold........... 1,514 58 3.83 1,832 109 5.95 2,720 145 5.33
Investment se-
curities:
Taxable..... .. 35,541 1,771 4.98 34,771 2,079 5.98 32,526 2,069 6.36
Tax-exempt.. .. 6,219 583 9.38 5,654 642 11.35 5,215 551 10.57
Loans (net of
unearned in-
come).......... 111,003 10,361 9.33 128,530 13,006 10.12 180,334 19,089 10.59
-------- ------- -------- ------ -------- --------
Total earnings
assets...... .. 156,276 12,843 8.22 172,311 15,921 9.24 223,872 22,023 9.84
Non-earning as-
sets........... 11,057 12,849 16,336
-------- -------- --------
Total assets .. $167,333 $185,160 $240,208
======== ======== ========
LIABILITIS AND STOCKHOLDERS' EQUITYE
Interest bearing
liabilities:
Deposits:
Interest bear-
ing transac-
tion and sav-
ings accts.. .. $ 49,679 $ 1,097 2.21% $ 40,537 $ 913 2.25% $ 48,989 $ 1,311 2.68%
Time deposits
of $100,000 or
more........ .. 19,542 787 4.03 24,307 1,436 5.91 34,689 1,975 5.69
Other time de-
posits...... .. 63,454 2,629 4.14 85,936 5,008 5.83 102,076 5,719 5.60
-------- ------- -------- ------ -------- --------
Total inter-
est bearing
deposits... .. 132,675 4,513 3.40 150,780 7,357 4.88 185,754 9,005 4.85
Federal funds
and FHLB
borrowings..... 1,756 81 4.61 419 24 5.73 9,564 558 5.83
Holding company
debt*.......... 762 57 7.49 104 10 9.62 4,315 468 10.85
-------- ------- -------- ------ -------- --------
Total interest
bearing lia-
bilities.... .. 135,193 4,651 3.44 151,303 7,391 4.88 199,633 10,031 5.02
Non-interest li-
abilities:
Non-interest
bearing depos-
its............ 16,279 16,492 20,129
Other non-in-
terest liabili-
ties........... 1,574 1,973 3,302
-------- -------- --------
Total liabili-
ties........ .. 153,046 169,768 223,064
Stockholders'
equity......... 14,287 15,392 17,144
-------- -------- --------
Total liabili-
ties and
stockholders'
equity...... .. $167,333 $185,160 $240,208
======== ======== ========
Interest rate
spread......... 4.78% 4.36% 4.82%
------- ------ --------
Net interest
income......... $ 8,192 $8,530 $ 11,992
Net interest
margin......... 5.24% 4.95% 5.36%
Ratio of
interest
earning assets
to interest
bearing
liabilities.... 115.60% 113.88% 112.14%
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
1996 1997
------------------------ ------------------------
AVERAGE INCOME YIELD/ AVERAGE INCOME YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Interest earn-
ing deposits... $ 3,851 $ 57 6.00% $ 1,559 $ 20 5.20%
Federal funds
sold........... 3,226 43 5.41 1,693 22 5.27
Investment se-
curities:
Taxable..... .. 32,271 480 6.03 36,907 612 6.73
Tax-exempt.. .. 6,130 156 10.32 3,230 83 10.42
Loans (net of
unearned in-
come).......... 158,425 4,298 11.00 217,905 5,307 9.88
-------- ------ -------- ------
Total earnings
assets...... .. 203,903 5,034 10.01 261,294 6,044 9.38
Non-earning as-
sets........... 14,854 17,175
-------- --------
Total assets .. $218,757 $278,469
======== ========
LIABILITIS AND STOCKHOLDERS' EQUITYE
Interest bearing
liabilities:
Deposits:
Interest bear-
ing transac-
tion and sav-
ings accts.. .. $ 43,283 $ 253 2.37% $ 57,867 $ 420 2.94%
Time deposits
of $100,000 or
more........ .. 31,016 453 5.92 43,812 604 5.59
Other time de-
posits...... .. 96,593 1,378 5.79 115,165 1,571 5.53
-------- ------ -------- ------
Total inter-
est bearing
deposits... .. 170,892 2,084 4.95 216,844 2,595 4.85
Federal funds
and FHLB
borrowings..... 7,956 114 5.81 12,348 183 6.01
Holding company
debt*.......... 3,920 85 8.79 5,396 122 9.17
-------- ------ -------- ------
Total interest
bearing lia-
bilities.... .. 182,768 2,283 5.07 234,588 2,900 5.01
Non-interest li-
abilities:
Non-interest
bearing depos-
its............ 17,651 22,052
Other non-in-
terest liabili-
ties........... 2,106 3,017
-------- --------
Total liabili-
ties........ .. 202,525 259,657
Stockholders'
equity......... 16,232 18,812
-------- --------
Total liabili-
ties and
stockholders'
equity...... .. $218,757 $278,469
======== ========
Interest rate
spread......... 4.94% 4.37%
------ ------ -----
Net interest
income......... $2,751 $3,144
Net interest
margin......... 5.47% 4.88%
Ratio of
interest
earning assets
to interest
bearing
liabilities.... 111.56% 111.38%
</TABLE>
- ----
* The interest expense of holding company debt includes interest accrued for
the years 1992-1995 on a tax dispute. Such interest accrual was $93,000 and
was recorded during the year ended 1996. Additionally, $8,000 of interest on
this assessment was accrued for the three months ended March 31, 1997.
Excluding the effects of the accruals, the rates on holding company debt and
total interest bearing liabilities would have been 8.69% and 4.98%,
respectively, for the year ended December 31, 1996 and 8.57% and 5.00%,
respectively, for the three months ended March 31, 1997. See "--Income
Taxes" and Note 10 to the Company's Consolidated Financial Statements
appearing elsewhere in this Prospectus.
18
<PAGE>
The following table reflects the extent to which 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 (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) changes attributable
to 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.
VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
MARCH 31, 1997 OVER
1995 OVER 1994 1996 OVER 1995 MARCH 31, 1996
---------------------- ---------------------- ----------------------
YIELD/ YIELD/ YIELD/
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Interest earning
deposits.............. $ (26) $ 41 $ 15 $ 85 $ (1) $ 84 $ (29) $ (8) $ (37)
Federal funds sold..... 19 32 51 47 (11) 36 (20) (1) (21)
Investment securities:
Taxable............... (46) 354 308 (143) 133 (10) 77 55 132
Tax-exempt............ (64) 123 59 (46) (45) (91) (74) 1 (73)
Loans (net of unearned
income)............... 1,774 871 2,645 5,484 599 6,083 1,449 (440) 1,009
------ ------ ------ ------ ----- ------ ------ ----- ------
Total interest
earnings assets..... 1,657 1,421 3,078 5,427 675 6,102 1,403 (393) 1,010
------ ------ ------ ------ ----- ------ ------ ----- ------
Interest expense:
Interest bearing
transaction deposits
and savings accts..... (206) 22 (184) 226 172 398 106 61 167
Time deposits of
$100,000 or more...... 282 367 649 591 (52) 539 176 (25) 151
Other time deposits.... 1,310 1,069 2,379 904 (193) 711 253 (60) 193
Federal funds and FHLB
borrowings............ (77) 20 (57) 534 -- 534 65 4 69
Holding company debt... (63) 16 (47) 457 1 458 33 4 37
------ ------ ------ ------ ----- ------ ------ ----- ------
Total interest
bearing
liabilities......... 1,246 1,494 2,740 2,712 (72) 2,640 633 (16) 617
------ ------ ------ ------ ----- ------ ------ ----- ------
Increase (decrease) in
net interest income.... $ 411 $ (73) $ 338 $2,715 $ 747 $3,462 $ 770 $(377) $ 393
====== ====== ====== ====== ===== ====== ====== ===== ======
</TABLE>
Provision for Loan Losses. The loan loss provision reflects management's
ongoing assessment of the loan portfolio and is evaluated in light of risk
factors assessed by management as well as a desire of management to maintain a
level of growth in the allowance for loan losses consistent with the growth in
the overall loan portfolio. Among the factors considered by management in
making this assessment include the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans, historical loan
loss experience and economic and business conditions that may affect
borrowers' ability to pay.
The provision for loan losses was $221,000 for the three months ended March
31, 1996 compared to $259,000 for the same period in 1997. For the years ended
December 31, 1994, 1995 and 1996 the provision for loan losses was $339,000,
$360,000 and $1.5 million, respectively. The $1.1 million increase in 1996
relates primarily to growth in the Company's loan portfolio. Average loan
balances grew 15.8% in 1995 and 40.3% in 1996.
19
<PAGE>
NON-INTEREST INCOME
Non-interest income can generally be broken down into four main sources: fee
income, which includes service charges on deposits; trust fees; income on the
sale of loans or other assets; and gain (or loss) on the sale of securities.
Non-interest income increased 111.2% to $756,000 for the three months ended
March 31, 1997 from $358,000 for the three months ended March 31, 1996. For
the years ended December 31, 1994, 1995 and 1996 non-interest income was $2.7
million, $1.2 million and $1.9 million, respectively.
The table below shows non-interest income for the years ended December 31,
1994, 1995 and 1996 and for the three months ended March 31, 1996 and 1997.
NON-INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------
1994 1995 1996 1996 1997
-------- -------- -------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges on deposit
accounts.......................... $ 492 $ 514 $ 806 $ 143 $ 211
Other service charges and fees..... 115 361 537 116 190
Trust income....................... 146 231 214 47 59
Gain on sale of loans.............. 44 -- 274 -- 68
Securities gains (losses).......... -- (44) (77) 21 10
Gain on sale of subsidiary......... 1,377 -- -- -- --
Gain on sale of previously
foreclosed real estate............ 360 4 14 -- 137
Printed check sales................ -- 9 90 19 26
Other income....................... 179 93 7 12 55
-------- -------- -------- ------ ------
Total non-interest income........ $ 2,713 $ 1,168 $ 1,865 $ 358 $ 756
======== ======== ======== ====== ======
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense consists of salaries and employee benefits, occupancy,
equipment and other expenses necessary for the operation of the Company. Non-
interest expense increased 30.4% to $2.1 million for the three months ended
March 31, 1997 from $1.6 million for the three months ended March 31, 1996.
For the years ended December 31, 1994, 1995 and 1996 non-interest expense was
$5.7 million, $6.0 million and $7.2 million, respectively. The dollar
increases in non-interest expense are primarily attributable to increases in
salaries and employee benefits resulting from increases in staffing associated
with the Company's de novo branching strategy commenced in 1994. Management
remains committed to controlling the level of non-interest expense through
continued refinement of the branch level accounting and budgeting process
implemented in 1995. See "Business--Overhead Objectives."
20
<PAGE>
The table below shows non-interest expense for the years ended December 31,
1994, 1995 and 1996 as well as for the three months ended March 31, 1996 and
1997.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ---------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits..... $ 2,873 $ 3,374 $ 4,263 $ 932 $ 1,238
Net occupancy expense.............. 235 319 457 108 133
Equipment expense.................. 334 426 541 126 152
Other real estate and foreclosure
expense........................... 402 142 49 9 31
Other operating expense:
Professional services............ 62 56 60 49 40
Postage.......................... 111 118 140 27 32
Telephone........................ 93 106 125 23 33
Operating supplies............... 148 214 215 53 73
Advertising and public
relations....................... 139 101 123 17 45
Other outside service fees....... 20 31 59 13 8
Directors' fees.................. 32 79 96 20 23
Software amortization............ 55 75 69 16 27
Check printing charges........... 11 30 102 22 28
FDIC & state assessment.......... 379 373 47 24 25
Amortization of goodwill......... 64 59 56 14 14
Charitable contributions......... 264 126 126 13 19
Guaranty fee..................... -- -- 91 76 76
Miscellaneous.................... 513 367 532 83 122
-------- -------- -------- ------- -------
Total non-interest expense..... $ 5,735 $ 5,996 $ 7,151 $ 1,625 $ 2,119
======== ======== ======== ======= =======
</TABLE>
INCOME TAXES
The provision for income taxes was $429,000 for the three months ended March
31, 1996 compared to $537,000 for the same period in 1997. For the years ended
December 31, 1994, 1995 and 1996, the provision for income taxes was $1.6
million, $845,000 and $2.0 million, respectively, and the effective income tax
rates for these years was 33.6%, 27.0% and 39.9%, respectively.
The Company was assessed $326,000 of additional state income taxes for the
years 1992 through 1995 with respect to a dispute involving the taxation of
intercompany dividends. This assessment, plus $93,000 of interest expense, net
of federal tax effect, was fully expensed as of December 31, 1996 and
significantly increased the Company's effective income tax rate for 1996.
Additionally, $8,000 of interest on this assessment was accrued during the
period ended March 31, 1997. The assessment is being contested by the Company.
ANALYSIS OF FINANCIAL CONDITION
LOAN PORTFOLIO
At March 31, 1997, the Company's loan portfolio was $221.4 million, net of
allowance for loan losses, compared to $162.6 million at March 31, 1996. As of
March 31, 1997, the Company's loan portfolio consisted of approximately 63.6%
real estate loans, 19.3% consumer loans, 12.9% commercial and industrial loans
and 3.9% agricultural loans (non-real estate).
21
<PAGE>
The amount and type of loans outstanding at December 31, 1994, 1995 and 1996
and at March 31, 1997 are reflected in the following table.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------------------- ---------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
Single family residen-
tial................. $ 38,010 $ 42,569 $ 41,494 $ 55,609 $ 78,124 $ 81,747
Non-farm/non-residen-
tial................. 32,415 27,326 22,978 36,603 35,258 36,953
Agricultural.......... 8,449 9,199 8,373 9,274 11,583 11,308
Construction/land de-
velopment............ 1,637 1,672 4,668 3,471 8,808 10,211
Multifamily residen-
tial................. 6,072 4,369 3,806 4,388 3,743 2,580
-------- -------- -------- -------- -------- --------
Total real estate... 86,583 85,135 81,319 109,345 137,516 142,799
Consumer................ 17,031 17,278 17,583 25,372 39,868 43,284
Commercial and industri-
al..................... 4,724 5,405 6,191 11,077 28,154 29,103
Agricultural (non-real
estate)................ 5,383 6,161 6,889 6,963 8,363 8,667
Other................... 1,287 1,053 824 441 561 788
-------- -------- -------- -------- -------- --------
Total Loans......... $115,008 $115,032 $112,806 $153,198 $214,462 $224,641
======== ======== ======== ======== ======== ========
</TABLE>
The following table reflects at March 31, 1997 remaining maturities of loans
by type and with fixed or floating interest rates.
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................................. $ 52,763 $ 54,399 $35,637 $142,799
Consumer.................................... 11,988 28,781 2,515 43,284
Commercial and industrial................... 17,839 10,085 1,179 29,103
Agricultural (non-real estate).............. 6,352 1,883 432 8,667
Other....................................... 780 8 -- 788
-------- -------- ------- --------
$ 89,722 $ 95,156 $39,763 $224,641
======== ======== ======= ========
Fixed rate.................................. $ 86,587 $ 93,866 $11,817 $192,270
Floating rate............................... 3,135 1,290 27,946 32,371
-------- -------- ------- --------
$ 89,722 $ 95,156 $39,763 $224,641
======== ======== ======= ========
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets consist of (i) nonaccrual loans, (ii) loans for which
the terms have been restructured to provide a reduction or deferral of
interest or principal because of a deterioration in the financial position of
the borrower and (iii) real estate or other assets that have been acquired in
partial or full satisfaction of loan obligations or upon foreclosure. As of
March 31, 1997, two loan relationships totaling $1.4 million accounted for 78%
of the total $1.8 million nonaccrual loans. These large nonaccrual loans are
primarily secured by real estate.
22
<PAGE>
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. At the time a loan is placed on nonaccrual status, interest
previously accrued but uncollected is 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 allowance for
loan losses. Interest income on nonaccrual loans is recognized on a cash basis
when and if actually collected.
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, MARCH 31,
------------------------------------ ---------
1992 1993 1994 1995 1996 1997
------ ------ ---- ------ ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans.............. $ 261 $1,931 $571 $1,181 $2,057 $1,771
Accruing loans 90 days or more
past due..................... 312 62 67 124 253 22
Restructured not included
above........................ -- -- -- -- -- --
------ ------ ---- ------ ------ ------
Total nonperforming loans... 573 1,993 638 1,305 2,310 1,793
Foreclosed assets held for
sale(/1/).................... 2,785 745 189 29 47 113
------ ------ ---- ------ ------ ------
Total nonperforming assets.. $3,358 $2,738 $827 $1,334 $2,357 $1,906
====== ====== ==== ====== ====== ======
Nonperforming loans to total
loans........................ 0.50% 1.73% 0.57% 0.85% 1.08% 0.80%
Nonperforming assets to total
assets....................... 1.91 1.51 0.50 0.63 0.87 0.66
</TABLE>
- --------
(1) Foreclosed assets held for sale are generally written down to appraised
value at the time of transfer from the loan portfolio into repossessions
or other real estate owned. The value of such assets is reviewed from time
to time throughout the holding period, with the value being adjusted to
the then market value, if lower, until disposition. Under Arkansas banking
law, other real estate owned is required to be written off over a five
year period ( 1/60th per month) unless approval of the Arkansas State Bank
Department can be obtained to write such assets off over an extended
period.
As shown in the table above, nonaccrual loans have increased from $571,000
at December 31, 1994 to $1.8 million at March 31, 1997. This increase is
primarily responsible for a similar increase in total nonperforming assets
from $827,000 at December 31, 1994 to $1.9 million at March 31, 1997. The
Company attributes this growth in nonaccrual loans and nonperforming assets to
the substantial growth in the Company's loan portfolio which increased from
$112.8 million at December 31, 1994 to $224.6 million at March 31, 1997. As a
percentage of total loans, nonperforming loans increased from 0.57% at
December 31, 1994 to 0.80% at March 31, 1997. As a percentage of total assets,
total nonperfoming assets increased from 0.50% at December 31, 1994 to 0.66%
at March 31, 1997. As shown in the table, the March 31, 1997 ratios for
nonaccrual loans and total nonperforming assets are within the ranges
historically experienced by the Company. Additionally, management does not
believe an adverse trend is currently developing in these ratios which would
have a material adverse impact on the Company's future results of operations
or financial condition.
23
<PAGE>
ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses for the periods indicated is
shown in the table below:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------------- ---------
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for
loan losses at begin-
ning of period......... $1,535 $2,011 $1,716 $1,649 $1,909 $3,019
------ ------ ------ ------ ------ ------
Loans charged off:
Real estate:
Single family residen-
tial................. 88 20 58 14 73 2
Non-farm/non-residen-
tial................. 281 537 34 51 -- --
Agricultural.......... 184 -- -- -- -- --
Construction/land de-
velopment............ -- -- -- -- -- --
Multifamily residen-
tial................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total real estate... 553 557 92 65 73 2
------ ------ ------ ------ ------ ------
Consumer............... 86 15 31 44 216 48
Commercial and indus-
trial................. 125 46 3 47 128 --
Agricultural (non-real
estate)............... 10 60 -- -- -- --
------ ------ ------ ------ ------ ------
Total loans charged
off................ 774 678 126 156 417 50
------ ------ ------ ------ ------ ------
Recoveries of loans pre-
viously charged off:
Real estate:
Single family residen-
tial................. 9 7 -- -- 2 --
Non-farm/non-residen-
tial................. 4 2 7 33 -- --
Agricultural.......... 3 2 -- -- -- --
Construction/land de-
velopment............ -- -- -- -- -- --
Multifamily residen-
tial................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total real estate... 16 11 7 33 2 --
------ ------ ------ ------ ------ ------
Consumer............... 13 23 12 23 35 12
Commercial and indus-
trial................. 2 9 -- -- 4 --
Agricultural (non-real
estate)............... -- 2 2 -- -- --
------ ------ ------ ------ ------ ------
Total recoveries.... 31 45 21 56 41 12
------ ------ ------ ------ ------ ------
Net loans charged off... 743 633 105 100 376 38
Provision charged to op-
erating expense........ 1,219 338 339 360 1,486 259
Sale of subsidiary...... -- -- (301) -- -- --
------ ------ ------ ------ ------ ------
Balance, end of period.. $2,011 $1,716 $1,649 $1,909 $3,019 $3,240
====== ====== ====== ====== ====== ======
Net charge-offs to aver-
age loans outstanding
during the periods in-
dicated................ 0.62% 0.52% 0.09% 0.08% 0.21% 0.07%(/1/)
Allowance for loan
losses to total loans.. 1.75 1.49 1.46 1.25 1.41 1.44
Allowance for loan
losses to nonperforming
loans.................. 350.96 86.10 258.46 146.28 130.69 180.70
</TABLE>
- --------
(1) Annualized. Results for the three months ended March 31, 1997 may not be
indicative of full year results.
The amounts of additions 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 (i) an internal grading system, (ii) a peer group analysis and
(iii) a historical analysis.
24
<PAGE>
The Company's internal grading system assigns each loan (other than consumer
installment loans) to one of seven risk categories, with each category being
assigned a specific reserve allocation percentage, as follows:
<TABLE>
<CAPTION>
LOAN GRADE/RISK
CATEGORY RESERVE ALLOCATION PERCENTAGE
--------------- -----------------------------
<C> <S> <C>
1 Excellent 0.10%
2 Good 0.50
3 Moderate 1.00
4 Fair-Watch 1 2.00
5 Fair-Watch 2 7.00
6(a) Substandard 15.00
6(b) Impaired-SFAS Impaired Amount or 15%,
114 whichever is greater
7 Doubtful 50.00
</TABLE>
The loan grade for each individual loan is determined by the loan officer at
the time the loan 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.
Required reserves are calculated for consumer installment loans based upon
past due status as follows:
<TABLE>
<CAPTION>
PAST DUE STATUS RESERVE ALLOCATION PERCENTAGE
---------------------- -----------------------------
<S> <C>
Current 0.225%
Overdue 30 to 89 days 7.500
Overdue 90 days or more 37.500
</TABLE>
Reserve allocations are also calculated using the internal grading system
for all outstanding letters of credit, outstanding loan commitments and
unfunded loan balances. The sum of all reserve amounts determined by the
internal grading system is utilized by management as the primary indicator of
the appropriate reserve level.
In addition to the internal grading system, the Company compares the
allowance for loan losses (as a percentage of total loans) maintained by each
of its subsidiary banks 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 losses for each subsidiary
bank to such bank's historical cumulative net charge-offs for the five
preceding calendar years.
Aside from the objective criteria described above, 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. Although the Company does not determine the overall
allowance based upon the amount of loans in a particular type or category,
risk elements attributable to particular loan types or categories are
considered in assigning loan grades to individual loans. These risk elements
include, but are not limited to, the following: (i) in the case of single
family residential real estate loans, the borrower's ability to repay
including credit history, debt to income ratio and employment and income
stability, the loan to value ratio, and the age, condition and marketability
of collateral; (ii) 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; (iii) for agricultural real estate loans, the
experience and ability of the borrower, projected debt service coverage of the
operations of the borrower and loan to value ratio; (iv) 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
25
<PAGE>
of the developer and loan to value ratios; (v) 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; (vi) 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.
It is management's practice to review the allowance on a quarterly basis to
determine whether the amount of regular monthly provisions should be increased
or decreased or whether additional provisions should be made to the allowance.
Because the allowance is primarily determined based upon management's
assessment and grading of individual loans, no reserve is made for specific
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,
unfunded items and unallocated reserves as of June 23, 1997. The amounts shown
are not necessarily indicative of the actual future losses that may occur
within particular loan categories.
ALLOWANCE FOR LOAN LOSSES BY CATEGORY
<TABLE>
<CAPTION>
PERCENT OF LOANS
ALLOWANCE IN CATEGORY TO
CATEGORY AMOUNT TOTAL LOANS
-------- --------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate
Single family residential...................... $ 962 36.0%
Non-farm/non-residential....................... 608 17.1
Agriculture.................................... 130 4.5
Construction/land development.................. 119 4.9
Multifamily.................................... 29 1.2
Consumer......................................... 363 19.7
Commercial and industrial........................ 325 12.7
Agriculture (non-real estate).................... 104 3.9
Other............................................ -- --
Unfunded items (letters of credit, outstanding
loan commitments, and unadvanced loan
balances)....................................... 250 NA
Unallocated reserves............................. 467 NA
------ -----
$3,357 100.0%
====== =====
</TABLE>
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 those 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 at present. 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 those loans that are in the process of being charged off. At March 31,
1997 "substandard" loans not designated as nonaccrual or 90 days past due
totaled $1.5 million. There were no loans designated as "doubtful" or "loss"
at March 31, 1997.
26
<PAGE>
Administration of the subsidiary banks' lending function is the
responsibility of the Chief Executive Officer and senior lenders at each
profit center. Such officers perform their lending duties subject to the
oversight and policy direction of the Board of Directors of each bank and the
loan committee of each bank. Loan authorities are granted to bank officers as
follows:
<TABLE>
<CAPTION>
TITLE SECURED AUTHORITY UNSECURED AUTHORITY
----- ----------------- -------------------
<S> <C> <C>
Chairman/Chief Executive Officer..... $500,000 $150,000
President............................ $250,000 $ 75,000
Executive Vice President/Senior Vice
President........................... $200,000 $ 50,000
Loan Officer......................... $100,000 $ 10,000
</TABLE>
Loans and aggregate loan relationships above $500,000 secured and $150,000
unsecured up to the lending limit of the banks can be authorized by the loan
committees or the Boards of Directors. At monthly meetings, the Boards of
Directors monitor loan delinquencies, the status of nonperforming assets, the
level and adequacy of the allowance for loan losses and other related matters.
The Company's compliance officer is responsible for serving the bank
subsidiaries of the Company in the loan review and compliance areas. Periodic
reviews of each profit center are scheduled for the purpose of evaluating
asset quality and effectiveness of loan administration. The compliance officer
prepares loan review reports which identify deficiencies, establish
recommendations for improvement, and outline management's proposed action plan
for curing the deficiencies. This report is provided to an audit committee,
which consists of three non-employee members of the Boards of Directors.
Based on the above-noted procedures, management is of the opinion that the
allowance at March 31, 1997 of $3.2 million is adequate. While management
believes the current allowance is adequate, changing economic conditions and
other conditions may require future additions to the allowance. Moreover, the
allowance is subject to regulatory examination and determinations as to
adequacy. Although not presently anticipated, adjustments to the allowance may
result from regulatory examinations.
INVESTMENTS AND SECURITIES
The Company's securities portfolio is the second largest component of
earning assets, provides a significant source of revenue for the Company and
acts as a source of funding should the Company experience unanticipated
deposit withdrawals or loan demand. The table below presents the amortized
cost and the fair value of investment securities for each of the dates
indicated.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------------------------------------- --------------------
1994 1995 1996 1997
-------------------- -------------------- -------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE/(1)/ COST VALUE/(1)/ COST VALUE/(1)/ COST VALUE/(1)/
--------- ---------- --------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities of U.S.
Government agencies.... $23,910 $22,524 $14,001 $13,831 $23,881 $23,896 $27,673 $27,458
Mortgage-backed
securities............. 11,601 11,018 14,014 14,153 10,119 10,256 9,959 10,092
Obligations of states
and political
subdivisions........... 5,317 5,321 8,126 8,191 4,094 4,119 3,176 3,204
Other securities........ 500 490 981 981 1,353 1,353 1,429 1,429
------- ------- ------- ------- ------- ------- ------- -------
Total.................. $41,328 $39,353 $37,122 $37,156 $39,447 $39,624 $42,237 $42,183
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1)The fair value of the Company's financial instruments is determined
pursuant to Statement of Financial Accounting Standards No. 107.
27
<PAGE>
The following table reflects the amortized cost, by contractual maturity, of
the Company's investment securities at March 31, 1997 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>
MARCH 31, 1997
-------------------------------------------------
1 YEAR OVER 1 YEAR OVER 5 YEARS
OR LESS THRU 5 YEARS THRU 10 YEARS OVER 10 YEARS TOTAL FAIR VALUE
------- ------------ ------------- ------------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Securities of U.S.
Government agencies.... $3,669 $11,035 $10,968 $ 2,001 $27,673 $27,458
Mortgage-backed
securities............. -- -- -- 9,959 9,959(/1/) 10,092
Obligations of states
and political
subdivisions........... 220 839 1,145 972 3,176(/2/) 3,204
Other securities........ -- -- -- 1,429 1,429 1,429
------ ------- ------- ------- ------- -------
Total.................. $3,889 $11,874 $12,113 $14,361 $42,237 $42,183
====== ======= ======= ======= ======= =======
Percentage of total..... 9.21% 28.11% 28.68% 34.0% 100%
Weighted average
yield(/3/)............. 6.27 6.90 7.42 6.79 6.95
</TABLE>
- --------
(1) At March 31, 1997 approximately $9.7 million of these securities earned
interest at floating rates repricing monthly.
(2) At March 31, 1997 approximately $2.2 million of these securities earned
interest at floating rates repricing semi-annually.
(3) The weighted average yields are based on book value and effective yields
weighted for the scheduled maturity of each security.
DEPOSITS
The Company's subsidiary banks' lending and investing activities are funded
primarily by deposits, approximately 66.4% of which were time deposits and
33.6% of which were demand deposits at March 31, 1997. Interest bearing demand
deposits consist of transaction, savings and money market accounts which
comprised 10.1%, 3.4% and 10.5%, respectively, of total deposits at March 31,
1997. Non-interest bearing demand deposits at March 31, 1997 constituted
approximately 9.6% of total deposits.
28
<PAGE>
The following table reflects the classification of the average deposits and
the average rate paid on each deposit category for the periods indicated.
AVERAGE DEPOSIT BALANCES AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- ---------------------
1994 1995 1996 1997
---------------- ---------------- ---------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
AVERAGE RATE AVERAGE RATE AVERAGE RATE AVERAGE RATE
AMOUNT PAID AMOUNT PAID AMOUNT PAID AMOUNT PAID
-------- ------- -------- ------- -------- ------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
accounts............... $ 16,279 -- $ 16,492 -- $ 20,129 -- $ 22,052 --
Interest bearing
accounts:
Transaction (NOW)...... 23,381 2.08% 19,911 2.16% 22,209 2.20% 24,762 2.26%
Savings................ 8,654 2.10 7,568 2.15 8,238 2.14 8,190 2.08
Money market........... 17,644 2.43 13,058 2.46 18,542 3.49 24,915 3.91
Time deposits less than
$100,000.............. 63,454 4.14 85,936 5.83 102,076 5.60 115,165 5.53
Time deposits $100,000
or more............... 19,542 4.03 24,307 5.91 34,689 5.69 43,812 5.59
-------- -------- -------- -----------
Total deposits......... $148,954 $167,272 $205,883 $ 238,896
======== ======== ======== ===========
</TABLE>
The following table sets forth by time remaining to maturity, time deposits
in amounts of $100,000 or more at March 31, 1997.
<TABLE>
<CAPTION>
TIME CERTIFICATES OF DEPOSIT
($100,000 OR MORE)/(1)/
----------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Maturity
--------
3 months or less................................ $13,171
3 to 6 months................................... 12,490
6 to 12 months.................................. 12,107
Over 12 months.................................. 6,524
-------
$44,292
=======
</TABLE>
- --------
(1) Other than certificates of deposit, the Company had no time deposits in
excess of $100,000 as of March 31, 1997.
INTEREST RATE SENSITIVITY
Management continuously reviews the Company's exposure to changes in
interest rates. On a monthly basis the Boards of Directors of the subsidiary
banks review each bank's interest rate risk position. Among the factors
considered by management and the Board of Directors are changes in the mix of
earning assets and interest bearing liabilities, interest rate spreads and
repricing periods. Typically, management and the Board of Directors review on
a monthly basis the bank's relative ratio of rate sensitive assets to rate
sensitive liabilities and the related cumulative gap for four different time
periods--three months, six months, one year and two years. Additionally,
management and the Boards of Directors review other alternative interest rate
risk measures and models in assessing the Company's interest rate sensitivity.
29
<PAGE>
As shown in the table below, the cumulative rate sensitive assets to rate
sensitive liabilities at six months and one year, respectively, was 85.9% and
85.3%. 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. Since conditions change on a daily basis, these theoretical
conclusions may not be indicative of future results.
