<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
________________
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________.
Commission File Number 0-22759
BANK OF THE OZARKS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0556208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12615 CHENAL PARKWAY, LITTLE ROCK, ARKANSAS 72211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 978-2265
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practical date.
Class Outstanding at March 31, 1999
- -------------------------------------- -------------------------------
Common Stock, $0.01 par value per share 3,779,555
<PAGE>
BANK OF THE OZARKS, INC.
FORM 10-Q
March 31, 1999
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of March 31, 1999
and 1998 and December 31, 1998 1
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 2
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 1999 and 1998 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Selected and Supplemental Financial Data 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Change in Securities and Use of Proceeds N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Reference is made to the Exhibit Index contained
at the end of this report.
(b). Reports on Form 8-K N/A
Signature 25
Exhibit Index 26
</TABLE>
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------------------------- --------------
1999 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 13,260 $ 14,021 $ 14,168
Interest bearing deposits 184 10,885 856
Investment securities - available for sale 44,778 18,461 17,629
Investment securities - held to maturity 170,271 51,790 158,989
Federal funds sold 2,180 7,780 -
Loans, net of unearned income 400,851 299,505 387,526
Allowance for loan losses (4,850) (3,822) (4,689)
Premises and equipment, net 27,939 16,951 27,155
Foreclosed assets held for sale, net 855 248 314
Interest receivable 6,288 3,414 5,517
Intangible assets, net 3,520 2,162 3,665
Other 1,645 1,260 1,301
-------------- -------------- --------------
Total assets $666,921 $422,655 $612,431
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand - non-interest bearing $ 56,280 $ 39,259 $ 50,138
Savings and interest-bearing transaction 104,895 69,088 95,471
Time 420,529 243,965 383,431
-------------- -------------- --------------
Total deposits 581,704 352,312 529,040
Notes payable 13,183 5,072 12,448
FHLB advances and federal funds purchased 25,425 25,993 26,823
Repurchase agreements 2,124 - 1,408
Accrued interest and other liabilities 2,855 2,485 2,357
-------------- -------------- --------------
Total liabilities 625,291 385,862 572,076
-------------- -------------- --------------
Stockholders' equity
Common stock; $0.01 par value; Authorized 10,000,000
shares;
3,779,555 shares issued and outstanding 38 38 38
Additional paid-in capital 14,314 14,314 14,314
Retained earnings 27,070 22,347 25,922
Accumulated other comprehensive income 208 94 81
-------------- -------------- ---------------
Total stockholders' equity 41,630 36,793 40,355
-------------- -------------- ---------------
Total liabilities and stockholders' equity $666,921 $422,655 $612,431
============== ============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Interest income
Loans $ 8,617 $6,921
Investment securities - taxable 2,758 776
- non-taxable 347 128
Federal funds sold 3 54
Deposits with banks 5 114
--------- ---------
Total interest income 11,730 7,993
Interest expense
Deposits 5,717 3,488
Notes payable 205 108
FHLB advances 334 240
Federal funds purchased and repurchase
agreements 165 -
--------- ---------
Total interest expense 6,421 3,836
--------- ---------
Net interest income 5,309 4,157
Provision for loan losses (611) (225)
--------- ---------
Net interest income after provision for
loan losses 4,698 3,932
--------- ---------
Other income
Trust income 128 78
Service charges on deposit accounts 502 281
Other income, charges and fees 602 557
Gains on sales of securities 25 51
Other 12 127
--------- ---------
Total other income 1,269 1,094
--------- ---------
Other expense
Salaries and employee benefits 2,000 1,677
Net occupancy and equipment 636 426
Other operating expenses 1,132 821
--------- ---------
Total other expense 3,768 2,924
--------- ---------
Income before income taxes 2,199 2,102
Provision for income taxes 673 728
--------- ---------
Net income $ 1,526 $1,374
========= =========
Basic and diluted earnings per common
share $0.40 $0.36
========= =========
Cash dividends declared $0.10 $0.05
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME TOTAL
----------- ---------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE - JANUARY 1, 1998 $ 38 $ 14,314 $ 21,162 $ 152 $ 35,666
Comprehensive income
Net income 1,374 1,374
Other comprehensive income
Unrealized gains on available for
sale securities net of $1 tax
effect (2) (2)
Less: reclassification adjustment for
gains included in income net of $35
tax effect (56) (56)
-----------
Comprehensive income 1,316
-----------
Cash dividends (189) (189)
---------- --------- ------------ -------------- -----------
ENDING BALANCE - MARCH 31, 1998 $ 38 $ 14,314 $ 22,347 $ 94 $ 36,793
========== ========= ============ ============== ===========
BEGINNING BALANCE JANUARY 1, 1999 $ 38 $ 14,314 $ 25,922 $ 81 $ 40,355
Comprehensive income
Net income 1,526 1,526
Other comprehensive income
Unrealized gains on available for
sale securities net of $113 tax
effect 182 182
Less: reclassification adjustment for
gains included in income net of $35
tax effect (55) (55)
-----------
Comprehensive income 1,653
-----------
Cash dividends (378) (378)
----------- --------- ------------ -------------- -----------
ENDING BALANCE - MARCH 31, 1999 $ 38 $ 14,314 $ 27,070 $ 208 $ 41,630
=========== ========= ============ ============== ===========
</TABLE>
3
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,526 $ 1,374
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 331 195
Amortization 67 22
Provision for loan losses 611 225
Provision for losses on foreclosed assets 16 -
Gains on sales of securities (25) (51)
(Increase) decrease in mortgage loans held for sale 1,481 (365)
Gain on disposition of premises and equipment (4) (4)
(Gain) loss on disposition of foreclosed assets 10 (84)
Deferred income taxes (67) (22)
Changes in assets and liabilities
Interest receivable (771) (399)
Other, net (276) 468
Accrued interest and other liabilities 499 167
-------- --------
Net cash provided by operating activities 3,398 1,526
-------- --------
Cash flows from investing activities
Purchase of subsidiaries, net of funds acquired - 7,164
Proceeds from sales and maturities of investment securities
available for sale 6,713 7,230
Purchases of investment securities available for sale (33,634) (280)
Proceeds from maturities of investment securities held to 26,111 3,145
maturity
Purchases of investment securities held to maturity (37,393) (37,781)
Increase in federal funds sold (2,180) (4,450)
Net increase in loans (16,153) (24,064)
Proceeds from issuance of loans -
Proceeds from dispositions of bank premises and equipment 15 4
Purchase of bank premises and equipment (1,126) (3,038)
Proceeds from dispositions of foreclosed assets 330 210
-------- --------
Net cash used by investing activities (57,317) (51,860)
-------- --------
Cash flows from financing activities
Net increase in deposits 52,664 47,402
Net changes in FHLB advances and federal funds purchased (1,398) 12,399
Net increase in repurchase agreements 716 -
Proceeds from notes payable 735 -
Dividends paid (378) (189)
-------- --------
Net cash provided by financing activities 52,339 59,612
-------- --------
Net (decrease) increase in cash and cash equivalents (1,580) 9,278
Cash and cash equivalents - beginning of period 15,024 15,628
-------- --------
Cash and cash equivalents - end of period $ 13,444 $ 24,906
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Bank of the Ozarks, Inc. include
the accounts of the parent company and its wholly owned subsidiaries, including
Bank of the Ozarks, wca and Bank of the Ozarks, nwa, (collectively the
"Company"). All material intercompany transactions have been eliminated.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") in Article 10 of Regulation S-X and
with the instructions to Form 10-Q, and in accordance with generally accepted
accounting principles for interim financial information. Certain information,
accounting policies and footnote disclosures normally included in complete
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with such rules and
regulations. It is therefore suggested that these consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's annual report on Form 10-
K for the year ended December 31, 1998.
