Bank OZK Annual Report 2009

FY2009 Annual Report · Bank OZK

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Little Rock, Arkansas
(501) 978-2265, Fax (501) 978-2224
NASDAQ: OZRK • www.bankozarks.com
For additional information or a copy of the Company’s Form
10-K filed with the Securities and Exchange Commission contact:
Investor Relations, Bank of the Ozarks, Inc.
P.O. Box 8811, Little Rock, AR 72231-8811
Independent Auditors:
Crowe Horwath LLP, Certified Public Accountants
105 Continental Place, Suite 200
P.O. Box 1529, Brentwood, Tennessee 37024-1529
Transfer Agent:
Bank of the Ozarks Trust and Wealth Management Division
P.O. Box 8811, Little Rock, AR 72231-8811

Table of Contents

A Message to Our Shareholders 1
A Long-Term Perspective 2
Growth and De Novo Branching 5
Our Senior Management Team 6
Selected Consolidated Financial Data 9
Management’s Discussion and Analysis 10
Summary of Quarterly Results 43
Company Performance 44
Report of Management on the Company’s Internal Control
Over Financial Reporting 45
Reports of Independent Registered Public Accounting Firm 46
Consolidated Financial Statements 48

This report contains forward-looking statements and reflects management’s
current views of future economic circumstances, industry conditions, Company
performance and financial results. These forward-looking statements are subject
to a number of factors and uncertainties which could cause the Company’s
actual results and experience to materially differ from anticipated results and
expectations expressed in such forward-looking statements. A description of
certain factors which may affect operating results may be found in Management’s
Discussion and Analysis of Financial Condition and Results of Operations under
the caption “Forward-Looking Information” contained elsewhere in this report.

All scenic photographs from Bank of the Ozarks’ trade area.

Our Board of Directors’ outstanding

leadership and vision has moved

the Company forward and created

a solid foundation for strong

future growth and profitability.

Board of Directors
Back row, left to right:

Henry Mariani
Chairman - NLC Products, Inc., Little Rock, Arkansas

Robert East
Chairman and Chief Executive Officer - East-Harding, Inc., Little Rock, Arkansas
Jean Arehart
Retired Banker, Newport, Arkansas

R.L. Qualls
Retired President and Chief Executive Officer - Baldor Electric Company, Fort Smith, Arkansas

Kennith Smith
Retired Lumber Company President, Ozark, Arkansas

Mark Ross
Vice Chairman, President and Chief Operating Officer - Bank of the Ozarks, Inc., Little Rock, Arkansas

Front row, left to right:

Linda Gleason
Retired Banker, Little Rock, Arkansas

George Gleason
Chairman and Chief Executive Officer - Bank of the Ozarks, Inc., Little Rock, Arkansas

Richard Cisne
Founding Partner - Hudson, Cisne & Co., LLP, Little Rock, Arkansas
Steven Arnold
Senior Pastor - St. Mark Baptist Church, Little Rock, Arkansas
James Matthews
Executive Vice President - General Properties, Inc., North Little Rock, Arkansas

To Our Shareholders

We are very pleased to report our ninth
consecutive year of record net income. Our 2009
net income was $36.8 million, up 6.8% from 2008,
and our earnings per common share were also a
record $2.18, up 6.9% from 2008. During 2009
we achieved record quarterly net income and
earnings per common share in three of four
quarters, including the fourth quarter. Our strong
earnings momentum in the year’s final quarter
provides a solid foundation for 2010.

Achieving record quarterly and annual results

is always satisfying, but our 2009 results were
particularly gratifying because they were achieved
in a very tough economic environment. The difficult
economy posed many challenges, including higher
credit costs, but those same economic conditions
created many opportunities.

Our success in 2009 was, in large part, due
to our ability to capitalize on those opportunities
while also effectively addressing the challenges.
By focusing on opportunities in 2009, we achieved
excellent growth in our number of core banking
customers, significant improvement in our net
interest margin, record service charge and trust
income and a favorable shift in our deposit mix.

Even though we expect the economic climate to
continue to be challenging in 2010, we feel we are
once again in a position to profit from opportunities
with our excellent team of bankers, strong capital
position, substantial allowance for loan and lease
losses, favorable deposit base, abundant sources
of liquidity, solid credit culture and proven revenue
generating capabilities.

As you read this annual report, we hope you
will be pleased with our accomplishments in 2009
and share our enthusiasm for the future.

George Gleason
Chairman and Chief Executive Officer

Mark Ross
Vice Chairman, President and Chief Operating Officer

A Long-Term Perspective

The record results we achieved in 2009 refl ect our commitment to
excellence and our focus on long-term goals. For many years, we have
worked hard to build and improve our Company. Our constant pursuit of
adding new customers, building relationships, improving performance and
en hanc ing effi ciency has produced great results. The following graphs provide
a long-term perspective.

Our Company is focused on both growth and profi t abil i ty. We have
achieved excellent long-term growth in loans, leases and deposits, while
our net income and diluted earnings per common share have grown at
similiar rates.

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Over the past ten
years, we have
achieved com pound ed
annual growth rates
of 18.7% in net
in come and 17.4%
in diluted earnings
per common share.

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Over the past ten
years, our loans and
leases have grown at
a compounded annual
rate of 15.1%.

Over the past ten
years, our deposits
have grown at a
compounded annual
rate of 13.0%.

Net interest income is our largest revenue com po nent, and income
from service charges, trust and mort gage lending have traditionally been
our three principal sources of non-interest income.

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Net interest income has
grown over the last ten
years at a compounded
annual rate of 17.8%.

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Income from service
charges on deposit
ac counts has grown at
a compounded annual
rate of 17.4% over the
past ten years.

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Over the past ten
years, trust income
has grown at a
compounded annual
rate of 20.4%.

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Mortgage lending is
a valuable service to
our customers and an
important source of
non-interest income,
but it is cyclical in
nature and varies with
interest rate and housing
market conditions.

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We have improved our effi ciency ratio over
time by increasing our total revenue at a
faster rate than non-interest expense.
This has made us one of the na tion’s most
effi cient bank holding companies.

We consider the net charge-off ratio as the
ultimate measure of asset quality. Our net
charge-off ratio has consistently compared
favorably with the ratio for all FDIC insured
institutions as a group.

Maintaining good asset quality has been an important factor in our historically strong

growth in net income, and this has never been more important than in the current challenging
economic conditions.

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Growth and De Novo Branching

In 1994 we launched our growth and de novo branching strategy by opening the fi rst of our
de novo branches. We have opened new offi ces in each of the last 16 years, and we have grown
from just fi ve original offi ces to 73 offi ces as of year-end 2009, including 65 bank ing offi ces
throughout northern, western and central Arkansas, seven Texas banking offi ces and a loan
production offi ce in Char lotte, North Carolina.

With the majority of these offi ces being opened

in the last seven years, we have substantial
ca pac i ty for growth.

In recent years the Company’s Texas offi ces and Charlotte, North Carolina loan production offi ce

have contributed signifi cantly to growth.
have contributed signifi cantly to growth.

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5
5

����������������������������������������������������������������Our Senior Management Team

George Gleason Chairman of the Board and Chief Executive Officer
George Gleason has led the Company and its predecessors for 31 years. Mr. Gleason purchased
Bank of Ozark, which then had approximately $28 million of total assets, in 1979. Since then,
the Company has grown roughly 100 times its 1979 size. This has been primarily organic growth
achieved via the Company’s growth and de novo branching strategy.

Mark Ross Vice Chairman, President and Chief Operating Officer
Mark Ross joined the Company in 1980. Mr. Ross is responsible for oversight of a number of
operational and administrative functions of the Company including internal audit, compliance,
loan review, facilities, technology, human resources, treasury management, branch administration,
deposit services and trust services.

Paul Moore Chief Financial Officer and Chief Accounting Officer
Paul Moore joined the Company as Chief Financial Officer in 1995 and oversees all accounting,
tax, financial reporting and regulatory reporting functions for the Company. He has been a
Certified Public Accountant for 31 years.

Greg McKinney Executive Vice President and Controller
Greg McKinney oversees and manages a wide range of audit, accounting and financial
reporting functions for the Company. Mr. McKinney has 18 years of accounting and financial
reporting experience and joined Bank of the Ozarks in 2003. Mr. McKinney is a Certified
Public Accountant.

Tyler Vance Executive Vice President
Tyler Vance joined Bank of the Ozarks in 2006. He has 13 years banking experience and is a
Certified Public Accountant. Mr. Vance oversees a broad range of duties including retail banking,
marketing, training, public funds deposits, deposit pricing and funds management.

Ron Kuykendall Chief Information Officer
Ron Kuykendall joined the Company in 1989 and is responsible for the oversight of information
systems, branch support, e-banking and item processing. Mr. Kuykendall has 26 years of
experience in banking.

Note: George Gleason, Mark Ross, Paul Moore, Greg McKinney, Tyler Vance and Ron Kuykendall serve in the
same officer capacity for both the Company and its bank subsidiary. All other officers shown in this article
serve as officers only of the bank subsidiary in the capacities indicated.

John Davis President, Hot Springs Division
John Davis has 28 years of banking experience and joined the Company in 2005 as
President of the Hot Springs Division which consists of three offices in Hot Springs and
one in Hot Springs Village.

Larry Dicks President, Pope County
Larry Dicks was named President of Pope County in 2007. Mr. Dicks has 32 years of banking
experience and oversees business operations in the Company’s three Pope County offices in
Russellville. Mr. Dicks has been with Bank of the Ozarks for 24 years.

C.E. Dougan President, Western Division
C.E. Dougan has 40 years of banking experience and joined the Company as a director in
1997. In 2000 he resigned his directorship and joined the management team as President of the
Western Division. The Western Division consists of 16 offices in Fort Smith (3), Russellville (3),
Van Buren (2), Alma, Mulberry, Ozark (2), Altus, Clarksville (2) and Paris.

Steven Dunn President, Baxter and Marion County
Steven Dunn joined Bank of the Ozarks in 2003 and has 24 years of banking experience.
Mr. Dunn oversees business operations in the Baxter and Marion County markets, which
includes offices in Mountain Home (2) and Yellville.

Susan Grobmyer President, Fort Smith
Susan Grobmyer joined Bank of the Ozarks in 1997 and has 33 years of banking experience.
Mrs. Grobmyer oversees business operations in the Company’s three offices in the
Fort Smith market.

Scott Hastings President, Leasing Division
Scott Hastings joined the Company in 2003 to establish a Leasing Division. Mr. Hastings has
27 years experience in leasing.

Gene Holman President, Mortgage Division
Gene Holman has 36 years of mortgage banking and real estate experience. He joined the
Company in 2004 as President of the Mortgage Division.

Dennis James President, Metro Dallas Division
Dennis James has 37 years of experience in finance and management and joined the Company in
2005. As President of the Metro Dallas Division, Mr. James leads our retail banking operations
in the metro Dallas area which includes four full-service banking offices in Frisco (2), Lewisville
and Allen.

Alan Jessup President, Saline County
Alan Jessup joined Bank of the Ozarks in 2008 and has over 17 years of banking experience.
Mr. Jessup oversees business operations in the Saline County market, which includes offices in
Benton (2) and Bryant, plus the Company’s Little Rock Otter Creek office.

Rex Kyle President, Trust and Wealth Management Division
Rex Kyle has 31 years experience in banking as a trust professional. Mr. Kyle joined the Company
in 2004 as President of the Trust and Wealth Management Division, which offers a wide array of
asset management and trust services for individuals, businesses and government entities.

Jack Mays President, Boone County
Jack Mays joined Bank of the Ozarks in 2000 and has 19 years of banking experience.
Mr. Mays oversees business operations in Boone County, which includes two offices in Harrison
and one office in Bellefonte.

Gary Miller President, Johnson County
Gary Miller joined Bank of the Ozarks in 2008 and has 37 years of banking experience.
Mr. Miller oversees business operations in Johnson County, which includes two offices
in Clarksville.

Matt Reddin President, Greater Little Rock
Matt Reddin joined Bank of the Ozarks in 2006 and has eight years of banking experience.
Mr. Reddin oversees business operations in the Greater Little Rock market, which includes nine
offices in Little Rock and three in North Little Rock.

Darrel Russell President, Central Division & Co-Chairman of the Loan Committee
Darrel Russell has 29 years of banking experience and has been with the Company since 1983.
In 2001 he was named President of the Central Division which consists of 23 offices in Little
Rock (9), North Little Rock (3), Sherwood, Maumelle, Cabot (2), Lonoke, Benton (2), Bryant,
Mountain Home (2) and Yellville. Mr. Russell is also responsible for oversight of the Company’s
loan production office in Charlotte, North Carolina.

Sarah Shaw President, Conway Division
Sarah Shaw has 25 years of banking experience and joined the Company in 2002. In 2006 she
was named President of the Conway Division which consists of four offices in Conway.

Dan Thomas President, Real Estate Specialties Group
Dan Thomas has 25 years experience in structuring, financing and managing commercial
real estate transactions. He joined Bank of the Ozarks in 2003 and opened a Dallas loan
production office in order to establish a commercial lending presence in Texas. The Company
converted the Dallas loan production office to a banking office in 2004.

Audwin Vaughn President, Cabot
Audwin Vaughn joined Bank of the Ozarks in 2009 and has 24 years of banking experience.
Mr. Vaughn oversees business operations in the Company’s Cabot (2) and Lonoke offices.

Joe Willis President, Northern Division
Joe Willis joined Bank of the Ozarks in 1989 and has 20 years of banking experience.
In 2008 Mr. Willis was named President of the Northern Division, which consists of seven
offices in Harrison (2), Bellefonte, Western Grove, Jasper, Marshall and Clinton.

Harvey Williams President, Northwest Division
Harvey Williams has 30 years of banking experience and joined the Company in 2006.
He leads our Northwest Arkansas Division which consists of ten offices in Fayetteville (2),
Springdale, Rogers (3), Bentonville (2) and Bella Vista (2).

Rick Wisdom President, Southwest Division
Rick Wisdom has 28 years of banking experience and joined the Company in 2004 as
President of the Southwest Division, which consists of two offices in Texarkana, Texas and
one office in Texarkana, Arkansas.

Financial Information
Selected Consolidated Financial Data

2009

Year Ended December 31,
2007

2006

2008

2005

Income statement data:

(Dollars in thousands, except per share amounts)

Interest income ...................................................... $ 165,908 $ 183,003 $ 176,970 $ 155,198 $ 112,881
44,305
47,585
Interest expense ....................................................
68,576
118,323
Net interest income ................................................
2,300
44,800
Provision for loan and lease losses .......................
19,252
51,051
Non-interest income ..............................................
40,080
68,632
Non-interest expense .............................................
6,276
Preferred stock dividends ......................................
-
31,489
36,826
Net income available to common stockholders ......

84,302
98,701
19,025
19,349
54,398
227
34,474

99,352
77,618
6,150
22,975
48,252
-
31,746

84,478
70,720
2,450
23,231
46,390
-
31,693

Common share and per common share data:

Earnings - diluted .................................................. $ 2.18 $ 2.04 $ 1.89 $ 1.89 $ 1.88
8.97
Book value ............................................................
Dividends ..............................................................
0.37
Weighted-average diluted shares
outstanding (thousands) ......................................
End of period shares outstanding (thousands) ........

16,900
16,905

16,874
16,864

16,834
16,818

16,803
16,747

16,766
16,665

10.43
0.40

11.35
0.43

15.91
0.52

14.96
0.50

Balance sheet data at period end:

Total assets ............................................................ $2,770,811 $3,233,303 $2,710,875 $2,529,400 $2,134,882
1,370,723
Total loans and leases ........................................... 1,904,104
17,007
39,619
Allowance for loan and lease losses ......................
574,120
Total investment securities ....................................
506,678
1,591,643
Total deposits ........................................................ 2,028,994
35,671
Repurchase agreements with customers ................
44,269
304,865
Other borrowings ................................................... 342,553
44,331
64,950
Subordinated debentures .......................................
Preferred stock, net of unamortized discount ........
-
-
Total common stockholders’ equity .......................
149,403
269,028
Loan and lease to deposit ratio ..............................

1,871,135
19,557
578,348
2,057,061
46,086
336,533
64,950
-
190,829

1,677,389
17,699
620,132
2,045,092
41,001
194,661
64,950
-
174,633

2,021,199
29,512
944,783
2,341,414
46,864
424,947
64,950
71,880
252,302

82.02%

86.32%

90.96%

93.84%

86.12%

Average balance sheet data:

Total average assets .............................................. $3,002,121 $3,017,707 $2,601,299 $2,365,316 $1,912,961
Total average common stockholders’ equity ..........
137,185
267,768
Average common equity to average assets ............

213,271

158,194

184,819

6.69%

7.07%

7.10%

8.92%

7.17%

Performance ratios:

Return on average assets ......................................
Return on average common stockholders’ equity ...
Net interest margin - FTE ......................................
Efficiency ratio ......................................................
Common stock dividend payout ratio ....................

1.23%

1.14%

1.22%

1.34%

1.65%

13.75
4.80
37.84
23.84

16.16
3.96
42.32
24.42

17.18
3.44
46.33
22.75

20.03
3.49
47.07
21.16

22.95
4.18
43.43
19.68

Asset quality ratios:

Net charge-offs to average loans and leases .........
Nonperforming loans and leases to total
loans and leases .................................................
Nonperforming assets to total assets .....................

Allowance for loan and lease losses as a
percentage of:

1.75%

0.45%

0.24%

0.12%

0.11%

1.24
3.06

0.76
0.81

0.35
0.36

0.34
0.24

0.25
0.18

Total loans and leases ...........................................
Nonperforming loans and leases ...........................

2.08%
168%

1.46%
192%

1.05%
295%

1.06%
310%

1.24%
502%

Capital ratios at period end:

Tier 1 leverage .......................................................
Tier 1 risk-based capital ........................................
Total risk-based capital .........................................

11.39%
13.78
15.03

11.64%
14.21
15.36

9.80%

9.39%

9.11%

11.79
12.67

11.71
12.76

11.94
13.02

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

General

Net income available to common stockholders of Bank of the Ozarks, Inc. (the “Company”) was $36.8
million for the year ended December 31, 2009, a 6.8% increase from $34.5 million in 2008. Net income
available to common stockholders in 2007 was $31.7 million. Diluted earnings per common share were
$2.18 for 2009, a 6.9% increase from $2.04 in 2008. Diluted earnings per common share were $1.89 in 2007.

The table below shows total assets, investment securities, loans and leases, deposits, common stockholders’

equity, net income available to common stockholders, diluted earnings per common share and book value
per common share at December 31, 2009, 2008 and 2007 and the percentage of change year over year.

December 31,
2008

2007

2009
(Dollars in thousands, except per share amounts)
Total assets .............................. $2,770,811 $3,233,303 $2,710,875
578,348
Investment securities ...............
1,871,135
Loans and leases .....................
2,057,061
Deposits ...................................
190,829
Common stockholders’ equity ..
Net income available to
common stockholders ...........
Diluted earnings per

506,678
1,904,104
2,028,994
269,028

944,783
2,021,199
2,341,414
252,302

36,826

34,474

31,746

common share .......................

2.18

Book value per

common share .......................

15.91

2.04

14.96

1.89

11.35

% Change

2009

2008

from 2008 from 2007

(14.3)%
(46.4)
(5.8)
(13.3)
6.6

6.8

6.9

6.4

19.3%
63.4
8.0
13.8
32.2

8.6

7.9

31.8

Two measures used to assess performance by banking institutions are return on average assets (“ROA”)
and return on average common stockholders’ equity (“ROE”). ROA measures net income available to common
stockholders in relation to average total assets. It is calculated by dividing annual net income available to
common stockholders by average total assets and indicates a company’s ability to employ its resources
profitably. For the year ended December 31, 2009, the Company’s ROA was 1.23% compared with 1.14%
and 1.22%, respectively, for the years ended December 31, 2008 and 2007. ROE measures net income
available to common stockholders in relation to average common stockholders’ equity. It is calculated by
dividing annual net income available to common stockholders by average common stockholders’ equity
and indicates how effectively a company can generate net income on the capital invested by its common
stockholders. For the year ended December 31, 2009, the Company’s ROE was 13.75% compared with
16.16% and 17.18%, respectively, for the years ended December 31, 2008 and 2007.

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, borrowings and subordinated debentures. 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, gains and losses on
investment securities and gains and losses on sales of other 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 this 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 $12.0 million in 2009, $10.5 million in 2008 and $3.6 million in 2007. No adjustments have
been made in this analysis for income exempt from state income taxes or for interest expense deductions

disallowed under the provisions of the Internal Revenue Code as a result of investments in certain tax-
exempt securities.

2009 compared to 2008

Net interest income for 2009 increased 19.4% to $130.3 million compared to $109.2 million for 2008.
Net interest margin was 4.80% in 2009 compared to 3.96% in 2008. The growth in net interest income was
a result of the improvement in the Company’s net interest margin, which increased 84 basis points (“bps”)
from 2008 to 2009, offset in part by a reduction in the Company’s average earning assets, which decreased
1.5% from 2008 to 2009.

The Company’s improvement in its net interest margin resulted from a combination of factors including
(i) improvement in the Company’s spread between yields on loans and leases and rates paid on deposits,
(ii) favorable yields achieved on the Company’s investment securities portfolio and (iii) a decrease in the
average interest rate paid on the Company’s other interest bearing liabilities. The Company’s net interest
margin improved throughout 2009, increasing from 4.52% in the fourth quarter of 2008, to 4.73%, 4.80%,
4.80% and 4.89%, respectively, in each succeeding quarter of 2009.

The reduction in average earning assets in 2009 was due principally to a decrease in the Company’s

investment securities portfolio. During 2009 the Company was a net seller of investment securities,
reducing its portfolio by $438 million from December 31, 2008 to December 31, 2009 and its average
portfolio balance by $27 million in 2009 compared to 2008. This reduction in the investment securities
portfolio was a result of the Company’s ongoing evaluations of interest rate risk, including consideration
of potential effects of recent United States government monetary and fiscal policy actions.

Yields on average earning assets decreased 47 bps in 2009 compared to 2008. This decrease was due

primarily to a 78 bps decline in loan and lease yields in 2009, which was partially offset by a 37 bps
increase in the average yield on the Company’s investment securities portfolio.

The 78 bps decrease in loan and lease yields was due primarily to the repricing of the Company’s loan

and lease portfolio at lower interest rates during 2009. Beginning in September 2007 and continuing
through December 2008, the Federal Open Market Committee (“FOMC”) decreased its federal funds target
rate a total of 500 bps, resulting in many of the Company’s variable rate loans repricing to lower rates
beginning in the third quarter of 2007 and continuing throughout 2008 and, to a lesser extent, in 2009.
Additionally, the Company’s newly originated and renewed loans and leases generally priced at lower rates
beginning in the third quarter of 2007 and continuing throughout 2008 and 2009 as a result of these FOMC
interest rate decreases.

At December 31, 2009, approximately 53% of the Company’s variable rate loans were at their “floor” rate.

In recent years, the Company has included “floor” interest rates in many of its variable rate loan contacts.
The inclusion of these floor rates has helped to lessen the impact that falling interest rates have had on the
Company’s loan and lease yields.

The 37 bps increase in the Company’s average yield on its investment securities in 2009 compared to
2008 was the result of a 15 bps increase in yield on taxable investment securities, a 16 bps increase 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 with generally higher FTE yields than the Company’s taxable
investment securities. During 2009 tax-exempt investment securities comprised 56.1% of the average
balance of the Company’s investment securities portfolio compared to 48.0% in 2008.

The 78 bps decrease in average earning asset yields in 2009 compared to 2008 was more than offset by
a 129 bps decrease in the average rate on interest bearing liabilities, resulting in the overall 84 bps increase
in net interest margin in 2009 compared to 2008. The decrease in the average rate on interest bearing
liabilities was primarily attributable to a 156 bps decrease in the average rate on interest bearing deposits.
This decrease in the average rate on interest bearing deposits was principally due to (i) the FOMC interest
rate decreases which resulted in lower rates paid on deposits as they were renewed or repriced and (ii) a
favorable shift in the mix of the Company’s interest bearing deposits, resulting in the Company’s average
balance of time deposits, which generally pay higher rates than other interest bearing deposits, decreasing
to 57.1% of average interest bearing deposits in 2009 from 69.4% in 2008.

