UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission File Number 0-22759

BANK OF THE OZARKS, INC.

(Exact name of registrant as specified in its charter)

ARKANSAS	71-0556208
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
17901 CHENAL PARKWAY, LITTLE ROCK, ARKANSAS	72223
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (501) 978-2265

None

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a smaller reporting company or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Check one:

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date.

Class	Outstanding at September 30, 2011
Common Stock, $0.01 par value per share	34,277,280

BANK OF THE OZARKS, INC.

FORM 10-Q

September 30, 2011

INDEX

PART I.	Financial Information
Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2011 and 2010 and December 31, 2010	1
		Consolidated Statements of Income for the Three Months Ended September 30, 2011 and 2010 and the Nine Months Ended September 30, 2011 and 2010	2
		Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2011 and 2010	3
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010	4
		Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
	Selected and Supplemental Financial Data		70
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		72
Item 4.	Controls and Procedures		73
PART II.	Other Information
Item 1.	Legal Proceedings		74
Item 1A.	Risk Factors		74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		74
Item 3.	Defaults Upon Senior Securities		74
Item 4.	Reserved		74
Item 5.	Other Information		74
Item 6.	Exhibits		74
Signature			75
Exhibit Index			76

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

BANK OF THE OZARKS, INC.

CONSOLIDATED BALANCE SHEETS

	Unaudited September 30,						December  31, 2010
	2011			2010
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	68,832		$	53,838		$	48,024
Interest earning deposits		665			524			1,005
Cash and cash equivalents		69,497			54,362			49,029
Investment securities - available for sale (“AFS”)		439,596			412,443			398,698
Loans and leases not covered by Federal Deposit Insurance Corporation (“FDIC”) loss share agreements		1,863,114			1,888,936			1,856,429
Loans covered by FDIC loss share agreements		865,096			391,014			494,895
Allowance for loan and lease losses		(39,136	)		(40,250	)		(40,230	)
Net loans and leases		2,689,074			2,239,700			2,311,094
FDIC loss share receivable		318,730			123,702			154,150
Premises and equipment, net		183,644			164,834			170,497
Foreclosed assets not covered by FDIC loss share agreements		34,338			41,868			42,216
Foreclosed assets covered by FDIC loss share agreements		73,249			17,540			31,145
Accrued interest receivable		11,641			15,055			13,899
Bank owned life insurance		61,499			59,198			59,771
Intangible assets, net		12,716			7,536			7,925
Other, net		36,663			39,572			35,146
Total assets	$	3,930,647		$	3,175,810		$	3,273,570
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand non-interest bearing	$	466,938		$	271,407		$	298,585
Savings and interest bearing transaction		1,609,632			1,271,374			1,299,058
Time		969,899			872,933			943,110
Total deposits		3,046,469			2,415,714			2,540,753
Repurchase agreements with customers		46,334			55,750			43,324
Other borrowings		289,353			294,502			282,139
Subordinated debentures		64,950			64,950			64,950
FDIC clawback payable		24,475			6,036			7,203
Accrued interest payable and other liabilities		48,715			19,354			11,431
Total liabilities		3,520,296			2,856,306			2,949,800
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $0.01 par value; 1,000,000 shares authorized; no shares outstanding at September 30, 2011 and 2010 or at December 31, 2010		0			0			0
Common stock; $0.01 par value; 50,000,000 shares authorized; 34,277,280, 33,980,980, and 34,107,280 shares issued and outstanding at September 30, 2011, September 30, 2010 and December 31, 2010, respectively		343			340			341
Additional paid-in capital		49,080			44,246			45,107
Retained earnings		349,592			260,862			275,074
Accumulated other comprehensive income (loss)		7,930			10,624			(167	)
Total stockholders’ equity before noncontrolling interest		406,945			316,072			320,355
Noncontrolling interest		3,406			3,432			3,415
Total stockholders’ equity		410,351			319,504			323,770
Total liabilities and stockholders’ equity	$	3,930,647		$	3,175,810		$	3,273,570

See accompanying notes to consolidated financial statements.

1

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(Dollars in thousands, except per share amounts)
Interest income:
Loans and leases not covered by FDIC loss share agreements	$	27,793		$	29,707		$	83,715		$	89,035
Loans covered by FDIC loss share agreements		19,089			6,205			48,119			8,942
Investment securities:
Taxable		838			636			2,324			3,701
Tax-exempt		4,177			4,540			12,610			14,191
Deposits with banks and federal funds sold		5			4			31			16
Total interest income		51,902			41,092			146,799			115,885
Interest expense:
Deposits		4,389			5,028			14,367			15,137
Repurchase agreements with customers		35			92			153			302
Other borrowings		2,712			2,734			8,096			9,433
Subordinated debentures		430			470			1,288			1,323
Total interest expense		7,566			8,324			23,904			26,195
Net interest income		44,336			32,768			122,895			89,690
Provision for loan and lease losses		(1,500	)		(4,300	)		(7,500	)		(11,900	)
Net interest income after provision for loan and lease losses		42,836			28,468			115,395			77,790
Non-interest income:
Service charges on deposit accounts		4,734			4,002			13,158			11,137
Mortgage lending income		815			1,024			2,130			2,367
Trust income		810			802			2,395			2,518
Bank owned life insurance income		585			580			1,728			1,577
Gains on investment securities		638			570			989			4,318
Gains on sales of other assets		1,727			267			2,839			232
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		2,861			906			7,783			1,177
Other loss share income, net		2,976			295			4,931			295
Gains on FDIC-assisted acquisitions		0			16,122			65,708			26,160
Other		925			615			2,458			1,895
Total non-interest income		16,071			25,183			104,119			51,676
Non-interest expense:
Salaries and employee benefits		14,597			10,539			41,061			27,810
Net occupancy and equipment		4,301			2,782			11,182			7,619
Other operating expenses		12,902			10,244			40,948			26,717
Total non-interest expense		31,800			23,565			93,191			62,146
Income before taxes		27,107			30,086			126,323			67,320
Provision for income taxes		8,220			9,878			42,605			20,310
Net income		18,887			20,208			83,718			47,010
Net loss attributable to noncontrolling interest		17			17			33			60
Net income available to common stockholders	$	18,904		$	20,225		$	83,751		$	47,070
Basic earnings per common share	$	0.55		$	0.60		$	2.45		$	1.39
Diluted earnings per common share	$	0.55		$	0.59		$	2.43		$	1.38
Dividends declared per common share	$	0.095		$	0.075		$	0.27		$	0.22

See accompanying notes to consolidated financial statements.

