<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__________________
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 2000
--------------------------------------- --------------------------------------
Common Stock, $0.01 par value per share 3,779,555
<PAGE>
BANK OF THE OZARKS, INC.
FORM 10-Q
September 30, 2000
INDEX
PART I. Financial Information
<TABLE>
<CAPTION>
<S> <C>
Item 1. Consolidated Balance Sheets as of September 30, 2000
and 1999 and December 31, 1999 1
Consolidated Statements of Income for the Three Months
Ended September 30, 2000 and 1999 and the Nine Months
Ended September 30, 2000 and 1999 2
Consolidated Statements of Stockholders' Equity for the
Nine Months Ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 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 22
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>
September 30, December 31,
-------------------------------- --------------
2000 1999 1999
------------- ------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 20,560 $ 19,452 $ 24,279
Interest bearing deposits 15 342 283
Investment securities - available for sale 47,122 39,197 44,837
Investment securities - held to maturity 220,408 208,618 218,558
Federal funds sold - 620 -
Loans, net of unearned income 498,033 448,944 467,131
Allowance for loan losses (6,447) (5,611) (6,072)
Premises and equipment, net 30,643 29,678 30,547
Foreclosed assets held for sale, net 3,381 2,035 2,238
Interest receivable 8,824 7,410 7,174
Intangible assets, net 3,129 3,388 3,323
Other 3,486 3,240 3,744
------------- ------------- --------------
Total assets $829,154 $757,313 $796,042
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand - non-interest bearing $ 61,646 $ 55,730 $ 56,177
Savings and interest-bearing transaction 109,083 112,824 105,211
Time 491,549 425,787 434,542
------------- ------------- --------------
Total deposits 662,278 594,341 595,930
Repurchase agreements with customers 15,948 7,714 9,026
Other borrowings 83,174 92,613 126,989
Accrued interest and other liabilities 3,273 2,679 2,973
------------- ------------- --------------
Total liabilities 764,673 697,347 734,918
------------- ------------- --------------
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 34,367 29,679 31,045
Accumulated other comprehensive loss (1,488) (1,315) (1,523)
------------- ------------- --------------
Total stockholders' equity 47,231 42,716 43,874
------------- ------------- --------------
Total liabilities and stockholders' equity $829,154 $757,313 $796,042
============= ============= ==============
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income
Loans $11,141 $ 9,439 $31,844 $26,999
Investment securities - taxable 3,795 3,361 11,427 9,352
- non-taxable 489 426 1,454 1,207
Federal funds sold - 3 6 12
Deposits with banks - 5 3 11
------------- --------------- -------------- --------------
Total interest income 15,425 13,234 44,734 37,581
Interest expense
Deposits 7,926 5,904 21,143 17,605
Repurchase agreements with customers 217 168 493 969
Other borrowings 1,713 940 5,230 1,589
------------- --------------- -------------- --------------
Total interest expense 9,856 7,012 26,866 20,163
------------- --------------- -------------- --------------
Net interest income 5,569 6,222 17,868 17,418
Provision for loan losses (1,225) (578) (1,927) (1,769)
------------- --------------- -------------- --------------
Net interest income after provision for loan losses 4,344 5,644 15,941 15,649
------------- --------------- -------------- --------------
Other income
Trust income 162 113 423 355
Service charges on deposit accounts 868 674 2,508 1,774
Other income, charges and fees 481 471 1,206 1,602
Gains on sales of securities - - - 75
Other 41 35 82 58
------------- --------------- -------------- --------------
Total other income 1,552 1,293 4,219 3,864
------------- --------------- -------------- --------------
Other expense
Salaries and employee benefits 2,220 2,273 6,750 6,594
Net occupancy and equipment 748 681 2,151 1,936
Other operating expenses 1,383 1,241 3,881 3,673
------------- --------------- -------------- --------------
Total other expense 4,351 4,195 12,782 12,203
------------- --------------- -------------- --------------
Income before income taxes and trust distribution 1,545 2,742 7,378 7,310
Distributions on trust preferred securities 397 397 1,190 449
Provision for income taxes 255 639 1,694 1,970
------------- --------------- -------------- --------------
Net income $ 893 $ 1,706 $ 4,494 $ 4,891
============= =============== ============== ==============
Basic and diluted earnings per common share $0.24 $0.45 $1.19 $1.29
============= =============== ============== ==============
See accompanying notes to consolidated financial statements.
