A N N U A L R E P O R T
Through a combination of organic growth and
acquisitions, we serve our customers in 240+ offices
in eight states.*
*As of December 31, 2022
75
Arkansas
03
California
22
Texas
01
Mississippi
01
New York
26
North Carolina
71
Georgia
42
Florida
This report contains forward-looking statements and reflects management’s current views of future economic circumstances, industry
conditions, Company performance and financial results. Actual future performance, outcomes and results may differ materially from those
expressed in these forward-looking statements due to certain risks, uncertainties and assumptions. A description of certain factors that
may affect future results can be found in this annual report under “Forward-Looking Information” and under “Part I—Item 1A. Risk Factors.”
Bank OZK is a nationally recognized leader in the financial
services industry, known for its focus on relationships,
expertise and excellence in execution. We aspire to
provide exceptional service by delivering smart solutions
tailored to meet our clients’ multifaceted needs.
At Bank OZK, we’re reshaping skylines in some of America’s largest cities, while investing in local
businesses and economies around the country. With our rich history of cultivating relationships,
we strive to provide excellent services and support that help our communities, large and small,
to grow and thrive.
01
T
R
O
P
E
R
L
A
U
N
N
A
2
2
0
2
02
Thank you for the trust and confidence that
you place in Bank OZK. We are excited to
partner with you and continue to accomplish
great things for many years to come.
George Gleason
Chairman and Chief Executive Officer
F E L L O W S H A R E H O L D E R S ,
I am incredibly proud of the strong results
Bank OZK achieved in 2022. Our high level of
profitability, strong capital and liquidity,
disciplined credit culture and outstanding team
have us well-positioned for future growth.
Our strong financial performance was driven
by our greatest asset: our people. Our talented
and resolute workforce is motivated by a
relentless pursuit of excellence in service to
our hundreds of thousands of customers.
Bank OZK plays an important role in building
better financial futures for our customers. This
is a source of pride for our employees and a
responsibility we all take very seriously. It is a
shared mission that infuses our company
culture.
In my 44 years as Chairman and CEO, I have
worked to instill throughout Bank OZK a
commitment to excellence, fair dealing and
exceptional customer service. I am proud that
these priorities have become cornerstones of
our corporate character, referred to by our
team members as the OZK Way.
Our 2,600+ employees are the OZK Way in
action. By maximizing customer experiences,
capitalizing on the unique insights of each
employee, embracing teamwork, doing what’s
right and striving for excellence through
continuous innovation and improvements, they
fuel our success – and inspire me every day.
I would like to thank my fellow shareholders,
our customers and our Bank OZK team for their
support over the past year. I would also like to
express my appreciation to our outstanding
Board of Directors for their strategic leadership
and contributions to our success.
It is a privilege to lead Bank OZK, and I remain
excited about the future and all that we can
accomplish together.
03
Thank you for taking the time to read our
report and for your continued support.
Sincerely,
GEORGE GLEASON
Chairman and Chief Executive Officer
T
R
O
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E
R
L
A
U
N
N
A
2
2
0
2
10
A LONG-TERM PERSPECTIVE
8
6
4
2
0
We remain focused on asset quality, profitability and growth. The outstanding results we
achieved in 2022 reflect our continued commitment to excellence and our focus on long-term
performance. Our constant pursuit of building relationships, improving performance and
enhancing efficiency has consistently produced superior results.
600
400
500
21.7%
200
300
100
Compound annual growth
rate in net income available
to common stockholders
04
0
$547.5
Net Income Available To Common Stockholders
(Millions)
Earnings Per Common Share
(Diluted)
9
.
1
2
4
$
1
.
7
1
4
$
9
.
5
2
4
$
5
3
.
3
$
4
2
.
3
$
0
3
.
3
$
0
.
0
7
2
$
3
.
2
8
1
$
9
0
.
2
$
8
5
.
2
$
0
.
7
7
$
0
1
.
1
$
2
.
1
9
$
6
2
.
1
$
6
.
8
1
1
$
2
5
.
1
$
$4.54
0
.
9
7
5
$
9
.
1
9
2
$
7
4
.
4
$
6
2
.
2
$
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Over the past ten years, we have achieved compound annual growth rates of
21.7% in net income and 15.2% in diluted earnings per common share.
25000
20000
15000
10000
5000
0
Total Loans
(Millions)
3
6
5
,
4
1
5 $
3
3
,
8
$
8
2
1
,
5
$
4
5
7
,
2
$
7
5
3
,
3
$
9
0
2
,
9
1
$
8
0
3
,
8
1
$
2
3
5
,
7
1
$
3
4
0
,
6
1
$
8
1
1
,
7
1
$
Deposits
(Millions)
0
5
4
,
1
2
$
9
0
2
,
0
2
$
8
3
9
,
7
1
$
4
7
4
,
8
1
$
2
9
1
,
7
1
$
5
7
5
,
5
1
$
9
7
7
,
0
2
$
1
7
9
,
7
$
6
9
4
,
5
$
7
1
7
,
3
$
1
0
1
,
3
$
0
0
5
,
1
2
$
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Over the past ten years, our total loans, including purchased
loans, have grown at a compound annual rate of 22.4%.
Over the past ten years, our deposits have grown at a
compound annual rate of 21.4%.
Net Interest Income
(Millions)
4
.
1
9
8
$
4
.
7
1
8
$
5
.
1
0
6
$
2
.
2
8
3
$
5
.
0
7
2
$
3
.
4
7
1
$
5
5
.
.
3
3
9
9
1
1
$
$
Efficiency Ratio
%
6
.
6
4
%
3
.
5
4
%
3
.
5
4
%
4
.
8
3
%
8
.
5
3
%
9
.
4
3
%
9
.
7
3
%
3
.
0
4
%
4
.
1
4
%
8
.
8
3
7
.
9
8
9
$
2
.
4
8
8
$
6
.
8
8
8
$
2
.
2
4
1
,
1
$
%
8
.
5
3
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Net interest income has grown over the last ten years at a
compound annual rate of 20.7%.
We have worked relentlessly to become one of the most
efficient banks in the nation. Our efficiency ratio has ranked
in the top decile of the industry for the past 20 years.
5
2
3
1
.
1
$
5
7
7
0
.
1
$
Dividends
per Common Share
4
9
.
0
$
5
9
7
.
0
$
1
7
.
0
$
3
6
.
0
$
5
5
.
0
$
7
4
.
0
$
6
3
.
0
$
5
2
.
0
$
Over the past ten years, we have increased
dividends paid to our common stockholders
at a compound annual rate of 17.6%, and we
have increased our cash dividend in each of
the last 50 quarters and every year since
going public in 1997.
6
2
.
1
$
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
70
56
42
28
14
0
05
T
R
O
P
E
R
L
A
U
N
N
A
2
2
0
2
25000
20000
15000
10000
5000
0
1200
960
720
480
240
0
1.40
1.12
0.84
0.56
0.28
0.00
1.2
HISTORY OF ASSET QUALITY
BETTER THAN THE INDUSTRY
0.6
0.9
0.3
0.0
Our net charge-off ratio has consistently compared favorably with the ratio for
all FDIC-insured institutions as a group.
1.5
1.2
0.9
0.04%
0.6
0.3
Net Charge-Off Ratio
06
0.0
FDIC-Insured Financial Institutions
Net Charge-Off Ratio
Bank OZK
Net Charge-Off Ratio
0.24%
0.04%
%
0
1
.
1
%
6
4
.
0
%
9
6
.
0
%
6
2
.
0
%
9
4
.
0
%
6
1
.
0
%
4
4
.
0
%
7
1
.
0
%
7
4
.
0
%
7
0
.
0
%
7
0
.
0
%
0
5
.
0
%
8
4
.
0
%
4
3
.
0
%
2
5
.
0
%
1
1
.
0
%
0
5
.
0
%
6
1
.
0
%
5
2
.
0
%
6
0
.
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Data from the FDIC Quarterly Banking Profile for 3Q22.
Nonperforming Non-Purchased Loans (“NPLs”)/
Total Non-Purchased Loans %
%
3
5
.
0
%
3
4
.
0
%
3
3
.
0
%
0
2
.
0
%
5
1
.
0
%
0
1
.
0
%
3
2
.
0
%
5
1
.
0
%
5
2
.
0
%
9
1
.
0
%
2
2
.
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
NPLs were $45 million, or 0.22% of total
non-purchased loans, at 12/31/22.
Nonperforming Assets (“NPAs”)/Total Assets %†*
%
7
8
.
0
%
7
5
.
0
%
3
4
.
0
%
7
3
.
0
%
1
3
.
0
%
8
1
.
0
%
3
2
.
0
%
8
1
.
0
%
1
2
.
0
%
5
1
.
0
%
9
1
.
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
NPAs, which include NPLs and foreclosed assets,
were $52 million, or 0.19% of total assets, at 12/31/22.
Non-Purchased Loans Past Due 30 Days or More
Including Past Due Nonaccrual Non-Purchased Loans
(“Loans Past Due”)/Total Non-Purchased Loans %
%
9
7
.
0
%
3
7
.
0
%
%
5
5
4
4
.
.
0
0
%
8
2
.
0
%
8
2
.
0
%
6
1
.
0
%
5
1
.
0
%
9
1
.
0
%
6
1
.
0
%
5
1
.
0
%
3
1
.
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Non-purchased loans past due, including past due
nonaccrual non-purchased loans, were $26 million,
or 0.13% of total non-purchased loans, at 12/31/22.
† Ratios exclude purchased loans, except for their inclusion in total assets.
* In 2014, we terminated our loss share agreement with the FDIC and
reclassified foreclosed assets previously reported as covered by FDIC
loss share to foreclosed assets.
07
T
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A
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N
N
A
2
2
0
2
1.2
0.9
0.6
0.3
0.0
2.5
2.0
1.5
1.0
0.5
0.0
2.5
2.0
1.5
1.0
0.5
0.0
QUALITY AND DIVERSITY OF
OUR BOARD
C O N T R I B U T E T O O U R S U C C E S S
08
Bank OZK Board of Directors as of December 31, 2022.
Back row (left to right):
Nicholas Brown, Vice-Chairman and Presiding Independent Director, Robert East, Christopher Orndorff,
Peter Kenny, George Gleason, Chairman and CEO, Ross Whipple, Jeffrey Gearhart, Paula Cholmondeley,
Steven Sadoff.
Front row (left to right):
William Koefoed, Kathleen Franklin, Beverly Cole.
DIVERSE BLEND OF EXPERIENCES
& QUALIFICATIONS
Independent
Relevant Industry Experience
Including banking, investment management, financial services and real estate experience
Male
Non-Independent
Female
Expertise in Technology and Information Security
Experience in information security, data privacy, cybersecurity or use of technology for operations
Leadership Experience
Experience as CEO, CFO, COO or similar executive role with major organization
Finance, Audit and Accounting
Large accounting firm, CFO or other relevant experience in accounting, auditing or financial reporting
Compliance Experience
Significant roles in risk management, legal or as part of a highly regulated industry such as financial services
Human Capital
Experience through human resources or similar leadership role in management and development of human capital
Strategic Planning
Experience defining and driving strategic direction and growth and managing business operations
Public Company Experience
Experience as a board member or executive of a publicly-traded company
Community Affairs
Experience in community affairs and managing community relations or community organization relationships
Independence*
Director Tenure*
(# of Directors)
Gender
Director Age*
(# of Directors)
1
Non-Independent
4
3 5
3
Female
4 4
4
11
Independent
Less than
6 Years
6 to 8
Years
More than
8 Years
9
Male
50’s
60’s
70+
* As of December 31, 2022
10
8
6
4
2
0
10
8
6
4
2
0
09
T
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P
E
R
L
A
U
N
N
A
2
2
0
2
DEEP AND TALENTED
EXECUTIVE MANAGEMENT
TEAM*
George Gleason
Brannon Hamblen
Tim Hicks
Chairman of the
Board and Chief
Executive Officer
President
Chief Financial
Officer
44 years with OZK
15 years with OZK
14 years with OZK
10
Cindy Wolfe
Alan Jessup
Chief Operating
Officer
Chief Lending
Officer
14
Average years
with OZK
25 years with OZK
15 years with OZK
Scott Trapani
Stan Thomas
Chief Risk
Officer
Chief Accounting
Officer
4 years with OZK
12 years with OZK
Helen Brown
Tamara Gotham
General Counsel
and Corporate
Secretary
Chief Administrative
Officer
9 years with OZK
7 years with OZK
Jason Cathey
Patrick Carr
Chief Information
Officer
Managing
Director—Corporate
Finance Data and
Technology
7 years with OZK
1 year with OZK
*Bank OZK executive officers as of February 28, 2023
F O R M 1 0 - K
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UNITED STATES
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
FORM 10-K
(Mark one)
(cid:95)(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
(cid:134)(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
FDIC Certificate No. 110
BANK OZK
(Exact name of registrant as specified in its charter)
ARKANSAS
(State or other jurisdiction of
incorporation or organization)
18000 CANTRELL ROAD, LITTLE ROCK, ARKANSAS
(Address of principal executive offices)
71-0130170
(I.R.S. Employer
Identification Number)
72223
(Zip Code)
Registrant’s telephone number, including area code: (501) 978-2265
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value per share
4.625% Series A Non-Cumulative Perpetual
Preferred Stock, $0.01 par value per share
Trading Symbol(s)
OZK
Name of each exchange on which registered
Nasdaq Global Select Market
OZKAP
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95) No (cid:134)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:134) No (cid:95)
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 (cid:95) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:134) No (cid:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Non-accelerated filer
Smaller reporting company
(cid:54)(cid:54)
(cid:134)
(cid:134)
Accelerated filer
Emerging growth company
(cid:134)
(cid:134)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:134)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. (cid:54)(cid:54)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. (cid:134)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any
of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:54)(cid:54)
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked prices of such common equity as of the last business day of the registrant’s most recently completed second fiscal
quarter: $4.2 billion.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
Common Stock, par value $0.01 per share
Outstanding at February 24, 2023
117,052,460
Documents incorporated by reference: Portions of the Registrant’s Proxy Statement for the 2023 Annual Meeting of Shareholders, scheduled to be held on May
8, 2023 are incorporated by reference into Part III of this Annual Report on Form 10-K.
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BANK OZK
ANNUAL REPORT ON FORM 10-K
December 31, 2022
INDEX
PART I.
Forward-Looking Information
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Item 16.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Exhibit Index
Signatures
Page
1
2
19
38
38
38
38
39
40
41
83
83
125
125
126
126
127
127
127
127
127
128
128
129
132
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PART I
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of
Operations, other public filings made by us and other oral and written statements or reports by us and our management include certain
forward-looking statements within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as such may involve risks and uncertainties. We
claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are
based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at
the time. Those statements are not guarantees of future results or performance and are subject to certain known and unknown risks,
uncertainties and other factors that may cause actual results to differ materially from those expressed in, or implied by, such forward-
looking statements. Forward-looking statements include, without limitation, statements and discussions about economic, real estate
market, competitive, employment, credit market and interest rate conditions, including expectations for further changes in monetary and
interest rate policy by the Board of Governors of the Federal Reserve System; our plans, goals, beliefs, expectations, thoughts, estimates
and outlook for the future with respect to our revenue growth; net income and earnings per common share; net interest margin; net
interest income; non-interest income, including service charges on deposit accounts, trust income, bank owned life insurance income,
loan service, maintenance and other fees, and gains (losses) on investment securities and sales of other assets; non-interest expense;
efficiency ratio; future federal, state and local effective income tax rates; anticipated future operating results and financial performance;
expectations regarding future loan originations or loan repayments; asset quality and asset quality ratios, including the effects of current
economic and real estate market conditions; nonperforming loans; nonperforming assets; net charge-offs and net charge-off ratios;
provision and allowance for credit losses; past due loans; current or future litigation; interest rate sensitivity, including the effects of
possible interest rate changes; future growth and expansion opportunities, including plans for making additional acquisitions; problems
with obtaining regulatory approval of or integrating or managing acquisitions; plans for opening new offices or relocating, selling or
closing existing offices; opportunities and goals for future market share growth; expected capital expenditures; loan and deposit growth,
including growth from unfunded closed loans; changes in the volume, yield and value of our investment securities portfolio; availability
of unused borrowings; descriptions of plans or other expectations for future operations, products, services and/or new business lines; the
need to issue debt or equity securities and other similar forecasts and statements of expectation. Forward-looking statements also include
statements related to our continuing response to the coronavirus (“COVID-19”) pandemic. Words such as “anticipate,” “assume,”
“believe,” “could,” “estimate,” “expect,” “goal,” “hope,” “intend,” “look,” “may,” “plan,” “project,” “seek,” “target,” “trend,” “will,”
“would,” and similar words and expressions, as they relate to us or our management, identify forward-looking statements.
Actual future performance, outcomes and results may differ materially from those expressed in, or implied by, forward-looking
statements made by us and our management due to certain risks, uncertainties and assumptions. Certain factors that may affect our future
results include, but are not limited to, potential delays or other problems in implementing our growth, expansion and acquisition
strategies, including delays in identifying satisfactory sites, hiring or retaining qualified personnel, obtaining regulatory or other
approvals, obtaining permits and designing, constructing and opening new offices or relocating, selling or closing existing offices; the
ability to enter into and/or close additional acquisitions; the availability of and access to capital; possible downgrades in our credit ratings
or outlook which could increase the costs of or decrease the availability of funding from capital markets; the ability to attract new or
retain existing or acquired deposits or to retain or grow loans, including growth from unfunded closed loans; the ability to generate future
revenue growth or to control future growth in non-interest expense; interest rate fluctuations, including changes in the yield curve
between short-term and long-term interest rates or changes in the relative relationships of various interest rate indices; the potential
impact of the transition from the London Interbank Offered Rate (“LIBOR”) as a reference rate; competitive factors and pricing
pressures, including their effect on our net interest margin or core spread; general economic, unemployment, credit market and real estate
market conditions, and the effect of such conditions on the creditworthiness of borrowers, collateral values, the value of investment
securities and asset recovery values; recently enacted and potential laws and regulatory requirements, or changes to existing laws and
regulatory requirements, including changes affecting oversight of the financial services industry, changes intended to manage or mitigate
climate and related environmental risks, or changes in the interpretation and enforcement of such laws and requirements, and the costs
and expenses to comply with new and/or existing legislation and regulatory requirements; uncertainty regarding the U.S. government’s
debt limit or changes in U.S. government monetary and fiscal policy; Federal Deposit Insurance Corporation (“FDIC”) special
assessments or changes to regular assessments; the ability to keep pace with technological changes, including changes regarding
maintaining cybersecurity; the impact of failure in, or breach of, our operational or security systems or infrastructure, or those of third
parties with whom we do business, including as a result of cyber-attacks or an increase in the incidence or severity of fraud, illegal
payments, security breaches or other illegal acts impacting us or our customers; natural disasters or acts of war or terrorism; the adverse
effects of the ongoing global COVID-19 pandemic, including the duration of the pandemic, and actions taken to contain or treat COVID-
19 on us, our employees, our customers, the global economy and the financial markets; the potential impact of continuing inflationary
pressures; the potential impact of supply chain disruptions; national, international or political instability or military conflict, including the
ongoing war in Ukraine; the competition and costs of recruiting and retaining human talent; impairment of our goodwill or other
intangible assets; adoption of new accounting standards, or changes in existing standards; and adverse results (including costs, fines,
reputational harm and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory
actions or rulings as well as other factors described in this Annual Report on Form 10-K or as detailed from time to time in the other
public reports we file with the FDIC. See also Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K. Should one or more of
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the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from
those described in, or implied by, such forward-looking statements. We disclaim any obligation to update or revise any forward-looking
statement based on the occurrence of future events, the receipt of new information or otherwise.
EXPLANATORY NOTE
In June 2017, we eliminated our former bank holding company by merging it with and into Bank of the Ozarks (subsequently
renamed Bank OZK), an Arkansas state banking corporation (the “Bank”). The Bank is subject to regulation by the Arkansas State Bank
Department (“ASBD”) and, as an insured depository institution that is not a member bank of the Board of Governors of the Federal
Reserve System (“FRB”), the Bank’s primary federal regulator is the FDIC. The Bank is not subject to the FRB’s regulation and
supervision, except such regulations as are made applicable to the Bank by law and regulation of the FDIC. Unless the context otherwise
requires, references in this Annual Report on Form 10-K to terms such as “Bank,” “we,” “us,” and “our” refer to the Bank and its
consolidated subsidiaries. Shares of the Bank’s common stock are listed on the Nasdaq Global Select Market under the symbol “OZK”
and shares of our preferred stock are listed under the symbol “OZKAP.”
Item 1.
BUSINESS
The disclosures set forth in this item are qualified by “Item 1A. Risk Factors,” the section captioned “Forward-Looking
Information” and other cautionary statements set forth elsewhere in this Annual Report on Form 10-K.
General
Bank OZK, chartered in 1903, is a full-service Arkansas state-chartered bank, headquartered in Little Rock, Arkansas with
deposits insured by the FDIC. We provide a wide range of retail and commercial banking services through more than 240 offices (as of
December 31, 2022) in Arkansas, Georgia, Florida, North Carolina, Texas, California, New York and Mississippi. Deposit services
include checking, savings, money market, time deposit and individual retirement accounts. Loan services include various types of real
estate, consumer, commercial and industrial loans. We also provide, among other products and services, treasury management services
for businesses, non-profits and governmental entities, including wholesale lockbox services, remote deposit capture services, trust and
wealth management services for businesses, individuals and non-profit and governmental entities (including financial planning, money
management, custodial services and corporate trust services, among other services), ATMs, online and mobile banking services
(including electronic bill pay and mobile deposits), telephone banking, debit cards and safe deposit boxes. Through third party providers,
we offer credit cards for consumers and businesses and processing of merchant debit and credit card transactions. We currently operate in
one business segment and do not have significant foreign operations. At December 31, 2022, we had total assets of $27.66 billion, total
loans (including purchased loans) of $20.78 billion, total deposits of $21.50 billion and total common stockholders’ equity of $4.35
billion. For 2022, net interest income was $1.14 billion, net income available to common stockholders was $0.55 billion and diluted
earnings per common share were $4.54.
Our Mission
Our mission is to be the best banking organization in each of the markets we serve as determined by our customers,
shareholders, employees, regulators and communities. Our approach for achieving this mission for each of these constituent groups is as
follows:
(cid:120) Customers. We strive to be the best bank for our customers by providing exceptional customer service and offering an array of
financial products and services, including innovative technology-based products and services.
(cid:120)
Shareholders. We strive to be the best bank for our shareholders by maximizing long-term shareholder value through
meaningful year-to-year growth in loans, deposits, capital, net income and earnings per share, while achieving asset quality,
profit margins and operating efficiency that compare favorably to the industry.
(cid:120) Employees. We strive to be the best bank for our employees by being the employer of choice and promoting a culture of
excellence and of the highest ethics. We provide competitive compensation and benefits, opportunities for growth and
advancement, an opportunity to share in the success of the Bank and a positive workplace and culture.
(cid:120) Regulators. We strive to be the best bank for regulators by adhering to safe, sound and prudent banking practices, complying
with all applicable laws and regulations and giving appropriate attention to capital adequacy, asset quality, management,
earnings, liquidity and market sensitivity, as well as maintaining comprehensive programs for enterprise risk management,
internal audit, credit review, data governance, compliance and related matters.
(cid:120) Communities. We strive to be the best bank for the communities we serve by creating healthy and sustainable environments,
which are a cornerstone for a vibrant economy. We focus on sound environmental stewardship and fostering improvements to
make our communities a better place to work, live and play.
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Business Strategy
We believe that stable long-term growth and profitability are the result of developing comprehensive, strong banking relationships
with our customers by offering a wide range of products and services and delivering excellent customer service while maintaining
disciplined underwriting standards. We are focused on originating high-quality loans and growing a stable deposit base through our
emphasis on relationship-based banking and believe that the following strategies will assist us in growing our loan portfolio responsibly,
managing our deposit sources to appropriately fund growth in our earning assets, maintaining favorable asset quality compared to
industry averages and sustaining our strong profitability.
(cid:120) We are focused on growing our non-purchased loan portfolio while remaining committed to our conservative credit culture.
Historically, a significant portion of our non-purchased loan portfolio growth has been attributable to our Real Estate Specialties
Group (“RESG”), which focuses primarily on acquisition, development and construction lending of commercial real estate
(“CRE”). We expect to continue to pursue meaningful non-purchased loan growth, including growth within RESG, while
diversifying our growth to achieve more balance between CRE lending and other types of loan originations. As part of this
diversification effort, in 2021 we added two new lending verticals run by seasoned banking leaders – our Asset-Based Lending
and Equipment Finance and Capital Solutions Groups – and in the second half of 2022 we began building a new secondary
mortgage market lending vertical. Our indirect lending business is a national lending platform that primarily focuses on
recreational vehicle (“RV”) and marine lending helps us achieve diversification within our loan portfolio. We expect that
production from our other lending teams such as our Community Banking division (which includes consumer finance, small
business, government guaranteed, business aviation, affordable housing, middle market CRE homebuilder finance, equipment
finance and capital solutions groups) and our Corporate and Business Specialties Group (“CBSG”), as well as our asset-based
lending group, will continue to further contribute to diversification in our earning assets over time.
(cid:120) As we continue to grow and diversify our lending activities, we intend to employ, and enhance as appropriate, the same
disciplined underwriting standards and credit risk management processes that have contributed to our consistently strong asset
quality.
(cid:120) We are focused on generating primary deposit relationships with our personal, business and public funds clients throughout our
footprint. We strive to offer competitive deposit products, services and rates that provide value to our customers, while
generating a fair return for the Bank. A key priority for us is developing and promoting deposit products and tools that
encourage positive savings habits and help our customers improve their financial security.
(cid:120) Our reputation, expertise and banking model enable us to build and expand our banking relationships with customers in the
markets we serve. We remain committed to growing our business in a disciplined manner. We intend to focus on underwriting
and originating high-quality loans and expanding our business by offering an array of financial products and services, which we
believe will allow us to continue to achieve long-term and profitable expansion within our current markets.
(cid:120) We continue to focus on the evolving role and importance of technology in our business. This focus is critical in today’s rapidly
evolving banking environment where technology is becoming increasingly important in driving efficiency, speed and quality of
service.
(cid:120) Our focus on long-term operational efficiency is a key factor in achieving our profitability and future growth goals and
objectives. We believe that our expanded and enhanced infrastructure, which has been an area of emphasis for us in recent
years, including our focus on technology and risk management, will allow us to maintain good operational efficiencies over the
long term as we grow our business.
(cid:120) Our historically strong earnings and earnings retention rate, among other factors, have contributed to our building capital ratios
well above the minimum to be considered “well capitalized.” We are focused on strategies to utilize our excess capital that are
in the best long-term interest of our shareholders. Options for deploying our excess capital may include, among others, organic
loan growth, adding new business lines, continuing to increase our cash dividend, continued stock repurchases and financially
attractive acquisitions for cash or some combination of cash and stock.
Lending Activities
We offer a variety of commercial and consumer lending products to our customers, including most types of real estate loans,
consumer and small business loans, indirect lending primarily for RV and marine loans, asset-based commercial lending, equipment
financing, business aviation financing, commercial and industrial loans, government guaranteed loans, agricultural loans, homebuilder
loans, affordable housing loans and subscription financing, among others. Interest rates charged by us vary with degree of risk, type, size,
complexity, repricing frequency and other relevant factors associated with the loan or financing arrangement. Competition from other
lending providers also affects the interest rates we charge.
Real Estate Loans. Real estate loans are a significant portion of our loan portfolio and include loans secured by residential 1-4
family, non-farm/non-residential, agricultural, construction/land development, multifamily residential properties and other land loans.
Non-farm/non-residential loans include those secured by real estate mortgages on owner-occupied commercial buildings of various
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types, leased commercial, retail and office buildings, hospitals, nursing and other medical facilities, hotels and motels, mixed use
properties and other business and industrial properties. Agricultural real estate loans include loans secured by farmland and related
improvements, including some loans guaranteed by the Farm Service Agency (“FSA”) and the Small Business Administration (“SBA”).
Real estate construction/land development loans include loans secured by vacant land, loans to finance land acquisition, development or
construction of industrial, commercial, residential or farm buildings or additions or alterations to existing structures. Included in our
residential 1-4 family loans are home equity lines of credit. Our real estate loan products are generally amortized over five to thirty years,
payable in monthly or other periodic installments of principal and interest, and due and payable in full (unless renewed) at a balloon
maturity generally within one to seven years. A significant portion of our loans are structured as term loans with adjustable interest rates
(adjustable daily, monthly, semi-annually, annually, or at other regular adjustment intervals), and many of such adjustable rate loans have
established “floor” interest rates.
Indirect Loans. Our portfolio of indirect loans includes loans to individuals primarily for the purchase of RVs and marine vessels,
generated largely through relationships with dealers and correspondent lenders. These loans are generally collateralized by the purchased
asset and have terms ranging up to 240 months. These loans are underwritten based on a combination of borrower credit score,
documented debt service coverage, previous asset ownership, experience and borrower liquidity, among other factors.
Commercial and Industrial Loans. Our commercial and industrial loan portfolio consists of loans for commercial, industrial and
professional purposes including loans to fund working capital requirements (such as inventory, floor plan and receivables financing),
purchases of machinery and equipment and other purposes. Also included in commercial and industrial loans are our subscription credit
facilities and asset-backed facilities, our business aviation financing, and our equipment finance, lender finance and structured finance
solutions. We offer a variety of commercial and industrial loan and financing arrangements, including term loans, balloon loans, lines of
credit, and lease structures, including some loans guaranteed by the SBA, with the purpose and collateral supporting a particular loan
determining its structure. These arrangements are offered to businesses and professionals for short and medium terms. As a general
practice, we obtain as loan collateral a lien on furniture, fixtures, equipment, inventory, receivables, unfunded capital commitments or
other assets.
Consumer Loans and Business Purpose Loans to Individuals. Our portfolio of consumer loans and business purpose loans to
individuals includes loans to fund the purchase of automobiles, equipment (including agricultural equipment), ATVs, mobile homes and
other similar purposes for consumer or business purpose needs. These loans are generally collateralized and have terms ranging up to 120
months, depending upon the nature of the collateral, size of the loan, and other relevant factors.
Government Guaranteed Loans. Our portfolio of government guaranteed loans is comprised mainly of SBA, FSA and U.S.
Department of Agriculture guaranteed loans. These loans are commercial in nature and are typically for the refinance or origination of
credit facilities secured by, but not limited to, commercial real estate, agricultural real estate, equipment and various other assets.
Small Business Loans. Our portfolio of small business loans includes loans to businesses with less than $1 million in annual
revenues. Such loans generally include loans for the purchase (or refinance) of commercial or residential real estate, equipment
(including agricultural equipment), lines of credit and various other business purposes. These loans are centrally underwritten and are
based on the borrower’s ability to make repayment from the cash flow of its business with collateral or guarantor support being a
secondary source of repayment.
Mortgage Lending. We offer certain residential mortgage products, including long-term fixed rate loans that are retained in our
loan portfolio. During the second half of 2022, we began building a secondary market mortgage team, business and infrastructure to
serve our customers’ mortgage banking needs. We expect this new team will be operational on a limited basis during the first half of
2023, and we expect it to expand across much of our branch footprint in the second half of 2023 and 2024.
Lending Approvals and Process
Our Board of Directors (“Board”) and Portfolio Oversight Committee (“POC”), which is chaired by our Chief Executive Officer
(“CEO”), oversee and provide policy direction for our lending operations, which are primarily administered by our CEO and Chief
Lending Officer (“CLO”). We maintain a tiered loan limit authorization system. The CEO and CLO are granted lending authority by the
Board. The loan authorities of other lending officers are granted by the POC on the recommendation of appropriate senior officers in
amounts commensurate with the lending officer’s skill level and knowledge. Our lending policies contain various measures to limit
concentration exposures, including customer and CRE exposures for both funded balances and total commitment (comprised of both
funded and unfunded balance), as well as by property type and geography.
We have detailed, comprehensive standards for evaluating credit risk, both at the point of origination and thereafter, as well as a
comprehensive internal grading system that is used to identify credit risk at the individual loan level. Oversight of credit risk is provided
through loan policy, and various other credit-related policies, clearly defined processes and detailed procedures. These policies,
processes and procedures place emphasis on strong underwriting standards and early detection of potential credit problems in order to
develop and implement any necessary action plan(s) on a timely basis to mitigate potential losses and are carried out on a daily basis by
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our lenders and lending support personnel, our credit administration group, our underwriters and various other officers and personnel that
have credit management responsibilities. Such policies, processes and procedures are subject to review by our Credit Risk Management
(“CRM”) group (second line oversight), our Board Risk Committee (“BRC”) and periodic reviews by our Internal Audit group (third line
oversight).
Deposits
We offer an array of deposit products consisting of non-interest bearing checking accounts, interest bearing transaction accounts,
business sweep accounts, savings accounts, money market accounts, time deposits, including individual retirement accounts, among
others. We also make available, through various deposit placement networks, reciprocal deposits to our consumer, commercial and
public funds deposit customers who want to make large deposit balances eligible for FDIC insurance beyond the traditional $250,000 per
insured bank, per depositor. Rates paid on deposits vary by banking market and deposit category due to different terms and conditions,
individual deposit size, services rendered and rates paid by competitors on similar deposit products. We act as depository for a number of
state and local governments and government agencies or instrumentalities. Such public funds deposits are often subject to competitive
bidding and generally must be secured by pledging a portion of our investment securities or a letter of credit.
Deposit balances are generally influenced by national, regional and local economic conditions, changes in prevailing interest rates,
internal pricing decisions, perceived stability of financial institutions and competition, among other factors. Our deposits come primarily
from within our trade area, except that brokered deposits, listing service deposits and certain of our public funds deposits are from
outside our primary trade area and may vary from time to time depending on competitive interest rate conditions, funding needs and
other factors.
In addition to our deposit base, we have access to other sources of funding, including Federal Home Loan Bank of Dallas
(“FHLB”) advances, FRB borrowings, repurchase agreements and secured and unsecured federal funds lines of credit from
correspondent banks. In recent years, we have also accessed the capital markets through subordinated debt and common and preferred
stock offerings. For additional information concerning the Bank’s deposits and other funding sources, see Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Risk Elements – Liquidity Risk Management to this Annual
Report on Form 10-K.
Other Banking Services
Trust and Wealth Services. We offer a broad array of trust and wealth services from our headquarters in Little Rock, Arkansas,
with additional staff in Northwest Arkansas, Texas, North Carolina, Georgia and Florida. These services include personal trusts,
custodial accounts, investment management accounts, retirement accounts, corporate trust services including trustee, paying agent and
registered transfer agent services, and other incidental services. At December 31, 2022, total trust assets were approximately $2.38
billion compared to approximately $2.65 billion at December 31, 2021 and approximately $2.12 billion at December 31, 2020.
Treasury Management Services. We offer treasury management services designed to provide a high level of customized solutions
to business, non-profit and governmental customers. Our treasury management services include automated clearing house, or ACH,
services (e.g., direct deposit, direct payment and electronic cash concentration and disbursement), wire transfer, zero balance accounts,
current and prior day transaction reporting, wholesale lockbox services, remote deposit capture services, automated credit line transfer,
investment sweep accounts, reconciliation services, positive pay services, and merchant and commercial card, among other services.
Market Areas, Concentrations and Competition
At December 31, 2022, we conducted operations through more than 240 offices, including offices in Arkansas, Georgia, Florida,
North Carolina, Texas, California, New York and Mississippi. Our business is impacted by the trends of the regional and local
economies in the market areas we serve.
The banking industry in our market areas is highly competitive. In addition to competing with other commercial and savings banks
and savings and loan associations, we compete with credit unions, finance companies, leasing companies, mortgage companies, fintech
companies, insurance companies, brokerage and investment banking firms, asset-based non-bank lenders and many other financial
service firms. Competition is based on interest rates offered on deposit accounts, interest rates charged on loans, fees and service charges,
the quality and scope of products offered and services rendered, including technology-driven solutions and the convenience of banking
facilities, among other factors.
A number of competing commercial banks operating in our market areas are branches or subsidiaries of larger organizations
affiliated with regional or national banking companies and as a result may have greater resources and lower costs of funds than we have,
may have greater access to capital markets, and may offer a broader range of financial services than we currently provide. Additionally,
we face competition from a large number of smaller community banks in the markets we serve. Some of our competitors (larger or
smaller) may have more liberal lending policies and processes. Competition among providers of financial products and services
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continues to increase as technology advances have lowered the barriers to entry for financial technology companies, with consumers
having the opportunity to select from a growing variety of traditional and nontraditional alternatives, including crowdfunding, digital
wallets and money transfer services, among others. The ability of non-banking financial institutions to provide services previously
limited to commercial banks has also intensified competition. Because non-banking financial institutions are not subject to many of the
same regulatory restrictions as banks, they can often operate with greater flexibility and lower cost structures. Despite the highly
competitive environment, we believe we will continue to be competitive because of our expertise in real estate lending and various other
types of lending, strong commitment to quality customer service, active community involvement and competitive products and pricing.
Information Technology
The ability to access and use technology is an increasingly competitive factor in the financial services industry. Technology is not
only important with respect to delivering financial services and protection of the security of customer information but also in processing
information. We must continually make technology investments to remain competitive in the financial services industry. We utilize, to
varying degrees in our business, certain patents, copyrights and trademarks. The performance of our technology partners is managed and
monitored in accordance with our internal policies, processes and procedures. Additionally, we have various technology applications
developed or under development within our technology group to address the needs of our customers, our lending groups and our
employees, among others, by using technology to provide solutions, create additional operational efficiencies and provide greater privacy
and security protection for our and our customers’ data. While each of these patents, copyrights, trademarks and technology applications
is important to our business, we believe through effective business resilience planning the loss or unavailability of one or more of these
items would not be expected, at the present time, to have a material adverse effect on our business.
Information Security, Cybersecurity, and Privacy
We have implemented and continue to mature a robust information security program. The program aligns with industry standards
and leading practices, complies with regulatory requirements, including those of the Federal Financial Institutions Examination Council
(“FFIEC”), and is subject to periodic review by the FDIC and ASBD, as well as internal audits. We rely on electronic communications
and information systems to conduct our operations and store sensitive data, and employ an in-depth, layered, defensive approach that
leverages people, processes and technology to manage and maintain cybersecurity controls. We also utilize a variety of preventative,
detective and corrective controls to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected
advanced persistent threats. We closely monitor information security for trends and new threats, including cybersecurity risks, and invest
significant resources to continuously improve the security and privacy of our systems and data.
Business Resilience
We have developed and implemented business resilience programs to provide employees, customers, and stakeholders with
reasonable assurance of resilience and recovery capabilities prior to, during and following a disruption. These programs align with
industry standards and leading practices, comply with regulatory requirements, including those of the FFIEC, and are subject to periodic
review by the FDIC and ASBD, as well as internal audits.
The key elements of the programs are business continuity, disaster recovery and crisis management. These include planning,
monitoring for new or adapting threats, adjustments to meet the needs of a dynamic and growing organization, verification of recovery
capabilities through tests and exercises, and continuous process improvement. The programs are actively managed, include various plans
and teams trained and available around-the-clock to respond to disruptions and provide appropriate response during a disruption affecting
our employees, customers, assets, business operations, technology infrastructure, brand and/or third-party relationships. The plans and
programs are supported by a governance framework and are reviewed no less than annually to ensure strategies are effective, scalable,
and current.
Employees and Human Capital Resources
At December 31, 2022, we had 2,646 full-time equivalent employees. None of our employees is represented by a union, collective
bargaining agreement or similar arrangement, and we have not experienced any labor disputes or strikes arising from any organized labor
groups. We believe our employee relations are good.
Our Culture. Our guiding principles, shown below, which we refer to as the OZK Way, are the foundation of our corporate culture
and are incorporated into our employee communications, training and goals.
(cid:120) We want to provide exceptional service, present our products and services in an engaging way, and leverage our evolving
technology to maximize the experience for each customer.
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(cid:120) We believe that capitalizing on the unique insights, abilities and experiences of each team member is critical to achieving the
Bank’s full potential. We embrace teamwork, collaboration and diversity in all its forms, recognizing that our potential together
far exceeds the sum of our potential individually.
(cid:120) We expect our team members to conduct themselves and our business with the highest standards of honesty, ethics, integrity
and fair dealing.
(cid:120) We will relentlessly pursue excellence. We strive to be Better to the X Power®, continuously implementing new and innovative
ideas and improving our performance in every way, realizing that many small incremental enhancements can compound
mightily over time.
Diversity, Equity and Inclusion. One of our corporate strengths is our commitment to promoting and advancing diversity, equity
and inclusion (“DEI”) across the Bank. We believe that fostering a culture of diversity, equity and inclusion broadens perspectives,
engages employees, encourages teambuilding and helps create a positive environment to work and grow. This ultimately can better
address the varied needs of our customers and the communities in which we serve. Our Director of Diversity, Equity & Inclusion and
Outreach Programs oversees the implementation of our diversity, equity and inclusion initiatives and is supported by our DEI Strategy
Council, which comprises diverse, senior leaders from multiple business units within the Bank. We provide education and training to
drive inclusive behaviors. We are also investing in building a future pipeline of diverse candidates through programs within our local
communities and by casting a wider net for talent acquisition and development, including internal talent mobility. Our talent acquisition
practices are designed to attract top talent in the financial services industry and foster an inclusive, respectful and rewarding workplace.
Our talent acquisition professionals guide supervisors in the proper recruitment and selection of talent, and our employee referral
programs serve to reward current employees for identifying top talent who choose to apply and accept employment with us.
Training, Talent Development and Employee Engagement. We aim to help each member of our corporate family grow, develop
and achieve his or her career objectives and potential. In return, we expect all employees to advance our interests through their hard
work, loyalty, positive attitudes and performance. Because continuous learning is essential to our success and the success of our
employees, we invest significantly in employee education and development, not only to ensure our employees are knowledgeable about
regulatory requirements and corporate policies, but also to build the skills and capabilities necessary for employees to advance
professionally over the long-term. We continue to assess and enhance our management and leadership development programs and
offerings to enable our employees to improve competencies in various areas, including communications, coaching, team dynamics,
performance management and team development, through online and micro-learning and guided discussion sessions. In addition, to help
drive our culture of inclusion, we have training resources for our employees that focus on building understanding in the workplace,
including the recognition of unconscious bias and micro inequities, and offer practical tips for navigating DEI challenges.
Especially in this challenging employment market, including limited talent pools and increasingly expensive labor, we continue to
focus on and assess employee engagement. We believe strengthening the connection employees feel toward the work they do, their teams
and the overall organization is at the core of employee well-being, customer satisfaction and organizational success. We periodically
conduct formal employee engagement surveys, with our most recent survey completed in the fall of 2022. In addition, we created a
dedicated internal portal referred to as “BetterX” for employees to provide suggestions on how we can improve our processes,
procedures, policies and practices. Providing our employees with platforms to voice their ideas and concerns enables us to develop and
implement action plans to enhance employee satisfaction and to ensure alignment with our overall human capital strategy.
Compensation & Benefits. We provide and continually review competitive compensation and benefits programs to help meet the
needs of our employees and their families. In addition to base wages, these programs include a 401(k) plan, healthcare and insurance
benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, and
employee assistance programs, among many others. All employees are compensated based on their individual merit and performance
without regard to race, color, national origin, religion, sex (including gender, pregnancy, sexual orientation or gender identity), age,
disability, genetic information, veteran status or any other protected status under federal, state or local law.
Employee Health, Wellness & Safety. The success of our business is fundamentally connected to the well-being of our people.
Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees and their families with
access to a variety of innovative, flexible and convenient health and wellness programs, including benefits that support their physical and
mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy
behaviors.
We encourage you to refer to our most recent Environmental, Social and Governance (“ESG”) Report, available on our investor
relations website, for more detailed information regarding our human capital initiatives. Nothing on our website, or in our ESG Report,
shall be deemed incorporated by reference into this Annual Report on Form 10-K.
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7
Information about our Executive Officers
The following is a list of our executive officers. All information is given as of February 27, 2023.
George Gleason, age 69, Chairman and Chief Executive Officer. Mr. Gleason has served the Company as Chairman, Chief
Executive Officer and/or President since 1979. He holds a B.A. in Business and Economics from Hendrix College and a J.D. from the
University of Arkansas.
Brannon Hamblen, age 57, President. Prior to assuming the role of President in July 2021, Mr. Hamblen served as President and
Chief Operating Officer – Real Estate Specialties Group (“RESG”) since 2018. Mr. Hamblen joined the Bank in 2008 and served as
Senior Vice President, Originations from 2008 to 2012, Director of Asset Management – RESG from 2012 to 2017, and Chief Operating
Officer – RESG in 2017 until he was named President and Chief Operating Officer – RESG in 2018. Prior to joining the Bank, Mr.
Hamblen worked in the real estate consulting practices of Ernst & Young/Kenneth Leventhal and KPMG, and in acquisitions,
development, asset management, and capital markets with R.M. Crowe Company, a large Dallas-based, privately owned real estate
owner/operator. Mr. Hamblen holds a B.S. in Agricultural Economics and a M.S. in Land Economics & Real Estate from Texas A&M
University.
Tim Hicks, age 50, Chief Financial Officer. Prior to assuming the role of Chief Financial Officer in June 2022, Mr. Hicks served as
Chief Credit and Administrative Officer since October 2020. He joined the Bank in 2009 and served as Senior Vice President, Corporate
Finance from 2009 to 2012, Executive Vice President, Corporate Finance from 2012 to 2016, Executive Vice President and Chief of
Staff from 2016 to July 2017, and Chief Administrative Officer and Executive Director of Investor Relations from July 2017 to October
2020. From 2006 to 2009, Mr. Hicks served as director of investor relations and assistant treasurer of a publicly traded
telecommunications company. Prior to 2006, Mr. Hicks held various positions with a big-four public accounting firm, leaving as a senior
audit manager. Mr. Hicks is a C.P.A. (inactive) and holds a B.A. in Business and Economics from Hendrix College.
Cindy Wolfe, age 57, Chief Operating Officer. Prior to assuming the role of Chief Operating Officer in June 2022, Ms. Wolfe
served as Chief Banking Officer since 2018. She joined the Bank in 1997, opened the Bank’s Charlotte loan production office in 2001,
and served as Senior Vice President – Lending from 2001 to 2005, Executive Vice President – Lending from 2005 to 2012, Charlotte
Market President from 2012 to 2014, Carolinas Division President from 2014 to 2018, and Deputy Director of Community Banking from
2015 to 2018. Prior to joining the Bank, Ms. Wolfe held various positions with national banks in commercial lending, operations, project
management and internal audit. Ms. Wolfe holds a B.A. in Business Administration from Queens University of Charlotte and is a
Certified Commercial Investment Member.
Alan Jessup, age 50, Chief Lending Officer. Prior to assuming the role of Chief Lending Officer, Mr. Jessup served as Deputy
Director of Community Banking since 2015 overseeing the Bank’s Agricultural Lending Division and offices across South Arkansas,
Alabama, Florida and Georgia. He joined the Bank in 2008 and served as Saline County President from 2008 to 2011 and South
Arkansas President from 2011 to 2015. Mr. Jessup holds a B.S. in Finance from Arkansas State University.
Scott Trapani, age 60, Chief Risk Officer. Prior to joining the Bank in March 2019, Mr. Trapani served as Executive Vice
President and Chief Risk Officer for Hilltop Holdings Inc. (NYSE: HTH) in Dallas, Texas from 2015 through 2019. Mr. Trapani served
as Senior Vice President and Chief Risk Officer for the Federal Home Loan Bank of Dallas from 2013 through 2015 and as Chief
Compliance Officer for Invesco, Ltd. in Atlanta, Georgia from 2008 through 2013. Earlier in his career, Mr. Trapani held senior roles in
compliance and risk management with SunTrust Bank, GE Capital Corporation, BearingPoint Consulting and the FDIC. Mr. Trapani is a
CFA charterholder and holds a B.S. in Finance from Arizona State University.
Stan Thomas, age 51, Chief Accounting Officer. Mr. Thomas joined the Bank in 2011 and served as Senior Vice
President/Director of Financial Reporting from 2011 to 2015 and Executive Vice President/Director of Financial Reporting from 2015 to
2019 prior to assuming the role of Chief Accounting Officer in January 2020. From 2008 to 2011, Mr. Thomas was a senior audit
manager with a regional accounting firm. Prior to 2008, Mr. Thomas held various positions with big-four accounting firms, leaving as a
senior audit manager. Mr. Thomas is a C.P.A and holds a B.S. in Accounting and an M.B.A from Louisiana Tech University.
Helen W. Brown, age 45, General Counsel and Corporate Secretary. Prior to assuming the role of General Counsel in February
2020, Ms. Brown served as the General Counsel Corporate Governance and Corporate Secretary from July 2018 to January 2020. Ms.
Brown joined the Bank in November 2013 as General Counsel Corporate Finance. Prior to joining the Bank, Ms. Brown was a Partner at
Bass, Berry & Sims PLC in the firm’s Corporate and Securities practice group. While in private practice, Ms. Brown focused on capital
markets transactions, mergers and acquisitions and strategic investments, as well as advising companies on a variety of corporate
governance and securities law matters. Ms. Brown received her Juris Doctor degree from the University of Arkansas School of Law and
her Bachelor of Arts degree from the University of Arkansas.
Patrick Carr, age 51, Managing Director – Corporate Finance Data and Technology. Prior to joining the Bank in December 2021,
Mr. Carr served as Senior Vice President and Chief Accounting Officer of Hanmi Financial Corporation (Nasdaq: HAFC) and its wholly
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owned subsidiary, Hanmi Bank, from September 2020 to November 2021. He previously held several roles in finance, accounting and
risk management at JPMorgan Chase, most recently serving as Managing Director, Consumer Risk Analytics and Forecasting. Mr. Carr
is a certified public accountant and spent the first 9 years of his career at big-four accounting firms. Mr. Carr earned his B.S. degree in
business administration in accountancy from John Carroll University.
Jason Cathey, age 42, Chief Information Officer. Prior to assuming the role of Chief Information Officer in May 2022, Mr. Cathey
served as Chief Information Security Officer from 2018 to 2022. He joined the Bank in 2015 and served as a Cybersecurity Intelligence
Analyst from 2015 to 2016 and an Information Systems Security Officer from 2016 to 2018. Mr. Cathey has over twenty years of
professional technology experience with various leadership positions in information technology, information security, and banking
operations. He is actively involved in the financial and technology communities, serving on multiple advisory and executive boards,
including as past president for the Infragard Arkansas Members Alliance. Mr. Cathey holds a B.S. in Management Information Systems
from Arkansas State University.
Tamara Gotham, age 39, Chief Administrative Officer. Prior to assuming the role of Chief Administrative Officer in June 2022,
Ms. Gotham served as Managing Director, Resilience and Learning and Development from 2021 to June 2022. She joined the Bank in
2016 and served as Director of Business Resilience from 2016 to 2019 and Director of Corporate Security and Resilience from 2019 to
2021. Prior to joining the Bank, Ms. Gotham held various leadership positions in business continuity and disaster recovery with other
financial institutions. She holds a B.S. in Finance from John Carroll University.
SUPERVISION AND REGULATION
We are subject to extensive regulation under federal and state banking laws that establish a comprehensive framework for our
operations. This regulatory framework may materially impact our growth potential and financial performance and is intended primarily
for the protection of depositors, customers, federal deposit insurance funds and the stability of the banking system as a whole, not for the
protection of our shareholders or creditors. Material elements of certain statutes, regulations and policies applicable to us are described
below, but the following discussion is a summary and does not purport to be complete. This description is qualified in its entirety by
reference to the full text of the statutes, regulations and policies described herein.
Overview
As an insured state bank without a holding company and that is not a member of the FRB, we are examined, supervised and
regulated by the ASBD and the FDIC, which is our primary federal regulator. The laws enforced by, and regulations and policies of,
these agencies affect most aspects of our business, including prescribing permissible types of loans and investments, the amount of
required reserves, requirements for branch offices, the permissible scope of our activities and various other requirements. We are also
subject to the regulations of the states in which we do business, certain regulations of the FRB, the enforcement and rulemaking authority
of the Consumer Financial Protection Bureau (“CFPB”) regarding consumer protection laws and regulations, and various other
regulatory authorities, as well as the information reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”)
and the FDIC rules relating thereto, as administered and enforced by the FDIC. We file periodic and current reports and other materials
required to be filed under the Exchange Act with the FDIC. Our common stock is listed on the Nasdaq Global Select Market
(“NASDAQ”) under the trading symbol “OZK” and our 4.625% Series A Non-Cumulative Perpetual Preferred Stock is listed on the
NASDAQ under the trading symbol “OZKAP.” Accordingly, Bank OZK is also subject to the rules of the NASDAQ for listed
companies.
With few exceptions, state and federal banking laws have as their principal objective either the maintenance of the safety and
soundness of the Deposit Insurance Fund (“DIF”) of the FDIC or the protection of customers, depositors, other classes of consumers and
the banking system as a whole, rather than the specific protection of our non-deposit creditors or shareholders. Banks that fail to conduct
their operations in a safe and sound manner or in compliance with applicable laws can be compelled by the regulators to change the way
they do business and may be subject to regulatory enforcement actions, including civil monetary penalties and restrictions imposed on
their operations, including in extraordinary circumstances, closure of the banks.
Proposals to change the laws governing our industry are frequently introduced in Congress and state legislatures. The current U.S.
political environment makes the prospects for significant statutory changes to federal banking laws in the near term uncertain; however,
even absent additional legislation, the federal banking agencies will continue to consider and potentially propose and adopt regulatory
changes. In addition, changes in key personnel at the federal agencies that regulate us, including the federal banking regulators and the
CFPB, may result in differing interpretations of existing rules and guidelines and potentially more stringent enforcement and more severe
penalties than previously in place, along with new areas of supervisory and regulatory focus, such as CRA compliance, consumer
protection, mergers and acquisitions, and enterprise risk management, among other things. Changes in applicable laws or regulations,
and in their interpretation and application by regulatory agencies and other governmental authorities, cannot be predicted, but any of such
changes may have an adverse effect on our business, financial condition or results of operations.
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Permissible Activities
Our business is generally limited to activities permitted by Arkansas law and any applicable federal laws. Under the Arkansas
Banking Code of 1997 (the “Arkansas Banking Code”), we may generally engage in all usual banking activities, including, among other
activities, taking deposits, lending money, issuing letters of credit, buying, discounting and negotiating promissory notes, bonds, drafts
and other forms of indebtedness, and buying and selling certain investment securities. Subject to the authorization of the Arkansas State
Bank Commissioner (the “Bank Commissioner”), we may also engage in any activity permissible for national banks.
In addition, under the Gramm-Leach-Bliley Act of 1999 (the “GLBA”), state banks such as ours may invest in financial
subsidiaries that engage as the principal in activities that would only be permissible for a national bank to conduct in a financial
subsidiary. This authority is generally subject to the same conditions that apply to national bank investments in financial subsidiaries.
Safety and Soundness
The federal banking agencies have adopted guidelines pursuant to the Federal Deposit Insurance Act (“FDIA”) establishing
general safety and soundness standards for depository institutions related to, among other things, internal controls, information systems,
internal audit systems, loan underwriting and documentation, compensation, interest rate exposure, and asset growth. For example, the
FDIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of brokered deposits, and limits the
aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest. If the
FDIC determines that an institution fails to meet these standards, the FDIC may require the institution to submit an acceptable
compliance plan or, alternatively, pursue other courses of action depending on the specific circumstances and severity of the
noncompliance.
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) fundamentally restructured
federal banking regulation by shifting from prudential regulation of individual institutions to a systemic view of regulations, resulting in
significant regulatory change. Aspects of the Dodd-Frank Act that have had or may have a material effect on our business include,
among others: changing the assessment base for federal deposit insurance; making permanent the $250,000 limit for federal deposit
insurance; eliminating the requirement that the FDIC pay dividends from the DIF in certain cases; repealing the federal prohibitions on
the payment of interest on demand deposits; heightening corporate governance requirements for all public companies (including “say-on-
pay” shareholder votes, compensation clawback policy requirements, expanded executive compensation disclosures and enhanced
director independence requirements); creation of the CFPB; imposing additional underwriting standards and other requirements for
mortgage lending; permitting the establishment of de novo interstate branches; limiting debit card interchange fee charges for banks with
$10 billion or more in assets; and incentivizing and protecting whistleblowers who report violations of the federal securities laws.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”) became law in 2018 and, among
other things, amended certain provisions of the Dodd-Frank Act and included certain additional banking, commercial real estate,
consumer protection, and securities law-related provisions. The EGRRCPA provided limited regulatory relief to certain financial
institutions while preserving the existing framework under which U.S. financial institutions are regulated. Despite the relief for mid-sized
financial institutions such as us that have resulted from the EGRRCPA, many provisions of the Dodd-Frank Act and its implementing
regulations remain in place and will continue to result in additional operating and compliance costs that could have a material adverse
effect on our business, financial condition, and results of operations. In addition, the EGRRCPA requires the enactment of various
implementing regulations that may have a material effect on the ultimate impact of the law.
