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HOME BANCSHARES INC - 10-Q - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 7, 2014

The following discussion should be read in conjunction with our Form 10-K, filed with the Securities and Exchange Commission on February 28, 2014, which includes the audited financial statements for the year ended December 31, 2013. Unless the context requires otherwise, the terms "Company", "us", "we", and "our" refer to Home BancShares, Inc. on a consolidated basis.



General

We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly owned bank subsidiary, Centennial Bank. As of June 30, 2014, we had, on a consolidated basis, total assets of $6.67 billion, loans receivable, net of $4.35 billion, total deposits of $5.19 billion, and stockholders' equity of $897.2 million. We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits and FHLB borrowed funds are our primary source of funding. Our largest expenses are interest on our funding sources and salaries and related employee benefits. We measure our performance by calculating our return on average common equity, return on average assets, and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. Table 1: Key Financial Measures As of or for the Three Months As of or for the Six Months Ended June 30, Ended June 30, 2014 2013 2014 2013 (Dollars in thousands, except per share data) Total assets $ 6,666,140$ 4,091,337$ 6,666,140$ 4,091,337 Loans receivable not covered by loss share 4,133,109 2,339,242 4,133,109 2,339,242 Loans receivable covered by FDIC loss share 263,157 329,802 263,157 329,802 Allowance for loan losses 51,173 41,450 51,173 41,450 FDIC claims receivable 15,783 27,550 15,783 27,550 Total deposits 5,192,009 3,325,235 5,192,009 3,325,235 Total stockholders' equity 897,235 533,510 897,235 533,510 Net income 28,429 17,659 55,766 35,207 Basic earnings per share 0.44 0.32 0.86 0.63 Diluted earnings per share 0.43 0.31 0.85 0.62 Diluted earnings per share excluding intangible amortization (1) 0.44 0.32 0.87 0.64 Annualized net interest margin - FTE 5.50 % 5.18 % 5.49 % 5.16 % Efficiency ratio 41.09 44.98 41.58 45.50 Annualized return on average assets 1.70 1.71 1.67 1.70 Annualized return on average common equity 12.96 13.27 12.98 13.47



(1) See Table 26 "Diluted Earnings Per Share Excluding Intangible Amortization"

for a reconciliation to GAAP for diluted earnings per share excluding intangible amortization. 42



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Overview

Credit Improvement in Covered Loan Pools

Impairment testing on the estimated cash flows of the covered loan pools is performed each quarter. Because the economy has improved since the impaired loans were acquired, quite often the impairment test revealed there was a projected credit improvement in the loan pools. As a result of these improvements, the Company is recognizing additional adjustments to yield over the weighted average life of the loans. Improvements in credit quality decrease the basis in the related indemnification asset and increase our FDIC true up liability. These positive events are reducing the indemnification asset and increasing our FDIC true-up liability. The indemnification asset reduction is being amortized over the weighted average life of the shared-loss agreements. This amortization is being shown as a reduction to FDIC indemnification non-interest income. The true-up liability is being expensed over the remaining true-up measurement date as other non-interest expense.



Tables 2 and 3 summarize the recognition of these positive events and the financial impact to the three and six month periods ended June 30, 2014 and 2013:

Table 2: Overall Estimated Impact to Financial Statements Initially Reported Increase Additional Reduction of of FDIC Adjustment Indemnification True-up to Yield Asset Liability (In thousands) Periods Tested: Prior to 2013 $ 5,022 $ 3,876 $ 502 March 31, 2013 15,566 12,453 1,657 June 30, 2013 - - - September 30, 2013 - - - December 31, 2013 14,061 8,389 1,331 March 31, 2014 11,432 8,346 1,143 June 30, 2014 23,428 17,330 1,128 Total $ 69,509 $ 50,394 $ 5,761 Table 3: Financial Impact for the Three and Six Months Ended June 30, 2014 and 2013 Amortization of Yield Accretion Indemnification FDIC True- Income Asset up Expense (In thousands) Three Months Ended: June 30, 2013 $ 2,820 $ (2,636 ) $ (79 ) June 30, 2014 7,670 (6,799 ) (270 ) Additional income (expense) $ 4,850 $ (4,163 ) $ (191 ) Six Months Ended: June 30, 2013 $ 5,351 $ (5,080 ) $ (157 ) June 30, 2014 13,344 (11,768 ) (435 ) Additional income (expense) $ 7,993 $ (6,688 ) $ (278 ) 43



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Results of Operations for Three Months Ended June 30, 2014 and 2013

Our net income increased $10.8 million or 61.0% to $28.4 million for the three-month period ended June 30, 2014, from $17.7 million for the same period in 2013. On a diluted earnings per share basis, our earnings were $0.43 and $0.31 for the three-month periods ended June 30, 2014 and 2013, respectively. The $10.8 million increase in net income is primarily associated with the $33.2 million of additional net interest income primarily resulting from our 2013 acquisition of Liberty and the additional accretion income from our previous FDIC covered loan acquisitions. Furthermore, there was $358,000 of additional gains from the sale of premises & equipment, investment securities and OREO. These improvements were partially offset by a modest increase in the costs associated with the asset growth from our Liberty acquisition, $4.3 million of additional amortization of the indemnification asset plus an increase in provision for loan losses of $5.3 million in second quarter of 2014 when compared to the same period in 2013. Our annualized net interest margin, on a fully taxable equivalent basis, was 5.50% for the three months ended June 30, 2014, compared to 5.18% for the same period in 2013. The numerous pools which have been determined to have material projected credit improvement as a result of the quarterly impairment testings and the acquisition of Liberty have significantly changed the mix and metrics on the net interest margin since December 31, 2012. Although there have been many changes since 2012, the Company continues to remain focused on expanding its net interest margin through opportunities such as improved pricing on interest-bearing deposits. Our annualized return on average assets was 1.70% for the three months ended June 30, 2014, compared to 1.71% for the same period in 2013. Our annualized return on average common equity was 12.96% for the three months ended June 30, 2014, compared to 13.27% for the same period in 2013, respectively. The slight declines in our profitably ratios from 2013 to 2014 are primarily related to the acquisition of Liberty which historically performed below our profitability ratios. While we have been making significant progress improving the performance of the Liberty franchise, they have not been brought up to the historical performance metrics of our Company. Our efficiency ratio was 41.09% for the three months ended June 30, 2014, compared to 44.98% for the same period in 2013. For the second quarter of 2014, our core efficiency ratio was 41.56% which is improved from the 45.76% reported for second quarter of 2013. The improvement in the core efficiency ratio is primarily associated with additional net interest income and other non-interest income resulting from our 2013 acquisition of Liberty offset by a modest increase in costs associated with the asset growth from our acquisition.



Additional information and analysis for our earnings can be found in Table 21 of our Non-GAAP Financial Measurement section of the Management Discussion and Analysis.

Results of Operations for Six Months Ended June 30, 2014 and 2013

Our net income increased $20.6 million or 58.4% to $55.8 million for the six-month period ended June 30, 2014, from $35.2 million for the same period in 2013. On a diluted earnings per share basis, our earnings were $0.85 and $0.62 for the six-month periods ended June 30, 2014 and 2013, respectively. The $20.6 million increase in net income is primarily associated with the $65.9 million of additional net interest income primarily resulting from our 2013 acquisition of Liberty and the additional accretion income from our previous FDIC covered loan acquisitions. Furthermore, there was $805,000 of additional gains from the sale of premises & equipment, investment securities and OREO. These improvements were partially offset by a modest increase in the costs associated with the asset growth from our Liberty acquisition, $7.1 million of additional amortization of the indemnification asset plus an increase in provision for loan losses of $12.2 million in the first six months of 2014 when compared to the same period in 2013. Our annualized net interest margin, on a fully taxable equivalent basis, was 5.49% for the six months ended June 30, 2014, compared to 5.16% for the same period in 2013. The numerous pools which have been determined to have material projected credit improvement as a result of the quarterly impairment testings and the acquisition of Liberty have significantly changed the mix and metrics on the net interest margin since December 31, 2012. Although there have been many changes since 2012, the Company continues to remain focused on expanding its net interest margin through opportunities such as improved pricing on interest-bearing deposits. 44



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Our annualized return on average assets was 1.67% for the six months ended June 30, 2014, compared to 1.70% for the same period in 2013. Our annualized return on average common equity was 12.98% for the six months ended June 30, 2014, compared to 13.47% for the same period in 2013, respectively. The slight declines in our profitably ratios from 2013 to 2014 are primarily related to the acquisition of Liberty which historically performed below our profitability ratios. While we have been making significant progress improving the performance of the Liberty franchise, they have not been brought up to the historical performance metrics of our Company. Our efficiency ratio was 41.58% for the six months ended June 30, 2014, compared to 45.50% for the same period in 2013. For the first six months of 2014, our core efficiency ratio was 41.48% which is improved from the 46.07% reported for the first six months of 2013. The improvement in the core efficiency ratio is primarily associated with additional net interest income and other non-interest income resulting from our 2013 acquisition of Liberty offset by a modest increase in costs associated with the asset growth from our acquisitions and additional merger expenses.



Additional information and analysis for our earnings can be found in Table 21 of our Non-GAAP Financial Measurement section of the Management Discussion and Analysis.

Financial Condition as of and for the Period Ended June 30, 2014 and December 31, 2013

Our total assets as of June 30, 2014 decreased $145.7 million to $6.67 billion from the $6.81 billion reported as of December 31, 2013. Our loan portfolio not covered by loss share decreased by $61.3 million to $4.13 billion as of June 30, 2014, from $4.19 billion as of December 31, 2013. Our loan portfolio covered by loss share decreased by $19.4 million to $263.2 million as of June 30, 2014, from $282.5 million as of December 31, 2013. These decreases are primarily associated with pay-downs and payoffs. Stockholders' equity increased $56.3 million to $897.2 million as of June 30, 2014, compared to $841.0 million as of December 31, 2013. The annualized improvement in stockholders' equity for the first six months of 2014 was 13.5%. The increase in stockholders' equity is primarily associated with the $64.6 million of comprehensive income less the $9.8 million of cash dividends paid for the first six months of 2014. As of June 30, 2014, our non-performing non-covered loans increased to $45.0 million, or 1.09%, of total non-covered loans from $38.3 million, or 0.91%, of total non-covered loans as of December 31, 2013. The allowance for loan losses for non-covered loans as a percent of non-performing non-covered loans increased to 107.26% as of June 30, 2014, compared to 101.95% as of December 31, 2013. Non-performing non-covered loans in Arkansas were $23.8 million at June 30, 2014 compared to $17.9 million as of December 31, 2013. Non-performing non-covered loans in Florida were $20.7 million at June 30, 2014 compared to $20.3 million as of December 31, 2013. Non-performing non-covered loans in Alabama were $502,000 at June 30, 2014 compared to $7,000 as of December 31, 2013. As of June 30, 2014, our non-performing non-covered assets improved to $66.0 million, or 1.04%, of total non-covered assets from $68.4 million, or 1.07%, of total non-covered assets as of December 31, 2013. Non-performing non-covered assets in Arkansas were $39.0 million at June 30, 2014 compared to $43.5 million as of December 31, 2013. Non-performing non-covered assets in Florida were $26.4 million at June 30, 2014 compared to $24.9 million as of December 31, 2013. Non-performing non-covered assets in Alabama were $588,000 at June 30, 2014 compared to $7,000 as of December 31, 2013.