</TABLE>
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 (Loss) Total
------- --------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1999 $38 $14,314 $25,922 $ 81 $40,355
Comprehensive income:
Net income 4,891 4,891
Other comprehensive income (loss)
Unrealized losses on available for
sale securities net of $90 tax effect (1,328) (1,328)
Reclassification adjustment for losses
included in income net of $42 tax effect (68) (68)
----------
Comprehensive income 3,495
----------
Cash dividends (1,134) (1,134)
------- --------- ---------- -------------- ----------
Balance - September 30, 1999 $38 $14,314 $29,679 $(1,315) $42,716
======= ========= ========== ============== ==========
Balance - January 1, 2000 $38 $14,314 $31,045 $(1,523) $43,874
Comprehensive income:
Net income 4,494 4,494
Other comprehensive income
Unrealized gains on available for sale
securities net of $21 tax effect 35 35
Reclassification adjustment for gains
included in income - -
Comprehensive income 4,529
----------
Cash dividends (1,172) (1,172)
------- --------- ---------- -------------- ----------
Balance - September 30, 2000 $38 $14,314 $34,367 $(1,488) $47,231
======= ========= ========== ============== ==========
</TABLE>
3
<PAGE>
BANK OF THE OZARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,494 $ 4,891
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,124 1,018
Amortization 220 197
Provision for loan losses 1,927 1,769
Provision for losses on foreclosed assets 150 57
Amortization and accretion on investment securities (53) -
Gain on disposition of investments - (75)
Gain on sale of loans - (4)
(Increase) decrease in mortgage loans held for sale 501 3,504
Gain on disposition of premises and equipment (9) (35)
Loss (gain) on disposition of foreclosed assets (12) 34
Deferred income taxes 252 (54)
Changes in assets and liabilities:
Interest receivable (1,650) (1,893)
Other assets, net (41) (992)
Accrued interest and other liabilities 301 374
--------------- ---------------
Net cash provided by operating activities 7,204 8,791
--------------- ---------------
Cash flows from investing activities
Proceeds from sales and maturities of investment securities
available for sale 245 19,512
Purchases of investment securities available for sale (2,455) (43,269)
Proceeds from maturities of investment securities held to
maturity 176 32,186
Purchase of investment securities held to maturity (1,993) (81,814)
Increase in federal funds sold - (620)
Net increase in loans (35,809) (69,652)
Proceeds from sale of loans - 994
Proceeds from dispositions of bank premises and equipment 43 321
Purchase of bank premises and equipment (1,254) (3,826)
Proceeds from dispositions of foreclosed assets 1,573 1,082
--------------- ---------------
Net cash used by investing activities (39,474) (145,086)
--------------- ---------------
Cash flows from financing activities
Net increase in deposits 66,348 65,301
Net (payments) proceeds from other borrowings (43,815) 65,682
Net increase in repurchase agreements 6,922 6,306
Payments of notes payable - (12,340)
Proceeds from trust preferred securities - 17,250
Dividends paid (1,172) (1,134)
--------------- ---------------
Net cash provided by financing activities 28,283 141,065
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (3,987) 4,770
Cash and cash equivalents - beginning of period 24,562 15,024
--------------- ---------------
Cash and cash equivalents - end of period $ 20,575 $ 19,794
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Principles of Consolidation:
The consolidated financial statements of Bank of the Ozarks, Inc. include
the accounts of the parent company and its wholly owned subsidiaries, 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 nine months ended September 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 145,000 shares at September
30, 2000 and 100,000 shares at September 30, 1999 that were not included in the
dilutive EPS calculation for these respective nine month periods because they
would have been antidilutive.
Basic and diluted earnings per common share is computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 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................ - 9 1 12
------ ------ ------ ------
3,780 3,789 3,781 3,792
====== ====== ====== ======
Net income.................................................. $ 893 $1,706 $4,494 $4,891
Basic earnings per common share............................. $ 0.24 $ 0.45 $ 1.19 $ 1.29
Diluted earnings per common share........................... 0.24 0.45 1.19 1.29
</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 September 30, 2000. Interest rates on these advances ranged from
5.72% to 6.43% at September 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 September
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 6.23
=======
</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 September 30, 2000 the Company had a FHLB advance outstanding with an
original maturity of 3 days totaling $9 million. This advance bears interest at
a rate of 6.75%.
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.
6. Supplementary Data for Cash Flows:
Cash payments for interest by the Company during the nine months ended
September 30, 2000 amounted to $26.5 million and during the nine months ended
September 30, 1999 amounted to $20.0 million. Cash payments for income taxes
during the nine months ended September 30, 2000 and 1999 were $1.9 million and
$1.6 million, 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 $893,000 for the third quarter of 2000, a 47.7% decrease from
net income of $1,706,000 for the same quarter in 1999. Diluted earnings
decreased 46.7% to $0.24 per share for the quarter ended September 30, 2000,
compared to $0.45 per share for the same quarter in 1999. For the nine months
ended September 30, 2000, net income totaled $4,494,000, an 8.1% decrease from
net income of $4,891,000 for the first nine months of 1999. Diluted earnings
for the first nine months of 2000 were $1.19 per share compared to $1.29 for the
same period in 1999, a 7.8% decrease.