Because our total assets exceed $10 billion, we are subject to certain additional requirements created by the Dodd-Frank Act,
including enhanced prudential oversight requirements and a more frequent and enhanced regulatory examination regime. Failure to
comply with these requirements could result in regulatory enforcement actions, could negatively impact our business, financial condition
or results of operations and could limit our growth or expansion activities. The changes resulting from the Dodd-Frank Act have had and
may continue to have an adverse effect on the profitability of our business activities, require further changes to certain of our business
practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These
changes have required and may continue to require us to invest significant management attention and resources to evaluate and take any
actions necessary to comply with new statutory and regulatory requirements.
Capital Stress Testing. As a result of the EGRRCPA, we are no longer required to prepare annual capital stress tests pursuant to
the Dodd-Frank Act. However, we continue to utilize internal stress testing as part of our capital planning and risk management
processes and monitor our capital consistent with the safety and soundness expectations of the federal regulators.
Debit Interchange Fees. Because our total assets exceed $10 billion, we are required to comply with Section 1075 of the Dodd-
Frank Act, often referred to as the Durbin Amendment, which caps interchange fees for debit card transactions, or “swipe fees,” at $0.21
plus 5 basis points multiplied by the size of the transaction.
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The Volcker Rule. Section 619 of the Dodd-Frank Act, also known as the Volcker Rule, prohibits banks and their affiliates from
engaging in proprietary trading or acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a
hedge fund or private equity fund. Although we do not currently engage and have not historically engaged in activities regulated by the
Volcker Rule or its associated regulations, we may incur costs if we are required to adopt additional policies and systems to ensure
compliance with the Volcker Rule, although any such costs are not expected to be material. Unanticipated effects of the Volcker Rule’s
provisions or future regulatory or court interpretations may have an adverse effect on our business.
Regulation B. On September 1, 2021, the CFPB issued a proposal to amend Regulation B to implement the changes to the Equal
Credit Opportunity Act made by the Dodd-Frank Act. This proposal would require covered financial institutions to collect and report to
the CFPB data on applications for credit for small businesses, including those owned by women or minorities. We cannot predict the
impact of the final rule, if any, on our business or results of operations.
Deposit Premiums and Assessments
Our deposits are insured by the FDIC’s DIF to the fullest extent permissible by law, and we are subject to deposit insurance
assessments to maintain the DIF. Under the FDIC’s risk-based assessment system, the assessment rates for an insured depository
institution are determined by an assessment rate calculator, which is based on a number of elements such as supervisory evaluations,
regulatory capital levels and other components that measure the perceived risk the institution poses to the DIF. The calculated assessment
rate is applied to the institution’s average consolidated total assets less its average tangible equity during the assessment period to
determine the dollar amount of the assessment paid by the institution. The FDIC has the ability to make discretionary adjustments to the
total score based upon its determination of the existence of significant risk factors that are not adequately captured in the calculations. In
addition to ordinary assessments, the FDIC has the ability to impose special assessments in certain instances.
The Dodd-Frank Act increased the minimum target DIF reserve ratio from 1.15% to 1.35% of estimated insured deposits. Pursuant
to the FDIC’s DIF restoration plan, insured institutions with total assets of $10 billion or more, including us, were responsible for
funding the increase, and on July 1, 2016, the FDIC began imposing a surcharge on such banks. The surcharge equaled an annual rate of
4.5 basis points applied to the institution’s assessment base (with certain adjustments), and continued through October 1, 2018, when the
reserve ratio exceeded 1.35%. The reserve ratio fell below 1.35% as of June 30, 2020, and on October 18, 2022, the FDIC finalized a rule
increasing initial base deposit insurance assessment rates uniformly by 2 basis points, beginning with the first quarterly assessment
period of 2023, in order to restore the DIF to the 1.35% minimum ratio by the September 30, 2028 statutory deadline.
The FDIC has established a long-term target for the reserve ratio of 2.0%. At least semi-annually, the FDIC will update its loss and
income projections for the DIF and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if
required. Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.
In December 2020, the FDIC amended its brokered deposits rule to clarify and modernize the FDIC’s regulatory framework, and
thereby established a new framework for analyzing a “deposit broker” and determining whether deposits should be treated as brokered
deposits. The final rule took effect on April 1, 2021 and full compliance was required as of January 1, 2022.
Capital Requirements
We are subject to the risk-based capital requirements established by the FDIC and other federal banking regulators consistent with
agreements reached by the Basel Committee on Banking Supervision (“Basel III”) and certain provisions of the Dodd-Frank Act (the
“Basel III Rules”). The Basel III Rules became effective for us on January 1, 2015 (subject to a phase-in period for certain provisions).
The Basel III Rules require the maintenance of minimum amounts and ratios of common equity tier 1 capital, tier 1 capital and total
capital to risk-weighted assets, and of tier 1 capital to adjusted quarterly average assets.
Under the Basel III Rules, common equity tier 1 capital consists of common stock and paid-in capital (net of treasury stock) and
retained earnings. Common equity tier 1 capital is reduced by goodwill, certain intangible assets, net of associated deferred tax liabilities,
deferred tax assets that arise from tax credit and net operating loss carryforwards, net of any valuation allowance, and certain other items
as specified by the Basel III Rules.
The Basel III Rules allowed insured depository institutions to make a one-time election not to include most elements of
accumulated other comprehensive income (loss) in regulatory capital and instead effectively use the existing treatment under the general
risk-based capital rules. We made this opt-out election to avoid significant variations in our level of capital depending upon the impact of
interest rate fluctuations on the fair value of our investment securities portfolio.
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11
In connection with the adoption of the current expected credit loss (“CECL”) methodology, the FDIC and other banking regulators
allowed depository institutions various alternatives on accounting and reporting for regulatory and Call Report purposes regarding the
initial effect of adoption of CECL. Those alternatives included (i) taking the full effects of the adoption of CECL as an adjustment to
regulatory capital, (ii) phasing in the effects of the adoption of CECL over a three-year period, or (iii) deferring for two years the effects
of the adoption of CECL, followed by a three-year phase-in period. We elected to phase in the effects of CECL over a three-year period
(without the two-year deferral) to lessen the impact of the adoption of CECL on our regulatory capital and regulatory capital ratios.
Total capital includes tier 1 capital and tier 2 capital. Tier 1 capital includes common equity tier 1 capital and certain additional tier
1 items such as preferred stock. Tier 2 capital includes, among other things, the allowable portion of the allowance for credit losses, trust
preferred securities and subordinated notes.
The Basel III Rules also changed the risk-weights of assets in an effort to better reflect perceived credit risk and other risk
exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development
and construction loans (“HVCRE”) and the unsecured portion of non-residential mortgage loans that are 90 days past due or otherwise
on nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of
one year or less that is not unconditionally cancellable; a 250% risk weight (up from 100%) for mortgage servicing rights and deferred
tax assets that are not deducted from capital; and increased risk weights (from 0% to up to 600%) for equity exposures. The EGRRCPA
clarified the definition and risk-weighting of HVCRE loans, with the revised definition excluding any loans made prior to January 1,
2015, and certain other loans currently classified as HVCRE.
The Basel III Rules limit capital distributions and certain discretionary bonus payments if the banking organization does not hold a
“capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1 capital and total capital to risk-weighted assets in
addition to the amount necessary to meet minimum risk-based capital requirements. The Basel III Rules require us to maintain (i) a
minimum ratio of common equity tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer, which
effectively results in a minimum ratio of 7.0%, (ii) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, plus a 2.5%
capital conservation buffer, which effectively results in a minimum ratio of 8.5%, (iii) a minimum ratio of total capital to risk-weighted
assets of at least 8.0%, plus a 2.5% capital conservation buffer, which effectively results in a minimum ratio of 10.5%, and (iv) a
minimum leverage ratio of 4.0%.
Information Security, Cybersecurity, and Privacy
Information security and cybersecurity are high-priority items for legislators and regulators at the federal and state levels, as well
as internationally. State and federal banking regulators have issued various policy statements and, in some cases, regulations
emphasizing the importance of technology risk management and supervision. Such policy statements and regulations require that
financial institutions design multiple layers of security controls to establish lines of defense and ensure that their risk management
processes address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers
accessing the internet-based services of the financial institution. A financial institution’s management is expected to maintain sufficient
business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a
cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery
of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service
providers fall victim to this type of cyber-attack. These requirements may cause us to incur significant additional compliance costs and,
in some cases, may impact our growth prospects. Additionally, if we fail to observe federal or state regulatory guidance, we could be
subject to various regulatory sanctions, including financial penalties which could be substantial.
Federal statutes and regulations, including the GLBA and the Right to Financial Privacy Act of 1978, limit our ability to disclose
non-public information about consumers, customers and employees to nonaffiliated third parties. Specifically, the GLBA requires us to
disclose our privacy policies and practices relating to sharing non-public information and enables retail customers to opt out of our
ability to share information with unaffiliated third parties under certain circumstances. The GLBA also requires us to implement a
comprehensive information security program that includes administrative, technical and physical safeguards to ensure the security and
confidentiality of customer records and information and, if applicable state law is more protective of customer privacy than the GLBA,
financial institutions, including us, will be required to comply with such state law. Other laws and regulations similarly impact our ability
to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes. These regulations affect how
consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In connection with the
regulations governing the privacy of consumer financial information, the federal banking agencies, including the FDIC, have adopted
guidelines for establishing information security standards and programs to protect such information.
Proposed or new legislation or regulations related to data privacy may significantly increase our compliance costs and impede our
ability to grow into specific markets. There are several proposals that have either recently been adopted or are currently pending before
federal, state, and foreign legislative and regulatory bodies. For example, the California Consumer Privacy Act of 2018 (the “CCPA”)
became effective in January 2020, and its successor, the California Privacy Rights Act of 2020, which expands on the consumer data
privacy provisions of the CCPA, largely became effective in January 2023. These laws, along with those either recently passed or
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currently pending in other states, impose additional obligations on companies regarding the handling of personal data while also
providing enhanced individual privacy rights to persons whose data is stored.
In the event of a data breach, there are mandatory reporting requirements that may hamper a company’s ability to fully assess an
incident prior to external reporting; for example, in 2021 the federal banking agencies approved a final rule requiring financial
institutions to notify their primary federal regulator of any significant computer-security incident as soon as possible and no later than 36
hours after the institution determines that a cyber incident has occurred. Risks and exposures related to cybersecurity attacks, including
litigation and enforcement risks, are expected to be elevated for the foreseeable future due to the rapidly evolving nature and
sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based
products and services. See Item 1A. Risk Factors for a further discussion of risks related to cybersecurity. We must constantly monitor
legal and regulatory requirements that apply to existing and future subsets of our customer base for protection against legal, reputational,
and financial risk due to compliance failures.
Community Reinvestment Act and Fair Lending
The Community Reinvestment Act of 1977 (“CRA”) requires that federal banking regulators, in connection with their
examinations of financial institutions, evaluate the record of financial institutions in meeting the credit needs of their local communities,
including low and moderate-income individuals and neighborhoods, consistent with the safe and sound operations of the banks. Failure
to adequately meet these criteria could impose additional requirements and limitations on us. Regulations under the CRA also provide for
regulatory assessment of a bank’s record in meeting the needs of its service areas, and this record is taken into account by the regulators
when considering applications to, among other things, establish branches or merge with or acquire another bank or its assets or
liabilities. A bank’s CRA performance record is reviewed in connection with the filing of certain regulatory applications, including
merger applications and branch applications. An unsatisfactory performance record can substantially delay or block the transactions
contemplated by such applications. Additionally, a bank must make certain portions of its most recent CRA examination report
conducted by its federal banking regulators available for public review. In June 2020, the Office of the Comptroller of the Currency
(“OCC”) adopted changes to the CRA’s implementing regulations in an attempt to reduce their complexity, which it then rescinded and
replaced in December 2021. While the FDIC had joined in the original proposed rule change, it ultimately did not adopt the OCC’s final
rule changes on the CRA. In May 2022, the federal banking agencies requested comment on further proposed amendments to the CRA,
including updates to CRA assessment areas to account for online and mobile banking and adopting a metrics-based approach to CRA
revaluations of retail lending and community development financing. We will continue to evaluate the impact of any changes to the
regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be
predicted at this time.
We are also subject to certain fair lending laws and regulations, including the Equal Credit Opportunity Act of 1974 and the Fair
Housing Act of 1968, which (among other things) prohibit discrimination in credit and residential real estate transactions, including
discrimination on the basis of, among other factors, race or color, national origin, gender, marital or familial status, age, handicap or
disability, and religion. We are required to have a fair lending program of sufficient depth and breadth to monitor fair lending risks and
appropriately remediate identified risks. Bank regulators have increasingly focused on the enforcement of these laws, and fair lending
weaknesses can result in significant supervision and/or enforcement actions, along with fines, penalties, or financial remediation;
reputational damage; CRA rating downgrade; investigation and enforcement actions by the U.S. Department of Justice (“DOJ”); or
restrictions on our growth, revenue or expansion opportunities. Private parties may also have the ability to challenge an institution’s
performance under fair lending laws in private class action litigation.
Executive and Incentive Compensation
The federal banking regulators have adopted guidelines prohibiting excessive compensation as an unsafe and unsound practice.
Compensation is considered excessive when the amounts paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director or principal shareholder.
The federal banking regulators have issued guidance on incentive compensation policies intended to ensure that banks’ incentive
compensation policies do not undermine safety and soundness by encouraging excessive risk taking. This guidance, which covers all
employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based
on key principles that a bank’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking
beyond the organization’s ability to identify and manage risk, (ii) be compatible with effective internal controls and risk management,
and (iii) be supported by strong corporate governance, including active and effective board oversight. Deficiencies in compensation
practices may affect our supervisory ratings, which could affect our ability to make acquisitions or take other actions, and enforcement
actions may be taken if our incentive compensation arrangements or related risk-management control or governance processes pose a
risk to safety and soundness and we are not taking prompt and effective measures to correct the deficiencies.
The Dodd-Frank Act requires the federal banking agencies and the Securities and Exchange Commission (“SEC”) to establish
joint regulations or guidelines for specified regulated entities, like us, having at least $1 billion in total assets, to prohibit incentive-based
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payment arrangements that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal
shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. These regulators
must also establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements.
The federal regulators proposed such regulations in April 2011 and issued a second proposed rule in April 2016. The April 2016
proposed rule would apply to banks with at least $1 billion in average total consolidated assets and would prohibit certain types and
features of incentive-based compensation arrangements, require incentive-based compensation arrangements to adhere to certain basic
principles, and require appropriate board or committee oversight and recordkeeping and disclosures to the appropriate agency. Although
final rules have not been adopted to date, if these or other regulations are adopted in a form similar to that proposed, they will impose
limitations on the manner in which we may structure compensation for our executives and certain other employees.
In October 2022, the SEC adopted its final rule on clawback policies, which directs the stock exchanges to update their listing
standards to require issuers to adopt and comply with a written clawback policy mandating recovery of certain incentive-based
compensation awards to executives in the event of an accounting restatement. These listing standards are not expected to take effect until
mid-2023 or later.
Anti-Money Laundering, the USA PATRIOT Act and the Office of Foreign Assets Control Regulation
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and
terrorist financing. The Bank Secrecy Act (“BSA”) and its implementing regulations and parallel requirements of the federal banking
regulators require us to maintain a risk-based anti-money laundering (“AML”) program reasonably designed to prevent and detect money
laundering and terrorist financing and to comply with the recordkeeping and reporting requirements of the BSA, including the
requirement to report suspicious activity. The USA PATRIOT Act of 2001 (the “Patriot Act”) substantially broadened the scope of AML
laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions, creating new crimes
and penalties and expanding the extra-territorial jurisdiction of the United States. Financial institutions, including banks, are required
under final rules implementing Section 326 of the Patriot Act to establish procedures for collecting standard information from customers
opening new accounts and verifying the identity of these new account holders within a reasonable period of time. Financial institutions
are also prohibited from entering into specified financial transactions and account relationships and must take certain steps to assist
government agencies in detecting and preventing money laundering and to report certain types of suspicious transactions. The Patriot Act
also amended Section 18(c) of the FDIA (commonly referred to as the “Bank Merger Act”) to require federal banking regulatory
authorities to consider the effectiveness of a financial institution’s AML program when reviewing an application to expand operations.
We are subject to the customer due diligence rules issued by the U.S. Department of the Treasury’s (the “Treasury”) Financial
Crimes Enforcement Network (“FinCEN”) under the BSA, which require financial institutions to identify the beneficial owners who own
or control certain legal entity customers at the time an account is opened and to update their AML compliance programs to include risk-
based policies and procedures for conducting ongoing customer due diligence, including policies and procedures that are reasonably
designed to (1) identify and verify the identity of customers; (2) identify and verify the identity of the beneficial owners of companies
opening accounts; (3) understand the nature and purpose of customer relationships to develop customer risk profiles; and (4) conduct
ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. As
part of the requirement to obtain beneficial ownership information, we must identify and verify the identity of any individuals who own
25% or more of a legal entity, and an individual who controls the legal entity.
On January 1, 2021, the National Defense Authorization Act for Fiscal Year 2021, including the Anti-Money Laundering Act of
2020 (the “AMLA”), was enacted. The AMLA significantly amends the BSA to, among other things, require certain companies to report
beneficial ownership information to FinCEN that will be made available to financial institutions to conduct customer due diligence,
increase the duties and powers of FinCEN, and instruct Treasury and FinCEN to promulgate or amend regulations related to beneficial
ownership reporting requirements, AML program requirements and other matters.
Among other things, AMLA’s provisions clarify that cryptocurrency and other digital assets are within the scope of the regulatory
requirements of the BSA and codify existing guidance from FinCEN to resolve any doubts raised by some industry participants regarding
Congress’ delegation of authority intended to regulate this sector. AMLA also updates and expands whistleblower rewards and anti-
retaliation protections contained in the BSA, including that whistleblowers can receive up to 30% of an assessed monetary penalty where
that penalty totals more than $1 million, and imposes enhanced applicable penalties for BSA violators and persons convicted of repeat
violations or committing an “egregious violation” of the BSA. Among other changes enacted in AMLA, FinCEN must provide financial
institutions with information about financial crime concerns and patterns and within six months after passage of AMLA, Treasury must
establish national AML priorities, to be updated at least once every four years. Federal banking regulators may subsequently review
whether and to what extent financial institutions have incorporated the national AML priorities into their risk-based programs to comply
with BSA requirements.
FinCEN and the federal banking agencies continue to issue regulations and guidance with respect to the application and
requirements of the BSA and their expectations for effective AML programs. Failure of a financial institution to maintain and implement
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adequate programs to combat money laundering and terrorist financing, to comply with United States sanctions that affect transactions
with designated foreign countries, nationals and others, or to comply with any other relevant laws or regulations, could have serious
legal, economic and reputational consequences for the institution, including causing applicable bank regulatory authorities to not approve
any applications, including branch openings and mergers or acquisitions, when regulatory approval is required or to prohibit such
transactions even if approval is not required. The ultimate impact of AMLA and the regulations to be promulgated thereunder, including
its effect on our business, results of operations and financial condition, is uncertain.
Oversight and Enforcement
Enforcement Authority. The FDIC possesses enforcement authority over insured banks, including us, pursuant to the FDIA, the
Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”) and other statutes. Insured banks may be subject to
potential actions for unsafe or unsound practices or violations of laws, rules, regulations or conditions imposed in writing by applicable
federal banking agencies. The FDIC may exercise its enforcement powers by, among other things, issuing a cease-and-desist order,
imposing civil monetary penalties, requiring an increase in capital, entering into informal and formal enforcement actions against the
insured bank, requiring the insured bank to take identified corrective actions to address cited concerns or refrain from taking certain
actions, or terminating deposit insurance.
Federal and state banking regulators have the authority to initiate informal or formal enforcement actions against us. Informal
actions may include board resolutions approved by the applicable regulators, supervisory letters or memoranda of understanding. Formal
actions may include consent orders, cease-and-desist orders, requiring an increase in capital, termination of deposit insurance and civil
money penalties. Informal actions are generally a confidential part of the regulators’ examination and supervisory process and may not
be disclosed without the permission of the regulators. Formal actions, however, are publicly disclosed.
In connection with the FDICIA, federal banking agencies established capital measures (including both a leverage measure and a
risk-based capital measure) and specified for each capital measure the levels at which depository institutions will be considered well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized. If an institution
becomes classified as undercapitalized, the appropriate federal banking agency will require the institution to submit an acceptable capital
restoration plan and can suspend or greatly limit the institution’s ability to effect numerous actions, including capital distributions,
certain deposit gathering activities, acquisitions of assets, establishing new branches, entering into new lines of business, or using
brokered deposits. The capital restoration plan will not be accepted by the regulators unless any company having control of the
undercapitalized institution guarantees the subsidiary’s compliance with the capital restoration plan up to a certain specified amount.
Examination. Consistent with their supervision practices for banks of our size, the FDIC and ASBD utilize a joint examination
team that remains on site throughout the year. The examination team conducts regular examinations of us, reviewing such matters as the
overall safety and soundness of our institution, the adequacy of our allowance for credit losses, the quality of our loans and investments,
the appropriateness of management practices, risk management, interest rate exposure, vendor management, internal controls and audit
systems, compliance with laws and regulations, and other aspects of our operations. These examinations are designed for the protection
of our depositors, rather than our shareholders. Our FDIC and ASBD examinations are generally conducted jointly by the agencies. In
addition, the Dodd-Frank Act gives the CFPB the authority to include its examiners, on a sampling basis, in examinations performed by
primary federal regulators such as the FDIC, in order to assess compliance with consumer financial protection laws.
Acquisition Approvals. Under the Bank Merger Act and the Arkansas Banking Code, the prior approval of the FDIC and the
ASBD is required for us to merge with another bank or purchase all or substantially all of the assets or assume any of the deposits of
another FDIC-insured depository institution. In reviewing applications for merger and acquisition transactions, bank regulators consider,
among other things, the competitive effect and public benefits of the transactions, the capital position and managerial resources of the
combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s CRA performance record, the
applicant’s compliance with fair housing and other consumer protection laws and the effectiveness of all organizations involved in
combatting money laundering activities. Failure to implement or maintain adequate compliance programs could cause bank regulators
not to approve an acquisition where regulatory approval is required or to prohibit an acquisition even if approval is not required. In
addition, in July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy. Among other
initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the
BHC Act and the Bank Merger Act and adopt a plan for revitalization of such practices. There are many steps that must be taken by the
agencies before any formal changes to the framework for evaluating bank mergers can be finalized and the prospects for such action are
uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our future acquisition
activities, if any. See Item 1A. Risk Factors for a more extensive discussion of this topic.
Change in Bank Control. Under the Change in Bank Control Act (the “CIBCA”), a notice must be submitted to the FDIC if any
person (including a company), or group acting in concert, seeks to acquire “control” of us. Control is defined as the power, directly or
indirectly, to direct our management or policies or to vote 25% or more of any class of our outstanding voting securities. Additionally, a
rebuttable presumption of control arises when any person (including a company), or group acting in concert, seeks to acquire 10% or
more, but less than 25%, of any class of our outstanding voting securities which are publicly traded. When reviewing a notice under the
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CIBCA, the FDIC will take into consideration the financial and managerial resources of the acquirer, the convenience and needs of the
communities served by us, the anti-trust effects of the acquisition and other factors. Under the Bank Holding Company Act of 1956, as
amended (the “BHCA”), any company that is not an existing bank holding company would be required to obtain prior approval from the
FRB before it could obtain “control” of us (and thereby become a bank holding company) within the meaning of the BHCA. Control
generally is defined to mean the ownership or power to vote 25% or more of any class of our voting securities, the ability to control in
any manner the election of a majority of our directors or the exercise of a controlling influence over our management and policies. An
existing bank holding company would be required to obtain the FRB’s prior approval under the BHCA before acquiring more than 5% of
any class of our voting securities.
CRE Lending Concentrations. The federal banking agencies, including the FDIC, have promulgated guidance governing financial
institutions with concentrations in CRE lending. The guidance indicates that, for supervisory purposes, a bank has a concentration in
CRE lending if (i) total reported loans for construction, land development and other land represent 100% or more of the sum of the
bank’s tier 1 capital plus its allowance for credit losses attributed to loans and leases or (ii) total reported loans secured by multifamily
and non-owner occupied non-farm/non-residential properties and loans for construction, land development and other land represent
300% or more of the sum of the bank’s tier 1 capital plus its allowance for credit losses attributed to loans and leases and the bank’s CRE
loan portfolio has increased 50% or more during the prior 36 months. If a concentration is present, management must employ heightened
risk management practices that address key elements, including board and management oversight and strategic planning, portfolio
management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and
maintenance of increased capital levels as needed to support the level of CRE lending. We have determined that we have a concentration
in CRE lending, and while we believe we have implemented policies and procedures with respect to our CRE lending consistent with the
regulatory guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation
of the guidance that may result in additional costs to us.
Other Regulations and Restrictions
Reporting Obligations. We must submit to federal and state regulators annual audit reports prepared by independent auditors. Our
Annual Report on Form 10-K, which includes the report of our independent auditors, can be used to satisfy this requirement. We also
submit FFIEC Consolidated Reports of Condition and Income to the FDIC on a quarterly basis and file other required reports with
various federal and state regulators.
Lending Limits. Our lending and investment authority is derived from Arkansas law. The lending power is generally subject to
certain restrictions, including limitations on the amount which may be lent to a single borrower. Under Arkansas law, the obligations of
one borrower to a bank may not exceed 20% of the bank’s capital base. See also Note 18 of the consolidated financial statements under
Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a discussion of lending limits.
Reserve Requirements. Arkansas law requires state chartered banks to maintain such reserves as are required by the applicable
federal regulatory agency. Federal banking laws require all insured banks to maintain reserves against their checking and transaction
accounts (primarily checking accounts, NOW and Super NOW checking accounts). Effective March 26, 2020, the FRB reduced reserve
requirement ratios to zero percent, where they remain as of the date of this report. Because reserves must generally be maintained in
cash, non-interest bearing accounts or accounts that earn only a nominal amount of interest, the effect of any reserve requirements is to
increase our cost of funds.
Payment of Dividends. Regulations of the FDIC and the ASBD limit our ability to pay dividends to our shareholders without the
prior approval of such agencies. FDIC regulations prevent insured state banks from paying any dividends from capital and allow the
payment of dividends only from net profits then on hand after deduction for losses and bad debts. The ASBD currently limits the amount
of dividends that we can pay our shareholders to 75% of net profits after taxes for the current year plus 75% of retained net profits after
taxes for the immediately preceding year. In addition, our ability to pay dividends may also be restricted by certain covenants contained
in the indentures governing our trust preferred securities, our subordinated debentures, our subordinated notes, and the relative powers,
preferences and other rights of the holders of our Series A Preferred Stock. See also Note 18 of the consolidated financial statements
under Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a discussion of dividend
restrictions.
Restrictions on Transactions with Affiliates or Related Parties. Federal law substantially restricts transactions between financial
institutions and their affiliates, particularly their non-financial institution affiliates. An affiliate of a bank is any company or entity that
controls, is controlled by or is under common control with the bank.
We are subject to Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of credit to, or
investments in, or certain other transactions with, affiliates. In addition, limits are placed on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. Most of these loans and certain other transactions must be secured in
prescribed amounts. We are also subject to Section 23B of the Federal Reserve Act, which prohibits an institution from engaging in
transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or
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its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated companies. We are subject to restrictions
on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. These extensions of
credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with third parties and (2) must not involve more than the normal risk of repayment or present other unfavorable
features. See also Note 17 of the consolidated financial statements under Part II, Item 8. Financial Statements and Supplementary Data of
this Annual Report on Form 10-K for a discussion of related party transactions.
Securities Laws and Regulations. We are subject to certain federal and state laws and regulations applicable to corporations
generally, including, without limitation, certain provisions of the federal securities laws. We are subject to the jurisdiction of the FDIC,
the ASBD and state securities regulatory authorities for matters relating to the offer and sale of our securities.
COVID-19 Related Reforms. In response to the COVID-19 pandemic, the U.S. Congress, through the enactment of the
Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and the federal banking agencies, through rulemaking,
interpretive guidance and modifications to agency policies and procedures, took a series of actions to provide national emergency
economic relief measures. The CARES Act, as amended in 2021, allows banks to elect to suspend requirements under GAAP for loan
modifications related to the COVID-19 pandemic for certain loans. The federal banking agencies also issued guidance to encourage
banks to make loan modifications for borrowers affected by COVID-19 or offer other borrower friendly options. The CARES Act also
amended the Paycheck Protection Program to fund payroll and operational costs of eligible businesses, organizations and self-employed
persons during COVID-19. In addition, numerous state and federal laws and regulations have been enacted related to COVID-19 that
affect the workplace, including the Families First Coronavirus Response Act which required, among other things, that employers provide
paid sick leave and expanded family and medical leave.
Consumer Financial Protection
We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our
customers. These laws include, among others, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Home Ownership and Equity Protection Act, the Electronic Fund Transfer Act, the
Fair and Accurate Credit Transactions Act, the Fair Debt Collection Practices Act, the Fair Housing Act, the Real Estate Settlement
Procedures Act, the Truth in Savings Act, the Expedited Funds Availability Act, the Check Clearing for the 21st Century Act, the
Servicemembers’ Civil Relief Act, the Telephone Consumer Protection Act, the CAN-SPAM Act, and similar state laws, as well as state
usury laws and other state consumer protection laws. These and other laws, among other things, require disclosures of the cost of credit
and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of
credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive acts and practices, restrict our
ability to raise interest rates and subject us to significant regulatory oversight. Failure to comply with these and other consumer
protection requirements may result in significant liability in private civil actions or enforcement actions by federal and state bank
regulators or consumer protection agencies or state attorneys general, and may prevent us from engaging in merger or acquisition
transactions or other activities requiring regulatory approval or that regulators may prohibit even if approval is not required.
The CFPB is designed to prevent unfair, deceptive and abusive acts and practices and ensure that all consumers have access to
markets for consumer financial products and services, and that such markets are fair, transparent and competitive. Because our total
assets exceed $10 billion, the CFPB has direct supervision and enforcement authority over us, including the authority to investigate
possible violations of federal consumer financial laws, hold hearings and commence civil litigation, and establish applicable
examination, enforcement and reporting requirements. The CFPB has significant authority to implement and enforce the consumer
finance laws identified above and others, as well as the authority to identify and prohibit unfair, deceptive or abusive acts and practices.
The review of products and practices to prevent such unfair, deceptive or abusive acts and practices is a continuing focus of the CFPB,
and of banking regulators more broadly. The ultimate impact of this heightened scrutiny is uncertain but could result in changes to our
pricing, practices, products and procedures. It could also result in increased costs related to regulatory oversight, supervision and
examination, additional remediation efforts and possible penalties.
Certain members of Congress and the leadership of the CFPB and other banking regulators have recently expressed a heightened
interest in bank overdraft protection programs and other service fees charged on deposit accounts. In December 2021, the CFPB
published a report providing data on banks’ overdraft and NSF fee revenues as well as observations regarding consumer protection issues
relating to participation in such programs. The CFPB has indicated that it intends to pursue enforcement actions against banking
organizations, and their executives, that oversee overdraft practices that are deemed to be unlawful. In response to this increased
congressional and regulatory scrutiny, and in anticipation of enhanced supervision and enforcement of overdraft protection practices in
the future, certain banking organizations have begun to modify their overdraft protection programs, including by reducing overdraft
transaction fees. We have reduced some of our service charges on deposit accounts, and these competitive pressures from our peers, as
well as any adoption by our regulators of new rules or supervisory guidance or more aggressive examination and enforcement policies in
respect of banks’ service charges on accounts, including overdraft protection practices, could cause us to further modify our program and
practices in ways that may have a negative impact on our revenue and earnings.
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In addition, the CFPB has broad supervisory, examination and enforcement authority over various consumer financial products
and services, including the ability to require reimbursements and other payments to customers for alleged legal violations, to impose
significant monetary penalties or injunctive relief that prohibits lenders from engaging in allegedly unlawful practices, or to obtain cease
and desist orders providing for affirmative relief or monetary penalties. The CFPB has been active in bringing enforcement actions
related to consumer financial protection laws and obtaining the forms of relief described above.
State regulation of financial products and potential enforcement actions, which could be stricter in some cases than federal
consumer protection standards, could also adversely affect our business, financial condition or results of operations.
Arkansas Law
We are subject to examination and regulation by the ASBD. Under the Arkansas Banking Code, the acquisition of more than 25%
of any class of the outstanding capital stock of any bank requires approval of the Bank Commissioner. The Bank Commissioner’s
approval is required in order for us to make acquisitions, amend our articles of incorporation, repurchase shares of our capital stock
(other than payments to dissenting shareholders in a transaction), issue debt, increase, reduce or retire any part of our capital stock, retire
debt instruments, or conduct certain types of activities that are incidental or closely related to banking.
The Bank Commissioner has the authority, with the consent of the Governor of the State of Arkansas, to declare a state of
emergency and temporarily modify or suspend banking laws and regulations in communities where such a state of emergency exists. The
Bank Commissioner may also authorize a bank to close its offices and any day when such bank offices are closed will be treated as a
legal holiday, and any director, officer or employee of such bank shall not incur any liability related to such emergency closing. To date
no such state of emergency has been declared to exist by the Bank Commissioner.
Effect of Governmental Monetary Policies
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the U.S. government and its
agencies. The monetary policies of the FRB have had, and are likely to continue to have, an important impact on the operating results of
commercial banks through the FRB’s statutory power to implement national monetary policy in order, among other things, to curb
inflation or combat a recession. The FRB, through its monetary and fiscal policies, affects the levels of bank loans, investments and
deposits through its control over the issuance of U.S. government securities, its regulation of the discount rate applicable to member
banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact of future
changes in the FRB’s monetary and fiscal policies.
Future Regulation of Banks
Banking regulators, federal and state governments and other bodies routinely consider and enact new laws, regulations and
policies, and may have differing interpretations regarding certain laws, regulations and policies, regulating the banking industry and
public companies generally. In addition to potential legislative action, it is unclear whether or to what extent the federal departments and
agencies will finalize, adopt, amend or repeal existing or proposed rules and regulations, including those implementing the Dodd-Frank
Act, the EGRRCPA and the AMLA, among others. The ultimate impact of changes in laws on our business and results of operations will
depend in part on regulatory interpretation and rulemaking, including as a result of the EGRRCPA and the AMLA, among others, as well
as the success of any actions taken to mitigate the negative earnings impact of certain provisions.
We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business
may be affected by any new regulation or statute. However, given our growth and the extensive and comprehensive regulation of our
industry, we expect that our regulatory compliance costs will continue to increase over time. The scope, timing and implementation of
regulatory and statutory changes, including as a result of staffing changes at the federal banking regulatory agencies, are uncertain and
could have an adverse effect on our business, financial condition or results of operation.
AVAILABLE INFORMATION
We file annual, periodic and current reports, proxy statements and other information required by the Exchange Act with the FDIC,
copies of which are available electronically at the FDIC’s website at http://www.fdic.gov. In addition, we make available, free of charge,
through the Investor Relations section of our Internet website at http://ir.ozk.com under “Filings,” our Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such reports with or furnish them to the
FDIC. You may also inspect and copy any document we file with the FDIC at the public reference facilities maintained at the FDIC,
Accounting and Securities Disclosure Section, Division of Risk Management Supervision, 550 17th Street, NW, Washington, DC 20429.
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We have adopted a written code of ethics that applies to all directors, officers and employees of the Bank, including our principal
executive officer, principal financial officer and principal accounting officer, in accordance with Section 406 of the Sarbanes-Oxley Act
of 2002 and the rules of the SEC promulgated thereunder. Our code of ethics is available on our Investor Relations website,
http://ir.ozk.com, under “Corporate – Governance Documents.” In the event that we make changes in, or provide waivers from, the
provisions of this code of ethics that we are required to disclose, we intend to disclose these events on our Investor Relations website in
such section. Our Corporate Governance Guidelines, Board committee charters and other corporate governance related documents are
also posted on our website, and available in print upon request from any shareholder to our Investor Relations Department.
Information contained on or accessible through our website or any other website referenced in this report is not part of this report.
References to websites in this report are intended to be inactive textual references only.
Shareholders may obtain a copy of any of the above-referenced corporate governance documents by writing to our Investor
Relations Department at Investor Relations, Bank OZK, P. O. Box 8811, Little Rock, Arkansas 72231-8811 or by calling (501) 978-
2265. Pursuant to Section 350.3 of the FDIC rules and regulations, each bank is required to make available on request an annual
disclosure statement. Our Annual Report on Form 10-K serves as our annual disclosure statement.
Item 1A. RISK FACTORS
An investment in shares of our common stock involves a variety of risks, some of which are specific to us and some of which are
inherent to the financial services industry. The following risks and other information in this report or incorporated in this report by
reference, including our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” should be carefully considered before investing in our securities. These risks may adversely affect
our financial condition, results of operations or liquidity. Many of these risks are out of our direct control, though efforts are made to
manage those risks while optimizing financial results. These risks are not the only ones we face. Additional risks and uncertainties that
we are not aware of or focused on or that we currently deem immaterial may also adversely affect our business and operation. This
Annual Report on Form 10-K is qualified in its entirety by all these risk factors.
SUMMARY
The following is a summary of the principal risks that could adversely affect our business, financial condition and results of
operations.
Economic and Credit Risks
(cid:120) Our business has been, and may continue to be, adversely affected by conditions in the financial markets and economic
conditions generally and in our markets in particular.
(cid:120) Our business depends on the condition of the local and regional economies where we operate and we may have more credit risk
to the extent loans are concentrated by location or industry of the borrowers or collateral.
If we experience greater credit losses in our loan portfolios than anticipated, our earnings may be materially adversely affected.
(cid:120)
(cid:120) Credit risk and concentrations of risk, including our concentration in CRE lending, can increase the potential for us to incur
significant losses and may subject us to additional scrutiny.
(cid:120) Our business may suffer if there are significant declines in the value of real estate.
(cid:120) The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property may not
accurately describe the net value of the collateral that we can realize.
(cid:120) Our indirect lending involves risk elements in addition to normal credit risk.
(cid:120)
(cid:120) We face strong competition in our markets.
Inflation could negatively impact our business and our profitability.
Operational Risks
(cid:120) We depend on key personnel for our success.
(cid:120) We rely on certain third-party vendors.
(cid:120) We need to stay current on technological changes in order to compete and meet customer demands.
(cid:120) Failures or interruptions in or breaches to our computer systems, or other cyber threats or information security incidents, could
materially and adversely affect our business and operations.
(cid:120) We may incur losses as a result of unforeseen or catastrophic events, extreme weather events, or other natural disasters and
other unexpected events due to climate change.
(cid:120) Climate change-related legislative and regulatory initiatives and the increased focus on environmental, social and governance
issues may result in operational changes that could significantly impact our business.
(cid:120) New lines of business, products, product enhancements or services may subject us to additional risks.
(cid:120)
Ineffective techniques for managing risk, maintaining data quality, or failures or circumvention of our internal controls, may
expose us to material unanticipated losses.
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(cid:120) Our accounting estimates and risk management processes rely on analytical and forecasting models and tools.
(cid:120) Our selection of accounting policies and methods may affect our reported financial results.
(cid:120) We depend on the accuracy and completeness of information about customers.
(cid:120) We are subject to environmental liability risks.
Legal, Compliance and Regulatory Risks
(cid:120) We are subject to extensive and evolving government regulation and supervision, which could increase our cost of doing
business, limit or restrict our activities and adversely affect our operations.
(cid:120) Existing and proposed legislation and regulations and any new laws and regulations may affect our operations and growth.
(cid:120) We are involved in legal proceedings and may be the subject of additional litigation and/or investigations in the future.
(cid:120) We may be subject to claims and litigation asserting lender liability.
(cid:120) We may be subject to claims and litigation pertaining to fiduciary responsibility.
(cid:120) We are subject to litigation risk pertaining to intellectual property.
(cid:120) Changes in accounting standards could materially impact how we report our financial results.
(cid:120)
(cid:120) We are subject to changes in federal, state and local tax laws, interpretation of existing laws and examinations and challenges by
Increases in FDIC insurance premiums may adversely impact our earnings and financial condition.
taxing authorities.
Liquidity and Market Risks
(cid:120) Our operations are significantly affected by interest rate levels.
(cid:120) We may not be able to meet the cash flow requirements of our depositors, borrowers, or creditors, or the cash needs for
(cid:120)
expansion or other corporate activities.
If we lose a significant portion of our core deposits or our cost of funding deposits increases, our liquidity and/or profitability
could be adversely impacted.
(cid:120) We use brokered deposits which may be an unstable and/or expensive deposit source to fund earning asset growth.
(cid:120) We may need to raise additional capital in the future to continue to grow, but that capital may not be available when needed.
(cid:120) We cannot guarantee that we will pay dividends on our capital stock in the future.
(cid:120) The performance of our investment securities portfolio is subject to fluctuation due to changes in interest rates and market
conditions, including credit deterioration of the issuers of individual securities.
(cid:120) We currently invest in bank owned life insurance and may continue to do so in the future.
(cid:120) Our investments and/or financings in certain tax-advantaged projects may not generate returns as anticipated and may have an
adverse impact on our financial results.
(cid:120) We may be adversely impacted by the transition from LIBOR as a reference rate.
(cid:120) We and/or the holders of certain classes of our securities could be adversely affected by unfavorable ratings from rating
agencies.
(cid:120) The holders of our subordinated debentures, subordinated notes and Preferred Stock have rights that are senior to those of our
common shareholders.
(cid:120) The price of our common and preferred stock is affected by a variety of factors, many of which are outside our control.
(cid:120) Our common and preferred stock trading volume may not provide adequate liquidity for investors.
(cid:120) Future issuances of additional equity securities could result in dilution of existing shareholders’ equity ownership and may
adversely affect the market price of our stock.
(cid:120) Our capital stock is not an insured deposit.
Strategic, Reputational and Other Risks
(cid:120) Our recent results may not be indicative of our future results.
(cid:120)
If we do not manage our growth effectively, our business, future prospects, financial condition, results of operations and
liquidity could be adversely affected.
(cid:120) We may be adversely affected by risks associated with any potential future acquisition.
(cid:120) Reputational risk and social factors may impact our results.
(cid:120) The soundness of other financial institutions could adversely affect us.
(cid:120)
If our goodwill becomes impaired, we could be required to record impairment charges.
ECONOMIC AND CREDIT RISKS
Our business has been, and may continue to be, adversely affected by conditions in the financial markets and economic
conditions generally and in our markets in particular.
We provide traditional commercial, retail and mortgage banking services, as well as other financial services including trust and
wealth management. All of our products and services are materially affected by conditions in the financial markets and economic
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conditions in the principal markets in the United States in which we conduct business. Global economic conditions also affect our
operating results because global economic conditions directly influence the U.S. economic conditions. Sources of global economic and
market instability include, but are not limited to, the potential for an economic slowdown in the United Kingdom, Europe and the United
States; the impact of trade negotiations; economic conditions in China, including the global economic impacts of the Chinese economy
and China’s regulation of commerce; and escalating military tensions in Europe as a result of Russia’s invasion of Ukraine. Various
market conditions also affect our operating results. Concern regarding the ability of Congress and the President collectively to reach
agreement on federal budgetary matters (including the debt ceiling), or prolonged stalemates leading to total or partial governmental
shutdowns, also can have adverse economic consequences and create the risk of economic instability or market volatility, with potential
adverse consequences to our business and financial performance. A worsening of business and economic conditions generally or
specifically in the principal markets in which we conduct business could have adverse effects on our business, including, but not limited
to, the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
a decrease in deposit balances or the demand for, or the availability of, loans and other products and services offered by us;
an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on
their loans or other obligations to us, which could lead to higher levels of past due loans, nonperforming assets, net charge-
offs and provisions for credit losses;
a decrease in the value of loans and other assets secured by consumer or commercial real estate;
an impairment of certain intangible assets, such as goodwill;
a decrease in net interest income from our lending and deposit gathering activities; and
an increase in competition resulting from financial services companies.
Economic and inflationary pressure on consumers and uncertainty regarding continuing economic improvement could result in
changes in consumer and business spending, borrowing and savings habits. Such conditions could have a material adverse effect on the
credit quality of our loans and our business, financial condition and results of operations.
Our business depends on the condition of the local and regional economies where we operate and we may have more credit risk
to the extent loans are concentrated by location or industry of the borrowers or collateral.
A large number of our banking offices are located in south central and southeastern portions of the United States. As a result, our
financial condition and results of operations may be significantly impacted by changes in the economies of the states where we currently
have most of our banking offices, or the markets in which our assets are geographically located. In addition, approximately 11% of the
funded balance of our total loan portfolio at December 31, 2022 (14% at December 31, 2021) was concentrated in the New York–
Newark–Jersey City, NY–NJ–PA Metropolitan Statistical Area (“MSA”). As a result, our financial condition and results of operations
depend, in part, upon economic conditions in this market area. Slowdown in economic activity in this market, or in our other principal
market areas, including deterioration in housing or real estate markets or increases in unemployment and under-employment, may have a
significant and disproportionate effect on consumer and business confidence and the demand for our products and services, result in an
increase in problem assets, foreclosures, charge-offs, delinquencies or non-payment of loans and a decrease in the demand for our
products and services, in collateral value (especially real estate) and significantly affect our deposit funding sources. Any of these events
could have an adverse effect on our financial position, results of operations and liquidity.
If we experience greater credit losses in our loan portfolios than anticipated, our earnings may be materially adversely affected.
As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any
collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of
making loans and could have a material adverse effect on our operating results. We establish an allowance for the lifetime expected
losses on individual loans, and a reserve (reflected as a liability on our consolidated balance sheet) for lifetime expected losses on our
unfunded loan commitments (comprised primarily of closed but unfunded construction and development loans). The aggregate of the
allowance for our funded loans and the reserve for losses on unfunded loan commitments is referred to as our ACL. Although we believe
that we maintain our ACL at a level adequate to absorb lifetime expected losses in our loan portfolio, estimates of credit losses are
subjective and their accuracy may depend on the outcome of future events that are difficult to predict. Our experience in the banking
industry indicates that some portion of our loans may only be partially repaid or may never be repaid at all. Credit losses occur for many
reasons beyond our control. Accordingly, we may incur charge-offs or otherwise be required to make significant and unanticipated
increases in our ACL during future periods which could materially affect our financial position and results of operations.
Additionally, bank regulatory authorities, as an integral part of their supervisory functions, periodically review our ACL and our
methodologies for calculating the ACL. These regulatory authorities may require adjustments to the ACL or ACL methodology or may
require recognition of additional credit losses or charge-offs based upon their judgment. Any increase in the ACL, credit losses or
charge-offs required by bank regulatory authorities could have a material adverse effect on our financial condition, results of operations
and liquidity.
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Credit risk and concentrations of risk, including our concentration in CRE lending, can increase the potential for us to incur
significant losses and may subject us to additional scrutiny.
Our loan portfolio is comprised of a significant amount of real estate loans, including a large number of construction/land
development and non-farm/non-residential loans. Our real estate loans comprised 75.5% of our total loans at December 31, 2022 (77.0%
at December 31, 2021). In addition, our construction/land development and non-farm/non-residential loans, which are subsets of our real
estate loans, comprised 39.9% and 22.5%, respectively, of our total loan portfolio at December 31, 2022 (45.0% and 20.7%, respectively,
at December 31, 2021).
Real estate construction, acquisition and land development loans have certain risks not present in other types of loans, including,
among others, risks associated with uncertainty of total construction costs, including the potential for construction cost overruns in
excess of original estimates (as a result of, for instance, shortages in labor and raw materials and supplies), market deterioration during
construction, project completion risk, general contractor credit risk, lack of permanent take-out financing, and risks associated with the
ultimate sale, lease or use of the completed construction. These loans often involve the disbursement of funds with repayment
substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain
permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the
value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of
construction of the project and may incur a loss. Increases in market rates of interest may have an effect on construction loans by
increasing the end-purchaser’s borrowing costs, thereby possibly reducing the overall demand for the project. Properties under
construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process
of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to
complete construction and assume the market risk of selling the project at a future market price, which may or may not enable us to fully
recover unpaid loan funds and associated construction and liquidation costs. Land development loans can also pose additional risk
because of the lack of income being produced by the property and potential illiquid nature of the collateral. These risks can be
significantly impacted by supply and demand conditions.
In addition, many of our real estate construction, acquisition and development loans typically involve large balances and may be to
single borrowers or groups of related borrowers. If a decline in economic conditions or other issues cause difficulties for our borrowers
of these types of loans, if we fail to accurately evaluate the credit risk of these loans when we underwrite them or if we do not continue to
adequately monitor the performance of these loans, the underlying construction projects that collateralize our loans may have material
adverse deviations from projected construction plans and budgets, resulting in the potential that our loan portfolio could experience
delinquencies, defaults and credit losses that could have a material adverse effect on our business, financial condition or results of
operations.
Our non-farm/non-residential real estate loan portfolio includes commercial real estate loans, which are secured by apartments,
hotels and motels, offices, shopping/retail centers, industrial, mixed use and other types of commercial properties. Our non-farm/non-
residential real estate loan portfolio may carry more risk as compared to other types of lending, because they typically involve larger loan
balances and may be to single borrowers or groups of related borrowers. This may result in larger charge-offs on commercial real estate
loans on a per loan basis than those incurred with our consumer loan portfolio. The payment experience on commercial real estate loans
that are secured by income producing properties are typically dependent on the successful operation of the related real estate project and
thus, may subject us to adverse conditions in the real estate market or to the general economy. Any unexpected deterioration in the credit
quality of our commercial real estate loan portfolio would require us to increase our provision for credit losses, which would reduce our
profitability and could materially adversely affect our business, financial condition, results of operations and prospects. In addition, the
collateral securing these loans typically cannot be liquidated as easily as residential real estate. If we foreclose on these loans, our
holding period for the collateral typically is longer than residential properties because there are fewer potential purchasers of the
collateral.
We believe we have established appropriate underwriting and ongoing monitoring policies and procedures for our real estate loans,
including construction/land development and non-farm/non-residential loans, and have established appropriate ACL levels for such
loans. However, there can be no assurance that such underwriting and ongoing monitoring policies and procedures are, or will continue
to be, appropriate or that losses on real estate loans, including construction/land development and non-farm/non-residential loans, will
not require additions to our ACL, which could have an adverse effect on our financial position and results of operations.
In addition, the federal banking agencies, including the FDIC, have promulgated guidance on sound risk management practices for
financial institutions with concentrations in construction/land development and/or CRE lending. The guidance states that if a
concentration is present, management must employ heightened risk management practices that address key elements, including board
and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and
monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of CRE
lending. While we believe we have implemented policies, procedures and appropriate risk management practices with respect to our
construction/land development and CRE loan portfolio consistent with this guidance, bank regulators could require us to implement
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additional policies, procedures or risk management practices, or require us to maintain increased capital levels, consistent with their
interpretation of the guidance that may result in additional costs to us.
Our business may suffer if there are significant declines in the value of real estate.
The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the
geographic area in which the real estate is located, whether locally, regionally or nationally, and numerous other factors. If the value of
the real estate serving as collateral for our loan portfolio were to decline materially, a significant part of our loan portfolio could become
under-collateralized. If the loans that are collateralized by real estate become troubled during a time when market conditions are
declining or have declined, we may not be able to realize the value of the security anticipated when we originated the loan, which in turn
could have an adverse effect on our net charge-offs, our allowance and provision for credit losses and our financial condition, results of
operations and liquidity.
The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property may not
accurately describe the net value of the collateral that we can realize.
Our underwriting and ongoing monitoring policies and processes for real estate loans generally utilize appraisals of the real
property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate
values may change significantly in relatively short periods of time (especially in periods of heightened economic uncertainty), this
estimate may not accurately describe the net value of the real property collateral after the loan is made. As a result, we may obtain
subsequent appraisals that differ materially from prior appraisals regarding the value of the property, which could have an adverse effect
on the loan’s credit quality or risk rating, and we may not be able to realize the full amount of any remaining indebtedness when we
foreclose on and sell the relevant property. This could have a material adverse effect on our business, financial condition or results of
operations.
Our indirect lending involves risk elements in addition to normal credit risk.
Our indirect lending group makes loans to individuals primarily for the purchase of RV and marine vehicles and vessels. We serve
customers that cover varying ranges of creditworthiness, and the terms and rates of these types of loans reflect those varying risk profiles.
While our lending team is experienced and skilled at underwriting and monitoring these loans, such loans involve risk elements in
addition to normal credit risk. While these loans are secured, they are secured principally by depreciating assets and characterized by
LTV ratios that could result in us not recovering the full value of an outstanding loan upon default by the borrower. If the losses from our
indirect loan portfolio are higher than anticipated, it could have a material adverse effect on our allowance and provision for credit losses
and our financial condition and results of operations.
We have limited personal contact with the borrowers as a result of indirect lending through non-bank channels, namely dealer and
correspondent relationships. If we are not able to maintain existing relationships with significant dealers or correspondents or if we are
not able to develop new relationships for any reason – including if we are not able to provide services on a timely basis or compete
successfully with the products and services of our competitors – our indirect lending volumes, and the number of dealers and
correspondents with whom we have relationships, could decline in the future, which could adversely affect our results of operations or
financial condition.
Inflation could negatively impact our business and our profitability.
Prolonged periods of inflation may impact our profitability by negatively impacting our non-interest expenses, including
increasing expense related to talent acquisition and retention. Additionally, inflation may lead to a decrease in consumer and clients
purchasing power and negatively affect the need or demand for our products and services. If significant inflation continues, our business
could be negatively affected by, among other things, increased default rates leading to credit losses which could decrease our appetite for
new credit extensions. These inflationary pressures could adversely affect our results of operations or financial condition.
We face strong competition in our markets.
Competition in many of our banking markets is intense. We compete with financial and bank holding companies, state and
national commercial banks, savings and loan associations, consumer finance companies, credit unions, securities brokerages, insurance
companies, mortgage companies, money market mutual funds, asset-based non-bank lenders and other financial institutions and
intermediaries, as well as non-financial institutions offering payroll, debit card and other services. Some of these competitors have an
advantage over us through greater financial resources, lending limits and larger distribution networks, and may be able to offer a broader
range of products and services. Other competitors, many of which are smaller, are either privately-held or non-banks that are not subject
to the same extensive regulations that govern our activities and thus benefit from greater flexibility than we have in adopting or
modifying growth or operational strategies. Some of our competitors (larger or smaller) may have more liberal lending policies and
processes. If we fail to compete effectively for deposits, loans and other banking customers in our markets, we could lose substantial
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market share, suffer a slower growth rate or no growth and our financial condition, results of operations and liquidity could be adversely
affected.
In addition, technology and other changes are allowing parties to complete, through alternative methods and delivery channels,
financial transactions that historically have involved banks. For example, consumers can now maintain funds that would have historically
been held as bank deposits in brokerage accounts, mutual funds with an Internet-only bank, or with virtually any bank in the country
through online or mobile banking. Consumers can also complete transactions such as purchasing goods and services, paying bills and/or
transferring funds directly without the assistance of banks by transacting through non-bank enterprises or through the use of emerging
payment technologies. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of
customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower-cost deposits as
a source of funds could have an adverse effect on our financial condition, results of operations and liquidity.
OPERATIONAL RISKS
We depend on key personnel for our success.
Our operating results and ability to execute our strategic plans and minimize credit losses are highly dependent on the services,
managerial abilities and performance of our current executive officers and other key personnel. We have an experienced management
team that our Board believes is capable of managing and growing our business and executing those strategic plans. We do not have
employment contracts with our executive officers or key personnel. Losses of or changes in our current executive officers or other key
personnel and their responsibilities may disrupt our business and could adversely affect our financial condition, results of operations and
liquidity. Competition for the best people in many activities engaged in by us is intense including with respect to compensation and
emerging workplace practices, accommodations and remote work options, and we may not be able to hire people or to retain them.
Additionally, our ability to retain our current executive officers and other key personnel may be further impacted by existing or new
legislation and regulations regarding incentive compensation that is affecting or may affect the financial services industry, as discussed in
Item 1. Business – Supervision and Regulation – Executive and Incentive Compensation. There can be no assurance that we will be
successful in retaining our current executive officers or other key personnel or hiring additional key personnel to assist in executing our
business strategies. Our ability to execute our business strategy and provide high quality service will suffer if we are unable to recruit or
retain a sufficient number of qualified personnel or if the costs of employee compensation or benefits increase substantially.
We rely on certain third-party vendors.
Our reliance on certain third-party vendors to provide products and services necessary to maintain our day-to-day operations
subjects us to the risk of operational disruption, failure or capacity constraints. Third-party vendors provide certain key operational
components, such as cloud-based computing, storage services, payment and card processing services and internet connections and
network access, among others. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with
applicable contractual arrangements or service level agreements. Legal authorities and regulators could hold us responsible for failures
by these parties to comply with applicable laws, rules or regulations. These failures could expose us to significant litigation or regulatory
action that could limit our activities or impose significant fines or other financial losses. Additionally, we could be subject to significant
litigation from consumers or other parties harmed by these failures and could suffer significant losses of business and revenue, as well as
reputational harm as a result of these failures.
