<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 June 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________.
Commission File Number 0-22759
BANK OF THE OZARKS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0556208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12615 CHENAL PARKWAY, 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 June 30, 2000
--------------------------------------- ----------------------------
Common Stock, $0.01 par value per share 3,779,555
<PAGE>
BANK OF THE OZARKS, INC.
FORM 10-Q
June 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information
<S> <C>
Item 1. Consolidated Balance Sheets as of June 30, 2000
and 1999 and December 31, 1999 1
Consolidated Statements of Income for the Three Months
Ended June 30, 2000 and 1999 and the Six Months Ended
June 30, 2000 and 1999 2
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 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 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. Other Information
Item 1. Legal Proceedings 21
Item 2 Change in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders 22
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 23
Exhibit Index 24
</TABLE>
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------- --------------
2000 1999 1999
------------- ------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 22,723 $ 15,695 $ 24,279
Interest bearing deposits 12 198 283
Investment securities - available for sale 45,011 38,675 44,837
Investment securities - held to maturity 219,264 198,628 218,558
Federal funds sold - 275 -
Loans, net of unearned income 489,334 419,410 467,131
Allowance for loan losses (6,310) (5,248) (6,072)
Premises and equipment, net 30,876 28,678 30,547
Foreclosed assets held for sale, net 2,082 696 2,238
Interest receivable 7,675 6,705 7,174
Intangible assets, net 3,194 3,454 3,323
Other 3,551 1,328 3,744
------------- ------------- --------------
Total assets $817,412 $708,494 $796,042
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand - non-interest bearing $ 61,855 $ 56,140 $ 56,177
Savings and interest-bearing transaction 112,191 107,396 105,211
Time 460,003 423,760 434,542
------------- ------------- --------------
Total deposits 634,049 587,296 595,930
Repurchase agreements with customers 17,606 1,850 9,026
Other borrowings 99,242 56,598 126,989
Accrued interest and other liabilities 2,820 2,640 2,973
------------- ------------- --------------
Total liabilities 753,717 648,384 734,918
------------- ------------- --------------
Guaranteed preferred beneficial interest in the Company's
subordinated debentures 17,250 17,250 17,250
Stockholders' equity
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized,
no shares issued and outstanding - - -
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 33,890 28,351 31,045
Accumulated other comprehensive income (1,797) 157 (1,523)
------------- ------------- --------------
Total stockholders' equity 46,445 42,860 43,874
------------- ------------- --------------
Total liabilities and stockholders' equity $817,412 $708,494 $796,042
============= ============= ==============
</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 Six Months Ended
June 30, June 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income
Loans $10,520 $ 8,943 $20,703 $17,560
Investment securities - taxable 3,896 3,234 7,632 5,992
- non-taxable 483 433 965 780
Federal funds sold 4 6 6 9
Deposits with banks 2 1 3 6
------------- --------------- -------------- --------------
Total interest income 14,905 12,617 29,309 24,347
Interest expense
Deposits 6,827 5,984 13,217 11,701
Repurchase agreements with customers 171 16 276 29
Other borrowings 1,814 730 3,517 1,421
------------- --------------- -------------- --------------
Total interest expense 8,812 6,730 17,010 13,151
------------- --------------- -------------- --------------
Net interest income 6,093 5,887 12,299 11,196
Provision for loan losses (324) (580) (702) (1,191)
------------- --------------- -------------- --------------
Net interest income after provision for
loan losses 5,769 5,307 11,597 10,005
------------- --------------- -------------- --------------
Other income
Trust income 131 115 261 243
Service charges on deposit accounts 877 599 1,640 1,101
Other income, charges and fees 397 527 725 1,130
Gains on sales of securities - 50 - 75
Other 12 12 41 23
------------- --------------- -------------- --------------
Total other income 1,417 1,303 2,667 2,572
------------- --------------- -------------- --------------
Other expense
Salaries and employee benefits 2,285 2,322 4,531 4,322
Net occupancy and equipment 703 619 1,403 1,255
Other operating expenses 1,256 1,300 2,497 2,432
------------- --------------- -------------- --------------
Total other expense 4,244 4,241 8,431 8,009
------------- --------------- -------------- --------------
Income before income taxes and trust
distribution 2,942 2,369 5,833 4,568
Distributions on trust preferred securities 397 52 793 52
Provision for income taxes 730 658 1,439 1,331
------------- --------------- -------------- --------------
Net income $ 1,815 $ 1,659 $ 3,601 $ 3,185
============= =============== ============== ==============
Basic and diluted earnings per common share $0.48 $0.44 $0.95 $0.84
============= =============== ============== ==============
</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>
Balance - January 1, 1999 $38 $14,314 $25,922 $ 81 $40,355
Comprehensive income:
Net income 3,185 3,185
Other comprehensive income
Unrealized gains on available for
sale securities net of $90 tax effect 144 144
Reclassification adjustment for gains
included in income net of $42 tax effect (68) (68)
--------
Comprehensive income 3,261
--------
Cash dividends (756) (756)
------- --------- ---------- ---------- --------
Balance - June 30, 1999 $38 $14,314 $28,351 $ 157 $42,860
======= ========= ========== ========== ========
Balance - January 1, 2000 $38 $14,314 $31,045 $ (1,523) $43,874
Comprehensive income:
Net income 3,601 3,601
Other comprehensive income (loss)
Unrealized losses on available for sale
securities net of $170 tax effect (274) (274)
Reclassification adjustment for gains
included in income - -
--------
Comprehensive income 3,327
--------
Cash dividends (756) (756)
------- --------- ---------- ----------- --------
Balance - June 30, 2000 $38 $14,314 $33,890 $ (1,797) $46,445
======= ========= ========== =========== ========
</TABLE>
3
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,601 $ 3,185
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 751 661
Amortization 147 133
Provision for loan losses 702 1,191
Provision for losses on foreclosed assets 91 41
Amortization and accretion on investment securities (36) (77)
Gain on disposition of investments - (75)
(Increase) decrease in mortgage loans held for sale (655) 4,267
Gain on disposition of premises and equipment (6) (5)
Loss on disposition of foreclosed assets 16 15
Deferred income taxes 252 47
Changes in assets and liabilities:
Interest receivable (501) (1,188)
Other assets, net 93 (699)
Accrued interest and other liabilities (154) 234
--------------- ---------------
Net cash provided by operating activities 4,301 7,730
--------------- ---------------
Cash flows from investing activities
Proceeds from sales and maturities of investment securities
available for sale 242 19,180
Purchases of investment securities available for sale (847) (40,076)
Proceeds from maturities of investment securities held to
maturity 176 32,186
Purchase of investment securities held to maturity (859) (71,824)
Increase in federal funds sold - (275)
Net increase in loans (22,926) (36,782)
Proceeds from dispositions of bank premises and equipment 6 46
Purchase of bank premises and equipment (1,079) (2,226)
Proceeds from dispositions of foreclosed assets 963 390
--------------- ---------------
Net cash used by investing activities (24,324) (99,381)
--------------- ---------------
Cash flows from financing activities
Net increase in deposits 38,119 58,257
Net (payments) proceeds from other borrowings (27,747) 17,327
Net increase in repurchase agreements 8,580 442
Proceeds from trust preferred securities - 17,250
Dividends paid (756) (756)
--------------- ---------------
Net cash provided by financing activities 18,196 92,520
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (1,827) 869
Cash and cash equivalents - beginning of period 24,562 15,024
--------------- ---------------
Cash and cash equivalents - end of period $ 22,735 $ 15,893
=============== ===============
</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 and Ozark Capital Trust (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, 1999.
