Edgar Filing: BANK OF THE OZARKS INC

For The Quarterly Period Ended September 30, 2004

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

AMENDMENT NO. 1

(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, 2004

¨	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

incorporation or organization)

(I.R.S. Employer

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 by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). 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, 2004
Common Stock, $0.01 par value per share		16,430,090

EXPLANATORY NOTE

This Amendment No. 1 to the Quarterly Report on Form 10-Q/A (“Amendment No. 1”) for Bank of the Ozarks, Inc. (the “Company”) for the quarterly period ended September 30, 2004, is being filed to amend the item described below contained in the Company’s Quarterly Report on Form 10-Q (the “Form 10-Q”), originally filed with the Securities and Exchange Commission (“SEC”) on November 8, 2004.

This Amendment No. 1 makes changes to amend Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations to correct an erroneous number in the tabular presentation of the Company’s consolidated capital ratios. The correct number (expressed in thousands) to appear for “Risk Weighted Assets” at September 30, 2004 should be $1,189,445. All other numbers in this table, including the ratios, are correct as originally stated. No other changes have been made to the Form 10-Q for the quarterly period ended September 30, 2004. In order to preserve the nature and character of the disclosures set forth in such Form 10-Q as originally filed, this Amendment does not reflect events occurring after the filing of the original Quarterly Report on Form 10-Q on November 8, 2004, or modify or update the disclosures presented in the original Quarterly Report on Form 10-Q, except to reflect the revision as described above.

BANK OF THE OZARKS, INC.

FORM 10-Q/A

September 30, 2004

INDEX


PART I.	Financial Information

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1

	Selected and Supplemental Financial Data	12

PART II.	Other Information

Item 6.	Exhibits	14

	Reference is made to the Exhibit Index contained at the end of this report

	Signature	15

	Exhibit Index	16


Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
		AND RESULTS OF OPERATIONS

General

On December 10, 2003 Bank of the Ozarks, Inc. (the “Company”) completed a 2-for-1 stock split, in the form of a stock dividend, effected by issuing one share of common stock for each share of stock outstanding on November 26, 2003. All share and per share information contained in this report has been adjusted to give effect to this stock split.

Net income was $6.6 million for the third quarter of 2004, a 26.0% increase from net income of $5.3 million for the comparable quarter in 2003. Diluted earnings per share increased 25.0% to $0.40 for the quarter ended June 30, 2004 compared to $0.32 for the comparable quarter in 2003. For the nine months ended September 30, 2004, net income totaled $18.9 million, a 29.4% increase from net income of $14.6 million for the first nine months of 2003. Diluted earnings per share for the first nine months of 2004 were $1.14 compared to $0.90 for the comparable period in 2003, a 26.7% increase.

The Company’s annualized return on average assets was 1.66% for the third quarter of 2004 compared to 1.68% for the third quarter of 2003. Its annualized return on average stockholders’ equity was 23.89% for the third quarter of 2004 compared with 23.04% for the comparable quarter of 2003. The Company’s annualized return on average assets was 1.68% for the first nine months of 2004 compared to 1.70% for the first nine months of 2003. Its annualized return on average stockholders’ equity was 23.98% for the first nine months of 2004 compared to 23.70% for the comparable period of 2003.

Total assets increased to $1.630 billion at September 30, 2004 from $1.387 billion at December 31, 2003. Loans and leases were $1.074 billion at September 30, 2004 compared to $909 million at December 31, 2003. Deposits were $1.262 billion at September 30, 2004 compared to $1.062 billion at December 31, 2003.

Stockholders’ equity increased to $115.2 million at September 30, 2004 from $98.5 million at December 31, 2003, resulting in book value per share increasing to $7.01 from $6.07.

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 leases 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 charge income, mortgage lending income, trust income, bank owned life insurance income, appraisal, credit life commissions and other credit related fees, safe deposit box rental, brokerage and other miscellaneous fees and net gains (losses) on sales of assets. The Company’s non-interest expense consists primarily of employee compensation and benefits, occupancy and equipment and other operating expenses. The Company’s results of operations are also impacted by its provision for loan and lease losses, and its provision for income taxes. The following discussion provides a comparative summary of the Company’s operations for the three and nine months ended September 30, 2004 and 2003.

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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 of 35%.

Net interest income (FTE) increased 27.5% to $16.5 million for the three months ended September 30, 2004 compared to $13.0 million for the three months ended September 30, 2003. Net interest income (FTE) increased 28.7% to $46.3 million for the nine months ended September 30, 2004 from $36.0 million for the nine months ended September 30, 2003. The primary contributor to the increase in net interest income for the third quarter and first nine months of 2004 compared to the same periods in 2003 was the Company’s growth in average earning assets. Average earning assets increased 27.9% and 31.0% in the third quarter and first nine months of 2004, respectively, compared with the same periods of 2003. Net interest margin, on a fully taxable equivalent basis, was 4.47% for the quarter ended September 30, 2004 compared to 4.48% for the same quarter in 2003, a decrease of one basis point (“bps”). Net interest margin for the nine months ended September 30, 2004 was 4.46% compared with 4.55% for the same period in 2003, a decrease of nine bps.

