News Column

BANK OF THE OZARKS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 9, 2014

The following discussion explains the financial condition and results of operations of Bank of the Ozarks, Inc. ("the Company") as of and for the three months ended March 31, 2014. The purpose of this discussion is to focus on information about the Company's financial condition and results of operations which is not otherwise apparent from the consolidated financial statements. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report and the Company's Annual Report on Form 10-K for the year ended December 31, 2013 previously filed with the Securities and Exchange Commission ("SEC"). Annualized results for these interim periods may not be indicative of results for the full year or future periods. The Company is a bank holding company whose primary business is commercial banking conducted through its wholly-owned state chartered bank subsidiary - Bank of the Ozarks (the "Bank"). The Company's results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans, leases, purchased loans not covered by Federal Deposit Insurance Corporation ("FDIC") loss share agreements ("purchased non-covered loans"), loans covered by FDIC loss share agreements ("covered loans") and investments, and the interest expense incurred on interest bearing liabilities, such as deposits, borrowings and subordinated debentures. The Company also generates non-interest income, including service charges on deposit accounts, mortgage lending income, trust income, bank owned life insurance ("BOLI") income, accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable, other income from loss share and purchased non-covered loans, gains on investment securities and from sales of other assets, and gains on merger and acquisition transactions. The Company's non-interest expense consists primarily of employee compensation and benefits, net occupancy and equipment expense and other operating expenses. The Company's results of operations are significantly affected by its provision for loan and lease losses and its provision for income taxes.



CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements. The Company's determination of (i) the provisions to and the adequacy of the allowance for loan and lease losses ("ALLL"), (ii) the fair value of its investment securities portfolio, (iii) the fair value of foreclosed assets not covered by FDIC loss share agreements and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions all involve a higher degree of judgment and complexity than its other significant accounting policies. Accordingly, the Company considers the determination of (i) provisions to and the adequacy of the ALLL, (ii) the fair value of its investment securities portfolio, (iii) the fair value of foreclosed assets not covered by FDIC loss share agreements and (iv) the fair value of the assets acquired and liabilities assumed pursuant to business combination transactions to be critical accounting policies. Provisions to and adequacy of the ALLL. The ALLL is established through a provision for such losses charged against income. All or portions of loans or leases, excluding purchased non-covered loans and covered loans, deemed to be uncollectible are charged against the ALLL when management believes that collectability of all or some portion of outstanding principal is unlikely. Subsequent recoveries, if any, of loans or leases previously charged off are credited to the ALLL. The ALLL is maintained at a level management believes will be adequate to absorb probable incurred losses in the loan and lease portfolio. Provisions to and the adequacy of the ALLL are based on evaluations of the loan and lease portfolio utilizing objective and subjective criteria. The objective criteria primarily include an internal grading system and specific allowances. In addition to these objective criteria, the Company subjectively assesses the adequacy of the ALLL and the need for additions thereto, with consideration given to the nature and mix of the portfolio, including concentrations of credit; general economic and business conditions, including national, regional and local business and economic conditions that may affect borrowers' or lessees' ability to pay; expectations regarding the current business cycle; trends that could affect collateral values and other relevant factors. The Company also utilizes a peer group analysis and a historical analysis to validate the overall adequacy of its ALLL. Changes in any of these criteria or the availability of new information could require adjustment of the ALLL in future periods. While a specific allowance has been calculated for impaired loans and leases and for loans and leases where the Company has otherwise determined a specific reserve is appropriate, no portion of the Company's ALLL is restricted to any individual loan or lease or group of loans or leases, and the entire ALLL is available to absorb losses from any and all loans and leases. The Company's internal grading system assigns grades to all loans and leases, except residential 1-4 family loans, consumer loans, purchased non-covered loans, covered loans and certain other loans, with each grade being assigned an allowance allocation percentage. The grade for each graded individual loan or lease is determined by the account officer and other approving officers at the time the loan or lease is made and changed from time to time to reflect an ongoing assessment 34



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of loan or lease risk. Grades are reviewed on specific loans and leases from time to time by senior management and as part of the Company's internal loan review process. These risk elements include, among others, the following: (1) for non-farm/non-residential, multifamily residential, and agricultural real estate loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan repayment requirements), operating results of the owner in the case of owner-occupied properties, the loan-to-value ratio, the age, condition, value, nature and marketability of the collateral and the specific risks and volatility of income, property value and operating results typical of properties of that type; (2) for construction and land development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or ability to lease property constructed for lease, the quality and nature of contracts for presale or preleasing, if any, experience and ability of the developer and loan-to-cost and loan-to-value ratios; (3) for commercial and industrial loans and leases, the operating results of the commercial, industrial or professional enterprise, the borrower's or lessee's business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in the applicable industry and the age, condition, value, nature and marketability of collateral; and (4) for non-real estate agricultural loans and leases, the operating results, experience and ability of the borrower or lessee, historical and expected market conditions and the age, condition, value, nature and marketability of collateral. In addition, for each category the Company considers secondary sources of income and the financial strength of the borrower or lessee and any guarantors.



Residential 1-4 family, consumer loans and certain other loans are assigned an allowance allocation percentage based on past due status.

Allowance allocation percentages for the various risk grades and past due categories for residential 1-4 family, consumer loans and certain other loans are determined by management and are adjusted periodically. In determining these allowance allocation percentages, management considers, among other factors, historical loss percentages and a variety of subjective criteria in determining the allowance allocation percentages. Assets acquired and liabilities assumed in business combinations are recorded at estimated fair value on their purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities. Once management has finalized the fair values of acquired assets and assumed liabilities within this 12-month period, management considers such values to be the day 1 fair values ("Day 1 Fair Values"). For covered loans, management separately monitors this portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. To the extent that a loan's performance has deteriorated from management's expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of ALLL. To the extent that a revised loss estimate exceeds the loss estimate established in the determination of the Day 1 Fair Values, such deterioration will result in an allowance allocation or a charge-off. For purchased non-covered loans, management segregates this portfolio into loans that contain evidence of credit deterioration on the date of purchase and loans that do not contain evidence of credit deterioration on the date of purchase. Purchased non-covered loans with evidence of credit deterioration are regularly monitored and are periodically reviewed by management. To the extent that a loan's performance has deteriorated from management's expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is considered in the determination of the required level of ALLL. To the extent that a revised loss estimate exceeds the loss estimate established in the determination of Day 1 Fair Values, such determination will result in an allowance allocation or a charge-off. All other purchased non-covered loans are graded by management at the time of purchase. The grade on these purchased non-covered loans are reviewed regularly as part of the ongoing assessment of such loans. To the extent that current information indicates it is probable that the Company will not be able to collect all amounts according to the contractual terms thereof, such loan is considered in the determination of the required level of ALLL and may result in an allowance allocation or a charge-off. At March 31, 2014 and 2013, the Company had no allowance for its purchased non-covered loans and its covered loans because all losses had been charged off on such loans whose performance had deteriorated from management's expectations established in conjunction with the determination of the Day 1 Fair Values. The Company generally places a loan or lease, excluding purchased non-covered loans with evidence of credit deterioration on the date of purchase and covered loans, on nonaccrual status when such loan or lease is (i) deemed impaired or (ii) 90 days or more past due, or earlier when doubt exists as to the ultimate collection of payments. The Company may continue to accrue interest on certain loans or leases contractually past due 90 days or more if such loans or leases are both well secured and in the process of collection. At the time a loan or lease is placed on nonaccrual status, interest previously accrued but uncollected is generally reversed and charged against interest income. Nonaccrual loans and leases are generally returned to accrual status when payments are less than 90 days past due and the Company reasonably expects to collect all 35



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payments. If a loan or lease is determined to be uncollectible, the portion of the principal determined to be uncollectible will be charged against the ALLL. Loans for which the terms have been modified and for which (i) the borrower is experiencing financial difficulties and (ii) a concession has been granted to the borrower by the Company are considered troubled debt restructurings ("TDRs") and are included in impaired loans and leases. Income on nonaccrual loans or leases, including impaired loans and leases but excluding certain TDRs which continue to accrue interest, is recognized on a cash basis when and if actually collected. For the three months ended March 31, 2014, there were no defaults during the preceding 12 months on any loans that were considered TDRs. All loans and leases deemed to be impaired are evaluated individually. The Company considers a loan or lease, excluding purchased non-covered loans with evidence of credit deterioration at the date of purchase and covered loans, 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 considers a purchased non-covered loan with evidence of credit deterioration at the date of purchase and a covered loan to be impaired once a decrease in expected cash flows or other deterioration in the loan's expected performance, subsequent to the determination of the Day 1 Fair Values, results in an allowance allocation, a partial or full charge-off or in a provision for loan and lease losses. Most of the Company's nonaccrual loans and leases, excluding purchased non-covered loans and covered loans, and all TDRs are considered impaired. The majority of the Company's impaired loans and leases are dependent upon collateral for repayment. For such loans and leases, impairment is measured by comparing collateral value, net of holding and selling costs, to the current investment in the loan or lease. For all other impaired loans and leases, the Company compares estimated discounted cash flows to the current investment in the loan or lease. To the extent that the Company's current investment in a particular loan or lease exceeds its estimated net collateral value or its estimated discounted cash flows, the impaired amount is specifically considered in the determination of the ALLL or is charged off as a reduction of the ALLL. The Company also maintains an allowance for certain loans and leases, excluding purchased non-covered loans and covered loans, not considered impaired where (i) the customer is continuing to make regular payments, although payments may be past due, (ii) there is a reasonable basis to believe the customer may continue to make regular payments, although there is also an elevated risk that the customer may default, and (iii) the collateral or other repayment sources are likely to be insufficient to recover the current investment in the loan or lease if a default occurs. The Company evaluates such loans and leases to determine if an allowance is needed for these loans and leases. For the purpose of calculating the amount of such allowance, management assumes that (i) no further regular payments occur and (ii) all sums recovered will come from liquidation of collateral and collection efforts from other payment sources. To the extent that the Company's current investment in a particular loan or lease evaluated for the need for such an allowance exceeds its net collateral value or its estimated discounted cash flows, such excess is considered allocated allowance for purposes of the determination of the ALLL. The Company also includes specific ALLL allocations for qualitative factors including, among other factors, (i) concentrations of credit, (ii) general economic and business conditions, (iii) trends that could affect collateral values and (iv) expectations regarding the current business cycle. The Company may also consider other qualitative factors in future periods for additional allowance allocations, including, among other factors, (1) credit quality trends (including trends in nonperforming loans and leases expected to result from existing conditions), (2) seasoning of the loan and lease portfolio, (3) specific industry conditions affecting portfolio segments, (4) the Company's expansion into new markets and (5) the offering of new loan and lease products. Changes in the criteria used in this evaluation or the availability of new information could cause the ALLL to be increased or decreased in future periods. In addition bank regulatory agencies, as part of their examination process, may require adjustments to the ALLL based on their judgments and estimates. Fair value of the investment securities portfolio. Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of each balance sheet date. At March 31, 2014 and 2013 and December 31, 2013, the Company has classified all of its investment securities as available for sale ("AFS"). AFS investment securities are stated at estimated fair value, with the unrealized gains and losses determined on a specific identification basis. Such unrealized gains and losses, net of tax, are reported as a separate component of stockholders' equity and included in other comprehensive income (loss). The Company utilizes independent third parties as its principal pricing sources for determining fair value of investment securities which are measured on a recurring basis. As a result, the Company receives estimates of fair values from at least two independent pricing sources for the majority of its individual securities within its investment portfolio. For investment securities traded in an active market, fair values are based on quoted market prices if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities, broker quotes or comprehensive interest rate tables, pricing matrices or a combination thereof. For investment securities traded in a market that is not active, fair value is determined using unobservable inputs. Additionally, the valuation of investment securities acquired may include certain unobservable inputs. All fair value estimates received by the Company for its investment securities are reviewed and approved on a quarterly basis by the Company's Investment Portfolio Manager and its Chief Financial Officer. 36