RATE SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------------------------------------------
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........... $ 16,235 $ 28,399 $ (12,164) $ (12,164) (4.57)% 57.17%
Fixed rate repricing in:
1 month............... 19,542 15,159 4,383 (7,781) (2.92) 82.14
2 month............... 17,108 15,971 1,137 (6,644) (2.50) 88.84
3 month............... 17,972 17,726 246 (6,398) (2.40) 91.72
4 month............... 10,825 11,849 (1,024) (7,422) (2.79) 91.67
5 month............... 9,746 10,835 (1,089) (8,511) (3.20) 91.48
6 month............... 11,859 20,253 (8,394) (16,905) (6.35) 85.94
6 months--1 year...... 47,145 56,157 (9,012) (25,917) (9.73) 85.30
1--2 years............ 34,911 31,601 3,310 (22,607) (8.49) 89.13
2--3 years............ 25,602 6,308 19,294 (3,313) (1.24) 98.45
3--4 years............ 21,141 8,235 12,906 9,593 3.60 104.31
4--5 years............ 11,121 7,023 4,098 13,691 5.14 105.97
Over 5 years.......... 23,059 11,782 11,277 24,968 9.38 110.35
-------- -------- ---------
Total............... $266,266 $241,298 $ 24,968
======== ======== =========
</TABLE>
- --------
(1) Rate Sensitive Assets
(2) Rate Sensitive Liabilities
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented elsewhere
in this Prospectus have been prepared in accordance with generally accepted
accounting principles, which require 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.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Holding Company. At March 31, 1997 the Company had outstanding notes payable
of $5.4 million. Effective May 16, 1997 the Company entered into a $10.0
million term loan and revolving credit facility with Union Planters National
Bank, Memphis, Tennessee (the "Credit Facility"). The proceeds from the Credit
Facility were used to repay outstanding notes payable and to fund capital
investments in the Company's subsidiary banks. The term loan portion has a
principal balance of $5.0 million, payable in equal annual installments of
$500,000 commencing December 21, 1998 plus interest payable annually at 8.804%
per annum commencing December 21, 1997. The term loan matures on December 21,
2007 and provides for prepayment penalties under certain circumstances.
The Credit Facility also provides for a revolving line of credit of up to
$5.0 million. Advances remaining unpaid for any consecutive period of 365 days
are converted to term loans under the facility, with a corresponding reduction
in availability, and are payable in equal annual installments of principal
through December 21, 2007. Interest accrues on outstanding borrowings under
the revolving line of credit (including any amounts converted to term loans
thereunder) at a variable rate equal to average prime lending rate reported
from time to time by the Wall Street Journal minus 0.25% and is payable
quarterly commencing June 21, 1997. The revolving line of credit commitment is
effective through December 21, 2007, subject to an annual compliance review by
the lender. No standby or unused commitment fees are payable by the Company
under the revolving line of credit.
The Credit Facility requires the Company's bank subsidiaries to maintain (i)
a return on average assets (commencing in 1997) for each calendar year equal
to at least 1.0%, (ii) a ratio of primary capital to assets at levels
acceptable to bank regulatory authorities but at least 7.0% at each calendar
year end and (iii) net charges to the reserve for loan losses at less than
1.0% of net loans during any calendar year. In addition, the Company may not
incur indebtedness if its aggregate indebtedness would exceed 60.0% of the
Company's tangible net worth or if borrowings under the Credit Facility would
exceed 50.0% of the tangible book value of all subsidiary bank stock pledged
to secure borrowings under the facility.
Borrowings under the Credit Facility are secured by a pledge of 80% of the
Company's stock in the subsidiary banks. As of May 16, 1997 there was $5.0
million borrowed under each of the term and revolving portions of the Credit
Facility. Immediately following completion of this offering, it is anticipated
that all outstanding borrowings under the revolving line of credit will be
repaid in full. See "Use of Proceeds" and "Capitalization."
The Company has leveraged its investment in its subsidiary banks and depends
upon the dividends paid to it, as sole stockholder thereof, as a principal
source of funds for debt service requirements. Federal and state banking
regulations restrict the payment of dividends by the Company's subsidiary
banks. Management expects this level of dividends to be adequate to meet the
Company's capital needs including capital required to meet the debt service
requirements imposed under the Credit Facility.
Banking Subsidiaries. Liquidity represents an institution's ability to
provide funds to satisfy demand from depositors and borrowers by either
converting assets into cash or accessing new or existing sources of
incremental funds. Generally, the Company's banking subsidiaries rely on
customer deposits and loan repayments as their primary source of funds. These
funds are used to make loans, acquire investment securities and other assets
and fund continuing operations.
The Company has experienced significant growth in its loan portfolio which
has resulted in a high loan to deposit ratio (90.9% at March 31, 1997). While
scheduled loan repayments are a relatively stable source of funds, such loans
generally are not readily convertible to cash. Additionally, deposit levels
may be affected by a number of factors, including rates paid by competitors,
general interest rate levels, returns available to customers on
31
<PAGE>
alternative investments and general economic conditions. Accordingly, the
Company may be required from time to time to rely on secondary sources of
liquidity to meet withdrawal demands or otherwise fund operations. Such
sources include unsecured and secured FHLB advances, federal funds lines of
credit from correspondent banks, and borrowings by the Company under its
revolving credit facility, as described above.
At March 31, 1997 the Company's bank subsidiaries had an aggregate of $36.0
million of unused blanket unsecured FHLB borrowing availability. Additionally,
at March 31, 1997 the bank subsidiaries maintained pre-approved unsecured
federal funds lines of credit in an amount of up to $6.1 million. Since March
31, 1997 the Company has arranged additional federal funds lines of credit of
up to $9.0 million, for total federal funds availability of approximately
$15.1 million.
At March 31, 1997 the Company had net outstanding loan commitments
(including unfunded balances on outstanding lines of credit and construction
and other loans) of $18.7 million. The Company anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Management anticipates that the Company's bank subsidiaries will continue to
rely primarily on customer deposits and loan repayments to provide liquidity.
Additionally, where necessary, the above described borrowings (including
borrowings under the Company's Credit Facility) will be used to augment the
Company's primary funding sources.
Management believes it is important to maximize net interest income while
maintaining prudent liquidity restraints. Internal corporate guidelines have
been established to regularly monitor liquid assets as well as relevant ratios
concerning earning asset levels and purchased or borrowed funds. Management of
each bank is also required to monitor these same indicators and report
regularly to their own senior management and the Board of Directors.
Capital Compliance. At December 31, 1995 and 1996 total stockholders' equity
was $16.3 million and $18.5 million, respectively, representing 7.67% and
6.85% of total assets. At March 31, 1997 total stockholders' equity was $19.1
million or 6.65% of total assets.
Bank regulatory authorities in the United States have issued risk-based
capital standards by which all bank holding companies and banks will be
evaluated in terms of capital adequacy. These guidelines relate a financial
institution's capital to the risk profile of its assets. The risk-based
capital standards required for all banks and bank holding companies is Tier 1
capital of at least 4% and total capital (Tier 1 and Tier 2) of at least 8% of
risk weighted assets. Tier 1 capital includes common stockholders' equity and
certain other qualifying items. Tier 2 capital is comprised of allowance for
loan losses (up to but not exceeding 1.25% of risk weighted assets) plus
certain qualifying preferred stock and debt instruments. Bank regulators have
also issued leverage ratio requirements. The leverage ratio requirement is
measured as the ratio of Tier 1 capital to adjusted total assets. See
"Supervision and Regulation."
32
<PAGE>
The Company's risk-based capital ratios at December 31, 1995 and 1996 and
March 31, 1997 are presented below, followed by the capital ratios of each of
the Company's two bank subsidiaries, at such dates.
CONSOLIDATED RISK-BASED CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------ ---------
1995 1996 1997
-------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tier 1 capital:
Stockholders' equity........................... $ 16,294 $ 18,547 $ 19,076
Add (less) net unrealized losses (gains) on
available for sale securities................. (9) (99) 41
Less goodwill.................................. (1,451) (1,394) (1,380)
-------- -------- --------
Total tier 1 capital.......................... 14,834 17,054 17,737
-------- -------- --------
Tier 2 capital:
Qualifying allowance for loan losses........... 1,892 2,529 2,667
-------- -------- --------
Total risk-based capital...................... $ 16,726 $ 19,583 $ 20,404
======== ======== ========
Risk-weighted assets............................. $151,361 $201,802 $213,904
======== ======== ========
Ratios at end of year:
Leverage(/1/).................................. 7.49% 6.42% 6.40%
Tier 1 risk-based capital...................... 9.80 8.45 8.29
Total risk-based capital....................... 11.05 9.70 9.53
Minimum ratio guidelines:
Leverage(/2/).................................. 3.00% 3.00% 3.00%
Tier 1 risk-based capital...................... 4.00 4.00 4.00
Total risk-based capital....................... 8.00 8.00 8.00
</TABLE>
CAPITAL ADEQUACY MEASURES BY SUBSIDIARY BANKS
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
OZARK WCA OZARK NWA
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Stockholders' equity............................... $ 15,445 $ 7,259
Leverage ratio(/3/)................................ 8.27% 8.06%
Risk-based capital ratios:
Tier 1........................................... 10.66 11.17
Total capital.................................... 11.91 12.42
</TABLE>
- --------
(1) Based upon quarterly average assets (excluding goodwill) of $199.5
million, $266.9 million and $272.0 million at December 31, 1995 and 1996
and March 31, 1997, respectively.
(2) 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.
(3) Based upon quarterly average assets of $186.8 million for Ozark WCA and
$90.0 million for Ozark NWA.
33
<PAGE>
BUSINESS
GENERAL
The Company is an Arkansas business corporation registered under the Bank
Holding Company Act of 1956. The Company owns two state chartered subsidiary
banks, Ozark WCA and Ozark NWA, that conduct banking operations through 11
branches and two loan production offices in ten communities throughout
northern, western and central Arkansas. At March 31, 1997 the Company had
total assets of $286.9 million, net loans of $221.4 million and total deposits
of $247.3 million.
The Company provides a wide range of retail and commercial banking services.
Deposit services include non-interest bearing and interest bearing checking,
savings, money market, CDs and individual retirement accounts. Loan services
include various types of real estate loans, consumer loans, commercial and
industrial loans, and agricultural loans. During 1996 the Company began a full
service secondary market mortgage operation to originate and sell residential
real estate mortgages. Other banking services offered include safety deposit
boxes, real estate appraisals, credit related life and disability insurance,
ATMs, telephone banking, credit cards and merchant credit card services.
Through Ozark WCA, the Company provides a wide range of personal and corporate
trust services.
Since 1994 the Company has experienced significant growth in operations and
maintained favorable returns on assets and stockholders' equity. Between
December 31, 1994 and March 31, 1997 the Company's total assets increased from
$165.0 million to $286.9 million, net loans increased from $111.2 million to
$221.4 million, and total deposits increased from $148.5 million to $247.3
million. For the fiscal year ended December 31, 1996 the Company's return on
average assets was 1.26% and its return on average stockholders' equity was
17.7%.
BUSINESS STRATEGY
The Company's goal is to maximize long-term stockholder value through strong
year-to-year growth in assets, loans, deposits and net income in a manner
consistent with safe, sound and prudent banking practices. To achieve this
goal, the Company's business strategy is to:
. Expand loans and deposits through market share growth and de novo
branching;
. Provide customers with the breadth of products and financial services of
a regional bank;
. Employ, empower and motivate management to provide personalized customer
service, consistent with the best traditions of community banking, while
maximizing profits; and
. Maintain asset quality and control overhead expense.
GROWTH STRATEGY
The Company's growth strategy, which combines market share expansion and de
novo branching, has resulted in substantial asset growth. The Company seeks to
(i) branch in strategic locations, (ii) utilize product superiority and
pricing to achieve loan and deposit growth, (iii) aggressively market the
Company's products and services and (iv) capitalize on opportunities presented
by banking industry consolidation.
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 six new branches and two loan production offices in northern,
western and central Arkansas. The Company currently has two full service
branch facilities under construction in Alma and Paris, Arkansas, both of
which are anticipated to open during the third quarter of 1997.
The Company has acquired the location for and is seeking regulatory approval
to open a Fort Smith, Arkansas facility which will operate as a full service
branch and the Company's western division headquarters. This facility is
expected to open during 1998. The Company has received regulatory approval to
build a headquarters facility on a newly acquired Little Rock, Arkansas site
that will consolidate its existing Little Rock offices (the holding company
office, commercial loan production office, and residential mortgage loan
production
34
<PAGE>
office) into a single location. The Company anticipates applying for
regulatory approval to convert this facility to a full service banking
operation when statewide branching becomes permissible on January 1, 1999.
Beyond these planned locations, the Company intends to pursue its growth
strategy with the objective of developing a regional franchise throughout
northern, western and central Arkansas.
The following table reflects the growth in loans and deposits for the
Company's profit centers as of December 31, 1995 and 1996 and March 31, 1997:
<TABLE>
<CAPTION>
LOANS DEPOSITS
MONTHS IN --------------------------- ---------------------------
OPERATION AS AS OF AS OF AS OF AS OF
OF MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
------------ ----------------- --------- ----------------- ---------
PROFIT CENTER 1997 1995 1996 1997 1995 1996 1997
------------- ------------ -------- -------- --------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Ozark................... * $ 72,874 $ 67,602 $ 66,972 $ 98,208 $110,857 $107,348
Jasper.................. * 14,564 16,465 16,703 29,426 30,530 32,579
Western Grove........... * 25,908 25,499 27,111 14,867 12,644 14,038
Clarksville (#1 & #2)... 28 12,693 25,868 27,644 18,565 26,496 28,150
Marshall................ 25 6,994 10,631 11,037 11,321 16,279 17,847
Little Rock commercial
loan production
office................. 20 12,915 31,545 32,435 -- -- --
Van Buren............... 18 7,250 16,381 18,073 10,076 17,830 20,873
Harrison................ 14 -- 14,766 17,629 -- 17,012 20,135
Little Rock residential
mortgage loan
production office...... 8 -- 5,705 7,003 -- -- --
Telebank (Ozark)........ 3 -- -- -- -- -- 1,988
Mulberry................ 2 -- -- 34 -- -- 4,305
-------- -------- -------- -------- -------- --------
Total................... $153,198 $214,462 $224,641 $182,463 $231,648 $247,263
======== ======== ========
Less allowance for loan
losses................. 1,909 3,019 3,240
-------- -------- --------
Net loans............... $151,289 $211,443 $221,401
======== ======== ========
</TABLE>
- --------
* Operations commenced in Ozark, Jasper and Western Grove in 1937, 1903 and
1976, respectively.
The Company also intends to capitalize on the opportunities presented by the
continued consolidation in the banking industry. Many financial institutions
operating in the Company's market areas have become branches or subsidiaries
of larger statewide, regional or national organizations. Management believes
that many of these organizations have shifted decision making and certain
services away from local offices while in many cases reducing local personnel.
Such actions have created substantial opportunities for the Company to
increase market share and develop valuable customer relationships. The Company
has also been able to employ quality senior loan officers and other management
personnel from these competitors.
BANKING PRODUCTS AND SERVICES
The Company has expanded its traditional banking products and services in
recent years. New offerings are designed to provide customers with a
competitive or superior array of products and services in each of the markets
it serves. The Company has recently introduced or is currently developing the
following:
Triple Option CD. In 1996 the Company introduced the "Triple Option CD"
which provides customers with one-time options during the 13-month term to
(i) increase the amount by up to 100% of the original balance, (ii)
withdraw, without penalty, up to 50% of the original balance and (iii)
increase the stated interest rate to match subsequent rate increases in
this product.
Money Market Gold Account. In 1996 the Company introduced a "Money Market
Gold" account designed to provide yields competitive with short-term money
market mutual funds.
35
<PAGE>
Other Special CD Products. From time to time the Company offers special
CD products paying highly competitive rates with atypical maturities (e.g.,
7 months, 10 months, 20 months). These special products are heavily
marketed and generally used to establish initial market share in new
markets or attract large numbers of new customers in existing markets.
Free Checking. In 1996 the Company began offering totally free checking
accounts. These accounts feature no minimum balance requirements, no
monthly service charges, unlimited check writing privileges and free check
safekeeping.
Cash Management Services. The Company is developing and plans to offer
within 12 months a number of new cash management products including a cash
consolidation product that will permit commercial customers to
electronically transfer funds, via the ACH network, from other depository
banks to their deposit accounts with the Company. Other products under
development include account analysis, sweep services and repurchase
agreements.
ATM Network. The Company has installed networked ATMs at eight locations
and plans to include ATMs at future full service branches.
Telephone Banking Services. In 1997 the Company introduced a telephonic
voice response system which allows deposit customers to access information
regarding their individual accounts. The Company also introduced a
"Telebank" service whereby customers may open deposit accounts, effect fund
transfers to or from such accounts and obtain current rate and other
information on the Company's products and services.
Debit Cards. Within 12 months, the Company plans to introduce "debit"
cards whereby the amount of the transaction is deducted from the
cardholder's checking account.
Secondary Market Mortgage Loans. In 1996 the Company expanded its
residential mortgage product line by offering long-term fixed and variable
rate loans to be resold on a servicing released basis in the secondary
market. The Company originates such loans at its Little Rock residential
mortgage loan production office and its Van Buren, Clarksville and Harrison
offices. For the three months ended March 31, 1997 the Company originated
$4.0 million of residential mortgage loans which have been sold in the
secondary market.
Home Equity Lines of Credit. Within 12 months, the Company plans to offer
lines of credit to qualified customers secured by residential real estate.
The Company plans to continue to develop loan and deposit products to meet
changing customer needs and expectations.
MANAGEMENT STRUCTURE AND INCENTIVES
The Company believes that an empowered management team, motivated to provide
high quality, personalized customer service while maximizing profits, is a
critical element of its business strategy. The Company implements this element
of its strategy by (i) employing experienced, customer-oriented personnel,
(ii) using a decentralized and streamlined management structure, (iii)
organizing its operations into separately accountable profit centers and (iv)
providing incentive compensation designed to reward positive financial
performance.
The Company strives to create the personal and comfortable atmosphere of a
small hometown bank. A decentralized management structure allows managers to
make credit and other banking decisions efficiently while providing a higher
degree of service and increased flexibility to local customers. The Company's
profit center managers and their staff are encouraged to pursue quality
customer service and active community involvement and to develop extensive
market knowledge, new business and customer relationships. The Company
believes that its ability to identify, hire, direct and motivate managers is
one of its distinguishing attributes.
The Company is divided into 11 separate profit centers for operation,
accounting, budgetary and bonus incentive purposes. Accountability and control
of each profit center is maintained through (i) direct senior
36
<PAGE>
management oversight of profit center managers and their operating results,
(ii) review of asset quality and regulatory compliance by the Company's
internal loan review and compliance officer, and (iii) review of operations by
the Company's internal audit officer.
In 1996 the Company implemented an incentive cash bonus plan which pays
benefits to all employees based upon growth and profitability. The plan
measures actual performance against budgeted performance at each profit
center. The plan assigns customized performance criteria to each profit
center, with a common criterion being increased profitability. Management
believes this plan has been successful in focusing individuals on the key
performance areas of their respective profit centers. In 1996 the Company paid
$223,000 to employees under this plan.
Furthermore, the Company provides employees with additional incentive
compensation through participation in an employee stock ownership plan.
Following completion of this offering, the Company plans to provide additional
equity based compensation in the form of discretionary stock options to
further align the interests of management and stockholders. See "Management--
Employee Stock Ownership Plan," "--Director Compensation" and "--Stock Option
Plan."
ASSET QUALITY
The successful implementation of the Company's business strategy requires an
emphasis on maintaining asset quality. The Board of Directors and senior
management regularly monitor asset quality. In addition, the Company employs
profit center managers and other loan personnel based in substantial part upon
their ability to properly underwrite, originate and service loans. The
Company's procedures to maintain favorable asset quality include (i) regular
past due meetings among loan and collection personnel to continuously assess
the status of problem or nonperforming loans, (ii) rapid resolution of
nonaccrual loans with minimal tolerance for loans remaining in nonaccrual
status for extended periods and (iii) prompt and orderly liquidation of other
real estate received upon foreclosure. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Nonperforming
Assets" and "--Allowance for Loan Losses."
OVERHEAD OBJECTIVES
The Company has reduced its overhead ratio (calculated by dividing non-
interest expense by quarterly average assets), with the objective of becoming
a low cost provider of banking services. Over the past several years, the
Company has achieved substantial improvements in its overhead ratio as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ---------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Overhead ratio................ 3.98% 3.61% 3.49% 3.23% 2.99% 3.04%/(1)/
</TABLE>
- --------
(1) Annualized. Results for the three months ended March 31, 1997 may not be
indicative of full year results.
Although there can be no assurance that this trend will continue, management
believes the Company may be able to achieve additional deposit and loan growth
at certain existing offices, with minimal additions to personnel or other
operating costs, and spread corporate overhead costs over a larger asset base
through the Company's de novo branching strategy.
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 main offices, branches and
loan production offices.
37
<PAGE>
The following table summarizes the loan portfolio of the Company by loan
category, amount and percentage of total loans at December 31, 1994, 1995 and
1996 and March 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------- --------------
1994 1995 1996 1997
-------------- -------------- -------------- --------------
% OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
Single family
residential........... $ 41,494 36.8% $ 55,609 36.3% $ 78,124 36.4% $ 81,747 36.4%
Non-farm/non-
residential........... 22,978 20.4 36,603 23.9 35,258 16.4 36,953 16.5
Agricultural........... 8,373 7.4 9,274 6.0 11,583 5.4 11,308 5.0
Construction/land
development .......... 4,668 4.1 3,471 2.3 8,808 4.1 10,211 4.6
Multifamily
residential........... 3,806 3.4 4,388 2.9 3,743 1.8 2,580 1.1
-------- ----- -------- ----- -------- ----- -------- -----
Total real estate..... 81,319 72.1 109,345 71.4 137,516 64.1 142,799 63.6
Consumer................ 17,583 15.6 25,372 16.6 39,868 18.6 43,284 19.3
Commercial and
industrial............. 6,191 5.5 11,077 7.2 28,154 13.1 29,103 12.9
Agricultural (non-real
estate)................ 6,889 6.1 6,963 4.5 8,363 3.9 8,667 3.9
Other................... 824 0.7 441 0.3 561 0.3 788 0.3
-------- ----- -------- ----- -------- ----- -------- -----
Total loans........... $112,806 100.0% $153,198 100.0% $214,462 100.0% $224,641 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Real Estate Loans. The Company's portfolio of real estate loans includes
loans secured by single family residential, non-farm non-residential,
agricultural, construction and land development, and multifamily (five or
more) properties. Single family residential loans include permanent loans
secured by first liens on one to four family residential properties. Such
loans comprise the majority of the Company's real estate loans. Non-farm non-
residential loans include those secured by real estate mortgages on hotels,
motels, churches, medical facilities, nursing homes, shopping centers, office
buildings, restaurants, and other business and industrial properties.
Agricultural real estate loans include loans secured by farmland and
improvements thereon including loans secured by farmland and guaranteed by the
Farm Service Agency (formerly Farmers Home Administration) or the Small
Business Administration. 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.
Single family residential 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 owner-occupied single family
residential, 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 all improvements. Documentation requirements vary
depending on loan size, type, complexity and other factors.
38
<PAGE>
Consumer Loans. The Company's portfolio of consumer loans generally includes
loans to individuals for household, family and other personal expenditures
(other than those secured by real estate). Proceeds from such loans are used
to, among other things, fund the purchase of automobiles, household
appliances, furniture, trailers, boats and mobile homes, and for credit
extended pursuant to credit card and other similar plans. 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 interest rates at or near the maximum lawful rate in Arkansas.
Such loans, however, do 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 financings), 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 of, and collateral supporting, a particular loan
determining its structure. These loans are offered to businesses and
professionals for short and medium terms on both a collateralized and
uncollateralized basis. As a general practice, the Company obtains as
collateral a lien on furniture, fixtures, equipment, inventory, receivables or
other assets.
Commercial and industrial loans typically are underwritten on the basis of
the borrower's ability to make repayment from the cash flow of its business
and generally are collateralized by business assets. As a result, such loans
involve additional complexities, variables and risks and require more thorough
underwriting and servicing than other types of loans.
Agricultural (Non-Real Estate) Loans. The Company's portfolio of
agricultural (non-real estate) loans includes loans for financing agricultural
production, including loans to businesses or individuals engaged in the
production of timber, poultry, livestock and crops. The Company's agricultural
(non-real estate) loans are generally secured by farm machinery, livestock,
crops, vehicles or other agri-related collateral.
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 CDs. The following table
summarizes the deposit products of the Company by category, amount and
percentage of total deposits at December 31, 1994, 1995 and 1996 and March 31,
1997:
DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------------
1994 1995 1996 1997
----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
accounts............... $ 14,653 9.9% $ 16,961 9.3% $ 21,295 9.2% $ 23,772 9.6%
Interest bearing ac-
counts:
Transaction (NOW)...... 21,166 14.3 21,157 11.6 24,424 10.5 24,879 10.1
Savings................ 7,549 5.1 7,804 4.3 8,180 3.5 8,472 3.4
Money market........... 13,071 8.8 13,041 7.1 24,325 10.5 25,844 10.5
Time deposits:
Less than $100,000..... 71,903 48.4 94,558 51.8 111,379 48.1 120,004 48.5
$100,000 or more....... 20,111 13.5 28,942 15.9 42,045 18.2 44,292 17.9
-------- ----- -------- ----- -------- ----- -------- -----
Total deposits......... $148,453 100.0% $182,463 100.0% $231,648 100.0% $247,263 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
39
<PAGE>
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 United States Government, government agency, or other
securities. Total public fund deposits at March 31, 1997 aggregated
approximately $24.1 million, or 9.7% of total deposits. On such date, the
Company's subsidiaries had pledged $22.7 million of their investment
securities to collateralize certain deposits, primarily public fund deposits,
in excess of FDIC insurance amounts. As of March 31, 1997 the Company had $2.0
million of outstanding "brokered deposits," defined as deposits which, to the
knowledge of management of the Company, have been placed with the banks by a
person who acts as a broker in placing such deposits on behalf of others.
TRUST SERVICES
Through Ozark WCA, the Company offers a wide range of personal and corporate
trust services. As of December 31, 1995 and 1996 total trust assets under
management by the Company were $13.3 million and $16.4 million, respectively.
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 and financial service institutions.
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 may face 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, highly autonomous local branches, active community
involvement, and products and pricing.
EMPLOYEES
At March 31, 1997 the Company and its subsidiaries employed 138 full-time
equivalent employees. None of the employees were represented by any union or
similar group, and the Company has not experienced any labor disputes or
strikes arising from any such organized labor groups. The Company believes its
employee relations are good.
40
<PAGE>
PROPERTIES
The Company targets its customers by offering a broad range of banking
services through a total of 11 branches and two loan production offices
throughout northern, western and central Arkansas as follows:
<TABLE>
<CAPTION>
SQUARE
BANKING LOCATION(/1/) YEAR OPENED FOOTAGE
- --------------------- ------------------- -------
<S> <C> <C>
Ozark (Main)............................... 1971 (expanded 1985) 22,234
Ozark (Westside)........................... 1993 2,520
Altus...................................... 1972 1,500
Clarksville #1............................. 1994 2,520
Clarksville #2/(2)/........................ 1995 3,300
Van Buren.................................. 1995 2,520
Little Rock (corporate office and
commercial loan production office)/(3)/... 1995 4,472
Little Rock (residential mortgage
loan production office)/(3)/.............. 1996 2,000
Mulberry................................... 1997 1,875
Jasper..................................... 1967 (expanded 1984) 4,408
Marshall/(2)/.............................. 1995 2,520
Western Grove.............................. 1976 (expanded 1991) 2,610
Harrison/(2)/.............................. 1996 3,300
Alma/(4)/.................................. -- 4,100
Paris/(4)/................................. -- 3,100
Fort Smith/(5)/............................ -- --
Little Rock/(6)/........................... -- --
</TABLE>
- --------
(1) Unless otherwise indicated, the Company owns, or will own upon the
completion of construction, its banking locations.
(2) The Company owns the improvements and leases the land at these locations.
(3) The Company leases these offices.
(4) The buildings are under construction at these locations and are
anticipated to open in the third quarter of 1997.
(5) The Company has purchased a building site for this location and is seeking
regulatory approval for opening a branch. This location is anticipated to
open in 1998.
(6) The Company has purchased a building site for this location and has
received regulatory approval to begin construction of a building on this
site in the third quarter of 1997. This building will house the Company's
corporate offices and residential and commercial loan production offices.
The Company owns the buildings comprising all 11 of its branch offices and
owns the land underlying eight of those branches. The Company leases the land
relating to three of its branches, with initial lease terms expiring in 2001,
2007 and 2024, respectively. The Company has renewal options with respect to
the leases expiring in 2001 and 2024 and purchase options on the leases
expiring in 2001 and 2007.
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 the Company's growth strategy. See
"--Growth Strategy."
LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
However, from time to time the Company is involved in routine legal
proceedings arising in the ordinary course of business. Management does not
believe that any such proceedings, either individually or in the aggregate,
will result in material losses to the Company.
41
<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") 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 subsidiary banks.
FEDERAL REGULATIONS
Bank Holding Company Act. The Company is subject to the provisions of the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and to supervision
by the Board of Governors of the Federal Reserve System (the "FRB")
thereunder. Federal laws subject bank holding companies to particular
restrictions on the types of activities in which they may engage and to a
range of supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and policies. Because the Company's
subsidiary banks are insured depository institutions who are not member banks
of the Federal Reserve System, they are subject to regulation and supervision
by the FDIC and are not subject to direct supervision by the FRB.
As a bank holding company, the Company's activities, as well as the
activities of companies which are controlled by the Company or in which the
Company owns 5% or more of the voting securities, are limited by the BHCA to
banking, management and control of banks, and furnishing or performing
services for its subsidiaries. Certain exemptions are available to
subsidiaries engaged in servicing or liquidating activities or companies
acquired by a bank holding company in satisfaction of debts previously
contracted. Another principal exception allows the acquisition of interests in
companies whose activities are found by the FRB to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Activities that have been found to be closely related to banking include
making or servicing loans, underwriting credit life insurance, performing
certain data processing services, acting as an investment or financial
advisor, and providing discount securities brokerage services. Other approved
activities include consumer financial counseling, tax planning and tax
preparation, futures and options advisory services, check guaranty services,
collection agency services, credit bureau services, and personal property
appraisals. In approving acquisitions by the Company of companies engaged in
banking-related activities, the FRB considers a number of factors, including
the expected benefits to the public, such as greater convenience, increased
competition or gains in efficiency, which are weighed against the risks of
possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest, or unsound banking practices.
Under federal law, the Company and its subsidiaries are prohibited from
extending credit, selling or leasing property, and furnishing any service to
any customer on the condition or requirement that the customer (i) obtain any
additional property, service, or credit from the Company and its subsidiaries;
(ii) refrain from obtaining any property, service or credit from any
competitor of the Company or its subsidiaries; or (iii) furnish any property,
service or credit to the Company or its subsidiaries.
Under the BHCA, a bank holding company must obtain FRB approval before it
acquires direct or indirect ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any bank or bank holding
company unless it already owns a majority of the outstanding shares of any
class of voting securities of such bank or bank holding company. The FRB's
approval must also be obtained before a bank holding company acquires all or
substantially all of the assets of a bank or merges or consolidates with
another bank holding company (although the FRB may not assert jurisdiction in
certain bank mergers that are regulated under the Bank Merger Act). 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.
42
<PAGE>
The FRB may not approve any acquisition, merger, or consolidation that would
result in a monopoly, would be in furtherance of any combination or conspiracy
to monopolize, or would be an attempt to monopolize the business of banking in
any part of the United States. Similarly, the FRB may not approve any
acquisition, merger or consolidation whose effect may be to substantially
lessen competition in any section of the country, or tend to create a
monopoly, or that would in any other manner be in restraint of trade, unless
it finds that the anti-competitive effects of the proposal are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. In
considering any application for approval of an acquisition or merger, the FRB
is also required to consider 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 such financial
institution to take affirmative action to ascertain and meet the credit needs
of its entire community, including low and moderate income neighborhoods.
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 preempts barriers that restricted entry into states--such as
regional compacts and reciprocity agreements--thus creating opportunities for
expansion into markets that were previously closed. Interstate banking and
branching authority (discussed below) will be 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 subsequently be
converted to branches. Interstate branching allows banks to merge across state
lines to form a single institution. Interstate merger transactions can be used
to consolidate existing multistate operations or to acquire new branches. A
bank will be able to establish a new branch as its initial entry into a state
only if the state has authorized de novo branching. The Arkansas Interstate
Act prohibits entry into the state through de novo branching.