The Company’s other borrowing sources include (i) repurchase agreements with customers (“repos”),
(ii) other borrowings comprised primarily of Federal Home Loan Bank of Dallas (“FHLB”) advances, and, to
a lesser extent, Federal Reserve Bank (“FRB”) borrowings and federal funds purchased, and (iii) subordinated
debentures. The rates paid on repos decreased 68 bps for 2009 compared to 2008 primarily as a result of
decreases in FOMC federal funds target rate and other rate indices. The rates paid on the Company’s other
borrowings increased 21 bps in 2009 compared to 2008 primarily due to lower average balances of short-term

FHLB advances utilized in 2009 compared to 2008. The rates paid on the Company’s subordinated debentures,
which are tied to a spread over the 90-day London Interbank Offered Rate (“LIBOR”) and reset periodically,
declined 250 bps in 2009 compared to 2008 as a result of the decrease in 90-day LIBOR during 2009.
2008 compared to 2007

Net interest income for 2008 increased 34.5% to $109.2 million compared to $81.2 million for 2007.
Net interest margin was 3.96% in 2008 compared to 3.44% in 2007. The growth in net interest income
was a result of the improvement in the Company’s net interest margin, which increased 52 bps from 2007
to 2008, and growth in the Company’s average earnings assets, which increased 16.6% from 2007 to 2008.
The Company’s improvement in its net interest margin resulted from a combination of factors including
favorable yields achieved on a large volume of tax-exempt investment securities purchased during 2008
and improvement in the Company’s spread between yields on loans, leases and other investment securities
and rates paid on deposits and other funding sources. The Company’s net interest margin improved
throughout 2008, increasing from 3.47% in the fourth quarter of 2007, to 3.69%, 3.77%, 3.82% and
4.52%, respectively, in each succeeding quarter of 2008.

Yields on average earning assets decreased 62 bps in 2008 compared to 2007. This decrease was due

primarily to a 113 bps decline in loan and lease yields in 2008, which was partially offset by a 93 bps
increase in the average yield on the Company’s investment securities.

The 113 bps decrease in loan and lease yields was due primarily to the repricing of the Company’s loan
and lease portfolio at lower interest rates during 2008. As previously discussed, beginning in September
2007 and continuing through December 2008, the FOMC decreased its federal funds target rate a total of
500 bps, resulting in many of the Company’s variable rate loans repricing to lower rates beginning in the
third quarter of 2007 and continuing throughout 2008. Additionally, the Company’s newly originated and
renewed loans and leases generally priced at lower rates beginning in the third quarter of 2007 and
continuing throughout 2008 as a result of these FOMC interest rate decreases.

The 93 bps increase in the Company’s average yield on its investment securities in 2008 compared to
2007 was the result of a six bps increase in yield on taxable investment securities, a 101 bps increase 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. Beginning in February 2008 and continuing through
December, the Company purchased various tax-exempt investment securities with favorable yields.

The 62 bps decrease in average earning asset yields in 2008 compared to 2007 was more than offset by
a 121 bps decrease in the average rate on interest bearing liabilities, resulting in the overall 52 bps increase
in net interest margin in 2008 compared to 2007. The decrease in the average rate on interest bearing
liabilities was primarily attributable to a 123 bps decrease in the average rate of interest bearing deposits.
This decrease in the average rate on interest bearing deposits was attributable to (i) the FOMC interest rate
decreases through December 2008 which resulted in lower rates paid on deposits as they were renewed or
repriced and (ii) a favorable shift in the mix of the Company’s interest bearing deposits, resulting in the
Company’s average balance of time deposits, which generally pay higher rates than other interest bearing
deposits, decreasing to 69.4% of average interest bearing deposits in 2008 from 72.7% in 2007.

The rates on the Company’s other funding sources also declined in 2008 compared to 2007 primarily
as a result of decreases in the FOMC federal funds target rate and other interest rate indices in 2008. The
Company’s other borrowings decreased 89 bps in 2008 compared to 2007. The rates paid on the Company’s
subordinated debentures declined 201 bps in 2008 compared to 2007 as a result of the decrease in 90-day
LIBOR during 2008.

Analysis of Net Interest Income
(FTE = Fully Taxable Equivalent)

2009

Interest income ......................................................................... $165,908
12,015
FTE adjustment ........................................................................
Interest income - FTE ...............................................................
177,923
47,585
Interest expense ........................................................................
Net interest income - FTE ......................................................... $130,338

Yield on interest earning assets - FTE ......................................
Rate on interest bearing liabilities ............................................
Net interest margin - FTE .........................................................

6.55%
1.95
4.80

7.02%
3.24
3.96

7.64%
4.45
3.44

Year Ended December 31,

2008
(Dollars in thousands)
$183,003
10,483
193,486
84,302
$109,184

2007

$176,970
3,559
180,529
99,352
$ 81,177

The following table sets forth certain information relating to the Company’s net interest income for the

years ended December 31, 2009, 2008 and 2007. 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 adjusted for unrealized gains and losses on investment securities available for sale
(“AFS”) and other-than-temporary impairment writedowns. The yields on loans and leases include late fees
and amortization of certain deferred fees and origination costs, which are considered adjustments to yields.
The yields on investment securities include amortization of premiums and accretion of discounts. Interest
expense and rates on other borrowings are presented net of interest capitalized on construction projects.

Average Consolidated Balance Sheets and Net Interest Analysis

2009

Year Ended December 31,
2008

2007

Average
Balance

Income/ Yield/
Expense Rate

Average
Balance

Income/ Yield/
Expense Rate

Average
Balance

Income/ Yield/
Expense Rate

(Dollars in thousands)

ASSETS
Earning assets:
Interest earning deposits
and federal funds sold ............ $ 552 $ 10 1.88% $ 470 $ 13 2.77% $ 311 $ 19 6.08%
Investment securities:
322,215
Taxable .................................
411,710
Tax-exempt - FTE .................
1,981,454
Loans and leases - FTE .............
2,715,931
Total earning assets - FTE .....
Non-interest earning assets........
286,190
Total assets ...................... $3,002,121

452,831
139,724
1,770,283
2,363,149
238,150
$2,601,299

395,484
365,413
1,995,231
2,756,598
261,109
$3,017,707

18,314 5.68
34,282 8.33
125,317 6.32
177,923 6.55

21,858 5.53
29,856 8.17
141,759 7.10
193,486 7.02

24,775 5.47
10,011 7.16
145,724 8.23
180,529 7.64

1,942,058

30,480 1.57

899,666
487,382

906,306
516,655

699,281
409,969

35,464 3.91
19,425 3.76

13,504 1.93
9,848 2.40

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Savings and interest
bearing transaction ........... $ 832,808 $ 7,128 0.86% $ 628,183 $ 9,282 1.48% $ 521,875 $ 13,715 2.63%
Time deposits of
$100,000 or more .............
Other time deposits ..............
Total interest
bearing deposits ..............
Repurchase agreements
with customers .......................
Other borrowings .....................
Subordinated debentures..........
Total interest
bearing liabilities ............
Non-interest bearing liabilities:
Non-interest bearing deposits ....
Other non-interest
bearing liabilities ....................
Total liabilities ...................
Preferred stock, net of
unamortized discount ..............
Common stockholders’ equity ....
Noncontrolling interest ...............
Total liabilities and
stockholders’ equity ........ $3,002,121

796 1.81
15,574 3.53(1)
3,761 5.79

592 1.13
14,375 3.74(1)
2,138 3.29

1,603 3.64
9,543 4.42(1)
5,066 7.80

43,916
441,288
64,950

60,708
267,768
3,442

4,098
213,271
3,416

-
184,819
1,716

52,549
384,854
64,950

44,071
215,872
64,950

45,858 5.10
23,567 4.84

11,061
2,796,922

18,010
2,670,203

12,162
2,414,764

47,585 1.95

84,302 3.24

64,171 3.13

99,352 4.45

83,140 4.36

$3,017,707

$2,601,299

2,444,411

2,233,816

2,601,298

1,908,923

2,051,144

184,563

207,782

168,786

Net interest income - FTE ...........
Net interest margin - FTE ...........

$130,338

4.80%

$109,184

3.96%

$ 81,177

3.44%

(1) The interest expense and rates for other borrowings were impacted by interest capitalized on construction projects in
the amount of $0.4 million, $1.1 million and $1.3 million, respectively, for the years ended December 31, 2009, 2008
and 2007. In the absence of this capitalization, these rates would have been 3.84%, 3.78% and 5.03%, r espectively,
for the years ended December 31, 2009, 2008 and 2007.

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, interest expense and
net interest income 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 yield/rate); (2) changes in yield/
rate (changes in yield/rate multiplied by prior volume); and (3) changes in both yield/rate and volume
(changes in yield/rate multiplied by changes in volume). The changes attributable to the combined impact
of volume and yield/rate have all been allocated to the changes due to volume.

Analysis of Changes in Net Interest Income - FTE

2009 over 2008
Yield/
Rate

Net
Change

Volume

2008 over 2007
Yield/
Rate

Net
Change

Volume
(Dollars in thousands)

Increase (decrease) in:
Interest income - FTE:
Interest earning deposits
and federal funds sold ............................ $ 1 $ (4) $ (3)
Investment securities:
Taxable ...................................................
Tax-exempt - FTE ....................................
Loans and leases - FTE .............................
Total interest income - FTE ...................
Interest expense:
1,741
(3,895)
Savings and interest bearing transaction ....
(4,015) (17,945)
Time deposits of $100,000 or more ............
(7,027)
(2,550)
Other time deposits ...................................
(299)
95
Repurchase agreements with customers .....
927
(2,126)
Other borrowings ......................................
(1,623)
-
Subordinated debentures ...........................
(6,855) (29,862)
Total interest expense ...........................
Increase (decrease) in net interest income - FTE ... $ 5,681 $15,473

(3,544)
4,426
(16,442)
(1,174) (14,389) (15,563)

(2,154)
(21,960)
(9,577)
(204)
(1,199)
(1,623)
(36,717)
$21,154

593
(4,137)
3,841
585
(879) (15,563)

$ 4 $ (10) $ (6)

(2,917)
15
(2,932)
19,845
18,434
1,411
16,039 (20,004)
(3,965)
31,545 (18,588) 12,957

1,569

(6,002)

(4,433)
312 (10,706) (10,394)
(4,142)
(5,264)
(807)
(806)
6,031
(1,921)
(1,305)
(1,305)
10,954 (26,004) (15,050)
$20,591 $ 7,416 $28,007

1,122
(1)
7,952
-

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, (7) gains and losses on investment securities and (8) gains and losses on sales of
other assets.

2009 compared to 2008

Non-interest income for 2009 increased 163.8% to $51.1 million compared to $19.3 million in 2008.

The large increase in non-interest income for 2009 was primarily attributable to significant gains on
investment securities.

Service charges on deposit accounts increased 3.4% to $12.4 million in 2009 compared to $12.0 million

in 2008. This increase was due, in part, to the Company’s growth in transaction account deposits, which
grew $113 million and increased from 44.3% to 56.8% of total deposits from December 31, 2008 to
December 31, 2009.

Mortgage lending income increased 49.5% to $3.3 million in 2009 compared to $2.2 million in 2008.
Originations of mortgage loans for sale, including both originations for home purchases and refinancings
of existing mortgages, increased 43.7% to $183.6 million in 2009 compared to $128.0 million in 2008.
Mortgage originations for home purchases were 39% of 2009 origination volume compared to 52% in 2008.
Refinancing of existing mortgages accounted for 61% of the Company’s 2009 origination volume compared
to 48% in 2008.

Trust income increased 18.6% to $3.1 million in 2009 compared to $2.6 million in 2008. This increase
was primarily the result of continued growth in both personal and corporate trust business through adding
new accounts and growing existing relationships during 2009.

BOLI income decreased 22.9% to $3.2 million in 2009 compared to $4.1 million in 2008. BOLI income
was comprised of (i) increases in cash surrender value of $1.9 million in 2009 compared to $2.0 million in
2008 and (ii) $1.3 million of income from BOLI death benefits in 2009 compared to $2.1 million in 2008.

Net gains on investment securities, including the impairment charge discussed below, were $27.0 million

in 2009 compared to net losses of $3.4 million in 2008. The Company sold approximately $529 million of
its investment securities in 2009 and approximately $14 million of its investment securities in 2008. The
Company’s investment securities portfolio included one security during 2009 categorized as a collateralized
debt obligation (“CDO”). This CDO has performed in accordance with its terms and is not in default, but,
because of its credit rating being downgraded to below investment grade and other factors, the Company
determined during the third quarter of 2009 that it no longer expects to hold this security until maturity or
until such time as fair value recovers to or above cost. As a result of the Company’s intent to dispose of this
security, the Company recorded a $0.9 million charge during the third quarter of 2009 to reduce the carrying
value of this security to $0.1 million.

Net losses on sales of other assets were $0.2 million in 2009 compared to net losses of $0.5 million in
2008. Non-interest income from all other sources was $2.2 million in 2009 compared to $2.4 million in 2008.

2008 compared to 2007

Non-interest income for 2008 decreased 15.8% to $19.3 million compared to $23.0 million in 2007.

Service charges on deposit accounts decreased 1.5% to $12.0 million in 2008 compared to $12.2 million

in 2007. The Company believes this decrease was primarily due to a generally lower level of economic
activity in 2008 compared to 2007.

Trust income increased 16.7% to $2.6 million in 2008 compared to $2.2 million in 2007. This increase

was primarily the result of growth in both personal and corporate trust business.

Mortgage lending income declined 17.0% to $2.2 million in 2008 compared to $2.7 million in 2007.
Originations of mortgage loans for sale decreased 20.6% to $128.0 million in 2008 compared to $161.2
million in 2007. Refinancing of existing mortgages accounted for 48% of the Company’s 2008 origination
volume compared to 36% in 2007. Mortgage originations for home purchases were 52% of 2008 origination
volume compared to 64% in 2007.

BOLI income increased 115.3% to $4.1 million in 2008 compared to $1.9 million in 2007. BOLI income
was comprised of (i) increases in cash surrender value of $2.0 million in 2008 compared to $1.9 million in
2007 and (ii) $2.1 million of income from BOLI death benefits in 2008 compared to no death benefits
in 2007.

Net losses on investment securities, including the impairment charge discussed below, were $3.4 million
in 2008 compared to net gains of $0.5 million in 2007. The Company sold approximately $14 million of its
investment securities in 2008 and approximately $56 million of its investment securities in 2007. During
2008 the Company determined that a bond issued by SLM Corporation (“Sallie Mae”) with a carrying value
of $10.0 million and an estimated fair value of $7.0 million was other-than-temporarily impaired. As a
result, the Company recorded a pretax impairment charge of $3.0 million in 2008 to write down the carrying
value of the Sallie Mae bond to its estimated fair value. This bond was subsequently sold in 2009.

Net losses on sales of other assets were $0.5 million in 2008 compared to net gains of $0.5 million in
2007. On December 31, 2008, a limited liability company providing low to moderate income housing in
which the Company had an investment completed a planned liquidation. As a result the Company received
its share of the underlying assets, comprised of $3.9 million par value of tax-exempt investment securities.
Because of the wide credit spreads attributable to such securities on the date of distribution, the Company
determined that its $3.9 million investment should be written down to $3.4 million, which represented the
estimated fair value of the investment securities received from dissolution of the entity. This writedown
accounted for substantially all of the Company’s net losses on sales of other assets in 2008. The majority
of these investment securities were subsequently sold in 2009.

Non-interest income from all other sources was $2.4 million in 2008 compared to $3.0 million in 2007.
During 2007 the Company benefited from $0.5 million of other non-interest income from the settlement of
a contested branch application.

The table below shows non-interest income for the years ended December 31, 2009, 2008 and 2007.

Non-Interest Income

Year Ended December 31,

2009
(Dollars in thousands)

2008

2007

Service charges on deposit accounts .....................................................
Mortgage lending income ......................................................................
Trust income .........................................................................................
Bank owned life insurance income .......................................................
Appraisal, credit life commissions and other credit related fees ............
Safe deposit box rental, operating lease income, brokerage fees and
1,231
other miscellaneous fees ...................................................................
26,982
Gains (losses) on investment securities ................................................
(177)
(Losses) gains on sales of other assets .................................................
527
Other .....................................................................................................
Total non-interest income ............................................................... $51,051

$12,421
3,312
3,078
3,186
491

$12,007
2,215
2,595
4,131
456

1,218
(3,433)
(544)
704
$19,349

$12,193
2,668
2,223
1,919
498

1,160
520
487
1,307
$22,975

Non-Interest Expense

Non-interest expense consists of salaries and employee benefits, net occupancy and equipment expense

and other operating expenses.

2009 compared to 2008

Non-interest expense for 2009 increased 26.2% to $68.6 million compared to $54.4 million in 2008.
The Company’s efficiency ratio for 2009 was 37.8% compared to 42.3% in 2008. This improvement in the
effeciency ratio in 2009 resulted from the Company’s total revenue (the sum of FTE net interest income and
non-interest income) increasing at a faster rate than its non-interest expense.

Salaries and employee benefits, the Company’s largest component of non-interest expense, increased 5.7%

to $31.8 million in 2009 from $30.1 million in 2008. The Company had 722 full-time equivalent employees
at December 31, 2009, an increase of 2.4% from 705 full-time equivalent employees at December 31, 2008.

Net occupancy and equipment expense for 2009 increased 9.7% to $9.7 million compared to $8.9 million

in 2008. During 2009 the Company added new banking offices in downtown Little Rock, Arkansas and
Allen, Texas and closed a small office in North Little Rock, Arkansas where the leased space became
unavailable. At December 31, 2009, the Company had 73 offices, including 65 banking offices in Arkansas,
seven Texas banking offices and one loan production office in Charlotte, North Carolina. At December 31,
2008, the Company had 72 offices.

Other operating expenses for 2009 increased 75.8% to $27.0 million compared to $15.4 million in 2008.

The significant increase in other operating expenses was primarily attributable to increases in (i) Federal
Deposit Insurance Corporation (“FDIC”) insurance expense, (ii) loan collection and repossession expense,
(iii) write downs on other real estate owned, and (iv) other expenses.

The Company’s FDIC insurance expense increased 279.4% to $4.3 million in 2009 compared to $1.1
million in 2008. This large increase was due to (i) a special assessment levied by the FDIC on all insured
institutions during the second quarter of 2009, relating to the rebuilding of the FDIC’s Deposit Insurance
Fund, which resulted in the Company incurring $1.3 million of expense and (ii) higher FDIC base insurance
premium assessments for 2009 applicable to all FDIC insured institutions which resulted in increased
expense of $1.9 million.

The Company’s loan collection and repossession expense increased 300.3% to $4.0 million in 2009
compared to $1.0 million in 2008. This increase was primarily attributable to the increased volume of
foreclosure and repossession activity in 2009 compared to 2008.

During 2009 the Company recorded write downs on other real estate owned of $4.0 million compared to
$1.0 million in 2008. The increase in write downs of other real estate owned in 2009 was primarily attributable
to the higher volume of other real estate owned in 2009 and declines in the value of assets held in other real
estate owned in 2009 as a result of economic and real estate market conditions and other factors.

The increase in other expenses in 2009 included (i) a $0.6 million write off of capitalized branch costs
and (ii) a $1.0 million impairment charge on an equity investment in a real estate development project. The
$0.6 million write off of capitalized branch costs resulted from the Company’s decision to indefinitely delay
construction of five Arkansas branches for which it had previously incurred architectural, engineering and
other capitalized pre-construction costs. It is presently uncertain as to when or if the Company will proceed
with construction. The $1.0 million impairment charge resulted from the Company’s only equity investment
in a real estate development project. Because the project is selling at a slower than expected pace, the Company
recognized the impairment charge which reduced the Company’s investment to $2.55 million, equaling the
net present value of the proceeds expected to be realized using a 15% compounded annual discount rate.

2008 compared to 2007

Non-interest expense for 2008 increased 12.7% to $54.4 million compared to $48.3 million in 2007.
The Company’s efficiency ratio for 2008 was 42.3% compared to 46.3% in 2007. This improvement in the
effeciency ratio resulted from the Company’s total revenue (the sum of FTE net interest income and non-
interest income) increasing at a faster rate than its non-interest expense in 2008.

Salaries and employee benefits, the Company’s largest component of non-interest expense, increased 5.1%

to $30.1 million in 2008 from $28.7 million in 2007. The Company had 705 full-time equivalent employees
at December 31, 2008, an increase of 2.3% from 689 full-time equivalent employees at December 31, 2007.

During 2008 the Company added a new banking office in Lewisville, Texas and its new corporate
headquarters in Little Rock, Arkansas, which opened in December. Simultaneous with the opening of
the new headquarters, which includes a retail banking office, the Company closed a nearby Wal-Mart
Supercenter branch and a nearby loan production office. At December 31, 2008, the Company had 71
full-service banking offices and one loan production office compared to 70 full-service banking offices
and two loan production offices at December 31, 2007.

The following table shows non-interest expense for the years ended December 31, 2009, 2008 and 2007.

Non-Interest Expense

2009

Salaries and employee benefits .................................................. $31,847
Net occupancy and equipment expense ......................................
9,740
Other operating expenses:
Postage and supplies .............................................................
1,530
Telephone and data lines .......................................................
1,806
Advertising and public relations ............................................
1,083
Professional and outside services ..........................................
1,793
Software expense ...................................................................
1,524
FDIC and state assessments ...................................................
673
FDIC insurance ......................................................................
4,291
ATM expense .........................................................................
745
Loan collection and repossession expense .............................
3,999
Write down of other real estate owned ..................................
4,009
Amortization of intangibles ...................................................
110
5,482
Other .....................................................................................
Total non-interest expense ............................................... $68,632

Year Ended December 31,

2008
(Dollars in thousands)
$30,132
8,882

2007

$28,661
8,098

1,633
1,630
1,204
1,537
1,261
664
1,131
633
999
1,042
214
3,447
$54,409

1,620
1,415
1,057
1,077
1,201
624
701
674
328
122
262
2,414
$48,254

Income Taxes

The Company’s provision for income taxes was $12.9 million for the year ended December 31, 2009
compared to $9.9 million in 2008 and $14.4 million in 2007. Its effective income tax rates were 22.98%,
22.24% and 31.27%, respectively, for 2009, 2008 and 2007. The effective tax rate increased 74 bps in 2009
compared to 2008. The effective tax rate decreased 903 bps in 2008 compared to 2007, primarily due to
(i) the significant increase, both in volume and as a percentage of earning assets, in investment securities
which are exempt from federal and/or state income taxes and (ii) the $2.1 million of non-taxable income
from death benefits on BOLI in 2008 compared to none in 2007. The effective tax rates for all periods were
also affected by various other factors including other non-taxable income and non-deductible expenses.

Loan and Lease Portfolio

Analysis of Financial Condition

At December 31, 2009, the Company’s loan and lease portfolio was $1.90 billion, a decrease of 5.8% from
$2.02 billion at December 31, 2008. Economic conditions in 2009 diminished both the demand for loans and
leases and the quality of many credit applications, resulting in the volume of new loan and lease originations
in 2009 being more than offset by loan and lease paydowns.

As of December 31, 2009, the Company’s loan and lease portfolio consisted of 85.7% real estate loans,

7.9% commercial and industrial loans, 3.4% consumer loans, 2.1% direct financing leases and 0.8%
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. Real estate
loans decreased 2.1% from $1.67 billion at December 31, 2008 to $1.63 billion at December 31, 2009.

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

Loan and Lease Portfolio

2009

2008

December 31,
2007
(Dollars in thousands)

2006

2005

Real estate:

Residential 1-4 family ................... $ 282,733
606,880
Non-farm/non-residential .............
600,342
Construction/land development ......
Agricultural ...................................
86,237
55,860
Multifamily residential ..................
Total real estate .......................... 1,632,052
150,208
63,561
40,353
15,509
2,421
Total loans and leases ................ $1,904,104

Commercial and industrial ................
Consumer ..........................................
Direct financing leases ......................
Agricultural (non-real estate) ...........
Other .................................................

