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, 2005

¨ 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

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: $387,783,356 (based upon the last trade price as reported on the Nasdaq National Market on June 30, 2005).

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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, 2006
Common Stock, par value $0.01 per share	16,711,040

Documents incorporated by reference: Parts I, II, III and IV of this Form 10-K incorporate certain information by reference from the Registrant’s Annual Report to Stockholders for the year ended December 31, 2005 and the Proxy Statement for its 2006 annual meeting.

BANK OF THE OZARKS, INC.

FORM 10-K

December 31, 2005

INDEX

		Page
PART I.
Item 1.	Business	1
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	19
Item 3.	Legal Proceedings	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
PART II.
Item 5.	Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 8.	Financial Statements and Supplementary Data	21
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	21
Item 9A.	Controls and Procedures	22
Item 9B.	Other Information	22
PART III.
Item 10.	Directors and Executive Officers of the Registrant	22
Item 11.	Executive Compensation	22
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	23
Item 13.	Certain Relationships and Related Transactions	23
Item 14.	Principal Accountant Fees and Services	23
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	23
Signatures		28

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 (the “Bank”), which conducts banking operations through 54 banking offices in 29 communities throughout northern, western and central Arkansas, three Texas banking offices in Frisco, Dallas and Texarkana and loan production offices located in Charlotte, North Carolina and in Little Rock and Bentonville, Arkansas. The Company also owns Ozark Capital Statutory Trust II, Ozark Capital Statutory Trust III and Ozark Capital Statutory Trust IV, all business trusts formed in connection with the issuance of certain subordinated debentures and related trust preferred securities. At December 31, 2005 the Company had total assets of $2.13 billion, total loans and leases of $1.37 billion and total deposits of $1.59 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. Loan services include various types of real estate, consumer, commercial, industrial and agricultural loans and various leasing services. 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. While the Company provides a wide variety of retail and commercial banking services, it operates in only one segment – community banking. Accordingly, the provisions of Statement of Financial Accounting Standards No. 131 have no impact on the Company’s financial statements or its 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.

In 1994 the Company commenced an expansion strategy, via de novo branching, into target markets. Since embarking on this strategy, the Company has opened 52 new banking offices through year-end 2005. The Company’s de novo branching strategy initially focused on opening branches in small communities in counties contiguous to its existing offices. As the Company opened additional offices, it has generally expanded into larger communities throughout much of northern, western and central Arkansas. In 1998 and 1999 the Company expanded into Arkansas’ then three largest cities, Little Rock, Fort Smith and North Little Rock. In 2004 the Company expanded into the Dallas, Frisco and Texarkana, Texas markets. While the Company has continued to open some additional offices in smaller communities, since 1998 the Company has focused primarily on expansion in and around larger communities.

During 2004, the Company added ten new banking offices. These included seven new Arkansas offices and its first three Texas banking offices. During 2005 the Company added six banking offices including new Arkansas offices in North Little Rock, Mountain Home, Bentonville, Fayetteville, Benton and Russellville.

The Company expects to continue its growth and de novo branching strategy. During 2006 the Company expects to open approximately 12 new banking offices, depending, among other factors, on the time required to obtain permits and approvals and to design, construct, equip and staff such offices. Opening new offices is subject to availability of suitable sites, hiring qualified personnel, obtaining regulatory and other approvals and many other conditions and contingencies that the Company cannot predict with certainty.

This expansion in 2006 will focus primarily in four markets. The largest number of these new office openings is planned for Benton and Washington counties in northwest Arkansas, which are in one of the fastest growing metropolitan statistical areas in the United States. These two counties are home to several fortune 500 companies and are Arkansas’ second and third largest counties in terms of bank deposits. By year-end 2006, the Company expects to have as many as nine banking offices serving these two counties. The Texarkana market (both Bowie County, Texas and Miller County, Arkansas) is another important new market for the Company. By year-end 2006, the Company expects to have three Texarkana offices. By year-end 2006, the Company also expects to have two Hot Springs offices in Garland County, Arkansas, the sixth largest Arkansas county in terms of bank deposits. The fourth market targeted for expansion in 2006 is in Frisco, Texas, a rapidly growing city in Collin County and part of the Dallas, Texas market area. At December 31, 2006, the Company expects to have two permanent Frisco banking offices, which will be the first significant retail banking effort by the Company in the metro-Dallas area.

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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 securities portfolio. Administration of the Company’s lending function is the responsibility of the Chief Executive Officer (“CEO”) and certain senior lenders. Such lenders perform their lending duties subject to the oversight and policy direction of the Company’s Board of Directors and its loan committee. Loan or lease authority is granted to the CEO and certain senior officers by the Board of Directors. Loan or lease authorities of other lending officers are assigned by the CEO. Loans and leases and aggregate loan and lease relationships exceeding $3 million and up to the Bank’s legal lending limit are authorized and approved by the loan committee.

Interest rates charged by the Bank vary with degree of risk, type, size, complexity, repricing frequency and other relevant factors associated with the loan or lease. Competition from other financial services companies also impact interest rates charged on loans and leases.

The Company’s designated compliance and loan review officers are responsible for the Bank’s compliance and loan review functions. Periodic reviews are performed to evaluate asset quality and the effectiveness of loan and lease administration. The results of such evaluation are included in reports which describe any identified deficiencies, recommendations for improvement and management’s proposed action plan for curing or addressing identified deficiencies and recommendations. Such reports are provided to and reviewed by the audit committee of the Board of Directors of the Company.

In underwriting loans and leases, primary emphasis is placed on the borrower’s or lessee’s financial condition, including its ability to generate cash flow to support its debt or lease 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 loan portfolio includes most types of real estate loans, consumer loans, commercial and industrial loans, agricultural loans and other types of loans. The vast majority of the properties collateralizing the Company’s loan portfolio is located within the trade areas of the Company’s offices. The Company’s lease portfolio consists primarily of small ticket direct financing equipment leases.

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 60 months or less to finance land development or construction of industrial, commercial, residential or farm buildings or additions or alterations to existing structures. Included in the Company’s residential 1-4 family loans is 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, monthly, semi-annually, annually, or at other regular adjustment intervals usually not to exceed 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.

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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, degree of risk, complexity and other relevant 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 and have terms typically ranging up to 72 months, depending upon the nature of the collateral, size of the loan, and other relevant factors.

Consumer loans are attractive to the Company because they generally have 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 equipment leases for commercial, industrial and professional purposes and are generally collateralized by a lien on the leased property.

Commercial and industrial loans and leases typically are underwritten on the basis of the borrower’s or lessee’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. Rates paid on such deposits vary among the deposit categories due to different terms and conditions, individual deposit size, services rendered and rates paid by competitors on similar deposit products. 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 investment securities.

The Company’s deposits come primarily from within the Company’s trade area. As of December 31, 2005 the Company had $163.1 million in “brokered deposits,” defined as deposits which, to the knowledge of the Company, have been placed with the Bank by a person who acts as a broker in placing these deposits on behalf of others. Brokered deposits are typically from outside the Company’s primary trade area, and such deposit levels may vary from time to time depending on competitive interest rate conditions and other factors.

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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 banking offices located in Arkansas’ larger markets. 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 recent years 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. Additionally, in December 2005, the Company’s head of secondary market mortgage lending relocated to northwest Arkansas with a goal of building a substantial mortgage origination team in that part of the state.

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 trusts, custodial accounts, investment management accounts, retirement accounts, corporate trust services including trustee, paying agent and registered transfer agent services and other incidental trust services. As of December 31, 2005 total trust assets were $459 million compared to $477 million as of December 31, 2004 and $433 million as of December 31, 2003.

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 payment and electronic cash concentration and disbursement), wire transfer, zero balance accounts, current and prior day transaction reporting, lock box services, automated credit line transfer, investment sweep accounts, reconciliation services, account analysis and merchant credit card processing.

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 cancelled checks for customers to view on-line and provides businesses with the ability to obtain cancelled check images on compact discs for storage and retrieval.

Market Area and Competition

The Company’s market areas include primarily the northern, western and central portions of Arkansas, the metropolitan Dallas, Texas area, the Texarkana area (including areas in Texas and Arkansas) and the metropolitan Charlotte, North Carolina area. At December 31, 2005, 90.8%, 5.6% and 3.6%, respectively, of the Company’s loans and leases were located in Arkansas, Texas and North Carolina, and 93.2% and 6.8%, respectively, of the Company’s deposits were located in Arkansas and Texas.

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, insurance companies, brokerage and investment banking firms, asset-based non-bank lenders and many other financial service firms. Competition is based on interest rates offered on deposit accounts, interest rates charged on loans and leases, 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.

As of June 30, 2005, the latest date for which Federal Insurance Deposit Corporation (“FDIC”) branch data is available, the Bank’s deposits represented 3.46% of deposits for all FDIC insured institutions in the state of Arkansas compared to 3.07% at June 30, 2004 and 2.47% at June 30, 2003. In the 16 Arkansas counties in which the Company had operations at June 30, 2003, the Bank’s deposits were 6.51% of the total deposits of all banks in those counties as of June 30, 2003 and increased to 7.91% of such total deposits at June 30, 2004 and 8.76% at June 30, 2005.

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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 a large number of community banks, including de novo community banks, many of which have senior management who were previously with other local banks or investor groups with strong local business and community ties. Despite the highly competitive environment, 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, 2005 the Company employed 629 full-time equivalent employees, compared to 561 at December 31, 2004 and 473 at December 31, 2003. 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 52, Chairman and Chief Executive Officer. Mr. Gleason has served the Company or the Bank 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 50, Vice Chairman, President and Chief Operating Officer. Mr. Ross joined the Company in 1980. Over the past 25 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 59, Chief Financial Officer and Chief Accounting 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.

Danny Criner, age 51, President of the Bank’s Northern Division since 1991. Mr. Criner has been with the Company or its predecessor since 1976. Mr. Criner received a B.S.B.A. in Banking and Finance from the University of Arkansas.

C. E. Dougan, age 59, President of the Bank’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 48, President of the Bank’s Leasing Division since 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 in several key positions including 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 Holman, age 58, President of the Bank’s Mortgage Division since 2004. Prior to 2004 Mr. Holman served as President and Chief Operating Officer of a competitor mortgage company and held various senior management positions with that company during his 21 year tenure. Mr. Holman has 32 years of real estate and mortgage banking business experience in Central Arkansas. Mr. Holman is a C.P.A. and holds an Arkansas real estate license. He received a B.S.B.A. from the University of Mississippi.

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Rex Kyle, age 49, President of the Bank’s Trust Department since 2004. Prior to 2004 Mr. Kyle was Senior Vice President and Chief Administrative Officer in the trust division of a competitor bank. Mr. Kyle has 27 years experience as a banking trust professional providing a wide array of asset management and trust services for individuals, businesses and government entities. He holds a B.S. and M.S. in Agricultural Economics and a J.D. from Texas A&M University.

Dan Rolett, age 43, Executive Vice President of the Bank since 2002. He joined the Bank 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 52, President of the Bank’s Central Division since 2001. He joined the Bank in 1983 and served as Executive Vice President of the Bank from 1997 to 2001 and Senior Vice President of the Bank from 1992 to 1997. Prior to 1992 Mr. Russell serverd in various positions with the Bank. He received a B.S.B.A. in Banking and Finance from the University of Arkansas.

Messrs. Gleason, Ross, Moore and Rolett serve in the same position with both the Company and the Bank.

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. Bank holding companies and banks that fail to conduct their operations in a safe and sound basis or in compliance with applicable laws can be compelled by the regulators to change the way they do business and may be subject to regulatory enforcement actions, including encumbrances imposed on their operations. 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 Bank 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.

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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.

A bank holding company is also required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the FRB’s policy that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of the FRB regulations, or both.

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, 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 CRA. 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

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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 Bank, 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. In mid-December 2003, the FRB and the Federal Trade Commission (the “FTC”) implemented rules for those sections of the FACT Act having a specified implementation date of December 31, 2003. Such sections primarily dealt with the relationship of state laws to the Fair Credit Reporting Act. For those sections of the FACT Act not having a specified implementation date, the FRB and the FTC jointly issued rules making many of such provisions effective as of December 1, 2004. Additionally, on December 21, 2004, joint agency rules were adopted pursuant to the FACT Act which amended previously issued interagency guidelines. These amendments require the Bank to properly dispose of consumer information derived from a consumer report in a manner consistent with the previous guidelines. The amendments to the guidelines became effective July 1, 2005.

Interstate Banking. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”), signed into law on September 29, 1994, 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 Bank 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.

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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 1.296 and 6.48 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 1.34 basis points for the third quarter of 2005 and 1.34 basis points for the fourth quarter of 2005. For the period July 1, 2005 through December 31, 2005, the Bank was assessed an average annualized premium of $0.0134 per $100 of BIF-eligible deposits and $0.0134 per $100 of SAIF-eligible deposits.

On February 8, 2006, the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”) was signed into law as part of the Deficit Reduction Act of 2005. The FDIC is required to implement the majority of the Reform Act’s provisions by November 2006. Among other provisions, the Reform Act provides for the merging of the two insurance funds, BIF and SAIF, into a new single deposit insurance fund. Such merger should be effective by July 2006. The Reform Act also establishes an inflation adjustment mechanism which may increase the $100,000 coverage limit on deposits beginning in April 2010. The Reform Act also provides for the (i) modification of assessments under the risk based assessment system, (ii) replacement of a fixed designated reserve ratio with a reserve range between 1.15% of estimated insured deposits and 1.5% of estimated insured deposits, and (iii) provides for dividends to be paid by the FDIC when certain reserve ratios exceed certain thresholds.

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 the Bank. 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, certain types of preferred stock, a limited amount of trust preferred securities and minority interests in the equity capital accounts of consolidated subsidiaries, and excludes goodwill and various intangible assets. The remainder, or Tier 2 capital, may consist of amounts of trust preferred securities excluded from Tier 1 capital, certain hybrid capital instruments and other debt securities, preferred stock, net unrealized holding gains and losses on equity securities 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 average assets. The minimum required leverage ratio is 3.0% of Tier 1 capital to adjusted average assets 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’s risk-weighted capital and leverage ratios, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Capital Compliance.”

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.

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. 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.

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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 15, 2005 the FDIC advised the Company that the Bank 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 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 must submit to federal and state regulators annual audit reports prepared by independent auditors. The Company’s annual report, which includes the report of the Company’s independent auditors, can be used to satisfy this requirement. The Bank 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’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 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, the Expedited Funds Availability Act requiring financial institutions to make deposited funds available according to specified time schedules and to disclose funds availability policies to consumers, and the Check Clearing for the 21^st Century Act (“Check 21”), designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation. Check 21, which became effective on October 28, 2004, created a new negotiable instrument called a substitute check and permits but does not require banks to truncate original checks, process check information electronically, and deliver substitute checks to banks that wish to continue receiving paper checks.

State Regulations

The Company and the Bank are subject to examination and regulation by the Arkansas State Bank Department. Examinations of the Bank are typically conducted annually but may be extended to 24 months if an interim examination is

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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 the Bank and the effect of those relations. Additionally, because the Company owns an Arkansas state-chartered bank, the Company is also required to submit certain reports filed with the FRB to the Arkansas State Bank Department.

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 lien 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 Bank 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 Bank 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 Bank 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 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 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.

Federal law substantially restricts transactions between financial institutions and their affiliates, particularly their non-financial institution affiliates. As a result, the Bank 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 and the Company (or any nonbank subsidiary) must generally be on terms and under circumstances at least as favorable to the Bank 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.

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The federal banking laws require all insured banks to maintain reserves against their checking and transaction accounts (primarily checking accounts, NOW and Super NOW checking accounts). 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’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 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 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 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 further 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 the Bank.

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, Corporate Code of Ethics, Audit Committee Charter, Personnel and Compensation Committee Charter, Loan Committee Charter and Nominating and Governance Committee Charter are available under the section “Investor Relations” on the Company’s website.

Forward-Looking Information

This Annual Report on Form 10-K, this 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, new office openings, capital expenditures 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,

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hiring qualified personnel and opening new offices; (2) the ability to attract new deposits and loans; (3) interest rate fluctuations; (4) changes in the yield curve differential between short-term and long-term interest rates; (5) competitive factors and pricing pressures, including their effect on the Company’s net interest margin; (6) general economic conditions, including their effect on the credit worthiness of borrowers and lessees and collateral values; and (7) 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.

Item 1A. RISK FACTORS

An investment in shares of the Company’s common stock involves certain risks. The following risks and other information in this report or incorporated in this report by reference, including the Company’s consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference in this report, should be carefully considered in the evaluation of the Company before investing in shares of its common stock. These risks are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or focused on may also adversely affect the Company’s business and operation. This report is qualified in its entirety by all these risk factors.

RISKS RELATED TO OUR BUSINESS

Our Profitability is Dependent on Our Banking Activities.

Because the Company is a bank holding company, its profitability is directly attributable to the success of the Bank. The Company’s banking activities compete with other banking institutions on the basis of service, convenience and, to some extent, price. Due in part to both regulatory changes and consumer demands, banks have experienced increased competition from other financial entities offering similar products and services. Competition from both bank and non-bank organizations is expected to continue to increase. The Company relies on the profitability of the Bank and dividends received from the Bank for payment of its operating expenses and satisfaction of its obligations. As is the case with other similarly situated financial institutions, the profitability of the Bank, and therefore the Company, will be subject to the fluctuating cost and availability of funds, changes in the prime lending rate and other interest rates, changes in economic conditions in general and, because of the location of most of its banking offices, changes in economic conditions in Arkansas in particular.

We Depend on Key Personnel for Our Success.

The Company’s operating results and ability to adequately manage its growth and minimize loan and lease losses are highly dependent on the services, managerial abilities and performance of its current executive officers and other key personnel. The Company has an experienced management team that the Board of Directors believes is capable of managing and growing the Bank. However, losses of or changes in its current executive officers or other key personnel and their responsibilities may disrupt the Company’s business and could adversely affect the Company’s financial condition, results of operations and liquidity. There can be no assurance that the Company will be successful in retaining its current executive officers or other key personnel.

Our Operations are Significantly Affected by Interest Rate Levels.

The Company’s profitability is dependent to a large extent on net interest income, which is the difference between interest income earned on loans, leases and investment securities and interest expense paid on deposits and other borrowings. The Company is affected by changes in general interest rate levels and changes in the differential between short-term and long-term interest rates, both of which are beyond its control. Interest rate risk can result from mismatches between the dollar amount of repricing or maturing assets and liabilities, as well as from mismatches in the timing and rate at which assets and liabilities reprice. Although the Company has implemented strategies it believes will reduce the potential effects on its results of operation of changes in interest rates, these strategies may not always be successful. In addition, any substantial and prolonged increase in market interest rates could reduce loan and lease demand or adversely affect the ability of borrowers or lessees to repay outstanding loans and leases by increasing credit costs. Any of these events could adversely affect the Company’s financial condition, results of operations and liquidity.