Deposit Insurance. The deposits of the subsidiary banks are insured by the
FDIC primarily through the BIF, with a portion of the deposits of Ozark WCA
being insured through the Savings Association Insurance Fund ("SAIF"), to the
extent provided by law. Under the FDIC's risk-based insurance system, BIF-
insured institutions are currently assessed premiums of between zero and
twenty-seven cents per $100 of eligible deposits, depending upon the
institution's capital position and other supervisory factors. Congress
recently enacted legislation that, among other things, provides for
assessments against BIF-insured institutions that will be used to pay certain
Financing Corporation ("FICO") obligations. In addition to any BIF insurance
assessments, BIF-insured banks are expected to make payments for the FICO
obligations equal to an estimated $0.0129 per $100 of eligible deposits each
year. For the period January 1, 1997 through June 30, 1997, Ozark NWA and
Ozark WCA were each assessed a premium of $0.0129 per $100 of BIF-eligible
deposits.
As of the most recent assessment date, Ozark WCA had approximately $14.6
million of deposits that are assessed premiums at the rates applicable to SAIF
institutions as a result of a branch acquisition completed with the RTC in
1990. The SAIF premium for these deposits is currently zero to twenty-seven
cents per $100 of eligible deposits. In addition to any SAIF insurance
assessments, SAIF-insured institutions are expected to make payments for FICO
obligations equal to an estimated $0.0648 per $100 of eligible deposits each
year. Ozark WCA's SAIF-eligible deposits were assessed at $0.0648 per $100 for
the period of January 1, 1997 through June 30, 1997.
43
<PAGE>
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 the Company's subsidiary banks. The federal bank regulators use a
combination of risk-based guidelines and leverage ratios to evaluate capital
adequacy.
Under the risk-based capital guidelines, different categories of assets are
assigned different risk weights, based generally on the perceived credit risk
of the asset. These risk weights are multiplied by corresponding asset
balances to determine a "risk-weighted" asset base. The minimum standard for
the ratio of total risk-based capital to risk-weighted assets is 8.0%. At
least half of the risk-based capital must consist of common equity, retained
earnings, and qualifying non-cumulative perpetual preferred stock, less
deductions for goodwill and various intangible assets ("Tier I"). The
remainder ("Tier 2") 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 I capital and Tier II capital is "total risk-based capital."
In addition to the risk-based capital guidelines, the federal bank
regulators have adopted a leverage ratio as an additional tool to evaluate the
capital adequacy. 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 total assets ratio for institutions with the highest regulatory
rating of 1. All other institutions will be expected to maintain a leverage
ratio of 4.0% to 5.0%. For a tabular summary of the Company and the subsidiary
banks' risk-weighted capital and leverage ratios, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Bank regulators from time to time consider raising capital requirements
applicable to banking organizations beyond current levels. However, the
Company is unable to predict whether higher capital requirements will be
imposed and, if so, at what levels and on what schedules. Therefore, the
Company cannot predict what effect such higher requirements may have on it or
its subsidiary banks.
Enforcement Authority. The FRB has been granted enforcement powers over bank
holding companies and non-banking subsidiaries to forestall activities that
represent unsafe or unsound practices or constitute violations of law. These
powers may be exercised through the issuance of cease-and-desist orders or
other actions. The FRB is also empowered to assess civil penalties against
companies or individuals who violate the BHCA or orders or regulations
thereunder in amounts up to $1 million for each day's violation, to order
termination of non-banking activities of non-banking subsidiaries of bank
holding companies, and to order termination of ownership and control of a non-
banking subsidiary by a bank holding company. Certain violations may also
result in criminal penalties.
The FDIC is authorized to exercise 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
Company's subsidiary banks. In addition, the FDIC has the authority to
terminate insurance of accounts, after notice and hearing, upon a finding by
the FDIC that the insured institution is or has engaged in any unsafe or
unsound practice that has not been corrected, is in an unsafe and unsound
condition to continue operations, or has violated any applicable law,
regulation, rule, or order of, or condition imposed by, the appropriate
supervisors.
The FDICIA required federal banking agencies to broaden the scope of
regulatory collective 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. Under these capital measures
a bank is (i) well capitalized if it has a total risk-based capital ratio of
10% or greater, a Tier I capital ratio of 8% or greater and a leverage ratio
of 5% or greater and is not subject to any order, written agreement, capital
directive or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure; (ii) adequately capitalized if
it has a total risk-based ratio of 8% or greater, a Tier I capital
44
<PAGE>
ratio of 4% or greater, a leverage ratio of 4% or greater (3% or greater if
the bank is rated composite "1" in its most recent report of examination and
is not experiencing or anticipating significant growth), and does not meet the
definition of a well capitalized bank; (iii) undercapitalized if it has a
total risk-based capital ratio of less than 8%, a Tier I capital ratio of less
than 4% or a leverage ratio of less than 4% (or a leverage ratio of less than
3% if the institution is rated composite "1" in its most recent report of
examination and is not experiencing or anticipating significant growth); (iv)
significantly undercapitalized if it has a total risk-based capital ratio of
less than 6%, a Tier I capital ratio of less than 3% or a leverage ratio of
less than 3%, and (v) critically undercapitalized if the bank has a ratio of
tangible equity to total assets that is equal to or less than 2%. On December
11, 1996, the FDIC advised the Company that its subsidiary banks had been
classified as "well-capitalized" under these guidelines.
FDICIA authorizes the appropriate federal banking agency to treat a well
capitalized, adequately capitalized or undercapitalized insured depository
institution as if it were in the next lower capital-based classification if,
after notice and an opportunity for a hearing, it is found that such
institution is in an unsafe or unsound condition or engaging in an unsafe or
unsound practice. Thus, an adequately capitalized institution can be subjected
to the restrictions applicable to undercapitalized institutions described
below (provided that a capital restoration plan cannot be required of the
institution), and an undercapitalized institution can be subjected to the
restrictions applicable to significantly undercapitalized institutions
described below. However, the regulations provide that a significantly
undercapitalized bank may not be reclassified as a critically undercapitalized
bank.
An institution generally is required to submit an acceptable capital
restoration plan to its appropriate federal banking agency within 45 days of
the date the institution receives notice or is deemed to have notice that it
is undercapitalized, significantly undercapitalized or critically
undercapitalized. The plan must specify (i) the steps the institution will
take to become adequately capitalized, (ii) the capital levels to be attained
each year, (iii) how the institution will comply with any regulatory sanctions
then in effect against the institution, (iv) the types and levels of
activities in which the institution will engage and (v) such other information
as the banking agency may require.
Before accepting a capital restoration plan of an undercapitalized
institution, the agency must determine that each company having control of the
institution has guaranteed that the institution will comply with such capital
restoration plan. Liability with respect to this guaranty is limited to the
lesser of (i) 5% of the institution's assets at the time when it becomes
undercapitalized and (ii) the amount necessary to restore the relevant capital
measures of the institutions that would enable the institution to be
classified as adequately capitalized.
Under FDICIA, an insured depository institution cannot make a capital
distribution (defined to include, among other things, dividends of cash or
other property, redemptions and other repurchases of stock, and any
transaction deemed by the appropriate federal banking agency or the FDIC to be
in substance a distribution of capital), or pay management fees to any person
that controls the institution, if thereafter it would be undercapitalized. The
appropriate federal banking agency, however, may (after consultation with the
FDIC) permit an insured depository institution to repurchase, redeem, retire
or otherwise acquire its shares if such action (i) is taken in connection with
the issuance of additional shares or obligations in at least an equivalent
amount and (ii) will reduce the institution's financial obligations or
otherwise improve its financial condition.
An undercapitalized institution is also generally prohibited from increasing
its average total assets unless its capital restoration plan has been
accepted, the increase is consistent with that plan, and the institution's
ratio of tangible equity to assets increases during the calendar quarter at a
rate sufficient to enable the institution to become adequately capitalized
within a reasonable time. In addition, an undercapitalized institution is
generally prohibited from making any acquisitions, establishing any branches
or engaging in any new line of business except in accordance with an accepted
capital restoration plan or with the approval of the FDIC. Furthermore, the
appropriate federal banking agency is given authority with respect to the
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below it if determines "that those actions are
necessary to carry out the purpose" of FDICIA.
45
<PAGE>
FDICIA provides that, with respect to an insured depository institution that
(i) is significantly undercapitalized or (ii) is undercapitalized and either
fails to submit an acceptable capital restoration plan within the time period
allowed by regulation or fails in any material respect to implement a capital
restoration plan accepted by the appropriate federal banking agency, the
appropriate federal banking agency must require such institution to take one
or more of the following actions: (i) sell enough shares, including voting
shares, to become adequately capitalized; (ii) merge with (or be sold to)
another institution (or holding company), but only if grounds exist for
appointing a conservator or receiver; (iii) restrict certain transactions with
banking affiliates as if the "sister bank" exception to the requirements of
Section 23A of the Federal Reserve Act did not exist; (iv) otherwise restrict
transactions with bank or nonbank affiliates; (v) restrict interest rates that
the institution pays on deposits to "prevailing rates" in the institution's
"region"; (vi) restrict asset growth or reduce total assets; (vii) alter,
reduce or terminate activities; (viii) hold a new election of directors; (ix)
subject to certain procedural requirements, dismiss any director or senior
executive officer who held office for more than 180 days immediately before
the institution became undercapitalized; (x) employ "qualified" senior
executive officers; (xi) cease accepting deposits from correspondent
depository institutions; (xii) divest certain non-depository affiliates who
pose a danger to the institution; (xiii) be divested by a parent holding
company; and (xiv) take any other action that the agency determines would
better carry out the purposes of the prompt corrective action provisions.
Critically undercapitalized institutions are subject to the restrictions
imposed on significantly undercapitalized institutions. In addition, FDICIA
generally restricts payments of subordinated debt and requires the appropriate
federal banking agency within certain time periods to appoint a receiver or a
conservator for such institutions unless certain statutory criteria are met.
The FDIC is also required, by regulation or order, to "restrict the
activities" of such critically undercapitalized institutions.
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 Company's subsidiary banks generally undergo FDIC and
state examinations in alternating years.
Reporting Obligations. As a bank holding company, the Company is required to
file with the FRB an annual report and such additional information as the FRB
may require pursuant to the BHCA. The Company's subsidiary banks 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 status of the Company 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 SEC and of state securities commissions for
matters relating to the offer and sale of its securities.
Interest and certain other charges collected or contracted for by the
subsidiary banks of the Company are subject to state usury laws and certain
federal laws concerning interest rates. The banks' loan operations are also
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, and the rules and regulations
of the various federal agencies charged with the responsibility of
implementing such federal laws. The deposit operations of the subsidiary banks
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,
46
<PAGE>
and 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.
STATE REGULATIONS
The Company and its subsidiary banks are subject to examination and
regulation by the Arkansas State Bank Department. Examinations of the
subsidiary banks 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 Company and its
subsidiary banks and the effect of those relations.
In 1982, The Interest Rate Control Amendment ("Constitutional Amendment") to
the Constitution of the State of Arkansas was adopted, which provides, in
summary, that "consumer loans and credit sales" have a maximum percentage
limitation of 17% per annum and that all "general loans" have a maximum
limitation of 5% over the Federal Reserve Discount Rate in effect at the time
the loan was made. In 1983, the Arkansas Supreme Court determined that
"consumer loans and credit sales" are also "general loans" and are thus
subject to an interest rate limitation equal to 5% over the Federal Reserve
Discount Rate or 17% per annum. The Constitutional Amendment also provided
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, however, are preempted by federal law with
respect to first residential real estate loans and certain loans guaranteed by
the Small Business Administration.
The Company is also subject to the Bank Holding Company Act of 1983
("ABHCA") enacted by the State of Arkansas. The ABHCA 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 is prohibited from owning more than one subsidiary bank
if any subsidiary bank has been chartered for less than 5 years.
In 1988, Arkansas enacted the Regional Reciprocal Banking Act of 1988
("RRBA") which permitted bank holding companies in Arkansas to acquire banks
and bank holding companies located in any of 17 states generally located in
the Southern and Midwestern regions of the United States. The Interstate Act
preempts the RRBA and authorizes bank holding companies, subject to regulatory
approval, to acquire banks and bank holding companies in any state, without
regard to whether the acquisition would be permitted by the laws of such
state. As discussed above, the recently enacted Arkansas Interstate Act
authorizes banks to engage in interstate branching activities within the
borders of the state of Arkansas. See "--Federal Regulations--Interstate
Banking".
Arkansas bank branching laws currently prevent banks from opening branches
in any county of the state other than their home county and the counties
contiguous to their home county. These laws currently allow the Company to
open branches in only 10 counties in Arkansas, and the Company would have to
acquire a bank headquartered in another home county in order to expand its
branch banking strategy beyond this geographic area. Effective January 1,
1999, Arkansas law, as currently in effect, will allow the Company to engage
in branching activities on a statewide basis. Prior to this effective date for
statewide branching, current laws may artificially restrict the growth
opportunities of the Company and allow its competitors to expand and retain
market share in areas of the state that the Company may choose to target after
statewide branching becomes available.
47
<PAGE>
SUBSIDIARY BANKS
The lending and investment authority of the subsidiary banks is derived from
Arkansas law. The lending powers of each of the banks are 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 subsidiary banks 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 subsidiary banks can pay the Company to 75% of each subsidiary 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 Company's subsidiary banks are
sharply limited in making extensions of credit to the Company or any non-bank
subsidiary of the Company, in investing in the stock or other securities of
the Company or its non-bank subsidiaries, 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
subsidiary banks and the Company (or any nonbank subsidiary) must generally be
on terms and under circumstances at least as favorable to the subsidiary banks
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 FDIC requires all depository institutions, including the subsidiary
banks, to maintain reserves against their checking and transaction accounts
(primarily checking account, NOW and Super NOW checking accounts). Because
reserves must generally be maintained in cash or in non-interest bearing
accounts, the effect of the reserve requirements is to increase the subsidiary
banks' cost of funds. Arkansas law requires state chartered banks to maintain
such reserves as are required by the applicable federal regulatory agency.
The subsidiary banks are 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 banks are also subject to Section 23B of the Federal Reserve Act,
which, among other things, 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 banks are subject to restrictions on extensions
of credit to executive officers, directors, certain principal stockholders,
and their related interests. Such extensions of credit (i) 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 (ii) 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: limitations on investments that an
institution may make with insured funds; regulation of all insured depository
institutions by a single regulator; limitations on the number of accounts
protected by the federal deposit insurance funds; and reduction 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 subsidiaries.
The Financial Services Competitiveness Act of 1997, which has been
introduced before the United States Congress, would expand the financial
services industry by, among other things, allowing banks to engage in
securities underwriting, insurance and other activities that are found to be
"financial" in nature by the FRB. The legislation would allow bank holding
companies to own firms that could engage in the underwriting of securities and
to engage in a broader range of insurance activities than are currently
permitted. The Company is unable to predict whether this legislation will be
adopted in its proposed form or its potential impact on the Company's
operations.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION(/1/)
---- --- -------------
<C> <S> <C>
George Gleason 43 Chairman of the Board and Chief Executive Officer
Mark Ross 41 President and Director
Linda Gleason 43 Director
Roger Collins 48 Director Elect/(2)/
C. E. Dougan 50 Director Elect/(2)/
Robert East 49 Director Elect/(2)/
Porter Hillard 65 Director Elect/(2)/
Henry Mariani 59 Director Elect/(2)/
R. L. Qualls 63 Director Elect/(2)/
Kennith Smith 66 Director Elect/(2)/
Danny Criner 42 President, Ozark NWA
Paul Moore 50 Chief Financial Officer
Jean Arehart 56 Executive Vice President, Ozark WCA
Susan Sisk Grobmyer 48 Executive Vice President, Ozark WCA
Darrel Russell 43 Executive Vice President, Ozark WCA
Harold Beck 54 Senior Vice President, Ozark WCA
George Landrum 56 Senior Vice President, Ozark NWA
Frank Lawrence 28 Senior Vice President, Ozark WCA
Louis Melton 50 Senior Vice President, Ozark NWA
Randy Oates 53 Senior Vice President, Company
Mark Pennebaker 39 Senior Vice President, Ozark WCA
Richard Savage 38 Senior Vice President, Ozark WCA
Betty Thomason 43 Senior Vice President, Ozark WCA
</TABLE>
- --------
(1) Unless otherwise indicated, the individual serves, or following completion
of this offering will serve, in the same position with both the Company
and each of its subsidiary banks.
(2) The Company's Board of Directors will be expanded on the commencement date
of this offering to include each of the persons indicated above as
director elect. Such persons will also serve as the Board of Directors for
each of the subsidiary banks. Each of such persons has consented to serve
in these capacities.
George Gleason has 18 years of banking experience. Mr. Gleason purchased
controlling interest in Bank of Ozark, now Ozark WCA, in 1979, serving from
that time to the present as its Chief Executive Officer. Since formation of
the Company in 1981, he has also served as its Chief Executive Officer and as
Chief Executive Officer of each of the Company's subsidiaries at substantially
all times they were owned by the Company. At various times from 1979 to 1993,
he also served as Chairman or President of certain of such entities. Since
1993 he has served as both Chairman and Chief Executive Officer of the Company
and each of its subsidiaries. Prior to 1979 Mr. Gleason practiced law in
Little Rock, Arkansas. Mr. Gleason holds a B.A. in Business and Economics from
Hendrix College and a J.D. from the University of Arkansas.
Mark Ross has 17 years of banking experience and has served as President of
the Company and its bank subsidiaries since 1986. Mr. Ross oversees most
operational and administrative aspects of the Company. From 1980 to 1986 he
served Ozark WCA in various capacities including President/Chief
Administrative Officer, Executive Vice President and Administrative Vice
President. In 1986 Mr. Ross also assumed an active role in the management of
Company's other bank subsidiaries, including serving on the Boards of
Directors of such bank subsidiaries. Mr. Ross was elected as a director of the
Company in 1992. Mr. Ross holds a B.A. in Business Administration from Hendrix
College.
49
<PAGE>
Linda Gleason has 16 years of banking experience having commenced employment
with Ozark WCA in 1981. Since 1987 she has served as a director of the Company
and various subsidiaries. From 1992 to 1996 she served as the Company's Deputy
Chief Executive Officer and Assistant Secretary. Beginning in 1996 Ms. Gleason
began to phase out her day-to-day involvement in the Company and no longer
serves as an officer. Ms. Gleason has attended Arkansas State University and
the University of Arkansas at Little Rock.
Roger Collins is Executive Vice President, Chief Financial Officer and a
director of Harp's Food Stores, Inc., a regional grocery chain headquartered
in Springdale, Arkansas with 38 stores located in Arkansas and Oklahoma. Prior
to joining Harp's in 1986, Mr. Collins served for nine years as Chief
Financial Officer and Vice President of Finance for three privately held
companies in Dallas, Texas. Previously, he worked for four years in the Dallas
office of Arthur Andersen & Company. Mr. Collins holds a B.A. from Rice
University and a M.B.A. from the University of Texas at Austin and is a C.P.A.
C. E. Dougan is co-owner of Mooney-Dougan, Inc., which is engaged 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). Mr. Dougan joined the Board of Directors of Ozark WCA in
February 1997.
Robert East has served as the Chairman and President of Robert East Company,
an investment company, since 1974; Chairman and Chief Executive Officer of
East-Harding, Inc., a general contracting firm, since 1994; and Partner and
Treasurer of AMO Electrical Company, a distributor of electrical supplies,
since 1989. Mr. East is also a partner or owner of numerous real estate
projects and other investments. He served as a member of the board of
directors of Pulaski Bank and Trust from 1989 to 1996. Mr. East holds a B.A.
in Finance and Administration from the University of Arkansas.
Porter Hillard has served as a member of the Board of Directors of Ozark WCA
since 1967. Mr. Hillard has been actively engaged in agricultural business
since 1957. He has owned, operated or managed various purebred and commercial
cattle operations, a turkey hatchery, feed mills, turkey grow-out operations
and other businesses. Mr. Hillard holds a B.S. in Agriculture from the
University of Arkansas.
Henry Mariani has been the owner, Chairman and Chief Executive Officer of
Nite Lite Company since 1986, a manufacturing, wholesale and retail mail order
operation which specializes in hunting equipment and supplies. He served as a
member of the board of directors of Twin City Bank (now Mercantile Bank of
Arkansas) from 1986 to 1997. Mr. Mariani holds a B.S. in Finance from Penn
State University and is a C.P.A.
R. L. Qualls is the Vice Chairman and Chief Executive Officer of Baldor
Electric Company, a marketer, designer and manufacturer of electric motors
based in Fort Smith, Arkansas. He previously served as President and Chief
Executive Officer/Chief Operating Officer of Baldor from 1990. Prior to
joining Baldor in 1986 as Executive Vice President of Finance and Planning, he
held a number of senior level positions with Worthen Banking Corporation (now
Boatmen's National Bank of Arkansas) from 1980 to 1986, including Chairman and
Chief Executive Officer of one of the affiliate banks. Additionally, from 1985
to 1986 Dr. Qualls served as Chairman of the board of directors of First
National Bank of Harrison, and between 1987 and 1990 he served on the boards
of directors of both First National Bank of Mena and the Bank of Montgomery
County. Dr. Qualls holds a B.A. and M.A. in Economics from Mississippi State
University and completed his doctoral work at Louisiana State University.
Kennith Smith has served as a member of the Board of Directors of Ozark WCA
since 1977. Mr. Smith is presently retired, having served as the owner and
operator of Smith Cattle Farm from 1984 until his retirement in 1993, managed
ARVAC Self-Help housing from 1982 to 1984 and served as President and co-owner
of Mulberry Lumber Company from 1964-1982.
Danny Criner has 21 years of banking experience and has served as President
of Ozark NWA since January 1990. Since joining Ozark NWA in 1976 Mr. Criner
has served the bank in various capacities including
50
<PAGE>
Executive Vice President, Vice-President and Assistant Cashier. Mr. Criner
joined the Board of Directors of Ozark NWA in 1985 and the Board of Directors
of Ozark WCA in 1996. Mr. Criner holds a B.S.B.A. in Banking and Finance from
the University of Arkansas.
Paul Moore is a C.P.A. and has served as Chief Financial Officer of the
Company and its bank subsidiaries since July 1995. From December 1989 to July
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. Mr. Moore previously worked for the Company, serving
as its treasurer from 1983 to 1988. Prior to 1983 Mr. Moore served as
controller of Winrock Enterprises, Inc. Mr. Moore holds a B.S.B.A. in Banking,
Finance and Accounting from the University of Arkansas.
Jean Arehart has 33 years of banking and related experience and has served
as Executive Vice President of Ozark WCA since May 1997. She joined Ozark WCA
as Senior Vice President in June 1996 and currently manages its residential
mortgage lending operations. Ms. Arehart previously served as Senior Vice
President and a member of the Executive Committee of Twin City Bank (now
Mercantile Bank of Arkansas), where she worked from 1979 to February 1996.
Susan Sisk Grobmyer has 19 years of banking experience and has served as
Executive Vice President of Ozark WCA since May 1997. She joined Ozark WCA in
March 1997 as Senior Vice President and oversees all lending for the Ozark
WCA's Western Division (Van Buren, Mulberry, Ozark, and Clarksville, plus new
offices to be opened in Alma, Paris and Ft. Smith). Ms. Grobmyer previously
served as a Senior Vice President of Commercial Loans for Pulaski Bank from
1995 to 1997 and Twin City Bank (now Mercantile Bank of Arkansas) from 1978 to
1995. Ms. Grobmyer attended the University of Arkansas at Monticello.
Darrel Russell has 15 years of banking experience and has served as
Executive Vice President of Ozark WCA since May 1997. Mr. Russell oversees all
lending (other than residential mortgage loans) for Ozark WCA's Central
Division (metropolitan Little Rock area). Prior to May 1997 Mr. Russell served
as Senior Vice President. He joined Ozark WCA in 1983 after having worked two
years at InterFirst Bank in Houston, Texas. Mr. Russell received a B.S.B.A. in
Banking and Finance from the University of Arkansas.
Harold Beck has 34 years of banking experience. Mr. Beck currently serves
Ozark WCA as Senior Vice President and Cashier with principle responsibilities
for various aspects of operations. He joined Ozark WCA in 1973, and prior to
that time held positions with Union National Bank of Little Rock, First State
Bank of Conway, and Citizens Bank of Booneville. Mr. Beck attended the
University of Central Arkansas.
George Landrum has 24 years of banking experience. Mr. Landrum serves as
Senior Vice President of Ozark NWA and manages its Jasper office. He joined
Ozark NWA in 1973. Mr. Landrum holds a B.S. in Education from Arkansas Tech
University.
Frank Lawrence has six years of banking experience. Mr. Lawrence has served
as Senior Vice President of Ozark WCA since March 1997. He manages the two
Ozark WCA offices in Clarksville. From 1995 to 1997, Mr. Lawrence served as
Vice President of Ozark WCA. He joined the Company's former Arkansas Valley
Bank subsidiary in 1991 as Assistant Vice President and was transferred to
Ozark WCA in 1993 in preparation for opening of the Clarksville offices. Mr.
Lawrence holds a B.A. in Business and Economics from Hendrix College.
Louis Melton has 27 years of banking experience. He currently serves Ozark
NWA as Senior Vice President and commercial loan officer in the Harrison
office. Prior to joining Ozark NWA in 1996, he spent 13 years consecutively
with each of First National Bank in Harrison and Security Bank of Harrison.
Randy Oates has 29 years of advertising and marketing experience, including
17 years in the banking industry. He joined the Company in 1996 as Senior Vice
President in charge of marketing. From 1992 to 1996, he served as Marketing
Director for Commercial National Bank, Shreveport, Louisiana. Prior to 1992 he
held
51
<PAGE>
various marketing positions including President/Partner for nine years at two
advertising firms operating throughout Arkansas and Vice President/Retail
Marketing Manager for six years at Worthen National Bank (now Boatmen's
National Bank of Arkansas).
Mark Pennebaker has 18 years of banking experience and has served as Senior
Vice President of Ozark WCA since May 1997. He joined Ozark WCA in 1996 as
Vice President and is currently engaged in commercial lending. Prior to
joining Ozark WCA, Mr. Pennebaker served as a Vice President and commercial
loan officer at Twin City Bank (now Mercantile Bank of Arkansas) from 1987 to
1996. Mr. Pennebaker joined Twin City Bank in 1984. Prior to that time he was
a Financial Examiner for the Arkansas State Bank Department. He holds a
B.S.B.A. in Finance and Economics from Rockhurst College.
Richard Savage has 16 years of banking and related experience. Mr. Savage
serves as Senior Vice President of Ozark WCA and currently oversees lending in
the Ozark office. Prior to joining Ozark WCA in 1995 he served as Executive
Vice President, Senior Loan Officer and Personnel Officer for the First
National Bank at Paris, where he worked from 1986 to 1995. From 1981 to 1986
Mr. Savage held various positions with Federal Land Bank and Farm Credit
Services affiliates. He holds a B.S. in Agri-Business from the University of
Arkansas.
Betty Thomason has 25 years of banking experience. Ms. Thomason serves as
Senior Vice President of Ozark WCA and currently manages the Ozark WCA offices
in Van Buren and Mulberry. She has also been designated to have management
oversight duties for the proposed offices to be opened in Alma and Ft. Smith.
She joined the Company in 1987, working for its former Arkansas Valley Bank
subsidiary and later transferred to Ozark WCA in 1991. Prior to 1987, Ms.
Thomason worked for three different savings and loans and a commercial bank.
Linda Gleason is the wife of George Gleason. Frank Lawrence is the nephew of
George Gleason. Except for the foregoing, no family relationships exist among
any of the persons named above.
BOARDS OF DIRECTORS
At present the Company's Board of Directors consists of three persons--
George Gleason, Mark Ross and Linda Gleason. These three also serve on the
Boards of Directors of each of the Company's subsidiaries. Ozark WCA's Board
of Directors consists of 15 members, four of whom are non-employee directors.
Ozark NWA's Board of Directors consists of six members, none of whom are non-
employee directors.
On the commencement date of this offering, the respective Boards of
Directors of the Company and its subsidiary banks will be reorganized. To
maximize efficient operations, all three entities will have identical Boards
of Directors which will hold joint meetings. As indicated above, the initial
reorganized Board is expected to consist of ten members, eight of which will
be non-employee Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of both subsidiary banks have previously had an audit
committee, a compensation and personnel committee and other committees as
appropriate. The Company's Board of Directors has voted to establish, subject
to reorganization of the Boards of Directors as described above, a new and
expanded committee structure. These committees will serve both the Company and
its subsidiary banks and will be established on the commencement date of this
offering as described below.
Audit Committee. The Audit Committee will make recommendations concerning
the engagement of the Company's independent public accountants, review the
terms of their engagement, review the accountant's report and all related
reports and matters, coordinate appropriate action in response thereto and
review the adequacy of the Company's internal accounting controls. The Audit
Committee will also receive and review the monthly reports and presentations
of the loan review and compliance officer and the internal auditor, provide
general oversight and direction for their work, and coordinate corrective
action as appropriate. Roger Collins, as Chairman, C. E. Dougan and Robert
East will serve on the Audit Committee.
52
<PAGE>
Compensation and Personnel Committee. The Compensation and Personnel
Committee will consider, approve and review all salaries and bonuses for
officers and employees, recommend to the Board of Directors the election of
officers, review additions and terminations of personnel, oversee
administration of the employee benefit plans and programs, including the Stock
Option Plan, and oversee staff training and educational programs. Henry
Mariani, as Chairman, Porter Hillard, and Kennith Smith will serve on the
Compensation and Personnel Committee.
Trust Committee (Ozark WCA). The operation of the trust department of Ozark
WCA and the administration of its trust accounts will be overseen by the Trust
Committee. R. L. Qualls, as Chairman, Mark Ross and Linda Gleason will serve
on the Trust Committee.
Loan Committees. Loan Committees will be established for each of the three
divisions of the Company and will consist of both board members and executive
officers. Such Loan Committees will have responsibility for reviewing and
approving all loans and aggregate loan relationships in excess of $500,000
secured and $150,000 unsecured and for administering all other aspects of the
lending function within each division. Loan Committees will be established for
each division as follows:
<TABLE>
<CAPTION>
WESTERN CENTRAL NORTHERN
------- ------- --------
<S> <C> <C>
C. E. Dougan, Chairman Robert East, Chairman George Gleason, Chairman
R. L. Qualls Henry Mariani Danny Criner
Susan Grobmyer Linda Gleason George Landrum
Betty Thomason R. Darrel Russell Louis Melton
Frank Lawrence Jean Arehart Bill Witty
Richard Savage Mark Pennebaker Joe Willis
</TABLE>
ALCO and Investments Committee. Management of the asset/liability (interest
rate risk) position, liquidity and investment portfolio will be overseen by
the ALCO and Investments Committee. Paul Moore, as Chairman, Mark Ross, Danny
Criner, and Dan Rolett will serve as the ALCO and Investments Committee.
DIRECTOR COMPENSATION
During 1996 the Company's Board of Directors met 11 times with all directors
present for each meeting, Ozark WCA's board met 14 times with only one absence
reported, and Ozark NWA's board met 13 times with only one absence reported.
The Company has not paid its directors in the past since all have been
employed by the Company. Ozark WCA directors have been paid a fee of $350 for
each board meeting attended. Ozark NWA directors have been paid a fee of $250
for each board meeting attended.
Following completion of this offering, the Company plans to pay non-employee
directors a monthly retainer fee of $500 and a fee of $500 for attendance at
each regular or special board meeting. In addition non-employee directors will
be paid a fee of $100 for attendance at each meeting of a committee of the
Board of Directors. Additionally, under the Company's Director Option Plan,
each non-employee director is automatically granted, on the commencement date
of this offering (or otherwise on the date a director's term of office
commences) and each year thereafter on the day following the annual meeting of
stockholders (as long as such director's term as a director is continuing for
the ensuing year), an option to acquire 1,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date
of grant. All options granted to non-employee directors become exercisable
upon grant.
LIMITATIONS ON DIRECTOR AND OFFICER LIABILITY
Article Tenth of the Company's Amended and Restated Articles of
Incorporation provides that the Company shall, to the full extent permitted by
Section 4-27-850 of the Arkansas Business Corporation Act, indemnify all
persons whom it may indemnify pursuant thereto.
53
<PAGE>
Article Ninth of the Company's Amended and Restated Articles of
Incorporation provides that the Company's directors will not be personally
liable to the Company or any of its stockholders for monetary damages
resulting from breaches of their fiduciary duty as directors except (a) for
any breach of the director's duty of loyalty to the Company or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 4-27-
833 of the Arkansas Business Corporation Act, as the same exists or hereafter
may be amended, (d) for any transactions from which the director derived an
improper personal benefit, or (e) for any act, omission, transaction, or
breach of a director's duty creating any third party liability to any person
or entity other than the Company or stockholder.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for fiscal 1996, 1995 and
1994 paid by the Company to its Chief Executive Officer and its other
executive officers whose aggregate remuneration exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION/(1)/
--------------------------- ------ -------- -------- -----------------
<S> <C> <C> <C> <C>
George Gleason/(2)/.................. 1996 $405,900 $200,000 $ 4,636
Chairman and Chief Executive Officer 1995 396,000 95,832 6,100
1994 395,770 -- 5,159
Mark Ross............................ 1996 92,781 22,042 4,047
President 1995 90,876 21,683 5,029
1994 89,756 18,000 4,503
</TABLE>
- --------
(1) Represents contributions to the Company's ESOP.