$ 275,281
551,821
694,527
84,432
61,668
1,667,729
206,058
75,015
50,250
19,460
2,687
$2,021,199

$ 279,375
445,303
684,775
91,810
31,414
1,532,677
173,128
87,867
53,446
22,439
1,578
$1,871,135

$ 281,400
433,998
514,899
88,021
50,202
1,368,520
148,853
86,048
49,705
22,298
1,965
$1,677,389

$ 271,989
375,628
366,827
74,644
31,142
1,120,230
109,459
78,916
38,060
20,605
3,453
$1,370,723

The amount and percentage of the Company’s loan and lease portfolio by state of originating office are

reflected in the following table.

Loan and Lease Portfolio by State of Originating Office

Loans and Leases
Attributable to Offices In

2009

Amount

Arkansas ......................................... $1,148,053
643,575
Texas ...............................................
North Carolina .................................
112,476
Total ......................................... $1,904,104 100.0%

60.3%
33.8
5.9

December 31,
2008

Amount
(Dollars in thousands)

$1,333,420
588,875
98,904

66.0%
29.1
4.9

2007

Amount

$1,461,657
315,960
93,518

78.1%
16.9
5.0

$2,021,199 100.0%

$1,871,135 100.0%

The amount and type of the Company’s real estate loans at December 31, 2009 based on the metropolitan

statistical area (“MSA”) and other geographic areas in which the principal collateral is located are reflected
in the following table. Data for individual states is separately presented when aggregate real estate loans in
that state exceed $10 million.

Geographic Distribution of Real Estate Loans

Residential Non-Farm/ Construction/

1-4
Family

Non-

Multifamily
Residential Development Agricultural Residential

Land

Total

Arkansas:
Little Rock - North Little
Rock, AR MSA ....................... $ 78,235 $178,473
Fort Smith, AR MSA .................
49,044
Fayetteville - Springdale -
8,765
Rogers, AR MSA ....................
8,715
Hot Springs, AR MSA ...............
Western Arkansas(1) ..................
29,999
Northern Arkansas(2) ................
85,121
All other Arkansas(3) .................
7,733
Total Arkansas .................... 257,539

17,784
8,339
41,052
35,817
15,798
346,307

38,971

(Dollars in thousands)

$ 88,871
10,220

$10,730
6,500

$ 7,331
3,111

$ 363,640
107,846

22,518
7,096
7,739
14,358
2,879
153,681

6,508
-
13,623
44,834
2,478
84,673

-
1,557
1,527
584
-
14,110

55,575
25,707
93,940
180,714
28,888
856,310

Texas:
Dallas - Fort Worth -
Arlington, TX MSA ................
Houston - Baytown -
Sugar Land, TX MSA .............
San Antonio, TX MSA ..............
Austin - Round Rock, TX MSA ..
Texarkana, TX -
Texarkana, AR MSA ..............
All other Texas(3) .......................
Total Texas ..........................

North Carolina/South Carolina:
Charlotte - Gastonia -
Concord, NC/SC MSA .............
All other North Carolina(3) .........
All other South Carolina(3) .........
Total North Carolina/
South Carolina .................

California ..................................

Virginia .....................................

3,113

106,042

186,528

25,104

320,787

-
-
-

11,856
-
-

10,340
465
13,918

11,388
15,288
144,574

1,722
237
5,810

35,795
12,576
7,548

7,769

55,919

2,669

42,027
18,340
16,481

3,897
29,015
296,288

40,029
45,328
5,199

90,556

31,004

17,961

1,781

-
-
-

53,883
18,340
16,481

29,930
44,768
484,189

388
-
388

3,917
-
29,021

-
-
-

2,195
-
6,449

79,741
58,141
25,006

8,644

162,888

33,673

17,961

17,238

Oklahoma(4) ..............................

143

15,314

All other states(3)(5) ....................
42,097
Total real estate loans ......... $282,733 $606,880

3,364

9,071
$600,342

1,176
$86,237

4,085
$55,860

59,793
$1,632,052

(1) This geographic area includes the following counties in Western Arkansas: Conway, Johnson, Logan, Pope and

Yell counties.

(2) This geographic area includes the following counties in Northern Arkansas: Baxter, Boone, Carroll, Fulton, Marion,

Newton, Searcy and Van Buren counties.

(3) These geographic areas include all MSA and non-MSA areas that are not separately reported.

(4) This geographic area includes all loans in Oklahoma except loans in Le Flore and Sequoyah counties which are

included in the Fort Smith, Arkansas MSA above.

(5) Includes all states not separately presented above.

The amount and type of non-farm/non-residential loans at December 31, 2009 and 2008, and their

respective percentage of the total non-farm/non-residential loan portfolio are reflected in the following table.

Non-Farm/Non-Residential Loans

December 31,

2009

2008

Amount

(Dollars in thousands)

Retail, including shopping centers
and strip centers ................................................... $182,343
58,601
Churches and schools ..............................................
53,797
Office, including medical offices ..............................
64,608
Office warehouse, warehouse and mini-storage ......
17,942
Gasoline stations and convenience stores ................
39,206
Hotels and motels ....................................................
45,597
Restaurants and bars ...............................................
34,859
Manufacturing and industrial facilities ....................
30,171
Nursing homes and assisted living centers ..............
38,662
Hospitals, surgery centers and other medical ..........
Golf courses, entertainment and
15,162
recreational facilities .............................................
Other non-farm/non-residential ..............................
25,932
Total .................................................................. $606,880

30.0%
9.6
8.9
10.6
3.0
6.5
7.5
5.7
5.0
6.4

$143,565
75,371
62,644
41,253
15,938
24,046
47,489
25,933
22,516
52,715

2.5
4.3
100.0%

12,873
27,478
$551,821

26.0%
13.7
11.3
7.5
2.9
4.4
8.6
4.7
4.1
9.5

2.3
5.0
100.0%

The amount and type of construction/land development loans at December 31, 2009 and 2008, and
their respective percentage of the total construction/land development loan portfolio are reflected in the
following table.

Construction/Land Development Loans

December 31,

2009

2008

Amount

189,691
74,744

Unimproved land ..................................................... $ 98,386
Land development and lots:
1-4 family residential and multifamily .................
Non-residential .....................................................
Construction:
1-4 family residential:
Owner occupied .................................................
Non-owner occupied:
6,626
Pre-sold ..........................................................
54,719
Speculative .....................................................
78,540
Multifamily ...........................................................
Industrial, commercial and other ..........................
84,758
Total .................................................................. $600,342

12,878

(Dollars in thousands)

16.4%

$ 92,118

13.3%

31.6
12.5

219,174
102,598

31.6
14.8

2.1

19,537

2.8

1.1
9.1
13.1
14.1
100.0%

14,791
75,233
17,830
153,246
$694,527

2.1
10.8
2.6
22.0
100.0%

The establishment of interest reserves for construction and development loans is established banking

practice, but the handling of such interest reserves varies widely within the industry. Many of the Company’s
construction and development loans provide for the use of interest reserves, and based upon its knowledge
of general industry practices, the Company believes that its practices related to such interest reserves,
discussed below, are appropriate and conservative. When the Company underwrites construction and
development loans, it considers the expected total project costs, including hard costs such as land, site
work and construction costs and soft costs such as architectural and engineering fees, closing costs,
leasing commissions and construction period interest. Based on the total project costs and other factors,
the Company determines the required borrower cash equity contribution and the maximum amount the
Company is willing to loan. In the vast majority of cases, the Company requires that all of the borrower’s
cash equity contribution be contributed prior to any material loan advances. This ensures that the borrower’s
cash equity required to complete the project will in fact be available for such purposes. As a result of this
practice, the borrower’s cash equity typically goes toward the purchase of the land and early stage hard costs
and soft costs. This results in the Company funding the loan later as the project progresses, and accordingly
the Company typically funds the majority of the construction period interest through loan advances. However,
when the Company initially determines the borrower’s cash equity requirement, the Company typically
requires the borrower’s cash equity to cover a majority, or all, of the soft costs, including an amount equal
to construction period interest, and an appropriate portion of the hard costs. During 2009, the Company
advanced construction period interest totaling approximately $9.1 million on construction and development
loans. While the Company advanced these sums as part of the funding process, the Company believes that
the borrowers in effect had in most cases already provided for these sums as part of their initial equity
contribution. Specifically, the maximum committed balance of all construction and development loans
which provide for the use of interest reserves at December 31, 2009 was approximately $464 million,
of which $379 million was outstanding at December 31, 2009 and $85 million remained to be advanced.
The weighted average loan to cost on such loans, assuming such loans are ultimately fully advanced, will
be approximately 65%, which means that the weighted average cash equity contributed on such loans,
assuming such loans are ultimately fully advanced, will be approximately 35%. The weighted average
final loan to value ratio on such loans, based on the most recent appraisals and assuming such loans are
ultimately fully advanced, is expected to be approximately 57%.

Loan and Lease Maturities

The following table reflects loans and leases grouped by remaining maturities at December 31, 2009
by type and by fixed or floating interest rates. This table is based on actual maturities and does not reflect
amortizations, projected paydowns or the earliest repricing for floating rate loans. Many loans have principal
paydowns scheduled in periods prior to the period in which they mature. In addition many 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
(Dollars in thousands)

Real estate ............................................................... $641,280
82,222
Commercial, industrial and agricultural ...................
15,349
Consumer .................................................................
3,146
Direct financing leases .............................................
Other ........................................................................
933
Total ................................................................. $742,930

Fixed rate ................................................................. $293,004
77,000
Floating rate (not at a floor or ceiling rate) ..............
372,926
Floating rate (at floor rate) ......................................
Floating rate (at ceiling rate) ...................................
-
Total ................................................................. $742,930

$ 896,987
78,891
46,405
37,207
1,488
$1,060,978

$ 531,471
39,617
489,890
-
$1,060,978

$ 93,785
4,604
1,807
-
-
$100,196

$ 69,092
12,600
18,458
46
$100,196

Total

$1,632,052
165,717
63,561
40,353
2,421
$1,904,104

$ 893,567
129,217
881,274
46
$1,904,104

The following table reflects loans and leases as of December 31, 2009 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
(Dollars in thousands)

Over
5 Years

Total

Fixed rate ................................... $ 345,847 $224,846
Floating rate (not at a floor
614
or ceiling rate) ........................
Floating rate (at floor rate)(1) ......
-
-
Floating rate (at ceiling rate) ......
Total .................................... $1,349,847 $225,460

124,137
879,817
46

$164,938 $111,216 $46,720 $ 893,567

3,280
162
-

129,217
881,274
46
$168,380 $113,697 $46,720 $1,904,104

1,186
1,295
-

-
-
-

Percentage of total .....................
Cumulative percentage of total ...

70.9%
70.9

11.8%
82.7

8.9%

91.6

5.9%

2.5%

100.0%

97.5

100.0

(1) The inclusion of a floor rate in many of the Company’s loans and leases has lessened the impact of falling interest

rates on the Company’s loan and lease yields. Conversely, many loans and leases with floor rates will not immediately
reprice in a rising rate environment if the interest rate index and margin on such loans and leases continue to result
in a computed interest rate less than the applicable floor rate. The earnings simulation model results included in the
interest rate risk section of this Management’s Discussion and Analysis include consideration of the impact of all
interest rate floors and ceilings in loans and leases.

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.

The following table presents information concerning nonperforming assets including nonaccrual and

restructured loans and leases, foreclosed assets held for sale and repossessions.

Nonperforming Assets

2009

2008

December 31,
2007
(Dollars in thousands)

2006

Nonaccrual loans and leases ........................................ $23,604
-
Accruing loans and leases 90 days or more past due...
Restructured loans and leases(1) ...................................
-
23,604
Total nonperforming loans and leases ..................
Foreclosed assets held for sale and repossessions(2) .........
61,148
Total nonperforming assets .................................. $84,752

$15,382
-
-
15,382
10,758
$26,140

$6,610
26
-
6,636
3,112
$9,748

$5,713
-
-
5,713
407
$6,120

2005

$3,385
-
-
3,385
356
$3,741

Nonperforming loans and leases
to total loans and leases ...........................................
Nonperforming assets to total assets ...........................

1.24%
3.06

0.76%
0.81

0.35%
0.36

0.34%
0.24

0.25%
0.18

(1) All restructured loans and leases as of the dates shown were on nonaccrual status and are included as nonaccrual

loans and leases in this table.

(2) 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 values of such assets are reviewed from
time to time throughout the holding period with the value adjusted through non-interest expense to the then
estimated market value net of estimated selling costs, if lower, until disposition.

While most of the Company’s markets appear to have been less significantly impacted by weaker economic

conditions than many markets nationally, the Company has not been immune to the effects of the slower
economic conditions and the slow down in housing and other real estate activity.

The increases during both 2009 and 2008 in the Company’s volume of nonperforming loans and leases
and ratio of nonperforming loans and leases to total loans and leases were not due to a specific customer or
a specific market, but resulted from a number of loans and leases spread across the Company’s market areas.

The increase during 2009 in the Company’s volume of foreclosed assets held for sale and repossessions
and the related increase in the ratio of nonperforming assets to total assets at December 31, 2009 compared
to December 31, 2008 is primarily attributable to four credit relationships which were placed on non-accrual
status and then transferred into other real estate owned in 2009 at the estimated fair value of the collateral
received by the Company in satisfaction of the debts. The other real estate owned resulting from these four
previous credit relationships includes (i) 688 residential lots, one commercial lot and a clubhouse that
comprise two separate lot development projects in the Fayetteville-Springdale-Rogers, AR MSA in northwest
Arkansas, (ii) a number of houses, townhouses and duplexes, a small commercial building, and commercial,
residential and duplex lots, all in the Fayetteville-Springdale-Rogers, AR MSA, (iii) approximately 60 acres
of undeveloped land located near the Dallas, Texas central business district and (iv) a 476-unit apartment
complex located in Arlington, Texas.

The increase during 2008 in the Company’s volume of foreclosed assets held for sale and repossessions
and the related increase in the ratio of nonperforming assets to total assets at December 31, 2008 compared
to December 31, 2007 was not due to a specific customer or a specific market, but resulted from a number of
assets spread across the Company’s market areas.

In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 310, “Receivables”

at December 31, 2009, the Company had reduced the carrying value of its impaired loans and leases (all of
which were included in nonaccrual loans and leases) by $9.7 million to the estimated fair value of such
loans and leases of $19.2 million. The $9.7 million adjustment to reduce the carrying value of impaired
loans and leases to estimated fair value consisted of $8.1 million of partial charge-offs and $1.7 million
of specific loan and lease loss allocations.

The following table presents information concerning the geographic location of nonperforming assets
at December 31, 2009. Nonaccrual loans and leases are reported in the physical location of the principal
collateral. Other real estate owned is reported in the physical location of the asset. Repossessions are
reported at the physical location where the borrower resided or had its principal place of business at the
time of repossession.

Geographic Distribution of Nonperforming Assets

Nonaccrual
Loans and
Leases

Arkansas ............................................................................
Texas ..................................................................................
North Carolina ....................................................................
South Carolina ....................................................................
All other..............................................................................
Total .............................................................................

$15,943
4,541
1,112
1,937
71
$23,604

Allowance and Provision for Loan and Lease Losses

Other
Real Estate
Owned and
Repossessions
(Dollars in thousands)
$32,258
28,457
-
344
89
$61,148

Total
Nonperforming
Assets

$48,201
32,998
1,112
2,281
160
$84,752

The Company’s allowance for loan and lease losses was $39.6 million at December 31, 2009, or 2.08%
of total loans and leases, compared with $29.5 million, or 1.46% of total loans and leases, at December 31,
2008. The allowance for loan and lease losses was $19.6 million, or 1.05% of loans and leases, at December
31, 2007. The Company’s allowance for loan and lease losses was equal to 168% of its total nonperforming
loans and leases at December 31, 2009 compared to 192% at December 31, 2008 and 295% at December 31,
2007. The increase in the allowance for loan and lease losses is due to a number of factors, including changes
in loss estimates for individual loans and leases and certain categories of loans and leases, slower economic
and housing market conditions and uncertainty regarding economic conditions in general. While the Company
believes the current allowance is appropriate, 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 analysis
of the adequacy of the allowance for loan and lease losses utilizing the criteria discussed below. The provision
for loan and lease losses for 2009 was $44.8 million compared to $19.0 million in 2008 and $6.2 million in
2007. The Company’s increase in its provision for loan and lease losses and its net charge-offs for 2009
compared to 2008 were significantly impacted by slower economic conditions, including the write-downs of
the carrying value of the four credit relationships previously discussed, and other factors.

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,

2009

2008

2007
(Dollars in thousands)

2006

2005

Balance, beginning of period ....................................... $29,512 $19,557 $17,699 $17,007 $16,133
Loans and leases charged off:
Real estate:
Residential 1-4 family .......................................
Non-farm/non-residential ..................................
Construction/land development .........................
Agricultural .......................................................
Multifamily/residential ......................................
Total real estate ............................................
Commercial and industrial ......................................
Consumer ...............................................................
Direct financing leases ............................................
Agricultural (non-real estate) .................................
Total loans and leases charged off ................

1,619
3,182
20,188
844
4,355
30,188
3,347
1,303
648
399
35,885

1,079
552
3,059
645
250
5,585
1,259
1,783
734
270
9,631

215
182
796
37
-
1,230
1,798
1,046
367
203
4,644

124
132
58
-
-
314
872
709
63
107
2,065

196
47
-
-
-
243
706
785
-
50
1,784

Recoveries of loans and leases previously charged off:
Real estate:
53
Residential 1-4 family .......................................
17
Non-farm/non-residential ..................................
23
Construction/land development .........................
-
Agricultural .......................................................
-
Multifamily residential.......................................
93
Total real estate ............................................
102
Commercial and industrial ......................................
152
Consumer ...............................................................
-
Direct financing leases ............................................
11
Agricultural (non-real estate) .................................
358
Total recoveries .............................................
1,426
Net loans and leases charged off .................................
2,300
Provision charged to operating expense ......................
Balance, end of period ................................................. $39,619 $29,512 $19,557 $17,699 $17,007

99
147
82
-
1
329
566
183
67
47
1,192
34,693
44,800

55
76
29
-
-
160
51
317
21
12
561
9,070
19,025

25
3
-
19
-
47
62
209
27
7
352
4,292
6,150

5
4
4
-
-
13
47
234
13
-
307
1,758
2,450

Net charge-offs to average loans and leases ................
Allowance for loan and lease losses to total
loans and leases .......................................................
Allowance for loan and lease losses to
nonperforming loans and leases ...............................

1.75%

0.45%

0.24% 0.12%

0.11%

2.08%

1.46%

1.05% 1.06%

1.24%

168%

192%

295%

310%

502%

Provisions to and the adequacy of the allowance for loan and lease losses are determined in accordance
with ASC Topic 310 “Receivables” and ASC Topic 450, “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 ASC Topic 310. 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, mix 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 borrowers’ or lessees’ ability to pay,
the value of collateral 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 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 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, residential 1-4 family loans and consumer loans. Additionally, management considers a
variety of subjective criteria in determining the allowance allocation percentages.

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. Most of the Company’s
nonaccrual loans and leases and loans and leases that have been restructured from their original contractual
terms are considered impaired. Many of the Company’s impaired loans and leases are dependent upon
collateral for repayment. For such loans and leases, impairment is 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 impaired amount is (i) specifically considered
in the determination of the allowance for loan and lease losses or (ii) immediately charged off as a reduction
of the allowance for loan and lease losses.

The Company maintains specific reserves for certain loans and leases not considered impaired where
(i) the customer is continuing to make regular payments, although payments may be past due, (ii) there is
a reasonable basis to believe the customer may continue to make regular payments, although there is also
an elevated risk that the customer may default, and (iii) the collateral or other repayment sources are likely
to be insufficient to recover the current investment in the loan or lease if a default occurs. The Company
evaluates such loans and leases to determine whether a specific reserve is needed for the loan or lease.
For the purpose of calculating the amount of the specific reserve appropriate for any such loan or lease,
management assumes that (i) no further regular payments occur and (ii) all sums recovered will come from
liquidation of collateral and collection efforts from other payment sources. To the extent that the Company’s
current investment in a particular loan or lease evaluated for the need for a specific reserve exceeds its net
collateral value or its estimated discounted cash flows, such excess is allocated as a specific reserve for
purposes of the determination of the allowance for loan and lease losses.

The Company also includes further allowance allocation for risk-rated and certain other loans, including

commercial real estate loans, that are in markets determined by management to be “stressed”. Stressed
markets may include any specific geography experiencing (i) high unemployment substantially above the
U.S. average, (ii) significant over-development in one or more commercial real estate categories, (iii) recent
or announced loss of a major employer or significant workforce reductions, (iv) significant declines in real
estate values, and (v) various other factors. The additional allowance for such stressed markets compensates
for the expectation that a higher risk of loss is anticipated for the “work-out” or liquidation of a real estate
loan in a stressed market versus a market that is not experiencing any significant levels of stress. The
required allocation percentage applicable to real estate loans in stressed markets may be applied to the total
market or it may be determined at the individual loan level based on collateral value, loan-to-value ratios,
strength of the borrower and/or guarantor, viability of the underlying project and other factors.

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, including concentrations
of credit in commercial real estate loans, (8) the Company’s 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, 2009
management believed it was appropriate to maintain an unallocated portion of the allowance not derived
by the allowance allocation percentages that ranges from 15% to 25% of the total allowance for loan and
lease losses.

In addition to the internal grading system, specific impairment analyses, specific reserve analyses and

the “stressed” markets allocation, 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 percentages as
shown on the most recently available FDIC’s Uniform Bank Performance Report and FRB’s Bank Holding
Company Performance Report. This comparison is an effort to validate the overall adequacy of the allowance
for loan and lease losses.

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 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, value, nature 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 age, condition, 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 age, condition, 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 analysis of the adequacy of the allowance for loan and lease losses
on a quarterly basis, or more frequently as needed, 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 loans, (ii) the past due status of residential
1-4 family loans and consumer loans, (iii) allowances made for specific loans and leases and (iv) “stressed”
market allocations, 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, specific impairment analyses, specific special
reserve analyses and “stressed” markets allocations. 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

2009

2008

% of
Loans
and

December 31,

2007

% of
Loans
and

2006

2005

% of
Loans
and

Allowance Leases Allowance Leases

Allowance Leases Allowance Leases Allowance Leases

Real estate:
Residential 1-4 family ................. $ 3,600
Non-farm/non-residential ...........
6,574
Construction/land development ... 11,585
750
Agricultural ................................
710
Multifamily residential ................
3,587
Commercial and industrial ............
2,599
Consumer .....................................
1,560
Direct financing leases ..................
222
Agricultural (non-real estate) ........
67
Other ............................................
Unallocated allowance ..................
8,365
Total ...................................... $39,619

(Dollars in thousands)

14.9 % $ 2,170
4,396
31.9
8,560
31.5
745
4.5
1,658
2.9
2,421
7.9
1,894
3.4
808
2.1
137
0.8
72
0.1
6,651
$29,512

13.6% $ 2,217
3,470
27.3
5,192
34.4
791
4.2
198
3.0
1,439
10.2
2,280
3.7
335
2.5
142
1.0
65
0.1
3,428
$19,557

14.9% $ 3,052
3,085
23.8
3,381
36.6
765
4.9
272
1.7
1,373
9.3
2,179
4.7
305
2.8
150
1.2
77
0.1
3,060
$17,699

16.8% $ 3,423
3,368
25.9
2,820
30.7
562
5.2
235
3.0
1,111
8.9
2,062
5.1
286
3.0
200
1.3
41
0.1
2,899
$17,007

19.8 %
27.4
26.8
5.5
2.2
8.0
5.8
2.8
1.5
0.2

The Company maintains an internally classified loan and lease list that, along with the list of nonaccrual
loans and leases, the list of impaired loans and leases, the list of loans and leases with specific reserves, and
the “stressed” market allocations, 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, 2009 substandard loans and leases not designated as nonaccrual or 90 days past due totaled
$26.1 million, compared to $41.6 million at December 31, 2008 and $10.0 million at December 31, 2007.
No loans or leases were designated as doubtful or loss at December 31, 2009, 2008 or 2007.