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Declines in the fair value of investment securities below their amortized cost are reviewed at least quarterly by the Company for other-than-temporary impairment. Factors considered during such review include, among other things, the length of time and extent that fair value has been less than cost and the financial condition and near term prospects of the issuer. The Company also assesses whether it has the intent to sell the investment security or more likely than not would be required to sell the investment security before any anticipated recovery in fair value. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through the income statement. For securities that do not meet the aforementioned criteria, the amount of impairment is split into (i) other-than-temporary impairment related to credit loss, which must be recognized in the income statement, and (ii) other-than-temporary impairment related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The fair values of the Company's investment securities traded in both active and inactive markets can be volatile and may be influenced by a number of factors including market interest rates, prepayment speeds, discount rates, credit quality of the issuer, general market conditions including market liquidity conditions and other factors. Factors and conditions are constantly changing and fair values could be subject to material variations that may significantly impact the Company's financial condition, results of operations and liquidity. Fair value of foreclosed assets not covered by FDIC loss share agreements. Repossessed personal properties and real estate acquired through or in lieu of foreclosure are initially recorded at the lesser of current principal investment or fair value less estimated cost to sell at the date of repossession or foreclosure. Valuations of these assets are periodically reviewed by management with the carrying value of such assets adjusted through non-interest expense to the then estimated fair value net of estimated selling costs, if lower, until disposition. Fair values of these assets are generally based on third party appraisals, broker price opinions or other valuations of the property. Fair value of assets acquired and liabilities assumed pursuant to business combination transactions. Loans covered by FDIC loss share agreements, or covered loans, are accounted for in accordance with the provisions of GAAP applicable to loans acquired with deteriorated credit quality and pursuant to the American Institute of Certified Public Accountants' ("AICPA") December 18, 2009 letter in which the AICPA summarized the SEC's view regarding the accounting in subsequent periods for discount accretion associated with non-credit impaired loans acquired in a business combination or asset purchase. Considering, among other factors, the general lack of adequate underwriting, proper documentation, appropriate loan structure and insufficient equity contributions for a large number of these acquired loans, and the uncertainty of the borrowers' and/or guarantors' ability or willingness to make contractually required (or any) principal and interest payments, management has determined that a significant portion of the loans acquired in FDIC-assisted acquisitions had evidence of credit deterioration since origination. Accordingly, management has elected to apply the provisions of GAAP applicable to loans acquired with deteriorated credit quality as provided by the AICPA's December 18, 2009 letter, to all loans acquired in its FDIC-assisted acquisitions. At the time such covered loans are acquired, management individually evaluates substantially all loans acquired in the transaction. This evaluation allows management to determine the estimated fair value of the covered loans (not considering any FDIC loss sharing agreements) and includes no carryover of any previously recorded ALLL. In determining the estimated fair value of covered loans, management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received. To the extent that any covered loan is not specifically reviewed, management applies a loss estimate to that loan based on the average expected loss rates for the purchased loans that were individually reviewed in that covered loan portfolio. In determining the Day 1 Fair Values of covered loans, management calculates a non-accretable difference (the credit component of the covered loans) and an accretable difference (the yield component of the covered loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management's determination of the Day 1 Fair Values. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in expected cash flows following any previous decrease will result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield. Any such increase or decrease in expected cash flows will result in a corresponding adjustment of the FDIC loss share receivable and accretion or amortization thereof and the FDIC clawback payable or the amortization thereof for the portion of such reduced or additional loss expected to be collected from the FDIC. The accretable difference on covered loans is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows for purposes of establishing the Day 1 Fair Values, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan. At March 31, 2014, the weighted average period during which management expects to receive the estimated cash flows for its covered loan portfolio (not considering any payment under the FDIC loss share agreements) is 2.5 years. 37



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Management separately monitors the covered loan portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is typically reviewed (i) when it is modified or extended, (ii) when material information becomes available to the Company that provides additional insight regarding the loan's performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows which include a substantial portion of each acquired covered loan portfolio. Management separately reviews the performance of the portfolio of covered loans on an annual basis, or more frequently to the extent that material information becomes available regarding the performance of an individual loan, to make determinations of the constituent loans' performance and to consider whether there has been any significant change in performance since management's initial expectations established in conjunction with the determination of the Day 1 Fair Values or since management's most recent review of such portfolio's performance. To the extent that a loan is performing in accordance with or exceeding management's expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 1, is not included in any of the Company's credit quality ratios, is not considered to be an impaired loan, and is not considered in the determination of the required ALLL. For any loan that is exceeding management's performance expectation established in conjunction with the determination of Day 1 Fair Values, the accretable yield on such loan is adjusted to reflect such increased performance. To the extent that a loan's performance has deteriorated from management's expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 2, is included in certain of the Company's credit quality metrics, is considered an impaired loan, and is considered in the determination of the required level of ALLL. Any improvement in the expected performance of a covered loan would result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield. Purchased non-covered loans include a small volume of non-covered loans acquired in FDIC-assisted acquisitions and loans acquired in the Genala Banc, Inc. ("Genala"), The First National Bank of Shelby ("First National Bank") and Bancshares Inc. ("Bancshares") acquisitions and are initially recorded at fair value on the date of purchase. Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds. All other purchased non-covered loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value. At the time of acquisition of purchased non-covered loans, management individually evaluates substantially all loans acquired in the transaction. For those purchased loans without evidence of credit deterioration, management evaluates each reviewed loan using an internal grading system with a grade assigned to each loan at the date of acquisition. To the extent that any purchased non-covered loan is not specifically reviewed, such loan is assumed to have characteristics similar to the characteristics of the aggregate acquired portfolio. The grade for each purchased non-covered loan is reviewed subsequent to the date of acquisition any time a loan is renewed or extended or at any time information becomes available to the Company that provides material insight regarding the loan's performance, the borrower or the underlying collateral. To the extent that current information indicates it is probable that the Company will collect all amounts according to the contractual terms thereof, such loan is not considered impaired and is not considered in the determination of the required ALLL. To the extent that current information indicates it is probable that the Company will not be able to collect all amounts according to the contractual terms thereof, such loan is considered impaired and is considered in the determination of the required level of ALLL. In determining the Day 1 Fair Values of purchased non-covered loans without evidence of credit deterioration at the date of acquisition, management includes (i) no carry over of any previously recorded ALLL and (ii) an adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan. This adjustment will be accreted into earnings as a yield adjustment, using the effective yield method, over the remaining life of each loan. Purchased non-covered loans that contain evidence of credit deterioration on the date of purchase are accounted for in accordance with the provisions of GAAP applicable to loans acquired with deteriorated credit quality. At the time such purchased non-covered loans with evidence of credit deterioration are acquired, management individually evaluates each loan to determine the estimated fair value of each loan. This evaluation includes no carryover of any previously recorded ALLL. In determining the estimated fair value of purchased non-covered loans with evidence of credit deterioration, management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received. In determining the Day 1 Fair Values of purchased non-covered loans with evidence of credit deterioration, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management's determination of the Day 1 Fair Values. Subsequent increases in expected cash flows will result in an adjustment to accretable yield, which 38



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will have a positive impact on interest income. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in expected cash flows following any previous decrease will result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield.

The accretable difference on purchased non-covered loans with evidence of credit deterioration is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows for purposes of establishing the Day 1 Fair Values, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan. Management separately monitors purchased non-covered loans with evidence of credit deterioration on the date of purchase and periodically reviews such loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is reviewed (i) any time it is renewed or extended, (ii) at any other time additional information becomes available to the Company that provides material additional insight regarding the loan's performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows of each acquired portfolio. Management separately reviews the performance of the portfolio of purchased non-covered loans with evidence of credit deterioration, on an annual basis, or more frequently to the extent that material information becomes available regarding the performance of an individual loan, to make determinations of the constituent loans' performance and to consider whether there has been any significant change in performance since management's initial expectations established in conjunction with the determination of the Day 1 Fair Values or since management's most recent review of such portfolio's performance. To the extent that a loan is performing in accordance with or exceeding management's performance expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV 66, is not included in any of the credit quality ratios, is not considered to be a nonaccrual or impaired loan, and is not considered in the determination of the required ALLL. For any loan that is exceeding management's performance expectation established in conjunction with the determination of Day 1 Fair Values, the accretable yield on such loan is adjusted to reflect such increased performance. To the extent that a loan's performance has deteriorated from management's expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is rated FV88, is included in certain of the Company's credit quality metrics, is considered an impaired loan, and is considered in the determination of the required level of ALLL. Any improvement in the expected performance of such loan would result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield. Foreclosed assets covered by FDIC loss share agreements, or covered foreclosed assets, are initially recorded at Day 1 Fair Values. In estimating the Day 1 Fair Values of covered foreclosed assets, management considers a number of factors including, among others, appraised value, estimated selling prices, estimated selling costs, estimated holding periods and net present value of cash flows expected to be received. Discount rates ranging from 8.0% to 9.5% per annum were used to determine the net present value of covered foreclosed assets for purposes of establishing the Day 1 Fair Values. Valuations of these assets are periodically reviewed by management with the carrying value of such assets adjusted through non-interest income to the then estimated fair value net of estimated selling costs, if lower, until disposition. Fair values of these assets are generally based on third party appraisals, broker price opinions or other valuations of the property. In connection with the Company's FDIC-assisted acquisitions, the Company has recorded an FDIC loss share receivable to reflect the indemnification provided by the FDIC. Currently, the expected losses on covered assets for each of the Company's loss share agreements would result in expected recovery of approximately 80% of incurred losses. Since the indemnified items are covered loans and covered foreclosed assets, which are initially measured at Day 1 Fair Values, the FDIC loss share receivable is also initially measured and recorded at Day 1 Fair Values, and is calculated by discounting the cash flows expected to be received from the FDIC. A discount rate of 5.0% per annum was used to determine the Day 1 Fair Values of the FDIC loss share receivable. These cash flows are estimated by multiplying estimated losses by the reimbursement rates as set forth in the loss share agreements. The balance of the FDIC loss share receivable and the accretion or amortization thereof is adjusted periodically to reflect changes in expectations of discounted cash flows, expense reimbursements under the loss share agreements and other factors. The Company is accreting or amortizing its FDIC loss share receivable over the shorter of (i) the contractual term of the indemnification agreement (ten years for the single family loss share agreements, and five years for the non-single family loss share agreements) or (ii) the remaining life of the indemnified asset. Pursuant to the clawback provisions of the loss share agreements for the Company's FDIC-assisted acquisitions, the Company may be required to reimburse the FDIC should actual losses be less than certain thresholds established in each loss share agreement. The amount of the clawback provision for each acquisition is measured and recorded at Day 1 Fair Values. It is calculated as the difference between management's estimated losses on covered loans and covered foreclosed assets and the loss threshold contained in each loss share agreement, multiplied by the applicable clawback provisions contained in each loss share agreement. This clawback amount, which is payable to the FDIC upon termination of the applicable loss share agreement, is then discounted back to net present value using a discount rate of 5.0% per annum. To the extent that actual 39



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losses on covered loans and covered foreclosed assets are less than estimated losses, the applicable clawback payable to the FDIC upon termination of the loss share agreements will increase. To the extent that actual losses on covered loans and covered foreclosed assets are more than estimated losses, the applicable clawback payable to the FDIC upon termination of the loss share agreements will decrease. The balance of the FDIC clawback payable and the amortization thereof are adjusted periodically to reflect changes in expected losses on covered assets and the impact of such changes on the clawback payable and other factors. The Day 1 Fair Values of investment securities acquired in business combinations are generally based on quoted market prices, broker quotes, comprehensive interest rate tables or pricing matrices, or a combination thereof. Additionally, these valuations may include certain unobservable inputs. The Day 1 Fair Values of assumed liabilities in business combinations are generally the amounts payable by the Company necessary to completely satisfy the assumed obligations. As a result of recording, at fair value, acquired assets and assumed liabilities pursuant to business combinations, differences in amounts reported for financial statement purposes and their related basis for federal and state income tax purposes are created. Such differences are recorded as deferred tax assets and liabilities using enacted tax rates in effect for the year or years in which the differences are expected to be recovered or settled. Business combination transactions may result in the acquisition of net operating loss carryforwards and other assets with built-in losses, the realization of which is subject to limitations pursuant to section 382 ("section 382 limitations") of the Internal Revenue Code ("IRC"). In determining the section 382 limitation associated with a business combination, management must make a number of estimates and assumptions regarding the ability to utilize acquired net operating loss carryforwards and the expected timing of future recoveries or settlements of acquired assets with built-in losses. To the extent that information available as of the date of acquisition results in a determination by management that some portion of net operating loss carryforwards cannot be utilized or assets with built-in losses are expected to be settled or recovered in future periods in which the ability to realize the benefits will be subject to section 382 limitations, a deferred tax valuation allowance is established for the estimated amount of the deferred tax assets subject to the section 382 limitation. To the extent that information becomes available, during the first 12 months following the consummation of a business combination transaction, that results in changes in management's initial estimates and assumptions regarding the expected utilization of net operating loss carryforwards or the expected settlement or recovery of acquired assets with built-in losses subject to section 382 limitations, an increase or decrease of the deferred tax valuation allowance will be recorded as an adjustment to bargain purchase gain or goodwill. To the extent that such information becomes available 12 months or more after the consummation of a business combination transaction, or additional information becomes available during the first 12 months as a result of changes in circumstances since the date of the consummation of a business combination transaction, an increase or decrease of the deferred tax valuation allowance will be recorded as an adjustment to deferred income tax expense (benefit).