We maintain a system of policies and procedures designed to monitor vendor risks including, among other things, (i) changes in
the vendor’s organizational structure, (ii) changes in the vendor’s financial condition, (iii) changes in existing products and services or
the introduction of new products and services, and (iv) changes in the vendor’s support for existing products and services. While we
believe these policies and procedures help to mitigate risk, the failure of an external vendor to perform in accordance with applicable
contractual arrangements or the service level agreements could be disruptive to our operations, which could have a material adverse
effect on our business and our financial condition and results of operations.
We need to stay current on technological changes in order to compete and meet customer demands.
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven
solutions, and as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible
for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems,
as well as nontraditional alternatives like crowdfunding and digital wallets. Our future success will depend, in part, upon our ability,
including our ability to fully deploy and leverage the technology applications under development from our technology groups, to address
the needs of our customers by using technology to provide solutions through various delivery channels that will satisfy customer
demands for product functionality and convenience, as well as to create additional operational efficiencies and greater privacy and
security protection for customers and their personal information. Some of our competitors have substantially greater resources to invest
in technological improvements. We may not be able to effectively implement new technology-driven solutions or be successful in
marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the
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financial services industry could impair our ability to retain or acquire new customers and could have an adverse effect on our business,
financial position, results of operations and liquidity.
Failures or interruptions in or breaches to our computer systems, or other cyber threats or information security incidents, could
materially and adversely affect our business and operations.
We are dependent upon information technologies, computer systems and networks, including those maintained by us and those
maintained and provided to us by third parties (e.g., cloud solutions and “software-as-a-service”), to conduct operations and are reliant on
technology to help increase efficiency in our business. These systems could become unavailable or impaired from a variety of causes,
including, among others, storms and other natural disasters, terrorist attacks, fires, utility outages, internal or external theft or fraud,
design defects, human error or complications encountered as existing systems are maintained, replaced or upgraded. We maintain a
system of internal controls and security for many systems we maintain, including redundancy and/or back-up technologies, to mitigate
the risks of these occurrences, and we maintain insurance coverage for certain risks. However, should an event occur that is not
prevented or detected by our internal controls, causes an interruption in service where we do not have an effective redundant or back-up
system, or is uninsured against or in excess of applicable insurance limits, such occurrence could have an adverse effect on our business
and our reputation, which, in turn, could have a material adverse effect on our financial condition, results of operations and liquidity.
In addition, our operations require us to protect our information systems, technology infrastructure and data. Cyber security
incidents and other disruptions could jeopardize the security of information stored in and transmitted through our information systems
and networks and result in the transmission, theft, unauthorized disclosure and/or destruction of our confidential information, including
customer information, corporate information or other assets. We proactively monitor our network and deploy appropriate security
personnel, processes and technologies to identify, protect, detect, respond and recover from damage or unauthorized access to our
information systems and network; however, there can be no assurance that these security measures or procedures will be completely
successful against every threat, every time, or that we will discover a breach in a timely fashion, especially as the methods used become
increasingly complex and sophisticated and change frequently. Additionally, our risk and exposure to cyber threats and other information
security breaches is heightened as we expand our use of cloud technology and internet and mobile banking delivery channels for our
products and services.
We also face the risk of operational disruption, failure, termination, or capacity constraints of any of the third parties that facilitate
our business activities, including vendors, exchanges, and other financial intermediaries. Such parties could also be the source or cause of
an attack on, or breach of, our operational systems, data or infrastructure, and could disclose such an attack or breach to us in a delayed
manner or not at all. In addition, we may be at risk of an operational failure with respect to our customers’ systems. Our risk and
exposure to these matters remains heightened because of, among other things, the evolving nature of these threats and the continued
uncertain global economic environment.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or
enhance our protective measures, investigate and remediate any information security vulnerabilities, or respond to any changes to state or
federal regulations, policy statements or laws concerning information systems or security. Any failure to maintain adequate security over
our information systems, our technology-driven products and services or our customers’ personal and transactional information could
negatively affect our business and our reputation and result in fines, penalties, or other costs, including litigation expense and/or
additional compliance costs, all of which could have a material adverse effect on our financial condition, results of operations and
liquidity.
We may incur losses as a result of unforeseen or catastrophic events, extreme weather events, or other natural disasters and
other unexpected events due to climate change.
The occurrence of unforeseen or catastrophic events, extreme weather events or other natural disasters, could create economic and
financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our
business. Our operations and customer base are located in markets where natural disasters, including tornadoes, severe storms, fires,
floods, hurricanes, earthquakes and other extreme weather conditions often occur. Such natural disasters could significantly impact the
local population and economies and our business and could pose physical risks to our properties and/or employees, and could increase
the risk that many of our borrowers may experience losses or sustained job interruption, which may materially impair their ability to
satisfy their loan obligations. A significant natural disaster in or near one or more of our markets could have a material adverse effect on
our business, financial condition or results of operations.
There is an increasing concern over the risks of climate change and related environmental sustainability matters. The physical risks
of climate change include discrete events, such as flooding and wildfires, and long-term shifts in climate patterns, such as extreme heat,
sea level rise, and more frequent and prolonged drought. Such events could disrupt our operations or those of our customers or third
parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market
volatility. Our markets could experience symptomatic effects which over time, could result in declining demand for certain types of
business that we finance, including commercial real estate projects, or decrease the value of our loans and other assets secured by real
estate that might be impacted. Climate change may also have indirect effects on our business by increasing the cost of (or making
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unavailable) property insurance on terms we find acceptable. Additionally, transitioning to a low carbon economy may entail extensive
policy, legal, technology, and market initiatives. Transition risks, including changes in consumer preferences and additional regulatory
requirements or taxes, could increase our expenses and undermine our strategies. In addition, our reputation and client relationships may
be damaged as a result of our practices related to climate change, including our involvement, or our clients’ involvement, in certain
industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or
change our activities in response to considerations relating to climate change.
We have begun to explore the impacts of such changes in our risk management processes and plan to incorporate systemic and
idiosyncratic shock scenarios in our internal stress testing activities. In addition, we are evaluating additional methodologies to further
consider the relationship of such shocks to climate change related events and further develop internal strategies, policies and related risk
management practices in an effort to bolster our state of readiness to deal with such unforeseen and catastrophic events. However,
because the timing and impact of climate change has limited predictability, our risk management strategies may not be effective in
mitigating climate risk exposure.
Climate change-related legislative and regulatory initiatives and the increased focus on environmental, social and governance
issues may result in operational changes that could significantly impact our business.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global
environment. As a result, political and social attention to the issue of climate change has increased. In recent years, governments across
the world have entered into international agreements to attempt to reduce global temperatures, in part by limiting greenhouse gas
emissions. The United States government has rejoined the Paris Climate Agreement, the most recent international climate change accord,
while the U.S. Congress, state legislatures and federal and state regulatory agencies are likely to continue to propose and advance
numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. These agreements and measures may
result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational
changes. Changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to,
among other things, improve the energy efficiency of properties we own in order to comply with such regulations. In addition, the federal
banking agencies may address climate-related issues in their agendas in various ways, including by increasing supervisory expectations
with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic
risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors, and encouraging investment
by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. Each of
the above-described initiatives, as well as other similar initiatives, may require us to expend significant capital and incur compliance,
operating, maintenance and remediation costs.
Increasing governmental, investor and societal attention to environmental, social and governance matters, including expanding
mandatory and/or voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk
oversight, among others, could expand the nature, scope, and complexity of matters that we are required to control, assess and report.
These factors may alter the environment in which we do business and may increase the ongoing costs of compliance and adversely
impact our results of operations and cash flows. If we are unable to adequately address such environmental, social and governance
matters or we or our borrowers fail or are perceived to fail to comply with applicable laws, regulations, policies and related
interpretations, it could negatively impact our reputation and our business results.
New lines of business, products, product enhancements or services may subject us to additional risks.
From time to time, we may implement or acquire new lines of business or offer new products and product enhancements as well as
new services within our existing lines of business. There are substantial risks and uncertainties associated with these efforts. In acquiring,
developing or marketing new lines of business, products, product enhancements or services, we may invest significant time and
resources, although there is no guarantee that these new lines of business, products, product enhancements or services will be successful
or that we will realize their expected benefits. Further, initial timetables for the introduction, development and delivery of new lines of
business, products, product enhancements or services may not be achieved, and price and profitability targets may not prove feasible.
External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the
ultimate implementation and success of new lines of business or offerings of new products, product enhancements or services.
Furthermore, any new line of business, product, product enhancement or service could have a significant impact on the effectiveness of
our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of
business or offerings of new products, product enhancements or services could have a material adverse effect on our business, financial
condition or results of operations.
Ineffective techniques for managing risk, maintaining data quality, or failures or circumvention of our internal controls, may
expose us to material unanticipated losses.
In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that
enable us to identify, monitor and control our exposure to material risks, such as credit, operational, legal and reputational risks, among
other risks. Additionally, data is key to the decision-making processes used throughout our Bank. We maintain appropriate data quality
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and data governance standards, frameworks and processes to help ensure that data and data elements are accurately identified, securely
stored, accessed appropriately and utilized in compliance with internal policies and procedures. Our risk management methods and data
governance standards may prove to be ineffective due to their design, their implementation or the degree to which we adhere to them, the
lack of adequate, accurate or timely information, inappropriate use of data or various other factors. If our risk management or data
quality efforts are ineffective, we could suffer losses that could have a material adverse effect on our financial condition, results of
operations and liquidity, and we could be subject to litigation from customers or sanctions or fines from regulators. Our techniques for
managing the risks we face may not fully mitigate the risk exposure in all economic or market environments, including exposure to risks
that we might fail to identify or anticipate.
Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based
in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any
failure or circumvention of our controls, processes and procedures or failure to comply with regulations related to controls, processes and
procedures could necessitate changes in those controls, processes and procedures, which may increase our compliance costs, divert
management attention from our business or subject us to regulatory actions and increased regulatory scrutiny. Any of these could have an
adverse effect on our financial condition, results of operations and liquidity.
Our accounting estimates and risk management processes rely on analytical and forecasting models and tools.
The processes we use to estimate our ACL, to measure the fair value of financial instruments, and to measure and monitor risk
throughout the Bank, as well as the processes used to estimate the effects of changing interest rates and other measures of our financial
condition and results of operations, depend upon the use of analytical and forecasting models and tools. These models and tools reflect
assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions
are accurate, the models and tools may prove to be inadequate or inaccurate because of other flaws in their design or their
implementation. Any such failure in our analytical or forecasting models and tools could have a material adverse effect on our business,
financial condition and results of operations.
Our selection of accounting policies and methods may affect our reported financial results.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of
operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they
comply with accounting principles generally accepted in the U.S. (“GAAP”) and reflect management’s judgment of the most appropriate
manner to report our financial condition and results of operations. In some cases, management must select the accounting policy or
method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our
reporting materially different results than would have been reported under a different alternative.
Certain accounting estimates have been determined by management to be critical to presenting our financial condition and results
of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially
different amounts could be reported under different conditions or using different assumptions or estimates. Because of the uncertainty of
estimates involved in these matters, we may be required to do one or more of the following: significantly increase the ACL or sustain
credit losses that are significantly higher than the ACL allocation provided; recognize an ACL on our portfolio of investment securities;
or significantly increase our accrued tax liability. Any of these could have a material adverse effect on our business, financial condition,
or results of operations. For a discussion of our critical accounting estimates, see Part II, Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Critical Accounting Estimates included in this Annual Report on Form 10-K.
We depend on the accuracy and completeness of information about customers.
In deciding whether to extend credit or enter into certain transactions, we rely on information furnished by or on behalf of
customers, including financial statements, credit reports, tax returns and other financial information. We may also rely on representations
of those customers or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance
on inaccurate or misleading information, financial statements, credit reports, tax returns or other financial information, including
information falsely provided as a result of identity theft, could have an adverse effect on our business, financial condition and results of
operations.
We are subject to environmental liability risks.
A significant portion of our loan portfolio is secured by real property. In the ordinary course of business, we may foreclose on and
take title to real properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these
properties. Additionally, we have acquired a number of retail banking facilities and other real properties, any of which may contain
hazardous or toxic substances. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal
injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected
property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or
enforcement policies with respect to existing laws may increase our exposure to environmental liability. We have policies and procedures
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that require either formal or informal evaluation of environmental risks and liabilities on real property (i) before originating any loan or
foreclosure action, except for certain loans where the real estate collateral is second lien collateral or (ii) prior to the completion of any
acquisition of retail banking facilities, real property for future development of retail banking facilities or any other real property,
including any real property to be acquired in a merger and acquisition transaction. These policies, procedures and evaluations may not be
sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an
environmental hazard, including any fines or penalties levied for noncompliance with environmental laws, could have an adverse effect
on our financial condition, results of operations and liquidity.
LEGAL, COMPLIANCE AND REGULATORY RISKS
We are subject to extensive and evolving government regulation and supervision, which could increase our cost of doing
business, limit or restrict our activities and adversely affect our operations.
We are subject to extensive state and federal regulation, supervision and examination governing almost all aspects of our
operations, which limits the businesses in which we may permissibly engage. The laws and regulations governing our business are
intended primarily for the protection of our depositors, our customers, the financial system and the FDIC insurance fund, not our
shareholders or other creditors. These laws and regulations govern a variety of matters, including certain debt obligations, changes in
control, maintenance of adequate capital, and general business operations and financial condition (including permissible types, amounts
and terms of loans and investments, the amount of reserves against deposits, restrictions on dividends and repurchases of our capital
securities, establishment of branch offices, and the maximum interest rate that may be charged by law). In recent years, both Congress
and the federal banking regulators have engaged in a rebalancing of the post financial crisis legal and regulatory framework. Under the
current presidential administration and Congress, financial institutions are becoming subject to increased scrutiny and more intense
supervision and regulation, which creates a higher risk of enforcement action. We expect that our business will remain subject to
extensive regulation and supervision.
Financial regulators’ prudential and supervisory authority gives them broad power and discretion to direct our actions, and they
have assumed an active oversight, examination, and enforcement role across the financial services industry on both the federal and state
levels. Mortgage-related practices, sales practices and related incentive compensation programs, consumer privacy, fair banking,
overdraft fees, and other consumer compliance matters have been areas of regulatory focus in the recent past. Additionally, misconduct
by employees, including unethical, fraudulent, improper, or illegal conduct, or other unfair, deceptive, abusive, or discriminatory
practices, can result in litigation, or government investigations and enforcement actions, and cause significant reputational harm.
Federal law grants substantial enforcement powers to federal banking regulators and law enforcement agencies. This authority
includes, among other things, the ability to assess significant civil or criminal monetary penalties, fines, or restitution; to issue informal
or formal enforcement actions, including required board resolutions, memoranda of understanding, written agreements, consent orders,
cease and desist orders or prompt corrective action orders; to take corrective action and cease unsafe and unsound practices; and to
initiate injunctive actions against banking organizations and institution-affiliated parties. These enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. In some cases, regulatory agencies may take supervisory actions that
may not be publicly disclosed, which may address existing controls and could restrict or limit a financial institution. Also, as part of our
regular examination process, our regulators may advise us to operate under various restrictions as a prudential matter. Such supervisory
actions or restrictions, in whatever manner imposed, could negatively affect our ability to engage in new activities and certain
transactions, as well as have a material adverse effect on our business and results of operations and may not be publicly disclosed.
A failure to comply with regulatory requirements and expectations could expose us to fines, regulatory penalties, other costs,
reputational damage and regulatory or enforcement actions, such as limitations on engaging in new activities or expanding
geographically. In some cases, governmental authorities have required criminal pleas or other extraordinary terms as part of such
settlements, which could have significant consequences for a financial institution, including loss of clients, restrictions on the ability to
access the capital markets and the inability to operate certain businesses or offer certain products for a period of time. Violations of laws
and regulations or deemed deficiencies in risk management practices also may be incorporated into our confidential supervisory ratings.
A downgrade in these ratings or these or other regulatory actions and settlements, could limit our ability to conduct expansionary
activities for a period of time and require new or additional regulatory approvals before engaging in certain other business activities. Any
future enforcement action could have a material adverse impact.
Existing and proposed legislation and regulations and any new laws and regulations may affect our operations and growth.
In the routine course of regulatory oversight, proposals to change the laws and regulations governing the operations of banks and
other financial institutions are frequently raised in the U.S. Congress, state legislatures and before bank regulatory authorities. New laws
and regulations, modifications and changes to existing regulations or regulatory policies, or their interpretation or implementation, may
significantly affect the markets in which we do business, the markets for and value of our loans and securities, limit the types of financial
services and products we may offer, alter the investments we make, affect the manner in which we operate our businesses, and increase
our litigation and regulatory costs should we fail to appropriately comply with new or modified laws and regulatory requirements and
increase the ability of non-banks to offer competing financial services and products.
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We are subject to laws, rules, and regulations regarding compliance with privacy policies and the disclosure, collection, use,
sharing and safeguarding of personal identifiable information of certain parties. There has recently been an increase in legislative and
regulatory efforts to protect the privacy of consumer data. We will likely be subject to new and evolving data privacy laws, which could
result in additional costs of compliance, litigation, regulatory fines, and enforcement actions. These laws may limit how companies can
use customer data and will likely increase compliance complexity and related costs, result in significant financial penalties for
compliance failures, and limit our ability to develop new products or respond to technological changes. We also rely upon third parties
who may expose us to compliance and legal risk. New or existing legal requirements also could heighten the reputational impact of
perceived misuses of customer data by us and third parties.
We are involved in legal proceedings and may be the subject of additional litigation and/or investigations in the future.
In the normal course of business, from time to time, we are or have been subject to claims and proceedings related to our
operations, business activities and acquisitions. These claims and legal actions could include supervisory or enforcement actions by our
regulators, criminal proceedings by prosecutorial authorities, arbitrations, or civil claims by our customers, former customers, contractual
counterparties, and current and former employees. We have in the past and may in the future face class action lawsuits for alleged
violations of employment, state wage and hour and consumer protection laws. Certain legal actions may include claims for substantial
compensatory or punitive damages or indeterminate amounts of damages.
Although we have developed policies and procedures to minimize the impact of legal noncompliance and other disputes and
endeavored to provide reasonable insurance coverage, litigation, government investigations and regulatory actions present an ongoing
risk. We cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of litigation and other
proceedings filed by or against us, our directors, management or employees, including remedies or damage awards. On a quarterly basis,
we assess our liabilities and contingencies in connection with outstanding legal proceedings as well as certain threatened claims (which
are not considered incidental to the ordinary conduct of our business) utilizing the latest and most reliable information available. The
actual cost of any outstanding legal proceedings or threatened claims, however, may turn out to be substantially higher than the amount
accrued. Further, our insurance may not cover all litigation, other proceedings or claims, or the costs of defense. Future developments
could result in an unfavorable outcome for any existing or new lawsuits or investigations in which we are, or may become, involved,
which may have a material adverse effect on our business and our results of operations.
We may be subject to claims and litigation asserting lender liability.
From time to time, customers, including real estate developers and consumer borrowers, may make claims or otherwise take legal
action pertaining to performance of our responsibilities. These claims are often referred to as “lender liability” claims and are sometimes
brought in an effort to produce or increase leverage against us in workout negotiations or debt collection proceedings. Lender liability
claims frequently assert one or more of the following allegations: breach of fiduciary duties, fraud, economic duress, breach of contract,
breach of the implied covenant of good faith and fair dealing, and similar claims. Whether customer claims and legal action related to the
performance of our responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a favorable manner,
they may result in significant financial liability and/or adversely affect our market reputation, products and services, as well as
potentially affecting customer demand for those products and services. Any financial liability or reputation damage could have a material
adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition, results of operations and
liquidity.
We may be subject to claims and litigation pertaining to fiduciary responsibility.
From time to time as part of our normal course of business, customers may make claims and take legal action against us based on
actions or inactions related to the fiduciary responsibilities of our Trust and Wealth Division. If such claims and legal actions are not
resolved in a manner favorable to us, they may result in financial liability and/or adversely affect our market reputation or our products
and services. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have
a material adverse effect on our financial condition and results of operations.
We are subject to litigation risk pertaining to intellectual property.
We utilize, to varying degrees in our business, certain patents, copyrights, trademarks, trade secret laws and confidentiality
provisions to establish and protect our proprietary rights. If we are unable to protect our intellectual property and proprietary technology,
our competitors may be able to duplicate our technology and products. To the extent that we do not effectively protect our proprietary
intellectual property through patents or other means, other parties, including former employees, with knowledge of our intellectual
property may seek to exploit our intellectual property for their own or others’ advantage. In addition, we may unintentionally infringe on
claims of third-party patents, and we may face intellectual property challenges from other parties. We may not be successful in defending
against any such challenges or obtaining licenses to avoid or resolve any intellectual property disputes. Third-party intellectual property
rights, valid or not, may also impede our deployment of the full scope of our products and service capabilities in all of the market areas in
which we operate or market our products and services.
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In some instances, litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or
to defend against claims by third parties that our products, services or technology infringe or otherwise violate their intellectual property
or proprietary rights. Third parties may have, or may eventually be issued, patents that could be infringed by our products, services or
technology. Any of these third parties could bring an infringement claim against us with respect to our products, services or technology.
We may also be subject to third-party infringement, misappropriation, breach or other claims with respect to copyright, trademark,
license usage or other intellectual property rights. In addition, in recent years, individuals and groups, including patent holding
companies, have purchased intellectual property assets in order to make claims of infringement and attempt to extract settlements from
companies in the banking and financial services industry. Any litigation or claims brought by or against us, whether with or without
merit, could result in substantial costs to us and divert the attention of our management, which could harm our business and results of
operations. In addition, any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual
property and proprietary rights, subject us to significant liabilities including damage awards, result in an injunction prohibiting us from
marketing or selling certain of our products or services, require us to redesign affected products or services, or require us to seek licenses
and pay royalties which may only be available on unfavorable terms, if at all, any of which could harm our business and results of
operations.
Changes in accounting standards could materially impact how we report our financial results.
The Financial Accounting Standards Board, the SEC and other bodies that establish and/or interpret accounting standards
periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements
or may change prior interpretations or positions on how these standards should be applied. These changes may be difficult to predict and
may materially affect how we record and report our financial condition and results of operations. In some cases, we could be required to
apply a new or revised standard retroactively, which would result in changes to previously reported financial results.
Increases in FDIC insurance premiums may adversely impact our earnings and financial condition.
Our deposits are insured by the FDIC up to legal limits and, accordingly, we are subject to FDIC deposit insurance assessments.
We generally cannot control the amount of premiums we will be required to pay for FDIC insurance, with such premiums being based on
our risk classification under an FDIC risk-based assessment system. Our assessments are based on our average consolidated total assets
minus our average tangible equity. To determine our initial assessment rate, the FDIC uses a performance score and a loss-severity score,
and in calculating these scores the FDIC uses our capital level, supervisory ratings and certain financial measures to assess our ability to
withstand asset-related stress and funding-related stress. The FDIC also has the ability to make discretionary adjustments to the total
score based upon significant risk factors that the FDIC determines are not adequately captured in these calculations. Recently, the FDIC
adopted a final rule to increase the assessment rate for all insured depository institutions, effective January 1, 2023, which we expect will
result in an increase in our FDIC insurance premium of approximately $1.2 million per quarter. Additional changes to our assessment
base or assessment rate, which are determined on a quarterly basis, could result in additional increases in our FDIC insurance premiums.
In addition, unfavorable economic conditions, increased bank failures or other events causing the DIF to suffer losses may cause the
FDIC to charge additional special assessments. Future increases of FDIC insurance premiums or special assessments could have a
material adverse effect on our business, financial condition or results of operations.
We are subject to changes in federal, state and local tax laws, interpretation of existing laws and examinations and challenges by
taxing authorities.
Our financial performance is impacted by federal, state and local tax laws. Given the current economic and political environment,
and ongoing budgetary pressures, the enactment of additional new federal or state tax legislation may occur or interpretations of existing
tax laws could change. The enactment of such legislation or changes in the interpretation of existing law may have a material adverse
effect on our financial condition, results of operations and liquidity.
In the normal course of business, we are routinely subjected to examinations and audits from federal, state and local taxing
authorities regarding tax positions taken by us and the determination of the amount of tax due. These examinations may relate to income,
franchise, gross receipts, payroll, property, sales and use, unclaimed property or other tax returns filed, or not filed, by us. The challenges
made by taxing authorities may result in adjustments to the amount of taxes due, and may result in the imposition of penalties and
interest. If any such challenges are not resolved in our favor, they could have a material adverse effect on our financial condition, results
of operations and liquidity.
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LIQUIDITY AND MARKET RISKS
Our operations are significantly affected by interest rate levels.
Beginning in 2022, in response to growing signs of inflation, the Federal Reserve increased the fed funds rate rapidly and has
announced an intention to take further actions to mitigate inflationary pressures. These actions and any additional actions could adversely
affect our ability to originate new loans and our ability to grow.
Our profitability is dependent to a large extent on net interest income, which is the difference between interest income earned on
loans and investment securities and interest expense paid on deposits, other borrowings, subordinated debentures and subordinated notes.
Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes
in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-
bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect our interest rate spread, and, in turn, our profitability.
Although it is expected that the Federal Reserve will continue to increase the target federal funds rate in 2023 to combat recent
inflationary trends, if interest rates do not rise, or if the Federal Reserve were to lower the target federal funds rate rapidly, these actions
could constrain our interest rate spread and may adversely affect our results of operation. On the other hand, increases in interest rates, to
combat inflation or otherwise, may result in a change in the mix of noninterest and interest-bearing accounts. All else being equal, if the
interest rates on the Bank’s interest-bearing liabilities increase at a faster pace than the interest rates on our interest-earning assets, the
result could be a reduction in net interest income and with it, a reduction in net income. Following an increase in the general level of
interest rates, our ability to maintain a positive net interest spread is dependent on our ability to increase our loan offering rates, replace
loan maturities with new originations, minimize increases on our deposit rates, and maintain an acceptable level and mix of funding. We
are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession,
unemployment, money supply and other changes in financial markets.
The increased interest rates could also adversely affect the ability of our floating-rate borrowers to meet their higher payment
obligations. If this occurred, it could cause an increase in nonperforming assets and charge offs, which could adversely affect our
business.
We rely primarily on an earnings simulation model and economic value of equity (“EVE”) to analyze our interest rate risk and our
sensitivity to interest rate changes. This earnings simulation model projects a baseline net interest income and estimated changes to such
baseline from changes in interest rates and incorporates a number of assumptions. The assumptions and inputs used in our interest
simulation model and EVE are difficult to accurately predict. Should these assumptions prove to be inaccurate, our interest simulation
model and EVE results may not accurately project our interest rate risk and our sensitivity to interest rate changes. As a result, we may
incur increased or unexpected losses due to changes in interest rates which could materially and adversely affect our net interest income,
net interest margin and results of operations.
We may not be able to meet the cash flow requirements of our depositors, borrowers, or creditors, or the cash needs for
expansion or other corporate activities.
Liquidity represents our ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either
converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk is the potential that we will be
unable to meet our obligations as they become due because of an inability to liquidate assets or obtain adequate funding (referred to as
“funding liquidity risk”) or that we cannot easily unwind or offset specific expenses without significantly lowering market prices because
of inadequate market depth or market disruptions (referred to as “market liquidity risk”).
The objective of managing liquidity risk is to ensure that our cash flow requirements resulting from depositor, borrower (including
our ability to fund our significant balance of closed but unfunded loans), and other creditor demands are met, as well as our operating
cash needs, and that our cost of funding such requirements and needs is reasonable. We maintain an asset/liability and interest rate risk
policy and a liquidity and funds management policy, including a contingency funding plan that, among other things, include policies and
procedures for managing and monitoring liquidity risk. Generally, we rely on deposits, repayments of loans and cash flows from our
investment securities as our primary sources of funds. Our principal deposit sources include consumer and commercial customers in our
markets. We have used these funds, together with public funds customers, brokered deposits and FHLB advances as well as federal funds
purchased and other sources of short-term 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, general economic and market conditions and other factors. Loan repayments are
generally a relatively stable source of funds but are subject to the borrowers’ ability to repay loans, which can be adversely affected by a
number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or
specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other
factors. Furthermore, loans may not be readily convertible to cash.
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We anticipate we will continue to rely primarily on deposits, loan repayments, and cash flows from our investment securities, as
well as other funding sources as appropriate, to provide liquidity. Additionally, where necessary, the secondary sources of borrowed
funds described above will be used to augment our primary funding sources. If we are unable to access any of these secondary funding
sources when needed, or if we otherwise experience an increase in funding liquidity risk or an increase in market liquidity risk, we might
be unable to meet our depositors’, borrowers’ or creditors’ needs, which would adversely affect our financial condition, results of
operations and liquidity.
If we lose a significant portion of our core deposits or our cost of funding deposits increases, our liquidity and/or profitability
could be adversely impacted.
Our profitability depends in part on successfully attracting and retaining a stable base of relatively low-cost deposits, as deposits
have traditionally served as our largest, least costly source of funding. The competition for these deposits in our markets is strong, and
deposit trends can shift with economic conditions. Our deposit levels might fall if an improving economy, rising market rates, or
increased competition causes depositors to become more comfortable with risk and to demand higher interest rates on their deposits or
seek other investments or vehicles offering higher rates of return. If customers move money out of bank deposits, we would lose a
relatively low-cost source of funds, which could have an adverse effect on our financial position, results of operations and liquidity.
We sometimes offer credit enhancements to depositors, such as FHLB letters of credit and, for certain deposits of public monies,
pledges of collateral in the form of readily marketable securities. Any event or circumstance that interferes with or limits our ability to
offer these products to customers that require greater security for their deposits, such as a significant regulatory enforcement action or a
significant decline in our capital levels, could negatively impact our ability to attract and retain deposits. If we were to lose a significant
portion of our low-cost deposits, we would be required to borrow from other sources at higher rates and our liquidity and profitability
could be adversely impacted.
We use brokered deposits which may be an unstable and/or expensive deposit source to fund earning asset growth.
We use brokered deposits, subject to certain limitations and requirements, as a source of funding to augment deposits generated
from our branch network. Our Board has established policies and procedures with respect to the use of brokered deposits. Such policies
and procedures require, among other things, that (i) we limit the amount of brokered deposits as a percentage of total deposits and (ii) our
ALCO monitors our use of brokered deposits on a regular basis, including interest rates and the total volume of such deposits in relation
to our total deposits. At December 31, 2022 we had $2.1 billion in brokered deposits ($452 million at December 31, 2021). In the event
that our funding strategies call for the increased use of brokered deposits, there can be no assurance that such sources will be available, or
will remain available, or that the cost of such funding sources will be reasonable. Additionally, should we no longer be considered well-
capitalized, our ability to access new brokered deposits or retain existing brokered deposits could be adversely affected by market
conditions, regulatory requirements or a combination thereof, which could result in most, if not all, brokered deposit sources being
unavailable. The inability to utilize brokered deposits as a source of funding could have an adverse effect on our financial position,
results of operations and liquidity.
We may need to raise additional capital in the future to continue to grow, but that capital may not be available when needed.
Federal and state bank regulators require us to maintain adequate levels of capital to support operations. At December 31, 2022,
our regulatory capital ratios were above the minimum to be considered “well-capitalized” under regulatory guidelines. However, our
business strategy calls for continued growth in our existing lending verticals and banking markets and to expand into new markets as
appropriate opportunities arise. Growth in assets at rates in excess of the rate at which our capital is increased through retained earnings
will reduce our capital ratios unless we continue to increase capital through other means. If our capital ratios were to fall below “well-
capitalized” levels, the FDIC insurance assessment rate would increase until capital is restored and maintained at a “well-capitalized”
level. Additionally, should our capital ratios fall below “well-capitalized” levels, certain funding sources could become more costly or
could cease to be available to us until such time as capital is restored and maintained at a “well-capitalized” level. A higher assessment
rate resulting in an increase in FDIC insurance premiums, increased cost of funding or loss of funding sources could have an adverse
effect on our financial condition, results of operations and liquidity.
We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our
commitments and business needs. As a publicly traded company, a likely source of additional funds is the capital markets, accomplished
generally through the issuance of equity, including common stock, preferred stock, warrants, depository shares, stock purchase contracts
or stock purchase units, and the issuance of senior debt or subordinated debentures. Our ability to raise additional capital, including
senior debt or subordinated debentures, if needed, will depend, among other things, on conditions in the equity and/or debt markets at
that time, which are outside of our control, and our financial performance. In addition, any issuance of preferred stock or debt by us may
be accompanied by time delays associated with obtaining any required regulatory approvals. If market conditions change during any time
delays associated with obtaining regulatory approval, we may not be able to issue equity or debt on as favorable terms as were
contemplated at the time of commencement of the process, or at all.
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We cannot assure you that access to additional capital will be available to us on acceptable terms or at all. Any occurrence that
may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, our depositors or counterparties
participating in the capital markets, may materially and adversely affect our capital costs and our ability to raise capital and/or debt and,
in turn, our liquidity. If we cannot raise additional capital when needed, our ability to continue to grow in our existing lending verticals
and banking markets and to expand into new markets could be impaired.
We cannot guarantee that we will pay dividends on our capital stock in the future.
Our shareholders are only entitled to receive dividends on our common or preferred stock as our Board may declare out of funds
legally available for such payments. Although we have historically declared such dividends, we are not required to do so and may reduce
or eliminate our common and/or preferred stock dividends in the future. Our ability to pay dividends on our capital stock is subject to the
restrictions set forth in Arkansas law, by our federal regulator, and by certain covenants contained in the indentures governing our trust
preferred securities, our subordinated debentures, our subordinated notes and the terms and conditions of our 4.625% Series A Non-
Cumulative Perpetual Preferred Stock (“Preferred Stock”). For example, in the event we become subject to an enforcement action or
depending upon our regulatory status, our regulators may prevent us from paying dividends to our shareholders. Further, we cannot
declare or pay dividends on our common stock or redeem or repurchase our common stock for any period for which we have not
declared and paid in full dividends on our Preferred Stock. Our capital planning and risk management is subject to supervisory review,
and, as a result of that review, our discretion to pay dividends or determine the amount of any dividend could be limited. Accordingly,
there can be no assurance that we will continue to pay dividends on our capital stock in the future. Our Board will continue to evaluate
the payment of dividends based on our results of operations, financial condition, capital requirements, regulatory and contractual
restrictions, our business strategy and other factors our Board deems relevant. See Note 18 of the consolidated financial statements under
Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a discussion of dividend
restrictions.
The performance of our investment securities portfolio is subject to fluctuation due to changes in interest rates and market
conditions, including credit deterioration of the issuers of individual securities.
Changes in interest rates can negatively affect the performance of most of our investment securities. Interest rate volatility can
reduce unrealized gains or increase unrealized losses in our portfolio. Interest rates are highly sensitive to many factors including
monetary policies, domestic and international economic and political issues, and other factors beyond our control. Fluctuations in interest
rates can materially affect both the returns on and market value of our investment securities. Additionally, actual investment income and
cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities, may
materially differ from those anticipated at the time of investment or subsequently as a result of changes in interest rates and market
conditions.
Our investment securities portfolio consists of several securities whose trading markets are “not active.” As a result, we utilize
alternative methodologies for pricing these securities that include various estimates and assumptions. There can be no assurance that we
can sell these investment securities at the price derived by these methodologies, or that we can sell these investment securities at all,
which could have an adverse effect on our financial position, results of operations and liquidity.
Our investment portfolio also includes securities that are designated as “trading.” These securities are typically bought and sold
over a relatively short period with the intent to generate gains on such transactions. However, there can be no assurance that we will be
able to generate such gains in future periods. Additionally, any trading securities that are not sold as of the end of any reporting period
must be marked to market with such unrealized gains and losses recorded in current period earnings. Mark-to-market adjustments on
these investments may reduce our profitability or cause our net income to vary from period to period. We may be unable to generate
gains from trading securities activity in future periods or have unrealized losses that are recorded in earnings, which could have an
adverse effect on our financial position and our results of operations.
We monitor the financial position of the various issues of investment securities in our portfolio, including each of the state and
local governments and other political subdivisions where we have exposure. To the extent we have securities in our portfolio from
issuers that have experienced a deterioration of financial condition, or that may experience future deterioration of financial condition, the
value of such securities may decline and could result in the need to establish an ACL recorded as a provision for credit loss, which could
have an adverse effect on our financial condition, results of operations and liquidity.
We currently invest in bank owned life insurance (“BOLI”) and may continue to do so in the future.
We have general, hybrid and separate account BOLI contracts, which had a book value of $790 million at December 31, 2022.
BOLI is an illiquid long-term asset that provides tax savings because cash value growth and life insurance proceeds are not taxable.
However, if we needed additional liquidity and converted the BOLI to cash, such transaction would be subject to ordinary income tax
and applicable penalties. We are also exposed to the credit risk of the underlying securities in the investment portfolio and to the
insurance carrier’s credit risk (in a general account contract). If BOLI was exchanged to another carrier, additional fees would be
incurred and a tax-free exchange could only be done for insureds that were still actively employed by us at that time. There is also
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interest rate risk relating to the market value of the underlying investment securities associated with the BOLI in that there is no
assurance that the market value of these securities will not decline. Investing in BOLI exposes us to liquidity, credit and interest rate risk,
among other risks, which could adversely affect our financial condition, results of operation and liquidity.
Our investments and/or financings in certain tax-advantaged projects may not generate returns as anticipated and may have an
adverse impact on our financial results.
We invest in and/or finance certain tax-advantaged projects promoting affordable housing and renewable energy sources. Our
investments in these projects are designed to generate a return primarily through the realization of federal and state income tax credits,
and other tax benefits, over specified time periods. We are subject to the risk that previously recorded tax credits, which remain subject
to recapture by taxing authorities based on compliance features required to be met at the project level, will fail to meet certain
government compliance requirements and will not be able to be fully realized. The possible inability to realize these tax credits and other
tax benefits can have a negative impact on our financial results. The risk of not being able to realize the tax credits and other tax benefits
depends on many factors outside of our control, including changes in the applicable provisions of the tax code and the ability of the
projects to be completed and properly managed.
We may be adversely impacted by the transition from LIBOR as a reference rate.
The United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that the publication of the
most commonly used U.S. Dollar LIBOR settings will cease to be published or cease to be representative after June 30, 2023. The
publication of all other LIBOR settings ceased to be published as of December 31, 2022. Our subordinated debentures and related trust
preferred securities and significant portions of our loan portfolio are tied to LIBOR benchmark interest rates. Pursuant to the Adjustable
Interest Rate (LIBOR) Act, which became law on March 15, 2022, and the implementing regulations subsequently promulgated by the
Board of Governors of the Federal Reserve System, on the first London banking day after June 30, 2023 (the “LIBOR Replacement
Date”), certain legacy contracts that are currently tied to LIBOR benchmark interest rates, including our subordinated debentures and
related trust preferred securities, and do not contain adequate fallback provisions as of the LIBOR Replacement Date, will automatically
convert to specified SOFR-based benchmark replacement rates with corresponding spread adjustments.
The transition from LIBOR to the applicable SOFR-based benchmark replacement rates is complex and could have a range of
adverse effects on our business, financial condition, and results of operations. In particular, the transition could (i) prompt inquiries or
other actions from regulators in respect of our preparation, readiness for, and execution of the replacement of LIBOR with the
replacement rates; and (ii) result in disputes, litigation or other actions with customers or counterparties regarding the interpretation and
enforceability of certain fallback language in LIBOR-based securities, including our subordinated debentures and related trust preferred
securities, and/or LIBOR-based loan agreements or the appropriateness or comparability to LIBOR of the substitute indices. For
additional information regarding the actions we have taken to prepare for an orderly transition from LIBOR, see Part II. Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Elements – Market and Interest Rate
Risk Management – LIBOR Transition of this Annual Report on Form 10-K.
We and/or the holders of certain classes of our securities could be adversely affected by unfavorable ratings from rating agencies.
The ratings agencies regularly evaluate us, and their ratings of our long-term debt are based on a number of factors, including our
financial strength, as well as factors not entirely within our control, including conditions affecting the financial services industry in
general. There can be no assurance that we will not receive adverse changes in our ratings in the future, which could adversely affect the
cost and other terms upon which we are able to obtain funding, and the way in which we are perceived in the capital markets. Actual or
anticipated changes, or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade,
could adversely affect the market value and liquidity of our securities, increase our borrowing costs and negatively impact our
profitability. Additionally, a downgrade of the credit rating of any particular security issued by us could negatively affect the ability of
the holders of that security to sell the securities and the prices at which any such securities may be sold.
The holders of our subordinated debentures, subordinated notes and Preferred Stock have rights that are senior to those of our
common shareholders.
At December 31, 2022, we had an aggregate principal amount of $118 million of floating rate trust preferred securities
outstanding. We guarantee payment of the principal and interest on the trust preferred securities, and the subordinated debentures are
senior to shares of our common stock. As a result, we must make payments on the subordinated debentures (and the related trust
preferred securities) before any dividends can be paid on shares of our common stock and, in the event of our bankruptcy, dissolution or
liquidation, the holders of the subordinated debentures would receive a distribution from our available assets before any distributions
could be made to the holders of common stock and Preferred Stock. We have the right to defer distributions on our subordinated
debentures and the related trust preferred securities for up to five years, during which time no dividends may be paid to holders of our
common stock and Preferred Stock. At December 31, 2022, we had an aggregate principal amount of $350 million of subordinated notes
which are senior to shares of our common stock. In the event of our bankruptcy, dissolution or liquidation, the holders of the
subordinated notes would receive a distribution from our available assets before any distribution could be made to the holders of
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common stock. At December 31, 2022, we had 14,000,000 shares of Preferred Stock issued and outstanding. Under the terms of our
Preferred Stock, in the event that we do not declare and pay dividends on the Preferred Stock for the most recent dividend period, we
may not, with certain exceptions, declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our common stock or
any of our securities that rank junior to the Preferred Stock. In addition, in the event of our bankruptcy, dissolution or liquidation, the
holders of our Preferred Stock would receive a distribution from our available assets before any distribution could be made to the holders
of common stock.
The price of our common and preferred stock is affected by a variety of factors, many of which are outside our control.
Stock price volatility may make it more difficult for investors to sell shares of our common stock and Preferred Stock at times and
prices they find attractive. Our common stock and Preferred Stock prices can fluctuate significantly, over a short period of time, in
response to a variety of factors, including, among other things:
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actual or anticipated variations in quarterly results of operations;
recommendations or changes in recommendations by securities analysts regarding our securities;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns and other issues in the financial services industry;
perceptions in the marketplace about us and/or our competitors;
new technology used, or products and services offered, by competitors;
changes in the political climate, including any changes from the recent U.S. elections;
changes in global financial markets and global economies and general market conditions, such as interest or foreign
exchange rates, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events,
including current or anticipated military conflict such as the escalating military tension in Europe as a result of Russia’s
invasion of Ukraine, terrorism or other geopolitical events;
significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or
involving us or our competitors; and
changes in, or proposed changes to, governmental regulations.
General market fluctuations, industry factors and general economic and political conditions and events such as economic
slowdowns, expected or incurred interest rate changes, credit loss trends, and various other factors and events could adversely affect the
price of our common stock and Preferred Stock.
Our common and preferred stock trading volume may not provide adequate liquidity for investors.
Although shares of our common stock and Preferred Stock are listed on the Nasdaq Global Select Market, the average daily
trading volume in the common stock or Preferred Stock may be less than that of larger financial services companies. A public trading
market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient
number of willing buyers and sellers of our capital stock at any given time. This presence depends on the individual decisions of
investors and general economic and market conditions over which we have no control. Significant sales of our capital stock in a brief
period of time, or the expectation of these sales, could cause a decline in the price of our capital stock.
Future issuances of additional equity securities could result in dilution of existing shareholders’ equity ownership and may
adversely affect the market price of our stock.
We have issued, and may issue in the future, shares of our capital stock in connection with our acquisition of other financial
institutions or to support expected growth. We may determine from time to time to issue additional equity securities to raise additional
capital, support growth, or to make acquisitions. Further, we have, and may continue to, issue stock options, grant restricted stock awards
or other stock grants, awards or units in order to retain, compensate and/or motivate our employees and directors. These issuances of our
securities could dilute the voting and economic interests of existing shareholders. In addition, resales of substantial amounts of capital
stock in the public market and the potential of such sales could adversely affect the prevailing market price of our capital stock and
impair our ability to raise additional capital through the sale of equity securities.
Our capital stock is not an insured deposit.
Shares of our common stock and Preferred Stock are not bank deposits and, therefore, losses in value are not insured by the FDIC,
any other deposit insurance fund or by any other public or private entity. Investment in shares of our capital stock is inherently risky for
the reasons described in this “Risk Factors” section of this Annual Report on Form 10-K, and is subject to the same market forces and
investment risks that affect the price of capital stock in any other company, including the possible loss of some or all principal invested.
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35
STRATEGIC, REPUTATIONAL AND OTHER RISKS
Our recent results may not be indicative of our future results.
We may not be able to grow our business at the same rate of growth achieved in recent years or even grow our business at all.
Additionally, in the future we may not have the benefit of several factors that have been favorable to our business in past years, such as
an interest rate environment where changes in rates occur at a relatively orderly and modest pace, the ability to find suitable expansion
opportunities, or otherwise to capitalize on opportunities presented by economic turbulence, or other factors and conditions. Numerous
factors, such as weakening or deteriorating economic conditions, regulatory restrictions or actions, legislative considerations, and
competition may impede or restrict our ability to expand our market presence and could adversely affect our future operating results.
If we do not manage our growth effectively, our business, future prospects, financial condition, results of operations and liquidity
could be adversely affected.
Our reputation, expertise and banking model enable us to build and expand our banking relationships with customers in the
markets we serve. We remain committed to growing our business in a disciplined manner. Our growth prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by banking companies pursuing such strategies. In order to
successfully expand our banking relationships in our current or new markets, we must, among other things:
attract and retain qualified bank management and staff;
build a substantial customer base;
expand our loan portfolio while maintaining credit quality;
attract sufficient deposits and capital to fund anticipated loan growth;
identify and expand into suitable markets;
identify and acquire suitable sites for new banking offices;
obtain regulatory and other approvals;
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(cid:120) maintain adequate common equity and regulatory capital;
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(cid:120) maintain sufficient qualified staffing, infrastructure and organizational capacity to support growth and compliance with
sustain employee productivity while pursuing various organizational initiatives; and
increasing regulatory requirements.
In addition to the foregoing factors, there are considerable costs involved in opening banking offices, and such new offices
generally do not generate sufficient revenues to offset their costs until they have been in operation for some time. Therefore, any new
banking offices we open can be expected to negatively affect our operating results until those offices reach a size at which they become
profitable. We could also experience an increase in expenses if we encounter delays in opening any new banking offices.
Moreover, we cannot give any assurances that any new banking offices we open will be successful, even after they have become
established, or that we can hire and retain qualified bank management and staff to achieve our growth and profitability goals. If we do
not manage our growth effectively, our business, future prospects, financial condition, results of operations and liquidity could be
adversely affected.
We may be adversely affected by risks associated with any potential future acquisition.
We plan to continue to grow our business organically. However, we have pursued and may continue to pursue additional
acquisition opportunities in the future that we believe support our business strategy and may enhance our profitability. Acquisitions
involve numerous risks, including, among others:
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incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential
transactions, resulting in our attention being diverted from the operation of our existing business;
using inaccurate estimates, assumptions and judgments to evaluate credit, operations, management and market risks with
respect to the target institution or assets;
the risk that the acquired business will not perform to our expectations;
difficulties, inefficiencies or cost overruns in integrating and assimilating the organizational cultures, operations,
technologies, products and services of the acquired business with ours;
the risk of key vendors not fulfilling our expectations or not accurately converting data or operating systems;
entering geographic and product markets in which we have limited or no direct prior experience;
the potential loss of key employees, vendors, customers and depositors of the acquired business;
the potential for liabilities, claims and/or other contingencies arising out of the acquired business; and
the risk of not receiving required regulatory approvals or such approvals being restrictively conditional.
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Acquisitions of financial institutions also involve operational risks and uncertainties, and acquired companies may have unknown
or contingent liabilities with no corresponding accounting reserve or allowance, exposure to unexpected asset quality problems that
require write downs or write-offs (as well as restructuring and impairment or other charges), difficulty retaining key employees and
customers and other issues that could negatively affect our business. We may not be able to realize the expected level of, or any,
projected cost savings, synergies or other benefits associated with any such acquisition we complete. Any acquisition may involve the
payment of a premium over book and/or market value and, therefore, some dilution of our tangible book value and diluted earnings per
common share may occur in connection with any such future acquisition. Failure to successfully integrate the entities we acquire into our
existing operations could significantly increase our operating costs and have a material adverse effect on our business, financial condition
and results of operations.
We must generally satisfy a number of meaningful conditions prior to completing any acquisition, including, in certain cases,
federal and state regulatory approval. Bank regulators consider a number of factors when determining whether to approve a proposed
transaction, including the effect of the transaction on financial stability and the ratings and compliance history of all institutions involved,
including the CRA examination results and BSA/AML compliance records of all institutions involved. The process for obtaining
required regulatory approvals may be difficult. We may fail to pursue, evaluate or complete strategic acquisition opportunities as a result
of our inability, or our perceived inability, to obtain any required regulatory approvals in a timely manner or at all.
In addition, we face significant competition from numerous other financial services institutions, some of which have greater
financial resources than we do, when considering acquisition opportunities. Accordingly, attractive acquisition opportunities may not be
available to us. There can be no assurance that we will be successful in identifying or completing any potential future acquisitions.
Reputational risk and social factors may impact our results.
Our ability to originate and maintain accounts is highly dependent upon consumer and other external perceptions of our business
practices and/or our financial health. Adverse perceptions regarding our business practices and/or financial health could damage our
reputation, leading to difficulties in originating and retaining loans and deposits. Adverse developments, consumer sentiment, or other
external perceptions regarding the practices of competitors, or the industry as a whole, may also adversely impact our reputation and
business prospects. These perceptions could stem from a variety of sources, including negative posts or communications about us on a
social media website or the disclosure of non-public information or negative comments regarding us or our business from employees or
others on social media or other websites. Adverse reputational effects on third parties with whom we have important relationships may
also adversely affect our reputation. Adverse effects on our reputation, or the reputation of the industry, may also result in greater
regulatory and/or legislative scrutiny, which may lead to laws or regulations that may change or constrain the manner in which we
engage with our customers and the products and services we offer and can also increase litigation risk. Any of these factors could have
an adverse effect on our ability to achieve our business objectives, which could have an adverse effect on our financial conditions, results
of operations and liquidity.
In addition, we are subject to reputational risk associated with environmental, social and governance issues. The public holds
diverse and often conflicting views on environmental, social and governance topics. As a publicly traded financial institution, we have
multiple stakeholders, including our shareholders, customers, employees, federal and state regulatory authorities, and the communities in
which we operate, and these stakeholders will often have differing priorities and expectations regarding environmental, social and
governance issues. If we take action in conflict with one or another of those stakeholders’ expectations, we could experience an increase
in client complaints, a loss of business, or reputational harm. We could also face negative publicity or reputational harm based on the
identity of those with whom we choose to do business. Any adverse publicity in connection with environmental, social and governance
issues could damage our reputation, ability to attract and retain customers and employees, compete effectively, and grow our business.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions, or inactions, and financial stability
of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other
relationships. We have exposure to various counterparties, including brokers and dealers, commercial and correspondent banks, and
others. As a result, defaults by, or rumors or questions about, one or more other financial services institutions, or the financial services
industry generally, may result in market-wide liquidity problems and could lead to losses or defaults by such other institutions. Such
occurrences could expose us to credit risk in the event of default of one or more counterparties and could have a material adverse effect
on our financial position, results of operations and liquidity.
If our goodwill becomes impaired, we could be required to record impairment charges.
Goodwill represents the amount by which the acquisition cost exceeds the fair value of net assets we acquire in an acquisition. We
review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate the carrying value
might be impaired. At December 31, 2022 our goodwill totaled $661 million. While our previous evaluations of goodwill have not
resulted in any impairment charges or write downs of our goodwill, there can be no assurance that future evaluations of goodwill will not
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result in findings of impairment and related write downs, which could have a material adverse effect on our financial condition and
results of operations.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Our principal executive office is located in Little Rock, Arkansas. At December 31, 2022, we conducted banking operations in 241
offices in eight states, including 229 banking offices and 12 loan production offices. Such offices include both owned and leased
facilities.
The following table sets forth specific information about our facilities, by state, at December 31, 2022.
State
Arkansas
Georgia
Florida
North Carolina
Texas
California
New York
Mississippi
Total
Owned
Total
Banking Facility
Leased
4
10 (3)
9 (4)
2 (5)
3
3 (6)
1 (7)
1 (8)
33
71 (1)
61 (2)
33
24
19
—
—
—
208
75
71
42
26
22
3
1
1
241
(1) Includes our principal executive office in Little Rock.
(2) Includes one loan production office in Alpharetta.
(3) Includes two loan production offices in Atlanta.
(4) Includes one loan production office each in Orlando and Clearwater.
(5) Consists of one loan production office each in Raleigh and Charlotte.
(6) Consists of one loan production office each in Los Angeles, San Francisco and Irvine.
(7) Consists of a loan production office in New York City.
(8) Consists of a loan production office in Brookhaven.
Item 3.
LEGAL PROCEEDINGS
On October 26, 2018, a purported class action complaint alleging violations of federal securities laws was filed against Bank
OZK in the United States District Court for the Eastern District of Arkansas, captioned Jordan Colbert et al. v. Bank OZK et al., case
number now 4:18-cv-793-DPM. Under applicable federal law, the federal district court in the Colbert Case named Strathclyde Pension
Fund as the lead class plaintiff. The complaint, as first amended on June 21, 2019, alleged violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by the Bank, its CEO, George Gleason, and its
former CFO, Greg McKinney, for making allegedly false and misleading statements and allegedly failing to disclose material facts
relating to the risk of loss regarding two commercial real estate loans. The first amended complaint identified the proposed class period
as encompassing persons who purchased the Bank’s common stock between February 19, 2016 and October 18, 2018 and sought
damages against the Bank and the individual defendants. In May 2022, the parties entered into an agreement to settle the claims for $45
million, and the court granted preliminary approval of the settlement in June 2022. The settlement does not include or constitute an
admission, concession, or finding of any fault, liability, or wrongdoing by the Bank or any other defendant. The Bank’s insurance
carriers funded the $45 million settlement into an escrow account. On September 23, 2022, the court granted final approval of the
settlement and entered a judgment dismissing the securities litigation.
In the ordinary course of business, we are or may be involved in various legal or regulatory proceedings, claims, including claims
related to employment, wage-hour and labor law claims, consumer and privacy claims, lender liability claims, breach of contract, and
other similar lending-related claims encountered on a routine basis, some of which may be styled as “class action” or representative
cases. While the ultimate resolution of these claims and proceedings cannot be determined at this time, management believes that such
claims and proceedings, individually or in the aggregate, will not have a material adverse effect on the Bank’s financial condition or
results of operations.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
The Bank’s common stock is listed on the Nasdaq Global Select Market under the symbol “OZK” and at December 31, 2022, the
Bank had approximately 1,303 shareholders of record. On December 30, 2022 (the last trading day of 2022), the closing price of our
common stock was $40.06 per share.
Recent Sales of Unregistered Securities
During the fourth quarter of 2022, the Bank issued 7,039 shares of common stock in connection with the exercise of stock options
issued to certain participants under the Bank’s Stock Option Plans. The shares were issued in reliance on the exemption provided by
Section 3(a)(2) of the Securities Act of 1933, because the sales involved securities issued by a bank.
During the fourth quarter of 2022, the Bank issued an aggregate of 3,457 shares of restricted common stock to certain officers
pursuant to the Bank’s 2019 Omnibus Equity Incentive Plan. The Bank did not receive any cash consideration in connection with these
restricted stock grants. These grants were exempt from registration pursuant to Section 3(a)(2) of the Securities Act of 1933 because the
grants involved securities issued by a bank.
Repurchase of Equity Securities by Issuer
During the fourth quarter of 2022, the Bank repurchased shares of its common stock as indicated in the following table.
