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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
( ) 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)
425 WEST CAPITOL AVENUE, SUITE 3100, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 374-4100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
State the aggregate market value of the Registrant's common stock held by
non-affiliates: $61,899,104 (based upon the average closing bid and asked
prices quoted on the Nasdaq National Market on March 4, 1998.
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 December 31, 1997
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Common Stock, par value $0.01 per share 3,779,555
DOCUMENTS INCORPORATED BY REFERENCE: Parts I, II and III of this Form 10-K
incorporate certain information by reference from the Registrant's Annual Report
to Stockholders for the year ended December 31, 1997 and the Proxy Statement for
its 1998 annual meeting.
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BANK OF THE OZARKS, INC.
FORM 10-K
December 31, 1997
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II.
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III.
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management 15
Item 13. Certain Relationships and Related Transactions 15
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 16
Signatures 18
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Part I
Item 1. BUSINESS
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GENERAL
Bank of the Ozarks, Inc. (the "Company") is an Arkansas business
corporation registered under the Bank Holding Company Act of 1956. The Company
owns 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 15 branches and two loan production offices in fourteen communities
throughout northern, western and central Arkansas. In February, 1998, the
Company closed the purchase of Heartland Community Bank, FSB, a federal savings
bank in Little Rock, Arkansas ("Ozark FSB") which the Company operates under the
Bank of the Ozarks name. At December 31, 1997 the Company had total assets of
$352.1 million, total loans of $275.5 million and total deposits of $295.6
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, debit cards, credit cards and merchant
credit card services. Through Ozark WCA, the Company provides a wide range of
personal and corporate trust services.
BUSINESS STRATEGY
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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 includes (i) expanding loans and deposits
through market share growth in existing markets, de novo branching and
acquisitions; (ii) providing customers with a broad selection of products and
financial services; (iii) employing, empowering and motivating management to
provide personalized customer service, consistent with the best traditions of
community banking, while maximizing profits; and (iv) maintaining asset quality
and controlling overhead expense.
GROWTH STRATEGY. The Company's growth strategy 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 ten new branches and two loan production offices in northern, western and
central Arkansas. As noted, in February, 1998 the Company acquired Ozark FSB
and immediately began operating a full-service branch in downtown Little Rock.
Additionally, the Company currently has facilities under construction in west
Little Rock and Fort Smith, Arkansas which are anticipated to open during 1998.
The Company has received regulatory approval to open the Fort Smith facility as
a full service branch. The west Little Rock facility will consolidate certain
existing Little Rock offices (the holding company office, commercial loan
production office, and residential mortgage loan production office) into a
single location and, subject to obtaining regulatory approval of an application
currently pending, will operate a second full service branch of Ozark FSB.
Beyond these planned locations, the Company intends to pursue its growth and
acquisition strategy with the objective of developing a regional franchise
throughout northern, western and central Arkansas.
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, or have
announced transactions which will result in their becoming branches or
subsidiaries of larger statewide, regional or national organizations. Such
actions have created and may continue to create substantial opportunities for
the Company to
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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 operations.
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 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.
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 account. These accounts feature no minimum balance requirements,
no monthly service charges, unlimited check writing privileges and free
check safekeeping.
Cash Management Services. During 1998 the Company plans to offer 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 11
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. In 1997 the Company introduced "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 Fort Smith and Harrison offices.
These offices provides such loans to customers in each of the Company's
three operating areas.
Home Equity Lines of Credit. During 1998 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.
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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 sixteen separate profit centers for operations,
accounting, budgetary and bonus incentive purposes. Accountability and control
of each profit center is maintained through (i) direct senior 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 officers, 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.
Furthermore, the Company provides employees with additional incentive
compensation through participation in an employee stock ownership plan. The
Company provides additional equity based compensation to certain key management
personnel in the form of discretionary stock options to further align the
interests of management and stockholders.
ASSET QUALITY AND OVERHEAD OBJECTIVES. 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.
The Company has established the goal of becoming a low cost provider of
banking services. Over the past several years, the Company has achieved
substantial improvements in its overhead and efficiency ratio. 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
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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
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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.
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 improvements. Documentation requirements vary
depending on loan size, type, complexity and other factors.
Consumer Loans. The Company's portfolio of consumer loans generally
includes loans to individuals for household, family and other personal
expenditures (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, 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 and collateral supporting a particular loan determining
its structure. These loans are offered to businesses and
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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
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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 CD's. 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. The Company's
deposits come primarily from within the Company's trade area. As of December
31, 1997 the Company had no 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
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Through Ozark WCA, the Company offers a wide range of personal and
corporate trust services. As of December 31, 1996 and 1997 total trust assets
under management by the Company were $16.4 million and $32.0 million,
respectively.
COMPETITION
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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 faces increased competition from de novo community banks, including
those with senior management who were previously with other local banks or those
controlled by investor groups with strong local business and community ties.
Management believes the Company will continue to be competitive because of its
strong commitment to quality customer service, highly autonomous local branches,
active community involvement, and products and pricing.
EMPLOYEES
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At December 31, 1997 the Company and its subsidiaries employed 182 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 such organized labor groups. This Company believes its
employee relations are good.
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EXECUTIVE OFFICERS OF REGISTRANT
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On January 20, 1998 the Board of Directors elected the following persons to
serve as executive officers of the Company for 1998:
George Gleason, age 44, Chairman and Chief Executive Officer of the Company
and its bank subsidiaries. Mr. Gleason received a J.D. from the University of
Arkansas and a B.A. in Business and Economics from Hendrix College.
James Patridge, age 47, Vice Chairman of the Company. From 1985 to 1997,
Mr. Patridge served as Executive Vice President with NationsBank, N.A. (formerly
Boatmen's Arkansas, Inc. and Worthen Banking Corporation). He received a J.D.
from Oklahoma City University, a M.S. in finance from Memphis State University,
and a B.S.B.A. in Banking and Finance from the University of Arkansas.
Mark Ross, age 42, President of the Company and its bank subsidiaries. Mr.
Ross was elected as a director of the Company in 1992. Mr. Ross received a B.A.
in Business Administration from Hendrix College.
Danny Criner, age 43, President of Ozark NWA. Mr. Criner received a
B.S.B.A. in Banking and Finance from the University of Arkansas.
Paul Moore, age 51, 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 is a C.P.A. and received a B.S.B.A. in Banking, Finance and Accounting
from the University of Arkansas.
Margaret Oldner, age 46, Executive Vice President of the Company since
October 1997. From January 1991 to March 1997 she was Senior Vice President and
Chief Financial Officer for Mercantile Bank of Arkansas (formerly Twin City
Bank) in North Little Rock. Ms. Oldner is a C.P.A. and received a B.S. in
Business Administration from California State University at Fullerton.
Jean Arehart, age 57, 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, age 49, 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 Ozark WCA's Western Division (Van Buren, Mulberry,
Ozark, Clarksville, 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, age 44, Executive Vice President of Ozark WCA since May
1997. From 1992 to 1997 Mr. Russell served as Senior Vice President of Ozark
WCA. Mr. Russell received a B.S.B.A. in Banking and Finance from the University
of Arkansas.
Randy Oates, age 54, Senior Vice President, Marketing since 1996. From
1992 to 1996, he served as Marketing Director for Commercial National Bank,
Shreveport, Louisiana. Mr. Oates received a B.S.B.A. in Marketing from the
University of Arkansas.
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SUPERVISION AND REGULATION
In addition to the generally applicable state and federal laws governing
businesses and employers, bank holding companies and banks are extensively
regulated under both federal and state law. With few exceptions, state and
federal banking laws have as their principal objective either the maintenance of
the safety and soundness of the Bank Insurance Fund ("BIF") and Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("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
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The primary federal banking regulatory authority for the Company is the
Board of Governors of the Federal Reserve System (the "FRB"), acting pursuant to
its authority to regulate bank holding companies. Because the Company's
subsidiary state 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.
In February 1998, the Company completed its purchase of Ozark FSB, and as a
federal savings bank it is subject to extensive supervision and regulation by
its appropriate federal regulatory authority, the Office of Thrift Supervision
("OTS"). These OTS regulations are similar in scope and detail to those imposed
on the Company's state bank subsidiaries by the FDIC and include capital
adequacy guidelines, enforcement authority, prompt corrective action procedures,
reporting responsibilities and periodic examinations. Except as otherwise
specifically noted, the following discussion of banking regulation is limited to
the Company and its two principal bank subsidiaries, Ozark WCA and Ozark NWA.
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 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. 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, furnishing or performing services for
its subsidiaries, and any other activity that the FRB determines to be
incidental to or closely related to banking or managing or controlling banks.
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 the BHCA, a bank holding company must obtain FRB approval before it
may acquire all or substantially all of the assets of any bank, or ownership or
control of more than 5% of the outstanding shares of any class of voting stock
of any bank or bank holding company. The FRB's approval must also be obtained
before a bank holding company 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). In considering any application
for approval of an acquisition or merger, the FRB is required to consider
various competitive factors, the financial and managerial resources of the
companies and banks concerned, the convenience and needs of the communities to
be served, and the applicant's record of compliance with the Community
Reinvestment Act (the "CRA"). The CRA generally requires financial institutions
to take affirmative action to ascertain and meet the credit needs of its entire
community, including low and moderate income neighborhoods. The Attorney
General of the United States may, within 30 days after approval of an
acquisition by the FRB, bring an action challenging such acquisition under the
federal antitrust laws, in which case the effectiveness of such approval is
stayed pending a final ruling by the courts.
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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 SAIF, to the extent provided by law. The deposits of
Ozark FSB are insured through the SAIF. 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. On September 30,
1996, a new law was enacted 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 at a
rate determined quarterly. For the period July 1, 1997 through December 31,
1997, Ozark NWA and Ozark WCA were each assessed an annualized premium of
$0.0126 per $100 of BIF-eligible deposits.
As of the most recent assessment date, Ozark WCA had approximately $21.7
million of deposits that are assessed premiums at the rates applicable to SAIF
institutions as a result of a branch acquisition completed with the Resolution
Trust Company ("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 at a rate determined quarterly. Ozark WCA's SAIF-
eligible deposits were assessed an annualized rate of $0.063 per $100 for the
period July 1, 1997 through December 31, 1997.
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 Ozark WCA and Ozark NWA. 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
8
<PAGE>
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 the information
contained in the Management's Discussion & Analysis section of the Company's
1997 Annual Report under the heading "Capital Compliance" on pages 26 through
27, which information is incorporated herein by reference.
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 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 corrective action taken with respect to depository institutions that
do not meet minimum capital and related requirements and to take such actions
promptly in order to minimize losses to the FDIC. In connection with FDICIA,
federal banking agencies established capital measures (including both a leverage
measure and a risk-based capital measure) and specified for each capital measure
the levels at which depository institutions will be considered well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized or
critically undercapitalized. If an institution becomes classified as
undercapitalized, the appropriate federal banking agency will require the
institution to submit an acceptable capital restoration plan and can suspend or
greatly limit the institution's ability to effect numerous actions including
capital distributions, acquisitions of assets, the establishment of new branches
and the entry into new lines of business. On February 28, 1998, the FDIC
advised the Company that each of Ozark WCA and Ozark NWA had been classified as
"well-capitalized" under these guidelines.
Examination. The FRB may examine the Company and any or all of its
subsidiaries. The FDIC examines and evaluates insured banks every 12 months, and
it may assess the institution for its costs of conducting the examinations. The
FDIC has a reciprocal agreement with the Arkansas State Bank Department whereby
each will accept the other's examination reports in certain cases. As a result,
the Company's subsidiary banks generally undergo FDIC and state examinations
either on a joint basis or 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 Securities and Exchange Commission and of state
securities commissions for matters relating to the offer and sale of its
securities.
9
<PAGE>
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, 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 the lesser of 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".
10
<PAGE>
Arkansas bank branching laws currently prevent state and national banks
from opening branches in any county of the state other than their home county
and the counties contiguous to their home county. These laws currently allow
the Company to open branches for its subsidiary state banks 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 for its state
banks beyond this geographic area. However, Ozark FSB is able to engage in
statewide branching because Arkansas bank branching laws do not apply to federal
savings banks. Effective January 1, 1999, Arkansas law, as currently in effect,
will allow the Company to engage in branching activities for its state banks on
a statewide basis. Prior to this effective date for statewide branching, current
laws may artificially restrict the growth opportunities of the Company and its
state bank 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.
SUBSIDIARY STATE BANKS
- ----------------------
The lending and investment authority of the subsidiary state banks is
derived from Arkansas law. The lending powers of each of these 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 state 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 state banks can pay the Company to 75% of each 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.
11
<PAGE>
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.
12
<PAGE>
Item 2. PROPERTIES
----------
The Company serves its customers by offering a broad range of banking
services through full service branches and loan production offices throughout
northern, western and central Arkansas as follows:
<TABLE>
<CAPTION>
SQUARE
BANKING LOCATION/(1)/ YEAR OPENED FOOTAGE
- --------------------- ----------- -------
<S> <C> <C>
Alma................................................. 1997 4,100
Altus /(2)/.......................................... 1972 --
Bellefonte........................................... 1997 1,444
Clarksville (Main Street)............................ 1994 2,520
Clarksville (Rogers Avenue) /(3)/.................... 1995 3,300
Fort Smith /(4)/..................................... 1997 2,640
Fort Smith /(5)/..................................... Under construction 22,200
Harrison /(3)/....................................... 1996 3,300
Jasper............................................... 1967 (expanded 1984) 4,408
Little Rock (Chester Street) /(6)/................... 1998 1,716
Little Rock /(7)/.................................... Under construction 39,600
Little Rock (corporate office and commercial loan
production office) /(4)/.......................... 1995 4,472
Little Rock (residential mortgage
loan production office) /(4)/..................... 1996 2,000
Marshall /(3)/....................................... 1995 2,520
Mulberry............................................. 1997 1,875
Ozark (Main)......................................... 1971 (expanded 1985) 30,877
Ozark (Westside)..................................... 1993 2,520
Paris................................................ 1997 3,100
Van Buren............................................ 1995 2,520
Western Grove........................................ 1976 (expanded 1991) 2,610
- --------
</TABLE>
(1) Unless otherwise indicated, the Company owns, or will own upon the
completion of construction, its banking locations.
(2) Original facility was destroyed by storm in 1997. Operations are currently
being conducted in a temporary facility pending completion of the new
permanent facility.
(3) The Company owns the improvements and leases the land at these locations.
The initial lease terms expire in 2001 (Harrison), 2004 (Clarksville) and
2024 (Marshall). The Company has either a renewal option, purchase option
or both with respect to each of these leases.
(4) These offices are leased. The Little Rock locations house the corporate
office, a commercial loan production office and a residential mortgage loan
office. These offices will be consolidated into the new west Little Rock
location upon completion of its construction. The Fort Smith location
operates as a residential mortgage loan office and temporary full service
branch for Ozarks WCA. This is a temporary office pending completion of the
Fort Smith building now under construction.
(5) Construction began on this Fort Smith site in early 1998 with opening
expected in the third quarter of 1998.
(6) This location was acquired in connection with the purchase of Ozark FSB in
February, 1998. The facility was constructed in 1994.
13
<PAGE>
(7) This building is currently under construction with completion expected in
mid 1998. This building will house the Company's corporate offices and
residential and commercial loan production offices. Ozark FSB is expected
to lease space in this building to house a full service branch of that
institution.
Item 3. LEGAL PROCEEDINGS
-----------------
No information is required in response to this Item.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No information is required in response to this Item as no matters were
submitted to a vote of Registrant's security holders during the fourth quarter
of the fiscal year covered by this report.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
---------------------------------------------------------------------
The Company's Common Stock is listed on the Nasdaq National Market under
the symbol "OZRK". The other information required by Item 201 of Regulation S-K
is contained in the Management's Discussion & Analysis section of the Company's
1997 Annual Report under the headings "Liquidity and Capital Resources Initial
Public Offering" on page 25 and "Summary of Quarterly Results of Operations,
Common Stock Market Prices and Dividends" on page 29, which information is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
-----------------------
The information required by Item 301 of Regulation S-K is contained in the
Company's 1997 Annual Report under the heading "Selected Consolidated Financial
Data" on page 10, which information is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by Item 303 of Regulation S-K is contained in the
Company's 1997 Annual Report on pages 11 through 29, which information is
incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information required by Item 305 of Regulation S-K is contained in the
Management's Discussion and Analysis section of the Company's 1997 Annual Report
under the heading "Interest Rate Sensitivity" on pages 22 through 24, which
information is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this Item and by Item 302 of Regulation S-K is
contained in the Company's 1997 Annual Report on pages 30 through 47 and in the
Management's Discussion & Analysis section of the 1997 Annual Report under the
heading "Summary of Quarterly Results of Operations, Common Stock Market Prices
and Dividends" on page 29, which information is incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
----------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
No information is required in response to this Item.
14
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by Item 401 of Regulation S-K regarding directors
is contained in the Company's Proxy Statement for the 1998 annual meeting under
the heading "Election of Directors" on pages 3 through 5, which information is
incorporated herein by reference. In accordance with Item 401(b) of Regulation
S-K, Instruction 3, information concerning the Company's executive officers is
furnished in a separate item captioned Executive Officers of the Registrant in
Part I above. The information required by Item 405 of Regulation S-K is
contained in the Company's Proxy Statement for the 1998 annual meeting under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 17,
which information is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
-----------------------
The information required by Item 402 of Regulation S-K is contained in the
Company's Proxy Statement for the 1998 annual meeting under the headings
"Executive Compensation and Other Information," "Report of the Compensation and
Personnel Committee on Executive Compensation" and "Company Performance" on
pages 9 through 16, which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by Item 403 of Regulation S-K is contained in the
Company's Proxy Statement for the 1998 annual meeting under the headings
"Principal Stockholders" and "Security Ownership of Management" on pages 7
through 8, which information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by Item 404 of Regulation S-K is contained in the
Company's Proxy Statement for the 1998 annual meeting under the heading "Certain
Transactions" on page 15, which information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) The following consolidated financial statements of the Registrant
included on pages 31 to 47 in the Company's Annual Report for the fiscal
year ended December 31, 1997, and the Report of Independent Auditors on
page 30 of such Annual Report are incorporated herein by reference
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
15
<PAGE>
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
All schedules are omitted for the reasons that they are not required or are
not applicable, or the required information is shown in the consolidated
financial statements or the notes thereto.
(b) Reports on Form 8-K:
Registrant did not file any reports on Form 8-K during the fourth quarter
of 1997.
(c) Exhibits:
The exhibits to this report are listed in the Exhibit Index at the end of
this Item 14.
(d) Statement Schedules:
Not applicable.
EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated by
reference to previously filed material.
Exhibit No.
- -----------
3.1 Amended and Restated Articles of Incorporation of the Registrant, dated
May 22, 1997 (previously filed as Exhibit No. 3.1 to the Company's
Registration Statement on Form S-1 filed with the Commission on May 22,
1997, as amended, Commission File No. 333-27641, and incorporated herein
by this reference)
3.2 Amended and Restated By-Laws of the Registrant, dated March 13, 1997
(previously filed as Exhibit No. 3.2 to the Company's Registration
Statement on Form S-1 filed with the Commission on May 22, 1997, as
amended, Commission File No. 333-27641, and incorporated herein by this
reference).
10.1 Bank of the Ozarks, Inc. Stock Option Plan, dated May 22, 1997 (previously
filed as Exhibit No. 10.1 to the Company's Registration Statement on Form
S-1 filed with the Commission on May 22, 1997, as amended, Commission File
No. 333-27641, and incorporated herein by this reference).
10.2 Bank of the Ozarks, Inc. Non-Employee Director Stock Option Plan, dated
May 22, 1997 (previously filed as Exhibit No. 10.2 to the Company's
Registration Statement on Form S-1 filed with the Commission on May 22,
1997, as amended, Commission File No. 333-27641, and incorporated herein
by this reference).
10.3 Loan Agreement with Union Planters National Bank, Memphis, Tennessee,
dated May 16, 1997 (previously filed as Exhibit No. 10.3 to the Company's
Registration Statement on Form S-1 filed with the Commission on May 22,
1997, as amended, Commission File No. 333-27641, and incorporated herein
by this reference).
10.4 Real Estate Contract - Fort Smith (Sebastian County), dated February 6,
1997 (previously filed as Exhibit No. 10.4 to the Company's Registration
Statement on Form S-1 filed with the Commission on May 22, 1997, as
amended, Commission File No. 333-27641, and incorporated herein by this
reference).
16
<PAGE>
10.5 Offer & Acceptance - (Chenal Parkway) Little Rock (Pulaski County), dated
December 12, 1996 (previously filed as Exhibit No. 10.5 to the Company's
Registration Statement on Form S-1 filed with the Commission on May 22,
1997, as amended, Commission File No. 333-27641, and incorporated herein
by this reference).
10.6 Ground Lease - Marshall (Searcy County), dated October 15, 1993
(previously filed as Exhibit No. 10.6 to the Company's Registration
Statement on Form S-1 filed with the Commission on May 22, 1997, as
amended, Commission File No. 333-27641, and incorporated herein by this
reference).
10.7 Ground Lease - Harrison (Boone County), dated December 22, 1994
(previously filed as Exhibit No. 10.7 to the Company's Registration
Statement on Form S-1 filed with the Commission on May 22, 1997, as
amended, Commission File No. 333-27641, and incorporated herein by this
reference).
10.8 Ground Lease - Clarksville (Johnson County), dated January 1, 1995
(previously filed as Exhibit No. 10.7 to the Company's Registration
Statement on Form S-1 filed with the Commission on May 22, 1997, as
amended, Commission File No. 333-27641, and incorporated herein by this
reference).
10.9 Employment Agreement, dated May 22, 1997, between the Registrant and
George Gleason (previously filed as Exhibit No. 10.9 to the Company's
Registration Statement on Form S-1 filed with the Commission on May 22,
1997, as amended, Commission File No. 333-27641, and incorporated herein
by this reference).
10.10 Form of Indemnification Agreement between the Registrant and its directors
and certain of its executive officers (previously filed as Exhibit No.
10.10 to the Company's Registration Statement on Form S-1 filed with the
Commission on May 22, 1997, as amended, Commission File No. 333-27641, and
incorporated herein by this reference).
10.11 Amendment to Employment Agreement, dated September 16, 1997, between the
Registrant and George Gleason (previously filed as exhibit 10 to the
Company's quarterly report on Form 10-Q filed with the Commission for the
period ended September 30, 1997, and incorporated herein by this
reference).
10.12 Stock Purchase Agreement, dated November 19, 1997, between the Registrant,
Heartland Community Bank, Camden, Arkansas, and HCB Bancshares, Inc.
(attached).
10.13 Construction Contract, dated September 2, 1997, between Bank of the
Ozarks, wca and East-Harding, Inc. (Little Rock Office) (attached).
10.14 Construction Contract, dated December 24, 1997, between Bank of the
Ozarks, wca and East-Harding, Inc. (Fort Smith Office) (attached).
13 Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997 which are incorporated herein by reference: pages
10 to 47 of such Annual Report (attached).
21 List of Subsidiaries of the Registrant (attached).
23 Consent and Report on Financial Statement Schedules of Moore Stephens
Frost (attached).
27.1 Financial Data Schedule (attached).
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BANK OF THE OZARKS, INC.
By: /s/ George Gleason
------------------------------------
Chairman and Chief Executive Officer
Date: March 17, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ George Gleason Chairman of the Board, Chief Executive Officer March 17, 1998
- --------------------------- and Director
George Gleason
/s/ James Patridge Vice Chairman and Director March 17, 1998
- ----------------------------
James Patridge
/s/ Mark Ross President and Director March 17, 1998
- ----------------------------
Mark Ross
/s/ Paul Moore Chief Financial Officer March 17, 1998
- ---------------------------- (Chief Accounting Officer)
Paul Moore
/s/ Roger Collins Director March 17, 1998
- ----------------------------
Roger Collins
/s/ C. E. Dougan Director March 17, 1998
- ----------------------------
C. E. Dougan
/s/ Robert East Director March 17, 1998
- ----------------------------
Robert East
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Linda Gleason Director March 17, 1998
- ----------------------------
Linda Gleason
/s/ Porter Hillard Director March 17, 1998
- ----------------------------
Porter Hillard
/s/ Henry Mariani Director March 17, 1998
- ----------------------------
Henry Mariani
/s/ Dr. R. L. Qualls Director March 17, 1998
- ----------------------------
Dr. R. L. Qualls
/s/ Kennith Smith Director March 17, 1998
- ----------------------------
Kennith Smith
</TABLE>
19
<PAGE>
EXHIBIT 10.12
STOCK PURCHASE AGREEMENT
AMONG
BANK OF THE OZARKS, INC.,
HEARTLAND COMMUNITY BANK,
Camden, Arkansas,
AND
HCB BANCSHARES, INC.
DATED: NOVEMBER 19, 1997
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INDEX
TO
STOCK PURCHASE AGREEMENT
1. The Purchase..................................... 1
(a) Purchase and Sale of Stock....................... 1
(b) Purchase and Assumption of Assets and Liabilities 2
(c) Retained Assets.................................. 2
(d) Retained Liabilities............................. 2
(e) Books, Records, Policies and Other Materials..... 3
(f) Proration of Seller Liabilities.................. 3
2. Purchase Price................................... 4
(a) Holding Company Stock............................ 4
(b) Purchase and Assumption.......................... 4
3. Closing.......................................... 4
(a) Closing Date..................................... 4
(b) Pre-Closing Balance Sheet........................ 4
(c) Payments at Closing.............................. 4
(d) Closing Documents................................ 5
(e) Post-Closing Balance Sheet....................... 6
4. Representation and Warranties of Seller and HCB.. 8
(a) Organization..................................... 8
(b) Capitalization of Holding Company................ 8
(c) Holding Company Shareholder...................... 8
(d) Capitalization of Bank........................... 9
(e) Title to Bank Stock.............................. 9
(f) Authority; Validity of Agreement................. 9
(g) No Violation, Consents and Approval.............. 9
(h) Financial Reports and Statements................. 10
(i) Bank Premises.................................... 10
(j) Reserved......................................... 11
(k) Claims........................................... 11
(l) Employment Contracts............................. 11
(m) Benefit Plans.................................... 11
(n) Agreements, Commitments and Certain Loans........ 12
(o) Litigation....................................... 12
(p) Tax and other Returns, Reports
and Agreements................................. 12
(q) Legal and Regulatory Compliance.................. 13
(r) Insurance........................................ 14
(s) Environmental Compliance......................... 15
(t) Certain Transactions............................. 15
(u) Subsidiaries..................................... 15
(v) Corporate Records................................ 15
(w) Disclosure....................................... 15
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5. Representations and Warranties of Buyer.......... 15
(a) Organization..................................... 16
(b) Authorization and Validity of Agreement.......... 16
(c) Investment....................................... 16
6. Covenants of HCB, Seller and Buyer............... 16
(a) Preservation of the Business..................... 16
(b) Access........................................... 17
(c) Best Efforts..................................... 18
(d) Public Announcements............................. 18
(e) Dividend......................................... 18
(f) Closing Net Worth, Indebtedness and Liabilities.. 18
(g) Name Change; Cooperation Regarding Applications.. 19
(h) Transition of Customer Accounts and Files........ 19
(i) Employees and Employee Benefit Plans............. 23
(j) Exclusivity...................................... 23
(k) Certain Notifications............................ 24
(l) Taxes and Reports................................ 24
(m) Deposit Products; Investment of Funds and Loans.. 27
(n) Insurance........................................ 27
7. Closing Conditions............................... 27
(a) Conditions to Obligations of Parties............. 27
(b) Conditions to Obligations of Buyer............... 28
(c) Conditions to Obligations of HCB and Seller...... 31
8. Survival and Indemnification..................... 31
(a) Survival of Representations, Warranties
and Covenants.................................... 32
(b) Indemnification.................................. 32
9. Termination, Waiver, Extension and Agreement..... 33
(a) Termination...................................... 33
(b) Willful Breach of Intentional Misrepresentation.. 33
(c) No Willful Breach or Intentional
Misrepresentation.............................. 33
(d) Waiver, Extension and Amendment.................. 34
10. Miscellaneous.................................... 34
(a) Broker's or Finder's Fees........................ 34
(b) Confidentiality.................................. 34
(c) Expenses......................................... 35
(d) Notices.......................................... 35
(e) Entire Agreement................................. 36
(f) Binding Effect................................... 36
(g) Further Assurances............................... 36
(h) Knowledge and Investigation...................... 36
(i) Construction..................................... 36
(j) Counterparts..................................... 36
(k) Section Headings................................. 36
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of this 19th day
of November, 1997, among BANK OF THE OZARKS, INC., an Arkansas corporation
("Buyer"), Heartland Community Bank, Camden, Arkansas, a federal savings bank
("Seller") and HCB Bancshares, Inc., an Oklahoma corporation ("HCB").
W I T N E S S E T H:
WHEREAS, HCB owns of record and beneficially 100% of the issued and
outstanding common stock of Seller;
WHEREAS, Seller owns of record and beneficially 1000 shares of the
outstanding common stock, par value $20 per share (the "Holding Company Stock")
of Heritage Banc Holding, Inc., an Arkansas corporation (the "Holding Company")
which shares represent all of the issued and outstanding capital stock of the
Holding Company;
WHEREAS, the Holding Company owns of record and beneficially 33,400 shares
of common stock, par value $7.50 per share (the "Bank Stock"), of Heartland
Community Bank, FSB, a federal stock savings bank (the "Bank"), which shares
represent all of the issued and outstanding capital stock of the Bank;
WHEREAS, the Bank's sole offices are its home office located at 109 North
Chester, Little Rock, Arkansas (the "Main Office"), a full service branch office
located at 473 Highway 425 North, Monticello, Arkansas (the "Monticello Branch")
and a loan production office located at 23233 I-30, #20, Bryant, Arkansas (the
"LPO Office");
WHEREAS, this Agreement contemplates a transaction pursuant to which (i)
Buyer will acquire from Seller the Holding Company Stock and (ii) Seller will
purchase and assume certain assets and liabilities of the Bank (collectively the
"Acquisition Transaction"); and
WHEREAS, the Seller desires to sell the Holding Company Stock and the Buyer
desires to purchase the Holding Company Stock subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual promises,
representations, covenants and actions hereinafter set forth and good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. The Purchase.
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(a) Purchase and Sale of Stock. Subject to the terms and conditions
--------------------------
set forth herein, at the Closing (as defined below), Seller shall sell, transfer
and deliver, free and clear of all liens and encumbrances, and Buyer shall
purchase and acquire, all
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of the shares of Holding Company Stock which are and shall be issued and
outstanding on the Closing Date (as defined below).
(b) Purchase and Assumption of Assets and Liabilities.
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As a pre-condition to the purchase of the Holding Company Stock by Buyer
pursuant to Section 1(a), Seller shall on the Closing Date purchase all of the
assets, other than Retained Assets (as defined below) (the "Seller Assets") and
assume all of the liabilities, other than Retained Liabilities (as defined
below) (the "Seller Liabilities") of the Bank pursuant to the terms and
conditions of that certain Purchase and Assumption Agreement (the "P&A
Agreement") dated as of the date hereof, a copy of which is attached to this
Agreement as Exhibit "A". The Seller Assets are being transferred by the Bank
to Seller on an "as is" basis without any recourse, representation or warranty
(including, but not limited to, representations or warranties as to quality,
condition, title or compliance with laws, rules or regulations of Regulatory
Authorities (as defined below)). The Seller Liabilities are being assumed by
the Seller without recourse or any representation or warranty as to amount or
compliance with laws, rules or regulations of Regulatory Authorities.
(c) Retained Assets. For purposes of this Agreement and the P&A
---------------
Agreement, the term "Retained Assets" shall mean the following assets owned by
the Bank: (i) all real property constituting the Main Office and all
improvements, fixtures and fittings thereon, and any easements, rights of way
and other appurtenants thereto (such as appurtenant rights in and to public
streets), (ii) all tangible personal property (other than computer hardware and
software used in connection with Seller's existing data processing system)
located at the Main Office, including the personal property described on Exhibit
"B" hereto, (iii) goodwill, and (iv) cash, Federal Home Loan Bank balances and
federal funds deposits. The amount of Retained Assets shall be accurately
reflected on the Pre-Closing Balance Sheet (as defined below) of the Bank as of
the Pre-Closing Balance Sheet Date (as defined below), which such Pre-Closing
Balance Sheet is being delivered by Seller pursuant to Section 3(b).
(d) Retained Liabilities. For purposes of this Agreement and the P&A
--------------------
Agreement, the term "Retained Liabilities" shall mean (i) the deposits (other
than Excluded Deposits, as defined below) associated solely with the Main
Office, plus accrued interest thereon and (ii) all accrued and unpaid salaries
of employees located at the Main Office, payroll and property taxes and other
accrued liabilities associated with the Retained Assets and the operation of and
personnel located at the Main Office. The term "Excluded Deposits" shall mean
all deposits identified by Buyer on Annex I, which Annex may be modified or
supplemented by the mutual agreement of Buyer and Seller no later than three
business days prior to the Closing Date. All liabilities,
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obligations or commitments (contingent or otherwise) of the Bank other than
Retained Liabilities shall constitute Seller Liabilities. The amount of
Retained Liabilities shall be accurately reflected on the Pre-Closing Balance
Sheet as of the Pre-Closing Balance Sheet Date, which such balance sheet is
being delivered by Seller pursuant to Section 3(b).