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 2009 consisted of any five or more
directors and three of the Bank’s senior officers. At least quarterly, the Company’s loan committee reviews
various reports of loan and lease concentrations, loan and lease originations and commitments over
$100,000, internally classified and watch list loans and leases and various other loan and lease reports.
At least quarterly the Board of Directors reviews summary reports of past due loans and leases and 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 and reviewed by the Company’s audit
committee. Additionally, the reports issued by the Company’s loan review function are provided to and
reviewed by the Company’s loan committee.

Investment Securities

At December 31, 2009, 2008 and 2007, the Company classified all of its investment securities portfolio as
available for sale. 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).

At December 31, 2007, the Company owned stock in the FHLB and Arkansas Banker’s Bancorporation,

Inc (“ABB”). In 2008 ABB was acquired by and merged into First National Banker’s Bankshares, Inc.
(“FNBB”) via a tax-free exchange of stock. Accordingly, at December 31, 2009 and 2008, the Company
owned stock in the FHLB and FNBB. The FHLB, ABB and FNBB shares do not have readily determinable
fair values and are carried at cost.

The following table presents the amortized cost and the fair value of investment securities as of the

dates indicated.

Investment Securities

2009

December 31,
2008

2007

Amortized
Cost

Fair
Value(1)

Amortized
Cost

Fair
Value(1)

Amortized
Cost

Fair
Value(1)

(Dollars in thousands)

Obligations of states and political

subdivisions ....................................... $385,581 $393,887 $517,166 $542,740 $163,339 $166,467

U.S. Government agency residential
mortgage-backed securities .................
Securities of U.S. Government agencies ..
Corporate obligations ..............................
Collateralized debt obligation ..................
FHLB and FNBB/ABB stock ......................

93,159
-
1,596
100
16,316

94,510
-
1,865
100
16,316

371,110
-
6,953
1,000
22,846

371,561
-
6,953
683
22,846

370,061
42,029
9,953
1,044
16,753

344,346
42,092
7,646
1,044
16,753

Total ............................................ $496,752 $506,678 $919,075 $944,783 $603,179 $578,348

(1) The Company utilizes independent third parties as its principal sources for determining fair value. For investment
securities traded in an active market, the fair values are based on quoted market prices if available. If quoted
market prices are not available, fair values are based on market prices for comparable securities, broker quotes or
comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities traded in
a market that is not active, fair value is determined using unobservable inputs.

The Company’s investment securities portfolio is reported at amortized cost adjusted for unrealized gains

and losses and for any impairment charges. At December 31, 2009 and 2008, unrealized net gains totaled
$9.9 million and $25.7 million, respectively. At December 31, 2007, unrealized net losses totaled $24.8
million. Management believes that all of its unrealized losses on individual investment securities at
December 31, 2009 are the result of fluctuations in interest rates and do not reflect deterioration in the
credit quality of its investments. Accordingly management considers these unrealized losses to be temporary
in nature. The Company does not have the intent to sell these investment securities and more likely than not
would not be required to sell these investment securities before fair value recovers to amortized cost.

At December 31, 2009, the Company’s investment securities portfolio included one security categorized as

a CDO. This CDO has performed in accordance with its terms and is not in default, but, because of its credit
rating being downgraded to below investment grade and other factors, the Company determined during the
third quarter of 2009 that it no longer expects to hold this security until maturity or until such time as fair
value recovers to or above cost. As a result of the Company’s intent to dispose of this security, the Company
recorded a $0.9 million charge during the third quarter of 2009 to reduce the carrying value of this security
to $0.1 million.

During 2008 the Company’s investment securities portfolio included a bond issued by Sallie Mae with
an amortized cost of $10.0 million and an estimated fair value of $7.0 million. At December 31, 2008 the
Company concluded that the Sallie Mae bond was other-than-temporarily impaired and recorded a pretax
charge of $3.0 million to reduce the carrying value of this bond to its estimated fair value. This bond was
subsequently sold in 2009.

The Company had net gains of $27.9 million from the sale of $529 million of investment securities in
2009 compared to net losses of $0.4 million from the sale of $14 million of investment securities in 2008
and net gains of $0.5 million from the sale of $56 million of investment securities in 2007. During 2009,
2008 and 2007, respectively, investment securities totaling $247 million, $1.64 billion and $40 million
matured or were called by the issuer. The Company purchased $322 million, $1.96 billion and $70 million,
respectively, of investment securities during 2009, 2008 and 2007.

From February through December of 2008, the Company purchased a large volume of tax-exempt

investment securities which the Company expected to be relatively temporary investments. The opportunity
to acquire these securities at unusually favorable yields was due to unusual market conditions. The interest
rates on the majority of these securities reset weekly, resulting in the securities being repurchased or called
on a weekly basis. As expected, the Company’s volume of these investments declined during 2008 from
$290 million at March 31, 2008, to $85 million at December 31, 2008. The remainder of these securities
were called or otherwise paid off in the first and second quarters of 2009.

In addition, during the fourth quarter of 2008 and the first quarter of 2009, the Company purchased
other investment securities which offered relatively good value at the time of purchase and consisted of
tax-exempt mortgage-backed securities issued by housing authorities of states and political subdivisions
(“Municipal Housing Authority Bonds”). These Municipal Housing Authority Bonds are primarily backed
by single family or multi-family residential mortgages, the repayment of which is guaranteed by the
Government National Mortgage Association, Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, U.S. Department of Veterans’ Affairs, Federal Housing Agency or U.S. Department
of Agriculture Rural Development.

During 2009 the Company sold most of the Municipal Housing Authority Bonds and a substantial portion

of its U.S. Government agency residential mortgage-backed securities. This reduction of the Company’s
investment securities portfolio was a result of management’s ongoing evaluations of interest rate risk,
including consideration of the potential effects of recent United States government monetary and fiscal
policy actions.

The Company invests in securities it believes offer good relative value at the time of purchase, and it will,

from time to time reposition its investment securities portfolio. In making its decisions to sell or purchase
securities, the Company considers credit ratings, call features, maturity dates, relative yields, current market
factors, interest rate risk and other relevant factors

The following table presents the types and estimated fair values of the Company’s investment securities
at December 31, 2009 based on credit ratings by one or more nationally-recognized credit rating agencies.

Credit Ratings of Investment Securities

Obligations of states and

political subdivisions:

AAA(1)

AA(2)

12,955

Arkansas ................................ $ 12,136 $16,475
Non-Arkansas ........................
9,168
U.S. Government agency
residential mortgage-backed
securities .................................
-
-
Corporate obligations ..................
-
Collateralized debt obligation ......
-
FHLB and FNBB stock ..................
Total .................................... $135,534 $25,643

94,510
-
-
15,933

A(3)

BBB(4)
(Dollars in thousands)

B(5) Non-Rated(6) Total

$ 75,800 $11,826 $ - $187,410 $303,647
90,240

21,675

21,777

24,665

-
-
-
-

94,510
1,865
100
16,316
$100,465 $35,468 $100 $209,468 $506,678

-
1,865
-
-

-
-
100
-

-
-
-
383

Percentage of total ......................
Cumulative percentage of total ....

26.8%
26.8%

5.1%
31.9%

19.8%
51.7%

7.0% 0.0%
58.7% 58.7%

41.3%
100.0%

100.0%

(1) Includes securities rated Aaa by Moody’s, AAA by Standard & Poor’s (“S&P”) or a comparable rating by other

nationally-recognized credit rating agencies.

(2) Includes securities rated Aa1 to Aa3 by Moody’s, AA+ to AA- by S&P or a comparable rating by other nationally-

recognized credit rating agencies.

(3) Includes securities rated A1 to A3 by Moody’s, A+ to A- by S&P or a comparable rating by other nationally-

recognized credit rating agencies.

(4) Includes securities rated Baa1 to Baa3 by Moody’s, BBB+ to BBB- by S&P or a comparable rating by other

nationally-recognized credit rating agencies.

(5) Includes securities rated B1 to B3 by Moody’s, B+ to B- by S&P or a comparable rating by other nationally-

recognized credit rating agencies.

(6) Includes all securities that are not rated or securities that are not rated but that have a rated credit enhancement

where the Company has ignored such credit enhancement. For these securities, the Company has performed its own
evaluation of the security and/or the underlying issuer and believes that such security or its issuer would warrant a
credit rating of investment grade (i.e., Baa3 or better by Moody’s or BBB- or better by S&P or a comparable rating
by another nationally-recognized credit rating agency).

The following table presents the unaccreted discount and unamortized premium of the Company’s

investment securities for the dates indicated.

Unaccreted Discount and Unamortized Premium

Amortized Unaccreted Unamortized

Cost

Discount

Premium

Par
Value

(Dollars in thousands)

December 31, 2009:
Obligations of states and political subdivisions ............ $385,581
U.S. Government agency residential
93,159
mortgage-backed securities .......................................
1,596
Corporate obligations ....................................................
100
Collateralized debt obligation ........................................
FHLB and FNBB stock ....................................................
16,316
Total .......................................................................... $496,752
December 31, 2008:
Obligations of states and political subdivisions ............ $517,166
U.S. Government agency residential
371,110
mortgage-backed securities .......................................
6,953
Corporate obligations ....................................................
1,000
Collateralized debt obligation ........................................
FHLB and FNBB stock ....................................................
22,846
Total .......................................................................... $919,075

$ 8,796

$ (22)

$394,355

445
274
900
-
$10,415

(25)
-
-
-
$ (47)

93,579
1,870
1,000
16,316
$507,120

$28,779

$ (19)

$545,926

8,252
3,047
-
-
$40,078

(139)
-
-
-
$(158)

379,223
10,000
1,000
22,846
$958,995

During 2009, 2008 and 2007, the Company recognized discount accretion, net of premium amortization,
of $4.5 million, $1.0 million and $0.9 million, respectively, which is considered an adjustment to the yield
of its investment securities.

The following table reflects the expected maturity distribution of the Company’s investment securities, at
fair value, as of December 31, 2009 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) U.S. Government agency residential mortgage-backed securities are allocated among
various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds
based on interest rate levels at December 31, 2009, (3) mortgage-backed securities issued by housing
authorities of state and political subdivisions are allocated among various maturities based on an estimated
repayment schedule projected by management as of December 31, 2009, and (4) callable investment
securities when the Company has received notification of call are included in the maturity category in
which the call occurs or is expected to occur. Actual maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with or without call or prepayment
penalties. The weighted-average yields - FTE are calculated based on the coupon rate and amortized
cost for such securities and do not include any projected discount accretion or premium amortization.

Expected Maturity Distribution of Investment Securities

Obligations of states and political subdivisions ...
U.S. Government agency
residential mortgage-backed securities ............
Corporate obligations .........................................
Collateralized debt obligation ............................
FHLB and FNBB stock(1) .....................................
Total .........................................................

1 Year
or
Less

$ 3,769

39,543
-
-
-
$43,312

Over 1
Through
5 Years

Over 5
Through
10 Years
(Dollars in thousands)
$31,901

$25,562

Over
10
Years

$332,655

48,880
-
-
-
$74,442

6,087
-
-
-
$37,988

-
1,865
100
16,316
$350,936

Total

$393,887

94,510
1,865
100
16,316
$506,678

Percentage of total ...........................................
Cumulative percentage of total ..........................

8.5%
8.5%

Weighted-average yield - FTE(2) ........................

5.29%

14.7%
23.2%

5.68%

7.5%
30.7%

6.98%

69.3%
100.0%

100.0%

7.54%

7.03%

(1) Includes approximately $16.3 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 calculated based on the coupon rate and amortized cost for such securities

and do not include any projected discount accretion or premium amortization.

Deposits

The Company’s lending and investing activities are funded primarily by deposits. The Company’s total
deposits decreased 13.3% to $2.03 billion at December 31, 2009, compared to $2.34 billion at December 31,
2008. This decrease was primarily due to the Company adjusting its balance sheet as it reduced its
investment securities portfolio during 2009.

While the Company’s total deposits decreased during 2009, several favorable changes occurred in the

Company’s deposit mix. Non-interest bearing demand deposits grew $38 million from $186 million at
December 31, 2008 to $224 million at December 31, 2009. Total non-CD deposits grew $113 million from
$1.04 billion at December 31, 2008 to $1.15 billion at December 31, 2009. Brokered deposits decreased
from $385 million, or 16.4% of total deposits, at December 31, 2008 to $57 million, or 2.8% of total
deposits, at December 31, 2009.

Total deposits at December 31, 2009 consisted of 43.2% time deposits and 56.8% demand, savings and
interest bearing transaction deposits. Total deposits at December 31, 2008 consisted of 55.7% time deposits
and 44.3% demand, savings and interest bearing transaction deposits.

The following table reflects the average balance and average rate paid for each deposit category shown for

the years ended December 31, 2009, 2008 and 2007.

Average Deposit Balances and Rates

2009
Average Average
Balance Rate Paid

Year Ended December 31,
2008
Average Average
Balance Rate Paid
(Dollars in thousands)

2007
Average Average
Balance Rate Paid

Non-interest bearing accounts .......... $ 207,782
Interest bearing accounts:
Transaction (NOW) ........................
431,587
Savings ..........................................
33,568
Money market ................................
367,653
Time deposits less than $100,000 ..
409,969
699,281
Time deposits $100,000 or more ...
Total deposits ............................. $2,149,840

$ 184,563

$ 168,786

0.58%
0.11
1.24
2.40
1.93

400,145
28,437
199,601
516,655
906,306
$2,235,707

1.18%
0.11
2.27
3.76
3.91

403,288
25,746
92,841
487,382
899,666
$2,077,709

2.48%
0.22
3.95
4.84
5.10

The following table sets forth, by time remaining to maturity, time deposits in amounts of $100,000 and

over at December 31, 2009.

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

December 31, 2009
(Dollars in thousands)

3 months or less ................................................... $276,960
145,181
Over 3 to 6 months ...............................................
96,548
Over 6 to 12 months .............................................
Over 12 months ....................................................
21,545
Total ................................................................ $540,234

The amount and percentage of the Company’s deposits by state of originating office are reflected in the

following table.

Deposits by State of Originating Office

Deposits Attributable
to Offices In

2009

Amount

December 31,
2008

Amount
(Dollars in thousands)

2007

Amount

Arkansas ......................................... $1,734,870
Texas ...............................................
294,124
Total .......................................... $2,028,994 100.0%

85.5%
14.5

$2,032,335
309,079

86.8%
13.2

$1,922,746
134,315

93.5%
6.5

$2,341,414 100.0%

$2,057,061 100.0%

Other Interest Bearing Liabilities

The Company also relies on other interest bearing liabilities to fund its lending and investing activities.
Such liabilities consist of repurchase agreements with customers, other borrowings (primarily FHLB advances
and, to a lesser extent, FRB borrowings and federal funds purchased) and subordinated debentures.

Total other interest bearing liabilities were $452 million at December 31, 2009, a decrease of $85 million

from $537 million at December 31, 2008. Repurchase agreements with customers decreased 5.5% to $44
million at December 31, 2009 from $47 million at December 31, 2008. Other borrowings, including FHLB
advances, FRB borrowings and federal funds purchased, decreased 19.4% to $343 million at December 31,
2009 from $425 million at December 31, 2008. During 2009 the Company utilized a portion of the liquidity
generated from the sales of its investment securities portfolio to repay short-term borrowings.

The following table reflects the average balance and average rate paid for each category of other interest

bearing liabilities for the years ended December 31, 2009, 2008 and 2007.

Average Balances and Rates of Other Interest Bearing Liabilities

2009
Average Average
Balance Rate Paid

Year Ended December 31,
2008
Average Average
Balance Rate Paid
(Dollars in thousands)

2007
Average Average
Balance Rate Paid

Repurchase agreements
with customers .............................. $ 52,549
Other borrowings(1) ...........................
384,854
Subordinated debentures ..................
64,950
Total other interest
bearing liabilities ....................... $502,353

1.13% $ 43,916
441,228
3.74
64,950
3.29

1.81%
3.53
5.79

$ 44,071
215,872
64,950

3.64%
4.42
7.80

3.40%

$550,094

3.66%

$324,893

4.99%

(1) Included in other borrowings at December 31, 2009 are FHLB advances that contain quarterly call features and

mature as follows: 2010, $60.0 million at 6.27% weighted-average interest rate (“WAR”); 2017, $260.0 million at
3.90% WAR; and 2018, $20.0 million at 2.53% WAR.

Capital Resources

Capital Resources and Liquidity

Subordinated Debentures. At December 31, 2009, the Company had an aggregate of $64.9 million of
subordinated debentures and related trust preferred securities outstanding consisting of $20.6 million of
subordinated debentures and securities issued in 2006 that bear interest, adjustable quarterly, at LIBOR
plus 1.60%; $15.4 million of subordinated debentures and securities issued in 2004 that bear interest,
adjustable quarterly, at LIBOR plus 2.22%; and $28.9 million of subordinated debentures and securities
issued in 2003 that bear interest, adjustable quarterly, at a weighted-average rate of LIBOR plus 2.925%.
These subordinated debentures and securities generally mature 30 years after issuance and may be prepaid
at par, subject to regulatory approval, on or after approximately five years from the date of issuance, or at an
earlier date upon certain changes in tax laws, investment company laws or regulatory capital requirements.
These subordinated debentures and the related trust preferred securities provide the Company additional
regulatory capital to support its expected future growth and expansion.

Preferred Stock and Common Stock Warrant. On December 12, 2008, as part of the United States

Department of the Treasury’s (the “Treasury”) Capital Purchase Program made available to certain financial
institutions in the U.S. pursuant to the Emergency Economic Stabilization Act of 2008 (“EESA”), the
Company and the Treasury entered into a Letter Agreement including the Securities Purchase Agreement –
Standard Terms incorporated therein (the “Purchase Agreement”) pursuant to which the Company issued
to the Treasury, in exchange for aggregate consideration of $75.0 million, (i) 75,000 shares of the Company’s
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 and liquidation preference
$1,000 per share (the “Series A Preferred Stock”), and (ii) a warrant (the “Warrant”) to purchase up to
379,811 shares (the “Warrant Common Stock”) of the Company’s common stock, par value $0.01 per share,
at an exercise price of $29.62 per share.

On November 4, 2009, the Company redeemed all of the Series A Preferred Stock for $75.0 million plus
accrued and unpaid dividends, with the approval of the Company’s primary regulator in consultation with
the Treasury. On November 24, 2009, the Company repurchased the Warrant from the Treasury for $2.65
million, which was charged against the Company’s additional paid-in capital.

The Series A Preferred Stock qualified as Tier 1 capital and paid cumulative cash dividends quarterly at
a rate of 5% per annum while outstanding. The Series A Preferred Stock was non-voting, other than class
voting rights on certain matters that could adversely affect the Series A Preferred Stock. While the Series A
Preferred Stock was outstanding, the Company could not, without Treasury’s consent, increase its dividend
rate per share of common stock or repurchase its common stock.

Prior to its repurchase by the Company, the Warrant was immediately exercisable and had a 10-year term.
The Treasury could not exercise voting power with respect to any shares of Warrant Common Stock until the
Warrant had been exercised.

In addition, the Purchase Agreement (i) granted the holders of the Series A Preferred Stock, the Warrant

and the Warrant Common Stock certain registration rights, (ii) subjected the Company to certain of the
executive compensation limitations included in the EESA and (iii) allowed the Treasury to unilaterally
amend any of the terms of the Purchase Agreement to the extent required to comply with any changes
after December 12, 2008 in applicable federal statutes.

Upon receipt of the aggregate consideration from the Treasury on December 12, 2008, the Company
allocated the $75.0 million proceeds on a pro rata basis to the Series A Preferred Stock and the Warrant
based on relative fair values. In estimating the fair value of the Warrant, the Company utilized the Black-
Scholes model which includes assumptions regarding the Company’s common stock prices, stock price
volatility, dividend yield, the risk free interest rate and the estimated life of the Warrant. The fair value of
the Series A Preferred Stock was determined using a discounted cash flow methodology and a discount rate
of 12%. As a result, the Company assigned $3.1 million of the aggregate proceeds to the Warrant and $71.9
million to the Series A Preferred Stock. The discount assigned to the Series A Preferred Stock was expected
to be amortized over a five-year period, which was the expected life of the Series A Preferred Stock at the
time it was issued, up to the $75.0 million liquidation value of such preferred stock, with the cost of such
amortization being reported as additional preferred stock dividends. As a result of the redemption, the
remaining unamortized discount of $2.7 million was recognized as an additional preferred stock dividend
in the fourth quarter of 2009.

Common Stock Dividend Policy. In 2009 the Company paid dividends of $0.52 per share. In 2008 and
2007 the Company paid dividends of $0.50 per share and $0.43 per share, respectively. In 2007 the per
share dividend was $0.10 per quarter in the first and second quarters, $0.11 in the third quarter and $0.12
in the fourth quarter. In 2008, the per share dividend was $0.12 per quarter in the first and second quarters
and $0.13 per quarter in the third and fourth quarters. In 2009 the per share dividend was $0.13 in each
quarter. On January 19, 2010, the Company’s board of directors approved a dividend of $0.14 per common
share to be paid during the first quarter of 2010. The determination of future dividends on the Company’s
common stock will depend on conditions existing at that time.

Tangible Common Equity. The Company uses its tangible common equity ratio as the principal measure

of the strength of its capital. The tangible common equity ratio is calculated by dividing total common
equity less intangible assets by total assets less intangible assets. The Company’s tangible common
equity ratio was 9.53% at December 31, 2009, compared to 7.64% at December 31, 2008 and 6.83% at
December 31, 2007.

Preferred Stock Dividend. The Series A Preferred Stock paid cumulative quarterly dividends at a rate
of 5% per annum while it was outstanding. These cash dividends and the amortization of the issuance
discount resulted in total dividends of $6.3 million in 2009. These total dividends consisted of $3.6 million
in dividends and amortization of the issuance discount prior to the redemption of the Series A Preferred
Stock and $2.7 million in additional preferred stock dividend recognized at the time of the redemption of
the Series A Preferred Stock, which represented the remaining unamortized discount on the Series A
Preferred Stock.

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,
certain types of preferred stock 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 Tier 1 leverage ratio is measured as Tier 1 capital to adjusted quarterly average assets.

The Company’s consolidated risk-based capital and leverage ratios exceeded these minimum requirements

at December 31, 2009 and 2008 and are presented in the following table, followed by the capital ratios of
the Bank at December 31, 2009 and 2008.

Tier 1 capital:

Consolidated Capital Ratios

December 31,

2009

2008
(Dollars in thousands)

Common stockholders’ equity ..................................................................... $ 269,028
Preferred stock, net of unamorized discount ...............................................
-
63,000
Allowed amount of trust preferred securities ..............................................
(6,032)
Net unrealized (gains) losses on investment securities AFS .......................
(5,554)
Less goodwill and certain intangible assets ................................................
320,442
Total Tier 1 capital ...................................................................................

$ 252,302
71,880
63,000
(15,624)
(5,664)
365,894

Tier 2 capital:

Qualifying allowance for loan and lease losses ...........................................
29,512
Total risk-based capital ........................................................................... $ 349,649 $ 395,406

29,207

Risk-weighted assets ....................................................................................... $2,326,185 $2,574,881

Adjusted quarterly average assets - fourth quarter .......................................... $2,813,053 $3,143,959
Ratios at end of period:

Tier 1 leverage ............................................................................................
Tier 1 risk-based capital ..............................................................................
Total risk-based capital ...............................................................................

Minimum ratio guidelines:

Tier 1 leverage(1) ..........................................................................................
Tier 1 risk-based capital ..............................................................................
Total risk-based capital ...............................................................................

Minimum ratio guidelines to be “well capitalized”:

11.39%
13.78
15.03

3.00%
4.00
8.00

5.00%
6.00
10.00

11.64%
14.21
15.36

3.00%
4.00
8.00

5.00%
6.00
10.00

(1) Regulatory authorities require institutions to operate at varying levels (ranging from 100-200 bps) above a

minimum Tier 1 leverage ratio of 3% depending upon capitalization classification.

Bank Capital Ratios

Stockholders’ equity - Tier 1 capital .................................................................
Tier 1 leverage ratio .........................................................................................
Tier 1 risk-based capital ratio ..........................................................................
Total risk-based capital ratio ............................................................................