(2) Effective on the commencement date of this offering, Mr. Gleason's salary
and bonus will be determined pursuant to a written employment agreement.
See "--Employment Agreement with Mr. Gleason."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Ozark WCA compensation committee, consisting of Linda Gleason, Porter
Hillard, and Kennith Smith, has been principally responsible for establishing
salary, bonus and other aspects of compensation for Ozark WCA employees and
other employees of the Company whose salaries are allocated among the Company
and/or its bank subsidiaries. Ms. Gleason has abstained from voting in regard
to Mr. Gleason's salary or bonus. As a member of the Board of Directors of the
Company and as one of the three members of the compensation committee of Ozark
NWA, Mr. Gleason participated in deliberations concerning executive
compensation, including the allocation of his salary among the Company and its
two bank subsidiaries.
As discussed in "--Committees of the Board of Directors," beginning on the
commencement date of this offering, three non-employee directors (Messrs.
Mariani, Smith and Hillard) will serve as the Compensation and Personnel
Committee for the Company and its bank subsidiaries.
EMPLOYMENT AGREEMENT WITH MR. GLEASON
Mr. Gleason has entered into an employment agreement with the Company
effective on the commencement date of this offering and continuing through
December 31, 2000. The agreement provides Mr. Gleason with an annual base
salary of $318,000, subject to an annual cost of living adjustment, and an
annual bonus equal to 1% of the Company's net income for each fiscal year. Mr.
Gleason will continue to be paid his present base salary
54
<PAGE>
until the commencement of this offering, at which time the base salary under
the agreement will commence. Mr. Gleason's 1997 bonus will be 1% of the
Company's 1997 net income. This agreement is in addition to any other
compensation that may be received by Mr. Gleason under employee benefit plans
or reimbursement arrangements.
STOCK OPTION PLAN
The Company's Board of Directors and stockholders adopted a Stock Option
Plan in May 1997 to take effect on the commencement date of this offering. The
purpose of the Stock Option Plan will be to provide an additional incentive to
executive officers and employees to put forth maximum efforts for the success
of the Company's business and to serve the best interests of the stockholders.
Under the Stock Option Plan, the Compensation and Personnel Committee or the
full Board of Directors of the Company may grant executive officers and key
employees options to purchase shares of Common Stock at prices not less than
the fair market value of such shares on the date of grant. Additionally, the
Compensation and Personnel Committee or the full Board of Directors will
determine, among other things, the number of shares subject to option grants
and the terms and conditions of such grants, including the dates upon which
such options vest and become exercisable and provisions relating to
termination of such options. As of the effective date of this offering,
285,000 shares of Common Stock will be reserved and available for issuance
under this Stock Option Plan including 95,000 shares anticipated to be granted
under such plan on the commencement date of this offering at an exercise price
equal to the initial public offering price. For information concerning grants
of options under the Director Option Plan, see "--Director Compensation."
EMPLOYEE STOCK OWNERSHIP PLAN
In 1980 the Company adopted the ESOP to assist officers and employees in
acquiring stock ownership interest in the Company and to encourage them to
remain in the employment of the Company. The Company's Board of Directors
determines in its discretion the amount of any contribution to be made to the
ESOP each year, and employees are not permitted to make contributions to the
ESOP. The Company's contributions are allocated to the accounts of
participating employees in the proportion that each participant's eligible
compensation bears to the total eligible compensation of all participants for
the applicable year. Substantially all of the Company's contributions are
invested in Common Stock. Participants in the ESOP become fully vested after
seven years of service, although cash or shares are not distributed until
employment is terminated. At December 31, 1996, 103 employees of the Company
participated in the ESOP and 372,100 shares of Common Stock were held by the
ESOP.
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 of 1986, as amended (the "Code") (the "401(k) Plan"). The 401(k)
Plan will permit the employees of the Company to defer a portion of their
compensation in accordance with the provisions of Section 401(k) of the Code.
The 401(k) Plan will allow participants to defer a portion of their eligible
compensation on a pre-tax basis subject to certain maximum amounts. Matching
contributions may be made in amounts and at times determined by the Company.
The 401(k) Plan provides for Company matching contributions, if determined by
the Company to be made, up to a maximum of two percent of the participant's
salary per year. No other Company matching contributions are contemplated at
this time. 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 five years and will be held in trust
until distributed pursuant to the terms of the 401(k) Plan.
Employees of the Company will be eligible to participate in the 401(k) Plan
if 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.
55
<PAGE>
CERTAIN TRANSACTIONS
Each of Ozark WCA and Ozark NWA has had, in the ordinary course of business,
banking transactions with certain of its officers and directors and with
certain officers and directors of the Company. All loan transactions with
officers and directors of the Company, Ozark WCA and Ozark NWA, and their
related and affiliated parties, have been on substantially the same terms as
those prevailing for comparable transactions with other loan customers of the
Company and have not included more than the normal risk of collectibility
associated with the Company's other banking transactions or other unfavorable
features.
Mr. Gleason has received a guaranty fee in the amount of 1% per annum of the
Company's loans personally guaranteed by him. In 1996 Mr. Gleason received
$38,000 for his guaranty of the Company's $3.8 million loan from December 21,
1995 to December 21, 1996. In the first quarter of 1997 he received a similar
fee for the period commencing December 21, 1996. Also in 1996 Mr. Gleason
received $15,000 for his personal guaranty in connection with the Company's
$1.5 million loan for the period commencing September 26, 1996.
During 1996 Ms. Gleason received a $38,000 fee in consideration of her
personal guaranty of such $3.8 million loan from December 21, 1995 to December
21, 1996. In the first quarter of 1997 she received a similar fee for the
period commencing December 21, 1996.
As of May 16, 1997, the Company refinanced such loans without personal
guaranties and accordingly, no such guaranty fees will be payable in
connection with the Company's current indebtedness.
56
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 26, 1997, and as
adjusted to reflect the sale of shares of Common Stock offered hereby by the
Company and the Selling Stockholders, for (i) each person who is known by the
Company to beneficially own more than 5.0% of the outstanding shares of Common
Stock, (ii) each of the Selling Stockholders, (iii) each director and director
elect, (iv) each executive officer named in the Summary Compensation Table and
(v) all of the current directors, directors elect and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
SHARES OWNED BEFORE SHARES OWNED AFTER
THE OFFERING THE OFFERING
-------------------------- SHARES BEING ------------------------
NAME NUMBER(/1/) % OFFERED NUMBER(/1/) %
---- -------------- ------- ------------ -------------- ------
<S> <C> <C> <C> <C> <C>
George Gleason.......... 1,619,267(/2/) 56.2% 316,900 1,302,367(/2/) 36.4%
ESOP/(3)/............... 372,100 12.9 -- 372,100 10.4
Holt-Ross Children's
Trusts (Nos. 1-6)...... 217,800 7.6 181,500 36,300 1.0
Holt-Ross
Grandchildren's Trust.. 133,300 4.6 133,300 -- --
Mark Ross/(4)/.......... 125,197 4.4 -- 125,197 3.5
Kennith
Smith/(5)//(6)/........ 32,700 1.1 -- 33,700(/8/) *
Linda Gleason/(7)/...... 9,853 * -- 10,853(/8/) *
Roger Collins/(5)/...... -- -- -- 1,000(/8/) *
C. E. Dougan/(5)/....... -- -- -- 1,000(/8/) *
Robert East/(5)/........ -- -- -- 1,000(/8/) *
Porter Hillard/(5)/..... -- -- -- 1,000(/8/) *
Henry Mariani/(5)/...... -- -- -- 1,000(/8/) *
R. L. Qualls/(5)/....... -- -- -- 1,000(/8/) *
All directors and
executive officers as a
group (23 persons)..... 1,925,667 66.9 316,900 1,616,767 45.2
</TABLE>
- --------
* Less than one percent.
(1) Includes beneficial ownership of shares with respect to which voting or
investment power may be deemed to be directly or indirectly controlled.
Accordingly, the shares in the foregoing table include shares owned
directly, shares held in such person's accounts under the ESOP, shares
owned by certain of the individual's family members and shares held by the
individual as a trustee or other similar capacity, unless otherwise
described below.
(2) Excludes shares owned of record by the ESOP, except for 91,267 shares held
in Mr. Gleason's account. Mr. Gleason is one of three trustees of the plan
and disclaims beneficial ownership of all shares held by such plan except
for those held in his account. The amount also excludes an aggregate of
351,100 shares (314,800 of which are being sold pursuant to this offering)
held by the Holt-Ross Children's Trust Nos. 1-6 and the Holt-Ross
Grandchildren's Trust, for which Mr. Gleason serves as trustee, but
disclaims beneficial ownership. Mr. Gleason plans to resign as trustee of
these trusts following completion of this offering. The amount includes
210,700 shares owned of record by a trust of which Mr. Gleason is sole
trustee and has a 25% life income interest and 400 shares owned of record
by the minor children of Mr. Gleason. The address for Mr. Gleason is 425
West Capitol Avenue, Suite 3100, Little Rock, Arkansas 72201.
(3) The ESOP is an employee stock ownership plan and trust established for the
benefit of the Company's officers and employees. Messrs. Gleason and Ross
and Ms. Gleason each serve as trustees for the plan. Following completion
of this offering, the ESOP will be amended to allow participants to vote
the shares allocated to their respective accounts on all matters submitted
to the Company's stockholders for approval.
(4) Excludes shares owned of record by the ESOP, except for 27,497 held in Mr.
Ross' account. Mr. Ross is one of three trustees of the plan and disclaims
beneficial ownership of all shares held by such plan except for those held
in his account. Includes 36,300 shares owned of record by a trust for the
benefit of Mr. Ross and his children. Mr. Gleason serves as trustee of
this trust and Mr. Ross maintains a life income interest only.
(5) Director elect.
(6) Shares held jointly with spouse.
(7) Excludes shares owned of record by the ESOP, except for 9,853 shares held
in Ms. Gleason's account. Ms. Gleason is one of three trustees of the plan
and disclaims beneficial ownership of all shares held by such plan except
for those held in her account.
(8) On the commencement date of this offering, each non-employee director will
be granted presently exercisable options to purchase 1,000 shares of
Common Stock under the Director Option Plan at an exercise price equal to
the initial public offering price. See "Management--Director
Compensation."
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Common Stock and the
Preferred Stock of the Company does not purport to be complete and is subject
to, and qualified in its entirety by, the Amended and Restated Articles of
Incorporation and Bylaws of the Company that are included as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.
The Company is authorized to issue 10,000,000 shares of Common Stock, $.01
par value of which 2,879,800 shares were outstanding as of June 26, 1997, and
1,000,000 shares of Preferred Stock, $.01 par value, of which no shares were
outstanding as of June 26, 1997.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences applicable to any outstanding Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock have no preemptive or subscription rights and there are no redemption or
conversion rights with respect to such shares. Upon liquidation or dissolution
of the Company, after satisfaction of any liquidation preferences of any
outstanding Preferred Stock, holders of Common Stock are entitled to receive
pro rata all assets remaining available for distribution. The outstanding
shares of Common Stock are fully paid and non-assessable.
Subject to the rights of holders of any Preferred Stock then outstanding,
dividends may be paid to the holders of Common Stock when, as and if declared
by the Board of Directors out of funds legally available therefor. Federal and
state banking regulations place numerous restrictions on the ability of Ozark
WCA and Ozark NWA to pay dividends to the Company. See "Dividend Policy" and
"Supervision and Regulation--Subsidiary Banks."
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of such
Preferred Stock in one or more series and to fix the dividend rate, conversion
rights, voting rights, rights and terms of redemption, redemption price or
prices, liquidation preferences and qualifications, limitations and
restrictions thereof with respect to each series. Although the Company has no
present intention to issue shares of Preferred Stock, the issuance of shares
of Preferred Stock or the issuance of rights to purchase such shares, could
have an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in his best interest,
including attempts that might result in a premium over the market price for
the shares held by such stockholder.
CERTAIN CHARTER PROVISIONS
The Company's Amended and Restated Articles of Incorporation and Bylaws
contain certain provisions that could delay, discourage or prevent an
attempted acquisition or change of control of the Company. These provisions
(i) allow the Board of Directors to elect to classify or stagger the Board of
Directors at any point in the future, provided the Board is comprised of at
least nine (9) members as required by Arkansas law, (ii) allow directors to be
removed for cause only by a minimum of two-thirds ( 2/3) vote of stockholders,
(iii) give the Board of Directors the sole power to fix or change the size of
the Board of Directors and to create and fill vacancies on the Board of
Directors, and (iv) require stockholders to submit proposals for the annual
meeting of stockholders thirty (30) days in advance of the fiscal year end.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be Union Planters
National Bank, Memphis, Tennessee.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
3,579,800 shares of Common Stock. Of these shares, 1,331,700 shares of Common
Stock sold in this offering, and 443,000 shares held by non-affiliates for a
period of at least two years prior to this offering, will be freely tradeable
without restriction under the Securities Act. Following the expiration of the
90-day period immediately after the effectiveness of the Company's
registration statement under the Securities Act, 11,900 shares will be
eligible for sale in accordance with SEC Rule 144 (described below). Further,
following expiration or release from the 180 day lock-up agreements with the
Underwriters, 1,793,200 additional shares of Common Stock will be eligible for
sale in accordance with Rule 144.
The Company, Mr. Gleason and the other executive officers and directors of
the Company have agreed that they will not, without the prior written consent
of the Representative, offer, sell, or otherwise dispose of any shares of
Common Stock beneficially owned by them for a period of 180 days from the date
of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for
at least one year, including the holding period of any securities which
converted into such shares and including the holding period for any prior
owner except an affiliate of the issuer (as defined below), is entitled to
sell, within a three-month period, that number of shares that does not exceed
the greater of 1.0% of the then outstanding shares of Common Stock or the
average weekly trading volume of the Common Stock on the Nasdaq National
Market during the four calendar weeks immediately preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice and availability of current public information regarding the
Company. Any person (or persons whose shares are aggregated) who has not been
an affiliate of the Company at any time during the three months preceding a
sale, and who has beneficially owned shares for at least two years (including
any period of ownership of preceding non-affiliated holders), is entitled to
sell such shares under Rule 144 without regard to the volume limitations,
manner of sale provisions or notice or current public information
requirements. Affiliates, however, continue to be subject to such volume
limitations and other requirements. As defined in Rule 144, an affiliate of an
issuer is a person who directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with,
such issuer, and generally includes members of the Board of Directors and
senior management.
The Company expects to file registration statements on Form S-8 under the
Securities Act to register all of the shares of Common Stock issued or
reserved for future issuance under the Stock Option Plan, Director Option Plan
and ESOP. After the effective date of those registration statements (and the
expiration of the lock-up agreements, if applicable), shares issued pursuant
to such plans generally would be available for resale in the public market,
subject to the application of Rule 144 to affiliate transactions.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of such shares for
sale to the public will have on the market price prevailing from time to time.
Sales of substantial amounts of Common Stock following completion of this
offering could adversely affect the market price of the Common Stock.
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Stephens Inc.
is acting as Representative (the "Representative"), has severally agreed to
purchase the aggregate number of shares of Common Stock set forth opposite its
name below, at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. In the
Underwriting Agreement, the several Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of
Common Stock offered hereby if any shares of Common Stock are purchased. In
the event of default by an Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the nondefaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Stephens Inc....................................................
---------
Total......................................................... 1,331,700
=========
</TABLE>
The Company has granted the Underwriters an option, exercisable in whole or
in part, from time to time, for thirty days after the date hereof, to purchase
up to 199,755 additional shares of Common Stock to cover over-allotments, if
any, at the public offering price, less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased
by it shown in the foregoing table bears to the 1,331,700 shares of Common
Stock offered hereby.
The Underwriters have advised the Company that sales of Common Stock to
certain dealers may be made at a concession of an amount not in excess of $
per share and that the Underwriters may allow, and such dealers may re-allow,
discounts not in excess $ per share on sales to certain other dealers.
Following completion of this offering, the public offering price, the
concession and the re-allowance may be changed by the Underwriters.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined by negotiation between the Company and the Representative of the
Underwriters. Among the factors to be considered in such negotiation will be
the Company's operating performance, financial condition and earnings
prospects, market prices of similar securities of comparable publicly traded
companies and the general condition of the securities markets. The initial
public offering price may not necessarily be indicative of the market price
for the Common Stock following completion of this offering.
The Underwriters do not intend to confirm sales of shares of Common Stock to
any account over which they exercise discretionary authority without prior
authorization. The Representative intends to make a market in the Common Stock
following completion of this offering.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the Underwriters by selling more Common Stock in connection with this offering
than they are committed to purchase from the Company and the Selling
Stockholders, and in such case may purchase Common Stock in the open market
following completion of this offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position by exercising the Underwriters' over-allotment option referred to
above. In addition the Representative may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the offering) for the account
60
<PAGE>
of the other Underwriters, the selling concession with respect to Common Stock
that is distributed in this offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain civil liabilities under the Securities
Act and to afford the Underwriters certain rights of contribution.
The Company, Mr. Gleason and the other executive officers and directors of
the Company have agreed with the Underwriters not to offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for shares of Common Stock,
with limited exceptions, for a period of 180 days from the date following
completion of this offering. Other employees of the Company who purchase
shares in this offering will also be restricted from selling, transferring,
assigning, pledging or hypothecating such shares for a period of three months
following the effective date of this offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Rose Law Firm, a Professional Association, Little
Rock, Arkansas. Certain legal matters will be passed upon for the Underwriters
by Giroir, Gregory, Holmes & Hoover, PLC, Little Rock, Arkansas.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31, 1995
and 1996 and for each of the years then ended included in this Prospectus have
been included herein in reliance upon the report of Moore Stephens Frost,
P.A., independent certified public accountants, given upon their authority as
experts in accounting and auditing. The Consolidated Financial Statements of
the Company for the year ended December 31, 1994 included in this Prospectus
have been included herein in reliance upon the report of Baird, Kurtz &
Dobson, independent certified public accountants, given upon their authority
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the SEC, Washington D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the Common
Stock offered hereby. The Prospectus does not contain all the information set
forth in the Registration Statement and exhibits and schedules thereto. For
further information with respect to the Company and such Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as part thereof. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference to such
exhibit.
As a result of this offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports and other information with the
Commission. A copy of the Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the Commission's
principal offices, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its
public reference facilities in New York, New York, and Chicago, Illinois, upon
payment of prescribed fees. The Commission also maintains a Web site
containing the Registration Statement and all exhibits and schedules thereto
that can be accessed at http://www.sec.gov.
The Company intends to furnish the holders of Common Stock with annual
reports containing financial statements audited by an independent certified
public accounting firm.
61
<PAGE>
BANK OF THE OZARKS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Accountants....................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 and March 31,
1997 (unaudited)........................................................ F-4
Consolidated Statements of Income for the years ended December 31, 1994,
1995, and 1996 and for the three months ended March 31, 1996 (unaudited)
and March 31, 1997 (unaudited).......................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and the three months ended March 31,
1997 (unaudited)........................................................ F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and for the three months ended March 31, 1996
(unaudited) and March 31, 1997 (unaudited).............................. F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Bank of the Ozarks, Inc.
We have audited the accompanying consolidated balance sheets of Bank of the
Ozarks, Inc. and Subsidiaries ("the Company") (formerly Ozark Bankshares,
Inc.) as of December 31, 1995 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Bank of the Ozarks, Inc. and Subsidiaries as of December 31, 1995 and 1996,
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Moore Stephens Frost, P.A.
Little Rock, Arkansas
January 24, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Bank of the Ozarks, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Bank of the Ozarks, Inc. and
Subsidiaries ("the Company") (formerly Ozark Bankshares, Inc.) for the year
ended December 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash
flows of Bank of the Ozarks, Inc. and Subsidiaries for the year ended December
31, 1994, in conformity with generally accepted accounting principles.
Baird, Kurtz & Dobson
Fort Smith, Arkansas
January 20, 1995
F-3
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
ASSETS
Cash and due from banks.......................... $ 9,063 $ 6,815 $ 8,453
Securities--available for sale................... 32,550 36,883 39,501
Securities--held to maturity..................... 4,587 2,725 2,669
Federal funds sold............................... 4,080 350 100
Loans, net....................................... 151,289 211,443 221,401
Bank premises and equipment, net................. 6,380 6,872 8,930
Foreclosed assets held for sale, net............. 29 47 113
Interest receivable.............................. 1,988 2,552 2,846
Excess cost over fair value of net assets
acquired, at amortized cost..................... 1,451 1,394 1,380
Other............................................ 1,059 1,519 1,549
-------- -------- --------
Total assets................................. $212,476 $270,600 $286,942
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand--non-interest bearing.................... $ 16,961 $ 21,295 $ 23,772
NOW, savings and MMDA's......................... 42,002 56,929 59,195
Time............................................ 123,500 153,424 164,296
-------- -------- --------
Total deposits................................... 182,463 231,648 247,263
Notes payable.................................... 3,920 5,396 5,396
FHLB advances and federal funds purchased........ 7,947 12,727 12,232
Accrued interest and other liabilities........... 1,852 2,282 2,975
-------- -------- --------
Total liabilities............................ $196,182 $252,053 $267,866
======== ======== ========
Commitments and contingencies (note 12)
Stockholders' equity
Common stock; $0.01 par value; Authorized
10,000,000 shares; 2,879,800 shares issued and
outstanding.................................... 29 29 29
Additional paid-in capital...................... 1,168 1,168 1,168
Retained earnings............................... 15,088 17,251 17,920
Unrealized appreciation (depreciation) on
investment securities.......................... 9 99 (41)
-------- -------- --------
Total stockholders' equity....................... 16,294 18,547 19,076
-------- -------- --------
Total liabilities and stockholders' equity... $212,476 $270,600 $286,942
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Interest income
Loans.................... $10,361 $13,006 $19,089 $4,298 $5,307
Investment securities--
taxable................. 1,771 2,079 2,069 480 612
- --nontaxable............... 385 424 364 103 55
Federal funds sold....... 58 109 145 43 22
Deposits with banks...... 70 85 169 57 20
------- ------- ------- ------ ------
Total interest income...... 12,645 15,703 21,836 4,981 6,016
------- ------- ------- ------ ------
Interest expense
Deposits................. 4,513 7,357 9,005 2,084 2,595
Interest on borrowed
funds................... 118 26 1,025 198 302
Federal funds purchased.. 20 8 1 1 3
------- ------- ------- ------ ------
Total interest expense..... 4,651 7,391 10,031 2,283 2,900
------- ------- ------- ------ ------
Net interest income........ 7,994 8,312 11,805 2,698 3,116
Provision for loan
losses.................. (339) (360) (1,486) (221) (259)
------- ------- ------- ------ ------
Net interest income after
provision for loan
losses.................... 7,655 7,952 10,319 2,477 2,857
------- ------- ------- ------ ------
Other income
Income from fiduciary
activities.............. 146 231 214 47 59
Service charges on
deposit accounts........ 492 514 806 143 211
Other service charges and
fees.................... 115 361 537 116 190
Gain (loss) on sale of
securities.............. -- (44) (77) 21 10
Gain on sale of
subsidiary.............. 1,377 -- -- -- --
Other income............. 583 106 385 31 286
------- ------- ------- ------ ------
Total other income......... 2,713 1,168 1,865 358 756
------- ------- ------- ------ ------
Other expense
Salaries and employee
benefits................ 2,873 3,374 4,263 932 1,238
Net occupancy and
equipment............... 569 745 998 234 285
Other operating
expenses................ 2,293 1,877 1,890 459 596
------- ------- ------- ------ ------
Total other expense........ 5,735 5,996 7,151 1,625 2,119
------- ------- ------- ------ ------
Income before income taxes
and minority interest..... 4,633 3,124 5,033 1,210 1,494
Income taxes............. 1,555 845 2,006 429 537
------- ------- ------- ------ ------
Income before minority
interest.................. 3,078 2,279 3,027 781 957
Minority interest in
earnings of
subsidiaries............ 124 109 -- -- --
------- ------- ------- ------ ------
Net income................. $ 2,954 $ 2,170 $ 3,027 $ 781 $ 957
======= ======= ======= ====== ======
Earnings per common share.. $ 0.99 $ 0.75 $ 1.05 $ 0.27 $ 0.33
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
ADDITIONAL (DEPRECIATION)
COMMON PAID-IN RETAINED ON INVESTMENT
STOCK CAPITAL EARNINGS SECURITIES TOTAL
------ ---------- -------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance--January 1, 1994.... $30 $1,704 $11,750 $ -- $13,484
Effect of change in
accounting method for
investment securities.... -- -- -- (146) (146)
Net income................ -- -- 2,954 -- 2,954
Dividend paid............. -- -- (893) -- (893)
Change in unrealized
appreciation
(depreciation) on
investment securities.... -- -- -- (323) (323)
--- ------ ------- ----- -------
Balance--December 31, 1994.. 30 1,704 13,811 (469) 15,076
Net income................ -- -- 2,170 -- 2,170
Dividend paid............. -- -- (893) -- (893)
Redemption of common
stock.................... (1) (536) -- -- (537)
Change in unrealized
appreciation on
investment securities.... -- -- -- 478 478
--- ------ ------- ----- -------
Balance--December 31, 1995.. 29 1,168 15,088 9 16,294
Net income................ -- -- 3,027 -- 3,027
Dividend paid............. -- -- (864) -- (864)
Change in unrealized
appreciation on
investment securities.... -- -- -- 90 90
--- ------ ------- ----- -------
Balance--December 31, 1996.. 29 1,168 17,251 99 18,547
Net income................ -- -- 957 -- 957
Dividend paid............. -- -- (288) -- (288)
Change in unrealized
appreciation
(depreciation) on
investment securities.... -- -- -- (140) (140)
--- ------ ------- ----- -------
Balance--March 31, 1997
(unaudited)................ $29 $1,168 $17,920 $ (41) $19,076
=== ====== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income.............. $ 2,954 $ 2,170 $ 3,027 $ 781 $ 957
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation............ 309 370 505 114 131
Amortization............ 64 134 126 13 14
Provision for loan
losses................. 339 360 1,486 221 259
Provision for losses on
foreclosed assets...... 452 124 11 1 3
Amortization and
accretion on investment
securities............. (63) (14) 9 5 --
Loss on disposition of
investments............ -- 44 77 -- --
(Gain) loss on sale of
loans.................. (44) -- (274) -- (68)
Gain on disposition of
premises and
equipment.............. (24) (24) (1) -- (45)
Gain on disposition of
foreclosed assets...... (360) (23) (14) -- (138)
Gain on sale of
subsidiary............. (972) -- -- -- --
Deferred income tax
provision (benefit).... 357 (49) (292) (29) (42)
Undistributed earnings
of minority interest... 275 -- -- -- --
Changes in assets and
liabilities
Interest receivable.... (199) (454) (563) (180) (294)
Refundable income
taxes................. 124 -- -- -- --
Other, net............. (175) 846 (237) (185) 11
Accrued interest and
other liabilities..... 377 708 375 613 780
Income taxes payable... 5 -- -- -- --
Minority interest...... -- (600) -- -- --
-------- -------- -------- -------- --------
Net cash provided (used)
by operating
activities.............. 3,419 3,592 4,235 1,354 1,568
-------- -------- -------- -------- --------
Cash flows from investing
activities
Proceeds from sales and
maturities of
securities available
for sale............... 5,230 15,116 28,784 10,242 1,566
Purchases of securities
available for sale..... (17,387) (20,354) (32,904) (13,333) (4,411)
Proceeds from maturities
of securities held to
maturity............... -- 13,696 1,862 101 56
Purchases of securities
held to maturity....... -- (4,283) -- -- --
Decrease (increase) in
federal funds sold..... -- (4,080) 3,730 1,945 250
Net increase in loans... (11,856) (40,530) (64,008) (11,544) (11,052)
Proceeds from sale of
loans.................. 474 -- 2,252 -- 811
Proceeds from
dispositions of bank
premises and
equipment.............. 166 57 1 -- 117
Purchase of bank
premises and
equipment.............. (1,320) (2,930) (997) (272) (2,261)
Proceeds from
dispositions of
foreclosed assets...... 478 97 221 28 162
Proceeds from sale of
subsidiary............. 3,946 -- -- -- --
Cash liquidated upon
sale of subsidiary..... (6,755) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided (used)
by investing
activities.............. (27,024) (43,211) (61,059) (12,833) (14,762)
-------- -------- -------- -------- --------
Cash flows from financing
activities
Net increase in
deposits............... 17,454 34,011 49,184 12,328 15,615
Proceeds from FHLB ad-
vances and federal
funds purchased........ -- 7,947 4,780 -- --
Payments of FHLB
advances and federal
funds purchased........ -- -- -- -- (495)
Proceeds from notes
payable................ -- 3,920 1,500 -- --
Payments of notes
payable................ (2,277) -- (24) -- --
Dividends paid.......... (893) (893) (864) (864) (288)
Redemption of common
stock.................. -- (537) -- -- --
-------- -------- -------- -------- --------
Net cash provided (used)
by financing
activities.............. 14,284 44,448 54,576 11,464 14,832
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............. (9,321) 4,829 (2,248) (15) 1,638
Cash and cash
equivalents--beginning
of period............... 13,555 4,234 9,063 9,063 6,815
-------- -------- -------- -------- --------
Cash and cash
equivalents--end of
period.................. $ 4,234 $ 9,063 $ 6,815 $ 9,048 $ 8,453
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Bank of the Ozarks, Inc. (formerly
Ozark Bankshares, Inc.) conform with generally accepted accounting principles
and practices within the banking industry. The financial statements for the
three months ended March 31, 1996 and 1997 are unaudited and, in the opinion
of management, include all adjustments necessary (which consist of only normal
recurring adjustments) for a fair presentation of the financial position,
results of operations and cash flows for the interim periods. The financial
information and results of operations of the interim periods are not
necessarily indicative of the financial position and results of operations
that may be obtained for a full fiscal year.
The policies that materially effect financial position and the results of
operations are summarized as follows:
a. Principles of consolidation--The consolidated financial statements
include the accounts of Bank of the Ozarks, Inc., and its wholly-owned
subsidiaries Bank of the Ozarks, wca, Bank of the Ozarks, nwa and Ozark
Commercial Corporation (collectively the "Company"). The Company is a multi-
bank holding company that operates under the rules and regulations of the
Board of Governors of the Federal Reserve System. Significant intercompany
transactions and amounts have been eliminated in consolidation.
During 1995, the Company acquired the remaining stock owned by minority
shareholders of Bank of the Ozarks, wca (5.964%) and Bank of the Ozarks, nwa
(4.273%). Bank holding companies, Bankstock One, Inc. and Newco Corporation,
owned the majority of Bank of the Ozarks, wca and Bank of the Ozarks, nwa,
respectively, at December 31, 1994. During 1995, these holding companies were
merged into the respective banks after the remaining stock of the minority
shareholders were purchased.
Ozark Financial Services, Inc., which was engaged in the offering of
mortgage brokerage and related services, was liquidated during 1995.
b. Nature of operations--Bank of the Ozarks, wca and Bank of the Ozarks, nwa
("the Banks") are state-chartered commercial banks with offices located in
northern, western and central Arkansas. The Banks are subject to competition
from other area financial institutions. The Banks are also subject to the
regulation of certain federal and state agencies and undergo periodic
examinations by those regulatory authorities. Ozark Commercial Corporation is
in the business of originating and servicing loans with the loans originated
being sold to investors.
c. Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. These estimates and assumptions also affect the
reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
d. Cash and cash equivalents--For purposes of reporting cash flows, cash and
cash equivalents include cash on hand and amounts due from banks. For the
purpose of presentation in the consolidated statements of cash flows, cash and
cash equivalents are defined as those amounts classified as cash on hand and
due from banks.
e. Investment securities--Investments in debt and equity securities are
classified into three categories: securities held as trading securities,
securities which are available-for-sale and securities being held-to-maturity.
These categories are defined as follows:
Trading securities--Securities held principally for resale in the near
term are classified as trading account securities and recorded at their
fair values. Unrealized gains and losses on trading accounts
F-8
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
securities are included immediately in other income. The Company had no
trading securities at December 31, 1995 and 1996 and March 31, 1997.
Held-to-maturity securities--General Obligation Bonds, Industrial
Development Revenue Bonds, Revenue Bonds and other securities which the
Company has the intent and ability to hold to maturity are reported at
cost, adjusted for premiums and discounts that are recognized in interest
income using the interest method over the period to maturity.