(e) Books, Records, Policies and Other Materials. In addition to
---------------------------------------------
the Retained Assets, the following items will remain in the possession and
ownership of the Bank and the Holding Company, following the Closing: (i) all
lists, studies, reports and other printed or written materials relating to the
operation of the Main Office, (ii) all approvals, permits, licenses,
registrations, certificates, variances and similar rights and all exams and
reports obtained from government and governmental agencies relating to the
operation of the Bank, the Holding Company or the Main Office, (iii) all deposit
agreements, signature cards, change of address notifications and other
documentation or correspondence related to the deposits which are included in
Retained Liabilities; (iv) the Bank's and the Holding Company's charter, ABA
transit routing number, telephone number, and all qualifications to do business,
taxpayer and other identification numbers, minute books, stock transfer books,
blank stock certificates, general corporate documents and other books, records
and documents relating to the organization, maintenance and operation of the
Bank and the Holding Company, and (v) subject to Section 6(n), the rights and
benefits inuring to the Bank and Holding Company under policies evidencing all
insurance, fiduciary bonds or similar coverage.
(f) Proration of Seller Liabilities. The parties intend that Bank
-------------------------------
shall operate for its own account the business conducted at the Monticello
Branch and the LPO Office until the start of business on the Closing Date, and
that the Seller shall operate such business for its own account on and after the
Closing Date. Thus, except as otherwise specifically provided in this Agreement,
items of expense directly attributable to the operation of the Monticello Branch
and the LPO Office (which shall not include any general overhead expenses of
Bank) and which are not readily capable of determination as of the Closing Date
shall be prorated as of the start of business on the Closing Date, whether or
not such adjustment would normally be made as of such time, including without
limitation, personal (but not real) property taxes and any assessments
attributable to FDIC deposit insurance attributable to the deposits included in
the Seller Liabilities (such net amount being hereinafter referred to as the
"Proration Amount"). Items which are readily capable of determination as of the
Closing Date, including telephone, electric, gas and other utility services at
the Monticello Branch the LPO Office shall not be prorated; instead, Bank and
Seller shall make arrangements for the responsibility for payment of such
services on or after the start
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<PAGE>
of business on the Closing Date to be transferred to the Seller as of the
Closing Date.
2. Purchase Price.
--------------
(a) Holding Company Stock. The purchase price for the Holding
---------------------
Company Stock shall be a total of $3,100,000 (the "Stock Purchase Price").
(b) Purchase and Assumption. The purchase price to be paid by Seller
-----------------------
for the Seller Assets being purchased by Seller pursuant to the P&A Agreement
shall be an amount equal to the sum of the book value of such assets, plus
----
$450,000, minus the book value of the Seller Liabilities, all as of the Pre-
-----
Closing Balance Sheet Date (the "Asset Purchase Price").
3. Closing
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(a) Closing Date. The closing of the purchase and assumption of the
------------
Seller Assets and Seller Liabilities by the Seller and the closing of the
purchase of the Holding Company Stock by Buyer (collectively, the "Closing")
shall take place at a mutually agreed time and place on (i) the first Monday to
occur after the date on which all conditions specified in Section 7 hereof have
been satisfied or waived, or if such Monday is not a business day, the next
succeeding business day, or (ii) such other date as Seller and Buyer may
mutually agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
(b) Pre-Closing Balance Sheet. No later than the Saturday
-------------------------
immediately preceding the Closing Date (the "Pre-Closing Date"), Seller shall
deliver to Buyer copies of a consolidated balance sheet of the Bank and the
Holding Company (the "Pre-Closing Balance Sheet"), certified and signed by the
Seller, reflecting the Retained Assets, Retained Liabilities and the
shareholders' equity of the Bank and the Holding Company as of midnight on the
day immediately preceding the Closing Date (the "Pre-Closing Balance Sheet
Date"). Such Pre-Closing Balance Sheet shall (i) be true and correct in all
material respects, fairly present the assets, liabilities and stockholders'
equity of the Bank and the Holding Company and be prepared in accordance with
generally accepted accounting principles ("GAAP"), except with respect to
variations from GAAP (A) that may result from compliance with any provisions of
this Agreement, including, but not limited to, Section 6(n), and (B) with
respect to the amount of goodwill included therein, (ii) be determined after
giving effect on a pro forma basis to the completion of the purchase and
assumption of the Seller Assets and Seller Liabilities pursuant to the P&A
Agreement, (iii) include through midnight on the Pre-Closing Balance Sheet Date
all accruals for amortization, interest expense, interest income, salaries,
payroll and property taxes and other accrued liabilities associated
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with the Retained Assets and the operation of, and personnel located at, the
Main Office, (iv) include as attachments (A) a trial balance of all deposits as
of midnight on the Pre-Closing Balance Sheet Date and (B) detailed supporting
schedules, (v) exclude the value of any deferred tax assets of the Bank or
Holding Company attributable to any tax periods prior to the Closing (the
"Deferred Tax Assets"), (vi) reflect the Minimum Equity Amount required by
Section 6(f) and (vii) exclude any value attributable to any prepaid insurance
premiums for any insurance policies terminated in accordance with Section 6(n).
(c) Payments at Closing. The Seller and the Buyer agree that the
-------------------
following payments shall be made contemporaneously and under their mutual
control on the Closing Date:
(i) Seller and Bank shall settle the Asset Purchase Price by wire
transfer or delivery of other immediately available funds to an account
designated by the Seller or, in the case of amounts to be received by the
Bank, an account designated by the Buyer;
(ii) if applicable, the Seller may cause the Bank and the Holding
Company to pay the dividend specified in Section 6(d) herein by wire
transfer or delivery of other immediately available funds to an account
designated by Seller;
(iii) Buyer shall deliver to Seller the Stock Purchase Price,
adjusted for any Proration Amount, for the Holding Company Stock by wire
transfer or delivery of other immediately available funds to an account
designated by Seller;
(iv) the Seller will deposit or cause to be deposited an amount
equal to the Stock Purchase Price in certificates of deposit, issued in the
name of HCB or the Seller (the "Seller CDs"), by either the Bank or the
state bank subsidiaries of the Buyer (such Seller CDs to be allocated among
such institutions in amounts proportionate to the respective
capitalizations of the institutions). The Seller CDs shall bear interest
at the rate of 5.125% per annum, payable quarterly, and shall be issued in
the denominations and maintain the maturity dates as set forth on Exhibit
"C" hereto.
Amounts paid at Closing shall be subject to subsequent adjustment based on the
Post-Closing Balance Sheet (as defined herein).
(d) Closing Documents. On the Pre-Closing Date, Seller shall deliver
-----------------
to Buyer's counsel the following documents: (i) one or more original
certificates representing the Holding Company
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<PAGE>
Stock, duly endorsed for transfer to the Buyer and accompanied by separate stock
powers in blank, free and clear of all encumbrances, liens, security interests,
claims and equities whatsoever, (ii) original certificates representing the Bank
Stock issued in the name of the Holding Company free and clear of all
encumbrances, liens, security interests, claims and equities whatsoever, (iii) a
certificate of the President and Chief Financial Officer of Seller to the effect
that the Pre-Closing Balance Sheet is true and correct in all material respects
and was prepared in accordance with Section 3(b), and (iv) such other documents,
including the legal opinions and closing certificates referenced in Section 7,
as may be required by this Agreement or reasonably requested by the Buyer. On
the Pre-Closing Date, the Buyer agrees to deliver to the Seller's counsel such
documents, including the legal opinions and closing certificates referenced in
Section 7, as may be required by this Agreement or reasonably requested by the
Seller. Each of the Seller and Buyer acknowledge that their counsels shall not
be authorized to release the Closing documents to the respective parties until
the parties have received confirmation of the payments set forth in Section
3(c).
(e) Post-Closing Balance Sheet.
--------------------------
(i) Not later than 15 business days after the Closing Date (the
"Post-Closing Balance Sheet Delivery Date"), Seller shall deliver to
Buyer copies of a consolidated balance sheet of the Bank and the
Holding Company, certified and signed by Seller, reflecting the
Retained Assets, Retained Liabilities, and the shareholders' equity of
the Bank and the Holding Company as of midnight on the Pre-Closing
Balance Sheet Date (the "Post-Closing Balance Sheet"). Such Post-
Closing Balance Sheet shall (i) be true and correct in all material
respects, fairly present the assets, liabilities and stockholders'
equity of the Bank and the Holding Company and shall be prepared in
accordance with GAAP, except with respect to variations from GAAP (A)
that may result from compliance with any provisions of this Agreement,
including, but not limited to, Section 6(n), and (B) with respect to
the amount of goodwill included therein, (ii) be determined after
giving effect to the completion of the purchase and assumption of the
Seller Assets and Seller Liabilities pursuant to the P&A Agreement,
(iii) include through midnight on the Pre-Closing Balance Sheet Date
all accruals for amortization, interest expense, interest income,
salaries, payroll and property taxes and other accrued liabilities
associated with the Retained Assets and the operation of, and
personnel located at, the Main Office, (iv) exclude the value of any
Deferred Tax Assets, (v) exclude any value attributable to any prepaid
insurance premiums for any
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<PAGE>
insurance policies terminated in accordance with Section 6(n), and
(vi) include as attachments (A) a final trial balance of all deposits
as of midnight on the Pre-Closing Balance Sheet Date and (B) detailed
supporting schedules and (vi) reflect the Minimum Equity Amount
required by Section 6(f).
(ii) Seller shall afford Buyer and its accountants and attorneys
the opportunity to review all work papers and documentation used by
Seller in preparing the Post-Closing Balance Sheet. Within 15
business days following the Post-Closing Balance Sheet Delivery Date
(the "Adjustment Delivery Date"), Seller and Buyer shall meet at the
offices of the Buyer in Little Rock, Arkansas, or such other location
as shall be mutually agreed, to effect the transfer of any funds as
may be necessary to reflect the (A) changes in such assets and
liabilities between the Pre-Closing Balance Sheet and the Post-Closing
Balance Sheet or (B) Minimum Equity Amount, together with interest
thereon computed from the Closing Date to the Adjustment Payment Date
at the applicable Federal Funds Rate (as defined). The "Federal Funds
Rate" shall be the mean of the high and low rates quoted for Federal
Funds in the Money Rates Column of the Wall Street Journal on the
Closing Date.
(iii) In the event that a dispute ("Dispute") arises as to the
payment of the appropriate amounts to be paid to either party on the
Adjustment Payment Date, each party shall pay to the other party on
such Adjustment Payment Date all amounts other than those as to which
a dispute exists. If a Dispute still exists 15 business days after
the Adjustment Payment Date, the Buyer and Seller shall retain Ernst &
Young, LLP, Little Rock (or any successor entity, the "Arbitrating
Accountant") to resolve such Dispute and deliver to the Arbitrating
Accountant a written notice setting forth in reasonable detail the
elements and amounts set forth on the Post-Closing Balance Sheet to
which such party disagrees. In resolving such Dispute, (A) each of
Seller and Buyer agree to provide such workpapers, documentation and
other information relating to the Dispute that are reasonably
requested by the Arbitrating Accountant, (B) the determination by the
Arbitrating Accountants, as set forth in a written notice delivered to
each of the Seller and Buyer, will be binding and conclusive on the
parties and (C) Buyer and Seller will each bear 50% of the fees of the
Arbitrating Accountant for such determination. Any disputed amounts
retained by a party which are later found to be due to the other party
shall be paid to such other party promptly upon resolution with
interest
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thereon computed from the Closing Date to the date paid at the
applicable Federal Funds Rate.
4. Representations and Warranties of Seller and HCB
------------------------------------------------
Seller and HCB jointly and severally represent and warrant to the
Buyer that the following matters are true and correct as of the date hereof and
will be true and correct on the Closing Date. As used in this Agreement, the
term "Legal Requirements" shall mean any federal, state or local law, ruling or
regulation, or the terms of any judgment, decree, order, regulation or rule.
(a) Organization. The Holding Company and the Bank are corporations
------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction under which each is organized and each has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Holding Company is duly authorized,
qualified and licensed under all applicable laws, regulations and orders of
public authorities to conduct business as a saving and loan holding company as
presently conducted and to own the Bank Stock. The Bank is duly authorized,
qualified and licensed under all applicable laws and regulations to conduct a
general savings bank business, embracing all usual functions of savings banks,
all subject to the supervision of the Office of Thrift Supervision ("OTS"), and
is a "qualified thrift lender," as such term is defined in the Home Owners' Loan
Act of 1933 ("HOLA"). The accounts of depositors held by the Bank are insured
to the maximum extent permitted by law by the Saving Association Insurance Fund
of the Federal Deposit Insurance Corporation ("FDIC"), and the Bank has paid in
a proper and timely manner all premiums and assessments and filed all reports in
connection therewith.
(b) Capitalization of Holding Company. The authorized capital stock
---------------------------------
of the Holding Company consists of 1,000 shares of common stock, par value
$20.00 per share, all of which are issued and outstanding. All shares of
Holding Company Stock have been duly and validly authorized and issued and are
fully paid and nonassessable. There are no outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or other agreements
of any character obligating the Holding Company to issue any additional shares
of Holding Company Stock or any other shares of capital stock of the Holding
Company or any other securi ties convertible into or evidencing the right to
subscribe for any shares of Holding Company capital stock, and no authorization
therefor has been given.
(c) Holding Company Shareholder. The Seller owns of record and
---------------------------
beneficially the Holding Company Stock, free and clear of all liens,
encumbrances, equities and claims. There are no
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outstanding options, warrants or rights to subscribe for or purchase from the
Seller any of the Holding Company Stock owned by Seller.
(d) Capitalization of Bank. The authorized capital stock of the Bank
----------------------
consists of 150,000 shares of common stock, par value $7.50 per share, 33,400 of
which are issued and outstanding, and 100,000 shares of preferred stock, par
value $1.00 per share, no shares of which are issued and outstanding. All
shares of Bank Stock have been duly and validly authorized and issued and are
fully paid and nonassessable. There are no outstanding options, warrants or
rights to subscribe for or purchase any of the Bank's capital stock or
securities convertible into or exchangeable for any of the Bank's capital stock,
and no authorization therefor has been given.
(e) Title to Bank Stock. The Holding Company has valid and
-------------------
marketable title to the Bank Stock free and clear of all liens, encumbrances,
equities and claims.
(f) Authority; Validity of Agreement. HCB and Seller have all
--------------------------------
requisite power and authority to enter into this Agreement and (subject to
receipt of all requisite regulatory approvals) to consummate the transaction
contemplated hereby. This Agreement has been duly executed and delivered by HCB
and Seller and is a valid and binding obligation of HCB and Seller, enforceable
against HCB and Seller in accordance with its terms, except as (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other laws,
now or hereafter in effect, affecting creditors' rights generally and (ii) the
remedy of specific performance, injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court before
which any pro ceedings therefor may be brought.
(g) No Violation, Consents and Approval. Neither the execution and
-----------------------------------
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will: (i) violate any provision of the certificate of incorporation,
bylaws or other organizational documents of HCB, Seller, Holding Company or the
Bank, (ii) violate, constitute a default under or give rise to a right of
termination in respect of any agreement to which HCB, the Seller, the Holding
Company or the Bank is a party or by which any of their respective assets are
bound, (iii) except for requisite regulatory approvals, require any filing with
or permit, consent or approval of any public body or Regulatory Authority, or
(iv) assuming that the Acquisition Transaction receives requisite regulatory
approval, violate any statute or Legal Requirements imposed on or applicable to
HCB, the Seller, the Holding Company or the Bank or any assets owned by them.
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(h) Financial Reports and Statements. The Seller has previously
--------------------------------
caused to be delivered to the Buyer true and complete copies of the "Thrift
Financial Reports", and any amendments thereto, of the Holding Company and Bank
filed with the OTS since January 1, 1994 (collectively the "Financial Reports").
The Financial Reports have been prepared in accordance with all material
Legal Requirements and GAAP consistently applied during the periods indicated,
are true and correct in all material respects and fairly present the assets,
liabilities and financial condition of the Holding Company and the Bank and the
results of operations for the periods indicated. There has been no material
adverse change in the financial position or business operations of the Holding
Company or the Bank since the date of the most recent Financial Reports. The
Pre-Closing Balance Sheet (including the trial balance and supporting schedules)
to be delivered by Seller pursuant to Section 3(b) will be true and correct in
all material respects, fairly present the assets, liabilities and shareholders'
equity of the Bank and be prepared in accordance with GAAP, except that no
representation is made with respect to variations from GAAP (A) that may result
from compliance with any provisions of this Agreement, including, but not
limited to, Section 6(n), and (B) with respect to the amount of goodwill
included therein. Notwithstanding the foregoing, interim financial statements
are subject to normal recurring year-end adjustments the effect of which,
individually or in the aggregate, will not be materially adverse.
(i) Bank Premises. The Bank has good and marketable title to the
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premises constituting the Main Office and to all other Retained Assets free and
clear of all liens and encumbrances, except for recorded easements and other
minor defects of title which do not impair the use or value of the Main Office
and liens for taxes not yet due and payable (the "Permitted Encumbrances"). The
premises constituting the Main Office and the continuation of business presently
being conducted thereon do not and will not violate any currently applicable
zoning laws. The Main Office (i) is served (independent of adjacent landowners)
by all utilities and services, including electrical power, gas, water, sewer,
and telephone, reasonably necessary for the normal and intended use of the Main
Office as a bank branch and (ii) has ingress and egress to and from Chester and
Markham Streets and LaHarpe Boulevard necessary to conduct business currently
being conducted thereon. The premises constituting the Main Office are free
from structural defects (patent and latent). The premises constituting the Main
Office and all items of tangible personal property included within the Retained
Assets and located in the Main Office (A) will be reflected accurately in the
Pre-Closing Balance Sheet and (B) are in good operating condition and
repair(subject to normal wear and tear) and are suitable for the purposes for
which they are presently used.
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(j) Reserved.
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(k) Claims. Except for Seller's rights under the Seller CDs, neither
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HCB nor the Seller will have any claim against the Holding Company or the Bank
on or after the Closing Date.
(l) Employment Contracts. Except as described in Schedule 4(l),
--------------------
there exist no agreements relating to the employment of any person by the
Holding Company or the Bank, or any bonus, deferred compensation, insurance,
stock option or other employee benefit arrangements to which the Holding Company
or the Bank is a party or which otherwise obligates the Holding Company or the
Bank.
(m) Benefit Plans. Neither the Holding Company nor the Bank
-------------
maintains, contributes to, is a party to or otherwise has or could have any
obligation under any "employee benefit plan" (as defined by Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended "ERISA") program,
policy, commitment or other arrangement (whether or not in a written document)
covering any active, former or retired employee, director or consultant of HCB,
the Seller or any of their subsidiaries (including the Holding Company and the
Bank), except for Bank's participation in the plans set forth on Schedule
4(m)(i) (collectively, the "Plans"). The Plans comply with all requirements of
ERISA (to the extent applicable), the Internal Revenue Code of 1986, as amended
(the "Code") and all other applicable Legal Requirements and have been
maintained and administered in all material respects in compliance with ERISA
(to the extent applicable), the Code and all other applicable Legal
Requirements. No Plan is covered by Title IV of ERISA or Section 412 of the
Code. Neither the Holding Company nor the Bank, nor any officer or director of
the Holding Company or the Bank, has incurred any liability or penalty under
Sections 4975 through 4980 of the Code or Title I of ERISA. No suit, action or
other litigation (excluding claims for benefits incurred in the ordinary course
of the Plans' activities) has been brought, or is threatened, against or with
respect to such Plans. All contribu tions, reserves or payments required to be
made or accrued as of the date hereof and as of the Closing Date with respect to
Plans have been or will be made or accrued. The Bank's participation in the
Plans will terminate as of the Closing Date and neither the Holding Company nor
the Bank will incur any liability or other obligations with respect to such
Plans or as a result of such termination of participation. Except as set forth
on Schedule 4(m)(ii), which Schedule may be modified or supplemented by the
Seller on the Pre-Closing Date, there are no former employees of the Bank or the
Holding Company who are eligible for benefits under any medical plan sponsored
by the Bank or the Holding Company under the Consolidated Omnibus Budget
Reconciliation Act of 1986, as amended ("COBRA") or under the provisions of such
plan.
-11-
<PAGE>
(n) Agreements, Commitments and Certain Loans. Neither the Holding
-----------------------------------------
Company nor the Bank are bound by (i) any agreement of indemnification or
guaranty running from the Holding Company or the Bank to any person or entity,
(ii) except for those agreements and obligations set forth on Schedule 4(n)
attached hereto, any contract (other than a loan) which is not terminable on not
more than 30 days notice or any agreement under which the Holding Company or
Bank has incurred, assumed or guarantied any indebtedness for borrowed money,
(iii) any commitments for charitable, civic or similar contributions, (iv) any
agreement, contract or other commitments which might reasonably be expected to
have a potential material adverse impact on the business of the Holding Company
or the Bank, (v) any agreement, contract or other instrument which contains
restrictions with respect to the payment of dividends or any other distributions
in respect of the Holding Company Stock or the Bank Stock, (vi) any agreement,
contract or commitment containing any covenant limiting the ability of the
Holding Company or the Bank to compete with any person, (vii) any agreement,
contract or commitment relating to capital expenditures, (viii) except as
described on Schedule 4(n), any agreement, con tract or commitment relating to
any transaction or series of trans actions with any executive officer, director,
principal shareholder or their affiliates or related interests (including loans
which constitute an extension of credit within the meaning of the regulations of
the Federal Reserve Board set forth in Regulation O, Part 215 of Title 12 of the
Code of Federal Regulations).
(o) Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to the knowledge of HCB, the Seller, Holding Company or Bank,
threatened, against the Holding Company or the Bank which (i) might have an
adverse effect on the Holding Company or the Bank, (ii) impair the ability of
the Holding Company or the Bank to conduct business as now conducted, or (iii)
restrain or otherwise impair the sale of the Holding Company Stock by the Seller
to the Buyer or restrain or impair the performance of any other action to be
taken by the Seller, the Holding Company or the Bank under this Agreement.
(p) Tax and Other Returns, Reports and Agreements. All federal, state
---------------------------------------------
and local tax returns and tax reports required to be filed by the Holding
Company or the Bank have been timely filed with all appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed and all such tax returns were correct and complete in all respects and
both the Bank and the Holding Company have complied with all tax laws in all
material respects. All federal, state and local income, profits, franchise,
sales, use, occupation, property, excise and other taxes (including interest and
penalties) with respect to present and prior periods have been fully paid by or
on behalf of the Holding Company and Bank and neither the Holding Company nor
Bank has any liability for any such taxes; except for income and
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<PAGE>
property taxes not yet due and payable which in the case of (i) all income taxes
will be assumed by HCB and Seller in accordance with Section 6(l), and (ii) real
property taxes will be (A) accrued through the Pre-Closing Balance Sheet Date
and thereafter paid by Buyer with respect to the Main Office, and (B) the sole
responsibility and obligation (after giving effect to the payment of any
Proration Amount) of Seller with respect to the Monticello Branch and LPO
Office. Neither the Seller, the Holding Company nor the Bank have any knowledge
that any governmental authority intends to assess any additional income taxes
against Holding Company or Bank for any taxable period. There is no dispute or
claim concerning any income tax liability of the Holding Company or Bank. No
extension of time has been requested or given with respect to any tax returns
heretofore filed by the Holding Company or the Bank and neither of the Holding
Company nor Bank has waived any statute of limitations in respect of any taxes
or agreed to any extension of time with respect to a tax assessment or
deficiency.
Each "Affiliated Group" (as defined by Section 1504 of the Internal Revenue
Code of 1986, as amended) in which the Holding Company or Bank is or was a
member has filed all income tax returns that such Affiliated Group was required
to file for each taxable period during which either of the Holding Company or
the Bank was a member of such group. All income taxes owed by the Affiliated
Group have been paid for each taxable period during which any of the Holding
Company or Bank was a member of such group. Neither the Seller, the Holding
Company nor the Bank have any knowledge that any governmental authority intends
to assess any additional income taxes against any Affiliated Group for any
taxable period during which either of the Holding Company or Bank was a member
of such group. There is no dispute or claim concerning any income tax liability
of an Affiliated Group for any taxable period during which either of the Holding
Company or Bank was a member of such group. No extension of time has been
requested or given with respect to any tax returns heretofore filed by an
Affiliated Group and no Affiliated Group has waived any statute of limitations
in respect of any income taxes or agreed to any extension of time with respect
to any income tax assessment or deficiency for any taxable period during which
either of the Holding Company or Bank was a member of such group. Neither of
the Holding Company nor the Bank has any liability for the taxes of other person
or entity (i) under Treas. Reg. (S) 1.1502-6 (or any similar provision of state
law), (ii) as a transferee or successor, (iii) by agreement or (iv) otherwise.
(q) Legal and Regulatory Compliance. Since September 30, 1992, the
-------------------------------
Holding Company and the Bank have filed with the OTS, the FDIC, Internal Revenue
Service and such other federal, state or local regulatory authorities having
jurisdiction over the operations of the Holding Company and Bank (collectively,
the "Regulatory Authorities") all reports and filings required to be
-13-
<PAGE>
filed with such Regulatory Authorities under all Legal Requirements.
Except as set forth in Schedule 4(q) the Holding Company and the Bank are
in compliance with all Legal Requirements, including Legal Requirements of
Regulatory Authorities. Except as described on Schedule 4(q), neither the
Holding Company nor the Bank is subject to any specific limitation on activity,
administrative agreement, order or ruling issued by any one or more of the
Regulatory Authorities. Neither HCB, Seller, Holding Company or Bank has any
knowledge that any Regulatory Authority has threatened or considered (i) any
assessment against the Holding Company Stock or the Bank Stock, (ii) a
termination of deposit insurance or revocation of charter of the Bank, or (iii)
issuing a memorandum of understanding, cease and desist order or other
enforcement action against the Bank or Holding Company. Except as set forth in
Schedule 4(q), neither HCB, the Seller, the Holding Company nor the Bank has
received notice of a violation of any Legal Requirements applicable to: (A) the
Holding Company, (B) the Bank, (C) the conduct of the business of the Holding
Company or the Bank, (D) the ownership of any asset purported to be owned by the
Holding Company or the Bank, or (E) the ownership of the Holding Company Stock
by the Seller or the ownership of the Bank Stock by the Holding Company.
(r) Insurance. The Holding Company and Bank carry such insurance
---------
policies (including property, casualty and liability insurance and fidelity bond
and surety arrangements, collectively the "Insurance Policies") with respect to
their properties and businesses in such amounts (including, without limitation,
such amounts as are sufficient to be fully insured under any coinsurance
provisions contained in such policies) and insuring against such risks as is
customary, usual and prudent for the businesses being conducted by them.
Schedule 4(r) sets forth the following information with respect to each such
Insurance Policy under which the Holding Company or Bank is a party, named
insured or otherwise the beneficiary of coverage: (i) the name, address and
telephone number of the agent, (ii) the name of the insurer, policy holder and
each covered insured, (iii) the policy number and the period of coverage, (iv)
the scope and amount of coverage (including an indication of whether the
coverage is on a claims made, occurrence or other basis) and (v) a description
of any retroactive premium adjustments or loss-sharing arrangements. Except as
disclosed in Schedule 4(r), neither HCB, Seller, the Holding Company nor the
Bank has forfeited or waived any claim under any Insurance Policy and each has
fully complied with the terms and conditions thereof. Schedule 4(r) sets forth
all property damage and personal injury claims asserted under such Insurance
Policies by or against the Holding Company or Bank which are otherwise still
pending. All of such claims have been or are being defended by insurance
carriers without reservation and are or will be covered by the Insurance
-14-
<PAGE>
Policies. Neither HCB, Seller, Holding Company or Bank has received a
notification from any insurance carrier denying or disputing any claim made by
it, denying or disputing any coverage for any such claim, denying or disputing
the amount of any claim, or regarding the possible termination, cancellation or
amendment of or premium increases with respect to any of the Insurance Policies.
(s) Environmental Compliance. Both the Holding Company and the Bank
------------------------
are in compliance with all applicable federal, state and local statutes, laws,
ordinances and regulations concerning conservation and protection of the
environment except to the extent that failure to comply would not result in a
material adverse effect on the Bank or the Holding Company. To the knowledge of
HCB, the Seller, Holding Company and Bank, no real or personal property owned or
leased by either the Holding Company or the Bank is now being used or has at any
time in the past ever been used for the storage (whether permanent or
temporary), disposal or handling of any hazardous material, hazardous waste,
hazardous substance, contaminant or pollutant, nor are any such materials,
waste, substance, contaminant or pollutant located in, on, under or at the real
or personal property owned, leased or used by the Holding Company or the Bank.
(t) Certain Transactions. Except as described on Schedule 4(t), no
--------------------
current or former officer, director, employee or shareholder of HCB, Seller, the
Holding Company or the Bank has any interest in the Main Office or the Retained
Assets.
(u) Subsidiaries. The Holding Company has no subsidi aries or direct
------------
or indirect equity interest in any partnership, firm, corporation or other
entity or enterprise other than the Bank. The Bank has no subsidiary or direct
or indirect equity interest in any partnership, firm, corporation or other
entity or enterprise.
(v) Corporate Records. The minute and stock record books of the
-----------------
Holding Company and the Bank are true, complete and correct in all material
respects.
(w) Disclosure. HCB and Seller have disclosed to the Buyer in writing
----------
all matters known to HCB, Seller, the Bank or the Holding Company which might
have a material adverse affect on the ownership or operation of the Holding
Company or the Bank.
5. Representations and Warranties of Buyer
---------------------------------------
Buyer represents and warrants to the Seller that the following matters are
true and correct as of the date hereof and will be true and correct on the
Closing Date.
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<PAGE>
(a) Organization. The Buyer is organized as a corporation, validly
------------
existing and in good standing under the laws of the State of Arkansas. The
Buyer is duly authorized, qualified and licensed under all applicable laws and
regulations to conduct business as a bank holding company subject to the
supervision of the Federal Reserve Board ("FRB").
(b) Authorization and Validity of Agreement. Buyer has the full
---------------------------------------
corporate power and authority to execute and deliver this Agreement and (subject
to receipt of all requisite regulatory approvals) to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Buyer and is a valid and binding obligation of the Buyer, enforceable against
the Buyer in accordance with its terms, except that (i) such enforcement may be
subject to applicable insolvency or similar laws, now or hereafter in effect,
affecting creditors' rights generally and (ii) the remedy of specific
performance, injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any pro
ceedings therefore may be brought.
(c) Investment. The Buyer is acquiring the Holding Company Stock for
----------
investment and not with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act of 1933, as
amended.
6. Covenants of HCB, Seller and Buyer.
----------------------------------
(a) Preservation of the Business. From and after the date of this
----------------------------
Agreement, the Seller shall, to the extent required for the continued operation
of the Holding Company's business and the business of the Bank without
impairment, cause the Holding Company and the Bank to preserve substantially
intact their business organization and, in so doing, shall cause the Holding
Company and the Bank to (i) continue their businesses in the ordinary and usual
course and maintain their properties, (ii) maintain their insurance and bonds in
conformity with past practice, (iii) maintain and keep all Retained Assets in
good operating condition and repair, (iv) keep on a current basis their
financial accounting and policies, (v) exercise their best efforts to keep in
their employment present key employees, clerical workers, tellers, and other
employees located at the Main Office and to preserve for the Buyer their
relationship with customers and others to the end that the going business of the
Holding Company and the Bank will be unimpaired at the Closing Date, and (vi) in
all respects substantially comply with all Legal Requirements.
From and after the date of this Agreement, HCB and Seller shall cause the
Holding Company and the Bank to continue their respective businesses in the
ordinary course and, by way of clarification and not limitation, neither HCB,
nor the Seller shall
-16-
<PAGE>
permit the Holding Company or the Bank, except as otherwise permitted by this
Agreement or with the prior written approval of the Buyer, to (i) engage in any
transaction which is not in the ordinary course of business or in accordance
with sound banking practices, (ii) amend the certificate of incorporation or
other organizational documents, or the bylaws of the Holding Company or the
Bank, (iii) declare, set aside or pay any dividend or distribu tion with respect
to the capital stock of the Holding Company or the Bank, except for the payment
of cash dividends allowed by Section 6(e), (iv) effect a split or
reclassification of any capital stock of the Holding Company or the Bank, (v)
issue any capital stock of the Holding Company or the Bank, (vi) sell or grant
any options, rights or warrants to purchase stock or other securities of the
Holding Company or the Bank, (vii) encumber, mortgage, transfer or convey any
of the Retained Assets or acquire any material assets or property, (viii) grant
any bonus or any salary increase to any employee, officer or director of the
Holding Company or the Bank, (ix) enter into any written or oral employment
agreement with any employee, renew or extend any existing written or oral
employment agreement or appoint or elect any new or addi tional officers or
directors of the Holding Company or the Bank, (x) borrow or agree to borrow any
funds or incur any indebtedness other than in the ordinary course of business,
which indebtedness will be assumed by Seller pursuant to the P&A Agreement or
repaid by Seller at Closing; (xi) enter into any real or personal property
lease, (xii) enter into any exclusive listing or other contract for the sale of
Retained Assets, (xiii) purchase or commit to purchase or participate in the
purchase of any item of real or personal property, tangible or intangible, (xiv)
enter into any deposit or loan contracts or obligations (except for acceptance
of FDIC-insured deposit accounts of the type permitted by Section 6(m) and the
consummation of loans in the ordinary course of its business which loans will be
purchased by Seller pursuant to the P&A Agreement) or enter into any material
contract, agreement or other binding relationship which cannot be terminated in
full without recourse with thirty days' notice, (xv) incur any expenses other
than in the ordinary course of business, (xvi) make any charitable, civic or
similar contributions or commitments, (xvii) purchase or acquire any
certificates of deposit issued by other financial institutions or, except as
permitted by Section 6(m), invest any funds in securities which are not being
acquired pursuant to the P&A Agreement, (xviii) waive any rights of substantial
value, or (xix) make any commitments for any of the foregoing.