Critical Accounting Policies

Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements in Note 1 of the audited consolidated financial statements included in our Form 10-K, filed with the Securities and Exchange Commission. 45



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We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including the accounting for the allowance for loan losses, acquisition accounting for covered loans and the related indemnification asset, investments, foreclosed assets held for sale, intangible assets, income taxes and stock options. Investments - Available-for-Sale. Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders' equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. Investments - Held-to-Maturity. Securities held-to-maturity, which include any security for which the Company has the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity. Loans Receivable Not Covered by Loss Share and Allowance for Loan Losses. Except for loans acquired during our acquisitions, substantially all of our loans receivable not covered by loss share are reported at their outstanding principal balance adjusted for any charge-offs, as it is management's intent to hold them for the foreseeable future or until maturity or payoff, except for mortgage loans held for sale. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. The allowance for loan losses is established through a provision for loan losses charged against income. The allowance represents an amount that, in management's judgment, will be adequate to absorb probable credit losses on identifiable loans that may become uncollectible and probable credit losses inherent in the remainder of the loan portfolio. The amounts of provisions for loan losses are based on management's analysis and evaluation of the loan portfolio for identification of problem credits, internal and external factors that may affect collectability, relevant credit exposure, particular risks inherent in different kinds of lending, current collateral values and other relevant factors. The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Bank's internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data. Loans considered impaired, under FASB ASC 310-10-35, are loans for which, 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 of the loan agreement. The Company applies this policy even if delays or shortfalls in payment are expected to be insignificant. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for loan losses when in the process of collection it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management's opinion the collection of interest is doubtful, or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group's historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. 46



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Loans are placed on non-accrual status when management believes that the borrower's financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for loan losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest. Acquisition Accounting, Acquired Loans and the Related Indemnification Asset. The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. For covered acquired loans fair value is exclusive of the shared-loss agreements with the Federal Deposit Insurance Corporation (FDIC). The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. Over the life of the purchased credit impaired loans acquired, the Company continues to estimate cash flows expected to be collected on pools of loans sharing common risk characteristics, which are treated in the aggregate when applying various valuation techniques. The Company evaluates at each balance sheet date whether the present value of its pools of loans determined using the effective interest rates has decreased and if so, recognizes a provision for loan loss in its consolidated statement of income. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the pool's remaining life. Because the FDIC will reimburse the Company for certain acquired loans should the Company experience a loss, an indemnification asset is recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The shared-loss agreements on the acquisition date reflect the reimbursements expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk and other uncertainties. For our FDIC-assisted transactions, shared-loss agreements continue to be measured on the same basis as the related indemnified loans. Because the acquired loans are subject to the accounting prescribed by ASC Topic 310, subsequent changes to the basis of the shared-loss agreements also follow that model. Deterioration in the credit quality of the loans (immediately recorded as an adjustment to the allowance for loan losses) would immediately increase the basis of the shared-loss agreements, with the offset recorded through the consolidated statement of income as a reduction of the provision for loan losses. Increases in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the weighted-average remaining life of the loans) decrease the basis of the shared-loss agreements, with such decrease being amortized into income over 1) the same period or 2) the life of the shared-loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset. Fair value accounting incorporates into the fair value of the indemnification asset an element of the time value of money, which is accreted back into income over the life of the shared-loss agreements.



Upon the determination of an incurred loss, the indemnification asset will be reduced by the amount owed by the FDIC. A corresponding claim receivable is recorded until cash is received from the FDIC.

Foreclosed Assets Held for Sale. Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal properties are carried at fair value less cost to sell. Gains and losses from the sale of other real estate and personal properties are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expenses. 47



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Intangible Assets. Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 48 to 114 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles - Goodwill and Other, in the fourth quarter. Income Taxes. The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term "more likely than not" means a likelihood of more than 50 percent; the terms "examined" and "upon examination" also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management's judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company and its subsidiary file consolidated tax returns. Its subsidiary provides for income taxes on a separate return basis, and remits to the Company amounts determined to be currently payable. Stock Options. In accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees, the fair value of each option award is estimated on the date of grant. The Company recognizes compensation expense for the grant-date fair value of the option award over the vesting period of the award.



Acquisitions

Acquisition Liberty Bancshares, Inc.

On October 24, 2013, Home BancShares, Inc. acquired all of the issued and outstanding shares of common stock of Liberty Bancshares, Inc., parent company of Liberty Bank of Arkansas ("Liberty Bank"). Under the terms of the agreement, shareholders of Liberty received $290.1 million of HBI common stock plus $30.0 million in cash. Also on October 24, 2013, Liberty Bank was merged into Centennial Bank. We also repurchased all of Liberty's SBLF preferred stock held by the U.S. Treasury shortly after the closing. The merger significantly increased the Company's deposit market share in Arkansas making it the second largest bank holding company headquartered in Arkansas.



Prior to the acquisition, Liberty operated 46 banking offices located in Northeast Arkansas, Northwest Arkansas and Western Arkansas. Including the effects of the purchase accounting adjustments, Centennial Bank acquired approximately $2.82 billion in assets, approximately $1.73 billion in loans including loan discounts and approximately $2.13 billion of deposits.

See Note 2 "Business Combinations" in the Notes to Consolidated Financial Statements for an additional discussion for the acquisition of Liberty Bank.

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Acquisition Florida Traditions Bank

On July 17, 2014, the Company completed its acquisition of Florida Traditions Bank ("FTB") pursuant to a previously announced definitive agreement and plan of merger whereby FTB merged with and into Centennial Bank ("Centennial"). Under the terms of the Agreement and Plan of Merger dated April 25, 2014, by and among HBI, Centennial, and FTB, HBI issued 1,316,072 shares of its common stock valued at approximately $39.5 million as of July 17, 2014, in exchange for all outstanding shares of FTB common stock. Prior to the acquisition, FTB operated eight banking locations in Central Florida, including its main office in Dade City, Florida. As of June 30, 2014, FTB had approximately $307.2 million in total assets, $255.6 million in loans, and $272.6 million in deposits. Upon completion of the transaction, excluding the effects of the purchase accounting adjustments, the combined company now has approximately $7.0 billion in total assets, $5.5 billion in total deposits, $4.7 billion in total loans and 149 branches across Arkansas, Florida and South Alabama.



The transaction is accretive to the Company's book value per common share and tangible book value per common share.

Broward Financial Holdings, Inc.

On July 30, 2014, the Company and Centennial, entered into a definitive agreement with Broward Financial Holdings, Inc. ("Broward"), parent company of Broward Bank of Commerce to merge into HBI. Under the terms of the agreement, shareholders of Broward will receive proceeds from the transaction between $33,060,001 and $33,960,001 as a combination of both HBI common stock and cash split 90% and 10%, respectively.



Broward currently operates two banking locations in Fort Lauderdale, Florida. As of June 30, 2014, Broward had approximately $168.5 million in total assets, $110.8 million in loans, and $143.8 million in deposits.

The acquisition is expected to close in the fourth quarter of 2014 and is subject to shareholder approval, regulatory approvals, and other customary conditions.

FDIC Indemnification Asset

In conjunction with FDIC-assisted transactions, the Company entered into loss share agreements with the FDIC. These agreements cover realized losses on loans, foreclosed real estate and certain other assets. These loss share assets are measured separately from the loan portfolios because they are not contractually embedded in the loans and are not transferable with the loans should the Company choose to dispose of them. Fair values at the acquisition dates were estimated based on projected cash flows available for loss-share based on the credit adjustments estimated for each loan pool and the loss share percentages. The loss share assets are also separately measured from the related loans and foreclosed real estate and recorded as FDIC indemnification assets on the Consolidated Balance Sheets. Subsequent to the acquisition date, reimbursements received from the FDIC for actual incurred losses will reduce the loss share assets. Reductions to expected credit losses, to the extent such reductions to expected credit losses are the result of an improvement to the actual or expected cash flows from the covered assets, will also reduce the loss share assets. Increases in expected credit losses will require an increase to the allowance for loan losses and a corresponding increase to the loss share assets. As the loss share agreements approach the various expiration dates there could be unexpected volatility as future expected loan losses might become projected to occur outside of the loss share coverage reimbursement window. 49



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Table 4 summarizes the activity in the Company's FDIC indemnification asset during the periods indicated:

Table 4: Changes in FDIC Indemnification Asset Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in thousands) Beginning balance $ 73,348$ 126,275$ 89,611$ 139,646 Incurred claims for FDIC covered credit losses (11,219 ) (8,321 ) (22,738 ) (19,700 ) FDIC indemnification accretion/(amortization) (6,622 ) (2,283 ) (11,366 ) (4,275 ) Reduction in provision for loan losses: Benefit attributable to FDIC loss share agreements 1,119 400 1,119 400 Ending balance $ 56,626$ 116,071$ 56,626$ 116,071



FDIC-Assisted Acquisitions - True Up

Our purchase and assumption agreements in connection with our FDIC-assisted acquisitions allow the FDIC to recover a portion of the loss share funds previously paid out under the indemnification agreements in the event losses fail to reach the expected loss under a claw back provision. Should the markets associated with any of the banks we acquired through FDIC-assisted transactions perform better than initially projected, the Bank is required to pay this clawback (or "true-up") payment to the FDIC on a specified date following the tenth anniversary of such acquisition (the "True-Up Measurement Date"). Specifically, in connection with the Old Southern and Key West acquisitions, such "true-up" payments would be equal to 50% of the excess, if any, of (i) 20% of a stated threshold of $110.0 million in the case of Old Southern and $23.0 million in the case of Key West, less (ii) the sum of (A) 25% of the asset premium (discount) plus (B) 25% of the Cumulative Shared Loss Payments (defined as the aggregate of all of the payments made or payable to Centennial Bank minus the aggregate of all of the payments made or payable to the FDIC) plus (C) the Period Servicing Amounts for any twelve-month period prior to and ending on the True-Up Measurement Date (defined as the product of the simple average of the principal amount of shared loss loans and shared loss assets (other than shared loss securities) at the beginning and end of such period times 1%). In connection with the Coastal-Bayside, Wakulla and Gulf State acquisitions, the "true-up" payments would be equal to 50% of the excess, if any, of (i) 20% of an intrinsic loss estimate of $121.0 million in the case of Coastal, $24.0 million in the case of Bayside, $73.0 million in the case of Wakulla and $35.0 million in the case of Gulf State, less (ii) the sum of (A) 20% of the net loss amount (the sum of all losses less the sum of all recoveries on covered assets) plus (B) 25% of the asset premium (discount) plus (C) 3.5% of the total loans subject to loss sharing under the loss sharing agreements as specified in the schedules to the agreements.



The amount of FDIC-assisted acquisitions true-up accrued at June 30, 2014 and December 31, 2013 was $8.6 million and $8.0 million, respectively.

Branches

We intend to continue opening new (commonly referred to as de novo) branches in our current markets and in other attractive market areas if opportunities arise. During the second quarter of 2014, in an effort to achieve efficiencies primarily from the recent acquisitions, the Company closed or merged four Arkansas and two Florida locations. The Company currently has plans for an additional de novo branch location in Naples, Florida, scheduled to open during the third quarter. The Company currently has 83 branches in Arkansas, 59 branches in Florida and 7 branches in Alabama. 50



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Results of Operations

For Three and Six Months Ended June 30, 2014 and 2013

Our net income increased $10.8 million or 61.0% to $28.4 million for the three-month period ended June 30, 2014, from $17.7 million for the same period in 2013. On a diluted earnings per share basis, our earnings were $0.43 and $0.31 for the three-month periods ended June 30, 2014 and 2013, respectively. The $10.8 million increase in net income is primarily associated with the $33.2 million of additional net interest income primarily resulting from our 2013 acquisition of Liberty and the additional accretion income from our previous FDIC covered loan acquisitions. Furthermore, there was $358,000 of additional gains from the sale of premises & equipment, investment securities and OREO. These improvements were partially offset by a modest increase in the costs associated with the asset growth from our Liberty acquisition, $4.3 million of additional amortization of the indemnification asset plus an increase in provision for loan losses of $5.3 million in second quarter of 2014 when compared to the same period in 2013. Our net income increased $20.6 million or 58.4% to $55.8 million for the six-month period ended June 30, 2014, from $35.2 million for the same period in 2013. On a diluted earnings per share basis, our earnings were $0.85 and $0.62 for the six-month periods ended June 30, 2014 and 2013, respectively. The $20.6 million increase in net income is primarily associated with the $65.9 million of additional net interest income primarily resulting from our 2013 acquisition of Liberty and the additional accretion income from our previous FDIC covered loan acquisitions. Furthermore, there was $805,000 of additional gains from the sale of premises & equipment, investment securities and OREO. These improvements were partially offset by a modest increase in the costs associated with the asset growth from our Liberty acquisition, $7.1 million of additional amortization of the indemnification asset plus an increase in provision for loan losses of $12.2 million in the first six months of 2014 when compared to the same period in 2013.



