<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
________________
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________.
Commission File Number 0-22759
BANK OF THE OZARKS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0556208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12615 CHENAL PARKWAY, LITTLE ROCK, ARKANSAS 72211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 978-2265
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practical date.
Class Outstanding at September 30, 1998
- --------------------------------------- ---------------------------------
Common Stock, $0.01 par value per share 3,779,555
<PAGE>
BANK OF THE OZARKS, INC.
FORM 10-Q
September 30, 1998
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of September 30,
1998 and 1997 and December 31, 1997 1
Consolidated Statements of Income for the
Three Months Ended September 30, 1998 and 1997 and the
Nine Months Ended September 30, 1998 and 1997 2
Consolidated Statements of Stockholders' Equity for the
Nine Months Ended September 30, 1998 and 1997 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Selected and Supplemental Financial Data 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Change in Securities and Use of Proceeds N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of
Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Reference is made to the Exhibit Index contained
at the end of this report.
(b). Reports on Form 8-K N/A
Signature 25
Exhibit Index 26
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------------- --------------
1998 1997 1997
-------------- -------------- --------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 11,927 $ 8,644 $ 9,021
Interest bearing deposits 380 143 6,607
Investment securities - available for sale 8,217 39,814 25,297
Investment securities - held to maturity 153,529 13,139 17,162
Federal funds sold 695 - 2,885
Loans, net of unearned income 359,165 262,287 275,463
Allowance for loan losses (4,392) (3,535) (3,737)
Bank premises and equipment, net 25,916 11,751 13,439
Interest receivable 5,343 3,094 3,013
Intangible assets, net 3,733 1,352 1,337
Other 1,972 1,732 1,606
-------------- -------------- --------------
Total assets $566,485 $338,421 $352,093
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand - non-interest bearing $ 46,702 $ 26,896 $ 31,091
Savings and interest bearing transaction 82,430 62,876 64,742
Time 334,789 192,250 199,722
-------------- -------------- --------------
Total deposits 463,921 282,022 295,555
Notes payable 12,022 5,096 5,072
FHLB advances and federal funds purchased 48,526 13,852 14,017
Accrued interest and other liabilities 2,900 2,964 1,783
-------------- -------------- --------------
Total liabilities 527,369 303,934 316,427
-------------- -------------- --------------
Stockholders' equity
Common stock; $0.01 par value; Authorized 10,000,000
shares; 3,779,555 shares issued and outstanding 38 38 38
Additional paid in capital 14,314 14,311 14,314
Retained earnings 24,701 19,982 21,162
Accumulated other comprehensive income (net of tax)
Unrealized gain on available for sale securities 63 156 152
-------------- -------------- --------------
Total stockholders' equity 39,116 34,487 35,666
-------------- -------------- --------------
Total liabilities and stockholders' equity $566,485 $338,421 $352,093
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income
Loans $ 8,162 $6,289 $22,507 $17,495
Investment securities - taxable 1,981 699 3,946 1,931
Investment securities - non-taxable 269 50 670 162
Federal funds sold 6 29 92 71
Deposits with banks 5 102 201 160
-------------- --------------- -------------- --------------
Total interest income 10,423 7,169 27,416 19,819
Interest expense
Deposits 4,925 3,136 12,569 8,582
Borrowed funds 663 330 1,413 997
Federal funds purchased 194 - 207 2
-------------- --------------- -------------- --------------
Total interest expense 5,782 3,466 14,189 9,581
-------------- --------------- -------------- --------------
Net interest income 4,641 3,703 13,227 10,238
Provision for loan losses 742 150 1,222 674
-------------- --------------- -------------- --------------
Net interest income after provision
for loan losses 3,899 3,553 12,005 9,564
-------------- --------------- -------------- --------------
Other income
Trust income 62 39 239 176
Service charges on deposit accounts 366 242 973 694
Other service charges and loan fees 730 310 1,879 799
Gains on sale of securities 130 - 255 14
Other income 45 71 234 362
-------------- --------------- -------------- --------------
Total other income 1,333 662 3,580 2,045
-------------- --------------- -------------- --------------
Other expense
Salaries and employee benefits 1,651 1,301 5,284 3,822
Net occupancy and equipment 529 341 1,407 919
Other operating expenses 1,087 674 2,829 1,899
-------------- --------------- -------------- --------------
Total other expense 3,267 2,316 9,520 6,640
-------------- --------------- -------------- --------------
Income before income taxes 1,965 1,899 6,065 4,969
Income taxes 544 698 1,883 1,807
-------------- --------------- -------------- --------------
Net income $ 1,421 $1,201 $ 4,182 $ 3,162
============== =============== ============== ==============
Basic earnings per common share $ 0.38 $ 0.34 $ 1.11 $ 1.02
============== =============== ============== ==============
Diluted earnings per common share $ 0.37 $ 0.34 $ 1.09 $ 1.02
============== =============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME TOTAL
------- -------- --------- ------------- --------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE - JANUARY 1, 1997 $ 29 $ 1,168 $17,251 $ 99 $18,547
Comprehensive income:
Net income 3,162 3,162
Other comprehensive income
Unrealized gains on available for
sale securities net of $40 tax effect 67 67
Less: reclassification adjustment for gains
included in income net of $6 tax effect (10) (10)
--------
Comprehensive income 3,219
--------
Issuance of 899,755 shares of common stock 9 13,143 13,152
Cash dividends (431) (431)
------- -------- --------- ------------ --------
ENDING BALANCE SEPTEMBER 30, 1997 $ 38 $14,311 $19,982 $ 156 $34,487
======= ======== ========= ============ ========
BEGINNING BALANCE JANUARY 1, 1998 $ 38 $14,314 $21,162 $ 152 $35,666
Comprehensive income:
Net income 4,182 4,182
Other comprehensive income
Unrealized gains on available for
sale securities net of $28 tax effect 45 45
Less: reclassification adjustment for gains
included in income net of $82 tax effect (134) (134)
--------
Comprehensive income 4,093
--------
Cash dividends (643) (643)
------- -------- --------- ------------ --------
ENDING BALANCE SEPTEMBER 30, 1998 $ 38 $14,314 $24,701 $ 63 $39,116
======= ======== ========= ============ ========
</TABLE>
3
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,182 $ 3,162
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 826 445
Amortization of intangible assets 64 42
Provision for loan losses 1,222 674
Gain on sale of securities (255) (14)
Gain on sale of loans - (57)
Gain on disposition of premises and equipment (15) (61)
Gain on disposition of foreclosed assets (91) (131)
Deferred income tax benefit (70) (146)
Changes in assets and liabilities
Interest receivable (2,328) (542)
Other assets, net (1,811) (51)
Accrued interest and other liabilities 1,110 644
---------------- -----------------
Net cash provided by operating activities 2,834 3,965
---------------- -----------------
Cash flows from investing activities
Purchase of subsidiary, net of funds acquired 7,164 -
Proceeds from sales and maturities of securities
available for sale 51,957 15,692
Purchases of investment securities available for sale (8,692) (18,527)
Proceeds from maturities of investment securities held
to maturity 22,087 101
Purchase of investment securities held to maturity (184,248) (10,515)
Net change in federal funds sold 2,635 350
Net increase in loans (84,797) (48,978)
Proceeds from sales of loans - 811
Proceeds from dispositions of bank premises and equipment 15 132
Purchase of bank premises and equipment (12,634) (5,395)
Proceeds from dispositions of foreclosed assets 531 415
---------------- -----------------
Net cash used by investing activities (205,982) (65,914)
---------------- -----------------
Cash flows from financing activities
Net increase in deposits 159,011 50,374
Net change in FHLB advances and federal funds purchased 34,509 1,125
Proceeds from notes payable 13,360 10,096
Payments of notes payable (6,410) (10,396)
Proceeds from sale of common stock - 13,153
Dividends paid (643) (431)
---------------- -----------------
Net cash provided by financing activities 199,827 63,921
---------------- -----------------
Net increase in cash and interest bearing deposits (3,321) 1,972
Cash and interest bearing deposits beginning of period 15,628 6,815
Cash and interest bearing deposits end of period $ 12,307 $ 8,787
================ =================
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Bank of the Ozarks, Inc. include
the accounts of the parent company and its wholly-owned subsidiaries, Bank of
the Ozarks, wca, Bank of the Ozarks, nwa, Bank of the Ozarks and Ozark
Commercial Corporation (collectively the "Company"). All material intercompany
transactions have been eliminated.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") in Article 10 of Regulation S-X and
with the instructions to Form 10-Q, and in accordance with generally accepted
accounting principles for interim financial information. Certain information,
accounting policies and footnote disclosures normally included in complete
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with such rules and
regulations. It is therefore suggested that these consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997.