ANALYSIS OF RESULTS OF OPERATIONS

General

Net income available to common stockholders for the Company was $25.3 million for the first quarter of 2014, a 26.4% increase from $20.0 million for the first quarter of 2013. Diluted earnings per common share were $0.68 for the first quarter of 2014, a 21.4% increase from $0.56 for the first quarter of 2013. The Company's annualized return on average assets was 2.12% for the first quarter of 2014 compared to 2.06% for the first quarter of 2013. Its annualized return on average common stockholders' equity was 16.06% for the first quarter of 2014 compared to 15.77% for the first quarter of 2013. Total assets were $5.03 billion at March 31, 2014 compared to $4.79 billion at December 31, 2013. Loans and leases, excluding purchased non-covered loans and covered loans, were $2.78 billion at March 31, 2014 compared to $2.63 billion at December 31, 2013. Total loans and leases, including purchased non-covered loans and covered loans, were $3.57 billion at March 31, 2014 compared to $3.36 billion at December 31, 2013. Deposits were $3.92 billion at March 31, 2014 compared to $3.72 billion at December 31, 2013. Common stockholders' equity was $653 million at March 31, 2014 compared to $625 million at December 31, 2013. Book value per common share was $17.68 at March 31, 2014 compared to $16.96 at December 31, 2013. Tangible book value per common share was $17.11 at March 31, 2014 compared to $16.44 at December 31, 2013. Changes in common stockholders' equity, book value per common share and tangible book value per common share reflect earnings, dividends paid, stock option and stock grant transactions, changes in unrealized gains and losses on investment securities AFS, and, for tangible book value per common share, changes in intangible assets.



During 2013, the Company completed its acquisition of First National Bank effective July 31, 2013. A summary of the assets acquired and liabilities assumed in this acquisition is included in Note 3 to the Consolidated Financial Statements. Because the acquisition was effective on July 31, 2013, the Company's consolidated results of operations for the three months ended March 31, 2013 do not include the acquired operations of First National Bank.

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During 2014, the Company completed its acquisition of Bancshares effective March 5, 2014. A summary of the assets acquired and liabilities assumed in this acquisition is included in Note 3 to the Consolidated Financial Statements. Because the acquisition was effective March 5, 2014, the Company's consolidated results of operations for the three months ended March 31, 2013 do not include the acquired operations of Bancshares, and the Company's consolidated results for the three months ended March 31, 2014 include twenty-six days of the acquired operations of Bancshares.



Net Interest Income

Net interest income is analyzed in this discussion and the following tables on a fully taxable equivalent ("FTE") basis. The adjustment to convert certain income to a FTE basis consists of dividing federal tax-exempt income by one minus the Company's statutory federal income tax rate of 35%. The FTE adjustments to net interest income were $2.4 million and $2.0 million for the quarters ended March 31, 2014 and 2013, respectively. No adjustments have been made in this analysis for income exempt from state income taxes or for interest expense deductions disallowed under the provisions of the IRC as a result of investment in certain tax-exempt securities. Net interest income for the first quarter of 2014 increased 18.8% to $54.8 million compared to $46.2 million for the first quarter of 2013. Net interest margin was 5.46% for the first quarter of 2014 compared to 5.83% for the first quarter of 2013. The increase in net interest income for the first quarter of 2014 was primarily due to the increase in average earning assets, which increased 26.6% to $4.07 billion for the first quarter of 2014 compared to $3.21 billion for the first quarter of 2013, partially offset by the decline in net interest margin. The Company's net interest margin decreased 37 basis points ("bps") to 5.46 % for the first quarter of 2014 compared to 5.83% for the first quarter in 2013. This decrease was primarily due to a 48 bps decrease in yields on average earning assets, partially offset by a nine bps reduction in rates paid on interest bearing liabilities. Yields on earning assets decreased 48 bps to 5.93% for the first quarter of 2014 compared to 6.41% for the first quarter of 2013. The yield on the Company's portfolio of loans and leases, excluding purchased non-covered loans and covered loans, decreased 59 bps for the first quarter of 2014 compared to the first quarter of 2013. The decrease in yield on the Company's loan and lease portfolio was primarily attributable to the extremely low interest rate environment experienced in recent years and increased pricing competition from many of the Company's competitors. The yield on the Company's aggregate investment securities portfolio decreased 58 bps for the first quarter compared to the same period in 2013 primarily due to changes in the composition of the Company's investment securities portfolio between taxable and tax-exempt investment securities as a result of the investment securities acquired in the First National Bank transaction. During the first quarter of 2014, taxable investment securities comprised 40.7% and tax-exempt investment securities comprised 59.3% of average investment securities. During the first quarter of 2013, taxable investment securities comprised 29.6% and tax-exempt investment securities comprised 70.4% of average investment securities. Additionally, the yield on the Company's purchased non-covered loan portfolio decreased 247 bps for the first quarter of 2014 compared to the first quarter of 2013. This decrease was primarily attributable to the loans acquired in the First National Bank and Bancshares transactions, many of which did not contain evidence of credit deterioration on the date of purchase and were priced at a lower yield compared to the Company's then existing yield on its purchased non-covered loan portfolio. These decreases were partially offset by the 243 bps increase in the yield on covered loans for the first quarter of 2014 compared to the first quarter in 2013. The increase in yields on covered loans was primarily due to upward revisions of estimated cash flows of certain covered loans as a result of recent evaluations of expected performance of such loans. The decrease in rates on average interest bearing liabilities was primarily due to the declines in rates on interest bearing deposits, the largest component of the Company's interest bearing liabilities. Rates on interest bearing deposits decreased four bps for the first quarter of 2014 compared to the first quarter of 2013. This decrease in the rate on interest bearing deposits was principally due to (i) effectively managing the repricing of both time deposits and savings and interest bearing transaction deposits which resulted in lower rates paid on deposits as they were renewed or otherwise repriced; and (ii) a change in the mix of savings and interest bearing deposit accounts to 71.3% of total average interest bearing deposits for the first quarter of 2014 compared to 68.6% for the first quarter of 2013. During recent quarters, the Company has increased deposit pricing in several target markets to fund growth in loans and leases. To the extent the Company continues to increase deposit pricing in additional markets to fund future growth in earning assets, if any, such increased deposit pricing is expected to result in increased deposit costs in future periods. The Company's other borrowing sources include (i) repurchase agreements with customers ("repos"), (ii) other borrowings comprised primarily of Federal Home Loan Bank of Dallas ("FHLB - Dallas") advances, and, to a lesser extent, Federal Reserve borrowings and federal funds purchased and (iii) subordinated debentures. The rates on repos decreased one bps for the first quarter of 2014 compared to the first quarter of 2013. The rate on the Company's other borrowings, which consist primarily of fixed rate callable FHLB - Dallas advances, was unchanged in the first quarter of 2014 compared to the first quarter of 2013. The rates paid on the Company's subordinated debentures, which are tied to a spread over the 90-day London Interbank Offered Rate ("LIBOR") and reset periodically, decreased nine bps in the first quarter of 2014 compared to the first quarter of 2013. 41



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The increase in average earning assets for the first quarter of 2014 compared to the first quarter of 2013 was due to increases in the average balances of loans and leases of $531 million, an increase in average balances of purchased non-covered loans of $362 million, primarily as a result of the First National Bank and Bancshares acquisitions, and an increase in average balances of investment securities of $205 million, primarily as a result of the First National Bank acquisition. These increases were partially offset by a decrease in the average balance of covered loans of $241 million. The following table sets forth certain information relating to the Company's net interest income for the periods indicated. The yields and rates are derived by dividing interest income or interest expense by the average balance of the related assets or liabilities, respectively, for the periods shown. Average balances are derived from daily average balances for such assets and liabilities. The average balance of loans and leases includes loans and leases on which the Company has discontinued accruing interest. The average balances of investment securities are computed based on amortized cost adjusted for unrealized gains and losses on investment securities AFS and other-than-temporary impairment writedowns. The yields on loans and leases include late fees and amortization of certain deferred fees and origination costs, which are considered adjustments to yields. The yields on investment securities include amortization of premiums and accretion of discounts. The yields on covered loans and purchased non-covered loans consist of accretion of the net present value of expected future cash flows using the effective yield method over the term of the loans and include late fees. Interest expense and rates on other borrowings are presented net of interest capitalized on construction projects. Average Consolidated Balance Sheets and Net Interest Analysis - FTE Three Months Ended March 31, 2014 2013 Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate (Dollars in thousands) ASSETS Earning assets: Interest earning deposits and federal funds sold $ 1,079$ 3 1.19 % $ 2,850$ 7 1.00 % Investment securities: Taxable 276,563 2,360 3.46 140,395 1,285 3.71 Tax-exempt - FTE 403,352 6,764 6.80 334,424 5,760 6.99 Loans and leases - FTE 2,656,050 33,469 5.11 2,124,721 29,884 5.70 Purchased non-covered loans 402,199 7,480 7.54 40,046 989 10.01 Covered loans 329,302 9,405 11.58 570,105 12,864 9.15 Total earning assets - FTE 4,068,545 59,481 5.93 3,212,541 50,789 6.41 Non-interest earning assets 756,325 717,097 Total assets $ 4,824,870$ 3,929,638



LIABILITIES AND STOCKHOLDERS'

EQUITY Interest bearing liabilities: Deposits: Savings and interest bearing transaction $ 2,096,018$ 1,067 0.21 % $ 1,665,324$ 864 0.21 % Time deposits of $100,000 or more 382,852 235 0.25 334,805 289 0.35 Other time deposits 458,254 279 0.25



426,712 393 0.37

Total interest bearing deposits 2,937,124 1,581 0.22

2,426,841 1,546 0.26 Repurchase agreements with customers 65,045 12 0.08 33,953 7 0.09 Other borrowings 280,926 2,655 3.83 280,758 2,649 3.83 Subordinated debentures 64,950 413 2.58 64,950 428 2.67



Total interest bearing liabilities 3,348,045 4,661 0.56

2,806,502 4,630 0.67 Non-interest bearing liabilities: Non-interest bearing deposits 790,861 551,348 Other non-interest bearing liabilities 44,164 53,966 Total liabilities 4,183,070 3,411,816 Common stockholders' equity 638,334 514,378 Noncontrolling interest 3,466 3,444 Total liabilities and stockholders' equity $ 4,824,870$ 3,929,638 Net interest income - FTE $ 54,820$ 46,159 Net interest margin - FTE 5.46 % 5.83 % 42



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The following table reflects how changes in the volume of interest earning assets and interest bearing liabilities and changes in interest rates have affected the Company's interest income-FTE, interest expense and net interest income-FTE for the periods indicated. Information is provided in each category with respect to changes attributable to (1) changes in volume (changes in volume multiplied by prior yield/rate); (2) changes in yield/rate (changes in yield/rate multiplied by prior volume); and (3) changes in both yield/rate and volume (changes in yield/rate multiplied by changes in volume). The changes attributable to the combined impact of volume and yield/rate have all been allocated to the changes due to volume. Analysis of Changes in Net Interest Income - FTE Three Months Ended March 31, 2014 Over Three Months Ended March 31, 2013 Yield/ Net Volume Rate Change (Dollars in thousands) Increase (decrease) in:



Interest income - FTE:

Interest earning deposits and federal funds sold $ (5 )$ 1

$ (4 ) Investment securities: Taxable 1,163 (88 ) 1,075 Tax-exempt - FTE 1,156 (152 ) 1,004 Loans and leases - FTE 6,694 (3,109 ) 3,585 Purchased non-covered loans 6,735 (244



) 6,491

Covered loans (6,878 ) 3,419



(3,459 )

Total interest income - FTE 8,865 (173



) 8,692

Interest expense:

Savings and interest bearing transaction 219 (16



) 203

Time deposits of $100,000 or more 30 (84



) (54 )

Other time deposits 19 (133



) (114 )

Repurchase agreements with customers 6 (1 ) 5 Other borrowings 1 5 6 Subordinated debentures - (15 ) (15 ) Total interest expense 275 (244 ) 31 Increase in net interest income - FTE $ 8,590$ 71$ 8,661 Non-Interest Income The Company's non-interest income consists primarily of service charges on deposit accounts, mortgage lending income, trust income, BOLI income, accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable, other income from loss share and purchased non-covered loans, gains on investment securities and on sales of other assets and gains on merger and acquisition transactions. Non-interest income for the first quarter of 2014 increased 24.5% to $20.4 million compared to $16.4 million for the first quarter of 2013. The Company's results for the first quarter of 2014 included $4.7 million of tax-exempt bargain purchase gain from the acquisition of Bancshares. The Company's results for the first quarter of 2013 included no bargain purchase gain. Service charges on deposit accounts increased 19.4% to $5.6 million for the first quarter of 2014 compared to $4.7 million for the first quarter of 2013. The increase in service charges on deposit accounts was primarily a result of growth in the number of transaction accounts and the addition of deposit customers from the Company's First National Bank and Bancshares acquisitions. Mortgage lending income decreased 45.2% to $1.0 million for the first quarter of 2014 compared to $1.7 million for the first quarter of 2013. The volume of originations of mortgage loans available for sale decreased 35.3% for the first quarter of 2014 compared to the first quarter in 2013. During the first quarter of 2014, approximately 27% of the Company's originations of mortgage loans available for sale were related to mortgage refinancings and approximately 73% were related to new home purchases, compared to approximately 64% for refinancings and approximately 36% for new home purchases in the first quarter of 2013. Trust income was $1.3 million in the first quarter of 2014, an increase of 49.0% from $0.9 million for the first quarter of 2013. The increase in trust income was primarily due to new trust customers added as a result of the First National Bank acquisition. 43



