10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 .

Commission File Number 0-22759

BANK OF THE OZARKS, INC.

(Exact name of registrant as specified in its charter)

ARKANSAS	71-0556208
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
12615 CHENAL PARKWAY, P. O. BOX 8811, LITTLE ROCK, ARKANSAS	72231-8811
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (501) 978-2265

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
None	N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

State the aggregate market value of the Registrant’s common stock held by non-affiliates: $189,844,765 (based upon the last trade price as reported on the Nasdaq National Market on June 30, 2003).

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes x NO ¨

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date.

Class	Outstanding at March 1, 2004
Common Stock, par value $0.01 per share	16,344,640

Documents incorporated by reference: Parts I, II and III of this Form 10-K incorporate certain information by reference from the Registrant’s Annual Report to Stockholders for the year ended December 31, 2003 and the Proxy Statement for its 2004 annual meeting.

BANK OF THE OZARKS, INC.

FORM 10-K

December 31, 2003

INDEX

		Page
PART I.	Financial Information
Item 1.	Business	1
Item 2.	Properties	13
Item 3.	Legal Proceedings	14
Item 4.	Submission of Matters to a Vote of Security Holders	15
PART II.
Item 5.	Market for Registrant’s Common Stock and Related Stockholder Matters	15
Item 6.	Selected Financial Data	15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 8.	Financial Statements and Supplementary Data	15
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	15
Item 9A.	Controls and Procedures	16
PART III.
Item 10.	Directors and Executive Officers of the Registrant	16
Item 11.	Executive Compensation	16
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	16
Item 13.	Certain Relationships and Related Transactions	17
Item 14.	Principal Accountant Fees and Services	17
PART IV.
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	17
Signatures		20

Part I

Item 1. BUSINESS

General

Bank of the Ozarks, Inc. (the “Company”) is an Arkansas business corporation registered under the Bank Holding Company Act of 1956. The Company owns an Arkansas state chartered subsidiary bank, Bank of the Ozarks, which conducts banking operations through 41 banking offices in 26 communities throughout northern, western and central Arkansas and three loan production offices located in Charlotte, North Carolina and Frisco and Dallas, Texas. The Company also owns Ozark Capital Trust, Ozark Capital Statutory Trust II and Ozark Capital Statutory Trust III, all business trusts. At December 31, 2003 the Company had total assets of $1.387 billion, total loans of $909 million and total deposits of $1.062 billion.

The Company provides a wide range of retail and commercial banking services. Deposit services include checking, savings, money market, time deposit and individual retirement accounts and Bounce Proof Security^™. Loan services include various types of real estate, consumer, commercial, industrial and agricultural loans. In 2003 the Company began to offer various leasing services and has initially focused primarily on equipment leasing. The Company also provides mortgage lending, cash management, trust services, safety deposit boxes, real estate appraisals, credit related life and disability insurance, ATMs, telephone banking, internet banking and debit cards, among other products and services.

In 1994 the Company commenced an expansion strategy, via de novo branching, into target markets. Since embarking on this strategy, the Company has opened thirty-six new banking offices and three loan production offices. The Company’s de novo branching strategy initially focused on opening branches in communities in counties contiguous to its existing offices and has subsequently included expansion throughout much of northern, western and central Arkansas. The Company’s initial offices were in small rural communities and as the Company opened additional offices it has generally expanded into larger communities. In 1998 and 1999 the Company expanded into Arkansas’ three largest cities, Little Rock, Fort Smith and North Little Rock. While the Company has continued to open some additional offices in smaller communities, since 1998 the Company has primarily focused on expansion in and around larger communities.

During 2003 the Company added eight new banking offices and two loan production offices. These included loan production offices in Frisco and Dallas, Texas and the Company’s first banking offices in Cabot, Russellville, Benton and Mountain Home, Arkansas. Other 2003 new office openings in existing markets included Conway, Bryant, Little Rock and Fort Smith, Arkansas.

While the Company’s growth has come primarily as a result of de novo branching, the Company has considered and will continue to consider acquisition opportunities. In June 2003 the Company purchased RVB Bancshares, Inc. and its River Valley Bank subsidiary (collectively “RVB”) in Russellville, Arkansas. The Company acquired approximately $41 million in loans and approximately $50 million in deposits in this transaction. The purchase price for the RVB acquisition was $7.8 million and consisted of cash of $1.1 million and 369,520 split-adjusted shares of the Company’s common stock valued at $6.7 million.

The Company plans to continue its growth and de novo branching strategy. In 2004 the Company expects to open approximately eight new banking offices and may convert some or all of its three existing loan production offices to full service branches. These conversions would require the Company to acquire charters in Texas and North Carolina. Opening new offices or converting existing loan production offices to full service offices is subject to availability of suitable sites, hiring qualified personnel, obtaining regulatory approvals and numerous other conditions and contingencies.

Lending and Leasing Activities

The Company’s primary source of income is interest earned from its loan and lease portfolio and, to a lesser extent, earnings on its investment portfolio. In underwriting loans and leases, primary emphasis is placed on the borrower’s financial condition, including its ability to generate cash flow to support its debt obligations and other cash expenses. Additionally substantial consideration is given to collateral value and marketability as well as the borrower’s character, reputation and other relevant factors. The Company’s portfolio includes most types of real estate loans, consumer loans,

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commercial and industrial loans, agricultural loans and other types of loans. The vast majority of the properties collateralizing the Company’s mortgage loans are located within the trade areas of the Company’s offices. The Company underwrites leases using substantially the same standards as applied to its loans and has focused primarily on equipment leasing.

Real Estate Loans. The Company’s portfolio of real estate loans includes loans secured by residential 1-4 family, non-farm non-residential, agricultural, construction and land development, and multifamily residential (five or more family) properties. Non-farm non-residential loans include those secured by real estate mortgages on owner occupied commercial buildings of various types, leased commercial buildings, medical and nursing facilities, undeveloped raw land for commercial purposes, and other business and industrial properties. Agricultural real estate loans include loans secured by farmland and related improvements including loans guaranteed by the Farm Service Agency. Agricultural real estate loans also include loans to individuals which would normally be characterized as residential 1-4 family loans but for the fact that the individual borrowers are primarily engaged in the production of timber, poultry, livestock or crops. Real estate construction and land development loans include loans with original maturities of sixty months or less to finance land development or construction of industrial, commercial, residential or farm buildings or additions or alterations to existing structures. During 2003 the Company expanded its offering of residential 1-4 family loans with its introduction of its PrimeAccess home equity line of credit product.

The Company offers a variety of real estate loan products that 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 five years. Certain loans may be structured as term loans with adjustable interest rates (adjustable daily, every six months, annually, or at other regular adjustment intervals usually not to exceed every five years) and without balloon maturities.

Residential 1-4 family loans are underwritten primarily based on the borrower’s ability to repay, including prior credit history, and the value of the collateral. Other real estate loans are underwritten based on the ability of the property, in the case of income producing property, or the borrower’s business to generate sufficient cash flow to amortize the debt. Secondary emphasis is placed upon collateral value and other factors. Loans collateralized by real estate have generally been originated with loan to appraised value ratios of not more than 89% for residential 1-4 family, 85% for other residential and other improved property, 80% for construction loans secured by commercial, multifamily and other non-residential properties, 75% for land development loans and 65% for raw land loans.

The Company typically requires mortgage title insurance in the amount of the loan and hazard insurance on improvements. Documentation requirements vary depending on loan size, type, complexity and other factors.

Consumer Loans. The Company’s portfolio of consumer loans generally includes loans to individuals for household, family and other personal expenditures. Proceeds from such loans are used to, among other things, fund the purchase of automobiles, household appliances, furniture, trailers, boats, mobile homes and for other similar purposes. Consumer loans made by the Company are generally collateralized with terms typically ranging up to 72 months, depending upon the nature of the collateral and size of the loan.

Consumer loans are attractive to the Company because they generally have a short term with higher interest rates. Such loans, however, pose additional risks of collectibility and loss when compared to certain other types of loans. The borrower’s ability to repay is of primary importance in the underwriting of consumer loans.

Commercial and Industrial Loans and Leases. The Company’s 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. The Company offers a variety of commercial and industrial loan arrangements, including term loans, balloon loans and lines of credit with the purpose and collateral supporting a particular loan determining its structure. These loans are offered to businesses and professionals for short and medium terms on both a collateralized and uncollateralized basis. As a general practice, the Company obtains as collateral a lien on furniture, fixtures, equipment, inventory, receivables or other assets. The Company’s leases are primarily for commercial, industrial and professional purposes.

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Commercial and industrial loans and leases typically are underwritten on the basis of the borrower’s ability to make repayment from the cash flow of its business and generally are collateralized by business assets. As a result, such loans and leases involve additional complexities, variables and risks and require more thorough underwriting and servicing than other types of loans and leases.

Agricultural (Non-Real Estate) Loans. The Company’s portfolio of agricultural (non-real estate) loans includes loans for financing agricultural production, including loans to businesses or individuals engaged in the production of timber, poultry, livestock or crops. The Company’s agricultural (non-real estate) loans are generally secured by farm machinery, livestock, crops, vehicles or other agri-related collateral. A portion of the Company’s portfolio of agricultural (non-real estate) loans are loans to individuals which would normally be characterized as consumer loans but for the fact that the individual borrowers are primarily engaged in the production of timber, poultry, livestock or crops.

Deposits

The Company offers an array of deposit products consisting of non-interest bearing checking accounts, interest bearing transaction accounts (including the Company’s MaxYield^® checking), savings accounts, money market accounts and time deposits. The Company acts as depository for a number of state and local governments and government agencies or instrumentalities. Such public funds deposits are often subject to competitive bid and in many cases must be secured by the Company’s pledge of government agency or other securities.

The Company’s deposits come primarily from within the Company’s trade area. As of December 31, 2003 the Company had $30.9 million “brokered deposits,” defined as deposits which, to the knowledge of management of the Company, have been placed with the bank subsidiary by a person who acts as a broker in placing these deposits on behalf of others, and the deposits may be from outside the Company’s primary trade area.

Other Banking Services

Mortgage Lending. The Company offers a broad array of residential mortgage products including long-term fixed and variable rate loans to be sold on a servicing released basis in the secondary market. The Company originates residential mortgage loans to be resold on the secondary market primarily through its Little Rock, Fort Smith, North Little Rock, Conway, Russellville, Cabot, Harrison, Mountain Home, Bryant, Arkansas and Frisco, Texas offices. Most residential mortgage loans originated in the Company’s smaller markets are either fixed rate loans which balloon periodically, typically every one to five years, or variable rate loans and are retained by the Company in its loan portfolio. In 2002 and 2003 declining interest rates and a favorable housing market impacted the volume of mortgage loans being refinanced and the volume of loans for home purchases resulting in a substantial increase in the Company’s mortgage loan originations for resale and mortgage lending income. In addition in 2002 and 2003 the Company has expanded its mortgage operations by adding originators in a number of new markets and increasing its number of originators in existing markets. This expansion has also increased the Company’s mortgage loan originations for resale and mortgage lending income. Originations of mortgage loans for resale increased from $120 million in 2001 to $180 million in 2002 and $305 million in 2003. Although this business is cyclical, the Company believes it will continue to be an important component of non-interest income.

Trust Services. The Company offers a broad array of trust services from its headquarters in Little Rock, Arkansas, with additional staff in Conway. These trust services include personal trust, investment management accounts, employee benefit and retirement accounts, corporate trust services including trustee, paying agent and registered transfer agent services and other incidental trust services. In recent years the Company has sought to increase the capabilities and effectiveness of its Trust Division and expects to continue to do so. As of December 31, 2003 total trust assets were $432.9 million compared to $177.7 million as of December 31, 2002.

Cash Management Services. The Company offers cash management products which are designed to provide a high level of specialized support to the treasury operations of business and public funds customers. Cash management has four basic functions: deposit handling, funds concentration, funds disbursement and information reporting. The Company’s cash management services include automated clearing house services (e.g., direct deposit, direct debit and electronic cash concentration and disbursement), zero balance accounts, current and prior day transaction reporting, wholesale lockbox services, automated credit line transfer, reconciliation services and account analysis. The Company expects to continue to increase the number of customers to which it provides such services.

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Internet Banking. The Company offers an On-Line Banking service providing banking service over the Internet for both business customers and consumers. Through this service customers can access their account information, pay bills, transfer funds, reorder checks, buy U.S. Savings Bonds, change addresses, issue stop payment requests and handle other banking business electronically. Businesses are offered more advanced features that allow them to handle most cash management functions electronically and access their account information on a more timely basis. The Company also provides images of the fronts and backs of cancelled checks for customers on-line and provides businesses with the ability to have cancelled check images on compact discs for storage and retrieval.

Bounce Proof Security^™. In 2002 the Company introduced its Bounce Proof Security^™ product which is a service offered to qualified customers. The service provides that qualified customers have a pre-approved right to overdraft their account within established limits. This product was a significant contributor to the increase in deposit account service charge income in 2002.

Competition

The banking industry in the Company’s market areas is highly competitive. In addition to competing with other commercial and savings banks and savings and loan associations, the Company competes with credit unions, finance companies, leasing companies, mortgage 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 the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits, as well as other factors.

A substantial number of the commercial banks operating in the Company’s market area are branches or subsidiaries of much larger organizations affiliated with statewide, regional or national banking companies, and as a result may have greater resources and lower costs of funds than the Company. Additionally the Company faces competition from de novo community banks, including those with senior management who were previously with other local banks or those controlled by investor groups with strong local business and community ties. Management believes the Company will continue to be competitive because of its strong commitment to quality customer service, convenient local branches, active community involvement and competitive products and pricing.

Employees

At December 31, 2003 the Company employed 473 full-time equivalent employees. None of the employees were represented by any union or similar group. The Company has not experienced any labor disputes or strikes arising from any organized labor groups. The Company believes its employee relations are good.

Executive Officers of Registrant

The following is a list of the executive officers of the Company:

George Gleason, age 50, Chairman and Chief Executive Officer. Mr. Gleason has served the Company or its bank subsidiary 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.

Mark Ross, age 48, Vice Chairman, President and Chief Operating Officer. Mr. Ross joined the Company in 1980. Over the past 24 years, Mr. Ross has served in several key positions, becoming President in 1986, joining the board of directors in 1992, and adding the responsibilities of Vice Chairman and Chief Operating Officer to his duties as President in 2002. Mr. Ross holds a B.A. in Business Administration from Hendrix College.

Paul Moore, age 57, Chief Financial Officer since 1995. Mr. Moore is a C.P.A. and received a B.S.B.A. in Banking, Finance and Accounting from the University of Arkansas.

Jean Arehart, age 63, President of the bank subsidiary’s Mortgage Division. Ms. Arehart joined the Company’s bank subsidiary as Senior Vice President in 1996, was named Executive Vice President in 1997 and has served as President of the Mortgage Division since 2000. She was elected as a director in 2002. In 1999 Ms. Arehart resigned employment with

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the bank subsidiary but returned in January 2000. Prior to 1996 Ms. Arehart served as Senior Vice President and a member of the executive committee of a North Little Rock competitor from 1979 to 1996.

Fred Campbell, age 56, President of the bank subsidiary’s Eastern Division since December 2003. Mr. Campbell joined the bank in 2002 as Executive Vice President. He served as a Senior Vice President for a competitor from 1999 to 2002 and served as President of another competitor from 1992 to 1999. Mr. Campbell has 34 years banking experience in the Cabot community.

Danny Criner, age 49, President of the bank subsidiary’s Northern Division since 1991. Mr. Criner received a B.S.B.A. in Banking and Finance from the University of Arkansas.

C. E. Dougan, age 57, President of the bank subsidiary’s Western Division since 2000. Prior to that Mr. Dougan served as a director of the Company from 1997 to 2000. Mr. Dougan was co-owner from 1996 to 2000 of Mooney-Dougan, Inc., specializing in residential real estate development, construction and investments. Prior to 1997 Mr. Dougan, who has over 34 years of banking experience, served 12 years as president and chief executive officer of a competitor.

Scott Hastings, age 46, President of the bank subsidiary’s Leasing Division since March 2003. From 2001 to 2002 he served as division president of the $800 million leasing division of a large diversified national financial services firm. From 1995 to 2001 he served as President, Chief Operating Officer and Director of a large regional bank’s leasing subsidiary with over $500 million in assets. Mr. Hastings holds a B.A. degree from the University of Arkansas-Little Rock.

Gene Jennings, age 55, President of the bank subsidiary’s Trust Division since 2001. Mr. Jennings served as Vice President, Corporate Trust/Personal Trust in the Little Rock office of a competitor from 1990 to 2001. He holds a B.A. degree from Southern Methodist University.

Dan Rolett, age 41, Executive Vice President of the bank subsidiary since 2002. He joined the Company’s bank subsidiary as Vice President in 1996 and was named Senior Vice President in 1999 to manage the bank’s investment portfolio among other duties. He holds a B.A. in marketing and finance from the University of Arkansas-Little Rock.

Darrel Russell, age 50, President of the bank subsidiary’s Central Division since 2001. He served as Executive Vice President of the bank subsidiary from 1997 to 2001. From 1992 to 1997 Mr. Russell served as Senior Vice President of the bank subsidiary. He received a B.S.B.A. in Banking and Finance from the University of Arkansas.

John Stanton, age 52, President of the bank subsidiary’s River Valley Division since 2001. Prior to 2001, Mr. Stanton, who has 29 years of banking experience, served as market president of a competitor from 1996 to 2001. He holds a B.S.E. degree from the University of Central Arkansas.

Messrs. Gleason, Ross and Moore serve in the same position with both the Company and its bank subsidiary.

Non-GAAP Financial Measures

Management’s Discussion and Analysis of Financial Condition and Results of Operations, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management, include certain non-GAAP financial measures, which are defined as numerical measures of a company’s financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measures calculated and presented in accordance with GAAP in the Company’s financial statements. Specifically these are the measures of growth in deposits and loans that exclude the effect of the acquisition of RVB Bancshares, Inc. and its bank subsidiary. The Company’s management believes that these measures provide useful information regarding the Company’s financial performance because they quantify the growth that resulted from Company’s operations exclusive of this acquisition and therefore provide insight into the results of such operations excluding the acquisition.

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SUPERVISION AND REGULATION

In addition to the generally applicable state and federal laws governing businesses and employers, bank holding companies and banks are extensively regulated under both federal and state law. With few exceptions, state and federal banking laws have as their principal objective either the maintenance of the safety and soundness of the Bank Insurance Fund (“BIF”) and Savings Association Insurance Fund (“SAIF”) of the FDIC or the protection of consumers or classes of consumers, rather than the specific protection of the stockholders of the Company. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those particular statutory and regulatory provisions. Any change in applicable law or regulation may have an adverse effect on the results of operation and financial condition of the Company and its bank subsidiary.

Federal Regulations

The primary federal banking regulatory authority for the Company is the Board of Governors of the Federal Reserve System (the “FRB”), acting pursuant to its authority to regulate bank holding companies. Because the Company’s bank subsidiary is an insured depository institution which is not a member bank of the Federal Reserve System, it is subject to regulation and supervision by the FDIC and is not subject to direct supervision by the FRB.

Bank Holding Company Act. The Company is subject to supervision by the FRB under the provisions of the Bank Holding Company Act of 1956, as amended (the “BHCA”). The BHCA restricts the types of activities in which bank holding companies may engage and imposes a range of supervisory requirements on their activities, including regulatory enforcement actions for violations of laws and policies. The BHCA limits the activities of the Company and any companies controlled by it to the activities of banking, managing and controlling banks, furnishing or performing services for its subsidiaries, and any other activity that the FRB determines to be incidental to or closely related to banking. These restrictions also apply to any company in which the Company owns 5% or more of the voting securities.

Before a bank holding company engages in any non-bank-related activities, either by acquisition or commencement of de novo operations, it must comply with the FRB’s notification and approval procedures. In reviewing these notifications, the FRB considers a number of factors, including the expected benefits to the public versus the risks of possible adverse effects. In general, the potential benefits include greater convenience to the public, increased competition and gains in efficiency, while the potential risks include undue concentration of resources, decreased or unfair competition, conflicts of interest and unsound banking practices.

Under the BHCA, a bank holding company must obtain FRB approval before engaging in acquisitions of banks or bank holding companies. In particular, the FRB must generally approve the following actions by a bank holding company:

• the acquisition of ownership or control of more than 5% of the voting securities of any bank or bank holding company;

• the acquisition of all or substantially all of the assets of a bank; and

• the merger or consolidation with another bank holding company.

In considering any application for approval of an acquisition or merger, the FRB is required to consider various competitive factors, the financial and managerial resources of the companies and banks concerned, the convenience and needs of the communities to be served, the effectiveness of the applicant in combating money laundering activities, and the applicant’s record of compliance with the Community Reinvestment Act (the “CRA”). The CRA generally requires financial institutions to take affirmative action to ascertain and meet the credit needs of its entire community, including low and moderate income neighborhoods. The Attorney General of the United States may, within 30 days after approval of an acquisition by the FRB, bring an action challenging such acquisition under the federal antitrust laws, in which case the effectiveness of such approval is stayed pending a final ruling by the courts.

Recent Banking Legislation. On November 12, 1999, the Gramm-Leach-Bliley Act (the “GLBA”) was signed into law and it became effective March 11, 2000. Under the GLBA, a bank holding company that elects to become a “financial holding company” will be permitted to engage in any activity that the FRB, in consultation with the Secretary of the Treasury,

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determines by regulation or order is (i) financial in nature or incidental to such financial activity or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. In addition to traditional lending activities, the GLBA specifies the following activities as financial in nature:

• acting as principal, underwriter, agent or broker for insurance;

• underwriting, dealing in or making a market in securities;

• merchant banking activities; and

• providing financial and investment advice.