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Our Business Depends on the Condition of the Local and Regional Economies Where We Operate.

A substantial majority of the Company’s business is located in Arkansas. As a result the Company’s financial condition and results of operations may be significantly impacted by changes in the Arkansas economy. An economic recession or other adverse economic conditions in Arkansas may result in an increase in non-payment of loans and leases and a decrease in collateral value, and could have an adverse impact on the Company’s financial position, results of operations and liquidity.

Our Business May Suffer if There are Significant Declines in the Value of Real Estate.

The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. If the value of the real estate serving as collateral for the Company’s loan and lease portfolio were to decline materially, a significant part of its loan portfolio could become under-collateralized. If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, the Company may not be able to realize the amount of security anticipated at the time of originating the loan, which in turn could have an adverse effect on the Company’s provision for loan and lease losses and its financial condition, results of operations and liquidity.

If We Do Not Properly Manage Our Credit Risk, Our Business Could Be Seriously Harmed.

There are substantial risks inherent in making any loan or lease, including –

• risks resulting from changes in economic and industry conditions;

• risks inherent in dealing with individual borrowers;

• risks resulting from uncertainties as to the future value of collateral; and

• the risk of non-payment of loans and leases.

Although the Company attempts to minimize its credit risk through prudent loan and lease underwriting procedures and by monitoring concentrations of its loans and leases, there can be no assurance that these underwriting and monitoring procedures will reduce these risks. Moreover, as the Company expands into new markets, credit administration and loan and lease underwriting policies and procedures may need to be adapted to local conditions. The inability of the Company to properly manage its credit risk could have an adverse impact on its provision for loan and lease losses and its financial condition, results of operations and liquidity.

We Could Experience Deficiencies in Our Allowance for Loan and Lease Losses.

Experience in the banking industry indicates that some portion of the Company’s loans and leases may only be partially repaid or may never be repaid at all. Loan and lease losses occur for many reasons beyond the control of the Company. Although the Company believes that it maintains its allowance for loan and lease losses at a level adequate to absorb losses in its loan and lease portfolio, estimates of loan and lease losses are subjective and their accuracy may depend on the outcome of future events. The Company may be required to make significant and unanticipated increases in the allowance for loan and lease losses during future periods, which could materially affect the Company’s financial position, results of operations and liquidity. Bank regulatory authorities, as an integral part of their respective supervisory functions, periodically review the Company’s allowance for loan and lease losses. These regulatory authorities may require adjustments to the allowance for loan and lease losses or may require recognition of additional loan and lease losses or charge-offs based upon their own judgment. Any change in the allowance for loan and lease losses or charge-offs required by bank regulatory authorities could have an adverse effect on the Company’s financial condition, results of operations and liquidity.

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Our Recent Results May Not Be Indicative of Our Future Results.

The Company may not be able to sustain its historical rate of growth or even grow its business at all. Additionally, in the future the Company may not have the benefit of several factors that have been favorable to the Company’s business in recent periods, such as a generally stable and low interest rate environment, a strong residential mortgage market, or the ability to find suitable expansion opportunities. Various factors, such as economic conditions, regulatory and legislative considerations, and competition also may impede or restrict the Company’s ability to expand its market presence.

To Successfully Implement Our Growth and De Novo Branching Strategy, We Must Significantly Expand Our Operations in Both New and Existing Markets.

The Company intends to continue the expansion and development of its business by pursuing its growth and de novo branching strategy. Accordingly, the Company’s growth prospects must be considered in light of the risks, expenses and difficulties frequently encountered by banking companies pursuing significant growth strategies. In order to successfully execute its growth and de novo branching strategy, the Company must, among other things:

• identify and expand into suitable markets;

• build a substantial customer base;

• maintain credit quality;

• attract sufficient deposits to fund anticipated loan and lease growth;

• attract and retain qualified bank management and staff;

• identify and acquire suitable sites for new banking offices; and

• maintain adequate regulatory capital.

In addition to the foregoing factors, there are considerable costs involved in opening branches, and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year. Therefore, any new branches the Company opens can be expected to negatively affect its operating results until those branches reach a size at which they become profitable. The Company could also experience an increase in expenses if it encounters delays in opening any new branches. Moreover, the Company cannot give any assurances that any new branches it opens will be successful, even after they have become established.

If the Company does not manage its growth effectively and continue to successfully implement its de novo branching strategy, the Company’s business, future prospects, financial condition and results of operations could be adversely affected.

We Face Strong Competition in Our Markets.

Competition among financial institutions in many of the Company’s banking markets is intense. The Company competes with other financial and bank holding companies, state and national commercial banks, savings and loan associations, consumer finance companies, credit unions, securities brokerages, insurance companies, mortgage banking companies, money market mutual funds, asset-based non-bank lenders and other financial institutions. Many of these competitors have an advantage over the Company through substantially greater financial resources, lending limits and larger branch networks, and are able to offer a broader range of products and services. Other competitors, though smaller than the Company, are privately held and thus benefit from greater flexibility in adopting or modifying growth or operational strategies than the Company. If the Company fails to compete effectively for deposit, loan and lease and other banking customers in the Company’s markets, the Company could lose substantial market share, suffer a slower or no growth rate and its financial condition, results of operations and liquidity could be adversly affected.

Our Internal Operations are Subject to a Number of Risks.

The Company is subject to certain operations risks, including, but not limited to, data processing system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. The Company maintains a system of internal controls to mitigate against many of these occurrences and maintains insurance

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coverage for risks that are insurable. However, should an event occur that is not prevented or detected by the Company’s internal controls, uninsured or in excess of applicable insurance limits, it could have an adverse impact on the Company’s business, financial condition, results of operations and liquidity.

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The future success of the Company will depend, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional operational efficiencies. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.

The computer systems and network infrastructure in use by the Company could be vulnerable to unforeseen problems. The Company’s operations are dependent upon the ability to protect its computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure of the Company’s computer systems or network infrastructure that causes an interruption in operations could have an adverse effect on the Company’s financial condition, results of operations and liquidity. In addition, the Company’s operations are dependent upon its ability to protect the computer systems and network infrastructure against damage from physical break-ins, security breaches and other disruptive problems caused by the Internet or other users. Computer break-ins and other disruptions could jeopardize the security of information stored in and transmitted through the Company’s computer systems and network, which may result in significant liability to the Company, as well as deter potential customers. Although the Company, with the help of third-party service providers, intends to continue to implement security technology and develop additional operational procedures to prevent damage to its computer systems and network, there can be no assurance that these security measures will be successful. In addition, new developments or advances in computer capabilities or new discoveries in the field of cryptography could enable hackers to compromise or breach the security measures used by the Company to protect customer transaction data. The Company’s failure to maintain adequate security over its customers’ personal and transactional information could have an adverse effect on the Company’s financial condition, results of operations and liquidity.

We May Need to Raise Additional Capital in the Future to Continue to Grow, But That Capital May Not Be Available When Needed.

Federal and state bank regulators require the Company and the Bank to maintain adequate levels of capital to support its operations. On December 31, 2005, the Company’s and the Bank’s regulatory capital ratios were well above “well capitalized” levels under bank regulatory guidelines. However, the Company’s business strategy calls for the Company to continue to grow in its existing banking markets (internally and through opening additional offices) and to expand into new markets as appropriate opportunities arise. Growth in earning assets resulting from internal expansion and new banking offices at rates in excess of the rate at which the Company’s capital is increased through retained earnings will reduce both the Company’s and the Bank’s capital ratios unless the Company and the Bank continue to increase their capital. If the Company’s or the Bank’s capital ratios fell below “well capitalized” levels, the FDIC deposit insurance assessment rate would increase until capital is restored and maintained at a “well capitalized” level. A higher assessment rate would cause an increase in the assessments paid to the FDIC for deposit insurance, which would adversely affect the Company’s results of operations.

If, in the future, the Company needs to increase its capital to fund additional growth or satisfy regulatory requirements, its ability to raise that additional capital will depend on conditions at that time in the capital markets that are outside the Company’s control, and on the Company’s financial performance. There is no assurance that the Company will be able to raise additional capital on terms favorable to it or at all. If the Company cannot raise additional capital when needed, the Company’s ability to expand its operations through internal growth could be impaired.

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16

RISKS ASSOCIATED WITH OUR INDUSTRY

We are Subject to Extensive Government Regulation That Could Limit or Restrict Our Activities and Adversely Impact Our Operations.

The Company and the Bank operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies. Compliance with these regulations is costly and restricts certain activities, including payment of dividends, mergers and acquisitions, investments, interest rates charged for loans and leases, interest rates paid on deposits, and locations of banking offices. The Company and the Bank are also subject to capital guidelines established by regulators which require maintenance of adequate capital to support growth. Many of these regulations are intended to protect depositors, the public and the FDIC’s Bank Insurance Fund and Savings Association Insurance Fund rather than shareholders.

The Sarbanes-Oxley Act of 2002 and the related rules and regulations issued by the SEC and the Nasdaq Stock Market have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices, including the costs of completing the Company’s external audit and maintaining its internal controls.

Government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, and the increasing cost to the Company of complying with regulatory requirements could adversely affect its results of operations.

New Legislative and Regulatory Proposals May Affect Our Operations and Growth.

Proposals to change the laws and regulations governing the operations and taxation of, and federal insurance premiums paid by, banks and other financial institutions and companies that control financial institutions are frequently raised in the U.S. Congress, state legislatures and before bank regulatory authorities. The likelihood of any major changes in these laws and regulations in the future and the impact such changes might have on the Company or the Bank are impossible to determine. Similarly, proposals to change the accounting and financial reporting requirements applicable to banks and other depository institutions are frequently raised by the SEC, the federal banking agencies, the IRS and other appropriate authorities. The likelihood and impact of any future changes in these accounting and financial reporting requirements and the impact these changes might have on the Company or the Bank are impossible to determine at this time.

RISKS ASSOCIATED WITH OUR STOCK

Our Stock Price is Affected by a Variety of Factors, Many of Which are Outside of Our Control. 

Stock price volatility may make it more difficult for investors to resell shares of the Company’s common stock at times and prices they find attractive. The Company’s common stock price can fluctuate significantly in response to a variety of factors, including, among other things:

• actual or anticipated variations in quarterly results of operations;

• recommendations by securities analysts;

• operating and stock price performance of other companies that investors deem comparable to the Company;

• news reports relating to trends, concerns and other issues in the financial services industry; and

• perceptions in the marketplace regarding the Company and/or its competitors.

Our Stock Trading Volume May Not Provide Adequate Liquidity for Investors.

Although shares of the Company’s common stock are listed for trade on the Nasdaq Stock Market, the average daily trading volume in the common stock is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control. Given the daily average trading volume of the Company’s common stock, significant sales of the common stock in a brief period of time, or the expectation of these sales, could cause a decline in the price of the Company’s common stock.

17

Our Common Stock is Not an Insured Deposit. 

The Company’s common stock is not a bank deposit and, therefore, losses in its value are not insured by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in the Company’s common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report, and is subject to the same market forces that affect the price of common stock in any other company.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

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18

Item 2. PROPERTIES

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

Banking Facility (1)	Year Opened	Square Footage
Texarkana, Texas (2)	2005	9,312
Bentonville (Highway 102)	2005	2,784
Russellville (West)	2005	2,784
Benton (Highway 35)	2005	2,400
Fayetteville (3)	2005	3,200
Mountain Home (East)	2005	2,784
North Little Rock (Levy)	2005	2,400
Mountain Home (Main) (4)	2005	5,176
Sherwood (5)	2004	2,400
Little Rock (Rodney Parham & West Markham) (6)	2004	4,576
Dallas, Texas (Sterling Plaza) (7)	2004	1,931
North Little Rock (East McCain)	2004	2,784
Little Rock (Highway 10 Supercenter) (8)	2004	693
Conway (East)	2004	2,400
Russellville (East)	2004	2,800
Van Buren (Main)	2004	2,260
Cabot (South)	2004	2,800
Conway (Downtown) (9)	2004	2,400
Frisco, Texas (10)	2004	2,000
Benton (Military Road)	2003	2,784
Fort Smith (Phoenix)	2003	2,250
Russellville (Main)	2003	7,644
Little Rock (Taylor Loop/Cantrell)	2003	2,400
Bryant (Highway 5)	2003	2,784
Cabot (Main)	2003	4,400
Conway (Prince & Salem)	2003	2,464
Hot Springs Village (Cranford’s) (11)	2002	449
Conway (North)	2002	4,350
Maumelle	2002	3,576
Bryant (Wal-Mart Supercenter) (12)	2001	675
Lonoke	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) (13)	1999	4,350
Harrison (Downtown)	1999	14,000
North Little Rock (Indian Hills) (14)	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)	1998	1,716
Bellefonte	1997	1,444
Alma	1997	4,200
Paris	1997	3,100
Mulberry	1997	1,875
Harrison (North) (15)	1996	3,300

19

Clarksville (Rogers)	1995	3,300
Van Buren (Pointer Trail)	1995	2,520
Marshall (16)	1995 (expanded 2005)	4,120
Clarksville (Main)	1994	2,520
Ozark (Westside)	1993	2,520
Western Grove	1976 (expanded 1991)	2,610
Altus	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) The Company leased a temporary facility beginning September 2004 under a short-term lease. Construction of the new permanent office was completed along with the relocation of the temporary office in December 2005.

(3) The Company leases this facility with an initial term of one year expiring March 1, 2006 with twelve renewal options of one month each. This facility is expected to be replaced with a permanent facility in mid-2006.

(4) The Company leased a temporary facility beginning May 2003 under a short-term lease. Construction of the new permanent office was completed along with the relocation of the temporary office in January 2005.

(5) The Company owns the building and leases the land at this location. The initial lease term is twenty years expiring January 10, 2024 with four renewal options of five years each.

(6) The Company owns the building and leases the land at this location. The initial lease term is twenty years expiring November 1, 2023 with six renewal options of five years each.

(7) The Company leases this facility under a three year lease beginning July 1, 2004.

(8) The Company leases this facility with an initial term of five years expiring August 31, 2009, subject to two renewal options of five years each. This banking office was originally opened in 2002 as the Cantrell West office and was relocated to its current location in September 2004.

(9) The Company leased a temporary facility beginning February 2002 under a short-term lease. Construction of the new permanent office was completed along with the relocation of the temporary office in February 2004.

(10) The Company leases this facility under a three year lease beginning October 10, 2002. This lease has been extended through June 30, 2006 with a six month renewal option.

(11) The Company leases this facility, with an initial term of five years expiring May 31, 2007, subject to five renewal options of three years each.

(12) The Company leases this facility with an initial term of five years expiring May 9, 2006, subject to two renewal options of five years each. The Company has given notice that it will not renew this lease and will close this office effective March 4, 2006.

(13) The Company owns the building and leases the land at this location. The initial lease term is twenty years expiring May 31, 2019, subject to four renewal options of five years each.

(14) The Company leases the building and land at this location with an initial term which expired in November 1999. The Company is currently in the fourth two year renewal option expiring November 19, 2007. This property is subject to an option to renew for one additional term of two years.

(15) The Company owns the building and leases the land at this location. The initial lease term expired in May 2001 and was renewed through May 15, 2007, at which time the Company has a purchase option on the site.

(16) The Company owns the building and leases the land at this location. The initial lease term is thirty years expiring February 28, 2024. The Company has three renewal options of ten years each for the site. During 2005 this office was remodeled and expanded to include an additional 1,600 square feet.

In addition to the above banking locations, the Company had three loan production offices at December 31, 2005. These offices are located in Charlotte, North Carolina and in Little Rock and Bentonville, Arkansas. 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. In addition to the banking locations listed above, the Company has a number of future banking offices under construction and owns a number of sites for future construction. Construction and development of these sites are expected to be completed in 2006 through 2008.

20

Item 3. LEGAL PROCEEDINGS

The Company is party to various litigation matters arising in the ordinary course of business. Although the ultimate resolution of these matters cannot be determined at this time, management of the Company does not believe such matters, individually or in the aggregate, will have a material adverse effect on the future results of operations, financial condition or liquidity of the Company.

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

None.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s Common Stock is listed on the Nasdaq National Market under the symbol “OZRK” and as of March 3, 2006 the Company had 236 holders of record representing approximately 5,403 beneficial owners. The other information required by Item 201 of Regulation S-K is contained in the Company’s 2005 Annual Report under the heading “Summary of Quarterly Results of Operations, Common Stock Market Prices and Dividends” on page 33, and in the Company’s Proxy Statement for the 2006 annual meeting under the heading “Equity Compensation Plan Information” on page 10, which information is incorporated herein by reference. There were no sales of the Company’s unregistered securities during the period covered by this report that have not been previously disclosed in the Company’s quarterly reports on Form 10-Q.

Item 6. SELECTED FINANCIAL DATA

The information required by Item 301 of Regulation S-K is contained in the Company’s 2005 Annual Report under the heading “Selected Consolidated Financial Data” on page 13, 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 2005 Annual Report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 14 through 32, 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 2005 Annual Report under the heading “Interest Rate Risk” on pages 27 through 29, which information is incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Part 210 of Regulation S-X and by Item 302 of Regulation S-K is contained in the Company’s 2005 Annual Report on pages 37 through 56 and 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

Not applicable.

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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 and Chief Accounting 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 and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective.

(b) Internal Control over Financial Reporting.

The information required by Item 308(a) and 308(b) of Regulation S-K regarding management’s annual report on internal control over financial reporting and the attestation report of the registered public accounting firm are contained in the Company’s 2005 Annual Report on pages 34 and 35, which information is incorporated herein by reference.

The Company’s management, including the Company’s Chairman and Chief Executive Officer and its Chief Financial Officer and Chief Accounting Officer, have evaluated any changes in the Company’s internal control over financial reporting that occurred during the Company’s fourth quarter of its 2005 fiscal year and have concluded that there was no change during the Company’s fourth quarter of its 2005 fiscal year that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. OTHER INFORMATION

None.

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 2006 annual meeting under the heading “Nominees for Election as Directors” on pages 3 through 6, 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 2006 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.

The information required by Item 405 of Regulation S-K regarding the Company’s disclosure of 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 is contained in its Proxy Statement for the 2006 annual meeting under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” on page 23, which information is incorporated herein by reference.

In accordance with Item 406 of Regulation S-K, the Company has adopted a code of ethics that applies to certain Company executives, 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 2006 annual meeting under the heading “Executive Compensation and Other Information” on pages 13 through 15, which information is incorporated herein by reference.

