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Lease - BANK OF THE OZARKS INC - 3-17-1999

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Lease - BANK OF THE OZARKS INC - 3-17-1999 Powered By Docstoc
					Exhibit 10.16 LEASE THIS LEASE made this 20th day of November, 1998 by and between INDIAN HILLS SHOPPING CENTER PARTNERSHIP D/B/A INDIAN HILLS SHOPPING CENTER an Arkansas General Partnership, (Landlord), and BANK OF THE OZARKS WCA, (Tenant): WITNESSETH THAT, in consideration of the rents, covenants and agreements hereinafter set forth, such parties enter into the following agreement: ARTICLE I EXHIBITS The exhibits listed below and attached to this Lease are incorporated herein by this reference:
EXHIBIT "A" Legal description of real estate to be developed for a shopping center (hereinafter called "Total Tract"). Plot Plan of Total Tract, showing existing and proposed improvements and depicting Total Tract with existing and future improvements being hereinafter called "the Center". Description of Landlord's Work and Tenant's Work. Sign criteria applicable to Tenant.

EXHIBIT "B"

EXHIBIT "C" EXHIBIT "E"

Notwithstanding Exhibit A, B or C or anything else in this Lease contained, Landlord reserves the unlimited right to change or modify and add to or subtract from the size and dimensions of the Center or any part thereof, the number, location and dimensions of buildings and stores, dimensions of hallways, malls and corridors, the number of floors in any building, the location, size and number of tenants spaces and kiosks which may be erected in or fronting on any mall or otherwise, the identity, type and location of other stores and tenants, and the size, shape, location and arrangement of Common Areas (as defined in Section 5.1), and to design and decorate any portion of the Center as it desires, in Landlord's discretion reasonably exercised. ARTICLE II LEASED PREMISES AND TERM Section 2.1. Leased Premises. Landlord hereby leases to Tenant, and Tenant hereby rents from Landlord, the space (in the Center) designated as Unit 6929 JFK, Ste. 4 outlined in red on Exhibit "B" (herein called "the

premises"), with a front width of approximately 30' and a depth of approximately 50', measured to the center line of all party or common walls, to the exterior faces of all other walls, and to the building line where there is no wall, containing approximately 1,500 square feet (the actual number of square feet, when the premises are completed, being herein called the "Store floor area"). Section 2.2. Roof and Walls. Landlord shall have the exclusive right to use all or any part of the roof, side and rear walls of the premises for any purpose, including but not limited to erecting signs or other structures on or over all or any part of the same,

premises"), with a front width of approximately 30' and a depth of approximately 50', measured to the center line of all party or common walls, to the exterior faces of all other walls, and to the building line where there is no wall, containing approximately 1,500 square feet (the actual number of square feet, when the premises are completed, being herein called the "Store floor area"). Section 2.2. Roof and Walls. Landlord shall have the exclusive right to use all or any part of the roof, side and rear walls of the premises for any purpose, including but not limited to erecting signs or other structures on or over all or any part of the same, erecting scaffolds and other aids to the construction and installation of the same, and installing, maintaining, using, installing, repairing and replacing pipes, ducts, conduits and wires leading through, to or from the premises and serving other parts of the Center not materially interfere with Tenant's use of the premises. Tenant shall have no right whatsoever in the exterior of exterior or the roof of the premises or any portion of the Center outside the premises, except as provided in Section 5.2 hereof. Section 2.3. Lease Term. The "Rental and Commencement" Date shall be the earlier to occur of (a) the date that Tenant opens for business, or (b) December 1, 1998. Should that date be other than the first day of the month, then the rent shall be prorated to the first day of the following month (hereinafter called the "Commencement Date") so that each month thereafter a full month's rent shall be due and payable on the first day of each month and continuing for a period of one (1) year. Section 2.4. Lease Year Defined. "Lease Year" as used herein, means a period of twelve consecutive months during the "Lease Year" commencing on the "Commencement Date" of any calendar year. ARTICLE III LANDLORD'S WORK AND TENANT'S WORK Section 3.1. Tenant's Work. Tenant agrees to accept Unit 6929 JFK, Ste. 4 in its present "as is" condition, except as provided in Exhibit "C" attached hereto. Further alterations of this unit will be at the Tenant's sole expense and deemed to be Tenant's Work, including but not limited to all work designated as Tenant's work in Exhibit "C", and Tenant shall do and perform all Tenant's Work diligently and promptly and in accordance with the following provisions. Section 3.2. Tenant's Obligations Before Commencement Date. Within 15 days hereafter, Tenant will submit to Landlord one (1) set of plans and specifications for all of Tenant's Work to be done within the premises ("Tenant's Plans"). As soon as reasonably possible thereafter, Landlord shall notify Tenant of any failures of Tenant's Plans to meet with Landlord's approval. Tenant shall, within 15 days after receipt of any such 2

notice cause Tenant's Plans to be revised to the extent necessary to obtain Landlord's approval and resubmitted for Landlord's approval. When Landlord has approved the original or revised Tenant's Plans, Landlord shall initial and return one set of approved Tenant's Plans to Tenant and the same shall become a part hereof by this reference. Tenant shall commence such work promptly upon approval of its plans and complete the same, install all store and trade fixtures, equipment, stock in trade, merchandise and inventory, and open for business therein not later than the 90th day after the date of this lease.

notice cause Tenant's Plans to be revised to the extent necessary to obtain Landlord's approval and resubmitted for Landlord's approval. When Landlord has approved the original or revised Tenant's Plans, Landlord shall initial and return one set of approved Tenant's Plans to Tenant and the same shall become a part hereof by this reference. Tenant shall commence such work promptly upon approval of its plans and complete the same, install all store and trade fixtures, equipment, stock in trade, merchandise and inventory, and open for business therein not later than the 90th day after the date of this lease. ARTICLE IV RENT Section 4.1. Minimum Rent. Tenant covenants and agrees to pay to Landlord, without notice, demand or set off, in lawful currency of the United States of America at the time of payment for all debts, public and private, at Landlord's notice address (Landlord's and Tenant's notice addresses being the addresses specified in Section 24.7 hereof), as rent for the premises: (i) Commencing upon the Commencement Date and continuing until the last day of the first (1/st/) Lease Year "Minimum Annual Rent" of SEVENTEEN THOUSAND THREE HUNDRED NINETY DOLLARS ($17,390.00) per annum, payable at the rate of ONE THOUSAND FOUR HUNDRED FORTY NINE AND 17/100's DOLLARS ($1,449.17) per month, and payable on the first day of each month. Section 4.2. Miscellaneous Rent Provisions. Any rent or other amounts to be paid by Tenant which are not paid when due shall bear interest from the date due until fully paid at the lesser of 10% per annum or the highest legal rate which Tenant may be required to pay in the State where the Center is located. If the Commencement Date is other than the first day of a month, Tenant shall pay on the Commencement Date a prorated partial Minimum Monthly Rent for the period prior to the first day of the next calendar month, and thereafter Minimum Monthly Rent payments shall be made not later than the first day of each calendar month. Tenant will preserve for at least three (3) years at Tenant's Notice Address all original books and records (including electronic data storage), tax returns, federal and state, and state sales tax disclosing information pertaining to gross sales and such other information respecting gross sales as Landlord requires. Landlord and its agents shall have the right during business hours to examine and audit such books and records. If such examination of audit discloses a liability for Percentage Rent 2% or more in excess of the Percentage Rent paid by Tenant for any period, Tenant shall promptly pay Landlord the cost of said audit and the deficiency in rents, which deficiency shall be payable in any event. Section 4.5. Real Estate Taxes. A. Definition. As used in this Section 4.5 the term "real estate taxes" shall mean and include all real estate taxes, public and governmental charges and assessments, including all 3

extraordinary or special assessments, all costs and fees incurred by Landlord in contesting or negotiating with public authorities as to any of the same and all sewer and other taxes and charges, but shall not include taxes on Tenant's machinery, equipment, inventory or other personal property or assets of Tenant, Tenant agreeing to pay all taxes upon or attributable to such excluded property without apportionment. B. Tenant's Share. Tenant shall pay to Landlord, as additional rent, its proportionate share of all real estate taxes upon the Center which become due or payable during this Lease Term, such proportionate share to be prorated for periods at the beginning and end of the Lease Term which do not constitute full calendar months or year.

extraordinary or special assessments, all costs and fees incurred by Landlord in contesting or negotiating with public authorities as to any of the same and all sewer and other taxes and charges, but shall not include taxes on Tenant's machinery, equipment, inventory or other personal property or assets of Tenant, Tenant agreeing to pay all taxes upon or attributable to such excluded property without apportionment. B. Tenant's Share. Tenant shall pay to Landlord, as additional rent, its proportionate share of all real estate taxes upon the Center which become due or payable during this Lease Term, such proportionate share to be prorated for periods at the beginning and end of the Lease Term which do not constitute full calendar months or year. Tenant's proportionate share of any such taxes shall be that portion of such taxes which bears the same ratio to the total real estate taxes on Landlord's Tract as the Store floor area bears to the rentable floor area on the Center (hereinafter called "Rentable Floor Area") as of the Commencement Date or the first day of the calendar year in which such taxes are due or payable. Rentable Floor Area occupied by certain stores, and tenants in free standing premises who are obligated to pay real estate taxes specifically upon specific improvements or a specific parcel of land, and the real estate taxes paid by them, shall not be included in computing Tenant's obligations under this Section. Tenant's share of taxes for the first (1st) year shall be THIRTY FIVE CENTS ($0.35) per square foot which equals FIVE HUNDRED TWENTY FIVE DOLLARS ($525.00) per annum to be paid at a rate of FORTY THREE & 75/100's DOLLARS ($43.75) per month. C. Payment by Tenant. Tenant's proportionate share of real estate taxes shall be paid in monthly installments commencing with the Commencement Date, in amounts initially estimated by the Landlord, one such installment being due on the first day of each full or partial month of each full or partial calendar year during the Lease Term. Such monthly installments shall increase or decrease upon notice from Landlord given after the actual or anticipated amounts of real estate taxes due or payable in a particular calendar year are determined. Following the close of each full or partial calendar year during the Lease Term, the actual amount of real estate taxes due or payable shall be computed by Landlord and any excess paid by Tenant during such calendar year over the actual amount Tenant is obligated to pay hereunder shall be credited to the next payment, and within ten (10) days after written notice from Landlord any deficiency owed shall be paid by Tenant. D. Other Taxes. Any tax, charge, impositions, or assessment of any governmental, municipal, or other authority levied, assessed or imposed on account of the payment by Tenant or receipt by Landlord or based in whole or in part upon, the rents in this Lease reserved or upon the Center or the value thereof shall be paid by Tenant. Section 4.6. Sprinkler System. Landlord in its sole discretion, may provide, install on a stand grid, and maintain a sprinkler system in the premises. Section 4.7. Additional Rent. All amounts required or provided to be paid by Tenant under this Lease shall be deemed rent, and the failure to pay the same shall be treated in all events as the failure to pay rent. 4

Section 4.8. Payments for Tenant. If Landlord pays any monies or incurs any expense to correct a breach of this Lease by Tenant or to do anything in this Lease required to be done by Tenant, all amounts so paid or incurred shall, on notice to Tenant, be considered additional rent payable by Tenant with the first installment of Minimum Annual Rent thereafter becoming due and payable, and may be collected as by law provided in the case of rent. ARTICLE V PARKING AND COMMON USE AND FACILITIES Section 5.1 Common Areas.

Section 4.8. Payments for Tenant. If Landlord pays any monies or incurs any expense to correct a breach of this Lease by Tenant or to do anything in this Lease required to be done by Tenant, all amounts so paid or incurred shall, on notice to Tenant, be considered additional rent payable by Tenant with the first installment of Minimum Annual Rent thereafter becoming due and payable, and may be collected as by law provided in the case of rent. ARTICLE V PARKING AND COMMON USE AND FACILITIES Section 5.1 Common Areas. All parking areas, access roads and facilities furnished, made available or maintained by Landlord in or near the Center, including employee parking areas, truck ways, driveways, loading docks and areas, delivery areas, multistory parking facilities (if any), package pickup stations, pedestrian sidewalks, mails, courts and ramps, landscaped areas, retaining walls, stairways, bus stops, first-aid and comfort stations, lighting facilities and other areas and improvements provided by Landlord for the general use in common of tenants and their customers in the Center (all herein called "Common Areas") shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right, from time to time, to establish, modify and enforce rules and regulations with respect to all common areas. Tenant agrees to comply with all rules and regulations set forth in Exhibit "D" attached hereto and all amendments thereto which are applicable to tenants at the Center. Landlord shall have the right from time to time to: change the sizes, locations, shapes and arrangements of parking areas and other Common Areas: restrict parking by employees to designated areas; construct surface, subsurface or elevated parking areas and facilities; establish and from time to time change the level or grade of parking surfaces; and do and perform such other acts in and to said areas and improvements as Landlord in its sole discretion, reasonably applied, deems advisable for the use thereof by tenants and their customers, business invitees and employees. Section 5.2. Use of Common Areas. Tenant and its business invitees, employees and customers shall have the nonexclusive right in common with Landlord and all others to whom Landlord has granted or any hereafter grant rights, to use the Common Areas subject to such rules and regulations as Landlord may from time to time impose and the rights of Landlord set forth above. Tenant shall pay Landlord, upon demand, $10.00 for each car or other vehicle for each day on which such car or other vehicle of Tenant, or a concessionaire, employee or agent of Tenant is parked outside any areas designated by Landlord for employee parking. Tenant authorizes Landlord to cause any such car to be towed from the Center and Tenant shall reimburse Landlord for the cost thereof upon demand, and otherwise indemnify and hold Landlord harmless with respect thereto. Tenant shall abide by all rules and regulations and cause its concessionaires, officers, employees, agents, customers and invitees to abide thereby. Landlord may at any time close temporarily any 5

Common Areas to make repairs or changes, prevent the acquisition of public rights therein, discourage noncustomer parking, or for other reasonable purposes. Tenant shall furnish Landlord license numbers and descriptions of cars used by Tenant and its concessionaires, officers and employees. Tenant shall not interfere with Landlord's or other tenants' rights to use any part of the Common Areas. ARTICLE VI COST AND MAINTENANCE OF COMMON AREA Section 6.1. Expense of Operating and Maintaining the Common Facilities. Landlord will operate, maintain and repair or cause to be operated, maintained or repaired, the Common Area of

Common Areas to make repairs or changes, prevent the acquisition of public rights therein, discourage noncustomer parking, or for other reasonable purposes. Tenant shall furnish Landlord license numbers and descriptions of cars used by Tenant and its concessionaires, officers and employees. Tenant shall not interfere with Landlord's or other tenants' rights to use any part of the Common Areas. ARTICLE VI COST AND MAINTENANCE OF COMMON AREA Section 6.1. Expense of Operating and Maintaining the Common Facilities. Landlord will operate, maintain and repair or cause to be operated, maintained or repaired, the Common Area of the Center. "Landlord's Common Area Costs" shall mean all costs of operating and maintaining the Common Areas in a manner deemed by Landlord appropriate for the best interests of tenants and other occupants in the Center. Included among the costs and expenses which constitute Landlord's Common Area Costs, but not limited thereto, shall be at the option of Landlord, all costs and expenses of protecting, operating, repairing, repaving, lighting, cleaning, painting, striping, maintaining landscape and building sprinkler systems, insuring (including but not limited to fire and extended coverage insurance on Common Areas, insurance against liability for personal injury, death and property damage and workmen's compensation insurance), removing of snow, ice and debris, police protection, security and security patrol, fire protection, regulating traffic inspecting, repairing and maintaining of machinery and equipment used with the operation of the Common Areas, cost and expense of landscaping and shrubbery, expenses of utilities together with an administrative and overhead charge equal to 15% of all of the foregoing and all other of Landlord's Common Area Costs. Section 6.2 Tenant to Bear Pro Rata Share of Expense. Tenant will pay Landlord in addition to all other amounts in this Lease provided, such portion of Landlord's Common Area Costs for each calendar year during the Lease Term which bears the same ratio to the total of Landlord's Common Area Costs as the Store floor area at the Commencement of such calendar year bears to all Rentable Floor Area rented or occupied by tenants on the Center. Tenant's share of Landlord's Common Area costs shall be paid in monthly installments in amounts estimated from time to time by Landlord, one such installment being due on the first day of each month of each calendar year. After the end of each calendar year the total Landlord's Common Area Costs for such year (and at the end of the Lease Term, the total Landlord's Common Area Costs for the period since the end of the immediately next preceding calendar year) shall be determined by Landlord and Tenant's share paid for such period shall immediately, upon such determination, be adjusted by credit to next payment of any excess or payment of any deficiency by Tenant within ten days, Landlord's records of Landlord's Common Area Costs for a period shall be available for inspection by Tenant at Landlord's Notice Address for 6 months after Landlord notifies Tenant of Tenant's share of Landlord's Common Area Costs for such period. Tenant's share of the Common Area Maintenance for the first (1/st/) lease year shall be THIRTY FIVE CENTS ($0.35) per square foot which equals to FIVE HUNDRED TWENTY 6

FIVE DOLLARS ($525.00) per annum to be paid at a rate of FORTY THREE & 75/100's DOLLARS ($43.75) per month. ARTICLE VII UTILITIES AND SERVICES Section 7.1. Utilities. Tenant shall not install any equipment which can exceed the capacity of any utility facilities and if any equipment installed by Tenant requires additional utility facilities, the same shall be installed at Tenant's expense in compliance with all code requirements and plans and specifications which must be approved in writing by

FIVE DOLLARS ($525.00) per annum to be paid at a rate of FORTY THREE & 75/100's DOLLARS ($43.75) per month. ARTICLE VII UTILITIES AND SERVICES Section 7.1. Utilities. Tenant shall not install any equipment which can exceed the capacity of any utility facilities and if any equipment installed by Tenant requires additional utility facilities, the same shall be installed at Tenant's expense in compliance with all code requirements and plans and specifications which must be approved in writing by Landlord. Tenant shall be solely responsible for and promptly pay all charges for use or consumption or sewer, gas, electricity, water and all other utility services. If Landlord makes available electrical service, Tenant agrees to purchase the same from Landlord and pay Landlord for the electrical service (based upon Landlord's determination from time to time of Tenant's consumption of electricity), as additional rent, on the first day of each month in advance (and provided for partial months) commencing on the commencement date as herein defined, at the same cost as would be charged to Tenant from time to time by the utility company which otherwise would furnish such services to the premises if it provided such services and metered the same directly to the Premises, but in no event at a cost which is less than the cost Landlord must pay in providing such electrical service. If Landlord elects to supply water, Tenant shall pay Landlord at the same cost as would be charged to Tenant by the utility company which otherwise would furnish such services to the premises if it provided such services and metered the same directly to the premises but in no event at a cost which is less than the cost Landlord must pay in providing such service, and in no event less than the minimum monthly charge which would have been charged by the water utility applicable to the size of meter which would have been installed by Tenant in or for the premises. TENANT SHALL PAY LANDLORD AN ADDITIONAL TEN DOLLARS ($10.00) PER MONTH FOR WATER. ARTICLE VIII CONDUCT OF BUSINESS BY TENANT Section 8.1 Use of Premises. The premises shall be occupied and used by Tenant solely for the purpose of conducting therein the business of Banking & Related Services and for no other purpose. Section 8.2. Prompt Occupancy and Use. Tenant will occupy the premises upon the Commencement Date and thereafter continuously operate and conduct in 100% of the premises during each hour of the entire Lease Term when Tenant is required under this Lease to be open for business the business permitted under Section 8.1 hereof, with a full staff and full stock of merchandise, using only such minor portions of the premises for storage and office purposes as are reasonably required. In addition to all other remedies, Landlord shall have the right to obtain specific performance by Tenant upon Tenant's failure to comply with the provisions of this Section 8.2. 7

Section 8.3. Conduct of Business. Such business shall be conducted (a) in Tenant's own name or under the name Bank of the Ozarks unless another name is previously approved in writing by the Landlord; and (b) in such manner as shall assure the transaction of a maximum volume of business in and at the premises. Section 8.4. Operation by Tenant. Tenant covenants and agrees that it will: (a) not place or maintain any merchandise, vending machines or other

Section 8.3. Conduct of Business. Such business shall be conducted (a) in Tenant's own name or under the name Bank of the Ozarks unless another name is previously approved in writing by the Landlord; and (b) in such manner as shall assure the transaction of a maximum volume of business in and at the premises. Section 8.4. Operation by Tenant. Tenant covenants and agrees that it will: (a) not place or maintain any merchandise, vending machines or other articles in any vestibule or entry of the premises or outside the premises; (b) store garbage, trash, rubbish and other refuse in rat-proof and insect-proof containers inside the premises, and remove the same from the rear of the premises frequently and regularly and, if directed by Landlord, by such means and methods and at such times and intervals as are designated by Landlord, all at Tenant's costs; (c) not permit any sound system audible or objectionable advertising medium visible outside the premises; (d) keep all mechanical equipment free of vibration and noise and in good working order and condition; not commit or permit waste or a nuisance upon the premises; (e) not permit or cause odors to emanate or be dispelled from the premises; not solicit business in the Common Areas nor distribute advertising matter to, in or upon any Common Area; (f) not permit the loading or unloading or the parking or standing of delivery vehicles outside any area designated therefore, nor permit any use of vehicles which will interfere with the use of any common area in the center; (g) comply with all laws, recommendations, ordinances, rules and regulations of governmental, public, private and other authorities and agencies, including those with authority over insurance rates, with respect to the use or occupancy of the premises, and including but not limited to the Williams-Steiger Occupational Safety and Health Act; (h) light all signs each night of the year for not less than one hour after the premises is permitted to be closed; (i) not permit any noxious, toxic or corrosive fuel or gas, dust, dirt or fly ash on the premises; (j) not place a load on any floor in the Shopping Center which exceeds the floor load per square foot which such floor was designed to carry. Section 8.5. Storage. Tenant shall have in the premises only merchandise which Tenant intends to sell at, in or from the premises. Section 8.6. Painting, Decorating, Displays, Alterations. Tenant will not paint, decorate or change the architectural treatment of any part of the exterior of the premises nor any part of the interior of the premises nor make any structural or nonstructural alterations, additions or changes in or to the premises (interior or exterior) without Landlord's written approval thereto, and will promptly remove any paint, decoration, alteration, addition or changes applied or installed without Landlord's approval and restore the premises to an acceptable condition or take such other action with respect thereto as Landlord directs. Section 8.7. Other Operations. If during the Lease Term, Tenant (including subsidiaries, affiliates, guarantors) directly or indirectly operates manages or has any interest whatsoever in any other store or business operated for a purpose or business similar to or in competition with all or part of the business 8

permitted under Section 8.1 hereof within a radius of _____ miles of the center, it will injure Landlord's ability and right to receive Percentage Rent (such ability and right being a major consideration for this Lease and the construction of the Center.) Accordingly, if Tenant operates, manages or has such interest in any such store or business within radius, 50% of all sales made from any such other store or business shall be included in the computation of gross sales for the purpose of determining Percentage Rent under this Lease as though said sales had actually been made at, in or from the premises. Landlord shall have all rights of inspection of books and records with respect to such store or business as it has with respect to the premises; and Tenant shall furnish to Landlord such reports with respect to gross sales from such other store or business as it is herein required to furnish with respect to premises.

permitted under Section 8.1 hereof within a radius of _____ miles of the center, it will injure Landlord's ability and right to receive Percentage Rent (such ability and right being a major consideration for this Lease and the construction of the Center.) Accordingly, if Tenant operates, manages or has such interest in any such store or business within radius, 50% of all sales made from any such other store or business shall be included in the computation of gross sales for the purpose of determining Percentage Rent under this Lease as though said sales had actually been made at, in or from the premises. Landlord shall have all rights of inspection of books and records with respect to such store or business as it has with respect to the premises; and Tenant shall furnish to Landlord such reports with respect to gross sales from such other store or business as it is herein required to furnish with respect to premises. Section 8.8. Sales and Dignified Use. No public or private auction or any fire, "going out of business", bankruptcy or similar sales or auctions shall be conducted in or from the premises and the premises shall not be used except in a dignified and ethical manner consistent with the general high standards of merchandising in the Center and not in a disreputable or immoral manner or in violation of the national, state or local laws. ARTICLE IX MAINTENANCE OF LEASED PREMISES Section 9.1. Maintenance by Landlord. Landlord shall keep or cause to be kept the foundations, roof and structural portions of the walls of the premises in good order, repair and condition except for damage thereto due to the acts or omissions of Tenant, its employees or invitees. Landlord shall commence required repairs as soon as reasonably practicable after receiving written notice from Tenant thereof. This paragraph shall not apply in case of damage or destruction by fire or other casualty or condemnation or eminent domain, in which events the obligations of Landlord shall be controlled by Article XVI and XVII. Except as provided this Section 9.1 Landlord shall not be obligated to make repairs, replacements or improvements of any kind upon the premises, or to any equipment, merchandise, stock in trade, facilities or fixtures therein, all of which shall be Tenant's responsibility, but Tenant shall give Landlord prompt written notice of any accident, casualty, damage or other similar occurrence in or to the premises or the Common Areas of which Tenant has knowledge. Section 9.2. Maintenance by Tenant. Tenant shall at all times keep the premises (including all entrances and vestibules) and all partitions, window and window frames and moldings, glass doors, door openers, fixtures, equipment and appurtenances thereof (including lighting, heating, electrical, plumbing, ventilating and air conditioning fixtures and systems and other mechanical equipment and appurtenances specifically including the sprinkler system, if any) not required herein to be maintained by Landlord in good order, condition and repair and clean, orderly, sanitary and safe, damage by unavoidable casualty excepted, (including but not limited to doing such things as are necessary to cause the premises, not required herein to be maintained by Landlord in good order, condition and repair and clean, orderly, sanitary and safe, damage by unavoidable casualty 9

excepted, (including but not limited to doing such things as are necessary to cause the premises to comply with applicable laws, ordinances, rules, regulations and orders of governmental and public bodies and agencies, such as but not limited to the Williams-Steiger Occupational Safety and Health Act). If replacement of equipment, fixtures and appurtenances thereto are necessary, Tenant shall replace the same with equipment, fixtures and appurtenances of the same quality, and repair all damages done in or by such replacement. If Tenant fails to perform its obligations hereunder, Landlord without notice may, but shall not be obligated to, perform Tenant's obligations or perform work resulting from Tenant's acts, actions or omissions and add the cost of the same to the next installment of Minimum Monthly Rent due hereunder. Section 9.3. Surrender of Premises.

excepted, (including but not limited to doing such things as are necessary to cause the premises to comply with applicable laws, ordinances, rules, regulations and orders of governmental and public bodies and agencies, such as but not limited to the Williams-Steiger Occupational Safety and Health Act). If replacement of equipment, fixtures and appurtenances thereto are necessary, Tenant shall replace the same with equipment, fixtures and appurtenances of the same quality, and repair all damages done in or by such replacement. If Tenant fails to perform its obligations hereunder, Landlord without notice may, but shall not be obligated to, perform Tenant's obligations or perform work resulting from Tenant's acts, actions or omissions and add the cost of the same to the next installment of Minimum Monthly Rent due hereunder. Section 9.3. Surrender of Premises. At the expiration of the tenancy hereby created, Tenant shall surrender the premises in the same condition as they were required to be in on the Required Completion Date, reasonable wear and tear and damage by unavoidable casualty excepted, and deliver all keys for and all combinations on locks, safes and vaults in, the premises to Landlord at Landlord's Notice Address. ARTICLE X SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS Section 10.1. Fixtures. All fixtures installed by Tenant shall be new or completely reconditioned, free from all liens and encumbrances of any kind. Section 10.2. Removal and Restoration by Tenant. All alterations, changes and additions and all improvements, including leasehold improvements, made by Tenant, or made by Landlord on Tenant's behalf, whether part of Tenant's work or not and whether or not paid for wholly or in part by Landlord, shall remain Tenant's property for the Lease Term. Any alterations, changes, additions and improvements shall immediately upon the termination of this Lease become Landlord's property, be considered part of the premises, and not be removed at or prior to the end of the Lease Term without Landlord's written consent unless Landlord requests Tenant to remove the same. If Tenant fails to remove any shelving, decorations, equipment, trade fixtures or personal property from the premises prior to the end of this Lease Term, they shall become Landlord's property. Section 10.3. Tenant Shall Discharge All Liens. Tenant shall promptly pay all contractors and materialmen, and not permit or suffer any lien to attach to the Shopping Center or any part thereof, and indemnify and save harmless Landlord against the same. Landlord shall have the right to require Tenant to furnish a bond or other indemnity satisfactory to Landlord prior to the commencement of any work by Tenant on the premises, or if any lien attaches or is claimed, to require such a bond or indemnity in addition to all other remedies. Section 10.4. Signs, Awning and Canopies. 10

Tenant will not place or permit on any exterior door or window or any wall of the premises or otherwise, any sign, awning, canopy, advertising matter, decoration, lettering or other thing of any kind which do not comply with the Sign Criteria set forth in Exhibit "E" attached hereto. ARTICLE XI INSURANCE Section 11.1. By Landlord.