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The Company recognized $0.7 million of income from the accretion of the FDIC loss share receivable, net of amortization of the FDIC clawback payable, during the first quarter of 2014 compared to $2.4 million during the first quarter of 2013. The decrease in income from the accretion of the FDIC loss share receivable for the first quarter of 2014 compared to the first quarter of 2013 was due to both a decrease in the balance of the FDIC loss share receivable and upward revisions of projected cash flows of certain loans whose performance is exceeding management's expectations established in conjunction with the determination of the Day 1 Fair Values, resulting in reduced accretion and/or increased amortization of the related FDIC loss share receivable over the remaining term of the loan or the loss share agreement, whichever is shorter. The FDIC loss share receivable reflects the indemnification provided by the FDIC in FDIC-assisted acquisitions, and the FDIC clawback payable represents the obligation of the Company to reimburse the FDIC should actual losses be less than certain thresholds established in each loss share agreement. The FDIC loss share receivable and the FDIC clawback payable are both carried at net present value. As the Company collects payments in future periods from the FDIC under the loss share agreements or otherwise has further upward revisions of projected cash flows of certain loans, the balance of the FDIC loss share receivable, absent any significant revisions to the timing or the amounts expected to be collected under the loss share agreements, will decline, resulting in a corresponding decrease in the accretion of, or increase in the amortization of, the FDIC loss share receivable. Because any amounts due under the FDIC clawback payable are due at the conclusion of the loss share agreements, absent any significant revision of the amounts expected to be paid to the FDIC under the clawback provisions of the loss share agreements, the amortization of this liability is not expected to change significantly over the next several quarters.



Other income from loss share and purchased non-covered loans was $3.3 million in the first quarter of 2014 compared to $2.2 million in the first quarter of 2013.

Net gains on sales of other assets were $1.0 million in the first quarter of 2014 compared to $2.0 million in the first quarter of 2013.

On March 5, 2014, the Company completed its acquisition of Bancshares for an aggregate of $21.5 million in cash. This acquisition resulted in the Company recognizing a tax-exempt bargain purchase gain of $4.7 million during the first quarter of 2014.



The following table presents non-interest income for the periods indicated.

Non-Interest Income Three Months Ended March 31, 2014 2013 (Dollars in thousands) Service charges on deposit accounts $ 5,639$ 4,722 Mortgage lending income 954 1,741 Trust income 1,316 883 BOLI income 1,130 1,083



Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable

692 2,392



Other income from loss share and purchased non-covered loans, net

3,311 2,155 Gains on investment securities 5 156 Gains on sales of other assets 974 1,974 Gain on merger and acquisition transaction 4,667 - Other 1,672 1,251 Total non-interest income $ 20,360$ 16,357 44



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Non-Interest Expense

The Company's non-interest expense consists of salaries and employee benefits, net occupancy and equipment and other operating expenses. Non-interest expense increased 28.1% to $37.5 million for the first quarter of 2014 compared to $29.2 million for the first quarter of 2013. During the first quarter of 2014, the Company incurred pre-tax non-interest expense of $5.0 million due to the termination of existing core banking software contracts and approximately $0.7 million of acquisition-related costs in connection with the Company's acquisition of Bancshares and its pending acquisition of Summit Bancorp, Inc. ("Summit"). There were no software termination charges or acquisition-related costs in the first quarter of 2013. Salaries and employee benefits, the Company's largest components of non-interest expense, increased 12.7% to $17.7 million in the first quarter of 2014 compared to $15.7 million in the first quarter of 2013. The Company had 1,306 full-time equivalent employees at March 31, 2014, a 17.7% increase compared to 1,110 full-time equivalent employees at March 31, 2013. Net occupancy and equipment expense for the first quarter of 2014 increased 11.7% to $5.0 million compared to $4.5 million for the first quarter of 2013. At March 31, 2014 the Company had 141 offices, a 20.5% increase compared to 117 offices at March 31, 2013. The Company's efficiency ratio (non-interest expense divided by the sum of net interest income - FTE and non-interest income) was 49.8% for the first quarter of 2014 compared to 46.8% for the first quarter of 2013. The following table presents non-interest expense for the periods indicated. Non-Interest Expense Three Months Ended March 31, 2014 2013 (Dollars in thousands) Salaries and employee benefits $ 17,689 $



15,694

Net occupancy and equipment 5,044



4,514

Other operating expenses: Postage and supplies 770 809 Advertising and public relations 400 354 Telephone and data lines 1,001 823 Professional and outside services 2,128 1,186 Software expense 6,024 1,396 Travel and meals 556 645 FDIC insurance 503 420 FDIC and state assessments 260 172 ATM expense 210 218 Loan collection and repossession expense 460 766 Writedowns of foreclosed and other assets 64 121 Amortization of intangibles 813 568 Other 1,532



1,545

Total non-interest expense $ 37,454$ 29,231 Income Taxes The provision for income taxes was $8.7 million for the first quarter of 2014 compared to $8.5 million for the first quarter of 2013. The effective income tax rate was 25.7% for the first quarter of 2014 compared to 29.9% for the first quarter of 2013. The decrease in the effective tax rate for the first quarter of 2014 compared to the first quarter of 2013 was due primarily to the tax-exempt bargain purchase gain of $4.7 million as a result of the Bancshares acquisition. The effective tax rates were also affected by various other factors including non-taxable income and non-deductible expenses. 45



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ANALYSIS OF FINANCIAL CONDITION

Loan and Lease Portfolio

At March 31, 2014 the Company's loan and lease portfolio, excluding purchased non-covered loans and covered loans, was $2.78 billion, compared to $2.63 billion at December 31, 2013 and $2.16 billion at March 31, 2013. Real estate loans, the Company's largest category of loans, consist of all loans secured by real estate as evidenced by mortgages or other liens, including all loans made to finance the development of real property construction projects, provided such loans are secured by real estate. Total real estate loans were $2.43 billion at March 31, 2014, compared to $2.33 billion at December 31, 2013 and $1.90 billion at March 31, 2013. The amount and type of loans and leases outstanding, excluding purchased non-covered loans and covered loans, as of the dates indicated, and their respective percentage of the total loan and lease portfolio are reflected in the following table. Loan and Lease Portfolio March 31, December 31, 2014 2013 2013 (Dollars in thousands) Real estate: Residential 1-4 family $ 252,788 9.1 % $



256,628 11.9 % $ 249,556 9.5 % Non-farm/non-residential

1,144,483 41.2 823,691 38.2 1,104,114 41.9 Construction/land development 796,126 28.7 623,302 28.9 722,557 27.4 Agricultural 43,908 1.6 49,460 2.3 45,196 1.7 Multifamily residential 195,332 7.0 142,714 6.6 208,337 8.0 Total real estate 2,432,637 87.6



1,895,795 87.9 2,329,760 88.5 Commercial and industrial

137,664 5.0 127,742 5.9 124,068 4.7 Consumer 23,769 0.9 28,551 1.3 26,182 1.0 Direct financing leases 92,856 3.3 71,420 3.3 86,321 3.3 Other 91,577 3.2 34,263 1.6 66,234 2.5 Total loans and leases $ 2,778,503 100.0 % $ 2,157,771 100.0 % $ 2,632,565 100.0 % The amount and percentage of the Company's loan and lease portfolio, excluding purchased non-covered loans and covered loans, by office of origination, as of the dates indicated, are reflected in the following table. Loan and Lease Portfolio by State of Originating Office Loans and Leases March 31, December 31, Attributable to Offices In 2014 2013 2013 (Dollars in thousands) Texas $ 1,319,150 47.5 % $ 1,039,871 48.2 % $ 1,302,061 49.5 % Arkansas 1,072,391 38.6 970,145 44.9 1,069,200 40.6 North Carolina 178,365 6.4 101,038 4.7 157,938 6.0 Georgia 102,126 3.7 40,146 1.9 57,570 2.1 New York 90,812 3.3 - - 30,837 1.2 Alabama 13,624 0.4 5,959 0.3 13,073 0.5 South Carolina 1,816 0.1 393 - 1,703 0.1 Florida 219 - 219 - 183 - Total $ 2,778,503 100.0 % $ 2,157,771 100.0 % $ 2,632,565 100.0 % 46



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The amount and type of the Company's real estate loans, excluding covered loans and purchased non-covered loans, at March 31, 2014, based on the metropolitan statistical area ("MSA") and other geographic areas in which the principal collateral is located, are reflected in the following table. Data for individual states and MSAs is separately presented when aggregate real estate loans, excluding covered loans and purchased non-covered loans, in that state or MSA exceed $10.0 million. Geographic Distribution of Real Estate Loans Non- Construction Residential Farm/Non- /Land Multifamily 1-4 Family Residential Development Agricultural Residential Total (Dollars in thousands) Arkansas: Little Rock-North Little Rock-Conway, AR MSA $ 95,841$ 201,746$ 114,852$ 7,804$ 13,151$ 433,394 Northern Arkansas (1) 41,840 15,767 5,388 15,041 893 78,929 Fort Smith, AR-OK MSA 28,090 25,842 6,091 3,350 8,015 71,388 Western Arkansas (2) 21,745 29,731 4,834 6,427 1,127 63,864 Fayetteville-Springdale-Rogers, AR-MO MSA 9,132 21,703 16,269 5,044 3,366 55,514 Hot Springs, AR MSA 4,658 22,126 6,938 - 907 34,629 All other Arkansas (3) 5,636 12,125 8,296 2,973 1,646 30,676 Total Arkansas 206,942 329,040 162,668 40,639 29,105 768,394 Texas: Dallas-Fort Worth-Arlington, TX MSA 16,456 139,662 167,171 - 13,447



336,736

Houston-The Woodlands-Sugarland, TX MSA 125 29,500 79,359 - 8,345



117,329

San Antonio-New Braunfels, TX MSA - 2,663 13,789 - - 16,452 Austin-Round Rock, TX MSA - - 41,371 - - 41,371 Texarkana, TX-AR MSA 7,880 8,713 1,004 597 984 19,178 College Station-Bryan, TX MSA - - - - 17,893 17,893 Midland, TX MSA - 7,924 9,553 - - 17,477 Beaumont-Port Arthur, TX MSA - - - - 15,730



15,730

All other Texas (3) 1,068 17,823 152 132 4,156 23,331 Total Texas 25,529 206,285 312,399 729 60,555 605,497 North Carolina/South Carolina: Charlotte-Gastonia-Concord, NC-SC MSA 4,532 55,785 30,395 - 1,534 92,246 Wilmington, NC MSA 659 15,769 2,218 - - 18,646 Raleigh-Cary, NC MSA - - 12,240 - - 12,240 Charleston-North Charleston, SC MSA - 3,743 724 - 5,863 10,330 All other No. Carolina (3) 4,410 14,885 39,858 492 - 59,645 All other So. Carolina (3) 1,392 2,755 14,808 - - 18,955 Total N. Carolina/S. Carolina 10,993 92,937 100,243 492 7,397 212,062 California: Los Angeles-Long Beach-Santa Ana, CA MSA - 100,706 1 - -



100,707

San Francisco-Oakland-Fremont, CA MSA - 59,010 - - -



59,010

Sacramento-Roseville-Arden-Arcade, CA MSA - - 42,113 - - 42,113 All other California(3) - 8,976 472 - - 9,448 Total California - 168,692 42,586 - - 211,278 47



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Table of Contents Geographic Distribution of Real Estate Loans (continued) Non- Construction Residential Farm/Non- /Land Multifamily 1-4 Family Residential Development Agricultural Residential Total (Dollars in thousands) New York-Northern New Jersey- Long Island, NY-NJ-PA MSA - 34,906 57,603 - -



92,509

Georgia:

Atlanta-Sandy Springs-Roswell, GA MSA 2,625 41,538 26,298 186 - 70,647 All other Georgia (3) 2,040 16,579 1,781 790 217 21,407 Total Georgia 4,665 58,117 28,079 976 217 92,054 Virginia/West Virginia: Virginia Beach-Norfolk-Newport News, VA-NC MSA - 41,507 - - -



41,507

Washington-Arlington- Alexandria, DC-VA-MD-WV MSA - - 30,058 - - 30,058 All other West Virginia(3) - 10,221 - - - 10,221 Total Virginia/West Virginia - 51,728 30,058 - -



81,786

Florida:

Miami-Fort Lauderdale- Pompano Beach, FL MSA - - 5,767 - 41,375 47,142 All other Florida(3) 1,250 7,595 6,663 691 - 16,199 Total Florida 1,250 7,595 12,430 691 41,375 63,341 Phoenix-Mesa-Glendale, AZ MSA - 60,477 - - - 60,477 Missouri: St. Louis, MO MSA - - - - 22,974 22,974 Kansas City, MO-KS MSA 118 147 18,762 42 - 19,069 All other Missouri (3) 623 2,782 174 266 - 3,845 Total Missouri 741 2,929 18,936 308 22,974 45,888 Tennessee: Nashville-Davidson-Murfreesboro-Franklin, TN MSA - 14,301 - - - 14,301 Memphis, TN-MS-AR MSA 101 19,203 - - - 19,304 All other Tennessee (3) - - - - - - Total Tennessee 101 33,504 - - - 33,605 Seattle-Tacoma-Bellevue, WA MSA - - - - 29,935 29,935 Oklahoma: Lawton, OK MSA - - 22,573 - - 22,573 All other Oklahoma (3) 128 5,389 796 - - 6,313 Total Oklahoma 128 5,389 23,369 - - 28,886 Boston-Cambridge-Quincy, MA MSA - 21,441 - - -



21,441

Baltimore-Columbia-Towson, MD MSA - 17,184 - - - 17,184 48



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Table of Contents Geographic Distribution of Real Estate Loans (continued) Non- Construction Residential Farm/Non- /Land Multifamily 1-4 Family Residential Development Agricultural Residential Total (Dollars in thousands) Alabama 1,826 7,209 1,546 73 3,774 14,428



Mississippi:

Gulfport-Biloxi-Pascagoula, MS MSA - 12,835 - - -



12,835

All other Mississippi(3) 423 - - - - 423 Total Mississippi 423 12,835 - - - 13,258 All other states (4) 190 34,215 6,209 - -



40,614

Total real estate loans $ 252,788$ 1,144,483$ 796,126$ 43,908$ 195,332$ 2,432,637



(1) This geographic area includes the following counties in Northern Arkansas:

Baxter, Boone, Marion, Newton, Searcy and Van Buren.