In the opinion of management all adjustments considered necessary,
consisting of normal recurring items, have been included for a fair presentation
of the accompanying consolidated financial statements. Operating results for
the three and nine months ended September 30, 1998, are not necessarily
indicative of the results that may be expected for the full year.
3. ADOPTION OF FAS 133 DISCLOSURE
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company adopted the provisions of SFAS
No. 133 effective July 1, 1998. Because of the Company's minimal use of
derivatives, the adoption of SFAS No. 133 did not significantly impact the
Company's earnings or financial position. As allowed by SFAS No. 133 the Company
transferred approximately $24 million of certain securities from the held-to-
maturity to available-for-sale classification. The realized and unrealized gains
on the securities transferred were not material to the Company.
4. EARNINGS PER COMMON SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share." SFAS No.
128 replaced primary earnings per share ("EPS") with basic EPS. Basic EPS is
computed by dividing reported earnings available to common stockholders by
weighted average shares outstanding. No dilution for any potentially dilutive
securities is included. Diluted EPS replaces fully diluted EPS and includes the
dilutive effect of stock options. In computing dilution for stock options, the
average share price is used for the period the options are outstanding.
Earnings per share amounts have been presented, and where appropriate, restated
to conform to the requirements of SFAS No. 128.
Basic and diluted earnings per common share is computed as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------------- ---------------------------------
1998 1997 1998 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Common shares - weighted averages................... 3,780 3,537 3,780 3,102
Common share equivalents - weighted averages........ 34 10 42 3
------ ------ ------ ------
3,814 3,547 3,822 3,105
====== ====== ====== ======
Net income.......................................... $1,421 $1,201 $4,182 $3,162
Basic earnings per common share..................... $ 0.38 $ 0.34 $ 1.11 $ 1.02
Diluted earnings per common share................... 0.37 0.34 1.09 1.02
</TABLE>
5
<PAGE>
5. COMPREHENSIVE INCOME
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This statement is effective for fiscal years beginning after December 15, 1997.
This statement establishes standards for reporting comprehensive income and its
components in the financial statements. The objective of the statement is to
report a measure of all changes in equity of an enterprise that results from
transactions and other economic events of the period from nonowner sources.
Comprehensive income begins with net income as reported and includes gains and
losses that under generally accepted accounting principles are recorded directly
to equity. Examples include foreign currency translations, pension liability
adjustments and unrealized gains and losses on available for sale securities
(SFAS 115 adjustment). The Company currently has only unrealized gains or
losses on available for sale securities as a direct equity component of
comprehensive income. The Company adopted this statement in the first quarter
of 1998 and has reported comprehensive income in the consolidated statements of
stockholders' equity.
6. LOAN ORIGINATION COST
In the quarter ended September 30, 1998 the Company deferred a portion of
cost and fees attributable to loan originations in accordance with SFAS No. 91.
Previously the Company had not deferred loan origination costs or loan fees
because such costs and fees were not material in amount. Due to the growth in
the Company's loan originations and lending staff, these amounts have become
more significant requiring the Company to begin to defer these costs and fees
and amortize them over the expected lives of the related loans.
7. ACQUISITIONS
In February 1998 the Company acquired all of the outstanding shares of
Heritage Banc Holding, Inc. and indirectly its wholly-owned subsidiary Heartland
Community Bank, FSB in exchange for $3.1 million in cash. The acquisition was
accounted for as a purchase and the Company recorded excess cost over fair value
of net assets acquired of $846,000. Heartland Community Bank, FSB, which was
subsequently renamed Bank of the Ozarks, had assets of $12.5 million and
deposits of $9.4 million at the time of acquisition.
In August 1998 the Company acquired the Marshall, Arkansas branch of
Superior Federal Bank, FSB. The acquisition included the branch building and
related assets as well as more than 3,000 deposit accounts, totaling over $16
million in deposits. The Company paid a purchase premium of approximately $1.4
million for the acquisition which was accounted for as a deposit intangible and
will be amortized over ten years.
8. NOTES PAYABLE
In 1998 the Company incurred net additional borrowings of $6.9 million
under its existing $22 million revolving line of credit ("Credit Agreement"). At
September 30, 1998, $11.9 million was outstanding under this Credit Agreement.
The additional borrowings were used primarily to fund investments in Bank of the
Ozarks, wca and Bank of the Ozarks. This Credit Agreement matures March 31, 2003
and interest accrues on all outstanding borrowings at a variable rate equal to
the average prime lending rate reported from time to time by the Wall Street
Journal minus 1.25%, provided, however, the rate is not to exceed 7.75%.
Interest is payable quarterly.
9. FEDERAL HOME LOAN BANK ("FHLB") ADVANCES
FHLB advances with original maturities exceeding one year totaled $26.0
million at September 30, 1998. Interest rates on these advances ranged from
4.96% to 6.50% at September 30, 1998 with a weighted average rate of 5.67%.
Aggregate annual maturities (amounts in thousands) and weighted average interest
rates of FHLB advances with an original maturity of over one-year at September
30, 1998 are as follows:
Weighted
Amounts Average Rate
------- ------------
1998 $ 3,000 5.74%
1999 5,268 6.48
2000 2,145 5.77
2001 4,198 5.95
2002 197 6.30
Thereafter 11,185 5.14
-------
$25,993 5.67
=======
6
<PAGE>
In addition, at September 30, 1998, the Company had FHLB advances with
original maturities of less than 30 days of $22.5 million. The weighted average
interest rate on these advances was 5.51%.
10. SUPPLEMENTARY DATA FOR CASH FLOWS
Cash payments for interest by the Company during the nine months ended
September 30, 1998, amounted to $14.0 million and during the nine months ended
September 30, 1997, amounted to $9.5 million. Cash payments for income taxes
during the nine months ended September 30, 1998 and 1997 amounted to $1.5
million and $1.8 million, respectively.
The remainder of this page intentionally left blank)
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Net income was $1,421,000 for the third quarter of 1998, an 18.3% increase
over net income of $1,201,000 for the same quarter in 1997. Diluted earnings
rose 8.8% to $0.37 per share for the quarter ended September 30, 1998, compared
to $0.34 per share for the same quarter in 1997. For the nine months ended
September 30, 1998, net income totaled $4,182,000, a 32.3% increase over net
income of $3,162,000 for the first nine months of 1997. Diluted earnings for
the first nine months of 1998 were $1.09 per share compared to $1.02 per share
for the same period in 1997, a 6.9% increase. Diluted earnings per share were
impacted by the issuance of 899,755 additional shares in the Company's initial
public offering ("IPO") completed during the third quarter of 1997.
The Company's annualized returns on average assets and on average
stockholders' equity were 1.07% and 14.67%, respectively, for the third quarter
of 1998, compared with 1.44% and 15.73%, respectively, for the same quarter of
1997. Annualized returns on average assets and average stockholders' equity for
the nine months ended September 30, 1998, were 1.24% and 14.98%, respectively,
compared with 1.40% and 18.29% for the nine month period ended September 30,
1997. Returns on average stockholders' equity were impacted by the increase in
equity due to the issuance of new shares in the IPO.
Total assets increased from $352.1 million at December 31, 1997, to $566.5
million at September 30, 1998. Loans were $359.2 million at September 30, 1998,
compared to $275.5 million at December 31, 1997. Deposits were $463.9 million
at September 30, 1998, compared to $295.6 million at December 31, 1997.
Stockholders' equity increased from $35.7 million at December 31, 1997, to
$39.1 million at September 30, 1998, increasing book value per share from $9.44
to $10.35.
Annualized results for these interim periods may not be indicative of
those for the full year or future periods.