The Company's annualized returns on average assets and on average
stockholders' equity were 0.43% and 7.61%, respectively, for the third quarter
of 2000, compared with 0.93% and 15.86%, respectively, for the same quarter of
1999. Annualized returns on average assets and average stockholders' equity for
the nine months ended September 30, 2000 were 0.74% and 13.21%, respectively,
compared with 0.95% and 15.79%, respectively, for the nine month period ended
September 30, 1999.
Total assets increased from $796 million at December 31, 1999 to $829 million
at September 30, 2000. Loans were $498 million at September 30, 2000, compared
to $467 million at December 31, 1999. Deposits were $662 million at September
30, 2000, compared to $596 million at December 31, 1999.
Stockholders' equity increased from $43.9 million at December 31, 1999, to
$47.2 million at September 30, 2000, resulting in book value per share
increasing from $11.30 to $12.50.
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 nine months ended September 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) decreased 9.6% to $5,843,000 for the three months
ended September 30, 2000, from $6,467,000 for the three months ended September
30, 1999. This decrease resulted primarily from a narrowing of interest rate
spreads as increases in deposit and borrowing cost exceeded increases in loan
and other earning asset yields. This narrowing of interest rate spread was
offset somewhat with a 12.9% increase in average earning assets from $765
million in the third quarter of 2000 compared with $677 million in the third
quarter of 1999. Net interest income (FTE) increased 2.6% to $18,687,000 for
the nine months ended September 30, 2000, from $18,098,000 for the nine months
ended September 30, 1999. This increase resulted primarily from a 17.4%
increase in average earning assets to $749 million for the 2000 period from $638
million for the 1999 period. The increase in net interest income associated
with this growth was substantially offset by a decline in interest rate spreads
as deposit and borrowing cost increases exceeded the increases in loan and other
earning asset yields for this nine month period.
The Company's net interest margin declined to 3.04% for the third quarter of
2000 compared with 3.79% for the third quarter of 1999. The net interest margin
for the nine months ended September 30, 2000 declined to 3.33% compared with
3.79% for the same period in 1999. The Company's net interest margin has been
significantly impacted by rising interest rates and intense competition.
Competitive pressures have been increasing the cost of funds and making it very
difficult to achieve commensurate increases in loan yields. The Company's net
interest margin was relatively stable throughout the third quarter on a month to
month basis. Specifically net interest margin for the month of July was 3.05%,
for the month of August was 3.02% and for the month of September was 3.05%.
Analysis of Net Interest Income
(FTE = Fully Taxable Equivalent)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income............................. $15,425 $13,234 $44,734 $37,581
FTE adjustment.............................. 274 245 819 680
------- ------- ------- -------
Interest income - FTE....................... 15,699 13,479 45,553 38,261
Interest expense............................ 9,856 7,012 26,866 20,163
------- ------- ------- -------
Net interest income - FTE................... $ 5,843 $ 6,467 $18,687 $18,098
======= ======= ======= =======
Yield on interest earning assets - FTE...... 8.17% 7.89% 8.12% 8.01%
Cost of interest bearing liabilities........ 5.61 4.55 5.24 4.62
Net interest spread - FTE................... 2.56 3.34 2.88 3.39
Net interest margin - FTE................... 3.04 3.79 3.33 3.79
</TABLE>
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8
<PAGE>
<TABLE>
<CAPTION>
Average Consolidated Balance Sheet and Net Interest Analysis
(Dollars in thousands)
Three Months Ended September 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 ................. $ 34 $ 1 3.31% $ 409 $ 5 5.08%
Federal funds sold ........................ - - - 240 3 5.39
Investment securities:
Taxable ................................. 225,552 3,794 6.69 204,056 3,361 6.53
Tax-exempt - FTE ........................ 39,597 741 7.45 38,223 646 6.71
Loans - FTE (net of unearned income) ...... 499,668 11,163 8.89 434,414 9,464 8.64
-------- ------- -------- -------
Total earning assets .................. 764,851 15,699 8.17 677,342 13,479 7.89
Non-earning assets .......................... 62,132 51,859
-------- --------
Total assets .......................... $826,983 $729,201
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings and interest bearing transaction.. $109,905 $ 838 3.03% $108,776 $ 713 2.60%
Time deposit of $100,000 or more ......... 237,297 3,736 6.26 174,262 2,157 4.91
Other time deposits ...................... 230,024 3,353 5.80 241,237 3,034 4.99
-------- ------- -------- -------
Total interest bearing deposits ........ 577,226 7,927 5.46 524,275 5,904 4.47
Repurchase agreements with customers ....... 15,208 217 5.67 3,132 35 4.45