In the opinion of management all adjustments considered necessary,
consisting of normal recurring items, have been included for a fair presentation
of the accompanying consolidated financial statements. Operating results for the
three and six months ended June 30, 2000 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. Diluted EPS includes only
the dilutive effect of stock options. In computing dilution for stock options,
the average share price is used for the reporting period. The Company had
outstanding stock options to purchase approximately 159,000 shares at June 30,
2000 and 103,000 shares at June 30, 1999 that were not included in the dilutive
EPS calculation for these respective six month periods because they would have
been antidilutive.
Basic and diluted earnings per common share is computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------ -----------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Common shares - weighted averages................. 3,780 3,780 3,780 3,780
Common share equivalents - weighted averages...... 2 9 3 12
------ ------ ------ ------
3,782 3,789 3,783 3,792
====== ====== ====== ======
Net income........................................ $1,815 $1,659 $3,601 $3,185
Basic earnings per common share................... $ 0.48 $ 0.44 $ 0.95 $ 0.84
Diluted earnings per common share................. 0.48 0.44 0.95 0.84
</TABLE>
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5
<PAGE>
4. Federal Home Loan Bank ("FHLB") Advances
FHLB advances with original maturities exceeding one year totaled $67.5
million at June 30, 2000. Interest rates on these advances ranged from 5.72% to
6.43% at June 30, 2000 with a weighted average rate of 6.23%. Aggregate annual
maturities (amounts in thousands) and weighted average interest rates of FHLB
advances with an original maturity of over one year at June 30, 2000 are as
follows:
<TABLE>
<CAPTION>
Weighted
Amounts Average Rate
----------------- ------------------
<S> <C> <C>
2000 $ 1,947 5.72%
2001 4,198 5.95
2002 198 6.30
2003 198 6.30
2004 197 6.30
Thereafter 60,790 6.27
-------
$67,528
=======
</TABLE>
FHLB advances of $60.0 million maturing in 2010 may be called quarterly and
if called the Company expects to refinance with short-term FHLB advances, other
short-term funding sources or FHLB long-term callable advances.
At June 30, 2000 the Company had two FHLB advances outstanding with
original maturities of 10 and 7 days totaling $12.9 million. These advances bear
interest at a weighted average rate of 6.69%
5. Guaranteed Preferred Beneficial Interest in the Company's Subordinated
Debentures
On June 18, 1999 Ozark Capital Trust ("Ozark Capital"), a Delaware business
trust wholly owned by Bank of the Ozarks, Inc., sold to investors in a public
underwritten offering $17.3 million of 9% cumulative trust preferred securities.
The proceeds were used to purchase an equal principal amount of 9% subordinated
debentures of Bank of the Ozarks, Inc. Bank of the Ozarks, Inc. has, through
various contractual arrangements, fully and unconditionally guaranteed all
obligations of Ozark Capital on a subordinated basis with respect to the
preferred securities. Subject to certain limitations, the preferred securities
qualify as Tier 1 capital and are presented in the Consolidated Balance Sheets
as "Guaranteed preferred beneficial interest in the Company's subordinated
debentures." The sole asset of Ozark Capital is the subordinated debentures
issued by Bank of the Ozarks, Inc. Both the preferred securities of Ozark
Capital and the subordinated debentures of Bank of the Ozarks, Inc. will mature
on June 18, 2029; however, they may be prepaid, subject to regulatory approval,
prior to maturity at any time on or after June 18, 2004, or earlier upon certain
changes in tax or investment company laws or regulatory capital requirements.
The net proceeds from the offering were used to repay $12.5 million of
outstanding borrowings under the Company's revolving line of credit with the
balance of the proceeds used for general corporate purposes including a $3.0
million capital investment in the Company's bank subsidiary.
6. Supplementary Data for Cash Flows:
Cash payments for interest by the Company during the six months ended
June 30, 2000 amounted to $17.1 million and during the six months ended June 30,
1999 amounted to $13.2 million. Cash payments for income taxes during the six
months ended June 30, 2000 and 1999 were $1.2 million and $885,000,
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 $1,815,000 for the second quarter of 2000, a 9.4% increase
over net income of $1,659,000 for the same quarter in 1999. Diluted earnings
rose 9.1% to $0.48 per share for the quarter ended June 30, 2000, compared to
$0.44 per share for the same quarter in 1999. For the six months ended June 30,
2000, net income totaled $3,601,000, a 13.1% increase over net income of
$3,185,000 for the first six months of 1999. Diluted earnings for the first six
months of 2000 were $0.95 per share compared to $0.84 for the same period in
1999, a 13.1% increase.
The Company's annualized returns on average assets and on average
stockholders' equity were 0.90% and 16.00%, respectively, for the second quarter
of 2000, compared with 0.96% and 15.80%, respectively, for the same quarter of
1999. Annualized returns on average assets and average stockholders' equity for
the six months ended June 30, 2000 were 0.90% and 16.08%, respectively, compared
with 0.96% and 15.48%, respectively, for the six month period ended June 30,
1999.
Total assets increased from $796 million at December 31, 1999 to $817
million at June 30, 2000. Loans were $489 million at June 30, 2000, compared to
$467 million at December 31, 1999. Deposits were $634 million at June 30, 2000,
compared to $596 million at December 31, 1999.
Stockholders' equity increased from $43.9 million at December 31, 1999, to
$46.4 million at June 30, 2000, increasing book value per share from $11.61 to
$12.29.
Annualized results for these interim periods may not be indicative of those
for the full year or future periods.
Analysis of Results of Operations
The Company's results of operations depend primarily on net interest
income, which is the difference between the interest income from earning assets,
such as loans and investments, and the interest expense incurred on interest
bearing liabilities, such as deposits and other borrowings. The Company also
generates non-interest income, including service charges on deposit accounts,
mortgage lending income, other charges and fees, trust income, and gains on
sales of assets. The Company's non-interest expenses primarily consist of
employee compensation and benefits, occupancy, equipment, and other operating
expenses. The Company's results of operations are also impacted by its provision
for loan losses. The following discussion provides a summary of the Company's
operations for the three and six months ended June 30, 2000 and 1999.
(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 3.9% to $6,365,000 for the three months
ended June 30, 2000, from $6,129,000 for the three months ended June 30, 1999.
This increase primarily resulted from a 15.9% increase in average earning assets
to $748 million for the 2000 period from $645 million for the 1999 period. Net
interest income (FTE) increased 10.4% to $12,844,000 for the six months ended
June 30, 2000, from $11,631,000 for the six months ended June 30, 1999. This
increase primarily resulted from a 19.9% increase in average earning assets to
$742 million for the 2000 period from $619 million for the 1999 period. The
increase in average earning assets for the 2000 period resulted from continued
growth in the Company's loan portfolio as well as an increase in the Company's
investment securities portfolio.