A bank holding company may become a financial holding company only if all depository institution subsidiaries of the holding company are well-capitalized, well-managed and have at least a satisfactory rating under the Community Reinvestment Act. A financial holding company that falls out of compliance with such requirement may be required to cease engaging in certain activities.

National banks are also authorized by the GLBA to engage, through “financial subsidiaries,” in any activity that is permissible for a financial holding company, except (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments and (iv) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the bank’s outstanding investments in financial subsidiaries). The GLBA provides that state banks, such as the Company’s bank subsidiary, may invest in financial subsidiaries that engage as 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.

The GLBA also adopts a number of consumer protections, including provisions intended to protect privacy of bank customers’ financial information and provisions requiring disclosure of ATM fees imposed by banks on customers of other banks. The consumer privacy regulation mandated by the GLBA was approved on May 10, 2000. The rule became effective on November 13, 2000, and compliance remained optional until July 1, 2001. Under the rule, when establishing a customer relationship, a financial institution must give the consumer information such as when it will disclose nonpublic, personal information to unaffiliated third parties, what type of information it may share and what types of affiliates may receive the information. The institution must also provide customers with annual privacy notices, a reasonable means for preventing the disclosure of information to third parties, and the opportunity to opt out of the disclosure at any time.

The Company has no current plans to elect to become a financial holding company. As long as the Company has not elected to become a financial holding company, it will remain subject to the current restrictions of the BHCA.

Title III of the USA Patriot Act, adopted in October 2001 (the “Patriot Act”), increased the obligation of financial institutions, including banks, to identify their customers, watch for and report suspicious transactions, respond to requests for information by federal banking regulatory authorities and law enforcement agencies, and share information with other financial institutions. The Patriot Act also amended the BHCA and the Bank Merger Act to require federal banking regulatory authorities to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing an application to expand operations. On April 30, 2003, the FRB and other agencies issued final rules implementing Section 326 of the Patriot Act, requiring financial institutions, including banks, to establish procedures for collecting standard information from customers opening new accounts and verifying the identity of these new accountholders within a reasonable period of time. Financial institutions were required to comply with these rules by October 1, 2003.

On December 4, 2003, the Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”) was signed into law. The FACT Act permanently extends the national credit reporting standards of the Fair Credit Reporting Act, which would otherwise have expired on January 1, 2004, and permits consumers, including customers of the Company’s bank subsidiary, to opt out of information sharing among affiliated companies for marketing purposes. The FACT Act also requires financial institutions, including banks, to notify a customer if the institution provides negative information about the customer to a national credit reporting agency or if the credit that is granted to the customer is on less favorable terms than those generally available. Banks must also comply with guidelines to be established by their federal banking regulators to help detect identity theft. Provisions of the FACT Act that do not require significant changes to business procedures will be effective March 31, 2004. Provisions of the FACT Act that are likely to entail significant changes to business procedures, such as duties to provide notices to customers, become effective on December 1, 2004.

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Interstate Banking. On September 29, 1994, President Clinton signed into law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) which amended the BHCA to permit bank holding companies to acquire existing banks in any state effective September 29, 1995. The Interstate Act preempted barriers that restricted entry into states and created opportunities for expansion into markets that were previously closed. Interstate banking and branching authority (discussed below) is subject to certain conditions and restrictions, such as capital adequacy, management and CRA compliance.

The Interstate Act also contained interstate branching provisions that allow multistate banking operations to merge into a single bank with interstate branches. The interstate branching provisions became effective on June 1, 1997, although states were allowed to pass laws to opt in early or to opt out completely as long as they acted prior to that date. Effective May 31, 1997, the Arkansas Interstate Banking and Branching Act of 1997 (the “Arkansas Interstate Act”) authorized banks to engage in interstate branching activities within the borders of the state of Arkansas.

Banks acquired pursuant to this new branching authority may be converted to branches. Interstate branching allows banks to merge across state lines to form a single institution. Interstate merger transactions can be used to consolidate existing multistate operations or to acquire new branches. A bank can also establish a new branch as its initial entry into a state if the state has authorized de novo branching. The Arkansas Interstate Act prohibits entry into the state through de novo branching.

Deposit Insurance. The FDIC insures the deposits of the Company’s bank subsidiary to the extent provided by law. BIF is the primary insurance fund for the bank’s deposits, but SAIF insures a portion due to certain acquisitions by the Company of deposits from SAIF-insured institutions. Under the FDIC’s risk-based insurance system, depository institutions are currently assessed premiums based upon the institution’s capital position and other supervisory factors. BIF and SAIF members currently have the same risk-based assessment schedule, which is 0 to 27 cents per $100 of eligible deposits.

Insured depository institutions are further assessed premiums for Financing Corporation Bond debt service (“FICO”). Beginning January 1, 1997, FICO premiums for BIF and SAIF became 1.22 and 6.1 basis points, respectively, per $100 of eligible deposits. As of January 1, 2000, BIF- and SAIF-insured deposits became subject to assessments at the same rate by FICO. The FICO assessment rate for BIF and SAIF was 1.60 basis points for the third quarter of 2003 and 1.52 basis points for the fourth quarter of 2003. For the period July 1, 2003 through December 31, 2003, the Company’s bank subsidiary was assessed an average annualized premium of $0.0156 per $100 of BIF-eligible deposits and $0.0156 per $100 of SAIF-eligible deposits.

Capital Adequacy Requirements. The FRB monitors the capital adequacy of bank holding companies such as the Company, and the FDIC monitors the capital adequacy of its bank subsidiary. The federal bank regulators use a combination of risk-based guidelines and leverage ratios to evaluate capital adequacy.

Under the risk-based capital guidelines, bank regulators assign a risk weight to each category of assets based generally on the perceived credit risk of the asset class. The risk weights are then multiplied by the corresponding asset balances to determine a “risk-weighted” asset base. The minimum ratio of total risk-based capital to risk-weighted assets is 8.0%. At least half of the risk-based capital must consist of Tier 1 capital, which is comprised of common equity, retained earnings and certain types of preferred stock and excludes goodwill and various intangible assets. The remainder, or Tier 2 capital, may consist of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock, and an allowance for loan losses not to exceed 1.25% of risk-weighted assets. The sum of Tier 1 capital and Tier 2 capital is “total risk-based capital.”

The leverage ratio is a company’s Tier 1 capital divided by its adjusted total assets. The minimum required leverage ratio is 3.0% Tier 1 capital to adjusted average asset ratio for institutions with the highest regulatory rating of 1. All other institutions must maintain a leverage ratio of 4.0% to 5.0%. For a tabular summary of the Company’s and the bank subsidiary’s risk-weighted capital and leverage ratios, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources.”

Bank regulators may from time to time consider raising the capital requirements of banking organizations beyond current levels. However, the Company is unable to predict whether higher capital requirements will be imposed and, if so, the amount or timing of such increases. Therefore, the Company cannot predict what effect such higher requirements may have on it or its bank subsidiary.

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Enforcement Authority. The FRB has enforcement authority over bank holding companies and non-banking subsidiaries to forestall activities that represent unsafe or unsound practices or constitute violations of law. It may exercise these powers by issuing cease-and-desist orders or through other actions. The FRB may also assess civil penalties in amounts up to $1 million for each day’s violation against companies or individuals who violate the BHCA or related regulations. The FRB can also require a bank holding company to divest ownership or control of a non-banking subsidiary or require such subsidiary to terminate its non-banking activities. Certain violations may also result in criminal penalties.

The FDIC possesses comparable authority under the Federal Deposit Insurance Act (the “FDI Act”), the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) and other statutes with respect to the bank subsidiary. In addition, the FDIC can terminate insurance of accounts, after notice and hearing, upon a finding that the insured institution is or has engaged in any unsafe or unsound practice that has not been corrected, is in an unsafe and unsound condition to continue operations, or has violated any applicable law, regulation, rule, or order of, or condition imposed by the appropriate supervisors.

The FDICIA required federal banking agencies to broaden the scope of regulatory corrective action taken with respect to depository institutions that do not meet minimum capital and related requirements and to take such actions promptly in order to minimize losses to the FDIC. In connection with 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, acquisitions of assets, the establishment of new branches and the entry into new lines of business. On December 13, 2003 the FDIC advised the Company that the bank subsidiary had been classified as “well-capitalized” under these guidelines.

Examination. The FRB may examine the Company and any or all of its subsidiaries. The FDIC examines and evaluates insured banks approximately every 12 months, and it may assess the institution for its costs of conducting the examinations. The FDIC has a reciprocal agreement with the Arkansas State Bank Department whereby each will accept the other’s examination reports in certain cases. The bank subsidiary generally undergoes FDIC and state examinations on a joint basis.

Reporting Obligations. As a bank holding company, the Company must file with the FRB an annual report and such additional information as the FRB may require pursuant to the BHCA. The bank subsidiary must submit to federal and state regulators annual audit reports prepared by independent auditors, and the Company’s audit report can be used to satisfy this requirement. The Company’s bank subsidiary must submit quarterly to the FDIC Reports of Condition and Income (referred to in the banking industry as a Call Report).

Other Regulation. The Company’s status as a registered bank holding company under the BHCA does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. The Company is under the jurisdiction of the Securities and Exchange Commission and of state securities commissions for matters relating to the offer and sale of its securities.

The bank subsidiary’s loan operations are subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves, the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit, the Fair Credit Reporting Act of 1978 governing the use and provision of information to credit reporting agencies, the Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies, the Fair Housing Act prohibiting discriminatory practices relative to real estate-related transactions, including the financing of housing, and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the bank subsidiary also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, the Electronic Fund Transfer Act, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services, the Truth in Savings Act requiring depository institutions to disclose the terms of deposit accounts to consumers and the Expedited

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Funds Availability Act requiring financial institutions to make deposited funds available according to specified time schedules and to disclose funds availability policies to consumers.

State Regulations

The Company and its bank subsidiary are subject to examination and regulation by the Arkansas State Bank Department. Examinations of the bank subsidiary are typically conducted annually but may be extended to 24 months if an interim examination is performed by the FDIC. The Arkansas State Bank Department may also make at any time an examination of the Company as may be necessary to disclose fully the relations between the holding company and its bank subsidiary and the effect of those relations.

The Arkansas Constitution provides, in summary, that “consumer loans and credit sales” have a maximum percentage limitation of 17% per annum and that all “general loans” have a maximum interest rate limitation of 5% over the Federal Reserve Discount Rate in effect at the time the loan was made. The Arkansas Supreme Court has determined that “consumer loans and credit sales” are also “general loans” and are thus subject to an interest rate limitation equal to the lesser of 5% over the Federal Reserve Discount Rate or 17% per annum. The Arkansas Constitution also provides penalties for usurious “general loans” and “consumer loans and credit sales,” including forfeiture of all principal and interest on consumer loans and credit sales made at a greater rate of interest than 17% per annum. Additionally, “general loans” made at a usurious rate may result in forfeiture of uncollected interest and a refund to the borrower of twice the interest collected.

Arkansas usury laws have historically been preempted by federal law with respect to first residential real estate loans and certain loans guaranteed by the Small Business Administration. Furthermore, the GLBA preempted the application of the Arkansas Constitution’s usury limits to the Company’s bank subsidiary effective November 12, 1999. In a non-adversarial test case involving undisputed facts, the Eighth Circuit Court of Appeals affirmed the District Court’s ruling that the preemptive provisions of the GLBA are constitutional. Although the constitutionality of the preemption provision could be raised again in the future, the Company’s bank subsidiary currently may charge interest at rates over and above the limitations set forth in the Arkansas Constitution.

The Company is also subject to the Arkansas Bank Holding Company Act of 1983 (“ABHCA”) which places certain restrictions on the acquisition of banks by bank holding companies. Any acquisition by the Company of more than 10% of any class of the outstanding capital stock of any bank located in Arkansas would require the Arkansas Bank Commissioner’s approval. Further, no bank holding company may acquire any bank if after such acquisition the holding company would control, directly or indirectly, banks having 25% of the total bank deposits (excluding deposits from other banks and public funds) in the State of Arkansas. Under the ABHCA a bank holding company cannot own more than one bank subsidiary if any of its bank subsidiaries has been chartered for less than 5 years.

Effective January 1, 1999 Arkansas law allows the Company to engage in branching activities for its bank subsidiary on a statewide basis. Immediately prior to that date, the state’s branching laws prevented state and national banks from opening branches in any county of the state other than their home county and the counties contiguous to their home county. Because the state branching laws did not limit the branching activities of federal savings banks, the Company was able to branch outside of the traditional areas of its state bank subsidiaries through the federal thrift that it acquired in February 1998. In response to the change in state branching laws, the Company merged its thrift charter into its lead state bank subsidiary in early 1999.

Bank Subsidiary

The lending and investment authority of the state bank subsidiary is derived from Arkansas law. The lending power is generally subject to certain restrictions, including the amount which may be lent to a single borrower.

Regulations of the FDIC and the Arkansas State Bank Department limit the ability of the bank subsidiary to pay dividends to the Company without the prior approval of such agencies. FDIC regulations prevent insured state banks from paying any dividends from capital and allows the payment of dividends only from net profits then on hand after deduction for losses and bad debts. The Arkansas State Bank Department currently limits the amount of dividends that the bank subsidiary can pay the Company to 75% of the bank’s net profits after taxes for the current year plus 75% of its retained net profits after taxes for the immediately preceding year.

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Federal law substantially restricts transactions between financial institutions and their affiliates, particularly their non-financial institution affiliates. As a result, the bank subsidiary is sharply limited in making extensions of credit to the Company or any non-bank subsidiary, in investing in the stock or other securities of the Company or any non-bank subsidiary, in buying the assets of, or selling assets to, the Company, and/or in taking such stock or securities as collateral for loans to any borrower. Moreover, transactions between the bank subsidiary and the Company (or any nonbank subsidiary) must generally be on terms and under circumstances at least as favorable to the bank subsidiary as those prevailing in comparable transactions with independent third parties or, in the absence of comparable transactions, on terms and under circumstances that in good faith would be available to nonaffiliated companies.

The federal banking laws require all insured banks, including the bank subsidiary, to maintain reserves against their checking and transaction accounts (primarily checking accounts, NOW and Super NOW checking accounts). Because reserves must generally be maintained in cash or in non-interest bearing accounts, the effect of the reserve requirements is to increase the bank subsidiary’s cost of funds. Arkansas law requires state chartered banks to maintain such reserves as are required by the applicable federal regulatory agency.

The bank subsidiary is 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, including the Company. 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. The bank subsidiary is 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 its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated companies. The bank subsidiary is subject to restrictions on extensions of credit to executive officers, directors, certain principal stockholders, 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.

Proposed Legislation For Bank Holding Companies And Banks

Certain proposals affecting the banking industry have been discussed from time to time. Such proposals include: regulation of all insured depository institutions by a single regulator; limitations on the number of accounts protected by the federal deposit insurance funds; and modification of the $100,000 coverage limit on deposits. It is uncertain which, if any, of these proposals may become law and what effect they would have on the Company and its bank subsidiary.

Available Information

The Company makes available, free of charge, through the Investor Relations section of the Company’s Internet website at www.bankozarks.com, its 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 the Company electronically files such reports, or furnishes them to, the Securities and Exchange Commission. Also the Company’s corporate governance principles, Audit Committee charter, Personnel and Compensation Committee charter and Nominating and Governance Committee charter are available under the section “Investor Relations” on the Company’s website.

Forward-Looking Information

This Form 10-K including Management’s Discussion and Analysis of Financial Condition and Results of Operations incorporated by reference herein, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management, include certain forward-looking statements including, without limitation, statements with respect to net interest margin, net interest income, anticipated future operating and financial performance, asset quality, nonperforming loans and leases and assets, growth opportunities, growth rates, acquisition opportunities, new office openings, the possible conversion of loan production offices to full service banking offices, the possible prepayment of trust preferred securities and the effects thereof and other similar forecasts and statements of expectation. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of

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management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.

Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management due to certain risks, uncertainties and assumptions. Certain factors that may affect operating results of the Company include, but are not limited to, the following: (1) potential delays or other problems in implementing the Company’s growth and expansion strategy including delays in identifying satisfactory sites and opening new offices; (2) the ability to attract new deposits and loans; (3) interest rate fluctuations; (4) competitive factors and pricing pressures; (5) general economic conditions and their effect on the credit worthiness of borrowers and collateral values; and (6) changes in legal and regulatory requirements as well as other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements.

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Item 2. PROPERTIES

The Company serves its customers by offering a broad range of banking services throughout northern, western and central Arkansas from the following banking locations:

Banking Location (1)	Year Opened	Square Footage
Fort Smith (Phoenix)	2003	2,250
Little Rock (Taylor Loop/Cantrell)	2003	2,400
Bryant (Hwy. 5)	2003	2,784
Benton	2003	2,784
Cabot (Main)	2003	4,400
Russellville(2)	2003	7,644
Conway (Prince & Salem)	2003	2,464
Mountain Home(3)	2003	2,000
Little Rock (Cantrell West)(4)	2002	2,587
Hot Springs Village (Cranford’s)(5)	2002	449
Conway (North)	2002	4,350
Conway (Downtown)(6)	2002	2,640
Maumelle	2002	3,576
Bryant (Wal-Mart Supercenter)(7)	2001	675
Lonoke(8)	2001	5,731
Little Rock (Otter Creek)	2001	2,400
Fort Smith (Zero)	2001	2,784
Yellville	2000	2,716
Clinton	1999	2,784
North Little Rock (North Hills) (9)	1999	4,350
Harrison (Downtown)	1999	14,000
North Little Rock (Indian Hills)(10)	1999	1,500
Fort Smith (Rogers)	1998	22,500
Little Rock (Cantrell)	1998	2,700
Little Rock (Chenal)	1998	40,000
Little Rock (Rodney Parham)	1998	2,500
Little Rock (Chester)(11)	1998	1,716
Bellefonte	1997	1,444
Alma	1997	4,200
Paris	1997	3,100
Mulberry	1997	1,875
Harrison (North)(12)	1996	3,300
Clarksville (Rogers)	1995	3,300
Van Buren	1995	2,520
Marshall (12)	1995	2,520
Clarksville (Main)	1994	2,520
Ozark (Westside)	1993	2,520
Western Grove	1976 (expanded 1991)	2,610
Altus (13)	1972 (rebuilt 1998)	1,500
Ozark (Main)	1971 (expanded 1985)	30,877
Jasper	1967 (expanded 1984)	4,408

(1) Unless otherwise indicated, the Company owns such banking locations.

(2) This facility was remodeled as a banking facility in 1997 and acquired by the Company in the acquisition of RVB in 2003.

(3) Lease beginning May 15, 2003 for a one year term.

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(4) Lease beginning in 2002 for an initial term of ten years with options to renew for six terms of five years each.

(5) Lease beginning in 2002 for a term of five years with options to renew for five three-year periods.

(6) The Company leased a temporary facility beginning February 2002 under a short-term lease. This lease expired and rental of this office was then on a month-to-month basis. A site for a permanent office for this location was purchased in late 2002. Construction of the facility commenced in 2003 and was completed along with relocation from the temporary office in February 2004.

(7) The Company leases this facility with an initial term expiring May 9, 2006 subject to options to renew for two additional terms of five years each.

(8) This facility was acquired by the Company in 2001. The facility was constructed in 1997.

(9) The Company owns the building and leases the land at this location. The initial lease term expires twenty years from November 1999 with the right to extend for four additional five-year periods.

(10) The Company leases the building and land at this location with an initial term which expired in December 2001, and is currently in the second two year renewal option period which expires in 2005. This property is subject to options to renew for three additional terms of two years each.

(11) This location was acquired by the Company in February 1998. The facility was constructed in 1994.

(12) The Company owns the buildings and leases the land at these locations. The initial lease term expired in 2001 for Harrison and was renewed through 2007. At that time the Company has a purchase option on the Harrison site. The initial lease term expires in 2024 for Marshall. The Company has renewal options through 2054 for the Marshall site.

(13) Original facility was destroyed by storm in 1997. This facility was rebuilt and placed in service in 1998.

In addition to the above banking locations, the Company had three loan production offices at December 31, 2003. These offices are located in Charlotte, North Carolina and Frisco and Dallas, Texas. All of these loan production offices are maintained in leased quarters with original lease terms of 36 months or less.

While management believes its existing banking locations are adequate for its present operations, the Company intends to establish additional branch offices in accordance with its growth strategy.