Other borrowings ........................... 106,423 1,712 6.40 83,820 1,073 5.08
-------- ------- -------- -------
Total interest bearing liabilities ..... 698,857 9,856 5.61 611,227 7,012 4.55
Non-interest liabilities:
Non-interest bearing deposits .............. 60,797 54,942
Other non-interest liabilities ............. 3,386 3,117
-------- --------
Total liabilities ...................... 763,040 669,286
Trust preferred securities ................... 17,250 17,250
Stockholders' equity ......................... 46,693 42,665
-------- --------
Total liabilities and stockholders'
equity ................................ $826,983 $729,201
======== ========
Interest rate spread - FTE ................... 2.56% 3.34%
------- -------
Net interest income - FTE .................... $ 5,843 $ 6,467
======= =======
Net interest margin - FTE .................... 3.04% 3.79%
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 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 ................. $ 82 $ 4 5.94% $ 288 $ 11 5.32%
Federal funds sold ........................ 130 6 6.17 297 11 5.17
Investment securities:
Taxable ................................. 224,579 11,427 6.80 189,165 9,352 6.61
Tax-exempt - FTE ........................ 39,559 2,203 7.44 36,226 1,829 6.75
Loans - FTE (net of unearned income) ...... 485,005 31,913 8.79 412,448 27,058 8.77
-------- ------- -------- -------
Total earning assets .................. 749,355 45,553 8.12 638,424 38,261 8.01
Non-earning assets .......................... 61,639 50,273
-------- --------
Total assets .......................... $810,994 $688,697
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Savings and interest bearing transaction. $110,731 $ 2,422 2.92% $104,729 $ 2,042 2.61%
Time deposit of $100,000 or more ........ 212,097 9,296 5.85 175,564 6,511 4.96
Other time deposits ..................... 231,434 9,425 5.44 237,351 9,052 5.10
-------- ------- -------- -------
Total interest bearing deposits ....... 554,262 21,143 5.10 517,644 17,605 4.55
Repurchase agreements with customers ...... 12,330 493 5.34 2,045 64 4.19
Other borrowings .......................... 117,631 5,230 5.94 63,833 2,494 5.04
-------- ------- -------- -------
Total interest bearing liabilities .... 684,223 26,866 5.24 583,522 20,163 4.62
Non-interest liabilities:
Non-interest bearing deposits ............. 60,510 54,217
Other non-interest liabilities ............ 3,583 2,978
-------- --------
Total liabilities ..................... 748,316 640,717
Trust preferred securities .................. 17,250 6,571
Stockholders' equity ........................ 45,428 41,409
-------- --------
Total liabilities and stockholders'
equity ............................... $810,994 $688,697
========= ========
Interest rate spread - FTE .................. 2.88% 3.39%
------- -------
Net interest income - FTE ................... $18,687 $18,098
======= =======
Net interest margin - FTE ................... 3.33% 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 third quarter of 2000 was $1,552,000 compared with
$1,293,000 for the third quarter of 1999, a 20.0% increase. For the first nine
months of 2000, non-interest income was $4,219,000 compared with $3,864,000 for
the same period in 1999, a 9.2% increase. In the first nine months of 2000 the
Company benefited from strong growth in service charges on deposits which
increased 41.3% compared to the first nine months 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. In addition to this improvement,
the Company achieved good growth in trust income and mortgage lending income
during the third quarter of 2000 compared to the second quarter of 2000.
Although mortgage lending income continues to be well below the level achieved
in 1999, this category of non-interest income has increased in each of the last
two quarters.
The table below shows non-interest income for the three and nine months ended
September 30, 2000 and 1999.
Non-Interest Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Service charges on deposit accounts........... $ 868 $ 674 $2,508 $1,774
Mortgage lending income....................... 278 316 661 1,116
Other charges and fees........................ 171 155 499 486
Trust income.................................. 162 113 423 355
Gain (loss) on sales.......................... 30 16 20 82
Brokerage fee income.......................... 32 - 46 -
Other......................................... 11 19 62 51
------------ ------------ ------------ ------------
Total non-interest income $1,552 $1,293 $4,219 $3,864
============ ============ ============ ============
</TABLE>
(The remainder of this page intentionally left blank)
10
<PAGE>
Non-Interest Expense
Non-interest expense for the third quarter of 2000 was $4,351,000 compared
with $4,195,000 for the same period in 1999, a 3.7% increase. Non-interest
expense for the nine months ended September 30, 2000, was $12,782,000 compared
with $12,203,000 for the nine months ended September 30, 1999, a 4.7% increase.
The table below shows non-interest expense for the three and nine months ended
September 30, 2000 and 1999.