ANALYSIS OF RESULTS OF OPERATIONS
The Company's results of operations depend primarily on net interest
income, which is the difference between the interest income from earning assets,
such as loans and investments, and the interest expense incurred on interest
bearing liabilities, such as deposits and other borrowings. The Company also
generates non-interest income, including service charges on deposit accounts,
fees from origination of residential mortgage loans for resale, other service
charges and fees, trust fees, and gains on sales. The Company's non-interest
expenses primarily consist of employee compensation and benefits, occupancy,
equipment, and other operating expenses. The Company's results of operations are
significantly affected by its provision for loan losses. The following
discussion provides a summary of the Company's operations for the three and nine
months ended September 30, 1998 and 1997.
(The remainder of this page intentionally left blank)
8
<PAGE>
NET INTEREST INCOME
Net interest income is analyzed in the discussion and tables below on a
fully taxable equivalent ("FTE") basis. The adjustment to convert certain income
to an FTE basis consists of dividing tax-exempt income by one minus the
statutory federal income tax rate (34%).
Net interest income (FTE) increased 28.4% to $4,797,000 for the three
months ended September 30, 1998, from $3,735,000 for the three months ended
September 30, 1997. This increase primarily resulted from a 57.4% increase in
average earning assets to $483.8 million for the 1998 period from $307.4 million
for the 1997 period. Net interest income (FTE) increased 33.6% to $13,635,000
for the nine months ended September 30, 1998, from $10,328,000 for the nine
months ended September 30, 1997. This increase primarily resulted from a 46.9%
increase in average earning assets to $416.5 million for the 1998 period from
$283.5 million for the 1997 period. The increase in average earning assets for
the 1998 periods resulted from continued growth in the Company's loan portfolio
as well as substantial growth in the Company's investment securities portfolio.
The Company's net interest margin declined from 4.82% in the third quarter
ended September 30, 1997, to 3.93% for the same quarter of 1998 and from 4.87%
in the nine months ended September 30, 1997, to 4.38% in the comparable nine
month period in 1998. The Company's net interest margin declined in 1998 as a
result of various factors. While the Company has experienced strong competition
for loans which reduced the Company's average loan yields, deposit costs have
not declined proportionately due to competition and promotional CD rates offered
by the Company at its eight new offices opened in the past 15 months. The
Company has capitalized on favorable competitive opportunities to capture
deposit market share causing its loan to deposit ratio to decline from 93.2% at
the beginning of the year to 77.4% at September 30, 1998. Deposit growth not
used to fund loans, along with certain borrowings, has been used to increase the
investment securities portfolio. The increase in the investment securities
portfolio in amount and as a percentage of total assets has resulted in
increased net interest income to the Company but has caused the Company's net
interest margin to decline.
ANALYSIS OF NET INTEREST INCOME
(FTE = FULLY TAXABLE EQUIVALENT)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30
--------------------------------------- -----------------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income............................. $10,423 $7,169 $27,416 $19,819
FTE adjustment.............................. 156 32 408 90
------- ------ ------- -------
Interest income FTE........................ 10,579 7,201 27,824 19,909
Interest expense............................ 5,782 3,466 14,189 9,581
------- ------ ------- -------
Net interest income -- FTE.................. $ 4,797 $3,735 $13,635 $10,328
======= ====== ======= =======
Yield on interest earning assets FTE....... 8.67% 9.29% 8.93% 9.39%
Cost of interest bearing liabilities........ 5.17 5.11 5.09 5.08
Net interest spread FTE.................... 3.50 4.18 3.84 4.31
Net interest margin -- FTE.................. 3.93 4.82 4.38 4.87
</TABLE>
(The remainder of this page intentionally left blank)
9
<PAGE>
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
ASSETS 1998 1997
----------------------------- -------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Interest-earning deposits......................... $ 324 $ 5 6.12% $ 7,206 $ 102 5.62%
Federal funds sold................................ 418 6 5.69 2,023 29 5.69
Investment securities
Taxable......................................... 118,404 1,981 6.64 40,441 699 6.86
Tax-exempt --FTE................................ 23,115 408 7.00 2,882 76 10.46
Loans (net of unearned income).................... 341,563 8,179 9.50 254,876 6,295 9.80
--------- ------- -------- -------
Total earnings assets........................... 483,824 10,579 8.67 307,428 7,201 9.29
Non-earning assets.................................. 42,076 22,722
--------- --------
Total assets.................................... $525,900 $330,150
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest bearing transaction and savings........ $ 75,444 $ 541 2.84% $ 63,501 $ 477 2.98%
Certificates of deposit $100,000 or more........ 90,459 1,285 5.64 49,415 699 5.61
Other time deposits............................. 216,969 3,099 5.67 137,739 1,960 5.65
--------- ------- -------- -------
Total interest bearing deposits.............. 382,872 4,925 5.10 250,655 3,136 4.96
Federal funds and FHLB borrowings................. 47,963 631 5.22 12,079 185 6.08
Notes payable..................................... 12,477 226 7.19 6,292 145 9.14
--------- ------- -------- -------
Total interest-bearing liabilities........... 443,312 5,782 5.17 269,026 3,466 5.11
Non-interest liabilities:
Non-interest bearing deposits..................... 40,727 27,446
Other non-interest liabilities.................... 3,433 3,386
--------- --------
Total liabilities............................ 487,472 299,858
Stockholders' equity................................ 38,428 30,292
--------- --------
Total liabilities and stockholders' equity... $525,900 $330,150
========= ========
Interest rate spread................................. 3.50% 4.18%
------- -------
Net interest income--FTE............................ $ 4,797 $3,735
======= =======
Net interest margin................................. 3.93% 4.82%
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
ASSETS 1998 1997
----------------------------- -------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Interest-earning deposits......................... $ 4,836 $ 201 5.56% $ 3,934 $ 160 5.44%
Federal funds sold................................ 2,089 92 5.89 1,768 72 5.44
Investment securities
Taxable......................................... 78,812 3,946 6.69 37,845 1,931 6.82
Tax-exempt --FTE................................ 18,609 1,015 7.29 3,166 247 10.43
Loans (net of unearned income)...................... 312,229 22,570 9.66 236,783 17,499 9.88
-------- -------- -------- -------
Total earnings assets........................... 416,575 27,824 8.93 283,496 19,909 9.39
Non-earning assets.................................. 34,276 19,417
-------- --------
Total assets.................................... $450,851 $302,913
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest bearing transaction and savings........ $ 69,908 $ 1,485 2.84% $ 60,110 $ 1,327 2.95%
Certificates of deposit $100,000 or more........ 77,640 3,279 5.65 46,802 1,965 5.61
Other time deposits............................. 184,012 7,805 5.67 126,533 5,290 5.59
-------- -------- -------- -------
Total interest bearing deposits.............. 331,560 12,569 5.07 233,445 8,582 4.92
Federal funds and FHLB borrowings................. 33,593 1,186 4.72 12,391 559 6.03
Notes payable..................................... 7,720 434 7.52 6,473 440 9.09
-------- -------- -------- ------- --------
Total interest-bearing liabilities........... 372,873 14,189 5.09 252,309 9,581 5.08
Non-interest liabilities:
Non-interest bearing deposits..................... 38,215 24,742
Other non-interest liabilities.................... 2,429 2,743
-------- --------
Total liabilities............................ 413,517 279,794
Stockholders' equity................................ 37,334 23,119
-------- --------
Total liabilities and stockholders' equity... $450,851 $302,913
======== ========
Interest rate spread............................... 3.84% 4.31%
-------- -------
Net interest income--FTE............................ $13,635 $10,328
======== =======
Net interest margin................................. 4.38% 4.87%
</TABLE>
10
<PAGE>
NON-INTEREST INCOME
The Company's non-interest income can primarily be broken down into five
main sources: service charges on deposit accounts, fees from origination of
residential mortgage loans for resale, other service charges and fees including
appraisal fees and commissions from the sale of credit related insurance
products, trust income, and gains on sales of assets.
Non-interest income for the third quarter of 1998 was $1,333,000 compared
with $662,000 for the third quarter of 1997, a 101.4% increase. For the first
nine months of 1998 non-interest income was $3,580,000 compared with $2,045,000
for the same period in 1997, a 75.1% increase. The Company benefited in 1998
from growth in loan fees, including fees on residential mortgage loans
originated for resale, and record levels of service charge income.
The table below shows non-interest income for the three and nine months
ended September 30, 1998 and 1997.