Over the past several years the Company has sought to increase adjustable rate loans as a percentage of its total loans and leases in order to better manage interest rate risk. The Company’s variable rate loans were 35% of total loans and leases at September 30, 2004 compared to 31% of total loans and leases at September 30, 2003. Since the Company typically prices variable rate loans at a lower rate than fixed rate loans, the Company believes the increase in variable rate loans has contributed to the reduction in its loan yields. The Company also believes this increase in adjustable rate loans has reduced the interest rate risk in its loan and lease portfolio. The Company intends to continue its efforts to increase the percentage of adjustable rate loans to total loans and leases as part of its strategy to manage interest rate risk.

On October 1, 2004 the Company purchased an additional $18 million of bank owned life insurance (“BOLI”). The expected increases in cash surrender value from these BOLI policies will be recognized as non-interest income and are expected to result in approximately $216,000 of additional tax-free, non-interest income in the fourth quarter of 2004. If the Company had not purchased this BOLI, these funds would have been available for investment in interest earning assets. Shifting these funds from interest earning assets to non-interest income producing assets will have the effect of reducing the Company’s net interest margin in future quarters.

Analysis of Net Interest Income

(FTE = Fully Taxable Equivalent)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Interest income	$	22,213		$	17,537		$	61,808		$	50,242
FTE adjustment		625			312			1,798			698

Interest income – FTE		22,838			17,849			63,606			50,940
Interest expense		6,305			4,879			17,260			14,942

Net interest income – FTE	$	16,533		$	12,970		$	46,346		$	35,998

Yield on interest earning assets – FTE		6.18	%		6.16	%		6.12	%		6.43	%
Cost of interest bearing liabilities		1.84			1.85			1.81			2.06
Net interest spread – FTE		4.34			4.31			4.31			4.37
Net interest margin – FTE		4.47			4.48			4.46			4.55

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Average Consolidated Balance Sheet and Net Interest Analysis


	Three Months Ended September 30,												Nine Months Ended September 30,
	2004						2003						2004						2003
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
	(Dollars in thousands)
ASSETS
Earnings assets:
Interest earning deposits and federal funds sold	$	438	$	5	4.15	%	$	426	$	4	4.19	%	$	422	$	14	4.31	%	$	481	$	20	5.42	%
Investment securities:
Taxable		333,609		4,376	5.22			249,488		2,626	4.18			306,477		11,351	4.95			243,049		8,593	4.73
Tax-exempt – FTE		97,136		1,724	7.07			47,078		839	7.07			93,880		4,963	7.06			33,143		1,790	7.22
Loans and leases – FTE		1,039,504		16,733	6.40			852,483		14,380	6.69			986,533		47,279	6.40			781,950		40,537	6.93

Total earning assets		1,470,687		22,838	6.18			1,149,475		17,849	6.16			1,387,312		63,607	6.12			1,058,623		50,940	6.43
Non-earning assets		122,025						97,308						115,722						90,003

Total assets	$	1,592,712					$	1,246,783					$	1,503,034					$	1,148,626

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest bearing transaction	$	428,335	$	1,107	1.03	%	$	351,744	$	723	0.82	%	$	411,565	$	2,961	0.96	%	$	336,222	$	2,716	1.08	%
Time deposits of $100,000 or more		414,769		2,044	1.96			316,815		1,435	1.80			390,297		5,173	1.77			274,195		3,961	1.93
Other time deposits		256,907		1,272	1.97			198,206		1,051	2.10			237,644		3,370	1.89			187,639		3,175	2.26

Total interest bearing deposits		1,100,011		4,423	1.60			866,765		3,209	1.47			1,039,506		11,504	1.48			798,056		9,852	1.65
Repurchase agreements with customers		47,216		152	1.28			33,508		82	0.97			35,445		301	1.13			29,739		235	1.06
Other borrowings		183,589		1,391	3.02			128,678		1,168	3.60			162,099		3,760	3.10			122,636		3,618	3.94
Subordinated debentures		29,371		339	4.59			19,039		420	8.75			40,070		1,695	5.65			18,206		1,237	9.08

Total interest bearing liabilities		1,360,187		6,305	1.84			1,047,990		4,879	1.85			1,277,120		17,260	1.81			968,637		14,942	2.06
Non-interest bearing liabilities:
Non-interest bearing deposits		116,691						102,910						116,492						92,757
Other non-interest bearing liabilities		5,124						5,080						4,311						4,926

Total liabilities		1,482,002						1,155,980						1,397,923						1,066,320
Stockholders’ equity		110,710						90,803						105,111						82,306

Total liabilities and stockholders’ equity	$	1,592,712					$	1,246,783					$	1,503,034					$	1,148,626

Interest rate spread – FTE					4.34	%					4.31	%					4.31	%					4.37	%

Net interest income – FTE			$	16,533					$	12,970					$	46,347					$	35,998

Net interest margin – FTE					4.47	%					4.48	%					4.46	%					4.55	%

Non-interest Income

The Company’s non-interest income consists primarily of: (1) service charges on deposit accounts, (2) mortgage lending income, (3) trust income, (4) bank owned life insurance income, (5) appraisal, credit life commissions and other credit related fees, (6) safe deposit box rental, operating lease income, brokerage fees and other miscellaneous fees and (7) net gains (losses) on sales of assets.