Non-Interest Expense
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits................. $2,220 $2,273 $ 6,750 $ 6,594
Net occupancy expense.......................... 404 316 1,117 896
Equipment expense.............................. 344 365 1,034 1,040
Other real estate and foreclosure expense...... 205 79 459 218
Other operating expense:
Professional and outside services.......... 66 119 199 332
Postage.................................... 66 65 192 214
Telephone.................................. 129 105 358 298
Data lines................................. 59 56 174 139
Operating supplies......................... 125 129 384 367
Advertising and public relations........... 161 175 508 476
Directors' fees............................ 26 28 80 89
Software expense........................... 104 78 306 210
Check printing charges..................... 10 8 29 18
ATM expense................................ 62 52 169 131
FDIC & state assessment.................... 67 57 170 159
Business development, meals and travel..... 31 41 98 115
Amortization of goodwill................... 22 22 67 67
Amortization of other intangibles.......... 42 42 127 130
Other ..................................... 208 185 561 710
------------ ------------ ------------ ------------
Total non-interest expense................ $4,351 $4,195 $12,782 $12,203
============ ============ ============ ============
</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) was 58.8%
and 55.8%, respectively, for the third quarter and first nine months of 2000
compared to 54.1% and 55.6%, respectively, for the third quarter and first nine
months of 1999.
Income Taxes
The provision for income taxes was $255,000 for the quarter ended September
30, 2000, compared to $639,000 for the same period in 1999. The effective
income tax rates were 22.2% and 27.2%, respectively, for these periods. The
provision for income taxes was $1,694,000 for the nine months ended September
30, 2000, compared to $1,970,000 for the first nine months of 1999. The
effective income tax rates were 27.4% and 28.7%, 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.
11
<PAGE>
Analysis of Financial Condition
Loan Portfolio
At September 30, 2000, the Company's loan portfolio was $498 million, an
increase from $467 million at December 31, 1999. As of September 30, 2000, the
Company's loan portfolio consisted of approximately 67.3% real estate loans,
13.4% consumer loans, 15.2% commercial and industrial loans and 3.4%
agricultural loans (non-real estate).
The amount and type of loans outstanding at September 30, 2000 and 1999 and
December 31, 1999 are reflected in the following table.
Loan Portfolio
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------------- --------------
2000 1999 1999
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Real Estate:
Residential 1-4 family..................... $153,377 $128,190 $136,856
Non-farm/non-residential................... 113,869 96,753 101,766
Agricultural............................... 21,697 20,668 20,396
Construction/land development ............. 40,512 26,750 28,294
Multifamily residential.................... 5,934 4,210 4,687
-------------- -------------- --------------
Total real estate........................ 335,389 276,571 291,999
Consumer.................................... 66,623 81,206 81,753
Commercial and industrial................... 75,510 67,806 70,012
Agricultural (non-real estate).............. 17,125 19,701 19,947
Other....................................... 3,386 3,660 3,420
-------------- -------------- --------------
Total loans.............................. $498,033 $448,944 $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 0.61% as of September
30, 2000, compared to 0.53% as of December 31, 1999, and 0.62% as of September
30, 1999. Nonperforming loans as a percent of total loans were 0.34% as of
September 30, 2000 compared to 0.42% as of December 31, 1999, and 0.59% as of
September 30, 1999. In September 2000 the Company completed foreclosure on its
largest nonperforming credit, transferred these assets to other real estate
owned and commenced marketing efforts.
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>
September 30, December 31,
---------------------------------- -------------------
2000 1999 1999
-------------- -------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans........................................ $1,694 $2,670 $1,972
Accruing loans 90 days or more past due................. - - -
Restructured loans...................................... - - -
------ ------ ------
Total nonperforming loans......................... 1,694 2,670 1,972
Foreclosed assets held for sale and repossessions(1).... 3,381 2,035 2,238
------ ------ ------
Total nonperforming assets $5,075 $4,705 $4,210
====== ====== ======
Nonperforming loans to total loans...................... 0.34% 0.59% 0.42%
Nonperforming assets to total assets.................... 0.61 0.62 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 nine month periods ended September 30, 2000
and 1999 and the year ended December 31, 1999.
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months
Ended
September 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.............................................. 852 348 386
Consumer................................................. 408 403 516
Commercial and industrial ............................... 305 161 271
Agricultural (non-real estate)........................... 92 33 52
------- ------- -------
Total loans charged off ............................... 1,657 945 1,225
------- ------- -------
Recoveries of loans previously charged off:
Real estate ............................................. 22 5 6
Consumer................................................. 49 89 111
Commercial and industrial................................ 34 4 6
Agricultural (non-real estate)........................... - - -
------- ------- -------
Total recoveries...................................... 105 98 123
------- ------- -------
Net loans charged off...................................... 1,552 847 1,102
Provision charged to operating expense..................... 1,927 1,769 2,485
------- ------- -------
Balance, end of period..................................... $ 6,447 $ 5,611 $ 6,072
======= ======= =======
Net charge-offs to average loans outstanding during
the periods indicated...................................... 0.43%(1) 0.27%(1) 0.26%
Allowance for loan losses to total loans................... 1.29 1.25 1.30
Allowance for loan losses to nonperforming loans .......... 380.58 210.15 307.91
(1) Annualized
</TABLE>
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 was $6,447,000
at September 30, 2000, or 1.29% of total loans, compared with $6,072,000, or
1.30% of total loans, at December 31, 1999 and $5,611,000 or 1.25% of total
loans, at September 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.