Tenant will not place or permit on any exterior door or window or any wall of the premises or otherwise, any sign, awning, canopy, advertising matter, decoration, lettering or other thing of any kind which do not comply with the Sign Criteria set forth in Exhibit "E" attached hereto. ARTICLE XI INSURANCE Section 11.1. By Landlord. Landlord shall carry public liability insurance on the Common Area of the Center providing coverage of not less than $1,000,000 against liability for bodily injury including death and personal injury for any one occurrence and $250,000 property damage insurance, or a combined single limit insurance in the amount of $1,000,000. Landlord shall also carry insurance for fire, extended coverage, vandalism, malicious mischief and other endorsements deemed advisable by Landlord, insuring all improvements on the Center, including the premises and all leasehold improvements thereon and appurtenances thereto (excluding Tenant's merchandise, trade fixtures, furnishings, equipment, personal property and excluding plate glass) for the full insurable value thereof, with such deductibles as Landlord deems advisable, such insurance coverage to include improvements provided by Tenant as set forth in Exhibit "C" and "C-2" as the Tenant's Work (excluding wall covering, floor covering, carpeting and drapes), and improvements erected by Landlord in the Center. Tenant agrees to pay Landlord, as additional rent, FIFTEEN CENTS ($0.15) per year for each square foot of Store floor area payable in equal installments on the first day of every calendar month during this Lease Term, as Tenant's share of the cost of the premiums for such insurance described above in this sentence. At the end of the first Partial Lease Year and each Lease Year thereafter, the amount thus to be paid by Tenant shall be adjusted upward or downward (but shall never be less than the above amount) in direct ratio to the increase or decrease in the cost of the premiums paid by Landlord for such insurance coverage. Tenant's share of insurance for the first (1st) year shall be FIFTEEN CENTS ($0.15) per square foot which equals to TWO HUNDRED TWENTY FIVE DOLLARS ($225.00) per annum to be paid at a rate of EIGHTEEN AND 75/100's DOLLARS ($18.75) per month. Section 11.2. By Tenant. Tenant agrees to carry public liability on the premises during the term hereof, covering the Tenant and naming the Landlord as an additional named insured with terms and companies satisfactory to Landlord, for limits of not less than $1,000,000.00 for bodily injury, including death, and personal injury for any one occurrence, $250,000.00 property damage insurance or a combined single limit of $1,000,000.00. Tenant's insurance will include contractual liability coverage recognizing this Lease, products and/or completed operations liability and providing that Landlord and Tenant shall be given a minimum of thirty (30) days' written notice by the insurance company prior to cancellation, termination or change in such insurance. Tenant also agrees to carry insurance against fire and such other risks as are from time to time included in standard Fire and Extended Coverage insurance, for the full insurable value, covering all of Tenant's merchandise, trade fixtures, furnishings, wall covering, floor covering, carpeting, 11

drapes, equipment and all items of personal property of Tenant located on or within the premises. Tenant shall provide Landlord with copies of the policies or certificates evidencing that such insurance is in full force and effect and stating the terms thereof. The minimum limits of the comprehensive general liability policy of insurance shall in no way limit or diminish Tenant's liability under Section 11.6 hereof and shall be subject to increase at any time, and from time to time. Within thirty (30) days after demand therefor by Landlord, Tenant shall furnish Landlord with evidence that such demand has been complied with. Section 11.3. Mutual Waiver of Subrogation Rights. Landlord and Tenant and all parties claiming under them mutually release and discharge each other from all claims and liabilities arising from or caused by any casualty or hazard covered or required hereunder to be covered in whole or in part by insurance on the premises, or in connection with property on or activities conducted on the

drapes, equipment and all items of personal property of Tenant located on or within the premises. Tenant shall provide Landlord with copies of the policies or certificates evidencing that such insurance is in full force and effect and stating the terms thereof. The minimum limits of the comprehensive general liability policy of insurance shall in no way limit or diminish Tenant's liability under Section 11.6 hereof and shall be subject to increase at any time, and from time to time. Within thirty (30) days after demand therefor by Landlord, Tenant shall furnish Landlord with evidence that such demand has been complied with. Section 11.3. Mutual Waiver of Subrogation Rights. Landlord and Tenant and all parties claiming under them mutually release and discharge each other from all claims and liabilities arising from or caused by any casualty or hazard covered or required hereunder to be covered in whole or in part by insurance on the premises, or in connection with property on or activities conducted on the premises and waive any right of subrogation which might otherwise exist in or accrue to any person on account thereof, provided that such release shall not operate in any case where the effect is to invalidate or increase the cost of such insurance coverage (provided, that in the case of increased cost, the other party shall have the right, within thirty (30) days following written notice, to pay such increased cost, thereby keeping such release and waiver in full force and effect). Section 11.4. Waiver. Landlord, its agents and employees, shall not be liable for, and Tenant waives all claims for, damage, including, but not limited to consequential damages to person, property or otherwise, sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon any part of the Center including, but not limited to, claims for damage resulting from: (a) any equipment or appurtenances becoming out of repair; (b) Landlord's failure to keep any part of the Center in repair; (c) injury done or caused by wind, water, or other natural element; (d) any defect in or failure of plumbing, heating or air conditioning equipment, electrical wiring or installation thereof, gas, water, and steam pipes, stairs, porches, railings or walks; (e) broken glass; (f) the backing up of any sewer pipe or down spout; (g) the bursting, leaking or running of any tank, tub, washstand, water closet, waste pipe, drain or any other pipe or tank in, upon or about such building or premises; (h) the escape of steam or hot water; (i) water, snow or ice upon the premises; (j) the falling of any fixture, plaster or stucco; (k) damage to or loss by theft or otherwise of property of Tenant or others; (l) acts or omissions of persons in the premises, other tenants in the Center, occupants of nearby properties, or any other persons; and (m) any act or omission of owners of adjacent or contiguous property, or of Landlord, its agents or employees. All property of Tenant kept in the premises shall be so kept at Tenant's risk. Section 11.5. Insurance--Tenant's Operation. Tenant will not do or suffer to be done anything which will contravene Landlord's insurance policies or prevent Landlord from procuring such policies in amounts and companies selected by Landlord. If anything done, omitted to be done or suffered to be done by Tenant in, upon or about the premises shall cause the rates of any insurance effected or carried by Landlord on the premises or other property to be increased beyond the regular rate from time to time applicable to the premises for use for the purpose permitted under this Lease, or such other 12

property for the use or uses made thereof, Tenant will pay the amount of such increase promptly upon Landlord's demand and Landlord shall have the right to correct any such condition at Tenant's expense. In the event that this lease so permits and Tenant engages in the preparation of food or packaged foods or engages in the use, sale or storage of inflammable or combustible material, Tenant shall install chemical extinguishing devices (such as Ansul) approved by Underwriters Laboratories and Factory Mutual and the installation thereof must be approved by the local Insurance Service Office or its equivalent. Tenant shall keep such devices under service as required by such organizations. If gas is used in the premises, Tenant shall install gas cut-off devices (manual and automatic). Section 11.6. Indemnification. Tenant shall indemnify and save harmless Landlord from and against any and all liability, liens, claims, demands,

property for the use or uses made thereof, Tenant will pay the amount of such increase promptly upon Landlord's demand and Landlord shall have the right to correct any such condition at Tenant's expense. In the event that this lease so permits and Tenant engages in the preparation of food or packaged foods or engages in the use, sale or storage of inflammable or combustible material, Tenant shall install chemical extinguishing devices (such as Ansul) approved by Underwriters Laboratories and Factory Mutual and the installation thereof must be approved by the local Insurance Service Office or its equivalent. Tenant shall keep such devices under service as required by such organizations. If gas is used in the premises, Tenant shall install gas cut-off devices (manual and automatic). Section 11.6. Indemnification. Tenant shall indemnify and save harmless Landlord from and against any and all liability, liens, claims, demands, damages, expenses, fees, costs, fines, penalties, suits, proceedings, actions and causes of action of any and every kind and nature arising or growing out of or in any way connected with Tenant's use, occupancy, management or control of the premises or Tenant's operations, conduct or activities in the Center. ARTICLE XII OFFSET STATEMENT, ATTORNMENT, SUBORDINATION Section 12.1. Offset Statement. Within ten days after Landlord's request, Tenant shall deliver, executed in recordable form a declaration to Landlord and/or any person designated by Landlord (a) ratifying this Lease; (b) stating the Commencement and termination dates; and (c) certifying (i) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended (except by such writings as shall be stated), (ii) that all conditions under this Lease to be performed by Landlord have been satisfied (stating exceptions, if any), (iii) no defenses or offsets against the enforcement of this Lease by Landlord exist (or stating those claimed), (iv) advance rent, if any, paid by Tenant, (v) the date to which rent has been paid, (vi) the amount of security deposited with Landlord, such other information as Landlord reasonably requires. Persons receiving such statements shall be entitled to rely upon them. Section 12.2. Attornment. Tenant shall, in the event of a sale or assignment of Landlord's interest in the premises or the building in which the premises is located or this Lease or the Center, or in the premises or such building comes into the hands of a mortgagee, ground lessor or any other person whether because of a mortgage, foreclosure, exercise of a power of sale under a mortgage, termination of the ground lease, or otherwise, not disaffirm this Lease and attorn to the purchaser or such mortgagee, or other person and recognize the same as Landlord hereunder. Tenant shall execute, at Landlord's request any attornment agreement required by any mortgagee, ground lessor or other such person to be executed, containing such provisions as such mortgagee, ground lessor or other person requires. 13

Section 12.3. Subordination. A. Mortgage. The Lease shall be junior and inferior at all times to the lien of any mortgage or mortgages which now or hereafter are a lien upon any part of the Center and Tenant shall execute such instruments as Landlord requests to evidence such subordination. B. Construction, Operation and Reciprocal Easement Agreements. This Lease is subject and subordinate to one or more construction, operation, reciprocal easement or similar agreements (hereinafter referred to as "Operating Agreements") entered into or hereafter to be entered into between Landlord and other owners or lessees of real estate within or near the Center (which Operating Agreements may have been or may be recorded in the official records of the County wherein the Center is located) and to any and all easements and easement agreements which may be or have been entered into with or granted to any persons hereto fore or hereafter, whether such persons are located within or upon the Center or not, and Tenant shall execute such instruments as Landlord requests to evidence such subordination.

Section 12.3. Subordination. A. Mortgage. The Lease shall be junior and inferior at all times to the lien of any mortgage or mortgages which now or hereafter are a lien upon any part of the Center and Tenant shall execute such instruments as Landlord requests to evidence such subordination. B. Construction, Operation and Reciprocal Easement Agreements. This Lease is subject and subordinate to one or more construction, operation, reciprocal easement or similar agreements (hereinafter referred to as "Operating Agreements") entered into or hereafter to be entered into between Landlord and other owners or lessees of real estate within or near the Center (which Operating Agreements may have been or may be recorded in the official records of the County wherein the Center is located) and to any and all easements and easement agreements which may be or have been entered into with or granted to any persons hereto fore or hereafter, whether such persons are located within or upon the Center or not, and Tenant shall execute such instruments as Landlord requests to evidence such subordination. Section 12.4. Failure To Execute Instruments. Tenant's failure to execute instruments or certificates provided for in this Article XII within fifteen (15) days after the mailing by Landlord of a written request shall be an event of Default under this Lease. ARTICLE XIII ASSIGNMENT, SUBLETTING AND CONCESSIONS Section 13.1. Consent Required. Tenant will not sell, assign, mortgage, pledge or in any manner transfer this lease or any interest therein nor sublet all or any part of the premises, nor license concessions nor lease departments therein, without Landlord's written consent. Consent by Landlord to any assignment or subletting shall not waive the necessity for consent to any subsequent assignment or subletting. This prohibition shall include a prohibition against any subletting or assignment by operation of law. If this Lease is assigned or the premises or any part underlet or occupied by anybody other than Tenant, Landlord may collect rent from the assignee, under-tenant or occupant and apply the same to the rent herein reserved, and Landlord shall be entitled to retain any increases in rent resulting from such assignment or underlettings, but no such assignment, underletting occupancy or collection of rent shall be deemed a waiver of this covenant or the acceptance of the assignee, under-tenant or occupant as tenant, or release of Tenant from the performance by Tenant of any covenants on the part of Tenant herein contained. Notwithstanding any assignment or subletting, Tenant shall remain fully liable on this Lease and for the performance of all terms, covenants and provisions of this Lease. Section 13.2. Corporate Ownership. If any corporate stock of Tenant is transferred by sale, assignment, bequest, inheritance, operation of law or other disposition so as to result in a change in the effective voting control of 14

Tenant as it exists on the date hereof, Tenant shall promptly give Landlord written notice of such change and Landlord may terminate this Lease at any time after such change in control by giving Tenant ninety (90) days written notice of such termination. ARTICLE XIV MERCHANTS' ASSOCIATION AND ADVERTISING Section 14.1. Provisions Relating to Merchants' Association. INTENTIONALLY DELETED

Tenant as it exists on the date hereof, Tenant shall promptly give Landlord written notice of such change and Landlord may terminate this Lease at any time after such change in control by giving Tenant ninety (90) days written notice of such termination. ARTICLE XIV MERCHANTS' ASSOCIATION AND ADVERTISING Section 14.1. Provisions Relating to Merchants' Association. INTENTIONALLY DELETED Section 14.2. Advertising. INTENTIONALLY DELETED ARTICLE XV SECURITY DEPOSIT Section 15.1. Amount of Deposit. NONE - INTENTIONALLY DELETED. ARTICLE XVI DAMAGE AND DESTRUCTION Section 16.1. Damage to Premises. If the premises are hereafter damaged or destroyed or rendered partially untenantable for their accustomed use by fire or other casualty insured under the coverage which Landlord carries pursuant to Section 11.1 hereof, Landlord shall promptly repair the same to substantially the condition which they were in immediately prior to the happening of such casualty (excluding stock in trade, fixtures, furniture, furnishings, carpeting, floor coverings, wall covering, drapes and equipment), and from the date of such casualty until the premises are so repaired and restored, the Minimum Monthly Rent payments payable hereunder shall abate in such proportion as the part of said premises thus destroyed or rendered untenantable bears to the total premises; PROVIDED, HOWEVER, that Landlord shall not be obligated to repair and restore if such casualty is caused directly or indirectly by the negligence of Tenant, its agents and employees and no portion of the Minimum Monthly Rent and other payments payable hereunder shall abate, and PROVIDED, FURTHER, that Landlord shall not be obligated to expend for such repair or restoration an amount in excess of the insurance proceeds recovered as a result of such damage, and PROVIDED, FURTHER, that if the premises be damaged, destroyed or rendered untenantable for their accustomed uses by fire or other casualty to the extent of more than 50% of the cost to replace the premises or if the premises shall be damaged, destroyed or rendered untenantable in any respect during the last three Lease years of the Term, then Landlord shall have the right to terminate this Lease effective as of the date of such casualty by giving to Tenant, within 60 days after the happening of such casualty, written notice of such termination. 15

If such notice be given, this Lease shall terminate and Landlord shall promptly repay to Tenant any rent theretofore paid in advance which was not earned at the date of such casualty. Any time that Landlord repairs or restores the premises after damage or destruction, then Tenant shall promptly repair or replace its stock in trade, fixtures, furnishings, furniture, carpeting, wall covering, floor covering, drapes and equipment to the same condition as they were in immediately prior to the casualty, and if Tenant has closed its business, Tenant shall promptly reopen for business upon the completion of such repairs. ARTICLE XVII

If such notice be given, this Lease shall terminate and Landlord shall promptly repay to Tenant any rent theretofore paid in advance which was not earned at the date of such casualty. Any time that Landlord repairs or restores the premises after damage or destruction, then Tenant shall promptly repair or replace its stock in trade, fixtures, furnishings, furniture, carpeting, wall covering, floor covering, drapes and equipment to the same condition as they were in immediately prior to the casualty, and if Tenant has closed its business, Tenant shall promptly reopen for business upon the completion of such repairs. ARTICLE XVII EMINENT DOMAIN Section 17.1. Condemnation. If 10% or more of the Premises or 15% or more of the Center shall be acquired or condemned by right of eminent domain for any public or quasi public use or purpose, is terminated as a result of such an acquisition or condemnation, then Landlord at its election, may terminate this Lease by giving notice to Tenant of its election, and in such event rentals shall be apportioned and adjusted as of the date of termination. If the Lease shall not be terminated as aforesaid, then it shall continue in full force and effect, and Landlord shall within a reasonable time after possession is physically taken (subject to delays due to shortage or labor, materials or equipment, labor difficulties, breakdown of equipment, government restrictions, fires, other casualties or other causes beyond the reasonable control of Landlord) repair or rebuild what remains of the premises which together with the remaining portions of the building for Tenant's occupancy; and a just proportion of the Minimum Annual Rent shall be abated, according to the nature and extent of the injury to the premises, until such repairs and rebuilding are completed, and thereafter for the balance of the Lease Term. Section 17.2. Damages. Landlord reserves, and Tenant assigns to Landlord, all rights to damages on account of any taking or condemnation or any act of any public or quasi public authority for which damages are payable. Tenant shall execute such instruments of assignment as Landlord requires, join with Landlord in any action for the recovery of damages, if requested by Landlord, and turn over to Landlord any damages recovered in any proceeding. However, Landlord does not reserve any damages payable for trade fixtures installed by Tenant at its own cost which are not part of the realty. ARTICLE XVIII DEFAULT BY TENANT Section 18.1. Right To Re-Enter. The following shall be considered for all purposes to be defaults under and breaches of this lease: (a) any failure of Tenant to pay any rent or other amount due hereunder; (b) any failure of Tenant to perform or observe any other of the terms, provisions, conditions and covenants of this Lease for more than ten days after written notice of such failure; (c) Landlord determining 16

that Tenant has submitted any false report required to be furnished hereunder; (d) Tenant shall do anything upon or in connection with the premises or the construction of any part thereof which directly or indirectly interferes in any way with, or results in a work stoppage in connection with, construction of any part of the Center or any other tenant's space; (e) Tenant shall become bankrupt or insolvent or file or have filed against it a petition in bankruptcy or for reorganization or arrangement or for the appointment of a receiver or trustee of all or a portion of Tenant's property, or Tenant makes an assignment for the benefit of creditors; (f) if Tenant abandons or vacates or does not do business in the premises for ten (10) days, or (g) this Lease or Tenant's interest herein or in the premises or any improvements thereon or any property of Tenant are executed upon or attached; or (h) the premises come into the hands of any person other than expressly permitted under this Lease. In any such event, and without grace period, demand or notice (the same being hereby waived by

that Tenant has submitted any false report required to be furnished hereunder; (d) Tenant shall do anything upon or in connection with the premises or the construction of any part thereof which directly or indirectly interferes in any way with, or results in a work stoppage in connection with, construction of any part of the Center or any other tenant's space; (e) Tenant shall become bankrupt or insolvent or file or have filed against it a petition in bankruptcy or for reorganization or arrangement or for the appointment of a receiver or trustee of all or a portion of Tenant's property, or Tenant makes an assignment for the benefit of creditors; (f) if Tenant abandons or vacates or does not do business in the premises for ten (10) days, or (g) this Lease or Tenant's interest herein or in the premises or any improvements thereon or any property of Tenant are executed upon or attached; or (h) the premises come into the hands of any person other than expressly permitted under this Lease. In any such event, and without grace period, demand or notice (the same being hereby waived by Tenant), Landlord, in addition to all other rights or remedies it may have hereunder at law or in equity shall have the right thereupon or at any time thereafter to terminate this Lease by giving notice to Tenant stating the date upon which such termination shall be effective, and shall have the right, either before or after any such termination, to re-enter and take possession of the premises, remove all persons and property from the premises, store such property at Tenant's expenses, and without notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby. Nothing herein shall be construed to require Landlord to give any notice before exercising any of its rights and remedies provided for in Section 3.4 of this Lease. Notwithstanding anything to the contrary herein contained, if Tenant commits any default hereunder for or precedent to which or with respect to which notice is herein required, and commits such defaults within twelve (12) months thereafter, no notice shall thereafter be required to be given by Landlord as to or precedent to any such subsequent default during such twelve (12) month period (as Tenant hereby waiving the same) before exercising any or all remedies available to Landlord. Section 18.2. Right To Relet. If Landlord re-enters as above provided, or if it takes possession pursuant to legal proceedings or otherwise, it may either terminate this Lease or it may from time to time, without terminating this Lease, make such alterations and repairs as it deems advisable to relet the premises, and relet the premises or any part thereof for such term or terms (which may extend beyond the Lease Term) and at such rentals and upon such other terms and conditions as Landlord in its sole discretion deems advisable; upon each such reletting all rentals received by Landlord therefrom shall be applied, first, to any indebtedness other than rent due hereunder from Tenant to Landlord; second, to pay any costs and expenses of reletting, including brokers and attorneys' fees and cost of alterations and repairs; third, to rent due hereunder and the residue, if any, shall be held by Landlord and applied in payment of future rent as it becomes due hereunder. If rentals received from such reletting during any month are less than that to be paid during that month by Tenant hereunder, Tenant shall immediately pay any such deficiency to Landlord. No re-entry or taking possession of the premises by Landlord shall be construed as an election to terminate this Lease unless a written notice of such termination is given by Landlord. 17

Notwithstanding any such reletting without termination, Landlord may at any time thereafter terminate this Lease for any prior breach or. If Landlord terminates this Lease for any breach, in addition to any other remedies it may have it may recover from Tenant all damages incurred by reason of such breach or default, including all costs of retaking the premises and including the excess, if any, of the total rent and charges reserved in this Lease for the remainder of this Lease Term over the then reasonable rental value of the premises for the remainder of the Lease Term, all of which shall be immediately due and payable by Tenant to Landlord. Section 18.3. Counterclaim. If Landlord commences any proceedings for non-payment of rent (minimum rent, percentage rent or additional rent), Tenant will not interpose any counterclaim of any nature of description in such proceedings. This shall not, however, be construed as a waiver of Tenant's right to assert such claims in a separate action brought by Tenant. The covenants to pay rent and other amounts hereunder are independent covenants and Tenant shall have no right to hold back, offset or fail to pay any such amounts for default by Landlord or any other reason whatsoever.

Notwithstanding any such reletting without termination, Landlord may at any time thereafter terminate this Lease for any prior breach or. If Landlord terminates this Lease for any breach, in addition to any other remedies it may have it may recover from Tenant all damages incurred by reason of such breach or default, including all costs of retaking the premises and including the excess, if any, of the total rent and charges reserved in this Lease for the remainder of this Lease Term over the then reasonable rental value of the premises for the remainder of the Lease Term, all of which shall be immediately due and payable by Tenant to Landlord. Section 18.3. Counterclaim. If Landlord commences any proceedings for non-payment of rent (minimum rent, percentage rent or additional rent), Tenant will not interpose any counterclaim of any nature of description in such proceedings. This shall not, however, be construed as a waiver of Tenant's right to assert such claims in a separate action brought by Tenant. The covenants to pay rent and other amounts hereunder are independent covenants and Tenant shall have no right to hold back, offset or fail to pay any such amounts for default by Landlord or any other reason whatsoever. Section 18.4. Waiver of Rights of Redemption. To the extent permitted by law, Tenant waives any and all rights of redemption granted by or under any present or future laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the premises due to Tenant's default hereunder or otherwise. ARTICLE XIX NOTICE TO MORTGAGEE Section 19.1. If the holder of any mortgage covering the premises shall have given written notice to Tenant of the address to which notices to such holder are to be sent, Tenant shall give such holder written notice simultaneously with any notice given to Landlord of any default of Landlord, and said holder shall have the right but not the obligation, to cure such default before Tenant may take any action by reason of such default. ARTICLE XX TENANT'S PROPERTY Section 20.1. Taxes on Leasehold. Tenant shall be responsible for and shall pay before delinquent all municipal, county, federal or state taxes coming due during or after the term of this Lease against Tenant's interest in this Lease or against personal property of any kind owned or placed in, upon or about the premises by Tenant. Section 20.2. Assets of Tenant. To secure the performance of Tenant' obligations under this lease, Tenant hereby grants to landlord a security interest in an express contractual lien upon all of Tenant's equipment, 18

furniture, furnishings, appliances, goods, trade fixtures, inventory, chattels, and persona property which will be brought upon the premises by Tenant, and all after acquired property, replacements and proceeds. Landlord is authorized to prepare and file financing statements signed only by Landlord (as secured party) covering the security described above (but Tenant hereby agrees to sign the same upon request). Upon any default under this lease by Tenant as defined in Section 18.1 hereof, any or all of Tenant's obligations to Landlord secured hereby shall, at Landlord's option, be immediately due and payable without notice or demand. In addition to all rights or remedies of Landlord under this Lease and the law, including the right to a judicial foreclosure, Landlord shall have all the rights and remedies of a secured part under the Arkansas Uniform Commercial Code. Landlord's

furniture, furnishings, appliances, goods, trade fixtures, inventory, chattels, and persona property which will be brought upon the premises by Tenant, and all after acquired property, replacements and proceeds. Landlord is authorized to prepare and file financing statements signed only by Landlord (as secured party) covering the security described above (but Tenant hereby agrees to sign the same upon request). Upon any default under this lease by Tenant as defined in Section 18.1 hereof, any or all of Tenant's obligations to Landlord secured hereby shall, at Landlord's option, be immediately due and payable without notice or demand. In addition to all rights or remedies of Landlord under this Lease and the law, including the right to a judicial foreclosure, Landlord shall have all the rights and remedies of a secured part under the Arkansas Uniform Commercial Code. Landlord's security interest shall be subordinate to the lien or security interest of any vendor or lessor of equipment or chattels upon the premises or of any lender taking or succeeding to a purchase money security interest thereon, and upon Tenant's written request, if no default exists hereunder, Landlord shall execute an instrument confirming such subordination. Upon execution of this Lease, Tenant shall execute and deliver a separate Financing Statement reflecting Landlord's security interest. This security agreement and the security interest hereby created shall survive the termination of this Lease if such termination results from Tenant's default. The above described security interest and lien are in addition to and cumulative of the Landlord's lien provided by the laws of the state in which the Center is located. ARTICLE XXI ACCESS BY LANDLORD Section 21.1. Right of Entry. Landlord, its agents and employees shall have the right to enter the premises from time to time at reasonable times to examine the same, show them to prospective purchasers and other persons, and make such repairs, alterations, improvements or additions as Landlord deems desirable. Rent shall abate while any such repairs, alterations, improvements or additions are being made. During the last six (6) months of this Lease Term, Landlord may exhibit the premises to prospective tenants and maintain upon the premises notices deemed advisable by Landlord. In addition, during any apparent emergency, Landlord or its agents may enter the premises forcibly without liability therefor and without in any manner affecting Tenant's obligations under this Lease. Nothing herein contained, however, shall be deemed to impose upon Landlord any obligations, responsibility or liability whatsoever, for any care, maintenance or repair except as otherwise herein expressly provided. ARTICLE XXII HOLDING OVER, SUCCESSORS Section 22.1. Holding Over. If Tenant holds over or occupies the premises beyond this Lease Term (it being agreed there shall be no such holding over or occupancy without Landlord's written consent), Tenant shall pay Landlord for each day of such holding over as the charge for and value of the use and occupancy of the premises a sum equal to the greater of (a) the Minimum Annual Rent prorated 19

for the number of days of such holding over, plus a prorata portion of all other amounts which Tenant would have been required to pay hereunder had this Lease been in effect. If Tenant holds over with or without Landlord's written consent Tenant shall occupy the premises on a tenancy from month to month and all other terms and provisions of this Lease shall be applicable to such period except that the monthly rental shall be increased by 25%. Section 22.2. Successors. All rights and liabilities herein given to or imposed upon the respective parties hereto shall bind and inure to the several respective heirs, successors, administrators, executors and assigns of the parties and if Tenant is more

for the number of days of such holding over, plus a prorata portion of all other amounts which Tenant would have been required to pay hereunder had this Lease been in effect. If Tenant holds over with or without Landlord's written consent Tenant shall occupy the premises on a tenancy from month to month and all other terms and provisions of this Lease shall be applicable to such period except that the monthly rental shall be increased by 25%. Section 22.2. Successors. All rights and liabilities herein given to or imposed upon the respective parties hereto shall bind and inure to the several respective heirs, successors, administrators, executors and assigns of the parties and if Tenant is more than one person, they shall be bound jointly and severally by this Lease except that no rights shall inure to the benefit of any assignee or subtenant of Tenant unless the assignment or sublease was approved by Landlord in writing provided in Section 13.1 hereof. Landlord, at any time and from time to time, may make an assignment of its interest in this Lease and, in the event of such assignment, Landlord and its successors and assigns (other than the assignee of Landlord's interest in this Lease) shall be released from any and all liability thereafter accruing hereunder. ARTICLE XXIII QUIET ENJOYMENT Section 23.1. Landlord's Covenant. If Tenant pays the rents and other amounts herein provided, observes and performs all the covenants, terms and conditions, Tenant shall peaceably and quietly hold and enjoy the premises for the Lease Term without interruption by Landlord or any person or persons, subject, nevertheless, to the terms and conditions of this Lease. ARTICLE XXIV MISCELLANEOUS Section 24.1. Waiver. No waiver by Landlord or Tenant of any breach of any term, covenant or condition hereof shall be deemed a waiver of the same or any subsequent breach of the same or any other term, covenant or condition. The acceptance of rent by Landlord shall not be deemed a waiver of any earlier breach by Tenant of any term, covenant or condition hereof, regardless of Landlord's knowledge of such breach when such rent is accepted. No covenant, term or condition of this Lease shall be deemed waived by Landlord or Tenant unless waived in writing. Section 24.2. Accord and Satisfaction. Landlord is entitled to accept, receive and cash or deposit any payment made by Tenant for any reason or purpose or in any amount whatsoever, and apply the same at Landlord's option to any obligation of Tenant and the same shall not constitute payment of any amount owed except that to which Landlord has applied the same. No endorsement or statement on any check 20

or letter of Tenant shall be deemed an accord and satisfaction or otherwise recognized for any purpose whatsoever. The acceptance of any such check or payment shall be without prejudice to Landlord's right to recover any and all amounts owed by Tenant hereunder and Landlord's right to pursue any other available remedy. Section 24.3. Entire Agreement.

