BANK OF THE OZARKS INC

On January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09, “Improvements to Employee Share-Based Payment Accounting.”  In accordance with the provisions of ASU 2016-09, the Company elected to account for forfeitures of stock-based compensation awards as they occur.  Prior to the adoption of ASU 2016-09, the Company estimated forfeiture rates and the impact that estimated forfeitures would have on the number of stock-based awards that were expected to vest.  The Company believes this policy election related to forfeitures will be a more efficient method of accounting for forfeitures.  The adoption of ASU 2016-09 resulted in a cumulative adjustment to increase stockholders’ equity at January 1, 2017 by approximately $0.4 million.

In January 2017, FASB issued ASU 2017-03 “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323) Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.” ASU-2017-03 provides guidance on additional qualitative disclosures when a registrant cannot reasonably estimate the impact of adoption of ASU 2014-09, ASU 2016-02 and ASU 2016-13 will have on its financial statements.  In addition, ASU 2017-03 provides guidance on ASU 2014-01 related to the proportional amortization method in accounting for investments in qualified affordable housing projects.  ASU 2017-03 was effective when issued and did not have a significant impact on the Company’s financial position, results of operations or its financial statement disclosures.

The Plan of Merger has been approved by the boards of directors of the Company and the Bank. In connection with the Reorganization, the Company expects to hold a special meeting of its shareholders on June 23, 2017 to consider and vote upon the Reorganization. The Reorganization is subject to various closing conditions including, among others, (i) approval by the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote on the Reorganization, (ii) receipt of all required regulatory approvals, including the approval of the FDIC and the Arkansas State Bank Department, and (iii) approval for listing on NASDAQ of the Bank’s common stock.

Our net interest margin for the first quarter of 2017 decreased four basis points (“bps”) to 4.88% compared to 4.92% for the first quarter in 2016. This decrease was primarily due to a 20 bps increase in the rate paid on interest bearing liabilities, partially offset by a 14 bps increase in the yield on interest earning assets.

The yield on interest earning assets was 5.46% for the first quarter of 2017 compared to 5.32% for the first quarter of 2016.  The yield on our non-purchased loans and leases increased 26 bps for the first quarter of 2017 compared to the same period in 2016.  This increase was primarily due to (i) higher yields on newly originated loans in recent months and prepayment penalties and/or yield maintenance provisions on certain loans that paid off early during the first quarter of 2017 and (ii) recent increases in London Interbank Offered Rates (“LIBOR”) and the federal funds target rate.  The yield on our purchased loan portfolio decreased 30 bps for the first quarter of 2017 compared to the same period in 2016. This decrease was primarily attributable to the loans acquired in our C&S and C1 acquisitions, many of which did not contain evidence of credit deterioration on the dates of acquisition and were priced at a lower yield compared to the then existing yield on our purchased loan portfolio. The yield on our aggregate investment securities portfolio decreased 120 bps for the first quarter of 2017 compared to the same period in 2016.  This decrease was primarily the result of (i) the investment securities acquired in our C&S acquisition whose yields were lower than our existing portfolio of investment securities and, to a lesser extent, (ii) the relatively low interest rate environment for tax-exempt municipal securities which resulted in certain issuers of such investment securities calling higher-rate environment securities and refinancing those securities at lower interest rates during 2016.

Following the Reorganization, it is expected that the  Bank’s shares of common stock will be listed on The NASDAQ Global Select Market (“NASDAQ”) under the same ticker symbol currently used by the Company, “OZRK.” The Bank’s common stock will be registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which vests the FDIC with the power to administer and enforce certain sections of the Exchange Act applicable to banks. Following the Reorganization, the Bank will no longer file periodic or current reports or other materials with the SEC but will be required to file such periodic and current reports and other materials required under the Exchange Act with the FDIC.