Net Interest Income

Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments and rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (39.225% for the three and six-month periods ended June 30, 2014 and 2013). The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Funds rate, which is the cost to banks of immediately available overnight funds, was lowered on December 16, 2008 to a historic low of 0.25% to 0% where it has remained since that time. The effective yield on non-covered loans for the three months ended June 30, 2014 and 2013 was 6.08% and 6.04%, respectively. The effective yield on non-covered loans for the six months ended June 30, 2014 and 2013 was 6.17% and 6.08%, respectively. The effective yield on covered loans for the three months ended June 30, 2014 and 2013 was 19.38% and 10.78%, respectively. The effective yield on covered loans for the six months ended June 30, 2014 and 2013 was 17.67% and 10.53%, respectively. 51



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During the 2014 quarterly impairment tests on the estimated cash flows of covered loans, the Company established that loan pools were determined to have a materially projected credit improvement. As a result of this improvement, the Company will recognize approximately $34.9 million as an additional adjustment to yield over the weighted average life of the loans. Since our first covered loan acquisition in 2010, the Company has identified a total of $69.5 million of adjustments to yield during the quarterly impairment tests. For the three and six months ended June 30, 2014 and 2013, the Company recognized $7.7 million and $13.3 million for 2014 and $2.8 million and $5.4 million for 2013 of additional accretion income related to the positive results of the impairment tests. Net interest income on a fully taxable equivalent basis increased $33.8 million, or 73.6%, to $79.7 million for the three-month period ended June 30, 2014, from $45.9 million for the same period in 2013. This increase in net interest income was the result of a $35.1 million increase in interest income combined with a $1.3 million increase in interest expense. The $35.1 million increase in interest income was primarily the result of a higher level of earning assets combined with higher yields on our covered loans. The $1.3 million increase in interest expense for the three-month period ended June 30, 2014, is primarily the result of our interest bearing liabilities repricing in the lower interest rate environment combined with an increase in the volume of our average interest-bearing transaction and savings deposits and average time deposits. The repricing of our interest bearing liabilities in the lower interest rate environment resulted in a $1.2 million decrease in interest expense. The higher level of our interest bearing liabilities resulted in an increase in interest expense of approximately $2.5 million. Net interest income on a fully taxable equivalent basis increased $66.9 million, or 73.3%, to $158.3 million for the six-month period ended June 30, 2014, from $91.3 million for the same period in 2013. This increase in net interest income was the result of a $69.3 million increase in interest income combined with a $2.3 million increase in interest expense. The $69.3 million increase in interest income was primarily the result of a higher level of earning assets combined with higher yields on our covered loans. The $2.3 million increase in interest expense for the six-month period ended June 30, 2014, is primarily the result of our interest bearing liabilities repricing in the lower interest rate environment combined with an increase in the volume of our average interest-bearing transaction and savings deposits and average time deposits. The repricing of our interest bearing liabilities in the lower interest rate environment resulted in a $2.7 million decrease in interest expense. The higher level of our interest bearing liabilities resulted in an increase in interest expense of approximately $5.0 million. Net interest margin, on a fully taxable equivalent basis, was 5.50% and 5.49% for the three and six months ended June 30, 2014 compared to 5.18% and 5.16% for the same periods in 2013, respectively. The numerous pools which have been determined to have material projected credit improvement as a result of the quarterly impairment testing and the acquisition of Liberty have significantly changed the mix and metrics on the net interest margin since December 31, 2012. Although there have been many changes since 2012, the Company continues to remain focused on expanding its net interest margin through opportunities such as improved pricing on interest-bearing deposits.



Additional information and analysis for our net interest margin can be found in Tables 22 through 24 of our Non-GAAP Financial Measurement section of the Management Discussion and Analysis.

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Tables 5 and 6 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and six-month periods ended June 30, 2014 and 2013, as well as changes in fully taxable equivalent net interest margin for the three and six-month periods ended June 30, 2014, compared to the same period in 2013. Table 5: Analysis of Net Interest Income Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in thousands) Interest income $ 82,586$ 48,085$ 164,426$ 96,233 Fully taxable equivalent adjustment 1,624 1,051



3,215 2,126

Interest income - fully taxable equivalent 84,210 49,136

167,641 98,359 Interest expense 4,543 3,244



9,383 7,043

Net interest income - fully taxable equivalent $ 79,667$ 45,892



$ 158,258$ 91,316

Yield on earning assets - fully taxable equivalent 5.82 % 5.54 % 5.82 % 5.56 % Cost of interest-bearing liabilities 0.38 0.45 0.39 0.48 Net interest spread - fully taxable equivalent 5.44 5.09 5.43 5.08 Net interest margin - fully taxable equivalent 5.50 5.18 5.49 5.16 Table 6: Changes in Fully Taxable Equivalent Net Interest Margin Three Months Ended Six Months Ended June 30, June 30, 2014 vs. 2013 2014 vs. 2013 (In



thousands)

Increase (decrease) in interest income due to change in earning assets $ 33,440 $ 66,542 Increase (decrease) in interest income due to change in earning asset yields 1,634 2,740 (Increase) decrease in interest expense due to change in interest-bearing liabilities (2,466 ) (4,982 ) (Increase) decrease in interest expense due to change in interest rates paid on interest-bearing liabilities 1,167 2,642 Increase (decrease) in net interest income $ 33,775 $ 66,942 53



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Table 7 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three and six-month periods ended June 30, 2014 and 2013, respectively. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans. Table 7: Average Balance Sheets and Net Interest Income Analysis Three Months Ended June 30, 2014 2013 Average Income / Yield / Average Income / Yield / Balance Expense Rate Balance Expense Rate (Dollars in thousands) ASSETS Earnings assets Interest-bearing balances due from banks $ 54,726$ 29



0.21 % $ 135,431$ 86 0.25 % Federal funds sold

23,349 12 0.21 10,169 6 0.24 Investment securities - taxable 1,038,011 4,762 1.84 572,997 2,490 1.74 Investment securities - non-taxable 287,679 3,889 5.42 172,439 2,394 5.57 Loans receivable 4,403,767 75,518 6.88 2,663,627 44,160 6.65 Total interest-earning assets 5,807,532 84,210 5.82 3,554,663 49,136 5.54 Non-earning assets 914,388 592,822 Total assets $ 6,721,920$ 4,147,485 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Interest-bearing liabilities Savings and interest-bearing transaction accounts $ 2,808,856$ 1,227 0.18 % $ 1,779,269$ 741 0.17 % Time deposits 1,380,249 1,868 0.54 900,809 1,388 0.62



Total interest-bearing deposits 4,189,105 3,095 0.30 2,680,078 2,129 0.32

Federal funds purchased 110 - 0.00 1 - 0.00 Securities sold under agreement to repurchase 136,444 168 0.49 72,599 86 0.48 FHLB borrowed funds 376,326 952 1.01 130,282 1,012 3.12 Subordinated debentures 60,826 328 2.16 3,093 17 2.20



Total interest-bearing liabilities 4,762,811 4,543 0.38 2,886,053 3,244 0.45

Non-interest bearing liabilities Non-interest bearing deposits 1,054,233 704,847 Other liabilities 24,832 22,939 Total liabilities 5,841,876 3,613,839 Stockholders' equity 880,044 533,646 Total liabilities and stockholders' equity $ 6,721,920$ 4,147,485 Net interest spread 5.44 % 5.09 % Net interest income and margin $ 79,667 5.50 % $ 45,892 5.18 % 54



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Table of Contents Table 7: Average Balance Sheets and Net Interest Income Analysis Six Months Ended June 30, 2014 2013 Average Income / Yield / Average Income / Yield / Balance Expense Rate Balance Expense Rate (Dollars in thousands) ASSETS Earnings assets Interest-bearing balances due from banks $ 58,849$ 53



0.18 % $ 143,153$ 184 0.26 % Federal funds sold

27,393 28 0.21 12,931 13 0.20 Investment securities - taxable 1,021,752 9,232 1.82 567,059 4,893 1.74 Investment securities - non-taxable 287,007 7,678 5.39 168,945 4,813 5.74 Loans receivable 4,415,814 150,650 6.88 2,673,952 88,456 6.67 Total interest-earning assets 5,810,815 167,641 5.82 3,566,040 98,359 5.56 Non-earning assets 933,324 603,930 Total assets $ 6,744,139$ 4,169,970 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Interest-bearing liabilities Savings and interest-bearing transaction accounts $ 2,797,102$ 2,506 0.18 % $ 1,775,486$ 1,554 0.18 % Time deposits 1,453,755 3,973 0.55 943,561 3,060 0.65



Total interest-bearing deposits 4,250,857 6,479 0.31 2,719,047 4,614 0.34

Federal funds purchased 308 - 0.00 - - 0.00 Securities sold under agreement to repurchase 142,862 350 0.49 71,140 166 0.47 FHLB borrowed funds 376,823 1,898 1.02 130,328 2,016 3.12 Subordinated debentures 60,826 656 2.17 15,054 247 3.31



Total interest-bearing liabilities 4,831,676 9,383 0.39 2,935,569 7,043 0.48

Non-interest bearing liabilities Non-interest bearing deposits 1,029,004 686,636 Other liabilities 16,873 20,757 Total liabilities 5,877,553 3,642,962 Stockholders' equity 866,586 527,008 Total liabilities and stockholders' equity $ 6,744,139$ 4,169,970 Net interest spread 5.43 % 5.08 % Net interest income and margin $ 158,258 5.49 % $ 91,316 5.16 % 55



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Table 8 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and six-month periods ended June 30, 2014 compared to the same periods in 2013, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume. Table 8: Volume/Rate Analysis Three Months Ended June 30, Six Months Ended June 30, 2014 over 2013 2014 over 2013 Yield/ Yield/ Volume Rate Total Volume Rate Total (In thousands) Increase (decrease) in: Interest income: Interest-bearing balances due from banks $ (45 )$ (12 )$ (57 )$ (87 )$ (44 )$ (131 ) Federal funds sold 7 (1 ) 6 15 - 15 Investment securities - taxable 2,127 145 2,272 4,098 241 4,339 Investment securities - non-taxable 1,560 (65 ) 1,495 3,174 (309 ) 2,865 Loans receivable 29,791 1,567 31,358 59,342 2,852 62,194 Total interest income 33,440 1,634 35,074 66,542 2,740 69,282 Interest expense: Interest-bearing transaction and savings deposits 448 38 486 914 38 952 Time deposits 666 (186 ) 480 1,454 (541 ) 913 Federal funds purchased - - - - - - Securities sold under agreement to repurchase 80 2 82 176 8 184 FHLB borrowed funds 961 (1,021 ) (60 ) 1,918 (2,036 ) (118 ) Subordinated debentures 311 - 311 520 (111 ) 409 Total interest expense 2,466 (1,167 ) 1,299 4,982 (2,642 ) 2,340 Increase (decrease) in net interest income $ 30,974$ 2,801$ 33,775$ 61,560$ 5,382$ 66,942 Provision for Loan Losses Our management assesses the adequacy of the allowance for loan losses by applying the provisions of FASB ASC 310-10-35. Specific allocations are determined for loans considered to be impaired and loss factors are assigned to the remainder of the loan portfolio to determine an appropriate level in the allowance for loan losses. The allowance is increased, as necessary, by making a provision for loan losses. The specific allocations for impaired loans are assigned based on an estimated net realizable value after a thorough review of the credit relationship. The potential loss factors associated with the remainder of the loan portfolio are based on an internal net loss experience, as well as management's review of trends within the portfolio and related industries. While general economic trends have improved recently, we cannot be certain that the current economic conditions will considerably improve in the near future. Recent and ongoing events at the national and international levels can create uncertainty in the financial markets. Despite these economic uncertainties, we continue to follow our historically conservative procedures for lending and evaluating the provision and allowance for loan losses. Our practice continues to be primarily traditional real estate lending with strong loan-to-value ratios. Generally, commercial, commercial real estate, and residential real estate loans are assigned a level of risk at origination. Thereafter, these loans are reviewed on a regular basis. The periodic reviews generally include loan payment and collateral status, the borrowers' financial data, and key ratios such as cash flows, operating income, liquidity, and leverage. A material change in the borrower's credit analysis can result in an increase or decrease in the loan's assigned risk grade. Aggregate dollar volume by risk grade is monitored on an on-going basis. 56



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Our management reviews certain key loan quality indicators on a monthly basis, including current economic conditions, delinquency trends and ratios, portfolio mix changes, and other information management deems necessary. This review process provides a degree of objective measurement that is used in conjunction with periodic internal evaluations. To the extent that this review process yields differences between estimated and actual observed losses, adjustments are made to the loss factors used to determine the appropriate level of the allowance for loan losses. Our Company is primarily a real estate lender in the markets we serve. As such, we are subject to declines in asset quality when real estate prices fall during a recession. The recession in the latter years of the last decade harshly impacted the real estate market in Florida. The economic conditions particularly in our Florida market have improved recently, although not to pre-recession levels. Our Arkansas markets' economies have been fairly stable over the past several years with no boom or bust. As a result, the Arkansas economy fared better with its real estate values during this time period.