In the opinion of management all adjustments considered necessary,
consisting of normal recurring items, have been included for a fair presentation
of the accompanying consolidated financial statements. Operating results for
the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the full year.
3. EARNINGS PER COMMON SHARE
Basic EPS is computed by dividing reported earnings available to common
stockholders by weighted average shares outstanding. No dilution for any
potentially dilutive securities is included. Diluted EPS includes the dilutive
effect of stock options. In computing dilution for stock options, the average
share price is used for the reporting period.
Basic and diluted earnings per common share is computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1999 1998
--------------- ----------------
(In thousands, except per share amounts)
<S> <C> <C>
Common shares - weighted averages.................. 3,780 3,780
Common share equivalents - weighted averages....... 16 41
------ ------
3,796 3,821
====== ======
Net income......................................... $1,526 $1,374
Basic earnings per common share.................... $ 0.40 $ 0.36
Diluted earnings per common share.................. 0.40 0.36
</TABLE>
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5
<PAGE>
4. FEDERAL HOME LOAN BANK ("FHLB") ADVANCES
FHLB advances with original maturities exceeding one year totaled $25.4
million at March 31, 1999. Interest rates on these advances ranged from 4.16%
to 6.47% at March 31, 1999 with a weighted average rate of 5.28%. Aggregate
annual maturities (amounts in thousands) and weighted average interest rates of
FHLB advances with an original maturity of over one-year at March 31, 1999 are
as follows:
<TABLE>
<CAPTION>
WEIGHTED
AMOUNTS AVERAGE RATE
----------- -----------------
<S> <C> <C>
1999 $ 2,700 6.47%
2000 2,145 5.77
2001 4,198 5.94
2002 197 6.30
2003 197 6.30
Thereafter 15,988 4.82
-------
$25,425
=======
</TABLE>
FHLB advances of $15.0 million maturing in 2008 and 2009 may be called
quarterly but the Company has the option to refinance on a long-term basis any
amounts called.
At March 31, 1999, the Company had no FHLB advances with original
maturities of one year or less.
5. SUPPLEMENTARY DATA FOR CASH FLOWS
Cash payments for interest by the Company during the three months ended
March 31, 1999, amounted to $6.4 million and during the three months ended March
31, 1998, amounted to $3.7 million. Cash payments for income taxes during the
three months ended March 31, 1999 and 1998 amounted to $148,000 and $72,000,
respectively.
(The remainder of this page intentionally left blank)
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Net income was $1,526,000 for the first quarter of 1999, an 11.1% increase
over net income of $1,374,000 for the same quarter in 1998. Diluted earnings
per share rose 11.1% to $0.40 for the quarter ended March 31, 1999, compared to
$0.36 for the same quarter in 1998.
The Company's annualized returns on average assets and on average
stockholders' equity were 0.97% and 15.14%, respectively, for the first quarter
of 1999, compared with 1.46% and 15.41%, respectively, for the same quarter of
1998.
Total assets increased from $612.4 million at December 31, 1998, to $666.9
million at March 31, 1999. Loans were $400.9 million at March 31, 1999,
compared to $387.5 million at December 31, 1998. Deposits were $581.7 million
at March 31, 1999, compared to $529.0 million at December 31, 1998.
Stockholders' equity increased from $40.4 million at December 31, 1998, to
$41.6 million at March 31, 1999, increasing book value per share from $10.68 to
$11.01.
Annualized results for interim periods may not be indicative of those for the
full year or future periods.
ANALYSIS OF RESULTS OF OPERATIONS
The Company's results of operations depend primarily on net interest income,
which is the difference between the interest income from earning assets, such as
loans and investments, and the interest expense incurred on interest bearing
liabilities, such as deposits and other borrowings. The Company also generates
non-interest income, including service charges on deposit accounts, mortgage
lending income, other charges and fees, trust income, and gains on sales of
assets. The Company's non-interest expenses primarily consist of employee
compensation and benefits, occupancy, equipment, and other operating expenses.
The Company's results of operations are significantly affected by its provision
for loan losses. The following discussion provides a summary of the Company's
operations for the three months ended March 31, 1999 and 1998.
(The remainder of this page intentionally left blank)
7
<PAGE>
NET INTEREST INCOME
Net interest income is analyzed in the discussion and tables below on a fully
taxable equivalent ("FTE") basis. The adjustment to convert certain income to an
FTE basis consists of dividing tax-exempt income by one minus the statutory
federal income tax rate (34%).
Net interest income (FTE) increased 30.1% to $5,502,000 for the three months
ended March 31, 1999, from $4,229,000 for the three months ended March 31, 1998.
This increase primarily resulted from a 66.5% increase in average earning assets
to $591.5 million for the 1999 period from $355.3 million for the 1998 period.
The increase in average earning assets for the 1999 period resulted from
continued growth in the Company's loan portfolio as well as substantial growth
in the Company's investment securities portfolio.
The Company's net interest margin declined from 4.83% in the first quarter
ended March 31, 1998, to 3.77% for the same quarter of 1999. The Company's net
interest margin declined throughout the year of 1998 as a result of competitive
factors, including promotional CD rates at new offices and intense pricing
competition for loans, and a reduction in the Company's loan to deposit ratio.
While the net interest margin declined throughout 1998, the net interest margin
for the first quarter of 1999 remained unchanged from the 1998 fourth quarter.
ANALYSIS OF NET INTEREST INCOME
(FTE = FULLY TAXABLE EQUIVALENT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Interest income............................ $11,730 $7,993
FTE adjustment............................. 193 72
-------- -------
Interest income - FTE...................... 11,923 8,065
Interest expense........................... 6,421 3,836
-------- -------
Net interest income - FTE.................. $ 5,502 $4,229
======== =======
Yield on interest earning assets - FTE..... 8.17% 9.21%
Cost of interest bearing liabilities....... 4.77 5.03
Net interest spread - FTE.................. 3.40 4.18
Net interest margin - FTE.................. 3.77 4.83
</TABLE>
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8
<PAGE>
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------------
1999 1998
------------------------------------------ ----------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/
BALANCE EXPENSE RATE BALANCE EXPENSE
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Interest bearing deposits...................... $ 347 $ 5 5.45% $ 8,490 $ 114
Federal funds sold............................. 208 3 4.88 3,967 54
Investment securities:
Taxable....................................... 166,560 2,758 6.72 46,501 776
Tax-exempt - FTE.............................. 30,914 525 6.89 9,677 194
Loans - FTE (net of unearned income)............ 393,493 8,632 8.90 286,647 6,927
------------ ----------- ------------ ------------
Total earnings assets......................... 591,522 11,923 8.17 355,282 8,065
Non-earning assets.............................. 49,270 27,124
------------ ------------
Total assets.................................. $640,792 $382,406
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings and interest bearing transaction...... $ 98,861 $ 649 2.66% $ 64,828 $ 453
Time deposits of $100,000 or more............. 159,165 1,997 5.09 64,513 900
Other time deposits........................... 236,156 3,071 5.27 152,776 2,135
------------ ----------- ------------ ------------
Total interest bearing deposits.............. 494,182 5,717 4.69 282,117 3,488
FHLB advances and federal funds................ 37,903 486 5.20 22,072 240
Repurchase agreements.......................... 1,379 13 3.95 - -
Notes payable.................................. 12,821 205 6.47 5,072 108
------------ ----------- ------------ ------------
Total interest bearing liabilities........... 546,285 6,421 4.77 309,261 3,836
Non-interest liabilities:
Non-interest bearing deposits.................. 50,799 34,844
Other non-interest liabilities................. 2,841 2,130
------------ ------------
Total liabilities............................ 599,925 346,235
Stockholders' equity............................ 40,867 36,171
------------ ------------
Total liabilities and stockholders' equity... $640,792 $382,406
============ ============
Interest rate spread - FTE...................... 3.40%
----------- ------------
Net interest income - FTE....................... $ 5,502 $4,229
=========== ============
Net interest margin - FTE....................... 3.77%
<CAPTION>
-----------
YIELD/
RATE
-----------
<S> <C>
ASSETS
Earning assets:
Interest bearing deposits...................... 5.45%
Federal funds sold............................. 5.62
Investment securities:
Taxable....................................... 6.77
Tax-exempt - FTE.............................. 8.13
Loans - FTE (net of unearned income)............ 9.80
Total earnings assets......................... 9.21
Non-earning assets..............................