NON-INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- -------------------------------
1998 1997 1998 1997
----------- ------------ ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Trust income....................................... $ 62 $ 39 $ 239 $ 176
Service charges on deposit accounts................ 366 242 973 694
Loan fees.......................................... 570 156 1,388 367
Other service charges and fees..................... 160 154 491 432
Gain on sale of loans.............................. - - - 57
Gain on sale of previously foreclosed real estate.. 6 - 91 131
Gain on sale of other assets....................... - 30 15 61
Gain on sale of securities......................... 130 - 255 14
Printed check sales................................ 32 33 106 88
Other income....................................... 7 8 22 25
----------- ------------ ----------- -----------
Total non-interest income.......................... $1,333 $662 $3,580 $2,045
=========== =========== =========== ===========
</TABLE>
(The remainder of this page intentionally left blank)
11
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense for the third quarter of 1998 was $3,267,000 compared
with $2,316,000 for the same period in 1997, a 41.1% increase. Non-interest
expense for the nine months ended September 30, 1998, was $9,520,000 compared
with $6,640,000 for the nine months ended September 30, 1997, a 43.4% increase.
These increases resulted primarily from continued growth and expansion in 1998,
including commencement of operations in February of the Company's newly acquired
Little Rock savings bank, the June opening of two additional Little Rock
offices, and the September opening of the regional headquarters in Fort Smith.
Full time equivalent employees increased to 262 at September 30, 1998, as the
Company added commercial and consumer lenders, customer service staff, trust
department personnel and others to staff these new offices.
During the third quarter, the Company experienced a decline in salaries
and employee benefits as compared to the previous quarter. This resulted from
the Company's (i) elimination of the majority of its 1998 cash bonuses and (ii)
deferral of a portion of salaries attributable to loan origination costs in
accordance with SFAS No. 91. The Company's primary 1998 cash bonus program
conditioned the payment of such bonuses on the Company achieving minimum 1998
consolidated net income of $5.8 million, or approximately $1.52 per diluted
share. Despite achieving record earnings, the Company does not now expect to
reach this benchmark and has eliminated the accruals of bonuses subject to this
condition. Previously the Company had not deferred loan origination costs or
loan fees because such costs and fees were not material in amount. Due to the
growth in the Company's loan originations and lending staff, these amounts have
become more significant requiring the Company to begin to defer these costs and
fees and amortize them over the expected lives of the related loans.
The Company's efficiency ratios (non-interest expenses divided by the sum
of net interest income on a tax equivalent basis and non-interest income) were
53.30% and 55.30%, respectively, for the third quarter and first nine months of
1998 compared to 52.67% and 53.67%, respectively, for the third quarter and
first nine months of 1997.
The table below shows non-interest expense for the three and nine months
ended September 30, 1998 and 1997.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- --------------------------------
1998 1997 1998 1997
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Salaries and employee benefits.................... $1,651 $1,301 $5,284 $3,822
Net occupancy expense............................. 235 149 616 407
Equipment expense................................. 294 192 791 512
Other real estate and foreclosure expense......... 14 34 46 108
Other operating expense:
Professional and outside services............... 68 16 129 65
Postage......................................... 64 41 184 125
Telephone....................................... 86 41 236 118
Operating supplies.............................. 111 59 339 153
Advertising and public relations................ 233 77 419 223
Directors' fees................................. 28 33 84 86
Software expense................................ 52 31 130 85
Check printing charges.......................... 49 33 128 94
FDIC & state assessment......................... 38 28 105 80
Travel and entertainment........................ 44 12 104 44
Amortization of goodwill........................ 23 14 63 42
Miscellaneous................................... 277 255 862 676
----------- ------------ ------------- ------------
Total non-interest expense.................. $3,267 $2,316 $9,520 $6,640
=========== ============ ============= ============
</TABLE>
12
<PAGE>
INCOME TAXES
The provision for income taxes was $544,000 for the quarter ended
September 30, 1998, compared to $698,000 for the same period in 1997. The
effective income tax rates were 27.7% and 36.8%, respectively, for these
periods. The provision for income taxes was $1,883,000 for the nine months ended
September 30, 1998, compared to $1,807,000 for the same period in 1997. The
effective income tax rates were 31.0% and 36.4%, respectively, for these
periods. The decrease in effective tax rates for the 1998 periods resulted
primarily from the Company's increased investments in tax exempt securities,
including securities exempt from both federal and Arkansas income taxes as well
as other securities exempt solely from Arkansas income taxes.
ANALYSIS OF FINANCIAL CONDITION
LOAN PORTFOLIO
At September 30, 1998, the Company's loan portfolio was $359.2 million, an
increase from $275.5 million at December 31, 1997. As of September 30, 1998,
the Company's loan portfolio consisted of approximately 62.5% real estate loans,
18.0% consumer loans, 14.0% commercial and industrial loans and 5.3%
agricultural loans (non-real estate).
The amount and type of loans outstanding at September 30, 1998 and 1997
and December 31, 1997 are reflected in the following table.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------- -----------
1998 1997 1997
---------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Real Estate:
Single family residential............ $116,561 $ 92,753 $ 96,943
Non-farm/non-residential............. 64,328 44,568 41,710
Agricultural......................... 16,345 11,429 13,443
Construction/land development........ 21,372 13,828 16,257
Multifamily residential.............. 5,975 3,340 3,897
--------- --------- -----------
Total real estate............ 224,581 165,918 172,250
Consumer..................................... 64,510 49,180 53,233
Commercial and industrial.................... 50,131 37,070 37,470
Agricultural (non-real estate)............... 19,087 10,083 10,824
Other ....................................... 856 36 1,686
--------- ---------- -----------
Total loans.................. $359,165 $262,287 $275,463
========= ========== ===========
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets consist of (i) nonaccrual loans, (ii) accruing loans
90 days or more past due, (iii) 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 (iv) real estate or
other assets that have been acquired in partial or full satisfaction of loan
obligations or upon foreclosure. Nonperforming assets as a percent of total
assets were 0.45% as of September 30, 1998, compared to an unusually low level
of 0.24% as of December 31, 1997, and 0.62% as of September 30, 1997.
Nonperforming loans as a percent of total loans were 0.65% as of September 30,
1998 compared to an unusually low level of 0.25% as of December 31, 1997, and
0.75% as of September 30, 1997.
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 doubt exists as to the ultimate collection of principal and
interest. The Company continues to accrue interest on certain loans
contractually past due 90 days if such loans are both well secured and in the
process of collection. At the time a loan is placed on nonaccrual status,
interest previously accrued but uncollected is generally reversed and charged
against interest income. If a loan is determined to be uncollectible, the
portion of the loan principal determined to be uncollectible will be charged
against the allowance for loan losses. Interest income on nonaccrual loans is
recognized on a cash basis when and if actually collected.
13
<PAGE>
The following table presents information concerning nonperforming assets,
including nonaccrual and restructured loans and foreclosed assets held for sale.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------------- --------------
1998 1997 1997
------------ ------------ --------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans.......................................... $2,287 $1,911 $ 664
Accruing loans 90 days or more past due................... 43 62 35
Restructured loans........................................ - - -
------ ------ -----
Total nonperforming loans............... 2,330 1,973 699
Foreclosed assets hold for sale and repossessions......... 237 154 136
------ ------ -----
Total nonperforming assets............... $2,567 $2,127 $ 835
====== ====== =====
Nonperforming loans to total loans........................ 0.65% 0.75% 0.25%
Nonperforming assets to total assets...................... 0.45 0.62 0.24
</TABLE>
Foreclosed assets held for sale and repossessions are generally written
down to estimated market value at the time of transfer from the loan portfolio.