The provision for loan losses represents management's determination of the amount necessary to be charged against the current period's earnings, to maintain the allowance for loan losses at a level that is considered adequate in relation to the estimated risk inherent in the loan portfolio.

There was zero provision for covered loans for the three and six months ended June 30, 2014. There was $100,000 provision for covered loan for the three and six months ended June 30, 2013. The $100,000 of provision for loan losses for the three and six months ended June 30, 2013 is a result of the quarterly 2013 impairment testing on the estimated cash flows of the covered loans. This testing established that the pools evaluated had experienced material projected credit deterioration. As a result of this projection, we recorded a $500,000 provision for loan losses to the allowance for loan losses related to the purchased impaired loans during the three and six months ended June 30, 2013. Since these loans are covered by loss share with the FDIC, we were able to increase the related indemnification asset by $400,000 resulting in a net provision for loan losses of $100,000. The Company experienced a $5.4 million increase in the provision for loan losses for non-covered loans during the second quarter of 2014 versus the same period in 2013. This expected increase is not an indication of a decline in asset quality, but primarily a reflection of the migration of the Liberty (and other acquired) loans from purchased loan accounting treatment to originated loan accounting treatment. Based upon current accounting guidance, the allowance for loan losses is not carried over in an acquisition. As a result, virtually none of the Liberty footprint loans had any allocation of the allowance for loan losses at year end. This is the result of all loans acquired on October 24, 2013 from Liberty being recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. As the acquired loans mature and are renewed as new credits, management evaluates the credit risk associated with these new credit decisions and determines the required allowance for loan loss for these new originated loans using the allowance for loan loss methodology for all originated loans as disclosed in Note 1 to the Notes to Consolidated Financial Statements in our Form 10-K. Our current or historical provision levels should not be relied upon as a predictor or indicator of future levels going forward. Non-Interest Income Total non-interest income was $11.5 million and $23.7 million for the three and six-month periods ended June 30, 2014, respectively, compared to $9.8 million and $18.8 million for the same periods in 2013, respectively. Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending, insurance, title fees, increase in cash value of life insurance, dividends and FDIC indemnification accretion/amortization. 57



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Table 9 measures the various components of our non-interest income for the three and six-month periods ended June 30, 2014 and 2013, respectively, as well as changes for the three and six-month periods ended June 30, 2014 compared to the same periods in 2013. Table 9: Non-Interest Income Three Months Ended Six Months Ended June 30, 2014 Change June 30, 2014 Change 2014 2013 from 2013 2014 2013 from 2013 (Dollars in thousands)



Service charges on deposit accounts $ 6,193$ 4,088 $

2,105 51.5 % $ 12,104$ 7,797$ 4,307 55.2 % Other service charges and fees 5,978 3,479 2,499 71.8 11,664 6,916 4,748 68.7 Trust fees 323 17 306 1,800.0 759 36 723 2,008.3 Mortgage lending income 1,801 1,619 182 11.2 3,314 2,991 323 10.8 Insurance commissions 934 444 490 110.4 2,350 1,123 1,227 109.3 Income from title services 53 136 (83 ) (61.0 ) 103 245 (142 ) (58.0 ) Increase in cash value of life insurance 281 218 63 28.9 569 398 171



43.0

Dividends from FHLB, FRB, Bankers' bank & other 501 401 100 24.9 817 576 241 41.8 Gain on sale of SBA loans - - - 0.0 - 56 (56 ) (100.0 ) Gain (loss) on sale of premises and equipment, net 445 394 51 12.9 454 409 45 11.0 Gain (loss) on OREO, net 859 441 418 94.8 1,398 527 871 165.3 Gain (loss) on securities, net - 111 (111 ) (100.0 ) - 111 (111 ) (100.0 ) FDIC indemnification accretion/(amortization), net (6,622 ) (2,283 ) (4,339 ) 190.1 (11,366 ) (4,275 ) (7,091 ) 165.9 Other income 793 740 53 7.2 1,554 1,920 (366 ) (19.1 ) Total non-interest income $ 11,539$ 9,805$ 1,734 17.7 % $ 23,720$ 18,830$ 4,890 26.0 % Non-interest income increased $1.7 million, or 17.7%, to $11.5 million for the three-month period ended June 30, 2014 from $9.8 million for the same period in 2013. Non-interest income increased $4.9 million, or 26.0%, to $23.7 million for the six-month period ended June 30, 2014 from $18.8 million for the same period in 2013.



The primary factors that resulted in this increase were improvements related to service charges on deposits, other service charges and fees, trust fees, insurance, and changes in OREO gains and losses offset by an increase in amortization on our FDIC indemnification asset.

Additional details for the three months ended June 30, 2014 on some of the more significant changes are as follows:

The $4.6 million increase in service charges on deposit accounts and other

service charges and fees are primarily from our 2013 acquisition of Liberty. The $306,000 increase in trust fees are primarily from our 2013 acquisition of Liberty.



The $490,000 increase in insurance commissions is primarily from our 2013

acquisition of Liberty.



The $4.3 million decrease in FDIC indemnification accretion/amortization,

net is primarily associated with the quarterly impairment testing on the estimated cash flows of the covered loans. For further discussion and analysis, reference Tables 2 and 3 in the Management's Discussion and Analysis. 58



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Additional details for the six months ended June 30, 2014 on some of the more significant changes are as follows:

The $9.1 million increase in service charges on deposit accounts and other

service charges and fees are primarily from our 2013 acquisition of Liberty. The $723,000 increase in trust fees are primarily from our 2013 acquisition of Liberty.



The $1.2 million increase in insurance commissions is primarily from our

2013 acquisition of Liberty.



The $7.1 million decrease in FDIC indemnification accretion/amortization,

net is primarily associated with the quarterly impairment testing on the estimated cash flows of the covered loans. For further discussion and analysis, reference Tables 2 and 3 in the Management's Discussion and Analysis.

The $366,000 decrease in other income is primarily from $326,000 of



tax-free life insurance proceeds during the first six months of 2013. The

proceeds were in connection with two former associates who were not currently with the Company. The Company is currently in negotiations with the FDIC regarding the remaining loss share agreements associated with the Key West Bank loan portfolio acquired on March 26, 2010. Pursuant to the terms of the loss sharing agreements, the FDIC is obligated to reimburse Centennial Bank for 80% of losses in the first loss tranche up to $23.0 million and for 95% of losses in excess of $23.0 million with respect to covered assets. Centennial Bank is obligated to reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid Centennial Bank 80% reimbursement under the loss sharing agreements, and for 95% of recoveries with respect to losses for which the FDIC paid 95% reimbursement under the loss sharing agreements. Additionally, a significant portion of the Key West Bank loans were 30 year original maturity loans. The Company has evaluated the Key West Bank loans acquired and believes there has been a material projected credit improvement. As a result of this improvement, the Company will be recognizing an adjustment to yield over the weighted average life of the loans. Improvements in credit quality also decrease the basis in the related indemnification asset and increase the FDIC true-up liability. The reduction in the indemnification asset will be amortized over the weighted average life of the shared-loss agreement. The FDIC true-up liability will be expensed over the remaining true-up measurement date as other non-interest expense. As of June 30, 2014, the Company has an indemnification asset of $8.4 million remaining for the Key West Bank loans acquired. If this transaction with the FDIC were to occur, it would create a one-time acceleration of the indemnification asset plus the negotiated settlement for the true-up liability less any cash payment received by the FDIC. While there is no guarantee we can reach an agreement with the FDIC, if the Company were to reach an agreement with the FDIC during the third quarter of 2014 to buyout the loss share agreements, we do not believe the cash payment from the FDIC would be significant. As a result, this transaction could create a negative third quarter 2014 financial impact to earnings for the Company in the range of $7.0 million to $9.0 million on a pre-tax basis. However, there would be approximately $8.7 million positive adjustment to yield remaining to be recognized as accretion interest income over the weighted average life of the loans over the next 21 years. If the Company is not able to reach an agreement with the FDIC to buyout the Key West Bank loss share, we will begin accreting the credit improvement and amortizing the indemnification asset and recording a true up expense similar to the other impairment tests we have completed in the past. Since the weighted average life of the loans is long term, the positive accretion to be recognized as an adjustment to interest income will be more than offset by the shorter term amortization of the indemnification asset and FDIC true-up expense. As a result, if we are not able to reach an agreement with the FDIC it will create a negative third quarter 2014 financial impact to earnings for the Company of approximately $1.0 million on a pre-tax basis. This negative financial impact could continue until the year 2020 in the range of approximately $1.0 million to $100,000 per quarter on a pre-tax basis. 59



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Non-Interest Expense

Non-interest expense consists of salaries and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, merger and acquisition expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, other professional fees and legal and accounting fees. Table 10 below sets forth a summary of non-interest expense for the three and six-month periods ended June 30, 2014 and 2013, as well as changes for the three and six-month periods ended June 30, 2014 compared to the same period in 2013. Table 10: Non-Interest Expense Three Months Ended Six Months Ended June 30, 2014 Change June 30, 2014 Change 2014 2013 from 2013 2014 2013 from 2013 (Dollars in thousands) Salaries and employee benefits $ 18,813$ 12,957$ 5,856 45.2 % $ 37,746$ 25,909$ 11,837 45.7 % Occupancy and equipment 6,251 3,894 2,357 60.5 12,477 7,488 4,989 66.6 Data processing expense 1,793 1,231 562 45.7 3,586 2,741 845 30.8 Other operating expenses: Advertising 581 120 461



384.2 1,103 813 290 35.7 Merger and acquisition expenses 106

1 105 10,500 955 29 926 3,193.1 Amortization of intangibles 1,147 802 345 43.0 2,314 1,604 710 44.3 Electronic banking expense 1,312 960 352 36.7 2,650 1,823 827 45.4 Directors' fees 206 210 (4 ) (1.9 ) 433 400 33 8.3 Due from bank service charges 205 168 37 22.0 404 301 103 34.2 FDIC and state assessment 1,058 677 381 56.3 2,172 1,307 865 66.2 Insurance 582 555 27 4.9 1,196 1,121 75 6.7 Legal and accounting 419 394 25 6.3 836 716 120 16.8 Other professional fees 583 490 93 19.0 1,090 963 127 13.2 Operating supplies 515 332 183 55.1 987 675 312 46.2 Postage 327 231 96 41.6 679 438 241 55.0 Telephone 463 291 172 59.1 917 594 323 54.4 Other expense 4,259 2,542 1,717 67.5 8,432 4,796 3,636 75.8



Total non-interest expense $ 38,620$ 25,855$ 12,765

49.4 % $ 77,977$ 51,718$ 26,259 50.8 %

Non-interest expense, excluding merger expenses, increased $12.7 million, or 49.0%, to $38.5 million for the three-month period ended June 30, 2014, from $25.9 million for the same period in 2013. Non-interest expense, excluding merger expenses, increased $25.3 million, or 49.0%, to $77.0 million for the six-month period ended June 30, 2014, from $51.7 million for the same period in 2013. These increases primarily result from additional expense associated with the Liberty acquisition during 2013.



Income Taxes

The provision for income taxes increased $6.1 million, or 59.7%, to $16.4 million for the three-month period ended June 30, 2014, from $10.3 million as of June 30, 2013. The provision for income taxes increased $11.7 million, or 57.9%, to $32.0 million for the six-month period ended June 30, 2014, from $20.2 million as of June 30, 2013. The effective income tax rate was 36.61% and 36.44% for the three and six-month periods ended June 30, 2014, compared to 36.80% and 36.51% for the same periods in 2013. The primary cause of the increase in taxes is the result of our higher earnings combined with our marginal tax rate of 39.225%. 60



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Financial Condition as of and for the Period Ended June 30, 2014 and December 31, 2013

Our total assets as of June 30, 2014 decreased $145.7 million to $6.67 billion from the $6.81 billion reported as of December 31, 2013. Our loan portfolio not covered by loss share decreased by $61.3 million to $4.13 billion as of June 30, 2014, from $4.19 billion as of December 31, 2013. Our loan portfolio covered by loss share decreased by $19.4 million to $263.2 million as of June 30, 2014, from $282.5 million as of December 31, 2013. These decreases are primarily associated with pay-downs and payoffs. Stockholders' equity increased $56.3 million to $897.2 million as of June 30, 2014, compared to $841.0 million as of December 31, 2013. The annualized improvement in stockholders' equity for the first six months of 2014 was 13.5%. The increase in stockholders' equity is primarily associated with the $64.6 million of comprehensive income less the $9.8 million of cash dividends paid for the first six months of 2014.