Total assets..................................
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings and interest bearing transaction...... 2.83%
Time deposits of $100,000 or more............. 5.66
Other time deposits........................... 5.67
Total interest bearing deposits.............. 5.02
FHLB advances and federal funds................ 4.41
Repurchase agreements..........................
Notes payable.................................. 8.64
Total interest bearing liabilities........... 5.03
Non-interest liabilities:
Non-interest bearing deposits..................
Other non-interest liabilities.................
Total liabilities............................
Stockholders' equity............................
Total liabilities and stockholders' equity...
Interest rate spread - FTE...................... 4.18%
Net interest income - FTE.......................
Net interest margin - FTE....................... 4.83%
</TABLE>
9
<PAGE>
NON-INTEREST INCOME
The Company's non-interest income can primarily be broken down into five main
sources: (1) service charges on deposit accounts, (2) mortgage lending income,
(3) other charges and fees including appraisal fees and commissions from the
sale of credit related insurance products, (4) trust income, and (5) gains on
sales of assets.
Non-interest income for the first quarter of 1999 was $1,269,000 compared with
$1,094,000 for the first quarter of 1998, a 16.0% increase. During the first
quarter the Company benefited from record levels of service charges on deposit
accounts and trust income. The increase in service charges resulted from
continued growth in the number of checking, savings and money market accounts as
well as the impact of an increase in service charge rates effective January 1,
1999. The Company's growth in trust income resulted from an increase in the
volume of trust business due to expansion and relocation of the Company's trust
department to Little Rock in late 1998. Mortgage lending income for the first
quarter of 1999 increased from the level for the first quarter of 1998, but
declined from the record levels for the last two quarters of 1998.
The table below shows non-interest income for the three months ended March 31,
1999 and 1998.
NON-INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Service charges on deposit accounts............. $ 502 $ 281
Mortgage lending income......................... 449 395
Other charges and fees.......................... 154 162
Trust income.................................... 128 78
Gain (loss) on sales of foreclosed real estate.. (10) 84
Gain on sales of other assets................... 3 4
Gain on sales of securities..................... 25 51
Printed check sales............................. 8 32
Other........................................... 10 7
-------- --------
Total non-interest income.................. $1,269 $1,094
======== ========
</TABLE>
(The remainder of this page intentionally left blank)
10
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense for the first quarter of 1999 was $3,768,000 compared
with $2,924,000 for the same period in 1998, a 28.9% increase. This increase
resulted primarily from continued growth and expansion in connection with the
opening of five new offices in 1998 and one new office in the first quarter of
1999.
The Company's efficiency ratio (non-interest expenses divided by the sum of
net interest income on a tax equivalent basis and non-interest income) was
55.65% for the first quarter of 1999 compared to 54.93% for the first quarter of
1998.
The table below shows non-interest expense for the three months ended March
31, 1999 and 1998.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Salaries and employee benefits......... $2,000 $1,677
Net occupancy expense.................. 297 187
Equipment expense...................... 339 239
Other real estate and foreclosure
expense............................... 63 16
Other operating expense:
Professional and outside services.... 100 45
Postage.............................. 71 68
Telephone............................ 101 67
Data lines........................... 86 18
Operating supplies................... 112 121
Advertising and public relations..... 176 96
Directors' fees...................... 30 28
Software expense..................... 64 38
Check printing charges............... - 37
ATM expense.......................... 36 24
FDIC & state assessment.............. 47 32
Business development, meals and
travel............................. 36 27
Amortization of intangibles.......... 67 22
Other................................ 143 182
-------- --------
Total non-interest expense............. $3,768 $2,924
======== ========
</TABLE>
The Company has initiated a series of organizational enhancements intended to
eliminate redundant expenses, improve efficiency, enhance customer service and
facilitate the introduction of new products and services in the future. During
the first quarter of 1999 the Company consolidated its federal savings bank
subsidiary into its lead bank. During the second quarter the Company plans to
consolidate its two remaining commercial bank subsidiaries. Regulatory approval
of this consolidation has been obtained and completion of the consolidation
process is expected in June 1999.
INCOME TAXES
The provision for income taxes was $673,000 for the quarter ended March 31,
1999, compared to $728,000 for the same period in 1998. The effective income tax
rates were 30.6% and 34.6%, respectively, for these periods. The decrease in
effective tax rates for the 1999 period resulted primarily from the Company's
increased investments in tax-exempt securities. These include securities exempt
from both federal and Arkansas income taxes as well as other securities exempt
solely from Arkansas income taxes.
11
<PAGE>
ANALYSIS OF FINANCIAL CONDITION
LOAN PORTFOLIO
At March 31, 1999, the Company's loan portfolio was $400.9 million, an
increase from $387.5 million at December 31, 1998. As of March 31, 1999, the
Company's loan portfolio consisted of approximately 64.6% real estate loans,
16.2% consumer loans, 13.7% commercial and industrial loans and 5.0%
agricultural loans (non-real estate).
The amount and type of loans outstanding at March 31, 1999 and 1998 and
December 31, 1998 are reflected in the following table.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
----------------------------------- --------------
1999 1998 1998
------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Real Estate:
Single family residential......... $119,404 $103,225 $121,539
Non-farm/non-residential.......... 86,560 45,691 76,563
Agricultural...................... 20,784 13,585 19,463
Construction/land development..... 26,778 17,591 23,305
Multi-family residential.......... 5,465 4,180 6,207
------------- -------------- --------------
Total real estate................. 258,991 184,272 247,077
Consumer.......................... 64,976 55,362 66,407
Commercial and industrial......... 55,163 43,348 52,192
Agricultural (non-real estate).... 20,027 14,131 20,068
Other............................. 1,694 2,392 1,782
------------- -------------- --------------
Total loans....................... $400,851 $299,505 $387,526
============= ============== ==============
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets consist of (1) nonaccrual loans, (2) accruing loans 90
days or more past due, (3) restructured loans providing for a reduction or
deferral of interest or principal because of a deterioration in the financial
position of the borrower, and (4) real estate or other assets that have been
acquired in partial or full satisfaction of loan obligations or upon
foreclosure. Nonperforming assets as a percent of total assets were 0.75% as of
March 31, 1999, compared to 0.70% as of December 31, 1998, and 0.40% as of March
31, 1998. Nonperforming loans as a percent of total loans were 1.04% as of March
31, 1999 compared to 0.70% as of December 31, 1998, and 0.54% as of March 31,
1998. The Company's ratios of non-performing loans and non-performing assets as
of March 31, 1999 were impacted by the placing on non-accrual status of $1.6
million of real estate loans to a single borrower. These loans were charged down
by $103,000 to the current appraised value of the collateral. While management
expects non-performing loans and net charge-offs to continue to exhibit
volatility, it does not presently foresee any adverse trends in its asset
quality which would materially affect its future results of operations or
financial condition.