December 31,

2008
2009
(Dollars in thousands)

$299,683

$346,941

10.72%
12.96
14.22

11.09%
13.48
14.63

Liquidity

Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers
and other creditors by either converting assets into cash or accessing new or existing sources of incremental
funds. Liquidity risk arises from the possibility the Company may be unable to satisfy current or future
financial commitments. The ALCO and Investments Committee (“ALCO”), which reports to the Board of
Directors, has primary responsibility for oversight of the Company’s liquidity, funds management, asset/
liability (interest rate risk) position and investment portfolio functions.

The objective of managing liquidity risk is to ensure the cash flow requirements resulting from depositor,
borrower and other creditor demands are met, as well as operating cash needs of the Company, 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 deposits, loan and lease repayments and repayments of its investment
securities as its primary sources of funds. The principal deposit sources utilized by the Company include
consumer, commercial and public funds customers in the Company’s markets. The Company has used these
funds, together with wholesale deposit sources such as brokered deposits, FHLB advances, FRB borrowings,
federal funds purchased and other sources of short-term borrowings, to make loans and leases, acquire
investment securities and other assets and to fund continuing operations.

Deposit levels may be affected by a number of factors, including rates paid by competitors, general

interest rate levels, returns available to customers on alternative investments, general economic and market
conditions and other factors. Loan and lease repayments are a relatively stable source of funds but are
subject to the borrowers’ and lessees’ ability to repay the loans and leases, which can be adversely affected
by a number of factors including changes in general economic conditions, adverse trends or events affecting
business industry groups or specific businesses, declines in real estate values or markets, business closings
or lay-offs, inclement weather, natural disasters and other factors. 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 deposit withdrawal demands or otherwise fund
operations. Such secondary sources include FHLB advances, secured and unsecured federal funds lines
of credit from correspondent banks and FRB borrowings.

At December 31, 2009 the Company had substantial unused borrowing availability. This availability was
primarily comprised of the following four options: (1) $244 million of available blanket borrowing capacity
with the FHLB, (2) $132 million of investment securities available to pledge for federal funds or other
borrowings, (3) $42 million of available unsecured federal funds borrowing lines and (4) up to $101 million
of available borrowing capacity from borrowing programs of the FRB.

The Company anticipates it will continue to rely primarily on deposits, loan and lease repayments and
repayments of its investment securities to provide liquidity. Additionally, where necessary, the sources of
borrowed funds described above will be used to augment the Company’s primary funding sources.

Emergency Economic Stabilization Act of 2008 and FDIC Temporary Liquidity Guaranty Program.

On October 3, 2008, Congress passed, and the President signed into law, the EESA. The EESA, among other
things, included a provision for an increase in the amount of deposits insured by the FDIC from $100,000
to $250,000 through December 31, 2013.

On October 14, 2008, the FDIC announced a new program – the Temporary Liquidity Guaranty Program

(“TLGP”) that both provides unlimited deposit insurance on certain transaction accounts and provided a
guarantee of newly issued senior unsecured debt. The Bank elected to participate in both aspects of the
TLGP, although it did not issue any senior unsecured debt under the TLGP. The senior unsecured debt
guarantee program expired on October 31, 2009.

The unlimited deposit insurance covers funds, to the extent such funds are not otherwise covered by the

existing deposit insurance limit of $250,000, in (i) non-interest bearing transaction deposit accounts and
(ii) certain interest bearing transaction deposit accounts where the participating institution agrees to pay
interest on such deposits at a rate not to exceed 50 bps. Such covered transaction accounts were initially

insured through December 31, 2009 at a fee of 10 bps per annum paid by the Company’s bank subsidiary
to the FDIC on deposit amounts in excess of $250,000. In August 2009, the FDIC extended, and the Bank
elected to continue to participate in, the unlimited deposit insurance through June 30, 2010. The fee payable
by the Company to the FDIC to continue participation in this insurance program increased to 15 bps per
annum on deposits in excess of $250,000 and was effective beginning January 1, 2010.

Sources and Uses of Funds. Net cash provided by operating activities totaled $48 million, $46 million and

$43 million, respectively, for 2009, 2008 and 2007. Net cash provided by operating activities is comprised
primarily of net income, adjusted for certain non-cash items and for changes in various operating assets
and liabilities.

Investing activities provided $476 million in 2009 and used $493 million in 2008 and $191 million in
2007. The Company’s primary sources and uses of cash for investing activities include net loan and lease
fundings, which provided $12 million in 2009 and used $174 million and $207 million, respectively, in
2008 and 2007, purchases of premises and equipment in conjunction with its growth and de novo branching
strategy, which used $9 million, $28 million and $19 million, respectively, in 2009, 2008 and 2007 and net
activity in its investment securities portfolio, which provided $454 million in 2009, used $303 million in
2008 and provided $27 million in 2007. Proceeds from dispositions of premises and equipment and other
assets provided $17 million in 2009, $8 million in 2008 and $7 million in 2007, and proceeds from BOLI
death benefits provided $2.1 million in 2009 and $3.9 million in 2008 (none in 2007).

Financing activities used $487 million in 2009 and provided $441 million and $153 million, respectively,

for 2008 and 2007. The Company’s primary financing activities include net changes in deposit accounts,
which used $312 million in 2009 and provided $284 million and $12 million, respectively, in 2008 and
2007, and net proceeds from or repayments of other borrowings and repurchase agreements with customers,
which used $85 million in 2009, provided $89 million in 2008 and provided $147 million in 2007. In
addition the Company paid common stock cash dividends of $8.8 million, $8.4 million and $7.2 million,
respectively, in 2009, 2008 and 2007, and the Company paid preferred stock cash dividends of $3.4 million
in 2009 (none in 2008 and 2007). The Company’s financing activities were impacted by $75 million of
proceeds received in 2008 from the issuance of Series A Preferred Stock and the Warrant in connection with
the Company’s participation in the Treasury’s Capital Purchase Program and the redemption of the Series A
Preferred Stock for $75 million in 2009, as well as the repurchase of the Warrant for $2.65 million in 2009.

Contractual Obligations. The following table presents, as of December 31, 2009, significant fixed and
determinable contractual obligations to third parties by contractual date with no consideration given to
earlier call or prepayment features. Other obligations consist primarily of contractual obligations for capital
expenditures, software contracts and various other contractual obligations.

Contractual Obligations

1 Year
or
Less

Over 3
Over 1
Through Through
5 Years
3 Years

Over
5
Years

(Dollars in thousands)

Total

Time deposits(1) .................................................. $ 848,774 $45,718 $ 499 $ 89 $ 895,080
Deposits without a stated maturity(2) ................. 1,151,879
- 1,151,879
Repurchase agreements with customers(1) .........
44,269
44,269
Other borrowings(1) ............................................
428,930
75,568
Subordinated debentures(1) ................................
100,636
1,883
3,517
395
Lease obligations ...............................................
Other obligations ...............................................
22,166
18,556
Total contractual obligations ......................... $2,141,324 $74,603 $26,578 $403,972 $2,646,477

-
-
21,708
3,428
622
3,127

-
-
21,660
3,424
512
483

-
309,994
91,901
1,988
-

(1) Includes unpaid interest through the contractual maturity on both fixed and variable rate obligations. The interest
included on variable rate obligations is based upon interest rates in effect at December 31, 2009. The contractual
amounts to be paid on variable rate obligations are affected by changes in interest rates. Future changes in interest
rates could materially affect the contractual amounts to be paid.

(2) Includes interest accrued and unpaid through December 31, 2009.

Off-Balance Sheet Commitments. The following table details the amounts and expected maturities of
significant off-balance sheet commitments as of December 31, 2009. Commitments to extend credit do not
necessarily represent future cash requirements as these commitments may expire without being drawn.

Off-Balance Sheet Commitments
1 Year
or
Less

Over 1
Through
3 Years

Over 3
Through
5 Years

Commitments to extend credit(1) ... $112,145
8,686
Standby letters of credit ...............
Total commitments ............... $120,831

$79,982
808
$80,790

$6,463
11
$6,474

(Dollars in thousands)

Over
5
Years

$1,247
-
$1,247

Total

$199,837
9,505
$209,342

(1) Includes commitments to extend credit under mortgage interest rate locks of $8.9 million that expire in one year

or less.

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.

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. This model incorporates a number of factors including: (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 relevant 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, up 300 bps, up 400 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 reasonably 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 accurately 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 January 1, 2010. 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
Projected Baseline
Net Interest Income
(1.2)%
(1.6)
(1.5)
(0.8)
Not meaningful
Not meaningful

Change in
Interest Rates
(in bps)
+400
+300
+200
+100
-100
-200

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.

Impact of Inflation and Changing Prices

The consolidated financial statements and related notes presented elsewhere in this 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, the vast majority of 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.

Growth and Expansion

The Company is continuing its growth and de novo branching strategy, although it has slowed the pace
of new office openings in recent years. In the third quarter of 2009, the Company opened a new banking
office in downtown Little Rock. In the fourth quarter of 2009, the Company opened a banking office in
Allen, Texas and closed a small office in North Little Rock where the leased space became unavailable.
During 2008 the Company added a new banking office in Lewisville, Texas, opened its new corporate
headquarters in Little Rock, Arkansas, closed a Little Rock banking office in a Wal-Mart Supercenter located
near its new corporate headquarters, and consolidated its Little Rock loan production office into its new
corporate headquarters. During 2007 the Company added three new Arkansas banking offices, including
offices in Hot Springs, Fayetteville and Rogers, and replaced a temporary office in Frisco, Texas with a new
permanent facility. At December 31, 2009, the Company conducted banking operations through 73 offices,
including 65 banking offices in 34 communities throughout northern, western and central Arkansas, seven
Texas banking offices and a loan production office in Charlotte, North Carolina.

The Company expects to open its new operations facility in Ozark, Arkansas in the second quarter of
2010, and it is moving forward with plans to open a third banking office in Benton, Arkansas in the last half
of 2010 and two metro-Dallas area banking offices in late 2010 or in 2011. 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. The Company may increase
or decrease its expected number of new offices as a result of a variety of factors including the Company’s
financial results, changes in economic or competitive conditions, strategic opportunities or other factors.

During 2009 the Company spent $9.2 million on capital expenditures for premises and equipment. The

Company’s capital expenditures for 2010 are expected to be in the range of $7 to $12 million, including
progress payments on construction projects expected to be completed in 2010 or 2011, furniture and

equipment costs, and acquisition of sites for future development. Actual expenditures may vary significantly
from those expected, depending on the number and cost of additional branch offices acquired or constructed
and sites acquired for future development, progress or delays encountered on ongoing and new construction
projects, delays in or inability to obtain required approvals and other factors.

Critical Accounting Policies

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. The Company’s determination of (i) the
provisions to and the adequacy of the allowance for loan and lease losses, (ii) the fair value of its
investment securities portfolio and (iii) the fair value of foreclosed assets held for sale involve a higher
degree of judgment and complexity than its other significant accounting policies discussed in Note 1 to
the Company’s Consolidated Financial Statements. Accordingly, the Company considers the determination
of (i) the adequacy of the allowance for loan and lease losses, (ii) the fair value of its investment securities
portfolio and (iii) the fair value of foreclosed assets held for sale to be critical accounting policies.

Provisions to and adequacy of the allowance for loan and lease losses. Provisions to and the adequacy
of the allowance for loan and lease losses are determined in accordance with ASC Topic 310 and ASC Topic
450, and are based on the Company’s evaluation of the loan and lease portfolio utilizing objective and
subjective criteria as described in this report. See the “Analysis of Financial Condition” section of this
Management’s Discussion and Analysis for a detailed discussion of the Company’s allowance for loan and
lease losses. Changes in the criteria used in this evaluation 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.

Fair value of the investment securities portfolio. The Company has classified all of its investment

securities as AFS. Accordingly, its investment securities are stated at estimated fair value in the consolidated
financial statements with unrealized gains and losses, net of related income taxes, reported as a separate
component of stockholders’ equity and any related changes are included in accumulated other comprehensive
income (loss).

The Company utilizes independent third parties as its principal sources for determining fair value of its

investment securities. For investment securities traded in an active market, the fair values are based on
quoted market prices if available. If quoted market prices are not available, fair values are based on market
prices for comparable securities, broker quotes or comprehensive interest rate tables, pricing matrices or a
combination thereof. For investment securities traded in a market that is not active, fair value is determined
using unobservable inputs.

The fair values of the Company’s investment securities traded in both active and inactive markets can be
volatile and may be influenced by a number of factors including market interest rates, prepayment speeds,
discount rates, credit quality of the issuer, general market conditions including market liquidity conditions
and other factors. Factors and conditions are constantly changing and fair values could be subject to material
variations that may significantly impact the Company’s financial condition, results of operations and liquidity.

Fair value of foreclosed assets held for sale. Repossessed personal properties and real estate acquired
through or in lieu of foreclosure are measured on a non-recurring basis and are initially recorded at the
lesser of current principal investment or fair value less estimated cost to sell at the date of repossession or
foreclosure. Valuations of these assets are periodically reviewed by management with the carrying value of
such assets adjusted through non-interest expense to the then estimated fair value net of estimated selling
costs, if lower, until disposition. Fair values of other real estate are generally based on third party appraisals,
broker price opinions or other valuations of the property.

Recently Issued Accounting Standards
See Note 1 to the Consolidated Financial Statements for a discussion of certain recently issued accounting

pronouncements.

Forward-Looking Information

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, other
filings made by the Company with the Securities and Exchange Commission and other oral and written
statements or reports by the Company and its management include certain forward-looking statements
including, without limitation, statements about economic, housing market, competitive and interest rate
conditions; plans, goals, beliefs, expectations and outlook for revenue growth; net income and earnings per
common share; net interest margin; net interest income; non-interest income, including service charges on
deposit accounts, mortgage lending and trust income, gains (losses) on investment securities and sales of
other assets; non-interest expense, including the cost of opening new offices and the cost of FDIC deposit
insurance assessments; efficiency ratio; anticipated future operating results and financial performance; asset
quality, including the effects of current economic and housing market conditions; nonperforming loans and
leases; nonperforming assets; net charge-offs; past due loans and leases; litigation; interest rate sensitivity,
including the effects of possible interest rate changes and the potential effects on interest rates of recent
U.S. Government monetary and fiscal policy; future growth and expansion opportunities including plans for
opening new offices; opportunities and goals for future market share growth; expected capital expenditures;
loan, lease and deposit growth; changes in the volume, yield and value of the Company’s investment
securities portfolio; availability of unused borrowings and other similar forecasts and statements of
expectation. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “look,” “seek,”
“may,” “will,” “could,” “trend,” “target,” “goal,” 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, plans 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, potential delays or other problems in implementing the Company’s growth and expansion strategy
including delays in identifying satisfactory sites, hiring qualified personnel, obtaining regulatory or other
approvals, obtaining permits and designing, constructing and opening new offices; the ability to attract new
deposits, loans and leases; the ability to generate future revenue growth or to control future growth in non-
interest expense; interest rate fluctuations, including continued interest rate changes and/or changes in
the yield curve between short-term and long-term interest rates; competitive factors and pricing pressures,
including their effect on the Company’s net interest margin; general economic, unemployment, credit market
and housing market conditions, including their effect on the creditworthiness of borrowers and lessees,
collateral values and the value of investment securities; changes in legal and regulatory requirements;
changes in regular or special assessments by the FDIC for deposit insurance; recently enacted and potential
legislation including legislation intended to stabilize economic conditions and credit markets and legislation
intended to protect homeowners or consumers; adoption of new accounting standards or changes in existing
standards; and adverse results in future litigation as well as other factors described in this and other Company
reports and statements. Should one or more of the foregoing risks materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from those described in the
forward-looking statements.

Summary of Quarterly Results of
Operations, Market Prices of Common Stock and Dividends
Unaudited

2009 - Three Months Ended

Mar. 31

June 30

Sept. 30

Dec. 31

(Dollars in thousands, except per share amounts)

Total interest income ........................................... $45,262
(14,928)
Total interest expense .........................................
30,334
Net interest income ......................................
(10,600)
Provision for loan and lease losses .....................
9,373
Non-interest income ............................................
(16,187)
Non-interest expense ..........................................
(2,537)
Income taxes .......................................................
(23)
Noncontrolling interest ........................................
Preferred stock dividends and amortization
of preferred stock discount ...............................

(1,074)

Net income available to

$42,586
(12,324)
30,262
(21,100)
22,610
(17,945)
(3,250)
-

$39,904
(10,672)
29,232
(7,500)
5,810
(15,499)
(2,599)
25

$38,157
(9,662)
28,495
(5,600)
13,257
(19,001)
(4,472)
17

(1,076)

(1,078)

(3,048)

common stockholders ............................... $ 9,286

$ 9,501

$ 8,391

$ 9,648

Per common share:

Earnings - diluted ........................................ $ 0.55
0.13
Cash dividends .............................................

$ 0.56
0.13

$ 0.50
0.13

$ 0.57
0.13

Bid price per common share:

Low .............................................................. $ 17.05
29.43
High .............................................................

$ 19.88
26.25

$ 21.20
26.76

$ 22.27
29.78

2008 - Three Months Ended

Mar. 31

June 30

Sept. 30

Dec. 31

(Dollars in thousands, except per share amounts)

Total interest income ........................................... $44,820
(23,069)
Total interest expense .........................................
21,751
Net interest income ......................................
(3,325)
Provision for loan and lease losses .....................
5,125
Non-interest income ............................................
(12,881)
Non-interest expense ..........................................
(2,905)
Income taxes .......................................................
Noncontrolling interest ........................................
-
Preferred stock dividends and amortization
of preferred stock discount ...............................

Net income available to

$45,672
(22,069)
23,603
(4,000)
5,557
(13,467)
(3,111)
25

$45,030
(20,414)
24,616
(3,400)
4,871
(13,828)
(3,255)
7

$47,481
(18,750)
28,731
(8,300)
3,796
14,233
(655)
(21)

(227)

common stockholders ............................... $ 7,765

$ 8,607

$ 9,011

$ 9,091

Per common share:

Earnings - diluted ........................................ $ 0.46
0.12
Cash dividends .............................................

$ 0.51
0.12

$ 0.53
0.13

$ 0.54
0.13

Bid price per common share:

Low .............................................................. $ 19.61
26.18
High .............................................................

$ 14.86
26.33

$ 14.14
30.94

$ 20.85
32.36

See Note 15 to Consolidated Financial Statements for discussion of dividend restrictions.

Company Performance
The graph below shows a comparison for the period commencing December 31, 2004 through December
31, 2009 of the cumulative total stockholder returns (assuming reinvestment of dividends) for the common
stock of the Company, the S&P Smallcap Index and the NASDAQ Financial Index, assuming a $100
investment on December 31, 2004.

Cumulative Return Comparison

$200

$175

$150

$125

$100

$ 75

$ 50

12/31/2004

12/31/2005

12/31/2006

12/31/2007

12/31/2008

12/31/2009

OZRK (Bank of the Ozarks, Inc.)

SML (S&P Smallcap Index)

NDF (NASDAQ Financial Index)

12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009

OZRK (Bank of the Ozarks, Inc.)

SML (S&P Smallcap Index)

NDF (NASDAQ Financial Index)

$100

$110

$108

$102

$ 99

$124

$117

$ 80

$124

$108

$92

$85

$77

$ 93

$107

$ 80

Report of Management on the Company’s
Internal Control Over Financial Reporting

March 10, 2010

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 accounting principles
generally accepted in the United States, 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, 2009,
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, 2009, based on the specified criteria.

The effectiveness of Bank of the Ozarks, Inc.’s internal control over financial

reporting has been audited by Crowe Horwath LLP, an independent registered
public accounting firm, as stated in their report which is included herein.

George Gleason
Chairman and Chief Executive Officer

Paul Moore
Chief Financial Officer and Chief Accounting Officer

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Bank of the Ozarks, Inc.

We have audited Bank of the Ozarks, Inc.’s internal control over financial reporting as of

December 31, 2009, 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, included in the accompanying Report of Management on the Company’s
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
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, Bank of the Ozarks, Inc. maintained, in all material respects, effective internal

control over financial reporting as of December 31, 2009, 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 sheet of Bank of the Ozarks, Inc. as
of December 31, 2009, and the related consolidated statements of income, stockholders’ equity
and cash flows for the year ended December 31, 2009, and our report dated March 10, 2010,
expressed an unqualified opinion thereon.

Brentwood, Tennessee
March 10, 2010

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, 2009 and 2008 and
the related consolidated statements of income, stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2009. 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 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 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 financial position of Bank of the
Ozarks, Inc. at December 31, 2009 and 2008 and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 2009, 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), Bank of the Ozarks,
Inc.’s internal control over financial reporting as of December 31, 2009, 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 10, 2010, expressed an unqualified opinion thereon.

Brentwood, Tennessee
March 10, 2010

Bank of the Ozarks, Inc.
CONSOLIDATED BALANCE SHEETS

ASSETS

Cash and due from banks
Interest earning deposits
Cash and cash equivalents
Investment securities - available for sale (“AFS”)
Loans and leases
Allowance for loan and lease losses
Net loans and leases
Premises and equipment, net
Foreclosed assets held for sale, net
Accrued interest receivable
Bank owned life insurance
Intangible assets, net
Other, net
Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:
Demand non-interest bearing
Savings and interest bearing transaction
Time
Total deposits
Repurchase agreements with customers
Other borrowings
Subordinated debentures
Accrued interest payable and other liabilities
Total liabilities

Commitments and contingencies

December 31,

2009

2008

(Dollars in thousands, except per share amounts)

$ 77,678
616
78,294
506,678
1,904,104
(39,619)
1,864,485
156,204
61,148
14,760
47,421
5,554
36,267
$2,770,811

$ 223,741
927,977
877,276
2,028,994
44,269
342,553
64,950
17,575
2,498,341

$ 40,665
317
40,982
944,783
2,021,199
(29,512)
1,991,687
152,586
10,758
18,877
46,384
5,664
21,582
$3,233,303

$ 185,613
852,656
1,303,145
2,341,414
46,864
424,947
64,950
27,525
2,905,700

Stockholders’ equity:
Preferred stock; $0.01 par value; 1,000,000 shares authorized:
Series A fixed rate cumulative perpetual; liquidation preference of $1,000
per share; 75,000 shares issued and outstanding at December 31, 2008;
no shares outstanding at December 31, 2009
Common stock; $0.01 par value; 50,000,000 shares authorized;
16,904,540 and 16,864,140 shares issued and outstanding at
December 31, 2009 and 2008, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity before noncontrolling interest
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity

See accompanying notes to the consolidated financial statements.

71,880

169
41,584
221,243
6,032
269,028
3,442
272,470
$2,770,811

169
43,314
193,195
15,624
324,182
3,421
327,603
$3,233,303

Bank of the Ozarks, Inc.
CONSOLIDATED STATEMENTS OF INCOME

2009

Year Ended December 31,
2008
(Dollars in thousands, except per share amounts)

2007

Interest income:
Loans and leases
Investment securities:
Taxable
Tax-exempt
Deposits with banks and federal funds sold
Total interest income

Interest expense:
Deposits
Repurchase agreements with customers
Other borrowings
Subordinated debentures
Total interest expense

Net interest income
Provision for loan and lease losses
Net interest income after provision
for loan and lease losses

Non-interest income:
Service charges on deposit accounts
Mortgage lending income
Trust income
Bank owned life insurance income
Gains (losses) on investment securities
(Losses) gains on sales of other assets
Other
Total non-interest income

Non-interest expense:
Salaries and employee benefits
Net occupancy and equipment
Other operating expenses
Total non-interest expense

Income before taxes
Provision for income taxes
Net income
Net loss attributable to noncontrolling interest
Preferred stock dividends and amortization of
preferred stock discount
Net income available to common stockholders

Basic earnings per common share

Diluted earnings per common share

$125,301

$141,726

$145,669

18,314
22,283
10
165,908

30,480
592
14,375
2,138
47,585

118,323
44,800

21,858
19,406
13
183,003

64,171
796
15,574
3,761
84,302

98,701
19,025

73,523

79,676

12,421
3,312
3,078
3,186
26,982
(177)
2,249
51,051

31,847
9,740
27,045
68,632

55,942
12,859
43,083
19

6,276
$ 36,826

$ 2.18

12,007
2,215
2,595
4,131
(3,433)
(544)
2,378
19,349

30,132
8,882
15,395
54,409

44,616
9,926
34,690
11

227
$ 34,474

$ 2.05

$ 2.04

24,775
6,507
19
176,970

83,140
1,603
9,543
5,066
99,352

77,618
6,150

71,468

12,193
2,668
2,223
1,919
520
487
2,965
22,975

28,661
8,098
11,495
48,254

46,189
14,445
31,744
2

-
$ 31,746

$ 1.89

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Bank of the Ozarks, Inc.