The value of such assets is reviewed from time to time throughout the holding
period, with the value being adjusted to the then market value, if lower, until
disposition. Under Arkansas banking law, other real estate owned is generally
required to be written off over a five year period unless approval of the
Arkansas State Bank Department can be obtained to write such assets off over an
extended period.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Allowance for Loan Losses: The following table shows an analysis of the
allowance for loan losses for the nine month periods ended September 30, 1998
and 1997 and the year ended December 31, 1997.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
---------------------------------- -----------------
1998 1997 1997
--------------- ---------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance of allowance for loan losses at beginning of period........ $ 3,737 $ 3,019 $ 3,019
Loans charged off:
Real estate................................................. 32 4 35
Consumer.................................................... 376 200 434
Commercial and industrial................................... 214 - -
------- ------- -------
Total loans charged off............................... 622 204 469
------- ------- -------
Recoveries of loans previously charged off:
Real estate................................................. 10 7 7
Consumer.................................................... 42 38 39
Commercial and industrial................................... 3 1 2
------- ------- -------
Total recoveries..................................... 55 46 48
------- ------- -------
Net loans charged off.............................................. 567 158 421
Provision charged to operating expense............................. 1,222 674 1,139
------- ------- -------
Balance, end of period............................................. $ 4,392 $ 3,535 $ 3,737
======= ======= =======
Net charge-offs to average loans outstanding during
the periods indicated...................................... 0.24%/(1)/ 0.09%/(1)/ 0.17%
Allowance for loan losses to total loans........................... 1.22 1.35 1.36
Allowance for loan losses to nonperforming loans................... 188.50 179.17 534.62
</TABLE>
(1) Annualized
14
<PAGE>
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. In addition to this objective criteria, the
Company subjectively assesses adequacy of the allowance for loan losses and the
need for additions thereto, with consideration given to the nature and volume of
the portfolio, overall portfolio quality, review of specific problem loans,
national, regional and local business and economic conditions that may affect
the borrowers' ability to pay or the value of collateral securing the loans, and
other relevant factors. The Company's allowance for loan losses increased to
$4,392,000 at September 30, 1998, or 1.22% of total loans, compared with
$3,737,000, or 1.36% of total loans, at December 31, 1997. While management
believes the current allowance is adequate, changing economic and other
conditions may require future adjustments to the allowance for loan losses.
For the first nine months of 1998, the annualized net charge-off ratio was
0.24% of average outstanding loans compared with 0.17% for the year of 1997 and
0.09% annualized for the first nine month period in 1997. Although the
Company's annualized ratio of charge-offs for the first nine months of 1998 was
higher than the ratios of charge-offs for the year 1997 and the first nine
months of 1997, the Company believes its charge-off ratio for the first nine
months of 1998 is comparable to or below industry averages.
Provision for Loan Losses: The loan loss provision reflects management's
ongoing assessment of the loan portfolio and is evaluated in light of risk
factors mentioned above. The provision for loan losses was $1,222,000 for the
nine months ended September 30, 1998, compared to $674,000 for the same
nine-month period in 1997. The Company increased its provision for possible loan
losses in the third quarter of 1998 in response to its significant loan growth.
INVESTMENT SECURITIES
The Company's securities portfolio is the second largest component of
earning assets and provides a significant source of revenue for the Company. The
table below presents the amortized cost and the fair value of investment
securities for each of the dates indicated.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1998 1997 1997
----------------------- ------------------------ ------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE/(1)/ COST VALUE/(1)/ COST VALUE/(1)/
----------- ---------- --------- ---------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities of U.S. Government
Agencies......................... $152,424 $153,172 $37,994 $38,035 $24,562 $24,596
Mortgage-backed securities............ 2,111 2,145 9,612 9,825 9,340 9,571
Obligations of states and political
subdivisions..................... 4,203 4,063 3,605 3,642 6,801 6,819
Other securities...................... 2,904 2,961 1,488 1,488 1,510 1,510
-------- -------- ------- ------- ------- -------
Total.......... $161,642 $162,341 $52,699 $52,990 $42,213 $42,496
======== ======== ======= ======= ======= =======
</TABLE>
(1) The fair value of the Company's financial instruments is determined
pursuant to SFAS No. 107.
LIQUIDITY AND CAPITAL RESOURCES
Credit Agreement. The Company maintains a revolving line of credit
("Credit Agreement") for up to $22 million with a correspondent bank. Interest
accrues on all outstanding borrowings due under the Credit Agreement at a
variable rate equal to the average prime lending rate reported from time to time
by the Wall Street Journal minus 1.25%, provided, however, the rate is not to
exceed 7.75%. Interest is payable quarterly. The Credit Agreement is effective
through March 31, 2003, subject to an annual compliance review by the lender. No
standby or unused commitment fees are payable by the Company under the Credit
Agreement.
All borrowings under the Credit Agreement are secured by a pledge of 100%
of the Company's stock in each of Bank of the Ozarks, wca and Bank of the
Ozarks, nwa. As of September 30, 1998, $11.9 million was outstanding under the
Credit Agreement.
15
<PAGE>
The Credit Agreement requires the Company's bank subsidiaries, Bank of the
Ozarks, wca and Bank of the Ozarks, nwa, to maintain (i) a return on average
assets for each calendar year equal to at least 1.0%, (ii) a ratio of capital,
as defined in the Credit Agreement, 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 Credit Agreement requires (i) that the parent
company's aggregate indebtedness not exceed 60.0% of the Company's tangible net
worth through March 31, 1999, reducing 5% a year thereafter and (ii) borrowings
under the Credit Agreement not exceed 50.0% of the tangible book value of all
subsidiary bank stock pledged to secure such borrowings. At September 30, 1998,
the Company was in compliance with these requirements.
Growth and Expansion. In August 1998 the Company completed the purchase of
the Marshall, Arkansas branch of Superior Federal Bank, F.S.B. The acquisition
included the branch bank building, related assets and deposit accounts totaling
approximately $16 million. The Company paid a purchase premium and incurred
other acquisition cost totaling approximately $1.5 million
In September 1998 the Company opened its new Fort Smith facility. Plans
also currently include opening a fourth Little Rock branch at 7500 Cantrell Road
in December 1998, and a third Harrison area branch during the first half of
1999. Both offices are currently under construction. In the nine months ended
September 30, 1998, the Company has spent approximately $12.3 million on
construction and furnishing its corporate banking headquarters in Little Rock
and the new Fort Smith facility as well as acquisition or construction of five
other branch offices in its various markets. Although the Company expects to
open additional branches next year, its 1999 capital expenditures are expected
to be considerably less than they will be for the year of 1998.
The Company is continuing to expand and enhance its products and services
to improve its competitive position. By year-end it plans to introduce a number
of new cash management products and services. The Company has been staffing up,
training and installing systems in its new trust office in Little Rock and plans
to increase its volume of trust business. In September the Company announced the
signing of a definitive agreement to acquire John R. Taylor Financial Group,
Inc., a Fort Smith-based introducing broker/dealer. Subject to regulatory
approval this transaction will allow the Company to offer discount and full
service brokerage, financial planning, investment advisory and other related
services to customers throughout its market area.
The Company has obtained regulatory approval to merge Bank of the Ozarks,
its federal savings bank located in Little Rock, with Bank of the Ozarks, wca,
its primary commercial bank subsidiary. The Company plans to consummate the
merger effective January 1, 1999 or shortly thereafter. This merger is expected
to eliminate certain duplicate corporate expenses while improving customer
service.
Liquidity. Liquidity represents an institution's ability to provide funds
to satisfy demands from depositors and borrowers by either converting assets
into cash or accessing new or existing sources of incremental funds. Generally,
the Company's bank subsidiaries rely on customer deposits and loan repayments as
their primary sources of funds. These funds are used to make loans, acquire
investment securities and other assets, and to fund continuing operations.
The Company has experienced significant growth in its loan portfolio.
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
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 FHLB advances, federal funds lines of credit from correspondent banks
and borrowings by the Company under its Credit Agreement described above.
At September 30, 1998, the Company's bank subsidiaries had an aggregate of
$24.2 million of unused blanket FHLB borrowing availability. Additionally at
September 30, 1998, the bank subsidiaries had available substantial federal
funds lines of credit.
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 Agreement) will be used to augment the
Company's primary funding sources.
16
<PAGE>
Capital Compliance. Bank regulatory authorities in the United States
impose certain capital standards on all bank holding companies and banks. These
capital standards require compliance with certain minimum "risk-based capital
ratios" and a minimum "leverage ratio". The risk-based capital ratios consist of
(i) Tier 1 capital (i.e. common stockholders' equity excluding goodwill, certain
intangibles and net unrealized gains on available for sale securities, but
including certain other qualifying items) to total risk-weighted assets and (ii)
total capital (Tier 1 capital plus Tier 2 capital which is the qualifying
portion of the allowance for loan losses) to risk-weighted assets. The leverage
ratio is measured as Tier 1 capital to adjusted quarterly average assets.
The Company's risk-based and leverage capital ratios exceed these minimum
requirements at September 30, 1998, and December 31, 1997, and are presented
below, followed by the capital ratios of each of the Company's three bank and
thrift subsidiaries at September 30, 1998.