Non-interest income for the third quarter of 2004 was $4.6 million compared with $5.1 million for the third quarter of 2003, a decrease of 10.0%. Non-interest income for the nine months ended September 30, 2004 was $13.8 million compared to $13.3 million for the nine months ended September 30, 2003, a 4.3% increase.

The Company’s service charges on deposit accounts for the quarter and nine months ended September 30, 2004 were up 23.3% and 24.0%, respectively, as compared to the same periods in 2003. These increases were primarily because of continued growth in the Company’s number of core deposit customers and increases in certain account related fees effective during January 2004.

Mortgage lending income declined 55.9% for the third quarter and 42.4% for the first nine months of September 30, 2004 compared to the same periods in 2003. These declines were primarily a result of a lower volume of mortgage refinance activity in the third quarter and first nine months of 2004 compared to the same periods in 2003. Approximately 36% of the mortgage division’s volume for the third quarter of 2004 was related to the refinancing of existing mortgages compared with 72% in the third quarter of 2003. Approximately 41% of the mortgage division’s volume for the nine months ended September 30, 2004 was related to refinancing compared to 72% for the nine months ended September 30, 2003.

During the first nine months of 2004, the Company realized net gains of $774,000 from the sale of approximately $15.5 million of investment securities. The majority of these securities were sold to help offset the impact of a charge incurred as a result of the Company prepaying its $17.3 million of 9% subordinated debentures.

On October 1, 2004 the Company purchased an additional $18 million of BOLI which is expected to result in approximately $216,000 of additional tax-free, non-interest income in the fourth quarter of 2004.

The table below shows non-interest income for the three and nine months ended September 30, 2004 and 2003.

Non-interest Income


	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
	(Dollars in thousands)
Service charges on deposit accounts	$	2,520	$	2,043	$	7,068	$	5,698
Mortgage lending income		863		1,958		2,663		4,626
Trust income		390		493		1,049		1,042
Bank owned life insurance income		258		299		765		874
Appraisal, credit life commissions and other credit related fees		104		126		345		399
Safe deposit box rental, operating lease income, brokerage fees and other miscellaneous fees		366		184		936		481
Gain on sales of investment securities		22		36		774		133
Gain on sales of other assets		108		8		228		10

Total non-interest income	$	4,631	$	5,147	$	13,828	$	13,263

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Non-interest Expense

Non-interest expense for the third quarter of 2004 was $9.8 million compared with $8.6 million for the comparable period in 2003, a 13.2% increase. Non-interest expense for the nine months ended September 30, 2004 was $27.8 million compared to $23.1 million for the nine months ended September 30, 2003, a 20.0% increase. This increase in non-interest expense for the quarter and for the nine month periods is primarily the result of the Company’s continued growth and expansion. At September 30, 2004 the Company had 49 full service banking offices compared to 39 at September 30, 2003, and the Company’s full time equivalent employees were 539 at September 30, 2004 compared to 469 at September 30, 2003. Additionally on June 18, 2004, the Company prepaid its $17.3 million of 9% subordinated debentures, resulting in the write-off of $852,000 of deferred debt issuance cost.

The Company’s efficiency ratio (non-interest expense divided by the sum of non-interest income and net interest income - FTE) improved to 46.1% for the quarter ended September 30, 2004 compared to 47.6% for the quarter ended September 30, 2003. The Company’s efficiency ratio for the nine months ended September 30, 2004 improved to 46.1% compared to 47.0% for the same period in 2003.

The table below shows non-interest expense for the three and nine months ended September 30, 2004 and 2003.

Non-interest Expense


	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
	(Dollars in thousands)
Salaries and employee benefits	$	5,526	$	5,186	$	15,350	$	13,765
Net occupancy and equipment		1,286		1,179		3,753		3,268
Other operating expenses:
Postage and supplies		459		368		1,246		1,087
Advertising and public relations		400		308		1,089		716
Telephone and data lines		231		257		799		706
ATM expense		223		157		604		422
Software expense		168		146		480		423
FDIC and state assessments		126		111		338		270
Other real estate and foreclosure expense		101		137		246		245
Amortization of intangibles		65		62		192		143
Write-off of deferred debt issuance costs		—		—		852		—
Other		1,181		718		2,810		2,092