2

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Unaudited

								Accumulated
			Additional					Other			Non-
	Common		Paid-In		Retained			Comprehensive			controlling
	Stock		Capital		Earnings			Income (Loss)			Interest			Total
	(Dollars in thousands)
Balances – January 1, 2010	$	338	$	41,415	$	221,243		$	6,032		$	3,442		$	272,470
Comprehensive income:
Net income		0		0		47,010			0			0			47,010
Net loss attributable to noncontrolling interest		0		0		60			0			(60	)		0
Other comprehensive income (loss):
Unrealized gains/losses on investment securities AFS, net of $4,657 tax effect		0		0		0			7,216			0			7,216
Reclassification of gains/losses included in net income, net of $1,694 tax effect		0		0		0			(2,624	)		0			(2,624	)
Total comprehensive income															51,602
Common stock dividends		0		0		(7,451	)		0			0			(7,451	)
Issuance of 171,900 split adjusted shares of common stock for exercise of stock options		2		1,962		0			0			0			1,964
Tax benefit (expense) on exercise and forfeiture of stock options		0		271		0			0			0			271
Stock-based compensation expense		0		598		0			0			0			598
Noncontrolling interest cash contribution		0		0		0			0			50			50
Balances – September 30, 2010	$	340	$	44,246	$	260,862		$	10,624		$	3,432		$	319,504
Balances – January 1, 2011	$	341	$	45,107	$	275,074		$	(167	)	$	3,415		$	323,770
Comprehensive income:
Net income		0		0		83,718			0			0			83,718
Net loss attributable to noncontrolling interest		0		0		33			0			(33	)		0
Other comprehensive income (loss):
Unrealized gains/losses on investment securities AFS, net of $5,614 tax effect		0		0		0			8,698			0			8,698
Reclassification of gains/losses included in net income, net of $388 tax effect		0		0		0			(601	)		0			(601	)
Total comprehensive income															91,815
Common stock dividends		0		0		(9,233	)		0			0			(9,233	)
Issuance of 171,600 split adjusted shares of common stock for exercise of stock options		2		2,665		0			0			0			2,667
Tax benefit (expense) on exercise and forfeiture of stock options		0		285		0			0			0			285
Stock-based compensation expense		0		1,023		0			0			0			1,023
Forfeiture of 1,600 split adjusted shares of unvested common stock under restricted stock plan		0		0		0			0			0			0
Noncontrolling interest cash contribution		0		0		0			0			24			24
Balances – September 30, 2011	$	343	$	49,080	$	349,592		$	7,930		$	3,406		$	410,351

See accompanying notes to consolidated financial statements.

3

BANK OF THE OZARKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

	Nine Months Ended
	September 30,
	2011			2010
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	83,718		$	47,010
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		3,902			3,290
Amortization		1,168			270
Net loss attributable to noncontrolling interest		33			60
Provision for loan and lease losses		7,500			11,900
Provision for losses on foreclosed assets not covered by FDIC loss share agreements		8,877			7,128
Writedown of other assets		1,250			0
Net amortization (accretion) of investment securities AFS		264			(510	)
Net gains on investment securities AFS		(989	)		(4,318	)
Originations and purchases of mortgage loans for sale		(99,529	)		(123,974	)
Proceeds from sales of mortgage loans for sale		99,840			113,554
Accretion of loans covered by FDIC loss share agreements		(48,119	)		(8,942	)
Accretion of FDIC loss share receivable, net of amortization of FDIC clawback payable		(7,783	)		(1,177	)
Gains on dispositions of premises and equipment, foreclosed and other assets		(2,839	)		(232	)
Gains on FDIC-assisted acquisitions		(65,708	)		(26,160	)
Deferred income tax expense		28,875			10,280
Increase in cash surrender value of bank owned life insurance (“BOLI”)		(1,728	)		(1,577	)
Current tax benefit on exercise of stock options		(488	)		(639	)
Compensation expense under stock-based compensation plans		1,023			598
Changes in assets and liabilities:
Accrued interest receivable		2,779			244
Other assets, net		(303	)		(1,348	)
Accrued interest payable and other liabilities		2,489			1,896
Net cash provided by operating activities		14,232			27,353
Cash flows from investing activities:
Proceeds from sales of investment securities AFS		96,743			251,528
Proceeds from maturities/calls/paydowns of investment securities AFS		20,349			42,874
Purchases of investment securities AFS		(7,586	)		(103,817	)
Net (increase) paydowns of portfolio loans and leases not covered by FDIC loss share agreements		(2,853	)		14,773
Cash flows from assets covered by FDIC loss share agreements		244,040			39,057
Purchases of premises and equipment		(16,845	)		(9,961	)
Proceeds from disposition of premises and equipment, foreclosed and other assets		7,168			13,564
Cash paid for interest in unconsolidated investments and noncontrolling interest		(1,735	)		(4,104	)
Purchase of BOLI		0			(10,200	)
Net cash proceeds received in FDIC-assisted acquisitions		365,394			141,085
Net cash provided by investing activities		704,675			374,799
Cash flows from financing activities:
Net decrease in deposits		(609,017	)		(331,196	)
Net repayments of other borrowings		(85,605	)		(101,521	)
Net increase in repurchase agreements with customers		2,261			11,481
Proceeds from exercise of stock options		2,667			1,964
Current tax benefit on exercise of stock options		488			639
Cash dividends paid on common stock		(9,233	)		(7,451	)
Net cash used by financing activities		(698,439	)		(426,084	)
Net increase (decrease) in cash and cash equivalents		20,468			(23,932	)
Cash and cash equivalents – beginning of period		49,029			78,294
Cash and cash equivalents – end of period	$	69,497		$	54,362

See accompanying notes to consolidated financial statements.

4

BANK OF THE OZARKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

1. Organization and Principles of Consolidation

Bank of the Ozarks, Inc. (the “Company”) is a bank holding company headquartered in Little Rock, Arkansas, which operates under the rules and regulations of the Board of Governors of the Federal Reserve System. The Company owns a wholly-owned state chartered bank subsidiary – Bank of the Ozarks (the “Bank”), four 100%-owned finance subsidiary business trusts – Ozark Capital Statutory Trust II (“Ozark II”), Ozark Capital Statutory Trust III (“Ozark III”), Ozark Capital Statutory Trust IV (“Ozark IV”) and Ozark Capital Statutory Trust V (“Ozark V”) (collectively, the “Trusts”) and, indirectly through the Bank, a subsidiary engaged in the development of real estate and a subsidiary that owns a private aircraft. The consolidated financial statements include the accounts of the Company, the Bank, the real estate subsidiary and the aircraft subsidiary. Significant intercompany transactions and amounts have been eliminated in consolidation.

2. Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) in Article 10 of Regulation S-X and in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information, accounting policies and footnote disclosures normally included in complete financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2010.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. In the opinion of management, all adjustments considered necessary, consisting of normal recurring items, have been included for a fair presentation of the accompanying consolidated financial statements. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the full year or future periods.

On August 16, 2011, the Company completed a 2-for-1 stock split in the form of a stock dividend, effected by issuing one share of common stock for each share of such stock outstanding on August 5, 2011. All share and per share information in the consolidated financial statements and the notes to the consolidated financial statements has been adjusted to give effect to this stock split.

Certain reclassifications of prior period amounts have been made to conform with the current period presentation. These reclassifications had no impact on previously reported net income.

3. Acquisitions

2011 Acquisitions

On January 14, 2011 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the Federal Deposit Insurance Corporation (“FDIC”) pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Oglethorpe Bank (“Oglethorpe”) with two offices in Georgia, including Brunswick and St. Simons Island.

On April 29, 2011 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former First Choice Community Bank (“First Choice”) with seven offices in Georgia, including Dallas, Newnan (2), Senoia, Sharpsburg, Douglasville and Carrollton. On July 1, 2011, the Company closed one of the offices in Newnan, Georgia, and on October 26, 2011, the Company closed the office in Carrollton, Georgia.

On April 29, 2011, the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former The Park Avenue Bank (“Park Avenue”) with 11 offices in Georgia, including Valdosta (3), Bainbridge (2), Cairo, Lake Park, Stockbridge, McDonough, Oakwood and Athens and one office in Ocala, Florida. On October 21, 2011, the Company closed the office in Stockbridge, Georgia.