Preferred
Stock— Common Paid-In Retained Comprehensive Controlling
Series A

Additional

Interest

Stock

Non-

Capital
Earnings Income (Loss)
(Dollars in thousands, except per share amounts)
$36,779 $142,609

$(4,922)

$ -

$167

$ - $174,633

Total

Accumulated
Other

Balances - January 1, 2007
Comprehensive income:

Net income
Net loss attributable to

noncontrolling interest

Other comprehensive income (loss):
Unrealized gains/losses on

investment securities AFS,
net of $6,359 tax effect

Reclassification adjustment for

gains/losses included in income,
net of $204 tax effect
Total comprehensive income
Common stock dividends paid,
$0.43 per share
Investment in noncontrolling interest
Issuance of 71,700 shares of common

stock on exercise of stock options

Tax benefit on exercise of stock options
Stock-based compensation expense
Balances - December 31, 2007
Comprehensive income:

Net income
Net loss attributable to

noncontrolling interest

Other comprehensive income (loss):
Unrealized gains/losses on
investment securities AFS,
net of $18,478 tax effect

Reclassification adjustment for

gains/losses included in income,
net of $1,346 tax effect
Total comprehensive income
Common stock dividends paid,
$0.50 per share
Issuance of 75,000 shares of preferred

-
-

-
-
-
-

stock and a warrant for 379,811

shares of common stock
Preferred stock dividends
Amortization of preferred stock discount
Issuance of 45,900 shares of common

stock on exercise of stock options

Tax benefit on exercise of stock options
Stock-based compensation expense

Balances - December 31, 2008

71,851
-
29

-
-
-
71,880

-
-

1
-
-
168

545
420
869
38,613

-
-
-

1
-
-
169

3,149
-
-

407
283
862
43,314

31,744

(7,216)

-
-
-
167,139

34,690

(8,418)

(198)
(29)

31,744

(2)

(9,853)

(316)

-
-

-
-
-

(15,091)

-
3,434

-
-
-
3,432

(9,853)

(316)
21,575

(7,216)
3,434

546
420
869
194,261

34,690

(11)

28,628

2,087

-
-
-

28,628

2,087
65,405

(8,418)

75,000
(198)

-
-
-
193,195

-
-
-
15,624

-
-
-
3,421

408
283
862
327,603

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

Bank of the Ozarks, Inc.

Preferred
Stock— Common Paid-In
Capital
Stock
Series A

Additional

Accumulated
Other
Retained Comprehensive Controlling
Earnings Income (Loss)

Interest

Non-

Total

Balances - December 31, 2008

71,880

169

43,314

193,195

15,624

3,421

327,603

(Dollars in thousands, except per share amounts)

Comprehensive income:

Net income
Net loss attributable to

noncontrolling interest

Other comprehensive income (loss):
Unrealized gains/losses on
investment securities AFS,
net of $4,393 tax effect

Reclassification adjustment for
gains/losses included in income,

net of $10,584 tax effect
Total comprehensive income
Common stock dividends paid,
$0.52 per share
Preferred stock dividends
Amortization of preferred

stock discount

Redemption of 75,000 shares of
preferred stock
Repurchase of a warrant for
379,811 shares of common stock
Issuance of 21,800 shares of common

stock on exercise of stock options
Tax (expense) benefit on exercise
and forfeiture of stock options
Stock-based compensation expense
Noncontrolling interest

cash contribution

Issuance of 18,600 shares of
unvested common stock under
restricted stock plan

Balances - December 31, 2009

-
-

463

(72,343)

-
-

(2,650)

258

(50)
712

43,083

(19)

6,806

(16,398)

(8,778)
(3,156)

(463)

(2,657)

-
-

6,806

(16,398)
33,491

(8,778)
(3,156)

(75,000)

(2,650)

258

(50)
712

-
$ -

-
$169

-
$41,584 $221,243

-
$ 6,032

-
$ 3,442 $272,470

See accompanying notes to the consolidated financial statements.

Bank of the Ozarks, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation
Amortization
Net loss attributable to noncontrolling interest
Provision for loan and lease losses
Write down of other real estate owned
Write down of other assets
Net accretion of investment securities
(Gains) losses on investment securities
Originations of mortgage loans for sale
Proceeds from sales of mortgage loans for sale
Losses (gains) on sales of premises and
equipment and other assets
Deferred income tax benefit
Increase in cash surrender value of bank owned

life insurance (“BOLI”)

Tax benefits on exercise of stock options
Stock-based compensation expense
BOLI death benefits in excess of cash surrender value
Changes in other assets and liabilities:

Accrued interest receivable
Other assets, net
Accrued interest payable and other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from sales of investment securities AFS
Proceeds from maturities/calls/paydowns of investment securities AFS
Purchases of investment securities AFS
Net fundings of portfolio loans and leases
Purchases of premises and equipment
Proceeds from disposition of premises and equipment

and other assets

Proceeds from BOLI death benefits
Cash (paid for) received from interests

2009

Year Ended December 31,
2008
(Dollars in thousands)

2007

$ 43,083

$ 34,690

$ 31,744

4,172
110
19
44,800
4,009
1,639
(4,466)
(26,982)
(185,075)
184,195

177
(1,706)

(1,932)
(111)
712
(1,254)

4,117
(12,598)
(4,946)

47,963

528,542
246,888
(321,925)
12,293
(9,199)

17,438
2,149

3,552
214
11
19,025
1,042
520
(1,008)
3,433
(127,822)
127,873

544
(6,146)

(1,984)
(283)
862
(2,147)

(1,392)
(3,993)
(909)

46,082

3,286
262
2
6,150
122
-

(900)
(520)
(161,223)
163,296

(487)
(1,057)

(1,919)
(420)
869
-

(36)
88
3,413
42,670

13,588
1,642,437
(1,959,464)
(173,987)
(27,901)

56,240
40,383
(70,153)
(206,969 )
(18,848)

8,186
3,894

6,949
-

in unconsolidated investments and noncontrolling interest

Net cash provided (used) by investing activities

(15)

476,171

(192)
(493,439)

1,839

(190,559 )

Cash flows from financing activities:
Net (decrease) increase in deposits
Net (repayments of) proceeds from other borrowings
Net (decrease) increase in repurchase agreements with customers
Proceeds from exercise of stock options
Proceeds from issuance of preferred stock and common stock warrant
Redemption of preferred stock
Repurchase of common stock warrant
Tax benefits on exercise of stock options
Cash dividends paid on common stock
Cash dividends paid on preferred stock

Net cash (used) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
See accompanying notes to the consolidated financial statements.

(312,420)
(82,394)
(2,595)
258
-

(75,000)
(2,650)
111
(8,778)
(3,354)
(486,822)
37,312
40,982
$ 78,294

284,353
88,414
778
408
75,000
-
-
283
(8,418)

-
440,818
(6,539)
47,521
$ 40,982

11,969
141,872
5,085
546
-
-
-
420
(7,216)

-
152,676
4,787
42,734
$ 47,521

Bank of the Ozarks, Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007

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”),
four 100%-owned finance subsidiary business trusts - Ozark Capital Statutory Trust II (“Ozark II”), Ozark Capital
Statutory Trust III (“Ozark III”), Ozark Capital Statutory Trust IV (“Ozark IV”) and Ozark Capital Statutory Trust V
(“Ozark V”) (collectively, the “Trusts”) and, indirectly through the Bank, a subsidiary engaged in the development
of real estate. 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, Lewisville, Allen, Dallas and Texarkana, Texas and a loan production office in Charlotte,
North Carolina.

Basis of presentation, use of estimates and principles of consolidation - The preparation of financial

statements in conformity with accounting principles generally accepted in the United States 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 from those estimates. The consolidated financial
statements include the accounts of the Company, the Bank and the real estate investment subsidiary. Significant
intercompany transactions and amounts have been eliminated. These consolidated financial statements were
issued on March 10, 2010, which is the date through which subsequent events have been evaluated by
management for recognition or disclosure purposes.

Subsidiaries in which the Company has majority voting interest (principally defined as owning a voting or
economic interest greater than 50%) or where the Company exercises control over the operating and financial
policies of the subsidiary through an operating agreement or other means are consolidated. Investments in
companies in which the Company has significant influence over voting and financing decisions (principally
defined as owning a voting or economic interest of 20% to 50%) and investments in limited partnerships
and limited liability companies where the Company does not exercise control over the operating and financial
policies are generally accounted for by the equity method of accounting. Investments in limited partnerships
and limited liability companies in which the Company’s interest is so minor such that it has virtually no
influence over operating and financial policies are generally accounted for by the cost method of accounting.

The voting interest approach is not applicable for entities that are not controlled through voting interests

or in which the equity investors do not bear the residual economic risk. In such instances, Accounting
Standards Codification (“ASC”) Topic 810, “Consolidation,” provides guidance on when the assets, liabilities
and activities of a variable interest entity (“VIE”) should be included in the Company’s consolidated financial
statements. The provisions of ASC Topic 810 require a VIE to be consolidated by a company if that company
is considered the primary beneficiary of the VIE’s activities. The Company has determined that the 100%-
owned finance subsidiary Trusts are VIEs, but that the Company is not the primary beneficiary of the Trusts.
Accordingly, the Company does not consolidate the activities of the Trusts into its financial statements, but
instead reports its ownership interests in the Trusts as other assets and reports the subordinated debentures
issued to the Trusts as a liability in the consolidated balance sheets. The distributions on the subordinated
debentures are reported as interest expense in the accompanying consolidated statements of income.
Cash and cash equivalents - For cash flow purposes, cash and cash equivalents include cash on hand,

amounts due from banks and interest bearing deposits with banks.

Investment securities - Management determines the appropriate classification of investment securities at the

time of purchase and reevaluates such designation as of each balance sheet date. At December 31, 2009 and
2008, the Company has classified all of its investment securities as available for sale (“AFS”).

AFS investment securities are stated at estimated fair value, with the unrealized gains and losses
determined on a specific identification basis. Such unrealized gains and losses, net of tax, are reported
as a separate component of stockholders’ equity and included in other comprehensive income (loss). The
Company utilizes independent third parties as its principal pricing sources for determining fair value. For
investment securities traded in an active market, fair values are measured on a recurring basis obtained
from an independent pricing service and based on quoted market prices if available. If quoted market prices
are not available, fair values are based on quoted market prices of comparable securities, broker quotes or

comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities
traded in a market that is not active, fair value is determined using unobservable inputs.

At December 31, 2009 and 2008, the Company owned stock in the Federal Home Loan Bank of Dallas
(“FHLB”) and First National Banker’s Bankshares, Inc. (“FNBB”). The FHLB and FNBB shares do not have
readily determinable fair values and are carried at cost.

Declines in the fair value of investment securities below their cost are reviewed at least quarterly by the
Company for other-than-temporary impairment. Factors considered during such review include, among other
things, the length of time and extent that fair value has been less than cost, the financial condition and near
term prospects of the issuer, and whether the Company has the intent to sell the investment security before
any anticipated recovery in fair value.

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. Realized 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.
Purchases and sales of investment securities are recognized on a trade-date basis.

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 recognized on an accrual basis and is calculated using the simple interest method on
daily balances of the principal amount outstanding. Loan origination fees and costs are generally deferred
and recognized over the life of the loan as an adjustment to yield on the related loan.

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 generally recognized when collected.

Mortgage loans held for sale are included in the Company’s loans and leases and totaled $6.6 million and

$5.7 million, respectively, at December 31, 2009 and 2008. 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 as mortgage
lending income 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 loan originations 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 ASC Topic 815, “Derivatives and Hedging.” 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 between the date
on which the particular IRLC and FSC were entered into and year-end. At December 31, 2009 and 2008,
respectively, the Company had recorded IRLC and FSC derivative assets of $0.2 million and $0.5 million
and had recorded corresponding derivative liabilities of $0.2 million and $0.5 million. The notional amounts
of loan commitments under both the IRLC and FSC were $8.9 million and $15.0 million at December 31,
2009 and 2008, respectively.

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 that collectibility of all or some portion of 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 probable incurred

losses in the loan and lease portfolio. Provision to and the adequacy of the ALLL are determined in

accordance with ASC Topic 310, “Receivables,” and ASC Topic 450, “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, specific allowances determined in accordance with ASC Topic
310 and “stressed” markets allocations. 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 the nature, mix 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 collateral 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. While a specific allowance has been calculated under ASC Topic 310 for impaired
loans and leases and for loans and leases where the Company has otherwise determined a specific reserve is
appropriate, 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. Loans and leases for
which the terms have been modified and for which the borrower or lessee is experiencing financial difficulties
are considered troubled debt restructurings and are included in impaired loans and leases.

All loans and leases deemed to be impaired are evaluated individually in accordance with ASC Topic 310.

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. Many of the Company’s 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 impaired
amount 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.

For certain loans and leases not considered impaired where (i) the customer is continuing to make regular

payments, although payments may be past due, (ii) there is a reasonable basis to believe the customer may
continue to make regular payments, although there is also an elevated risk that the customer may default,
and (iii) the collateral or other repayment sources are likely to be insufficient to recover the current investment
in the loan if a default occurs, the Company evaluates such loans and leases to determine whether a specific
reserve is needed for the loan or lease. For the purpose of calculating the amount of the specific reserve
appropriate for any such loan or lease, management assumes that (i) no further regular payments occur and
(ii) all sums recovered will come from liquidation of collateral and collection efforts from other payment
sources. To the extent that the Company’s current investment in a particular loan or lease evaluated for the
need for a specific reserve exceeds its net collateral value or its estimated discounted cash flows, such excess
is considered a specific reserve for purposes of the determination of the allowance for loan and lease losses.
The Company also includes further allowance allocation for risk-rated and certain other loans, including

The accrual of interest on 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 generally 45 years
for buildings and 3 to 25 years for furniture, fixtures, equipment and certain building improvements.
Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the term of
the lease. Accelerated depreciation methods are used for income tax purposes. Maintenance and repair
charges are expensed as incurred.

Foreclosed assets held for sale - Repossessed personal properties and real estate acquired through or
in lieu of foreclosure are initially recorded at the lesser of current principal investment or fair value less
estimated cost to sell at the date of repossession or foreclosure. Valuations of these assets are periodically
reviewed by management with the carrying value of such assets adjusted through non-interest expense to
the then estimated fair value net of estimated selling costs, if lower, until disposition. Gains and losses from
the sale of repossessions, foreclosed assets and other real estate are recorded in non-interest income, and
expenses 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 or years in which the differences are expected to be recovered or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.

The Company recognizes a tax position as a benefit only if it is “more likely than not” that the tax
position would be sustained in a tax examination, with a tax examination being presumed to occur. The
amount recognized is the largest amount of tax benefit that has a greater than 50% likelihood of being
realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded.

The Company files consolidated tax returns. The Bank and the other consolidated entities provide for
income taxes on a separate return basis and remit to the Company amounts determined to be currently
payable. The Company recognizes interest related to income tax matters as interest income or expense, and
penalties related to income tax matters are recognized as non-interest expense. The Company is no longer
subject to income tax examinations by U.S. federal tax authorities for years prior to 2006.

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
earnings on BOLI policies are used to offset a portion of employee benefit costs. BOLI is carried at the
policies’ realizable cash surrender values with changes in cash surrender values and death benefits received
in excess of cash surrender values reported in non-interest income.

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, 2009 and 2008. As required
by ASC Topic 350, “Intangibles – Goodwill and Other,” the Company performed its annual impairment test
of goodwill as of October 1, 2009. This test indicated no impairment of the Company’s goodwill.

Bank charter costs represent costs paid to acquire a Texas bank charter and are being amortized over

20 years. Bank charter costs totaled $239,000 at both December 31, 2009 and 2008, less accumulated
amortization of $70,000 and $58,000 at December 31, 2009 and 2008, respectively.

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, 2009 and
2008, less accumulated amortization of $2.2 million and $2.1 million at December 31, 2009 and 2008,
respectively.

The aggregate amount of amortization expense for the Company’s core deposit and bank charter
intangibles is expected to be $110,000 in 2010; $56,000 in 2011; and $12,000 per year in years 2012
through 2014.

Earnings per common share - Earnings per common share are computed using the two-class method

prescribed under ASC Topic 260, “Earnings Per Share,” as the Company has determined that its outstanding
non-vested stock awards granted under its restricted stock plan are participating securities within the
meaning of ASC Topic 260. Under the two-class method, basic earnings per share are computed by dividing
net earnings allocated to common stock by the weighted-average number of common shares outstanding
during the applicable period. Diluted earnings per common share is computed by dividing reported earnings
allocated to common stockholders by the weighted-average number of common shares outstanding after
consideration of the dilutive effect, if any, of the Company’s common stock options and common stock
warrant using the treasury stock method.

Stock-based compensation - The Company has an employee stock option plan, a non-employee director

stock option plan and an employee restricted stock plan, which are described more fully in Note 12. The
Company accounts for these stock-based compensation plans in accordance with the provisions of ASC
Topic 718, “Compensation – Stock Compensation,” and ASC Topic 505, “Equity.”

ASC Topic 718 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. For the years ended December 31, 2009, 2008 and 2007, the Company
recognized $0.7 million, $0.9 million and $0.9 million, respectively, of non-interest expense as a result of
applying the provisions of ASC Topic 718 to its stock-based compensation plans.

Segment disclosures - ASC Topic 280, “Segment Reporting,” 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 – ACS Topic 280
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 - In January 2010, the Financial Accounting Standards Board

(“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends
Topic 820 by requiring more robust disclosures about (i) the different classes of assets and liabilities
measured at fair value, (ii) the valuation techniques and inputs used, (iii) the activity in Level 3 fair
value measurements, and (iv) the transfers between Levels 1, 2, and 3. Among other things, ASU 2010-06
requires separate disclosures about purchases, sales, issuances and settlements in the roll forward of activity
in Level 3 fair value measurements as opposed to presenting such activity on a net basis. The new disclosures
required by ASU 2010-06 are effective for interim and annual reporting periods beginning after December
15, 2009, except for the disclosures about the roll forward of activity in Level 3 fair value measurements
which are effective for interim and annual periods beginning after December 15, 2010. Management has
determined that the provisions of ASU 2010-06, upon its adoption, will not have a material impact on its
financial position, results of operations or liquidity, but it will require expansion of the Company’s existing
disclosures about fair value measurements.

In January 2010, the FASB issued ASU 2010-05, “Compensation – Stock Compensation (Topic 718):
Escrowed Share Arrangements and the Presumption of Compensation.” ASU 2010-05 amends Topic 718
by codifying Emerging Issues Task Force (“EITF”) Topic D-110 which provides the position of the
Securities and Exchange Commission (“SEC”) regarding whether certain transactions under escrowed
share arrangements, such as the Company’s restricted stock plan, represent compensation. Because the
provisions of ASU 2010-05 were previously effective for the Company under EITF Topic D-110, ASU
2010-05 did not impact the Company’s financial position, results of operations or liquidity.

In January 2010, the FASB issued ASU 2010-02, “Consolidation (Topic 810): Accounting and Reporting

for Decreases in Ownership of a Subsidiary – a Scope Clarification.” ASU 2010-02 amends Topic 810 to
clarify guidance on accounting for decreases in ownership of a subsidiary that is deemed a noncontrolling
interest in consolidated financial statements. The provisions of ASU 2010-02 are effective beginning in the
first interim or annual reporting period beginning on or after December 15, 2009. Management expects the
adoption of ASU 2010-02 will not have a material impact on the Company’s financial position, results of
operations or liquidity.

In December 2009, the FASB issued ASU 2009-17, “Consolidation (Topic 810): Improvements to

Financial Reporting Involved with Variable Interest Entities.” ASU 2009-17 amends Topic 810 and replaces
the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a

controlling financial interest in a variable interest entity with an approach focused on identifying which
reporting entity has the power to direct the activities of a variable interest entity that most significantly
impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the
right to receive benefits from the entity. ASU 2009-17 also requires additional disclosures about a reporting
entity’s involvement in variable interest entities, which will enhance the information provided to users of
financial statements. The provisions of ASU 2009-17 are effective for interim and annual reporting periods
that begin after November 15, 2009. Management does not expect adoption of ASU 2009-17 will have a
material impact on its financial position, results of operations or liquidity.

In December 2009, the FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860): Accounting
for Transfers of Financial Assets.” ASU 2009-16 amends Topic 860 and is intended to improve financial
reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage securitizations when a
transferor has not surrendered control over the transferred financial assets. In addition, ASU 2009-16
requires enhanced disclosures about the risks that a transferor continues to be exposed to because of its
continuing involvement in transferred financial assets. The provisions of ASU 2009-16 are effective for
interim and annual reporting periods beginning after November 15, 2009. Management has determined
that ASU 2009-16 will not have a material impact on the Company’s financial position, results of operations
or liquidity.

In August 2009, the FASB issued ASU 2009-05, “Fair Value Measurements and Disclosures (Topic 820):

Measuring Liabilities at Fair Value.” ASU 2009-05 amends Topic 820 and provides clarification that in
circumstances in which a quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using a valuation technique that (i) uses the quoted price
of the identical liability when traded as an asset, (ii) uses quoted prices for similar liabilities or similar
liabilities when traded as assets, or (iii) is otherwise consistent with the principles of Topic 820 such as
an income approach or a market approach. The provisions of ASU 2009-05 were effective for interim and
annual periods beginning after its issuance in August of 2009. Adoption of ASU 2009-05 did not have a
material impact on the Company’s financial position, results of operations or liquidity.

In August 2009, the FASB issued ASU 2009-04, “Accounting for Redeemable Equity Instruments.”

ASU 2009-04 updated Topic 480 to include SEC guidance on accounting for redeemable equity investments,
including share-based payment arrangements with employees, and whether such instruments should be
classified as a liability or equity. ASU 2009-04 also addresses earnings per share calculations and the
impact such instruments have on these calculations. The provisions of ASU 2009-04 were effective
immediately upon issuance and did not have a material impact on the Company’s financial position,
results of operations, liquidity or its earnings per common share calculations.

In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The
FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles,
a Replacement of FASB Statement No. 162.” SFAS No. 168 was issued to replace SFAS No. 162 as a result
of the FASB Accounting Standards Codification™ (the “Codification”) which has become the source of
authoritative U.S. generally accepted accounting principles recognized by the FASB. The Codification
supersedes all existing non-SEC accounting and reporting standards, and all other non-grandfathered, non-
SEC accounting literature not included in the Codification has become non-authoritative. The provisions of
SFAS No. 168 were effective for financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of SFAS No. 168 did not have a material effect on the Company’s
financial position, results of operations or liquidity.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 has been included in
the Codification under Topic 855, “Subsequent Events,” and establishes general standards for disclosure of
events that occur after the balance sheet date but before financial statements are issued. In particular, SFAS
No. 165 sets forth (i) the period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or disclosure in the financial
statements, (ii) the circumstances under which an entity should recognize events of transactions occurring
after the balance sheet date in its financial statements, and (iii) the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. The provisions of SFAS No. 165
were effective for the Company for the first interim period ended after June 15, 2009. The adoption of SFAS
No. 165 did not have a material impact on the Company’s financial position, results of operations, liquidity
or financial statement disclosures.

In April 2009, the FASB issued the following FASB Staff Positions:
• FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”

(“FSP 115-2/124-2”);

• FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-

1/28-1”); and

• FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability

Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”).
FSP 115-2/124-2 amends the other-than-temporary impairment (“OTTI”) guidance in GAAP for debt
securities to make the guidance more operational and to improve the presentation and disclosure of OTTI
on debt and equity securities in financial statements. The provisions of FSP 115-2/124-2 (i) amend an
investor required assertion regarding the ability and intent to hold a security, (ii) bifurcate OTTI between
the portion related to a credit loss and the portion related to all other factors, and (iii) require presentation
of total OTTI in the income statement with an offset for the amount of OTTI that is recognized in other
comprehensive income.