Item 3. LEGAL PROCEEDINGS

On July 26, 2000 the case of David Dodds, et. al. vs. Bank of the Ozarks and Jean Arehart was filed in the Circuit Court of Pulaski County, Arkansas, Fifth Division, which contained allegations that the Company’s bank subsidiary (the “Bank”) committed breach of contract, certain common law torts, fraud, and a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et. seq. (“RICO”). The Bank made several residential construction loans related to houses built by the plaintiffs, and in 1998, the Bank commenced foreclosure of a house that was being constructed by one of the plaintiffs. The complaint related to such transactions. The Bank removed the case to the United States District Court for the Eastern District of Arkansas, Western Division. The original complaint sought alternative remedies of either (a) compensatory damages of $5 million and punitive damages of $10 million based on the common law tort claims or (b) compensatory damages of $5 million trebled to $15 million based on RICO. The Bank filed a Motion for Partial Summary Judgment in which the Bank asked the Court to dismiss with prejudice the plaintiffs’ RICO claims, as well as their state law claims of fraud, defamation and outrage/intentional infliction of emotional distress. On October 29, 2001 the Court granted the Bank’s Motion for Partial Summary Judgment and dismissed the plaintiffs’ RICO claims and state law claims of fraud, defamation and outrage/intentional infliction of emotional distress. The time for an appeal of the District Court’s award of partial summary judgment has passed. The District Court remanded the case back to the Circuit Court of Pulaski County, Arkansas, Fifth Division, where it is currently pending. The only surviving claims remanded were breach of contract and intentional interference with contract. In October of 2003 the Circuit Court of Pulaski County granted the Bank’s Motion for Summary Judgment on the breach of contract claim leaving the intentional interference with contract as the only pending claim. On September 5, 2003 plaintiffs filed a First Amended Complaint in which Jean Arehart was dismissed as a defendant. The plaintiffs added a count for breach of fiduciary duty. The Bank has filed a motion for summary judgment seeking dismissal of the breach of fiduciary duty claim. On December 15, 2003, plaintiffs filed a second amended complaint in which plaintiffs once again allege breach of contract and intentional interference claims. The Bank intends to file a motion for summary judgment on these claims as well. The case is set for trial June 29, 2004. Mr. and Mrs. Dodds also filed a suit in the Circuit Court of Faulkner County, Arkansas attempting to set aside a foreclosure sale by Bank and alleging tort claims and seeking $2 million in compensatory damages and $5 million in punitive damages from Bank. The Faulkner County Circuit Court issued an order on July 18, 2003 granting the Bank’s Motion for Summary Judgment and Motion to

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Dismiss the plaintiffs’ First Amended Petition to Set Aside and Complaint at Law. This order effectively dismisses all claims pending against the Bank in the Faulkner County action. That order may not yet be appealable as another party’s foreclosure action against the plaintiffs in the Faulkner County case is still pending. The Company believes it has substantial defenses to the remaining claims and intends to vigorously defend the cases.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A Special Meeting of Stockholders of the Company was held on December 9, 2003. The following item of business was presented to and approved by the stockholders:

Approval of an amendment to the Company’s Amended and Restated Articles of Incorporation increasing the amount of the Company’s Common Stock, par value $0.01 per share, that the Company is authorized to issue from 10,000,000 shares to 50,000,000 shares. 6,885,718 voted for the amendment, 915,368 voted against and 5,813 shares were not voted.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Company’s Common Stock is listed on the Nasdaq National Market under the symbol “OZRK” and as of March 5, 2004 the Company had 241 holders of record representing approximately 2,690 beneficial owners. The other information required by Item 201 of Regulation S-K is contained in the Management’s Discussion and Analysis section of the Company’s 2003 Annual Report under the heading “Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends” on page 33, which information is incorporated herein by reference.

Item 6 SELECTED FINANCIAL DATA

The information required by Item 301 of Regulation S-K is contained in the Company’s 2003 Annual Report under the heading “Selected Consolidated Financial Data” on page 14, which information is incorporated herein by reference.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by Item 303 of Regulation S-K is contained in the Company’s 2003 Annual Report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 15 through 33, which information is incorporated herein by reference.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by Item 305 of Regulation S-K is contained in the Management’s Discussion and Analysis section of the Company’s 2003 Annual Report under the heading “Interest Rate Sensitivity” on pages 26 through 28, which information is incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item and by Item 302 of Regulation S-K is contained in the Company’s 2003 Annual Report on pages 34 through 51 and in the Management’s Discussion and Analysis section of the 2003 Annual Report under the heading “Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends” on page 33 which information is incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

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Item 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

An evaluation as of the end of the period covered by this annual report was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chairman and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures,” which are defined under SEC rules as controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Based upon that evaluation, the Company’s Chairman and Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

The Company’s management, including the Company’s Chairman and Chief Executive Officer and its Chief Financial Officer, have evaluated any changes in the Company’s internal control over financial reporting that occurred during the Company’s fourth quarter of its 2003 fiscal year and have concluded that there was no change during the Company’s fourth quarter of its 2003 fiscal year that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 401 of Regulation S-K regarding directors is contained in the Company’s Proxy Statement for the 2004 annual meeting under the heading “Nominees for Election as Directors” on pages 3 through 5, which information is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding the audit committee and the audit committee financial expert is contained in the Company’s Proxy Statement for the 2004 annual meeting under the heading “Committees” on pages 7 and 8, which information is incorporated herein by reference. In accordance with Item 401(b) of Regulation S-K, Instruction 3, information concerning the Company’s executive officers is furnished in a separate item captioned “Executive Officers of Registrant” in Part I above.

Item 405 of Regulation S-K requires the Company to disclose any failure of its executive officers and directors to file on a timely basis reports of ownership and subsequent changes of ownership with the Securities and Exchange Commission. The Company disclosed in its Proxy Statement for the 2004 annual meeting under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” on page 24 its belief that during the preceding year all filing requirements applicable to directors and executive officers had been complied with except for the exceptions noted therein.

Item 406 of Regulation S-K requires the Company to disclose whether it has adopted a code of ethics that applies to certain Company executives. The Company has adopted such a code of ethics, which is posted at www.bankozarks.com under “Investor Relations.”

Item 11. EXECUTIVE COMPENSATION

The information required by Item 402 of Regulation S-K is contained in the Company’s Proxy Statement for the 2003 annual meeting under the heading “Executive Compensation and Other Information” on pages 16 through 18, which information is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 403 of Regulation S-K is contained in the Company’s Proxy Statement for the 2004 annual meeting under the headings “Principal Stockholders” and “Security Ownership of Management” on pages 14 through 15 which information is incorporated herein by reference.

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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 404 of Regulation S-K is contained in the Company’s Proxy Statement for the 2004 annual meeting under the heading “Certain Transactions” on page 23, which information is incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 9(e) of Schedule 14A regarding accounting fees, audit committee pre-approval policies, and related information is contained in the Company’s Proxy Statement for the 2004 annual meeting under the heading “Audit Fees; Auditor to be Present” on page 24, which information is incorporated herein by reference.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) The following consolidated financial statements of the Registrant, and the notes thereto, included on pages 35 to 51 in the Company’s Annual Report for the fiscal year ended December 31, 2003, and the Report of Independent Auditors on page 34 of such Annual Report are incorporated herein by reference.

Consolidated Balance Sheets as of December 31, 2003 and 2002.

Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001.

Notes to Consolidated Financial Statements.

(2) Financial Statement Schedules:

All schedules are omitted for the reasons that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

(b) Reports on Form 8-K:

Form 8-K dated October 9, 2003 press release announcing third Quarter 2003 Earnings Report.

(c) Exhibits:

The exhibits to this report are listed in the Exhibit Index at the end of this Item 15.

(d) Financial Statement Schedules:

Not applicable.

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EXHIBIT INDEX

The following exhibits are filed with this report or are incorporated by reference to previously filed material.

Exhibit No.
3.1	Amended and Restated Articles of Incorporation of the Registrant, dated May 22, 1997 (previously filed as Exhibit No. 3.1 to the Company’s Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference).
3.2	Articles of Amendment to the Amended and Restated Articles of Incorporation of the Registrant dated December 9, 2003 (attached).
3.3	Amended and Restated By-Laws of the Registrant, dated March 13, 1997 (previously filed as Exhibit No. 3.2 to the Company’s Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference).
4.1	Amended and Restated Trust Agreement, dated June 18, 1999, relating to the issuance of Ozark Capital Trust’s $17,250,000 of 9.0% Cumulative Trust Preferred Securities (previously filed as exhibit 4.1 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference).
4.2	9.0% Cumulative Trust Preferred Securities Certificate (included as an exhibit to Item 4.1 previously filed with the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference).
4.3	Agreement as to Expenses and Liabilities (included as an exhibit to Item 4.1, previously filed as exhibit 4.1 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference).
4.4	Subordinated Indenture, dated June 18, 1999, relating to the issuance of the Company’s $17,783,510 of 9.0% Subordinated Debentures (previously filed as exhibit 4.4 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference).
4.5	Form of 9.0% Subordinated Debenture (included as an exhibit to Item 4.4 previously filed with the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference).
4.6	Form of Preferred Securities Guarantee Agreement, dated June 18, 1999, (previously filed as exhibit 4.6 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended June 30, 1999, and incorporated herein by this reference).
4.7	Amended and Restated Declaration of Trust, by and among U.S. Bank National Association, as Institutional Trustee, Bank of the Ozarks, Inc. as Sponsor, and George G. Gleason, Mark D. Ross and Paul E. Moore, as Administrators, dated as of September 29, 2003 (previously filed as exhibit 4.1 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
4.8	Form of Capital Security Certificate (previously filed as exhibit 4.2 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
4.9	Form of Common Security Certificate (previously filed as exhibit 4.3 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
4.10	Indenture, by and between Bank of the Ozarks, Inc. and U.S. Bank National Association, as debenture trustee, dated as of September 29, 2003 (previously filed as exhibit 4.4 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).

18

4.11	Guarantee Agreement, by and among Bank of the Ozarks, Inc. and U.S. Bank National Association, dated as of September 29, 2003 (previously filed as exhibit 4.5 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
4.12	Amended and Restated Declaration of Trust, by and among Wilmington Trust Company, as Delaware Trustee and as Institutional Trustee, Bank of the Ozarks, Inc., as Sponsor, George G. Gleason, as Administrator, Mark D. Ross, as Administrator, and Paul E. Moore, as Administrator, dated as of September 25, 2003 (previously filed as exhibit 4.6 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
4.13	Form of Capital Security Certificate (previously filed as exhibit 4.7 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
4.14	Form of Common Security Certificate (previously filed as exhibit 4.8 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
4.15	Indenture, by and between Bank of the Ozarks, Inc. and Wilmington Trust Company, as trustee, dated as of September 25, 2003 (previously filed as exhibit 4.9 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
4.16	Guarantee Agreement, by and between Bank of the Ozarks, Inc. and Wilmington Trust Company, as trustee, dated as of September 25, 2003 (previously filed as exhibit 4.10 to the Company’s quarterly report on Form 10-Q filed with the Commission for the period ended September 30, 2003, and incorporated herein by this reference).
10.1	Bank of the Ozarks, Inc. Stock Option Plan, dated May 22, 1997 (previously filed as Exhibit No. 10.1 to the Company’s Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference).
10.2	Bank of the Ozarks, Inc. Non-Employee Director Stock Option Plan, dated May 22, 1997 (previously filed as Exhibit No. 10.2 to the Company’s Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference).
10.3	Form of Indemnification Agreement between the Registrant and its directors and certain of its executive officers (previously filed as Exhibit No. 10.10 to the Company’s Registration Statement on Form S-1 filed with the Commission on May 22, 1997, as amended, Commission File No. 333-27641, and incorporated herein by this reference).
10.14	Employment agreement effective January 1, 2004 between the Registrant and George Gleason (attached).
13	Portions of the Registrant’s Annual Report to Stockholders for the year ended December 31, 2003 which are incorporated herein by reference: pages 14 to 51 of such Annual Report (attached).
21	List of Subsidiaries of the Registrant (attached).
23.1	Consent of Ernst & Young LLP (attached).
31.1	Certification of Chairman and Chief Executive Officer
31.2	Certification of Chief Financial Officer
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

19

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 OF THE OZARKS, INC.
By:	/s/    GEORGE GLEASON
	Chairman and Chief Executive Officer

Date: March 12, 2004

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	DATE
/s/     GEORGE GLEASON                   George Gleason	Chairman of the Board, Chief Executive Officer and Director	March 12, 2004
/s/     MARK ROSS                   Mark Ross	Vice Chairman, President, Chief Operating Officer and Director	March 12, 2004
/s/     PAUL MOORE                   Paul Moore	Chief Financial Officer (Chief Accounting Officer)	March 12, 2004
/s/     JEAN AREHART                   Jean Arehart	President, Mortgage Division and Director	March 12, 2004
/s/     STEVEN ARNOLD                   Steven Arnold	Director	March 12, 2004
/s/     JERRY DAVIS                   Jerry Davis	Director	March 12, 2004
/s/     ROBERT EAST                   Robert East	Director	March 12, 2004

20

/s/     LINDA GLEASON                   Linda Gleason	Director	March 12, 2004
/s/     PORTER HILLARD                   Porter Hillard	Director	March 12, 2004
/s/     HENRY MARIANI                   Henry Mariani	Director	March 12, 2004
/s/     DR. R. L. QUALLS                   Dr. R. L. Qualls	Director	March 12, 2004
/s/     KENNITH SMITH                   Kennith Smith	Director	March 12, 2004

21

EX-3.2

EXHIBIT 3.2

ARTICLES OF AMENDMENT

TO THE

AMENDED AND RESTATED ARTICLES OF INCORPORATION OF

BANK OF THE OZARKS, INC.

Pursuant to the provisions of Section 4-27-1006 of the Arkansas Code Annotated, the undersigned Corporation adopts the following Articles of Amendment to its Amended and Restated Articles of Incorporation:

FIRST: The name of the Corporation is Bank of the Ozarks, Inc.

SECOND: The following amendment to the Articles of Incorporation was adopted at a Special Meeting of Shareholders held on December 9, 2003 (the “Meeting”), by stockholders of the Corporation holding a majority of the votes entitled to be cast thereon in the manner prescribed by the Arkansas Business Corporation Act of 1987.

NOW, THEREFORE, BE IT RESOLVED, that paragraph (a) of Article Sixth of the Amended and Restated Articles of Incorporation of the Corporation be amended in its entirety to read as follows:

SIXTH. (a) The total amount of the authorized capital stock of the Corporation is as follows:

SHARES	CLASS	PAR VALUE
50,000,000	Common	$0.01
1,000,000	Preferred	$0.01

THIRD: The number of shares of stock of the Corporation outstanding at the time of such adoption was 8,109,270 shares of common stock, $0.01 par value, and the number of shares entitled to vote thereon was 8,069,270 shares, or 99.5%.

FOURTH: The number of shares entitled to vote on such adoption and which were represented at the Meeting was 7,806,899 shares. The number of shares cast in favor of such amendment was 6,885,718 shares, which amount is sufficient for approval of the amendment.

Dated December 9, 2003.

BANK OF THE OZARKS, INC.
By:	/s/    GEORGE G. GLEASON
Name:	George G. Gleason
Title:	Chairman of the Board and Chief Executive Officer

EX-10.14

Exhibit 10.14

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into on this 2nd day of January, 2004 to be effective as of the 1^st day of January, 2004, by and between Bank of the Ozarks, Inc., an Arkansas corporation, (the “Corporation”), Bank of the Ozarks, a state chartered bank, (the “Bank”), and George G. Gleason, II, an individual and resident of Arkansas (“Gleason”).

W I T N E S S E T H:

WHEREAS, the Corporation, Bank and Gleason are parties to an employment agreement dated January 3, 2003 to be effective as of January 1, 2003 (the “Existing Agreement”);

WHEREAS, the Boards of Directors of the Corporation and Bank (acting by and through their Personnel and Compensation Committees) believe that the future services of Gleason will be of great value to the Corporation and Bank and, by this Agreement, propose to ensure his continued employment for a certain period as set forth below;

WHEREAS, Gleason hereby expresses his willingness to continue in the employment of the Corporation and Bank as is hereby provided;

NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Period of Active Employment. Gleason shall continue in the active employment of the Corporation and Bank commencing on January 1, 2004 and ending on December 31, 2006 (the “Term”).

2. Duties. During the period of this contract, and subject to the limitations hereinafter expressed, Gleason agrees to serve the Corporation and Bank faithfully and to the best of his ability, under the direction of the Boards of Directors of the Corporation and Bank, devoting his time, energy and skill to the management of the Corporation’s and Bank’s business.

3. Compensation. The Corporation and Bank agree to pay to Gleason during the term as defined in Section 1 above, as compensation for his full-time services:

(a) An aggregate minimum base salary of Four Hundred Three Thousand Nine Hundred and Twenty Dollars ($403,920) per annum. Gleason’s base salary will be evaluated and increased, if appropriate, each year thereafter for the term of this contract by majority vote of the Personnel and Compensation Committees of the Boards of Directors of the Corporation and Bank, with members of the Gleason family or any other interested director abstaining. Consideration will be given to increases in Gleason’s base salary based on, among other things, individual merit and performance, assigned duties and scope of responsibility and relative compensation of comparable positions within the industry.

(b) A bonus for each fiscal year during the term of this contract, the amount of which will be subjectively determined by majority vote of the Personnel and Compensation Committees of the Boards of Directors of the Corporation and Bank, with members of the Gleason family or any other interested director abstaining. Such bonus will be based on, among other things, individual merit and performance, taking into account Gleason’s contribution to the overall success of the Corporation and Bank and various measures of corporate performance including long-term growth in deposits, loans and assets, return on average assets, return on average stockholders’ equity, net interest margin, overhead ratio, efficiency ratio, net charge-offs ratio, other measures of growth, earnings, asset quality and risk and other factors deemed appropriate by the Personnel and Compensation Committees. Such bonus, if any, shall be payable to Gleason no later than the end of the first quarter of the succeeding fiscal year.

Additional benefits may be provided and additional equity based compensation may be paid Gleason from time to time by majority vote of the Personnel and Compensation Committees of the Boards of Directors of the Corporation, with members of the Gleason family or any other interested director abstaining. Nothing herein shall prohibit Gleason from being reimbursed for reasonable and customary business expenses or from receiving an allowance therefore.

4. Restrictive Covenant. Gleason expressly agrees, as a condition to the performance by the Corporation and Bank of their obligations hereunder, that during the term of this Agreement he will not, directly or indirectly, enter into or in any manner take part in any business competitive with any business of the Corporation or Bank, without the prior written consent of the Corporation and Bank.

5. Prohibition Against Assignment. Gleason shall have no right to commute, encumber or dispose of the right to receive payments hereunder, which payments and the right thereto are expressly declared to be non-assignable and non-transferable and, in the event of any attempted assignment or transfer, neither the Corporation nor Bank shall have any further liability hereunder.

6. Reorganization. Neither the Corporation nor the Bank shall merge or consolidate with any other organization or organizations until such organization or organizations expressly assume the duties of the Corporation and Bank herein set forth.

7. Independence of Other Agreements. This Agreement is hereby declared to be independent of all other benefits and retirement or deferred compensation plans now or hereafter adopted by the Corporation or Bank, including the Corporation’s stock option plan and Corporation’s and Bank’s 401(k) plan currently existing, and shall not, unless mutually agreed upon in writing, be supplanted or replaced by any other such plan or agreement.

8. This Agreement replaces and supersedes in its entirety the Existing Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate original the day and year first above recited.

ATTEST:	BANK OF THE OZARKS, INC.
/s/    DONNA QUANDT	By:	/s/    MARK D. ROSS
Donna Quandt, Corporate Secretary		Mark D. Ross, President

ATTEST:	BANK OF THE OZARKS
/s/    DONNA QUANDT	By:	/s/    MARK D. ROSS
Donna Quandt, Corporate Secretary		Mark D. Ross, President

GEORGE G. GLEASON, II

/s/    GEORGE G. GLEASON        

George G. Gleason, II

EX-13

Exhibit 13

Selected Consolidated Financial Data

	Year Ended December 31,
	2003			2002			2001			2000			1999
	(Dollars in thousands, except per share amounts)
Income statement data:
Interest income	$	68,883		$	60,913		$	60,119		$	60,752		$	51,575
Interest expense		20,115			21,076			32,049			38,724			28,652
Net interest income		48,768			39,837			28,070			22,028			22,923
Provision for loan and lease losses		3,865			3,660			3,401			2,325			2,485
Non-interest income		17,391			11,689			7,401			5,590			5,171
Non-interest expense		31,992			24,915			19,030			16,964			16,464
Net income		20,201			14,406			8,959			6,040			6,635
Per common share data:*
Earnings - diluted	$	1.24		$	0.92		$	0.59		$	0.40		$	0.44
Book value		6.07			4.70			3.74			3.20			2.90
Dividends		0.23			0.155			0.115			0.105			0.10
Weighted average diluted shares outstanding (thousands)		16,287			15,689			15,262			15,129			15,170
Balance sheet data at period end:
Total assets	$	1,386,529		$	1,036,386		$	871,912		$	827,485		$	796,575
Total loans and leases		909,147			717,895			616,076			510,544			467,131
Allowance for loan and lease losses		13,820			10,936			8,712			6,606			6,072
Total investment securities		364,320			232,168			187,167			253,016			263,395
Total deposits		1,062,064			790,173			677,743			677,683			595,930
Repurchase agreements with customers		29,898			20,739			16,213			13,839			9,026
Other borrowings		145,541			129,366			99,690			66,703			126,989
Total stockholders’ equity		98,486			72,918			56,617			48,349			43,874
Loan and lease to deposit ratio		85.60	%		90.85	%		90.90	%		75.34	%		78.39	%
Average balance sheet data:
Total average assets	$	1,197,346		$	922,950		$	814,446		$	818,731		$	709,925
Total average stockholders’ equity		85,471			64,149			52,334			45,723			41,988
Average equity to average assets		7.14	%		6.95	%		6.43	%		5.58	%		5.91	%
Performance ratios:
Return on average assets		1.69	%		1.56	%		1.10	%		0.74	%		0.93	%
Return on average stockholders’ equity		23.63			22.46			17.12			13.21			15.80
Net interest margin - FTE		4.52			4.69			3.83			3.05			3.52
Efficiency		47.51			47.94			52.45			59.08			58.18
Dividend payout		18.55			16.85			19.57			26.25			22.86
Assets quality ratios:
Net charge-offs as a percentage of average total loans and leases		0.20	%		0.22	%		0.24	%		0.36	%		0.26	%
Nonperforming loans and leases to total loans and leases		0.47			0.31			0.29			0.37			0.42
Nonperforming assets to total assets		0.36			0.24			0.28			0.42			0.53
Allowance for loan and lease losses as a percentage of:
Total loans and leases		1.52	%		1.52	%		1.41	%		1.29	%		1.30	%
Nonperforming loans and leases		326.33			498.45			482.39			351.38			307.91
Capital ratios at period end:
Leverage capital		9.33	%		8.64	%		8.51	%		7.57	%		7.46	%
Tier I risk-based capital		12.41			11.43			11.41			11.52			11.50
Total risk-based capital		14.89			12.68			12.67			12.83			13.15

* Adjusted to give effect to 2-for-1 stock splits effective December 10, 2003 and June 17, 2002

14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

General

Net income was $20.2 million for the year ended December 31, 2003, a 40.2% increase from net income of $14.4 million in 2002. Net income in 2001 was $9.0 million. Diluted earnings per share increased 34.8% to $1.24 in 2003 compared to $0.92 in 2002. Diluted earnings per share in 2001 were $0.59.