Available-for-sale securities--Available-for-sale securities consists of
bonds, notes, debentures, and certain equity securities not classified as
trading securities or as held-to-maturity securities. Unrealized holding
gains and losses, net of tax, on available-for-sale securities are reported
as a net amount in a separate component of stockholders' equity.
f. Loans and allowance for loan losses--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, the allowance for loan losses, and any deferred fees or costs on
originated loans and unamortized premiums or discounts on purchased loans.
Loans are stated at the amount of unpaid principal, reduced by unearned
discounts and the allowance for loan losses. Unearned discounts on installment
loans are recognized as income over the terms by the rule of 78's 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 to
the extent that the net effect of such items is material. For the periods
presented such amounts were not deemed material and therefore were recognized
as actually received and paid.
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, historical loan loss experience and current
economic and business conditions that may affect the borrowers' ability to pay
or the value of the collateral securing the loans. The Company's policy
generally is to place a loan on nonaccrual status when payment of principal or
interest is contractually past due 90 days, or earlier when concern exists as
to the ultimate collection of principal and interest. The Company continues to
accrue interest on certain loans contractually past due 90 days if such loans
are both well secured and in the process of collection.
The Company considers a loan to be impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms thereof. The
Company applies this policy even if delays or shortfalls in payment are
expected to be insignificant. All nonaccrual loans, except consumer
installment loans, and all loans that have been restructured from their
original contractual terms are considered impaired loans. Nonaccrual consumer
installment loans are evaluated collectively since they are considered to be
small-balance, homogenous 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.
F-9
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
g. Bank premises and equipment--Land is carried at cost. Bank premises and
equipment are stated at cost less accumulated depreciation. Depreciation is
provided over the estimated useful lives of the related assets by the
straight-line method for financial statement purposes and accelerated methods
for tax purposes. Leasehold improvements are capitalized and amortized by the
straight-line method over the estimated useful lives of the improvements.
h. Foreclosed assets held for sale--Real estate 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, the property is amortized over 60 months. 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.
i. Income taxes--The Company utilizes the liability method in accounting for
income taxes. This method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the financial statements or tax returns. Under this method,
deferred tax assets or 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.
j. 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 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
materially affect reported net income.
k. Excess cost over fair value of net assets acquired--The excess of cost
over fair value of net assets acquired has been amortized over a forty year
period using the straight-line method. The Company expects to continue to
amortize the majority of these intangible assets over the 40 year period but,
in accordance with applicable accounting policy, will prospectively reduce the
amortization period to 25 years for all assets acquired after December 23,
1981. This change will increase annual amortization expense from $56 to $57.
l. Earnings per share--Earnings per share has been calculated based on the
weighted average number of shares outstanding. Earnings per share has been
adjusted to reflect the 99-for-1 stock dividend as more fully discussed in
note 21.
m. 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.
n. Advertising and public relations expense--Advertising and public
relations expense is expensed as incurred and totaled $139, $101 and $123 for
the years ended December 31, 1994, 1995 and 1996, respectively, and $17 and
$45 for the three month periods ended March 31, 1996 and 1997, respectively.
F-10
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
2. INVESTMENT SECURITIES
The amortized cost and approximate market values of investment securities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
SECURITIES--AVAILABLE FOR SALE
Securities of United States government
and agencies......................... $14,001 $ 16 $(186) $13,831
Mortgage-backed securities............ 14,014 209 (70) 14,153
State and political subdivisions...... 3,539 61 (15) 3,585
Other securities...................... 981 -- -- 981
------- ---- ----- -------
Total securities--available for
sale............................... $32,535 $286 $(271) $32,550
======= ==== ===== =======
SECURITIES--HELD TO MATURITY
State and political subdivisions...... $ 4,587 $ 20 $ (1) $ 4,606
------- ---- ----- -------
Total securities--held to maturity.. $ 4,587 $ 20 $ (1) $ 4,606
======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
SECURITIES--AVAILABLE FOR SALE
Securities of United States government
and agencies......................... $23,881 $ 71 $ (56) $23,896
Mortgage-backed securities............ 10,119 162 (25) 10,256
State and political subdivisions...... 1,369 20 (11) 1,378
Other securities...................... 1,353 -- -- 1,353
------- ---- ----- -------
Total securities--available for
sale............................... $36,722 $253 $ (92) $36,883
======= ==== ===== =======
SECURITIES--HELD TO MATURITY
State and political subdivisions...... $ 2,725 $ 17 $ (1) $ 2,741
------- ---- ----- -------
Total securities--held to maturity.. $ 2,725 $ 17 $ (1) $ 2,741
======= ==== ===== =======
<CAPTION>
MARCH 31, 1997
---------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
SECURITIES--AVAILABLE FOR SALE
Securities of United States government
and agencies......................... $27,673 $ 16 $(231) $27,458
Mortgage-backed securities............ 9,959 166 (33) 10,092
State and political subdivisions...... 507 15 -- 522
Other securities...................... 1,429 -- -- 1,429
------- ---- ----- -------
Total securities--available for
sale............................... $39,568 $197 $(264) $39,501
======= ==== ===== =======
SECURITIES--HELD TO MATURITY
State and political subdivisions...... $ 2,669 $ 13 $ -- $ 2,682
------- ---- ----- -------
Total securities--held to maturity.. $ 2,669 $ 13 $ -- $ 2,682
======= ==== ===== =======
</TABLE>
F-11
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(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, 1996 and March 31, 1997 are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------
AVAILABLE-FOR-
SALE HELD-TO-MATURITY
----------------- ----------------
AMORTIZED AMORTIZED
COST MARKET COST MARKET
--------- ------- --------- ------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 686 $ 699 $ 216 $ 216
Due from one year to five years............. 12,707 12,715 915 917
Due from five years to ten years............ 10,827 10,826 1,023 1,039
Due after ten years......................... 12,502 12,643 571 569
------- ------- ------ ------
Totals.................................... $36,722 $36,883 $2,725 $2,741
======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------
AVAILABLE-FOR-
SALE HELD-TO-MATURITY
----------------- ----------------
AMORTIZED AMORTIZED
COST MARKET COST MARKET
--------- ------- --------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 3,669 $ 3,675 $ 220 $ 220
Due from one year to five years............. 11,035 10,957 839 842
Due from five years to ten years............ 10,968 10,835 1,145 1,150
Due after ten years......................... 13,896 14,034 465 470
------- ------- ------ ------
Totals.................................... $39,568 $39,501 $2,669 $2,682
======= ======= ====== ======
</TABLE>
For purposes of the maturity table, mortgage-backed securities which are not
due at a single maturity date have been allocated over maturity groupings. The
mortgage-backed securities may mature earlier than their weighted average
contractual maturities because of principal prepayments.
At December 31, 1995, the unrealized appreciation on available for sale
securities was $15, net of deferred income taxes of $6. At December 31, 1996,
the unrealized appreciation on available for sale securities was $161, net of
deferred income taxes of $62. At March 31, 1997, the unrealized depreciation
on available for sale securities was $67, net of deferred income taxes of $26.
The Banks had no trading securities at the beginning of 1996; however, the
Banks did hold trading securities during the year. Gross gains of $2 and gross
losses of $34 were realized on these sales. There were no trading securities
transactions during the three months ended March 31, 1997.
Assets, principally securities, carried at approximately $24,044 at December
31, 1995, $20,593 at December 31, 1996 and $22,690 at March 31, 1997 were
pledged to secure public deposits and for other purposes required or permitted
by law.
F-12
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
3. LOANS
The following is a summary of the loan portfolio by principal categories:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1997
------------------ --------------
1995 1996 1997
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Real Estate
Single family residential (1-4)............ $ 55,609 $ 78,124 $ 81,747
Non-farm/non-residential................... 36,603 35,258 36,953
Agricultural............................... 9,274 11,583 11,308
Construction/land development.............. 3,471 8,808 10,211
Multifamily residential.................... 4,388 3,743 2,580
Consumer..................................... 25,372 39,868 43,284
Commercial and industrial.................... 11,077 28,154 29,103
Agricultural (non-real estate)............... 6,963 8,363 8,667
Other........................................ 441 561 788
-------- -------- --------
Loans, net of unearned discounts............. 153,198 214,462 224,641
Allowance for loan losses.................. (1,909) (3,019) (3,240)
-------- -------- --------
Net loans.................................... $151,289 $211,443 $221,401
======== ======== ========
</TABLE>
The above loan categories are presented net of unearned discounts and
unearned purchase discounts totalling $4,557, $3,966 and $4,059 at December
31, 1995 and 1996 and March 31, 1997, respectively. Loans on which the accrual
of interest has been discontinued aggregated $1,181, $2,057 and $1,771 at
December 31, 1995 and 1996 and March 31, 1997, respectively.
4. ALLOWANCE FOR LOAN LOSSES
A summary of transactions within the allowance for loan losses are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- -----------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance--beginning of period... $1,716 $1,649 $1,909 $1,909 $3,019
Less sale of subsidiary
bank........................ (301) -- -- -- --
Provision charged to
operating expense........... 339 360 1,486 221 259
Recoveries on loans
previously charged-off...... 21 56 41 21 12
------ ------ ------ ------ ------
1,775 2,065 3,436 2,151 3,290
Loans charged-off............ (126) (156) (417) (100) (50)
------ ------ ------ ------ ------
Balance--end of period......... $1,649 $1,909 $3,019 $2,051 $3,240
====== ====== ====== ====== ======
</TABLE>
Impairment of loans having carrying values of $1,161, $1,984 and $1,635 at
December 31, 1995 and 1996 and March 31, 1997, respectively, have been
recognized in conformity with Statement of Financial Accounting Standards No.
114, as amended by Statement of Financial Accounting Standards No. 118. The
average carrying value of impaired loans was $683 and $1,042 for the years
ended December 31, 1995 and 1996, respectively, and $1,812 for the three
months ended March 31, 1997. The total allowance for credit losses related to
those
F-13
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
loans was $177, $350 and $299 at December 31, 1995 and 1996 and March 31,
1997, 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 bad debt expense
in the same manner in which impairment initially was recognized or as a
reduction in the amount of bad debt expense that otherwise would be reported.
Real estate securing loans having a carrying value of $236 was transferred
to foreclosed assets held for sale in 1996. All such items were sold during
1996. The Banks are not committed to lend additional funds to debtors whose
loans have been modified.
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land........................................... $ 984 $ 1,178 $ 2,949
Buildings and improvements..................... 3,526 3,641 3,843
Leasehold improvements......................... 1,449 1,645 1,647
Equipment...................................... 2,963 3,353 3,611
------- ------- -------
8,922 9,817 12,050
Accumulated depreciation....................... (2,542) (2,945) (3,120)
------- ------- -------
Total premises and equipment................. $ 6,380 $ 6,872 $ 8,930
======= ======= =======
</TABLE>
6. FORECLOSED ASSETS HELD FOR SALE
A summary of the transactions within the allowance for losses on foreclosed
assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- -----------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance--beginning of period... $2,100 $1,124 $1,197 $1,197 $1,197
Provision charged to
operating expense........... 452 124 11 1 3
Charge-offs, net of
recoveries.................. (1,428) (51) (11) (2) (236)
------ ------ ------ ------ ------
Balance--end of period....... $1,124 $1,197 $1,197 $1,196 $ 964
====== ====== ====== ====== ======
</TABLE>
F-14
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
7. DEPOSITS
The aggregate amount of time deposits with a minimum denomination of $100 was
approximately $28,942, $41,922 and $44,292 at December 31, 1995 and 1996 and
March 31, 1997, respectively.
The scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Zero to one year.................................... $ 76,824 $133,506
One year to two years............................... 56,916 22,058
Two years to three years............................ 7,353 4,713
Three years to four years........................... 5,057 1,173
Four years to five years............................ 2,695 1,773
Thereafter.......................................... 4,579 1,073
-------- --------
Total time deposits............................... $153,424 $164,296
======== ========
</TABLE>
8. NOTES PAYABLE
Notes payable consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a bank, interest at 8.804%, interest
only payable in December 1996 and 1997, then payable
in annual installments of $380, plus interest,
through December 2007, secured by 100% of the issued
and outstanding stock of Bank of the Ozarks, nwa.... $3,800 $3,800 $3,800
Note payable to a bank, interest at 8.25% paid
quarterly, principal balance due on September 28,
1998, secured by 5,478 shares of Bank of the Ozarks,
wca stock........................................... -- 1,500 1,500
Notes payable to individuals, interest at 6%, payable
in annual installments of $24, plus interest,
through December 2000, unsecured.................... 120 96 96
------ ------ ------
$3,920 $5,396 $5,396
====== ====== ======
</TABLE>
Aggregate annual maturities of notes payable at December 31, 1996 and March
31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C> <C>
1997............ $ 24 1998............ $ 24
1998............ 1,904 1999............ 1,904
1999............ 404 2000............ 404
2000............ 404 2001............ 404
2001............ 380 2002............ 380
Thereafter...... 2,280 Thereafter...... 2,280
------ ------
$5,396 $5,396
====== ======
</TABLE>
F-15
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
9. FHLB ADVANCES AND FEDERAL FUNDS PURCHASED
FHLB advances and federal funds purchased include short-term borrowings with
maturities ranging from one to thirty days. Certain additional FHLB advances
have maturities of over one year. Information relating to the short-term
borrowings is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
FHLB advances:
Average............................................ $ -- $ 3 $ 12
Period-end......................................... -- 500 --
Maximum month-end balance during period............ -- 500 --
Interest rate:
Weighted average................................. -- 5.82% 5.82%
Period-end....................................... -- 5.82% --
Federal funds purchased:
Average............................................ 134 87 64
Period-end......................................... -- 210 215
Maximum month-end balance during period............ -- 210 215
Interest rate:
Weighted average................................. 6.27% 5.24% 5.47%
Period-end....................................... -- 6.22% 5.96%
</TABLE>
The long-term FHLB advances totalled $7,947, $12,017, and $12,017 at
December 31, 1995 and 1996 and March 31, 1997, respectively. Interest rates on
these advances ranged from 6.50% to 5.74% at December 31, 1995 and 1996 and
March 31, 1997. Aggregate annual maturities of these long-term FHLB advances
at December 31, 1996 and March 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C> <C>
1998............ $ 2,000 1997............ $ 2,000
1999............ 3,000 1998............ 5,370
2000............ 5,070 1999............ 2,700
2001............ 1,947 2000............ 1,947
2002............ -- 2001............ --
Thereafter...... -- Thereafter...... --
------- -------
$12,017 $12,017
======= =======
</TABLE>
10. INCOME TAXES
The components of income tax expense for the years ended December 31, 1994,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
-------- ----------------
<S> <C> <C> <C>
Current provision................................ $ 1,698 $ 894 $ 2,298
Deferred provision (benefit)..................... (143) (49) (292)
-------- ------ --------
Income taxes..................................... $ 1,555 $ 845 $ 2,006
======== ====== ========
</TABLE>
F-16
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
The reconciliation between the statutory federal income tax rate is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate............. 34.0% 34.0% 34.0%
State income taxes, net of federal benefit.... 1.8 4.3 4.3
Effect of non-taxable interest income......... (2.8) (4.6) (2.5)
Sale of subsidiary............................ (3.6) -- --
Accrual for state income tax assessment....... -- -- 6.5
Other......................................... 4.2 (6.7) (2.4)
-------- -------- --------
Effective income tax rate..................... 33.6% 27.0% 39.9%
======== ======== ========
</TABLE>
During the year ended December 31, 1996, the Company was assessed
approximately $326 of additional state income taxes for the years ended
December 31, 1992 through 1995. This assessment relates to the State of
Arkansas taking a different position than the federal income tax treatment
regarding dividends from less than 95% owned subsidiaries. The Company is
contesting this assessment. The full assessment has been recorded as income tax
expense during the year ended December 31, 1996. In addition, approximately $93
of interest charged on this assessment was also recorded during the year ended
December 31, 1996.
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,
-------------------------------------
1995 1996
------------------ ------------------
TEMPORARY TAX TEMPORARY TAX
DIFFERENCES EFFECT DIFFERENCES EFFECT
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Deferred tax assets
Allowance for loan losses.............. $1,335 $511 $2,353 $ 901
Valuation of foreclosed assets......... 1,131 433 1,246 477
------ ---- ------ ------
Gross deferred tax assets................ 2,466 944 3,599 1,378
------ ---- ------ ------
Deferred tax liabilities
Unrealized appreciation on securities
available for sale.................... $ 13 $ 5 $ 159 $ 61
Accelerated depreciation on premises
and equipment......................... 452 173 637 244
Other.................................. 29 11 214 82
------ ---- ------ ------
Gross deferred tax liabilities........... 494 189 1,010 387
------ ---- ------ ------
Net deferred tax assets included in other
assets.................................. $1,972 $755 $2,589 $ 991
====== ==== ====== ======
</TABLE>
11. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan ("ESOP") to provide benefits
to substantially all employees of the Company. The Company makes annual
contributions to the plan as determined solely by the Board of Directors.
Participants in the plan become fully vested after seven years of service
although cash or shares are not distributed until employment is terminated. The
Company contributed $76, $86 and $95 to the plan in the years ended December
31, 1994, 1995 and 1996, respectively. Accruals for contributions to the plan
totalled $31 in the three months ended March 31, 1997.
F-17
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
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 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
$8,241, $10,186 and $18,665 at December 31, 1995 and 1996 and March 31, 1997,
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 $295, $484
and $454 at December 31, 1995 and 1996 and March 31, 1997, 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 its officers, directors,
significant shareholders, and their affiliates (related parties). The aggregate
amount of loans to such related parties at December 31, 1995 and 1996 and March
31, 1997, was $3,654, $3,544 and $2,745, respectively. New loans made to such
related parties were $2,260, $1,780 and $192 for the years ended December 31,
1995 and 1996 and for the three months ended March 31, 1997, respectively.
Repayments of loans made by such related parties were $727, $1,890 and $991 for
the years ended December 31, 1995 and 1996 and for the three months ended March
31, 1997, 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.
F-18
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
The Banks' regulatory capital position was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
----------------- -----------------
COMPUTED COMPUTED COMPUTED COMPUTED
CAPITAL PERCENT CAPITAL PERCENT
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Bank of the Ozarks, Inc.
(consolidated)
Total risk-based capital... $19,584 9.70%/(1)/ $20,404 9.53%/(1)/
Tier 1 risk-based capital.. 17,055 8.45/(1)/ 17,737 8.29/(1)/
Leverage ratio............. 6.42 6.40
Bank of the Ozarks, wca:
Total risk-based capital... 16,464 11.99%/(1)/ 17,263 11.91%/(1)/
Tier 1 risk-based capital.. 14,742 10.74/(1)/ 15,445 10.66/(1)/
Leverage ratio............. 8.10 8.27
Bank of the Ozarks, nwa:
Total risk-based capital... 7,584 12.86%/(1)/ 8,072 12.42%/(1)/
Tier 1 risk-based capital.. 6,847 11.61/(1)/ 7,259 11.17/(1)/
Leverage ratio............. 8.22 8.06
</TABLE>
- --------
(1) Stated as a percent of risk-weighted assets are defined in OTS capital
regulations.
At December 31, 1996, the subsidiary banks exceeded their minimum capital
requirements. As of December 31, 1996, the state bank commissioner's approval
was required before the Banks could declare and pay any dividend of fifty
(50%) percent or more of the net profits of the Banks after all taxes for the
year in which the dividend is to be declared and paid.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
the value.
a. Cash and due from banks--For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
b. 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.
c. Loans--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.
d. 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.
e. Other borrowed funds--For those 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.
F-19
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
f. Accrued interest--The carrying amount of accrued interest payable
approximates its fair value.
g. 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.
h. 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
judgements 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>
1995 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks............ $ 9,063 $ 9,063 $ 6,815 $ 6,815
Available-for-sale securities...... 32,550 32,550 36,883 36,883
Held-to-maturity securities........ 4,587 4,606 2,725 2,741
Federal funds sold................. 4,080 4,080 350 350
Loans, net of allowance for loan
losses............................ 151,289 155,581 211,443 215,143
Accrued interest receivable........ 1,988 1,988 2,552 2,552
Financial liabilities:
Demand, NOW and savings account
deposits.......................... $ 58,963 $ 58,963 $ 78,224 $ 78,224
Time deposits...................... 123,500 124,875 153,424 154,148
Notes Payable...................... 3,920 3,920 5,396 5,396
FHLB advances and federal funds
purchased......................... 7,947 7,947 12,727 12,367
Accrued interest and other
liabilities....................... 1,852 1,852 2,282 2,282
Off balance sheet assets
(liabilities):
Standby letters of credit.......... $ (295) $ (484)
Commitments to extend credit....... (5,995) (8,782)
Unfunded credit card loans......... (1,137) (1,395)
</TABLE>
F-20
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
16. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- -----------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the period
for:
Interest.................... $4,623 $6,786 $9,682 $2,233 $2,778
Income taxes................ 1,502 898 2,378 35 33
Supplemental schedule of non-
cash investing and financing
activities:
Sale of foreclosed assets
held for sale.............. 378 32 72 28 162
Real estate acquired in
settlement of debt......... 478 69 236 -- 94
</TABLE>
17. OTHER INCOME
Other income consists of:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------- -----------------------
1994 1995 1996 1996 1997
---- ---- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gain on sale of loans............... $ 44 -- $274 -- $ 68
Gain on sale of previously
foreclosed real estate............. 360 $ 4 14 -- 137
Printed checks sales................ -- 9 90 $19 26
Other............................... 179 93 7 12 55
---- ---- ---- --- ----
Total other income.................. $583 $106 $385 $31 $286
==== ==== ==== === ====
</TABLE>
F-21
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
18. OTHER OPERATING EXPENSES
Other operating expenses consists of:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- -----------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Other real estate and
foreclosure expense......... $ 402 $ 142 $ 49 $ 9 $ 31
Professional services........ 62 56 60 49 40
Postage...................... 111 118 140 27 32
Telephone.................... 93 106 125 23 33
Operating supplies........... 148 214 215 53 73
FDIC and state assessment.... 379 373 47 24 25
Amortization of goodwill..... 64 59 56 14 14
Charitable contributions..... 264 126 126 13 19
Guaranty fees................ -- -- 91 76 76
Advertising and public
relations................... 139 101 123 17 45
Other outside service fees... 20 31 59 13 8
Directors' fees.............. 32 79 96 20 23
Software amortization........ 55 75 69 16 27
Check printing charges....... 11 30 102 22 28
Other........................ 513 367 532 83 122
------ ------ ------ ---- ----
Total other operating
expenses.................... $2,293 $1,877 $1,890 $459 $596
====== ====== ====== ==== ====
</TABLE>
19. NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities". SFAS No. 125
is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. Earlier
application is prohibited. Adoption on January 1, 1997 is not expected to have
a material impact on the Company. The FASB deferred some provisions of SFAS
No. 125, which are not expected to be relevant to the Company.
The FASB issued SFAS No. 128, "Earnings Per Share", and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS No.
128 simplifies the earnings per share ("EPS") calculations required by
Accounting Principles Board ("APB") Opinion No. 15, and related
interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic
and diluted EPS by entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of an entity, similar to the fully diluted EPS of
APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. When adopted, SFAS No. 128 will require
restatement of all prior-period EPS data presented. However, the Company's
prior years EPS will not be affected by these restatements.
SFAS No. 129 does not change any previous disclosure requirements, but
rather consolidated existing disclosure requirements for ease of retrieval.
F-22
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
20. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ 1,386 $ 964 $ 782
Investment in subsidiaries..................... 17,563 21,915 22,850
Premises and equipment, net.................... 37 27 38
Excess cost over fair value of net assets
acquired, at amortized cost................... 1,451 1,394 1,380
Other.......................................... 53 25 1
------- ------- -------
Total assets................................... $20,490 $24,325 $25,051
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable.................................. $ 3,920 $ 5,396 $ 5,396
Accrued interest and other liabilities......... 276 382 579
------- ------- -------
Total liabilities.............................. 4,196 5,778 5,975
------- ------- -------
Stockholders' equity
Common stock................................. 29 29 29
Additional paid-in capital................... 1,168 1,168 1,168
Retained earnings............................ 15,088 17,251 17,920
Unrealized appreciation (depreciation) on
investment securities....................... 9 99 (41)
------- ------- -------
Total stockholders' equity..................... 16,294 18,547 19,076
------- ------- -------
Total liabilities and stockholders' equity..... $20,490 $24,325 $25,051
======= ======= =======
</TABLE>
F-23
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ -----------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income
Dividends from
subsidiaries.............. $ 406 $ 905 $ 1,250 $425 $ --
Gain on sale of
subsidiary................ 1,377 -- -- -- --
Other...................... 22 5 1 1 --
------- ------- ------- ---- -----
Total income................. 1,805 910 1,251 426 --
------- ------- ------- ---- -----
Expenses
Interest................... 57 10 468 85 122
Salaries and employee
benefits.................. -- 30 349 60 84
Net occupancy and
equipment................. -- 25 51 11 15
Other operating expenses... 151 78 243 103 110
------- ------- ------- ---- -----
Total expenses............... 208 143 1,111 259 331
------- ------- ------- ---- -----
Income (loss) before income
taxes (benefit) and equity
in undistributed earnings of
subsidiaries................ 1,597 767 140 167 (331)
Income taxes (benefit)..... 442 (219) (183) (92) (125)
Equity in undistributed
earnings of subsidiary.... 1,799 1,184 2,704 522 1,163
------- ------- ------- ---- -----
Net income................... $ 2,954 $ 2,170 $ 3,027 $781 $ 957
======= ======= ======= ==== =====
</TABLE>
F-24
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income................ $ 2,954 $ 2,170 $ 3,027 $ 781 $ 957
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities
Depreciation............ -- 9 16 3 3
Amortization............ 58 58 57 14 14
Gain on sale of
subsidiary............. (1,377) -- -- -- --
Equity in undistributed
earnings of
unconsolidated
subsidiaries........... (1,799) (1,184) (2,704) (522) (1,163)
Change in assets and
liabilities
Accrued interest and
other liabilities.... 150 112 106 (290) 197
Other, net............ 918 (13) (30) 79 112
------- ------- ------- ----- -------
Net cash provided (used) by
operating activities....... 904 1,152 472 65 120
------- ------- ------- ----- -------
Cash flows from investing
activities
Purchases of premises and
equipment................ -- (46) (6) (1) (14)
Liquidating dividend of
subsidiary............... 3,764 -- -- -- --
Additional investment in
subsidiaries and purchase
of minority shares of
stock.................... (160) (3,573) (1,500) -- --
------- ------- ------- ----- -------
Net cash provided (used) by
investing activities....... 3,604 (3,619) (1,506) (1) (14)
------- ------- ------- ----- -------
Cash flows from financing
activities
Proceeds from notes
payable.................. -- 3,920 1,500 -- --
Payments of notes
payable.................. (2,278) -- (24) -- --
Redemption of common
stock.................... -- (537) -- -- --
Dividends paid............ (893) (893) (864) (864) (288)
------- ------- ------- ----- -------
Net cash provided (used) by
financing activities....... (3,171) 2,490 612 (864) (288)
------- ------- ------- ----- -------
Net increase (decrease) in
cash and cash equivalents.. 1,337 23 (422) (800) (182)
Cash and cash equivalents--
beginning of period........ 26 1,363 1,386 1,386 964
------- ------- ------- ----- -------
Cash and cash equivalents--
end of period.............. $ 1,363 $ 1,386 $ 964 $ 586 $ 782
======= ======= ======= ===== =======
</TABLE>
21. SUBSEQUENT EVENTS (UNAUDITED)
a. Effective May 16, 1997, the Company entered into a $10,000 term loan and
revolving credit facility with Union Planters National Bank, Memphis,
Tennessee ("the Credit Facility"). Borrowings under this Credit Facility are
secured by 80% of the Company's stock in the Banks. The proceeds from the
Credit Facility were used to repay outstanding notes payable of $5,300 and to
fund capital investments in the Banks.
The term loan portion of the Credit Facility has a principal balance of
$5,000 payable in equal annual installments of $500 commencing December 21,
1998 plus interest payable annually at 8.804% commencing
F-25
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
December 21, 1997. The term loan matures on December 21, 2007 and provides for
prepayment penalties under certain circumstances.
The Credit Facility also provides for a revolving line of credit of up to
$5,000. Advances remaining unpaid for any consecutive period of 365 days are
converted to term loans under the facility, with a corresponding reduction in
availability, and are payable in equal annual installments of principal
through December 21, 2007. Interest accrues on outstanding borrowings under
the revolving line of credit, including any amounts converted to term loans,
at a variable rate equal to average prime lending rate reported from time to
time by the Wall Street Journal minus 0.25% payable quarterly commencing June
21, 1997. The revolving line of credit commitment is effective through
December 21, 2007, subject to an annual compliance review by the lender.
The Credit Facility requires that the Banks, among other things, maintain a
minimum return on average assets, a minimum ratio of primary capital to assets
and maximum charges for loan losses.
b. On May 22, 1997, the Company's stockholders approved an amendment to the
Articles of Incorporation that, among other things, changed the Company's name
to Bank of the Ozarks, Inc. from Ozark Bankshares, Inc., changed the par value
of the preferred and common stock, and increased the number of authorized
shares of common stock. The Company's Board of Directors also approved a
common stock dividend of 99 shares for every one share of issued and
outstanding common stock.
The unissued authorized preferred stock of 1,000,000 shares had its par
value changed from $0.10 to $0.01 per share. The 100,000 authorized shares of
common stock was increased to 10,000,000 authorized shares of common stock and
the par value of the common stock was also changed from $0.10 to $0.01 per
share.
The accompanying financial statements for all periods presented have been
restated to reflect these changes.
c. In May 1997 the Company's Board of Directors adopted a Stock Option Plan
to provide an additional incentive to executive officers and employees. Under
this plan, the Company may grant options to purchase shares of common stock at
prices not less than the fair market value of such shares on the date of
grant. 285,000 shares of common stock will be reserved and available for
issuance under this plan.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). Under the
provisions of SFAS No. 123, companies can elect to account for stock-based
compensation plans using a fair value based method or continue measuring
compensation expense for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". SFAS No. 123 requires that companies electing to
continue using the intrinsic value method must make pro forma disclosures of
net income and earnings per shares as if the fair value based method of
accounting had been applied. SFAS No. 123 will be effective for all options
granted under the plan described above. The Company intends to account for
stock-based compensation using the intrinsic value method, and accordingly,
this pronouncement will not have an effect on the Company's reported financial
position or results of operations.
d. 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 will permit 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. The 401(k) Plan provides
for Company matching contributions, if determined by the Company to be made,
up to a maximum of two percent of the participant's salary per year. No other
Company matching contributions are
F-26
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
contemplated at this time. 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 five years and
will be held in trust until distributed pursuant to the terms of the 401(k)
Plan.
Employees of the Company will be eligible to participate in the 401(k) Plan
if 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.
e. The Arkansas State Bank Department currently limits the amount of
dividends that the Banks can pay the Company to 50% of their respective
current year earnings. The Arkansas State Bank Department has proposed
regulations which would increase this dividend limit to 75% of the Bank's net
profits after taxes for the current year plus 75% of their net profits after
taxes for the immediately preceding year.
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF
ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Forward-Looking Information.............................................. 6
Risk Factors............................................................. 6
The Company.............................................................. 11
Dividend Policy.......................................................... 11
Dilution................................................................. 12
Use of Proceeds.......................................................... 13
Capitalization........................................................... 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 34
Supervision and Regulation............................................... 42
Management............................................................... 49
Certain Transactions..................................................... 56
Principal and Selling Stockholders....................................... 57
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 60
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURI-
TIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DE-
LIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD AL-
LOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,331,700 SHARES
[LOGO OF BANK OF THE OZARKS, INC. APPEARS HERE
COMMON STOCK
---------------
PROSPECTUS
---------------
STEPHENS INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of this offering in connection with this registration
statement, other than underwriting compensation, are estimated as follows
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 7,426
Nasdaq Listing Fees............................................... 23,898
NASD Filing Fee................................................... 2,950
Blue Sky Fees and Expenses........................................ 10,000
Accounting Fees and Expenses...................................... 72,000
Legal Fees and Expenses........................................... 140,000
Printing and Engraving............................................ 112,500
Transfer Agent's Fees and Expenses................................ 5,000
Miscellaneous..................................................... 26,226
---------
Total........................................................... $ 400,000
=========
</TABLE>
The foregoing expenses shall be borne pro rata by the Company and the
Selling Stockholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Ninth of the Company's Amended and Restated Articles of
Incorporation provides that the Company's directors will not be personally
liable to the Company or any of its stockholders for monetary damages
resulting from breaches of their fiduciary duty as directors expect (a) for
any breach of the director's duty of loyalty to the Company or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Arkansas Code
Annotated (S)4-27-833, as the same exists or hereafter may be amended, (d) for
any transaction from which the director derived an improper personal benefit,
or (e) for any action, omission, transaction, or breach of a director's duty
creating any third party liability to any person or entity other than the
Company or stockholder.