Total non-interest expense	$	9,766	$	8,629	$	27,759	$	23,137

Income Taxes

The provision for income taxes was $3.1 million for the third quarter and $8.9 million for the nine months of 2004 compared to $2.9 million and $7.9 million, respectively, for the same periods in 2003. The effective income tax rate was 31.7% for the third quarter and 32.1% for the first nine months of 2004 compared to 35.1% for the third quarter and 35.2% for the first nine months of 2003. The increase in the Company’s municipal securities portfolio, which is exempt from federal and state income taxes, was a significant contributor to these declines in effective income tax rates. Interest income on tax-exempt investment securities increased to 11.5% of pretax income during the third quarter of 2004 from 6.7% of pretax income during the third quarter of 2003. Interest income on tax-exempt securities increased to 11.6% of pretax income during the first nine months of 2004 from 5.2% of pretax income during the first nine months of 2003. In addition the Company has made certain investments resulting in federal and state income tax credits and other adjustments to the Company’s state and federal income tax expense in 2004. During the third quarter and the first nine months of 2004, the Company’s aggregate state and federal income tax expense was reduced by $188,000 and $492,000, respectively, as a result of these investments. These benefits were partially offset by impairment charges of $114,000 and $290,000, respectively, incurred during the third quarter and the first nine months of 2004 to reduce the carrying value of these investments to estimated fair value.

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Analysis of Financial Condition

Loan and Lease Portfolio

At September 30, 2004 the Company’s loan and lease portfolio was $1.074 billion, an increase of 18.1% from $909 million at December 31, 2003. As of September 30, 2004, the Company’s loan and lease portfolio consisted of approximately 80.6% real estate loans, 6.8% consumer loans, 9.1% commercial and industrial loans and 1.6% agricultural loans (non-real estate).

The amount and type of loans and leases outstanding at September 30, 2004 and 2003 and December 31, 2003 are reflected in the following table.

Loan and Lease Portfolio


	September 30,				December 31, 2003
	2004		2003		December 31, 2003
	(Dollars in thousands)
Real Estate:
Residential 1-4 family	$	245,824	$	211,079	$	218,851
Non-farm/non-residential		314,094		268,357		285,451
Agricultural		65,772		59,388		61,500
Construction/land development		212,061		105,421		117,835
Multifamily residential		27,701		31,692		23,657

Total real estate		865,452		675,937		707,294
Consumer		73,306		63,491		64,831
Commercial and industrial		97,936		98,923		111,978
Agricultural (non-real estate)		17,413		16,779		15,266
Other (includes leases)		19,647		4,921		9,778

Total loans and leases	$	1,073,754	$	860,051	$	909,147

Nonperforming Assets

Nonperforming assets consist of (1) nonaccrual loans and leases, (2) accruing loans and leases 90 days or more past due, (3) certain restructured loans and leases providing for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower or lessee and (4) real estate or other assets that have been acquired in partial or full satisfaction of loan or lease obligations or upon foreclosure.

The Company generally places a loan or lease on nonaccrual status when payments are contractually past due 90 days, or earlier when doubt exists as to the ultimate collection of payments. The Company may continue to accrue interest on certain loans or leases contractually past due 90 days if such loans or leases are both well secured and in the process of collection. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. Nonaccrual loans and leases are generally returned to accrual status when payments are less than 90 days past due and the Company reasonably expects to collect all payments. If a loan or lease is determined to be uncollectible, the portion of the principal determined to be uncollectible will be charged against the allowance for loan and lease losses. Income on nonaccrual loans or leases is recognized on a cash basis when and if actually collected.

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The following table presents information concerning nonperforming assets, including nonaccrual and certain restructured loans and leases and foreclosed assets held for sale.

Nonperforming Assets


	September 30,						December 31, 2003
	2004			2003			December 31, 2003
	(Dollars in thousands)
Nonaccrual loans and leases	$	2,907		$	4,334		$	4,235
Accruing loans and leases 90 days or more past due		—			—			—
Restructured loans and leases		—			—			—

Total nonperforming loans and leases		2,907			4,334			4,235
Foreclosed assets held for sale and repossessions⁽¹⁾		882			866			780

Total nonperforming assets	$	3,789		$	5,200		$	5,015

Nonperforming loans and leases to total loans and leases		0.27	%		0.50	%		0.47	%
Nonperforming assets to total assets		0.23			0.41			0.36

(1)

Foreclosed assets held for sale and repossessions are generally written down to estimated market value net of estimated selling costs at the time of transfer from the loan and lease portfolio. The values of such assets are reviewed from time to time throughout the holding period with the values adjusted to the then estimated market value net of estimated selling costs, if lower, until disposition.

Allowance and Provision for Loan and Lease Losses

Allowance for Loan and Lease Losses: The following table shows an analysis of the allowance for loan and lease losses for the nine-month periods ended September 30, 2004 and 2003 and the year ended December 31, 2003.