Total Number of(cid:3)
Shares Purchased (1) (2) (cid:3)(cid:3)
Average Price
Paid Per Share
Total Number of Shares
Purchased as Part of a
Publicly Announced
Program (1)(cid:3)
(cid:3)(cid:3)
Maximum Number(cid:3)
(or Approximate
Dollar Value)
of Shares that May Yet
Be Purchased
Under the Program (1)
(cid:3)(cid:3)
(Dollars in thousands, except share and per share amounts)
193,931 $
6,700
378,137
578,768
$
41.29
43.56
39.93
40.43
193,931 $
2,810
378,137 $
574,878
121,685
300,000
284,901
October 1-31, 2022
November 1-30, 2022
December 1-31, 2022
Total
(1) On July 22, 2021, we announced that our board of directors approved a stock repurchase program authorizing the repurchase of up to $300 million
of our outstanding shares of common stock (the “2021 Stock Repurchase Program”). On October 28, 2021, we announced that our board of
directors approved an increase in the amount of its outstanding shares of common stock authorized to be repurchased under the 2021 Stock
Repurchase Program by $350 million, bringing the cumulative total value of authorized share repurchases under the program since its inception to
$650 million. The 2021 Stock Repurchase Program, as amended, expired on November 4, 2022. On November 14, 2022, we announced that our
board of directors approved a new stock repurchase program authorizing the repurchase of up to $300 million of our outstanding shares of common
stock (the “2022 Stock Repurchase Program”). The 2022 Stock Repurchase Program will be in effect until November 9, 2023 unless extended or
shortened by the board of directors. Under the 2022 Stock Repurchase Program, repurchases may be made from time to time in open market
transactions, through privately negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule
10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The timing and amount of repurchases will be determined by management based
on a variety of factors such as the Bank’s capital position, expected growth, alternative uses of capital, liquidity, financial performance, stock price,
current and expected macroeconomic environment, regulatory requirements and other factors.
(2) Shares of the Bank’s common stock that were subject to one or more restricted stock awards granted under the 2019 Omnibus Equity Incentive
Plan vested in November 2022 and were no longer subject to the vesting restriction or substantial risk of forfeiture. The Bank withheld 3,890 of
such shares to satisfy federal and state tax withholding requirements related to the vesting of these shares.
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39
Dividends
The determination of future cash dividends on our capital stock will depend on conditions existing at that time and approval of our
Board. Our Board will continue to evaluate the payment of cash dividends based on our results of operations, financial condition, capital
requirements, regulatory and contractual restrictions, our business strategy and other factors our Board deems relevant. See “Item 1 –
Business – Supervision and Regulation – “Payment of Dividends” and “Common Stock Dividend Policy” and “Preferred Stock Dividend
Policy” under “Item 7 – Management’s Discussion and Analysis of the Financial Condition and Results of Operations – Capital
Management” for restrictions on our present or future ability to pay dividends, particularly those restrictions arising under federal and
state banking laws.
Stock Performance Graph
The graph below shows a comparison for the period commencing December 31, 2017 through December 31, 2022 of the
cumulative total stockholder returns (assuming reinvestment of dividends) for our common stock, the S&P Midcap 400 Index, the
Nasdaq Financial Index and the KBW Regional Banking Index (“KRX”), assuming a $100 investment on December 31, 2017. The
comparisons in this graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of
our common stock.
We have historically presented the performance graph by comparing our cumulative total stockholder return against the cumulative
total return of the S&P Midcap 400 Index (for the broad equity market index) and the NASDAQ Financial Index (for the industry index).
We have decided to change the industry index in the performance graph from the NASDAQ Financial Index to the KBW Regional
Banking Index because we believe the KRX index provides a meaningful comparison to our cumulative total return and includes U.S.
regional banks similar to us. In accordance with SEC rules, the performance graph presents both the indices used in the previous year
and the newly selected index.
Cumulative Return Comparison
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
OZK (Bank OZK)
MID (S&P Midcap 400 Index)
NDF (NASDAQ Financial Index)
KRX (KBW Regional Banking Index)
OZK (Bank OZK)
MID (S&P Midcap 400 Index)
NDF (NASDAQ Financial Index)
KRX (KBW Regional Banking Index)
12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022
97
66 $
$
138
112 $
$
119
119 $
$
119
102 $
$
71 $
127 $
123 $
93 $
109 $
159 $
157 $
128 $
100 $
100 $
100 $
100 $
48 $
89 $
92 $
83 $
The information included under the heading “Stock Performance Graph” shall not be deemed to be “soliciting material” or to be
“filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section, and shall not be
incorporated by reference into any of our filings under the Securities Act of 1933, as amended (“Securities Act”), or the Exchange Act,
whether made before or after the date of this Annual Report on Form 10-K, except to the extent that we specifically incorporate such
information by reference.
Item 6.
[RESERVED]
40
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following is a discussion of our financial condition at December 31, 2022 and 2021 and our results of operations for each of
the years in the three-year period ended December 31, 2022. The purpose of this management’s discussion and analysis of financial
condition and results of operations (“MD&A”) is to focus on the most relevant information about our financial condition and results of
operations that is not otherwise apparent from the consolidated financial statements and footnotes. This discussion should be read in
conjunction with the disclosure regarding “Forward-Looking Information” in Part I as well as the risks discussed under Part I, Item 1A.
Risk Factors, and our consolidated financial statements and notes thereto included under Item 8. Financial Statements and Supplementary
Data of this Annual Report on Form 10-K.
Bank OZK (the “Bank”) is subject to regulation by the Arkansas State Bank Department (“ASBD”). Because the Bank is an
insured depository institution that is not a member bank of the Board of Governors of the Federal Reserve System (“FRB”), our primary
federal regulator is the Federal Deposit Insurance Corporation (“FDIC”). We are not subject to the FRB’s regulation and supervision
(except such regulations as are made applicable to the Bank by law and regulation of the FDIC). Shares of the Bank’s common stock are
listed in the Nasdaq Global Select Market under the symbol “OZK.”
Our primary business is commercial banking conducted by the Bank and various subsidiaries of the Bank. The Bank operates in
only one segment. Our 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,
borrowings, subordinated debentures and subordinated notes. We also generate non-interest income, including, among others, service
charges on deposit accounts, trust income, bank owned life insurance (“BOLI”) income, loan service, maintenance and other fees and
gains (losses) on investment securities and from sales of other assets.
Our non-interest expense consists primarily of employee compensation and benefits, net occupancy and equipment and other
operating expenses. Our results of operations are significantly affected by our provision for credit losses and our provision for income
taxes.
Critical Accounting Estimates
Our consolidated financial statements and related notes presented in Item 8. Financial Statements and Supplementary Data in this
Annual Report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”). Our significant accounting policies and methods are discussed in Note 1 to the consolidated financial statements. Certain
accounting estimates involve a significant level of estimation uncertainty and require management to make difficult, subjective or
complex judgments about matters that are uncertain and have had, or are reasonably likely to have, a material impact on our financial
condition or results of operations. Because of the uncertainty involved in these estimates, materially different amounts could be reported
under different assumptions or estimates. Our determination of (i) the provisions to and the adequacy of the allowance for credit losses
(“ACL”), (ii) the fair value of our investment securities portfolio, and (iii) accounting for our income taxes all involve a higher degree of
judgment and complexity than our other significant accounting policies. Accordingly, we consider each of these to be critical accounting
estimates.
Provisions to and adequacy of the ACL. Our ACL estimate is established through a provision for credit losses charged against
income. Our ACL estimate is subject to uncertainty due to various assumptions and judgments utilized in forming our ACL estimate. In
estimating our ACL, we utilize various score cards which use quantitative models and qualitative factors in determining our estimated
ACL. In addition, various qualitative adjustments are applied to our ACL estimate to address potential limitations.
The ACL is maintained at a level that we believe will be adequate to absorb expected credit losses in future periods associated with
our loan portfolio and unfunded loan commitments. Provisions to and the adequacy of the ACL are based on evaluations of the loan
portfolio utilizing objective and subjective criteria. The objective criteria primarily includes estimated losses that are modeled from the
respective score cards and the outputs from our CECL platform that considers various economic forecasts and scenarios, a reasonable
and supportable forecast of two years followed by a systematic reversion to our historical losses, and other factors. In addition to these
objective criteria, we subjectively assess the adequacy of the ACL and the need for changes thereto, with consideration given to the
nature and mix of the portfolio, national, regional and local business and economic conditions that may affect borrowers’ ability to pay,
concentrations of credit, changes in the experience, ability and depth of lending management and other relevant staff, changes in the
nature and volume of the portfolio and in the terms of the loans, overall portfolio quality, historical loss experience and other relevant
factors. Changes in these criteria or the availability of new information could require adjustment of the ACL in future periods. In
addition, for loans that do not share risk characteristics similar to those contained within their respective loan segments, we may perform
an individual assessment of the ACL utilizing expected cash flows, collateral values or a combination thereof. On an ongoing basis, we
evaluate the underlying collateral on certain collateral dependent loans and, if needed, due to changes in market or property conditions,
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the underlying collateral is reassessed, and the estimated collateral value is revised. The determination of collateral value includes any
adjustments considered necessary related to estimated holding periods and estimated selling costs. While an individual assessment and
related ACL has been calculated for certain loans, no portion of our ACL is restricted to any individual loan or group of loans, and the
entire ACL is available to absorb losses from any and all loans, including unfunded loan commitments.
Changes in the criteria used in this evaluation or the availability of new information could cause the ACL to be increased or
decreased in future periods. To the extent that our reasonable and supportable forecast varies from actual economic conditions and/or our
actual losses vary from our historical losses, we could experience significant fluctuation in our provision for credit losses and our ACL.
In addition, our qualitative factors, including our estimate of qualitative adjustments, may change or vary considering the change in our
assumptions or expectations for future loan losses. Also, bank regulatory agencies, as part of their examination process, may require
adjustments to the ACL based on their judgment and estimates.
Fair value of the investment securities portfolio. We determine the appropriate classification of investment securities at the time of
purchase and reevaluate such designation as of each balance sheet date. At December 31, 2022 and 2021, we held investment securities
classified as both available for sale (“AFS”) and trading.
Investment securities are reported at estimated fair value, with the unrealized gains and losses determined on a specific
identification basis. We utilize independent third parties as our principal pricing sources for determining fair value of investment
securities which are measured on a recurring basis. For investment securities traded in an active market, fair values are based on quoted
market prices if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable
securities, broker quotes or comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities that
are not traded or that are traded in a market that is not active, fair value is determined using unobservable inputs.
The fair values of our investment securities traded in both active and inactive markets can be volatile and may be influenced by a
number of factors including market interest rates, prepayment speeds, discount rates, credit quality of the issuer, general market
conditions including market liquidity conditions and other factors.
Changes in fair value are recorded in accumulated other comprehensive income for our investment securities AFS and in earnings
for our trading securities. Factors and conditions are constantly changing, and fair values could be subject to material variations that may
significantly affect our financial condition, results of operations and liquidity.
Accounting for income taxes. We are subject to federal, state and local tax laws. We utilize the asset and liability method in
accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the
values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for
the year or years in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for income taxes.
Tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In
the normal course of business, we are routinely subjected to examinations and audits from federal, state and local taxing authorities
regarding tax positions taken by us and the determination of the amount of tax due. Challenges made by taxing authorities may result in
adjustments to the amount of taxes due and may result in the imposition of penalties and interest. If any such challenges are not resolved
in our favor, they could have a material adverse effect on our financial condition, results of operations and liquidity.
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42
Financial Highlights
Analysis of Results of Operations
The following selected financial highlights are derived from our audited financial statements as of and for each of the years indicated
and should be read in conjunction with this MD&A and Item 8. Financial Statements and Supplementary Data of this Annual Report on
Form 10-K. The calculations of pre-tax pre-provision net revenue (“PPNR”), tangible book value per common share, returns on average
common stockholders’ equity and returns on average tangible common stockholders’ equity and the reconciliations to GAAP are
included in this MD&A – Capital Management of this Annual Report on Form 10-K.
2022
Year Ended December 31,
2021
(Dollars in thousands, except per share amounts)
2020
Income statement data:
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
Net income
Preferred stock dividends
Net income available to common stockholders
PPNR
Common share and per common share data:
Earnings – diluted
Book value
Tangible book value
Common stock dividends per share
Weighted-average diluted shares outstanding (thousands)
End of period shares outstanding (thousands)
Balance sheet data at period end:
Total assets
Total loans
Non-purchased loans
Purchased loans
Allowance for loan losses
Foreclosed assets
Investment securities – AFS
Goodwill and other intangible assets, net
Deposits
Other borrowings
Subordinated notes
Subordinated debentures
Unfunded balance of closed loans
Reserve for losses on unfunded loan commitments
Total common stockholders’ equity
Loan, including purchased loans, to deposit ratio
Average balance sheet data:
Total average assets
Total average common stockholders’ equity
Performance ratios:
Return on average assets
Return on average common stockholders’ equity
Return on average tangible common stockholders’ equity
Net interest margin – FTE
Efficiency ratio
Asset quality ratios:
Net charge-offs to average non-purchased loans (1)(cid:3)
Net charge-offs to average total loans
Nonperforming loans to total loans (2)(cid:3)
Nonperforming assets to total assets (2)(cid:3)
Allowance for loan losses as a percentage of (3):(cid:3)
Total loans
Nonperforming loans
Allowance for credit losses to total loans and unfunded loan commitments
Capital ratios:
Common equity tier 1
Tier 1 risk-based capital
Total risk-based capital
Tier 1 leverage
(1)
(2)
(3)
Excludes purchased loans and net charge-offs related to such loans.
Excludes purchased loans, except for their inclusion in total assets.
Excludes reserve for losses on unfunded loan commitments.
43
$
$
$
$
$
$
1,142,242
83,494
114,503
451,721
564,090
16,621
547,520
805,024
4.54
37.13
31.47
1.26
120,700
117,177
27,656,568
20,778,791
20,400,154
378,637
208,858
6,616
3,491,613
663,543
21,500,143
606,666
346,947
121,591
21,062,733
156,419
4,350,599
$
$
$
989,720
(77,938 )
115,538
430,275
579,033
—
579,001
674,983
4.47
35.85
30.52
1.1325
129,618
125,444
26,530,430
18,307,825
17,791,610
516,215
217,380
5,744
3,916,733
669,063
20,209,134
756,321
346,133
121,033
13,619,578
71,609
4,497,263
888,624
203,639
104,608
413,413
291,866
—
291,898
579,819
2.26
33.03
27.81
1.0775
129,435
129,350
27,162,596
19,209,168
18,401,495
807,673
295,824
11,085
3,405,351
675,458
21,450,356
758,941
224,047
120,475
11,847,117
81,481
4,272,271
96.64 %
90.59 %
89.55 %
$
26,328,362
4,323,487
$
26,624,184
4,451,682
$
25,768,172
4,149,123
2.08 %
12.66
14.97
4.82
35.75
0.07 %
0.04
0.22
0.19
1.01 %
399
0.87
11.54 %
12.55
14.97
15.90
2.17 %
13.01
15.32
4.09
38.76
0.06 %
0.06
0.19
0.15
1.19 %
477
0.91
14.07 %
15.31
17.95
16.17
1.13 %
7.04
8.41
3.81
41.37
0.09 %
0.16
0.25
0.21
1.54 %
415
1.22
13.36 %
13.36
15.84
13.70
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Highlights from 2022 include the following:
Investment securities AFS decreased 10.9% to $3.49 billion at December 31, 2022;
(cid:120) Total assets increased 4.2% to $27.66 billion at December 31, 2022;
(cid:120) Total loans increased 13.5% to $20.78 billion at December 31, 2022;
(cid:120)
(cid:120) Deposits increased 6.4% to $21.50 billion at December 31, 2022;
(cid:120) Provision for credit losses of $83.5 million for 2022 compared to negative provision expense of $77.9 million for 2021;
(cid:120) Net income available to common stockholders of $547.5 million for 2022, a 5.4% decrease compared to 2021;
(cid:120) PPNR of $805.0 million for 2022, a 19.3% increase compared to 2021 (the calculations of PPNR are included in this
MD&A under the section “Capital Management”);
(cid:120) Return on average assets of 2.08% for 2022;
(cid:120) Returns on average common stockholders’ equity and average tangible common stockholders’ equity of 12.66% and
14.97%, respectively, for 2022 (the calculation of our return on average tangible common stockholders’ equity and the
reconciliation to GAAP are included in this MD&A under the section “Capital Management”);
(cid:120) Net interest margin, on a fully taxable equivalent (“FTE”) basis, of 4.82% for 2022;
(cid:120) An efficiency ratio (non-interest expense divided by the sum of net interest income, on an FTE basis, and non-interest
income) of 35.75% for 2022;
(cid:120) Net charge-off ratio for total loans of 0.04% for 2022;
(cid:120) At December 31, 2022, excluding purchased loans, our ratio of nonperforming loans to total loans was 0.22%, and our ratio
of nonperforming assets to total assets was 0.19%; and
(cid:120) During 2022, we repurchased approximately 8.37 million shares of our common stock for $350.0 million.
Net Interest Income
Net interest income is our largest source of revenue and represents the amount by which interest income on interest earning assets
exceeds the interest expense paid on interest bearing liabilities. Net interest income is affected by many factors, including our volume
and mix of average earning assets; our volume and mix of deposits and other interest bearing liabilities; our net interest margin; our core
spread, which is how we describe the difference between the yield on our non-purchased loans and our cost of interest bearing deposits
(“COIBD”); and other factors.
Net interest income and net interest margin are analyzed in this discussion on an FTE basis. The adjustment to convert net interest
income to an FTE basis consists of dividing tax-exempt interest income by one minus the statutory federal income tax rate of 21%. The
FTE adjustments to net interest income were $6.9 million in 2022, $4.7 million in 2021 and $6.0 million in 2020. No adjustments have
been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions
of the Internal Revenue Code (“IRC”) as a result of investments in certain tax-exempt securities.
2022 compared to 2021
Net interest income for 2022 increased to $1.15 billion compared to $994.5 million for 2021. The increase in our net interest
income for 2022 compared to 2021 was primarily due to an increase in our net interest margin, which increased 73 basis points (“bps”) to
4.82% for 2022 compared to 4.09% for 2021.
The increase in net interest margin was primarily the result of a 91 basis point (“bps”) increase in the yields on our total earning
assets partially offset by a 28 bps increase in the rate on our total interest bearing liabilities. Yields on average earning assets were 5.34%
for 2022 compared to 4.43% for 2021.
The yield on our interest earning deposits and federal funds sold increased 116 bps to 1.29% for 2022 compared to 0.13% for
2021. The yield on our aggregate investment securities portfolio for 2022 increased 57 bps to 1.88% compared to 1.32% for 2021.
The yield on our non-purchased loan portfolio increased 67 bps to 6.18% for 2022 compared to 5.51% for 2021 and the yield on
our purchased loan portfolio increased 8 bps to 7.05% compared to 6.97% for 2021. At December 31, 2022, approximately 78% of our
funded balance of total loans were variable interest rate loans and generally reprice with movements in the London Interbank Offered
Rate (“LIBOR”), the Secured Overnight Funding Rate (“SOFR”) or the Wall Street Journal Prime Rate (“WSJ Prime”).
Given the high percentage of variable rate loans within our loan portfolio, we expect our yield on total loans should continue to
increase as long as the Federal Reserve continues to increase the federal funds target rate. We also expect our COIBD to increase
throughout the Federal Reserve’s tightening cycle and it is expected that the total COIBD will increase for several quarters after the
Federal Reserve finishes increasing the Fed funds target rate since deposit rates tend to lag loan yields early in the tightening cycles.
During 2022, our loan yields have increased more than our COIBD; however, when the Federal Reserve is at or near the end of its
tightening cycle, we expect this trend will reverse likely resulting in a decrease in our net interest margin over the course of 2023.
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The overall increase in rates on average interest bearing liabilities, which increased 28 bps for 2022 compared to 2021, was
primarily due to increases in rates on interest bearing deposits, which increased 23 bps for 2022 compared to 2021. The increase in rates
on our interest bearing deposits, the largest component of our interest bearing liabilities, was primarily due to increases in the rates paid
on savings and interest bearing transactions and, to a lesser extent, time deposits. Also, the rates paid on our interest bearing deposits
were influenced by a shift in the composition of our average deposit balances to include a larger percentage of lower cost consumer and
commercial deposits and a smaller percentage of time deposits. Because of recent and expected increases in the federal funds target rate,
we would expect to experience increases in the rates on our interest-bearing deposits in future periods. Additionally, changes in expected
deposit levels necessary to fund future potential growth in our earning assets, changes in our level of on-balance sheet liquidity, or
changes in competitive conditions, among other factors, could significantly affect our deposit composition and COIBD in future periods.
Our other borrowing sources include (i) other borrowings comprised primarily of FHLB advances, and, to a lesser extent, federal
funds purchased, (ii) subordinated notes and (iii) subordinated debentures. The rates on other borrowings increased 140 bps in 2022
compared to 2021 primarily due to increases in the federal funds target rate in 2022. The rate on our subordinated notes decreased 141
bps in 2022 compared to 2021 as a result of our redemption of our 5.50% fixed-to-floating subordinated notes (the “5.50% Notes”) and
subsequent issuance of our 2.75% fixed-to-floating subordinated notes (the “2.75% Notes”) that occurred during 2021. The rate on these
subordinated notes includes amortization of debt issuance costs. (See the “Capital Management” section of this MD&A for a discussion
of the redemption of the 5.50% Notes and the issuance of the 2.75% Notes). The rates paid on our subordinated debentures, which are
tied to spreads over the 90-day LIBOR and reset periodically, increased primarily due to increases in LIBOR on the applicable reset
dates.
The decrease in average earning assets for 2022 compared to 2021 was primarily due to decreases in the average balance of
investment securities and our interest earning deposits and federal funds sold, partially offset by increases in the average balances of non-
purchased loans. Average interest earning deposits and federal funds sold decreased $0.93 billion, or 49.8% to $0.94 billion for 2022
compared to 2021. Average investment securities decreased $0.35 billion, or 8.5% to $3.72 billion for 2022 compared to 2021. Average
non-purchased loans increased $1.06 billion, or 6.0% to $18.74 billion for 2022 compared to 2021 primarily due to growth in our various
lending groups.
The decrease in average interest bearing liabilities for 2022 compared to 2021 was primarily due to the decrease in the average
balance of interest bearing deposits. Average interest bearing deposits decreased 6.5% to $15.27 billion for 2022 compared to $16.32
billion for 2021 primarily due to a decrease in the average balance of interest bearing deposits needed to fund our average earning assets.
2021 compared to 2020
The COVID-19 pandemic significantly affected the U.S. and global economies in 2020 and 2021. The sudden and severe
economic downturn, in tandem with the adoption of CECL on January 1, 2020, resulted in our incurring provision for credit losses of
$203.6 million in 2020. At December 31, 2020, our ALL was $295.8 million, our reserve for losses on unfunded loan commitments
was $81.5 million and our total ACL was $377.3 million. During 2021, as a result of improved economic conditions and prospects for
improvement in the U.S. economy, we recorded negative provision of $77.9 million. At December 31, 2021, our ALL was $217.4
million, our reserve for losses on unfunded loan commitments was $71.6 million and our total ACL was $289.0 million. Our ACL and
provision for credit losses are tied, in part, to our reasonable and supportable forecast which is related to future economic estimates
and perceived economic outlook. Generally, if our reasonable and supportable forecast in future periods suggests economic conditions
are expected to deteriorate, we may experience further increases in our ACL and, generally, if our reasonable and supportable forecast
in future periods suggest economic conditions are expected to improve, we may experience decreases in our ACL. However, our ACL
and provision for credit losses are impacted by Moody’s economic forecasts and our estimate of how closely those economic forecasts
align with reality, including uncertainty about future U.S. economic conditions. There may be periods when our reasonable and
supportable forecast captures more or less risk related to the uncertainty of future U.S. economic conditions based upon how well we
believe such uncertainty is reflected in the various Moody’s macroeconomic forecasts. Thus, our weightings and selection of Moody’s
macroeconomic scenarios may vary significantly from period to period.
Net interest income for 2021 increased to $994.5 million compared to $894.7 million for 2020. The increase in our net interest
income for 2021 compared to 2020 was primarily due to an increase in our net interest margin, which increased 28 basis points bps to
4.09 % for 2021 compared to 3.81% for 2020, and an increase in our average earning assets.
The increase in net interest margin was primarily the result of a 61 bps decrease in the rate of our interest bearing liabilities,
partially offset by a 20 bps decrease in the yield on average earning assets. Yields on average earning assets were 4.43% for 2021
compared to 4.63% for 2020. The yield on our aggregate investment securities portfolio for 2021 decreased 80 bps to 1.32% compared to
2.12% for 2020. During 2021, in an effort to continue to increase our on-balance sheet liquidity and to replace the significant volume of
investment securities that paid down, were called or matured, we purchased approximately $3.73 billion of high-quality, mostly short-
term investment securities. The yield on such purchases was significantly lower than the yield on our existing investment securities
portfolio, resulting in lower yields in 2021 compared to 2020.
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The yield on our non-purchased loan portfolio increased 20 bps to 5.51% for 2021 compared to 5.31% for 2020. Our loan yields
include accretion of deferred loan fees and discounts and amortization of deferred loan costs, along with elevated levels of minimum
interest, prepayment and various other fees as a result of the significant volume of loan repayments and short-term extensions, along with
the recognition of deferred fees on loans originated under the SBA PPP that received forgiveness and were paid off. The volume and
timing of loan repayments and short-term extensions may vary significantly from period to period causing such income items to also
vary significantly from period to period. The yield on our purchased loan portfolio increased 35 bps to 6.97% for 2021 compared to
6.62% for 2020. The yield on our purchased loan portfolio is significantly affected by both the volume and timing of payoffs and
paydowns which typically result in any remaining purchase accounting valuation amounts treated as yield adjustments, as well as
collections on pre-acquisition charge-offs. Because the volume and timing of purchased loan payoffs and paydowns, including
collections on pre-acquisition charge-offs, may vary significantly from period to period, the yield on such loans will also vary from
period to period.
At December 31, 2021, approximately 79% of our non-purchased loans and approximately 38% of our purchased loans were
variable interest rate loans and generally reprice with movements in the LIBOR, the WSJ Prime or the SOFR. At December 31, 2021,
approximately 99% of our total variable rate loans had floor rates and approximately 92% of our funded balance of total loans within our
variable rate portfolio were at their floor rates.
The overall decrease in rates on average interest bearing liabilities, which decreased 61 bps for 2021 compared to 2020, was
primarily due to decreases in rates on interest bearing deposits, which decreased 64 bps for 2021 compared to 2020. The decrease in rates
on our interest bearing deposits, the largest component of our interest bearing liabilities, was primarily due to decreases in the rates paid
on time deposits as well as a shift in the composition of our deposit base to include a larger percentage of lower cost consumer and
commercial deposits, as well as a reduction in the percentage of our deposits comprised of time deposits.
Our other borrowing sources include (i) other borrowings comprised primarily of FHLB advances, and, to a lesser extent, federal
funds purchased, (ii) subordinated notes and (iii) subordinated debentures. The rates on our other borrowing sources increased nine bps
for 2021 compared to 2020. The rates on our other borrowings in 2020 were affected by capitalized interest associated with the
construction of a new corporate headquarters facility that was completed during the second quarter of 2020. In July 2021, we redeemed
all of our 5.50% Notes at a redemption price equal to 100% of the principal amount of the 5.50% Notes, plus accrued and unpaid interest
and, subsequently, in September 2021, we issued $350 million in aggregate principal amount of our 2.75% Notes due in 2031. As a result
of these transactions, the rate on our subordinated notes decreased 128 bps in 2021 compared to 2020. The rate on these subordinated
notes includes amortization of debt issuance costs. (See the “Capital Management” section of this MD&A for a discussion of the
redemption of the 5.50% Notes and the issuance of the 2.75% Notes). The rates paid on our subordinated debentures, which are tied to
spreads over the 90-day LIBOR and reset periodically, decreased primarily due to decreases in LIBOR on the applicable reset dates.
The increase in average earning assets for 2021 compared to 2020 was primarily due to increases in the average balance of
investment securities and our interest earning deposits and federal funds sold, partially offset by decreases in the average balances of
both non-purchased and purchased loans. Average interest earning deposits and federal funds sold increased $0.34 billion, or 21.8% to
$1.87 billion for 2021 compared to 2020 due to our maintaining higher levels of on-balance sheet liquidity. Average investment
securities increased $1.00 billion, or 32.5%, to $4.07 billion for 2021 compared to 2020 primarily due to our purchase of high-quality,
short-term investment securities during 2021. Average non-purchased loans decreased $0.11 billion, or 0.6%, to $17.68 billion for 2021
compared to 2020 primarily due to an elevated level of loan repayments compared to previous periods, including repayments related to
PPP loans that were originated during 2020. Average purchased loans decreased $0.41 billion, or 38.0%, to $0.66 billion for 2021
compared to 2020, primarily due to continued paydown and payoff activity in that portfolio.
The decrease in average interest bearing liabilities for 2021 compared to 2020 was primarily due to the decrease in the average
balance of interest bearing deposits. Average interest bearing deposits decreased 2.6% to $16.32 billion for 2021 compared to $16.76
billion for 2020 primarily due to our ability to grow our non-interest bearing deposits to fund our growth in earning assets.
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46
The following table sets forth certain information relating to our average balances of assets and liabilities and our net interest
income for the years indicated.
Average Consolidated Balance Sheets and Net Interest Analysis – FTE
ASSETS
Interest earning assets:
Interest earning deposits and
federal funds sold
Investment securities:
Taxable
Tax-exempt – FTE
Non-purchased loans – FTE
Purchased loans
Total earning assets – FTE
Non-interest earning assets
Total assets
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest bearing
transaction
Time deposits
Total interest bearing deposits
Other borrowings (1)(cid:3)
Subordinated notes
Subordinated debentures (1)(cid:3)
Total interest bearing liabilities
Non-interest bearing liabilities:
Non-interest bearing deposits
Other non-interest bearing liabilities
Total liabilities
Total stockholders’ equity before
noncontrolling interest
Noncontrolling interest
Total liabilities and
stockholders’ equity
Net interest income – FTE
Net interest margin – FTE
Average
Balance
2022
Income/
Expense
Yield/
Rate
Year Ended December 31,
2021
Income/
Expense
Average
Balance
Yield/
Rate
Average
Balance
2020
Income/
Expense
Yield/
Rate
(Dollars in thousands)
$
940,116 $
12,116 1.29 % $ 1,871,388 $
2,510 0.13 % $ 1,535,977 $
5,665 0.37 %
2,950,929
774,038
41,526 1.41 3,207,485
864,432
28,675 3.70
40,547 2.03
24,561 2.27
18,744,652 1,159,161 6.18 17,683,033 973,755 5.51 17,797,684 945,222 5.31
70,812 6.62
23,855,690 1,272,919 5.34 24,288,772 1,076,051 4.43 23,477,037 1,086,807 4.63
2,472,672
$ 26,328,362
36,234 1.13 1,993,667
17,378 2.01 1,080,459
2,291,135
$ 25,768,172
2,335,412
$ 26,624,184
46,174 6.97 1,069,250
31,441 7.05
445,955
662,434
$ 9,588,372 $
5,680,395
15,268,767
673,932
346,538
121,310
48,344 0.50 % $ 8,788,200 $
46,229 0.81 7,534,244
94,573 0.62 16,322,444
757,303
13,034 1.93
212,600
10,439 3.01
120,751
5,780 4.76
16,410,547 123,826 0.75 17,413,098
4,873,842
378,471
21,662,860
4,662,467
3,035
4,380,850
321,583
22,115,531
4,505,544
3,109
37,428 0.48 %
12,481 0.14 % $ 7,724,528 $
51,941 0.69 9,035,971 134,385 1.49
64,422 0.39 16,760,499 171,813 1.03
3,202 0.44
12,758 5.70
4,384 3.65
81,587 0.47 17,833,714 192,157 1.08
4,029 0.53
9,386 4.42
3,750 3.11
729,175
223,850
120,190
3,521,066
261,169
21,615,949
4,149,123
3,100
$ 26,328,362
$ 26,624,184
$ 25,768,172
$ 1,149,093
$ 994,464
$ 894,650
4.82 %
4.09 %
3.81 %
(1) The interest expense and the rates for “other borrowings” and for “subordinated debentures” were affected by capitalized interest, primarily for our corporate
headquarters facility that was completed during 2020. Capitalized interest included in “other borrowings” totaled $0.7 million in 2020 and was not material in
2022 or 2021. Capitalized interest included in “subordinated debentures” totaled $0.2 million in 2020 (none in 2022 or 2021). In the absence of this interest
capitalization, the rates on other borrowings would have been 0.53% in 2020 and the rates on subordinated debentures would have been 3.80% in 2020.
Average balances in the previous table are derived from daily average balances for such assets and liabilities. The yields and
rates are derived by dividing interest income or interest expense by the average balance of the related assets or liabilities, respectively.
The average balances of investment securities are computed based on amortized cost adjusted for unrealized gains and losses on
investment securities. The yields on investment securities include amortization of premiums and accretion of discounts. The average
balance of non-purchased loans and purchased loans includes loans on which we have discontinued accruing interest. The yields on
loans include late fees, any prepayment penalties, yield maintenance or minimum interest provisions on loan repayments and
amortization or accretion of certain deferred fees, origination costs, dealer fees (for non-purchased indirect loans) and, for purchased
loans, accretion or amortization of any purchase accounting yield adjustment and accretion of non-credit discounts on PCD loans.
Interest expense and rates on our other borrowing sources, our subordinated debentures and our subordinated notes are presented net
of interest capitalized, if any, on construction projects and include the amortization of debt issuance costs, if any. The interest expense
on the subordinated debentures assumed through an acquisition includes the amortization of any purchase accounting adjustments.
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The following table reflects how changes in the volume of interest earning assets and interest bearing liabilities and changes in
interest rates have affected our interest income – FTE, interest expense and net interest income – FTE for the years indicated.
Information is provided in each category with respect to changes attributable to (1) changes in volume (changes in volume multiplied
by prior yield/rate); (2) changes in yield/rate (changes in yield/rate multiplied by prior volume); and (3) changes in both yield/rate and
volume (changes in yield/rate multiplied by changes in volume). The changes attributable to the combined impact of yield/rate and
volume have all been allocated to the changes due to volume.
Analysis of Changes in Net Interest Income—FTE
2022 over 2021
Yield/
Rate
Volume
Net
Change
(Dollars in thousands)
Volume
2021 over 2020
Yield/
Rate
Net
Change
Increase (decrease) in:
Interest income – FTE:
Interest earning deposits and federal
funds sold
Investment securities:
Taxable
Tax-exempt – FTE
Non-purchased loans – FTE
Purchased loans
Total interest income – FTE
Interest expense:
Savings and interest bearing transaction
Time deposits
Other borrowings
Subordinated notes
Subordinated debentures
Total interest expense
Increase (decrease) in net interest income – FTE
Non-Interest Income
9,606 $
$ (12,002 ) $ 21,608 $
(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
8,902
(3,610 )
14,646
(3,349 )
5,292
11,297
65,650 119,756 185,406
(15,262 )
(14,733 )
31,427 165,441 196,868
529
450 $
(cid:3)(cid:3)(cid:3)(cid:3)
13,712
(4,343 )
(6,314 )
(28,357 )
(24,852 )
(3,605 ) $
(cid:3)(cid:3)
(18,025 )
(2,840 )
34,847
3,719
14,096
(3,155 )
(4,313 )
(7,183 )
28,533
(24,638 )
(10,756 )
4,035
(15,087 )
(1,610 )
4,035
27
(8,600 )
(24,947 )
(82,444 )
827
(3,372 )
(634 )
(9,445 ) (101,125 ) (110,570 )
$ 40,027 $ 114,602 $ 154,629 $ (15,407 ) $ 115,221 $ 99,814
35,863
(5,712 )
9,005
1,053
2,030
42,239
31,828
9,375
10,615
(2,982 )
2,003
50,839
(26,458 )
(71,814 )
674
(2,875 )
(652 )
1,511
(10,630 )
153
(497 )
18
Our non-interest income consists primarily of, among others, service charges on deposit accounts, trust income, BOLI income,
loan service, maintenance and other fees and net gains on investment securities and on sales of other assets.
2022 compared to 2021
Non-interest income for 2022 decreased 0.9% to $114.5 million compared to $115.5 million for 2021.
Service charges on deposit accounts, which includes both NSF and overdraft fees and all other service charges, is the largest
component of our non-interest income and increased 7.5% to $45.8 million in 2022 compared to $42.6 million in 2021. This increase
was primarily due to an increase in customer activity and transaction volumes, partially offset by the elimination of certain fees
charged on deposit accounts.
Trust income decreased 6.1% to $8.0 million in 2022 compared to $8.5 million in 2021.
BOLI income from the increase in cash surrender value decreased 0.5% to $19.5 million in 2022 compared to $19.6 million in
2021. BOLI income from death benefits was $0.8 million in 2022 compared to $2.0 million in 2021. BOLI income in the form of
increases in cash surrender value and death benefits helps to offset a portion of employee benefit costs.
Loan service, maintenance and other fees decreased 1.0% to $13.8 million in 2022 compared to $14.0 million in 2021. Loan
service, maintenance and other fees include unused line of credit fees, asset management fees, certain underwriting fees and various
other fees on loans that are not considered yield adjustments. Income from these items may vary significantly from period to period.
We had net gains on investment securities of $2.0 million in 2022 compared to $0.5 million in 2021. During 2022, we sold
approximately $605.8 million of trading investment securities that resulted in a net gain on the sale of approximately $2.0 million
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compared to 2021, when we sold approximately $128.9 million of trading investment securities that resulted in a net gain on sale of
approximately $0.5 million. For our investment securities AFS, we had no net gains from the sale of such securities in 2022 and 2021.
Gains on sales of other assets were $11.5 million in 2022 compared to $10.0 million in 2021. Included in the gains on sales of
other assets in 2022 were $2.7 million in gains from the sale of a branch in Tampa, Florida, $1.8 million in gains from the sale of our
Magnolia, Arkansas branch and $0.5 million from the sale of loans compared to $4.4 million from the sale of our South Carolina
branches and $2.3 million on the sale of loans during 2021.
2021 compared to 2020
Non-interest income for 2021 increased 10.4% to $115.5 million compared to $104.6 million for 2020.
Service charges on deposit accounts, which includes both NSF and overdraft fees and all other service charges, is the largest
component of our non-interest income and increased 13.0% to $42.6 million in 2021 compared to $37.7 million in 2020. This increase
was primarily due to an increase in customer activity that resulted in growth of other service charges (excluding NSF and overdraft
fees) of 20.7% in 2021 compared to 2020.
Trust income increased 12.8% to $8.5 million in 2021 compared to $7.5 million in 2020.
BOLI income from the increase in cash surrender value decreased 3.0% to $19.6 million in 2021 compared to $20.2 million in
2020. BOLI income from death benefits was $2.0 million in 2021 compared to $0.6 million in 2020. BOLI income in the form of
increases in cash surrender value and death benefits helps to offset a portion of employee benefit costs.
Loan service, maintenance and other fees decreased 2.1% to $14.0 million in 2021 compared to $14.3 million in 2020. Loan
service, maintenance and other fees include unused line of credit fees, asset management fees, certain underwriting fees and various
other fees on loans that are not considered yield adjustments.
We had net gains on investment securities of $0.5 million in 2021 compared to $4.5 million in 2020. Beginning in 2021, we
began classifying certain of our investment securities as trading and during 2021, we sold approximately $128.9 million of trading
investment securities that resulted in a net gain on sale of approximately $0.5 million. For our investment securities AFS, we had no
net gains from the sale of such securities in 2021 compared to net gains of $4.5 million in 2020.
Gains on sales of other assets were $10.0 million in 2021 compared to $6.9 million in 2020. Included in gains on sales of other
assets in 2021 were gains of $4.4 million from the sale of our South Carolina branches and $2.3 million on the sale of loans compared
to gains of $3.8 million from the sale of our Alabama branches during 2020.
The following table presents non-interest income for the years indicated.
Non-Interest Income
Service charges on deposit accounts:
NSF/overdraft fees
All other service charges
Trust income
BOLI income:
Increase in cash surrender value
Death benefits
Loan service, maintenance and other fees
Gains on sales of other assets
Net gains on investment securities
Other
Total non-interest income
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
$
17,724 $
28,102
7,990
19,532
807
13,819
11,467
2,019
13,043
114,503 $
14,962 $
27,656
8,506
19,640
2,028
13,959
9,962
504
18,321
115,538 $
14,782
22,917
7,544
20,239
608
14,257
6,863
4,467
12,931
104,608
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Non-Interest Expense
Our non-interest expense consists of salaries and employee benefits, net occupancy and equipment and other operating
expenses.
2022 compared to 2021
Non-interest expense increased 5.0% to $451.7 million in 2022 compared to $430.3 million in 2021.
Salaries and employee benefits, our largest component of non-interest expense, increased 5.5% to $226.4 million in 2022
compared to $214.6 million in 2021 and represented the most significant contribution to increased non-interest expense. Our
escalation in salaries and benefits expense was driven by competitive labor market conditions and our expanding staff from pandemic-
diminished levels during 2022 compared to 2021. We expect further growth in headcount in 2023 to support future growth in deposits,
loans and other aspects of our business.
Net occupancy and equipment expense increased 4.9% to $70.1 million in 2022 compared to $66.8 million in 2021.
Other operating expenses increased 4.3% to $155.3 million in 2022 compared to $148.9 million in 2021. The increase in other
operating expense in 2022 compared to 2021 was primarily due to increases in our advertising and public relations expenses,
amortization of CRA and tax credit investments and, to a lesser extent, increases in travel and meals and professional and outside
services expenses, partially offset by decreases in our writedowns of foreclosed and other assets and other expenses.
Our efficiency ratio (non-interest expense divided by the sum of net interest income–FTE and non-interest income) was 35.8%
for 2022 compared to 38.8% for 2021.
2021 compared to 2020
Non-interest expense increased 4.1% to $430.3 million in 2021 compared to $413.4 million in 2020.
Salaries and employee benefits, our largest component of non-interest expense, increased 3.7% to $214.6 million in 2021
compared to $206.8 million in 2020. During 2021, we experienced increased competition for talent associated with a broad-based
shortage for workers. This increased competition for talent resulted in increased wage inflation.
Net occupancy and equipment expense increased 5.4% to $66.8 million in 2021 compared to $63.4 million in 2020. During the
second quarter of 2020, we opened our new corporate headquarters facility, which has contributed to the increase in net occupancy
and equipment expense in 2021.
Other operating expenses increased 4.0% to $148.9 million in 2021 compared to $143.2 million in 2020. The increase in other
operating expense in 2021 compared to 2020 is primarily attributable to approximately $2.0 million in branch closure expense and a
write-off of approximately $0.8 million in unamortized debt issue cost associated with the redemption of our 5.50% Notes. In
addition, we have significantly increased the balance of our CRA and tax credit investments in recent years which resulted in
increased amortization of these investments in 2021 compared to 2020.
Our efficiency ratio (non-interest expense divided by the sum of net interest income–FTE and non-interest income) was 38.8%
for 2021 compared to 41.4% for 2020.
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The following table presents non-interest expense for the years indicated.
Non-Interest Expense
Salaries and employee benefits
Net occupancy and equipment
Other operating expenses:
Professional and outside services
Software and data processing
Deposit insurance and assessments
Advertising and public relations
Telecommunication services
Travel and meals
Postage and supplies
ATM expense
Amortization of intangibles
Loan collection and repossession expense
Writedowns of foreclosed and other assets
Amortization of CRA and tax credit investments
Other
Total non-interest expense
Pre-Tax Pre-Provision Net Revenue (“PPNR”)
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
226,373 $
70,058
214,567 $
66,801
206,834
63,379
31,905
25,049
9,610
8,797
7,986
7,661
7,146
6,331
5,520
1,387
1,055
20,293
22,550
451,721 $
29,013
23,860
11,185
2,772
8,427
5,694
6,627
6,255
6,394
2,044
3,461
15,078
28,097
430,275 $
29,605
21,279
15,247
6,050
9,159
4,336
7,462
5,256
9,085
3,062
3,669
8,279
20,711
413,413
$
As a result of the volatility of our provision for credit losses under CECL, we use PPNR, which is a non-GAAP financial
measure, to measure our core earnings and trends thereof. PPNR is a measure of earnings before provision for credit losses and
income tax expense. The increase in PPNR in 2022 compared to 2021 and in 2021 compared to 2020 was primarily due to the increase
in net interest income previously discussed in this MD&A. This non-GAAP financial measure should not be viewed as a substitute for
financial measures determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP financial measures that may
be presented by other companies.
The reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is included in
the following table for the years indicated.
Calculation of Pre-Tax Pre-Provision Net Revenue
Net income available to common
stockholders
Preferred stock dividends
Earnings attributable to noncontrolling
interest
Provision for income taxes
Provision for credit losses
Pre-tax pre-provision net revenue
Income Taxes
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
547,520 $
16,621
579,001 $
—
291,898
—
(51 )
157,440
83,494
805,024 $
32
173,888
(77,938 )
674,983 $
(32 )
84,314
203,639
579,819
$
Our provision for income taxes was $157.4 million in 2022 compared to $173.9 million in 2021 and $84.3 million in 2020. Our
effective income tax rates were 21.8% for 2022, 23.1% for 2021 and 22.4% for 2020. The decrease in our effective income tax rate for
2022 compared to 2021 was primarily due to increases in federal income tax credits and increased tax-exempt interest income. The
increase in our effective income tax rate for 2021 compared to 2020 was primarily due to changes in non-taxable income associated
with our investment securities AFS portfolio, the earnings on bank-owned life insurance in proportion to pre-tax net income and
various other factors related to non-taxable income and non-deductible expenses.
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Accounting for our income taxes utilizes the criteria discussed in the Critical Accounting Estimates section of this MD&A. A
reconciliation between the statutory federal income tax rates and our effective income tax rates for 2022, 2021 and 2020 is included in
Note 13 to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual
Report on Form 10-K.
RISK ELEMENTS
Risk is inherent in substantially all of the Bank’s operations, and our business exposes us to strategic risk, credit risk, market
risk (including interest rate risk), liquidity risk, operational risk, reputational risk and compliance and regulatory risk. We use an
enterprise-wide risk management framework to identify, measure, monitor, manage and report risks that affect or could affect the
achievement of our strategic, financial and other goals and objectives. Accordingly, risk management is an essential element in
managing our operations and is a key determinant of our overall performance. Our Board of Directors (the “Board”) is responsible for
approving our overall risk management framework, including our risk appetite for the aforementioned risk categories and risk
tolerances for each of our key risks. The Board Risk Committee (“BRC”), which is a board-level committee, has been assigned
oversight responsibility for our risk management processes. The BRC meets at least quarterly to monitor and review our various
enterprise risk management policies and activities, review and approve our overall risk posture, and such other actions as detailed in
its charter document. The BRC has appointed the Executive Risk Council (“ERC”), which is comprised of senior executives of the
Bank and is chaired by the Chief Risk Officer (“CRO”), to assist BRC in the oversight of our enterprise risk management activities.
The ERC, pursuant to its charter, has responsibility for review and approval of detailed risk management processes and procedures,
monitoring each of our key performance and key risk indicators against our Board-approved risk thresholds, assessing current and
emerging risks, monitoring our risk culture, overseeing compliance with regulatory expectations and requirements, and various other
risk management functions and activities.
Our most significant risk exposure has traditionally been, and continues to be, credit risk from the extension of credit to our
customers. In addition to credit risk, we are also exposed to risk from various other areas including liquidity risk, market and interest
rate risk, strategic risk, compliance risk (including regulatory risk), reputational risk and operational risk (including, among others,
information technology risk, business resilience risk, model risk, third party vendor risk, fraud risk, legal risk and cyber security risk).
Our BRC and/or our ERC review the framework, policies, procedures and processes employed by us to manage and monitor each of
these risks, including strategies for reducing such risks to appropriate levels consistent with Board-approved risk appetite.
Additionally, we use various other committees and management councils to monitor risk for each of these specific risk categories.
Clearly defined roles and responsibilities are critical to the effective management of risk. We utilize the three lines of defense
model to clearly designate risk management activities throughout the Bank.
•
•
First line of defense activities provide for the identification, acceptance and ownership of risks. These defense activities are
typically executed by various lines of business personnel and owners.
Second line of defense activities provide for objective oversight of our risk-taking activities and assessment of our
aggregate risk levels. These defense activities are executed under the leadership and guidance of our Corporate Risk
Management Group (“CRMG”) and our CRO, who reports directly to our BRC.
• Third line of defense activities provide for independent reviews and assessments of first and second line of defense
processes across the Bank, including those activities of our CRMG. These defense activities are executed by our Internal
Audit department, which is led by our Chief Audit Executive, who reports directly to our Audit Committee.
While these various risk management activities help us to identify, measure, monitor, manage and report risks, such activities
are not intended to, nor can they eliminate, all risk. Additionally, there is no assurance that such activities will identify or have
identified all risks to which we are or might be exposed.
Credit Risk Management
Overview. Credit risk is defined as the risk that arises from the potential that a borrower or counterparty will fail to perform its
financial or contractual obligations. Credit risk arises primarily from our lending activities, including our off-balance sheet credit
instruments comprised primarily of construction loans that have closed but have not yet funded. The Board is responsible for
approving overall credit policies relating to the management of credit risk and the Bank’s overall credit risk appetite, along with
overseeing and monitoring credit risk. Our lending policies also contain various measures to limit concentration exposures, including
customer and commercial real estate (“CRE”) exposures for both funded and unfunded balances in the aggregate, as well as by
property type and geography.
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Our Loan Committee (“LC”) has primary responsibility for monitoring our credit approval process. The LC consists of our
Chairman & Chief Executive Officer (“CEO”), President and Chief Lending Officer (“CLO”). Loans and aggregate loan relationships
exceeding $20 million up to the limits established by our Board must be approved by the LC. The Portfolio Oversight Committee
(“POC”) has primary responsibility for monitoring the performance and overall quality of our loan portfolio. The POC is comprised of
three directors and is chaired by our CEO. At least quarterly, our Board, BRC and/or POC review various reports regarding our credit
management activities including, but not limited to, summary reports of past due loans, internally classified and criticized list loans,
lending concentration reports, and various other loan and credit management reports.
Credit Management Actions. The daily administration of our lending function is the responsibility of our CEO and our CLO.
We maintain a tiered loan limit authorization system. Loan authority is granted to the CEO and CLO by the Board. The loan
authorities of other lending officers are granted by the POC on the recommendation of appropriate senior officers in amounts
commensurate with the officer’s skill level and knowledge.
We have detailed, comprehensive standards for evaluating credit risk, both at the point of origination and thereafter. We utilize
a dual risk rating system that incorporates score cards, which assess quantitative models and qualitative factors, in determining the
risk rating for our commercial loans. This dual risk rating methodology incorporates an Obligor Risk Rating (“ORR”) and a Facility
Risk Rating (“FRR”) which are combined to create a two-dimensional risk rating for our commercial loans. The ORR is influenced
by a loan’s probability of default (“PD”) as determined from the score cards, with such score card PDs affected by various financial
metrics such as projected cash flow, LTV, property and/or market characteristics, borrower financial strength and other financial and
loan characteristics. Thus, the higher a loan’s PD, the more adverse the loan’s ORR. The FRR is influenced by a loan’s loss given
default (“LGD”) as determined from the score cards. Score card LGDs are affected by the estimated loss when a borrower cannot or
will not repay the loan. Estimated losses take into consideration our underwriting standards and protections, including collateral and
collateral margin requirements, lien position, compliance with any loan covenants, support required from guarantors, insurance and
other factors. The higher a loan’s LGD, the more adverse the loan’s FRR. The combined dual risk rating provides an annualized
expected loss estimate for each commercial loan and, based on such loss estimate, a regulatory risk rating is assigned. Additionally,
we may apply risk rating “overrides” whereby management may further adjust a loan’s risk rating to the extent we believe there is
additional information about a loan or a borrower that is not fully reflected in the ORR and/or the FRR. Our consumer loans and
certain small business loans are not risk rated in the same manner as our other commercial loans. Instead, such consumer and small
business loans are risk rated based on past due status with all such loans that are less than 30 days past due typically assigned a “pass
rating” and all loans that are 30 days or more past due assigned a more adverse rating commensurate with each loan’s perceived risk.
While our consumer loans and certain small business loans are not risk rated using a dual risk rating scale that incorporates both an
ORR and an FRR, we do utilize output from the score cards on such consumer and small business loans for purposes of determining
the necessary ACL for those consumer and small business loans.
Oversight of credit risk is provided through loan policy and various other credit-related policies, clearly defined processes and
detailed procedures and our credit risk appetite. These policies, processes and procedures place emphasis on strong underwriting
standards and detection of potential credit problems in order to develop and implement any necessary action plan(s) on a timely basis
to mitigate potential losses and are carried out by our lenders and lending support personnel, our credit administration group, our
underwriters and various other officers and personnel in the Bank that have credit management responsibilities. Additionally, our
policies, process and procedures are subject to review by our Credit Risk Management (“CRM”) group (second line oversight), our
BRC and periodic audits by our Internal Audit group (third line oversight). Our Board approved credit risk appetite is monitored at
least on a quarterly basis through our credit risk profile which is further categorized into default risk (risk of loss arising from a debtor
being unlikely to pay its loan obligations in full) and concentration risk (risk associated with any single exposure or group of
exposures with the potential to produce large enough losses to threaten the Bank’s core operations).
Our CRM function is separate from our lending function and provides second line oversight. CRM is responsible for providing
an independent evaluation of credit risk in new lending products, our loan portfolio, including detailed credit reviews performed for
the purpose of reviewing the adequacy of documentation, compliance with loan policy and other credit policies, reviewing individual
loan grading, evaluating asset quality, performing and reporting to ERC and BRC credit risk analytics (which includes assessing the
trend of credit risk metrics which inform our credit risk profile, assessing any trends or material transitions or migrations of our
internal risk ratings or credit grading of individual loan portfolios, and various other risk analytics), and reviewing the effectiveness
of credit administration, among other items. CRM prepares reports that document their credit risk oversight activities, including
identification of underwriting or other deficiencies in the loan approval or credit monitoring process, establishing recommendations
for improvement and outlining management’s proposed action plan(s) and timeline(s) for curing any identified deficiencies, among
other findings and recommendations. Internal oversight of the CRM function is provided by the Credit Risk Management Council
(“CRMC”), which is comprised of senior officers of the Bank and chaired by the Managing Director of CRM. The reports produced
by CRM are provided to and reviewed by CRMC. Additionally, key trends or significant issues identified in such reports that might
impact credit risk are reported to ERC, BRC and/or the Board.
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Our Internal Audit group performs periodic audits of various lending and credit-related activities, including underwriting,
closing and funding procedures, credit and asset administration and CRM activities, among others. Internal Audit prepares reports
documenting such audits, including recommendations for improvement and management’s proposed action plan(s) and timeline(s) for
remediating such recommendations. These reports are provided to and reviewed by our Audit Committee.
Loan Portfolio. At December 31, 2022, our total loan portfolio was $20.78 billion, an increase of 13.5% from $18.31 billion at
December 31, 2021. At December 31, 2022, our total loan portfolio consisted of 75.1% real estate loans, 4.3% commercial and
industrial loans, 11.8% consumer loans and 8.8% other loans. Real estate loans, our largest category of loans, include all loans made
to finance the development of real property construction projects, provided such loans are secured by real estate, and all other loans
secured by real estate as evidenced by mortgages or other liens.
The amount and type of total loans outstanding, as of the dates indicated, are reflected in the following table.
Total Loan Portfolio
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Total real estate
Commercial and industrial
Consumer
Other
Total loans
December 31,
2022
2021
(Dollars in thousands)
$
$
981,567 $
4,665,268
8,215,056
239,689
1,503,398
15,604,978
902,321
2,445,851
1,825,641
20,778,791 $
887,024
3,782,892
8,246,674
247,727
934,845
14,099,162
510,784
2,185,429
1,512,450
18,307,825
Included in “other” loans at December 31, 2022 and 2021 are loans totaling approximately $1.55 billion and $1.27 billion,
respectively, that were originated to acquire promissory notes from non-depository financial institutions and are typically
collateralized by an assignment of the promissory note and all related note documents including mortgages, deeds of trust, etc. While
such loans are considered “other” loans in accordance with FDIC instructions for the Federal Financial Institutions Examination
Council 041 Consolidated Reports of Condition and Income (“Call Report”), we underwrite these lending transactions based on the
fundamentals of the underlying collateral, repayment sources and guarantors, among other factors, consistent with other similar
lending transactions.
Our credit risk management strategies include efforts to diversify our loan portfolio and avoid the risk of undue concentrations
of credit in a particular collateral type, geography or with an individual customer. While our loan portfolio is diversified, we do have
concentrations in CRE lending. Our Board has adopted and we adhere to various concentration limits on CRE lending, including
limits on CRE lending in particular collateral types and in various geographies and Metropolitan Statistical Areas (“MSAs”). All of
these limits are monitored and revised as necessary based on the results of our stress testing activities and other factors.
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The amount of both the funded and unfunded balances of our top ten largest geographies and MSAs for real estate loans, as of
the dates indicated, are included in the following table.