(b) Access. From and after the date of this Agreement, the Seller
------
shall cause the Holding Company and the Bank to provide to representatives of
the Buyer access to the Bank's facilities and access to, and the ability to make
copies of, the Holding Company's and the Bank's books and records during
reasonable business hours in order to facilitate the transition of ownership
contemplated by this Agreement. Buyer shall also be afforded reasonable access
to
-17-
<PAGE>
the Main Office after hours, by appointment, for the purpose of installing
computer cables, data lines and other systems necessary to convert the Bank to
Buyer's operating systems. Buyer agrees that its representatives will not
unreasonably interfere with the activities of the Bank or the Holding Company.
(c) Best Efforts. Subject to the terms and conditions herein
------------
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
(d) Public Announcements. The Seller and the Buyer will consult with
--------------------
each other before issuing any press release or otherwise making any public
statements with respect to the transac tions contemplated by this Agreement.
Each of the Buyer and Seller acknowledges that Buyer and HCB are publicly traded
companies subject to the Securities Exchange Act of 1934, and that Buyer and HCB
may each issue a press release and make a public announcement regarding the
transactions contemplated by this Agreement no earlier than 4:30 p.m. Little
Rock time on the date of the execution hereof.
(e) Dividend. Immediately prior to the Closing on the Closing Date,
--------
Seller shall be entitled to cause the (i) Bank to effect a cash dividend to the
Holding Company of the amount of shareholder's equity reflected on the Pre-
Closing Balance Sheet in excess of $3,100,000 and (ii) Holding Company to effect
a dividend of all tangible assets of the Holding Company (other than the Bank
Stock) to Seller.
(f) Closing Net Worth, Indebtedness and Liabilities. HCB and Seller
-----------------------------------------------
covenant that immediately prior to the Closing on the Closing Date, the Bank
shall have minimum shareholders' equity (after giving effect to the purchase
and assumption of the Seller Assets and Seller Liabilities pursuant to the P&A
Agreement and the dividends contemplated by Section 6(e)), determined in
accordance with GAAP (except with respect to variations from GAAP (A) that may
result from compliance with any provisions of this Agreement, including, but not
limited to, Section 6(n), and (B) with respect to the amount of goodwill
included therein) of $3,100,000 (the "Minimum Equity Amount"), which such
Minimum Equity Amount shall include an amount of goodwill not in excess of the
difference between (A) and (B)(the "Maximum Goodwill Amount"), where (A) is
equal to $1,415,223 (as such amount shall be reduced after June 30, 1997 based
upon monthly amortization (or daily amortization prorated for the partial month
occurring prior to Closing) of goodwill in accordance with GAAP and the Bank's
prior practice)and (B) is equal to $450,000. HCB and Seller further agree and
covenant that as of the Closing Date (i) the Holding Company will
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<PAGE>
have no indebtedness or outstanding liabilities, contingent or otherwise and
(ii) the Bank will have no indebtedness or outstanding liabilities, contingent
or otherwise, except for Retained Liabilities reflected on the Pre-Closing
Balance Sheet and except as contemplated by section 2.02(c) of the P&A
Agreement.
(g) Name Change; Cooperation Regarding Applications. Buyer covenants
-----------------------------------------------
and agrees that in connection with the Acquisition Transaction it shall submit
an application to change the name of the Bank following the Closing to a name
other than "Heartland Community Bank, FSB," and that such new name shall not
include the word "Heartland." Seller acknowledges that in connection with the
request for approval of the Acquisition Transaction, Buyer intends to submit an
application to Regulatory Authorities for approval of one or more new branch
locations for the Bank. Each of the parties hereto agree to fully cooperate and
assist one another in the preparation of all applications submitted to
Regulatory Authorities in connection with the Acquisition Transaction, the name
change and the new branch applications. Following the Closing, each of the
parties agree to reasonably cooperate with one another in connection with the
gathering and submission of information that may be required by Regulatory
Authorities with respect to future applications or reports regarding the
Acquisition Transaction or the ownership or operation or the Holding Company or
Bank.
(h) Transition of Customer Accounts and Files. Each of the parties
-----------------------------------------
hereto agree to fully cooperate and assist one another in connection with the
transition and conversion of all customer accounts, files (including data
processing files) and other information which is being retained by Bank or
purchased and assumed by Seller pursuant to the terms hereof and to take no
action designed or intended to have the effect of discouraging or damaging any
continuing customer relationship being retained or assumed by any party
hereunder. In furtherance of this covenant to cooperate, the parties
specifically agree as follows:
(i) The parties agree to arrange and attend a meeting between
their respective electronic data personnel and contractors promptly
following the execution of this Agreement for the purpose of
coordinating the transition and conversion of the electronic data
processing matters contemplated by this Section 6(h).
(ii) Seller agrees that sufficiently in advance of the Closing
Date it will provide all customer data files relating to all deposit
accounts which are included in Retained Liabilities to the Buyer so as
to enable the Buyer to download all customer account information from
such files onto Buyer's computer system. Such data files will be
provided to Buyer in hard-copy form and on
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<PAGE>
magnetic tape or diskette. On the Pre-Closing Date, Seller shall
deliver to Buyer (in hard-copy form and on magnetic tape or diskette)
a customer trial balance showing the current balances and accrued
interest in all customer accounts as of midnight on the Pre-Closing
Balance Sheet Date so as to allow Buyer to activate all customer
deposit files on its computer system. Although the Seller agrees to
cooperate with Buyer in effecting the download and conversion of the
foregoing data files to the Buyer's computer system, the Buyer
acknowledges that such conversion and transition to its computer
system is the Buyer's ultimate responsibility.
(iii) As soon as practicable after the Closing, but in no event
later than two (2) business days after the Closing Date, the Seller
agrees to distribute a special statement of account to customers for
all of the Bank's transaction accounts which are included in Retained
Liabilities and to provide a copy of such special statements to the
Buyer. Such statement of account shall reflect account balances as of
midnight on the Pre-Closing Balance Sheet Date and include all
transactions in the accounts since the last statement distributed to
the customers and all other information that is normally contained in
the statements prepared for such accounts. Seller will be entitled to
impose normal fees and service charges on a per-item basis, but Seller
will not impose monthly service charges or other periodic fees or
blanket charges in connection with such special statement.
(iv) Seller agrees to pay in accordance with law and customary
banking practices all properly drawn and presented checks, drafts and
withdrawal orders presented to Seller by mail, over the counter or
through the check clearing system of the banking industry, by
depositors of the accounts assumed by Seller pursuant to the P&A
Agreement, whether drawn on the checks, withdrawal or draft forms
provided by the Bank or Seller, and in all other respects to
discharge, in the usual course of the banking business, the duties and
obligations of the Bank with respect to the balances due and owing to
the Seller Retained Customers (as defined below).
(v) Immediately following the Closing, the Seller will (A) issue
new checks, free of charge, and will furnish instructions to all
customers maintaining deposits at the Monticello Branch ("Seller
Retained Customers") to utilize the new checks and to destroy unused
check, draft and withdrawal order forms in the possession of such
Seller Retained Customers which contain the Bank's ABA transit routing
number (the "Old
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<PAGE>
Checks") and (B) notify all Seller Retained Customers that no Old
Check will be honored or paid by Bank after the expiration of a ninety
(90) day period following the Closing Date.
(vi) the Seller and Buyer shall develop a mutually agreeable
methodology whereby on each business day following the Closing (A)
Bank shall make a daily presentment to Seller of all Old Checks drawn
on the Bank as of such date of presentment and (B) Seller shall either
(1) make payment to Bank (in same-day funds) of the amount represented
by each such Old Check or (2) direct bank to return the Old Check on
their behalf without payment. Seller acknowledges that Bank will be
acting solely as Seller's agent for the purpose of processing Old
Checks, and Seller agrees to indemnify and hold harmless the Bank and
Buyer from and against any and all Adverse Consequences (as defined
below) resulting from any action undertaken by Bank in good faith or
at the direction of Seller.
(vii) Seller acknowledges that the obligations and responsibility
of Bank to honor, pay and process Old Checks shall terminate on the
ninetieth (90) day following the Closing Date (the "Processing
Termination Date"). After the Processing Termination Date, all Old
Checks drawn on the Bank shall be returned to the customer without
payment. Seller agrees to indemnify and hold harmless the Bank and
Buyer from and against any and all Adverse Consequences resulting from
the return by Bank of any Old Check after the Processing Termination
Date.
(viii) Seller agrees to pay promptly to Buyer an amount
equivalent to the amount of any checks, drafts, withdrawal orders or
other items provisionally credited to an account of a Seller Retained
Customer as of the Closing Date that are returned to Seller or Buyer
after the Closing Date.
(ix) With respect to any deposit account among the Retained
Liabilities that has a negative balance as of the close of business on
the day immediately preceding the Closing Date due to an overdraft
caused by the Bank's final payment in settlement, on or before the
close of business on the day immediately preceding the Closing Date,
of one or more checks, drafts or other items drawn against such
account or any insufficient, overdraft or similar service charge
deducted by Bank from such account (the "Overdraft Items"), which
negative balance continues to exist at the close of business on the
fifth business
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<PAGE>
day after the Closing Date after the exercise by the Bank of any
setoff rights which the Bank is entitled to, the Bank shall be
entitled to reimbursement from the Seller in immediately available
funds for the amount of any such negative balance of which the Bank
gives Seller notice within fifteen (15) business days after the
Closing Date. The Bank shall continue as the Seller's agent, for a
period of sixty (60) days after the Closing Date, or such shorter
period as the Seller may request, to assert setoff rights. The Bank
shall immediately deliver to Seller all Overdraft Items in Bank's
possession (if any) for which it demands reimbursement and Seller
shall be vested with all rights, title and interest in, to and in
connection with such Overdraft Items which the Bank otherwise would
have had and Seller shall be entitled to enforce and collect all
rights, remedies, claims and causes of action against all persons and
entities (other than the Bank) including, without limitation, the
drawer and the depositor which the Seller or Bank shall have or would
have had in connection with the Overdraft Item.
(x) If, after the Closing Date, any depositor who is a Seller
Retained Customer, instead of accepting the obligation of Seller to
pay the Seller Liability relating to such depositor's account and
assumed pursuant to the P&A Agreement, shall demand payment from Bank
for all or any part of any such liability, Bank shall not be liable or
responsible for making any such payment; provided, that if Bank shall
pay the same, Seller agrees to reimburse Bank for any such payments,
and Bank shall not be deemed to have made any representations or
warranties to Seller with respect to any such checks, drafts or
withdrawal orders and any such representations or warranties implied
by law or hereby expressly disclaimed.
(xi) As of the Closing Date, Seller will notify all Automated
Clearing House ("ACH") originators effecting debits or credits to the
accounts of Seller Retained Customers; provided, however, that the
Bank may, at its option, notify all such originators itself (on behalf
of Seller). For a period of 90 days beginning on the Closing Date,
the Bank will honor all ACH items related to accounts of Seller
Retained Customers which are mistakenly routed or presented to Bank.
Bank will make no charge to Seller for honoring such items, and will
transmit via facsimile such ACH data to Seller. Items mistakenly
routed or presented after the 90-day period may be returned to the
presenting party. Seller and Bank shall make arrangements to provide
for the daily settlement with immediately available funds by Seller of
any ACH items honored by Bank, and Seller agrees to
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<PAGE>
indemnify and hold harmless the Bank and Buyer from and against any
and all Adverse Consequences resulting from any action undertaken by
Bank in good faith for acting in accordance with this arrangement to
accept ACH items or at the direction of Seller.
The parties acknowledge that each of the foregoing procedures constitute a
general statement of the expectations of the parties regarding the transition of
customer accounts and files. The parties intend that the actual details and
procedures for such transition will be finalized in a manner consistent with the
foregoing expectations by the mutual agreement of Buyer's and Seller's data
processing personnel and representatives prior to Closing.
(i) Employees and Employee Benefit Plans. HCB and Seller shall,
------------------------------------
prior to the Closing, take such action as is necessary to (i) terminate the
employment of any all employees of the Bank located at the Monticello Branch or
LPO Office and to pay all salaries of such employees through such date and (ii)
rehire such persons as employees of HCB or Seller on the same or better terms as
such employees were employed by the Bank. Prior to the Closing, HCB and Seller
shall take such action as is necessary to terminate all participation and
obligations of the Bank and the Holding Company under the Plans. HCB and Seller
agree to jointly and severally indemnify and hold harmless the Bank and Buyer
from and against any and all Adverse Consequences resulting from (A) the failure
of HCB or Seller to comply with any Legal Requirement applicable to the
termination and rehiring of the employees of the Bank or the Holding Company on
or prior to the Closing Date (including, but not limited to compliance with
COBRA) or (B) Bank's or Holding Company's participation in or termination as a
participating employer under the Plans. Further, the Buyer shall use its best
efforts to cause its insurance carrier to waive the applicable waiting period
under Buyer's existing health and medical insurance plans so as to allow all
employees of the Bank as of the Closing Date to participate, effective on the
1st day of the month immediately following the Closing Date, in such plans. If
Buyer is unable to obtain the foregoing waiver from it insurance carrier, it
shall take such action as is necessary to allow all employees of the Bank as of
the Closing Date to participate in Buyer's health and medical insurance plans as
soon as possible under the terms of such plans.
(j) Exclusivity. None of HCB or Seller will (and neither HCB nor
-----------
the Seller will cause or permit the Holding Company or the Bank or any officer,
director, employee or affiliate of HCB, Seller, the Holding Company or the Bank
to) (i) solicit, initiate, or encourage the submission of any proposal or offer
from any person or entity relating to the acquisition of any capital stock or
other voting securities, or any substantial portion of the
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<PAGE>
assets of, the Holding Company or the Bank (including any acquisition structured
as merger, consolidation or share exchange) or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any person or entity to do or seek any of the foregoing. HCB and
Seller will notify the Buyer immediately if any person or entity makes any
proposal, offer, inquiry or contact with respect to any of the foregoing.
(k) Certain Notifications. Each party shall promptly notify the other
---------------------
in writing of the occurrence of any event which will or could reasonably be
expected to result in the failure to satisfy any of the conditions specified in
Section 7.
(l) Taxes and Reports. (i) HCB shall prepare and file when due all
-----------------
federal, state and local tax returns of any kind for the Holding Company and the
Bank for the period up to the Closing Date (the "Pre-Closing Tax Period") and
shall promptly pay all taxes relating to such Pre-Closing Tax Period, including
installment payments for taxes, interest, penalties, assessments or other
deficiencies of any kind. At least ten (10) days prior to the filing of any tax
return which includes the Pre-Closing Tax Period of the Holding Company and the
Bank, HCB shall deliver a copy of such return to Buyer for approval of any
portion of such return relating to the Holding Company or Bank, which approval
shall not be unreasonably withheld. It is understood that HCB will include the
income of the Holding Company and the Bank (including any deferred income
triggered as a result of the Acquisition Transaction) for the Pre-Closing Tax
Period on HCB's consolidated federal and state income tax returns and will pay
any federal or state income taxes attributable to such income. HCB and Seller
shall be responsible for assimilating all tax information and other data of
Holding Company and Bank with respect to the Pre-Closing Tax Period as may be
necessary for the preparation of HCB's consolidated tax returns; provided
however, that following the Closing, Buyer agrees to cooperate and provide
Seller with such information as may be reasonably necessary for the preparation
of such returns. The income of the Holding Company and the Bank will be
determined for the periods prior to and after the Pre-Closing Tax Period by
closing the books of the Holding Company and the Bank as of the close of
business on the day immediately preceding the Closing Date. All tax allocation
or tax sharing agreements to which the Holding Company or Bank are parties shall
be terminated as of the Closing Date. In the event of any audit or litigation
relating to any consolidated tax return of HCB which includes all or any portion
of the taxable year of the Holding Company or Bank, HCB will notify Buyer and
provide Buyer with any information on any proposed adjustment of any items
relating to Holding Company or Bank. HCB agrees that, without the consent of
Buyer, it shall not compromise any such items or otherwise take any action
relating to
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<PAGE>
such items where such compromise or action could have an adverse impact on
either the Holding Company or Bank for any period subsequent to the Pre-Closing
Tax Period.
(ii) All unpaid personal and real property taxes associated with the
Monticello Branch and the LPO Office shall be the responsibility of the Seller
and Seller agrees to (A) pay all such taxes on behalf of Bank directly to the
appropriate taxing authorities and (B) reimburse Bank and Buyer for any amounts
required to be paid directly by Buyer due to Seller's failure to pay such taxes
on a timely basis.
(iii) From and after the date of this Agreement, each of the Buyer
and Seller agrees to provide each other, upon reasonable prior notice, with such
information and data as is necessary to allow the Buyer, Seller, Holding Company
or the Bank, as applicable, to comply with all tax and other regulatory
reporting, audit or other compliance obligations relating to the customers and
operations of the Bank and the Holding Company. For the purposes of this
section, the term "Applicable Tax Period" shall mean the period beginning on the
first day of the year in which the Closing Date occurs and ending on the Closing
Date. Without limiting the generality of the foregoing Seller and Buyer
specifically agrees that:
(A) If the Closing Date occurs after December 31, 1997, the Seller shall be
responsible for the preparation and filing of the following tax reporting
forms for all payroll, account or other activity occurring in 1997:
Internal Revenue Service ("IRS") Forms W-2 and other miscellaneous federal,
state and local tax reporting forms (the "Payroll Forms") and IRS Forms
1099, 1098 and all other miscellaneous federal state and local tax
reporting forms relating to all loan, deposit, trust and other accounts
("Account Forms"). Concurrently with the filing of such forms, the Seller
shall provide copies to Buyer of all such forms, and HCB and the Seller
agree to indemnify the Buyer from and against any Adverse Consequences
incurred by the Bank or Buyer as a result of the Seller's preparation or
filing of such forms.
(B) Prior to the Closing Date, Seller shall provide Buyer with payroll and
other information regarding all persons employed by the Bank at any time
during the Applicable Tax Period, in a form reasonably acceptable to Buyer,
so as to allow Bank to prepare and file Payroll Forms for such Applicable
Tax Period, which such payroll information shall be true, correct and
complete in all respects.
(C) Prior to the Closing Date, Seller shall provide Buyer with all
information for the Applicable Tax Period (including historical account
data) required to effect the preparation
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<PAGE>
and filing of Account Forms for such Applicable Tax Period relating to all
loan, deposit, trust and other accounts which either (1) constitute Seller
Assets and Seller Liabilities or (2) which were closed prior to the date of
the Closing.
(D) On the Pre-Closing Date, Seller shall provide Buyer with all
information for the Applicable Tax Period (including historical account
data) required to effect the preparation and filing of Account Forms for
the Applicable Tax Period relating to all deposit accounts which are
included in the Retained Liabilities.
(E) Notwithstanding any other provision herein, the Buyer shall file all
IRS Forms 5498 and any similar state or local tax reporting forms
attributable to the Bank's individual retirement accounts for each of 1997
and 1998, even if the Closing Date occurs after December 31, 1997. On the
Pre-Closing Date, Seller shall provide Buyer with all information for the
period prior to the Closing Date for such tax years of 1997 and 1998
(including historical account data) required to effect the preparation and
filing of the IRS Forms 5498 and any similar state or local tax reporting
forms.
(F) The information and data to be provided by Seller to Buyer pursuant to
paragraphs (B)-(E) immediately above shall be in hard-copy form and on
magnetic tape or diskette (which such magnetic tape or diskette shall be in
a form acceptable for filing with the IRS) and shall be true, correct and
complete in all respects. If such information is in a form that cannot be
processed by the Buyer's computer systems, then the Seller shall cooperate
with the Buyer to prepare and effect any and all filings required by the
IRS or any state or local taxing authorities on the Bank's behalf.
(iv) Subject to the provisions of this Section 6(l)(iv), the Buyer agrees
to promptly pay the Seller an amount equal to the income tax benefit (net of any
increase in federal income tax expense or reduction in federal income tax
benefits resulting from the lower state tax deduction) derived by the Buyer with
respect to any Deferred Tax Assets that the Buyer utilizes on its future income
tax returns. The Buyer agrees that it shall have an affirmative obligation to
utilize the Deferred Tax Assets on its future income tax returns if, but only
if, (i) the Seller causes its certified public accounting firm to provide to the
Buyer (at the Seller's expense) a written opinion that sets forth the manner and
circumstances in which the Buyer may utilize the Deferred Tax Assets and (ii)
the Buyer's own certified public accountants are in agreement with Seller's
accountants that such Deferred Tax Assets may be so utilized by Buyer. Every
year until the Deferred Tax Assets are completely utilized or otherwise expire
under applicable law, Buyer shall, within 30 days of the filing of its state
income
-26-
<PAGE>
tax return, cause its certified public accountants to provide (at Buyer's
expense) a letter to Seller outlining the amount, if any, of the Deferred Tax
Asset so utilized and the dollar value benefit being derived by Buyer with
respect to such use. HCB and the Seller agree to indemnify the Buyer from and
against any Adverse Consequences arising from the Buyer's utilization of the
Deferred Tax Assets in accordance with the opinion of the Seller's accountant's,
including any payments or penalties incurred by the Buyer resulting from any
disallowance of the Buyer's utilization of the Deferred Tax Assets by the IRS or
the Arkansas State Department of Finance.
(m) Deposit Products; Investment of Funds and Loans. From and after the
-----------------------------------------------
date of this Agreement, Seller shall not offer any deposit products (including
certificates of deposit) to existing or new customers associated solely with the
Bank's Main Office unless the terms and rates of such products have been
approved in advance by Buyer in its reasonable discretion.
(n) Insurance. On the Closing Date, the Buyer agrees that the Seller may
---------
terminate any insurance policies listed on Schedule 4(r) for which coverage is
occurrence (but not claims) based, and the parties agree that all other
insurance policies listed on Schedule 4(r) shall remain in full force and
effect. If the Bank receives any refund of pre-paid premiums with respect to
any insurance policies due to their early termination in accordance with this
Section 6(n), the Buyer agrees to cause the Bank to promptly remit the amount of
such refund payments to the Seller.
7. Closing Conditions
------------------
(a) Conditions to Obligations of Parties. The obliga tions of the
------------------------------------
Buyer and the Seller to cause the Acquisition Transaction to be consummated
shall be subject to the satisfaction on or prior to the Closing Date of each of
the following conditions:
(i) Approvals of Third Parties. All orders, consents and approvals
--------------------------
necessary in order for the Acquisition Transaction to be lawfully accomplished
shall have been entered by each regulatory authority having jurisdiction over
the transactions contemplated by this Agreement; the form and substance of all
such orders, consents and approvals shall be satisfactory to the parties hereto;
and all applicable statutory waiting periods shall have expired.
(ii) Litigation. There shall not be pending or threatened any
----------
litigation in any court or any proceeding before or by any governmental
department, agency or instrumentality in which it is sought to restrain or
prohibit or obtain damages in respect of the consummation of the Acquisition
Transaction.
-27-
<PAGE>
(b) Conditions to Obligations of Buyer. The obligations of Buyer
----------------------------------
hereunder shall be subject to the satisfaction on or prior to the Closing Date
of each of the following conditions, unless Buyer shall have waived such
conditions in writing.
(i) Performance. HCB, Seller, the Holding Company and the Bank
-----------
shall have performed all obligations and complied with all covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date.
(ii) Representations and Warranties. The representations and
------------------------------
warranties of HCB and the Seller contained herein shall be true and correct in
all material respects at the Closing Date with the same force and effect as
though made at and as of such time.
(iii) Purchase and Assumption. The Purchase and Assumption of the
-----------------------
Seller Assets and Seller Liabilities shall have occurred.
(iv) Pre-Closing Balance Sheet. The Pre-Closing Balance Sheet
-------------------------
shall show shareholders' equity for the Bank in an amount equal to the Minimum
Equity Amount, which such Minimum Equity Amount shall include an amount of
goodwill not in excess of the Maximum Goodwill Amount.
(v) Legal Opinion. The Buyer shall have received an opinion dated
-------------
as of the Closing Date from counsel and in form and substance satisfactory to
the Buyer to the effect that (A) HCB, Seller, the Holding Company and the Bank
are corporations duly organized, validly existing and in good standing under the
laws of the jurisdiction under which each is organized and have corporate power
to own or lease their properties and to carry on their business as now being
conducted, (B) the authorized capital stock of the Holding Company consists of
1,000 shares of common stock, par value $20.00 per share, all of which are
issued and outstanding and have been duly and validly authorized and issued and
are fully paid and nonassessable, (C) the authorized capital stock of the Bank
consists of 150,000 shares of common stock, par value $7.50 per share, 33,400 of
which are issued and outstanding and have been duly and validly authorized and
issued and are fully paid and nonassessable, and 100,000 shares of preferred
stock, par value $1.00 per share, no shares of which are issued and outstanding,
and (D) this Agreement is a valid and binding obligation of HCB and Seller,
enforceable against HCB and Seller in accordance with its terms, except as (1)
such enforcement may be subject to applicable bankruptcy, insolvency or other
laws, now or hereafter in effect, affecting creditors' rights generally and (2)
the remedy of specific performance, injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceedings therefor may be brought.
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<PAGE>
(vi) Title Policy and Survey. Seller shall have delivered to Buyer
-----------------------
(at Seller's expense) a title insurance commitment from a sound and reputable
title insurance company in a form satisfactory to Buyer in its reasonable
discretion, insuring title to the premises constituting the Main Office and any
appurtenant easements as of the Closing Date subject only to exceptions for
Permitted Encumbrances. Seller shall have also delivered to Buyer (at Seller's
expense) a current survey for premises constituting the Main Office and any
appurtenant easements (A) certified to the Buyer and prepared by a licensed
surveyor, (B) conforming to the current ALTA Minimum Standard Detail
Requirements for Land Title Surveys, (C) disclosing the location of all
improvements, easements, sidewalks, roadways, utility lines and other matters
shown customarily on such surveys, and (D) showing ingress and egress to public
streets (the "Survey"). The Survey shall be in a form satisfactory to Buyer and
shall not disclose any survey defect or encroachment from or onto the real
property which has not been cured or insured over prior to the Closing or which
might materially impair Buyer's operation of the property as a bank branch.
(vii) Environmental Survey. Sellers shall have delivered to Buyer
--------------------
(at Buyer's expense) a Phase I Environmental Survey of the premises constituting
the Main Office, which such survey shall disclose no violations of applicable
federal, state and local statutes, laws, ordinances and regulations concerning
conservation and protection of the environment or the presence of any of any
hazardous material, hazardous waste, hazardous substance, contaminant or
pollutant located in, on, under or at such Main Office.
(viii) Termination of Regulatory Restrictions. The Seller shall
--------------------------------------
have provided to Buyer satisfactory evidence that all restrictions, covenants or
representations relating to the Bank's ability to make loans or otherwise
operate its business set forth in any order of, memorandum of understanding or
agreement with, or correspondence to or from the OTS will be lifted or waived
immediately following the consummation of the Acquisition Transaction.
(ix) Termination of Contractual Obligations. The Seller shall have
--------------------------------------
provided to Buyer satisfactory evidence that Seller has obtained the termination
or release of all contractual obligations of Holding Company or Bank under the
agreements referenced in paragraphs 1-8, 11, 12, and 14-19 of Schedule 4(n);
provided, however, if Seller is unable to obtain, after using its reasonable
best efforts, a release or termination of all contractual obligations of the
Holding Company or Bank under the Agreement referenced in paragraph 19 of
Schedule 4(n) (the "Servicing Contract"), then the Seller shall have provided to
Buyer in lieu thereof satisfactory evidence that Seller has obtained the
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<PAGE>
consents of all third parties required in order for the Bank or the Holding
Company to transfer and assign the Servicing Contract to the Seller pursuant to
an assignment and assumption to be delivered under the Purchase and Assumption
Agreement in which the Seller agrees to specifically indemnify and hold harmless
the Buyer, Bank and Holding Company (in addition to, and without limitation of,
any indemnification rights otherwise provided by this Agreement) from any
Adverse Consequences arising or resulting from the Seller's failure to perform
its obligations under the Servicing Agreement.
(x) Resignation. Seller shall have delivered to the Buyer the
-----------
resignations of all members of the Boards of Directors, officers and employees
of the Holding Company and Bank other than those whom the Buyer shall have
specified in writing at least three (3) business days prior to the Closing.
(xi) No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change in the business, properties, operations, assets,
condition (financial or otherwise) or prospects of the Bank.
(xii) Certificates of Good Standing and Transcript. The Seller
--------------------------------------------
shall have delivered to the Buyer a certificate of good standing or existence,
as applicable, for the Holding Company and Bank reflecting that the Holding
Company and Bank are in good standing, have filed all required franchise tax
returns and have paid all required franchise taxes under the laws of the
respective jurisdictions in which they were organized. Seller shall also have
delivered to the Buyer (A) Secretaries' Certificates for each of HCB, Seller and
Bank, in a form and substance satisfactory to Buyer, certifying as to matters of
incumbency and corporate authority for the Acquisition Transaction and attaching
with respect to each of HCB, Seller, and the Bank, a true and correct copy of
its articles of incorporation and bylaws and (B) a transcript containing a true
and correct copy of the Holding Company's articles of incorporation, together
with all amendments thereto, certified by the Arkansas Secretary of State.
(xiii) Closing Certificate. HCB and Seller shall have executed and
-------------------
delivered to Buyer a certificate, in form and substance satisfactory to Buyer,
dated as of the Closing Date, certifying in such detail as the Buyer may
reasonably request to the fulfillment of the foregoing conditions.
(xiv) Tax Affidavit. Each of the Bank and Seller shall have
-------------
executed and delivered to Buyer an affidavit certifying that it is not a
"foreign person" as defined in the federal Foreign Investment and Real Property
Tax Act of 1980.
(xv) Form 5500R. The Bank shall have caused to be filed the Form
----------
5500R for the Heritage Bank, FSB, 401(K) Plan with
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<PAGE>
all applicable governmental agencies, including the IRS and the United States
Department of Labor.
(c) Conditions to Obligations of HCB and Seller. The obligations of
-------------------------------------------
HCB and Seller hereunder shall be subject to the satisfaction on or prior to the
Closing Date of each of the following conditions, unless the Seller shall have
waived such condition in writing:
(i) Performance. The Buyer shall have performed all obligations
-----------
and complied with all covenants required under this Agreement to be performed or
complied with by it on or prior to the Closing Date.
(ii) Representations and Warranties of the Buyer. The
-------------------------------------------
representations and warranties of the Buyer contained herein shall be true and
correct in all material respects at the Closing Date with the same force and
effect as those made at and as of such time.
(iii) Closing Certificate. Buyer shall have delivered to the
-------------------
Seller a certificate, in form and substance satis factory to the Seller, dated
as of the Closing Date, certifying in such detail as the Seller may reasonably
request, the fulfillment of the foregoing conditions.
(iv) Legal Opinion. The Seller shall have received from Buyer's
-------------
counsel an opinion dated as of the Closing Date from counsel and in form and
substance satisfactory to Seller to the effect that (A) the Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Arkansas and has the corporate power to own or lease its
properties and to carry on its business as now being conducted, (B) this
Agreement is a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, except as (1) such enforcement may be subject to
applicable bankruptcy, insolvency or other laws, now or hereafter in effect,
affecting creditors' rights generally and (2) the remedy of specific
performance, injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceedings therefor may be brought.
(v) Certificate of Good Standing. The Buyer shall have delivered
----------------------------
to Seller a certificate of good standing for the Buyer reflecting that it is in
good standing, has filed all required franchise tax returns and has paid all
required franchise taxes under the laws of the jurisdiction in which it is
organized.
8. Survival and Indemnification.
----------------------------
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<PAGE>
(a) Survival of Representations, Warranties and Covenants. All of
-----------------------------------------------------
the representations, warranties and covenants of the parties to this Agreement
shall survive the Closing and continue in full force and effect for a period of
24 months thereafter, provided that:
(i) the representations and warranties set forth in Sections 4(a)-(f) and
5(a)-(b) and the matters described in Section 6(f) shall survive the
Closing and continue in full force and effect forever thereafter; and
(ii) the representations and warranties set forth in Sections 4(m) and (p),
the matters described in Sections 6(i) and (l) and the indemnification
provisions set forth in Section 8(b)(ii) shall survive the Closing and
continue in full force and effect until one year after the expiration of
the applicable statute of limitations period during which any person or
entity could bring an action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, relating to the subject matter of such
representations, warranties or provisions.
(b) Indemnification.
---------------
(i) General. HCB and Seller agree to jointly and severally
-------
indemnify and hold harmless Holding Company, Bank and Buyer, and Buyer agrees to
indemnify and hold harmless Seller, from and against any and all claims,
demands, charges, losses, damages, liabilities, fines, assessments, penalties
and obligations (including, without limitation, reasonable attorneys' and
accountants' fees and other costs and expenses of the indemnified party incurred
as an incident thereto) (collectively "Adverse Consequences") in excess of
$10,000, determined in the aggregate and not separately as to each claim (the
"Deductible") arising out of, based on, or relating to any facts or
circumstances that would constitute a breach by the other of this Agreement of
any representation, warranty or covenant contained herein or in the P&A
Agreement; provided however, that the Deductible set forth in this Section 8(b)
shall not act as a limitation on any rights or claims that Buyer may have for
indemnification arising out of a breach of HCB's and Seller's covenants and
obligations under Section 6(f), 6(h) and 6(l)(iii).
(ii) Specific. HCB and Seller agree to jointly and severally
--------
indemnify and hold harmless Holding Company, Bank and Buyer from and against any
and all Adverse Consequences resulting from the Holding Company's or Bank's
violation of, or noncompliance with, any Legal Requirements including, but not
limited to, all violations or matters of noncompliance specifically listed on
Schedule 4(m)(ii) or 4(q).
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<PAGE>
(iii) Ceiling. Notwithstanding any other provision contained herein,
-------
there will be a aggregate ceiling equal to the Stock Purchase Price on the
obligation of each party arising under this Section 8(b) to indemnify the other
parties from and against any Adverse Consequences.