The annualized charge-off ratio for the third quarter of 2000 was 0.87%
compared with 0.20% in the third quarter of 1999. For the first nine months of
2000, annualized net charge-offs were 0.43% of average outstanding loans
compared with 0.26% for the year of 1999 and 0.27% annualized for the first nine
months of 1999. The Company's net charge-offs for the third quarter and the
year-to-date were significantly increased by the Company's third quarter charge-
off in the amount of $787,000 related to loans to a single borrower. Excluding
the charge-offs related to this one large credit, net charge-offs for the third
quarter of 2000 would have been $301,000, or 0.24% of average outstanding loans
on an annualized basis, and net charge-offs for the first nine months of 2000
would have been $765,000, or 0.21% of average outstanding loans on an annualized
basis.
Provision for Loan Losses: The loan loss provision reflects management's
ongoing assessment of the loan portfolio and is evaluated in light of risk
factors mentioned above. The provision for loan losses was $1,927,000 for the
nine months ended September 30, 2000 compared to $1,769,000 for the same nine
month period in 1999. The increase in the 2000 provision is primarily
attributable to the provision of $787,000 to the allowance for loan losses
related to loans to a single borrower somewhat offset by a reduction in the
provision as a result of a decline in the 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>
September 30, September 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.......................... $215,746 $204,551 $205,703 $196,985 $215,713 $202,947
Mortgage-backed securities............ 177 177 209 209 192 192
Obligations of state and political
subdivisions...................... 40,370 40,323 36,492 36,475 39,705 39,665
Other securities...................... 11,237 11,240 5,411 5,407 7,785 7,782
-------- -------- -------- -------- -------- --------
Total............................. $267,530 $256,291 $247,815 $239,076 $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.
14
<PAGE>
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 September 30, 2000,
there were no borrowings outstanding under this line of credit.
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 September 30, 2000 the Company was in
compliance with these requirements.
Growth and Expansion. During the third quarter the Company broke ground for a
new banking office at 2520 South Zero Street in Fort Smith, Arkansas. This will
be the Company's second office in Fort Smith and is expected to open during the
first quarter of 2001. The Company also plans to open a new office at 103000
Stagecoach Road, Little Rock, Arkansas in the second quarter of 2001.
During the third quarter the Company continued to achieve significant customer
growth in its Internet On-Line Banking program launched in May of this year. As
of September 30, the Company had 1,900 customers enrolled. The Company believes
this is an important delivery channel and it expects to see continued growth in
enrollments.
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 and Federal Reserve Bank borrowings.
At September 30, 2000, the Company's bank subsidiary had substantial unused
borrowing availability. This availability is primarily comprised of the
following three options: (1) $52.8 million from the Federal Home Loan Bank, (2)
$28.3 million of securities available to pledge on a federal funds line of
credit, and (3) up to $211.8 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 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.
15
<PAGE>
The Company's risk-based and leverage capital ratios exceeded these minimum
requirements at September 30, 2000, and December 31, 1999, and are presented
below, followed by the capital ratios of the Company's bank subsidiary at
September 30, 2000.
Consolidated Capital Ratios
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Tier 1 capital:
Stockholders' equity....................................................... $ 47,231 $ 43,874
Allowed amount of guaranteed preferred beneficial interest in
Company's subordinated debentures (trust preferred securities) ......... 16,240 15,132
Plus (less) net unrealized losses (gains) on available for sale securities. 1,488 1,523
Less goodwill and certain intangible assets................................ (3,124) (3,304)
-------------- --------------
Total tier 1 capital................................................. $ 61,835 $ 57,225
============== ==============
Tier 2 capital:
Qualifying allowance for loan losses....................................... 6,447 6,072
Remaining amount of guaranteed preferred beneficial interest in
Company's subordinated debentures (trust preferred securities) ......... 1,010 2,118
-------------- --------------
Total risk-based capital............................................. $ 69,292 $ 65,415
============== ==============
Risk-weighted assets......................................................... $526,619 $497,460
============== ==============
Ratios at end of period:
Leverage................................................................... 7.51% 7.46%
Tier 1 risk-based capital.................................................. 11.74 11.50
Total risk-based capital................................................... 13.16 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>
September 30, 2000
-----------------------
(Dollars in thousands)
<S> <C>
Stockholders' equity - Tier 1.......................................... $61,203
Leverage capital....................................................... 7.43%
Tier 1 risk-based capital ............................................. 11.64
Total risk-based capital ............................................ 12.87
</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.