On December 10, 2003, the Company completed a 2-for-1 stock split, in the form of a stock dividend, effected by issuing one share of common stock for each share of stock outstanding on November 26, 2003. This was the Company’s second 2-for-1 stock split in two years, with the first completed on June 17, 2002. All share and per share information contained in this discussion has been adjusted to give effect to these stock splits.

The table below shows total assets, loans and leases, deposits, stockholders’ equity and book value per share at December 31, 2003, 2002 and 2001 and the percentage changes year over year.

	December 31,						% Change
							2003 from 2002		2002 from 2001
	2003		2002		2001
	(Dollars in thousands except per share amounts)
Assets	$	1,386,529	$	1,036,386	$	871,912	33.8	%	18.9	%
Loans and leases		909,147		717,895		616,076	26.6		16.5
Deposits		1,062,064		790,173		677,743	34.4		16.6
Stockholders’ equity		98,486		72,918		56,617	35.1		28.8
Book value per share		6.07		4.70		3.74	29.1		25.8

Two measures of performance by banking institutions are return on average assets and return on average equity. Return on average assets (“ROA”) measures net earnings in relation to average total assets and indicates a company’s ability to employ its resources profitably. For the year ended December 31, 2003, the Company’s ROA was 1.69% compared with 1.56% and 1.10%, respectively, for the years ended December 31, 2002 and 2001. Return on average equity (“ROE”) is determined by dividing annual net earnings by average shareholders’ equity and indicates how effectively a company can generate net income on the capital invested by its shareholders. For the year ended December 31, 2003, the Company’s ROE was 23.63% compared with 22.46% and 17.12%, respectively, for the years ended December 31, 2002 and 2001.

Analysis of Results of Operations

The Company’s results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans, leases and investments, and the interest expense incurred on interest-bearing liabilities, such as deposits and other borrowings. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, trust income, bank owned life insurance income, other charges and fees and gains on sales of assets.

The Company’s non-interest expenses primarily consist of employee compensation and benefits, occupancy, equipment and other operating expenses. The Company’s results of operations are also significantly affected by its provision for loan and lease losses. The following discussion provides a summary of the Company’s operations for the past three years.

Net Interest Income

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent (“FTE”) basis. The adjustment to convert certain income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35% in 2003 and 2002 and 34% in prior years.

In previous financial statements and reports, the Company consolidated the various trusts through which it issued trust preferred securities (“TPS”) and reported the TPS between liabilities and equity on the balance sheet and reported the dividends paid on the TPS in the same manner as distributions to minority interest. The Financial Accounting Standards Board (“FASB”) previously issued FASB Interpretation No. 46 (“FIN 46”) and, in December 2003, issued a revision to FIN 46 to clarify certain provisions, including provisions related to accounting for TPS. As a result of the provisions in revised FIN 46, the Company has deconsolidated the trusts, accounting for its investment in the trusts as assets, its subordinated debentures as debt, and the interest paid thereon as interest expense. FIN 46 permits and encourages restatement of prior period results and accordingly all financial information contained in this

15

discussion has been adjusted to give effect to the retroactive application of the provisions of revised FIN 46. While these changes had no effect on previously reported net income or earnings per share, they reduced net interest margin, increased the efficiency ratio and in some cases modestly changed certain other financial data previously reported.

2003 compared to 2002

Net interest income (FTE) for 2003 increased 24.0% to $49.9 million compared to $40.3 million for 2002. Net interest margin (FTE) was 4.52% in 2003 compared to 4.69% in 2002, a decrease of 17 basis points. The increase in net interest income in 2003 was primarily attributable to a 28.8% growth in average earning assets. Net interest margin for 2003 declined as a result of a decrease in earning asset yields which was only partially offset by the decrease in interest-bearing deposit and liability cost. Both investment and loan and lease yields declined during 2003, resulting in a decline in total earning asset yields of 81 basis points for 2003 compared with 2002. The principal factors contributing to this decline were the extraordinary low level of interest rates, a high level of prepayments in the loan and securities portfolios and the Company’s successful efforts to increase variable rate loans as a percentage of its loan and lease portfolio. The decline in earning asset yields was partially offset by a decline in interest-bearing liability costs of 73 basis points for 2003 compared to 2002. Interest-bearing liability cost declined primarily because the low level of interest rates allowed the Company to reduce interest rates paid on interest-bearing liabilities. Total interest-bearing deposit rates declined 67 basis points in 2003 compared with 2002, and other interest-bearing liability rates declined 102 basis points.

2002 compared to 2001

Net interest income (FTE) for 2002 increased 39.5% to $40.3 million compared to $28.9 million for 2001. Net interest margin (FTE) was 4.69% in 2002 compared to 3.83% in 2001, an increase of 86 basis points. The growth in net interest income in 2002 was primarily attributable to two factors—a 14.0% growth in average earning assets and the increase in net interest margin. Net interest margin for 2002 benefited from a 190 basis point decline in interest-bearing deposit and liability costs. This decline was partially offset by a 94 basis point decline in earning asset yields. A 108 basis point decline in loan yields was a significant contributor to the decline in earning assets yields. This decline in yields was principally a result of the general decline in interest rates. Interest-bearing liability costs declined primarily as a result of a general decline in interest rates and a change in deposit mix. In 2002 compared to 2001, the average balance of certificates of deposits (“CD’s”) decreased $48.9 million while lower costing savings and interest-bearing transaction account average balances increased $108.7 million. In 2002 lower costing non-CD deposits accounted for 49.2% of total average deposits, an improvement from 35.9% during 2001.

Analysis of Net Interest Income

(FTE = Fully Taxable Equivalent)

	Year Ended December 31,
	2003			2002			2001
	(Dollars in thousands)
Interest income	$	68,883		$	60,913		$	60,119
FTE adjustment		1,178			443			813
Interest income - FTE		70,061			61,356			60,932
Interest expense		20,115			21,076			32,049
Net interest income - FTE	$	49,946		$	40,280		$	28,883
Yield on interest earning assets - FTE		6.34	%		7.15	%		8.09	%
Cost of interest-bearing liabilities		1.99			2.72			4.62
Net interest spread - FTE		4.35			4.43			3.47
Net interest margin - FTE		4.52			4.69			3.83

The following table sets forth certain information relating to the Company’s net interest income for the years ended December 31, 2003, 2002 and 2001. The yields and costs are derived by dividing interest income or interest expense by the average balance of assets or liabilities, respectively, for the periods shown except where otherwise noted. Average balances are derived from daily average balances for assets and liabilities. The average balance of loans and leases includes loans and leases on which the Company has discontinued accruing interest. The yields and costs include amortization of certain deferred fees and origination costs, capitalization of interest on construction projects and late fees, which are considered adjustments to yields or rates.

16

Average Consolidated Balance Sheets and Net Interest Analysis

	Year Ended December 31,
	2003						2002						2001
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
	(Dollars in thousands)
ASSETS
Earning assets:
Interest-bearing deposits and federal funds sold	$	467	$	24	5.30	%	$	869	$	31	3.54	%	$	931	$	49	5.25	%
Investment securities:
Taxable		255,013		11,958	4.69			192,579		10,972	5.70			173,329		11,203	6.46
Tax-exempt - FTE		43,282		3,103	7.17			13,177		986	7.48			29,412		2,125	7.22
Loans and leases - FTE		806,535		54,976	6.82			651,840		49,367	7.57			549,497		47,555	8.65
Total earning assets - FTE		1,105,297		70,061	6.34			858,465		61,356	7.15			753,169		60,932	8.09
Non-interest earning assets		92,049						64,125						61,277
Total assets	$	1,197,346					$	922,590					$	814,446
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Deposits:
Savings and interest-bearing transaction	$	343,776	$	3,521	1.02	%	$	274,580	$	4,354	1.59	%	$	165,923	$	3,754	2.26	%
Time deposits of $100,000 or more		294,028		5,395	1.83			194,937		5,115	2.62			207,273		10,702	5.16
Other time deposits		190,593		4,135	2.17			168,765		4,917	2.91			205,328		10,844	5.28
Total interest-bearing deposits		828,397		13,051	1.58			638,282		14,386	2.25			578,524		25,300	4.37
Repurchase agreements with customers		30,347		317	1.04			19,657		278	1.41			16,919		537	3.17
Other borrowings		127,326		4,803	3.77	(1)		99,625		4,777	4.79	(1)		79,787		4,577	5.74	(1)
Subordinated debentures		25,336		1,944	7.67			17,783		1,635	9.19			17,783		1,635	9.19
Total interest-bearing liabilities		1,011,406		20,115	1.99			775,347		21,076	2.72			693,013		32,049	4.62
Non-interest bearing liabilities:
Non-interest bearing deposits		95,523						78,161						65,368
Other non-interest bearing liabilities		4,946						4,933						3,731
Total liabilities		1,111,875						858,441						762,112
Stockholders’ equity		85,471						64,149						52,334
Total liabilities and stockholders’ equity	$	1,197,346					$	922,590					$	814,446
Interest rate spread - FTE					4.35	%					4.43	%					3.47	%
Net interest income - FTE			$	49,946					$	40,280					$	28,883
Net interest margin - FTE					4.52	%					4.69	%					3.83	%

⁽¹⁾ This rate is impacted by the capitalization of interest on construction projects in the amount of $93,000, $47,000 and $53,000, respectively, for the years ended December 31, 2003, 2002 and 2001. In the absence of this capitalization these percentages would have been 3.85%, 4.84% and 5.80%, respectively, for the years ended December 31, 2003, 2002 and 2001.

The following table reflects how changes in the volume of interest earning assets and interest-bearing liabilities and changes in interest rates have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to changes attributable to (1) changes in volume (changes in volume multiplied by prior rate); (2) changes in rate (changes in rate multiplied by prior volume); and (3) changes in rate/ volume (changes in rate multiplied by change in volume). The changes attributable to the combined impact of volume and rate have all been allocated to the changes due to volume.

17

Analysis of Changes in Net Interest Income

	2003 over 2002									2002 over 2001
	Volume			Yield/ Rate			Total			Volume			Yield/ Rate			Total
	(Dollars in thousands)
Increase (decrease) in:
Interest income - FTE:
Interest-bearing deposits and federal funds sold	$	(21	)	$	14		$	(7	)	$	(2	)	$	(16	)	$	(18	)
Investment securities:
Taxable		2,928			(1,942	)		986			1,097			(1,328	)		(231	)
Tax-exempt - FTE		2,158			(41	)		2,117			(1,215	)		76			(1,139	)
Loans and leases - FTE		10,545			(4,936	)		5,609			7,751			(5,939	)		1,812
Total interest income - FTE		15,610			(6,905	)		8,705			7,631			(7,207	)		424
Interest expense:
Savings and interest-bearing transaction		709			(1,542	)		(833	)		1,723			(1,123	)		600
Time deposits of $100,000 or more		1,818			(1,538	)		280			(324	)		(5,263	)		(5,587	)
Other time deposits		474			(1,256	)		(782	)		(1,065	)		(4,862	)		(5,927	)
Repurchase agreements with customers		112			(73	)		39			39			(298	)		(259	)
Other borrowings		1,045			(1,019	)		26			951			(751	)		200
Subordinated debentures		580			(271	)		309			—			—			—
Total interest expense		4,738			(5,699	)		(961	)		1,324			(12,297	)		(10,973	)
Increase (decrease) in net interest income - FTE	$	10,872		$	(1,206	)	$	9,666		$	6,307		$	5,090		$	11,397

Non-Interest Income

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

Non-interest income for the year ended December 31, 2003 was $17.4 million compared with $11.7 million in 2002, a 48.8% increase. During 2003 the Company benefited from record levels of service charges on deposit accounts, mortgage lending income and trust income which increased 11.8%, 89.8% and 114.8%, respectively, from 2002. The Company’s service charges on deposit accounts increased primarily because of continued growth in its number of core deposit customers. The increase in mortgage lending income was primarily attributable to high levels of refinance activity, a strong housing market and the Company’s continued expansion of its mortgage operation in new and existing markets. Approximately 68% of the mortgage department’s 2003 volume was related to refinancing existing mortgages. Trust income increased primarily as a result of corporate trustee fees generated by the high level of municipal bond issuance in Arkansas in 2003 and the Company’s continued growth in trust customers. During 2003 the Company benefited from a full year’s income from bank owned life insurance purchased in the fourth quarter of 2002. In addition, the Company benefited from $144,000 in securities gains in 2003 compared to $217,000 of securities losses in 2002.

Non-interest income for the year ended December 31, 2002 increased 57.9% to $11.7 million compared with $7.4 million in 2001. During 2002 the Company benefited from record levels of service charges on deposit accounts, mortgage lending income and trust income which increased 83.8%, 52.2% and 20.5%, respectively, from 2001. The introduction of the Company’s new Bounce Proof Security product was a significant contributor to the increase in service charge income along with the continued growth of new core deposit customers. Mortgage lending income benefited from favorable interest rates resulting in a high level of refinancing activity, which accounted for 65% of the mortgage department’s 2002 origination volume and contributing to a favorable housing market. Throughout 2002 the Company sought to increase its market share in the mortgage business by adding additional originators in existing markets and seeking to expand in new markets.

The table below shows non-interest income for the years ended December 31, 2003, 2002 and 2001.

Non-Interest Income

	Year Ended December 31,
	2003		2002			2001
	(Dollars in thousands)
Service charges on deposit accounts	$	7,761	$	6,940		$	3,776
Mortgage lending income		5,548		2,923			1,920
Trust income		1,564		728			604
Bank owned life insurance income		1,132		236			—
Appraisal, credit life commissions and other credit related fees		523		503			406
Safe deposit box rental, brokerage fees and other miscellaneous fees		644		486			492
Gain (loss) on sales of securities		144		(217	)		153
Gain on sales of other assets		18		42			2
Other		57		48			48
Total non-interest income	$	17,391	$	11,689		$	7,401

18

Non-Interest Expense

Non-interest expense consists of salaries and employee benefits, occupancy, equipment and other operating expenses. Non-interest expense for the year ended December 31, 2003 increased 28.4% to $32.0 million compared with $24.9 million in 2002. Non-interest expense was $19.0 million in 2001.

Non-interest expense for 2003 and 2002 increased primarily as a result of the Company’s continued growth and expansion. During 2003 the Company opened eight new full service banking offices and two new loan production offices and in 2002 the Company opened five new banking offices. In June 2003 the Company completed the acquisition of RVB Bancshares, Inc. (“RVB”) and its subsidiary bank in Russellville, Arkansas. As a result of this growth and expansion, the Company’s full time equivalent employees increased from 327 at December 31, 2001 to 382 at December 31, 2002 and 473 at December 31, 2003, an increase of 16.8% in 2002 and 23.8% in 2003. Additionally, the Company’s record volume of mortgage and trust business and net income in 2003 and 2002 resulted in increased levels of variable compensation expense including commissions, incentives and bonuses.

Effective January 1, 2003 the Company adopted the prospective method of fair value recognition of stock-based compensation expense as provided under Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148. As a result the Company recorded a pretax expense of $141,000 during 2003 in connection with the issuance of options under its stock-based compensation plans.

As a result of the Company’s efforts to grow revenues at a faster rate than its rate of growth in non-interest expenses, the Company’s efficiency ratio (non-interest expense divided by the sum of net interest income on a tax equivalent basis and non-interest income) improved to 47.5% for the year ended December 31, 2003 compared to 47.9% in 2002 and 52.5% in 2001.

The table below shows non-interest expense for the years ended December 31, 2003, 2002 and 2001.

Non-Interest Expense

	Year Ended December 31,
	2003		2002		2001
	(Dollars in thousands)
Salaries and employee benefits	$	18,411	$	14,395	$	10,551
Net occupancy and equipment expense		4,421		3,495		3,098
Other operating expense:
Professional and outside services		643		559		375
Postage		386		404		326
Telephone		629		514		490
Data lines		319		228		238
Operating supplies		1,045		713		543
Advertising and public relations		1,016		877		583
Software expense		571		392		374
ATM expense		587		412		306
FDIC and state assessments		376		301		259
Other real estate and foreclosure expense		367		340		526
Business development, meals and travel		187		147		136
Amortization of goodwill		—		—		90
Amortization of other intangibles		206		152		151
OD/NSF check and other losses		809		692		190
Other		2,019		1,294		794
Total non-interest expense	$	31,992	$	24,915	$	19,030

Income Taxes

The provision for income taxes was $10.1 million for the year ended December 31, 2003 compared to $8.5 million in 2002 and $4.1 million in 2001. The effective income tax rates were 33.3%, 37.2% and 31.3%, respectively, for 2003, 2002 and 2001.

        The decline in the effective tax rate of 390 basis points in 2003 compared with 2002 is primarily a result of two factors. First the Company has increased its municipal security portfolio which is exempt from both federal and state taxes in both absolute dollar amount and as a percentage of earning assets during 2003 compared with 2002. This accounted for approximately 150 basis points of the decline in the effective tax rate for 2003 compared with 2002. The second factor is the tax impact of two Community Reinvestment Act investments made in the fourth quarter of 2003. These investments generated tax benefits which reduced 2003 combined federal and state income taxes by approximately $556,000. The Company also incurred an impairment charge of $320,000 associated with these investments. These investments contributed approximately 216 basis points of the decline in the 2003 effective tax rate compared with 2002.

The increase in the effective tax rate in 2002 compared to 2001 is primarily a result of two factors. First, during 2002 the Company substantially reduced its portfolio of municipal securities which were exempt from both federal and state income tax. This reduction was both in absolute dollar amount and as a percentage of earning assets. This accounted for approximately 270 basis points of the increase in the effective tax rate for 2002 compared with 2001. Second, the amount of securities income exempt solely from Arkansas income tax declined significantly in 2002 as the Company shifted a large portion of its investment portfolio from securities exempt from Arkansas income tax to securities subject to Arkansas income tax. As a result the Company had an effective state tax rate, after federal benefit, of 3.63% in 2002 compared with an effective state tax rate, after federal benefit, of 1.11% in 2001. In addition to the impact of the above items, in the second quarter of 2001 the Company recognized a net reduction of $95,000 in income tax expense related to the favorable resolution of a long standing tax dispute with the state of Arkansas.

19

Analysis of Financial Condition

Loan and Lease Portfolio

At December 31, 2003 the Company’s loan and lease portfolio was $909.1 million, an increase of $191.2 million, or 26.6%, from $717.9 million at December 31, 2002. Excluding $41.2 million of loans acquired by the Company in its June 2003 acquisition of RVB, the Company’s loan and lease portfolio would have increased $150.0 million in 2003, or 20.9%. As of December 31, 2003 the Company’s loan and lease portfolio consisted of approximately 77.8% real estate loans, 7.1% consumer loans, 12.3% commercial and industrial loans and 1.7% agricultural loans (non-real estate).

The amount and type of loans and leases outstanding are reflected in the following table.

Loan and Lease Portfolio

	December 31,
	2003		2002		2001		2000		1999
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	218,851	$	183,687	$	167,559	$	144,920	$	136,856
Non-farm/non-residential		285,451		212,481		180,257		134,726		101,766
Agricultural		61,500		57,525		45,303		38,808		20,396
Construction/land development		117,835		65,474		51,140		42,354		28,294
Multifamily residential		23,657		28,555		20,850		8,367		4,687
Total real estate		707,294		547,722		465,109		369,175		291,999
Consumer		64,831		54,097		55,805		58,430		81,753
Commercial and industrial		111,978		95,951		78,324		63,799		70,012
Agricultural (non-real estate)		15,266		15,388		12,866		14,605		19,947
Other (includes leases)		9,778		4,737		3,972		4,535		3,420
Total loans and leases	$	909,147	$	717,895	$	616,076	$	510,544	$	467,131

Loan and Lease Maturities

The following table reflects loans and leases grouped by remaining maturities at December 31, 2003 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. Also many variable rate loans are subject to repricing in periods prior to the period in which they mature.

Loan and Lease Maturities

	1 Year or Less		Over 1 Year Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Real estate	$	190,333	$	402,022	$	114,939	$	707,294
Consumer		13,872		48,157		2,802		64,831
Commercial, industrial and agricultural		64,512		49,038		13,694		127,244
Other		3,453		6,044		281		9,778
	$	272,170	$	505,261	$	131,716	$	909,147
Fixed rate	$	165,928	$	378,751	$	66,870	$	611,549
Floating rate (not at a floor rate)		59,260		45,027		38,936		143,223
Floating rate (at floor rate)		46,982		81,483		25,910		154,375
	$	272,170	$	505,261	$	131,716	$	909,147

The following table reflects loans and leases as of December 31, 2003 grouped by expected amortizations, expected paydowns or the earliest repricing opportunity for floating rate loans. This cash flow or repricing schedule approximates the Company’s ability to reprice loans and leases or the ability to utilize loan and lease principal repayments for new loans and leases, other investments or repayment of borrowings.

20

Loan and Lease Cash Flows or Repricing

	1 Year or Less		Over 1 Year Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Fixed rate	$	165,928	$	378,751	$	66,870	$	611,549
Floating rate (not at a floor rate)		129,965		12,061		1,197		143,223
Floating rate (at floor rate)		150,881		3,494		—		154,375
	$	446,774	$	394,306	$	68,067	$	909,147

Nonperforming Assets

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

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

Nonperforming loans and leases as a percent of total loans and leases were 0.47% at year-end 2003 compared to 0.31% and 0.29%, respectively, at year-end 2002 and 2001. Nonperforming assets as a percent of total assets were 0.36% as of year-end 2003 compared to 0.24% and 0.28%, respectively, at year-end 2002 and 2001.