FSP 107-1/28-1 amends SFAS No. 107 to require disclosures about fair value of financial instruments

for interim reporting periods of publicly traded companies as well as in annual financial statements.

FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157

when the volume and level of activity for the asset or liability have significantly decreased. It also includes
guidance on identifying circumstances that indicate a transaction is not orderly.

The provisions of FSP 115-2/124-2, FSP 107-1/28-1 and FSP 157-4 were included in the Codification
under Topic 820 and were effective for interim periods ended after June 15, 2009. The adoption of these
FSPs did not have a material effect on the Company’s financial position, results of operations or liquidity
but did expand the Company’s disclosure about fair values.

Reclassifications - Certain reclassifications of 2008 and 2007 amounts have been made to conform
with the 2009 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:

Gross
Amortized Unrealized Unrealized
Gains

Losses

Gross

Cost

Estimated
Fair
Value

December 31, 2009:
Obligations of states and political subdivisions ....... $385,581
U.S. Government agency residential
93,159
mortgage-backed securities ..................................
1,596
Corporate obligations ...............................................
100
Collateralized debt obligation ...................................
FHLB and FNBB stock ..............................................
16,316
Total investment securities AFS ......................... $496,752

December 31, 2008:
Obligations of states and political subdivisions ....... $517,166
U.S. Government agency residential
371,110
mortgage-backed securities ..................................
6,953
Corporate obligation ................................................
1,000
Collateralized debt obligation ...................................
FHLB and FNBB stock ..............................................
22,846
Total investment securities AFS ......................... $919,075

(Dollars in thousands)

$10,517

$ (2,211)

$393,887

1,351
269
-
-
$12,137

-
-
-
-
$ (2,211)

94,510
1,865
100
16,316
$506,678

$31,753

$ (6,179)

$542,740

3,187
-
-
-
$34,940

(2,736)
-
(317)
-
$ (9,232)

371,561
6,953
683
22,846
$944,783

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:

Less than 12 Months
Estimated Unrealized
Fair Value

Losses

12 Months or More
Estimated Unrealized
Fair Value

Losses
(Dollars in thousands)

Total
Estimated Unrealized
Fair Value

Losses

December 31, 2009:
Obligations of states and
political subdivisions ......... $ 90,010
Total temporarily
impaired securities ......... $ 90,010

December 31, 2008:
Obligations of states and
political subdivisions ......... $117,686
U.S. Government agency
residential mortgage-backed
securities ...........................
Collateralized debt obligation ..
Total temporarily
impaired securities ......... $188,134

69,765
683

$ 1,453

$ 32,967

$ 758

$122,977

$ 2,211

$ 1,453

$ 32,967

$ 758

$122,977

$ 2,211

$ 6,154

$ 2,309

$ 25

$119,995

$ 6,179

1,781
317

80,512
-

955
-

150,277
683

2,736
317

$ 8,252

$ 82,821

$ 980

$270,955

$ 9,232

At December 31, 2009, the Company’s investment securities portfolio included one security categorized
as a collateralized debt obligation (“CDO”). This CDO has performed in accordance with its terms and is not
in default, but, because its credit rating was downgraded to below investment grade and other factors, the
Company determined during the third quarter of 2009 that it no longer expects to hold this security until
maturity or until such time as fair value recovers to or above cost. As a result of the Company’s intent to
dispose of this security, the Company recorded a $0.9 million charge during the third quarter of 2009 to
reduce the carrying value of this security to $0.1 million.

At December 31, 2008, the Company’s investment securities portfolio included a bond issued by SLM

Corporation (“Sallie Mae”) with an amortized cost of $10.0 million and an estimated fair value of $7.0
million. During 2008 the Company concluded that the Sallie Mae bond was other-than-temporarily impaired
and recorded a pretax charge of $3.0 million to reduce the carrying value of this bond to its estimated fair
value. This bond was subsequently sold in 2009.

In evaluating the Company’s unrealized loss positions for other-than-temporary impairment for the

investment securities portfolio, management considers the credit quality of the issuer, the nature and cause
of the unrealized loss, the severity and duration of the impairments and other factors. At December 31,
2009 and 2008, 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. The Company
does not have the intent to sell these investment securities and more likely than not would not be required
to sell these investment securities before fair value recovers to amortized cost.

A maturity distribution of investment securities AFS reported at amortized cost and estimated fair value

as of December 31, 2009 is as follows:

Amortized
Cost
(Dollars in thousands)

Estimated
Fair Value

Due in one year or less .........................................
Due after one year to five years ...........................
Due after five years to ten years ..........................
Due after ten years ..............................................
Total .................................................................

$ 42,696
73,243
36,586
344,227
$496,752

$ 43,312
74,442
37,988
350,936
$506,678

For purposes of this maturity distribution, all investment securities are shown based on their contractual
maturity date, except (i) FHLB and FNBB stock with no contractual maturity date are shown in the longest
maturity category, (ii) U.S. Government agency residential mortgage-backed securities are allocated among
various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment
speeds and interest rate levels at December 31, 2009 and (iii) mortgage-backed securities issued by housing
authorities of states and political subdivisions are allocated among various maturities based on an estimated
repayment schedule projected by management as of December 31, 2009. 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 and other-than-temporary impairment charges of the Company’s investment securities AFS

are summarized as follows:

2009

Year Ended December 31,
2008
(Dollars in thousands)

2007

Sales proceeds ................................. $528,542

Gross realized gains ......................... $ 30,802
Gross realized losses ........................
(2,920)
Other-than-temporary
impairment charges ...................
Net gains (losses) on
investment securities ................. $ 26,982

(900)

$13,588

$ 360
(777)

$56,240

$ 530
(10)

(3,016)

$ (3,433)

$ 520

Investment securities with carrying values of $344.6 million and $596.4 million at December 31, 2009

and 2008, respectively, were pledged to secure public funds and trust deposits and for other purposes
required or permitted by law.

At December 31, 2009 and 2008, there were no holdings of investment securities of any one issuer,
other than U.S. Government agency residential mortgage-backed securities issued by either the Federal
Home Loan Mortgage Corporation or the Federal National Mortgage Association, in an amount greater than
10% of stockholders’ equity.
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:

Real estate:
Residential 1-4 family .....................................
Non-farm/non-residential ...............................
Construction/land development .........................
Agricultural ....................................................
Multifamily residential ....................................
Commercial and industrial .................................
Consumer ...........................................................
Direct financing leases .......................................
Agricultural (non-real estate) ............................
Other ..................................................................
Total loans and leases ..................................

December 31,

2009

2008

(Dollars in thousands)

$ 282,733
606,880
600,342
86,237
55,860
150,208
63,561
40,353
15,509
2,421
$1,904,104

$ 275,281
551,821
694,527
84,432
61,668
206,058
75,015
50,250
19,460
2,687
$2,021,199

The Company’s direct financing leases include estimated residual values of $0.8 million at December 31,
2009 and $1.4 million at December 31, 2008, and are presented net of unearned income totaling $5.3 million
and $7.0 million at December 31, 2009 and 2008, respectively. The above table includes deferred costs, net
of deferred fees, that totaled $1.6 million and $0.6 million at December 31, 2009 and 2008, respectively.
Loans and leases on which the accrual of interest has been discontinued aggregated $23.6 million and
$15.4 million at December 31, 2009 and 2008, respectively. Interest income recorded during 2009, 2008
and 2007 for nonaccrual loans and leases at December 31, 2009, 2008 and 2007 was $1.3 million, $0.6
million and $0.3 million, respectively. Under the original terms, these loans and leases would have reported
$2.5 million, $1.1 million and $0.6 million of interest income during 2009, 2008 and 2007, respectively.

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

The following is a summary of activity within the ALLL:

Balance - beginning of year ........................................... $29,512
(35,885)
Loans and leases charged off .........................................
1,192
Recoveries of loans and leases previously charged off...
(34,693)
Net loans and leases charged off ...................................
44,800
Provision charged to operating expense ........................
Balance - end of year ..................................................... $39,619

2009

2007

Year Ended December 31,
2008
(Dollars in thousands)
$19,557
(9,631)
561
(9,070)
19,025
$29,512

$17,699
(4,644)
352
(4,292)
6,150
$19,557

The following is a summary of the Company’s impaired loans and leases:

December 31,
2008
2009
(Dollars in thousands)

Impaired loans and leases with an allocated allowance ....................
Impaired loans and leases without an allocated allowance ...............
Total impaired loans and leases(1) ..................................................

$ 1,938
18,927
$20,865

$ 3,068
9,380
$12,448

Total allowance allocated to impaired loans and leases .....................

$ 1,661

$ 343

(1) At December 31, 2009, $2.8 million of nonaccrual loans and leases were not deemed impaired. At December 31,
2008, $2.9 million of nonaccrual loans and leases were not deemed impaired.

The average carrying value of all impaired loans and leases during the year ended December 31, 2009

and 2008 was $22.8 million and $11.9 million, respectively.

5. Premises and Equipment

The following is a summary of premises and equipment:

December 31,

2009

2008

(Dollars in thousands)

Land .....................................................................
Construction in process .........................................
Buildings and improvements ................................
Leasehold improvements ......................................
Equipment ............................................................
Gross premises and equipment ..........................
Accumulated depreciation .....................................
Premises and equipment, net .............................

$ 54,760
5,827
92,278
5,004
23,752
181,621
(25,417)
$156,204

$ 55,586
7,372
84,579
4,928
22,045
174,510
(21,924)
$152,586

The Company capitalized $0.4 million, $1.1 million and $1.3 million of interest on construction projects

during the years ended December 31, 2009, 2008 and 2007, respectively.

Included in occupancy expense is rent of $483,000, $605,000 and $657,000 incurred under noncancelable
operating leases in 2009, 2008 and 2007, 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, 2009 are as follows: $395,000
in 2010, $311,000 in 2011, $311,000 in 2012, $264,000 in 2013, $248,000 in 2014 and $1,988,000
thereafter. Rental income recognized during 2009, 2008 and 2007 for leases of buildings and premises
and for equipment leased under operating leases was $500,000, $566,000 and $517,000, respectively.

6. Deposits

The aggregate amount of time deposits with a minimum denomination of $100,000 was $540.2 million

and $796.4 million at December 31, 2009 and 2008, respectively.

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

December 31,

2009

2008

(Dollars in thousands)

Up to one year ................................................. $832,905
41,328
Over one to two years ......................................
2,521
Over two to three years ....................................
338
Over three to four years ...................................
111
Over four to five years .....................................
Thereafter ........................................................
73
Total time deposits ........................................ $877,276

$1,275,112
23,805
2,394
1,574
241
19
$1,303,145

7. Borrowings

Short-term borrowings with original maturities less than one year include 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,

2009

2008

(Dollars in thousands)

Average annual balance ....................................... $ 44,028
1,742
December 31 balance ...........................................
Maximum month-end balance during year ........... 108,690
Interest rate:
Weighted-average - year ...................................
Weighted-average - December 31 ......................

0.37%
0.00

$100,594
84,104
201,329

2.01%
0.51

At both December 31, 2009 and 2008, the Company had fixed rate FHLB advances with original maturities
exceeding one year of $340.8 million. These fixed rate advances bear interest at rates ranging from 2.53% to
6.43% at December 31, 2009, are collateralized by a blanket lien on a substantial portion of the Company’s
real estate loans and are subject to prepayment penalties if repaid prior to maturity date. At December 31,
2009, the Bank had $244 million of unused FHLB borrowing availability.

At December 31, 2009, aggregate annual maturities and weighted-average rates of FHLB advances with

an original maturity of over one year were as follows:

Maturity

2010
2011
2012
2013
2014
Thereafter
Total

Amount
(Dollars in thousands)
$ 60,034
31
21
18
19
280,688
$340,811

Weighted-Average Rate

6.27%
4.80
4.64
4.54
4.54
3.84
4.27

Included in the above table are $340.0 million of FHLB advances that contain quarterly call features and

are callable as follows:

Amount

Callable quarterly ........................... $ 60,000
260,000
Callable quarterly ...........................
Callable quarterly ...........................
20,000
Total ............................................ $340,000

Weighted-
Average
Interest
Rate
(Dollars in thousands)
6.27%
3.90
2.53
4.24

Maturity

2010
2017
2018

8. Subordinated Debentures

At December 31, 2009 the Company had the following issues of trust preferred securities outstanding and

subordinated debentures owed to the Trusts:

Description

Ozark III
Ozark II
Ozark IV
Ozark V
Total

Subordinated
Debentures
Owed to Trusts

Trust Preferred
Securities
of the Trusts

Interest Rate
at
December 31, 2009

$14,434
14,433
15,464
20,619
$64,950

(Dollars in thousands)
$14,000
14,000
15,000
20,000
$63,000

3.23%
3.15
2.49
1.90

Final Maturity Date

September 25, 2033
September 29, 2033
September 28, 2034
December 15, 2036

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 London Interbank Offered Rate (“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”).

On September 28, 2004, Ozark IV sold to investors in a private placement offering $15 million of adjustable

rate trust preferred securities (“2004 Securities”). The 2004 Securities bear interest, adjustable quarterly, at
90-day LIBOR plus 2.22%. The $15 million proceeds from the 2004 Securities were used to purchase an equal
principal amount of adjustable rate subordinated debentures of the Company that bear interest, adjustable
quarterly, at 90-day LIBOR plus 2.22% (“2004 Debentures”).

On September 29, 2006 Ozark V sold to investors in a private placement offering $20 million of adjustable
rate trust preferred securities (“2006 Securities”). The Securities bear interest, adjustable quarterly, at 90-day
LIBOR plus 1.60%. The $20 million proceeds from the 2006 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 1.60% (“2006 Debentures”).

In addition to the issuance of these adjustable rate securities, Ozark II and Ozark III collectively sold $0.9

million, Ozark IV sold $0.4 million and Ozark V sold $0.6 million of trust common equity to the Company.
The proceeds from the sales of the trust common equity were used, respectively, to purchase $0.9 million of
2003 Debentures, $0.4 million of 2004 Debentures and $0.6 million of 2006 Debentures issued by the
Company.

At both December 31, 2009 and 2008, the Company had an aggregate of $64.9 million of subordinated
debentures outstanding and had an asset of $1.9 million representing its investment in the common equity
issued by the Trusts. At both December 31, 2009 and 2008, the sole assets of the Trusts are the respective
adjustable rate debentures and the liabilities of the respective Trusts are the 2003 Securities, the 2004
Securities and the 2006 Securities. The Trusts had aggregate common equity of $1.9 million and did not have
any restricted net assets at both December 31, 2009 and 2008. The Company has, through various contractual
arrangements, fully and unconditionally guaranteed all obligations of the Trusts with respect to the 2003
Securities, the 2004 Securities and the 2006 Securities. Additionally, there are no restrictions on the ability
of the Trusts to transfer funds to the Company in the form of cash dividends, loans or advances. The Company
has the option to defer interest payments on the subordinated debentures from time to time for a period not
to exceed five consecutive years.

These securities generally mature at or near the thirtieth anniversary date of each issuance. However,
these securities and debentures may be prepaid at par, subject to regulatory approval, prior to maturity at
any time on or after September 25 and 29, 2008 for the two issues of 2003 Securities and 2003 Debentures,
on or after September 28, 2009 for the 2004 Securities and 2004 Debentures, and on or after December 15,
2011 for the 2006 Securities and 2006 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:

Current:
Federal .....................................................................
State .........................................................................
Total current .................................................................
Deferred:
Federal .....................................................................
State .........................................................................
Total deferred ...............................................................
Provision for income taxes ...........................................

Year Ended December 31,
2008
(Dollars in thousands)

2007

2009

$12,151
2,414
14,565

$13,400
2,672
16,072

$13,332
2,170
15,502

(1,308)
(398)
(1,706)
$12,859

(5,161)
(985)
(6,146)
$ 9,926

(938)
(119)
(1,057)
$14,445

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

Statutory federal income tax rate .................................
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit .................
Effect of non-taxable interest income .......................
Effect of BOLI and other non-taxable income ...........
Other, net .................................................................
Effective income tax rate ......................................

Year Ended December 31,
2008
35.0%

2009
35.0%

2007
35.0%

2.3
(12.0)
(2.0)
(0.3)
23.0%

2.5
(10.8)
(3.4)
(1.1)
22.2%

2.9
(4.2)
(1.6)
(0.8)
31.3%

Income tax benefits from the exercise of stock options in the amount of $0.1 million, $0.3 million and

$0.4 million in 2009, 2008 and 2007, respectively, were recorded as an increase to additional paid-in capital.

At December 31, 2009 and 2008, income taxes refundable of $2.9 million and $0.6 million, respectively,

were included in other assets.

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,

Deferred tax assets:

2009
2008
(Dollars in thousands)

Allowance for loan and lease losses ................................................ $14,756
1,395
Stock-based compensation under the fair value method .................
704
Deferred compensation ...................................................................
980
Other real estate owned ..................................................................
Gross deferred tax assets ....................................................................
17,835
Deferred tax liabilities:

7,577
Accelerated depreciation on premises and equipment .....................
3,612
Investment securities AFS ...............................................................
363
FHLB stock dividends .....................................................................
548
Other, net ........................................................................................
Gross deferred tax liabilities ...............................................................
12,100
Net deferred tax assets (liabilities) ..................................................... $ 5,735

$11,772
1,270
746
311
14,099

5,447
8,901
538
1,220
16,106
$ (2,007)

10. Preferred Stock

On December 12, 2008, as part of the United States Department of the Treasury’s (the “Treasury”) Capital

Purchase Program made available to certain financial institutions in the U.S. pursuant to the Emergency
Economic Stabilization Act of 2008 (“EESA”), the Company and the Treasury entered into a Letter Agreement
including the Securities Purchase Agreement – Standard Terms incorporated therein (the “Purchase
Agreement”) pursuant to which the Company issued to the Treasury, in exchange for aggregate consideration
of $75.0 million, (i) 75,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series
A, par value $0.01 and liquidation preference $1,000 per share (the “Series A Preferred Stock”), and (ii) a
warrant (the “Warrant”) to purchase up to 379,811 shares (the “Warrant Common Stock”) of the Company’s
common stock, par value $0.01 per share, at an exercise price of $29.62 per share.

On November 4, 2009, the Company redeemed all of the Series A Preferred Stock for $75.0 million, plus
accrued and unpaid dividends, with the approval of the Company’s primary regulator in consultation with
the Treasury. On November 24, 2009, the Company repurchased the Warrant from the Treasury for $2.65
million, which was charged against the Company’s additional paid-in capital.

In addition, the Purchase Agreement (i) granted the holders of the Series A Preferred Stock, the Warrant

and the Warrant Common Stock certain registration rights, (ii) subjected the Company to certain of the
executive compensation limitations included in the EESA and (iii) allowed the Treasury to unilaterally
amend any of the terms of the Purchase Agreement to the extent required to comply with any changes after
December 12, 2008 in applicable federal statutes.

Upon receipt of the aggregate consideration from the Treasury on December 12, 2008, the Company
allocated the $75.0 million proceeds on a pro rata basis to the Series A Preferred Stock and the Warrant
based on relative fair values. In estimating the fair value of the Warrant, the Company utilized the Black-
Scholes model which includes assumptions regarding the Company’s common stock prices, stock price
volatility, dividend yield, the risk free interest rate and the estimated life of the Warrant. The fair value of
the Series A Preferred Stock was determined using a discounted cash flow methodology and a discount rate
of 12%. As a result, the Company assigned $3.1 million of the aggregate proceeds to the Warrant and $71.9
million to the Series A Preferred Stock. The discount assigned to the Series A Preferred Stock was expected
to be amortized over a five-year period, which was the expected life of the Series A Preferred Stock at the
time it was issued, up to the $75.0 million liquidation value of such preferred stock, with the cost of such
amortization being reported as additional preferred stock dividends. This resulted in a total dividend with
a consistent annual effective yield of 5.98% prior to the Company’s redemption of the Series A Preferred
Stock. As a result of the redemption, the remaining unamortized discount of $2.7 million was recognized
as an additional preferred stock dividend in the fourth quarter of 2009.

11. 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 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 cash contributions to the 401(k) Plan during 2009, 2008 and 2007 of $0.5 million, $0.4
million and $0.3 million, 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 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 in 2009, 2008 and 2007 totaled $117,000, $104,000 and
$103,000, respectively. At December 31, 2009 and 2008, the Company had Plan assets, along with an equal
amount of liabilities, totaling $2.4 million and $1.8 million, respectively, recorded on the accompanying
consolidated balance sheet.

12. Stock-Based Compensation

The Company has a nonqualified stock option plan for certain key employees and officers of the Company.

This plan provides for the granting of 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, defined by the plan as the average of the highest reported asked price and the lowest reported
bid price, on the date of the grant. While the vesting period and the termination date for the employee plan
options are determined when options are granted, all such employee options outstanding at December 31,
2009 were issued with a vesting period of three years and an expiration of seven years after issuance. 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. Additionally, a non-employee director elected or appointed
for the first time as a director on a date other than an annual meeting shall be granted an option to purchase
1,000 shares of common stock. These options are exercisable immediately and expire ten years after issuance.
All shares issued in connection with options exercised under both the employee and non-employee director
stock option plans are in the form of newly-issued shares.

The following table summarizes stock option activity for the year ended December 31, 2009:

Outstanding - January 1, 2009 ........
Granted ............................................
Exercised .........................................
Forfeited ..........................................
Outstanding - December 31, 2009 ...

Options

553,000
77,600
(21,800)
(46,050)
562,750

Fully vested and expected to vest-
December 31, 2009 .......................

534,570

Exercisable - December 31, 2009 ....

314,200

Weighted-Average
Exercise
Price/Share

Weighted-Average
Remaining
Contractual Life
(in years)

Aggregate
Intrinsic Value
(in thousands)

$28.39
24.47
11.83
30.17
$28.34

$28.40

$28.81

4.4

3.3

$1,502(1)

$1,431(1)

$ 954(1)

(1) Based on average trade value of $29.27 per share on December 31, 2009.

Intrinsic value for stock options is defined as the difference between the current market value and the
exercise price. The total intrinsic value of options exercised during 2009, 2008 and 2007 was $0.3 million,
$1.0 million and $1.6 million, respectively.

Options to purchase 77,600 shares, 117,950 shares and 122,600 shares, respectively, were granted during

2009, 2008 and 2007 with a weighted-average fair value of $7.09, $7.33 and $7.37, respectively. The fair
value for each option grant is estimated on the date of grant using the Black-Scholes option pricing model
that uses the following assumptions. The Company uses the U.S. Treasury yield curve in effect at the time
of the grant to determine the risk-free interest rate. The expected dividend yield is estimated using the

current annual dividend level and recent stock price of the Company’s common stock at the date of grant.
Expected stock volatility is based on historical volatilities of the Company’s common stock. The expected life
of the options is calculated based on the “simplified” method as provided for under SEC Staff Accounting
Bulletin No. 110.

The weighted-average assumptions used in the Black-Scholes option pricing model for the years indicated

were as follows:

Risk-free interest rate ..........................
Expected dividend yield .......................
Expected stock volatility ......................
Expected life (years) ............................

2009
2.32%
2.13%
37.0%
5.0

2008
2.61%
1.88%
32.8%
5.0

2007
4.40%
1.54%
22.4%
5.0

The total fair value of options to purchase shares of the Company’s common stock that vested during
the years ended 2009, 2008 and 2007 was $0.9 million, $1.1 million and $0.6 million, respectively. Total
unrecognized compensation cost related to nonvested stock-based compensation was $0.9 million at
December 31, 2009 and is expected to be recognized over a weighted-average period of 2.1 years.

Effective April 21, 2009, the Company’s shareholders voted to approve the Company’s restricted stock
plan permitting issuance of up to 200,000 shares of restricted stock or restricted stock units. All officers
and employees of the Company are eligible to receive awards under the restricted stock plan. The benefits
or amounts that may be received by or allocated to any particular officer or employee of the Company under
the restricted stock plan will be determined in the sole discretion of the Company’s board of directors or its
personnel and compensation committee. Shares of common stock issued under the restricted stock plan may
be shares of original issuance, shares held in treasury or shares that have been reacquired by the Company.

The following table summarizes non-vested restricted stock activity for the year ended December 31, 2009.

There were no grants of restricted stock awards or restricted stock activity prior to 2009.