The Company's net interest margin declined to 3.42% for the second quarter
of 2000 compared with 3.81% for the second quarter of 1999. The net interest
margin for the six months ended June 30, 2000 declined to 3.48% compared with
3.79% for the same period in 1999. This decline in net interest margin is a
result of rising interest rates coupled with intense competition for loans and
deposits in a number of the Company's markets. Yields on average loan balances
for the quarter and six months ended June 30, 2000 were 3 and 10 basis points
lower, respectively, than the same periods in 1999 and the interest rate on the
average balance of interest bearing deposits were 54 and 31 basis points higher,
respectively, for the quarter and six months ended June 30, 2000 compared with
the same periods in 1999. The Company expects the effect of rising interest
rates and competition to continue to exert pressure on the Company's net
interest margin and net interest income in the near term future.
Analysis of Net Interest Income
(FTE = Fully Taxable Equivalent)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income............................. $14,905 $12,617 $29,309 $24,347
FTE adjustment.............................. 272 242 545 435
------- ------- ------- -------
Interest income - FTE....................... 15,177 12,859 29,854 24,782
Interest expense............................ 8,812 6,730 17,010 13,151
------- ------- ------- -------
Net interest income - FTE................... $ 6,365 $ 6,129 $12,844 $11,631
======= ======= ======= =======
Yield on interest earning assets - FTE...... 8.16% 7.99% 8.10% 8.08%
Cost of interest bearing liabilities........ 5.20 4.56 5.05 4.66
Net interest spread - FTE................... 2.96 3.43 3.05 3.42
Net interest margin - FTE................... 3.42 3.81 3.48 3.79
</TABLE>
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8
<PAGE>
Average Consolidated Balance Sheet and Net Interest Analysis
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
Average Income/ Yield/ Average Income/ Yield/
ASSETS Balance Expense Rate Balance Expense Rate
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Earnings assets:
Interest bearing deposits.............. $ 122 $ 2 6.00% $ 108 $ 1 4.66%
Federal funds sold..................... 260 4 6.00 441 6 4.84
Investment securities:
Taxable.............................. 224,393 3,896 6.98 196,468 3,234 6.60
Tax-exempt - FTE..................... 39,429 732 7.46 39,461 657 6.68
Loans - FTE (net of unearned income)... 483,979 10,543 8.76 408,974 8,961 8.79
-------- ------- -------- -------
Total earning assets............... 748,183 15,177 8.16 645,452 12,859 7.99
Non-earning assets...................... 61,509 50,127
-------- ----------
Total assets....................... $809,692 $695,579
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings and interest bearing
transaction........................ $113,104 $ 823 2.93% $106,439 $ 680 2.56%
Time deposit of $100,000 or more..... 207,726 2,986 5.78 193,099 2,356 4.89
Other time deposits.................. 224,866 3,018 5.40 234,620 2,948 5.04
-------- ------- ---------- -------
Total interest bearing deposits.... 545,696 6,827 5.03 534,158 5,984 4.49
Repurchase agreements with customers... 12,745 171 5.41 1,606 16 3.88
Other borrowings....................... 122,857 1,814 5.94 56,639 730 5.16
-------- ------- ---------- -------
Total interest bearing liabilities. 681,298 8,812 5.20 592,403 6,730 4.56
Non-interest liabilities:
Non-interest bearing deposits.......... 62,038 55,957
Other non-interest liabilities......... 3,468 2,821
-------- ----------
Total liabilities.................. 746,804 651,181
Trust preferred securities.............. 17,250 2,275
Stockholders' equity.................... 45,638 42,123
-------- ----------
Total liabilities and stockholders'
equity........................... $809,692 $695,579
======== ==========
Interest rate spread - FTE.............. 2.96% 3.43%
------- -------
Net interest income - FTE............... $ 6,365 $ 6,129
======= =======
Net interest margin - FTE............... 3.42% 3.81%
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------
2000 1999
--------------------------- ---------------------------
Average Income/ Yield/ Average Income/ Yield/
ASSETS Balance Expense Rate Balance Expense Rate
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Earnings assets:
Interest bearing deposits.............. $ 107 $ 3 5.80% $ 227 $ 6 5.26%
Federal funds sold..................... 195 6 6.17 341 9 4.85
Investment securities:
Taxable.............................. 224,087 7,632 6.85 181,596 5,992 6.65
Tax-exempt - FTE..................... 39,540 1,461 7.43 35,221 1,182 6.77
Loans - FTE (net of unearned income)... 477,594 20,752 8.74 401,277 17,593 8.84
-------- ------- ----- -------- -------
Total earning assets............... 741,523 29,854 8.10 618,662 24,782 8.08
Non-earning assets...................... 61,354 49,885
-------- --------
Total assets....................... $802,877 $668,547
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings and interest bearing
transaction........................ $111,149 $ 1,585 2.87% $102,671 $ 1,329 2.61%
Time deposit of $100,000 or more..... 199,358 5,560 5.61 176,226 4,354 4.98
Other time deposits.................. 232,127 6,072 5.26 235,379 6,018 5.16
-------- ------- -------- -------
Total interest bearing deposits.... 542,634 13,217 4.90 514,276 11,701 4.59
Repurchase agreements with customers... 10,875 276 5.11 1,493 29 3.91
Other borrowings....................... 123,296 3,517 5.74 53,743 1,421 5.33
-------- ------- -------- -------
Total interest bearing liabilities. 676,805 17,010 5.05 $569,512 13,151 4.66
Non-interest liabilities:
Non-interest bearing deposits.......... 60,335 53,489
Other non-interest liabilities......... 3,458 2,920
-------- --------
Total liabilities.................. 740,598 625,921
Trust preferred securities.............. 17,250 1,144
Stockholders' equity.................... 45,029 41,482
-------- --------
Total liabilities and stockholders'
equity........................... $802,877 $668,547
======== ========
Interest rate spread - FTE.............. 3.05% 3.42%
------- -------
Net interest income - FTE............... $12,844 $11,631
======= =======
Net interest margin - FTE............... 3.48% 3.79%
</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) net
gains on sales of assets.
Non-interest income for the second quarter of 2000 was $1,417,000 compared
with $1,303,000 for the second quarter of 1999, an 8.7% increase. For the first
six months of 2000 non-interest income was $2,667,000 compared with $2,572,000
for the same period in 1999, a 3.7% increase. In the first half of 2000 the
Company benefited from strong growth in service charges on deposits which
increased 49.0% compared to the first half of 1999. The increase in service
charge income resulted from continued growth in the number of retail checking,
savings and money market accounts, growth in the number of commercial checking
accounts and cash management customers, increased service charge rates and
improved collection and waiver practices. This improvement was substantially
offset by declining mortgage lending income as rising interest rates resulted in
a significant reduction in the rate of mortgage refinancing and slowed real
estate activity in general from the level of the first half of 1999. Mortgage
lending income declined 52.1% in the first six months of 2000 from the
comparable period in 1999.
The table below shows non-interest income for the three and six months
ended June 30, 2000 and 1999.