Section 4-27-850 of the Arkansas Business Corporation Act empowers Arkansas
corporations to indemnify any director or officer against expenses, judgments,
fines and amounts paid in settlements actually and reasonably incurred by him
in connection with any action, suit or proceeding, if such director or officer
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding had no reasonable cause to believe his conduct was
unlawful, except that no indemnification shall be made in connection with any
action by or in the right of the corporation if such person is adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation, unless the court determines that despite that adjudication of
liability such person is fairly and reasonably entitled to indemnify for such
expenses actually and reasonably incurred by him.
Article Tenth of the Company's Amended and Restated Articles of
Incorporation provides that the Company shall, to the full extent permitted by
Section 4-27-850 of the Arkansas Business Corporation Act, indemnify all
persons whom it may indemnify pursuant thereto.
The effect of the indemnification provisions contained in the Company's
Amended and Restated Articles of Incorporation is to require the Company to
indemnify its directors and officers under circumstances where such
indemnification would otherwise be discretionary.
II-1
<PAGE>
The Company's Amended and Restated Articles of Incorporation specify that
the indemnification rights granted thereunder are enforceable contract rights
which are not exclusive of any other indemnification rights that the director
or officer may have under any by-law, vote of stockholders or disinterested
directors or otherwise. As permitted by Section 4-27-850 of the Arkansas
Business Corporation Act, the Company's Amended and Restated Articles of
Incorporation also authorize the Company to purchase directors' and officers'
insurance for the benefit of its past and present directors and officers,
irrespective of whether the Company has the power to indemnify such persons
under Arkansas law. The Company currently maintains such insurance as allowed
by these provisions.
The Company's Amended and Restated Articles of Incorporation also provide
that expenses incurred by a director or officer in defending a civil or
criminal lawsuit or proceeding arising out of actions taken in his official
capacity, or in certain other capacities, will be paid by the Company in
advance of the final disposition of the matter upon receipt of an undertaking
from the director or officer to repay the sum advanced if it is ultimately
determined that he is not entitled to be indemnified by the Company pursuant
to applicable provisions of Arkansas law.
As noted above, the Company's directors and officers have certain indemnity
rights under the Company's Amended and Restated Articles of Incorporation and
are protected from certain other liabilities by the Company's existing
directors' and officers' insurance. The Company has also entered into
supplemental indemnification agreements with its directors and with certain
officers designated by the Board of Directors (collectively the
"Indemnitees"), which broaden the scope of indemnity that would otherwise be
provided by the Company to such persons under the terms of its Amended and
Restated Articles of Incorporation.
The indemnification agreements with the Indemnitees provide that, subject to
certain important exceptions, the Indemnitees shall be indemnified to the
fullest possible extent permitted by law against any amount which they become
legally obligated to pay because of any act or omission or neglect or breach
of duty. Such amount includes all expenses (including attorneys' fees),
damages, judgments, costs and settlement amounts, actually and reasonably
incurred or paid by them in any action or proceeding, including any action by
or in the right of the Company, on account of their service as a director or
officer of the Company or any subsidiary of the Company. The indemnification
agreements further provide that expenses incurred by the Indemnitees in
defending such actions, in accordance with the terms of the agreements, shall
be paid in advance, subject to the Indemnitees' obligation to reimburse the
Company in the event it is ultimately determined that they are not entitled to
be indemnified for such expenses under any of the provisions of the
indemnification agreements.
No indemnification is provided under the indemnification agreements on
account of conduct which is adjudged to be deliberately dishonest and material
to establishing the liability for which indemnification is sought. In
addition, no indemnification is provided if a final court adjudication shall
determine that such indemnification is not lawful, or in respect of any suit
in which judgment is rendered for an accounting of profits made from a
purchase or sale of securities of the Company in violation of Section 16(b) of
the Securities Exchange Act of 1934, or of any similar statutory provision, or
on account of any remuneration, personal profit or advantage which is adjudged
to have been obtained in violation of law. The indemnification agreements also
contain provisions designed to protect the Company from unreasonable
settlements or redundant legal expenditures.
The indemnification agreements also provide for contribution by the Company,
with certain exceptions, to amounts paid by the Indemnitees in any situation
in which the Company and such individuals are jointly liable (or would be if
the Company were joined in the litigation) if for any reason indemnification
is not available. Such contribution would be based on the relative benefits to
the Company and the individuals of the transaction from which liability arose,
and on the relative fault in the transaction of the Company and the
individuals. This provision could be applicable in the event a court found
that indemnification under the federal securities laws is against public
policy and thus not enforceable, as well as under state laws.
II-2
<PAGE>
The indemnification agreements provide for substantially broader indemnity
rights than those currently granted to the directors and officers of the
Company under the Company's Amended and Restated Articles of Incorporation,
which afforded directors and officers only those express indemnification
rights set forth in Section 4-27-850 of the Arkansas Business Corporation.
They are not intended to deny or otherwise limit third party or derivative
suits against the Company or its directors or officers. However, to the extent
a director or officer were entitled to indemnification or contribution
thereunder, the financial burden of a third party suit would be borne by the
Company, and the Company would not benefit from derivative recoveries since
the amount of such recoveries would be repaid to the director or officer
pursuant to the agreements.
Section 8 of the form of Underwriting Agreement filed as Exhibit 1.1
provides that the Underwriter will indemnify and hold harmless the Company,
each of its directors and officers who have signed this registration
statement, and each controlling person of the Company from and against certain
liabilities, including liabilities under the Securities Act published rules
and regulations adopted by the SEC under the Securities Act and the Securities
Exchange Act of 1934, as amended, and provides that the Underwriter will
reimburse any legal or other expenses reasonably incurred by such persons in
connection with such liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Articles of Incorporation of the Company.
*3.2 Amended and Restated By-Laws of the Company.
4.1 Form of the Company's Common Stock Certificate.
5.1 Opinion of Rose Law Firm, a Professional Association.
*10.1 The Company's Stock Option Plan.
*10.2 The Company's Non-Employee Director Stock Option Plan.
*10.3 Loan Agreement, dated May 16, 1997, between the Company and Union
Planters National Bank, Memphis, Tennessee.
10.4 Real Estate Contract (Unimproved Property), dated February 6, 1997, by
and between Ozark WCA, and Toy's Inc., April 7, 1997 and May 21, 1997
and Contract for Assumption of sublease dated May 21, 1997 relating to
real estate acquired in Fort Smith, Sebastian County, Arkansas.
*10.5 Commercial Offer and Acceptance (Unimproved Real Property), dated
December 9, 1996, by and between Ozark WCA, and American Taekwondo
Association, Inc. relating to real estate in Little Rock, Pulaski
County, Arkansas.
*10.6 Commercial Ground Lease, dated November 10, 1993, by and among Newton
County Bank (now Ozark NWA) and James W. OBryan, Rose Mary Horton
OBryan, Jerry L. Horton, and Mary Horton relating to real estate in
Marshall, Searcy County, Arkansas.
*10.7 Commercial Ground Lease, dated September 7, 1994, by and among the
Company and David L. Taylor and Carolyn L. Taylor relating to real
estate in Harrison, Boone County, Arkansas.
*10.8 Commercial Ground Lease, dated September 7, 1994, by and among the
Company and David L. Taylor and Carolyn L. Taylor relating to real
estate in Clarksville, Johnson County, Arkansas.
*10.9 Employment Agreement, dated May 22, 1997, between the Company and
George G. Gleason, II.
*10.10 Form of Indemnification Agreement.
*21.1 List of Subsidiaries of the Company.
23.1 Consent of Rose Law Firm, a Professional Association (contained in
Exhibit 5.1 hereto).
23.2 Consent of Moore Stephens Frost, P.A., Independent Certified Public
Accountants.
23.3 Consent of Baird, Kurtz and Dobson, Independent Certified Public
Accountants.
*27.1 Financial Data Schedule.
99.1 Consents of Directors-Elect.
</TABLE>
- --------
*Previously filed.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
LITTLE ROCK, STATE OF ARKANSAS, ON JUNE 26, 1997.
BANK OF THE OZARKS, INC.
(Registrant)
By: /s/ George G. Gleason, II
---------------------------------
GEORGE G. GLEASON, II
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ George G. Gleason, II Chairman of the June 26, 1997
- ------------------------------------- Board of Directors
GEORGE G. GLEASON, II and Chief Executive
Officer (Principal
Executive Officer)
/s/ Linda D. Gleason Director June 26, 1997
- -------------------------------------
LINDA D. GLEASON
/s/ Mark D. Ross President-Bank June 26, 1997
- ------------------------------------- Services and
MARK D. ROSS Director
/s/ Paul E. Moore Chief Financial June 26, 1997
- ------------------------------------- Officer (Principal
PAUL E. MOORE Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE>
Exhibit 1.1
BANK OF THE OZARKS, INC.
1,331,700 Shares*
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
July ___, 1997
STEPHENS INC.
As Representative of the Several Underwriters
111 Center Street
Little Rock, Arkansas 72201
Gentlemen:
Bank of the Ozarks, Inc., an Arkansas corporation (the "Company") together
with the Company's shareholders named on the signature page hereof (collectively
the "Selling Stockholders") confirm their agreement with the several
underwriters (the "Underwriters") for whom you are acting as representative
(the "Representative") to issue and sell an aggregate of 1,331,700 shares of
the Company's common stock, par value $.01 per share (the "Underwritten
Shares") to the Underwriters. The common stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
For the sole purpose of covering over-allotments in connection with the
sale of the Underwritten Shares, the Company proposes to grant to the
Underwriters the option (the "Option") described in Section 2 hereof to
purchase all or any part of 199,755 shares of common stock (the "Option Shares")
owned by it. The Underwritten Shares and the Option Shares purchased pursuant
to this Underwriting Agreement are herein called the "Shares" and the proposed
offering of the Shares by the Underwriters is hereinafter referred to as the
"Public Offering."
The Company has filed with the Securities and Exchange Commission (the
"Commission"), pursuant to the Securities Act of 1933, as amended (the "Act"),
and published rules and regulations adopted by the Commission under the Act (the
"Rules"), a registration statement on Form S-1 ("Form S-1") (File No. 333-
27641), including a preliminary prospectus, relating to the Shares, and such
amendments to such registration statement as may have been filed with the
Commission to the date of this Agreement. The term "preliminary prospectus "
means any preliminary prospectus (as referred to in Rule 430 or Rule 430A of the
Rules) included at any time as a part of the registration
- --------------------
* Plus up to 199,755 additional shares to cover over-allotments; if any.
<PAGE>
statement. The Company has furnished to the Representative copies of such
registration statement, each amendment to it filed by the Company with the
Commission and each preliminary prospectus filed by the Company with the
Commission and any other offering materials used by the Company. If such
registration statement has not become effective, a further amendment (the "Final
Amendment") to such registration statement, including a form of final
prospectus, if necessary to permit such registration statement to become
effective, will promptly be filed by the Company with the Commission. If such
registration statement has become effective, a final prospectus (the "Rule 430A
Prospectus") containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules will promptly be filed by the Company
with the Commission in accordance with the Rules. The registration statement as
amended at the time it becomes or became effective (the "Effective Date"),
including financial statements and all exhibits and any information deemed to be
included by Rule 430A, is called the "Registration Statement." The term
"Prospectus" means the prospectus as first filed with the Commission pursuant to
Rule 424(b) of the Rules, or if no such filing is required, the form of final
prospectus included in the Registration Statement at the Effective Date.
Any reference herein to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include any
documents incorporated by reference therein on or before the Effective Date or
the date of such preliminary prospectus or the Prospectus, as the case may be.
Any reference herein to the terms "amend," "amendment" or "supplement" with
respect to the Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include the filing of any document
under the Securities Exchange Act of 1934 (the "Exchange Act") after the
Effective Date or the date of any preliminary prospectus or the Prospectus, as
the case may be, and deemed to be incorporated therein by reference.
As the Representative, you have advised the Company (a) that you are
authorized to enter into this Underwriting Agreement on behalf of the several
Underwriters and (b) the Underwriters are willing, acting severally and not
jointly, to purchase the amounts of the Underwritten Shares set forth opposite
their respective names in Schedule I hereto, plus their pro rata portion of the
Option Shares if you elect to exercise the over-allotment Option in whole or in
part for the accounts of the several Underwriters.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the Company
and the Underwriters hereby agree as follows:
1. Representations, Warranties and Agreements of the Company.
(a) The Company and George G. Gleason, II (in his individual capacity)
jointly and severally represent and warrant to, and agree with, each Underwriter
as follows:
(i) The Company has been duly organized, is in compliance with its
Amended and Restated Articles of Incorporation, and is validly existing as a
corporation in good standing under the laws of the State of Arkansas, with full
power and authority (corporate and other) to own
2
<PAGE>
its properties and conduct its business as described in the Registration
Statement and Prospectus; all significant subsidiaries (as defined by the Act)
of the Company (each, a "Subsidiary" and collectively, the "Subsidiaries") have
been duly incorporated, will be, and are validly existing as a banking
association or corporation, as the case may be, in good standing under the laws
of the jurisdiction of its association or incorporation, as the case may be,
with full power and authority (corporate and other) to own or lease its
properties and conduct its business; the Company and the Subsidiaries are duly
qualified to transact business in all jurisdictions in which the conduct of
their business or the ownership or lease of their properties requires such
qualifications; all of the outstanding shares of capital stock of each
Subsidiary are owned by the Company and have been duly and validly authorized
and issued, are fully paid and non-assessable.
(ii) The outstanding shares of common stock of the Company have been
duly and validly authorized and issued and are fully paid and non-assessable;
the Shares are duly and validly authorized, and, to the extent any portion of
the Shares has not yet been issued, when issued and paid for as contemplated
herein, will be fully paid and non-assessable; and no preemptive or other
restrictive rights of any holder of any class of the Company's stock exist with
respect to the Shares or the issue and sale thereof, except where the same shall
have been waived in writing by the holders thereof prior to the date hereof.
(iii) The Shares conform with the statements
concerning them in any preliminary prospectus, the Prospectus and the
Registration Statement. As of the Closing Date (as defined below) and any
Option Closing Date (as defined below), if applicable, the Company will have the
authorized capitalization set forth under the caption "Use of Proceeds and
Capitalization" and "Description of Capital Stock" in the Prospectus. No
further corporate approval or authority on behalf of the Company will be
required for the issuance and sale of the Shares to be sold by the Company as
contemplated herein.
(iv) Any preliminary prospectus, the Prospectus and the Registration
Statement have been carefully prepared by the Company in conformity with the
requirements of the Act and the Rules, including Form S-1. The Registration
Statement has been filed with the Commission under the Act.
(v) Neither the Commission nor any other agency, body, authority,
court or arbitrator of competent jurisdiction has, by order or otherwise,
prohibited or suspended the use of any preliminary prospectus or the Prospectus
relating to the proposed offering of the Shares or instituted proceedings for
that purpose. The Registration Statement, the Prospectus and any preliminary
prospectus and any amendments or supplements thereto at the time they became or
become effective or were filed or are filed with the Commission contained or
will contain all statements which are required to be stated therein by, and in
all material respects conformed or will conform to the requirements of, the Act
and the Rules. Neither the Registration Statement, nor any preliminary
prospectus nor any amendment thereto, and neither the Prospectus nor any
supplement thereto, as of its date contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from the
3
<PAGE>
Registration Statement or any preliminary prospectus or the Prospectus, or any
such amendment or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter through
the Representative, expressly for use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the consolidated financial position and
the consolidated results of operations of the Company and the Subsidiaries
consolidated, at the indicated dates and for the indicated periods. Such
financial statements have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of results for such
periods have been made. The Summary Consolidated Financial Data and the
Selected Consolidated Financial Data included in the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent with
that of the audited and unaudited financial statements from which they were
derived.
(vii) There is no action or proceeding pending or, to the knowledge
of the Company, threatened against the Company or any Subsidiary before any
court or administrative or governmental agency or other body which might (A)
result in any material adverse change in the condition (financial or otherwise),
or in the earnings, business, affairs, properties, business prospects or results
of operations of the Company and the Subsidiaries taken as a whole, whether or
not arising in the ordinary course of business, or (B) affect the performance of
this Agreement or the consummation of the transactions herein contemplated,
except as disclosed in the Registration Statement and for which the Company
maintains a reserve in an amount which is adequate to cover potential
liabilities.
(viii) The Company and each Subsidiary has good and marketable title
to all of the material properties and assets reflected in the financial
statements hereinabove described or as described in the Prospectus as being
owned by them, subject to no lien, mortgage, pledge, charge or encumbrance of
any kind except those securing indebtedness described in such financial
statements or as described in the Prospectus or which do not materially affect
the present or proposed use of such properties or assets. The Company and the
Subsidiaries occupy their leased properties under valid, subsisting and binding
leases with only such exceptions as in the aggregate are not material and do not
interfere with the conduct of the business of the Company.
(ix) The Company and each Subsidiary have filed all Federal, State
and foreign tax returns which have been required to be filed and have paid all
taxes indicated by said returns and all assessments received by them or any of
them to the extent that such taxes have become due.
(x) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, as they may be amended or
supplemented, (A) there has not been any material adverse change in the
condition (financial or otherwise), or in the earnings, business, affairs,
properties, business prospects or results of operations of the Company and the
Subsidiaries taken as a whole nor does the Company have knowledge of any such
change that is threatened, (B) there has
4
<PAGE>
not been any transaction entered into by the Company or the Subsidiaries that is
material to the earnings, business, affairs, properties, business prospects or
operations of the Company, other than transactions in the ordinary course of
business and changes and transactions contemplated by the Registration Statement
and the Prospectus, as they may be amended or supplemented, and (C) there has
not been any material change in the capital stock, long term debt or material
liabilities of the Company. The Company and the Subsidiaries have no material
contingent obligations which are not disclosed in the Registration Statement and
the Prospectus.
(xi) Neither the Company nor any of the Subsidiaries individually or
in the aggregate are in breach or violation of or default under any indenture,
mortgage, deed of trust, lease, contract, note or other agreement or instrument
to which it is a party or by which it or any of its properties is bound and
which default may result in a material adverse change in the condition
(financial or otherwise) or in the earnings, business, affairs, properties,
business prospects or results of operations of the Company and the Subsidiaries
taken as a whole. The consummation of the transactions herein contemplated and
the fulfillment of the terms hereof will not result in a breach or violation of
any of the material terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease, contract, note or other agreement or
instrument to which the Company or any Subsidiary is a party, or of the
Company's Articles of Incorporation or by-laws or any law, decree, order, rule,
writ, injunction or regulation applicable to the Company or any Subsidiary of a
court or of any regulatory body or administrative agency or other governmental
body having jurisdiction.
(xii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and performance of its obligations hereunder (except
such additional steps as may be necessary to qualify the Shares for public
offering by the Underwriters under state securities or Blue Sky laws) have been
obtained or made and is in full force and effect.
(xiii) The Company and each Subsidiary hold all material licenses,
authorizations, charters, certificates and permits from governmental authorities
which are necessary to the conduct of their businesses and neither the Company
nor any Subsidiary has received notice of any proceeding relating to the
revocation or modification of any of such licenses, authorizations, charters,
certificates or permits. The Company and the Subsidiaries own or otherwise
possess rights to use the licenses, inventions, copyrights, trademarks, service
marks and trade names presently employed by them in connection with the business
now operated by them, and neither the Company nor any Subsidiary has infringed
or received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing.
(xiv) Each of Moore Stephens Frost and Baird, Kurtz & Dobson, who
have certified certain of the financial statements filed with the Commission and
included as part of the Registration Statement and Prospectus, are independent
public accountants within the meaning of the Act, the Rules and Regulation S-X
of the Commission and Rule 101 of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
5
<PAGE>
(xv) There are no agreements, contracts or other documents of a
character required to be described in the Registration Statement or the
Prospectus or required by Form S-1 to be filed as exhibits to the Registration
Statement which are not described or filed as required.
(xvi) No labor dispute exists or is imminent with the Company's
employees or with employees of any Subsidiary which could materially adversely
affect the condition (financial or otherwise), earnings, business, affairs,
properties, business prospects or results of operations of the Company.
(xvii) Except as contemplated by Section 2 hereof and as disclosed in
the Prospectus and permitted by the Rules, the Company has not (itself or
through any person) taken and will not take, directly or indirectly, any action
designed to or which might reasonably be expected to, cause or result in a
violation of Section 5 of the Act or Rule 10b-6 under the Exchange Act ("Rule
10b-6") or in stabilization or manipulation of the price of the Company's common
stock.
(xviii) This Agreement has been duly authorized, executed and
delivered by the Company and is enforceable against the Company in accordance
with its terms, subject to all applicable bankruptcy, insolvency, moratorium,
receivership, and other laws relating to or affecting the rights of creditors
generally and subject to the discretion of a court of equity in administering
any such rights or remedies.
(xix) Neither the Company nor any Subsidiary is in violation of any
law, ordinance, governmental rule or regulation or court decree to which it may
be subject, which violation might have a material adverse effect on the
condition (financial or otherwise), earnings, business, affairs, properties,
business prospects or the results of operations of the Company and its
Subsidiaries taken as a whole.
(b) Each Selling Stockholder further represents and warrants to, and
agrees with each Underwriter as follows:
(i) As of the Effective Date, the Selling Stockholder shall be the
lawful owner of the number of Shares to be sold by him, her or it, and has or at
such time or times, as required, will have, good and marketable title to all
such Shares, free of all restrictions on transfer (other than those imposed by
the Act, the Company's Articles of Incorporation and by-laws and the securities
or Blue Sky laws of certain jurisdictions), liens, encumbrances, security
interests and claims whatsoever, except where the same shall have been waived in
writing prior to the date hereof.
(ii) The Selling Stockholder has full legal right, power and
authority, and has obtained any approvals required by law or pursuant to any
agreement or instrument to which the Selling Stockholder is a party, to enter
into this Underwriting Agreement, and this Underwriting Agreement has been duly
executed and delivered by the Selling Stockholder.
6
<PAGE>
(iii) Upon delivery of payment for the Shares to be sold by the
Selling Stockholder pursuant to this Underwriting Agreement, good and marketable
title to such Shares will pass, free of all restrictions on transfer (other than
those imposed by the Act, the Company's Articles of Incorporation and the
securities or Blue Sky laws of certain jurisdictions), liens, encumbrances,
security interests and claims whatsoever, to the several Underwriters.
(iv) The Selling Stockholder has not taken, nor will he, she or it
take, directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares owned
by the Selling Stockholder pursuant to the distribution contemplated by this
Underwriting Agreement.
(v) The Selling Stockholder will pay or cause to be paid all
transfer taxes, if any, with respect to the Shares to be sold by the Selling
Stockholder.
(c) Any certificate signed by any officer of the Company or any Selling
Stockholder, as the case may be and delivered to you or counsel for the
Representative shall be deemed a representation and warranty by the Company or
such Selling Stockholder to the Underwriters as to the matters covered thereby.
2. Purchase, Sale and Delivery of the Underwritten Shares. On the basis
of the representations, warranties and covenants herein contained, and subject
to the terms and conditions herein set forth, the Company and the Selling
Stockholders agree, severally, and not jointly, to sell to each Underwriter,
severally and not jointly, and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $________ per share, the number of the
Underwritten Shares set forth opposite the name of each Underwriter in Schedule
I attached hereto, subject to adjustment in accordance with Section 10 hereof.
Subject to the above, the Company has hereby agreed to sell to the Underwriters
700,000 of said Underwritten Shares and the Selling Stockholders have agreed to
sell to the Underwriters 631,700 of said Underwritten Shares, all as
specifically set forth in Schedule I.
Payment for the Underwritten Shares shall be made by certified or bank
cashier's checks in clearing house funds (which will be next day funds) or, upon
mutual agreement of the parties, by wire transfer of U.S. Funds to designated
accounts of the Company and the Selling Stockholders, as appropriate, drawn to
the order of the Company and the Selling Stockholders, respectively, against
delivery of certificates for the Shares to the Representative for the accounts
of the several Underwriters. Delivery of certificates shall be to the
Representative at 111 Center Street, Little Rock, Arkansas 72201 or such other
place as the Representative may reasonably request. Payment will be made at 111
Center Street, Little Rock, Arkansas 72201, or at such other place as shall be
agreed upon by the Representative and the Company, at 8:00 A.M., Central Time,
on the fourth business day after the Effective Date (assuming that the time of
effectiveness is after 3:00 P.M., Central Time on the Effective Date) and
otherwise, at 10:00 A.M., Central Time, on the third business day after the
Effective Date, or at such other time and date not later than six days after the
Effective Date as you and the Company shall agree upon, such time and date of
payment being
7
<PAGE>
herein referred to as the "Closing Date." The certificates for the Underwritten
Shares will be delivered in such denominations and in such registrations as the
Representative requests in writing not later than the second full business day
prior to the Closing Date, and will be made available for inspection in the
offices of the Representative in Little Rock, or such other place as the
Representative may reasonably request, at least one full business day prior to
the Closing Date.
In addition, on the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an Option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The Option may be exercised in whole or in part at
any time upon written notice (or oral notice, subsequently confirmed in writing)
given not less than 30 days following the date of this Underwriting Agreement,
by you, as the Representative of the several Underwriters, to the Company
setting forth the number of Option Shares as to which the several Underwriters
are exercising the Option and the names and denominations in which the Option
Shares are to be registered. Closing of the purchase of the Option Shares, if
any, shall occur no later than four business days following the date upon which
notice of exercise of the Option is given to the Company. The number of Option
Shares to be purchased by each Underwriter shall be in the same proportion as
the total number of Underwritten Shares being purchased by such Underwriter
bears to the total number of Underwritten Shares being purchased by all
Underwriters as a group, as more particularly indicated on Schedule I, subject
to adjustment in accordance with Section 10 and as adjusted by you in such
manner to avoid fractional shares. The Option may be exercised only to cover
over-allotments in the sale of the Underwritten Shares by the Underwriters.
You, as the Representative, may cancel such Option at any time prior to its
expiration by giving written notice (or oral notice, subsequently confirmed in
writing) of such cancellation to the Company. To the extent, if any, that the
Option is exercised, payment for the Option Shares shall be made at such closing
by certified or bank cashier's checks in clearing house funds (which will be
next day funds) or, upon mutual agreement of the parties, by wire transfer of
U.S. Funds to a designated account of the Company, drawn to the order of the
Company.
3. Offering by the Underwriters. It is understood that the Public
Offering of the Underwritten Shares is to be made as soon as the Representative
deems it advisable to do so after the Registration Statement has become
effective. The Underwritten Shares are to be initially offered to the public
at the public offering price set forth in the Prospectus. The Representative
may from time to time thereafter change the public offering price and other
selling terms. To the extent, if at all, that any Option Shares are purchased
pursuant to Section 2 hereof, the Underwriters will offer them to the public on
the foregoing terms.
It is further understood that you will act as the Representative for the
Underwriters in the offering and sale of the Shares, in accordance with an
Agreement Among Underwriters which has been entered into among you and the
several other Underwriters.
4. Covenants of the Company.
(a) The Company covenants and agrees with the several Underwriters that:
8
<PAGE>
(i) The Company will use its best efforts to cause the Registration
Statement to become effective and will not, either before or after
effectiveness, file any amendment thereto or supplement to the Prospectus
(including a Prospectus filed pursuant to Rule 424(b) which differs from the
Prospectus on file at the time the Registration Statement becomes effective) of
which the Representative shall not previously have been advised and furnished
with a copy or to which the Representative shall have reasonably objected in
writing or which is not in compliance with the Act or Rules.
(ii) The Company will advise the Representative promptly of any
request of the Commission or other securities regulatory agency ("Other
Securities Regulator") for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose, or comparable action taken or initiated by any
Other Securities Regulator, and the Company will use its best efforts to prevent
the issuance of any stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representative in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions (including foreign jurisdictions) as the Representative reasonably
may have designated in writing, and will make such applications, file such
documents and furnish such information as may be reasonably required for that
purpose; provided however, the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction where it is not so qualified or required to file such a consent.
The Company will, from time to time, prepare and file such statements, reports,
and other documents, as are or may be required to continue such qualifications
in effect for so long a period as the Representative may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any preliminary prospectus
as the Representative may reasonably request. The Company will deliver to, or
upon the order of, the Representative on the Effective Date and thereafter from
time to time during the period when delivery of a Prospectus is required under
the Act as many copies of the Prospectus in final form, or as thereafter amended
or supplemented, as the Representative may reasonably request. The Company will
deliver to the Representative at or before the Closing Date, one signed copy of
the Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representative such number of copies of
the Registration Statement, and of all amendments thereto, as the Representative
may reasonably request.
(v) If during the period in which a Prospectus is required by law to
be delivered by an Underwriter or dealer any event shall occur as a result of
which, in the judgment of the Company or in the opinion of counsel for the
Underwriters, with the concurrence of the Company and its counsel, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered
9
<PAGE>
to a purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
notify the Representative and, subject to the Representative's prior review,
prepare and file with the Commission and any appropriate Other Securities
Regulator an appropriate amendment or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not, in light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will comply
with the law.
(vi) The Company will make generally available to its security
holders in the manner contemplated by Rule 158(b) under the Act, as soon as it
is practicable to do so, but in any event not later than the forty-fifth day
after the fiscal quarter first occurring one year after the Effective Date, an
earnings statement (which need not be audited) in reasonable detail covering a
period of at least twelve consecutive months beginning after the Effective Date,
which earnings statement shall satisfy the requirements of Section 11(a) of the
Act and will advise you in writing when such Statement has been so made
available.
(vii) The Company will, for a period of five years from the Closing
Date, deliver to the Representative copies of annual reports and information
furnished by the Company to its shareholders or filed with any securities
exchange pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Exchange Act, as amended. The Company will deliver to
the Representative similar reports with respect to any significant subsidiaries,
as that term is defined in the Rules, which are not consolidated in the
Company's financial statements.
(viii) As soon as the Company is advised thereof, it will advise the
Representative, and confirm the advice in writing, that the Registration
Statement and any amendments shall have become effective.
(ix) The Company will use the net proceeds from the sale of the
Shares in the manner forth in the Prospectus under the caption "Use of
Proceeds."
(x) Other than as permitted by the Act and the Rules, the Company
will not distribute any prospectus or offering materials in connection with the
offering and sale of the Shares.
(xi) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for its
common stock.
(xii) Except as contemplated hereby or by the Prospectus, the Company
will not, for a period of 180 days after the Effective Date of the Registration
Statement, offer to sell, contract to sell, sell or otherwise dispose of any
shares of the Company's common stock or securities convertible into shares of
the Company's common stock without your prior written consent. Furthermore, the
Company will cause each officer and director of the Company (as set forth in the
Prospectus) to furnish to you, on or prior to the execution of this Underwriting
Agreement, a letter or letters, in form and substance satisfactory to counsel
for Underwriters, pursuant to which each such person shall agree not to offer
for sale, sell, distribute or otherwise dispose of any shares of common stock of
the Company during the 180 days following the Effective Date, except with your
written consent. The Company will also cause each employee of the Company who
purchases any
10
<PAGE>
of the Shares in the Public Offering to furnish to you, prior to closing,
letters, in form and substance satisfactory to counsel for the Underwriters,
pursuant to which each such person shall agree not to sell, transfer, assign or
hypothecate such Shares for a period of three months following the Effective
Date.
The foregoing covenants and agreements shall apply to any successor of the
Company, including without limitation, any entity into which the Company might
convert or merge.