Loan Portfolio

Loans Receivable Not Covered by Loss Share

Our non-covered loan portfolio averaged $4.14 billion and $2.32 billion during the three-month periods ended June 30, 2014 and 2013, respectively. Our non-covered loan portfolio averaged $4.15 billion and $2.32 billion during the six-month periods ended June 30, 2014 and 2013, respectively. Non-covered loans were $4.13 billion as of June 30, 2014 compared to $4.19 billion as of December 31, 2013, which is a $61.3 million or 2.95% annualized decrease. The most significant components of the non-covered loan portfolio were commercial real estate, residential real estate, consumer, and commercial and industrial loans. These non-covered loans are primarily originated within our market areas of Arkansas, Florida and South Alabama, and are generally secured by residential or commercial real estate or business or personal property within our market areas. Non-covered loans were $3.21 billion, $756.1 million and $169.4 million as of June 30, 2014 in Arkansas, Florida and Alabama, respectively.



As of June 30, 2014, we had $336.5 million of construction land development loans which were collateralized by land. This consisted of $194.7 million for raw land and $141.8 million for land with commercial and or residential lots.

Table 11 presents our loan balances not covered by loss share by category as of the dates indicated.

Table 11: Loan Portfolio Not Covered by Loss Share As of As of June 30, 2014December 31, 2013 (In thousands) Real estate:



Commercial real estate loans:

Non-farm/non-residential $ 1,733,029 $



1,739,668

Construction/land development 603,216



562,667

Agricultural 64,409



81,618

Residential real estate loans:

Residential 1-4 family 887,097 913,332 Multifamily residential 218,615 213,232 Total real estate 3,506,366 3,510,517 Consumer 56,197 69,570 Commercial and industrial 447,459 511,421 Agricultural 56,852 37,129 Other 66,235 65,800



Loans receivable not covered by loss share $ 4,133,109 $ 4,194,437

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As of acquisition date, the Company evaluated $1.61 billion of net loans ($1.67 billion gross loans less $62.1 million discount) purchased in conjunction with the acquisition of Liberty in accordance with the provisions of FASB ASC Topic 310-20, Nonrefundable Fees and Other Costs. As of June 30, 2014, the net loan balance of the Liberty ASC Topic 310-20 purchased loans is $1.23 billion ($1.27 billion gross loans less $42.3 million discount). The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. As of acquisition date, the Company evaluated $120.5 million of net loans ($162.4 million gross loans less $41.9 million discount) purchased in conjunction with the acquisition of Liberty in accordance with the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. As of June 30, 2014, the net loan balance of the Liberty ASC Topic 310-30 purchased loans is $91.5 million ($137.4 million gross loans less $45.9 million discount). These purchased non-covered loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. During the latter part of the second quarter of 2014 the Company received a $6.0 million unexpected recovery from one large commercial loan charged down significantly prior to the acquisition date. Since the Liberty impaired loans are accounted for on a pool basis, it is anticipated this $6.0 million will increase the yield on the impaired loans over the weighted average life of the loans in the pool going forward. Non-Covered Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized over a 15 to 25 year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower's liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis. As of June 30, 2014, non-covered commercial real estate loans totaled $2.40 billion, or 58.1% of our non-covered loan portfolio, which is comparable to $2.38 billion, or 56.8% of our non-covered loan portfolio, as of December 31, 2013. Our Arkansas, Florida and Alabama non-covered commercial real estate loans were $1.84 billion, $464.0 million and $96.9 million at June 30, 2014, respectively.



Non-Covered Residential Real Estate Loans. We originate one to four family, owner occupied residential mortgage loans generally secured by property located in our primary market areas. The majority of our non-covered residential mortgage loans consist of loans secured by owner occupied, single family residences. Non-covered residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower's ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

As of June 30, 2014, non-covered residential real estate loans totaled $1.11 billion, or 26.8% of our non-covered loan portfolio, compared to $1.13 billion, or 26.9% of our non-covered loan portfolio, as of December 31, 2013. Our Arkansas, Florida and Alabama non-covered residential real estate loans were $816.9 million, $236.6 million and $52.2 million at June 30, 2014, respectively. Non-Covered Consumer Loans. Our non-covered consumer loan portfolio is composed of secured and unsecured loans originated by our banks. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics. As of June 30, 2014, our non-covered consumer loan portfolio totaled $56.2 million, or 1.4% of our total non-covered loan portfolio, compared to the $69.6 million, or 1.7% of our non-covered loan portfolio as of December 31, 2013. Our Arkansas, Florida and Alabama non-covered consumer loans were $43.5 million, $11.5 million and $1.2 million at June 30, 2014, respectively. 62



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Non-Covered Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower's liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally speaking, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 60% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans. As of June 30, 2014, non-covered commercial and industrial loans outstanding totaled $447.5 million, or 10.8% of our non-covered loan portfolio, which is comparable to $511.4 million, or 12.2% of our non-covered loan portfolio, as of December 31, 2013. Our Arkansas, Florida and Alabama non-covered commercial and industrial loans were $391.1 million, $37.5 million and $18.9 million at June 30, 2014, respectively.



Total Loans Receivable

Table 12 presents total loans receivable by category.

Table 12: Total Loans Receivable As of June 30, 2014 Loans Loans Receivable Not Receivable Total Covered by Covered by FDIC Loans Loss Share Loss Share Receivable (In thousands) Real estate:



Commercial real estate loans

Non-farm/non-residential $ 1,733,029 $ 107,171

$ 1,840,200

Construction/land development 603,216 44,763



647,979

Agricultural 64,409 1,145



65,554

Residential real estate loans

Residential 1-4 family 887,097 91,706 978,803 Multifamily residential 218,615 10,002 228,617 Total real estate 3,506,366 254,787 3,761,153 Consumer 56,197 20 56,217 Commercial and industrial 447,459 7,368 454,827 Agricultural 56,852 - 56,852 Other 66,235 982 67,217 Total $ 4,133,109 $ 263,157 $ 4,396,266



Non-Performing Assets Not Covered by Loss Share

We classify our non-covered problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).

When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as "special mention" or otherwise classified or on non-accrual status. 63



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We have non-covered loans acquired with deteriorated credit quality in our June 30, 2014 financial statements as a result of our acquisitions of Heritage, Premier and Liberty. The credit metrics most heavily impacted by our acquisitions of acquired non-covered loans with deteriorated credit quality were the following credit quality indicators listed in Table 13 below: Allowance for loan losses for non-covered loans to non-performing non-covered loans; Non-performing non-covered assets to total non-covered assets; and Non-performing non-covered loans to total non-covered loans. On the date of acquisition, acquired credit-impaired loans are initially recognized at fair value, which incorporates the present value of amounts estimated to be collectible. As a result of the application of this accounting methodology, certain credit-related ratios, including those referenced above, may not necessarily be directly comparable with periods prior to the acquisition of the credit-impaired non-covered loans and non-covered non-performing assets, or comparable with other institutions.



Table 13 sets forth information with respect to our non-performing non-covered assets as of June 30, 2014 and December 31, 2013. As of these dates, all non-performing non-covered restructured loans are included in non-accrual non-covered loans.

Table 13: Non-performing Assets Not Covered by Loss Share As of As of June 30, December 31, 2014 2013 (Dollars in thousands) Non-accrual non-covered loans $ 21,900



$ 15,133 Non-covered loans past due 90 days or more (principal or interest payments)

23,081



23,141

Total non-performing non-covered loans 44,981



38,274

Other non-performing non-covered assets Non-covered foreclosed assets held for sale, net 20,960



29,869

Other non-performing non-covered assets 10



281

Total other non-performing non-covered assets 20,970



30,150

Total non-performing non-covered assets $ 65,951



$ 68,424

Allowance for loan losses for non-covered loans to non-performing non-covered loans

107.26 %



101.95 % Non-performing non-covered loans to total non-covered loans

1.09



0.91

Non-performing non-covered assets to total non-covered assets

1.04



1.07

Our non-performing non-covered loans are comprised of non-accrual non-covered loans and accruing non-covered loans that are contractually past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improve. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for loan losses. The Florida franchise contains approximately 46.1% and 53.1% of our non-performing non-covered loans as of June 30, 2014 and December 31, 2013, respectively. Total non-performing non-covered loans were $45.0 million as of June 30, 2014, compared to $38.3 million as of December 31, 2013 for an increase of $6.7 million. Of the $6.7 million increase in non-performing loans, $5.8 million is from an increase in non-performing loans in our Arkansas market combined with a $384,000 increase in non-performing loans in our Florida market and a $495,000 increase in non-performing loans in Alabama. Non-performing loans at June 30, 2014 are approximately $23.8 million, $20.7 million and $502,000 in the Arkansas, Florida and Alabama markets, respectively. 64



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Although the current state of the real estate market has improved, uncertainties still present in the economy may continue to increase our level of non-performing non-covered loans. While we believe our allowance for loan losses is adequate and our purchased loans are adequately discounted at June 30, 2014, as additional facts become known about relevant internal and external factors that affect loan collectability and our assumptions, it may result in us making additions to the provision for loan losses during 2014. Our current or historical provision levels should not be relied upon as a predictor or indicator of future levels going forward. Troubled debt restructurings ("TDR") generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near term. As a result, the Bank will work with the borrower to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan. In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable and depressed real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about three to twelve months. For our troubled debt restructurings that accrue interest at the time the loan is restructured, it would be a rare exception to have charged-off any portion of the loan. Only non-performing restructured loans are included in our non-performing non-covered loans. As of June 30, 2014, we had $32.7 million of non-covered restructured loans that are in compliance with the modified terms and are not reported as past due or non-accrual in Table 13. Our Florida market contains $15.9 million of these non-covered restructured loans. To facilitate this process, a loan modification that might not otherwise be considered may be granted resulting in classification as a troubled debt restructuring. These loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on an accrual status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of six months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can pay the new terms and may result in the loan being returned to an accrual status after a shorter performance period. If the borrower's ability to meet the revised payment schedule is not reasonably assured, the loan will remain in a non-accrual status. The majority of the Bank's loan modifications relate to commercial lending and involve reducing the interest rate, changing from a principal and interest payment to interest-only, a lengthening of the amortization period, or a combination of some or all of the three. In addition, it is common for the Bank to seek additional collateral or guarantor support when modifying a loan. At June 30, 2014, the amount of troubled debt restructurings was $33.2 million, a decrease of 23.7% from $43.5 million at December 31, 2013. As of June 30, 2014 and December 31, 2013, 98.6% and 98.0%, respectively, of all restructured loans were performing to the terms of the restructure. Total foreclosed assets held for sale not covered by loss share were $21.0 million as of June 30, 2014, compared to $29.9 million as of December 31, 2013 for a decrease of $8.9 million. The foreclosed assets held for sale not covered by loss share as of June 30, 2014 are comprised of $5.6 million of assets located in Florida, $15.3 million of assets located in Arkansas and the remaining $86,000 located in Alabama. During the first six months of 2014, we had four non-covered foreclosed properties with a carrying value greater than $1.0 million. Three of these properties were acquired in the Liberty acquisition and hold an aggregate carrying value of $5.9 million at June 30, 2014. The remaining property is a development loan in Northwest Arkansas which has been foreclosed since the first quarter of 2011. The carrying value was $3.6 million at June 30, 2014. The Company does not currently anticipate any additional losses on these properties. As of June 30, 2014, no other foreclosed assets held for sale not covered by loss share have a carrying value greater than $1.0 million. 65



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Table 14 shows the summary of foreclosed assets held for sale as of June 30, 2014 and December 31, 2013.