Non-Interest Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Service charges on deposit accounts.............. $ 877 $ 599 $1,640 $1,101
Mortgage lending income.......................... 208 351 383 800
Other charges and fees........................... 189 177 342 331
Trust income..................................... 131 115 261 243
Gain (loss) on sales of foreclosed real estate... 5 15 (8) 5
Gain (loss) on sales of other assets............. (3) (17) (2) (14)
Gain on sales of securities...................... - 50 - 75
Printed check sales.............................. 8 10 18 18
Other............................................ 2 3 33 13
------------ ------------ ------------ ------------
Total non-interest income.................... $1,417 $1,303 $2,667 $2,572
============ ============ ============ ============
</TABLE>
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10
<PAGE>
Non-Interest Expense
Non-interest expense for the second quarter of 2000 was $4,244,000 compared
with $4,241,000 for the same period in 1999, a 0.1% increase. Non-interest
expense for the six months ended June 30, 2000, was $8,431,000 compared with
$8,009,000 for the six months ended June 30, 1999, a 5.3% increase.
The table below shows non-interest expense for the three and six months
ended June 30, 2000 and 1999.
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits.................... $2,285 $2,322 $4,531 $4,322
Net occupancy expense............................. 369 284 713 580
Equipment expense................................. 334 335 690 675
Other real estate and foreclosure expense......... 135 76 254 139
Other operating expense:
Professional and outside services............. 64 69 133 136
Postage....................................... 70 79 126 150
Telephone .................................... 111 93 229 193
Data lines.................................... 56 42 115 83
Operating supplies............................ 130 127 259 238
Advertising and public relations.............. 189 125 347 301
Directors' fees............................... 25 30 54 61
Software expense.............................. 100 68 202 133
Check printing charges........................ 7 11 19 10
ATM expense................................... 59 42 107 78
FDIC & state assessment....................... 33 54 103 102
Business development, meals and travel........ 37 40 67 74
Amortization of goodwill...................... 22 23 44 45
Amortization of other intangibles............. 42 43 84 88
Other ........................................ 176 378 354 601
------------ ------------ ------------ ------------
Total non-interest expense................... $4,244 $4,241 $8,431 $8,009
============ ============ ============ ============
</TABLE>
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) improved
to 54.5% and 54.4%, respectively, for the second quarter and first six months of
2000 compared to 57.1% and 56.4%, respectively, for the second quarter and first
six months of 1999.
Income Taxes
The provision for income taxes was $730,000 for the quarter ended June 30,
2000, compared to $658,000 for the same period in 1999. The effective income
tax rates were 28.7% and 28.4%, respectively, for these periods. The provision
for income taxes was $1,439,000 for the six months ended June 30, 2000, compared
to $1,331,000 for the first six months of 1999. The effective income tax rates
were 28.5% and 29.5%, respectively, for these periods. The effective tax rates
for these periods are less than the expected combined statutory federal and
state rates primarily as a result of the Company's 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.
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11
<PAGE>
Analysis of Financial Condition
Loan Portfolio
At June 30, 2000, the Company's loan portfolio was $489 million, an
increase from $467 million at December 31, 1999. As of June 30, 2000, the
Company's loan portfolio consisted of approximately 66.6% real estate loans,
13.9% consumer loans, 15.0% commercial and industrial loans and 3.8%
agricultural loans (non-real estate).
The amount and type of loans outstanding at June 30, 2000 and 1999 and
December 31, 1999 are reflected in the following table.
Loan Portfolio
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------- --------------
2000 1999 1999
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Real Estate:
Owner-occupied 1-4 family
residential ................... $151,483 $121,965 $136,856
Non-farm/non-residential......... 109,766 91,573 101,766
Agricultural..................... 22,907 20,481 20,396
Construction/land development 35,827 27,188 28,294
Multifamily residential 6,019 5,515 4,687
-------------- -------------- --------------
Total real estate............. 326,002 266,722 291,999
Consumer........................... 68,187 73,746 81,753
Commercial and industrial.......... 73,243 56,727 70,012
Agricultural (non-real estate)..... 18,536 19,232 19,947
Other.............................. 3,366 2,983 3,420
-------------- -------------- --------------
Total loans................... $489,334 $419,410 $467,131
============== ============== ==============
</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.
The Company generally places a loan on nonaccrual status when payment of
principal or interest is contractually past due 90 days, or earlier when doubt
exists as to the ultimate collection of principal and interest. The Company
continues to accrue interest on certain loans contractually past due 90 days if
such loans are both well secured and in the process of collection. At the time a
loan is placed on nonaccrual status, interest previously accrued but uncollected
is generally reversed and charged against interest income. If a loan is
determined to be uncollectible, the portion of the loan principal determined to
be uncollectible will be charged against the allowance for loan losses. Interest
income on nonaccrual loans is recognized on a cash basis when and if actually
collected.
Nonperforming assets as a percent of total assets were 0.78% as of June 30,
2000, compared to 0.53% as of December 31, 1999, and 0.70% as of June 30, 1999.
Nonperforming loans as a percent of total loans were 0.88% as of June 30, 2000
compared to 0.42% as of December 31, 1999, and 1.01% as of June 30, 2000.
Although the ratio of nonperforming loans to total loans decreased from the same
quarter in 1999, it increased over the levels for the immediately preceding
three quarters. This increase, as well as the increase in the ratio of
nonperforming assets to total assets, is primarily the result of the Company
placing on nonaccrual status in the second quarter of 2000, $2.3 million in
loans to a single borrower. These loans are primarily secured by real estate
and foreclosure proceedings have commenced. Management believes it has adequate
reserves for any loss exposure on these loans.
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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>
June 30, December 31,
---------------------------------- -------------------
2000 1999 1999
-------------- -------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans....................................... $4,289 $4,241 $1,972
Accruing loans 90 days or more past due................ - 7 -
Restructured loans..................................... - - -
------ ------ ------
Total nonperforming loans........................ 4,289 4,248 1,972
Foreclosed assets held for sale and repossessions(1)... 2,082 696 2,238
------ ------ ------
Total nonperforming assets....................... $6,371 $4,944 $4,210
====== ====== ======
Nonperforming loans to total loans..................... 0.88% 1.01% 0.42%
Nonperforming assets to total assets................... 0.78 0.70 0.53
</TABLE>
(1) Foreclosed assets held for sale and repossessions are generally written
down to estimated market value at the time of transfer from the loan portfolio.
The value of such assets is reviewed from time to time throughout the holding
period with the value adjusted to the then estimated market value, if lower,
until disposition. Under Arkansas banking law, other real estate owned is
generally required to be written off over a five year period unless approval of
the Arkansas State Bank Department is obtained to write such assets off over an
extended period.
Allowance and Provision for Loan Losses
Allowance for Loan Losses: The following table shows an analysis of the
allowance for loan losses for the six month periods ended June 30, 2000 and 1999
and the year ended December 31, 1999.