	Nine Months Ended September 30,						Year Ended December 31, 2003
	2004			2003			Year Ended December 31, 2003
	(Dollars in thousands)
Balance, beginning of period	$	13,820		$	10,936		$	10,936
Loans and leases charged off:
Real estate		348			639			770
Consumer		425			340			450
Commercial and industrial		158			560			632
Agricultural (non-real estate)		31			23			23

Total loans and leases charged off		962			1,562			1,875

Recoveries of loans and leases previously charged off:
Real estate		62			36			40
Consumer		106			95			141
Commercial and industrial		30			24			35
Agricultural (non-real estate)		2			16			18

Total recoveries		200			171			234

Net loans and leases charged off		762			1,391			1,641
Provision charged to operating expense		2,830			2,895			3,865
Allowance added in bank acquisition		—			660			660

Balance, end of period	$	15,888		$	13,100		$	13,820

Net charge-offs to average loans and leases outstanding during the periods indicated		0.10	%⁽¹⁾		0.24	%⁽¹⁾		0.20	%
Allowance for loan and lease losses to total loans and leases		1.48			1.52			1.52
Allowance for loan and lease losses to nonperforming loans and leases		546.54			302.26			326.33

(1)	Annualized

Provisions to and the adequacy of the allowance for loan and lease losses are based on management’s judgment and evaluation of the loan and lease portfolio utilizing objective and subjective criteria. The objective criteria utilized by the Company to assess the adequacy of its allowance for loan and lease losses and required additions to such reserve are (1) an internal grading system, (2) a peer group analysis and (3) a historical analysis. In addition to these objective criteria, the Company subjectively assesses adequacy of the allowance for loan and lease 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 and leases, national, regional and local business and economic conditions that may affect the borrowers’ or lessees’ ability to pay or the value of property securing loans and leases, and other relevant factors.

The Company’s allowance for loan and lease losses was $15.9 million at September 30, 2004, or 1.48% of total loans and leases, compared with $13.8 million, or 1.52% of total loans, at December 31, 2003 and $13.1 million, or 1.52% of total loans, at September 30, 2003. The increase in the Company’s allowance for loan and lease losses from December 31, 2003 and September 30, 2003 primarily reflects the growth in the Company’s loan and lease portfolio. While management believes the current allowance is adequate, changing economic and other conditions may require future adjustments to the allowance for loan and lease losses.

Provision for Loan and Lease Losses: The loan and lease loss provision is based on management’s judgment and evaluation of the loan and lease portfolio utilizing the criteria discussed above. The provision for loan and lease losses was $1.0 million for the third quarter of 2004 compared to $1.1 million for the third quarter of 2003, and $2.8 million for the nine months ended September 30, 2004 compared to $2.9 million for the nine months ended September 30, 2003.

Investment Securities

The Company’s securities portfolio is the second largest component of earning assets and a significant source of revenue. The Company determines the funds available for investment based upon anticipated loan and lease and deposit growth, liquidity needs, pledging requirements and other factors. The table below presents the book value and the fair value of investment securities on each of the dates indicated.

Investment Securities


	September 30, 2004				September 30, 2003				December 31, 2003
	Book Value⁽¹⁾		Fair Value⁽²⁾		Book Value⁽¹⁾		Fair Value⁽²⁾		Book Value⁽¹⁾		Fair Value⁽²⁾
	(Dollars in thousands)
Mortgage-backed securities	$	318,088	$	318,088	$	217,297	$	217,297	$	258,559	$	258,559
Obligations of state and political subdivisions		101,822		101,822		57,870		57,870		90,344		90,344
Other securities		13,806		13,806		14,769		14,769		15,417		15,417

Total	$	433,716	$	433,716	$	289,936	$	289,936	$	364,320	$	364,320

(1)	Book value for available-for-sale investment securities equals their amortized cost adjusted for unrealized gains or losses as reflected in the Company’s consolidated financial statements.

(2)	The fair value of the Company’s investment securities is based on quoted market prices where available. If quoted market prices are not available, fair values are based on market prices for comparable securities.

At September 30, 2004 management believes that substantially all of its unrealized losses on investment securities available for sale are the result of fluctuations in interest rates and do not reflect any deterioration in the credit quality of its investments. Accordingly management considers these unrealized losses to be temporary in nature and the Company has both the ability and the intent to hold these investments until maturity.

Deposits

The Company’s bank subsidiary lending and investment activities are funded primarily by deposits, approximately 55.7% of which were time deposits and approximately 44.3% of which were demand and savings deposits at September 30, 2004. The Company’s total deposits were $1.262 billion at September 30, 2004, as compared to $995 million at September 30, 2003 and $1.062 billion at December 31, 2003.

Liquidity and Capital Resources

Growth and Expansion. During the third quarter of 2004, the Company opened a total of three new banking offices, including a third North Little Rock, Arkansas office, a Texarkana, Texas office and the conversion of its Dallas, Texas loan production office into a banking office. On April 16, 2004 the Company acquired a Texas bank charter, which was immediately merged into the Company’s existing Arkansas bank subsidiary. This has allowed the Company to convert its Texas loan production offices into banking facilities and to open additional Texas banking offices through its de novo branching strategy. The Company continues to operate its loan production office in North Carolina. During the latter part of the third quarter of 2004 it suspended the application process for a thrift charter in that state. This application process may recommence when a suitable candidate is identified to lead a full service banking operation in North Carolina. As of September 30, 2004 the Company had 46 Arkansas banking offices, three Texas banking offices and one loan production office in North Carolina.