The Company generally places a loan on nonaccrual status when payment of
principal or interest is contractually past due 90 days, or earlier when doubt
exists as to the ultimate collection of principal and interest. The Company
continues to accrue interest on certain loans contractually past due 90 days if
such loans are both well secured and in the process of collection. At the time a
loan is placed on nonaccrual status, interest previously accrued but uncollected
is generally reversed and charged against interest income. If a loan is
determined to be uncollectible, the portion of the loan principal determined to
be uncollectible will be charged against the allowance for loan losses. Interest
income on nonaccrual loans is recognized on a cash basis when and if actually
collected.
Foreclosed assets held for sale and repossessions are generally written down
to estimated market value at the time of transfer from the loan portfolio. The
value of such assets is reviewed from time to time throughout the holding
period, with the value being adjusted to the then market value, if lower, until
disposition. Under Arkansas banking law, other real estate owned is generally
required to be written off over a five year period unless approval of the
Arkansas State Bank Department can be obtained to write such assets off over an
extended period.
12
<PAGE>
The following table presents information concerning nonperforming assets,
including nonaccrual and restructured loans and foreclosed assets held for sale.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------------- ----------------
1999 1998 1998
--------- --------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans.......................................... $4,126 $1,583 $2,708
Accruing loans 90 days or more past due................... 30 49 21
Restructured loans........................................ - - -
------ ------ ------
Total nonperforming loans...................... 4,156 1,632 2,729
Foreclosed assets held for sale and repossessions......... 855 77 314
------ ------ ------
Total nonperforming assets..................... $5,011 $1,709 $3,043
====== ====== ======
Nonperforming loans to total loans........................ 1.04% 0.54% 0.70%
Nonperforming assets to total assets...................... 0.75 0.40 0.50
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Allowance for Loan Losses: The following table shows an analysis of the
allowance for loan losses for the three month periods ended March 31, 1999 and
1998 and the year ended December 31, 1998.
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------------------ -------------------
1999 1998 1998
----------- ----------- -------------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, beginning of period...................................... $ 4,689 $ 3,737 $ 3,737
Loans charged off:
Real estate.................................................... 237 11 93
Consumer....................................................... 180 93 633
Commercial and industrial...................................... 79 42 423
Agricultural (non-real estate)................................. 4 - -
------- ------- -------
Total loans charged off..................................... 500 146 1,149
------- ------- -------
Recoveries of loans previously charged off:
Real estate.................................................... - - 9
Consumer....................................................... 49 5 55
Commercial and industrial...................................... 1 1 11
Agricultural (non-real estate)................................. - - -
------- ------- -------
Total recoveries............................................ 50 6 75
------- ------- -------
Net loans charged off............................................. 450 140 1,074
Provision charged to operating expense............................ 611 225 2,026
------- ------- -------
Balance, end of period............................................ $ 4,850 $ 3,822 $ 4,689
======= ======= =======
Net charge-offs to average loans outstanding during
the periods indicated.......................................... 0.46%/(1)/ 0.20%/(1)/ 0.33%
Allowance for loan losses to total loans.......................... 1.21 1.28 1.21
Allowance for loan losses to nonperforming loans.................. 116.70 234.19 171.82
</TABLE>
(1) Annualized
13
<PAGE>
The amounts of provision to the allowance for loan losses are based on
management's judgment and evaluation of the loan portfolio utilizing objective
and subjective criteria. The objective criteria utilized by the Company to
assess the adequacy of its allowance for loan losses and required additions to
such reserve are (1) an internal grading system, (2) a peer group analysis, and
(3) a historical analysis. In addition to this objective criteria, the Company
subjectively assesses adequacy of the allowance for loan losses and the need for
additions thereto, with consideration given to the nature and volume of the
portfolio, overall portfolio quality, review of specific problem loans,
national, regional and local business and economic conditions that may affect
the borrowers' ability to pay or the value of collateral securing the loans, and
other relevant factors. The Company's allowance for loan losses increased to
$4,850,000 at March 31, 1999, or 1.21% of total loans, compared with $4,689,000,
or 1.21% of total loans, at December 31, 1998. While management believes the
current allowance is adequate, changing economic and other conditions may
require future adjustments to the allowance for loan losses.
For the first three months of 1999, the annualized net charge-off ratio was
0.46% of average outstanding loans compared with 0.33% for the year of 1998 and
0.20% annualized for the first three months of 1998. The Company's net charge-
off ratio for the first quarter of 1999 was impacted by charge-offs taken on
real estate loans totaling $1.6 million to a single borrower. Such loans were
written down by $103,000 during the quarter to the current appraised value of
the collateral.
Provision for Loan Losses: The loan loss provision reflects management's
ongoing assessment of the loan portfolio and is evaluated in light of risk
factors mentioned above. The provision for loan losses was $611,000 for the
three months ended March 31, 1999, compared to $225,000 for the same three
months in 1998.
INVESTMENT SECURITIES
The Company's securities portfolio is the second largest component of
earning assets and provides a significant source of revenue for the Company. The
table below presents the amortized cost and the fair value of investment
securities for each of the dates indicated.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1999 1998 1998
----------------------- ------------------------- ----------------------
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......................... $167,290 $165,151 $43,079 $43,044 $156,351 $156,331
Mortgage-backed securities............ 257 254 7,189 7,295 2,107 2,117
Obligations of states and political
subdivisions..................... 43,836 44,167 17,765 17,777 14,742 14,884
Other securities...................... 3,329 3,390 2,068 2,068 3,286 3,347
-------- -------- ------- ------- -------- --------
Total.......... $214,712 $212,962 $70,101 $70,184 $176,486 $176,679
======== ======== ======= ======= ======== ========
</TABLE>
(1) The fair value of the Company's financial instruments is based on quoted
market prices where available. If quoted market prices are not available,
fair values are based on market prices for comparable securities.
LIQUIDITY AND CAPITAL RESOURCES
Line of Credit. The Company maintains a revolving line of credit for up to
$22 million with a correspondent bank. Interest accrues on all outstanding
borrowings due under the line of credit at a variable rate equal to the average
prime lending rate reported from time to time by the Wall Street Journal minus
1.25%, provided, however, the rate is not to exceed 7.75%. Interest is payable
quarterly. The line of credit is effective through March 31, 2003 subject to an
annual compliance review by the lender. No standby or unused commitment fees are
payable by the Company under the line of credit.
All borrowings under the line of credit are secured by a pledge of 100% of
the Company's stock in each of Bank of the Ozarks, wca and Bank of the Ozarks,
nwa. As of March 31, 1999 $13.1 million was outstanding under the line of
credit.
14
<PAGE>
The line of credit requires the Company's bank subsidiaries, Bank of the
Ozarks, wca and Bank of the Ozarks, nwa, to maintain (1) a return on average
assets for each calendar year equal to at least 1.0%, (2) a ratio of capital, as
defined in the line of credit, to assets at levels acceptable to bank regulatory
authorities but at least 7.0% at each calendar year end, and (3) net charges to
the reserve for loan losses at less than 1.0% of net loans during any calendar
year. In addition, the line of credit requires that the parent Company's
aggregate indebtedness not exceed 60.0% of the Company's tangible net worth
through March 31, 1999, reducing 5% a year thereafter and that borrowings under
the line of credit not exceed 50.0% of the tangible book value of all subsidiary
bank stock pledged to secure such borrowings. At March 31, 1999 the Company was
in compliance with these requirements.