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
June 30, December 31,
-------------------------------- ------------------
<S> <C> <C> <C>
2000 1999 1999
------- ------- -------
(Dollars in thousands)
Balance, beginning of period ........................... $ 6,072 $ 4,689 $ 4,689
Loans charged off:
Real estate.......................................... 158 303 386
Consumer ............................................ 217 275 516
Commercial and industrial ........................... 133 127 271
Agricultural (non-real estate) ...................... 13 4 52
------- ------- -------
Total loans charged off .......................... 521 709 1,225
------- ------- -------
Recoveries of loans previously charged off:
Real estate.......................................... 14 3 6
Consumer............................................. 30 71 111
Commercial and industrial ........................... 13 3 6
Agricultural (non-real estate) ...................... - - -
------- ------- -------
Total recoveries ................................ 57 77 123
------- ------- -------
Net loans charged off................................... 464 632 1,102
Provision charged to operating expense ................. 702 1,191 2,485
------- ------- -------
Balance, end of period.................................. $ 6,310 $ 5,248 $ 6,072
======= ======= =======
Net charge-offs to average loans outstanding during
the periods indicated.................................. 0.20%(1) 0.32%(1) 0.26%
Allowance for loan losses to total loans ............... 1.29 1.25 1.30
Allowance for loan losses to nonperforming loans ....... 147.14 123.54 307.91
</TABLE>
(1) Annualized
13
<PAGE>
The amounts of provisions to the allowance for loan losses are based on
management's judgment and evaluation of the loan portfolio utilizing objective
and subjective criteria. The objective criteria utilized by the Company to
assess the adequacy of its allowance for loan losses and required additions to
such allowance 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
$6,310,000 at June 30, 2000, or 1.29% of total loans, compared with $6,072,000,
or 1.30% of total loans, at December 31, 1999 and $5,248,000, or 1.25% of total
loans, at June 30, 1999. 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 six months of 2000, annualized net charge-offs were 0.20% of
average outstanding loans compared with 0.26% for the year of 1999 and 0.32%
annualized for the first six months of 1999. The annualized charge-off ratio
for the second quarter of 2000 was 0.13% compared with 0.18% in the second
quarter of 1999.
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 $702,000 for the six
months ended June 30, 2000 compared to $1,191,000 for the same six month period
in 1999. The reduction in the 2000 provision is primarily due to the lower
level of net charge-offs and a reduced rate of loan growth.
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
table below presents the book value and the fair value of investment securities
for each of the dates indicated.
Investment Securities
<TABLE>
<CAPTION>
June 30, June 30, December 31,
2000 1999 1999
--------------------- ------------------------- -----------------------
Book Fair Book Fair Book Fair
Value(1) Value(2) Value(1) Value(2) Value(1) Value(2)
--------------------- ------------------------- -----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities of U.S. Government
Agencies............................. $215,736 $201,924 $195,713 $187,650 $215,713 $202,947
Mortgage-backed securities............ 177 176 233 233 192 192
Obligations of state and political
subdivisions......................... 39,376 39,314 37,919 37,975 39,705 39,665
Other securities...................... 8,986 8,983 3,438 3,435 7,785 7,782
-------- -------- -------- -------- -------- --------
Total........................... $264,275 $250,397 $237,303 $229,293 $263,395 $250,586
======== ======== ======== ======== ======== ========
</TABLE>
(1) The book value on available-for-sale securities is adjusted to reflect
the unrealized gains or losses on those securities.
(2) The fair value of the Company's investment securities is based on
quoted market prices where available. If quoted market price is 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 1.25% less
than the average prime-lending rate reported from time to time by the Wall
Street Journal. Interest is payable quarterly. The line of credit is effective
through March 31, 2005 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 its bank subsidiary. As of June 30, 2000, there
were no borrowings outstanding under this line of credit.
14
<PAGE>
The line of credit requires the Company's bank subsidiary to maintain,
among other requirements, (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, (3) its classified assets as defined by
regulatory authorities not in excess of 40% of its capital, (4) non-performing
assets (as shown on its call report) in an amount not to exceed 2% of assets as
of year end, (5) a loan loss reserve equal to the greater of 1% of total loans
or 75% of non-performing assets, and (6) 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 50.0% of the Company's tangible net worth through March 31, 2001 and then
reducing 2.5% a year thereafter. Also borrowings under the line of credit are
not to exceed 50.0% of the tangible book value of its bank subsidiary stock
pledged to secure such borrowings. At June 30, 2000 the Company was in
compliance with these requirements.
Growth and Expansion. In late May 2000 the Company opened its 24th banking
office located in Yellville, Arkansas, the county seat of Marion County. This
new office is an expansion of the Company's operations in North Arkansas. The
Company has received regulatory approval for additional branches in the Otter
Creek area of Little Rock, Arkansas and on Zero Street in Fort Smith, Arkansas.
Construction of these new Little Rock and Fort Smith branches should begin in
the second half of 2000 with completion expected in the first half of 2001.
Bank Liquidity. Liquidity represents an institution's ability to provide
funds to satisfy demands from depositors and borrowers by either converting
assets into cash or accessing new or existing sources of incremental funds.
Generally, the Company's bank subsidiary relies on customer deposits and loan
repayments as its primary sources of funds. The Company has used these funds,
together with FHLB advances and other borrowings, to make loans, acquire
investment securities and other assets and to fund continuing operations.
Deposit levels may be affected by a number of factors, including rates paid
by competitors, general interest rate levels, returns available to customers on
alternative investments and general economic conditions. Loan repayments are a
relatively stable source of funds, but such loans generally are not readily
convertible to cash. Accordingly, the Company may be required from time to time
to rely on secondary sources of liquidity to meet loan and withdrawal demands or
otherwise fund operations. Such sources include FHLB advances, federal funds
lines of credit from correspondent banks, Federal Reserve Bank borrowings, and
borrowings by the Company under its line of credit described above.
At June 30, 2000, the Company's bank subsidiary had substantial unused
borrowing availability. This availability is primarily comprised of the
following three options: (1) $44.4 million from the Federal Home Loan Bank, (2)
$27.2 million of securities available to pledge on a federal funds line of
credit, and (3) up to $195.1 million from borrowing programs of the Federal
Reserve Bank.
Management anticipates that the Company's bank subsidiary will continue to
rely primarily on customer deposits and loan repayments to provide liquidity.
Additionally, where necessary, the above described borrowings (including
borrowings under the Company's line of credit) will be used to augment the
Company's primary funding sources.
Capital Compliance. Bank regulatory authorities in the United States impose
certain capital standards on all bank holding companies and banks. These
capital standards require compliance with certain minimum "risk-based capital
ratios" and a minimum "leverage ratio". The risk-based capital ratios consist
of (1) Tier 1 capital (i.e. common stockholders' equity excluding goodwill,
certain intangibles and net unrealized gains on available for sale securities,
but including, subject to limitations, trust preferred securities and other
qualifying items) to total risk-weighted assets and (2) total capital (Tier 1
capital plus Tier 2 capital which is the qualifying portion of the allowance for
loan losses and the portion of trust preferred securities not counted as Tier 1
capital) to risk-weighted assets. The leverage ratio is measured as Tier 1
capital to adjusted quarterly average assets.
The Company's risk-based and leverage capital ratios exceeded these minimum
requirements at June 30, 2000, and December 31, 1999, and are presented below,
followed by the capital ratios of the Company's bank subsidiary at June 30,
2000.