(2) This geographic area includes the following counties in Western Arkansas:

Johnson, Logan, Pope and Yell.

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

separately reported.

(4) Includes all states not separately presented above.

The amount and type of non-farm/non-residential loans, excluding purchased non-covered loans and covered loans, as of the dates indicated, and their respective percentage of the total non-farm/non-residential loan portfolio are reflected in the following table.

Non-Farm/Non-Residential Loans March 31, December 31, 2014 2013 2013 (Dollars in thousands) Retail, including shopping centers and strip centers $ 264,651 23.1 % $



327,912 39.8 % $ 290,092 26.3 % Churches and schools

47,546 4.1 41,271 5.0 44,740 4.1 Office, including medical offices 278,058 24.3 128,670 15.6 263,986 23.9 Office warehouse, warehouse and mini-storage 110,757 9.7 37,338 4.5 113,317 10.3 Gasoline stations and convenience stores 10,660 0.9 8,653 1.1 8,150 0.7 Hotels and motels 234,793 20.5 96,539 11.7 192,527 17.4 Restaurants and bars 31,932 2.8 35,766 4.3 33,178 3.0 Manufacturing and industrial facilities 41,948 3.7 38,043 4.6 37,288 3.4 Nursing homes and assisted living centers 42,120 3.7 24,468 3.0 41,317 3.7 Hospitals, surgery centers and other medical 48,303 4.2 49,304 6.0 49,112 4.4 Golf courses, entertainment and recreational facilities 6,503 0.6 9,842 1.2 5,261 0.5 Other non-farm/non residential 27,212 2.4 25,885 3.2 25,146 2.3 Total $ 1,144,483 100.0 % $ 823,691 100.0 % $ 1,104,114 100.0 % 49



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The amount and type of construction/land development loans, excluding purchased non-covered loans and covered loans, as of the dates indicated, and their respective percentage of the total construction/land development loan portfolio are reflected in the following table. Construction/Land Development Loans March 31, December 31, 2014 2013 2013 (Dollars in thousands) Unimproved land $ 134,733 16.9 % $ 89,716 14.4 % $ 105,739 14.6 % Land development and lots: 1-4 family residential and multifamily 174,008 21.9 184,733 29.6 176,893 24.5 Non-residential 72,877 9.1 70,803 11.4 68,376 9.5 Construction: 1-4 family residential: Owner occupied 13,340 1.7 14,585 2.4 12,870 1.8 Non-owner occupied: Pre-sold 7,947 1.0 6,880 1.1 8,206 1.1 Speculative 53,068 6.7 33,722 5.4 50,030 6.9 Multifamily 201,571 25.3 109,884 17.6 187,409 26.0 Industrial, commercial and other 138,582 17.4 112,979 18.1 113,034 15.6 Total $ 796,126 100.0 % $ 623,302 100.0 % $ 722,557 100.0 % Many of the Company's construction and development loans provide for the use of interest reserves. When the Company underwrites construction and development loans, it considers the expected total project costs, including hard costs such as land, site work and construction costs and soft costs such as architectural and engineering fees, closing costs, leasing commissions and construction period interest. Based on the total project costs and other factors, the Company determines the required borrower cash equity contribution and the maximum amount the Company is willing to loan. In the vast majority of cases, the Company requires that all of the borrower's cash equity contribution be contributed prior to any material loan advances. This ensures that the borrower's cash equity required to complete the project will be available for such purposes. As a result of this practice, the borrower's cash equity typically goes toward the purchase of the land and early stage hard costs and soft costs. This results in the Company funding the loan later as the project progresses, and accordingly the Company typically funds the majority of the construction period interest through loan advances. However, when the Company initially determines the borrower's cash equity requirement, the Company typically requires borrower's cash equity in an amount to cover a majority, or all, of the soft costs, including an amount equal to construction period interest, and an appropriate portion of the hard costs. The Company advanced construction period interest on construction and development loans totaling $2.5 million in the first quarter of 2014. While the Company advanced these sums as part of the funding process, the Company believes that the borrowers in effect had in most cases already provided for these sums as part of their initial equity contribution. Specifically, the maximum committed balance of all construction and development loans which provide for the use of interest reserves at March 31, 2014 was approximately $1.57 billion, of which $579 million was outstanding at March 31, 2014 and $988 million remained to be advanced. The weighted average loan-to-cost on such loans, assuming such loans are ultimately fully advanced, will be approximately 56%, which means that the weighted average cash equity contributed on such loans, assuming such loans are ultimately fully advanced, will be approximately 44%. The weighted average final loan-to-value ratio on such loans, based on the most recent appraisals and assuming such loans are ultimately fully advanced, is expected to be approximately 47%. 50



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The following table reflects loans and leases, excluding purchased non-covered loans and covered loans, as of March 31, 2014 grouped by expected amortizations, expected paydowns or the earliest repricing opportunity for floating rate loans. This cash flow or repricing schedule approximates the Company's ability to reprice the outstanding principal of loans and leases either by adjusting rates on existing loans and leases or reinvesting principal cash flow in new loans and leases. Loan and Lease Cash Flows or Repricing Over 1 Over 2 1 Year Through Through Over or Less 2 Years 3 Years 3 Years Total (Dollars in thousands) Fixed rate $ 290,462$ 167,662$ 162,591$ 365,547$ 986,262 Floating rate (not at a floor or ceiling rate) 100,646 96 122 - 100,864 Floating rate (at floor rate)(1) 1,681,831 422 3,220 5,904 1,691,377 Floating rate (at ceiling rate) - - - - - Total $ 2,072,939$ 168,180$ 165,933$ 371,451$ 2,778,503 Percentage of total 74.6 % 6.0 % 6.0 % 13.4 % 100.0 % Cumulative percentage of total 74.6 80.6 86.6 100.0



(1) The Company has included a floor rate in many of its loans and leases. As a

result of such floor rates, many loans and leases will not immediately

reprice in a rising rate environment if the interest rate index and margin on

such loans and leases continue to result in a computed interest rate less

than the applicable floor rate. The earnings simulation model results

included in the Quantitative and Qualitative Disclosures about Market Risk

section of this quarterly report on Form 10-Q include consideration of the

impact of all interest rate floors and ceilings in loans and leases.

Purchased Non-Covered Loans

The amount and type of purchased non-covered loans outstanding, as of the dates indicated, are reflected in the following table.

Purchased Non-Covered Loan Portfolio March 31, December 31, 2014 2013 2013 (Dollars in thousands) Real estate:



Residential 1-4 family $ 138,652$ 18,734$ 131,085

Non-farm/non-residential 216,328 4,391



152,948

Construction/land development 54,513 1,925



25,633

Agricultural 10,098 2,968



9,518

Multifamily residential 18,265 -



17,210

Total real estate 437,856 28,018



336,394

Commercial and industrial 38,381 3,991 24,934 Consumer 6,609 3,491 6,855 Other 5,687 2,571 4,540 Total $ 488,533$ 38,071$ 372,723



The amount and percentage of the Company's purchased non-covered loans, by state, as of the dates indicated, are reflected in the following table.

Purchased Non-Covered Loans by State March 31, December 31, Purchased Non-Covered Loans 2014 2013 2013 Attributable to Offices In Amount % Amount % Amount % (Dollars in thousands) North Carolina $ 321,617 65.8 % $ 103 0.3 % $ 348,651 93.5 % Texas 146,094 29.9 - - - - Alabama 20,291 4.2 36,762 96.6 23,431 6.3 Georgia 434 0.1 1,032 2.7 537 0.1 Florida 97 - 159 0.4 104 0.1 South Carolina - - 15 - - - Total $ 488,533 100.0 % $ 38,071 100.0 % $ 372,723 100.0 % 51



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The amount of unpaid principal balance, the valuation discount and the carrying value of purchased non-covered loans as of the dates indicated are reflected in the following table. Purchased Non-Covered Loans March 31, December 31, 2014 2013 2013 (Dollars in thousands) Loans without evidence of credit deterioration at date of purchase: Unpaid principal balance $ 442,955$ 32,659$ 344,065 Valuation discount (12,041 ) (701 ) (11,972 ) Carrying value 430,914 31,958 332,093 Loans with evidence of credit deterioration at date of purchase: Unpaid principal balance 94,645 11,211 70,857 Valuation discount (37,026 ) (5,098 ) (30,227 ) Carrying value 57,619 6,113 40,630 Total carrying value $ 488,533$ 38,071$ 372,723 The Company completed its acquisition of Bancshares on March 5, 2014. On the date of the acquisition, Bancshares' outstanding loans were categorized into loans without evidence of credit deterioration and loans with evidence of credit deterioration. The following table presents, by risk rating, the unpaid principal balance, fair value adjustment, Day 1 Fair Value and the weighted-average fair value adjustment applied to the purchased non-covered loans without evidence of credit deterioration in the Bancshares acquisition. Fair Value Adjustments for Purchased Non-Covered Loans Without Evidence of Credit Deterioration At Date of Acquisition of Bancshares Weighted Average Unpaid Fair Fair Value Principal Value Day 1 Fair Adjustment Balance Adjustment Value (in bps) (Dollars in thousands) FV 33 $ 35,541$ (375 )$ 35,166 106 FV 44 72,376 (852 ) 71,524 118 FV 55 29,210 (584 ) 28,626 200 FV 36 908 (222 ) 686 2,445 Total $ 138,035$ (2,033 )$ 136,002 147



The following grades are used for purchased non-covered loans without evidence of credit deterioration.

FV 33 - Loans in this category are considered to be satisfactory with minimal credit risk and are generally considered collectible.

FV 44 - Loans in this category are considered to be marginally satisfactory with minimal to moderate credit risk and are generally considered collectible.

FV 55 - Loans in this category exhibit weakness and are considered to have elevated credit risk and elevated risk of repayment.

FV 36 - Loans in this category were not individually reviewed at the date of purchase and are assumed to have characteristics similar to the characteristics of the aggregate acquired portfolio. 52



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The following table is a summary of the loans acquired in the Bancshares acquisition with evidence of credit deterioration at the date of acquisition.