22

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

The information required by Item 201(d) of Regulation S-K is contained in the Company’s Proxy Statement for the 2006 annual meeting under the heading “Equity Compensation Plan Information” on page 10, which information is incorporated herein by reference. The information required by Item 403 of Regulation S-K is contained in the Company’s Proxy Statement for the 2006 annual meeting under the headings “Principal Stockholders” and “Security Ownership of Management” on pages 11 and 12, which information is incorporated herein by reference.

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 2006 annual meeting under the heading “Certain Transactions” on page 21, 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 2006 annual meeting under the heading “Audit Fees; Auditors to be Present” on page 23, which information is incorporated herein by reference.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(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 37 through 56 in the Company’s Annual Report for the fiscal year ended December 31, 2005, and the Reports of Independent Registered Public Accounting Firm on pages 35 and 36 of such Annual Report are incorporated herein by reference.

Consolidated Balance Sheets as of December 31, 2005 and 2004.

Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003.

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003.

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 included in the consolidated financial statements or the notes thereto.

(3) Exhibits.

See Item 15(b) to this Annual Report on Form 10-K.

23

(b) Exhibits.

The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index at the end of this Item 15.

(c) Financial Statement Schedules.

Not applicable.

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24

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 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 (previously filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed with the Commission for the year ended December 31, 2003, and incorporated herein by this reference).
3.3	Amended and Restated By-Laws of the Registrant, dated March 13, 1997 (previously filed as Exhibit 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 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).
4.2	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).
4.3	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).
4.4	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).
4.5	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).
4.6	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).
4.7	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).
4.8	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).
4.9	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).
4.10	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).

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4.11	Second Amended and Restated Bank of the Ozarks, Inc. Non-Employee Director Stock Option Plan (As Amended and Restated as of April 20, 2004) (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, 2004, and incorporated herein by this reference).
4.12	Amended and Restated Declaration of Trust, by and among Wilmington Trust Company, 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 28, 2004 (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, 2004, and incorporated herein by this reference).
4.13	Form of Capital 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, 2004, and incorporated herein by this reference).
4.14	Form of Common Security Certificate (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, 2004, and incorporated herein by this reference).
4.15	Indenture by and between Bank of the Ozarks, Inc. and Wilmington Trust Company, as debenture trustee, dated as of September 28, 2004 (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, 2004, and incorporated herein by this reference).
4.16	Form of Debt Security Certificate (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, 2004, and incorporated herein by this reference).
4.17	Guarantee Agreement, by and between Bank of the Ozarks, Inc. and Wilmington Trust Company, dated as of September 28, 2004 (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, 2004, and incorporated herein by this reference).
10.1	Bank of the Ozarks, Inc. Stock Option Plan, dated May 22, 1997 (previously filed as Exhibit 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	Form of Indemnification Agreement between the Registrant and its directors and certain of its executive officers (previously filed as Exhibit 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).
10.3	Employment agreement effective January 1, 2006 between the Registrant and George Gleason (previously filed as Exhibit 10 (iii) (A) to the Company’s Form 8-K filed with the Commission on January 3, 2006, and incorporated herein by this reference).
10.4	Bank of the Ozarks, Inc. Deferred Compensation Plan, dated January 1, 2005 (previously filed as Exhibit 10 (iii) (A) to the Company’s Form 8-K filed with the Commission on December 14, 2004, and incorporated herein by this reference.
13	Portions of the Registrant’s Annual Report to Stockholders for the year ended December 31, 2005 which are incorporated herein by this reference: pages 13 through 56 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 and Chief Accounting Officer.

26

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

27

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 13, 2006

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 13, 2006
/s/ Mark Ross Mark Ross	Vice Chairman, President, Chief Operating Officer and Director	March 13, 2006
/s/ Paul Moore Paul Moore	Chief Financial Officer and Chief Accounting Officer	March 13, 2006
/s/ Jean Arehart Jean Arehart	Director	March 13, 2006
/s/ Steven Arnold Steven Arnold	Director	March 13, 2006
/s/ Richard Cisne Richard Cisne	Director	March 13, 2006
/s/ Robert East Robert East	Director	March 13, 2006

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/s/ Linda Gleason Linda Gleason	Director	March 13, 2006
/s/ Porter Hillard Porter Hillard	Director	March 13, 2006
/s/ Henry Mariani Henry Mariani	Director	March 13, 2006
/s/ James Matthews James Matthews	Director	March 13, 2006
/s/ John Mills John Mills	Director	March 13, 2006
/s/ Dr. R. L. Qualls Dr. R. L. Qualls	Director	March 13, 2006
/s/ Kennith Smith Kennith Smith	Director	March 13, 2006
/s/ Robert Trevino Robert Trevino	Director	March 13, 2006

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EX-13

Exhibit 13

Selected Consolidated Financial Data

	Year Ended December 31,
	2005			2004			2003			2002			2001
	(Dollars in thousands, except per share amounts)
Income statement data:
Interest income	$	112,881		$	85,231		$	68,883		$	60,913		$	60,119
Interest expense		44,305			24,608			20,115			21,076			32,049
Net interest income		68,576			60,623			48,768			39,837			28,070
Provision for loan and lease losses		2,300			3,330			3,865			3,660			3,401
Non-interest income		19,252			18,225			17,391			11,689			7,401
Non-interest expense		40,080			37,605			31,992			24,915			19,030
Net income		31,489			25,883			20,201			14,406			8,959
Share and per share data:*
Earnings - diluted	$	1.88		$	1.56		$	1.24		$	0.92		$	0.59
Book value		8.97			7.36			6.07			4.70			3.74
Dividends		0.37			0.30			0.23			0.155			0.115
Weighted-average diluted shares outstanding (thousands)		16,766			16,635			16,287			15,689			15,262
Balance sheet data at period end:
Total assets	$	2,134,882		$	1,726,840		$	1,386,529		$	1,036,386		$	871,912
Total loans and leases		1,370,723			1,134,591			909,147			717,895			616,076
Allowance for loan and lease losses		17,007			16,133			13,820			10,936			8,712
Total investment securities		574,120			434,512			364,320			232,168			187,167
Total deposits		1,591,643			1,379,930			1,062,064			790,173			677,743
Repurchase agreements with customers		35,671			33,223			29,898			20,739			16,213
Other borrowings		304,865			144,065			145,541			129,366			99,690
Total stockholders’ equity		149,403			121,406			98,486			72,918			56,617
Loan and lease to deposit ratio		86.12	%		82.22	%		85.60	%		90.85	%		90.90	%
Average balance sheet data:
Total average assets	$	1,912,961		$	1,547,184		$	1,197,346		$	922,950		$	814,446
Total average stockholders’ equity		137,185			108,419			85,471			64,149			52,334
Average equity to average assets		7.17	%		7.01	%		7.14	%		6.95	%		6.43	%
Performance ratios:
Return on average assets		1.65	%		1.67	%		1.69	%		1.56	%		1.10	%
Return on average stockholders’ equity		22.95			23.87			23.63			22.46			17.12
Net interest margin - FTE		4.18			4.43			4.52			4.69			3.83
Efficiency		43.43			46.23			47.51			47.94			52.45
Dividend payout		19.68			19.23			18.55			16.85			19.57
Assets quality ratios:
Net charge-offs to average loans and leases		0.11	%		0.10	%		0.20	%		0.22	%		0.24	%
Nonperforming loans and leases to total loans and leases		0.25			0.57			0.47			0.31			0.29
Nonperforming assets to total assets		0.18			0.39			0.36			0.24			0.28
Allowance for loan and lease losses as a percentage of:
Total loans and leases		1.24	%		1.42	%		1.52	%		1.52	%		1.41	%
Nonperforming loans and leases		502	%		248	%		326	%		498	%		482	%
Capital ratios at period end:
Leverage capital		9.11	%		9.41	%		9.33	%		8.64	%		8.51	%
Tier I risk-based capital		11.94			12.34			12.41			11.43			11.41
Total risk-based capital		13.02			13.74			14.89			12.68			12.67

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

13

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

General

Net income for Bank of the Ozarks, Inc. (the “Company”) was $31.5 million for the year ended December 31, 2005, a 21.7% increase from net income of $25.9 million in 2004. Net income in 2003 was $20.2 million. Diluted earnings per share increased 20.5% to $1.88 in 2005 compared to $1.56 in 2004. Diluted earnings per share in 2003 were $1.24.

Effective 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. All share and per share information contained in this discussion and analysis has been adjusted to give effect to this stock split.

The table below shows total assets, loans and leases, deposits, stockholders’ equity and book value per share at December 31, 2005, 2004 and 2003 and the percentage changes year over year.

							% Change
	December 31,						2005 from 2004		2004 from 2003
	2005		2004		2003
	(Dollars in thousands, except per share amounts)
Total assets	$	2,134,882	$	1,726,840	$	1,386,529	23.6	%	24.5	%
Loans and leases		1,370,723		1,134,591		909,147	20.8		24.8
Deposits		1,591,643		1,379,930		1,062,064	15.3		29.9
Stockholders’ equity		149,403		121,406		98,486	23.1		23.3
Book value per share		8.97		7.36		6.07	21.9		21.3

Two measures used to assess performance by banking institutions are return on average assets (“ROA”) and return on average equity (“ROE”). ROA measures net income in relation to average total assets. It is calculated by dividing annual net income by average total assets and indicates a company’s ability to employ its resources profitably. For the year ended December 31, 2005, the Company’s ROA was 1.65% compared with 1.67% and 1.69%, respectively, for the years ended December 31, 2004 and 2003. ROE is calculated by dividing annual net income 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, 2005, the Company’s ROE was 22.95% compared with 23.87% and 23.63%, respectively, for the years ended December 31, 2004 and 2003.

Analysis of Results of Operations

The Company is a bank holding company whose primary business is commercial banking conducted through its wholly-owned state chartered bank subsidiary—Bank of the Ozarks (the “Bank”). 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, subordinated debentures 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 (“BOLI”) income, other charges and fees, and gains and losses on sales of assets.

The Company’s non-interest expense consists primarily of employee compensation and benefits, net occupancy and equipment expense and other operating expenses. The Company’s results of operations are significantly affected by its provision for loan and lease losses and its provision for income taxes. The following discussion provides a summary of the Company’s operations for the past three years and should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in the report.

Net Interest Income

Net interest income and net interest margin are analyzed in this discussion on a fully taxable equivalent (“FTE”) basis. The adjustment to convert net interest income to a FTE basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $4.5 million in 2005, $2.5 million in 2004 and $1.2 million in 2003. Such increases are consistent with the increase in the Company’s tax-exempt investment securities during those periods.

2005 compared to 2004

Net interest income (FTE) for 2005 increased 15.7% to $73.0 million compared to $63.1 million for 2004.

14

The growth in net interest income (FTE) in 2005 was primarily attributable to a 22.6% growth in average earning assets. Net interest margin (FTE) was 4.18% in 2005 compared to 4.43% in 2004, a decrease of 25 basis points (“bps”). Yields on earning assets increased 56 bps in 2005 compared to 2004. This increase was due primarily to an increase in loan and lease yields of 63 bps. The increased loan and lease yields are attributable to overall increases in general interest rate levels during 2005 as a result of the Federal Open Market Committee (“FOMC”) raising its fed funds target rate through a series of eight 25 bps increases during the year, which followed five 25 bps increases in 2004. Additionally, the Company increased its variable rate loans and leases as a percentage of total loans and leases from 40.6% at December 31, 2004 to 44.0% at December 31, 2005. Such increase in variable rate loans and leases as a percentage of total loans and leases allowed the Company to more quickly benefit from the increases in the prime rate and other interest rates which followed each of the FOMC rate increases. However, competitive loan pricing in many of the Company’s markets and a flattening of the yield curve differential between short-term and long-term interest rates during 2005 limited the Company’s ability to benefit fully from the FOMC rate increases. The Company believes to the extent the relatively flat yield curve and the current competitive environment continues, the Company will experience downward pressure on its net interest margin in 2006.

The Company’s aggregate yield on its investment securities portfolio increased 39 bps in 2005 compared to 2004. This was the result of a 31 basis point increase in yield on taxable investment securities, a 15 basis point decrease in yield on tax-exempt investment securities and a shift in the composition of the portfolio to include a higher proportion of tax-exempt investment securities. The increase in the yield on the Company’s taxable investment securities was primarily a result of new purchases at higher rates throughout 2005. The decrease in yield on the Company’s tax-exempt investment securities was primarily a result of purchasing new tax-exempt investment securities with a weighted-average yield below the weighted-average yield of the tax-exempt investment securities in the portfolio at the beginning of the year.

The 56 bps increase in earning asset yields was more than offset by an increase in the rates on interest bearing liabilities of 85 bps in 2005 compared to 2004, resulting in the overall net interest margin (FTE) compression. The increase in interest bearing liabilities rates was primarily attributable to an increase in the rates of interest bearing deposits of 83 bps. This increase in the rates on interest bearing deposits, the largest component of the Company’s interest bearing liabilities, was primarily attributable to the overall increases in general interest rate levels in 2005 resulting from the FOMC rate increases and competitive deposit pricing pressures. Additionally, the Company’s certificates of deposits, which generally pay interest at higher rates than other interest bearing deposits, increased to 64.3% of the Company’s average interest bearing deposits in 2005 compared to 61.0% in 2004.

The Company’s use of other borrowings, which are comprised primarily of Federal Home Loan Bank of Dallas (“FHLB”) advances and federal funds purchased, increased in 2005 compared to 2004. The rate on the Company’s other borrowings increased by 69 bps and the rate on its subordinated debentures increased by 65 bps in 2005 compared to 2004. Such rate increases were attributable to the increase in short-term interest rates.

2004 compared to 2003

Net interest income (FTE) for 2004 increased 26.4% to $63.1 million compared to $49.9 million for 2003. The growth in net interest income (FTE) in 2004 was primarily attributable to a 28.9% growth in average earning assets. Net interest margin (FTE) was 4.43% in 2004 compared to 4.52% in 2003, a decrease of nine bps. Yields on earning assets declined 18 bps in 2004 compared to 2003. This decline was due to a decrease in loan and lease yields of 40 bps and a decrease in yields on tax-exempt investment securities of 15 bps, which were offset in part by an increase in yields on taxable investment securities of 32 bps. The decreased loan and lease yields were in part attributable to the Company’s increasing variable rate loans and leases as a percentage of its total loans and leases. Variable rate loans and leases increased to 40.6% of total loans and leases at December 31, 2004 compared to 32.7% at December 31, 2003. Interest rates charged for variable rate loans and leases are typically less than those charged for fixed rate loans and leases.

The 18 bps decline in earning asset yields was partially offset by a decline in rates on interest bearing liabilities of 12 bps. The decline in interest bearing liabilities was primarily attributable to a slight decrease in rates on interest bearing deposits of two bps, along with decreases in rates on subordinated debentures of 224 bps and other borrowings of 55 bps. The decline in rates on the subordinated debentures was due to the Company’s prepayment of $17.3 million of 9% subordinated debentures on June 18, 2004. The rates on other borrowings decreased primarily as a result of the Company’s increased utilization of short-term borrowings which had lower interest rates than its long-term borrowings and therefore blended down its average rates on other borrowings.

15

Analysis of Net Interest Income

(FTE = Fully Taxable Equivalent)

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Interest income	$	112,881		$	85,231		$	68,883
FTE adjustment		4,465			2,500			1,178
Interest income - FTE		117,346			87,731			70,061
Interest expense		44,305			24,608			20,115
Net interest income - FTE	$	73,041		$	63,123		$	49,946
Yield on interest earning assets - FTE		6.72	%		6.16	%		6.34	%
Rate on interest bearing liabilities		2.72			1.87			1.99
Net interest margin - FTE		4.18			4.43			4.52

The following table sets forth certain information relating to the Company’s net interest income (FTE) for the years ended December 31, 2005, 2004 and 2003. The yields and rates are derived by dividing interest income or interest expense by the average balance of the related assets or liabilities, respectively, for the periods shown except where otherwise noted. Average balances are derived from daily average balances for such assets and liabilities. The average balance of loans and leases includes loans and leases on which the Company has discontinued accruing interest. The average balances of investment securities are computed based on amortized cost and include unrealized gains and losses on investment securities available for sale (“AFS”). The yields on loans and leases include late fees and amortization of certain deferred fees and origination costs, which are considered adjustments to yields. Interest expense and rates on other borrowings are presented net of interest capitalized on construction projects.

Average Consolidated Balance Sheets and Net Interest Analysis

	Year Ended December 31,
	2005						2004						2003
	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 earning deposits and federal funds sold	$	332	$	11	3.44	%	$	434	$	19	4.30	%	$	467	$	24	5.30	%
Investment securities:
Taxable		319,234		16,998	5.32			310,569		15,566	5.01			255,013		11,958	4.69
Tax-exempt - FTE		181,386		12,468	6.87			98,408		6,904	7.02			43,282		3,103	7.17
Loans and leases - FTE		1,245,779		87,869	7.05			1,015,835		65,242	6.42			806,535		54,976	6.82
Total earning assets - FTE		1,746,731		117,346	6.72			1,425,246		87,731	6.16			1,105,297		70,061	6.34
Non-interest earning assets		166,230						121,938						92,049
Total assets	$	1,912,961					$	1,547,184					$	1,197,346
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest bearing transaction	$	466,609	$	7,041	1.51	%	$	420,325	$	4,232	1.01	%	$	343,776	$	3,521	1.02	%
Time deposits of $100,000 or more		542,378		16,265	3.00			411,865		7,757	1.88			294,028		5,395	1.83
Other time deposits		299,104		8,008	2.68			245,935		4,807	1.95			190,593		4,135	2.17
Total interest bearing deposits		1,308,091		31,314	2.39			1,078,125		16,796	1.56			828,397		13,051	1.58
Repurchase agreements with customers		26,620		450	1.69			37,116		446	1.20			30,347		317	1.04
Other borrowings		251,589		9,848	3.91	(1)		159,510		5,134	3.22	(1)		127,326		4,803	3.77	(1)
Subordinated debentures		44,331		2,693	6.08			41,099		2,232	5.43			25,336		1,944	7.67
Total interest bearing liabilities		1,630,631		44,305	2.72			1,315,850		24,608	1.87			1,011,406		20,115	1.99
Non-interest bearing liabilities:
Non-interest bearing deposits		138,072						118,798						95,523
Other non-interest bearing liabilities		7,073						4,117						4,946
Total liabilities		1,775,776						1,438,765						1,111,875
Stockholders’ equity		137,185						108,419						85,471
Total liabilities and stockholders’ equity	$	1,912,961					$	1,547,184					$	1,197,346
Net interest income - FTE			$	73,041					$	63,123					$	49,946
Net interest margin - FTE					4.18	%					4.43	%					4.52	%

⁽¹⁾ The interest expense and rates for other borrowings are impacted by interest capitalized on construction projects in the amount of $446,000, $144,000 and $93,000, respectively, for the years ended December 31, 2005, 2004 and 2003. In the absence of this capitalization, these rates would have been 4.09%, 3.31% and 3.85%, respectively, for the years ended December 31, 2005, 2004 and 2003.