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15
<PAGE>
Consolidated Capital Ratios
<TABLE>
<CAPTION>
June 30, December 31,
-------------- --------------
2000 1999
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Tier 1 capital:
Stockholders' equity....................................................... $ 46,445 $ 43,874
Allowed amount of guaranteed preferred beneficial interest in
Company's subordinated debentures (trust preferred securities)........... 16,081 15,132
Plus (less) net unrealized losses (gains) on available for sale securities. 1,797 1,523
Less goodwill and certain intangible assets................................ (3,185) (3,304)
-------------- --------------
Total tier 1 capital................................................. $ 61,138 $ 57,225
============== ==============
Tier 2 capital:
Qualifying allowance for loan losses....................................... 6,310 6,072
Remaining amount of guaranteed preferred beneficial interest in
Company's subordinated debentures (trust preferred securities)........... 1,169 2,118
-------------- --------------
Total risk-based capital............................................. $ 68,617 $ 65,415
============== ==============
Risk-weighted assets......................................................... $515,176 $497,460
============== ==============
Ratios at end of period:
Leverage................................................................... 7.58% 7.46%
Tier 1 risk-based capital.................................................. 11.87 11.50
Total risk-based capital................................................... 13.32 13.15
Minimum ratio guidelines:
Leverage capital (1)....................................................... 3.00% 3.00%
Tier 1 risk-based capital.................................................. 4.00 4.00
Total risk-based capital................................................... 8.00 8.00
</TABLE>
Capital Ratios of Bank Subsidiary
<TABLE>
<CAPTION>
June 30, 2000
-----------------------
(Dollars in thousands)
<S> <C>
Stockholders' equity - Tier 1................... $60,752
Leverage capital................................ 7.51%
Tier 1 risk-based capital....................... 11.76
Total risk-based capital...................... 12.99
</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.
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16
<PAGE>
Year 2000
The Company has substantially completed its Year 2000 Project as scheduled.
As of August 9, 2000, the Company's computer and other systems with imbedded
microchips have operated without Year 2000 related problems and appear to be
Year 2000 compliant. The Company is not aware that any of its software and
hardware vendors, major loan customers, correspondent banks or governmental
agencies with which the Company interacts have experienced material Year 2000
related problems.
While the Company believes all of its critical systems are Year 2000 ready,
there can be no guarantee the Company has discovered all possible failure points
including all of its systems, non-ready third parties whose systems and failures
could impact the Company, or other uncertainties. Many experts believe that the
risk of potential Year 2000 related failures could continue beyond the date of
January 1, 2000 as certain other sensitive target dates occur. As a result the
Company will continue to monitor its own systems (including new systems brought
into operation by the Company) and maintain contact with mission critical third
parties as these target dates approach. Additionally, the Company will maintain
its previously developed contingency plan for implementation in the event that
mission critical third party systems fail to address remaining Year 2000 issues.
The Company's aggregate expenses incurred since 1996 with respect to its
Year 2000 Project were less than $130,000, all of which were expensed through
December 31, 1999. A significant portion of these costs were represented by the
redeployment of existing staff to the Year 2000 project. No projects under
consideration by the Company have been deferred because of Year 2000 efforts.
The Company does not anticipate any additional material costs relating to the
Year 2000 issue.
Forward-Looking Information
This Management's Discussion and Analysis of Financial Condition and
Results of Operations, other filings made by the Company with the Securities and
Exchange Commission and other oral and written statements or reports by the
Company and its management, include certain forward-looking statements
including, without limitation, statements with respect to net interest margin,
net interest income and anticipated future operating and financial performance,
statements regarding asset quality and nonperforming loans, growth opportunities
and growth rates, acquisition opportunities and other similar forecasts and
statements of expectation. Words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Forward-looking statements made
by the Company and its management are based on estimates, projections, beliefs
and assumptions of management at the time of such statements and are not
guarantees of future performance. The Company disclaims any obligation to update
or revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management due to certain risks, uncertainties and assumptions. Certain factors
that may affect operating results of the Company include, but are not limited
to, the following: (1) potential delays or other problems in implementing the
Company's growth and expansion strategy; (2) the ability to attract new deposits
and loans; (3) interest rate fluctuations; (4) competitive factors and pricing
pressures; (5) general economic conditions; and (6) changes in legal and
regulatory requirements, as well as, other factors described in this and other
Company reports and statements. Should one or more of the foregoing risks
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described in the forward-looking
statements.
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17
<PAGE>
Selected and Supplemental Financial Data
The Company is also providing the selected and supplemental financial data
in the tables below.
The following table sets forth selected consolidated financial data
concerning the Company for the three and six month periods ended June 30, 2000
and 1999 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 Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------
2000 1999 2000 1999
-------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Income statement data:
Interest income............................................. $ 14,905 $ 12,617 $ 29,309 $ 24,347
Interest expense............................................ 8,812 6,730 17,010 13,151
Net interest income......................................... 6,093 5,887 12,299 11,196
Provision for loan losses................................... 324 580 702 1,191
Non-interest income......................................... 1,417 1,303 2,667 2,572
Non-interest expenses....................................... 4,244 4,241 8,431 8,009
Net income.................................................. 1,815 1,659 3,601 3,185
Per common share data:
Earnings - diluted.......................................... $ 0.48 $ 0.44 $ 0.95 $ 0.84
Book value.................................................. 12.29 11.34 12.29 11.34
Dividends................................................... 0.10 0.10 0.20 0.20
Weighted avg. shares outstanding (thousands) ............... 3,782 3,789 3,783 3,792
Balance sheet data at period end:
Total assets................................................ $817,412 $708,494 $817,412 $708,494
Total loans................................................. 489,334 419,410 489,334 419,410
Allowance for loan losses................................... 6,310 5,248 6,310 5,248
Total investment securities................................. 264,274 237,303 264,274 237,303
Total deposits.............................................. 634,049 587,296 634,049 587,296
Repurchase agreements with customers ....................... 17,606 1,850 17,606 1,850
Other borrowings............................................ 99,242 56,598 99,242 56,598
Total stockholders' equity.................................. 46,445 42,860 46,445 42,860
Loan to deposit ratio....................................... 77.18% 71.41% 77.18% 71.41%
Average balance sheet data:
Total average assets........................................ 809,692 695,579 802,877 668,547
Total average stockholders' equity.......................... 45,638 42,123 45,029 41,482
Average equity to average assets............................ 5.64% 6.06% 5.61% 6.20%
Performance ratios:
Return on average assets* .................................. 0.90% 0.96% 0.90% 0.96%
Return on average stockholders' equity* .................... 16.00 15.80 16.08 15.48
Net interest margin......................................... 3.42 3.81 3.48 3.79
Efficiency.................................................. 54.54 57.06 54.35 56.39
Dividend payout............................................. 20.83 22.73 21.05 23.81
Asset quality ratios:
Net charge-offs as a percentage of average total loans* .... 0.13% 0.18% 0.20% 0.32%
Nonperforming loans to total loans.......................... 0.88 1.01 0.88 1.01
Nonperforming assets to total assets........................ 0.78 0.70 0.78 0.70
Allowance for loan losses as a percentage of:
Total loans................................................. 1.29% 1.25% 1.29% 1.25%
Nonperforming loans......................................... 147.14 123.54 147.14 123.54
Capital ratios at period end:
Leverage capital............................................ 7.58% 7.73% 7.58% 7.73%
Tier 1 risk-based capital................................... 11.87 11.90 11.87 11.90
Total risk-based capital.................................... 13.32 13.73 13.32 13.73
</TABLE>
*Annualized based on actual days
18
<PAGE>
Bank of the Ozarks, Inc.