(The remainder of this page intentionally left blank)

5

A summary of the assets acquired and liabilities assumed in the Oglethorpe acquisition is as follows:

	January 14, 2011
	As Recorded by Oglethorpe			Fair Value Adjustments				As Recorded by the Company
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	14,710		$	—			$	14,710
Loans not covered by FDIC loss share agreements		6,532			(3,447	)	b		3,085
Loans covered by FDIC loss share agreements (“covered loans”)		154,018			(73,342	)	b		80,676
FDIC loss share receivable		—			52,395		c		52,395
Foreclosed assets covered by FDIC loss share agreements		16,554			(9,410	)	d		7,144
Core deposit intangible		—			401		e		401
Other assets		1,054			(621	)	f		433
Total assets acquired		192,868			(34,024	)			158,844
Liabilities assumed:
Deposits		195,067			—		i		195,067
FDIC clawback payable		—			924		h		924
Other liabilities		333			100		f		433
Total liabilities assumed		195,400			1,024				196,424
Net assets acquired		(2,532	)	$	(35,048	)			(37,580	)
Asset discount bid		(38,000	)
Cash received from FDIC	$	40,532							40,532
Pre-tax gain								$	2,952

A summary of the assets acquired and liabilities assumed in the First Choice acquisition is as follows:

	April 29, 2011
	As Recorded by First Choice			Fair Value Adjustments				As Recorded by the Company
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	38,018		$	—			$	38,018
Investment securities AFS		4,588			(20	)	a		4,568
Loans not covered by FDIC loss share agreements		1,973			(419	)	b		1,554
Loans covered by FDIC loss share agreements		246,451			(96,557	)	b		149,894
FDIC loss share receivable		—			59,544		c		59,544
Foreclosed assets covered by FDIC loss share agreements		2,773			(1,102	)	d		1,671
Core deposit intangible		—			495		e		495
Other assets		931			(861	)	f		70
Total assets acquired		294,734			(38,920	)			255,814
Liabilities assumed:
Deposits		293,344			—		i		293,344
Federal Home Loan Bank of Atlanta (“FHLB-Atlanta”) advances		4,000			—		g		4,000
FDIC clawback payable		—			930		h		930
Other liabilities		478			100		f		578
Total liabilities assumed		297,822			1,030				298,852
Net assets acquired		(3,088	)	$	(39,950	)			(43,038	)
Asset discount bid		(42,900	)
Cash received from FDIC	$	45,988							45,988
Pre-tax gain								$	2,950

6

A summary of the assets acquired and liabilities assumed in the Park Avenue acquisition is as follows:

	April 29, 2011
	As Recorded by Park  Avenue			Fair Value Adjustments				As Recorded by the Company
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	66,825		$	—			$	66,825
Investment securities AFS		132,737			(947	)	a		131,790
Loans not covered by FDIC loss share agreements		23,664			(5,968	)	b		17,696
Loans covered by FDIC loss share agreements		408,069			(145,152	)	b		262,917
FDIC loss share receivable		—			113,683		c		113,683
Foreclosed assets covered by FDIC loss share agreements		91,442			(59,812	)	d		31,630
Core deposit intangible		—			5,063		e		5,063
Other assets		5,012			(2,035	)	f		2,977
Total assets acquired		727,749			(95,168	)			632,581
Liabilities assumed:
Deposits		626,321			—		i		626,321
FHLB-Atlanta advances		84,260			4,559		g		88,819
FDIC clawback payable		—			14,868		h		14,868
Other liabilities		1,588			500		f		2,088
Total liabilities assumed		712,169			19,927				732,096
Net assets acquired		15,580		$	(115,095	)			(99,515	)
Asset discount bid		(174,900	)
Cash received from FDIC	$	159,320							159,320
Pre-tax gain								$	59,805

Explanation of fair value adjustments

a- Adjustment reflects the fair value adjustment based on the Company’s independent third parties’ pricing of investment securities AFS.

b- Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

c- Adjustment reflects the estimated fair value of payments the Company expects to receive from the FDIC under the loss share agreements.

d- Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired foreclosed assets covered by FDIC loss share agreements.

e- Adjustment reflects the estimated fair value of the core deposit intangible.

f- Adjustment reflects the amount needed to adjust the carrying value of other assets and other liabilities to estimated fair value.

g- Adjustment reflects the amount of the prepayment penalty, if any, assessed on early payoff of FHLB-Atlanta advances.

h- Adjustment reflects the estimated fair value of payments the Company expects to make to the FDIC under the clawback provisions of the loss share agreements at the conclusion of the term of the loss share agreements.

i- Because the Company reset deposit rates for these assumed deposits, as provided for under the purchase and assumption agreements, to reflect an appropriate market rate of interest, there was no fair value adjustment for such assumed deposits.

The Company’s results of operations included the operating results of the acquired assets and assumed liabilities from the respective dates of acquisition through the end of the reporting period. Due to the significant fair value adjustments and the nature of the loss sharing agreements with the FDIC, the Company believes pro forma information that would include pre-acquisition historical results of the acquired assets and assumed liabilities is not relevant. Accordingly, no pro forma information is included in these consolidated financial statements.

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7

2010 Acquisitions

On March 26, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Unity National Bank (“Unity”) with five offices in Georgia, including Cartersville (2), Rome, Adairsville and Calhoun.

On July 16, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Woodlands Bank (“Woodlands”) with eight offices, including two in South Carolina; two in North Carolina; one in Georgia and three in Alabama. On October 26, 2010, the Company closed four of the Woodlands offices, and in December 2010 the Company relocated two offices. The Company also renegotiated the leases on the remaining two offices. As a result, the Company now operates one office each in Bluffton, South Carolina; Wilmington, North Carolina; Savannah, Georgia; and Mobile, Alabama.

On September 10, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Horizon Bank (“Horizon”) with four offices in Florida, including Bradenton (2), Palmetto and Brandon. On December 23, 2010, the Company closed the office in Brandon, Florida.

On December 17, 2010 the Company, through the Bank, entered into a purchase and assumption agreement with loss share agreements with the FDIC pursuant to which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities of the former Chestatee State Bank (“Chestatee”) with four offices in Georgia, including Dawsonville (2), Cumming and Marble Hill.

Purchase Accounting and Purchase Accounting Adjustments

Purchased loans acquired in a business combination, including covered loans, are accounted for in accordance with the provisions of GAAP applicable to loans acquired with deteriorated credit quality and pursuant to the American Institute of Certified Public Accountants’ (“AICPA”) December 18, 2009 letter in which the AICPA summarized the SEC’s view regarding the accounting in subsequent periods for discount accretion associated with non-credit impaired loans acquired in a business combination or asset purchase. Considering, among other factors, the general lack of adequate underwriting, proper documentation, appropriate loan structure and insufficient equity contributions for a large number of these acquired loans, and the uncertainty of the borrowers’ and/or guarantors’ ability or willingness to make contractually required (or any) principal and interest payments, management has determined that a significant portion of the purchased loans acquired in FDIC-assisted acquisitions have evidence of credit deterioration since origination. Accordingly, management has elected to apply the provisions of GAAP applicable to loans acquired with deteriorated credit quality as provided by the AICPA’s December 18, 2009 letter, to all purchased loans acquired in its FDIC-assisted acquisitions.