Table 14: Total Foreclosed Assets Held For Sale As of June 30, 2014 As of December 31, 2013 Not Covered by Not Covered by Covered by FDIC Loss Covered by FDIC Loss Loss Share Share Total Loss Share Share Total (In thousands) Commercial real estate loans Non-farm/non-residential $ 9,136$ 8,171



$ 17,307$ 8,422$ 9,677$ 18,099 Construction/land development

7,749 7,487 15,236 17,675 5,517 23,192 Agricultural 49 3 52 - 651 651 Residential real estate loans Residential 1-4 family 3,958 1,535 5,493 3,772 5,154 8,926 Multifamily residential 68 - 68 - - -



Total foreclosed assets held for sale $ 20,960$ 17,196

$ 38,156$ 29,869$ 20,999$ 50,868

A loan is considered impaired when it is probable that we will not receive all amounts due according to the contracted terms of the loans. Impaired loans include non-performing loans (loans past due 90 days or more and non-accrual loans), criticized and/or classified loans with a specific allocation, loans categorized as TDR's and certain other loans identified by management that are still performing (loans included in multiple categories are only included once). As of June 30, 2014, average non-covered impaired loans were $96.7 million compared to $104.1 million as of December 31, 2013. As of June 30, 2014, non-covered impaired loans were $91.5 million compared to $106.5 million as of December 31, 2013 for a decrease of $15.0 million. This decrease is primarily associated with the improvements in loan balances with a specific allocation and loans categorized as TDR's. As of June 30, 2014, our Florida and Alabama markets accounted for approximately $33.0 million and $508,000 of the non-covered impaired loans, respectively. We evaluated loans purchased in conjunction with the 2010 FDIC-assisted acquisitions, the 2012 acquisitions of Heritage and Premier and certain loans during the 2013 acquisition of Liberty for impairment in accordance with the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. Purchased impaired non-covered loans are not classified as non-performing non-covered assets for the recognition of interest income as the pools are considered to be performing. However, for the purpose of calculating the non-performing credit metrics, the Company has included all of the non-covered loans which are contractually 90 days past due and still accruing, including those in performing pools. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all purchased impaired loans. All non-covered loans acquired with deteriorated credit quality are considered impaired loans at the date of acquisition. Since the loans are accounted for on a pooled basis under ASC 310-30, individual loans are not classified as impaired. Since the loans are accounted for on a pooled basis under ASC 310-30, individual loans subsequently restructured within the pools are not classified as TDRs in accordance with ASC 310-30-40. For non-covered loans acquired with deteriorated credit quality that were deemed TDRs prior to the Company's acquisition of them, these loans are also not considered TDRs as they are accounted for under ASC 310-30. 66



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As of June 30, 2014 and December 31, 2013, there were no non-covered loans acquired with deteriorated credit quality on non-accrual status as a result of the loans being accounted for on the pool basis and the pools are considered to be performing for the accruing of interest income. Also, acquired loans contractually past due 90 days or more are accruing interest because the pools are considered to be performing for the purpose of accruing interest income.



Past Due and Non-Accrual Loans

Table 15 shows the summary non-accrual loans as of June 30, 2014 and December 31, 2013: Table 15: Total Non-Accrual Loans As of June 30, 2014 As of December 31, 2013 Not Not Covered Covered Covered Covered by Loss by FDIC by Loss by FDIC Share Loss Share Total Share Loss Share Total (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 9,137 $ - $



9,137 $ 5,093 $ - $ 5,093 Construction/land development

1,570 - 1,570 1,080 - 1,080 Agricultural 39 - 39 89 - 89 Residential real estate loans Residential 1-4 family 8,504 - 8,504 7,283 - 7,283 Multifamily residential - - - 1 - 1 Total real estate 19,250 - 19,250 13,546 - 13,546 Consumer 275 - 275 124 - 124 Commercial and industrial 2,174 - 2,174 1,463 - 1,463 Other 201 - 201 - - - Total non-accrual loans $ 21,900 $ - $ 21,900$ 15,133 $ - $ 15,133 If the non-accrual non-covered loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $365,000 and $306,000 for the three-month periods ended June 30, 2014 and 2013, respectively, would have been recorded. If the non-accrual non-covered loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $632,000 and $647,000 for the six-month periods ended June 30, 2014 and 2013, respectively, would have been recorded. The interest income recognized on the non-covered non-accrual loans for the three and six-month periods ended June 30, 2014 and 2013 was considered immaterial. 67



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Table 16 shows the summary of accruing past due loans 90 days or more as of June 30, 2014 and December 31, 2013:

Table 16: Total Loans Accruing Past Due 90 Days or More As of June 30, 2014 As of December 31, 2013 Not Not Covered Covered Covered Covered by Loss by FDIC by Loss by FDIC Share Loss Share Total Share Loss Share Total (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 9,759$ 19,604$ 29,363$ 7,914$ 15,287$ 23,201 Construction/land development 3,783 4,164 7,947 4,879 8,410 13,289 Agricultural 28 145 173 - 162 162 Residential real estate loans Residential 1-4 family 5,869 9,670 15,539 6,492 10,177 16,669 Multifamily residential 620 1,950 2,570 1 357 358 Total real estate 20,059 35,533 55,592 19,286 34,393 53,679 Consumer 92 - 92 100 - 100 Commercial and industrial 2,930 935 3,865 3,755 825 4,580 Other - 29 29 - 624 624 Total loans accruing past due 90 days or more $ 23,081$ 36,497$ 59,578$ 23,141$ 35,842$ 58,983



The Company's total past due and non-accrual covered loans to total covered loans was 13.9% and 12.7% as of June 30, 2014 and December 31, 2013, respectively.

Allowance for Loan Losses for Non-Covered Loans

Overview. The allowance for loan losses for non-covered loans is maintained at a level which our management believes is adequate to absorb all probable losses on loans in the loan portfolio. The amount of the allowance is affected by: (i) loan charge-offs, which decrease the allowance; (ii) recoveries on loans previously charged off, which increase the allowance; and (iii) the provision of possible loan losses charged to income, which increases the allowance. In determining the provision for possible loan losses, it is necessary for our management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions. If actual losses exceed the amount of allowance for loan losses for non-covered loans, our earnings could be adversely affected.



As we evaluate the allowance for loan losses for non-covered loans, we categorize it as follows: (i) specific allocations; (ii) allocations for criticized and classified assets not individually evaluated for impairment; (iii) general allocations; and (iv) miscellaneous allocations.

Specific Allocations. As a general rule, if a specific allocation is warranted, it is the result of an analysis of a previously classified credit or relationship. Typically, when it becomes evident through the payment history or a financial statement review that a loan or relationship is no longer supported by the cash flows of the asset and/or borrower and has become collateral dependent, we will use appraisals or other collateral analysis to determine if collateral impairment has occurred. The amount or likelihood of loss on this credit may not yet be evident, so a charge-off would not be prudent. However, if the analysis indicates that an impairment has occurred, then a specific allocation will be determined for this loan. If our existing appraisal is outdated or the collateral has been subject to significant market changes, we will obtain a new appraisal for this impairment analysis. The majority of the Company's impaired loans are collateral dependent at the present time, so third-party appraisals were used to determine the necessary impairment for these loans. Cash flow available to service debt was used for the other impaired loans. This analysis is performed each quarter in connection with the preparation of the analysis of the adequacy of the allowance for loan losses for non-covered loans, and if necessary, adjustments are made to the specific allocation provided for a particular loan.



For collateral dependent loans, we do not consider an appraisal outdated simply due to the passage of time. However, if market or other conditions have deteriorated and we believe that the current market value of the

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property is not within approximately 20% of the appraised value, we will consider the appraisal outdated and order a new appraisal for the impairment analysis. The recognition of any provision or related charge-off on a collateral dependent loan is either through annual credit analysis or, many times, when the relationship becomes delinquent. If the borrower is not current, we will update our credit and cash flow analysis to determine the borrower's repayment ability. If we determine this ability does not exist and it appears that the collection of the entire principal and interest is not likely, then the loan could be placed on non-accrual status. In any case, loans are classified as non-accrual no later than 105 days past due. If the loan requires a quarterly impairment analysis, this analysis is completed in conjunction with the completion of the analysis of the adequacy of the allowance for loan losses for non-covered loans. Any exposure identified through the impairment analysis is shown as a specific reserve on the individual impairment. If it is determined that a new appraisal is required, it is ordered and will be taken into consideration during the next completion of the impairment analysis. Between the receipt of the original appraisal and the updated appraisal, we monitor the loan's repayment history and subject the loan to examination by our internal loan review. If the loan is over $1.0 million or the total loan relationship is over $2.0 million, our policy requires an annual credit review. In addition, we update all financial information and calculate the global repayment ability of the borrower/guarantors. In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable circumstances. In such case, the amount charged off may result in loan principal outstanding being below fair value as presented in the appraisal. As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or by law at 105 days past due, we will reflect that loan as non-performing. It will remain non-performing until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest.



When the amount or likelihood of a loss on a loan has been determined, a charge-off should be taken in the period it is determined. If a partial charge-off occurs, the quarterly impairment analysis will determine if the loan is still impaired, and thus continues to require a specific allocation.

Allocations for Criticized and Classified Assets not Individually Evaluated for Impairment. We establish allocations for loans rated "special mention" through "loss" in accordance with the guidelines established by the regulatory agencies. A percentage rate is applied to each loan category to determine the level of dollar allocation. General Allocations. We establish general allocations for each major loan category. This section also includes allocations to loans, which are collectively evaluated for loss such as residential real estate, commercial real estate, consumer loans and commercial and industrial loans. The allocations in this section are based on a historical review of loan loss experience and past due accounts. We give consideration to trends, changes in loan mix, delinquencies, prior losses, and other related information.



Miscellaneous Allocations. Allowance allocations other than specific, classified, and general are included in our miscellaneous section.

Loans Collectively Evaluated for Impairment. Non-covered loans collectively evaluated for impairment was $3.77 billion at both December 31, 2013 and June 30, 2014. The percentage of the allowance for loan losses for non-covered loans allocated to non-covered loans collectively evaluated for impairment to the total non-covered loans collectively evaluated for impairment increased from 0.65% at December 31, 2013 to 0.86% at June 30, 2014. This increase is the result of the normal changes associated with the calculation of the allocation of the allowance for loan losses and includes routine changes from the previous year end reporting period such as organic loan growth, unallocated allowance, individual loan impairments, asset quality and net charge-offs. 69



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Charge-offs and Recoveries. Total charge-offs decreased to $2.5 million and $5.0 million for the three and six months ended June 30, 2014, respectively, compared to $3.4 million and $6.7 million for the same periods in 2013, respectively. Total recoveries decreased to $635,000 and $1.1 million for the three and six months ended June 30, 2014, respectively, compared to $807,000 and $1.3 million for the same periods in 2013, respectively. For the three months ended June 30, 2014, the net charge-offs were $754,000 for Arkansas, $1.0 million for Florida and $126,000 for Alabama, respectively, equaling a net charge-off position of $1.9 million. For the six months ended June 30, 2014, the net charge-offs were $2.0 million for Arkansas, $1.7 million for Florida and $137,000 for Alabama, respectively, equaling a net charge-off position of $3.8 million. During the first six months of 2014, there were $5.0 million in charge-offs and $1.1 in recoveries. While the charge-offs and recoveries consisted of many relationships, there were no individual relationships consisting of charge-offs greater than $1.0 million. We have not charged off an amount less than what was determined to be the fair value of the collateral as presented in the appraisal (for collateral dependent loans) for any period presented. Loans partially charged-off are placed on non-accrual status until it is proven that the borrower's repayment ability with respect to the remaining principal balance can be reasonably assured. This is usually established over a period of 6-12 months of timely payment performance. 70