CONSOLIDATED CAPITAL RATIOS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Tier 1 capital:
Stockholders' equity.................................................. $ 39,116 $ 35,666
Less net unrealized gains on available for sale securities............ (63) (152)
Less goodwill and certain intangible assets........................... (3,691) (1,337)
-------------- --------------
Total tier 1 capital.................................. $ 35,362 $ 34,177
============== ==============
Tier 2 capital:
Qualifying allowance for loan losses.................................. 4,392 3,288
-------------- --------------
Total risk-based capital.............................. $ 39,754 $ 37,465
============== ==============
Risk-weighted assets.......................................................... $372,113 $262,592
============== ==============
Ratios at end of period:
Leverage.............................................................. 6.77% 9.86%
Tier 1 risk-based capital............................................. 9.50 13.01
Total risk-based capital.............................................. 10.68 14.27
Minimum ratio guidelines:
Leverage.............................................................. 3.00%/(1)/ 3.00%/(1)/
Tier 1 risk- based capital............................................ 4.00 4.00
Total risk-based capital.............................................. 8.00 8.00
</TABLE>
CAPITAL RATIOS OF SUBSIDIARY BANKS AND THRIFT
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------------------------------
BANK OF THE BANK OF THE BANK OF THE
OZARKS, WCA OZARKS, NWA OZARKS/(2)/
------------------ ----------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity Tier 1........................ $32,861 $9,842 $4,269
Leverage ratio...................................... 9.61% 6.91% 10.76%
Risk-based capital ratios:
Tier 1...................................... 12.64 9.93 36.97
Total capital............................... 13.89 11.02 36.97
</TABLE>
(1) Regulatory authorities require institutions to operate at varying levels
(ranging from 100-200 basis points) above a minimum leverage ratio of 3%
depending upon capitalization classification.
(2) A federal savings bank acquired by the Company in February 1998.
17
<PAGE>
YEAR 2000
The Year 2000 issue relates to the ability of computer systems and other
systems with imbedded microchips to properly handle year 2000 date sensitive
data and the potential risk to the Company because of relationships with third
parties (e.g. software and hardware vendors, loan customers, correspondent
banks, utility companies and others) who do not adequately address the year 2000
issue. Failure in any of these areas could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business activities. The Company has established a Year 2000 Project Committee
to evaluate and assess the Company's exposure to this issue. This Committee has
implemented an approach to the Year 2000 issue consisting of four phases. These
phases include Awareness, Assessment, Renovation and Testing.
The Awareness phase consisted of defining the Year 2000 problem,
developing the resources necessary to perform compliance work, establishing a
Year 2000 program committee and program coordinator and developing an overall
strategy that encompasses in-house systems, service bureaus, vendors, auditors,
customers, and suppliers (including correspondents). This phase has been
completed.
The Assessment phase consists of evaluating the size and complexity of the
problem and detailing the magnitude of the effort necessary to address the Year
2000 issue. The objective of this phase is to identify all hardware, software,
networks, automated teller machines, other various processing platforms, and
customer and vendor interdependencies affected by the Year 2000 date change.
The assessment project goes beyond the company's information systems and
includes environmental systems that are dependent on embedded microchips, such
as security systems, elevators, sprinkler systems, alarm and vaults. The
assessment phase is materially completed, but is considered an ongoing process
for the Company.
The Renovation phase includes the remediation of any systems identified in
the awareness phase as not Year 2000 compliant. The replacement of a
proof/capture system was expedited due to lack of Year 2000 compliance earlier
in 1998. Also the need for minor upgrades to several proof machines were
identified and have been completed. Environmental systems including vault doors,
security systems, elevators, sprinkler systems and alarms have been evaluated
and assurances from vendors have been received regarding their Year 2000
compliance. The Renovation phase is essentially complete with all identified
problem areas having been addressed.
The Company is well into its Testing phase with the primary focus being on
the core software that runs basic bank services including the following
applications: checking, savings, time deposits, individual retirement accounts,
loans, safe deposit box and general ledger accounting. Complete testing of
mission critical systems are expected to be substantially complete by December
31, 1998. Further testing with mission critical vendors and other significant
third party vendors will be completed by June 30, 1999. The Company has not
identified any problems thus far with any of its systems that would have a
material impact upon its operations.
The Company incurred expenses throughout 1996, 1997 and in the first three
quarters of 1998 related to this project and will continue to incur expenses
over the next 15 months. The Company currently estimates that the cost to
remediate both its Year 2000 hardware and software issues to be less than
$130,000 with approximately 75% of the costs having already been expended. A
significant portion of total Year 2000 project expenses is represented by
existing staff that have been redeployed to this project. The Company does not
believe that the redeployment of existing staff will have a material adverse
effect on its business, results of operations or financial position.
Incremental expenses related to the Year 2000 project are not expected to
materially impact operating results in any one period.
The impact of Year 2000 issues on the Company will depend not only on
corrective actions that the Company takes, but also on the way in which Year
2000 issues are addressed by governmental agencies, businesses and other third
parties that provide services or data to, or receive services or data from, the
Company, or whose financial condition or operational capability is important to
the Company. To reduce this exposure, the Company has an ongoing process of
identifying and contacting mission critical third party vendors and other
significant third party vendors to determine their Year 2000 plans and target
dates. Notwithstanding the Company's efforts, there can be no assurance that
mission critical third party vendors or other significant third party vendors
will adequately address their Year 2000 issues.
The Company is developing contingency plans for implementation in the
event that mission critical third party vendors or other significant third party
vendors fail to adequately address Year 2000 issues. Such plans principally
involve identifying alternate vendors or internal remediation. There can be no
assurance that any such plans will fully mitigate any failures or problems.
Furthermore, there may be certain mission critical third parties, such as
utilities or telecommunication companies, where alternative arrangements or
sources are limited or unavailable.
18
<PAGE>
The Company's credit risk associated with borrowers may increase to the
extent borrowers fail to adequately address Year 2000 issues. As a result, there
may be increases in the Company's problem loans and credit losses in future
years. The Company is making ongoing efforts to assess the risks associated with
loan customers, large depositors and significant employers in the Company's
service areas, however, it is not possible to quantify the potential impact of
such risks at this time.
As remediated and tested systems are brought into operation, the Company
will need to take steps to avoid the re-introduction of Year 2000 related
problems into its systems. This is a challenge for the Company because normal
operations and other considerations may require that modifications continue to
be made to its systems in 1999. To some extent, therefore, all four phases of
the Company's project will need to continue on an ongoing basis throughout 1999
and beyond.
The forward-looking statements contained herein with regard to the timing
and overall cost estimates of the Company's efforts to address the Year 2000
problem are based upon the Company's experience thus far in this effort. Should
the Company encounter unforeseen difficulties either in the continuing review of
its computerized systems, their ultimate remediation, or the response of parties
with which it does business or from which it obtains services, the actual
results could vary significantly from the estimates contained in these forward-
looking statements.
PENDING ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. The Company
adopted the provisions of SFAS No. 133 effective July 1, 1998. Because of the
Company's minimal use of derivatives, the adoption of SFAS No. 133 did not
significantly impact the Company's earnings or financial position. As allowed by
SFAS No. 133, the Company transferred approximately $24 million of certain
securities from the held-to-maturity to available-for-sale classification. The
realized and unrealized gains on the securities transferred were not material to
the Company.
FORWARD-LOOKING INFORMATION
This Management's Discussion and Analysis of Financial Condition and
Results of Operations, other filings made by the Company with the Securities and
Exchange Commission and other oral and written statements or reports by the
Company and its management, may include certain forward-looking statements
including, without limitation, statements with respect to anticipated future
operating and financial performance, growth opportunities and growth rates,
acquisition opportunities and other similar forecasts and statements of
expectation. Words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Forward-looking statements made
by the Company and its management are based on estimates, projections, beliefs
and assumptions of management at the time of such statements and are not
guarantees of future performance. The Company disclaims any obligation to update
or revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management due to certain risks, uncertainties and assumptions. Certain factors
that may affect operating results of the Company include, but are not limited
to, the following: (i) potential delays in opening new branches and other
operating locations; (ii) the ability to attract deposits and loans from new
locations or markets; (iii) competitive factors and pricing pressures; (iv)
changes in legal and regulatory requirements; (v) interest rate fluctuations and
(vi) general economic conditions, as well as other factors described in this
and other Company reports and statements. Should one or more of the foregoing
risks materialize, or should underlying assumptions prove incorrect, actual
results or outcomes may vary materially from those described in the forward-
looking statements.