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

Nonperforming Assets

	December 31,
	2003			2002			2001			2000			1999
	(Dollars in thousands)
Nonaccrual loans and leases	$	4,235		$	2,194		$	1,806		$	1,880		$	1,972
Accruing loans and leases 90 days or more past due		—			—			—			—			—
Restructured loans and leases		—			—			—			—			—
Total nonperforming loans and leases		4,235			2,194			1,806			1,880			1,972
Foreclosed assets held for sale and repossessions(1)		780			333			661			1,600			2,238
Total nonperforming assets	$	5,015		$	2,527		$	2,467		$	3,480		$	4,210
Nonperforming loans and leases to total loans and leases		0.47	%		0.31	%		0.29	%		0.37	%		0.42	%
Nonperforming assets to total assets		0.36			0.24			0.28			0.42			0.53

⁽¹⁾ Foreclosed assets held for sale and repossessions are generally written down to estimated market value net of estimated selling costs at the time of transfer from the loan and lease portfolio. The value of such assets is reviewed from time to time throughout the holding period with the value adjusted to the then estimated market value net of estimated selling costs, if lower, until disposition.

21

Allowance and Provision for Loan and Lease Losses

An analysis of the allowance for loan and lease losses for the periods indicated is shown in the table below.

Allowance and Provision for Loan and Lease Losses

	Year Ended December 31,
	2003			2002			2001			2000			1999
	(Dollars in thousands)
Balance, beginning of period	$	10,936		$	8,712		$	6,606		$	6,072		$	4,689
Loans and leases charged off:
Real estate:
Residential 1-4 family		288			361			306			690			260
Non-farm/non-residential		433			135			112			121			8
Agricultural		5			89			9			10			3
Construction/land development		44			216			41			—			115
Multifamily residential		—			—			—			79			—
Total real estate		770			801			468			900			386
Consumer		450			626			452			549			516
Commercial and industrial		632			217			463			443			271
Agricultural (non-real estate)		23			29			37			106			52
Total loans and leases charged off		1,875			1,673			1,420			1,998			1,225
Recoveries of loans and leases previously charged off:
Real estate:
Residential 1-4 family		20			14			20			39			4
Non-farm/non-residential		6			95			9			44			—
Agricultural		6			—			—			1			—
Construction/land development		8			2			1			—			2
Multifamily residential		—			—			—			—			—
Total real estate		40			111			30			84			6
Consumer		141			112			84			74			111
Commercial and industrial		35			12			11			48			6
Agricultural (non-real estate)		18			2			—			1			—
Total recoveries		234			237			125			207			123
Net loans and leases charged off		1,641			1,436			1,295			1,791			1,102
Provision charged to operating expense		3,865			3,660			3,401			2,325			2,485
Allowance added in bank acquisition		660			—			—			—			—
Balance, end of period	$	13,820		$	10,936		$	8,712		$	6,606		$	6,072
Net charge-offs to average loans and leases outstanding during the periods indicated		0.20	%		0.22	%		0.24	%		0.36	%		0.26	%
Allowance for loan and lease losses to total loans and leases		1.52			1.52			1.41			1.29			1.30
Allowance for loan and lease losses to nonperforming loan and lease losses		326.33			498.45			482.39			351.38			307.91

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

22

The Company’s internal grading system analysis assigns grades to all loans and leases except residential 1-4 family loans and consumer installment loans. Graded loans and leases are assigned to one of seven risk grades, with each grade being assigned a specific allowance allocation percentage. The grade for each individual loan or lease is determined by the account officer at the time it is made and changed from time to time to reflect an ongoing assessment of loan or lease risk. Grades are reviewed on specific loans and leases from time to time by senior management and as part of the Company’s internal loan review process. Residential 1-4 family and consumer installment loans are assigned an allowance allocation percentage based on past due status.

Allowance allocation percentages for the various risk grades and past due categories are determined by management and may be changed periodically. In determining these allowance allocation percentages, management considers historical loss percentages for risk rated loans and leases, consumer loans and residential 1-4 family loans. In addition to this historical data, management considers subjective factors such as national and local economic conditions. The sum of all allowance amounts determined by this methodology, combined with a reasonable unallocated allowance determined by management, is utilized as the primary indicator of the appropriate level of allowance for loan and lease losses.

The unallocated allowance compensates for the uncertainty in estimating loan and lease losses including factors and conditions that may not be fully reflected in the determination of the allowance allocation percentages. The factors and conditions evaluated in determining the appropriate unallocated allowance may include the following: (1) general economic and business conditions affecting key lending areas, (2) credit quality trends (including trends in nonperforming loans and leases expected to result from existing conditions), (3) trends that could affect collateral values, (4) loan and lease growth rates and concentrations, (5) seasoning of the loan and lease portfolio, (6) specific industry conditions affecting portfolio segments, (7) recent loss experience in particular segments of the portfolio, (8) expectations regarding the current business cycle, (9) bank regulatory examination results and (10) findings of our internal loan review department.

In addition to the internal grading system analysis, the Company compares the allowance for loan and lease losses (as a percentage of total loans and leases) maintained by its subsidiary bank to the peer group average percentage as shown on the most recently available FDIC Uniform Bank Performance Report and the Federal Reserve Bank’s (“FRB”) Uniform Bank Holding Company Report. The Company also compares the allowance for loan and lease losses to the bank’s historical cumulative net charge-offs for the five preceding calendar years.

Although the Company does not determine the overall allowance based upon the amount of loans or leases in a particular type or category (except in the case of residential 1-4 family and consumer installment loans), risk elements attributable to particular loan or lease types or categories are considered in assigning loan and lease grades to individual loans and leases. These risk elements include the following: (1) for non-farm/non-residential loans, multifamily residential loans, and agricultural real estate loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; (2) for construction and land development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or ability to lease property constructed for lease, the quality and nature of contracts for presale or preleasing, if any, experience and ability of the developer and loan to value ratios; (3) for commercial and industrial loans and leases, the operating results of the commercial, industrial or professional enterprise, the borrower’s or lessee’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral; and (4) for non-real estate agricultural loans and leases, the operating results, experience and ability of the borrower or lessee, historical and expected market conditions and the value, nature and marketability of collateral. In addition, for each category the Company considers secondary sources of income and the financial strength of the borrower or lessee and any guarantors.

The Board of Directors reviews the allowance on a quarterly basis to determine whether the amount of monthly provisions are adequate or whether additional provisions should be made to the allowance. The allowance is determined by management’s assessment and grading of individual loans and leases in the case of loans and leases other than residential 1-4 family loans and consumer installment loans and specific allowances made for other loan and lease categories. The total allowance amount is available to absorb losses across the Company’s entire portfolio.

The following table sets forth the sum of the amounts of the allowance for loan and lease losses attributable to individual loans and leases within each category, or loan and lease categories in general, and unallocated allowance. The table also reflects the percentage of loans and leases in each category to the total portfolio of loans and leases for each of the periods indicated. These allowance amounts have been computed using the Company’s grading system analysis. The amounts shown are not necessarily indicative of the actual future losses that may occur within particular categories.

23

Allocation of the Allowance for Loan and Lease Losses

	December 31,
	2003				2002				2001				2000				1999
	Allowance		% of Loans and Leases		Allowance		% of Loans and Leases		Allowance		% of Loans and Leases		Allowance		% of Loans and Leases		Allowance		% of Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	1,393	24.1	%	$	1,248	25.6	%	$	929	27.2	%	$	430	28.4	%	$	478	29.2	%
Non-farm/non-residential		3,790	31.4			2,625	29.6			2,177	29.3			1,499	26.4			1,067	21.8
Agricultural		756	6.8			728	8.0			591	7.3			517	7.6			302	4.4
Construction/land development		1,301	12.9			736	9.1			614	8.3			456	8.3			321	6.1
Multifamily		261	2.6			290	4.0			227	3.4			95	1.6			57	1.0
Consumer		1,083	7.1			975	7.5			986	9.1			883	11.4			1,313	17.5
Commercial and industrial		1,600	12.3			1,228	13.4			896	12.7			859	12.5			808	15.0
Agricultural (non-real estate)		195	1.7			204	2.2			166	2.1			199	2.9			322	4.3
Other (includes leases)		1,024	1.1			599	0.6			479	0.6			326	0.9			225	0.7
Unallocated allowance		2,417				2,303				1,647				1,342				1,179
	$	13,820	100.0	%	$	10,936	100.0	%	$	8,712	100.0	%	$	6,606	100.0	%	$	6,072	100.0	%

The Company maintains an internally classified loan and lease list that, along with the list of nonaccrual loans and leases, helps management assess the overall quality of the loan and lease portfolio and the adequacy of the allowance. Loans and leases classified as “substandard” have clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize collectability of the loan or lease. Loans and leases classified as “doubtful” have characteristics similar to substandard loans and leases, but also have an increased risk that a loss may occur or at least a portion of the loan or lease may require a charge-off if liquidated. Although loans and leases classified as substandard do not duplicate loans and leases classified as doubtful, both substandard and doubtful loans and leases may include some that are past due at least 90 days, are on nonaccrual status or have been restructured. Loans and leases classified as “loss” are in the process of being charged off. At December 31, 2003, substandard loans and leases not designated as nonaccrual or 90 days past due totaled $5.5 million. No loans or leases were designated as doubtful or loss at December 31, 2003.

Administration of the subsidiary bank’s lending function is the responsibility of the Chief Executive Officer and certain senior lenders. Such officers perform their lending duties subject to the oversight and policy direction of the Board of Directors and the loan committee. Loan or lease authority is granted to the Chief Executive Officer and certain other executive officers as determined by the Board of Directors. Loan or lease authorities of other lending officers are assigned by the Chief Executive Officer.

Loans or leases and aggregate loan and lease relationships exceeding $2.0 million up to the lending limit of the bank are authorized by the loan committee which consists of any five directors. The Board of Directors reviews on a monthly basis reports of loan and lease originations, loan and lease commitments over $100,000, past due loans and leases, internally classified and watch list loans and leases, a summary of the activity in the Company’s allowance for loan and lease losses and various other loan and lease reports.

The Company’s compliance and loan review officers are responsible for serving the bank subsidiary of the Company in the compliance and loan review areas. Periodic reviews are scheduled for the purpose of evaluating asset quality and effectiveness of loan and lease administration. The compliance and loan review officers prepare reports which identify deficiencies, establish recommendations for improvement and outline management’s proposed action plan for curing the deficiencies. These reports are provided to the audit committee, which consists of three members of the Board of Directors which have been determined by the Board of Directors to qualify as “independent” under the Sarbanes-Oxley Act, related SEC rules and NASDAQ listing standards, relating to audit committees.

The Company’s allowance for loan and lease losses exceeds its cumulative historical net charge-off experience for the last five years. However, the allowance is considered reasonable given the significant growth in the loan and lease portfolio during recent years, key allowance and nonperforming loan and lease ratios, comparisons to industry averages and current economic conditions in the Company’s market area.

        The Company’s allowance for loan and lease losses increased to $13.8 million at December 31, 2003, or 1.52% of total loans and leases, compared with $10.9 million, or 1.52% of total loans and leases, at December 31, 2002. The increase in the allowance for loan and lease losses in recent years primarily reflects the growth in the Company’s loan and lease portfolio. While management believes the current allowance is adequate, changing economic and other conditions may require future adjustments to the allowance for loan and lease losses.

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Provision for Loan and Lease Losses: The amounts of provision to the allowance for loan and lease losses are based on management’s judgment and evaluation of the loan and lease portfolio utilizing the criteria discussed above. The provision for 2003 was $3.9 million compared to $3.7 million in 2002 and $3.4 million in 2001.

Investments and Securities

The Company’s securities portfolio is the second largest component of earning assets and provides a significant source of revenue for the Company. The following table presents the book value and the fair value of investment securities for each of the dates indicated.

Investment Securities

	December 31,
	2003				2002				2001
	Book Value(1)		Fair Value(2)		Book Value(1)		Fair Value(2)		Book Value(1)		Fair Value(2)
	(Dollars in thousands)
Securities of U.S. Government agencies	$	—	$	—	$	41,499	$	41,499	$	70,177	$	70,177
Mortgage-backed securities		258,559		258,559		156,710		156,710		91,234		91,234
Obligations of states and political subdivisions		90,344		90,344		21,492		21,517		18,120		18,152
Other securities		15,417		15,417		12,467		12,550		7,636		7,642
Total	$	364,320	$	364,320	$	232,168	$	232,276	$	187,167	$	187,205

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

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

The following table reflects the maturity distribution of the Company’s investment securities, at book value, as of December 31, 2003 and weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis assuming a 35% tax rate) of such securities. The maturity for all securities is shown based on each security’s contractual maturity date, except (1) equity securities with no contractual maturity date which are shown in the longest maturity category and (2) mortgage-backed securities which are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Maturity Distribution of Investment Securities

	1 Year or Less			Over 1 Year Thru 5 Years			Over 5 Years Thru 10 Years			Over 10 Years			Total			Fair Value
	(Dollars in thousands)
Mortgage-backed securities(1)	$	93,092		$	159,425		$	6,042		$	—		$	258,559		$	258,559
Obligations of states and political subdivisions		4,876			3,953			6,823			74,692			90,344			90,344
Other securities(2)		—			—			—			15,417			15,417			15,417
Total	$	97,968		$	163,378		$	12,865		$	90,109		$	364,320		$	364,320
Percentage of total		26.89	%		44.85	%		3.53	%		24.73	%		100.00	%
Weighted average yield - FTE(3)		4.91			4.81			5.79			6.86			5.38

⁽¹⁾ For purposes of this maturity distribution schedule, mortgage-backed securities have been allocated among estimated repayment periods based on Bloomberg median prepayment speeds as of December 31, 2003.

⁽²⁾ Includes approximately $7.0 million of Federal Home Loan Bank (“FHLB”) stock which has historically paid quarterly dividends at a variable rate approximating the federal funds rate.

⁽³⁾ The weighted average yields - FTE are based on book value.

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Deposits

The Company’s bank subsidiary lending and investing activities are funded primarily by deposits, approximately 52.6% of which were time deposits and 47.4% of which were demand and savings deposits at December 31, 2003. Interest-bearing deposits other than time deposits consist of transaction, savings and money market accounts. These deposits comprise 37.3% of total deposits at December 31, 2003. Non-interest bearing demand deposits at December 31, 2003 constituted 10.1% of total deposits. The Company had $30.9 million of brokered deposits at December 31, 2003.

At December 31, 2003 the Company’s total deposits were $1,062.1 million, an increase of $271.9 million, or 34.4%, from $790.2 million at December 31, 2002. Excluding $50.1 million of deposits acquired by the Company in its June 2003 acquisition of RVB, the Company’s deposits would have increased $221.8 million, or 28.1%, in 2003.

The following table reflects the average balances and average rates paid for each deposit category shown for the years ended December 31, 2003, 2002 and 2001.

Average Deposit Balances and Rates

	Year Ended December 31,
	2003				2002				2001
	Average Amount		Average Rate Paid		Average Amount		Average Rate Paid		Average Amount		Average Rate Paid
	(Dollars in thousands)
Non-interest bearing accounts	$	95,523	—		$	78,161	—		$	65,368	—
Interest-bearing accounts:
Transaction (NOW)		277,327	1.10	%		193,420	1.70	%		102,318	2.30	%
Savings		26,594	0.33			25,690	0.82			18,745	1.14
Money market		39,855	0.95			55,470	1.55			44,860	2.63
Time deposits less than $100,000		190,593	2.17			168,765	2.91			205,328	5.28
Time deposits $100,000 or more		294,028	1.83			194,937	2.62			207,273	5.16
Total deposits	$	923,920			$	716,443			$	643,892

The following table sets forth by time remaining to maturity, time deposits in amounts of $100,000 or more at December 31, 2003.

Maturity Distribution of Time Deposits of $100,000 and Over

	December 31, 2003
	(Dollars in thousands)
Maturity
3 months or less	$	162,749
Over 3 to 6 months		93,397
Over 6 to 12 months		91,281
Over 12 months		14,367
	$	361,794

Interest Rate Sensitivity

The Company’s interest rate risk management is the responsibility of the Asset/Liability Management Committee, which reports to the Board of Directors. This committee establishes policies that monitor and coordinate the Company’s sources, uses and pricing of funds. The committee is also involved with management in the Company’s planning and budgeting process.

        The Company regularly reviews its exposure to changes in interest rates. Among the factors considered are changes in the mix of interest earning assets and interest-bearing liabilities, interest rate spreads and repricing periods. Typically, the committee reviews on at least a quarterly basis the bank subsidiary’s relative ratio of rate sensitive assets to rate sensitive liabilities and the related cumulative gap for different time periods. Additionally, the committee and management utilize a simulation model in assessing the Company’s interest rate sensitivity.

This simulation modeling process projects a baseline net interest income (assuming no changes in interest rate levels) and estimates changes to that baseline net interest income resulting from changes in interest rate levels. The Company relies primarily on the results of this model in evaluating its interest rate risk. In addition to the data in the gap table presented below, this model incorporates a number of additional factors. These factors include: (1) the expected exercise of call features on various assets and liabilities, (2) the expected rates at which various rate sensitive assets and liabilities will

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reprice, (3) the expected growth in various interest earning assets and interest-bearing liabilities and the expected interest rates on such new assets and liabilities, (4) the expected relative movements in different interest rate indexes which are used as the basis for pricing or repricing various assets and liabilities, (5) existing and expected contractual cap and floor rates on various assets and liabilities, (6) expected changes in administered rates on interest-bearing transaction, savings, money market and time deposit accounts and the expected impact of competition on the pricing or repricing of such accounts and (7) other factors. Inclusion of these factors in the model is intended to more accurately project the Company’s changes in net interest income resulting from an immediate and sustained parallel shift in interest rates of up 100 basis points (bps), up 200 bps and down 100 bps. Because of current interest rate levels, the data for an immediate and sustained parallel shift in interest rates of down 200 bps has been omitted because the Company believes the data is not meaningful. While the Company believes this model provides a more accurate projection of its interest rate risk, the model includes a number of assumptions and predictions which may or may not be correct and may impact the model results. These assumptions and predictions include inputs to compute baseline net interest income, growth rates, competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be no assurance the simulation model will reflect future results.

The following table presents the simulation model’s projected impact of an immediate and sustained parallel shift in interest rates on the projected baseline net interest income for a twelve month period commencing January 1, 2004. A parallel shift in the interest rates is an arbitrary assumption which fails to take into account changes in the slope of the yield curve.

Change in Interest Rates (in bps)	% Change in Projected Baseline Net Interest Income
+200	(3.7)%
+100	(1.9)
-100	1.4
-200	not meaningful

In the event of a shift in interest rates, management may take certain actions intended to mitigate the negative impact to net interest income or to maximize the positive impact to net interest income. These actions may include, but are not limited to, restructuring of 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 Company’s simple static gap analysis is shown in the following table. At December 31, 2003 the cumulative ratios of rate sensitive assets (“RSA”) to rate sensitive liabilities (“RSL”) at six months and one year, respectively, were 67.07% and 71.03%. A financial institution is considered to be liability sensitive, or as having a negative gap, when the amount of its interest-bearing liabilities maturing or repricing within a given time period exceeds the amount of its interest earning assets also maturing or repricing within that time period. Conversely, an institution is considered to be asset sensitive, or as having a positive gap, when the amount of its interest-bearing liabilities maturing and repricing is less than the amount of its interest earning assets also maturing or repricing during the same period. Generally, in a falling interest rate environment, a negative gap should result in an increase in net interest income, and in a rising interest rate environment this negative gap should adversely affect net interest income. The converse would be true for a positive gap. Due to inherent limitations in any static gap analysis and since conditions change on a daily basis, these expectations may not reflect future results.

Rate Sensitive Assets and Liabilities

	December 31, 2003
	RSA(1)		RSL		Period Gap			Cumulative Gap			Cumulative Gap to Total RSA		Cumulative RSA to RSL
			(Dollars in thousands)
Immediate to 6 months	$	447,380	$	667,028	$	(219,648	)	$	(219,648	)	(17.24	)%	67.07	%
7 —12 months		158,394		185,814		(27,420	)		(247,068	)	(19.39	)	71.03
1—2 years		232,123		63,757		168,366			(78,702	)	(6.18	)	91.41
2—3 years		150,085		5,613		144,472			65,770		5.16		107.13
3—5 years		150,534		31,650		118,884			184,654		14.50		119.36
Over 5 years		135,379		223,706		(88,327	)		96,327		7.56		108.18
Total	$	1,273,895	$	1,177,568	$	96,327

⁽¹⁾ Certain variable rate loans have a contractual floor rate. Approximately $154.4 million of loans were at their floor rate as of December 31, 2003. These loans are shown in the earliest time period in which they could reprice even though the contractual floor may preclude repricing to a lower rate. Of these loans, $147.4 million are reflected as repricing immediately to six months, $3.5 million in seven to 12 months and the remaining $3.5 million are reflected in various time periods exceeding 12 months.