or letter of Tenant shall be deemed an accord and satisfaction or otherwise recognized for any purpose whatsoever. The acceptance of any such check or payment shall be without prejudice to Landlord's right to recover any and all amounts owed by Tenant hereunder and Landlord's right to pursue any other available remedy. Section 24.3. Entire Agreement. There are no representations, covenants, warranties, promises, agreements, conditions or undertakings, oral or written, between Landlord and Tenant other than as herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless in writing and signed by them. Section 24.4. No Partnership. Landlord is not and shall not, in any way or for any purpose, become a partner, employer, principal, master, agent or joint venturer of or with Tenant. Section 24.5. Force Majeure. If either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lockouts, labor troubles, inability to procure material, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of the party delayed in performing work or doing acts required under this Lease, the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. Notwithstanding the foregoing, the provisions of this Section 24.5 shall at no time operate to excuse Tenant from any obligations for payment or rent, additional rent or any other payments required by the terms of this Lease when the same are due, and all such amounts shall be paid when due. Section 24.6. Submission of Lease. Submission of this Lease to Tenant does not constitute an offer to lease; this Lease shall become effective only upon execution and delivery thereof by Landlord and Tenant. Upon execution of this Lease by Tenant, Landlord is granted an irrevocable option for sixty (60) days to execute this Lease within said period and thereafter return a fully executed copy to Tenant. The effective date of this Lease shall be the date filled in on Page 1 hereof by Landlord, which shall be the date of execution by the last of the parties to execute the Lease. Section 24.7. Notices. All notices from Tenant to Landlord required or permitted by any provision of this agreement shall be directed as follows: INDIAN HILLS SHOPPING CENTER 2851 LAKEWOOD VILLAGE DRIVE NORTH LITTLE ROCK, AR 72116 (501) 758-9492 FAX (501) 758-0835 All notices from Landlord to Tenant required or permitted hereunder shall be directed as follows, namely: 21

BANK OF THE OZARKS ATTENTION: MELVIN EDWARDS 978-2204 POST OFFICE BOX 8811 LITTLE ROCK, AR 72231-8811 All notices to be given hereunder by either party shall be written and sent by registered or certified mail, postage

BANK OF THE OZARKS ATTENTION: MELVIN EDWARDS 978-2204 POST OFFICE BOX 8811 LITTLE ROCK, AR 72231-8811 All notices to be given hereunder by either party shall be written and sent by registered or certified mail, postage pre-paid, addressed to the party intended to be notified at the address set forth above. Either party may, at any time, or from time to time, notify the other in writing of a substitute address for that above set forth, and thereafter notices shall be directed to such substitute address. Notice given as aforesaid shall be sufficient service thereof and shall be deemed given as of the date received, as evidenced by the return receipt of the registered or certified mail. A duplicate copy of all notices from Tenant shall be sent to any mortgagee as provided for in Section 19.2. Section 24.8. Captions and Section Numbers. This Lease shall be construed without reference to titles of Articles and Sections, which are inserted only for convenience of reference. Section 24.9. Number and Gender. The use herein of a singular term shall include the plural and use of the masculine, feminine or neuter genders shall include all others. Section 24.10. Joint and Several Liability. If Tenant is a partnership or other business organization the members of which are subject to personal liability, the liability of each such member shall be deemed to be joint and several. Section 24.11. Limitation of Liability. Anything to the contrary herein contained, notwithstanding, there shall be absolutely no personal liability on persons, firms or entities who constitute Landlord with respect to any of the terms, covenants, conditions and provisions of this Lease, and Tenant shall subject to the rights of any first mortgagee, look solely to the interest of Landlord, its successors and assigns, in the Center for the satisfaction of each and every remedy of Tenant in the event of default by Landlord hereunder; such exculpation of personal liability is absolute and without any exception whatsoever. Section 24.12. Broker's Commission. Each party represents and warrants that it has caused or incurred no claim for brokerage commissions or finder's fees in connection with the execution of this Lease, and each party shall indemnify and hold the other harmless against and from all liabilities arising from any such claims caused or incurred by it (including without limitation, the cost of attorney fees in connection herewith). Section 24.13. Partial Invalidity. If any provisions of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of 22

such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. Section 24.14. Recording. The parties agree not to place this Lease or record but each party shall, at the request of the other, execute and

such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. Section 24.14. Recording. The parties agree not to place this Lease or record but each party shall, at the request of the other, execute and acknowledge so that the same may be recorded a Short Form Lease or Memorandum of Lease, indicating the Lease Term, but omitting rent and other terms and an agreement specifying the date of the commencement and termination of the Lease Term; PROVIDED, HOWEVER, that the failure to record said Short Form Lease, Memorandum of Lease Agreement shall not affect or impair the validity and effectiveness of this Lease. Tenant shall pay all costs, taxes fees and other expenses in connection with or prerequisite to recording. Section 24.15. Applicable Law. This Lease shall be construed under the laws of the State wherein the premises are situated. Section 24.16. Option To Renew. Landlord hereby grants to Tenant the option to renew this Lease for FIVE (5) additional term(s) of TWO (2) years each, which shall commence upon the expiration of the next preceding term. Such option, with respect to any renewal term, shall only be exercised by Tenant mailing to Landlord, at Landlord's Notice Address by United States mail, postage prepaid, certified or registered, return receipt requested, notice of the exercise of such option, not later than 180 prior to the expiration of the then current term. No exercise of any option herein granted shall be effective if any event of default under this Lease (a) exists either at the time of exercise or on the expiration of this Lease Term during which it was exercised, or (b) occurs after the exercise and before the commencement of the renewal term. In the event any such option is effectively exercised with respect to any renewal term, all terms and conditions of this Lease shall be applicable to such renewal term except the Minimum Annual Rent during the renewal term shall be:
OPTION 1 -------YEAR 1 YEAR 2 OPTION 2 -------YEAR 1 YEAR 2 OPTION 3 -------YEAR 1 YEAR 2 OPTION 4 -------YEAR 1 YEAR 2 $17,911.70 PER ANNUM, PAYABLE MONTHLY AT $1,492.64 $18,449.05 PER ANNUM, PAYABLE MONTHLY AT $1,537.42 $19,002.52 PER ANNUM, PAYABLE MONTHLY AT $1,583.54 $19,572.60 PER ANNUM, PAYABLE MONTHLY AT $1,631.05 $20,159.78 PER ANNUM, PAYABLE MONTHLY AT $1,679.98 $20,764.57 PER ANNUM, PAYABLE MONTHLY AT $1,730.38 $21,387.51 PER ANNUM, PAYABLE MONTHLY AT $1,782.29 $22,029.14 PER ANNUM, PAYABLE MONTHLY AT $1,835.76 23

OPTION 5 --------

YEAR 1 YEAR 2

$22,690.01 PER ANNUM, PAYABLE MONTHLY AT $1,890.83 $23,370.71 PER ANNUM, PAYABLE MONTHLY AT $1,947.56

Notwithstanding anything to the contrary in this Lease contained, the term "Lease Term" whenever used in this Lease, shall be defined to include the original term and all renewals and extensions thereof. IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease as of the day and year first above written.

OPTION 5 --------

YEAR 1 YEAR 2

$22,690.01 PER ANNUM, PAYABLE MONTHLY AT $1,890.83 $23,370.71 PER ANNUM, PAYABLE MONTHLY AT $1,947.56

Notwithstanding anything to the contrary in this Lease contained, the term "Lease Term" whenever used in this Lease, shall be defined to include the original term and all renewals and extensions thereof. IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease as of the day and year first above written.
(Landlord) By /s/ J. D. Ashley, Sr. --------------------Bank of the Ozarks, wca By /s/ James C. Patridge --------------------Vice Chairman

(Tenant)

Attest /s/ Melvin L. Edwards ---------------------

24
STATE OF COUNTY OF ) ) ss: )

Before me, a Notary Public and and for said County and State, appeared James C. Patridge and Melvin L. Edwards, to me personally known, and acknowledged the execution of the foregoing instrument. Witness my hand and notarial seal the 20th day of November, 1998.
/s/ Cheri R. Rolett ------------------Notary Public in and for Pulaski County, State of Arkansas

My commission expires 9-28-2005 (SEAL)
STATE OF ARKANSAS COUNTY OF PULASKI ) ) ss: )

Before me, a Notary Public and and for said County and State, appeared J. D. Ashley, Sr., to me personally known, and acknowledged the execution of the foregoing instrument. Witness my hand and notarial seal the 19th day of November, 1998.
/s/ Melinda G. Baird -------------------Notary Public in and for Pulaski County, State of Arkansas

STATE OF COUNTY OF

) ) ss: )

Before me, a Notary Public and and for said County and State, appeared James C. Patridge and Melvin L. Edwards, to me personally known, and acknowledged the execution of the foregoing instrument. Witness my hand and notarial seal the 20th day of November, 1998.
/s/ Cheri R. Rolett ------------------Notary Public in and for Pulaski County, State of Arkansas

My commission expires 9-28-2005 (SEAL)
STATE OF ARKANSAS COUNTY OF PULASKI ) ) ss: )

Before me, a Notary Public and and for said County and State, appeared J. D. Ashley, Sr., to me personally known, and acknowledged the execution of the foregoing instrument. Witness my hand and notarial seal the 19th day of November, 1998.
/s/ Melinda G. Baird -------------------Notary Public in and for Pulaski County, State of Arkansas

My commission expires March 7, 2001 (SEAL) 25

EXHIBIT A LEGAL DESCRIPTION INDIAN HILLS BLK-100 LOT-004; BLK-100 LOT-001; BLK-200 LOT-002 INDIAN HILLS

AMENDMENT TO LEASE WHEREAS, the parties: INDIAN HILLS SHOPPING CENTER PARTNERSHIP D/B/A INDIAN HILLS SHOPPING CENTER (LANDLORD) AND BANK OF THE OZARKS WCA (TENANT)

EXHIBIT A LEGAL DESCRIPTION INDIAN HILLS BLK-100 LOT-004; BLK-100 LOT-001; BLK-200 LOT-002 INDIAN HILLS

AMENDMENT TO LEASE WHEREAS, the parties: INDIAN HILLS SHOPPING CENTER PARTNERSHIP D/B/A INDIAN HILLS SHOPPING CENTER (LANDLORD) AND BANK OF THE OZARKS WCA (TENANT) on NOVEMBER 20, 1998 entered into a lease on a property known as: INDIAN HILLS SHOPPING CENTER 6929 JFK, SUITE 4 NORTH LITTLE ROCK, ARKANSAS now wish to incorporate the following clause as a part of the original lease agreement: Notwithstanding any other provisions contained in this lease, in the event the Tenant is closed or taken over by the banking authority of the State of Arkansas, or other bank supervisory authority, the Landlord may terminate the lease only with the concurrence of such banking authority or other bank supervisory authority; and any such authority shall in any event have the election either to continue or to terminate the lease: Provided, that in the event this lease is terminated, the maximum claim of Landlord for damages or indemnity for injury resulting from the rejection or abandonment of the unexpired term of the lease shall in no event be in an amount not exceeding the rent reserved by the lease, without acceleration, for the year next succeeding the date of the surrender of the premises to the Landlord, or the date of re-entry of the Landlord, whichever first occurs, whether before or after the closing of the bank, plus an amount equal to the unpaid rent accrued, without acceleration up to such date. Dated this eighth day of December, 1998.
____________________________ Attest ___________________________________________ Bank of the Ozarks, Tenant Marnie B. Oldner, Executive Vice President ___________________________________________

____________________________

Attest

Indian Hills Shopping Center, Landlord

EXHIBIT 13 [LOGO APPEARS HERE] FINANCIAL INFORMATION SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ------------------------------------------------1998 1997 1996 1995 1994

AMENDMENT TO LEASE WHEREAS, the parties: INDIAN HILLS SHOPPING CENTER PARTNERSHIP D/B/A INDIAN HILLS SHOPPING CENTER (LANDLORD) AND BANK OF THE OZARKS WCA (TENANT) on NOVEMBER 20, 1998 entered into a lease on a property known as: INDIAN HILLS SHOPPING CENTER 6929 JFK, SUITE 4 NORTH LITTLE ROCK, ARKANSAS now wish to incorporate the following clause as a part of the original lease agreement: Notwithstanding any other provisions contained in this lease, in the event the Tenant is closed or taken over by the banking authority of the State of Arkansas, or other bank supervisory authority, the Landlord may terminate the lease only with the concurrence of such banking authority or other bank supervisory authority; and any such authority shall in any event have the election either to continue or to terminate the lease: Provided, that in the event this lease is terminated, the maximum claim of Landlord for damages or indemnity for injury resulting from the rejection or abandonment of the unexpired term of the lease shall in no event be in an amount not exceeding the rent reserved by the lease, without acceleration, for the year next succeeding the date of the surrender of the premises to the Landlord, or the date of re-entry of the Landlord, whichever first occurs, whether before or after the closing of the bank, plus an amount equal to the unpaid rent accrued, without acceleration up to such date. Dated this eighth day of December, 1998.
____________________________ Attest ___________________________________________ Bank of the Ozarks, Tenant Marnie B. Oldner, Executive Vice President ___________________________________________

____________________________

Attest

Indian Hills Shopping Center, Landlord

EXHIBIT 13 [LOGO APPEARS HERE] FINANCIAL INFORMATION SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ------------------------------------------------1998 1997 1996 1995 1994 ---------------(Dollars in thousands, except per share amounts) INCOME STATEMENT DATA: Interest income..................................... Interest expense.................................... Net interest income................................. Provision for loan losses........................... Non-interest income................................. Non-interest expense................................ Net income.......................................... $ 38,882 $ 20,518 18,364 2,026 5,031 13,119 5,629 27,468 $ 12,979 14,489 1,139 2,925 9,228 4,531 21,836 $ 10,031 11,805 1,486 1,865 7,151 3,027 15,703 $ 7,391 8,312 360 1,168 5,996 2,170 12,645 4,651 7,994 339 2,713 5,735 2,954

EXHIBIT 13 [LOGO APPEARS HERE] FINANCIAL INFORMATION SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ------------------------------------------------1998 1997 1996 1995 1994 ---------------(Dollars in thousands, except per share amounts) INCOME STATEMENT DATA: Interest income..................................... Interest expense.................................... Net interest income................................. Provision for loan losses........................... Non-interest income................................. Non-interest expense................................ Net income.......................................... PER COMMON SHARE DATA: Earnings - diluted.................................. Book value.......................................... Dividends........................................... Weighted avg. shares outstanding (thousands)........ BALANCE SHEET DATA AT PERIOD END: Total assets........................................ Total loans......................................... Allowance for loan losses........................... Total investment securities......................... Total deposits...................................... FHLB advances & Fed Funds........................... Notes payable....................................... Total stockholders' equity.......................... Loan to deposit ratio............................... AVERAGE BALANCE SHEET DATA: Total average assets................................ Total average stockholders' equity.................. Average equity to total average assets.............. PERFORMANCE RATIOS: Return on average assets............................ Return on average stockholders' equity.............. Net interest margin................................. Efficiency ratio.................................... Dividend payout ratio............................... ASSETS QUALITY RATIOS: Net charge-offs as a percentage of average total loans.............................................. Nonperforming loans to total loans.................. Nonperforming assets to total assets................ ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF: Total loans......................................... Nonperforming loans................................. CAPITAL RATIOS AT PERIOD END: Leverage capital ratio.............................. Tier I risk-based capital........................... Total risk-based capital............................ $ 38,882 $ 20,518 18,364 2,026 5,031 13,119 5,629 27,468 $ 12,979 14,489 1,139 2,925 9,228 4,531 21,836 $ 10,031 11,805 1,486 1,865 7,151 3,027 15,703 $ 7,391 8,312 360 1,168 5,996 2,170 12,645 4,651 7,994 339 2,713 5,735 2,954

$

1.47 $ 10.68 0.23 3,819

1.38 $ 9.44 0.20 3,281

1.05 $ 6.44 0.30 2,880

0.75 $ 5.66 0.30 2,894

0.99 5.07 0.30 2,975

$ 612,431 $ 352,093 $ 270,600 $ 212,476 $ 165,030 387,526 275,463 214,462 153,198 112,806 4,689 3,737 3,019 1,909 1,649 176,618 42,459 39,608 37,137 40,521 529,040 295,555 231,648 182,463 148,453 26,823 14,017 12,517 7,947 -12,448 5,072 5,396 3,920 -40,355 35,666 18,547 16,294 15,076 73.25% 93.20% 92.58% 83.96% 75.99

$ 486,729 $ 314,489 $ 240,208 $ 185,160 $ 167,333 37,951 26,328 17,144 15,392 14,287 7.80% 8.37% 7.14% 8.31% 8.54

1.16% 14.83 4.19 54.98 15.65

1.44% 17.21 4.98 52.55 14.49

1.26% 17.66 5.36 51.60 28.57

1.17% 14.09 4.95 61.83 40.00

1.77 20.67 5.24 60.19 30.30

0.33% 0.70 0.50

0.17% 0.25 0.24

0.21% 1.08 0.88

0.08% 0.85 0.63

0.09 0.57 0.50

1.21% 171.82

1.36% 534.62

1.41% 130.69

1.25% 146.28

1.46 258.46

6.21% 9.05 10.21

9.86% 13.01 14.27

6.42% 8.45 9.70

7.49% 9.80 11.05

9.10 12.71 13.96

(1) Includes the effect of a gain of $1.4 million ($1.0 million after tax, or $0.34 per common share) from the May 1994 sale of a bank subsidiary.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Net income was $5.6 million for the year ended December 31, 1998, a 24.2% increase over net income of $4.5 million in 1997. Net income in 1996 was $3.0 million. Diluted earnings per share, which were impacted by the issuance of 899,755 additional shares of common stock in the third quarter of 1997, rose 6.5% to $1.47 per share in 1998 compared to $1.38 per share in 1997. Diluted earnings per share in 1996 were $1.05 per share. As shown below total assets, loans and deposits increased 73.9%, 40.7% and 79.0%, respectively, from December 31, 1997 to December 31, 1998 and 30.1%, 28.4% and 27.6%, respectively, from December 31, 1996 to December 31, 1997. Stockholders' equity increased 13.1% from December 31, 1997 to December 31, 1998 and 92.3% from December 31, 1996 to December 31, 1997. The change from 1996 to 1997 reflects the impact of the Company's initial public offering. During these same periods, book value per share increased 13.1% and 46.6%, respectively.
% CHANGE --------------------1998 1997 FROM 1997 FROM 1996 ---------- ---------73.9% 40.7 79.0 13.1 13.1 30.1% 28.4 27.6 92.3 46.6

Assets.................. Loans................... Deposits................ Stockholders' equity.... Book value per share....

DECEMBER 31, ---------------------------------------------1998 1997 1996 ---------------------(Dollars in thousands except per share amounts) $612,431 $352,093 $270,600 387,526 275,463 214,462 529,040 295,555 231,648 40,355 35,666 18,547 10.68 9.44 6.44

Two measures of performance by banking institutions are return on average assets and return on average equity. Return on average assets ("ROA") measures net earnings in relation to average total assets and indicates a company's ability to employ its resources profitably. For the year ended December 31, 1998, the Company's ROA was 1.16% compared with 1.44% and 1.26%, respectively, for the years ended December 31, 1997 and 1996. Return on average equity ("ROE") is determined by dividing annual net earnings by average shareholders' equity and indicates how effectively a company can generate net income on the capital invested by its shareholders. For the year ended December 31, 1998, the Company's ROE was 14.83% compared with 17.21% and 17.66%, respectively, for the years ended December 31, 1997 and 1996. ANALYSIS OF RESULTS OF OPERATIONS The Company's results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans and investments, and the interest expense incurred on interest bearing liabilities, such as deposits and other borrowings. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, other charges and fees, trust income, and gains on sales of assets. The Company's non-interest expenses primarily consist of employee compensation and benefits, occupancy, equipment, and other operating expenses. The Company's results of operations are also significantly affected by its provision for loan losses. The following discussion summarizes the Company's operations for the past three years. NET INTEREST INCOME Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent ("FTE") basis. The adjustment to convert certain income to an FTE basis consists of dividing tax-exempt income by one minus the federal income tax rate (34%). 1998 COMPARED TO 1997

Net interest income (FTE) increased 28.7% to $18.8 million in 1998 from $14.6 million in 1997. This increase primarily resulted from a 53.1% increase in average earning assets to $449.4 million in 1998 from $293.6 million in 1997. The increase in average earning assets resulted from continued growth in the Company's loan portfolio and a significant increase in the investment securities portfolio. The Company's net interest margin declined from 4.98% for 1997 to 4.19% for 1998. While the Company experienced strong competition for loans which reduced the Company's average loan yields, deposit costs did not decline proportionately due to competition and promotional CD rates 10

offered by the Company at its eight new offices opened in the past 18 months. The Company capitalized on favorable competitive opportunities resulting from industry consolidation to capture deposit market share causing its loan to deposit ratio to decline from 93.2% at the beginning of 1998 to 73.3% at December 31, 1998. Deposit growth not used to fund loans, along with certain borrowings, was used to increase the investment securities portfolio. The increase in the investment securities portfolio in amount and as a percentage of total assets has increased the Company's net interest income but has reduced net interest margin as the yield on securities was less than the yield on loans. 1997 COMPARED TO 1996 Net interest income (FTE) increased 22.0% to $14.6 million in 1997 from $12.0 million in 1996. This increase primarily resulted from a 31.1% increase in average earning assets to $293.6 million in 1997 from $223.9 million in 1996. The increase in average earning assets resulted from expansion of the Company's loan portfolio due to continued growth of existing branches and opening of new branches. The decrease in the net interest margin resulted primarily from a 44 basis point decrease in the yield on average earning assets. A substantial portion of this decrease was attributable to lower average balances on a relatively high yielding portfolio of loans acquired prior to 1996 from the Resolution Trust Corporation. ANALYSIS OF NET INTEREST INCOME (FTE = Fully Taxable Equivalent)
YEAR ENDED DECEMBER 31, ----------------------------1998 1997 1996 --------------- -------(Dollars in thousands) $38,882 $27,468 $21,836 466 144 187 --------------- -------39,348 27,612 22,023 20,518 12,979 10,031 --------------- -------$18,830 $14,633 $11,992 ======== ======== ======== 8.76% 5.06 3.70 4.19 9.40% 5.02 4.38 4.98 9.84% 5.02 4.82 5.36

Interest income......................... FTE adjustment.......................... Interest income -- FTE.................. Interest expense........................ Net interest income -- FTE..............

Yield on interest earning assets -- FTE. Cost of interest bearing liabilities.... Net interest spread -- FTE.............. Net interest margin -- FTE..............

The following table sets forth certain information relating to the Company's net interest income for the years ended December 31, 1998, 1997 and 1996. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown except where otherwise noted. Average balances are derived from daily balances for assets and liabilities. The average balance of loans receivable includes loans on which the Company has discontinued accruing interest. The yields and costs include amortization of certain deferred fees and costs, capitalization of interest on construction projects and late fees. These are considered adjustments to yields or rates. 11

offered by the Company at its eight new offices opened in the past 18 months. The Company capitalized on favorable competitive opportunities resulting from industry consolidation to capture deposit market share causing its loan to deposit ratio to decline from 93.2% at the beginning of 1998 to 73.3% at December 31, 1998. Deposit growth not used to fund loans, along with certain borrowings, was used to increase the investment securities portfolio. The increase in the investment securities portfolio in amount and as a percentage of total assets has increased the Company's net interest income but has reduced net interest margin as the yield on securities was less than the yield on loans. 1997 COMPARED TO 1996 Net interest income (FTE) increased 22.0% to $14.6 million in 1997 from $12.0 million in 1996. This increase primarily resulted from a 31.1% increase in average earning assets to $293.6 million in 1997 from $223.9 million in 1996. The increase in average earning assets resulted from expansion of the Company's loan portfolio due to continued growth of existing branches and opening of new branches. The decrease in the net interest margin resulted primarily from a 44 basis point decrease in the yield on average earning assets. A substantial portion of this decrease was attributable to lower average balances on a relatively high yielding portfolio of loans acquired prior to 1996 from the Resolution Trust Corporation. ANALYSIS OF NET INTEREST INCOME (FTE = Fully Taxable Equivalent)
YEAR ENDED DECEMBER 31, ----------------------------1998 1997 1996 --------------- -------(Dollars in thousands) $38,882 $27,468 $21,836 466 144 187 --------------- -------39,348 27,612 22,023 20,518 12,979 10,031 --------------- -------$18,830 $14,633 $11,992 ======== ======== ======== 8.76% 5.06 3.70 4.19 9.40% 5.02 4.38 4.98 9.84% 5.02 4.82 5.36

Interest income......................... FTE adjustment.......................... Interest income -- FTE.................. Interest expense........................ Net interest income -- FTE..............

Yield on interest earning assets -- FTE. Cost of interest bearing liabilities.... Net interest spread -- FTE.............. Net interest margin -- FTE..............