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Table 17 shows the allowance for loan losses, charge-offs and recoveries for non-covered loans as of and for the three and six-month periods ended June 30, 2014 and 2013. Table 17: Analysis of Allowance for Loan Losses for Non-Covered Loans Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in thousands) Balance, beginning of period $ 44,024$ 42,302$ 39,022$ 45,170 Loans charged off Real estate: Commercial real estate loans: Non-farm/non-residential 601 619 668 864 Construction/land development 145 50 167 168 Agricultural - - - - Residential real estate loans: Residential 1-4 family 870 899 1,217 1,926 Multifamily residential - 1,265 266 2,291 Total real estate 1,616 2,833 2,318 5,249 Consumer 32 86 198 688 Commercial and industrial 316 146 1,184 181 Agricultural - - - - Other 562 296 1,250 561 Total loans charged off 2,526 3,361 4,950 6,679 Recoveries of loans previously charged off Real estate: Commercial real estate loans: Non-farm/non-residential 199 96 221 113 Construction/land development 20 - 45 15 Agricultural - - - - Residential real estate loans: Residential 1-4 family (6 ) 542 46 656 Multifamily residential 2 4 7 70 Total real estate 215 642 319 854 Consumer 152 48 214 90 Commercial and industrial 30 18 65 33 Agricultural - - - - Other 238 99 525 280 Total recoveries 635 807 1,123 1,257 Net loans charged off (recovered) 1,891 2,554 3,827 5,422 Provision for loan losses for non-covered loans 6,115 750 13,053 750 Balance, June 30 $ 48,248$ 40,498$ 48,248$ 40,498 Net charge-offs (recoveries) on loans not covered by loss share to average non-covered loans 0.18 % 0.44 % 0.19 % 0.47 % Allowance for loan losses for non-covered loans to total non-covered loans(1) 1.17 1.73 1.17 1.73 Allowance for loan losses for non-covered loans to net charge-offs (recoveries) 10,234 6,360 2,542 1,506



(1) See "Management's Discussion and Analysis of Financial Condition and Results

of Operations - Table 25," for additional information on non-GAAP tabular

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Allocated Allowance for Loan Losses for Non-Covered Loans. We use a risk rating and specific reserve methodology in the calculation and allocation of our allowance for loan losses for non-covered loans. While the allowance is allocated to various loan categories in assessing and evaluating the level of the allowance, the allowance is available to cover charge-offs incurred in all loan categories. Because a portion of our portfolio has not matured to the degree necessary to obtain reliable loss data from which to calculate estimated future losses, the unallocated portion of the allowance is an integral component of the total allowance. Although unassigned to a particular credit relationship or product segment, this portion of the allowance is vital to safeguard against the imprecision inherent in estimating credit losses. The changes for the period ended June 30, 2014 and the year ended December 31, 2013 in the allocation of the allowance for loan losses for non-covered loans for the individual types of loans are primarily associated with changes in the ASC 310 calculations, both individual and aggregate, and changes in the ASC 450 calculations. These calculations are affected by changes in individual loan impairments, changes in asset quality, net charge-offs during the period and normal changes in the outstanding loan portfolio, as well any changes to the general allocation factors due to changes within the actual characteristics of the loan portfolio.



Table 18 presents the allocation of allowance for loan losses for non-covered loans as of June 30, 2014 and December 31, 2013.

Table 18: Allocation of Allowance for Loan Losses for Non-Covered Loans As of June 30, 2014 As of December 31, 2013 Allowance % of Allowance % of Amount loans(1) Amount loans(1) (Dollars in thousands) Real estate: Commercial real estate loans: Non-farm/non-residential $ 19,317 41.9 % $ 14,848 41.4 % Construction/land development 6,657 14.6 6,282 13.4 Agricultural 253 1.6 252 1.9 Residential real estate loans: Residential 1-4 family 7,261 21.5 6,072 21.8 Multifamily residential 2,755 5.3 2,817 5.1 Total real estate 36,243 84.9 30,271 83.6 Consumer 602 1.4 632 1.7 Commercial and industrial 3,714 10.8 1,933 12.2 Agricultural 3,262 1.3 1,931 0.9 Other - 1.6 - 1.6 Unallocated 4,427 - 4,255 - Total $ 48,248 100.0 % $ 39,022 100.0 %



(1) Percentage of loans in each category to loans receivable not covered by loss

share.

Allowance for Loan Losses for Covered Loans

Allowance for loan losses for covered loans were $2.9 million and $4.8 million at June 30, 2014 and December 31, 2013, respectively.

Total charge-offs decreased to $1.1 million for the three months ended June 30, 2014, compared to $3.2 million for the same period in 2013. Total recoveries increased to $128,000 for the three months ended June 30, 2014, compared to $6,000 for the same period in 2013. There was zero provision for loan losses taken on covered loans during the three months ended June 30, 2014. There was $100,000 provision for loan losses taken on covered loans during the three months ended June 30, 2013. 72



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Total charge-offs decreased to $1.1 million for the six months ended June 30, 2014, compared to $5.0 million for the same period in 2013. Total recoveries increased to $302,000 for the six months ended June 30, 2014, compared to $17,000 for the same period in 2013. There was zero provision for loan losses taken on covered loans during the six months ended June 30, 2014. There was $100,000 provision for loan losses taken on covered loans during the six months ended June 30, 2013. Investments and Securities Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. The estimated effective duration of our securities portfolio was 2.9 years as of June 30, 2014. As of June 30, 2014 and December 31, 2013 we had $205.6 million and $114.6 million of held-to-maturity securities, respectively. Of the $205.6 million of held-to-maturity securities, $69.7 million were invested in mortgage-backed securities and $135.9 million were invested in state and political subdivisions as of June 30, 2014. All of the held-to-maturity securities were invested in state and political subdivisions as of December 31, 2013. Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders' equity as other comprehensive income. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. Available-for-sale securities were $1.12 billion and $1.18 billion as of June 30, 2014 and December 31, 2013, respectively. As of June 30, 2014, $495.5 million, or 44.1%, of our available-for-sale securities were invested in mortgage-backed securities, compared to $461.6 million, or 39.3%, of our available-for-sale securities as of December 31, 2013. To reduce our income tax burden, $178.2 million, or 15.9%, of our available-for-sale securities portfolio as of June 30, 2014, was primarily invested in tax-exempt obligations of state and political subdivisions, compared to $195.5 million, or 16.6%, of our available-for-sale securities as of December 31, 2013. Also, we had approximately $393.3million, or 35.0%, invested in obligations of U.S. Government-sponsored enterprises as of June 30, 2014, compared to $463.5 million, or 39.4%, of our available-for-sale securities as of December 31, 2013. Certain investment securities are valued at less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market rates. Based on evaluation of available evidence, we believe the declines in fair value for these securities are temporary. It is our intent to hold these securities to recovery. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other than temporary impairment is identified.



See Note 3 "Investment Securities" to the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities.

Deposits

Our deposits averaged $5.24 billion and $5.28 billion for the three and six-month periods ended June 30, 2014. Total deposits decreased $201.0 million, or an annualized decrease of 7.5%, to $5.19 billion as of June 30, 2014, from $5.39 billion as of December 31, 2013. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions. 73



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Our policy also permits the acceptance of brokered deposits. As of June 30, 2014 and December 31, 2013, brokered deposits were $70.6 million and $100.4 million, respectively. Included in these brokered deposits are $30.6 million and $41.2 million of Certificate of Deposit Account Registry Service (CDARS) as of June 30, 2014 and December 31, 2013, respectively. CDARS are deposits of our customers we have swapped with other institutions. This gives our customers the potential for FDIC insurance of up to $50.0 million. The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during this current period of limited loan demand. We believe that additional funds can be attracted and deposit growth can be realized through deposit pricing if we experience increased loan demand or other liquidity needs. The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Funds rate, which is the cost to banks of immediately available overnight funds, was lowered on December 16, 2008 to a historic low of 0.25% to 0% where it has remained since that time. Table 19 reflects the classification of the average deposits and the average rate paid on each deposit category, which is in excess of 10 percent of average total deposits, for the three and six-month periods ended June 30, 2014 and 2013. Table 19: Average Deposit Balances and Rates Three Months Ended June 30, 2014 2013 Average Average Average Average Amount Rate Paid Amount Rate Paid (Dollars in thousands) Non-interest-bearing transaction accounts $ 1,054,233 - % $ 704,847 - % Interest-bearing transaction accounts 2,457,506 0.19 1,561,306 0.18 Savings deposits 351,350 0.06 217,963 0.09 Time deposits: $100,000 or more 734,974 0.65 469,946 0.94 Other time deposits 645,275 0.42 430,863 0.27 Total $ 5,243,338 0.24 % $ 3,384,925 0.25 % Six Months Ended June 30, 2014 2013 Average Average Average Average Amount Rate Paid Amount Rate Paid (Dollars in



thousands)

Non-interest-bearing transaction accounts $ 1,029,004 - % $ 686,636 - % Interest-bearing transaction accounts 2,447,322 0.10 1,564,514 0.19 Savings deposits 349,780 0.03 210,972 0.10 Time deposits: $100,000 or more 782,364 0.34 497,229 0.84 Other time deposits 671,391 0.23 446,332 0.45 Total $ 5,279,861 0.13 % $ 3,405,683 0.27 % 74



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Securities Sold Under Agreements to Repurchase

We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced. Interest incurred on repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase decreased $16.4 million, or 10.2%, from $161.0 million as of December 31, 2013 to $144.6 million as of June 30, 2014.



FHLB Borrowed Funds

Our FHLB borrowed funds were $349.1 million and $350.7 million at June 30, 2014 and December 31, 2013, respectively. At June 30, 2014, $135.0 million and $214.1 million of the outstanding balance were short-term and long-term advances, respectively. At December 31, 2013, $130.3 million and $220.4 million of the outstanding balances were short-term and long-term advances, respectively. Our remaining FHLB borrowing capacity was $947.6 million and $373.5 million as of June 30, 2014 and December 31, 2013, respectively. Expected maturities will differ from contractual maturities, because FHLB may have the right to call or HBI may have the right to prepay certain obligations.



Subordinated Debentures

Subordinated debentures, which consist of guaranteed payments on trust preferred securities, were $60.8 million as of June 30, 2014 and December 31, 2013.

The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in our subordinated debentures, the sole asset of each trust. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the subordinated debentures held by the trust. We wholly own the common securities of each trust. Each trust's ability to pay amounts due on the trust preferred securities is solely dependent upon our making payment on the related subordinated debentures. Our obligations under the subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by us of each respective trust's obligations under the trust securities issued by each respective trust.



Stockholders' Equity

Stockholders' equity was $897.2 million at June 30, 2014 compared to $841.0 million at December 31, 2013, an annualized increase of 13.5%. As of June 30, 2014 and December 31, 2013 our equity to asset ratio was 13.5% and 12.3% respectively. Book value per share was $13.77 at June 30, 2014 compared to $12.92 at December 31, 2013, a 13.3% annualized increase.

Common Stock Cash Dividends. We declared cash dividends on our common stock of $0.075 per share for each of the three-month periods ended June 30, 2014 and 2013. The common stock dividend payout ratio for the three months ended June 30, 2014 and 2013 was 17.18% and 23.88%, respectively. The common stock dividend payout ratio for the six months ended June 30, 2014 and 2013 was 17.52% and 22.36%, respectively. For the third quarter of 2014, the Board of Directors declared a regular $0.10 per share quarterly cash dividend payable September 3, 2014, to shareholders of record August 13, 2014. 75



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Liquidity and Capital Adequacy Requirements

Risk-Based Capital. We, as well as our bank subsidiary, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators as to components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of June 30, 2014 and December 31, 2013, we met all regulatory capital adequacy requirements to which we were subject. Table 20 presents our risk-based capital ratios as of June 30, 2014 and December 31, 2013. Table 20: Risk-Based Capital As of As of June 30, 2014 December 31, 2013 (Dollars in thousands) Tier 1 capital Stockholders' equity $ 897,235 $ 840,955 Qualifying trust preferred securities 59,000 59,000 Goodwill and core deposit intangibles, net (321,065 ) (323,272 ) Unrealized (gain) loss on available-for-sale securities (4,686 ) 4,140 Deferred tax assets (10,103 ) (31,330 ) Total Tier 1 capital 620,381 549,493 Tier 2 capital Qualifying allowance for loan losses 51,173 43,815 Total Tier 2 capital 51,173 43,815 Total risk-based capital $ 671,554 $ 593,308



Average total assets for leverage ratio $ 6,390,752 $

5,859,902 Risk weighted assets $ 4,952,570 $ 5,051,558 Ratios at end of period Leverage ratio 9.71 % 9.38 % Tier 1 risk-based capital 12.53 10.88 Total risk-based capital 13.56 11.75 Minimum guidelines Leverage ratio 4.00 % 4.00 % Tier 1 risk-based capital 4.00 4.00 Total risk-based capital 8.00 8.00 As of the most recent notification from regulatory agencies, our bank subsidiary was "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well-capitalized", our banking subsidiary and we must maintain minimum leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiary's category. 76



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Non-GAAP Financial Measurements