Growth and Expansion. During the first quarter of 1999, the Company opened
its first branch in North Little Rock. The Company also continued construction
of its third Harrison area branch and expects to open this facility during the
second quarter of 1999. Regulatory approval has been obtained to construct a
branch in Clinton, Arkansas and construction is expected to begin in the second
quarter of 1999. The Company is negotiating to lease a site in North Little Rock
on which to construct a second branch in that city.
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. The Company has used these funds,
together with FHLB and other borrowings, to make loans, acquire investment
securities and other assets and to fund continuing operations.
Deposit levels may be affected by a number of factors, including rates paid
by competitors, general interest rate levels, returns available to customers on
alternative investments and general economic conditions. Loan repayments are a
relatively stable source of funds, but such loans generally are not readily
convertible to cash. Accordingly, the Company may be required from time to time
to rely on secondary sources of liquidity to meet loan and withdrawal demands or
otherwise fund operations. Such sources include FHLB advances, federal funds
lines of credit from correspondent banks and borrowings by the Company under its
line of credit described above.
At March 31, 1999, the Company's bank subsidiaries had an aggregate of $58.6
million of unused blanket FHLB borrowing availability. Additionally at March
31, 1999 the bank subsidiaries had available substantial federal funds lines of
credit.
Management anticipates that the Company's bank subsidiaries will continue to
rely primarily on customer deposits and loan repayments to provide liquidity.
However, where necessary, the above described borrowings (including borrowings
under the Company's line of credit) will be used to augment the Company's
primary funding sources.
Year 2000 Liquidity Needs. The Company may experience additional liquidity
needs in connection with increased deposit withdrawals due to customer concerns
over the Year 2000 issue. The Board of Directors has adopted a Contingency
Funding Plan to guide management in handling unusual liquidity needs. In
preparing for possible increased Year 2000 liquidity demands, management is
taking several actions including: (1) modification of the pricing and terms of
certain time deposit products to encourage depositors to accept maturities after
year-end, (2) developing plans to place collateral with various sources of
secondary liquidity to facilitate short-term borrowing, and (3) developing plans
to have additional cash available at the branches and ATMs of the bank
subsidiaries during the latter part of the year. Although management believes
these and other actions will prepare the Company for this potential liquidity
need, there can be no assurance these steps will be adequate.
15
<PAGE>
Capital Compliance. Bank regulatory authorities in the United States impose
certain capital standards on all bank holding companies and banks. These
capital standards require compliance with certain minimum "risk-based capital
ratios" and a minimum "leverage ratio". The risk-based capital ratios consist
of (1) Tier 1 capital (i.e. common stockholders' equity excluding goodwill,
certain intangibles and net unrealized gains on available for sale securities,
but including certain other qualifying items) to total risk-weighted assets and
(2) total capital (Tier 1 capital plus Tier 2 capital which is the qualifying
portion of the allowance for loan losses) to risk-weighted assets. The leverage
ratio is measured as Tier 1 capital to adjusted quarterly average assets.
The Company's risk-based and leverage capital ratios exceeded these minimum
requirements at March 31, 1999, and December 31, 1998, and are presented below,
followed by the capital ratios of each of the Company's bank subsidiaries at
March 31, 1999.
CONSOLIDATED CAPITAL RATIOS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ --------------
(Dollars in thousands)
<S> <C> <C>
Tier 1 capital:
Stockholders' equity................................................ $ 41,630 $ 40,355
Less net unrealized gains on available for sale securities.......... (208) (81)
Less goodwill and certain intangible assets......................... (3,478) (3,623)
------------ --------------
Total Tier 1 capital................................ $ 37,944 $ 36,651
============ ==============
Tier 2 capital:
Qualifying allowance for loan losses................................. 4,850 4,689
------------ --------------
Total risk-based capital............................ $ 42,794 $ 41,340
============ ==============
Risk-weighted assets........................................................ $426,644 $404,879
============ ==============
Ratios at end of period:
Leverage............................................................. 5.95% 6.21%
Tier 1 risk-based capital............................................ 8.89 9.05
Total risk-based capital............................................. 10.03 10.21
Minimum ratio guidelines:
Leverage............................................................. 3.00%/(1)/ 3.00%/(1)/
Tier 1 risk- based capital........................................... 4.00 4.00
Total risk-based capital............................................. 8.00 8.00
</TABLE>
CAPITAL RATIOS OF SUBSIDIARY BANKS
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------------
BANK OF THE BANK OF THE
OZARKS, WCA OZARKS, NWA
------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Stockholders' equity - Tier 1....................... $39,036 $11,579
Leverage ratio...................................... 8.17% 7.25%
Risk-based capital ratios:
Tier 1...................................... 12.22% 11.06%
Total capital............................... 13.38 12.16
</TABLE>
(1) Regulatory authorities require institutions to operate at varying levels
(ranging from 100-200 basis points) above a minimum leverage ratio of 3%
depending upon capitalization classification.
16
<PAGE>
YEAR 2000
The Year 2000 issue relates to the ability of the Company's computer and
other systems with imbedded microchips to properly handle Year 2000 date
sensitive data and the potential risk to the Company because of relationships
with third parties (e.g. software and hardware vendors, loan customers,
correspondent banks, utility companies and others) who do not adequately address
the Year 2000 issue. Failure in any of these areas could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in normal
business activities. In late 1997 the Company established a Year 2000 Project
Committee to evaluate and assess the Company's exposure to this issue. This
Committee has implemented an approach to the Year 2000 issue consisting of four
phases. These phases include awareness, assessment, renovation and testing.
The awareness phase consisted of defining the Year 2000 problem, developing
the resources necessary to perform compliance work, establishing a Year 2000
program committee and program coordinator and developing an overall strategy
that encompasses in-house systems, service bureaus, vendors, auditors, customers
and suppliers (including correspondents). This phase has been completed.
The assessment phase consists of evaluating the size and complexity of the
problem and detailing the magnitude of the effort necessary to address the Year
2000 issue. The objective of this phase is to identify all hardware, software,
networks, automated teller machines, other various processing platforms, and
customer and vendor interdependencies affected by the Year 2000 date change. The
assessment phase goes beyond the Company's information systems and includes
environmental systems that are dependent on embedded microchips, such as
security systems, elevators, sprinkler systems, alarms and vaults. The
assessment phase is substantially completed, but is considered an ongoing
process for the Company.
The renovation phase includes the remediation of any systems identified in
the awareness phase as not Year 2000 compliant. The replacement of a
proof/capture system was expedited due to lack of Year 2000 compliance earlier
in 1998. Also the need for minor upgrades to several proof machines were
identified and have been completed. Environmental systems including vault doors,
security systems, elevators, sprinkler systems and alarms have been evaluated
and assurances from vendors have been received regarding their Year 2000
compliance. The renovation phase is essentially complete with all identified
problem areas having been addressed.
The Company is well into its testing phase with the primary focus being on
the core software that runs basic bank services including the following
applications: checking, savings, time deposits, individual retirement accounts,
loans, safe deposit box and general ledger accounting. Complete testing of
mission critical systems was substantially complete as of December 31, 1998.