The following table sets forth certain information relating to the Company's net interest income for the years ended December 31, 1998, 1997 and 1996. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown except where otherwise noted. Average balances are derived from daily balances for assets and liabilities. The average balance of loans receivable includes loans on which the Company has discontinued accruing interest. The yields and costs include amortization of certain deferred fees and costs, capitalization of interest on construction projects and late fees. These are considered adjustments to yields or rates. 11

Average Consolidated Balance Sheets and Net Interest Analysis
Year Ended December 31, -------------------------------------------------------1998 1997 -------------------------------------------------Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ------------------------ ------- -----(Dollars in thousands) ASSETS: Earning assets:

Average Consolidated Balance Sheets and Net Interest Analysis
Year Ended December 31, -------------------------------------------------------1998 1997 -------------------------------------------------Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ------------------------ ------- -----(Dollars in thousands) ASSETS: Earning assets: Interest bearing deposits................... Federal funds sold.......................... Investment securities: Taxable................................... Tax-exempt--FTE........................... Loans--FTE (net of unearned income) Total earning assets..................... Non-earning assets............................ Total assets..................................

$

3,730 1,659

$

205 89 6,654 1,160 31,240 -----39,348

5.50% 5.36 6.66 7.35 9.51 8.76

$

3,883 $ 2,021

213 108 2,684 353 24,254 -----27,612

5.49% 5.34 6.81 10.03 9.91 9.40

99,840 15,790 328,394 -------449,413 37,316 -------$486,729 ========

39,413 3,520 244,757 ------293,594 20,895 -------$314,489 ========

LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities Deposits: Savings and interest bearing transaction Time deposits of $100,000 or more....... Other time deposits..................... Total interest bearing deposits..... FHLB advances and federal funds............ Repurchase agreements...................... Notes payable/(2)/......................... Total interest bearing liabilities.. Non-interest liabilities: Non-interest bearing deposits.............. Other non-interest liabilities............. Total liabilities........................ Stockholders' equity.......................... Total liabilities and stockholders' equity Interest rate spread--FTE .................... Net interest income--FTE ..................... Net interest margin--FTE ..................... ------$18,830 ======= 4.19%

$

74,354 87,751 198,268 -------360,373 36,402 108 8,811 -------405,694 40,583 2,501 ------448,778 37,951 -------$486,729 ========

$ 2,054 4,899 11,165 ------18,118 1,759 4 637 -----20,518

2.76% 5.58 5.63

$ 61,184 $ 1,786 48,919 2,753 129,969 7,287 -------- -----5.03 240,072 11,826 4.83/(1)/ 12,347 599 3.70 7.23 6,125 554 -------- -----5.06 258,544 12,979 26,981 2,636 -------288,161 26,328 -------$314,489 ========

2.92% 5.63 5.61 4.93 4.85/ 9.04 5.02

3.70% ------$14,633 =======

4.38%

4.98%

(1) This rate is impacted by the capitalization of interest on construction projects in the amount of $275,000 and $145,000 for the years ended December 31, 1998 and 1997, respectively. In the absence of this capitalization these percentages would have been 5.59% and 6.03% for the years ended December 31, 1998 and 1997, respectively. (2) The interest expense on notes payable includes interest accrued for the years ended December 31, 1997 and 1996 for a tax dispute related to the years 1992-1995. Such interest accruals were $25,000 and $93,000 and were recorded during the years ended December 31, 1997 and 1996, respectively. 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 Comany's interest income and interest expense during the periods indicated. Information is provided in each category with respect to changes attributable to (1) changes in volume (changes in volume multiplied by prior rate); (2) changes in rate (changes in rate multiplied by prior volume); and (3) changes in rate/volume (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume and rate have all been allocated to the changes due to volume.

12

ANALYSIS OF CHANGES IN NET INTEREST INCOME
1998 OVER 1997 1997 OVER 1996 -----------------------------------------------------YIELD/ YIELD/ VOLUME RATE TOTAL VOLUME RATE ----------------------------------(Dollars in thousands) Increase (decrease) in: Interest income--FTE: Interest bearing deposits................ Federal funds sold....................... Investment securities: Taxable................................ Tax-exempt--FTE........................ Loans, net of unearned income............ Total interest income--FTE........... Interest expense: Savings and interest bearing transaction. Time deposits of $100,000 or more........ Other time deposits...................... Federal funds and FHLB advances.......... Notes payable............................ Total interest expense............... Increase (decrease) in net interest income--FTE..........................

$

(8) (19)

$

-

$

(8) (19)

$

44 (37)

$

-

4,027 901 7,956 -------12,857 -------364 2,168 3,846 1,167 194 -------7,739 -------$ 5,118 ========

(57) (94) (970) -------(1,121) -------(96) (22) 32 (3) (111) -------(200) -------$ (921) ========

3,970 807 6,986 -------11,736 -------268 2,146 3,878 1,164 83 -------7,539 -------$ 4,197 ========

469 (170) 6,384 ------6,690 ------356 801 1,564 135 164 ------3,020 ------$3,670 =======

146 (28) (1,219) -------(1,101) -------119 (23) 4 (94) (78) -------(72) -------$(1,029) ========

NON-INTEREST INCOME The Company's non-interest income consists of five main sources: (1) service charges on deposit accounts, (2) mortgage lending income (3) other charges and fees including appraisal fees and commissions from the sale of credit related insurance products, (4) trust income, and (5) gains on sales of assets. Non-interest income for the year ended December 31, 1998 increased 72.0% to $5.0 million compared with $2.9 million in 1997. Non-interest income was $1.9 million in 1996. The Company's growth in non-interest income is primarily due to increases in mortgage lending income, and service charges on the higher level of deposit accounts. In 1996, the Company began to originate residential mortgage loans for resale in the secondary market. The growth in mortgage lending income over the past two years has been the largest single contributor to the Company's improvement in non-interest income. The table below shows non-interest income for the years ended December 31, 1998, 1997 and 1996. NON-INTEREST INCOME
YEAR ENDED DECEMBER 31, -----------------------------1998 1997 1996 -------------------(Dollars in thousands) $ 1,372 $ 957 $ 806 2,136 566 68 656 570 469 335 274 214 -57 274 98 261 14 15 76 -255 14 (77) 118 127 90 46 23 7 ------------------$ 5,031 $ 2,925 $ 1,865

Service charges on deposit accounts ........... Mortgage lending income ....................... Other charges and fees ........................ Trust income .................................. Gain on sale of loans ......................... Gain on sale of foreclosed real estate......... Gain on sale of other assets .................. Gain (loss) on sale of securities ............. Printed check sales ........................... Other ......................................... Total non-interest income .....................

ANALYSIS OF CHANGES IN NET INTEREST INCOME
1998 OVER 1997 1997 OVER 1996 -----------------------------------------------------YIELD/ YIELD/ VOLUME RATE TOTAL VOLUME RATE ----------------------------------(Dollars in thousands) Increase (decrease) in: Interest income--FTE: Interest bearing deposits................ Federal funds sold....................... Investment securities: Taxable................................ Tax-exempt--FTE........................ Loans, net of unearned income............ Total interest income--FTE........... Interest expense: Savings and interest bearing transaction. Time deposits of $100,000 or more........ Other time deposits...................... Federal funds and FHLB advances.......... Notes payable............................ Total interest expense............... Increase (decrease) in net interest income--FTE..........................

$

(8) (19)

$

-

$

(8) (19)

$

44 (37)

$

-

4,027 901 7,956 -------12,857 -------364 2,168 3,846 1,167 194 -------7,739 -------$ 5,118 ========

(57) (94) (970) -------(1,121) -------(96) (22) 32 (3) (111) -------(200) -------$ (921) ========

3,970 807 6,986 -------11,736 -------268 2,146 3,878 1,164 83 -------7,539 -------$ 4,197 ========

469 (170) 6,384 ------6,690 ------356 801 1,564 135 164 ------3,020 ------$3,670 =======

146 (28) (1,219) -------(1,101) -------119 (23) 4 (94) (78) -------(72) -------$(1,029) ========

NON-INTEREST INCOME The Company's non-interest income consists of five main sources: (1) service charges on deposit accounts, (2) mortgage lending income (3) other charges and fees including appraisal fees and commissions from the sale of credit related insurance products, (4) trust income, and (5) gains on sales of assets. Non-interest income for the year ended December 31, 1998 increased 72.0% to $5.0 million compared with $2.9 million in 1997. Non-interest income was $1.9 million in 1996. The Company's growth in non-interest income is primarily due to increases in mortgage lending income, and service charges on the higher level of deposit accounts. In 1996, the Company began to originate residential mortgage loans for resale in the secondary market. The growth in mortgage lending income over the past two years has been the largest single contributor to the Company's improvement in non-interest income. The table below shows non-interest income for the years ended December 31, 1998, 1997 and 1996. NON-INTEREST INCOME
YEAR ENDED DECEMBER 31, -----------------------------1998 1997 1996 -------------------(Dollars in thousands) $ 1,372 $ 957 $ 806 2,136 566 68 656 570 469 335 274 214 -57 274 98 261 14 15 76 -255 14 (77) 118 127 90 46 23 7 ------------------$ 5,031 $ 2,925 $ 1,865 ======= ======= =======

Service charges on deposit accounts ........... Mortgage lending income ....................... Other charges and fees ........................ Trust income .................................. Gain on sale of loans ......................... Gain on sale of foreclosed real estate......... Gain on sale of other assets .................. Gain (loss) on sale of securities ............. Printed check sales ........................... Other ......................................... Total non-interest income .....................

13

NON-INTEREST EXPENSE Non-interest expense consists of salaries and employee benefits, occupancy, equipment and other operating expenses. Non-interest expense for the year ended December 31, 1998 increased 42.2% to $13.1 million compared with $9.2 million in 1997. Non-interest expense was $7.2 million in 1996. These increases resulted primarily from continued growth and expansion in 1998, including commencement in February of branch operations in Little Rock, the June opening of two additional Little Rock offices including the new corporate headquarters, the September opening of a banking center in Fort Smith and the December opening of the Company's fourth Little Rock office. Full time equivalent employees increased to 266 at December 31, 1998 from 183 at December 31, 1997 as the Company added commercial and consumer lenders, customer service staff, trust department personnel and others to staff these new offices. During the fourth quarter of 1998, the Company incurred after tax charges totaling approximately $67,000, or approximately $0.02 per diluted share, related to combining the operations of certain corporate subsidiaries and certain expenses related to a proposed acquisition which was not consummated. The efficiency ratio (non-interest expenses divided by the sum of net interest income on a tax equivalent basis and non-interest income) was 54.98% for the year ended December 31, 1998 compared to 52.55% in 1997 and 51.60% in 1996. The table below shows non-interest expense for the years ended December 31, 1998, 1997 and 1996. NON-INTEREST EXPENSE
YEAR ENDED DECEMBER 31, --------------------------------------1998 1997 1996 ----------------------(Dollars in thousands) $ 7,197 $5,330 $4,263 877 584 457 1,084 721 541 130 40 49 211 243 314 139 454 566 114 190 147 118 166 173 996 -------$13,119 ======== 102 178 221 41 405 332 116 119 137 53 112 75 662 -------$9,228 ======== 60 140 125 25 215 123 96 69 102 36 47 75 728 --------$7,151 =========

Salaries and employee benefits........................ Net occupancy expense................................. Equipment expense..................................... Other real estate and foreclosure expense............. Other operating expense: Professional services................................ Postage.............................................. Telephone............................................ Data lines........................................... Operating supplies................................... Advertising and public relations..................... Directors' fees...................................... Software expense..................................... Check printing charges............................... ATM expense.......................................... FDIC & state assessments............................. Amortization of intangibles.......................... Other................................................ Total non-interest expense......................

INCOME TAXES The provision for income taxes was $2.6 million for the year ended December 31, 1998 compared to $2.5 million in 1997 and $2.0 million in 1996. The effective income tax rates were 31.8%, 35.7% and 39.9%, respectively, for 1998, 1997 and 1996. The decrease in the effective tax rate in 1998 resulted primarily from the Company's increased investments in taxexempt securities, including securities exempt from both federal and Arkansas income taxes as well as certain

NON-INTEREST EXPENSE Non-interest expense consists of salaries and employee benefits, occupancy, equipment and other operating expenses. Non-interest expense for the year ended December 31, 1998 increased 42.2% to $13.1 million compared with $9.2 million in 1997. Non-interest expense was $7.2 million in 1996. These increases resulted primarily from continued growth and expansion in 1998, including commencement in February of branch operations in Little Rock, the June opening of two additional Little Rock offices including the new corporate headquarters, the September opening of a banking center in Fort Smith and the December opening of the Company's fourth Little Rock office. Full time equivalent employees increased to 266 at December 31, 1998 from 183 at December 31, 1997 as the Company added commercial and consumer lenders, customer service staff, trust department personnel and others to staff these new offices. During the fourth quarter of 1998, the Company incurred after tax charges totaling approximately $67,000, or approximately $0.02 per diluted share, related to combining the operations of certain corporate subsidiaries and certain expenses related to a proposed acquisition which was not consummated. The efficiency ratio (non-interest expenses divided by the sum of net interest income on a tax equivalent basis and non-interest income) was 54.98% for the year ended December 31, 1998 compared to 52.55% in 1997 and 51.60% in 1996. The table below shows non-interest expense for the years ended December 31, 1998, 1997 and 1996. NON-INTEREST EXPENSE
YEAR ENDED DECEMBER 31, --------------------------------------1998 1997 1996 ----------------------(Dollars in thousands) $ 7,197 $5,330 $4,263 877 584 457 1,084 721 541 130 40 49 211 243 314 139 454 566 114 190 147 118 166 173 996 -------$13,119 ======== 102 178 221 41 405 332 116 119 137 53 112 75 662 -------$9,228 ======== 60 140 125 25 215 123 96 69 102 36 47 75 728 --------$7,151 =========

Salaries and employee benefits........................ Net occupancy expense................................. Equipment expense..................................... Other real estate and foreclosure expense............. Other operating expense: Professional services................................ Postage.............................................. Telephone............................................ Data lines........................................... Operating supplies................................... Advertising and public relations..................... Directors' fees...................................... Software expense..................................... Check printing charges............................... ATM expense.......................................... FDIC & state assessments............................. Amortization of intangibles.......................... Other................................................ Total non-interest expense......................

INCOME TAXES The provision for income taxes was $2.6 million for the year ended December 31, 1998 compared to $2.5 million in 1997 and $2.0 million in 1996. The effective income tax rates were 31.8%, 35.7% and 39.9%, respectively, for 1998, 1997 and 1996. The decrease in the effective tax rate in 1998 resulted primarily from the Company's increased investments in taxexempt securities, including securities exempt from both federal and Arkansas income taxes as well as certain federal agency securities exempt solely from Arkansas income taxes. In 1996 the Company was assessed $326,000 of additional state income taxes for the years 1992 through 1995 with respect to a dispute involving the taxation of intercompany dividends. The Company fully expensed this assessment in 1996 which significantly

increased its effective income tax rate. The tax rate for 1996 would have been 35.6% without this additional tax expense. 14

ANALYSIS OF FINANCIAL CONDITION LOAN PORTFOLIO At December 31, 1998 the Company's loan portfolio was $387.5 million, an increase of 40.7% from $275.5 million at December 31, 1997. As of December 31, 1998 the Company's loan portfolio consisted of approximately 63.8% real estate loans, 17.1% consumer loans, 13.5% commercial and industrial loans and 5.2% agricultural loans (non-real estate). The following table reflects the amount and type of loans outstanding. LOAN PORTFOLIO
DECEMBER 31, -------------------------------------------1998 1997 1996 1995 1994 -------- -------- -------- -------- -------(Dollars in thousands) Real estate: Single family residential...... $121,539 Non-farm/non-residential....... 76,563 Agricultural................... 19,463 Construction/land development.. 23,305 Multi-family residential....... 6,207 -------Total real estate......... 247,077 Consumer......................... 66,407 Commercial and industrial........ 52,192 Agricultural (non-real estate)... 20,068 Other............................ 1,782 -------Total loans............... $387,526 ======== $ 96,943 41,710 13,443 16,257 3,897 -------172,250 53,233 37,470 10,824 1,686 -------$275,463 ======== $ 78,124 35,258 11,583 8,808 3,743 -------137,516 39,868 28,154 8,363 561 -------$214,462 ======== $ 55,609 36,603 9,274 3,471 4,388 -------109,345 25,372 11,077 6,963 441 -------$153,198 ======== $ 41,494 22,978 8,373 4,668 3,806 -------81,319 17,583 6,191 6,889 824 -------$112,806 ========

The following table reflects remaining maturities at December 31, 1998 by type and by fixed or floating interest rates. LOAN MATURITIES
OVER 1 YEAR 1 YEAR THROUGH OVER OR LESS 5 YEARS 5 YEARS TOTAL -------- -------- ------- -------(Dollars in thousands) $ 75,190 $134,570 $37,317 $247,077 15,260 48,127 3,020 66,407 33,919 35,686 2,655 72,260 162 586 1,034 1,782 -------- -------- ------- -------$124,531 $218,969 $44,026 $387,526 ======== ======== ======= ======== $117,383 7,148 -------$124,531 ======== $213,187 5,782 -------$218,969 ======== $23,531 20,495 ------$44,026 ======= $354,101 33,425 -------$387,526 ========

Real estate................................ Consumer................................... Commercial, industrial and agricultural.... Other......................................

Fixed rate................................. Floating rate..............................

15

ANALYSIS OF FINANCIAL CONDITION LOAN PORTFOLIO At December 31, 1998 the Company's loan portfolio was $387.5 million, an increase of 40.7% from $275.5 million at December 31, 1997. As of December 31, 1998 the Company's loan portfolio consisted of approximately 63.8% real estate loans, 17.1% consumer loans, 13.5% commercial and industrial loans and 5.2% agricultural loans (non-real estate). The following table reflects the amount and type of loans outstanding. LOAN PORTFOLIO
DECEMBER 31, -------------------------------------------1998 1997 1996 1995 1994 -------- -------- -------- -------- -------(Dollars in thousands) Real estate: Single family residential...... $121,539 Non-farm/non-residential....... 76,563 Agricultural................... 19,463 Construction/land development.. 23,305 Multi-family residential....... 6,207 -------Total real estate......... 247,077 Consumer......................... 66,407 Commercial and industrial........ 52,192 Agricultural (non-real estate)... 20,068 Other............................ 1,782 -------Total loans............... $387,526 ======== $ 96,943 41,710 13,443 16,257 3,897 -------172,250 53,233 37,470 10,824 1,686 -------$275,463 ======== $ 78,124 35,258 11,583 8,808 3,743 -------137,516 39,868 28,154 8,363 561 -------$214,462 ======== $ 55,609 36,603 9,274 3,471 4,388 -------109,345 25,372 11,077 6,963 441 -------$153,198 ======== $ 41,494 22,978 8,373 4,668 3,806 -------81,319 17,583 6,191 6,889 824 -------$112,806 ========

The following table reflects remaining maturities at December 31, 1998 by type and by fixed or floating interest rates. LOAN MATURITIES
OVER 1 YEAR 1 YEAR THROUGH OVER OR LESS 5 YEARS 5 YEARS TOTAL -------- -------- ------- -------(Dollars in thousands) $ 75,190 $134,570 $37,317 $247,077 15,260 48,127 3,020 66,407 33,919 35,686 2,655 72,260 162 586 1,034 1,782 -------- -------- ------- -------$124,531 $218,969 $44,026 $387,526 ======== ======== ======= ======== $117,383 7,148 -------$124,531 ======== $213,187 5,782 -------$218,969 ======== $23,531 20,495 ------$44,026 ======= $354,101 33,425 -------$387,526 ========

Real estate................................ Consumer................................... Commercial, industrial and agricultural.... Other......................................

Fixed rate................................. Floating rate..............................

15

NONPERFORMING ASSETS

NONPERFORMING ASSETS Nonperforming assets consist of (1) nonaccrual loans, (2) restructured loans providing for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower and (3) real estate or other assets acquired in partial or full satisfaction of loan obligations or upon foreclosure. The Company generally places a loan on nonaccrual status when payment of principal or interest is contractually past due 90 days, or earlier when doubt exists as to the ultimate collection of principal and interest. The Company continues to accrue interest on certain loans contractually past due 90 days if such loans are both well secured and in the process of collection. When a loan is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. If a loan is determined to be uncollectible, the portion of the loan principal determined to be uncollectible will be charged against the allowance for loan losses. Interest income on nonaccrual loans is recognized on a cash basis when and if actually collected. The Company's nonperforming loans increased in 1998 from an unusually low 1997 level. The year-end 1998 nonperforming loan percentage of 0.70% is consistent with the Company's historical performance. In 1998 loan charge-offs increased in amount and as a percentage of average loans when compared to prior years. Charge-offs for commercial and industrial loans increased to $423,000 in 1998 from zero in 1997. Over half of this amount was attributable to a single borrower, whose loans were fully liquidated in 1998. Charge-offs for consumer loans increased 45.8% to $633,000 in 1998 from $434,000 in 1997. This increase is attributable primarily to the Company's growth in its consumer loan portfolio as well as a somewhat higher incidence of defaults within that loan category. In addition to the nonperforming loans and net charge-offs described in the tables below, as of December 31, 1998, loans in the amount of $1.7 million were, in management's opinion, subject to potential future classification as nonperforming. Such loans are to a single borrower and were placed on non- accrual status in February 1999. These loans will result in a partial charge-off in the first quarter of 1999, thereby increasing the Company's net charge-offs as a percentage of average loans. While management expects nonperforming loans and net chargeoffs to continue to exhibit volatility, it does not presently foresee any adverse trends in asset quality which would materially affect the Company's results of operation or financial condition. The following table presents information concerning nonperforming assets including nonaccrual and restructured loans and foreclosed assets held for sale. NONPERFORMING ASSETS
DECEMBER 31, -----------------------------------------1998 1997 1996 1995 1994 -------- ------ ------- -------- ------(Dollars in thousands) $2,708 $ 664 $2,057 $1,181 $ 571 21 35 253 124 67 -----------------------2,729 699 2,310 1,305 638 314 136 78 29 189 -----------------------$3,043 $ 835 $2,388 $1,334 $ 827 ====== ===== ====== ====== ===== 0.70% 0.50 0.25% 0.24 1.08% 0.88 0.85% 0.63 0.57% 0.50

Nonaccrual loans....................................... Accruing loans 90 days or more past due................ Restructured loans..................................... Total nonperforming loans......................... Foreclosed assets held for sale and repossessions/(1)/. Total nonperforming assets........................

Nonperforming loans to total loans..................... Nonperforming assets to total assets...................

(1) Foreclosed assets held for sale and repossessions are generally written down to appraised value at the time of transfer from the loan portfolio. The Company reviews the value of such assets from time to time throughout the holding period and makes adjustments to the then market value, if lower, until disposition. Under Arkansas banking law, other real estate owned must be written off over a five year period unless the Arkansas State Bank Department approves the write- off over an extended period.

16

An analysis of the allowance for loan losses for the periods indicated is shown in the table below. ALLOWANCE AND PROVISION FOR LOAN LOSSES
YEAR ENDED DECEMBER 31, ---------------------------------------1998 1997 1996 1995 1994 ---------------(Dollars in thousands) Balance of allowance for loan losses at beginning of period............................. Loans charged off: Real estate: Single family residential................ Non-farm/non-residential................. Agricultural............................. Total real estate................... Consumer...................................... Commercial and industrial..................... Agricultural (non-real estate)................ Total loans charged off............. $3,737 $3,019 $1,909 $1,649 $1,716

75 18 -----93 633 423 -----1,149

35 -----35 434 -----469

73 -----73 216 128 -----417

14 51 -----65 44 47 -----156

58 34 -----92 31 3 -----126

An analysis of the allowance for loan losses for the periods indicated is shown in the table below. ALLOWANCE AND PROVISION FOR LOAN LOSSES
YEAR ENDED DECEMBER 31, ---------------------------------------1998 1997 1996 1995 1994 ---------------(Dollars in thousands) Balance of allowance for loan losses at beginning of period............................. Loans charged off: Real estate: Single family residential................ Non-farm/non-residential................. Agricultural............................. Total real estate................... Consumer...................................... Commercial and industrial..................... Agricultural (non-real estate)................ Total loans charged off............. Recoveries of loans previously charged off: Real estate: Single family residential................ Non-farm/non-residential................. Agricultural............................. Total real estate................... Consumer...................................... Commercial and industrial..................... Agricultural (non-real estate)................ Total recoveries.................... Net loans charged off.............................. Provision charged to operating expense............. Sale of subsidiary................................. Balance, end of period............................. Net charge-offs to average loans outstanding during the periods indicated.................. Allowance for loan losses to total loans........... Allowance for loan losses to nonperforming loans... $3,737 $3,019 $1,909 $1,649 $1,716

75 18 -----93 633 423 -----1,149 ------

35 -----35 434 -----469 ------

73 -----73 216 128 -----417 ------

14 51 -----65 44 47 -----156 ------

58 34 -----92 31 3 -----126 ------

9 -----9 55 11 -----75 -----1,074 2,026 -----$4,689 ====== 0.33% 1.21 171.82

5 2 -----7 39 2 -----48 -----421 1,139 -----$3,737 ====== 0.17% 1.36 534.62

2 -----2 35 4 -----41 -----376 1,486 -----$3,019 ====== 0.21% 1.41 130.69

33 -----33 23 -----56 -----100 360 -----$1,909 ====== 0.08% 1.25 146.28

7 -----7 12 2 -----21 -----105 339 (301) -----$1,649 ====== 0.09% 1.46 258.46

The Company continuously monitors its underwriting procedures in an attempt to maintain loan quality. During 1998 the Company implemented changes in its lending process, including changes in personnel, to more effectively address credit risks associated with the Company's loan portfolio growth. These changes are intended to improve loan quality and allow the Company to continue to maintain a satisfactory charge-off level. 17

The allowance for loan losses is the amount determined by management to be adequate to provide for losses on loans that may become uncollectible. The level of the allowance for loan losses and the need for additions are based on management's judgment as well as the evaluation of the loan portfolio utilizing objective and subjective criteria. The objective criteria utilized by the Company to assess the adequacy of its allowance for loan losses and required additions to such reserve are (1) an internal grading system, (2) a peer group analysis and (3) a historical analysis. The Company's internal grading system assigns each loan (other than consumer installment loans) to one of seven risk categories, with each category being assigned a specific reserve allocation percentage as follows:

The allowance for loan losses is the amount determined by management to be adequate to provide for losses on loans that may become uncollectible. The level of the allowance for loan losses and the need for additions are based on management's judgment as well as the evaluation of the loan portfolio utilizing objective and subjective criteria. The objective criteria utilized by the Company to assess the adequacy of its allowance for loan losses and required additions to such reserve are (1) an internal grading system, (2) a peer group analysis and (3) a historical analysis. The Company's internal grading system assigns each loan (other than consumer installment loans) to one of seven risk categories, with each category being assigned a specific reserve allocation percentage as follows:
LOAN GRADE/ RISK CATEGORY ------------1 Excellent 2 Good 3 Moderate 4 Fair 5 Watch 6(a) Substandard 6(b) Impaired-SFAS 114 7 Doubtful RESERVE ALLOCATION PERCENTAGE ---------0.10% 0.50 1.00 2.00 7.00 15.00 Impaired Amount or 15%, whichever is greater 50.00

The loan grade for each individual loan is determined by the loan officer at the time it is made and changed from time to time to reflect an ongoing assessment of loan risk. Loan grades are reviewed on specific loans from time to time by senior management and as part of the Company's internal loan review process. Required reserves are calculated for consumer installment loans based upon past due status as follows:
RESERVE ALLOCATION PERCENTAGE --------------------0.225% 7.500 37.500

PAST DUE STATUS --------------Current Overdue 30 to 89 days Overdue 90 days or more

Reserve allocations are also calculated using the internal grading system for all outstanding letters of credit, outstanding loan commitments and unfunded loan balances. The sum of all reserve amounts determined by the internal grading system is utilized by management as the primary indicator of the appropriate reserve level. In addition to the internal grading system, the Company compares the allowance for loan losses (as a percentage of total loans) maintained by each of its subsidiary banks to the peer group average percentage as shown on the most recently available FDIC Uniform Bank Performance Reports for such banks. The Company also compares the allowance for loan losses for each subsidiary bank to such bank's historical cumulative net charge-offs for the five preceding calendar years. The Company subjectively assesses the adequacy of the allowance for loan losses by considering the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans, national, regional and local business and economic conditions that may affect the borrowers' ability to pay or the value of collateral securing the loans, and other relevant factors. Although the Company does not determine the overall allowance based upon the amount of loans in a particular type or category, risk elements attributable to particular loan types or categories are considered in assigning loan grades to individual loans. These risk elements include the following: (1) in the case of single family residential real estate loans, the borrower's ability to repay including credit history, debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of collateral; (2) for non-farm/non-residential loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results

typical of properties of that type; (3) for agricultural real estate loans, the loan to value ratio; (4) 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; (5) for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower's business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral; (6) for non-real estate agricultural loans, the operating results, experience and ability of the borrower, historical and expected market conditions and the value, nature and marketability of collateral. In addition, for each category the Company considers secondary sources of income and the financial strength of the borrower and any guarantors. Management reviews the allowance on a quarterly basis to determine whether the amount of regular monthly provision should be increased or decreased or whether additional provision should be made to the allowance. Because the allowance is primarily determined based upon management's assessment and grading of individual loans, no reserve is made for specific categories of loans. The total allowance amount is available to absorb losses across the Company's entire portfolio. 18

The following table sets forth the sum of the amounts of the allowance for loan losses attributable to individual loans within each loan category, unfunded items and unallocated reserves as of December 31, 1998 and 1997. Information prior to the Company's initial public offering in 1997 is not available. The amounts shown are not necessarily indicative of the actual future losses that may occur within particular loan categories. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
PERCENT OF PE LOANS IN L ALLOWANCE CATEGORY TO ALLOWANCE CA AMOUNT TOTAL LOANS AMOUNT TO ---------- ------------- ----------- --DECEMBER 31, 1998 DECEMBER 31, ------------------------- --------------(Dollars in thousands) Real estate: Single family residential.................................... Non-farm/non-residential..................................... Agriculture.................................................. Construction/land development................................ Multifamily.................................................. Consumer....................................................... Commercial and industrial...................................... Agriculture (non-real estate).................................. Other.......................................................... Unfunded items (letters of credit, outstanding loan commitments and unadvanced loan balances).................. Unallocated reserves........................................... $1,618 794 242 291 63 534 640 270 15 206 16 ------$4,689 ======= 31.4% 19.7 5.0 6.0 1.6 17.1 13.5 5.2 0.5 N/A N/A ------100.0% ======= $1,116 423 152 163 41 372 412 114 15 233 696 ------$3,737 ======= 3 1

1 1

---10 ====

The Company maintains an internally classified loan list that, along with the list of nonaccrual or nonperforming loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance. Loans classified as "substandard" are loans with clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize recoverability of the loan. Loans classified as "doubtful" are those loans that have characteristics similar to substandard loans, but also have an increased risk that a loss may occur or at least a portion of the loan may require a charge-off if liquidated. Although loans classified as substandard do not duplicate loans classified as doubtful, both substandard and doubtful loans may include some loans that are past due at least 90 days, are on nonaccrual status or have been restructured. Loans classified as "loss" are loans that are in the process of being charged off. At December 31, 1998 "substandard" loans not designated as nonaccrual or 90 days past due totaled $2.5 million. No loans were designated as "doubtful" or "loss" at December 31, 1998.