Fair Value Adjustments for Purchased Non-Covered Loans With Evidence of Credit Deterioration at Date of Acquisition of Bancshares March 5, 2014 (Dollars in thousands) Contractually required principal and interest $



30,453

Nonaccretable difference



(8,054 )

Cash flows expected to be collected



22,399

Accretable difference (3,226 ) Day 1 Fair Value $ 19,173 A summary of changes in the accretable difference on purchased non-covered loans with evidence of credit deterioration at the date of acquisition is shown below for the periods indicated. Accretable Difference on Non-Covered Loans With Evidence of Credit Deterioration at Date of Acquisition Three Months Ended March 31, 2014 2013 (Dollars in thousands) Accretable difference at January 1 $ 5,983$ 969 Accretable difference acquired 3,226 - Accretion (847 ) (131 ) Other, net (33 ) 8 Accretable difference at March 31 $ 8,329$ 846 The following table presents purchased non-covered loans grouped by remaining maturities at March 31, 2014 by type and by fixed or floating interest rates. This table is based on contractual maturities and does not reflect amortizations, projected paydowns, the earliest repricing for floating rate loans, accretion or management's estimate of projected cash flows. Many loans have principal paydowns scheduled in periods prior to the period in which they mature, and many variable rate loans are subject to repricing in periods prior to the period in which they mature. Additionally, because income on purchased non-covered loans with evidence of credit deterioration on the date of acquisition is recognized by accretion of the discount of estimated cash flows, such loans are not considered to be floating or adjustable rate loans and are reported below as fixed rate loans. Purchased Non-Covered Loan Maturities Over 1 1 Year Through Over or Less 5 Years 5 Years Total (Dollars in thousands) Real estate: Residential 1-4 family $ 20,641$ 49,587$ 68,424$ 138,652 Non-farm/non-residential 42,001 119,476 54,851 216,328 Construction/land development 21,819 27,349 5,345 54,513 Agricultural 1,414 6,982 1,702 10,098 Multifamily residential 5,896 11,233 1,136 18,265 Total real estate 91,771 214,627 131,458 437,856 Commercial and industrial 16,533 18,192 3,656 38,381 Consumer 2,901 3,526 182 6,609 Other 1,499 2,025 2,163 5,687 Total $ 112,704$ 238,370$ 137,459$ 488,533 Fixed rate $ 60,603$ 162,466$ 87,829$ 310,898 Floating rate 52,101 75,904 49,630 177,635 Total $ 112,704$ 238,370$ 137,459$ 488,533 53



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Covered Assets, FDIC Loss Share Receivable and FDIC Clawback Payable

FDIC-Assisted Acquisitions

During 2010 and 2011, the Company, through the Bank, acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of seven failed financial institutions in FDIC-assisted acquisitions. A summary of each acquisition is as follows: Failed Bank Acquisitions Date of FDIC-Assisted Acquisition Failed Financial Institution Location March 26, 2010 Unity National Bank ("Unity") Cartersville, Georgia July 16, 2010 Woodlands Bank ("Woodlands") Bluffton, South Carolina September 10, 2010 Horizon Bank ("Horizon") Bradenton, Florida December 17, 2010 Chestatee State Bank ("Chestatee") Dawsonville, Georgia January 14, 2011 Oglethorpe Bank ("Oglethorpe") Brunswick, Georgia April 29, 2011 First Choice Community Bank ("First Choice") Dallas, Georgia April 29, 2011 The Park Avenue Bank ("Park Avenue") Valdosta, Georgia Loans comprise the majority of the assets acquired in each of these FDIC-assisted acquisitions and, with the exception of Unity, all but a small amount of consumer loans are subject to loss share agreements with the FDIC whereby the Bank is indemnified against a portion of the losses on covered loans and covered foreclosed assets. In the Unity acquisition, all loans, including consumer loans, are subject to loss share agreement with the FDIC.



Loss Share Agreements and Other FDIC-Assisted Acquisition Matters

In conjunction with each of these acquisitions, the Bank entered into loss share agreements with the FDIC such that the Bank and the FDIC will share in the losses on assets covered under the loss share agreements. Pursuant to the terms of the loss share agreements for the Unity acquisition, on losses up to $65 million, the FDIC will reimburse the Bank for 80% of losses. On losses exceeding $65 million, the FDIC will reimburse the Bank for 95% of losses. Pursuant to the terms of the loss share agreements for the Woodlands, Chestatee, Oglethorpe and First Choice acquisitions, the FDIC will reimburse the Bank for 80% of losses. Pursuant to the terms of the loss share agreements for the Horizon acquisition, the FDIC will reimburse the Bank on single family residential loans and related foreclosed assets for (i) 80% of losses up to $11.8 million, (ii) 30% of losses between $11.8 million and $17.9 million and (iii) 80% of losses in excess of $17.9 million. For non-single family residential loans and related foreclosed assets, the FDIC will reimburse the Bank for (i) 80% of losses up to $32.3 million, (ii) 0% of losses between $32.3 million and $42.8 million and (iii) 80% of losses in excess of $42.8 million. Pursuant to the terms of the loss share agreements for the Park Avenue acquisition, the FDIC will reimburse the Bank for (i) 80% of losses up to $218.2 million, (ii) 0% of losses between $218.2 million and $267.5 million and (iii) 80% of losses in excess of $267.5 million. The loss share agreements applicable to single family residential mortgage loans and related foreclosed assets provide for FDIC loss sharing and the Bank's reimbursement to the FDIC for recoveries of covered losses for ten years from the date on which each applicable loss share agreement was entered. The loss share agreements applicable to commercial loans and related foreclosed assets provide for FDIC loss sharing for five years from the date on which each applicable loss share agreement was entered and the Bank's reimbursement to the FDIC for recoveries of covered losses for an additional three years thereafter. To the extent that actual losses incurred by the Bank are less than (i) $65 million on the Unity assets covered under the loss share agreements, (ii) $107 million on the Woodlands assets covered under the loss share agreements, (iii) $60 million on the Horizon assets covered under the loss share agreements, (iv) $66 million on the Chestatee assets covered under the loss share agreements, (v) $66 million on the Oglethorpe assets covered under the loss share agreements, (vi) $87 million on the First Choice assets covered under the loss share agreements or (vii) $269 million on the Park Avenue assets covered under loss share agreements, the Bank may be required to reimburse the FDIC under the clawback provisions of the loss share agreements. The terms of the purchase and assumption agreements for the Unity, Woodlands, Horizon, Chestatee, Oglethorpe, First Choice and Park Avenue acquisitions provide for the FDIC to indemnify the Bank against certain claims, including claims with respect to assets, liabilities or any affiliate not acquired or otherwise assumed by the Bank and with respect to claims based on any action by directors, officers or employees of Unity, Woodlands, Horizon, Chestatee, Oglethorpe, First Choice or Park Avenue. 54



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The covered loans and covered foreclosed assets (collectively "covered assets") and the related FDIC loss share receivable and the FDIC clawback payable are reported at the net present value of expected future amounts to be paid or received.



The following is a summary of the covered assets, the FDIC loss share receivable and the FDIC clawback payable as of the dates indicated.

Covered Assets, FDIC Loss Share Receivable and FDIC Clawback Payable March 31, December 31, 2014 2013 2013 (Dollars in thousands) Covered loans $ 304,955$ 544,268 $



351,791

FDIC loss share receivable 57,782 132,699



71,854

Covered foreclosed assets 43,793 51,040 37,960 Total $ 406,530$ 728,007$ 461,605



FDIC clawback payable $ 26,202$ 25,384$ 25,897

Covered Loans



The following table presents a summary, by acquisition, of activity within covered loans during the periods indicated.

Covered Loans First Park Unity Woodlands Horizon Chestatee Oglethorpe Choice Avenue Total (Dollars in thousands) Carrying value at January 1, 2013 $ 72,849$ 99,734$ 63,193$ 56,668$ 48,093$ 91,081$ 164,621$ 596,239 Accretion 1,526 1,980 1,237 1,183 1,205 2,025 3,708 12,864 Transfers to covered foreclosed assets (1,317 ) (1,711 ) (1,320 ) (412 ) (950 ) (82 ) (2,244 ) (8,036 ) Payments received (3,502 ) (7,354 ) (2,790 ) (6,451 ) (4,303 ) (6,684 ) (17,549 ) (48,633 ) Charge-offs (2,042 ) (954 ) (502 ) (648 ) (206 ) (1,047 ) (2,864 ) (8,263 ) Other activity, net 58 (27 ) 15 (10 ) 60 63 (62 ) 97 Carrying value at March 31, 2013 $ 67,572$ 91,668$ 59,833



$ 50,330$ 43,899$ 85,356$ 145,610$ 544,268

Carrying value at January 1, 2014 $ 48,968$ 62,039$ 41,466$ 26,076$ 27,592$ 61,966$ 83,684$ 351,791 Accretion 1,825 1,548 1,013 750 877 1,549 1,843 9,405 Transfers to covered foreclosed assets (1,024 ) (1,578 ) (532 ) (14 ) - (3,249 ) (8,832 ) (15,229 ) Payments received (3,272 ) (6,083 ) (8,468 ) (4,956 ) (3,296 ) (3,609 ) (10,159 ) (39,843 ) Charge-offs (603 ) (64 ) (24 ) - - (522 ) (94 ) (1,307 ) Other activity, net (35 ) 132 42 (71 ) 34 (17 ) 53 138 Carrying value at March 31, 2014 $ 45,859$ 55,994$ 33,497$ 21,785$ 25,207$ 56,118$ 66,495$ 304,955 55



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The following table presents a summary of the carrying value and type of covered loans as of the dates indicated.

Covered Loan Portfolio March 31, December 31, 2014 2013 2013 (Dollars in thousands) Real estate:



Residential 1-4 family $ 101,954$ 144,299$ 111,053

Non-farm/non-residential 136,556 264,996



163,707

Construction/land development 39,375 92,289



47,743

Agricultural 11,029 18,163



11,150

Multifamily residential 8,011 9,897



9,166

Total real estate 296,925 529,644



342,819

Commercial and industrial 7,802 13,317 8,719 Consumer 91 395 111 Other 137 912 142 Total covered loans $ 304,955$ 544,268$ 351,791 The following table presents covered loans grouped by remaining maturities and by type at March 31, 2014. This table is based on contractual maturities and does not reflect accretion of the accretable difference or management's estimate of projected cash flows. Most covered loans have scheduled accretion and/or cash flows projected by management to occur in periods prior to maturity. In addition, because income on covered loans is recognized by accretion of the accretable difference, none of the covered loans are considered to be floating or adjustable rate loans. Covered Loan Maturities Over 1 1 Year Through 5 Over 5 or Less Years Years Total (Dollars in thousands) Real estate: Residential 1-4 family $ 30,652$ 45,629$ 25,673$ 101,954 Non-farm/non-residential 63,742 57,719 15,095 136,556 Construction/land development 30,296 8,069 1,010 39,375 Agricultural 6,865 2,686 1,478 11,029 Multifamily residential 6,326 1,463 222 8,011 Total real estate 137,881 115,566 43,478 296,925 Commercial and industrial 3,592 969 3,241 7,802 Consumer 76 15 - 91 Other 1 136 - 137 Total covered loans $ 141,550$ 116,686$ 46,719$ 304,955 56



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The following table presents a summary, by acquisition, of changes in the accretable difference on covered loans during the periods indicated.

Accretable Difference on Covered Loans First Park Unity Woodlands Horizon Chestatee Oglethorpe Choice Avenue Total (Dollars in thousands)

Accretable difference at January 1, 2013 $ 8,574$ 17,452$ 16,524$ 5,712$ 11,372$ 9,919$ 27,942$ 97,495 Accretion (1,526 ) (1,980 ) (1,237 ) (1,183 ) (1,205 ) (2,025 ) (3,708 ) (12,864 ) Transfers to covered foreclosed assets (98 ) (138 ) (24 ) (44 ) (25 ) (6 ) (374 ) (709 ) Covered loans paid off (226 ) (95 ) (299 ) (269 ) (188 ) (508 ) (1,106 ) (2,691 ) Cash flow revisions as a result of renewals and/or modifications 2,563 1,550 (294 ) 655 419 2,412 671 7,976 Other, net 16 175 25 95 24 106 230 671 Accretable difference at March 31, 2013 $ 9,303$ 16,964$ 14,695$ 4,966$ 10,397$ 9,898$ 23,655$ 89,878 Accretable difference at January 1, 2014 $ 8,037$ 16,216$ 14,428$ 4,195$ 11,311$ 9,621$ 13,664$ 77,472 Accretion (1,825 ) (1,548 ) (1,013 ) (750 ) (877 ) (1,549 ) (1,843 ) (9,405 ) Transfers to covered foreclosed assets (42 ) (89 ) (12 ) - - (97 ) (357 ) (597 ) Covered loans paid off (235 ) (1,293 ) (2,734 ) (399 ) (985 ) (195 ) (377 ) (6,218 ) Cash flow revisions as a result of renewals and/or modifications 2,674 795 53 467 837 941 758 6,525 Other, net (26 ) 10 48 42 53 61 28 216 Accretable difference at March 31, 2014 $ 8,583$ 14,091$ 10,770$ 3,555$ 10,339$ 8,782$ 11,873$ 67,993 57



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FDIC Loss Share Receivable

The following table presents a summary, by acquisition, of activity within the FDIC loss share receivable during the periods indicated.