At the time such purchased loans are acquired, management individually evaluates substantially all loans acquired in the transaction. This evaluation allows management to determine the estimated fair value of the purchased loans (not considering any FDIC loss sharing agreements) and includes no carryover of any previously recorded allowance for loan and lease losses. In determining the estimated fair value of purchased loans, management considers a number of factors including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and net present value of cash flows expected to be received. To the extent that any purchased loan acquired in a FDIC-assisted acquisition is not specifically reviewed, management applies a loss estimate to that loan based on the average expected loss rates for the purchased loans that were individually reviewed in that purchased loan portfolio.

As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities. Once management has finalized the fair value of acquired assets and assumed liabilities within this 12 month period, management considers such values to be the day 1 fair values (“Day 1 Fair Values”).

In determining the Day 1 Fair Values of purchased loans, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). The non-accretable difference is the difference between the contractually required payments and the cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair Values. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in cash flows will result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income.

8

The accretable difference on purchased loans is the difference between the expected cash flows and the net present value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the loans. In determining the net present value of the expected cash flows, the Company used discount rates ranging from 6.0% to 9.5% per annum depending on the risk characteristics of each individual loan. The weighted average period during which management expects to receive the estimated cash flows for its covered loan portfolio (not considering any payment under the FDIC loss share agreements) is 2.4 years.

Management separately monitors the purchased loan portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values. A loan is reviewed (i) any time it is renewed or extended, (ii) at any other time additional information becomes available to the Company that provides material additional insight regarding the loan’s performance, the status of the borrower, or the quality or value of the underlying collateral, or (iii) in conjunction with the annual review of projected cash flows of each acquired portfolio. Management separately reviews, on an annual basis, the performance of a substantial portion of each acquired loan portfolio, or more frequently to the extent that material information becomes available regarding the performance of an individual loan, to make determinations of the constituent loans’ performance and to consider whether there has been any significant change in performance since management’s initial expectations established in conjunction with the determination of the Day 1 Fair Values. To the extent that a loan is performing in accordance with management’s performance expectation established in conjunction with the determination of the Day 1 Fair Values, such loan is not included in any of the credit quality ratios, is not considered to be a nonaccrual or impaired loan, is not risk rated in a similar manner as are the Company’s non-purchased loans and is not considered in the determination of the required allowance for loan and lease losses. To the extent that a loan’s performance has deteriorated from management’s expectation established in conjunction with the determination of the Day 1 Fair Values, such loan will be included in the Company’s credit quality metrics, may be considered a nonaccrual or impaired loan, and is considered in the determination of the required level of allowance for loan and lease losses. To the extent that deterioration in the credit quality of the loan would result in some portion or all of such loan being included in the calculation of the allowance for loan and lease losses, there would be an increase of the FDIC loss share receivable balance for the portion of such additional loss expected to be collected from the FDIC. Currently, the expected losses on covered assets for each of the Company’s loss share agreements would result in expected recovery of approximately 80% of incurred losses. Any improvement in the expected performance of a purchased loan would result in (i) a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income and (ii) a decrease in the FDIC loss share receivable balance for the applicable percentage of the portion of such loss no longer expected to be incurred by the Company.

Foreclosed assets covered by FDIC loss share agreements, or covered foreclosed assets, are recorded at Day 1 Fair Values. In estimating the fair value of covered foreclosed assets, management considers a number of factors including, among others, appraised value, estimated holding periods, net present value of cash flows expected to be received, and estimated selling costs. Discount rates ranging from 8.0% to 9.5% per annum were used to determine the net present value of covered foreclosed assets.

In connection with the Company’s FDIC-assisted acquisitions, the Company has recorded an FDIC loss share receivable to reflect the indemnification provided by the FDIC. Since the indemnified items are covered loans and covered foreclosed assets, which are measured at Day 1 Fair Values, the FDIC loss share receivable is also measured and recorded at Day 1 Fair Values, and is calculated by discounting the cash flows expected to be received from the FDIC. A discount rate of 5.0% per annum was used to determine the net present value of the FDIC loss share receivable. These cash flows are estimated by multiplying estimated losses by the reimbursement rates as set forth in the loss share agreements. The balance of the FDIC loss share receivable is adjusted periodically to reflect changes in expectations of discounted cash flows, expense reimbursements under the loss share agreements and other factors.

Pursuant to the clawback provisions of the loss share agreements for the Company’s FDIC-assisted acquisitions, the Company may be required to reimburse the FDIC should actual losses be less than certain thresholds established in each loss share agreement. The amount of the clawback provision for each acquisition is measured and recorded at Day 1 Fair Values. It is calculated as the difference between management’s estimated losses on covered loans and covered foreclosed assets and the loss threshold contained in each loss share agreement, multiplied by the applicable clawback provisions contained in each loss share agreement. This clawback amount, which is payable to the FDIC upon termination of the applicable loss share agreement, is then discounted back to net present value using a discount rate of 5.0% per annum. To the extent that actual losses on covered loans and covered foreclosed assets are less than estimated losses, the applicable clawback payable to the FDIC upon termination of the loss share agreements will increase. To the extent that actual losses on covered loans and covered foreclosed assets are more than estimated losses, the applicable clawback payable to the FDIC upon termination of the loss share agreements will decrease.

The Day 1 Fair Values of investment securities acquired in business combinations are generally based on quoted market prices, broker quotes, comprehensive interest rate tables or pricing matrices, or a combination thereof. The Day 1 Fair Values of assumed liabilities in business combinations is generally the amount payable by the Company necessary to completely satisfy the assumed obligations.

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Subsequent to the reporting of the assets acquired and the liabilities assumed in the Unity, Woodlands and Horizon acquisitions, the Company made certain adjustments to these values in order to establish the Day 1 Fair Values. As a result of those adjustments, the Company has “recast” the assets acquired and liabilities assumed in the Unity, Woodlands and Horizon acquisitions to reflect the Day 1 Fair Values. The following tables provide a summary of the Day 1 Fair Values of assets acquired and liabilities assumed, including any such recast adjustments, for the Company’s 2010 FDIC-assisted acquisitions.

A summary of the assets acquired and liabilities assumed in the Unity acquisition, including recast adjustments, is as follows:

	March 26, 2010
	As  Recorded by Unity			Fair Value Adjustments				Recast Adjustments			As Recorded by the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	45,401		$	—			$	—		$	45,401
Investment securities AFS		5,580			—		a		—			5,580
Loans covered by FDIC loss share agreements		185,213			(42,038	)	b		(8,723	)		134,452
FDIC loss share receivable		—			35,683		c		8,464			44,147
Foreclosed assets covered by FDIC loss share agreements		20,304			(10,890	)	d		(555	)		8,859
Core deposit intangible		—			1,657		e		—			1,657
Other assets		1,137			(954	)	f		—			183
Total assets acquired		257,635			(16,542	)			(814	)		240,279
Liabilities assumed:
Deposits		220,806			—		i		—			220,806
FHLB-Atlanta advances		23,000			1,078		g		—			24,078
FDIC clawback payable		—			2,265		h		(699	)		1,566
Other liabilities		629			(22	)	f		(115	)		492
Total liabilities assumed		244,435			3,321				(814	)		246,942
Net assets acquired		13,200		$	(19,863	)		$	—			(6,663	)
Asset discount bid		(29,900	)
Cash received from FDIC	$	16,700										16,700
Pre-tax gain											$	10,037

(1) Represents the Day 1 Fair Values of acquired assets and assumed liabilities in the Unity acquisition.