Further testing with mission critical vendors and other significant third party
vendors will continue and is expected to be completed by June 30, 1999. The
Company has not identified any problems thus far with any of its systems that
would have a material adverse impact upon its operations.
The Company incurred expenses throughout 1996, 1997, 1998 and in the first
quarter of 1999 related to this project and will continue to incur expenses over
the next nine months. The Company currently estimates that the cost to remediate
both its Year 2000 hardware and software issues to be less than $130,000 with
approximately 85% of the costs having already been expended through March 31,
1999. A significant portion of total Year 2000 project expenses is represented
by existing staff that have been redeployed to this project. The Company does
not believe that the redeployment of existing staff will have a material adverse
effect on its business, results of operations or financial position nor have any
projects under consideration by the Company been deferred because of Year 2000.
Incremental expenses related to the Year 2000 project are not expected to
materially impact operating results in any one period.
The impact of Year 2000 issues on the Company will depend not only on
corrective actions that the Company takes, but also on the way in which Year
2000 issues are addressed by governmental agencies, businesses and other third
parties that provide services or data to, or receive services or data from, the
Company, or whose financial condition or operational capability is important to
the Company. To reduce this exposure, the Company has an ongoing process of
identifying and contacting mission critical third party vendors and other
significant third parties to determine their Year 2000 plans and target dates.
Notwithstanding the Company's efforts, there can be no assurance that mission
critical third party vendors or other significant third parties will adequately
address their Year 2000 issues.
17
<PAGE>
The Company has developed contingency plans for implementation in the event
that mission critical third party vendors or other significant third parties
fail to adequately address Year 2000 issues. Such plans principally involve
identifying alternate vendors or internal remediation. There can be no
assurance that any such plans will fully mitigate any failures or problems.
Furthermore, there may be certain mission critical third parties, such as
utilities or telecommunication companies, where alternative arrangements or
sources are limited or unavailable. The most reasonably likely worst case
scenario would be that the Company may experience disruption in its operations
if any of these mission critical third parties experienced system failure.
The Company's credit risk associated with borrowers may increase to the extent
borrowers fail to adequately address Year 2000 issues. As a result there may be
increases in the Company's problem loans and credit losses in future years. The
Company is making ongoing efforts to assess the risks associated with loan
customers, large depositors and significant employers in the Company's service
areas, however, it is not possible to quantify the potential impact of such
risks at this time.
As remediated and tested systems and other new systems are brought into
operation, the Company will need to take steps to avoid the re-introduction of
Year 2000 related problems into its systems. This is an ongoing process for the
Company because normal operations and other considerations may require that
modifications continue to be made to its systems in 1999. To some extent,
therefore, all four phases of the Company's project will need to continue
throughout 1999 and beyond.
The forward-looking statements contained herein with regard to the timing and
overall cost estimates of the Company's efforts to address the Year 2000 problem
are based upon the Company's experience thus far in this effort. Should the
Company encounter unforeseen difficulties either in the continuing review of its
computerized systems, their ultimate remediation, or the response of parties
with which it does business or from which it obtains services, the actual
results could vary significantly from the estimates contained in these forward-
looking statements.
FORWARD-LOOKING INFORMATION
This Management's Discussion and Analysis of Financial Condition and Results
of Operations, other filings made by the Company with the Securities and
Exchange Commission and other oral and written statements or reports by the
Company and its management, include certain forward-looking statements
including, without limitation, statements with respect to anticipated future
operating and financial performance, growth opportunities and growth rates,
acquisition opportunities and other similar forecasts and statements of
expectation. Words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Forward-looking statements
made by the Company and its management are based on estimates, projections,
beliefs and assumptions of management at the time of such statements and are not
guarantees of future performance. The Company disclaims any obligation to
update or revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management due to certain risks, uncertainties and assumptions. Certain factors
that may affect operating results of the Company include, but are not limited
to, the following: (1) potential delays or other problems in implementing the
Company's growth and expansion strategy; (2) the ability to attract new deposits
and loans; (3) interest rate fluctuations; (4) competitive factors and pricing
pressures; (5) general economic conditions; and (6) changes in legal and
regulatory requirements, as well as, other factors described in this and other
Company reports and statements. Should one or more of the foregoing risks
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described in the forward-looking
statements.
(The remainder of this page intentionally left blank)
18
<PAGE>
SELECTED AND SUPPLEMENTAL FINANCIAL DATA
The Company is also providing the selected and supplemental financial data in
the tables below.
The following table sets forth selected consolidated financial data concerning
the Company for the three months ended March 31, 1999 and 1998 and is qualified
in its entirety by the consolidated financial statements, including the notes
thereto, included elsewhere herein.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 1998
-------------- -----------
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income...................................... $ 5,309 $ 4,157
Provision for loan losses................................ (611) (225)
Non-interest income...................................... 1,269 1,094
Non-interest expense..................................... (3,768) (2,924)
Income tax expense....................................... (673) (728)
Net income............................................... 1,526 1,374
PER COMMON SHARE DATA:
Earnings - diluted....................................... $ 0.40 $ 0.36
Book value............................................... 11.01 9.73
Fully diluted shares outstanding (thousands)............. 3,796 3,821
End of period shares outstanding (thousands) ............ 3,780 3,780
BALANCE SHEET DATA AT PERIOD END:
Total assets............................................. $666,921 $422,655
Total loans.............................................. 400,851 299,505
Allowance for loan losses................................ 4,850 3,822
Total investment securities.............................. 215,049 70,252
Total deposits........................................... 581,704 352,312
FHLB advances & fed funds purchased...................... 25,425 25,993
Notes payable............................................ 13,183 5,072
Total stockholders' equity............................... 41,630 36,793
Loan to deposit ratio.................................... 68.91% 85.01%
PERFORMANCE RATIOS:
Return on average assets*................................ 0.97% 1.46%
Return on average stockholders' equity*.................. 15.14 15.41
Net interest margin - FTE*............................... 3.77 4.83
Overhead ratio*.......................................... 2.38 3.10
Efficiency ratio......................................... 55.65 54.93
ASSETS QUALITY RATIOS:
Net charge-offs as a percentage of average total loans*.. 0.46% 0.20%
Nonperforming loans to total loans....................... 1.04 0.54
Nonperforming assets to total assets..................... 0.75 0.40
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF:
Total loans.............................................. 1.21% 1.28%
Nonperforming loans...................................... 116.71 234.19
CAPITAL RATIOS AT PERIOD END:
Leverage capital ratio................................... 5.95% 9.08%
Tier 1 risk-based capital................................ 8.89 11.65
Total risk-based capital................................. 10.03 12.90
*Annualized based on actual days
</TABLE>
19
<PAGE>
BANK OF THE OZARKS, INC.