The Company expects to continue its growth and de novo branching strategy by adding approximately three additional Arkansas banking offices in the fourth quarter of 2004 and adding approximately eight to eleven new banking offices in 2005. Opening new offices is subject to availability of suitable sites, hiring qualified personnel, obtaining regulatory approvals, and many other conditions and contingencies.

During the first nine months of 2004, the Company spent $9.3 million on capital expenditures for premises and equipment. The Company expects its capital expenditures for the full year of 2004 will be in the range of approximately $12 to $16 million including progress payments on construction projects expected to be completed in 2004 and 2005, furniture and equipment costs and acquisition costs of sites for future development. Actual expenditures may vary significantly from those expected, primarily depending on the number and cost of additional sites acquired for future development and construction projects commenced.

Issuance of Trust Preferred Securities. In the third quarter of 2004 the Company issued $15 million of adjustable rate trust preferred securities. These securities bear interest at the 90-day LIBOR plus 2.22%, adjustable quarterly. The initial rate is 4.19%. These securities have a 30-year final maturity and are prepayable at par by the Company on or after the fifth anniversary date or earlier in certain circumstances. This transaction provided the Company additional regulatory capital to support its expected future growth and expansion.

Bank Liquidity. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and lessees 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 and lease repayments as its primary sources of funds. The Company has used these funds, together with Federal Home Loan Bank (“FHLB”) advances and other borrowings, to make loans and leases, 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 and market conditions. Loan and lease repayments are a relatively stable source of funds but are subject to the borrowers’ and lessees’ ability to repay the loans and leases, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather and natural disasters. Furthermore, loans and leases 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, lease and withdrawal demands or otherwise fund operations. Such sources include FHLB advances, federal funds lines of credit from correspondent banks, Federal Reserve Bank (“FRB”) borrowings and brokered deposits.

At September 30, 2004 the Company’s bank subsidiary had substantial unused borrowing availability. This availability was primarily comprised of the following four sources: (1) $265.9 million of available blanket borrowing capacity with the FHLB, (2) $49.6 million of securities available to pledge for federal funds borrowings, (3) $16.0 million of available unsecured federal funds borrowing lines and (4) up to $108.6 million from borrowing programs of the FRB. As of September 30, 2004 the Company had outstanding brokered deposits of $95.8 million.

Management anticipates the Company’s bank subsidiary will continue to rely primarily on customer deposits and loan and lease repayments to provide liquidity. Additionally, where necessary, the sources of funds described above 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 and losses on available-for-sale investment securities, but including, subject to limitations, trust preferred securities (“TPS”) 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 and lease losses and the portion of TPS 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 September 30, 2004 and December 31, 2003, and are presented below, followed by the capital ratios of the Company’s bank subsidiary at September 30, 2004 and December 31, 2003.

Consolidated Capital Ratios


	September 30, 2004			December 31, 2003
	(Dollars in thousands)
Tier 1 capital:
Stockholders’ equity	$	115,225		$	98,486
Allowed amount of TPS (subordinated debentures)		38,807			32,862
Net unrealized losses on available-for-sale investment securities		1,195			100
Less goodwill and certain intangible assets		(6,755	)		(6,375	)

Total tier 1 capital		148,472			125,073

Tier 2 capital:
Remaining amount of TPS (subordinated debentures)		5,524			12,388
Qualifying allowance for loan and lease losses		14,881			12,610

Total risk-based capital	$	168,877		$	150,071

Risk-weighted assets	$	1,189,445		$	1,007,556

Ratios at end of period:
Leverage capital		9.36	%		9.33	%
Tier 1 risk-based capital		12.48			12.41
Total risk-based capital		14.20			14.89

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

(1)	Regulatory authorities require institutions to operate at varying levels (ranging from 100-200 bps) above a minimum leverage ratio of 3% depending upon capitalization classification.

Capital Ratios of Bank Subsidiary


	September 30, 2004			December 31, 2003
	(Dollars in thousands)
Stockholders’ equity – Tier 1	$	126,420		$	107,791
Leverage capital		8.00	%		8.06	%
Tier 1 risk-based capital		10.67			10.75
Total risk-based capital		11.92			12.00

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Dividend Policy. During the third quarter of 2004, the Company paid dividends of $0.08 per share compared to $0.06 per share during the third quarter of 2003. On October 19, 2004, the Company’s board of directors approved a dividend of $0.08 per share to be paid during the fourth quarter of 2004. The determination of future dividends on the Company’s common stock will depend on conditions existing at that time. The Company’s goal is to continue at approximately the current level of quarterly dividend with consideration given to future changes depending on the Company’s earnings, capital and liquidity needs.