Year Ended
December 31, 2009

Balance - beginning of year .................................................
Granted ................................................................................
Forfeited ..............................................................................
Earned and issued ...............................................................
Balance - end of year ...........................................................

-
18,600
-
-
18,600

The fair value of the restricted stock awards is amortized to compensation expense over the vesting

period (generally three years) and is based on the market price of the Company’s common stock at the date
of grant multiplied by the number of shares granted that are expected to vest. The weighted-average grant
date fair value of restricted stock granted during 2009 was $0.5 million, or $24.44 per share. Stock-based
compensation expense for restricted stock included in non-interest expense was $24,000 for 2009.
Unrecognized compensation expense for nonvested restricted stock awards was $0.4 million at
December 31, 2009 and is expected to be recognized over 2.8 years.

13. Commitments and Contingencies

The Company is a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial instruments include commitments
to extend credit and standby letters of credit.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit is represented by the contractual 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 creditworthiness 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. The type of collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and other real or personal property.

The Company had outstanding commitments to extend credit, excluding mortgage IRLCs, of $191.0
million and $339.2 million at December 31, 2009 and 2008, 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 terms of the letters of
credit are generally for a period of one year. The maximum amount of future payments the Company could
be required to make under these letters of credit at December 31, 2009 and 2008 is $9.5 million and $10.3
million, respectively. The Company holds collateral to support letters of credit when deemed necessary.
The total of collateralized commitments at December 31, 2009 and 2008 was $8.0 million and $8.3
million, respectively.

14. Related Party Transactions

The Company 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). The aggregate amount of
loans to such related parties at December 31, 2009 and 2008 was $8.2 million and $4.4 million, respectively.
New loans and advances on prior commitments made to such related parties were $5.6 million, $0.9 million
and $3.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. Repayments of loans
made by such related parties were $1.8 million, $5.4 million and $25.3 million for the years ended December
31, 2009, 2008 and 2007, respectively. During 2008 advances totaling $8.9 million were removed from the
Company’s related party loans as a result of changes in the composition of such related parties.

Wiring and cabling installation for certain of the Company’s facilities were performed by an entity whose

ownership includes a member of the Company’s board of directors. Total payments to this entity were
$119,000 in 2009, $224,000 in 2008 and none in 2007 for such installation contract work. This entity was
awarded each of these contracts as a result of it being the low bidder in a competitive bid process.

15. Regulatory Matters

The Company is subject to various regulatory capital requirements administered by federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary
actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial
condition and results of operations. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital guidelines that involve quantitative
measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company’s capital amounts and classification are also subject to
qualitative judgments by the regulators about component risk weightings and other factors.

Federal regulatory agencies generally require the Company and the Bank to maintain minimum Tier 1 and

total capital to risk-weighted assets of 4.0% and 8.0%, respectively, and Tier 1 capital to average quarterly
assets (Tier 1 leverage ratio) of at least 3.0%. Tier 1 capital generally consists of common equity, retained
earnings, certain types of preferred stock, qualifying minority interest and trust preferred securities, subject
to limitations, and excludes goodwill and various intangible assets. Total capital includes Tier 1 capital, any
amounts of trust preferred securities excluded from Tier 1 capital, and the lesser of the ALLL or 1.25% of
risk-weighted assets. At December 31, 2009 and 2008 the Company’s and the Bank’s Tier 1 and total capital
ratios and their Tier 1 leverage ratios exceeded minimum requirements.

The actual and required regulatory capital amounts and ratios of the Company and the Bank at December

31, 2009 and 2008 were as follows:

Required

To Be Well

Actual

For Capital
Adequacy
Purposes

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount

328,714 14.22

320,442 13.78
299,683 12.96

December 31, 2009:
Total capital (to risk-weighted assets):
Company ........................................... $349,649 15.03% $186,095
Bank .................................................
184,952
Tier 1 capital (to risk-weighted assets):
Company ...........................................
Bank .................................................
Tier 1 leverage (to average assets):
Company ...........................................
Bank .................................................
December 31, 2008:
Total capital (to risk-weighted assets):
Company ........................................... $395,406 15.36% $205,990
Bank .................................................
205,840
Tier 1 capital (to risk-weighted assets):
Company ...........................................
Bank .................................................
Tier 1 leverage (to average assets):
Company ...........................................
Bank .................................................

320,442 11.39
299,683 10.72

365,894 14.21
346,941 13.48

365,894 11.64
346,941 11.09

102,995
102,920

376,453 14.63

84,392
83,904

93,047
92,476

94,319
93,813

8.00% $232,619 10.00%
8.00

231,191 10.00

4.00
4.00

3.00
3.00

139,571
138,714

140,653
139,841

6.00
6.00

5.00
5.00

8.00% $257,488 10.00%
8.00

257,300 10.00

4.00
4.00

3.00
3.00

154,493
154,380

157,198
156,355

6.00
6.00

5.00
5.00

As of December 31, 2009 and 2008, 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.

The state bank commissioner’s approval is required before the Bank can 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, 2009, the Bank could not pay dividends
without the approval of regulatory authorities as a result of the $75 million dividend paid by the Bank to
the Company for the redemption of the Series A Preferred Stock. At December 31, 2008, $34.5 million 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
$31.0 million and $36.7 million, respectively, at December 31, 2009 and 2008.

The Bank is required by bank regulatory agencies to maintain certain minimum balances of cash or

deposits primarily with the FRB. At December 31, 2009 and 2008, these required balances aggregated $6.2
million and $4.4 million, respectively.

16. Fair Value Measurements

In accordance with ASC Topic 820, “Fair Value Measurements and Disclosures,” the Company applied the
following fair value hierarchy in the measurement of certain of its assets and liabilities on a fair value basis.

Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar

instruments in markets that are not active; and model-derived valuations whose inputs are observable.

Level 3 - Instruments whose inputs are unobservable.

The following table sets forth the Company’s assets and liabilities at December 31, 2009 and 2008 that

are accounted for at fair value:

December 31, 2009:
Assets:
Investment securities AFS(1):

Level 1

Level 2

Level 3

Total

(Dollars in thousands)

Obligations of state and political subdivisons .......... $ -
U.S. Government agency residential
mortgage-backed securities ..................................
Corporate obligations ...............................................
Collateralized debt obligation ...................................
Total investment securities AFS .........................
Impaired loans and leases ...........................................
Foreclosed assets held for sale, net .............................
Derivative assets - IRLC and FSC ................................

-
-
-
-
-
-
-
Total assets at fair value .................................... $ -

Liabilities:
Derivative liabilities - IRLC and FSC ........................... $ -
Total liabilities at fair value ................................ $ -

$377,297

$16,590

$393,887

94,510
1,865
-
473,672
-
-
-
$473,672

-
-
100
16,690
19,204
61,148
210
$97,252

94,510
1,865
100
490,362
19,204
61,148
210
$570,924

$ -
$ -

$ 210
$ 210

December 31, 2008:
Assets:
Investment securities AFS(1)
Obligations of state and political subdivisons ............. $85,275

U.S. Government agency residential
-
mortgage-backed securities ..................................
-
Corporate obligations ...............................................
-
Collateralized debt obligation ...................................
Total investment securities AFS ......................... 85,275
-
-
-
Total assets at fair value .................................... $85,275

Impaired loans and leases ...........................................
Foreclosed assets held for sale, net .............................
Derivative assets - IRLC and FSC ................................

Liabilities: ......................................................................
Derivative liabilities - IRLC and FSC ........................... $ -
Total liabilities at fair value ................................ $ -

$435,081

$22,384

$542,740

371,561
-
-
806,642
-
-
-
$806,642

-
6,953
683
30,020
12,105
10,758
477
$53,360

371,561
6,953
683
921,937
12,105
10,758
477
$945,277

$ -
$ -

$ 477
$ 477

(1) Does not include $16.3 million and $22.8 million at December 31, 2009 and 2008, respectively, of shares of FHLB

and FNBB stock that do not have readily determinable fair values and are carried at cost.

The following methods and assumptions are used to estimate the fair value of the Company’s assets and

liabilities that were accounted for at fair value.

Investment securities - The Company utilizes independent third parties as its principal pricing sources for

The Company has determined that certain of its investment securities had a limited to non-existent

trading market at December 31, 2009 and 2008. As a result, the Company considers these investments as
Level 3 in the fair value hierarchy. The following is a description of those investment securities and the fair
value methodology used for such securities.

Obligations of state and political subdivisions - The fair values of certain obligations of state and
political subdivisions consisting of unrated Arkansas private placement special improvement district
bonds (“SID bonds”) in the amount of $16.6 million and $19.0 million at December 31, 2009 and 2008,
respectively, were calculated using Level 3 hierarchy inputs and assumptions as the trading market for
such securities was determined to be “not active”. This determination was based on the limited number
of trades or, in certain cases, the existence of no reported trades for the SID bonds and the private placement

nature of such SID bonds. The SID bonds are prepayable at par value at the option of the issuer. As a
result, management believes the SID bonds should be valued at the lower of (i) the matrix pricing provided
by the Company’s third party pricing services for comparable unrated municipal securities or (ii) par value.
At December 31, 2009 and 2008, the third party pricing matrices valued the Company’s total portfolio of
SID bonds at $17.4 million and $19.8 million, respectively, which exceeded the aggregate par value of the
SID bonds by $0.8 million at both December 31, 2009 and 2008. Accordingly, at December 31, 2009 and
2008 the Company reported the SID bonds at par value of $16.6 million and $19.0 million, respectively.

Collateralized debt obligation – At December 31, 2009 and 2008, the Company’s investment securities
portfolio included one security categorized as a collateralized debt obligation (“CDO”). At December 31,
2008, the Company considered this security as a Level 3 in the fair value hierarchy based on a trading
market that was determined to be “not active” based on the limited number of trades, small block sizes,
and the significant spreads between the bid and ask price. Accordingly, the Company developed an internal
model for pricing this security based on the present value of expected cash flows of the instruments at an
appropriate risk-adjusted discount rate. Additionally, the Company reviewed other information such as
historical and current performance of the bond, performances of underlying collateral, if any, deferral or
default rates, if any, cash flow projections, liquidity and credit premiums required by market participants,
financial trend analysis with respect to the individual issuing entities and other factors in determining the
appropriate risk-adjusted discount rates and expected cash flows.

During 2009 this CDO has continued to perform in accordance with its terms and is not in default,

but, because its credit rating was downgraded to below investment grade and other factors, the Company
determined during the third quarter of 2009 that it no longer expects to hold this security until maturity
or until such time as fair value recovers to or above cost. As a result of the Company’s intent to dispose
of this security, the Company recorded a $0.9 million charge during the third quarter of 2009 to reduce
the carrying value of this security to $0.1 million at December 31, 2009. The Company continued to report
this CDO as a Level 3 security in the fair value hierarchy at December 31, 2009.

Corporate obligations – The trading market for one of its investment securities categorized as a

corporate obligation with a fair value at December 31, 2008 of $7.0 million was determined to be “not
active” based on the limited number of trades, small block sizes, and the significant spreads between the
bid and ask price. Accordingly, the Company developed an internal model for pricing this security based
on the present value of expected cash flows of the instruments at an appropriate risk-adjusted discount
rate. Additionally, the Company reviewed other information such as historical and current performance
of the bond, performances of underlying collateral, if any, deferral or default rates, if any, cash flow
projections, liquidity and credit premiums required by market participants, financial trend analysis with
respect to the individual issuing entities and other factors in determining the appropriate risk-adjusted
discount rates and expected cash flows. This bond was subsequently sold in 2009.

Impaired loans and leases – Fair values are measured on a nonrecurring basis and are based on the
underlying collateral value of the impaired loan or lease, net of holding and selling costs, or the estimated
discounted cash flows for such loan or lease. In accordance with the provisions of ASC Topic 310, the
Company has reduced the carrying value of its impaired loans and leases (all of which are included in
nonaccrual loans and leases) by $9.7 million and $4.0 million, respectively, to the estimated fair value of
$19.2 million and $12.1 million, respectively, for such loans and leases at December 31, 2009 and 2008.
The $9.7 million and $4.0 million, respectively, adjustment to reduce the carrying value of impaired loans
and leases to estimated fair value during 2009 and 2008 consisted of $8.1 million and $3.7 million,
respectively, of partial charge-offs and $1.7 million and $0.3 million, respectively, of specific loan and
lease loss allocations.

Foreclosed assets held for sale, net – Repossessed personal properties and real estate acquired through

or in lieu of foreclosure are measured on a non-recurring basis and are initially recorded at the lesser of
current principal investment or fair value less estimated cost to sell at the date of repossession or foreclosure.
Valuations of these assets are periodically reviewed by management with the carrying value of such assets
adjusted through non-interest expense to the then estimated fair value net of estimated selling costs, if lower,
until disposition. Fair values of other real estate are generally based on third party appraisals, broker price
opinions or other valuations of the property, resulting in a Level 3 classification.

Derivative assets and liabilities – The fair values of IRLC and FSC derivative assets and liabilities are
measured on a recurring basis and are based primarily on the fluctuation of interest rates between the date
on which the IRLC and FSC were entered and the measurement date.

The following table presents additional information about assets and liabilities measured at fair value

on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

Balances - January 1, 2008 ....................................................
Total realized gains/(losses) included in earnings .................
Total unrealized gains/(losses) included in other

comprehensive income .......................................................
Purchases, sales, issuances and settlements, net ...................
Transfers in and/or out of Level 3 .........................................
Balances - December 31, 2008 ..............................................
Total realized gains/(losses) included in earnings .................
Total unrealized gains/(losses) included in other

17. Fair Value of Financial Instruments

Investment
Securities
AFS

$ -
(3,016)

1,271
-
31,765
30,020
(3,753)

317
(6,524)
(3,370)
$16,690

Derivative
Assets-
IRLC
and FSC
(Dollars in thousands)
$ 80
397

-
-
-
$477
(267)

-
-
-
$210

Derivative
Liabilities-
IRLC
and FSC

$ (80)
(397)

-
-
-
$(477)
267

-
-
-
$(210)

The following methods and assumptions were used to estimate the fair value of financial instruments.
Cash and due from banks - For these short-term instruments, the carrying amount is a reasonable

estimate of fair value.

Investment securities - The Company utilizes independent third parties as its principal pricing sources for

determining fair value. For investment securities traded in an active market, fair values are measured on a
recurring basis and based on quoted market prices if available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable securities, broker quotes or comprehensive interest
rate tables, pricing matrices or a combination thereof. For investment securities traded in a market that is
not active, fair value is determined using unobservable inputs. The Company’s investments in the common
stock of the FHLB and FNBB of $16.3 million at December 31, 2009 and $22.8 million at December 31,
2008 do not have readily determinable fair values and are carried at cost.

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.

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

Repurchase Agreements - For these short-term instruments, the carrying amount is a reasonable estimate

of fair value.

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

Subordinated debentures - The fair values of these instruments are based primarily upon discounted cash

flows using rates for securities with similiar terms and remaining maturities.

Derivative assets and liabilities - The fair values of IRLC and FSC derivative assets and liabilities are

based primarily on the fluctuation of interest rates between the date on which the IRLC and FSC were
entered and year-end.

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 and were not material at December 31, 2009 and 2008.

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:

Financial assets:

2009

2008

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

(Dollars in thousands)

Cash and cash equivalents ..................................... $ 78,294 $ 78,294
506,678
Investment securities AFS ......................................
506,678
1,841,953
Loans and leases, net of ALLL ............................... 1,864,485
210
210
Derivative assets - IRLC and FSC ...........................

$ 40,982 $ 40,982
944,783
1,982,418
477

944,783
1,991,687
477

Financial liabilities:

Demand, NOW, savings and money market
account deposits ................................................ $1,151,718 $1,151,718
881,463
Time deposits .........................................................
44,269
Repurchase agreements with customers ................
423,404
Other borrowings ...................................................
27,650
Subordinated debentures .......................................
210
Derivative liabilities - IRLC and FSC ......................

877,276
44,269
342,553
64,950
210

$1,038,269 $1,038,269
1,313,996
1,303,145
46,864
46,864
519,517
424,947
47,565
64,950
477
477

18. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:

Cash paid during the period for:

Interest .......................................................................................... $49,692
14,504
Income taxes ..................................................................................
Supplemental schedule of non-cash investing and financing activities:
Loans transfered to foreclosed assets held for sale ........................
Loans advanced for sales of foreclosed assets ...............................
Net change in unrealized gains and losses on
investment securities AFS ........................................................

74,122
3,132

(15,783)

Year Ended December 31,
2009

2008

2007

(Dollars in thousands)
$86,591
15,045

$97,867
12,917

17,259
2,457

8,345
1,487

50,539

(16,733)

Unsettled AFS investment security trades:

Purchases ...................................................................................
Sales/calls ...................................................................................
Securities received on dissolution of unconsolidated investments ..

8,372
-
-

14,038
2,525
3,370

-
-
-

19. Other Operating Expenses

The following is a summary of other operating expenses:

Postage and supplies ...................................................... $ 1,530
1,806
Telephone and data lines ................................................
1,083
Advertising and public relations .....................................
1,793
Professional and outside services ...................................
1,524
Software .........................................................................
4,291
FDIC Insurance ...............................................................
3,999
Loan collection and repossession expense .....................
4,009
Write down of other real estate owned ...........................
Other ..............................................................................
7,010
Total other operating expenses .................................. $27,045

2009

2007

Year Ended December 31,
2008
(Dollars in thousands)
$ 1,633
1,630
1,204
1,537
1,261
1,131
999
1,042
4,958
$15,395

$ 1,620
1,415
1,057
1,077
1,201
701
328
122
3,974
$11,495

20. Earnings Per Common Share (“EPS”)

The following table sets forth the computation of basic and diluted EPS:

Numerator:
Distributed earnings allocated to common stock ......... $ 8,778
28,048
Undistributed earnings allocated to common stock .....
Net earnings allocated to common stock ................. $36,826
Denominator:
Denominator for basic EPS—
weighted-average common shares .............................
Effect of dilutive securities—stock options ..................
Denominator for diluted EPS—weighted-average
common shares and assumed conversions ............
16,900
Basic EPS ....................................................................... $ 2.18
Diluted EPS .................................................................... $ 2.18

16,880
20

2009

Year Ended December 31,
2008
(In thousands, except per share amounts)
$ 7,216
$ 8,418
24,530
26,056
$31,746
$34,474

2007

16,849
25

16,789
45

16,874
$ 2.05
$ 2.04

16,834
$ 1.89
$ 1.89

Options to purchase 487,350 shares, 464,200 shares and 340,150 shares, respectively, of the Company’s

common stock at a weighted-average exercise price of $30.02 per share, $30.86 per share and $32.62 per
share, respectively, were outstanding during 2009, 2008 and 2007, 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. Additionally, a warrant for the purchase of 379,811
shares of the Company’s common stock at an exercise price of $29.62 was outstanding at December 31,
2008 (none at December 31, 2009 and 2007) but was not included in the diluted EPS computation as
inclusion would have been antidilutive.

21. 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,

2009
2008
(Dollars in thousands)

Assets
Cash .............................................................................................. $ 8,437
310,161
Investment in consolidated bank subsidiary .................................
1,950
Investment in unconsolidated Trusts .............................................
485
Investments securities AFS ...........................................................
8,768
Loans ............................................................................................
1,875
Land for future branch site ...........................................................
1,092
Excess cost over fair value of net assets acquired .........................
1,554
Other, net ......................................................................................
Total assets .............................................................................. $334,322

$ 10,247
367,137
1,950
1,724
4,888
1,875
1,092
1,537
$390,450

Liabilities and Stockholders’ Equity
Accounts payable and other liabilities ........................................... $ 46 $ 129
374
Accrued interest payable ...............................................................
198
Preferred stock dividends payable .................................................
Income taxes payable ....................................................................
617
64,950
Subordinated debentures ..............................................................
66,268
Total liabilities ..........................................................................
Stockholders’ equity:
-
Preferred stock, net of unamortized discount .............................
169
Common stock ............................................................................
41,584
Additional paid-in capital ...........................................................
221,243
Retained earnings ......................................................................
6,032
Accumulated other comprehensive income (loss) ......................
Total stockholders’ equity ........................................................
269,028
Total liabilities and stockholders’ equity ................................ $334,322

71,880
169
43,314
193,195
15,624
324,182
$390,450

171
-
127
64,950
65,294

Condensed Statements of Income

2009

Year Ended December 31,
2008
(Dollars in thousands)

2007

Income:
Dividends from Bank ................................................................
Dividends from Trusts ..............................................................
Interest .....................................................................................
Other ........................................................................................
Total income ...............................................................................
Expenses:
Interest .....................................................................................
Other operating expenses .........................................................
Total expenses ............................................................................
Net income before income tax benefit and
equity in undistributed earnings of Bank .................................
Income tax benefit ......................................................................
Equity in undistributed earnings of Bank ...................................
Net income ..................................................................................
Preferred stock dividends and amortization of
preferred stock discount ...........................................................
Net income available to common stockholders ............................

$92,200
64
984
138
93,386

2,138
2,258
4,396

88,990
1,482
(47,370)
43,102

(6,276)
$36,826

Condensed Statements of Cash Flows

$14,400
113
183
137
14,833

3,760
2,411
6,171

8,662
2,432
23,607
34,701

$12,600
152
94
180
13,026

5,066
2,072
7,138

5,888
2,814
23,044
31,746

(227)
$34,474

-
$31,746

Cash flows from operating activities:

Net income ...........................................................................
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of Bank ......................
Gain on sale of investment securities AFS .....................
Deferred income tax benefit ...........................................
Stock-based compensation expense ...............................
Tax benefits on exercise of stock options .......................
Changes in other assets and other liabilities ..................
Net cash provided by operating activities ...................................
Cash flows from investing activities:

Net increase in loans ............................................................
Proceeds from sales of investment securities AFS ...............
Proceeds from sales of other investments ............................
Equity contributed to Bank ..................................................
Net cash used by investing activities ..........................................
Cash flows from financing activities:

Proceeds from exercise of stock options ...............................
Tax benefits on exercise of stock options .............................
Proceeds from issuance of preferred stock
and common stock warrant ...............................................
Redemption of preferred stock .............................................
Repurchase of common stock warrant .................................
Cash dividends paid on preferred stock ...............................
Cash dividends paid on common stock ................................
Net cash (used) provided by financing activities ........................
Net decrease in cash ...................................................................
Cash - beginning of year .............................................................
Cash - end of year .......................................................................

Year Ended December 31,

2009

2008
(Dollars in thousands)

2007

$43,102

$34,701

$31,746

47,370
(162)
(63)
712
(111)
(802)
90,046

(3,880)
1,437
-
-
(2,443)

258
111

-
(75,000)
(2,650)
(3,354)
(8,778)
(89,413)
(1,810)
10,247
$ 8,437

(23,607)
-
(330)
862
(283)
999
12,342

(2,449)
-
-
(87,000)
(89,449)

408
283

75,000
-
-
-
(8,418)
67,273
(9,834)
20,081
$10,247

(23,044)
-
(341)
869
(420)
2,013
10,823

(2,438)
-
2,269
(16,000)
(16,169)

546
420

-
-
-
-
(7,216)
(6,250)
(11,596)
31,677
$20,081

Table of Contents

All scenic photographs from Bank of the Ozarks’ trade area.

Our Board of Directors’ outstanding

leadership and vision has moved

the Company forward and created

a solid foundation for strong

future growth and profitability.

Board of Directors
Back row, left to right:

Henry Mariani
Chairman - NLC Products, Inc., Little Rock, Arkansas

Robert East
Chairman and Chief Executive Officer - East-Harding, Inc., Little Rock, Arkansas
Jean Arehart
Retired Banker, Newport, Arkansas

R.L. Qualls
Retired President and Chief Executive Officer - Baldor Electric Company, Fort Smith, Arkansas

Kennith Smith
Retired Lumber Company President, Ozark, Arkansas

Mark Ross
Vice Chairman, President and Chief Operating Officer - Bank of the Ozarks, Inc., Little Rock, Arkansas

Front row, left to right:

Linda Gleason
Retired Banker, Little Rock, Arkansas

George Gleason
Chairman and Chief Executive Officer - Bank of the Ozarks, Inc., Little Rock, Arkansas