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------------------------------------------------------
6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99
----------- --------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
- -----------------
Net interest income $ 3,419 $ 3,703 $ 4,251 $ 4,157 $ 4,430 $ 4,641 $ 5,136 $ 5,309
Federal tax equivalent
adjustment 28 32 56 72 158 156 56 193
----------- --------- --------- --------- --------- --------- ---------- ---------
Net interest margin - FTE 3,447 3,735 4,307 4,229 4,588 4,797 5,192 5,502
Loan loss provision (265) (150) (465) (225) (255) (742) (804) (611)
Non-interest income 641 662 880 1,094 1,152 1,333 1,452 1,269
Non-interest expense (2,219) (2,316) (2,588) (2,924) (3,329) (3,267) (3,599) (3,768)
----------- --------- --------- --------- --------- --------- ---------- ---------
Pretax income - FTE 1,604 1,931 2,134 2,174 2,156 2,121 2,241 2,392
FTE adjustment (28) (32) (56) (72) (158) (156) (56) (193)
Provision for taxes (572) (698) (709) (728) (611) (544) (738) (673)
----------- --------- --------- --------- --------- --------- ---------- ---------
Net income $ 1,004 $ 1,201 $ 1,369 $ 1,374 $ 1,387 $ 1,421 $ 1,447 $ 1,526
=========== ========= ========= ========= ========= ========= ========== =========
Earnings per
share - diluted $ 0.35 $ 0.34 $ 0.36 $ 0.36 $ 0.36 $ 0.37 $ 0.38 $ 0.40
NON-INTEREST INCOME DETAIL:
- ---------------------------
Trust income $ 78 $ 39 $ 98 $ 78 $ 99 $ 62 $ 96 $ 128
Service charges on deposit
accounts 242 242 263 281 326 366 399 502
Mortgage lending income 156 156 199 395 423 570 748 449
Gain (loss) on sale of
assets (17) 30 138 88 12 6 6 (5)
Security gains 4 - - 51 74 130 - 25
Other 178 195 182 201 218 199 203 170
----------- --------- --------- --------- --------- --------- ---------- ---------
Total non-interest
income $ 641 $ 662 $ 880 $ 1,094 $ 1,152 $ 1,333 $ 1,452 $ 1,269
NON-INTEREST EXPENSE DETAIL:
- ----------------------------
Salaries and employee
benefits $ 1,283 $ 1,301 $ 1,502 $ 1,677 $ 1,955 $ 1,651 $ 1,913 $ 2,000
Net occupancy expense 293 341 386 426 453 529 553 636
Other operating expenses 643 674 700 821 921 1,087 1,133 1,132
----------- --------- --------- --------- --------- --------- ---------- ---------
Total non-interest
expense $ 2,219 $ 2,316 $ 2,588 $ 2,924 $ 3,329 $ 3,267 $ 3,599 $ 3,768
ALLOWANCE FOR LOAN LOSSES:
- --------------------------
Balance beginning of period $ 3,240 $ 3,462 $ 3,535 $ 3,737 $ 3,822 $ 3,853 $ 4,392 $ 4,689
Net charge offs (43) (77) (263) (140) (224) (203) (507) (450)
Loan loss provision 265 150 465 225 255 742 804 611
----------- --------- --------- --------- --------- --------- ---------- ---------
Balance at end of period $ 3,462 $ 3,535 $ 3,737 $ 3,822 $ 3,853 $ 4,392 $ 4,689 $ 4,850
SELECTED RATIOS:
- ----------------
Net interest margin - FTE 4.91% 4.82% 5.27% 4.83% 4.50% 3.93% 3.77% 3.77%
Overhead expense ratio* 2.95 2.78 2.95 3.10 3.01 2.46 2.41 2.38
Efficiency ratio 54.27 52.67 49.89 54.93 58.00 53.30 54.17 55.65
Non-performing loans
to total loans 0.75 0.75 0.25 0.54 0.55 0.65 0.70 1.04
Non-performing assets to
total assets 0.63 0.62 0.24 0.40 0.45 0.45 0.50 0.75
</TABLE>
*Annualized
20
<PAGE>
PART I (continued)
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest rate risk management is the responsibility of
the Asset/Liability Management Committee, which reports to the Board of
Directors. This committee establishes policies that monitor and
coordinate the Company's sources, uses and pricing of funds. The
committee is also involved with management in the Company's planning and
budgeting process.
The Company regularly reviews its exposure to changes in interest
rates. Among the factors considered are changes in the mix of earning
assets and interest bearing liabilities, interest rate spreads and
repricing periods. Typically, the committee reviews on at least a
quarterly basis the bank subsidiaries' relative ratio of rate sensitive
assets to rate sensitive liabilities and the related cumulative gap for
different time periods. Additionally the committee and management review
other alternative interest rate risk measures and models in assessing
the Company's interest rate sensitivity.
Using a simple GAP analysis as shown in the following table, at March
31, 1999, the cumulative ratios of rate sensitive assets to rate
sensitive liabilities at six months and one year were 54.1% and 53.8%,
respectively. A financial institution is considered to be liability
sensitive, or as having a negative GAP, when the amount of its interest
bearing liabilities maturing or repricing within a given time period
exceeds the amount of its interest earning assets also maturing or
repricing within that time period. Conversely, an institution is
considered to be asset sensitive, or as having a positive GAP, when the
amount of its interest bearing liabilities maturing and repricing is
less than the amount of its interest earning assets also maturing or
repricing during the same period. Generally, in a falling interest rate
environment, a negative GAP should result in an increase in net interest
income, and in a rising interest rate environment this negative GAP
should adversely affect net interest income. The converse would be true
for a positive GAP. Due to inherent limitations in any static GAP
analysis and since conditions change on a daily basis, these conclusions
may not reflect future results.
<TABLE>
<CAPTION>
RATE SENSITIVE ASSETS AND LIABILITIES
MARCH 31, 1999
RATE RATE CUMULATIVE CUMULATIVE
SENSITIVE SENSITIVE PERIOD CUMULATIVE GAP TO RSA/(1)/ TO
ASSETS LIABILITIES GAP GAP TOTAL RSA/(1)/ RSL/(2)/
--------- ----------- ----------- ---------- -------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Floating rate............. $ 37,941 $ 56,016 $(18,075) $ (18,075) (2.92)% 67.73%
Fixed rate repricing in:
1 month............... 52,283 81,370 (29,087) (47,162) (7.63) 65.67
2 month............... 21,686 43,832 (22,146) (69,308) (11.21) 61.75
3 month............... 20,196 43,344 (23,148) (92,456) (14.95) 58.83
4 month............... 16,168 32,675 (16,507) (108,963) (17.62) 57.64
5 month............... 14,415 33,544 (19,129) (128,092) (20.72) 55.95
6 month............... 14,526 36,650 (22,124) (150,216) (24.30) 54.12
6 months - 1 year..... 66,870 126,706 (59,836) (210,052) (33.97) 53.75
1--2 years............ 75,372 53,942 21,430 (188,622) (30.51) 62.88
2--3 years............ 48,262 14,714 33,548 (155,074) (25.08) 70.34
3--4 years............ 31,273 23,665 7,608 (147,466) (23.85) 73.01
4--5 years............ 9,200 2,727 6,473 (140,993) (22.80) 74.33
Over 5 years.......... 210,073 16,971 193,102 52,109 8.43 109.20
======== ======== ========
Total.............. $618,265 $566,156 $ 52,109
======== ======== ========
</TABLE>
(1) Rate Sensitive Assets
(2) Rate Sensitive Liabilities
The data used in the table above is based on contractural repricing
dates rather than maturities. This simple GAP analysis gives no
consideration to a number of factors which can have a material impact on
the Company's interest rate risk position. Such factors include call
features on certain assets and liabilities, prepayments, interest rate
floors and caps on various assets and liabilities, the current interest
rates on assets and liabilities to be repriced in each period, and the
relative changes in interest rates on different types of assets and
liabilities.
21
<PAGE>
The Company also utilizes an earnings change ratio analysis, which it
believes is a more accurate analysis of interest rate sensitivity
because it measures not only the volume of assets and liabilities being
repriced but also the expected relative change in interest rates on the
different types of assets and liabilities. This analysis applies
coefficients to the various types of assets and liabilities in order to
estimate the relative rates of change expected. As of March 31, 1999
this model reflected a one-year ratio of rate sensitive assets to rate
sensitive liabilities of 67.1%. The earnings change ratio analysis is
subject to a number of limitations, including the other limitations
discussed above.