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The data used in the table above is based on contractual repricing dates for variable or adjustable rate instruments except for non-maturity interest-bearing deposit accounts. With respect to non-maturity interest-bearing deposit accounts, management believes these deposit accounts are “core” to the Company’s banking operations and may not reprice on a one-to-one basis as a result of interest rate movements. At December 31, 2003 management estimates the co-efficient for change in interest rates is approximately 75% for its interest-bearing money market account balances, approximately 48% for its MaxYield^® account balances and approximately 50% for its other interest-bearing NOW and savings account balances. Accordingly management has included these portions of the non-maturity interest-bearing deposit accounts as repricing immediately, with the remaining portions shown as repricing beyond five years. Callable investments or borrowings are scheduled on their contractual maturity unless the Company has received notification the investment or borrowing will be called. In the event the Company has received notification of call, the investment or borrowing is placed in the fixed rate category for the time period in which the call occurs or is expected to occur. Collateralized mortgage obligations and other mortgage-backed securities are scheduled over maturity periods based on Bloomberg consensus prepayment speeds. Other financial instruments are scheduled on their contractual maturity. At December 31, 2003 approximately 32.7% of the Company’s loan and lease portfolio was comprised of adjustable rate loans which is an increase from 22.8% at December 31, 2002. At December 31, 2003 approximately 51.9% of the Company’s total adjustable rate loans were at their floor rate. These loans are included among RSA in the earliest time period in which their interest rate may adjust if interest rates increase.

This simple gap analysis gives no consideration to a number of factors which can have a material impact on the Company’s interest rate risk position. Such factors include among other things, call features on certain assets and liabilities, prepayments, interest rate floors and caps on various assets and liabilities, the current interest rates on assets and liabilities to be repriced in each period, and the relative changes in interest rates on different types of assets and liabilities.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements and related Notes presented elsewhere in the report have been prepared in accordance with accounting principles generally accepted in the United States. 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. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s 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.

Capital Compliance

Bank regulatory authorities in the United States impose certain capital standards on all bank holding companies and banks. These capital standards require compliance with certain minimum “risk-based capital ratios” and a minimum “leverage ratio.” The risk-based capital ratios consist of (1) Tier 1 capital (common stockholders’ equity excluding goodwill, certain intangibles and net unrealized gains and losses on available-for-sale securities, but including, subject to limitations, trust preferred securities and other qualifying items) to total risk-weighted assets and (2) total capital (Tier 1 capital plus Tier 2 capital which is the qualifying portion of the allowance for loan and lease losses and the portion of trust preferred securities not counted as Tier 1 capital) to risk-weighted assets. The leverage ratio is measured as Tier 1 capital to adjusted quarterly average assets.

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The Company’s risk-based and leverage capital ratios exceeded these minimum requirements at December 31, 2003 and December 31, 2002 and are presented in the following table, followed by the capital ratios of the Company’s bank subsidiary at December 31, 2003.

Consolidated Capital Ratios

	December 31,
	2003			2002
	(Dollars in thousands)
Tier 1 capital:
Stockholders’ equity	$	98,486		$	72,918
Allowed amount of trust preferred securities (subordinated debentures)		32,862			17,250
Net unrealized losses (gains) on available-for-sale securities		100			(1,075	)
Less goodwill and certain intangible assets		(6,375	)		(2,671	)
Total Tier 1 capital		125,073			86,422
Tier 2 capital:
Remaining amount of trust preferred securities (subordinated debentures)		12,388			—
Qualifying allowance for loan and lease losses		12,610			9,469
Total risk-based capital	$	150,071		$	95,891
Risk-weighted assets	$	1,007,556		$	756,081
Ratios at end of period:
Leverage capital		9.33	%		8.64	%
Tier 1 risk-based capital		12.41			11.43
Total risk-based capital		14.89			12.68
Minimum ratio guidelines:
Leverage capital(1)		3.00	%		3.00	%
Tier 1 risk-based capital		4.00			4.00
Total risk-based capital		8.00			8.00

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

Capital Ratios of Bank Subsidiary

	December 31, 2003
	(Dollars in thousands)
Stockholders’ equity - Tier 1	$	107,791
Leverage capital		8.06	%
Tier 1 risk-based capital		10.75
Total risk-based capital		12.00

The recently issued FIN 46 was revised in December 2003 to clarify its application to trust preferred securities. As a result, the accounting treatment for the trusts through which trust preferred securities are issued has been changed. These trusts are no longer consolidated in the Company’s financial statements and accordingly the trust preferred securities are no longer reflected as minority interest on the balance sheet. At December 31, 2003 regulatory guidance continues to include trust preferred securities, subject to limitations, in regulatory capital. There is a possibility the FRB may change the capital treatment of trust preferred securities. The Company does not expect any change in the treatment of trust preferred securities to have a material impact on the Company’s future plans or prospects for expansion.

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Liquidity and Capital Resources

Issuance of Subordinated Debentures. In the third quarter of 2003, the Company closed two transactions in which it issued $28.9 million of adjustable rate subordinated debentures. These debentures were issued to two business trusts established by the Company. These trusts sold $28.0 million of trust preferred securities to investors and $867,000 of trust common equity to the Company. These debentures are accounted for by the Company as debt and the Company’s investment in the trusts is accounted for by the equity method. These securities bear a weighted average interest rate of 90-day LIBOR plus 2.93%, adjustable quarterly. The weighted average interest rate at December 31, 2003 was 4.08%. These securities have a 30-year final maturity and are prepayable at par by the Company on or after the fifth anniversary date or earlier in certain circumstances. It is likely that $17.3 million of the proceeds will be used to prepay the Company’s previous issue of 9% subordinated debentures prepayable on or after June 18, 2004. If the Company elects to prepay its 9% subordinated debentures on June 18, 2004 or shortly thereafter, it will incur a pretax charge for approximately $852,000 of unamortized debt issuance cost.

Growth and Expansion. During 2003 the Company added eight new banking offices and two loan production offices. These include loan production offices in Frisco and Dallas, Texas and the Company’s first banking offices in Cabot, Russellville, Benton and Mountain Home, Arkansas. Other 2003 new office openings in existing markets included Conway, Bryant, Little Rock and Fort Smith, Arkansas.

On June 13, 2003, the Company purchased RVB and its River Valley Bank subsidiary in Russellville, Arkansas. The Company acquired approximately $41 million in loans and approximately $50 million in deposits in this transaction. The purchase price for the RVB acquisition was $7.8 million and consisted of cash of $1.1 million and 369,520 split adjusted shares of the Company’s common stock valued at $6.7 million. This acquisition resulted in the recording of $3.1 million of goodwill and $784,000 of core deposit intangibles.

The Company plans to open approximately eight new banking offices in 2004 and may convert some or all of its three existing loan production offices to full service branches. These conversions would require the Company to acquire charters in Texas and North Carolina. Opening new offices or converting existing loan production offices to full service offices is subject to availability of suitable sites, hiring qualified personnel, obtaining regulatory approvals and numerous other conditions and contingencies.

During 2003 the Company spent $12.3 million on capital expenditures, excluding assets acquired in the RVB acquisition. The Company’s capital expenditures for 2004 are expected to be in the range of $11.0 to $19.0 million for completion of offices opening in 2004, acquisition of sites for future development, and payments on offices expected to be completed in 2005. Actual expenditures may vary significantly from those expected, primarily depending on the number and cost of additional branch offices constructed and sites acquired for future development.

Bank Liquidity. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. Generally the Company’s bank subsidiary relies on customer deposits and loan repayments as its primary sources of funds. The Company has used these funds, together with FHLB advances and other borrowings, to make loans, acquire investment securities and other assets and to fund continuing operations.

Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic and market conditions. Loan and lease repayments are a relatively stable source of funds but are subject to the borrowers and lessees ability to repay the loans and leases, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather and natural disasters. Furthermore, loans and leases generally are not readily convertible to cash. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet loan, lease and withdrawal demands or otherwise fund operations. Such sources include FHLB advances, federal funds lines of credit from correspondent banks, FRB borrowings and brokered deposits.

At December 31, 2003 the Company’s bank subsidiary had substantial unused borrowing availability. This availability was primarily comprised of the following four options: (1) $71.0 million of available blanket borrowing capacity with the FHLB, (2) $12.4 million of securities available to pledge for federal funds borrowings, (3) $12.0 million of available unsecured federal funds borrowing lines and (4) up to $125.2 million from borrowing programs of the FRB. As of December 31, 2003 the Company had outstanding brokered deposits of $30.9 million.

Management anticipates the Company’s bank subsidiary will continue to rely primarily on customer deposits and loan and lease repayments to provide liquidity. Additionally, where necessary, the sources of funds described above will be used to augment the Company’s primary funding sources.

        Contractual Obligations. The following table presents, as of December 31, 2003, significant fixed and determinable contractual obligations to third parties by contractual payment date with no consideration given to earlier call or prepayment features. The Company’s operating leases represent lease and rental payments for facilities. Other obligations consist primarily of contractual payments for capital expenditures.

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Contractual Obligations

	1 Year or Less		Over 1 Year Thru 3 Years		Over 3 Years Thru 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Deposits without a stated maturity(1)	$	503,029	$	—	$	—	$	—	$	503,029
Time deposits(2)(3 )		523,180		39,246		1,342		185		563,953
Repurchase agreements with customers(2)		29,899		—		—		—		29,899
Federal funds borrowed(2)		24,001		—		—		—		24,001
Other borrowings(2)(3)		64,359		8,258		7,930		65,470		146,017
Subordinated debentures(2)		2,692		5,384		5,384		106,772		120,232
Operating leases		447		700		528		2,841		4,516
Other obligations		1,870		—		—		—		1,870
Total contractual obligations	$	1,149,477	$	53,588	$	15,184	$	175,268	$	1,393,517

⁽¹⁾ Excludes interest.

⁽²⁾ Includes interest on both fixed and variable rate obligations. The interest associated with variable rate obligations is based upon interest rates in effect at December 31, 2003. The contractual amounts to be paid on variable rate obligations are affected by changes in market rates. Future changes in market interest rates could materially affect the contractual amounts to be paid.

⁽³⁾ Excludes unamortized premiums and discounts or similar carrying value adjustments.

Off-Balance Sheet Commitments. The following table details the amounts and expected maturities of significant off-balance sheet commitments as of December 31, 2003. Commitments to extend credit do not necessarily represent future cash requirements as these commitments may expire without being drawn upon.

Off-Balance Sheet Commitments

	1 Year or Less		Over 1 Year Thru 3 Years		Over 3 Years Thru 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Commitments to extend credit	$	115,273	$	17,243	$	26,560	$	6,450	$	165,526
Standby letters of credit		3,892		—		—		—		3,892
Total commitments	$	119,165	$	17,243	$	26,560	$	6,450	$	169,418

Dividend Policy. In 2003 the Company paid dividends of $0.23 per share. In 2002 and 2001 the Company paid dividends of $0.155 and $0.115 per share, respectively. In 2003 the per share dividend was increased from $0.05 in the first quarter to $0.055, $0.06 and $0.065 in the second, third and fourth quarters, respectively. In the first quarter of 2004 the Company increased the dividend to $0.07 per share. The determination of future dividends on the Company’s common stock will depend on conditions existing at that time. The Company’s goal is to continue at approximately the current level of quarterly dividend with consideration given to future changes depending on the Company’s earnings, capital and liquidity needs.

Critical Accounting Policy

Management’s determination of the adequacy of the allowance for loan and lease losses is considered to be a critical accounting policy. Provisions to and the adequacy of the allowance for loan and lease losses are based on management’s judgment and evaluation of the loan and lease portfolio utilizing objective and subjective criteria. Changes in these criteria or the availability of new information could cause the

31

allowance to be increased or decreased in future periods. In addition bank regulatory agencies, as part of their examination process, may require adjustments to the allowance for loan and lease losses based on their judgments and estimates.

Forward-Looking Information

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management, include certain forward-looking statements including, without limitation, statements with respect to net interest margin, net interest income, anticipated future operating and financial performance, asset quality, nonperforming loans and leases and assets, growth opportunities, growth rates, acquisition opportunities, new office openings, the possible conversion of loan production offices to full service banking offices, the possible prepayment of trust preferred securities and the effects thereof and other similar forecasts and statements of expectation. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise.

Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management due to certain risks, uncertainties and assumptions. Certain factors that may affect operating results of the Company include, but are not limited to, the following: (1) potential delays or other problems in implementing the Company’s growth and expansion strategy including delays in identifying satisfactory sites and opening new offices; (2) the ability to attract new deposits and loans; (3) interest rate fluctuations; (4) competitive factors and pricing pressures; (5) general economic conditions, including their effect on the credit worthiness of borrowers and collateral values; and (6) changes in legal and regulatory requirements as well as other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements.

32

Summary of Quarterly Results of

Operations, Common Stock Market Prices and Dividends

	2003 – Three Months Ended
	Mar. 31		June 30		Sept. 30		Dec. 31
	(Dollars in thousands, except per share amounts)
Total interest income	$	15,883	$	16,822	$	17,537	$	18,641
Total interest expense		5,017		5,047		4,879		5,172
Net interest income		10,866		11,775		12,658		13,469
Provision for loan and lease losses		750		1,095		1,050		970
Non-interest income		3,534		4,582		5,147		4,128
Non-interest expense		6,754		7,754		8,629		8,855
Income taxes		2,421		2,668		2,852		2,160
Net income	$	4,475	$	4,840	$	5,274	$	5,612
Per share:*
Earnings - diluted	$	0.28	$	0.30	$	0.32	$	0.34
Cash dividends		0.05		0.055		0.06		0.065
Bid price per common share:*
Low	$	11.78	$	14.02	$	18.82	$	20.42
High		14.38		19.38		22.73		24.11

	2002 – Three Months Ended
	Mar. 31		June 30		Sept. 30		Dec. 31
	(Dollars in thousands, except per share amounts)
Total interest income	$	14,381	$	14,937	$	15,625	$	15,970
Total interest expense		5,456		5,152		5,183		5,285
Net interest income		8,925		9,785		10,442		10,685
Provision for loan and lease losses		550		945		1,080		1,085
Non-interest income		2,204		2,721		2,970		3,794
Non-interest expense		5,636		6,058		6,382		6,839
Income taxes		1,849		2,068		2,254		2,374
Net income	$	3,094	$	3,435	$	3,696	$	4,181
Per share:*
Earnings - diluted	$	0.20	$	0.22	$	0.23	$	0.26
Cash dividends		0.03		0.035		0.04		0.05
Bid price per common share:*
Low	$	6.35	$	7.32	$	9.05	$	10.95
High		7.40		11.35		13.18		12.63

* Adjusted to give effect to 2-for-1 stock splits effective December 10, 2003 and June 17, 2002.

See Note 14 to Consolidated Financial Statements for discussion of dividend restrictions.

33

Report of Independent Auditors

Board of Directors and Shareholders

Bank of the Ozarks, Inc.

We have audited the accompanying consolidated balance sheets of Bank of the Ozarks, Inc. and subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bank of the Ozarks, Inc. and subsidiary at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.

Ernst & Young LLP

Little Rock, Arkansas

January 13, 2004

34

Bank of the Ozarks, Inc.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2003			2002
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	28,405		$	24,755
Interest-bearing deposits		428			427
Cash and cash equivalents		28,833			25,182
Investment securities - available for sale		364,320			222,965
Investment securities - held to maturity (estimated market value: $ 9,311)		—			9,203
Loans and leases		909,147			717,895
Allowance for loan and lease losses		(13,820	)		(10,936	)
Net loans and leases		895,327			706,959
Premises and equipment, net		50,251			39,050
Foreclosed assets held for sale, net		780			333
Interest receivable		7,029			6,029
Intangible assets, net		6,375			2,671
Other		33,614			23,994
Total assets	$	1,386,529		$	1,036,386
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand non-interest bearing	$	106,586		$	85,838
Savings and interest-bearing transaction		396,443			312,637
Time		559,035			391,698
Total deposits		1,062,064			790,173
Repurchase agreements with customers		29,898			20,739
Other borrowings		145,541			129,366
Subordinated debentures		46,651			17,783
Accrued interest and other liabilities		3,889			5,407
Total liabilities		1,288,043			963,468
Commitments and contingencies
Stockholders’ equity
Preferred stock; $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock; $0.01 par value, 50,000,000 shares authorized at December 31, 2003 and 10,000,000 shares authorized at December 31, 2002; 16,232,540 and 15,505,820 (split adjusted) shares issued and outstanding in 2003 and 2002, respectively		162			78
Additional paid-in capital		27,131			17,010
Retained earnings		71,293			54,755
Accumulated other comprehensive (loss) income		(100	)		1,075
Total stockholders’ equity		98,486			72,918
Total liabilities and stockholders’ equity	$	1,386,529		$	1,036,386

See accompanying notes to the consolidated financial statements

35

Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2003		2002			2001
	(Dollars in thousands, except per share amounts)
Interest income:
Loans and leases	$	54,884	$	49,270		$	47,464
Investment securities - taxable		11,958		10,972			11,203
- nontaxable		2,017		641			1,403
Deposits with banks and federal funds sold		24		30			49
Total interest income		68,883		60,913			60,119
Interest expense:
Deposits		13,051		14,387			25,300
Repurchase agreements with customers		317		278			537
Other borrowings		4,803		4,776			4,577
Subordinated debentures		1,944		1,635			1,635
Total interest expense		20,115		21,076			32,049
Net interest income		48,768		39,837			28,070
Provision for loan and lease losses		3,865		3,660			3,401
Net interest income after provision for loan and lease losses		44,903		36,177			24,669
Other income:
Service charges on deposit accounts		7,761		6,940			3,776
Mortgage lending income		5,548		2,923			1,920
Trust income		1,564		728			604
Bank owned life insurance		1,132		236			—
Gain (loss) on sale of securities		144		(217	)		153
Other		1,242		1,079			948
Total other income		17,391		11,689			7,401
Other expense:
Salaries and employee benefits		18,411		14,395			10,551
Net occupancy and equipment		4,421		3,495			3,098
Other operating expenses		9,160		7,025			5,381
Total other expense		31,992		24,915			19,030
Income before income taxes		30,302		22,951			13,040
Provision for income taxes		10,101		8,545			4,081
Net income	$	20,201	$	14,406		$	8,959
Basic earnings per common share	$	1.27	$	0.94		$	0.59
Diluted earnings per common share	$	1.24	$	0.92		$	0.59

See accompanying notes to the consolidated financial statements

36

Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total
	(Dollars in thousands, except per share amounts)
Balance - January 1, 2001	$	38	$	14,314		$	35,498		$	(1,501	)	$	48,349
Comprehensive income:
Net income		—		—			8,959			—			8,959
Other comprehensive income
Unrealized gains on securities available for sale net of $457 tax effect		—		—			—			737			737
Reclassification adjustment for gains included in income net of $164 tax effect		—		—			—			265			265
Comprehensive income													9,961
Dividends paid, $0.115 per split adjusted share		—		—			(1,739	)		—			(1,739	)
Issuance of 10,000 split adjusted shares of common stock for exercise of stock options including tax benefits of $5		—		46			—			—			46
Balance - December 31, 2001		38		14,360			42,718			(499	)		56,617
Comprehensive income:
Net income		—		—			14,406			—			14,406
Other comprehensive income
Unrealized gains on securities available for sale net of $997 tax effect		—		—			—			1,542			1,542
Reclassification adjustment for gains included in income net of $21 tax effect		—		—			—			32			32
Comprehensive income													15,980
2-for-1 stock split in the form of a 100% stock dividend		38		(38	)		—			—			—
Dividends paid, $0.155 per split adjusted share		—		—			(2,369	)		—			(2,369	)
Issuance of 377,600 split adjusted shares of common stock for exercise of stock options		2		1,787			—			—			1,789
Tax benefit related to exercise of stock options		—		901			—			—			901
Balance - December 31, 2002		78		17,010			54,755			1,075			72,918
Comprehensive income:
Net income		—		—			20,201			—			20,201
Other comprehensive income (loss)
Unrealized losses on securities available for sale net of $849 tax effect		—		—			—			(1,289	)		(1,289	)
Reclassification adjustment for gains included in income net of $73 tax effect		—		—			—			114			114
Comprehensive income													19,026
Issuance of 369,520 split adjusted shares pursuant to acquisition of RVB Bancshares, Inc.		2		6,705			—			—			6,707
Dividends paid, $0.23 per split adjusted share		—		—			(3,663	)		—			(3,663	)
Issuance of 357,200 split adjusted shares of common stock for exercise of stock options		1		1,579			—			—			1,580
Tax benefit related to exercise of stock options		—		1,777			—			—			1,777
2-for-1 stock split in the form of a 100% stock dividend		81		(81	)		—			—			—
Compensation recognized under stock option plans		—		141			—			—			141
Balance - December 31, 2003	$	162	$	27,131		$	71,293		$	(100	)	$	98,486

See accompanying notes to the consolidated financial statements

37

Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2003			2002			2001
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	20,201		$	14,406		$	8,959
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,884			1,571			1,460
Amortization		240			186			276
Provision for loan and lease losses		3,865			3,660			3,401
Provision for losses on foreclosed assets		92			37			163
Amortization and accretion on investment securities		758			186			(130	)
Loss (gain) on sale of investment securities		(144	)		217			(153	)
Decrease (increase) in mortgage loans held for sale		6,113			347			(12,308	)
Gain on disposition of foreclosed assets		(18	)		(42	)		(2	)
Compensation recognized under stock option plans		141			—			—
Deferred income taxes		344			(836	)		(569	)
Increase in bank owned life insurance value		(1,132	)		(236	)		—
Changes in assets and liabilities:
Interest receivable		(693	)		(208	)		3,073
Other assets, net		(1,789	)		(340	)		(11	)
Accrued interest and other liabilities		337			2,441			741
Net cash provided by operating activities		30,199			21,389			4,900
Cash flows from investing activities:
Proceeds from sales and maturities of investment securities available for sale		342,992			131,778			48,302
Purchases of investment securities available for sale		(476,654	)		(169,867	)		(177,681	)
Proceeds from maturities of investment securities held to maturity		2,985			1,332			197,135
Purchases of investment securities held to maturity		(2,171	)		(6,072	)		—
Decrease in federal funds sold		—			—			2,000
Net increase in loans and leases		(159,807	)		(105,333	)		(96,515	)
Purchases of premises and equipment		(12,250	)		(7,498	)		(4,048	)
Proceeds from dispositions of foreclosed assets		1,603			2,069			2,775
Purchase of equity method investments		(5,449	)		—			—
Cash and federal funds sold received in acquisition, net of cash paid		8,969			—			—
Purchase of bank owned life insurance		—			(20,000	)		—
Net cash used in investing activities		(299,782	)		(173,591	)		(28,032	)
Cash flows from financing activities:
Net increase in deposits		221,745			112,430			60
Net proceeds from other borrowings		15,547			29,676			32,988
Net increase in repurchase agreements with customers		9,158			4,526			2,374
Proceeds from issuance of subordinated debentures		28,867			—			—
Proceeds on exercise of stock options		1,580			1,789			41
Dividends paid		(3,663	)		(2,369	)		(1,739	)
Net cash provided by financing activities		273,234			146,052			33,724
Net increase (decrease) in cash and cash equivalents		3,651			(6,150	)		10,592
Cash and cash equivalents - beginning of year		25,182			31,332			20,740
Cash and cash equivalents - end of year	$	28,833		$	25,182		$	31,332

See accompanying notes to the consolidated financial statements

38

Bank of the Ozarks, Inc.