The following table sets forth the sum of the amounts of the allowance for loan losses attributable to individual loans within each loan category, unfunded items and unallocated reserves as of December 31, 1998 and 1997. Information prior to the Company's initial public offering in 1997 is not available. The amounts shown are not necessarily indicative of the actual future losses that may occur within particular loan categories. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
PERCENT OF PE LOANS IN L ALLOWANCE CATEGORY TO ALLOWANCE CA AMOUNT TOTAL LOANS AMOUNT TO ---------- ------------- ----------- --DECEMBER 31, 1998 DECEMBER 31, ------------------------- --------------(Dollars in thousands) Real estate: Single family residential.................................... Non-farm/non-residential..................................... Agriculture.................................................. Construction/land development................................ Multifamily.................................................. Consumer....................................................... Commercial and industrial...................................... Agriculture (non-real estate).................................. Other.......................................................... Unfunded items (letters of credit, outstanding loan commitments and unadvanced loan balances).................. Unallocated reserves........................................... $1,618 794 242 291 63 534 640 270 15 206 16 ------$4,689 ======= 31.4% 19.7 5.0 6.0 1.6 17.1 13.5 5.2 0.5 N/A N/A ------100.0% ======= $1,116 423 152 163 41 372 412 114 15 233 696 ------$3,737 ======= 3 1

1 1

---10 ====

The Company maintains an internally classified loan list that, along with the list of nonaccrual or nonperforming loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance. Loans classified as "substandard" are loans with clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize recoverability of the loan. Loans classified as "doubtful" are those loans that have characteristics similar to substandard loans, but also have an increased risk that a loss may occur or at least a portion of the loan may require a charge-off if liquidated. Although loans classified as substandard do not duplicate loans classified as doubtful, both substandard and doubtful loans may include some loans that are past due at least 90 days, are on nonaccrual status or have been restructured. Loans classified as "loss" are loans that are in the process of being charged off. At December 31, 1998 "substandard" loans not designated as nonaccrual or 90 days past due totaled $2.5 million. No loans were designated as "doubtful" or "loss" at December 31, 1998. Administration of the bank subsidiaries' lending function is the responsibility of the Chief Executive Officer, Vice Chairman and certain senior lenders. Such officers perform their lending duties subject to the oversight and policy direction of the Board of Directors and various loan committees. Loan authorities are granted to the Chief Executive Officer and Vice Chairman as determined appropriate by the Board of Directors. Loan authorities of other lending officers are assigned by the Chief Executive Officer and Vice Chairman. Loans and aggregate loan relationships exceeding $3 million up to the lending limit of the banks can be authorized only by the Board of Directors. Loans and aggregate loan relationships exceeding $1 million up to $3 million can be authorized by one of the loan committees. At monthly meetings, a designated loan review committee reviews reports of new loans, loan commitments over $100,000, loan loss activity, past due and problem loans, asset quality and other matters as appropriate. The Board of Directors also reviews on a monthly basis reports of loan originations, past due loans, internally classified and watch list loans and activity in the Company's allowance for loan losses. The Company's compliance and loan review officers are responsible for serving the bank subsidiaries of the Company in the loan review and compliance areas. Periodic reviews are scheduled for the purpose of evaluating asset quality and effectiveness of loan administration. The compliance and loan review officers prepare loan review reports which identify deficiencies, establish recommendations for improvement, and outline management's proposed action plan for curing the deficiencies. This report is provided to the audit committee, which consists of

three non-employee members of the Boards of Directors. The Company's allowance for loan losses exceeds its cumulative historical net charge-off experience for the last five years. However, the allowance is considered reasonable given the significant growth in the loan portfolio in 1998, key allowance and 19

nonperforming loan ratios and comparisons to industry averages. Based on these procedures, management believes that the allowance of $4.7 million at December 31, 1998 is adequate. The allowance for loan losses is 1.21% of loans at December 31, 1998 compared to 1.36% at December 31, 1997. Provision for Loan Losses: The amounts of provision to the allowance for loan losses are based on management's judgment and evaluation of the loan portfolio utilizing the criteria discussed above. The provision for 1998 was $2.0 million compared to $1.1 million in 1997 and $1.5 million in 1996. INVESTMENTS AND SECURITIES The Company's securities portfolio is the second largest component of earning assets and provides a significant source of revenue for the Company. The following table presents the amortized cost and the fair value of investment securities for each of the dates indicated. INVESTMENT SECURITIES
DECEMBER 31, -----------------------------------------------------------1998 1997 ------------------------------------------------AMORTIZED FAIR AMORTIZED FAIR AMORTIZ COST VALUE/(1)/ COST VALUE/(1)/ COST ------------------------------------------------(Dollars in thousands) $156,351 $156,331 $24,562 $24,596 $23,8 2,107 2,117 9,340 9,571 10,1 14,742 3,286 -------$176,486 ======== 14,884 3,347 -------$176,679 ======== 6,801 1,510 ------$42,213 ======= 6,819 1,510 ------$42,496 ======= 4,0 1,3 ----$39,4 =====

Securities of U.S. Government agencies..... Mortgage-backed securities................. Obligations of states and political subdivisions............................. Other securities........................... Total.................................

(1) The fair value of the Company's investments is based on quoted market prices where available. If quoted market prices are not available, fair values are based on market prices of comparable securities. The following table reflects the amortized cost, by contractual maturity, of the Company's investment securities at December 31, 1998 and weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis assuming a 34% tax rate) of such securities. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
1 YEAR OR LESS ------Securities of U.S. Government agencies.................... Mortgage-backed securities................................ Obligations of states and political subdivisions.......... Other securities.......................................... 162 -----$ OVER 1 YEAR THRU 5 YEARS ------$2,001 1,795 -----OVER 5 YEAR OVER THRU 10 10 YEARS YEARS ---------------(Dollars in thousa $130,825 $23,525 92 2,015 2,018 10,767 3,286 --------------

nonperforming loan ratios and comparisons to industry averages. Based on these procedures, management believes that the allowance of $4.7 million at December 31, 1998 is adequate. The allowance for loan losses is 1.21% of loans at December 31, 1998 compared to 1.36% at December 31, 1997. Provision for Loan Losses: The amounts of provision to the allowance for loan losses are based on management's judgment and evaluation of the loan portfolio utilizing the criteria discussed above. The provision for 1998 was $2.0 million compared to $1.1 million in 1997 and $1.5 million in 1996. INVESTMENTS AND SECURITIES The Company's securities portfolio is the second largest component of earning assets and provides a significant source of revenue for the Company. The following table presents the amortized cost and the fair value of investment securities for each of the dates indicated. INVESTMENT SECURITIES
DECEMBER 31, -----------------------------------------------------------1998 1997 ------------------------------------------------AMORTIZED FAIR AMORTIZED FAIR AMORTIZ COST VALUE/(1)/ COST VALUE/(1)/ COST ------------------------------------------------(Dollars in thousands) $156,351 $156,331 $24,562 $24,596 $23,8 2,107 2,117 9,340 9,571 10,1 14,742 3,286 -------$176,486 ======== 14,884 3,347 -------$176,679 ======== 6,801 1,510 ------$42,213 ======= 6,819 1,510 ------$42,496 ======= 4,0 1,3 ----$39,4 =====

Securities of U.S. Government agencies..... Mortgage-backed securities................. Obligations of states and political subdivisions............................. Other securities........................... Total.................................

(1) The fair value of the Company's investments is based on quoted market prices where available. If quoted market prices are not available, fair values are based on market prices of comparable securities. The following table reflects the amortized cost, by contractual maturity, of the Company's investment securities at December 31, 1998 and weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis assuming a 34% tax rate) of such securities. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
1 YEAR OR LESS ------Securities of U.S. Government agencies.................... Mortgage-backed securities................................ Obligations of states and political subdivisions.......... Other securities.......................................... Total...................................... Percentage of total....................................... Weighted average yield (FTE)/(4)/......................... 162 -----$ 162 ====== 0.09% 9.15 $ OVER 1 YEAR THRU 5 YEARS ------$2,001 1,795 -----$3,796 ====== 2.15% 7.07 OVER 5 YEAR OVER THRU 10 10 YEARS YEARS ---------------(Dollars in thousa $130,825 $23,525 92 2,015 2,018 10,767 3,286 -------------$132,935 $39,593 ======== ======= 75.33% 22.43% 6.54 6.72

(1) At December 31, 1998 all federal agency securities held by the Company have certain rights which allow the issuer to call or prepay the obligation without prepayment penalties. (2) At December 31, 1998 approximately $1.9 million of these securities earned interest at floating rates repricing

(2) At December 31, 1998 approximately $1.9 million of these securities earned interest at floating rates repricing monthly or semi-annually. (3) At December 31, 1998 approximately $1.0 million of these securities earned interest at floating rates repricing semi-annually. (4) The weighted average yields (FTE) are based on book value. 20

DEPOSITS The Company's bank subsidiaries' lending and investing activities are funded primarily by deposits, approximately 72.5% of which were time deposits and 27.5% of which were demand and savings deposits at December 31, 1998. Interest bearing deposits other than time deposits consist of transaction, savings and money market accounts. These deposits comprise 18.0% of total deposits at December 31, 1998. Non-interest bearing demand deposits at December 31, 1998, constituted approximately 9.5% of total deposits. The Company had no brokered deposits at December 31, 1998. AVERAGE DEPOSIT BALANCES AND RATES
YEAR ENDED DECEMBER 31, ----------------------------------------------------------1998 1997 1996 --------------------------------------------------AVERAGE AVERAGE AVERAG AVERAGE RATE AVERAGE RATE AVERAGE RATE AMOUNT PAID AMOUNT PAID AMOUNT PAID --------------------------------------------------(Dollars in thousands) $ 40,583 $ 26,981 $ 20,129 32,419 12,002 29,933 198,268 87,751 --------$ 400,956 ========= 2.25% 2.11 3.58 5.63 5.58 25,469 8,734 26,981 129,969 48,919 --------$ 267,053 ========= 2.19% 2.13 3.86 5.61 5.63 22,209 8,238 18,542 102,076 34,689 --------$ 205,883 ========= 2.20% 2.14 3.49 5.60 5.69

Non-interest bearing accounts............ Interest bearing accounts: Transaction (NOW)..................... Savings............................... Money market.......................... Time deposits less than $100,000...... Time deposits $100,000 or more........ Total deposits.....................

The following table sets forth by time remaining to maturity, time deposits in amounts of $100,000 or more at December 31, 1998. MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 AND OVER
DECEMBER 31, 1998 ---------------------(Dollars in thousands) MATURITY -------3 months or less...................... 3 to 6 months......................... 6 to 12 months........................ Over 12 months........................

$ 64,262 44,127 29,705 5,446

INTEREST RATE SENSITIVITY The Company's interest rate risk management is the responsibility of the Asset/Liability Management Committee, which reports to the Board of Directors. This committee establishes policies that monitor and coordinate the Company's sources, uses and pricing of funds. The committee is also involved with management in the Company's planning and budgeting process. The Company regularly reviews its exposure to changes in interest rates. Among the factors considered are

DEPOSITS The Company's bank subsidiaries' lending and investing activities are funded primarily by deposits, approximately 72.5% of which were time deposits and 27.5% of which were demand and savings deposits at December 31, 1998. Interest bearing deposits other than time deposits consist of transaction, savings and money market accounts. These deposits comprise 18.0% of total deposits at December 31, 1998. Non-interest bearing demand deposits at December 31, 1998, constituted approximately 9.5% of total deposits. The Company had no brokered deposits at December 31, 1998. AVERAGE DEPOSIT BALANCES AND RATES
YEAR ENDED DECEMBER 31, ----------------------------------------------------------1998 1997 1996 --------------------------------------------------AVERAGE AVERAGE AVERAG AVERAGE RATE AVERAGE RATE AVERAGE RATE AMOUNT PAID AMOUNT PAID AMOUNT PAID --------------------------------------------------(Dollars in thousands) $ 40,583 $ 26,981 $ 20,129 32,419 12,002 29,933 198,268 87,751 --------$ 400,956 ========= 2.25% 2.11 3.58 5.63 5.58 25,469 8,734 26,981 129,969 48,919 --------$ 267,053 ========= 2.19% 2.13 3.86 5.61 5.63 22,209 8,238 18,542 102,076 34,689 --------$ 205,883 ========= 2.20% 2.14 3.49 5.60 5.69

Non-interest bearing accounts............ Interest bearing accounts: Transaction (NOW)..................... Savings............................... Money market.......................... Time deposits less than $100,000...... Time deposits $100,000 or more........ Total deposits.....................

The following table sets forth by time remaining to maturity, time deposits in amounts of $100,000 or more at December 31, 1998. MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 AND OVER
DECEMBER 31, 1998 ---------------------(Dollars in thousands) MATURITY -------3 months or less...................... 3 to 6 months......................... 6 to 12 months........................ Over 12 months........................

$ 64,262 44,127 29,705 5,446

INTEREST RATE SENSITIVITY The Company's interest rate risk management is the responsibility of the Asset/Liability Management Committee, which reports to the Board of Directors. This committee establishes policies that monitor and coordinate the Company's sources, uses and pricing of funds. The committee is also involved with management in the Company's planning and budgeting process. The Company regularly reviews its exposure to changes in interest rates. Among the factors considered are changes in the mix of earning assets and interest bearing liabilities, interest rate spreads and repricing periods. Typically, the committee reviews on at least a quarterly basis the bank subsidiaries' relative ratio of rate sensitive assets to rate sensitive liabilities and the related cumulative gap for different time periods. Additionally, the committee and management review other alternative interest rate risk measures and models in assessing the Company's interest rate sensitivity. Using a simple static GAP analysis as shown in the following table, at December 31, 1998 the cumulative ratios of rate sensitive assets to rate sensitive liabilities at six months and one year were 58.1% and 59.8%,

respectively. A financial institution is considered to be liability sensitive, or as having a negative GAP, when the amount of its interest bearing liabilities maturing or repricing within a given time period exceeds the amount of its interest earning assets also maturing or repricing within that time period. Conversely, an institution is considered to be asset sensitive, or as having a positive GAP, when the amount of its interest bearing liabilities maturing and repricing is less than the amount of its interest earning assets also maturing or repricing during the same period. Generally, in a falling interest rate environment, a negative GAP should result in an increase in net interest income, and in a rising interest rate environment this negative GAP should adversely affect net interest income. The converse would be true for a positive GAP. Due to inherent limitations in any static GAP analysis and since conditions change on a daily basis, these conclusions may not reflect future results. 21

RATE SENSITIVE ASSETS AND LIABILITIES
DECEMBER 31, 1998 -----------------------------------------------------------RATE RATE CUMULATI SENSITIVE SENSITIVE PERIOD CUMMULATIVE GAP TO ASSETS LIABILITIES GAP GAP TOTAL R ------------------- -------------------------(Dollars in thousands) $ 40,252 $ 50,083 $ (9,831) $ (9,831) (1 53,536 22,346 19,004 17,999 17,339 16,071 72,239 70,767 28,935 28,681 20,842 156,989 -------$565,000 ======== 66,652 56,317 49,108 31,169 34,644 33,341 111,493 33,230 9,432 16,862 12,525 14,725 -------$519,581 ======== (13,116) (33,971) (30,104) (13,170) (17,305) (17,270) (39,254) 37,537 19,503 11,819 8,317 142,264 -------$ 45,419 ======== (22,947) (56,918) (87,022) (100,192) (117,497) (134,767) (174,021) (136,484) (116,981) (105,162) (96,845) 45,419 (4 (10 (15 (17 (20 (23 (30 (24 (20 (18 (17 8

Floating rate.............................. Fixed rate repricing in: 1 month.................................. 2 month.................................. 3 month.................................. 4 month.................................. 5 month.................................. 6 month.................................. 6 months - 1 year........................ 1--2 years............................... 2--3 years............................... 3--4 years............................... 4--5 years............................... Over 5 years............................. Total.................................

The data used in the table above is based on contractual repricing dates rather than maturities. This simple GAP analysis gives no consideration to a number of factors which can have a material impact on the Company's interest rate risk position. Such factors include call features on certain assets and liabilities, prepayments, interest rate floors and caps on various assets and liabilities, the current interest rates on assets and liabilities to be repriced in each period, and the relative changes in interest rates on different types of assets and liabilities. The Company also utilizes an earnings change ratio analysis, which it believes is a more accurate analysis of interest rate sensitivity because it measures not only the volume of assets and liabilities being repriced but also the expected relative change in interest rates on the different types of assets and liabilities. This analysis applies coefficients to the various types of assets and liabilities in order to estimate the relative rates of change expected. As of December 31, 1998 this model reflected a one-year ratio of rate sensitive assets to rate sensitive liabilities of 75.0%. The earnings change ratio analysis is subject to a number of limitations, including the other limitations discussed above. The following table provides contractual balances of the Company's financial instruments at the expected maturity as well as the fair value of those financial instruments as of December 31, 1998. Fixed and variable rate categories are based upon expected amortization or contractual maturity dates. The Company considers assets and liabilities that do not have a stated maturity date, as in cash equivalents and certain deposits, to be long term in nature and reports them in the "Thereafter" column. The Company does not consider these financial instruments materially sensitive to interest rate fluctuations and management expects these balances to remain fairly constant over various economic conditions. The weighted average interest rates for the various assets and liabilities presented are FTE as of December 31, 1998 and 1997.

RATE SENSITIVE ASSETS AND LIABILITIES
DECEMBER 31, 1998 -----------------------------------------------------------RATE RATE CUMULATI SENSITIVE SENSITIVE PERIOD CUMMULATIVE GAP TO ASSETS LIABILITIES GAP GAP TOTAL R ------------------- -------------------------(Dollars in thousands) $ 40,252 $ 50,083 $ (9,831) $ (9,831) (1 53,536 22,346 19,004 17,999 17,339 16,071 72,239 70,767 28,935 28,681 20,842 156,989 -------$565,000 ======== 66,652 56,317 49,108 31,169 34,644 33,341 111,493 33,230 9,432 16,862 12,525 14,725 -------$519,581 ======== (13,116) (33,971) (30,104) (13,170) (17,305) (17,270) (39,254) 37,537 19,503 11,819 8,317 142,264 -------$ 45,419 ======== (22,947) (56,918) (87,022) (100,192) (117,497) (134,767) (174,021) (136,484) (116,981) (105,162) (96,845) 45,419 (4 (10 (15 (17 (20 (23 (30 (24 (20 (18 (17 8

Floating rate.............................. Fixed rate repricing in: 1 month.................................. 2 month.................................. 3 month.................................. 4 month.................................. 5 month.................................. 6 month.................................. 6 months - 1 year........................ 1--2 years............................... 2--3 years............................... 3--4 years............................... 4--5 years............................... Over 5 years............................. Total.................................

The data used in the table above is based on contractual repricing dates rather than maturities. This simple GAP analysis gives no consideration to a number of factors which can have a material impact on the Company's interest rate risk position. Such factors include call features on certain assets and liabilities, prepayments, interest rate floors and caps on various assets and liabilities, the current interest rates on assets and liabilities to be repriced in each period, and the relative changes in interest rates on different types of assets and liabilities. The Company also utilizes an earnings change ratio analysis, which it believes is a more accurate analysis of interest rate sensitivity because it measures not only the volume of assets and liabilities being repriced but also the expected relative change in interest rates on the different types of assets and liabilities. This analysis applies coefficients to the various types of assets and liabilities in order to estimate the relative rates of change expected. As of December 31, 1998 this model reflected a one-year ratio of rate sensitive assets to rate sensitive liabilities of 75.0%. The earnings change ratio analysis is subject to a number of limitations, including the other limitations discussed above. The following table provides contractual balances of the Company's financial instruments at the expected maturity as well as the fair value of those financial instruments as of December 31, 1998. Fixed and variable rate categories are based upon expected amortization or contractual maturity dates. The Company considers assets and liabilities that do not have a stated maturity date, as in cash equivalents and certain deposits, to be long term in nature and reports them in the "Thereafter" column. The Company does not consider these financial instruments materially sensitive to interest rate fluctuations and management expects these balances to remain fairly constant over various economic conditions. The weighted average interest rates for the various assets and liabilities presented are FTE as of December 31, 1998 and 1997. The fair value of cash, interest bearing deposits at other banks, and interest receivable approximates their book values due to their short maturities. The fair value of available for sale securities are based on reports provided the Company by third parties. Federal Home Loan Bank stock is valued at stated redemption value. The fair value of loans and time deposits are estimated by discounted cash flows through the estimated maturity using estimated market discount rates that reflect current rates offered by the Company. The fair value of FHLB borrowings is estimated by discounting the cash flows through maturity based on current rates offered by the FHLB for borrowings with similar maturities. The fair value of the note payable approximates the carrying value due to the note payable's interest rate approximating market rates. 22

EXPECTED MATURITY DATES OF FINANCIAL INSTRUMENTS
DECEMBER 31, ----------------------------------------------1999 2000 2001 2002 2003 THEREAFTER ---------- ------- ------- ------- -------- ---------(Dollars in thousands) FINANCIAL ASSETS: Cash and due from banks Interest-bearing deposits Weighted avg. interest rate Federal funds sold Weighted avg. interest rate Securities-available for sale: US Govt. agencies Weighted avg. interest rate Mortgage-backed securities: Fixed rate Weighted avg. interest rate Variable rate Weighted avg. interest rate State and political subdivision obligations: Fixed rate Weighted avg. interest rate Equity securities Dividend yield FHLB stock Dividend yield Securities - held to maturity US Govt. agencies Weighted avg. interest rate State and political subdivision obligations: Fixed rate Weighted avg. interest rate Variable rate Weighted avg. interest rate Other securities Weighted avg. interest rate Loans held for sale-fixed rate Weighted avg. interest rate Loans held for sale-var. rate Weighted avg. interest rate Loans: Loans - fixed Weighted avg. interest rate Loans - variable Weighted avg. interest rate Interest receivable FINANCIAL LIABILITIES: Deposits: Demand deposits $ NOW accounts Weighted avg. interest rate Money market accounts Weighted avg. interest rate Regular savings Weighted avg. interest rate Time deposits Fixed rate Weighted avg. interest rate Variable rate Weighted avg. interest rate Repurchase agreements Weighted avg. interest rate FHLB advances - long term Weighted avg. interest rate Federal Funds purchased Weighted avg. interest rate Notes payable Weighted avg. interest rate 1,000 6.21% 154,351 6.56% 155,351 6.56% $ - $ 856 4.70% $ $ $ $ 14,168 DEC. 31, 1998 TOTAL --------

$ 14,168 856 4.70% -

-

-

1,001 6.04% -

-

-

156 6.37% 1,961 6.50%

1,001 6.04% 156 6.37% 1,961 6.50%

20 5.45% -

118 5.61% -

151 5.75% -

187 5.72% -

195 5.79% -

10,594 6.98% 136 3,110 5.50%

11,265 6.90% 136 3,110 5.50%

72 7.58% 70 10.95% 6,493 7.09% 192 4.50%

82 8.03% 76 10.95% -

94 8.18% 83 10.95% -

80 7.67% 91 10.95% -

86 7.70% 100 10.95% -

2,045 7.54% 658 10.95% 101 6.53% -

2,459 7.59% 1,078 10.95% 101 6.53% 6,493 7.09% 192 4.50%

117,383 9.56% 7,148 8.99% -

52,757 9.75% 1,658 9.76% -

67,907 9.63% 178 9.15% -

32,400 9.59% 3,414 8.26% -

60,123 9.29% 532 8.19% -

17,038 8.95% 20,303 8.71% 5,517

347,608 9.53% 33,233 8.97% 5,517

357,806 5.38% 1,412 4.60% 1,408 3.93% 5,268 6.46% 3,830 4.79% 24 6.00%

$

13,396 5.40% 1,075 4.60% 2,144 5.77% 24 6.00%

$

5,868 5.54% 4,198 5.95% -

$

1,884 5.85% 198 6.30% -

$

997 5.57% 198 6.30% 12,400 6.50%

$

50,138 $ 50,138 46,914 46,914 1.59% 1.59% 35,238 35,238 4.30% 4.30% 13,319 13,319 2.00% 2.00% 993 5.96% 10,987 5.02% 380,944 5.39% 2,487 4.60% 1,408 3.93% 22,993 5.13% 3,830 4.79% 12,448 6.50%

Interest payable

-

-

-

-

-

1,828

1,828

23

IMPACT OF INFLATION AND CHANGING PRICES The Consolidated Financial Statements and related Notes presented elsewhere in the report have been prepared in accordance with generally accepted accounting principles. This requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. CAPITAL COMPLIANCE Bank regulatory authorities in the United States impose certain capital standards on all bank holding companies and banks. These capital standards require compliance with certain minimum "risk-based capital ratios" and a minimum "leverage ratio". The risk-based capital ratios consist of (1) Tier 1 capital (i.e. common stockholders' equity excluding goodwill, certain intangibles and appreciation on investment securities, but including certain other qualifying items) to total risk-weighted assets and (2) total capital (Tier 1 capital plus Tier 2 capital which is the qualifying portion of the allowance for loan losses) to risk-weighted assets. The leverage ratio is measured as Tier 1 capital to adjusted average assets for the most recent quarter. The Company's risk-based and leverage capital ratios exceeded these minimum requirements at December 31, 1998 and December 31, 1997 and are presented below, followed by the capital ratios of each of the bank subsidiaries at December 31, 1998. CONSOLIDATED CAPITAL RATIOS
DECEMBE --------------1998 --------(Dollars in Tier 1 capital: Stockholders' equity............................................................... Add (less) net unrealized losses (gains) on available for sale securities.......... Less goodwill and certain intangibles.............................................. Total Tier 1 capital............................................................ Tier 2 capital: Qualifying allowance for loan losses............................................... Total risk-based capital........................................................ Risk-weighted assets................................................................. Ratios at end of period: Leverage........................................................................... Tier 1 risk-based capital.......................................................... Total risk-based capital........................................................... Minimum ratio guidelines: Leverage........................................................................... Tier 1 risk-based capital.......................................................... Total risk-based capital........................................................... 40,355 (81) (3,623) --------$ 36,651 ========= 4,689 --------$ 41,340 ========= $ 404,879 ========= 6.21% 9.05 10.21 3.00%/(1)/ 4.00 8.00 $

CAPITAL RATIOS OF BANK SUBSIDIARIES
DECEMBER 31, 1998 ------------------------------------BANK OF THE BANK OF THE BA

IMPACT OF INFLATION AND CHANGING PRICES The Consolidated Financial Statements and related Notes presented elsewhere in the report have been prepared in accordance with generally accepted accounting principles. This requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. CAPITAL COMPLIANCE Bank regulatory authorities in the United States impose certain capital standards on all bank holding companies and banks. These capital standards require compliance with certain minimum "risk-based capital ratios" and a minimum "leverage ratio". The risk-based capital ratios consist of (1) Tier 1 capital (i.e. common stockholders' equity excluding goodwill, certain intangibles and appreciation on investment securities, but including certain other qualifying items) to total risk-weighted assets and (2) total capital (Tier 1 capital plus Tier 2 capital which is the qualifying portion of the allowance for loan losses) to risk-weighted assets. The leverage ratio is measured as Tier 1 capital to adjusted average assets for the most recent quarter. The Company's risk-based and leverage capital ratios exceeded these minimum requirements at December 31, 1998 and December 31, 1997 and are presented below, followed by the capital ratios of each of the bank subsidiaries at December 31, 1998. CONSOLIDATED CAPITAL RATIOS
DECEMBE --------------1998 --------(Dollars in Tier 1 capital: Stockholders' equity............................................................... Add (less) net unrealized losses (gains) on available for sale securities.......... Less goodwill and certain intangibles.............................................. Total Tier 1 capital............................................................ Tier 2 capital: Qualifying allowance for loan losses............................................... Total risk-based capital........................................................ Risk-weighted assets................................................................. Ratios at end of period: Leverage........................................................................... Tier 1 risk-based capital.......................................................... Total risk-based capital........................................................... Minimum ratio guidelines: Leverage........................................................................... Tier 1 risk-based capital.......................................................... Total risk-based capital........................................................... 40,355 (81) (3,623) --------$ 36,651 ========= 4,689 --------$ 41,340 ========= $ 404,879 ========= 6.21% 9.05 10.21 3.00%/(1)/ 4.00 8.00 $

CAPITAL RATIOS OF BANK SUBSIDIARIES
DECEMBER 31, 1998 ------------------------------------BANK OF THE BANK OF THE BA OZARKS, WCA OZARKS, NWA OZ ---------------------(Dollars in Thousands) $ 33,117 $ 10,625 $ 8.51% 6.57%

Stockholders' equity - Tier 1..................................... Leverage ratio.................................................... Risk-based capital ratios:

Tier 1.......................................................... Total capital...................................................