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10

A summary of the assets acquired and liabilities assumed in the Woodlands acquisition, including recast adjustments, is as follows:

	July 16, 2010
	As  Recorded by Woodlands			Fair Value Adjustments				Recast Adjustments			As Recorded by the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	13,447		$	—			$	—		$	13,447
Investment securities AFS		85,017			(525	)	a		—			84,492
Loans not covered by FDIC loss share agreements		1,500			(387	)	b		—			1,113
Loans covered by FDIC loss share agreements		270,335			(82,337	)	b		(1,520	)		186,478
FDIC loss share receivable		—			54,827		c		1,039			55,866
Foreclosed assets covered by FDIC loss share agreements		12,258			(7,229	)	d		—			5,029
Core deposit intangible		—			200		e		—			200
Other assets		2,556			(1,411	)	f		327			1,472
Total assets acquired		385,113			(36,862	)			(154	)		348,097
Liabilities assumed:
Deposits		344,723			—		i		—			344,723
FHLB-Atlanta advances		10,000			142		g		—			10,142
FDIC clawback payable		—			3,030		h		(89	)		2,941
Other liabilities		258			—		f		(65	)		193
Total liabilities assumed		354,981			3,172				(154	)		357,999
Net assets acquired		30,132		$	(40,034	)		$	—			(9,902	)
Asset discount bid		(54,392	)
Cash received from FDIC	$	24,260										24,260
Pre-tax gain											$	14,358

(1) Represents the Day 1 Fair Values of acquired assets and assumed liabilities in the Woodlands acquisition.

A summary of the assets acquired and liabilities assumed in the Horizon acquisition, including recast adjustments, is as follows:

	September 10, 2010
	As  Recorded by Horizon			Fair Value Adjustments				Recast Adjustments			As Recorded by the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	11,775		$	—			$	—		$	11,775
Investment securities AFS		5,312			(207	)	a		—			5,105
Loans not covered by FDIC loss share agreements		1,323			(431	)	b		—			892
Loans covered by FDIC loss share agreements		138,778			(45,775	)	b		(1,195	)		91,808
FDIC loss share receivable		—			29,089		c		—			29,089
Foreclosed assets covered by FDIC loss share agreements		8,391			(4,708	)	d		—			3,683
Core deposit intangible		—			396		e		—			396
Other assets		2,868			(887	)	f		1,195			3,176
Total assets acquired		168,447			(22,523	)			—			145,924
Liabilities assumed:
Deposits		152,387			—		i		—			152,387
FHLB-Atlanta advances		18,000			1,251		g		—			19,251
FDIC clawback payable		—			1,461		h		—			1,461
Other liabilities		562			—		f		—			562
Total liabilities assumed		170,949			2,712				—			173,661
Net assets acquired		(2,502	)	$	(25,235	)		$	—			(27,737	)
Asset discount bid		(27,000	)
Cash received from FDIC	$	29,502										29,502
Pre-tax gain											$	1,765

(1) Represents the Day 1 Fair Values of acquired assets and assumed liabilities in the Horizon acquisition.

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A summary of the assets acquired and liabilities assumed in the Chestatee acquisition is as follows:

	December 17, 2010
	As  Recorded by Chestatee			Fair Value Adjustments				As Recorded by the Company(1)
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	21,964		$	—			$	21,964
Investment securities AFS		7,204			(47	)	a		7,157
Loans not covered by FDIC loss share agreements		5,269			(1,693	)	b		3,576
Loans covered by FDIC loss share agreements		163,428			(46,620	)	b		116,808
FDIC loss share receivable		—			42,072		c		42,072
Foreclosed and repossessed assets covered by loss share agreements		31,647			(18,241	)	d		13,406
Core deposit intangible		—			550		e		550
Other assets		1,722			(621	)	f		1,101
Total assets acquired		231,234			(24,600	)			206,634
Liabilities assumed:
Deposits		234,468			—		i		234,468
FDIC clawback payable		—			1,091		h		1,091
Other liabilities		440			200		f		640
Total liabilities assumed		234,908			1,291				236,199
Net assets acquired		(3,674	)	$	(25,891	)			(29,565	)
Asset discount bid		(34,750	)
Cash received from FDIC	$	38,424							38,424
Pre-tax gain								$	8,859

(1) The Day 1 Fair Values of assets and liabilities assumed in the Chestatee acquisition are not yet finalized as of September 30, 2011. Management expects such Day 1 Fair Values will be finalized during the fourth quarter of 2011.

Explanation of fair value adjustments

a- Adjustment reflects the fair value adjustment based on the Company’s independent third parties’ pricing of investment securities AFS.

b- Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

c- Adjustment reflects the estimated fair value of payments the Company expects to receive from the FDIC under the loss share agreements.

d- Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired foreclosed assets covered by FDIC loss share agreements.

e- Adjustment reflects the estimated fair value of the core deposit intangible.

f- Adjustment reflects the amount needed to adjust the carrying value of other assets and other liabilities to estimated fair value.

g- Adjustment reflects the amount of the prepayment penalty, if any, assessed on early payoff of FHLB-Atlanta advances.

h- Adjustment reflects the estimated fair value of payments the Company expects to make to the FDIC under the clawback provisions of the loss share agreements at the conclusion of the term of the loss share agreements.

i- Because the Company reset deposit rates for these assumed deposits, as provided for under the purchase and assumption agreements, to reflect an appropriate market rate of interest, there was no fair value adjustment for such assumed deposits.

The recast adjustments to the acquired assets and assumed liabilities for Unity, Woodlands and Horizon were made subsequent to the acquisition, but prior to their one year anniversaries and, as provided for under GAAP, were considered to be purchase accounting adjustments in deriving the Day 1 Fair Values for the acquired assets and assumed liabilities. These adjustments impacted the net assets acquired and the resulting pre-tax gains on these acquisitions. However, because the net effect on net assets acquired and resulting pre-tax gains was not material, management recorded the impact of such adjustments as an increase or decrease to non-interest income during the quarter in which the adjustments were determined. The net increase or decrease to non-interest income is included as an adjustment to “other liabilities” and/or to “other assets” in the above tables.

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The Company’s results of operations included the operating results of the acquired assets and assumed liabilities from the respective dates of acquisition through the end of the reporting period. Due to the significant fair value adjustments and the nature of the loss sharing agreements with the FDIC, the Company believes pro forma information that would include pre-acquisition historical results of the acquired assets and assumed liabilities is not relevant. Accordingly, no pro forma information is included in these consolidated financial statements.

As a result of the recast adjustments recorded on the Unity, Woodlands and Horizon acquisitions and used by management in its determination of Day 1 Fair Values, certain amounts previously reported in the Company’s consolidated financial statements have been recast. The following is a summary of those financial statement captions that have been impacted by these recast adjustments.