Top Ten Geographies and MSAs for Real Estate Loans
Geography or MSA
December 31, 2022:
(cid:3)(cid:3)
New York–Newark–Jersey City, NY–NJ–PA MSA
Miami–Fort Lauderdale–Pompano Beach, FL MSA
Los Angeles–Long Beach–Anaheim, CA MSA
Atlanta–Sandy Springs–Alpharetta, GA MSA
Dallas–Fort Worth–Arlington, TX MSA
San Diego–Chula Vista–Carlsbad, CA MSA
San Francisco–Oakland–Berkeley, CA MSA
Chicago–Naperville–Elgin, IL–IN–WI MSA
Washington–Arlington–Alexandria, DC–VA–MD–WV MSA
Phoenix–Mesa–Chandler, AZ MSA
All other geographies
Total real estate loans
December 31, 2021:
New York–Newark–Jersey City, NY–NJ–PA MSA
Miami–Fort Lauderdale–Pompano Beach, FL MSA
Los Angeles–Long Beach–Anaheim, CA MSA
Atlanta–Sandy Springs–Alpharetta, GA MSA
San Francisco–Oakland–Berkeley, CA MSA
Chicago–Naperville–Elgin, IL–IN–WI MSA
Dallas–Fort Worth–Arlington, TX MSA
Tampa–St. Petersburg–Clearwater, FL MSA
Boston–Cambridge–Newton, MA–NH MSA
Philadelphia–Camden–Wilmington, PA–NJ–DE–MD MSA
All other geographies
Total real estate loans
Funded Balance
Unfunded
Balance
Total
Commitment
(Dollars in thousands)
$
2,006,978 $
1,205,576 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
1,261,411 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
844,264 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
853,412 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
351,711 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
380,881 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
910,818 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
316,493 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
493,740 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
6,979,694 (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
3,829,313
2,453,811
2,015,886
1,953,705
1,867,321
1,684,407
1,556,997
1,472,767
1,341,630
1,171,166
7,436,101 14,415,795
$ 15,604,978 $ 18,157,820 $ 33,762,798
1,822,335 $
1,248,235
754,475
1,109,441
1,013,909
1,332,696
1,176,116
561,949
1,025,137 (cid:3)(cid:3)
677,426
(cid:3)(cid:3)
$
2,624,677 $
1,110,064 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
1,151,494 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
592,394 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
464,664 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
803,682 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
733,196 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
784,484 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
168,912 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
499,736 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
5,165,859 (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)
3,231,483
2,384,342
1,845,565
1,393,720
1,387,720
1,321,958
1,303,665
1,146,728
1,056,071
961,005
5,038,188 10,204,047
$ 14,099,162 $ 12,137,142 $ 26,236,304
606,806 $
1,274,278
694,071
801,326
923,056
518,276
570,469
362,244
887,159
461,269
Loans originated to acquire promissory notes from non-depository financial institutions may have the underlying property
located in one or more of the geographies or MSAs listed above. Such loans are reported as “other” in accordance with Call Report
instructions and are excluded from the above table.
In addition to the top ten geographies and MSAs shown above, as of December 31, 2022, we had 88 additional geographies and
MSAs that contain total committed balances (both funded and unfunded) of $10 million or more, compared to 78 additional
geographies and MSAs at December 31, 2021.
Given that we have substantial balances of certain categories of CRE lending (i.e., non-farm/non-residential and
construction/land development lending), we have provided further detail on these two categories of loans.
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The funded amount and type of total non-farm/non-residential loans, as of the dates indicated, and their respective percentage of
the total non-farm/non-residential loan portfolio are reflected in the following table.
Total Non-Farm/Non-Residential Loans
Office, including medical offices
Hotels and motels
Manufacturing and industrial facilities
Retail, including shopping centers and strip centers
Churches and schools
Office warehouse, warehouse and mini-storage
Restaurants and bars
Gasoline stations and convenience stores
Mixed use properties
Golf courses, entertainment and recreational facilities
Nursing homes and assisted living centers
Hospitals, surgery centers and other medical
Other non-farm/non-residential
Total
2022
Amount
$ 1,696,572
1,133,706
611,520
358,981
196,752
119,276
109,016
91,012
61,069
38,273
24,909
9,873
214,309
$ 4,665,268
December 31,
%
(Dollars in thousands)
Amount
2021
%
36.4 % $ 1,044,105
24.3 1,330,743
197,834
13.1
266,372
7.7
222,171
4.2
99,127
2.6
128,853
2.3
69,067
2.0
50,276
1.3
38,740
0.8
55,559
0.5
15,673
0.2
264,372
4.6
100.0 % $ 3,782,892
27.6 %
35.2
5.2
7.0
5.9
2.6
3.4
1.8
1.3
1.0
1.5
0.4
7.1
100.0 %
The funded amount and type of total construction/land development loans, as of the dates indicated, and their respective
percentage of the total construction/land development loan portfolio are reflected in the following table.
Total Construction/Land Development Loans
December 31,
Unimproved land
Land development and lots:
1-4 family residential and multifamily
Non-residential
Construction:
1-4 family residential:
Owner occupied
Non-owner occupied:
Pre-sold
Speculative
Multifamily
Industrial, commercial and other:
Mixed use properties
Life Science
Office, including medical offices
Manufacturing, industrial and warehouse
Hotels and motels
Agricultural
Churches and schools
Retail, including shopping centers and strip centers
Restaurants and bars
Other
Total
2022
Amount
$
683,356
2021
%
Amount
%
(Dollars in thousands)
8.3 % $
434,939
706,483
483,294
8.6
5.9
378,050
619,197
5.3 %
4.6
7.5
6,220
0.1
8,589
0.1
928,973
366,118
1,916,637
11.3 1,699,076
190,172
890,910
4.5
23.3
1,564,915
546,251
499,274
352,911
36,765
34,070
26,031
22,634
5,369
35,755
$ 8,215,056
19.0 2,337,064
131,455
780,345
299,795
396,602
18,015
26,406
7,667
4,617
23,775
100.0 % $ 8,246,674
6.6
6.1
4.3
0.4
0.4
0.3
0.3
0.1
0.5
20.6
2.3
10.8
28.3
1.6
9.5
3.6
4.8
0.2
0.3
0.1
0.1
0.3
100.0 %
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Many of our construction and development loans provide for the use of interest reserves. When we underwrite construction and
development loans, we consider the expected total project costs, including hard costs such as land, site work and construction costs
and soft costs such as architectural and engineering fees, closing costs, leasing commissions and construction period interest, among
others. For any construction and development loan with interest reserves, we also consider the construction period interest in our
underwriting process (otherwise, our underwriting of such loans with and without interest reserves is virtually identical). Based on the
total project costs and other factors, we determine the required borrower cash equity contribution and the maximum amount we are
willing to lend. In the vast majority of cases, we require that all of the borrower’s equity and all other required subordinated elements
of the capital structure be fully funded prior to any significant loan advance. As a result of this practice, the borrower’s cash equity
typically goes toward the purchase of the land and early stage hard costs and soft costs. This results in our funding the loan later as the
project progresses, and accordingly, we typically fund the majority of the construction period interest through loan advances.
Generally, as part of our underwriting process, we require the borrower’s cash equity to cover a majority, or all, of the soft
costs, including an amount equal to construction period interest, and an appropriate portion of the hard costs. While we advance
interest reserves as part of the funding process, we believe that the borrowers have in most cases provided for these sums as part of
their initial equity contribution. During the years ended December 31, 2022, 2021 and 2020, there were no situations where interest
reserves were advanced outside of the terms of the contractual loan agreement to avoid such loan from becoming nonperforming. At
December 31, 2022 and 2021, we had no construction and development loans with interest reserves that were nonperforming.
During the years ended December 31, 2022, 2021 and 2020, we recognized approximately $340 million, $284 million and $263
million, respectively, of interest income on construction and development loans from the advance of interest reserves. We advanced
construction period interest on construction and development loans totaling approximately $332 million, $281 million and $257
million, respectively, during the years ended December 31, 2022, 2021 and 2020.
The maximum committed balance of all construction and development loans which provide for the use of interest reserves at
December 31, 2022 was approximately $24.14 billion, of which $7.38 billion was outstanding at December 31, 2022 and $16.76
billion remained to be advanced. The weighted-average loan-to-cost (“LTC”) on such loans, assuming such loans are ultimately fully
advanced, was approximately 55%, which means that the weighted-average cash equity contributed on such loans, assuming such
loans are ultimately fully advanced, was approximately 45%. The weighted-average LTV ratio on such loans, based on the most recent
appraisals and assuming such loans are ultimately fully advanced, was approximately 44%.
Purchased Loans. Between 2010 and 2016, we made fifteen acquisitions. Purchased loans, which are the remaining loans from
those fifteen acquisitions, accounted for 1.8% of our total loan portfolio at December 31, 2022 (2.8% at December 31, 2021). This
portfolio will continue to decrease as such loans are repaid.
For purchased loans, we segregate this portfolio into loans that contain evidence of credit deterioration, which we refer to as
PCD loans, and loans that do not contain evidence of credit deterioration. Unless individually evaluated, all purchased commercial
loans, including both PCD and non-PCD loans, are dual risk rated through our score cards, which were previously discussed under
Credit Risk Management – Credit Management Actions above. While our purchased consumer loans and certain small business loans,
including both PCD and non-PCD, are not score card risk rated, we utilize output from the various consumer and commercial score
cards for purposes of determining the appropriate ACL for such loans.
The amount of unpaid principal balance, the valuation discount and the carrying value of purchased loans, as of the dates
indicated, are reflected in the following table.
Purchased Loans
Loans not deemed PCD:
Unpaid principal balance
Valuation discount
Carrying value
PCD loans:(cid:3)
Unpaid principal balance
Valuation discount
Carrying value
Total carrying value
December 31,
2022
2021
(Dollars in thousands)
$
$
362,548 $
(4,079 )
358,469
23,009
(2,841 )
20,168
378,637 $
487,341
(6,029 )
481,312
40,320
(5,417 )
34,903
516,215
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Nonperforming Assets
Nonperforming Assets. Our nonperforming assets consist of (1) nonaccrual loans, (2) accruing loans 90 days or more past due,
(3) certain troubled and restructured loans for which a concession has been granted by us to the borrower 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 or former branches which are no longer being utilized for banking purposes.
The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments
as they become due. We generally place a loan on nonaccrual status when such loan is (i) deemed nonperforming or (ii) 90 days or
more past due, or earlier when doubt exists as to the ultimate collection of payments. We may continue to accrue interest on certain
loans contractually past due 90 days or more 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 reversed and charged against interest income. Nonaccrual
loans are generally returned to accrual status when payments are no longer past due, the loan has performed in accordance with its
contractual terms for a reasonable period of time (generally at least six months) and is expected to continue to perform in accordance
with its contractual terms. If a loan is determined to be uncollectible, the portion of the principal determined to be uncollectible is
charged against the ACL. Loans for which the terms have been modified and for which (i) the borrower is experiencing financial
difficulties and (ii) we have granted a concession to the borrower are considered troubled debt restructurings (“TDRs”) and are
included in nonperforming loans. Income on nonaccrual loans is recognized on a cash basis when and if actually collected. Income on
TDRs is recognized on a cash basis until such time as the TDR has performed in accordance with its modified terms for a reasonable
period of time (generally at least six months) and is expected to continue to perform. Once such performance and expected
performance conditions are met, the TDR is returned to accrual status but continues to be reported as a nonperforming loan.
The following table presents information concerning nonperforming assets, including nonaccrual loans, TDRs, and foreclosed
assets as of the dates indicated.
Nonperforming Assets
Nonaccrual loans (1)(cid:3)
Accruing loans 90 days or more past due
TDRs – nonaccruing (1)(cid:3)
TDRs – accruing (1)(cid:3)
Total nonperforming loans, excluding purchased loans
Nonaccrual purchased loans
TDRs - nonaccruing purchased
TDRs – accruing purchased
Total nonperforming loans
Foreclosed assets
Total nonperforming assets
Nonperforming loans to total loans, excluding purchased loans (1)(cid:3)
Nonperforming loans to total loans
Nonaccrual loans to total loans
Nonperforming assets to total assets, excluding purchased loans (2)(cid:3)
Nonperforming assets to total assets
ALL to nonaccrual loans (3)(cid:3)
ACL to nonaccrual loans
(1) Excludes purchased loans.
(2) Excludes purchased loans, except for their inclusion in total assets.
(3) Excludes reserve for losses on unfunded loan commitments.
$
$
December 31,
2022
2021
(Dollars in thousands)
37,079 $
—
6,332
1,680
45,091
5,513
1,519
239
52,362
6,616
58,978 $
0.22 %
0.25
0.24
0.19
0.21
414
724
29,480
—
3,794
1,285
34,559
8,589
2,402
45
45,595
5,744
51,339
0.19 %
0.25
0.24
0.15
0.19
491
653
For loans that are individually evaluated and for which we utilize the loan’s collateral in determining the ACL, we seek to
establish an appropriate value for the collateral. This assessment may include (i) obtaining an updated appraisal, (ii) obtaining one or
more broker price opinions or comprehensive market analyses, (iii) internal evaluations or (iv) other methods deemed appropriate
considering the size and complexity of the loan and the underlying collateral. On an ongoing basis, we evaluate the underlying
collateral on all collateral dependent nonperforming loans and, if needed, due to changes in market or property conditions, the
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underlying collateral is reassessed and the estimated fair value is revised. The determination of collateral value includes any
adjustments considered necessary related to estimated holding period and estimated selling costs.
At December 31, 2022 and 2021, we had reduced the carrying value of our nonperforming loans to the estimated fair value of
such loans of $35.8 million and $35.2 million, respectively. The adjustment to reduce the carrying value of nonperforming loans to
estimated fair value at December 31, 2022 and 2021 consisted of $14.6 million and $10.4 million, respectively, of allowance for loan
loss allocations. Nonperforming loans at December 31, 2022 and 2021 included $1.9 million and $1.3 million, respectively, of
accruing loans that were determined to be TDRs.
At December 31, 2022 and 2021 substandard loans, not designated as nonperforming, nonaccrual or 90 days past due, totaled
$52.5 million and $52.7 million, respectively. No loans were designated as doubtful or loss at December 31, 2022 and 2021. Included
in substandard loans not deemed as nonperforming, nonaccrual or 90 days past due at December 31, 2022 and 2021 was a single credit
at our Real Estate Specialty Group that was downgraded to substandard during the fourth quarter of 2019. This credit, which is
collateralized by a lot development and townhouse construction project near Lake Tahoe, California, had an outstanding balance of
$41.8 million at December 31, 2022 and $42.8 million at December 31, 2021. This credit was not past due at December 31, 2022 or
2021.
The following table is a summary of the amount and type of foreclosed assets as of the dates indicated.
Foreclosed Assets
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Total real estate
Consumer
Foreclosed assets
December 31,
2022
2021
(Dollars in thousands)
$
$
— $
6,133
11
—
6,144
472
6,616 $
—
2,786
1,990
701
5,477
267
5,744
The following table is a summary of activity within foreclosed assets during the periods indicated.
Activity Within Foreclosed Assets
Balance – beginning of year
Loans and other assets transferred into foreclosed assets
Sales of foreclosed assets
Writedowns of foreclosed assets
Balance – end of year
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
$
5,744 $
13,151
(11,224 )
(1,055 )
6,616 $
11,085 $
15,435
(17,315 )
(3,461 )
5,744 $
19,096
21,703
(26,045 )
(3,669 )
11,085
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The following table presents information concerning the geographic location of nonperforming assets at December 31, 2022.
Nonperforming loans are reported in the physical location of the principal collateral. Foreclosed assets are reported in the physical
location of the asset. Repossessions are reported at the physical location where the borrower resided or had its principal place of
business at the time of repossession.
Geographic Distribution of Nonperforming Assets
Arkansas
Georgia
Florida
North Carolina
Texas
Mississippi
California
New York
All other
Total
Nonperforming
Loans
Foreclosed
Assets and
Repossessions
(Dollars in thousands)
Total
Nonperforming
Assets
$
$
11,048 $
8,357
16,606
4,290
4,944
740
715
2,221
3,441
52,362 $
645 $
11
2,433
—
3,275
40
—
—
212
6,616 $
11,693
8,368
19,039
4,290
8,219
780
715
2,221
3,653
58,978
Allowance for Credit Losses
Our provision for credit losses for 2022 was $83.5 million, including a negative $1.3 million related to our ALL for funded
loans and $84.8 million related to our reserve for losses on unfunded loan commitments. Our total provision for credit losses for 2021
was a negative $77.9 million, including a negative $68.0 million related to our ALL for funded loans and a negative $9.9 million
related to our reserve for losses on unfunded loan commitments. During 2022, our negative provision for credit losses and net charge-
offs on funded loans decreased our ALL for loans to $208.9 million, or 1.01% of total loans, and our provision for credit losses
increased our reserve for losses on unfunded loan commitments to $156.4 million, or 0.74% of unfunded loan commitments, bringing
our total ACL to $365.3 million at December 31, 2022. During 2021, our negative provision for credit losses decreased our ALL for
funded loans to $217.4 million, or 1.19% of total loans, and decreased our reserve for losses on unfunded loan commitments to $71.6
million, or 0.53% of unfunded loan commitments, bringing our total ACL to $289.0 million at December 31, 2021.
The calculations of our provision for credit losses for 2022 and 2021 and our total ACL at December 31, 2022 and 2021 were
based on a number of key estimates, assumptions and economic forecasts. Management utilized recent economic forecasts provided
by Moody’s, including their updates released in December 2022.
In selecting the weightings for the various economic scenarios for purposes of determining our ACL at December 31, 2022, our
combined weightings assigned to the Moody’s S4 (Alternative Adverse Scenario) and S6 (Stagflation) scenarios exceeded that of the
Moody’s Baseline scenario, which had the largest single scenario weighting. Our selection and weightings of these scenarios reflect
our assessment of conditions in the U.S. economy and acknowledged the uncertainty regarding future U.S. economic conditions,
including the elevated risk of a recession in the near-term, elevated inflationary pressures, increases in the Fed funds target rate,
prospects for shrinking the Federal Reserve balance sheet, the impacts of the ongoing war in Ukraine, supply chain disruptions, global
trade and geopolitical matters, the impacts of U.S. fiscal policy actions, uncertainties about the COVID-19 pandemic, and various
other factors. These forecasts included a number of economic variables, including gross domestic product (“GDP”), unemployment
rates, and commercial and residential real estate prices, among others. For purposes of the forecasts used in our CECL methodology,
management utilized a reasonable and supportable forecast period of two years, followed by a reversion, on a systematic basis, of
estimated losses back to our historical mean. Management also utilized certain qualitative adjustments to increase our ACL estimates
at December 31, 2022 and 2021 in order to capture items that management believed were not fully reflected in our modeled results.
CECL has and is expected to continue to increase the volatility in our provision for credit losses and associated ACL from
period to period. The current situation surrounding the U.S. fiscal policy, inflation, FRB monetary policy, global trade and geopolitical
matters, supply chain disruptions and other factors continues to evolve, and the ultimate depth and duration of resulting economic
impacts are not yet fully known.
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The following table is a summary of activity within our ACL for the years indicated.
Year ended December 31, 2022:
Balances – December 31, 2021
Net charge-offs
Provision for credit losses
Balances – December 31, 2022
Year ended December 31, 2021:
Balances – December 31, 2020
Net charge-offs
Provision for credit losses
Balances – December 31, 2021
Year ended December 31, 2020:
Balances – December 31, 2019
Adoption of CECL methodology
Balances – January 1, 2020
Net charge-offs
Provision for credit losses
Balances – December 31, 2020
Reserve for
Losses on
Unfunded
Loan
Commitments
(Dollars in thousands)
Total Allowance
for Credit
Losses
Allowance for
Loan Losses
$
$
$
$
$
$
217,380 $
(7,206 )
(1,316 )
208,858 $
71,609 $
—
84,810
156,419 $
295,824 $
(10,378 )
(68,066 )
217,380 $
81,481 $
—
(9,872 )
71,609 $
108,525 $
39,588
148,113
(29,371 )
177,082
295,824 $
— $
54,924
54,924
—
26,557
81,481 $
288,989
(7,206 )
83,494
365,277
377,305
(10,378 )
(77,938 )
288,989
108,525
94,512
203,037
(29,371 )
203,639
377,305
The amount of and provision to the ACL is based on our analysis of the adequacy of the ACL utilizing the criteria discussed in
the Critical Accounting Estimates section of this MD&A.
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The following table is an analysis of the ACL for the years indicated.
Analysis of the ACL
Balance, beginning of period
Adoption of CECL methodology
Balance, beginning of period, as adjusted
Loans charged off:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Total real estate
Commercial and industrial
Consumer
Other
Total loans charged off
Recoveries of loans previously charged off:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Total real estate
Commercial and industrial
Consumer
Other
Total recoveries
Net charge-offs – total loans
Provision for funded loans and unfunded loan commitments:
Funded loans
Unfunded loan commitments
Total provision
Balance, end of period
ALL
Reserve for losses on unfunded loan commitments
Total ACL
$
$
$
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
288,989 $
—
288,989
377,305 $
—
377,305
108,525
94,512
203,037
(519 )
(7,780 )
(3 )
(36 )
—
(8,338 )
(1,156 )
(4,797 )
(3,901 )
(18,192 )
1,112
7,328
125
14
89
8,668
426
1,165
727
10,986
(7,206 )
(1,316 )
84,810
83,494
365,277
$
208,858 $
156,419
365,277 $
(287 )
(3,942 )
(176 )
(18 )
(377 )
(4,800 )
(628 )
(6,585 )
(3,282 )
(15,295 )
763
828
461
6
—
2,058
433
1,534
892
4,917
(10,378 )
(68,066 )
(9,872 )
(77,938 )
288,989
$
217,380 $
71,609
288,989 $
(411 )
(12,353 )
(25 )
(39 )
—
(12,828 )
(6,002 )
(11,518 )
(3,044 )
(33,392 )
939
330
468
69
146
1,952
535
798
736
4,021
(29,371 )
177,082
26,557
203,639
377,305
295,824
81,481
377,305
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Additional information regarding net charge-offs (recoveries) for the years indicated is presented in the table below.
Net Charge-Offs
(Recoveries)
Net Charge-Off
(Recovery) Ratio
(Dollars in thousands)
December 31, 2022:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
(cid:3)(cid:3)
December 31, 2021:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
(cid:3)(cid:3)
December 31, 2020:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
$
$
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
$
$
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
$
$
(593 )
452
(122 )
22
(89 )
730
3,632
3,174
7,206
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
(476 )
3,114
(285 )
12
377
195
5,051
2,390
10,378
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
(528 )
12,023
(443 )
(30 )
(146 )
5,467
10,720
2,308
29,371
(0.06 )%
0.01
(0.01 )
0.01
(0.01 )
0.08
0.15
0.17
0.04 %
(cid:3)(cid:3)
(0.05 )%
0.08
(0.01 )
0.01
0.04
0.03
0.22
0.15
0.06 %
(cid:3)(cid:3)
(0.05 )%
0.28
(0.01 )
(0.01 )
(0.01 )
0.61
0.39
0.17
0.16 %
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The following is a summary of our net charge-off and various ALL ratios as of and for the years indicated.
Net Charge-Off and ALL Ratios
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
As of and for the Year Ended December 31,
2021
2022
2020
Net charge-offs of non-purchased loans to(cid:3)
total average non-purchased loans (1)
Net charge-offs of total loans to total average loans
ALL to total loans (2)(cid:3)
Reserve for losses on unfunded loan commitments
to total unfunded loan commitments
ACL to total loans
ACL to total loans and unfunded loan commitments
ALL to nonperforming loans (2)(cid:3)
ACL to nonperforming loans
(1)
(2)
Excludes purchased loans and net charge-offs related to such loans.
Excludes reserve for losses on unfunded loan commitments.
0.07 %
0.04
1.01
0.74
1.76
0.87
399
698
0.06 %
0.06
1.19
0.53
1.58
0.91
477
634
0.09 %
0.16
1.54
0.69
1.97
1.22
415
530
The following table sets forth the sum of the amounts of the ALL and the percentage of loans to total loans as of the dates
indicated. The amounts shown in the following table are not necessarily indicative of the actual future losses that may occur within
particular categories.
ALL for loans:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total ALL
Allocation of the ALL
December 31,
2022
2021
ALL
% of
Loans
ALL
% of
Loans
(Dollars in thousands)
$
$
19,506 (cid:3)(cid:3)
43,605 (cid:3)(cid:3)
69,858 (cid:3)(cid:3)
3,512 (cid:3)(cid:3)
5,345 (cid:3)(cid:3)
8,728 (cid:3)(cid:3)
50,202 (cid:3)(cid:3)
8,102 (cid:3)(cid:3)
208,858 (cid:3)(cid:3)
4.7 % $
22.5
39.5
1.2
7.2
4.3
11.8
8.8
$
18,675 (cid:3)(cid:3)
79,524 (cid:3)(cid:3)
54,036 (cid:3)(cid:3)
3,070 (cid:3)(cid:3)
6,424 (cid:3)(cid:3)
8,017 (cid:3)(cid:3)
37,430 (cid:3)(cid:3)
10,204 (cid:3)(cid:3)
217,380 (cid:3)(cid:3)
4.8 %
20.7
45.0
1.4
5.1
2.8
11.9
8.3
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The following table sets forth the sum of the amounts of the ACL as of the dates indicated. The amounts shown in this table are
not necessarily indicative of the actual future losses that may occur within particular categories.
Allocation of ACL
December 31, 2022:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
(cid:3)(cid:3)
December 31, 2021:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
Liquidity Risk Management
Reserve for
Losses on
Unfunded Loan
Commitments
(Dollars in thousands)
ALL
Total ACL
$
$
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
$
$
19,506 $
43,605
69,858
3,512
5,345
8,728
50,202
8,102
208,858 $
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
18,675 $
79,524
54,036
3,070
6,424
8,017
37,430
10,204
217,380 $
1,192 $
2,665
125,818
22
479
8,641
145
17,457
156,419 $
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
1,172 $
2,122
56,364
53
654
987
166
10,091
71,609 $
20,698
46,270
195,676
3,534
5,824
17,369
50,347
25,559
365,277
(cid:3)(cid:3)
19,847
81,646
110,400
3,123
7,078
9,004
37,596
20,295
288,989
Overview. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability
to liquidate assets or obtain adequate funding (referred to as “funding liquidity risk”) or that we cannot easily unwind or offset specific
exposures without significantly lowering market prices because of inadequate market depth or market disruptions (referred to as
“market liquidity risk”). Our Board-approved liquidity risk appetite, which is monitored through our liquidity risk profile, is further
categorized into the following risks: liquid asset management risk (risk of acute funding stress related to insufficient levels of liquid
assets), funding diversity and stability risk (risk of loss of a single large funding source that may lead to an inability to fund our
business strategy and require us to sell assets or curtail growth) and funding capacity/contingency planning risk (risk of unanticipated
growth from lending businesses or unexpected customer activity may lead to unexpected increases in demands on liquidity.) Our
ALCO Committee (“ALCO”) has primary responsibility for oversight of our liquidity, funds management, asset/liability (interest rate
risk) position, capital and our investment portfolio functions.
The objective of managing liquidity risk is to ensure the cash flow requirements resulting from depositor, borrower (including
our ability to fund our significant balance of closed but unfunded loans) and other creditor demands are met, as well as our operating
cash needs, and the cost of funding such requirements and needs is reasonable. We maintain a liquidity and funds management policy,
including a contingency funding plan that, among other things, includes policies and procedures for managing and monitoring
liquidity risk. On a quarterly basis, we perform a comprehensive liquidity stress test. This stress test is intended to identify and
quantify sources of potential liquidity strain and vulnerabilities related to liquidity and to analyze possible impacts on our Bank for a
variety of institution-specific and market-wide events across multiple time horizons. Also, pursuant to our liquidity and funds
management policy, we maintain a buffer of highly liquid assets to protect against cash outflows in the event of a liquidity crisis.
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Liquidity Management Actions. Generally, we rely on deposits, repayments of loans, and cash flows from our investment
securities as our primary sources of funds. Our principal deposit sources include consumer and commercial customers in our markets.
We have used these funds, together with public funds customers, FHLB advances and brokered deposits, as well as federal funds
purchased and other sources of short-term borrowings to make loans, acquire investment securities and other assets and to fund
continuing operations.
Deposits. Historically, our loan-to-deposit ratio has ranged from about 89% to 99%. Given that our lending and investing
activities are funded primarily by deposits, increases or decreases in our deposits are generally driven by corresponding increases or
decreases in our loan and investments portfolios. Our deposits increased $1.29 billion in 2022 and decreased $1.24 billion in 2021.
The increase in deposits during 2022 was a result of funding needed to support growth in non-purchased loans and the decrease in
deposits during 2021 was a result of reduced funding needs given the significant loan repayment volume experienced in 2021. Our
loan to deposit ratio was 96.6% at December 31, 2022 compared to 90.6% at December 31, 2021.
The amount of deposits by account type as of the dates indicated and their respective percentage of total deposits are reflected in
the following table.
Deposits – By Account Type
Non-interest bearing
Interest bearing:
Transaction (NOW)
Savings and money market
Time deposits
Total deposits
December 31,
2022
2021
(Dollars in thousands)
$
4,658,451 (cid:3)(cid:3)
(cid:3)(cid:3)
4,097,532 (cid:3)(cid:3)
5,808,185 (cid:3)(cid:3)
6,935,975 (cid:3)(cid:3)
21.7 % $
19.1
27.0
32.2
4,983,788 (cid:3)(cid:3)
(cid:3)(cid:3)
3,412,369 (cid:3)(cid:3)
5,833,358 (cid:3)(cid:3)
5,979,619 (cid:3)(cid:3)
24.7 %
16.9
28.9
29.5
$ 21,500,143 (cid:3)(cid:3) 100.0 % $ 20,209,134 (cid:3)(cid:3) 100.0 %
The amount of deposits by customer type as of the dates indicated and their respective percentage of total deposits are reflected
in the following table.
Deposits – By Customer Type
Non-Interest Bearing
Interest Bearing:
Consumer and Commercial:
Consumer – Non-Time
Consumer – Time
Commercial – Non-Time
Commercial – Time
Public Funds
Brokered
Reciprocal
Total deposits
$
December 31,
2022
2021
(Dollars in thousands)
4,658,451
(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
3,916,078 (cid:3)(cid:3)
4,936,061 (cid:3)(cid:3)
2,741,007 (cid:3)(cid:3)
516,477 (cid:3)(cid:3)
2,103,392 (cid:3)(cid:3)
2,050,294 (cid:3)(cid:3)
578,383 (cid:3)(cid:3)
21.7 % $
(cid:3)(cid:3)
(cid:3)(cid:3)
18.2
23.0
12.7
2.4
9.8
9.5
2.7
4,983,788
(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
4,334,378 (cid:3)(cid:3)
4,318,742 (cid:3)(cid:3)
2,634,817 (cid:3)(cid:3)
905,347 (cid:3)(cid:3)
2,094,800 (cid:3)(cid:3)
452,137 (cid:3)(cid:3)
485,125 (cid:3)(cid:3)
24.7 %
(cid:3)(cid:3)
(cid:3)(cid:3)
21.4
21.4
13.0
4.5
10.4
2.2
2.4
$ 21,500,143 (cid:3)(cid:3) 100.0 % $ 20,209,134 (cid:3)(cid:3) 100.0 %
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At December 31, 2022, we had outstanding brokered deposits of $2.05 billion, or approximately 9.5% of total deposits,
compared to $0.45 billion, or approximately 2.2% of total deposits at December 31, 2021. We use brokered deposits, subject to certain
limitations and requirements, as a source of funding to augment deposits generated from our branch network, which are our principal
source of funding. Our Board has established policies and procedures with respect to the use of brokered deposits. Such policies and
procedures require, among other things, that (i) we limit the amount of brokered deposits as a percentage of total deposits and (ii)
ALCO monitor our use of brokered deposits on a regular basis, including interest rates and the volume of such deposits in relation to
our total deposits.
The following table reflects the average balance and average rate paid for each deposit category shown for the years indicated.
Average Deposit Balances and Rates
2022
Average
Balance
Average
Rate
Paid
Year Ended December 31,
2021
Average
Rate
Average
Balance
Paid
(Dollars in thousands)
2020
Average
Balance
Average
Rate
Paid
(cid:3)(cid:3)
3,487,423 (cid:3)(cid:3)
6,100,949 (cid:3)(cid:3)
5,680,395 (cid:3)(cid:3)
15,268,767 (cid:3)(cid:3)
4,873,842 (cid:3)(cid:3)
$ 20,142,609 (cid:3)(cid:3)
(cid:3)(cid:3)
0.58 % 3,225,886 (cid:3)(cid:3)
0.46 5,562,314 (cid:3)(cid:3)
0.81 7,534,244 (cid:3)(cid:3)
0.62 16,322,444 (cid:3)(cid:3)
— 4,380,850 (cid:3)(cid:3)
0.47 $ 20,703,294 (cid:3)(cid:3)
(cid:3)(cid:3)
0.13 % 2,906,816 (cid:3)(cid:3)
0.15 4,817,712 (cid:3)(cid:3)
0.69 9,035,971 (cid:3)(cid:3)
0.39 16,760,499 (cid:3)(cid:3)
— 3,521,066 (cid:3)(cid:3)
0.31 $ 20,281,565 (cid:3)(cid:3)
0.39 %
0.54
1.49
1.03
—
0.85
Interest bearing:
Transaction (NOW)
Savings and money market
Time deposits
Total interest-bearing deposits
Non-interest bearing
Total deposits
The calculation of the average rate paid on total interest bearing deposits of 0.62% for 2022, 0.39% for 2021 and 1.03% for
2020 includes interest paid and average balances of all categories of interest bearing deposits. The average rate paid for all deposits,
including both interest bearing and non-interest bearing deposits, was 0.47% for 2022, 0.31% for 2021 and 0.85% for 2020. Because
of recent and expected increases in the federal funds target rate, we would expect to experience increases in the rates on our interest-
bearing deposits in future periods. Additionally, changes in expected deposit levels necessary to fund future potential growth in our
earning assets, changes in our level of on-balance sheet liquidity, or changes in competitive conditions, among other factors, could
significantly affect our deposit composition and deposit costs in future periods.
The estimated amount of uninsured deposits at December 31, 2022 was $8.20 billion. The following table sets forth time
deposits that exceed FDIC insurance limits or are otherwise uninsured as of the date indicated.
Maturity Distribution of Time Deposits
December 31, 2022:
3 months or less
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
Total
Individual Time
Deposits that
Exceed the FDIC
Insurance Limit
Estimated Aggregate Time
Deposits that Exceed the(cid:3)
FDIC Insurance Limit or
Otherwise Uninsured Time
Deposits
(cid:3)
(Dollars in thousands)
$
$
254,155
237,911
602,943
448,614
1,543,623
$
$
317,037
299,104
748,172
610,962
1,975,275
Estimated uninsured deposits do not necessarily reflect an evaluation of all scenarios that potentially would determine the
availability of deposit insurance to individual accounts or customers based on FDIC regulations.
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The amount and percentage of our deposits by state, as of the dates indicated, are reflected in the following table.
Deposits by State
December 31,
Deposits Attributable to Offices In
Amount
%
Amount
%
(cid:3)(cid:3)
2022
2021
(cid:3)(cid:3)
(Dollars in thousands)
Arkansas
Georgia
Florida
Texas
North Carolina
Total
$
$
7,195,562 (cid:3)(cid:3)
6,009,361 (cid:3)(cid:3)
3,467,406 (cid:3)(cid:3)
3,323,357 (cid:3)(cid:3)
1,504,457 (cid:3)(cid:3)
21,500,143 (cid:3)(cid:3)
33.5 % $
28.0
16.1
15.5
6.9
100.0 % $
6,224,650 (cid:3)(cid:3)
5,579,130 (cid:3)(cid:3)
3,639,634 (cid:3)(cid:3)
3,280,149 (cid:3)(cid:3)
1,485,571 (cid:3)(cid:3)
20,209,134 (cid:3)(cid:3)
30.8 %
27.6
18.0
16.2
7.4
100.0 %
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, general economic and market conditions and other factors.
Loan Portfolio. In addition to customer deposits, cash flows from our loan portfolio provide us with a significant source of
liquidity. The following table reflects total loans grouped by remaining maturities at December 31, 2022 by type and by fixed or
floating interest rates. This table is based on actual maturities and does not reflect amortizations, projected paydowns or the earliest
repricing for floating rate loans. Many loans have principal paydowns scheduled in periods prior to the period in which they mature. In
addition, many floating rate loans are subject to repricing in periods prior to the period in which they mature.
Loan Maturities
Real estate
Commercial and industrial
Consumer
Other
Total
Fixed rate
Floating rate (not at a floor or ceiling rate) (1)(cid:3)
Floating rate (at floor rate) (1)(cid:3)
Floating rate (at ceiling rate)
Total
1 Year or
Less
Over 1
Through
5 Years
Over
5 Years
Through
15 Years
(Dollars in thousands)
$ 5,295,450 $ 8,798,759 $ 815,867 $ 694,902 $ 15,604,978
902,321
273,308
405,542 2,011,806 2,445,851
6,731
841,910
5,020 1,825,641
$ 6,417,399 $ 10,364,823 $ 1,284,420 $ 2,712,149 $ 20,778,791
577,033
21,772
967,259
Over 15
Years
11,452
51,559
421
Total
$ 260,345 $ 1,467,639 $ 528,466 $ 2,228,643 $ 4,485,093
252,320 15,079,355
5,968,661 8,642,580
229,791 1,135,620
238,613
141,586
78,723
15,991
46,807
$ 6,417,399 $ 10,364,823 $ 1,284,420 $ 2,712,149 $ 20,778,791
215,794
525,630
14,530
1,395
(1) We have included a floor rate in many of our floating rate loans. As a result of such floor rates, floating rate loans may not immediately reprice
in a rising rate environment if the interest rate index and margin on such loans continue to result in a computed interest rate less than the
applicable floor rate. At December 31, 2022, the majority of our floating rate loans were above their floor rate. In a declining rate environment,
such loans will reprice immediately until they reach their floor rate.
Loan repayments are generally a relatively stable source of funds but are subject to the borrowers’ ability to repay the loans,
which can be adversely affected by a number of factors including changes in general economic and market conditions, adverse trends
or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-
offs, inclement weather, natural disasters and other factors. Furthermore, loans generally are not readily convertible to cash.
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At December 31, 2022, we had $21.06 billion in unfunded balances on loans already closed, the vast majority of which is
attributable to construction and development loans for which construction has commenced. In most cases the borrower’s equity and all
or most other required subordinated elements of the capital structure must be fully funded before we advance funds. In many cases we
do not advance funds on loans for many months after closing because the borrower’s equity and the majority of other funding sources
must fund first. This conservative practice for handling construction loans, along with increases in loan originations in 2022 compared
to 2021, has led to the large unfunded balance of closed loans. As a result, we maintain a detailed 36-month forward funding forecast
projecting all loan fundings and loan pay downs and pay offs. Our ability to project monthly net portfolio growth with a substantial
degree of accuracy is an important part of our liquidity management process.
Investment Securities AFS. Cash flows from our investment securities portfolio also provide us with an additional source of
liquidity. The following table reflects the expected maturity distribution of our investment securities AFS, at estimated fair value, at
December 31, 2022 and weighted-average yields (for tax-exempt obligations on an FTE basis) of such securities.
Expected Maturity Distribution of Investment Securities
Weighted
Average
Yield -
FTE
Over 1
Through 5
Years
1 Year
Or Less
Weighted
Average
Yield -
FTE
Over 5
Through
10 Years
(Dollars in thousands)
Weighted
Average
Yield -
FTE
Weighted
Average
Yield -
FTE
Over 10
Years
Total
Weighted
Average
Yield -
FTE
Obligations of state and
political subdivisions
U.S. Government agency
mortgage-backed securities
Other U.S. Government
agency securities
Corporate obligations
U.S. Treasuries
Total
Percentage of total
Cumulative percentage of total
$ 107,323
1.46 % $ 190,497
2.89 % $ 136,751
4.25 % $ 834,353
4.94 % $ 1,268,924
4.27 %
389,829
1.49 918,761
1.33 231,090
1.11
8,860
2.89 1,548,540
1.35
—
1,478
24,053
$ 522,683
— 615,920
3.17
10,464
—
0.69
1.45 % $ 1,735,642
1.08
3.84
—
—
14,151
—
1.42 % $ 381,992
—
4.70
—
—
8,083
—
2.31 % $ 851,296
4.79
—
— 615,920
34,176
24,053
4.92 % $ 3,491,613
1.07
4.4
0.69
2.35 %
15.0 %
15.0 %
49.7 %
64.7 %
10.9 %
75.6 %
24.4 %
100.0 %
100.0 %
The maturity for all investment securities is shown based on each security’s contractual maturity date, except (1) mortgage-
backed securities, which are allocated among various maturities based on an estimated repayment schedule utilizing third party
median prepayment speeds or other estimates of prepayment speeds and interest rate levels at December 31, 2022 and (2) callable
investment securities for which we have received notification of call, which are included in the maturity category in which the call
occurs or is expected to occur. Actual maturities will differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties. The weighted-average yields – FTE are calculated based on the
coupon rate and amortized cost for such securities and includes any projected discount accretion or premium amortization.
Other Interest Bearing Liabilities. Given that deposit levels, loan repayments and cash flow from our investment securities
portfolio may be affected by a number of factors, we may be required from time to time to rely on other sources of liquidity to meet
growth in loans and deposit withdrawal demands or otherwise fund operations. Such other sources include, among others, repurchase
agreements with customers, secured and unsecured federal funds lines of credit from correspondent banks, other borrowings
(primarily FHLB advances and, to a lesser extent, federal funds purchased), FRB borrowings, subordinated notes, subordinated
debentures and/or accessing the capital markets.
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The following table reflects the average balance and average rate paid for each category of other interest bearing liabilities for
the years indicated.
Average Balances and Rates of Other Interest Bearing Liabilities
2022
Average
Balance
Average
Rate
Paid
Year Ended December 31,
2021
Average
Rate
Average
Paid
Balance
(Dollars in thousands)
2020
Average
Balance
Average
Rate
Paid
Other borrowings (1)(cid:3)
Subordinated notes
Subordinated debentures (1)(cid:3)
Total other interest bearing liabilities
673,932 (cid:3)(cid:3)
346,538 (cid:3)(cid:3)
121,310 (cid:3)(cid:3)
$ 1,141,780 (cid:3)(cid:3)
1.93 757,303 (cid:3)(cid:3)
3.01 212,600 (cid:3)(cid:3)
4.76 120,751 (cid:3)(cid:3)
2.56 $ 1,090,654 (cid:3)(cid:3)
0.53 729,175 (cid:3)(cid:3)
4.42 223,850 (cid:3)(cid:3)
3.11 120,190 (cid:3)(cid:3)
1.57 $ 1,073,215 (cid:3)(cid:3)
0.44
5.70
3.65
1.90
(1) The interest expense and rates for “other borrowings” and “subordinated debentures” were impacted by interest capitalized. Capitalized interest
included in other borrowings was not material in 2022 or 2021. Capitalized interest included in other borrowings totaled $0.7 million in 2020.
Capitalized interest included in subordinated debentures totaled $0.2 million in 2020 (none in 2022 or 2021). In the absence of this interest
capitalization, the rate on other borrowings would have been 0.53% in 2020 and the rate on subordinated debentures would have been 3.80% for
2020.
We utilized FHLB advances to support our funding sources and provide additional on-balance sheet liquidity. Details of those
outstanding FHLB advances, at December 31, 2022, are shown in the following table.
FHLB Advances
Borrowing Type
FHLB advances
Balance
Interest Rate
(Dollars in thousands)
Maturity
Date
$
600,009 (cid:3)(cid:3)
4.43 %
January – March 2023
At December 31, 2022, we had substantial unused borrowing availability. This availability was primarily comprised of the
following four options: (1) $5.1 billion of available blanket borrowing capacity with the FHLB, (2) $2.6 billion of investment
securities available to pledge for federal funds or other borrowings, (3) $1.1 billion of available unsecured federal funds borrowing
lines and (4) up to $0.4 billion of available borrowing capacity from borrowing programs of the FRB.
We anticipate we will continue to rely primarily on deposits, repayments of loans and cash flows from our investment securities
to provide liquidity, as well as other funding sources as appropriate. Additionally, where necessary, the other funding sources
described above, including the use of FHLB advances, will be used to augment our primary funding sources.
Sources and Uses of Funds. Operating activities provided net cash of $0.77 billion in 2022, $0.53 billion in 2021 and $0.55
billion in 2020. Net cash provided by operating activities is comprised primarily of net income, adjusted for certain non-cash items
and for changes in various operating assets and liabilities.
Investing activities used net cash of $2.43 billion in 2022, provided net cash of $0.14 billion in 2021 and used net cash of $2.97
billion in 2020. The increase in net cash used by investing activities in 2022 compared to the net cash provided by investing activities
in 2021 was primarily the result of an increase in our total loan portfolio which used $2.48 billion in 2022 and provided $0.90 billion
in 2021, and decreased proceeds from maturities, calls and paydowns of investment securities AFS which provided $1.09 billion in
2022 compared to $2.52 billion in 2021, offset by a decrease in purchases of investment securities AFS which used $0.96 billion in
2022 compared to $3.73 billion in 2021. The increase in net cash provided by investing activities in 2021 compared to the net cash
used by investing activities in 2020 was primarily the result of a reduction in our total loan portfolio which provided $0.90 billion in
2021 and used $1.72 billion in 2020, and increased proceeds from maturities, calls and paydowns of investment securities AFS which
provided $2.52 billion in 2021 compared to $1.11 billion in 2020, offset by purchases of investment securities AFS which used $3.73
billion in 2021 compared to $2.50 billion in 2020.
Financing activities provided net cash of $0.64 billion in 2022 and used net cash of $1.01 billion in 2021 and provided net cash
of $3.32 billion in 2020. The increase in the net cash provided by financing activity in 2022 compared to net cash used by financing
activities in 2021 was primarily the result of changes in our total deposits, which provided $1.32 billion in 2022 and used $1.13 billion
in 2021, partially offset by the repurchase and cancellation of shares of our common stock from our share repurchase program, which
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used $0.35 billion in 2022 compared to $0.19 billion in 2021. The increase in the net cash used by financing activity in 2021 compared
to the net cash provided by financing activities in 2020 was primarily the result of changes in our total deposits, which used $1.13
billion during 2021 and provided $3.06 billion in 2020, proceeds from FHLB callable advances which provided $750 million in 2020
(none in 2021) and the repurchase and cancellation of shares of our common stock which used $195 million in 2021 compared to $2.0
million in 2020. These items were partially offset by net proceeds from the issuance of preferred stock which provided $0.34 billion in
2021 compared to no proceeds in 2020 and the redemption of our 5.50% Notes and issuance of our 2.75% Notes, which transactions
provided net cash of $114 million in 2021 compared to none in 2020.
Material Cash Requirements, Contractual Obligations, Commitments and Off-Balance Sheet Arrangements. Our material cash
requirements include commitments for contractual obligations (both short-term and long-term), commitments to extend credit, and
off-balance sheet arrangements. Our material cash requirements for the next 12 months are primarily to fund loan growth.
Additionally, we will utilize cash to fund deposit maturities and withdrawals that may occur in the next 12 months. Other contractual
obligations, purchase commitments, lease obligations, and unfunded commitments may require cash payments by us within the next
12 months, and these, along with longer-term obligations, are discussed below. The following table presents, as of December 31,
2022, significant fixed and determinable contractual obligations to third parties by contractual date with no consideration given to
earlier call or prepayment features. Other obligations consist primarily of contractual obligations for capital expenditures, software
contracts, employee benefits and various other contractual obligations.
Time deposits (1)(cid:3)
Deposits without a stated maturity (2)(cid:3)
Other borrowings (1)(cid:3)
Subordinated notes (1)(cid:3)
Subordinated debentures (1)(cid:3)
Lease obligations
Other obligations
Total contractual obligations
Contractual Obligations
1 Year
or Less
Over 1
Trough
3 Years
Over
5 Years
Total
Over 3
Through
5 Years
(Dollars in thousands)
46,356 $
—
—
35,690
17,482
10,173
909
$ 4,851,111 $ 2,182,057 $
—
14,565,327
—
608,105
19,518
9,759
17,482
8,741
12,153
8,267
9,740
88,419
393 $ 7,079,917
— 14,565,327
608,105
—
479,699
414,732
233,965
190,260
80,073
49,480
111,166
12,098
$ 20,139,729 $ 2,240,950 $ 110,610 $ 666,963 $ 23,158,252
(1) Includes unpaid interest through the contractual maturity on both fixed and variable rate obligations. The interest included on variable rate
obligations is based upon interest rates in effect at December 31, 2022. The contractual amounts to be paid on variable rate obligations are
affected by changes in interest rates. Future changes in interest rates could materially affect the contractual amounts to be paid.
(2) Includes interest accrued and unpaid through December 31, 2022.
In the normal course of business, various commitments and contingent liabilities arise that are not required to be recorded on the
balance sheet. The most significant of these are loan commitments comprised of our balance of closed but unfunded loans totaling
$21.06 billion at December 31, 2022, and our standby letters of credit, which totaled $16.0 million at December 31, 2022. These loan
commitments and standby letters of credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract and, for unfunded construction loans, based on the achievement of certain construction milestones. We
evaluate each customer’s creditworthiness on a case-by-case basis and the amount of collateral obtained is based on management’s
credit evaluation of the customer and underlying property, among other factors. Loan commitments and standby letters of credit
generally have fixed expiration dates and may or may not be drawn upon in whole or in part prior to their maturity, depending on a
number of factors including economic conditions, real estate market conditions and competitive factors, among others. Management
does not anticipate any material losses from these loan commitments and standby letters of credit that have not been previously
considered in establishing our ACL and believes there are no material commitments to extend credit that represent risks of an unusual
nature.
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The following table details the amounts and expected maturities of significant off-balance sheet commitments as of December
31, 2022.
Off-Balance Sheet Commitments
Commitments to extend credit
Standby letters of credit
Total commitments
1 Year
or Less
Over 1
Through 3
Years
Over 3
Through 5
Years
(Dollars in thousands)
$ 1,926,894 $ 11,119,052 $ 7,736,358 $ 280,429 $ 21,062,733
15,950
$ 1,940,494 $ 11,121,387 $ 7,736,373 $ 280,429 $ 21,078,683
Over
5 Years
13,600
2,335
—
15
Total
We also have investments in certain CRA and tax credit investments and partnerships generally within the markets we serve.
The majority of these investments provide funds for the construction and development of affordable housing. Many of these
investments provide tax credits which are normally recognized over seven to 15 years and are an important part in the anticipated
yield from these investments. Under the terms of the various investment agreements, as of December 31, 2022, approximately $160.1
million have been funded and are included in “other assets” on our consolidated balance sheet. The portion of the commitments that
are unfunded totaled approximately $202.2 million at December 31, 2022 and are expected to be funded over the terms of the
agreements ranging from 2023 to 2038. We also have investments in Small Business Investment Companies, that provide funds to
qualifying small businesses, and renewable energy projects.
In addition, we pay cash dividends on our Preferred Stock when, as, and if declared by our Board, which on an annual basis, is
expected to result in approximately $16.2 million in cash dividends paid on our Preferred Stock.
Market and Interest Rate Risk Management
Overview. Market risk is the risk to a financial institution’s condition resulting from adverse movements in market rates or
prices, including, but not limited to, interest rates, foreign exchange rates, commodity prices, or security prices. We are exposed to
both interest rate risk and price risk. Interest rate risk is the risk that arises from increased volatility in net interest income due to a
change of interest rates. There are different types of risk exposures that can arise when there is a change of interest rates, such as basis
risk, options risk, term structure and repricing risk. Price risk is the risk that arises from security price volatility – the risk of a decline
in the value of a security or a portfolio. Price risk can be either systematic or unsystematic risk. Unsystematic risk can be mitigated
through diversification, whereas systematic cannot be. In a global economic crisis, price risk is systematic because it affects multiple
asset classes.
Interest Rate Risk Management Actions. Our Board is responsible for approving the overall policies related to the management
of market risks, including interest rate risk and price risk. The Board has delegated to ALCO, which is chaired by our Chief Financial
Officer, the responsibility of managing interest rate and price risk consistent with Board-approved policies and limits.
ALCO regularly reviews our exposure to changes in interest rates. Among the factors considered are changes in the mix of
interest earning assets and interest bearing liabilities, interest rate spreads and repricing periods. ALCO uses an earnings simulation
model, which analyzes the expected change in near term (one year) net interest income in response to changes in interest rates, and
economic value of equity (“EVE”), which measures the expected change in the fair value of equity in response to changes in interest
rates, to analyze our interest rate risk and interest rate sensitivity.
Earnings Simulation Model. Our earnings 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.
We rely primarily on the results of this model in evaluating our interest rate risk. This model incorporates a number of additional
factors including: (1) the expected exercise of call features on various assets and liabilities, (2) the expected rates at which various rate
sensitive assets and rate sensitive liabilities will reprice, (3) the expected growth in various interest earning assets and interest bearing
liabilities and the expected interest rates on new assets and liabilities, (4) the expected relative movements in different interest rate
indices which are used as the basis for pricing or repricing various assets and liabilities, (5) existing and expected contractual ceiling
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, (7) the
timing and amount of cash flows expected to be received on investment securities and purchased loans, (8) the timing and amount of
prepayments that are anticipated from our loan portfolio, (9) the need, if any, for additional capital and/or debt to support continued
growth and (10) other relevant factors. Inclusion of these factors in the model is intended to more accurately project our expected
changes in net interest income resulting from interest rate changes. We typically model our change in net interest income assuming
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interest rates go up 100 bps, up 200 bps, up 300 bps, down 100 bps, down 200 bps, and down 300 bps. For purposes of these
scenarios, we have assumed that the change in interest rates phases in over a 12-month period. While we believe this model provides a
reasonably accurate projection of our interest rate risk, the model includes a number of assumptions and predictions which may or
may not be correct and may impact the model results. These assumptions and predictions include inputs to compute baseline net
interest income, growth rates, prepayment assumptions, expected changes in administered rates on interest bearing deposit accounts,
competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be no assurance the earnings
simulation model will accurately reflect future results. Our Earnings Simulation Model is governed through our Model Risk
Management framework.
The following table presents the earnings simulation model’s projected impact of a change in interest rates on the projected
baseline net interest income for the 12-month period commencing January 1, 2023. This change in interest rates is assumed to occur
ratably over that 12-month period. This change in interest rates also assumes parallel shifts in the yield curve and does not take into
account changes in the slope of the yield curve.
Earnings Simulation Model Results
Change in
Interest Rates
(in bps)
+300
+200
+100
-100
-200
-300
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
% Change in
Projected Baseline
Net Interest Income
13.8%
9.1
4.5
(4.7)
(9.4)
(13.7)
In the event of a shift in interest rates, we 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
interest earning assets and interest bearing liabilities, seeking alternative funding sources or investment opportunities and modifying
the pricing or terms of loans and deposits.
The consolidated financial statements and related notes presented in Item 8. Financial Statements and Supplementary Data in
this Annual Report on Form 10-K have been prepared in accordance with GAAP. This requires the measurement of financial position
and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over
time due to inflation. Unlike industrial companies, the vast majority of our assets and liabilities are monetary in nature. As a result,
interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of goods and services.
EVE Model. EVE is calculated as the fair value of all assets minus the fair value of liabilities and incorporates a number of
assumptions including (1) the timing and amount of cash flows expected to be received or paid on various assets and liabilities, (2) the
expected exercise of call features on various assets and liabilities, (3) estimated discount rates and (4) other relevant factors. We
measure changes in the dollar amount of EVE for parallel shifts in interest rates. Due to embedded optionality and asymmetric rate
risk, changes in EVE can be useful in quantifying risks not apparent for small rate changes.
The following table presents our EVE results as of December 31, 2022.
EVE Model Results
Change in
Interest Rates
(in bps)
+200
+100
-100
-200
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
% Change in
Projected Baseline EVE
1.1%
0.8
(1.8)
(4.0)
Variable Rate Loans and Loan Repricing. At December 31, 2022, approximately 78% of our total loans had variable rates.
Additionally, approximately 99% of our variable rate loans had floor rates.
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The following table reflects total loans as of December 31, 2022 grouped by expected amortizations, expected paydowns or the
earliest repricing opportunity for floating rate loans. This cash flow or repricing schedule approximates our ability to reprice the
outstanding principal of loans either by adjusting rates on existing loans or reinvesting principal cash flow into new loans.
Loan Cash Flows or Repricing
Fixed rate
Floating rate (not at a floor or ceiling rate) (1)(cid:3)
Floating rate (at floor rate) (1)(cid:3)
Floating rate (at ceiling rate)
Total
Percentage of total
Cumulative percentage of total
1 Year or
Less
Over 3
Through
5 Years
Over 1
Through
2 Years
Over 2
Through
3 Years
(Dollars in thousands)
$ 1,382,814 $ 987,846 $ 732,793 $ 1,004,476 $ 377,164 $ 4,485,093
3,648 15,079,355
14,877,050
467,613 224,591 192,351 233,051 18,014 1,135,620
78,723
4
$ 16,806,185 $ 1,293,191 $ 986,509 $ 1,294,080 $ 398,826 $ 20,778,791
80,743 61,361
Over 5
Years
56,553
78,708
—
—
11
Total
80.9 %
80.9 %
6.2 %
87.1 %
4.8 %
91.9 %
6.2 %
98.1 %
1.9 %
100.0 %
100.0 %
(1) We have included a floor rate in many of our floating rate loans. As a result of such floor rates, floating rate loans may not immediately reprice
in a rising rate environment if the interest rate index and margin on such loans continue to result in a computed interest rate less than the
applicable floor rate.