5. Costs and Expenses. Whether or not the Registration Statement becomes
effective, the Company and the Selling Stockholders (to the extent of their
prorata share based on the number of Shares sold by each) will pay all costs,
expenses and fees incident to the performance of the obligations of the Company
under this Underwriting Agreement, including, without limiting the generality of
the foregoing, the following: accounting fees of the Company; the fees and
disbursements of counsel for the Company; the cost of printing and delivering to
Underwriters copies of the Registration Statement, preliminary prospectus, the
Prospectus, this Underwriting Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, Underwriters' Questionnaire and Power of Attorney,
and the Blue Sky Survey and any supplements thereto; the filing fees of the
Commission; the filing fees and expenses incident to securing any required
review by the NASD of the terms of the sale of the Shares; the filing or listing
fees imposed with respect to listing of the Shares on The Nasdaq Stock Market's
National Market, and the expenses, including the reasonable fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Shares under State securities or Blue Sky laws and the laws
of any foreign jurisdiction. Any transfer taxes imposed on the sale of the
Shares to the Underwriters will be paid by the Company. Neither the Company nor
the Selling Stockholders shall be required to pay for any of the Underwriters'
expenses (other than those related to qualification under State securities or
Blue Sky laws) except that, if this Underwriting Agreement shall not be
consummated because the conditions in Section 7 hereof are not satisfied, or
because this Underwriting Agreement is terminated by the Representative pursuant
to Section 6 hereof (other than by reason of the failure of the events described
in the first sentence of Section 6(d)), or by reason of any failure, refusal or
inability on the part of the Company or any of the Selling Stockholders to
perform any undertaking or satisfy any condition of this Underwriting Agreement
or to comply with any of the terms hereof on their part to be performed, unless
such failure to satisfy said condition or to comply with said terms is due to
the default or omission of any Underwriter, then the Company shall reimburse the
several Underwriters for all of their actual, accountable out-of-pocket costs
and expenses, including reasonable attorneys' fees and out-of-pocket expenses,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder,
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. Conditions of Obligations of the Underwriters. The obligations of the
several Underwriters are subject to the accuracy, as of the Closing Date, of the
representations and warranties of the Company and the Selling Stockholders
contained herein, and to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder and to the following
additional conditions:
11
<PAGE>
(a) The Registration Statement shall have become effective not later than
_____ P.M., Central Time, on ___________, 1997, unless a later time and date is
agreed to by the Representative, and no stop order or other order suspending the
effectiveness thereof or the qualification of the Shares under the state
securities or Blue Sky laws of any jurisdiction shall have been issued and no
proceeding for that purpose shall have been taken or, to the knowledge of the
Company, shall be contemplated or threatened by the Commission or any Other
Securities Regulator. If the Company has elected to rely upon Rule 430A of the
Rules, the price of the Shares and any price-related information previously
omitted from the effective Registration Statement pursuant to such Rule 430A
shall have been transmitted to the Commission for filing Pursuant to Rule 424(b)
of the Act within the prescribed time period, and prior to the Closing Date the
Company shall have provided evidence satisfactory to the Representative of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A under the Act. All requests for additional
information on the part of the Commission or any other government or regulatory
authority with jurisdiction (to be included in the Registration Statement or
Prospectus or otherwise) shall be complied with to the satisfaction of the
Commission or such authorities.
(b) The Representative shall have received on the Closing Date and any
Option Closing Date the opinion of Rose Law Firm, a Professional Association,
counsel for the Company and the Selling Stockholders, dated the Closing Date and
any Option Closing Date, addressed to the Underwriters in form and substance
satisfactory to Giroir, Gregory, Holmes & Hoover, PLC, counsel to the
Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Arkansas with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus; each of the Subsidiaries is validly existing as a
state banking corporation in good standing under the laws of the jurisdiction of
its organization, and has corporate power and authority to own its properties
and conduct its business as described in the Prospectus; each of the Company and
the Subsidiaries is duly qualified to transact business in all jurisdictions in
which the conduct of its business or the location of the properties owned or
leased by it requires such qualification; and all of the outstanding shares of
capital stock of the Subsidiaries have been duly authorized and validly issued,
are fully paid and non-assessable, and except as set forth in the Prospectus and
the Registration Statement and except for directors' qualifying shares, if any,
no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into any shares
of capital stock or of ownership interests in the Subsidiaries are outstanding.
(ii) The Company has authorized or outstanding the capital stock set
forth under the caption "Use of Proceeds and Capitalization" in the Prospectus;
the outstanding shares of its capital stock have been duly authorized and
validly issued and are fully paid and non-assessable; all of the Shares conform
to the description thereof contained in the Prospectus; the certificates for the
Shares are in due and proper form, the portion of the Underwritten Shares and
the Option Shares, if any, to be sold pursuant to this Underwriting Agreement
have been duly authorized and will be validly issued, fully paid and non-
assessable when issued and paid for as contemplated by this
12
<PAGE>
Underwriting Agreement; no preemptive or other restrictive rights of any holder
of any class of the Company's capital stock exist with respect to any of the
Shares or the issue and sale thereof, except as has been waived in writing by
such persons prior to the date of this Underwriting Agreement, and the issued
and outstanding common stock of each Subsidiary of the Company is owned as
described in the Registration Statement and is validly issued, fully paid and
nonassessable.
(iii) The Registration Statement has become effective under the Act
and to the best knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act.
(iv) The Registration Statement, all preliminary prospectuses, the
Prospectus and each amendment or supplement thereto comply as to form in all
material respects with the requirements of the Act and the Rules, except that
such counsel need express no opinion as to the financial statements, schedules
and other statistical and financial information included therein.
(v) The statements under the caption "Description of Capital Stock"
in the Prospectus that constitute a summary of documents referred to therein or
matters of law, are accurate summaries and fairly and correctly represent the
material information required with respect to such documents and matters.
(vi) Any holders of securities of the Company who have rights to the
registration of shares of common stock or other securities because of the filing
of the Registration Statement by the Company have waived such rights in writing.
(vii) To the best knowledge of such counsel, after due inquiry,
except as set forth in the Registration Statement and Prospectus, no holders of
common stock or other securities of the Company have registration rights with
respect to such securities.
(viii) To the best knowledge of such counsel, after due inquiry, there
are no contracts or documents required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or Prospectus
which are not so filed or described as required, and such contracts and
statements as are summarized in the Registration Statement or Prospectus are
fairly summarized in all material respects consistent with the requirements of
the Act and Rules.
(ix) To the best knowledge of such counsel, after due inquiry, there
are no legal, regulatory or administrative proceedings pending or threatened
against the Company or any Subsidiary which may be material to the earnings,
business, affairs, properties, business prospects or operations of the Company
and its Subsidiaries considered as a whole, except as set forth in the
Prospectus.
(x) This Underwriting Agreement has been duly authorized, executed
and delivered by the Company and the Selling Stockholders and is a valid and
binding obligation of the Company and the Selling Stockholders enforceable
against the Company and the Selling Stockholders in accordance with its terms,
subject to all applicable bankruptcy, insolvency,
13
<PAGE>
moratorium, receivership and other laws relating to or affecting the rights of
creditors generally and subject to the discretion of a court of equity in
administering any such rights or remedies.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Underwriting Agreement and the consummation of the transactions herein
contemplated (other than required by state securities and Blue Sky laws as to
which such counsel need express no opinion) except such as have been obtained or
made, specifying the same.
(xii) The Company and the Subsidiaries hold all material licenses,
certificates and permits from governmental authorities that are necessary for
the conduct of their respective businesses.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that the Registration Statement or any amendment
thereto at the time the Registration Statement or amendment became effective or
the Prospectus or any amendment or supplement thereto as of their respective
dates contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading
(except that such counsel need express no view as to financial statements,
schedules and other financial information included therein). With respect to
such statement, such firm may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(c) The Representative shall have received from Giroir, Gregory, Holmes and
Hoover, PLC, counsel to the Underwriters, an opinion dated the Closing Date,
substantially to the effects specified in subparagraphs (iii) and (iv) of
paragraph (b) of this Section 6, and that the Company is a validly organized and
existing corporation under the laws of the State of Arkansas. In rendering such
opinion, Giroir, Gregory, Holmes & Hoover, PLC may rely as to all matters
governed other than by the Federal laws on the opinion of counsel referred to in
paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that the
Registration Statement, the Prospectus or any amendment or supplement thereto as
of their respective dates contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading (except that such counsel need express no view as to
financial statements, schedules and other financial information included
therein). With respect to such statement, such firm may state that their belief
is based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representative shall have received at or prior to the Closing Date
from Giroir, Gregory, Holmes & Hoover, PLC a memorandum or summary, in form and
substance satisfactory to the Representative, with respect to the qualification
for offering and sale by the Underwriters of the Underwritten Shares under the
state securities or Blue Sky laws of such jurisdictions as the Representative
may reasonably have requested.
14
<PAGE>
(e) The Representative shall have received on the Closing Date and any
Option Closing Date signed letters from each of Moore Stephens Frost and Baird,
Kurtz & Dobson addressed to the Underwriters dated as of the Effective Date and
again dated as of the Closing Date and any Option Closing Date, with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus. All such letters shall be in form
and substance satisfactory to the Representative and Giroir, Gregory, Holmes &
Hoover, PLC, counsel to the Underwriters.
(f) The Representative shall have received on the Closing Date and any
Option Closing Date a certificate of the Chairman of the Board of Directors and
the Chief Financial Officer of the Company, respectively, to the effect that, as
of the Closing Date and any Option Closing Date, each of them severally
represents as follows:
(i) (1) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Closing Date and any Option
Closing Date, as the case may be, and (2) the Company has complied with all the
agreements and has satisfied all of the conditions on its part to be performed
or satisfied at or prior to the Closing Date and any Option Closing Date, as the
case may be.
(ii) (1) the Registration Statement has become effective under the
Act; (2) no stop order suspending the effectiveness of the Registration
Statement or the use or effectiveness of the Prospectus has been issued; (3) no
proceedings for such purpose have been taken or, to his knowledge, are
contemplated by the Commission or any Other Securities Regulator; and (4) all
requests for additional information on the part of the Commission or any Other
Securities Regulator have been complied with.
(iii) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, since the Effective Date, no event has occurred
which should have been set forth in a supplement to or an amendment to the
Prospectus which has not been so set forth in such supplement or amendment.
(g) The Underwriters shall have received from each of the Selling
Stockholders on the Closing Date, certificates dated as of the Closing Date, to
the effect as follows:
(i) The representations and warranties of the Selling Stockholder in
this Underwriting Agreement are true and correct as of the Closing Date; and
(ii) The Selling Stockholder has in all material respects complied
with all the agreements and have satisfied all of the conditions on his, her or
its part to be performed or satisfied at or prior to the Closing Date.
(h) The Company and the Selling Stockholders shall have furnished to the
Representative such additional information and further certificates and
documents confirming the representations
15
<PAGE>
and warranties contained herein and related matters as the Representative may
reasonably have requested.
(i) Since the respective dates as of which information is given in the
Prospectus, there shall not have occurred any material adverse change in the
condition (financial or otherwise), or in the earnings, business, affairs,
properties, business prospects or results of operations of the Company or any
Subsidiary, whether or not arising in the ordinary course of business.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representative and Giroir, Gregory, Holmes &
Hoover, PLC, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representative by notifying the Company of such termination in writing or by
confirmed telefax at or prior to the Closing Date. In such event, the Company,
the Selling Stockholders and the Underwriters shall not be under any obligation
to each other (except to the extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Company and the Selling
Stockholders. The obligations of the Company and the Selling Stockholders to
sell and deliver the Shares are subject to the conditions that (a) at or before
_____ P.M., Central Time, on _________________, or such later time and date as
the Company and the Representative may from time to time consent to in writing
or by confirmed telefax, the Registration Statement shall have become effective,
and (b) at the Closing Date no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings therefor initiated
or threatened. If either of the Conditions hereinabove provided for in this
Section 7 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, this Agreement may be terminated by the Company and the Selling
Stockholders by notifying the Representative of such termination in writing or
by confirmed telefax at or prior to the Closing Date.
8. Indemnification.
(a) The Company and George G. Gleason, II (in his individual capacity)
jointly and severally agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act,
the Rules and the Exchange Act from and against any and all losses, claims,
damages, liabilities, joint or several, and all expenses (including costs of
investigation and legal expenses) to which such Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company and Mr.
16
<PAGE>
Gleason will reimburse each Underwriter and each such controlling person for
legal and other expenses incurred in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding; provided,
however, that neither the Company nor Mr. Gleason will be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement, or alleged untrue statement, or omission
or alleged omission made in the Registration Statement, any preliminary
prospectus, the Prospectus, or such amendment or supplement, in reliance upon or
in conformity with written information furnished to the Company by or through
the Representative specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the Company or
the Selling Stockholders may otherwise have.
Notwithstanding the above, Mr. Gleason shall be liable to all persons under
the indemnity agreement contained in this Section 8(a) and for breaches of the
representations and warranties contained in Section 1 hereof only for an
aggregate amount not exceeding the net proceeds received by him from the sale of
Shares hereunder.
(b) The Selling Stockholders, other than Mr. Gleason in light of his
agreement pursuant to Section 8(a) above, jointly and severally agree to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter, within the meaning of the Act, the Rules and the
Exchange Act, from and against any losses, claims, damages, or liabilities,
joint or several (or actions or proceedings in respect thereof) and all expenses
(including costs of investigation and legal expenses) to which such Underwriters
or such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, liabilities or expenses arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendment or supplement thereto, in each case to the extent,
but only to the extent, that either (A) such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus, or any amendment or
supplement thereto, in conformity with written information furnished to the
Company by or on behalf of such Selling Stockholder specifically for use therein
or (B) such Selling Stockholder, as of the date of any Registration Statement,
any preliminary prospectus, the Prospectus, or any amendment or supplement
thereto in issue, possessed actual knowledge that such statement was untrue or
possessed actual knowledge of the information that had been omitted or was
alleged to be omitted; provided, however, that the Selling Stockholders will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement, or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any preliminary prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representative specifically for use in the preparation
thereof.
Notwithstanding the above, each Selling Stockholder shall be liable to all
persons under the indemnity agreements contained in this Section 8(b) and for
breaches of its representations contained in Section 1 hereof only for an
aggregate amount not exceeding the net proceeds received by such Selling
Stockholder from the sale of Shares hereunder.
17
<PAGE>
(c) Each Underwriter will indemnify and hold harmless the Selling
Stockholders, the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company, within the meaning of the Act, the Rules and the Exchange Act, from and
against any losses, claims, damages, liabilities or expenses to which the
Selling Stockholders, the Company or any such director, officer, or controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made;
and will reimburse any legal or other expenses reasonably incurred by the
Selling Stockholders, the Company or any such director, officer, or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in such case only to the extent that such untrue
statement, or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any preliminary prospectus, the Prospectus,
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative expressly
for use in the preparation thereof. This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action or proceeding, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case any such action or proceeding is brought against any
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof with counsel satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
the foregoing, the indemnified party, at any time after such assumption of
defense by the indemnifying party, shall be entitled to participate in such
defense and to engage separate counsel (at the indemnifying party's expense) if,
in the indemnified party's reasonable belief, a conflict of interest exists with
counsel engaged by the indemnifying party.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 8 is for
any reason held to be unavailable to an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each applicable indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such
18
<PAGE>
indemnified party as a result of such losses, claims, damages, liabilities and
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other hand from the offering of the Shares or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
parties in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting expenses)
received by the Company and the Selling Stockholders bears to the underwriting
discounts and commissions received by the Underwriters. The relative fault of a
party shall be determined by reference to, among other things, whether the true
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by each party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any such
action or claim.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 8, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriters have otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(e) to contribute shall be several in proportion to their respective
underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
preliminary prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
9. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements of the Selling Stockholders, the
Company and officers
19
<PAGE>
of the Company herein or in certificates delivered pursuant hereto, and the
indemnity and contribution agreements contained in Section 8 hereof, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriters or any controlling person, or by or on
behalf of the Selling Stockholders, the Company or any of its officers,
directors or controlling persons, and shall survive delivery of the Underwritten
Shares and, if applicable, the Option Shares to the Representative or
termination of this Underwriting Agreement.
10. Default by Underwriters. If any Underwriter shall fail to purchase
and pay for the Shares which such Underwriter has agreed to purchase and pay for
hereunder (otherwise than by reason of any default on the part of the Company or
any of the Selling Stockholders), you, as the Representative of the
Underwriters, shall use your best efforts to procure within twenty-four hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company and the Selling Stockholders such amounts as may be agreed upon
and upon the terms set forth herein, the Shares which the defaulting Underwriter
or Underwriters failed to purchase. If during such twenty-four hours you, as
such Representative, shall not have procured such other Underwriters, or any
others, to purchase the Shares agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of Shares with
respect to which such result shall occur does not exceed 10% of the Shares which
the Underwriters are obligated to purchase hereby, the other Underwriters shall
be obligated, severally, in proportion to the respective number of shares which
they are obligated to purchase hereunder, to purchase the Shares which such
defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of Shares with respect to which such default shall occur
exceeds 10% of the Company's and the Selling Stockholders' common stock covered
hereby, the Company and the Selling Stockholders or you, as the Representative
of the Underwriters will have the right, by written notice given within the next
twenty-four hour period to the parties to this Underwriting Agreement, to
terminate this Underwriting Agreement without liability on the part of the non-
defaulting Underwriters or of the Company and the Selling Stockholders except to
the extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 10, the time of
closing may be postponed for such period, not to exceed seven days, as you, as
the Representative, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriters" includes any person
substituted for a defaulting Underwriter. Any action taken under Section 10
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Underwriting Agreement.
11. Notices. All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telefaxed and
confirmed as follows: if to the Underwriters, to Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201, Attention: Michael R. Smith; with a copy to
H. Watt Gregory, III, Giroir, Gregory, Holmes & Hoover, PLC, 111 Center
Street, Suite 1900, Little Rock, Arkansas, 72201; if to the Company or the
Selling Stockholders, to Bank of the Ozarks, Inc., 425 West Capitol Avenue,
Suite 3100, Little Rock, Arkansas 72201, Attention: George G. Gleason, II; with
a copy to Les R. Baledge, Rose Law Firm, a Professional Association, 120 East
Fourth Street, Little Rock, Arkansas 72201.
20
<PAGE>
12. Termination. This Agreement may be terminated by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 A.M.,
Central Time, on the first business day following the date on which the
Registration Statement becomes effective;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or a
development involving a prospective material adverse change in or affecting
particularly the condition, financial or otherwise, of the Company or the
earnings, affairs or business prospects of the Company, whether or not arising
in the ordinary course of business, which would, in your reasonable judgment,
materially impair the investment quality of the Shares, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change on the financial markets of the United States would, in your
reasonable judgment, make the offering or delivery of the Shares impracticable,
(iii) suspension of trading or general trading halts in securities on the New
York Stock Exchange, the American Stock Exchange, The Nasdaq Stock Market or the
over-the-counter market or limitation on prices (other than limitations on hours
or numbers of days or trading) for securities on either such Exchange, The
Nasdaq Stock Market or the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your reasonable opinion materially and adversely affects or will materially or
adversely affect the business or operations of the Company, (v) declaration of a
banking moratorium by either federal or New York State authorities, or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 10 of this Agreement.
13. Successors. This Agreement has been and is made solely for the
benefit of the Underwriters, the Selling Stockholders, the Company and their
respective successors, executors, administrators, heirs, and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "Successors" shall
not include any purchaser of the Shares merely because of such purchase.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Underwriting Agreement and the representations,
warranties and covenants of the Company and the Selling Stockholders in this
Underwriting Agreement shall remain in full force and effect regardless of (a)
any termination of this Underwriting Agreement, (b) any investigation made by or
on behalf of the Underwriters or controlling person or (c) delivery of any
payment for the Shares under this Underwriting Agreement.
21
<PAGE>
This Underwriting Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Underwriting Agreement shall be governed by, and construed in
accordance with, the laws of the State of Arkansas applicable to contracts made
and performed within such State.
22
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholders and the
several Underwriters in accordance with its terms.
Very truly yours,
BANK OF THE OZARKS, INC.
By:
----------------------------------------
Its:
---------------------------------------
23
<PAGE>
SELLING STOCKHOLDERS:
-------------------------------------------
George G. Gleason, II
HOLT-ROSS CHILDREN'S TRUST #1
HOLT-ROSS CHILDREN'S TRUST #2
HOLT-ROSS CHILDREN'S TRUST #3
HOLT-ROSS CHILDREN'S TRUST #4
HOLT-ROSS CHILDREN'S TRUST #5
HOLT-ROSS CHILDREN'S TRUST #6
HOLT-ROSS GRANDCHILDREN'S TRUST
By:
-----------------------------------------
George G. Gleason, II, Trustee for all
of the above-referenced Trusts
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
STEPHENS INC., As Representative of the
Several Underwriters named in Schedule I
By:
-----------------------------------
Authorized Officer
24
<PAGE>
SCHEDULE I
No. of Underwritten
Name Shares
- ---- -------------------
Stephens Inc.
-------------------
TOTAL 1,331,700
===================
SHARES BEING SOLD BY SELLING STOCKHOLDERS
-----------------------------------------
Name of Selling Stockholder No. of Underwritten
- --------------------------- Shares
-------------------
George G. Gleason, II 316,900
-------------------
Holt-Ross Children's Trust #1
-------------------
Holt-Ross Children's Trust #2
-------------------
Holt-Ross Children's Trust #3
-------------------
Holt-Ross Children's Trust #4
-------------------
Holt-Ross Children's Trust #5
-------------------
Holt-Ross Children's Trust #6
-------------------
Holt-Ross Grandchildren's Trust 133,300
-------------------
TOTAL 631,700
===================
25
<PAGE>
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
BANK of the OZARKS, Inc.
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF ARKANSAS SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 063904 10 6
</TABLE>
THIS CERTIFIES THAT
SPECIMEN
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
BANK OF THE OZARKS, INC.
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all the provisions of the Articles of Incorporation of
the Corporation, and all amendments and restatements thereof, to all of which
each holder by the acceptance hereof consents. This Certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its authorized officers
Dated:
COUNTERSIGNED AND REGISTERED.
UNION PLANTERS NATIONAL BANK
(MEMPHIS, TN)
TRANSFER AGENT AND REGISTRAR
<TABLE>
<S> <C> <C> <C>
BY [BANK OF THE OZARKS, INC. SPECIMEN SPECIMEN
CORPORATE SEAL]
AUTHORIZED SIGNATURE CHAIRMAN AND CHIEF SECRETARY
EXECUTIVE OFFICER
SECRETARY
</TABLE>
<PAGE>
BANK of the OZARKS, Inc.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES, LIMITATIONS,
AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OF STOCK OF THE CORPORATION
AUTHORIZED TO BE ISSUED. SUCH REQUEST MAY BE MADE TO THE CORPORATION AT ITS
PRINCIPAL PLACE OF BUSINESS, OR TO THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
UNIF GIFT MIN ACT - __________ Custodian ___________
(Cust) (Minor)
TEN COM - as tenants in common Under Uniform Gifts to Minors
TEN ENT - as tenants by the entireties Act ____________________________
JT TEN - as joint tenants with right (State)
of survivorship and not as
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
| |
|____________________________________|__________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
----------------------------------------------------------
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------
X
NOTICE: ------------------------------------------
THE SIGNATURE(S) TO (SIGNATURE)
THIS ASSIGNMENT MUST
CORRESPOND WITH THE X
NAME(S) AS WRITTEN ------------------------------------------
UPON THE FACE OF THE (SIGNATURE)
CERTIFICATE IN EVERY
PARTICULAR WITHOUT _______________________________________________
ALTERATION OR EN- | THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN |
LARGEMENT OR ANY | ELIGIBLE GUARANTOR INSTITUTION (BANKS, |
CHANGE WHATEVER. | STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS |
| AND CREDIT UNIONS WITH MEMBERSHIP IN AN |
| APPROVED SIGNATURE GUARANTEE MEDALLION |
| PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. |
|_____________________________________________|
| SIGNATURE(S) GUARANTEED BY: |
| |
| |
|_____________________________________________|
<PAGE>
Exhibit 5.1
Rose Law Firm, a Professional Association
120 East Fourth Street
Little Rock, Arkansas 72201
June 26, 1997
Bank of the Ozarks, Inc.
425 West Capitol Avenue
Suite 3100
Little Rock, Arkansas 72201
Re: 1,331,700 shares of Common Stock registered pursuant to the
Bank of the Ozarks, Inc. registration statement on Form S-1
SEC File No. 333-27641
Ladies and Gentlemen:
We are acting as counsel for Bank of the Ozarks, Inc. (the "Company") in
connection with the registration of 1,331,700 shares of the Company's Common
Stock, $.01 par value, on Form S-1 filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Registration
Statement").
We have examined such documents, records, and matters of law as we have
deemed necessary for purposes of this opinion. Based on such examination and on
the assumptions set forth below, we are of the opinion that when the shares of
Common Stock registered pursuant to the Registration Statement are sold in the
manner contemplated by the Registration Statement they will be validly issued,
fully paid, and nonassessable.
In rendering the foregoing opinion, we have relied as to certain factual
matters upon certificates of officers of the Company and public officials, and
we have not independently checked or verified the accuracy of the statements
contained therein. In addition, our examination of matters of law has been
limited to the laws of the state of Arkansas and the federal laws of the United
States of America, in each case as in effect on the date hereof. We hereby
consent to the use of this opinion as an exhibit to the referenced Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus.
Very truly yours,
ROSE LAW FIRM, a Professional
Association
By: /s/ Jeffrey J. Gearhart
-------------------------
Jeffrey J. Gearhart
<PAGE>
EXHIBIT 10.4
REAL ESTATE CONTRACT
(UNIMPROVED PROPERTY)
1. PARTIES: BANK OF THE OZARKS, wca (individually, or collectively, the
"Buyer") offers to purchase, subject to the terms and conditions set forth
herein, from the undersigned (individually or collectively, the "Seller"), the
property described in paragraph 2 of this contract (the "Property"):
2. LEGAL DESCRIPTION AND ADDRESS: APPROX. 2.1 ACRES LOCATED IN THE
NORTHEAST CORNER OF THE INTERSECTION OF ROGERS AVENUE AND WALDRON ROAD, FORT
SMITH, SEBASTIAN COUNTY, ARKANSAS. COMPLETE LEGAL DESCRIPTION TO FOLLOW.
3. PURCHASE PRICE: Subject to the following conditions the buyer shall pay
the following to the Seller for the Property (the "Purchase Price")
...................................................................$1,100,000.00
-------------
CASH: Cash at closing in the [X] exact
[_] approximate sum of.........................................$1,100,000.00
-------------
FINANCING AS FOLLOWS: N/A
4. LOAN AND CLOSING COSTS: Unless otherwise specified, all Buyer's closing
costs, including origination fee, assumption fees, loan costs, prepaid items and
loan discount points, are to be paid by Buyer. Seller to pay Seller's closing
costs. REVENUE STAMPS AND CLOSING FEE TO BE EQUALLY SPLIT BETWEEN BUYER AND
SELLER.
5. APPLICATION FOR FINANCING: If applicable, Buyer agrees to make complete
application for new loan or for loan assumption within N/A business days from
---
the execution date of this Real Estate Contract and to request that the loan or
the assumption be approved on or about N/A calendar days after application.
---
Complete loan application includes ordering and paying for any credit reports or
appraisals that are required to make the loan. In order to timely complete the
application required by this Paragraph 5, Buyer agrees to provide lender with
all requested information. Unless otherwise specified, if said loan is not
closed or assumed, Buyer agrees to pay for loan costs incurred, including
appraisal and credit report, unless failure to close is caused by Seller, in
which case such expenses will be paid by Seller. Buyer understands that failure
to timely make loan application as defined above constitute a breach of this
Real Estate Contract.
6. EARNEST MONEY: Buyer herewith tenders a check for $10,000.00 to be
deposited by Listing Agent Firm upon acceptance as earnest money which shall
apply toward the Purchase Price or closing costs. This Real Estate Contract
shall serve as a receipt for said Earnest Money deposited. If title
requirements are not fulfilled or if Buyer is unable to obtain financing or
approval of assumption as specified in Paragraph 3, the earnest money shall be
promptly refunded to Buyer. If Buyer fails to fulfill his
<PAGE>
obligations under this contract or after all conditions have been met, Buyer
fails to close this transaction, the earnest money may, at the sole and
exclusive option of the Seller, be retained by the Seller as liquidated damages.
Alternatively, Seller may return the earnest money and assert all legal or
equitable rights which may exist as a result of Buyer breaching the contract.
Buyer warrants, represents and acknowledges that the check tendered will be
honored upon presentation to Buyer's bank, and that Buyer shall be in default of
this Real Estate Contract if the check is not honored in a timely manner. Buyer
and Seller agree that, in the event of any dispute concerning entitlement to the
Earnest Money, Listing Agent Firm may interplead the Earnest Money into a court
of competent jurisdiction, and upon such interpleader, both Listing Agent Firm
and Selling Agent Firm shall be released from liability to Buyer and Seller.
Listing Agent Firm shall be reimbursed any attorneys fees or costs from the
interplead Earnest Money.
7. CONVEYANCE: Unless otherwise specified, conveyance shall be made to
Buyer by general warranty deed, in fee simple absolute, except it shall be
subject to recorded instruments and easements, if any, which do not materially
affect the value of the Property. Unless expressly reserved herein, SUCH
CONVEYANCE SHALL INCLUDE ALL MINERAL RIGHTS OWNED BY SELLER, IF ANY. Seller
warrants and represents only those signatures set forth below are required to
transfer legal title to the Property.
8. TITLE REQUIREMENTS: Unless otherwise specified, the Seller shall
furnish, at Seller's cost title insurance in the amount of the Purchase Price.
If objections are made to Title, Seller shall have a reasonable time to cure the
objections. Also unless otherwise specified, if the Buyer is obtaining
financing to purchase the Property, Buyer shall furnish at Buyer's cost
mortgagee's title policy in the amount of the loan to be obtained, if required
by the lender.
9. SURVEY:
[_] A. No survey shall be provided.
[X] B. A current survey in a form satisfactory to Buyer (and Buyer's
lender, if applicable), certified within 30 days of closing by a
registered land surveyor, will be provided and paid for by:
[_] Buyer [X] Seller.
[_] C. Other: ___________________________________________
10. PERCOLATION/SOIL TEST:
[X] A. No percolation or other soil test shall be provided.
-2-
<PAGE>
[_] B. A current percolation or other soil test in a location
satisfactory to Buyer (and Buyer's lender, if applicable),
certified within _____ days of closing will be provided and paid
for by:
_____ Buyer _____ Seller.
11. PRORATIONS: Taxes and special assessments due on or before closing
shall be paid by Seller. Any deposits on rental property are to be transferred
to buyer at closing. Insurance, general taxes, special assessments, rental
payments and interest on any assumed loan shall be prorated as of closing,
unless otherwise specified herein.
12. CLOSING: Closing is the date and time at which the Seller delivers the
executed and acknowledged deed. The closing date is designated to be no later
than seven (7) calendar days after APRIL 14, 1997. The closing date may be
extended only by written agreement of Buyer and Seller. Buyer and Seller agree
that time is of the essence. If the sale is not consummated by the closing date
(or any written extension thereof), the parties shall have the remedies
available to them in equity or at law, including the remedies provided to Seller
in Paragraph 6.
13. OTHER CONTINGENCY:
[X] A. No Other Contingency, (Except for those conditions listed
elsewhere in this Real Estate Contact.)
[_] B. This Real Estate Contract is contingent upon ____________________
__________________________________________________ on or before
_______________, 19____.
During the term of this Real Estate Contract:
[_] (i)NON-BINDING CLAUSE: It is understood and agreed that every
effort will be made to obtain another Real Estate Contract on the
Property and that in the event another offer is accepted, this
Real Estate Contract is null and void and earnest money shall be
promptly refunded to Buyer.
[_] (ii)BINDING WITH ESCAPE CLAUSE: Seller has the right to continue
to show the Property and solicit and enter into another Real
Estate Contract on this Property. However, all contracts shall be
subject to termination of this Real Estate Contract. Upon receipt
of written notice of an additional Real Estate Contract being
accepted by Seller (the "Notice"), Buyer shall be deemed in
receipt of the Notice upon the earlier of (a) actual receipt of
the Notice or (b) two (2) business days after Seller or Listing
Agent Firm deposits the Notice in the United States mail,
certified for delivery to
-3-
<PAGE>
Buyer at ______________________________________ with sufficient
postage to ensure delivery. Removal of this contingency shall
occur only by delivery of written notice, in a manner ensuring
actual receipt, to Seller or Listing Agent Firm within ____ hours
after Buyer received the Notice. Time is of the essence. Buyer
further agrees to forfeit all earnest monies in the event Buyer
does not perform on this Real Estate Contract for any reason
concerning this contingency, if the same is removed. If this
contingency is removed, a closing date shall be agreed upon by
the parties. If a closing date is not agreed upon closing shall
occur _____ calendar days from removal. Should Buyer not remove
this contingency as specified, then this Real Estate Contract
shall be deemed null and void.
[_] (iii) BINDING WITHOUT ESCAPE CLAUSE: It is understood and agreed
that the Seller has the right to enter into backup contracts and
other contracts shall not affect this Real Estate Contract.
14. POSSESSION: Possession of the Property shall be delivered to Buyer:
[X] A. Upon the closing (Seller's delivery of executed and acknowledged
Deed).