(The remainder of this page intentionally left blank)
16
<PAGE>
Year 2000
The Company has substantially completed its Year 2000 Project as scheduled.
As of November 13, 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.
(The remainder of this page intentionally left blank)
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 nine month periods ended September 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 Nine Months Ended
September 30, September 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Income statement data:
Interest income................................................. $ 15,425 $ 13,234 $ 44,734 $ 37,581
Interest expense................................................ 9,856 7,012 26,866 20,163
Net interest income............................................. 5,569 6,222 17,868 17,418
Provision for loan losses....................................... 1,225 578 1,927 1,769
Non-interest income............................................. 1,552 1,293 4,219 3,864
Non-interest expenses........................................... 4,351 4,195 12,782 12,203
Net income...................................................... 893 1,706 4,494 4,891
Per common share data:
Earnings - diluted.............................................. $ 0.24 $ 0.45 $ 1.19 $ 1.29
Book value...................................................... 12.50 11.30 12.50 11.30
Dividends....................................................... 0.11 0.10 0.31 0.30
Weighted avg. shares outstanding (thousands).................... 3,780 3,789 3,781 3,792
Balance sheet data at period end:
Total assets.................................................... $829,154 $757,313 $829,154 $757,313
Total loans..................................................... 498,033 448,944 498,033 448,944
Allowance for loan losses....................................... 6,447 5,611 6,447 5,611
Total investment securities..................................... 267,530 247,815 267,530 247,815
Total deposits.................................................. 662,278 594,341 662,278 594,341
Repurchase agreements with customers ........................... 15,948 7,714 15,948 7,714
Other borrowings................................................ 83,174 92,613 83,174 92,613
Total stockholders' equity...................................... 47,231 42,716 47,231 42,716
Loan to deposit ratio........................................... 75.20% 75.54% 75.20% 75.54%
Average balance sheet data:
Total average assets............................................ $826,983 $729,201 $810,994 $688,697
Total average stockholders' equity.............................. 46,693 42,665 45,428 41,409
Average equity to average assets................................ 5.65% 5.85% 5.60% 6.01%
Performance ratios:
Return on average assets*....................................... 0.43% 0.93% 0.74% 0.95%
Return on average stockholders' equity*......................... 7.61 15.86 13.21 15.79
Net interest margin............................................. 3.04 3.79 3.33 3.79
Efficiency...................................................... 58.84 54.07 55.80 55.56
Dividend payout................................................. 45.83 22.22 26.05 23.26
Asset quality ratios:
Net charge-offs as a percentage of average total loans*......... 0.87% 0.20% 0.43% 0.27%
Nonperforming loans to total loans.............................. 0.34 0.59 0.34 0.59
Nonperforming assets to total assets............................ 0.61 0.62 0.61 0.62
Allowance for loan losses as a percentage of:
Total loans..................................................... 1.29% 1.25% 1.29% 1.25%
Nonperforming loans............................................. 380.58 210.15 380.58 210.15
Capital ratios at period end:
Leverage capital................................................ 7.51% 7.63% 7.51% 7.63%
Tier 1 risk-based capital....................................... 11.74 11.45 11.74 11.45
Total risk-based capital........................................ 13.16 13.15 13.16 13.15
*Annualized based on actual days
</TABLE>
18
<PAGE>
Bank of the Ozarks, Inc.