16

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 (FTE), interest expense and net interest income (FTE) for 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.

Analysis of Changes in Net Interest Income

	2005 over 2004									2004 over 2003
	Volume			Yield/ Rate			Net Change			Volume			Yield/ Rate			Net Change
	(Dollars in thousands)
Increase (decrease) in:
Interest income - FTE:
Interest earning deposits and federal funds sold	$	(3	)	$	(5	)	$	(8	)	$	(1	)	$	(4	)	$	(5	)
Investment securities:
Taxable		461			971			1,432			2,785			823			3,608
Tax-exempt - FTE		5,704			(140	)		5,564			3,867			(66	)		3,801
Loans and leases - FTE		16,219			6,408			22,627			13,442			(3,176	)		10,266
Total interest income - FTE		22,381			7,234			29,615			20,093			(2,423	)		17,670
Interest expense:
Savings and interest bearing transaction		698			2,111			2,809			771			(60	)		711
Time deposits of $100,000 or more		3,914			4,594			8,508			2,219			143			2,362
Other time deposits		1,424			1,777			3,201			1,082			(410	)		672
Repurchase agreements with customers		(177	)		181			4			81			48			129
Other borrowings		3,604			1,110			4,714			1,036			(705	)		331
Subordinated debentures		196			265			461			856			(568	)		288
Total interest expense		9,659			10,038			19,697			6,045			(1,552	)		4,493
Increase (decrease) in net interest income - FTE	$	12,722		$	(2,804	)	$	9,918		$	14,048		$	(871	)	$	13,177

Non-Interest Income

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

2005 compared to 2004

Non-interest income for the year ended December 31, 2005 increased 5.6% to $19.3 million compared to $18.2 million in 2004. Service charges on deposits accounts are the Company’s largest source of non-interest income and increased 4.2% to $9.9 million in 2005 compared to $9.5 million in 2004. This increase is primarily attributable to growth in core deposit customers. Trust income increased 13.3% to $1.7 million in 2005 compared to $1.5 million in 2004. This increase is primarily the result of continued growth in trust customers. BOLI income increased to $1.8 million in 2005, a 49.7% increase over 2004 BOLI income of $1.2 million. This increase is primarily attributable to a full year’s impact of cash surrender value increases on BOLI purchased by the Company on October 1, 2004.

These increases in non-interest income were partially offset by a decrease in mortgage lending income, the Company’s second largest source of non-interest income. Mortgage lending income declined 7.8% to $3.0 million in 2005 compared to $3.3 million in 2004. Originations of mortgage loans held for sale decreased 1.4% to $175.6 million in 2005 compared to $178.0 million in 2004. Refinancing of existing mortgages accounted for approximately 39% of the Company’s 2005 originations of mortgage loans held for sale compared to 43% in 2004. Mortgage loans held for sale for home purchases were 61% of 2005 originations compared to 57% of originations in 2004.

Gains on sales of investment securities were $213,000 in 2005 compared to $774,000 in 2004. The Company sold approximately $8.8 million of its AFS investment securities in 2005 and $15.6 million of its AFS investment securities in 2004. Gains on sales of other assets were $567,000 in 2005 compared to $241,000 in 2004.

17

2004 compared to 2003

Non-interest income for the year ended December 31, 2004 increased 4.8% to $18.2 million compared with $17.4 million in 2003. During 2004 service charges on deposit accounts increased 22.1%, as the Company increased the number of its core deposit customers and increased certain service charges in January 2004. The increase in the Company’s safe deposit box rental, operating lease income, brokerage fees and other miscellaneous fees is primarily the result of the increase in operating lease income which was $332,000 in 2004 compared to $29,000 in 2003. During 2004 the Company realized net gains of $774,000 from the sales of approximately $15.6 million of its AFS investment securities. The majority of the investment securities gains were realized to help offset the impact of a charge incurred as a result of the Company prepaying its $17.3 million of 9% subordinated debentures. Gains on sales of investment securities were $144,000 in 2003 from the sale of $5.0 million of the Company’s investment securities. BOLI income increased 7.2% in 2004 compared to 2003 primarily as a result of the Company’s purchase of $18 million of additional BOLI on October 1, 2004.

These increases in non-interest income were partially offset by a 40.7% decrease in mortgage lending income as mortgage refinancing activity declined significantly from the levels experienced during 2003. Originations of mortgage loans held for sale decreased 41.7% to $178.0 million in 2004 compared to $305.5 million in 2003. Refinancing of existing mortgages accounted for approximately 43% of the Company’s 2004 originations of mortgage loans held for sale compared to 68% in 2003. Mortgage loans held for sale for home purchases were 57% of 2004 originations compared to 32% of originations in 2003.

Trust income declined 5.6% in 2004 compared to 2003 as the level of Arkansas municipal bond issuance and associated corporate trust fees declined.

The table below shows non-interest income for the years ended December 31, 2005, 2004 and 2003.

Non-Interest Income

	Year Ended December 31,
	2005		2004		2003
	(Dollars in thousands)
Service charges on deposit accounts	$	9,875	$	9,479	$	7,761
Mortgage lending income		3,034		3,292		5,548
Trust income		1,673		1,476		1,564
Bank owned life insurance income		1,816		1,213		1,132
Appraisal, credit life commissions and other credit related fees		505		440		523
Safe deposit box rental, operating lease income, brokerage fees and other miscellaneous fees		1,099		1,006		631
Gains on sales of investment securities		213		774		144
Gains on sales of other assets		567		241		18
Other		470		304		70
Total non-interest income	$	19,252	$	18,225	$	17,391

Non-Interest Expense

Non-interest expense consists of salaries and employee benefits, net occupancy and equipment expense and other operating expenses. Non-interest expense for the year ended December 31, 2005 increased 6.6% to $40.1 million compared with $37.6 million in 2004. Non-interest expense was $32.0 million in 2003.

Non-interest expense for both 2005 and 2004 increased compared to the previous year primarily as a result of the Company’s continued growth and expansion. During 2005 the Company opened six new banking offices, and during 2004 it opened 10 new banking offices. At December 31, 2005, the Company had 57 full service banking offices compared to 51 at December 31, 2004 and 41 at December 31, 2003. As a result of its growth and expansion, the Company’s full time equivalent employees increased to 629 at December 31, 2005 compared to 561 at December 31, 2004 and 473 at December 31, 2003, an increase of 12.1% in 2005 and 18.6% in 2004.

Effective January 1, 2003 the Company adopted the prospective method of fair value recognition as provided under Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148, for compensation expense under its stock-based compensation plans. As a result the Company recorded pretax expenses of $614,000 during 2005, $258,000 during 2004 and $141,000 during 2003 in connection with stock options granted after December 31, 2002 under its stock-based compensation plans.

18

In December 2004 the Financial Accounting Standards Board issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R eliminated the alternative to use Accounting Principles Board (“APB”) Opinion No. 25’s intrinsic value method of accounting that was provided in SFAS No. 123. SFAS No. 123R requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Such cost is to be recognized over the vesting period of the award. The provisions of SFAS No. 123R are effective for the first quarter of the first fiscal year that begins after June 15, 2005. Since the Company adopted the prospective transition method of fair value stock-based compensation accounting as provided for under the provisions of SFAS No. 148, the Company expects the adoption of SFAS No. 123R will not have a material impact on its financial position, results of operations or liquidity.

On June 18, 2004 the Company prepaid its $17.3 million of 9% subordinated debentures. In connection with this prepayment, the Company wrote off $852,000 of unamortized deferred debt issuance costs.

As a result of revenue (the sum of net interest income—FTE and non-interest income) growing at a faster rate than its rate of growth in non-interest expense, the Company’s efficiency ratio (non-interest expense divided by revenue) improved to 43.4% for the year ended December 31, 2005 compared to 46.2% in 2004 and 47.5% in 2003.

The following table shows non-interest expense for the years ended December 31, 2005, 2004 and 2003.

Non-Interest Expense

	Year Ended December 31,
	2005		2004		2003
	(Dollars in thousands)
Salaries and employee benefits	$	23,477	$	20,666	$	18,411
Net occupancy and equipment expense		6,254		5,189		4,421
Other operating expenses:
Postage and supplies		1,620		1,660		1,431
Advertising and public relations		1,325		1,434		1,016
Telephone and data lines		1,371		1,139		948
Professional and outside services		886		823		643
ATM expense		611		819		587
Software expense		828		662		571
FDIC and state assessments		506		436		376
Other real estate and foreclosure expense		213		394		367
Amortization of intangibles		262		258		206
Write-off of deferred debt issuance costs		—		852		—
Other		2,727		3,273		3,015
Total non-interest expense	$	40,080	$	37,605	$	31,992

Income Taxes

The Company’s provision for income taxes was $14.0 million for the year ended December 31, 2005 compared to $12.0 million in 2004 and $10.1 million in 2003. Its effective income tax rates were 30.7%, 31.7% and 33.3%, respectively, for 2005, 2004 and 2003.

The decline in the effective tax rate of 102 bps in 2005 compared with 2004, and the decline in the effective tax rate of 160 bps in 2004 compared with 2003 are primarily a result of the following factors. First, the Company has increased its municipal investment securities portfolio, which is exempt from federal and state taxes, in both absolute dollar amount and as a percentage of earning assets during 2005 compared with 2004 and during 2004 compared with 2003. This accounted for a decline in the effective tax rate of approximately 207 bps for 2005 compared to 2004 and approximately 192 bps for 2004 compared to 2003. Second, certain tax credit investments impacted the Company’s effective tax rates. These investments generated tax benefits which reduced combined federal and state income taxes by $235,000 in 2005, $712,000 in 2004 and $556,000 in 2003. The reduced level of such benefits in 2005 accounted for an increase in the effective tax rate of approximately 156 bps in 2005 compared to 2004. The impact of such tax credit investments on the Company’s 2004 effective tax rate compared to 2003 was not significant. The Company incurred pretax impairment charges of $191,000 in 2005, $424,000 in 2004 and $320,000 in 2003 associated with these investments.

19

Analysis of Financial Condition

Loan and Lease Portfolio

At December 31, 2005 the Company’s loan and lease portfolio was $1.37 billion, an increase of 20.8% from $1.13 billion at December 31, 2004. As of December 31, 2005, the Company’s loan and lease portfolio consisted of approximately 81.7% real estate loans, 8.0% commercial and industrial loans, 5.8% consumer loans, 2.8% direct financing leases and 1.5% agricultural loans (non-real estate). Real estate loans, the Company’s largest category of loans, include all loans made to finance the development of real property construction projects, provided such loans are secured by real estate, and all other loans secured by real estate as evidenced by mortgages or other liens. Total real estate loans increased 21.9% from $919 million at December 31, 2004 to $1.12 billion at December 31, 2005. This increase is primarily attributable to the Company’s continued expansion into markets with significant commercial and residential development, including the northwest Arkansas, Dallas, Texas and Charlotte, North Carolina markets.

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

Loan and Lease Portfolio

	December 31,
	2005		2004		2003		2002		2001
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	271,989	$	248,435	$	218,851	$	183,687	$	167,559
Non-farm/non-residential		375,628		330,442		285,451		212,481		180,257
Construction/land development		353,552		242,590		117,835		65,474		51,140
Agricultural		74,644		66,061		61,500		57,525		45,303
Multifamily residential		44,417		31,608		23,657		28,555		20,850
Total real estate		1,120,230		919,136		707,294		547,722		465,109
Commercial and industrial		109,459		100,642		111,978		95,951		78,324
Consumer		78,916		73,420		64,831		54,097		55,805
Direct financing leases		38,060		19,320		3,622		—		—
Agricultural (non-real estate)		20,605		18,520		15,266		15,388		12,866
Other		3,453		3,553		6,156		4,737		3,972
Total loans and leases	$	1,370,723	$	1,134,591	$	909,147	$	717,895	$	616,076

Loan and Lease Maturities

The following table reflects loans and leases grouped by remaining maturities at December 31, 2005, 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 Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Real estate	$	438,611	$	580,910	$	100,709	$	1,120,230
Commercial, industrial and agricultural		59,207		56,448		14,409		130,064
Consumer		17,926		57,556		3,434		78,916
Direct financing leases		762		36,859		439		38,060
Other		1,759		1,629		65		3,453
	$	518,265	$	733,402	$	119,056	$	1,370,723
Fixed rate	$	216,357	$	491,747	$	58,992	$	767,096
Floating rate (not at a floor or ceiling rate)		286,255		190,569		48,872		525,696
Floating rate (at floor rate)		3,834		3,351		6,385		13,570
Floating rate (at ceiling rate)		11,819		47,735		4,807		64,361
	$	518,265	$	733,402	$	119,056	$	1,370,723

20

The following table reflects loans and leases as of December 31, 2005 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 the outstanding principal of loans and leases either by adjusting rates on existing loans and leases or reinvesting principal cash flow in new loans and leases.

Loan and Lease Cash Flows or Repricing

	1 Year or Less			Over 1 Through 2 Years			Over 2 Through 3 Years			Over 3 Through 5 Years			Over 5 Years			Total
	(Dollars in thousands)
Fixed rate	$	277,470		$	156,519		$	173,392		$	120,575		$	39,140		$	767,096
Floating rate (not at a floor or ceiling rate)		519,546			2,314			2,117			1,423			296			525,696
Floating rate (at floor rate)		9,473			1,711			1,841			545			—			13,570
Floating rate (at ceiling rate)		64,361			—			—			—			—			64,361
	$	870,850		$	160,544		$	177,350		$	122,543		$	39,436		$	1,370,723
Percentage of total		63.5	%		11.7	%		13.0	%		8.9	%		2.9	%		100.0	%
Cumulative percentage of total		63.5			75.2			88.2			97.1			100.0

Nonperforming Assets

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

The Company generally places a loan or lease on nonaccrual status when payments are contractually past due 90 days, or earlier when doubt exists as to the ultimate collection of payments. The Company may continue to accrue interest on certain loans or leases contractually past due 90 days or more 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 0.25% at year-end 2005 compared to 0.57% and 0.47%, respectively, at year-end 2004 and 2003. Nonperforming assets as a percent of total assets were 0.18% as of year-end 2005 compared to 0.39% and 0.36%, respectively, at year-end 2004 and 2003.

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

Nonperforming Assets

	December 31,
	2005			2004			2003			2002			2001
	(Dollars in thousands)
Nonaccrual loans and leases	$	3,385		$	6,497		$	4,235		$	2,194		$	1,806
Accruing loans and leases 90 days or more past due		—			—			—			—			—
Restructured loans and leases		—			—			—			—			—
Total nonperforming loans and leases		3,385			6,497			4,235			2,194			1,806
Foreclosed assets held for sale and repossessions(1)		356			157			780			333			661
Total nonperforming assets	$	3,741		$	6,654		$	5,015		$	2,527		$	2,467
Nonperforming loans and leases to total loans and leases		0.25	%		0.57	%		0.47	%		0.31	%		0.29	%
Nonperforming assets to total assets		0.18			0.39			0.36			0.24			0.28

⁽¹⁾ Foreclosed assets held for sale and repossessions are 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

The Company’s allowance for loan and lease losses was $17.0 million at December 31, 2005, or 1.24% of total loans and leases, compared with $16.1 million, or 1.42% of total loans and leases, at December 31, 2004. The allowance for loan and lease losses was $13.8 million or 1.52% of loan and leases at December 31, 2003. 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 the Company believes the current allowance is adequate, changing economic and other conditions may require future adjustments to the allowance for loan and lease losses.

The amounts of provision to the allowance for loan and lease losses are based on the Company’s judgment and evaluation of the loan and lease portfolio utilizing the criteria discussed below. The provision for loan and lease losses for 2005 was $2.3 million compared to $3.3 million in 2004 and $3.9 million in 2003.

The Company’s net charge-offs to average loans and leases was 11 bps in 2005 compared to 10 bps in 2004 and 20 bps in 2003. The relatively low level of net charge-offs in recent years has resulted in a decline in the historical loss percentages used in the determination of the adequacy of the allowance for loan and lease losses. This has contributed to the decline in the Company’s allowance for loan and lease losses as a percentage of outstanding loans and leases and in its annual provision for loan and lease losses.

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

Analysis of the Allowance for Loan and Lease Losses

	Year Ended December 31,
	2005			2004			2003			2002			2001
	(Dollars in thousands)
Balance, beginning of period	$	16,133		$	13,820		$	10,936		$	8,712		$	6,606
Loans and leases charged off:
Real estate:
Residential 1-4 family		196			167			288			361			306
Non-farm/non-residential		47			201			433			135			112
Construction/land development		—			29			44			216			41
Agricultural		—			—			5			89			9
Total real estate		243			397			770			801			468
Commercial and industrial		706			346			632			217			463
Consumer		785			503			450			626			452
Agricultural (non-real estate)		50			31			23			29			37
Total loans and leases charged off		1,784			1,277			1,875			1,673			1,420
Recoveries of loans and leases previously charged off:
Real estate:
Residential 1-4 family		53			32			20			14			20
Non-farm/non-residential		17			48			6			95			9
Construction/land development		23			1			8			2			1
Agricultural		—			—			6			—			—
Total real estate		93			81			40			111			30
Commercial and industrial		102			35			35			12			11
Consumer		152			142			141			112			84
Agricultural (non-real estate)		11			2			18			2			—
Total recoveries		358			260			234			237			125
Net loans and leases charged off		1,426			1,017			1,641			1,436			1,295
Provision charged to operating expense		2,300			3,330			3,865			3,660			3,401
Allowance added in bank acquisition		—			—			660			—			—
Balance, end of period	$	17,007		$	16,133		$	13,820		$	10,936		$	8,712
Net charge-offs to average loans and leases		0.11	%		0.10	%		0.20	%		0.22	%		0.24	%
Allowance for loan and lease losses to total loans and leases		1.24	%		1.42	%		1.52	%		1.52	%		1.41	%
Allowance for loan and lease losses to nonperforming loans and leases		502	%		248	%		326	%		498	%		482	%

22

Provisions to and the adequacy of the allowance for loan and lease losses are determined in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” and SFAS No. 5, “Accounting for Contingencies,” and are based on the Company’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 allowance consists primarily of an internal grading system and specific allowances determined in accordance with SFAS No. 114. The Company also utilizes a peer group analysis and an historical analysis in an effort to validate the overall adequacy of its allowance for loan and lease losses. In addition to these objective criteria, the Company subjectively assesses the 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, the value of property securing the loans and leases, and other relevant factors.