FDIC Loss Share Receivable First Park Unity Woodlands Horizon Chestatee Oglethorpe Choice Avenue Total (Dollars in thousands) Carrying value at January 1, 2013 $ 19,818$ 22,373$ 16,859$ 11,162$ 23,996$ 17,918$ 40,072$ 152,198 Accretion income 119 238 77 114 234 713 1,204 2,699 Cash received from FDIC (2,013 ) (2,524 ) (3,418 ) (2,828 ) (2,325 ) (4,226 ) (5,231 ) (22,565 ) Reductions of FDIC loss share receivable for payments on covered loans in excess of carrying value (614 ) (1,201 ) (503 ) (2,024 ) (615 ) (1,067 ) (2,344 ) (8,368 ) Increases in FDIC loss share receivable for: Charge-offs of covered loans 954 751 401 519 165 838 2,291



5,919

Writedowns of covered foreclosed assets 74 98 83 234 9 133 75 706 Expenses on covered assets reimbursable by FDIC 209 441 347 115 381 239 650 2,382 Other activity, net 29 (284 ) (81 ) (177 ) (226 ) (76 ) 543 (272 )



Carrying value at March 31, 2013$ 18,576$ 19,892$ 13,765

$ 7,115$ 21,619$ 14,472$ 37,260$ 132,699

Carrying value at January 1, 2014 $ 13,892$ 14,331$ 5,731$ 3,688$ 10,119$ 9,336$ 14,757$ 71,854 Accretion income (amortization expense) (328 ) (11 ) 30 (7 ) 60 409 844 997 Cash received from FDIC (2,572 ) (1,992 ) (302 ) (646 ) (59 ) (1,851 ) (3,188 ) (10,610 ) Reductions of FDIC loss share receivable for payments on covered loans in excess of carrying value (645 ) (989 ) (965 ) (823 ) (1,025 ) (897 ) (1,486 ) (6,830 ) Increases in FDIC loss share receivable for: Charge-offs of covered loans 466 51 20 - - 418 75



1,030

Writedowns of covered foreclosed assets 30 383 26 3 39 15 96 592 Expenses on covered assets reimbursable by FDIC 229 306 171 31 151 364 27 1,279 Other activity, net 5 33 (58 ) 148 (102 ) (559 ) 3 (530 )



Carrying value at March 31, 2014$ 11,077$ 12,112$ 4,653

$ 2,394$ 9,183$ 7,235$ 11,128$ 57,782 58



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Covered Foreclosed Assets

The following table presents a summary, by acquisition, of activity within covered foreclosed assets during the periods indicated.

Covered Foreclosed Assets First Park Unity Woodlands Horizon Chestatee Oglethorpe Choice Avenue Total (Dollars in thousands) Carrying value at January 1, 2013 $ 8,187$ 8,050$ 2,538$ 4,211$ 6,797$ 3,584$ 19,584$ 52,951 Transfers from covered loans 1,317 1,711 1,320 412 950 82 2,244 8,036 Sales of covered foreclosed assets (707 ) (1,096 ) (848 ) (410 ) (2,085 ) (567 ) (3,518 ) (9,231 ) Writedowns of covered foreclosed assets (105 ) (130 ) (92 ) (270 ) (10 ) (58 ) (51 )



(716 )

Carrying value at March 31, 2013$ 8,692$ 8,535$ 2,918$ 3,943$ 5,652$ 3,041$ 18,259$ 51,040

Carrying value at January 1, 2014 $ 3,980$ 6,891$ 3,802$ 2,004$ 4,130$ 2,629$ 14,524$ 37,960 Transfers from covered loans 1,024 1,578 532 14 - 3,249 8,832 15,229 Sales of covered foreclosed assets (469 ) (1,055 ) (376 ) (1,080 ) (704 ) (2,714 ) (2,373 ) (8,771 ) Writedowns of covered foreclosed assets (68 ) (388 ) (22 ) - (44 ) (46 ) (57 )



(625 )

Carrying value at March 31, 2014$ 4,467$ 7,026$ 3,936$ 938$ 3,382$ 3,118$ 20,926$ 43,793

The following table presents a summary of the carrying value and type of covered foreclosed assets as of the dates indicated.

Covered Foreclosed Assets March 31, December 31, 2014 2013 2013 (Dollars in thousands) Real estate: Residential 1-4 family $ 5,393$ 8,849$ 5,004 Non-farm/non-residential 19,830 11,262 14,301 Construction/land development 17,980 30,419 17,202 Agricultural 517 71 1,054 Multifamily residential 73 439 399 Total real estate 43,793 51,040 37,960 Repossessions - - - Total covered foreclosed assets $ 43,793$ 51,040$ 37,960 59



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FDIC Clawback Payable

The following table presents a summary, by acquisition, of activity within the FDIC clawback payable during the periods indicated.

FDIC Clawback Payable First Park Unity Woodlands Horizon Chestatee Oglethorpe Choice Avenue Total (Dollars in thousands) Carrying value at January 1, 2013 $ 1,644$ 2,986$ 1,468



$ 794$ 1,083$ 968$ 16,226$ 25,169 Amortization expense

20 33 18 9 13 11 203 307 Changes in FDIC clawback payable related to changes in expected losses on covered assets (92 ) - - - - - - (92 )



Carrying value at March 31, 2013$ 1,572$ 3,019$ 1,486

$ 803$ 1,096$ 979$ 16,429$ 25,384

Carrying value at January 1, 2014$ 1,630$ 3,036$ 1,420

$ 751$ 1,091$ 1,013$ 16,956$ 25,897 Amortization (accretion) expense (25 )

35 22 16 34 11 212 305 Changes in FDIC clawback payable related to changes in expected losses on covered assets - - - - - - - -



Carrying value at March 31, 2014$ 1,605$ 3,071$ 1,442

$ 767$ 1,125$ 1,024$ 17,168$ 26,202 Nonperforming Assets Nonperforming assets consist of (1) nonaccrual loans and leases, (2) accruing loans and leases 90 days or more past due, (3) certain troubled and restructured loans for which a concession has been granted by the Company to the borrower because of a deterioration in the financial position of the borrower (TDRs) and (4) real estate or other assets that have been acquired in partial or full satisfaction of loan or lease obligations or upon foreclosure. Covered loans and covered foreclosed assets are not considered to be nonperforming by the Company for purposes of calculation of the nonperforming loans and leases to total loans and leases ratio and the nonperforming assets to total assets ratio, except for their inclusion in total assets. Because covered loans and covered assets are not included in the calculations of the Company's nonperforming loans and leases ratio and nonperforming assets ratio, the Company's nonperforming loans and leases ratio and nonperforming assets ratio may not be comparable from period to period or with such ratios of other financial institutions, including institutions that have made FDIC-assisted or traditional acquisitions. 60



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The following table presents information, excluding purchased non-covered loans and covered assets, concerning nonperforming assets, including nonaccrual loans and leases, TDRs, and foreclosed assets as of the dates indicated. Nonperforming Assets March 31, December 31, 2014 2013 2013 (Dollars in thousands) Nonaccrual loans and leases $ 11,783$ 8,564$ 8,737 Accruing loans and leases 90 days or more past due - - - TDRs - - - Total nonperforming loans and leases 11,783 8,564 8,737 Foreclosed assets not covered by FDIC loss share agreements(1) 17,076 11,290 11,851 Total nonperforming assets $ 28,859$ 19,854$ 20,588 Nonperforming loans and leases to total loans and leases(2) 0.42 % 0.40 % 0.33 % Nonperforming assets to total assets(2) 0.57 0.50 0.43



(1) Repossessed personal properties and real estate acquired through or in lieu

of foreclosure are initially recorded at the lesser of current principal

investment or estimated market value less estimated cost to sell at the date

of repossession or foreclosure. Valuations of these assets are periodically

reviewed by management with the carrying value of such assets adjusted through non-interest expense to the then estimated market value net of estimated selling costs, if lower, until disposition.



(2) Excludes purchased non-covered loans and covered assets except for their

inclusion in total assets.

The following table presents information concerning nonperforming purchased non-covered loans as of the dates indicated.

Nonperforming Purchased Non-Covered Loans March 31, December 31, 2014 2013 2013 (Dollars in thousands) Nonaccrual purchased non-covered loans $ 2,956$ 71$ 1,696 Accruing purchased non-covered loans 90 days or more past due - - -



Total nonperforming purchased non-covered loans $ 2,956$ 71

$ 1,696

Nonperforming purchased non-covered loans to total purchased non-covered loans 0.61 % 0.19 % 0.46 % The Company's ratio of nonperforming loans and leases, including nonperforming purchased non-covered loans but excluding covered loans, to total loans and leases, including purchased non-covered loans but excluding covered loans, was 0.45% and 0.39% at March 31, 2014 and 2013, respectively, and 0.35% at December 31, 2013. As of March 31, 2014, the Company had identified covered loans where the expected performance of such loans had deteriorated from management's performance expectations established in conjunction with the determination of the Day 1 Fair Values. As a result the Company recorded partial charge-offs, net of adjustments to the FDIC loss share receivable and the FDIC clawback payable, totaling $0.2 million for such loans during the first quarter of 2014 compared to $2.0 million during the first quarter of 2013. The Company also recorded provision for loan and lease losses of $0.2 million during the first quarter of 2014 compared to $2.0 million during the first quarter of 2013 to cover such charge-offs. The Company had $29.3 million of impaired covered loans at March 31, 2014 compared to $51.2 million of impaired covered loans at March 31, 2013 and $46.2 million at December 31, 2013. If an adequate current determination of collateral value has not been performed, once a loan or lease is considered impaired, management seeks to establish an appropriate value for the collateral. This assessment may include (i) obtaining an updated appraisal, (ii) obtaining one or more broker price opinions or comprehensive market analyses, (iii) internal evaluations or (iv) other methods deemed appropriate considering the size and complexity of the loan and the underlying collateral. On an ongoing basis, typically at least quarterly, the Company evaluates the underlying collateral on all impaired loans and leases and, if needed, due to changes in market or property conditions, the underlying collateral is reassessed and the estimated fair value is revised. The determination of collateral value includes any adjustments considered necessary related to estimated holding periods and estimated selling costs. 61



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At March 31, 2014, the Company had reduced the carrying value of its loans and leases deemed impaired, excluding covered loans and purchased non-covered loans, (all of which were included in nonaccrual loans and leases) by $4.1 million to the estimated fair value of such loans and leases of $6.0 million. The adjustment to reduce the carrying value of such impaired loans and leases to estimated fair value consisted of $2.8 million of partial charge-offs and $1.3 million of specific loan and lease loss allocations. These amounts do not include the Company's $29.3 million of impaired covered loans at March 31, 2014. The following table presents information concerning the geographic location of nonperforming assets, excluding purchased non-covered loans and covered assets, at March 31, 2014. Nonaccrual loans and leases are reported in the physical location of the principal collateral. Foreclosed assets are reported in the physical location of the asset. Repossessions are reported at the physical location where the borrower resided or had its principal place of business at the time of repossession. Geographic Distribution of Nonperforming Assets Nonperforming Total Loans and Foreclosed Nonperforming Leases Assets Assets (Dollars in thousands) Arkansas $ 6,624 $ 5,992$ 12,616 Texas 263 5,374 5,637 North Carolina 3,912 4,022 7,934 South Carolina 968 1,219 2,187 Georgia 10 90 100 Alabama 5 340 345 Florida 1 - 1 All other - 39 39 Total $ 11,783$ 17,076$ 28,859



Allowance and Provision for Loan and Lease Losses

The Company's ALLL was $43.9 million, or 1.58% of total loans and leases, excluding purchased non-covered loans and covered loans, at March 31, 2014, compared to $42.9 million, or 1.63% of total loans and leases, excluding purchased non-covered loans and covered loans, at December 31, 2013 and $38.4 million, or 1.78% of total loans and leases, excluding purchased non-covered loans and covered loans, at March 31, 2013. The Company had no ALLL for purchased non-covered loans or for covered loans at March 31, 2014, December 31, 2013 or March 31, 2013, because all losses had been charged off on purchased non-covered loans and covered loans whose performance had deteriorated from management's expectations established in conjunction with the determination of the Day 1 Fair Values. Excluding covered loans and purchased non-covered loans, the Company's ALLL was equal to 372% of its total nonperforming loans and leases at March 31, 2014 compared to 492% at December 31, 2013 and 449% at March 31, 2013. While the Company believes the current ALLL is appropriate, changing economic and other conditions may require future adjustments to the ALLL. The amount of provision to the ALLL is based on the Company's analysis of the adequacy of the ALLL utilizing the criteria discussed in the Critical Accounting Policies caption of this Management's Discussion and Analysis. The provision for loan and lease losses for the first quarter of 2014 was $1.3 million, including $1.1 million for non-covered loans and leases and $0.2 million for covered loans, compared to $2.7 million for the first quarter of 2013, including $0.7 million for non-covered loans and leases and $2.0 million for covered loans. 62



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

Analysis of the Allowance for Loan and Lease Losses Three Months Ended Year Ended March 31, December 31, 2014 2013 2013 (Dollars in



thousands)

Balance, beginning of period $ 42,945$ 38,738$ 38,738 Non-covered loans and leases charged off: Real estate: Residential 1-4 family (199 ) (280 ) (837 ) Non-farm/non-residential (73 ) (41 ) (1,111 ) Construction/land development - (58 ) (137 ) Agricultural (15 ) - (261 ) Multifamily residential - - (4 ) Total real estate (287 ) (379 ) (2,350 ) Commercial and industrial (374 ) (716 ) (922 ) Consumer (41 ) (61 ) (214 ) Direct financing leases (146 ) (80 ) (482 ) Other (72 ) (111 ) (359 ) Total non-covered loans and leases charged off (920 ) (1,347 ) (4,327 ) Recoveries of non-covered loans and leases previously charged off: Real estate: Residential 1-4 family 22 95 106 Non-farm/non-residential 3 102 122 Construction/land development 8 5 174 Agricultural 5 2 14 Multifamily residential - - 4 Total real estate 38 204 420 Commercial and industrial 628 9 433 Consumer 18 58 104 Direct financing leases 6 9 33 Other 46 51 144 Total recoveries of non-covered loans and leases previously charged off 736 331 1,134 Net non-covered loans and leases charged off (184 ) 1,016 (3,193 ) Covered loans charged off (204 ) 2,028 (4,675 ) Net charge-offs - total loans and leases (388 ) 3,044 (7,868 ) Provision for loan and lease losses: Non-covered loans and leases 1,100 700 7,400 Covered loans 204 2,028 4,675 Total provision 1,304 2,728 12,075 Balance, end of period $ 43,861$ 38,422$ 42,945 Net charge-offs of non-covered loans and leases to average non-covered loans and leases (1) 0.02 %(2) 0.19 %(2) 0.13 % Net charge-offs of total loans and leases, including covered loans and purchased non-covered loans, to total average loans and leases 0.05 %(2) 0.45 %(2) 0.26 % ALLL to total loans and leases (3) 1.58 % 1.78 % 1.63 % ALLL to nonperforming loans and leases (3) 372 % 449 % 492 %



(1) Excludes covered loans and net charge-offs related to covered loans.