	As Previously		Recast			As
	Reported		Adjustments			Recast
	(Dollars in thousands)
September 30, 2010:
Loans covered by FDIC loss share agreements	$	394,482	$	(3,468	)	$	391,014
FDIC loss share receivable		122,098		1,604			123,702
Other assets		38,050		1,522			39,572
FDIC clawback payable		6,163		(127	)		6,036
Accrued interest and other liabilities		19,569		(215	)		19,354
December 31, 2010:
Loans covered by FDIC loss share agreements	$	497,545	$	(2,650	)	$	494,895
FDIC loss share receivable		153,111		1,039			154,150
Other assets		33,624		1,522			35,146
FDIC clawback payable		7,292		(89	)		7,203

Loss Share Agreements and Other Acquisition Matters

In conjunction with these FDIC-assisted acquisitions, the Bank entered into loss share agreements with the FDIC such that the Bank and the FDIC will share in the losses on assets covered under the loss share agreements. Pursuant to the terms of the loss share agreements for the Unity acquisition, on losses up to $65.0 million, the FDIC will reimburse the Bank for 80% of losses. On losses exceeding $65.0 million, the FDIC will reimburse the Bank for 95% of losses. Pursuant to the terms of the loss share agreements for the Woodlands acquisition, the Chestatee acquisition, the Oglethorpe acquisition and the First Choice acquisition, the FDIC will reimburse the Bank for 80% of losses. Pursuant to the terms of the loss share agreements for the Horizon acquisition, the FDIC will reimburse the Bank on single family residential loans and related foreclosed real estate for (i) 80% of losses up to $11.8 million, (ii) 30% of losses between $11.8 million and $17.9 million and (iii) 80% of losses in excess of $17.9 million. For non-single family residential loans and related foreclosed real estate, the FDIC will reimburse the Bank for (i) 80% of losses up to $32.3 million, (ii) 0% of losses between $32.3 million and $42.8 million and (iii) 80% of losses in excess of $42.8 million. Pursuant to the terms of the loss share agreements for the Park Avenue acquisition, the FDIC will reimburse the Bank for (i) 80% of losses up to $218.2 million, (ii) 0% of losses between $218.2 million and $267.5 million and (iii) 80% of losses in excess of $267.5 million.

The loss share agreements applicable to single family residential mortgage loans and related foreclosed real estate provide for FDIC loss sharing and the Bank’s reimbursement to the FDIC for recoveries of covered losses for ten years from the date on which each applicable loss share agreement was entered. The loss share agreements applicable to commercial loans and related foreclosed real estate provide for FDIC loss sharing for five years from the date on which each applicable loss share agreement was entered and the Bank’s reimbursement to the FDIC for recoveries of covered losses for an additional three years thereafter.

To the extent that actual losses incurred by the Bank are less than (i) $65 million on the Unity assets covered under the loss share agreements, (ii) $107 million on the Woodlands assets covered under the loss share agreements, (iii) $60 million on the Horizon assets covered under the loss share agreements, (iv) $66 million on the Chestatee assets covered under the loss share agreements, (v) $66 million on the Oglethorpe assets covered under the loss share agreements, (vi) $87 million on the First Choice assets covered under the loss share agreements and (vii) $269 million on the Park Avenue assets covered under the loss share agreements, the Bank may be required to reimburse the FDIC under the clawback provisions of the loss share agreements.

The terms of the purchase and assumption agreements for the Unity, Woodlands, Horizon, Chestatee, Oglethorpe, First Choice and Park Avenue acquisitions provide for the FDIC to indemnify the Bank against certain claims, including claims with respect to assets, liabilities or any affiliate not acquired or otherwise assumed by the Bank and with respect to claims based on any action by Unity’s, Woodlands’, Horizon’s, Chestatee’s, Oglethorpe’s, First Choice’s or Park Avenue’s directors, officers or employees.

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4. Earnings Per Common Share (“EPS”)

Basic EPS is computed by dividing reported earnings available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed by dividing reported earnings available to common stockholders by the weighted-average number of common shares outstanding after consideration of the dilutive effect, if any, of the Company’s outstanding common stock options using the treasury stock method. No options to purchase shares of the Company’s common stock for the three-month and nine-month periods ended September 30, 2011 and September 30, 2010 were excluded from the diluted EPS calculation as all options were dilutive for the respective periods.

Basic and diluted EPS are computed as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(In thousands, except per share amounts)
Common shares – weighted-average (basic)		34,264		33,962		34,211		33,892
Common share equivalents – weighted-average		246		172		223		138
Common shares – diluted		34,510		34,134		34,434		34,030
Net income available to common stockholders (in thousands)	$	18,904	$	20,225	$	83,751	$	47,070
Basic EPS	$	0.55	$	0.60	$	2.45	$	1.39
Diluted EPS		0.55		0.59		2.43		1.38

5. Investment Securities

At September 30, 2011 and 2010 and at December 31, 2010, the Company classified all of its investment securities portfolio as available for sale (“AFS”). Accordingly, its investment securities are stated at estimated fair value in the consolidated financial statements with unrealized gains and losses, net of related income tax, reported as a separate component of stockholders’ equity and included in accumulated other comprehensive income (loss).

The following table presents the amortized cost and estimated fair value of investment securities at September 30, 2011 and 2010 and at December 31, 2010. The Company’s holdings of “other equity securities” include Federal Home Loan Bank of Dallas (“FHLB – Dallas”), FHLB – Atlanta and First National Banker’s Bankshares, Inc. (“FNBB”) shares, which do not have readily determinable fair values and are carried at cost.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value (1)
	(Dollars in thousands)
September 30, 2011:
Obligations of state and political subdivisions	$	357,489	$	12,660	$	(1,382	)	$	368,767
U.S. Government agency residential mortgage-backed securities		48,749		1,769		—			50,518
Other equity securities		20,311		—		—			20,311
Total	$	426,549	$	14,429	$	(1,382	)	$	439,596
December 31, 2010:
Obligations of state and political subdivisions	$	378,822	$	6,431	$	(6,706	)	$	378,547
U.S. Government agency residential mortgage-backed securities		1,269		—		—			1,269
Other equity securities		18,882		—		—			18,882
Total	$	398,973	$	6,431	$	(6,706	)	$	398,698
September 30, 2010:
Obligations of state and political subdivisions	$	376,347	$	18,941	$	(1,460	)	$	393,828
U.S. Government agency residential mortgage-backed securities		193		—		—			193
Other equity securities		18,422		—		—			18,422
Total	$	394,962	$	18,941	$	(1,460	)	$	412,443

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

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The following table shows estimated fair value of investment securities AFS having gross unrealized losses and the amount of such unrealized losses, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position, at September 30, 2011 and 2010 and at December 31, 2010.

	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(Dollars in thousands)
September 30, 2011:
Obligations of state and political subdivisions	$	12,917	$	488	$	20,531	$	894	$	33,448	$	1,382
Total temporarily impaired securities	$	12,917	$	488	$	20,531	$	894	$	33,448	$	1,382
December 31, 2010:
Obligations of states and political subdivisions	$	174,356	$	6,153	$	5,387	$	553	$	179,743	$	6,706
Total temporarily impaired securities	$	174,356	$	6,153	$	5,387	$	553	$	179,743	$	6,706
September 30, 2010:
Obligations of state and political subdivisions	$	37,529	$	1,213	$	5,718	$	248	$	43,246	$	1,460
Total temporarily impaired securities	$	37,529	$	1,213	$	5,718	$	248	$	43,246	$	1,460

In evaluating the Company’s unrealized loss positions for other-than-temporary impairment for the investment securities portfolio, management considers the credit quality of the issuer, the nature and cause of the unrealized loss, the severity and duration of the impairments and other factors. At September 30, 2011 and 2010 and December 31, 2010 management determined the unrealized losses were the result of fluctuations in interest rates and did not reflect deteriorations of the credit quality of the investments. Accordingly, management considers these unrealized losses to be temporary in nature. The Company does not have the intent to sell these investment securities with unrealized losses and, more likely than not, will not be required to sell these investment securities before fair value recovers to amortized cost.