The following table is a summary of our floating rate loan portfolio and contractual interest rate indices at December 31, 2022.
Contractual Interest Rate Index
1-month LIBOR
1-month term SOFR
Wall Street Journal Prime
Other contractual interest rate indices
Total
Contractual Indices of Floating Rate Loans
Floating Rate
(at floor rate)
Floating Rate
(not at a floor
or ceiling rate)
Floating Rate
(at ceiling rate)
Total Floating
Rate
(Dollars in thousands)
$
19,809 $ 7,614,021 $
170,460 5,441,860
866,649 1,746,494
276,980
$ 1,135,620 $ 15,079,355 $
78,702
— $ 7,633,830
5,612,320
—
2,691,865
78,722
355,683
1
78,723 $ 16,293,698
While changes in these contractual interest rate indices are typically affected by changes in the federal funds target rate, the
effect on our floating rate loan portfolio may not be immediate and proportional to changes in the federal funds rate.
LIBOR Transition. Our subordinated debentures and related trust preferred securities and significant portions of our loan
portfolio are tied to LIBOR benchmark interest rates. Pursuant to the Adjustable Interest Rate (LIBOR) Act and related implementing
regulations, on the first London banking day after June 30, 2023 (the “LIBOR Replacement Date”), our subordinated debentures and
related trust preferred securities, and our loans tied to LIBOR benchmark interest rates without adequate fallback provisions, will
automatically convert to specified SOFR-based benchmark replacement rates with corresponding spread adjustments. The majority of
our loans have adequate fallback provision and we plan to transition these loan replacement rates prior to June 30, 2023. As of January
1, 2022, we stopped originating loans that are tied to LIBOR benchmark interest rates. We will continue to evaluate the financial
impact regarding pricing, valuation and operations of the transition. See “Item 1A. - Risk Factors” for a more extensive discussion of
this topic.
Market Risk Management Actions. We are exposed to market risk primarily through changes in fair value of our fixed income
investment securities portfolio. Investment portfolio strategies are set by senior management and are subject to the oversight and
direction of ALCO. At December 31, 2022 and 2021, with the exception of a small balance of investment securities designated as
“trading,” we classified all of our investment securities portfolio as AFS. Our investment securities AFS are reported at estimated fair
value with the unrealized gains and losses, net of related income tax, reported as a separate component of stockholders’ equity and
included in other comprehensive income. At December 31, 2022, we had $233.7 million of net unrealized losses in our investment
securities AFS portfolio that was reported, net of applicable income taxes, in AOCI. Our investment securities designated as trading
are reported at estimated fair value with unrealized gains and losses included in earnings.
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The following table presents the amortized cost and estimated fair value of investment securities – AFS as of the dates
indicated.
Investment Securities – AFS
December 31,
2022
2021
Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
(Dollars in thousands)
Obligations of states and political subdivisions
U.S. Government agency mortgage-backed securities
Other U.S. Government agency securities
Corporate obligations
U.S. Treasuries
Total
$ 1,310,362 (cid:3)(cid:3) $ 1,268,924
1,692,828 (cid:3)(cid:3) 1,548,540
615,920
34,176
24,053
$ 3,725,269 (cid:3)(cid:3) $ 3,491,613
658,818 (cid:3)(cid:3)
38,304 (cid:3)(cid:3)
24,957 (cid:3)(cid:3)
794,704 (cid:3)(cid:3) $
$
813,213
2,203,398 (cid:3)(cid:3) 2,217,281
555,261
306,071
24,907
$ 3,885,268 (cid:3)(cid:3) $ 3,916,733
556,290 (cid:3)(cid:3)
305,966 (cid:3)(cid:3)
24,910 (cid:3)(cid:3)
Our investment securities AFS are reported at estimated fair value, which included gross unrealized gains of $4.1 million and
gross unrealized losses of $237.8 million at December 31, 2022 and gross unrealized gains of $47.0 million and gross unrealized
losses of $15.5 million at December 31, 2021. We believe that all of the unrealized losses on individual investment securities at
December 31, 2022 and 2021 are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of these
investments.
The CECL standard replaced the previous other-than-temporary valuation methodology with a methodology that requires us to
evaluate the intent or likelihood of disposing of securities that are in an unrealized loss position. Under the current methodology, if we
intend to sell an investment security AFS in an unrealized loss position, or if it is more likely than not that we will be required to sell
an investment security AFS in an unrealized loss position before recovery of its amortized cost basis, the investment security’s
amortized cost basis is written down to fair value through current period expense. If we do not intend to sell an investment security
AFS in an unrealized loss position, or if it is more likely than not that we will not sell an investment security AFS in an unrealized loss
position, we are required to assess whether the decline in fair value has resulted from credit losses or non-credit factors. Factors
considered during such review include the credit quality, financial condition and near term prospects of the issue, the nature and
causes of the unrealized loss and various other factors. If our assessment determines a credit loss exists, the present value of cash
flows expected to be collected from the investment security AFS is compared to the amortized cost basis of the security and if the
present value cash flows expected to be collected is less than amortized cost, an allowance for credit losses and a provision for credit
loss expense is recorded. If our assessment determines that a credit loss does not exist, we record the decline in fair value through
other comprehensive income, net of related tax effects, with such decline included in accumulated other comprehensive income.
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The following table presents the unaccreted discount and unamortized premium of our investment securities AFS as of the dates
indicated.
Unaccreted Discount and Unamortized Premium
December 31, 2022:
Obligations of states and political subdivisions
U.S. Government agency mortgage-backed securities
Other U.S. Government agency securities
Corporate obligations
U.S. Treasuries
Total
December 31, 2021:
Amortized
Cost
Unaccreted
Discount
Unamortized
Premium
Par
Value
(Dollars in thousands)
$ 1,310,362 $
1,692,828
658,818
38,304
24,957
$ 3,725,269 $
10,408 $
55
42
220
43
10,768 $
(29,178 ) $ 1,291,592
(44,533 ) 1,648,350
658,860
36,449
25,000
(75,786 ) $ 3,660,251
—
(2,075 )
—
Obligations of states and political subdivisions
U.S. Government agency mortgage-backed securities
Other U.S. Government agency securities
Corporate obligations
U.S. Treasuries
Total
$
794,704 $
2,203,398
556,290
305,966
24,910
$ 3,885,268 $
1,562 $
94
71
42
90
1,859 $
(18,703 ) $
777,563
(63,612 ) 2,139,880
556,361
302,349
25,000
(85,974 ) $ 3,801,153
—
(3,659 )
—
We recognized premium amortization, net of discount accretion, of $32.2 million during 2022, $59.4 million during 2021 and
$30.7 million during 2020. Any premium amortization or discount accretion is considered an adjustment to the yield of our investment
securities.
We had no net gains or losses from the sale of approximately $0.02 million of investment securities AFS in 2022, consisting
entirely of variable rate demand notes which were purchased at, carried at and called at their par value, compared to no net gains or
losses from the sale of approximately $592 million of investment securities AFS in 2021 and net gains of $4.5 million from the sale of
approximately $269 million of investment securities AFS in 2020.
Investment securities AFS totaling $1.09 billion in 2022, $2.52 billion in 2021 and $1.11 billion in 2020 matured, were called or
were otherwise paid down by the issuer. We purchased approximately $0.96 billion of investment securities AFS in 2022, compared to
$3.73 billion in 2021 and to $2.50 billion in 2020.
We invest in securities we believe offer good relative value at the time of purchase, and we will, from time to time, reposition
our investment securities portfolio. In making decisions to sell or purchase securities, we consider credit quality, call features, maturity
dates, relative yields, corporate tax rates, current market factors, interest rate risk and interest rate environment, current and projected
liquidity needs and other relevant factors.
During 2021, we began classifying certain securities as trading. Our trading securities are carried at estimated fair value with
unrealized and realized gains and losses recorded in earnings. As of December 31, 2022, our trading securities equaled $8.8 million
and during 2022, we had realized net gains of $2.0 million from the sale of approximately $605.8 million of trading securities.
At December 31, 2022, approximately 95% of our investment securities had an investment grade credit rating and
approximately 5% of our investment securities were not rated. For those securities that were not rated, we have performed our own
evaluation of the security and/or the underlying issuer and believe that such security or its issuer has credit characteristics equivalent
to those which would warrant an investment grade credit rating.
Capital Management
Overview. The primary function of capital is to support our operations, including growth expectations, and act as a cushion to
absorb unanticipated losses. Accordingly, our management has developed and our Board has approved a detailed capital policy that
addresses, among other things, capital adequacy, considers capital planning strategies for expected future growth, provides plans and
actions for capital contingency needs, provides a capital distribution strategy and includes provisions and procedures for developing,
reviewing and modifying our capital strategy and our internal capital guidelines and limits based on the results of budgeting and
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forecasting activities, capital stress testing results and other factors. Oversight of our capital management plan and capital monitoring
activities has been delegated to our ALCO.
Capital Management Actions. We primarily rely on our stockholders’ equity, comprised of preferred and common stock,
additional paid-in capital, our retained earnings and our accumulated other comprehensive income (loss) to support our operations and
act as a cushion to absorb unanticipated losses. Our common stockholders’ equity totaled $4.35 billion at December 31, 2022,
compared to $4.50 billion at December 31, 2021. Included below in this Capital Management section of our MD&A is the calculation
and reconciliation of our common stockholders’ equity to the most directly comparable GAAP measure. Our common stockholders’
equity is augmented by our preferred stock, our subordinated notes, our subordinated debentures, and our ALL.
Common Stock Repurchase Program. During 2021, our Board adopted a stock repurchase program authorizing the purchase of
up to $650 million of our outstanding shares of common stock, which expired on November 4, 2022. On November 14, 2022, our
Board announced the approval of a new stock repurchase program pursuant to which we may repurchase up to $300 million of our
outstanding shares of common stock. The new repurchase program was effective November 14, 2022 and will expire on the earlier to
occur of: (i) the Bank repurchasing shares of its common stock at an aggregate cost of $300 million, or (ii) November 9, 2023.
During 2022, we repurchased approximately 8.4 million shares of common stock at a weighted average price of $41.80 for a
total of $350.0 million. During 2021, we repurchased approximately 4.3 million shares of common stock at a weighted average price
of $45.21 for a total of $193.4 million. The timing and amount of any future repurchase will be determined by management based on a
variety of factors, such as the Bank’s capital position, expected growth, alternative uses of capital, liquidity, financial performance,
stock price, current and expected macroeconomic environment, regulatory requirements and other factors.
Preferred Stock. During November 2021, we completed a public offering of 14,000,000 shares of 4.625% Series A Non-
Cumulative Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $25 per share (the “Preferred
Stock”). Our Preferred Stock offering generated total net proceeds of $339.0 million after deducting the initial purchaser discount and
estimated offering expenses. We pay cash dividends on our Preferred Stock, when, as, and if declared by our Board. Subject to
declaration by our Board, cash dividends accrue and are payable from the original date of issuance at a rate of 4.625% per annum,
payable quarterly, in arrears, on February 15, May 15, August 15, and November 15 of each year. Dividends on our Preferred Stock
are not cumulative or mandatory.
Subordinated Notes. During July 2021, we redeemed all of our 5.50% Notes at a redemption price equal to 100% of the
principal amount of the 5.50% Notes, plus accrued and unpaid interest. During September 2021, we completed a public offering of
$350 million in aggregate principal amount of our 2.75% Notes due 2031, which bear interest at a fixed rate of 2.75% per annum until
September 30, 2026. On October 1, 2026, the 2.75% Notes will bear interest at a floating rate equal to a benchmark (which is expected
to be three-month term SOFR) plus 209 basis points. The 2.75% Notes are unsecured, subordinated debt obligations and mature on
October 1, 2031. At December 31, 2022, the 2.75% Notes had a carrying value of $346.9 million and remaining unamortized debt
issuance costs of $3.1 million.
We may, beginning with the interest payment date of October 1, 2026, and on any interest payment date thereafter, redeem the
2.75% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2.75% Notes to be redeemed plus
accrued and unpaid interest to, but excluding, the date of redemption. We may also redeem the 2.75% Notes at any time, including
prior to October 1, 2026, at our option, in whole but not in part, if: (i) a change or prospective change in law occurs that could prevent
us from deducting interest payable on the 2.75% Notes for U.S. federal income tax purposes; (ii) a subsequent event occurs that could
preclude the 2.75% Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) we are required to register as
an investment company under the Investment Company Act of 1940, as amended; in each case, at a redemption price equal to 100% of
the principal amount of the 2.75% Notes plus any accrued and unpaid interest to, but excluding, the redemption date. The 2.75% Notes
provide us with additional Tier 2 regulatory capital to support our expected future growth.
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Subordinated Debentures. We own eight 100%-owned finance subsidiary business trusts–Ozark Capital Statutory Trust II
(“Ozark II”), Ozark Capital Statutory Trust III (“Ozark III”), Ozark Capital Statutory Trust IV (“Ozark IV”), Ozark Capital Statutory
Trust V (“Ozark V”), Intervest Statutory Trust II (“Intervest II”), Intervest Statutory Trust III (“Intervest III”), Intervest Statutory
Trust IV (“Intervest IV”) and Intervest Statutory Trust V (“Intervest V”) (collectively, the “Trusts”). At December 31, 2022, we had
the following issues of trust preferred securities and subordinated debentures owed to the Trusts.
Subordinated
Debentures Owed
to Trust
Unamortized
Discount
Carrying Value(cid:3)
of Subordinated
Debentures
(Dollars in thousands)
(cid:3)(cid:3)
Trust
Preferred
Securities
of the
Trusts
Contractual
Interest Rate
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
Final Maturity Date
Ozark II
Ozark III
Ozark IV
Ozark V
Intervest II
Intervest III
Intervest IV
Intervest V
Total
$
$
14,433 $
14,434
15,464
20,619
15,464
15,464
15,464
10,310
121,652 $
— $
—
—
—
(10 )
(11 )
(20 )
(19 )
(60 ) $
14,433 $
14,434
15,464
20,619
15,454
15,453
15,443
10,291
121,591 $
14,000
14,000
15,000
20,000
15,000
15,000
15,000
10,000
118,000
7.65 % (cid:3)(cid:3) September 29, 2033
7.03 (cid:3)(cid:3) September 25, 2033
6.91 (cid:3)(cid:3) September 28, 2034
6.37 (cid:3)(cid:3) December 15, 2036
7.69 (cid:3)(cid:3) September 17, 2033
7.53 (cid:3)(cid:3) March 17, 2034
7.15 (cid:3)(cid:3) September 20, 2034
6.42 (cid:3)(cid:3) December 15, 2036
(cid:3)(cid:3) (cid:3)(cid:3)
Our subordinated debentures and trust preferred securities are tied to a spread over the 90-day LIBOR. As previously discussed,
most LIBOR tenors are expected to be phased out after June 2023. Subsequent to June 2023, these trust preferred securities and
related subordinated debentures will convert to the three-month term SOFR plus the existing spread plus a spread adjustment of
0.26%. See Risk Elements-Market and Interest Rate Risk Management-LIBOR Transition for additional information about the phase
out of LIBOR. Our subordinated debentures and related trust preferred securities generally mature 30 years after issuance and may be
prepaid at par value, subject to regulatory approval. These subordinated debentures and the related trust preferred securities provide us
additional Tier 2 regulatory capital to support our expected future growth.
Other Sources of Capital. We may need to raise additional capital in the future to provide us with sufficient capital resources
and liquidity to meet our commitments and business needs. As a publicly traded bank, a likely source of additional funds is the capital
markets, which can provide us with funds through the public issuance of equity, both common and preferred stock, and the issuance of
senior debt and/or subordinated debentures. Our ability to raise additional capital, if needed, will depend on, among other things,
conditions in the capital markets at that time, which are outside of our control, and our financial performance. Other than common
stock, any issuance of equity or debt by us will require the prior approval of the ASBD and may be accompanied by time delays
associated with obtaining such approval. If market conditions change during any time delays associated with obtaining regulatory
approval, we may not be able to issue equity or debt on as favorable of terms as were contemplated at the time of commencement of
the process, or at all.
Common Stockholders’ Equity and Reconciliation of Non-GAAP Financial Measures. We use non-GAAP financial measures,
specifically, total common stockholders’ equity, tangible common stockholders’ equity, tangible book value per common share, return
on average common stockholders’ equity and return on average tangible common stockholders’ equity as important measures of the
strength of our capital and our ability to generate earnings on tangible common equity invested by our shareholders. We believe
presentation of these non-GAAP financial measures provides useful supplemental information that contributes to a proper
understanding of our financial results and capital levels. These non-GAAP disclosures should not be viewed as a substitute for
financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that
may be presented by other companies.
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Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included
in the following tables as of and for the years indicated.
Calculation of Total Common Stockholders Equity, Total Tangible Common Stockholders’ Equity,
Book Value per Common Share and Tangible Book Value per Common Share
Total stockholders’ equity before noncontrolling interest
Less preferred stock
Total common stockholders’ equity
Less intangible assets:
Goodwill
Core deposit and other intangibles, net of accumulated amortization
Total intangibles
Total tangible common stockholders’ equity
Shares of common stock outstanding
Book value per common share
Tangible book value per common share
2022
December 31,
2021
(In thousands, except per share amounts)
2020
$
4,689,579 $
(338,980 )
4,350,599
4,836,243 $
(338,980 )
4,497,263
4,272,271
—
4,272,271
(660,789 )
(2,754 )
(663,543 )
3,687,056 $
117,177
37.13 $
31.47 $
(660,789 )
(8,274 )
(669,063 )
3,828,200 $
125,444
35.85 $
30.52 $
(660,789 )
(14,669 )
(675,458 )
3,596,813
129,350
33.03
27.81
$
$
$
Calculation of Average Common Stockholders’ Equity, Average Tangible Common Stockholders’ Equity and
Returns on Average Common Stockholders’ Equity and Average Tangible Common Stockholders’ Equity
Net income available to common stockholders
Average stockholders’ equity before
noncontrolling interest
Less average preferred stock
Total average common stockholders’ equity
Less average intangible assets:
Goodwill
Core deposit and other intangibles, net of accumulated amortization
Total average intangibles
Average tangible common stockholders’ equity
Return on average common stockholders’ equity
Return on average tangible common stockholders’ equity
$
$
$
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
547,520 $
579,001 $
291,898
4,662,467 $
(338,980 )
4,323,487
4,505,544 $
(53,862 )
4,451,682
4,149,123
—
4,149,123
(660,789 )
(5,443 )
(666,232 )
3,657,255 $
12.66 %
14.97 %
(660,789 )
(11,398 )
(672,187 )
3,779,495 $
13.01 %
15.32 %
(660,789 )
(18,741 )
(679,530 )
3,469,593
7.04 %
8.41 %
Goodwill. Between 2010 and 2016, we made fifteen acquisitions, including seven FDIC-assisted transactions and eight
traditional merger and acquisition (“M&A”) transactions. In conjunction with several of the traditional M&A transactions, our
purchase price exceeded the fair value of the net assets acquired, resulting in the recording of goodwill. At December 31, 2022 and
2021, we had goodwill totaling $661 million. This goodwill is the most significant intangible asset we have and is the largest item in
adjusting our total stockholders’ equity before noncontrolling interest to our tangible common stockholders’ equity. We review
goodwill annually, or more frequently if events or changes in circumstances indicate the carrying value might be impaired. This
impairment analysis compares the estimated fair value of our operations (the reporting unit) with net book value. We performed our
annual impairment test of goodwill as of September 30, 2022 which indicated no potential impairment of our goodwill.
Common Stock Dividend Policy. During 2022, we paid cash dividends of $1.26 per common share compared to cash dividends
of $1.1325 per common share in 2021 and $1.0775 per common share in 2020. On January 3, 2023, our Board approved a cash
dividend of $0.34 per common share that was paid on January 24, 2023. The determination of future dividends on our common stock
will depend on conditions existing at that time and approval of our Board. In addition, our ability to pay common stock dividends to
our shareholders is subject to the restrictions set forth in Arkansas law, by our federal regulator, the relative powers, preferences and
other rights of the holders of our Series A Preferred Stock and by certain covenants contained in the indentures governing the trust
preferred securities, the subordinated debentures and the 2.75% Notes. See Note 18 to the consolidated financial statements included
in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a discussion of dividend restrictions.
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Preferred Stock Dividend Policy. As previously disclosed in the Market and Interest Rate Risk Management section of the
MD&A, on November 4, 2021, we completed a public offering of 14,000,000 shares of 4.625% non-cumulative perpetual preferred
stock generating $339.0 million of net proceeds, after deducting the initial purchaser discount and estimated offering expenses. We
will pay cash dividends on the Preferred Stock, when, as, and if declared by our Board. On January 3, 2023, our Board approved a
cash dividend of $4.0 million that was paid on February 15, 2023 for the period covering November 15, 2022 through, but excluding,
February 15, 2023. Future quarterly dividends on shares of the Preferred Stock, if declared, are expected to be approximately $4.0
million per quarter. The determination of future dividends on the Preferred Stock will depend on conditions at that time and approval
by our Board. In addition, our ability to pay dividends on our preferred shares is subject to the restrictions set forth in Arkansas law
and by our federal regulator.
Regulatory Capital. We are subject to various regulatory capital requirements administered by federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if
undertaken, could have a direct material effect on our financial condition and results of operations. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative
measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital
amounts and classification are also subject to qualitative judgments and adjustments by the regulators about component risk
weightings and other factors.
In recent years, the FDIC and other federal banking regulators revised the risk-based capital requirements applicable to insured
depository institutions, including us, to make them consistent with agreements reached by the Basel Committee on Banking
Supervision (“Basel III”) and certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Basel III
Rules”). The Basel III Rules require the maintenance of minimum amounts and ratios of common equity tier 1 capital, tier 1 capital
and total capital to risk-weighted assets, and of tier 1 capital to adjusted quarterly average assets.
Under the Basel III Rules, common equity tier 1 capital consists of common stock and paid-in capital (net of treasury stock) and
retained earnings. Common equity tier 1 capital is reduced by goodwill, certain intangible assets, net of associated deferred tax
liabilities, deferred tax assets that arise from tax credit and net operating loss carryforwards, net of any valuation allowance, and
certain other items as specified by the Basel III Rules.
Tier 1 capital includes common equity tier 1 capital and certain additional tier 1 items as provided under the Basel III Rules. Our
tier 1 capital at December 31, 2022 and 2021 includes both our common equity tier 1 capital and our Preferred Stock that we issued in
2021.
Total capital includes tier 1 capital and tier 2 capital. Tier 2 capital includes, among other things, the allowable portion of the
ACL, the trust preferred securities and the 2.75% Notes.
The common equity tier 1 capital, tier 1 capital and total capital ratios are calculated by dividing the respective capital amounts
by risk-weighted assets. The leverage ratio is calculated by dividing tier 1 capital by adjusted quarterly average total assets.
Basel III Rules allowed for insured depository institutions to make a one-time election not to include most elements of
accumulated other comprehensive income in regulatory capital and instead effectively use the existing treatment under the general
risk-based capital rules. We made this opt-out election to avoid significant variations in the level of capital depending upon the impact
of interest rate fluctuations on the fair value of our investments securities portfolio.
In connection with the adoption of CECL, the FDIC and other banking regulators allowed depository institutions various
alternatives on accounting and reporting for regulatory and Call Report purposes regarding the initial effect of adoption of CECL.
Those alternatives included (i) taking the full effects of the adoption of CECL as an adjustment to regulatory capital, (ii) phasing in the
effects of the adoption of CECL over a three-year period, or (iii) deferring for two years the effects of the adoption of CECL, followed
by a three-year phase-in period. We elected to phase in the effects of CECL over a three-year period (without the two-year deferral) to
lessen the impact of the adoption of CECL on our regulatory capital and regulatory capital ratios.
The Basel III Rules limit capital distributions and certain discretionary bonus payments if the banking organization does not
hold a “capital conservation buffer” in addition to the amount necessary to meet minimum risk-based capital requirements for
common equity tier 1 capital, tier 1 capital and total capital to risk-weighted assets. At December 31, 2022 and 2021, the Basel III
Rules required us to maintain (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5%
capital conservation buffer, which effectively results in a minimum ratio of 7.0%, (ii) a minimum ratio of tier 1 capital to risk-
weighted assets of at least 6.0%, plus a 2.5% capital conservation buffer, which effectively results in a minimum ratio of 8.5%, (iii) a
minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus a 2.5% capital conservation buffer, which effectively
results in a minimum ratio of 10.5%, and (iv) a minimum leverage ratio of 4.0%. Additionally, in order to be considered well-
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capitalized under the Basel III Rules, we must maintain (i) a ratio of common equity tier 1 capital to risk-weighted assets of at least
6.5%, (ii) a ratio of tier 1 capital to risk-weighted assets of at least 8.0%, (iii) a ratio of total capital to risk-weighted assets of at least
10.0% and (iv) a leverage ratio of at least 5.0%.
The following table presents actual and required capital ratios as of the dates indicated under the Basel III Rules. The minimum
required capital amounts presented include the minimum required capital levels, plus the capital conservation buffer. Capital levels
required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes
under the Basel III Rules. At December 31, 2022 and 2021, our capital levels exceed all minimum capital requirements under the
Basel III Rules. Additionally, our capital levels at December 31, 2022 and 2021 exceed all capital requirements to be considered well
capitalized based upon prompt corrective action regulations, as amended by the Basel III Rules.
December 31, 2022:
Common equity tier 1 to risk-
weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Tier 1 leverage to average assets
December 31, 2021:
Common equity tier 1 to risk-
weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Tier 1 leverage to average assets
Actual
Capital
Amount
Ratio
Minimum Capital
Required – Basel III
Capital
Amount
Ratio
(Dollars in thousands)
Required to be
Considered Well
Capitalized
Capital
Amount
Ratio
$ 3,872,792
4,211,772
5,026,214
4,211,772
11.54 % $ 2,349,834
12.55 2,853,370
14.97 3,524,751
15.90 1,059,363
7.00 % $ 2,181,989
8.50 2,685,524
10.50 3,356,906
4.00 1,324,204
6.50 %
8.00
10.00
5.00
$ 3,826,895
4,165,875
4,885,192
4,165,875
14.07 % $ 1,904,582
15.31 2,312,707
17.95 2,856,873
16.17 1,030,239
7.00 % $ 1,768,541
8.50 2,176,665
10.50 2,720,832
4.00 1,287,799
6.50 %
8.00
10.00
5.00
Capital Stress Testing. During the third quarter of 2022, we completed our annual capital stress tests utilizing multiple
economic scenarios, including an adverse idiosyncratic scenario unique to our Bank. The results of the most recent capital stress test
reflected that we would maintain well-capitalized status for all capital ratios for all scenarios over the stress test time horizon.
Growth and Branching. In 2022, we (i) sold our Magnolia, Arkansas branch; (ii) converted two loan production offices into
retail banking facilities in Florida; (iii) closed a loan production office in Arkansas, Texas and North Carolina; (iv) opened a retail
banking facility in Georgia; and (v) closed two retail banking facilities in Florida.
In 2023, we expect to, among other things, open a retail banking facility in Tennessee and Florida.
We may open additional branches and loan production offices as our needs and resources permit. Additionally, as we have done
in recent quarters, we may relocate offices, sell offices and/or close certain offices and consolidate the business of such offices into
other offices. Opening new offices is subject to local banking market conditions, availability of satisfactory sites, hiring qualified
personnel, obtaining regulatory and other approvals and many other conditions and contingencies that we cannot predict with
certainty. We may increase or decrease our expected number of new office openings or relocate, sell or close current offices as a result
of a variety of factors including our financial results, changes in economic or competitive conditions, strategic opportunities,
individual office profitability metrics or other factors.
Our historically strong earnings and earnings retention rate, among other factors, have contributed to our building capital ratios
well above the minimum to be considered “well capitalized.” We are focused on strategies to grow our business and utilize our excess
capital that are in the best long-term interest of our shareholders. These strategies may include, among others, organic loan growth,
adding new business lines, continuing to increase our cash dividend, financially attractive acquisitions for cash or some combination
of cash and stock, and continued stock repurchases.
Capital Expenditures. During 2022, we spent $29.9 million on capital expenditures for premises and equipment. Our capital
expenditures for 2023 are expected to be in the range of $20 million to $35 million, including progress payments on construction
projects expected to be completed in 2023 or 2024, furniture and equipment costs, network equipment and other information
technology costs and acquisition of sites for future development. Actual expenditures may vary significantly from those expected,
depending on the number and cost of additional branch offices acquired or constructed and sites acquired for future development,
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progress or delays encountered on ongoing and new construction projects, delays in obtaining or inability to obtain required approvals,
potential premises and equipment expenditures associated with acquisitions, if any, and other factors.
Operational Risk Management
Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes or
systems, human errors or misconduct or other adverse internal or external events. Operational risk is inherent in all of our businesses.
To assist in our operational risk management, in addition to monitoring our operational risk appetite using key performance and risk
metrics, we utilize risk control and self-assessments across the Bank to identify key operational risks and associated key internal
controls. We have in place a number of controls that assist in the management of operational risk including, but not limited to,
transactional documentation requirements; systems and procedures to monitor transactions; systems and procedures to detect and
mitigate attempts to commit fraud, penetrate our systems, access customer data, and/or deny access to our systems by legitimate
customers; regulatory compliance reviews; and periodic reviews by various components of our CRMG and our Internal Audit
function. Reconciliation procedures have also been established to ensure that data processing systems accurately capture data and
transactions. Further, we have programs and procedures to maintain contingency and business continuity plans for operational support
in the event of disruptions to our business, including disruptions attributable to the effects of the COVID-19 pandemic. We also
mitigate certain operational risks through the purchase of insurance. Our Operational Risk Management group, which reports to our
CRO, has responsibilities for assisting the business units in identifying, managing and monitoring operational risks including risks
resulting from the use of technology, cyber security risk, third party vendor management risk, risks associated with the introduction of
new products and services, and various other operational risks.
Model Risk. Model risk is the risk that the various models and tools utilized throughout the Bank do not provide practicable
results, particularly in times of market stress or other unforeseen circumstances, or prove to be inadequate or inaccurate because of
flaws in their design or implementation. We have an internal Model Risk Management group (second line oversight), which reports to
our CRO, that has developed and implemented a model framework, in compliance with FRB Supervision and Regulation Letter SR
11-7: Guidance on Model Risk Management, whereby all models and tools utilized throughout the Bank are inventoried, assessed, and
validated in accordance with this framework. Ownership of our internal models resides with our analytics and modeling team, who,
along with our business units, manages the use of such models in accordance with our model governance framework.
Legal Risk. As part of our operational risk management program, we also actively monitor our legal risk exposure. Legal risk
arises from the potential that unenforceable contracts, lawsuits or adverse judgments can disrupt or otherwise negatively affect our
operations or condition. These risks are inherent in all of our businesses. Legal risk exposures are actively and primarily managed by
our business units in conjunction with our legal department.
Reputational Risk Management
Reputational risk is the risk that adverse perceptions regarding our business practices or financial health, or adverse
developments, customer sentiment or other external perceptions regarding the practices of our competitors, or the financial services
industry, may adversely impact our reputation and business prospects. We have a team of bankers and risk professionals that monitor
our reputational risk exposure by, among others, (i) tracking and measuring a variety of social media posts, (ii) enforcing detailed
policies and procedures that are intended to govern our employees regarding the use of social media, websites and other external
communications made by employees and (iii) coordinating with our learning and development team enterprise-wide training focused
on reputational risk and how to reduce our exposure to such risk. Additionally, we also monitor our reputational risk exposure by
frequently monitoring other financial and non-financial reputational risk-related metrics.
Strategic Risk Management
Strategic risk is the risk to current or anticipated earnings or capital, or franchise or enterprise value arising from, among other
items, adverse business decisions, poor implementation of business decisions, deteriorations in national or regional macroeconomic
conditions, or lack of responsiveness to changes in the financial services industry and operating environment. This risk is a function of
the compatibility of our strategic goals, business strategies, resources, and quality of implementation, among others. The assessment of
strategic risk includes more than an analysis of our written strategic plan. It focuses on opportunity costs and how plans, systems, and
implementation affect, or could affect, our franchise or enterprise value. It also incorporates how management analyzes external
factors, such as economic, technological, competitive, regulatory, and other environmental changes that affect our strategic direction.
Our strategic risk exposure is measured against our Board-approved strategic risk appetite by our CRMG, which monitors our
performance against our strategic objectives in addition to measuring our financial performance against our peer group. Also, as part
of our strategic risk monitoring process, the current and expected systemic macroeconomic environment is monitored using a
combination of metrics, models and various other tools.
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Compliance Risk Management
Compliance risk is the risk of legal or regulatory sanctions, financial loss or damage to reputation resulting from failure to
comply with laws, regulations, rules, other regulatory requirements, or codes of conduct and other standards of self-regulatory
organizations applicable to us. Compliance risk exposures are actively and primarily managed by our business units in conjunction
with our Corporate Compliance group, our legal department and the associated compliance programs operated under our compliance
framework and our compliance management system that govern the management of compliance risk. Our ERC and BRC oversee our
compliance program.
Risks related to compliance matters are heightened by the heavily regulated environment in which we operate. We have
designed our processes and systems and provided education of applicable regulatory standards to our employees in an effort to comply
with these requirements. Our Corporate Compliance group and various other teams throughout the Bank perform various monitoring
and testing activities, and our Internal Audit Group performs periodic reviews of our various compliance programs, including reviews
of our Corporate Compliance group.
Recently Issued Accounting Standards
See Note 1 to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data in this
Annual Report on Form 10-K for a discussion of certain recently issued accounting pronouncements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this Item is included in Market and Interest Rate Risk Management in MD&A beginning on page 72
and is hereby incorporated by reference.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, Little Rock, AR, (Auditor Firm ID: 238)
Consolidated Balance Sheets – December 31, 2022 and December 31, 2021
Consolidated Statements of Income – Years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income – Years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows – Years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Page
84
86
87
88
89
92
94
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Bank OZK
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bank OZK and its subsidiaries (the “Company”) as of
December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity
and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively
referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting
as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
the Report of Management on the Bank's Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all
material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses
As described in Notes 1 and 4 to the consolidated financial statements, management assesses the adequacy of the allowance for
credit losses ("ACL") based on evaluations of the loan portfolio utilizing objective and subjective criteria. The Company had a total
ACL of $365.3 million on a total loan balance of $20.8 billion as of December 31, 2022. The objective criteria primarily includes
estimated losses that are modeled from the respective score cards and the outputs from the Company's Current Expected Credit Loss
("CECL") platform. The score cards and the Company's CECL platform incorporate varying future economic forecasts in estimating
the Company's ACL. Management selects and weights several economic forecasts provided by an external vendor for purposes of
determining the Company's ACL. For purposes of the forecasts used in the Company's CECL methodology, management utilizes a
reasonable and supportable forecast period of two years, followed by a reversion of estimated losses on a systematic basis back to the
Company's historical mean. These forecasts include a number of economic variables, including gross domestic product and
unemployment rates, among others.
The principal considerations for our determination that performing procedures relating to the allowance for credit losses is a
critical audit matter are (i) the significant judgment by management in determining the allowance for credit losses, which in turn led to
a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the
selection and weightings of economic forecast scenarios; and (ii) the audit effort involved the use of professionals with specialized
skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
Company's process for determining the allowance for credit losses, including controls over the selection and weightings of economic
forecast scenarios. These procedures also included, among others, testing management's process for determining the allowance for
credit losses by (i) evaluating the appropriateness of management's methodology; (ii) testing the data used in the estimate; and (iii)
evaluating the reasonableness of the selection and weightings of the economic forecast scenarios, which also involved the use of
professionals with specialized skill and knowledge to assist in performing these procedures to test management's process.
/s/ PricewaterhouseCoopers LLP
Little Rock, Arkansas
February 27, 2023
We have served as the Company’s auditor since 2016.
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BANK OZK
CONSOLIDATED BALANCE SHEETS
$
$
$
ASSETS
Cash and cash equivalents
Investment securities – available for sale (“AFS”)
Investment securities – trading
Federal Home Loan Bank of Dallas ("FHLB") and other bankers’ bank stocks
Non-purchased loans
Purchased loans
Allowance for loan losses
Net loans
Premises and equipment, net
Foreclosed assets
Accrued interest receivable
Bank owned life insurance (“BOLI”)
Goodwill and other intangible assets, net
Other, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing
Savings and interest bearing transaction
Time
Total deposits
Other borrowings
Subordinated notes
Subordinated debentures
Reserve for losses on unfunded loan commitments
Accrued interest payable and other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $0.01 par value; 100,000,000 shares authorized;
14,000,000 shares issued and outstanding at December 31,
2022 and 2021
Common stock; $0.01 par value; 300,000,000 shares authorized;
117,176,928 and 125,443,748 shares issued and outstanding at
December 31, 2022 and 2021, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Total stockholders’ equity before noncontrolling interest
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
See accompanying notes to the consolidated financial statements.
86
December 31,
2022
2021
(Dollars in thousands, except
per share amounts)
1,033,454 $
3,491,613
8,817
42,406
20,400,154
378,637
(208,858 )
20,569,933
678,405
6,616
125,130
789,805
663,543
246,846
27,656,568 $
4,658,451 $
9,905,717
6,935,975
21,500,143
606,666
346,947
121,591
156,419
233,864
22,965,630
2,053,829
3,916,733
14,957
40,788
17,791,610
516,215
(217,380 )
18,090,445
695,857
5,744
83,025
774,822
669,063
185,167
26,530,430
4,983,788
9,245,727
5,979,619
20,209,134
756,321
346,133
121,033
71,609
186,840
21,691,070
338,980
338,980
1,172
1,753,941
2,773,135
(177,649 )
4,689,579
1,359
4,690,938
27,656,568 $
1,254
2,093,702
2,378,466
23,841
4,836,243
3,117
4,839,360
26,530,430
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BANK OZK
CONSOLIDATED STATEMENTS OF INCOME
2022
Year Ended December 31,
2021
(Dollars in thousands, except per share amounts)
2020
Interest income:
Non-purchased loans
Purchased loans
Investment securities:
Taxable
Tax-exempt
Deposits with banks and federal funds sold
Total interest income
Interest expense:
Deposits
Other borrowings
Subordinated notes
Subordinated debentures
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income:
Service charges on deposit accounts:
NSF/overdraft fees
All other service charges
Trust income
BOLI income:
Increase in cash surrender value
Death benefits
Loan service, maintenance and other fees
Gains on sales of other assets
Net gains on investment securities
Other
Total non-interest income
Non-interest expense:
Salaries and employee benefits
Net occupancy and equipment
Other operating expenses
Total non-interest expense
Income before taxes
Provision for income taxes
Net income
Earnings attributable to noncontrolling interest
Preferred stock dividends
Net income available to common stockholders
Basic earnings per common share
Diluted earnings per common share
$
1,158,332 $
31,441
972,660 $
46,174
944,354
70,812
41,526
22,653
12,116
1,266,068
36,234
13,729
2,510
1,071,307
40,547
19,403
5,665
1,080,781
94,574
13,033
10,439
5,780
123,826
1,142,242
83,494
1,058,748
64,422
4,029
9,386
3,750
81,587
989,720
(77,938 )
1,067,658
17,724
28,102
7,990
19,532
807
13,819
11,467
2,019
13,043
114,503
226,373
70,058
155,290
451,721
721,530
157,440
564,090
51
16,621
547,520 $
4.55 $
4.54 $
14,962
27,656
8,506
19,640
2,028
13,959
9,962
504
18,321
115,538
214,567
66,801
148,907
430,275
752,921
173,888
579,033
(32 )
—
579,001 $
4.49 $
4.47 $
171,813
3,202
12,758
4,384
192,157
888,624
203,639
684,985
14,782
22,917
7,544
20,239
608
14,257
6,863
4,467
12,931
104,608
206,834
63,379
143,200
413,413
376,180
84,314
291,866
32
—
291,898
2.26
2.26
$
$
$
See accompanying notes to the consolidated financial statements.
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BANK OZK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss):
Unrealized gains and losses on investment securities AFS
Tax effect of unrealized gains and losses on investment securities AFS
Reclassification of gains on investment securities AFS
included in net income
Tax effect of reclassification of gains on investment
securities AFS included in net income
Total other comprehensive (loss) income
Total comprehensive income
(201,490 )
362,600 $
$
See accompanying notes to the consolidated financial statements.
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
564,090 $
579,033 $
291,866
(265,121 )
63,631
(45,946 )
11,535
45,788
(11,397 )
—
(4,467 )
—
(34,411 )
544,622 $
1,073
30,997
322,863
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BANK OZK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interest
Total
(Dollars in thousands, except per share amounts)
$
1,289 $ 2,251,824 $ 1,869,983 $
27,255 $
3,117 $ 4,153,468
Balances – December 31, 2019
Cumulative effect of change in
accounting principle
Balances – January 1, 2020
Net income
Earnings attributable to
noncontrolling interest
Total other comprehensive
income
Common stock dividends,
$1.0775 per share
Issuance of 44,200 shares
of common stock for
exercise of stock options
Issuance of 493,761 shares
of unvested restricted
common stock
Repurchase and cancellation of
61,873 shares of common stock
withheld for taxes pursuant to
restricted stock vesting
Stock-based compensation
expense
Forfeitures of 76,664 shares
of unvested restricted
common stock
Balances – December 31, 2020
$
—
(75,344 )
1,289 2,251,824 1,794,639
291,866
—
—
—
—
27,255
—
—
(75,344 )
3,117 4,078,124
291,866
—
—
—
—
—
32
—
(32 )
—
—
—
30,997
—
30,997
—
(139,662 )
—
—
(139,662 )
—
1,036
—
—
—
1,036
5
(5 )
—
—
—
—
—
(1,853 )
—
—
14,848
—
—
—
—
(1,853 )
—
14,848
—
—
—
1,294 $ 2,265,850 $ 1,946,875 $
—
58,252 $
—
—
3,085 $ 4,275,356
See accompanying notes to the consolidated financial statements.
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BANK OZK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
(Dollars in thousands, except per share amounts)
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interest
Total
— $
—
1,294 $ 2,265,850 $ 1,946,875 $
— 579,033
—
58,252 $
—
3,085
—
$ 4,275,356
579,033
—
—
—
—
—
—
(32 )
—
—
(34,411 )
32
—
—
(34,411 )
—
—
— (147,410 )
—
—
(147,410 )
338,980
—
—
—
—
—
338,980
—
2
7,224
—
—
—
7,226
—
3
(3 )
—
—
—
—
—
(43 ) (193,401 )
—
—
—
(193,444 )
—
(1 )
(1,976 )
—
—
—
16,007
—
—
—
—
—
(1,977 )
16,007
Balances – December 31, 2020
$
Net income
Earnings attributable to
noncontrolling interest
Total other comprehensive loss
Common stock dividends,
$1.1325 per share
Issuance of 14,000,000 shares
of preferred stock, net of
offering costs
Issuance of 207,650 shares of
common stock for exercise
of stock options
Issuance of 332,831 shares of
unvested restricted common
stock
Repurchase and cancellation of
4,275,988 shares of common
stock under share repurchase
program
Repurchase and cancellation of
55,893 shares of common
stock withheld for taxes
pursuant to restricted stock
vesting
Stock-based compensation
expense
Forfeitures of 115,300 shares of
unvested restricted common
stock
Balances – December 31, 2021
—
$ 338,980 $
(1 )
—
1,254 $ 2,093,702 $ 2,378,466 $
1
—
23,841 $
—
3,117
—
$ 4,839,360
See accompanying notes to the consolidated financial statements.
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BANK OZK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
(Dollars in thousands, except per share amounts)
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interest
Total
Balances – December 31, 2021
$ 338,980 $
—
1,254 $ 2,093,702 $ 2,378,466 $
— 564,090
—
23,841 $
—
3,117
—
$ 4,839,360
564,090
Net income
Earnings attributable to
noncontrolling interest
Total other comprehensive loss
Preferred stock dividends,
$1.187 per share
Common stock dividends,
$1.26 per share
Return of capital to
non-controlling interest
Issuance of 81,560 shares of
common stock for exercise
of stock options
Issuance of 224,279 shares of
unvested restricted common
stock
Repurchase and cancellation of
8,373,398 shares of common
stock under share repurchase
program
Repurchase and cancellation of
116,864 shares of common
stock withheld for tax
pursuant to restricted stock
vesting
Stock-based compensation
expense
Forfeitures of 82,397 shares of
unvested restricted common
stock
—
—
—
—
—
—
51
—
—
(201,490 )
(51 )
—
—
(201,490 )
—
—
(16,621 )
—
—
— (152,851 )
—
—
—
(16,621 )
—
(152,851 )
—
—
—
—
(1,707 )
(1,707 )
—
1
2,492
—
—
—
2,493
—
2
(2 )
—
—
—
—
—
(83 ) (349,886 )
—
—
—
(349,969 )
—
(1 )
(5,572 )
—
—
—
13,206
—
—
—
—
—
(5,573 )
13,206
Balances – December 31, 2022
—
$ 338,980 $
(1 )
—
1,172 $ 1,753,941 $ 2,773,135 $
1
—
(177,649 ) $
—
1,359
—
$ 4,690,938
See accompanying notes to the consolidated financial statements.
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BANK OZK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
Amortization
Earnings attributable to noncontrolling interest
Provision for credit losses
Provision for losses on foreclosed and other assets
Write-off of unamortized subordinated debt issuance costs
Net amortization of investment securities
Net gains on investment securities AFS
Net gains on trading securities
Amortization of operating lease right-of-use assets
Accretion of purchased loans
Gains on sales of other assets
Deferred income tax expense (benefit)
Increase in cash surrender value of BOLI
BOLI death benefits in excess of cash surrender value
Stock-based compensation expense
Changes in assets and liabilities:
Trading account securities
Accrued interest receivable
Other assets, net
Accrued interest payable and other liabilities
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
564,090 $
579,033 $
291,866
30,067
6,892
51
83,494
1,055
—
32,198
—
(2,019 )
7,031
(8,766 )
(11,467 )
63,825
(19,532 )
(807 )
13,206
28,545
7,380
(32 )
(77,938 )
3,461
764
59,371
—
(504 )
7,206
(14,208 )
(9,962 )
(61,208 )
(19,640 )
(2,028 )
16,007
8,152
(42,240 )
(7,169 )
46,885
764,946 $
(14,460 )
3,952
13,185
9,278
528,202 $
26,032
10,028
32
203,639
3,669
—
30,712
(4,467 )
—
7,731
(21,781 )
(6,863 )
53,757
(20,239 )
(608 )
14,848
(13,641 )
14,581
(37,350 )
551,946
Net cash provided by operating activities
$
See accompanying notes to the consolidated financial statements.
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BANK OZK
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Cash flows from investing activities:
$
Proceeds from sales of FHLB and other bankers' bank stock
Purchases of FHLB and other bankers' bank stock
Proceeds from maturities/calls/paydowns of investment securities AFS
Proceeds from sales of investment securities AFS
Purchases of investment securities AFS
Proceeds from sale of loans
Net (increase) decrease of non-purchased loans
Net payments received on purchased loans
Purchases of premises and equipment
Proceeds from BOLI death benefits
Proceeds from sales of other assets
Net cash invested in unconsolidated investments
Net cash paid in branch divestiture transactions
Net cash (used) provided by investing activities
Cash flows from financing activities:
Net increase (decrease) in deposits
Proceeds from fixed-rate FHLB advances
Net repayments of other borrowings
Net proceeds from issuance of subordinated debt
Repayment of subordinated debt
Net proceeds from issuance of preferred stock
Proceeds from exercise of stock options
Return of capital to non-controlling interest
Repurchase and cancellation of shares of common stock –
share repurchase program
Repurchase and cancellation of shares of common stock –
withheld for taxes
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash provided (used) by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
37,211 $
(38,829 )
1,088,141
24
(960,358 )
71,960
(2,695,016 )
140,469
(29,852 )
5,155
25,159
(52,963 )
(21,346 )
(2,430,245 )
1,318,191
—
(149,655 )
—
—
—
2,493
(1,707 )
— $
(2,301 )
2,522,743
591,570
(3,731,007 )
218,211
390,250
286,863
(33,918 )
4,917
49,097
(54,153 )
(102,063 )
140,209
(1,130,793 )
—
(2,620 )
345,895
(225,000 )
338,980
7,226
—
12,505
(29,136 )
1,112,738
273,963
(2,499,587 )
282,727
(2,345,168 )
344,560
(49,606 )
1,636
29,346
(46,499 )
(59,718 )
(2,972,239 )
3,061,965
750,000
(353,695 )
—
—
—
1,036
—
(349,969 )
(193,444 )
—
(5,573 )
(152,235 )
(16,621 )
644,924
(1,020,375 )
2,053,829
1,033,454 $
(1,977 )
(146,511 )
—
(1,008,244 )
(339,833 )
2,393,662
2,053,829 $
(1,853 )
(139,255 )
—
3,318,198
897,905
1,495,757
2,393,662
$
See accompanying notes to the consolidated financial statements.
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Bank OZK
Notes to Consolidated Financial Statements
December 31, 2022, 2021 and 2020
1. Organization, Regulation and Summary of Significant Accounting Policies
Bank OZK (the “Bank”) is headquartered in Little Rock, Arkansas and provides a wide range of retail and commercial banking
services. At December 31, 2022, the Bank conducted operations through more than 240 offices in eight states, including offices in
Arkansas, Georgia, Florida, North Carolina, Texas, California, New York and Mississippi. The Bank owns eight 100%-owned finance
subsidiary business trusts - Ozark Capital Statutory Trust II (“Ozark II”), Ozark Capital Statutory Trust III (“Ozark III”), Ozark
Capital Statutory Trust IV (“Ozark IV”), Ozark Capital Statutory Trust V (“Ozark V”), Intervest Statutory Trust II (“Intervest II”),
Intervest Statutory Trust III (“Intervest III”), Intervest Statutory Trust IV (“Intervest IV”) and Intervest Statutory Trust V (“Intervest
V”) (collectively, the “Trusts”). In addition, the Bank owns a subsidiary that holds its investment securities, a subsidiary engaged in
the development of real estate, a subsidiary that holds an ownership interest in a private aircraft, a subsidiary that owns a renewable
energy facility and various other entities that hold foreclosed assets or tax credits or engage in other activities.
The Bank is an Arkansas state banking corporation and is subject to regulation by the Arkansas State Bank Department
(“ASBD”). Because the Bank is an insured depository institution that is not a member bank of the Board of Governors of the Federal
Reserve System (“FRB”), its primary federal regulator is the Federal Deposit Insurance Corporation (“FDIC”).
Basis of presentation, use of estimates and principles of consolidation – The preparation of financial statements in conformity
with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates, assumptions
and judgments that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results
could materially differ from those estimates.
These consolidated financial statements include the accounts of the Bank, the investment subsidiary, the real estate subsidiary,
the aircraft subsidiary, the renewable energy subsidiary and various other entities in accordance with GAAP. In addition, subsidiaries
in which the Bank has a majority voting interest principally defined as owning a voting or economic interest greater than 50% or
where the Bank exercises control over the operating and financial policies of the subsidiary through an operating agreement or other
means are consolidated. Investments in companies that are not variable interest entity (“VIEs”) and which the Bank does not have a
majority voting interest or the Bank does not exercise control over the operating and financial policies are generally accounted for
utilizing the cost or equity methods of accounting. Significant intercompany transactions and amounts have been eliminated in
consolidation.
The voting interest approach is not applicable for entities that are not controlled through voting interests or in which the equity
investors do not bear the residual economic risk. In such instances, management makes a determination, based on its review of
applicable GAAP, on when the assets, liabilities and activities of the VIE should be included in the Bank’s consolidated financial
statements. GAAP requires a VIE to be consolidated by a company if that company has a controlling financial interest with both (1)
the power to direct the activities of the entity that most significantly affects the entity’s economic performance and (2) the obligation
to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could
potentially be significant to the entity. A company that has a controlling financial interest is considered the primary beneficiary and
consolidates the VIE. The Bank has determined that the 100%-owned finance subsidiary Trusts are VIEs, but that the Bank is not the
primary beneficiary of the Trusts. Accordingly, the Bank does not consolidate the activities of the Trusts into its financial statements,
but instead reports its ownership interests in the Trusts as other assets and reports the subordinated debentures issued to the Trusts as a
liability in its consolidated balance sheets. The distributions on the subordinated debentures are reported as interest expense in the
Bank’s consolidated statements of income.
Cash and cash equivalents – For cash flow purposes, cash and cash equivalents include cash on hand, amounts due from banks,
interest earning deposits with banks, and amounts on deposit with the FRB.
Investment securities – Management determines the appropriate classification of investment securities at the time of purchase
and reevaluates such designation as of each balance sheet date. At December 31, 2022 and 2021, the Bank held investment securities
classified as both available for sale (“AFS”) and trading (collectively, “investment securities”).
Investment securities AFS are reported at estimated fair value, with the unrealized gains and losses determined on a specific
identification basis. Realized gains or losses on the sale of investment securities AFS are recognized on the specific identification
method at the time of sale and are included in non-interest income. The Bank utilizes independent third parties as its principal pricing
sources for determining fair value of investment securities which are measured on a recurring basis. As a result, the Bank receives
estimates of fair value from at least two independent pricing sources for the majority of its individual securities within its investment
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portfolio. For investment securities traded in an active market, fair values are based on quoted market prices if available. If quoted
market prices are not available, fair values are based on quoted market prices of comparable securities, broker quotes or
comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities traded in a market that is not
active, fair value is determined using unobservable inputs. All fair value estimates of the Bank’s investment securities are reviewed on
a quarterly basis.
Investment securities AFS with unrealized gains are reported as a separate component of stockholders’ equity, included in
accumulated other comprehensive income (loss), are adjusted for changes in unrealized gains, net of related income tax, and are
included in accumulated other comprehensive income (loss), on a specific identification basis. Investment securities AFS with
unrealized losses require the Bank to evaluate its intent or likelihood of disposing of such investment securities. If the Bank intends to
sell an investment security AFS in an unrealized loss position, or if it is more likely than not that it will be required to sell an
investment security AFS in an unrealized loss position before recovery of its amortized cost basis, the investment security’s amortized
cost basis is written down to fair value through current period expense. If the Bank does not intend to sell an investment security AFS
in an unrealized loss position, or if it is more likely than not that the Bank will not sell an investment security AFS that is in an
unrealized loss position, the Bank is required to assess whether the decline in fair value has resulted from credit losses or non-credit
factors. Factors considered during such review include the credit quality, finance condition and near term prospects of the issuer, the
nature and cause of the unrealized loss and various other factors. If the Bank’s assessment determines a credit loss exists, the present
value of cash flows expected to be collected from the investment security AFS is compared to the amortized cost basis of the
investment security and if the present value of cash flows expected to be collected is less than amortized cost, an allowance for credit
losses and a provision for credit loss expense is recorded. If the Bank’s assessment determines that a credit loss does not exist, the
Bank records the decline in fair value through other comprehensive income (loss), net of related income tax effects with such decline
included in accumulated other comprehensive income (loss).
Trading investment securities are carried at fair value with gains and losses reported in the Bank’s consolidated statements of
income.
The fair values of the Bank’s investment securities traded in both active and inactive markets can be volatile and may be
influenced by a number of factors including market interest rates, prepayment speeds, discount rates, credit quality of the issuer,
general market conditions including market liquidity conditions and other factors. Factors and conditions are constantly changing, and
fair values could be subject to material variations that may significantly affect the Bank’s financial condition, results of operations and
liquidity.
At December 31, 2022 and 2021, the Bank owned shares in the Federal Home Loan Bank of Dallas (“FHLB”), First National
Banker’s Bankshares, Inc. and certain other bankers’ bank stock, which do not have readily determinable fair values and are carried at
cost.
Interest and dividends on investment securities, including the amortization of premiums and accretion of discounts are included
in interest income. Any discount or premium on investment securities is accreted or amortized through maturity, or in the case of
mortgage-backed securities, over the estimated life of the security. Premiums on callable securities are amortized to the earliest call
date. Purchases and sales of investment securities are recorded on a trade-date basis.
Non-purchased loans – Non-purchased loans include all loans except loans acquired in previous acquisitions. Non-purchased
loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their
outstanding principal balance adjusted for any charge-offs and accretion or amortization of deferred fees or costs. Interest on non-
purchased loans is recognized on an accrual basis and is calculated using the simple interest method on daily balances of the principal
amount outstanding. Loan origination fees and costs are generally deferred and recognized over the life of the loan as an adjustment to
yield on the related loan. Minimum interest, yield maintenance income and prepayment penalties are recorded as adjustments to yield
on the related loan when such items are earned. Loan service, maintenance and various other fees that are not considered yield
adjustments are recorded as non-interest income when such items are earned and collection appears likely.
In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments
to extend credit and letters of credit. Such financial instruments are recorded in the financial statements when they are funded. Related
fees are generally recognized when collected.