Critical Accounting Policy

Management’s determination of the adequacy of the allowance for loan and lease losses is considered to be a critical accounting policy. Provisions to and the adequacy of the allowance for loan and lease losses are based on management’s judgment and evaluation of the loan and lease portfolio utilizing objective and subjective criteria. Changes in these criteria or the availability of new information could cause the allowance to be increased or decreased in future periods. In addition bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan and lease losses based on their judgments and estimates.

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 about economic and competitive conditions, goals and expectations for net income, earnings per share, net interest margin including the effects of the Company’s efforts to increase variable rate loans as a percentage of its total loans and the effects of the recent purchase of additional BOLI, net interest income, non-interest income, including service charge, mortgage lending and BOLI income, non-interest expense, efficiency ratio, asset quality, nonperforming loans and leases, nonperforming assets, net charge-offs, past due loans and leases, interest rate sensitivity including the effects of possible interest rate changes on our net interest margin and net interest income, future growth and expansion, including the plans for opening new offices, opportunities and goals for market share growth, loan, lease and deposit growth 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 including delays in identifying satisfactory sites, opening new offices and employing additional personnel; (2) the ability to attract new deposits and loans; (3) interest rate fluctuations; (4) competitive factors and pricing pressures; (5) general economic conditions, including their effect on the credit worthiness of borrowers and collateral values; (6) changes in legal and regulatory requirements as well as other factors described in this and other Company reports and statements; (7) the demand for new Company products and services, (8) adoption of new accounting standards or changes in existing accounting requirements; and (9) adverse results in ongoing or future litigation, 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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Selected and Supplemental Financial Data

The following table sets forth selected consolidated financial data of the Company for the three and nine months ended September 30, 2004 and 2003 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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Income statement data:
Interest income	$	22,213		$	17,537		$	61,808		$	50,242
Interest expense		6,305			4,879			17,260			14,942
Net interest income		15,908			12,658			44,548			35,300
Provision for loan and lease losses		1,040			1,050			2,830			2,895
Non-interest income		4,631			5,147			13,828			13,263
Non-interest expenses		9,766			8,629			27,759			23,137
Net income		6,647			5,274			18,872			14,589
Common stock data:*
Earnings per share – diluted	$	0.40		$	0.32		$	1.14		$	0.90
Book value per share		7.01			5.66			7.01			5.66
Cash dividends per share		0.08			0.06			0.22			0.165
Diluted shares outstanding (thousands)		16,641			16,482			16,614			16,208
Balance sheet data at period end:
Total assets	$	1,630,096		$	1,253,571		$	1,630,096		$	1,253,571
Total loans and leases		1,073,754			860,051			1,073,754			860,051
Allowance for loan and lease losses		15,888			13,100			15,888			13,100
Total investment securities		433,716			289,936			433,716			289,936
Total deposits		1,262,413			994,571			1,262,413			994,571
Repurchase agreements with customers		45,863			43,390			45,863			43,390
Other borrowings		157,103			73,520			157,103			73,520
Total stockholders’ equity		115,225			91,421			115,225			91,421
Loan and lease to deposit ratio		85.06	%		86.47	%		85.06	%		86.47	%
Average balance sheet data:
Total average assets	$	1,592,712		$	1,246,783		$	1,503,034		$	1,148,626
Total average stockholders’ equity		110,710			90,803			105,111			82,306
Average equity to average assets		6.95	%		7.28	%		6.99	%		7.17	%
Performance ratios:
Return on average assets**		1.66	%		1.68	%		1.68	%		1.70	%
Return on average stockholders’ equity**		23.89			23.04			23.98			23.70
Net interest margin FTE**		4.47			4.48			4.46			4.55
Efficiency		46.14			47.63			46.13			46.97
Dividend payout		20.00			18.75			19.30			18.33
Asset quality ratios:
Net charge-offs as a percentage of average total loans and leases**		0.10	%		0.24	%		0.10	%		0.24	%
Nonperforming loans and leases to total loans and leases		0.27			0.50			0.27			0.50
Nonperforming assets to total assets		0.23			0.41			0.23			0.41
Allowance for loan and lease losses as a percentage of:
Total loans and leases		1.48	%		1.52	%		1.48	%		1.52	%
Nonperforming loans and leases		546.54			302.26			546.54			302.26
Capital ratios at period end:
Leverage capital		9.36	%		9.48	%		9.36	%		9.48	%
Tier 1 risk-based capital		12.48			12.75			12.48			12.75
Total risk-based capital		14.20			15.55			14.20			15.55

*	Adjusted to give effect to 2-for-1 stock split effective December 10, 2003

**	Ratios annualized based on actual days

Note:

All data adjusted to comply to FASB Interpretation No. 46

Bank of the Ozarks, Inc.