[_] B. Upon Buyer's completion, signing and delivery to Seller (or to
the Listing Agent Firm or the closing agent agreed to by the
Buyer and Seller) of all loan and closing documents required to
be executed by Buyer.
[_] C. After the closing (Seller's deliver of executed and acknowledged
Deed), but no later than _____ days after closing, Seller agrees
to pay $__________ per day from the day after closing through the
date possession is delivered. Receipt and acceptance of such
daily rental shall not extend the time of Seller's requirement to
deliver possession at the time set forth herein. The rental sum
shall be paid:
[_] (i) by depositing this sum with Listing Agent Firm (or the
closing agent agreed to by the Buyer and Seller) to be disbursed
to the parties entitled thereto on the date possession is
delivered.
[_] (ii) directly to Buyer on the date possession is delivered.
-4-
<PAGE>
Seller will be responsible for all damages caused to the Property
during the period between the closing date and the date possession is
delivered to Buyer, only if caused by Seller's intentional or
negligent actions.
[_] D. Prior to Closing. (See attached addendum)
15. FIXTURES AND ATTACHED EQUIPMENT: Unless specifically excluded herein,
all fixtures and attached equipment, if any, are included in the Purchase Price.
16. BUYER'S DISCLAIMER OF RELIANCE: BUYER CERTIFIES THAT BUYER HAS
PERSONALLY INSPECTED, OR HAD A REPRESENTATIVE INSPECT, THE PROPERTY AS FULLY AS
BUYER DESIRES AND IS NOT RELYING AND SHALL NOT HEREAFTER RELY UPON ANY
WARRANTIES, REPRESENTATIONS OR STATEMENTS OF THE LISTING AGENT FIRM, THE SELLING
AGENT FIRM, OR ANY AGENT, INDEPENDENT CONTRACTOR OR EMPLOYEE ASSOCIATED WITH
THOSE ENTITIES, REGARDING THE AGE, SIZE, QUALITY, VALUE OR CONDITION OF THE
PROPERTY, INCLUDING WITHOUT LIMITATION ALL IMPROVEMENTS, ELECTRICAL OR
MECHANICAL SYSTEMS, PLUMBING OR APPLIANCES, OTHER THAN THOSE SPECIFIED HEREIN,
IF ANY, WHETHER OR NOT ANY EXISTING DEFECTS IN ANY SUCH REAL OR PERSONAL
PROPERTY MAY BE REASONABLY DISCOVERABLE BY BUYER OR A REPRESENTATIVE HIRED BY
BUYER. NEITHER LISTING AGENT FIRM NOR SELLING AGENT FIRM CAN GIVE LEGAL ADVICE
TO BUYER OR SELLER. LISTING AGENT FIRM AND SELLING AGENT FIRM STRONGLY URGE
THAT STATUS OF TITLE, PROPERTY CONDITION, QUESTIONS OF SURVEY AND ALL
REQUIREMENTS OF SELLER AND BUYER HEREUNDER SHOULD EACH BE INDEPENDENTLY VERIFIED
AND INVESTIGATED.
17. SELLER PROPERTY DISCLOSURE:
[_] A. Buyer has neither received nor requested from Seller a written
disclosure concerning the condition of the Property prior to the
execution of this contract, but this fact neither limits nor
restricts in any way the Buyer's Disclaimer of Reliance set forth
in Paragraph 16 of this contract. BUYER IS STRONGLY URGED BY THE
SELLING AGENT FIRM AND THE LISTING AGENT FIRM TO MAKE ALL
INDEPENDENT INSPECTIONS DEEMED NECESSARY PRIOR TO SIGNING THIS
CONTRACT.
[_] B. Buyer and Seller acknowledge that upon the instruction of the
Seller, either the Selling Agent Firm or the Listing Agent Firm
have delivered to Buyer prior to the execution of this contract,
a written disclosure prepared by Seller concerning the condition
of the Property, but this fact neither limits nor restricts the
Buyer's Disclaimer of Reliance set forth in Paragraph 16 of this
contract. The written disclosure prepared by Seller is dated
____________________, 19____ and is
-5-
<PAGE>
warranted by Seller to be the latest disclosure and the answers
contained in the disclosure are true and correct to the best of
the Seller's knowledge.
[X] C. Seller will provide to Buyer a written disclosure about the
condition of the Property which will contain information that is
true and correct to the best of the Seller's knowledge. The
disclosure should be presented to Buyer in a timely manner after
the acceptance of this Real Estate Contract and Buyer has three
(3) business days after receipt of disclosure to accept or reject
said disclosure. If Seller fails to provide the disclosure in a
timely manner, Buyer may request in writing for the Seller to
provide a disclosure within three (3) business days and if the
Seller does not provide the disclosure the Buyer may declare the
contract null and void, with Buyer to receive a refund of the
earnest money. If Buyer finds the disclosure unacceptable within
three (3) business days after receipt of disclosure, this
contract may be declared null and void by the Buyer, with Buyer
to receive a refund of the earnest money. Receipt of this
disclosure neither limits nor restricts in any way the Buyer's
Disclaimer of Reliance set forth in Paragraph 18 of this
contract.
18. OTHER: THIS CONTRACT IS SUBJECT TO THE ADDITIONAL CONDITIONS EACH OF
WHICH MUST BE SATISFIED BY BUYER WITHIN SIXTY (60) DAYS OF THIS CONTRACT DATE AS
FOLLOWS:
A. BUYER'S REVIEW AND DETERMINATION OF SITE SUITABILITY FOR BUYER'S INTENDED
USE;
B. BUYER OBTAINING ALL REQUIRED REGULATORY APPROVAL FOR THIS SITE; AND
C. BUYER OBTAINING A CURRENT SATISFACTORY PHASE I ENVIRONMENTAL STUDY,
SATISFACTORY SOIL ANALYSIS AND OTHER TEST. IN THIS REGARD, BUYER'S AGENT
OR OTHER CONTRACTORS SHALL BE ALLOWED ACCESS TO THE SITE TO COMPLETE THESE
TESTS DURING THE CONTINGENCY PERIOD.
EACH OF THE BUYER'S CONTINGENCIES ARE AT BUYER'S SOLE EXPENSE AND COST.
THE SELLER'S OBLIGATION TO SELL UNDER THIS CONTRACT IS CONDITIONED UPON
SELLER'S ABILITY TO SATISFY EACH OF THE FOLLOWING:
1. SELLER'S ABILITY TO ACQUIRE AND TRANSFER TO BUYER AT CLOSING UNDER THIS
CONTRACT THE LAND LOCATED AT THE CORNER OF ROGERS
-6-
<PAGE>
AVENUE AND WALDRON ROAD CONSISTING OF APPROXIMATELY 10,000 SQ. FT. MORE OR
LESS WHICH IS NOT PRESENTLY OWNED BY SELLER.
2. SELLER SHALL HAVE RECEIVED A WRITTEN AGREEMENT FROM THE PRESENT LESSEES OF
THE PROPERTY CANCELLING THE LEASES IN EFFECT ON THIS PROPERTY AND THAT
BUILDING VACATED; AND
3. THE TOTAL COST TO SELLER TO SATISFY ITEMS 1 AND 2 ABOVE SHALL NOT EXCEED
THE SUM OF TWO HUNDRED THOUSAND AND 00/00 ($200,000.00) DOLLARS.
IN THE EVENT SELLER IS UNABLE TO SATISFY ANY OF THE SELLER'S CONDITIONS
WITHIN THIRTY (30) DAYS FOLLOWING RECEIPT OF WRITTEN NOTICE FROM BUYER OF
THE SATISFACTION OF BUYER'S CONTINGENCIES SET FORTH HEREINABOVE, THEN
SELLER SHALL HAVE THE RIGHT TO CANCEL THIS CONTRACT WITHOUT ANY FURTHER
OBLIGATION TO THE BUYER.
19. AGENCY:
[_] A. LISTING AGENT FIRM AND SELLING AGENT FIRM REPRESENT SELLER: Buyer
acknowledges that the Listing Agent Firm and the Selling Agent
Firm, and all licensees associated with those entities are the
agents of the Seller and that it is the Seller who employed them,
whom they represent, and to whom they are responsible. Buyer
acknowledges that before eliciting or receiving confidential
information from the Buyer, the Selling Agent Firm, which may be
the same as the Listing Agent Firm, verbally disclosed that the
Selling Agent Firm represents the Seller.
[_] B. LISTING AGENT FIRM REPRESENTS SELLER AND SELLING AGENT FIRM
REPRESENTS BUYER. Buyer and Seller acknowledge that the Listing
Agent Firm is employed by the Seller and the Selling Agent Firm
is employed by the Buyer. All licensees associated with the
Listing Agent Firm are employed by, represent, and are
responsible to the Seller. All licensees associated with the
Selling Agent Firm are employed by, represent, and are
responsible to the Buyer. Buyer acknowledges the Selling Agent
Firm verbally disclosed that the Listing Agent Firm represents
the Seller. Seller acknowledges the Listing Agent Firm verbally
disclosed that the Selling Agent Firm represents the Buyer.
[_] C. LISTING AGENT FIRM AND SELLING AGENT FIRM ARE THE SAME AND
REPRESENT BOTH BUYER AND SELLER. Seller and Buyer hereby
acknowledge and agree that the
-7-
<PAGE>
Listing and the Selling Agent Firm are the same and all licensees
associated with the Listing and the Selling Agent Firm are
representing both Buyer and Seller in the purchase and sale of
the above referenced Property and that Listing/Selling Agent firm
has been and is now the agent of both Seller and Buyer with
respect to this transaction. Seller and Buyer have both consented
to, and hereby confirm their consent to agency representation of
both parties. Further, Seller and Buyer:
(i) agree that the Listing/Selling Agent Firm shall not be
required to and shall not disclose to either Buyer or Seller any
personal, financial or other confidential information concerning
the other party without the express written consent of that
party. This restriction excludes information related to defects
in the Property which should, at Listing/Selling Agent Firms'
discretion, be disclosed. Confidential information shall include
but not be limited to any price Seller is willing to accept that
is less than the offering price or any price the Buyer is willing
to pay that is higher than that offered in writing.
(ii) by selecting this option 19C, Buyer and Seller acknowledge
that when Listing/Selling Agent Firm represents both parties, a
conflict of interest exists, and Seller and Buyer further agree
to forfeit their individual right to receive the undivided
loyalty of Listing/Selling Agent Firm.
(iii) waive any claim now or hereafter arising out of any
conflicts of interest from Listing/Selling Agent Firm
representing both parties, Buyer and Seller acknowledge the
Listing/Selling Agent Firm verbally disclosed that the
Listing/Selling Agent Firm represents both parties in this
transaction, and Buyer and Seller have given their written
consent to this representation before entering into this Real
Estate Contract.
[X] D. SELLING AGENT FIRM REPRESENT BUYER (NO LISTING AGENT FIRM):
Seller acknowledges that the Selling Agent Firm and all licensees
associated with the Selling Agent Firm are the agents of the
Buyer and that it is the buyer who employed them, whom they
represent, and to whom they are responsible. Seller acknowledges
that at first contact, the Selling Agent Firm verbally disclosed
that the Selling Agent Firm represents the Buyer. Any
-8-
<PAGE>
reference to "Listing Agent Firm" in this Real Estate Contract
will be considered to mean the Selling Agent Firm, both Buyer and
Seller acknowledging that all agents involved in this Real Estate
Contract only represent the Buyer.
20. RISK OF LOSS: Risk of loss or damage to the Property by fire or other
casualty occurring prior to the time Seller delivers an executed and
acknowledged deed to Buyer is expressly assumed by Seller.
21. GOVERNING LAW: This contract shall be governed by the laws of the
State of Arkansas.
22. MERGER CLAUSE: This contract, when executed by both Buyer and Seller,
shall contain the entire understanding and agreement between the Buyer and
Seller with respect to all matters referred to herein and shall supersede all
prior or contemporaneous agreements, representations, discussions and
understandings oral or written, with respect to such matters. This contract
shall not supersede any agency agreements entered into by Buyer or Seller and
Listing Agent Firm or Selling Agent Firm.
23. ASSIGNMENT: This Real Estate Contract may not be assigned by Buyer
without the prior consent of Seller, such consent not to be unreasonably
withheld. It shall not be considered unreasonable for Seller to withhold
consent if Seller is to provide financing for Buyer in any amount.
24. EXPIRATION: This contract expires if not accepted on or before
FEBRUARY 7, 1997, at 10:00 AM.
THIS IS A LEGALLY BINDING CONTRACT WHEN SIGNED BY THE PARTIES BELOW. READ
IT CAREFULLY. IF YOU DO NOT UNDERSTAND THE EFFECT OF ANY PART, CONSULT YOUR
ATTORNEY BEFORE SIGNING. REAL ESTATE AGENTS CANNOT GIVE YOU LEGAL ADVICE. THE
PARTIES SIGNED BELOW WAIVE THEIR RIGHT TO HAVE AN ATTORNEY DRAFT THIS FORM.
THIS FORM IS PRODUCED AND COPYRIGHTED BY THE ARKANSAS REALTORS ASSOCIATION.
THE SERIAL NUMBER BELOW IS A UNIQUE NUMBER NOT USED ON ANY OTHER FORM. THE
SERIAL NUMBER BELOW SHOULD BE AN ORIGINAL PRINTING, NOT MACHINE COPIED,
OTHERWISE THE FORM MAY HAVE BEEN ALTERED. DO NOT SIGN THIS FORM IF IT IS BEING
EXECUTED PAST DECEMBER 31, 1997.
FORM SERIAL NUMBER: Arkansas Land Agency, Inc. #10062
-9-
<PAGE>
The above contract is executed on FEBRUARY 6, 1997 at 7 PM.
ARKANSAS LAND AGENCY /s/ Cliff Warnock
-------------------- -----------------------
Selling Agent Firm Supervising Broker
/s/ Cliff Warnock
-----------------------
Selling Agent Firm
Bank of the Ozarks, WCA.
/s/ R. Darrel Russell
__________________________ ----------------------------
Buyer (Sr. Vice President) Social Security or Tax ID#
The above contract is executed on FEBRUARY 7, 1997 at 9:00 am.
ARKANSAS LAND AGENCY /s/ Cliff Warnock
- -------------------- ----------------------------
Listing Agent Firm Supervising Broker
/s/ Cliff Warnock
----------------------------
Listing Agent
/s/ Toy's Inc. /s/ Charles Palmer
- -------------------- ----------------------------
Print Seller's Name Seller (President)
__________________________
Social Security or Tax ID#
-10-
<PAGE>
The above offer was:
_____ rejected
_____ counteroffered (Form Serial Number _______________)
on _______________, 19____, __________(a.m.)(p.m.)
- ---------------------------------- ----------------------------------
Seller's Signature Seller's Signature
-11-
<PAGE>
GENERAL ADDENDUM
Regarding the Real Estate Contract (Form Serial Number 10062) dated FEBRUARY 7,
1997 between the Buyer, BANK OF THE OZARKS, WCA and the Seller, TOY' INC.
covering the real property knows as 2.1 ACRES LOCATED IN THE NE CORNER OF THE
INTERSECTION OF ROGERS AVE. & WALDRON RD., FORT SMITH, SEBASTIAN COUNTY,
ARKANSAS ("the Property"), the Undersigned Buyer and Seller agree that:
SELLER DOES HEREBY AGREE TO EXTEND FOR AN ADDITIONAL 30 DAYS, BUYERS TIME TO
REMOVE ALL BUYERS CONDITIONS TO THE CONTRACT. FOR THIS ADDITIONAL TIME BUYER
WILL DEPOSIT AN ADDITIONAL $15,000.00 TOGETHER WITH THE PREVIOUSLY DEPOSITED
$10,000.00 ALL OF WHICH SHALL BE NON-REFUNDABLE TO BUYER, HOWEVER IN THE EVENT
THE FOLLOWING CONDITIONS ARE NOT MET, ALL DEPOSITS MADE BY BUYER SHALL BE
REFUNDED.
1. BUYER AND SELLER SHALL OBTAIN ZONING AND RE-PLATTING CHANGES, IF ANY, OR
CONDITIONAL USE PERMITS FOR BUYERS INTENDED USE AS A BRANCH BANK BEING
APPROXIMATELY 20,000 SQUARE FEET, CONTAINING 2 STORIES AND INCLUDING
GENERAL OFFICE SPACE. BUYERS OBLIGATION TO CLOSE IS CONDITIONED UPON
SATISFACTORY ZONING AND RE-PLATTING.
2. ALSO, BUYERS OBLIGATION TO CLOSE IS CONDITIONED UPON A REPORT BY EEG
ENVIRONMENTAL SERVICES CONCERNING THE ASBESTOS CONTENT IN THE STRUCTURES ON
THIS PROPERTY BEING ACCEPTABLE TO BUYER.
3. BUYER SHALL HAVE RECEIVED WRITTEN APPROVAL (ORAL PRELIMINARY HAS BEN
RECEIVED) FOR ABILITY TO ENCROACH AS NECESSARY UPON OG&E EASEMENT.
4. SELLER SHALL SATISFY ALL ITS CONDITIONS AND FULFILL OBLIGATIONS SET FORTH
IN THE CONTRACT.
This addendum, upon its execution by both parties, incorporates by reference all
provisions of the above-referenced Real Estate Contract not expressly modified
herein.
THIS IS A LEGALLY BINDING CONTRACT WHEN SIGNED BY THE PARTIES BELOW, READ IT
CAREFULLY. IF YOU DO NOT UNDERSTAND THE EFFECT OF ANY PART, CONSULT YOUR
ATTORNEY BEFORE SIGNING. REAL ESTATE AGENTS CANNOT GIVE YOU LEGAL ADVICE. THE
PARTIES SIGNED BELOW WAIVE THEIR RIGHT TO HAVE AN ATTORNEY DRAFT THIS FORM.
THIS FORM IS PRODUCED AND COPYRIGHTED BY THE ARKANSAS REALTORS ASSOCIATION. THE
SERIAL NUMBER BELOW IS A UNIQUE NUMBER NOT USED ON ANY OTHER FORM. THE SERIAL
NUMBER BELOW SHOULD BE AN ORIGINAL PRINTING, NOT MACHINE COPIED, OTHERWISE THE
FORM MAY HAVE BEEN
-12-
<PAGE>
ALTERED. DO NOT SIGN THIS FORM IF IT IS BEING EXECUTED PAST
DECEMBER 31, 1997.
FORM SERIAL NUMBER: 22564
The above addendum is executed on APRIL 7, 1997 at 4:00 pm.
ARKANSAS LAND AGENCY, INC. /s/ Cliff Warnock
- -------------------------- -----------------------------------
Selling Agent Firm Supervising Broker
/s/ Cliff Warnock
-----------------------------------
Selling Agent
Bank of the Ozarks
/s/ Betty Thomason
- ------------------ ___________________________________
Buyer Social Security or Tax ID#
The above addendum is executed on 4/7, 1997 at 5:40 pm.
Arkansas Land Agency, Inc. /s/ Cliff Warnock
- -------------------------- -------------------------------------
Listing Agent Firm Supervising Broker
/s/ Cliff Warnock
-------------------------------------
Listing Agent
/s/ Charles Palmer for Toy's Inc.
- --------------------------------- -------------------------------------
Seller Social Security or Tax ID#
-13-
<PAGE>
GENERAL ADDENDUM
Regarding the Real Estate Contract (Form Serial Number 10062) dated FEBRUARY 7,
1997 between the Buyer, BANK OF THE OZARKS, WCA and the Seller, TOY'S INC.
covering the real property knows as 2.1 ACRES LOCATED IN THE NE CORNER OF THE
INTERSECTION OF ROGERS AVE. & WALDRON RD., FORT SMITH, SEBASTIAN COUNTY,
ARKANSAS ("the Property"), the Undersigned Buyer and Seller agree that:
PURCHASE PRICE SHALL CHANGE TO $1,050,000.00 FOR THE PURPOSE OF ACCOMMODATING
BUYERS AGREEMENT WITH LESSEE AND SUB-LESSEE OF A PORTION OF THE REAL ESTATE
INCLUDED IN THE CONTRACT. SELLERS OBLIGATIONS IN THE CONTRACT SHALL REMAIN THE
SAME. IN THE EVENT CLOSING DOES NOT OCCUR DUE TO SELLERS FAILURE TO FULFILL ANY
OR ALL OF ITS OBLIGATIONS, BUYERS EARNEST MONEY SHALL BE REFUNDED ACCORDING TO
TERMS SET FORTH IN THE CONTRACT AND ANY ADDENDUMS.
THE CLOSING DATE SHALL BE CHANGED TO ON OR BEFORE JUNE 6, 1997.
This addendum, upon its execution by both parties, incorporates by reference all
provisions of the above-referenced Real Estate Contract not expressly modified
herein.
THIS IS A LEGALLY BINDING CONTRACT WHEN SIGNED BY THE PARTIES BELOW, READ IT
CAREFULLY. IF YOU DO NOT UNDERSTAND THE EFFECT OF ANY PART, CONSULT YOUR
ATTORNEY BEFORE SIGNING. REAL ESTATE AGENTS CANNOT GIVE YOU LEGAL ADVICE. THE
PARTIES SIGNED BELOW WAIVE THEIR RIGHT TO HAVE AN ATTORNEY DRAFT THIS FORM.
THIS FORM IS PRODUCED AND COPYRIGHTED BY THE ARKANSAS REALTORS ASSOCIATION. THE
SERIAL NUMBER BELOW IS A UNIQUE NUMBER NOT USED ON ANY OTHER FORM. THE SERIAL
NUMBER BELOW SHOULD BE AN ORIGINAL PRINTING, NOT MACHINE COPIED, OTHERWISE THE
FORM MAY HAVE BEEN ALTERED. DO NOT SIGN THIS FORM IF IT IS BEING EXECUTED PAST
DECEMBER 31, 1997.
FORM SERIAL NUMBER: Arkansas Land Agency, Inc. #10030
The above addendum is executed on MAY 21, 1997 at 4:15 pm.
ARKANSAS LAND AGENCY, INC. /s/ Cliff Warnock
- -------------------------- ----------------------------
Selling Agent Firm Supervising Broker
/s/ Cliff Warnock
----------------------------
Selling Agent
-14-
<PAGE>
BANK OF THE OZARKS, WCA
/s/Darrel Russell /s/
- ------------------------ ----------------------------
Executive Vice President Seller
The above addendum is executed on 05/22, 1997 at 10:30 am.
Arkansas Land Agency, Inc. /s/ Cliff Warnock
- -------------------------- ----------------------------
Listing Agent Firm Supervising Broker
/s/ Cliff Warnock
--------------------------
Listing Agent
-15-
<PAGE>
SCHEDULE 1
A parcel of land located in the NE 1/4 SE 1/4, Section 23, Township 8 North,
Range 32 West, Fort Smith, Sebastian County, Arkansas, and more particularly as
shown on the attached site plan attached hereto and made a part hereof
containing the following property dimensions, approximately 135 ft. of frontage
along Hwy. 22; thence North approximately 288' along the western property
boundary; thence East along said North line approximately 120'; thence South
345' to the point of beginning.
-16-
<PAGE>
CONTRACT
THIS CONTRACT entered into on this 21 day of May, 1997, by and between
Montgomery Acres, Inc. d/b/a Rollo Pollo, an Arkansas Corporation, Jalisco,
Inc., an Arkansas Corporation and Tlaquepaque, Inc., an Arkansas Corporation
(hereinafter jointly referred to as "Seller") and The Bank of the Ozarks
(hereinafter referred to as "Buyer").
WITNESSETH:
1. Sublease Agreement. Subject to the terms and conditions
------------------
hereinafter set forth, Seller hereby agrees to sell and Buyer hereby agrees to
buy, the sublease agreement ("Sublease") covering certain real property in the
County of Sebastian, City of Fort Smith, State of Arkansas more particularly
described as follows, to-wit:
A parcel of land located in the NE 1/4 SE 1/4, Section 23, Township 8
North, Range 32 West, Fort Smith, Sebastian County, Arkansas, and more
particularly as shown on the attached site plan attached hereto and made a
part hereof containing the following property dimensions, approximately 135
ft. of frontage along Hwy. 22; thence North approximately 288' along the
western property boundary; thence East along said North line approximately
120'; thence South 345' to the point of beginning.
A copy of said Sublease is attached hereto as Exhibit "A" and incorporated
herein by reference.
2. Purchase Price. Buyer agrees to pay to the sublessees of the Sublease
--------------
dated the 9th day of May, 1995, between Montgomery Acres, Inc. d/b/a Rollo
Pollo, an Arkansas Corporation ("Sublessor") and Jalisco, Inc. and Tlaquepaque,
Inc., both Arkansas Corporations ("Sublessees") the sum of Seventy-Five Thousand
and 00/100 ($75,000.00) Dollars.
3. Closing. The closing shall occur on or before July 1, 1997. If Buyer
-------
should fail to close within said time period because of its inability to pay the
purchase price, this agreement shall be null and void and any rights or
interests of Buyer in the Premises shall cease and terminate. If the Buyer
should fail to close this transaction because of title objections or the
conditions set forth in paragraph 4 of this contract, the closing of this
transaction shall be extended for a reasonable period of time to allow Buyer to
resolve such issues.
-17-
<PAGE>
4. Buyer's Condition to Close. Buyer shall not be obligated to close the
--------------------------
purchase of the Premises if the following are not satisfactory to Buyer:
A. Closing of Land Purchase. Buyer shall have closed the purchase
------------------------
of the real property covered by the lease agreement from Toys, Inc.
5. Seller's Rights. Seller shall have the following rights:
---------------
A. Possession of Building. Sublessees shall remain in possession of
----------------------
the building, and pay no rent for a term of nine (9) months after payment from
date of closing.
6. Buyer's Rights. Buyer shall have the following rights:
--------------
A. Construction on Property. Buyer may begin construction on the
------------------------
leased property as shown on site plan attached hereto as Exhibit "B" following
closing. Buyer shall not interfere with Sublessee's use of said property except
on the Northwest portion of the property during the term set forth in paragraph
5A.
7. Time of the Essence. The time for closing and the keeping of the
-------------------
covenants and agreements made herein is specifically made of the essence of this
Agreement.
8. Binding Effect. This agreement shall be binding upon the parties
--------------
hereto and upon their heirs, personal representatives and assigns.
9. Governing Law. This agreement shall be governed by the laws of the
-------------
State of Arkansas.
IN WITNESS WHEREOF, the parties have set their hands and seals on the day
and date first above written.
-18-
<PAGE>
SELLER:
MONTGOMERY ACRES, INC.
d/b/a Rollo Pollo,
an Arkansas Corporation
By:/s/Jeff Montgomery
------------------------------
Jeff Montgomery
JALISCO, INC.,
an Arkansas Corporation
By:/s/
------------------------------
Authorized Officer
TLAQUEPAQUE, INC.,
an Arkansas Corporation
By:/s/
------------------------------
Authorized Officer
BUYER:
THE BANK OF THE OZARKS, WCA
By:/s/Darrel Russell
------------------------------
Executive Vice President
-19-
<PAGE>
EXHIBIT 23.2
CONSENT OF MOORE STEPHENS FROST, P.A.
As independent public accountants, we hereby consent to the use in this Form
S-1 of our report dated January 24, 1997. We also consent to the reference to
our firm under "EXPERTS" in the Form S-1.
/s/ Moore Stephens Frost, P.A.
Moore Stephens Frost, P.A.
Little Rock, Arkansas
June 26, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-1 of our
report dated January 20, 1995, on our audit of the consolidated statement of
income, stockholders' equity and cash flows of Bank of the Ozarks, Inc.
(formerly Ozark Bankshares, Inc.) for the year ended December 31, 1994. We
also consent to the reference to our firm under "EXPERTS" in the Form S-1.
/s/ Baird Kurtz & Dobson
Baird Kurtz & Dobson
Fort Smith, Arkansas
June 26, 1997
<PAGE>
EXHIBIT 99.1
CONSENT TO SERVE AS DIRECTOR
Re: Ozark Bankshares, Inc. (to be renamed Bank of the Ozarks, Inc.), an
Arkansas corporation (the "Company")
The undersigned hereby consents to being named in a prospectus (the
"Prospectus") filed as part of a registration statement on Form S-1 under the
Securities Act of 1933, as amended, by the Company with respect to the
undersigned's nomination as a director of the Company, and the undersigned
hereby agrees to serve as a director of the Company upon the consummation of the
public offering of shares of the Company's common stock as described in the
Prospectus.
Dated: May 5, 1997
Roger Collins
- ----------------------------------
Name
/s/ Roger Collins
- ----------------------------------
Signature
<PAGE>
CONSENT TO SERVE AS DIRECTOR
Re: Ozark Bankshares, Inc. (to be renamed Bank of the Ozarks, Inc.), an
Arkansas corporation (the "Company")
The undersigned hereby consents to being named in a prospectus (the
"Prospectus") filed as part of a registration statement on Form S-1 under the
Securities Act of 1933, as amended, by the Company with respect to the
undersigned's nomination as a director of the Company, and the undersigned
hereby agrees to serve as a director of the Company upon the consummation of the
public offering of shares of the Company's common stock as described in the
Prospectus.
Dated: May 5, 1997
C. E. Dougan
- ----------------------------------
Name
/s/ C. E. Dougan
- ----------------------------------
Signature
<PAGE>
CONSENT TO SERVE AS DIRECTOR
Re: Ozark Bankshares, Inc. (to be renamed Bank of the Ozarks, Inc.), an
Arkansas corporation (the "Company")
The undersigned hereby consents to being named in a prospectus (the
"Prospectus") filed as part of a registration statement on Form S-1 under the
Securities Act of 1933, as amended, by the Company with respect to the
undersigned's nomination as a director of the Company, and the undersigned
hereby agrees to serve as a director of the Company upon the consummation of the
public offering of shares of the Company's common stock as described in the
Prospectus.
Dated: May 12, 1997
Robert East
- ----------------------------------
Name
/s/ Robert East
- ----------------------------------
Signature
<PAGE>
CONSENT TO SERVE AS DIRECTOR
Re: Ozark Bankshares, Inc. (to be renamed Bank of the Ozarks, Inc.), an
Arkansas corporation (the "Company")
The undersigned hereby consents to being named in a prospectus (the
"Prospectus") filed as part of a registration statement on Form S-1 under the
Securities Act of 1933, as amended, by the Company with respect to the
undersigned's nomination as a director of the Company, and the undersigned
hereby agrees to serve as a director of the Company upon the consummation of the
public offering of shares of the Company's common stock as described in the
Prospectus.
Dated: May 9, 1997
Porter Hillard
- -------------------------------------
Name
/s/ Porter Hillard
- -------------------------------------
Signature
<PAGE>
CONSENT TO SERVE AS DIRECTOR
Re: Ozark Bankshares, Inc. (to be renamed Bank of the Ozarks, Inc.), an
Arkansas corporation (the "Company")
The undersigned hereby consents to being named in a prospectus (the
"Prospectus") filed as part of a registration statement on Form S-1 under the
Securities Act of 1933, as amended, by the Company with respect to the
undersigned's nomination as a director of the Company, and the undersigned
hereby agrees to serve as a director of the Company upon the consummation of the
public offering of shares of the Company's common stock as described in the
Prospectus.
Dated: May 14, 1997
Henry Mariani
- ------------------------------------
Name
/s/ Henry Mariani
- ------------------------------------
Signature
<PAGE>
CONSENT TO SERVE AS DIRECTOR
Re: Ozark Bankshares, Inc. (to be renamed Bank of the Ozarks, Inc.), an
Arkansas corporation (the "Company")
The undersigned hereby consents to being named in a prospectus (the
"Prospectus") filed as part of a registration statement on Form S-1 under the
Securities Act of 1933, as amended, by the Company with respect to the
undersigned's nomination as a director of the Company, and the undersigned
hereby agrees to serve as a director of the Company upon the consummation of the
public offering of shares of the Company's common stock as described in the
Prospectus.
Dated: May 12, 1997
R. L. Qualls
- -----------------------------------
Name
/s/ R. L. Qualls
- -----------------------------------
Signature
<PAGE>
CONSENT TO SERVE AS DIRECTOR
Re: Ozark Bankshares, Inc. (to be renamed Bank of the Ozarks, Inc.), an
Arkansas corporation (the "Company")
The undersigned hereby consents to being named in a prospectus (the
"Prospectus") filed as part of a registration statement on Form S-1 under the
Securities Act of 1933, as amended, by the Company with respect to the
undersigned's nomination as a director of the Company, and the undersigned
hereby agrees to serve as a director of the Company upon the consummation of the
public offering of shares of the Company's common stock as described in the
Prospectus.
Dated: May 14, 1997
Kennith Smith
- ------------------------------------
Name
/s/ Kennith Smith
- ------------------------------------
Signature
<PAGE>
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