9. Termination, Waiver, Extension and Amendment
--------------------------------------------
(a) Termination. This Agreement may be terminated and abandoned at any
-----------
time prior to or on the Closing Date:
(i) by the mutual consent in writing of the Seller and the
Buyer;
(ii) by either the Seller or the Buyer in writing if any of the
conditions to the obligations of such parties contained in Section
7(a) hereof have not been satisfied or, if unsatisfied, waived (if
legally permissible) as of the Closing Date;
(iii) by the Buyer in writing if any of the conditions to the
obligations of the Buyer contained in Section 7(b) hereof shall not
have been satisfied or, if unsatisfied, waived as of the Closing Date;
(iv) by the Seller in writing if any of the condi tions to the
obligations of the Seller contained in Section 7(c) hereof shall not
have been satisfied or, if unsatisfied, waived as of the Closing Date;
or
(v) by either the Buyer or the Seller in writing if the Closing
Date shall not have occurred on or before March 31, 1998.
(b) Willful Breach or Intentional Misrepresentation. In the event the
-----------------------------------------------
transactions contemplated by this Agreement are not consummated due to the
failure of any condition precedent to the consummation of the transactions
resulting from a willful breach of a covenant, an intentional misrepresentation
or a willful failure to comply with the terms of this Agreement by one party,
then the other party, upon termination of this Agreement, shall be entitled to
all appropriate legal and equitable remedies.
(c) No Willful Breach or Intentional Misrepresentation. In the event
--------------------------------------------------
of the termination and abandonment of this Agreement pursuant to the provisions
of Section 9(a) and such termination or abandonment did not result from the
actions described in Section 9(b), this Agreement shall be of no further force
or effect and no party hereto shall have any liability or further obligation to
the other party to this Agreement, except as set forth in that certain
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<PAGE>
Letter of Intent among HCB and Buyer, dated September 15, 1997 (the "Letter of
Intent").
(d) Waiver, Extension and Amendment. Any of the terms or conditions
-------------------------------
of this Agreement may be waived, or the time for performance of any obligations
or acts extended, at any time, by the party which is entitled to the benefits
thereof. This Agreement may be modified or amended only by the mutual consent
of the parties hereto. Any waiver, extension, modification or amendment shall
be in writing.
10. Miscellaneous
-------------
(a) Broker's or Finder's Fees. All negotiations rela tive to the
-------------------------
transactions hereby have been carried on by the Buyer and the Seller directly
and without the intervention of any other person in such manner as to give rise
to any valid claim against any of the parties hereto for a finder's fee,
brokerage commission or other similar payment except for that certain fee for
consulting services payable upon Closing to DD&F Consulting Group, Inc., which
fee shall be the exclusive responsibility of, and shall be paid by, the Seller.
(b) Confidentiality. Any non-public information concerning the
---------------
Holding Company or the Bank shall be considered "Confidential Information"
within the meaning of this Agreement. Each of HCB and the Seller will treat
and hold as such all of the Confidential Information, refrain from using any of
the Confidential Information except in connection with this Agreement, and
deliver promptly to the Buyer or destroy, at the request and option of the
Buyer, all tangible embodiments (and all copies) of the Confidential Information
which are in its possession; provided, however, HCB and Seller may retain copies
of such information and data as is necessary to allow them to comply with all
tax and other regulatory reporting, audit or other compliance obligations
relating to the customers and operations of the Bank and the Holding Company.
In the event that any of HCB or the Sellers is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, the Seller will notify the Buyer promptly
of the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this Section 10(b).
If, in the absence of a protective order or the receipt of a waiver hereunder,
either HCB or Seller is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, HCB
or Seller may disclose the Confidential Information to the tribunal; provided,
however, that each of HCB and Seller shall use its best efforts to obtain, at
the request of the Buyer
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<PAGE>
and at Buyer's expense, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate.
(c) Expenses. Whether or not the transactions contem plated hereby
--------
are consummated, each party shall pay its own expenses and costs incident to
this Agreement and the transactions contemplated hereby, including but not
limited to all expenses incurred by such parties in connection with obtaining
required approvals for the Acquisition Transaction from Regulatory Authorities.
In this regard, the parties agree that all costs and expenses associated with
obtaining regulatory approval of the purchase and assumption of the Seller
Assets and Seller Liabilities shall be borne by Seller and all costs and
expenses associated with obtaining regulatory approval for the acquisition of
the Holding Company Stock shall be borne by the Buyer.
(d) Notices. Any notice or consummation required or permitted to be
-------
made hereunder shall be in writing, and shall be deemed to have been made if
delivered personally or by facsimile, receipt confirmed, or if mailed, by
registered or certified mail, return receipt requested, to the parties at the
addresses shown below. The date of personal delivery shall be the date of
giving notice, or if mailed in the manner prescribed above, notice shall be
deemed to have been given three business days after the mailing.
To the Seller: Heartland Community Bank, Camden, Arkansas
237 Jackson Street, S.W.
P.O. Box 878
Camden, AR 71711-0878
Attention: Cameron McKeel
Facsimile: 870-836-7125
With a copy to: McAfee & Taft
10th Floor, Two Leadership Square
211 N. Robinson
Oklahoma City, Oklahoma 73102
Attn: C. Bruce Crum, Esq.
Facsimile: (405) 235-0439
To the Buyer: Bank of the Ozarks, Inc.
425 West Capitol Avenue
Suite 3100
Little Rock, Arkansas 72201
Attention: George G. Gleason, II
Facsimile: (501) 374-6344
With a copy to: Rose Law Firm,
a Professional Association
120 East Fourth Street
-35-
<PAGE>
Little Rock, Arkansas 72201
Attention: Jeffrey J. Gearhart
Facsimile: (501) 375-1309
(e) Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties hereto and supersedes all prior agreements and
understandings, whether oral or written, except as set forth in the Section 5 of
the Letter of Intent. This Agreement shall not be modified or amended except by
written agreement of all parties hereto.
(f) Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of each of the parties hereto, their respective successors and
assigns.
(g) Further Assurances. Each of the parties hereto agrees to execute
------------------
and deliver such further agreements, assurances, instruments and documents at
any time reasonably requested by another party as is necessary or desirable to
consummate the trans actions contemplated by this Agreement.
(h) Knowledge and Investigation. For the purposes hereof, the term
---------------------------
"knowledge" shall mean information or matters of which HCB, Seller, Holding
Company, Bank and each of their directors, officers, employees or authorized
agents and representatives has actual knowledge or reasonably should have known
after due investigation. No due diligence investigation made by Buyer, its
directors, officers, employees, authorized agents and representatives (including
attorneys and accountants) shall affect the representations and warranties of
HCB and Seller made herein, and each such representation and warranty shall
survive the investigation.
(i) Construction. This Agreement shall be construed and interpreted
------------
in accordance with the laws of the State of Arkansas applicable to contracts
made and performed entirely therein.
(j) Counterparts. This Agreement may be executed in any number of
------------
counterparts, which, taken together, shall constitute one and the same
instrument.
(k) Section Headings. The section headings contained in this
----------------
Agreement are for convenience and reference only and shall not in any way affect
the meaning or interpretation of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-36-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the day and year first above written.
SELLER:
HEARTLAND COMMUNITY BANK,
Camden, Arkansas
By_______________________________
_____________, President
HCB:
HCB BANCSHARES, INC.
By_______________________________
_____________, President
BUYER:
BANK OF THE OZARKS, INC.
By_______________________________
George G. Gleason, II,
Chief Executive Officer
-37-
<PAGE>
Exhibit "A"
to
Stock Purchase Agreement
Purchase and Assumption Agreement
---------------------------------
<PAGE>
PURCHASE AND ASSUMPTION AGREEMENT
---------------------------------
This PURCHASE AND ASSUMPTION AGREEMENT (this "Agreement") is made and
executed as of the ____ day of November, 1997, by and between HEARTLAND
COMMUNITY BANK, FSB ("Little Rock"), a federal savings bank with its main office
located in Little Rock, Arkansas and HEARTLAND COMMUNITY BANK ("Camden"), a
federal savings bank with its main office located in Camden, Arkansas.
Capitalized terms not otherwise defined in this Agreement shall have the same
meaning as set forth in that certain Stock Purchase Agreement, of even date
herewith, by and between Bank of the Ozarks, Inc., the Camden and HCB
Bancshares, Inc. (the "Stock Purchase Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to the terms and as a condition to the closing of
the transactions contemplated by the Stock Purchase Agreement, Little Rock
desires to sell and Camden desires to acquire all of the assets of Little Rock
other than the Retained Assets and, in connection therewith, Camden desires to
assume from Little Rock all liabilities, obligations or commitments (contingent
or otherwise) of Little Rock other than the Retained Liabilities.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and provisions set forth in this Agreement and in the Stock Purchase Agreement,
the parties agree as follows:
ARTICLE ONE
-----------
PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES
---------------------------------------------------------
Section 1.01. Purchase of Assets. Upon the terms and subject to the
------------ ------------------
provisions of this Agreement and the Stock Purchase Agreement, Little Rock shall
sell, convey, assign and transfer to Camden, and Camden shall purchase and
accept from Little Rock, all right, title and interest of Little Rock in and to
all assets of Little Rock, other than the Retained Assets (the " Seller
Assets"). Little Rock and Camden agree and acknowledge that the Seller Assets
are sold, conveyed, assigned and transferred to Camden on an "as is" basis
without any recourse, representation or warranty (including, but not limited to,
representations or warranties as to quality, condition, title or compliance with
laws, rules or regulations of Regulatory Authorities).
Section 1.02. Assumption of Liabilities. Upon the terms and subject
------------ -------------------------
to provisions of this Agreement and the Stock Purchase Agreement, Little Rock
shall transfer and assign to Camden, and Camden shall assume from Little Rock
and agree to pay, perform and discharge as of the Effective Time (as hereinafter
defined), all of the liabilities, obligations or commitments (contingent or
otherwise) of Little Rock other than the Retained Liabilities (the
<PAGE>
"Seller Liabilities") existing as of the Effective Time, including, without
limitation, all deposit liabilities maintained at the Monticello Branch and all
Excluded Deposits maintained at the Main Office (the "Deposits" or "Deposit
Liabilities"), as shown on the books and records of Little Rock as of the
Effective Time, including accrued but unpaid interest thereon to the Effective
Time, except as provided in Section 2.02(c) hereof.
ARTICLE TWO
-----------
CLOSING, PAYMENT OF PURCHASE PRICE AND CLOSING DELIVERIES
---------------------------------------------------------
Section 2.01. The Closing; Effective Time. The closing of the
------------ ---------------------------
purchase and assumption transactions contemplated by this Agreement (the
"Closing") shall take place immediately prior to the closing of the stock
purchase and sale transaction (the "Stock Acquisition") contemplated by the
Stock Purchase Agreement at the time and place agreed for the closing of the
Stock Acquisition, and shall be effective (the "Effective Time") immediately
prior to the start of business on the date of the Closing (the "Closing Date").
Section 2.02. Retirement Accounts.
------------ -------------------
(a) At the Closing, Little Rock shall resign as custodian with respect
to any individual retirement account ("IRA Account") as to which Little Rock is
custodian and as to which one or more of the assets included therein is a
deposit included within the Deposits transferred to Camden on the Closing Date.
At the Closing, Little Rock shall designate or appoint Camden as successor
custodian under each such IRA Account.
(b) Camden covenants and agrees that it will, following its
designation or appointment as successor custodian under the IRA Accounts,
promptly and faithfully perform, fulfill, and discharge each of the obligations
required to be performed by the custodian with respect to such accounts pursuant
to law, or pursuant to the governing documents establishing such IRA Account.
(c) If an individual depositor with respect to an IRA Account refuses
to accept the designation or appointment of Camden as successor custodian with
respect to any such IRA Account, Camden agrees on demand to provide to Little
Rock sufficient funds to pay the deposit liability represented by such IRA
Account as reflected on the books of Camden at the time the claim is made. Upon
payment by Camden to Little Rock of such amount, Camden shall be discharged from
any further obligation under this Agreement to pay any such depositor the amount
of such deposit liability paid to Little Rock and such Deposits contained in the
IRA account shall not be assumed by Camden but shall remain the liability and
obligation of Little Rock.
A-2
<PAGE>
Section 2.03. Payment of Purchase Price.
------------ -------------------------
(a) On the Effective Date, Little Rock and Camden shall settle the
Asset Purchase Price in accordance with the provisions of Sections 2(b) and
3(c)(i) of the Stock Purchase Agreement.
(b) If necessary, on the Adjustment Delivery Date, an adjustment
payment (the "Adjustment Payment") shall be made either by Little Rock to Camden
or by Camden to Little Rock, as appropriate, so as to correct any discrepancy
regarding the amount of the Asset Purchase Price described in Section 3(e)(ii)
of the Stock Purchase Agreement plus interest as described therein. The
Adjustment Payment due to either party pursuant to this paragraph shall be paid
to such party on the Adjustment Payment Date by the other party by wire transfer
in immediately available funds to an account designated by the payee party.
(c) In the event of a Dispute, promptly upon the resolution of the
Dispute regarding the amount of the Asset Purchase Price in accordance with
Section 3(e)(iii) of the Stock Purchase Agreement, the payment, as specified
therein, shall be made either by Little Rock to Camden or by Camden to Little
Rock, as appropriate, which payment shall be made by wire transfer in
immediately available funds to an account designated by the payee party.
Section 2.04. Closing Deliveries.
------------ ------------------
(a) At the Closing, Little Rock shall deliver to Camden:
(i) a certified copy of the resolutions of Little Rock's Board
of Directors, as required for valid approval of the execution of this Agreement
and the consummation of the purchase and assumption transactions contemplated
hereby;
(ii) an Assignment and Assumption of Seller Liabilities
Agreement in substantially the form of Exhibit 1 hereto;
(iii) an Assignment and Assumption of Contracts Agreement in
substantially the form of Exhibit 2 hereto;
(iv) a Bill of Sale in substantially the form of Exhibit 3
hereto;
(v) a quit claim deed conveying all of Little Rock's real
property to the Camden, other than that certain real property included in the
Retained Assets as described in Section 1(c)(i) of the Stock Purchase Agreement
(the "Real Property");
A-3
<PAGE>
(vi) an Assignment and Successor Trustee Agreement with respect to
the transfer of the IRA Accounts in substantially the form set forth in Exhibit
4;
(vii) listings of the Deposit Liabilities as of the start of business
on the Closing Date (the "Deposit Listings") on magnetic tape or utilizing such
other method of information transfer as the parties may mutually agree, which
Deposit Listings shall include account number, outstanding principal balance,
and accrued interest;
(viii) Little Rock's files and records related to all loans (the
"Loans") comprising the Seller Assets as of the start of business on the
Effective Date, including, without limitation, all deposit related overdrafts
and/or overdrafts pursuant to an overdraft protection plan which are associated
with Deposit Liabilities, the notes or other instruments evidencing such Loans
which shall be duly endorsed on their face or by separate assignment by Little
Rock to the Camden without recourse;
(ix) teller working cash, petty cash and vault cash at the Monticello
Branch as of the start of business on the Closing Date;
(x) such records and files specifically relating to the Seller Assets
and Seller Liabilities, excluding, without limitation, those matters specified
in Section 2(e) of the Stock Purchase Agreement;
(xi) Little Rock's keys to the safe deposit boxes and Little Rock's
records related to the safe deposit box business at the Monticello Branch;
(xii) such of the other Seller Assets as shall be capable of physical
delivery to the Camden; and
(xiii) affidavit of Little Rock certifying that Little Rock is not a
"foreign person" as defined in the federal Foreign Investment and Real Property
Tax Act of 1980.
(b) At the Closing, Camden shall deliver to Little Rock:
(i) a certified copy of the resolutions of the Board of Directors of
Camden authorizing the execution of this Agreement and the consummation of the
purchase and assumption transactions contemplated hereby;
(ii) an Assignment and Assumption of Seller Liabilities Agreement in
substantially the form set forth in Exhibit 1 hereto;
A-4
<PAGE>
(iii) an Assignment and Assumption of Contracts Agreement in
substantially the form set forth in Exhibit 2 hereto; and
(iv) an Assignment and Successor Trustee Agreement with respect to
the transfer of the IRA Accounts in substantially the form set forth in Exhibit
4 hereto.
ARTICLE THREE
-------------
CONDITIONS PRECEDENT TO THE PURCHASE AND ASSUMPTION
---------------------------------------------------
Section 3.01. Conditions to Little Rock's Obligations. Little Rock's
------------ ---------------------------------------
obligations to effect the purchase and assumption transactions contemplated by
this Agreement shall be subject to the satisfaction (or waiver by Little Rock)
prior to or on the Closing Date of the following conditions:
(a) Camden shall have performed and complied in all material respects
with all of its obligations and agreements hereunder required to be performed
prior to the Closing Date under this Agreement.
(b) All conditions to the closing of the Stock Acquisition as
specified by the Stock Purchase Agreement shall have been satisfied (or, if
legally permissible, waived) other than the condition related to the closing of
the transactions contemplated by this Agreement.
Section 3.02. Conditions to Camden's Obligations. Camden's
------------ ----------------------------------
obligations to effect the purchase and assumption transactions contemplated by
this Agreement shall be subject to the satisfaction (or waiver by Camden) prior
to or on the Closing Date of the following conditions:
(a) Little Rock shall have performed and complied in all material
respects with all of its obligations and agreements required to be performed
prior to the Closing Date under this Agreement.
(b) All conditions to the closing of the Stock Acquisition as
specified by the Stock Purchase Agreement shall have been satisfied (or, if
legally permissible, waived) other than the condition related to the closing of
the transactions contemplated by this Agreement.
A-5
<PAGE>
ARTICLE FOUR
------------
TERMINATION OR ABANDONMENT
--------------------------
Section 4.01. Mutual Agreement. This Agreement may be terminated by
------------- ----------------
the mutual written agreement of the parties in conjunction with or at any time
following the termination of the Stock Purchase Agreement in accordance with
Section 9(a) thereof.
Section 4.02. Automatic Termination. If the Closing Date does not
------------ ---------------------
occur on or prior to the date specified by Section 9(a)(v) in the Stock Purchase
Agreement (including any extensions thereof), then this Agreement shall
thereupon be terminated without any further action by the parties hereto.
ARTICLE FIVE
------------
GENERAL
-------
Section 5.01. Notices. Any notice or other communication shall be in
------------ -------
writing and shall be deemed to have been given or made on the date of delivery,
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
(a) if to Little Rock:
Heartland Community Bank, FSB
P. O. Box 8052
109 N. Chester
Little Rock, AR 72203-8052
Attn: President
Facsimile: (501) 378-0520
and
(b) if to Camden:
Heartland Community Bank
P. O. Box 878
237 Jackson Street, SW
Camden, AR 71711-0878
Attn: Mr. Cameron McKeel
Facsimile: (870) 836-7125
or to such other address as any party may from time to time designate
by notice to the other.
A-6
<PAGE>
In the event of any notice or other communication by either party is
given pursuant to this Section 5.01, a copy of such notice or communication
shall be provided to:
McAfee & Taft
Tenth Floor, Two Leadership Square
211 North Robinson
Oklahoma City, OK 73102
Attn: C. Bruce Crum
Facsimile: (405) 235-0439
and
Rose Law Firm
a Professional Association
120 East 4th Street
Little Rock, AR 72201
Attn: Jeffrey J. Gearhart
Facsimile: (501) 375-1309
Section 5.02. Entire Agreement. This Agreement and the Stock
------------ ----------------
Purchase Agreement constitutes the entire agreement between the parties and
supersedes and cancels any and all prior discussions, negotiations,
undertakings, agreements in principle and other agreements between the parties
relating to the subject matter hereof. In the event of a conflict between any
of the terms and provisions hereof and the Stock Purchase Agreement, the Stock
Purchase Agreement shall be deemed to control except as contemplated by Section
2.02(c) hereof.
Section 5.03. Headings and Captions. The captions of Articles and
------------- ---------------------
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
Section 5.04. Amendment or Modification. This Agreement may not be
------------- -------------------------
amended or modified except by a written document duly executed by the parties
hereto and Bank of the Ozarks, Inc.
Section 5.05. Further Assurances. Each of the parties hereto agrees
------------- ------------------
to execute and deliver such further agreements, assurances, instruments and
documents at any time reasonably requested by the other party as is necessary or
desirable to carry out the purposes of this Agreement.
Section 5.06. Rules of Construction. Unless the context otherwise
------------- ---------------------
requires: (a) a term has the meaning assigned to it; (b) "or" is not exclusive;
and (c) words in the singular may include the plural and in the plural include
the singular.
A-7
<PAGE>
Section 5.07. Counterparts. This Agreement may be executed in two or
------------- ------------
more counterparts, each of which shall be deemed an original and all of which
shall be deemed one and the same instrument.
Section 5.08. Successors and Assigns. This Agreement shall be
------------ ----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 5.09. Governing Law; Assignment. This Agreement shall be
------------- -------------------------
governed by the laws of the State of Arkansas and applicable federal laws and
regulations. Neither this Agreement, nor any of the rights, interests or
obligations hereunder, shall be assigned by either of the parties hereto without
the prior written consent of the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
LITTLE ROCK HEARTLAND COMMUNITY BANK, FSB
Little Rock, Arkansas
By:_________________________________
Title:______________________________
Attest:
By:_______________________
Title:____________________
CAMDEN HEARTLAND COMMUNITY BANK
Camden, Arkansas
By:_________________________________
Title:______________________________
Attest:
By:_______________________
Title:____________________
A-8
<PAGE>
Exhibit "B"
to
Stock Purchase Agreement
Furniture and Fixtures
----------------------
(Intentionally Omitted)
<PAGE>
Exhibit "C"
to
Stock Purchase Agreement
Denominations and Maturities of Seller CDs
-------------------------------------------
Amount of Seller CD Maturity Date
------------------- -------------
$516,000 91 days following the
Closing Date
$516,000 182 days following the
Closing Date
$516,000 273 days following the
Closing Date
$516,000 First anniversary of
the Closing Date
$516,000 First anniversary of
the Closing Date,
plus 91 days
$520,000 First anniversary of
the Closing Date,
plus 182 days
<PAGE>
EXHIBIT 10.13
- --------------------------------------------------------------------------------
AIA Document A111
Standard Form of Agreement
Between Owner and Contractor
where the basis of payment is the
COST OF THE WORK PLUS A FEE
with or without a Guaranteed Maximum Price
1987 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES, CONSULTATION WITH AN
ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION.
The 1987 Edition of AIA Document A201, General Conditions of the Contract
for Construction, is adopted in this document by reference. Do not use
with other general conditions unless this document is modified.
This document has been approved and endorsed by
The Associated General Contractors of America.
- --------------------------------------------------------------------------------
AGREEMENT made as of the Second day of September in the year of Nineteen Hundred
and Ninety Seven
BETWEEN the Owner: Bank of the Ozarks, WCA
(Name and address) 425 West Capital
Little Rock, AR 72201
and the Contractor: East-Harding, Inc.
(Name and address) 2230 Cottandale Ln., Suite 3
Little Rock, AR 72202
the Project is: Bank of the Ozarks
(Name and address) 12615 Chenal Parkway
Little Rock, AR 72211
<PAGE>
the Architect is: AMR Architects
(Name and address) 201 East Markham, Suite 150
Little Rock, AR 72201
The Owner and Contractor agree as set forth below.
- --------------------------------------------------------------------------------
Copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967, 1974, 1978, (C)1987 by
The American Institute of Architects, 1735 New York Avenue, N.W.,
Washington, D.C. 20006. Reproduction of the material herein or substantial
quotation of its provisions without written permission of the AIA violates
the copyright laws of the United States and will be subject to legal
prosecution.
AIA DOCUMENT A111.OWNER-CONTRACTOR AGREEMENT.TENTH
EDITION.AIA(R).(C)1987.THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C. 20006 A111-1987 1
- --------------------------------------------------------------------------------
<PAGE>
ARTICLE I
---------
THE CONTRACT DOCUMENTS
1.1 The Contract Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, addenda issued prior to execution of this Agreement, other
documents listed in this Agreement and Modifications issued after execution of
this Agreement; these form the Contract, and are as fully a part of the Contract
as if attached to this Agreement or repeated herein. The Contract represents
the entire and integrated agreement between the parties hereto and supersedes
prior negotiations, representations or agreements, either written or oral. An
enumeration of the Contract Documents, other than Modifications, appears in
Article 16. If anything in the other Contract Documents is inconsistent with
this Agreement, this Agreement shall govern.
ARTICLE 2
---------
THE WORK OF THIS CONTRACT
2.1 The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows:
Painting of insulation on parking level ceiling
Pylon Sign
Telephone & Data Cabling
ARTICLE 3
---------
RELATIONSHIP OF THE PARTIES
3.1 The Contractor accepts the relationship of trust and confidence established
by this Agreement and covenants with the Owner to cooperate with the Architect
and utilize the Contractor's best skill, efforts and judgment in furthering the
interests of the Owner; to furnish efficient business administration and
supervision; to make best efforts to furnish at all times an adequate supply of
workers and materials; and to perform the Work in the best way and most
expeditious and economical manner consistent with the interests of the Owner.
The Owner agrees to exercise best efforts to enable the Contractor to perform
the Work in the best way and most expeditious manner by furnishing and approving
in a timely way information required by the Contractor and making payments to
the Contractor in accordance with requirements of the Contract Documents.
2
<PAGE>
ARTICLE 4
---------
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement is the date from which the Contract Time of
Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit the timely filing of mortgages,
mechanic's liens and other security interests.
4.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion
of certain portions of the Work, if not stated elsewhere in the Contract
Documents.)
May 31, 1998
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time.)
ARTICLE 5
---------
CONTRACT SUM
5.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum consisting of the Cost of the Work
as defined in Article 7 and the Contractor's Fee determined as follows:
(State lump sum, percentage of Cost of the Work or other provision for
determining the Contractor's Fee, and explain how the Contractor's Fee is to be
adjusted for changes in the Work.)
3
<PAGE>
5.2 GUARANTEED MAXIMUM PRICE
5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by
the Contractor not to exceed Four Million Three Hundred Sixty Eight Thousand
Four Hundred Six Dollars ($4,368,406), subject to additions and deductions by
Change Order as provided in the Contract Documents. Such maximum sum is
referred to in the Contract Documents as the Guaranteed Maximum Price. Costs
which would cause the Guaranteed Maximum Price to be exceeded shall be paid by
the Contractor without reimbursement by the Owner.
(Insert specific provisions if the Contractor is to participate in any savings.)
100% Savings given to OWNER
5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if
any, which are described in the Contract Documents and are hereby accepted by
the Owner:
(State the numbers or other identification of accepted alternates, but only if a
Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If decisions on
other alternates are to be made by the Owner subsequent to the execution of this
Agreement, attach a schedule of such other alternates showing the amount for
each and the date until which that amount is valid.)
Utilize wood trusses at canopy framing
Utilize shear tab connections in lieu of double clip angles at all main
steel beams
Change downspout boots from cast iron to alternate material (to be
determined)
Change Kim site light poles to Valmont
Change minimum conduit from 3/4" to 1/2"
Use MC cable where desired
5.2.3 The amounts agreed to for unit prices, if any, are as follows:
(State unit prices only if a Guaranteed Maximum Price is inserted in
Subparagraph 5.2.1.)
ARTICLE 6
---------
CHANGES IN THE WORK
6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the
Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the
General Conditions.
6.1.2 In calculating adjustments to subcontracts (except those awarded with the
Owner's prior consent on the basis of cost plus a fee), the terms "cost" and
"fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs"
and "a reasonable allowance for overhead and profit" as used in Subparagraph
7.3.6 of the General Conditions shall have the meanings
4
<PAGE>
assigned to them in the General Conditions and shall not be modified by Articles
5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the
Owner's prior consent on the basis of cost plus a fee shall be calculated in
accordance with the terms of those subcontracts.
6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs"
as used in the above-referenced provisions of the General Conditions shall mean
the Cost of the Work as defined in Article 7 of this Agreement and the terms
"fee" and "a reasonable allowance for overhead and profit" shall mean the
Contractor's Fee as defined in Paragraph 5.1 of this Agreement.
6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
6.2.1 Increased costs for the items set forth in Article 7 which result from
changes in the Work shall become part of the Cost of the Work, and the
Contractor's Fee shall be adjusted as provided in Paragraph 5.1.
6.3 ALL CONTRACTS
6.3.1 If no specific provision is made in Paragraph 5.1 for adjustment of the
Contractor's Fee in the case of changes in the Work, or if the extent of such
changes is such, in the aggregate, that application of the adjustment provisions
of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the
Contractor's Fee shall be equitably adjusted on the basis of the Fee established
for the original Work.
ARTICLE 7
---------
COSTS TO BE REIMBURSED
7.1 The term Cost of the Work shall mean costs necessarily incurred by the
Contractor in the proper performance of the Work. Such costs shall be at rates
not higher than the standard paid at the place of the Project except with prior
consent of the Owner. The Cost of the Work shall include only the items set
forth in this Article 7.
7.1.1 LABOR COSTS
7.1.1.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's agreement,
at off-site workshops.
7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's agreement.
(If it is intended that the wages or salaries of certain personnel stationed at
the Contractor's principal or other offices shall be included in the Cost of the
Work, identify in Article 14 the personnel to be included and whether for all or
only part of their time.)
5
<PAGE>
7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative
personnel engaged, at factories, workshops or on the road, in expediting the
production or transportation of materials or equipment required for the Work,
but only for that portion of their time required for the Work.
7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law or collective bargaining
agreements and, for personnel not covered by such agreements, customary benefits
such as sick leave, medical and health benefits, holidays, vacations and
pensions, provided such costs are based on wages and salaries included in the
Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3.
7.1.2 SUBCONTRACT COSTS
Payments made by the Contractor to Subcontractors in accordance with the
requirements of the subcontracts.
7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED
CONSTRUCTION
7.1.3.1 Costs, including transportation, of materials and equipment
incorporated or to be incorporated in the completed construction.
7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess
of those actually installed but required to provide reasonable allowance for
waste and for spoilage. Unused excess materials, if any, shall be handed over
to the Owner at the completion of the Work or, at the Owner's option, shall be
sold by the Contractor; amounts realized, if any, from such sales shall be
credited to the Owner as a deduction from the Cost of the Work.
7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED
ITEMS
7.1.4.1 Costs, including transportation, installation, maintenance, dismantling
and removal of materials, supplies, temporary facilities, machinery, equipment,
and hand tools not customarily owned by the construction workers, which are
provided by the Contractor at the site and fully consumed in the performance of
the Work; and cost less salvage value on such items if not fully consumed,
whether sold to others or retained by the Contractor. Cost for items previously
used by the Contractor shall mean fair market value.
7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand
tools not customarily owned by the construction workers, which are provided by
the Contractor at the site, whether rented from the Contractor or others, and
costs of transportation, installation, minor repairs and replacements,
dismantling and removal thereof. Rates and quantities of equipment rented shall
be subject to the Owner's prior approval.
7.1.4.3 Costs of removal of debris from the site.
7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and
parcel delivery charges, telephone service at the site and reasonable petty cash
expenses of the site office.
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7.1.4.5 That portion of the reasonable travel and subsistence expenses of the
Contractor's personnel incurred while traveling in discharge of duties connected
with the Work.
7.1.5 MISCELLANEOUS COSTS
7.1.5.1 That portion directly attributable to this Contract of premium for
insurance and bonds.
7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which
are related to the Work and for which the Contractor is liable.
7.1.5.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the Contract
Documents to pay.
7.1.5.4 Fees of testing laboratories for tests required by the Contract
Documents, except those related to defective or nonconforming Work for which
reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or
other provisions of the Contract Documents and which do not fall within the
scope of Subparagraphs 7.2.2 through 7.2.4 below.
7.1.5.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of defending
suits or claims for infringement of patent rights arising from such requirement
by the Contract Documents; payments made in accordance with legal judgments
against the Contractor resulting from such suits or claims and payments of
settlements made with the Owner's consent; provided, however, that such costs of
legal defenses, judgment and settlements shall not be included in the
calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any,
and provided that such royalties, fees and costs are not excluded by the last
sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of
the Contract Documents.
7.1.5.6 Deposits lost for causes other than the Contractor's fault or
negligence.
7.1.6 OTHER COSTS
7.1.6.1 Other costs incurred in the performance of the Work if and to the
extent approved in advance in writing by the Owner.
7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK
The Cost of the Work shall also include costs described in Paragraph 7.1 which
are incurred by the Contractor:
7.2.1 In taking action to prevent threatened damage, injury or loss in case of
an emergency affecting the safety of persons and property, as provided in
Paragraph 10.3 of the General Conditions.
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7.2.2 In repairing or correcting Work damaged or improperly executed by
construction workers in the employ of the Contractor, provided such damage or
improper execution did not result from the fault or negligence of the Contractor
or the Contractor's foremen, engineers or superintendents, or other supervisory,
administrative or managerial personnel of the Contractor.
7.2.3 In repairing damaged Work other than that described in Subparagraph
7.2.2, provided such damage did not result from the fault or negligence of the
Contractor or the Contractor's personnel, and only to the extent that the cost
of such repairs is not recoverable by the Contractor from others and the
Contractor is not compensated therefor by insurance or otherwise.
7.2.4 In correcting defective or nonconforming Work performed or supplied by a
Subcontractor or material supplier and not corrected by them, provided such
defective or nonconforming Work did not result from the fault or neglect of the
Contractor or the Contractor's personnel adequately to supervise and direct the
Work of the Subcontractor or material supplier, and only to the extent that the
cost of correcting the defective or nonconforming Work is not recoverable by the
Contractor from the Subcontractor or material supplier.
ARTICLE 8
---------
COSTS NOT TO BE REIMBURSED
8.1 The Cost of the Work shall not include:
8.1.1 Salaries and other compensation of the Contractor's personnel stationed
at the Contractor's principal office or offices other than the site office,
except as specifically provided in Clauses 7.1.1.2 and 7.1 .1 .3 or as may be
provided in Article 14.