11.34% 12.57

10.28% 11.35

/(1)/ Regulatory authorities require institutions to operate at varying levels (ranging from 100-200 basis points) above a minimum leverage ratio of 3% depending upon capitalization classification. /(2)/ A federal savings bank acquired by the Company in February 1998 and merged into Bank of the Ozarks, wca effective January 7, 1999. 24

LIQUIDITY AND CAPITAL RESOURCES Line of Credit. The Company maintains a revolving line of credit for up to $22 million with a correspondent bank. Interest accrues on all outstanding borrowings due under the line of credit at a variable rate equal to the average prime lending rate reported from time to time by the Wall Street Journal minus 1.25%, provided, however, the rate is not to exceed 7.75%. Interest is payable quarterly. The line of credit is effective through March 31, 2003 subject to an annual compliance review by the lender. No standby or unused commitment fees are payable under the line of credit. All borrowings under the line of credit are secured by a pledge of 100% of the Company's stock in Bank of the Ozarks, wca and Bank of the Ozarks, nwa. As of December 31, 1998 $12.3 million was outstanding under the line of credit. The line of credit requires the Company's bank subsidiaries to maintain (1) a return on average assets for each calendar year equal to at least 1.0%, (2) a ratio of capital, as defined in the line of credit, to assets at levels acceptable to bank regulatory authorities but at least 7.0% at each calendar year end and (3) net charges to the reserve for loan losses at less than 1.0% of net loans during any calendar year. In addition, the line of credit requires that the parent company's aggregate indebtedness not exceed 60.0% of the Company's tangible net worth through March 31, 1999 reducing 5% a year thereafter and that borrowings under the line of credit not exceed 50.0% of the tangible book value of all stock pledged to secure such borrowings. At December 31, 1998 the Company was in compliance with these requirements. Growth and Expansion. In February 1998 the Company acquired Heartland Community Bank, FSB in Little Rock, from its parent company--Heartland Community Bank, Camden--for $3.1 million in cash. The Company received the federal savings bank charter, approximately $9.4 million in customer deposits and the related banking facility. No loans were acquired as a part of the transaction. Following closing the Company commenced operations in Little Rock under the Bank of the Ozarks name. This federal savings bank was merged into the Company's lead bank subsidiary on January 7, 1999. In June 1998 the Company opened its Little Rock corporate headquarters and banking center on Chenal Parkway and a third Little Rock branch on Rodney Parham Road. In August 1998 the Company completed the purchase of the Marshall, Arkansas branch of Superior Federal Bank, F.S.B. The acquisition included the branch bank building, related assets and deposit accounts totaling approximately $16 million. The Company paid a purchase premium and incurred other acquisition costs totaling approximately $1.5 million. In September 1998 the Company opened its new Fort Smith facility and in December 1998 opened a fourth Little Rock branch at 7500 Cantrell Road. A third Harrison area branch is under construction and expected to open during the first half of 1999. In 1998 the Company spent approximately $13.9 million on acquiring, constructing and furnishing its corporate banking headquarters in Little Rock, the new Fort Smith facility and three other branch offices. Although the Company expects to open additional branches in 1999, capital expenditures are expected to be substantially less than 1998. The Company is seeking regulatory approval to merge Bank of the Ozarks, wca and Bank of the Ozarks, nwa.

LIQUIDITY AND CAPITAL RESOURCES Line of Credit. The Company maintains a revolving line of credit for up to $22 million with a correspondent bank. Interest accrues on all outstanding borrowings due under the line of credit at a variable rate equal to the average prime lending rate reported from time to time by the Wall Street Journal minus 1.25%, provided, however, the rate is not to exceed 7.75%. Interest is payable quarterly. The line of credit is effective through March 31, 2003 subject to an annual compliance review by the lender. No standby or unused commitment fees are payable under the line of credit. All borrowings under the line of credit are secured by a pledge of 100% of the Company's stock in Bank of the Ozarks, wca and Bank of the Ozarks, nwa. As of December 31, 1998 $12.3 million was outstanding under the line of credit. The line of credit requires the Company's bank subsidiaries to maintain (1) a return on average assets for each calendar year equal to at least 1.0%, (2) a ratio of capital, as defined in the line of credit, to assets at levels acceptable to bank regulatory authorities but at least 7.0% at each calendar year end and (3) net charges to the reserve for loan losses at less than 1.0% of net loans during any calendar year. In addition, the line of credit requires that the parent company's aggregate indebtedness not exceed 60.0% of the Company's tangible net worth through March 31, 1999 reducing 5% a year thereafter and that borrowings under the line of credit not exceed 50.0% of the tangible book value of all stock pledged to secure such borrowings. At December 31, 1998 the Company was in compliance with these requirements. Growth and Expansion. In February 1998 the Company acquired Heartland Community Bank, FSB in Little Rock, from its parent company--Heartland Community Bank, Camden--for $3.1 million in cash. The Company received the federal savings bank charter, approximately $9.4 million in customer deposits and the related banking facility. No loans were acquired as a part of the transaction. Following closing the Company commenced operations in Little Rock under the Bank of the Ozarks name. This federal savings bank was merged into the Company's lead bank subsidiary on January 7, 1999. In June 1998 the Company opened its Little Rock corporate headquarters and banking center on Chenal Parkway and a third Little Rock branch on Rodney Parham Road. In August 1998 the Company completed the purchase of the Marshall, Arkansas branch of Superior Federal Bank, F.S.B. The acquisition included the branch bank building, related assets and deposit accounts totaling approximately $16 million. The Company paid a purchase premium and incurred other acquisition costs totaling approximately $1.5 million. In September 1998 the Company opened its new Fort Smith facility and in December 1998 opened a fourth Little Rock branch at 7500 Cantrell Road. A third Harrison area branch is under construction and expected to open during the first half of 1999. In 1998 the Company spent approximately $13.9 million on acquiring, constructing and furnishing its corporate banking headquarters in Little Rock, the new Fort Smith facility and three other branch offices. Although the Company expects to open additional branches in 1999, capital expenditures are expected to be substantially less than 1998. The Company is seeking regulatory approval to merge Bank of the Ozarks, wca and Bank of the Ozarks, nwa. This merger is expected to be completed late in the second quarter of 1999. This merger is expected to eliminate certain duplicate corporate operations and expenses while improving customer service. Bank Liquidity. Liquidity represents an institution's ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. Generally, the Company's bank subsidiaries rely on customer deposits and loan repayments as their primary sources of funds. The Company has used these funds, together with FHLB and other borrowings, to make loans, acquire investment securities and other assets and to fund continuing operations. The Company has experienced significant growth in its loan and deposit portfolio. While scheduled loan repayments are a relatively stable source of funds, such loans generally are not readily convertible to cash.

Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations and investments. Such sources include FHLB advances, federal funds lines of credit from correspondent banks and borrowings by the Company under its revolving credit facility described above. At December 31, 1998 the Company's bank subsidiaries had an aggregate of $59.6 million of unused blanket FHLB borrowing availability. Additionally at December 31, 1998 the bank subsidiaries had available substantial federal funds borrowing capacity. Management anticipates that the Company's bank subsidiaries will continue to rely primarily on customer deposits and loan repayments to provide liquidity. However, where necessary, the above described borrowings (including borrowings under the Company's line of credit) will be used to augment the Company's primary funding sources. Year 2000 Liquidity Needs. The Company may experience additional liquidity needs in connection with increased deposit withdrawals due to customer concerns over the Year 2000 issue. The Board of Directors has adopted a Contingency Funding Plan to guide management in handling unusual liquidity needs. In preparing for possible increased Year 2000 25

liquidity demands, management is planning several actions including: (1) modification of the pricing and terms of certain time deposit products to encourage depositors to accept maturities after year-end; (2) developing plans to place collateral with various sources of secondary liquidity to facilitate short-term borrowing; and (3) developing plans to have additional cash available at the branches and ATMs of the bank subsidiaries during the latter part of the year. Although management believes these and other actions will prepare the Company for this potential liquidity need, there can be no assurance these steps will be adequate. Dividend Policy. In 1998 the Company paid dividends of $0.23 per share. In 1997 and 1996 the Company paid dividends of $0.20 and $0.30 per share, respectively. The Company increased its dividend for the second quarter of 1998 to $0.06 from $0.05. The dividend for the first quarter of 1999 has been increased to $0.10 per share. The determination of future dividends on the Company's common stock will depend on conditions existing at that time. The Company's goal is to continue the current $0.10 quarterly dividend amount with consideration to future increases depending on the Company's earnings, capital and liquidity needs. YEAR 2000 The Year 2000 issue relates to the ability of the Company's computer and other systems with imbedded microchips to properly handle Year 2000 date sensitive data and the potential risk to the Company because of relationships with third parties (e.g. software and hardware vendors, loan customers, correspondent banks, utility companies and others) who do not adequately address the Year 2000 issue. Failure in any of these areas could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. In late 1997 the Company established a Year 2000 Project Committee to evaluate and assess the Company's exposure to this issue. This committee has implemented an approach to the Year 2000 issue consisting of four phases. These phases include awareness, assessment, renovation and testing. The awareness phase consists of defining the Year 2000 problem, developing the resources necessary to perform compliance work, establishing a Year 2000 program committee and program coordinator and developing an overall strategy that encompasses in-house systems, service bureaus, vendors, auditors, customers, and suppliers (including correspondents). This phase has been completed. The assessment phase consists of evaluating the size and complexity of the problem and detailing the magnitude of the effort necessary to address the Year 2000 issue. The objective of this phase is to identify all hardware, software, networks, automated teller machines, other various processing platforms, and customer and vendor interdependencies affected by the Year 2000 date change. The assessment phase goes beyond the Company's information systems and includes environmental systems that are dependent on embedded microchips, such as

liquidity demands, management is planning several actions including: (1) modification of the pricing and terms of certain time deposit products to encourage depositors to accept maturities after year-end; (2) developing plans to place collateral with various sources of secondary liquidity to facilitate short-term borrowing; and (3) developing plans to have additional cash available at the branches and ATMs of the bank subsidiaries during the latter part of the year. Although management believes these and other actions will prepare the Company for this potential liquidity need, there can be no assurance these steps will be adequate. Dividend Policy. In 1998 the Company paid dividends of $0.23 per share. In 1997 and 1996 the Company paid dividends of $0.20 and $0.30 per share, respectively. The Company increased its dividend for the second quarter of 1998 to $0.06 from $0.05. The dividend for the first quarter of 1999 has been increased to $0.10 per share. The determination of future dividends on the Company's common stock will depend on conditions existing at that time. The Company's goal is to continue the current $0.10 quarterly dividend amount with consideration to future increases depending on the Company's earnings, capital and liquidity needs. YEAR 2000 The Year 2000 issue relates to the ability of the Company's computer and other systems with imbedded microchips to properly handle Year 2000 date sensitive data and the potential risk to the Company because of relationships with third parties (e.g. software and hardware vendors, loan customers, correspondent banks, utility companies and others) who do not adequately address the Year 2000 issue. Failure in any of these areas could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. In late 1997 the Company established a Year 2000 Project Committee to evaluate and assess the Company's exposure to this issue. This committee has implemented an approach to the Year 2000 issue consisting of four phases. These phases include awareness, assessment, renovation and testing. The awareness phase consists of defining the Year 2000 problem, developing the resources necessary to perform compliance work, establishing a Year 2000 program committee and program coordinator and developing an overall strategy that encompasses in-house systems, service bureaus, vendors, auditors, customers, and suppliers (including correspondents). This phase has been completed. The assessment phase consists of evaluating the size and complexity of the problem and detailing the magnitude of the effort necessary to address the Year 2000 issue. The objective of this phase is to identify all hardware, software, networks, automated teller machines, other various processing platforms, and customer and vendor interdependencies affected by the Year 2000 date change. The assessment phase goes beyond the Company's information systems and includes environmental systems that are dependent on embedded microchips, such as security systems, elevators, sprinkler systems, alarms and vaults. The assessment phase is substantially completed, but is considered an ongoing process for the Company. The renovation phase includes the remediation of any systems identified in the awareness phase as not Year 2000 compliant. The replacement of a proof/capture system was expedited due to lack of Year 2000 compliance earlier in 1998. Also the need for minor upgrades to several proof machines were identified and have been completed. Environmental systems including vault doors, security systems, elevators, sprinkler systems and alarms have been evaluated and assurances from vendors have been received regarding their Year 2000 compliance. The Renovation phase is essentially complete with all identified problem areas having been addressed. The Company is well into its testing phase with the primary focus being on the core software that runs basic bank services including the following applications: checking, savings, time deposits, individual retirement accounts, loans, safe deposit box and general ledger accounting. Complete testing of mission critical systems has been substantially completed as of December 31, 1998. Further testing with mission critical vendors and other significant third party vendors will continue and is expected to be completed by June 30, 1999. The Company has not identified any problems thus far with any of its systems that would have a material adverse impact upon its operations. The Company incurred expenses throughout 1996, 1997 and 1998 related to this project and will continue to incur expenses over the next 12 months. The Company currently estimates that the cost to remediate both its Year 2000 hardware and software issues to be less than $130,000 with approximately 75% of the costs having

already been expended through December 31, 1998. A significant portion of total Year 2000 project expenses is represented by existing staff that have been redeployed to this project. The Company does not believe that the redeployment of existing staff will have a material adverse effect on its business, results of operations or financial position nor have any projects under consideration by the Company been deferred because of Year 2000. Incremental expenses related to the Year 2000 project are not expected to materially impact operating results in any one period. The impact of Year 2000 issues on the Company will depend not only on corrective actions that the Company takes, but also on the way in which Year 2000 issues are addressed by governmental agencies, businesses and other third parties that provide services or data to, or receive services or data from, the Company, or whose financial condition or 26

operational capability is important to the Company. To reduce this exposure, the Company has an ongoing process of identifying and contacting mission critical third party vendors and other significant third party vendors to determine their Year 2000 plans and target dates. Notwithstanding the Company's efforts, there can be no assurance that mission critical third party vendors or other significant third party vendors will adequately address their Year 2000 issues. The Company is developing contingency plans for implementation in the event that mission critical third party vendors or other significant third party vendors fail to adequately address Year 2000 issues. Such plans principally involve identifying alternate vendors or internal remediation. There can be no assurance that any such plans will fully mitigate any failures or problems. Furthermore, there may be certain mission critical third parties, such as utilities or telecommunication companies, where alternative arrangements or sources are limited or unavailable. The most reasonably likely worst case scenario would be that the Company may experience disruption in its operations if any of these mission critical third parties experienced system failure. The Company's credit risk associated with borrowers may increase to the extent borrowers fail to adequately address Year 2000 issues. As a result, there may be increases in the Company's problem loans and credit losses in future years. The Company is making ongoing efforts to assess the risks associated with loan customers, large depositors and significant employers in the Company's service areas, however, it is not possible to quantify the potential impact of such risks at this time. As remediated and tested systems are brought into operation, the Company will need to take steps to avoid the re-introduction of Year 2000 related problems into its systems. This is an ongoing process for the Company because normal operations and other considerations may require that modifications continue to be made to its systems in 1999. To some extent, therefore, all four phases of the Company's project will need to continue throughout 1999 and beyond. The forward-looking statements contained herein with regard to the timing and overall cost estimates of the Company's efforts to address the Year 2000 problem are based upon the Company's experience thus far in this effort. Should the Company encounter unforeseen difficulties either in the continuing review of its computerized systems, their ultimate remediation, or the response of parties with which it does business or from which it obtains services, the actual results could vary significantly from the estimates contained in these forward- looking statements. FORWARD-LOOKING INFORMATION This Management's Discussion and Analysis of Financial Condition and Results of Operations, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management, include certain forward-looking statements including, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition opportunities and other similar forecasts and statements of expectation. Words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or

operational capability is important to the Company. To reduce this exposure, the Company has an ongoing process of identifying and contacting mission critical third party vendors and other significant third party vendors to determine their Year 2000 plans and target dates. Notwithstanding the Company's efforts, there can be no assurance that mission critical third party vendors or other significant third party vendors will adequately address their Year 2000 issues. The Company is developing contingency plans for implementation in the event that mission critical third party vendors or other significant third party vendors fail to adequately address Year 2000 issues. Such plans principally involve identifying alternate vendors or internal remediation. There can be no assurance that any such plans will fully mitigate any failures or problems. Furthermore, there may be certain mission critical third parties, such as utilities or telecommunication companies, where alternative arrangements or sources are limited or unavailable. The most reasonably likely worst case scenario would be that the Company may experience disruption in its operations if any of these mission critical third parties experienced system failure. The Company's credit risk associated with borrowers may increase to the extent borrowers fail to adequately address Year 2000 issues. As a result, there may be increases in the Company's problem loans and credit losses in future years. The Company is making ongoing efforts to assess the risks associated with loan customers, large depositors and significant employers in the Company's service areas, however, it is not possible to quantify the potential impact of such risks at this time. As remediated and tested systems are brought into operation, the Company will need to take steps to avoid the re-introduction of Year 2000 related problems into its systems. This is an ongoing process for the Company because normal operations and other considerations may require that modifications continue to be made to its systems in 1999. To some extent, therefore, all four phases of the Company's project will need to continue throughout 1999 and beyond. The forward-looking statements contained herein with regard to the timing and overall cost estimates of the Company's efforts to address the Year 2000 problem are based upon the Company's experience thus far in this effort. Should the Company encounter unforeseen difficulties either in the continuing review of its computerized systems, their ultimate remediation, or the response of parties with which it does business or from which it obtains services, the actual results could vary significantly from the estimates contained in these forward- looking statements. FORWARD-LOOKING INFORMATION This Management's Discussion and Analysis of Financial Condition and Results of Operations, other filings made by the Company with the Securities and Exchange Commission and other oral and written statements or reports by the Company and its management, include certain forward-looking statements including, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition opportunities and other similar forecasts and statements of expectation. Words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management due to certain risks, uncertainties and assumptions. Certain factors that may affect operating results of the Company include, but are not limited to, the following: (1) potential delays or other problems in implementing the Company's growth and expansion strategy; (2) the ability to attract new deposits and loans; (3) interest rate fluctuations; (4) competitive factors and pricing pressures; (5) general economic conditions and (6) changes in legal and regulatory requirements, as well as, other factors described in this and other Company reports and statements. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described in the forward-looking statements. 27

SUMMARY OF QUARTERLY RESULTS OF OPERATIONS, COMMON STOCK MARKET PRICES AND DIVIDENDS
1998 - THREE MONTHS ENDED -----------------------------------------------MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------------------------(Dollars in thousands, except per share amounts) $7,993 $9,000 $10,423 $11,466 3,836 4,570 5,782 6,330 ----------------------4,157 4,430 4,641 5,136 225 255 742 804 1,094 1,152 1,333 1,452 2,924 3,329 3,267 3,599 728 611 544 738 ----------------------$1,374 $1,387 $ 1,421 $ 1,447 ====== ====== ======= ======= $ 0.36 0.05 $21.94 30.00 $ 0.36 0.06 $30.00 34.75 $ 0.37 0.06 $ 0.38 0.06

Total interest income......................... Total interest expense........................ Net interest income....................... Provision for loan losses..................... Non-interest income........................... Non-interest expense.......................... Income Taxes.................................. Net income................................ Per share: Earnings - diluted........................ Cash dividends............................ Bid price per common share: Low....................................... High......................................

$ 20.00 30.75

$ 18.50 24.00

Total interest income......................... Total interest expense........................ Net interest income....................... Provision for loan losses..................... Non-interest income........................... Non-interest expense.......................... Income Taxes.................................. Net income.................................... Per share: Earnings - diluted......................... Cash dividends............................ Bid price per common share: Low....................................... High......................................

1997 - THREE MONTHS ENDED -----------------------------------------------MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------------------------(Dollars in thousands, except per share amounts) $6,016 $6,635 $7,168 $7,649 2,900 3,216 3,465 3,398 --------------------3,116 3,419 3,703 4,251 259 265 150 465 742 641 662 880 2,105 2,219 2,316 2,588 537 572 698 709 --------------------$ 957 $1,004 $1,201 $1,369 ====== ====== ====== ====== $ 0.33 0.10 $ 0.35 $ 0.34 0.05 $17.38 20.13 $ 0.36 0.05 $19.75 25.25

See Note 15 to Consolidated Financial Statements for discussion of dividend restrictions. 28

REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Bank of the Ozarks, Inc. We have audited the accompanying consolidated balance sheet of Bank of the Ozarks, Inc. and subsidiaries as of December 31, 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended. 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 audit. The consolidated financial statements of Bank of the Ozarks, Inc. and subsidiaries for the years ended December 31, 1997 and 1996, were

SUMMARY OF QUARTERLY RESULTS OF OPERATIONS, COMMON STOCK MARKET PRICES AND DIVIDENDS
1998 - THREE MONTHS ENDED -----------------------------------------------MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------------------------(Dollars in thousands, except per share amounts) $7,993 $9,000 $10,423 $11,466 3,836 4,570 5,782 6,330 ----------------------4,157 4,430 4,641 5,136 225 255 742 804 1,094 1,152 1,333 1,452 2,924 3,329 3,267 3,599 728 611 544 738 ----------------------$1,374 $1,387 $ 1,421 $ 1,447 ====== ====== ======= ======= $ 0.36 0.05 $21.94 30.00 $ 0.36 0.06 $30.00 34.75 $ 0.37 0.06 $ 0.38 0.06

Total interest income......................... Total interest expense........................ Net interest income....................... Provision for loan losses..................... Non-interest income........................... Non-interest expense.......................... Income Taxes.................................. Net income................................ Per share: Earnings - diluted........................ Cash dividends............................ Bid price per common share: Low....................................... High......................................

$ 20.00 30.75

$ 18.50 24.00

Total interest income......................... Total interest expense........................ Net interest income....................... Provision for loan losses..................... Non-interest income........................... Non-interest expense.......................... Income Taxes.................................. Net income.................................... Per share: Earnings - diluted......................... Cash dividends............................ Bid price per common share: Low....................................... High......................................