Our accounting and reporting policies conform to generally accepted accounting principles in the United States ("GAAP") and the prevailing practices in the banking industry. However, due to the application of purchase accounting from the Company's significant number of historical acquisitions (especially Liberty), we believe certain non-GAAP measures and ratios that exclude the impact of these items are useful to the investors and users of our financial statements to evaluate our performance, including net income, earnings per share, net interest margin and the allowance for loan losses for non-covered loans to total non-covered loans. Because of the Company's significant number of historical acquisitions, our net income, earnings per share, net interest margin and the allowance for loan losses for non-covered loans to total non-covered loans were significantly impacted by accretion and amortization of the fair value adjustments recorded in purchase accounting combined with the recording of provision for loan losses as loans migrate from purchased loan accounting treatment to originated loan accounting treatment. The accretion, amortization and provision for loan losses affect our net income, earnings per share and certain operating ratios as we accrete loan discounts to interest income; amortize premiums and discounts on time deposits to interest expense; amortize impairments of the indemnification assets to non-interest income; amortize intangible assets and accrue FDIC true up liability to non-interest expense; expense merger and acquisition costs and make provision for loan losses to cover new loans originated which are replacing the purchased loans acquired. The Company experienced a $6.1 million provision for loan losses for non-covered loans during the second quarter of 2014 which is an increase versus the same period in 2013. This expected increase is not an indication of a decline in asset quality, but primarily a reflection of the migration of the Liberty (and other acquired) loans from purchased loan accounting treatment to originated loan accounting treatment. Based upon current accounting guidance, the allowance for loan losses is not carried over in an acquisition. As a result, virtually none of the Liberty footprint loans had any allocation of the allowance for loan losses at year end. This is the result of all loans acquired on October 24, 2013 from Liberty being recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. As the acquired loans mature and are renewed as new credits, management evaluates the credit risk associated with these new credit decisions and determines the required allowance for loan loss for these new originated loans using the allowance for loan loss methodology for all originated loans as disclosed in note 1 to the Notes to Consolidated Financial Statements in our Form 10-K. We had $1.65 billion of purchased non-covered loans, which includes $157.7 million of discount for credit losses on non-covered loans acquired, at June 30, 2014. We had $2.04 billion of purchased non-covered loans, which includes $174.6 million of discount for credit losses on non-covered loans acquired at December 31, 2013. For purchased credit-impaired financial assets, GAAP requires a discount embedded in the purchase price that is attributable to the expected credit losses at the date of acquisition, which is a different approach from non-purchased-credit-impaired assets. While the discount for credit losses on purchased non-covered loans is not available for credit losses on non-purchased non-covered loans, management believes it is useful information to show the same accounting as if applied to all loans, including those acquired in a business combination. We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. In Tables 21 through 25 below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated: 77



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Table of Contents Table 21: Non-GAAP Earnings Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (In thousands, except per share data) GAAP net income $ 28,429$ 17,659$ 55,766$ 35,207 Accretion to net interest income (16,439 ) (5,090 ) (31,703 ) (10,145 ) Provision for loan losses 6,115 750 13,053 750 FDIC indemnification amortization 6,622 2,283 11,366 4,275 FDIC true-up accrual 371 180 638 360 Amortization of intangible assets 1,147 802 2,314 1,604 Merger and acquisition expenses 106 1 955 29 Tax impact of the above items 1,263 653 2,052 1,900 Non-GAAP impact to net income (815 ) (421 ) (1,325 ) (1,227 ) Non-GAAP net income $ 27,614$ 17,238$ 54,441$ 33,980 GAAP diluted earnings per share $ 0.43$ 0.31$ 0.85$ 0.62 Impact of purchase accounting, net of tax (0.01 ) (0.01 )



(0.02 ) (0.02 )

Non-GAAP diluted earnings per share $ 0.42$ 0.30$ 0.83$ 0.60

Average diluted shares outstanding 65,545 56,577 65,523 56,555 Table 22: Average Yield on Loans Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in thousands) Interest income on loans receivable - FTE $ 75,518$ 44,160$ 150,650$ 88,456 Purchase accounting accretion 16,303 4,958 31,432 9,838 Non-GAAP interest income on loans receivable - FTE $ 59,215$ 39,202



$ 119,218$ 78,618

Average loans $ 4,403,767$ 2,663,627$ 4,415,814$ 2,673,952 Average purchase accounting loan discounts (1) 256,731 235,951 269,964 232,472 Average loans (non-GAAP) $ 4,660,498$ 2,899,578



$ 4,685,778$ 2,906,424

Average yield on loans (reported) 6.88 % 6.65 % 6.88 % 6.67 % Average contractual yield on loans (non-GAAP) 5.10 5.42 5.13 5.45



(1) Balance includes $157.7 million of discount of credit losses for non-covered

loans acquired as of June 30, 2014. 78



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Table of Contents Table 23: Average Cost of Deposits Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in



thousands)

Interest expense on deposits $ 3,095$ 2,129$ 6,479$ 4,614 Amortization of time deposit (premiums)/discounts, net 136 132 271 307 Non-GAAP interest expense on deposits $ 3,231$ 2,261



$ 6,750$ 4,921

Average deposits $ 4,189,105$ 2,680,078$ 4,250,857$ 2,719,047 Average unamortized CD (premium)/discount, net (125 ) (949 ) (57 ) (1,023 ) Average deposits (non-GAAP) $ 4,188,980$ 2,679,129



$ 4,250,800$ 2,718,024

Average cost of deposits (reported) 0.30 % 0.32 % 0.31 % 0.34 % Average contractual cost of deposits (non-GAAP) 0.31 0.34 0.32 0.37 Table 24: Net Interest Margin Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in thousands) Net interest income - FTE $ 79,667$ 45,892$ 158,258$ 91,316 Total purchase accounting accretion 16,439 5,090 31,703 10,145 Non-GAAP net interest income - FTE $ 63,228$ 40,802



$ 126,555$ 81,171

Average interest-earning assets $ 5,807,532$ 3,554,663$ 5,810,815$ 3,566,040 Average purchase accounting loan discounts 256,731 235,951 269,964 232,472 Average interest-earning assets (non-GAAP) $ 6,064,263$ 3,790,614



$ 6,080,779$ 3,798,512

Net interest margin (reported) 5.50 % 5.18 % 5.49 % 5.16 % Net interest margin (non-GAAP) 4.18 4.32 4.20 4.31 79



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Table 25: Allowance for Loan Losses for Non-Covered Loans to Total Non-Covered Loans As of June 30, 2014 Purchased Non-Covered Non-Covered Loans Loans Total (Dollars in thousands) Loan balance reported (A) $ 2,633,388$ 1,499,721$ 4,133,109 Loan balance reported plus discount (B) 2,633,388 1,657,426 4,290,814 Allowance for loan losses for non-covered loans (C) $ 48,248 $ - $ 48,248 Discount for credit losses on non-covered loans acquired (D) - 157,705 157,705 Total allowance for loan losses for non-covered loans plus discount for credit losses on non-covered loans acquired (E) $ 48,248$ 157,705$ 205,953 Allowance for loan losses for non-covered loans to total non-covered loans (C/A) 1.83 % N/A 1.17 % Discount for credit losses on non-covered loans acquired to non-covered loans acquired plus discount for credit losses on non-covered loans acquired (D/B) N/A 9.52 % N/A Allowance for loan losses for non-covered loans plus discount for credit losses on non-covered loans acquired to total non-covered loans plus discount for credit losses on non-covered loans acquired (E/B) N/A N/A 4.80 %



Note: Discount for credit losses on purchased credit impaired loans acquired are accounted for on a pool by pool basis and are not available to cover credit losses on non-acquired loans or other pools.

As of December 31, 2013 Purchased Non-Covered Non-Covered Loans Loans Total (Dollars in thousands) Loan balance reported (A) $ 2,150,463$ 2,043,974$ 4,194,437 Loan balance reported plus discount (B) 2,150,463 2,218,611 4,369,074 Allowance for loan losses for non-covered loans (C) $ 39,022 $ - $ 39,022 Discount for credit losses on non-covered loans acquired (D) - 174,637 174,637 Total allowance for loan losses for non-covered loans plus discount for credit losses on non-covered loans acquired (E) $ 39,022$ 174,637$ 213,659 Allowance for loan losses for non-covered loans to total non-covered loans (C/A) 1.81 % N/A 0.93 % Discount for credit losses on non-covered loans acquired to non-covered loans acquired plus discount for credit losses on non-covered loans acquired (D/B) N/A 7.87 % N/A Allowance for loan losses for non-covered loans plus discount for credit losses on non-covered loans acquired to total non-covered loans plus discount for credit losses on non-covered loans acquired (E/B) N/A N/A 4.89 %



Note: Discount for credit losses on purchased credit impaired loans acquired are accounted for on a pool by pool basis and are not available to cover credit losses on non-acquired loans or other pools.

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We had $321.7 million, $324.0 million, and $96.1 million total goodwill, core deposit intangibles and other intangible assets as of June 30, 2014, December 31, 2013 and June 30, 2013, respectively. Because of our level of intangible assets and related amortization expenses, management believes diluted earnings per share excluding intangible amortization, tangible book value per share, return on average assets excluding intangible amortization, return on average tangible equity excluding intangible amortization and tangible equity to tangible assets are useful in evaluating our company. These calculations, which are similar to the GAAP calculation of diluted earnings per share, book value, return on average assets, return on average equity, and equity to assets, are presented in Tables 26 through 30, respectively. Table 26: Diluted Earnings Per Share Excluding Intangible Amortization Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 (Dollars in thousands, except per share data) GAAP net income $ 28,429$ 17,659$ 55,766$ 35,207 Intangible amortization after-tax 697 488 1,406 975 Earnings excluding intangible amortization $ 29,126$ 18,147$ 57,172$ 36,182



GAAP diluted earnings per share $ 0.43 $ 0.31

$ 0.85$ 0.62 Intangible amortization after-tax 0.01 0.01 0.02 0.02 Diluted earnings per share excluding intangible amortization $ 0.44 $ 0.32 $ 0.87$ 0.64 Table 27: Tangible Book Value Per Share As of As of June 30, 2014 December 31, 2013 (In thousands, except per share data) Book value per share: A/B $ 13.77 $



12.92

Tangible book value per share: (A-C-D)/B 8.83 7.94 (A) Total equity $ 897,235 $ 840,955 (B) Shares outstanding 65,142 65,082 (C) Goodwill $ 301,736 $ 301,736 (D) Core deposit and other intangibles 19,984 22,298 81



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Table of Contents Table 28: Return on Average Assets Excluding Intangible Amortization Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 (Dollars in



thousands)

Return on average assets: A/C 1.70 % 1.71 % 1.67 % 1.70 % Return on average assets excluding intangible amortization: B/(C-D) 1.83 1.80 1.80 1.79 (A) Net income $ 28,429$ 17,659$ 55,766$ 35,207 Intangible amortization after-tax 697 488 1,406 975 (B) Earnings excluding intangible amortization $ 29,126$ 18,147$ 57,172$ 36,182 (C) Average assets $ 6,721,920$ 4,147,485$ 6,744,140$ 4,169,970 (D) Average goodwill, core deposits and other intangible assets 322,274 96,526 322,851 96,927 Table 29: Return on Average Tangible Equity Excluding Intangible Amortization Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in thousands) Return on average equity: A/C 12.96 % 13.27 % 12.98 % 13.47 % Return on average tangible equity excluding intangible amortization: B/(C-D) 20.94 16.65 21.20 16.97 (A) Net income $ 28,429$ 17,659$ 55,766$ 35,207 (B) Earnings excluding intangible amortization 29,126 18,147 57,172 36,182 (C) Average equity 880,045 533,646 866,586 527,008 (D) Average goodwill, core deposits and other intangible assets 322,274 96,526 322,851 96,927 Table 30: Tangible Equity to Tangible Assets As of As of June 30, 2014 December 31, 2013 (Dollars in thousands) Equity to assets: B/A 13.46 % 12.35 % Tangible equity to tangible assets: (B-C-D)/(A-C-D) 9.07 7.97 (A) Total assets $ 6,666,140 $ 6,811,861 (B) Total equity 897,235 840,955 (C) Goodwill 301,736 301,736 (D) Core deposit and other intangibles 19,984 22,298



Recently Issued Accounting Pronouncements

See Note 22 to the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.

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