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 and other approving officers at the time the loan or lease 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 are adjusted periodically. In determining these allowance allocation percentages, management considers, among other factors, historical loss percentages for risk rated loans and leases, consumer loans and residential 1-4 family loans. Additionally, management considers a variety of subjective criteria in determining the allowance allocation percentages.

All loans deemed to be impaired are evaluated individually. The majority of the Company’s impaired loans are dependent upon collateral for repayment. Accordingly, impairment is generally measured by comparing collateral value, net of holding and selling costs, to the current investment in the loan. For all other impaired loans, the Company compares estimated discounted cash flows to the current investment in the loan. To the extent that the Company’s current investment in a particular loan exceeds its estimated net collateral value or its estimated discounted cash flows, the loan is specifically considered in the determination of the allowance for loan and lease losses, or is immediately charged off as a reduction of the allowance for loan and lease losses.

The sum of all allowance amounts derived as described above, combined with a reasonable unallocated allowance determined by management that reflects inherent but undetected losses in the portfolio and imprecision in the allowance methodology, is utilized as the primary indicator of the appropriate level of allowance for loan and lease losses. The portion of the allowance that is not derived by the allowance allocation percentages compensates for the uncertainty and complexity in estimating loan and lease losses including factors and conditions that may not be fully reflected in the determination and application of the allowance allocation percentages. The factors and conditions evaluated in determining the unallocated portion of the 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) seasoning of the loan and lease portfolio, (5) specific industry conditions affecting portfolio segments, (6) recent loss experience in particular segments of the portfolio, (7) concentrations of credit to single borrowers or related borrowers or to specific industries, or in specific collateral types in the loan and lease portfolio, (8) the Company’s ongoing expansion into new markets, (9) the offering of new loan and lease products, (10) expectations regarding the current business cycle, (11) bank regulatory examination results and (12) findings of the internal loan review department.

At December 31, 2005 management believed it was appropriate to maintain an unallocated portion of the allowance that is not derived by the allowance allocation percentages that ranges from 15% to 25% of the total allowance for loan and lease losses. In making this assessment, management considered a number of subjective criteria including (1) the degree of seasoning of many loans and leases in the portfolio, (2) the granularity or concentrations of credits to single borrowers, industries, and collateral types in the portfolio, (3) the ongoing expansion into new markets, and (4) the offering of relatively new loan and lease products.

In addition to the internal grading system and specific impairment analysis, the Company compares the allowance for loan and lease losses (as a percentage of total loans and leases) maintained by the Bank to the peer group average percentage as shown on the most recently available Federal Deposit Insurance Corporation’s (“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 its historical cumulative net charge-offs for the five preceding calendar years.

23

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, current economic conditions in the Company’s market area and other factors.

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, multifamily residential, and agricultural real estate loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan repayment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age, condition and marketability of the collateral and the specific risks and volatility of income, property value and 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 the applicable industry 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. While the allowance is determined by (i) 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, (ii) the past due status of residential 1-4 family loans and consumer loans and (iii) allowances made for specific loans and leases, the total allowance amount is available to absorb losses across the Company’s entire loan and lease 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 the 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 internal grading system and specific impairment analysis. The amounts shown are not necessarily indicative of the actual future losses that may occur within particular categories.

Allocation of the Allowance for Loan and Lease Losses

	December 31,
	2005				2004				2003				2002				2001
	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	$	3,423	19.8	%	$	3,427	21.9	%	$	1,393	24.1	%	$	1,248	25.6	%	$	929	27.2	%
Non-farm/non-residential		3,368	27.4			3,107	29.1			3,790	31.4			2,625	29.6			2,177	29.3
Construction/land development		2,720	25.8			1,864	21.4			1,301	12.9			736	9.1			614	8.3
Agricultural		562	5.5			510	5.8			756	6.8			728	8.0			591	7.3
Multifamily residential		335	3.2			243	2.8			261	2.6			290	4.0			227	3.4
Commercial and industrial		1,111	8.0			1,004	8.9			1,600	12.3			1,228	13.4			896	12.7
Consumer		2,062	5.8			1,752	6.5			1,083	7.1			975	7.5			986	9.1
Agricultural (non-real estate)		200	1.5			164	1.6			195	1.7			204	2.2			166	2.1
Direct financing leases		286	2.8			170	1.7			72	0.4			—	—			—	—
Other		41	0.2			25	0.3			952	0.7			599	0.6			479	0.6
Unallocated allowance		2,899				3,867				2,417				2,303				1,647
	$	17,007			$	16,133			$	13,820			$	10,936			$	8,712

24

The Company maintains an internally classified loan and lease list that, along with the list of nonaccrual loans and leases and the list of impaired 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 charged off. At December 31, 2005 substandard loans and leases not designated as nonaccrual or 90 days past due totaled $4.4 million compared to $2.6 million at December 31, 2004. No loans or leases were designated as doubtful or loss at December 31, 2005 or December 31, 2004.

Administration of the 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 senior 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 $3.0 million up to the legal lending limit of the Bank are authorized by the loan committee which during 2005 consisted of two of the Bank’s senior lenders and any five or more 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 the Bank’s 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 identified deficiencies. These reports are provided to the Company’s audit committee, which consists of three or more members of the Board of Directors all of whom have been determined by the Board of Directors to qualify as “independent” under the Sarbanes-Oxley Act of 2002, related SEC rules and regulations and NASDAQ listing standards relating to audit committees.

Investment Securities

The Company’s investment securities portfolio provides a significant source of revenue for the Company. At December 31, 2005, 2004 and 2003, the Company classified all of its investment securities portfolio as AFS. Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity and included in other comprehensive income (loss).

The following table presents the amortized cost and the fair value of investment securities for the dates indicated.

Investment Securities

	December 31,
	2005				2004				2003
	Amortized Cost		Fair Value(1)		Amortized Cost		Fair Value(1)		Amortized Cost		Fair Value(1)
	(Dollars in thousands)
Mortgage-backed securities	$	266,722	$	258,540	$	303,816	$	299,724	$	259,862	$	258,560
Obligations of states and political subdivisions		227,286		231,681		120,599		121,691		89,707		90,344
Securities of U.S. Government agencies		66,027		65,503		—		—		—		—
Other securities		18,320		18,396		13,027		13,097		14,915		15,416
Total	$	578,355	$	574,120	$	437,442	$	434,512	$	364,484	$	364,320

⁽¹⁾ 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.

25

The following table reflects the maturity distribution of the Company’s investment securities, at fair value, as of December 31, 2005 and weighted-average yields (for tax-exempt obligations on a FTE basis) of such securities. The maturity for all investment 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, (2) mortgage-backed securities which are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds based on interest rate levels at December 31, 2005 and (3) callable investment securities for which the Company has received notification of call are included in the maturity category in which the call occurs or is expected to occur. 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 Through 5 Years			Over 5 Through 10 Years			Over 10 Years			Total
	(Dollars in thousands)
Mortgage-backed securities	$	55,201		$	105,525		$	97,814		$	—		$	258,540
Obligations of states and political subdivisions		440			8,276			19,223			203,742			231,681
Securities of U.S. Government agencies		—			37,426			28,077			—			65,503
Other securities(1)		—			—			—			18,396			18,396
Total	$	55,641		$	151,227		$	145,114		$	222,138		$	574,120
Percentage of total		9.69	%		26.34	%		25.28	%		38.69	%		100.00	%
Weighted-average yield - FTE(2)		5.24			5.18			5.45			6.95			5.94

⁽¹⁾ Includes approximately $15.8 million of FHLB stock which has historically paid quarterly dividends at a variable rate approximating the federal funds rate.

⁽²⁾ The weighted-average yields - FTE are based on amortized cost.

Deposits

The Company’s bank subsidiary lending and investing activities are funded primarily by deposits, approximately 59.0% of which were time deposits and 41.0% of which were demand and savings deposits at December 31, 2005. Total deposits at December 31, 2004 included approximately 57.0% time deposits and approximately 43.0% demand and savings deposits. Interest bearing deposits other than time deposits consist of transaction, savings and money market accounts. These deposits comprised 32.0% of total deposits at December 31, 2005 and 32.6% at December 31, 2004. Non-interest bearing demand deposits constituted 9.0% of total deposits at December 31, 2005 compared to 10.4% at December 31, 2004. The Company had $163.1 million of brokered deposits at December 31, 2005 compared to $96.0 million at December 31, 2004.

At December 31, 2005 the Company’s total deposits were $1.59 billion, an increase of 15.3% from $1.38 billion at December 31, 2004.

The following table reflects the average balances and average rates paid for each deposit category shown for the years ended December 31, 2005, 2004 and 2003.

Average Deposit Balances and Rates

	Year Ended December 31,
	2005				2004				2003
	Average Amount		Average Rate Paid		Average Amount		Average Rate Paid		Average Amount		Average Rate Paid
	(Dollars in thousands)
Non-interest bearing accounts	$	138,072	—		$	118,798	—		$	95,523	—
Interest bearing accounts:
Transaction (NOW)		375,361	1.48	%		344,908	1.06	%		277,327	1.10	%
Savings		27,265	0.20			28,248	0.24			26,594	0.33
Money market		63,983	2.23			47,169	1.11			39,855	0.95
Time deposits less than $100,000		299,104	2.68			245,935	1.95			190,593	2.17
Time deposits $100,000 or more		542,378	3.00			411,865	1.88			294,028	1.83
Total deposits	$	1,446,163			$	1,196,923			$	923,920

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The following table sets forth, by time remaining to maturity, time deposits in amounts of $100,000 and over at December 31, 2005.

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

	December 31, 2005
	(Dollars in thousands)
Maturity
3 months or less	$	276,387
Over 3 to 6 months		186,717
Over 6 to 12 months		152,137
Over 12 months		7,550
	$	622,791

Interest Rate Risk

Interest rate risk results from timing differences in the repricing of assets and liabilities or from changes in relationships between interest rate indexes. The Company’s interest rate risk management is the responsibility of the ALCO and Investments Committee (“ALCO”) which reports to the Board of Directors. The ALCO oversees the asset/liability (interest rate risk) position, liquidity and funds management, and investment portfolio functions of the Company.

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 ALCO reviews on at least a quarterly basis the Company’s relative ratio of rate sensitive assets (“RSA”) to rate sensitive liabilities (“RSL”) and the related cumulative gap for different time periods. However, the primary tool used by ALCO to analyze the Company’s interest rate risk and interest rate sensitivity is an earnings simulation model.

This earnings simulation modeling process projects a baseline net interest income (assuming no changes in interest rate levels) and estimates changes to that baseline net interest income resulting from changes in interest rate levels. 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 RSA and RSL will 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 expected changes in net interest income resulting from interest rate changes. The Company models its change in net interest income assuming interest rates go up 100 bps, up 200 bps, down 100 bps and down 200 bps. For purposes of this model, the Company has assumed that the change in interest rates phases in over a 12-month period. 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, expected changes in administered rates on interest bearing deposit accounts, competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be no assurance the earnings simulation model will reflect future results.

The following table presents the earnings simulation model’s projected impact of a change in interest rates on the projected baseline net interest income for the 12-month period commencing December 1, 2005. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.

Earnings Simulation Model Results

Change in Interest Rates (in bps)	% Change in Projected Baseline Net Interest Income
+200	(1.9)%
+100	(0.9)
-100	0.8
-200	0.5

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In the event of a shift in interest rates, the Company 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 leases and deposits.

The Company’s simple static gap analysis is shown in the following table. At December 31, 2005 the cumulative ratios of RSA to RSL at six months and one year, respectively, were 67.69% and 67.15%. 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. As already noted, the Company believes the earnings simulation model results presented above are a more meaningful estimate of its interest rate risk and sensitivity.

Rate Sensitive Assets and Liabilities

	December 31, 2005
	RSA(1)		RSL		Period Gap			Cumulative Gap			Cumulative Gap to Total RSA		Cumulative RSA to RSL
	(Dollars in thousands)
Immediate to 6 months	$	757,036	$	1,118,377	$	(361,341	)	$	(361,341	)	(18.58	)%	67.69	%
Over 6—12 months		182,331		280,533		(98,202	)		(459,543	)	(23.63	)	67.15
Over 1—2 years		207,336		21,976		185,360			(274,183	)	(14.10	)	80.70
Over 2—3 years		229,966		2,540		227,426			(46,757	)	(2.40	)	96.72
Over 3—5 years		178,675		61,018		117,657			70,900		3.65		104.78
Over 5 years		389,706		348,610		41,096			111,996		5.76		106.11
Total	$	1,945,050	$	1,833,054	$	111,996

⁽¹⁾ Certain variable rate loans have a contractual floor and/or ceiling rate. Approximately $13.6 million of loans were at their contractual floor rate and approximately $64.4 million of loans were at their contractual ceiling rate as of December 31, 2005. These loans are shown in the earliest time period in which they could reprice even though the contractual floor/ceiling may preclude repricing to a lower/higher rate. Of these loans at their contractual floor rate, $8.5 million are reflected as repricing immediately to six months, $1.0 million in over six to 12 months and the remaining $4.1 million are reflected in various time periods exceeding 12 months. All loans at their contractual ceiling rate are reflected as repricing in the immediate to six months time period.

The data used in the previous table 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, the Company 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, 2005 the Company estimates the co-efficient for change in interest rates is approximately 50% for its interest bearing money market account balances, approximately 30% for its MaxYield^® account balances, approximately 25% for its other interest bearing transaction account balances and approximately 5% for its savings account balances. Accordingly the Company 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. Fixed-rate callable investments and 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 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 utilizing Bloomberg consensus prepayment speeds based on interest rate levels at December 31, 2005. Other fixed-rate financial instruments are scheduled on their contractual maturity.

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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. 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 investment securities, but including, subject to limitations, trust preferred securities and other qualifying items) to risk-weighted assets and (2) total capital (Tier 1 capital plus Tier 2 capital which includes 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.

The Company’s consolidated risk-based and leverage capital ratios exceeded these minimum requirements at December 31, 2005 and 2004 and are presented in the following table, followed by the capital ratios of the Bank at December 31, 2005 and 2004.

Consolidated Capital Ratios

	December 31,
	2005			2004
	(Dollars in thousands)
Tier 1 capital:
Stockholders’ equity	$	149,403		$	121,406
Allowed amount of trust preferred securities		43,000			41,062
Net unrealized losses on available-for-sale investment securities		2,574			1,781
Less goodwill and certain intangible assets		(6,402	)		(6,664	)
Total Tier 1 capital		188,575			157,585
Tier 2 capital:
Remaining amount of trust preferred securities		—			1,938
Qualifying allowance for loan and lease losses		17,007			15,968
Total risk-based capital	$	205,582		$	175,491
Risk-weighted assets	$	1,579,371		$	1,277,311
Adjusted quarterly average assets - fourth quarter	$	2,069,430		$	1,673,777
Ratios at end of period:
Leverage capital		9.11	%		9.41	%
Tier 1 risk-based capital		11.94			12.34
Total risk-based capital		13.02			13.74
Minimum ratio guidelines:
Leverage capital(1)		3.00	%		3.00	%
Tier 1 risk-based capital		4.00			4.00
Total risk-based capital		8.00			8.00

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

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Bank Capital Ratios

	December 31,
	2005			2004
	(Dollars in thousands)
Stockholders’ equity - Tier 1	$	159,972		$	131,856
Leverage capital		7.75	%		7.90	%
Tier 1 risk-based capital		10.17			10.36
Total risk-based capital		11.25			11.61

Liquidity and Capital Resources

Growth and Expansion. During 2005 the Company added six Arkansas banking offices, including new offices in North Little Rock, Mountain Home, Bentonville, Fayetteville, Benton and Russellville. During 2004 the Company added ten new banking offices. These included seven new Arkansas offices and its first three Texas banking offices. At December 31, 2005 the Company had 54 Arkansas banking offices, three Texas banking offices and loan production offices in Charlotte, North Carolina and in Little Rock and Bentonville, Arkansas.

The Company expects to continue its growth and de novo branching strategy. During 2006 it expects to open approximately twelve new banking offices, depending, among other factors, on the time required to obtain permits and approvals and to design, construct, equip and staff such offices. Opening new offices is subject to availability of suitable sites, hiring qualified personnel, obtaining regulatory and other approvals and many other conditions and contingencies that the Company cannot predict with certainty.

During 2005 the Company spent $27.0 million on capital expenditures for premises and equipment. The Company’s capital expenditures for 2006 are expected to be in the range of $26 to $34 million including progress payments on construction projects expected to be completed in 2006 through 2008, furniture and equipment costs and acquisition of sites for future development. 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.

Prepayment of Subordinated Debentures. On June 18, 2004 the Company prepaid its $17.3 million of 9.0% subordinated debentures and the related 9.0% trust preferred securities. In connection with this prepayment, the Company incurred a pretax charge of $852,000 for the write-off of unamortized debt issuance costs.

Issuance of Subordinated Debentures. On September 28, 2004 the Company issued $15 million of adjustable rate subordinated debentures and related trust preferred securities. These securities bear interest at the 90-day LIBOR plus 2.22%, adjustable quarterly. The interest rate on these securities at December 31, 2005 was 6.60%. 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. The securities provide the Company additional regulatory capital to support its expected future growth and expansion.

Bank Liquidity. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk arises from the possibility the Company may be unable to satisfy those current or future financial commitments. The ALCO has primary oversight for the Company’s liquidity and funds management.

The objective of managing liquidity risk is to ensure the cash flow requirements resulting from depositor and borrower demands, as well as operating cash needs of the Company are met, and the cost of funding such requirements and needs is reasonable. The Company maintains a liquidity risk management policy and a contingency funding plan that include policies and procedures for managing liquidity risk. Generally the Company relies on customer deposits, loan and lease repayments and repayments of its investment securities as its primary sources of funds. The Company has used these funds, together with FHLB advances, other borrowings and brokered deposits to make loans and leases, acquire investment securities and other assets and to fund continuing operations.

Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic and market conditions. Loan and lease repayments are a relatively stable source of funds but are subject to the borrowers’ and lessees’ ability to repay the loans and leases, which can be adversely affected by a number of factors

30

including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, 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, 2005 the Company had substantial unused borrowing availability. This availability was primarily comprised of the following four options: (1) $166.7 million of available blanket borrowing capacity with the FHLB, (2) $53.3 million of investment securities available to pledge for federal funds or other borrowings, (3) $36.0 million of available unsecured federal funds borrowing lines and (4) up to $124.4 million from borrowing programs of the FRB.