1997 - THREE MONTHS ENDED -----------------------------------------------MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------------------------(Dollars in thousands, except per share amounts) $6,016 $6,635 $7,168 $7,649 2,900 3,216 3,465 3,398 --------------------3,116 3,419 3,703 4,251 259 265 150 465 742 641 662 880 2,105 2,219 2,316 2,588 537 572 698 709 --------------------$ 957 $1,004 $1,201 $1,369 ====== ====== ====== ====== $ 0.33 0.10 $ 0.35 $ 0.34 0.05 $17.38 20.13 $ 0.36 0.05 $19.75 25.25

See Note 15 to Consolidated Financial Statements for discussion of dividend restrictions. 28

REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Bank of the Ozarks, Inc. We have audited the accompanying consolidated balance sheet of Bank of the Ozarks, Inc. and subsidiaries as of December 31, 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended. 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 audit. The consolidated financial statements of Bank of the Ozarks, Inc. and subsidiaries for the years ended December 31, 1997 and 1996, were audited by other auditors whose report dated January 28, 1998, expressed an unqualified opinion on those

REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Bank of the Ozarks, Inc. We have audited the accompanying consolidated balance sheet of Bank of the Ozarks, Inc. and subsidiaries as of December 31, 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended. 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 audit. The consolidated financial statements of Bank of the Ozarks, Inc. and subsidiaries for the years ended December 31, 1997 and 1996, were audited by other auditors whose report dated January 28, 1998, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the 1998 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bank of the Ozarks, Inc. and subsidiaries as of December 31, 1998, and the consolidated results of their operations and their cash flows for the year ended December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernest & Young LLP Little Rock, Arkansas January 20, 1999

29

BANK OF THE OZARKS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------------1998 ---------(Dollars in thousands, except ASSETS -----Cash and due from banks Interest bearing deposits Cash and cash equivalents Investment securities - available for sale Investment securities - held to maturity (estimated market value: $159,050 in 1998 and $17,199 in 1997) Federal funds sold Loans, net of unearned income Allowance for loan losses Net loans Premises and equipment, net Foreclosed assets held for sale, net Interest receivable Intangible assets, net Other Total assets

14,168 856 --------15,024 17,629 158,989 387,526 (4,689) --------382,837 27,155 314 5,517 3,665 1,301 --------$ 612,431 =========

$

$ -

-

$ =

BANK OF THE OZARKS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------------1998 ---------(Dollars in thousands, except ASSETS -----Cash and due from banks Interest bearing deposits Cash and cash equivalents Investment securities - available for sale Investment securities - held to maturity (estimated market value: $159,050 in 1998 and $17,199 in 1997) Federal funds sold Loans, net of unearned income Allowance for loan losses Net loans Premises and equipment, net Foreclosed assets held for sale, net Interest receivable Intangible assets, net Other Total assets

14,168 856 --------15,024 17,629 158,989 387,526 (4,689) --------382,837 27,155 314 5,517 3,665 1,301 --------$ 612,431 =========

$

$ -

-

$ =

LIABILITIES AND STOCKHOLDERS' EQUITY -----------------------------------Deposits Demand - non-interest bearing Savings and interest-bearing transaction Time Total deposits Notes payable FHLB advances and federal funds purchased Repurchase agreements Accrued interest and other liabilities Total liabilities Commitments and contingencies Stockholders' equity Common stock; $0.01 par value; Authorized 10,000,000 shares; 3,779,555 shares issued and outstanding in 1998 and 1997 Additional paid-in capital Retained earnings Accumulated other comprehensive income Total stockholders' equity Total liabilities and stockholders' equity

50,138 95,471 383,431 --------529,040 12,448 26,823 1,408 2,357 --------572,076

$

$

-

-

38 14,314 25,922 81 --------40,355 --------$ 612,431 =========

$ =

The accompanying notes are an integral part of these consolidated financial statements 30

BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ---------------------------------------1998 1997 --------------

BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ---------------------------------------1998 1997 -------------(Dollars in thousands, except per share Interest income Loans Investment securities - taxable - nontaxable Federal funds sold Deposits with banks Total interest income $31,168 6,654 766 89 205 ------38,882 ------$24,230 2,684 233 108 213 ------27,468 -------

Interest expense Deposits Notes payable FHLB advances Federal funds purchased Total interest expense

18,118 637 1,415 348 ------20,518 ------18,364 (2,026) ------16,338 -------

11,826 553 597 3 ------12,979 ------14,489 (1,139) ------13,350 -------

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

Other income Trust income Service charges on deposit accounts Other income, charges and fees Gain (loss) on sale of securities Other Total other income

335 1,372 2,792 255 277 ------5,031 -------

274 957 1,136 14 544 ------2,925 -------

Other expense Salaries and employee benefits Net occupancy and equipment Other operating expenses Total other expense

7,197 1,961 3,961 ------13,119 ------8,250 2,621 ------$ 5,629 ======= $ 1.49 ======= $ 1.47 =======

5,330 1,305 2,593 ------9,228 ------7,047 2,516 ------$ 4,531 ======= $ 1.38 ======= $ 1.38 =======

Income before income taxes Provision for income taxes Net income

Basic earnings per common share Diluted earnings per common share

The accompanying notes are an integral part of these consolidated financial statements 31

BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL PAID-IN ACCUMUL OTHE COMPREHE

COMMON

RETAINED

BANK OF THE OZARKS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMUL ADDITIONAL OTHE COMMON PAID-IN RETAINED COMPREHE STOCK CAPITAL EARNINGS INCOM ----------------------------(Dollars in thousands, except per shar $ 29 $ 1,168 $15,088 $ 3,027

Balance - January 1, 1996 Comprehensive income: Net income Other comprehensive income: Change in unrealized appreciation on investment securities net of $46 tax effect Comprehensive income Dividends, $.30 per share Balance - December 31, 1996 Comprehensive income: Net income Other comprehensive income: Unrealized gains on available for sale securities net of $37 tax effect Less: reclassifications adjustment for gains included in income net of $4 tax effect Comprehensive income Dividends, $.20 per share Issuance of 899,755 shares of common stock Balance - December 31, 1997 Comprehensive income: Net income Other comprehensive income: Unrealized losses on available for sale securities net of $35 tax effect Less: reclassifications adjustment for gains included in income net of $79 tax effect Comprehensive income Dividends, $.23 per share Balance - December 31, 1998

-

-

-

9

---29 -

------1,168 -

(864) ------17,251 4,531

----9

-

-

-

6

-

-

-

(

9 ---38 -

13,146 ------14,314 -

(620) ------21,162 5,629

----15

-

-

5

-

-

-

(12

---$ 38 ====

------$14,314 =======

(869) ------$25,922 =======

----$ 8 =====

The accompanying notes are an integral part of these consolidated financial statements 32

Bank of the Ozarks, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER ----------------------1998 1997 ------------(Dollars in thousan Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization Provision for loan losses Provision for losses on foreclosed assets $ 5,629 $ 4,531

1,043 173 2,026 35

626 74 1,139 8

Bank of the Ozarks, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER ----------------------1998 1997 ------------(Dollars in thousan Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization Provision for loan losses Provision for losses on foreclosed assets Amortization and accretion on investment securities (Gain) loss on disposition of investments Gain on sale of loans Increase in mortgage loans held for sale Gain on disposition of premises and equipment Gain on disposition of foreclosed assets Deferred income taxes Changes in assets and liabilities: Interest receivable Other, net Accrued interest and other liabilities Net cash provided by operating activities $ 5,629 $ 4,531

1,043 173 2,026 35 (115) (255) (3,750) (14) (98) (222) (2,502) (305) 518 -------2,163 --------

626 74 1,139 8 (39) (14) (57) (1,504) (76) (261) (11) (461) 55 (531) ------3,479 -------

Cash flows from investing activities Acquisitions, net of funds acquired Proceeds from sales and maturities of investment securities available for sale Purchases of investment securities available for sale Proceeds from maturities of investment securities held to maturity Purchases of investment securities held to maturity Decrease (increase) in federal funds sold Net increase in loans Proceeds from sale of loans Proceeds from dispositions of bank premises and equipment Purchase of bank premises and equipment Proceeds from dispositions of foreclosed assets Net cash used in investing activities

22,123 54,036 (20,260) 67,386 (234,804) 3,149 (110,019) 30 (14,109) 525 -------(231,943) --------

31,171 (19,453) 6,576 (21,007) (2,535) (61,152) 811 178 (7,295) 632 ------(72,074) -------

Cash flows from financing activities Net increase in deposits Net proceeds from FHLB advances and federal funds purchased Proceeds from notes payable Payments of notes payable Dividends paid Proceeds from issuance of common stock Net cash provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents - beginning of year Cash and cash equivalents - end of year

208,455 14,214 14,410 (7,034) (869) -------229,176 -------(604) 15,628 -------$ 15,024 ========

63,907 1,290 10,000 (10,324) (620) 13,155 ------77,408 ------8,813 6,815 ------$15,628 =======

The accompanying notes are an integral part of these consolidated financial statements 33

BANK OF THE OZARKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BANK OF THE OZARKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - Bank of Ozarks, Inc. (the "Company") is a multi-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 and which, at December 31, 1998, owned two affiliate state chartered banks and a federal savings bank - Bank of the Ozarks, wca; Bank of the Ozarks, nwa; and Bank of the Ozarks. On January 7, 1999, the Company merged its federal savings bank into Bank of the Ozarks, wca. The bank subsidiaries, which are subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory authorities, have offices located in northern, western, and central Arkansas. Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned bank subsidiaries. Significant intercompany transactions and amounts have been eliminated in consolidation. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and cash equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and interest bearing deposits with banks. Investment securities - Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities are classified as heldto-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-tomaturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity or trading and marketable equity securities not classified as trading securities are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization is included in interest income from investments. Interest and dividends are included in interest income from investments. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Gains or losses on the sale of securities are recognized on the specific identification method at the time of sale. Loans - Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans. Unearned discounts on installment loans are recognized as income over the terms by the rule of 78's interest method which approximates the interest method. Unearned purchased discounts are recorded as income over the life of the loans utilizing the interest method to achieve a constant yield. Interest on other loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yields on the related loans. Prior to July 1, 1998 loan origination fees and direct origination costs were not deemed material and, therefore, were recorded as actually received and paid. Allowance for loan losses - The allowance for loan losses is established through a provision for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely, and subsequent recoveries, if any, are

credited to the allowance. The allowance is maintained at a level that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, historical loan loss experience and current economic and business conditions that may affect the borrowers' ability to pay or the value of the collateral securing the loans. The Company's policy generally is to place a loan on nonaccrual status when payment of principal or interest is contractually past due 90 days, or earlier when doubt exists as to the ultimate collection of principal and interest. The Company continues to accrue interest on certain loans contractually past due 90 days if such loans are both well secured and in the process of collection. The Company considers a loan to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms thereof. The Company applies this policy even if delays or shortfalls in payment are expected to be insignificant. All nonaccrual loans, except consumer installment loans, and all loans that have been restructured from their original contractual terms are considered impaired loans. Nonaccrual consumer installment loans are evaluated 34

collectively since they are considered to be small-balance, homogenous loans. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for loan losses when in the process of collection it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued, when in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Premises and equipment - Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets. Accelerated methods are used for tax purposes. Foreclosed assets held for sale - Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, real property is amortized over 60 months. Valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Gains and losses from the sale of other real estate are recorded in other income, and expenses used to maintain the properties are included as operating expenses. Income taxes - The Company utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statement and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its bank subsidiaries file consolidated tax returns. The bank subsidiaries provide for income taxes on a separate return basis, and remit to the Company amounts determined to be currently payable. Trust department income - Property, other than cash deposits, held by the Company's trust department in fiduciary or agency capacities for its customers are not included in the accompanying financial statements, since such items are not assets of the Company. Trust department income has been recognized on the cash basis in accordance with customary banking practice, which does not differ materially from the accrual method. Intangible assets - Intangible assets consist of goodwill and core deposit intangibles. These assets are being amortized over periods ranging from 10 to 25 years. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Core deposit intangibles represent premiums paid for deposits acquired. Accumulated amortization of intangibles totaled $1,158 and $1,043 at December 31, 1998

collectively since they are considered to be small-balance, homogenous loans. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for loan losses when in the process of collection it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued, when in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Premises and equipment - Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets. Accelerated methods are used for tax purposes. Foreclosed assets held for sale - Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, real property is amortized over 60 months. Valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Gains and losses from the sale of other real estate are recorded in other income, and expenses used to maintain the properties are included as operating expenses. Income taxes - The Company utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statement and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its bank subsidiaries file consolidated tax returns. The bank subsidiaries provide for income taxes on a separate return basis, and remit to the Company amounts determined to be currently payable. Trust department income - Property, other than cash deposits, held by the Company's trust department in fiduciary or agency capacities for its customers are not included in the accompanying financial statements, since such items are not assets of the Company. Trust department income has been recognized on the cash basis in accordance with customary banking practice, which does not differ materially from the accrual method. Intangible assets - Intangible assets consist of goodwill and core deposit intangibles. These assets are being amortized over periods ranging from 10 to 25 years. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Core deposit intangibles represent premiums paid for deposits acquired. Accumulated amortization of intangibles totaled $1,158 and $1,043 at December 31, 1998 and 1997, respectively. Earnings per share - Basic earnings per share has been calculated based on the weighted average number of shares outstanding. Diluted earnings per share has been calculated based on the weighted average number of shares outstanding after consideration of the dilutive effect of the Company's outstanding stock options. Financial instruments - In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, and letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. Advertising and public relations expense - Advertising and public relations expense is expensed as incurred and totaled $566, $332 and $123 for the years ended December 31, 1998, 1997 and 1996, respectively. Stock-based compensation - The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("ABP 25") and related interpretations in accounting for its employee stock options. Under ABP 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").

Segment Disclosures - On December 31, 1998, the Company adopted SFAS No. 131. "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 established standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. As the Company operates in only one segment - community banking - the adoption of SFAS No. 131 did not have a material effect on the primary financial statements or the disclosure of segment information. All the Company's revenues result from services offered by its bank subsidiaries. No revenues are derived from foreign countries and no single external customer comprises more than 10% of the Company's revenues. Derivatives and Hedging Activities - In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, which requires the Company to recognize all derivatives on the balance sheet at fair value, was adopted by the Company effective July 1, 1998. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portions of a derivative's change in fair value will be immediately recognized in earnings. The 35

Notes to Consolidated Financial Statements, Dollars in thousands adoption of SFAS No. 133 did not have a significant impact on the Company's financial position or results of operations. In connection with the adoption of SFAS No. 133, the Company transferred investment securities with a carrying value of $25,795 and unrealized gains of $167 from its held-to-maturity to available-for-sale portfolio. Reclassifications - Certain reclassifications of 1997 and 1996 amounts have been made to conform with the 1998 presentation. 2. ACQUISITIONS In August 1998 the Company completed the purchase of the Marshall, Arkansas branch of Superior Federal Bank, FSB. The acquisition included the branch bank building, related assets and deposit accounts totaling $16 million. The transaction was accounted for as a purchase with the Company reporting the results of the acquired branch's operations from the closing date. The resulting core deposit intangible of $1.6 million is being amortized on a straight line basis over 10 years. In February 1998 the Company acquired the stock of Heartland Community Bank, FSB, from its parent company--Heartland Community Bank, Camden--for $3.1 million in cash. The Company received the federal savings bank's charter, approximately $9.4 million in customer deposits and the related banking facility. All other assets and liabilities of the bank were purchased and assumed by its parent company prior to closing. The transaction was accounted for as a purchase and the excess of purchase price over net assets acquired of $847 is being amortized straight-line over 25 years. The Company has reported the results of operations of the acquired bank from the closing date. Pro forma disclosures related to the above acquisitions have not been provided as the entities acquired do not meet the criteria of significant subsidiaries. Also, separate operating results related to the specific assets acquired and liabilities assumed by the Company were not maintained by the previous owners as this represented only a portion of their overall operations. 3. INVESTMENT SECURITIES The following is a summary of the amortized cost and estimated market values of investment securities:
December 31, 1998 ---------------------------------------------------

Notes to Consolidated Financial Statements, Dollars in thousands adoption of SFAS No. 133 did not have a significant impact on the Company's financial position or results of operations. In connection with the adoption of SFAS No. 133, the Company transferred investment securities with a carrying value of $25,795 and unrealized gains of $167 from its held-to-maturity to available-for-sale portfolio. Reclassifications - Certain reclassifications of 1997 and 1996 amounts have been made to conform with the 1998 presentation. 2. ACQUISITIONS In August 1998 the Company completed the purchase of the Marshall, Arkansas branch of Superior Federal Bank, FSB. The acquisition included the branch bank building, related assets and deposit accounts totaling $16 million. The transaction was accounted for as a purchase with the Company reporting the results of the acquired branch's operations from the closing date. The resulting core deposit intangible of $1.6 million is being amortized on a straight line basis over 10 years. In February 1998 the Company acquired the stock of Heartland Community Bank, FSB, from its parent company--Heartland Community Bank, Camden--for $3.1 million in cash. The Company received the federal savings bank's charter, approximately $9.4 million in customer deposits and the related banking facility. All other assets and liabilities of the bank were purchased and assumed by its parent company prior to closing. The transaction was accounted for as a purchase and the excess of purchase price over net assets acquired of $847 is being amortized straight-line over 25 years. The Company has reported the results of operations of the acquired bank from the closing date. Pro forma disclosures related to the above acquisitions have not been provided as the entities acquired do not meet the criteria of significant subsidiaries. Also, separate operating results related to the specific assets acquired and liabilities assumed by the Company were not maintained by the previous owners as this represented only a portion of their overall operations. 3. INVESTMENT SECURITIES The following is a summary of the amortized cost and estimated market values of investment securities:
December 31, 1998 --------------------------------------------------Amortized Unrealized Unrealized Market Cost Gains Losses Value -------------------------------Securities - available for sale: Securities of United States government and agencies Mortgage-backed securities State and political subdivisions Other securities Total securities - available for sale

1,000 2,107 11,205 3,185 --------$ 17,497 =========

$

1 17 60 61 -----$ 139 ======

$

(7) ----$ (7) =====

$

1,001 2,117 11,265 3,246 -------$ 17,629 ========

$

Securities - held to maturity: Securities of United States government and agencies State and political subdivisions Other securities Total securities - held to maturity

$ 155,351 3,537 101 --------$ 158,989 =========

196 82 -----$ 278 ======

$

$(217) ----$(217) =====

$155,330 3,619 101 -------$159,050 ========

December 31, 1997 -------------------------------------------------Amortized Unrealized Unrealized Cost Gains Losses ------------------

Securities - available for sale: Securities of United States government and agencies Mortgage-backed securities State and political subdivisions Other securities Total securities - available for sale

$12,619 9,340 1,582 1,510 ------$25,051 =======

39 256 14 ------$ 309 =======

$

(18) (25) (20) ------$ (63) =======

$

Securities - held to maturity: Securities of United States government and agencies State and political subdivisions Total securities - held to maturity

$11,943 5,219 ------$17,162 =======

17 27 ------$ 44 =======

$

(4) (3) ------$ (7) =======

$

36

Notes to Consolidated Financial Statements, Dollars in Thousands The amortized cost and estimated market value by contractual maturity of investment securities classified as available-for-sale and held-to-maturity at December 31, 1998 are as follows:
Available for Sale ------------------Estimated Amortized Market Cost Value --------- --------$ 20 $ 20 1,847 1,033 14,597 -------$ 17,497 ======== 1,850 1,035 14,724 ------$ 17,629 ======= Held to Maturity ------------------Estimated Amortized Market Cost Value --------- -------$ 142 $ 142 1,949 131,902 24,996 --------$ 158,989 ========= 1,992 131,986 24,930 ------$159,050 ========

Due in one year or less Due from one year to five years Due from five years to ten years Due after ten years Totals

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities which are not due at a single maturity date have been allocated over maturity groupings based on anticipated maturities. The mortgage-backed securities may mature earlier than their weighted average contractual maturities because of principal prepayments. During the years ended December 31, 1998, 1997, and 1996, investment securities available-for-sale with a fair value at the date of sale of $41,613, $3,407 and $17,214, respectively, were sold. The gross realized gains on such sales totaled $322, $14 and $79, respectively. The gross realized losses totaled $67, $-0- and $124, respectively. The income tax expense related to net security gains was $87 and $5 in 1998 and 1997, respectively. The income tax benefit related to net securities losses in 1996 was $26. The bank subsidiaries had no trading securities during 1998 or 1997. Gross gains of $2 and gross losses of $34 were realized on trading securities during 1996. Assets, principally investment securities, having a carrying value of approximately $97,831 and $31,335 at December 31, 1998 and 1997, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. 4. LOANS

Notes to Consolidated Financial Statements, Dollars in Thousands The amortized cost and estimated market value by contractual maturity of investment securities classified as available-for-sale and held-to-maturity at December 31, 1998 are as follows:
Available for Sale ------------------Estimated Amortized Market Cost Value --------- --------$ 20 $ 20 1,847 1,033 14,597 -------$ 17,497 ======== 1,850 1,035 14,724 ------$ 17,629 ======= Held to Maturity ------------------Estimated Amortized Market Cost Value --------- -------$ 142 $ 142 1,949 131,902 24,996 --------$ 158,989 ========= 1,992 131,986 24,930 ------$159,050 ========

Due in one year or less Due from one year to five years Due from five years to ten years Due after ten years Totals

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities which are not due at a single maturity date have been allocated over maturity groupings based on anticipated maturities. The mortgage-backed securities may mature earlier than their weighted average contractual maturities because of principal prepayments. During the years ended December 31, 1998, 1997, and 1996, investment securities available-for-sale with a fair value at the date of sale of $41,613, $3,407 and $17,214, respectively, were sold. The gross realized gains on such sales totaled $322, $14 and $79, respectively. The gross realized losses totaled $67, $-0- and $124, respectively. The income tax expense related to net security gains was $87 and $5 in 1998 and 1997, respectively. The income tax benefit related to net securities losses in 1996 was $26. The bank subsidiaries had no trading securities during 1998 or 1997. Gross gains of $2 and gross losses of $34 were realized on trading securities during 1996. Assets, principally investment securities, having a carrying value of approximately $97,831 and $31,335 at December 31, 1998 and 1997, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. 4. LOANS The following is a summary of the loan portfolio by principal categories:
December 31, -------------------1998 1997 -------------------Real Estate: Single family residential (1-4) Non-farm/non-residential Agricultural Construction/land development Multifamily residential Consumer Commercial and industrial Agricultural (non-real estate) Other Loans, net of unearned income $121,539 76,563 19,463 23,305 6,207 66,407 52,192 20,068 1,782 -------$387,526 ======== $ 96,943 41,710 13,443 16,257 3,897 53,233 37,470 10,824 1,686 -------$275,463 ========

These loan categories are presented net of unearned discounts, unearned purchase discounts and deferred costs totaling $4,961 at December 31, 1998 and $3,759 at December 31, 1997. Loans on which the accrual of interest has been discontinued aggregated $2,708 and $664 at December 31, 1998 and 1997, respectively. Mortgage loans held for resale of $6,685 and $2,935 at December 31, 1998 and 1997, respectively, are included in single family residential loans. The carrying value of these loans approximates their fair value. Other income, charges and fees include mortgage lending income of $2,136, $556 and $68 during 1998, 1997 and 1996, respectively. 5. ALLOWANCE FOR LOAN LOSSES The following is a summary of activity within the allowance for loan losses:
Year Ended December 31, 1998 1997 1996 ----------------$ 3,737 $3,019 $1,909 (1,149) (469) (417) 75 ------(1,074) 2,026 ------$ 4,689 ======= 48 -----(421) 1,139 -----$3,737 ====== 41 -----(376) 1,486 -----$3,019 ======

Balance - beginning of year Loans charged-off Recoveries on loans previously charged-off Net charge-offs Provision charged to operating expense Balance - end of year

Impairment of loans having carrying values of $2,461 and $581 at December 31, 1998 and 1997, respectively, have been recognized in conformity with SFAS No. 114, as amended by SFAS No. 118. The average carrying value of impaired loans was $1,687, $1,886, and $1,042 for the years ended December 31, 1998, 1997 and 1996, respectively, some of which, as a result of write-downs, did not have an allowance for credit losses. The total allowance for credit losses related to these loans was $443 and $105 at December 31, 1998 and 1997, respectively. The Company does not segregate income recognized on a cash basis in its financial records, and thus, such disclosure is not practicable. For impairment recognized in conformity with SFAS 114, as amended, the entire change in present value of expected cash flows is reported as bad debt expense in the same manner in which impairment initially was recognized or as a reduction in the amount of bad debt expense that otherwise would be reported. Real estate securing loans having a carrying value of $628 and $683 was transferred to foreclosed assets held for sale in 1998 and 1997, respectively. The bank subsidiaries are not committed to lend additional funds to debtors whose loans have been modified. 37

Notes to Consolidated Financial Statements, Dollars in Thousands 6. PREMISES AND EQUIPMENT The following is a summary of premises and equipment:
December 31, ----------------1998 1997 -------------$ 6,691 $ 4,140 437 985 15,113 5,274 1,615 1,637 7,565 4,763 -------------

Land Construction in process Buildings and improvements Leasehold improvements Equipment

Notes to Consolidated Financial Statements, Dollars in Thousands 6. PREMISES AND EQUIPMENT The following is a summary of premises and equipment:
December 31, ----------------1998 1997 -------------$ 6,691 $ 4,140 437 985 15,113 5,274 1,615 1,637 7,565 4,763 ------------31,421 16,799 (4,266) (3,360) ------------$27,155 $13,439 ======= =======

Land Construction in process Buildings and improvements Leasehold improvements Equipment

Accumulated depreciation Total premises and equipment

The Company capitalized $275 and $145 of interest on construction projects during the years ended December 31, 1998 and 1997. 7. DEPOSITS The aggregate amount of time deposits with a minimum denomination of $100 was $143,540 and $57,981 at December 31, 1998 and 1997, respectively. The following is a summary of the scheduled maturities of all time deposits:
December 31, ------------------------1998 1997 ----------------$359,218 $166,316 14,471 25,344 5,868 3,470 1,884 2,172 997 1,354 993 1,066 --------------$383,431 $199,722 ======== ========

Zero to one year One year to two years Two years to three years Three years to four years Four years to five years Thereafter Total time deposits

8. NOTES PAYABLE The following is a summary of notes payable:
1998 --------Note payable to a bank, interest at 8.804%, payable in installments through December 2007. Note secured by stock of the bank subsidiaries and paid in 1998. Note payable to a bank, interest payable quarterly at a variable rate equal to the prime rate minus 1.25% but not to exceed 7.75%(rate was 6.5% at December 31, 1998). This note payable is a revolving line of credit for up to $22 million maturing March 31, 2003. Note secured by 1997 --------

$

-

$

5,000

March 31, 2003. Note secured by stock of the subsidiary banks. Other

12,340 108 -------$ 12,448 ========

72 -------$ 5,072 ========

Maturities of notes payable at December 31, 1998 are as follows: 1999--$24; 2000--$24; and 2003--$12,400. The revolving line of credit requires the Company's bank subsidiaries, Bank of the Ozarks, wca and Bank of the Ozarks, nwa, to maintain (i) a return on average assets for each calendar year equal to at least 1.0%, (ii) a ratio of capital, as defined in the line of credit, to assets at levels acceptable to bank regulatory authorities but at least 7.0% at each calendar year end and (iii) net charges to the reserve for loan losses at less than 1.0% of net loans during any calendar year. In addition, the line of credit requires (i) that the parent company's aggregate indebtedness not exceed 60.0% of the Company's tangible net worth through March 31, 1999, reducing 5% a year thereafter and (ii) borrowings under the line of credit not exceed 50.0% of the tangible book value of all subsidiary bank stock pledged to secure such borrowings. At December 31,1998, the Company was in compliance with these requirements. 9. FHLB ADVANCES AND FEDERAL FUNDS PURCHASED FHLB advances and federal funds purchased include short-term borrowings with maturities ranging from one to thirty days. Certain additional FHLB advances have maturities of over one year. The following is a summary of information relating to the short-term borrowings:
1998 --------FHLB advances: Average December 31 Maximum month-end balance during year Interest rate: Weighted average December 31 Federal funds purchased: Average December 31 Maximum month-end balance during year Interest rate: Weighted average December 31 $ 5,335 28,090 5.45% 1997 -------$ 244 2,750 5.81% -

$

6,799 3,830 15,420 5.12% 4.79

$

52 1,006 5.30% -

FHLB advances with original maturities exceeding one year totaled $22,993 and $14,017 at December 31, 1998 and 1997, respectively. Interest rates on these advances ranged from 4.96% to 6.90% at December 31, 1998. Aggregate annual maturities of these long-term FHLB advances at December 31, 1998 are as follows: 1999--$5,268; 2000--$2,144; 2001--$4,198; 2002--2007--$198; 2008--$10,195. FHLB advances of $10 million maturing in 2008 may be called quarterly but the Company has the option to refinance on a long-term basis any amounts called. The FHLB maintains as collateral a blanket lien on the Company's 1-4 family mortgages. At December 31, 1998, the Company's bank subsidiaries had an aggregate of $59.6 million of unused blanket FHLB borrowing availability. 38

Notes to Consolidated Financial Statements, Dollars in Thousands 10. INCOME TAXES

Notes to Consolidated Financial Statements, Dollars in Thousands 10. INCOME TAXES The following is a summary of the components of the provision for income taxes:
Year Ended December 31, ------------------------1998 1997 1996 ----------------Current: Federal State Total current Deferred: Federal State Total deferred Provision for income taxes $2,363 36 -----2,399 -----180 42 -----222 -----$2,621 ====== $2,180 277 -----2,457 -----55 4 -----59 -----$2,516 ====== $1,683 614 -----2,297 -----(242) (49) -----(291) -----$2,006 ======