The following table shows the amortized cost and estimated fair value of investment securities AFS by maturity or estimated date of repayment at September 30, 2011 and December 31, 2010.

	September 30, 2011				December 31, 2010
Maturity or Estimated Repayment	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
One year or less	$	2,891	$	2,896	$	4,773	$	4,808
After one year to five years		13,984		14,114		17,635		17,893
After five years to ten years		22,776		23,355		21,134		21,592
After ten years		386,898		399,231		355,431		354,405
Total	$	426,549	$	439,596	$	398,973	$	398,698

For purposes of this maturity distribution, all investment securities AFS are shown based on their contractual maturity date, except (i) FHLB – Dallas, FHLB – Atlanta and FNBB stock with no contractual maturity date are shown in the longest maturity category, (ii) U.S. Government agency residential mortgage-backed securities are allocated among various maturities based on an estimated repayment schedule utilizing Bloomberg median prepayment speeds and interest rate levels at the measurement dates and (iii) mortgage-backed securities issued by housing authorities of states and political subdivisions are allocated among various maturities based on an estimated repayment schedule projected by management at the measurement dates. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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15

Sales activities in the Company’s investment securities AFS were as follows:

	Nine Months Ended September 30,
	2011			2010
	(Dollars in thousands)
Sales proceeds	$	96,743		$	251,528
Gross realized gains	$	1,044		$	4,881
Gross realized losses		(55	)		(402	)
Other-than-temporary impairment charges		—			(161	)
Net gains on investment securities	$	989		$	4,318

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

The following table is a summary of activity within the ALLL.

	Nine Months Ended September 30,
	2011			2010
	(Dollars in thousands)
Beginning balance	$	40,230		$	39,619
Loans and leases charged off		(8,913	)		(12,213	)
Recoveries of loans and leases previously charged off		319			944
Net loans and leases charged off		(8,594	)		(11,269	)
Provision charged to operating expense		7,500			11,900
Ending balance	$	39,136		$	40,250

The following table is a summary of the Company’s ALLL as of and for the three months ended September 30, 2011.

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	2,249	$	(197	)	$	26	$	1,729		$	3,807
Non-farm/non-residential		8,694		(117	)		7		(618	)		7,966
Construction/land development		9,482		(902	)		19		(1,602	)		6,997
Agricultural		2,169		(4	)		—		684			2,849
Multifamily residential		1,563		—			—		388			1,951
Commercial and industrial		3,645		(77	)		15		249			3,832
Consumer		1,381		(231	)		66		108			1,324
Direct financing leases		1,538		(98	)		5		153			1,598
Other		185		(1	)		1		(25	)		160
Unallocated		8,218		—			—		434			8,652
Total	$	39,124	$	(1,627	)	$	139	$	1,500		$	39,136

The following table is a summary of the Company’s ALLL as of and for the nine months ended September 30, 2011.

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	2,999	$	(909	)	$	40	$	1,677		$	3,807
Non-farm/non-residential		8,313		(1,020	)		14		659			7,966
Construction/land development		10,565		(4,220	)		29		623			6,997
Agricultural		2,569		(617	)		—		897			2,849
Multifamily residential		1,320		—			—		631			1,951
Commercial and industrial		4,142		(1,092	)		78		704			3,832
Consumer		2,051		(657	)		150		(220	)		1,324
Direct financing leases		1,726		(324	)		5		191			1,598
Other		201		(74	)		3		30			160
Unallocated		6,344		—			—		2,308			8,652
Total	$	40,230	$	(8,913	)	$	319	$	7,500		$	39,136

16

The following table is a summary of the Company’s ALLL and recorded investment in loans and leases, excluding loans covered by FDIC loss share agreements, as of September 30, 2011.

	Allowance for Loan and Lease Losses						Loans and Leases not Covered by FDIC Loss Share Agreements
	ALLL for Individually Evaluated Impaired Loans and Leases		ALLL for All Other Loans and Leases		Total ALLL		Individually Evaluated Impaired Loans and Leases		All Other Loans and Leases		Total Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	91	$	3,716	$	3,807	$	1,511	$	259,194	$	260,705
Non-farm/non-residential		—		7,966		7,966		782		688,342		689,124
Construction/land development		113		6,884		6,997		16,456		420,328		436,784
Agricultural		—		2,849		2,849		878		73,257		74,135
Multifamily residential		—		1,951		1,951		—		162,807		162,807
Commercial and industrial		798		3,034		3,832		921		131,036		131,957
Consumer		3		1,321		1,324		33		44,371		44,404
Direct financing leases		—		1,598		1,598		—		52,957		52,957
Other		3		157		160		17		10,224		10,241
Unallocated		—		8,652		8,652		—		—		—
Total	$	1,008	$	38,128	$	39,136	$	20,598	$	1,842,516	$	1,863,114

The following table is a summary of the Company’s ALLL and recorded investment in loans and leases, excluding loans covered by FDIC loss share agreements, as of December 31, 2010.

	Allowance for Loan and Lease Losses						Loans and Leases not Covered by FDIC Loss Share Agreements
	ALLL for Individually Evaluated Impaired Loans and Leases		ALLL for All Other Loans and Leases		Total ALLL		Individually Evaluated Impaired Loans and Leases		All Other Loans and Leases		Total Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	33	$	2,966	$	2,999	$	945	$	265,069	$	266,014
Non-farm/non-residential		71		8,242		8,313		3,096		675,369		678,465
Construction/land development		508		10,057		10,565		4,086		492,651		496,737
Agricultural		403		2,166		2,569		2,456		79,280		81,736
Multifamily residential		—		1,320		1,320		—		103,875		103,875
Commercial and industrial		928		3,214		4,142		947		119,091		120,038
Consumer		33		2,018		2,051		182		54,219		54,401
Direct financing leases		—		1,726		1,726		—		42,754		42,754
Other		44		157		201		115		12,294		12,409
Unallocated		—		6,344		6,344		—		—		—
Total	$	2,020	$	38,210	$	40,230	$	11,827	$	1,844,602	$	1,856,429

At September 30, 2011 and December 31, 2010, the Company’s acquired covered loans were performing in accordance with management’s performance expectations established in conjunction with the determination of the Day 1 Fair Values. Accordingly, none of the ALLL at September 30, 2011 or December 30, 2010 was allocated to covered loans.

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17

The following table is a summary of credit quality indicators for the Company’s loans and leases as of September 30, 2011.

	Risk Rated Loans and Leases
	Satisfactory		Moderate		Watch		Substandard		Total		Loans and Leases not Risk Rated		Total Non-covered Loans and Leases		Covered Loans		Total Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	—	$	—	$	—	$	—	$	—	$	260,705	$	260,705	$	210,858	$	471,563
Non-farm/non-residential		521,758		97,288		52,404		17,674		689,124		—		689,124		390,099		1,079,223
Construction/land development		228,266		165,235		20,263		23,020		436,784		—		436,784		177,029		613,813
Agricultural		48,904		10,739		7,492		7,000		74,135		—		74,135		28,960		103,095
Multifamily residential		109,628		48,701		3,687		791		162,807		—		162,807		17,620		180,427
Commercial and industrial		93,040		32,812		1,594		4,511		131,957		—		131,957		33,756		165,713
Consumer		—		—		—		—		—		44,404		44,404		1,028		45,432
Direct financing leases		50,159		2,419		29		350		52,957		—		52,957		—		52,957
Other		6,392		1,816		406		149		8,763		1,478		10,241		5,746		15,987
Total	$	1,058,147	$	359,010	$	85,875	$	53,495	$	1,556,527	$	306,587	$	1,863,114	$	865,096	$	2,728,210

The following table is a summary of credit quality indicators for the Company’s loans and leases as of December 31, 2010.