8.1.2 Expenses of the Contractor's principal office and offices other than the
site office.
8.1.3 Overhead and general expenses, except as may be expressly included in
Article 7.
8.1.4 The Contractor's capital expenses, including interest on the Contractor's
capital employed for the Work.
8.1.5 Rental costs of machinery and equipment, except as specifically provided
in Clause 7.1.4.2.
8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph
13.5 of this Agreement, costs due to the fault or negligence of the Contractor,
Subcontractors, anyone directly or indirectly employed by any of them, or for
whose acts any of them may be liable, including but not limited to costs for the
correction of damaged, defective or nonconforming Work, disposal and replacement
of materials and equipment incorrectly ordered or supplied, and making good
damage to property not forming part of the Work.
8.1.7 Any cost not specifically and expressly described in Article 7.
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8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be
exceeded.
ARTICLE 9
---------
DISCOUNTS, REBATES AND REFUNDS
9.1 Cash discounts obtained on payments made by the Contractor shall accrue
to the Owner if (1) before making the payment, the Contractor included them in
an Application for Payment and received payment therefor from the Owner, or (2)
the Owner has deposited funds with the Contractor with which to make payments;
otherwise, cash discounts shall accrue to the Contractor. Trade discounts,
rebates, refunds and amounts received from sales of surplus materials and
equipment shall accrue to the Owner, and the Contractor shall make provisions so
that they can be secured.
9.2 Amounts which accrue to the Owner in accordance with the provisions of
Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the
Work.
ARTICLE 10
----------
SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Those portions of the Work that the Contractor does not customarily
perform with the Contractor's own personnel shall be performed under
subcontracts or by other appropriate agreements with the Contractor. The
Contractor shall obtain bids from Subcontractors and from suppliers of materials
or equipment fabricated especially for the Work and shall deliver such bids to
the Architect. The Owner will then determine, with the advice of the Contractor
and subject to the reasonable objection of the Architect, which bids will be
accepted. The Owner may designate specific persons or entities from whom the
Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been
established, the Owner may not prohibit the Contractor from obtaining bids from
others. The Contractor shall not be required to contract with anyone to whom the
Contractor has reasonable objection.
10.2 If a Guaranteed Maximum Price has been established and a specific bidder
among those whose bids are delivered by the Contractor to the Architect (1) is
recommended to the Owner by the Contractor; (2) is qualified to perform that
portion of the Work; and (3) has submitted a bid which conforms to the
requirements of the Contract Documents without reservations or exceptions, but
the Owner requires that another bid be accepted; then the Contractor may require
that a Change Order be issued to adjust the Guaranteed Maximum Price by the
difference between the bid of the person or entity recommended to the Owner by
the Contractor and the amount of the subcontract or other agreement actually
signed with the person or entity designated by the Owner.
10.3 Subcontracts or other agreements shall conform to the payment provisions
of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus
a fee without the prior consent of the Owner.
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ARTICLE 11
----------
ACCOUNTING RECORDS
11.1 The Contractor shall keep full and detailed accounts and exercise such
controls as may be necessary for proper financial management under this
Contract; the accounting and control system shall be satisfactory to the Owner.
The Owner and the Owner's accountants shall be afforded access to the
Contractor's records, books, correspondence, instructions, drawings, receipts,
subcontracts, purchase orders, vouchers, memoranda and other data relating to
this Contract, and the Contractor shall preserve these for a period of three
years after final payment, or for such longer period as may be required by law.
ARTICLE 12
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PROGRESS PAYMENTS
12.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
12.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
12.3 Provided an Application for Payment is received by the Architect not
later than the last day of a month, the Owner shall make payment to the
Contractor not later than the tenth day of the following month. If an
Application for Payment is received by the Architect after the application date
fixed above, payment shall be made by the Owner not later than ten days after
the Architect receives the Application for Payment.
12.4 With each Application for Payment the Contractor shall submit payrolls,
petty cash accounts, receipted invoices or invoices with check vouchers
attached, and any other evidence required by the Owner or Architect to
demonstrate that cash disbursements already made by the Contractor on account of
the Cost of the Work equal or exceed (1) progress payments already received by
the Contractor; less (2) that portion of those payments attributable to the
Contractor's Fee; plus (3) payrolls for the period covered by the present
Application for Payment; plus (4) retainage provided in Subparagraph 12.5.4, if
any, applicable to prior progress payments.
12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
12.5.1 Each Application for Payment shall be based upon the most recent
schedule of values submitted by the Contractor in accordance with the Contract
Documents. The Schedule of values shall allocate the entire Guaranteed Maximum
Price among the various portions of the Work, except that the Contractor's Fee
shall be shown as a single separate item. The schedule of values shall be
prepared in such form and supported by such data to substantiate its accuracy
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as the Architect may require. This schedule, unless objected to by the
Architect, shall be used as a basis for reviewing the Contractor's Applications
for Payment.
12.5.2 Applications for Payment shall show the percentage completion of each
portion of the Work as of the end of the period covered by the Application for
Payment. The percentage completion shall be the lesser of (1) the percentage of
that portion of the Work which has actually been completed or (2) the percentage
obtained by dividing (a) the expense which has actually been incurred by the
Contractor on account of that portion of the Work for which the Contractor has
made or intends to make actual payment prior to the next Application for Payment
by (b) the share of the Guaranteed Maximum Price allocated to that portion of
the Work in the schedule of values.
12.5.3 Subject to other provisions of the Contract Documents, the amount of
each progress payment shall be computed as follows:
12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable
to completed Work as determined by multiplying the percentage completion of each
portion of the Work by the share of the Guaranteed Maximum Price allocated to
that portion of the Work in the schedule of values. Pending final determination
of cost to the Owner of changes in the Work, amounts not in dispute may be
included as provided in Subparagraph 7.3.7 of the General Conditions, even
though the Guaranteed Maximum Price has not yet been adjusted by Change Order.
12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to
materials and equipment delivered and suitably stored at the site for subsequent
incorporation in the Work or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing.
12.5.3.3 Add the Contractor's Fee, less retainage of ten percent (10%). The
Contractor's Fee shall be computed upon the Cost of the Work described in the
two preceding Clauses at the rate stated in Paragraph 5.1 or, if the
Contractor's Fee is stated as a fixed sum in that Paragraph, shall be an amount
which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the
two preceding Clauses bears to a reasonable estimate of the probable Cost of the
Work upon its completion.
12.5.3.4 Subtract the aggregate of previous payments made by the Owner.
12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 to substantiate prior Applications for
Payment, or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
12.5.4 Additional retainage, if any, shall be as follows:
(If it is intended to retain additional amounts from progress payments to the
Contractor beyond (1) the retainage from the Contractor's Fee provided in Clause
12.5.3.3, (2) the retainage from
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Subcontractors provided in Paragraph 12.7 below, and (3) the retainage, if any,
provided by other provisions of the Contract, insert provision for such
additional retainage here. Such provision, if made, should also describe any
arrangement for limiting or reducing the amount retained after the Work reaches
a certain state of completion.)
12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
12.6.1 Applications for Payment shall show the Cost of the Work actually
incurred by the Contractor through the end of the period covered by the
Application for Payment and for which the Contractor has made or intends to make
actual payment prior to the next Application for Payment.
12.6.2 Subject to other provisions of the Contract Documents, the amount of
each progress payment shall be computed as follows:
12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6.1.
12.6.2.2 Add the Contractor's Fee, less retainage of ____________ percent
(________________%). The Contractor's Fee shall be computed upon the Cost of
the Work described in the preceding Clause 12.6.2.1 at the rate stated in
Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that
Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the
Cost of the Work in the preceding Clause bears to a reasonable estimate of the
probable Cost of the Work upon its completion.
12.6.2.3 Subtract the aggregate of previous payments made by the Owner.
12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 or to substantiate prior Applications
for Payment or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
12.6.2.5 Subtract amounts, if any, for which the Architect has withheld or
withdrawn a Certificate for Payment as provided in the Contract Documents.
12.6.3 Additional retainage, if any, shall be as follows:
12.7 Except with the Owner's prior approval, payments to Subcontractors
included in the Contractor's Applications for Payment shall not exceed an amount
for each Subcontractor calculated as follows:
12.7.1 Take that portion of the Subcontract Sum properly allocable to
completed Work as determined by multiplying the percentage completion of each
portion of the Subcontractor's
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Work by the share of the total Subcontract Sum allocated to that portion in the
Subcontractor's schedule of values, less retainage of ten percent (10%).
Pending final determination of amounts to be paid to the Subcontractor for
changes in the Work, amounts not in dispute may be included as provided in
Subparagraph 7.3.7 of the General Conditions even though the Subcontract Sum has
not yet been adjusted by Change Order.
12.7.2 Add that portion of the Subcontract Sum properly allocable to materials
and equipment delivered and suitably stored at the site for subsequent
incorporation in the Work or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing, less retainage of ten
percent (10%).
12.7.3 Subtract the aggregate of previous payments made by the Contractor to
the Subcontractor.
12.7.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment by the Owner to the Contractor for reasons
which are the fault of the Subcontractor.
12.7.5 Add, upon Substantial Completion of the entire Work of the Contractor, a
sum sufficient to increase the total payments to the Subcontractor to five
percent (5%) of the Subcontract Sum, less amounts, if any, for incomplete Work
and unsettled claims; and, if final completion of the entire Work is thereafter
materially delayed through no fault of the Subcontractor, add any additional
amounts payable on account of Work of the Subcontractor in accordance with
Subparagraph 9.10.3 of the General Conditions.
(If it is intended, prior to Substantial Completion of the entire Work of the
Contractor, to reduce or limit the retainage from Subcontractors resulting from
the percentages inserted in Subparagraphs 12.7.1 and 12.7.2 above, and this is
not explained elsewhere in the Contract Documents, insert here provisions for
such reduction or limitation.)
The Subcontract Sum is the total amount stipulated in the subcontract to be paid
by the Contractor to the Subcontractor for the Subcontractor's performance of
the subcontract.
12.8 Except with the Owner's prior approval, the Contractor shall not make
advance payments to suppliers for materials or equipment which have not been
delivered and stored at the site.
12.9 In taking action on the Contractor's Applications for Payment, the
Architect shall be entitled to rely.on the accuracy and completeness of the
information furnished by the Contractor and shall not be deemed to represent
that the Architect has made a detailed examination, audit or arithmetic
verification of the documentation submitted in accordance with Paragraph 12.4 or
other supporting data; that the Architect has made exhaustive or continuous on-
site inspections or that the Architect has made examinations to ascertain how or
for what purposes the
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Contractor has used amounts previously paid on account of the Contract. Such
examinations, audits and verifications, if required by the Owner, will be
performed by the Owner's accountants acting in the sole interest of the Owner.
ARTICLE 13
----------
FINAL PAYMENT
13.1 Final payment shall be made by the Owner to the Contractor when (1) the
Contract has been fully performed by the Contractor except for the Contractor's
responsibility to correct defective or nonconforming Work, as provided in
Subparagraph 12.2.2 of the General Conditions, and to satisfy other
requirements, if any, which necessarily survive final payment; (2) a final
Application for Payment and a final accounting for the Cost of the Work have
been submitted by the Contractor and reviewed by the owner's accountants; and
(3) a final Certificate for Payment has then been issued by the Architect; such
final payment shall be made by the Owner not more than 30 days after the
issuance of the Architect's final Certificate for Payment, or as follows:
13.2 The amount of the final payment shall be calculated as follows:
13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's
final accounting and the Contractor's Fee; but not more than the Guaranteed
Maximum Price, if any.
13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or
in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of
the General Conditions or other provisions of the Contract Documents.
13.2.3 Subtract the aggregate of previous payments made by the Owner.
If the aggregate of previous payments made by the Owner exceeds the amount due
the Contractor, the Contractor shall reimburse the difference to the Owner.
13.3 The Owner's accountants will review and report in writing on the
Contractor's final accounting within 30 days after delivery of the final
accounting to the Architect by the Contractor. Based upon such Cost of the Work
as the Owner's accountants report to be substantiated by the Contractor's final
accounting, and provided the other conditions of Paragraph 13.1 have been met,
the Architect will, within seven days after receipt of the written report of the
Owner's accountants, either issue to the Owner a final Certificate for Payment
with a copy to the Contractor, or notify the Contractor and Owner in writing of
the Architect's reasons for withholding a certificate as provided in
Subparagraph 9.5.1 of the General
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Conditions. The time periods stated in this Paragraph 13.3 supersede those
stated in Subparagraph 9.4.1 of the General Conditions.
13.4 If the Owner's accountants report the Cost of the Work as substantiated by
the Contractor's final accounting to be less than claimed by the Contractor, the
Contractor shall be entitled to den-and arbitration of the disputed amount
without a further decision of the Architect. Such demand for arbitration shall
be made by the Contractor within 30 days after the Contractor's receipt of a
copy of the Architect's final Certificate for Payment; failure to demand
arbitration within this 30-day period shall result in the substantiated amount
reported by the Owner's accountants becoming binding on the Contractor. Pending
a final resolution by arbitration, the Owner shall pay the Contractor the amount
certified in the Architect's final Certificate for Payment.
13.5 If, subsequent to final payment and at the Owner's request, the Contractor
incurs costs described in Article 7 and not excluded by Article 8 to correct
defective or nonconforming Work, the Owner shall reimburse the Contractor such
costs and the Contractor's Fee applicable thereto on the same basis as if such
costs had been incurred prior to final payment, but not in excess of the
Guaranteed Maximum Price, if any. If the Contractor has participated in savings
as provided in Paragraph 5.2, the amount of such savings shall be recalculated
and appropriate credit given to the Owner in determining the net amount to be
paid by the Owner to the Contractor.
ARTICLE 14
----------
MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
14.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any.)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision.
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Legal advice should be obtained with respect to deletions or modifications, and
also regarding requirements such as written disclosures or waivers.)
14.3 Other provisions:
Retainage to be reduced to 5% at 50% completion of project.
ARTICLE 15
----------
TERMINATION OR SUSPENSION
15.1 The Contract may be terminated by the Contractor as provided in Article 14
of the General Conditions; however, the amount to be paid to the contractor
under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount
the Contractor would be entitled to receive under Paragraph 15.3 below, except
that the Contractor's Fee shall be calculated as if the Work had been fully
completed by the Contractor, including a reasonable estimate of the Cost of the
Work for Work not actually completed.
15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract
may be terminated by the Owner for cause as provided in Article 14 of the
General Conditions; however, the amount, if any, to be paid to the Contractor
under Subparagraph 14.2.4 of the General Conditions shall not cause the
Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the
Contractor would be entitled to receive under Paragraph 15.3 below.
15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract
may be terminated by the Owner for cause as provided in Article 14 of the
General Conditions; however, the Owner shall then pay the Contractor an amount
calculated as follows:
15.3.1 Take the Cost of the Work incurred by the Contractor to the date of
termination.
15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date
of termination at the rate stated in Paragraph 5.1 or, if the Contractor's Fee
is stated as a fixed sum in that Paragraph, an amount which bears the same ratio
to that fixed-sum Fee as the Cost of the Work at the time of termination bears
to a reasonable estimate of the probable Cost of the Work upon its completion.
15.3.3 Subtract the aggregate of previous payments made by the Owner.
The Owner shall also pay the Contractor fair compensation, either by purchase or
rental at the election of the Owner, for any equipment owned by the Contractor
which the Owner elects to retain and which is not otherwise included in the Cost
of the Work under Subparagraph 15.3.1. To the extent that the Owner elects to
take legal assignment of subcontracts and purchase orders (including rental
agreements), the Contractor shall, as a condition of receiving the payments
referred to in this Article 15, execute and deliver all such papers and take all
such steps, including the legal assignment of such subcontracts and other
contractual rights of the
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Contractor, as the Owner may require for the purpose of fully vesting in the
Owner the rights and benefits of the Contractor under such subcontracts or
purchase orders.
15.4 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be
increased as provided in Subparagraph 14.3.2 of the General Conditions except
that the term "cost of performance of the Contract" in that Subparagraph shall
be understood to mean the Cost of the Work and the term "profit" shall be
understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3
of this Agreement.
ARTICLE 16
----------
ENUMERATION OF CONTRACT DOCUMENTS
16.1 The Contract Documents, except for Modifications issued after execution of
this Agreement, are enumerated as follows:
16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A111, 1987 Edition.
16.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
16.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated August 11, 1997, and are as follows:
DOCUMENT TITLE PAGES
Little Rock Headquarters
Bank of the Ozarks
Project Manual dated August 11, 1997
AMR Architects, Inc.
16.1.4 The Specifications are those contained in the Project Manual dated as in
Paragraph 16.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
SECTION TITLE PAGES
Little Rock Headquarters
Bank of the Ozarks
Project Manual dated August 11, 1997
AMR Architects, Inc.
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16.1.5 The Drawings are as follows, and are dated __________, unless a
different date is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
NUMBER TITLE DATE
See attached
16.1.6 The addenda, if any, are as follows:
NUMBER TITLE PAGES
One August 21, 1997 9
Two August 26, 1997 3
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 16.
16.1.7 Other Documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to be
part of the Contract Documents.)
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This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER CONTRACTOR
BANK OF THE OZARKS, WCA
/s/ George G. Gleason, II /s/ Robert East
- ------------------------------ -------------------------------------
(Signature) (Signature)
Chairman/CEO
- ------------------------------ -------------------------------------
(Printed name and title) (Printed name and title)
AIA CAUTION: YOU SHOULD SIGN AN ORIGINAL AIA DOCUMENT WHICH HAS THIS
CAUTION PRINTED IN RED. AN ORIGINAL ASSURES THAT CHANGES WILL NOT BE
OBSCURED AS MAY OCCUR WHEN DOCUMENTS ARE REPRODUCED.
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BANK OF THE OZARKS
<TABLE>
<CAPTION>
<S> <C> <C>
C1 DIMENSION LAYOUT 08/12/97
C2 EXCAVATION PLAN 08/12/97
C3 DRAINAGE AND DETENTION 08/12/97
C4 CONTOURS AND SPOT ELEVATIONS 08/12/97
C5 MARKHAM STREET IMPROVEMENTS 08/12/97
C6 CHENAL STREET IMPROVEMENTS 08/12/97
C7 DETAILS 08/12/97
C8 DETAILS 08/12/97
L1 LANDSCAPE PLAN
A1.0 BASEMENT LEVEL FLOOR PLAN 09/16/97
A1.1 FIRST LEVEL FLOOR PLAN + SCHEDULE 09/16/97
A1.2 SECOND LEVEL FLOOR PLAN + SCHDULE 09/16/97
A1.3 THIRD LEVEL FLOOR PLAN + SCHEDULE 09/16/97
A1.4 ROOF PLAN + DETAILS 08/11/97
A1.5 ENLARGED PLANS + DETAILS 08/11197
A2.0 ELEVATIONS 08/11/97
A2.1 ELEVATIONS 09/16/97
A3.0 BUILDING SECTION 08/11/97
A3.1 WALL SECTIONS + DETAILS 08/11/97
A3.2 WALL SECTIONS + DETAILS 08/11/97
A3.3 WALL SECTIONS + DETAILS 08/11/97
A3.4 STAIR SECTION 08/11/97
A3.5 STAIR + ELEVATOR SECTIONS 08/13/97
A3.6 INTERIOR PARTITION SCHEDULE 08/11/97
A4.0 DOOR DETAILS 08/11/97
A4.1 WINDOW DETAILS 08/11/97
A5.0 INTERIOR ELEVATIONS 08/11/97
A6.0 MILLWORK DETAILS 08/11/97
A7.1 FIRST LEVEL REFLECTED CEILING PLAN 09/16/97
A7.2 SECOND LEVEL REFLECTED CEILING PLAN 09/16/97
A7.3 THIRD LEVEL REFLECTED CEILING PLAN 09/16/97
S1.0 FOUNDATION PLAN 09/24/97
S1.1 FIRST FLOOR FRAMING PLAN 09/24/97
S1.2 SECOND FLOOR FRAMING PLAN 09/24/97
S1.3 THIRD FLOOR FRAMING PLAN 09/24/97
S1.4 ROOF LEVEL FRAMING PLAN 08/11197
A1.5 SLOPING ROOF FRAMING PLAN 08/11/97
S1.6 COLUMN DETAILS 09/03/97
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
S2.0 FOUNDATION DETAILS 09/24/97
S2.1 FOUNDATION DETAILS 08/11/97
S3.0 FRAMING DETAILS 08/11/97
S3.1 FRAMING DETAILS 08/11/97
S3.2 FRAMING DETAILS 08/11/97
S3.3 FRAMING DETAILS 08/11/97
S3.4 MISC. DETAILS 08/11/97
S3.5 FRAMING DETAILS 08/11/97
S3.6 DEDUCTIVE ALTERNATE 08/21/97
M-1 MECHANICAL SITE PLAN + DETAILS 08/11/97
M-2 BASEMENT PLUMBING FLOOR PLAN + DETAILS 09/16/97
M-3 FIRST FLOOR PLUMBING PLAN 09/16/97
M-4 SECOND FLOOR PLUMBING PLAN 09/16/97
M-5 THIRD FLOOR PLUMBING PLAN 09/16/97
M-6 PLUMBING SCHEDULE + DETAILS 09/16/97
M-7 BASEMENT MECHANICAL FLOOR PLAN 09/16/97
M-8 FIRST FLOOR MECHANICAL PLAN 09/16/97
M-9 SECOND FLOOR MECHANICAL PLAN 09/16/97
M-10 THIRD FLOOR MECHANICAL PLAN 09/16/97
M-11 FIRST FLOOR MECHANICAL PIPING PLAN 09/16/97
M-12 SECOND FLOOR MECH. PIPING + PLAN 09/16/97
M-13 THIRD FLOOR MECHANICAL PIPING PLAN 09/16/97
M-14 MECHANICAL SCHEDULES + DETAILS 08/11/97
M-15 MECHANICAL PIPING SCHEMATICS + DETAILS 08/11/97
M-16 MECHANICAL SYSTEMS POINT LISTS + DETAILS 08/11/97
E0.1 ELECTRICAL SITE PLAN 08/11/97
E1.1 BASEMENT FLOOR PLAN-LIGHTING 09/17/97
E1.2 FIRST FLOOR PLAN-LIGHTING 09/17/97
E1.3 SECOND FLOOR PLAN-LIGHTING 09/17/97
E1.4 THIRD FLOOR PLAN-LIGHTING 09/17/97
E2.1 BASEMENT FLOOR PLAN-LIGHTING 09/17/97
E2.2 FIRST FLOOR PLAN-POWER 09/17/97
E2.3 SECOND FLOOR PLAN-POWER 09/17/97
E2.4 THIRD FLOOR PLAN-POWER 09/17/97
E3.1 FIRST FLOOR PLAN-SYSTEMS 09/17/97
E3.2 SECOND FLOOR PLAN-SYSTEMS 09/17/97
E3.3 THIRD FLOOR PLAN-SYSTEMS 09/17/97
E4.1 PARTIAN ELECTRICAL PLAN-KITCHEN 09/17/97
E4.2 CCTV, TELEPHONE, ALARM RISER DIAGRAMS 09/17/97
</TABLE>
21
<PAGE>
EXHIBIT 10.14
- --------------------------------------------------------------------------------
AIA Document A111
Standard Form of Agreement
Between Owner and Contractor
where the basis of payment is the
COST OF THE WORK PLUS A FEE
with or without a Guaranteed Maximum Price
1987 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES, CONSULTATION WITH AN
ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION.
The 1987 Edition of AIA Document A201, General Conditions of the Contract
for Construction, is adopted in this document by reference. Do not use
with other general conditions unless this document is modified.
This document has been approved and endorsed by
The Associated General Contractors of America.
- --------------------------------------------------------------------------------
AGREEMENT made as of the Twenty-Fourth day of December in the year of Nineteen
Hundred and Ninety Seven
BETWEEN the Owner: Bank of the Ozarks
(Name and address) 425 West Capital
Little Rock, AR 72201
and the Contractor: East-Harding, Inc.
(Name and address) 2230 Cottandale Ln.
Little Rock, AR 72202
the Project is: Bank of the Ozarks
(Name and address) 5401 Rogers Ave.
Fort Smith, AR 72903
<PAGE>
the Architect is: AMR Architects
(Name and address) 201 East Markham, Suite 150
Little Rock, AR 72201
The Owner and Contractor agree as set forth below.
- --------------------------------------------------------------------------------
Copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967, 1974, 1978, (C)1987 by
The American Institute of Architects, 1735 New York Avenue, N.W.,
Washington, D.C. 20006. Reproduction of the material herein or substantial
quotation of its provisions without written permission of the AIA violates
the copyright laws of the United States and will be subject to legal
prosecution.
AIA DOCUMENT A111.OWNER-CONTRACTOR AGREEMENT.TENTH
EDITION.AIA(R).(C)1987.THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C. 20006 A111-1987 1
- --------------------------------------------------------------------------------
<PAGE>
ARTICLE I
---------
THE CONTRACT DOCUMENTS
1.1 The Contract Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, addenda issued prior to execution of this Agreement, other
documents listed in this Agreement and Modifications issued after execution of
this Agreement; these form the Contract, and are as fully a part of the Contract
as if attached to this Agreement or repeated herein. The Contract represents
the entire and integrated agreement between the parties hereto and supersedes
prior negotiations, representations or agreements, either written or oral. An
enumeration of the Contract Documents, other than Modifications, appears in
Article 16. If anything in the other Contract Documents is inconsistent with
this Agreement, this Agreement shall govern.
ARTICLE 2
---------
THE WORK OF THIS CONTRACT
2.1 The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows:
Telephone & Data Cabling
Bank Equipment
Bank Vault
ARTICLE 3
---------
RELATIONSHIP OF THE PARTIES
3.1 The Contractor accepts the relationship of trust and confidence established
by this Agreement and covenants with the Owner to cooperate with the Architect
and utilize the Contractor's best skill, efforts and judgment in furthering the
interests of the Owner; to furnish efficient business administration and
supervision; to make best efforts to furnish at all times an adequate supply of
workers and materials; and to perform the Work in the best way and most
expeditious and economical manner consistent with the interests of the Owner.
The Owner agrees to exercise best efforts to enable the Contractor to perform
the Work in the best way and most expeditious manner by furnishing and approving
in a timely way information required by the Contractor and making payments to
the Contractor in accordance with requirements of the Contract Documents.
ARTICLE 4
---------
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement is the date from which the Contract Time of
Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit the timely filing of mortgages,
mechanic's liens and other security interests.
2
<PAGE>
4.2 The Contractor shall achieve Substantial Completion of the entire Work
not later than
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion
of certain portions of the Work, if not stated elsewhere in the Contract
Documents.)
September 30, 1998
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time.)
ARTICLE 5
---------
CONTRACT SUM
5.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum consisting of the Cost of the Work
as defined in Article 7 and the Contractor's Fee determined as follows:
(State lump sum, percentage of Cost of the Work or other provision for
determining the Contractor's Fee, and explain how the Contractor's Fee is to be
adjusted for changes in the Work.)
EAST-HARDING INC. FEE OF 5%
5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE)
5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by
the Contractor not to exceed Two Million Seven Hundred Sixty Three Thousand One
Hundred Sixty One Dollars ($2,763,161), subject to additions and deductions by
Change Order as provided in the Contract Documents. Such maximum sum is
referred to in the Contract Documents as the Guaranteed Maximum Price. Costs
which would cause the Guaranteed Maximum Price to be exceeded shall be paid by
the Contractor without reimbursement by the Owner.
(Insert specific provisions if the Contractor is to participate in any savings.)
100% Savings given to OWNER
3
<PAGE>
5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if
any, which are described in the Contract Documents and are hereby accepted by
the Owner:
(State the numbers or other identification of accepted alternates, but only if a
Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If decisions on
other alternates are to be made by the Owner subsequent to the execution of this
Agreement, attach a schedule of such other alternates showing the amount for
each and the date until which that amount is valid.)
Change downspout boots from cast iron to alternate material (to be
determined)
Change Kim site light poles to Valmont.
Omit water-repellant an black veneer and precast (remins on stone base)
Change 8" underground fire protection piping & 8" backflow presenter to 6"
for underground piping and backflow preventer.
5.2.3 The amounts agreed to for unit prices, if any, are as follows:
(State unit prices only if a Guaranteed Maximum Price is inserted in
Subparagraph 5.2.1.)
Signage allowance of $5000
Undercut and compacted fill for, 7000cy at $10/cy or $70,000
ARTICLE 6
---------
CHANGES IN THE WORK
6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the
Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the
General Conditions.
6.1.2 In calculating adjustments to subcontracts (except those awarded with the
Owner's prior consent on the basis of cost plus a fee), the terms "cost" and
"fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs"
and "a reasonable allowance for overhead and profit" as used in Subparagraph
7.3.6 of the General Conditions shall have the meanings assigned to them in the
General Conditions and shall not be modified by Articles 5, 7 and 8 of this
Agreement. Adjustments to subcontracts awarded with the Owner's prior consent
on the basis of cost plus a fee shall be calculated in accordance with the terms
of those subcontracts.
6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs"
as used in the above-referenced provisions of the General Conditions shall mean
the Cost of the Work as defined in Article 7 of this Agreement and the terms
"fee" and "a reasonable allowance for overhead and profit" shall mean the
Contractor's Fee as defined in Paragraph 5.1 of this Agreement.
4
<PAGE>
6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
6.2.1 Increased costs for the items set forth in Article 7 which result from
changes in the Work shall become part of the Cost of the Work, and the
Contractor's Fee shall be adjusted as provided in Paragraph 5.1.
6.3 ALL CONTRACTS
6.3.1 If no specific provision is made in Paragraph 5.1 for adjustment of the
Contractor's Fee in the case of changes in the Work, or if the extent of such
changes is such, in the aggregate, that application of the adjustment provisions
of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the
Contractor's Fee shall be equitably adjusted on the basis of the Fee established
for the original Work.
ARTICLE 7
---------
COSTS TO BE REIMBURSED
7.1 The term Cost of the Work shall mean costs necessarily incurred by the
Contractor in the proper performance of the Work. Such costs shall be at rates
not higher than the standard paid at the place of the Project except with prior
consent of the Owner. The Cost of the Work shall include only the items set
forth in this Article 7.
7.1.1 LABOR COSTS
7.1.1.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's agreement,
at off-site workshops.
7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's agreement.
(If it is intended that the wages or salaries of certain personnel stationed at
the Contractor's principal or other offices shall be included in the Cost of the
Work, identify in Article 14 the personnel to be included and whether for all or
only part of their time.)
7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative
personnel engaged, at factories, workshops or on the road, in expediting the
production or transportation of materials or equipment required for the Work,
but only for that portion of their time required for the Work.
7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law or collective bargaining
agreements and, for personnel not covered by such agreements, customary benefits
such as sick leave, medical and health benefits, holidays, vacations and
pensions, provided such costs are based on wages and salaries included in the
Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3.
7.1.2 SUBCONTRACT COSTS
Payments made by the Contractor to Subcontractors in accordance with the
requirements of the subcontracts.
7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED
CONSTRUCTION
7.1.3.1 Costs, including transportation, of materials and equipment
incorporated or to be incorporated in the completed construction.
7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess
of those actually installed but required to provide reasonable allowance for
waste and for spoilage. Unused excess materials, if any, shall be handed over
to the Owner at the completion of the Work or, at the Owner's option, shall be
sold by the Contractor; amounts realized, if any, from such sales shall be
credited to the Owner as a deduction from the Cost of the Work.
7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED
ITEMS
7.1.4.1 Costs, including transportation, installation, maintenance, dismantling
and removal of materials, supplies, temporary facilities, machinery, equipment,
and hand tools not customarily owned by the construction workers, which are
provided by the Contractor at the site and fully consumed in the performance of
the Work; and cost less salvage value on such items if not fully consumed,
whether sold to others or retained by the Contractor. Cost for items previously
used by the Contractor shall mean fair market value.
5
<PAGE>
7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand
tools not customarily owned by the construction workers, which are provided by
the Contractor at the site, whether rented from the Contractor or others, and
costs of transportation, installation, minor repairs and replacements,
dismantling and removal thereof. Rates and quantities of equipment rented shall
be subject to the Owner's prior approval.
7.1.4.3 Costs of removal of debris from the site.
7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and
parcel delivery charges, telephone service at the site and reasonable petty cash
expenses of the site office.
7.1.4.5 That portion of the reasonable travel and subsistence expenses of the
Contractor's personnel incurred while traveling in discharge of duties connected
with the Work.
7.1.5 MISCELLANEOUS COSTS
7.1.5.1 That portion directly attributable to this Contract of premium for
insurance and bonds.
7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which
are related to the Work and for which the Contractor is liable.
7.1.5.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the Contract
Documents to pay.
7.1.5.4 Fees of testing laboratories for tests required by the Contract
Documents, except those related to defective or nonconforming Work for which
reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or
other provisions of the Contract Documents and which do not fall within the
scope of Subparagraphs 7.2.2 through 7.2.4 below.
7.1.5.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of defending
suits or claims for infringement of patent rights arising from such requirement
by the Contract Documents; payments made in accordance with legal judgments
against the Contractor resulting from such suits or claims and payments of
settlements made with the Owner's consent; provided, however, that such costs of
legal defenses, judgment and settlements shall not be included in the
calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any,
and provided that such royalties, fees and costs are not excluded by the last
sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of
the Contract Documents.
7.1.5.6 Deposits lost for causes other than the Contractor's fault or
negligence.
7.1.6 OTHER COSTS
7.1.6.1 Other costs incurred in the performance of the Work if and to the
extent approved in advance in writing by the Owner.