Notes to Consolidated Financial Statements

December 31, 2003, 2002 and 2001

1. Summary of Significant Accounting Policies

Organization - Bank of the Ozarks, Inc. (the “Company”) is a bank holding company headquartered in Little Rock, Arkansas, which operates under the rules and regulations of the Board of Governors of the Federal Reserve System. The Company owns a wholly-owned state chartered bank subsidiary—Bank of the Ozarks, and three business trusts—Ozark Capital Trust (“Ozark”), Ozark Capital Statutory Trust II (“Ozark II”), and Ozark Capital Statutory Trust III (“Ozark III”) (collectively, the “Trusts”). The bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The bank has banking offices located in northern, western, and central Arkansas and loan production offices in Charlotte, North Carolina, Frisco, Texas and Dallas, Texas.

Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned bank subsidiary. Significant intercompany transactions and amounts have been eliminated in consolidation.

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and cash equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and interest-bearing deposits with banks.

Investment securities - Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost.

Debt securities not classified as held to maturity or trading and marketable equity securities not classified as trading are classified as available for sale. Available-for-sale securities are stated at estimated fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity and other comprehensive income (loss).

The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion is included in interest income from investments. Interest and dividends are included in interest income from investments.

Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Gains or losses on the sale of securities are recognized on the specific identification method at the time of sale.

Loans and Leases - Loans and leases receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal adjusted for any charge-offs, deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans. Interest on loans and leases is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yields on the related loans.

Allowance for loan and lease losses - The allowance for loan and lease losses is established through a provision for such losses charged against income. Loans or leases deemed to be uncollectible are charged against the allowance for loan and lease losses when management believes that the collectibility of the principal is unlikely, and subsequent recoveries, if any, are credited to the allowance.

The allowance is maintained at a level that management believes will be adequate to absorb losses on existing loans and leases that may become uncollectible, based on evaluations of the collectibility of loans and leases and prior loan and lease loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan and lease portfolio, overall portfolio quality, review of specific problem loans and leases, historical loan and lease loss experience and current economic and business conditions that may affect the borrowers’ or lessees’ ability to pay or the value of the collateral securing the loans or leases. The Company’s policy generally is to place a loan or lease on nonaccrual status when payment of principal or interest is contractually past due 90 days, or earlier when concern exists as to the ultimate collection of principal and interest. Nonaccrual loans or leases are generally returned to accrual status when principal and interest payments are less than 90 days past due and the Company reasonably expects to collect all principal and interest. The Company may continue to accrue interest on certain loans and leases contractually past due 90 days if such loans or leases are both well secured and in the process of collection.

        The Company considers a loan or lease to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms thereof. The Company applies this policy even if delays or shortfalls in payment are expected to be insignificant. All nonaccrual loans or leases and all loans or leases that have been restructured from their original contractual

39

terms are considered impaired. The aggregate amount of impairment of loans and leases is utilized in evaluating the adequacy of the allowance for loan and lease losses and amount of provisions thereto. Losses on impaired loans and leases are charged against the allowance for loan and lease losses when in the process of collection it appears likely that such losses will be realized. The accrual of interest on impaired loans and leases is discontinued, when in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received.

Premises and equipment - Premises and equipment are stated 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. Estimated book depreciation lives for the major classes of assets are 20 to 50 years for buildings, improvements and leaseholds, and 3 to 15 years for furniture, fixtures and equipment. Accelerated depreciation methods are used for income tax purposes.

Foreclosed assets held for sale - Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value less estimated cost to sell at the date of foreclosure establishing a new cost basis.

Valuations are periodically performed by management and the real estate is carried at the lower of book value or fair value less estimated cost to sell. Gains and losses from the sale of other real estate are recorded in other income, and expenses used to maintain the properties are included in operating expenses.

Income taxes - The Company 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 statement and their related tax basis using enacted tax rates in effect for the year 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.

The Company and its bank subsidiary file consolidated tax returns. Its subsidiary provides for income taxes on a separate return basis, and remits to the Company amounts determined to be currently payable.

Trust department income - Property, other than cash deposits, held by the Company’s trust department in fiduciary or agency capacities for its customers is not included in the accompanying consolidated financial statements, since such items are not assets of the Company. Trust department income has been recognized on the cash basis in accordance with customary banking practice, which does not differ materially from the accrual method.

Intangible assets - Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Prior to 2002, goodwill was being amortized over periods ranging from 10 to 40 years. In 2002 amortization of goodwill was discontinued in compliance with Statement of Financial Accounting Standards (“SFAS”) No. 142. Core deposit intangibles represent premiums paid for deposits acquired and are being amortized over 8 to 10 years. The Company had goodwill of $4.9 million and $1.8 million, respectively, at December 31, 2003 and 2002. Core deposit intangibles totaled $2.3 million and $1.5 million less accumulated amortization of $862,000 and $656,000 at December 31, 2003 and 2002, respectively. The Company performed its annual impairment test of goodwill as of October 1, 2003 as required by SFAS No. 142. This test indicated no impairment of the Company’s goodwill.

Earnings per share - Basic earnings per share has been calculated based on the weighted average number of shares outstanding. Diluted earnings per share has been calculated based on the weighted average number of shares outstanding after consideration of the dilutive effect of the Company’s outstanding stock options.

On June 17, 2002, the Company completed a 2-for-1 stock split, in the form of a stock dividend, effected by issuing one share of common stock for each share of such stock outstanding on June 3, 2002. Effective December 10, 2003 the Company had a 2-for-1 stock split, also in the form of a stock dividend, effected by issuing one share of common stock for each share of such stock outstanding on November 26, 2003. All share and per share information contained in the consolidated financial statements and notes thereto has been adjusted to give effect to both of these stock splits.

Financial instruments - In the ordinary course of business, the Company 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 or related fees are incurred or received.

        Stock-based compensation - The Company has a stock-based employee compensation plan, which is described more fully in Note 12. The Company applies the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations for all stock options granted prior to January 1, 2003 under this plan. Accordingly, no stock-based compensation cost is reflected in net income for stock option grants prior to that date, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, the Company adopted the fair value method of recording stock-based compensation for all stock option grants after December 31, 2002 and uses the prospective transition method provided by SFAS No. 148. The effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, to all of its stock-based employee compensation is provided in Note 12.

40

Segment Disclosures - SFAS No. 131 established standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. As the Company operates in only one segment—community banking—SFAS 131 does not have a material effect on the primary financial statements or the disclosure of segment information. No revenues are derived from foreign countries and no single external customer comprises more than 10% of the Company’s revenues.

Recent Accounting Pronouncements - In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” During 2003, the FASB made revisions to FIN 46 that deferred the implementation date for adoption and clarified certain provisions, including the accounting for trust preferred securities under the provisions of FIN 46. Effective December 31, 2003, the Company adopted the provisions of FIN 46, resulting in the deconsolidation of the Trusts that have issued the trust preferred securities and restatement of prior period financial statements for this deconsolidation. Accordingly, the Company is now reporting its ownership interests in these Trusts as other assets and the subordinated debentures are now reported as a liability in the Company’s consolidated balance sheets. Additionally, the distributions on the trust preferred securities are now reported as interest expense in the accompanying consolidated statements of income.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 established standards for how entities classify and measure certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS No. 150, which are effective at the beginning of the first interim period beginning after June 15, 2003, would have required the Company to reclassify the “Guaranteed preferred beneficial interest in the Company’s subordinated debentures” as a liability in the Company consolidated balance sheet and the distributions on these trust preferred securities as interest expense in the Company’s consolidated statements of income beginning July 1, 2003. In November, the FASB indefinitely deferred the provisions of SFAS No. 150 with respect to its application of the accounting for these trust preferred securities.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. The Company adopted the fair value method of recording stock-based compensation on January 1, 2003 and uses the prospective transition method for all stock options granted after December 31, 2002. The Company recognized $141,000 of pretax non-interest expense during the year ended December 31, 2003 as a result of applying the provisions of SFAS No. 148 using the prospective transition method to its 2003 stock option grants.

In October 2002, the FASB issued SFAS No. 147, “Acquisitions of Certain Financial Institutions.” The provisions of SFAS No. 147 remove acquisitions of financial institutions from the scope of both SFAS No. 72 and FASB Interpretation No. 9 by requiring that such transactions be accounted for in accordance with the provisions of SFAS No 141 and SFAS No. 142. The provisions of SFAS No. 147 were adopted by the Company effective October 1, 2002 and had no impact on the Company’s financial position, results of operation or its cash flows.

In November 2003, the Emerging Issues Task Force reached a consensus on Issue 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and its Application on Certain Investments” requiring certain quantitative and qualitative disclosures for debt and marketable equity securities classified as available for sale or held to maturity. For those instruments with unrealized losses that have not been recognized as other-than-temporary impairments, EITF 03-1 requires disclosures of the aggregate amount of unrealized losses and the aggregate fair value of investments with unrealized losses, segregated by these investments that have been in a continuous unrealized loss position for less than 12 months and for 12 months or longer. EITF 03-1 also requires qualitative disclosures of the information used in reaching the conclusion that the impairments are not other-than-temporary. The disclosures required by EITF 03-1 are effective for fiscal years ended on or after December 15, 2003.

On December 11, 2003, the Securities and Exchange Commission staff announced its intention to release a Staff Accounting Bulletin that would require all registrants to account for mortgage loan interest rate lock commitments related to loans held for sale as written options, effective no later than for commitments entered into after March 31, 2004. This guidance, if issued, would require the Company to recognize a liability on its balance sheet equal to the fair value of the commitment at the time the loan commitment is issued. The Company is currently assessing the impact of this pending guidance on its results of operations and financial position.

Reclassifications - Certain reclassifications of 2001 and 2002 amounts have been made to conform with the 2003 financial statements presentation.

2. Acquisitions

On June 13, 2003, the Company purchased RVB Bancshares, Inc. (“RVB”) and its River Valley Bank subsidiary in Russellville, Arkansas. The Company acquired approximately $41 million in loans and approximately $50 million in deposits in this transaction. The purchase price for the RVB acquisition was $7.8 million and consisted of cash of $1.1 million and 369,520 split adjusted shares of the Company’s common stock valued at $6.7 million. This acquisition resulted in the recording of $3.1 million of goodwill and $784,000 of core deposit intangibles.

        In December 2003, the Company invested $4.6 million to acquire 21.9 units of interest (36.5% ownership interest) in the Central Arkansas Regional Industrial Development Company 7, LLC (“CARIDC 7”) and 17.0

41

units of interest (47.3% ownership interest) in the Central Arkansas Regional Industrial Development Company 8, LLC (“CARIDC 8”) (collectively, the “LLC’s”).

The LLC’s are Community Reinvestment Act limited liability companies investing in revenue bonds that have been issued for the rehabilitation of low-income housing projects for which low-income housing tax credits have been awarded. These investments generated income tax benefits which reduced 2003 combined federal and state income taxes by approximately $556,000. The Company also incurred an impairment charge of $320,000 associated with these investments. Because of limitations in the annual utilization of these credits, approximately half of the state tax benefits, net of federal effect, were used in 2003. The remaining benefits are available, subject to certain limitations, through 2006.

3. Investment Securities

The following is a summary of the amortized cost and estimated market values of investment securities:

	December 31, 2003
	Amortized Cost		Unrealized Gains		Unrealized Losses			Market Value
	(Dollars in thousands)
Securities - available for sale:
Mortgage-backed securities	$	259,862	$	1,358	$	(2,660	)	$	258,560
State and political subdivisions		89,707		1,120		(483	)		90,344
Other securities		14,915		513		(12	)		15,416
Total securities - available for sale	$	364,484	$	2,991	$	(3,155	)	$	364,320
	December 31, 2002
	Amortized Cost		Unrealized Gains		Unrealized Losses			Market Value
	(Dollars in thousands)
Securities - available for sale:
Securities of United States government and agencies	$	41,309	$	190	$	—		$	41,499
Mortgage-backed securities		155,325		1,385		—			156,710
State and political subdivisions		19,322		243		(47	)		19,518
Other securities		5,239		—		(1	)		5,238
Total securities - available for sale	$	221,195	$	1,818	$	(48	)	$	222,965
Securities - held to maturity:
State and political subdivisions	$	1,974	$	25	$	—		$	1,999
Other securities		7,229		83		—			7,312
Total securities - held to maturity	$	9,203	$	108	$	—		$	9,311

The following shows investment securities gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2003.

	Less than 12 months					12 months or more				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(Dollars in thousands)
Mortgage-backed securities	$	137,545	$	(2,660	)	$	29	$	—	$	137,574	$	(2,660	)
State and political subdivisions		27,437		(483	)		—		—		27,437		(483	)
Other securities		125		(12	)		—		—		125		(12	)
Total temporarily impaired securities	$	165,107	$	(3,155	)	$	29	$	—	$	165,136	$	(3,155	)

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At December 31, 2003, 19 of the Company’s mortgage-backed securities, 99 of its state and political subdivision securities and one of its other securities had fair values that were less than their carrying values. However, all of these investment securities except for one of the mortgage-backed securities has been in a continuous unrealized loss position for less than 12 months. In evaluating the Company’s unrealized loss positions for other-than-temporary impairment, management considers the credit quality of the issuer, the nature and cause of the unrealized loss and the severity and duration of the impairments. At December 31, 2003, management determined that substantially all of its unrealized losses were the result of fluctuations in interest rates and did not reflect deteriorations of the credit quality of the investments. Accordingly, management has determined that all of its unrealized losses on investment securities are temporary in nature, and the Company has both the ability and intent to hold these investments until maturity or until fair value recovers above cost.

A maturity distribution of available-for-sale investment securities reported at amortized cost and estimated market value as of December 31, 2003 is as follows:

	Available-for-Sale
	Amortized Cost		Estimated Market Value
	(Dollars in thousands)
Due in one year or less	$	97,943	$	97,968
Due after one year to five years		164,572		163,378
Due after five years to ten years		12,705		12,865
Due after ten years		89,264		90,109
Totals	$	364,484	$	364,320

For purposes of this maturity distribution all securities are shown based on their contractual maturity date, except equity securities with no contractual maturity date which are shown in the longest maturity category and mortgage-backed securities which are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Sales activities of the Company’s available-for-sale investment securities are summarized as follows:

	Year Ended December 31,
	2003		2002			2001
	(Dollars in thousands)
Fair value of securities on date of sale	$	2,200	$	9,500		$	35,200
Gross realized gains	$	48	$	6		$	273
Gross realized losses		—		(223	)		(83	)
Net gain (loss) on sales	$	48	$	(217	)	$	190

During 2003 the Company determined that certain of its investment securities held to maturity no longer met the Company’s investment objectives. As a result the Company sold certain of the held-to-maturity investment securities and transferred the remainder of its investment securities from held to maturity to available for sale. Investment securities held to maturity with amortized cost of $2.9 million were sold for total proceeds of $3.0 million, resulting in a gain on the sale of $96,000. The remaining portion of the Company’s held-to-maturity investment securities with amortized cost of $8.5 million was transferred to available for sale. The unrealized gain on these held-to-maturity investment securities was approximately $570,000 at the date of transfer.

No trading account securities were held at December 31, 2003. The Company maintained a trading account of up to $200,000 during part of 2001. The Company had no trading securities during 2003 or 2002. The gross realized gains on trading securities in 2001 totaled $3,000 and gross realized losses totaled $40,000.

Assets, principally investment securities, having a carrying value of approximately $323.2 million and $201.0 million at December 31, 2003 and 2002, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

4. Loans and Leases

The following is a summary of the loan and lease portfolio by principal categories:

	December 31,
	2003		2002
	(Dollars in thousands)
Real Estate:
Residential 1-4 family	$	218,851	$	183,687
Non-farm/non-residential		285,451		212,481
Agricultural		61,500		57,525
Construction/land development		117,835		65,474
Multifamily residential		23,657		28,555
Consumer		64,831		54,097
Commercial and industrial		111,978		95,951
Agricultural (non-real estate)		15,266		15,388
Other (including leases)		9,778		4,737
Total loans and leases	$	909,147	$	717,895

These categories are presented net of unearned income, unearned purchase discounts and deferred costs totaling $780,000 and $652,000 at December 31, 2003 and 2002, respectively. Loans and leases on which the accrual of interest has been discontinued aggregated $4.2 million and $2.2 million at December 31, 2003 and 2002, respectively. Interest income recorded during 2003, 2002 and 2001 for non-accrual loans and leases at December 31, 2003, 2002 and 2001 was $199,000, $79,000 and $117,000, respectively. Under the original terms, these loans and leases would have reported approximately $325,000, $211,000 and $175,000 of interest income during 2003, 2002 and 2001, respectively.

Mortgage loans held for resale of $7.7 million and $13.8 million at December 31, 2003 and 2002, respectively, are included in residential 1-4 family loans. The carrying value of these loans approximates their fair value.

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5. Allowance for Loan and Lease Losses

The following is a summary of activity within the allowance for loan and lease losses:

	Year Ended December 31,
	2003			2002			2001
	(Dollars in thousands)
Balance - beginning of year	$	10,936		$	8,712		$	6,606
Loans and leases charged-off		(1,875	)		(1,673	)		(1,420	)
Recoveries on loans and leases previously charged-off		234			237			125
Net charge-offs		(1,641	)		(1,436	)		(1,295	)
Provision charged to operating expense		3,865			3,660			3,401
Allowance added in bank acquisition		660			—			—
Balance - end of year	$	13,820		$	10,936		$	8,712

Impairment of loans and leases having carrying values of $4.2 million and $2.2 million (all of which were on a non-accrual basis) at December 31, 2003 and 2002, respectively, have been recognized in conformity with SFAS No. 114, as amended by SFAS No. 118. The total allowance for credit losses related to these loans and leases was $672,000 and $388,000 at December 31, 2003 and 2002, respectively. The average carrying value of impaired loans and leases was $3.3 million, $2.2 million and $1.7 million for the years ended December 31, 2003, 2002 and 2001, respectively.

Real estate securing loans having a carrying value of $1.8 million and $1.2 million were transferred to foreclosed assets held for sale in 2003 and 2002, respectively. The Company is not committed to lend additional funds to debtors whose loans have been transferred to foreclosed assets or placed on nonaccrual.

6. Premises and Equipment

The following is a summary of premises and equipment:

	December 31,
	2003			2002
	(Dollars in thousands)
Land	$	18,184		$	12,111
Construction in process		773			478
Buildings and improvements		28,793			23,877
Leasehold improvements		2,574			2,479
Equipment		10,878			9,290
		61,202			48,235
Accumulated depreciation		(10,951	)		(9,185	)
Premises and equipment, net	$	50,251		$	39,050

The Company capitalized $93,000, $47,000 and $53,000 of interest on construction projects during the years ended December 31, 2003, 2002 and 2001, respectively. Included in occupancy expense is rent of approximately $420,000, $253,000 and $162,000 incurred under noncancelable operating leases in 2003, 2002 and 2001, respectively, for leases of real estate in connection with buildings and premises. These leases contain certain renewal and purchase options according to the terms of the agreements. Future amounts due under noncancelable operating leases at December 31, 2003 are $447,000 in 2004, $393,000 in 2005, $307,000 in 2006, $274,000 in 2007, $254,000 in 2008 and $2,841,000 thereafter.

7. Deposits

The aggregate amount of time deposits with a minimum denomination of $100,000 was $361.8 million and $216.0 million at December 31, 2003 and 2002, respectively.

The following is a summary of the scheduled maturities of all time deposits:

	December 31,
	2003		2002
	(Dollars in thousands)
Up to one year	$	519,788	$	362,098
One year to two years		32,430		26,050
Two years to three years		5,364		1,751
Three years to four years		993		780
Four years to five years		299		787
Thereafter		161		232
Total time deposits	$	559,035	$	391,698

8. Borrowings

Short-term borrowings with original maturities less than one year include FHLB advances, Federal Reserve Bank borrowings, non-customer repurchase agreements, treasury, tax and loan note accounts and federal funds purchased. The following is a summary of information relating to the short-term borrowings:

	2003			2002
	(Dollars in thousands)
Average annual balance	$	49,058		$	15,132
December 31 balance		76,980			38,150
Maximum month-end balance during year		76,980			41,138
Interest rate:
Weighted average - year		1.14	%		1.74	%
Weighted average - December 31		0.98			1.23

The following is a summary of long-term borrowings:

	December 31,
	2003		2002
	(Dollars in thousands)
FHLB advances with original maturities exceeding one year. Interest rates range from 2.14% to 6.43% at December 31, 2003. At December 31, 2003, the Company’s bank subsidiary had remaining $71 million of unused blanket FHLB borrowing availability. The FHLB maintains as collateral a blanket lien on a portion of the Company’s real estate loans.	$	68,561	$	91,186
Other		—		30
Total long-term borrowings	$	68,561	$	91,216

Maturities of long-term borrowings at December 31, 2003 are as follows: $7.4 million in 2004, $520,000 in 2005, $197,000 in 2006, $197,000 in 2007, $198,000 in 2008 and $60.0 million in 2010. FHLB advances of $60.0 million maturing in 2010 may be called quarterly but the Company has the option to refinance on a long-term basis any amounts called.