(The remainder of this page intentionally left blank)
19
<PAGE>
SELECTED AND SUPPLEMENTAL FINANCIAL DATA
The Company is also providing the selected and supplemental financial data in
the tables below.
The following table sets forth selected consolidated financial data
concerning the Company for the three and nine month periods ended September 30,
1998 and 1997 and is qualified in its entirety by the consolidated financial
statements, including the notes thereto, included elsewhere herein.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ------------------------------
1998 1997 1998 1997
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income........................................ $ 4,641 $ 3,703 $ 13,227 $ 10,238
Provision for loan losses.................................. 742 150 1,222 674
Non-interest income........................................ 1,333 662 3,580 2,045
Non-interest expense....................................... 3,267 2,316 9,520 6,640
Income tax expense......................................... 544 698 1,883 1,807
Net income................................................. $ 1,421 $ 1,201 4,182 3,162
PER COMMON SHARE DATA:
Earnings - diluted......................................... $ 0.37 $ 0.34 $ 1.09 $ 1.02
Book value................................................. 10.35 9.12 10.35 9.12
Fully diluted shares outstanding (thousands)............... 3,814 3,547 3,822 3,105
End of period shares outstanding (thousands) .............. 3,780 3,780 3,780 3,780
BALANCE SHEET DATA AT PERIOD END:
Total assets............................................... $566,485 $338,421 $566,485 $338,421
Total loans................................................ 359,165 262,287 359,165 262,287
Allowance for loan losses.................................. 4,392 3,535 4,392 3,535
Total investment securities................................ 161,746 52,953 161,746 52,953
Total deposits............................................. 463,921 282,022 463,921 282,022
FHLB advances & fed funds purchased........................ 48,526 13,852 48,526 13,852
Notes payable.............................................. 12,022 5,096 12,022 5,096
Total stockholders' equity................................. 39,116 34,487 39,116 34,487
Loan to deposit ratio...................................... 77.42% 93.00% 77.42% 93.00%
PERFORMANCE RATIOS:
Return on average assets*.................................. 1.07% 1.44% 1.24% 1.40%
Return on average stockholders' equity* ................... 14.67 15.73 14.98 18.29
Net interest margin*....................................... 3.93 4.82 4.38 4.87
Overhead ratio*............................................ 2.46 2.78 2.82 2.93
Efficiency ratio........................................... 53.30 52.67 55.30 53.67
ASSETS QUALITY RATIOS:
Net charge-offs as a percentage of average total loans* ... 0.24% 0.12% 0.24% 0.09%
Nonperforming loans to total loans......................... 0.65 0.75 0.65 0.75
Nonperforming assets to total assets....................... 0.45 0.62 0.45 0.62
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF:
Total loans................................................ 1.22% 1.35% 1.22% 1.35%
Nonperforming loans........................................ 188.50 179.17 188.50 179.17
CAPITAL RATIOS AT PERIOD END:
Leverage capital ratio..................................... 6.77% 10.03% 6.77% 10.03%
Tier 1 risk-based capital.................................. 9.50 13.28 9.50 13.28
Total risk-based capital................................... 10.68 14.54 10.68 14.54
</TABLE>
*Annualized based on actual days
20
<PAGE>
BANK OF THE OZARKS, INC.
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------------------------------------------------------------------------
12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98
--------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
- ----------------
Net interest income $ 3,040 $ 3,116 $ 3,418 $ 3,703 $ 4,251 $ 4,157 $ 4,430 $ 4,641
Federal tax (FTE)
adjustment 38 28 28 32 56 72 158 156
--------- -------- -------- -------- --------- -------- -------- --------
Net interest margin (FTE) 3,078 3,144 3,446 3,735 4,307 4,229 4,588 4,797
Loan loss provision (567) (259) (265) (150) (465) (225) (255) (742)
Non-interest income 740 742 641 662 880 1,094 1,152 1,333
Non-interest expense (2,033) (2,105) (2,218) (2,316) (2,588) (2,924) (3,329) (3,267)
--------- -------- -------- -------- --------- -------- -------- --------
Pretax income (FTE) 1,218 1,522 1,604 1,931 2,134 2,174 2,156 2,121
FTE adjustment (38) (28) (28) (32) (56) (72) (158) (156)
Provision for taxes (633) (537) (572) (698) (709) (728) (611) (544)
--------- -------- -------- -------- --------- -------- -------- --------
Net income $ 547 $ 957 $ 1,004 $ 1,201 $ 1,369 $ 1,374 1,387 $ 1,421
========= ======== ======== ======== ========= ======== ======== ========
Earnings per share - diluted $ 0.19 $ 0.33 $ 0.35 $ 0.34 $ 0.36 $ 0.36 $ 0.36 $ 0.37
NON-INTEREST INCOME DETAILS:
- ---------------------------
Trust department income $ 51 $ 59 $ 78 $ 39 $ 98 $ 78 $ 99 $ 62
Service charges on deposit
accounts 226 211 242 242 263 281 326 366
Loan fees 31 55 156 156 199 395 423 570
Gain (losses) sale of assets 271 236 (17) 30 138 88 12 6
Security gains (losses) 1 10 4 - - 51 74 130
Other income 160 171 178 195 182 201 218 199
--------- -------- -------- -------- --------- -------- -------- --------
Total non-interest income $ 740 $ 742 $ 641 $ 662 $ 880 $ 1,094 $ 1,152 $ 1,333
NON-INTEREST EXPENSE DETAIL:
- ------------------------------
Salaries and employee
benefits $ 1,244 $ 1,238 $ 1,283 $ 1,301 $ 1,502 1,677 1,955 $ 1,651
Net occupancy expense 260 285 293 341 386 426 453 529
Other operating expenses 529 582 642 674 700 821 921 1,087
--------- -------- -------- -------- --------- -------- -------- --------
Total non-interest
expense $ 2,033 $ 2,105 $ 2,218 $ 2,316 $ 2,588 $ 2,924 $ 3,329 $ 3,267
ALLOWANCE FOR LOAN LOSSES
Balance beginning of period $ 2,617 $ 3,019 $ 3,240 $ 3,462 $ 3,535 $ 3,737 $ 3,822 $ 3,853
Net charge offs (165) (38) (43) (77) (263) (140) (224) (203)
Loan loss provision 567 259 265 150 465 225 255 742
--------- -------- -------- -------- --------- -------- -------- --------
Balance at end of period $ 3,019 $ 3,240 $ 3,462 $ 3,535 $ 3,737 $ 3,822 $ 3,853 $ 4,392
SELECTED RATIOS:
- ---------------
Overhead expense ratio* 3.02% 3.07% 2.95% 2.78% 2.95% 3.10% 3.01% 2.46%
Efficiency ratio 53.25 54.17 54.27 52.67 49.89 54.93 58.00 53.30
Non-performing loans
to total loans 1.08 0.80 0.75 0.75 0.25 0.54 0.55 0.65
Non-performing assets to
to total assets 0.88 0.66 0.63 0.62 0.24 0.40 0.45 0.45
</TABLE>
*Annualized
21
<PAGE>
PART I (continued)
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest rate risk management is the responsibility of
the ALCO and Investment Committee which reports to the Board of
Directors. This committee establishes policies and oversees the
Company's sources, uses and pricing of funds. The committee is also
involved with management in the Company's planning and budgeting
process.
As shown in the table below at September 30, 1998, the cumulative rate
sensitive assets to rate sensitive liabilities at six months and one
year, respectively, were 55.04% and 59.09%. 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 the GAP
analysis reflected below has certain inherent limitations and does not
include many factors such as call features, prepayments, interest rate
floors and caps on certain assets and liabilities and the different
relative movements of interest rates for different financial assets, and
since conditions change on a daily basis, these theoretical conclusions
may not be indicative of future results.