7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK
The Cost of the Work shall also include costs described in Paragraph 7.1 which
are incurred by the Contractor:
7.2.1 In taking action to prevent threatened damage, injury or loss in case of
an emergency affecting the safety of persons and property, as provided in
Paragraph 10.3 of the General Conditions.
7.2.2 In repairing or correcting Work damaged or improperly executed by
construction workers in the employ of the Contractor, provided such damage or
improper execution did not result from the fault or negligence of the Contractor
or the Contractor's foremen, engineers or superintendents, or other supervisory,
administrative or managerial personnel of the Contractor.
7.2.3 In repairing damaged Work other than that described in Subparagraph
7.2.2, provided such damage did not result from the fault or negligence of the
Contractor or the Contractor's personnel, and only to the extent that the cost
of such repairs is not recoverable by the Contractor from others and the
Contractor is not compensated therefor by insurance or otherwise.
7.2.4 In correcting defective or nonconforming Work performed or supplied by a
Subcontractor or material supplier and not corrected by them, provided such
defective or nonconforming Work did not result from the fault or neglect of the
Contractor or the Contractor's personnel adequately to supervise and direct the
Work of the Subcontractor or material supplier, and only to the extent that the
cost of correcting the defective or nonconforming Work is not recoverable by the
Contractor from the Subcontractor or material supplier.
6
<PAGE>
ARTICLE 8
---------
COSTS NOT TO BE REIMBURSED
8.1 The Cost of the Work shall not include:
8.1.1 Salaries and other compensation of the Contractor's personnel stationed
at the Contractor's principal office or offices other than the site office,
except as specifically provided in Clauses 7.1.1.2 and 7.1 .1 .3 or as may be
provided in Article 14.
8.1.2 Expenses of the Contractor's principal office and offices other than the
site office.
8.1.3 Overhead and general expenses, except as may be expressly included in
Article 7.
8.1.4 The Contractor's capital expenses, including interest on the Contractor's
capital employed for the Work.
8.1.5 Rental costs of machinery and equipment, except as specifically provided
in Clause 7.1.4.2.
8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph
13.5 of this Agreement, costs due to the fault or negligence of the Contractor,
Subcontractors, anyone directly or indirectly employed by any of them, or for
whose acts any of them may be liable, including but not limited to costs for the
correction of damaged, defective or nonconforming Work, disposal and replacement
of materials and equipment incorrectly ordered or supplied, and making good
damage to property not forming part of the Work.
8.1.7 Any cost not specifically and expressly described in Article 7.
8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be
exceeded.
ARTICLE 9
---------
DISCOUNTS, REBATES AND REFUNDS
9.1 Cash discounts obtained on payments made by the Contractor shall accrue to
the Owner if (1) before making the payment, the Contractor included them in an
Application for Payment and received payment therefor from the Owner, or (2) the
Owner has deposited funds with the Contractor with which to make payments;
otherwise, cash discounts shall accrue to the Contractor. Trade discounts,
rebates, refunds and amounts received from sales of surplus materials and
equipment shall accrue to the Owner, and the Contractor shall make provisions so
that they can be secured.
9.2 Amounts which accrue to the Owner in accordance with the provisions of
Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the
Work.
ARTICLE 10
----------
SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Those portions of the Work that the Contractor does not customarily
perform with the Contractor's own personnel shall be performed under
subcontracts or by other appropriate agreements with the Contractor. The
Contractor shall obtain bids from Subcontractors and from suppliers of materials
or equipment fabricated especially for the Work and shall deliver such bids to
the Architect. The Owner will then determine, with the advice of the Contractor
and subject to the reasonable objection of the Architect, which bids will be
accepted. The Owner may designate specific persons or entities from whom the
Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been
established, the Owner may not prohibit the Contractor from obtaining bids from
others. The Contractor shall not be required to contract with anyone to whom
the Contractor has reasonable objection.
10.2 If a Guaranteed Maximum Price has been established and a specific bidder
among those whose bids are delivered by the Contractor to the Architect (1) is
recommended to the Owner by the Contractor; (2) is qualified to perform that
portion of the Work; and (3) has submitted a bid which conforms to the
requirements of the Contract Documents without reservations or exceptions, but
the Owner requires that another bid be accepted; then the Contractor may require
that a Change Order be issued to adjust the Guaranteed Maximum Price by the
difference between the bid of the person or entity recommended to the Owner by
the Contractor and the amount of the subcontract or other agreement actually
signed with the person or entity designated by the Owner.
10.3 Subcontracts or other agreements shall conform to the payment provisions
of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus
a fee without the prior consent of the Owner.
7
<PAGE>
ARTICLE 11
----------
ACCOUNTING RECORDS
11.1 The Contractor shall keep full and detailed accounts and exercise such
controls as may be necessary for proper financial management under this
Contract; the accounting and control system shall be satisfactory to the Owner.
The Owner and the Owner's accountants shall be afforded access to the
Contractor's records, books, correspondence, instructions, drawings, receipts,
subcontracts, purchase orders, vouchers, memoranda and other data relating to
this Contract, and the Contractor shall preserve these for a period of three
years after final payment, or for such longer period as may be required by law.
ARTICLE 12
----------
PROGRESS PAYMENTS
12.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
12.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
12.3 Provided an Application for Payment is received by the Architect not later
than the last day of a month, the Owner shall make payment to the Contractor not
later than the tenth day of the following month. If an Application for Payment
is received by the Architect after the application date fixed above, payment
shall be made by the Owner not later than ten days after the Architect receives
the Application for Payment.
12.4 With each Application for Payment the Contractor shall submit payrolls,
petty cash accounts, receipted invoices or invoices with check vouchers
attached, and any other evidence required by the Owner or Architect to
demonstrate that cash disbursements already made by the Contractor on account of
the Cost of the Work equal or exceed (1) progress payments already received by
the Contractor; less (2) that portion of those payments attributable to the
Contractor's Fee; plus (3) payrolls for the period covered by the present
Application for Payment; plus (4) retainage provided in Subparagraph 12.5.4, if
any, applicable to prior progress payments.
12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
12.5.1 Each Application for Payment shall be based upon the most recent
schedule of values submitted by the Contractor in accordance with the Contract
Documents. The Schedule of values shall allocate the entire Guaranteed Maximum
Price among the various portions of the Work, except that the Contractor's Fee
shall be shown as a single separate item. The schedule of values shall be
prepared in such form and supported by such data to substantiate its accuracy as
the Architect may require. This schedule, unless objected to by the Architect,
shall be used as a basis for reviewing the Contractor's Applications for
Payment.
12.5.2 Applications for Payment shall show the percentage completion of each
portion of the Work as of the end of the period covered by the Application for
Payment. The percentage completion shall be the lesser of (1) the percentage of
that portion of the Work which has actually been completed or (2) the percentage
obtained by dividing (a) the expense which has actually been incurred by the
Contractor on account of that portion of the Work for which the Contractor has
made or intends to make actual payment prior to the next Application for Payment
by (b) the share of the Guaranteed Maximum Price allocated to that portion of
the Work in the schedule of values.
12.5.3 Subject to other provisions of the Contract Documents, the amount of
each progress payment shall be computed as follows:
12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable
to completed Work as determined by multiplying the percentage completion of each
portion of the Work by the share of the Guaranteed Maximum Price allocated to
that portion of the Work in the schedule of values. Pending final determination
of cost to the Owner of changes in the Work, amounts not in dispute may be
included as provided in Subparagraph 7.3.7 of the General Conditions, even
though the Guaranteed Maximum Price has not yet been adjusted by Change Order.
12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to
materials and equipment delivered and suitably stored at the site for subsequent
incorporation in the Work or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing.
12.5.3.3 Add the Contractor's Fee, less retainage of ten percent (10%). The
Contractor's Fee shall be computed upon the Cost of the Work described in the
two preceding Clauses at the rate stated in Paragraph 5.1 or, if the
Contractor's Fee is stated as a fixed sum in that Paragraph, shall be an amount
which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the
two preceding Clauses bears to a reasonable estimate of the probable Cost of the
Work upon its completion.
8
<PAGE>
12.5.3.4 Subtract the aggregate of previous payments made by the Owner.
12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 to substantiate prior Applications for
Payment, or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
12.5.4 Additional retainage, if any, shall be as follows:
(If it is intended to retain additional amounts from progress payments to the
Contractor beyond (1) the retainage from the Contractor's Fee provided in Clause
12.5.3.3, (2) the retainage from Subcontractors provided in Paragraph 12.7
below, and (3) the retainage, if any, provided by other provisions of the
Contract, insert provision for such additional retainage here. Such provision,
if made, should also describe any arrangement for limiting or reducing the
amount retained after the Work reaches a certain state of completion.)
*No additional retainage to be held after the Work is fifty percent (50%)
complete.
12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
12.6.1 Applications for Payment shall show the Cost of the Work actually
incurred by the Contractor through the end of the period covered by the
Application for Payment and for which the Contractor has made or intends to make
actual payment prior to the next Application for Payment.
12.6.2 Subject to other provisions of the Contract Documents, the amount of
each progress payment shall be computed as follows:
12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6.1.
12.6.2.2 Add the Contractor's Fee, less retainage of ____________ percent
(________________%). The Contractor's Fee shall be computed upon the Cost of
the Work described in the preceding Clause 12.6.2.1 at the rate stated in
Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that
Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the
Cost of the Work in the preceding Clause bears to a reasonable estimate of the
probable Cost of the Work upon its completion.
12.6.2.3 Subtract the aggregate of previous payments made by the Owner.
12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 or to substantiate prior Applications
for Payment or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
12.6.2.5 Subtract amounts, if any, for which the Architect has withheld or
withdrawn a Certificate for Payment as provided in the Contract Documents.
12.6.3 Additional retainage, if any, shall be as follows:
12.7 Except with the Owner's prior approval, payments to Subcontractors
included in the Contractor's Applications for Payment shall not exceed an amount
for each Subcontractor calculated as follows:
12.7.1 Take that portion of the Subcontract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each portion of
the Subcontractor's Work by the share of the total Subcontract Sum allocated to
that portion in the Subcontractor's schedule of values, less retainage of ten
percent (10%). Pending final determination of amounts to be paid to the
Subcontractor for changes in the Work, amounts not in dispute may be included as
provided in Subparagraph 7.3.7 of the General Conditions even though the
Subcontract Sum has not yet been adjusted by Change Order.
12.7.2 Add that portion of the Subcontract Sum properly allocable to materials
and equipment delivered and suitably stored at the site for subsequent
incorporation in the Work or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing, less retainage of ten
percent (10%).
12.7.3 Subtract the aggregate of previous payments made by the Contractor to
the Subcontractor.
9
<PAGE>
12.7.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment by the Owner to the Contractor for reasons
which are the fault of the Subcontractor.
12.7.5 Add, upon Substantial Completion of the entire Work of the Contractor, a
sum sufficient to increase the total payments to the Subcontractor to five
percent (5%) of the Subcontract Sum, less amounts, if any, for incomplete Work
and unsettled claims; and, if final completion of the entire Work is thereafter
materially delayed through no fault of the Subcontractor, add any additional
amounts payable on account of Work of the Subcontractor in accordance with
Subparagraph 9.10.3 of the General Conditions.
(If it is intended, prior to Substantial Completion of the entire Work of the
Contractor, to reduce or limit the retainage from Subcontractors resulting from
the percentages inserted in Subparagraphs 12.7.1 and 12.7.2 above, and this is
not explained elsewhere in the Contract Documents, insert here provisions for
such reduction or limitation.)
The Subcontract Sum is the total amount stipulated in the subcontract to be paid
by the Contractor to the Subcontractor for the Subcontractor's performance of
the subcontract.
12.8 Except with the Owner's prior approval, the Contractor shall not make
advance payments to suppliers for materials or equipment which have not been
delivered and stored at the site.
12.9 In taking action on the Contractor's Applications for Payment, the
Architect shall be entitled to rely.on the accuracy and completeness of the
information furnished by the Contractor and shall not be deemed to represent
that the Architect has made a detailed examination, audit or arithmetic
verification of the documentation submitted in accordance with Paragraph 12.4 or
other supporting data; that the Architect has made exhaustive or continuous on-
site inspections or that the Architect has made examinations to ascertain how or
for what purposes the Contractor has used amounts previously paid on account of
the Contract. Such examinations, audits and verifications, if required by the
Owner, will be performed by the Owner's accountants acting in the sole interest
of the Owner.
ARTICLE 13
----------
FINAL PAYMENT
13.1 Final payment shall be made by the Owner to the Contractor when (1) the
Contract has been fully performed by the Contractor except for the Contractor's
responsibility to correct defective or nonconforming Work, as provided in
Subparagraph 12.2.2 of the General Conditions, and to satisfy other
requirements, if any, which necessarily survive final payment; (2) a final
Application for Payment and a final accounting for the Cost of the Work have
been submitted by the Contractor and reviewed by the owner's accountants; and
(3) a final Certificate for Payment has then been issued by the Architect; such
final payment shall be made by the Owner not more than 30 days after the
issuance of the Architect's final Certificate for Payment, or as follows:
13.2 The amount of the final payment shall be calculated as follows:
13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's
final accounting and the Contractor's Fee; but not more than the Guaranteed
Maximum Price, if any.
13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or
in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of
the General Conditions or other provisions of the Contract Documents.
13.2.3 Subtract the aggregate of previous payments made by the Owner.
If the aggregate of previous payments made by the Owner exceeds the amount due
the Contractor, the Contractor shall reimburse the difference to the Owner.
10
<PAGE>
13.3 The Owner's accountants will review and report in writing on the
Contractor's final accounting within 30 days after delivery of the final
accounting to the Architect by the Contractor. Based upon such Cost of the Work
as the Owner's accountants report to be substantiated by the Contractor's final
accounting, and provided the other conditions of Paragraph 13.1 have been met,
the Architect will, within seven days after receipt of the written report of the
Owner's accountants, either issue to the Owner a final Certificate for Payment
with a copy to the Contractor, or notify the Contractor and Owner in writing of
the Architect's reasons for withholding a certificate as provided in
Subparagraph 9.5.1 of the General Conditions. The time periods stated in this
Paragraph 13.3 supersede those stated in Subparagraph 9.4.1 of the General
Conditions.
13.4 If the Owner's accountants report the Cost of the Work as substantiated by
the Contractor's final accounting to be less than claimed by the Contractor, the
Contractor shall be entitled to den-and arbitration of the disputed amount
without a further decision of the Architect. Such demand for arbitration shall
be made by the Contractor within 30 days after the Contractor's receipt of a
copy of the Architect's final Certificate for Payment; failure to demand
arbitration within this 30-day period shall result in the substantiated amount
reported by the Owner's accountants becoming binding on the Contractor. Pending
a final resolution by arbitration, the Owner shall pay the Contractor the amount
certified in the Architect's final Certificate for Payment.
13.5 If, subsequent to final payment and at the Owner's request, the Contractor
incurs costs described in Article 7 and not excluded by Article 8 to correct
defective or nonconforming Work, the Owner shall reimburse the Contractor such
costs and the Contractor's Fee applicable thereto on the same basis as if such
costs had been incurred prior to final payment, but not in excess of the
Guaranteed Maximum Price, if any. If the Contractor has participated in savings
as provided in Paragraph 5.2, the amount of such savings shall be recalculated
and appropriate credit given to the Owner in determining the net amount to be
paid by the Owner to the Contractor.
ARTICLE 14
----------
MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
14.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any.)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
14.3 Other provisions:
Retainage to be reduced to 5% at 50% completion of project.
ARTICLE 15
----------
TERMINATION OR SUSPENSION
15.1 The Contract may be terminated by the Contractor as provided in Article 14
of the General Conditions; however, the amount to be paid to the contractor
under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount
the Contractor would be entitled to receive under Paragraph 15.3 below, except
that the Contractor's Fee shall be calculated as if the Work had been fully
completed by the Contractor, including a reasonable estimate of the Cost of the
Work for Work not actually completed.
11
<PAGE>
15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract
may be terminated by the Owner for cause as provided in Article 14 of the
General Conditions; however, the amount, if any, to be paid to the Contractor
under Subparagraph 14.2.4 of the General Conditions shall not cause the
Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the
Contractor would be entitled to receive under Paragraph 15.3 below.
15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract
may be terminated by the Owner for cause as provided in Article 14 of the
General Conditions; however, the Owner shall then pay the Contractor an amount
calculated as follows:
15.3.1 Take the Cost of the Work incurred by the Contractor to the date of
termination.
15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date
of termination at the rate stated in Paragraph 5.1 or, if the Contractor's Fee
is stated as a fixed sum in that Paragraph, an amount which bears the same ratio
to that fixed-sum Fee as the Cost of the Work at the time of termination bears
to a reasonable estimate of the probable Cost of the Work upon its completion.
15.3.3 Subtract the aggregate of previous payments made by the Owner.
The Owner shall also pay the Contractor fair compensation, either by purchase or
rental at the election of the Owner, for any equipment owned by the Contractor
which the Owner elects to retain and which is not otherwise included in the Cost
of the Work under Subparagraph 15.3.1. To the extent that the Owner elects to
take legal assignment of subcontracts and purchase orders (including rental
agreements), the Contractor shall, as a condition of receiving the payments
referred to in this Article 15, execute and deliver all such papers and take all
such steps, including the legal assignment of such subcontracts and other
contractual rights of the Contractor, as the Owner may require for the purpose
of fully vesting in the Owner the rights and benefits of the Contractor under
such subcontracts or purchase orders.
15.4 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be
increased as provided in Subparagraph 14.3.2 of the General Conditions except
that the term "cost of performance of the Contract" in that Subparagraph shall
be understood to mean the Cost of the Work and the term "profit" shall be
understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3
of this Agreement.
ARTICLE 16
----------
ENUMERATION OF CONTRACT DOCUMENTS
16.1 The Contract Documents, except for Modifications issued after execution of
this Agreement, are enumerated as follows:
16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A111, 1987 Edition.
16.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
16.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated __________________________, and are as
follows:
DOCUMENT TITLE PAGES
Fort Smith, Arkansas
Bank of the Ozarks
Project Manual dated October 22, 1997
AMR Architects, Inc.
16.1.4 The Specifications are those contained in the Project Manual dated as in
Paragraph 16.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
12
<PAGE>
SECTION TITLE PAGES
Fort Smith, Arkansas
Bank of the Ozarks
Project Manual dated October 22, 1997
AMR Architects, Inc.
16.1.5 The Drawings are as follows, and are dated __________, unless a
different date is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
NUMBER TITLE DATE
See attached
16.1.6 The addenda, if any, are as follows:
NUMBER TITLE PAGES
One November 17, 1997 3
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 16.
16.1.7 Other Documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to be
part of the Contract Documents.)
13
<PAGE>
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER CONTRACTOR
/s/ Mark D. Ross /s/ T. Harding
- ------------------------------------ -----------------------------------------
(Signature) (Signature)
President
- ------------------------------------ -----------------------------------------
(Printed name and title) (Printed name and title)
AIA CAUTION: YOU SHOULD SIGN AN ORIGINAL AIA DOCUMENT WHICH HAS THIS CAUTION
PRINTED IN RED. AN ORIGINAL ASSURES THAT CHANGES WILL NOT BE OBSCURED AS
MAY OCCUR WHEN DOCUMENTS ARE REPRODUCED.
14
<PAGE>
Bank of the Ozarks
C1.1 Site Grading (revised) 11-24-97
C1.2 Site Layout + Details (revised) 11-24-97
L1 Landscape Plan 11-03-97
A1.0 First Floor Plan 10-22-97
A1.1 Second Floor Plan 10-22-97
A1.2 Roof Plan 10-22-97
A1.3 Enlarged Plans & Details 10-22-97
A1.4 Roof Details 10-22-97
A2.0 Elevations 10-22-97
A3.0 Building Sections 10-22-97
A3.1 Wall Sections 10-22-97
A3.2 Wall Sections 10-22-97
A3.3 Wall Sections 10-22-97
A3.4 Interior Partition Schedule 10-22-97
A4.0 Door Details & Schedule 10-22-97
A4.1 Window Details & Schedule 10-22-97
A5.0 Interior Elevations 10-22-97
A6.0 Millwork Details 10-22-97
A7.0 First Floor Reflected Ceiling Plans 10-22-97
A7.1 Second Floor Reflected Ceiling Plans 10-22-97
S1.0 Foundation Plan 10-22-97
S1.1 Second Floor Framing Plan 10-22-97
S1.2 Roof Level Framing Plan 10-22-97
S1.3 Sloping Roof Framing Plan 10-22-97
S1.4 General Notes & Schedules 10-22-97
S2.0 Foundation Details 10-22-97
S2.1 Foundation Details 10-22-97
S3.0 Framing Details 10-22-97
S3.1 Framing Details 10-22-97
S3.2 Framing Details 10-22-97
S3.3 Framing Details 10-22-97
S3.4 Framing Details 10-22-97
S3.5 Wood Truss Plan & Details 10-22-97
M-1 Mechanical Utility Site Plan 10-22-97
M-2 First Floor Plumbing Plan 10-22-97
M-3 Second Floor Plumbing Plan 10-22-97
M-4 Plumbing Schedule Details & Details 10-22-97
M-5 First Floor Mechanical 10-22-97
M-6 Second Floor Mechanical Plan 10-22-97
M-7 First Floor Mechanical Piping Plan 10-22-97
M-8 Second Floor Mechanical Piping Plan 10-22-97
M-9 Mechanical Schedule & Details 10-06-97
M10 Mechanical Details 10-22-97
M11 Mechanical Control Details 10-22-97
EO.1 Electrical Site Plan 10-22-97
E1.1 First Floor Plan Lighting 10-22-97
E1.2 Second Floor Plan Lighting 10-22-97
E2.1 First Floor Plan Power 10-22-97
E2.2 Second Floor Plan Power 10-22-97
E3.1 First Floor Plan Systems 10-22-97
E3.2 Second Floor Plan Systems 10-22-97
E4.1 Electrical Details 10-22-97
15
<PAGE>
EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income ............................... $ 27,468 $ 21,836 $ 15,703 $ 12,645 $ 14,057
Interest expense .............................. 12,979 10,031 7,391 4,651 5,011
Net interest income ........................... 14,489 11,805 8,312 7,994 9,046
Provision for loan losses ..................... 1,139 1,486 360 339 338
Non-interest income ........................... 2,925 1,865 1,168 2,713 1,068
Non-interest expense .......................... 9,228 7,151 5,996 5,735 6,162
Net income .................................... 4,531 3,027 2,170 2,954/(1)/ 2,425
PER COMMON SHARE DATA:
Earnings ...................................... $ 1.38 $ 1.05 $ 0.75 $ 0.99/(1/ $ 0.82
Book value .................................... 9.44 6.44 5.66 5.07 4.53
Dividends ..................................... 0.20 0.30 0.30 0.30 0.25
Weighted avg. shares outstanding (thousands)... 3,281 2,880 2,894 2,975 2,968
BALANCE SHEET DATA AT PERIOD END:
Total assets .................................. $352,093 $270,600 $212,476 $165,030 $181,609
Total loans ................................... 275,463 214,462 153,198 112,806 115,032
Allowance for loan losses ..................... 3,737 3,019 1,909 1,649 1,716
Net loans ..................................... 271,726 211,443 151,289 111,157 113,316
Total investment securities ................... 42,459 39,608 37,137 40,521 44,786
Total deposits ................................ 295,555 231,648 182,463 148,453 164,362
FHLB advances ................................. 14,017 12,517 7,947 - -
Notes payable ................................. 5,072 5,396 3,920 - 2,278
Total stockholders' equity .................... 35,666 18,547 16,294 15,076 13,484
Loan to deposit ratio ......................... 93.20% 92.58% 83.96% 75.99% 69.99%
AVERAGE BALANCE SHEET DATA:
Total average assets .......................... $314,489 $240,208 $185,160 $167,333 $178,570
Total average stockholders' equity ............ 26,328 17,144 15,392 14,287 12,559
Average equity to total average assets ........ 8.37% 7.14% 8.31% 8.54% 7.03%
PERFORMANCE RATIOS:
Return on average assets ...................... 1.44% 1.26% 1.17% 1.77% 1.36%
Return on average stockholders' equity ........ 17.21 17.66 14.09 20.67 19.31
Net interest margin ........................... 4.98 5.36 4.95 5.24 5.76
Overhead ratio ................................ 2.93 2.99 3.23 3.49 3.61
Efficiency ratio .............................. 52.55 51.60 61.57 62.83 60.56
Dividend payout ratio ......................... 14.49 28.57 40.00 30.30 30.49
ASSETS QUALITY RATIOS:
Net charge-offs as a percentage of average
total loans .................................. 0.17% 0.21% 0.08% 0.09% 0.52%
Nonperforming loans to total loans ............ 0.25 1.08 0.85 0.57 1.73
Nonperforming assets to total assets .......... 0.24 0.88 0.63 0.50 1.51
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF:
Total loans ................................... 1.36% 1.41% 1.25% 1.46% 1.49%
Nonperforming loans ........................... 534.62 130.69 146.28 258.46 86.10
CAPITAL RATIOS AT PERIOD END:
Leverage capital ratio ........................ 9.86% 6.42% 7.49% 9.10% 6.83%
Tier I risk-based capital ..................... 13.01 8.45 9.80 12.71 10.13
Total risk-based capital ...................... 14.27 9.70 11.05 13.96 11.38
</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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Net income was $4.5 million for the year ended December 31, 1997, a 49.7%
increase over net income of $3.0 million for the same period in 1996. Net income
in 1995 was $2.2 million. Earnings per share, which was impacted by the
Company's issuance of 899,755 additional shares of common stock in the Company's
initial public offering ("IPO") completed during the third quarter of 1997, rose
31.4% to $1.38 per share in 1997 compared to $1.05 per share in 1996. Earnings
per share in 1995 was $0.75 per share.
As reflected in the following table, total assets, loans and deposits
increased 30.1%, 28.4% and 27.6%, respectively, at December 31, 1997 from
December 31, 1996. As a result of the Company's IPO and earnings, stockholders'
equity increased 92.3% from $18.5 million at December 31, 1996, to $35.7 million
at December 31, 1997. During this same period book value per share increased
46.6% from $6.44 to $9.44 per share.
% CHANGE
DECEMBER 31, --------------------
------------------------------- 1997 1996
1997 1996 1995 FROM 1996 FROM 1995
-------- -------- -------- --------- ---------
(Dollars in Thousands)
Assets ............. $352,093 $270,600 $212,476 30.1% 27.4%
Loans .............. 275,463 214,462 153,198 28.4 40.0
Deposits ........... 295,555 231,648 182,463 27.6 27.0
Stockholders' Equity 35,666 18,547 16,294 92.3 13.8
Two measures of the performance by financial institutions are return on
average assets (ROA) and return on average equity (ROE). ROA measures net
earnings in relation to average total assets and indicates a company's ability
to employ its resources profitably. For the year ended December 31, 1997 the
Company's ROA was 1.44% compared with 1.26% and 1.17% respectively for the years
ended December 31, 1996 and 1995. ROE is determined by dividing annual net
earnings by average shareholders' equity and indicates how effectively a company
can generate net income on the capital invested by its shareholders. For the
year ended December 31, 1997 the Company's ROE was 17.21% compared with 17.66%
and 14.09% respectively for the years ended December 31, 1996 and 1995.
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 also
significantly affected by its provision for loan losses. The following
discussion provides a summary of the Company's operations for the past three
years.
NET INTEREST INCOME
Net interest income is analyzed in the discussion and tables below on a fully
taxable equivalent ("FTE") basis. The adjustment to convert certain income to an
FTE basis consists of dividing tax exempt income by one minus the federal income
tax rate (34%).
1997 COMPARED TO 1996
Net interest income (FTE) increased 22.0% to $14.6 million in 1997 from $12.0
million in 1996. This increase primarily resulted from a 31.1% increase in
average earnings assets to $293.6 million in 1997 from $223.9 million in 1996.
The increase in average earning assets resulted primarily from expansion of the
Company's loan portfolio. The increase in interest margin attributable to the
growth in earning assets was offset somewhat by a decline in the net interest
margin from 5.36% to 4.98%. The decrease in the net interest margin resulted
primarily from a 44 basis point decrease in the yield on average earning assets.
A substantial portion of this decrease was attributable to lower average
balances during 1997 on a relative high
11
<PAGE>
yielding portfolio of loans acquired prior to 1996 from the Resolution Trust
Corporation.
1996 COMPARED TO 1995
Net interest income (FTE) 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.
ANALYSIS OF NET INTEREST INCOME
(FTE = Fully Taxable Equivalent)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income ........................ $27,468 $21,836 $15,703
FTE adjustment ......................... 144 187 218
------- ------- -------
Interest income -FTE ................... 27,612 22,023 15,921
Interest expense ....................... 12,979 10,031 7,391
------- ------- -------
Net interest income -FTE ............... $14,633 $11,992 $ 8,530
======= ======= =======
Yield on interest earning assets - FTE.. 9.40% 9.84% 9.24%
Cost of interest bearing liabilities ... 5.02 5.02 4.88
Net interest spread - FTE .............. 4.38 4.82 4.36
Net interest margin-FTE ................ 4.98 5.36 4.95
</TABLE>
The following table sets forth certain information relating to the elements of
the Company's net interest income for the years ended December 31, 1997, 1996
and 1995. 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 certain fees which are considered adjustments to yields.
12
<PAGE>
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996
-------------------------------- ------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Interest-earning deposits ........................ $ 3,883 $ 213 5.49% $ 3,077 $ 169 5.49%
Federal funds sold ............................... 2,021 108 5.34 2,720 145 5.33
Investment securities:
Taxable ........................................ 39,413 2,684 6.81 32,526 2,069 6.36
Tax-exempt-FTE ................................. 3,520 353 10.03 5,215 551 10.57
Loans (net of unearned income) ................... 244,757 24,254 9.91 180,334 19,089 10.59
-------- -------- -------- --------
Total earnings assets ...................... 293,594 27,612 9.40 223,872 22,023 9.84
Non-earning assets ................................. 20,895 16,336
-------- --------
Total assets ............................... $314,489 $240,208
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Interest-bearing liabilities:
Deposits
Interest bearing transaction and savings ....... $ 61,184 $ 1,786 2.92% $ 48,989 $ 1,311 2.68%
Certificates of deposits $100,000 or more .... 48,919 2,753 5.63 34,689 1,975 5.69
Other time deposits .......................... 129,969 7,287 5.61 102,076 5,719 5.60
-------- -------- -------- --------
Total interest bearing deposits ............ 240,072 11,826 4.93 185,754 9,005 4.85
Federal funds and FHLB borrowings .................. 12,347 599 4.85/(1)/ 9,564 558 5.83
Holding company debt(2) ............................ 6,125 554 9.04 4,315 468 10.85
-------- -------- -------- --------
Total interest bearing liabilities ......... 258,544 12,979 5.02 199,633 10,031 5.02
Non-interest liabilities
Non-interest bearing deposits .................... 26,981 20,129
Other non-interest liabilities ................... 2,636 3,302
-------- --------
Total liabilities .......................... 288,161 223,064
Stockholders' equity ............................... 26,328 17,144
-------- --------
Total liabilities and stockholders' equity . $314,489 $240,208
======== ========
Interest rate spread ............................... 4.38% 4.82%
-------- --------
Net interest income ................................ $ 14,633 $ 11,992
======== ========
Net interest margin ................................ 4.98% 5.36%
<CAPTION>
1995
------------------------------
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
ASSETS
Earnings assets:
Interest-earning deposits ........................ $ 1,524 $ 85 5.58%
Federal funds sold ............................... 1,832 109 5.95
Investment securities:
Taxable ........................................ 34,771 2,079 5.98
Tax-exempt-FTE ................................. 5,654 642 11.35
Loans (net of unearned income) ................... 128,530 13,006 10.12
-------- --------
Total earnings assets ...................... 172,311 15,921 9.24
Non-earning assets ................................. 12,849
--------
Total assets ............................... $185,160
========
LIABILITIES AND STOCKHOLDERS EQUITY
Interest-bearing liabilities:
Deposits $ 40,537 $ 913 2.25%
Interest bearing transaction and savings ....... 24,307 1,436 5.91
Certificates of deposits $100,000 or more .... 85,936 5,008 5.83
Other time deposits .......................... -------- --------
150,780 7,357 4.88
Total interest bearing deposits ............ 419 24 5.73
Federal funds and FHLB borrowings .................. 104 10 9.62
Holding company debt(2) ............................ -------- --------
151,303 7,391 4.88
Total interest bearing liabilities .........
Non-interest liabilities 16,492
Non-interest bearing deposits .................... 1,973
Other non-interest liabilities ................... --------
169,768
Total liabilities .......................... 15,392
Stockholders' equity ............................... --------
$185,160
Total liabilities and stockholders' equity . ========
4.36%
Interest rate spread ............................... --------
$ 8,530
Net interest income ................................ ========
4.95%
Net interest margin ................................
</TABLE>
(1) This rate was impacted by the capitalization of interest on construction
projects in the amount of $145,000. In the absence of this capitalization this
percentage would have been 6.03%
(2) The interest expense of holding company debt includes interest accrued for
the years ended December 31, 1997 and 1996 for a tax dispute related to the
years 1992-1995. Such interest accruals were $25,000 and $93,000 and were
recorded during the years ended December 31, 1997 and 1996 respectfully.
The following table reflects the extent to which changes in the volume of
interest earnings 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.