The Company anticipates it will continue to rely primarily on customer deposits, loan and lease repayments and repayments of its investment securities to provide liquidity. Additionally, where necessary, brokered deposits and the sources of funds described above will be used to augment the Company’s primary funding sources. As of December 31, 2005 the Company had outstanding brokered deposits of $163.1 million.

Dividend Policy. In 2005 the Company paid dividends of $0.37 per share. In 2004 and 2003 the Company paid dividends of $0.30 and $0.23 per split adjusted share, respectively. In 2005 the per share dividend was $0.08 in the first quarter, $0.09 in the second quarter and $0.10 in both the third and fourth quarters. In the first quarter of 2006, the Company paid a dividend of $0.10 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.

Contractual Obligations. The following table presents, as of December 31, 2005, significant fixed and determinable contractual obligations to third parties by contractual date with no consideration given to earlier call or prepayment features. Other obligations consist primarily of contractual obligations for the purchase of investment securities, capital expenditures and other contractual obligations.

Contractual Obligations

	1 Year or Less		Over 1 Through 3 Years		Over 3 Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Time deposits(1)	$	926,203	$	25,158	$	1,128	$	120	$	952,609
Deposits without a stated maturity(2)		653,317		—		—		—		653,317
Repurchase agreements with customers(1)		35,671		—		—		—		35,671
Federal funds purchased(1)		11,303		—		—		—		11,303
Other borrowings(1)		236,497		8,150		65,649		1,062		311,358
Subordinated debentures(1)		3,161		6,331		6,322		117,304		133,118
Operating leases		492		737		598		2,722		4,549
Other obligations		19,444		1,020		15		—		20,479
Total contractual obligations	$	1,886,088	$	41,396	$	73,712	$	121,208	$	2,122,404

⁽¹⁾ Includes unpaid interest through the contractual maturity on both fixed and variable rate obligations. The interest associated with variable rate obligations is based upon interest rates in effect at December 31, 2005. 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.

⁽²⁾ Includes interest accrued and unpaid through December 31, 2005.

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Off-Balance Sheet Commitments. The following table details the amounts and expected maturities of significant off-balance sheet commitments as of December 31, 2005. 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 Through 3 Years		Over 3 Through 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Commitments to extend credit	$	144,252	$	29,370	$	12,985	$	5,502	$	192,109
Standby letters of credit		6,023		186		87		—		6,296
Total commitments	$	150,275	$	29,556	$	13,072	$	5,502	$	198,405

Critical Accounting Policy

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

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, new office openings, capital expenditures 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, hiring qualified personnel and opening new offices; (2) the ability to attract new deposits and loans; (3) interest rate fluctuations; (4) changes in the yield curve differential between short-term and long-term interest rates; (5) competitive factors and pricing pressures, including their effect on the Company’s net interest margin; (6) general economic conditions, including their effect on the credit worthiness of borrowers and lessees and collateral values; and (7) 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

Unaudited

	2005 - Three Months Ended
	Mar. 31		June 30		Sept. 30		Dec. 31
	(Dollars in thousands, except per share amounts)
Total interest income	$	24,763	$	26,849	$	29,223	$	32,046
Total interest expense		8,304		10,038		11,763		14,201
Net interest income		16,459		16,811		17,460		17,845
Provision for loan and lease losses		500		500		800		500
Non-interest income		4,371		4,913		5,164		4,804
Non-interest expense		9,495		10,008		10,270		10,306
Income taxes		3,513		3,503		3,483		3,460
Net income	$	7,322	$	7,713	$	8,071	$	8,383
Per share:
Earnings - diluted	$	0.44	$	0.46	$	0.48	$	0.50
Cash dividends		0.08		0.09		0.10		0.10
Bid price per common share:
Low	$	31.08	$	30.58	$	32.37	$	32.21
High		34.82		32.56		35.18		38.32
	2004 - Three Months Ended
	Mar. 31		June 30		Sept. 30		Dec. 31
	(Dollars in thousands, except per share amounts)
Total interest income	$	19,231	$	20,364	$	22,213	$	23,423
Total interest expense		5,312		5,643		6,305		7,348
Net interest income		13,919		14,721		15,908		16,075
Provision for loan and lease losses		745		1,045		1,040		500
Non-interest income		3,993		5,204		4,631		4,397
Non-interest expense		8,384		9,610		9,766		9,845
Income taxes		2,818		3,010		3,086		3,116
Net income	$	5,965	$	6,260	$	6,647	$	7,011
Per share:
Earnings - diluted	$	0.36	$	0.38	$	0.40	$	0.42
Cash dividends		0.07		0.07		0.08		0.08
Bid price per common share:
Low	$	22.15	$	21.70	$	22.05	$	29.20
High		27.78		27.13		29.65		36.70

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

33

Report of Management on the Company’s

Internal Control Over Financial Reporting

February 27, 2006

Management of Bank of the Ozarks, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management of Bank of the Ozarks, Inc., including the Chief Executive Officer and the Chief Financial Officer and Chief Accounting Officer, has assessed the Company’s internal control over financial reporting as of December 31, 2005, based on criteria for effective internal control over financial reporting described in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2005, based on the specified criteria.

Management’s assessment of the effectiveness of internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/s/ George Gleason	/s/ Paul Moore
George Gleason	Paul Moore
Chairman and Chief Executive Officer	Chief Financial Officer and Chief Accounting Officer

34

Report of Independent Registered Public Accounting Firm

To Board of Directors and Shareholders

Bank of the Ozarks, Inc.

We have audited management’s assessment, included in the accompanying Report of Management on the Company’s Internal Control Over Financial Reporting, that Bank of the Ozarks, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Bank of the Ozarks, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Bank of the Ozarks, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Bank of the Ozarks, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Bank of the Ozarks, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005, and our report dated March 9, 2006, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

ERNST & YOUNG LLP

Dallas, Texas

March 9, 2006

35

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Bank of the Ozarks, Inc.

We have audited the accompanying consolidated balance sheets of Bank of the Ozarks, Inc. (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2005. 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 of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bank of the Ozarks, Inc. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Bank of the Ozarks, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

ERNST & YOUNG LLP

Dallas, Texas

March 9, 2006

36

Bank of the Ozarks, Inc.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2005			2004
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	40,379		$	41,107
Interest earning deposits		207			441
Cash and cash equivalents		40,586			41,548
Investment securities - available for sale (“AFS”)		574,120			434,512
Loans and leases		1,370,723			1,134,591
Allowance for loan and lease losses		(17,007	)		(16,133	)
Net loans and leases		1,353,716			1,118,458
Premises and equipment, net		88,786			65,181
Foreclosed assets held for sale, net		356			157
Accrued interest receivable		13,802			8,561
Bank owned life insurance		42,397			40,581
Intangible assets, net		6,402			6,664
Other, net		14,717			11,178
Total assets	$	2,134,882		$	1,726,840
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing	$	143,456		$	142,947
Savings and interest bearing transaction		509,660			449,986
Time		938,527			786,997
Total deposits		1,591,643			1,379,930
Repurchase agreements with customers		35,671			33,223
Other borrowings		304,865			144,065
Subordinated debentures		44,331			44,331
Accrued interest payable and other liabilities		8,969			3,885
Total liabilities		1,985,479			1,605,434
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; 16,664,640 and 16,494,390 shares issued and outstanding at December 31, 2005 and 2004, respectively		167			165
Additional paid-in capital		34,210			30,760
Retained earnings		117,600			92,262
Accumulated other comprehensive (loss) income		(2,574	)		(1,781	)
Total stockholders’ equity		149,403			121,406
Total liabilities and stockholders’ equity	$	2,134,882		$	1,726,840

See accompanying notes to the consolidated financial statements

37

Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2005		2004		2003
	(Dollars in thousands, except per share amounts)
Interest income:
Loans and leases	$	87,768	$	65,158	$	54,884
Investment securities:
Taxable		16,998		15,566		11,958
Tax-exempt		8,104		4,488		2,017
Deposits with banks and federal funds sold		11		19		24
Total interest income		112,881		85,231		68,883
Interest expense:
Deposits		31,314		16,796		13,051
Repurchase agreements with customers		450		446		317
Other borrowings		9,848		5,134		4,803
Subordinated debentures		2,693		2,232		1,944
Total interest expense		44,305		24,608		20,115
Net interest income		68,576		60,623		48,768
Provision for loan and lease losses		2,300		3,330		3,865
Net interest income after provision for loan and lease losses		66,276		57,293		44,903
Non-interest income:
Service charges on deposit accounts		9,875		9,479		7,761
Mortgage lending income		3,034		3,292		5,548
Trust income		1,673		1,476		1,564
Bank owned life insurance income		1,816		1,213		1,132
Gains on sales of investment securities		213		774		144
Other		2,641		1,991		1,242
Total non-interest income		19,252		18,225		17,391
Non-interest expense:
Salaries and employee benefits		23,477		20,666		18,411
Net occupancy and equipment		6,254		5,189		4,421
Other operating expenses		10,349		11,750		9,160
Total non-interest expense		40,080		37,605		31,992
Income before taxes		45,448		37,913		30,302
Provision for income taxes		13,959		12,030		10,101
Net income	$	31,489	$	25,883	$	20,201
Basic earnings per share	$	1.89	$	1.58	$	1.27
Diluted earnings per share	$	1.88	$	1.56	$	1.24

See accompanying notes to the consolidated financial statements

38

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)
Balances - January 1, 2003	$	78	$	17,010		$	54,755		$	1,075		$	72,918
Comprehensive income:
Net income		—		—			20,201			—			20,201
Other comprehensive income (loss):
Unrealized gains and losses on AFS investment securities, net of $849 tax effect		—		—			—			(1,289	)		(1,289	)
Reclassification adjustment for gains and losses included in income, net of $73 tax effect		—		—			—			114			114
Total comprehensive income													19,026
Issuance of 369,520 split adjusted shares of common stock pursuant to acquisition of RVB Bancshares, Inc.		2		6,705			—			—			6,707
Cash 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 on exercise of stock options		—		1,777			—			—			1,777
2-for-1 stock split in the form of a 100% stock dividend		81		(81	)		—			—			—
Compensation expense under stock-based compensation plans		—		141			—			—			141
Balances - December 31, 2003		162		27,131			71,293			(100	)		98,486
Comprehensive income:
Net income		—		—			25,883			—			25,883
Other comprehensive income (loss):
Unrealized gains and losses on AFS investment securities, net of $913 tax effect		—		—			—			(1,415	)		(1,415	)
Reclassification adjustment for gains and losses included in income, net of $172 tax effect		—		—			—			(266	)		(266	)
Total comprehensive income													24,202
Cash dividends paid, $0.30 per share		—		—			(4,914	)		—			(4,914	)
Issuance of 261,850 shares of common stock for exercise of stock options		3		974			—			—			977
Tax benefit on exercise of stock options		—		2,397			—			—			2,397
Compensation expense under stock-based compensation plans		—		258			—			—			258
Balances - December 31, 2004		165		30,760			92,262			(1,781	)		121,406
Comprehensive income:
Net income		—		—			31,489			—			31,489
Other comprehensive income (loss):
Unrealized gains and losses on AFS investment securities, net of $412 tax effect		—		—			—			(639	)		(639	)
Reclassification adjustment for gains and losses included in income, net of $100 tax effect		—		—			—			(154	)		(154	)
Total comprehensive income													30,696
Cash dividends paid, $0.37 per share		—		—			(6,151	)		—			(6,151	)
Issuance of 170,250 shares of common stock for exercise of stock options		2		972			—			—			974
Tax benefit on exercise of stock options		—		1,864			—			—			1,864
Compensation expense under stock-based compensation plans		—		614			—			—			614
Balances - December 31, 2005	$	167	$	34,210		$	117,600		$	(2,574	)	$	149,403

See accompanying notes to the consolidated financial statements

39

Bank of the Ozarks, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	31,489		$	25,883		$	20,201
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,770			2,467			1,884
Amortization		262			274			240
Provision for loan and lease losses		2,300			3,330			3,865
Provision for losses on foreclosed assets		32			56			92
Net (accretion) amortization on investment securities		(980	)		8			758
Gains on sales of investment securities		(213	)		(774	)		(144	)
Originations of mortgage loans held for sale		(175,558	)		(177,966	)		(305,485	)
Proceeds from sales of mortgage loans held for sale		176,439			181,283			311,598
Gains on dispositions of other assets		(586	)		(241	)		(18	)
Losses (gains) on disposition of premises and equipment		19			(68	)		—
Deferred income taxes		21			597			344
Increase in cash surrender value of bank owned life insurance		(1,816	)		(1,213	)		(1,132	)
Compensation expense under stock-based compensation plans		614			258			141
Write-off of deferred debt issuance costs		—			852			—
Changes in assets and liabilities:
Accrued interest receivable		(5,241	)		(1,532	)		(693	)
Other assets, net		(551	)		1,528			(1,789	)
Accrued interest payable and other liabilities		4,917			2,497			337
Net cash provided by operating activities		33,918			37,239			30,199
Cash flows from investing activities:
Proceeds from sales and maturities of investment securities AFS		133,734			171,248			342,992
Purchases of investment securities AFS		(273,449	)		(243,411	)		(476,654	)
Proceeds from sales and maturities of investment securities held to maturity (“HTM”)		—			—			2,985
Purchases of investment securities HTM		—			—			(2,171	)
Net increase in loans and leases		(242,721	)		(231,896	)		(159,807	)
Purchases of premises and equipment		(26,966	)		(17,420	)		(11,381	)
Proceeds from disposition of premises and equipment		918			360			—
Assets acquired for lease under operating leases		(141	)		(1,120	)		(869	)
Proceeds from dispositions of other assets		4,635			2,926			1,603
Net purchases of equity method investments		(674	)		(430	)		(5,449	)
Cash paid for bank charter intangible		—			(239	)		—
Cash and federal funds sold received in acquisition, net of cash paid		—			—			8,969
Purchases of bank owned life insurance		—			(18,000	)		—
Net cash used in investing activities		(404,664	)		(337,982	)		(299,782	)
Cash flows from financing activities:
Net increase in deposits		211,713			317,866			221,745
Net proceeds from (repayments of) other borrowings		160,800			(1,476	)		15,547
Net increase in repurchase agreements with customers		2,448			3,325			9,158
Proceeds from issuance of subordinated debentures		—			15,464			28,867
Repayment of subordinated debentures		—			(17,784	)		—
Proceeds from exercise of stock options		974			977			1,580
Cash dividends paid		(6,151	)		(4,914	)		(3,663	)
Net cash provided by financing activities		369,784			313,458			273,234
Net (decrease) increase in cash and cash equivalents		(962	)		12,715			3,651
Cash and cash equivalents - beginning of year		41,548			28,833			25,182
Cash and cash equivalents - end of year	$	40,586		$	41,548		$	28,833

See accompanying notes to the consolidated financial statements

40

Bank of the Ozarks, Inc.

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

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 (the “Bank”), and three business trusts - Ozark Capital Statutory Trust II (“Ozark II”), Ozark Capital Statutory Trust III (“Ozark III”) and Ozark Capital Statutory Trust IV (“Ozark IV”) (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, Frisco, Dallas and Texarkana, Texas and loan production offices in Bentonville and Little Rock, Arkansas and in Charlotte, North Carolina.

Basis of presentation and principles of consolidation - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. The consolidated financial statements include the accounts of the Company and the Bank. Significant intercompany transactions and amounts have been eliminated in consolidation.

Effective December 31, 2003, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised) (“FIN 46R”), “Consolidation of Variable Interest Entities,” resulting in the deconsolidation of the Trusts that have issued trust preferred securities. Accordingly, the Company reports its ownership interests in the Trusts as other assets and the subordinated debentures are reported as a liability in the Company’s consolidated balance sheets. The distributions on the trust preferred securities are reported as interest expense in the accompanying consolidated statements of income.

The Company invests in low-income housing and new market tax credit projects to promote economic development and to contribute to the enhancement of the communities it serves. Investments primarily consist of real estate projects and working capital. The Company accounts for these investments under either the cost or equity method of accounting, depending on the Company’s ownership percentage and ability, or inability, to impact operating decisions of the investments. The carrying value of these investments was $6.8 million and $4.4 million, respectively, at December 31, 2005 and 2004. As a limited partner or member in these investments, the Company is allocated tax credits and deductions associated with the underlying projects. During 2005, 2004 and 2003 the Company’s aggregate federal and state income tax liability was reduced by $235,000, $712,000 and $556,000, respectively, as a result of the allocation of such credits and deductions. The Company evaluates the carrying value of these investments for potential impairments, which is generally based on total credits and deductions allocated to date and total estimated credits and deductions remaining to be allocated. As a result of such evaluation, the Company recorded impairment charges of $191,000, $424,000 and $320,000, respectively, during 2005, 2004 and 2003.

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

Investment securities not classified as HTM or trading and marketable equity securities not classified as trading are classified as available for sale (“AFS”). AFS investment 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 included in other comprehensive income (loss). Fair values 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. At December 31, 2005 and 2004, the Company has classified all of its investment securities portfolio as AFS.

Interest and dividends on investment securities, including the amortization of premiums and accretion of discounts through maturity, or in the case of mortgage-backed securities, over the estimated life of the security are included in interest income. Gains or losses on the sale of investment securities are recognized on the specific identification method at the time of sale and are included in non-interest income.

41

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

Leases are classified as either direct financing leases or operating leases, based on the terms of the agreement. Direct financing leases are reported as the sum of (i) total future lease payments to be received, net of unearned income, and (ii) estimated residual value of the leased property. Operating leases are recorded at the cost of the leased property, net of accumulated depreciation. Income on direct financing leases is included in interest income and is recognized on a basis that achieves a constant periodic rate of return on the outstanding investment. Income on operating leases is recognized as non-interest income on a straight-line basis over the lease term.

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. Related fees are recorded when incurred or received.

Mortgage loans held for sale are included in the Company’s loans and leases and totaled $3.5 million and $4.4 million, respectively, at December 31, 2005 and 2004. Mortgage loans held for sale are carried at the lower of cost or fair value. Gains and losses from the sales of mortgage loans are the difference between the selling price of the loan and its carrying value, net of discounts and points, and are recognized when the loan is sold to investors and servicing rights are released.