Purchased loans – Purchased loans consist of all loans acquired in previous acquisitions. Prior to the adoption of ASU 2016-13,
purchased loans with deteriorated credit quality were referred to as PCI loans. With the adoption of ASU 2016-13, loans acquired with
deteriorated credit quality are referred to as PCD loans. ASU 2016-13 defines PCD loans as acquired individual financial assets that,
as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination as determined
by an acquirer’s assessment. While ASU 2016-13 does not define “a more-than-insignificant deterioration in credit quality since
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origination,” it does provide indicators that there has been a more-than-insignificant deterioration in credit since origination. Those
indicators include (1) the delinquency status as of the date of acquisition, (2) downgrades in classification since origination, (3) the
accrual status, or (4) credit spreads that, subsequent to origination, have widened beyond the threshold specified by the Bank’s lending
policy. With the exception of PCD loans for which the Bank has suspended the recognition of interest income, a PCD loan’s non-
credit discount is accreted into interest income utilizing the interest method over the remaining life of the loan.
All other purchased loans not classified as PCD (non-PCD) are recorded at their initial fair value, adjusted for amortized costs
which includes any remaining fair value adjustments recorded at acquisition. With the exception of non-PCD loans for which the Bank
has suspended the recognition of interest income, any remaining fair value adjustment recorded at acquisition on non-PCD loans is
accreted into income utilizing the interest method over the remaining life of the loan.
Allowance for credit losses (“ACL”) – The Bank utilizes the current expected credit loss (“CECL”) methodology to determine
its ACL, whereby a provision for credit losses is charged against income. All, or portions of, loans deemed to be uncollectible are
charged against the ACL when the Bank believes that collectability of all, or some portion of, outstanding amortized cost is unlikely.
Subsequent recoveries, if any, of loans previously charged off are credited to the ACL. For credit risk related to a contractual
obligation to extend credit, the Bank estimates expected credit losses over the contractual period considering the likelihood that
funding will occur. The portion of the ACL related to the outstanding balance of the Bank’s loan portfolio is reported as ALL on its
consolidated balance sheets and the reserve for losses on unfunded loan commitments is reported as a liability on its consolidated
balance sheets.
The Bank utilizes a dual risk rating system that incorporates score cards, which assess quantitative models and qualitative
factors, in determining the risk rating for its commercial loans. This dual risk rating methodology incorporates an obligor risk rating
(“ORR”) and a facility risk rating (“FRR”) which are combined to create a two-dimensional risk rating for commercial loans. The
ORR is influenced by a loan’s probability of default (“PD”) as determined from the score cards, with such score card PDs affected by
various financial metrics, such as projected cash flow, loan-to-value (“LTV”), property and/or market characteristics, borrower
financial strength and other financial and loan characteristics. Thus, the higher a loan’s PD, the more adverse the loan’s ORR. The
FRR is influenced by a loan’s loss given default (“LGD”) as determined from the score cards. Score card LGDs are affected by the
estimated loss when a borrower cannot or will not repay the loan. Estimated losses take into consideration the Bank’s underwriting
standards and protections including collateral and collateral margin requirements, lien position, compliance with any loan covenants,
support required from guarantors, insurance and other factors. The higher a loan’s LGD, the more adverse the loan’s FRR. The
combined dual risk rating provides an annualized expected loss estimate for each commercial loan, and based on such loss estimates, a
regulatory risk rating is assigned. Additionally, the Bank may apply risk rating “overrides” whereby management may further adjust a
loan’s risk rating to the extent it believes there is additional information about a loan or a borrower that is not fully reflected in the
ORR and/or FRR. The Bank utilizes risk ratings from the scorecards in assigning and evaluating the credit quality of its commercial
loans. The Bank’s consumer loans and business loans to individuals with credit exposure less than or equal to $250,000 are not risk
rated in the same manner as its commercial loans. Instead, these loans are risk rated based on performance and past due status with all
such loans that are less than 30 days past due typically assigned a “pass rating” and all loans that are 30 days or more past due
assigned a more adverse risk rating commensurate with each loan’s perceived risk.
Outputs from the scorecards, including PD and LGD outputs, are utilized in determining the necessary ACL for all loans that
contain similar risk characteristics. In determining the ACL, the Bank separates loans into similar risk characteristics and utilizes score
card estimates of credit loss that categorize loans based on loan type. The loan types segregated by score card are as follows:
(cid:120) Construction Real Estate – In assessing estimated credit losses on construction real estate loans, the Bank utilizes various
project and borrower metrics, including, but not limited to, projected cash flow, LTV, property and/or market
characteristics, and borrower financial strength.
(cid:120) Commercial and Industrial – In assessing estimated credit losses on commercial and industrial loans, the Bank utilizes
various borrower and loan metrics, including, but not limited to, borrower’s financial position and results from
operations, LTV, and borrower and/or guarantor financial strength.
(cid:120) Consumer Mortgages – In assessing estimated credit losses on consumer mortgage loans, the Bank utilizes borrower
information such as borrower’s cash flow, credit score and LTV, among others.
(cid:120) Consumer Recreational Vehicle (“RV”) and Marine – In assessing estimated credit losses on RV and marine loans, the
Bank utilizes various borrower information such as payment-to-income, credit score and LTV, among others.
(cid:120) Other Consumer – In assessing estimated credit losses on other consumer loans, the Bank utilizes various borrower
origination information such as vintage, credit score and product, among others.
The score cards utilized in determining the ACL use quantitative data related to the Bank’s loans and unfunded loan
commitments. In determining the estimated loss, the quantitative data utilized by the score card models includes, but is not limited to,
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estimated debt service coverage ratios, LTV ratios, total assets, total revenue and margin, and for consumer loans, individual credit
scores. In addition, the score cards and the Bank’s CECL platform incorporate varying future economic forecasts in estimating the
Bank’s ACL. While the Bank’s score cards and CECL platform produce an estimated lifetime loss for all loans not individually
evaluated, the score cards and CECL platform may have certain limitations. To address potential limitations, the Bank’s methodology
considers additional qualitative adjustments that are applied to its CECL calculations. In determining the ACL, the Bank utilizes a
reasonable and supportable forecast period of two years followed by a reversion of estimated losses on a systematic basis back to its
historical mean. Expected credit losses are estimated over the contractual term of the loan, adjusted for anticipated or expected
prepayments. The contractual term of the loan excludes expected extensions or modifications unless the Bank has a reasonable
expectation that a troubled debt restructuring will be executed with the expected extension or modification.
The ACL is maintained at a level that the Bank believes will be adequate to absorb expected credit losses in future periods
associated with its loan portfolio and unfunded loan commitments. Provisions to and the adequacy of the ACL are based on
evaluations of the loan portfolio utilizing objective and subjective criteria. The objective criteria primarily includes estimated losses
that are modeled from the respective score cards and the outputs from the Bank’s CECL platform. In addition to these objective
criteria, the Bank subjectively assesses the adequacy of the ACL and the need for changes thereto, with consideration given to the
nature and mix of the portfolio, national, regional and local business and economic conditions that may affect borrowers’ ability to
pay, concentrations of credit, changes in the experience, ability and depth of lending management and other relevant staff, changes in
the nature and volume of the portfolio and in the terms of the loans, overall portfolio quality, historical loss experience and other
relevant factors. Changes in these criteria or the availability of new information could require adjustment of the ACL in future periods.
In addition, for loans that do not share risk characteristics similar to those contained within their respective loan segments, the Bank
may perform an individual assessment of the ACL utilizing expected cash flows, collateral values or a combination thereof. On an
ongoing basis, the Bank evaluates the underlying collateral on collateral dependent nonperforming loans and, if needed, due to
changes in market or property conditions, the underlying collateral is reassessed and the estimated collateral value is revised. The
determination of collateral value includes any adjustments considered necessary related to estimated holding periods and estimated
selling costs. While an individual assessment and related ACL has been calculated for certain nonperforming loans, no portion of the
Bank’s ACL is restricted to any individual loan or group of loans, and the entire ACL is available to absorb losses from any and all
loans, including unfunded loan commitments.
Changes in the criteria used in this evaluation or the availability of new information could cause the ACL to be increased or
decreased in future periods. In addition, bank regulatory agencies, as part of their examination process, may require adjustments to the
ACL based on their judgment and estimates.
The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments
as they become due. The Bank generally places a loan on nonaccrual status when such loan is (i) nonperforming or (ii) 90 days or
more past due, or earlier when doubt exists as to the ultimate collection of payments. The Bank may continue to accrue interest on
certain loans contractually past due 90 days or more 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 reversed and charged against interest income.
Nonaccrual loans are generally returned to accrual status when payments are no longer past due, the loan has performed in accordance
with its contractual terms for a reasonable period of time (generally at least six months) and is expected to continue to perform in
accordance with its contractual terms. If a loan is determined to be uncollectible, the portion of the principal determined to be
uncollectible is charged against the ACL. Loans for which the terms have been modified and for which (i) the borrower is
experiencing financial difficulties and (ii) a concession has been granted to the borrower by the Bank are considered troubled debt
restructurings (“TDRs”) and are included in nonperforming loans. Income on nonaccrual loans is recognized on a cash basis when and
if actually collected. Income on TDRs is recognized on a cash basis until such time as the TDR has performed in accordance with its
modified terms for a reasonable period of time (generally at least six months) and is expected to continue to perform. Once such
performance and expected performance conditions are met, the TDR is returned to accrual status but continues to be reported as a
nonperforming loan.
Premises and equipment – Premises and equipment are reported at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets. Depreciable
lives for the major classes of assets are generally 20 to 45 years for buildings and 3 to 25 years for furniture, fixtures, equipment and
certain building improvements. Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the term
of the lease. Accelerated depreciation methods are used for income tax purposes. Maintenance and repair charges are expensed as
incurred.
Income taxes – The Bank utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the
financial statements and their related tax basis using enacted tax rates in effect for the year or years in which the differences are
expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.
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As a result of recording, at fair value, acquired assets and assumed liabilities pursuant to business combinations, differences in
amounts reported for financial statement purposes and their related basis for federal and state income tax purposes are created. Such
differences are recorded as deferred tax assets and liabilities using enacted tax rates in effect for the year or years in which the
differences are expected to be recovered or settled. To the extent that information becomes available that results in a change in
management’s estimates and assumptions, an increase or decrease of the deferred tax asset or liability is recorded as an adjustment to
deferred income tax expense (benefit).
The Bank recognizes a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a
tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has
a greater than 50% likelihood of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax
benefit is recorded.
The Bank files consolidated tax returns. The Bank and the other consolidated entities provide for income taxes on a separate
return basis and remit to the Bank amounts determined to be currently payable. The Bank recognizes interest related to income tax
matters as interest income or expense, and penalties related to income tax matters are recognized as non-interest expense. The Bank is
no longer subject to income tax examinations by U.S. federal, state and local tax authorities for years prior to 2019.
Service charges on deposit accounts – Service charges on deposit accounts typically represent fees for monthly account
maintenance and transaction activity, including non-sufficient funds (“NSF”) and overdraft fees. This revenue is generally recognized
when the performance obligation has been achieved, the transaction is completed and/or the fee is incurred and payment is generally
received when the performance obligation has been satisfied or the fee has been incurred.
Bank owned life insurance (“BOLI”) – BOLI consists of life insurance purchased by the Bank on (i) a qualifying group of
officers with the Bank designated as owner and beneficiary of the policies and (ii) one of the Bank’s executive officers with the Bank
designated as owner and both the Bank and the executive officer designated as beneficiaries of the policies. The increases in the cash
surrender values on BOLI policies help to offset a portion of employee benefit costs or to offset a portion of the costs of a
supplemental executive retirement plan for one of the Bank’s executive officers. BOLI is carried at the policies’ realizable cash
surrender values with changes in cash surrender values and death benefits received in excess of cash surrender values reported in non-
interest income.
Goodwill and Intangible assets – Goodwill and intangible assets consist primarily of goodwill and core deposit intangibles.
Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The Bank had
goodwill of $660.8 million at both December 31, 2022 and 2021. The Bank reviews goodwill annually, or more frequently if events or
changes in circumstances indicate the carrying value might be impaired. The Bank performed its annual impairment test of goodwill
as of September 30, 2022, which included comparing the estimated fair value of the Bank’s operations (the reporting unit) with net
book value. The September 30, 2022 impairment test did not indicate an impairment of goodwill.
Core deposit intangibles represent premiums paid for deposits acquired via acquisition and are being amortized over three to
seven years. Core deposit intangibles totaled $33.4 million and $41.3 million at December 31, 2022 and 2021, respectively, less
accumulated amortization of $30.6 million and $33.0 million at December 31, 2022 and 2021, respectively.
The aggregate amount of amortization expense for the Bank’s core deposit intangibles is expected to be $2.8 million in 2023
and no core deposit intangible amortization expense is expected from the Bank’s existing core deposit intangibles in 2024 and beyond.
Stock-based compensation – The Bank has an equity incentive plan for officers and employees and non-employee directors,
which plan is described more fully in Note 15. The Bank measures the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award and, in the case of certain long-term incentive agreements, based on
the expected performance achievement levels over the term of the agreements. Such cost is recognized over the vesting period of the
award.
Earnings per common share – Earnings per common share (“EPS”) are computed using the two-class method. Basic EPS are
computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding
during the applicable period. Diluted EPS are computed by dividing net income available to common stockholders by the weighted-
average number of common shares outstanding after consideration of the dilutive effect, if any, of the Bank’s common stock options
using the treasury stock method and the Bank’s non-vested performance stock units under its long-term incentive agreements. The
Bank has determined that its outstanding non-vested restricted stock awards that were granted to its employees and non-employee
directors are participating securities. The calculations of basic and diluted EPS are included in Note 23.
Segment disclosures – The Bank operates in only one segment. Accordingly, there is no requirement to report segment
information in the Bank’s consolidated financial statements. No single external customer comprises more than 10% of the Bank’s
revenues.
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Recent accounting pronouncements – In May 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04
“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” Generally, ASU
2020-04 allows entities to consider contract modifications due to reference rate reform to be a continuation of an existing contract;
thus, the Bank would not have to determine if the modification is considered insignificant. As a result of ASU 2020-04, the Bank
created an internal working group that is managing its transition away from London Interbank Offered Rate (“LIBOR”). This working
group is a cross-functional team composed of representatives from credit, lending, deposits, retail, investment securities, loan
administration, operations, compliance, legal and other support functions to address issues related to the LIBOR transition and phase-
out. A majority of the Bank’s loans that are tied to LIBOR benchmark interest rates include adequate fallback language for when
LIBOR ceases to exist. As of January 1, 2022, the Bank stopped originating loans that are tied to LIBOR benchmark interest rates.
The Bank will continue to evaluate the financial impact regarding pricing, valuation and operations of the transition. ASU 2020-04
was effective upon issuance and, in December 2022, the FASB issued ASU 2022-06 which deferred the sunset date of Topic 848 until
December 31, 2024. The Bank adopted ASU 2020-04 on January 1, 2023 and it is not expected to have a material effect on the Bank’s
financial position or results of operations.
On March 31, 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings but
provides additional disclosures for restructurings for borrowers that are experiencing financial difficulty. In addition, ASU 2022-02
requires disclosure of current period gross write-offs by year of origination for loans and net investments in leases. ASU 2022-02 was
effective for years beginning after December 15, 2022. The adoption of ASU 2022-02 did not have a significant impact on the Bank’s
financial position, statement of operations or financial statement disclosures.
Reclassifications – Certain reclassifications of prior years’ amounts have been made to conform with the 2022 financial
statements presentation. These reclassifications had no impact on prior years’ net income, as previously reported.
2. Investment Securities
The following table presents the amortized cost and estimated fair value of investment securities AFS as of the dates indicated.
December 31, 2022:
Obligations of state and political subdivisions
U.S. Government agency mortgage-backed securities
Other U.S. Government agency securities
Corporate obligations
U.S. Treasuries
Total investment securities AFS
December 31, 2021:
Obligations of state and political subdivisions
U.S. Government agency mortgage-backed securities
Other U.S. Government agency securities
Corporate obligations
U.S. Treasuries
Total investment securities AFS
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(Dollars in thousands)
Estimated
Fair
Value
$ 1,310,362 $
1,692,828
658,818
38,304
24,957
$ 3,725,269 $
4,125 $
—
—
—
—
4,125 $
(45,563 ) $ 1,268,924
(144,288 ) 1,548,540
615,920
(42,898 )
34,176
(4,128 )
24,053
(904 )
(237,781 ) $ 3,491,613
(1,716 ) $
813,213
(12,590 ) 2,217,281
555,261
306,071
24,907
(15,504 ) $ 3,916,733
(1,064 )
(131 )
(3 )
$
794,704 $
2,203,398
556,290
305,966
24,910
$ 3,885,268 $
20,225 $
26,473
35
236
—
46,969 $
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The following table shows estimated fair value of investment securities AFS having gross unrealized losses and the amount of
such unrealized losses, aggregated by investment category and length of time that individual investment securities have been in a
continuous unrealized loss position, as of the dates indicated.
Less than 12 Months
12 Months or More
Total
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
(Dollars in thousands)
Estimated
Fair Value
Unrealized
Losses
December 31, 2022:
Obligations of state and political subdivisions
4,595 $ 1,014,272 $ 45,563
U.S. Government agency mortgage-backed securities 854,548 64,084 693,992 80,204 1,548,540 144,288
275,535 19,461 340,385 23,437 615,920 42,898
Other U.S. Government agency securities
4,128
—
Corporate obligations
904
—
U.S. Treasuries
$ 2,143,326 $ 129,545 $ 1,093,635 $ 108,236 $ 3,236,961 $ 237,781
$ 955,014 $ 40,968 $
34,176
24,053
34,176
24,053
4,128
904
—
—
59,258 $
Total
December 31, 2021:
Obligations of state and political subdivisions
1,703 $
U.S. Government agency mortgage-backed securities 1,361,532 12,568
1,064
Other U.S. Government agency securities
131
Corporate obligations
3
U.S. Treasuries
$ 2,263,743 $ 15,469 $
390,226
274,829
24,907
$ 212,249 $
Total
167 $
1,293
—
—
—
1,460 $
13 $ 212,416 $
1,716
22 1,362,825 12,590
1,064
— 390,226
131
— 274,829
—
3
24,907
35 $ 2,265,203 $ 15,504
In evaluating the Bank’s unrealized loss positions for credit losses of its investment securities portfolio, management considers
the credit quality, financial condition and near terms prospects of the issuer, the nature and cause of the unrealized loss and other
factors. While the Bank periodically evaluates its investment strategy relative to current economic and business conditions, at the
present time, the Bank does not have the intent to sell these investment securities with unrealized losses and, more likely than not, will
not be required to sell these investment securities before fair value recovers to amortized cost. In addition, for investment securities in
an unrealized loss position, the Bank does not believe the unrealized losses are the result of issues with credit quality; thus, no ACL
was established for investment securities as of December 31, 2022 or 2021, respectively.
The following table shows the amortized cost and estimated fair value of investment securities AFS by maturity or estimated
date of repayment as of December 31, 2022.
(cid:3)
Maturity or Estimated Repayment
One year or less
After one year to five years
After five years to ten years
After ten years
Total
Amortized
Cost
Estimated
Fair Value
(Dollars in thousands)
555,852 $
1,872,057
414,960
882,400
3,725,269 $
522,682
1,735,642
381,992
851,297
3,491,613
$
$
For purposes of this maturity or estimated repayment distribution, all investment securities AFS are shown based on their
contractual maturity date or estimated date of repayment, except (i) U.S. Government agency mortgage-backed securities are allocated
among various maturities or repayment categories based on an estimated repayment schedule utilizing third-party median prepayment
speeds or other estimates of prepayment speeds and interest rate levels at the measurement date and (ii) callable investment securities
for which the Bank has received notification of call are included in the maturity or repayment category in which the call occurs or is
expected to occur. Expected maturities may differ from contractual maturities because issuers have the right to call or prepay
obligations with or without call or prepayment penalties.
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The following table is a summary of sales activities of the Bank’s investment securities AFS during the years indicated.
Sales proceeds
Gross realized gains
Gross realized losses
Net gains on investment securities
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
$
$
24 $
— $
—
— $
591,570 $
— $
—
— $
273,963
4,467
—
4,467
At December 31, 2022 and 2021, the balance of the Bank’s trading securities totaled $8.8 million and $15.0 million,
respectively. During 2022, the Bank had net gains of $2.0 million from the sale of approximately $605.8 million of trading securities
compared to net gains of $0.5 million from the sale of approximately $128.9 million of trading securities in 2021.
Investment securities with carrying values of $0.93 billion and $1.52 billion at December 31, 2022 and 2021, respectively, were
pledged to secure public funds and trust deposits and for other purposes required or permitted by law.
At December 31, 2022 and 2021, the Bank had no holdings of investment securities of any one issuer, other than mortgage-
backed securities issued by the Federal National Mortgage Association and callable debentures issued by the Federal Home Loan
Bank, in an amount greater than 10% of total stockholders’ equity.
3. Total Loans
The following table is a summary of the total loan portfolio by principal category as of the dates indicated.
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Total real estate
Commercial and industrial
Consumer
Other
Total loans
December 31,
2022
2021
(Dollars in thousands)
981,567
$
4,665,268
8,215,056
239,689
1,503,398
15,604,978
902,321
2,445,851
1,825,641
$ 20,778,791
887,024
4.7 % $
22.5 3,782,892
39.5 8,246,674
247,727
1.2
934,845
7.2
75.1 14,099,162
510,784
4.3
11.8 2,185,429
8.8 1,512,450
100.0 % $ 18,307,825
4.8 %
20.7
45.0
1.4
5.1
77.0
2.8
11.9
8.3
100.0 %
At December 31, 2022, the Bank’s total loan portfolio consisted of 75.1% real estate loans, 4.3% commercial and industrial
loans, 11.8% consumer loans and 8.8% other loans. Real estate loans, its largest category of loans, include all loans made to finance
the development of real property construction projects, provided such loans are secured by real estate, and all other loans secured by
real estate as evidenced by mortgages or other liens.
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4. Allowance for Credit Losses (“ACL”) and Credit Quality Indicators
Allowance for Credit Losses
The following table is a summary of activity within the ACL during the years indicated.
Year ended December 31, 2022:
Balances – December 31, 2021
Net charge-offs
Provision for credit losses
Balances – December 31, 2022
Year ended December 31, 2021:
Balances – December 31, 2020
Net charge-offs
Provision for credit losses
Balances – December 31, 2021
Year ended December 31, 2020:
Balances – December 31, 2019
Adoption of CECL methodology
Balances – January 1, 2020
Net charge-offs
Provision for credit losses
Balances – December 31, 2020
Reserve for
Losses on
Unfunded
Loan
Commitments
(Dollars in thousands)
Total Allowance
for Credit
Losses
Allowance for
Loan Losses
$
$
$
$
$
$
217,380 $
(7,206 )
(1,316 )
208,858 $
71,609 $
—
84,810
156,419 $
295,824 $
(10,378 )
(68,066 )
217,380 $
81,481 $
—
(9,872 )
71,609 $
108,525 $
39,588
148,113
(29,371 )
177,082
295,824 $
— $
54,924
54,924
—
26,557
81,481 $
288,989
(7,206 )
83,494
365,277
377,305
(10,378 )
(77,938 )
288,989
108,525
94,512
203,037
(29,371 )
203,639
377,305
The calculations of the Bank’s provision for credit losses and its total ACL were based on a number of key estimates,
assumptions and economic forecasts. Management utilized recent economic forecasts provided by Moody’s, including their updates
released in December 2022. In selecting the weightings for the various economic scenarios for purposes of determining its ACL at
December 31, 2022, the Bank’s combined weightings assigned to the Moody’s S4 (Alternative Adverse Scenario) and S6 (Stagflation)
scenarios exceeded that of the Moody’s Baseline scenario, which had the largest single scenario weighting. The Bank’s selection and
weightings of these scenarios reflect its assessment of conditions in the U.S. economy, and acknowledged the uncertainty regarding
future U.S. economic conditions, including the elevated risk of a recession in the near-term, elevated inflationary pressures, increases
in the Fed funds target rate, prospects for shrinking the Federal Reserve balance sheet, the impacts of the ongoing war in Ukraine,
supply chain disruptions, global trade and geopolitical matters, the impacts of U.S. fiscal policy actions, uncertainties about the
COVID-19 pandemic, and various other factors. These forecasts included a number of economic variables, including gross domestic
product (“GDP”), unemployment rates, and commercial and residential real estate prices, among others. For purposes of the forecasts
used in the Bank’s CECL methodology, management utilized a reasonable and supportable forecast period of two years, followed by a
reversion, on a systematic basis, of estimated losses back to the Bank’s historical mean. Management also utilized certain qualitative
adjustments to capture items not fully reflected in the Bank’s modeled results.
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The following table is a summary of the Bank’s ACL for the years indicated.
Year ended December 31, 2022:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total ALL for funded loans
Reserve for losses on unfunded loan commitments
Total ACL
Year ended December 31, 2021:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total ALL for funded loans
Reserve for losses on unfunded loan commitments
Total ACL
Year ended December 31, 2020:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total ALL for funded loans
Reserve for losses on unfunded loan commitments
Total ACL
Beginning
Balance
Impact of
Adopting
CECL Charge-offs Recoveries Provision
(Dollars in thousands)
Ending
Balance
$
18,675 $ — $
79,524 —
54,036 —
3,070 —
6,424 —
8,017 —
37,430 —
10,204 —
217,380 —
71,609 —
$ 288,989 $ — $
(519 ) $
(7,780 )
(3 )
(36 )
—
(1,156 )
(4,797 )
(3,901 )
(18,192 )
—
(18,192 ) $
1,112 $
7,328
125
14
89
426
1,165
727
10,986
—
10,986 $
19,506
238 $
43,605
(35,467 )
69,858
15,700
3,512
464
5,345
(1,168 )
8,728
1,441
50,202
16,404
1,072
8,102
(1,316 ) 208,858
84,810 156,419
83,494 $ 365,277
$
26,655 $ — $
93,436 —
72,237 —
3,064 —
12,352 —
13,758 —
45,657 —
28,665 —
295,824 —
81,481 —
$ 377,305 $ — $
(287 ) $
(3,942 )
(176 )
(18 )
(377 )
(628 )
(6,585 )
(3,282 )
(15,295 )
—
(15,295 ) $
763 $
828
461
6
—
433
1,534
892
4,917
—
4,917 $
18,675
(8,456 ) $
79,524
(10,798 )
54,036
(18,486 )
3,070
18
6,424
(5,551 )
8,017
(5,546 )
37,430
(3,176 )
(16,071 )
10,204
(68,066 ) 217,380
(9,872 )
71,609
(77,938 ) $ 288,989
939 $
330
468
69
146
535
798
736
26,655
8,115 $
93,436
75,583
72,237
24,072
3,064
337
12,352
9,006
13,758
6,888
45,657
29,781
28,665
23,300
4,021 177,082 295,824
81,481
26,557
4,021 $ 203,639 $ 377,305
—
$
14,008 $ 4,004 $
17,289 12,587
26,295 21,427
1,719
978
5,477 (2,277 )
5,961 6,376
32,466 (5,870 )
5,310 2,363
108,525 39,588
— 54,924
$ 108,525 $ 94,512 $
(411 ) $
(12,353 )
(25 )
(39 )
—
(6,002 )
(11,518 )
(3,044 )
(33,392 )
—
(33,392 ) $
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The following table presents a summary of the Bank’s loans on nonaccrual status with ALL and loans on nonaccrual status with
no ALL as of the dates indicated.
(cid:3)
December 31, 2022:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
December 31, 2021:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)
Nonaccrual Loans
with ALL
Nonaccrual Loans
with No ALL
(Dollars in thousands)
Total
Nonaccrual
$
$
$
$
22,319 $
16,851
402
860
—
1,321
2,673
—
44,426 $
20,429 $
14,895
452
920
260
2,127
2,418
1
41,502 $
561 $
4,721
735
—
—
—
—
—
6,017 $
1,418 $
721
622
—
—
2
—
—
2,763 $
22,880
21,572
1,137
860
—
1,321
2,673
—
50,443
21,847
15,616
1,074
920
260
2,129
2,418
1
44,265
Interest income on nonperforming loans as of December 31, 2022, 2021 and 2020 is recognized on a cash basis when and if
actually collected. Total interest income recognized on nonperforming loans during 2022, 2021 and 2020 was not material.
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Credit Quality Indicators
The following table provides the credit quality indicators for the Bank’s total loans by loan segment and period of origination as
of the date indicated. At December 31, 2022, the Bank had no loans risk rated as doubtful or loss. Loans are presented on an amortized
cost basis which includes unamortized fees and costs but excludes accrued interest.
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
December 31, 2022:
Residential 1-4 family (1):(cid:3)
Pass
Special Mention
Substandard
Total residential
1-4 family
Non-farm/non-residential:
Pass
Special Mention
Substandard
Total non-farm/
non-residential
Construction/land
development:
Pass
Special Mention
Substandard
Total construction/
land development
Agricultural:
Pass
Special Mention
Substandard
Total agricultural
Multifamily residential:
Pass
Special Mention
Substandard
Total multifamily
residential
Commercial and industrial
(1):(cid:3)
Pass
Special Mention
Substandard
Total commercial
and industrial
Consumer (1):(cid:3)
Pass
Special Mention
Substandard
Total consumer
Other (1):(cid:3)
Pass
Special Mention
Substandard
Total other
Total
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
$
Period of Origination
2022
2021
Year Ended December 31,
2020
2019
(Dollars in thousands)
2018
Revolving
Loans
Prior to
January 1, Amortized
Cost Basis
2018
Total
250,115 $
171
50
172,443 $
865
1,108
108,189 $
1,249
3,086
71,510 $
1,033
6,804
$
44,173
1,079
2,472
185,648
2,117
10,170
$
118,812
369
104
$
950,890
6,883
23,794
250,336
174,416
112,524
79,347
47,724
197,935
119,285
981,567
611,037
—
—
776,217
1,541
—
1,505,902
9,096
248
282,867
5,881
902
297,288
—
1,227
1,062,825
59,461
28,632
22,144
—
—
4,558,280
75,979
31,009
611,037
777,758
1,515,246
289,650
298,515
1,150,918
22,144
4,665,268
2,125,211
—
—
2,443,913
63,236
—
1,664,347
—
71
1,110,550
5,119
773
91,836
—
—
338,845
1,228
516
327,651
—
41,760
8,102,353
69,583
43,120
2,125,211
2,507,149
1,664,418
1,116,442
91,836
340,589
369,411
8,215,056
50,609
—
—
50,609
31,273
—
—
56,020
—
—
56,020
61,809
—
—
33,694
28
—
33,722
415,330
—
—
43,781
—
—
43,781
672,578
—
—
33,497
—
322
33,819
185,122
—
—
19,886
—
538
20,424
134,206
—
53
1,314
—
—
1,314
3,027
—
—
238,801
28
860
239,689
1,503,345
—
53
31,273
61,809
415,330
672,578
185,122
134,259
3,027
1,503,398
163,627
—
—
73,576
251
28
31,481
440
173
22,123
2,758
674
44,929
2,306
3
20,527
285
508
536,981
1,627
24
893,244
7,667
1,410
163,627
73,855
32,094
25,555
47,238
21,320
538,632
902,321
751,455
386
267
752,108
424,527
165
5
424,697
142,437
129
135
142,701
422,554
742
606
423,902
378,955
369
819
380,143
315,553
321
842
316,716
5,569
15
—
5,584
2,441,050
2,127
2,674
2,445,851
409,998
—
—
409,998
365
—
—
365
$ 4,394,199 $ 4,377,877 $ 4,057,522 $ 3,411,191 $ 1,084,762
302,173
—
—
302,173
759,936
—
—
759,936
141,466
21
—
141,487
13,379
—
—
13,379
$ 2,195,540
198,303
—
—
198,303
$ 1,257,700
1,825,620
21
—
1,825,641
$ 20,778,791
(1) The Bank does not risk rate its residential 1-4 family loans (including consumer construction loans and 1-4 family properties), consumer loans, and certain “other”
loans and certain of its commercial and industrial small business loans. However, for purposes of the above table, the Bank generally considers such loans to be
(i) pass – if they are performing and less than 30 days past due, (ii) special mention – if they are performing and 30 to 89 days past due or (iii) substandard – if
they are nonperforming or 90 days or more past due.
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The following table is a summary of credit quality indicators for the Bank’s total loans as of the dates indicated.
December 31, 2022:
Real estate:
Residential 1-4 family (1)(cid:3)
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial (1)(cid:3)
Consumer (1)(cid:3)
Other (1)(cid:3)
Total
December 31, 2021:
Real estate:
Residential 1-4 family (1)(cid:3)
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial (1)(cid:3)
Consumer (1)(cid:3)
Other (1)(cid:3)
Total
Pass
Special
Mention
Substandard
Total
(Dollars in thousands)
$
950,890 $
4,558,280
8,102,353
238,801
1,503,345
893,244
2,441,050
1,825,620
$ 20,513,583 $
$
857,517 $
3,700,202
8,200,366
246,312
925,165
504,800
2,181,174
1,512,391
$ 18,127,927 $
6,883 $
75,979
69,583
28
—
7,667
2,127
21
162,288 $
7,234 $
56,367
2,181
165
9,327
3,660
1,837
58
80,829 $
23,794 $
31,009
43,120
860
53
1,410
2,674
—
102,920 $
981,567
4,665,268
8,215,056
239,689
1,503,398
902,321
2,445,851
1,825,641
20,778,791
22,273 $
26,323
44,127
1,250
353
2,324
2,418
1
99,069 $
887,024
3,782,892
8,246,674
247,727
934,845
510,784
2,185,429
1,512,450
18,307,825
(1)
The Bank does not risk rate its residential 1-4 family loans (including consumer construction loans and 1-4 family properties), consumer loans,
and certain “other” loans and certain of its commercial and industrial small business loans. However, for purposes of the above table, the Bank
generally considers such loans to be (i) pass – if they are performing and less than 30 days past due, (ii) special mention – if they are
performing and 30 to 89 days past due or (iii) substandard – if they are nonperforming or 90 days or more past due.
The following categories of credit quality indicators are utilized by the Bank for its internal loan grading purposes.
Pass – Loans in this category exhibit minimal or moderate levels of risk and are not expected to result in loss.
Special Mention – Loans in this category have potential weaknesses that deserve management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit
position at some future date.
Substandard – Loans in this category are inadequately protected by the current sound worth and paying capacity of the obligor
or of the collateral pledged, if any. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss
if the deficiencies are not corrected.
Doubtful – Loans in this category have all the weaknesses inherent in those classified as substandard with the added
characteristics that weaknesses make collection in full, on the basis of currently known facts, conditions, and values, highly
questionable and improbable.
Loss – Loans in this category are considered uncollectible. Loans classified as loss do not mean the loan has absolutely no
recovery or salvaged value but rather it is not practical or desirable to delay charging off.
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The following table is an aging analysis of past due loans as of the dates indicated.
December 31, 2022:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
December 31, 2021:
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Multifamily residential
Commercial and industrial
Consumer
Other
Total
30-59 Days(cid:3)
Past Due (1) (cid:3)(cid:3)
60-89 Days(cid:3)
Past Due(2) (cid:3)(cid:3)
90 Days(cid:3)
or More (3) (cid:3)(cid:3)
Total
Past Due
(Dollars in thousands)
(cid:3)(cid:3) Current(4)(cid:3)
(cid:3)(cid:3)
Total
$
$
$
$
8,476 $
1,368
91
—
—
268
1,877
21
12,101 $
3,925 $
904
—
—
—
1,282
429
—
6,540 $
4,269 $
3,463
778
455
—
941
220
—
10,126 $
16,670 $
981,567
964,897 $
5,735 4,659,533 4,665,268
869 8,214,187 8,215,056
239,689
239,234
455
— 1,503,398 1,503,398
2,491
902,321
899,830
2,526 2,443,325 2,445,851
21 1,825,620 1,825,641
28,767 $ 20,750,024 $ 20,778,791
6,395 $
2,816
986
23
—
4
1,485
58
11,767 $
3,497 $
5,123
—
—
—
21
675
—
9,316 $
5,703 $
2,130
—
475
260
1,793
14
—
10,375 $
15,595 $
887,024
871,429 $
10,069 3,772,823 3,782,892
986 8,245,688 8,246,674
247,727
247,229
498
934,845
934,585
260
1,818
510,784
508,966
2,174 2,183,255 2,185,429
58 1,512,392 1,512,450
31,458 $ 18,276,367 $ 18,307,825
(1) Includes $3.8 million and $3.4 million of loans on nonaccrual status at December 31, 2022 and 2021, respectively.
(2) Includes $3.8 million and $2.2 million of loans on nonaccrual status at December 31, 2022 and 2021, respectively.
(3) All loans greater than 90 days past due were on nonaccrual status at December 31, 2022 and 2021, respectively.
(4) Includes $32.7 million and $28.3 million of loans on nonaccrual status at December 31, 2022 and 2021, respectively.
5. Foreclosed Assets
The following table is a summary of the amount and type of foreclosed assets as of the dates indicated.
Real estate:
Residential 1-4 family
Non-farm/non-residential
Construction/land development
Agricultural
Total real estate
Consumer
Total foreclosed assets
December 31,
2022
2021
(Dollars in thousands)
$
$
— $
6,133
11
—
6,144
472
6,616 $
—
2,786
1,990
701
5,477
267
5,744
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The following table is a summary of activity within foreclosed assets during the years indicated.
Balance – beginning of year
Loans and other assets transferred into foreclosed assets
Sales of foreclosed assets
Writedowns of foreclosed assets
Balance – end of year
6. Premises and Equipment
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
$
5,744 $
13,151
(11,224 )
(1,055 )
6,616 $
11,085 $
15,435
(17,315 )
(3,461 )
5,744 $
19,096
21,703
(26,045 )
(3,669 )
11,085
The following table is a summary of premises and equipment as of the dates indicated.
Land
Construction in process
Buildings and improvements
Leasehold improvements
Equipment
Lease right-of-use assets
Gross premises and equipment
Accumulated depreciation
Premises and equipment, net
December 31,
2022
2021
(Dollars in thousands)
145,519 $
—
474,658
21,627
162,549
83,015
887,368
(208,963 )
678,405 $
145,387
7,454
474,078
18,617
141,907
83,751
871,194
(175,337 )
695,857
$
$
Interest capitalized by the Bank on construction projects totaled $0.1 million during 2022 and 2021 and $0.9 million during
2020.
7. Leases
The Bank’s right-of-use asset (net of accumulated depreciation), which totaled $53.7 million and $61.4 million at December 31,
2022 and 2021, respectively, is included in premises and equipment, and the Bank’s lease liability, which totaled $56.5 million and
$64.1 million at December 31, 2022 and 2021, respectively, is included in accrued interest payable and other liabilities on the Bank’s
consolidated balance sheet. At both December 31, 2022 and 2021, the Bank’s leases were comprised primarily of building and ground
leases associated with certain branch locations or loan production offices. A portion of the Bank’s leases are tied to the consumer price
index and rent escalations associated with these leases are measured on a periodic basis. The majority of the Bank’s lease agreements
do not contain residual value guarantees or restricted covenants. In addition, many of the Bank’s ground leases contain renewal
options. If the Bank is reasonably certain that such options will be exercised, the Bank has included the effects of extending these
ground leases in the determination of the lease term.
The Bank incurred $10.1 million, $10.4 million and $10.8 million during 2022, 2021 and 2020, respectively, in operating cost
that is included in net occupancy and equipment expense in the Bank’s consolidated statements of income. The Bank’s variable lease
costs were not material for the year ended December 31, 2022, 2021 or 2020. The Bank’s weighted average remaining life for its
right-of-use lease assets were 17.3 years, 16.1 years and 15.9 years at December 31, 2022, 2021 and 2020, respectively. The Bank’s
weighted average interest rate for its lease liability was 3.1%, 3.0% and 3.1% at December 31, 2022, 2021 and 2020, respectively.
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The following table is a summary, as of the date indicated, of future amounts due under these non-cancelable leases.
2023
2024
2025
2026
2027
Thereafter
Total minimum lease payments
Less imputed interest
Total operating lease liabilities
8. Deposits
December 31, 2022
(Dollars in thousands)
8,267
6,627
5,526
5,135
5,038
49,479
80,072
(23,604 )
56,468
$
$
The following table is a summary of the scheduled maturities of time deposits as of the dates indicated.
Up to one year
Over one to two years
Over two to three years
Over three to four years
Over four to five years
Thereafter
Total time deposits
December 31,
2022
2021
(Dollars in thousands)
$
$
4,781,584 $
2,040,071
68,730
34,667
10,793
130
$
6,935,975
4,973,587
742,367
176,802
47,495
39,268
100
5,979,619
The aggregate amount of time deposits that meet or exceed $250,000 was $1.54 billion and $1.65 billion at December 31, 2022
and 2021, respectively.
9. Borrowings
Borrowings with original maturities less than one year include FHLB advances, federal funds purchased and to a lesser extent,
repurchase agreements with customers. The following table is a summary of information relating to our FHLB borrowings as of the
dates indicated. The following table excludes repurchase agreements.
Average annual balance
December 31 balance
Maximum month-end balance during year
Interest rate:
Weighted-average – year
Weighted-average – December 31
$
December 31,
2022
2021
(Dollars in thousands)
297,864 $
600,000
1,125,000
5
—
—
3.44 %
4.43 %
0.43 %
—
At December 31, 2022, the Bank had FHLB advances with original maturities one year or greater, as shown in the following
table.
Borrowing Type
FHLB advances
Balance
Interest Rate
(Dollars in thousands)
Maturity
Date
$
9
2.37 %
March 1, 2023
The Bank’s FHLB rate advances are collateralized by a blanket lien on a substantial portion of the Bank’s real estate loans and
are subject to prepayment penalties if repaid prior to maturity date. At December 31, 2022, the Bank had $5.06 billion of unused
FHLB borrowing availability.
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10. Subordinated Notes
On September 16, 2021, the Bank completed its public offering of $350 million in aggregate principal amount of its 2.75%
Fixed-to-Floating rate Subordinated Notes (the “2.75% Notes”) due 2031, which bear interest at a fixed rate of 2.75% per annum until
September 30, 2026. On October 1, 2026, the 2.75% Notes will bear interest at a floating rate equal to a benchmark (which is expected
to be three-month term SOFR) plus 209 basis points. The 2.75% Notes are unsecured, subordinated debt obligations and mature on
October 1, 2031. The underwriting discounts and offering expenses for these notes totaled $4.1 million and are being amortized over
the estimated holding period of five years as an increase to interest expense on the 2.75% Notes. As of December 31, 2022, the 2.75%
Notes had a carrying value of $346.9 million and remaining unamortized debt issuance cost of $3.1 million.
The Bank may, beginning with the interest payment date of October 1, 2026, and on any interest payment date thereafter,
redeem the 2.75% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2.75% Notes to be
redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. The Bank may also redeem the 2.75% Notes at
any time, including prior to October 1, 2026, at its option, in whole but not in part, if: (i) a change or prospective change in law occurs
that could prevent it from deducting interest payable on the 2.75% Notes for U.S. federal income tax purposes; (ii) a subsequent event
occurs that could preclude the 2.75% Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) the Bank is
required to register as an investment company under the Investment Company Act of 1940, as amended; in each case, at a redemption
price equal to 100% of the principal amount of the 2.75% Notes plus any accrued and unpaid interest to, but excluding, the redemption
date.
11. Subordinated Debentures
At December 31, 2022, the Bank had the following issues of trust preferred securities outstanding and subordinated debentures
owed to the Trusts.
Subordinated
Debentures Owed
to Trust
Unamortized
Discount
Carrying Value(cid:3)
of Subordinated
Debentures
(Dollars in thousands)
(cid:3)(cid:3)
Trust
Preferred
Securities
of the
Trusts
Contractual(cid:3)
Interest Rate (1) (cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
Final Maturity Date
Ozark II
Ozark III
Ozark IV
Ozark V
Intervest II
Intervest III
Intervest IV
Intervest V
Total
$
$
14,433 $
14,434
15,464
20,619
15,464
15,464
15,464
10,310
121,652 $
— $
—
—
—
(10 )
(11 )
(20 )
(19 )
(60 ) $
14,433 $
14,434
15,464
20,619
15,454
15,453
15,443
10,291
121,591 $
14,000
14,000
15,000
20,000
15,000
15,000
15,000
10,000
118,000
7.65 % (cid:3)(cid:3) September 29, 2033
7.03 (cid:3)(cid:3) September 25, 2033
6.91 (cid:3)(cid:3) September 28, 2034
6.37 (cid:3)(cid:3) December 15, 2036
7.69 (cid:3)(cid:3) September 17, 2033
7.53 (cid:3)(cid:3) March 17, 2034
7.15 (cid:3)(cid:3) September 20, 2034
6.42 (cid:3)(cid:3) December 15, 2036
(cid:3)(cid:3) (cid:3)(cid:3)
(1) The contractual rate for each of these trust preferred securities and related subordinated debentures is tied to a spread over LIBOR. As
previously discussed, most LIBOR tenors are expected to be phased out after June 2023. We do not expect that the phase out of LIBOR will
have a significant impact on our financial instruments tied to LIBOR, including our trust preferred securities and related subordinated
debentures. Subsequent to June 2023, the contractual rate for each of these trust preferred securities and related subordinated debentures will
convert to the three-month term SOFR plus the existing spread plus a spread adjustment of 0.26%.
On September 25, 2003, Ozark III sold to investors in a private placement offering $14 million of adjustable rate trust preferred
securities, and on September 29, 2003, Ozark II sold to investors in a private placement offering $14 million of adjustable rate trust
preferred securities (collectively, “2003 Securities”). The 2003 Securities bear interest, adjustable quarterly, at 90-day LIBOR plus
2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II. The aggregate proceeds of $28 million from the 2003 Securities were
used to purchase an equal principal amount of adjustable rate subordinated debentures of the Bank that bear interest, adjustable
quarterly, at 90-day LIBOR plus 2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II (collectively,“2003 Debentures”).
On September 28, 2004, Ozark IV sold to investors in a private placement offering $15 million of adjustable rate trust preferred
securities (“2004 Securities”). The 2004 Securities bear interest, adjustable quarterly, at 90-day LIBOR plus 2.22%. The $15 million
proceeds from the 2004 Securities were used to purchase an equal principal amount of adjustable rate subordinated debentures of the
Bank that bear interest, adjustable quarterly, at 90-day LIBOR plus 2.22% (“2004 Debentures”).
On September 29, 2006, Ozark V sold to investors in a private placement offering $20 million of adjustable rate trust preferred
securities (“2006 Securities”). The 2006 Securities bear interest, adjustable quarterly, at 90-day LIBOR plus 1.60%. The $20 million
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proceeds from the 2006 Securities were used to purchase an equal principal amount of adjustable rate subordinated debentures of the
Bank that bear interest, adjustable quarterly, at 90-day LIBOR plus 1.60% (“2006 Debentures”).
In addition to the issuance of these adjustable rate securities, Ozark II and Ozark III collectively sold $0.9 million, Ozark IV
sold $0.4 million and Ozark V sold $0.6 million of trust common equity to the Bank. The proceeds from the sales of the trust common
equity were used, respectively, to purchase $0.9 million of 2003 Debentures, $0.4 million of 2004 Debentures and $0.6 million of
2006 Debentures issued by the Bank.
On February 10, 2015, in conjunction with the acquisition of Intervest Bancshares Corporation (“Intervest”), the Bank acquired
Intervest II, Intervest III, Intervest IV and Intervest V with outstanding subordinated debentures totaling $56.7 million and related trust
preferred securities totaling $55.0 million. On the date of such acquisition, the Bank recorded the assumed subordinated debentures at
estimated fair value of $52.2 million, based on an independent third party valuation, to reflect a current market interest rate for
comparable obligations. The fair value adjustment of $4.5 million is being amortized over the estimated holding period of
approximately eight years as an increase in interest expense of the subordinated debentures. In addition to subordinated debentures,
the Bank also acquired $1.7 million of trust common equity.
The trust preferred securities issued by Intervest II and the related subordinated debentures bear interest, adjustable quarterly, at
90-day LIBOR plus 2.95%. The trust preferred securities issued by Intervest III and the related subordinated debentures bear interest,
adjustable quarterly, at 90-day LIBOR plus 2.79%. The trust preferred securities issued by Intervest IV and the related subordinated
debentures bear interest, adjustable quarterly, at 90-day LIBOR plus 2.40%. The trust preferred securities issued by Intervest V and
the related subordinated debentures bear interest, adjustable quarterly, at 90-day LIBOR plus 1.65%.
As previously stated, subsequent to June 30, 2023, the interest rates on all of our trust preferred securities will convert to a
three-month term SOFR plus the existing spread plus a spread adjustment of 0.26%.
At December 31, 2022, the Bank had an aggregate of $121.7 million of subordinated debentures outstanding (with an aggregate
carrying value of $121.6 million) and had an asset of $3.7 million representing its investment in the common equity issued by the
Trusts. The sole assets of the Trusts are the adjustable rate debentures and the liabilities of the Trusts are the trust preferred securities.
At both December 31, 2022 and 2021, the Trusts had aggregate common equity of $3.7 million and did not have any restricted
net assets. The Bank has, through various contractual arrangements or by operation of law, fully and unconditionally guaranteed all
obligations of the Trusts with respect to the trust preferred securities. Additionally, there are no restrictions on the ability of the Trusts
to transfer funds to the Bank in the form of cash dividends, loans or advances. The Bank has the option to defer interest payments on
the subordinated debentures from time to time for a period not to exceed five consecutive years. These trust preferred securities
generally mature at or near the 30th anniversary date of each issuance. However, the trust preferred securities and related subordinated
debentures may be prepaid at par value, subject to regulatory approval.
12. Preferred Stock
On November 4, 2021 the Bank completed its public offering of 14,000,000 shares of 4.625% Series A Non-Cumulative
Perpetual Preferred Stock (the “Preferred Stock”), par value $0.01 per share, with a liquidation preference of $25 per share, which
represents $350 million in aggregate liquidation preference. The Preferred Stock offering generated net proceeds, after deducting the
initial purchaser discount and offering expenses, of $339.0 million. The Bank will pay cash dividends on the Preferred Stock, when,
as, and if declared by the Bank’s Board of Directors. Subject to declaration by the Bank’s Board of Directors, dividends will accrue
and be payable from the original date of issuance at a rate of 4.625% per annum, payable quarterly, in arrears, on February 15, May
15, August 15, and November 15 of each year, beginning on February 15, 2022. Dividends on the Preferred Stock will not be
cumulative or mandatory. During 2022, the Bank paid dividends totaling $16.6 million on the Preferred Stock.
The Bank may redeem the Preferred Stock at its option, subject to regulatory approval, at a redemption price equal to $25 per
share, plus any declared and unpaid dividends (without regard to any undeclared dividends), to, but excluding, the redemption date, (i)
in whole or in part, from time to time, on any Dividend Payment Date on or after November 15, 2026, or (ii) in whole, but not in part,
at any time within 90 calendar days following a regulatory capital treatment event (as defined in the Bank’s articles of amendment
regarding the Preferred Stock).
With respect to payment of dividends and rights upon the Bank’s liquidation, dissolution or winding up, the Preferred Stock
ranks (i) senior to the Bank’s common stock and any other class or series of preferred stock that, by its terms, ranks junior to the
Preferred Stock, (ii) equally with any future class or series of preferred stock that does not by its terms rank junior or senior to the
Preferred Stock, and (iii) junior to existing and future indebtedness and other liabilities and any class or series of preferred stock that
expressly provides in the articles of amendment creating such class or series of preferred stock that it ranks senior to the Preferred
Stock (subject to any requisite consents or approvals prior to issuance). The Preferred Stock will not have voting rights, except in
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certain limited circumstances and as otherwise required by applicable law. As a result of the Bank’s Preferred Stock offering, the
Preferred Stock is included in tier 1 capital, but not common equity tier 1 capital. The Preferred Stock shares are listed on the
NASDAQ Global Select Market under the symbol “OZKAP.”
13. Income Taxes
The following table is a summary of the components of the provision (benefit) for income taxes for the years indicated.
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Provision for income taxes
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
$
67,568 $
26,048
93,616
49,024
14,800
63,824
157,440 $
179,930 $
55,166
235,096
(48,034 )
(13,174 )
(61,208 )
173,888 $
21,123
9,434
30,557
39,662
14,095
53,757
84,314
The following table is a summary of the reconciliation between the statutory federal income tax rate and effective income tax
rate for the years indicated.
Statutory federal income tax rate
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit
Effect of tax-exempt interest income
Effect of BOLI and other tax-exempt income
Federal income tax credits
Other, net
Effective income tax rate
(cid:3)(cid:3)
(cid:3)(cid:3)
2022
Year Ended December 31,
(cid:3)(cid:3)
2021
21.0 %
(cid:3)(cid:3)
21.0 %
2020
4.4
(0.7 )
(0.6 )
(2.6 )
0.3
21.8 %
4.3
(0.5 )
(0.6 )
(1.5 )
0.4
23.1 %
21.0 %
4.9
(1.2 )
(1.2 )
(2.0 )
0.9
22.4 %
In accordance with ASU 2016-09, income tax expense from the exercise of stock options and vesting of common stock under
the Bank’s restricted stock and incentive plan in the amount of $0.2 million, $0.8 million and $1.1 million were recorded as income
tax expense in 2022, 2021 and 2020, respectively.
At December 31, 2022 and 2021, current income taxes payable of $32.2 million and $11.2 million, respectively, were included
in other liabilities.
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The following table is a summary, as of the dates indicated, of the types of temporary differences between the tax basis of assets
and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities and their approximate tax
effects.
Deferred tax assets:
Investment securities AFS
Differences in amounts reflected in the financial statements
and income tax basis for loans
Operating lease liability
Stock-based compensation
Deferred compensation
Foreclosed assets
Net operating loss and tax credit carryforwards
Total gross deferred tax assets
Less valuation allowance
Deferred tax asset, net of valuation allowance
Deferred tax liabilities:
Differences in amounts reflected in the financial statements
and income tax basis for loans
Accelerated depreciation on premises and equipment
Deferred loan costs
Acquired intangible assets
Investment securities AFS
Operating lease right-of-use asset
Other, net
Total gross deferred tax liabilities
Net deferred tax liabilities
December 31,
2022
2021
(Dollars in thousands)
$
55,536
—
—
14,543
10,831
2,510
318
7,970
91,708
(536 )
91,172
23,650
31,260
40,285
1,301
—
13,819
5,477
115,792
(24,620 ) $
35,223
16,710
11,973
2,745
882
9,042
76,575
(536 )
76,039
—
32,997
37,815
1,469
8,105
16,022
4,058
100,466
(24,427 )
$
Federal net operating loss carryforwards were acquired in certain of the Bank’s acquisitions. Such federal net operating loss
carryforwards acquired totaled $80.9 million, of which $34.8 million remained to be utilized as of December 31, 2022 and will expire
at various dates beginning in 2029 to 2034.
State net operating loss carryforwards were acquired in previous acquisitions. Such state net operating loss carryforwards
acquired totaled $116.2 million, of which $28.3 million remained to be utilized as of December 31, 2022 and will expire at various
dates beginning in 2025 to 2031.
At both December 31, 2022 and 2021, the Bank had a deferred tax valuation allowance of $0.5 million to reflect its assessment
that the realization of the benefits from the recovery of certain acquired net operating loss carryforwards are expected to be subject to
the limitations pursuant to Section 382 of the Internal Revenue Code (“IRC”), or the equivalent state statute.
14. Employee Benefit Plans
The Bank maintains a qualified retirement plan (the “401(k) Plan”) with a salary deferral feature designed to qualify under
Section 401 of the IRC. The 401(k) Plan permits employees of the Bank to defer a portion of their compensation in accordance with
the provisions of Section 401(k) of the IRC. The Bank’s 401(k) Plan qualifies as a Safe-Harbor Cost or Deferred Arrangement (“Safe-
Harbor CODA”). As a result, (i) certain key employees are eligible to make salary deferrals into the 401(k) Plan, (ii) the 401(k) Plan is
not subject to any provisions of the average deferral percentage test described in IRC Section 401(k)(3) or the average contribution
percentage test described in IRC Section 401(m)(2), (iii) the basic matching contribution is (a) 100% of the amount of the employee’s
deferrals that do not exceed 3% of the employee’s compensation for the year plus (b) 50% of the amount of the employee’s elective
deferrals that exceed 3% but do not exceed 5% of the employee’s compensation for the year, and (iv) all employer matching
contributions made under the provisions of the Safe-Harbor CODA are non-forfeitable. Certain other statutory limitations with respect
to the Bank’s contribution under the 401(k) Plan also apply.
Contributions to the 401(k) Plan are invested in accordance with participant elections among certain investment options.
Distributions from participant accounts are not permitted before age 65, except in the event of death, permanent disability, or
termination of employment. The Bank made matching cash contributions to the 401(k) Plan during 2022, 2021 and 2020 of $6.3
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million, $5.9 million and $6.0 million, respectively. The 401(k) Plan also provides for participant loans, subject to certain provision
and limitations.