13
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1997 over 1996 1996 over 1995
--------------------------- ---------------------------
YIELD/ YIELD/
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Interest earning deposits ........ $ 44 $ - $ 44 $ 85 $ (1) $ 84
Federal funds sold ............... (37) - (37) 47 (11) 36
Investment securities:
Taxable ........................ 469 146 615 (143) 133 (10)
Tax-exempt ..................... (170) (28) (198) (46) (45) (91)
Loans (net of unearned income) ... 6,384 (1,219) 5,165 5,484 599 6,083
------- ------- ------- ------- ------- -------
Total interest earnings assets . 6,690 (1,101) 5,589 5,427 675 6,102
------- ------- ------- ------- ------- -------
Interest expense:
Interest bearing transaction
deposits and savings accts ........ 356 119 475 226 172 398
Time deposits of $100,000 or more .. 801 (23) 778 591 (52) 539
Other time deposits ................ 1,564 4 1,568 904 (193) 711
Federal funds and FHLB borrowings .. 135 (94) 41 534 - 534
Holding company debt ............... 164 (78) 86 457 1 458
------- ------- ------- ------- ------- -------
Total interest bearing
liabilities ................... 3,020 (72) 2,948 2,712 (72) 2,640
------- ------- ------- ------- ------- -------
Increase (decrease) in net interest
income ........................... $ 3,670 $(1,029) $ 2,641 $ 2,715 $ 747 $ 3,462
======= ======= ======= ======= ======= =======
</TABLE>
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 fees, and gains on sales.
Non-interest income for the year ending December 31, 1997 increased 56.8% to
$2.9 million compared with $1.9 million in 1996. Non-interest income was $1.2
million in 1995. The Company's growth in non-interest income is primarily due to
increases in loan fees, service charges on deposit accounts and gains on sale of
assets. In 1996, the Company began to originate residential mortgage loans for
resale in the secondary market. The growth in the volume of secondary market
loan fees was the largest single contributor to the Company's improvement in
non-interest income in 1997.
The table below shows non-interest income for the years ended December 31,
1997, 1996 and 1995.
14
<PAGE>
NON-INTEREST INCOME
DECEMBER 31,
-----------------------------
1997 1996 1995
------- --------- --------
(Dollars in thousands)
Trust department income ............. $ 274 $ 214 $ 231
Service charges on deposit accounts . 957 806 514
Loan fees ........................... 566 68 23
Other service charges and fees ...... 570 469 338
Gain on sale of loans ............... 57 274 -
Gain on sale of previously foreclosed
real estate ........................ 261 14 4
Gain on sale of other assets ........ 76 - -
Securities gains (losses) ........... 14 (77) (44)
Printed check sales ................. 127 90 9
Other income ........................ 23 7 93
------- ------- -------
Total non-interest income ........ $ 2,925 $ 1,865 $ 1,168
======= ======= =======
NON-INTEREST EXPENSE
Non-interest expense consists of salaries and employee benefits, occupancy,
equipment and other operating expenses. Non-interest expense for the year ended
December 31, 1997 increased 29.0% to $9.2 million compared with $7.2 million in
1996. Non-interest expense was $6.0 million in 1995. The increases in
non-interest expense are primarily attributable to increases in staff,
facilities and operating volumes resulting from the Company's continued growth
and expansion, including the cost of preparation for and opening of new offices.
During 1997, the Company opened five new offices.
Management is committed to controlling the level of non-interest expense and
utilizes the assistance of a detailed branch level accounting and budgeting
process in its monitoring of these expense levels.
The overhead ratio (non-interest expenses divided by average assets) for the
year ended December 31, 1997 was 2.93%, down 6 basis points from 2.99% in 1996.
The efficiency ratio (non-interest expenses divided by the sum of net interest
income on a tax equivalent basis and non-interest income) was 52.55% for the
year ended December 31, 1997 compared to 51.60% in 1996.
The table below shows non-interest expense for the years ended December 31,
1997, 1996 and 1995.
NON-INTEREST EXPENSE
DECEMBER 31,
-------------------------
1997 1996 1995
------- ------ -------
(Dollars in thousands)
Salaries and employee benefits ............ $5,330 $4,263 $3,374
Net occupancy expense ..................... 584 457 319
Equipment expense ......................... 721 541 426
Other real estate and foreclosure expense.. 40 49 142
Other operating expense:
Professional services .................... 102 60 56
Postage .................................. 178 140 118
Telephone ................................ 221 125 106
Operating supplies ....................... 405 215 214
Advertising and public relations ......... 332 123 101
Other outside service fees ............... 59 59 31
Directors' fees .......................... 116 96 79
Software expense ......................... 119 69 75
Check printing charges ................... 137 102 30
FDIC & state assessment .................. 112 47 373
Amortization of goodwill ................. 56 56 59
Charitable contributions ................. 84 126 126
Guaranty fee ............................. 76 91 -
Other .................................... 556 532 367
------ ------ ------
Total non-interest expense ........... $9,228 $7,151 $5,996
====== ====== ======
15
<PAGE>
INCOME TAXES
The provision for income taxes was $2.5 million for the year ended December
31, 1997 compared to $2.0 million in 1996 and $845,000 in 1995. The effective
income tax rates were 35.7%, 39.9% and 27.0%, respectively, for these periods.
In 1996, 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 in 1996 and significantly
increased the Company's effective income tax rate for 1996. The tax rate for
1996 would have been 35.6% without this additional tax expense. The Company paid
the disputed taxes and related interest during 1997. This payment was made under
protest and the Company plans to file suit seeking a refund.
ANALYSIS OF FINANCIAL CONDITION
LOAN PORTFOLIO
At December 31, 1997 the Company's loan portfolio was $275.5 million, an
increase of 28.4% from $214.5 million at December 31, 1996. As of December 31,
1997, the Company's loan portfolio consisted of approximately 62.5% real estate
loans, 19.3% consumer loans, 13.6% commercial and industrial loans and 3.9%
agricultural loans (non-real estate).
The amount and type of loans outstanding at December 31, 1997, 1996, 1995,
1994, 1993 are reflected in the following table.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real Estate
Single family residential ...... $ 96,943 $ 78,124 $ 55,609 $ 41,494 $ 42,569
Non-farm/non-residential ....... 41,710 35,258 36,603 22,978 27,326
Agricultural ................... 13,443 11,583 9,274 8,373 9,199
Construction/land development... 16,257 8,808 3,471 4,668 1,672
Multifamily residential ........ 3,897 3,743 4,388 3,806 4,369
-------- -------- -------- -------- --------
Total real estate ............ 172,250 137,516 109,345 81,319 85,135
Consumer ....................... 53,233 39,868 25,372 17,583 17,278
Commercial and industrial ...... 37,470 28,154 11,077 6,191 5,405
Agricultural (non-real estate) 10,824 8,363 6,963 6,889 6,161
Other .......................... 1,686 561 441 824 1,053
-------- -------- -------- -------- --------
Total loans .................. $275,463 $214,462 $153,198 $112,806 $115,032
======== ======== ======== ======== ========
</TABLE>
16
<PAGE>
The following table reflects remaining loan maturities at December 31, 1997 by
type and with fixed or floating interest rates.
LOAN MATURITIES
OVER 1 YEAR
1 YEAR THROUGH OVER
OR LESS 5 YEARS 5 YEARS TOTAL
-------- -------- -------- --------
(Dollars in thousands)
Real Estate .................. $ 57,134 $ 78,950 $ 36,166 $172,250
Consumer ..................... 12,031 39,099 2,103 53,233
Commercial and industrial .... 20,158 15,970 1,342 37,470
Other ........................ 6,550 3,265 2,695 12,510
-------- -------- -------- --------
$ 95,873 $137,284 $ 42,306 $275,463
======== ======== ======== ========
Fixed rate ................... $ 90,091 $130,145 $ 18,683 $238,919
Floating rate ................ 5,782 7,139 23,623 36,544
-------- -------- -------- --------
$ 95,873 $137,284 $ 42,306 $275,463
======== ======== ======== ========
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 December 31, 1996,
one loan for $1.3 million accounted for 68.4% of the total $1.9 million
nonaccrual loans. This large nonaccrual loan was paid off in the fourth quarter
of 1997. As a result, nonperforming loans as a percent of total loans declined
to .25% at December 31, 1997, from 1.08% at December 31, 1996.
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.
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,
-----------------------------------------------
1997 1996 1995 1994 1993
--------- -------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ................................... $ 664 $2,057 $1,181 $ 571 $1,931
Accruing loans 90 days or more past due ............ 35 253 124 67 62
Restructured loans ................................. - - - - -
------ ------ ------ ------ ------
Total nonperforming loans ...................... 699 2,310 1,305 638 1,993
Foreclosed assets held for sale and
repossessions/(1)/ ............................... 136 78 29 189 745
------ ------ ------ ------ ------
Total nonperforming assets ..................... $ 835 $2,388 $1,334 $ 827 $2,738
====== ====== ====== ====== ======
Nonperforming loans to total loans ................. 0.25% 1.08% 0.85% 0.57% 1.73%
Nonperforming assets to total assets ............... 0.24 0.88 0.63 0.50 1.51
</TABLE>
(1) Foreclosed assets held for sale and repossessions are generally written down
to appraised 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.
17
<PAGE>
An analysis of the allowance for loan losses for the periods indicated is
shown in the table below.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance for loan losses
at beginning of period ......................... $ 3,019 $ 1,909 $ 1,649 $ 1,716 $ 2,011
Loans charged off:
Real estate:
Single family residential .................. 35 73 14 58 20
Non-farm/non residential ................... - - 51 34 537
Agricultural ............................... - - - - -
------- ------- ------- ------- -------
Total real estate ...................... 35 73 65 92 557
------- ------- ------- ------- -------
Consumer ..................................... 434 216 44 31 15
Commercial and industrial .................... - 128 47 3 46
Agricultural (non-real estate) ............... - - - - 60
------- ------- ------- ------- -------
Total loans charged off ................ 469 417 156 126 678
------- ------- ------- ------- -------
Recoveries of loans previously charged off:
Real estate:
Single family residential .................. 5 2 33 7 7
Non-farm/non-residential ................... - - - - 2
Agricultural ............................... 2 - - - 2
------- ------- ------- ------- -------
Total real estate ...................... 7 2 33 7 11
------- ------- ------- ------- -------
Consumer ..................................... 39 35 23 12 23
Commercial and industrial .................... 2 4 - - 9
Agricultural (non-real estate) ............... - - - 2 2
------- ------- ------- ------- -------
Total recoveries ....................... 48 41 56 21 45
------- ------- ------- ------- -------
Net loans charged off .......................... 421 376 100 105 633
Provision charged to operating expense ......... 1,139 1,486 360 339 338
Sale of subsidiary ............................. - - - (301) -
------- ------- ------- ------- -------
Balance, end of period ......................... $ 3,737 $ 3,019 $ 1,909 $ 1,649 $ 1,716
======= ======= ======= ======= =======
Net charge-offs to average loans outstanding
during the periods indicated ................. 0.17% 0.21% 0.08% 0.09% 0.52%
Allowance for loan losses to total loans ....... 1.36 1.41 1.25 1.46 1.49
Allowance for loan losses to nonperforming loans 534.62 130.69 146.28 258.46 86.10
</TABLE>
The allowance for loan losses is the amount determined by management to be
adequate to provide for losses on loans that may become uncollectable. The level
of the allowance for loan losses and the need for additions are based on
management's judgment as well as the 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.
18
<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:
LOAN GRADE/ RESERVE ALLOCATION
----------- ------------------
RISK CATEGORY PERCENTAGE
------------- ----------
1 Excellent 0.10%
2 Good 0.50
3 Moderate 1.00
4 Fair 2.00
5 Watch 7.00
6(a) Substandard 15.00
6(b) Impaired-SFAS Impaired Amount
114 or 15%, whichever is greater
7 Doubtful 50.00
The loan grade for each individual loan is determined by the loan officer at
the time it is made and changed from time to time to reflect an ongoing
assessment of loan risk. Loan grades are reviewed on specific loans from time to
time by senior management and as part of the Company's internal loan review
process.
Required reserves are calculated for consumer installment loans based upon
past due status as follows:
RESERVE
-------
PAST DUE STATUS ALLOCATION PERCENTAGE
- --------------- ---------------------
Current 0.225%
Overdue 30 to 89 days 7.500
Overdue 90 days or more 37.500
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 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 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 provision should be increased or
decreased or whether additional provision 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.
19
<PAGE>
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 December 31, 1997. The amounts shown are
not necessarily indicative of the actual future losses that may occur within
particular loan categories.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
PERCENT OF LOANS
ALLOWANCE IN CATEGORY TO
AMOUNT TOTAL LOANS
-------- -------------
CATEGORY (Dollars in Thousands)
<S> <C> <C>
Real estate
Single family residential ......................... $1,116 35.2%
Non-farm/non-residential .......................... 423 15.2
Agriculture ....................................... 152 4.9
Construction/land development ..................... 163 5.9
Multifamily ....................................... 41 1.4
Consumer .............................................. 372 19.3
Commercial and industrial ............................. 412 13.6
Agriculture (non-real estate) ......................... 114 3.9
Other ................................................. 15 .6
Unfunded items (letters of credit, outstanding loan
commitments and unadvanced loan balances) ........... 233 N/A
Unallocated reserves .................................. 696 N/A
------ -----
$3,737 100.0%
====== =====
</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
recoverablity 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 December 31, 1997 "substandard"
loans not designated as nonaccrual or 90 days past due totaled $2.3 million.
There were no loans designated as "doubtful" or "loss" at December 31, 1997.
Administration of the subsidiary banks' lending function is the responsibility
of the Chief Executive Officer, Vice Chairman 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 and the loan committee of each bank.
Loan authorities are granted to bank officers as determined appropriate by the
Board of Directors.
Loan and aggregate loan relationships exceeding bank officers authorities 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 officers are 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 officers
prepare 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 the audit committee,
which consists of three non-employee members of the Boards of Directors.
Based on the procedures described herein, management is of the opinion that
the allowance of $3.7 million at December 31, 1997 is adequate. The allowance
for loan losses is 1.36% of average loans at December 31, 1997 compared to 1.41%
at December 31, 1996.
Provision for Loan Losses: The amounts of provision to the allowance for loan
losses are based on management's judgment and evaluation of the loan portfolio
utilizing the criteria discussed above. The provision for 1997 was $1.1 million
compared to $1.5 million in 1996 and $360,000 in 1995.
20
<PAGE>
INVESTMENTS AND SECURITIES
The Company's securities portfolio is the second largest component of earning
assets and provides a significant source of revenue for the Company. The
following table presents the amortized cost and the fair value of investment
securities for each of the dates indicated.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- ---------------------
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 ........................ $24,562 $24,596 $23,881 $23,896 $14,001 $13,831
Mortgage-backed securities ........ 9,340 9,571 10,119 10,256 14,014 14,153
Obligations of states and political
subdivisions .................... 6,801 6,819 4,094 4,119 8,126 8,191
Other securities .................. 1,510 1,510 1,353 1,353 981 981
------- ------- ------- ------- ------- -------
Total ......................... $42,213 $42,496 $39,447 $39,624 $37,122 $37,156
======= ======= ======= ======= ======= =======
</TABLE>
(1) The fair value of the Company's financial instruments is determined
pursuant to Statement of Financial Accounting Standards No. 107.
The following table reflects the amortized cost, by contractual maturity, of
the Company's investment securities at December 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>
DECEMBER 31, 1997
------------------------------------------------------------------
OVER OVER
1 YEAR 1 YEAR 5 YEARS OVER
OR THRU 5 THRU 10 10
LESS YEARS YEARS YEARS TOTAL FAIR VALUE
------- ------- ------- ------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities of U.S. Government agencies ......... $ - $18,594 $ 5,968 $ - $24,562 $24,596
Mortgage-backed securities ..................... - - 5,074 4,266 9,340/(1)/ 9,571
Obligations of states and political subdivisions 498 1,590 2,102 2,611 6,801/(2)/ 6,819
Other securities ............................... - - - 1,510 1,510 1,510
------- ------- ------- ------- ------- -------
Total .................................. $ 498 $20,184 $13,144 $ 8,387 $42,213 $42,496
======= ======= ======= ======= ======= =======
Percentage of total ............................ 1.18% 47.81% 31.14% 19.87% 100.00%
Weighted average yield (FTE)/(3)/ .............. 7.95 6.67 7.27 7.01 6.94
</TABLE>
(1) At December, 1997 approximately $9.2 million of these securities earned
interest at floating rates repricing monthly or semi-annually.
(2) At December, 1997 approximately $2.1 million of these securities earned
interest at floating rates repricing semi-annually.
(3) The weighted average yields (FTE) are based on book value and effective
yields weighted for the scheduled maturity of each security.
21
<PAGE>
DEPOSITS
The Company's subsidiary banks' lending and investing activities are funded
primarily by deposits, approximately 67.6% of which were time deposits and 32.4%
of which were demand and savings deposits at December 31, 1997. Interest bearing
deposits other than time deposits consist of transaction, savings and money
market accounts. These deposits comprise 21.9% of total deposits at December 31,
1997. Noninterest bearing demand deposits at December 31, 1997 constituted
approximately 10.5% of total deposits. The following table reflects the
classification of the average deposits and the average rate paid on each deposit
category for the period indicated.
AVERAGE DEPOSIT BALANCES AND RATES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
AVERAGE RATE AVERAGE RATE AVERAGE RATE
AMOUNT PAID AMOUNT PAID AMOUNT PAID
------------------- ------------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing accounts ...... $ 26,981 - $ 20,129 - $ 16,492 -
Interest bearing accounts
Transaction (NOW) ................ 25,469 2.19% 22,209 2.20% 19,911 2.16%
Savings .......................... 8,734 2.13 8,238 2.14 7,568 2.15
Money Market ..................... 26,981 3.86 18,542 3.49 13,058 2.46
Time deposits less than $100,000 . 129,969 5.61 102,076 5.60 85,936 5.83
Time deposits $100,000 or more ... 48,919 5.63 34,689 5.69 24,307 5.91
-------- -------- --------
Total deposits ................. $267,053 $205,883 $167,272
======== ======== ========
</TABLE>
The following table sets forth by time remaining to maturity, time deposits in
amounts of $100,000 or more at December 31, 1997.
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 AND OVER
DECEMBER 31, 1997
-----------------
(Dollars in Thousands)
MATURITY
--------
3 months or less ........ $16,493
3 to 6 months ........... 12,396
6 to 12 months .......... 19,448
Over 12 months .......... 9,644
INTEREST RATE SENSITIVITY
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.
The Company regularly reviews its exposure to changes in interest rates. Among
the factors considered are changes in the mix of earning assets and interest
bearing liabilities, interest rate spreads and repricing periods. Typically, the
committee and 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 three different time periods - six months, one year and two
years. Additionally, management, the committee and the Boards of Directors
review other alternative interest rate risk measures and models in assessing the
Company's interest rate sensitivity.
As shown in the table below at December 31, 1997, the cumulative rate
sensitive assets to rate sensitive liabilities at six months and one year,
respectively, were 93.9% and 85.2%. A financial institution is considered to be
liability sensitive, or as having a negative GAP, when the amount of its
interest bearing liabilities maturing or repricing within a given time period
exceeds the amount of its interest earning assets also maturing or repricing
within that time period. Conversely, an institution is considered to be asset
sensitive, or as having a positive GAP, when the amount of its interest bearing
liabilities maturing and repricing is less than the amount of its interest
earning assets also maturing or repricing during the same period.
22
<PAGE>
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>
DECEMBER 31, 1997
------------------------------------------------------------------------------
RATE RATE CUMULATIVE CUMULATIVE
SENSITIVE SENSITIVE PERIOD CUMMULATIVE 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 .......... $ 27,124 $ 29,788 $ (2,664) $ (2,664) -0.86% 91.06%
Fixed rate repricing in:
1 month ........... 21,883 18,714 3,169 505 0.16 101.04
2 month ........... 17,949 13,610 4,339 4,844 1.56 107.80
3 month ........... 15,579 18,576 (2,997) 1,847 0.59 102.29
4 month ........... 12,297 15,068 (2,771) (924) -0.30 99.04
5 month ........... 12,488 17,234 (4,746) (5,670) -1.82 94.98
6 month ........... 12,068 14,123 (2,055) (7,725) -2.48 93.92
6 months - 1 year . 53,577 75,885 (22,308) (30,033) -9.66 85.21
1-2 years ......... 47,333 39,127 8,206 (21,827) -7.02 90.99
2-3 years ......... 38,377 5,935 32,442 10,615 3.41 104.28
3-4 years ......... 29,060 16,421 12,639 23,254 7.48 108.79
4-5 years ......... 5,155 828 4,327 27,581 8.87 110.40
Over 5 years ...... 18,135 14,366 3,769 31,350 10.08 111.21
-------- -------- --------
Total ........... $311,025 $279,675 $ 31,350
======== ======== ========
</TABLE>
(1) Rate Sensitive Assets
(2) Rate Sensitive Liabilities
The following table provides in tabular form contractural balances of the
Company's financial instruments at the expected maturity as well as the fair
value of those balance sheet financial instruments for the period ended December
31, 1997. 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 December 31, 1997.
The fair value of cash, interest bearing deposits at other banks, and interest
receivable approximate their book values due to their short maturities. The fair
value of available for sale securities are based on reports provided the Company
by third parties. Federal Home Loan Bank stock is valued at stated redemption
value. The fair value of loans and time deposits are estimated by discounted
cash flows through the estimated maturity using estimated market discount rates
that reflect current rates offered by the Company. The fair value of FHLB
borrowings is estimated by discounting the cash flows through maturity based on
current rates offered by the FHLB for borrowings with similar maturities. The
fair value of the note payable approximates the carrying value due to the note
payable's interest rate approximating market rates.
23
<PAGE>
EXPECTED MATURITY DATE OF FINANCIAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1998 1999 2000 2001 2002 THEREAFTER TOTAL FAIR VALUE
------ ------ ------ ------ ------ ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ - $ - $ - $ - $ - $ 9,021 $ 9,021 $ 9,021
Interest-bearing deposits 6,607 - - - - - 6,607 6,607
Weighted average interest rate 5.98% - - - - - 5.98%
Federal funds sold 2,885 - - - - - 2,885 2,885
Weighted average interest rate 5.50% - - - - - 5.50%
Securities-available for sale
Securities of US Govt. agencies - - 2,825 6,322 1,500 1,972 12,619 12,640
Weighted average interest rate - - 6.53% 6.42% 6.90% 6.72% 6.52%
Mortgage-backed securities
Fixed rate 39 45 49 - - - 133 131
Weighted average interest rate 5.51% 5.51% 5.51% - - - 5.51%
Variable rate 490 372 293 293 691 7,067 9,206 9,440
Weighted average interest rate 6.60% 6.40% 6.43% 6.46% 6.46% 6.27% 6.44%
State and political subdivisions - - - - - 1,583 1,583 1,576
Weighted average interest rate - - - - - 5.33% 5.33%
Equity securities - - - - - 75 75 75
Dividend yield - - - - - - -
FHLB stock - - - - - 1,435 1,435 1,435
Dividend yield - - - - - 6.00% 6.00%
Securities - held to maturity
Securities of US Govt. agencies - - 4,998 - 2,949 3,996 11,943 11,956
Weighted average interest rate - - 6.35% - 6.60% 7.12% 6.67%
State and political subdivisions
Fixed rate 345 237 138 229 220 1,922 3,091 3,115
Weighted average interest rate 4.55% 4.32% 4.71% 4.71% 4.55% 4.84% 4.74%
Variable rate 153 174 190 206 225 1,083 2,031 2,128
Weighted average interest rate 7.23% 7.23% 7.23% 7.23% 7.23% 7.23% 7.23%
Loans Held for Sale-fixed rate 2,935 - - - - - 2,935 2,941
Weighted average interest rate 7.14% - - - - - 7.14%
Loans
Loans - fixed 90,091 63,106 35,587 22,154 9,298 15,748 235,984 237,757
Weighted average interest rate 9.63% 9.52% 9.47% 9.13% 9.03% 8.96% 9.46%
Loans - variable 5,782 2,335 1,454 1,673 1,677 23,623 36,544 37,570
Weighted average interest rate 9.12% 9.05% 9.33% 9.31% 9.35% 9.25% 9.23%
Interest receivable 3,013 - - - - - 3,013 3,013
Weighted average interest rate - - - - - - -
FINANCIAL LIABILITIES:
Deposits (with no stated maturity)
Demand deposits - - - - - $ 31,091 $ 31,091 $ 31,091
Weighted average interest rate - - - - - - -
NOW accounts - - - - - 27,527 27,527 27,527
Weighted average interest rate - - - - - 2.00% 2.00%
Money market accounts - - - - - 28,132 28,132 28,132
Weighted average interest rate - - - - - 3.71% 3.71%
Regular savings - - - - - 9,083 9,083 9,083
Weighted average interest rate - - - - - 2.15% 2.15%
Time deposits
Fixed rate 163,958 25,344 3,470 2,172 1,354 1,066 197,364 199,173
Weighted average interest rate 5.62% 5.93% 6.02% 6.03% 6.19% 5.93% 5.68%
Variable rate 2,358 - - - - - 2,358 2,358
Weighted average interest rate 5.20% - - - - - 5.20%
FHLB advances 3,000 5,070 1,947 4,000 - - 14,017 13,983
Weighted average interest rate 5.74% 6.48% 5.72% 5.93% - - 6.06%
Notes payable 524 524 524 500 500 2,500 5,072 5,072
Weighted average interest rate 8.67% 8.77% 8.79% 8.80% 8.80% 8.80% 8.79%
</TABLE>
24
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements with Notes thereto presented elsewhere
in the report 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.
LIQUIDITY AND CAPITAL RESOURCES
Credit Agreement. The Company has a $10.0 million term loan and revolving
credit facility with a correspondent bank (the "Credit Agreement"). The term
loan portion has a principal balance of $5.0 million, payable in equal annual
principal installments of $500,000 commencing in 1998 plus interest payable
annually at 8.804% per annum. The term loan matures in 2007 and provides for
prepayment penalties under certain circumstances.
The Credit Agreement 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 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 the average prime lending rate reported from time to
time by the Wall Street Journal minus 0.25% and is payable quarterly. The
revolving line of credit commitment expires in 2007 and is 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. There were no
outstanding balances on the revolving line of credit at December 31, 1997.
The Credit Agreement requires the Company's bank subsidiaries to maintain
certain levels of return on assets, primary capital, loan charge-off and
debt/equity ratios. At December 31, 1997 the Company was in compliance with
these requirements. Borrowings under the Credit Agreement are secured by a
pledge of 80% of the Company's stock in the subsidiary banks.
Initial Public Offering. On July 16, 1997, the Securities and Exchange
Commission ("SEC") declared effective the Company's Registration Statement on
Form S-1 (File No. 333-27641) with respect to the IPO of 899,755 shares
(including over-allotment shares) of the Company's Common Stock. Stephens Inc.
was the managing underwriter for the offering, which was commenced on July 17,
1997 and which was terminated after the entire amount of the 899,755 shares
registered had been sold for an aggregate offering price of approximately $14.4
million. The net proceeds to the Company from this offering were approximately
$13.2 million (including proceeds from over-allotment shares) after deduction
for aggregate offering expenses of approximately $1.2 million. Proceeds from the
offering in the amount of $5 million were used to repay the outstanding balance
under the revolving line of credit described above. An additional $4.5 million
of the proceeds was used to make a capital infusion to a subsidiary bank. The
remainder of the proceeds (including proceeds from exercise of the underwriters
over-allotment option) were used for general corporate purposes, including
financing the Company's February, 1998 acquisition of Heartland Community Bank,
FSB, and continued growth, expansion and branching strategy.
Growth, Expansion and Acquisition. During 1997 the Company's banking
subsidiaries completed aggregate investments of approximately $2.1 million to
construct and equip three new offices opened in Mulberry, Paris and Alma,
Arkansas. In late 1997 a branch site and building in Bellefonte, Arkansas were
purchased from another financial institution. This purchase, refurbishing, and
equipping resulted in an investment of approximately $285,000. Approximately
$3.0 million was expended to acquire sites for banking facilities in Little Rock
and Fort Smith, Arkansas. Construction of the Little Rock facility began in the
third quarter of 1997 with completion expected in mid-1998. Upon completion,
this facility will combine the Company's existing corporate offices and two
existing Little Rock loan production offices. The Company also plans to apply
for regulatory approval to open a branch of its recently acquired Little Rock
savings bank at this location. Construction of the Fort Smith facility began in
the fourth quarter of 1997 with completion expected in the last half of 1998.
Pending completion, the Company has opened a temporary Fort Smith branch, which
includes mortgage lending operations.
In February, 1998 the Company closed its acquisition of Heartland Community
Bank, FSB, a federal savings bank in Little Rock, Arkansas. The Company paid
$3.1 million in cash acquiring the charter, cash, Little Rock land and building
and bank furnishings and equipment. As part of the transaction the Company
acquired approximately $9.4 million in deposits. The seller retained all loans
and all deposits and operations located outside Little Rock. Following closing
the Company commenced operations in Little Rock under the Bank of the Ozarks'
name.
25
<PAGE>
Bank Liquidity. Liquidity represents an institution's ability to provide funds
to satisfy demands from depositors and borrowers by either converting assets
into cash or accessing new or existing sources of incremental funds. Generally,
the Company's bank 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 which has
resulted in a continuation of the Company's high loan-to-deposit ratio (93.2% at
December 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 competitiors, 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 revolving credit
facility described above.
At December 31, 1997, the Company's bank subsidiaries had an aggregate of
$51.7 million of unused blanket FHLB borrowing availability. Additionally at
December 31, 1997 the bank subsidiaries maintained pre-approved unsecured
federal funds lines of credit in an amount of up to $15.2 million.
Management anticipates that the Company's bank subsidiaries will continue to
rely primarily on customer deposits and loan repayments to provide liquidity.
However, 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.
Dividend Policy. During the three months ended March 31, 1997, the Company
paid a cash dividend on its common stock of $0.10 per share. Effective July,
1997, the Company commenced payment of a quarterly cash dividend of $0.05 per
share ($0.20 annually). In 1996 and 1995 the Company paid a $0.30 per share
dividend. The Company reduced its annual dividend from these earlier periods in
order to retain a greater portion of earnings as capital to support the
Company's growth. The final determination of the timing, amount and payment of
future 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.
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 and appreciation on
investment 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 average assets.
The Company's risk-based and leverage capital ratios exceed these minimum
requirements at December 31, 1997 and December 31, 1996 and are presented below,
followed by the capital ratios of each of the Company's two bank subsidiaries at
December 31, 1997.
26
<PAGE>
CONSOLIDATED CAPITAL RATIOS
DECEMBER 31,
-----------------------
1997 1996
-------- --------
(Dollars in Thousands)
Tier 1 capital:
Stockholders' equity ......................... $ 35,666 $ 18,547
Add (less) net unrealized losses (gains)
on available for sale securities ............ (152) (99)
Less goodwill ................................ (1,337) (1,394)
-------- --------
Total tier 1 capital ..................... $ 34,177 $ 17,054
-------- --------
Tier 2 capital:
Qualifying allowance for loan losses ......... 3,288 2,529
-------- --------
Total risk-based capital ................. $ 37,465 $ 19,583
======== ========
Risk-weighted assets ............................ $262,592 $201,802
======== ========
Ratios at end of period:
Leverage ..................................... 9.86% 6.42%
Tier 1 risk-based capital .................... 13.01 8.45
Total risk-based capital ..................... 14.27 9.70
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
CAPITAL RATIOS OF SUBSIDIARY BANKS
DECEMBER 31, 1997
--------------------------
BANK OF THE BANK OF THE
OZARKS, WCA OZARKS, NWA
----------- -----------
(Dollars in Thousands)
Stockholders' equity - Tier 1 ................... $ 26,050 $ 9,810
Leverage ratio .................................. 11.15% 8.71%
Risk-based capital ratios:
Tier 1 ....................................... 14.19 12.88
Total capital ................................ 15.44 14.13
(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.
27
<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 for risk to the Company because of relationships with
third parties (e.g. software and hardware vendors, loan customers, correspondent
banks, 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 Team to evaluate and assess
the Company's exposure to this issue. This team has conducted evaluations of all
software, hardware, environmental systems and other relationships affecting the
Company's daily operating capabilities. The most significant area of exposure to
the Company relates to computer programs and software which are provided to the
Company from third party vendors. In each case the Company has received
assurance that such software programs are fully operational with respect to the
Year 2000. The Company continues to seek additional documentation of testing
procedures and other confirmations from these vendors.
The Year 2000 Project Team will continue to identify and assess additional
exposures to this issue and develop solutions in areas where exposures are
identified. Based on recent and ongoing assessments by the team, no area of
material exposure has been identified with respect to the Year 2000 issue. The
necessary system changes or testing procedures identified to date are not
expected to result in a material expense 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 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.