Supplemental Quarterly Financial Data
(Dollars in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00 6/30/00
----------- ---------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings Summary:
-----------------
Net interest income $ 4,641 $ 5,137 $ 5,309 $ 5,887 $ 6,222 $ 6,375 $ 6,206 $ 6,093
Federal tax (FTE)
adjustment 156 56 193 242 244 267 273 272
----------- ---------- --------- --------- --------- ---------- --------- ---------
Net interest margin
(FTE) 4,797 5,193 5,502 6,129 6,466 6,642 6,479 6,365
Loan loss provision (742) (804) (611) (580) (578) (716) (378) (324)
Non-interest income 1,333 1,451 1,269 1,303 1,293 1,282 1,250 1,417
Non-interest expense (3,267) (3,599) (3,768) (4,241) (4,195) (4,261) (4,187) (4,244)
----------- ---------- --------- --------- --------- ---------- --------- ---------
Pretax income (FTE) 2,121 2,241 2,392 2,611 2,986 2,947 3,164 3,214
FTE adjustment (156) (56) (193) (242) (244) (267) (273) (272)
Provision for taxes (544) (738) (673) (658) (639) (539) (708) (730)
Distribution on trust
preferred securities - - - (52) (397) (397) (397) (397)
----------- ---------- --------- --------- --------- ---------- --------- ---------
Net income $ 1,421 $ 1,447 $ 1,526 $ 1,659 $ 1,706 $ 1,744 $ 1,786 $ 1,815
=========== ========== ========= ========= ========= ========== ========= =========
Earnings per share -
diluted $ 0.37 $ 0.38 $ 0.40 $ 0.44 $ 0.45 $ 0.46 $ 0.47 $ 0.48
Non-interest Income Detail:
---------------------------
Trust income $ 62 $ 96 $ 128 $ 115 $ 113 $ 124 $ 130 $ 131
Service charges on
deposit accounts 366 399 502 599 674 724 763 877
Mortgage lending income 570 748 449 351 316 190 175 208
Gain (loss) on sale of
assets 6 6 (7) (5) 16 7 (12) 2
Security gains 130 - 25 50 - (6) - -
Other 199 202 172 193 174 243 194 199
----------- ---------- --------- --------- --------- ---------- --------- ---------
Total non-interest
income $ 1,333 $ 1,451 $ 1,269 $ 1,303 $ 1,293 $ 1,282 $ 1,250 $ 1,417
Non-interest Expense Detail:
----------------------------
Salaries and employee
benefits $ 1,651 $ 1,913 $ 2,000 $ 2,322 $ 2,273 $ 2,158 $ 2,246 $ 2,285
Net occupancy expense 529 553 636 619 681 719 700 703
Other operating
expenses 1,051 1,045 1,065 1,234 1,176 1,320 1,177 1,192
Goodwill charges 23 44 22 23 23 22 22 22
Amortization of other
intangibles - pretax 13 44 45 43 42 42 42 42
----------- ---------- --------- --------- --------- ---------- --------- ---------
Total non-interest
expense $ 3,267 $ 3,599 $ 3,768 $ 4,241 $ 4,195 $ 4,261 $ 4,187 $ 4,244
Allowance for Loan Losses:
Balance beginning of
period $ 3,853 $ 4,392 $ 4,689 $ 4,850 $ 5,248 $ 5,611 $ 6,072 $ 6,139
Net charge offs (203) (507) (450) (182) (215) (255) (311) (153)
Loan loss provision 742 804 611 580 578 716 378 324
----------- ---------- --------- --------- --------- ---------- --------- ---------
Balance at end of
period $ 4,392 $ 4,689 $ 4,850 $ 5,248 $ 5,611 $ 6,072 $ 6,139 $ 6,310
Selected Ratios:
----------------
Net interest margin -
FTE* 3.93% 3.77% 3.77% 3.81% 3.79% 3.71% 3.55% 3.42%
Overhead expense ratio* 2.46 2.41 2.38 2.45 2.28 2.20 2.12 2.11
Efficiency ratio 53.30 54.17 55.65 57.06 54.07 53.77 54.17 54.54
Non-performing loans
to total loans 0.65 0.70 1.04 1.01 0.59 0.42 0.42 0.88
Non-performing assets
to total assets 0.45 0.50 0.75 0.70 0.62 0.53 0.47 0.78
</TABLE>
*Annualized
19
<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 subsidiary's relative ratio of rate sensitive
assets to rate sensitive liabilities and the related cumulative gap for
different time periods. Additionally, the committee and management
review other alternative interest rate risk measures and utilize a
simulation model in assessing the Company's interest rate sensitivity.
This simulation modeling process projects a baseline net interest
income (assuming no changes in interest rate levels) and estimates
changes to that baseline net interest income resulting from changes in
interest rate levels. The Company relies primarily on the results of
this model in evaluating its interest rate risk. In addition to the
data in the GAP table presented below, this model incorporates a number
of additional factors. These factors include: (1) the expected exercise
of call features on various assets and liabilities, (2) the expected
rates at which various rate sensitive assets and liabilities will
reprice, (3) the expected growth in various interest earning assets and
interest bearing liabilities and the expected rates on such new assets
and liabilities, (4) the expected relative movements in different
interest rate indexes which are used as the basis for pricing or
repricing various assets and liabilities, (5) existing and expected
contractual cap and floor rates on various assets and liabilities, (6)
expected changes in administered rates on interest bearing transaction,
savings, money market and time deposit accounts and the expected impact
of competition on the pricing or repricing of such accounts and (7)
other factors. Inclusion of these factors in the model is intended to
more accurately project the Company's changes in net interest income
resulting from an immediate and sustained parallel shift in interest
rates of up 100 basis points (bps), up 200 bps, down 100 bps and down
200 bps. While the Company believes this model provides a more accurate
projection of its interest rate risk, the model includes a number of
assumptions and predictions which may or may not be accurate. These
assumptions and predictions include inputs to compute baseline net
interest income, growth rates, competition and a variety of other
factors that are difficult to accurately predict. Accordingly, there
can be no assurance the simulation model will reflect future results.
The following table presents the simulation model's projected impact of
an immediate and sustained parallel shift in interest rates on the
projected baseline net interest income for a twelve month period
commencing June 30, 2000.
<TABLE>
<CAPTION>
Change in $ Change in % Change in
Interest Rates Projected Baseline Projected Baseline
(in bps) Net Interest Income Net Interest Income
-------------------------------- ------------------------- -------------------------
(Dollars in thousands)
<S> <C> <C>
+200 $(1,537) (6.2)%
+100 (1,987) (8.0)
-100 1,443 5.8
-200 2,177 8.8
</TABLE>
In the event of a shift in interest rates, management may take certain
actions intended to mitigate the negative impact to net interest income
or to maximize the positive impact to net interest income. These
actions may include, but are not limited to, restructuring of earning
assets and interest bearing liabilities, seeking alternative funding
sources or investment opportunities and modifying the pricing or terms
of loans and deposits.