	Risk Rated Loans and Leases
	Satisfactory		Moderate		Watch		Substandard		Total		Loans and Leases not Risk Rated		Total Non-covered Loans and Leases		Covered Loans		Total Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	—	$	—	$	—	$	—	$	—	$	266,014	$	266,014	$	132,494	$	398,508
Non-farm/non-residential		504,923		122,883		32,476		18,183		678,465		—		678,465		213,327		891,792
Construction/land development		258,933		201,038		21,135		15,631		496,737		—		496,737		108,548		605,285
Agricultural		58,879		10,489		3,609		8,759		81,736		—		81,736		9,643		91,379
Multifamily residential		90,700		8,579		3,699		897		103,875		—		103,875		10,709		114,584
Commercial and industrial		79,926		34,274		1,659		4,179		120,038		—		120,038		17,646		137,684
Consumer		—		—		—		—		—		54,401		54,401		1,301		55,702
Direct financing leases		38,666		3,328		676		84		42,754		—		42,754		—		42,754
Other		9,484		1,836		157		242		11,719		690		12,409		1,227		13,636
Total	$	1,041,511	$	382,427	$	63,411	$	47,975	$	1,535,324	$	321,105	$	1,856,429	$	494,895	$	2,351,324

The Company’s credit quality indicators consist of an internal grading system analysis used to assign grades to all loans and leases except residential 1-4 family loans, consumer loans and acquired covered loans. The grade for each individual loan or lease is determined by the account officer and other approving officers at the time the loan or lease is made and changed from time to time to reflect an ongoing assessment of loan or lease risk. Grades are reviewed on specific loans and leases monthly for all past due loans and leases as a part of past due meetings held by senior management, quarterly for all nonaccrual and special reserve loans and leases, and annually as part of the Company’s internal loan review process. In addition, individual loan grades are reviewed in connection with all renewals, extensions and modifications. The following categories of credit quality indicators are used by the Company.

Satisfactory – Loans and leases in this category are considered to be a satisfactory credit risk and are generally considered to be collectible in full.

Moderate – Loans and leases in this category are considered to be a marginally satisfactory credit risk and are generally considered to be collectible in full.

18

Watch – Loans and leases in this category are presently protected from apparent loss, however weaknesses exist which could cause future impairment of repayment of principal or interest.

Substandard – Loans and leases in this category are characterized by deterioration in quality exhibited by a number of weaknesses requiring corrective action and posing risk of some loss.

The Company does not use these same credit quality indicators in its grading of covered loans. Instead, the Company grades covered loans as either “performing in accordance with management’s performance expectations established in conjunction with the determination of the Day 1 Fair Value” or “not performing in accordance with management’s performance expectations established in conjunction with the determination of the Day 1 Fair Values.” At September 30, 2011 and December 31, 2010, the Company concluded that all covered loans were peforming in accordance with management’s performance expectations established in conjunction with the determination of the Day 1 Fair Values.

The following table is a summary of impaired loans and leases, excluding loans covered by FDIC loss share agreements, as of and for the three months and nine months ended September 30, 2011.

	Principal Balance		Net Charge-offs to Date			Principal Balance, Net of Charge- offs		Specific Allowance		Average Carrying Value – Three Months Ended September 30, 2011		Average Carrying Value – Nine Months Ended September 30, 2011
	(Dollars in thousands)
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	424	$	(101	)	$	323	$	91	$	211	$	256
Non-farm/non-residential		308		(132	)		176		1		176		879
Construction/land development		3,814		(1,876	)		1,938		113		1,011		840
Agricultural		9		(9	)		—		—		286		558
Commercial and industrial		1,693		(931	)		762		798		754		740
Consumer		89		(70	)		19		3		44		63
Other		39		(22	)		17		2		17		17
Total impaired loans and leases with a related ALLL		6,376		(3,141	)		3,235		1,008		2,499		3,353
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		1,463		(274	)		1,189		—		1,461		1,252
Non-farm/non-residential		728		(122	)		606		—		1,714		1,487
Construction/land development		19,680		(5,163	)		14,517		—		9,955		7,990
Agricultural		933		(55	)		878		—		972		1,004
Multifamily residential		133		(133	)		—		—		—		26
Commercial and industrial		372		(213	)		159		—		217		211
Consumer		47		(33	)		14		—		7		7
Other		—		—			—		—		—		—
Total impaired loans and leases without a related ALLL		23,356		(5,993	)		17,363		—		14,326		11,977
Total impaired loans and leases	$	29,732	$	(9,134	)	$	20,598	$	1,008	$	16,825	$	15,330

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19

The following table is a summary of impaired loans and leases, excluding loans covered by FDIC loss share agreements, as of and for the year ended December 31, 2010.

	Principal Balance		Net Charge- offs to Date			Principal Balance, Net of Charge- offs		Specific Allowance		Average Carrying Value – Year Ended December 31, 2010
	(Dollars in thousands)
Impaired loans and leases for which there is a related ALLL:
Real estate:
Residential 1-4 family	$	305	$	(84	)	$	221	$	33	$	457
Non-farm/non-residential		654		(210	)		444		71		298
Construction/land development		1,835		(92	)		1,743		508		854
Agricultural		1,336		(131	)		1,205		403		912
Commercial and industrial		1,490		(786	)		704		928		317
Consumer		176		(30	)		146		33		195
Other		364		(277	)		87		44		101
Total impaired loans and leases with a related ALLL		6,160		(1,610	)		4,550		2,020		3,134
Impaired loans and leases for which there is not a related ALLL:
Real estate:
Residential 1-4 family		851		(127	)		724		—		1,333
Non-farm/non-residential		3,481		(829	)		2,652		—		4,490
Construction/land development		6,139		(3,796	)		2,343		—		3,603
Agricultural		1,392		(141	)		1,251		—		1,229
Multifamily residential		133		(133	)		—		—		—
Commercial and industrial		764		(521	)		243		—		1,554
Consumer		93		(56	)		37		—		53
Other		45		(18	)		27		—		56
Total impaired loans and leases without a related ALLL		12,898		(5,621	)		7,277		—		12,318
Total impaired loans and leases	$	19,058	$	(7,231	)	$	11,827	$	2,020	$	15,452

Interest income on impaired loans and leases is recognized on a cash basis when and if actually collected. Total interest income recognized on impaired loans and leases for the three months and nine months ended September 30, 2011 and 2010 and the year ended December 31, 2010 was not material.

The following table is an aging analysis of past due loans and leases, excluding loans covered by FDIC loss share agreements, at September 30, 2011.

	30-89 Days Past Due (1)		90 Days or More (2)		Total Past Due		Current (3)		Total Loans and Leases
	(Dollars in thousands)
Real estate:
Residential 1-4 family	$	2,900	$	1,111	$	4,011	$	256,694	$	260,705
Non-farm/non-residential		4,551		782		5,333		683,791		689,124
Construction/land development