Supplemental Quarterly Financial Data
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
<TABLE>
12/31/98 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00 6/30/00 9/30/00
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings Summary:
---------------------------------
Net interest income $ 5,137 $ 5,309 $ 5,887 $ 6,222 $ 6,375 $ 6,206 $ 6,093 $ 5,569
Federal tax (FTE)
adjustment 56 193 242 244 267 273 272 274
-------------------------------------------------------------------------------------------------
Net interest margin (FTE) 5,193 5,502 6,129 6,466 6,642 6,479 6,365 5,843
Loan loss provision (804) (611) (580) (578) (716) (378) (324) (1,225)
Non-interest income 1,451 1,269 1,303 1,293 1,282 1,250 1,417 1,552
Non-interest expense (3,599) (3,768) (4,241) (4,195) (4,261) (4,187) (4,244) (4,351)
-------------------------------------------------------------------------------------------------
Pretax income (FTE) 2,241 2,392 2,611 2,986 2,947 3,164 3,214 1,819
FTE adjustment (56) (193) (242) (244) (267) (273) (272) (274)
Provision for taxes (738) (673) (658) (639) (539) (708) (730) (255)
Distribution on trust preferred
securities - - (52) (397) (397) (397) (397) (397)
-------------------------------------------------------------------------------------------------
Net income $ 1,447 $ 1,526 $ 1,659 $ 1,706 $ 1,744 $ 1,786 $ 1,815 $ 893
=================================================================================================
Earnings per share - diluted $ 0.38 $ 0.40 $ 0.44 $ 0.45 $ 0.46 $ 0.47 $ 0.48 $ 0.24
Non-interest Income Detail:
---------------------------------
Trust income $ 96 $ 128 $ 115 $ 113 $ 124 $ 130 $ 131 $ 162
Service charges on deposit
accounts 399 502 599 674 724 763 877 868
Mortgage lending income 748 449 351 316 190 175 208 278
Gain (loss) on sale of assets 6 (5) (5) 16 7 (12) 2 30
Security gains - 25 50 - (6) - - -
Other 202 170 193 174 243 194 199 214
-------------------------------------------------------------------------------------------------
Total non-interest income $ 1,451 $ 1,269 $ 1,303 $ 1,293 $ 1,282 $ 1,250 $ 1,417 $ 1,552
Non-interest Expense Detail:
---------------------------------
Salaries and employee benefits $ 1,913 $ 2,000 $ 2,322 $ 2,273 $ 2,158 $ 2,246 $ 2,285 $ 2,220
Net occupancy expense 553 636 619 681 719 700 703 748
Other operating expenses 1,045 1,065 1,234 1,176 1,320 1,177 1,192 1,319
Goodwill charges 44 22 23 23 22 22 22 22
Amortization of other
intangibles - pretax 44 45 43 42 42 42 42 42
-------------------------------------------------------------------------------------------------
Total non-interest expense $ 3,599 $ 3,768 $ 4,241 $ 4,195 $ 4,261 $ 4,187 $ 4,244 $ 4,351
Allowance for Loan Losses:
Balance beginning of period $ 4,392 $ 4,689 $ 4,850 $ 5,248 $ 5,611 $ 6,072 $ 6,139 $ 6,310
Net charge offs (507) (450) (182) (215) (255) (311) (153) (1,088)
Loan loss provision 804 611 580 578 716 378 324 1,225
-------------------------------------------------------------------------------------------------
Balance at end of period $ 4,689 $ 4,850 $ 5,248 $ 5,611 $ 6,072 $ 6,139 $ 6,310 $ 6,447
Selected Ratios:
---------------------------------
Net interest margin - FTE* 3.77% 3.77% 3.81% 3.79% 3.71% 3.55% 3.42% 3.04%
Overhead expense ratio* 2.41 2.38 2.45 2.28 2.20 2.12 2.11 2.09
Efficiency ratio 54.17 55.65 57.06 54.07 53.77 54.17 54.54 58.84
Non-performing loans
to total loans 0.70 1.04 1.01 0.59 0.42 0.42 0.88 0.34
Non-performing assets to
total assets 0.50 0.75 0.70 0.62 0.53 0.47 0.78 0.61
Loans past due 30 days or more,
including non-accrual loans,
to total loans 2.07 2.34 1.70 1.15 1.23 1.03 1.48 0.90
*Annualized
</TABLE>
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
September 30, 2000.
<TABLE>
<CAPTION>
Change in $ Change in % Change in
Interest Rates Projected Baseline Projected Baseline
(in bps) Net Interest Income Net Interest Income
------------------ ------------------------- -------------------------
<S> <C> <C>
(Dollars in thousands)
+200 $(3,591) (13.7)%
+100 (1,658) (6.3)
-100 987 3.8
-200 24 -
</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 September 30, 2000 the cumulative ratios of rate sensitive assets to
rate sensitive liabilities at six months and one year, respectively, were
52.1% and 48.7%. 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>
September 30, 2000
-----------------------------------------------------------------------------------
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............ $ 51,504 $ 69,539 $ (18,035) $ (18,035) (2.36)% 74.06%
Fixed rate repricing in:
1 day - 6 months...... 142,496 301,651 (159,155) (177,190) (23.14) 52.06
7 month - 12 months.... 76,889 185,531 (108,642) (285,832) (37.34) 48.66
1 - 2 years............ 100,378 42,478 57,900 (227,932) (29.77) 61.96
2 - 3 years............ 49,661 2,631 47,030 (180,902) (23.63) 69.94
3 - 4 years............ 47,885 14,730 33,155 (147,747) (19.30) 76.04
4 - 5 years............ 44,501 14,442 30,059 (117,688) (15.37) 81.35
Over 5 years........... 252,262 68,752 183,510 65,822 8.60 109.41
----------- ------------ ----------
Total............ $765,576 699,754 $ 65,822
=========== ============ ==========
</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 of which 50% are reflected as
repricing prorata during the first two years with the remaining 50%
distributed over future periods. 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.
21
<PAGE>
Item 2. Changes in Securities
---------------------
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 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: November 13, 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).
27 Financial Data Schedule for the period ended September 30, 2000
(attached).
24