The Company's simple static GAP analysis is shown in the following
table. At June 30, 2000 the cumulative ratios of rate sensitive assets
to rate sensitive liabilities at six months and one year, respectively,
were 46.7% and 48.5%. A financial institution is considered to be
liability sensitive, or as having a negative GAP, when the amount of
its interest bearing liabilities maturing or repricing within a given
time period exceeds the amount of its interest earning assets also
maturing or repricing within that time period. Conversely, an
institution is considered to be asset sensitive, or as having a
positive GAP, when the amount of its interest bearing liabilities
maturing and repricing is less than the amount of its interest earning
assets also maturing or repricing during the same period. Generally, in
a falling interest rate environment, a negative GAP should result in an
increase in net interest income, and in a rising interest rate
environment this negative GAP should adversely affect net interest
income. The converse would be true for a positive GAP. Due to inherent
limitations in any static GAP analysis and since conditions change on a
daily basis, these expectations may not reflect future results.
20
<PAGE>
Rate Sensitive Assets and Liabilities
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------------------------------------------------------------------------------
Rate Rate Cumulative Cumulative
Sensitive Sensitive Period Cumulative Gap to RSA(1) to
Assets Liabilities Gap Gap Total RSA(1) RSL(2)
------------- -------------- -------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Floating rate........... $ 41,117 $ 90,955 $(49,838) $ (49,838) (6.61)% 45.21%
Fixed rate repricing in:
1 day - 6 months.... 137,059 290,694 (153,635) (203,473) (27.00) 46.69
7 months - 12 months 81,443 153,527 (72,084) (275,557) (36.56) 48.51
1 - 2 years......... 92,652 49,622 43,030 (232,527) (30.85) 60.24
2 - 3 years......... 38,522 20,517 18,005 (214,522) (28.47) 64.56
3 - 4 years......... 46,990 20,499 26,491 (188,031) (24.95) 69.95
4 - 5 years......... 51,782 1,532 50,250 (137,781) (18.28) 78.04
Over 5 years........ 264,056 61,696 202,360 64,579 8.57 109.37
------------- -------------- --------------
Total........... $753,621 $689,042 $ 64,579
============= ============== ==============
</TABLE>
(1) Rate Sensitive Assets
(2) Rate Sensitive Liabilities
The data used in the table above is based on contractual repricing dates
for variable or adjustable rate instruments except for interest bearing Now
accounts and regular savings accounts which are reflected as repricing
prorata during the first four years. Callable investments or borrowings are
scheduled on their contractual maturity unless the Company has received
notification the investment or borrowing will be called. In the event the
Company has received notification of call, the investment or borrowing is
placed in the fixed rate category for the time period in which the call
occurs or is expected to occur. Other financial instruments are scheduled
on their contractual maturity. This simple GAP analysis gives no
consideration to a number of factors which can have a material impact on
the Company's interest rate risk position. Such factors include 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.
PART II
Other Information
Item 1. Legal Proceedings
-----------------
On July 26, 2000, the case of David Dodds, et. al. vs. Bank of the Ozarks
-------------------------------------------
and Jean Arehart was filed in the Circuit Court of Pulaski County,
----------------
Arkansas, Fifth Division, which contains allegations that the Company's
bank subsidiary (the "Bank") committed breach of contract, certain common
law torts, fraud, and a violation of the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. (S) 1961, et seq. ("RICO"). The complaint
seeks alternative remedies of either (a) compensatory damages of $5 million
and punitive damages of $10 million based on the common law tort claims, or
(b) compensatory damages of $5 million trebled to $15 million based on
RICO. Previously the Bank made several residential construction loans
related to houses built by the plaintiffs, and in 1998 the Bank commenced
foreclosure of a house that was being constructed by one of the plaintiffs.
The complaint relates to such transactions.
On February 3, 2000 the plaintiffs filed a Chapter 13 bankruptcy petition
which is currently pending. In this bankruptcy proceeding the individual
plaintiffs submitted a plan of reorganization which, among other matters,
proposed litigation against the Bank and to pay certain creditors with
proceeds of litigation, if any. At a hearing on the plan of reorganization,
the bankruptcy judge refused to confirm the plaintiff's proposed plan of
reorganization but did authorize the plaintiffs to file the complaint
against the Bank to avoid the running of the statute of limitations. The
ability of the plaintiffs to pursue the complaint remains contingent upon
(a) the bankruptcy court's confirmation of a plan of reorganization which
provides for pursuit of the complaint, (b) a determination by a trustee to
pursue the complaint in the event of conversion of the pending bankruptcy
proceeding to a Chapter 7 or appointment of a trustee, or (c) dismissal of
the pending bankruptcy proceeding so the plaintiffs are no longer subject
to the authority of the bankruptcy court. The Company believes it has
substantial defenses to the claims made in the complaint and intends to
vigorously defend the case.
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
21
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The 2000 Annual Meeting of Stockholders of the Company was held on
April 18, 2000. The following items of business were presented to the
stockholders:
1. Election of Directors
---------------------
The eleven (11) directors were elected as proposed in the Proxy
Statement dated March 7, 2000, under the caption "Election of
Directors":
<TABLE>
<CAPTION>
Total Vote For Total No Vote Total Vote Withheld
Each Director For Each Director From Each Director
------------------- ---------------------- -------------------------
<S> <C> <C> <C>
George Gleason 3,401,496 1,600 10,217
Mark Ross 3,403,096 - 10,217
Linda Gleason 3,400,646 250 12,417
Jerry Davis 3,402,601 - 10,712
C. E. Dougan 3,403,696 - 9,617
Robert East 3,393,000 5,000 15,313
Porter Hillard 3,403,696 - 9,617
Henry Mariani 3,397,900 - 15,213
James Patridge 3,401,496 1,600 10,217
R. L. Qualls 3,397,900 - 15,213
Kennith Smith 3,403,696 - 9,617
</TABLE>
2. Approval of an amendment to the Company's Amended and Restated
Articles of Incorporation increasing the amount of the Company's
Common Stock, par value $0.01 per share, that the Company is
authorized to issue from 10,000,000 shares to 25,000,000 shares.
2,969,901 shares voted for the amendment, 412,927 voted against
and 30,485 shares were not voted.
Subsequent to the annual meeting, the Company's legal counsel
determined that notification procedures required by Arkansas law
to amend the Company's Amended and Restated Articles of
Incorporation and therefore approve the amendment were not
effective. The amendment will be resubmitted to the Company's
shareholders at a later date.
Item 5. Other Information
-----------------
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
22
<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: August 11, 2000 /s/ Paul E. Moore
----------------------
Paul E. Moore
Chief Financial Officer
(Chief Accounting Officer)
23
<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).
10 Modification dated June 29, 2000 of Loan Agreement dated March 1998
between the Company and Union Planters Bank, N.A. (attached)
27 Financial Data Schedule for the period ended June 30, 2000 (attached).
24