The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows:
Year Ended December 31, --------------------------1998 1997 1996 ------------- -------Statutory federal income tax rate State income taxes, net of federal benefit Effect of non-taxable interest income Accrual for state income tax assessment Other Effective income tax rate 34.0% 0.6 (3.7) .9 ----31.8% ===== 34.0% 4.3 (2.7) .1 ----35.7% ===== 34.0% 4.3 (2.5) 6.5 (2.4) ----39.9% =====

During the year ended December 31, 1996, the Company was assessed approximately $326 of additional state income taxes for the years ended December 31, 1992 through 1995. This assessment related to the State of Arkansas taking a different position than the federal income tax treatment regarding dividends from less than 95% owned subsidiaries. The full assessment was recorded as income tax expense during the year ended December 31, 1996, and paid during the year ended December 31, 1997. In addition, approximately $93 of interest charged on this assessment was also recorded during the year ended December 31, 1996. 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, ----------------1998 1997 ------------Deferred tax assets: Allowance for loan losses Valuation of foreclosed assets Gross deferred tax assets Deferred tax liabilities: $ 1,514 2 ------1,516 ------$ 1,151 293 ------1,444 -------

Unrealized appreciation on securities available for sale Accelerated depreciation on premises and equipment Other Gross deferred tax liabilities Net deferred tax assets

51 599 145 ------795 ------$ 721 =======

94 311 139 ------544 ------$ 900 =======

11. EMPLOYEE BENEFIT PLANS Employee Stock Ownership Plan - The Company has an employee stock ownership plan ("ESOP") to provide benefits to substantially all employees of the Company. The Company has historically made annual contributions to the plan as determined solely by the Board of Directors. Participants in the plan become fully vested after seven years of service although cash or shares are not distributed until retirement or employment is terminated. The Company made no contributions in 1998 and contributed $64 and $95 to the plan for the years ended December 31, 1997 and 1996, respectively. Management intends to merge the ESOP into the 401(k) Plan in January 1999. 401(k) Plan - In May 1997 the Company established a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan permits the employees of the Company to defer a portion of their compensation in accordance with the provisions of Section 401(k) of the Code. Matching contributions may be made in amounts and at times determined by the Company. Certain other statutory limitations with respect to the Company's contribution under the 401(k) Plan also apply. Amounts contributed by the Company for a participant will vest over six years and will be held in trust until distributed pursuant to the terms of the 401(k) Plan. Employees of the Company are eligible to participate in the 401(k) Plan when they meet certain requirements concerning minimum age and period of credited service. All contributions to the 401(k) Plan will be invested in accordance with participant elections among certain investment options. Distributions from participant accounts will not be permitted before age 65, except in the event of death, permanent disability, certain financial hardships or termination of employment. The Company made matching contributions to the 401(k) plan during 1998 and 1997 of $99 and $32, respectively. 12. STOCK OPTIONS The Company has a nonqualified stock option plan for certain key employees and officers of the Company. It also has a nonqualified stock option plan for non-employee directors of the Company. These two plans provide for the granting of incentive nonqualified options to purchase up to 365,000 shares of common stock in the Company. No option may be granted under these plans for less than the fair market value of the common stock at the date of the grant. The exercise period and the termination date for the employee plan options is determined when the options are actually granted. The non-employee director plan calls for options to purchase 1,000 shares of common stock to be granted to non-employee directors the day after the annual stockholders' meeting. These options are exercisable immediately and expire ten years after issuance. 39
Years ended December 31, -------------------------------------------1998 1997 ---------------------------------------WeightedWeightedAverage Average Exercise Exercise Options Price Options Price ---------------------------Outstanding beginning of year Granted Exercised Canceled 106,500 103,700 (12,150) $ 16.42 24.11 16.00 108,500 (2,000) $ 16.42 16.00

Years ended December 31, -------------------------------------------1998 1997 ---------------------------------------WeightedWeightedAverage Average Exercise Exercise Options Price Options Price ---------------------------Outstanding beginning of year Granted Exercised Canceled Outstanding end of year Exercisable at end of year 106,500 103,700 (12,150) ------198,050 ======= 17,000 ======= $ $ 16.42 24.11 16.00 108,500 (2,000) -----106,500 ======= 8,000 ======= $ 16.42 16.00

20.42

16.42

22.37

$16.00

Exercise prices for options outstanding as of December 31, 1998 ranged from $16.00 to $34.13. The weightedaverage fair value of options granted during 1998 and 1997 was $8.36 and $6.20, respectively. The weightedaverage remaining contractual life of the options issued in 1998 was 5.5 years. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998: dividend yield increasing 15% per year from the current $0.24; expected volatility ranging from .342 to .407; risk-free interest rates ranging from 4.56% to 5.68% and expected lives ranging from 2.75 to 6.5 years. For 1997, the following weightedaverage assumptions were used: dividend yield increasing 15% per year from $0.20; expected volatility ranging from .326 to .342; risk from interest rates ranging from 5.77% to 6.19% and expected lives ranging from 5 to 7.5 years. For purposes of pro forma disclosures as required by SFAS No. 123, the estimated fair value of the options is amortized over the option's vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1996:
1998 -----$5,363 1.42 1.40 1997 -----$4,462 1.36 1.36

Pro forma net income Pro forma earnings per share: Basic Diluted

The following is a summary of currently outstanding and exercisable options at December 31, 1998:
Options Outstanding -----------------------------------------------Weighted Average Weighted Remaining Average Options Contractual Exercise Outstanding Life (in years) Price -------------------------------89,800 6.7 $16.000 100,250 5.7 23.283 8,000 9.3 34.125 ------198,050 ======= Options Exercisable -----------------------------Weighted Average Exercis Price --------$16.000 22.313 34.125

Range of Exercise Prices -----------$ 16.00 21.50-27.75 34.125

Options Exercisable ----------8,000 1,000 8,000 -----17,000 ======

13. COMMITMENTS AND CONTINGENCIES

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company has the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. The Company had outstanding commitments to extend credit of approximately $27,409 and $20,004 at December 31, 1998 and 1997, respectively. The commitments extend over varying periods of time with the majority to be disbursed within a one-year period. The Company had total outstanding standby letters of credit amounting to $334 and $1,931 at December 31, 1998 and 1997, respectively. The commitment terms generally expire within one year. The Company grants agri-business, commercial, residential and consumer installment loans to customers primarily in northern, western and central Arkansas. The Company maintains a diversified loan portfolio. 40

14. RELATED PARTY TRANSACTIONS The bank subsidiaries have entered into transactions with their executive officers, directors, principal shareholders, and their affiliates (related parties). The aggregate amount of loans to such related parties at December 31, 1998 and 1997 was $1,019 and $210, respectively. New loans made to such related parties were $1,169 and $169 for the years ended December 31, 1998 and 1997, respectively. Repayments of loans made by such related parties were $360 and $1,571 for the years ended December 31, 1998 and 1997, respectively. During 1998, the Company constructed four banking buildings. The majority owner of the contractor on these construction projects is a member of the Company's Board of Directors. Total payments to the contractor during the year ended December 31, 1998, were approximately $7,424. 15. REGULATORY MATTERS Federal regulatory agencies generally require member banks to maintain core (Tier 1) capital of at least 3% of total assets plus an additional cushion of 1% to 2%, depending upon capitalization classifications. Tier 1 capital generally consists of total stockholders' equity. Additionally, these agencies require member banks to maintain total risk-based capital of at least 8% of risk- weighted assets, with at least one-half of that total capital amount consisting of Tier 1 capital. Total capital for risk-based purposes includes Tier 1 capital plus the lesser of the allowance for loan losses or 1.25% of risk- weighted assets. As of December 31, 1998 and 1997, the most recent notification from the regulators categorized the bank subsidiaries as "Well Capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the bank subsidiaries' category. At December 31, 1998, the bank subsidiaries exceeded their minimum capital requirements. As of December 31,

14. RELATED PARTY TRANSACTIONS The bank subsidiaries have entered into transactions with their executive officers, directors, principal shareholders, and their affiliates (related parties). The aggregate amount of loans to such related parties at December 31, 1998 and 1997 was $1,019 and $210, respectively. New loans made to such related parties were $1,169 and $169 for the years ended December 31, 1998 and 1997, respectively. Repayments of loans made by such related parties were $360 and $1,571 for the years ended December 31, 1998 and 1997, respectively. During 1998, the Company constructed four banking buildings. The majority owner of the contractor on these construction projects is a member of the Company's Board of Directors. Total payments to the contractor during the year ended December 31, 1998, were approximately $7,424. 15. REGULATORY MATTERS Federal regulatory agencies generally require member banks to maintain core (Tier 1) capital of at least 3% of total assets plus an additional cushion of 1% to 2%, depending upon capitalization classifications. Tier 1 capital generally consists of total stockholders' equity. Additionally, these agencies require member banks to maintain total risk-based capital of at least 8% of risk- weighted assets, with at least one-half of that total capital amount consisting of Tier 1 capital. Total capital for risk-based purposes includes Tier 1 capital plus the lesser of the allowance for loan losses or 1.25% of risk- weighted assets. As of December 31, 1998 and 1997, the most recent notification from the regulators categorized the bank subsidiaries as "Well Capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the bank subsidiaries' category. At December 31, 1998, the bank subsidiaries exceeded their minimum capital requirements. As of December 31, 1998, the state bank commissioner's approval was required before the bank subsidiaries could declare and pay any dividend of 75% or more of the net profits of the bank subsidiaries after all taxes for the current year plus 75% of the retained net profits for the immediately preceding year. Approximately $5,703 was available at December 31, 1998 for payments of dividends by the bank subsidiaries without the approval of regulatory authorities. The bank subsidiaries are limited by federal law in the amount of credit which they may extend to their non-bank affiliates, including the Corporation. Loans and other extensions of credit (loans) to a single non-bank affiliate may not exceed 10% nor shall loans to all non-bank affiliates exceed 20% of an individual bank's capital plus its allowance for losses on loans. Such loans must be collateralized by assets having market values of 100% to 130% of the loan amount depending on the nature of the collateral. At December 31, 1998, the maximum amount available for transfer from the bank subsidiaries to the Company in the form of loans approximated $4,856. The law imposes no restrictions upon extensions of credit between FDIC-insured banks which are 80%owned subsidiaries of the Corporation. The bank subsidiaries are required by regulatory agencies to maintain certain minimum balances of cash or noninterest bearing deposits primarily with the Federal Reserve. At December 31, 1998 and 1997, these required balances aggregated approximately $2,621 and $1,395, respectively. The Company's and bank subsidiaries' regulatory capital positions were as follows:
December 31, 1998 ---------------------------Computed Computed Capital Percent ------------------Bank of the Ozarks, Inc. (consolidated): Total risk-based capital Tier 1 risk-based capital Leverage ratio Bank of the Ozarks, wca: Total risk-based capital $41,340 36,651 -10.21% 9.05 6.21 December 31, 1997 -------------------------Computed Compute Capital Percen ----------------$ 37,465 34,177 -14.27 13.01 9.86

$36,700

12.57%

$ 28,349

15.44

Tier 1 risk-based capital Leverage ratio Bank of the Ozarks, nwa: Total risk-based capital Tier 1 risk-based capital Leverage ratio Bank of the Ozarks: Total risk-based capital Tier 1 risk-based capital Leverage ratio

33,117 --

11.34 8.51

26,050 --

14.19 11.15

$11,732 10,625 --

11.35% 10.28 6.57

$ 10,764 9,810 --

14.13 11.88 9.71

$ 5,180 5,180 --

44.11% 44.11 14.03

----

----

41

16. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of financial instruments. Cash and due from banks - For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Investment securities - For securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or the carrying amount. Loans, net of unearned income - The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposit liabilities - The fair value of demand deposits, savings accounts, NOW accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates is estimated using the rate currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its 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 debt is estimated based on the current rates available to the Company for debt with similar terms and remaining maturities. Accrued interest - The carrying amount of accrued interest payable approximates its fair value. Off-balance sheet instruments - Fair values for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. Commitments to extend credit and standby letters of credit - The fair value of these commitments is estimated using the fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the present credit-worthiness of the counter-parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter-parties at the reporting date. The following table presents the estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of financial instruments. Cash and due from banks - For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Investment securities - For securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or the carrying amount. Loans, net of unearned income - The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposit liabilities - The fair value of demand deposits, savings accounts, NOW accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates is estimated using the rate currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its 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 debt is estimated based on the current rates available to the Company for debt with similar terms and remaining maturities. Accrued interest - The carrying amount of accrued interest payable approximates its fair value. Off-balance sheet instruments - Fair values for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. Commitments to extend credit and standby letters of credit - The fair value of these commitments is estimated using the fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the present credit-worthiness of the counter-parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter-parties at the reporting date. The following table presents the estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
1998 ----------------------Carrying Fair Amount Value --------------Financial assets: Cash and due from banks Available-for-sale securities Held-to-maturity securities Federal funds sold Loans, net of allowance for loan losses Accrued interest receivable Financial liabilities: Demand, NOW and savings account deposits Time deposits Notes Payable FHLB advances and federal funds purchased $ 15,024 17,629 158,989 -382,837 5,517 $ 15,024 17,629 159,050 -382,720 5,517 1997 --------------Carrying Amount -------$ 15,628 25,297 17,162 2,885 271,726 3,013

$145,609 383,431 12,448 26,823

$145,609 384,598 12,448 27,430

$ 95,833 199,722 5,072 14,017

FHLB advances and federal funds purchased Repurchase agreements Accrued interest and other liabilities Off balance sheet items: Standby letters of credit Commitments to extend credit Unfunded credit card loans

26,823 1,408 2,357

27,430 1,408 2,357

14,017 -1,783

----

$

334 27,409 1,419

----

42

Notes to Consolidated Financial Statements, Dollars in thousands 17. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information is as follows:
Year Ended December 31, ------------------------1998 1997 1996 ---------------Cash paid during the period for: Interest Income taxes Supplemental schedule of non-cash investing and financing activities: Transfer of loans to foreclosed assets held for sale Loans advanced for sales of foreclosed assets $20,466 2,333 $ 628 251 $13,255 2,752 $ 683 203 $ 9,682 1,984 $ 236 72

18. OTHER OPERATING EXPENSES The following is a summary of other operating expenses:
Year Ended December 31, ------------------------1998 1997 1996 ---------------$ 454 $ 405 $ 215 566 332 123 2,941 1,856 1,552 ---------------$3,961 $2,593 $1,890 ====== ====== ======

Operating supplies Advertising and public relations Other Total other operating expenses

19. EARNINGS PER COMMON SHARE The following table sets forth the computation of basic and diluted earnings per share ("EPS"):
Year Ended December 31, ------------------------1998 1997 1996 ---------------Numerator: Net income Denominator: Denominator for basic EPS weighted average shares Effect of dilutive securities: Stock options Denominator for diluted EPS - adjusted weighted average shares and assumed conversions Basic EPS Diluted EPS $5,629 ====== 3,780 39 -----3,819 ====== $ 1.49 ====== $ 1.47 ====== $4,531 ====== 3,272 9 -----3,281 ====== $ 1.38 ====== $ 1.38 ====== $3,027 ====== 2,880 ------2,880 ====== $ 1.05 ====== $ 1.05 ======

Notes to Consolidated Financial Statements, Dollars in thousands 17. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information is as follows:
Year Ended December 31, ------------------------1998 1997 1996 ---------------Cash paid during the period for: Interest Income taxes Supplemental schedule of non-cash investing and financing activities: Transfer of loans to foreclosed assets held for sale Loans advanced for sales of foreclosed assets $20,466 2,333 $ 628 251 $13,255 2,752 $ 683 203 $ 9,682 1,984 $ 236 72

18. OTHER OPERATING EXPENSES The following is a summary of other operating expenses:
Year Ended December 31, ------------------------1998 1997 1996 ---------------$ 454 $ 405 $ 215 566 332 123 2,941 1,856 1,552 ---------------$3,961 $2,593 $1,890 ====== ====== ======

Operating supplies Advertising and public relations Other Total other operating expenses

19. EARNINGS PER COMMON SHARE The following table sets forth the computation of basic and diluted earnings per share ("EPS"):
Year Ended December 31, ------------------------1998 1997 1996 ---------------Numerator: Net income Denominator: Denominator for basic EPS weighted average shares Effect of dilutive securities: Stock options Denominator for diluted EPS - adjusted weighted average shares and assumed conversions Basic EPS Diluted EPS $5,629 ====== 3,780 39 -----3,819 ====== $ 1.49 ====== $ 1.47 ====== $4,531 ====== 3,272 9 -----3,281 ====== $ 1.38 ====== $ 1.38 ====== $3,027 ====== 2,880 ------2,880 ====== $ 1.05 ====== $ 1.05 ======

20. PARENT COMPANY FINANCIAL INFORMATION The following condensed balance sheets, income statements and statements of cash flows reflect the financial position and results of operations for the parent company: Condensed Balance Sheets
December 31, ------------------1998 1997

------Assets -----Cash and cash equivalents Investment in subsidiaries Premises and equipment, net Excess cost over fair value of net assets acquired, at amortized cost Other Total assets Liabilities and Stockholders' Equity -----------------------------------Notes payable Accrued interest and other liabilities Total liabilities Stockholders' equity Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Total stockholders' equity Total liabilities and stockholders' equity

-------

$ 51 51,459 25 1,261 11 ------$52,807 =======

$ 3,264 36,313 31 1,337 8 ------$40,953 =======

$12,388 64 ------12,452 ------38 14,314 25,922 81 ------40,355 ------$52,807 =======

$ 5,072 215 ------5,287 ------38 14,314 21,162 152 ------35,666 ------$40,953 =======

43

Notes to Consolidated Financial Statements, Dollars in thousands Condensed Statements of Income
Year Ended December 31, -------------------------------1998 1997 1996 ---------------Income Dividends from subsidiaries Other Total income Expenses Interest Salaries and employee benefits Net occupancy and equipment Other operating expenses Total expenses Income (loss) before income tax benefit and equity in undistributed earnings of subsidiaries Income tax benefit Equity in undistributed earnings of subsidiary Net income $3,317 2 -----3,319 -----637 53 620 -----1,310 -----2,009 461 3,159 -----$5,629 ====== $ 1 -----1 -----554 284 71 360 -----1,269 -----(1,268) 486 5,313 -----$4,531 ====== $1,250 1 -----1,251 -----468 349 51 243 -----1,111 -----140 183 2,704 -----$3,027 ======

Condensed Statements of Cash Flows
Year Ended December 31, ----------------------------------1998 1997 1996 ------------------Cash flows from operating activities

Notes to Consolidated Financial Statements, Dollars in thousands Condensed Statements of Income
Year Ended December 31, -------------------------------1998 1997 1996 ---------------Income Dividends from subsidiaries Other Total income Expenses Interest Salaries and employee benefits Net occupancy and equipment Other operating expenses Total expenses Income (loss) before income tax benefit and equity in undistributed earnings of subsidiaries Income tax benefit Equity in undistributed earnings of subsidiary Net income $3,317 2 -----3,319 -----637 53 620 -----1,310 -----2,009 461 3,159 -----$5,629 ====== $ 1 -----1 -----554 284 71 360 -----1,269 -----(1,268) 486 5,313 -----$4,531 ====== $1,250 1 -----1,251 -----468 349 51 243 -----1,111 -----140 183 2,704 -----$3,027 ======

Condensed Statements of Cash Flows
Year Ended December 31, ----------------------------------1998 1997 1996 ------------------Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation Amortization Equity in undistributed earnings of subsidiaries Changes in assets and liabilities: Accrued interest and other liabilities Other, net Net cash provided by (used in) operating activities Cash flows from investing activities Purchases of premises and equipment Purchase 100% of the stock in Heartland Community Bank, FSB Additional investment in subsidiaries and purchase of minority shares of stock Net cash used in investing activities $ 5,629 $ 4,531 $ 3,027

13 77 (3,159) (110) (3) ------2,447 ------(7) (3,100) (9,000) ------(12,107) -------

18 56 (5,313) (199) 18 ------(889) ------(22) -(9,000) ------(9,022) -------

16 57 (2,704) 106 (30) ------472 ------(6) -(1,500) ------(1,506) -------

Cash flows from financing activities Proceeds from issuance of common stock Proceeds from notes payable Payments of notes payable Dividends paid Net cash provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents - beginning of period

-14,350 (7,034) (869) ------6,447 ------(3,213) 3,264

13,155 10,000 (10,324) (620) ------12,211 ------2,300 964

-1,500 (24) (864) ------612 ------(422) 1,386

Cash and cash equivalents - end of period

------$ 51 =======

------$ 3,264 =======

------$ 964 =======

44

Exhibit 21 SUBSIDIARIES OF THE REGISTRANT 1. Bank of the Ozarks, wca, an Arkansas state chartered bank, which also does business as Bank of the Ozarks. 2. Bank of the Ozarks, nwa, an Arkansas state chartered bank, which also does business as Bank of the Ozarks.

Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. of our report dated January 20, 1999, included in the 1998 Annual Report to Stockholders of Bank of the Ozarks, Inc. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-32173) pertaining to the Bank of the Ozarks, Inc. Stock Option Plan, Form S-8 (No. 333-32177) pertaining to the Stock Ownership Plan and Trust of Bank of the Ozarks, Inc. and Form S-8 (No. 333-32175) pertaining to the Bank of the Ozarks, Inc. Non-employee Director Stock Option Plan of our report dated January 20, 1999, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10K) of Bank of the Ozarks, Inc. for the year ended December 31, 1998.
/s/ Ernst & Young LLP

Little Rock, Arkansas

March 15, 1999

Exhibit 23.2 CONSENT OF MOORE STEPHENS FROST, INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Annual Report (Form 10K) of Bank of the Ozarks, Inc. (the "Company") of the consolidated financial statements for the years ended December 31, 1997 and 1996 (the "Financial Statements") included in the 1998 Annual Report to Stockholders of the Company. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-32177, 333-32175 and 333-32173), pertaining to certain employee benefit plans of the Company of the Financial Statements included in or incorporated by reference in this Annual Report (Form 10-K).
/s/ Moore Stephens Frost Moore Stephens Frost

Exhibit 21 SUBSIDIARIES OF THE REGISTRANT 1. Bank of the Ozarks, wca, an Arkansas state chartered bank, which also does business as Bank of the Ozarks. 2. Bank of the Ozarks, nwa, an Arkansas state chartered bank, which also does business as Bank of the Ozarks.

Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. of our report dated January 20, 1999, included in the 1998 Annual Report to Stockholders of Bank of the Ozarks, Inc. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-32173) pertaining to the Bank of the Ozarks, Inc. Stock Option Plan, Form S-8 (No. 333-32177) pertaining to the Stock Ownership Plan and Trust of Bank of the Ozarks, Inc. and Form S-8 (No. 333-32175) pertaining to the Bank of the Ozarks, Inc. Non-employee Director Stock Option Plan of our report dated January 20, 1999, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10K) of Bank of the Ozarks, Inc. for the year ended December 31, 1998.
/s/ Ernst & Young LLP

Little Rock, Arkansas

March 15, 1999

Exhibit 23.2 CONSENT OF MOORE STEPHENS FROST, INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Annual Report (Form 10K) of Bank of the Ozarks, Inc. (the "Company") of the consolidated financial statements for the years ended December 31, 1997 and 1996 (the "Financial Statements") included in the 1998 Annual Report to Stockholders of the Company. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-32177, 333-32175 and 333-32173), pertaining to certain employee benefit plans of the Company of the Financial Statements included in or incorporated by reference in this Annual Report (Form 10-K).
/s/ Moore Stephens Frost Moore Stephens Frost

Little Rock, Arkansas

March 15, 1999

Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bank of the Ozarks, Inc. of our report dated January 20, 1999, included in the 1998 Annual Report to Stockholders of Bank of the Ozarks, Inc. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-32173) pertaining to the Bank of the Ozarks, Inc. Stock Option Plan, Form S-8 (No. 333-32177) pertaining to the Stock Ownership Plan and Trust of Bank of the Ozarks, Inc. and Form S-8 (No. 333-32175) pertaining to the Bank of the Ozarks, Inc. Non-employee Director Stock Option Plan of our report dated January 20, 1999, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10K) of Bank of the Ozarks, Inc. for the year ended December 31, 1998.
/s/ Ernst & Young LLP

Little Rock, Arkansas

March 15, 1999

Exhibit 23.2 CONSENT OF MOORE STEPHENS FROST, INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Annual Report (Form 10K) of Bank of the Ozarks, Inc. (the "Company") of the consolidated financial statements for the years ended December 31, 1997 and 1996 (the "Financial Statements") included in the 1998 Annual Report to Stockholders of the Company. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-32177, 333-32175 and 333-32173), pertaining to certain employee benefit plans of the Company of the Financial Statements included in or incorporated by reference in this Annual Report (Form 10-K).
/s/ Moore Stephens Frost Moore Stephens Frost

Little Rock, Arkansas

March 15, 1999

ARTICLE 9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED BY REFERENCE IN THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END

YEAR DEC 31 1998 JAN 01 1998 DEC 31 1998

Exhibit 23.2 CONSENT OF MOORE STEPHENS FROST, INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Annual Report (Form 10K) of Bank of the Ozarks, Inc. (the "Company") of the consolidated financial statements for the years ended December 31, 1997 and 1996 (the "Financial Statements") included in the 1998 Annual Report to Stockholders of the Company. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-32177, 333-32175 and 333-32173), pertaining to certain employee benefit plans of the Company of the Financial Statements included in or incorporated by reference in this Annual Report (Form 10-K).
/s/ Moore Stephens Frost Moore Stephens Frost

Little Rock, Arkansas

March 15, 1999

ARTICLE 9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED BY REFERENCE IN THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH INT BEARING DEPOSITS FED FUNDS SOLD TRADING ASSETS INVESTMENTS HELD FOR SALE INVESTMENTS CARRYING INVESTMENTS MARKET LOANS ALLOWANCE TOTAL ASSETS DEPOSITS SHORT TERM LIABILITIES OTHER LONG TERM PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITIES AND EQUITY INTEREST LOAN INTEREST INVEST INTEREST OTHER INTEREST TOTAL INTEREST DEPOSIT INTEREST EXPENSE INTEREST INCOME NET LOAN LOSSES SECURITIES GAINS EXPENSE OTHER INCOME PRETAX INCOME PRE EXTRAORDINARY EXTRAORDINARY

YEAR DEC 31 1998 JAN 01 1998 DEC 31 1998 14,168 856 0 0 17,629 158,989 159,050 387,526 4,689 612,431 529,040 5,238 2,357 35,441 0 0 38 40,317 612,431 31,168 7,420 294 38,882 18,118 20,518 18,364 2,026 255 13,119 8,250 8,250 0

ARTICLE 9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCORPORATED BY REFERENCE IN THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH INT BEARING DEPOSITS FED FUNDS SOLD TRADING ASSETS INVESTMENTS HELD FOR SALE INVESTMENTS CARRYING INVESTMENTS MARKET LOANS ALLOWANCE TOTAL ASSETS DEPOSITS SHORT TERM LIABILITIES OTHER LONG TERM PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITIES AND EQUITY INTEREST LOAN INTEREST INVEST INTEREST OTHER INTEREST TOTAL INTEREST DEPOSIT INTEREST EXPENSE INTEREST INCOME NET LOAN LOSSES SECURITIES GAINS EXPENSE OTHER INCOME PRETAX INCOME PRE EXTRAORDINARY EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED YIELD ACTUAL LOANS NON LOANS PAST LOANS TROUBLED LOANS PROBLEM ALLOWANCE OPEN CHARGE OFFS RECOVERIES ALLOWANCE CLOSE ALLOWANCE DOMESTIC ALLOWANCE FOREIGN ALLOWANCE UNALLOCATED

YEAR DEC 31 1998 JAN 01 1998 DEC 31 1998 14,168 856 0 0 17,629 158,989 159,050 387,526 4,689 612,431 529,040 5,238 2,357 35,441 0 0 38 40,317 612,431 31,168 7,420 294 38,882 18,118 20,518 18,364 2,026 255 13,119 8,250 8,250 0 0 5,629 1.49 1.47 4.19 2,708 21 0 2,529 3,737 1,149 75 4,689 4,689 0 0