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9. Subordinated Debentures

On June 18, 1999 Ozark sold to investors in a public underwritten offering $17.3 million of 9% cumulative trust preferred securities (“9% Securities”). The proceeds were used to purchase an equal principal amount of 9% subordinated debentures (“9% Debentures”) of Bank of the Ozarks, Inc. 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, “Adjustable Rate Securities”). These Adjustable Rate Securities bear interest at 90-day LIBOR plus 2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II, adjustable quarterly, and on a combined basis have a weighted average rate of 4.08% at December 31, 2003. The aggregate proceeds of $28 million from the Adjustable Rate Securities were used to purchase an equal principal amount of adjustable rate subordinated debentures of Bank of the Ozarks, Inc., that adjust quarterly to 90-day LIBOR plus 2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II (“Adjustable Rate Debentures”). At December 31, 2003 the Trusts had an aggregate of $45.3 million of trust preferred securities outstanding, and the Company had an equal amount of subordinated debentures outstanding that were held by the Trusts. Bank of the Ozarks, Inc. has, through various contractual arrangements, fully and unconditionally guaranteed all obligations of the Trusts with respect to the 9% Securities and the Adjustable Rate Securities. The sole asset of Ozark is the 9% Debentures, and the sole assets of Ozark II and Ozark III are the Adjustable Rate Debentures. Both the 9% Securities and the 9% Debentures will mature on June 18, 2029, while both the Adjustable Rate Securities and the Adjustable Rate Debentures mature in September 2033 (the thirtieth anniversary date of issuance). However, all of these trust preferred securities and the associated subordinated debentures may be prepaid, subject to regulatory approval, prior to maturity at any time on or after the fifth anniversary date of issuance (June 18, 2004 for the 9% Securities and 9% Debentures, and September 25 and 29, 2008 for the two issues of Adjustable Rate Securities and Adjustable Rate Debentures), or at an earlier date upon certain changes in tax laws, investment company laws or regulatory capital requirements.

10. Income Taxes

The following is a summary of the components of the provision (benefit) for income taxes:

	Year Ended December 31,
	2003			2002			2001
	(Dollars in thousands)
Current:
Federal	$	8,773		$	7,956		$	4,520
State		984			1,425			130
Total current		9,757			9,381			4,650
Deferred:
Federal		257			(694	)		(515	)
State		87			(142	)		(54	)
Total deferred		344			(836	)		(569	)
Provision for income taxes	$	10,101		$	8,545		$	4,081
The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows:
	Year Ended December 31,
	2003			2002			2001
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		2.3			3.6			0.9
Effect of non-taxable interest income		(2.3	)		(1.1	)		(3.6	)
Refund of prior years state income tax		—			—			(0.7	)
Effect of graduated rate differential		—			—			(0.9	)
Other		(1.7	)		(0.3	)		0.6
Effective income tax rate		33.3	%		37.2	%		31.3	%

In December 2003, as previously discussed, the Company’s investments in CARIDC 7 and CARIDC 8 resulted in its attainment of $1.5 million of Arkansas state income tax credits of which approximately $710,000 were utilized during the year ended December 31, 2003. The remaining tax credits of approximately $820,000 are available to offset future state taxable income, subject to certain limitations through December 31, 2006.

Income tax benefits from the exercise of stock options in the amount of $1.8 million, $900,000 and $5,000, respectively, in 2003, 2002 and 2001 were recorded as an increase to additional paid-in capital.

In 2001 the Company recorded a tax refund of a state income tax assessment the Company had paid and expensed in 1997. This settlement resulted in a refund of $147,000 of tax and $123,000 of interest in 2001. These amounts were recorded as a credit to tax expense and other income, respectively, in 2001.

45

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 are as follows:

	December 31,
	2003		2002
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	5,421	$	4,187
Valuation of foreclosed assets		8		30
Stock-based compensation under the fair value method		55		—
Unrealized depreciation on securities available for sale		64		—
Gross deferred tax assets		5,548		4,217
Deferred tax liabilities:
Accelerated depreciation on premises and equipment		2,816		1,909
Equipment financing leases		503		—
FHLB stock dividends		486		422
Unrealized appreciation on securities available for sale		—		709
Other		78		(25	)
Gross deferred tax liabilities		3,883		3,015
Net deferred tax assets included in other assets	$	1,665	$	1,202

11. Employee Benefit Plans

The Company maintains a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan permits the employees of the Company to defer a portion of their compensation in accordance with the provisions of Section 401(k) of the Code. Matching contributions may be made in amounts and at times determined by the Company. Certain other statutory limitations with respect to the Company’s contribution under the 401(k) Plan also apply. Amounts contributed by the Company for a participant will vest over six years and will be held in trust until distributed pursuant to the terms of the 401(k) Plan.

Employees of the Company are eligible to participate in the 401(k) Plan when they meet certain requirements concerning minimum age and period of credited service. All contributions to the 401(k) Plan will be invested in accordance with participant elections among certain investment options. Distributions from participant accounts will not be permitted before age 65, except in the event of death, permanent disability, certain financial hardships or termination of employment. The Company made matching contributions to the 401(k) plan during 2003, 2002 and 2001 of $303,000, $206,000 and $157,000, respectively.

12. Stock Options

The Company has a nonqualified stock option plan for certain key employees and officers of the Company. This plan provides for the granting of incentive nonqualified options to purchase up to 1,540,000 split adjusted shares of common stock in the Company. No option may be granted under this plan for less than the fair market value of the common stock at the date of the grant. The exercise period and the termination date for the employee plan options is determined when the options are actually granted. The Company also has a nonqualified stock option plan for non-employee directors. The non-employee director plan calls for options to purchase 1,000 shares of common stock to be granted to non-employee directors the day after the annual stockholders’ meeting. These options are exercisable immediately and expire ten years after issuance.

The following table summarizes stock option activity for the years indicated.

	Year ended December 31,
	2003				2002				2001
	Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price
Outstanding - beginning of year	1,024,000		$	4.88	1,316,600		$	4.34	1,231,100		$	4.27
Granted	98,200			21.03	100,600			11.41	153,800			4.89
Exercised	(357,200	)		4.44	(377,600	)		4.74	(10,000	)		4.06
Canceled	(10,400	)		11.03	(15,600	)		4.31	(58,300	)		4.58
Outstanding - end of year	754,600		$	7.11	1,024,000		$	4.88	1,316,600		$	4.34
Exercisable at end of year	497,200		$	4.41	466,038		$	5.06	518,000		$	4.93

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Exercise prices for options outstanding as of December 31, 2003 ranged from $2.96 to $22.07. The weighted-average fair value of options granted during 2003, 2002 and 2001 was $6.93, $3.28 and $1.37, respectively. The weighted-average remaining contractual life of the options issued in 2003 is 6.7 years.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	2003		2002		2001
Risk-free interest rate	3.09	%	3.60	%	4.13	%
Dividend yield	1.14		1.55		2.38
Expected stock volatility	36.41		34.12		33.13
Weighted average expected life	5 years		5 years		5 years

For purposes of pro forma disclosures as required by SFAS No. 123 as amended by SFAS No. 148, the estimated fair value of the options is amortized over the options’ vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1996:

	Year Ended December 31,
	2003			2002			2001
	(Dollars in thousands, except per share data)
Net income, as reported	$	20,201		$	14,406		$	8,959
Add: Total stock-based compensation expense, net of related tax effects included in reported net income		86			—			—
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(213	)		(236	)		(285	)
Pro forma net income	$	20,074		$	14,170		$	8,674
Earnings per share:
Basic - as reported	$	1.27		$	0.94		$	0.59
Basic - pro forma		1.26			0.93			0.57
Diluted - as reported	$	1.24		$	0.92		$	0.59
Diluted - pro forma		1.23			0.90			0.57

The following table is a summary of currently outstanding and exercisable options at December 31, 2003:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Options Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
$   0 - 5.00	413,600	4.4	$	3.41	413,600	$	3.41
5.00-10.00	180,400	4.9		6.15	67,600		7.83
Over 10.00	160,600	6.6		17.70	16,000		15.74
	754,600				497,200

13. Commitments and Contingencies

The Company 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 include commitments to extend credit and standby letters of credit.

The Company’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 notional amount of those instruments. The Company 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 and may require payment of a fee. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

The Company had outstanding commitments to extend credit of approximately $165.5 million and $100.6 million at December 31, 2003 and 2002, respectively. The commitments extend over varying periods of time with the majority to be disbursed within a one-year period.

Outstanding standby letters of credit are contingent commitments issued by the Company generally to guarantee the performance of a customer in third party borrowing arrangements. The term of the guarantee generally is for a period of one year. The maximum amount of future payments the Company could be required to make under these guarantees at December 31, 2003 and 2002 is $3.9 million and $3.1 million, respectively. The Company holds collateral to support guarantees when deemed necessary. The total of collateralized commitments at December 31, 2003 was $1.6 million.

The Company grants agribusiness, commercial, residential and consumer installment loans and leases to customers primarily in northern, western and central Arkansas. The Company maintains a diversified loan and lease portfolio.

47

14. Related Party Transactions

The Company has entered into transactions with certain of its executive officers, directors, principal shareholders, and their affiliates (related parties). The aggregate amount of loans to such related parties at December 31, 2003 and 2002 was $22.5 million and $18.6 million, respectively. New loans and advances on prior commitments made to such related parties were $4.5 million, $11.1 million and $14.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. Repayments of loans made by such related parties were $2.1 million, $7.1 million and $7.7 million for the years ended December 31, 2003, 2002 and 2001, respectively.

During 2003, 2002 and 2001 the Company incurred costs in connection with construction of ten banking buildings or facilities. The majority owner of the contractor on three of these construction projects and certain renovation type contracts is a member of the Company’s Board of Directors. Total payments to the contractor for these projects during the years ended December 31, 2003, 2002 and 2001 were approximately $87,000, $362,000 and $545,000, respectively.

15. Regulatory Matters

Federal regulatory agencies generally require member banks to maintain core (Tier 1) capital of at least 3% of total assets plus an additional cushion of 1% to 2%, depending upon capitalization classifications. Tier 1 capital generally consists of total stockholders’ equity and, subject to certain limitations, the trust preferred securities issued by the Trusts. Additionally, these agencies require member banks to maintain total risk-based capital of at least 8% of risk-weighted assets, with at least one-half of that total capital amount consisting of Tier 1 capital. Total capital for risk-based purposes includes Tier 1 capital plus the lesser of the allowance for loan losses or 1.25% of risk-weighted assets.

The Company’s regulatory capital positions were as follows:

	December 31, 2003				December 31, 2002
	Computed Capital		Computed Percent		Computed Capital		Computed Percent
	(Dollars in thousands)
Bank of the Ozarks, Inc. (consolidated):
Total risk-based capital	$	150,071	14.89	%	$	95,891	12.68	%
Tier 1 risk-based capital		125,073	12.41			86,422	11.43
Leverage ratio		—	9.33			—	8.64
Bank of the Ozarks:
Total risk-based capital	$	120,343	12.00	%	$	94,166	12.46	%
Tier 1 risk-based capital		107,791	10.75			84,699	11.21
Leverage ratio		—	8.06			—	8.47

As of December 31, 2003 and 2002, the most recent notification from the regulators categorized the Company and its subsidiary 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 Company’s or its subsidiary bank’s category.

At December 31, 2003, the subsidiary bank exceeded its minimum capital requirements. As of December 31, 2003, the state bank commissioner’s approval was required before the bank could declare and pay any dividend of 75% or more of the net profits of the bank after all taxes for the current year plus 75% of the retained net profits for the immediately preceding year. At December 31, 2003, $24.5 million was available for payment of dividends by the bank without the approval of regulatory authorities.

Under Federal Reserve regulation, the subsidiary bank is also limited as to the amount it may loan to its affiliates, including the Company, unless such loans are collateralized by specific obligations. At December 31, 2003, the maximum amount available for transfer from the subsidiary bank to the Company in the form of loans is limited to 10% of the bank’s total risk-based capital or approximately $12.0 million.

The subsidiary bank is required by bank regulatory agencies to maintain certain minimum balances of cash or non-interest bearing deposits primarily with the Federal Reserve. At December 31, 2003 and 2002, these required balances aggregated $5.8 million and $2.4 million, respectively.

16. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of financial instruments.

Cash and due from banks - For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment securities - For securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or the carrying amount.

Loans and leases - The fair value of loans and leases is estimated by discounting the future cash flows using the current rate at which similar loans or leases would be made to borrowers or lessees with similar credit ratings and for the same remaining maturities.

Bank owned life insurance - The carrying amount is its cash surrender value, which approximates its fair value.

48

Deposit liabilities - The fair value of demand deposits, savings accounts, NOW accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates is estimated using the rate currently offered for deposits of similar remaining maturities.

Other borrowed funds - For these short-term instruments, the carrying amount is a reasonable estimate of fair value. The fair value of long-term debt is estimated based on the current rates available to the Company for debt with similar terms and remaining maturities.

Accrued interest and other liabilities - The carrying amounts of accrued interest receivable and payable and other liabilities approximate their fair values.

Off-balance sheet instruments - The fair values of commercial loan commitments and letters of credit are based on fees currently charged to enter into similiar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance-sheet instruments were not significant at December 31, 2003 and 2002.

The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. 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 and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate. The following table presents the estimated fair values of the Company’s financial instruments.

	2003				2002
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	28,833	$	28,833	$	25,182	$	25,182
Available-for-sale securities		364,320		364,320		222,965		222,965
Held-to-maturity securities		—		—		9,203		9,311
Loans and leases, net of allowance for loan and lease losses		895,327		897,457		706,959		711,687
Accrued interest receivable		7,029		7,029		6,029		6,029
Bank owned life insurance		21,369		21,369		20,236		20,236
Financial liabilities:
Demand, NOW and savings account deposits	$	503,029	$	503,029	$	398,475	$	398,475
Time deposits		559,035		558,163		391,698		392,960
Repurchase agreements with customers		29,898		29,898		20,739		20,739
Other borrowings		145,541		152,759		129,366		136,425
Subordinated debentures		46,651		46,646		17,783		17,783
Accrued interest and other liabilities		3,889		3,889		5,407		5,407

17. Supplemental Cash Flow Information

Supplemental cash flow information is as follows:

	Year Ended December 31,
	2003			2002		2001
	(Dollars in thousands)
Cash paid during the period for:
Interest	$	19,927		$	19,828	$	31,096
Income taxes		10,213			8,002		4,205
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets held for sale		1,804			1,222		1,336
Loans advanced for sales of foreclosed assets		495			1,395		1,215
Net change in unrealized gain/loss on available-for-sale investment securities		(1,934	)		2,578		1,623

49

18. Other Operating Expenses

The following is a summary of other operating expenses:

	Year Ended December 31,
	2003		2002		2001
	(Dollars in thousands)
Telephone and data lines	$	948	$	742	$	728
Operating supplies		1,045		713		543
Advertising and public relations		1,016		877		583
Other		6,151		4,693		3,527
Total other operating expenses	$	9,160	$	7,025	$	5,381

19. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”). All share and per share data reflect the effect of the Company’s 2-for-1 stock splits on June 17, 2002 and December 10, 2003.

	Year Ended December 31,
	2003		2002		2001
	(In thousands, except per share amounts)
Numerator:
Net income	$	20,201	$	14,406	$	8,959
Denominator:
Denominator for basic EPS weighted average shares		15,940		15,293		15,124
Effect of dilutive securities:
Stock options		347		396		138
Denominator for diluted EPS - adjusted weighted average shares and assumed conversions		16,287		15,689		15,262
Basic EPS	$	1.27	$	0.94	$	0.59
Diluted EPS	$	1.24	$	0.92	$	0.59

Options to purchase 79,800 shares of common stock at a price of $22.07 per share were outstanding during 2003 and options to purchase 68,000 and 202,000 shares of common stock at prices ranging from $5.47 to $12.78 were outstanding in 2002 and 2001 but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares and inclusion would have been antidilutive.

20. Parent Company Financial Information

The following condensed balance sheets, income statements and statements of cash flows reflect the financial position, results of operations and cash flows for the parent company:

Condensed Balance Sheets

	December 31,
	2003			2002
	(Dollars in thousands)
Assets
Cash	$	26,174		$	1,747
Investment in subsidiaries		114,381			87,885
Premises and equipment, net		—			—
Excess cost over fair value of net assets acquired, at amortized cost		1,092			1,092
Debt issuance cost, net		868			903
Investment in LLC’s		2,298			—
Other		66			12
Total assets	$	144,879		$	91,639
Liabilities and Stockholders’ Equity
Accounts payable and other current liabilities	$	66		$	38
Accrued interest payable		159			—
Tax settlement (receivable) payable		(483	)		900
Subordinated debentures		46,651			17,783
Total liabilities		46,393			18,721
Stockholders’ equity
Common stock		162			78
Additional paid-in capital		27,131			17,010
Retained earnings		71,293			54,755
Accumulated other comprehensive (loss) income		(100	)		1,075
Total stockholders’ equity		98,486			72,918
Total liabilities and stockholders’ equity	$	144,879		$	91,639

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Condensed Statements of Income

	Year Ended December 31,
	2003		2002			2001
	(Dollars in thousands)
Income:
Dividends from subsidiaries	$	2,857	$	848		$	3,048
Other		—		—			88
Total income		2,857		848			3,136
Expenses:
Interest		1,944		1,635			1,635
Other operating expenses		879		615			486
Total expenses		2,823		2,250			2,121
Income (loss) before income tax benefit and equity in undistributed earnings of subsidiary		34		(1,402	)		1,015
Income tax benefit		1,154		906			843
Equity in undistributed earnings of subsidiary		19,013		14,902			7,101
Net income	$	20,201	$	14,406		$	8,959

Condensed Statements of Cash Flows

	Year Ended December 31,
	2003			2002			2001
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	20,201		$	14,406		$	8,959
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		34			37			93
Equity in undistributed earnings of subsidiary		(19,013	)		(14,902	)		(7,101	)
Changes in assets and liabilities:
Accounts payable and other current liabilities		188			(3	)		(3	)
Tax settlement payable		(1,383	)		900			—
Decrease in taxes payable attributable to stock option exercise gains		1,777			901			—
Other, net		88			171			(158	)
Net cash provided by operating activities		1,892			1,510			1,790
Cash flows from investing activities:
Cash paid for acquisition		(1,079	)		—			—
Equity investment in Ozark Capital Trust II and III		(872	)		—			—
Investment in LLC’s		(2,298	)		—			—
Net cash used in investing activities		(4,249	)		—			—
Cash flows from financing activities:
Issue common stock		1,580			1,789			46
Proceeds from issuance of trust preferred securities		28,867			—			—
Dividends paid		(3,663	)		(2,369	)		(1,739	)
Net cash provided by (used in) financing activities		26,784			(580	)		(1,693	)
Net increase in cash and cash equivalents		24,427			930			97
Cash - beginning of year		1,747			817			720
Cash - end of year	$	26,174		$	1,747		$	817

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EX-21

Exhibit 21

Subsidiaries of the Registrant

1. Bank of the Ozarks, an Arkansas state chartered bank.

2. Ozark Capital Trust, a Delaware business trust.

3. Ozark Capital Statutory Trust II, a Connecticut business trust.

4. Ozark Capital Statutory Trust III, a Delaware business trust.

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. of our report dated January 13, 2004, included in the 2003 Annual Report to Shareholders of Bank of the Ozarks, Inc.

We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-32173) pertaining to the Bank of the Ozarks, Inc. Stock Option Plan, (Form S-8 No. 333-74577) pertaining to the Bank of the Ozarks, Inc. 401(k) Retirement Savings Plan, and (Form S-8 No. 333-32175) pertaining to the Bank of the Ozarks, Inc. Non-employee Director Stock Option Plan, of our report dated January 13, 2004, with respect to the consolidated financial statements of Bank of the Ozarks, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 2003.

/s/ Ernst & Young LLP

Little Rock, Arkansas

March 10, 2004

EX-31.1

Exhibit 31.1

Certification

I, George G. Gleason, Chairman and Chief Executive Officer of Bank of the Ozarks, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Bank of the Ozarks, Inc.;

2. 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;

3. 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;

4. 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)) for the registrant and have:

a) 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 subisidaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) 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

c) 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 registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) 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: March 12, 2004

/s/    GEORGE G. GLEASON        

George G. Gleason

Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Paul E. Moore, Chief Financial Officer of Bank of the Ozarks, Inc., certify that:

1 I have reviewed this annual report on Form 10-K of Bank of the Ozarks, Inc.;

2 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;

3 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;

4 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)) for the registrant and have:

a) 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 subisidaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) 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

c) 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 registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) 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: March 12, 2004

/s/    PAUL E. MOORE        

Paul E. Moore

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report of Bank of the Ozarks, Inc. (the Company) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, George G. Gleason, Chief Executive Officer of the Company, 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 result of operations of the Company.

/s/    GEORGE G. GLEASON        

George G. Gleason

Chief Executive Officer

March 12, 2004

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report of Bank of the Ozarks, Inc. (the Company) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Paul E. Moore, Chief Financial Officer of the Company, 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 result of operations of the Company.

/s/    PAUL E. MOORE        

Paul E. Moore

Chief Financial Officer

March 12, 2004