Supplemental Quarterly Financial Data

(Dollars in thousands, except per share amounts)

Unaudited


	12/31/02			3/31/03			6/30/03			9/30/03			12/31/03			3/31/04			6/30/04			9/30/04
Earnings Summary:
Net interest income	$	10,685		$	10,866		$	11,775		$	12,658		$	13,469		$	13,919		$	14,721		$	15,908
Federal tax (FTE) adjustment		114			180			207			312			479			591			582			625

Net interest income (FTE)		10,799			11,046			11,982			12,970			13,948			14,510			15,303			16,533
Loan and lease loss provision		(1,085	)		(750	)		(1,095	)		(1,050	)		(970	)		(745	)		(1,045	)		(1,040	)
Non-interest income		3,794			3,534			4,582			5,147			4,128			3,993			5,204			4,631
Non-interest expense		(6,839	)		(6,754	)		(7,754	)		(8,629	)		(8,855	)		(8,384	)		(9,610	)		(9,766	)

Pretax income (FTE)		6,669			7,076			7,715			8,438			8,251			9,374			9,852			10,358
FTE adjustment		(114	)		(180	)		(207	)		(312	)		(479	)		(591	)		(582	)		(625	)
Provision for income taxes		(2,374	)		(2,421	)		(2,668	)		(2,852	)		(2,160	)		(2,818	)		(3,010	)		(3,086	)

Net income	$	4,181		$	4,475		$	4,840		$	5,274		$	5,612		$	5,965		$	6,260		$	6,647

Earnings per share - diluted*	$	0.26		$	0.28		$	0.30		$	0.32		$	0.34		$	0.36		$	0.38		$	0.40

Non-interest Income Detail:
Trust income	$	227		$	237		$	312		$	493		$	523		$	301		$	358		$	390
Service charge income		1,859			1,674			1,981			2,043			2,063			2,107			2,441			2,520
Mortgage lending income		1,197			1,042			1,626			1,958			922			815			985			863
Gains (losses) on sales of assets		4			11			(8	)		8			8			100			20			108
Investment security gains		—			—			97			36			11			—			752			22
Bank owned life insurance income		236			284			291			299			258			253			254			258
Other		271			286			283			310			343			417			394			470

Total non-interest income	$	3,794		$	3,534		$	4,582		$	5,147		$	4,128		$	3,993		$	5,204		$	4,631

Non-interest Expense Detail:
Salaries and employee benefits	$	4,078		$	4,068		$	4,511		$	5,186		$	4,647		$	4,851		$	4,973		$	5,526
Net occupancy expense		887			994			1,095			1,179			1,152			1,213			1,254			1,286
Write-off of deferred debt costs		—			—			—			—			—			—			852			—
Other operating expenses		1,836			1,654			2,105			2,202			2,994			2,258			2,466			2,889
Amortization of intangibles		38			38			43			62			62			62			65			65

Total non-interest expense	$	6,839		$	6,754		$	7,754		$	8,629		$	8,855		$	8,384		$	9,610		$	9,766

Allowance for Loan and Lease Losses:
Balance at beginning of period	$	10,308		$	10,936		$	11,124		$	12,579		$	13,100		$	13,820		$	14,460		$	15,113
Allowance added in bank acquisition		—			—			660			—			—			—			—			—
Net charge-offs		(457	)		(562	)		(300	)		(529	)		(250	)		(105	)		(392	)		(265	)
Loan and lease loss provision		1,085			750			1,095			1,050			970			745			1,045			1,040

Balance at end of period	$	10,936		$	11,124		$	12,579		$	13,100		$	13,820		$	14,460		$	15,113		$	15,888

Selected Ratios:
Net interest margin – FTE**		4.63	%		4.63	%		4.54	%		4.48	%		4.45	%		4.48	%		4.43	%		4.47	%
Overhead expense ratio**		2.71			2.61			2.71			2.75			2.71			2.39			2.57			2.44
Efficiency ratio		46.86			46.32			46.81			47.63			46.81			45.31			46.86			46.14
Nonperforming loans and leases/ total loans and leases		0.31			0.27			0.53			0.50			0.47			0.36			0.25			0.27
Nonperforming assets/total assets		0.24			0.21			0.42			0.41			0.36			0.28			0.21			0.23
Loans and leases past due 30 days or more, including past due nonaccrual loans and leases, to total loans and leases		0.75			0.77			0.76			0.64			0.77			0.46			0.44			0.46

*	Adjusted to give effect to 2-for-1 stock split effective December 10, 2003

**	Annualized

Note:

All data adjusted to reflect adoption of FASB Interpretation No. 46.

Item 6.

Exhibits

Reference is made to the Exhibit Index contained at the end of this report.

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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: December 13, 2004		/s/ Paul E. Moore
		Paul E. Moore
		Chief Financial Officer
		(Chief Accounting Officer)

Bank of the Ozarks, Inc.

Exhibit Index


Exhibit Number
31.1		Certification of Chairman and Chief Executive Officer

31.2		Certification of Chief Financial Officer

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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