(2) Annualized.

(3) Excludes purchased non-covered loans and covered loans.

As of and for the three months ended March 31, 2014 and 2013 and as of and for the year ended December 31, 2013, the Company had no impaired purchased non-covered loans and recorded no charge-offs, partial charge-offs or provision for such loans. 63



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Investment Securities

At March 31, 2014 and 2013 and at December 31, 2013, the Company classified all of its investment securities portfolio as AFS. Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with the unrealized gains and losses, net of related income tax, reported as a separate component of stockholders' equity and included in accumulated other comprehensive income.

The following table presents the amortized cost and estimated fair value of investment securities AFS as of the dates indicated. The Company's holdings of "other equity securities" include FHLB - Dallas and First National Banker's Bankshares, Inc. ("FNBB") shares which do not have readily determinable fair values and are carried at cost. Investment Securities March 31, December 31, 2014 2013 2013 Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value (Dollars in thousands) Obligations of state and political subdivisions $ 447,368$ 452,748 $



366,753 $ 380,236$ 438,390$ 435,989U.S. Government agency securities 219,836 219,740 91,589 92,963 222,510 218,869 Corporate obligations

686 686 748 748 716 716 Other equity securities 14,487 14,487 13,701 13,701 13,810 13,810 Total $ 682,377$ 687,661$ 472,791$ 487,648$ 675,426$ 669,384 The Company's investment securities portfolio is reported at estimated fair value, which included gross unrealized gains of $13.5 million and gross unrealized losses of $8.3 million at March 31, 2014; gross unrealized gains of $8.6 million and gross unrealized losses of $14.6 million at December 31, 2013; and gross unrealized gains of $15.9 million and gross unrealized losses of $1.0 million at March 31, 2013. Management believes that all of its unrealized losses on individual investment securities at March 31, 2014 are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of these investments. Accordingly, management considers these unrealized losses to be temporary in nature. The Company does not have the intent to sell these investment securities with unrealized losses and, more likely than not, will not be required to sell these investment securities before fair value recovers to amortized cost.



The following table presents unaccreted discounts and unamortized premiums of the Company's investment securities as of the dates indicated.

Unaccreted Discounts and Unamortized Premiums Amortized Unaccreted Unamortized Par Cost Discount Premium Value (Dollars in thousands) March 31, 2014: Obligations of states and political subdivisions $ 447,368$ 8,194$ (3,806 )$ 451,756 U.S. Government agency securities 219,836 4,451 (4,274 ) 220,013 Corporate obligations 686 - (16 ) 670 Other equity securities 14,487 - - 14,487 Total $ 682,377$ 12,645$ (8,096 )$ 686,926 December 31, 2013: Obligations of states and political subdivisions $ 438,390$ 8,298$ (3,447 )$ 443,241 U.S. Government agency securities 222,510 4,694 (4,436 ) 222,768 Corporate obligations 716 - (18 ) 698 Other equity securities 13,810 - - 13,810 Total $ 675,426$ 12,992$ (7,901 )$ 680,517 March 31, 2013: Obligations of states and political subdivisions $ 366,753$ 7,949$ (1,622 )$ 373,080 U.S. Government agency securities 91,589 201 (4,846 ) 86,944 Corporate obligations 748 - (21 ) 727 Other equity securities 13,701 - - 13,701 Total $ 472,791$ 8,150$ (6,489 )$ 474,452 64



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The Company had net gains of $5,000 from the sale of $1.2 million of investment securities in the first quarter of 2014 compared with net gains of $156,000 from the sale of $0.8 million of investment securities in the first quarter of 2013. During the quarters ended March 31, 2014 and 2013, respectively, investment securities totaling $13.3 million and $39.5 million matured, were called or were paid down by the issuer. The Company purchased $18.3 million and $38.2 million of investment securities during the first quarter of 2014 and 2013, respectively. On March 5, 2014, the Company acquired $1.9 million of investment securities as a result of its acquisition of Bancshares. The Company invests in securities it believes offer good relative value at the time of purchase, and it will, from time to time, reposition its investment securities portfolio. In making decisions to sell or purchase securities, the Company considers credit quality, call features, maturity dates, relative yields, current market factors, interest rate risk and other relevant factors.



The following table presents the types and estimated fair values of the Company's investment securities at March 31, 2014 based on credit ratings by one or more nationally-recognized credit rating agency.

Credit Ratings of Investment Securities Non- AAA(1) AA(2) A(3) BBB(4) Rated(5) Total (Dollars in thousands) Obligations of states and political subdivisions $ 6,352$ 151,380$ 61,295$ 53,624$ 180,098$ 452,749 U.S. Government agency securities - 218,568 - - 1,171 219,739 Corporate obligations - - 686 - - 686 Other equity securities - - - - 14,487 14,487 Total $ 6,352$ 369,948$ 61,981$ 53,624$ 195,756$ 687,661 Percentage of total 0.9 % 53.8 % 9.0 % 7.8 % 28.5 % 100.0 % Cumulative percentage of total 0.9 % 54.7 % 63.7 % 71.5 % 100.0 %



(1) Includes securities rated Aaa by Moody's, AAA by Standard & Poor's ("S&P") or

a comparable rating by other nationally-recognized credit rating agencies.

(2) Includes securities rated Aa1 to Aa3 by Moody's, AA+ to AA- by S&P or a

comparable rating by other nationally-recognized credit rating agencies.

(3) Includes securities rated A1 to A3 by Moody's, A+ to A- by S&P or a

comparable rating by other nationally-recognized credit rating agencies.

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

comparable rating by other nationally-recognized credit rating agencies.

(5) Includes all securities that are not rated or securities that are not rated

but that have a rated credit enhancement where the Company has ignored such

credit enhancement. For these securities, the Company has performed its own

evaluation of the security and/or the underlying issuer and believes that

such security or its issuer has credit characteristics equivalent to those

which would warrant a credit rating of investment grade (i.e., Baa3 or better

by Moody's or BBB- or better by S&P or a comparable rating by another

nationally-recognized credit rating agency).

Deposits

The Company's lending and investment activities are funded primarily by deposits. The amount and type of deposits outstanding as of the dates indicated and their respective percentage of the total deposits are reflected in the following table. On March 5, 2014, the Company assumed $256 million of deposits as a result of its acquisition of Bancshares, and on July 31, 2013, the Company assumed $601 million of deposits as a result of its acquisition of First National Bank. Deposits March 31, December 31, 2014 2013 2013 (Dollars in thousands) Non-interest bearing $ 886,341 22.6 % $ 588,841 19.7 % $ 746,320 20.0 % Interest bearing: Transaction (NOW) 843,767 21.5 720,566 24.1 839,632 22.6 Savings and money market 1,355,779 34.6 933,320 31.2 1,233,865 33.2 Time deposits less than $100,000 457,349 11.7 415,346 13.9 471,052 12.7 Time deposits of $100,000 or more 372,968 9.6 332,999 11.1 426,158 11.5 Total deposits $ 3,916,204 100.0 % $ 2,991,072 100.0 % $ 3,717,027 100.0 % 65



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The amount and percentage of the Company's deposits attributable to offices, by state, as of the dates indicated, are reflected in the following table.

Deposits by State Deposits Attributable March 31, December 31, to Offices In 2014 2013 2013 (Dollars in thousands) Arkansas $ 1,640,141 41.9 % $ 1,627,352 54.4 % $ 1,671,498 45.0 % Texas 749,851 19.2 385,939 12.9 629,241 16.9 Georgia 630,979 16.1 668,697 22.4 634,060 17.1 North Carolina 608,491 15.5 16,007 0.5 124,894 3.4 Alabama 133,641 3.4 149,968 5.0 492,069 13.2 Florida 125,526 3.2 130,688 4.4 137,345 3.7 South Carolina 27,575 0.7 12,421 0.4 27,920 0.7 Total $ 3,916,204 100.0 % $ 2,991,072 100.0 % $ 3,717,027 100.0 %



Other Interest Bearing Liabilities

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



The following table reflects the average balance and rate paid for each category of other interest bearing liabilities for the periods indicated.

Average Balances and Rates of Other Interest Bearing Liabilities Three Months Ended March 31, 2014 2013 Average Rate Average Rate Balance Paid Balance Paid (Dollars in thousands) Repurchase agreements with customers $ 65,045 0.08 % $ 33,953 0.09 % Other borrowings (1) 280,993 3.83 280,758 3.83 Subordinated debentures 64,950 2.58 64,950 2.67



Total other interest bearing liabilities $ 410,988 3.04 % $ 379,661 3.29 %

(1) Included in other borrowings at March 31, 2014 and 2013 are FHLB - Dallas

advances that contain quarterly call features and mature as follows: 2017,

$260.0 million at 3.90% weighted-average interest rate and 2018, $20.0 million at 2.53% weighted-average interest rate. 66



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CAPITAL RESOURCES AND LIQUIDITY

Capital Resources

Subordinated Debentures. At March 31, 2014, the Company had an aggregate of $64.9 million of subordinated debentures and related trust preferred securities outstanding consisting of (i) $20.6 million of subordinated debentures and securities issued in 2006 that bear interest, adjustable quarterly, at LIBOR plus 1.60%; (ii) $15.4 million of subordinated debentures and securities issued in 2004 that bear interest, adjustable quarterly, at LIBOR plus 2.22%; and (iii) $28.9 million of subordinated debentures and securities issued in 2003 that bear interest, adjustable quarterly, at a weighted-average rate of LIBOR plus 2.93%. These subordinated debentures and securities generally mature 30 years after issuance and may be prepaid at par, subject to regulatory approval, on or after approximately five years from the date of issuance, or at an earlier date upon certain changes in tax laws, investment company laws or regulatory capital requirements. These subordinated debentures and the related trust preferred securities provide the Company additional regulatory capital to support its expected future growth and expansion.



Common Stockholders' Equity and Tangible Common Stockholder's Equity. The Company uses its common stockholders' equity ratio, its tangible common stockholders' equity ratio and its tangible book value per share as the principal measures of the strength of its capital. The following table reconciles the tangible common stockholders' equity to total tangible assets ratio to GAAP financial measures as reflected in the Company's consolidated financial statements as of the dates indicated.

Calculation of the Ratio of Total Tangible Common Stockholders' Equity to Total Tangible Assets March 31, 2014 2013 (Dollars in thousands) Total common stockholders' equity before noncontrolling interest $ 653,208$ 523,679 Less intangible assets: Goodwill (5,243 ) (5,243 ) Core deposit and bank charter intangibles, net of accumulated amortization (15,750 ) (6,015 ) Total intangibles (20,993 ) (11,258 ) Total tangible common stockholders' equity $ 632,215$ 512,421 Total assets $ 5,028,893$ 3,951,818 Less intangible assets: Goodwill (5,243 ) (5,243 ) Core deposit and bank charter intangibles, net of accumulated amortization (15,750 ) (6,015 ) Total intangibles (20,993 ) (11,258 ) Total tangible assets $ 5,007,900$ 3,940,560 Ratio of total tangible common stockholders' equity to total tangible assets 12.62 % 13.00 % 67



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The following table reconciles the tangible book value per share to GAAP financial measures as reflected in the Company's consolidated financial statements as of the dates indicated.


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