28
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF
OPERATIONS, COMMON STOCK MARKET PRICES AND DIVIDENDS
1997 - THREE MONTHS ENDED
-------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------
(Dollars in Thousands, Except per Share Amounts)
Total interest income ........ $6,016 $6,635 $7,168 $7,649
Total interest expense ....... 2,900 3,216 3,465 3,398
------ ------ ------ ------
Net interest income ...... 3,116 3,419 3,703 4,251
Provision for loan losses .... 259 265 150 465
Non-interest income .......... 742 641 662 880
Non-interest expense ......... 2,105 2,219 2,316 2,588
Income Taxes ................. 537 572 698 709
------ ------ ------ ------
Net income ............... $ 957 $1,004 $1,201 $1,369
====== ====== ====== ======
Per share:
Net income ................... $ 0.33 $ 0.35 $ 0.34 $ 0.36
Cash dividends declared .. 0.10 - 0.05 0.05
Bid price per common share:
Low ...................... - - $17 3/8 $19 3/4
High ..................... - - $20 1/8 $25 1/4
1996 - THREE MONTHS ENDED
-------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------
(Dollars in Thousands, Except per Share Amounts)
Total interest income ........ $4,981 $5,317 $5,603 $5,935
Total interest expense ....... 2,283 2,372 2,481 2,895
------ ------ ------ ------
Net interest income ...... 2,698 2,945 3,122 3,040
Provision for loan losses .... 221 323 375 567
Non-interest income .......... 358 291 476 740
Non-interest expense ......... 1,625 1,637 1,856 2,033
Income Taxes ................. 429 455 489 633
------ ------ ------ ------
Net income ................... $ 781 $ 821 $ 878 $ 547
====== ====== ====== ======
Per share:
Net income ............... $ 0.27 $ 0.29 $ 0.30 $ 0.19
Cash dividends declared .. 0.30 - - -
Bid price per common share:
Low ...................... - - - -
High ..................... - - - -
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of BANK OF THE
OZARKS, INC. as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. 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. as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ MOORE STEPHENS FROST
Certified Public Accountants
Little Rock, Arkansas
January 28, 1998
30
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------
1997 1996
--------- ---------
(Dollars in Thousands,
Except Per Share Amounts)
ASSETS
------
CASH AND DUE FROM BANKS $ 9,021 $ 6,713
INTEREST BEARING DEPOSITS 6,607 102
--------- ---------
Cash and cash equivalents 15,628 6,815
INVESTMENT SECURITIES - AVAILABLE FOR SALE 25,297 36,883
INVESTMENT SECURITIES - HELD TO MATURITY 17,162 2,725
FEDERAL FUNDS SOLD 2,885 350
LOANS, NET OF UNEARNED INCOME 275,463 214,462
ALLOWANCE FOR LOAN LOSSES (3,737) (3,019)
BANK PREMISES AND EQUIPMENT, NET 13,439 6,872
INTEREST RECEIVABLE 3,013 2,552
EXCESS COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED, AT AMORTIZED COST 1,337 1,394
OTHER 1,606 1,566
--------- ---------
TOTAL ASSETS $ 352,093 $ 270,600
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DEPOSITS
Demand - non-interest bearing $ 31,091 $ 21,295
Savings and interest-bearing transaction 64,742 56,929
Time 199,722 153,424
--------- ---------
TOTAL DEPOSITS 295,555 231,648
NOTES PAYABLE 5,072 5,396
FHLB ADVANCES AND FEDERAL FUNDS PURCHASED 14,017 12,727
ACCRUED INTEREST AND OTHER LIABILITIES 1,783 2,282
--------- ---------
TOTAL LIABILITIES 316,427 252,053
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock; $0.01 par value;
Authorized 1,000,000 shares; none issued - -
Common stock; $0.01 par value;
Authorized 10,000,000 shares;
3,779,555 shares issued and outstanding in 1997,
2,879,800 shares issued and outstanding in 1996 38 29
Additional paid-in capital 14,314 1,168
Retained earnings 21,162 17,251
Unrealized gains on available for sale securities -
net of income tax 152 99
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 35,666 18,547
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 352,093 $ 270,600
========= =========
See notes to consolidated financial statements
31
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- ------- -------
(Dollars in Thousands,
Except Per Share Amounts)
<S> <C> <C> <C>
INTEREST INCOME
Loans $24,230 $19,089 $13,006
Investment securities - taxable 2,684 2,069 2,079
- nontaxable 233 364 424
Federal funds sold 108 145 109
Deposits with banks 213 169 85
------- ------- -------
TOTAL INTEREST INCOME 27,468 21,836 15,703
------- ------- -------
INTEREST EXPENSE
Deposits 11,826 9,005 7,357
Borrowed funds 1,150 1,025 26
Federal funds purchased 3 1 8
------- ------- -------
TOTAL INTEREST EXPENSE 12,979 10,031 7,391
------- ------- -------
NET INTEREST INCOME 14,489 11,805 8,312
Provision for loan losses (1,139) (1,486) (360)
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,350 10,319 7,952
------- ------- -------
OTHER INCOME
Trust department income 274 214 231
Service charges on deposit accounts 957 806 514
Other service charges and fees 1,136 537 361
Gain (loss) on sale of securities 14 (77) (44)
Other income 544 385 106
------- ------- -------
TOTAL OTHER INCOME 2,925 1,865 1,168
------- ------- -------
OTHER EXPENSE
Salaries and employee benefits 5,330 4,263 3,374
Net occupancy and equipment 1,305 998 745
Other operating expenses 2,593 1,890 1,877
------- ------- -------
TOTAL OTHER EXPENSE 9,228 7,151 5,996
------- ------- -------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 7,047 5,033 3,124
Income taxes 2,516 2,006 845
------- ------- -------
INCOME BEFORE MINORITY INTEREST 4,531 3,027 2,279
Minority interest in earnings of subsidiaries - - 109
------- ------- -------
NET INCOME $ 4,531 $ 3,027 $ 2,170
======= ======= =======
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 1.38 $ 1.05 $ 0.75
======= ======= =======
</TABLE>
See notes to consolidated financial statements
32
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAINS
ADDITIONAL (LOSS)
COMMON PAID-IN RETAINED ON INVESTMENT
STOCK CAPITAL EARNINGS SECURITIES TOTAL
----- -------- -------- ---------- --------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1995 $ 30 $ 1,704 $ 13,811 $(469) $ 15,076
Net income - - 2,170 - 2,170
Cash dividends - $.30 per share - - (893) - (893)
Redemption of common stock (1) (536) - - (537)
Change in unrealized gains
on investment securities - - - 478 478
----- -------- -------- ----- --------
BALANCE - DECEMBER 31, 1995 29 1,168 15,088 9 16,294
Net income - - 3,027 - 3,027
Cash dividends - $.30 per share - - (864) - (864)
Change in unrealized gains
on investment securities - - - 90 90
----- -------- -------- ----- --------
BALANCE - DECEMBER 31, 1996 29 1,168 17,251 99 18,547
Net income - - 4,531 - 4,531
Cash dividends - $.20 per share - - (620) - (620)
Issuance of 899,755 shares of
common stock 9 13,146 - - 13,155
Change in unrealized gains
on investment securities - - - 53 53
----- -------- -------- ----- --------
BALANCE - DECEMBER 31, 1997 $ 38 $ 14,314 $ 21,162 $ 152 $ 35,666
===== ======== ======== ===== ========
</TABLE>
33
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,531 $ 3,027 $ 2,170
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation 626 505 370
Amortization 56 126 134
Provision for loan losses 1,139 1,486 360
Provision for losses on other real estate 8 11 124
Amortization and accretion on investment securities (39) 9 (14)
(Gain) loss on disposition of investments (14) 77 44
(Gain) on sale of loans (57) (274) -
(Gain) on disposition of bank premises and equipment (76) (1) (24)
(Gain) on disposition of foreclosed assets (261) (14) (23)
Deferred income tax provision (benefit) (11) (292) (49)
Changes in assets and liabilities
Interest receivable (461) (563) (454)
Other, net 73 (237) 846
Accrued interest and other liabilities (531) 375 708
Minority interest - - (600)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,983 4,235 3,592
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investment securities
available for sale 31,171 28,784 15,116
Purchases of investment securities available for sale (19,453) (32,904) (20,354)
Proceeds from maturities of investment securities held to maturity 6,576 1,862 13,696
Purchases of investment securities held to maturity (21,007) - (4,283)
Decrease (increase) in federal funds sold (2,535) 3,730 (4,080)
Net increase in loans (62,656) (64,008) (40,530)
Proceeds from sale of loans 811 2,252 -
Proceeds from dispositions of bank premises and equipment 178 1 57
Purchase of bank premises and equipment (7,295) (997) (2,930)
Proceeds from dispositions of foreclosed assets 632 221 97
-------- -------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (73,578) (61,059) (43,211)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 63,907 49,184 34,011
Proceeds from FHLB advances and federal funds purchased 4,000 4,780 7,947
Payments of FHLB advances and federal funds purchased (2,710) - -
Proceeds from notes payable 10,000 1,500 3,920
Payments of notes payable (10,324) (24) -
Dividends paid (620) (864) (893)
Proceeds from issuance of common stock 13,155 - -
Redemption of common stock - - (537)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 77,408 54,576 44,448
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,813 (2,248) 4,829
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 6,815 9,063 4,234
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 15,628 $ 6,815 $ 9,063
======== ======== ========
</TABLE>
See notes to consolidated financial statements
34
<PAGE>
BANK OF THE OZARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Bank of the Ozarks, Inc. conform
with generally accepted accounting principles and practices within the banking
industry. 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 common stock, increased the number of authorized shares of common
stock, and changed the par value of the authorized but unissued preferred 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
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 accompanying
financial statements for all years presented have been restated to reflect
these changes.
The policies that materially affect financial position and the results of
operations are summarized as follows:
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 the Bank of the Ozarks, wca and Bank of the Ozarks, nwa,
respectively, at January 1, 1995. During 1995, these holding companies were
merged into the respective banks after the remaining stock of the minority
shareholders was purchased.
Ozark Financial Services, Inc., which was engaged in the offering of mortgage
brokerage and related services, was liquidated during 1995.
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.
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.
CASH AND CASH EQUIVALENTS - 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, due from banks, and interest bearing
deposits with banks.
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 securities are
included immediately in other income. The Company had no trading securities
at December 31, 1997 and 1996.
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. Gains and
losses on sales of available-for-sale securities are determined using the
specific identification method.
35
<PAGE>
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, less unearned interest, and
adjusted for any charge-offs and deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans. 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.
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.
FORECLOSED ASSETS HELD FOR SALE - Real estate and personal properties acquired
through, or in lieu of, loan foreclosure are initially recorded at estimated
fair value at the date of foreclosure establishing a new cost basis. After
foreclosure, the real 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 estimated fair value less cost to sell. Gains and losses
from the sale of other real estate are recorded in other income, and expenses
used to maintain the properties are included as operating expenses.
INCOME TAXES - The Company utilizes the liability method in accounting for
income taxes. 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.
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.
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED - The excess of cost over
fair value of net assets acquired before December 23, 1981 are being amortized
over 40 years. The excess cost over fair value of net assets acquired after
December 23, 1981 are being amortized over 25 years.
EARNINGS PER SHARE - Earnings per share has been
36
<PAGE>
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 the first two paragraphs of this note.
FINANCIAL INSTRUMENTS - In the ordinary course of business, the Company has
entered into off-balance sheet financial instruments consisting of commitments
to extend credit, commitments under credit card arrangements, and letters of
credit. Such financial instruments are recorded in the financial statements when
they are funded or related fees are incurred or received.
ADVERTISING AND PUBLIC RELATIONS EXPENSE -Advertising and public relations
expense is expensed as incurred and totaled $332, $123, and $101 for the years
ended December 31, 1997, 1996 and 1995, respectively.
STOCK OPTION PLAN - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123) grants companies the
option to recognize and measure compensation costs related to employee stock
option plans based on either the fair value of the award at date of grant or the
difference between the quoted market price of the stock at the date the award is
granted over the amount the employee must pay to acquire the stock (the
"intrinsic value based method"). Bank of the Ozarks, Inc. and its subsidiaries
elected to apply the intrinsic value based method, which generally does not
result in compensation expense for fixed stock option plans.
RECLASSIFICATIONS - Certain reclassifications of 1996 and 1995 balances have
been made to conform to the 1997 presentation.
2. INVESTMENT SECURITIES
The amortized cost and approximate market values of investment securities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES - AVAILABLE FOR SALE
- ------------------------------------------
Securities of United States
government and agencies $12,619 $ 39 $ (18) $12,640
Mortgage-backed securities 9,340 256 (25) 9,571
State and political subdivisions 1,582 14 (20) 1,576
Other securities 1,510 - - 1,510
------- ------- ------- -------
Total securities - available for sale $25,051 $ 309 $ (63) $25,297
======= ======= ======= =======
INVESTMENT SECURITIES - HELD TO MATURITY
- ----------------------------------------
Securities of United States
government and agencies $11,943 $ 17 $ (4) $11,956
State and political subdivisions 5,219 27 (3) 5,243
------- ------- ------- -------
Total securities - held to maturity $17,162 $ 44 $ (7) $17,199
======= ======= ======= =======
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ------- ------- -------
INVESTMENT 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
======= ======= ======= =======
INVESTMENT 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
======= ======= ======= =======
</TABLE>
37
<PAGE>
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, 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.
DECEMBER 31, 1997
--------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ------------------
AMORTIZED AMORTIZED
COST MARKET COST MARKET
-------- ------- ------- -------
Due in one year or less $ - $ - $ 498 $ 498
Due from one year to five years 10,647 10,647 9,537 9,547
Due from five years to ten years 7,081 7,275 6,063 6,078
Due after ten years 7,323 7,375 1,064 1,076
------- ------- ------- -------
Totals $25,051 $25,297 $17,162 $17,199
======= ======= ======= =======
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, 1997, the unrealized appreciation on available for sale
securities was $246, net of deferred income taxes of $94. At December 31, 1996,
the unrealized appreciation on available for sale securities was $161, net of
deferred income taxes of $62.
The Banks had no trading securities during 1997; however, the Banks did hold
trading securities during 1996. Gross gains of $2 and gross losses of $34 were
realized on these sales during 1996.
Assets, principally securities, carried at approximately $31,535 and $20,593
at December 31, 1997 and 1996, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law.
3. LOANS
The following is a summary of the loan portfolio by principal categories:
1997 1996
-------- --------
Real Estate
Single family residential (1-4) $ 96,943 $ 78,124
Non-farm/non-residential 41,710 35,258
Agricultural 13,443 11,583
Construction/land development 16,257 8,808
Multifamily residential 3,897 3,743
Consumer 53,233 39,868
Commercial and industrial 37,470 28,154
Agricultral (non-real estate) 10,824 8,363
Other 1,686 561
-------- --------
Loans, net of unearned income $275,463 $214,462
======== ========
The above loan categories are presented net of unearned purchase discounts
totaling $3,759 at December 31, 1997 and $3,966 at December 31, 1996. Loans on
which the accrual of interest has been discontinued aggregated $664 and $2,057
at December 31, 1997 and 1996, respectively.
4. ALLOWANCE FOR LOAN LOSSES
A summary of transactions within the allowance for loan losses for the years
ended December 31, 1997, 1996, and 1995 are as follows:
1997 1996 1995
------- ------- -------
Balance - beginning of year $ 3,019 $ 1,909 $ 1,649
Provision charged against income 1,139 1,486 360
Recoveries on loans previously charged-off 48 41 56
------- ------- -------
4,206 3,436 2,065
Loans charged-off (469) (417) (156)
------- ------- -------
Balance - end of year $ 3,737 $ 3,019 $ 1,909
======= ======= =======
Impairment of loans having carrying values of $581 and $1,984 at December 31,
1997 and 1996, 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
$1,886, $1,042, and $683 for the years ended December 31, 1997, 1996, and 1995,
respectively. The total allowance for credit losses related to those loans was
$105 and $350 at December 31, 1997 and 1996, respectively. The Company does not
segregate income recognized on a cash basis in its
38
<PAGE>
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 $683 and $236 was
transferred to foreclosed assets held for sale in 1997 and 1996, respectively.
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:
DECEMBER 31,
--------------------
1997 1996
-------- --------
Land $ 4,140 $ 1,178
Construction in process 985 115
Buildings and improvements 5,274 3,526
Leasehold improvements 1,637 1,645
Equipment 4,763 3,396
-------- --------
16,799 9,860
Accumulated depreciation (3,360) (2,988)
-------- --------
Total premises and equipment $ 13,439 $ 6,872
======== ========
The Company capitalized $145 of interest on construction projects during the
year ended December 31, 1997.
6. DEPOSITS
The aggregate amount of time deposits with a minimum denomination of $100 was
$57,981 and $41,922 at December 31, 1997 and 1996, respectively.
The scheduled maturities of time deposits are as follows:
1997 1996
-------- --------
Zero to one year $166,316 $ 76,824
One year to two years 25,344 56,916
Two years to three years 3,470 7,353
Three years to four years 2,172 5,057
Four years to five years 1,354 2,695
Thereafter 1,066 4,579
-------- --------
Total time deposits $199,722 $153,424
======== ========
7. NOTES PAYABLE
Notes payable consists of: 1997 1996
----- ------
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
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
Note payable to a bank, interest
at 8.804%, payable in annual
installments of $500, plus interest,
through December 2006, then a
final installment of all accrued
and unpaid interest and
outstanding principal due and
payable December 2007. The
note is subject to prepayment
penalties under certain
circumstances. Note secured by
1,872 shares of Bank of the
Ozarks, nwa common stock and
21,919 shares of Bank of the
Ozarks, wca common stock. 5,000 -
Notes payable to individuals,
interest at 6%, payable in
annual installments of $24,
plus interest, through
December 2000, unsecured. 72 96
------ ------
$5,072 $5,396
====== ======
Aggregate annual maturities of notes payable at December 31, 1997 are as
follows:
1998 $ 524
1999 524
2000 524
2001 500
2002 500
Thereafter 2,500
------
$5,072
======
The Company has an available revolving line of credit with a bank, with an
aggregate outstanding amount not to exceed $5,000. Under this Credit Facility,
advances remaining unpaid for any
39
<PAGE>
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 the 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. The Banks were in compliance with these
requirements at December 31, 1997.
8. FHLB ADVANCES AND FEDERAL FUNDS PURCHASED
Information relating to the short-term FHLB advances and federal funds
purchased is summarized as follows:
1997 1996
---- ----
FHLB advances - short-term
Average balance $ 244 $ 3
Year-end balance - 500
Maximum month-end
balance during year 2,750 500
Interest rate:
Weighted average 5.81% 5.82%
Year-end - 5.82%
Federal funds purchased:
Average balance 52 87
Year-end balance - 210
Maximum month-end
balance during year 1,006 210
Interest rate:
Weighted average 5.30% 5.24%
Year-end - 6.22%
FHLB advances with original maturities exceeding one year totalled $14,017 and
$12,017 at December 31, 1997 and 1996, respectively. Interest rates on these
advances ranged from 5.72% to 6.50% at December 31, 1997 and 1996. Aggregate
annual maturities of these long-term FHLB advances at December 31, 1997 are as
follows:
1998 $ 3,000
1999 5,070
2000 1,947
2001 4,000
-------
$14,017
=======
9. INCOME TAXES
The components of income tax expense for the years ended December 31, 1997,
1996, and 1995 are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
------ ------ -----
Current provision $2,527 $2,298 $ 894
Deferred provision (benefit) (11) (292) (49)
------ ------ -----
Provision for income taxes $2,516 $2,006 $ 845
====== ====== =====
The reconciliation between the statutory federal income tax rate and
effective income tax rate is as follows:
1997 1996 1995
---- ---- ----
Statutory federal
income tax rate 34.0% 34.0% 34.0%
State income taxes,
net of federal benefit 4.3 4.3 4.3
Effect of non-taxable
interest income (2.7) (2.5) (4.6)
Accrual for state income
tax assessment - 6.5 -
Other .1 (2.4) (6.7)
---- ---- ----
Effective income tax rate 35.7% 39.9% 27.0%
==== ==== ====
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 related to the State of Arkansas taking a
different position than the federal income tax treatment regarding dividends
from less than 95% owned subsidiaries. The full assessment was recorded as
income tax expense during the year ended December 31, 1996 and paid during the
year ended December 31, 1997. 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:
40
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
TEMPORARY TAX TEMPORARY TAX
DIFFERENCES EFFECT DIFFERENCES EFFECT
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Deferred tax assets
Allowance for loan losses $3,007 $1,151 $2,353 $ 901
Valuation of foreclosed assets 767 293 1,246 477
------ ------ ------ ------
Gross deferred tax assets 3,774 1,444 3,599 1,378
------ ------ ------ ------
Deferred tax liabilities
Unrealized appreciation on
securities available for sale $ 246 $ 94 $ 161 $ 62
Accelerated depreciation on
bank premises and equipment 814 311 637 244
Other 365 139 212 81
------ ------ ------ ------
Gross deferred tax liabilities 1,425 544 1,010 387
------ ------ ------ ------
Net deferred tax assets $2,349 $ 900 $2,589 $ 991
====== ====== ====== ======
</TABLE>
10. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN - The Company has an employee stock ownership
-----------------------------
plan ("ESOP") to provide benefits to substantially all employees of the Company
who meet certain period of employment requirements. 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 $64, $95 and $86 to the plan for in the years ended
December 31, 1997, 1996, and 1995, respectively.
401(k) PLAN - In May 1997 the Company established a qualified retirement
-----------
plan, with a salary deferral feature designed to qualify under Section 401 of
the Internal Revenue Code ("the 401(k) Plan"). The 401(k) Plan permits the
employees of the Company to defer a portion of their compensation in accordance
with the provisions of Section 401(k) of the Code. Matching contributions may be
made in amounts and at times determined by the Company. 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. The Company contributed $32 to the Plan for the
year ended December 31, 1997.
Employees of the Company are eligible to participate in the 401(k) Plan when
they meet certain requirements concerning minimum age and period of credited
service. All contributions to the 401(k) Plan will be invested in accordance
with participant elections among certain investment options. Distributions from
participant accounts will not be permitted before age 65, except in the event of
death, permanent disability, certain financial hardships or termination of
employment.
11. STOCK OPTIONS
During 1997, the Company established a nonqualified stock option plan for
certain key employees and officers of the Company. This plan provides for the
granting of nonqualified options to purchase up to 285,000 shares of common
stock in the Company. It also has a nonqualified stock option plan for
non-employee directors of the Company. No option may be granted under this plan
for less than the fair market value of the common stock at the date of the
grant. The exercise period and the termination date for the employee plan
options is determined when the options are actually granted. The non-employee
director plan calls for options to purchase 1,000 shares of common stock to be
granted to non-employee directors the day after the annual stockholders'
meeting. These options are exercisable immediately and expire ten years after
issuance.
41
<PAGE>
SUMMARY OF THE STATUS OF THE PLANS
1997
-----------------
WEIGHTED-
AVERAGE
EXERCISE
OPTIONS PRICE
------- --------
Outstanding - beginning of year - $ -
Granted 108,500 16.42
Exercised - -
Canceled (2,000) 16.00
------- ------
Outstanding - end of year 106,500 $16.42
======= ======
Exercisable at end of year - -
Exercise prices for options outstanding as of December 31, 1997 ranged from
$16.00 to $25.38. The weighted-average fair value of options granted during the
year was $6.20. The weighted-average remaining contractual life of these options
is 8.15 years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's two stock option
plans been determined based on the fair value at the grant date for awards in
1997 consistent with the provisions of SFAS No. 123, the Company's pro forma net
income and earnings per share would have been $4,462 and $1.36.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997: dividend yield increasing 15% per year from
the current $0.20; expected volatility ranging from .326 to .342; risk-free
interest rates ranging from 5.77% to 6.19% and expected lives ranging from 5 to
7.5 years.
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
$20,004 and $10,186 at December 31, 1997 and 1996, respectively. The commitments
extend over varying periods of time with the majority to be disbursed within a
one-year period.
The Company had total outstanding letters of credit amounting to $1,931 and
$484 at December 31, 1997 and 1996, 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.
At December 31, 1997, the Company was committed to incur $6,675 of
construction costs on construction projects in process.
13. PURCHASE OF FEDERAL SAVINGS BANK
The Company signed a purchase agreement in November 1997 to buy a federal
savings bank for $3,100 in cash. The Company will receive at closing the federal
savings bank charter, approximately $12,500 in customer deposits, the land and
building in Little Rock, bank furnishings and equipment, and cash. The seller
will retain all loans, and the deposits and all operations of the branch in
Monticello, Arkansas and the loan production office in Bryant, Arkansas. The
Company plans to operate a full-service bank in Little Rock under the Bank of
the Ozarks name.
14. RELATED PARTY TRANSACTIONS
The Banks have entered into transactions with their executive officers,
directors, principal shareholders, and their affiliates (related parties). The
aggregate amount of loans to such related parties at December 31, 1997 and 1996
was $210 and $1,612, respectively. New loans made to such related parties were
$169 and $1,780 for the years ended December 31, 1997 and 1996, respectively.
Repayments of loans made by such related parties were $1,571 and $1,890 for the
years ended December 31, 1997 and 1996, respectively.
42
<PAGE>
15. REGULATORY MATTERS
Federal regulatory agencies generally require member banks to maintain core
(Tier 1) capital of at least 3% of total assets plus an additional cushion of 1%
to 2%, depending upon capitalization classifications. Tier 1 capital generally
consists of total stockholders' equity. Additionally, these agencies require
member banks to maintain total risk-based capital of at least 8% of
risk-weighted assets, with at least one-half of that total capital amount
consisting of Tier 1 capital. Total capital for risk-based purposes includes
Tier 1 capital plus the lesser of the allowance for loan losses or 1.25% of risk
weighted assets.
The Banks' regulatory capital position was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-----------------------------------------
COMPUTED COMPUTED COMPUTED COMPUTED
CAPITAL PERCENT CAPITAL PERCENT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bank of the Ozarks, Inc. (consolidated)
Total risk-based capital $37,464 14.27% $19,584 9.70 (1)
Tier 1 risk-based capital 34,176 13.01% 17,055 8.45% (1)
Leverage ratio 9.86% 6.42%
Bank of the Ozarks, wca:
Total risk-based capital $28,349 15.44% $16,464 11.99% (1)
Tier 1 risk-based capital 26,050 14.19% 14,742 10.74% (1)
Leverage ratio 11.15% 8.10%
Bank of the Ozarks, nwa:
Total risk-based capital 10,764 14.13% 7,584 12.86% (1)
Tier 1 risk-based capital 9,810 12.88% 6,847 11.61% (1)
Leverage ratio 8.71% 8.22%
</TABLE>
(1) Stated as a percent of risk-weighted assets as defined in OTS capital
regulations.
At December 31, 1997, the subsidiary banks exceeded their minimum capital
requirements. As of December 31, 1997, the state bank commissioner's approval
was required before the Banks could declare and pay any dividend of 75% or more
of the net profits of the Banks after all taxes for the current year plus 75% of
the retained net profits for the immediately preceding year.
The subsidiary banks are required by bank regulatory agencies to maintain
certain minimum balances of cash or non-interest bearing deposits primarily with
the Federal Reserve. At December 31, 1997, these required balances aggregated
approximately $1,395.
16. 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.
CASH AND DUE FROM BANKS - For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - For securities held for investment purposes, fair
values are based on quoted market prices or dealer quotes. If a quoted market
price is not available, fair value is estimated using quoted market prices for
similar securities or the carrying amount.
LOANS - The fair value of loans is estimated by discounting the future cash
flows using the current rate at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
DEPOSIT LIABILITIES - The fair value of demand deposits, savings accounts,
NOW accounts and certain money market deposits is the amount payable on demand
at the reporting date. The fair value of fixed maturity certificates is
estimated using the rate currently offered for deposits of similar remaining
maturities. The carrying amount of accrued interest payable approximates its
fair value.
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.
ACCRUED INTEREST - The carrying amount of accrued interest payable
approximates its fair value.
OFF-BALANCE SHEET INSTRUMENTS - Fair values for off-balance sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
43
<PAGE>
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>
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 15,628 $ 15,628 $ 6,815 $ 6,815
Available-for-sale securities 25,297 25,297 36,883 36,883
Held-to-maturity securities 17,162 17,199 2,725 2,741
Federal funds sold 2,885 2,885 350 350
Loans, net of allowance for loan losses 271,726 274,531 211,443 215,143
Accrued interest receivable 3,013 3,013 2,552 2,552
Financial liabilities:
Demand, NOW and savings account deposits $ 95,833 $ 95,833 $ 78,224 $ 78,224
Time deposits 199,722 201,547 153,424 154,148
Notes Payable 5,072 5,072 5,396 5,396
FHLB advances and federal funds purchased 14,017 13,983 12,727 12,367
Accrued interest and other liabilities 1,783 1,783 2,282 2,282
Off balance sheet assets (liabilities):
Standby letters of credit $ - $ - $ - $ -
Commitments to extend credit - - - -
Unfunded credit card loans - - - -
</TABLE>
17. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid during the period for:
--------------------------------
Interest (net of $145 capitalized in 1997) $13,255 $ 9,682 $ 6,786
Income taxes 2,752 1,984 898
Supplemental schedule of non-cash investing and financing activities:
- ---------------------------------------------------------------------
Transfer of loans to foreclosed assets held for sale 683 236 69
Loans advanced for sales of foreclosed assets 203 72 32
Change in unrealized gain on available-for-sale securities 86 146 793
</TABLE>
44
<PAGE>
18. OTHER INCOME
Other income consists of:
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
Gain on sale of loans $ 57 $274 -
Gain on sale of other assets 76 - -
Gain on sale of previously foreclosed real estate 261 14 $ 4
Printed checks sales 127 90 9
Other 23 7 93
---- ---- ----
Total other income $544 $385 $106
==== ==== ====
19. OTHER OPERATING EXPENSES
Other operating expenses consists of:
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
Other real estate and foreclosure expense $ 40 $ 49 $ 142
Professional services 102 60 56
Postage 178 140 118
Telephone 221 125 106
Operating supplies 405 215 214
Advertising and public relations 332 123 101
Other outside service fees 59 59 31
Directors' fees 116 96 79
Software amortization 119 69 75
Check printing charges 137 102 30
FDIC and state assessment 112 47 373
Amortization of goodwill 56 56 59
Charitable contributions 84 126 126
Guaranty fees 76 91 -
Other 556 532 367
------ ------ ------
Total other operating expenses $2,593 $1,890 $1,877
====== ====== ======
20. EARNINGS PER COMMON SHARE
Basic and diluted earnings per share were determined according to the
following:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
Common shares - weighted average 3,272,305 2,879,800 2,894,299
Common stock equivalents -
weighted average 8,910 - -
---------- ---------- ----------
3,281,215 2,879,800 2,894,299
========== ========== ==========
Net income $ 4,531 $ 3,027 $ 2,170
========== ========== ==========
Basic and diluted earnings per share $ 1.38 $ 1.05 $ 0.75
========== ========== ==========
45
<PAGE>
21. NEW AUTHORITATIVE PRONOUNCEMENT
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Earlier application is permitted. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. SFAS No. 130 is not expected to have a material impact on the Company.
22. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
ASSETS
------
CASH AND CASH EQUIVALENTS $ 3,264 $ 964
INVESTMENT IN SUBSIDIARIES 36,313 21,915
BANK PREMISES AND EQUIPMENT, NET 31 27
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, AT AMORTIZED COST 1,337 1,394
OTHER 8 25
------- -------
TOTAL ASSETS $40,953 $24,325
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
NOTES PAYABLE $ 5,072 $ 5,396
ACCRUED INTEREST AND OTHER LIABILITIES 215 382
------- -------
TOTAL LIABILITIES 5,287 5,778
------- -------
STOCKHOLDERS' EQUITY
Common stock 38 29
Additional paid-in capital 14,314 1,168
Retained earnings 21,162 17,251
Unrealized gains on available for sale securities-net of income tax 152 99
------- -------
TOTAL STOCKHOLDERS' EQUITY 35,666 18,547
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,953 $24,325
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ - $ 1,250 $ 905
Other 1 1 5
------- ------- -------
TOTAL INCOME 1 1,251 910
------- ------- -------
EXPENSES
Interest 554 468 10
Salaries and employee benefits 284 349 30
Net occupancy and equipment 71 51 25
Other operating expenses 360 243 78
------- ------- -------
TOTAL EXPENSES 1,269 1,111 143
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)
AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES (1,268) 140 767
Income taxes (benefit) (486) (183) (219)
Equity in undistributed earnings of subsidiary 5,313 2,704 1,184
------- ------- -------
NET INCOME $ 4,531 $ 3,027 $ 2,170
======= ======= =======
</TABLE>
46
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,531 $ 3,027 $ 2,170
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation 18 16 9
Amortization 56 57 58
Equity in undistributed earnings of
unconsolidated subsidiaries (5,313) (2,704) (1,184)
Change in assets and liabilities
Accrued interest and other liabilities (199) 106 112
Other, net 18 (30) (13)
-------- -------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (889) 472 1,152
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment (22) (6) (46)
Additional investment in subsidiaries and
purchase of minority shares of stock (9,000) (1,500) (3,573)
-------- -------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (9,022) (1,506) (3,619)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 13,155 - -
Proceeds from notes payable 10,000 1,500 3,920
Payments of notes payable (10,324) (24) -
Redemption of common stock - - (537)
Dividends paid (620) (864) (893)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,211 612 2,490
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,300 (422) 23
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 964 1,386 1,363
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 3,264 $ 964 $ 1,386
======== ======== ========
</TABLE>
47
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
1. Bank of the Ozarks, wca, an Arkansas state chartered bank which does
business as Bank of the Ozarks, Inc.
2. Bank of the Ozarks, nwa, an Arkansas state chartered bank which does
business as Bank of the Ozarks, Inc.
3. Heartland Community Bank, FSB, a federal savings bank to be renamed Bank of
the Ozarks
<PAGE>
EXHIBIT 23
CONSENT OF MOORE STEPHENS FROST, INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Bank of the Ozarks, Inc. of our Report dated January 28, 1998, included
in the 1997 Annual Report to Stockholders of Bank of the Ozarks, Inc.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 333-32177, 333-32175 and 333-32173) pertaining to
certain employee benefit plans of Bank of the Ozarks, Inc. of our Report dated
January 28, 1998, with respect to the Consolidated Financial Statements included
in or incorporated by reference in this Annual Report (Form 10-K),
MOORE STEPHENS FROST
Certified Public Accountants
Little Rock, Arkansas
March 19, 1998
20
<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 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,021
<INT-BEARING-DEPOSITS> 6,607
<FED-FUNDS-SOLD> 2,885
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,297
<INVESTMENTS-CARRYING> 17,162
<INVESTMENTS-MARKET> 17,199
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<DEPOSITS> 295,555
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<LONG-TERM> 19,089
0
0
<COMMON> 38
<OTHER-SE> 35,628
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<INTEREST-DEPOSIT> 11,826
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<EXPENSE-OTHER> 9,228
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<EPS-PRIMARY> 1.38
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<YIELD-ACTUAL> 4.98
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<ALLOWANCE-DOMESTIC> 3,737
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