<TABLE>
<CAPTION>
RATE SENSITIVE ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------
RATE RATE CUMULATIVE CUMULATIVE
SENSITIVE SENSITIVE PERIOD CUMULATIVE GAP TO RSA/(1)/ TO
ASSETS LIABILITIES GAP GAP TOTAL RSA/(1)/ RSL/(2)/
----------- -------------- --------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Floating rate................. $ 21,738 $ 46,639 $(24,901) $ (24,901) -4.79% 46.61%
Fixed rate repricing in:
1 month............... 49,476 51,969 (2,493) (27,394) -5.27 72.22
2 month............... 22,185 24,245 (2,060) (29,454) -5.67 76.03
3 month............... 22,385 31,383 (8,998) (38,452) -7.40 75.07
4 month............... 16,446 41,279 (24,833) (63,285) -12.17 67.63
5 month............... 13,607 52,582 (38,975) (102,260) -19.67 58.78
6 month............... 13,220 40,880 (27,660) (129,920) -24.99 55.04
6 months - 1 year..... 65,616 91,221 (25,605) (155,525) -29.92 59.09
1--2 years............ 64,350 34,047 30,303 (125,222) -24.09 69.77
2--3 years............ 14,814 15,377 (563) (125,785) -24.20 70.72
3--4 years............ 47,455 7,855 39,600 (86,185) -16.58 80.30
4--5 years............ 30,610 14,470 16,140 (70,045) -13.47 84.50
Over 5 years.......... 137,968 25,820 112,148 42,103 8.10 108.81
-------- -------- --------
Total........... $519,870 $477,767 $ 42,103
======== ========= ========
</TABLE>
(1) Rate Sensitive Assets
(2) Rate Sensitive Liabilities
The following table provides in tabular form the September 30, 1998
contractural balances of the Company's financial instruments at the
expected maturity for the twelve month periods beginning September 30,
1998. Fixed and variable rate categories are based upon expected
amortization or contractural maturity dates. The Company's assets and
liabilities that do not have a stated maturity date, as in cash
equivalents and certain deposits, are considered to be long term in
nature by the Company and are reported in the thereafter column. The
Company does not consider these financial instruments materially
sensitive to interest rate fluctuations and management expects these
balances to remain fairly constant over various economic conditions. The
weighted average interest rates for the various assets and liabilities
presented are actual as of September 30, 1998.
22
<PAGE>
EXPECTED MATURITY DATE OF FINANCIAL ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
----------- ---------- --------- -------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
FINANCIAL ASSETS:
Cash and due from banks - - - - - $ 11,927 $ 11,927
Interest-bearing deposits - - - - - 380 380
Weighted average interest rate - - - - - 5.33% 5.33%
Federal funds sold 695 - - - - - 695
Weighted average interest rate 5.71% - - - - - 5.71%
Securities-available for sale
Securities of US Govt. agencies - - 1,998 1,000 - - 2,998
Weighted average interest rate - - 5.95% 6.95% - - 6.29%
Mortgage-backed securities
Fixed rate 31 69 - - - - 100
Weighted average interest rate 5.51% 5.51% - - - - 5.51%
Variable rate 515 372 274 205 156 590 2,112
Weighted average interest rate 6.84% 6.83% 6.82% 6.81% 6.80% 6.77% 6.81%
Equity securities - - - - - 75 75
Dividend yield - - - - - - -
FHLB stock - - - - - 2,830 2,830
Dividend yield - - - - - 6.00% 6.00%
Securities held to maturity
Securities of US Govt. agencies 1,999 - 4,000 - 4,948 138,477 149,424
Weighted average interest rate 6.37% - 6.33% - 6.35% 6.39% 6.39%
State and political subdivisions
Fixed rate 72 83 94 80 86 2,045 2,460
Weighted average interest rate 5.00% 5.30% 5.40% 5.07% 5.08% 4.98% 5.01%
Variable rate 110 119 131 142 156 987 1,645
Weighted average interest rate 7.23% 7.23% 7.23% 7.23% 7.23% 7.23% 7.23%
Loans Held for Sale-fixed rate 6,691 - - - - - 6,691
Weighted average interest rate 7.07% - - - - - 7.07%
Loans
Loans fixed 107,369 50,958 63,222 33,271 48,969 15,268 319,057
Weighted average interest rate 9.29% 9.40% 9.23% 9.32% 8.81% 9.05% 9.22%
Loans variable 8,618 1,070 1,025 2,834 2,101 17,769 33,417
Weighted average interest rate 9.16% 9.86% 9.63% 9.32% 8.83% 9.00% 9.11%
FINANCIAL LIABILITIES:
Deposits (with no stated maturity)
Demand deposits - - - - - 46,702 46,702
NOW accounts - - - - - 36,114 36,114
Weighted average interest rate - - - - - 1.88% 1.88%
Money market accounts - - - - - 32,457 32,457
Weighted average interest rate - - - - - 3.47% 3.47%
Regular savings - - - - - 13,859 13,859
Weighted average interest rate - - - - - 2.00% 2.00%
Time deposits
Fixed rate 291,062 32,202 4,771 1,832 1,344 1,161 332,372
Weighted average interest rate 5.62% 5.78% 5.88% 6.00% 5.94% 5.83% 5.64%
Variable rate 1,691 726 - - - - 2,417
Weighted average interest rate 4.89% 4.89% - - - - 4.89%
FHLB advances Long Term 3,000 5,268 2,145 4,198 197 11,185 25,993
Weighted average interest rate 5.74% 6.48% 5.77% 5.95% 6.30% 5.14% 5.67%
FHLB advances Short Term 22,533 - - - - - 22,533
Weighted average interest rate 5.51% - - - - - 5.51%
Notes payable 24 24 24 - 11,920 30 12,022
Weighted average interest rate 6.00% 6.00% 6.00% - 7.25% 7.00% 7.24%
</TABLE>
23
<PAGE>
PART II
Other Information
Item 1. LEGAL PROCEEDINGS
-----------------
Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable
Item 5. OTHER MATTERS
-------------
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a). Exhibits
Reference is made to the Exhibit Index contained at the end of
this report.
(b). Reports on Form 8-K
Not Applicable
(The remainder of this page intentionally left blank)
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bank of the Ozarks, Inc.
DATE: November 12, 1998 /s/ Paul E. Moore
-------------------------------
Paul E. Moore
Chief Financial Officer
(Chief Accounting Officer)
25
<PAGE>
Bank of the Ozarks, Inc.
Exhibit Index
Exhibit
Number
- ------
3(a) Amended and Restated Articles of Incorporation of the Company,
effective May 22, 1997, (previously filed as Exhibit 3.1 to the
Company's Form S-1 Registration Statement (File No. 333-27641) and
incorporated herein by reference).
3(b) Amended and Restated Bylaws of the Company, dated as of March 13, 1997,
(previously filed as Exhibit 3.2 to the Company's Form S-1 Registration
Statement (File No. 333-27641) and incorporated herein by reference).
27 Financial Data Schedule for the period ended September 30, 1998
(attached).
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED BY REFERENCE IN
THE QUARTERLY REPORT FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,927
<INT-BEARING-DEPOSITS> 380
<FED-FUNDS-SOLD> 695
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,217
<INVESTMENTS-CARRYING> 153,529
<INVESTMENTS-MARKET> 154,124
<LOANS> 359,165
<ALLOWANCE> 4,392
<TOTAL-ASSETS> 566,485
<DEPOSITS> 463,921
<SHORT-TERM> 22,533
<LIABILITIES-OTHER> 2,900
<LONG-TERM> 38,015
0
0
<COMMON> 38
<OTHER-SE> 39,078
<TOTAL-LIABILITIES-AND-EQUITY> 566,485
<INTEREST-LOAN> 22,507
<INTEREST-INVEST> 4,616
<INTEREST-OTHER> 293
<INTEREST-TOTAL> 27,416
<INTEREST-DEPOSIT> 12,569
<INTEREST-EXPENSE> 14,189
<INTEREST-INCOME-NET> 13,227
<LOAN-LOSSES> 1,222
<SECURITIES-GAINS> 255
<EXPENSE-OTHER> 9,520
<INCOME-PRETAX> 6,064
<INCOME-PRE-EXTRAORDINARY> 6,064
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,182
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 4.38
<LOANS-NON> 2,287
<LOANS-PAST> 43
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,180
<ALLOWANCE-OPEN> 3,737
<CHARGE-OFFS> 622
<RECOVERIES> 55
<ALLOWANCE-CLOSE> 4,392
<ALLOWANCE-DOMESTIC> 4,392
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