The following table provides in tabular form the March 31, 1999
contractual balances of the Company's financial instruments at the
expected maturity for the twelve month periods beginning March 31, 1999.
Fixed and variable rate categories are based upon expected amortization
or contractual maturity dates. The Company considers assets and
liabilities that do not have a stated maturity date, as in cash
equivalents and certain deposits, to be long term in nature and reports
them 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 FTE as of March 31,
1999.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE OF FINANCIAL INSTRUMENTS
MARCH 31,
---------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total
-------- -------- -------- -------- -------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ - $ - $ - $ - $ - $ 13,260 $ 13,260
Interest-bearing deposits 184 - - - - - 184
Weighted avg. interest rate 5.00% - - - - - 5.00%
Federal funds sold 2,180 - - - - - 2,180
Weighted avg. interest rate 4.92% - - - - - 4.92%
Securities-available for sale:
US Govt. agencies - - - - - 163 163
Weighted avg. interest rate - - - - 6.04% 6.04%
Mortgage-backed securities:
Fixed rate - - - - - 90 90
Weighted avg. interest rate - - - - - 5.58% 5.58%
Variable rate - - - - - - -
Weighted avg. interest rate - - - - - - -
State and political
subdivision obligations:
Fixed Rate 769 1,661 1,795 1,759 1,909 33,341 41,235
Weighted avg. int. rate - FTE 5.48% 5.45% 5.53% 5.64% 5.71% 6.45% 6.32%
Equity securities - - - - - 136 136
Dividend yields - - - - - - -
FHLB stock - - - - - 3,154 3,154
Dividend yield - - - - - 5.50% 5.50%
Securities - held to maturity
US Govt. agencies - - - - - 167,291 167,291
Weighted avg. interest rate - - - - - 6.52% 6.52%
State and political
subdivision obligations
Fixed Rate 73 84 95 81 88 1,383 1,804
Weighted avg. int. rate - FTE 7.27% 7.80% 7.98% 7.27% 7.27% 7.53% 7.53%
Variable Rate 70 73 83 91 100 658 1,076
Weighted avg. int. rate - FTE 9.98% 9.98% 9.98% 9.98% 9.98% 9.98% 9.98%
Other securities - - - - - 100 100
Weighted avg. interest rate - - - - - 7.60% 7.60%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE OF FINANCIAL INSTRUMENTS
(CONTINUED)
MARCH 31,
--------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total
-------- -------- -------- -------- -------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans held for sale-fixed rate 5,204 - - - - - 5,204
Weighted avg. interest rate 7.62% - - - - - 7.62%
Loans held for sale-var. rate - - - - - - -
Weighted avg. interest rate - - - - - - -
Loans:
Loans - fixed 110,610 57,722 63,858 41,868 62,499 26,097 362,654
Weighted avg. interest rate 9.04% 9.08% 9.06% 9.03% 8.93% 8.09% 9.06%
Loans - variable 7,803 1,078 290 3,411 670 19,741 32,993
Weighted avg. interest rate 8.36% 8.40% 8.40% 8.31% 8.27% 8.64% 8.52%
Interest receivable - - - - - 6,288 6,288
FINANCIAL LIABILITIES:
Deposits
Demand deposits $ - $ - $ - $ - $ - $ 56,280 $ 56,280
NOW accounts - - - - - 51,184 51,184
Weighted avg. interest rate - - - - - 1.40% 1.40%
Money market accounts - - - - - 38,273 38,273
Weighted avg. interest rate - - - - - 3.53% 3.53%
Regular savings - - - - - 15,439 15,439
Weighted avg. interest rate - - - - - 2.00% 2.00%
Time deposits
Fixed rate 375,604 34,259 4,881 1,669 592 980 417,986
Weighted avg. interest rate 5.06% 5.17% 5.62% 6.05% 5.53% 5.79% 5.08%
Variable rate 1,647 896 - - - - 2,544
Weighted avg. interest rate 4.31% 4.32% - - - - 4.31%
Repurchase agreements 2,124 - - - - - 2,124
Weighted avg. interest rate 3.95% - - - - - 3.95%
FHLB advances - long term 2,700 2,145 4,198 198 198 15,988 25,425
Weighted avg. interest rate 6.47% 5.77% 5.95% 6.30% 6.30% 4.82% 5.28%
Federal funds purchased - - - - - - -
Weighted avg. interest rate - - - - - - -
Notes Payable 24 24 - 13,075 30 30 13,183
Weighted avg. interest rate 6.00% 6.00% - 6.50% 7.00% 7.00% 6.50%
Interest payable - - - - - 1,909 1,909
</TABLE>
(The remainder of this page intentionally left blank)
23
<PAGE>
PART II
Other Information
Item 1. LEGAL PROCEEDINGS
-----------------
Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable
Item 5. OTHER MATTERS
-------------
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a). Exhibits
Reference is made to the Exhibit Index contained at the end of
this report.
(b). Reports on Form 8-K
Not Applicable
(The remainder of this page intentionally left blank)
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bank of the Ozarks, Inc.
DATE: May 12, 1999 /s/ Paul E. Moore
-------------------
Paul E. Moore
Chief Financial Officer
(Chief Accounting Officer)
25
<PAGE>
Bank of the Ozarks, Inc.
Exhibit Index
Exhibit
Number
- ------
3 (a) Amended and Restated Articles of Incorporation of the Company,
effective May 22, 1997, (previously filed as Exhibit 3.1 to the
Company's Form S-1 Registration Statement (File No. 333-27641) and
incorporated herein by reference).
3 (b) Amended and Restated Bylaws of the Company, dated as of March 13,
1997, (previously filed as Exhibit 3.2 to the Company's Form S-1
Registration Statement (File No. 333-27641) and incorporated herein by
reference).
27 Financial Data Schedule for the period ended March 31, 1999
(attached).
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED BY REFERENCE IN QUARTERLY
REPORT 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,260
<INT-BEARING-DEPOSITS> 184
<FED-FUNDS-SOLD> 2,180
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,778
<INVESTMENTS-CARRYING> 170,271
<INVESTMENTS-MARKET> 168,183
<LOANS> 400,851
<ALLOWANCE> 4,850
<TOTAL-ASSETS> 666,921
<DEPOSITS> 581,704
<SHORT-TERM> 5,022
<LIABILITIES-OTHER> 2,855
<LONG-TERM> 35,711
0
0
<COMMON> 38
<OTHER-SE> 41,592
<TOTAL-LIABILITIES-AND-EQUITY> 666,921
<INTEREST-LOAN> 8,617
<INTEREST-INVEST> 3,105
<INTEREST-OTHER> 8
<INTEREST-TOTAL> 11,730
<INTEREST-DEPOSIT> 5,717
<INTEREST-EXPENSE> 6,421
<INTEREST-INCOME-NET> 5,309
<LOAN-LOSSES> 611
<SECURITIES-GAINS> 25
<EXPENSE-OTHER> 3,768
<INCOME-PRETAX> 2,199
<INCOME-PRE-EXTRAORDINARY> 2,199
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,526
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<YIELD-ACTUAL> 3.77
<LOANS-NON> 4,126
<LOANS-PAST> 21
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,894
<ALLOWANCE-OPEN> 4,689
<CHARGE-OFFS> 500
<RECOVERIES> 50
<ALLOWANCE-CLOSE> 4,850
<ALLOWANCE-DOMESTIC> 4,850
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