The Bank also maintains the Bank OZK Deferred Compensation Plan (the “Plan”), which is an unfunded deferred compensation
arrangement for the group of employees designated as key employees, including certain of the Bank’s executive officers and is
considered a general obligation of the Bank. Under the terms of the Plan, eligible participants may elect to defer a portion of their
compensation. Such deferred compensation is distributable in lump sum or specified installments upon separation from service with
the Bank or upon other specified events as defined in the Plan. The Bank does not make any contribution to the Plan for the benefit of
each participant or otherwise. Amounts deferred under the Plan are invested in certain approved investments (excluding securities of
the Bank or its affiliates). At December 31, 2022 and 2021, respectively, the Bank had Plan assets, along with an equal amount of
liabilities, totaling $6.3 million and $7.5 million, recorded on the accompanying consolidated balance sheet.
The Bank has a Supplemental Executive Retirement Plan (“SERP”) and certain other benefit arrangements for its Chairman and
Chief Executive Officer. Pursuant to the SERP, this officer is entitled to receive 180 equal monthly payments of $32,197, or $386,360
annually, commencing at the later of obtaining age 70 or separation from service. If employment continues past age 70, such benefit
will commence at an increased amount upon separation from service, and if separation from service occurs prior to age 70, such
benefit will be at a reduced amount. The costs of such benefits, assuming a retirement date at age 70, will be fully accrued by the Bank
at such retirement date. The Bank accrued $0.4 million during the years ended December 31, 2022, 2021 and 2020 for the future
benefits payable under the SERP. The SERP is an unfunded plan and is considered a general contractual obligation of the Bank.
15. Stock-Based Compensation
On May 6, 2019 (the “Effective Date”), the Bank’s shareholders approved the Bank OZK 2019 Omnibus Equity Incentive Plan
(the “Omnibus Plan”). The Omnibus Plan replaced the Nonqualified Stock Option Plan for officers and employees (“Option Plan”),
the Restricted Stock and Incentive Plan for officers and employees (“2009 Plan”) and the Non-Employee Director Stock Plan
(“Director Plan” and together with the Option Plan and the 2009 Plan, the “Prior Plans”). After the Effective Date of the Omnibus
Plan, no new awards may be granted under the Prior Plans, it being understood that (i) outstanding awards will continue to be
governed by the terms and conditions of the Prior Plan under which they were granted, and (ii) to the extent that any outstanding
award under the Prior Plans is forfeited, terminates, expires or lapses without shares being issued, the shares subject to such award not
delivered as a result thereof will be available for awards under the Omnibus Plan. Directors, executive officers and employees are
eligible to participate in the Omnibus Plan, and the total number of shares available for grant is 3,400,000, subject to adjustment as
described in the Omnibus Plan. Awards granted under the Omnibus Plan may be in the form of stock options, stock appreciation
rights, restricted stock, restricted stock units, or other stock-based awards and must contain a minimum vesting period of at least one
year from the date of grant (provided that awards for up to 5% of the shares of common stock authorized for issuance under the
Omnibus Plan may provide for a shorter vesting period at the time of grant). The Omnibus Plan provides that a non-employee director
may not receive stock awards with a grant date fair market value in excess of $100,000 worth of shares during any calendar year. The
benefits received by or allocated to directors, executive officers or employees under the Omnibus Plan are determined within the
discretion of the Governance and Compensation Committee (“Compensation Committee”) of the Board of Directors.
The Bank previously had a nonqualified stock option plan for non-employee directors. All options previously granted under this
plan were exercisable immediately and expire ten years after issuance.
All employee options previously granted under the Option Plan and outstanding at December 31, 2022 were issued with a
vesting date three years after issuance and an expiration date seven years after issuance. No stock options were granted under the
Omnibus Plan during the year ended December 31, 2022.
The following table summarizes stock option activity for the year indicated.
Weighted-
Average
Exercise
Price/Share
Weighted-
Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
(in thousands)
Options
Outstanding – January 1, 2022
Granted
Exercised
Forfeited/Expired
Outstanding – December 31, 2022
Fully vested and exercisable at December 31, 2022
1,253,604 $
—
(81,560 )
(431,265 )
740,779
740,779 $
48.14
—
30.56
52.24
47.68
47.68
(1) Based on closing price of $40.06 per share on December 30, 2022 (the last trading day of 2022).
2.0 $
2.0 $
1,263 (1)
1,263 (1)
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Intrinsic value for stock options is defined as the amount by which the current market price of the underlying stock exceeds the
exercise price. For those stock options where the exercise price exceeds the current market price of the underlying stock, the intrinsic
value is zero. The total intrinsic value of options exercised during 2022 and 2021 was $1.2 million and $1.6 million, respectively.
No options to purchase shares were granted in 2022, 2021 or 2020. The fair value for each option grant is estimated on the date
of grant using the Black-Scholes option pricing model. The Bank used the U.S. Treasury yield curve in effect at the time of the grant
to determine the risk-free interest rate. The expected dividend yield was estimated using the current annual dividend level and recent
stock price of the Bank’s common stock at the date of grant. Expected stock volatility was based on historical volatilities of the Bank’s
common stock. The expected life of the options is calculated based on the “simplified” method as provided for under Securities and
Exchange Commission (“SEC”) Staff Accounting Bulletin No. 110.
The total fair value of options to purchase shares of the Bank’s common stock that vested during 2022, 2021 and 2020 was $1.4
million, $5.1 million and $6.4 million, respectively. Stock-based compensation expense for stock options included in non-interest
expense was not material for 2022 compared to $0.4 million and $1.9 million for 2021 and 2020, respectively. Total unrecognized
compensation cost related to non-vested stock option grants was not material at December 31, 2022.
During 2022, the Bank issued 203,863 shares of restricted common stock to employees under the Omnibus Plan. These grants
of restricted stock cliff vest 100% three years after issuance, assuming continuous employment by the participant during this period.
During 2022, the Bank also issued 20,416, or $70,000 worth of shares per recipient rounded down to the nearest whole share, of
restricted common stock to directors under the Omnibus Plan, which cliff vest 100% one year after issuance.
The following table summarizes non-vested restricted stock activity related to the 2009 Plan, Director Plan and Omnibus Plan
for the year indicated.
Year Ended December 31, 2022:
Outstanding – January 1, 2022
Granted
Forfeited
Vested
Outstanding – December 31, 2022
Weighted-average grant date fair value
(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)
2009 and
Director Plans
Omnibus Plan
Total of
All Plans
290,954
—
(789 )
(290,165 )
—
— $
647,495
224,279
(81,608 )
(30,233 )
759,933
36.74 $
938,449
224,279
(82,397 )
(320,398 )
759,933
36.74
$
Restricted stock awards totaling 224,279 shares with a weighted-average grant date fair value of $46.31 were granted pursuant
to the Omnibus Plan during 2022. The fair value of the restricted stock awards is amortized to compensation expense over the vesting
period and is based on the market price of the Bank’s common stock at the date of grant multiplied by the number of shares granted.
Stock-based compensation expense for restricted stock included in non-interest expense was $9.0 million, $9.6 million and $10.0
million for 2022, 2021 and 2020, respectively. Unrecognized compensation expense for non-vested restricted stock awards was $10.2
million at December 31, 2022 and is expected to be recognized over a weighted-average period of 1.7 years.
In January 2019, pursuant to the Omnibus Plan, the Bank’s Compensation Committee awarded its executive officers an
aggregate of 170,003 performance-based restricted stock units (“PSUs”). In January 2020, 2021 and 2022, pursuant to the Omnibus
Plan, the Compensation Committee awarded to its executive officers an aggregate of 175,065 PSUs, 133,041 PSUs and 135,625 PSUs,
respectively. All PSU grants are based on target performance, with each PSU representing the right to receive one share of common
stock at a future date. The PSUs granted contain both performance and market conditions. The PSUs will be earned and vest
depending on the Bank’s relative performance with respect to total shareholder return (“TSR”), return on average common equity
(“ROAE”) and return on average assets (“ROAA”), over a three-year period, compared to the companies that comprise the KBW
Regional Banking Index (“KRX”) at January 1 of the respective award year (for the TSR component) and compared to the Bank’s
executive compensation peer group in the fiscal year prior to the award (for the ROAE and ROAA component) over a three-year
period. Measurement is determined on a percentile basis relative to the KRX or the Bank’s peer group. For each metric, if the Bank’s
performance over the performance period is: (i) at or below the 25th percentile compared to the applicable peer group, no PSUs for that
metric would be earned; (ii) at threshold performance (26th percentile), 4% of the target would be earned; (iii) at target performance
(50th percentile), 100% of the target would be earned; (iv) at the 75th percentile, 150% of the target would be earned; and (v) at
maximum performance (95th percentile), 200% of the target would be earned. Achievement of results between levels previously
described will result in award payouts determined based on a linear interpolation between payout levels. In the event the Bank’s TSR
over the performance period is negative, no more than 100% of the target PSUs for the relative TSR component will be earned, and
the value of a PSU earned at the end of the performance period for the relative TSR component cannot exceed six times (6x) the grant
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date stock price. The PSUs contain a three-year vesting period followed by a one-year post-vest hold period and are eligible to accrue
dividend equivalents that are subject to the same vesting criteria as the underlying PSUs.
The fair value of the PSUs granted is amortized to compensation expense over the vesting period. In determining PSUs fair
value, since the PSUs granted contain a one-year post-vest hold period, an estimated discount for illiquidity was applied to the market
price of the Bank’s stock. The fair value of each PSU grant is estimated on the date of grant using various valuation and liquidity
models. The following table is a summary of the key assumptions used in those models.
Risk-free interest rate
Expected dividend yield
Expected stock volatility
Post-vest hold period
2022
Year Ended December 31,
2021
2020
0.70 %
2.52 %
29.85 %
1 year
0.09 %
2.86 %
67.45 %
1 year
1.52 %
3.70 %
30.86 %
1 year
The following table summarizes non-vested PSU activity at target for the year indicated.
Outstanding – January 1, 2022
Granted
Forfeited
Vested
Outstanding – December 31, 2022
PSUs
434,509
135,625
(79,148 )
(131,052 )
359,934
The following table is a summary of the valuation date stock price index and the weighted average grant date fair values for
TSR, ROAE and ROAA for the PSUs granted in the years indicated.
TSR
ROAE
ROAA
Valuation stock price index - TSR
Valuation stock price index - ROAE & ROAA
Estimated discount for illiquidity (1)(cid:3)
$
2022
Year Ended December 31,
2021
2020
$
41.78
42.14
42.14
99 %
100 %
11.5 %
$
38.41
33.20
33.20
116 %
100 %
14.5 %
25.03
24.88
24.88
101 %
100 %
11.5 %
(1) Because of the expected stock price volatility on shares of OZK and the one-year post-vest holding period associated with the PSUs,
the Bank has estimated an illiquidity discount using widely accepted option pricing models.
Compensation expense for PSU awards included in non-interest expense was $4.2 million for 2022, $6.0 million for 2021 and
$2.9 million for 2020. Unrecognized compensation expense for non-vested PSU awards was $5.4 million at December 31, 2022 and is
expected to be recognized over a weighted-average period of 1.7 years.
On January 26, 2023, the Bank’s Compensation Committee awarded its executive officers an aggregate of 168,455 PSUs that
contain both performance and market conditions. The PSUs will be earned and vest depending on the Bank’s relative performance
with respect to TSR, ROAE and ROAA, over a three-year period, compared to the companies that comprise the KRX at January 1,
2023 (for the TSR component) and compared to the Bank’s 2022 executive compensation peer group (for the ROAE and ROAA
component) over the same three-year period. Measurement is determined on a percentile basis relative to the KRX or the Bank’s peer
group. For each metric, if the Bank’s performance over the performance period is: (i) at or below the 25th percentile compared to the
applicable peer group, no PSUs for that metric would be earned; (ii) at threshold performance (26th percentile), 4% of the target would
be earned; (iii) at target performance (50th percentile), 100% of the target would be earned; (iv) at the 75th percentile, 150% of the
target would be earned; and (v) at maximum performance (95th percentile), 200% of the target would be earned. Achievement of
results between levels previously described will result in award payouts determined based on a linear interpolation between payout
levels. In the event the Bank’s TSR over the performance period is negative, no more than 100% of the target PSUs for the relative
TSR component will be earned, and the value of a PSU earned at the end of the performance period for the relative TSR component
cannot exceed six times (6x) the grant date stock price. The PSUs contain a three-year vesting period followed by a one-year post-vest
hold period and are eligible to accrue dividend equivalents that are subject to the same vesting criteria as the underlying PSUs. The
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total compensation expense for the PSUs granted is expected to be approximately $6.9 million and is expected to be recognized over
the three year vesting period.
On February 23, 2023, the Compensation Committee approved the issuance of restricted stock awards for 231,795 shares of
restricted stock that vest on February 23, 2026. Total compensation expense for the restricted stock awards is expected to be
approximately $10.7 million and is expected to be recognized ratably over the three year vesting period.
16. Commitments and Contingencies
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments primarily include standby letters of credit and commitments to extend credit.
Outstanding standby letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of
a customer in third party borrowing arrangements. The maximum amount of future payments the Bank could be required to make
under these guarantees at December 31, 2022 and 2021 is $16.0 million and $16.8 million, respectively. The Bank holds collateral to
support guarantees when deemed necessary. Collateralized commitments at December 31, 2022 and 2021 totaled $15.3 million and
$16.1 million, respectively.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual amount of those instruments. The Bank has the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other termination clauses, may require payment of a fee and
may expire without being drawn upon. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the
counterparty. The type of collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and
other real or personal property.
At December 31, 2022, the Bank had outstanding commitments totaling $21.06 billion to extend credit, consisting primarily of
loans closed but not yet funded. These commitments may or may not fund in whole or part prior to maturity; however, such funding is
subject to a number of factors, including, among others, economic conditions, real estate market conditions and competitive factors.
The following table shows the contractual maturities of such outstanding commitments as of the date indicated.
Maturity
2023
2024
2025
2026
2027
Thereafter
Total
Contractual Maturities at December 31, 2022
(Dollars in thousands)
Amount
$
$
1,926,894
3,760,276
7,358,776
7,657,030
79,328
280,429
21,062,733
We also have investments in certain CRA and tax credit investments and partnerships generally within the areas we serve. The
majority of these investments provide funds for the construction and development of affordable housing. Many of these investments
provide tax credits which are normally recognized over seven to 15 years and are an important part in the anticipated yield from these
investments. Under the terms of the various investment agreements, as of December 31, 2022, approximately $160.1 million have
been funded and are included in “other assets” on our consolidated balance sheet. The portion of the commitments that are unfunded
totaled approximately $202.2 million at December 31, 2022 and are expected to be funded over the terms of the agreements ranging
from 2023 to 2038. We also have investments in Small Business Investment Companies. that provide funds to qualifying small
businesses, and renewable energy projects.
The Bank is a party as both plaintiff and defendant in various legal or regulatory proceedings or claims, including claims related
to employment, wage-hour and labor law claims, consumer and privacy claims, as well as claims of lender liability, breach of contract,
and other similar lending-related claims encountered on a routine basis, some of which may be styled as “class action” or
representative cases. While the ultimate resolution of these ordinary course claims and proceedings cannot be determined at this time,
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management believes that such claims and proceedings, individually or in the aggregate, will not have a material adverse effect on the
Bank’s financial condition or results of operations.
17. Related Party Transactions
The Bank has, in the ordinary course of business, lending transactions with certain of its officers, directors and their related and
affiliated parties (“related parties”). The following table is a summary of activity of loans to related parties for the years indicated.
Balance – beginning of year
New loans and advances
Repayments
Effect of change in composition of related parties
Balance – end of year
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
$
1 $
—
—
(1 )
— $
1 $
—
—
—
1 $
221
—
(220 )
—
1
The Bank had no outstanding commitments to extend credit to related parties at December 31, 2022 and $0.5 million of
outstanding commitments to extend credit to related parties as of December 31, 2021.
18. Regulatory Capital and Other Matters
The Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Bank’s financial condition and results of operations. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures
of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital
amounts and classification are also subject to qualitative judgments and adjustments by the regulators about component weightings
and other factors.
In recent years, the FDIC and other federal banking regulators revised the risk-based capital requirements applicable to insured
depository institutions, including the Bank, to make them consistent with agreements that were reached by the Basel Committee on
Banking Supervision (“Basel III”) and certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Basel III Rules”). The Basel III Rules require the maintenance of minimum amounts and ratios of common equity tier 1 capital, tier 1
capital and total capital to risk-weighted assets, and of tier 1 capital to adjusted quarterly average assets.
Under the Basel III Rules, common equity tier 1 capital consists of common stock and paid-in capital (net of treasury stock) and
retained earnings. Common equity tier 1 capital is reduced by goodwill, certain intangible assets, net of associated deferred tax
liabilities, deferred tax assets that arise from tax credit and net operating loss carryforwards, net of any valuation allowance, and
certain other items as specified by the Basel III Rules.
Tier 1 capital includes common equity tier 1 capital and certain additional tier 1 items as provided under the Basel III Rules. At
December 31, 2022 and 2021, the Bank’s Preferred Stock was counted as tier 1 capital, but not as common equity tier 1 capital.
Total capital includes tier 1 capital and tier 2 capital. Tier 2 capital includes, among other things, the allowable portion of the
ACL, the trust preferred securities and the 2.75% Notes.
The common equity tier 1 capital, tier 1 capital and total risk-based capital ratios are calculated by dividing the respective
capital amounts by risk-weighted assets. The leverage ratio is calculated by dividing tier 1 capital by adjusted quarterly average total
assets.
In connection with the adoption of CECL, the FDIC and other banking regulators allowed depository institutions various
alternatives on accounting and reporting for regulatory and Call Report purposes regarding the initial effect of adoption of CECL.
Those alternatives included (i) taking the full effects of the adoption of CECL as an adjustment to regulatory capital, (ii) phasing in the
effects of the adoption of CECL over a three-year period, or (iii) deferring for two years the effects of the adoption of CECL, followed
by a three-year phase-in period. The Bank elected to phase in the effects of CECL over a three-year period (without the two-year
deferral) to lessen the impact of the adoption of CECL on its regulatory capital and regulatory capital ratios.
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The Basel III Rules limit capital distributions and certain discretionary bonus payments if the banking organization does not
hold a “capital conservation buffer” in addition to the amount necessary to meet minimum risk-based capital requirements for
common equity tier 1 capital, tier 1 capital and total capital to risk-weighted assets. At December 31, 2022 and December 31, 2021,
the Basel III Rules required the Bank to maintain (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of at
least 4.5%, plus a 2.5% capital conservation buffer, which effectively results in a minimum ratio of 7.0%, (ii) a minimum ratio of tier
1 capital to risk-weighted assets of at least 6.0%, plus a 2.5% capital conservation buffer, which effectively results in a minimum ratio
of 8.5%, (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus a 2.5% capital conservation buffer, which
effectively results in a minimum ratio of 10.5%, and (iv) a minimum leverage ratio of 4.0%. Additionally, in order to be considered
well-capitalized under the Basel III Rules, the Bank must maintain (i) a ratio of common equity tier 1 capital to risk-weighted assets of
at least 6.5%, (ii) a ratio of tier 1 capital to risk-weighted assets of at least 8.0%, (iii) a ratio of total capital to risk-weighted assets of
at least 10.0% and (iv) a leverage ratio of at least 5.0%.
The following table presents actual and required capital ratios as of the dates indicated under the Basel III Rules. The minimum
required capital amounts presented include the minimum required capital levels, plus the capital conservation buffer. Capital levels
required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes
under the Basel III Rules. At December 31, 2022 and 2021, the Bank’s capital levels exceeded all minimum capital requirements
under the Basel III Rules.
December 31, 2022:
Common equity tier 1 to risk-
weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Tier 1 leverage to average assets
December 31, 2021:
Common equity tier 1 to risk-
weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Tier 1 leverage to average assets
Actual
Capital
Amount
Ratio
Minimum Capital
Required – Basel III
Capital
Amount
Ratio
(Dollars in thousands)
Required to be
Considered Well
Capitalized
Capital
Amount
Ratio
$ 3,872,792
4,211,772
5,026,214
4,211,772
11.54 % $ 2,349,834
12.55 2,853,370
14.97 3,524,751
15.90 1,059,363
7.00 % $ 2,181,989
8.50 2,685,524
10.50 3,356,906
4.00 1,324,204
6.50 %
8.00
10.00
5.00
$ 3,826,895
4,165,875
4,885,192
4,165,875
14.07 % $ 1,904,582
15.31 2,312,707
17.95 2,856,873
16.17 1,030,239
7.00 % $ 1,768,541
8.50 2,176,665
10.50 2,720,832
4.00 1,287,799
6.50 %
8.00
10.00
5.00
As of December 31, 2022 and 2021, the most recent notification from the regulators categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that
management believes have changed the Bank’s category.
Regulations of the ASBD and the FDIC limit the Bank’s ability to pay dividends without the prior approval of such agencies.
The ASBD currently limits the amount of dividends the Bank can pay shareholders to 75% of net profits after taxes for the current
year plus 75% of retained net profits after taxes for the immediately preceding year. FDIC regulations prevent insured state banks
from paying any dividends from capital and allow the payment of dividends only from net profits then on hand after deduction for
losses and bad debts. The FDIC also has the authority to prohibit the Bank from engaging in business practices that the FDIC
considers to be unsafe or unsound, which, depending on the Bank’s financial condition, could include the payment of dividends.
Additionally, the Bank’s ability to pay dividends may be restricted by certain covenants in the indentures governing its trust preferred
securities, its subordinated debentures and its subordinated notes, and the relative powers, preferences and other rights of the holders
of our preferred stock.
Under federal banking regulation, the Bank is also limited as to the amount it may loan to its affiliates, and such loans must be
collateralized by specific types of collateral. The maximum amount available for loans from the Bank to its affiliates is limited to 10%
of the Bank’s capital and surplus or approximately $487 million and $481 million at December 31, 2022 and 2021, respectively.
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19. Fair Value Measurements
The Bank measures certain of its assets and liabilities on a fair value basis using various valuation techniques and assumptions,
depending on the nature of the asset or liability. Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, fair value is used either
on a periodic basis, typically at least quarterly, or on a non-recurring basis to evaluate certain assets and liabilities for impairment or
for disclosure purposes. At December 31, 2022 and 2021, the Bank had no material liabilities that were accounted for at fair value.
The Bank applies the following fair value hierarchy.
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose inputs are observable.
Level 3 – Instruments whose inputs are unobservable.
The following table sets forth the Bank’s assets that are accounted for at fair value as of the dates indicated.
Level 1
Level 2
Level 3
Total
(Dollars in thousands)
December 31, 2022:
Investment securities:
U.S. Government agency mortgage-backed securities
Obligations of state and political subdivisions (1)(cid:3)
Other U.S. Government agency securities
Corporate obligations
U.S. Treasuries
Total investment securities
Nonaccrual loans
Total assets at fair value
December 31, 2021:
Investment securities:
U.S. Government agency mortgage-backed securities
Obligations of state and political subdivisions (1)(cid:3)
Other U.S. Government agency securities
Corporate obligations
U.S. Treasuries
Total investment securities
Nonaccrual loans
Total assets at fair value
$
$
$
$
$ 1,548,540
—
$
— 1,269,666
615,920
—
34,176
—
—
24,053
3,492,355
—
—
—
— $ 3,492,355 $
—
—
—
—
$ 1,548,540
8,075 1,277,741
615,920
34,176
24,053
8,075 3,500,430
35,832
35,832
43,907 $ 3,536,262
$ 2,217,281
$
—
819,293
—
555,261
—
306,071
—
24,907
—
3,922,813
—
—
—
— $ 3,922,813 $
—
8,877
—
—
—
$ 2,217,281
828,170
555,261
306,071
24,907
8,877 3,931,690
34,260
34,260
43,137 $ 3,965,950
(1) Obligations of state and political subdivisions include both AFS and approximately $8.8 million and $15.0 million of trading securities as of
December 31, 2022 and 2021.
The following table presents information on Level 3 non-recurring fair value measurements related to the Level 3 non-accrual
loans above.
Description
Fair Value at
December 31,
2022
Nonaccrual loans
$
35,832
Technique
(Dollars in thousands)
Third party appraisal(1)(cid:3)
or discounted cash flows
Unobservable Inputs
1. Management discount based on
underlying collateral characteristics
and market conditions
2. Life of Loan
(1) The Bank utilizes valuation techniques consistent with the market, cost, and income approaches, or a combination thereof in determining fair
value.
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The following methods and assumptions are used to estimate the fair value of the Bank’s assets that are accounted for at fair
value.
Investment securities – The Bank utilizes independent third parties as its principal pricing sources for determining fair value of
investment securities which are measured on a recurring basis. As a result, the Bank considers estimates of fair value from at least two
independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities
traded in an active market, fair values are based on quoted market prices if available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable securities, broker quotes, comprehensive interest rate tables and pricing
matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using
unobservable inputs. All fair value estimates of the Bank’s investment securities are reviewed on a quarterly basis.
The Bank has determined that certain of its investment securities AFS had a limited to non-existent trading market at December
31, 2022 and 2021. As a result, the Bank considers these investments as Level 3 in the fair value hierarchy. Specifically, the fair
values of certain obligations of state and political subdivisions consisting primarily of certain unrated private placement bonds (the
“private placement bonds”) in the amount of $8.1 million and $8.9 million at December 31, 2022 and 2021, respectively, were
calculated using Level 3 hierarchy inputs and assumptions as the trading market for such securities was determined to be “not active.”
This determination was based on the limited number of trades or, in certain cases, the existence of no reported trades for the private
placement bonds. The private placement bonds are generally prepayable at par value at the option of the issuer. As a result,
management believes the private placement bonds should be individually valued at the lower of (i) the matrix pricing provided by the
Bank’s third party pricing sources for comparable unrated municipal securities or (ii) par value. At December 31, 2022 and 2021, the
third parties’ pricing matrices valued the Bank’s portfolio of private placement bonds at approximately $8.1 million and $8.9 million,
respectively, which was approximately the same as the aggregate par value of the private placement bonds. Accordingly, at December
31, 2022 and 2021, the Bank reported the private placement bonds at $8.1 million and $8.9 million, respectively.
Nonaccrual loans – Fair values are measured on a non-recurring basis and are based on the underlying collateral value of the
nonaccrual loan, reduced for holding and selling costs, or the estimated discounted cash flows for such loan. At December 31, 2022,
the Bank had reduced the carrying value of its nonaccrual loans to the estimated fair value of $35.8 million. The adjustment to reduce
the carrying value of such nonaccrual loans to the estimated fair value included $14.6 million of ACL allocations.
The following table presents additional information about assets measured at fair value on a recurring basis and for which the
Bank has utilized Level 3 inputs to determine fair value for the periods indicated.
Balances – December 31, 2020
Total realized gains included in earnings
Total unrealized gains/(losses) included in other comprehensive income
Paydowns and maturities
Sales
Transfers in and/or out of Level 3
Balances – December 31, 2021
Total realized gains included in earnings
Total unrealized gains/(losses) included in other comprehensive income
Paydowns and maturities
Sales
Transfers in and/or out of Level 3
Balances – December 31, 2022
20. Fair Value of Financial Instruments
Investment Securities AFS
(Dollars in thousands)
$
$
11,597
—
—
(2,720 )
—
—
8,877
—
(18 )
(784 )
—
—
8,075
The following methods and assumptions were used to estimate the fair value of financial instruments.
Cash and cash equivalents– For these short-term instruments, the carrying amount of cash and cash equivalents, including
interest earning deposits and due from banks, is a reasonable estimate of fair value.
Investment securities – The Bank utilizes independent third parties as its principal pricing sources for determining fair value of
investment securities which are measured on a recurring basis. As a result, the Bank receives estimates of fair value from at least two
independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities
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traded in an active market, fair values are based on quoted market prices if available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable securities, broker quotes, comprehensive interest rate tables, pricing matrices
or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable
inputs. All fair value estimates of the Bank’s investment securities are reviewed on a quarterly basis.
Loans – The fair value of loans, including purchased loans, is estimated by discounting the expected future cash flows using the
current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Deposit liabilities – The fair value of demand deposits, savings accounts, money market deposits and other transaction accounts
is the amount payable on demand at the reporting date. The fair value of fixed maturity time deposits is estimated using the rate
currently available for deposits of similar remaining maturities.
Repurchase agreements – For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
Other borrowed funds – For these short-term instruments, the carrying amount is a reasonable estimate of fair value. The fair
value of long-term instruments is estimated based on the current rates available to the Bank for borrowings with similar terms and
remaining maturities.
Subordinated notes and debentures – The fair values of these instruments are based primarily upon discounted cash flows using
rates for securities with similar terms and remaining maturities.
Off-balance sheet instruments – The fair values of outstanding commitments and letters of credit are based on fees currently
charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of outstanding
commitments and letters of credit were not material at December 31, 2022 or 2021.
The fair values of certain of these instruments were calculated by discounting expected cash flows, which contain numerous
uncertainties and involve significant judgments by management. Fair value is the estimated amount at which financial assets or
liabilities could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments, the Bank does not know whether these fair values represent values at which the
respective financial instruments could be sold individually or in the aggregate.
The following table presents the carrying amounts, estimated fair values and the fair value hierarchy of the Bank’s financial
instruments, as of the dates indicated.
December 31,
2022
2021
Fair
Value
Hierarchy
Carrying
Amount
Estimated
Fair
Value
(Dollars in thousands)
Carrying
Amount
Estimated
Fair
Value
$ 1,033,454 $ 1,033,454 $ 2,053,829 $ 2,053,829
3,500,430 3,500,430 3,931,690 3,931,690
20,569,933 20,316,198 18,090,445 18,152,024
$ 14,564,168 $ 14,564,168 $ 14,229,515 $ 14,229,515
6,935,975 6,801,438 5,979,619 5,972,506
767,761
326,885
115,294
606,581
385,997
115,907
756,321
346,133
121,033
606,666
346,947
121,591
Financial assets:
Cash and cash equivalents
Investment securities (1)(cid:3)
Loans, net of ALL (2)(cid:3)
Financial liabilities:
Demand, savings and interest bearing
transaction deposits
Time deposits
Other borrowings
Subordinated notes
Subordinated debentures
(1) Includes both AFS and trading securities.
(2) Excludes reserve for losses on unfunded loan commitments.
Level 1
Levels
2 and 3
Level 3
Level 1
Level 2
Level 2
Level 2
Level 2
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21. Supplemental Cash Flow Information
The following table provides supplemental cash flow information for the periods indicated.
Cash paid during the period for:
Interest
Income taxes
Supplemental schedule of non-cash investing and financing activities:
Loans and other assets transferred to foreclosed assets
Net change in unrealized gains and losses on investment securities AFS
Lease liabilities (cancelled) recorded for right of use assets
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
113,573 $
69,989
87,924 $
224,290
197,382
39,586
13,151
(265,121 )
(910 )
15,435
(45,946 )
2,779
21,703
41,321
15,220
22. Other Operating Expenses
The following table is a summary of other operating expenses for the periods indicated.
Professional and outside services
Software and data processing
Deposit insurance and assessments
Advertising and public relations
Telecommunication services
Travel and meals
Postage and supplies
ATM expense
Amortization of intangibles
Loan collection and repossession expense
Writedowns of foreclosed and other assets
Amortization of CRA and tax credit investments
Other
Total other operating expenses
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
$
31,905 $
25,049
9,610
8,797
7,986
7,661
7,146
6,331
5,520
1,387
1,055
20,293
22,550
155,290 $
29,013 $
23,860
11,185
2,772
8,427
5,694
6,627
6,255
6,394
2,044
3,461
15,078
28,097
148,907 $
29,605
21,279
15,247
6,050
9,159
4,336
7,462
5,256
9,085
3,062
3,669
8,279
20,711
143,200
23. Earnings Per Common Share (“EPS”) and Share Repurchase Program
The following table presents the computation of basic and diluted EPS for the periods indicated.
2022
Year Ended December 31,
2021
(In thousands, except per share amounts)
2020
Numerator:
Net income available to common stockholders
$
547,520 $
579,001 $
291,898
Denominator:
Denominator for basic EPS – weighted-average common shares
Effect of dilutive securities – stock options and PSUs
Denominator for diluted EPS – weighted-average
common shares and assumed conversions
Basic EPS
Diluted EPS
120,275
425
129,060
558
120,700
4.55 $
4.54 $
129,618
4.49 $
4.47 $
$
$
129,319
116
129,435
2.26
2.26
Options to purchase 904,442 shares, 1,086,626 shares and 1,748,706 shares, respectively, of the Bank’s common stock at a
weighted-average exercise price of $51.94 per share, $51.98 per share and $46.14 per share, respectively, were outstanding during
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2022, 2021 and 2020, but were excluded from the diluted EPS calculations as inclusion of such options would have been anti-dilutive.
There were no anti-dilutive PSUs for any of the periods presented in the previous table.
During 2022 and 2021, the Bank repurchased 8,373,398 and 4,275,988 shares of its common stock at a weighted average cost of
$41.80 and $45.21, for a total of $350.0 million and $193.4 million, respectively, under its stock repurchase plans. No common stock
was repurchased by the Bank during 2020. The timing and amount of future repurchases will be determined by management based on
a variety of factors such as the Bank’s capital position, liquidity, financial performance and alternative uses of capital, stock price,
regulatory requirements and general market and economic conditions. The Bank’s current repurchase program expires on November
9, 2023 and may be suspended by the Bank at any time.
24. Changes In and Reclassification From Accumulated Other Comprehensive Income (Loss) (“AOCI”)
The following table presents changes in AOCI for the periods indicated.
Beginning balance of AOCI – unrealized gains and losses
on investment securities AFS
Other comprehensive income (loss):
Unrealized gains and losses on investment securities AFS
Tax effect of unrealized gains and losses on investment
securities AFS
Amounts reclassified from AOCI
Tax effect of amounts reclassified from AOCI
Total other comprehensive (loss) income
Ending balance of AOCI – unrealized gains and losses on
investment securities AFS
2022
Year Ended December 31,
2021
(Dollars in thousands)
2020
$
23,841 $
58,252 $
27,255
(265,121 )
(45,946 )
45,788
63,631
—
—
(201,490 )
11,535
—
—
(34,411 )
(11,397 )
(4,467 )
1,073
30,997
$
(177,649 ) $
23,841 $
58,252
Amounts reclassified from AOCI are included in net gains on investment securities and the tax effect of amounts reclassified
from AOCI are included in provision for income tax in the consolidated statements of income. The amounts reclassified from AOCI
relate entirely to unrealized gains/losses on investment securities AFS that were sold during the periods indicated.
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Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the
participation of the Bank’s Chairman and Chief Executive Officer (principal executive officer) and its Chief Financial Officer
(principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in
SEC Rule 13a-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure
that the information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to management, including our principal executive and principal financial officers, as appropriate, to allow for timely
decisions regarding required disclosure. Based on that evaluation, the principal executive officer and principal financial officer
concluded that, as of the end of the period covered by this report, the Bank’s disclosure controls and procedures were effective.
(b) Changes in Internal Control Over Financial Reporting.
The Bank’s management, including the Bank’s Chairman and Chief Executive Officer and its Chief Financial Officer, have
evaluated any changes in the Bank’s internal control over financial reporting that occurred during the Bank’s fourth quarter ended
December 31, 2022 and have concluded that there was no change during the Bank’s fourth quarter ended December 31, 2022 that has
materially affected, or is reasonably likely to materially affect, the Bank’s internal control over financial reporting.
(c) Report of Management on the Bank’s Internal Control Over Financial Reporting
February 27, 2023
Management of Bank OZK is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures are made only in accordance with authorizations of management
and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management of Bank OZK, including the Chief Executive Officer and the Chief Financial Officer, has assessed the
effectiveness of the Bank’s internal control over financial reporting as of December 31, 2022, based on criteria for effective internal
control over financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that the Bank’s internal
control over financial reporting was effective as of December 31, 2022, based on the specified criteria.
PricewaterhouseCoopers, LLP, the independent registered public accounting firm that audited the Bank’s consolidated financial
statements included in this Annual Report on Form 10-K, has also audited the effectiveness of the Bank’s internal control over
financial reporting as of December 31, 2022. Their report is included in Item 8 under the heading Report of Independent Registered
Public Accounting Firm.
/s/ George Gleason
George Gleason
Chairman and Chief Executive Officer
(principal executive officer)
/s/ Tim Hicks
Tim Hicks
Chief Financial Officer
(principal financial officer)
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Item 9B. OTHER INFORMATION
On February 23, 2023, the Governance and Compensation Committee (“Compensation Committee”) of the Board of Directors
of the Bank approved the 2023 Executive Management Cash Incentive Plan (“2023 Cash Incentive Plan”). The Compensation
Committee believes that subjecting a portion of the executive officer’s cash compensation to achievement of pre-established
performance targets, as provided under the 2023 Cash Incentive Plan, will ensure the continued alignment of executive compensation,
Bank performance and strategic goal attainment.
The Bank’s performance metrics (each a “Performance Metric”) and relative weighting for each metric under the 2023 Cash
Incentive Plan is set forth below. Awards under the 2023 Cash Incentive Plan will be calculated based on the Bank’s consolidated
financial results for the period beginning on January 1, 2023 and ending on December 31, 2023 (the “Performance Period”).
2023 Cash Incentive Plan Metrics
Weight
Diluted Earnings Per Share (“EPS”) ................................................
Efficiency Ratio ...............................................................................
Net Charge-Off Ratio.......................................................................
Net Interest Margin (fully taxable equivalent) .................................
Ratio of Nonperforming Assets to Total Assets ..............................
20%
20%
20%
20%
20%
The Compensation Committee determines incentive opportunities payable to each participant based on the level of performance
attained for the particular Performance Metric over the Performance Period. Payouts under each Performance Metric will depend on
the level of performance achieved with respect to the particular Performance Metric. If the Bank’s performance is below the threshold
performance level set for the particular Performance Metric, the payout related to that metric is zero. Bank performance that is at or
above the maximum performance level set for the particular Performance Metric may result in payment up to the maximum amount of
the incentive opportunity for that particular Performance Metric. Following the Performance Period, the Compensation Committee
shall determine whether and to what extent each Performance Metric has been met and the amounts, if any, payable to each participant
for the Performance Period. Awards under the 2023 Cash Incentive Plan will be settled solely in cash. All awards received by any
participant pursuant to the 2023 Cash Incentive Plan may be subject to recovery by the Bank under the Bank’s Incentive
Compensation Clawback Policy.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 401 of Regulation S-K regarding directors is incorporated herein by this reference to the
Bank’s Proxy Statement to be filed with the FDIC within 120 days of the Bank’s fiscal year-end.
The information required by Item 405, Item 407(c)(3), Item 407(d)(4) and Item 407(d)(5) of Regulation S-K is incorporated
herein by this reference to the Bank’s Proxy Statement to be filed with the FDIC within 120 days of the Bank’s fiscal year-end.
In accordance with Item 406 of Regulation S-K, the Bank has adopted a code of ethics that applies to certain Bank executives,
including the principal executive officer, principal financial officer and principal accounting officer. The code of ethics is posted on
the Bank’s Investor Relations website at http://ir.ozk.com under “Corporate – Governance Documents.” For more information about
the Bank’s code of ethics, see “Available Information under Part I, Item 1.”
Item 11. EXECUTIVE COMPENSATION
The information required by Item 402, Item 407(e)(4) and Item 407(e)(5) of Regulation S-K is incorporated herein by this
reference to the Bank’s Proxy Statement to be filed with the FDIC within 120 days of the Bank’s fiscal year-end.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
The information required by Item 201(d) and Item 403 of Regulation S-K is incorporated herein by this reference to the Bank’s
Proxy Statement to be filed with the FDIC within 120 days of the Bank’s fiscal year-end.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 404 and Item 407(a) of Regulation S-K is incorporated herein by this reference to the Bank’s
Proxy Statement to be filed with the FDIC within 120 days of the Bank’s fiscal year-end.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 9(e) of Schedule 14A regarding audit fees, audit committee pre-approval policies, and related
information is incorporated herein by this reference to the Bank’s Proxy Statement to be filed with the FDIC within 120 days of the
Bank’s fiscal year-end.
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PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List the following documents filed as a part of this report:
(1) The Consolidated Financial Statements of the Registrant.
Reference is made to Part II, Item 8 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules.
Financial Statement schedules are omitted either because they are not required or are not applicable, or because the
required information is shown in the Financial Statements or notes thereto.
(3) Exhibits.
The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index which immediately follows Item 16
below.
(b) Exhibits. The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index which immediately follows Item
16 below.
(c) Financial Statement Schedules. See Item 15(a)(2) above.
Item 16. FORM 10-K SUMMARY
None.
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The following exhibits are filed with this report or are incorporated by reference to previously filed material.
EXHIBIT INDEX
Exhibit No.
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Amended and Restated Articles of Incorporation of Bank of the Ozarks, effective as of April 10, 2017 (previously filed
as Exhibit 3.1 to the Bank’s Current Report on Form 8-K filed with the FDIC on June 26, 2017, and incorporated herein
by reference)
Articles of Amendment to the Amended and Restated Articles of Incorporation of Bank OZK (previously filed as
Exhibit 3.1 to the Bank’s Current Report on Form 8-K filed with the FDIC on July 16, 2018, and incorporated herein by
reference)
Articles of Amendment to the Amended and Restated Articles of Incorporation of Bank OZK (previously filed as
Exhibit 3.3 to the Bank’s Registration Statement on Form 8-A filed with the FDIC on November 4, 2021, and
incorporated herein by reference)
Second Amended and Restated Bylaws of Bank OZK, effective August 10, 2018 (previously filed as Exhibit 3.1 to the
Bank’s Current Report on Form 8-K filed with the FDIC on August 10, 2018, and incorporated herein by reference)
Form of Common Stock Certificate (previously filed as Exhibit 4.2 to the Bank’s Current Report on Form 8-K filed with
the FDIC on July 16, 2018, and incorporated herein by reference)
Form of Certificate Representing Series A Preferred Stock (previously filed as Exhibit 4.1 to the Bank’s Registration
Statement on Form 8-A filed with the FDIC on November 4, 2021, and incorporated herein by reference)
Instruments defining the rights of security holders, including indentures. The Bank hereby agrees to furnish to the FDIC
upon request copies of instruments defining the rights of holders of long-term debt of the Bank and its consolidated
subsidiaries; no issuance of debt exceeds ten percent of the assets of the Bank and its subsidiaries on a consolidated basis
Description of Bank OZK’s common stock registered under Section 12 of the Securities Exchange Act of 1934
(previously filed as Exhibit 4.3 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 28, 2020,
and incorporated herein by reference)
Description of Bank OZK’s Series A Preferred Stock registered under Section 12 of the Securities Exchange Act of 1934
(previously filed as Exhibit 4.4 to the Bank’s Quarterly Report on Form 10-Q filed with the FDIC on November 9, 2021,
and incorporated herein by reference)
Form of Indemnification Agreement for directors and executive officers (previously filed as Exhibit 10.1 to the Bank’s
Annual Report on Form 10-K filed with the FDIC on February 27, 2018, and incorporated herein by reference)
Amended and Restated Deferred Compensation Plan, as amended effective June 26, 2017 (previously filed as Exhibit
10.2 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 27, 2018, and incorporated herein by
reference)
Split Dollar Insurance Agreement with Bank OZK (previously Bank of the Ozarks) as Trustee of the Linda and George
Gleason Insurance Trust, effective as of May 4, 2010 (previously filed as Exhibit 10.3 to the Bank’s Annual Report on
Form 10-K filed with the FDIC on February 27, 2018, and incorporated herein by reference)
Split Dollar Insurance Agreement with George G. Gleason, II, effective as of May 4, 2010 (previously filed as Exhibit
10.4 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 27, 2018, and incorporated herein by
reference)
Split Dollar Designation by Bank OZK (previously Bank of the Ozarks), dated as of May 4, 2010 in respect of George
G. Gleason, II as the insured (previously filed as Exhibit 10.5 to the Bank’s Annual Report on Form 10-K filed with the
FDIC on February 27, 2018, and incorporated herein by reference)
Supplemental Executive Retirement Plan (“SERP”) for George G. Gleason, II, effective May 4, 2010 (previously filed as
Exhibit 10.6 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 27, 2018, and incorporated
herein by reference)
Amendment to SERP effective November 2, 2020, (previously filed as Exhibit 10.7 to the Bank’s Annual Report on
Form 10-K filed with the FDIC on February 25, 2021, and incorporated herein by reference)
Bank OZK Non-Qualified Deferred Compensation Plan, as amended and restated effective January 1, 2021 (previously
filed as Exhibit 10.8 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 25, 2021, and
incorporated herein by reference)
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Exhibit No.
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
Third Amended and Restated Non-Employee Director Stock Option Plan as of April 15, 2013 (previously filed as
Exhibit 10.9 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 27, 2018, and incorporated
herein by reference)
Form of Stock Option Agreement for Non-Employee Directors (previously filed as Exhibit 10.10 to the Bank’s Annual
Report on Form 10-K filed with the FDIC on February 27, 2018, and incorporated herein by reference)
Bank of the Ozarks, Inc. Amended and Restated Stock Option Plan, effective May 18, 2015 (previously filed as Exhibit
10.11 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 27, 2018, and incorporated herein by
reference)
Form of Stock Option Grant Agreement for employees under the Amended and Restated Stock Option Plan, effective
May 18, 2015 (previously filed as Exhibit 10.12 to the Bank’s Annual Report on Form 10-K filed with the FDIC on
February 27, 2018, and incorporated herein by reference)
Second Amended and Restated Bank of the Ozarks, Inc. 2009 Restricted Stock and Incentive Plan, effective May 16,
2016 (previously filed as Exhibit 10.15 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 27,
2018, and incorporated herein by reference)
Third Amended and Restated Non-Employee Director Stock Plan dated May 7, 2018 (previously filed as Exhibit 10.1 to
the Bank’s Current Report on Form 8-K filed with the FDIC on May 7, 2018, and incorporated herein by reference)
Form of Restricted Stock Award Agreement for non-employee directors under the Third Amended and Restated Non-
Employee Director Stock Plan dated May 7, 2018 (previously filed as Exhibit 10.2 to the Bank’s Current Report on
Form 8-K filed with the FDIC on May 7, 2018, and incorporated herein by reference)
Form of 2019 Performance Based Restricted Stock Unit Award Agreement for Executive Officers (“2019 LTIP Award”)
(previously filed as Exhibit 10.1 to the Bank’s Current Report on Form 8-K filed with the FDIC on January 29, 2019,
and incorporated herein by reference)
Bank OZK 2019 Omnibus Equity Incentive Plan dated May 6, 2019 (previously filed as Exhibit 10.1 to the Bank’s
Current Report on Form 8-K filed with the FDIC on May 7, 2019, and incorporated herein by reference)
Form of Restricted Stock Award Agreement for Employees under the 2019 Omnibus Equity Incentive Plan (previously
filed as Exhibit 10.2 to the Bank’s Current Report on Form 8-K filed with the FDIC on May 7, 2019, and incorporated
herein by reference)
Form of Restricted Stock Award Agreement for Non-Employee Directors under the 2019 Omnibus Equity Incentive
Plan (previously filed as Exhibit 10.3 to the Bank’s Current Report on Form 8-K filed with the FDIC on May 7, 2019,
and incorporated herein by reference)
Form of Stock Option Award Agreement for Employees under the 2019 Omnibus Equity Incentive Plan (previously
filed as Exhibit 10.4 to the Bank’s Current Report on Form 8-K filed with the FDIC on May 7, 2019, and incorporated
herein by reference)
Form of 2020 Performance Based Restricted Stock Unit Award Agreement for Executive Officers (“2020 LTIP Award”)
(previously filed as Exhibit 10.25 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 28, 2020,
and incorporated herein by reference)
Bank OZK 2020 Executive Management Cash-Based Performance Plan (previously filed as Exhibit 10.26 to the Bank’s
Annual Report on Form 10-K filed with the FDIC on February 28, 2020, and incorporated herein by reference)
Form of 2021 Performance Based Restricted Stock Unit Award Agreement for Executive Officers (“2021 LTIP Award”)
(previously filed as Exhibit 10.27 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 25, 2021,
and incorporated herein by reference)
Bank OZK 2021 Executive Management Cash-Based Performance Plan (previously filed as Exhibit 10.28 to the Bank’s
Annual Report on Form 10-K filed with the FDIC on February 25, 2021, and incorporated herein by reference)
Form of 2022 Performance Based Restricted Stock Unit Award Agreement for Executive Officers (“2022 LTIP Award”)
(previously filed as Exhibit 10.28 to the Bank’s Annual Report on Form 10-K filed with the FDIC on February 28, 2022,
and incorporated herein by reference)
Bank OZK 2022 Executive Management Cash-Based Incentive Plan (previously filed as Exhibit 10.29 to the Bank’s
Annual Report on Form 10-K filed with the FDIC on February 28, 2022, and incorporated herein by reference)
Form of 2023 Performance Based Restricted Stock Unit Award Agreement for Executive Officers (“2023 LTIP
Award”), filed herewith
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Exhibit No.
10.28*
Bank OZK 2023 Executive Management Cash Incentive Plan, filed herewith
21
31.1
31.2
32.1
32.2
List of Subsidiaries of the Registrant, filed herewith
Certification of Chairman and Chief Executive Officer, filed herewith
Certification of Chief Financial Officer, filed herewith
Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith
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, furnished herewith
* Management contract or a compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Bank OZK
By:
/s/ Tim Hicks
Chief Financial Officer
(Principal Financial Officer and Authorized Officer)
Date: February 27, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
/s/ George Gleason
George Gleason
/s/ Tim Hicks
Tim Hicks
/s/ Stan Thomas
Stan Thomas
/s/ Nicholas Brown
Nicholas Brown
/s/ Paula Cholmondeley
Paula Cholmondeley
/s/ Beverly Cole
Beverly Cole
/s/ Robert East
Robert East
/s/ Kathleen Franklin
Kathleen Franklin
/s/ Jeff Gearhart
Jeff Gearhart
/s/ Peter Kenny
Peter Kenny
/s/ William Koefoed
William Koefoed
/s/ Chris Orndorff
Chris Orndorff
/s/ Steven Sadoff
Steven Sadoff
/s/ Ross Whipple
Ross Whipple
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
132
DATE
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
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Exhibit 21
Subsidiaries of the Bank
1. Ozark Capital Statutory Trust II, a Connecticut business trust
2. Ozark Capital Statutory Trust III, a Delaware business trust
3. Ozark Capital Statutory Trust IV, a Delaware business trust
4. Ozark Capital Statutory Trust V, a Delaware business trust
5. The Highlands Group, Inc., a 100% owned Arkansas subsidiary of Bank OZK
6. Arlington Park, LLC, a 50% owned Arkansas subsidiary of The Highlands Group, Inc.
7. BOTO, LLC, a 100% owned Arkansas subsidiary of Bank OZK
8. BOTO FL Properties LLC, a 100% owned Florida subsidiary of Bank OZK
9. PAB State Credits LLC, a 100% owned Georgia subsidiary of Bank OZK
10. FCB Properties LLC, a 100% owned Georgia subsidiary of Bank OZK
11. BOTO NC Properties, LLC, a 100% owned North Carolina subsidiary of Bank OZK
12. BOTO GA Properties, LLC, a 100% owned Georgia subsidiary of Bank OZK
13. BOTO-AR Properties, LLC, a 100% owned Arkansas subsidiary of Bank OZK
14. BOTO SC Properties, LLC, a 100% owned South Carolina subsidiary of Bank OZK
15. Omnibank Center Business Condominium Owners Association, Inc., a 75.2% owned Texas subsidiary of
Bank OZK
16. Intervest Statutory Trust II, a Connecticut business trust
17. Intervest Statutory Trust III, a Connecticut business trust
18. Intervest Statutory Trust IV, a Delaware business trust
19. Intervest Statutory Trust V, a Delaware business trust
20. BOTO Holdings, Inc., a 100% owned Texas subsidiary of Bank OZK
21. East Atlantic Properties, LLC, a 100% owned North Carolina subsidiary of BOTO NC Properties, LLC
22. Twin Points Road Clubhouse Properties, LLC, a 100% owned Arkansas subsidiary of Bank OZK
23. Highway 7 Properties, LLC, a 100% owned Arkansas subsidiary of Bank OZK
24. Elizabeth Station, LLC, a 33.34% owned Georgia subsidiary of Bank OZK
25. OZK Renewable Energy, LLC, a 100% owned Arkansas subsidiary of Bank OZK
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I, George Gleason, certify that:
CERTIFICATION
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Bank OZK;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 27, 2023
/s/ George Gleason
George Gleason
Chairman and Chief Executive Officer
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I, Tim Hicks, certify that:
CERTIFICATION
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Bank OZK;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 27, 2023
/s/ Tim Hicks
Tim Hicks
Chief Financial Officer
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2/28/23 2:50 PM
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report of Bank OZK (the Bank) on Form 10-K for the period ended
December 31, 2022 as filed with the Federal Deposit Insurance Corporation (the FDIC) on the date hereof (the Report), I,
George Gleason, Chairman and Chief Executive Officer of the Bank, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Bank.
February 27, 2023
/s/ George Gleason
George Gleason
Chairman and Chief Executive Officer
In accordance with SEC Release No. 34-47986, this Exhibit 32.1 is furnished to the FDIC as an accompanying document
and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.
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2/28/23 2:50 PM
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report of Bank OZK (the Bank) on Form 10-K for the period ended
December 31, 2022 as filed with the Federal Deposit Insurance Corporation (the FDIC) on the date hereof (the Report), I,
Tim Hicks, Chief Financial Officer of the Bank, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Bank.
February 27, 2023
/s/ Tim Hicks
Tim Hicks
Chief Financial Officer
In accordance with SEC Release No. 34-47986, this Exhibit 32.2 is furnished to the FDIC as an accompanying document
and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.
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2/28/23 2:50 PM
A HISTORY OF EXCELLENCE
’22
America’s Best Banks,
Forbes, 2022
World's Best Banks,
Forbes, 2022
Best Places to Work in Fintech,
American Banker, 2022
RankingBanking: Top 25 U.S. Banks,
Bank Director, 2022
RankingBanking: Top Banks $5 Billion - $50 Billion,
Bank Director, 2022
Power Finance: The 50 Most Important Figures of Commercial
Real Estate Finance, Commercial Observer, 2022
BauerFinancial Superior
5-Star Rating
America’s Best Banks,
Forbes, 2021
World's Best Banks,
Forbes, 2021
Best-In-State Banks,
Georgia, Forbes, 2021
Overall Top Performer,
Bank Director 2021 Performance Powerhouse Study
Best Fintechs to Work For,
American Banker, 2021
The 50 Most Important Figures of Commercial Real Estate Finance,
The Commercial Observer's Power Finance List 2021
Best Bank in Georgia, Forbes, 2020
America’s Best Banks, Forbes, 2020
Best Places to Work,
Arkansas Business, 2020
Top Fintechs to Work For,
American Banker, 2020
World’s Best Banks,
Forbes, 2020
#1 Bank, Performance Powerhouse
Study, Bank Director, 2020
50 Most Important Leaders in Commercial Real
Estate Finance, The Commercial Observer, 2020
Best Bank in the South,
Money.com, 2019–2020
50 Most Important Leaders in Commercial Real
Estate Finance, The Commercial Observer, 2019
World's Best Banks,
Forbes, 2019
America’s Best Banks,
Forbes, 2019
Top Fintechs to Work For,
American Banker, 2019
Top Performing Bank, Bank
Director Magazine, 2018
Nation’s Top Performing Regional Bank,
S&P Global Market Intelligence, 2018
Assets: $5 Billion–$50 Billion
Assets: $10 Billion–$50 Billion
World's Best
Employers,
Forbes, 2018
Top Fintechs to Work For,
American Banker, 2018
50 Most Important Leaders in Commercial Real Estate
Finance, The Commercial Observer, 2018
Nation’s Top Performing Regional Bank,
S&P Global Market Intelligence, 2017
Top Performing Bank, Bank
Director Magazine, 2017
Assets: $10 Billion–$50 Billion
Assets: $5 Billion–$50 Billion
Best Bank in North
Carolina, Money
Magazine, 2017
’21
’20
’19
’18
’17
2016
2015
Top Performing Bank,
Bank Director Magazine, 2016
Top Performing Bank,
Bank Director Magazine, 2015
Assets: $5 Billion–$50 Billion
Assets: $5 Billion–$50 Billion
Top Performing Regional Bank,
S&P Global Market Intelligence, 2016
Top Performing Regional Bank,
S&P Global Market Intelligence, 2015
2013
2012
2014
Top Performing Bank,
Bank Director
Magazine, 2014
Assets: $1 Billion–$5 Billion
Top Performing Bank,
Bank Director Magazine, 2013
Top Performing Regional Bank,
S&P Global Market Intelligence, 2012
Top Performing Bank,
ABA Banking Journal, 2012
Assets: $1 Billion–$5 Billion
Assets: $1 Billion–$10 Billion
Little Rock, Arkansas
(501) 978-2265
NASDAQ: OZK
ozk.com
For additional information, contact:
Investor Relations
Bank OZK
18000 Cantrell Road
Little Rock, AR 72223
Transfer Agent:
Trust and Wealth Division
Bank OZK
18000 Cantrell Road
Little Rock, AR 72223
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com