As part of its standard mortgage lending practice, the Company issues a written put option, in the form of an interest rate lock commitment (“IRLC”), such that the interest rate on the mortgage loan is established prior to funding. In addition to the IRLC, the Company also enters into a forward sale commitment (“FSC”) for the sale of its mortgage loans originations in order to reduce its market risk on such originations in process. The IRLC on mortgage loans held for sale and the FSC have been determined to be derivatives as defined by Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. Accordingly, the fair values of derivative assets and liabilities for the Company’s IRLC and FSC are based primarily on the fluctuation of interest rates from the date in which the IRLC and FSC were entered and year-end. The fair value of derivative assets and liabilities, and the associated notional amount of loan commitments under the IRLC and FSC, at both December 31, 2005 and 2004 was not material.

Allowance for loan and lease losses (“ALLL”) - The ALLL is established through a provision for such losses charged against income. All or portions of loans or leases deemed to be uncollectible are charged against the ALLL when management believes the collectibility of some portion or all outstanding principal is unlikely. Subsequent recoveries, if any, of loans or leases previously charged off are credited to the ALLL.

The ALLL is maintained at a level management believes will be adequate to absorb losses on existing loans and leases that may become uncollectible. Provision to and the adequacy of the ALLL are determined in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” and SFAS No. 5, “Accounting for Contingencies,” and are based on evaluations of the loan and lease portfolio utilizing objective and subjective criteria. The objective criteria primarily include an internal grading system and specific allowances determined in accordance with SFAS No. 114. The Company also utilizes a peer group analysis and an historical analysis in an effort to validate the overall adequacy of its ALLL. The subjective criteria take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans and leases, national, regional and local economic and business conditions that may affect the borrowers’ or lessees’ ability to pay, the value of the property securing the loans and leases and other relevant factors. Changes in any of these criteria or the availability of new information could require adjustment of the ALLL in future periods. No portion of the Company’s ALLL is restricted to any individual loan or lease or group of loans or leases, and the entire ALLL is available to absorb losses from any and all loans and 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.

42

All loans and leases deemed to be impaired are evaluated individually. 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. Substantially all nonaccrual loans or leases and all loans or leases that have been restructured from their original contractual terms are considered impaired. The majority of the Company’s impaired loans and leases are dependent upon collateral for repayment. Accordingly, impairment is generally measured by comparing collateral value, net of holding and selling costs, to the current investment in the loan or lease. For all other impaired loans and leases, the Company compares estimated discounted cash flows to the current investment in the loan or lease. To the extent that the Company’s current investment in a particular loan or lease exceeds its estimated net collateral value or its estimated discounted cash flows, the loan or lease is specifically considered in the determination of the allowance for loan and lease losses, or is immediately charged off as a reduction of the allowance for loan and lease losses.

The accrual of interest on impaired loans and leases is discontinued when, in management’s opinion, the borrower or lessee 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 reported at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets. Depreciable lives for the major classes of assets are 20 to 45 years for buildings and improvements and 3 to 15 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the term of the lease. Accelerated depreciation methods are used for income tax purposes. Maintenance and repair charges are expensed as incurred.

Foreclosed assets held for sale - Real estate and personal properties acquired through or in lieu of loan foreclosure and repossessions are to be sold and are initially recorded at the lessor of current principal investment or fair value less estimated cost to sell at the date of foreclosure or repossession. Valuations of these assets are periodically reviewed by management with such assets adjusted to the then estimated fair value net of estimated selling costs, if lower, until disposition. Gains and losses from the sale of foreclosed assets, repossessions and other real estate are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expense.

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 statements 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. The Bank provides for income taxes on a separate return basis and remits to the Company amounts determined to be currently payable.

Bank owned life insurance (“BOLI”) - BOLI consists of life insurance purchased by the Company on a qualifying group of officers with the Company designated as owner and beneficiary of the policies. The yield on BOLI policies is used to offset a portion of future employee benefit costs. BOLI is carried at the policies’ cash surrender values with changes in cash surrender values reported in non-interest income.

Intangible assets - Intangible assets consist of goodwill, bank charter costs and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The Company had goodwill of $5.2 million at both December 31, 2005 and 2004. As required by SFAS No. 142, the Company performed its annual impairment test of goodwill as of October 1, 2005. This test indicated no impairment of the Company’s goodwill.

Bank charter costs represent costs paid to acquire a vacated Texas bank charter and are being amortized over 20 years. Bank charter costs totaled $239,000 at both December 31, 2005 and 2004, less accumulated amortization of $21,000 at December 31, 2005 and $9,000 at December 31, 2004.

Core deposit intangibles represent premiums paid for deposits acquired via acquisition and are being amortized over 8 to 10 years. Core deposit intangibles totaled $2.3 million at both December 31, 2005 and 2004, less accumulated amortization of $1.4 million at December 31, 2005 and $1.1 million at December 31, 2004. The aggregate amount of amortization expense for the Company’s core deposit intangibles is expected to be $250,000 per year in years 2006 – 2007; $201,000 in 2008; $98,000 per year in years 2009 – 2010 and $44,000 in 2011.

43

Earnings per share - Basic earnings per share is computed by dividing reported earnings available to common shareholders by the weighted-average number of shares outstanding. Diluted earnings per share is computed by dividing reported earnings available to common shareholders by the weighted-average number of shares outstanding after consideration of the dilutive effect of the Company’s outstanding stock options.

Effective 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 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 this stock split.

Stock-based compensation - The Company has an employee stock option plan and a non-employee director stock option plan, which are described more fully in Note 11. The Company applies the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations for all stock options granted prior to January 1, 2003 under these plans. 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 used the prospective transition method provided by SFAS No. 148. The Company recognized $614,000, $258,000 and $141,000 of pretax non-interest expense during the years ended December 31, 2005, 2004 and 2003, respectively, as a result of applying the provisions of SFAS No. 148 to its 2005, 2004 and 2003 stock option grants. 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 11.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS 123R eliminated the alternative to use APB Opinion No. 25’s intrinsic value method of accounting that was provided in SFAS No. 123, as originally issued. SFAS No. 123R requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Such cost is to be recognized over the vesting period of the award. The provisions of SFAS No. 123R are effective for the Company as of the beginning of the first annual reporting period that begins after June 15, 2005. Since the Company adopted the prospective transition method of fair value stock-based compensation accounting as provided for under the provisions of SFAS No. 148, management expects the adoption of SFAS No. 123R will not have a material impact on the Company’s financial position, results of operations or liquidity.

Segment disclosures - SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes 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 No. 131 has no impact on the Company’s financial statements or its 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 - On November 3, 2005, the FASB issued Staff Position (“FSP”) No. FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” This FSP addresses the determination as to when an investment is considered impaired, whether the impairment is other than temporary, and the measurement of an impairment loss. It also addresses accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary. The guidance in FSP No. FAS 115-1 applies to reporting periods beginning after December 15, 2005, and is not expected to have material impact on the Company’s financial position, results of operations or liquidity.

On October 6, 2005, the FASB issued FSP No. FAS 13-1, “Accounting for Rental Costs Issued during a Construction Period.” FSP No. FAS 13-1 addresses the accounting for rental costs associated with both land and building operating leases that are incurred during a construction period. Under the provisions of FSP No. FAS 13-1, rental costs associated with such operating leases shall be recognized as rental expense both during and after the construction period. FSP No. FAS 13-1 is applicable for the first reporting period beginning after December 15, 2005 and is not expected to have a material impact on the Company’s financial position, results of operations or liquidity.

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In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB Opinion No. 20 and SFAS No. 3 by changing the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retroactive application to prior periods’ financial statements of changes in accounting principles, unless it is impracticable to determine either the period-specific effect or the cumulative effect of the change. The provisions of SFAS No. 154 are effective for accounting changes made in fiscal years beginning after December 15, 2005, and are not expected to have a material impact on the Company’s financial position, results of operations or liquidity.

In July 2004, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (“SOP”) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.” SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities. It also prohibits “carrying over” or creation of valuation allowances in the initial accounting of acquired loans. The provisions of SOP 03-3 were effective for loans acquired in fiscal years beginning after December 15, 2004, and had no impact on the Company’s financial position, results of operations or liquidity.

In March 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 105 – “Application of Accounting Principles to Loan Commitments.” SAB No. 105 summarized the SEC staff views regarding the application of accounting principles generally accepted in the United States to loan commitments accounted for as derivative instruments. Under the provisions of SAB No. 105, IRLC for mortgage loans to be sold should be accounted for as derivative instruments and should be measured at fair value without consideration of any expected future cash flows associated with servicing of the underlying loan. SAB No. 105 was effective for loan commitments accounted for as derivatives entered into after March 31, 2004 and did not have a material impact on the Company’s financial position, results of operations or liquidity.

Reclassifications - Certain reclassifications of 2004 and 2003 amounts have been made to conform with the 2005 financial statements presentation. These reclassifications had no impact on prior years’ net income, as previously reported.

2. Investment Securities

The following is a summary of the amortized cost and estimated fair values of investment securities, all of which are classified as AFS:

	December 31, 2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Mortgage-backed securities	$	266,722	$	193	$	(8,375	)	$	258,540
Obligations of states and political subdivisions		227,286		4,919		(524	)		231,681
Securities of U.S. Government agencies		66,027		—		(524	)		65,503
Other securities		18,320		76		—			18,396
Total investment securities AFS	$	578,355	$	5,188	$	(9,423	)	$	574,120
	December 31, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Mortgage-backed securities	$	303,816	$	758	$	(4,850	)	$	299,724
Obligations of states and political subdivisions		120,599		1,493		(401	)		121,691
Other securities		13,027		83		(13	)		13,097
Total investment securities AFS	$	437,442	$	2,334	$	(5,264	)	$	434,512

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The following shows gross unrealized losses and estimated fair value of investment securities AFS, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position:

	December 31, 2005
	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
	(Dollars in thousands)
Mortgage-backed securities	$	97,633	$	3,124	$	116,638	$	5,251	$	214,271	$	8,375
Obligations of states and political subdivisions		27,260		382		3,290		142		30,550		524
Securities of U.S. Government agencies		65,504		524		—		—		65,504		524
Total temporarily impaired securities	$	190,397	$	4,030	$	119,928	$	5,393	$	310,325	$	9,423
	December 31, 2004
	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
	(Dollars in thousands)
Mortgage-backed securities	$	142,805	$	2,713	$	61,876	$	2,137	$	204,681	$	4,850
Obligations of states and political subdivisions		23,343		235		7,601		166		30,944		401
Other securities		—		—		113		13		113		13
Total temporarily impaired securities	$	166,148	$	2,948	$	69,590	$	2,316	$	235,738	$	5,264

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, 2005 and 2004, management determined the unrealized losses were the result of fluctuations in interest rates and did not reflect deteriorations of the credit quality of the investments. Accordingly, management believes 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 such time as fair value recovers above amortized cost.

A maturity distribution of investment securities AFS reported at amortized cost and estimated fair value as of December 31, 2005 is as follows:

	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Due in one year or less	$	57,390	$	55,641
Due after one year to five years		154,816		151,227
Due after five years to ten years		148,468		145,114
Due after ten years		217,681		222,138
Totals	$	578,355	$	574,120

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For purposes of this maturity distribution, all investment 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 and interest rate levels at December 31, 2005. 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 investment securities AFS are summarized as follows:

	Year Ended December 31,
	2005		2004		2003
	(Dollars in thousands)
Sales proceeds	$	9,013	$	16,400	$	2,200
Gross realized gains	$	213	$	774	$	48
Gross realized losses		—		—		—
Net gains on sales	$	213	$	774	$	48

During 2003 the Company determined that certain of its investment securities HTM no longer met the Company’s investment objectives. As a result the Company sold certain of the investment securities HTM transferred the remainder of its investment securities classified as HTM to AFS. Investment securities HTM 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 investment securities HTM with amortized cost of $8. million was transferred to AFS. The unrealized gain on these investment securities HTM was approximately $570,000 at the date of transfer.

Investment securities with carrying values of $514.5 million and $374.2 million at December 31, 2005 and 2004, respectively, were pledged to secure public funds and trust deposits and for other purposes required or permitted by law.

3. Loans and Leases

The Company maintains a diversified loan and lease portfolio. The following is a summary of the loan and lease portfolio by principal category:

	December 31,
	2005		2004
	(Dollars in thousands)
Real Estate:
Residential 1-4 family	$	271,989	$	248,435
Non-farm/non-residential		375,628		330,442
Construction/land development		353,552		242,590
Agricultural		74,644		66,061
Multifamily residential		44,417		31,608
Commercial and industrial		109,459		100,642
Consumer		78,916		73,420
Direct financing leases		38,060		19,320
Agricultural (non-real estate)		20,605		18,520
Other		3,453		3,553
Total loans and leases	$	1,370,723	$	1,134,591

The Company’s direct financing leases include estimated residual values of $1.8 million at December 31, 2005 and $1.3 million at December 31, 2004, and are presented net of unearned income totaling $6.6 million and $3.2 million at December 31, 2005 and 2004, respectively. The categories above are also presented net of unearned purchase premiums and discounts and deferred fees and costs that totaled $1.5 million and $0.8 million at December 31, 2005 and 2004, respectively. Loans and leases on which the accrual of interest has been discontinued aggregated $3.4 million and $6.5 million at December 31, 2005 and 2004, respectively. Interest income recorded during 2005, 2004 and 2003 for non-accrual loans and leases at December 31, 2005, 2004 and 2003 was $126,000, $301,000 and $199,000, respectively. Under the original terms, these loans and leases would have reported $233,000, $497,000 and $325,000 of interest income during 2005, 2004 and 2003, respectively.

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4. Allowance for Loan and Lease Losses (“ALLL”)

The following is a summary of activity within the ALLL:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Balance - beginning of year	$	16,133		$	13,820		$	10,936
Loans and leases charged-off		(1,784	)		(1,277	)		(1,875	)
Recoveries of loans and leases previously charged-off		358			260			234
Net charge-offs		(1,426	)		(1,017	)		(1,641	)
Provision charged to operating expense		2,300			3,330			3,865
Allowance added in bank acquisition		—			—			660
Balance - end of year	$	17,007		$	16,133		$	13,820

Impairment of loans and leases having carrying values of $3.4 million and $6.5 million (all of which were on a non-accrual basis) at December 31, 2005 and 2004, respectively, has been recognized in conformity with SFAS No. 114. The total ALLL related to these loans and leases was $487,000 and $798,000 at December 31, 2005 and 2004, respectively. The average carrying value of impaired loans and leases was $3.9 million, $3.4 million and $3.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.

Real estate and other collateral securing loans having a carrying value of $4.7 million and $2.1 million were transferred to foreclosed assets held for sale in 2005 and 2004, respectively. The Company is not committed to lend additional funds to debtors whose loans have been transferred to foreclosed assets.

5. Premises and Equipment

The following is a summary of premises and equipment:

	December 31,
	2005			2004
	(Dollars in thousands)
Land	$	41,933		$	25,742
Construction in process		2,662			1,669
Buildings and improvements		39,462			33,085
Leasehold improvements		4,838			4,232
Equipment		15,279			13,453
		104,174			78,181
Accumulated depreciation		(15,388	)		(13,000	)
Premises and equipment, net	$	88,786		$	65,181

The Company capitalized $446,000, $144,000 and $93,000 of interest on construction projects during the years ended December 31, 2005, 2004 and 2003, respectively. Included in occupancy expense is rent of $691,000, $454,000 and $420,000 incurred under noncancelable operating leases in 2005, 2004 and 2003, 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, 2005 are as follows: $492,000 in 2006, $403,000 in 2007, $334,000 in 2008, $322,000 in 2009, $276,000 in 2010 and $2,722,000 thereafter. Rental income recognized during 2005, 2004 and 2003 for leases of buildings and premises and for equipment leased under operating leases was $624,000, $500,000 and $116,000, respectively.

6. Deposits

The aggregate amount of time deposits with a minimum denomination of $100,000 was $622.8 million and $512.4 million at December 31, 2005 and 2004, respectively.

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

	December 31,
	2005		2004
	(Dollars in thousands)
Up to one year	$	913,352	$	700,662
One year to two years		21,765		82,383
Two years to three years		2,328		3,113
Three years to four years		395		504
Four years to five years		592		178
Thereafter		95		157
Total time deposits	$	938,527	$	786,997

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7. Borrowings

Short-term borrowings with original maturities less than one year include Federal Home Loan Bank of Dallas (“FHLB”) advances, Federal Reserve Bank (“FRB”) borrowings, treasury, tax and loan note accounts and federal funds purchased. The following is a summary of information relating to these short-term borrowings:

	December 31,
	2005			2004
	(Dollars in thousands)
Average annual balance	$	190,912		$	94,965
December 31 balance		243,442			82,992
Maximum month-end balance during year		263,367			113,862
Interest rate:
Weighted-average - year		3.38	%		1.40	%
Weighted-average December 31		4.10			2.19

At December 31, 2005 and 2004, the Company had FHLB advances with original maturities exceeding one year of $61.4 million and $61.1 million, respectively. These advances bear interest at rates ranging from 4.54% to 6.43% at December 31, 2005, with a weighted-average rate of 6.25%, and are collateralized by a blanket lien on a portion of the Company’s real estate loans. At December 31, 2005, the Bank had $166.7 million of unused FHLB borrowing availability.

At December 31, 2005, aggregate annual maturities and weighted-average rates of FHLB advances with an original maturity of over one year were as follows:

Maturity	Amount		Weighted-Average Rate
2006	$	210	6.20	%
2007		211	6.19
2008		212	6.18
2009		15	4.54
2010		60,016	6.27
Thereafter		759	4.54
	$	61,423	6.25	%

8. Subordinated Debentures

On June 18, 1999, Ozark Capital Trust (“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 the Company. The 9% securities and the 9% Debentures were prepaid in full on June 18, 2004. In connection with this prepayment, the Company recorded a charge of $852,000 to write-off the remaining unamortized debt issue costs incurred in connection with issuance of the 9% Securities and the 9% Debentures.

On September 25, 2003, Ozark III sold to investors in a private placement offering $14 million of adjustable rate trust preferred securities, and on September 29, 2003, Ozark II sold to investors in a private placement offering $14 million of adjustable rate trust preferred securities (collectively, “2003 Securities”). The 2003 Securities bear interest, adjustable quarterly, at 90-day LIBOR plus 2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II. The aggregate proceeds of $28 million from the 2003 Securities were used to purchase an equal principal amount of adjustable rate subordinated debentures of the Company that bear interest, adjustable quarterly, at 90-day LIBOR plus 2.95% for Ozark III and 90-day LIBOR plus 2.90% for Ozark II (collectively, “2003 Debentures”). The weighted-average interest rate on the 2003 Securities and the 2003 Debentures was 7.27% at December 31, 2005.

On September 28, 2004, Ozark IV sold to investors in a private placement offering $15 million of adjustable rate trust preferred securities (“2004 Securities”). The 2004 Securities bear interest, adjustable quarterly, at 90-day LIBOR plus 2.22%. The aggregate proceeds of $15 million from the 2004 Securities were used to purchase an equal principal amount of adjustable rate subordinated debentures of the Company that bear interest, adjustable quarterly, at 90-day LIBOR plus 2.22% (“2004 Debentures”). The interest rate on the 2004 Securities and the 2004 Debentures was 6.60% at December 31, 2005.

In addition to the issuance of these adjustable rate securities, Ozark II and Ozark III collectively sold $0.9 million of trust common equity to the Company, and Ozark IV sold $0.4 million of trust common equity to the Company. The proceeds from the sales of trust common equity were used to purchase $0.9 million of additional 2003 Debentures and $0.4 million of additional 2004 Debentures issued by the Company.

At both December 31, 2005 and 2004, the Company had an aggregate of $44.3 million of subordinated debentures outstanding and had an asset of $1.3 million representing its investment in the common equity issued by the Trusts. The Company has, through various contractual arrangements, fully and unconditionally guaranteed all obligations of the Trusts with respect to the 2003 Securities and the 2004 Securities. The sole

49

assets of the Trusts are the adjustable rate debentures. The 2003 Securities and the 2003 Debentures mature in September 2033, and the 2004 Securities and the 2004 Debentures mature in September 2034 (the thirtieth anniversary date of each issuance). However, these securities and debentures may be prepaid, subject to regulatory approval, prior to maturity at any time on or after the fifth anniversary date of issuance (September 25 and 29, 2008 for the two issues of 2003 Securities and 2003 Debentures and September 28, 2009 for the 2004 Securities and 2004 Debentures) or at an earlier date upon certain changes in tax laws, investment company laws or regulatory capital requirements.

9. Income Taxes

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

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Current:
Federal	$	11,574		$	9,922		$	8,773
State		2,364			1,511			984
Total current		13,938			11,433			9,757
Deferred:
Federal		24			754			257
State		(3	)		(157	)		87
Total deferred		21			597			344
Provision for income taxes	$	13,959		$	12,030		$	10,101

The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows:

	Year Ended December 31,
	2005		2004		2003
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit	3.4		2.3		2.3
Effect of non-taxable interest income	(5.8	)	(4.0	)	(2.3	)
Effect of other non-taxable interest income	(1.5	)	(1.1	)	(1.3	)
Other, net	(0.4	)	(0.5	)	(0.4	)
Effective income tax rate	30.7	%	31.7	%	33.3	%

Income tax benefits from the exercise of stock options in the amount of $1.9 million, $2.4 million and $1.8 million in 2005, 2004 and 2003, respectively, were recorded as an increase to additional paid-in capital.

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,
	2005		2004
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	6,618	$	6,262
Stock-based compensation under the fair value method		386		157
Unrealized depreciation of investment securities AFS		1,663		1,149
Gross deferred tax assets		8,667		7,568
Deferred tax liabilities:
Accelerated depreciation on premises and equipment		4,067		3,860
Direct financing leases		1,081		1,266
FHLB stock dividends		741		557
Other, net		454		40
Gross deferred tax liabilities		6,343		5,723
Net deferred tax assets	$	2,324	$	1,845

10. Employee Benefit Plans

The Company maintains a qualified retirement plan (the “401(k) Plan”) with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code (the “Code”). 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

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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.

Contributions to the 401(k) Plan are invested in accordance with participant elections among certain investment options. Distributions from participant accounts are not permitted before age 65, except in the event of death, permanent disability, certain financial hardships or termination of employment. The Company made matching contributions to the 401(k) Plan during 2005, 2004 and 2003 of $419,000, $465,000 and $303,000, respectively.

Prior to January 1, 2005, all full-time employees of the Company were eligible to participate in the 401(k) Plan. Beginning January 1, 2005, certain key employees of the Company have been excluded from further salary deferrals to the 401(k) Plan, but may make salary deferrals through participation in the Bank of the Ozarks, Inc. Deferred Compensation Plan (the “Plan”). The Plan, an unfunded deferred compensation arrangement for the group of employees designated as key employees, including certain of the Company’s executive officers, was adopted by the Company’s board of directors on December 14, 2004 and became effective January 1, 2005. Under the terms of the Plan, eligible participants may elect to defer a portion of their compensation. Such deferred compensation will be distributable in lump sum or specified installments upon separation from service with the Company or upon other specified events as defined in the Plan. The Company has the ability to make a contribution to each participant’s account, limited for the 2005 Plan year to one half of the first 6% of compensation deferred by the participant and subject to certain other limitations. Amounts deferred under the Plan are to be invested in certain approved investments (excluding securities of the Company or its affiliates). Company contributions to the Plan totaled $64,000 in 2005. At December 31, 2005, the Company had assets and liabilities of the Plan totaling $337,000 recorded on the accompanying consolidated balance sheet.

11. 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 1.5 million 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 options are 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 each non-employee director 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,
	2005				2004				2003
	Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price
Outstanding - beginning of year	531,450		$	11.28	754,600		$	7.11	1,024,000		$	4.88
Granted	128,200			34.64	73,100			28.05	98,200			21.03
Exercised	(170,250	)		5.72	(261,850	)		3.73	(357,200	)		4.44
Canceled	(14,000	)		21.76	(34,400	)		12.83	(10,400	)		11.03
Outstanding - end of year	475,400		$	19.26	531,450		$	11.28	754,600		$	7.11
Exercisable - end of year	238,900		$	8.67	344,750		$	5.78	497,200		$	4.41

Exercise prices for options outstanding as of December 31, 2005 ranged from $2.96 to $35.42. The weighted-average fair value of options granted during 2005, 2004 and 2003 was $10.62, $9.28 and $6.93, respectively.

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:

	2005		2004		2003
Risk-free interest rate	4.27	%	3.31	%	3.09	%
Expected dividend yield	1.16		1.13		1.14
Expected stock volatility	30.65		36.07		36.41
Weighted-average expected life	5 years		5 years		5 years

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For purposes of pro forma disclosures 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,
	2005			2004			2003
	(Dollars in thousands, except per share data)
Net income, as reported	$	31,489		$	25,883		$	20,201
Add: Total stock-based compensation expense, net of related tax effects included in reported net income		373			156			86
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(393	)		(225	)		(213	)
Pro forma net income	$	31,469		$	25,814		$	20,074
Earnings per share:
Basic - as reported	$	1.89		$	1.58		$	1.27
Basic - pro forma		1.89			1.57			1.26
Diluted - as reported	$	1.88		$	1.56		$	1.24
Diluted - pro forma		1.88			1.55			1.23

The following table is a summary of all options outstanding and exercisable at December 31, 2005:

	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      - 10.00	164,500	2.9	$	4.54	164,500	$	4.54
10.00 - 25.00	126,000	4.9		18.61	62,400		15.09
Over 25.00	184,900	6.5		32.79	12,000		31.78
	475,400	4.9		19.26	238,900		8.67

12. 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 $192.1 million and $236.7 million at December 31, 2005 and 2004, respectively. The commitments extend over varying periods of time with the majority to be disbursed or to expire 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, 2005 and 2004 is $6.3 million and $5.6 million, respectively. The Company holds collateral to support guarantees when deemed necessary. The total of collateralized commitments at December 31, 2005 and 2004 was $4.4 million and $3.3 million, respectively.

52

13. Related Party Transactions

The Company, through its bank subsidiary, has had, in the ordinary course of business, lending transactions with certain of its officers, directors, director nominees and their related and affiliated parties (related parties). All lending transactions with such related parties have been in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other loan customers of the Company, and have not included more than the normal risk of collectibility associated with the Company’s other lending transactions or other unfavorable features. The aggregate amount of loans to such related parties at December 31, 2005 and 2004 was $24.5 million and $17.7 million, respectively. New loans and advances on prior commitments made to such related parties were $3.5 million, $2.3 million and $4.5 million for the years ended December 31, 2005, 2004 and 2003, respectively. Repayments of loans made by such related parties were $9.6 million, $2.3 million and $2.1 million for the years ended December 31, 2005, 2004 and 2003, respectively. Also, during 2005, advances totaling $12.9 million were added to, and during 2004 advances totaling $4.8 million were removed from, the Company’s related party loans as a result of changes in the composition of the Company’s related parties.

14. Regulatory Matters

Federal regulatory agencies generally require member banks to maintain a leverage capital ratio (calculated as Tier 1 capital divided by total average assets) of at least 3% plus an additional cushion of 1% to 2%, depending upon capitalization classifications. Tier 1 capital generally consists of common equity, retained earnings, certain types of preferred stock, and a limited amount of trust preferred securities and excludes goodwill and various intangible assets. 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 and any amounts of trust preferred securities excluded from Tier 1 capital plus the lesser of the allowance for loan and lease losses or 1.25% of risk-weighted assets. At December 31, 2005 and 2004, the Company’s and the Bank’s risk-based and leverage capital ratios exceeded minimum requirements.

The Company’s and the Bank’s regulatory capital positions and ratios were as follows:

	December 31, 2005				December 31, 2004
	Computed Capital		Computed Ratio		Computed Capital		Computed Ratio
	(Dollars in thousands)
Bank of the Ozarks, Inc. (consolidated):
Total risk-based capital	$	205,582	13.02	%	$	175,491	13.74	%
Tier 1 risk-based capital		188,575	11.94			157,585	12.34
Leverage capital ratio		—	9.11			—	9.41
Bank of the Ozarks:
Total risk-based capital	$	176,979	11.25	%	$	147,768	11.61	%
Tier 1 risk-based capital		159,972	10.17			131,856	10.36
Leverage capital ratio		—	7.75			—	7.90

As of December 31, 2005 and 2004, the most recent notification from the regulators categorized the Company and the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s or the Bank’s category.

As of December 31, 2005, 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, 2005 and 2004, $37.5 million and $31.3 million, respectively, was available for payment of dividends by the Bank without the approval of regulatory authorities.

Under FRB regulation, the Bank is also limited as to the amount it may loan to its affiliates, including the Company, and such loans must be collateralized by specific obligations. The maximum amount available for loan from the Bank to the Company is limited to 10% of the Bank’s capital and surplus or approximately $16.3 million and $13.7 million, respectively, at December 31, 2005 and 2004.

The Bank is required by bank regulatory agencies to maintain certain minimum balances of cash or non-interest bearing deposits primarily with the FRB. At December 31, 2005 and 2004, these required balances aggregated $6.6 million and $6.7 million, respectively.

15. 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.

53

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.

Deposit liabilities - The fair value of demand deposits, savings accounts, money market deposits and other transaction accounts is the amount payable on demand at the reporting date. The fair value of fixed maturity 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 instruments is estimated based on the current rates available to the Company for borrowings with similar terms and remaining maturities.

Subordinated debentures - The carrying values of these instruments approximate their fair values as the interest rates on these instruments adjust quarterly based on 90-day LIBOR.

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 similar agreements, taking into account the remaining terms of the agreements. The fair values of IRLC and FSC derivative assets and liabilities are based primarily on the fluctuation of interest rates from the date in which the IRLC and FSC were entered and year-end. The fair values of these off-balance-sheet instruments and these derivative assets and liabilities were not significant at December 31, 2005 and 2004.

The fair values of certain of these instruments were calculated by discounting expected cash flows, which contain numerous uncertainties and involve significant judgments by management. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments 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.

	2005				2004
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	40,586	$	40,586	$	41,548	$	41,548
Investment securities AFS		574,120		574,120		434,512		434,512
Loans and leases, net of ALLL		1,353,716		1,333,658		1,118,458		1,113,045
Accrued interest receivable		13,802		13,802		8,561		8,561
Bank owned life insurance		42,397		42,397		40,581		40,581
Financial liabilities:
Demand, NOW, savings and money market account deposits	$	653,116	$	653,116	$	592,933	$	592,933
Time deposits		938,527		932,782		786,997		782,635
Repurchase agreements with customers		35,671		35,671		33,223		33,223
Other borrowings		304,865		308,729		144,065		148,659
Subordinated debentures		44,331		44,331		44,331		44,331
Accrued interest payable and other liabilities		8,969		8,969		3,885		3,885

16. Supplemental Cash Flow Information

Supplemental cash flow information is as follows:

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Cash paid during the period for:
Interest	$	43,191		$	24,241		$	19,927
Income taxes		8,887			9,384			10,213
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to foreclosed assets held for sale		4,664			2,118			1,804
Loans advanced for sales of foreclosed assets		265			1,388			495
Net change in unrealized gains and losses on investment securities AFS		(1,305	)		(2,766	)		(1,934	)

54

17. Other Operating Expenses

The following is a summary of other operating expenses:

	Year Ended December 31,
	2005		2004		2003
	(Dollars in thousands)
Postage and supplies	$	1,620	$	1,660	$	1,045
Advertising and public relations		1,325		1,434		1,016
Telephone and data lines		1,371		1,139		948
Write-off of deferred debt issuance costs		—		852		—
Other		6,033		6,665		6,151
Total other operating expenses	$	10,349	$	11,750	$	9,160

18. Earnings Per Share (“EPS”)

The following table sets forth the computation of basic and diluted EPS. All share and per share data reflect the effect of the Company’s 2-for-1 stock split on December 10, 2003.

	Year Ended December 31,
	2005		2004		2003
	(In thousands, except per share amounts)
Numerator:
Net income	$	31,489	$	25,883	$	20,201
Denominator:
Denominator for basic EPS - weighted-average shares		16,640		16,390		15,940
Effect of dilutive securities - stock options		126		245		347
Denominator for diluted EPS - weighted-average shares and assumed conversions		16,766		16,635		16,287
Basic EPS	$	1.89	$	1.58	$	1.27
Diluted EPS	$	1.88	$	1.56	$	1.24

Options to purchase 85,400 shares of the Company’s common stock at an exercise price of $35.42 per share were outstanding during 2005 and options to purchase 61,500 shares of common stock at $28.63 per share and 79,800 shares at $22.07 per share of common stock were outstanding during 2004 and 2003, respectively, 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.

19. 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,
	2005			2004
	(Dollars in thousands)
Assets
Cash	$	25,436		$	24,874
Investment in consolidated bank subsidiary		162,663			135,623
Investment in unconsolidated Trusts		1,331			1,331
Investment securities AFS		1,179			1,070
Premises and equipment		1,853			—
Excess cost over fair value of net assets acquired		1,092			1,092
Tax credit investment, net		1,981			1,976
Other, net		477			180
Total assets	$	196,012		$	166,146
Liabilities and Stockholders’ Equity
Accounts payable and other liabilities	$	93		$	60
Accrued interest payable		347			250
Income taxes payable		1,838			99
Subordinated debentures		44,331			44,331
Total liabilities		46,609			44,740
Stockholders’ equity:
Common stock		167			165
Additional paid-in capital		34,210			30,760
Retained earnings		117,600			92,262
Accumulated other comprehensive loss		(2,574	)		(1,781	)
Total stockholders’ equity		149,403			121,406
Total liabilities and stockholders’ equity	$	196,012		$	166,146

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Condensed Statements of Income

	Year Ended December 31,
	2005		2004			2003
	(Dollars in thousands)
Income:
Dividends from Bank	$	6,100	$	4,000		$	2,800
Dividends from Trusts		81		66			57
Other		220		93			—
Total income		6,401		4,159			2,857
Expenses:
Interest		2,693		2,232			1,944
Write-off of deferred debt issuance costs		—		852			—
Other operating expenses		1,911		1,700			879
Total expenses		4,604		4,784			2,823
Income (loss) before income tax benefit and equity in undistributed earnings of Bank		1,797		(625	)		34
Income tax benefit		1,840		2,393			1,154
Equity in undistributed earnings of Bank		27,852		24,115			19,013
Net income	$	31,489	$	25,883		$	20,201

Condensed Statements of Cash Flows

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	31,489		$	25,883		$	20,201
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			16			34
Write-off of deferred debt issuance costs		—			852			—
Equity in undistributed earnings of Bank		(27,852	)		(24,115	)		(19,013	)
Decrease in income taxes payable attributable to stock option exercise gains		1,864			2,397			1,777
Changes in assets and liabilities:
Accounts payable and other liabilities		129			85			188
Income taxes payable		1,636			685			(1,383	)
Other, net		326			323			88
Net cash provided by operating activities		7,592			6,126			1,892
Cash flows from investing activities:
Purchase of premises and equipment		(1,853	)		—			—
Cash paid for bank charter intangible		—			(239	)		—
Cash paid for acquisition		—			—			(1,079	)
Purchase of AFS investment securities		—			(1,000	)		—
Purchases of investment in unconsolidated Trusts		—			(464	)		(872	)
Proceeds from liquidation of investment in Ozark		—			534			—
Purchase of tax credit investment		—			—			(2,298	)
Net cash used by investing activities		(1,853	)		(1,169	)		(4,249	)
Cash flows from financing activities:
Proceeds from exercise of stock options		974			977			1,580
Proceeds from issuance of subordinated debentures		—			15,464			28,867
Repayment of subordinated debentures		—			(17,784	)		—
Cash dividends paid		(6,151	)		(4,914	)		(3,663	)
Net cash (used) provided by financing activities		(5,177	)		(6,257	)		26,784
Net increase (decrease) in cash and cash equivalents		562			(1,300	)		24,427
Cash - beginning of year		24,874			26,174			1,747
Cash - end of year	$	25,436		$	24,874		$	26,174

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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 Statutory Trust II, a Connecticut business trust.

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

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

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. of our reports dated March 9, 2006, with respect to the consolidated financial statements of Bank of the Ozarks, Inc., Bank of the Ozarks, Inc.’s management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Bank of the Ozarks, Inc., included in the 2005 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 reports dated March 9, 2006, with respect to the consolidated financial statements of Bank of the Ozarks, Inc., Bank of the Ozarks, Inc.’s management’s assessment of the effectiveness of internal controls over financial reporting, and the effectiveness of internal control over financial reporting of Bank of the Ozarks, Inc., incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2005.

                        /s/ Ernst & Young LLP

Dallas, Texas

March 9, 2006

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, George 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 annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

d) disclosed in this annual 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 control 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 13, 2006

/s/ George Gleason

George Gleason

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Paul Moore, Chief Financial Officer and Chief Accounting 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 annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

d) disclosed in this annual 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 control 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 13, 2006

/s/ Paul Moore

Paul Moore

Chief Financial Officer and Chief Accounting 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 ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, George Gleason, Chairman and 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 results of operations of the Company.

March 13, 2006

/s/ George Gleason

George Gleason

Chairman and Chief Executive Officer

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 ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Paul Moore, Chief Financial Officer and Chief Accounting 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 results of operations of the Company.

March 13, 2006

/s/ Paul Moore

Paul Moore

Chief Financial Officer and Chief Accounting Officer